| +-------------------+ So now you have this: +---------ISA-------+ | £10k of cash | +-------------------+ Buy fund: +---------ISA-------+ | £10k of ABC | +-------------------+ Fund appreciates. This happens inside the envelope; HMRC don't care: +---------ISA-------+ | £12k of ABC | +-------------------+ Sell fund. This happens inside the envelope; HMRC don't care: +---------ISA-------+ | £12k of cash | +-------------------+ Buy another fund. This happens inside the envelope; HMRC don't care: +---------ISA-----------------+ | £10k of JKL & £2k of cash | +-----------------------------+ Fund appreciates. This happens inside the envelope; HMRC don't care: +---------ISA-----------------+ | £11k of JKL & £2k of cash | +-----------------------------+ Sell fund. This happens inside the envelope; HMRC don't care: +---------ISA-------+ | £13k of cash | +-------------------+ Withdraw funds. This is an extraction from the envelope; HMRC don't care. +---------ISA-------+ <---- £13k --------- | +-------------------+ No capital gains liability, you don't even have to put this on your tax return (if applicable) - your £10k became £13k inside an ISA envelope, so HMRC don't care. Note however that for the rest of that tax year, the most you can insert into an ISA would now be £5k: +---------ISA-------+ ----- £5k ---------> | +-------------------+ even though the ISA is empty. This is because the limit is to the total inserted during the year.","However what actually appears to happen is that the 100k is invested into the company to fund some growth plan. So is it actually the case that E's company is worth 400k only AFTER the transaction? Is the 100k added to the balance sheet as cash and would the other 300k be listed as an IP asset? The investor gets 25% of the shares of the company and pays $100k for them, so Owner's Equity increases by $100k, and the company gets $100k more in cash. The $400k number is an implicit calculation: if 25% of the company is worth $100k, 100% of the company is worth $400k. It's not on the books: the investor is just commenting that they feel that they are being over-charged.","Adding to the very good advises above - Concentrate on costs related to investment activity. Note all expenses and costs that you pay. Keep it low.","You could think of points 1 and 3 combined to be similar to buying shares and selling calls on a part of those shares. $50k is the net of the shares and calls sale (ie without point 3, the investor would pay more for the same stake). Look up convertible debt, and why it's used. It's basically used so that both parties get 'the best of both world's' from equity and debt financing. Who is he selling his share to in point 2 back to the business or to outside investors?","\"Thank you for the in-depth, detailed explanation; it's refreshing to see a concise, non verbose explanation on reddit. I have a couple of questions, if that's alright. Firstly, concerning mezzanine investors. Based on my understanding from Google, these people invest after a venture has been partially financed (can I use venture like that in a financial context, or does it refer specifically to venture capital?) so they would receive a smaller return, yes? Is mezzanine investing particularly profitable? It sounds like you'd need a wide portfolio. Secondly, why is dilution so important further down the road? Is it to do with valuation? Finally, at what point would a company aim to meet an IPO? Is it case specific, or is there a general understanding of the \"\"best time\"\"? Thank you so much for answering my questions.\"","One share costs the 202 $. You need to invest 3000 $ total at a minimum, meaning you have to buy some 14.9 shares at minimum. You should not worry about the exact number of shares, they are just to keep track, and you can buy every decimal part of them too. For example, if you invest now 5000 $, you will get 24.7525 shares. Next year, if they are for example worth 220 $ per share, you have a value of 24.7525 * 220 = 5445.55 $ It depends on the offering company, but that (a certain fixed amount per paycheck) is a typical way to invest (and a good way - you implictly take advantage of prices changing a bit - you buy more shares when the price is down and less when it's up). Probably you can make it an automated deduction from your checking account, or you send it every week/month/whenever. Good plan!","The steps you outlined are fine by themselves. Step 5, seeking criticism can be less helpful than one may think. See stocktwits.com There are a lot of opposing opinions all of which can be correct over different time-frames. Try and quantify your confidence and develop different strategies for different confidence levels. I was never smart enough or patient with follow through to be a successful value investor. It was very frustrating to watch stocks trade sideways for years before the company's intrinsic value was better reflected in the market. Also, you could make an excellent pick, but a macro change and slump could set you back a year and raise doubts. In my experience portfolio management techniques like asset allocation and dollar-cost-averaging is what made my version of value investing work. Your interest in 10k/10q is something to applaud. Is there something specific about 10k/10q that you do not understand? Context is key, these types of reports are more relevant and understandable when compared to competitors in the same sector. It is good to assess over confidence! It is also good to diversify your knowledge and the effort put into Securities Analysis 6th edition will help with other books in the field. I see a bit of myself in your post, and if you are like me, than subsequent readings, and full mastery of the concepts in 'Securities & Analysis 6th ed.' will lead to over confidence, or a false understanding as there are many factors at play in the market. So many, that even the most scientific approaches to investing can just as equally be described as an 'art'. I'm not aware of the details of your situation, but in general, for you to fully realize the benefits from applying the principals of value investing shared by Graham and more recently Warren Buffett, you must invest on the level that requires use of the consolidation or equity method of accounting, e.g. > 20% ownership. Sure, the same principals used by Buffett can work on a smaller scale, but a small scale investor is best served by wealth accumulation, which can take many forms. Not the addition of instant equity via acquisitions to their consolidated financials. Lastly, to test what you have learned about value investing, and order execution, try the inverse. At least on paper. Short a stock with low value and a high P/E. TWTR may be a good example? Learn what it is like to have your resources at stake, and the anguish of market and security volatility. It would be a lot easier to wait it out as a long-term value investor from a beach house in Santa Barbara :)","I'm in the US as well, but some basic things are still the same. You need to trade through a broker, but the need for a full service broker is no longer necessary. You may be able to get by with a web based brokerage that charges less fees. If you are nervous, look for a big name, and avoid a fly by night company. Stick with non-exotic investments. don't do options, or futures or Forex. You may even want to skip shares all together and see if UK offers something akin to an index fund which tracks broad markets (like the whole of the FTSE 100 or the S&P 500) as a whole.","First you need to incorporate. 2) Build your websites & setup social accounts 3) create content: photoshoots, marketing designs, etc You should be creating your apparel designs at the same time as your site is being built and your product should be printed before the photoshoots. If you need more in depth help. Message me.","This answer assumes you're asking about how to handle this issue in the USA. I generally downvote questions that ask about a tax/legal issue and don't bother providing the jurisdiction. In my opinion it is extremely rude. Seeing that you applied for an LLC, I think that you somehow consider it as a relevant piece of information. You also attribute some importance to the EIN which has nothing to do with your question. I'm going to filter out that noise. As an individual/sole-proprietor (whether under LLC or not), you cannot use fiscal years, only calendar years. It doesn't matter if you decide to have your LLC taxed as S-Corp as well, still calendar year. Only C-Corp can have a fiscal year, and you probably don't want to become a C-Corp. So the year ends on December 31, and whether accrual or cash - you can only deduct expenses you incurred until then. Also, you must declare the income you got until then, which in your case will be the full amount of funding - again regardless of whether you decided to be cash-based or accrual based. So the main thing you need to do is to talk to a licensed tax adviser (EA/CPA licensed in your state) and learn about the tax law relevant to your business and its implications on your actions. There may be some ways to make it work better, and there are some ways in which you can screw yourself up completely in your scenario, so do get a professional advice.","Try this as a starter - my eBook served up as a blog (http://www.sspf.co.uk/blog/001/). Then read as much as possible about investing. Once you have money set aside for emergencies, then make some steps towards investing. I'd guide you towards low-fee 'tracker-style' funds to provide a bedrock to long-term investing. Your post suggests it will be investing over the long-term (ie. 5-10 years or more), perhaps even to middle-age/retirement? Read as much as you can about the types of investments: unit trusts, investment trusts, ETFs; fixed-interest (bonds/corporate bonds), equities (IPOs/shares/dividends), property (mortgages, buy-to-let, off-plan). Be conservative and start with simple products. If you don't understand enough to describe it to me in a lift in 60 seconds, stay away from it and learn more about it. Many of the items you think are good long-term investments will be available within any pension plans you encounter, so the learning has a double benefit. Work a plan. Learn all the time. Keep your day-to-day life quite conservative and be more risky in your long-term investing. And ask for advice on things here, from friends who aren't skint and professionals for specific tasks (IFAs, financial planners, personal finance coaches, accountants, mortgage brokers). The fact you're being proactive tells me you've the tools to do well. Best wishes to you.","Every month I will get a return in from my share of the profit which would be used for repayment of capital and interest in India. Not to sure what the business plan is. Please factor all the modalities, Exchange rate fluctuations, etc. My concern is regarding RBI rules and regulations, FEMA guidelines, and Income tax. Under the Liberalized Remittance Scheme; Funds can be transferred outside India. Any profit you make will be taxable in India. You will have to declare this pay tax in as per schedule.","Typically you give a loan to the company from yourself as a private person, and when the company makes money the company pays it back to you. Then the company pays for all the expenses with the money from the loan. Even if you don't want a business account yet, you can probably ask your bank for a second account (mine in the UK did that without any problems).","\"Because I'll be investing time, effort, energy and take some initial risks I would like to receive more shares (more than just purely financial contribution would suggest) I don't see money in that list. How much money will you be contributing to your own project? Mutual understanding, focusing on big image, rather that covering each and every edge case. These kinds of one page agreements are an excellent \"\"idea\"\" and they work just fine when everyone is happy and everything is working well; they are an utter nightmare if anything goes sideways. Coincidently, the reason you write anything down at all is to have everyone agree on the same big picture at the same time. People's memory of the original big picture gets fuzzy when their money might not come back to them. You don't need to cover all edge cases, but you need to cover obvious negative outcomes. What if you can't find a renter? What if you're late paying someone back? What if your vendor \"\"repairs\"\" something incorrectly? What if you forget to get a permit and the vendor needs to come back to tear it all apart and redo the work? What if your project needs more money, who is required to contribute, who has the option to contribute, who gets diluted? Who is doing the work of managing the project, how much is that person getting paid, how is that person's pay determined, how can it be adjusted? Is any work expected from any other investor, on what terms, who decides the terms? What if you get an offer to buy the building, who decides to sell, etc and so forth and on and on and on... You write down an agreement so everyone's understanding of the agreement is recorded. You write down what will happen in XYZ event so you don't argue about what you all should do when that event does ultimately occur. You take as much equity as your other investors will allow you to have, and you give them as much as required to get their money. Understand that the more cooks there are in the kitchen the more difficult it is to act on a problem when one arises; when not if. Your ego-stroking play to \"\"open source crowd-sourced wisdom\"\" is nothing more than a silly request for vague advice at no cost. Starting a project on trust, transparency and integrity is naive. This is about money. Why on earth should anyone trust you with their money if you won't do the most basic step of stewardship and spend a couple hundred pounds to talk to a local professional about organizing your first ever project. To answer your question directly, the first precaution you should take is not taking money from any of your friends or family.\"","Try fool.co.uk for getting more information about ISAs: Everything You Need To Know About ISAs","It is the first time I encounter redemption programme and I would like to know what are my options here You can hold on to the shares and automatically receive 2.25 SEK per share some time after 31-May; depending on how fast the company and its bank process the payouts. Alternatively you can trade in the said window for whatever the market is offering. how is this different from paying the dividend? I don't know much about Sweden laws. Structuring this way may be tax beneficial. The other benefit in in company's books the shareholders capital is reduced. can I trade these redemption shares during these 2 weeks in May? What is the point of trading them if they have fixed price? Yes you can. If you need money sooner ... generally the price will be discounted by few cents to cover the interest for the balance days.","To me this sounds like a transaction, where E already owns a company worth 400k and can therefore pocket the money from D and give D 25% of the profits every year. There is nothing objective (like a piece of paper) that states the company is worth 400K. It is all about perceived value. Some investors may think it is worth something because of some knowledge they may have. Heck, the company could be worth nothing but the investor could have some sentimental value associated to it. So is it actually the case that E's company is worth 400k only AFTER the transaction? It is worth what someone pays for it when they pay for it. I repeat- the 400K valuation is subjective. In return the investor is getting 25% ownership of the product or company. The idea is that when someone has ownership, they have a vested interest in it being successful. In that case, the investor will do whatever he/she can to improve the chances of success (in addition to supplying the 100K capital). For instance, the investor will leverage their network or perhaps put more money into it in the future. Is the 100k added to the balance sheet as cash? Perhaps. It is an asset that may later be used to fund inventory (for instance). ... and would the other 300k be listed as an IP asset? No. See what I said about the valuation just being perception. Note that the above analysis doesn't apply to all Dragons Den deals. It only applies to situations where capital is exchanged for ownership in the form of equity.","Income and Capital are taxed separately in the uk. You probably can't get dividends paid gross even in ISA's you pay the basic rate of tax on dividends only higher rate tax payers get tax benefit from dividends. What you could do is invest in splits (Spilt capital investment trusts ) in the share class where all the return comes as capital and use up some of your yearly CGT allowance that way.","\"Is this amount an adequate starting amount to begin investing with? Yes. You can open an account at a brokerage with this amount. I'm not sure I would invest in individual stocks at this point. Which services should I use to start buying shares? (Currently my bank offers this service but I'm willing to use other sources) I can't make UK-specific recommendations, but I'd compare your bank's fees to those of a discount broker -- as well as the variety and level of service available. I would like to regularly increase the amount invested in shares. Is it worth doing this in say £200 increments? Take a look at the fees associated with each investment. Divide the fee by the increment to see what percent you'll lose to fees/commissions. Keep in mind that you have to gain more than that percentage to start earning a positive return on your investment. If you have access to fee-free automatic mutual fund investments, and you can commit to the £200 amount on a regular basis going forward, then this can be a completely free way of making these incremental investments. See also this answer on dollar cost averaging, and my comment on the other answer on that question for how fees impact returns. When buying shares should I focus on say two or three companies, or diversify more? I would diversify into two or three different index funds. Read up on asset allocation. For example, you might invest 1/3 of your balance into S&P 500 index fund, bond index fund, and MSCI EAFE index fund (but that's just a rough example, and not necessarily good for you). I highly recommend \"\"The Intelligent Asset Allocator\"\" by William Bernstein for excellent info on diversification and asset allocation.\"","If someone invest certain amount on my company and after a year I am able to return the exact capital with the profit, what will I do to that investor? Did the investor receive shares in the company for the money that was invested in the company? This is the big question here as if so then there isn't the need to return the money but rather grow the business so that the investor's shares are worth more. Will that person still invest in my company? You may need to consider what you mean by invest as generally there are a couple of ways to finance a business: Equity - Ownership of the company is sold to raise money to run the company. Debt - The company is lent money that is to be repaid over time. Investing is usually the first case not the second. What if I have enough profit to continue my business, do I still need that investor? You wouldn't need the investor. However, you may want that investor as they could provide more funds, connections or other benefits to the company that may be worth considering here.","The chancellor announced an ISA in this week's budget intended for people saving to buy their first home. For every £200 put in the government will add £50 to the account so I would strongly encourage you to put the money into that as it is also tax free.","I would always recommend the intelligent investor by Benjamin Graham the mentor of warren buffet once you have a basic knowledge ie what is a share bond guilt etc In terms of pure investment the UK is fairly similar the major difference is the simpler tax structure, ISA allowance and the more generous CGT regime.","Right now the SEPA Credit Transfers take 3 days excluding holidays. In future this would be reduced to 2 days and then eventually to same day. Your bank would have acknowledged sending out the transaction. It would go into the clearing house and then to the recipient's bank. Once the receiver's bank receives the funds, they would notify the receiver.","The value of the company is ill-defined until it actually has some assets and/or product. You give the investors whatever equity stakes you and they negotiate as appropriate for their investment based on how convinced they are by your plan and how badly you need their money.","I have a Albertan corporation and my accountant set up my shares and options for free. 1. Get a NUANS repot. 2. Go to a registry office and get the incorporation paperwork 3. Get an accountant to help you fill out that paperwork for free (they assume you will do your accounting with them after the fact) 4. Go back to a registry office and register the corporation 5. Go have a beer you' re new company 6. go get a bank account. 7. Get to work","\"The recommendation is not to make the investment. In general, a company does not have to sell their shares to you or allow you to become an investor, because, as you have stated, it is a private company not quoted on the stock market. If everyone were trustworthy, you could buy the tools for $11000 -- so that you own the tools -- and sign a lease of the tools to the company whereby they pay you $X/month. The lease should be reviewed by a lawyer before it is signed, and perhaps give the buyer the right to demand back the tools at any time. However, even this arrangement is very risky, because the \"\"company\"\" could simply steal or damage the tools and disappear. It is not an investment that I would make, because it sounds too good to be true. $2800/mo steady cash flow for $11,000 invested. No, I don't think so. The following information may also be useful, either to you, or future readers: If you still want to make this investment, then you should know that: The offering for sale of shares by companies located in the USA is subject to a wild array of complex laws. This is true in many other countries as well. These laws, called securities laws or regulations, can require certain disclosures, require that investors have a high net worth so that they can afford to lose the money or conduct their own investigations and legal actions, or require that the investors know the company founders personally, and can prohibit or limit resale by the buyer/investor. Promoters who say you can still invest and are ignoring or disobeying the securities laws are being at least negligent, but more likely are dishonest and probably criminal. Even if you trust in the investment, can you trust negligent managers to do a good job executing that investment? What about dishonest managers? What about criminals and thieves?\"","The typical answer would be to write a business plan. But really the first step should be to jot your thoughts down as much as possible. Think about the idea, your customers, vendors, accounting, marketing, everything. Then you'll know which step(s) to take next.","ChrisW's comment may appear flippant, but it illustrates (albeit too briefly) an important fact - there are aspects of investing that begin to look exactly like gambling. In fact, there are expressions which overlap - Game Theory, often used to describe investing behavior, Monte Carlo Simulation, a way of convincing ourselves we can produce a set of possible outcomes for future returns, etc. You should first invest time. 100 hours reading is a good start. 1000 pounds, Euros, or dollars is a small sum to invest in individual stocks. A round lot is considered 100 shares, so you'd either need to find a stock trading less than 10 pounds, or buy fewer shares. There are a number of reasons a new investor should be steered toward index funds, in the States, ETFs (exchange traded funds) reflect the value of an entire index of stocks. If you feel compelled to get into the market this is the way to go, whether a market near you of a foreign fund, US, or other.","I don't want to get involved in trading chasing immediate profit That is the best part. There is an answer in the other question, where a guy only invested in small amounts and had a big sum by the time he retired. There is good logic in the answer. If you put in lump sum in a single stroke you will get at a single price. But if you distribute it over a time, you will get opportunities to buy at favorable prices, because that is an inherent behavior of stocks. They inherently go up and down, don't remain stable. Stock markets are for everybody rich or poor as long as you have money, doesn't matter in millions or hundreds, to invest and you select stocks with proper research and with a long term view. Investment should always start in small amounts before you graduate to investing in bigger amounts. Gives you ample time to learn. Where do I go to do this ? To a bank ? To the company, most probably a brokerage firm. Any place to your liking. Check how much they charge for brokerage, annual charges and what all services they provide. Compare them online on what services you require, not what they provide ? Ask friends and colleagues and get their opinions. It is better to get firsthand knowledge about the products. Can the company I'm investing to be abroad? At the moment stay away from it, unless you are sure about it because you are starting. Can try buying ADRs, like in US. This is an option in UK. But they come with inherent risk. How much do you know about the country where the company does its business ? Will I be subject to some fees I must care about after I buy a stock? Yes, capital gains tax will be levied and stamp duties and all.","\"Nothing stops you doing that, but there's no gain to be had by doing it. \"\"Removing it from being a tax liability\"\" isn't a single event that happens when you put money in an ISA. The money that actually goes into the ISA is post-tax income, not pre-tax income. The benefit you get is that as long as you leave your money in the ISA, you don't pay tax on interest or capital gains within the ISA. If you liquidate an ISA immediately after creation, you won't get any such interest and therefore no tax benefit.\"","You need to set your status as self-employed the day you started online work. If that date is a little ambiguous (as is usually the case with online business), you can start with the day you first made any money. Yes, you can deduct expenses from your revenue. But you have to be sure that the expenses were purely business related. This is how it goes: You inform HMRC about the day you started work. HMRC will assign you a UTR (Unique Tax Reference) number. Depending on how much you make you might or might not need to pay Class 2 NI contributions. You'll need to tell HMRC how much you expect to earn in the current tax year. Finally, you'll need to complete a Self-Assessment at the end of the tax year. I highly recommend setting up a business banking account. Here is a link that discusses being part-time self-employed in the UK.","The best description of P2P lending process I saw comes from the SEC proceedings. They are very careful about naming things that are happening in the process. Prosper got back to business after this order, but the paper describes succinctly how Prosper worked when its notes haven't yet been registered by the SEC. These materials contain a lot of responsible comments on how crowdfunding, including P2P lending, works.","The 'same day rule' in the UK is a rule for matching purposes only. It says that sales on any day are matched firstly with purchases made on the same day for the purposes of ascertaining any gain/loss. Hence the phrase 'bed-and-breakfast' ('b&b') when you wish to crystalise a gain (that is within the exempt amount) and re-establish a purchase price at a higher level. You do the sale on one day, just before the market closes, which gets matched with your original purchase, and then you buy the shares back the next day, just after the market opens. This is standard tax-planning. Whenever you have a paper gain, and you wish to lock that gain out of being taxed, you do a bed-and-breakfast transaction, the idea being to use up your annual exemption each and every year. Of course, if your dealing costs are high, then they may outweigh any tax saved, and so it would be pointless. For the purpose of an example, let's assume that the UK tax year is the same as the calendar year. Scenario 1. Suppose I bought some shares in 2016, for a total price of Stg.50,000. Suppose by the end of 2016, the holding is worth Stg.54,000, resulting in a paper gain of Stg.4,000. Question. Should I do a b&b transaction to make use of my Stg.11,100 annual exemption ? Answer. Well, with transaction costs at 1.5% for a round-trip trade, suppose, and stamp duty on the purchase of 0.5%, your total costs for a b&b will be Stg1,080, and your tax saved (upon some future sale date) assuming you are a 20% tax-payer is 20%x(4,000-1,080) = Stg584 (the transaction costs are deductible, we assume). This does not make sense. Scenario 2. The same as scenario 1., but the shares are worth Stg60,000 by end-2016. Answer. The total transaction costs are 2%x60,000 = 1,200 and so the taxable gain of 10,000-1,200 = 8,800 would result in a tax bill of 20%x8,800 = 1,760 and so the transaction costs are lower than the tax to be saved (a strict analysis would take into account only the present value of the tax to be saved), it makes sense to crystalise the gain. We sell some day before the tax year-end, and re-invest the very next day. Scenario 3. The same as scenario 1., but the shares are worth Stg70,000 by end-2016. Answer. The gain of 20,000 less costs would result in a tax bill for 1,500 (this is: 20%x(20,000 - 2%x70,000 - 11,100) ). This tax bill will be on top of the dealing costs of 1,400. But the gain is in excess of the annual exemption. The strategy is to sell just enough of the holding to crystallise a taxable gain of just 11,100. The fraction, f%, is given by: f%x(70,000-50,000) - 2%xf%x70,000 = 11,100 ... which simplifies to: f% = 11,100/18,600 = 59.68%. The tax saved is 20%x11,100 = 2,220, versus costs of 2%x59.58%x70,000 = 835.52. This strategy of partial b&b is adopted because it never makes sense to pay tax early ! End.","\"This stock is the same as any other, but you need to keep clear in your head that you and your company are now different entities. You (the person) will pay tax on capital gains and losses when you sell any stock that you hold in your own name. You'll also owe \"\"regular\"\" tax if you draw a salary, etc. The fact that it may be \"\"your\"\" company does not change these things. The company will not recognize a gain by selling stock to raise capital since it's nominally exchanging things of equal value, say $100 in cash for $100 in stock. In order to sell stock, however, you MIGHT need to register with the SEC depending on how you're going about finding your investors, so keep that in mind.\"","The main difference is that the ISA account like a Cash ISA shelters you from TAX - you don't have to worry about Capital Gains TAX. The other account is normal taxable account. With only £500 to invest you will be paying a high % in charges so... To start out I would look at some of the Investment Trust savings schemes where you can save a small amount monthly very cost-effectively - save £50 a month for a year to see how you get on. Some Trusts to look at include Wittan, City Of London and Lowland","Thanks for the response - ok so maybe the funds could be partially crowd-sourced and partially funded by an accredited investor? Also yes - having an experienced adviser and a plan in place to replace existing directors sound like good plot devices. There doesn't really have to be a limitation to banks, the idea comes from the protagonists being upset with the status quo of banking practices (foreclosures, fees, investing in weapons/warzones etc.) what would you suggest?","Congratulations on starting your own business. Invest in a tax software package right away; I can't recommend a specific one but there is enough information out there to point you in the right direction: share with us which one you ended up using and why (maybe a separate question?) You do need to make your FICA taxes but you can write off the SE part of it. Keep all your filings as a PDF, a printout and a softcopy in the native format of the tax software package: it really helps the next tax season. When you begin your business, most of the expenses are going to be straightforward (it was for me) and while I had the option of doing it by hand, I used software to do it myself. At the beginning, it might actually seem harder to use the tax software package, but it will pay off in the end. Build relationships with a few tax advisors and attorneys: you will need to buy liability insurance soon if you are in any kind of serious (non hobby) business and accounting for these are no trivial tasks. If you have not filed yet, I recommend you do this: File an extension, overpay your estimated taxes (you can always collect a refund later) and file your return once you have had a CPA look over it. Do not skimp on a CPA: it's just the cost of running your business and you don't want to waste your time reading the IRS manuals when you could be growing your own business. Best of luck and come back to tell us what you did!","the financial information is generally filed via SEDAR (Canada) or SEC (US) before the conference call with the investment community. This can take before either before the market opens or after the market closes. The information is generally distribute to the various newswire service and company website at the same time the filing is made with SEDAR/SEC.","It's important to consider your Investor Profile when deciding the right kind of vehicle for your finances. You are a young guy, with a considerable earned income and no dependents (sorry, this was not clear from the question.) This means that you are able to take a lot of risks that people who also have a family to think about, might not. == high risk tolerance You should definitely not put your money in a Wealth Management fund or Mutual Fund or any other 'hands-off' vehicle. These typically have worse returns than the FTSE itself. Their popularity is due to an amazing marketing job and the fact that people in general want to believe there is an easy way to grow their money. Probably the best vehicle for your money is property, so the first thing you should do with the money is hire a competent accountant and solicitor.","Isn't that uncommon in small business financing/investing. You can structure your capital anyway you wish (relatively speaking). It starts as an equity investment with an option for the founder to buy back equity. Then there is an 8% dividend payment that takes a similar form to preferred stock.","Here would be the general steps to my mind for creating such a plan: Write out the final desired outcome. Is it $x in y years to fund your retirement? Is it $a in b years to put as a house down payment? This is the first step in defining how much money you want at what point in time. Consider what is your risk tolerance and how much time do you plan on spending in this plan. Is it rebalancing once a quarter and that's it or do you plan on doing monthly research and making tweaks all the time? This is slightly different from the first where one has to be mindful of how much volatility would one handle and what time commitment does one have for an investing strategy. Also, how much money would you be adding to the investments on what kind of time table would also be worth noting here. Construct the asset allocation based on the previous two steps along with historical returns averaged out to be a first draft of what you are buying in general. Is it US stocks? Is it a short-term bond fund? There are more than a few choices here that may make sense and it is worth considering based on the first couple of responses that determine what this will look like. Retirement in 40 years may be quite different than a house down payment in 2 years for example. Determine what brokerages or fund companies would offer such funds along with what types of accounts you'd want to have as in some countries there may be tax-advantaged accounts that may be useful to use here. This is where you're almost ready to start by doing the homework of figuring out how will things work. This may vary depending on one's jurisdiction. Get the applications from whatever institutions you'll be using and run with the desired asset allocation across various funds and accounts. Note that in the first few steps there were points of being aware of how much would you have, how aggressive are you investing and so forth. This is where you actually send in the money and get things rolling. Run with the plan and make tweaks as needed to achieve result, hopefully desired or better.","Thank you for your response KeithB and Ross. I was researching more about this and looks like I have to follow all these steps (please, correct me if I'm wrong):","Yes, You will have to pay the taxes at least initially but you'll most probably get a refund when you will file returns depending upon the amount and tax brackets in the UK.","As you are in UK, you should think in terms of Tax Free (interest and accumulated capital gains) ISA type investments for the long term AND/OR open a SIPP (Self Invested Pension Plan) account where you get back the tax you have paid on the money you deposit for your old age. Pensions are the best bet for money you do not need at present while ISAs are suitable for short term 5 years plus or longer.","\"If your business is structured as a partnership or sole proprietorship you call this investment \"\"partner equity\"\". If instead it is structured as a corporation, then the initial investment is called \"\"paid-in capital\"\". Either way, this represents the capital the initial investors or partners provided to the company in exchange for their ownership stake. The most important thing in your case is that since that initial investment is in the form of inventory, you are going to have to document the value of that investment somehow. You will definitely need a comprehensive manifest of what you contributed, including titles and condition, and if possible you should document the prices at which similar items are being offered for sale at the time you start operating. Having this information will support your claims as to the fair market value of the start-up contribution, should the tax authorities decide to question it.\"","That is one of the most unfriendly term sheets I've come across in awhile for a seed round. Preferred shares with dividends (cumulative I'm sure), 60% stake (reduced if paid back). Any talk on participating preferred? Did he set a cap? What is the valuation for buyback to 20%? For $50K your buddy better hit up every lost long family member before jumping into bed with this asshole. Angel Funding Updates: http://www.angelresourceinstitute.org/en/Research/Halo-Report/Halo-Report.aspx If you want an update on venture funding trends: http://www.cooley.com/venture-financing-report-q2-2014","\"A lot of ISA's allow both shares and funds as well as gilts, Hargreaves Lansdown comes to mind as does the Alliance Trust. Some penalise (charging wise) securities vs UT (unit trusts) funds but in that case just go for a low cost IT (Investment Trust) ISA and hold individual shares as well as pooled investments in the Big IT's. I think you might have to be an \"\"approved investor\"\" to buy gilts.\"","Sales are useless. Profit determines value. Others made good suggestions, but make sure you don't personally guarantee anthing. Understand your requirements to continue having the investor involved. Understand who has approval authority and decision making authority, ie are you a hired gun or the managing owner? Finally, probability of success is low, so do your homework, bust your ass, and understand when you will wall away (ie if you aren't profitable in 3 years, or below $500k in rev, etc)","Alright, team! I found answers to part 1) and part 2) that I've quote below, but still need help with 3). The facts in the article below seem to point to the ability for the LLC to contribute profit sharing of up to 25% of the wages it paid SE tax on. What part of the SE tax is that? I assume the spirit of the law is to only allow the 25% on the taxable portion of the income, but given that I would have crossed the SS portion of SE tax, I am not 100%. (From http://www.sensefinancial.com/services/solo401k/solo-401k-contribution/) Sole Proprietorship Employee Deferral The owner of a sole proprietorship who is under the age of 50 may make employee deferral contributions of as much as $17,500 to a Solo 401(k) plan for 2013 (Those 50 and older can tack on a $5,500 annual catch-up contribution, bringing their annual deferral contribution to as much as $23,000). Solo 401k contribution deadline rules dictate that plan participant must formally elect to make an employee deferral contribution by Dec. 31. However, the actual contribution can be made up until the tax-filing deadline. Pretax and/or after-tax (Roth) funds can be used to make employee deferral contributions. Profit Sharing Contribution A sole proprietorship may make annual profit-sharing contributions to a Solo 401(k) plan on behalf of the business owner and spouse. Internal Revenue Code Section 401(a)(3) states that employer contributions are limited to 25 percent of the business entity’s income subject to self-employment tax. Schedule C sole-proprietors must base their maximum contribution on earned income, an additional calculation that lowers their maximum contribution to 20 percent of earned income. IRS Publication 560 contains a step-by-step worksheet for this calculation. In general, compensation can be defined as your net earnings from self-employment activity. This definition takes into account the following eligible tax deductions: (1) the deduction for half of self-employment tax and (2) the deduction for contributions on your behalf to the Solo 401(k) plan. A business entity’s Solo 401(k) contributions for profit sharing component must be made by its tax-filing deadline. Single Member LLC Employee Deferral The owner of a single member LLC who is under the age of 50 may make employee deferral contributions of as much as $17,500 to a Solo 401(k) plan for 2013 (Those 50 and older can tack on a $5,500 annual catch-up contribution, bringing their annual deferral contribution to as much as $23,000). Solo 401k contribution deadline rules dictate that plan participant must formally elect to make an employee deferral contribution by Dec. 31. However, the actual contribution can be made up until the tax-filing deadline. Pretax and/or after-tax (Roth) funds can be used to make employee deferral contributions. Profit Sharing Contribution A single member LLC business may make annual profit-sharing contributions to a Solo 401(k) plan on behalf of the business owner and spouse. Internal Revenue Code Section 401(a)(3) states that employer contributions are limited to 25 percent of the business entity’s income subject to self-employment tax. Schedule C sole-proprietors must base their maximum contribution on earned income, an additional calculation that lowers their maximum contribution to 20 percent of earned income. IRS Publication 560 contains a step-by-step worksheet for this calculation. In general, compensation can be defined as your net earnings from self-employment activity. This definition takes into account the following eligible tax deductions: (i) the deduction for half of self-employment tax and (ii) the deduction for contributions on your behalf to the Solo 401(k). A single member LLC’s Solo 401(k) contributions for profit sharing component must be made by its tax-filing deadline.","In some circumstances losses from self-employment can be offset against total income and/or capital gains. If this applies to you may be able to claim back some of the tax taken by PAYE from your day job. You can also to some extent carry the loss backwards into previous tax years or forward into the next one if you can't use it fully this year. HMRC have some information available on the current rules: When you can claim losses You can claim: But You can’t claim:","Since you're not loaning the company the money, the correct category is Equity. It's not an income type account, rather it represents the balance of Assets - Liabilities = Owner's Equity So you'd put down £100 as the starting balance of Owner's Equity, and then a Cash Balance of £100 in a cash account.","The final decision must be made by you, but from personal finance perspective it's the high risk investment. The first consideration is, do you have enough money to invest? You need money for much more that 7 months, because the money won't flow immediately. At best you should have finantial reserves for 18-24 months. The second, do you wish to risk? You can place a deadline, for example if after 18 months you're still on minus, you give up and return to the normal work. It will mean you've worked for 18 months for nothing, while having expences, so it's effectively a lost."],"string":"[\n \"You make the investment in Jan 2016. Assuming the SEIS certificate is issued before 5th April 2016, then you will enter the SEIS investment on your 2015-2016 tax return and claim the relief in that year. If the certificate is not issued in time then you will enter it in the 2016-2017 tax return and get the relief then. Note: I am assuming that the startup is already registered with the SEIS scheme by someone else - because if you are asking about how to go about that, I don't think that is an issue of personal finance.\",\n \"\\\"You understood it pretty right. Every fiscal year (which runs from April 6 year Y to April 5 year Y+1), you can deposit a total GBP15k (this number is subject to an annual increase by HMRC) into your ISAs. You can open 2 new ISA every year but the amount deposited to those ISAs shall not excess GBP15k in total. From the 2016/17 tax year some ISAs now permit you to replace any funds you have withdrawn, without using up your allowance. It used to be that if you deposited GBP15K and then withdrew GBP5K, you could not pay in to that ISA again within that tax year as you had already used your full allowance. Under new Flexible ISA rules this would be allowed providing you replace the funds in the same ISA account and within the same tax year (strongly recommend that you check the small prints related to your account to make sure this is he case). Any gains and losses on the investments held in the ISA accounts are for you to take. i.e. If you make investment gains of GBP5K this does not reduces your allowance. You will still be able to deposit GBP15k (or whatever HMRC increases that number to) in the following year. You are also allowed to consolidate your ISAs. You can ask bank A to transfer the amount held into an ISA with bank held with bank B. This is usually done by filling a special form with the bank that will held the money post transactions. Again here be very careful. DO NOT withdraw the money to transfer it yourself as this would count against the GBP15K limit. Instead follow the procedures from the bank. Finally if you don't use your allowance for a given year, you cannot use it during the following year. i.e. if you don't deposit the GBP15K this year, then you cannot deposit GBP30K next year. NB: I used the word \\\"\\\"deposit\\\"\\\". It does not matter to HMRC if the money get invested or not. If you are in a rush on April 4th, just make sure the money is wired into the ISA account by the 5th. No need to rush and make bad investment decision. You can invest it later. Hope it helps\\\"\",\n \"Here are the basic questions I usually ask any new business startup: Do these numbers/answers seem reasonable to you and is some benchmark available that allows you to see how likely this is? Remember, particularly in Internet-based advertising ventures, the client may be indirect. The person who clicks on a Google context-based link is not directly Google's client. The person who decided to host AdWords code on their site is the direct client. You're also going to want to see a Gant chart or some process chart indicating exactly what needs to be done, at what cost and by whom. Answers to these questions give a sense of not only how seriously they are taking the business, but also how organised. My final question: who is your first client? They need either someone who is going to contract the service, or have a clear indication of where income is going to come from, on their first day of trading. Their task is to sell their idea to you by proving that it will return on your investment and be profitable. From the strength of these answers you can gauge the value of your investment to them, how critical it is, how risky the opportunity and - ultimately - the stake and returns you should expect.\",\n \"Executive Summary: your elevator speech Overview: What it is in detail Disclosure: what can go wrong, in detail subchapter one: internal threats/weakness subchapter two external subchapter three: risk management Proforma financials: heres how much money I need and here's what the books look like at the end of each of five years. Revenue Forecast: how the majic unfolds in units, price, geographically, and any other dimension Corporate/capital structure: how they can get in an out of this investment and other C-suite operating tidbits Execution plan: you receive the money, then what?\",\n \"The process would look something like: 1. Register your investment company with the SEC 2. Get the ETF approved by the SEC 3. Get a custodian bank (likely requires min assets of a few million) 4. Get listed on an exchange like NYSEARCA by meeting requirements and have an IPO 1 and 2 probably require a lot of time and fees and would be wise to have a lawyer advising, 3 is obviously difficult due to asset requirements and 4 would probably involve an investment bank plus more fees\",\n \"Transfers of money to the UK for any purpose are not generally taxed, so you can just transfer it here and invest. Once the money is here, you'll be taxed on the business activity like anyone else - the company will have to pay corporation tax, and depending on your own residency you might have to pay income tax on any distributions from the company.\",\n \"In the second year the £15,000 from the first year will still earn interest, and any new money you put in will also earn interest from the time you deposit it. All the interest is tax free.\",\n \"\\\"I think you should really start a limited company for this. It'll be a lot simpler to spread the income over multiple years if your business and you have completely separate identities. You should also consult an accountant, if only once to understand the basics of how to approach this. Having a limited company would also mean that if it has financial problems, you don't end up having to pay the debts yourself. With a separate company, you would keep any money raised within the company initially and only pay it to yourself as salary over the three years, so from an income tax point of view you'd only be taxed on it as you received it. The company would also pay for project expenses directly and there wouldn't be any income tax to pay on them at all. You would have to pay other taxes like VAT, but you could choose to register for VAT and then you'd be able to reclaim VAT on the company's expenses but would have to charge VAT to your customers. If you start making enough money (currently £82,000/year) you have to register for VAT whether you want to or not. The only slight complication might be that you could be subject to corporation tax on the surplus money in the first year because it might seem like a profit. However, given that you would presumably have promised something to the funders over a three year period, it should be possible to record your promises as a \\\"\\\"liability\\\"\\\" for \\\"\\\"unearned income\\\"\\\" in the company accounts. In effect you'd be saying \\\"\\\"although there's still £60,000 in the bank, I have promised to spend it on the crowdfunded thing so it's not profit\\\"\\\". Again you should consult an accountant at least over the basics of this.\\\"\",\n \"\\\"+1 for noting that you are in it for the long haul. I also think this is a great project and activity to do with friends. Setting up and start-up investment company could be done as a simple LLC. The decision making process can be decided among the members -- if you want to defer to the others then so be it. Make it flexible so that you can change your mind in the future. If this is not intended to be a source of revenue or income for you (note your \\\"\\\"in it for the long haul\\\"\\\") One way of sourcing the capital and managing the resulting taxes you might want to consider is setting up a self-directed retirement account and making the investment from there. proceeds as you and your friends choose to take them would flow back into the retirement account. As with most investment and tax related questions we should all take the little extra time and money to follow up on internet-based advice with your own lawyer, investment adviser and accountant. These licensed individuals when under contract assume a degree of responsibility for their answer which is not available online. :)\\\"\",\n \"it sounds like you don't have experience in this, and neither does your *investor*; which is a recipe for disaster (pun intended). Your first order of business is to check whether your investor is an *Accredited Investor* (google to see what it means), if s/he's not, **walk away**. If s/he's an accredited investor, find a lawyer who can help you navigate this process, however these are the issues: * lawyers are expensive, and lawyers who have experience in these type of transactions are even more expensive * you actually need 2 lawyers, one for you and one for the investor * if neither of you have experience, there will be a lot more billable hours from the lawyers..... In principle this can go 3 ways: 1. The investors give you a loan, you pay them interests on a periodic basis, and then also principal. Items to be negotiated: interest rates, repayment schedule, collateral, personal guarantees. Highly unlikely this is what the investors wants. 2. The Investors get equity. items to be negotiated: your compensation, % of ownership, how profits are divided, how profits are paid; who gets to decide what. 3. A combination of 1 and 2 above, a *Convertible Note*. There's a lot more, too much for a Reddit post. There's not an easy ELI5.\",\n \"What you are describing does not sound like an investment; it sounds like a loan. An investment involves you putting up a stake and sharing in the profits or losses of the business - there is no guarantee you will get your money back. A loan involves you putting up money for which you will receive interest and principal repayment in accordance with an agreed schedule - you get this irrespective of how the business is performing. Also, is the arrangement with your friend or his company? They are different legal entities and your risk profile is different in both cases. Whatever the arrangement you need to sign a contract which details all the terms and conditions - how much you will pay, to whom and when; how much you will get back, from whom and when; a method for resolving disputes; what happens in the event of insolvency or bankruptcy; what happens if someone breaks the terms of the contract; if your payout depends on the value of the business at some future date, how it is to be valued; etc. etc. Two points: I am not a lawyer, I am not your lawyer.\",\n \"Somewhere between #3 and #4 is finding a market maker to act as an authorized participant (AP) for the fund's launch. This includes the initial seeding of the fund as well as agreeing to make consistent, high quality markets in the fund throughout its launch.\",\n \"Thanks for the tip, I know of one or two privately backed incubators I can approach but have already reached out to local government for access to their funding streams. I just want to make sure I cover all of my bases and seek as much of the available capital as I can. Is there a good way to approach/meet private investors?\",\n \"I don't know if this is exactly what you're looking for but Seedrs sorta fits what you're looking for. Private companies can raise money through funding rounds on Seedrs website. It wouldn't necessarily be local companies though. I've only recently found it myself so not sure if it has a uk or European slant to it. Personally I think it's a very interesting concept, private equity through crowd funding.\",\n \"\\\"You have to register with the SEC as an Investment Company. The SEC has a \\\"\\\"Investment Company Regulation and Registration Package\\\"\\\", available here: http://www.sec.gov/divisions/investment/invcoreg121504.htm I found that off their overall page for funds and advisors: http://www.sec.gov/divisions/investment.shtml Finally, bear in mind that your state may have various requirements as well.\\\"\",\n \"Turukawa's answer is quite good, and for your own specific situation, you might begin by being sceptical about what you are getting for investing a few thousand dollars. With the exception of Paul Graham's Y-Combinator, there are very few opportunities to invest at that type of level, and Y-Combinator provides a lot of other assistance besides their modest initial investment. I can tell from your post that you think like an investor. It is highly unlikely that the entrepreneurial programmers that you will be backing will be wired that way. From the modest amount that you are investing, you are unlikely to be the lead investor in this opportunity. If you are interested in proceeding, simply stick along for the ride, examining the terms and documents that more significant investors will be demanding. Remain positive and supportive, but simply wait to sign on the dotted line until others have done the heavy lifting. For more insights into startups themselves, see Paul Graham's essays at www.paulgraham.com. He's the real deal, and his recent essays will provide you with current insights about software startups. Good luck.\",\n \"\\\"Shares are for investors. Most of the rich are investors. Unfortunately, the reverse is not true. But if you want to get rich, the first step is to become an investor. (The second is to become a SUCCESSFUL investor. 50 pounds might be too little. Try to start with at least 500 at a time. You can ADD amounts of 50 pounds. There are definitely fees involved. You will \\\"\\\"pay for lessons.\\\"\\\" But it will be worth it, if you become even a moderately successful investor. As for rules, they'll teach you the rules. Everyone wants your business. People have gotten (modestly) rich, buying shares here and there. One man told me of investing $600 in a company called Limited, and ending up with $12,000 some years later. BRIC is not a \\\"\\\"share.\\\"\\\" It is an acronym for four countries \\\"\\\"of the future.\\\"\\\" High risk, high reward here.\\\"\",\n \"I would imagine that as a holder you will receive information in the post when it's made public, but I don't think it's been decided yet. This thread on the Motley Fool boards is keeping an eye on them - you might want to keep an eye on the thread.\",\n \"\\\"Do I understand correctly, that we still can file as \\\"\\\"Married filing jointly\\\"\\\", just add Schedule C and Schedule SE for her? Yes. Business registration information letter she got once registered mentions that her due date for filing tax return is January 31, 2016. Does this prevent us from filing jointly (as far as I understand, I can't file my income before that date)? IRS sends no such letters. IRS also doesn't require any registration. Be careful, you might be a victim to a phishing attack here. In any case, sole proprietor files a regular individual tax return with the regular April 15th deadline. Do I understand correctly that we do not qualify as \\\"\\\"Family partnership\\\"\\\" (I do not participate in her business in any way other than giving her money for initial tools/materials purchase)? Yes. Do I understand correctly that she did not have to do regular estimated tax payments as business was not expected to generate income this year? You're asking or saying? How would we know what she expected? In any case, you can use your withholding (adjust the W4) to compensate.\\\"\",\n \"Can I apply for limited company now, while fully time employed, and not take any business until I get a contract? Some employment contracts may include non-compete clauses or similar which expressly forbid you engaging in other employment or becoming self-employed while simultaneously working for your current employer. You may want to check this out before making any moves to register as a limited company. You may forfeit long-term benefits (such as a pension) you have built up at your present employer if they catch wind of a conflict of interest. As noted in an earlier answer, the setup process for a limited company is extremely simple in the UK, so there is no reason you need to take these steps in advance of leaving your current employment. During my resignation period scout for contracts... Should I wait weeks before actually deciding to search for contracts? Depending on the type of IT work you intend to be contracting for, you may find yourself shut out from major work if you are not VAT registered. It is a requirement to register for VAT when you breach certain earnings limits (see HMRC's website) but you can voluntarily register with HMRC before these limits if you wish. Being VAT registered increases your bookkeeping and oversight requirements, which makes you appear more attractive to larger enterprises / corporations than a non-VAT registered firm. It also suggests some degree of stability and a plan to stick around for the long haul. This might be a catch-22 situation - if you want to get noticed and land the sizable contracts, you will almost certainly require a VAT registration regardless of your overall yearly earnings. It would be advisable to engage the services of a professional advisor before becoming VAT registered, but this and the subsequent professional advice you may require for putting in VAT claims may not be a fee you wish to pay upfront if you are only attracting a small volume of work.\",\n \"FYI, I am assuming you are an individual investor.. The rates on the website may change, if the government decides so. Anyway it is a UK government website, so it would reflect the changes immediately.\",\n \"\\\"You will be filing the exact same form you've been filing until now (I hope...) which is called form 1040. Attached to it, you'll add a \\\"\\\"Schedule C\\\"\\\" form and \\\"\\\"Schedule SE\\\"\\\" form. Keep in mind the potential effect of the tax and totalization treaties the US has with the UK which may affect your filings. I suggest you talk to a licensed EA/CPA who works with expats in the UK and is familiar with all the issues. There are several prominent offices you can find by Googling.\\\"\",\n \"According to my research one only needs £5000 to invest in this fund. However, it also has a sales charge of 4% with an annual charge of 1.75%. If this is short term money, you would have to have a fairly high return to break even.\",\n \"To try to answer the three explicit questions: Every share of stock is treated proportionately: each share is assigned the same dollar amount of investment (1/176th part of the contribution in the example), and has the same discount amount (15% of $20 or $25, depending on when you sell, usually). So if you immediately sell 120 shares at $25, you have taxable income on the gain for those shares (120*($25-$17)). Either selling immediately or holding for the long term period (12-18 mo) can be advantageous, just in different ways. Selling immediately avoids a risk of a decline in the price of the stock, and allows you to invest elsewhere and earn income on the proceeds for the next 12-18 months that you would not otherwise have had. The downside is that all of your gain ($25-$17 per share) is taxed as ordinary income. Holding for the full period is advantageous in that only the discount (15% of $20 or $25) will be taxed as ordinary income and the rest of the gain (sell price minus $20 or $25) will be taxed at long-term capital gain tax rates, which generally are lower than ordinary rates (all taxes are due in the year you do sell). The catch is you will sell at different price, higher or lower, and thus have a risk of loss (or gain). You will never be (Federally) double taxed in any scenario. The $3000 you put in will not be taxed after all is sold, as it is a return of your capital investment. All money you receive in excess of the $3000 will be taxed, in all scenarios, just potentially at different rates, ordinary or capital gain. (All this ignores AMT considerations, which you likely are not subject to.)\",\n \"I have one of the top law firms in my country looking after this, who have plenty of experience in capital raises. I realize that all transactions are different, however, I'm just curious to see if anyone has examples of what a pitch would look like.\",\n \"\\\"The HMRC has a dedicated self-help/learning site that is helpful here: It's important to tell HMRC that you are self-employed as soon as possible. If you don't, you may have to pay a penalty. You don't want to pay more to HMRC than you have to as it is a waste of your money. Your business has started when you start to advertise or you have a customer to buy your goods or services. It is at this point that your business is 'trading'. You cannot register before you start trading. For example, if you advertise your business in the local newspaper on 15 January but do not get your first customer until 29 March; in this case, you have been trading since 15 January. You must tell HMRC within six months of the end of the tax year in which you start self-employment. You must therefore register by 5 October. But it's best to register well before this so that you do not forget to do so. The HMRC also has a YouTube channel with help videos, and \\\"\\\"Am I Trading or Not?\\\"\\\" might be of particular interest to you. Most of the registration is based around the concept of starting to work with the intent to make a profit. By the letter of law and regulations, you should register within six months of the end of the tax year you started to avoid any potential penalty. However note that the situation is different based upon your intent. If you begin making/putting up videos online as a hobby with the hope that you can make something to help you defray the basic costs involved, and the total amount you make is relatively small (say, less than 500 pounds), you will not be classified as \\\"\\\"trading\\\"\\\" and likely have no need to register with HMRC. As soon as you begin to get in regular payments, maybe a single payment of a significant size, or multiple payments for a similar service/item, you are vastly more likely to need to register. From my reading you would likely be safe to begin putting up videos without registration, but if you begin spending a large portion of your time over an extended period (multiple months) and/or begin getting payments of any notable size then you should likely register with the appropriate services (HMRC, etc). As is the case in both the USA and UK, simple registration is pretty cheap and the costs of little/no income are usually pretty minor. Also note that the HMRC trading and self-employment regulations are unusual compared to many US laws/institutions, in that you are explicitly permitted to begin doing something and only register later. So if you start doing videos for an entire tax year + 5 months and make nothing significant, you'd seemingly be fine to never register at all.\\\"\",\n \"I assume I can/will need to file an 83(b) election, in order to avoid tax repercussions? What exactly will this save me from? 83(b) election is for restricted stock grants, not for stock purchases. For restricted stocks, you generally pay income tax when they vest. For startups the price difference between the time of the grant and the time of the vesting can be astronomical and by choosing 83(b) you effectively pay income tax on the value of the grant instead of the value of the vest. Then, you only pay capital gains tax on the difference between the sale price and the grant value when you sell. In your case you're exercising an option, i.e.: you're buying a stock, so 83(b) is irrelevant. What you will pay though is the tax on the difference between the strike price and the stock FMV (unless the stocks you end up buying are restricted - which would have been the case if you exercised your options early, but I don't think is going to be the case now). What steps should I take to (in the eyes of the law) guarantee that the board has received my execution notice? The secretary of the board is a notorious procrastinator and can be very unorganized. You should read what the grant contract/company policy says on that. Ask the HR/manager. Usually, a certified letter with return receipt should be enough, but you should verify the format, the address, and the timeframe.\",\n \"Source Rule 41 of the AIM Rules sets out the procedure for delisting. In summary, a company that wishes to cancel the right of any of its trading securities must: The notification to the Exchange should be made by the company’s nominated adviser and should be given at least 20 business days prior to the intended cancellation date (the 20 business days’ notice requirement is a minimum). Any cancellation of a company’s securities on AIM will be conditional upon seeking shareholder approval in general meeting of not less than 75% of votes cast by its shareholders present and voting (in person or by proxy) at the meeting. The notification to shareholders should set out the preferred date of cancellation, the reasons for seeking the cancellation (for example annual fees to the Exchange, the cost of maintaining a nominated adviser and broker, professional costs, corporate governance compliance, inability to access funds on the market), a description of how shareholders will be able to effect transactions in the AIM securities once they have been cancelled and any other matters relevant to shareholders reaching an informed decision upon the issue of the cancellation. Cancellation will not take effect until at least 5 business days after the shareholder approval is obtained and a dealing notice has been issued by the Exchange. It should be noted that there are circumstances where the Exchange may agree that shareholder consent is not required for the cancellation of admission of a company’s shares, for example (i) where comparable dealing facilities on an EU regulated market or AIM designated market are put in place to enable shareholders to trade their AIM securities in the future or (ii) where, pursuant to a takeover which has become wholly unconditional, an offeror has received valid acceptances in excess of 75% of each class of AIM securities. The company’s Nominated Adviser will liaise with the Exchange to secure a dispensation if relevant. So you should receive information from the company regarding the due process informing you about your options.\",\n \"I was just thinking ahead, can I apply for Limited company now, while fully time employed, and not take any business until I get a contract. Yes. You can open as many companies you want(assuming you are sane). There is no legal provisions regarding who can open a company. What happens if I create a company and it has no turnover at all? Does this complicate things later? After you open a company, you have to submit your yearly statements to Companies House, whether you have a billion pounds turnover or 0. If you claim VAT that has also to be paid after you register for VAT. VAT registration is another registration different from opening a limited company. Is it the same if I decided to take a 1,2 or x month holiday and the company again will not incur any turnover? Turnover is year end, so at the year end you have to submit your yearly results, whether you took a 12 month holiday or a week's holiday. Is it a OK to do this in foresight or should I wait weeks before actually deciding to search for contracts. No need to open a limited company now, if you are so paranoid. Opening a company in UK takes 5 minutes. So you can open a company after landing a contract.\",\n \"You have to check if the investment vehicle you are planning to buy is acceptable for ISA on a case by case. Then if it is allowed by HMRC you have to check that your ISA provider offers those products (the mainstream providers might offer a more limited range of products and you might have to go to change your provider)\",\n \"This is great. I have a question though. What happens if I have all of the plans for finance mapped out and ready to meet a potential investor, but the idea that I bring with me is not patentable? I certainly would like to get financing and let the investor know what I want to accomplish, but I don't want to give away my idea and have the investor take my idea and run his own company with it. How is this dealt with?\",\n \"What you need to do is register as a sole trader. This will automatically register you for self assessment so you don't have to do that separately. For a simple business like you describe that's it. Completing your self assessment will take care of all your income tax and national insurance obligations (although as mentioned in your previous question there shouldn't be any NI to pay if you're only making £600 or so a year).\",\n \"My understanding (I've never filed one myself) is that the 1040ES is intended to allow you to file quarterly and report unpredictable income, and to pay estimated taxes on that income. I was in the same sort of boat for 2016 -- I had a big unexpected income source in 2015, and this took away my Safe Harbor for 2016. I adjusted my w-2 to zero exemptions (eventually) and will be getting a refund of about 1% of our income. So lets say you make 10000 in STG in March, and another 15000 in STG in April. File a quarterly 1040-ES between March 31 and April 15. Report the income, and pay some tax. You should be able to calculate the STCG Tax for 10k pretty easily. Just assume that it comes off the top and doesn't add at all to your deductions. Then for April, do the same by June 15. Just like your W-2 is used to estimate how much your employer should withhold, the 1040ES is designed to estimate how much extra you need to pay to the IRS to avoid penalties. It'll all get resolved after you file your final 1040 for the 2017 calendar year.\",\n \"First I assume you are resident for tax purposes in the UK? 1 Put 2000 in a cash ISA as an emergency fund. 2 Buy shares in 2 or 3 of the big generalist Investment trusts as they have low charges and long track records – unless your a higher rate tax payer don’t buy the shares inside the ISA its not worth it You could use FTSE 100 tracker ETF's or iShares instead of Investment Trusts.\",\n \"\\\"Crowdfunding can be a legitimate means of funding very small startups. It is an innovative, but obviously risky, method of raising small amounts of money. As such it is now regulated by the SEC under \\\"\\\"Regulation Crowdfunding\\\"\\\" They have published guides for these types of business startups to help them with required disclosures and reporting requirements: https://www.sec.gov/info/smallbus/secg/rccomplianceguide-051316.htm Here's the introduction to the relevant regulatory authority of the SEC: Under the Securities Act of 1933, the offer and sale of securities must be registered unless an exemption from registration is available. Title III of the Jumpstart Our Business Startups (JOBS) Act of 2012 added Securities Act Section 4(a)(6) that provides an exemption from registration for certain crowdfunding transactions.[2] In 2015, the Commission adopted Regulation Crowdfunding to implement the requirements of Title III.[3] Under the rules, eligible companies will be allowed to raise capital using Regulation Crowdfunding starting May 16, 2016. It is obviously a new form of investment but you should be able to get historical data on the SEC's real time Edgar reporting system once there is some history. This is a search for all Form C's filed as of 12/2/16\\\"\",\n \"You do not need to have 'high net value', and yes, you can invest in it. Typically, fund companies require a minimum investment, that could be 100, it could be a 1000. 5000 should be enough for 99.9 % of all funds for an initial investment. What you need is an investment company that manages the account for you. I cannot name those for your country, but they should be easy to find (companies like IMG, and Fidelity might serve your country). You then open an account with the company of your choice, transfer the money, and tell them which fund it shall go in; all this is possible online. You can also go to see an agent in person, and he will fill the forms for you, and handle all the action, but he might take a fee for it.\",\n \"And what would you believe would be the minimum level necessary to get someone to a point where they are financially literate and can make educated, informed decisions? Do you believe an online accreditation on various aspects of investing in SMEs would help address these issues or would something more comprehensive be necessary?\",\n \"This is not really directly answering your question, but I think it's something you need to hear, and it's too long for a comment: Your business plan for your company you are considering starting should include a forecast of all of your expected revenues and expenses. This includes a forecast for taxes you will owe the IRS on the profits from your business. If your business plan does not yet have this type of information, it is far too soon for you to be asking investors for money. It is often said that an 'idea' is worthless, it is only the execution of that idea that is worth something. If you only have an 'idea' for a business but have no track record of running a business and no proof that your concept will work, you should take some more time to consider how you can proof viability, before you approach investors. No investor will want to give money to someone without a business plan that includes a forecast of profits (which is backed up by evidence some how).\",\n \"\\\"Previous answers have done a great job with the \\\"\\\"Should I invest?\\\"\\\" question. One thing you may be overlooking is the question \\\"\\\"Am I allowed to invest?\\\"\\\" For most offerings of stock in a startup, investors are required to be accredited by the SEC's definition. See this helpful quora post for more information on requirements to invest in startups. To be honest, if a startup is looking for investors to put in \\\"\\\"a few thousand dollars\\\"\\\" each, this would raise my alarm bells. The cost and hassle of the paperwork to (legitimately) issue shares in that small of number would lead me just to use a credit card to keep me going until I was able to raise a larger amount of capital.\\\"\",\n \"2 + 20 isn't really a investment style, more of a management style. As CTA I don't have specific experience in the Hedge Fund industry but they are similar. For tech stuff, you may want to check out Interactive Brokers. As for legal stuff, with a CTA you need to have power of attorney form, disclosure documents, risk documents, fees, performance, etc. You basically want to cover your butt and make sure clients understand everything. For regulatory compliance and rules, you would have to consult your apporiate regulatory body. For a CTA its the NFA/CFTC. You should look at getting licensed to provide crediabilty. For a CTA it would be the series 3 license at the very least and I can provide you with a resource for study guides and practice test taking for ALL licenses. I can provide a brief step by step guide later on.\",\n \"If this will be your sole income for the year, going self-employed is the best way to do this: So, here's how to go at it: Total cash in: £2000 Total Tax paid: £0 Admin overhead: approx 3 hours. Legit: 100% :) Edit: Can you tell me that in my case what are the required fields on the invoice? If you're non-VAT registered, there are no legal requirements as to what information you need to put on the invoice -it literally can be a couple of numbers on a napkin, and still be legit. With that said, to make a professional appearance, my invoices are usually structured as follows: Left side: ( Sidenote: why client-specific incremental numbering? Why, so they can't make educated guesses to the number of clients I have at any given time :) ) Right side: Center table: And so far, none of my clients missed any fields, so this should have everything they need to :) Hope this helps, but keep in mind, all of the above is synthetic sugar on the top -ultimately, the relationship you share with your Clients is the thing you will (or will not) get paid for! Edit#2: The voices in my head just pointed out, that I've totally omitted National Insurance contributions in the above. However, and I quote HMRC: If your profits are expected to be less than £5,315 you may not have to pay Class 2 National Insurance contributions. Hence, this won't change the numbers above, either -just make sure to point this out during your registration in the office.\",\n \"Now days, startup business owners are so desperate for tapping into the billions of pounds hovering around various establishments that they will definitely go to greater lengths for getting or presenting their business plan to the top investor. This kind of continuous bombardment might frustrate several investors to certain extent that they will never want to listen about those specific organizations again. Venture capitals might also invest in various startup businesses beyond pitches of their own research thematic into industries or sectors where they consider disorderly organizations can materialize too. Know More\",\n \"If you havent yet maxed out your ISA, then its a no-brainer. You get excellent tax rebates and its silly not to take advantage of these before considering self investing in shares. Note that even if your ISA is maxed out, the economic turbulence means that investing in individual stocks is an intimidating place for beginners right now. The FSA is also looking at revising the average percentages used for pension, from 7% for adventurous investments, down to 5% or 6%, so there is industry wide recognition that on average the stock market is going to be a little less lucrative than it was a few years ago. Thats not to say you cant still make a whopping profit, but the chances of you doing so as a first time investor are remote to say the least. My advice would be to look seriously into some of the social lending sites, where you can still easily get a 7% return with minimal risk. Whilst I do have a portfolio which is performing well overall (I am a very speculative investor), I am moving a lot of funds into Zopa.com, as I am averaging 7% return with a lot less time, effort and risk than the stockmarket. Whatever you decide, I think its time you thought about consulting an IFA. They can help you understand what sort of risk you are willing to tolerate, which is a very important aspect of investing.\",\n \"You can register a limited company and leave it dormant, that's no problem. You just need to make sure that later on you notify HMRC within 3 months of any trading activity. As pointed out, you can register a company in a few hours now so I wouldn't worry about that. Your confusion about Private Limited Companies is understandable, it's often not made clear but UK formation services standard packages are always Private Limited by Shares companies. Limited by Guarantee is something else, and normally used by charities or non-profits only. See explanations here. Registering for VAT is optional until you reach the £81,000 turnover threshold but it can make your services more attractive to large companies - especially in your field of business. You should really seek professional advice on whether or not this is the best option for you.\",\n \"You should apply for 83(b) within 30 days. 10 months is too late, sorry.\",\n \"The main reason to exercise the shares sooner rather than later is that you have to hold the shares for 1 year to gain access to the long-term capital gains rate when you sell your shares. You do not want short-term capital gains rates to apply to these shares when you sell them. If the company is unable to go public and sells privately, you may not have any choice but to sell your shares immediately. If the company goes public you will simply have to hold your shares for a year after you buy them before selling to get the lower tax rate.\",\n \"\\\"Do you need the capital? If you not, are you considering taking it to help you grow faster? To lower your downside risk? In terms of deal structure start with your financial model and evaluate your payback period and IRR... Think if you were investor how much of a split would you need to compensate the risk you are taking. Generally the investor will want to get 100% of their original investment paid back plus a annual 8% \\\"\\\"preferred\\\"\\\", return and after they are made whole 80% of proceeds, but I've seen restaurant deals at 50/50 splits and no preferred return. I'd try to ensure you get a salary and/or management fee. Make sure you retain control and rights! Don't sign anything without legal review.\\\"\",\n \"http://www.legalzoom.com/business-management/starting-your-business/turn-your-calling Answering this, but I expect an expert to give an answer with some insight too There are many more steps, but not having done them personally I suggest you read the legalzoom.com site.\",\n \"An ISA is a much simpler thing than I suspect you think it is. It is a wrapper or envelope, and the point of it is that HMRC does not care what happens inside the envelope, or even about extractions of funds from the envelope; they only care about insertions of funds into the envelope. It is these insertions that are limited to £15k in a tax year; what happens to the funds once they're inside the envelope is your own business. Some diagrams: Initial investment of £10k. This is an insertion into the envelope and so counts against your £15k/tax year limit. +---------ISA-------+ ----- £10k ---------> | +-------------------+ So now you have this: +---------ISA-------+ | £10k of cash | +-------------------+ Buy fund: +---------ISA-------+ | £10k of ABC | +-------------------+ Fund appreciates. This happens inside the envelope; HMRC don't care: +---------ISA-------+ | £12k of ABC | +-------------------+ Sell fund. This happens inside the envelope; HMRC don't care: +---------ISA-------+ | £12k of cash | +-------------------+ Buy another fund. This happens inside the envelope; HMRC don't care: +---------ISA-----------------+ | £10k of JKL & £2k of cash | +-----------------------------+ Fund appreciates. This happens inside the envelope; HMRC don't care: +---------ISA-----------------+ | £11k of JKL & £2k of cash | +-----------------------------+ Sell fund. This happens inside the envelope; HMRC don't care: +---------ISA-------+ | £13k of cash | +-------------------+ Withdraw funds. This is an extraction from the envelope; HMRC don't care. +---------ISA-------+ <---- £13k --------- | +-------------------+ No capital gains liability, you don't even have to put this on your tax return (if applicable) - your £10k became £13k inside an ISA envelope, so HMRC don't care. Note however that for the rest of that tax year, the most you can insert into an ISA would now be £5k: +---------ISA-------+ ----- £5k ---------> | +-------------------+ even though the ISA is empty. This is because the limit is to the total inserted during the year.\",\n \"However what actually appears to happen is that the 100k is invested into the company to fund some growth plan. So is it actually the case that E's company is worth 400k only AFTER the transaction? Is the 100k added to the balance sheet as cash and would the other 300k be listed as an IP asset? The investor gets 25% of the shares of the company and pays $100k for them, so Owner's Equity increases by $100k, and the company gets $100k more in cash. The $400k number is an implicit calculation: if 25% of the company is worth $100k, 100% of the company is worth $400k. It's not on the books: the investor is just commenting that they feel that they are being over-charged.\",\n \"Adding to the very good advises above - Concentrate on costs related to investment activity. Note all expenses and costs that you pay. Keep it low.\",\n \"You could think of points 1 and 3 combined to be similar to buying shares and selling calls on a part of those shares. $50k is the net of the shares and calls sale (ie without point 3, the investor would pay more for the same stake). Look up convertible debt, and why it's used. It's basically used so that both parties get 'the best of both world's' from equity and debt financing. Who is he selling his share to in point 2 back to the business or to outside investors?\",\n \"\\\"Thank you for the in-depth, detailed explanation; it's refreshing to see a concise, non verbose explanation on reddit. I have a couple of questions, if that's alright. Firstly, concerning mezzanine investors. Based on my understanding from Google, these people invest after a venture has been partially financed (can I use venture like that in a financial context, or does it refer specifically to venture capital?) so they would receive a smaller return, yes? Is mezzanine investing particularly profitable? It sounds like you'd need a wide portfolio. Secondly, why is dilution so important further down the road? Is it to do with valuation? Finally, at what point would a company aim to meet an IPO? Is it case specific, or is there a general understanding of the \\\"\\\"best time\\\"\\\"? Thank you so much for answering my questions.\\\"\",\n \"One share costs the 202 $. You need to invest 3000 $ total at a minimum, meaning you have to buy some 14.9 shares at minimum. You should not worry about the exact number of shares, they are just to keep track, and you can buy every decimal part of them too. For example, if you invest now 5000 $, you will get 24.7525 shares. Next year, if they are for example worth 220 $ per share, you have a value of 24.7525 * 220 = 5445.55 $ It depends on the offering company, but that (a certain fixed amount per paycheck) is a typical way to invest (and a good way - you implictly take advantage of prices changing a bit - you buy more shares when the price is down and less when it's up). Probably you can make it an automated deduction from your checking account, or you send it every week/month/whenever. Good plan!\",\n \"The steps you outlined are fine by themselves. Step 5, seeking criticism can be less helpful than one may think. See stocktwits.com There are a lot of opposing opinions all of which can be correct over different time-frames. Try and quantify your confidence and develop different strategies for different confidence levels. I was never smart enough or patient with follow through to be a successful value investor. It was very frustrating to watch stocks trade sideways for years before the company's intrinsic value was better reflected in the market. Also, you could make an excellent pick, but a macro change and slump could set you back a year and raise doubts. In my experience portfolio management techniques like asset allocation and dollar-cost-averaging is what made my version of value investing work. Your interest in 10k/10q is something to applaud. Is there something specific about 10k/10q that you do not understand? Context is key, these types of reports are more relevant and understandable when compared to competitors in the same sector. It is good to assess over confidence! It is also good to diversify your knowledge and the effort put into Securities Analysis 6th edition will help with other books in the field. I see a bit of myself in your post, and if you are like me, than subsequent readings, and full mastery of the concepts in 'Securities & Analysis 6th ed.' will lead to over confidence, or a false understanding as there are many factors at play in the market. So many, that even the most scientific approaches to investing can just as equally be described as an 'art'. I'm not aware of the details of your situation, but in general, for you to fully realize the benefits from applying the principals of value investing shared by Graham and more recently Warren Buffett, you must invest on the level that requires use of the consolidation or equity method of accounting, e.g. > 20% ownership. Sure, the same principals used by Buffett can work on a smaller scale, but a small scale investor is best served by wealth accumulation, which can take many forms. Not the addition of instant equity via acquisitions to their consolidated financials. Lastly, to test what you have learned about value investing, and order execution, try the inverse. At least on paper. Short a stock with low value and a high P/E. TWTR may be a good example? Learn what it is like to have your resources at stake, and the anguish of market and security volatility. It would be a lot easier to wait it out as a long-term value investor from a beach house in Santa Barbara :)\",\n \"I'm in the US as well, but some basic things are still the same. You need to trade through a broker, but the need for a full service broker is no longer necessary. You may be able to get by with a web based brokerage that charges less fees. If you are nervous, look for a big name, and avoid a fly by night company. Stick with non-exotic investments. don't do options, or futures or Forex. You may even want to skip shares all together and see if UK offers something akin to an index fund which tracks broad markets (like the whole of the FTSE 100 or the S&P 500) as a whole.\",\n \"First you need to incorporate. 2) Build your websites & setup social accounts 3) create content: photoshoots, marketing designs, etc You should be creating your apparel designs at the same time as your site is being built and your product should be printed before the photoshoots. If you need more in depth help. Message me.\",\n \"This answer assumes you're asking about how to handle this issue in the USA. I generally downvote questions that ask about a tax/legal issue and don't bother providing the jurisdiction. In my opinion it is extremely rude. Seeing that you applied for an LLC, I think that you somehow consider it as a relevant piece of information. You also attribute some importance to the EIN which has nothing to do with your question. I'm going to filter out that noise. As an individual/sole-proprietor (whether under LLC or not), you cannot use fiscal years, only calendar years. It doesn't matter if you decide to have your LLC taxed as S-Corp as well, still calendar year. Only C-Corp can have a fiscal year, and you probably don't want to become a C-Corp. So the year ends on December 31, and whether accrual or cash - you can only deduct expenses you incurred until then. Also, you must declare the income you got until then, which in your case will be the full amount of funding - again regardless of whether you decided to be cash-based or accrual based. So the main thing you need to do is to talk to a licensed tax adviser (EA/CPA licensed in your state) and learn about the tax law relevant to your business and its implications on your actions. There may be some ways to make it work better, and there are some ways in which you can screw yourself up completely in your scenario, so do get a professional advice.\",\n \"Try this as a starter - my eBook served up as a blog (http://www.sspf.co.uk/blog/001/). Then read as much as possible about investing. Once you have money set aside for emergencies, then make some steps towards investing. I'd guide you towards low-fee 'tracker-style' funds to provide a bedrock to long-term investing. Your post suggests it will be investing over the long-term (ie. 5-10 years or more), perhaps even to middle-age/retirement? Read as much as you can about the types of investments: unit trusts, investment trusts, ETFs; fixed-interest (bonds/corporate bonds), equities (IPOs/shares/dividends), property (mortgages, buy-to-let, off-plan). Be conservative and start with simple products. If you don't understand enough to describe it to me in a lift in 60 seconds, stay away from it and learn more about it. Many of the items you think are good long-term investments will be available within any pension plans you encounter, so the learning has a double benefit. Work a plan. Learn all the time. Keep your day-to-day life quite conservative and be more risky in your long-term investing. And ask for advice on things here, from friends who aren't skint and professionals for specific tasks (IFAs, financial planners, personal finance coaches, accountants, mortgage brokers). The fact you're being proactive tells me you've the tools to do well. Best wishes to you.\",\n \"Every month I will get a return in from my share of the profit which would be used for repayment of capital and interest in India. Not to sure what the business plan is. Please factor all the modalities, Exchange rate fluctuations, etc. My concern is regarding RBI rules and regulations, FEMA guidelines, and Income tax. Under the Liberalized Remittance Scheme; Funds can be transferred outside India. Any profit you make will be taxable in India. You will have to declare this pay tax in as per schedule.\",\n \"Typically you give a loan to the company from yourself as a private person, and when the company makes money the company pays it back to you. Then the company pays for all the expenses with the money from the loan. Even if you don't want a business account yet, you can probably ask your bank for a second account (mine in the UK did that without any problems).\",\n \"\\\"Because I'll be investing time, effort, energy and take some initial risks I would like to receive more shares (more than just purely financial contribution would suggest) I don't see money in that list. How much money will you be contributing to your own project? Mutual understanding, focusing on big image, rather that covering each and every edge case. These kinds of one page agreements are an excellent \\\"\\\"idea\\\"\\\" and they work just fine when everyone is happy and everything is working well; they are an utter nightmare if anything goes sideways. Coincidently, the reason you write anything down at all is to have everyone agree on the same big picture at the same time. People's memory of the original big picture gets fuzzy when their money might not come back to them. You don't need to cover all edge cases, but you need to cover obvious negative outcomes. What if you can't find a renter? What if you're late paying someone back? What if your vendor \\\"\\\"repairs\\\"\\\" something incorrectly? What if you forget to get a permit and the vendor needs to come back to tear it all apart and redo the work? What if your project needs more money, who is required to contribute, who has the option to contribute, who gets diluted? Who is doing the work of managing the project, how much is that person getting paid, how is that person's pay determined, how can it be adjusted? Is any work expected from any other investor, on what terms, who decides the terms? What if you get an offer to buy the building, who decides to sell, etc and so forth and on and on and on... You write down an agreement so everyone's understanding of the agreement is recorded. You write down what will happen in XYZ event so you don't argue about what you all should do when that event does ultimately occur. You take as much equity as your other investors will allow you to have, and you give them as much as required to get their money. Understand that the more cooks there are in the kitchen the more difficult it is to act on a problem when one arises; when not if. Your ego-stroking play to \\\"\\\"open source crowd-sourced wisdom\\\"\\\" is nothing more than a silly request for vague advice at no cost. Starting a project on trust, transparency and integrity is naive. This is about money. Why on earth should anyone trust you with their money if you won't do the most basic step of stewardship and spend a couple hundred pounds to talk to a local professional about organizing your first ever project. To answer your question directly, the first precaution you should take is not taking money from any of your friends or family.\\\"\",\n \"Try fool.co.uk for getting more information about ISAs: Everything You Need To Know About ISAs\",\n \"It is the first time I encounter redemption programme and I would like to know what are my options here You can hold on to the shares and automatically receive 2.25 SEK per share some time after 31-May; depending on how fast the company and its bank process the payouts. Alternatively you can trade in the said window for whatever the market is offering. how is this different from paying the dividend? I don't know much about Sweden laws. Structuring this way may be tax beneficial. The other benefit in in company's books the shareholders capital is reduced. can I trade these redemption shares during these 2 weeks in May? What is the point of trading them if they have fixed price? Yes you can. If you need money sooner ... generally the price will be discounted by few cents to cover the interest for the balance days.\",\n \"To me this sounds like a transaction, where E already owns a company worth 400k and can therefore pocket the money from D and give D 25% of the profits every year. There is nothing objective (like a piece of paper) that states the company is worth 400K. It is all about perceived value. Some investors may think it is worth something because of some knowledge they may have. Heck, the company could be worth nothing but the investor could have some sentimental value associated to it. So is it actually the case that E's company is worth 400k only AFTER the transaction? It is worth what someone pays for it when they pay for it. I repeat- the 400K valuation is subjective. In return the investor is getting 25% ownership of the product or company. The idea is that when someone has ownership, they have a vested interest in it being successful. In that case, the investor will do whatever he/she can to improve the chances of success (in addition to supplying the 100K capital). For instance, the investor will leverage their network or perhaps put more money into it in the future. Is the 100k added to the balance sheet as cash? Perhaps. It is an asset that may later be used to fund inventory (for instance). ... and would the other 300k be listed as an IP asset? No. See what I said about the valuation just being perception. Note that the above analysis doesn't apply to all Dragons Den deals. It only applies to situations where capital is exchanged for ownership in the form of equity.\",\n \"Income and Capital are taxed separately in the uk. You probably can't get dividends paid gross even in ISA's you pay the basic rate of tax on dividends only higher rate tax payers get tax benefit from dividends. What you could do is invest in splits (Spilt capital investment trusts ) in the share class where all the return comes as capital and use up some of your yearly CGT allowance that way.\",\n \"\\\"Is this amount an adequate starting amount to begin investing with? Yes. You can open an account at a brokerage with this amount. I'm not sure I would invest in individual stocks at this point. Which services should I use to start buying shares? (Currently my bank offers this service but I'm willing to use other sources) I can't make UK-specific recommendations, but I'd compare your bank's fees to those of a discount broker -- as well as the variety and level of service available. I would like to regularly increase the amount invested in shares. Is it worth doing this in say £200 increments? Take a look at the fees associated with each investment. Divide the fee by the increment to see what percent you'll lose to fees/commissions. Keep in mind that you have to gain more than that percentage to start earning a positive return on your investment. If you have access to fee-free automatic mutual fund investments, and you can commit to the £200 amount on a regular basis going forward, then this can be a completely free way of making these incremental investments. See also this answer on dollar cost averaging, and my comment on the other answer on that question for how fees impact returns. When buying shares should I focus on say two or three companies, or diversify more? I would diversify into two or three different index funds. Read up on asset allocation. For example, you might invest 1/3 of your balance into S&P 500 index fund, bond index fund, and MSCI EAFE index fund (but that's just a rough example, and not necessarily good for you). I highly recommend \\\"\\\"The Intelligent Asset Allocator\\\"\\\" by William Bernstein for excellent info on diversification and asset allocation.\\\"\",\n \"If someone invest certain amount on my company and after a year I am able to return the exact capital with the profit, what will I do to that investor? Did the investor receive shares in the company for the money that was invested in the company? This is the big question here as if so then there isn't the need to return the money but rather grow the business so that the investor's shares are worth more. Will that person still invest in my company? You may need to consider what you mean by invest as generally there are a couple of ways to finance a business: Equity - Ownership of the company is sold to raise money to run the company. Debt - The company is lent money that is to be repaid over time. Investing is usually the first case not the second. What if I have enough profit to continue my business, do I still need that investor? You wouldn't need the investor. However, you may want that investor as they could provide more funds, connections or other benefits to the company that may be worth considering here.\",\n \"The chancellor announced an ISA in this week's budget intended for people saving to buy their first home. For every £200 put in the government will add £50 to the account so I would strongly encourage you to put the money into that as it is also tax free.\",\n \"I would always recommend the intelligent investor by Benjamin Graham the mentor of warren buffet once you have a basic knowledge ie what is a share bond guilt etc In terms of pure investment the UK is fairly similar the major difference is the simpler tax structure, ISA allowance and the more generous CGT regime.\",\n \"Right now the SEPA Credit Transfers take 3 days excluding holidays. In future this would be reduced to 2 days and then eventually to same day. Your bank would have acknowledged sending out the transaction. It would go into the clearing house and then to the recipient's bank. Once the receiver's bank receives the funds, they would notify the receiver.\",\n \"The value of the company is ill-defined until it actually has some assets and/or product. You give the investors whatever equity stakes you and they negotiate as appropriate for their investment based on how convinced they are by your plan and how badly you need their money.\",\n \"I have a Albertan corporation and my accountant set up my shares and options for free. 1. Get a NUANS repot. 2. Go to a registry office and get the incorporation paperwork 3. Get an accountant to help you fill out that paperwork for free (they assume you will do your accounting with them after the fact) 4. Go back to a registry office and register the corporation 5. Go have a beer you' re new company 6. go get a bank account. 7. Get to work\",\n \"\\\"The recommendation is not to make the investment. In general, a company does not have to sell their shares to you or allow you to become an investor, because, as you have stated, it is a private company not quoted on the stock market. If everyone were trustworthy, you could buy the tools for $11000 -- so that you own the tools -- and sign a lease of the tools to the company whereby they pay you $X/month. The lease should be reviewed by a lawyer before it is signed, and perhaps give the buyer the right to demand back the tools at any time. However, even this arrangement is very risky, because the \\\"\\\"company\\\"\\\" could simply steal or damage the tools and disappear. It is not an investment that I would make, because it sounds too good to be true. $2800/mo steady cash flow for $11,000 invested. No, I don't think so. The following information may also be useful, either to you, or future readers: If you still want to make this investment, then you should know that: The offering for sale of shares by companies located in the USA is subject to a wild array of complex laws. This is true in many other countries as well. These laws, called securities laws or regulations, can require certain disclosures, require that investors have a high net worth so that they can afford to lose the money or conduct their own investigations and legal actions, or require that the investors know the company founders personally, and can prohibit or limit resale by the buyer/investor. Promoters who say you can still invest and are ignoring or disobeying the securities laws are being at least negligent, but more likely are dishonest and probably criminal. Even if you trust in the investment, can you trust negligent managers to do a good job executing that investment? What about dishonest managers? What about criminals and thieves?\\\"\",\n \"The typical answer would be to write a business plan. But really the first step should be to jot your thoughts down as much as possible. Think about the idea, your customers, vendors, accounting, marketing, everything. Then you'll know which step(s) to take next.\",\n \"ChrisW's comment may appear flippant, but it illustrates (albeit too briefly) an important fact - there are aspects of investing that begin to look exactly like gambling. In fact, there are expressions which overlap - Game Theory, often used to describe investing behavior, Monte Carlo Simulation, a way of convincing ourselves we can produce a set of possible outcomes for future returns, etc. You should first invest time. 100 hours reading is a good start. 1000 pounds, Euros, or dollars is a small sum to invest in individual stocks. A round lot is considered 100 shares, so you'd either need to find a stock trading less than 10 pounds, or buy fewer shares. There are a number of reasons a new investor should be steered toward index funds, in the States, ETFs (exchange traded funds) reflect the value of an entire index of stocks. If you feel compelled to get into the market this is the way to go, whether a market near you of a foreign fund, US, or other.\",\n \"I don't want to get involved in trading chasing immediate profit That is the best part. There is an answer in the other question, where a guy only invested in small amounts and had a big sum by the time he retired. There is good logic in the answer. If you put in lump sum in a single stroke you will get at a single price. But if you distribute it over a time, you will get opportunities to buy at favorable prices, because that is an inherent behavior of stocks. They inherently go up and down, don't remain stable. Stock markets are for everybody rich or poor as long as you have money, doesn't matter in millions or hundreds, to invest and you select stocks with proper research and with a long term view. Investment should always start in small amounts before you graduate to investing in bigger amounts. Gives you ample time to learn. Where do I go to do this ? To a bank ? To the company, most probably a brokerage firm. Any place to your liking. Check how much they charge for brokerage, annual charges and what all services they provide. Compare them online on what services you require, not what they provide ? Ask friends and colleagues and get their opinions. It is better to get firsthand knowledge about the products. Can the company I'm investing to be abroad? At the moment stay away from it, unless you are sure about it because you are starting. Can try buying ADRs, like in US. This is an option in UK. But they come with inherent risk. How much do you know about the country where the company does its business ? Will I be subject to some fees I must care about after I buy a stock? Yes, capital gains tax will be levied and stamp duties and all.\",\n \"\\\"Nothing stops you doing that, but there's no gain to be had by doing it. \\\"\\\"Removing it from being a tax liability\\\"\\\" isn't a single event that happens when you put money in an ISA. The money that actually goes into the ISA is post-tax income, not pre-tax income. The benefit you get is that as long as you leave your money in the ISA, you don't pay tax on interest or capital gains within the ISA. If you liquidate an ISA immediately after creation, you won't get any such interest and therefore no tax benefit.\\\"\",\n \"You need to set your status as self-employed the day you started online work. If that date is a little ambiguous (as is usually the case with online business), you can start with the day you first made any money. Yes, you can deduct expenses from your revenue. But you have to be sure that the expenses were purely business related. This is how it goes: You inform HMRC about the day you started work. HMRC will assign you a UTR (Unique Tax Reference) number. Depending on how much you make you might or might not need to pay Class 2 NI contributions. You'll need to tell HMRC how much you expect to earn in the current tax year. Finally, you'll need to complete a Self-Assessment at the end of the tax year. I highly recommend setting up a business banking account. Here is a link that discusses being part-time self-employed in the UK.\",\n \"The best description of P2P lending process I saw comes from the SEC proceedings. They are very careful about naming things that are happening in the process. Prosper got back to business after this order, but the paper describes succinctly how Prosper worked when its notes haven't yet been registered by the SEC. These materials contain a lot of responsible comments on how crowdfunding, including P2P lending, works.\",\n \"The 'same day rule' in the UK is a rule for matching purposes only. It says that sales on any day are matched firstly with purchases made on the same day for the purposes of ascertaining any gain/loss. Hence the phrase 'bed-and-breakfast' ('b&b') when you wish to crystalise a gain (that is within the exempt amount) and re-establish a purchase price at a higher level. You do the sale on one day, just before the market closes, which gets matched with your original purchase, and then you buy the shares back the next day, just after the market opens. This is standard tax-planning. Whenever you have a paper gain, and you wish to lock that gain out of being taxed, you do a bed-and-breakfast transaction, the idea being to use up your annual exemption each and every year. Of course, if your dealing costs are high, then they may outweigh any tax saved, and so it would be pointless. For the purpose of an example, let's assume that the UK tax year is the same as the calendar year. Scenario 1. Suppose I bought some shares in 2016, for a total price of Stg.50,000. Suppose by the end of 2016, the holding is worth Stg.54,000, resulting in a paper gain of Stg.4,000. Question. Should I do a b&b transaction to make use of my Stg.11,100 annual exemption ? Answer. Well, with transaction costs at 1.5% for a round-trip trade, suppose, and stamp duty on the purchase of 0.5%, your total costs for a b&b will be Stg1,080, and your tax saved (upon some future sale date) assuming you are a 20% tax-payer is 20%x(4,000-1,080) = Stg584 (the transaction costs are deductible, we assume). This does not make sense. Scenario 2. The same as scenario 1., but the shares are worth Stg60,000 by end-2016. Answer. The total transaction costs are 2%x60,000 = 1,200 and so the taxable gain of 10,000-1,200 = 8,800 would result in a tax bill of 20%x8,800 = 1,760 and so the transaction costs are lower than the tax to be saved (a strict analysis would take into account only the present value of the tax to be saved), it makes sense to crystalise the gain. We sell some day before the tax year-end, and re-invest the very next day. Scenario 3. The same as scenario 1., but the shares are worth Stg70,000 by end-2016. Answer. The gain of 20,000 less costs would result in a tax bill for 1,500 (this is: 20%x(20,000 - 2%x70,000 - 11,100) ). This tax bill will be on top of the dealing costs of 1,400. But the gain is in excess of the annual exemption. The strategy is to sell just enough of the holding to crystallise a taxable gain of just 11,100. The fraction, f%, is given by: f%x(70,000-50,000) - 2%xf%x70,000 = 11,100 ... which simplifies to: f% = 11,100/18,600 = 59.68%. The tax saved is 20%x11,100 = 2,220, versus costs of 2%x59.58%x70,000 = 835.52. This strategy of partial b&b is adopted because it never makes sense to pay tax early ! End.\",\n \"\\\"This stock is the same as any other, but you need to keep clear in your head that you and your company are now different entities. You (the person) will pay tax on capital gains and losses when you sell any stock that you hold in your own name. You'll also owe \\\"\\\"regular\\\"\\\" tax if you draw a salary, etc. The fact that it may be \\\"\\\"your\\\"\\\" company does not change these things. The company will not recognize a gain by selling stock to raise capital since it's nominally exchanging things of equal value, say $100 in cash for $100 in stock. In order to sell stock, however, you MIGHT need to register with the SEC depending on how you're going about finding your investors, so keep that in mind.\\\"\",\n \"The main difference is that the ISA account like a Cash ISA shelters you from TAX - you don't have to worry about Capital Gains TAX. The other account is normal taxable account. With only £500 to invest you will be paying a high % in charges so... To start out I would look at some of the Investment Trust savings schemes where you can save a small amount monthly very cost-effectively - save £50 a month for a year to see how you get on. Some Trusts to look at include Wittan, City Of London and Lowland\",\n \"Thanks for the response - ok so maybe the funds could be partially crowd-sourced and partially funded by an accredited investor? Also yes - having an experienced adviser and a plan in place to replace existing directors sound like good plot devices. There doesn't really have to be a limitation to banks, the idea comes from the protagonists being upset with the status quo of banking practices (foreclosures, fees, investing in weapons/warzones etc.) what would you suggest?\",\n \"Congratulations on starting your own business. Invest in a tax software package right away; I can't recommend a specific one but there is enough information out there to point you in the right direction: share with us which one you ended up using and why (maybe a separate question?) You do need to make your FICA taxes but you can write off the SE part of it. Keep all your filings as a PDF, a printout and a softcopy in the native format of the tax software package: it really helps the next tax season. When you begin your business, most of the expenses are going to be straightforward (it was for me) and while I had the option of doing it by hand, I used software to do it myself. At the beginning, it might actually seem harder to use the tax software package, but it will pay off in the end. Build relationships with a few tax advisors and attorneys: you will need to buy liability insurance soon if you are in any kind of serious (non hobby) business and accounting for these are no trivial tasks. If you have not filed yet, I recommend you do this: File an extension, overpay your estimated taxes (you can always collect a refund later) and file your return once you have had a CPA look over it. Do not skimp on a CPA: it's just the cost of running your business and you don't want to waste your time reading the IRS manuals when you could be growing your own business. Best of luck and come back to tell us what you did!\",\n \"the financial information is generally filed via SEDAR (Canada) or SEC (US) before the conference call with the investment community. This can take before either before the market opens or after the market closes. The information is generally distribute to the various newswire service and company website at the same time the filing is made with SEDAR/SEC.\",\n \"It's important to consider your Investor Profile when deciding the right kind of vehicle for your finances. You are a young guy, with a considerable earned income and no dependents (sorry, this was not clear from the question.) This means that you are able to take a lot of risks that people who also have a family to think about, might not. == high risk tolerance You should definitely not put your money in a Wealth Management fund or Mutual Fund or any other 'hands-off' vehicle. These typically have worse returns than the FTSE itself. Their popularity is due to an amazing marketing job and the fact that people in general want to believe there is an easy way to grow their money. Probably the best vehicle for your money is property, so the first thing you should do with the money is hire a competent accountant and solicitor.\",\n \"Isn't that uncommon in small business financing/investing. You can structure your capital anyway you wish (relatively speaking). It starts as an equity investment with an option for the founder to buy back equity. Then there is an 8% dividend payment that takes a similar form to preferred stock.\",\n \"Here would be the general steps to my mind for creating such a plan: Write out the final desired outcome. Is it $x in y years to fund your retirement? Is it $a in b years to put as a house down payment? This is the first step in defining how much money you want at what point in time. Consider what is your risk tolerance and how much time do you plan on spending in this plan. Is it rebalancing once a quarter and that's it or do you plan on doing monthly research and making tweaks all the time? This is slightly different from the first where one has to be mindful of how much volatility would one handle and what time commitment does one have for an investing strategy. Also, how much money would you be adding to the investments on what kind of time table would also be worth noting here. Construct the asset allocation based on the previous two steps along with historical returns averaged out to be a first draft of what you are buying in general. Is it US stocks? Is it a short-term bond fund? There are more than a few choices here that may make sense and it is worth considering based on the first couple of responses that determine what this will look like. Retirement in 40 years may be quite different than a house down payment in 2 years for example. Determine what brokerages or fund companies would offer such funds along with what types of accounts you'd want to have as in some countries there may be tax-advantaged accounts that may be useful to use here. This is where you're almost ready to start by doing the homework of figuring out how will things work. This may vary depending on one's jurisdiction. Get the applications from whatever institutions you'll be using and run with the desired asset allocation across various funds and accounts. Note that in the first few steps there were points of being aware of how much would you have, how aggressive are you investing and so forth. This is where you actually send in the money and get things rolling. Run with the plan and make tweaks as needed to achieve result, hopefully desired or better.\",\n \"Thank you for your response KeithB and Ross. I was researching more about this and looks like I have to follow all these steps (please, correct me if I'm wrong):\",\n \"Yes, You will have to pay the taxes at least initially but you'll most probably get a refund when you will file returns depending upon the amount and tax brackets in the UK.\",\n \"As you are in UK, you should think in terms of Tax Free (interest and accumulated capital gains) ISA type investments for the long term AND/OR open a SIPP (Self Invested Pension Plan) account where you get back the tax you have paid on the money you deposit for your old age. Pensions are the best bet for money you do not need at present while ISAs are suitable for short term 5 years plus or longer.\",\n \"\\\"If your business is structured as a partnership or sole proprietorship you call this investment \\\"\\\"partner equity\\\"\\\". If instead it is structured as a corporation, then the initial investment is called \\\"\\\"paid-in capital\\\"\\\". Either way, this represents the capital the initial investors or partners provided to the company in exchange for their ownership stake. The most important thing in your case is that since that initial investment is in the form of inventory, you are going to have to document the value of that investment somehow. You will definitely need a comprehensive manifest of what you contributed, including titles and condition, and if possible you should document the prices at which similar items are being offered for sale at the time you start operating. Having this information will support your claims as to the fair market value of the start-up contribution, should the tax authorities decide to question it.\\\"\",\n \"That is one of the most unfriendly term sheets I've come across in awhile for a seed round. Preferred shares with dividends (cumulative I'm sure), 60% stake (reduced if paid back). Any talk on participating preferred? Did he set a cap? What is the valuation for buyback to 20%? For $50K your buddy better hit up every lost long family member before jumping into bed with this asshole. Angel Funding Updates: http://www.angelresourceinstitute.org/en/Research/Halo-Report/Halo-Report.aspx If you want an update on venture funding trends: http://www.cooley.com/venture-financing-report-q2-2014\",\n \"\\\"A lot of ISA's allow both shares and funds as well as gilts, Hargreaves Lansdown comes to mind as does the Alliance Trust. Some penalise (charging wise) securities vs UT (unit trusts) funds but in that case just go for a low cost IT (Investment Trust) ISA and hold individual shares as well as pooled investments in the Big IT's. I think you might have to be an \\\"\\\"approved investor\\\"\\\" to buy gilts.\\\"\",\n \"Sales are useless. Profit determines value. Others made good suggestions, but make sure you don't personally guarantee anthing. Understand your requirements to continue having the investor involved. Understand who has approval authority and decision making authority, ie are you a hired gun or the managing owner? Finally, probability of success is low, so do your homework, bust your ass, and understand when you will wall away (ie if you aren't profitable in 3 years, or below $500k in rev, etc)\",\n \"Alright, team! I found answers to part 1) and part 2) that I've quote below, but still need help with 3). The facts in the article below seem to point to the ability for the LLC to contribute profit sharing of up to 25% of the wages it paid SE tax on. What part of the SE tax is that? I assume the spirit of the law is to only allow the 25% on the taxable portion of the income, but given that I would have crossed the SS portion of SE tax, I am not 100%. (From http://www.sensefinancial.com/services/solo401k/solo-401k-contribution/) Sole Proprietorship Employee Deferral The owner of a sole proprietorship who is under the age of 50 may make employee deferral contributions of as much as $17,500 to a Solo 401(k) plan for 2013 (Those 50 and older can tack on a $5,500 annual catch-up contribution, bringing their annual deferral contribution to as much as $23,000). Solo 401k contribution deadline rules dictate that plan participant must formally elect to make an employee deferral contribution by Dec. 31. However, the actual contribution can be made up until the tax-filing deadline. Pretax and/or after-tax (Roth) funds can be used to make employee deferral contributions. Profit Sharing Contribution A sole proprietorship may make annual profit-sharing contributions to a Solo 401(k) plan on behalf of the business owner and spouse. Internal Revenue Code Section 401(a)(3) states that employer contributions are limited to 25 percent of the business entity’s income subject to self-employment tax. Schedule C sole-proprietors must base their maximum contribution on earned income, an additional calculation that lowers their maximum contribution to 20 percent of earned income. IRS Publication 560 contains a step-by-step worksheet for this calculation. In general, compensation can be defined as your net earnings from self-employment activity. This definition takes into account the following eligible tax deductions: (1) the deduction for half of self-employment tax and (2) the deduction for contributions on your behalf to the Solo 401(k) plan. A business entity’s Solo 401(k) contributions for profit sharing component must be made by its tax-filing deadline. Single Member LLC Employee Deferral The owner of a single member LLC who is under the age of 50 may make employee deferral contributions of as much as $17,500 to a Solo 401(k) plan for 2013 (Those 50 and older can tack on a $5,500 annual catch-up contribution, bringing their annual deferral contribution to as much as $23,000). Solo 401k contribution deadline rules dictate that plan participant must formally elect to make an employee deferral contribution by Dec. 31. However, the actual contribution can be made up until the tax-filing deadline. Pretax and/or after-tax (Roth) funds can be used to make employee deferral contributions. Profit Sharing Contribution A single member LLC business may make annual profit-sharing contributions to a Solo 401(k) plan on behalf of the business owner and spouse. Internal Revenue Code Section 401(a)(3) states that employer contributions are limited to 25 percent of the business entity’s income subject to self-employment tax. Schedule C sole-proprietors must base their maximum contribution on earned income, an additional calculation that lowers their maximum contribution to 20 percent of earned income. IRS Publication 560 contains a step-by-step worksheet for this calculation. In general, compensation can be defined as your net earnings from self-employment activity. This definition takes into account the following eligible tax deductions: (i) the deduction for half of self-employment tax and (ii) the deduction for contributions on your behalf to the Solo 401(k). A single member LLC’s Solo 401(k) contributions for profit sharing component must be made by its tax-filing deadline.\",\n \"In some circumstances losses from self-employment can be offset against total income and/or capital gains. If this applies to you may be able to claim back some of the tax taken by PAYE from your day job. You can also to some extent carry the loss backwards into previous tax years or forward into the next one if you can't use it fully this year. HMRC have some information available on the current rules: When you can claim losses You can claim: But You can’t claim:\",\n \"Since you're not loaning the company the money, the correct category is Equity. It's not an income type account, rather it represents the balance of Assets - Liabilities = Owner's Equity So you'd put down £100 as the starting balance of Owner's Equity, and then a Cash Balance of £100 in a cash account.\",\n \"The final decision must be made by you, but from personal finance perspective it's the high risk investment. The first consideration is, do you have enough money to invest? You need money for much more that 7 months, because the money won't flow immediately. At best you should have finantial reserves for 18-24 months. The second, do you wish to risk? You can place a deadline, for example if after 18 months you're still on minus, you give up and return to the normal work. It will mean you've worked for 18 months for nothing, while having expences, so it's effectively a lost.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["You make the investment in Jan 2016. Assuming the SEIS certificate is issued before 5th April 2016, then you will enter the SEIS investment on your 2015-2016 tax return and claim the relief in that year. If the certificate is not issued in time then you will enter it in the 2016-2017 tax return and get the relief then. Note: I am assuming that the startup is already registered with the SEIS scheme by someone else - because if you are asking about how to go about that, I don't think that is an issue of personal finance."],"string":"[\n \"You make the investment in Jan 2016. Assuming the SEIS certificate is issued before 5th April 2016, then you will enter the SEIS investment on your 2015-2016 tax return and claim the relief in that year. If the certificate is not issued in time then you will enter it in the 2016-2017 tax return and get the relief then. Note: I am assuming that the startup is already registered with the SEIS scheme by someone else - because if you are asking about how to go about that, I don't think that is an issue of personal finance.\"\n]","isConversational":false}}},{"rowIdx":353,"cells":{"_id":{"kind":"string","value":"7269"},"query":{"kind":"string","value":"How do I track investment performance in Quicken across rollovers?"},"gt_ids":{"kind":"list like","value":["486696"],"string":"[\n \"486696\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["294644","380759","272202","91671","471322","88417","488996","204761","393987","60119","275555","232311","412830","211414","117049","486696","557219","454102","479874","226628","367277","463007","343586","296401","239683","314826","51721","241928","308969","581973","392894","262291","439402","569342","198572","424427","4181","32781","235592","265766","152045","159336","132219","55845","518379","495418","98286","435096","475426","24404","404911","402466","198606","580232","94816","277544","247894","470687","280763","305758","217661","221117","563499","304780","240519","589234","475748","538787","551545","427365","309969","371922","329497","546133","361037","526823","435470","252176","257258","42599","208263","135176","576263","140769","330848","65567","469599","549767","42537","538687","71299","530425","426189","195044","291578","100057","583230","516777","465439","292937"],"string":"[\n \"294644\",\n \"380759\",\n \"272202\",\n \"91671\",\n \"471322\",\n \"88417\",\n \"488996\",\n \"204761\",\n \"393987\",\n \"60119\",\n \"275555\",\n \"232311\",\n \"412830\",\n \"211414\",\n \"117049\",\n \"486696\",\n \"557219\",\n \"454102\",\n \"479874\",\n \"226628\",\n \"367277\",\n \"463007\",\n \"343586\",\n \"296401\",\n \"239683\",\n \"314826\",\n \"51721\",\n \"241928\",\n \"308969\",\n \"581973\",\n \"392894\",\n \"262291\",\n \"439402\",\n \"569342\",\n \"198572\",\n \"424427\",\n \"4181\",\n \"32781\",\n \"235592\",\n \"265766\",\n \"152045\",\n \"159336\",\n \"132219\",\n \"55845\",\n \"518379\",\n \"495418\",\n \"98286\",\n \"435096\",\n \"475426\",\n \"24404\",\n \"404911\",\n \"402466\",\n \"198606\",\n \"580232\",\n \"94816\",\n \"277544\",\n \"247894\",\n \"470687\",\n \"280763\",\n \"305758\",\n \"217661\",\n \"221117\",\n \"563499\",\n \"304780\",\n \"240519\",\n \"589234\",\n \"475748\",\n \"538787\",\n \"551545\",\n \"427365\",\n \"309969\",\n \"371922\",\n \"329497\",\n \"546133\",\n \"361037\",\n \"526823\",\n \"435470\",\n \"252176\",\n \"257258\",\n \"42599\",\n \"208263\",\n \"135176\",\n \"576263\",\n \"140769\",\n \"330848\",\n \"65567\",\n \"469599\",\n \"549767\",\n \"42537\",\n \"538687\",\n \"71299\",\n \"530425\",\n \"426189\",\n \"195044\",\n \"291578\",\n \"100057\",\n \"583230\",\n \"516777\",\n \"465439\",\n \"292937\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["When I did this I sold the stock out of my 401k account. Then transferred the cash to my rollover IRA account. No tax event was created for me. Make sure your rollover IRA account is listed as tax deferred. If this still doesn't work for you then it could be a bug in Quicken and your best bet is the Quicken forums. Good luck.","Reinvestment creates a nightmare when it comes time to do taxes, sadly. Tons of annoying little transactions that happened automatically... Here's one article trying to answer your question: http://www.smartmoney.com/personal-finance/taxes/figuring-out-your-cost-basis-when-youve-lost-the-statements-9529/ You could also try this thing: http://www.gainskeeper.com/us/BasisProIndividual.aspx But I couldn't tell you if it would help. If it makes you feel better, brokerages are now required by the IRS to track your basis for you, so for new transactions and assets you shouldn't end up in this situation. Doesn't help with the old stuff ;-)","Quicken has tools for this, but they have some quirks so i hesitate to actually recommend it on that basis.","Perhaps you should use your own tracking software, such as GnuCash, Quicken, Mint, or even Excel. The latter would work given you say you're manually putting in your transactions. There's lots of pre-done spreadsheets for tracking investments if you look around. I'm hoping that a web search gets you help on migrating transaction data, but I've yet to run into any tools to do the export and import beyond a manual effort. Then again, I haven't checked for this lately. Not sure about your other questions, but I'd recommend you edit the question to only contain what you're asking about in the subject.","You can use a tool like WikiInvest the advantage being it can pull data from most brokerages and you don't have to enter them manually. I do not know how well it handles dividends though.","\"I've just started using Personal Capital (www.personalcapital.com) after seeing the recommendation at several places. I believe it gives you what you want to see, but I don't think you can back populate it with old information. So if you log in and link accounts today, you'll have it going forward. I only put in my investment accounts as I use another tool to track my day-to-day spending. I use Personal Capital to track my investment returns over time. How did my portfolio compare to S&P 500, etc. And here is a shot of the \"\"You Index\"\" which I think is close to what you are looking for:\"","You definitely should NOT do what you are doing now (#2) since this is not a reflection of what actually is going on. (Unless you actually did transfer the equities themselves and not the cash.) Your first option is correct solution. As noted by mpenrow you need to make sure that the target account is also tax deferred. If that still doesn't work and there is a bug you should still do it this way anyway. If it messes up your tax planner just make sure to include a comment so that everyone knows what is really going on. When I have had issues like this in the past I always try to stick to whatever is the closest indication of what actually occurred.","\"You can calculate the \"\"return on investment\"\" using libreoffice, for example. Look at the xirr function. You would have 2 columns, one a list of dates (ie the dates of the deposits or dividends or whatever that you want to track, the last entry would be today's date and the value of the investment today. The xirr function calculates the internal rate of return for you. If you add money to the account, and the current value includes the original investment and the added funds, it will be difficult to calculate the ROI. If you add money by purchasing additional shares (or redepositing dividends by buying additional shares), and you only want to track the ROI of the initial investment (ignoring future investments), you would have to calculate the current value of all of the added shares (that you don't want to include in the ROI) and subtract that value from the current total value of the account. But, if you include the dates and values of these additional share purchases in the spreadsheet, xirr will calculate the overall IRR for you.\"","I use the following method. For each stock I hold long term, I have an individual table which records dates, purchases, sales, returns of cash, dividends, and way at the bottom, current value of the holding. Since I am not taking the income, and reinvesting across the portfolio, and XIRR won't take that into account, I build an additional column where I 'gross up' the future value up to today() of that dividend by the portfolio average yield at the date the dividend is received. The grossing up formula is divi*(1+portfolio average return%)^((today-dividend date-suitable delay to reinvest)/365.25) This is equivalent to a complex XMIRR computation but much simpler, and produces very accurate views of return. The 'weighted combined' XIRR calculated across all holdings then agrees very nearly with the overall portfolio XIRR. I have done this for very along time. TR1933 Yes, 1933 is my year of birth and still re investing divis!","Can't see why would you need to track the sources of the original funds. Can't think of a reason not to consolidate, if at all it will only make the management of your IRA more convenient, and may be even cheaper (if the fees depend on the account value...).","I looked around and I don't think there's any way to do what you want completely in Quicken. This should get you the graph, though: Here's what mine looked like (I whited out the numbers on the vertical axis): Once this is done, it's faster in the future to add data to this chart.","Some personal finance packages can track basis cost of individual purchase lots or fractions thereof. I believe Quicken does, for example. And the mutual funds I'm invested in tell me this when I redeem shares. I can't vouch for who/what would make this visible at times other than sale; I've never had that need. For that matter I'm not sure what value the info would have unless you're going to try to explicitly sell specific lots rather than doing FIFO or Average accounting.","The recommended way to track TSP funds in online portfolio tools is to track the underlying index and know that the results are pretty close. Not a perfect solution: :( Source including suggested ETFs: http://finance.yahoo.com/news/breaking-down-tsp-investment-funds-194600393.html Related, but not exactly what you are looking for, Personal Capital will track your TSP holdings: http://themilitarywallet.com/manage-thrift-savings-plan/","\"For any accounts where you have a wish to keep track of dividends, gains and losses, etc., you will have to set up a an account to hold the separately listed securities. It looks like you already know how to do this. Here the trading accounts will help you, especially if you have Finance:Quote set up (to pull security prices from the internet). For the actively-managed accounts, you can just create each managed account and NOT fill it with the separate securities. You can record the changes in that account in summary each month/year as you prefer. So, you might set up your chart of accounts to include these assets: And this income: The actively-managed accounts will each get set up as Type \"\"Stock.\"\" You will create one fake security for each account, which will get your unrealized gains/losses on active accounts showing up in your trading accounts. The fake securities will NOT be pulling prices from the internet. Go to Tools -> Securities Editor -> Add and type in a name such as \"\"Merrill Lynch Brokerage,\"\" a symbol such as \"\"ML1,\"\" and in the \"\"Type\"\" field input something like \"\"Actively Managed.\"\" In your self-managed accounts, you will record dividends and sales as they occur, and your securities will be set to get quotes online. You can follow the general GnuCash guides for this. In your too-many-transactions actively traded accounts, maybe once a month you will gather up your statements and enter the activity in summary to tie the changes in cost basis. I would suggest making each fake \"\"share\"\" equal $1, so if you have a $505 dividend, you buy 505 \"\"shares\"\" with it. So, you might have these transactions for your brokerage account with Merrill Lynch (for example): When you have finished making your period-end summary entries for all the actively-managed accounts, double-check that the share balances of your actively-managed accounts match the cost basis amounts on your statements. Remember that each fake \"\"share\"\" is worth $1 when you enter it. Once the cost basis is tied, you can go into the price editor (Tools -> Price Editor) and enter a new \"\"price\"\" as of the period-end date for each actively-managed account. The price will be \"\"Value of Active Acct at Period-End/Cost of Active Acct at Period-End.\"\" So, if your account was worth $1908 but had a cost basis of $505 on Jan. 31, you would type \"\"1908/505\"\" in the price field and Jan. 31, 2017 in the date field. When you run your reports, you will want to choose the price source as \"\"Nearest in Time\"\" so that GnuCash grabs the correct quotes. This should make your actively-managed accounts have the correct activity in summary in your GnuCash income accounts and let them work well with the Trading Accounts feature.\"","\"It's easy for me to look at an IRA, no deposits or withdrawal in a year, and compare the return to some index. Once you start adding transactions, not so easy. Here's a method that answers your goal as closely as I can offer: SPY goes back to 1993. It's the most quoted EFT that replicates the S&P 500, and you specifically asked to compare how the investment would have gone if you were in such a fund. This is an important distinction, as I don't have to adjust for its .09% expense, as you would have been subject to it in this fund. Simply go to Yahoo, and start with the historical prices. Easy to do this on a spreadsheet. I'll assume you can find all your purchases inc dates & dollars invested. Look these up and treat those dollars as purchases of SPY. Once the list is done, go back and look up the dividends, issues quarterly, and on the dividend date, add the shares it would purchase based on that day's price. Of course, any withdrawals get accounted for the same way, take out the number of SPY shares it would have bought. Remember to include the commission on SPY, whatever your broker charges. If I've missed something, I'm sure we'll see someone point that out, I'd be happy to edit that in, to make this wiki-worthy. Edit - due to the nature of comments and the inability to edit, I'm adding this here. Perhaps I'm reading the question too pedantically, perhaps not. I'm reading it as \"\"if instead of doing whatever I did, I invested in an S&P index fund, how would I have performed?\"\" To measure one's return against a benchmark, the mechanics of the benchmarks calculation are not needed. In a comment I offer an example - if there were an ETF based on some type of black-box investing for which the investments were not disclosed at all, only day's end pricing, my answer above still applies exactly. The validity of such comparisons is a different question, but the fact that the formulation of the EFT doesn't come into play remains. In my comment below which I removed I hypothesized an ETF name, not intending it to come off as sarcastic. For the record, if one wishes to start JoesETF, I'm ok with it.\"","\"Hmm, this site says If you use Quicken, you enter a new transaction of type \"\"Corporate Acquisition (stock for stock).\"\" You put investor shares as the \"\"Company acquired\"\", Admiral shares as the \"\"Acquiring company\"\", and the conversion ratio 0.7997754 as the \"\"New shares issued per held share\"\" number. Seems crazy, but maybe that's the way. Edit: This sucks. In the comments, you can see that people have to manually correct the share price for every transaction because of rounding problems.\"","I can't give you a detailed answer because I'm away from the computer where I use kMyMoney, but IIRC to add investments you have to create new transactions on the 'brokerage account' linked to your investment account.","I have a similar plan and a similar number of accounts. I think seeking a target asset allocation mix across all investment accounts is an excellent idea. I use excel to track where I am and then use it to adjust to get closer (but not exactly) to my target percentages. Until you have some larger balances, it may be prudent to use less categories or realize that you can't come exactly to your percentages, but can get close. I also simplify by primarily investing in various index funds. That means that in my portfolio, each category has 1 or 2 funds, not 10 or 20.","\"Treat each position or partial position as a separate LOT. Each time you open a position, a new lot of shares is created. If you sell the whole position, then the lot is closed. Done. But if you sell a partial quantity, you need to create a new lot. Split the original lot into two. The quantities in each are the amount sold, and the amount remaining. If you were to then buy a few more shares, create a third lot. If you then sell the entire position, you'll be closing out all the remaining lots. This allows you to track each buy/sell pairing. For each lot, simply calculate return based on cost and proceeds. You can't derive an annualized number for ALL the lots as a group, because there's no common timeframe that they share. If you wish to calculate your return over time on the whole series of trades, consider using TWIRR. It treats these positions, plus the cash they represent, as a whole portfolio. See my post in this thread: How can I calculate a \"\"running\"\" return using XIRR in a spreadsheet?\"","Hey Sheehan, I believe Schwab provides this info. None of the online free portfolio managers I know of gives you this info. The now defunct MS Money used to have this. The best thing to do is to use a spreadsheet. Or you could use the one I use. http://www.moneycone.com/did-you-beat-the-market-mr-investor/ . (disclaimer: that's my blog)","\"Assuming nothing here helps, here are some thoughts. First, If Principal Financial knows the 401k was rolled over to an IRA, then it must have been a custodian-to-custodian transfer, which means they need to know who the recipient custodian was, so I'd call them back and push a little harder. Next, they couldn't have just created an IRA out of thin air and moved some money into it without some paperwork and signatures from you, so you should have copies of that paperwork. Principal may also still have archived copies of that paperwork, that they may be able to provide to you, although they'll probably charge for that service. Also, there would have been tax reporting around the rollover. For the year the rollover occurred in, you would have received a 1099-R and 5498. The 1099-R would have to have been reported on your federal (and possibly state) income tax for that year. It may be possible to obtain copies of old 1099-R's from the IRS, maybe call them and ask. In subsequent years, you should have received at least a year-end statement. If you don't have any of that, and contacting Principal and the IRS don't help, then I'm not sure there's much that anyone can do to help you. As far as I know, there's no \"\"universal clearinghouse\"\" for IRAs, and there are a lot of IRA custodians. I would expect you to receive a year-end statement from the custodian for 2015 sometime in early 2016, so maybe just wait for (and watch for) that. And take this as an object lesson that you need to keep better track of your finances. No one's going to do it for you (unless you pay them a bunch of money).\"","I don't know about keeping different rollover IRAs separate. But I know that there is a reason to keep rollover IRAs separate from other traditional IRAs -- if you want to roll them back into a 401(k) in the future, some 401(k)s only allow funds that were rolled over from a 401(k) originally.","I would track it using a regular asset account. The same way I would track the value of a house, a car, or any other personal asset. ETA: If you want automatic tracking, you could set it up as a stock portfolio holding shares of the GLD ETF. One share of GLD represents 1/10 ounce of gold. So, if you have 5 ounces of gold, you would set that up in Quicken as 50 shares of GLD.","Google Portfolio does the job: https://www.google.com/finance/portfolio You can add transaction data, view fundamentals and much more.","Yes, add the stocks/mutual funds that you want and then you would just need to add all the transactions that you theoretically would have made. Performing the look up on the price at each date that you would have sold or bought is quite tedious as well as adding each transaction.","\"Mint.com does this quite well. The graph views of your budgets, investments, debts, and other aspects of your financial life can be shown in gestalt, or on a per-account basis (at least, it does for me). See the investment \"\"how it works\"\" page for more information. \"\"Find out whether you're beating the market–or it's beating you. Compare your portfolio to market benchmarks, and instantly see your asset allocation across all your investment accounts: 401k, mutual funds, brokerage accounts, even IRAs.\"\"\"","I found that an application already exists which does virtually everything I want to do with a reasonable interface. Its called My Personal Index. It has allowed me to look at my asset allocation all in one place. I'll have to enter: The features which solve my problems above include: Note - This is related to an earlier post I made regarding dollar cost averaging and determining rate of returns. (I finally got off my duff and did something about it)","The portfolio manager at Value Research Online does this very nicely. It tracks the underlying holdings of each fund, yielding correct calculations for funds that invest across the board. Take a look at the screenshot from my account: If you have direct equity holdings (e.g., not through a mutual fund), that too gets integrated. Per stock details are also visible.","http://www.irs.gov/pub/irs-pdf/f5498.pdf see the instructions for box 2, it's used to report incoming rollover/transfers. The receiving broker should be acknowledging the transfer with the 5498. If you read the PDF carefully, any incoming money is reported this way.","I've rolled mine over into IRAs, and once you have one rollover account you can roll further 401ks into it-- I've done that.","You can probably roll it over into the new company's 401k too, so just talk to your HR rep there. I set up a separate Vangard IRA so when I changejobs or anything, I just dump my investments into that account and don't have to worry about keep track of them all over the place.","Starting of 2011, your broker has to keep track of all the transactions and the cost basis, and it will be reported on your 1099-B. Also, some brokers allow downloading the data directly to your tax software or to excel charts (I use E*Trade, and last year TurboTax downloaded all the transaction directly from them).","Once upon a time, money rolled over from a 401k or 403b plan into an IRA could not be rolled into another 401k or 403b unless the IRA account was properly titled as a Rollover IRA (instead of Traditional IRA - Roth IRAs were still in the future) and the money kept separate (not commingled) with contributions to Traditional IRAs. Much of that has fallen by the way side as the rules have become more relaxed. Also the desire to roll over money into a 401k plan at one's new job has decreased too -- far too many employer-sponsored retirement plans have large management fees and the investments are rarely the best available: one can generally do better keeping ex-401k money outside a new 401k, though of course new contributions from salary earned at the new employer perforce must be put into the employer's 401k. While consolidating one's IRA accounts at one brokerage or one fund family certainly saves on the paperwork, it is worth keeping in mind that putting all one's eggs in one basket might not be the best idea, especially for those concerned that an employee might, like Matilda, take me money and run Venezuela. Another issue is that while one may have diversified investments at the brokerage or fund family, the entire IRA must have the same set of beneficiaries: one cannot leave the money invested in GM stock (or Fund A) to one person and the money invested in Ford stock (or Fund B) to another if one so desires. Thinking far ahead into the future, if one is interested in making charitable bequests, it is the best strategy tax-wise to make these bequests from tax-deferred monies rather than from post-tax money. Since IRAs pass outside the will, one can keep separate IRA accounts with different companies, with, say, the Vanguard IRA having primary beneficiary United Way and the Fidelity IRA having primary beneficiary the American Cancer Society, etc. to achieve the appropriate charitable bequests.","\"You can have as many IRA accounts as you want (whether Roth or Traditional), so you can have a Roth IRA with American Funds and another Roth IRA with Vanguard if you like. One disadvantage of having too many IRA accounts with small balances in each is that most custodians (including Vanguard) charge an annual fee for maintaining IRA accounts with small balances but waive the fee if the balance is large. So it is best to keep your Roth IRA in just one or two funds with just one or two custodians until such time as investment returns plus additional contributions made over the years makes the balances large enough to diversify further. Remember also that you cannot contribute the maximum to each IRA; the sum total of all your IRA contributions (doesn't matter whether to Roth or to Traditional IRAs) for any year must satisfy the limit for that year. You can move money from one IRA of yours to another IRA (of the same type) of yours without any tax issues to worry about. Such movements (called rollovers or transfers) are not contributions and do not count towards the annual contribution limit. The easiest way to do move money from one IRA account to another IRA account is by a trustee-to-trustee transfer where the money goes directly from one custodian (American Funds in this case) to the other custodian (Vanguard in this case). The easiest way of accomplishing this is to call Vanguard or go online on their website, tell them that you are wanting to establish a Roth IRA with them, and that you want to fund it by transferring money held in a Roth IRA with American Funds. Give Vanguard the account number of your existing American Funds IRA, tell them how much you want to transfer over -- $1000 or $20,000 or the entire balance as the case may be -- and tell Vanguard to go get the money. In a few days' time, the money will appear in your new Vanguard Roth IRA and the American Funds Roth IRA will have a smaller balance, possibly a zero balance, or might even be closed if you told Vanguard to collect the entire balance. DO NOT approach American Funds and tell them that you want to transfer money to a new Roth IRA with Vanguard: they will bitch and moan and drag their heels about doing so because they are unhappy to lose your business, and will probably screw up the transfer. Talk to Vanguard only. They are eager to get their hands on your IRA money and will gladly take care of the whole thing for you at no charge to you. DO NOT cash in any stock shares, or mutual fund shares, or whatever is in your Roth IRA in preparation for \"\"cashing out of the old account\"\". There is a method where you take a \"\"rollover distribution\"\" from your American Funds Roth IRA and then deposit the money into your new Vanguard Roth IRA within 60 days, but I recommend most strongly against using this because too many people manage to screw it up. It is 60 days, not two months; the clock starts from the day American Funds cuts your check, not when you get the check, and it is stopped when the money gets deposited into your new account, not the day you mailed the check to Vanguard or the day that Vanguard received it, and so on. In short, DO NOT try this at home: stick to a trustee-to-trustee transfer and avoid the hassles.\"","\"I have a similar situation -- five different accounts between me and my wife. Just as you and @Alex B describe, I maintain my asset allocation across the combination of all accounts. I also maintain a spreadsheet to track the targets, deviations from the targets, amounts required to get back in balance, and overall performance. I (mostly) don't use mutual funds. I have selected, for each category, 1 or 2 ETFs. Choosing index ETFs with low expense ratios and a brokerage with cheap or free trades keeps expenses low. (My broker offers free ETF trades if you buy off their list as long as you aren't short-term trading; this is great for rebalancing for free 2 or 3 times a year.) Using ETFs also solves the minimum balance problem -- but watch out for commissions. If you pay $10 to buy $500 worth of an ETF, that's an immediate 2% loss; trade a couple of times a year and that ETF has to gain 5% just to break even. One issue that comes up is managing cash and avoiding transaction fees. Say your IRA has all the growth stock funds and your Roth has the bonds. Stocks do well and bonds do poorly, so you sell off some stocks, which creates a bunch of cash in your IRA. Now you want to buy some bonds but you don't have enough cash in your Roth, so you buy the bonds in your IRA. Not a problem at first but if you don't manage it you can end up with small amounts of various funds spread across all of your accounts. If you're not careful you can end up paying two commissions (in two different accounts) to sell off / purchase enough of a category to get back to your targets. Another problem I had is that only one account (401k) is receiving deposits on a regular basis, and that's all going into an S&P 500 index fund. This makes it so that my allocation is off by a fair amount every quarter or so -- too much in large cap equities, not enough of everything else. My solution to this going forward is to \"\"over-rebalance\"\" a couple of times a year: sell enough SPY from my other accounts so that I'm under-allocated in large caps by the amount I expect to add to my 401k over the next 3 months. (So that in six months at my next rebalancing I'm only 3 months over-allocated to large caps -- plus or minus whatever gains/losses there are.)\"","Edited in response to JoeTaxpayer's comment and OP Tim's additional question. To add to and clarify a little what littleadv has said, and to answer OP Tim's next question: As far as the IRS is concerned, you have at most one Individual Retirement Account of each type (Traditional, Roth) though the money in each IRA can be invested with as many different custodians (brokerages, banks, etc.) and different investments as you like. Thus, the maximum $5000 ($6000 for older folks) that you can contribute each year can be split up and invested any which way you like, and when in later years you take a Required Minimum Distribution (RMD) from a Traditional IRA, you can get the money by selling just one of the investments, or from several investments; all that the IRS cares is that the total amount that is distributed to you is at least as large as the RMD. An important corollary is that the balance in your IRA is the sum total of the value of all the investments that various custodians are holding for you in IRA accounts. There is no loss in an IRA until every penny has been withdrawn from every investment in your IRA and distributed to you, thus making your IRA balance zero. As long as you have a positive balance, there is no loss: everything has to come out. After the last distribution from your Roth IRA (the one that empties your entire Roth IRA, no matter where it is invested and reduces your Roth IRA balance (see definition above) to zero), total up all the amounts that you have received as distributions from your Roth IRA. If this is less than the total amount of money you contributed to your Roth IRA (this includes rollovers from a Traditional IRA or Roth 401k etc., but not the earnings within the Roth IRA that you re-invested inside the Roth IRA), you have a loss that can be deducted on Schedule A as a Miscellaneous Deduction subject to the 2% AGI limit. This 2% is not a cap (in the sense that no more than 2% of your AGI can be deducted in this category) but rather a threshold: you can only deduct whatever part of your total Miscellaneous Deductions exceeds 2% of your AGI. Not many people have Miscellaneous Deductions whose total exceeds 2% of their AGI, and so they end up not being able to deduct anything in this category. If you ever made nondeductible contributions to your Traditional IRA because you were ineligible to make a deductible contribution (income too high, pension plan coverage at work etc), then the sum of all these contributions is your basis in your Traditional IRA. Note that your deductible contributions, if any, are not part of the basis. The above rules apply to your basis in your Traditional IRA as well. After the last distribution from your Traditional IRA (the one that empties all your Traditional IRA accounts and reduces your Traditional IRA balance to zero), total up all the distributions that you received (don't forget to include the nontaxable part of each distribution that represents a return of the basis). If the sum total is less than your basis, you have a loss that can be deducted on Schedule A as a Miscellaneous Deduction subject to the 2% AGI threshold. You can only deposit cash into an IRA and take a distribution in cash from an IRA. Now, as JoeTaxpayer points out, if your IRA owns stock, you can take a distribution by having the shares transferred from your IRA account in your brokerage to your personal account in the brokerage. However, the amount of the distribution, as reported by the brokerage to the IRS, is the value of the shares transferred as of the time of the transfer, (more generally the fair market value of the property that is transferred out of the IRA) and this is the amount you report on your income tax return. Any capital gain or loss on those shares remains inside the IRA because your basis (in your personal account) in the shares that came out of the IRA is the amount of the distribution. If you sell these shares at a later date, you will have a (taxable) gain or loss depending on whether you sold the shares for more or less than your basis. In effect, the share transfer transaction is as if you sold the shares in the IRA, took the proceeds as a cash distribution and immediately bought the same shares in your personal account, but you saved the transaction fees for the sale and the purchase and avoided paying the difference between the buying and selling price of the shares as well as any changes in these in the microseconds that would have elapsed between the execution of the sell-shares-in-Tim's-IRA-account, distribute-cash-to-Tim, and buy-shares-in-Tim's-personal account transactions. Of course, your broker will likely charge a fee for transferring ownership of the shares from your IRA to you. But the important point is that any capital gain or loss within the IRA cannot be used to offset a gain or loss in your taxable accounts. What happens inside the IRA stays inside the IRA.","\"As other responders said, you can certainly roll over multiple 401(k) into a single account. An added benefit of such rollover (besides the ease of tracking) is that you can shop around for your Rollover IRA provider and find the one that gives you the specific mutual funds that you want to invest in, the lowest expenses, etc. - in short, find the best fit to your priorities. There are also \"\"lemon\"\" 401(k) plans and if you are in one of them, get out! And rollover is the way out. There is also one possibility to keep an eye on as it happens rarely, but it does happen - rolling a 401(k) over into another 401(k). I've done it once when I started a job at a company that had a great 401(k) with a good selection of low-cost mutual funds. I rolled the 401(k) from one previous job in to this 401(k) to take advantage of it. At the same time I kept a Rollover IRA, combining the 401(k) from all other jobs; it had more investment options and provided some flexibility.\"","MB's math is right, but I can describe it in a short sentence. All Traditional accounts are combined, 401(k) rollover is no different from other IRA money. You should have been tracking your non-deducted money via form 8606 so you know this figure. The non-deducted money as a percent of your total balance is the percent of conversion that's not taxed. (To be clear, deducted contributions and growth are not tracked separately, one only tracks the non-deducted deposits.)","R has really good package that lets you calculate the return of rebalanced portfolios. The package is called: PerformanceAnalytics (see: http://www.inside-r.org/packages/cran/PerformanceAnalytics/docs/Return.portfolio). I quickly wrote a small script for you that lets you do exactly what you want. Code: By default the portfolio is rebalanced to an equally weighted portfolio. It is also possible to rebalance your portfolio using custom weights. See the documentation on how to do this. In order for this code to work you need to have your data already in return terms. You can do this easily in Excel. Make sure your data in excel looks like this: Than export your data to a CSV file. Note: before you run the code make sure you have installed the package PerformanceAnalytics. You can do this as follows: Let me know if you have any questions regarding the above.","\"You don't need to use a real stock like GLD. You can just create a \"\"stock\"\" called something like \"\"1 oz Gold\"\" and buy and sell them as if they were shares. It won't auto-update the price like GLD, but that's not a big deal to update manually once a month or so. I prefer to have accurate data that is correct at a particular point in time to having data that is 2-3% off, or that requires entering the ounces as 10x reality. YMMV. This is very similar to how you track US Savings Bonds in Quicken (and might be described in the help under that topic.)\"","\"Quicken for Mac will track stocks and mutual funds and allows you to set the \"\"home\"\" currency.\"","\"To try and address your 'how' it goes a bit like this. You need to first assess how your stuff is invested, if for example half is in stocks, and the other half is in bonds, then you will need to calculate a 'blended' rate for what are reasonable 'average return' for both. That might mean looking at the S&P500 or Russell 3000 for the stock portion, and some bond index for that portion, then 'blend the rates', in this case using a formula like this then compare the blended rate with the return in your IRA. It is generally a lot more useful to compare the various components of your total return separately, especially if you investing with a particular style such as 'agressive growth' or you are buying actual bonds and not a bond fund since most of the bond oriented indexes are for bond funds, which you can't really compare well with buying and holding bonds to maturity. Lets say your stock side was two mutual funds with different styles, one 'large cap' the other 'aggressive growth'. In that case you might want to compare each one of those funds with an appropriate index such as those provided by Morningstar If you find one of them is consistently below the average, you might want to consider finding an alternative fund who's manager has a better track record (bearing in mind that \"\"past performance....\"\") For me (maybe someone has a good suggestion here) bonds are the hard thing to judge. The normal goal of actually owning bonds (as opposed to a fund) is to retain the entire principal value because there's no principal fluctuation if you hold the bond to maturity (as long as you choose well and the issuer doesn't default) The actual value 'right now' of a bond (as in selling before maturity) and bond funds, goes up and down in an inverse relationship with interest rates. That means the indexes for such things also go up and down a lot, so it's very hard to compare them to a bond you intend to hold to maturity. Also, for such a bond, there's not a lot of point to 'switch out' unless you are worried about the issuer defaulting. If rates are up from what you are getting on your bonds, then you'll have to sell your bond at a discount, and all that happens is you'll end up holding a different bond that is worth less, but has higher interest (basically the net return is likely to be pretty much the same). The better approach there is generally to 'ladder' your maturity dates so you get opportunities to reinvest at whatever the prevailing rates are, without having to sell at a discount.. anyway the point is that I'm not sure there's a lot of value to comparing return on the bond portion of an IRA unless it's invested in bond funds (which a lot of people wanting to preserve principal tend to avoid)\"","Calculating and adjusting cost basis accurately is a daunting task, but there is a (paid) online tool, NetBasis, which will automatically calculate and adjust your cost basis. It is used by brokerage firms and Fortune 500 companies and is available to the public. Go to netbasis.com. All you need are the purchase and sale dates and shares of the stock or mutual fund and the system has the rest of the information, such as corporate actions (splits, spin-offs, etc), pricing, and dividends and it also will apply the appropriate IRS rules for inherited and gifted shares. The regulation also gives investors the option to choose calculation methods. Not only does NetBasis automatically calculate the method you choose, it will also give the results for all options and allow you to choose the best result. NetBasis also provides you with detailed supporting documentation which shows all of the calculations and the adjustments in chronological order. NetBasis has data going back as far as 1925, so it will accurately calculate cost basis for your old American Telegraph and Telephone shares. NetBasis also handles complex investment scenarios such as wash sales, short sales, return of capital, etc. Moderator's note: Disclosure: The answerer's profile indicates they are affiliated with NetBasis.","If you have enough assets at T Rowe Price, you get what I think is a scaled back version of the portfolio tracker for free.","I would check to see what the fee schedule is on your previous employer's 401k. Depending on how it was setup, the quarterly/annual maintenance fee may be lower/higher than your current employer. Another reason to rollover/not-rollover is that selection of funds available is better than the other plan. And of course always consider rolling over your old plan into a standard custodial rollover IRA where the management company gives you a selection of investment options. At least look at the fees and expense ratios of your prior employer's plan and see if anything reaches a threshold of what you consider actionable and worth your time. Note: removed reference to self directed IRA as vehicle is more complicated account type allowing for more than just stocks, bonds, and mutual funds. Not for your typical retail investor.","Use TWIRR (aka TWRR). Time Weighted rate of return. It's sort of the opposite of XIRR. XIRR results change dramatically depending on the timing of the cashflows. It might be useful to also model returns that are unaffected by the timing. This is how funds report returns, and this number allows you to compare to funds and indices. During periods of steady deposits, XIRR will continually understate performance. And in retirement, when you have steady withdrawals, XIRR will overstate. TWRR is talked about here: http://www.dailyvest.com/PRR/prr_calcmethods.aspx#twrr I've made a simple spreadsheet that you can use as a starting point, if you like: http://moosiefinance.com/static/models/spreadsheets.html (top entry in the list)","Is there a way in bloomberg to calculate the total return if one purchased $100 worth of 10 Year US Notes at time X and perpetually rolled the principal once the bond matured until the present? I've been able to historically use the COMP function to compare equity and ETF total returns, but curious if this function can be expanded to measure returns against commodities, treasuries, and other debt products. Unfortunately im having trouble pulling in the appropriate continuous commodity and treasury tickers.","You are looking for the Internal Rate of Return. If you have a spreadsheet like Microsoft Excel you can simply put in a list of the transactions (every time money went in or out) and their dates, and the spreadsheet's XIRR function will calculate a percentage rate of return. Here's a simple example. Investment 1 was 100,000 which is now worth 104,930 so it's made about 5% per year. Investment 2 is much more complicated, money was going in and out, but the internal rate of return was 7% so money in that investment, on average, grew faster than money in the first investment.","\"Google Docs spreadsheets have a function for filling in stock and fund prices. You can use that data to graph (fund1 / fund2) over some time period. Syntax: =GoogleFinance(\"\"symbol\"\", \"\"attribute\"\", \"\"start_date\"\", \"\"num_days|end_date\"\", \"\"interval\"\") where: This analysis won’t include dividends or distributions. Yahoo provides adjusted data, if you want to include that.\"","For the rollover, you should probably talk to the recipient manager. This would be your broker or whomever (your new employer if rolling into another 401k). They should be able to update you on progress and let you know if you need to do anything. In a comment, you say I could be putting in money but instead im lossing. There is no requirement that an IRA have 401k money in it. Just put the money in without the existing money. Eventually the rollover will complete and add that money to whatever you contribute to the IRA. The rollover should not affect your future contributions in any way.","Google Finance will do all the bullet points in your list and a few more. The only drawback is that you have to enter ALL buy and sell manually. It has an import feature, but it does not work with all trading software. http://www.google.com/finance Let me know if it works. Also, yahoo.com/finance has a good tool, but I still like better Google's application.","Here's a few demo steps, first calculating the year to date return, then calculating the Q4 quarterly return based on the cumulative returns for Q3 and Q4. It's fine to use closing price to closing price as return periods.","The number you are trying to calculate is called the Internal Rate of Return (IRR). Google Spreadsheets (and excel) both have an XIRR function that can do this for you fairly simply. Setup a spreadsheet with 1 column for dates, 1 column for investment. Mark your investments as negative numbers (payment to invest). All investments will be negative. Mark your last row with today's date and today's valuation (positive). All withdrawals will be positive, so you are pretending to withdrawal your entire account for the purpose of calculation. Do not record dividends or other interim returns unless you are actually withdrawing money. The XIRR function will calculate your internal rate of return with irregularly timed investments. Links: Article explaining XIRR function (sample spreadsheet in google docs to modify)","Toward the philosophical side of your question, it seems to me that what is most important is knowing how well your fund is performing versus it's benchmark. This is an actionable piece of information that can help you get out of an under-performing fund, although if you're already using Vanguard it's likely a low cost and broadly diversified fund. Ultimately, what you want to avoid over the long term is under-performing the market due to high fees, market timing, poor fund selection etc., and selecting a fund that closely tracks the market seems to be the best way to achieve this, assuming that you intend to be a passive investor. I don't see a clear benefit to calculating a personal rate of return. If the fund is performing well versus its benchmark, you are likely to stay with it, and if it is performing poorly, you are likely to pull out. At the end of the day, the complicated accounting won't actually change the amount you've got in your account, so I'd recommend picking a good fund, checking up on it once in a great while, and putting your time to better purpose.","\"I found your post while searching for this same exact problem. Found the answer on a different forum about a different topic, but what you want is a Cash Flow report. Go to Reports>Income & Expenses>Cash Flow - then in Options, select the asset accounts you'd like to run the report for (\"\"Calle's Checking\"\" or whatever) and the time period. It will show you a list of all the accounts (expense and others) with transactions effecting that asset. You can probably refine this further to show only expenses, but I found it useful to have all of it listed. Not the prettiest report, but it'll get your there.\"","I currently use Moneydance on my Mac. Before that I had used Quicken on a PC until version 2007. It is pretty good, does most simple investment stuff just fine. It can automatically download prices for regular stocks. Mutual funds I have to input by hand.","Have you looked into GnuCash? It lets you track your stock purchases, and grabs price updates. It's designed for double-entry accounting, but I think it could fit your use case.","There are at least a couple of ways you could view this to my mind: Make an Excel spreadsheet and use the IRR function to compute the rate of return you are having based on money being added. Re-invested distributions in a mutual fund aren't really an additional investment as the Net Asset Value of the fund will drop by the amount of the distribution aside from market fluctuation. This is presuming you want a raw percentage that could be tricky to compare to other funds without doing more than a bit of work in a way. Look at what is the fund's returns compared to both the category and the index it is tracking. The tracking error is likely worth noting as some index funds could lag the index by a sizable margin and thus may not be that great. At the same time there may exist cases where an index fund isn't quite measuring up that well. The Small-Growth Indexing Anomaly would be the William Bernstein article from 2001 that has some facts and figures for this that may be useful.","I’m going to answer this because: Accounting books only reflect the dollar value of inventories. Which means if you look at the balance sheet of McDonalds, you will not see how many bags of French fries are remaining at their storage facility, you will only see the total value at cost basis. Your requirement for noting the number of shares purchased is not part of the double entry accounting system. When you transfer $10000 from bank to broker, the entries would be: The bank’s name and the broker’s name will not appear on the balance sheet. When you purchase 50 shares at $40 per share, the accounting system does not care about the number of shares or the price. All it cares is the $2000 total cost and the commission of $10. You have two choices, either place $10 to an expense account, or incorporate it into the total cost (making it $2010). The entries for the second method would be: Now your balance sheet would reflect: What happens if the price increases from $40 per share to $50 per share tomorrow? Do nothing. Your balance sheet will show the cost of $2010 until the shares are sold or the accounting period ends. It will not show the market value of $2500. Instead, the Portfolio Tracker would show $2500. The most basic tracker is https://www.google.com/finance/portfolio . Later if you finally sell the shares at $50 per share with $10 commission: Again, the number of shares will not be reflected anywhere in the accounting system. Only the total proceeds from the sale matters.","I use Yahoo Finance to plot my portfolio value over time. Yahoo Finance uses SigFig to link accounts (I've linked to Fidelity), which then allows you to see you exact portfolio and see a plot of its historical value. I'm not sure what other websites SigFig will allow you to sync with, but it is worth a try. Here is what the plot I have looks like, although this is slightly out of date, but still gives you an idea of what to expect.","No that is not a rollover. Many employees have experienced a change of management companies. Sometimes these switches are due to a merger, an acquisition, or just to save money. It is understandable that the old employer would like to see you transfer your funds to either your new employer, or roll them over into a IRA/Roth IRA. So it is not unexpected that they will take this opportunity to nudge you. The thing that congress was trying to prevent were serial rollovers of IRAs. These people would use the 60 day window to have in essence a loan. Some would do this multiple times a year; always making sure they replaced the money in time. The IRA One-Rollover-Per-Year Rule Beginning in 2015, you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own (Announcement 2014-15 and Announcement 2014-32). The limit will apply by aggregating all of an individual’s IRAs, including SEP and SIMPLE IRAs as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit. Direct transfers of IRA money are not limited This change won’t affect your ability to transfer funds from one IRA trustee directly to another, because this type of transfer isn’t a rollover (Revenue Ruling 78-406, 1978-2 C.B. 157). The one-rollover-per-year rule of Internal Revenue Code Section 408(d)(3)(B) applies only to rollovers. Note that the law doesn't mention 401K/403B or the federal TSP. When the 401K changes management companies that is not a rollover.","I'd roll them all into one account, just for your own convenience. It's a pain to keep track of lots of different accounts, esp. since you need logins/passwords, etc for all of them, and we all have plenty of those. :) Pick a place like Vanguard or Fidelity (for example), where you can find investment options with lower fees, and do the standard rollover. Once all the accounts are rolled into one, you can think about how to invest the stuff. (Some good investments require larger minimums, so if you have several old 401ks, putting them together will give you more options.) Rolling them over is not hard, if you have paperwork from each of the 401ks. You might be able to DIY online, but I found it helpful to call and talk to a person when I did this. You just need account numbers, etc. If you are moving brokerage accounts, you may need to provide paper documents/applications, which might require getting them notarized (I found a notary at my bank, even though the accounts I was moving from and to weren't at my bank), which means you'll need to provide IDs, etc. and get a special crimped seal after the notary witnesses your signature.","You can create cash accounts within Quicken. These accounts are virtual. You can move money between the cash accounts so that you can track saving towards a multiple purposes. Some people have used this to emulate the envelope system of budgeting.","\"In the case of Fidelity, the answer is \"\"no.\"\" Although when you leave your employer and roll over the account to an IRA, leaving it with Fidelity allowed me to keep money in those closed funds. My Roth IRA was not able/allowed to buy those funds.\"","I have asked myself this exact same question many times. The analysis would be simple if you invested all your money in a single day, but I did not and therefore I would need to convert your cash transactions into Index fund buys/sells. I got tired of trying to do this using Yahoo's data and excel so I built a website in my spare time. I humbly suggest you try my website out in the hopes that it helps you perform this computation: http://www.amibeatingthemarket.com/","Treat each transaction as separate, with its own principal, its own gain, and its own number of days. Then the total annualized return is just a weighted average of each annualized return, with the weighting related to the number of shares in that transaction.","Adapted from an answer to a somewhat different question. Generally, 401k plans have larger annual expenses and provide for poorer investment choices than are available to you if you roll over your 401k investments into an IRA. So, unless you have specific reasons for wanting to continue to leave your money in the 401k plan (e.g. you have access to investments that are not available to nonparticipants and you think those investments are where you want your money to be), roll over your 401k assets into an IRA. But I don't think that is the case here. If you had a Traditional 401k, the assets will roll over into a Traditional IRA; if it was a Roth 401k, into a Roth IRA. If you had started a little earlier, you could have considered considered converting part or all of your Traditional IRA into a Roth IRA (assuming that your 2012 taxable income will be smaller this year because you have quit your job). Of course, this may still hold true in 2013 as well. As to which custodian to choose for your Rollover IRA, I recommend investing in a low-cost index mutual fund such as VFINX which tracks the S&P 500 Index. Then, do not look at how that fund is doing for the next thirty years. This will save you from the common error made by many investors when they pull out at the first downturn and thus end up buying high and selling low. Also, do not chase after exchange-traded mutual funds or ETFs (as many will likely recommend) until you have acquired more savvy or interest in investing than you are currently exhibiting. Not knowing which company stock you have, it is hard to make a recommendation about selling or holding on. But since you are glad to have quit your job, you might want to consider making a clean break and selling the shares that you own in your ex-employer's company. Keep the $35K (less the $12K that you will use to pay off the student loan) as your emergency fund. Pay off your student loan right away since you have the cash to do it.","I'm using iBank on my Mac here and that definitely supports different currencies and is also supposed to be able to track investments (I haven't used it to track investments yet, hence the 'supposed to' caveat).","401(k)'s can be rolled over into IRAs. You can roll all of your former company 401(k)'s into a single IRA, managed by whatever company you like. Many employers will not let you transfer money out of your 401(k) while you're still a current employee, though, so you may be stuck with the 401(k) used by your current company until you leave. You'll have to check with your 401(k) administrator to be sure. You won't incur any taxes as long as you execute the rollovers properly. The best way to do it is to coordinate the transfer directly between your old 401(k) and your new IRA, so the check is never sent directly to you.","What you want is a position transfer, likely by ACATS. This is a transfer from one IRA to another without having to liquidate positions to do so. In effect, the brokerage firm is just transferring records from your existing IRA to your new IRA. You will need to watch out to make sure your new IRA account can hold your positions for this to work. For example, some brokerages allow you to hold fractional shares but others don't. (The fractional share amounts would be sold automatically prior to transfer.) Another example might be different fund families could be allowed between different brokerages. The general process is open your new IRA account, initiate the ACATS xfer from your new account, your old IRA account brokerage sends the positions over, and after a week or so your new IRA brokerage notifies you that everything is transferred. I've switched IRAs a couple times via this mechanism and never been charged a fee, but I've always stuck with the larger brokerages like Fidelity, TD Ameritrade, and Interactive Brokers.","\"My answer is Microsoft Excel. Google \"\"VBA for dummies\"\" (seriously) and find out if your brokerage offers an 'API'. With a brief understanding of coding you can get a spreadsheet that is live connected to your brokers data stream. Say you have a spreadsheet with the 1990 value of each in the first two columns (cells a1 and b1). Maybe this formula could be the third column, it'll tell you how much to buy or sell to rebalance them. then to iterate the rebalance, set both a2 and b2 to =C1 and drag the formula through row 25, one row for each year. It'll probably be a little more work than that, but you get the idea.\"","\"I will give a slightly different answer which is actually an addendum to JoeTaxpayer's (soon-to-be-edited) answer. Do NOT go to your financial advisor and ask him \"\"How do I go about transferring my Roth IRA to ....\"\"? where .... is whichever broker or mutual fund family that you have chosen from the list that Joe has suggested. Instead, go to the website of the new group (or call their toll-free number) and tell them \"\"I want to open a Roth IRA account with you and fund it by transferring all the money in my Roth IRA from First Clearing.\"\" Your new Roth IRA custodian will take care of all the paperwork and get the money transferred over at no cost to you except possibly fielding a weepy call from your current financial advisor because he had just ordered his new Lamborghini and now will have difficulty making payments on his auto loan. \"\"Why are you leaving me? After all the years we have had together?\"\" You will need to choose some place to put the money, and I suggest that you use their S&P 500 Index Fund, not the S&P 500 ETF, just the standard vanilla S&P 500 Index Mutual Fund. This recommendation is almost heresy in this forum, but it is better to pay the extra 0.01% fee that the Fund charges over and above the ETF until you become a little more savvy and are ready to branch out into individual stocks (which is when you really need a brokerage account). Revelation: I have never made the transition and invest only in mutual funds which does not require a brokerage account. After doing all this, pay no attention whatsoever to your Roth IRA investment or how the S&P 500 Index is doing for the next 20 years. This will help avoid the temptation of taking all your money out just because the Index went down a little. Everybody is told \"\"Buy Low, Sell High\"\" but far too many folks end up doing exactly the opposite: buying because the stock market is up and selling when it starts going down.\"","You are right; Rollover is a process, and not an account type; the result is a Traditional IRA. There is no such thing as a 'Rollover IRA Account'. Rolling a 401(k) over to a Traditional IRA makes sense if a) you have to, because you leave the employer the 401(k) is with; b) because you Traditional IRA is cheaper or more flexible or in other ways 'better' for you, or c) if your next step is a backdoor rollover to a Roth IRA. Most of the time, it doesn't make sense, because employer 401(k) are often better and cheaper. Of course, for the investment company where you roll it too, it makes a lot of sense, because they get your money, so they recommend it. But that's only good for them, not for you. Of course you can roll into an existing account, if you want to roll. Making a new account has no advantage. I cannot imagine any IRA custodian wouldn't take rollovers; they would shoot themselves in the foot by that. What can happen - and you should consider this - that your IRA only accepts cash, and does not allow to transfer the shares you have in the 401(k). That means you have to sell and then re-buy, and you might lose a lot in fees there.","Taxes Based on the numbers you quoted (-$360) it doesn't appear that you would have a taxable event if you sell all the shares in the account. If you only sell some of the shares, to fund the new account, you should specify which shares you want to sell. If you sell only the shares that you bought when share prices were high, then every share you sell could be considered a loss. This will increase your losses. These losses can be deducted from your taxes, though there are limits. Fees Make sure that you understand the fee structure. Some fund families look at the balance of all your accounts to determine your fee level, others treat each fund separately. Procedure If you were able to get the 10K into the new account in the next few months I would advise not selling the shares. Because it will be 6 to 18 months before you are able to contribute the new funds then rebalancing by selling shares makes more sense. It gets you to your goal quicker. All the funds you mentioned have low expense ratios, I wouldn't move funds just to chase a the lowest expense ratio. I would look at the steps necessary to get the mix you want in the next few weeks, and then what will be needed moving forward. If the 60/40 or 40/60 split makes you comfortable pick one of them. If you want to be able to control the balance via rebalancing or changing your contribution percentage, then go with two funds.","When you pick a company for your IRA, they should have information about rolling over funds from another IRA or a 401K. They will be able to walk you through the process. There shouldn't be a fee for doing this. They want your money to be invested in their funds. Once your money is in their hands they are able to generate their profits. You will want to do a direct transfer. Some employers will work with the investment companies and send the funds directly to the IRA. Others will insist on sending a check to you. The company that will have your IRA should give you exact specifications for the check so that you won't have to cash it. The check will be payable to you or the IRA account. The IRA company will have all the details. Decide if you will be converting non-Roth to Roth, before doing the rollover.","\"Stocks, as an asset, represent the sum of the current market value of all of your holdings. If your portfolio is showing unrealized gains and losses, then that net amount is inherently reflected in the current market value of your holdings. That's not to say cost basis is not important. Any closed trades, realized gains or losses, will of course have an impact on your taxable income. So, it couldn't hurt to keep track of your cost basis from a tax standpoint, but understand that the term \"\"asset\"\" refers to the current market values and does not consider base amounts. Taxes do. Perhaps consider making separate cells for cost basis, but also bear in mind that most if not all of the major online discount brokers will provide transferring of cost basis information electronically to the major online tax service providers.\"","You can evaluate portfolio raw returns or risk adjusted returns. To evaluate raw returns, I would personally compute the total returns over the time period in question for both portfolios. To compute total returns, split the time into a bunch of subperiods by the dates at which you contributed money. Compute each subperiod return by dividing the value of the portfolio at the end of the subperiod (but before adding additional cash on that day) by the value at the beginning of the subperiod (after adding cash on that day). Then multiply all these returns together. Finally, subtract 1. That's your total return. For the portfolio where you didn't add any money it's easy: just divide the end value by the beginning and subtract 1. Whichever has a higher return performed better. To compute risk adjusted returns, get the portfolio returns from both portfolios (daily or monthly) and use OLS to regress on a benchmark portfolio return (something like the S&P500). The intercept of the regression is a measure of the risk-adjusted peformance of your portfolio. Higher the better. More sophisticated models will do multiple regression using a few benchmark portfolios at the same time.","\"There are two ways to handle this. The first is that the better brokers, such as Charles Schwab, will produce summaries of your gains and losses (using historical cost information), as well as your trades, on a monthly and annual basis. These summaries are \"\"ready made\"\" for the IRS. More brokers will provide these summaries come 2011. The second is that if you are a \"\"frequent trader\"\" (see IRS rulings for what constitutes one), then they'll allow you to use the net worth method of accounting. That is, you take the account balance at the end of the year, subtract the beginning balance, adjust the value up for withdrawals and down for infusions, and the summary is your gain or loss. A third way is to do all your trading in say, an IRA, which is taxed on distribution, not on stock sales.\"","You would need to use Trading Accounts. You can enable this, File->Properties->Account settings tab, and check Use Trading Accounts. For more details see the following site: http://wiki.gnucash.org/wiki/Trading_Accounts","\"Note that mutual funds' quarterly/annual reports usually have this number. I generally just let my home-accounting software project my future net worth; its numbers agree well enough with those I've gotten from more \"\"professional\"\" sources such as monte-carlo modelling. (They'd agree better if I fed in all the details of my paycheck, but I don't feel like doing the work to keep that up to date.) I'm using Quicken, but I assume MS Money and other competitors have the same capability if you buy the appropriate version.\"","\"A long time ago, in a galaxy far far away, Rollover IRAs were used for funds that came from (were rolled over from) a 401(k) account or a 403(b) account. All that money (including any earnings in the interim) could be rolled over into a 401(k) plan with a new employer etc. One could make a regular contribution to a Rollover IRA but once such a commingling of money occurred, none of the money in the Rollover IRA could be rolled over into a 401(k) account etc. In those good old days when contributions to IRAs were made by paper check and \"\"deposit slip\"\", one had to write a letter to the Rollover IRA custodian certifying that the IRA owner understood that the contribution would destroy forever the possibility of rolling over the money into another 401(k) etc. All this went by the wayside a few years ago when the law changed and the distinction between Rollover IRAs and ordinary Traditional IRAs was eliminated. Commingling of IRA contributions and Rollover money from 401(k)s are permitted, and the entire IRA balance could be rolled over into a new 401(k) plan (provided the new plan accepted rollovers). However the adjectives still persist; like chili555, I too have IRAs that are still called Rollover IRA, they all have commingled funds, and if the law ever changes back, none of those IRA accounts would be eligible for rolling over into a new 401(k).\"","\"It can be pretty hard to compute the right number. What you need to know for your actual return is called the dollar-weighted return. This is the Internal Rate of Return (IRR) http://en.wikipedia.org/wiki/Internal_rate_of_return computed for your actual cash flows. So if you add $100 per month or whatever, that has to be factored in. If you have a separate account then hopefully your investment manager is computing this. If you just have mutual funds at a brokerage or fund company, computing it may be a bunch of manual labor, unless the brokerage does it for you. A site like Morningstar will show a couple of return numbers on say an S&P500 index fund. The first is \"\"time weighted\"\" and is just the raw return if you invested all money at time A and took it all out at time B. They also show \"\"investor return\"\" which is the average dollar-weighted return for everyone who invested in the fund; so if people sold the fund during a market crash, that would lower the investor return. This investor return shows actual returns for the average person, which makes it more relevant in one way (these were returns people actually received) but less relevant in another (the return is often lower because people are on average doing dumb stuff, such as selling at market bottoms). You could compare yourself to the time-weighted return to see how you did vs. if you'd bought and held with a big lump sum. And you can compare yourself to the investor return to see how you did vs. actual irrational people. .02, it isn't clear that either comparison matters so much; after all, the idea is to make adequate returns to meet your goals with minimum risk of not meeting your goals. You can't spend \"\"beating the market\"\" (or \"\"matching the market\"\" or anything else benchmarked to the market) in retirement, you can only spend cash. So beating a terrible market return won't make you feel better, and beating a great market return isn't necessary. I think it's bad that many investment books and advisors frame things in terms of a market benchmark. (Market benchmarks have their uses, such as exposing index-hugging active managers that aren't earning their fees, but to me it's easy to get mixed up and think the market benchmark is \"\"the point\"\" - I feel \"\"the point\"\" is to achieve your financial goals.)\"","\"Does your current 401(k) have low fees and good investment choices? If so you might be able to \"\"roll-in\"\" your rollover IRA to your 401(k), then do a backdoor Roth IRA contribution. A Roth IRA would be far more useful than a non-deductible traditional IRA.\"","Instead of a price chart can use a performance chart, which is usually expressed as a percentage increase from the original purchase price. To factor in the dividends, you can either add in all of your dividends to the final price, or subtract the accumulated dividends from your cost basis (the initial price).","\"According to page 56 of the 2015 IRS Publication 550 on Investment Income and Expenses: Wash sales. Your holding period for substantially identical stock or securities you acquire in a wash sale includes the period you held the old stock or securities. It looks like the rule applies to stocks and other securities, including options. It seems like the key is \"\"substantially identical\"\". For your brokerage / trading platform to handle these periods correctly for reporting to IRS, it seems best to trade the same security instead of trying to use something substantially identical.\"","If you have just started an IRA (presumably with a contribution for 2012), you likely have $5000 in it, or $10,000 if you made a full contribution for 2013 as well. At this time, I would recommend putting it all in a single low-cost mutual fund. Typically, mutual funds that track an index such as the S&P 500 Index have lower costs (annual expense fees) than actively managed funds, and most investment companies offer such mutual funds, with Fidelity, Vanguard, Schwab, to name a few, having very low expenses even among index funds. Later, when you have more money in the account, you can consider diversifying into more funds, buying stocks and bonds, investing in ETFs, etc. Incidentally, if you are just starting out and your Roth IRA is essentially your first investment experience, be aware that you do not need a brokerage account for your Roth IRA until you have more money in the account to invest and specifically want to buy individual stocks and bonds instead of just mutual funds. If you opened a brokerage account for your Roth IRA, close it and transfer the Roth IRA to your choice of mutual fund company; else you will be paying annual fees to the brokerage for maintaining your account, inactivity fees since you won't be doing any trading, etc. The easiest way to do this is to go to the mutual fund company web site and tell them that you want to transfer your IRA to them (not roll over your IRA to them) and they will take care of all the paper work and collecting your money from the brokerage (ditto if your Roth IRA is with a bank or another mutual fund company). Then close your brokerage account.","The Investopedia article you linked to is a good start. Its key takeaway is that you should always consider risk-adjusted return when evaluating your portfolio. In general, investors seeking a higher level of return must face a higher likelihood of taking a loss (risk). Different types of stocks (large vs small; international vs US; different industry sectors) have different levels of historical risk and return. Not to mention stocks vs bonds or other financial instruments... So, it's key to make an apples-to-apples comparison against an appropriate benchmark. A benchmark will tell you how your portfolio is doing versus a comparable portfolio. An index, such as the S&P 500, is often used, because it tells you how your portfolio is doing compared against simply passively investing in a diversified basket of securities. First, I would start with analyzing your portfolio to understand its asset allocation. You can use a tool like the Morningstar X-Ray to do this. You may be happy with the asset allocation, or this tool may inform you to adjust your portfolio to meet your long-term goals. The next step will be to choose a benchmark. Given that you are investing primarily in non-US securities, you may want to pick a globally diversified index such as the Dow Jones Global Index. Depending on the region and stock characteristics you are investing in, you may want to pick a more specialized index, such as the ones listed here in this WSJ list. With your benchmark set, you can then see how your portfolio's returns compare to the index over time. IRR and ROI are helpful metrics in general, especially for corporate finance, but the comparison-based approach gives you a better picture of your portfolio's performance. You can still calculate your personal IRR, and make sure to include factors such as tax treatment and investment expenses that may not be fully reflected by just looking at benchmarks. Also, you can calculate the metrics listed in the Investopedia article, such as the Sharpe ratio, to give you another view on the risk-adjusted return.","This should be posted in /r/Personalfinance. Also, do not do what /u/BlitheCalamity is suggesting. 1. If it is an IRA, simply do an ACAT transfer. No taxes will be incurred if the paperwork is filed correctly. Additionally, there is a 60 rollover provision for IRA accounts... another way to get out of a tax penalty for an IRA account. 2. Check the internal fees for your mutual funds. You may have purchased A shares, which I am guessing is the case since your advisor was an Ed Jones advisor. The ongoing internal expense ratio should be rather low so you might want to consider keeping these funds. An ACAT will allow you to transfer your investments to your new account if you want to keep them. (A shares have a onetime high upfront charge, but low ongoing fee. If you've already paid for the fund, why ditch it for another fund that charges a higher ongoing fee but not an upfront fee? Evaluate your costs.) 3. If this is a non-IRA account, still file an ACAT. It is the easiest way to transfer your account. Edit: Silly me, this is clearly a question regarding an IRA. In that case, there is no tax penalty for selling anything and buying within your IRA as long as you do not take the money out. Like I said, please file an ACAT with the new company otherwise you will have to prove to the IRS that you completed the rollover in 60 days. If not, you will pay income tax and a 10% penalty.","The simplest way to consolidate the funds your old 401(k) plans is by doing what's called a Direct Rollover (whereby the funds go directly into the new plan and skips you completely) from each of the old plans into either an IRA that you establish with a provider of your choice or even into your current employer's 401(k) plan if that is available. That way, the funds are in one central account and available to invest. Plus it eliminates the mandatory 20% withholding if the rollover is indirect and is sent to you first before the deposit into the new plan. It is important to bear in mind that you have 60 calendar days from the date of distribution to get the full amount into the new plan and a rollover is considered a tax reportable, but not necessarily a taxable event provided you deposit the funds within the time frame allotted.","If you didn't have deposits, then the growth rate is simply ((p1/p0)^(1/t))-1, where p0 is the initial balance, p1 is the current balance, and t is the number of periods. For example, suppose you started the account with $100,000 in 2000. It's now 2015 -- 15 years later -- and the balance is $240,000. So the growth is: If you're making regular deposits, especially if you're making deposits of unequal amounts, the problem becomes much more complex. The easiest thing to do is probably to create a spreadsheet. Make a column for principle, a column for deposit amount, and a column for percent growth that period. Assuming A is principle and B is deposit, then the formula for growth C is =((A2-A1-B1)/A1-1)*100. Copy this formula down the column and Excel should automatically adjust the row numbers. Assuming you put one row for each month you can see the growth (or loss) month by month. You can get a general idea of what your overall growth rate has been by taking the average of the monthly amounts, but this would not be a truly accurate measure of your total growth because presumably (hopefully) you have more money in the later months than the earlier months. But it would be a good measure of how your investments are doing.","As your question appears in the second half, so will my answer. Like you, I will provide some background. I remember buying gasoline for $1.759 per gallon. I am so old that I remember buying gasoline for $0.759 per gallon. I recently paid $2.759 per gallon. You claim that your relative is not getting a very good return. Some would suggest that, at $2.759 per gallon, I am not getting a very good price on gasoline. Rates, yields, returns and the price of gas are not what they once were. It is actually difficult to get a pretty bad return relative to the current market. I suspect your relative is no longer getting what he used to get but he is getting a fair return. About record keeping. Your Uncle Sam benefits at your expense when you keep poor records. There are substantial penalties for failing to report everything. Most high school graduates can manage one checking account, one savings account, several charge cards and about 20 CDs and stocks at different institutions with little more than the following: a) a wall calendar b) a shoe box and c) a stack of 3 by 5 cards. Don't misplace the shoe box. If you can use a spreadsheet, it is even easier. Backup your data. There are a several reasons why you shouldn't consolidate all his cash and put it in a single mutual fund account and then put together a mix of investments that work well for him. - you are doing it backwards 1st put together a mix of investments that work well for him 2nd consolidate the assets. Your phrasing suggests a general lack of understanding - most CDs have penalties for early withdrawal. - while you enjoy managing your 401K in a single online account, your older relative might not be as comfortable with a lack of paper statements (see shoe box above) Let me tell you a little about my 401K. x% blue chip, y% small cap, z% bonds, w% foreign stock. Once a quarter, I change my current contribution to re-balance current value towards my target percentages. Every 30 months or so, I consider changing my asset allocation. The allocation considers my age, my spouses age, our childrens ages, my risk tolerance and my intermediate view of the markets. Your mileage my vary. to recap","\"You are overthinking it. Yes there is overlap between them, and you want to understand how much overlap there is so you don't end up with a concentration in one area when you were trying to avoid it. Pick two, put your money in those two; and then put your new money into those two until you want to expand into other funds. The advantage of having the money in an IRA held by a single fund family, is that moving some or all of the money from one Mutual fund/ETF to another is painless. The fact it is a retirement account means that selling a fund to move the money doesn't trigger taxes. The fact that you have about $10,000 for the IRA means that hopefully you have decades left before you need the money and that this $10,00 is just the start. You are not committed to these investment choices. With periodic re-balancing the allocations you make now will be adjusted over the decades. One potential issue. You said: \"\"I'm saving right not but haven't actually opened the account.\"\" I take it to mean that you have money in a Roth TRA account but it isn't invested into a stock fund, or that you have the money ready to go in a regular bank account and will be making a 2015 contribution into the actual IRA before tax day this year, and the 2016 contribution either at the same time or soon after. If it is the second case make sure you get the money for 2015 into the IRA before the deadline.\"","Yes you can rollover as many different 401ks into a single IRA account. I have done it personally and it really cuts down on the overhead of keeping up with lots of different accounts. Your brokerage or mutual fund company should be able to help you with it. If you are using a company that just gives you forms and those forms don't mention an easy way to combine. Then I suggest rolling over one 401k first then once that's finished you can rollover the other 401k into that same account.","Set your xirr formula to a very tall column, leaving lots of empty rows for future additions. In column C, instead of hardcoding the value, use a formula that tests if it's the current bottom entry, like this: =IF(ISBLANK(A7),-C6, C6) If the next row has no date entered (yet), then this is the latest value, and make it negative. Now, to digress a bit, there are several ways to measure returns. I feel XIRR is good for individual positions, like holding a stock, maybe buying more via DRIP, etc. For the whole portfolio it stinks. XIRR is greatly affected by timing of cash flows. Steady deposits and no withdrawals dramatically skew the return lower. And the opposite is true for steady withdrawals. I prefer to use TWRR (aka TWIRR). Time Weighted Rate of Return. The word 'time' is confusing, because it's the opposite. TWRR is agnostic to timing of cashflows. I have a sample Excel spreadsheet that you're welcome to steal from: http://moosiefinance.com/static/models/spreadsheets.html (it's the top entry in the list). Some people prefer XIRR. TWRR allows an apples-to-apples comparison with indexes and funds. Imagine twin brothers. They both invest in the exact same ideas, but the amount of cash deployed into these ideas is different, solely because one brother gets his salary bonus annually, in January, and the other brother gets no bonus, but has a higher bi-weekly salary to compensate. With TWRR, their percent returns will be identical. With XIRR they will be very different. TWRR separates out investing acumen from the happenstance timing of when you get your money to deposit, and when you retire, when you choose to take withdrawals. Something to think about, if you like. You might find this website interesting, too: http://www.dailyvest.com/","\"Rolling an old 401k into a new 401k is generally only for ease of management. For example, how many bank accounts do you really want? As long as the funds are reasonably allocated I've found it can be a useful \"\"mind game\"\" to leave it separate. Sometimes it's desirable to ignore an account and let it grow, and it is a nice surprise when finally adding all the account balances together. In other words, I keep thinking I've got X (the amount of my biggest or current 401k), which affects/helps my habits and desire to save. When I add them all together I'm shocked to find out I've got Y (the total of all accounts). Personally, I've had big paperwork problems transferring an old 403b (same type process as 401k) even when I had an adviser helping me move it. In the end it was worth moving it, because I'm having the adviser manage it. I'm actually writing this answer specifically because I recently moved a big 401k into a Traditional IRA. A rep from the brokerage, representing my previous employer, kept calling me to find out how they could help (I didn't brush him off). I found that using an IRA provided me with the opportunity to do self-guided investments in funds or even individual stocks, well beyond the limited selection of the old company's 401k. It was useful/interesting to me to invest in low-fee vehicles such as index funds (ie: the Buffett recommendation), and I'll find some stocks as well. Oh and when the old company 401k has certain funds being discontinued, I didn't want to notice the mandated changes years later. So, I'd suggest you consider management and flexibility of the 401k or equivalent, and any of your special personal circumstances/goals. If you end up with a few retirement accounts, I suggest you use an account aggregating website to see or follow your net worth. I know many who, based on various concerns and their portfolio, find an acceptable website to use.\"","You can easily build a Google Sheet spreadsheet to track what you want as Sheet has a 'googlefinance()' function to look-up the same prices and data you can enter and track in a Google Finance portfolio, except you can use it in ways you want. For example, you can track your purchase price at a fixed exchange rate, track the current market value as the product of the stock's price times the floating exchange rate, and then record your realized profit and loss using another fixed exchange rate. You don't have to record the rates either, as googlefinance() func is able to lookup prices as of a particular date. You can access Google Sheet through a web browser or Android app.","In a traditional IRA (or 401k or equivalent), income tax is not taken on the money when it is deposited or when dividends are reinvested, but money you take out (after you can do do without penalty) is taxed as if it were ordinary income. (I believe that's true; I don't think you get to take the long-term investment rate.) Note that Roth is the opposite: you pay income tax up front before putting money into the retirement account, but you will eventually withdraw without paying any additional tax at that time. Unlike normal investments, neither of these requires tracking the details to know how much tax to pay. There are no taxes due on the reinvested dividends, and you don't need to track cost basis.","I rolled mine over from the company I was at into my own brokerage house. You can't roll them into a Roth IRA, so I needed to setup a traditional IRA. There is paperwork your old jobs can provide you. I had to put in some mailing addresses, some account numbers and turn them in. My broker received it, I chose what I wanted to invest it in and that was that. No tax penalty or early withdrawal penalty. The key to avoiding penalties is to have your past employers send the money directly to another retirement fund, not send a check to you.","That would be my suggestion (and what I've personally done), but I can't tell you what's right for you. As an aside, you don't usually need to manually fund an IRA (traditional *or* Roth) to open it for a rollover - Just tell them you're doing a rollover, and they'll set you up and tell you where to have the 401k checks sent (and sometimes even arrange it all *for* you).","A rollover IRA is a traditional IRA. Your rollover contributions are not taxed and rollover or counted against your annual limit, which is income dependent. A Roth IRA is one where your contributions will be taxed going into the IRA. Note that there are adjusted gross income maximums for contribution to a Roth IRA (see here), and as far as I can tell those income maximums also determine whether or not you can rollover to a Roth IRA."],"string":"[\n \"When I did this I sold the stock out of my 401k account. Then transferred the cash to my rollover IRA account. No tax event was created for me. Make sure your rollover IRA account is listed as tax deferred. If this still doesn't work for you then it could be a bug in Quicken and your best bet is the Quicken forums. Good luck.\",\n \"Reinvestment creates a nightmare when it comes time to do taxes, sadly. Tons of annoying little transactions that happened automatically... Here's one article trying to answer your question: http://www.smartmoney.com/personal-finance/taxes/figuring-out-your-cost-basis-when-youve-lost-the-statements-9529/ You could also try this thing: http://www.gainskeeper.com/us/BasisProIndividual.aspx But I couldn't tell you if it would help. If it makes you feel better, brokerages are now required by the IRS to track your basis for you, so for new transactions and assets you shouldn't end up in this situation. Doesn't help with the old stuff ;-)\",\n \"Quicken has tools for this, but they have some quirks so i hesitate to actually recommend it on that basis.\",\n \"Perhaps you should use your own tracking software, such as GnuCash, Quicken, Mint, or even Excel. The latter would work given you say you're manually putting in your transactions. There's lots of pre-done spreadsheets for tracking investments if you look around. I'm hoping that a web search gets you help on migrating transaction data, but I've yet to run into any tools to do the export and import beyond a manual effort. Then again, I haven't checked for this lately. Not sure about your other questions, but I'd recommend you edit the question to only contain what you're asking about in the subject.\",\n \"You can use a tool like WikiInvest the advantage being it can pull data from most brokerages and you don't have to enter them manually. I do not know how well it handles dividends though.\",\n \"\\\"I've just started using Personal Capital (www.personalcapital.com) after seeing the recommendation at several places. I believe it gives you what you want to see, but I don't think you can back populate it with old information. So if you log in and link accounts today, you'll have it going forward. I only put in my investment accounts as I use another tool to track my day-to-day spending. I use Personal Capital to track my investment returns over time. How did my portfolio compare to S&P 500, etc. And here is a shot of the \\\"\\\"You Index\\\"\\\" which I think is close to what you are looking for:\\\"\",\n \"You definitely should NOT do what you are doing now (#2) since this is not a reflection of what actually is going on. (Unless you actually did transfer the equities themselves and not the cash.) Your first option is correct solution. As noted by mpenrow you need to make sure that the target account is also tax deferred. If that still doesn't work and there is a bug you should still do it this way anyway. If it messes up your tax planner just make sure to include a comment so that everyone knows what is really going on. When I have had issues like this in the past I always try to stick to whatever is the closest indication of what actually occurred.\",\n \"\\\"You can calculate the \\\"\\\"return on investment\\\"\\\" using libreoffice, for example. Look at the xirr function. You would have 2 columns, one a list of dates (ie the dates of the deposits or dividends or whatever that you want to track, the last entry would be today's date and the value of the investment today. The xirr function calculates the internal rate of return for you. If you add money to the account, and the current value includes the original investment and the added funds, it will be difficult to calculate the ROI. If you add money by purchasing additional shares (or redepositing dividends by buying additional shares), and you only want to track the ROI of the initial investment (ignoring future investments), you would have to calculate the current value of all of the added shares (that you don't want to include in the ROI) and subtract that value from the current total value of the account. But, if you include the dates and values of these additional share purchases in the spreadsheet, xirr will calculate the overall IRR for you.\\\"\",\n \"I use the following method. For each stock I hold long term, I have an individual table which records dates, purchases, sales, returns of cash, dividends, and way at the bottom, current value of the holding. Since I am not taking the income, and reinvesting across the portfolio, and XIRR won't take that into account, I build an additional column where I 'gross up' the future value up to today() of that dividend by the portfolio average yield at the date the dividend is received. The grossing up formula is divi*(1+portfolio average return%)^((today-dividend date-suitable delay to reinvest)/365.25) This is equivalent to a complex XMIRR computation but much simpler, and produces very accurate views of return. The 'weighted combined' XIRR calculated across all holdings then agrees very nearly with the overall portfolio XIRR. I have done this for very along time. TR1933 Yes, 1933 is my year of birth and still re investing divis!\",\n \"Can't see why would you need to track the sources of the original funds. Can't think of a reason not to consolidate, if at all it will only make the management of your IRA more convenient, and may be even cheaper (if the fees depend on the account value...).\",\n \"I looked around and I don't think there's any way to do what you want completely in Quicken. This should get you the graph, though: Here's what mine looked like (I whited out the numbers on the vertical axis): Once this is done, it's faster in the future to add data to this chart.\",\n \"Some personal finance packages can track basis cost of individual purchase lots or fractions thereof. I believe Quicken does, for example. And the mutual funds I'm invested in tell me this when I redeem shares. I can't vouch for who/what would make this visible at times other than sale; I've never had that need. For that matter I'm not sure what value the info would have unless you're going to try to explicitly sell specific lots rather than doing FIFO or Average accounting.\",\n \"The recommended way to track TSP funds in online portfolio tools is to track the underlying index and know that the results are pretty close. Not a perfect solution: :( Source including suggested ETFs: http://finance.yahoo.com/news/breaking-down-tsp-investment-funds-194600393.html Related, but not exactly what you are looking for, Personal Capital will track your TSP holdings: http://themilitarywallet.com/manage-thrift-savings-plan/\",\n \"\\\"For any accounts where you have a wish to keep track of dividends, gains and losses, etc., you will have to set up a an account to hold the separately listed securities. It looks like you already know how to do this. Here the trading accounts will help you, especially if you have Finance:Quote set up (to pull security prices from the internet). For the actively-managed accounts, you can just create each managed account and NOT fill it with the separate securities. You can record the changes in that account in summary each month/year as you prefer. So, you might set up your chart of accounts to include these assets: And this income: The actively-managed accounts will each get set up as Type \\\"\\\"Stock.\\\"\\\" You will create one fake security for each account, which will get your unrealized gains/losses on active accounts showing up in your trading accounts. The fake securities will NOT be pulling prices from the internet. Go to Tools -> Securities Editor -> Add and type in a name such as \\\"\\\"Merrill Lynch Brokerage,\\\"\\\" a symbol such as \\\"\\\"ML1,\\\"\\\" and in the \\\"\\\"Type\\\"\\\" field input something like \\\"\\\"Actively Managed.\\\"\\\" In your self-managed accounts, you will record dividends and sales as they occur, and your securities will be set to get quotes online. You can follow the general GnuCash guides for this. In your too-many-transactions actively traded accounts, maybe once a month you will gather up your statements and enter the activity in summary to tie the changes in cost basis. I would suggest making each fake \\\"\\\"share\\\"\\\" equal $1, so if you have a $505 dividend, you buy 505 \\\"\\\"shares\\\"\\\" with it. So, you might have these transactions for your brokerage account with Merrill Lynch (for example): When you have finished making your period-end summary entries for all the actively-managed accounts, double-check that the share balances of your actively-managed accounts match the cost basis amounts on your statements. Remember that each fake \\\"\\\"share\\\"\\\" is worth $1 when you enter it. Once the cost basis is tied, you can go into the price editor (Tools -> Price Editor) and enter a new \\\"\\\"price\\\"\\\" as of the period-end date for each actively-managed account. The price will be \\\"\\\"Value of Active Acct at Period-End/Cost of Active Acct at Period-End.\\\"\\\" So, if your account was worth $1908 but had a cost basis of $505 on Jan. 31, you would type \\\"\\\"1908/505\\\"\\\" in the price field and Jan. 31, 2017 in the date field. When you run your reports, you will want to choose the price source as \\\"\\\"Nearest in Time\\\"\\\" so that GnuCash grabs the correct quotes. This should make your actively-managed accounts have the correct activity in summary in your GnuCash income accounts and let them work well with the Trading Accounts feature.\\\"\",\n \"\\\"It's easy for me to look at an IRA, no deposits or withdrawal in a year, and compare the return to some index. Once you start adding transactions, not so easy. Here's a method that answers your goal as closely as I can offer: SPY goes back to 1993. It's the most quoted EFT that replicates the S&P 500, and you specifically asked to compare how the investment would have gone if you were in such a fund. This is an important distinction, as I don't have to adjust for its .09% expense, as you would have been subject to it in this fund. Simply go to Yahoo, and start with the historical prices. Easy to do this on a spreadsheet. I'll assume you can find all your purchases inc dates & dollars invested. Look these up and treat those dollars as purchases of SPY. Once the list is done, go back and look up the dividends, issues quarterly, and on the dividend date, add the shares it would purchase based on that day's price. Of course, any withdrawals get accounted for the same way, take out the number of SPY shares it would have bought. Remember to include the commission on SPY, whatever your broker charges. If I've missed something, I'm sure we'll see someone point that out, I'd be happy to edit that in, to make this wiki-worthy. Edit - due to the nature of comments and the inability to edit, I'm adding this here. Perhaps I'm reading the question too pedantically, perhaps not. I'm reading it as \\\"\\\"if instead of doing whatever I did, I invested in an S&P index fund, how would I have performed?\\\"\\\" To measure one's return against a benchmark, the mechanics of the benchmarks calculation are not needed. In a comment I offer an example - if there were an ETF based on some type of black-box investing for which the investments were not disclosed at all, only day's end pricing, my answer above still applies exactly. The validity of such comparisons is a different question, but the fact that the formulation of the EFT doesn't come into play remains. In my comment below which I removed I hypothesized an ETF name, not intending it to come off as sarcastic. For the record, if one wishes to start JoesETF, I'm ok with it.\\\"\",\n \"\\\"Hmm, this site says If you use Quicken, you enter a new transaction of type \\\"\\\"Corporate Acquisition (stock for stock).\\\"\\\" You put investor shares as the \\\"\\\"Company acquired\\\"\\\", Admiral shares as the \\\"\\\"Acquiring company\\\"\\\", and the conversion ratio 0.7997754 as the \\\"\\\"New shares issued per held share\\\"\\\" number. Seems crazy, but maybe that's the way. Edit: This sucks. In the comments, you can see that people have to manually correct the share price for every transaction because of rounding problems.\\\"\",\n \"I can't give you a detailed answer because I'm away from the computer where I use kMyMoney, but IIRC to add investments you have to create new transactions on the 'brokerage account' linked to your investment account.\",\n \"I have a similar plan and a similar number of accounts. I think seeking a target asset allocation mix across all investment accounts is an excellent idea. I use excel to track where I am and then use it to adjust to get closer (but not exactly) to my target percentages. Until you have some larger balances, it may be prudent to use less categories or realize that you can't come exactly to your percentages, but can get close. I also simplify by primarily investing in various index funds. That means that in my portfolio, each category has 1 or 2 funds, not 10 or 20.\",\n \"\\\"Treat each position or partial position as a separate LOT. Each time you open a position, a new lot of shares is created. If you sell the whole position, then the lot is closed. Done. But if you sell a partial quantity, you need to create a new lot. Split the original lot into two. The quantities in each are the amount sold, and the amount remaining. If you were to then buy a few more shares, create a third lot. If you then sell the entire position, you'll be closing out all the remaining lots. This allows you to track each buy/sell pairing. For each lot, simply calculate return based on cost and proceeds. You can't derive an annualized number for ALL the lots as a group, because there's no common timeframe that they share. If you wish to calculate your return over time on the whole series of trades, consider using TWIRR. It treats these positions, plus the cash they represent, as a whole portfolio. See my post in this thread: How can I calculate a \\\"\\\"running\\\"\\\" return using XIRR in a spreadsheet?\\\"\",\n \"Hey Sheehan, I believe Schwab provides this info. None of the online free portfolio managers I know of gives you this info. The now defunct MS Money used to have this. The best thing to do is to use a spreadsheet. Or you could use the one I use. http://www.moneycone.com/did-you-beat-the-market-mr-investor/ . (disclaimer: that's my blog)\",\n \"\\\"Assuming nothing here helps, here are some thoughts. First, If Principal Financial knows the 401k was rolled over to an IRA, then it must have been a custodian-to-custodian transfer, which means they need to know who the recipient custodian was, so I'd call them back and push a little harder. Next, they couldn't have just created an IRA out of thin air and moved some money into it without some paperwork and signatures from you, so you should have copies of that paperwork. Principal may also still have archived copies of that paperwork, that they may be able to provide to you, although they'll probably charge for that service. Also, there would have been tax reporting around the rollover. For the year the rollover occurred in, you would have received a 1099-R and 5498. The 1099-R would have to have been reported on your federal (and possibly state) income tax for that year. It may be possible to obtain copies of old 1099-R's from the IRS, maybe call them and ask. In subsequent years, you should have received at least a year-end statement. If you don't have any of that, and contacting Principal and the IRS don't help, then I'm not sure there's much that anyone can do to help you. As far as I know, there's no \\\"\\\"universal clearinghouse\\\"\\\" for IRAs, and there are a lot of IRA custodians. I would expect you to receive a year-end statement from the custodian for 2015 sometime in early 2016, so maybe just wait for (and watch for) that. And take this as an object lesson that you need to keep better track of your finances. No one's going to do it for you (unless you pay them a bunch of money).\\\"\",\n \"I don't know about keeping different rollover IRAs separate. But I know that there is a reason to keep rollover IRAs separate from other traditional IRAs -- if you want to roll them back into a 401(k) in the future, some 401(k)s only allow funds that were rolled over from a 401(k) originally.\",\n \"I would track it using a regular asset account. The same way I would track the value of a house, a car, or any other personal asset. ETA: If you want automatic tracking, you could set it up as a stock portfolio holding shares of the GLD ETF. One share of GLD represents 1/10 ounce of gold. So, if you have 5 ounces of gold, you would set that up in Quicken as 50 shares of GLD.\",\n \"Google Portfolio does the job: https://www.google.com/finance/portfolio You can add transaction data, view fundamentals and much more.\",\n \"Yes, add the stocks/mutual funds that you want and then you would just need to add all the transactions that you theoretically would have made. Performing the look up on the price at each date that you would have sold or bought is quite tedious as well as adding each transaction.\",\n \"\\\"Mint.com does this quite well. The graph views of your budgets, investments, debts, and other aspects of your financial life can be shown in gestalt, or on a per-account basis (at least, it does for me). See the investment \\\"\\\"how it works\\\"\\\" page for more information. \\\"\\\"Find out whether you're beating the market–or it's beating you. Compare your portfolio to market benchmarks, and instantly see your asset allocation across all your investment accounts: 401k, mutual funds, brokerage accounts, even IRAs.\\\"\\\"\\\"\",\n \"I found that an application already exists which does virtually everything I want to do with a reasonable interface. Its called My Personal Index. It has allowed me to look at my asset allocation all in one place. I'll have to enter: The features which solve my problems above include: Note - This is related to an earlier post I made regarding dollar cost averaging and determining rate of returns. (I finally got off my duff and did something about it)\",\n \"The portfolio manager at Value Research Online does this very nicely. It tracks the underlying holdings of each fund, yielding correct calculations for funds that invest across the board. Take a look at the screenshot from my account: If you have direct equity holdings (e.g., not through a mutual fund), that too gets integrated. Per stock details are also visible.\",\n \"http://www.irs.gov/pub/irs-pdf/f5498.pdf see the instructions for box 2, it's used to report incoming rollover/transfers. The receiving broker should be acknowledging the transfer with the 5498. If you read the PDF carefully, any incoming money is reported this way.\",\n \"I've rolled mine over into IRAs, and once you have one rollover account you can roll further 401ks into it-- I've done that.\",\n \"You can probably roll it over into the new company's 401k too, so just talk to your HR rep there. I set up a separate Vangard IRA so when I changejobs or anything, I just dump my investments into that account and don't have to worry about keep track of them all over the place.\",\n \"Starting of 2011, your broker has to keep track of all the transactions and the cost basis, and it will be reported on your 1099-B. Also, some brokers allow downloading the data directly to your tax software or to excel charts (I use E*Trade, and last year TurboTax downloaded all the transaction directly from them).\",\n \"Once upon a time, money rolled over from a 401k or 403b plan into an IRA could not be rolled into another 401k or 403b unless the IRA account was properly titled as a Rollover IRA (instead of Traditional IRA - Roth IRAs were still in the future) and the money kept separate (not commingled) with contributions to Traditional IRAs. Much of that has fallen by the way side as the rules have become more relaxed. Also the desire to roll over money into a 401k plan at one's new job has decreased too -- far too many employer-sponsored retirement plans have large management fees and the investments are rarely the best available: one can generally do better keeping ex-401k money outside a new 401k, though of course new contributions from salary earned at the new employer perforce must be put into the employer's 401k. While consolidating one's IRA accounts at one brokerage or one fund family certainly saves on the paperwork, it is worth keeping in mind that putting all one's eggs in one basket might not be the best idea, especially for those concerned that an employee might, like Matilda, take me money and run Venezuela. Another issue is that while one may have diversified investments at the brokerage or fund family, the entire IRA must have the same set of beneficiaries: one cannot leave the money invested in GM stock (or Fund A) to one person and the money invested in Ford stock (or Fund B) to another if one so desires. Thinking far ahead into the future, if one is interested in making charitable bequests, it is the best strategy tax-wise to make these bequests from tax-deferred monies rather than from post-tax money. Since IRAs pass outside the will, one can keep separate IRA accounts with different companies, with, say, the Vanguard IRA having primary beneficiary United Way and the Fidelity IRA having primary beneficiary the American Cancer Society, etc. to achieve the appropriate charitable bequests.\",\n \"\\\"You can have as many IRA accounts as you want (whether Roth or Traditional), so you can have a Roth IRA with American Funds and another Roth IRA with Vanguard if you like. One disadvantage of having too many IRA accounts with small balances in each is that most custodians (including Vanguard) charge an annual fee for maintaining IRA accounts with small balances but waive the fee if the balance is large. So it is best to keep your Roth IRA in just one or two funds with just one or two custodians until such time as investment returns plus additional contributions made over the years makes the balances large enough to diversify further. Remember also that you cannot contribute the maximum to each IRA; the sum total of all your IRA contributions (doesn't matter whether to Roth or to Traditional IRAs) for any year must satisfy the limit for that year. You can move money from one IRA of yours to another IRA (of the same type) of yours without any tax issues to worry about. Such movements (called rollovers or transfers) are not contributions and do not count towards the annual contribution limit. The easiest way to do move money from one IRA account to another IRA account is by a trustee-to-trustee transfer where the money goes directly from one custodian (American Funds in this case) to the other custodian (Vanguard in this case). The easiest way of accomplishing this is to call Vanguard or go online on their website, tell them that you are wanting to establish a Roth IRA with them, and that you want to fund it by transferring money held in a Roth IRA with American Funds. Give Vanguard the account number of your existing American Funds IRA, tell them how much you want to transfer over -- $1000 or $20,000 or the entire balance as the case may be -- and tell Vanguard to go get the money. In a few days' time, the money will appear in your new Vanguard Roth IRA and the American Funds Roth IRA will have a smaller balance, possibly a zero balance, or might even be closed if you told Vanguard to collect the entire balance. DO NOT approach American Funds and tell them that you want to transfer money to a new Roth IRA with Vanguard: they will bitch and moan and drag their heels about doing so because they are unhappy to lose your business, and will probably screw up the transfer. Talk to Vanguard only. They are eager to get their hands on your IRA money and will gladly take care of the whole thing for you at no charge to you. DO NOT cash in any stock shares, or mutual fund shares, or whatever is in your Roth IRA in preparation for \\\"\\\"cashing out of the old account\\\"\\\". There is a method where you take a \\\"\\\"rollover distribution\\\"\\\" from your American Funds Roth IRA and then deposit the money into your new Vanguard Roth IRA within 60 days, but I recommend most strongly against using this because too many people manage to screw it up. It is 60 days, not two months; the clock starts from the day American Funds cuts your check, not when you get the check, and it is stopped when the money gets deposited into your new account, not the day you mailed the check to Vanguard or the day that Vanguard received it, and so on. In short, DO NOT try this at home: stick to a trustee-to-trustee transfer and avoid the hassles.\\\"\",\n \"\\\"I have a similar situation -- five different accounts between me and my wife. Just as you and @Alex B describe, I maintain my asset allocation across the combination of all accounts. I also maintain a spreadsheet to track the targets, deviations from the targets, amounts required to get back in balance, and overall performance. I (mostly) don't use mutual funds. I have selected, for each category, 1 or 2 ETFs. Choosing index ETFs with low expense ratios and a brokerage with cheap or free trades keeps expenses low. (My broker offers free ETF trades if you buy off their list as long as you aren't short-term trading; this is great for rebalancing for free 2 or 3 times a year.) Using ETFs also solves the minimum balance problem -- but watch out for commissions. If you pay $10 to buy $500 worth of an ETF, that's an immediate 2% loss; trade a couple of times a year and that ETF has to gain 5% just to break even. One issue that comes up is managing cash and avoiding transaction fees. Say your IRA has all the growth stock funds and your Roth has the bonds. Stocks do well and bonds do poorly, so you sell off some stocks, which creates a bunch of cash in your IRA. Now you want to buy some bonds but you don't have enough cash in your Roth, so you buy the bonds in your IRA. Not a problem at first but if you don't manage it you can end up with small amounts of various funds spread across all of your accounts. If you're not careful you can end up paying two commissions (in two different accounts) to sell off / purchase enough of a category to get back to your targets. Another problem I had is that only one account (401k) is receiving deposits on a regular basis, and that's all going into an S&P 500 index fund. This makes it so that my allocation is off by a fair amount every quarter or so -- too much in large cap equities, not enough of everything else. My solution to this going forward is to \\\"\\\"over-rebalance\\\"\\\" a couple of times a year: sell enough SPY from my other accounts so that I'm under-allocated in large caps by the amount I expect to add to my 401k over the next 3 months. (So that in six months at my next rebalancing I'm only 3 months over-allocated to large caps -- plus or minus whatever gains/losses there are.)\\\"\",\n \"Edited in response to JoeTaxpayer's comment and OP Tim's additional question. To add to and clarify a little what littleadv has said, and to answer OP Tim's next question: As far as the IRS is concerned, you have at most one Individual Retirement Account of each type (Traditional, Roth) though the money in each IRA can be invested with as many different custodians (brokerages, banks, etc.) and different investments as you like. Thus, the maximum $5000 ($6000 for older folks) that you can contribute each year can be split up and invested any which way you like, and when in later years you take a Required Minimum Distribution (RMD) from a Traditional IRA, you can get the money by selling just one of the investments, or from several investments; all that the IRS cares is that the total amount that is distributed to you is at least as large as the RMD. An important corollary is that the balance in your IRA is the sum total of the value of all the investments that various custodians are holding for you in IRA accounts. There is no loss in an IRA until every penny has been withdrawn from every investment in your IRA and distributed to you, thus making your IRA balance zero. As long as you have a positive balance, there is no loss: everything has to come out. After the last distribution from your Roth IRA (the one that empties your entire Roth IRA, no matter where it is invested and reduces your Roth IRA balance (see definition above) to zero), total up all the amounts that you have received as distributions from your Roth IRA. If this is less than the total amount of money you contributed to your Roth IRA (this includes rollovers from a Traditional IRA or Roth 401k etc., but not the earnings within the Roth IRA that you re-invested inside the Roth IRA), you have a loss that can be deducted on Schedule A as a Miscellaneous Deduction subject to the 2% AGI limit. This 2% is not a cap (in the sense that no more than 2% of your AGI can be deducted in this category) but rather a threshold: you can only deduct whatever part of your total Miscellaneous Deductions exceeds 2% of your AGI. Not many people have Miscellaneous Deductions whose total exceeds 2% of their AGI, and so they end up not being able to deduct anything in this category. If you ever made nondeductible contributions to your Traditional IRA because you were ineligible to make a deductible contribution (income too high, pension plan coverage at work etc), then the sum of all these contributions is your basis in your Traditional IRA. Note that your deductible contributions, if any, are not part of the basis. The above rules apply to your basis in your Traditional IRA as well. After the last distribution from your Traditional IRA (the one that empties all your Traditional IRA accounts and reduces your Traditional IRA balance to zero), total up all the distributions that you received (don't forget to include the nontaxable part of each distribution that represents a return of the basis). If the sum total is less than your basis, you have a loss that can be deducted on Schedule A as a Miscellaneous Deduction subject to the 2% AGI threshold. You can only deposit cash into an IRA and take a distribution in cash from an IRA. Now, as JoeTaxpayer points out, if your IRA owns stock, you can take a distribution by having the shares transferred from your IRA account in your brokerage to your personal account in the brokerage. However, the amount of the distribution, as reported by the brokerage to the IRS, is the value of the shares transferred as of the time of the transfer, (more generally the fair market value of the property that is transferred out of the IRA) and this is the amount you report on your income tax return. Any capital gain or loss on those shares remains inside the IRA because your basis (in your personal account) in the shares that came out of the IRA is the amount of the distribution. If you sell these shares at a later date, you will have a (taxable) gain or loss depending on whether you sold the shares for more or less than your basis. In effect, the share transfer transaction is as if you sold the shares in the IRA, took the proceeds as a cash distribution and immediately bought the same shares in your personal account, but you saved the transaction fees for the sale and the purchase and avoided paying the difference between the buying and selling price of the shares as well as any changes in these in the microseconds that would have elapsed between the execution of the sell-shares-in-Tim's-IRA-account, distribute-cash-to-Tim, and buy-shares-in-Tim's-personal account transactions. Of course, your broker will likely charge a fee for transferring ownership of the shares from your IRA to you. But the important point is that any capital gain or loss within the IRA cannot be used to offset a gain or loss in your taxable accounts. What happens inside the IRA stays inside the IRA.\",\n \"\\\"As other responders said, you can certainly roll over multiple 401(k) into a single account. An added benefit of such rollover (besides the ease of tracking) is that you can shop around for your Rollover IRA provider and find the one that gives you the specific mutual funds that you want to invest in, the lowest expenses, etc. - in short, find the best fit to your priorities. There are also \\\"\\\"lemon\\\"\\\" 401(k) plans and if you are in one of them, get out! And rollover is the way out. There is also one possibility to keep an eye on as it happens rarely, but it does happen - rolling a 401(k) over into another 401(k). I've done it once when I started a job at a company that had a great 401(k) with a good selection of low-cost mutual funds. I rolled the 401(k) from one previous job in to this 401(k) to take advantage of it. At the same time I kept a Rollover IRA, combining the 401(k) from all other jobs; it had more investment options and provided some flexibility.\\\"\",\n \"MB's math is right, but I can describe it in a short sentence. All Traditional accounts are combined, 401(k) rollover is no different from other IRA money. You should have been tracking your non-deducted money via form 8606 so you know this figure. The non-deducted money as a percent of your total balance is the percent of conversion that's not taxed. (To be clear, deducted contributions and growth are not tracked separately, one only tracks the non-deducted deposits.)\",\n \"R has really good package that lets you calculate the return of rebalanced portfolios. The package is called: PerformanceAnalytics (see: http://www.inside-r.org/packages/cran/PerformanceAnalytics/docs/Return.portfolio). I quickly wrote a small script for you that lets you do exactly what you want. Code: By default the portfolio is rebalanced to an equally weighted portfolio. It is also possible to rebalance your portfolio using custom weights. See the documentation on how to do this. In order for this code to work you need to have your data already in return terms. You can do this easily in Excel. Make sure your data in excel looks like this: Than export your data to a CSV file. Note: before you run the code make sure you have installed the package PerformanceAnalytics. You can do this as follows: Let me know if you have any questions regarding the above.\",\n \"\\\"You don't need to use a real stock like GLD. You can just create a \\\"\\\"stock\\\"\\\" called something like \\\"\\\"1 oz Gold\\\"\\\" and buy and sell them as if they were shares. It won't auto-update the price like GLD, but that's not a big deal to update manually once a month or so. I prefer to have accurate data that is correct at a particular point in time to having data that is 2-3% off, or that requires entering the ounces as 10x reality. YMMV. This is very similar to how you track US Savings Bonds in Quicken (and might be described in the help under that topic.)\\\"\",\n \"\\\"Quicken for Mac will track stocks and mutual funds and allows you to set the \\\"\\\"home\\\"\\\" currency.\\\"\",\n \"\\\"To try and address your 'how' it goes a bit like this. You need to first assess how your stuff is invested, if for example half is in stocks, and the other half is in bonds, then you will need to calculate a 'blended' rate for what are reasonable 'average return' for both. That might mean looking at the S&P500 or Russell 3000 for the stock portion, and some bond index for that portion, then 'blend the rates', in this case using a formula like this then compare the blended rate with the return in your IRA. It is generally a lot more useful to compare the various components of your total return separately, especially if you investing with a particular style such as 'agressive growth' or you are buying actual bonds and not a bond fund since most of the bond oriented indexes are for bond funds, which you can't really compare well with buying and holding bonds to maturity. Lets say your stock side was two mutual funds with different styles, one 'large cap' the other 'aggressive growth'. In that case you might want to compare each one of those funds with an appropriate index such as those provided by Morningstar If you find one of them is consistently below the average, you might want to consider finding an alternative fund who's manager has a better track record (bearing in mind that \\\"\\\"past performance....\\\"\\\") For me (maybe someone has a good suggestion here) bonds are the hard thing to judge. The normal goal of actually owning bonds (as opposed to a fund) is to retain the entire principal value because there's no principal fluctuation if you hold the bond to maturity (as long as you choose well and the issuer doesn't default) The actual value 'right now' of a bond (as in selling before maturity) and bond funds, goes up and down in an inverse relationship with interest rates. That means the indexes for such things also go up and down a lot, so it's very hard to compare them to a bond you intend to hold to maturity. Also, for such a bond, there's not a lot of point to 'switch out' unless you are worried about the issuer defaulting. If rates are up from what you are getting on your bonds, then you'll have to sell your bond at a discount, and all that happens is you'll end up holding a different bond that is worth less, but has higher interest (basically the net return is likely to be pretty much the same). The better approach there is generally to 'ladder' your maturity dates so you get opportunities to reinvest at whatever the prevailing rates are, without having to sell at a discount.. anyway the point is that I'm not sure there's a lot of value to comparing return on the bond portion of an IRA unless it's invested in bond funds (which a lot of people wanting to preserve principal tend to avoid)\\\"\",\n \"Calculating and adjusting cost basis accurately is a daunting task, but there is a (paid) online tool, NetBasis, which will automatically calculate and adjust your cost basis. It is used by brokerage firms and Fortune 500 companies and is available to the public. Go to netbasis.com. All you need are the purchase and sale dates and shares of the stock or mutual fund and the system has the rest of the information, such as corporate actions (splits, spin-offs, etc), pricing, and dividends and it also will apply the appropriate IRS rules for inherited and gifted shares. The regulation also gives investors the option to choose calculation methods. Not only does NetBasis automatically calculate the method you choose, it will also give the results for all options and allow you to choose the best result. NetBasis also provides you with detailed supporting documentation which shows all of the calculations and the adjustments in chronological order. NetBasis has data going back as far as 1925, so it will accurately calculate cost basis for your old American Telegraph and Telephone shares. NetBasis also handles complex investment scenarios such as wash sales, short sales, return of capital, etc. Moderator's note: Disclosure: The answerer's profile indicates they are affiliated with NetBasis.\",\n \"If you have enough assets at T Rowe Price, you get what I think is a scaled back version of the portfolio tracker for free.\",\n \"I would check to see what the fee schedule is on your previous employer's 401k. Depending on how it was setup, the quarterly/annual maintenance fee may be lower/higher than your current employer. Another reason to rollover/not-rollover is that selection of funds available is better than the other plan. And of course always consider rolling over your old plan into a standard custodial rollover IRA where the management company gives you a selection of investment options. At least look at the fees and expense ratios of your prior employer's plan and see if anything reaches a threshold of what you consider actionable and worth your time. Note: removed reference to self directed IRA as vehicle is more complicated account type allowing for more than just stocks, bonds, and mutual funds. Not for your typical retail investor.\",\n \"Use TWIRR (aka TWRR). Time Weighted rate of return. It's sort of the opposite of XIRR. XIRR results change dramatically depending on the timing of the cashflows. It might be useful to also model returns that are unaffected by the timing. This is how funds report returns, and this number allows you to compare to funds and indices. During periods of steady deposits, XIRR will continually understate performance. And in retirement, when you have steady withdrawals, XIRR will overstate. TWRR is talked about here: http://www.dailyvest.com/PRR/prr_calcmethods.aspx#twrr I've made a simple spreadsheet that you can use as a starting point, if you like: http://moosiefinance.com/static/models/spreadsheets.html (top entry in the list)\",\n \"Is there a way in bloomberg to calculate the total return if one purchased $100 worth of 10 Year US Notes at time X and perpetually rolled the principal once the bond matured until the present? I've been able to historically use the COMP function to compare equity and ETF total returns, but curious if this function can be expanded to measure returns against commodities, treasuries, and other debt products. Unfortunately im having trouble pulling in the appropriate continuous commodity and treasury tickers.\",\n \"You are looking for the Internal Rate of Return. If you have a spreadsheet like Microsoft Excel you can simply put in a list of the transactions (every time money went in or out) and their dates, and the spreadsheet's XIRR function will calculate a percentage rate of return. Here's a simple example. Investment 1 was 100,000 which is now worth 104,930 so it's made about 5% per year. Investment 2 is much more complicated, money was going in and out, but the internal rate of return was 7% so money in that investment, on average, grew faster than money in the first investment.\",\n \"\\\"Google Docs spreadsheets have a function for filling in stock and fund prices. You can use that data to graph (fund1 / fund2) over some time period. Syntax: =GoogleFinance(\\\"\\\"symbol\\\"\\\", \\\"\\\"attribute\\\"\\\", \\\"\\\"start_date\\\"\\\", \\\"\\\"num_days|end_date\\\"\\\", \\\"\\\"interval\\\"\\\") where: This analysis won’t include dividends or distributions. Yahoo provides adjusted data, if you want to include that.\\\"\",\n \"For the rollover, you should probably talk to the recipient manager. This would be your broker or whomever (your new employer if rolling into another 401k). They should be able to update you on progress and let you know if you need to do anything. In a comment, you say I could be putting in money but instead im lossing. There is no requirement that an IRA have 401k money in it. Just put the money in without the existing money. Eventually the rollover will complete and add that money to whatever you contribute to the IRA. The rollover should not affect your future contributions in any way.\",\n \"Google Finance will do all the bullet points in your list and a few more. The only drawback is that you have to enter ALL buy and sell manually. It has an import feature, but it does not work with all trading software. http://www.google.com/finance Let me know if it works. Also, yahoo.com/finance has a good tool, but I still like better Google's application.\",\n \"Here's a few demo steps, first calculating the year to date return, then calculating the Q4 quarterly return based on the cumulative returns for Q3 and Q4. It's fine to use closing price to closing price as return periods.\",\n \"The number you are trying to calculate is called the Internal Rate of Return (IRR). Google Spreadsheets (and excel) both have an XIRR function that can do this for you fairly simply. Setup a spreadsheet with 1 column for dates, 1 column for investment. Mark your investments as negative numbers (payment to invest). All investments will be negative. Mark your last row with today's date and today's valuation (positive). All withdrawals will be positive, so you are pretending to withdrawal your entire account for the purpose of calculation. Do not record dividends or other interim returns unless you are actually withdrawing money. The XIRR function will calculate your internal rate of return with irregularly timed investments. Links: Article explaining XIRR function (sample spreadsheet in google docs to modify)\",\n \"Toward the philosophical side of your question, it seems to me that what is most important is knowing how well your fund is performing versus it's benchmark. This is an actionable piece of information that can help you get out of an under-performing fund, although if you're already using Vanguard it's likely a low cost and broadly diversified fund. Ultimately, what you want to avoid over the long term is under-performing the market due to high fees, market timing, poor fund selection etc., and selecting a fund that closely tracks the market seems to be the best way to achieve this, assuming that you intend to be a passive investor. I don't see a clear benefit to calculating a personal rate of return. If the fund is performing well versus its benchmark, you are likely to stay with it, and if it is performing poorly, you are likely to pull out. At the end of the day, the complicated accounting won't actually change the amount you've got in your account, so I'd recommend picking a good fund, checking up on it once in a great while, and putting your time to better purpose.\",\n \"\\\"I found your post while searching for this same exact problem. Found the answer on a different forum about a different topic, but what you want is a Cash Flow report. Go to Reports>Income & Expenses>Cash Flow - then in Options, select the asset accounts you'd like to run the report for (\\\"\\\"Calle's Checking\\\"\\\" or whatever) and the time period. It will show you a list of all the accounts (expense and others) with transactions effecting that asset. You can probably refine this further to show only expenses, but I found it useful to have all of it listed. Not the prettiest report, but it'll get your there.\\\"\",\n \"I currently use Moneydance on my Mac. Before that I had used Quicken on a PC until version 2007. It is pretty good, does most simple investment stuff just fine. It can automatically download prices for regular stocks. Mutual funds I have to input by hand.\",\n \"Have you looked into GnuCash? It lets you track your stock purchases, and grabs price updates. It's designed for double-entry accounting, but I think it could fit your use case.\",\n \"There are at least a couple of ways you could view this to my mind: Make an Excel spreadsheet and use the IRR function to compute the rate of return you are having based on money being added. Re-invested distributions in a mutual fund aren't really an additional investment as the Net Asset Value of the fund will drop by the amount of the distribution aside from market fluctuation. This is presuming you want a raw percentage that could be tricky to compare to other funds without doing more than a bit of work in a way. Look at what is the fund's returns compared to both the category and the index it is tracking. The tracking error is likely worth noting as some index funds could lag the index by a sizable margin and thus may not be that great. At the same time there may exist cases where an index fund isn't quite measuring up that well. The Small-Growth Indexing Anomaly would be the William Bernstein article from 2001 that has some facts and figures for this that may be useful.\",\n \"I’m going to answer this because: Accounting books only reflect the dollar value of inventories. Which means if you look at the balance sheet of McDonalds, you will not see how many bags of French fries are remaining at their storage facility, you will only see the total value at cost basis. Your requirement for noting the number of shares purchased is not part of the double entry accounting system. When you transfer $10000 from bank to broker, the entries would be: The bank’s name and the broker’s name will not appear on the balance sheet. When you purchase 50 shares at $40 per share, the accounting system does not care about the number of shares or the price. All it cares is the $2000 total cost and the commission of $10. You have two choices, either place $10 to an expense account, or incorporate it into the total cost (making it $2010). The entries for the second method would be: Now your balance sheet would reflect: What happens if the price increases from $40 per share to $50 per share tomorrow? Do nothing. Your balance sheet will show the cost of $2010 until the shares are sold or the accounting period ends. It will not show the market value of $2500. Instead, the Portfolio Tracker would show $2500. The most basic tracker is https://www.google.com/finance/portfolio . Later if you finally sell the shares at $50 per share with $10 commission: Again, the number of shares will not be reflected anywhere in the accounting system. Only the total proceeds from the sale matters.\",\n \"I use Yahoo Finance to plot my portfolio value over time. Yahoo Finance uses SigFig to link accounts (I've linked to Fidelity), which then allows you to see you exact portfolio and see a plot of its historical value. I'm not sure what other websites SigFig will allow you to sync with, but it is worth a try. Here is what the plot I have looks like, although this is slightly out of date, but still gives you an idea of what to expect.\",\n \"No that is not a rollover. Many employees have experienced a change of management companies. Sometimes these switches are due to a merger, an acquisition, or just to save money. It is understandable that the old employer would like to see you transfer your funds to either your new employer, or roll them over into a IRA/Roth IRA. So it is not unexpected that they will take this opportunity to nudge you. The thing that congress was trying to prevent were serial rollovers of IRAs. These people would use the 60 day window to have in essence a loan. Some would do this multiple times a year; always making sure they replaced the money in time. The IRA One-Rollover-Per-Year Rule Beginning in 2015, you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own (Announcement 2014-15 and Announcement 2014-32). The limit will apply by aggregating all of an individual’s IRAs, including SEP and SIMPLE IRAs as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit. Direct transfers of IRA money are not limited This change won’t affect your ability to transfer funds from one IRA trustee directly to another, because this type of transfer isn’t a rollover (Revenue Ruling 78-406, 1978-2 C.B. 157). The one-rollover-per-year rule of Internal Revenue Code Section 408(d)(3)(B) applies only to rollovers. Note that the law doesn't mention 401K/403B or the federal TSP. When the 401K changes management companies that is not a rollover.\",\n \"I'd roll them all into one account, just for your own convenience. It's a pain to keep track of lots of different accounts, esp. since you need logins/passwords, etc for all of them, and we all have plenty of those. :) Pick a place like Vanguard or Fidelity (for example), where you can find investment options with lower fees, and do the standard rollover. Once all the accounts are rolled into one, you can think about how to invest the stuff. (Some good investments require larger minimums, so if you have several old 401ks, putting them together will give you more options.) Rolling them over is not hard, if you have paperwork from each of the 401ks. You might be able to DIY online, but I found it helpful to call and talk to a person when I did this. You just need account numbers, etc. If you are moving brokerage accounts, you may need to provide paper documents/applications, which might require getting them notarized (I found a notary at my bank, even though the accounts I was moving from and to weren't at my bank), which means you'll need to provide IDs, etc. and get a special crimped seal after the notary witnesses your signature.\",\n \"You can create cash accounts within Quicken. These accounts are virtual. You can move money between the cash accounts so that you can track saving towards a multiple purposes. Some people have used this to emulate the envelope system of budgeting.\",\n \"\\\"In the case of Fidelity, the answer is \\\"\\\"no.\\\"\\\" Although when you leave your employer and roll over the account to an IRA, leaving it with Fidelity allowed me to keep money in those closed funds. My Roth IRA was not able/allowed to buy those funds.\\\"\",\n \"I have asked myself this exact same question many times. The analysis would be simple if you invested all your money in a single day, but I did not and therefore I would need to convert your cash transactions into Index fund buys/sells. I got tired of trying to do this using Yahoo's data and excel so I built a website in my spare time. I humbly suggest you try my website out in the hopes that it helps you perform this computation: http://www.amibeatingthemarket.com/\",\n \"Treat each transaction as separate, with its own principal, its own gain, and its own number of days. Then the total annualized return is just a weighted average of each annualized return, with the weighting related to the number of shares in that transaction.\",\n \"Adapted from an answer to a somewhat different question. Generally, 401k plans have larger annual expenses and provide for poorer investment choices than are available to you if you roll over your 401k investments into an IRA. So, unless you have specific reasons for wanting to continue to leave your money in the 401k plan (e.g. you have access to investments that are not available to nonparticipants and you think those investments are where you want your money to be), roll over your 401k assets into an IRA. But I don't think that is the case here. If you had a Traditional 401k, the assets will roll over into a Traditional IRA; if it was a Roth 401k, into a Roth IRA. If you had started a little earlier, you could have considered considered converting part or all of your Traditional IRA into a Roth IRA (assuming that your 2012 taxable income will be smaller this year because you have quit your job). Of course, this may still hold true in 2013 as well. As to which custodian to choose for your Rollover IRA, I recommend investing in a low-cost index mutual fund such as VFINX which tracks the S&P 500 Index. Then, do not look at how that fund is doing for the next thirty years. This will save you from the common error made by many investors when they pull out at the first downturn and thus end up buying high and selling low. Also, do not chase after exchange-traded mutual funds or ETFs (as many will likely recommend) until you have acquired more savvy or interest in investing than you are currently exhibiting. Not knowing which company stock you have, it is hard to make a recommendation about selling or holding on. But since you are glad to have quit your job, you might want to consider making a clean break and selling the shares that you own in your ex-employer's company. Keep the $35K (less the $12K that you will use to pay off the student loan) as your emergency fund. Pay off your student loan right away since you have the cash to do it.\",\n \"I'm using iBank on my Mac here and that definitely supports different currencies and is also supposed to be able to track investments (I haven't used it to track investments yet, hence the 'supposed to' caveat).\",\n \"401(k)'s can be rolled over into IRAs. You can roll all of your former company 401(k)'s into a single IRA, managed by whatever company you like. Many employers will not let you transfer money out of your 401(k) while you're still a current employee, though, so you may be stuck with the 401(k) used by your current company until you leave. You'll have to check with your 401(k) administrator to be sure. You won't incur any taxes as long as you execute the rollovers properly. The best way to do it is to coordinate the transfer directly between your old 401(k) and your new IRA, so the check is never sent directly to you.\",\n \"What you want is a position transfer, likely by ACATS. This is a transfer from one IRA to another without having to liquidate positions to do so. In effect, the brokerage firm is just transferring records from your existing IRA to your new IRA. You will need to watch out to make sure your new IRA account can hold your positions for this to work. For example, some brokerages allow you to hold fractional shares but others don't. (The fractional share amounts would be sold automatically prior to transfer.) Another example might be different fund families could be allowed between different brokerages. The general process is open your new IRA account, initiate the ACATS xfer from your new account, your old IRA account brokerage sends the positions over, and after a week or so your new IRA brokerage notifies you that everything is transferred. I've switched IRAs a couple times via this mechanism and never been charged a fee, but I've always stuck with the larger brokerages like Fidelity, TD Ameritrade, and Interactive Brokers.\",\n \"\\\"My answer is Microsoft Excel. Google \\\"\\\"VBA for dummies\\\"\\\" (seriously) and find out if your brokerage offers an 'API'. With a brief understanding of coding you can get a spreadsheet that is live connected to your brokers data stream. Say you have a spreadsheet with the 1990 value of each in the first two columns (cells a1 and b1). Maybe this formula could be the third column, it'll tell you how much to buy or sell to rebalance them. then to iterate the rebalance, set both a2 and b2 to =C1 and drag the formula through row 25, one row for each year. It'll probably be a little more work than that, but you get the idea.\\\"\",\n \"\\\"I will give a slightly different answer which is actually an addendum to JoeTaxpayer's (soon-to-be-edited) answer. Do NOT go to your financial advisor and ask him \\\"\\\"How do I go about transferring my Roth IRA to ....\\\"\\\"? where .... is whichever broker or mutual fund family that you have chosen from the list that Joe has suggested. Instead, go to the website of the new group (or call their toll-free number) and tell them \\\"\\\"I want to open a Roth IRA account with you and fund it by transferring all the money in my Roth IRA from First Clearing.\\\"\\\" Your new Roth IRA custodian will take care of all the paperwork and get the money transferred over at no cost to you except possibly fielding a weepy call from your current financial advisor because he had just ordered his new Lamborghini and now will have difficulty making payments on his auto loan. \\\"\\\"Why are you leaving me? After all the years we have had together?\\\"\\\" You will need to choose some place to put the money, and I suggest that you use their S&P 500 Index Fund, not the S&P 500 ETF, just the standard vanilla S&P 500 Index Mutual Fund. This recommendation is almost heresy in this forum, but it is better to pay the extra 0.01% fee that the Fund charges over and above the ETF until you become a little more savvy and are ready to branch out into individual stocks (which is when you really need a brokerage account). Revelation: I have never made the transition and invest only in mutual funds which does not require a brokerage account. After doing all this, pay no attention whatsoever to your Roth IRA investment or how the S&P 500 Index is doing for the next 20 years. This will help avoid the temptation of taking all your money out just because the Index went down a little. Everybody is told \\\"\\\"Buy Low, Sell High\\\"\\\" but far too many folks end up doing exactly the opposite: buying because the stock market is up and selling when it starts going down.\\\"\",\n \"You are right; Rollover is a process, and not an account type; the result is a Traditional IRA. There is no such thing as a 'Rollover IRA Account'. Rolling a 401(k) over to a Traditional IRA makes sense if a) you have to, because you leave the employer the 401(k) is with; b) because you Traditional IRA is cheaper or more flexible or in other ways 'better' for you, or c) if your next step is a backdoor rollover to a Roth IRA. Most of the time, it doesn't make sense, because employer 401(k) are often better and cheaper. Of course, for the investment company where you roll it too, it makes a lot of sense, because they get your money, so they recommend it. But that's only good for them, not for you. Of course you can roll into an existing account, if you want to roll. Making a new account has no advantage. I cannot imagine any IRA custodian wouldn't take rollovers; they would shoot themselves in the foot by that. What can happen - and you should consider this - that your IRA only accepts cash, and does not allow to transfer the shares you have in the 401(k). That means you have to sell and then re-buy, and you might lose a lot in fees there.\",\n \"Taxes Based on the numbers you quoted (-$360) it doesn't appear that you would have a taxable event if you sell all the shares in the account. If you only sell some of the shares, to fund the new account, you should specify which shares you want to sell. If you sell only the shares that you bought when share prices were high, then every share you sell could be considered a loss. This will increase your losses. These losses can be deducted from your taxes, though there are limits. Fees Make sure that you understand the fee structure. Some fund families look at the balance of all your accounts to determine your fee level, others treat each fund separately. Procedure If you were able to get the 10K into the new account in the next few months I would advise not selling the shares. Because it will be 6 to 18 months before you are able to contribute the new funds then rebalancing by selling shares makes more sense. It gets you to your goal quicker. All the funds you mentioned have low expense ratios, I wouldn't move funds just to chase a the lowest expense ratio. I would look at the steps necessary to get the mix you want in the next few weeks, and then what will be needed moving forward. If the 60/40 or 40/60 split makes you comfortable pick one of them. If you want to be able to control the balance via rebalancing or changing your contribution percentage, then go with two funds.\",\n \"When you pick a company for your IRA, they should have information about rolling over funds from another IRA or a 401K. They will be able to walk you through the process. There shouldn't be a fee for doing this. They want your money to be invested in their funds. Once your money is in their hands they are able to generate their profits. You will want to do a direct transfer. Some employers will work with the investment companies and send the funds directly to the IRA. Others will insist on sending a check to you. The company that will have your IRA should give you exact specifications for the check so that you won't have to cash it. The check will be payable to you or the IRA account. The IRA company will have all the details. Decide if you will be converting non-Roth to Roth, before doing the rollover.\",\n \"\\\"Stocks, as an asset, represent the sum of the current market value of all of your holdings. If your portfolio is showing unrealized gains and losses, then that net amount is inherently reflected in the current market value of your holdings. That's not to say cost basis is not important. Any closed trades, realized gains or losses, will of course have an impact on your taxable income. So, it couldn't hurt to keep track of your cost basis from a tax standpoint, but understand that the term \\\"\\\"asset\\\"\\\" refers to the current market values and does not consider base amounts. Taxes do. Perhaps consider making separate cells for cost basis, but also bear in mind that most if not all of the major online discount brokers will provide transferring of cost basis information electronically to the major online tax service providers.\\\"\",\n \"You can evaluate portfolio raw returns or risk adjusted returns. To evaluate raw returns, I would personally compute the total returns over the time period in question for both portfolios. To compute total returns, split the time into a bunch of subperiods by the dates at which you contributed money. Compute each subperiod return by dividing the value of the portfolio at the end of the subperiod (but before adding additional cash on that day) by the value at the beginning of the subperiod (after adding cash on that day). Then multiply all these returns together. Finally, subtract 1. That's your total return. For the portfolio where you didn't add any money it's easy: just divide the end value by the beginning and subtract 1. Whichever has a higher return performed better. To compute risk adjusted returns, get the portfolio returns from both portfolios (daily or monthly) and use OLS to regress on a benchmark portfolio return (something like the S&P500). The intercept of the regression is a measure of the risk-adjusted peformance of your portfolio. Higher the better. More sophisticated models will do multiple regression using a few benchmark portfolios at the same time.\",\n \"\\\"There are two ways to handle this. The first is that the better brokers, such as Charles Schwab, will produce summaries of your gains and losses (using historical cost information), as well as your trades, on a monthly and annual basis. These summaries are \\\"\\\"ready made\\\"\\\" for the IRS. More brokers will provide these summaries come 2011. The second is that if you are a \\\"\\\"frequent trader\\\"\\\" (see IRS rulings for what constitutes one), then they'll allow you to use the net worth method of accounting. That is, you take the account balance at the end of the year, subtract the beginning balance, adjust the value up for withdrawals and down for infusions, and the summary is your gain or loss. A third way is to do all your trading in say, an IRA, which is taxed on distribution, not on stock sales.\\\"\",\n \"You would need to use Trading Accounts. You can enable this, File->Properties->Account settings tab, and check Use Trading Accounts. For more details see the following site: http://wiki.gnucash.org/wiki/Trading_Accounts\",\n \"\\\"Note that mutual funds' quarterly/annual reports usually have this number. I generally just let my home-accounting software project my future net worth; its numbers agree well enough with those I've gotten from more \\\"\\\"professional\\\"\\\" sources such as monte-carlo modelling. (They'd agree better if I fed in all the details of my paycheck, but I don't feel like doing the work to keep that up to date.) I'm using Quicken, but I assume MS Money and other competitors have the same capability if you buy the appropriate version.\\\"\",\n \"\\\"A long time ago, in a galaxy far far away, Rollover IRAs were used for funds that came from (were rolled over from) a 401(k) account or a 403(b) account. All that money (including any earnings in the interim) could be rolled over into a 401(k) plan with a new employer etc. One could make a regular contribution to a Rollover IRA but once such a commingling of money occurred, none of the money in the Rollover IRA could be rolled over into a 401(k) account etc. In those good old days when contributions to IRAs were made by paper check and \\\"\\\"deposit slip\\\"\\\", one had to write a letter to the Rollover IRA custodian certifying that the IRA owner understood that the contribution would destroy forever the possibility of rolling over the money into another 401(k) etc. All this went by the wayside a few years ago when the law changed and the distinction between Rollover IRAs and ordinary Traditional IRAs was eliminated. Commingling of IRA contributions and Rollover money from 401(k)s are permitted, and the entire IRA balance could be rolled over into a new 401(k) plan (provided the new plan accepted rollovers). However the adjectives still persist; like chili555, I too have IRAs that are still called Rollover IRA, they all have commingled funds, and if the law ever changes back, none of those IRA accounts would be eligible for rolling over into a new 401(k).\\\"\",\n \"\\\"It can be pretty hard to compute the right number. What you need to know for your actual return is called the dollar-weighted return. This is the Internal Rate of Return (IRR) http://en.wikipedia.org/wiki/Internal_rate_of_return computed for your actual cash flows. So if you add $100 per month or whatever, that has to be factored in. If you have a separate account then hopefully your investment manager is computing this. If you just have mutual funds at a brokerage or fund company, computing it may be a bunch of manual labor, unless the brokerage does it for you. A site like Morningstar will show a couple of return numbers on say an S&P500 index fund. The first is \\\"\\\"time weighted\\\"\\\" and is just the raw return if you invested all money at time A and took it all out at time B. They also show \\\"\\\"investor return\\\"\\\" which is the average dollar-weighted return for everyone who invested in the fund; so if people sold the fund during a market crash, that would lower the investor return. This investor return shows actual returns for the average person, which makes it more relevant in one way (these were returns people actually received) but less relevant in another (the return is often lower because people are on average doing dumb stuff, such as selling at market bottoms). You could compare yourself to the time-weighted return to see how you did vs. if you'd bought and held with a big lump sum. And you can compare yourself to the investor return to see how you did vs. actual irrational people. .02, it isn't clear that either comparison matters so much; after all, the idea is to make adequate returns to meet your goals with minimum risk of not meeting your goals. You can't spend \\\"\\\"beating the market\\\"\\\" (or \\\"\\\"matching the market\\\"\\\" or anything else benchmarked to the market) in retirement, you can only spend cash. So beating a terrible market return won't make you feel better, and beating a great market return isn't necessary. I think it's bad that many investment books and advisors frame things in terms of a market benchmark. (Market benchmarks have their uses, such as exposing index-hugging active managers that aren't earning their fees, but to me it's easy to get mixed up and think the market benchmark is \\\"\\\"the point\\\"\\\" - I feel \\\"\\\"the point\\\"\\\" is to achieve your financial goals.)\\\"\",\n \"\\\"Does your current 401(k) have low fees and good investment choices? If so you might be able to \\\"\\\"roll-in\\\"\\\" your rollover IRA to your 401(k), then do a backdoor Roth IRA contribution. A Roth IRA would be far more useful than a non-deductible traditional IRA.\\\"\",\n \"Instead of a price chart can use a performance chart, which is usually expressed as a percentage increase from the original purchase price. To factor in the dividends, you can either add in all of your dividends to the final price, or subtract the accumulated dividends from your cost basis (the initial price).\",\n \"\\\"According to page 56 of the 2015 IRS Publication 550 on Investment Income and Expenses: Wash sales. Your holding period for substantially identical stock or securities you acquire in a wash sale includes the period you held the old stock or securities. It looks like the rule applies to stocks and other securities, including options. It seems like the key is \\\"\\\"substantially identical\\\"\\\". For your brokerage / trading platform to handle these periods correctly for reporting to IRS, it seems best to trade the same security instead of trying to use something substantially identical.\\\"\",\n \"If you have just started an IRA (presumably with a contribution for 2012), you likely have $5000 in it, or $10,000 if you made a full contribution for 2013 as well. At this time, I would recommend putting it all in a single low-cost mutual fund. Typically, mutual funds that track an index such as the S&P 500 Index have lower costs (annual expense fees) than actively managed funds, and most investment companies offer such mutual funds, with Fidelity, Vanguard, Schwab, to name a few, having very low expenses even among index funds. Later, when you have more money in the account, you can consider diversifying into more funds, buying stocks and bonds, investing in ETFs, etc. Incidentally, if you are just starting out and your Roth IRA is essentially your first investment experience, be aware that you do not need a brokerage account for your Roth IRA until you have more money in the account to invest and specifically want to buy individual stocks and bonds instead of just mutual funds. If you opened a brokerage account for your Roth IRA, close it and transfer the Roth IRA to your choice of mutual fund company; else you will be paying annual fees to the brokerage for maintaining your account, inactivity fees since you won't be doing any trading, etc. The easiest way to do this is to go to the mutual fund company web site and tell them that you want to transfer your IRA to them (not roll over your IRA to them) and they will take care of all the paper work and collecting your money from the brokerage (ditto if your Roth IRA is with a bank or another mutual fund company). Then close your brokerage account.\",\n \"The Investopedia article you linked to is a good start. Its key takeaway is that you should always consider risk-adjusted return when evaluating your portfolio. In general, investors seeking a higher level of return must face a higher likelihood of taking a loss (risk). Different types of stocks (large vs small; international vs US; different industry sectors) have different levels of historical risk and return. Not to mention stocks vs bonds or other financial instruments... So, it's key to make an apples-to-apples comparison against an appropriate benchmark. A benchmark will tell you how your portfolio is doing versus a comparable portfolio. An index, such as the S&P 500, is often used, because it tells you how your portfolio is doing compared against simply passively investing in a diversified basket of securities. First, I would start with analyzing your portfolio to understand its asset allocation. You can use a tool like the Morningstar X-Ray to do this. You may be happy with the asset allocation, or this tool may inform you to adjust your portfolio to meet your long-term goals. The next step will be to choose a benchmark. Given that you are investing primarily in non-US securities, you may want to pick a globally diversified index such as the Dow Jones Global Index. Depending on the region and stock characteristics you are investing in, you may want to pick a more specialized index, such as the ones listed here in this WSJ list. With your benchmark set, you can then see how your portfolio's returns compare to the index over time. IRR and ROI are helpful metrics in general, especially for corporate finance, but the comparison-based approach gives you a better picture of your portfolio's performance. You can still calculate your personal IRR, and make sure to include factors such as tax treatment and investment expenses that may not be fully reflected by just looking at benchmarks. Also, you can calculate the metrics listed in the Investopedia article, such as the Sharpe ratio, to give you another view on the risk-adjusted return.\",\n \"This should be posted in /r/Personalfinance. Also, do not do what /u/BlitheCalamity is suggesting. 1. If it is an IRA, simply do an ACAT transfer. No taxes will be incurred if the paperwork is filed correctly. Additionally, there is a 60 rollover provision for IRA accounts... another way to get out of a tax penalty for an IRA account. 2. Check the internal fees for your mutual funds. You may have purchased A shares, which I am guessing is the case since your advisor was an Ed Jones advisor. The ongoing internal expense ratio should be rather low so you might want to consider keeping these funds. An ACAT will allow you to transfer your investments to your new account if you want to keep them. (A shares have a onetime high upfront charge, but low ongoing fee. If you've already paid for the fund, why ditch it for another fund that charges a higher ongoing fee but not an upfront fee? Evaluate your costs.) 3. If this is a non-IRA account, still file an ACAT. It is the easiest way to transfer your account. Edit: Silly me, this is clearly a question regarding an IRA. In that case, there is no tax penalty for selling anything and buying within your IRA as long as you do not take the money out. Like I said, please file an ACAT with the new company otherwise you will have to prove to the IRS that you completed the rollover in 60 days. If not, you will pay income tax and a 10% penalty.\",\n \"The simplest way to consolidate the funds your old 401(k) plans is by doing what's called a Direct Rollover (whereby the funds go directly into the new plan and skips you completely) from each of the old plans into either an IRA that you establish with a provider of your choice or even into your current employer's 401(k) plan if that is available. That way, the funds are in one central account and available to invest. Plus it eliminates the mandatory 20% withholding if the rollover is indirect and is sent to you first before the deposit into the new plan. It is important to bear in mind that you have 60 calendar days from the date of distribution to get the full amount into the new plan and a rollover is considered a tax reportable, but not necessarily a taxable event provided you deposit the funds within the time frame allotted.\",\n \"If you didn't have deposits, then the growth rate is simply ((p1/p0)^(1/t))-1, where p0 is the initial balance, p1 is the current balance, and t is the number of periods. For example, suppose you started the account with $100,000 in 2000. It's now 2015 -- 15 years later -- and the balance is $240,000. So the growth is: If you're making regular deposits, especially if you're making deposits of unequal amounts, the problem becomes much more complex. The easiest thing to do is probably to create a spreadsheet. Make a column for principle, a column for deposit amount, and a column for percent growth that period. Assuming A is principle and B is deposit, then the formula for growth C is =((A2-A1-B1)/A1-1)*100. Copy this formula down the column and Excel should automatically adjust the row numbers. Assuming you put one row for each month you can see the growth (or loss) month by month. You can get a general idea of what your overall growth rate has been by taking the average of the monthly amounts, but this would not be a truly accurate measure of your total growth because presumably (hopefully) you have more money in the later months than the earlier months. But it would be a good measure of how your investments are doing.\",\n \"As your question appears in the second half, so will my answer. Like you, I will provide some background. I remember buying gasoline for $1.759 per gallon. I am so old that I remember buying gasoline for $0.759 per gallon. I recently paid $2.759 per gallon. You claim that your relative is not getting a very good return. Some would suggest that, at $2.759 per gallon, I am not getting a very good price on gasoline. Rates, yields, returns and the price of gas are not what they once were. It is actually difficult to get a pretty bad return relative to the current market. I suspect your relative is no longer getting what he used to get but he is getting a fair return. About record keeping. Your Uncle Sam benefits at your expense when you keep poor records. There are substantial penalties for failing to report everything. Most high school graduates can manage one checking account, one savings account, several charge cards and about 20 CDs and stocks at different institutions with little more than the following: a) a wall calendar b) a shoe box and c) a stack of 3 by 5 cards. Don't misplace the shoe box. If you can use a spreadsheet, it is even easier. Backup your data. There are a several reasons why you shouldn't consolidate all his cash and put it in a single mutual fund account and then put together a mix of investments that work well for him. - you are doing it backwards 1st put together a mix of investments that work well for him 2nd consolidate the assets. Your phrasing suggests a general lack of understanding - most CDs have penalties for early withdrawal. - while you enjoy managing your 401K in a single online account, your older relative might not be as comfortable with a lack of paper statements (see shoe box above) Let me tell you a little about my 401K. x% blue chip, y% small cap, z% bonds, w% foreign stock. Once a quarter, I change my current contribution to re-balance current value towards my target percentages. Every 30 months or so, I consider changing my asset allocation. The allocation considers my age, my spouses age, our childrens ages, my risk tolerance and my intermediate view of the markets. Your mileage my vary. to recap\",\n \"\\\"You are overthinking it. Yes there is overlap between them, and you want to understand how much overlap there is so you don't end up with a concentration in one area when you were trying to avoid it. Pick two, put your money in those two; and then put your new money into those two until you want to expand into other funds. The advantage of having the money in an IRA held by a single fund family, is that moving some or all of the money from one Mutual fund/ETF to another is painless. The fact it is a retirement account means that selling a fund to move the money doesn't trigger taxes. The fact that you have about $10,000 for the IRA means that hopefully you have decades left before you need the money and that this $10,00 is just the start. You are not committed to these investment choices. With periodic re-balancing the allocations you make now will be adjusted over the decades. One potential issue. You said: \\\"\\\"I'm saving right not but haven't actually opened the account.\\\"\\\" I take it to mean that you have money in a Roth TRA account but it isn't invested into a stock fund, or that you have the money ready to go in a regular bank account and will be making a 2015 contribution into the actual IRA before tax day this year, and the 2016 contribution either at the same time or soon after. If it is the second case make sure you get the money for 2015 into the IRA before the deadline.\\\"\",\n \"Yes you can rollover as many different 401ks into a single IRA account. I have done it personally and it really cuts down on the overhead of keeping up with lots of different accounts. Your brokerage or mutual fund company should be able to help you with it. If you are using a company that just gives you forms and those forms don't mention an easy way to combine. Then I suggest rolling over one 401k first then once that's finished you can rollover the other 401k into that same account.\",\n \"Set your xirr formula to a very tall column, leaving lots of empty rows for future additions. In column C, instead of hardcoding the value, use a formula that tests if it's the current bottom entry, like this: =IF(ISBLANK(A7),-C6, C6) If the next row has no date entered (yet), then this is the latest value, and make it negative. Now, to digress a bit, there are several ways to measure returns. I feel XIRR is good for individual positions, like holding a stock, maybe buying more via DRIP, etc. For the whole portfolio it stinks. XIRR is greatly affected by timing of cash flows. Steady deposits and no withdrawals dramatically skew the return lower. And the opposite is true for steady withdrawals. I prefer to use TWRR (aka TWIRR). Time Weighted Rate of Return. The word 'time' is confusing, because it's the opposite. TWRR is agnostic to timing of cashflows. I have a sample Excel spreadsheet that you're welcome to steal from: http://moosiefinance.com/static/models/spreadsheets.html (it's the top entry in the list). Some people prefer XIRR. TWRR allows an apples-to-apples comparison with indexes and funds. Imagine twin brothers. They both invest in the exact same ideas, but the amount of cash deployed into these ideas is different, solely because one brother gets his salary bonus annually, in January, and the other brother gets no bonus, but has a higher bi-weekly salary to compensate. With TWRR, their percent returns will be identical. With XIRR they will be very different. TWRR separates out investing acumen from the happenstance timing of when you get your money to deposit, and when you retire, when you choose to take withdrawals. Something to think about, if you like. You might find this website interesting, too: http://www.dailyvest.com/\",\n \"\\\"Rolling an old 401k into a new 401k is generally only for ease of management. For example, how many bank accounts do you really want? As long as the funds are reasonably allocated I've found it can be a useful \\\"\\\"mind game\\\"\\\" to leave it separate. Sometimes it's desirable to ignore an account and let it grow, and it is a nice surprise when finally adding all the account balances together. In other words, I keep thinking I've got X (the amount of my biggest or current 401k), which affects/helps my habits and desire to save. When I add them all together I'm shocked to find out I've got Y (the total of all accounts). Personally, I've had big paperwork problems transferring an old 403b (same type process as 401k) even when I had an adviser helping me move it. In the end it was worth moving it, because I'm having the adviser manage it. I'm actually writing this answer specifically because I recently moved a big 401k into a Traditional IRA. A rep from the brokerage, representing my previous employer, kept calling me to find out how they could help (I didn't brush him off). I found that using an IRA provided me with the opportunity to do self-guided investments in funds or even individual stocks, well beyond the limited selection of the old company's 401k. It was useful/interesting to me to invest in low-fee vehicles such as index funds (ie: the Buffett recommendation), and I'll find some stocks as well. Oh and when the old company 401k has certain funds being discontinued, I didn't want to notice the mandated changes years later. So, I'd suggest you consider management and flexibility of the 401k or equivalent, and any of your special personal circumstances/goals. If you end up with a few retirement accounts, I suggest you use an account aggregating website to see or follow your net worth. I know many who, based on various concerns and their portfolio, find an acceptable website to use.\\\"\",\n \"You can easily build a Google Sheet spreadsheet to track what you want as Sheet has a 'googlefinance()' function to look-up the same prices and data you can enter and track in a Google Finance portfolio, except you can use it in ways you want. For example, you can track your purchase price at a fixed exchange rate, track the current market value as the product of the stock's price times the floating exchange rate, and then record your realized profit and loss using another fixed exchange rate. You don't have to record the rates either, as googlefinance() func is able to lookup prices as of a particular date. You can access Google Sheet through a web browser or Android app.\",\n \"In a traditional IRA (or 401k or equivalent), income tax is not taken on the money when it is deposited or when dividends are reinvested, but money you take out (after you can do do without penalty) is taxed as if it were ordinary income. (I believe that's true; I don't think you get to take the long-term investment rate.) Note that Roth is the opposite: you pay income tax up front before putting money into the retirement account, but you will eventually withdraw without paying any additional tax at that time. Unlike normal investments, neither of these requires tracking the details to know how much tax to pay. There are no taxes due on the reinvested dividends, and you don't need to track cost basis.\",\n \"I rolled mine over from the company I was at into my own brokerage house. You can't roll them into a Roth IRA, so I needed to setup a traditional IRA. There is paperwork your old jobs can provide you. I had to put in some mailing addresses, some account numbers and turn them in. My broker received it, I chose what I wanted to invest it in and that was that. No tax penalty or early withdrawal penalty. The key to avoiding penalties is to have your past employers send the money directly to another retirement fund, not send a check to you.\",\n \"That would be my suggestion (and what I've personally done), but I can't tell you what's right for you. As an aside, you don't usually need to manually fund an IRA (traditional *or* Roth) to open it for a rollover - Just tell them you're doing a rollover, and they'll set you up and tell you where to have the 401k checks sent (and sometimes even arrange it all *for* you).\",\n \"A rollover IRA is a traditional IRA. Your rollover contributions are not taxed and rollover or counted against your annual limit, which is income dependent. A Roth IRA is one where your contributions will be taxed going into the IRA. Note that there are adjusted gross income maximums for contribution to a Roth IRA (see here), and as far as I can tell those income maximums also determine whether or not you can rollover to a Roth IRA.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"Hmm, this site says If you use Quicken, you enter a new transaction of type \"\"Corporate Acquisition (stock for stock).\"\" You put investor shares as the \"\"Company acquired\"\", Admiral shares as the \"\"Acquiring company\"\", and the conversion ratio 0.7997754 as the \"\"New shares issued per held share\"\" number. Seems crazy, but maybe that's the way. Edit: This sucks. In the comments, you can see that people have to manually correct the share price for every transaction because of rounding problems.\""],"string":"[\n \"\\\"Hmm, this site says If you use Quicken, you enter a new transaction of type \\\"\\\"Corporate Acquisition (stock for stock).\\\"\\\" You put investor shares as the \\\"\\\"Company acquired\\\"\\\", Admiral shares as the \\\"\\\"Acquiring company\\\"\\\", and the conversion ratio 0.7997754 as the \\\"\\\"New shares issued per held share\\\"\\\" number. Seems crazy, but maybe that's the way. Edit: This sucks. In the comments, you can see that people have to manually correct the share price for every transaction because of rounding problems.\\\"\"\n]","isConversational":false}}},{"rowIdx":354,"cells":{"_id":{"kind":"string","value":"603"},"query":{"kind":"string","value":"Will one’s education loan application be rejected if one doesn't have a payslip providing collateral?"},"gt_ids":{"kind":"list like","value":["456440"],"string":"[\n \"456440\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["27670","456440","365963","75747","23551","217831","202731","183237","27681","37310","186504","312361","60233","399013","61014","438813","23420","340653","432116","313935","224835","540442","27030","551964","183450","403848","138511","510373","599483","25061","52250","364267","535303","12988","450427","231283","350819","91201","562121","185118","221502","470513","376403","486604","574575","10873","187526","168859","461376","292038","567424","486270","224332","142876","436493","424375","384100","21688","163881","573039","137222","531504","402362","592325","397027","455666","251062","560681","139978","111871","290270","43027","408213","382571","500761","307767","24567","488226","274924","51148","586289","187356","455614","281059","461233","92430","52706","474173","295085","219934","204554","468777","252097","443728","571295","243397","374492","524992","143728","473712"],"string":"[\n \"27670\",\n \"456440\",\n \"365963\",\n \"75747\",\n \"23551\",\n \"217831\",\n \"202731\",\n \"183237\",\n \"27681\",\n \"37310\",\n \"186504\",\n \"312361\",\n \"60233\",\n \"399013\",\n \"61014\",\n \"438813\",\n \"23420\",\n \"340653\",\n \"432116\",\n \"313935\",\n \"224835\",\n \"540442\",\n \"27030\",\n \"551964\",\n \"183450\",\n \"403848\",\n \"138511\",\n \"510373\",\n \"599483\",\n \"25061\",\n \"52250\",\n \"364267\",\n \"535303\",\n \"12988\",\n \"450427\",\n \"231283\",\n \"350819\",\n \"91201\",\n \"562121\",\n \"185118\",\n \"221502\",\n \"470513\",\n \"376403\",\n \"486604\",\n \"574575\",\n \"10873\",\n \"187526\",\n \"168859\",\n \"461376\",\n \"292038\",\n \"567424\",\n \"486270\",\n \"224332\",\n \"142876\",\n \"436493\",\n \"424375\",\n \"384100\",\n \"21688\",\n \"163881\",\n \"573039\",\n \"137222\",\n \"531504\",\n \"402362\",\n \"592325\",\n \"397027\",\n \"455666\",\n \"251062\",\n \"560681\",\n \"139978\",\n \"111871\",\n \"290270\",\n \"43027\",\n \"408213\",\n \"382571\",\n \"500761\",\n \"307767\",\n \"24567\",\n \"488226\",\n \"274924\",\n \"51148\",\n \"586289\",\n \"187356\",\n \"455614\",\n \"281059\",\n \"461233\",\n \"92430\",\n \"52706\",\n \"474173\",\n \"295085\",\n \"219934\",\n \"204554\",\n \"468777\",\n \"252097\",\n \"443728\",\n \"571295\",\n \"243397\",\n \"374492\",\n \"524992\",\n \"143728\",\n \"473712\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["Does that justify the purpose? That is for individual Banks to decide. No bank would pay for daily expenditure if you are saying primary salary you are spending on eduction. So your declaration is right. You are looking at funding your eduction via loan and you are earning enough for living and paying of the loan. I noticed that a lot of lenders do not lend to applicants whose purpose is to finance the tuition for post-secondary education This could be because the lenders have seen larger percentage defaults when people opt for such loans. It could be due to mix of factors like the the drag this would cause to an individual who may not benefit enough in terms of higher salary to repay the loan, or moves out of country getting a better job. If it is education loan, have you looked at getting scholarships or student loans.","A bank can reject a loan if they feel you do not meet the eligibility criteria. You can talk to few banks and find out.","On a personal Loan Yes. On a business loan, it would depend on the Bank and they would like to understand the purpose of the loan and need it to be secured. They may not even grant such kind of business loan.","I’ve been in the mortgage business for nearly 15 years. Your question is sort of multi-faceted and I’m surprised by some of these answers I’ve read! Anyway, I digress. Yes, you can be denied even if you have money for a down payment. One of the BIGGEST factors lenders are now required to take into account when approving mortgages now is a person’s “Ability to Repay.” Whether your traditional mortgages like Conventional, FHA, USDA, or VA loans, or even an “in-house” mortgage from a local bank —either way, the lender MUST be able to verify someone’s ability to repay. Your issue is that you won’t have any verifiable income until May. A couple people have answered correctly in that 1) if you have a firm offer letter that can be verified with the employer, and 2) you can use your education/college to substitute for a two year work history as long as you’re graduating with and working in the same line of work. Some programs require proof of 30 days of pay history once you actually start earning paychecks; some programs will use the offer letter as long as you will start earning paychecks within a certain number of days after the note date (basically when the payments start). Also I’m making the assumption that there is some sort of credit history that can be verified. Most lenders want at least a couple of accounts reporting a history just to show good use of credit and showing that you can manage your finances over a longer period of time. Just about every lender has some sort of minimum FICO score requirement. I hope this helps. If you have questions, just reply in a comment.","A Loan is an loan that gives some kind of benefit as an assurance to a loaning organization. So when you put in an application for a credit, you likewise advocate that in case that you can not pay, you've some form of benefit that will cover the default sum.","I would be surprised if a bank cared about an undergraduate major. Usually, such things are only important if it is a professional degree, like a law degree or medical degree. The big issue is that if you are not a US citizen, a US bank would be unlikely to make an unsecured loan because you could just return to your country and renege on the loan and they would have no way to collect. Therefore, a bank in your own country might be more logical. If you get accepted by a top Ivy school, they all have financial policies that will allow you to attend regardless of how rich or poor you are, so if you are applying to a top school (Harvard, Princeton, MIT, Stanford, Yale) and get accepted, they will fully finance your attendance. The only exception is if (A) they find out you lied about something, or (B) your parents/family are wealthy and they refuse to pay anything. As long as neither of these two things is true, all of the schools listed GUARANTEE they will provide sufficient financial aid. Princeton even has a no-loan policy, which means not only will they fund your attendance, they will do so without you having to take on any loans.","I got a credit card as a student with no income, not even a part time job. They called me, I agreed to one thing and they did another and now I have an old credit history. They don't do this anymore. But technically, student loan debt is unsecured?","You should definitely pay the remaining loan amount as quickly as possible. A loan in bad debts means that Bank has written it off books as its a education loan and there is no collateral. The defaults do get report to CIBIL [Credit Information Bureau India] and as such you will have difficulties getting credit card / new loans in future. Talk to the Bank Manager and ask can you regularize the loan? There are multiple options you would need to talk and find out; 1. You can negotiate and arrive at a number. Typically more than the principal outstanding and less than interest and penalties charged. 2. You can request to re-do the monthly payments with new duration, this will give you more time. 3. May one time large payment and subsequent amount in monthly payments. At the end its Bank's discretion whether to accept your terms or not.","You have 2 out of 3 (income and good credit). That is usually a pass where I work. The job longevity may factor in if they are strict. As for pay stubs, can you get a letter from your employer stating your start date and annual pay? Offer letters work just as well.","The U.S. Department of Ed offers Loan consolidation that you may want to take a look at: https://loanconsolidation.ed.gov/AppEntry/apply-online/appindex.jsp Going through a Government Agency as opposed to a private lender might reduce the burden (co-signers, collateral) you need to pass to get the loan.","Not having a job does not automatically disqualify you. If you had capital or savings or easily liquidatable assets and previous good credit history then you would qualify. This is a catch 22 for most people that are ever applying for unsecured lines of credit, and an oximoron when seeking UNSECURED credit, but this is how it is regardless. Hope that helps!","I would suggest talking to your parents about potentially co-signing on the loan with you. Just make sure that you are the primary holder of the loan. Sure, there is some risk for your parents, but they know you better than anyone so let them make the decision if they want to help you or not. If for some reason they can't help you, such as they've declared bankruptcy, then following the other answers' advice is the way to go.","\"I speak from a position of experience, My BS and MS are both in Comp Sci. I know very little about loans or finances. That is very unfortunate as you are obviously an intelligent human being. Perhaps this is a good time to pause your formal education and get educated in personal finance. To me, it is that important. I study computer science, and am thus confident that I will be able to find work after I finish school. This kind of attitude can lead to trouble. You will likely have a high salary, but that does not always translate into prosperity. Personal finance is more about behavior then mathematics. I currently work with people that have high salaries in a low cost of living area. Some have lost homes due to foreclosure some are very limited in their options because of high student loan balances. Some are millionaires without hitting the IPO/startup lotto. The difference is behavior. It's possible that someone in my family will be able to cosign and help me out with this loan. This is indicative of lack of knowledge and poor financial behavior. This kind of thing can lead to strained relationships to the point where people don't talk to each other. Never co-sign for anyone, and if you value the relationship with a person never ask them to co-sign. I'll be working as a TA again for a $1000 stipend. Yikes! Why in the world would you work for 1K when you need 4K? You should find a way to earn 6K this semester so you can save some and put some toward the loans you already acquired. Accepting this kind of situation \"\"raises red flags\"\" on your attitude towards personal finance. And yes it is possible, you can earn that waiting tables and if you can find a part time programming gig you can make a lot more then that. Consider working as a TA and wait tables until you find that first programming gig. I am just about done with my undergraduate degree, and will be starting graduate school at the same university next semester. To me this is a recipe for failure in most cases. You have expended all your financing options to date and are planning to go backwards even more. Why not get out of school with your BS, and go to work? You can save up some of your MS tuition and most companies will provide tuition reimbursement. Computer Science/Software Engineering can be a fickle market. Right now things are going crazy and times are really good. However that was not always the case during my career and unlikely for yours. For example, Just this year I bypassed my highest rate of pay that occurred in 2003. I was out of work most of 2004, and for part of 2005 I actually made less then when I was working while in college. In 2009 my company cut our salaries by 5%, but the net cost to me was more like a 27% cut. In 2001 I worked as a contractor for a company that had a 10% reduction in full time employees, yet they kept us contractors working. Recently I talked with a recruiter about a position doing J2EE, which is what I am doing now. It required a high level security clearance which is not an easy thing to get. The rub was that it was located in a higher cost of living area and only paid about 70% of what I am making now. They required more and paid less, but such is the market. You need to learn about these things! Good luck.\"","Generally, banks will report your loan to at least one (if not all three) credit bureaus - although that is not required by law. The interest you're paying, in addition to your insurance isn't justifiable for building credit. I would recommend paying the car off and then perhaps applying for a secure credit card if you are worried about being rejected. Of course, since you have very little credit, applying for an unsecured card and getting rejected won't hurt you in the long run. If you are rejected, you can always go for a secured credit card the second time. As I mentioned in my comments, it's better to show 6 months of on-time payments than to have no payment history at all. So if your goal is to secure an apartment near campus, I'm sure you're already a step ahead of the other students.","There are loan options for those in your situation. It is very common. I am a licensed loan officer nmls 1301324 and have done many loans just like this. Your schooling is counted as your work history Contrary to popular belief. We want to write loans and guidelines are easing. Banks are a different story and their loan officers aren't licensed. If you talk to a bank you aren't getting an educated loan officer. They also have what are called overlays that make guidelines stricter.","I can safely assume that a credit union or a bank, probably a bank based on the size of the short term loan would allow use of the annuity as collateral for the loan. Since the future payouts from the annuity will more than cover the total costs coming due for your education I'm sure the bank will have no problem loaning the money and you can see if doing a direct payment monthly to them will reduce the rate. You can try a credit union since they will most likely give you a more favorable rate. If you can get a credit union to do it, you will most likely be paying a lot less, but typically they want interest paid monthly and not at the end of the 6 months term. There is also a service called TMS or Tuition Management Services which you can find at Tuition Management Services They typically also expect monthly payments but might do an alternative for you, they charge I believe a $60USD fee to use their service. Also just flat out bank shop and demand the lowest rate, its guaranteed money so you should be paying LIBOR plus 1 at most, see if you can direct your next payout to them with the balance coming to you.","All new loans must be originated from the direct loan program. In most cases, the Stafford loan is better, as the rate is lower (6.8% vs. 7.9% for the PLUS loan). There aren't many viable alternatives for most people. Private student loans exist, but carry significantly higher rates and worse payment terms. The exceptions are programs that exist for professions like medicine and dentistry. Credit cards usually carry higher rates and limited credit lines, but you have the option of negotiating the balance down or declaring bankruptcy to discharge the debt if you are unable to repay.","You have asked about getting a loan, the issue is that you don't have collateral to offer up in exchange for the loan, you also don't have a regular source of income. Getting a low level job, even one not related to your major will provide income. Getting a not-so-perfect job related to your major will allow your to sustain yourself, and provide experience that can help you find the perfect job. The time from application to interview to offer letter to start date can be measured in months. This is even with positions you are perfect for. Since it can take months to get started in a new job you should focus on something that you can get started right away. This type of job will have a shorter time frame for the interview cycle. You may feel overqualified for the jobs based on the fact you just graduated from college but this was the type of job you should have had to bridge you from school to the job you want. Regarding the end goal of getting the perfect job, you might have to refocus your efforts. When you had time and money you could afford to be picky about company, location and salary. Now that money is in short supply you will need to change your standards. Keep in mind it is not just an issue about being able to travel to job interviews, it is also about needing a way to afford food, and health insurance. Go back to your college campus and talk to the career counselors they can help your with your resume, and give job search advice. They may also have contacts that can help you find a position with a good local company or even a national company. They may even know of companies that need employees for just a few months to fill a need.","Typically Banks look for a steady source of income or savings based on which they issue a credit card. If you can't show that build a cash balance and show it. For Example if you have an PPF account with say SBI, they issue you a card with a limit of around 50% of the balance in PPF. No other documentation is required. Similarly if you have Fixed Deposits for a large amount quite a few Banks would give you a Credit Card. My wife has a credit card because she had a good balance [around 100,000 INR] for around a year, the Bank kept calling her and offered her a card.","I would imagine that it goes beyond purpose and also addresses the demographic as a poor credit risk. Those seeking a post secondary education are a poor credit risk. They are at the beginning of their careers so tend to have low income, a short credit history, and a very short time of managing money on their own. Also many don't know how to work. This later fact, to me, is a great predictor of financial success. Reading into the financial data surrounding student loans, it pretty easy to see that this demographic makes poor money decisions. I live near a state university. A large percentage of students drive late model luxury cars, frequent expensive bars and restaurants, and wear pretty nice clothes. They also graduate with, on average 60K in student loans. Keep in mind a 4 year degree could be had for about 30K and could be paid for working a part time job. And that, to me, is the wisdom in bank's decision. Sure they will loan you all the money you want with a government guarantee. However, once that disappears they will not you money for unnecessary purposes.","Get someone in your family to pay for it. If that's not an option, you have no choice but to make do with what you can do, and either get a job or a loan. I'd advise a job unless you're studying something with a really strong possibility of getting you a high paid job.","\"Repayment of student loans is usually deferred until graduation. Unless you are late or non-performing on a loan, it will make no difference to an auto loan. To get a (normal) auto loan you will need to demonstrate a source of income or have the loan co-signed by someone who does have income. As a general rule of thumb, banks care a lot more about your income than your \"\"credit score\"\".\"","At your age, the only place you are going to get a loan is from relatives. If you can't... Go to next year's conference. Missing it this year might feel like a disaster, but it really, really isn't.","You do not need to set this up as a loan. Try finding an Indian student. He is eligible to get cash (using a travel card, may be) from India tax-free. As long as it doesn't exceed the i-20 amount, he will not have any problems. Since, $10,000 is very small amount, the student shouldn't be having any problem.","According to GOV.UK, you can only apply for Student Finance if: Since you don't fulfill the criterion 2 and 3, you are technically not eligible for Student Finance. Since you have received information from Student Finance England that you can apply for the maintenance loan, you should either write to them or call them again, to confirm the information given to you.","Impossible. There is no such thing as a business loan without proper collateral. There are a couple of exceptions: Friends, and Family members. But you want to be absolutely 100% sure your business plan can be executed successfully, and that your business plan is awesome. You don't have a business plan? Then you're just going to be stealing money from your family and friends.","Are you doing the right thing? Yes, paying back some of the expense of college is a great way to show your gratitude. Could your sister also pitch in a little to help pay the debt down? Will you get approved for a $30,000 unsecured loan? You don't mention your credit rating but that will have an effect obviously. You might consider visiting a credit union with your father and co-signing a loan since it is his debt that you are assuming. You might still want to write a loan for your dad to sign even if he isn't co-signed on a loan. This could protect you in case of his death if there are other assets to divide. If you are not approved for a loan, you could also simply join your dad in paying down the highest-rate cards first and have a loan agreement for him to pay back that money if/when it is possible. You've mentioned that you have no collateral. There aren't many options for loans with no collateral. Your dad's bank or a credit union might consider a debt consolidation loan with you as a co-signer. That's why I mentioned going to a credit union. Talking to a loan officer at a local financial institution will make it easier to get approved. If they see that you are taking responsible steps to pay off the debt, that reduces your credit risk. If you do get a debt consolidation loan, they will probably ask your dad to close some credit card accounts.","When getting a mortgage it always depends on the bank and each bank may be more or less strict. With that being said there are rules and general guidelines which can help you understand how you fit in the world of mortgage approvals. If you can provide the same paper work as an employee of your company that you would normally provide from any other company then a bank may just accept that alone. However to me it seems like you will be looking at a new variation of what was known as a Self-certification mortgage A self-certification mortgage is basically a mortgage for those who cannot prove their income. As a result of the housing collapse, the rules on a traditional self-cert mortgages have changed. As someone who is self employed, it is more difficult today to get a mortgage but is still possible. This article provides some good information: Can the self employed still get a mortgage? I advise doing some research on this topic and speaking with a professional mortgage broker. Some Resources: Compare Self Cert Mortgages How to beat the mortgage famine in 2012 Can the self employed still get a mortgage?","\"This does not seem, to me, to be a very good indication regarding the risk of the person not paying their balances off. If you do not have a source of income then how are you going to repay your debt. Not to mention there is recource for creditors to garnish wages. That is not possible if you have no income. The risk assessment is about the ability of the creditor to recover any moneys loaned and costs and still make a profit. For example, students have their parents pay them some pocket money to cover for expenses, or a person might be working sporadically on consulting gigs that do not have a fixed monthly or yearly component. Most credit card companies that are willing to issue to college students will allow you to include money from your parents in your income. Credit card companies are looking for customers that will carry a balance and incur fees but be able to pay them. These companies do not make money off of fees and interest that they do not collect. As such, sporatic work increases risk. Is it possible for people to get approved for unsecured credit cards if they don't hold (or have not held for some time) a job at the time of application? I was able to while I was in college. Though I did have a part time job. If you can show that you have the ability to pay you can usually get a credit card if you do not have bad credit. It will probably be high interest and have alot of fees some of them you will have to pay upfront. But what you probably mean to ask is \"\"Is it possible to get a no cost unsecured credit card with out a reliable source of income?\"\" The answer to that is: probably not. Even the ones that look like they are free probably have hidden fees.\"","1. this is not the correct sub, try /r/Entrepreneurs or similar 2. Banks only care about 1 thing: collaterals with personal guarantee from the owners/shareholders of the business. Nothing else matters, don't waste your time with a business plan. (Yes ELI: bank only give money to people who have money).","It sounds like your current loan is in your name. As such, you are responsible for paying it. Not your family, you. It also sounds like the loan payments are regularly late. That'll likely drastically affect your credit rating. Given what you've said, it doesn't surprise me that you were declined for a credit card. With the information on your credit report, you are a poor risk. Assuming your family is unable to pay loan on time (and assuming you aren't willing to do so), you desperately need to get your name off the loan. This may mean selling the property and closing out the loan. This won't be enough to fix your credit, though. All that will do is stop making your credit worse. It'll take a few years (five years in Canada, not sure how many years in India) until this loan stops showing up on your credit report. That's why it is important to do this immediately. Now, can a bank give you a loan or a credit card despite bad credit? Yes, absolutely. It all depends on how bad your credit is. If the bank is willing to do so, they'll most likely charge a higher interest rate. But the bank may well decide not to give you a loan. After all, your credit report shows you don't make your loan payments on time. You may also want to request your own copy of your credit report. You may have to pay for this, especially if you want to see your score. This could be valuable information if you are looking to fix your finances, and may be worth the cost. If you are sure it's just this one loan, it may not be necessary. Good luck! Edit: In India CIBIL is the authority that maintains records. Getting to know you exact score will help. CIBIL offers it via TransUnion. The non-payment will keep appearing on your record for 3 years. As you don't have any loans, get a credit card from a Bank where you have Fixed Deposits / PPF Account as it would be easier to get one. It can then help you build the credit.","I think you are running into multiple problems here: All these together look like a high risk to a bank, especially right now with companies being reluctant to hire full-time employees. Looking at it from their perspective, the last thing they need right now is another potential foreclosure on their books. BTW, if it is a consolation, I had to prove 2 years of continuous employment (used to be a freelancer) before the local credit union would consider giving me a mortgage. We missed out on a couple of good deals because of that, too.","Personal needs? No bank is going to give you that kind of cash without a real reason, usually with some equity backing it. From your post you say you are a student, so I doubt you even have the income to pay it back. If banks just gave out cash like that people would disappear with it all the time.","Edit: lazy math The answer to this question depends on two things: How bad will it be if you cannot repay this loan in the way you expected? - How likely are you to actually get into a PhD program with a stipend? Is there a possibility that you will not get a stipend? What is the penalty for failure to repay? Will you have to support yourself after university? How much money could you expect to earn if you found a job after your undergraduate degree? How much could taking this loan improve your finances/life? - Could you get your degree at anther institution without going into debt? Would your career be better if you went to Ecole Polytechnique? I would take the loan if:","Standard Repayment can be quite burdensome. Fortunately, it looks like FedLoan Servicing offers a variety of payment plan options, and even provides a calculator that you can use to compare them given your adjusted gross income and current loan balances. This won't reduce that $420 to $0 but it may bring it down significantly. I agree with @littleadv that you need legal advice to answer your other questions. That being said, I can tell you that it is possible to go into deferment and/or forbearance at any time (not only before you start making regular payments) as long as you meet the criteria. Otherwise, it may be worth looking through other questions and answers on here about lowering expenses and increasing income. There is a lot of good advice for people in similar situations to yours. If you are truly in hardship, even with a full-time job, you may qualify for supplemental nutrition insurance, a.k.a. food stamps. Best of luck.","Student loan is a class of unsecured loan. The characteristics that define a student loan are, primarily, that it is a loan that is intended to be used by someone who is currently a student. Beyond that, though, there are many variations. The different kinds of requirements usually have to do with who is eligible for the loan, and with what the loan is allowed to be used to pay. Some loans have other limitations, such as only being allowed to be directly paid to the institution. Some student loans are federally guaranteed (meaning the Federal Government will repay the bank if you default). Those have a lower interest rate, typically, and often have more stringent requirements, such as only full-time students being eligible, being need-based, and limitations on what the loan's funds can be used for. See studentaid.ed.gov for more information. Many private student loans have quite lax limitations. Some for example have nearly no limitation as to what they can fund; many are allowed to be taken out by part-time students and even non-degree-seeking students in some cases. Private loans usually have somewhat higher rates (as they're entirely unsecured) to go along with the lower restrictions and higher borrowing limits. You'd have to see the specific details of any particular loan to know what it's allowed to pay for, so if you choose this route, know what you plan to use it to pay for before you go looking.","Banks will usually look at 2 years worth of tax returns for issuing business credit. If those aren't available (for instance, for recently formed businesses), they will look at the personal returns of the owners. Unfortunately, it sounds like your friend is in the latter category. Bringing in another partner isn't necessarily going to help, either; with only two partners / owners, the bank would probably look at both owners' personal tax returns and credit histories. It may be necessary to offer collateral. I'm sorry I can't offer any better solutions, but alternative funding such as personal loans from family & friends could be necessary. Perhaps making them partners in exchange for capital.","In this example you are providing 4x more collateral than you are borrowing. Credit score shouldn't matter, regardless of how risky a borrower you are. Sure it costs time and money to go to auction, but this can be factored into your interest rate / fees. I don't see how the bank can lose.","Banks calculate the total they can present to you chiefly on your net review earnings. They get into explanation their preceding experience and your present track record which would point to whether you have taken any other loan or you have had a awful credit history and effects like your investments history and your existing investments before making a choice as to how much they will lend to you.","As mentioned in the comments, there are costs associated with owning & living in an apartment. First you have to pay maintenance charges on a monthly basis and perhaps also property tax. Find out the overall outgoings when you live in that apartment & add the EMI payments to the bank, it should not be way higher than your current rent. As an advantage you are getting an asset when you buy an apartment & rent is a complete loss, ast least financial terms. So, real estate is in general a good idea over paying rent. As for the loan part, personal loans are by far the most expensive of loans as they are in general unsecured loans (but do check with your bank). One way is to try and get a student loan, which should be cheaper. If you can borrow from family that is the best option, you could return the money with perhaps bank fixed deposit rates, it is better to pay family interest than bank. If none of the options are workable, then personal loan is something you need to look at with a clear goal to pay it off as soon as possible and try to take it in stages, as an when you require it and if possible avoid taking all the 15,000/- at once.","I was in that same situation years ago with my parents. One way she could apply for a loan in her name without her parents is if she is not currently living with them she shouldn't need them to cosign if she doesn't have bad credit. But if she isn't living with them and they aren't financing her room and board they can't claim her as a dependent so if she really wants to stick it to them she can go and try to politely explain how the loans work and tell them if they don't cosign for her then she will apply on her own (which she can only do while not living with them I believe but not sure) and they will HAVE to STOP claiming her as a dependent on their taxes. If they don't agree she can put her foot down and force them to stop claiming her and tell them she will file her own application anyway and if they continue claiming her and get in trouble for it it's their own fault cause she warned them to stop first. They may agree to cosign rather than lose her as a dependent if it makes that big of a difference on their taxes, if they don't then she can forcefully punish them financially and their taxes will go up. Those were my choices when my parents refused to cosign for me to live at school but that was back in 1999-2000 and things may have changed since then, things also change state by state and I live in PA.","It's difficult to provide an exact answer as this will very much depend on the bank & the local regulatory scheme. However as a business owner you should be able to provide incorporation docs, some proof of ownership of the company and last years' financial statements or tax returns, many banks would accept this as a proof of income for the purposes of granting credit. In general in most jurisdictions I can think of, a high downpayment will not remove the need to verify income as the bank needs to feel comfortable that you have the ability to pay the remaining 25% (e.g. how do they know you're not a serially unemployed lottery winner) and if the downpayment is quite large they may want some assurance that you got the money legally (e.g. how do they make sure you're not a drug dealer). So probably regardless of how large a downpayment most banks would probably want some additional proofs of income however what proofs are needed may be more flexible than just a salary stub. I suggest taking a look at what sort of documents you may have on hand that can serve to validate your revenue in some way and contacting a few banks directly to see what options they can provide and whether some custom-tailored arrangement can be made.","A lender will look at three things when giving a loan: Income. Do you make enough money each month to afford the payments. They will subtract from your income any other loans, credit card debt, student loan debt, mortgage. They will also figure in your housing costs. Your Collateral. For a mortgage the collateral is the house, for a car loan it is the car. They will only give you a loan to a specific percentage of the value of the collateral. Your money in the bank isn't collateral, but it can serve as a down payment on the loan. Your Credit score. This is a measure of how well you handle credit. The longer the history the better. Using credit wisely is better than not using the credit you have. If you don't have a credit card, get one. Start with your current bank. You have a history with them. If they won't help you join a credit union. Another source of car loans is the auto dealer. Though their rates can be high. Make sure that the purchase price doesn't require a monthly payment too high for your income. Good rules of thumb for monthly payments are 25% for housing and 10% for all other loans combined. Even a person with perfect credit can't get a loan for more than the bank thinks they can afford. Note: Don't drain all your savings, you will need it to pay for the unexpected expenses in life. You might think you have enough cash to pay off the student loan or to make a big down payment, but you don't want to stretch yourself too thin.","Apart from the reasons currently given (which have to do with personal relations), wouldn't a good reason to take the loan from the bank be to build up a credit history and/or improve your credit score?","My son is in a similar situation where he is 21 and in college. My wife and I claimed him as a dependant on our taxes last year. He had still been able to get some student loans as a dependant as well as scholarships. I have told him that we will not cosign on a loan for him. It isn't because we don't like our son, it is simply because too many unexpected things can happen. He has been working multiple jobs which is one thing I would suggest as well as donating plasma for extra money to have a social life. As an electrical engineering major he doesn't have much time to be social. He cuts rent by having roommates and does most of his own cooking to help with food costs. The main thing he does to keep his costs under control is attends a school that isn't outrageously expensive. An expensive school does not offer as much benefit for an undergrad degree as it might for a graduate degree. Another option is to look for a job that had some sort of tuition assistance. Another option along that same line is look into military service either active duty or reserves as there is tuition help to be found there. There are options that don't involve debt. As a side note my son used a student loan last year however, this coming year he has his budget figured out and he will not be needing one at all.","\"This answer is better served as a comment but I don't have enough rep. It is not guaranteed that they 'do not accrue interest while you are a full time student'. Some student loans can capitalize the interest - before pursuing leveraged investing, be sure that your student loan is not capitalizing. https://www.salliemae.com/student-loans/manage-your-private-student-loan/understand-student-loan-payments/learn-about-interest-and-capitalization/ Capitalized interest Capitalized interest is a second reason your loan may end up costing more than the amount you originally borrowed. Interest starts to accrue (grow) from the day your loan is disbursed (sent to you or your school). At certain points in time—when your separation or grace period ends, or at the end of forbearance or deferment—your Unpaid Interest may capitalize. That means it is added to your loan’s Current Principal. From that point, your interest will now be calculated on this new amount. That’s capitalized interest.\"\" https://www.navient.com/loan-customers/interest-and-taxes/how-student-loan-interest-works/ Capitalized Interest If you accrue interest while you are in school – as with Direct Unsubsidized, FFELP Unsubsidized, Direct and FFELP PLUS Loans, and Private Loans – you will have capitalized interest if it is unpaid. Unpaid accrued interest is added to the principal amount of your loan after you leave school and finish any applicable grace period. Simply put, there will be interest to be paid on both the principal of the loan and on the interest that has already accumulated. To minimize the effects of the capitalized interest on the amount you will pay overall, you can pay the interest during college instead of waiting until after graduation. That way, you start with the original principal balance (minus any fees) when you begin repayment.\"","\"First, excellent choice to say no to non-subsidized loans! But I'd say you are cutting things very close either way, and you need to face up to that now. $35/mo extra at the end of the month is \"\"within the noise\"\" of financial life, meaning you should think of it as essentially $0 each month or even negative money, since one vet bill/school books/unforeseen problem could remove it for the entire year, easily. You are leaving yourself no buffer. But by taking the loan, unless you are (as Joe said) socking away savings to pay for it upon graduation, you are guaranteeing you'll leave college with debt, which I think should be avoided if you can. Could you do a hybrid plan in which you worked hard to do the following?: If you do these things or something along these lines, the loan is probably OK; if not, I'd be concerned about taking it. [Probably unnecessary, but: Keep in mind that student loans are not excusable by bankruptcy, so one is on the hook for them no matter what]. Also consider whether you can take a semester off now and then to catch up financially. The key is to really stay far from the edge of any financial cliffs.\"","\"Wow. I'm one of the two people who actually respond to your half-baked idea and you jump down my throat. The example of changing majors is different because you're talking about a share of lifetime income, not a loan that will be paid off in the next 10-15 years. With such a long-term obligation as you mention, the onus to \"\"get it right\"\" on your first major will be high, possibly confining. As for \"\"probably have some penalty,\"\" that's what I'm talking about. You haven't even really considered the depth necessary to create a system such a vast and liquid system, so you don't really have any idea how massive the costs could be in comparison to such miniscule amounts of principal. And don't flatter yourself. I'm not confusing your little five-minute thought with the Koen brothers' impressive novel. I mentioned it because it's a valid parallel. And while you may not be talking about corporations, you *are* talking about creating securitized investments (aka securities, stocks) on a massive scale. You're talking about millions of individuals who need to be profiled for risk and profitability, who need to be verified, double-checked, maybe interviewed, bundled and approved. By very nature of being securities, they'll need approval from people like the SEC, as well as listings on exchanges or somewhere. All of this conforming comes with a great deal of fees. By the time you're done, we're at a similar complexity level to that of a corporation. I'm sorry you felt the need to condescend, because you seem to be out of your league on this one. Next time maybe explaining your point in greater detail will help people understand what you're saying.\"","\"I'd change my attitude a bit. \"\"I'm not very good with saving money, unless I know I need to.\"\" If you could act as if you absolutely needed to save, but took the subsidized loan and set it aside, you'd have a good start. As a student, it would be difficult to raise money the way an established working person might. A low interest credit card, a 401(k) loan, Home Equity Loan, etc. If you feel it would be too tempting to set it aside, don't take it. Your question is fine, but the answer isn't financial, it's behavioral.\"","Contrary to popular belief, you can build your credit (if that is important to you) without paying a penny in interest. This is done through the responsible use of credit cards, paying the bill in full each month without accruing any interest charges. If I were you, I would pay off the loan today, if possible. After that, if you decide you need to build up your credit, apply for a credit card. If you have difficulty with that, you can get a small secured credit card or retail store credit card until you have enough history to get a regular credit card.","I'm not sure the reasoning still holds though. If you default on your student loan, your diploma doesn't get repossessed. There's a signifiant moral hazard associated with student loans. A mortgage on the other hand is around a very physical item. Though I can still banks lobbying for better rules, that would be hugely in the consumers disadvantage.","It is completely in the realm of each lender what they request. Some lenders always want to see proof of income, and others have decided to look only at other things. Their decision has nothing to do with you, your situation, your income, or your credit history. You are of course free to go to another lender that does not want proof of income.","I've been a mortgage broker for almost 20 years. I get people loans all of the time thru FHA and Conventional (Fannie Mae) with just one year work history; however, as a student, you must submit your school transcripts and your major needs to be in line with your current job. I'm closing a guy next week that has only been in his job for 8 months but he just graduated with his Masters in Biology. He's currently a wild life manager and the underwriter signed off on it easily.","I am 17 and currently have a loan out for a car. My parents also have terrible credit, and because I knew this I was able to get around it. Your co-signer on your loan does not have to be your parent, at least in Wisconsin, I used my grandmother, who has excellent credit, as my cosigner. With my loan, we had made it so it doesn't hurt her credit if I don't get my payments in on time, maybe this is something for you to look into.","\"Stripping away the minutia, your question boils down to this: Should I take a loan for something that I may not be able to repay? The correct answer, is \"\"No\"\".\"","You don't need a finance degree, no, but what you do need is evidence. Mind linking some of your sources? Can you flesh it out in detail for us? If not, why are you crusading for a cause you have no domain knowledge of?","Not all education is considered equal. Can you tell us just a little bit about what kind of degree you are going for and where? The reason I ask is that there are many schools out there which are more interested in making a profit, and less interested in providing an education. -Ralph Winters","> If you're saddled with a ton of debt and also don't have a degree to show for it, I'd say it's much more likely you're going to have trouble paying it off. This is how generational poverty continues.","\"Since you're also looking for alternative means of funding, have you considered doing part-time work -- during the holidays or on some of the weekends? With this kind of financing you have to watch out that the work does not interfere with your study. On the other hand it can be valuable work experience that can come in handy later in your life, such as when applying for your first \"\"real\"\" job. The kind of work you can do will depend a lot on the subject you are studying and what qualifications you have. For example, if you are studying computer science, there are a lot of freelance opportunities in programming. One of these could lead right to your first job after university. The two broad types of work you can do are: For freelance: Try searching for \"\"[subject] student freelance\"\" and look at sites like oDesk. Read up on tax concerns, research how to price your time, and start doing! For employment: Browse the job boards at your university. Contact businesses to ask for part-time opportunities. Hope this helps to open one of the alternative paths here. If you go down this road, remember to keep your priorities in mind. Especially the freelance work can easily interfere with your study and delay you unnecessarily. Good luck!\"","Are there any laws against doing this? so long as you are truthful in your application for the loan, none that I know of - technically you could use the loan to pay for school and the cash that you would have used instead to invest. Are there other reasons why this is a very bad idea? I think you've already identified the biggest one, but here are my reasons: Will you go broke or go to jail? Likely not, but there is significant risk in investing with borrowed money. You might come out ahead, but you might also lose a bundle. If you're willing to take that risk, that's your right, but I would not call it a good idea under any circumstances.","There are other ways to pay for college besides loans. Like joining the military. EDIT: Please explain why this comment was downvoted. It's a statement of fact. My best friend paid for his college via ROTC and is doing much better in in his post-military civilian career than other peers who opted to go the direct college route.","It looks like your visa being refused is entirely irrelevant. What happens in bankruptcy is that all the assets of the bankrupt entity are taken over, liquidated, and the proceeds are distributed to the creditors. You're one of the creditors, and as you've been told - the proceeds are not enough to pay all the creditors in full. This is quite common in bankruptcies. What you can do is sue in court and demand priority over other creditors, but... a. You're exactly the same as many other creditors (rest of the students), so why would you get a priority? b. Suing costs money and even if you get more, you'll pay way more for legal fees and expenses. What else can you do? If you paid with a credit card - your credit card company may be able to reverse charges. Sometimes that works, depending on how fast you move. If you paid with a check - your bank may similarly be able to stop payment on the check. This provided it hasn't been settled yet.","You’re asking for a loan value that’s equal to 20% of your income. You need to calculate all bills that you pay and see what you have left over. If your current bills are more than 65-70% of your income you’ll have a tough time getting a loan.","\"Several student loans are backed by government guarantee and this will allow you to get attractive rates. This may require them to consolidate the three classes of loans separately. Many commercial banks offer consolidation services, one example is Wachovia discussed at https://www.wellsfargo.com/student/private-loan-consolidation/ Other methods of \"\"consolidation\"\" are of course anything that pays off the original loan. If available, using a parent's home equity line of credit to pay of the loans and then paying back the parents can save money. An additional benefit of HELOC-style loans is that they are very flexible in their payment terms. For example you may pay $25 per year to keep the account open and then only be required to make interest payments. Links: https://origin.bankrate.com/finance/college-finance/faqs-on-student-loan-consolidation-1.aspx\"","If it's a small one person business he will have to sign a personal guarantee no matter what he does with respect to incorporating. Not saying your idea isn't worth looking into but no bank will lend him money without a personal guarantee.","You should pay for school with cash. If you take out a loan, you are not really saving money; you are borrowing money. I do not think you will come out ahead borrowing a down payment at student loan rates.","When you borrow from a bank, there are secured loans, as with a mortgage, or unsecured lines of credit, usually a more reasonable amount of money, but also based on income. You just asked about a private loan. It depends on the person and your relationship. If you need money to pay the rent, you might not be the best person to lend money to. If you ask a friend or relative, they may lend you money without asking its purpose.","Your first step should be to visit with the financial aid office of the university that you are considering attending, perhaps even before filling out the FAFSA. You may be eligible for grants, scholarships, and subsidized loans, as well as unsubsidized loans. You should pursue the first two options first, and then when you know how much remains to be financed, we can evaluate which of your investments you might liquidate if further financing is needed. There are a range of views on debt on this board. I take a very cautious approach to going in to debt. I worked full-time and took night classes to finish my degree without debt, but depending on your program that might not be an option. It seems that you also have a healthy relationship with debt considering the shape of your savings and finances as outlined above. Apart from the above information about how much money could be obtained and at what interest rates, the other missing information is your current salary, and your expected salary range after completing the program. With all of that information I could make specific recommendations, but at this point, my only recommendation is to avoid liquidating any retirement accounts in your effort to invest in yourself if at all possible.","First, many banks do not keep the loan. Even if they send you a payment notice and process the monthly payment, there's still a good chance the loan itself was packed up and sold to investors. Collateralizing mortgages, in and of itself, is not inherently dangerous. But the loan definitely needs a house behind it. If you found a bank that keeps its loans, it would be a tough sell. You'd be asking them to trust that you've chosen the right number to match up with the house you intend to buy. And then they'd need to have another round of processing to turn this into a loan with normal collateral (i.e. put a lien on the house and tie them together.)","The reason I don't know of any banks who would offer this to you (even if you held the investment account with their bank) is that there is no upside to the bank. It is a good idea for you, but what would they have to gain from this arrangement? The reason banks require a down payment is underwriting quality. If you can afford a significant down payment, they know that there is a significantly lower chance that you will default. However, if you were to provide an investment account as collateral, you would receive all the upside, and any downside would reduce their collateral as a percent of the amount loaned. This sort of idea could potentially work along the lines of a margin call (ie you have to provide additional capital if your asset value drops), but this would have the effective of leveraging the bank's risk, when their objective is to lower their risk through requiring a down payment. I don't see a reason why the bank would take on the risk that you would need to provide additional capital down the road with no upside for them. Additionally, many banks have backed away from the kinds of zero-down-payment and negative-amortization-ARM loans that got them (or the people they sold them to) in trouble over the last few years in an effort to reduce how much risk they take on. I think that in theory, you'd have to offer a lot more benefit to the bank, and that in practice it's probably a non-starter right now.","so probably a stupid question but anyway. Suppose I take a loan of 10lakhs INR(20k C$ or 15US$) in india for studying abroad. and get a job after studying ther like 2-3 years later. How easily I can pay off the loan. Considering I can get a 50k c$ job and live frugally. I think i could easily pay off the loan in a year or two. is that right. Or would I suffer and end up paying installments (right word?) every month for like 10 -15 years. I know i may be exaggerating too much on latter part. But still. Would it be easy since currency is quite 'strong' as in you earn quite a good money for even a starting job or even minimum wage job. Thank you","\"Credit is like dignity - it takes a long time to build but a short time to lose. Your credit history is mostly made up of your prior activity for several years. There's no \"\"quick fix\"\" to raise your credit score in a short period. Paying your student loans on time will help, but it will take quite some time for that activity to make a big difference in your credit. If you can't get approved for a car loan of $15k, then perhaps it's time to either reset your expectations or save up enough to make a large down payment on a more expensive car. Instead of prepaying your student loans that are not due, save up that money for a down payment. You can get an incredibly reliable car for much less than $15,000. Also, make sure that you will be able to afford the car payment when your student loans do become due (based on your current salary, not some hypothetical future salary) Another plan: drive your car for another year, pay off your student loans in that time, and then you might have enough credit history to get a better loan.\"","Re (1), I don't think it makes any difference. What does make a difference is the presence of your signature on the loan documents, unfortunately. And even if your ex-business partner didn't include the LoC in his bankruptcy, if he or his company don't have any money the bank is still going to come after you.","\"My biggest concern with this plan is that there's no going back should you decide that it is not going to work, either due to the strain on the relationship or for some other reason. If you were borrowing from a relative in place of a mortgage or a car loan, you can always refinance, and might just pay a little more interest or closing costs from a bank. Student loans are effectively unsecured, so your only option for a \"\"refinance\"\" would be to get a personal, unsecured loan (or borrow against existing collateral if you have it). You are going to have a tough time getting another 50k unsecured personal loan at anywhere near student-loan rates. The other negative aspects (overall risk of borrowing from family, loss of possible tax deduction) make this plan a no-go for me. (I'm NOT saying that it's always a good idea to borrow from family for homes or cars, only that there's at least an exit plan should you both decide it was a bad idea).\"","There are several concerns with this plan: The bank will look at the remaining student loans when determining how much you can afford in payments each month. If they do approve the loan they will want to have the check written to the student loan accounts as part of the closing process, otherwie you could have both sets of loans.","I would like to establish credit history - have heard it's useful to gain employment and makes it easy to rent an apartment? Higher credit scores will make it easier with landlords, that's true. As to employment - they do background checks, which means that they usually won't like bad things, but won't care about the good things or no things (they'll know you're a foreigner anyway). Is it safe to assume that this implies I have no history whatsoever? Probably, but you can verify pulling through AnnualCreditReport, don't go around giving your personal information everywhere. Is taking out a secured loan the only way for me? No, but it's one of the easiest. Better would be getting a secured Credit Card, not loan. For loan you'll have to pay interest, for a credit card (assuming you pay off all your purchases immediately) you will only pay the credit card fees (for secured credit cards they charge ~$20-100 yearly fees, so do shop around, the prices vary a lot!). If you're using it wisely, after a year it will be converted to a regular credit card and the collateral will be returned to you with interest (which is actually very competitive, last I heard it was around 2%, twice as much as the online savings accounts). As to a secured loan - you'll be paying 4% to CU for your own money. Doesn't make any sense at all for me. For credit cards you'll at least get some value for your money - convenience, additional fraud protection, etc. The end result will be the same. Usually the credit starts to build up after ~6-12 months (that's why after a year your secured CC will be converted to a regular one). Make sure to have the statement balance in the range of 10-30% of your credit limit, to get the best results. Would it make much better sense to wait till I get a job (then I would have a fixed monthly salary and can apply for a regular CC directly) You can apply, but you'll probably be rejected. As I mentioned in another answer elsewhere, the system in the US is such that you're unable to get credit if you don't already have credit. Which is kindof a magic circle, which you can break with the secured credit card as the least costly solution.","is it really so important to have good credit with so much collateral Yes it is important to have good credit, the bank may not lend or may charge higher for bad credit. If you were to default the bank will get all that equity so You are missing the fundamental. Bank cannot take more than what they are owed. When they take possession of house, they auction it. Take what was due from the sale and return any surplus to the owner. This entire process takes time and hence bank wants to avoid giving loan to someone who they feel is risky. Edit: There are different aspects of risk that the bank factors.","Student homes are not like home loans. The housing bubble happened in large part because people didn't care about the size of the loan. They intended to flip their house in a couple years and sell it for a profit. You can't resell an education. > Certainly it is better than the current system which guarantees student loans to benefit the bankers. That doesn't exist any more. For the last couple of years only the government can offer government-backed student loans.","I completely agree with requirements, like GPA. I think that weeds some bad loans out, and is a much better version of tough love than non-dischargable debt once you are out of school. The non-discharged debt problem is tough, and I think this aspect ties into the college cost inflation: If you, as a lender, basically have a perpetual lien on someone because they can't discharge the debt, then you (lender) can issue riskier loans, and more of them. I haven't heard the term 'subprime loans' used to describe student debt, but I think the term is just as applicable to bad student creditors as it was to bad home creditors in the housing bubble. There seems to be moral hazard involved for lenders that have non-discharge covenants, and so they lend, even after government lenders tell people 'no more.'",">You default on a loan, student or otherwise, by not paying. Student Loan debt, backed by the government, means the government can garnish any wages you make, or otherwise put liens against property you own to secure the debt. You have no say in the matter.","\"You should pay for grad school without taking loans if your circumstances permit. There is the possibility of a tax write off for interest paid on student loans, but it's slightly complicated and it's very much a \"\"give me $10, and I'll give you $5 back\"\" kind of deal. You're better off not borrowing the money to begin with, even though I tend to think that borrowing for things which appreciate-- e.g., a house-- or which can significantly increase your earning capability-- e.g., the right kind of graduate school-- is generally better/wiser/more permissible than borrowing for something which depreciates, like a car. Having no student loan debt after graduation means you have greater freedom than someone who is laboring to pay student loan debt in addition to all of their other bills. My $0.02\"","> To get a well paying job requires a degree these days. Not if you're willing to do some manual labor. The skilled trades are experiencing a shortage of young workers. They pay pretty well. Well enough to save for college. > Not everyone has the money to pay for college without a loan. Does that mean they shouldn't be able to get a well paying job? The unfortunate reality of the world is that life, sometimes, isn't fair. To be fair, I needed student loans to get through school. I didn't choose to major in art history or underwater basket weaving though. After a year of majoring in mathematics, I realized the dire economic decision I was making and chose to pursue engineering instead.","Just one more thing to consider: a friend of mine had some student loan debt left over from graduate school. Years later, through his employer, he was able to apply for and receive a grant that paid off the remainder of his student loan. It was literally free money, and a significant amount, too. The windfall was a little bittersweet for him because he had been making extra payments over the years. The cap on the grant was something like $50k and he wasn't able to use all of it because he had been aggressive in paying it down. (Still, free money is free money.) Sure, this is a unique situation, but grants happen.","\"> sofi This is most definitely not what we're (I'm) talking about; to wit: The loans tend to be debt for law school, business school and medical school. And while these grad students carry a median $77,000 in debt, they are also bringing in an average of $140,000 in salary a year. (*See correction below.) Their average FICO credit score? 776. It's another sign of how the credit market is only open to a select few. This is \"\"privatizing the gains\"\". The sub-prime student loan losses will be \"\"socialized\"\".\"","\"I think the answer to this question depends on how much you trust yourself. Most people are wonderful at deceiving themselves. I'd personally not trust myself; I'll use Liam's points for the pitfalls some people get into. You can pay off your loans with summer internships and retain the initial cash you had for additional activities that make college enjoyable, i.e - Fraternity/ Sorority, clubs, dinners, and social nights. This is actually the risk I've seen many people do. They'll blow their money in one semester under the assumption that 'they'll just earn more in Summer and keep it for expenses or the future.\"\" Another benefit to taking these loans would assist in building credit, No Credit (in the USA) is actually a good standing. Many sensible banks or credit unions will happily give people with No Credit a loan. This makes intuitive sense if you think about it. Imagine two people with the same income. One owes money regularly to multiple sources and the other has no debt obligations. Which one are you loaning money to? Simplifying things a lot: Great Credit is best, followed by No Credit, then Good Credit, and then Bad Credit. The advantage of Great Credit over No Credit is simply that some institutions in some sectors don't have the policies in place to process No Credit people (No Credit people plan to not apply for credit often, for self-explanatory reasons, so this is a mote point).\"","\"First, are you sure that no interest accrues on the student loans until six months after you finish your studies? My understanding is that you have to start paying back the student loans six months after leaving the university, but that doesn't mean no interest accrues in the meantime. My concern about student loans is that life happens and when it happens in an unexpected way, the powers of the student loan companies exceed pretty much everybody else's with the possible exception of the IRS. If you are in a position to be able to pay cash for the tuition then I would cut back the \"\"lifestyle\"\", scrimp as much as I can and pay cash. You'll be in a much better position afterwards - for starters, you won't have a student loan payment which means you're in a much better position financially than most of your peers and have a lot more options open. Plus, you're not carrying around a mortgage before you even bought a house.\"","They are looking at your work history to see that you have maintained a similar level of income for a period of time, and that you have a reasonable expectation to continue that for the foreseeable future. They are looking to make a commitment for 15-30 years. They see the short term contract, and have no confidence in making a guess to your ability to pay. Before the real estate bubble burst, you would have had a chance with a no documentation loan. These were setup for people who earned fluctuating incomes, mostly due to being commissioned based. They were easily abused, and lenders have gotten away from them becasue they were burned too often. Just like building your credit rating over time, and your down payment over time, you might have to wait to build a work history.","In USA, if you take a personal loan, you will probably get rates between 8-19%. It is better that you take a loan in India, as home loan rates are about 10.25%(10.15% is the lowest offered by SBI). This might not be part of the answer, but it is safer to hold USD than Indian rupees as India is inflating so much that the value of the rupee is always going lower(See 1970 when you could buy 1 dollar for 7 rupees). There might be price fluctuations where the rupee gains against the dollar, but in the long run, I think the dollar has much more value(Just a personal opinion). And since you are taking a home loan, I am assuming it will be somewhere between 10-20 years. So, you would actually save a lot more on the depreciating rupee, than you would pay interest. Yes, if you can get a home loan in USA at around 4%, it would definitely be worth considering, but I doubt they will do that since they would not know the actual value of the property. Coming to answer your question, getting a personal loan for 75k without keeping any security is highly unlikely. What you can do since you have a good credit score, is get a line of credit for 20-25k as a backup, and use that money to pay your EMI only when absolutely required. That way, you build your credit in the United States, and have a backup for around 2 years in India in case you fail to pay up. Moreover, Line of credits charge you interest only on the amount, you use. Cheers!","I dunno. Borrow $65,000 with zero collateral, string the lender along for 20+ years, then die? Sounds like a great decision to me. I wonder why a bank would ever take the other end of that lemon of a deal? Oh, right...","I would not take this personal loan. Let's look closer at your options. Currently, you are paying $1100 a month in rent, and you have all the money saved up that you need to be able to pay cash for school. That's a good position to be in. You are proposing to take out a loan and buy an apartment. Between your new mortgage and your new personal loan payment, you'll be paying $1500 a month, and that is before you pay for the extra expenses involved in owning, such as property taxes, insurance, etc. Yes, you'll be gaining some equity in an apartment, but in the short term over the next two years, you'll be spending more money, and in the first two years of a 30 year mortgage, almost all of your payment is interest anyway. In two years from now, you'll have a master's degree and hopefully be able to make more income. Will you want to get a new job? Will you be moving to a new city? Maybe, maybe not. By refraining from purchasing the apartment now, you are able to save up more cash over the next two years and you won't have an apartment tying you down. With the money you save by not taking the personal loan, you'll have enough cash for a down payment for an apartment wherever your new master's degree takes you.","The key here is that you are defacto running your own company no matter if you acknowledge it or not. In the end these questions have the goal of deciding if you can and will repay the loan. Presumably you filed taxes on your income. These can be shown to the loan officer as proof you have the ability to repay your loan. Running your freelancing as a business has advantages of being able to deduct normal expenses for running the business from your revenue. I am not sure how business cards improves your credit worthiness as they can be had for $10 in about an hour.","This is not the case with your brother only. There are many business which run on this premise. It goes till the time all the conditions are in control and get busted when things goes out of way. You have mentioned the loan amount and not the monthly repayment amount. Even if you say, a new loan will not solve his problem, what are the way out ? Telling things nicely sometime does not work especially when facts are otherwise. Hence you need to make a compete case study which should also consider his capacity to pay. As of now it seems he has debts of around 20 months of his earning, which can be considered high, depending upon the terms of major loan such as car loan and personal loan. A case study is way out. You can explain him with such case study that he should not go for further loans.","\"If you wish to lend them the money, make the check payable to the order of \"\"loan\"\", not directly to your son or daughter.\"","First I'd call and make sure there's not some kind of mistake. If that fails, look into reapplying for forbearance. I'm not sure what you got it for before, but I added up your expenses (which you say is more than your income) and from your stated SL payments, it's more than 20% of your income. That should qualify you for a mandatory forbearance. If not, it should definitely get them to approve a financial hardship forbearance. Before either of those, try to get a deferment though as a financial hardship (not the same as a hardship forbearance, but same principle). If none of that works, ask for an income based repayment plan. It'll stretch out your loans but will relieve some of the pressure now. Best of luck!","\"You have figured out most of the answers for yourself and there is not much more that can be said. From a lender's viewpoint, non-immigrant students applying for car loans are not very good risks because they are going to graduate in a short time (maybe less than the loan duration which is typically three years or more) and thus may well be leaving the country before the loan is fully paid off. In your case, the issue is exacerbated by the fact that your OPT status is due to expire in about one year's time. So the issue is not whether you are a citizen, but whether the lender can be reasonably sure that you will be gainfully employed and able to make the loan payments until the loan is fully paid off. Yes, lenders care about work history and credt scores but they also care (perhaps even care more) about the prospects for steady employment and ability to make the payments until the loan is paid off. Yes, you plan on applying for a H1-B visa but that is still in the future and whether the visa status will be adjusted is still a matter with uncertain outcome. Also, these are not matters that can be explained easily in an on-line application, or in a paper application submitted by mail to a distant bank whose name you obtained from some list of \"\"lenders who have a reliable track record of extending auto loans to non-permanent residents.\"\" For this reason, I suggested in a comment that you consider applying at a credit union, especially if there is an Employees' Credit Union for those working for your employer. If you go this route, go talk to a loan officer in person rather than trying to do this on the phone. Similarly, a local bank,and especially one where you currently have an account (hopefully in good standing), is more likely to be willing to work with you. Failing all this, there is always the auto dealer's own loan offers of financing. Finally, one possibility that you might want to consider is whether a one-year lease might work for you instead of an outright purchase, and you can buy a car after your visa issue has been settled.\"","\"There will be many who will judge your proposal on the idea that subsidized loans should be available to those who need them, and should not be used by others who are simply trying to profit from them. Each school has a pool of money available to offer for subsidized and unsubsidized loans. If they are giving you a subsidized loan, they cannot allocate it to someone else who needs it. Once you weigh the investment risks, I agree that it is analogous to investing rather than repaying your mortgage quickly. If you understand the risks, there's no reason why you shouldn't consider other options about what to do with the money. I am more risk averse, so I happen to prefer paying down the mortgage quickly after all other investment/savings goals have been met. Where you fit on that continuum will answer the question of whether or not it is a \"\"bad idea\"\".\"","Lenders want to judge the stability of the stated income. Because your are new to being self-employed they are concerned about your viability. It may be possible to find another lender who will consider a shorter term of business, but it looks like the lender wants 24 months of business. You should start with your current bank/credit Union, and if they say no ask what more info you need to provide.","If you end up keeping the student loan, it will be a tax deduction. Probably not much but at least it's something.","\"Not unless you have something else to put up as collateral. The bank wants a basic assurance that you're not going to immediately move the money to the Caymans and disappear. 999 times out of 1000, the collateral for a home mortgage is the home itself (which you wouldn't be able to take with you if you decided to disappear), so signing up for a 30 year mortgage on a nonexistent house is probably going to get you laughed out of the bank. It's sometimes possible to negotiate something else as collateral; you may, for instance, have a portfolio of securities worth the loan principal, that you can put in escrow for the term of the loan (the securities will stay in your name and make you money, but if you default on the loan the bank goes to the escrow company and takes the portfolio for their own). The bank will consider the risk of value loss on the securities in the portfolio, and may ask for a higher collateral value or only allow a lower loan amount. In all cases, it's usually a bad idea to go into long-term personal debt just to get \"\"cheap money\"\" that you can use to beat the interest rate with some business plan or investment. If you have a business plan, take that to the bank with an LLC and ask for a business loan. The business itself, if the plan is sound, should become valuable, and the terms of business loans take that into account, allowing for a \"\"shrinking collateral\"\" transferring the initial personal risk of the loan to the business.\"","\"If you're in the US then no. You cannot enter a binding contract therefore you will not get a loan from a bank. Cosigner or no cosigner, anything to do with a loan and a bank will not involve you. Your parents can get a loan, then they can give you the money, then you can pay them for their payments, but none of that means the loan has anything to do with you. It's their loan, if they default it's on them. Given your age, you probably will ignore everyone else's advice here about this trip being a bad idea if you can't afford it, but you should reconsider it. You will be paying for this trip long after the fun and excitement has worn off. This is the cycle that sends alot of families into bankruptcy, and it's a horrible habit to learn so young. \"\"Loan\"\" shouldn't even be in your vocabulary dealing with anything other than a library book.\""],"string":"[\n \"Does that justify the purpose? That is for individual Banks to decide. No bank would pay for daily expenditure if you are saying primary salary you are spending on eduction. So your declaration is right. You are looking at funding your eduction via loan and you are earning enough for living and paying of the loan. I noticed that a lot of lenders do not lend to applicants whose purpose is to finance the tuition for post-secondary education This could be because the lenders have seen larger percentage defaults when people opt for such loans. It could be due to mix of factors like the the drag this would cause to an individual who may not benefit enough in terms of higher salary to repay the loan, or moves out of country getting a better job. If it is education loan, have you looked at getting scholarships or student loans.\",\n \"A bank can reject a loan if they feel you do not meet the eligibility criteria. You can talk to few banks and find out.\",\n \"On a personal Loan Yes. On a business loan, it would depend on the Bank and they would like to understand the purpose of the loan and need it to be secured. They may not even grant such kind of business loan.\",\n \"I’ve been in the mortgage business for nearly 15 years. Your question is sort of multi-faceted and I’m surprised by some of these answers I’ve read! Anyway, I digress. Yes, you can be denied even if you have money for a down payment. One of the BIGGEST factors lenders are now required to take into account when approving mortgages now is a person’s “Ability to Repay.” Whether your traditional mortgages like Conventional, FHA, USDA, or VA loans, or even an “in-house” mortgage from a local bank —either way, the lender MUST be able to verify someone’s ability to repay. Your issue is that you won’t have any verifiable income until May. A couple people have answered correctly in that 1) if you have a firm offer letter that can be verified with the employer, and 2) you can use your education/college to substitute for a two year work history as long as you’re graduating with and working in the same line of work. Some programs require proof of 30 days of pay history once you actually start earning paychecks; some programs will use the offer letter as long as you will start earning paychecks within a certain number of days after the note date (basically when the payments start). Also I’m making the assumption that there is some sort of credit history that can be verified. Most lenders want at least a couple of accounts reporting a history just to show good use of credit and showing that you can manage your finances over a longer period of time. Just about every lender has some sort of minimum FICO score requirement. I hope this helps. If you have questions, just reply in a comment.\",\n \"A Loan is an loan that gives some kind of benefit as an assurance to a loaning organization. So when you put in an application for a credit, you likewise advocate that in case that you can not pay, you've some form of benefit that will cover the default sum.\",\n \"I would be surprised if a bank cared about an undergraduate major. Usually, such things are only important if it is a professional degree, like a law degree or medical degree. The big issue is that if you are not a US citizen, a US bank would be unlikely to make an unsecured loan because you could just return to your country and renege on the loan and they would have no way to collect. Therefore, a bank in your own country might be more logical. If you get accepted by a top Ivy school, they all have financial policies that will allow you to attend regardless of how rich or poor you are, so if you are applying to a top school (Harvard, Princeton, MIT, Stanford, Yale) and get accepted, they will fully finance your attendance. The only exception is if (A) they find out you lied about something, or (B) your parents/family are wealthy and they refuse to pay anything. As long as neither of these two things is true, all of the schools listed GUARANTEE they will provide sufficient financial aid. Princeton even has a no-loan policy, which means not only will they fund your attendance, they will do so without you having to take on any loans.\",\n \"I got a credit card as a student with no income, not even a part time job. They called me, I agreed to one thing and they did another and now I have an old credit history. They don't do this anymore. But technically, student loan debt is unsecured?\",\n \"You should definitely pay the remaining loan amount as quickly as possible. A loan in bad debts means that Bank has written it off books as its a education loan and there is no collateral. The defaults do get report to CIBIL [Credit Information Bureau India] and as such you will have difficulties getting credit card / new loans in future. Talk to the Bank Manager and ask can you regularize the loan? There are multiple options you would need to talk and find out; 1. You can negotiate and arrive at a number. Typically more than the principal outstanding and less than interest and penalties charged. 2. You can request to re-do the monthly payments with new duration, this will give you more time. 3. May one time large payment and subsequent amount in monthly payments. At the end its Bank's discretion whether to accept your terms or not.\",\n \"You have 2 out of 3 (income and good credit). That is usually a pass where I work. The job longevity may factor in if they are strict. As for pay stubs, can you get a letter from your employer stating your start date and annual pay? Offer letters work just as well.\",\n \"The U.S. Department of Ed offers Loan consolidation that you may want to take a look at: https://loanconsolidation.ed.gov/AppEntry/apply-online/appindex.jsp Going through a Government Agency as opposed to a private lender might reduce the burden (co-signers, collateral) you need to pass to get the loan.\",\n \"Not having a job does not automatically disqualify you. If you had capital or savings or easily liquidatable assets and previous good credit history then you would qualify. This is a catch 22 for most people that are ever applying for unsecured lines of credit, and an oximoron when seeking UNSECURED credit, but this is how it is regardless. Hope that helps!\",\n \"I would suggest talking to your parents about potentially co-signing on the loan with you. Just make sure that you are the primary holder of the loan. Sure, there is some risk for your parents, but they know you better than anyone so let them make the decision if they want to help you or not. If for some reason they can't help you, such as they've declared bankruptcy, then following the other answers' advice is the way to go.\",\n \"\\\"I speak from a position of experience, My BS and MS are both in Comp Sci. I know very little about loans or finances. That is very unfortunate as you are obviously an intelligent human being. Perhaps this is a good time to pause your formal education and get educated in personal finance. To me, it is that important. I study computer science, and am thus confident that I will be able to find work after I finish school. This kind of attitude can lead to trouble. You will likely have a high salary, but that does not always translate into prosperity. Personal finance is more about behavior then mathematics. I currently work with people that have high salaries in a low cost of living area. Some have lost homes due to foreclosure some are very limited in their options because of high student loan balances. Some are millionaires without hitting the IPO/startup lotto. The difference is behavior. It's possible that someone in my family will be able to cosign and help me out with this loan. This is indicative of lack of knowledge and poor financial behavior. This kind of thing can lead to strained relationships to the point where people don't talk to each other. Never co-sign for anyone, and if you value the relationship with a person never ask them to co-sign. I'll be working as a TA again for a $1000 stipend. Yikes! Why in the world would you work for 1K when you need 4K? You should find a way to earn 6K this semester so you can save some and put some toward the loans you already acquired. Accepting this kind of situation \\\"\\\"raises red flags\\\"\\\" on your attitude towards personal finance. And yes it is possible, you can earn that waiting tables and if you can find a part time programming gig you can make a lot more then that. Consider working as a TA and wait tables until you find that first programming gig. I am just about done with my undergraduate degree, and will be starting graduate school at the same university next semester. To me this is a recipe for failure in most cases. You have expended all your financing options to date and are planning to go backwards even more. Why not get out of school with your BS, and go to work? You can save up some of your MS tuition and most companies will provide tuition reimbursement. Computer Science/Software Engineering can be a fickle market. Right now things are going crazy and times are really good. However that was not always the case during my career and unlikely for yours. For example, Just this year I bypassed my highest rate of pay that occurred in 2003. I was out of work most of 2004, and for part of 2005 I actually made less then when I was working while in college. In 2009 my company cut our salaries by 5%, but the net cost to me was more like a 27% cut. In 2001 I worked as a contractor for a company that had a 10% reduction in full time employees, yet they kept us contractors working. Recently I talked with a recruiter about a position doing J2EE, which is what I am doing now. It required a high level security clearance which is not an easy thing to get. The rub was that it was located in a higher cost of living area and only paid about 70% of what I am making now. They required more and paid less, but such is the market. You need to learn about these things! Good luck.\\\"\",\n \"Generally, banks will report your loan to at least one (if not all three) credit bureaus - although that is not required by law. The interest you're paying, in addition to your insurance isn't justifiable for building credit. I would recommend paying the car off and then perhaps applying for a secure credit card if you are worried about being rejected. Of course, since you have very little credit, applying for an unsecured card and getting rejected won't hurt you in the long run. If you are rejected, you can always go for a secured credit card the second time. As I mentioned in my comments, it's better to show 6 months of on-time payments than to have no payment history at all. So if your goal is to secure an apartment near campus, I'm sure you're already a step ahead of the other students.\",\n \"There are loan options for those in your situation. It is very common. I am a licensed loan officer nmls 1301324 and have done many loans just like this. Your schooling is counted as your work history Contrary to popular belief. We want to write loans and guidelines are easing. Banks are a different story and their loan officers aren't licensed. If you talk to a bank you aren't getting an educated loan officer. They also have what are called overlays that make guidelines stricter.\",\n \"I can safely assume that a credit union or a bank, probably a bank based on the size of the short term loan would allow use of the annuity as collateral for the loan. Since the future payouts from the annuity will more than cover the total costs coming due for your education I'm sure the bank will have no problem loaning the money and you can see if doing a direct payment monthly to them will reduce the rate. You can try a credit union since they will most likely give you a more favorable rate. If you can get a credit union to do it, you will most likely be paying a lot less, but typically they want interest paid monthly and not at the end of the 6 months term. There is also a service called TMS or Tuition Management Services which you can find at Tuition Management Services They typically also expect monthly payments but might do an alternative for you, they charge I believe a $60USD fee to use their service. Also just flat out bank shop and demand the lowest rate, its guaranteed money so you should be paying LIBOR plus 1 at most, see if you can direct your next payout to them with the balance coming to you.\",\n \"All new loans must be originated from the direct loan program. In most cases, the Stafford loan is better, as the rate is lower (6.8% vs. 7.9% for the PLUS loan). There aren't many viable alternatives for most people. Private student loans exist, but carry significantly higher rates and worse payment terms. The exceptions are programs that exist for professions like medicine and dentistry. Credit cards usually carry higher rates and limited credit lines, but you have the option of negotiating the balance down or declaring bankruptcy to discharge the debt if you are unable to repay.\",\n \"You have asked about getting a loan, the issue is that you don't have collateral to offer up in exchange for the loan, you also don't have a regular source of income. Getting a low level job, even one not related to your major will provide income. Getting a not-so-perfect job related to your major will allow your to sustain yourself, and provide experience that can help you find the perfect job. The time from application to interview to offer letter to start date can be measured in months. This is even with positions you are perfect for. Since it can take months to get started in a new job you should focus on something that you can get started right away. This type of job will have a shorter time frame for the interview cycle. You may feel overqualified for the jobs based on the fact you just graduated from college but this was the type of job you should have had to bridge you from school to the job you want. Regarding the end goal of getting the perfect job, you might have to refocus your efforts. When you had time and money you could afford to be picky about company, location and salary. Now that money is in short supply you will need to change your standards. Keep in mind it is not just an issue about being able to travel to job interviews, it is also about needing a way to afford food, and health insurance. Go back to your college campus and talk to the career counselors they can help your with your resume, and give job search advice. They may also have contacts that can help you find a position with a good local company or even a national company. They may even know of companies that need employees for just a few months to fill a need.\",\n \"Typically Banks look for a steady source of income or savings based on which they issue a credit card. If you can't show that build a cash balance and show it. For Example if you have an PPF account with say SBI, they issue you a card with a limit of around 50% of the balance in PPF. No other documentation is required. Similarly if you have Fixed Deposits for a large amount quite a few Banks would give you a Credit Card. My wife has a credit card because she had a good balance [around 100,000 INR] for around a year, the Bank kept calling her and offered her a card.\",\n \"I would imagine that it goes beyond purpose and also addresses the demographic as a poor credit risk. Those seeking a post secondary education are a poor credit risk. They are at the beginning of their careers so tend to have low income, a short credit history, and a very short time of managing money on their own. Also many don't know how to work. This later fact, to me, is a great predictor of financial success. Reading into the financial data surrounding student loans, it pretty easy to see that this demographic makes poor money decisions. I live near a state university. A large percentage of students drive late model luxury cars, frequent expensive bars and restaurants, and wear pretty nice clothes. They also graduate with, on average 60K in student loans. Keep in mind a 4 year degree could be had for about 30K and could be paid for working a part time job. And that, to me, is the wisdom in bank's decision. Sure they will loan you all the money you want with a government guarantee. However, once that disappears they will not you money for unnecessary purposes.\",\n \"Get someone in your family to pay for it. If that's not an option, you have no choice but to make do with what you can do, and either get a job or a loan. I'd advise a job unless you're studying something with a really strong possibility of getting you a high paid job.\",\n \"\\\"Repayment of student loans is usually deferred until graduation. Unless you are late or non-performing on a loan, it will make no difference to an auto loan. To get a (normal) auto loan you will need to demonstrate a source of income or have the loan co-signed by someone who does have income. As a general rule of thumb, banks care a lot more about your income than your \\\"\\\"credit score\\\"\\\".\\\"\",\n \"At your age, the only place you are going to get a loan is from relatives. If you can't... Go to next year's conference. Missing it this year might feel like a disaster, but it really, really isn't.\",\n \"You do not need to set this up as a loan. Try finding an Indian student. He is eligible to get cash (using a travel card, may be) from India tax-free. As long as it doesn't exceed the i-20 amount, he will not have any problems. Since, $10,000 is very small amount, the student shouldn't be having any problem.\",\n \"According to GOV.UK, you can only apply for Student Finance if: Since you don't fulfill the criterion 2 and 3, you are technically not eligible for Student Finance. Since you have received information from Student Finance England that you can apply for the maintenance loan, you should either write to them or call them again, to confirm the information given to you.\",\n \"Impossible. There is no such thing as a business loan without proper collateral. There are a couple of exceptions: Friends, and Family members. But you want to be absolutely 100% sure your business plan can be executed successfully, and that your business plan is awesome. You don't have a business plan? Then you're just going to be stealing money from your family and friends.\",\n \"Are you doing the right thing? Yes, paying back some of the expense of college is a great way to show your gratitude. Could your sister also pitch in a little to help pay the debt down? Will you get approved for a $30,000 unsecured loan? You don't mention your credit rating but that will have an effect obviously. You might consider visiting a credit union with your father and co-signing a loan since it is his debt that you are assuming. You might still want to write a loan for your dad to sign even if he isn't co-signed on a loan. This could protect you in case of his death if there are other assets to divide. If you are not approved for a loan, you could also simply join your dad in paying down the highest-rate cards first and have a loan agreement for him to pay back that money if/when it is possible. You've mentioned that you have no collateral. There aren't many options for loans with no collateral. Your dad's bank or a credit union might consider a debt consolidation loan with you as a co-signer. That's why I mentioned going to a credit union. Talking to a loan officer at a local financial institution will make it easier to get approved. If they see that you are taking responsible steps to pay off the debt, that reduces your credit risk. If you do get a debt consolidation loan, they will probably ask your dad to close some credit card accounts.\",\n \"When getting a mortgage it always depends on the bank and each bank may be more or less strict. With that being said there are rules and general guidelines which can help you understand how you fit in the world of mortgage approvals. If you can provide the same paper work as an employee of your company that you would normally provide from any other company then a bank may just accept that alone. However to me it seems like you will be looking at a new variation of what was known as a Self-certification mortgage A self-certification mortgage is basically a mortgage for those who cannot prove their income. As a result of the housing collapse, the rules on a traditional self-cert mortgages have changed. As someone who is self employed, it is more difficult today to get a mortgage but is still possible. This article provides some good information: Can the self employed still get a mortgage? I advise doing some research on this topic and speaking with a professional mortgage broker. Some Resources: Compare Self Cert Mortgages How to beat the mortgage famine in 2012 Can the self employed still get a mortgage?\",\n \"\\\"This does not seem, to me, to be a very good indication regarding the risk of the person not paying their balances off. If you do not have a source of income then how are you going to repay your debt. Not to mention there is recource for creditors to garnish wages. That is not possible if you have no income. The risk assessment is about the ability of the creditor to recover any moneys loaned and costs and still make a profit. For example, students have their parents pay them some pocket money to cover for expenses, or a person might be working sporadically on consulting gigs that do not have a fixed monthly or yearly component. Most credit card companies that are willing to issue to college students will allow you to include money from your parents in your income. Credit card companies are looking for customers that will carry a balance and incur fees but be able to pay them. These companies do not make money off of fees and interest that they do not collect. As such, sporatic work increases risk. Is it possible for people to get approved for unsecured credit cards if they don't hold (or have not held for some time) a job at the time of application? I was able to while I was in college. Though I did have a part time job. If you can show that you have the ability to pay you can usually get a credit card if you do not have bad credit. It will probably be high interest and have alot of fees some of them you will have to pay upfront. But what you probably mean to ask is \\\"\\\"Is it possible to get a no cost unsecured credit card with out a reliable source of income?\\\"\\\" The answer to that is: probably not. Even the ones that look like they are free probably have hidden fees.\\\"\",\n \"1. this is not the correct sub, try /r/Entrepreneurs or similar 2. Banks only care about 1 thing: collaterals with personal guarantee from the owners/shareholders of the business. Nothing else matters, don't waste your time with a business plan. (Yes ELI: bank only give money to people who have money).\",\n \"It sounds like your current loan is in your name. As such, you are responsible for paying it. Not your family, you. It also sounds like the loan payments are regularly late. That'll likely drastically affect your credit rating. Given what you've said, it doesn't surprise me that you were declined for a credit card. With the information on your credit report, you are a poor risk. Assuming your family is unable to pay loan on time (and assuming you aren't willing to do so), you desperately need to get your name off the loan. This may mean selling the property and closing out the loan. This won't be enough to fix your credit, though. All that will do is stop making your credit worse. It'll take a few years (five years in Canada, not sure how many years in India) until this loan stops showing up on your credit report. That's why it is important to do this immediately. Now, can a bank give you a loan or a credit card despite bad credit? Yes, absolutely. It all depends on how bad your credit is. If the bank is willing to do so, they'll most likely charge a higher interest rate. But the bank may well decide not to give you a loan. After all, your credit report shows you don't make your loan payments on time. You may also want to request your own copy of your credit report. You may have to pay for this, especially if you want to see your score. This could be valuable information if you are looking to fix your finances, and may be worth the cost. If you are sure it's just this one loan, it may not be necessary. Good luck! Edit: In India CIBIL is the authority that maintains records. Getting to know you exact score will help. CIBIL offers it via TransUnion. The non-payment will keep appearing on your record for 3 years. As you don't have any loans, get a credit card from a Bank where you have Fixed Deposits / PPF Account as it would be easier to get one. It can then help you build the credit.\",\n \"I think you are running into multiple problems here: All these together look like a high risk to a bank, especially right now with companies being reluctant to hire full-time employees. Looking at it from their perspective, the last thing they need right now is another potential foreclosure on their books. BTW, if it is a consolation, I had to prove 2 years of continuous employment (used to be a freelancer) before the local credit union would consider giving me a mortgage. We missed out on a couple of good deals because of that, too.\",\n \"Personal needs? No bank is going to give you that kind of cash without a real reason, usually with some equity backing it. From your post you say you are a student, so I doubt you even have the income to pay it back. If banks just gave out cash like that people would disappear with it all the time.\",\n \"Edit: lazy math The answer to this question depends on two things: How bad will it be if you cannot repay this loan in the way you expected? - How likely are you to actually get into a PhD program with a stipend? Is there a possibility that you will not get a stipend? What is the penalty for failure to repay? Will you have to support yourself after university? How much money could you expect to earn if you found a job after your undergraduate degree? How much could taking this loan improve your finances/life? - Could you get your degree at anther institution without going into debt? Would your career be better if you went to Ecole Polytechnique? I would take the loan if:\",\n \"Standard Repayment can be quite burdensome. Fortunately, it looks like FedLoan Servicing offers a variety of payment plan options, and even provides a calculator that you can use to compare them given your adjusted gross income and current loan balances. This won't reduce that $420 to $0 but it may bring it down significantly. I agree with @littleadv that you need legal advice to answer your other questions. That being said, I can tell you that it is possible to go into deferment and/or forbearance at any time (not only before you start making regular payments) as long as you meet the criteria. Otherwise, it may be worth looking through other questions and answers on here about lowering expenses and increasing income. There is a lot of good advice for people in similar situations to yours. If you are truly in hardship, even with a full-time job, you may qualify for supplemental nutrition insurance, a.k.a. food stamps. Best of luck.\",\n \"Student loan is a class of unsecured loan. The characteristics that define a student loan are, primarily, that it is a loan that is intended to be used by someone who is currently a student. Beyond that, though, there are many variations. The different kinds of requirements usually have to do with who is eligible for the loan, and with what the loan is allowed to be used to pay. Some loans have other limitations, such as only being allowed to be directly paid to the institution. Some student loans are federally guaranteed (meaning the Federal Government will repay the bank if you default). Those have a lower interest rate, typically, and often have more stringent requirements, such as only full-time students being eligible, being need-based, and limitations on what the loan's funds can be used for. See studentaid.ed.gov for more information. Many private student loans have quite lax limitations. Some for example have nearly no limitation as to what they can fund; many are allowed to be taken out by part-time students and even non-degree-seeking students in some cases. Private loans usually have somewhat higher rates (as they're entirely unsecured) to go along with the lower restrictions and higher borrowing limits. You'd have to see the specific details of any particular loan to know what it's allowed to pay for, so if you choose this route, know what you plan to use it to pay for before you go looking.\",\n \"Banks will usually look at 2 years worth of tax returns for issuing business credit. If those aren't available (for instance, for recently formed businesses), they will look at the personal returns of the owners. Unfortunately, it sounds like your friend is in the latter category. Bringing in another partner isn't necessarily going to help, either; with only two partners / owners, the bank would probably look at both owners' personal tax returns and credit histories. It may be necessary to offer collateral. I'm sorry I can't offer any better solutions, but alternative funding such as personal loans from family & friends could be necessary. Perhaps making them partners in exchange for capital.\",\n \"In this example you are providing 4x more collateral than you are borrowing. Credit score shouldn't matter, regardless of how risky a borrower you are. Sure it costs time and money to go to auction, but this can be factored into your interest rate / fees. I don't see how the bank can lose.\",\n \"Banks calculate the total they can present to you chiefly on your net review earnings. They get into explanation their preceding experience and your present track record which would point to whether you have taken any other loan or you have had a awful credit history and effects like your investments history and your existing investments before making a choice as to how much they will lend to you.\",\n \"As mentioned in the comments, there are costs associated with owning & living in an apartment. First you have to pay maintenance charges on a monthly basis and perhaps also property tax. Find out the overall outgoings when you live in that apartment & add the EMI payments to the bank, it should not be way higher than your current rent. As an advantage you are getting an asset when you buy an apartment & rent is a complete loss, ast least financial terms. So, real estate is in general a good idea over paying rent. As for the loan part, personal loans are by far the most expensive of loans as they are in general unsecured loans (but do check with your bank). One way is to try and get a student loan, which should be cheaper. If you can borrow from family that is the best option, you could return the money with perhaps bank fixed deposit rates, it is better to pay family interest than bank. If none of the options are workable, then personal loan is something you need to look at with a clear goal to pay it off as soon as possible and try to take it in stages, as an when you require it and if possible avoid taking all the 15,000/- at once.\",\n \"I was in that same situation years ago with my parents. One way she could apply for a loan in her name without her parents is if she is not currently living with them she shouldn't need them to cosign if she doesn't have bad credit. But if she isn't living with them and they aren't financing her room and board they can't claim her as a dependent so if she really wants to stick it to them she can go and try to politely explain how the loans work and tell them if they don't cosign for her then she will apply on her own (which she can only do while not living with them I believe but not sure) and they will HAVE to STOP claiming her as a dependent on their taxes. If they don't agree she can put her foot down and force them to stop claiming her and tell them she will file her own application anyway and if they continue claiming her and get in trouble for it it's their own fault cause she warned them to stop first. They may agree to cosign rather than lose her as a dependent if it makes that big of a difference on their taxes, if they don't then she can forcefully punish them financially and their taxes will go up. Those were my choices when my parents refused to cosign for me to live at school but that was back in 1999-2000 and things may have changed since then, things also change state by state and I live in PA.\",\n \"It's difficult to provide an exact answer as this will very much depend on the bank & the local regulatory scheme. However as a business owner you should be able to provide incorporation docs, some proof of ownership of the company and last years' financial statements or tax returns, many banks would accept this as a proof of income for the purposes of granting credit. In general in most jurisdictions I can think of, a high downpayment will not remove the need to verify income as the bank needs to feel comfortable that you have the ability to pay the remaining 25% (e.g. how do they know you're not a serially unemployed lottery winner) and if the downpayment is quite large they may want some assurance that you got the money legally (e.g. how do they make sure you're not a drug dealer). So probably regardless of how large a downpayment most banks would probably want some additional proofs of income however what proofs are needed may be more flexible than just a salary stub. I suggest taking a look at what sort of documents you may have on hand that can serve to validate your revenue in some way and contacting a few banks directly to see what options they can provide and whether some custom-tailored arrangement can be made.\",\n \"A lender will look at three things when giving a loan: Income. Do you make enough money each month to afford the payments. They will subtract from your income any other loans, credit card debt, student loan debt, mortgage. They will also figure in your housing costs. Your Collateral. For a mortgage the collateral is the house, for a car loan it is the car. They will only give you a loan to a specific percentage of the value of the collateral. Your money in the bank isn't collateral, but it can serve as a down payment on the loan. Your Credit score. This is a measure of how well you handle credit. The longer the history the better. Using credit wisely is better than not using the credit you have. If you don't have a credit card, get one. Start with your current bank. You have a history with them. If they won't help you join a credit union. Another source of car loans is the auto dealer. Though their rates can be high. Make sure that the purchase price doesn't require a monthly payment too high for your income. Good rules of thumb for monthly payments are 25% for housing and 10% for all other loans combined. Even a person with perfect credit can't get a loan for more than the bank thinks they can afford. Note: Don't drain all your savings, you will need it to pay for the unexpected expenses in life. You might think you have enough cash to pay off the student loan or to make a big down payment, but you don't want to stretch yourself too thin.\",\n \"Apart from the reasons currently given (which have to do with personal relations), wouldn't a good reason to take the loan from the bank be to build up a credit history and/or improve your credit score?\",\n \"My son is in a similar situation where he is 21 and in college. My wife and I claimed him as a dependant on our taxes last year. He had still been able to get some student loans as a dependant as well as scholarships. I have told him that we will not cosign on a loan for him. It isn't because we don't like our son, it is simply because too many unexpected things can happen. He has been working multiple jobs which is one thing I would suggest as well as donating plasma for extra money to have a social life. As an electrical engineering major he doesn't have much time to be social. He cuts rent by having roommates and does most of his own cooking to help with food costs. The main thing he does to keep his costs under control is attends a school that isn't outrageously expensive. An expensive school does not offer as much benefit for an undergrad degree as it might for a graduate degree. Another option is to look for a job that had some sort of tuition assistance. Another option along that same line is look into military service either active duty or reserves as there is tuition help to be found there. There are options that don't involve debt. As a side note my son used a student loan last year however, this coming year he has his budget figured out and he will not be needing one at all.\",\n \"\\\"This answer is better served as a comment but I don't have enough rep. It is not guaranteed that they 'do not accrue interest while you are a full time student'. Some student loans can capitalize the interest - before pursuing leveraged investing, be sure that your student loan is not capitalizing. https://www.salliemae.com/student-loans/manage-your-private-student-loan/understand-student-loan-payments/learn-about-interest-and-capitalization/ Capitalized interest Capitalized interest is a second reason your loan may end up costing more than the amount you originally borrowed. Interest starts to accrue (grow) from the day your loan is disbursed (sent to you or your school). At certain points in time—when your separation or grace period ends, or at the end of forbearance or deferment—your Unpaid Interest may capitalize. That means it is added to your loan’s Current Principal. From that point, your interest will now be calculated on this new amount. That’s capitalized interest.\\\"\\\" https://www.navient.com/loan-customers/interest-and-taxes/how-student-loan-interest-works/ Capitalized Interest If you accrue interest while you are in school – as with Direct Unsubsidized, FFELP Unsubsidized, Direct and FFELP PLUS Loans, and Private Loans – you will have capitalized interest if it is unpaid. Unpaid accrued interest is added to the principal amount of your loan after you leave school and finish any applicable grace period. Simply put, there will be interest to be paid on both the principal of the loan and on the interest that has already accumulated. To minimize the effects of the capitalized interest on the amount you will pay overall, you can pay the interest during college instead of waiting until after graduation. That way, you start with the original principal balance (minus any fees) when you begin repayment.\\\"\",\n \"\\\"First, excellent choice to say no to non-subsidized loans! But I'd say you are cutting things very close either way, and you need to face up to that now. $35/mo extra at the end of the month is \\\"\\\"within the noise\\\"\\\" of financial life, meaning you should think of it as essentially $0 each month or even negative money, since one vet bill/school books/unforeseen problem could remove it for the entire year, easily. You are leaving yourself no buffer. But by taking the loan, unless you are (as Joe said) socking away savings to pay for it upon graduation, you are guaranteeing you'll leave college with debt, which I think should be avoided if you can. Could you do a hybrid plan in which you worked hard to do the following?: If you do these things or something along these lines, the loan is probably OK; if not, I'd be concerned about taking it. [Probably unnecessary, but: Keep in mind that student loans are not excusable by bankruptcy, so one is on the hook for them no matter what]. Also consider whether you can take a semester off now and then to catch up financially. The key is to really stay far from the edge of any financial cliffs.\\\"\",\n \"\\\"Wow. I'm one of the two people who actually respond to your half-baked idea and you jump down my throat. The example of changing majors is different because you're talking about a share of lifetime income, not a loan that will be paid off in the next 10-15 years. With such a long-term obligation as you mention, the onus to \\\"\\\"get it right\\\"\\\" on your first major will be high, possibly confining. As for \\\"\\\"probably have some penalty,\\\"\\\" that's what I'm talking about. You haven't even really considered the depth necessary to create a system such a vast and liquid system, so you don't really have any idea how massive the costs could be in comparison to such miniscule amounts of principal. And don't flatter yourself. I'm not confusing your little five-minute thought with the Koen brothers' impressive novel. I mentioned it because it's a valid parallel. And while you may not be talking about corporations, you *are* talking about creating securitized investments (aka securities, stocks) on a massive scale. You're talking about millions of individuals who need to be profiled for risk and profitability, who need to be verified, double-checked, maybe interviewed, bundled and approved. By very nature of being securities, they'll need approval from people like the SEC, as well as listings on exchanges or somewhere. All of this conforming comes with a great deal of fees. By the time you're done, we're at a similar complexity level to that of a corporation. I'm sorry you felt the need to condescend, because you seem to be out of your league on this one. Next time maybe explaining your point in greater detail will help people understand what you're saying.\\\"\",\n \"\\\"I'd change my attitude a bit. \\\"\\\"I'm not very good with saving money, unless I know I need to.\\\"\\\" If you could act as if you absolutely needed to save, but took the subsidized loan and set it aside, you'd have a good start. As a student, it would be difficult to raise money the way an established working person might. A low interest credit card, a 401(k) loan, Home Equity Loan, etc. If you feel it would be too tempting to set it aside, don't take it. Your question is fine, but the answer isn't financial, it's behavioral.\\\"\",\n \"Contrary to popular belief, you can build your credit (if that is important to you) without paying a penny in interest. This is done through the responsible use of credit cards, paying the bill in full each month without accruing any interest charges. If I were you, I would pay off the loan today, if possible. After that, if you decide you need to build up your credit, apply for a credit card. If you have difficulty with that, you can get a small secured credit card or retail store credit card until you have enough history to get a regular credit card.\",\n \"I'm not sure the reasoning still holds though. If you default on your student loan, your diploma doesn't get repossessed. There's a signifiant moral hazard associated with student loans. A mortgage on the other hand is around a very physical item. Though I can still banks lobbying for better rules, that would be hugely in the consumers disadvantage.\",\n \"It is completely in the realm of each lender what they request. Some lenders always want to see proof of income, and others have decided to look only at other things. Their decision has nothing to do with you, your situation, your income, or your credit history. You are of course free to go to another lender that does not want proof of income.\",\n \"I've been a mortgage broker for almost 20 years. I get people loans all of the time thru FHA and Conventional (Fannie Mae) with just one year work history; however, as a student, you must submit your school transcripts and your major needs to be in line with your current job. I'm closing a guy next week that has only been in his job for 8 months but he just graduated with his Masters in Biology. He's currently a wild life manager and the underwriter signed off on it easily.\",\n \"I am 17 and currently have a loan out for a car. My parents also have terrible credit, and because I knew this I was able to get around it. Your co-signer on your loan does not have to be your parent, at least in Wisconsin, I used my grandmother, who has excellent credit, as my cosigner. With my loan, we had made it so it doesn't hurt her credit if I don't get my payments in on time, maybe this is something for you to look into.\",\n \"\\\"Stripping away the minutia, your question boils down to this: Should I take a loan for something that I may not be able to repay? The correct answer, is \\\"\\\"No\\\"\\\".\\\"\",\n \"You don't need a finance degree, no, but what you do need is evidence. Mind linking some of your sources? Can you flesh it out in detail for us? If not, why are you crusading for a cause you have no domain knowledge of?\",\n \"Not all education is considered equal. Can you tell us just a little bit about what kind of degree you are going for and where? The reason I ask is that there are many schools out there which are more interested in making a profit, and less interested in providing an education. -Ralph Winters\",\n \"> If you're saddled with a ton of debt and also don't have a degree to show for it, I'd say it's much more likely you're going to have trouble paying it off. This is how generational poverty continues.\",\n \"\\\"Since you're also looking for alternative means of funding, have you considered doing part-time work -- during the holidays or on some of the weekends? With this kind of financing you have to watch out that the work does not interfere with your study. On the other hand it can be valuable work experience that can come in handy later in your life, such as when applying for your first \\\"\\\"real\\\"\\\" job. The kind of work you can do will depend a lot on the subject you are studying and what qualifications you have. For example, if you are studying computer science, there are a lot of freelance opportunities in programming. One of these could lead right to your first job after university. The two broad types of work you can do are: For freelance: Try searching for \\\"\\\"[subject] student freelance\\\"\\\" and look at sites like oDesk. Read up on tax concerns, research how to price your time, and start doing! For employment: Browse the job boards at your university. Contact businesses to ask for part-time opportunities. Hope this helps to open one of the alternative paths here. If you go down this road, remember to keep your priorities in mind. Especially the freelance work can easily interfere with your study and delay you unnecessarily. Good luck!\\\"\",\n \"Are there any laws against doing this? so long as you are truthful in your application for the loan, none that I know of - technically you could use the loan to pay for school and the cash that you would have used instead to invest. Are there other reasons why this is a very bad idea? I think you've already identified the biggest one, but here are my reasons: Will you go broke or go to jail? Likely not, but there is significant risk in investing with borrowed money. You might come out ahead, but you might also lose a bundle. If you're willing to take that risk, that's your right, but I would not call it a good idea under any circumstances.\",\n \"There are other ways to pay for college besides loans. Like joining the military. EDIT: Please explain why this comment was downvoted. It's a statement of fact. My best friend paid for his college via ROTC and is doing much better in in his post-military civilian career than other peers who opted to go the direct college route.\",\n \"It looks like your visa being refused is entirely irrelevant. What happens in bankruptcy is that all the assets of the bankrupt entity are taken over, liquidated, and the proceeds are distributed to the creditors. You're one of the creditors, and as you've been told - the proceeds are not enough to pay all the creditors in full. This is quite common in bankruptcies. What you can do is sue in court and demand priority over other creditors, but... a. You're exactly the same as many other creditors (rest of the students), so why would you get a priority? b. Suing costs money and even if you get more, you'll pay way more for legal fees and expenses. What else can you do? If you paid with a credit card - your credit card company may be able to reverse charges. Sometimes that works, depending on how fast you move. If you paid with a check - your bank may similarly be able to stop payment on the check. This provided it hasn't been settled yet.\",\n \"You’re asking for a loan value that’s equal to 20% of your income. You need to calculate all bills that you pay and see what you have left over. If your current bills are more than 65-70% of your income you’ll have a tough time getting a loan.\",\n \"\\\"Several student loans are backed by government guarantee and this will allow you to get attractive rates. This may require them to consolidate the three classes of loans separately. Many commercial banks offer consolidation services, one example is Wachovia discussed at https://www.wellsfargo.com/student/private-loan-consolidation/ Other methods of \\\"\\\"consolidation\\\"\\\" are of course anything that pays off the original loan. If available, using a parent's home equity line of credit to pay of the loans and then paying back the parents can save money. An additional benefit of HELOC-style loans is that they are very flexible in their payment terms. For example you may pay $25 per year to keep the account open and then only be required to make interest payments. Links: https://origin.bankrate.com/finance/college-finance/faqs-on-student-loan-consolidation-1.aspx\\\"\",\n \"If it's a small one person business he will have to sign a personal guarantee no matter what he does with respect to incorporating. Not saying your idea isn't worth looking into but no bank will lend him money without a personal guarantee.\",\n \"You should pay for school with cash. If you take out a loan, you are not really saving money; you are borrowing money. I do not think you will come out ahead borrowing a down payment at student loan rates.\",\n \"When you borrow from a bank, there are secured loans, as with a mortgage, or unsecured lines of credit, usually a more reasonable amount of money, but also based on income. You just asked about a private loan. It depends on the person and your relationship. If you need money to pay the rent, you might not be the best person to lend money to. If you ask a friend or relative, they may lend you money without asking its purpose.\",\n \"Your first step should be to visit with the financial aid office of the university that you are considering attending, perhaps even before filling out the FAFSA. You may be eligible for grants, scholarships, and subsidized loans, as well as unsubsidized loans. You should pursue the first two options first, and then when you know how much remains to be financed, we can evaluate which of your investments you might liquidate if further financing is needed. There are a range of views on debt on this board. I take a very cautious approach to going in to debt. I worked full-time and took night classes to finish my degree without debt, but depending on your program that might not be an option. It seems that you also have a healthy relationship with debt considering the shape of your savings and finances as outlined above. Apart from the above information about how much money could be obtained and at what interest rates, the other missing information is your current salary, and your expected salary range after completing the program. With all of that information I could make specific recommendations, but at this point, my only recommendation is to avoid liquidating any retirement accounts in your effort to invest in yourself if at all possible.\",\n \"First, many banks do not keep the loan. Even if they send you a payment notice and process the monthly payment, there's still a good chance the loan itself was packed up and sold to investors. Collateralizing mortgages, in and of itself, is not inherently dangerous. But the loan definitely needs a house behind it. If you found a bank that keeps its loans, it would be a tough sell. You'd be asking them to trust that you've chosen the right number to match up with the house you intend to buy. And then they'd need to have another round of processing to turn this into a loan with normal collateral (i.e. put a lien on the house and tie them together.)\",\n \"The reason I don't know of any banks who would offer this to you (even if you held the investment account with their bank) is that there is no upside to the bank. It is a good idea for you, but what would they have to gain from this arrangement? The reason banks require a down payment is underwriting quality. If you can afford a significant down payment, they know that there is a significantly lower chance that you will default. However, if you were to provide an investment account as collateral, you would receive all the upside, and any downside would reduce their collateral as a percent of the amount loaned. This sort of idea could potentially work along the lines of a margin call (ie you have to provide additional capital if your asset value drops), but this would have the effective of leveraging the bank's risk, when their objective is to lower their risk through requiring a down payment. I don't see a reason why the bank would take on the risk that you would need to provide additional capital down the road with no upside for them. Additionally, many banks have backed away from the kinds of zero-down-payment and negative-amortization-ARM loans that got them (or the people they sold them to) in trouble over the last few years in an effort to reduce how much risk they take on. I think that in theory, you'd have to offer a lot more benefit to the bank, and that in practice it's probably a non-starter right now.\",\n \"so probably a stupid question but anyway. Suppose I take a loan of 10lakhs INR(20k C$ or 15US$) in india for studying abroad. and get a job after studying ther like 2-3 years later. How easily I can pay off the loan. Considering I can get a 50k c$ job and live frugally. I think i could easily pay off the loan in a year or two. is that right. Or would I suffer and end up paying installments (right word?) every month for like 10 -15 years. I know i may be exaggerating too much on latter part. But still. Would it be easy since currency is quite 'strong' as in you earn quite a good money for even a starting job or even minimum wage job. Thank you\",\n \"\\\"Credit is like dignity - it takes a long time to build but a short time to lose. Your credit history is mostly made up of your prior activity for several years. There's no \\\"\\\"quick fix\\\"\\\" to raise your credit score in a short period. Paying your student loans on time will help, but it will take quite some time for that activity to make a big difference in your credit. If you can't get approved for a car loan of $15k, then perhaps it's time to either reset your expectations or save up enough to make a large down payment on a more expensive car. Instead of prepaying your student loans that are not due, save up that money for a down payment. You can get an incredibly reliable car for much less than $15,000. Also, make sure that you will be able to afford the car payment when your student loans do become due (based on your current salary, not some hypothetical future salary) Another plan: drive your car for another year, pay off your student loans in that time, and then you might have enough credit history to get a better loan.\\\"\",\n \"Re (1), I don't think it makes any difference. What does make a difference is the presence of your signature on the loan documents, unfortunately. And even if your ex-business partner didn't include the LoC in his bankruptcy, if he or his company don't have any money the bank is still going to come after you.\",\n \"\\\"My biggest concern with this plan is that there's no going back should you decide that it is not going to work, either due to the strain on the relationship or for some other reason. If you were borrowing from a relative in place of a mortgage or a car loan, you can always refinance, and might just pay a little more interest or closing costs from a bank. Student loans are effectively unsecured, so your only option for a \\\"\\\"refinance\\\"\\\" would be to get a personal, unsecured loan (or borrow against existing collateral if you have it). You are going to have a tough time getting another 50k unsecured personal loan at anywhere near student-loan rates. The other negative aspects (overall risk of borrowing from family, loss of possible tax deduction) make this plan a no-go for me. (I'm NOT saying that it's always a good idea to borrow from family for homes or cars, only that there's at least an exit plan should you both decide it was a bad idea).\\\"\",\n \"There are several concerns with this plan: The bank will look at the remaining student loans when determining how much you can afford in payments each month. If they do approve the loan they will want to have the check written to the student loan accounts as part of the closing process, otherwie you could have both sets of loans.\",\n \"I would like to establish credit history - have heard it's useful to gain employment and makes it easy to rent an apartment? Higher credit scores will make it easier with landlords, that's true. As to employment - they do background checks, which means that they usually won't like bad things, but won't care about the good things or no things (they'll know you're a foreigner anyway). Is it safe to assume that this implies I have no history whatsoever? Probably, but you can verify pulling through AnnualCreditReport, don't go around giving your personal information everywhere. Is taking out a secured loan the only way for me? No, but it's one of the easiest. Better would be getting a secured Credit Card, not loan. For loan you'll have to pay interest, for a credit card (assuming you pay off all your purchases immediately) you will only pay the credit card fees (for secured credit cards they charge ~$20-100 yearly fees, so do shop around, the prices vary a lot!). If you're using it wisely, after a year it will be converted to a regular credit card and the collateral will be returned to you with interest (which is actually very competitive, last I heard it was around 2%, twice as much as the online savings accounts). As to a secured loan - you'll be paying 4% to CU for your own money. Doesn't make any sense at all for me. For credit cards you'll at least get some value for your money - convenience, additional fraud protection, etc. The end result will be the same. Usually the credit starts to build up after ~6-12 months (that's why after a year your secured CC will be converted to a regular one). Make sure to have the statement balance in the range of 10-30% of your credit limit, to get the best results. Would it make much better sense to wait till I get a job (then I would have a fixed monthly salary and can apply for a regular CC directly) You can apply, but you'll probably be rejected. As I mentioned in another answer elsewhere, the system in the US is such that you're unable to get credit if you don't already have credit. Which is kindof a magic circle, which you can break with the secured credit card as the least costly solution.\",\n \"is it really so important to have good credit with so much collateral Yes it is important to have good credit, the bank may not lend or may charge higher for bad credit. If you were to default the bank will get all that equity so You are missing the fundamental. Bank cannot take more than what they are owed. When they take possession of house, they auction it. Take what was due from the sale and return any surplus to the owner. This entire process takes time and hence bank wants to avoid giving loan to someone who they feel is risky. Edit: There are different aspects of risk that the bank factors.\",\n \"Student homes are not like home loans. The housing bubble happened in large part because people didn't care about the size of the loan. They intended to flip their house in a couple years and sell it for a profit. You can't resell an education. > Certainly it is better than the current system which guarantees student loans to benefit the bankers. That doesn't exist any more. For the last couple of years only the government can offer government-backed student loans.\",\n \"I completely agree with requirements, like GPA. I think that weeds some bad loans out, and is a much better version of tough love than non-dischargable debt once you are out of school. The non-discharged debt problem is tough, and I think this aspect ties into the college cost inflation: If you, as a lender, basically have a perpetual lien on someone because they can't discharge the debt, then you (lender) can issue riskier loans, and more of them. I haven't heard the term 'subprime loans' used to describe student debt, but I think the term is just as applicable to bad student creditors as it was to bad home creditors in the housing bubble. There seems to be moral hazard involved for lenders that have non-discharge covenants, and so they lend, even after government lenders tell people 'no more.'\",\n \">You default on a loan, student or otherwise, by not paying. Student Loan debt, backed by the government, means the government can garnish any wages you make, or otherwise put liens against property you own to secure the debt. You have no say in the matter.\",\n \"\\\"You should pay for grad school without taking loans if your circumstances permit. There is the possibility of a tax write off for interest paid on student loans, but it's slightly complicated and it's very much a \\\"\\\"give me $10, and I'll give you $5 back\\\"\\\" kind of deal. You're better off not borrowing the money to begin with, even though I tend to think that borrowing for things which appreciate-- e.g., a house-- or which can significantly increase your earning capability-- e.g., the right kind of graduate school-- is generally better/wiser/more permissible than borrowing for something which depreciates, like a car. Having no student loan debt after graduation means you have greater freedom than someone who is laboring to pay student loan debt in addition to all of their other bills. My $0.02\\\"\",\n \"> To get a well paying job requires a degree these days. Not if you're willing to do some manual labor. The skilled trades are experiencing a shortage of young workers. They pay pretty well. Well enough to save for college. > Not everyone has the money to pay for college without a loan. Does that mean they shouldn't be able to get a well paying job? The unfortunate reality of the world is that life, sometimes, isn't fair. To be fair, I needed student loans to get through school. I didn't choose to major in art history or underwater basket weaving though. After a year of majoring in mathematics, I realized the dire economic decision I was making and chose to pursue engineering instead.\",\n \"Just one more thing to consider: a friend of mine had some student loan debt left over from graduate school. Years later, through his employer, he was able to apply for and receive a grant that paid off the remainder of his student loan. It was literally free money, and a significant amount, too. The windfall was a little bittersweet for him because he had been making extra payments over the years. The cap on the grant was something like $50k and he wasn't able to use all of it because he had been aggressive in paying it down. (Still, free money is free money.) Sure, this is a unique situation, but grants happen.\",\n \"\\\"> sofi This is most definitely not what we're (I'm) talking about; to wit: The loans tend to be debt for law school, business school and medical school. And while these grad students carry a median $77,000 in debt, they are also bringing in an average of $140,000 in salary a year. (*See correction below.) Their average FICO credit score? 776. It's another sign of how the credit market is only open to a select few. This is \\\"\\\"privatizing the gains\\\"\\\". The sub-prime student loan losses will be \\\"\\\"socialized\\\"\\\".\\\"\",\n \"\\\"I think the answer to this question depends on how much you trust yourself. Most people are wonderful at deceiving themselves. I'd personally not trust myself; I'll use Liam's points for the pitfalls some people get into. You can pay off your loans with summer internships and retain the initial cash you had for additional activities that make college enjoyable, i.e - Fraternity/ Sorority, clubs, dinners, and social nights. This is actually the risk I've seen many people do. They'll blow their money in one semester under the assumption that 'they'll just earn more in Summer and keep it for expenses or the future.\\\"\\\" Another benefit to taking these loans would assist in building credit, No Credit (in the USA) is actually a good standing. Many sensible banks or credit unions will happily give people with No Credit a loan. This makes intuitive sense if you think about it. Imagine two people with the same income. One owes money regularly to multiple sources and the other has no debt obligations. Which one are you loaning money to? Simplifying things a lot: Great Credit is best, followed by No Credit, then Good Credit, and then Bad Credit. The advantage of Great Credit over No Credit is simply that some institutions in some sectors don't have the policies in place to process No Credit people (No Credit people plan to not apply for credit often, for self-explanatory reasons, so this is a mote point).\\\"\",\n \"\\\"First, are you sure that no interest accrues on the student loans until six months after you finish your studies? My understanding is that you have to start paying back the student loans six months after leaving the university, but that doesn't mean no interest accrues in the meantime. My concern about student loans is that life happens and when it happens in an unexpected way, the powers of the student loan companies exceed pretty much everybody else's with the possible exception of the IRS. If you are in a position to be able to pay cash for the tuition then I would cut back the \\\"\\\"lifestyle\\\"\\\", scrimp as much as I can and pay cash. You'll be in a much better position afterwards - for starters, you won't have a student loan payment which means you're in a much better position financially than most of your peers and have a lot more options open. Plus, you're not carrying around a mortgage before you even bought a house.\\\"\",\n \"They are looking at your work history to see that you have maintained a similar level of income for a period of time, and that you have a reasonable expectation to continue that for the foreseeable future. They are looking to make a commitment for 15-30 years. They see the short term contract, and have no confidence in making a guess to your ability to pay. Before the real estate bubble burst, you would have had a chance with a no documentation loan. These were setup for people who earned fluctuating incomes, mostly due to being commissioned based. They were easily abused, and lenders have gotten away from them becasue they were burned too often. Just like building your credit rating over time, and your down payment over time, you might have to wait to build a work history.\",\n \"In USA, if you take a personal loan, you will probably get rates between 8-19%. It is better that you take a loan in India, as home loan rates are about 10.25%(10.15% is the lowest offered by SBI). This might not be part of the answer, but it is safer to hold USD than Indian rupees as India is inflating so much that the value of the rupee is always going lower(See 1970 when you could buy 1 dollar for 7 rupees). There might be price fluctuations where the rupee gains against the dollar, but in the long run, I think the dollar has much more value(Just a personal opinion). And since you are taking a home loan, I am assuming it will be somewhere between 10-20 years. So, you would actually save a lot more on the depreciating rupee, than you would pay interest. Yes, if you can get a home loan in USA at around 4%, it would definitely be worth considering, but I doubt they will do that since they would not know the actual value of the property. Coming to answer your question, getting a personal loan for 75k without keeping any security is highly unlikely. What you can do since you have a good credit score, is get a line of credit for 20-25k as a backup, and use that money to pay your EMI only when absolutely required. That way, you build your credit in the United States, and have a backup for around 2 years in India in case you fail to pay up. Moreover, Line of credits charge you interest only on the amount, you use. Cheers!\",\n \"I dunno. Borrow $65,000 with zero collateral, string the lender along for 20+ years, then die? Sounds like a great decision to me. I wonder why a bank would ever take the other end of that lemon of a deal? Oh, right...\",\n \"I would not take this personal loan. Let's look closer at your options. Currently, you are paying $1100 a month in rent, and you have all the money saved up that you need to be able to pay cash for school. That's a good position to be in. You are proposing to take out a loan and buy an apartment. Between your new mortgage and your new personal loan payment, you'll be paying $1500 a month, and that is before you pay for the extra expenses involved in owning, such as property taxes, insurance, etc. Yes, you'll be gaining some equity in an apartment, but in the short term over the next two years, you'll be spending more money, and in the first two years of a 30 year mortgage, almost all of your payment is interest anyway. In two years from now, you'll have a master's degree and hopefully be able to make more income. Will you want to get a new job? Will you be moving to a new city? Maybe, maybe not. By refraining from purchasing the apartment now, you are able to save up more cash over the next two years and you won't have an apartment tying you down. With the money you save by not taking the personal loan, you'll have enough cash for a down payment for an apartment wherever your new master's degree takes you.\",\n \"The key here is that you are defacto running your own company no matter if you acknowledge it or not. In the end these questions have the goal of deciding if you can and will repay the loan. Presumably you filed taxes on your income. These can be shown to the loan officer as proof you have the ability to repay your loan. Running your freelancing as a business has advantages of being able to deduct normal expenses for running the business from your revenue. I am not sure how business cards improves your credit worthiness as they can be had for $10 in about an hour.\",\n \"This is not the case with your brother only. There are many business which run on this premise. It goes till the time all the conditions are in control and get busted when things goes out of way. You have mentioned the loan amount and not the monthly repayment amount. Even if you say, a new loan will not solve his problem, what are the way out ? Telling things nicely sometime does not work especially when facts are otherwise. Hence you need to make a compete case study which should also consider his capacity to pay. As of now it seems he has debts of around 20 months of his earning, which can be considered high, depending upon the terms of major loan such as car loan and personal loan. A case study is way out. You can explain him with such case study that he should not go for further loans.\",\n \"\\\"If you wish to lend them the money, make the check payable to the order of \\\"\\\"loan\\\"\\\", not directly to your son or daughter.\\\"\",\n \"First I'd call and make sure there's not some kind of mistake. If that fails, look into reapplying for forbearance. I'm not sure what you got it for before, but I added up your expenses (which you say is more than your income) and from your stated SL payments, it's more than 20% of your income. That should qualify you for a mandatory forbearance. If not, it should definitely get them to approve a financial hardship forbearance. Before either of those, try to get a deferment though as a financial hardship (not the same as a hardship forbearance, but same principle). If none of that works, ask for an income based repayment plan. It'll stretch out your loans but will relieve some of the pressure now. Best of luck!\",\n \"\\\"You have figured out most of the answers for yourself and there is not much more that can be said. From a lender's viewpoint, non-immigrant students applying for car loans are not very good risks because they are going to graduate in a short time (maybe less than the loan duration which is typically three years or more) and thus may well be leaving the country before the loan is fully paid off. In your case, the issue is exacerbated by the fact that your OPT status is due to expire in about one year's time. So the issue is not whether you are a citizen, but whether the lender can be reasonably sure that you will be gainfully employed and able to make the loan payments until the loan is fully paid off. Yes, lenders care about work history and credt scores but they also care (perhaps even care more) about the prospects for steady employment and ability to make the payments until the loan is paid off. Yes, you plan on applying for a H1-B visa but that is still in the future and whether the visa status will be adjusted is still a matter with uncertain outcome. Also, these are not matters that can be explained easily in an on-line application, or in a paper application submitted by mail to a distant bank whose name you obtained from some list of \\\"\\\"lenders who have a reliable track record of extending auto loans to non-permanent residents.\\\"\\\" For this reason, I suggested in a comment that you consider applying at a credit union, especially if there is an Employees' Credit Union for those working for your employer. If you go this route, go talk to a loan officer in person rather than trying to do this on the phone. Similarly, a local bank,and especially one where you currently have an account (hopefully in good standing), is more likely to be willing to work with you. Failing all this, there is always the auto dealer's own loan offers of financing. Finally, one possibility that you might want to consider is whether a one-year lease might work for you instead of an outright purchase, and you can buy a car after your visa issue has been settled.\\\"\",\n \"\\\"There will be many who will judge your proposal on the idea that subsidized loans should be available to those who need them, and should not be used by others who are simply trying to profit from them. Each school has a pool of money available to offer for subsidized and unsubsidized loans. If they are giving you a subsidized loan, they cannot allocate it to someone else who needs it. Once you weigh the investment risks, I agree that it is analogous to investing rather than repaying your mortgage quickly. If you understand the risks, there's no reason why you shouldn't consider other options about what to do with the money. I am more risk averse, so I happen to prefer paying down the mortgage quickly after all other investment/savings goals have been met. Where you fit on that continuum will answer the question of whether or not it is a \\\"\\\"bad idea\\\"\\\".\\\"\",\n \"Lenders want to judge the stability of the stated income. Because your are new to being self-employed they are concerned about your viability. It may be possible to find another lender who will consider a shorter term of business, but it looks like the lender wants 24 months of business. You should start with your current bank/credit Union, and if they say no ask what more info you need to provide.\",\n \"If you end up keeping the student loan, it will be a tax deduction. Probably not much but at least it's something.\",\n \"\\\"Not unless you have something else to put up as collateral. The bank wants a basic assurance that you're not going to immediately move the money to the Caymans and disappear. 999 times out of 1000, the collateral for a home mortgage is the home itself (which you wouldn't be able to take with you if you decided to disappear), so signing up for a 30 year mortgage on a nonexistent house is probably going to get you laughed out of the bank. It's sometimes possible to negotiate something else as collateral; you may, for instance, have a portfolio of securities worth the loan principal, that you can put in escrow for the term of the loan (the securities will stay in your name and make you money, but if you default on the loan the bank goes to the escrow company and takes the portfolio for their own). The bank will consider the risk of value loss on the securities in the portfolio, and may ask for a higher collateral value or only allow a lower loan amount. In all cases, it's usually a bad idea to go into long-term personal debt just to get \\\"\\\"cheap money\\\"\\\" that you can use to beat the interest rate with some business plan or investment. If you have a business plan, take that to the bank with an LLC and ask for a business loan. The business itself, if the plan is sound, should become valuable, and the terms of business loans take that into account, allowing for a \\\"\\\"shrinking collateral\\\"\\\" transferring the initial personal risk of the loan to the business.\\\"\",\n \"\\\"If you're in the US then no. You cannot enter a binding contract therefore you will not get a loan from a bank. Cosigner or no cosigner, anything to do with a loan and a bank will not involve you. Your parents can get a loan, then they can give you the money, then you can pay them for their payments, but none of that means the loan has anything to do with you. It's their loan, if they default it's on them. Given your age, you probably will ignore everyone else's advice here about this trip being a bad idea if you can't afford it, but you should reconsider it. You will be paying for this trip long after the fun and excitement has worn off. This is the cycle that sends alot of families into bankruptcy, and it's a horrible habit to learn so young. \\\"\\\"Loan\\\"\\\" shouldn't even be in your vocabulary dealing with anything other than a library book.\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["A bank can reject a loan if they feel you do not meet the eligibility criteria. You can talk to few banks and find out."],"string":"[\n \"A bank can reject a loan if they feel you do not meet the eligibility criteria. You can talk to few banks and find out.\"\n]","isConversational":false}}},{"rowIdx":355,"cells":{"_id":{"kind":"string","value":"4019"},"query":{"kind":"string","value":"How and Should I Invest (As a college 18 year old with minimal living expenses)?"},"gt_ids":{"kind":"list like","value":["287991","379948","332749","6881","125477"],"string":"[\n \"287991\",\n \"379948\",\n \"332749\",\n \"6881\",\n \"125477\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1,1,1],"string":"[\n 1,\n 1,\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["85977","332938","224816","179640","164559","138102","167438","287991","379948","386211","300047","347651","474896","555794","580313","218731","332749","480402","339332","74283","269384","219995","70730","96045","102379","20304","322591","422946","149367","46986","226298","400714","404800","430014","125477","426461","269671","474714","347849","391605","87160","400500","576890","339553","235653","553288","78893","231195","526664","571218","409854","23116","235098","502170","241433","70558","393009","505993","35995","171189","395471","36190","123256","521996","537711","122679","156097","483777","571044","241800","195587","354551","213435","332022","345030","275376","319760","178691","204992","369251","64168","317533","592915","129255","256055","384749","178303","312821","80844","204479","433371","579901","382386","364666","541054","452126","328691","591909","325098","501395"],"string":"[\n \"85977\",\n \"332938\",\n \"224816\",\n \"179640\",\n \"164559\",\n \"138102\",\n \"167438\",\n \"287991\",\n \"379948\",\n \"386211\",\n \"300047\",\n \"347651\",\n \"474896\",\n \"555794\",\n \"580313\",\n \"218731\",\n \"332749\",\n \"480402\",\n \"339332\",\n \"74283\",\n \"269384\",\n \"219995\",\n \"70730\",\n \"96045\",\n \"102379\",\n \"20304\",\n \"322591\",\n \"422946\",\n \"149367\",\n \"46986\",\n \"226298\",\n \"400714\",\n \"404800\",\n \"430014\",\n \"125477\",\n \"426461\",\n \"269671\",\n \"474714\",\n \"347849\",\n \"391605\",\n \"87160\",\n \"400500\",\n \"576890\",\n \"339553\",\n \"235653\",\n \"553288\",\n \"78893\",\n \"231195\",\n \"526664\",\n \"571218\",\n \"409854\",\n \"23116\",\n \"235098\",\n \"502170\",\n \"241433\",\n \"70558\",\n \"393009\",\n \"505993\",\n \"35995\",\n \"171189\",\n \"395471\",\n \"36190\",\n \"123256\",\n \"521996\",\n \"537711\",\n \"122679\",\n \"156097\",\n \"483777\",\n \"571044\",\n \"241800\",\n \"195587\",\n \"354551\",\n \"213435\",\n \"332022\",\n \"345030\",\n \"275376\",\n \"319760\",\n \"178691\",\n \"204992\",\n \"369251\",\n \"64168\",\n \"317533\",\n \"592915\",\n \"129255\",\n \"256055\",\n \"384749\",\n \"178303\",\n \"312821\",\n \"80844\",\n \"204479\",\n \"433371\",\n \"579901\",\n \"382386\",\n \"364666\",\n \"541054\",\n \"452126\",\n \"328691\",\n \"591909\",\n \"325098\",\n \"501395\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["Chances are since college is your next likely step I would recommend saving up for it. Start building an emergency fund. Recommended $1,000 minimum. To start building your credit rating (when 18) get a low interest low limit credit. Pay off the balance every month. Starting to build your credit rating now can save you hundreds of thousands when buying a house over the course of paying it off. ie. cheaper interest rate. As for investing, the sooner you can get started the better. Acquire preferred/stocks/bonds/REITs/ETFs/etc that pay you to own them (they pay you dividends monthly/quarterly/etc). Stick with solid stocks that have a history of consistently increasing their dividends over time and that are solid companies. I personally follow the work/advice of Derek Foster. He's not a professional but he retired at 34. His first book (Stop working - Here's how you can) is great and recommend it to anyone who is looking to get started. Also check out Ramit Sethi's blog I Will Teach You to be Rich. He focuses on big wins which save you a lot over the long term. He's also got some great advice for students as well. Best of luck!","\"I take it you have nearly zero expenses, since you don't mention any savings and with your income you wouldn't have much left over for investing. At your level of income, any actual investing is either going to unwisely reduce your cash available should you need it (such as investment in mutual funds, which often have minimum investment periods of 2-6 months or more to avoid fees), or cost you a high percentage of your income in commissions (stock trading). So, I wouldn't recommend investing at all — yet. I find Dave Ramsey's baby steps to be very good general money management advice. Here is how I would adapt the first three steps to your income and stage in life. Beyond this, Dave recommends saving for retirement, college (for kids) and paying off your house early. These things are a little beyond your stage in life, but it would be good to start thinking about them. For you, I recommend following DJClayworth's advice to \"\"invest in yourself\"\". Specifically, plan to get through college debt-free. Put away money so that you have a head start once you do have living expenses — save for a car, save money for rent, etc. so that you don't have to live month to month as most people do starting out. So, what this boils down to: Put away every cent you have, in a savings account.\"","Littleadv has given you excellent general advice, but to my mind, the most important part of it all and the path which I will strongly recommend you follow, is the suggestion to look into a mutual fund. I would add even more strongly, go to a mutual fund company directly and make an investment with them directly instead of making the investment through a brokerage account. Pick an index fund with low expenses, e.g. there are S&P 500 index funds available with expenses that are a fraction of 1%. (However, many also require minimum investments on the order of $2500 or $3000 except for IRA accounts). At this time, your goal should be to reduce expenses as much as possible because expenses, whether they be in brokerage fees which may be directly visible to you or mutual fund expenses which are invisible to you, are what will eat away at your return far more than the difference between the returns of various investments.","\"Excellent questions! Asking such questions indicates something special about yourself. The desire to learn and adjust your beliefs will increase your chance of success in your life. I would use a wide variety of authors to increase your education. Myself I prefer Dave Ramsey to Clark Howard, but I think Clark is very good. The first thing you should focus on is learning how to do and live by a budget. Often times, adults will assume that you are on a budget because you are broke. It happens with my friends and my youngest child is older than you. Nothing could be further from the truth. A budget is simply a plan on how you will spend your income so you don't run out of money before you run out of month. Along with budgeting I would also focus on goal setting. This is the type of \"\"investing\"\" you should be doing at your age. For example if your primary goal was to become an engineer, my recommendation is to hold off buying stocks/mutual funds and using your current income to get through school with little or no student loans. Another example might be to open your own HVAC business. Your best bet might be to learn the trade, working for someone else, and take night classes for business management. Most 18 year olds have very little earning power. Your focus at this point should be increasing your income and learning how to manage the income you have. Please keep in mind that most debt is bad. It robs you of your income which is your greatest wealth building tool. Car loans and credit card debt is just plain stupid. Often times a business case can be made for reasonable student loans. However, why not challenge yourself to take none. How much further ahead could you be if you graduate, with a degree, when your peers are strapped with a 40K loan? Keep up the good work and keep asking questions.\"","You should invest in that with the best possible outcome. Right now that is in yourself. Your greatest wealth building tool, at this point, is your future income. As such anything you can do to increase your earnings potential. For some that might mean getting an engineering degree, for others it might mean starting a small business. For some it is both obtaining a college degree and learning about business. A secondary thing to learn about would be personal finance. I would hold off on stocks, at this time, until you get your first real job and you have an emergency fund in place. Penny stocks are worthless, forget about them. Bonds have their place, but not at this point in your life. Saving up for college and obtaining a quality education, debt free, should be your top priority. Saving up for emergencies is a secondary priority, but only after you have more than enough money to fund your college education. You can start thinking about retirement, but you need a career to help fund your savings plan. Put that off until you have such a career. Investing in stocks, at this juncture, is a bit foolish. Start a career first. Any job you take now should be seen as a step towards a larger goal and should not define who you are.","\"I would like to add my accolades in saving $3000, it is an accomplishment that the majority of US households are unable to achieve. source While it is something, in some ways it is hardly anything. Working part time at a entry level job will earn you almost three times this amount per year, and with the same job you can earn about as much in two weeks as this investment is likely to earn, in the market in one year. All this leads to one thing: At your age you should be looking to increase your income. No matter if it is college or a high paying trade, whatever you can do to increase your life time earning potential would be the best investment for this money. I would advocate a more patient approach. Stick the money in the bank until you complete your education enough for an \"\"adult job\"\". Use it, if needed, for training to get that adult job. Get a car, a place of your own, and a sufficient enough wardrobe. Save an emergency fund. Then invest with impunity. Imagine two versions of yourself. One with basic education, a average to below average salary, that uses this money to invest in the stock market. Eventually that money will be needed and it will probably be pulled out of the market at an in opportune time. It might worth less than the original 3K! Now imagine a second version of yourself that has an above average salary due to some good education or training. Perhaps that 3K was used to help provide that education. However, this second version will probably earn 25,000 to 75,000 per year then the first version. Which one do you want to be? Which one do you think will be wealthier? Better educated people not only earn more, they are out of work less. You may want to look at this chart.\"","Congrats! That's a solid accomplishment for someone who is not even in college yet. I graduated college 3 years ago and I wish I was able to save more in college than I did. The rule of thumb with saving: the earlier the better. My personal portfolio for retirement is comprised of four areas: Roth IRA contributions, 401k contributions, HSA contributions, Stock Market One of the greatest things about the college I attended was its co-op program. I had 3 internships - each were full time positions for 6 months. I strongly recommend, if its available, finding an internship for whatever major you are looking into. It will not only convince you that the career path you chose is what you want to do, but there are added benefits specifically in regards to retirement and savings. In all three of my co-ops I was able to apply 8% of my paycheck to my company's 401k plan. They also had matching available. As a result, my 401k had a pretty substantial savings amount by the time I graduated college. To circle back to your question, I would recommend investing the money into a Roth IRA or the stock market. I personally have yet to invest a significant amount of money in the stock market. Instead, I have been maxing out my retirement for the last three years. That means I'm adding 18k to my 401k, 5.5k to my Roth, and adding ~3k to my HSA (there are limits to each of these and you can find them online). Compounded interest is amazing (I'm just going to leave this here... https://www.moneyunder30.com/power-of-compound-interest).","I have about $1K in savings, and have been told that you should get into investment and saving for retirement early. I make around $200 per week, which about $150 goes into savings. That's $10k per year. The general rule of thumb is that you should have six months income as an emergency fund. So your savings should be around $5k. Build that first. Some argue that the standard should be six months of living expenses rather than income. Personally, I think that this example is exactly why it is income rather than living expenses. Six months of living expenses in this case would only be $1250, which won't pay for much. And note that living expenses can only be calculated after the fact. If your estimate of $50 a week is overly optimistic, you might not notice for months (until some large living expense pops up). Another problem with using living expenses as the measure is that if you hold down your living expenses to maximize your savings, this helps both measures. Then you hit your savings target, and your living expenses increase. So you need more savings. By contrast, if your income increases but your living expenses do not, you still need more savings but you can also save more money. Doesn't really change the basic analysis though. Either way you have an emergency savings target that you should hit before starting your retirement savings. If you save $150 per week, then you should have around $4k in savings at the beginning of next year. That's still low for an emergency fund by the income standard. So you probably shouldn't invest next year. With a living expenses standard, you could have $6250 in savings by April 15th (deadline for an IRA contribution that appears in the previous tax year). That's $5000 more than the $1250 emergency fund, so you could afford an IRA (probably a Roth) that year. If you save $7500 next year and start with $4k in savings (under the income standard for emergency savings), that would leave you with $11,500. Take $5500 of that and invest in an IRA, probably a Roth. After that, you could make a $100 deposit per week for the next year. Or just wait until the end. If you invested in an IRA the previous year because you decided use the living expenses standard, you would only have $6500 at the end of the year. If you wait until you have $6750, you could max out your IRA contribution. At that point, your excess income for each year would be larger than the maximum IRA contribution, so you could max it out until your circumstances change. If you don't actually save $3k this year and $7500 next year, don't sweat it. A college education is enough of an investment at your age. Do that first, then emergency savings, then retirement. That will flip around once you get a better paying, long term job. Then you should include retirement savings as an expected cost. So you'd pay the minimum required for your education loans and other required living expenses, then dedicate an amount for retirement savings, then build your emergency savings, then pay off your education loans (above the minimum payment). This is where it can pay to use the more aggressive living expenses standard, as that allows you to pay off your education loans faster. I would invest retirement savings in a nice, diversified index fund (or two since maintaining the correct stock/bond mix of 70%-75% stocks is less risky than investing in just bonds much less just stocks). Investing in individual stocks is something you should do with excess money that you can afford to lose. Secure your retirement first. Then stock investments are gravy if they pan out. If they don't, you're still all right. But if they do, you can make bigger decisions, e.g. buying a house. Realize that buying individual stocks is about more than just buying an app. You have to both check the fundamentals (which the app can help you do) and find other reasons to buy a stock. If you rely on an app, then you're essentially joining everyone else using that app. You'll make the same profit as everyone else, which won't be much because you all share the profit opportunities with the app's system. If you want to use someone else's system, stick with mutual funds. The app system is actually more dangerous in the long term. Early in the app's life cycle, its system can produce positive returns because a small number of people are sharing the benefits of that system. As more people adopt it though, the total possible returns stay the same. At some point, users saturate the app. All the possible returns are realized. Then users are competing with each other for returns. The per user returns will shrink as usage grows. If you have your own system, then you are competing with fewer people for the returns from it. Share the fundamental analysis, but pick your stocks based on other criteria. Fundamental analysis will tell you if a stock is overvalued. The other criteria will tell you which undervalued stock to buy.","You have great intentions, and a great future. As far as investing goes, you're a bit early. Unless your parents or other benefactor is going to pay every dime of your expenses, you'll have costs you need to address. $1000 is the start of a nice emergency fund, but not yet enough to consider investing for the long term. If you continue to work, it's not tough to burn through $200/wk especially when you are in college and have more financial responsibility.","At this stage of the game your best investment is yourself. Rather than putting it in stocks, use any spare money you have to get yourself the best education you can. See if you can drop that part-time job and give yourself more time to study. Or maybe you can go to a better, more expensive college. Or maybe college will give you some opportunity to travel and learn more that way. You don't want to exclude yourself from those opportunities by not having enough spare cash. So in short, spend what you need to get yourself the best education you can, and keep any spare money you have somewhere you can use it to take advantage of any opportunities that come your way.","Start a Roth IRA. Keep it in low risk, short term money market or CDs. At this stage, stocks may be premature. As you build up the account, up to $5000/year, at some point, you should start buying an index mutual fund, say one following the S&P. When you are out of school and working for real money, save an emergency account outside the IRA and shift that Roth IRA to be fully invested. My 13 year old has her emergency account, and her Roth IRA to deposit her baby sitting money. It's never too soon to start.","You are young, and therefore have a very long time horizon for investing. Absolutely nothing you do should involve paying any attention to your investments more than once a year (if that). First off, you can only deposit money in an IRA (of whatever kind) if you have taxable income. If you don't, you can still invest, just without the tax benefits of a Roth. My suggestion would be to open an account with a discount brokerage (Schwab, Fidelity, eTrade, etc). The advantage of a brokerage IRA is that you can invest in whatever you want within the account. Then, either buy an S&P 500 or total market index fund within the account, or buy an index-based ETF (like a mutual fund, but trades like a stock). The latter might be better, since many mutual funds have minimum limits, which ETFs do not. Set the account up to reinvest the dividends automatically--S&P 500 yields will far outstrip current savings account yields--and sit back and do nothing for the next 40 or 50 years. Well, except for continuing to make annual contributions to the account, which you should continue to invest in pretty much the same thing until you have enough money (and experience and knowledge) to diversify into bond funds/international funds/individual stocks, etc. Disclaimer: I am not a financial planner. I just manage my own money, and this strategy has mostly kept me from stressing too badly over the last few years of market turmoil.","On the one hand, it's a great idea to open a Roth IRA now, once you've got the cash to contribute. It's a tax designation sounds like it would fit your meager earnings this year. The main reason to open one now rather than later is that some types of withdrawls require the account be aged 5 years. But you can also withdraw the amount you've contributed tax free any time. Student loans right now are pricey, so if you're carrying a balance at say 6.8 percent fixed you should pay that down ASAP. Beyond that, I'd keep the rest liquid for now. Having that kind of liquid cash is extremely reassuring, and many of the biggest returns on investment are going to be in your personal life. More fuel efficient vehicles, energy efficient appliances, computer backups, chest freezers and bulk meat purchases, etc. One example I see every six months is car insurance: I can pay for six months in full or I can pay a smaller monthly bill plus a small fee. That fee is well above current market rates. You see this everywhere; people searching for lower minimum payments rather than lower total costs. Save your money up and be the smart buyer. It's too damn expensive to be broke.","\"Two things to consider: When it comes to advice, don't be \"\"Penny wise and Pound foolish\"\". It is an ongoing debate whether active management vs passive indexes are a better choice, and I am sure others can give good arguments for both sides. I look at it as you are paying for advice. If your adviser will teach you about investing and serve your interests, having his advise will probably prevent you from making some dumb mistakes. A few mistakes (such as jumping in/out of markets based on fear/speculation) can eliminate any savings in fees. However, if you feel confident that you have the resources and can make good decisions, why pay for advise you don't need? EDIT In this case, my opinion is that you don't need a complex plan at this time. The money you would spend on financial advise would not be the best use of the funds. That said, to your main question, I would delay making any long-term decisions with these funds until you know you are done with your education and on an established career path. This period of your life can be very volatile, and you may find yourself halfway through college and wanting to change majors or start a different path. Give yourself the option to do that by deferring long-term investment decisions until you have more stability. For that reason, I would avoid focusing on retirement savings. As others point out, you are limited in how much you can contribute per year. If you want to start, ROTH is your best bet, but if you put it in don't pull it out. That is a bad habit to get into. Personal finance is as much about developing habits as it is doing math... A low-turnover index fund may be appropriate, but you don't want to end up where you want to buy a house or start a business and your investment has just lost 10%... I would keep at least half in a liquid, safe account until after graduation. Any debt you incur because you tied up this money will eliminate any investment gains (if any). Good Luck! EDITED to clarify retirement savings\"","you should invest in a range of stock market indexes. Ex : Dow jones, S&P500, Nasdaq and keep it there until you are ready to retire. I'm invested half in SLYV and SLYG (S&P600 small cap value and S&P600 small cap growth; Respectively). It brings on average between 8-13% a year (since 1971). This is not investment advice. Talk to your broker before doing this.","I was in a similar situation at age 18/19, but not making quite as much money. I maxed out an IRA and bought savings bonds, although rates were decent then. I did flitter away about half of what I earned, which in retrospect was probably dumb. But I had a good time!","I'd suggest you keep putting money in your savings account and start investing after you land that first big job. As another answer mentioned, unless you're fortunate enough to have all of your tuition and living expenses paid for, an emergency fund is an invaluable tool for a college student. And the bigger the better. Your laptop gets stolen or your car's air conditioner (or heater) dies -- both of these things happened to me in college -- and it would have been a much bigger deal for me if I didn't have some money tucked away.","Your attitude is great, but be careful to temper your (awesome) ambition with a dose of reality. Saving is investing is great, the earlier the better, and seeing retirement at a young age with smooth lots of life's troubles; saving is smart and we all know it. But as a college junior, be honest with yourself. Don't you want to screw around and play with some of that money? Your first time with real income, don't you want to blow it on a big TV, vacation, or computer? Budget out those items with realistic costs. See the pros and cons of spending that money keeping in mind the opportunity cost. For example, when I was in college, getting a new laptop for $2000 (!) was easily more important to me than retirement. I don't regret that. I do regret buying my new truck too soon and borrowing money to do it. These are judgment calls. Here is the classic recipe: Adjust the numbers or businesses to your personal preferences. I threw out suggestions so you can research them and get an idea of what to compare. And most importantly of all. DO NOT GET INTO CREDIT CARD DEBT. Use credit if you wish, but do not carry a balance.","The advice to invest in yourself is good advice. But the stock market can be very rewarding over the long pull. You have about 45 years to retirement now and that is plenty long enough that each dollar put into the market now will be many dollars then. A simple way to do this might be to open a brokerage account at a reputable broker and put a grand into a very broad based all market ETF and then doing nothing with it. The price of the ETF will go up and down with the usual market gyrations, but over the decades it will grow nicely. Make sure the ETF has low fees so that you aren't being overcharged. It's good that you are thinking about investing at a young age. A rational and consistent investment strategy will lead to wealth over the long pull.","May I suggest putting it in a Roth IRA ($5,500 per year. Right now you can contribute to both 2015 and 2016 so that's $11K.)? Based on your description it sounds like your tax rate is very low, so it is awesome to put it away now and avoid taxes later on any gains you make on it. You can use Roth IRA money to pay for college, a home, or retirement. Within your Roth IRA, any of the investment options mentioned here will work. For example, CD's or money market accounts if you just want it to grow in a pretty much savings-account-like manner. You could also buy diversified mutual funds or have some fun buying individual stocks with some of it. I'm sorry to say that in the current market conditions you are not going to find a completely safe, cash-like investment or account that makes your money grow substantially. To do that you have to bear risk by buying risky stuff like stocks.","\"First off, monozok is right, at the end of the day, you should not accept what anyone says to do without your money - take their suggestions as directions to research and decide for yourself. I also do not think what you have is too little to invest, but that depends on how liquid you need to be. Often in order to make a small amount of money grow via investments, you have to be willing to take all the investment profits from that principle and reinvest it. Thus, can you see how your investment ability is governed by the time you plan to spend without that money? They mantra that I have heard from many people is that the longer you are able to wait, the more 'risk' you can take. As someone who is about the same age as you (I'm 24) I can't exactly say yet that what I have done is sure fire for the long term, but I suggest you adopt a few principles: 1) Go read \"\"A Random Walk Down Wall Street\"\" by Burton G. Malkiel. A key point for you might be that you can do better than most of these professional investors for hire simply by putting more money in a well selected index fund. For example, Vanguard is a nice online service to buy indexes through, but they may require a minimum. 2) Since you are young, if you go into any firm, bank, or \"\"financial planner,\"\" they will just think you are naive and try to get you to buy whatever is best for them (one of their mutual funds, money market accounts, annuities, some flashy cd). Don't. You can do better on your own and while it might be tempting because these options look more secure or well managed, most of the time you will barely make above inflation, and you will not have learned very much. 3) One exciting thin you should start learning now is about algorithmic trading because it is cool and super efficient. quantopian.com is a good platform for this. It is a fun community and it is also free. 4) One of the best ways I have found to watch the stock market is actually through a stock game app on my phone that has realtime stock price feed. Seeking Alpha has a good mobile app interface and it also connects you to news that has to do with the companies you are interested in.\"","Don't try individual stocks. If you have a job, any job, even one from mowing lawns, you can open a Roth IRA. If you are under 18 you will need your parents/guardian to setting up the account. You can put the an amount equal to your earned income into the Roth IRA, up to the annual maximum of $5500. There are advantages to a Roth IRA: What happens if you are using your income to pay for your car, insurance, etc? You can get the money from your parents, grandparents. The only rule is that you can't invest more than you have earned. Act before Tax day (April 15th). You know what you made last year. If you open the account and make the contribution before April 15th it can count for last year, as long as you are clear with the broker/bank when you make the deposit.","With $800/month extra? Do both. (I am ethnocentric enough to assume you live in the same country as me) First, figure out what your emergency fund should look like. Put this money in a high yield checking or savings account. Add to it monthly until you reach your goal. It should be 3 to 6 months of your total monthly expenses. It will be a lot more than $2k I suspect. You will earn bubkis in interest, but the point of the emergency fund is a highly liquid asset for emergencies so you can choose cheaper car insurance and not buy warranties on stuff. With your $800/month, split it up this way: $416/month into a Roth IRA account at Vanguard (or Schwab or Fidelity) in the Star Fund (or similar low cost, diversified fund). The star is $1000 to open, pretty diversified. $416 is a lazy number that comes close to the $5000 annual limit for a Roth IRA in the US. Contribute like clockwork, directly from your paycheck if you can. This will make it easy to do and get you the benefit of dollar cost averaging. $200 or $300 into your savings account until you reach your emergency fund goal. $85 - $100. Live a little. Speculate in stocks with your vanguard account. Or rent fancy cars. Or taken a vacation or go party. If you are saving $800/month in your early 20 be proud of yourself, but have a little fun too so you can let off steam. It isn't much but you know you can play with it. Once you reach your emergency fund, save up for your future house or car or plane tickets to Paris. Ask another question for how to save up for these kinds of goals.","There's a lot going on here. I'd be making the maximum ($5500 for a single person under 50) contribution to the Roth IRA each year. Not too late to put in for 2014 before Wednesday, 4/15. Not out of your income, but from the T Rowe Price account. As long as you have earned income, you can make an IRA deposit up to the limit, 5500, or up to that income. The money itself can come from other funds. Just explain to Dad, you're turning the money into a long term retirement account. I doubt that will trouble him. Aside from that, too much will change when you are out of school. At 18, it's a matter of learning to budget, save what you can, don't get into debt for stupid things. (Stupid, not as I would judge, but as the 25 year old you will judge.)","If I were in your shoes I would concentrate now on investing in yourself. Your greatest wealth building tool is your income. Going to school is great, make sure you can finish. Also is there additional coursework you can obtain that might help boost your salary? I would look for course in the following areas that might be outside your core competency: After that I would concentrate on some books that will help you in your journey. However, I would not start investing until you have a well paying full time job: That will get you started.","To be honest, all that they might be able to tell you is to keep saving. Your income seems like it will vary week to week thanks to commission (and I'm still very curious how at 18 you found a job making $96,000 a year at minimum). Right now because you have no savings, start stacking that up. You're going to want an emergency fund on the side as well. Even though now you may still live with parents, you still may run into issues where you'll need money on hand. It's much better to dig into an emergency fund than get a loan. Plus, when moving out, you won't be living paycheck to paycheck. Best rule of thumb for this is to keep an emergency fund of roughly 3-6 months of expenses. Right now because you're so young with so little money, there isn't a large reason to really open up an IRA or any sort of investment account. Unless you're actually guaranteed $2,000 a week, then things are different.","This is a very open ended question with no concrete answer as it depends on your personal situation. However, for starters I would suggest picking up a copy of The Investment Answer. It's a very light read, less than 100 pages, but it has some amazingly simple yet very concrete advice on investing and answers a lot of common questions (like yours).","You are young so you have time on your side. This allows you to invest in more aggressive investments. I would do the following 1) Contribute at least what your company is willing to match on your 401k, if your company offers a Roth 401k use that instead of the normal 401k (When this becomes available to you) 2) Open a Roth IRA Contribute the maximum to this account ~$5500/year 3) Live below your means, setup a budget and try and save/invest a minimum of 50% of your salary, do not get used to spending more money. With each bonus or salary increase a minimum of 75% of it should go toward your savings/investment. This will keep you from rapidly increasing your spending budget. 3) Invest in real estate (this could be its own post). Being young and not too far out of college you have probably been moving every year and have not accumulated so much stuff that it makes moving difficult. I would utilize your FHA loan slot to buy a multifamily property (2-4 Units) for your first property using only 3.5% down payment (you can put more down if you like). Learn how to analyze properties first and find a great Realtor/Mentor. Then I would continue as a NOMAD investor. Where you move every year into a new owner occupied property and turn the previous into a rental. This allows you to put 3-5% down payment of properties that you would otherwise have to put 20-25% and since you are young you can afford the risk. You should check out this article/website as it is very informative and can show you the returns that you could earn. Young Professional Nomad Good luck I am in a very similar situation","\"If you have wage income that is reported on a W2 form, you can contribute the maximum of your wages, what you can afford, or $5500 in a Roth IRA. One advantage of this is that the nominal amounts you contribute can always be removed without tax consequences, so a Roth IRA can be a deep emergency fund (i.e., if the choice is $2000 in cash as emergency fund or $2000 in cash in a 2015 Roth IRA contribution, choice 2 gives you more flexibility and optimistic upside at the risk of not being able to draw on interest/gains until you retire or claim losses on your tax return). If you let April 15 2016 pass by without making a Roth IRA contribution, you lose the 2015 limit forever. If you are presently a student and partially employed, you are most likely in the lowest marginal tax rate you will be in for decades, which utilizes the Roth tax game effectively. If you're estimating \"\"a few hundred\"\", then what you pick as an investment is going to be less important than making the contributions. That is, you can pick any mutual fund that strikes your fancy and be prepared to gain or lose, call it $50/year (or pick a single stock and be prepared to lose it all). At some point, you need to understand your emotions around volatility, and the only tuition for this school is taking a loss and having the presence of mind to examine any panic responses you may have. No reason not to learn this on \"\"a few hundred\"\". While it's not ideal to have losses in a Roth, \"\"a few hundred\"\" is not consequential in the long run. If you're not prepared at this time in your life for the possibility of losing it all (or will need the money within a year or few, as your edit suggests), keep it in cash and try to reduce your expenses to contribute more. Can you contribute another $100? You will have more money at the end of the year than investment choice will likely return.\"","I highly recommend passive investing through something like betterment (www.betterment.com) or vanguard's ETFs. FutureAdvisor.com can provide some good advice as to what funds to invest in. I'd recommend using that money to max out your Roth IRAs each year, too.","I would just buy a low-cost diversified equity ETF. VTI is pretty solid. Also, JW are you working or in school? If you are working you should consider opening an IRA or Roth IRA. Also if your employer has a 401k or other retirement plan you can contribute to I would advise doing so.","First, congratulations on even thinking about investing while you are still young! Before you start investing, I'd suggest you pay off your cc balance if you have any. The logic is simple: if you invest and make say 8% in the market but keep paying 14% on your cc balance, you aren't really saving. Have a good supply of emergency fund that is liquid (high yielding savings bank like a credit union. I can recommend Alliant). Start small with investing. Educate yourself on the markets before getting in. Ignorance can be expensive. Learn about IRA (opening an IRA and investing in the markets have (good)tax implications. I didn't do this when I was young and I regret that now) Learn what is 'wash sales' and 'tax loss harvesting' before putting money in the market. Don't start out by investing in individual stocks. Learn about indexing. What I've give you are pointers. Google (shameless plug: you can read my blog, where I do touch upon most of these topics) for the terms I've mentioned. That'll steer you in the right direction. Good luck and stay prosperous!","First, check out some of the answers on this question: Oversimplify it for me: the correct order of investing When you have determined that you are ready to invest for retirement, there are two things you need to consider: the investment and the account. These are separate items. The investment is what makes your money grow. The type of account provides tax advantages (and restrictions). Generally, these can be considered separately; for the most part, you can do any type of investment in any account. Briefly, here is an overview of some of the main options: In your situation, the Roth IRA is what I would recommend. This grows tax free, and if you need the funds for some reason, you can get out what you put in without penalty. You can invest up to $5500 in your Roth IRA each year. In addition to the above reasons, which are true for anybody, a Roth IRA would be especially beneficial for you for three reasons: For someone that is closer in age to retirement and in a higher tax bracket now, a Roth IRA is less attractive than it is for you. Inside your Roth IRA, there are lots of choices. You can invest in stocks, bonds, mutual funds (which are simply collections of stocks and bonds), bank accounts, precious metals, and many other things. Discussing all of these investments in one answer is too broad, but my recommendation is this: If you are investing for retirement, you should be investing in the stock market. However, picking individual stocks is too risky; you need to be diversified in a lot of stocks. Stock mutual funds are a great way to invest in the stock market. There are lots of different types of stock mutual funds with different strategies and expenses associated with them. Managed funds actively buy and sell different stocks inside them, but have high expenses to pay the managers. Index funds buy and hold a list of stocks, and have very low expenses. The conventional wisdom is that, in general, index funds perform better than managed funds when you take the expenses into account. I hope this overview and these recommendations were helpful. If you have any specific questions about any of these types of accounts or investments, feel free to ask another question.","\"My basic rule I tell everyone who will listen is to always live like you're a college student - if you could make it on $20k a year, when you get your first \"\"real\"\" job at $40k (eg), put all the rest into savings to start (401(k), IRA, etc). Gradually increase your lifestyle expenses after you hit major savings goals (3+ month emergency fund, house down payment, etc). Any time you get a raise, start by socking it all into your employer's 401(k) or similar. And repeat the above advice.\"","\"The $1K in funds are by default your emergency fund. If absolutely necessary, emergency funds may need to come from debt, a credit capacity, focus on building credit to leverage lower rates for living expenses eventually needed. Profitable organizations & proprietors, borrow at a lower cost of capital than their return. Join your local credit union, you're welcome to join mine online, the current rates for the first $500 in both your checking and savings is 4.07%, it's currently the fourth largest in the U.S. by assets. You may join as a \"\"family member\"\" to me (Karl Erdmann), not sure what their definition of \"\"family\"\" is, I'd be happy to trace our ancestry if need be or consider other options. Their current incentive program, like many institutions have often, will give you $100 for going through the hassle to join and establish a checking and savings. Some institutions, such as this credit union, have a lower threshold to risk, applicants may be turned down for an account if there is any negative history or a low credit score, shooting for a score of 600 before applying seems safest. The web services, as you mentioned, have significantly improved the layman's ability to cost effectively invest funds and provide liquidity. Robinhood currently seems to be providing the most affordable access to the market. It goes without saying, stay objective with your trust of any platform, as you may have noticed, there is a detailed explanation of how Robinhood makes their money on this stack exchange community, they are largely backed by venture funding, hopefully the organization is able to maintain a low enough overhead to keep the organization sustainable in the long run. The services that power this service such as Plaid, seem promising and underrated, but i digress. The platform gives access for users to learn how investing works, it seems safest to plan a diversified portfolio utilizing a mix of securities,such as low Beta stocks or \"\"blue chip\"\" companies with clear dividend policies. One intriguing feature, if you invest in equities is casting votes on decisions in shareholder meetings. Another popular investment asset class that is less liquid and perhaps something to work toward is real estate. Google the economist \"\"Matthew Rognlie\"\" for his work on income equality on this type of investment. There are many incentives for first time homeowners, saving up for a down payment is the first step. Consider adding to your portfolio a Real Estate Investment Trust (REITs) to gain a market position. Another noteworthy approach to this idea is an investment commercial property cooperative organization, currently the first and only one is called NorthEast Investment Cooperative, one stock of class A is $1K. If you are interested and plan to focus on equities, consider dropping into your college's Accounting Capstone course to learn more about the the details of fundamental and technical analysis of an organization. The complexities of investing involve cyclical risk, macro and micro economic factors, understanding financial statements and their notes, cash flow forecasting - discounting, market timing, and a host of other details Wikipedia is much more helpful at detailing. It's safe to assume initial investment decisions by unsophisticated investors are mostly whimsical, and likely will only add up to learning opportunities, however risk is inherit in all things, including sitting on cash that pays a price of inflation. A promising mindset in long term investments are in organizations that focus on conscious business practices. Another way to think of investing is that you are already somewhat of a \"\"sophisticated investor\"\" and could beat the market by what you know given your background, catching wind of certain information first, or acting on a new trends or technology quickly. Move carefully with any perhaps biased \"\"bullish\"\" or \"\"bearish\"\" mindset. Thinking independently is helpful, constantly becoming familiar with different ideas from professions in a diverse set of backgrounds, and simulating decisions in portfolio's. Here is an extremely limited set of authors and outlets that may have ideas worth digging more into, MIT Tech Reviews (Informative), Bloomberg TV (it's free, informative), John Mackey (businessman), Paul Mason (provocative journalist). Google finance is a simple and free go-to application, use the \"\"cost basis\"\" feature for \"\"paper\"\" or real trades, it's easy to import transactions from a .csv. This seems sufficient to start off with. Enjoy the journey, aim for real value with your resources.\"","\"Between \"\"fresh out of college\"\" and \"\"I have no debts, and a support system in place which because of which I can take higher risks.\"\" I would put every penny I could afford in the riskiest investment platform I was willing to. Holding onto money in a bank account is likely to cost you %1-%2 a year depending on what interest rates are and what inflation looks like. Money invested in a market could loose it all for you or you could become an overnight millionaire. Loosing it all would suck but you are young you will bounce back. Losing it slowly to inflation is just silly when you are young. If there is something you know you have to do in the next few years start to save for it but otherwise use the fact that you are young and have a safety net to try to make money.\"","At your age (heck, at MY age :-)) I would not think about doing any of those types of investments (not savings) on your own, unless you are really interested in the investment process for its own sake, and are willing to devote a lot of time to investigating companies in order to try to pick good investments. Instead, find a good mutual fund from say Vanguard or TRP, put your money in there, and relax. Depending on your short-term goals (e.g. will you expect to need the money for college?) you could pick either an index fund, or a low-risk, mostly bond fund.","while not stated, if you have any debt at all, use the $3000 to pay it off. That's the best investment in the short term. No risk and guaranteed reward. College can invite all sorts of unexpected expenses and opportunities, so stay liquid, protect working capital.","First thing to do right now, is to see if there's somewhere equally liquid, equally risk free you can park your cash for higher rate of return. You can do this now, and decide how much to move into less liquid investments on your own pace. When I was in grad school, I opened a Roth IRA. These are fantastic things for young people who want to keep their options open. You can withdraw the contributions without penalty any time. The earnings are tax free on retirement, or for qualified withdrawls after five years. Down payments on a first home qualify for example. As do medical expenses. Or you can leave it for retirement, and you'll not pay any taxes on it. So Roth is pretty flexible, but what might that investment look like? It in depends on your time horizon; five years is pretty short so you probably don't want to be too stock market weighted. Just recognize that safe short term investments are very poorly rewarded right now. However, you can only contribute earnings in the year they are made, up to a 5000 annual maximum. And the deadline for 2010 is gone. So you'll have to move this into an IRA over a number of years, and have the earnings to back it. So in the meanwhile, the obvious advice to pay down your credit card bills & save for emergencies applies. It's also worth looking at health and dental insurance, as college students are among the least likely to have decent insurance. Also keep a good chunk on hand in liquid accounts like savings or checking for emergencies and general poor planning. You don't want to pay bank fees like I once did because I mis-timed a money transfer. It's also great for negotiating when you can pay in cash up front; my car insurance for example, will charge you more for monthly payments than for every six months. Or putting a huge chunk down on a car will pretty much guarantee the best available dealer financing.","\"Should I invest the money I don't need immediately and only withdraw it next year when I need it for living expenses or should I simply leave it in my current account? This might come as a bit of a surprise, but your money is already invested. We talk of investment vehicles. An investment vehicle is basically a place where you can put money and have it either earn a return, or be able to get it back later, or both. (The neither case is generally called \"\"spending\"\".) There are also investment classes which are things like cash, stocks, bonds, precious metals, etc.: different things that you can buy within an investment vehicle. You currently have the money in a bank account. Bank accounts currently earn very low interest rates, but they are also very liquid and very secure (in the sense of being certain that you will get the principal back). Now, when you talk about \"\"investing the money\"\", you are probably thinking of moving it from where it is currently sitting earning next to no return, to somewhere it can earn a somewhat higher return. And that's fine, but you should keep in mind that you aren't really investing it in that case, only moving it. The key to deciding about an asset allocation (how much of your money to put into what investment classes) is your investment horizon. The investment horizon is simply for how long you plan on letting the money remain where you put it. For money that you do not expect to touch for more than five years, common advice is to put it in the stock market. This is simply because in the long term, historically, the stock market has outperformed most other investment classes when looking at return versus risk (volatility). However, money that you expect to need sooner than that is often recommended against putting it in the stock market. The reason for this is that the stock market is volatile -- the value of your investment can fluctuate, and there's always the risk that it will be down when you need the money. If you don't need the money within several years, you can ride that out; but if you need the money within the next year, you might not have time to ride out the dip in the stock market! So, for money that you are going to need soon, you should be looking for less volatile investment classes. Bonds are generally less volatile than stocks, with government bonds generally being less volatile than corporate bonds. Bank accounts are even less volatile, coming in at practically zero volatility, but also have much lower expected rates of return. For the money that you need within a year, I would recommend against any volatile investment class. In other words, you might take whichever part you don't need within a year and put in bonds (except for what you don't foresee needing within the next half decade or more, which you can put in stocks), then put the remainder in a simple high-yield deposit-insured savings account. It won't earn much, but you will be basically guaranteed that the money will still be there when you want it in a year. For the money you put into bonds and stocks, find low-cost index mutual funds or exchange-traded funds to do so. You cannot predict the future rate of return of any investment, but you can predict the cost of the investment with a high degree of accuracy. Hence, for any given investment class, strive to minimize cost, as doing so is likely to lead to better return on investment over time. It's extremely rare to find higher-cost alternatives that are actually worth it in the long term.\"","\"You have a few correlated questions here: Yes you can. There are only a few investment strategies that require a minimum contribution and those aren't ones that would get a blanket recommendation anyway. Investing in bonds or stocks is perfectly possible with limited funds. You're never too young to start. The power of interest means that the more time you give your money to grow, the larger your eventual gains will be (provided your investment is beating inflation). If your financial situation allows it, it makes sense to invest money you don't need immediately, which brings us to: This is the one you have to look at most. You're young but have a nice chunk of cash in a savings account. That money won't grow much and you could be losing purchasing power to inflation but on the other hand that money also isn't at risk. While there are dozens of investment options1 the two main ones to look at are: bonds: these are fixed income, which means they're fairly safe, but the downside is that you need to lock up your money for a long time to get a better interest rate than a savings account index funds that track the market: these are basically another form of stock where each share represents fractions of shares of other companies that are tracked on an index such as the S&P 500 or Nasdaq. These are much riskier and more volatile, which is why you should look at this as a long-term investment as well because given enough time these are expected to trend upwards. Look into index funds further to understand why. But this isn't so much about what you should invest in, but more about the fact that an investment, almost by definition, means putting money away for a long period of time. So the real question remains: how much can you afford to put away? For that you need to look at your individual situation and your plans for the future. Do you need that money to pay for expenses in the coming years? Do you want to save it up for college? Do you want to invest and leave it untouched to inspire you to keep saving? Do you want to save for retirement? (I'm not sure if you can start saving via IRAs and the like at your age but it's worth looking into.) Or do you want to spend it on a dream holiday or a car? There are arguments to be made for every one of those. Most people will tell you to keep such a \"\"low\"\" sum in a savings account as an emergency fund but that also depends on whether you have a safety net (i.e. parents) and how reliable they are. Most people will also tell you that your long-term money should be in the stock market in the form of a balanced portfolio of index funds. But I won't tell you what to do since you need to look at your own options and decide for yourself what makes sense for you. You're off to a great start if you're thinking about this at your age and I'd encourage you to take that interest further and look into educating yourself on the investments options and funds that are available to you and decide on a financial plan. Involving your parents in that is sensible, not in the least because your post-high school plans will be the most important variable in said plan. To recap my first point and answer your main question, if you've decided that you want to invest and you've established a specific budget, the size of that investment budget should not factor into what you invest it in. 1 - For the record: penny stocks are not an investment. They're an expensive form of gambling.\"","Where is the money coming from? If you already have the money (inheritance, gifts or similar) sitting in your account, you can just buy e.g. index funds from Vanguard, Robinhood or other low-cost brokerages. But first you should estimate how much money you need for your studies - it is a bit of a gamble to invest money that you'll need to withdraw in a few years time. Even though the average return may be quite high (12% sounds like an overestimate, more commonly quoted figure is 7%), over short timespans your stocks will go up and down randomly. Once you actually have a job and have income from it, then the 401k and IRA and similar retirement accounts start to make sense. There is no need to have all your savings in the same account, so you can start saving now already.","I would personally suggest owning Mutual Funds or ETF's in a tax sheltered account, such as a 401k or an IRA, especially Roth options if available. This lets you participate in the stock market while ensuring that you have diversified portfolio, and the money is managed by an expert. The tax sheltered accounts (or tax free in the case of Roth accounts) increase your savings, and simplify your life as you don't need to worry about taxes on earnings within those accounts, as long as you leave the money in. For a great beginner's guide see Clark's Investment Guide (Easy).","\"An investment in knowledge always pays the best interest, as Ben Franklin said. However, this is not a question I can answer for you, as it depends on the opportunities that are specifically available to you as an individual. Sometimes opportunities will knock on your door and you can take advantage, other times you have to create that door to allow opportunities to knock. Maybe you have a friend that is opening a side business, maybe there is a class you can get into at a trivial cost. What I suggest is to start investing just to get into the habit of it, not so much for the returns. Before you do, however, any financial advisor will advise you to begin with a emergency fund, worth about 3-6 months of your expenses for that time. I wanted to hit the ground running and start investing in stocks, but first things first I guess. \"\"Millionaire Next Door\"\" will help you get into a saving mindset, \"\"I will teach you to be rich\"\" is ok, plenty of other books. My advice is keep doing what you're doing, learn to start saving, and once you have obtained an emergency fund of the amount of your choosing, start looking to invest in Index Funds or ETFs through any platform that has LOW FEES!! I use Betterment, but Vanguard is good too, as they allow you to get your feet wet and it's passive. Hope this helps.\"","You are looking for r/personalfinance. But it'd probably be best to put your excess monies in a savings account, not worrying about 401k/retirement contributions until you get a full time job, post college. Don't listen to the pussies that will tell you to invest it in a vagaurd account or your 401k. The money is more important to you as an emergency fund you can access immediately. At most you'll see a 4-5% return on your meager savings, amounting to less than $100/year.","Are you working? Does your employer offer a 401(k) and if so, is there any match? Saving should be taught to kids at the same time they are old enough to get an allowance. There are many numbers tossed around, but 10% is a start for any new saver. If a college graduate can start by saving even 15%, better still. If you find that the 10% is too much, just start with what you can spare, and work to build that up over time, perhaps by splitting any future raises, half going toward savings, half to spending. Good luck. Edit - my 12 yr old made good money this summer baby sitting. I'm opening a Roth IRA for her. A 10 yr head start on her retirement savings. Edit (Jan-2013) - she's 14 now, 3 deposits to the Roth total $6000, and she's planning to up the number this year. Her goal is to have $50K saved in her Roth by the time she graduates college. Edit, by request (July-2017) 18, and off to college next month. Just under $24K, all invested in an S&P low cost index. We are planning to continue deposits of $4-$5K/yr, so the $50K is still a good goal.","Contrary to most other advise given here, I'd recommend (in your situation) not to invest in stock (yet). There are some 'hidden' cost to investing that will eat your profit and in the end, that's why you are investing. Banks will charge for buying, selling and maintaining stock as well as for cashing dividends. Depending on which bank or intermediary these costs will rise. So, my advise is to start playing with stock creating a virtual portfolio and track that. Just as duffbeer says, start saving. Also look at my answer here.","I am not interested in watching stock exchange rates all day long. I just want to place it somewhere and let it grow Your intuition is spot on! To buy & hold is the sensible thing to do. There is no need to constantly monitor the stock market. To invest successfully you only need some basic pointers. People make it look like it's more complicated than it actually is for individual investors. You might find useful some wisdom pearls I wish I had learned even earlier. Stocks & Bonds are the best passive investment available. Stocks offer the best return, while bonds are reduce risk. The stock/bond allocation depends of your risk tolerance. Since you're as young as it gets, I would forget about bonds until later and go with a full stock portfolio. Banks are glorified money mausoleums; the interest you can get from them is rarely noticeable. Index investing is the best alternative. How so? Because 'you can't beat the market'. Nobody can; but people like to try and fail. So instead of trying, some fund managers simply track a market index (always successfully) while others try to beat it (consistently failing). Actively managed mutual funds have higher costs for the extra work involved. Avoid them like the plague. Look for a diversified index fund with low TER (Total Expense Ratio). These are the most important factors. Diversification will increase safety, while low costs guarantee that you get the most out of your money. Vanguard has truly good index funds, as well as Blackrock (iShares). Since you can't simply buy equity by yourself, you need a broker to buy and sell. Luckily, there are many good online brokers in Europe. What we're looking for in a broker is safety (run background checks, ask other wise individual investors that have taken time out of their schedules to read the small print) and that charges us with low fees. You probably can do this through the bank, but... well, it defeats its own purpose. US citizens have their 401(k) accounts. Very neat stuff. Check your country's law to see if you can make use of something similar to reduce the tax cost of investing. Your government will want a slice of those juicy dividends. An alternative is to buy an index fund on which dividends are not distributed, but are automatically reinvested instead. Some links for further reference: Investment 101, and why index investment rocks: However the author is based in the US, so you might find the next link useful. Investment for Europeans: Very useful to check specific information regarding European investing. Portfolio Ideas: You'll realise you don't actually need many equities, since the diversification is built-in the index funds. I hope this helps! There's not much more, but it's all condensed in a handful of blogs.","\"For starting with zero knowledge you certainly did a great job on research as you hit on most of the important points with your question. It seems like you have already saved up around six months of expenses in savings so it is a great time to look into investing. The hardest part of your question is actually one of the most important details. Investing in a way that minimizes your taxes is generally more important, in the end, than what assets you actually invest in (as long as you invest even semi-reasonably). The problem is that the interaction between your home country's tax system and the U.S. tax system can be complex. It's probably (likely?) still worth maxing out your 401(k) (IRA, SEP, 529 accounts if you qualify) to avoid taxes, but like this question from an Indian investor it may be worth seeing an investment professional about this. If you do, see a fee-based professional preferably one familiar with your country. If tax-advantaged accounts are not a good deal for you or if you max them out, a discount broker is probably a good second option for someone willing to do a bit of research like you. With this money investing in broadly-diversified, low fee, index mutual funds or exchange traded funds is generally recommended. Among other benefits, diversified funds make sure that if any particular company fails you don't feel too much pain. The advantages of low fees are fairly obvious and one very good reason why so many people recommend Vanguard on this site. A common mix for someone your age is mostly stocks (local and international) and some bonds. Though with how you talk about risk you may prefer more bonds. Some people recommend spicing this up a bit with a small amount of real estate (REITs), sometimes even other assets. The right portfolio of the above can change a lot given the person. The above mentioned adviser and/or more research can help here. If, in the future, you start to believe you will go back to your home country soon that may throw much of this advice out the window and you should definitely reevaluate then. Also, if you are interested in the math/stats behind the above advice \"\"A Random Walk Down Wall Street\"\" is a light read and a good place to start. Investing makes for a very interesting and reasonably profitable math/stats problem.\"","Congratulations! You're making enough money to invest. There are two easy places to start: I recommend against savings accounts because they will quite safely lose your money: the inflation rate is usually higher than the interest rate on a savings account. You may have twice as much money after 50 years, but if everything costs four times as much, then you've lost buying power. If, in the course of learning about investing, you'd like to try buying individual stocks, do it only with money you wouldn't mind losing. Index funds will go down slightly if one of the companies in that index fails entirely, but the stock of a failed company is worthless.","\"You may want to hold onto the $5000 and keep it in savings. Interest rates are for crap, even in \"\"high yield\"\" accounts, so you can rightly not consider it investing. You should be graduating college soon. It would suck if an emergency crops up to prevent you from graduating. I assume that you are going into a high paying career given your nice income from internships. Your best investment is yourself at this point. Completing your education, and obtaining your degree trumps all. You could use that extra 5000 as a hedge/insurance policy/emergency fund to help insure you graduate. Also you are likely to have some moving expenses once you graduate. That 5K could be used to help cover those costs. The worst case is you graduate with no emergencies, you get a nice signing bonus and relocation package, and you still have the $5000. Well you still have until 15 April 2015 to put money in your ROTH for 2014. This holds true for every tax year. Given your current financial status, you are likely to find yourself soon contributing the max to your 401K and ROTH. Once that happens, money beyond that can be invested into mutual funds stocks that are not tax advantaged, real estate, or some other choices. Well then you have some things to think about.\"","\"Between 1 and 2 G is actually pretty decent for a High School Student. Your best bet in my opinion is to wait the next (small) stock market crash, and then invest in an index fund. A fund that tracks the SP500 or the Russel 2000 would be a good choice. By stock market crash, I'm talking about a 20% to 30% drop from the highest point. The stock market is at an all time high, but nobody knows if it's going to keep going. I would avoid penny stocks, at least until you can read their annual report and understand most of what they're claiming, especially the cash flow statement. From the few that I've looked at, penny stock companies just keep issuing stock to raise money for their money loosing operations. I'd also avoid individual stocks for now. You can setup a practice account somewhere online, and try trading. Your classmates probably brag about how much they've made, but they won't tell you how much they lost. You are not misusing your money by \"\"not doing anything with it\"\". Your classmates are gambling with it, they might as well go to a casino. Echoing what others have said, investing in yourself is your best option at this point. Try to get into the best school that you can. Anything that gives you an edge over other people in terms of experience or education is good. So try to get some leadership and team experience. , and some online classes in a field that interests you.\"","At your young age, the most of your wealth is your future labor income (unless you are already rich). Your most profitable investment at this time is most likely to be investment in your human capital (your professional skills, career opportunities). Depending on how you plan to earn your money, invest time and effort to enable you to earn better wages in that activity. So focus on education or professional training. Also, consider that it is probably your total lifetime utility/welfare you should maximize (but you decide!). I suggest you do not focus narrowly on earning as much money as possible. Consider what sort of life you want and what you need to do to enable it. Best of luck!","\"Since you already have an emergency fund in place, focus your extra funds on paying off debts like student loans. While some have advised you to play the stock market, not one person has mentioned the word \"\"risk\"\". You are gambling (\"\"investing\"\") your money in the hopes your money will grow. Your student loan is real liability. The longer you keep the loan, the more interest you will pay. You can pay off your student loan in 21 months if you pay $1,100 each month. After the 21 months, you can almost fully fund a 401(k) each year. That will be amazing at your age. Our company gives us the Vanguard Retirement Fund with a low expense ratio of 0.19%. It is passive automated investing where you don't have to think about it. Just add money and just let it ride.\"","Most important: Any gains you make from risking this sum of money over the next few years will not be life changing, but if you can't afford to lose it, then losses can be. Rhetorical question: How can you trust what I say you should do with your money? Answer: You can't. I'm happy to hear you're reading about the stock market, so please allow me to encourage you to keep learning. And broaden your target to investing, or even further, to financial planning. You may decide to pay down debt first. You may decide to hold cash since you need it within a couple years. Least important: I suggest a Roth IRA at any online discount brokerage whose fees to open an account plus 1 transaction fee are the lowest to get you into a broad-market index ETF or mutual fund.","This is all very basic and general advice, that works for most, but not all. You are unique with your own special needs and desires. Good luck! P.S.: not exactly related to your question, but when you get more familiar with investing and utilizing your money, find more ways to save more. For example, change phone plan, cut the cable, home made food in bulk, etc.","Waiting for the next economic downturn probably isn't the best plan at this point. While it could happen tomorrow, you may end up waiting a long time. If you would prefer not to think much about your investment and just let them grow then mutual funds are a really good option. Make sure you research them before you buy into any and make sure to diversify, as in buy into a lot of different mutual funds that cover different parts of the market. If you want to be more active in investing then start researching the market and stick to industries you have very good understanding of. It's tough to invest in a market you know nothing about. I'd suggest putting at least some of that into a retirement savings account for long term growth. Make sure you look at both your short term and long term goals. Letting an investment mature from age 20 through to retirement will net you plenty of compound interest but don't forget about your short term goals like possible cars, houses and families. Do as much research as you can and you will be fine!","Buy the minimum of one fund now. (Eg total bond market) Buy the minimum of the next fund next time you have $2500. (Eg large-cap stocks.) Continue with those until you have enough to buy the next fund (eg small-cap stocks). Adjust as you go to balance these funds according to your planned ratios, or as close as you can reasonably get without having to actually transfer money between the funds more than once a year or so. Build up to your targets over time. If you can't easily afford to tie up that first $2500, stay with banks and CDs and maybe money market accounts until you can. And don't try to invest (except maybe through a matched 401k) before you have adequate savings both for normal life and for an emergency reserve. Note too that the 401k can be a way to buy into funds without a minimum. Check with your employer. If you haven't maxed out your 401k yet, and it has matching funds, that is usually the place to start saving for retirement; otherwise you are leaving free money on the table.","Are you going to need any of the money in the next year or two, or are you saving it long term? Are you going to need any of it before you are 65? If no to both, put in a Roth IRA with a Vanguard Target retirement fund. If no to the first and yes to the second, put in the VTI index fund. If you want, you can keep 20-30% in a bond fund instead of 100% stock. Every 3-12 months, log in and redistribute your funds to maintain the desired split if you'd like, but this is somewhat optional. If you really, really want, set aside 5% for investing in a few companies you really believe in. You'll probably lose money on that investment, but it will reassure you that the rest of your money is wisely invested.","\"Say you have $15,000 of capital to invest. You want to put the majority of your capital into low risk investments that will yield positive gains over the course of your working career. $5,000: Government bonds and mutual funds, split how you want. $9,500: Low risk, trusted companies with positive historical growth. If the stock market is very unfamiliar for you, I recommend Google Finance, Yahoo Finance, and Zack's to learn about smart investments you can make. You can also research the investments that hedge fund managers and top investors are making. Google \"\"Warren Buffett or Carl Icahn portfolio\"\", and this will give you an idea of stocks you can put your money into. Do not leave your money into a certain company for more than 25 years. Rebalance your portfolio and take the gains when you feel you need them. You have no idea when to take your profits now, but 5 years from now, you will be a smart and experienced investor. A safe investment strategy to start is to put your money into an ETF that mimics the S&P 500. Over the past 20 years, the S&P 500 has yielded gains of about 270%. During the financial crisis a few years back, the S&P 500 had lost over 50% of its value when it reached its low point. However, from when it hit rock bottom in 2009, it has had as high percentage gains in six years as it did in 12 years from 1995 to 2007, which about 200%. The market is very strong and will treat your money well if you invest wisely. $500: Medium - High risk Speculative Stocks There is a reason this category accounts for only approximately 3% of your portfolio. This may take some research on the weekend, but the returns that may result can be extraordinary. Speculative companies are often innovative, low priced stocks that see high volatility, gains or losses of more than 10% over a single month. The likelihood of your $500 investment being completely evaporated is very slim, but if you lose $300 here, the thousands invested in the S&P 500, low risk stocks, government bonds, and mutual funds will more than recuperate the losses. If your pick is a winner, however, expect that the $500 investment could easily double, triple, or gain even more in a single year or over the course of just a few, perhaps, 2-4 years will see a very large return. I hope this advice helps and happy investing! Sending your money to smart investments is the key to financial security, freedom, and later, a comfortable retirement. Good luck, Matt McLaughlin\"","Congratulations on getting started in life! John Malloy's (American) research suggests that you should take some time to get used to living on your own, make some friends, and settle into your community. During this time, you can build up an emergency fund. If/when the stock markets do not seem to be in a bear market, you can follow user3771352's advice to buy stock ETFs. Do you hope to get married and have children in the next few years? If so, you should budget time and money for activities where you make new friends (both men and women). Malloy points out that many Americans meet their spouses through women's networks of friends.","First of all I recommend reading this short e-book that is aimed at young investors. The book is written for American investors but they same rules apply with different terms (e.g. the equivalent tax-free savings wrappers are called ISAs in the UK). If you don't anticipate needing the money any time soon then your best bet is likely a stocks and share ISA in an aggressive portfolio of assets. You are probably better off with an even more aggressive asset allocation than the one in the book, e.g. 0-15% bond funds 85-100% equity funds. In the long term, this will generate the most income. For an up-to-date table of brokers I recommend Monevator. If you are planning to use the money as a deposit on a mortgage then your best bet might be a Help to Buy ISA, you'll have to shop around for the best deals. If you would rather have something more liquid that you can draw into to cover expenses while at school, you can either go for a more conservative ISA (100% bond funds or even a cash ISA) or try to find a savings account with a comparable interest rate.","Put it in the bank and earn the meager interest rate. By far your most important investment is finishing your education and as such this money might be needed to do so. If you don't need the money during your education you will undoubtedly need it for a new apartment/furnishings/moving expenses.","\"Good for you! At your age, you should definitely consider investing some of your hard-earned and un-needed money in stocks with the long-term goal of having your retirement funded. The time horizon that you'd have would be vastly superior to that of millions of others, who will wait until their thirties or even forties to begin investing in stocks, giving your compound interest prospects the extra time anyone needs for a spectacular vertical incline in your later years. Make sure to sign up to automatically re-invest the dividend payouts of your stocks, please. (If you don't already know how being young and investing well in your early years is more powerful than starting out ten to twenty years later, do a little research on \"\"Compound Interest\"\"). Make sure you monitor your investments. Being young means you have time to correct your investments (sell and buy other assets) if the businesses you initially selected are no longer good investments.\"","\"Before going into specific investments, I think it would be a good idea to assess how \"\"free\"\" is that $5000. How much do you have to rely on it in emergency? You always want to buy low and sell high. However, if you need to make unplanned withdraw from an investment, you risk unfavorable market conditions at the time when you need the money, and lose money that way. One common suggestion is to keep 3-6 months living expense in checking/saving/very, very liquid/short term investments. After that, you can invest the rest in more profitable ventures. Assuming that you are all set in that regard, next consideration is whether you have any goal for the money besides generating the maximum return. Is this for retirement, buying a house/apartment a few year down the road, graduate school, emergency cash store for the time between graduation and getting a job, or traveling a year in Europe after graduation? There are myriad of other possible goals. Knowing that you get a better idea of the time frame involved in the investment, and what you need to do with your money. If this is for retirement, you just need to generate the highest possible return for 40-50 years, while minimize taxes when you have to withdraw that money (there are more nuanced concerns, but large idea-wise that's what you need to do). If you want it for a trip to an exotic location in 2 year, then your primary goal will be to preserve the value of your capital, while assessing whether you need to manage foreign-exchange risk. The time frame also rule in or rule out certain types of investments. If you are planning to use the money to purchase a house in 5 years, IRAs probably would not be what you are looking for. If you are planning to retirement, short term CD would not be the most effective way. After figuring out a bit of what you are trying to do with the money, I think how you want to invest it will be much more clear to you. In case of retirement, people seem to generally recommend no load index funds, and mid-cap growth funds. Nothing is really off the table, since your investment time frame is so long, and you can tolerate risk. You might also be interested to check out https://www.wealthfront.com/ (I have no relation with them). A friend recommended it to me, and I think their pitch make sense. In other cases, it really is case dependent, and there might have more than one solution to any case. There is just one more potential investment venture that people you might not immediately thinking of, and that might be of interest to you. That is to use the $5000 as your own budget to build/maintain connections with people and network. Use it to take professors out to a meal to pick their brain, travel to keep in touch with old friends, network with potential future employers and peers to improve job prospect, or get opportunities to meet interesting people. I hope this helps.\"","For your purposes, I would recommend using direct investment in a no-load mutual fund. I mostly use Vanguard and would recommend them. They just about invented index funds, usually have the lowest (internal) expenses for index and many other funds, if you take electronic instead of paper statements there is no maintenance fee, have no transaction commission, can do periodic automatic investment from a bank account etc. A typical index fund there would require an initial $3000 investment and would have a minimum of $100 for each additional investment. If you can't come up with an initial sum of that size, you might be able to find a broker with a lower minimum and suitable free ETFs trades as others have suggested.","Congrats on making it this far debt free. It is rare, but nice to be in the situation that you are in. The important thing here is that you want to remain debt free. That's really what the emergency fund is all about: it keeps you from needing to go into debt should something unexpected happen. You've got 1.5 months worth of expenses saved up, and that's great. If you don't have a family or other responsibilities, that might be enough, but think about this: how are you paying for school, and what would happen if those funds stopped coming in? If you are paying for school out of your own income, what happens if you lose your job? If someone else, perhaps your parents, is paying for school, what happens if they are suddenly no longer able to do so? While you have extra cash, you want to be saving it up for situations like this. If I were you, I would build up that emergency fund until it got to the point where it could pay all your expenses and tuition until graduation. Hopefully, you won't need to touch it, but it will be there if you need it. Since you need to be able to access your money quickly, it is generally recommended to park this money in a savings account, where it is very safe. Mutual funds are a great way to invest, but they are not safe in the short term. Don't stress out about not being able to start retirement investing just yet. Making sure you can finish school debt free is the best investment you can make right now. After you graduate and land a job, you can start investing aggressively.","If I were in your shoes (I would be extremely happy), here's what I would do: Get on a detailed budget, if you aren't doing one already. (I read the comments and you seemed unsure about certain things.) Once you know where your money is going, you can do a much better job of saving it. Retirement Savings: Contribute up to the employer match on the 401(k)s, if it's greater than the 5% you are already contributing. Open a Roth IRA account for each of you and make the max contribution (around $5k each). I would also suggest finding a financial adviser (w/ the heart of a teacher) to recommend/direct your mutual fund investing in those Roth IRAs and in your regular mutual fund investments. Emergency Fund With the $85k savings, take it down to a six month emergency fund. To calculate your emergency fund, look at what your necessary expenses are for a month, then multiply it by six. You could place that six month emergency fund in ING Direct as littleadv suggested. That's where we have our emergency funds and long term savings. This is a bare-minimum type budget, and is based on something like losing your job - in which case, you don't need to go to starbucks 5 times a week (I don't know if you do or not, but that is an easy example for me to use). You should have something left over, unless your basic expenses are above $7083/mo. Non-retirement Investing: Whatever is left over from the $85k, start investing with it. (I suggest you look into mutual funds) it. Some may say buy stocks, but individual stocks are very risky and you could lose your shirt if you don't know what you're doing. Mutual funds typically are comprised of many stocks, and you earn based on their collective performance. You have done very well, and I'm very excited for you. Child's College Savings: If you guys decide to expand your family with a child, you'll want to fund what's typically called a 529 plan to fund his or her college education. The money grows tax free and is only taxed when used for non-education expenses. You would fund this for the max contribution each year as well (currently $2k; but that could change depending on how the Bush Tax cuts are handled at the end of this year). Other resources to check out: The Total Money Makeover by Dave Ramsey and the Dave Ramsey Show podcast.","If you have no immediate need for the money you can apply the Rule of 72 to that money. Ask your parent's financial advisor to invest the money. Based on the rate of return your money will double like clockwork. At 8% interest your money will double every 9 years. 45 years from now that initial investment will have doubled 5 times. That adds up pretty fast. Time is your best friend when investing at your age. Odds are you'll want to be saving for a college education though. Graduating debt free is by far the best plan.","The standard advice is to have 3-6 months worth of expenses saved up in a highly liquid savings or money market account. After you have that saved you could look to start investing. I would recommend reading the bogleheads investment wiki (https://www.bogleheads.org/wiki/Getting_started). Even if you aren't planning on following the bogle head's way of passive investing it will give you a lot of good info on options available to you to start investing.","\"I disagree with the IRA suggestion. Why IRA? You're a student, so probably won't get much tax benefits, so why locking the money for 40 years? You can do the same investments through any broker account as in IRA, but be able to cash out in need. 5 years is long enough term to put in a mutual fund or ETF and expect reasonable (>1.25%) gains. You can use the online \"\"analyst\"\" tools that brokers like ETrade or Sharebuilder provide to decide on how to spread your portfolio, 15K is enough for diversifying over several areas. If you want to keep it as cash - check the on-line savings accounts (like Capitol One, for example, or Ally, ING Direct that will merge with Capitol One and others) for better rates, brick and mortar banks can not possible compete with what you can get online.\"","I wouldn't recommend trying to chase a good return on this money. I'd just put it into a savings account of some sort. If you can get a better interest rate with an online account, then feel free to do that. I'd recommend using this money to pay for as much of college out of pocket as you can. The more student loans you can avoid, the better. As @John Bensin said, trying to make money in the stock market in such a short time is too risky. For this money, you want to preserve the principal to pay for school, or to pay down your loans when you get out. If you find you have more money than you need to finish paying for school, then I'd suggest setting some aside for an emergency fund, setting aside enough to pay your loans off when you're out of school, saving for future purchases (house, car, etc), and then start investing (maybe for retirement in a Roth IRA or something like that).","\"The power of compounding interest and returns is an amazing thing. Start educating yourself about investing, and do it -- there are great Q&As on this site, numerous books (I recommend \"\"The Intelligent Investor\"\", tools for small investors (like Sharebuilder.com) and other resources out there to get you started. Your portfolio doesn't need to include every dime you have either. But you do need to develop the discipline to save money -- even if that savings is $20 while you're in school. How you split between cash/deposit account savings and other investment vehicles is a decision that needs to make sense to you.\"","\"Put it in a Vanguard fund with 80% VTI and 20% VXUS. That's what you'll let set for 10-15 years. For somebody that is totally new to investing, use \"\"play money\"\" in the stock market. It's easy for young people to get dreams of glory and blow it all on some stock tip they've seen on Twitter.\"","First off, you have done very well to be in your financial position at your age. Congratulations. I first started investing seriously about 10 years ago, and when I started, I had a similar attitude to you. Learning how to invest is a journey, and it will take you a while to learn both the intellectual and emotional sides of investing. First off, there is nothing wrong with having a chunk of cash that you aren't investing effectively. It is far better to be losing earning power WRT inflation that it is to make a bad investment, where you can lose all your money quite quickly. I have perhaps 15% of my capital just sitting around right now because I don't have any place where I'm excited to put it. For your IRA, I would look at the options you have, and choose one that is reasonably well diversified and has low costs. In most cases, an index fund is a reasonable choice. My 401K goes into an S&P 500 index fund, and I don't have to worry about it. Beyond that, I suggest spending some time learning about investing, and then making some small and conservative investments. I've learned a lot from the Motley Fool web site.","Your urge to invest is a good one. If you don’t invest your money, you're probably leaving about two thirds of it on the table. By the time you need the money (without knowing your exact future withdrawals, and taking national averages into consideration), investing would have grown it by three times. As far as how much money you should invest...I invest everything I'm not going to use in the next month or two. My advisor is able to monitor my bank accounts and sweep any unused cash into investment accounts. Using AI, they're able to figure out exactly which days I'll be needing cash then put it back in my accounts before I need it. 1% of my portfolio is always kept in cash, for emergencies. With investing, there are lots of things to consider. You need to decide what to invest in - spread your money over many different asset classes - monitor market trends - have a plan for market ups and downs - regularly rebalance - maneuver the fun world of taxes. Basically - asset management. Vanguard mutual funds are an easy, affordable way to spread your money over many different assets, but they don't offer much when it comes to asset management. I'd suggest you find a flat fee advisor (no more than 1% of your managed assets) who listens to you, determines your goals, creates a plan based on upon, then executes it with no commission or execution costs. In this particular vein, robo advisors are the best bet. I don't want to come across like I'm selling something, however, I have had much satisfaction with online digital advisors. Hope this helps.","Great question and great of you to be paying attention to this. Right now having the ability to save $2K per year might seem very out of reach. However with the right career path and by paying attention to personal finance saving 2K per month will become possible sooner than you may think. As a student you are already investing in your future, by building your greatest wealth building tool: your income. Right now concentrate on that. If you have extra money throw it in a boring old savings account and don't touch it other than emergencies. An emergency is defined as something that will preclude you from completing your education. It is not paying for the latest xbox game/skateboard/once in a lifetime trip. An important precursor to investing is having an emergency fund that sits in a boring old savings account earning almost nothing. Think of it as an insurance policy that prevents you from liquidating your investments in case of and emergency. Emergencies often come during economic downturns. If you have to liquidate your investment to cover these times then you will lock in negative returns. Once you are done with school, moved into a place of your own, and have your first job you will have a nice start on your emergency fund. Then you can start investing. Doing it in the right order you will be amazed how quickly your savings can accumulate. I'd be shooting for that 2 million by the time you are 40, not 65.","You should invest a trivial (<500$USD) amount of money in a stock portfolio. If you aren't able to make more on the market than the interest rates of your loans, you are losing money. This question has discussed this topic as well.","You can invest another $5,500 in your Roth IRA each year, so you can invest up to $11,000 between the two tax years. Additionally you can make investments for the previous year up until 15 April the following year. In your case that will be close to graduation time, and you may decide to max out the contribution for 2014, but wait until you are settled into a new job before setting those savings aside long-term. When you start your first job, there will likely also be an option to invest in a 401k. You can still have the advantages of a Roth, but you will be limited to the investments available in the plan. Most employers I've seen today still offer a low-cost index fund, but you may have to speak up at a company meeting to pressure them to include one of those options in the plan. With a 401k your limit increases to $17,500/year. Make sure that the index fund you invest in has the lowest possible expense ratio. I use VOO. Depending on trading fees, etc., you might pick something else.","When investing small amounts, you should consider the substantial toll that commissions will take on your investment. In your case, $800 placed in just one ETF will incur commissions of about $8 each way, or a total of 2% of your investment. I suggest you wait until you have at least $5000 to invest in stocks or ETFs. Since this is in a IRA, your options are limited, but perhaps you may qualify for a Vanguard mutual fund, which will not charge commissions and will have annual expenses only a trivial amount higher than the corresponding ETF. it should probably go in a mixed allocation fund, and since you are young, it should be a relatively aggressive one. Mutual funds will also allow you to contribute small amounts over time without incurring any extra fees.","Investing in the stock market early is a good thing. However, it does have a learning curve, and that curve can, and eventually will, cost you. One basic rule in investing is that risk and reward are proportional. The greater the reward, the higher the risk that you either (a) won't get the reward, or (b) lose your money instead. Given that, don't invest money you can't afford to lose (you mentioned you're on a student budget). If you want to start with short but sercure investments, try finding a high-interest savings account or CD. For example, the bank I use has an offer where the first $500 in your account gets ~6% interest - certainly not bad if you only put $500 in the account. Unfortunately, most banks are offering a pittance for savings rates or CDs. If you're willing to take more risk, you could certainly put money into the stock market. Before you do, I would recommend spending some time learning about how the stock market works, it's flows and ebbs, and how stock valuations work. Don't buy a stock because you hear about it a lot; understand why that stock is being valued as such. Also consider buying index funds (such as SPY) which is like a stock but tracks an entire index. That way if a specific company suddenly drops, you won't be nearly as affected. On the flip side, if only 1 company goes up, but the market goes down, you'll miss out. But consider the odds of having picked that 1 company.","\"You are your own worst enemy when it comes to investing. You might think that you can handle a lot of risk but when the market plummets you don't know exactly how you'll react. Many people panic and sell at the worst possible time, and that kills their returns. Will that be you? It's impossible to tell until it happens. Don't just invest in stocks. Put some of your money in bonds. For example TIPS, which are inflation adjusted treasury bonds (very safe, and the return is tied to the rate of inflation). That way, when the stock market falls, you'll have a back-stop and you'll be less likely to sell at the wrong time. A 50/50 stock/bond mix is probably reasonable. Some recommend your age in bonds, which for you means 20% or so. Personally I think 50/50 is better even at your young age. Invest in broad market indexes, such as the S&P 500. Steer clear of individual stocks except for maybe 5-10% of your total. Individual stocks carry the risk of going out of business, such as Enron. Follow Warren Buffet's two rules of investing: a) Don't lose money b) See rule a). Ignore the \"\"investment porn\"\" that is all around you in the form of TV shows and ads. Don't chase hot companies, sectors or countries. Try to estimate what you'll need for retirement (if that's what your investing for) and don't take more risk than you need to. Try to maintain a very simple portfolio that you'll be able to sleep well with. For example, check into the coffeehouse investor Pay a visit to the Bogleheads Forum - you can ask for advice there and the advice will be excellent. Avoid investments with high fees. Get advice from a good fee-only investment advisor if needed. Don't forget to enjoy some of your money now as well. You might not make it to retirement. Read, read, read about investing and retirement. There are many excellent books out there, many of which you can pick up used (cheap) through amazon.com.\"","Since you're coming out of college, you're probably a new investor and don't know too much about stocks, etc. I was in the same situation as well. I wanted to keep my cash 'liquid' and wanted to make low risk investments. What I ended up doing was investing the majority of my money in higher interest GICs (Guaranteed Investment Certificate) and keeping the rest in my chequing/savings account. I understand that GICs aren't exactly the most liquid asset out there. However, instead of investing it all into 1 GIC, I put them in to smaller increments with varying lock-in times and roll-over options. I.e. for 15000 keep $3000 on hand in your account 2x$1000 invested for 2 years 4x$1000 invested for 1 year 3x$1000 invested for 180 days 3x$1000 invested for 90 days When you find that you run out of cash from your $3000, you'll have a GIC expiring soon. The 'problem' with GICs is that redeeming them before the maturity period usually incurs a penalty in the form of no interest. Keeping them in smaller increments allows you to redeem only the amount you need without losing too much interest. At maturity, if you don't need the money, you can just have the GIC renew. The other problem with GICs, is that interest rates, though better than savings accounts, aren't that much more. You're basically just fighting off inflation. The benefit is that on maturity, you are guaranteed your principal and the interest. This plan is easy to implement if your bank/credit union allows you to create and manage GICs online.","Investing is really about learning your own comfort level. You will make money and lose money. You will make mistakes but you will also learn a great deal. First off, invest in your own financial knowledge, this doesn't require capital at all but a commitment. No one will watch or care for your own money better than yourself. Read books, and follow some companies in a Google Finance virtual portfolio. Track how they're doing over time - you can do this as a virtual portfolio without actually spending or losing money. Have you ever invested before? What is your knowledge level? Investing long term is about trying to balance risk while reducing losses and trying not to get screwed along the way (by people). My personal advice: Go to an independent financial planner, go to one that charges you per hour only. Financial planners that don't charge you hourly get paid in commissions. They will be biased to sell you what puts the most money in their pockets. Do not go to the banks investment people, they are employed by the banks who have sales and quota requirements to have you invest and push their own investment vehicles like mutual funds. Take $15k to the financial planner and see what they suggest. Keep the other $5K in something slow and boring and $1k under your mattress in actual cash as an emergency. While you're young, compound interest is the magic that will make that $25k increase hand over fist in time. But you need to have it consistently make money. I'm young too and more risk tolerant because I have time. While I get older I can start to scale back my risk because I'm nearing retirement and preserve instead of try to make returns.","\"I'd first put it in CDs or other short term account. Get through school first, then see where you land. If you have income that allows you to start a Roth IRA, I'd go for that, but keep it safe in case you actually need it back soon. After school, if you don't land a decent job fast, this money might be needed to live on. How long will it last if you take a few months to find work? If you do find a good job, moving, and setting up an apartment has a cost. Once you're there, I'd refer you to the many \"\"getting started\"\" Q&As on this site.\"","Then buy an indexed ETF or mutual fund that tracks the S&P 500 and leave your money there until you need it. If you can (there are restrictions for income, etc.), try and setup a retirement vehicle, such as a Roth IRA to get tax advantages.","\"Some thoughts: 1) Do you have a significant emergency fund (3-6 months of after-tax living expenses)? If not, you stand to take a significant loss if you have an unexpected need for cash that is tied up in investments. What if you lose/hate your job or your car breaks down? What if a you want to spend some time with a relative or significant other who learns they only have a few months to live? Having a dedicated emergency fund is an important way to avoid downside risk. 2) Lagerbaer has a good suggestion. Given that if you'd reinvested your dividends, the S&P 500 has returned about 3.5% over the last 5 years, you may be able to get a very nice risk-free return. 3) Do you have access to employer matching funds, such as in a 401(k) at work? If you get a dollar-for-dollar match, that is a risk-free pre-tax 100% return and should be a high priority. 4) What do you mean by \"\"medium\"\" volatility? Given that you are considering a 2/3 equity allocation, it would not be at all out of the realm of possibility that your balance could fall by 15% or more in any given year and take several years to recover. If that would spook you, you may want to consider lowering your equity weights. A high quality bond fund may be a good fit. 5) Personally, I would avoid putting money into stocks that I didn't need back for 10 years. If you only want to tie your money up for 2-5 years, you are taking a significant risk that if prices fall, you won't have time to recover before you need your money back. The portfolio you described would be appropriate for someone with a long-term investment horizon and significant risk tolerance, which is usually the case for young people saving for retirement. However, if your goals are to invest for 2-5 years only, your situation would be significantly different. 6) You can often borrow from an investment account to purchase a primary residence, but you must pay that amount back in order to avoid significant taxes and fees, unless you plan to liquidate assets. If you plan to buy a house, saving enough to avoid PMI is a good risk-free return on your money. 7) In general, and ETF or index fund is a good idea, the key being to minimize the compound effect of expenses over the long term. There are many good choices a la Vanguard here to choose from. 8) Don't worry about \"\"Buy low, sell high\"\". Don't be a speculator, be an investor (that's my version of Anthony Bourdain's, \"\"don't be a tourist, be a traveler\"\"). A speculator wants to sell shares at a higher price than they were purchased at. An investor wants to share in the profits of a company as a part-owner. If you can consistently beat the market by trying to time your transactions, good for you - you can move to Wall Street and make millions. However, almost no one can do this consistently, and it doesn't seem worth it to me to try. I don't mean to discourage you from investing, just make sure you have your bases covered so that you don't have to cash out at a bad time. Best of luck! Edit Response to additional questions below. 1) Emergency fund. I would recommend not investing in anything other than cash equivalents (money market, short-term CDs, etc.) until you've built up an emergency fund. It makes sense to want to make the \"\"best\"\" use of your money, but you also have to account for risk. My concern is that if you were to experience one or more adverse life events, that you could lose a lot of money, or need to pay a lot in interest on credit card debt, and it would be prudent to self-insure against some of those risks. I would also recommend against using an investment account as an emergency fund account. Taking money out of investment accounts is inefficient because the commissions/taxes/fees can easily eat up a significant portion of your returns. Ideally, you would want to put money in and not touch it for a long time in order to take advantage of compounding returns. There are also high penalties for early disbursements from retirement funds. Just like you need enough money in your checking account to buy food and pay the rent every month, you need enough money in an emergency fund to pay for things that are a real possibility, even if they are less common. Using a credit card or an investment account is a relatively expensive way to do this. 2) Invest at all? I would recommend starting an emergency fund, and then beginning to invest for retirement. Once your retirement savings are on track, you can begin saving for whatever other goals you may have\"","\"Everything that I'm saying presumes that you're young, and won't need your money back for 20+ years, and that you're going to invest additional money in the future. Your first investments should never be individual stocks. That is far too risky until you have a LOT more experience in the market. (Once you absolutely can't resist, keep it to under 5% of your total investments. That lets you experiment without damaging your returns too much.) Instead you would want to invest in one or more mutual funds of some sort, which spreads out your investment across MANY companies. With only $50, avoiding a trading commission is paramount. If you were in the US, I would recommend opening a free online brokerage account and then purchasing a no-load commission-free mutual fund. TD Ameritrade, for example, publishes a list of the funds that you can purchase without commission. The lists generally include the type of fund (index, growth, value, etc.) and its record of return. I don't know if Europe has the same kind of discount brokerages / mutual funds the US has, but I'd be a little surprised if it didn't. You may or may not be able to invest until you first scrape together a $500 minimum, but the brokerages often have special programs/accounts for people just starting out. It should be possible to ask. One more thing on picking a fund: most charge about a 1% annual expense ratio. (That means that a $100 investment that had a 100% gain after one year would net you $198 instead of $200, because 1% of the value of your asset ($200) is $2. The math is much more complicated, and depends on the value of your investment at every given point during the year, but that's the basic idea.) HOWEVER, there are index funds that track \"\"the market\"\" automatically, and they can have MUCH lower expense fees (0.05%, vs 1%) for the same quality of performance. Over 40 years, the expense ratio can have a surprisingly large impact on your net return, even 20% or more! You'll want to google separately about the right way to pick a low-expense index fund. Your online brokerage may also be able to help. Finally, ask friends or family what mutual funds they've invested in, how they chose those funds, and what their experience has been. The point is not to have them tell you what to do, but for you to learn from the mistakes and successes of other experienced investors with whom you can follow up.\"","After looking at your profile, I see your age...28. Still a baby. At your age, and given your profession, there really is no need to build investment income. You are still working and should be working for many years. If I was you, I'd be looking to do a few different things: Eliminating debt reduces risk, and also reduces the need for future income. Saving for, and purchasing a home essentially freezes rent increases. If home prices double in your area, in theory, so should rent prices. If you own a home you might see some increases in taxes and insurance rates, but they are minor in comparison. This also reduces the need for future income. Owning real estate is a great way to build residual income, however, there is a lot of risk and even if you employ a management company there is a lot more hands on work and risk. Easier then that you can build an after tax investment portfolio. You can start off with mutual funds for diversification purposes and only after you have built a sizable portfolio should (if ever) make the transition to individual stocks. Some people might suggest DRIPs, but given the rate at which you are investing I would suggest the pain of such accounts is more hassle then it is worth.","\"If you're making big money at 18, you should be saving every penny you can in tax-advantaged retirement accounts. (If your employer offers it, see if you can do a Roth 401(k), as odds are good you'll be in a higher tax bracket at retirement than you are now and you will benefit from the Roth structure. Otherwise, use a regular 401(k). IRAs are also an option, but you can put more money into a 401(k) than you can into an IRA.) If you do this for a decade or two while you're young, you'll be very well set on the road to retirement. Moreover, since you think \"\"I've got the money, why not?\"\" this will actually keep the money from you so you can do a better job of avoiding that question. Your next concern will be post-tax money. You're going to be splitting this between three basic sorts of places: just plain spending it, saving/investing it in bank accounts and stock markets, or purchasing some other form of capital which will save you money or provide you with some useful capability that's worth money (e.g. owning a condo/house will help you save on rent - and you don't have to pay income taxes on that savings!) 18 is generally a little young to be setting down and buying a house, though, so you should probably look at saving money for a while instead. Open an account at Vanguard or a similar institution and buy some simple index funds. (The index funds have lower turnover, which is probably better for your unsheltered accounts, and you don't need to spend a bunch of money on mutual fund expense ratios, or spend a lot of time making a second career out of stock-picking). If you save a lot of your money for retirement now, you won't have to save as much later, and will have more income to spend on a house, so it'll all work out. Whatever you do, you shouldn't blow a bunch of money on a really fancy new car. You might consider a pretty-nice slightly-used car, but the first year of car ownership is distressingly close to just throwing your money away, and fancy cars only make it that much worse. You should also try to have some fun and interesting experiences while you're still young. It's okay to spend some money on them. Don't waste money flying first-class or spend tooo much money dining out, but fun/interesting/different experiences will serve you well throughout your life. (By contrast, routine luxury may not be worth it.)\"","BrenBarn did a great job explaining your options so I won't rehash any of that. I know you said that you don't want to save for retirement yet, but I'm going to risk answering that you should anyway. Specifically, I think you should consider a Roth IRA. When it comes to tax advantaged retirement accounts, once the contribution period for a tax year ends, there's no way to make up for it. For example in 2015 you may contribute up to $5,500 to your IRA. You can make those contributions up until tax day of the following year (April 15th, 2016). After that, you cannot contribute money towards 2015 again. So each year that goes by, you're losing out on some potential to contribute. As for why I think a Roth IRA specifically could work well for you: I'm advocating this because I think it's a good balance. You put away some money in a retirement account now, when it will have the most impact on your future retirement assets, taking advantage of a time you will never have again. At a low cost custodian like Vanguard, you can open an IRA with as little as $1,000 to start and choose from excellent fund options that meet your risk requirements. If you end up deciding that you really want that money for a car or a house or beer money, you can withdraw any of the contributions without fear of penalty or additional tax. But if you decide you don't really need to take that money back out, you've contributed to your retirement for a tax year you likely wouldn't have otherwise, and wouldn't be able to make up for later when you have more than enough to max out an IRA each year. I also want to stress that you should have a liquid emergency fund (in a savings or checking account) to deal with unexpected emergencies before funding something like this. But after that, if you have no specific goal for your savings and you don't know for sure you'll actually need to spend it in the near future, funding a Roth IRA is worth considering in my opinion.","\"Invest! Because you are young and have lots of time, I recommend opening an investment account and putting most (1000£?) or all in something like an S&P 500 index fund or ETF. Start building your savings now because compound growth over time will build significant wealth. You can still invest the other 500£/mo in something a bit less volatile if you think you'll need the money in < 5 years. If you expect your income to continue to grow and you expect to have extra cash every month for the foreseeable future, I'd just put it all in an index fund. You can weather any temporary market swings, and in the worst-case scenario you can always sell a few shares if you need the cash. The advantage of an index fund is that it has very low fees and it's an \"\"invest-and-forget\"\" approach. You don't have to watch the market every day because your money will simply match the market. And in the long term the market does much better than most managed funds or ETFs. https://en.wikipedia.org/wiki/Index_fund\"","529 College Savings Plans exist, which allow for tax-free savings for educational expenses, but I think you expect to go back to school too quickly for them to be worth the hassle. (They're more designed for saving for college for your kids.) Other than an IRA, you don't have many options for tax-advantaged accounts. In addition, since you plan to return to school, you should keep money around for that. Don't put that money in anything too volatile or hard to access. Since you don't plan on doing anything with the 80k in CDs right now, you can get away with higher risk with that money.","Fund your retirement accounts first. Even as an intern, it is still worthwhile to open a Roth IRA and start contributing to it. See my answer to a similar question: Best way to start investing, for a young person just starting their career?","Keep it simple: mutual funds (preferably index, low fee or ETF linked funds) do make a nice start for your little princess college fund. You dont need a real fortune to offset the trading cost of an online broker but if your really going to take advantage of dollar cost averaging, you might want to invest into a trusted fund company. Do your research, it is worth it. Ignore what the investment salesman is saying, he works for his wealth, not yours. A good DIY strategy, either joint with your own retirement account agregate or on a low cost index fund will make wonders. Keep in mind to be resilient: you will cash out when the princess will be in college in 20 yerars. Make sure to make proper time horizon investment and allocation. Cheers, All the best. Feel free to edit","To expand on mhoran's answer - Once you mention the 401(k), we're compelled to ask (a) what is the match, if any, and (b) what are the expenses within the funds offered. Depositing to get the full match is going to get you the biggest return on your money. It's common to get a dollar for dollar match on the first 5 or 6% of your income. If the fees are high, you stop at the match, and move to an IRA for the next money you wish to save. At 22, I'd probably focus on the Roth. If you have access to a Roth 401(k), that's great, the match will be pre tax dollars and you'll get started with a decent tax status mix. These accounts can form the core of your investing. Most people have little left over once their retirement accounts are fully funded. And yes, reading to understand stocks is great, but also to understand why stock indexing is the best choice for most investors.","It really is dependent upon your goals. What are your short term needs? Do you need a car/clothing/high cost apartment/equipment when you start your career? For those kinds of things, a savings account might be best as you will need to have quick access to cash. Many have said that people need two careers, the one they work in and being an investor. You can start on that second career now. Open up some small accounts to get the feel for investing. This can be index funds, or something more specialized. I would put money earmarked for a home purchase in funds with a lower beta (fluctuation) and some in index funds. You probably would want to get a feel for what and where you will actually be doing in your career prior to making a leap into a home purchase. So figure you have about 5 years. That gives you time to ride out the waves in the market. BTW, good job on your financial situation. You are set up to succeed.","As stated in the comments, Index Funds are the way to go. Stocks have the best return on investment, if you can stomach the volatility, and the diversification index funds bring you is unbeatable, while keeping costs low. You don't need an Individual Savings Account (UK), 401(k) (US) or similar, though they would be helpful to boost investment performance. These are tax advantaged accounts; without them you will have to pay taxes on your investment gains. However, there's still a lot to gain from investing, specially if the alternative is to place them in the vault or similar. Bear in mind that inflation makes your money shrink in real terms. Even a small interest is better than no interest. By best I mean that is safe (regulated by the financial authorities, so your money is safe and insured up to a certain amount) and has reasonable fees (keeping costs low is a must in any scenario). The two main concerns when designing your portfolio are diversification and low TER (Total Expense Ratio). As when we chose broker, our concern is to be as safe as we possibly can (diversification helps with this) and to keep costs at the bare minimum. Some issues might restrict your election or make others seem better. Depending on the country you live and the one of the fund, you might have to pay more taxes on gains/dividends. e.g. The US keeps some of them if your country doesn't have a special treaty with them. Look for W-8Ben and tax withholding for more information. Vanguard and Blackrock offer nice index funds. Morningstar might be a good place for gathering information. Don't trust blindly the 'rating'. Some values are 'not rated' and kick ass the 4 star ones. Again: seek low TER. Not a big fan of this point, but I'm bound to mention it. It can be actually helpful for sorting out tax related issues, which might decide the kind of index fund you pick, and if you find this topic somewhat daunting. You start with a good chunk of money, so it might make even more sense in your scenario to hire someone knowledgeable and trustworthy. I hope this helps to get you started. Best of luck.","I would definitely recommend putting some of this in an IRA. You can't put all $30K in an IRA immediately though, as the contribution limit is $5500/year for 2014, but until April 15 you can still contribute $5500 for 2013 as well. At your income level I would absolutely recommend a Roth IRA, as your income will very likely be higher in retirement, given that your income will almost certainly rise after you get your Ph.D. Your suggested asset allocation (70% stocks, 30% bonds) sounds appropriate; if anything you might want to go even higher on stocks assuming you won't mind seeing the value drop significantly. If you don't want to put a lot of energy into investment choices, I suggest a target retirement date fund. As far as I am aware, Vanguard offers the lowest expenses for these types of funds, e.g. this 2050 fund.","\"Those who say a person should invest in riskier assets when young are those who equate higher returns with higher risk. I would argue that any investment you do not understand is risky and allows you to lose money at a more rapid rate than someone who understands the investment. The way to reduce risk is to learn about what you want to invest in before you invest in it. Learning afterward can be a very expensive proposition, possibly costing you your retirement. Warren Buffet told the story on Bloomberg Radio in late 2013 of how he read everything in his local library on investing as a teenager and when his family moved to Washington he realized he had the entire Library of Congress at his disposal. One of Mr. Buffett's famous quotes when asked why he doesn't invest in the tech sector was: \"\"I don't invest in what I do not understand.\"\". There are several major asset classes: Paper (stocks, bonds, mutual funds, currency), Commodities (silver, gold, oil), Businesses (creation, purchase or partnership as opposed to common stock ownership) and Real Estate (rental properties, flips, land development). Pick one that interests you and learn everything about it that you can before investing. This will allow you to minimize and mitigate risks while increasing the rewards.\""],"string":"[\n \"Chances are since college is your next likely step I would recommend saving up for it. Start building an emergency fund. Recommended $1,000 minimum. To start building your credit rating (when 18) get a low interest low limit credit. Pay off the balance every month. Starting to build your credit rating now can save you hundreds of thousands when buying a house over the course of paying it off. ie. cheaper interest rate. As for investing, the sooner you can get started the better. Acquire preferred/stocks/bonds/REITs/ETFs/etc that pay you to own them (they pay you dividends monthly/quarterly/etc). Stick with solid stocks that have a history of consistently increasing their dividends over time and that are solid companies. I personally follow the work/advice of Derek Foster. He's not a professional but he retired at 34. His first book (Stop working - Here's how you can) is great and recommend it to anyone who is looking to get started. Also check out Ramit Sethi's blog I Will Teach You to be Rich. He focuses on big wins which save you a lot over the long term. He's also got some great advice for students as well. Best of luck!\",\n \"\\\"I take it you have nearly zero expenses, since you don't mention any savings and with your income you wouldn't have much left over for investing. At your level of income, any actual investing is either going to unwisely reduce your cash available should you need it (such as investment in mutual funds, which often have minimum investment periods of 2-6 months or more to avoid fees), or cost you a high percentage of your income in commissions (stock trading). So, I wouldn't recommend investing at all — yet. I find Dave Ramsey's baby steps to be very good general money management advice. Here is how I would adapt the first three steps to your income and stage in life. Beyond this, Dave recommends saving for retirement, college (for kids) and paying off your house early. These things are a little beyond your stage in life, but it would be good to start thinking about them. For you, I recommend following DJClayworth's advice to \\\"\\\"invest in yourself\\\"\\\". Specifically, plan to get through college debt-free. Put away money so that you have a head start once you do have living expenses — save for a car, save money for rent, etc. so that you don't have to live month to month as most people do starting out. So, what this boils down to: Put away every cent you have, in a savings account.\\\"\",\n \"Littleadv has given you excellent general advice, but to my mind, the most important part of it all and the path which I will strongly recommend you follow, is the suggestion to look into a mutual fund. I would add even more strongly, go to a mutual fund company directly and make an investment with them directly instead of making the investment through a brokerage account. Pick an index fund with low expenses, e.g. there are S&P 500 index funds available with expenses that are a fraction of 1%. (However, many also require minimum investments on the order of $2500 or $3000 except for IRA accounts). At this time, your goal should be to reduce expenses as much as possible because expenses, whether they be in brokerage fees which may be directly visible to you or mutual fund expenses which are invisible to you, are what will eat away at your return far more than the difference between the returns of various investments.\",\n \"\\\"Excellent questions! Asking such questions indicates something special about yourself. The desire to learn and adjust your beliefs will increase your chance of success in your life. I would use a wide variety of authors to increase your education. Myself I prefer Dave Ramsey to Clark Howard, but I think Clark is very good. The first thing you should focus on is learning how to do and live by a budget. Often times, adults will assume that you are on a budget because you are broke. It happens with my friends and my youngest child is older than you. Nothing could be further from the truth. A budget is simply a plan on how you will spend your income so you don't run out of money before you run out of month. Along with budgeting I would also focus on goal setting. This is the type of \\\"\\\"investing\\\"\\\" you should be doing at your age. For example if your primary goal was to become an engineer, my recommendation is to hold off buying stocks/mutual funds and using your current income to get through school with little or no student loans. Another example might be to open your own HVAC business. Your best bet might be to learn the trade, working for someone else, and take night classes for business management. Most 18 year olds have very little earning power. Your focus at this point should be increasing your income and learning how to manage the income you have. Please keep in mind that most debt is bad. It robs you of your income which is your greatest wealth building tool. Car loans and credit card debt is just plain stupid. Often times a business case can be made for reasonable student loans. However, why not challenge yourself to take none. How much further ahead could you be if you graduate, with a degree, when your peers are strapped with a 40K loan? Keep up the good work and keep asking questions.\\\"\",\n \"You should invest in that with the best possible outcome. Right now that is in yourself. Your greatest wealth building tool, at this point, is your future income. As such anything you can do to increase your earnings potential. For some that might mean getting an engineering degree, for others it might mean starting a small business. For some it is both obtaining a college degree and learning about business. A secondary thing to learn about would be personal finance. I would hold off on stocks, at this time, until you get your first real job and you have an emergency fund in place. Penny stocks are worthless, forget about them. Bonds have their place, but not at this point in your life. Saving up for college and obtaining a quality education, debt free, should be your top priority. Saving up for emergencies is a secondary priority, but only after you have more than enough money to fund your college education. You can start thinking about retirement, but you need a career to help fund your savings plan. Put that off until you have such a career. Investing in stocks, at this juncture, is a bit foolish. Start a career first. Any job you take now should be seen as a step towards a larger goal and should not define who you are.\",\n \"\\\"I would like to add my accolades in saving $3000, it is an accomplishment that the majority of US households are unable to achieve. source While it is something, in some ways it is hardly anything. Working part time at a entry level job will earn you almost three times this amount per year, and with the same job you can earn about as much in two weeks as this investment is likely to earn, in the market in one year. All this leads to one thing: At your age you should be looking to increase your income. No matter if it is college or a high paying trade, whatever you can do to increase your life time earning potential would be the best investment for this money. I would advocate a more patient approach. Stick the money in the bank until you complete your education enough for an \\\"\\\"adult job\\\"\\\". Use it, if needed, for training to get that adult job. Get a car, a place of your own, and a sufficient enough wardrobe. Save an emergency fund. Then invest with impunity. Imagine two versions of yourself. One with basic education, a average to below average salary, that uses this money to invest in the stock market. Eventually that money will be needed and it will probably be pulled out of the market at an in opportune time. It might worth less than the original 3K! Now imagine a second version of yourself that has an above average salary due to some good education or training. Perhaps that 3K was used to help provide that education. However, this second version will probably earn 25,000 to 75,000 per year then the first version. Which one do you want to be? Which one do you think will be wealthier? Better educated people not only earn more, they are out of work less. You may want to look at this chart.\\\"\",\n \"Congrats! That's a solid accomplishment for someone who is not even in college yet. I graduated college 3 years ago and I wish I was able to save more in college than I did. The rule of thumb with saving: the earlier the better. My personal portfolio for retirement is comprised of four areas: Roth IRA contributions, 401k contributions, HSA contributions, Stock Market One of the greatest things about the college I attended was its co-op program. I had 3 internships - each were full time positions for 6 months. I strongly recommend, if its available, finding an internship for whatever major you are looking into. It will not only convince you that the career path you chose is what you want to do, but there are added benefits specifically in regards to retirement and savings. In all three of my co-ops I was able to apply 8% of my paycheck to my company's 401k plan. They also had matching available. As a result, my 401k had a pretty substantial savings amount by the time I graduated college. To circle back to your question, I would recommend investing the money into a Roth IRA or the stock market. I personally have yet to invest a significant amount of money in the stock market. Instead, I have been maxing out my retirement for the last three years. That means I'm adding 18k to my 401k, 5.5k to my Roth, and adding ~3k to my HSA (there are limits to each of these and you can find them online). Compounded interest is amazing (I'm just going to leave this here... https://www.moneyunder30.com/power-of-compound-interest).\",\n \"I have about $1K in savings, and have been told that you should get into investment and saving for retirement early. I make around $200 per week, which about $150 goes into savings. That's $10k per year. The general rule of thumb is that you should have six months income as an emergency fund. So your savings should be around $5k. Build that first. Some argue that the standard should be six months of living expenses rather than income. Personally, I think that this example is exactly why it is income rather than living expenses. Six months of living expenses in this case would only be $1250, which won't pay for much. And note that living expenses can only be calculated after the fact. If your estimate of $50 a week is overly optimistic, you might not notice for months (until some large living expense pops up). Another problem with using living expenses as the measure is that if you hold down your living expenses to maximize your savings, this helps both measures. Then you hit your savings target, and your living expenses increase. So you need more savings. By contrast, if your income increases but your living expenses do not, you still need more savings but you can also save more money. Doesn't really change the basic analysis though. Either way you have an emergency savings target that you should hit before starting your retirement savings. If you save $150 per week, then you should have around $4k in savings at the beginning of next year. That's still low for an emergency fund by the income standard. So you probably shouldn't invest next year. With a living expenses standard, you could have $6250 in savings by April 15th (deadline for an IRA contribution that appears in the previous tax year). That's $5000 more than the $1250 emergency fund, so you could afford an IRA (probably a Roth) that year. If you save $7500 next year and start with $4k in savings (under the income standard for emergency savings), that would leave you with $11,500. Take $5500 of that and invest in an IRA, probably a Roth. After that, you could make a $100 deposit per week for the next year. Or just wait until the end. If you invested in an IRA the previous year because you decided use the living expenses standard, you would only have $6500 at the end of the year. If you wait until you have $6750, you could max out your IRA contribution. At that point, your excess income for each year would be larger than the maximum IRA contribution, so you could max it out until your circumstances change. If you don't actually save $3k this year and $7500 next year, don't sweat it. A college education is enough of an investment at your age. Do that first, then emergency savings, then retirement. That will flip around once you get a better paying, long term job. Then you should include retirement savings as an expected cost. So you'd pay the minimum required for your education loans and other required living expenses, then dedicate an amount for retirement savings, then build your emergency savings, then pay off your education loans (above the minimum payment). This is where it can pay to use the more aggressive living expenses standard, as that allows you to pay off your education loans faster. I would invest retirement savings in a nice, diversified index fund (or two since maintaining the correct stock/bond mix of 70%-75% stocks is less risky than investing in just bonds much less just stocks). Investing in individual stocks is something you should do with excess money that you can afford to lose. Secure your retirement first. Then stock investments are gravy if they pan out. If they don't, you're still all right. But if they do, you can make bigger decisions, e.g. buying a house. Realize that buying individual stocks is about more than just buying an app. You have to both check the fundamentals (which the app can help you do) and find other reasons to buy a stock. If you rely on an app, then you're essentially joining everyone else using that app. You'll make the same profit as everyone else, which won't be much because you all share the profit opportunities with the app's system. If you want to use someone else's system, stick with mutual funds. The app system is actually more dangerous in the long term. Early in the app's life cycle, its system can produce positive returns because a small number of people are sharing the benefits of that system. As more people adopt it though, the total possible returns stay the same. At some point, users saturate the app. All the possible returns are realized. Then users are competing with each other for returns. The per user returns will shrink as usage grows. If you have your own system, then you are competing with fewer people for the returns from it. Share the fundamental analysis, but pick your stocks based on other criteria. Fundamental analysis will tell you if a stock is overvalued. The other criteria will tell you which undervalued stock to buy.\",\n \"You have great intentions, and a great future. As far as investing goes, you're a bit early. Unless your parents or other benefactor is going to pay every dime of your expenses, you'll have costs you need to address. $1000 is the start of a nice emergency fund, but not yet enough to consider investing for the long term. If you continue to work, it's not tough to burn through $200/wk especially when you are in college and have more financial responsibility.\",\n \"At this stage of the game your best investment is yourself. Rather than putting it in stocks, use any spare money you have to get yourself the best education you can. See if you can drop that part-time job and give yourself more time to study. Or maybe you can go to a better, more expensive college. Or maybe college will give you some opportunity to travel and learn more that way. You don't want to exclude yourself from those opportunities by not having enough spare cash. So in short, spend what you need to get yourself the best education you can, and keep any spare money you have somewhere you can use it to take advantage of any opportunities that come your way.\",\n \"Start a Roth IRA. Keep it in low risk, short term money market or CDs. At this stage, stocks may be premature. As you build up the account, up to $5000/year, at some point, you should start buying an index mutual fund, say one following the S&P. When you are out of school and working for real money, save an emergency account outside the IRA and shift that Roth IRA to be fully invested. My 13 year old has her emergency account, and her Roth IRA to deposit her baby sitting money. It's never too soon to start.\",\n \"You are young, and therefore have a very long time horizon for investing. Absolutely nothing you do should involve paying any attention to your investments more than once a year (if that). First off, you can only deposit money in an IRA (of whatever kind) if you have taxable income. If you don't, you can still invest, just without the tax benefits of a Roth. My suggestion would be to open an account with a discount brokerage (Schwab, Fidelity, eTrade, etc). The advantage of a brokerage IRA is that you can invest in whatever you want within the account. Then, either buy an S&P 500 or total market index fund within the account, or buy an index-based ETF (like a mutual fund, but trades like a stock). The latter might be better, since many mutual funds have minimum limits, which ETFs do not. Set the account up to reinvest the dividends automatically--S&P 500 yields will far outstrip current savings account yields--and sit back and do nothing for the next 40 or 50 years. Well, except for continuing to make annual contributions to the account, which you should continue to invest in pretty much the same thing until you have enough money (and experience and knowledge) to diversify into bond funds/international funds/individual stocks, etc. Disclaimer: I am not a financial planner. I just manage my own money, and this strategy has mostly kept me from stressing too badly over the last few years of market turmoil.\",\n \"On the one hand, it's a great idea to open a Roth IRA now, once you've got the cash to contribute. It's a tax designation sounds like it would fit your meager earnings this year. The main reason to open one now rather than later is that some types of withdrawls require the account be aged 5 years. But you can also withdraw the amount you've contributed tax free any time. Student loans right now are pricey, so if you're carrying a balance at say 6.8 percent fixed you should pay that down ASAP. Beyond that, I'd keep the rest liquid for now. Having that kind of liquid cash is extremely reassuring, and many of the biggest returns on investment are going to be in your personal life. More fuel efficient vehicles, energy efficient appliances, computer backups, chest freezers and bulk meat purchases, etc. One example I see every six months is car insurance: I can pay for six months in full or I can pay a smaller monthly bill plus a small fee. That fee is well above current market rates. You see this everywhere; people searching for lower minimum payments rather than lower total costs. Save your money up and be the smart buyer. It's too damn expensive to be broke.\",\n \"\\\"Two things to consider: When it comes to advice, don't be \\\"\\\"Penny wise and Pound foolish\\\"\\\". It is an ongoing debate whether active management vs passive indexes are a better choice, and I am sure others can give good arguments for both sides. I look at it as you are paying for advice. If your adviser will teach you about investing and serve your interests, having his advise will probably prevent you from making some dumb mistakes. A few mistakes (such as jumping in/out of markets based on fear/speculation) can eliminate any savings in fees. However, if you feel confident that you have the resources and can make good decisions, why pay for advise you don't need? EDIT In this case, my opinion is that you don't need a complex plan at this time. The money you would spend on financial advise would not be the best use of the funds. That said, to your main question, I would delay making any long-term decisions with these funds until you know you are done with your education and on an established career path. This period of your life can be very volatile, and you may find yourself halfway through college and wanting to change majors or start a different path. Give yourself the option to do that by deferring long-term investment decisions until you have more stability. For that reason, I would avoid focusing on retirement savings. As others point out, you are limited in how much you can contribute per year. If you want to start, ROTH is your best bet, but if you put it in don't pull it out. That is a bad habit to get into. Personal finance is as much about developing habits as it is doing math... A low-turnover index fund may be appropriate, but you don't want to end up where you want to buy a house or start a business and your investment has just lost 10%... I would keep at least half in a liquid, safe account until after graduation. Any debt you incur because you tied up this money will eliminate any investment gains (if any). Good Luck! EDITED to clarify retirement savings\\\"\",\n \"you should invest in a range of stock market indexes. Ex : Dow jones, S&P500, Nasdaq and keep it there until you are ready to retire. I'm invested half in SLYV and SLYG (S&P600 small cap value and S&P600 small cap growth; Respectively). It brings on average between 8-13% a year (since 1971). This is not investment advice. Talk to your broker before doing this.\",\n \"I was in a similar situation at age 18/19, but not making quite as much money. I maxed out an IRA and bought savings bonds, although rates were decent then. I did flitter away about half of what I earned, which in retrospect was probably dumb. But I had a good time!\",\n \"I'd suggest you keep putting money in your savings account and start investing after you land that first big job. As another answer mentioned, unless you're fortunate enough to have all of your tuition and living expenses paid for, an emergency fund is an invaluable tool for a college student. And the bigger the better. Your laptop gets stolen or your car's air conditioner (or heater) dies -- both of these things happened to me in college -- and it would have been a much bigger deal for me if I didn't have some money tucked away.\",\n \"Your attitude is great, but be careful to temper your (awesome) ambition with a dose of reality. Saving is investing is great, the earlier the better, and seeing retirement at a young age with smooth lots of life's troubles; saving is smart and we all know it. But as a college junior, be honest with yourself. Don't you want to screw around and play with some of that money? Your first time with real income, don't you want to blow it on a big TV, vacation, or computer? Budget out those items with realistic costs. See the pros and cons of spending that money keeping in mind the opportunity cost. For example, when I was in college, getting a new laptop for $2000 (!) was easily more important to me than retirement. I don't regret that. I do regret buying my new truck too soon and borrowing money to do it. These are judgment calls. Here is the classic recipe: Adjust the numbers or businesses to your personal preferences. I threw out suggestions so you can research them and get an idea of what to compare. And most importantly of all. DO NOT GET INTO CREDIT CARD DEBT. Use credit if you wish, but do not carry a balance.\",\n \"The advice to invest in yourself is good advice. But the stock market can be very rewarding over the long pull. You have about 45 years to retirement now and that is plenty long enough that each dollar put into the market now will be many dollars then. A simple way to do this might be to open a brokerage account at a reputable broker and put a grand into a very broad based all market ETF and then doing nothing with it. The price of the ETF will go up and down with the usual market gyrations, but over the decades it will grow nicely. Make sure the ETF has low fees so that you aren't being overcharged. It's good that you are thinking about investing at a young age. A rational and consistent investment strategy will lead to wealth over the long pull.\",\n \"May I suggest putting it in a Roth IRA ($5,500 per year. Right now you can contribute to both 2015 and 2016 so that's $11K.)? Based on your description it sounds like your tax rate is very low, so it is awesome to put it away now and avoid taxes later on any gains you make on it. You can use Roth IRA money to pay for college, a home, or retirement. Within your Roth IRA, any of the investment options mentioned here will work. For example, CD's or money market accounts if you just want it to grow in a pretty much savings-account-like manner. You could also buy diversified mutual funds or have some fun buying individual stocks with some of it. I'm sorry to say that in the current market conditions you are not going to find a completely safe, cash-like investment or account that makes your money grow substantially. To do that you have to bear risk by buying risky stuff like stocks.\",\n \"\\\"First off, monozok is right, at the end of the day, you should not accept what anyone says to do without your money - take their suggestions as directions to research and decide for yourself. I also do not think what you have is too little to invest, but that depends on how liquid you need to be. Often in order to make a small amount of money grow via investments, you have to be willing to take all the investment profits from that principle and reinvest it. Thus, can you see how your investment ability is governed by the time you plan to spend without that money? They mantra that I have heard from many people is that the longer you are able to wait, the more 'risk' you can take. As someone who is about the same age as you (I'm 24) I can't exactly say yet that what I have done is sure fire for the long term, but I suggest you adopt a few principles: 1) Go read \\\"\\\"A Random Walk Down Wall Street\\\"\\\" by Burton G. Malkiel. A key point for you might be that you can do better than most of these professional investors for hire simply by putting more money in a well selected index fund. For example, Vanguard is a nice online service to buy indexes through, but they may require a minimum. 2) Since you are young, if you go into any firm, bank, or \\\"\\\"financial planner,\\\"\\\" they will just think you are naive and try to get you to buy whatever is best for them (one of their mutual funds, money market accounts, annuities, some flashy cd). Don't. You can do better on your own and while it might be tempting because these options look more secure or well managed, most of the time you will barely make above inflation, and you will not have learned very much. 3) One exciting thin you should start learning now is about algorithmic trading because it is cool and super efficient. quantopian.com is a good platform for this. It is a fun community and it is also free. 4) One of the best ways I have found to watch the stock market is actually through a stock game app on my phone that has realtime stock price feed. Seeking Alpha has a good mobile app interface and it also connects you to news that has to do with the companies you are interested in.\\\"\",\n \"Don't try individual stocks. If you have a job, any job, even one from mowing lawns, you can open a Roth IRA. If you are under 18 you will need your parents/guardian to setting up the account. You can put the an amount equal to your earned income into the Roth IRA, up to the annual maximum of $5500. There are advantages to a Roth IRA: What happens if you are using your income to pay for your car, insurance, etc? You can get the money from your parents, grandparents. The only rule is that you can't invest more than you have earned. Act before Tax day (April 15th). You know what you made last year. If you open the account and make the contribution before April 15th it can count for last year, as long as you are clear with the broker/bank when you make the deposit.\",\n \"With $800/month extra? Do both. (I am ethnocentric enough to assume you live in the same country as me) First, figure out what your emergency fund should look like. Put this money in a high yield checking or savings account. Add to it monthly until you reach your goal. It should be 3 to 6 months of your total monthly expenses. It will be a lot more than $2k I suspect. You will earn bubkis in interest, but the point of the emergency fund is a highly liquid asset for emergencies so you can choose cheaper car insurance and not buy warranties on stuff. With your $800/month, split it up this way: $416/month into a Roth IRA account at Vanguard (or Schwab or Fidelity) in the Star Fund (or similar low cost, diversified fund). The star is $1000 to open, pretty diversified. $416 is a lazy number that comes close to the $5000 annual limit for a Roth IRA in the US. Contribute like clockwork, directly from your paycheck if you can. This will make it easy to do and get you the benefit of dollar cost averaging. $200 or $300 into your savings account until you reach your emergency fund goal. $85 - $100. Live a little. Speculate in stocks with your vanguard account. Or rent fancy cars. Or taken a vacation or go party. If you are saving $800/month in your early 20 be proud of yourself, but have a little fun too so you can let off steam. It isn't much but you know you can play with it. Once you reach your emergency fund, save up for your future house or car or plane tickets to Paris. Ask another question for how to save up for these kinds of goals.\",\n \"There's a lot going on here. I'd be making the maximum ($5500 for a single person under 50) contribution to the Roth IRA each year. Not too late to put in for 2014 before Wednesday, 4/15. Not out of your income, but from the T Rowe Price account. As long as you have earned income, you can make an IRA deposit up to the limit, 5500, or up to that income. The money itself can come from other funds. Just explain to Dad, you're turning the money into a long term retirement account. I doubt that will trouble him. Aside from that, too much will change when you are out of school. At 18, it's a matter of learning to budget, save what you can, don't get into debt for stupid things. (Stupid, not as I would judge, but as the 25 year old you will judge.)\",\n \"If I were in your shoes I would concentrate now on investing in yourself. Your greatest wealth building tool is your income. Going to school is great, make sure you can finish. Also is there additional coursework you can obtain that might help boost your salary? I would look for course in the following areas that might be outside your core competency: After that I would concentrate on some books that will help you in your journey. However, I would not start investing until you have a well paying full time job: That will get you started.\",\n \"To be honest, all that they might be able to tell you is to keep saving. Your income seems like it will vary week to week thanks to commission (and I'm still very curious how at 18 you found a job making $96,000 a year at minimum). Right now because you have no savings, start stacking that up. You're going to want an emergency fund on the side as well. Even though now you may still live with parents, you still may run into issues where you'll need money on hand. It's much better to dig into an emergency fund than get a loan. Plus, when moving out, you won't be living paycheck to paycheck. Best rule of thumb for this is to keep an emergency fund of roughly 3-6 months of expenses. Right now because you're so young with so little money, there isn't a large reason to really open up an IRA or any sort of investment account. Unless you're actually guaranteed $2,000 a week, then things are different.\",\n \"This is a very open ended question with no concrete answer as it depends on your personal situation. However, for starters I would suggest picking up a copy of The Investment Answer. It's a very light read, less than 100 pages, but it has some amazingly simple yet very concrete advice on investing and answers a lot of common questions (like yours).\",\n \"You are young so you have time on your side. This allows you to invest in more aggressive investments. I would do the following 1) Contribute at least what your company is willing to match on your 401k, if your company offers a Roth 401k use that instead of the normal 401k (When this becomes available to you) 2) Open a Roth IRA Contribute the maximum to this account ~$5500/year 3) Live below your means, setup a budget and try and save/invest a minimum of 50% of your salary, do not get used to spending more money. With each bonus or salary increase a minimum of 75% of it should go toward your savings/investment. This will keep you from rapidly increasing your spending budget. 3) Invest in real estate (this could be its own post). Being young and not too far out of college you have probably been moving every year and have not accumulated so much stuff that it makes moving difficult. I would utilize your FHA loan slot to buy a multifamily property (2-4 Units) for your first property using only 3.5% down payment (you can put more down if you like). Learn how to analyze properties first and find a great Realtor/Mentor. Then I would continue as a NOMAD investor. Where you move every year into a new owner occupied property and turn the previous into a rental. This allows you to put 3-5% down payment of properties that you would otherwise have to put 20-25% and since you are young you can afford the risk. You should check out this article/website as it is very informative and can show you the returns that you could earn. Young Professional Nomad Good luck I am in a very similar situation\",\n \"\\\"If you have wage income that is reported on a W2 form, you can contribute the maximum of your wages, what you can afford, or $5500 in a Roth IRA. One advantage of this is that the nominal amounts you contribute can always be removed without tax consequences, so a Roth IRA can be a deep emergency fund (i.e., if the choice is $2000 in cash as emergency fund or $2000 in cash in a 2015 Roth IRA contribution, choice 2 gives you more flexibility and optimistic upside at the risk of not being able to draw on interest/gains until you retire or claim losses on your tax return). If you let April 15 2016 pass by without making a Roth IRA contribution, you lose the 2015 limit forever. If you are presently a student and partially employed, you are most likely in the lowest marginal tax rate you will be in for decades, which utilizes the Roth tax game effectively. If you're estimating \\\"\\\"a few hundred\\\"\\\", then what you pick as an investment is going to be less important than making the contributions. That is, you can pick any mutual fund that strikes your fancy and be prepared to gain or lose, call it $50/year (or pick a single stock and be prepared to lose it all). At some point, you need to understand your emotions around volatility, and the only tuition for this school is taking a loss and having the presence of mind to examine any panic responses you may have. No reason not to learn this on \\\"\\\"a few hundred\\\"\\\". While it's not ideal to have losses in a Roth, \\\"\\\"a few hundred\\\"\\\" is not consequential in the long run. If you're not prepared at this time in your life for the possibility of losing it all (or will need the money within a year or few, as your edit suggests), keep it in cash and try to reduce your expenses to contribute more. Can you contribute another $100? You will have more money at the end of the year than investment choice will likely return.\\\"\",\n \"I highly recommend passive investing through something like betterment (www.betterment.com) or vanguard's ETFs. FutureAdvisor.com can provide some good advice as to what funds to invest in. I'd recommend using that money to max out your Roth IRAs each year, too.\",\n \"I would just buy a low-cost diversified equity ETF. VTI is pretty solid. Also, JW are you working or in school? If you are working you should consider opening an IRA or Roth IRA. Also if your employer has a 401k or other retirement plan you can contribute to I would advise doing so.\",\n \"First, congratulations on even thinking about investing while you are still young! Before you start investing, I'd suggest you pay off your cc balance if you have any. The logic is simple: if you invest and make say 8% in the market but keep paying 14% on your cc balance, you aren't really saving. Have a good supply of emergency fund that is liquid (high yielding savings bank like a credit union. I can recommend Alliant). Start small with investing. Educate yourself on the markets before getting in. Ignorance can be expensive. Learn about IRA (opening an IRA and investing in the markets have (good)tax implications. I didn't do this when I was young and I regret that now) Learn what is 'wash sales' and 'tax loss harvesting' before putting money in the market. Don't start out by investing in individual stocks. Learn about indexing. What I've give you are pointers. Google (shameless plug: you can read my blog, where I do touch upon most of these topics) for the terms I've mentioned. That'll steer you in the right direction. Good luck and stay prosperous!\",\n \"First, check out some of the answers on this question: Oversimplify it for me: the correct order of investing When you have determined that you are ready to invest for retirement, there are two things you need to consider: the investment and the account. These are separate items. The investment is what makes your money grow. The type of account provides tax advantages (and restrictions). Generally, these can be considered separately; for the most part, you can do any type of investment in any account. Briefly, here is an overview of some of the main options: In your situation, the Roth IRA is what I would recommend. This grows tax free, and if you need the funds for some reason, you can get out what you put in without penalty. You can invest up to $5500 in your Roth IRA each year. In addition to the above reasons, which are true for anybody, a Roth IRA would be especially beneficial for you for three reasons: For someone that is closer in age to retirement and in a higher tax bracket now, a Roth IRA is less attractive than it is for you. Inside your Roth IRA, there are lots of choices. You can invest in stocks, bonds, mutual funds (which are simply collections of stocks and bonds), bank accounts, precious metals, and many other things. Discussing all of these investments in one answer is too broad, but my recommendation is this: If you are investing for retirement, you should be investing in the stock market. However, picking individual stocks is too risky; you need to be diversified in a lot of stocks. Stock mutual funds are a great way to invest in the stock market. There are lots of different types of stock mutual funds with different strategies and expenses associated with them. Managed funds actively buy and sell different stocks inside them, but have high expenses to pay the managers. Index funds buy and hold a list of stocks, and have very low expenses. The conventional wisdom is that, in general, index funds perform better than managed funds when you take the expenses into account. I hope this overview and these recommendations were helpful. If you have any specific questions about any of these types of accounts or investments, feel free to ask another question.\",\n \"\\\"My basic rule I tell everyone who will listen is to always live like you're a college student - if you could make it on $20k a year, when you get your first \\\"\\\"real\\\"\\\" job at $40k (eg), put all the rest into savings to start (401(k), IRA, etc). Gradually increase your lifestyle expenses after you hit major savings goals (3+ month emergency fund, house down payment, etc). Any time you get a raise, start by socking it all into your employer's 401(k) or similar. And repeat the above advice.\\\"\",\n \"\\\"The $1K in funds are by default your emergency fund. If absolutely necessary, emergency funds may need to come from debt, a credit capacity, focus on building credit to leverage lower rates for living expenses eventually needed. Profitable organizations & proprietors, borrow at a lower cost of capital than their return. Join your local credit union, you're welcome to join mine online, the current rates for the first $500 in both your checking and savings is 4.07%, it's currently the fourth largest in the U.S. by assets. You may join as a \\\"\\\"family member\\\"\\\" to me (Karl Erdmann), not sure what their definition of \\\"\\\"family\\\"\\\" is, I'd be happy to trace our ancestry if need be or consider other options. Their current incentive program, like many institutions have often, will give you $100 for going through the hassle to join and establish a checking and savings. Some institutions, such as this credit union, have a lower threshold to risk, applicants may be turned down for an account if there is any negative history or a low credit score, shooting for a score of 600 before applying seems safest. The web services, as you mentioned, have significantly improved the layman's ability to cost effectively invest funds and provide liquidity. Robinhood currently seems to be providing the most affordable access to the market. It goes without saying, stay objective with your trust of any platform, as you may have noticed, there is a detailed explanation of how Robinhood makes their money on this stack exchange community, they are largely backed by venture funding, hopefully the organization is able to maintain a low enough overhead to keep the organization sustainable in the long run. The services that power this service such as Plaid, seem promising and underrated, but i digress. The platform gives access for users to learn how investing works, it seems safest to plan a diversified portfolio utilizing a mix of securities,such as low Beta stocks or \\\"\\\"blue chip\\\"\\\" companies with clear dividend policies. One intriguing feature, if you invest in equities is casting votes on decisions in shareholder meetings. Another popular investment asset class that is less liquid and perhaps something to work toward is real estate. Google the economist \\\"\\\"Matthew Rognlie\\\"\\\" for his work on income equality on this type of investment. There are many incentives for first time homeowners, saving up for a down payment is the first step. Consider adding to your portfolio a Real Estate Investment Trust (REITs) to gain a market position. Another noteworthy approach to this idea is an investment commercial property cooperative organization, currently the first and only one is called NorthEast Investment Cooperative, one stock of class A is $1K. If you are interested and plan to focus on equities, consider dropping into your college's Accounting Capstone course to learn more about the the details of fundamental and technical analysis of an organization. The complexities of investing involve cyclical risk, macro and micro economic factors, understanding financial statements and their notes, cash flow forecasting - discounting, market timing, and a host of other details Wikipedia is much more helpful at detailing. It's safe to assume initial investment decisions by unsophisticated investors are mostly whimsical, and likely will only add up to learning opportunities, however risk is inherit in all things, including sitting on cash that pays a price of inflation. A promising mindset in long term investments are in organizations that focus on conscious business practices. Another way to think of investing is that you are already somewhat of a \\\"\\\"sophisticated investor\\\"\\\" and could beat the market by what you know given your background, catching wind of certain information first, or acting on a new trends or technology quickly. Move carefully with any perhaps biased \\\"\\\"bullish\\\"\\\" or \\\"\\\"bearish\\\"\\\" mindset. Thinking independently is helpful, constantly becoming familiar with different ideas from professions in a diverse set of backgrounds, and simulating decisions in portfolio's. Here is an extremely limited set of authors and outlets that may have ideas worth digging more into, MIT Tech Reviews (Informative), Bloomberg TV (it's free, informative), John Mackey (businessman), Paul Mason (provocative journalist). Google finance is a simple and free go-to application, use the \\\"\\\"cost basis\\\"\\\" feature for \\\"\\\"paper\\\"\\\" or real trades, it's easy to import transactions from a .csv. This seems sufficient to start off with. Enjoy the journey, aim for real value with your resources.\\\"\",\n \"\\\"Between \\\"\\\"fresh out of college\\\"\\\" and \\\"\\\"I have no debts, and a support system in place which because of which I can take higher risks.\\\"\\\" I would put every penny I could afford in the riskiest investment platform I was willing to. Holding onto money in a bank account is likely to cost you %1-%2 a year depending on what interest rates are and what inflation looks like. Money invested in a market could loose it all for you or you could become an overnight millionaire. Loosing it all would suck but you are young you will bounce back. Losing it slowly to inflation is just silly when you are young. If there is something you know you have to do in the next few years start to save for it but otherwise use the fact that you are young and have a safety net to try to make money.\\\"\",\n \"At your age (heck, at MY age :-)) I would not think about doing any of those types of investments (not savings) on your own, unless you are really interested in the investment process for its own sake, and are willing to devote a lot of time to investigating companies in order to try to pick good investments. Instead, find a good mutual fund from say Vanguard or TRP, put your money in there, and relax. Depending on your short-term goals (e.g. will you expect to need the money for college?) you could pick either an index fund, or a low-risk, mostly bond fund.\",\n \"while not stated, if you have any debt at all, use the $3000 to pay it off. That's the best investment in the short term. No risk and guaranteed reward. College can invite all sorts of unexpected expenses and opportunities, so stay liquid, protect working capital.\",\n \"First thing to do right now, is to see if there's somewhere equally liquid, equally risk free you can park your cash for higher rate of return. You can do this now, and decide how much to move into less liquid investments on your own pace. When I was in grad school, I opened a Roth IRA. These are fantastic things for young people who want to keep their options open. You can withdraw the contributions without penalty any time. The earnings are tax free on retirement, or for qualified withdrawls after five years. Down payments on a first home qualify for example. As do medical expenses. Or you can leave it for retirement, and you'll not pay any taxes on it. So Roth is pretty flexible, but what might that investment look like? It in depends on your time horizon; five years is pretty short so you probably don't want to be too stock market weighted. Just recognize that safe short term investments are very poorly rewarded right now. However, you can only contribute earnings in the year they are made, up to a 5000 annual maximum. And the deadline for 2010 is gone. So you'll have to move this into an IRA over a number of years, and have the earnings to back it. So in the meanwhile, the obvious advice to pay down your credit card bills & save for emergencies applies. It's also worth looking at health and dental insurance, as college students are among the least likely to have decent insurance. Also keep a good chunk on hand in liquid accounts like savings or checking for emergencies and general poor planning. You don't want to pay bank fees like I once did because I mis-timed a money transfer. It's also great for negotiating when you can pay in cash up front; my car insurance for example, will charge you more for monthly payments than for every six months. Or putting a huge chunk down on a car will pretty much guarantee the best available dealer financing.\",\n \"\\\"Should I invest the money I don't need immediately and only withdraw it next year when I need it for living expenses or should I simply leave it in my current account? This might come as a bit of a surprise, but your money is already invested. We talk of investment vehicles. An investment vehicle is basically a place where you can put money and have it either earn a return, or be able to get it back later, or both. (The neither case is generally called \\\"\\\"spending\\\"\\\".) There are also investment classes which are things like cash, stocks, bonds, precious metals, etc.: different things that you can buy within an investment vehicle. You currently have the money in a bank account. Bank accounts currently earn very low interest rates, but they are also very liquid and very secure (in the sense of being certain that you will get the principal back). Now, when you talk about \\\"\\\"investing the money\\\"\\\", you are probably thinking of moving it from where it is currently sitting earning next to no return, to somewhere it can earn a somewhat higher return. And that's fine, but you should keep in mind that you aren't really investing it in that case, only moving it. The key to deciding about an asset allocation (how much of your money to put into what investment classes) is your investment horizon. The investment horizon is simply for how long you plan on letting the money remain where you put it. For money that you do not expect to touch for more than five years, common advice is to put it in the stock market. This is simply because in the long term, historically, the stock market has outperformed most other investment classes when looking at return versus risk (volatility). However, money that you expect to need sooner than that is often recommended against putting it in the stock market. The reason for this is that the stock market is volatile -- the value of your investment can fluctuate, and there's always the risk that it will be down when you need the money. If you don't need the money within several years, you can ride that out; but if you need the money within the next year, you might not have time to ride out the dip in the stock market! So, for money that you are going to need soon, you should be looking for less volatile investment classes. Bonds are generally less volatile than stocks, with government bonds generally being less volatile than corporate bonds. Bank accounts are even less volatile, coming in at practically zero volatility, but also have much lower expected rates of return. For the money that you need within a year, I would recommend against any volatile investment class. In other words, you might take whichever part you don't need within a year and put in bonds (except for what you don't foresee needing within the next half decade or more, which you can put in stocks), then put the remainder in a simple high-yield deposit-insured savings account. It won't earn much, but you will be basically guaranteed that the money will still be there when you want it in a year. For the money you put into bonds and stocks, find low-cost index mutual funds or exchange-traded funds to do so. You cannot predict the future rate of return of any investment, but you can predict the cost of the investment with a high degree of accuracy. Hence, for any given investment class, strive to minimize cost, as doing so is likely to lead to better return on investment over time. It's extremely rare to find higher-cost alternatives that are actually worth it in the long term.\\\"\",\n \"\\\"You have a few correlated questions here: Yes you can. There are only a few investment strategies that require a minimum contribution and those aren't ones that would get a blanket recommendation anyway. Investing in bonds or stocks is perfectly possible with limited funds. You're never too young to start. The power of interest means that the more time you give your money to grow, the larger your eventual gains will be (provided your investment is beating inflation). If your financial situation allows it, it makes sense to invest money you don't need immediately, which brings us to: This is the one you have to look at most. You're young but have a nice chunk of cash in a savings account. That money won't grow much and you could be losing purchasing power to inflation but on the other hand that money also isn't at risk. While there are dozens of investment options1 the two main ones to look at are: bonds: these are fixed income, which means they're fairly safe, but the downside is that you need to lock up your money for a long time to get a better interest rate than a savings account index funds that track the market: these are basically another form of stock where each share represents fractions of shares of other companies that are tracked on an index such as the S&P 500 or Nasdaq. These are much riskier and more volatile, which is why you should look at this as a long-term investment as well because given enough time these are expected to trend upwards. Look into index funds further to understand why. But this isn't so much about what you should invest in, but more about the fact that an investment, almost by definition, means putting money away for a long period of time. So the real question remains: how much can you afford to put away? For that you need to look at your individual situation and your plans for the future. Do you need that money to pay for expenses in the coming years? Do you want to save it up for college? Do you want to invest and leave it untouched to inspire you to keep saving? Do you want to save for retirement? (I'm not sure if you can start saving via IRAs and the like at your age but it's worth looking into.) Or do you want to spend it on a dream holiday or a car? There are arguments to be made for every one of those. Most people will tell you to keep such a \\\"\\\"low\\\"\\\" sum in a savings account as an emergency fund but that also depends on whether you have a safety net (i.e. parents) and how reliable they are. Most people will also tell you that your long-term money should be in the stock market in the form of a balanced portfolio of index funds. But I won't tell you what to do since you need to look at your own options and decide for yourself what makes sense for you. You're off to a great start if you're thinking about this at your age and I'd encourage you to take that interest further and look into educating yourself on the investments options and funds that are available to you and decide on a financial plan. Involving your parents in that is sensible, not in the least because your post-high school plans will be the most important variable in said plan. To recap my first point and answer your main question, if you've decided that you want to invest and you've established a specific budget, the size of that investment budget should not factor into what you invest it in. 1 - For the record: penny stocks are not an investment. They're an expensive form of gambling.\\\"\",\n \"Where is the money coming from? If you already have the money (inheritance, gifts or similar) sitting in your account, you can just buy e.g. index funds from Vanguard, Robinhood or other low-cost brokerages. But first you should estimate how much money you need for your studies - it is a bit of a gamble to invest money that you'll need to withdraw in a few years time. Even though the average return may be quite high (12% sounds like an overestimate, more commonly quoted figure is 7%), over short timespans your stocks will go up and down randomly. Once you actually have a job and have income from it, then the 401k and IRA and similar retirement accounts start to make sense. There is no need to have all your savings in the same account, so you can start saving now already.\",\n \"I would personally suggest owning Mutual Funds or ETF's in a tax sheltered account, such as a 401k or an IRA, especially Roth options if available. This lets you participate in the stock market while ensuring that you have diversified portfolio, and the money is managed by an expert. The tax sheltered accounts (or tax free in the case of Roth accounts) increase your savings, and simplify your life as you don't need to worry about taxes on earnings within those accounts, as long as you leave the money in. For a great beginner's guide see Clark's Investment Guide (Easy).\",\n \"\\\"An investment in knowledge always pays the best interest, as Ben Franklin said. However, this is not a question I can answer for you, as it depends on the opportunities that are specifically available to you as an individual. Sometimes opportunities will knock on your door and you can take advantage, other times you have to create that door to allow opportunities to knock. Maybe you have a friend that is opening a side business, maybe there is a class you can get into at a trivial cost. What I suggest is to start investing just to get into the habit of it, not so much for the returns. Before you do, however, any financial advisor will advise you to begin with a emergency fund, worth about 3-6 months of your expenses for that time. I wanted to hit the ground running and start investing in stocks, but first things first I guess. \\\"\\\"Millionaire Next Door\\\"\\\" will help you get into a saving mindset, \\\"\\\"I will teach you to be rich\\\"\\\" is ok, plenty of other books. My advice is keep doing what you're doing, learn to start saving, and once you have obtained an emergency fund of the amount of your choosing, start looking to invest in Index Funds or ETFs through any platform that has LOW FEES!! I use Betterment, but Vanguard is good too, as they allow you to get your feet wet and it's passive. Hope this helps.\\\"\",\n \"You are looking for r/personalfinance. But it'd probably be best to put your excess monies in a savings account, not worrying about 401k/retirement contributions until you get a full time job, post college. Don't listen to the pussies that will tell you to invest it in a vagaurd account or your 401k. The money is more important to you as an emergency fund you can access immediately. At most you'll see a 4-5% return on your meager savings, amounting to less than $100/year.\",\n \"Are you working? Does your employer offer a 401(k) and if so, is there any match? Saving should be taught to kids at the same time they are old enough to get an allowance. There are many numbers tossed around, but 10% is a start for any new saver. If a college graduate can start by saving even 15%, better still. If you find that the 10% is too much, just start with what you can spare, and work to build that up over time, perhaps by splitting any future raises, half going toward savings, half to spending. Good luck. Edit - my 12 yr old made good money this summer baby sitting. I'm opening a Roth IRA for her. A 10 yr head start on her retirement savings. Edit (Jan-2013) - she's 14 now, 3 deposits to the Roth total $6000, and she's planning to up the number this year. Her goal is to have $50K saved in her Roth by the time she graduates college. Edit, by request (July-2017) 18, and off to college next month. Just under $24K, all invested in an S&P low cost index. We are planning to continue deposits of $4-$5K/yr, so the $50K is still a good goal.\",\n \"Contrary to most other advise given here, I'd recommend (in your situation) not to invest in stock (yet). There are some 'hidden' cost to investing that will eat your profit and in the end, that's why you are investing. Banks will charge for buying, selling and maintaining stock as well as for cashing dividends. Depending on which bank or intermediary these costs will rise. So, my advise is to start playing with stock creating a virtual portfolio and track that. Just as duffbeer says, start saving. Also look at my answer here.\",\n \"I am not interested in watching stock exchange rates all day long. I just want to place it somewhere and let it grow Your intuition is spot on! To buy & hold is the sensible thing to do. There is no need to constantly monitor the stock market. To invest successfully you only need some basic pointers. People make it look like it's more complicated than it actually is for individual investors. You might find useful some wisdom pearls I wish I had learned even earlier. Stocks & Bonds are the best passive investment available. Stocks offer the best return, while bonds are reduce risk. The stock/bond allocation depends of your risk tolerance. Since you're as young as it gets, I would forget about bonds until later and go with a full stock portfolio. Banks are glorified money mausoleums; the interest you can get from them is rarely noticeable. Index investing is the best alternative. How so? Because 'you can't beat the market'. Nobody can; but people like to try and fail. So instead of trying, some fund managers simply track a market index (always successfully) while others try to beat it (consistently failing). Actively managed mutual funds have higher costs for the extra work involved. Avoid them like the plague. Look for a diversified index fund with low TER (Total Expense Ratio). These are the most important factors. Diversification will increase safety, while low costs guarantee that you get the most out of your money. Vanguard has truly good index funds, as well as Blackrock (iShares). Since you can't simply buy equity by yourself, you need a broker to buy and sell. Luckily, there are many good online brokers in Europe. What we're looking for in a broker is safety (run background checks, ask other wise individual investors that have taken time out of their schedules to read the small print) and that charges us with low fees. You probably can do this through the bank, but... well, it defeats its own purpose. US citizens have their 401(k) accounts. Very neat stuff. Check your country's law to see if you can make use of something similar to reduce the tax cost of investing. Your government will want a slice of those juicy dividends. An alternative is to buy an index fund on which dividends are not distributed, but are automatically reinvested instead. Some links for further reference: Investment 101, and why index investment rocks: However the author is based in the US, so you might find the next link useful. Investment for Europeans: Very useful to check specific information regarding European investing. Portfolio Ideas: You'll realise you don't actually need many equities, since the diversification is built-in the index funds. I hope this helps! There's not much more, but it's all condensed in a handful of blogs.\",\n \"\\\"For starting with zero knowledge you certainly did a great job on research as you hit on most of the important points with your question. It seems like you have already saved up around six months of expenses in savings so it is a great time to look into investing. The hardest part of your question is actually one of the most important details. Investing in a way that minimizes your taxes is generally more important, in the end, than what assets you actually invest in (as long as you invest even semi-reasonably). The problem is that the interaction between your home country's tax system and the U.S. tax system can be complex. It's probably (likely?) still worth maxing out your 401(k) (IRA, SEP, 529 accounts if you qualify) to avoid taxes, but like this question from an Indian investor it may be worth seeing an investment professional about this. If you do, see a fee-based professional preferably one familiar with your country. If tax-advantaged accounts are not a good deal for you or if you max them out, a discount broker is probably a good second option for someone willing to do a bit of research like you. With this money investing in broadly-diversified, low fee, index mutual funds or exchange traded funds is generally recommended. Among other benefits, diversified funds make sure that if any particular company fails you don't feel too much pain. The advantages of low fees are fairly obvious and one very good reason why so many people recommend Vanguard on this site. A common mix for someone your age is mostly stocks (local and international) and some bonds. Though with how you talk about risk you may prefer more bonds. Some people recommend spicing this up a bit with a small amount of real estate (REITs), sometimes even other assets. The right portfolio of the above can change a lot given the person. The above mentioned adviser and/or more research can help here. If, in the future, you start to believe you will go back to your home country soon that may throw much of this advice out the window and you should definitely reevaluate then. Also, if you are interested in the math/stats behind the above advice \\\"\\\"A Random Walk Down Wall Street\\\"\\\" is a light read and a good place to start. Investing makes for a very interesting and reasonably profitable math/stats problem.\\\"\",\n \"Congratulations! You're making enough money to invest. There are two easy places to start: I recommend against savings accounts because they will quite safely lose your money: the inflation rate is usually higher than the interest rate on a savings account. You may have twice as much money after 50 years, but if everything costs four times as much, then you've lost buying power. If, in the course of learning about investing, you'd like to try buying individual stocks, do it only with money you wouldn't mind losing. Index funds will go down slightly if one of the companies in that index fails entirely, but the stock of a failed company is worthless.\",\n \"\\\"You may want to hold onto the $5000 and keep it in savings. Interest rates are for crap, even in \\\"\\\"high yield\\\"\\\" accounts, so you can rightly not consider it investing. You should be graduating college soon. It would suck if an emergency crops up to prevent you from graduating. I assume that you are going into a high paying career given your nice income from internships. Your best investment is yourself at this point. Completing your education, and obtaining your degree trumps all. You could use that extra 5000 as a hedge/insurance policy/emergency fund to help insure you graduate. Also you are likely to have some moving expenses once you graduate. That 5K could be used to help cover those costs. The worst case is you graduate with no emergencies, you get a nice signing bonus and relocation package, and you still have the $5000. Well you still have until 15 April 2015 to put money in your ROTH for 2014. This holds true for every tax year. Given your current financial status, you are likely to find yourself soon contributing the max to your 401K and ROTH. Once that happens, money beyond that can be invested into mutual funds stocks that are not tax advantaged, real estate, or some other choices. Well then you have some things to think about.\\\"\",\n \"\\\"Between 1 and 2 G is actually pretty decent for a High School Student. Your best bet in my opinion is to wait the next (small) stock market crash, and then invest in an index fund. A fund that tracks the SP500 or the Russel 2000 would be a good choice. By stock market crash, I'm talking about a 20% to 30% drop from the highest point. The stock market is at an all time high, but nobody knows if it's going to keep going. I would avoid penny stocks, at least until you can read their annual report and understand most of what they're claiming, especially the cash flow statement. From the few that I've looked at, penny stock companies just keep issuing stock to raise money for their money loosing operations. I'd also avoid individual stocks for now. You can setup a practice account somewhere online, and try trading. Your classmates probably brag about how much they've made, but they won't tell you how much they lost. You are not misusing your money by \\\"\\\"not doing anything with it\\\"\\\". Your classmates are gambling with it, they might as well go to a casino. Echoing what others have said, investing in yourself is your best option at this point. Try to get into the best school that you can. Anything that gives you an edge over other people in terms of experience or education is good. So try to get some leadership and team experience. , and some online classes in a field that interests you.\\\"\",\n \"At your young age, the most of your wealth is your future labor income (unless you are already rich). Your most profitable investment at this time is most likely to be investment in your human capital (your professional skills, career opportunities). Depending on how you plan to earn your money, invest time and effort to enable you to earn better wages in that activity. So focus on education or professional training. Also, consider that it is probably your total lifetime utility/welfare you should maximize (but you decide!). I suggest you do not focus narrowly on earning as much money as possible. Consider what sort of life you want and what you need to do to enable it. Best of luck!\",\n \"\\\"Since you already have an emergency fund in place, focus your extra funds on paying off debts like student loans. While some have advised you to play the stock market, not one person has mentioned the word \\\"\\\"risk\\\"\\\". You are gambling (\\\"\\\"investing\\\"\\\") your money in the hopes your money will grow. Your student loan is real liability. The longer you keep the loan, the more interest you will pay. You can pay off your student loan in 21 months if you pay $1,100 each month. After the 21 months, you can almost fully fund a 401(k) each year. That will be amazing at your age. Our company gives us the Vanguard Retirement Fund with a low expense ratio of 0.19%. It is passive automated investing where you don't have to think about it. Just add money and just let it ride.\\\"\",\n \"Most important: Any gains you make from risking this sum of money over the next few years will not be life changing, but if you can't afford to lose it, then losses can be. Rhetorical question: How can you trust what I say you should do with your money? Answer: You can't. I'm happy to hear you're reading about the stock market, so please allow me to encourage you to keep learning. And broaden your target to investing, or even further, to financial planning. You may decide to pay down debt first. You may decide to hold cash since you need it within a couple years. Least important: I suggest a Roth IRA at any online discount brokerage whose fees to open an account plus 1 transaction fee are the lowest to get you into a broad-market index ETF or mutual fund.\",\n \"This is all very basic and general advice, that works for most, but not all. You are unique with your own special needs and desires. Good luck! P.S.: not exactly related to your question, but when you get more familiar with investing and utilizing your money, find more ways to save more. For example, change phone plan, cut the cable, home made food in bulk, etc.\",\n \"Waiting for the next economic downturn probably isn't the best plan at this point. While it could happen tomorrow, you may end up waiting a long time. If you would prefer not to think much about your investment and just let them grow then mutual funds are a really good option. Make sure you research them before you buy into any and make sure to diversify, as in buy into a lot of different mutual funds that cover different parts of the market. If you want to be more active in investing then start researching the market and stick to industries you have very good understanding of. It's tough to invest in a market you know nothing about. I'd suggest putting at least some of that into a retirement savings account for long term growth. Make sure you look at both your short term and long term goals. Letting an investment mature from age 20 through to retirement will net you plenty of compound interest but don't forget about your short term goals like possible cars, houses and families. Do as much research as you can and you will be fine!\",\n \"Buy the minimum of one fund now. (Eg total bond market) Buy the minimum of the next fund next time you have $2500. (Eg large-cap stocks.) Continue with those until you have enough to buy the next fund (eg small-cap stocks). Adjust as you go to balance these funds according to your planned ratios, or as close as you can reasonably get without having to actually transfer money between the funds more than once a year or so. Build up to your targets over time. If you can't easily afford to tie up that first $2500, stay with banks and CDs and maybe money market accounts until you can. And don't try to invest (except maybe through a matched 401k) before you have adequate savings both for normal life and for an emergency reserve. Note too that the 401k can be a way to buy into funds without a minimum. Check with your employer. If you haven't maxed out your 401k yet, and it has matching funds, that is usually the place to start saving for retirement; otherwise you are leaving free money on the table.\",\n \"Are you going to need any of the money in the next year or two, or are you saving it long term? Are you going to need any of it before you are 65? If no to both, put in a Roth IRA with a Vanguard Target retirement fund. If no to the first and yes to the second, put in the VTI index fund. If you want, you can keep 20-30% in a bond fund instead of 100% stock. Every 3-12 months, log in and redistribute your funds to maintain the desired split if you'd like, but this is somewhat optional. If you really, really want, set aside 5% for investing in a few companies you really believe in. You'll probably lose money on that investment, but it will reassure you that the rest of your money is wisely invested.\",\n \"\\\"Say you have $15,000 of capital to invest. You want to put the majority of your capital into low risk investments that will yield positive gains over the course of your working career. $5,000: Government bonds and mutual funds, split how you want. $9,500: Low risk, trusted companies with positive historical growth. If the stock market is very unfamiliar for you, I recommend Google Finance, Yahoo Finance, and Zack's to learn about smart investments you can make. You can also research the investments that hedge fund managers and top investors are making. Google \\\"\\\"Warren Buffett or Carl Icahn portfolio\\\"\\\", and this will give you an idea of stocks you can put your money into. Do not leave your money into a certain company for more than 25 years. Rebalance your portfolio and take the gains when you feel you need them. You have no idea when to take your profits now, but 5 years from now, you will be a smart and experienced investor. A safe investment strategy to start is to put your money into an ETF that mimics the S&P 500. Over the past 20 years, the S&P 500 has yielded gains of about 270%. During the financial crisis a few years back, the S&P 500 had lost over 50% of its value when it reached its low point. However, from when it hit rock bottom in 2009, it has had as high percentage gains in six years as it did in 12 years from 1995 to 2007, which about 200%. The market is very strong and will treat your money well if you invest wisely. $500: Medium - High risk Speculative Stocks There is a reason this category accounts for only approximately 3% of your portfolio. This may take some research on the weekend, but the returns that may result can be extraordinary. Speculative companies are often innovative, low priced stocks that see high volatility, gains or losses of more than 10% over a single month. The likelihood of your $500 investment being completely evaporated is very slim, but if you lose $300 here, the thousands invested in the S&P 500, low risk stocks, government bonds, and mutual funds will more than recuperate the losses. If your pick is a winner, however, expect that the $500 investment could easily double, triple, or gain even more in a single year or over the course of just a few, perhaps, 2-4 years will see a very large return. I hope this advice helps and happy investing! Sending your money to smart investments is the key to financial security, freedom, and later, a comfortable retirement. Good luck, Matt McLaughlin\\\"\",\n \"Congratulations on getting started in life! John Malloy's (American) research suggests that you should take some time to get used to living on your own, make some friends, and settle into your community. During this time, you can build up an emergency fund. If/when the stock markets do not seem to be in a bear market, you can follow user3771352's advice to buy stock ETFs. Do you hope to get married and have children in the next few years? If so, you should budget time and money for activities where you make new friends (both men and women). Malloy points out that many Americans meet their spouses through women's networks of friends.\",\n \"First of all I recommend reading this short e-book that is aimed at young investors. The book is written for American investors but they same rules apply with different terms (e.g. the equivalent tax-free savings wrappers are called ISAs in the UK). If you don't anticipate needing the money any time soon then your best bet is likely a stocks and share ISA in an aggressive portfolio of assets. You are probably better off with an even more aggressive asset allocation than the one in the book, e.g. 0-15% bond funds 85-100% equity funds. In the long term, this will generate the most income. For an up-to-date table of brokers I recommend Monevator. If you are planning to use the money as a deposit on a mortgage then your best bet might be a Help to Buy ISA, you'll have to shop around for the best deals. If you would rather have something more liquid that you can draw into to cover expenses while at school, you can either go for a more conservative ISA (100% bond funds or even a cash ISA) or try to find a savings account with a comparable interest rate.\",\n \"Put it in the bank and earn the meager interest rate. By far your most important investment is finishing your education and as such this money might be needed to do so. If you don't need the money during your education you will undoubtedly need it for a new apartment/furnishings/moving expenses.\",\n \"\\\"Good for you! At your age, you should definitely consider investing some of your hard-earned and un-needed money in stocks with the long-term goal of having your retirement funded. The time horizon that you'd have would be vastly superior to that of millions of others, who will wait until their thirties or even forties to begin investing in stocks, giving your compound interest prospects the extra time anyone needs for a spectacular vertical incline in your later years. Make sure to sign up to automatically re-invest the dividend payouts of your stocks, please. (If you don't already know how being young and investing well in your early years is more powerful than starting out ten to twenty years later, do a little research on \\\"\\\"Compound Interest\\\"\\\"). Make sure you monitor your investments. Being young means you have time to correct your investments (sell and buy other assets) if the businesses you initially selected are no longer good investments.\\\"\",\n \"\\\"Before going into specific investments, I think it would be a good idea to assess how \\\"\\\"free\\\"\\\" is that $5000. How much do you have to rely on it in emergency? You always want to buy low and sell high. However, if you need to make unplanned withdraw from an investment, you risk unfavorable market conditions at the time when you need the money, and lose money that way. One common suggestion is to keep 3-6 months living expense in checking/saving/very, very liquid/short term investments. After that, you can invest the rest in more profitable ventures. Assuming that you are all set in that regard, next consideration is whether you have any goal for the money besides generating the maximum return. Is this for retirement, buying a house/apartment a few year down the road, graduate school, emergency cash store for the time between graduation and getting a job, or traveling a year in Europe after graduation? There are myriad of other possible goals. Knowing that you get a better idea of the time frame involved in the investment, and what you need to do with your money. If this is for retirement, you just need to generate the highest possible return for 40-50 years, while minimize taxes when you have to withdraw that money (there are more nuanced concerns, but large idea-wise that's what you need to do). If you want it for a trip to an exotic location in 2 year, then your primary goal will be to preserve the value of your capital, while assessing whether you need to manage foreign-exchange risk. The time frame also rule in or rule out certain types of investments. If you are planning to use the money to purchase a house in 5 years, IRAs probably would not be what you are looking for. If you are planning to retirement, short term CD would not be the most effective way. After figuring out a bit of what you are trying to do with the money, I think how you want to invest it will be much more clear to you. In case of retirement, people seem to generally recommend no load index funds, and mid-cap growth funds. Nothing is really off the table, since your investment time frame is so long, and you can tolerate risk. You might also be interested to check out https://www.wealthfront.com/ (I have no relation with them). A friend recommended it to me, and I think their pitch make sense. In other cases, it really is case dependent, and there might have more than one solution to any case. There is just one more potential investment venture that people you might not immediately thinking of, and that might be of interest to you. That is to use the $5000 as your own budget to build/maintain connections with people and network. Use it to take professors out to a meal to pick their brain, travel to keep in touch with old friends, network with potential future employers and peers to improve job prospect, or get opportunities to meet interesting people. I hope this helps.\\\"\",\n \"For your purposes, I would recommend using direct investment in a no-load mutual fund. I mostly use Vanguard and would recommend them. They just about invented index funds, usually have the lowest (internal) expenses for index and many other funds, if you take electronic instead of paper statements there is no maintenance fee, have no transaction commission, can do periodic automatic investment from a bank account etc. A typical index fund there would require an initial $3000 investment and would have a minimum of $100 for each additional investment. If you can't come up with an initial sum of that size, you might be able to find a broker with a lower minimum and suitable free ETFs trades as others have suggested.\",\n \"Congrats on making it this far debt free. It is rare, but nice to be in the situation that you are in. The important thing here is that you want to remain debt free. That's really what the emergency fund is all about: it keeps you from needing to go into debt should something unexpected happen. You've got 1.5 months worth of expenses saved up, and that's great. If you don't have a family or other responsibilities, that might be enough, but think about this: how are you paying for school, and what would happen if those funds stopped coming in? If you are paying for school out of your own income, what happens if you lose your job? If someone else, perhaps your parents, is paying for school, what happens if they are suddenly no longer able to do so? While you have extra cash, you want to be saving it up for situations like this. If I were you, I would build up that emergency fund until it got to the point where it could pay all your expenses and tuition until graduation. Hopefully, you won't need to touch it, but it will be there if you need it. Since you need to be able to access your money quickly, it is generally recommended to park this money in a savings account, where it is very safe. Mutual funds are a great way to invest, but they are not safe in the short term. Don't stress out about not being able to start retirement investing just yet. Making sure you can finish school debt free is the best investment you can make right now. After you graduate and land a job, you can start investing aggressively.\",\n \"If I were in your shoes (I would be extremely happy), here's what I would do: Get on a detailed budget, if you aren't doing one already. (I read the comments and you seemed unsure about certain things.) Once you know where your money is going, you can do a much better job of saving it. Retirement Savings: Contribute up to the employer match on the 401(k)s, if it's greater than the 5% you are already contributing. Open a Roth IRA account for each of you and make the max contribution (around $5k each). I would also suggest finding a financial adviser (w/ the heart of a teacher) to recommend/direct your mutual fund investing in those Roth IRAs and in your regular mutual fund investments. Emergency Fund With the $85k savings, take it down to a six month emergency fund. To calculate your emergency fund, look at what your necessary expenses are for a month, then multiply it by six. You could place that six month emergency fund in ING Direct as littleadv suggested. That's where we have our emergency funds and long term savings. This is a bare-minimum type budget, and is based on something like losing your job - in which case, you don't need to go to starbucks 5 times a week (I don't know if you do or not, but that is an easy example for me to use). You should have something left over, unless your basic expenses are above $7083/mo. Non-retirement Investing: Whatever is left over from the $85k, start investing with it. (I suggest you look into mutual funds) it. Some may say buy stocks, but individual stocks are very risky and you could lose your shirt if you don't know what you're doing. Mutual funds typically are comprised of many stocks, and you earn based on their collective performance. You have done very well, and I'm very excited for you. Child's College Savings: If you guys decide to expand your family with a child, you'll want to fund what's typically called a 529 plan to fund his or her college education. The money grows tax free and is only taxed when used for non-education expenses. You would fund this for the max contribution each year as well (currently $2k; but that could change depending on how the Bush Tax cuts are handled at the end of this year). Other resources to check out: The Total Money Makeover by Dave Ramsey and the Dave Ramsey Show podcast.\",\n \"If you have no immediate need for the money you can apply the Rule of 72 to that money. Ask your parent's financial advisor to invest the money. Based on the rate of return your money will double like clockwork. At 8% interest your money will double every 9 years. 45 years from now that initial investment will have doubled 5 times. That adds up pretty fast. Time is your best friend when investing at your age. Odds are you'll want to be saving for a college education though. Graduating debt free is by far the best plan.\",\n \"The standard advice is to have 3-6 months worth of expenses saved up in a highly liquid savings or money market account. After you have that saved you could look to start investing. I would recommend reading the bogleheads investment wiki (https://www.bogleheads.org/wiki/Getting_started). Even if you aren't planning on following the bogle head's way of passive investing it will give you a lot of good info on options available to you to start investing.\",\n \"\\\"I disagree with the IRA suggestion. Why IRA? You're a student, so probably won't get much tax benefits, so why locking the money for 40 years? You can do the same investments through any broker account as in IRA, but be able to cash out in need. 5 years is long enough term to put in a mutual fund or ETF and expect reasonable (>1.25%) gains. You can use the online \\\"\\\"analyst\\\"\\\" tools that brokers like ETrade or Sharebuilder provide to decide on how to spread your portfolio, 15K is enough for diversifying over several areas. If you want to keep it as cash - check the on-line savings accounts (like Capitol One, for example, or Ally, ING Direct that will merge with Capitol One and others) for better rates, brick and mortar banks can not possible compete with what you can get online.\\\"\",\n \"I wouldn't recommend trying to chase a good return on this money. I'd just put it into a savings account of some sort. If you can get a better interest rate with an online account, then feel free to do that. I'd recommend using this money to pay for as much of college out of pocket as you can. The more student loans you can avoid, the better. As @John Bensin said, trying to make money in the stock market in such a short time is too risky. For this money, you want to preserve the principal to pay for school, or to pay down your loans when you get out. If you find you have more money than you need to finish paying for school, then I'd suggest setting some aside for an emergency fund, setting aside enough to pay your loans off when you're out of school, saving for future purchases (house, car, etc), and then start investing (maybe for retirement in a Roth IRA or something like that).\",\n \"\\\"The power of compounding interest and returns is an amazing thing. Start educating yourself about investing, and do it -- there are great Q&As on this site, numerous books (I recommend \\\"\\\"The Intelligent Investor\\\"\\\", tools for small investors (like Sharebuilder.com) and other resources out there to get you started. Your portfolio doesn't need to include every dime you have either. But you do need to develop the discipline to save money -- even if that savings is $20 while you're in school. How you split between cash/deposit account savings and other investment vehicles is a decision that needs to make sense to you.\\\"\",\n \"\\\"Put it in a Vanguard fund with 80% VTI and 20% VXUS. That's what you'll let set for 10-15 years. For somebody that is totally new to investing, use \\\"\\\"play money\\\"\\\" in the stock market. It's easy for young people to get dreams of glory and blow it all on some stock tip they've seen on Twitter.\\\"\",\n \"First off, you have done very well to be in your financial position at your age. Congratulations. I first started investing seriously about 10 years ago, and when I started, I had a similar attitude to you. Learning how to invest is a journey, and it will take you a while to learn both the intellectual and emotional sides of investing. First off, there is nothing wrong with having a chunk of cash that you aren't investing effectively. It is far better to be losing earning power WRT inflation that it is to make a bad investment, where you can lose all your money quite quickly. I have perhaps 15% of my capital just sitting around right now because I don't have any place where I'm excited to put it. For your IRA, I would look at the options you have, and choose one that is reasonably well diversified and has low costs. In most cases, an index fund is a reasonable choice. My 401K goes into an S&P 500 index fund, and I don't have to worry about it. Beyond that, I suggest spending some time learning about investing, and then making some small and conservative investments. I've learned a lot from the Motley Fool web site.\",\n \"Your urge to invest is a good one. If you don’t invest your money, you're probably leaving about two thirds of it on the table. By the time you need the money (without knowing your exact future withdrawals, and taking national averages into consideration), investing would have grown it by three times. As far as how much money you should invest...I invest everything I'm not going to use in the next month or two. My advisor is able to monitor my bank accounts and sweep any unused cash into investment accounts. Using AI, they're able to figure out exactly which days I'll be needing cash then put it back in my accounts before I need it. 1% of my portfolio is always kept in cash, for emergencies. With investing, there are lots of things to consider. You need to decide what to invest in - spread your money over many different asset classes - monitor market trends - have a plan for market ups and downs - regularly rebalance - maneuver the fun world of taxes. Basically - asset management. Vanguard mutual funds are an easy, affordable way to spread your money over many different assets, but they don't offer much when it comes to asset management. I'd suggest you find a flat fee advisor (no more than 1% of your managed assets) who listens to you, determines your goals, creates a plan based on upon, then executes it with no commission or execution costs. In this particular vein, robo advisors are the best bet. I don't want to come across like I'm selling something, however, I have had much satisfaction with online digital advisors. Hope this helps.\",\n \"Great question and great of you to be paying attention to this. Right now having the ability to save $2K per year might seem very out of reach. However with the right career path and by paying attention to personal finance saving 2K per month will become possible sooner than you may think. As a student you are already investing in your future, by building your greatest wealth building tool: your income. Right now concentrate on that. If you have extra money throw it in a boring old savings account and don't touch it other than emergencies. An emergency is defined as something that will preclude you from completing your education. It is not paying for the latest xbox game/skateboard/once in a lifetime trip. An important precursor to investing is having an emergency fund that sits in a boring old savings account earning almost nothing. Think of it as an insurance policy that prevents you from liquidating your investments in case of and emergency. Emergencies often come during economic downturns. If you have to liquidate your investment to cover these times then you will lock in negative returns. Once you are done with school, moved into a place of your own, and have your first job you will have a nice start on your emergency fund. Then you can start investing. Doing it in the right order you will be amazed how quickly your savings can accumulate. I'd be shooting for that 2 million by the time you are 40, not 65.\",\n \"You should invest a trivial (<500$USD) amount of money in a stock portfolio. If you aren't able to make more on the market than the interest rates of your loans, you are losing money. This question has discussed this topic as well.\",\n \"You can invest another $5,500 in your Roth IRA each year, so you can invest up to $11,000 between the two tax years. Additionally you can make investments for the previous year up until 15 April the following year. In your case that will be close to graduation time, and you may decide to max out the contribution for 2014, but wait until you are settled into a new job before setting those savings aside long-term. When you start your first job, there will likely also be an option to invest in a 401k. You can still have the advantages of a Roth, but you will be limited to the investments available in the plan. Most employers I've seen today still offer a low-cost index fund, but you may have to speak up at a company meeting to pressure them to include one of those options in the plan. With a 401k your limit increases to $17,500/year. Make sure that the index fund you invest in has the lowest possible expense ratio. I use VOO. Depending on trading fees, etc., you might pick something else.\",\n \"When investing small amounts, you should consider the substantial toll that commissions will take on your investment. In your case, $800 placed in just one ETF will incur commissions of about $8 each way, or a total of 2% of your investment. I suggest you wait until you have at least $5000 to invest in stocks or ETFs. Since this is in a IRA, your options are limited, but perhaps you may qualify for a Vanguard mutual fund, which will not charge commissions and will have annual expenses only a trivial amount higher than the corresponding ETF. it should probably go in a mixed allocation fund, and since you are young, it should be a relatively aggressive one. Mutual funds will also allow you to contribute small amounts over time without incurring any extra fees.\",\n \"Investing in the stock market early is a good thing. However, it does have a learning curve, and that curve can, and eventually will, cost you. One basic rule in investing is that risk and reward are proportional. The greater the reward, the higher the risk that you either (a) won't get the reward, or (b) lose your money instead. Given that, don't invest money you can't afford to lose (you mentioned you're on a student budget). If you want to start with short but sercure investments, try finding a high-interest savings account or CD. For example, the bank I use has an offer where the first $500 in your account gets ~6% interest - certainly not bad if you only put $500 in the account. Unfortunately, most banks are offering a pittance for savings rates or CDs. If you're willing to take more risk, you could certainly put money into the stock market. Before you do, I would recommend spending some time learning about how the stock market works, it's flows and ebbs, and how stock valuations work. Don't buy a stock because you hear about it a lot; understand why that stock is being valued as such. Also consider buying index funds (such as SPY) which is like a stock but tracks an entire index. That way if a specific company suddenly drops, you won't be nearly as affected. On the flip side, if only 1 company goes up, but the market goes down, you'll miss out. But consider the odds of having picked that 1 company.\",\n \"\\\"You are your own worst enemy when it comes to investing. You might think that you can handle a lot of risk but when the market plummets you don't know exactly how you'll react. Many people panic and sell at the worst possible time, and that kills their returns. Will that be you? It's impossible to tell until it happens. Don't just invest in stocks. Put some of your money in bonds. For example TIPS, which are inflation adjusted treasury bonds (very safe, and the return is tied to the rate of inflation). That way, when the stock market falls, you'll have a back-stop and you'll be less likely to sell at the wrong time. A 50/50 stock/bond mix is probably reasonable. Some recommend your age in bonds, which for you means 20% or so. Personally I think 50/50 is better even at your young age. Invest in broad market indexes, such as the S&P 500. Steer clear of individual stocks except for maybe 5-10% of your total. Individual stocks carry the risk of going out of business, such as Enron. Follow Warren Buffet's two rules of investing: a) Don't lose money b) See rule a). Ignore the \\\"\\\"investment porn\\\"\\\" that is all around you in the form of TV shows and ads. Don't chase hot companies, sectors or countries. Try to estimate what you'll need for retirement (if that's what your investing for) and don't take more risk than you need to. Try to maintain a very simple portfolio that you'll be able to sleep well with. For example, check into the coffeehouse investor Pay a visit to the Bogleheads Forum - you can ask for advice there and the advice will be excellent. Avoid investments with high fees. Get advice from a good fee-only investment advisor if needed. Don't forget to enjoy some of your money now as well. You might not make it to retirement. Read, read, read about investing and retirement. There are many excellent books out there, many of which you can pick up used (cheap) through amazon.com.\\\"\",\n \"Since you're coming out of college, you're probably a new investor and don't know too much about stocks, etc. I was in the same situation as well. I wanted to keep my cash 'liquid' and wanted to make low risk investments. What I ended up doing was investing the majority of my money in higher interest GICs (Guaranteed Investment Certificate) and keeping the rest in my chequing/savings account. I understand that GICs aren't exactly the most liquid asset out there. However, instead of investing it all into 1 GIC, I put them in to smaller increments with varying lock-in times and roll-over options. I.e. for 15000 keep $3000 on hand in your account 2x$1000 invested for 2 years 4x$1000 invested for 1 year 3x$1000 invested for 180 days 3x$1000 invested for 90 days When you find that you run out of cash from your $3000, you'll have a GIC expiring soon. The 'problem' with GICs is that redeeming them before the maturity period usually incurs a penalty in the form of no interest. Keeping them in smaller increments allows you to redeem only the amount you need without losing too much interest. At maturity, if you don't need the money, you can just have the GIC renew. The other problem with GICs, is that interest rates, though better than savings accounts, aren't that much more. You're basically just fighting off inflation. The benefit is that on maturity, you are guaranteed your principal and the interest. This plan is easy to implement if your bank/credit union allows you to create and manage GICs online.\",\n \"Investing is really about learning your own comfort level. You will make money and lose money. You will make mistakes but you will also learn a great deal. First off, invest in your own financial knowledge, this doesn't require capital at all but a commitment. No one will watch or care for your own money better than yourself. Read books, and follow some companies in a Google Finance virtual portfolio. Track how they're doing over time - you can do this as a virtual portfolio without actually spending or losing money. Have you ever invested before? What is your knowledge level? Investing long term is about trying to balance risk while reducing losses and trying not to get screwed along the way (by people). My personal advice: Go to an independent financial planner, go to one that charges you per hour only. Financial planners that don't charge you hourly get paid in commissions. They will be biased to sell you what puts the most money in their pockets. Do not go to the banks investment people, they are employed by the banks who have sales and quota requirements to have you invest and push their own investment vehicles like mutual funds. Take $15k to the financial planner and see what they suggest. Keep the other $5K in something slow and boring and $1k under your mattress in actual cash as an emergency. While you're young, compound interest is the magic that will make that $25k increase hand over fist in time. But you need to have it consistently make money. I'm young too and more risk tolerant because I have time. While I get older I can start to scale back my risk because I'm nearing retirement and preserve instead of try to make returns.\",\n \"\\\"I'd first put it in CDs or other short term account. Get through school first, then see where you land. If you have income that allows you to start a Roth IRA, I'd go for that, but keep it safe in case you actually need it back soon. After school, if you don't land a decent job fast, this money might be needed to live on. How long will it last if you take a few months to find work? If you do find a good job, moving, and setting up an apartment has a cost. Once you're there, I'd refer you to the many \\\"\\\"getting started\\\"\\\" Q&As on this site.\\\"\",\n \"Then buy an indexed ETF or mutual fund that tracks the S&P 500 and leave your money there until you need it. If you can (there are restrictions for income, etc.), try and setup a retirement vehicle, such as a Roth IRA to get tax advantages.\",\n \"\\\"Some thoughts: 1) Do you have a significant emergency fund (3-6 months of after-tax living expenses)? If not, you stand to take a significant loss if you have an unexpected need for cash that is tied up in investments. What if you lose/hate your job or your car breaks down? What if a you want to spend some time with a relative or significant other who learns they only have a few months to live? Having a dedicated emergency fund is an important way to avoid downside risk. 2) Lagerbaer has a good suggestion. Given that if you'd reinvested your dividends, the S&P 500 has returned about 3.5% over the last 5 years, you may be able to get a very nice risk-free return. 3) Do you have access to employer matching funds, such as in a 401(k) at work? If you get a dollar-for-dollar match, that is a risk-free pre-tax 100% return and should be a high priority. 4) What do you mean by \\\"\\\"medium\\\"\\\" volatility? Given that you are considering a 2/3 equity allocation, it would not be at all out of the realm of possibility that your balance could fall by 15% or more in any given year and take several years to recover. If that would spook you, you may want to consider lowering your equity weights. A high quality bond fund may be a good fit. 5) Personally, I would avoid putting money into stocks that I didn't need back for 10 years. If you only want to tie your money up for 2-5 years, you are taking a significant risk that if prices fall, you won't have time to recover before you need your money back. The portfolio you described would be appropriate for someone with a long-term investment horizon and significant risk tolerance, which is usually the case for young people saving for retirement. However, if your goals are to invest for 2-5 years only, your situation would be significantly different. 6) You can often borrow from an investment account to purchase a primary residence, but you must pay that amount back in order to avoid significant taxes and fees, unless you plan to liquidate assets. If you plan to buy a house, saving enough to avoid PMI is a good risk-free return on your money. 7) In general, and ETF or index fund is a good idea, the key being to minimize the compound effect of expenses over the long term. There are many good choices a la Vanguard here to choose from. 8) Don't worry about \\\"\\\"Buy low, sell high\\\"\\\". Don't be a speculator, be an investor (that's my version of Anthony Bourdain's, \\\"\\\"don't be a tourist, be a traveler\\\"\\\"). A speculator wants to sell shares at a higher price than they were purchased at. An investor wants to share in the profits of a company as a part-owner. If you can consistently beat the market by trying to time your transactions, good for you - you can move to Wall Street and make millions. However, almost no one can do this consistently, and it doesn't seem worth it to me to try. I don't mean to discourage you from investing, just make sure you have your bases covered so that you don't have to cash out at a bad time. Best of luck! Edit Response to additional questions below. 1) Emergency fund. I would recommend not investing in anything other than cash equivalents (money market, short-term CDs, etc.) until you've built up an emergency fund. It makes sense to want to make the \\\"\\\"best\\\"\\\" use of your money, but you also have to account for risk. My concern is that if you were to experience one or more adverse life events, that you could lose a lot of money, or need to pay a lot in interest on credit card debt, and it would be prudent to self-insure against some of those risks. I would also recommend against using an investment account as an emergency fund account. Taking money out of investment accounts is inefficient because the commissions/taxes/fees can easily eat up a significant portion of your returns. Ideally, you would want to put money in and not touch it for a long time in order to take advantage of compounding returns. There are also high penalties for early disbursements from retirement funds. Just like you need enough money in your checking account to buy food and pay the rent every month, you need enough money in an emergency fund to pay for things that are a real possibility, even if they are less common. Using a credit card or an investment account is a relatively expensive way to do this. 2) Invest at all? I would recommend starting an emergency fund, and then beginning to invest for retirement. Once your retirement savings are on track, you can begin saving for whatever other goals you may have\\\"\",\n \"\\\"Everything that I'm saying presumes that you're young, and won't need your money back for 20+ years, and that you're going to invest additional money in the future. Your first investments should never be individual stocks. That is far too risky until you have a LOT more experience in the market. (Once you absolutely can't resist, keep it to under 5% of your total investments. That lets you experiment without damaging your returns too much.) Instead you would want to invest in one or more mutual funds of some sort, which spreads out your investment across MANY companies. With only $50, avoiding a trading commission is paramount. If you were in the US, I would recommend opening a free online brokerage account and then purchasing a no-load commission-free mutual fund. TD Ameritrade, for example, publishes a list of the funds that you can purchase without commission. The lists generally include the type of fund (index, growth, value, etc.) and its record of return. I don't know if Europe has the same kind of discount brokerages / mutual funds the US has, but I'd be a little surprised if it didn't. You may or may not be able to invest until you first scrape together a $500 minimum, but the brokerages often have special programs/accounts for people just starting out. It should be possible to ask. One more thing on picking a fund: most charge about a 1% annual expense ratio. (That means that a $100 investment that had a 100% gain after one year would net you $198 instead of $200, because 1% of the value of your asset ($200) is $2. The math is much more complicated, and depends on the value of your investment at every given point during the year, but that's the basic idea.) HOWEVER, there are index funds that track \\\"\\\"the market\\\"\\\" automatically, and they can have MUCH lower expense fees (0.05%, vs 1%) for the same quality of performance. Over 40 years, the expense ratio can have a surprisingly large impact on your net return, even 20% or more! You'll want to google separately about the right way to pick a low-expense index fund. Your online brokerage may also be able to help. Finally, ask friends or family what mutual funds they've invested in, how they chose those funds, and what their experience has been. The point is not to have them tell you what to do, but for you to learn from the mistakes and successes of other experienced investors with whom you can follow up.\\\"\",\n \"After looking at your profile, I see your age...28. Still a baby. At your age, and given your profession, there really is no need to build investment income. You are still working and should be working for many years. If I was you, I'd be looking to do a few different things: Eliminating debt reduces risk, and also reduces the need for future income. Saving for, and purchasing a home essentially freezes rent increases. If home prices double in your area, in theory, so should rent prices. If you own a home you might see some increases in taxes and insurance rates, but they are minor in comparison. This also reduces the need for future income. Owning real estate is a great way to build residual income, however, there is a lot of risk and even if you employ a management company there is a lot more hands on work and risk. Easier then that you can build an after tax investment portfolio. You can start off with mutual funds for diversification purposes and only after you have built a sizable portfolio should (if ever) make the transition to individual stocks. Some people might suggest DRIPs, but given the rate at which you are investing I would suggest the pain of such accounts is more hassle then it is worth.\",\n \"\\\"If you're making big money at 18, you should be saving every penny you can in tax-advantaged retirement accounts. (If your employer offers it, see if you can do a Roth 401(k), as odds are good you'll be in a higher tax bracket at retirement than you are now and you will benefit from the Roth structure. Otherwise, use a regular 401(k). IRAs are also an option, but you can put more money into a 401(k) than you can into an IRA.) If you do this for a decade or two while you're young, you'll be very well set on the road to retirement. Moreover, since you think \\\"\\\"I've got the money, why not?\\\"\\\" this will actually keep the money from you so you can do a better job of avoiding that question. Your next concern will be post-tax money. You're going to be splitting this between three basic sorts of places: just plain spending it, saving/investing it in bank accounts and stock markets, or purchasing some other form of capital which will save you money or provide you with some useful capability that's worth money (e.g. owning a condo/house will help you save on rent - and you don't have to pay income taxes on that savings!) 18 is generally a little young to be setting down and buying a house, though, so you should probably look at saving money for a while instead. Open an account at Vanguard or a similar institution and buy some simple index funds. (The index funds have lower turnover, which is probably better for your unsheltered accounts, and you don't need to spend a bunch of money on mutual fund expense ratios, or spend a lot of time making a second career out of stock-picking). If you save a lot of your money for retirement now, you won't have to save as much later, and will have more income to spend on a house, so it'll all work out. Whatever you do, you shouldn't blow a bunch of money on a really fancy new car. You might consider a pretty-nice slightly-used car, but the first year of car ownership is distressingly close to just throwing your money away, and fancy cars only make it that much worse. You should also try to have some fun and interesting experiences while you're still young. It's okay to spend some money on them. Don't waste money flying first-class or spend tooo much money dining out, but fun/interesting/different experiences will serve you well throughout your life. (By contrast, routine luxury may not be worth it.)\\\"\",\n \"BrenBarn did a great job explaining your options so I won't rehash any of that. I know you said that you don't want to save for retirement yet, but I'm going to risk answering that you should anyway. Specifically, I think you should consider a Roth IRA. When it comes to tax advantaged retirement accounts, once the contribution period for a tax year ends, there's no way to make up for it. For example in 2015 you may contribute up to $5,500 to your IRA. You can make those contributions up until tax day of the following year (April 15th, 2016). After that, you cannot contribute money towards 2015 again. So each year that goes by, you're losing out on some potential to contribute. As for why I think a Roth IRA specifically could work well for you: I'm advocating this because I think it's a good balance. You put away some money in a retirement account now, when it will have the most impact on your future retirement assets, taking advantage of a time you will never have again. At a low cost custodian like Vanguard, you can open an IRA with as little as $1,000 to start and choose from excellent fund options that meet your risk requirements. If you end up deciding that you really want that money for a car or a house or beer money, you can withdraw any of the contributions without fear of penalty or additional tax. But if you decide you don't really need to take that money back out, you've contributed to your retirement for a tax year you likely wouldn't have otherwise, and wouldn't be able to make up for later when you have more than enough to max out an IRA each year. I also want to stress that you should have a liquid emergency fund (in a savings or checking account) to deal with unexpected emergencies before funding something like this. But after that, if you have no specific goal for your savings and you don't know for sure you'll actually need to spend it in the near future, funding a Roth IRA is worth considering in my opinion.\",\n \"\\\"Invest! Because you are young and have lots of time, I recommend opening an investment account and putting most (1000£?) or all in something like an S&P 500 index fund or ETF. Start building your savings now because compound growth over time will build significant wealth. You can still invest the other 500£/mo in something a bit less volatile if you think you'll need the money in < 5 years. If you expect your income to continue to grow and you expect to have extra cash every month for the foreseeable future, I'd just put it all in an index fund. You can weather any temporary market swings, and in the worst-case scenario you can always sell a few shares if you need the cash. The advantage of an index fund is that it has very low fees and it's an \\\"\\\"invest-and-forget\\\"\\\" approach. You don't have to watch the market every day because your money will simply match the market. And in the long term the market does much better than most managed funds or ETFs. https://en.wikipedia.org/wiki/Index_fund\\\"\",\n \"529 College Savings Plans exist, which allow for tax-free savings for educational expenses, but I think you expect to go back to school too quickly for them to be worth the hassle. (They're more designed for saving for college for your kids.) Other than an IRA, you don't have many options for tax-advantaged accounts. In addition, since you plan to return to school, you should keep money around for that. Don't put that money in anything too volatile or hard to access. Since you don't plan on doing anything with the 80k in CDs right now, you can get away with higher risk with that money.\",\n \"Fund your retirement accounts first. Even as an intern, it is still worthwhile to open a Roth IRA and start contributing to it. See my answer to a similar question: Best way to start investing, for a young person just starting their career?\",\n \"Keep it simple: mutual funds (preferably index, low fee or ETF linked funds) do make a nice start for your little princess college fund. You dont need a real fortune to offset the trading cost of an online broker but if your really going to take advantage of dollar cost averaging, you might want to invest into a trusted fund company. Do your research, it is worth it. Ignore what the investment salesman is saying, he works for his wealth, not yours. A good DIY strategy, either joint with your own retirement account agregate or on a low cost index fund will make wonders. Keep in mind to be resilient: you will cash out when the princess will be in college in 20 yerars. Make sure to make proper time horizon investment and allocation. Cheers, All the best. Feel free to edit\",\n \"To expand on mhoran's answer - Once you mention the 401(k), we're compelled to ask (a) what is the match, if any, and (b) what are the expenses within the funds offered. Depositing to get the full match is going to get you the biggest return on your money. It's common to get a dollar for dollar match on the first 5 or 6% of your income. If the fees are high, you stop at the match, and move to an IRA for the next money you wish to save. At 22, I'd probably focus on the Roth. If you have access to a Roth 401(k), that's great, the match will be pre tax dollars and you'll get started with a decent tax status mix. These accounts can form the core of your investing. Most people have little left over once their retirement accounts are fully funded. And yes, reading to understand stocks is great, but also to understand why stock indexing is the best choice for most investors.\",\n \"It really is dependent upon your goals. What are your short term needs? Do you need a car/clothing/high cost apartment/equipment when you start your career? For those kinds of things, a savings account might be best as you will need to have quick access to cash. Many have said that people need two careers, the one they work in and being an investor. You can start on that second career now. Open up some small accounts to get the feel for investing. This can be index funds, or something more specialized. I would put money earmarked for a home purchase in funds with a lower beta (fluctuation) and some in index funds. You probably would want to get a feel for what and where you will actually be doing in your career prior to making a leap into a home purchase. So figure you have about 5 years. That gives you time to ride out the waves in the market. BTW, good job on your financial situation. You are set up to succeed.\",\n \"As stated in the comments, Index Funds are the way to go. Stocks have the best return on investment, if you can stomach the volatility, and the diversification index funds bring you is unbeatable, while keeping costs low. You don't need an Individual Savings Account (UK), 401(k) (US) or similar, though they would be helpful to boost investment performance. These are tax advantaged accounts; without them you will have to pay taxes on your investment gains. However, there's still a lot to gain from investing, specially if the alternative is to place them in the vault or similar. Bear in mind that inflation makes your money shrink in real terms. Even a small interest is better than no interest. By best I mean that is safe (regulated by the financial authorities, so your money is safe and insured up to a certain amount) and has reasonable fees (keeping costs low is a must in any scenario). The two main concerns when designing your portfolio are diversification and low TER (Total Expense Ratio). As when we chose broker, our concern is to be as safe as we possibly can (diversification helps with this) and to keep costs at the bare minimum. Some issues might restrict your election or make others seem better. Depending on the country you live and the one of the fund, you might have to pay more taxes on gains/dividends. e.g. The US keeps some of them if your country doesn't have a special treaty with them. Look for W-8Ben and tax withholding for more information. Vanguard and Blackrock offer nice index funds. Morningstar might be a good place for gathering information. Don't trust blindly the 'rating'. Some values are 'not rated' and kick ass the 4 star ones. Again: seek low TER. Not a big fan of this point, but I'm bound to mention it. It can be actually helpful for sorting out tax related issues, which might decide the kind of index fund you pick, and if you find this topic somewhat daunting. You start with a good chunk of money, so it might make even more sense in your scenario to hire someone knowledgeable and trustworthy. I hope this helps to get you started. Best of luck.\",\n \"I would definitely recommend putting some of this in an IRA. You can't put all $30K in an IRA immediately though, as the contribution limit is $5500/year for 2014, but until April 15 you can still contribute $5500 for 2013 as well. At your income level I would absolutely recommend a Roth IRA, as your income will very likely be higher in retirement, given that your income will almost certainly rise after you get your Ph.D. Your suggested asset allocation (70% stocks, 30% bonds) sounds appropriate; if anything you might want to go even higher on stocks assuming you won't mind seeing the value drop significantly. If you don't want to put a lot of energy into investment choices, I suggest a target retirement date fund. As far as I am aware, Vanguard offers the lowest expenses for these types of funds, e.g. this 2050 fund.\",\n \"\\\"Those who say a person should invest in riskier assets when young are those who equate higher returns with higher risk. I would argue that any investment you do not understand is risky and allows you to lose money at a more rapid rate than someone who understands the investment. The way to reduce risk is to learn about what you want to invest in before you invest in it. Learning afterward can be a very expensive proposition, possibly costing you your retirement. Warren Buffet told the story on Bloomberg Radio in late 2013 of how he read everything in his local library on investing as a teenager and when his family moved to Washington he realized he had the entire Library of Congress at his disposal. One of Mr. Buffett's famous quotes when asked why he doesn't invest in the tech sector was: \\\"\\\"I don't invest in what I do not understand.\\\"\\\". There are several major asset classes: Paper (stocks, bonds, mutual funds, currency), Commodities (silver, gold, oil), Businesses (creation, purchase or partnership as opposed to common stock ownership) and Real Estate (rental properties, flips, land development). Pick one that interests you and learn everything about it that you can before investing. This will allow you to minimize and mitigate risks while increasing the rewards.\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["I have about $1K in savings, and have been told that you should get into investment and saving for retirement early. I make around $200 per week, which about $150 goes into savings. That's $10k per year. The general rule of thumb is that you should have six months income as an emergency fund. So your savings should be around $5k. Build that first. Some argue that the standard should be six months of living expenses rather than income. Personally, I think that this example is exactly why it is income rather than living expenses. Six months of living expenses in this case would only be $1250, which won't pay for much. And note that living expenses can only be calculated after the fact. If your estimate of $50 a week is overly optimistic, you might not notice for months (until some large living expense pops up). Another problem with using living expenses as the measure is that if you hold down your living expenses to maximize your savings, this helps both measures. Then you hit your savings target, and your living expenses increase. So you need more savings. By contrast, if your income increases but your living expenses do not, you still need more savings but you can also save more money. Doesn't really change the basic analysis though. Either way you have an emergency savings target that you should hit before starting your retirement savings. If you save $150 per week, then you should have around $4k in savings at the beginning of next year. That's still low for an emergency fund by the income standard. So you probably shouldn't invest next year. With a living expenses standard, you could have $6250 in savings by April 15th (deadline for an IRA contribution that appears in the previous tax year). That's $5000 more than the $1250 emergency fund, so you could afford an IRA (probably a Roth) that year. If you save $7500 next year and start with $4k in savings (under the income standard for emergency savings), that would leave you with $11,500. Take $5500 of that and invest in an IRA, probably a Roth. After that, you could make a $100 deposit per week for the next year. Or just wait until the end. If you invested in an IRA the previous year because you decided use the living expenses standard, you would only have $6500 at the end of the year. If you wait until you have $6750, you could max out your IRA contribution. At that point, your excess income for each year would be larger than the maximum IRA contribution, so you could max it out until your circumstances change. If you don't actually save $3k this year and $7500 next year, don't sweat it. A college education is enough of an investment at your age. Do that first, then emergency savings, then retirement. That will flip around once you get a better paying, long term job. Then you should include retirement savings as an expected cost. So you'd pay the minimum required for your education loans and other required living expenses, then dedicate an amount for retirement savings, then build your emergency savings, then pay off your education loans (above the minimum payment). This is where it can pay to use the more aggressive living expenses standard, as that allows you to pay off your education loans faster. I would invest retirement savings in a nice, diversified index fund (or two since maintaining the correct stock/bond mix of 70%-75% stocks is less risky than investing in just bonds much less just stocks). Investing in individual stocks is something you should do with excess money that you can afford to lose. Secure your retirement first. Then stock investments are gravy if they pan out. If they don't, you're still all right. But if they do, you can make bigger decisions, e.g. buying a house. Realize that buying individual stocks is about more than just buying an app. You have to both check the fundamentals (which the app can help you do) and find other reasons to buy a stock. If you rely on an app, then you're essentially joining everyone else using that app. You'll make the same profit as everyone else, which won't be much because you all share the profit opportunities with the app's system. If you want to use someone else's system, stick with mutual funds. The app system is actually more dangerous in the long term. Early in the app's life cycle, its system can produce positive returns because a small number of people are sharing the benefits of that system. As more people adopt it though, the total possible returns stay the same. At some point, users saturate the app. All the possible returns are realized. Then users are competing with each other for returns. The per user returns will shrink as usage grows. If you have your own system, then you are competing with fewer people for the returns from it. Share the fundamental analysis, but pick your stocks based on other criteria. Fundamental analysis will tell you if a stock is overvalued. The other criteria will tell you which undervalued stock to buy.","You have great intentions, and a great future. As far as investing goes, you're a bit early. Unless your parents or other benefactor is going to pay every dime of your expenses, you'll have costs you need to address. $1000 is the start of a nice emergency fund, but not yet enough to consider investing for the long term. If you continue to work, it's not tough to burn through $200/wk especially when you are in college and have more financial responsibility.","I'd suggest you keep putting money in your savings account and start investing after you land that first big job. As another answer mentioned, unless you're fortunate enough to have all of your tuition and living expenses paid for, an emergency fund is an invaluable tool for a college student. And the bigger the better. Your laptop gets stolen or your car's air conditioner (or heater) dies -- both of these things happened to me in college -- and it would have been a much bigger deal for me if I didn't have some money tucked away.","While others have made a good case for how you may want to save and spend I just want to take a moment to comment on Acorn and Robinhood. Having never used either of them, I would stick to the seasoned professionals for my long term investment relationship. I'm sure they have the right licensing and proper SIPC coverage etc, but I wouldn't, personally, trust my money to an entity that's almost entirely funded by venture capital. I would stick to a company that exists and is profitable on it's own. All of the major brokerage houses (Vanguard, Schwab, ETrade, Scottrade, etc) in the US give account holders access to a list of ETFs and Mutual Funds with zero load on deposits, no or low minimum account balances, no or low investment minimums, and no commissions. With access to these no cost options, I wouldn't waste time with an entity that exists because of it's investor fund raising abilities.","\"The $1K in funds are by default your emergency fund. If absolutely necessary, emergency funds may need to come from debt, a credit capacity, focus on building credit to leverage lower rates for living expenses eventually needed. Profitable organizations & proprietors, borrow at a lower cost of capital than their return. Join your local credit union, you're welcome to join mine online, the current rates for the first $500 in both your checking and savings is 4.07%, it's currently the fourth largest in the U.S. by assets. You may join as a \"\"family member\"\" to me (Karl Erdmann), not sure what their definition of \"\"family\"\" is, I'd be happy to trace our ancestry if need be or consider other options. Their current incentive program, like many institutions have often, will give you $100 for going through the hassle to join and establish a checking and savings. Some institutions, such as this credit union, have a lower threshold to risk, applicants may be turned down for an account if there is any negative history or a low credit score, shooting for a score of 600 before applying seems safest. The web services, as you mentioned, have significantly improved the layman's ability to cost effectively invest funds and provide liquidity. Robinhood currently seems to be providing the most affordable access to the market. It goes without saying, stay objective with your trust of any platform, as you may have noticed, there is a detailed explanation of how Robinhood makes their money on this stack exchange community, they are largely backed by venture funding, hopefully the organization is able to maintain a low enough overhead to keep the organization sustainable in the long run. The services that power this service such as Plaid, seem promising and underrated, but i digress. The platform gives access for users to learn how investing works, it seems safest to plan a diversified portfolio utilizing a mix of securities,such as low Beta stocks or \"\"blue chip\"\" companies with clear dividend policies. One intriguing feature, if you invest in equities is casting votes on decisions in shareholder meetings. Another popular investment asset class that is less liquid and perhaps something to work toward is real estate. Google the economist \"\"Matthew Rognlie\"\" for his work on income equality on this type of investment. There are many incentives for first time homeowners, saving up for a down payment is the first step. Consider adding to your portfolio a Real Estate Investment Trust (REITs) to gain a market position. Another noteworthy approach to this idea is an investment commercial property cooperative organization, currently the first and only one is called NorthEast Investment Cooperative, one stock of class A is $1K. If you are interested and plan to focus on equities, consider dropping into your college's Accounting Capstone course to learn more about the the details of fundamental and technical analysis of an organization. The complexities of investing involve cyclical risk, macro and micro economic factors, understanding financial statements and their notes, cash flow forecasting - discounting, market timing, and a host of other details Wikipedia is much more helpful at detailing. It's safe to assume initial investment decisions by unsophisticated investors are mostly whimsical, and likely will only add up to learning opportunities, however risk is inherit in all things, including sitting on cash that pays a price of inflation. A promising mindset in long term investments are in organizations that focus on conscious business practices. Another way to think of investing is that you are already somewhat of a \"\"sophisticated investor\"\" and could beat the market by what you know given your background, catching wind of certain information first, or acting on a new trends or technology quickly. Move carefully with any perhaps biased \"\"bullish\"\" or \"\"bearish\"\" mindset. Thinking independently is helpful, constantly becoming familiar with different ideas from professions in a diverse set of backgrounds, and simulating decisions in portfolio's. Here is an extremely limited set of authors and outlets that may have ideas worth digging more into, MIT Tech Reviews (Informative), Bloomberg TV (it's free, informative), John Mackey (businessman), Paul Mason (provocative journalist). Google finance is a simple and free go-to application, use the \"\"cost basis\"\" feature for \"\"paper\"\" or real trades, it's easy to import transactions from a .csv. This seems sufficient to start off with. Enjoy the journey, aim for real value with your resources.\""],"string":"[\n \"I have about $1K in savings, and have been told that you should get into investment and saving for retirement early. I make around $200 per week, which about $150 goes into savings. That's $10k per year. The general rule of thumb is that you should have six months income as an emergency fund. So your savings should be around $5k. Build that first. Some argue that the standard should be six months of living expenses rather than income. Personally, I think that this example is exactly why it is income rather than living expenses. Six months of living expenses in this case would only be $1250, which won't pay for much. And note that living expenses can only be calculated after the fact. If your estimate of $50 a week is overly optimistic, you might not notice for months (until some large living expense pops up). Another problem with using living expenses as the measure is that if you hold down your living expenses to maximize your savings, this helps both measures. Then you hit your savings target, and your living expenses increase. So you need more savings. By contrast, if your income increases but your living expenses do not, you still need more savings but you can also save more money. Doesn't really change the basic analysis though. Either way you have an emergency savings target that you should hit before starting your retirement savings. If you save $150 per week, then you should have around $4k in savings at the beginning of next year. That's still low for an emergency fund by the income standard. So you probably shouldn't invest next year. With a living expenses standard, you could have $6250 in savings by April 15th (deadline for an IRA contribution that appears in the previous tax year). That's $5000 more than the $1250 emergency fund, so you could afford an IRA (probably a Roth) that year. If you save $7500 next year and start with $4k in savings (under the income standard for emergency savings), that would leave you with $11,500. Take $5500 of that and invest in an IRA, probably a Roth. After that, you could make a $100 deposit per week for the next year. Or just wait until the end. If you invested in an IRA the previous year because you decided use the living expenses standard, you would only have $6500 at the end of the year. If you wait until you have $6750, you could max out your IRA contribution. At that point, your excess income for each year would be larger than the maximum IRA contribution, so you could max it out until your circumstances change. If you don't actually save $3k this year and $7500 next year, don't sweat it. A college education is enough of an investment at your age. Do that first, then emergency savings, then retirement. That will flip around once you get a better paying, long term job. Then you should include retirement savings as an expected cost. So you'd pay the minimum required for your education loans and other required living expenses, then dedicate an amount for retirement savings, then build your emergency savings, then pay off your education loans (above the minimum payment). This is where it can pay to use the more aggressive living expenses standard, as that allows you to pay off your education loans faster. I would invest retirement savings in a nice, diversified index fund (or two since maintaining the correct stock/bond mix of 70%-75% stocks is less risky than investing in just bonds much less just stocks). Investing in individual stocks is something you should do with excess money that you can afford to lose. Secure your retirement first. Then stock investments are gravy if they pan out. If they don't, you're still all right. But if they do, you can make bigger decisions, e.g. buying a house. Realize that buying individual stocks is about more than just buying an app. You have to both check the fundamentals (which the app can help you do) and find other reasons to buy a stock. If you rely on an app, then you're essentially joining everyone else using that app. You'll make the same profit as everyone else, which won't be much because you all share the profit opportunities with the app's system. If you want to use someone else's system, stick with mutual funds. The app system is actually more dangerous in the long term. Early in the app's life cycle, its system can produce positive returns because a small number of people are sharing the benefits of that system. As more people adopt it though, the total possible returns stay the same. At some point, users saturate the app. All the possible returns are realized. Then users are competing with each other for returns. The per user returns will shrink as usage grows. If you have your own system, then you are competing with fewer people for the returns from it. Share the fundamental analysis, but pick your stocks based on other criteria. Fundamental analysis will tell you if a stock is overvalued. The other criteria will tell you which undervalued stock to buy.\",\n \"You have great intentions, and a great future. As far as investing goes, you're a bit early. Unless your parents or other benefactor is going to pay every dime of your expenses, you'll have costs you need to address. $1000 is the start of a nice emergency fund, but not yet enough to consider investing for the long term. If you continue to work, it's not tough to burn through $200/wk especially when you are in college and have more financial responsibility.\",\n \"I'd suggest you keep putting money in your savings account and start investing after you land that first big job. As another answer mentioned, unless you're fortunate enough to have all of your tuition and living expenses paid for, an emergency fund is an invaluable tool for a college student. And the bigger the better. Your laptop gets stolen or your car's air conditioner (or heater) dies -- both of these things happened to me in college -- and it would have been a much bigger deal for me if I didn't have some money tucked away.\",\n \"While others have made a good case for how you may want to save and spend I just want to take a moment to comment on Acorn and Robinhood. Having never used either of them, I would stick to the seasoned professionals for my long term investment relationship. I'm sure they have the right licensing and proper SIPC coverage etc, but I wouldn't, personally, trust my money to an entity that's almost entirely funded by venture capital. I would stick to a company that exists and is profitable on it's own. All of the major brokerage houses (Vanguard, Schwab, ETrade, Scottrade, etc) in the US give account holders access to a list of ETFs and Mutual Funds with zero load on deposits, no or low minimum account balances, no or low investment minimums, and no commissions. With access to these no cost options, I wouldn't waste time with an entity that exists because of it's investor fund raising abilities.\",\n \"\\\"The $1K in funds are by default your emergency fund. If absolutely necessary, emergency funds may need to come from debt, a credit capacity, focus on building credit to leverage lower rates for living expenses eventually needed. Profitable organizations & proprietors, borrow at a lower cost of capital than their return. Join your local credit union, you're welcome to join mine online, the current rates for the first $500 in both your checking and savings is 4.07%, it's currently the fourth largest in the U.S. by assets. You may join as a \\\"\\\"family member\\\"\\\" to me (Karl Erdmann), not sure what their definition of \\\"\\\"family\\\"\\\" is, I'd be happy to trace our ancestry if need be or consider other options. Their current incentive program, like many institutions have often, will give you $100 for going through the hassle to join and establish a checking and savings. Some institutions, such as this credit union, have a lower threshold to risk, applicants may be turned down for an account if there is any negative history or a low credit score, shooting for a score of 600 before applying seems safest. The web services, as you mentioned, have significantly improved the layman's ability to cost effectively invest funds and provide liquidity. Robinhood currently seems to be providing the most affordable access to the market. It goes without saying, stay objective with your trust of any platform, as you may have noticed, there is a detailed explanation of how Robinhood makes their money on this stack exchange community, they are largely backed by venture funding, hopefully the organization is able to maintain a low enough overhead to keep the organization sustainable in the long run. The services that power this service such as Plaid, seem promising and underrated, but i digress. The platform gives access for users to learn how investing works, it seems safest to plan a diversified portfolio utilizing a mix of securities,such as low Beta stocks or \\\"\\\"blue chip\\\"\\\" companies with clear dividend policies. One intriguing feature, if you invest in equities is casting votes on decisions in shareholder meetings. Another popular investment asset class that is less liquid and perhaps something to work toward is real estate. Google the economist \\\"\\\"Matthew Rognlie\\\"\\\" for his work on income equality on this type of investment. There are many incentives for first time homeowners, saving up for a down payment is the first step. Consider adding to your portfolio a Real Estate Investment Trust (REITs) to gain a market position. Another noteworthy approach to this idea is an investment commercial property cooperative organization, currently the first and only one is called NorthEast Investment Cooperative, one stock of class A is $1K. If you are interested and plan to focus on equities, consider dropping into your college's Accounting Capstone course to learn more about the the details of fundamental and technical analysis of an organization. The complexities of investing involve cyclical risk, macro and micro economic factors, understanding financial statements and their notes, cash flow forecasting - discounting, market timing, and a host of other details Wikipedia is much more helpful at detailing. It's safe to assume initial investment decisions by unsophisticated investors are mostly whimsical, and likely will only add up to learning opportunities, however risk is inherit in all things, including sitting on cash that pays a price of inflation. A promising mindset in long term investments are in organizations that focus on conscious business practices. Another way to think of investing is that you are already somewhat of a \\\"\\\"sophisticated investor\\\"\\\" and could beat the market by what you know given your background, catching wind of certain information first, or acting on a new trends or technology quickly. Move carefully with any perhaps biased \\\"\\\"bullish\\\"\\\" or \\\"\\\"bearish\\\"\\\" mindset. Thinking independently is helpful, constantly becoming familiar with different ideas from professions in a diverse set of backgrounds, and simulating decisions in portfolio's. Here is an extremely limited set of authors and outlets that may have ideas worth digging more into, MIT Tech Reviews (Informative), Bloomberg TV (it's free, informative), John Mackey (businessman), Paul Mason (provocative journalist). Google finance is a simple and free go-to application, use the \\\"\\\"cost basis\\\"\\\" feature for \\\"\\\"paper\\\"\\\" or real trades, it's easy to import transactions from a .csv. This seems sufficient to start off with. Enjoy the journey, aim for real value with your resources.\\\"\"\n]","isConversational":false}}},{"rowIdx":356,"cells":{"_id":{"kind":"string","value":"6803"},"query":{"kind":"string","value":"What are the common moving averages used in a “Golden Cross” stock evaluation?"},"gt_ids":{"kind":"list like","value":["193012","544053","142726","42620"],"string":"[\n \"193012\",\n \"544053\",\n \"142726\",\n \"42620\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1,1],"string":"[\n 1,\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["28271","193012","544053","434421","257185","489933","35006","227669","395650","42620","191588","565501","71708","518932","142726","197046","180428","164987","488285","221627","251002","76063","258897","170247","388980","501488","28590","224695","180644","190603","373237","79807","109639","423177","577585","310016","442897","317803","301570","542765","185809","81655","416732","528576","591230","593521","263464","88964","494233","108579","396657","220110","386162","377186","117764","305346","459979","414325","244334","482477","483232","58451","140804","94591","590231","432608","584801","102138","554653","67229","302869","536638","194240","491647","142146","306189","206350","41687","420991","10710","517935","60284","298367","352346","205010","384583","392851","9381","547370","498176","101836","13586","536689","565432","244524","333265","361976","79998","560538","597295"],"string":"[\n \"28271\",\n \"193012\",\n \"544053\",\n \"434421\",\n \"257185\",\n \"489933\",\n \"35006\",\n \"227669\",\n \"395650\",\n \"42620\",\n \"191588\",\n \"565501\",\n \"71708\",\n \"518932\",\n \"142726\",\n \"197046\",\n \"180428\",\n \"164987\",\n \"488285\",\n \"221627\",\n \"251002\",\n \"76063\",\n \"258897\",\n \"170247\",\n \"388980\",\n \"501488\",\n \"28590\",\n \"224695\",\n \"180644\",\n \"190603\",\n \"373237\",\n \"79807\",\n \"109639\",\n \"423177\",\n \"577585\",\n \"310016\",\n \"442897\",\n \"317803\",\n \"301570\",\n \"542765\",\n \"185809\",\n \"81655\",\n \"416732\",\n \"528576\",\n \"591230\",\n \"593521\",\n \"263464\",\n \"88964\",\n \"494233\",\n \"108579\",\n \"396657\",\n \"220110\",\n \"386162\",\n \"377186\",\n \"117764\",\n \"305346\",\n \"459979\",\n \"414325\",\n \"244334\",\n \"482477\",\n \"483232\",\n \"58451\",\n \"140804\",\n \"94591\",\n \"590231\",\n \"432608\",\n \"584801\",\n \"102138\",\n \"554653\",\n \"67229\",\n \"302869\",\n \"536638\",\n \"194240\",\n \"491647\",\n \"142146\",\n \"306189\",\n \"206350\",\n \"41687\",\n \"420991\",\n \"10710\",\n \"517935\",\n \"60284\",\n \"298367\",\n \"352346\",\n \"205010\",\n \"384583\",\n \"392851\",\n \"9381\",\n \"547370\",\n \"498176\",\n \"101836\",\n \"13586\",\n \"536689\",\n \"565432\",\n \"244524\",\n \"333265\",\n \"361976\",\n \"79998\",\n \"560538\",\n \"597295\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["This strategy is called trading the 'Golden Cross' if the 50 day SMA moves above the 200 day, or the 'Death Cross' when the 50 day SMA moves below the 200 day SMA. Long-term indicators carry more weight than shorter-term indicators, and this cross, in a positive direction signals a change in momentum of the stock. You will not catch the very bottom using this method, but there is a better chance that you will catch a move near the beginning of a longer-term trend. Golden Cross Information - Zacks","The 'standard' in such moving average crossover systems is 50/200. The numbers are essentially arbitrary as long as the long term average is greater than the short term and there is some different between the averages in terms of the smoothing they provide (i.e. comparing a 74 day MA to a 75 day MA isn't what the system is intended for) There are plenty of software programs that will let you run through many possible values for the system over historical data. I concur with the other answers in that this system/indicator alone isn't very good. However, I disagree with their blanket brushing off of technical analysis. There are many successful traders out there. The moving average cross over system is perhaps the second most primitive example of technical strategies categorized as trend following systems (buying new recent highs and selling new recent lows being the most simple). This particular system isn't very powerful because of its poor use of simple moving averages. A simple moving average is intended to smooth out data, but smoothing comes at the cost of lagging from the present. A simple moving average essentially gives you an idealized smoothing of price action for the day at that is one half of their period ago. So your 200 day simple moving average shows you an idealized smoothing of price action 100 days ago. A lot can happen in 100 days and that is why this system is far from ideal.","\"Not sure why this hasn't received any answers yet... the link to the investopedia page you posted explains it pretty well, however when you hear about a golden cross in the media, it is most likely a reference to the 50-day SMA crossing above the 200-day SMA. In general, a golden cross consists of a short term MA that was previously below a long term MA crossing above that LT MA, however the most common reference will imply a 50/200 day cross because this is considered as a stronger signal (compared to shorter MAs). With that said, it's important to realize that the golden cross is just one of many technical analysis \"\"signals\"\", and the entire field of technical analysis is considered controversial, to say the least. Many studies, such as those examined in A Random Walk Down Wall Street, have found that after transactions costs are considered (e.g., the commissions you pay to your broker on every trade), \"\"charting\"\" is a losing proposition in the end.\"","One of the most obvious uses of SMAs is the detection of a trend reversal. A trend reversal happens when a short term SMA crosses over a longer term SMA. For example, if a 20 day moving average was, previously, above a 200 day moving average, but has crossed over the 200 day and is currently below the 200 day then the security has performed a 'death cross' and the trend is for lower and lower prices. Stockcharts.com has excellent 'chart school' for the beginning chart user. They also provide excellent charts. Here is a link: http://stockcharts.com/school/doku.php?id=chart_school I like to use a 20 day SMA, a 200 day SMA, and a 21 day EMA.","Moving Average is mere average line based on historical period; broadly use to view the trend. But it has no relation to price action in due future course. If price is going below 20 SMA then in near future even the SMA will start directing toward south. In your case if price has fallen below all the short period average lines and long period average line then it is bearish in nature. Soon in few days you may find 20 SMA leading downwards followed by closest period and then long. Also SMA and EMA can best be observed in charting software in candlestick mode. Because these moving averages can also be adjusted and viewed based on Opening price, High prices, Low Price or closing price. In you case I guess the data is of closing price data. Overlapping of averages may be sign of reversals. So if you want to buy this stock you may have to wait till all the average lines cross-over and when new trend begins with SMA of shortest avg period (20) leading above the long avg period (90 days in your case). Then you can buy and just follow the trend. I hope it answers you question.","\"I would have to disagree with the other responders. In technical analysis of stock charts, various short and long term moving averages are used to give an indication of the trend of the stock in the short and long term, as compared to the current price. I would prefer to use the term moving average (MA) rather than average as the MA is recalculated every day (or at appropriate frequencies for your data) on the period you are using. I would also expand on the term \"\"moving average\"\". There are two that are commonly used Going back to the question, of the value of this number, For example if the current price is above the 200 day EWMA and also above the 30 day EWMA, then the stock is broadly trending upwards. Conversely if current price is below the 200 day EWMA and also below the 30 day EWMA, then the stock is broadly trending downwards. These numbers are chosen on the basis of the market you are trading in, the volatility and other factors. For another example of how a number of moving averages are used together, please have a read of Daryl Guppy's Multiple Moving Average, though this does not use moving averages as large as 200 days.\"","A shorter term MA would be used for short term changes in price whilst a long term MA would be used for longer term movements in price. A 200 day SMA is widely used to determine the trend of the stock, simply a cross above the 200 day SMA would mean the stock may be entering an uptrend and a cross below that the price may be entering a downtrend. If the price is continuosly going above and below in a short period of time it is usually range trading. Then there are EMAs (Expodential Moving Averages) and WMAs (weighted moving averages) which give more emphasis to the latest price data than the earlier price data in the period chosen compared to a SMA. MAs can be used in many different ways, too many to list all here. The best way to learn about them is to read some TA books and articles about them, then choose a couple of strategies where you can use them in combination with a couple of other indicators that are complimentary with each other.","It's not stopped. Crossing a moving average is considered a signal to buy or sell. Yahoo stock charts offer the ability to add moving averages to the charts, and you can observe all stocks cross the line regularly. As a contrast to Victor's charts, you can see that Apple, over the last two years, has traded above and below the 50 day MA. A believer in technical analysis using MA will observe a buy signal in Dec '11 just under $400, with a sell in mid-$500s in May. Moving averages are a form of following the trend, and work well when either trend is strong. It's when the stock is too close to the line that's it's tough to call whether it's time to be in or out.","A moving average will act as support or resistance to a stock only when the stock is trending. The way it acts as support for instance is similar to a trend-line. Take the daily chart of CBA over the last 6 months: The first chart shows CBA with an uptrend support line. The second chart shows CBA during the same period with 50 day EMA as a support. Both can be used as support for the uptrend. Generally you can used these types of support (or resistance in a downtrend) to determine when to buy a stock and when to sell a stock. If I was looking to buy CBA whilst it was uptrending, one strategy I could use was to wait until it hit or got very close to the support trend-line and then buy as it re-bounces back up. If I already held the stock I could use a break down below the uptrend support line as a stop to exit out of the stock.","Different moving averages work and not work for different indexes. I have seen simulations where during bull or bear markets the moving averages work differently. Here is an example: http://www.indexresult.com/MovingAverage/Exponential/200/SP500","The values of 12, 26 and 9 are the typical industry standard setting used with the MACD, however other values can be substituted depending on your trading style and goals. The 26d EMA is considered the long moving average when in this case it is compared to the shorter 12d EMA. If you used a 5d EMA and a 10d EMA then the 10d EMA would be considered the long MA. It is based on what you are comparing it with. Apart from providing signals for a reversal in trend, MACD can also be used as an early indication to a possible end to a trend. What you look out for is divergence between the price and the MACD. See chart below of an example: Here I have used 10d & 3d EMAs and 1 for the signal (as I did not want the signal to show up). I am simply using the MACD as a momentum indicator - which work by providing higher highs in the MACD with higher highs in price. This shows that the momentum in the trend is good so the trend should continue. However the last high in price is not met with a higher high in the MACD. The green lines demonstrate bearish divergence between price and the MACD, which is an indication that the momentum of the trend is slowing down. This could provide forewarning that the trend may be about to end and to take caution - i.e. not a good time to be buying this stock or if you already own it you may want to tighten up your stop loss.","One could use technical indicators in any number of ways...they aren't rigidly defined for use in any particular way. If they were, only computers would use them. Having said that, moving averages are frequently used by people operating on the assumption that short-term price movements will soon be reverted back to a longer-term mean. So if the price shoots up today, traders who use moving averages may believe it will come back down pretty soon. If this is the belief (and it usually is for this type of trader), a price significantly above a moving average could indicate an overpriced stock. A price below the moving average could indicate an underpriced stock. Similarly, a short-term moving average above the long-term moving average may indicate an overpriced stock. When you are dealing with more than one frequency, though, there is more disagreement about how to use technical indicators. Some traders would probably say the opposite: that a short term average above the long term average indicates an upward movement that will continue because they believe the stock has momentum. Note that I am not saying I believe in using these averages to predict mean reversion or momentum effects, just that traders who rely on moving averages frequently do.","I looked at this a little more closely but the answer Victor provided is essentially correct. The key to look at in the google finance graph is the red labled SMA(###d) would indicate the period units are d=days. If you change the time axis of the graph it will shift to SMA(###m) for period in minutes or SMA(###w) for period in weeks. Hope this clears things up!","Edit3: Regarding the usefulness of the bare number itself, it is not useful unless, for example, an employer uses that average in the computation of how many options the employer grants to the employee as part of the compensation paid. One of my employers used just such an average. What is far more common is to use two or more moving averages, of different periods, plotted on a chart. My original response continues below... Assuming there are 252 trading days a year, the following chart does what you have done but with a moving average: AAPL on Stockcharts.com Edit: BTW, I looked up the number of Federal holidays, there are 9. The average year has 365.2422 days. 365.2422 × 5/7 = 260.8873. Subtract 9 and you get 251.8873 trading days in the average year. So 252 is a better number for the SMA than 250 if you want to average a year. Edit2: Here is the same chart with more than one average included: AAPL chart w/indicators","Technical analysis is insufficient. You're halfway to figuring it out if you start to question why a 50 day moving average vs 200 vs 173. Invest in companies that are attractively valued vs. their sales/growth/divends/anythingelsereal","Firstly, you mean resistance not support, as a support is below the current price and resistance is above the price. Secondly using a MA as support or resistance would mean that that support or resistance level would move up or down as the price moved up or down and would not be static at $25. Generally stocks will range trade more often than they will be trending (either up or down), so a stock can be range trading between a support and resistance levels for months and even years, and usually the longer it range trades for, the bigger the outbreak (either up or down) will be when it does happen. Using a MA (especially shorter dated ones) as support or resistance (or as a up or down trend line) works better when a stock is already trending up or down. When a stock is moving sideways it will tend to keep crossing above and below the MA, and you will be whipsawed if you try to use them as your trigger for entry in these situations. Compare the two charts below: In the first chart the stock is up-trending for over 6 months and the 50d EMA is being used as a support or up-trending line. As long as the price does not break through and close under the 50d EMA then the uptrend continues. You could use this EMA line as a means of entering the stock when prices move towards the EMA and bounce off it back up again. Or you could use it as your stop loss level, so if price closes below the EMA line you would sell your position. In the second chart, the stock has been range trading between the support line at about $21.80 and the resistance line at about $25.50 for 10 months. In this case the price has been moving above and below the 50d EMA during these 10 months and you may have been whipsawed many times if you were trading each break above or below the 50d EMA. A better strategy here would be to buy the stock as it approached the support line and bounces up off it and then close and reverse your position (go short) when the price approached the resistance line and bounces down off it. Edit: When range trading you would have your stops just below the support line when going long and just above the resistance line when going short, that way if it does break through support or resistance and starts trending you will be covered. So this shows that different strategies should be used when a stock is trending to when it is range trading. MAs are better used as entry signal during an established uptrend or downtrend than when a stock is range trading.","That metric is not very useful for anything other than very extremely long trading periods. Most strategies or concerned with price movement over much shorter time frames, 15 mins, 1 hr, 4 hr, daily, weekly, monthly. The MA or moving average is a trend following lagging indicator used to smooth out price fluctuations and more accurately reflect the price of trading instrument such as a stock (AAPL), commodity, or currency pair. Traders are generally concerned with current market trends and price action of the instrument they are trading. As such, an extremely long MA (average daily price, over a period of 365 days) are generally not that important.","The difference is that for the one year time frame the data is represented based on daily data and the SMA is 20 days, whilst for the 5 year timeframe the data is automatically represented as weekly data with the SMA represented by 20 weeks not 20 days anymore. This happens due to daily data on this chart being too much data to represent over a 5 year period so the data defaults to weekly data over such a long period. If the chart is represented as weekly data then any indicators will also have to be represented in weekly data. If you use a more sophisticated charting program you can actually select to see daily or weekly data over longer periods such as 5 years or more.","The curved lines (on my screen orange, yellow and pink) are simple moving averages. The fuchsia and blue straight lines are automatically generated trend lines. Those lines are attempting to show how a stock is trending by showing potential bounce points and are commonly used in technical analysis (TA).","As you point out, the moving average is just MA(k)t = (Pt-1 + … + Pt-k )/k and is applied in technical analysis (TA) to smooth out volatile (noise) price action. If it has any logic to it, you might want to think in terms of return series (Pt - Pt-1 / Pt-1) and you could hypothesize that prices are in fact predictable and will oscillate below and above a running moving average. Below is a link to a study on MA trading rules, published in the Journal of Finance, with the conclusion of predictive power and abnormal returns from such strategies. As with any decision made upon historical arguments, one should be aware of structural changes and or data mining. Simple technical trading rules and the stochastic properties of stock returns Brock, W., J. Lakonishok and B. Le Baron, 1992, Simple technical trading rules and the stochastic properties of stock returns, Journal of Finance, 47, 1731-64. MA rules betterthan chance in US stock market, 1897-1986 I don't know whether you are new to TA or not, but a great commercial site, with plenty of computer-generated signals is FinViz.","When using the Stochastic Indicator your basic aim is to buy (go long) when the stochastic becomes oversold (goes below 20%) and then the %K line crosses above the %D line at a market low, and to sell (go short) when the stochastic becomes overbought (goes above 80%) and then the %K line crosses below the %D line at a market high. Other indicators or candlestick patters can also be used to further confirm the trade. Below is a chart of a trade I recently took on GUD.AX using the Slow Stochastic in combination with support and resistance levels as well as a candlestick pattern. When I conducted my stock search on the evening of 28th July 2015, GUD was one of the results from the search that I particularly liked. The Slow Stochastic had just made a crossover in the oversold area just as the price was bouncing off its recent lows at the support line. But what I really like about this opportunity was that there was also a bullish reversal candle (a Hammer) at this short term market bottom. The high for the day was $8.34, so I placed a stop buy order to buy the stock tomorrow if the price opened or moved above this high of today. So I would only buy if the stock hit or moved above $8.35 during the next days trading. So if the stock opened and stayed below the previous day's high I would not buy the stock and my order would be canceled at the end of the day. This is very important because it stops you from getting into trades that don't go in the direction you want. If this happens then you could check the chart again after market close to see if it is still worthwhile to place a new order for the next day. On the 29th July 2015 the stock did open higher at $8.42 (which is where my order got executed) and closed at $8.46. So I ended up buying slightly above my target price but it did move higher on the day, so a successful entry overall. I had placed my initial stop loss at $8.09 (just below the low of the previous day of $8.10). If the trade had gone against me in the following days the most I would have lost was 1% of my total account capital. My target for this trade was $9.86 (just below the resistance line near $10), which would represent a 5% gain against my total account capital (or approx. 16.7% gain on the trade). So my win to loss ratio was 5:1. As you can see from the chart, the next day gapped up at the open and prices continued moving up strongly during the day. The next day was a slightly negative day, and then a few days later, on the 5th August 2015 my target price of $9.86 was reached (with a high of $9.88 for that day), so my order was closed for a total profit of 16.7% on the face value of the trade. However, as I bought on margin (using CFDs) my actual profit on the initial margin I had invested was 167%. My total time in the trade was 7 days, and I spent about an hour in the evening doing my searches and placing my orders, then less than 10 minutes managing the trade each evening after market close. The stock did go up a bit further after my profit target was reached, but the day after that the price started to fall as the price hit the resistance line and the Slow Stochastic did a crossover in the overbought area. Overall, this was a very ideal trade and I was very happy with it. Not all my trades reach my profit targets and I may get stopped out at a smaller profit or I might make a small loss (as I move my stops up as the price moves up). The key to successful trading over the long term is to keep you losses small and let your profits run (with my longer term trend trading I don't have profit targets and let my profits run until I get stopped out, but with my shorter term trading I do use a profit target usually 5 or 6 times the size of my initial stop). If you have an average win to average loss ratio of 3:1 or higher and have a success rate of 50% winners you will make money over the long term.","Is that indicator can only be used for short-term trade? First of all, indicator works perfect during trends and oscillator works perfectly in the range market(or flat market). So, indicator can be used for long term, as well as short term. I mean if it is a range market, using this or any other indicator will not help much, so it you should consider market direction first. If it can be used to long-term trade, is there something I need to change from the parameters used? like, only using SMMA(5,8,13)? The parameters are there to change them. Of course you can change them based on your trading style. Considering my statement above does not mean that trading is very easy. I never use indicators alone to make trading decisions. It is always good to use oscillator to filter out bad trading signals.","Ya idk..I initially thought a moving average but that can't be it since when price crosses below trend line we see trend line continues to increase. https://villavu.com/forum/showthread.php?t=112371 but this says that it is in fact a monthly average. I don't see how that is possible, as adding a number below the average of a set to that set should decrease the average. People say 'the mean chases the margin,' not a fan of that terminology myself though. Edit: ah wait the yellow line is daily average, not price. If monthly average is calculated on close price, then this is possible. **so the answer then is the trend line is the monthly average**.","I can think of a few simple and quick techniques for timing the market over the long term, and they can be used individually or in combination with each other. There are also some additional techniques to give early warning of possible turns in the market. The first is using a Moving Average (MA) as an indication of when to sell. Simply if the price closes below the MA it is time to sell. Obviously if the period you are looking at is long term you would probably use a weekly or even monthly chart and use a relatively large period MA such as a 50 week or 100 week moving average. The longer the period the more the MA will lag behind the price but the less false signals and whipsawing there will be. As we are looking long term (5 years +) I would use a weekly chart with a 100 week Exponential MA. The second technique is using a Rate Of Change (ROC) Indicator, which is a momentum indicator. The idea for timing the markets in the long term is to buy when the indicator crosses above the zero line and sell when it crosses below the zero line. For long term investing I would use a 13 week EMA of the 52 week ROC (the EMA smooths out the ROC indicator to reduce the chance of false signals). The beauty of these two indicators is they can be used effectively together. Below are examples of using these two indicators in combination on the S&P500 and the Australian S&P ASX200 over the past 20 years. S&P500 1995 to 2015 ASX200 1995 to 2015 If I was investing in an ETF tracking one of these indexes I would use these two indicators together by using the MA as an early warning system and maybe tighten any stop losses I have so that if the market takes a sudden turn downward the majority of my profits would be protected. I would then use the ROC Indicator to sell out completely out of the ETF when it crosses below zero or to buy back in when the ROC moves back above zero. As you can see in both charts the two indicators would have kept you out of the market during the worst of the downfalls in 2000 and 2008 for the S&P500 and 2008 for the ASX200. If there is a false signal that gets you out of the market you can quite easily get back in if the indicator goes back above zero. Using these indicators you would have gotten into the market 3 times and out of it twice for the S&P500 over a 20 year period. For the ASX200 you would have gone in 6 times and out 5 times, also over a 20 year period. For individual shares I would use the ROC indicator over the main index the shares belong to, to give an indication of when to be buying individual stocks and when to tighten stop losses and stay on the sidelines. My philosophy is to buy rising stocks in a rising market and sell falling stocks in a falling market. So if the ROC indicator is above zero I would be looking to buy fundamentally healthy stocks that are up-trending and place a 20% trailing stop loss on them. If I get stopped out of one stock then I would look to replace it with another as long as the ROC is still above zero. If the ROC indicator crosses below zero I would tighten my trailing stop losses to 5% and not buy any new stocks once I get stopped out. Some additional indicators I would use for individual stock would be trend lines and using the MACD as a momentum indicator. These two indicators can give you further early warning that the stock may be about to reverse from its current trend, so you can tighten your stop loss even if the ROC is still above zero. Here is an example chart to explain: GEM.AX 3 Year Weekly Chart Basically if the price closes below the trend line it may be time to close out the position or at the very least tighten up your trailing stop loss to 5%. If the price breaks below an established uptrend line it may well be the end of the uptrend. The definition of an uptrend is higher highs and higher lows. As GEM has broken below the uptrend line and has maid a lower low, all that is needed to confirm the uptrend is over is a lower high. But months before the price broke below the uptrend line, the MACD momentum indicator was showing bearish divergence between it and the price. In early September 2014 the price made a higher high but the MACD made a lower high. This is called a bearish divergence and is an early warning signal that the momentum in the uptrend is weakening and the trend could be reversing soon. Notice I said could and not would. In this situation I would reduce my trailing stop to 10% and keep a watchful eye on this stock over the coming months. There are many other indicators that could be used as signals or as early warnings, but I thought I would talk about some of my favourites and ones I use on a daily and weekly basis. If you were to employ any of these techniques into your investing or trading it may take a little while to learn about them properly and to implement them into your trading plan, but once you have done that you would only need to spend 1 to 2 hours per week managing your portfolio if trading long-term or about 1 hour per nigh (after market close) if trading more medium term.","While trading in stochastic I've understood, one needs reference (SMA/EMA/Bolinger Band and even RSI) to verify trade prior entering it. Stochastic is nothing to do with price or volume it is about speed. Adjusting K% has ability to turn you from Day trader to -> swing trader to -> long term investor. So you adjust your k% according to chart time-frame. Stochastic setup for 1 min, 5 min ,15, 30, 60 min, daily, weekly, monthly, quarterly, half yearly and yearly are all different. If you try hopping from one time-frame to another just because it is below oversold or above overbought region with same K%, you may get confused. Worst you may not square-off your loss making trade. And rather not use excel; charts gives better visual for oscillators.","Still working on exact answer to question....for now: (BONUS) Here is how to pull a graphical chart with the required data: Therefore: As r14 = the indicator for RSI. The above pull would pull Google, 6months, line chart, linear, large, with a 50 day moving average, a 200 day exponential moving average, volume, and followed up with RSI. Reference Link: Finance Yahoo! API's","There is a great 3rd party application out there that I use (I am a broker) along with my internal analysts and other 3rd party sources. VectorVest has a LOT of technical information, but is very easy to use. It will run any kind of screen you like, including low 52 week numbers. (No, I don't get anything for recommending them.)","\"Below is just a little information on this topic from my small unique book \"\"The small stock trader\"\": The most significant non-company-specific factor affecting stock price is the market sentiment, while the most significant company-specific factor is the earning power of the company. Perhaps it would be safe to say that technical analysis is more related to psychology/emotions, while fundamental analysis is more related to reason – that is why it is said that fundamental analysis tells you what to trade and technical analysis tells you when to trade. Thus, many stock traders use technical analysis as a timing tool for their entry and exit points. Technical analysis is more suitable for short-term trading and works best with large caps, for stock prices of large caps are more correlated with the general market, while small caps are more affected by company-specific news and speculation…: Perhaps small stock traders should not waste a lot of time on fundamental analysis; avoid overanalyzing the financial position, market position, and management of the focus companies. It is difficult to make wise trading decisions based only on fundamental analysis (company-specific news accounts for only about 25 percent of stock price fluctuations). There are only a few important figures and ratios to look at, such as: perhaps also: Furthermore, single ratios and figures do not tell much, so it is wise to use a few ratios and figures in combination. You should look at their trends and also compare them with the company’s main competitors and the industry average. Preferably, you want to see trend improvements in these above-mentioned figures and ratios, or at least some stability when the times are tough. Despite all the exotic names found in technical analysis, simply put, it is the study of supply and demand for the stock, in order to predict and follow the trend. Many stock traders claim stock price just represents the current supply and demand for that stock and moves to the greater side of the forces of supply and demand. If you focus on a few simple small caps, perhaps you should just use the basic principles of technical analysis, such as: I have no doubt that there are different ways to make money in the stock market. Some may succeed purely on the basis of technical analysis, some purely due to fundamental analysis, and others from a combination of these two like most of the great stock traders have done (Jesse Livermore, Bernard Baruch, Gerald Loeb, Nicolas Darvas, William O’Neil, and Steven Cohen). It is just a matter of finding out what best fits your personality. I hope the above little information from my small unique book was a little helpful! Mika (author of \"\"The small stock trader\"\")\"","Your question is a bit odd in that you are mixing long-term fundamental analysis signals which are generally meant to work on longer time frames with medium term trading where these fundamental signals are mostly irrelevant. Generally you would buy-and-hold on a fundamental signal and ride the short-term fluctuations if you believe you have done good analysis. If you would like to trade on the 2-6 month time scale you would need a signal that works on that sort of time scale. Some people believe that technical analysis can give you those kind of signals, but there are many, many, many different technical signals and how you would trade using them is highly dependent on which one you believe works. Some people do mix fundamental and technical signals, but that can be very complicated. Learning a good amount about technical analysis could get you started. I will note, though, that studies of non-professionals continuously show that the more frequently people trade the more on they underperform on average in the long term when compared with people that buy-and-hold. An aside on technical analysis: michael's comment is generally correct though not well explained. Say Bob found a technical signal that works and he believes that a stock that costs $10 dollars should be $11. He buys it and makes money two months later when the rest of the market figures out the right price is $11 and he sells at that price. This works a bunch of times and he now publishes how the signal works on Stack Exchange to show everyone how awesome he is. Next time, Bob's signal finds a different stock at $10 that should be $11, but Anna just wrote a computer program that checks that signal Bob published faster than he ever could. The computer program buys as much as it can in milliseconds until the price is $11. Bob goes to buy, but now it is too late the price is already $11 and he can't make any money. Eventually, people learn to anticipate/adjust for this signal and even Anna's algorithms don't even work anymore and the hunt for new signals starts again.","You can use google docs to create a spreadsheet. In field A2, I put Google will load the prices into the sheet. At that point, I add the following into C12, then copy that line all the way down to the botton of column C. You can find my spreadsheet here. It calculates the moving 10 day standard deviation as a percentage of average price for that time period.","Usually when a stock is up-trending or down-trending the price does not go up or down in a straight line. In an uptrend the price may go up over a couple of days then it could go down the next day or two, but the general direction would be up over the medium term. The opposite for a downtrend. So if the stock has been generally going up over the last few weeks, it may take a breather for a week or two before prices continue up again. This breather is called a retracement in the uptrend. The Fibonacci levels are possible amounts by which the price might retract before it continues on its way up again. By the way 50% is not actually a Fibonacci Retracement level but it is a common retracement level which is usually used in combination with the Fibonacci Retracement levels.","The daily Volume is usually compared to the average daily volume over the past 50 days for a stock. High volume is usually considered to be 2 or more times the average daily volume over the last 50 days for that stock, however some traders might set the crireia to be 3x or 4x the ADV for confirmation of a particular pattern or event. The volume is compared to the ADV of the stock itself, as comparing it to the volume of other stocks would be like comparing apples with oranges, as difference companies would have different number of total stocks available, different levels of liquidity and different levels of volatility, which can all contribute to the volumes traded each day.","With the disclaimer that I am not a technician, I'd answer yes, it does. SPY (for clarification, an ETF that reflects the S&P 500 index) has dividends, and earnings, therefore a P/E and dividend yield. It would follow that the tools technicians use, such as moving averages, support and resistance levels also apply. Keep in mind, each and every year, one can take the S&P stocks and break them up, into quintiles or deciles based on return and show that not all stock move in unison. You can break up by industry as well which is what the SPDRs aim to do, and observe the movement of those sub-groups. But, no, not all the stocks will perform the way the index is predicted to. (Note - If a technician wishes to correct any key points here, you are welcome to add a note, hopefully, my answer was not biased)","You can do it graphically at zignals.com and freestockcharts.com.","Pivots Points are significant levels technical analysts can use to determine directional movement, support and resistance. Pivot Points use the prior period's high, low and close to formulate future support and resistance. In this regard, Pivot Points are predictive or leading indicators. There are at least five different versions of Pivot Points. I will focus on Standard Pivot Points here as they are the simplest. If you are looking to trade off daily charts you would work out your Pivot Points from the prior month's data. For example, Pivot Points for first trading day of February would be based on the high, low and close for January. They remain the same for the entire month of February. New Pivot Points would then be calculated on the first trading day of March using the high, low and close for February. To work out the Standard Pivot Points you use the High, Low and Close from the previous period (i.e. for daily charts it would be from the previous month) in the following formulas: You will now have 5 horizontal lines: P, R1, R2, S1 and S2 which will set the general tone for price action over the next month. A move above the Pivot Point P suggests strength with a target to the first resistance R1. A break above first resistance shows even more strength with a target to the second resistance level R2. The converse is true on the downside. A move below the Pivot Point P suggests weakness with a target to the first support level S1. A break below the first support level shows even more weakness with a target to the second support level S2. The second resistance and support levels (R2 & S2) can also be used to identify potentially overbought and oversold situations. A move above the second resistance level R2 would show strength, but it would also indicate an overbought situation that could give way to a pullback. Similarly, a move below the second support level S2 would show weakness, but would also suggest a short-term oversold condition that could give way to a bounce. This could be used together with a momentum indicator such as RSI or Stochastic to confirm overbought or oversold conditions. Pivot Points offer a methodology to determine price direction and then set support and resistance levels, however, it is important to confirm Pivot Point signals with other technical analysis indicators, such as candle stick reversal patterns, stochastic and general Support and Resistance Levels in the price action. These pivot points can be handy but I actually haven’t used them for trade setups and entries myself. I prefer to use candle sticks together with stochastic to determine potential turning points and then take out trades based on these. You can then use the Pivot Points Resistance and Support levels to help you estimate profit targets or areas to start becoming cautious and start tightening your stops. Say, for example, you have gone long from a signal you got a few days ago, you are now in profit and the price is now approaching R2 whilst the Stochastic is approaching overbought, you might want to start tightening your stop loss as you might expect some weakness in the price in the near future. If prices continue up you keep increasing your profits, if prices do reverse then you keep the majority of your existing profits. This would become part of your trade management. If you are after finding potential market turning points and take out trades based on these, then I would suggest using candlestick charting reversal patterns for your trade setups. The patterns I like to use most in my trading can be described as either the Hammer or One White Soldier for Bullish reversals and Shooting Star or One Black Crow for Bearish reversals. Below are diagrams of where to place your entries and exits on both Bullish and Bearish reversal patterns. Bullish Reversal Pattern So after some period of weakness in the price you would look for a bullish day where the price closes above the previous day’s high, you place your buy order here just before market close and place your initial stop just below the low of the day. You would apply this either for an uptrending stock where the price has retracted from or near the trendline or Moving Average, or a ranging stock where price is bouncing off the support line. The trade is reinforced if the Stochastic is in or near the oversold and crossing back upwards, volume on the up day is higher than volume on the down days, and the market as a whole is moving up as well. The benefit with this entry is that you are in early so you capture any bullish move up at the open of the next day, such as gaps. The drawbacks are that you need to be in front of your screen before market close to get your price close to the market close and you may get whipsawed if prices reverse at the open of the next day, thus being stopped out with a small loss. As the price moves up you would move your stop loss to just below the low of each day. Alternative Bullish Reversal Entry An alternative, entry would be to wait for after market close and then start your analysis (easier to do after market close than whilst the market is open and less emotions involved). Place a stop buy order to buy at the open of next trading day just above the high of the bullish green candle. Your stop is placed exactly the same, just below the low of the green bullish candle. The benefits of this alternative entry include you avoid the trade if the price reverses at the open of next day, thus avoiding a potential small loss (in other words you wait for further confirmation on the next trading day), and you avoid trading during market open hours where your emotions can get the better of you. I prefer to do my trading after market close so prefer this alternative. The drawback with this alternative is that you may miss out on bullish news prior to and at the next open, so miss out on some potential profits if prices do gap up at the open. This may also increase your loss on the trade if the prices gaps up then reverses and hits your stop on the same day. However, if you choose this method, then you will just need to incorporate this into your trading plan as potential slippage. Bearish Reversal Pattern So after some short period of strength in the price you would look for a bearish day where the price closes below the previous day’s low, you place your sell short order here just before market close and place your initial stop just above the high of the day. You would apply this either for an downtrending stock where the price has retracted from or near the trendline or Moving Average, or a ranging stock where price is bouncing off the resistance line. The trade is reinforced if the Stochastic is in or near the overbought and crossing back downwards, volume on the up day is higher than volume on the up days, and the market as a whole is moving down as well. The benefit with this entry is that you are in early so you capture any bearish move down at the open of the next day, such as gaps. The drawbacks are that you need to be in front of your screen before market close to get your price close to the market close and you may get whipsawed if prices reverse at the open of the next day, thus being stopped out with a small loss. As the price moves down you would move your stop loss to just above the high of each day. Alternative Bearish Reversal Entry An alternative, entry would be to wait for after market close and then start your analysis (easier to do after market close than whilst the market is open and less emotions involved). Place a stop sell short order to sell at the open of next trading day just below the low of the bearish red candle. Your stop is placed exactly the same, just above the high of the red bearish candle. The benefits of this alternative entry include you avoid the trade if the price reverses at the open of next day, thus avoiding a potential small loss (in other words you wait for further confirmation on the next trading day), and you avoid trading during market open hours where your emotions can get the better of you. I prefer to do my trading after market close so prefer this alternative. The drawback with this alternative is that you may miss out on bearish news prior to and at the next open, so miss out on some potential profits if prices do gap down at the open. This may also increase your loss on the trade if the prices gaps down then reverses and hits your stop on the same day. However, if you choose this method, then you will just need to incorporate this into your trading plan as potential slippage. You could also trade other candle stick patterns is similar ways. And with the long entries you can also use them to get into the market with longer term trend following strategies, you would usually just use a larger stop for longer term trading. To determine the size of your order you would use the price difference between your entry and your stop. You should not be risking more than 1% of your trading capital on any one trade. So if your trading capital is $20,000 your risk per trade should be $200. If you were looking to place your buy at 5.00 and had your initial stop at $4.60, you would divide $200 by $0.40 to get 500 stocks to buy. Using this form of money management you keep your losses down to a maximum of $200 (some trades may be a bit higher due to some slippage which you should allow for in your trading plan), which becomes your R-multiple. Your aim is to have your average win at 3R or higher (3 x your average loss), which will give you a positive expectancy even with a win ratio under 50%. Once you have written down your trading rules you can search stock charts for potential setups. When you find one you can backtest the chart for similar setup over the past few years. For each setup in the past jot down the prices you would have entered at, where you would have set your stop, work out your R, and go day by day, moving your stop as you go, and see where you would have been stopped out. Work out your profit or loss in terms of R for each setup and then add them up. If you get a positive R multiple, then this may be a good stock to trade on this setup. If you get a negative R multiple, then maybe give this stock a miss and look for the next setup. You can setup watch-lists of stocks that perform well for both long setups and short setups, and then trade these stocks when you get a new signal. It can take some time starting off, but once you have got your watch-lists for a particular setup, you just need to keep monitoring those stocks. You can create other watch-lists for other type of setups you have backtested as well.","To make it simple, just use gold as the main benchmark. Gold price never moves, FIAT currencies move around the price of gold. So, when comparing US$ and Australian dollars to the gold, you know which currency is moving up and which down.","I recall the name Martin Pring. As my fundamental analysis book from grad school was the work of Graham and Dodd titled Security Analysis, Pring was the author of the books I read on technical analysis. If you've not read his work, your education has a ways to go before you hit the tools.","\"Maria, there are a few questions I think you must consider when considering this problem. Do fundamental or technical strategies provide meaningful information? Are the signals they produce actionable? In my experience, and many quantitative traders will probably say similar things, technical analysis is unlikely to provide anything meaningful. Of course you may find phenomena when looking back on data and a particular indicator, but this is often after the fact. One cannot action-ably trade these observations. On the other hand, it does seem that fundamentals can play a crucial role in the overall (typically long run) dynamics of stock movement. Here are two examples, Technical: suppose we follow stock X and buy every time the price crosses above the 30 day moving average. There is one obvious issue with this strategy - why does this signal have significance? If the method is designed arbitrarily then the answer is that it does not have significance. Moreover, much of the research supports that stocks move close to a geometric brownian motion with jumps. This supports the implication that the system is meaningless - if the probability of up or down is always close to 50/50 then why would an average based on the price be predictive? Fundamental: Suppose we buy stocks with the best P/E ratios (defined by some cutoff). This makes sense from a logical perspective and may have some long run merit. However, there is always a chance that an internal blowup or some macro event creates a large loss. A blended approach: for sake of balance perhaps we consider fundamentals as a good long-term indication of growth (what quants might call drift). We then restrict ourselves to equities in a particular index - say the S&P500. We compare the growth of these stocks vs. their P/E ratios and possibly do some regression. A natural strategy would be to sell those which have exceeded the expected return given the P/E ratio and buy those which have underperformed. Since all equities we are considering are in the same index, they are most likely somewhat correlated (especially when traded in baskets). If we sell 10 equities that are deemed \"\"too high\"\" and buy 10 which are \"\"too low\"\" we will be taking a neutral position and betting on convergence of the spread to the market average growth. We have this constructed a hedged position using a fundamental metric (and some helpful statistics). This method can be categorized as a type of index arbitrage and is done (roughly) in a similar fashion. If you dig through some data (yahoo finance is great) over the past 5 years on just the S&P500 I'm sure you'll find plenty of signals (and perhaps profitable if you calibrate with specific numbers). Sorry for the long and rambling style but I wanted to hit a few key points and show a clever methods of using fundamentals.\"","No. The long-term valuation of currencies has to do with Purchasing Power Parity. The long-term valuation of stocks has to do with revenues, expenses, market sizes, growth rates, and interest rates. In the short term, currency and stock prices change for many reasons, including interest rate changes, demand for goods and services, asset price changes, political fears, and momentum investing. In any given time window, a currency or stock might be: The Relative Strength Index tries to say whether a currency or stock has recently been rising or falling; it does not inherently say anything about whether the current value is high or low.","Using Fundamental and Technical Analysis together is actually a good idea for longer term trading of up to 6 months or longer. The whole idea behind trading with Technical Analysis is to increase the probabilities of a trade going in the desired direction by using uncorrelated indicators that produce the same signal to buy or sell at the same time. For example, you might use a Moving Average (MA) as a buy signal when the price falls for a few days, hits the MA and then reverses and starts moving back up. If however, you also include a Stochastic Oscillator (SO) to indicate when the stock is oversold (under 20%), and if the price rebounds from the MA average at the same time as the Stochastic is crossing over in the oversold position, then this may be a higher probability trade. If you also only trade stocks that are Fundamentally healthy (as fundamentally good stocks are more likely to go up than fundamentally bad stocks) then this might increase the probabilities again. Then if you only buy when the market as a whole is moving up, then this will increase your chances again. A few weeks ago at a seminar, the presenter totalled the men in the room to be 76 and the women in the room to be 8. He then asked what will most likely be the next person to walk in the room - a man or a woman? The statistics are on the side of a wan walking in next. This is what we try to do with Technical Analysis, increase our chances when we take a trade. Of course a woman could be the next person to walk in the room, just like any trade can go against you, and this is why we use money management and risk management and take a small loss when a trade does go against you. Lets look at an example where you could incorporate FA with TA to increase your chances of profits: Above is a candlestick chart of Select Harvest (SHV), the green line above the price is the perceived value, the pink line is the 40 day MA, the blue line is the EPS, and the white lines is the Stochastic Oscillator (above 80% being overbought and below 20% is oversold). From Feb 2015 to start of Aug 2015 the stock was uptrending, since then the price reversed and started to downtrend. The stock was determined to be fundamentally good early in 2015 with the perceived value gradually increasing and greater than the share price, and the EPS starting to increase regularly from mid April. Thus, as the stock is seen as fundamentally healthy any price reversal in the vicinity of the MA could be seen as a buy opportunity. In fact there where 2 such opportunities on 31st March and 11th June where price had reversed and rebounded off the MA whist the SO crossed over in or near the oversold area. The price did reverse and then rebounded off the MA again on 9th July, however the SO was not in or near the oversold area on this occasion, so not as high in probability terms. The price still rebounded and went up again, however another momentum indicator (not shown here) shows some bearish divergence in this case - so another reason to possibly keep away at this point in time. A good signal to get out of the trade, that is your stop loss has not already taken you out, is when the price breaks and closes below the MA line. This occurred on 7th August. So if we had bought on the first signal on 31st March for $7.41 and sold when the priced broke through the MA on 7th August for $11.76, we would have made a profit of approx. 59% in just over 4 months. If bought on the second signal on 11th June for $9.98 and again sold on 7th August for $11.76, we would have made about 18% in under 2 months. So the fundamentals, the Price (in relation to MA) and the SO where all lining up to provide two high probability trades. Of course you would need to incorporate you risk management (including stops) in case the price did not continue upwards after you bought. If the market is also moving up on the day of the signal this will further increase your chances. Unless you day trade, which I would avoid, a good way to enter your trades after a signal is to enter a stop buy order after market close to buy if the price moves above the high of the signal day. That way if the market and the stock open and move lower during the day after the signal you avoid entering the trade altogether. This can be incorporated as part of your risk management and trading rules. After the price broke down through the MA we can see that a downtrend commenced which is still current today (in fact I just took a short trade on this stock yesterday). We can also see that the perceived value, whilst still above the price, has reached a peak and is currently moving downwards and the EPS after being flat for a few months has just moved down for the first time in 10 months. So maybe the fundamentals are starting to waver a bit on this stock. It may be a good stock to continue shorting into the future. So basically you can continue using Fundamental Analysis to select which stocks to buy, place them in a watch-list, and then use Technical Analysis to determine when these stocks are starting to uptrend and use a combination of uncorrelated indicators to produce higher probability signals for when to enter your trades.","The study of technical analysis is generally used (sometimes successfully) to time the markets. There are many aspects to technical analysis, but the simplest form is to look for uptrends and downtrends in the charts. Generally higher highs and higher lows is considered an uptrend. And lower lows and lower highs is considered a downtrend. A trend follower would go with the trend, for example see a dip to the trend-line and buy on the rebound. Whilst a bottom fisher would wait until a break in the downtrend line and buy after confirmation of a higher high (as this could be the start of a new uptrend). There are many more strategies dealing with the study of technical analysis, and if you are interested you would need to find and learn about ones that suit your investment styles and your appetite for risk.","Fundamental Analysis can be used to help you determine what to buy, but they won't give you an entry signal for when to buy. Technical Analysis can be used to help you determine when to buy, and can give you entry signals for when to buy. There are many Technical Indicator which can be used as an entry signal, from as simple as the price crossing above a moving average line and then selling when the price crosses back below the moving average line, to as complicated as using a combination of indicators to all line up for an entry signal to be valid. You need to find the entry signals that would suit your investing or trading and incorporate them as part of your trading plan. If you want to learn more about entry signals you are better off learning more about Technical Analysis.","Your observation is mostly right, that 1 is a the number around which this varies. You are actually referencing PEG, P/E to Growth ratio, which is a common benchmark to use to evaluate a stock. The article I link to provides more discussion.","I am in complete agreement with you. The place i have found with the sort of charts you are looking for is stockcharts.com. To compare the percentage increase of several stocks over a period of 2 market-open days or more, which is quite useful to follow the changes in various stocks… etc., an example: Here the tickers are AA to EEEEE (OTC) and $GOLD / $SILVER for the spot gold / silver price (that isn't really a ticker). It is set to show the last 6 market days (one week+)...the '6' in '6&O'. You can change it in the URL above or change it on the site for the stocks you want... up to 25 in one chart but it gets really hard to tell them apart! By moving the slider just left of the ‘6’ at the bottom right corner of the chart, you can look at 2 days or more. For a specific time period in days, highlight the ‘6’ and type any number of market-open days you want (21 days = about one month, etc.). By setting a time period in days, and moving the entire slider, you can see how your stocks did in the last bull/bear run, as an example. The site has a full how-to, for this and the other types of charts they offer. The only problem is that many OTC stocks are not charted. Save the comparison charts you use regularly in a folder in your browser bookmarks. Blessings. I see the entire needed link isn't in blue... but you need it all.","No, and using a 37 year old formula in finance that is as simple as: should make it obvious technical analysis is more of a game for retail traders than investment advice. When it comes to currencies, there are a myriad of macroeconomic occurrences that do not follow a predictable timescale. Using indicators like RSI on any time frame will not magically illuminate broad human psychology and give you an edge. It is theoretically possible for a single public stock's price to be driven by a range of technical traders who all buy at RSI 30 and sell at RSI 70, after becoming a favorite stock on social media, but it is infinitely more likely for all market participants to have completely different goals.","From my 15 years of experience, no technical indicator actually ever works. Those teaching technical indicators are either mostly brokers or broker promoted so called technical analysts. And what you really lose in disciplined trading over longer period is the taxes and brokerages. That is why you will see that teachers involved in this field are mostly technical analysts because they can never make money in real markets and believe that they did not adhere to rules or it was an exception case and they are not ready to accept facts. The graph given above for coin flip is really very interesting and proves that every trade you enter has 50% probability of win and lose. Now when you remove the brokerage and taxes from win side of your game, you will always lose. That is why the Warren Buffets of the world are never technical analysts. In fact, they buy when all technical analysts fails. Holding a stock may give pain over longer period but still that is only way to really earn. Diversification is a good friend of all bulls. Another friend of bull is the fact that you can lose 100% but gain any much as 1000%. So if one can work in his limits and keep investing, he can surely make money. So, if you have to invest 100 grand in 10 stocks, but 10 grand in each and then one of the stocks will multiply 10 times in long term to take out cost and others will give profit too... 1-2 stocks will fail totally, 2-3 will remain there where they were, 2-3 will double and 2-3 will multiply 3-4 times. Investor can get approx 15% CAGR earning from stock markets... Cheers !!!","I'd recommend looking at fundamental analysis as well -- technical analysis seems to be good for buy and sell points, but not for picking what to buy. You can get better outperformance by buying the right stuff, and it can be surprisingly easy to create a formula that works. I'd check out Morningstar, AAII, or Equities Lab (fairly complicated but it lets you do technical and fundamental analysis together). Also read Benjamin Graham, and/or Ken Fisher (they are wildly different, which is why I recommend them both).","Relative Strength Indicators are also trailing indicators. They are based on the number of recent upticks or downticks in an investment's price. (The size of a tick is quantized, and related to the investment's price.) By the time enough upticks have accumulated to generate a buy signal, the investment has already increased in price significantly. Similarly, by the time enough downticks have accumulated a to generate a sell signal, the investment has already dropped in price significantly. The theory of Relative Strength Indicators is based on the hope that moves found by these indicators are likely to continue after the signal is generated. But even if this is the case, someone who relies on these indicators will miss out on the first part of the move. Dorsey-Wright offers investment research based on the theory of Relative Strength Indicators. They offer investment vehicles based on this research. They also work with local investment advisors to develop custom back-tested strategies. They have published a white-paper, with references to others' research.","December, 5, 2011 ( 03:00pm ) :- All markets including stocks & Commodities are moving towards upward direction on the strong cues comes on the expiring today. Little bit Volatile comes over the settlement in MCX today. Gold & Silver contracts are expiring today. Dow Jones Industrial average future up by80 points from the optimism coming from the European Countries. All European Countries getting financial aid from the side of IMF which is provided through the European Central Bank. Nifty have strong resistance at 5150 levels under this level short term trend still bearish side. Gold have strong support at Rs 28960 above this trend bullish under this trend down for short term.","\"Although is not online, I use a standalone version from http://jstock.sourceforge.net It got drag-n-drop boxes, to let me design my own indicators. However, it only contain technical analysis information, not fundamental analysis information. It does come with tutorial http://jstock.sourceforge.net/help_stock_indicator_editor.html#indicator-example, on how to to build an indicator, to screen \"\"Stock which Its Price Hits Their 14 Days Maximum\"\"\"","The study of technical analysis is generally used (sometimes successfully) to time the markets. There are many aspects to technical analysis, but the simplest form is to look for uptrends and downtrends in the charts. Generally higher highs and higher lows is considered an uptrend. And lower lows and lower highs is considered a downtrend. A trend follower would go with the trend, for example see a dip to the trend-line and buy on the rebound. A simple strategy for this is shown in the chart below: I would be buying this stock when the price hits or gets very close to the trendline and then it bounces back above it. I would then have sold this stock once it has broken through below the trendline. This may also be an appropriate time if you were looking to short this stock. Other indicators could also be used in combination for additional confirmation of what is happening to the price. Another type of trader is called a bottom fisher. A bottom fisher would wait until a break above the downtrend line (second chart) and buy after confirmation of a higher high and possibly a higher low (as this could be the start of a new uptrend). There are many more strategies dealing with the study of technical analysis, and if you are interested you would need to find and learn about ones that suit your investment styles, whether you prefer short term trading or longer term investing, and your appetite for risk. You can develop strategies using various indicators and then paper trade or backtest these strategies. You can also manually backtest a strategy in most charting packages. You can go back in time on the chart so that the right side of the chart shows a date in the past (say one year ago or 10 years ago), then you can click forward one day at a time (or one week at a time if using weekly charts). With your indicators on the chart you can do virtual trades to buy or sell whenever a signal is given as you move forward in time. This way you may be able to check years of data in a day to see if your strategy works. Whatever you do, you need to document your strategies in writing in a written trading or investment plan together with a risk management strategy. You should always follow the rules in your written plan to avoid you making decisions based on emotions. By backtesting or paper trading your strategies it will give you confidence that they will work over the long term. There is a lot of work involved at the start, but once you have developed a documented strategy that has been thoroughly backtested, it will take you minimal time to successfully manage your investments. In my shorter term trading (positions held from a couple of days to a few weeks) I spend about half an hour per night to manage my trades and am up about 50% over the last 7 months. For my longer term investing (positions held from months to years) I spend about an hour per week and have been averaging over 25% over the last 4 years. Technical Analysis does work for those who have a documented plan, have approached it in a systematic way and use risk management to protect their existing and future capital. Most people who say that is doesn't work either have not used it themselves or have used it ad-hock without putting in the initial time and work to develop a documented and systematic approach to their trading or investing.","Very common question. There is no any rule of thumb. This solely depends on your trading strategy. I will share my own experience. My day starts with the daily chart, if I have a signal, either I open my position or I check 30 minute chart to make sure that it won't go too much against my trade. and I open my position. If I am waiting for the signal the minimum timeframe is 4 hours for me. I use 30 minutes to find the best time to enter the market. So, this is totally something special for my trading strategy, that is why those things can change based on the different strategies. I also check weekly and monthly charts to confirm trend. I have been busy with forex since 2007 and I am a verified investor on etoro At the end, I never use 1,5,15,60 minute charts as they are against my strategy.","I agree with @Turukawa that the x-axes need to be the same to make a direct comparison. However, the graphs you linked make me think of introductory calculus: If you time averaged plots, speculative investments (gold, housing) seem to have many large concave up time periods and the dow jones has many concave down sections. Using the concavity test: If the first derivative tells you about the rate of change, the second derivative tells you about the rate of change of rate of change. Remember back to Physics 101: 1st derivative is velocity & second derivative is acceleration. It would be interesting to have the same time scales for your plots & compare these accelerations between the two. I suspect the more volatile investments would have larger (in magnitude) accelerations during boom/bust cycles than less speculative investments.","If you want to invest in the stock market, whether over a shorter period of 1 to 2 years or over a longer period of 10 or 20 years or longer you need to take some precautions and have a written investment plan with a risk management strategy incorporated in your plan. Others have said that 1 to 2 years is too short to invest in the stock market as the stock market can have a correction and fall by 50%. But it doesn't matter if you invest for 1 year or if you invest for 50 years, the stock market can still fall by 50% just before you plan to withdraw your funds. What you need to figure out is a way to get out before the market falls by 40% to 50%. A simple way to do this is to use technical indicators to warn you when a market trend is starting to change and that it is time to get out of the market. Two simple indicators you can use on a market index are the Rate of Change (ROC) indicator and the 100 week Moving Average (MA). Below is a 10 year weekly chart of the S&P500 with these two indicators charted. They show good times to get into the market and good times to get out. If you are using the 100 week MA you would buy in when the price crosses above the MA line and sell when the price crosses below the MA line. If you are using the ROC indicator you would buy in when the ROC indicator crosses above the zero line and sell when the ROC indicator crosses below the zero line. So your investment plan could be to buy an Index ETF representing the S&P500 when the ROC moves above zero and sell when it crosses below zero. You can also place a trailing stop loss of 10% to protect you in case of a sudden fall over a couple of days. You can manage your investments in as little as 10 minutes per week by checking the chart once per week and adjusting your stop loss order. If you want to progressively add to your investment each month you could check the charts and only add any new funds if both the ROC is above zero and sloping upwards. Another option for adding new funds could be if the price is above the MA and moving further away from the MA. All these rules should be incorporated into your investment plan so that you are not basing your decisions based on emotions. There are many other Technical Analysis Indicators you could also learn about to make better educated decisions about your stock market investments. However, what I have provided here is enough for anyone to test over different indexes and time frames and do their own paper trading on to gain some confidence before placing any real money on the table.","Almost every screener is able to do this. Please put effort into researching. Take the difference between http://finviz.com/screener.ashx?v=111&f=sh_avgvol_o1000,sh_price_u10,ta_highlow52w_nh&ft=4 and http://finviz.com/screener.ashx?v=111&f=sh_avgvol_o1000,sh_price_u5,ta_highlow52w_nh&ft=4 to get your results. Even MSN Money can do this http://www.msn.com/en-us/money/stockscreener/52weekhighs","Since 2007 the world has seen a period of striking economic and financial volatility featuring the deepest recession since the 1930s despite this gold has performed strongly with its price roughly doubling since the global financial crisis began in mid-2007. 1. Gold and real interest rates: One of the factor that influences gold prices is real interest rate which is to some extent related to inflation. Since gold lacks a yield of its own, the opportunity cost of holding gold increases with a real interest rate increase and decreases with a fall in real interest rates. 2. Gold and the US dollar: The external value of the US dollar has been a significant influence on short-term gold price movements. The IMF estimated6 in 2008 that 40-50% of the moves in the gold price since 2002 were dollar-related, with a 1% change in the effective external value of the dollar leading to a more than 1% change in the gold price (Source). 3. Gold and financial stress: It is a significant and commonly observed influence on the short-term price of gold. In periods of financial stress gold demand may rise for a number of reasons: 4. Gold and political instability: It is another factor that can boost gold prices. Investor concerns about wars, civil conflicts and international tensions can boost demand for gold for similar reasons to those noted above for periods of financial stress. Gold‟s potential function as a „currency of last resort‟ in case of serious system collapse provides a particular incentive to hold it in case the political situation is especially severe. (Source) 5. Gold and official sector activity: The behaviour of central banks and other parts of the official sector can have an important impact on gold prices. One reason for this is that central banks are big holders of gold, possessing some 30,500 metric tons in 2010, which is approximately 15% of all above-ground gold stocks. As a result, central bank policies on gold sales and purchases can have significant effects, and these policies have been subject to considerable shifts over the decades. (Source) (Source of above graphs)","\"First, it's much safer to be shorting stocks over $5 than stocks under $5. I use 3 indicators to show that a stock has topped out and about to drop. Key is the timing cause the initial drop is often the biggest. More close you get in at the top, the higher the risk. Using 1D Charts ONLY: - MACD Indicator: I use the histogram, when it reaches a peak height, and the next day it is down 1 \"\"Step\"\". If you wait til the MACD lines cross, you are pretty late IMHO. Need to get in earlier. Timing is everything. - RSI(15) - Needs to topped out and above 67 meaning, \"\"Over bought\"\" - Do not buy when RSI is high above 70. Often stocks go on a Run up when RSI is over 70! - I use Stoch RSI or CCI to confirm my status on RSI. I like to see that all 3 indicators agree. This gives me a 75% chance that the stock will drop. It may take a day or 2.. so you need patience.\"","You can average the betas across the different cross listings. EX: Exchange 1 - Beta .8 Exchange 2 - Beta .6 Exchange 3 - Beta .7 (.8 + .6 + .7) / 3 = avg Beta .7 You can do simple average as based above or you can do a weighted average and take into account other factors.","I've recently discovered that Morningstar provides 5yr avgs of a few numbers, including dividend yield, for free. For example, see the right-hand column in the 'Current Valuation' section, 5th row down for the 5yr avg dividend yield for PG: http://financials.morningstar.com/valuation/price-ratio.html?t=PG®ion=usa&culture=en-US Another site that probably has this, and alot more, is YCharts. But that is a membership site so you'll need to join (and pay a membership fee I believe.) YCharts is supposedly pretty good for long-term statistical information and trend graphs for comparing and tracking stocks.","The Wikipedia has an article on money flow index. The article which you link to correctly uses the typical price. You state that you are comparing the closing prices, which is incorrect. I'm making no statement on the validity of the money flow index itself, just answering your question.","Standard Deviation is a mathematical term that is useful in many areas. It can be considered a measure of how tight the data points are to the average. If there is consistency in the measurement system, then a point that is two standard from the average can be considered an outlier. It doesn't even need to be time based. We can say that a child born weighing less than X pounds is more than 2 standard deviations below the average. Using it to look at a price or an index value doesn't make a lot of sense because many expect there to be long term growth. For example you would never say that you will buy a new jacket for your child when they are two standard deviations above their average height. You can say you will buy or sell a financial instrument when the P/E ratio is 2 standard deviations from some average. It could be the average of the long term history, or the index, or the sector. You could do the same thing for earnings per share or many other business of financial statistics. A standard deviation calculated from a time series assumes that the measurement will normally stay withing some bounds. And that straying from those bounds is a sign of the right time to buy or sell.","\"The graphing tools within Yahoo offer a decent level of adjustment. You can easily choose start and end years, and 2 or more symbols to compare. I caution you. From Jan 1980 through Dec 2011, the S&P would have grown $1 to $29.02, (See Moneychimp) but, the index went up from 107.94 to 1257.60, growing a dollar to only $11.65. The index, and therefore the charts, do not include dividends. So long term analysis will yield false results if this isn't accounted for. EDIT - From the type of question this is, I'd suggest you might be interested in a book titled \"\"Stock Market Logic.\"\" If memory serves me, it offered up patterns like you suggest, seasonal, relations to Presidential cycle, etc. I don't judge these approaches, I just recall this book exists from seeing it about 20 years back.\"","\"In general, moving averages never seemed that much better for drawing trends, just removing volatility. However, in this case, they do seem more relevant because the moving averages seem to at least remove the noise of many of the other \"\"revisions.\"\" Comparing the intial numbers to the previous weeks' revised figures is hardly an apples-to-apples comparison, because there is more data available on the previous weeks' figures.\"","P/E = price per earnings. low P/E (P/E < 4) means stock is undervalued.","I like to look at Alpha, Beta, St. Dev., Sharpe Ratio, and R-Squared. It's also good to know how they work together. i.e.: Say you're comparing a fund to an index and the fund has a low beta, but the r-squared is low (<70 is low for my usage). The beta loses some significance in that instance. You want to be able to look at these 5 metrics, know what they mean on their own, and what they say about each other. Sorry if that was poorly worded, Mondays...","\"You cannot just read one book and some articles on Technical Analysis and some indicators and expect to be an expert and everything to just start falling into place and give you signals that will tell you when to buy and sell with precision and massive profits all the time. It is like someone reading a book on how to drive a car and then expecting to drive flawlessly the first time they sit in the driver's seat, or someone reading a book on brain surgery and expecting to be able to operate on a live patient the next day. It looks like you are using 3 or 4 indicators to get daily buy and sell signals on a daily chart for an EFT you're looking to hold for decades. So firstly you are using short term indicators for a long term outlook. You need to decide what timeframe you plan to hold your investments for and use chart periods and indicators that suit that timeframe. Secondly, each indicator can be used in a number of ways and the settings you use for each indicator can determine whether you get earlier or later signals. Also, you need to work out which indicators work well together and are complementary, compared to those that don't work well together and give conflicting signals. All this information will come together for you the more you read about and practice the art of Technical Analysis. If your timeframe is very long-term (decades) I would be using mainly a weekly chart, with a longer period MA, the ROC indicator and possibly some trend lines. Keep it simple. The price itself is very important too. You can determine when a trend is starting or has ended purely using the price. The definition of an uptrend is higher highs and higher lows, so on the weekly chart if there is a lower high followed by a lower low - this could be the end of the uptrend. If we get a lower low followed by a lower high - this again could be the end of the uptrend. These could be a good time to start getting cautious and maybe looking to sell. If you are using stop losses (which I recommend) this may be a good time to tighten your stops. Similarly, a downtrend is defined as lower lows and lower highs. If we get a higher low followed by a higher high it could be the end of the downtrend and maybe the start of an uptrend. This could be a good time to start getting ready to buy. You need to learn about how and where to set your buy and sell orders (including stops) and whether you wait for confirmation when you get a signal. All this takes some time, but the more you read, the more you attend live events and the more you practice the more they will become second nature. In order to get the best out of Technical Analysis you will need to learn, plan, practice and execute. A good book to help you prepare your trading plan is \"\"Smart Trading Plans\"\" by Justine Pollard. One of my favourite books is \"\"The Complete Trading Course - Price Patterns, Strategies, Setups, and Execution Tactics\"\" by Corey Rosenbloom. And another good book is \"\"Trade your Way to Financial Freedom\"\" by Van Tharp.\"","I use StockCharts for spread charting. To take your question as an example, here is the chart of Apple against Nasdaq.","\"Probably the most important thing in evaluating a dividend yield is to compare it to ITSELF (in the past). If the dividend yield is higher than it has been in the past, the stock may be cheap. If it is lower, the stock may be expensive. Just about every stock has a \"\"normal\"\" yield for itself. (It's zero for non-dividend paying stocks.) This is based on the stock's perceived quality, growth potential, and other factors. So a utility that normally yields 5% and is now paying 3% is probably expensive (the price in the denominator is too high), while a growth stock that normally yields 2% and is now yielding 3% (e.g. Intel or McDonald'sl), may be cheap.\"","Other metrics like Price/Book Value or Price/Sales can be used to determine if a company has above average valuations and would be classified as growth or below average valuations and be classified as value. Fama and French's 3 Factor model would be one example that was studied a great deal using an inverse of Price/Book I believe.","Mostly some custom work i've done myself, bayesian and time series models, but there is some pattern matching. Most TA functions such as MA's, MACD's, BollingerBands, are simple ways of doing time series analysis. MA's are basic filters. MACD is essentially a way of viewing acceleration, as its the informational difference between filters. BB's are mean reverters based on standard deviation/ RSI is a ratio of filtered up to down moves basically generating an indicator based on how strong the market has moved.","If you don't need 100% accuracy then GLD and SLV will work fine. Over the long-term these converge quite nicely with the price of the metal.","I would be very cautious about investing any more funds into the S&P500 at this stage. You are quite correct in your observation with the charts regarding the 2001 and 2008 crashes, and below is the chart of the S&P500 over the last 20 years with some indicators on it. The green line on the price chart is the 100 week Moving Average (MA) and the pink line below the price chart is the Moving Average of the Rate of Change (ROC) Indicator. In general the market is moving up if price is above the 100 week MA and the ROC is above 0%, and vise-versa the market is moving down if price is below the 100 week MA and the ROK is below 0%. Both times in 2001 and in 2008 when prices broke below the 100 week MA and then the ROC crossed below the zero line, well we all know what happened next. In 2001 prices kept falling and the ROC didn't cross back above zero for about 2.5 years, in 2008 much the same happened and the ROC didn't cross back above zero for over 20 months. Now as we are reaching the end of 2015 prices have once again broken below the 100 week MA and the ROC is just above the zero line quickly heading down towards it. If you have a 5 to 8 year time frame, and prices do continue to fall much further after the ROC crosses below the zero line, your current funds and any new funds you invest in this ETF will potentially see heavy losses for the next one to two years and then take another year to two years or more to recover to current levels. This means that your funds will potentially have no gains at all in 5 or 6 years time. A better option is to get out of the market once the ROC crosses below zero and then look to get back in once the recovery has started, when the ROC crosses back above the Zero line. You might be out of the market for a year or two, but once you get back in you can expect robust gains over the next 3 to 5 years. If you do get out and things reverse quite quickly you can easily just get back in. In mid-2010 and mid-2011 the price broke below the 100 week MA but the ROC remained above Zero and prices continued moving up after short corrections. In mid-2012 the ROC got very close to the Zero line but did not cross below it, and again prices continued to go up after a small correction. You should plan for the worst and be ready if it occurs. If you don't plan you're just hoping and hoping is what will keep you awake at night whist things are going against you.","\"One idea: If you came up with a model to calculate a \"\"fair price range\"\" for a stock, then any time the market price were to go below the range it could be a buy signal, and above the range it could be a sell signal. There are many ways to do stock valuation using fundamental analysis tools and ratios: dividend discount model, PEG, etc. See Wikipedia - Stock valuation. And while many of the inputs to such a \"\"fair price range\"\" calculation might only change once per quarter, market prices and peer/sector statistics move more frequently or at different times and could generate signals to buy/sell the stock even if its own inputs to the calculation remain static over the period. For multinationals that have a lot of assets and income denominated in other currencies, foreign exchange rates provide another set of interesting inputs. I also think it's important to recognize that with fundamental analysis, there will be extended periods when there are no buy signals for a stock, because the stocks of many popular, profitable companies never go \"\"on sale\"\", except perhaps during a panic. Moreover, during a bull market and especially during a bubble, there may be very few stocks worth buying. Fundamental analysis is designed to prevent one from overpaying for a stock, so even if there is interesting volume and price movement for the stock, there should still be no signal if that action happens well beyond the stock's fair price. (Otherwise, it isn't fundamental analysis — it's technical analysis.) Whereas technical analysis can, by definition, generate far more signals because it largely ignores the fundamentals, which can make even an overvalued stock's movement interesting enough to generate signals.\"","\"What you are looking for is an indicator called the \"\"Rate of Change (Price)\"\". It provides a rolling % change in the price over the period you have chosen. Below is an example showing a price chart over the last 6 months with a 100 day Rate of Change indicator below the price chart.\"","Well that will depend on the time frame you are looking at it. You can't compare the RSI on a five minute chart to the RSI on a daily chart. The minute chart would represent the momentum of very small trends whilst the daily chart would represent the momentum of much larger trends. On the daily chart the shares might be experiencing a strong uptrend with a rising RSI. During each day the price might move up at the open then come down some, then back up a bit more and repeat this several times during the day before closing higher. During the day the RSI might have moved slightly higher. But during a single day on the 5 minute chart the price may have gone through several up and down trends, with the RSI going into oversold and overbought several times. What you should be looking at to strengthen the signal from the RSI is to watch for when the RSI is in the overbought at the same time the price is reaching a peak, or when the RSI is in the oversold at the same time the price is reaching a trout. These could represent potential turning points in price. The time frame to use would depend on the type of trading you are attempting to undertake. If you prefer day trading (being in and out of a trade in minutes to hours) you might look at time frames of minutes to hours. If you prefer longer term position, trend or swing trading you would probably stick to daily charts. If you prefer longer term active investing you might stick to a combination of daily, weekly and monthly charts.","There are those who would suggest that due to the Efficient Market Hypothesis, stocks are always fairly valued. Consider, if non-professional posters on SE (here) had a method that worked beyond random chance, everyone seeking such a method would soon know it. If everyone used that method, it would lose its advantage. In theory, this is how stocks' values remain rational. That said, Williams %R is one such indicator. It can be seen in action on Yahoo finance - In the end, I find such indicators far less useful than the news itself. BP oil spill - Did anyone believe that such a huge oil company wouldn't recover from that disaster? It recovered by nearly doubling from its bottom after that news. A chart of NFLX (Netflix) offers a similar news disaster, and recovery. Both of these examples are not quantifiable, in my opinion, just gut reactions. A quick look at the company and answer to one question - Do I feel this company will recover? To be candid - in the 08/09 crash, I felt that way about Ford and GM. Ford returned 10X from the bottom, GM went through bankruptcy. That observation suggests another question, i.e. where is the line drawn between 'investing' and 'gambling'? My answer is that buying one stock hoping for its recovery is gambling. Being able to do this for 5-10 stocks, or one every few months, is investing.","\"The formula for standard deviation is fairly simple in both the discrete and continuous cases. It's mostly safe to use the discrete case when working with adjusted closing prices. Once you've calculated the standard deviation for a given time period, the next task (in the simplest case) is to calculate the mean of that same period. This allows you to roughly approximate the distribution, which can give you all sorts of testable hypotheses. Two standard deviations (σ) away from the mean (μ) is given by: It doesn't make any sense to talk about \"\"two standard deviations away from the price\"\" unless that price is the mean or some other statistic for a given time period. Normally you would look at how far the price is from the mean, e.g. does the price fall two or three standard deviations away from the mean or some other technical indicator like the Average True Range (an exponential moving average of the True Range), some support level, another security, etc. For most of this answer, I'll assume we're using the mean for the chosen time period as a base. However, the answer is still more complicated than many people realize. As I said before, to calculate the standard deviation, you need to decide on a time period. For example, you could use S&P 500 data from Yahoo Finance and calculate the standard deviation for all adjusted closing prices since January 3, 1950. Downloading the data into Stata and applying the summarize command gives me: As you can probably see, however, these numbers don't make much sense. Looking at the data, we can see that the S&P 500 hasn't traded close to 424.4896 since November 1992. Clearly, we can't assume that this mean and standard deviation as representative of current market conditions. Furthermore, these numbers would imply that the S&P 500 is currently trading at almost three standard deviations away from its mean, which for many distribution is a highly improbable event. The Great Recession, quantitative easing, etc. may have changed the market significantly, but not to such a great extent. The problem arises from the fact that security prices are usually non-stationary.. This means that the underlying distribution from which security prices are \"\"drawn\"\" shifts through time and space. For example, prices could be normally distributed in the 50's, then gamma distributed in the 60's because of a shock, then normally distributed again in the 70's. This implies that calculating summary statistics, e.g. mean, standard deviation, etc. are essentially meaningless for time periods in which prices could follow multiple distributions. For this and other reasons, it's standard practice to look at the standard deviation of returns or differences instead of prices. I covered in detail the reasons for this and various procedures to use in another answer. In short, you can calculate the first difference for each period, which is merely the difference between the closing price of that period and the closing price of the previous period. This will usually give you a stationary process, from which you can obtain more meaningful values of the standard deviation, mean, etc. Let's use the S&P500 as an example again. This time, however, I'm only using data from 1990 onwards, for the sake of simplicity (and to make the graphs a bit more manageable). The summary statistics look like this: and the graph looks like this; the mean is the central horizontal red line, and the top and bottom lines indicate one standard deviation above and below the mean, respectively. As you can see, the graph seems to indicate that there were long periods in which the index was priced well outside this range. Although this could be the case, the graph definitely exhibits a trend, along with some seemingly exogenous shocks (see my linked answer). Taking the first difference, however, yields these summary statistics: with a graph like this: This looks a lot more reasonable. In periods of recession, the price appears much more volatile, and it breaches the +/- one standard deviation lines indicated on the graph. This is only a simple summary, but using first differencing as part of the wider process of detrending/decomposing a time series is a good first step. For some technical indicators, however, stationary isn't as relevant. This is the case for some types of moving averages and their associated indicators. Take Bollinger bands for instance. These are technical indicators that show a number of standard deviations above and below a moving average. Like any calculation of standard deviation, moving average, statistic, etc. they require data over a specified time period. The analyst chooses a certain number of historical periods, e.g. 20, and calculates the moving average for that many previous periods and the moving/rolling standard deviation for those same periods as well. The Bollinger bands represent the values a certain number of standard deviations away from the moving average at a given point in time. At this given point, you can calculate the value two standard deviations \"\"away from the value,\"\" but doing so still requires the historical stock price (or at least the historical moving average). If you're only given the price in isolation, you're out of luck. Moving averages can indirectly sidestep some of the issues of stationarity I described above because it's straightforward to estimate a time series with a process built from a moving average (specifically, an auto-regressive moving average process) but the econometrics of time series is a topic for another day. The Stata code I used to generate the graphs and summary statistics:\"","\"Most markets around the world have been downtrending for the last 6 to 10 months. The definition of a downtrend is lower lows and lower highs, and until you get a higher low and confirmation with a higher high the downtrend will continue. If you look at the weekly charts of most indexes you can determine the longer term trend. If you are more concerned with the medium term trend then you could look at the daily charts. So if your objective is to try and buy individual stocks and try to make some medium to short term profits from them I would start by first looking at the daily charts of the index your stock belongs to. Only buy when the intermediate trend of the market is moving up (higher highs and higher lows). You can do some brief analysis on the stocks your interested in buying, and two things I would add to the short list in your question would be to check if earnings are increasing year after year. The second thing to look at would be to check if the earnings yield is greater than the dividend yield, that way you know that dividends are being paid out from current earnings and not from previous earning or from borrowings. You could then check the daily charts of these individual stocks and make sure they are uptrending also. Buy uptrending stocks in an uptrending market. Before you buy anything write up a trading plan and develop your trading rules. For example if price breaks through the resistance line of a previous high you will buy at the open of the next day. Have your money management and risk management rules in place and stick to your plan. You can also do some backtesting or paper trading to check the validity of your strategy. A good book to read on money and risk management is - \"\"Trade your way to Financial Freedom\"\" by Van Tharp. Your aim should not be to get a winner on every trade but to let your winners run and keep your losses small.\"","Most patterns can be used on various time frames. For example you could use candle stick reversal patterns on monthly charts, weekly charts, daily charts or intra-day charts like one hour, or even one minute charts. Obviously if you are looking for longer term positions you would be looking at daily, weekly or monthly charts and if you are looking for shorter term positions you would be looking at intra-day to daily charts. You can also use a combination of time frames - for example, if you are trying to enter a trade over a long-term uptrend you could use a weekly chart to determine if the stock is currently uptrending and then use a daily chart to time your entry into the trade. Most patterns in general don't really determine how long you will be in the trade but instead usually can provide an entry trigger, a stop loss location and possibly a profit target. So in general a pattern which is being used to enter into longer term trades on weekly charts can also be used to enter shorter term trades on intra-day charts.","As per the chart pattern when ever a stock breaks its 52 week high. This information may differ for penny stocks,small caps and mid cap stocks","I use and recommend barchart.com. Again you have to register but it's free. Although it's a US system it has a full listing of UK stocks and ETFs under International > London. The big advantage of barchart.com is that you can do advanced technical screening with Stochastics and RS, new highs and lows, moving averages etc. You're not stuck with just fundamentals, which in my opinion belong to a previous era. Even if you don't share that opinion you'd still find barchart.com useful for UK stocks.","One of the most useful ways to depict Open, High, Low, Close, and Volume is with a Candlestick Chart. I like to use the following options from Stockcharts.com: http://stockcharts.com/h-sc/ui?s=SPY&p=D&yr=0&mn=3&dy=0&id=p57211761385","i've been waiting for the MOVE to get off its butt for a while now but as long as we stay goldilocks and yellen vacillates between hawkish and dovish its hard for it to climb meaningfully. The MOVE is at 52 now - for some context, the traditional view was that below 70 was complacent, above 100 was panic but since the era of unprecedented central bank intervention that hardly holds.","What are Pivot Points? Pivot Points indicate price levels that are of significance in technical analysis of securities. Pivot Points are used to provide clarity for a trader as they are a predictive indicator of where a security might go. There are at least 6 different types of Pivot Points (Woodie Pivot Point, Fibonacci Pivot, Demark etc..) and they are different based on their formulas but generally serve the same concept. I will be answering your question using the Camarilla Pivot Point formula. Camarilla Pivot Point Formula Generally any Pivot Point formula uses a combination of the Open, High, Low and Close of the previous timeframe. Since you are technically a swing trader indicated by say between a couple of days to a couple of weeks, as I don't want to do day trading you should use a weekly 5 to 30 minute chart but you can also use a daily chart as well. So for example if you use a daily chart, you would use the Open, High, Low and Close of the previous day. Example of fictitious stock: MOSEX (Money Stack Exchange) 01/14/16: Open: 10.25, High: 12.55, Low: 9.65, Close: 11.50 On 01/15/16: R4 Level: 13.10, R3 Level: 12.30, R2 Level: 12.03, R1 Level: 11.77, Pivot Point: 11.23, S1 Level: 11.23, S2 Level: 10.97, S3 Level: 10.70, S4 Level: 9.91 R = Resistance, S = Support How to identify these Pivot Points? Most charting software already have built in overlays that will identify the pivot points for you but you can always find and draw them yourself with an annotation tool. Since we are using the Camarilla Pivot Point formula, the important Pivot Point levels are the R4 which is considered as the Breakout Pivot, the S4 which is considered as the Breakdown Pivot. R3 and S3 are Reversal Pivot Points. Once identify the Pivot Points how should you proceed in a trade? This is the million dollar question and without spoon feeding you requires you to come up with your own strategy. To distinguish yourself from being a novice and pro trader is to have a strategy in a trade. Now I don't really have the time to look for actual charts to provide examples with but generally this is what you should look for to proceed in a trade: Potential Buy/Short Signals: Potential Sell Signals: If a stock moves above the R3 Level but then crosses below it, this would be a sell signal. This is confirmed when their is a lower lower then the candle that first crosses below it. Sell a stock when S4 Level is confirmed. See above for the confirmation. Other Useful Tips: Use the Pivot Point as your support or resistance. The Pivot Point levels can be used for your stop loss. For example, with an S3 reversal buy signal, the S4 should be used as a stop loss. Conversely, the Pivot Point levels can also be used for your target prices. For example, with an S3 reversal buy signal, you should take some profits at R3 level. You should also use a combination of other indicators to give you more information to confirm if a signal is correct. Examples of a good combination is the RSI, MACD and Moving Averages. Read that book in my comment above!!","Just guessing here… How about Daily Median price? StockCharts provides a similar value they call VWAP. Which stands for Volume-Weighted Average Price. I believe it is a better 'average' for the day (click on link).","No. The information you are describing is technical data about a stock's market price and trading volume, only. There is nothing implied in that data about a company's financial fundamentals (earnings/profitability, outstanding shares, market capitalization, dividends, balance sheet assets and liabilities, etc.) All you can infer is positive or negative momentum in the trading of the stock. If you want to understand if a company is performing well, then you need fundamental data about the company such as you would get from a company's annual and quarterly reports.","So for quarters So, if Q1's value was 10 and Q2's value was 25 For closing or opening prices, I would use closing prices. For instance, some used Adjusted Close or Close on Yahoo Finance (see this example of AAPL). Added Note: In your example, for your example, you'll want to take the absolute value of the denominator (aka: divisor), so an Excel formula might look like the below example ... ... where the new and old are cells.","Been in tech research for quite some time through both '01 and '08, so I've seen different valuation metrics used at different times of the cycle. I agree 4Q forward is the norm but I do 6Q forward model and depending on verticals, P/E, P/S or EV/EBIDTA. And maybe DCF for sanity check. Usually SSS/MAU/subs are used w/ ARPU or turns/B:B to derive top line. Earnings is an easy number to pull from bbg but the descriptive quality of earnings is not as good as EBITDA or FCF especially some companies choose to talk about adjusted numbers only. Different strokes for different folks. I must admit that based on my valuation model both AMZN/NFLX are both hard pass due to their valuation. But I was in AMZN in PA from my quant model. Different strokes for different folks.","A technically strong stock or market is simply a stock or market which is up-trending and has been up-trending for a while. Just as a fundamentally strong stock is one with good fundamentals (a stock that is healthy and making higher profits year after year and continually improving), a technically strong stock has a healthy uptrend that continues to go up and up. Apple was technically strong until it hit $700 (its price stayed above the 200 day MA for a long period until after it hit $700, then broke down through the 200 day MA shortly after - the uptrend was over). I will usually buy stocks which are both fundamentally and technically strong, as a technically strong stock will generally stay technically strong longer if it also has strong and good fundamentals.","Would you also suggest some stock with interesting returns and risks? Because i tried with FB, GS, JNJ, MCD, F and the have low returns in the last 5 years, so when you compare them to commodities you don't see so much difference in stdev and returns.","Simple. Say in 2012 you were up 50% (brilliant) but then in 2013 you were down 50% (sorry). i.e. if you started with $1000, you were up to $1500, then down to $750. You lost $250 overall. If you were to compute the mean of the percentages using each method, then: Arithmetic mean: The average of +50% and -50% (really 150% and 50% of each period's initial value) is zero, not up or down. Geometric mean: 1.5 * .5 = .75, i.e. you are down 25% over 2 years, or about 13.4% per year. It should be clear the Geometric makes more sense in such a case.","With the S&P 500's cyclically adjusted price to earnings ratio above 26 and inching closer to 30 everyday I would be inclined to disagree. Also price trends and technical indicators say nothing about over and undervaluation. If fact technical indicators are worthless in the real world.","I usually look at the high and low exchange rates for the last five years. If the current rate is fairly close to the high for a trade over the past five years, then I do the trade. If the current exchange rate is close to the low, then I wait.","\"Is option trading permitted in the account? Most 401(k) do not permit this. 1 - it means none traded today. 2 - there are 50 outstanding contracts. Each one has a guy who is long and a guy who is short. 3 - not really, it might depend on the stock. 4 - no. With commissions so low, and the inherent leverage of options, one contract reflecting 100 shares of the underlying stock, the minimum is what you can sleep soundly with. 5 - because GLD does not reflect precisely 1/10 oz of gold's price. If you look at the prospectus, it reads \"\"The investment objective of the Trust is for the Shares to reflect the performance of the price of gold bullion, less the Trust’s expenses.\"\" Since there are no dividends to take expenses from, the GLD price will erode by .4% each year compared to the price of 1/10oz gold.\"","Daily > Weekly > Monthly. This statement says that if you use daily returns you will get more noise than if you used weekly or monthly returns. Much of the research performed uses monthly returns, although weekly returns have been used as well. For HFT you would need to detrend the data in order to spot true turning points.","Common financial advice is just that - it is common and general in nature and not specific for your financial needs, your goals and your risk tolerance. Regarding the possibility of a US market not going anywhere over a long period of time, well it is not a possibility, it has happened. See chart below: It took 13 years for the S&P 500 to break through 1550, a level first reached in March 2000, tested in October 2007 (just before the GFC) and finally broken through in March 2013. If you had bought in early 2000 you would still be behind when you take inflation into account. If you took the strategy of dollar cost averaging and bought the same dollar value (say $10,000) of the index every six months (beginning of each January and each July) starting from the start of 2000 and bought your last portion in January 2013, you would have a return of about 35% over 13.5 years (or an average of 2.6% per year). Now lets look at the same chart below, but this time add some trend lines. If we instead bought whenever the price crossed above the downtrend-line and sold whenever the price crossed below the uptrend-line (with the first purchase at the start of January 2000), we would have a return of 93% over the 13.5 years (or an average of 6.9% per year). Another more aggressive option (but manageable if you incorporate a risk management strategy) is to buy long when the price crosses the downtrend-line and sell your existing long position and sell short when the price drops below the uptrend-line. That is profiting both up-trending and down-trending markets. Again we start our buying at the start of January 2000. By shorting the index when the market is in a down-trend you could increase the above returns of 93% by another 54%, for a total return of 147% over 13.5 years (or an average of 10.9% per year). To conclude, using a simple long term strategy to time the markets may result in considerably higher returns than dollar cost averaging over the medium to long term, and I know which strategy would help me sleep better at night.","I love technical analysis, and use candlesticks as part of my technical analysis system for trading mutual funds in my 401K. However, I would never use a candlestick chart on its own. I use combination of candlesticks, 2 different EMAs, MACD, bollinger bands, RSI and hand drawn trend lines that I constantly tweak. That's about as much data input as I can handle, but it is possible to graph it all at once and see it at a glance if you have the right trading platform. My approach is very personal, not very aggressive, and took me years to develop. But it's fairly effective - 90% + of my trades are winners. The big advantage of technical analysis is that it forces you to create repeatable rules around which you base your trading. A lot of the time I have little attention at all on what fund I am trading or why it is doing well in that particular market condition. It's basically irrelevant as the technical system tells when to buy and sell, and stops you trying to second guess whether housing, chemicals, gold or asian tigers are is doing well right now. If you don't keep to your own rules, you have only yourself to blame. This keeps you from blaming the market, which is completely out of your control. I explain many of my trades with anotated graphs at http://neurotrade.blogspot.com/","The beta of a stock can be interpreted as the average relative movement of a stock with respect to the movement of a market index. In your case, the stock will move on average by 0.8. Thus over a longer time horizon, not on a daily, weekly basis.","Yes, it makes sense. Like Lagerbaer says, the usefulness of technical indicators can not be answered with a simple yes or no. Some people gain something from it, others do not. Aside from this, applying technical indicators (or any other form of technical analysis - like order flow) to instruments which are composed of other instruments, such as indexes (more accurately, a derivative of it), does make sense. There are many theories why this is the case, but personally i believe it is a mixture of self fulfilling prophecy, that the instruments the index is composed of (like the stocks in the S&P500) are traded in similar ways as the index (or rather a trade-able derivative of it like ETFs and futures), and the idea that TA just represents human emotion and interaction in trading. This is a very subjective topic, so take this with a grain of salt, but in contrast to JoeTaxpayer i believe that yields are not necessary in order to use TA successfully. As long as the given instrument is liquid enough, TA can be applied and used to gain an edge. On the other hand, to answer your second question, not all stocks in an index correlate all the time, and not all of them will move in sync with the index.","\"Please note that the following Graham Rating below corresponds to five years: Earnings Stability (100% ⇒ 10 Years): 50.00% Benjamin Graham - once known as The Dean of Wall Street - was a scholar and financial analyst who mentored legendary investors such as Warren Buffett, William J. Ruane, Irving Kahn and Walter J. Schloss. Buffett describes Graham's book - The Intelligent Investor - as \"\"by far the best book about investing ever written\"\" (in its preface). Graham's first recommended strategy - for casual investors - was to invest in Index stocks. For more serious investors, Graham recommended three different categories of stocks - Defensive, Enterprising and NCAV - and 17 qualitative and quantitative rules for identifying them. For advanced investors, Graham described various \"\"special situations\"\". The first requires almost no analysis, and is easily accomplished today with a good S&P500 Index fund. The last requires more than the average level of ability and experience. Such stocks are also not amenable to impartial algorithmic analysis, and require a case-specific approach. But Defensive, Enterprising and NCAV stocks can be reliably detected by today's data-mining software, and offer a great avenue for accurate automated analysis and profitable investment. For example, given below are the actual Graham ratings for International Business Machines Corp (IBM), with no adjustments other than those for inflation. Defensive Graham investment requires that all ratings be 100% or more. Enterprising Graham investment requires minimum ratings of - N/A, 75%, 90%, 50%, 5%, N/A and 137%. International Business Machines Corp - Graham Ratings Sales | Size (100% ⇒ $500 Million): 18,558.60% Current Assets ÷ [2 x Current Liabilities]: 62.40% Net Current Assets ÷ Long Term Debt: 28.00% Earnings Stability (100% ⇒ 10 Years): 100.00% Dividend Record (100% ⇒ 20 Years): 100.00% Earnings Growth (100% ⇒ 30% Growth): 172.99% Graham Number ÷ Previous Close: 35.81% Not all stocks failing Graham's rules are necessarily bad investments. They may fall under \"\"special situations\"\". Graham's rules are also extremely selective. Graham designed and backtested his framework for over 50 years, to deliver the best possible long-term results. Even when stocks don't clear them, Graham's rules give a clear quantifiable measure of a stock's margin of safety. Thank you.\""],"string":"[\n \"This strategy is called trading the 'Golden Cross' if the 50 day SMA moves above the 200 day, or the 'Death Cross' when the 50 day SMA moves below the 200 day SMA. Long-term indicators carry more weight than shorter-term indicators, and this cross, in a positive direction signals a change in momentum of the stock. You will not catch the very bottom using this method, but there is a better chance that you will catch a move near the beginning of a longer-term trend. Golden Cross Information - Zacks\",\n \"The 'standard' in such moving average crossover systems is 50/200. The numbers are essentially arbitrary as long as the long term average is greater than the short term and there is some different between the averages in terms of the smoothing they provide (i.e. comparing a 74 day MA to a 75 day MA isn't what the system is intended for) There are plenty of software programs that will let you run through many possible values for the system over historical data. I concur with the other answers in that this system/indicator alone isn't very good. However, I disagree with their blanket brushing off of technical analysis. There are many successful traders out there. The moving average cross over system is perhaps the second most primitive example of technical strategies categorized as trend following systems (buying new recent highs and selling new recent lows being the most simple). This particular system isn't very powerful because of its poor use of simple moving averages. A simple moving average is intended to smooth out data, but smoothing comes at the cost of lagging from the present. A simple moving average essentially gives you an idealized smoothing of price action for the day at that is one half of their period ago. So your 200 day simple moving average shows you an idealized smoothing of price action 100 days ago. A lot can happen in 100 days and that is why this system is far from ideal.\",\n \"\\\"Not sure why this hasn't received any answers yet... the link to the investopedia page you posted explains it pretty well, however when you hear about a golden cross in the media, it is most likely a reference to the 50-day SMA crossing above the 200-day SMA. In general, a golden cross consists of a short term MA that was previously below a long term MA crossing above that LT MA, however the most common reference will imply a 50/200 day cross because this is considered as a stronger signal (compared to shorter MAs). With that said, it's important to realize that the golden cross is just one of many technical analysis \\\"\\\"signals\\\"\\\", and the entire field of technical analysis is considered controversial, to say the least. Many studies, such as those examined in A Random Walk Down Wall Street, have found that after transactions costs are considered (e.g., the commissions you pay to your broker on every trade), \\\"\\\"charting\\\"\\\" is a losing proposition in the end.\\\"\",\n \"One of the most obvious uses of SMAs is the detection of a trend reversal. A trend reversal happens when a short term SMA crosses over a longer term SMA. For example, if a 20 day moving average was, previously, above a 200 day moving average, but has crossed over the 200 day and is currently below the 200 day then the security has performed a 'death cross' and the trend is for lower and lower prices. Stockcharts.com has excellent 'chart school' for the beginning chart user. They also provide excellent charts. Here is a link: http://stockcharts.com/school/doku.php?id=chart_school I like to use a 20 day SMA, a 200 day SMA, and a 21 day EMA.\",\n \"Moving Average is mere average line based on historical period; broadly use to view the trend. But it has no relation to price action in due future course. If price is going below 20 SMA then in near future even the SMA will start directing toward south. In your case if price has fallen below all the short period average lines and long period average line then it is bearish in nature. Soon in few days you may find 20 SMA leading downwards followed by closest period and then long. Also SMA and EMA can best be observed in charting software in candlestick mode. Because these moving averages can also be adjusted and viewed based on Opening price, High prices, Low Price or closing price. In you case I guess the data is of closing price data. Overlapping of averages may be sign of reversals. So if you want to buy this stock you may have to wait till all the average lines cross-over and when new trend begins with SMA of shortest avg period (20) leading above the long avg period (90 days in your case). Then you can buy and just follow the trend. I hope it answers you question.\",\n \"\\\"I would have to disagree with the other responders. In technical analysis of stock charts, various short and long term moving averages are used to give an indication of the trend of the stock in the short and long term, as compared to the current price. I would prefer to use the term moving average (MA) rather than average as the MA is recalculated every day (or at appropriate frequencies for your data) on the period you are using. I would also expand on the term \\\"\\\"moving average\\\"\\\". There are two that are commonly used Going back to the question, of the value of this number, For example if the current price is above the 200 day EWMA and also above the 30 day EWMA, then the stock is broadly trending upwards. Conversely if current price is below the 200 day EWMA and also below the 30 day EWMA, then the stock is broadly trending downwards. These numbers are chosen on the basis of the market you are trading in, the volatility and other factors. For another example of how a number of moving averages are used together, please have a read of Daryl Guppy's Multiple Moving Average, though this does not use moving averages as large as 200 days.\\\"\",\n \"A shorter term MA would be used for short term changes in price whilst a long term MA would be used for longer term movements in price. A 200 day SMA is widely used to determine the trend of the stock, simply a cross above the 200 day SMA would mean the stock may be entering an uptrend and a cross below that the price may be entering a downtrend. If the price is continuosly going above and below in a short period of time it is usually range trading. Then there are EMAs (Expodential Moving Averages) and WMAs (weighted moving averages) which give more emphasis to the latest price data than the earlier price data in the period chosen compared to a SMA. MAs can be used in many different ways, too many to list all here. The best way to learn about them is to read some TA books and articles about them, then choose a couple of strategies where you can use them in combination with a couple of other indicators that are complimentary with each other.\",\n \"It's not stopped. Crossing a moving average is considered a signal to buy or sell. Yahoo stock charts offer the ability to add moving averages to the charts, and you can observe all stocks cross the line regularly. As a contrast to Victor's charts, you can see that Apple, over the last two years, has traded above and below the 50 day MA. A believer in technical analysis using MA will observe a buy signal in Dec '11 just under $400, with a sell in mid-$500s in May. Moving averages are a form of following the trend, and work well when either trend is strong. It's when the stock is too close to the line that's it's tough to call whether it's time to be in or out.\",\n \"A moving average will act as support or resistance to a stock only when the stock is trending. The way it acts as support for instance is similar to a trend-line. Take the daily chart of CBA over the last 6 months: The first chart shows CBA with an uptrend support line. The second chart shows CBA during the same period with 50 day EMA as a support. Both can be used as support for the uptrend. Generally you can used these types of support (or resistance in a downtrend) to determine when to buy a stock and when to sell a stock. If I was looking to buy CBA whilst it was uptrending, one strategy I could use was to wait until it hit or got very close to the support trend-line and then buy as it re-bounces back up. If I already held the stock I could use a break down below the uptrend support line as a stop to exit out of the stock.\",\n \"Different moving averages work and not work for different indexes. I have seen simulations where during bull or bear markets the moving averages work differently. Here is an example: http://www.indexresult.com/MovingAverage/Exponential/200/SP500\",\n \"The values of 12, 26 and 9 are the typical industry standard setting used with the MACD, however other values can be substituted depending on your trading style and goals. The 26d EMA is considered the long moving average when in this case it is compared to the shorter 12d EMA. If you used a 5d EMA and a 10d EMA then the 10d EMA would be considered the long MA. It is based on what you are comparing it with. Apart from providing signals for a reversal in trend, MACD can also be used as an early indication to a possible end to a trend. What you look out for is divergence between the price and the MACD. See chart below of an example: Here I have used 10d & 3d EMAs and 1 for the signal (as I did not want the signal to show up). I am simply using the MACD as a momentum indicator - which work by providing higher highs in the MACD with higher highs in price. This shows that the momentum in the trend is good so the trend should continue. However the last high in price is not met with a higher high in the MACD. The green lines demonstrate bearish divergence between price and the MACD, which is an indication that the momentum of the trend is slowing down. This could provide forewarning that the trend may be about to end and to take caution - i.e. not a good time to be buying this stock or if you already own it you may want to tighten up your stop loss.\",\n \"One could use technical indicators in any number of ways...they aren't rigidly defined for use in any particular way. If they were, only computers would use them. Having said that, moving averages are frequently used by people operating on the assumption that short-term price movements will soon be reverted back to a longer-term mean. So if the price shoots up today, traders who use moving averages may believe it will come back down pretty soon. If this is the belief (and it usually is for this type of trader), a price significantly above a moving average could indicate an overpriced stock. A price below the moving average could indicate an underpriced stock. Similarly, a short-term moving average above the long-term moving average may indicate an overpriced stock. When you are dealing with more than one frequency, though, there is more disagreement about how to use technical indicators. Some traders would probably say the opposite: that a short term average above the long term average indicates an upward movement that will continue because they believe the stock has momentum. Note that I am not saying I believe in using these averages to predict mean reversion or momentum effects, just that traders who rely on moving averages frequently do.\",\n \"I looked at this a little more closely but the answer Victor provided is essentially correct. The key to look at in the google finance graph is the red labled SMA(###d) would indicate the period units are d=days. If you change the time axis of the graph it will shift to SMA(###m) for period in minutes or SMA(###w) for period in weeks. Hope this clears things up!\",\n \"Edit3: Regarding the usefulness of the bare number itself, it is not useful unless, for example, an employer uses that average in the computation of how many options the employer grants to the employee as part of the compensation paid. One of my employers used just such an average. What is far more common is to use two or more moving averages, of different periods, plotted on a chart. My original response continues below... Assuming there are 252 trading days a year, the following chart does what you have done but with a moving average: AAPL on Stockcharts.com Edit: BTW, I looked up the number of Federal holidays, there are 9. The average year has 365.2422 days. 365.2422 × 5/7 = 260.8873. Subtract 9 and you get 251.8873 trading days in the average year. So 252 is a better number for the SMA than 250 if you want to average a year. Edit2: Here is the same chart with more than one average included: AAPL chart w/indicators\",\n \"Technical analysis is insufficient. You're halfway to figuring it out if you start to question why a 50 day moving average vs 200 vs 173. Invest in companies that are attractively valued vs. their sales/growth/divends/anythingelsereal\",\n \"Firstly, you mean resistance not support, as a support is below the current price and resistance is above the price. Secondly using a MA as support or resistance would mean that that support or resistance level would move up or down as the price moved up or down and would not be static at $25. Generally stocks will range trade more often than they will be trending (either up or down), so a stock can be range trading between a support and resistance levels for months and even years, and usually the longer it range trades for, the bigger the outbreak (either up or down) will be when it does happen. Using a MA (especially shorter dated ones) as support or resistance (or as a up or down trend line) works better when a stock is already trending up or down. When a stock is moving sideways it will tend to keep crossing above and below the MA, and you will be whipsawed if you try to use them as your trigger for entry in these situations. Compare the two charts below: In the first chart the stock is up-trending for over 6 months and the 50d EMA is being used as a support or up-trending line. As long as the price does not break through and close under the 50d EMA then the uptrend continues. You could use this EMA line as a means of entering the stock when prices move towards the EMA and bounce off it back up again. Or you could use it as your stop loss level, so if price closes below the EMA line you would sell your position. In the second chart, the stock has been range trading between the support line at about $21.80 and the resistance line at about $25.50 for 10 months. In this case the price has been moving above and below the 50d EMA during these 10 months and you may have been whipsawed many times if you were trading each break above or below the 50d EMA. A better strategy here would be to buy the stock as it approached the support line and bounces up off it and then close and reverse your position (go short) when the price approached the resistance line and bounces down off it. Edit: When range trading you would have your stops just below the support line when going long and just above the resistance line when going short, that way if it does break through support or resistance and starts trending you will be covered. So this shows that different strategies should be used when a stock is trending to when it is range trading. MAs are better used as entry signal during an established uptrend or downtrend than when a stock is range trading.\",\n \"That metric is not very useful for anything other than very extremely long trading periods. Most strategies or concerned with price movement over much shorter time frames, 15 mins, 1 hr, 4 hr, daily, weekly, monthly. The MA or moving average is a trend following lagging indicator used to smooth out price fluctuations and more accurately reflect the price of trading instrument such as a stock (AAPL), commodity, or currency pair. Traders are generally concerned with current market trends and price action of the instrument they are trading. As such, an extremely long MA (average daily price, over a period of 365 days) are generally not that important.\",\n \"The difference is that for the one year time frame the data is represented based on daily data and the SMA is 20 days, whilst for the 5 year timeframe the data is automatically represented as weekly data with the SMA represented by 20 weeks not 20 days anymore. This happens due to daily data on this chart being too much data to represent over a 5 year period so the data defaults to weekly data over such a long period. If the chart is represented as weekly data then any indicators will also have to be represented in weekly data. If you use a more sophisticated charting program you can actually select to see daily or weekly data over longer periods such as 5 years or more.\",\n \"The curved lines (on my screen orange, yellow and pink) are simple moving averages. The fuchsia and blue straight lines are automatically generated trend lines. Those lines are attempting to show how a stock is trending by showing potential bounce points and are commonly used in technical analysis (TA).\",\n \"As you point out, the moving average is just MA(k)t = (Pt-1 + … + Pt-k )/k and is applied in technical analysis (TA) to smooth out volatile (noise) price action. If it has any logic to it, you might want to think in terms of return series (Pt - Pt-1 / Pt-1) and you could hypothesize that prices are in fact predictable and will oscillate below and above a running moving average. Below is a link to a study on MA trading rules, published in the Journal of Finance, with the conclusion of predictive power and abnormal returns from such strategies. As with any decision made upon historical arguments, one should be aware of structural changes and or data mining. Simple technical trading rules and the stochastic properties of stock returns Brock, W., J. Lakonishok and B. Le Baron, 1992, Simple technical trading rules and the stochastic properties of stock returns, Journal of Finance, 47, 1731-64. MA rules betterthan chance in US stock market, 1897-1986 I don't know whether you are new to TA or not, but a great commercial site, with plenty of computer-generated signals is FinViz.\",\n \"When using the Stochastic Indicator your basic aim is to buy (go long) when the stochastic becomes oversold (goes below 20%) and then the %K line crosses above the %D line at a market low, and to sell (go short) when the stochastic becomes overbought (goes above 80%) and then the %K line crosses below the %D line at a market high. Other indicators or candlestick patters can also be used to further confirm the trade. Below is a chart of a trade I recently took on GUD.AX using the Slow Stochastic in combination with support and resistance levels as well as a candlestick pattern. When I conducted my stock search on the evening of 28th July 2015, GUD was one of the results from the search that I particularly liked. The Slow Stochastic had just made a crossover in the oversold area just as the price was bouncing off its recent lows at the support line. But what I really like about this opportunity was that there was also a bullish reversal candle (a Hammer) at this short term market bottom. The high for the day was $8.34, so I placed a stop buy order to buy the stock tomorrow if the price opened or moved above this high of today. So I would only buy if the stock hit or moved above $8.35 during the next days trading. So if the stock opened and stayed below the previous day's high I would not buy the stock and my order would be canceled at the end of the day. This is very important because it stops you from getting into trades that don't go in the direction you want. If this happens then you could check the chart again after market close to see if it is still worthwhile to place a new order for the next day. On the 29th July 2015 the stock did open higher at $8.42 (which is where my order got executed) and closed at $8.46. So I ended up buying slightly above my target price but it did move higher on the day, so a successful entry overall. I had placed my initial stop loss at $8.09 (just below the low of the previous day of $8.10). If the trade had gone against me in the following days the most I would have lost was 1% of my total account capital. My target for this trade was $9.86 (just below the resistance line near $10), which would represent a 5% gain against my total account capital (or approx. 16.7% gain on the trade). So my win to loss ratio was 5:1. As you can see from the chart, the next day gapped up at the open and prices continued moving up strongly during the day. The next day was a slightly negative day, and then a few days later, on the 5th August 2015 my target price of $9.86 was reached (with a high of $9.88 for that day), so my order was closed for a total profit of 16.7% on the face value of the trade. However, as I bought on margin (using CFDs) my actual profit on the initial margin I had invested was 167%. My total time in the trade was 7 days, and I spent about an hour in the evening doing my searches and placing my orders, then less than 10 minutes managing the trade each evening after market close. The stock did go up a bit further after my profit target was reached, but the day after that the price started to fall as the price hit the resistance line and the Slow Stochastic did a crossover in the overbought area. Overall, this was a very ideal trade and I was very happy with it. Not all my trades reach my profit targets and I may get stopped out at a smaller profit or I might make a small loss (as I move my stops up as the price moves up). The key to successful trading over the long term is to keep you losses small and let your profits run (with my longer term trend trading I don't have profit targets and let my profits run until I get stopped out, but with my shorter term trading I do use a profit target usually 5 or 6 times the size of my initial stop). If you have an average win to average loss ratio of 3:1 or higher and have a success rate of 50% winners you will make money over the long term.\",\n \"Is that indicator can only be used for short-term trade? First of all, indicator works perfect during trends and oscillator works perfectly in the range market(or flat market). So, indicator can be used for long term, as well as short term. I mean if it is a range market, using this or any other indicator will not help much, so it you should consider market direction first. If it can be used to long-term trade, is there something I need to change from the parameters used? like, only using SMMA(5,8,13)? The parameters are there to change them. Of course you can change them based on your trading style. Considering my statement above does not mean that trading is very easy. I never use indicators alone to make trading decisions. It is always good to use oscillator to filter out bad trading signals.\",\n \"Ya idk..I initially thought a moving average but that can't be it since when price crosses below trend line we see trend line continues to increase. https://villavu.com/forum/showthread.php?t=112371 but this says that it is in fact a monthly average. I don't see how that is possible, as adding a number below the average of a set to that set should decrease the average. People say 'the mean chases the margin,' not a fan of that terminology myself though. Edit: ah wait the yellow line is daily average, not price. If monthly average is calculated on close price, then this is possible. **so the answer then is the trend line is the monthly average**.\",\n \"I can think of a few simple and quick techniques for timing the market over the long term, and they can be used individually or in combination with each other. There are also some additional techniques to give early warning of possible turns in the market. The first is using a Moving Average (MA) as an indication of when to sell. Simply if the price closes below the MA it is time to sell. Obviously if the period you are looking at is long term you would probably use a weekly or even monthly chart and use a relatively large period MA such as a 50 week or 100 week moving average. The longer the period the more the MA will lag behind the price but the less false signals and whipsawing there will be. As we are looking long term (5 years +) I would use a weekly chart with a 100 week Exponential MA. The second technique is using a Rate Of Change (ROC) Indicator, which is a momentum indicator. The idea for timing the markets in the long term is to buy when the indicator crosses above the zero line and sell when it crosses below the zero line. For long term investing I would use a 13 week EMA of the 52 week ROC (the EMA smooths out the ROC indicator to reduce the chance of false signals). The beauty of these two indicators is they can be used effectively together. Below are examples of using these two indicators in combination on the S&P500 and the Australian S&P ASX200 over the past 20 years. S&P500 1995 to 2015 ASX200 1995 to 2015 If I was investing in an ETF tracking one of these indexes I would use these two indicators together by using the MA as an early warning system and maybe tighten any stop losses I have so that if the market takes a sudden turn downward the majority of my profits would be protected. I would then use the ROC Indicator to sell out completely out of the ETF when it crosses below zero or to buy back in when the ROC moves back above zero. As you can see in both charts the two indicators would have kept you out of the market during the worst of the downfalls in 2000 and 2008 for the S&P500 and 2008 for the ASX200. If there is a false signal that gets you out of the market you can quite easily get back in if the indicator goes back above zero. Using these indicators you would have gotten into the market 3 times and out of it twice for the S&P500 over a 20 year period. For the ASX200 you would have gone in 6 times and out 5 times, also over a 20 year period. For individual shares I would use the ROC indicator over the main index the shares belong to, to give an indication of when to be buying individual stocks and when to tighten stop losses and stay on the sidelines. My philosophy is to buy rising stocks in a rising market and sell falling stocks in a falling market. So if the ROC indicator is above zero I would be looking to buy fundamentally healthy stocks that are up-trending and place a 20% trailing stop loss on them. If I get stopped out of one stock then I would look to replace it with another as long as the ROC is still above zero. If the ROC indicator crosses below zero I would tighten my trailing stop losses to 5% and not buy any new stocks once I get stopped out. Some additional indicators I would use for individual stock would be trend lines and using the MACD as a momentum indicator. These two indicators can give you further early warning that the stock may be about to reverse from its current trend, so you can tighten your stop loss even if the ROC is still above zero. Here is an example chart to explain: GEM.AX 3 Year Weekly Chart Basically if the price closes below the trend line it may be time to close out the position or at the very least tighten up your trailing stop loss to 5%. If the price breaks below an established uptrend line it may well be the end of the uptrend. The definition of an uptrend is higher highs and higher lows. As GEM has broken below the uptrend line and has maid a lower low, all that is needed to confirm the uptrend is over is a lower high. But months before the price broke below the uptrend line, the MACD momentum indicator was showing bearish divergence between it and the price. In early September 2014 the price made a higher high but the MACD made a lower high. This is called a bearish divergence and is an early warning signal that the momentum in the uptrend is weakening and the trend could be reversing soon. Notice I said could and not would. In this situation I would reduce my trailing stop to 10% and keep a watchful eye on this stock over the coming months. There are many other indicators that could be used as signals or as early warnings, but I thought I would talk about some of my favourites and ones I use on a daily and weekly basis. If you were to employ any of these techniques into your investing or trading it may take a little while to learn about them properly and to implement them into your trading plan, but once you have done that you would only need to spend 1 to 2 hours per week managing your portfolio if trading long-term or about 1 hour per nigh (after market close) if trading more medium term.\",\n \"While trading in stochastic I've understood, one needs reference (SMA/EMA/Bolinger Band and even RSI) to verify trade prior entering it. Stochastic is nothing to do with price or volume it is about speed. Adjusting K% has ability to turn you from Day trader to -> swing trader to -> long term investor. So you adjust your k% according to chart time-frame. Stochastic setup for 1 min, 5 min ,15, 30, 60 min, daily, weekly, monthly, quarterly, half yearly and yearly are all different. If you try hopping from one time-frame to another just because it is below oversold or above overbought region with same K%, you may get confused. Worst you may not square-off your loss making trade. And rather not use excel; charts gives better visual for oscillators.\",\n \"Still working on exact answer to question....for now: (BONUS) Here is how to pull a graphical chart with the required data: Therefore: As r14 = the indicator for RSI. The above pull would pull Google, 6months, line chart, linear, large, with a 50 day moving average, a 200 day exponential moving average, volume, and followed up with RSI. Reference Link: Finance Yahoo! API's\",\n \"There is a great 3rd party application out there that I use (I am a broker) along with my internal analysts and other 3rd party sources. VectorVest has a LOT of technical information, but is very easy to use. It will run any kind of screen you like, including low 52 week numbers. (No, I don't get anything for recommending them.)\",\n \"\\\"Below is just a little information on this topic from my small unique book \\\"\\\"The small stock trader\\\"\\\": The most significant non-company-specific factor affecting stock price is the market sentiment, while the most significant company-specific factor is the earning power of the company. Perhaps it would be safe to say that technical analysis is more related to psychology/emotions, while fundamental analysis is more related to reason – that is why it is said that fundamental analysis tells you what to trade and technical analysis tells you when to trade. Thus, many stock traders use technical analysis as a timing tool for their entry and exit points. Technical analysis is more suitable for short-term trading and works best with large caps, for stock prices of large caps are more correlated with the general market, while small caps are more affected by company-specific news and speculation…: Perhaps small stock traders should not waste a lot of time on fundamental analysis; avoid overanalyzing the financial position, market position, and management of the focus companies. It is difficult to make wise trading decisions based only on fundamental analysis (company-specific news accounts for only about 25 percent of stock price fluctuations). There are only a few important figures and ratios to look at, such as: perhaps also: Furthermore, single ratios and figures do not tell much, so it is wise to use a few ratios and figures in combination. You should look at their trends and also compare them with the company’s main competitors and the industry average. Preferably, you want to see trend improvements in these above-mentioned figures and ratios, or at least some stability when the times are tough. Despite all the exotic names found in technical analysis, simply put, it is the study of supply and demand for the stock, in order to predict and follow the trend. Many stock traders claim stock price just represents the current supply and demand for that stock and moves to the greater side of the forces of supply and demand. If you focus on a few simple small caps, perhaps you should just use the basic principles of technical analysis, such as: I have no doubt that there are different ways to make money in the stock market. Some may succeed purely on the basis of technical analysis, some purely due to fundamental analysis, and others from a combination of these two like most of the great stock traders have done (Jesse Livermore, Bernard Baruch, Gerald Loeb, Nicolas Darvas, William O’Neil, and Steven Cohen). It is just a matter of finding out what best fits your personality. I hope the above little information from my small unique book was a little helpful! Mika (author of \\\"\\\"The small stock trader\\\"\\\")\\\"\",\n \"Your question is a bit odd in that you are mixing long-term fundamental analysis signals which are generally meant to work on longer time frames with medium term trading where these fundamental signals are mostly irrelevant. Generally you would buy-and-hold on a fundamental signal and ride the short-term fluctuations if you believe you have done good analysis. If you would like to trade on the 2-6 month time scale you would need a signal that works on that sort of time scale. Some people believe that technical analysis can give you those kind of signals, but there are many, many, many different technical signals and how you would trade using them is highly dependent on which one you believe works. Some people do mix fundamental and technical signals, but that can be very complicated. Learning a good amount about technical analysis could get you started. I will note, though, that studies of non-professionals continuously show that the more frequently people trade the more on they underperform on average in the long term when compared with people that buy-and-hold. An aside on technical analysis: michael's comment is generally correct though not well explained. Say Bob found a technical signal that works and he believes that a stock that costs $10 dollars should be $11. He buys it and makes money two months later when the rest of the market figures out the right price is $11 and he sells at that price. This works a bunch of times and he now publishes how the signal works on Stack Exchange to show everyone how awesome he is. Next time, Bob's signal finds a different stock at $10 that should be $11, but Anna just wrote a computer program that checks that signal Bob published faster than he ever could. The computer program buys as much as it can in milliseconds until the price is $11. Bob goes to buy, but now it is too late the price is already $11 and he can't make any money. Eventually, people learn to anticipate/adjust for this signal and even Anna's algorithms don't even work anymore and the hunt for new signals starts again.\",\n \"You can use google docs to create a spreadsheet. In field A2, I put Google will load the prices into the sheet. At that point, I add the following into C12, then copy that line all the way down to the botton of column C. You can find my spreadsheet here. It calculates the moving 10 day standard deviation as a percentage of average price for that time period.\",\n \"Usually when a stock is up-trending or down-trending the price does not go up or down in a straight line. In an uptrend the price may go up over a couple of days then it could go down the next day or two, but the general direction would be up over the medium term. The opposite for a downtrend. So if the stock has been generally going up over the last few weeks, it may take a breather for a week or two before prices continue up again. This breather is called a retracement in the uptrend. The Fibonacci levels are possible amounts by which the price might retract before it continues on its way up again. By the way 50% is not actually a Fibonacci Retracement level but it is a common retracement level which is usually used in combination with the Fibonacci Retracement levels.\",\n \"The daily Volume is usually compared to the average daily volume over the past 50 days for a stock. High volume is usually considered to be 2 or more times the average daily volume over the last 50 days for that stock, however some traders might set the crireia to be 3x or 4x the ADV for confirmation of a particular pattern or event. The volume is compared to the ADV of the stock itself, as comparing it to the volume of other stocks would be like comparing apples with oranges, as difference companies would have different number of total stocks available, different levels of liquidity and different levels of volatility, which can all contribute to the volumes traded each day.\",\n \"With the disclaimer that I am not a technician, I'd answer yes, it does. SPY (for clarification, an ETF that reflects the S&P 500 index) has dividends, and earnings, therefore a P/E and dividend yield. It would follow that the tools technicians use, such as moving averages, support and resistance levels also apply. Keep in mind, each and every year, one can take the S&P stocks and break them up, into quintiles or deciles based on return and show that not all stock move in unison. You can break up by industry as well which is what the SPDRs aim to do, and observe the movement of those sub-groups. But, no, not all the stocks will perform the way the index is predicted to. (Note - If a technician wishes to correct any key points here, you are welcome to add a note, hopefully, my answer was not biased)\",\n \"You can do it graphically at zignals.com and freestockcharts.com.\",\n \"Pivots Points are significant levels technical analysts can use to determine directional movement, support and resistance. Pivot Points use the prior period's high, low and close to formulate future support and resistance. In this regard, Pivot Points are predictive or leading indicators. There are at least five different versions of Pivot Points. I will focus on Standard Pivot Points here as they are the simplest. If you are looking to trade off daily charts you would work out your Pivot Points from the prior month's data. For example, Pivot Points for first trading day of February would be based on the high, low and close for January. They remain the same for the entire month of February. New Pivot Points would then be calculated on the first trading day of March using the high, low and close for February. To work out the Standard Pivot Points you use the High, Low and Close from the previous period (i.e. for daily charts it would be from the previous month) in the following formulas: You will now have 5 horizontal lines: P, R1, R2, S1 and S2 which will set the general tone for price action over the next month. A move above the Pivot Point P suggests strength with a target to the first resistance R1. A break above first resistance shows even more strength with a target to the second resistance level R2. The converse is true on the downside. A move below the Pivot Point P suggests weakness with a target to the first support level S1. A break below the first support level shows even more weakness with a target to the second support level S2. The second resistance and support levels (R2 & S2) can also be used to identify potentially overbought and oversold situations. A move above the second resistance level R2 would show strength, but it would also indicate an overbought situation that could give way to a pullback. Similarly, a move below the second support level S2 would show weakness, but would also suggest a short-term oversold condition that could give way to a bounce. This could be used together with a momentum indicator such as RSI or Stochastic to confirm overbought or oversold conditions. Pivot Points offer a methodology to determine price direction and then set support and resistance levels, however, it is important to confirm Pivot Point signals with other technical analysis indicators, such as candle stick reversal patterns, stochastic and general Support and Resistance Levels in the price action. These pivot points can be handy but I actually haven’t used them for trade setups and entries myself. I prefer to use candle sticks together with stochastic to determine potential turning points and then take out trades based on these. You can then use the Pivot Points Resistance and Support levels to help you estimate profit targets or areas to start becoming cautious and start tightening your stops. Say, for example, you have gone long from a signal you got a few days ago, you are now in profit and the price is now approaching R2 whilst the Stochastic is approaching overbought, you might want to start tightening your stop loss as you might expect some weakness in the price in the near future. If prices continue up you keep increasing your profits, if prices do reverse then you keep the majority of your existing profits. This would become part of your trade management. If you are after finding potential market turning points and take out trades based on these, then I would suggest using candlestick charting reversal patterns for your trade setups. The patterns I like to use most in my trading can be described as either the Hammer or One White Soldier for Bullish reversals and Shooting Star or One Black Crow for Bearish reversals. Below are diagrams of where to place your entries and exits on both Bullish and Bearish reversal patterns. Bullish Reversal Pattern So after some period of weakness in the price you would look for a bullish day where the price closes above the previous day’s high, you place your buy order here just before market close and place your initial stop just below the low of the day. You would apply this either for an uptrending stock where the price has retracted from or near the trendline or Moving Average, or a ranging stock where price is bouncing off the support line. The trade is reinforced if the Stochastic is in or near the oversold and crossing back upwards, volume on the up day is higher than volume on the down days, and the market as a whole is moving up as well. The benefit with this entry is that you are in early so you capture any bullish move up at the open of the next day, such as gaps. The drawbacks are that you need to be in front of your screen before market close to get your price close to the market close and you may get whipsawed if prices reverse at the open of the next day, thus being stopped out with a small loss. As the price moves up you would move your stop loss to just below the low of each day. Alternative Bullish Reversal Entry An alternative, entry would be to wait for after market close and then start your analysis (easier to do after market close than whilst the market is open and less emotions involved). Place a stop buy order to buy at the open of next trading day just above the high of the bullish green candle. Your stop is placed exactly the same, just below the low of the green bullish candle. The benefits of this alternative entry include you avoid the trade if the price reverses at the open of next day, thus avoiding a potential small loss (in other words you wait for further confirmation on the next trading day), and you avoid trading during market open hours where your emotions can get the better of you. I prefer to do my trading after market close so prefer this alternative. The drawback with this alternative is that you may miss out on bullish news prior to and at the next open, so miss out on some potential profits if prices do gap up at the open. This may also increase your loss on the trade if the prices gaps up then reverses and hits your stop on the same day. However, if you choose this method, then you will just need to incorporate this into your trading plan as potential slippage. Bearish Reversal Pattern So after some short period of strength in the price you would look for a bearish day where the price closes below the previous day’s low, you place your sell short order here just before market close and place your initial stop just above the high of the day. You would apply this either for an downtrending stock where the price has retracted from or near the trendline or Moving Average, or a ranging stock where price is bouncing off the resistance line. The trade is reinforced if the Stochastic is in or near the overbought and crossing back downwards, volume on the up day is higher than volume on the up days, and the market as a whole is moving down as well. The benefit with this entry is that you are in early so you capture any bearish move down at the open of the next day, such as gaps. The drawbacks are that you need to be in front of your screen before market close to get your price close to the market close and you may get whipsawed if prices reverse at the open of the next day, thus being stopped out with a small loss. As the price moves down you would move your stop loss to just above the high of each day. Alternative Bearish Reversal Entry An alternative, entry would be to wait for after market close and then start your analysis (easier to do after market close than whilst the market is open and less emotions involved). Place a stop sell short order to sell at the open of next trading day just below the low of the bearish red candle. Your stop is placed exactly the same, just above the high of the red bearish candle. The benefits of this alternative entry include you avoid the trade if the price reverses at the open of next day, thus avoiding a potential small loss (in other words you wait for further confirmation on the next trading day), and you avoid trading during market open hours where your emotions can get the better of you. I prefer to do my trading after market close so prefer this alternative. The drawback with this alternative is that you may miss out on bearish news prior to and at the next open, so miss out on some potential profits if prices do gap down at the open. This may also increase your loss on the trade if the prices gaps down then reverses and hits your stop on the same day. However, if you choose this method, then you will just need to incorporate this into your trading plan as potential slippage. You could also trade other candle stick patterns is similar ways. And with the long entries you can also use them to get into the market with longer term trend following strategies, you would usually just use a larger stop for longer term trading. To determine the size of your order you would use the price difference between your entry and your stop. You should not be risking more than 1% of your trading capital on any one trade. So if your trading capital is $20,000 your risk per trade should be $200. If you were looking to place your buy at 5.00 and had your initial stop at $4.60, you would divide $200 by $0.40 to get 500 stocks to buy. Using this form of money management you keep your losses down to a maximum of $200 (some trades may be a bit higher due to some slippage which you should allow for in your trading plan), which becomes your R-multiple. Your aim is to have your average win at 3R or higher (3 x your average loss), which will give you a positive expectancy even with a win ratio under 50%. Once you have written down your trading rules you can search stock charts for potential setups. When you find one you can backtest the chart for similar setup over the past few years. For each setup in the past jot down the prices you would have entered at, where you would have set your stop, work out your R, and go day by day, moving your stop as you go, and see where you would have been stopped out. Work out your profit or loss in terms of R for each setup and then add them up. If you get a positive R multiple, then this may be a good stock to trade on this setup. If you get a negative R multiple, then maybe give this stock a miss and look for the next setup. You can setup watch-lists of stocks that perform well for both long setups and short setups, and then trade these stocks when you get a new signal. It can take some time starting off, but once you have got your watch-lists for a particular setup, you just need to keep monitoring those stocks. You can create other watch-lists for other type of setups you have backtested as well.\",\n \"To make it simple, just use gold as the main benchmark. Gold price never moves, FIAT currencies move around the price of gold. So, when comparing US$ and Australian dollars to the gold, you know which currency is moving up and which down.\",\n \"I recall the name Martin Pring. As my fundamental analysis book from grad school was the work of Graham and Dodd titled Security Analysis, Pring was the author of the books I read on technical analysis. If you've not read his work, your education has a ways to go before you hit the tools.\",\n \"\\\"Maria, there are a few questions I think you must consider when considering this problem. Do fundamental or technical strategies provide meaningful information? Are the signals they produce actionable? In my experience, and many quantitative traders will probably say similar things, technical analysis is unlikely to provide anything meaningful. Of course you may find phenomena when looking back on data and a particular indicator, but this is often after the fact. One cannot action-ably trade these observations. On the other hand, it does seem that fundamentals can play a crucial role in the overall (typically long run) dynamics of stock movement. Here are two examples, Technical: suppose we follow stock X and buy every time the price crosses above the 30 day moving average. There is one obvious issue with this strategy - why does this signal have significance? If the method is designed arbitrarily then the answer is that it does not have significance. Moreover, much of the research supports that stocks move close to a geometric brownian motion with jumps. This supports the implication that the system is meaningless - if the probability of up or down is always close to 50/50 then why would an average based on the price be predictive? Fundamental: Suppose we buy stocks with the best P/E ratios (defined by some cutoff). This makes sense from a logical perspective and may have some long run merit. However, there is always a chance that an internal blowup or some macro event creates a large loss. A blended approach: for sake of balance perhaps we consider fundamentals as a good long-term indication of growth (what quants might call drift). We then restrict ourselves to equities in a particular index - say the S&P500. We compare the growth of these stocks vs. their P/E ratios and possibly do some regression. A natural strategy would be to sell those which have exceeded the expected return given the P/E ratio and buy those which have underperformed. Since all equities we are considering are in the same index, they are most likely somewhat correlated (especially when traded in baskets). If we sell 10 equities that are deemed \\\"\\\"too high\\\"\\\" and buy 10 which are \\\"\\\"too low\\\"\\\" we will be taking a neutral position and betting on convergence of the spread to the market average growth. We have this constructed a hedged position using a fundamental metric (and some helpful statistics). This method can be categorized as a type of index arbitrage and is done (roughly) in a similar fashion. If you dig through some data (yahoo finance is great) over the past 5 years on just the S&P500 I'm sure you'll find plenty of signals (and perhaps profitable if you calibrate with specific numbers). Sorry for the long and rambling style but I wanted to hit a few key points and show a clever methods of using fundamentals.\\\"\",\n \"No. The long-term valuation of currencies has to do with Purchasing Power Parity. The long-term valuation of stocks has to do with revenues, expenses, market sizes, growth rates, and interest rates. In the short term, currency and stock prices change for many reasons, including interest rate changes, demand for goods and services, asset price changes, political fears, and momentum investing. In any given time window, a currency or stock might be: The Relative Strength Index tries to say whether a currency or stock has recently been rising or falling; it does not inherently say anything about whether the current value is high or low.\",\n \"Using Fundamental and Technical Analysis together is actually a good idea for longer term trading of up to 6 months or longer. The whole idea behind trading with Technical Analysis is to increase the probabilities of a trade going in the desired direction by using uncorrelated indicators that produce the same signal to buy or sell at the same time. For example, you might use a Moving Average (MA) as a buy signal when the price falls for a few days, hits the MA and then reverses and starts moving back up. If however, you also include a Stochastic Oscillator (SO) to indicate when the stock is oversold (under 20%), and if the price rebounds from the MA average at the same time as the Stochastic is crossing over in the oversold position, then this may be a higher probability trade. If you also only trade stocks that are Fundamentally healthy (as fundamentally good stocks are more likely to go up than fundamentally bad stocks) then this might increase the probabilities again. Then if you only buy when the market as a whole is moving up, then this will increase your chances again. A few weeks ago at a seminar, the presenter totalled the men in the room to be 76 and the women in the room to be 8. He then asked what will most likely be the next person to walk in the room - a man or a woman? The statistics are on the side of a wan walking in next. This is what we try to do with Technical Analysis, increase our chances when we take a trade. Of course a woman could be the next person to walk in the room, just like any trade can go against you, and this is why we use money management and risk management and take a small loss when a trade does go against you. Lets look at an example where you could incorporate FA with TA to increase your chances of profits: Above is a candlestick chart of Select Harvest (SHV), the green line above the price is the perceived value, the pink line is the 40 day MA, the blue line is the EPS, and the white lines is the Stochastic Oscillator (above 80% being overbought and below 20% is oversold). From Feb 2015 to start of Aug 2015 the stock was uptrending, since then the price reversed and started to downtrend. The stock was determined to be fundamentally good early in 2015 with the perceived value gradually increasing and greater than the share price, and the EPS starting to increase regularly from mid April. Thus, as the stock is seen as fundamentally healthy any price reversal in the vicinity of the MA could be seen as a buy opportunity. In fact there where 2 such opportunities on 31st March and 11th June where price had reversed and rebounded off the MA whist the SO crossed over in or near the oversold area. The price did reverse and then rebounded off the MA again on 9th July, however the SO was not in or near the oversold area on this occasion, so not as high in probability terms. The price still rebounded and went up again, however another momentum indicator (not shown here) shows some bearish divergence in this case - so another reason to possibly keep away at this point in time. A good signal to get out of the trade, that is your stop loss has not already taken you out, is when the price breaks and closes below the MA line. This occurred on 7th August. So if we had bought on the first signal on 31st March for $7.41 and sold when the priced broke through the MA on 7th August for $11.76, we would have made a profit of approx. 59% in just over 4 months. If bought on the second signal on 11th June for $9.98 and again sold on 7th August for $11.76, we would have made about 18% in under 2 months. So the fundamentals, the Price (in relation to MA) and the SO where all lining up to provide two high probability trades. Of course you would need to incorporate you risk management (including stops) in case the price did not continue upwards after you bought. If the market is also moving up on the day of the signal this will further increase your chances. Unless you day trade, which I would avoid, a good way to enter your trades after a signal is to enter a stop buy order after market close to buy if the price moves above the high of the signal day. That way if the market and the stock open and move lower during the day after the signal you avoid entering the trade altogether. This can be incorporated as part of your risk management and trading rules. After the price broke down through the MA we can see that a downtrend commenced which is still current today (in fact I just took a short trade on this stock yesterday). We can also see that the perceived value, whilst still above the price, has reached a peak and is currently moving downwards and the EPS after being flat for a few months has just moved down for the first time in 10 months. So maybe the fundamentals are starting to waver a bit on this stock. It may be a good stock to continue shorting into the future. So basically you can continue using Fundamental Analysis to select which stocks to buy, place them in a watch-list, and then use Technical Analysis to determine when these stocks are starting to uptrend and use a combination of uncorrelated indicators to produce higher probability signals for when to enter your trades.\",\n \"The study of technical analysis is generally used (sometimes successfully) to time the markets. There are many aspects to technical analysis, but the simplest form is to look for uptrends and downtrends in the charts. Generally higher highs and higher lows is considered an uptrend. And lower lows and lower highs is considered a downtrend. A trend follower would go with the trend, for example see a dip to the trend-line and buy on the rebound. Whilst a bottom fisher would wait until a break in the downtrend line and buy after confirmation of a higher high (as this could be the start of a new uptrend). There are many more strategies dealing with the study of technical analysis, and if you are interested you would need to find and learn about ones that suit your investment styles and your appetite for risk.\",\n \"Fundamental Analysis can be used to help you determine what to buy, but they won't give you an entry signal for when to buy. Technical Analysis can be used to help you determine when to buy, and can give you entry signals for when to buy. There are many Technical Indicator which can be used as an entry signal, from as simple as the price crossing above a moving average line and then selling when the price crosses back below the moving average line, to as complicated as using a combination of indicators to all line up for an entry signal to be valid. You need to find the entry signals that would suit your investing or trading and incorporate them as part of your trading plan. If you want to learn more about entry signals you are better off learning more about Technical Analysis.\",\n \"Your observation is mostly right, that 1 is a the number around which this varies. You are actually referencing PEG, P/E to Growth ratio, which is a common benchmark to use to evaluate a stock. The article I link to provides more discussion.\",\n \"I am in complete agreement with you. The place i have found with the sort of charts you are looking for is stockcharts.com. To compare the percentage increase of several stocks over a period of 2 market-open days or more, which is quite useful to follow the changes in various stocks… etc., an example: Here the tickers are AA to EEEEE (OTC) and $GOLD / $SILVER for the spot gold / silver price (that isn't really a ticker). It is set to show the last 6 market days (one week+)...the '6' in '6&O'. You can change it in the URL above or change it on the site for the stocks you want... up to 25 in one chart but it gets really hard to tell them apart! By moving the slider just left of the ‘6’ at the bottom right corner of the chart, you can look at 2 days or more. For a specific time period in days, highlight the ‘6’ and type any number of market-open days you want (21 days = about one month, etc.). By setting a time period in days, and moving the entire slider, you can see how your stocks did in the last bull/bear run, as an example. The site has a full how-to, for this and the other types of charts they offer. The only problem is that many OTC stocks are not charted. Save the comparison charts you use regularly in a folder in your browser bookmarks. Blessings. I see the entire needed link isn't in blue... but you need it all.\",\n \"No, and using a 37 year old formula in finance that is as simple as: should make it obvious technical analysis is more of a game for retail traders than investment advice. When it comes to currencies, there are a myriad of macroeconomic occurrences that do not follow a predictable timescale. Using indicators like RSI on any time frame will not magically illuminate broad human psychology and give you an edge. It is theoretically possible for a single public stock's price to be driven by a range of technical traders who all buy at RSI 30 and sell at RSI 70, after becoming a favorite stock on social media, but it is infinitely more likely for all market participants to have completely different goals.\",\n \"From my 15 years of experience, no technical indicator actually ever works. Those teaching technical indicators are either mostly brokers or broker promoted so called technical analysts. And what you really lose in disciplined trading over longer period is the taxes and brokerages. That is why you will see that teachers involved in this field are mostly technical analysts because they can never make money in real markets and believe that they did not adhere to rules or it was an exception case and they are not ready to accept facts. The graph given above for coin flip is really very interesting and proves that every trade you enter has 50% probability of win and lose. Now when you remove the brokerage and taxes from win side of your game, you will always lose. That is why the Warren Buffets of the world are never technical analysts. In fact, they buy when all technical analysts fails. Holding a stock may give pain over longer period but still that is only way to really earn. Diversification is a good friend of all bulls. Another friend of bull is the fact that you can lose 100% but gain any much as 1000%. So if one can work in his limits and keep investing, he can surely make money. So, if you have to invest 100 grand in 10 stocks, but 10 grand in each and then one of the stocks will multiply 10 times in long term to take out cost and others will give profit too... 1-2 stocks will fail totally, 2-3 will remain there where they were, 2-3 will double and 2-3 will multiply 3-4 times. Investor can get approx 15% CAGR earning from stock markets... Cheers !!!\",\n \"I'd recommend looking at fundamental analysis as well -- technical analysis seems to be good for buy and sell points, but not for picking what to buy. You can get better outperformance by buying the right stuff, and it can be surprisingly easy to create a formula that works. I'd check out Morningstar, AAII, or Equities Lab (fairly complicated but it lets you do technical and fundamental analysis together). Also read Benjamin Graham, and/or Ken Fisher (they are wildly different, which is why I recommend them both).\",\n \"Relative Strength Indicators are also trailing indicators. They are based on the number of recent upticks or downticks in an investment's price. (The size of a tick is quantized, and related to the investment's price.) By the time enough upticks have accumulated to generate a buy signal, the investment has already increased in price significantly. Similarly, by the time enough downticks have accumulated a to generate a sell signal, the investment has already dropped in price significantly. The theory of Relative Strength Indicators is based on the hope that moves found by these indicators are likely to continue after the signal is generated. But even if this is the case, someone who relies on these indicators will miss out on the first part of the move. Dorsey-Wright offers investment research based on the theory of Relative Strength Indicators. They offer investment vehicles based on this research. They also work with local investment advisors to develop custom back-tested strategies. They have published a white-paper, with references to others' research.\",\n \"December, 5, 2011 ( 03:00pm ) :- All markets including stocks & Commodities are moving towards upward direction on the strong cues comes on the expiring today. Little bit Volatile comes over the settlement in MCX today. Gold & Silver contracts are expiring today. Dow Jones Industrial average future up by80 points from the optimism coming from the European Countries. All European Countries getting financial aid from the side of IMF which is provided through the European Central Bank. Nifty have strong resistance at 5150 levels under this level short term trend still bearish side. Gold have strong support at Rs 28960 above this trend bullish under this trend down for short term.\",\n \"\\\"Although is not online, I use a standalone version from http://jstock.sourceforge.net It got drag-n-drop boxes, to let me design my own indicators. However, it only contain technical analysis information, not fundamental analysis information. It does come with tutorial http://jstock.sourceforge.net/help_stock_indicator_editor.html#indicator-example, on how to to build an indicator, to screen \\\"\\\"Stock which Its Price Hits Their 14 Days Maximum\\\"\\\"\\\"\",\n \"The study of technical analysis is generally used (sometimes successfully) to time the markets. There are many aspects to technical analysis, but the simplest form is to look for uptrends and downtrends in the charts. Generally higher highs and higher lows is considered an uptrend. And lower lows and lower highs is considered a downtrend. A trend follower would go with the trend, for example see a dip to the trend-line and buy on the rebound. A simple strategy for this is shown in the chart below: I would be buying this stock when the price hits or gets very close to the trendline and then it bounces back above it. I would then have sold this stock once it has broken through below the trendline. This may also be an appropriate time if you were looking to short this stock. Other indicators could also be used in combination for additional confirmation of what is happening to the price. Another type of trader is called a bottom fisher. A bottom fisher would wait until a break above the downtrend line (second chart) and buy after confirmation of a higher high and possibly a higher low (as this could be the start of a new uptrend). There are many more strategies dealing with the study of technical analysis, and if you are interested you would need to find and learn about ones that suit your investment styles, whether you prefer short term trading or longer term investing, and your appetite for risk. You can develop strategies using various indicators and then paper trade or backtest these strategies. You can also manually backtest a strategy in most charting packages. You can go back in time on the chart so that the right side of the chart shows a date in the past (say one year ago or 10 years ago), then you can click forward one day at a time (or one week at a time if using weekly charts). With your indicators on the chart you can do virtual trades to buy or sell whenever a signal is given as you move forward in time. This way you may be able to check years of data in a day to see if your strategy works. Whatever you do, you need to document your strategies in writing in a written trading or investment plan together with a risk management strategy. You should always follow the rules in your written plan to avoid you making decisions based on emotions. By backtesting or paper trading your strategies it will give you confidence that they will work over the long term. There is a lot of work involved at the start, but once you have developed a documented strategy that has been thoroughly backtested, it will take you minimal time to successfully manage your investments. In my shorter term trading (positions held from a couple of days to a few weeks) I spend about half an hour per night to manage my trades and am up about 50% over the last 7 months. For my longer term investing (positions held from months to years) I spend about an hour per week and have been averaging over 25% over the last 4 years. Technical Analysis does work for those who have a documented plan, have approached it in a systematic way and use risk management to protect their existing and future capital. Most people who say that is doesn't work either have not used it themselves or have used it ad-hock without putting in the initial time and work to develop a documented and systematic approach to their trading or investing.\",\n \"Very common question. There is no any rule of thumb. This solely depends on your trading strategy. I will share my own experience. My day starts with the daily chart, if I have a signal, either I open my position or I check 30 minute chart to make sure that it won't go too much against my trade. and I open my position. If I am waiting for the signal the minimum timeframe is 4 hours for me. I use 30 minutes to find the best time to enter the market. So, this is totally something special for my trading strategy, that is why those things can change based on the different strategies. I also check weekly and monthly charts to confirm trend. I have been busy with forex since 2007 and I am a verified investor on etoro At the end, I never use 1,5,15,60 minute charts as they are against my strategy.\",\n \"I agree with @Turukawa that the x-axes need to be the same to make a direct comparison. However, the graphs you linked make me think of introductory calculus: If you time averaged plots, speculative investments (gold, housing) seem to have many large concave up time periods and the dow jones has many concave down sections. Using the concavity test: If the first derivative tells you about the rate of change, the second derivative tells you about the rate of change of rate of change. Remember back to Physics 101: 1st derivative is velocity & second derivative is acceleration. It would be interesting to have the same time scales for your plots & compare these accelerations between the two. I suspect the more volatile investments would have larger (in magnitude) accelerations during boom/bust cycles than less speculative investments.\",\n \"If you want to invest in the stock market, whether over a shorter period of 1 to 2 years or over a longer period of 10 or 20 years or longer you need to take some precautions and have a written investment plan with a risk management strategy incorporated in your plan. Others have said that 1 to 2 years is too short to invest in the stock market as the stock market can have a correction and fall by 50%. But it doesn't matter if you invest for 1 year or if you invest for 50 years, the stock market can still fall by 50% just before you plan to withdraw your funds. What you need to figure out is a way to get out before the market falls by 40% to 50%. A simple way to do this is to use technical indicators to warn you when a market trend is starting to change and that it is time to get out of the market. Two simple indicators you can use on a market index are the Rate of Change (ROC) indicator and the 100 week Moving Average (MA). Below is a 10 year weekly chart of the S&P500 with these two indicators charted. They show good times to get into the market and good times to get out. If you are using the 100 week MA you would buy in when the price crosses above the MA line and sell when the price crosses below the MA line. If you are using the ROC indicator you would buy in when the ROC indicator crosses above the zero line and sell when the ROC indicator crosses below the zero line. So your investment plan could be to buy an Index ETF representing the S&P500 when the ROC moves above zero and sell when it crosses below zero. You can also place a trailing stop loss of 10% to protect you in case of a sudden fall over a couple of days. You can manage your investments in as little as 10 minutes per week by checking the chart once per week and adjusting your stop loss order. If you want to progressively add to your investment each month you could check the charts and only add any new funds if both the ROC is above zero and sloping upwards. Another option for adding new funds could be if the price is above the MA and moving further away from the MA. All these rules should be incorporated into your investment plan so that you are not basing your decisions based on emotions. There are many other Technical Analysis Indicators you could also learn about to make better educated decisions about your stock market investments. However, what I have provided here is enough for anyone to test over different indexes and time frames and do their own paper trading on to gain some confidence before placing any real money on the table.\",\n \"Almost every screener is able to do this. Please put effort into researching. Take the difference between http://finviz.com/screener.ashx?v=111&f=sh_avgvol_o1000,sh_price_u10,ta_highlow52w_nh&ft=4 and http://finviz.com/screener.ashx?v=111&f=sh_avgvol_o1000,sh_price_u5,ta_highlow52w_nh&ft=4 to get your results. Even MSN Money can do this http://www.msn.com/en-us/money/stockscreener/52weekhighs\",\n \"Since 2007 the world has seen a period of striking economic and financial volatility featuring the deepest recession since the 1930s despite this gold has performed strongly with its price roughly doubling since the global financial crisis began in mid-2007. 1. Gold and real interest rates: One of the factor that influences gold prices is real interest rate which is to some extent related to inflation. Since gold lacks a yield of its own, the opportunity cost of holding gold increases with a real interest rate increase and decreases with a fall in real interest rates. 2. Gold and the US dollar: The external value of the US dollar has been a significant influence on short-term gold price movements. The IMF estimated6 in 2008 that 40-50% of the moves in the gold price since 2002 were dollar-related, with a 1% change in the effective external value of the dollar leading to a more than 1% change in the gold price (Source). 3. Gold and financial stress: It is a significant and commonly observed influence on the short-term price of gold. In periods of financial stress gold demand may rise for a number of reasons: 4. Gold and political instability: It is another factor that can boost gold prices. Investor concerns about wars, civil conflicts and international tensions can boost demand for gold for similar reasons to those noted above for periods of financial stress. Gold‟s potential function as a „currency of last resort‟ in case of serious system collapse provides a particular incentive to hold it in case the political situation is especially severe. (Source) 5. Gold and official sector activity: The behaviour of central banks and other parts of the official sector can have an important impact on gold prices. One reason for this is that central banks are big holders of gold, possessing some 30,500 metric tons in 2010, which is approximately 15% of all above-ground gold stocks. As a result, central bank policies on gold sales and purchases can have significant effects, and these policies have been subject to considerable shifts over the decades. (Source) (Source of above graphs)\",\n \"\\\"First, it's much safer to be shorting stocks over $5 than stocks under $5. I use 3 indicators to show that a stock has topped out and about to drop. Key is the timing cause the initial drop is often the biggest. More close you get in at the top, the higher the risk. Using 1D Charts ONLY: - MACD Indicator: I use the histogram, when it reaches a peak height, and the next day it is down 1 \\\"\\\"Step\\\"\\\". If you wait til the MACD lines cross, you are pretty late IMHO. Need to get in earlier. Timing is everything. - RSI(15) - Needs to topped out and above 67 meaning, \\\"\\\"Over bought\\\"\\\" - Do not buy when RSI is high above 70. Often stocks go on a Run up when RSI is over 70! - I use Stoch RSI or CCI to confirm my status on RSI. I like to see that all 3 indicators agree. This gives me a 75% chance that the stock will drop. It may take a day or 2.. so you need patience.\\\"\",\n \"You can average the betas across the different cross listings. EX: Exchange 1 - Beta .8 Exchange 2 - Beta .6 Exchange 3 - Beta .7 (.8 + .6 + .7) / 3 = avg Beta .7 You can do simple average as based above or you can do a weighted average and take into account other factors.\",\n \"I've recently discovered that Morningstar provides 5yr avgs of a few numbers, including dividend yield, for free. For example, see the right-hand column in the 'Current Valuation' section, 5th row down for the 5yr avg dividend yield for PG: http://financials.morningstar.com/valuation/price-ratio.html?t=PG®ion=usa&culture=en-US Another site that probably has this, and alot more, is YCharts. But that is a membership site so you'll need to join (and pay a membership fee I believe.) YCharts is supposedly pretty good for long-term statistical information and trend graphs for comparing and tracking stocks.\",\n \"The Wikipedia has an article on money flow index. The article which you link to correctly uses the typical price. You state that you are comparing the closing prices, which is incorrect. I'm making no statement on the validity of the money flow index itself, just answering your question.\",\n \"Standard Deviation is a mathematical term that is useful in many areas. It can be considered a measure of how tight the data points are to the average. If there is consistency in the measurement system, then a point that is two standard from the average can be considered an outlier. It doesn't even need to be time based. We can say that a child born weighing less than X pounds is more than 2 standard deviations below the average. Using it to look at a price or an index value doesn't make a lot of sense because many expect there to be long term growth. For example you would never say that you will buy a new jacket for your child when they are two standard deviations above their average height. You can say you will buy or sell a financial instrument when the P/E ratio is 2 standard deviations from some average. It could be the average of the long term history, or the index, or the sector. You could do the same thing for earnings per share or many other business of financial statistics. A standard deviation calculated from a time series assumes that the measurement will normally stay withing some bounds. And that straying from those bounds is a sign of the right time to buy or sell.\",\n \"\\\"The graphing tools within Yahoo offer a decent level of adjustment. You can easily choose start and end years, and 2 or more symbols to compare. I caution you. From Jan 1980 through Dec 2011, the S&P would have grown $1 to $29.02, (See Moneychimp) but, the index went up from 107.94 to 1257.60, growing a dollar to only $11.65. The index, and therefore the charts, do not include dividends. So long term analysis will yield false results if this isn't accounted for. EDIT - From the type of question this is, I'd suggest you might be interested in a book titled \\\"\\\"Stock Market Logic.\\\"\\\" If memory serves me, it offered up patterns like you suggest, seasonal, relations to Presidential cycle, etc. I don't judge these approaches, I just recall this book exists from seeing it about 20 years back.\\\"\",\n \"\\\"In general, moving averages never seemed that much better for drawing trends, just removing volatility. However, in this case, they do seem more relevant because the moving averages seem to at least remove the noise of many of the other \\\"\\\"revisions.\\\"\\\" Comparing the intial numbers to the previous weeks' revised figures is hardly an apples-to-apples comparison, because there is more data available on the previous weeks' figures.\\\"\",\n \"P/E = price per earnings. low P/E (P/E < 4) means stock is undervalued.\",\n \"I like to look at Alpha, Beta, St. Dev., Sharpe Ratio, and R-Squared. It's also good to know how they work together. i.e.: Say you're comparing a fund to an index and the fund has a low beta, but the r-squared is low (<70 is low for my usage). The beta loses some significance in that instance. You want to be able to look at these 5 metrics, know what they mean on their own, and what they say about each other. Sorry if that was poorly worded, Mondays...\",\n \"\\\"You cannot just read one book and some articles on Technical Analysis and some indicators and expect to be an expert and everything to just start falling into place and give you signals that will tell you when to buy and sell with precision and massive profits all the time. It is like someone reading a book on how to drive a car and then expecting to drive flawlessly the first time they sit in the driver's seat, or someone reading a book on brain surgery and expecting to be able to operate on a live patient the next day. It looks like you are using 3 or 4 indicators to get daily buy and sell signals on a daily chart for an EFT you're looking to hold for decades. So firstly you are using short term indicators for a long term outlook. You need to decide what timeframe you plan to hold your investments for and use chart periods and indicators that suit that timeframe. Secondly, each indicator can be used in a number of ways and the settings you use for each indicator can determine whether you get earlier or later signals. Also, you need to work out which indicators work well together and are complementary, compared to those that don't work well together and give conflicting signals. All this information will come together for you the more you read about and practice the art of Technical Analysis. If your timeframe is very long-term (decades) I would be using mainly a weekly chart, with a longer period MA, the ROC indicator and possibly some trend lines. Keep it simple. The price itself is very important too. You can determine when a trend is starting or has ended purely using the price. The definition of an uptrend is higher highs and higher lows, so on the weekly chart if there is a lower high followed by a lower low - this could be the end of the uptrend. If we get a lower low followed by a lower high - this again could be the end of the uptrend. These could be a good time to start getting cautious and maybe looking to sell. If you are using stop losses (which I recommend) this may be a good time to tighten your stops. Similarly, a downtrend is defined as lower lows and lower highs. If we get a higher low followed by a higher high it could be the end of the downtrend and maybe the start of an uptrend. This could be a good time to start getting ready to buy. You need to learn about how and where to set your buy and sell orders (including stops) and whether you wait for confirmation when you get a signal. All this takes some time, but the more you read, the more you attend live events and the more you practice the more they will become second nature. In order to get the best out of Technical Analysis you will need to learn, plan, practice and execute. A good book to help you prepare your trading plan is \\\"\\\"Smart Trading Plans\\\"\\\" by Justine Pollard. One of my favourite books is \\\"\\\"The Complete Trading Course - Price Patterns, Strategies, Setups, and Execution Tactics\\\"\\\" by Corey Rosenbloom. And another good book is \\\"\\\"Trade your Way to Financial Freedom\\\"\\\" by Van Tharp.\\\"\",\n \"I use StockCharts for spread charting. To take your question as an example, here is the chart of Apple against Nasdaq.\",\n \"\\\"Probably the most important thing in evaluating a dividend yield is to compare it to ITSELF (in the past). If the dividend yield is higher than it has been in the past, the stock may be cheap. If it is lower, the stock may be expensive. Just about every stock has a \\\"\\\"normal\\\"\\\" yield for itself. (It's zero for non-dividend paying stocks.) This is based on the stock's perceived quality, growth potential, and other factors. So a utility that normally yields 5% and is now paying 3% is probably expensive (the price in the denominator is too high), while a growth stock that normally yields 2% and is now yielding 3% (e.g. Intel or McDonald'sl), may be cheap.\\\"\",\n \"Other metrics like Price/Book Value or Price/Sales can be used to determine if a company has above average valuations and would be classified as growth or below average valuations and be classified as value. Fama and French's 3 Factor model would be one example that was studied a great deal using an inverse of Price/Book I believe.\",\n \"Mostly some custom work i've done myself, bayesian and time series models, but there is some pattern matching. Most TA functions such as MA's, MACD's, BollingerBands, are simple ways of doing time series analysis. MA's are basic filters. MACD is essentially a way of viewing acceleration, as its the informational difference between filters. BB's are mean reverters based on standard deviation/ RSI is a ratio of filtered up to down moves basically generating an indicator based on how strong the market has moved.\",\n \"If you don't need 100% accuracy then GLD and SLV will work fine. Over the long-term these converge quite nicely with the price of the metal.\",\n \"I would be very cautious about investing any more funds into the S&P500 at this stage. You are quite correct in your observation with the charts regarding the 2001 and 2008 crashes, and below is the chart of the S&P500 over the last 20 years with some indicators on it. The green line on the price chart is the 100 week Moving Average (MA) and the pink line below the price chart is the Moving Average of the Rate of Change (ROC) Indicator. In general the market is moving up if price is above the 100 week MA and the ROC is above 0%, and vise-versa the market is moving down if price is below the 100 week MA and the ROK is below 0%. Both times in 2001 and in 2008 when prices broke below the 100 week MA and then the ROC crossed below the zero line, well we all know what happened next. In 2001 prices kept falling and the ROC didn't cross back above zero for about 2.5 years, in 2008 much the same happened and the ROC didn't cross back above zero for over 20 months. Now as we are reaching the end of 2015 prices have once again broken below the 100 week MA and the ROC is just above the zero line quickly heading down towards it. If you have a 5 to 8 year time frame, and prices do continue to fall much further after the ROC crosses below the zero line, your current funds and any new funds you invest in this ETF will potentially see heavy losses for the next one to two years and then take another year to two years or more to recover to current levels. This means that your funds will potentially have no gains at all in 5 or 6 years time. A better option is to get out of the market once the ROC crosses below zero and then look to get back in once the recovery has started, when the ROC crosses back above the Zero line. You might be out of the market for a year or two, but once you get back in you can expect robust gains over the next 3 to 5 years. If you do get out and things reverse quite quickly you can easily just get back in. In mid-2010 and mid-2011 the price broke below the 100 week MA but the ROC remained above Zero and prices continued moving up after short corrections. In mid-2012 the ROC got very close to the Zero line but did not cross below it, and again prices continued to go up after a small correction. You should plan for the worst and be ready if it occurs. If you don't plan you're just hoping and hoping is what will keep you awake at night whist things are going against you.\",\n \"\\\"One idea: If you came up with a model to calculate a \\\"\\\"fair price range\\\"\\\" for a stock, then any time the market price were to go below the range it could be a buy signal, and above the range it could be a sell signal. There are many ways to do stock valuation using fundamental analysis tools and ratios: dividend discount model, PEG, etc. See Wikipedia - Stock valuation. And while many of the inputs to such a \\\"\\\"fair price range\\\"\\\" calculation might only change once per quarter, market prices and peer/sector statistics move more frequently or at different times and could generate signals to buy/sell the stock even if its own inputs to the calculation remain static over the period. For multinationals that have a lot of assets and income denominated in other currencies, foreign exchange rates provide another set of interesting inputs. I also think it's important to recognize that with fundamental analysis, there will be extended periods when there are no buy signals for a stock, because the stocks of many popular, profitable companies never go \\\"\\\"on sale\\\"\\\", except perhaps during a panic. Moreover, during a bull market and especially during a bubble, there may be very few stocks worth buying. Fundamental analysis is designed to prevent one from overpaying for a stock, so even if there is interesting volume and price movement for the stock, there should still be no signal if that action happens well beyond the stock's fair price. (Otherwise, it isn't fundamental analysis — it's technical analysis.) Whereas technical analysis can, by definition, generate far more signals because it largely ignores the fundamentals, which can make even an overvalued stock's movement interesting enough to generate signals.\\\"\",\n \"\\\"What you are looking for is an indicator called the \\\"\\\"Rate of Change (Price)\\\"\\\". It provides a rolling % change in the price over the period you have chosen. Below is an example showing a price chart over the last 6 months with a 100 day Rate of Change indicator below the price chart.\\\"\",\n \"Well that will depend on the time frame you are looking at it. You can't compare the RSI on a five minute chart to the RSI on a daily chart. The minute chart would represent the momentum of very small trends whilst the daily chart would represent the momentum of much larger trends. On the daily chart the shares might be experiencing a strong uptrend with a rising RSI. During each day the price might move up at the open then come down some, then back up a bit more and repeat this several times during the day before closing higher. During the day the RSI might have moved slightly higher. But during a single day on the 5 minute chart the price may have gone through several up and down trends, with the RSI going into oversold and overbought several times. What you should be looking at to strengthen the signal from the RSI is to watch for when the RSI is in the overbought at the same time the price is reaching a peak, or when the RSI is in the oversold at the same time the price is reaching a trout. These could represent potential turning points in price. The time frame to use would depend on the type of trading you are attempting to undertake. If you prefer day trading (being in and out of a trade in minutes to hours) you might look at time frames of minutes to hours. If you prefer longer term position, trend or swing trading you would probably stick to daily charts. If you prefer longer term active investing you might stick to a combination of daily, weekly and monthly charts.\",\n \"There are those who would suggest that due to the Efficient Market Hypothesis, stocks are always fairly valued. Consider, if non-professional posters on SE (here) had a method that worked beyond random chance, everyone seeking such a method would soon know it. If everyone used that method, it would lose its advantage. In theory, this is how stocks' values remain rational. That said, Williams %R is one such indicator. It can be seen in action on Yahoo finance - In the end, I find such indicators far less useful than the news itself. BP oil spill - Did anyone believe that such a huge oil company wouldn't recover from that disaster? It recovered by nearly doubling from its bottom after that news. A chart of NFLX (Netflix) offers a similar news disaster, and recovery. Both of these examples are not quantifiable, in my opinion, just gut reactions. A quick look at the company and answer to one question - Do I feel this company will recover? To be candid - in the 08/09 crash, I felt that way about Ford and GM. Ford returned 10X from the bottom, GM went through bankruptcy. That observation suggests another question, i.e. where is the line drawn between 'investing' and 'gambling'? My answer is that buying one stock hoping for its recovery is gambling. Being able to do this for 5-10 stocks, or one every few months, is investing.\",\n \"\\\"The formula for standard deviation is fairly simple in both the discrete and continuous cases. It's mostly safe to use the discrete case when working with adjusted closing prices. Once you've calculated the standard deviation for a given time period, the next task (in the simplest case) is to calculate the mean of that same period. This allows you to roughly approximate the distribution, which can give you all sorts of testable hypotheses. Two standard deviations (σ) away from the mean (μ) is given by: It doesn't make any sense to talk about \\\"\\\"two standard deviations away from the price\\\"\\\" unless that price is the mean or some other statistic for a given time period. Normally you would look at how far the price is from the mean, e.g. does the price fall two or three standard deviations away from the mean or some other technical indicator like the Average True Range (an exponential moving average of the True Range), some support level, another security, etc. For most of this answer, I'll assume we're using the mean for the chosen time period as a base. However, the answer is still more complicated than many people realize. As I said before, to calculate the standard deviation, you need to decide on a time period. For example, you could use S&P 500 data from Yahoo Finance and calculate the standard deviation for all adjusted closing prices since January 3, 1950. Downloading the data into Stata and applying the summarize command gives me: As you can probably see, however, these numbers don't make much sense. Looking at the data, we can see that the S&P 500 hasn't traded close to 424.4896 since November 1992. Clearly, we can't assume that this mean and standard deviation as representative of current market conditions. Furthermore, these numbers would imply that the S&P 500 is currently trading at almost three standard deviations away from its mean, which for many distribution is a highly improbable event. The Great Recession, quantitative easing, etc. may have changed the market significantly, but not to such a great extent. The problem arises from the fact that security prices are usually non-stationary.. This means that the underlying distribution from which security prices are \\\"\\\"drawn\\\"\\\" shifts through time and space. For example, prices could be normally distributed in the 50's, then gamma distributed in the 60's because of a shock, then normally distributed again in the 70's. This implies that calculating summary statistics, e.g. mean, standard deviation, etc. are essentially meaningless for time periods in which prices could follow multiple distributions. For this and other reasons, it's standard practice to look at the standard deviation of returns or differences instead of prices. I covered in detail the reasons for this and various procedures to use in another answer. In short, you can calculate the first difference for each period, which is merely the difference between the closing price of that period and the closing price of the previous period. This will usually give you a stationary process, from which you can obtain more meaningful values of the standard deviation, mean, etc. Let's use the S&P500 as an example again. This time, however, I'm only using data from 1990 onwards, for the sake of simplicity (and to make the graphs a bit more manageable). The summary statistics look like this: and the graph looks like this; the mean is the central horizontal red line, and the top and bottom lines indicate one standard deviation above and below the mean, respectively. As you can see, the graph seems to indicate that there were long periods in which the index was priced well outside this range. Although this could be the case, the graph definitely exhibits a trend, along with some seemingly exogenous shocks (see my linked answer). Taking the first difference, however, yields these summary statistics: with a graph like this: This looks a lot more reasonable. In periods of recession, the price appears much more volatile, and it breaches the +/- one standard deviation lines indicated on the graph. This is only a simple summary, but using first differencing as part of the wider process of detrending/decomposing a time series is a good first step. For some technical indicators, however, stationary isn't as relevant. This is the case for some types of moving averages and their associated indicators. Take Bollinger bands for instance. These are technical indicators that show a number of standard deviations above and below a moving average. Like any calculation of standard deviation, moving average, statistic, etc. they require data over a specified time period. The analyst chooses a certain number of historical periods, e.g. 20, and calculates the moving average for that many previous periods and the moving/rolling standard deviation for those same periods as well. The Bollinger bands represent the values a certain number of standard deviations away from the moving average at a given point in time. At this given point, you can calculate the value two standard deviations \\\"\\\"away from the value,\\\"\\\" but doing so still requires the historical stock price (or at least the historical moving average). If you're only given the price in isolation, you're out of luck. Moving averages can indirectly sidestep some of the issues of stationarity I described above because it's straightforward to estimate a time series with a process built from a moving average (specifically, an auto-regressive moving average process) but the econometrics of time series is a topic for another day. The Stata code I used to generate the graphs and summary statistics:\\\"\",\n \"\\\"Most markets around the world have been downtrending for the last 6 to 10 months. The definition of a downtrend is lower lows and lower highs, and until you get a higher low and confirmation with a higher high the downtrend will continue. If you look at the weekly charts of most indexes you can determine the longer term trend. If you are more concerned with the medium term trend then you could look at the daily charts. So if your objective is to try and buy individual stocks and try to make some medium to short term profits from them I would start by first looking at the daily charts of the index your stock belongs to. Only buy when the intermediate trend of the market is moving up (higher highs and higher lows). You can do some brief analysis on the stocks your interested in buying, and two things I would add to the short list in your question would be to check if earnings are increasing year after year. The second thing to look at would be to check if the earnings yield is greater than the dividend yield, that way you know that dividends are being paid out from current earnings and not from previous earning or from borrowings. You could then check the daily charts of these individual stocks and make sure they are uptrending also. Buy uptrending stocks in an uptrending market. Before you buy anything write up a trading plan and develop your trading rules. For example if price breaks through the resistance line of a previous high you will buy at the open of the next day. Have your money management and risk management rules in place and stick to your plan. You can also do some backtesting or paper trading to check the validity of your strategy. A good book to read on money and risk management is - \\\"\\\"Trade your way to Financial Freedom\\\"\\\" by Van Tharp. Your aim should not be to get a winner on every trade but to let your winners run and keep your losses small.\\\"\",\n \"Most patterns can be used on various time frames. For example you could use candle stick reversal patterns on monthly charts, weekly charts, daily charts or intra-day charts like one hour, or even one minute charts. Obviously if you are looking for longer term positions you would be looking at daily, weekly or monthly charts and if you are looking for shorter term positions you would be looking at intra-day to daily charts. You can also use a combination of time frames - for example, if you are trying to enter a trade over a long-term uptrend you could use a weekly chart to determine if the stock is currently uptrending and then use a daily chart to time your entry into the trade. Most patterns in general don't really determine how long you will be in the trade but instead usually can provide an entry trigger, a stop loss location and possibly a profit target. So in general a pattern which is being used to enter into longer term trades on weekly charts can also be used to enter shorter term trades on intra-day charts.\",\n \"As per the chart pattern when ever a stock breaks its 52 week high. This information may differ for penny stocks,small caps and mid cap stocks\",\n \"I use and recommend barchart.com. Again you have to register but it's free. Although it's a US system it has a full listing of UK stocks and ETFs under International > London. The big advantage of barchart.com is that you can do advanced technical screening with Stochastics and RS, new highs and lows, moving averages etc. You're not stuck with just fundamentals, which in my opinion belong to a previous era. Even if you don't share that opinion you'd still find barchart.com useful for UK stocks.\",\n \"One of the most useful ways to depict Open, High, Low, Close, and Volume is with a Candlestick Chart. I like to use the following options from Stockcharts.com: http://stockcharts.com/h-sc/ui?s=SPY&p=D&yr=0&mn=3&dy=0&id=p57211761385\",\n \"i've been waiting for the MOVE to get off its butt for a while now but as long as we stay goldilocks and yellen vacillates between hawkish and dovish its hard for it to climb meaningfully. The MOVE is at 52 now - for some context, the traditional view was that below 70 was complacent, above 100 was panic but since the era of unprecedented central bank intervention that hardly holds.\",\n \"What are Pivot Points? Pivot Points indicate price levels that are of significance in technical analysis of securities. Pivot Points are used to provide clarity for a trader as they are a predictive indicator of where a security might go. There are at least 6 different types of Pivot Points (Woodie Pivot Point, Fibonacci Pivot, Demark etc..) and they are different based on their formulas but generally serve the same concept. I will be answering your question using the Camarilla Pivot Point formula. Camarilla Pivot Point Formula Generally any Pivot Point formula uses a combination of the Open, High, Low and Close of the previous timeframe. Since you are technically a swing trader indicated by say between a couple of days to a couple of weeks, as I don't want to do day trading you should use a weekly 5 to 30 minute chart but you can also use a daily chart as well. So for example if you use a daily chart, you would use the Open, High, Low and Close of the previous day. Example of fictitious stock: MOSEX (Money Stack Exchange) 01/14/16: Open: 10.25, High: 12.55, Low: 9.65, Close: 11.50 On 01/15/16: R4 Level: 13.10, R3 Level: 12.30, R2 Level: 12.03, R1 Level: 11.77, Pivot Point: 11.23, S1 Level: 11.23, S2 Level: 10.97, S3 Level: 10.70, S4 Level: 9.91 R = Resistance, S = Support How to identify these Pivot Points? Most charting software already have built in overlays that will identify the pivot points for you but you can always find and draw them yourself with an annotation tool. Since we are using the Camarilla Pivot Point formula, the important Pivot Point levels are the R4 which is considered as the Breakout Pivot, the S4 which is considered as the Breakdown Pivot. R3 and S3 are Reversal Pivot Points. Once identify the Pivot Points how should you proceed in a trade? This is the million dollar question and without spoon feeding you requires you to come up with your own strategy. To distinguish yourself from being a novice and pro trader is to have a strategy in a trade. Now I don't really have the time to look for actual charts to provide examples with but generally this is what you should look for to proceed in a trade: Potential Buy/Short Signals: Potential Sell Signals: If a stock moves above the R3 Level but then crosses below it, this would be a sell signal. This is confirmed when their is a lower lower then the candle that first crosses below it. Sell a stock when S4 Level is confirmed. See above for the confirmation. Other Useful Tips: Use the Pivot Point as your support or resistance. The Pivot Point levels can be used for your stop loss. For example, with an S3 reversal buy signal, the S4 should be used as a stop loss. Conversely, the Pivot Point levels can also be used for your target prices. For example, with an S3 reversal buy signal, you should take some profits at R3 level. You should also use a combination of other indicators to give you more information to confirm if a signal is correct. Examples of a good combination is the RSI, MACD and Moving Averages. Read that book in my comment above!!\",\n \"Just guessing here… How about Daily Median price? StockCharts provides a similar value they call VWAP. Which stands for Volume-Weighted Average Price. I believe it is a better 'average' for the day (click on link).\",\n \"No. The information you are describing is technical data about a stock's market price and trading volume, only. There is nothing implied in that data about a company's financial fundamentals (earnings/profitability, outstanding shares, market capitalization, dividends, balance sheet assets and liabilities, etc.) All you can infer is positive or negative momentum in the trading of the stock. If you want to understand if a company is performing well, then you need fundamental data about the company such as you would get from a company's annual and quarterly reports.\",\n \"So for quarters So, if Q1's value was 10 and Q2's value was 25 For closing or opening prices, I would use closing prices. For instance, some used Adjusted Close or Close on Yahoo Finance (see this example of AAPL). Added Note: In your example, for your example, you'll want to take the absolute value of the denominator (aka: divisor), so an Excel formula might look like the below example ... ... where the new and old are cells.\",\n \"Been in tech research for quite some time through both '01 and '08, so I've seen different valuation metrics used at different times of the cycle. I agree 4Q forward is the norm but I do 6Q forward model and depending on verticals, P/E, P/S or EV/EBIDTA. And maybe DCF for sanity check. Usually SSS/MAU/subs are used w/ ARPU or turns/B:B to derive top line. Earnings is an easy number to pull from bbg but the descriptive quality of earnings is not as good as EBITDA or FCF especially some companies choose to talk about adjusted numbers only. Different strokes for different folks. I must admit that based on my valuation model both AMZN/NFLX are both hard pass due to their valuation. But I was in AMZN in PA from my quant model. Different strokes for different folks.\",\n \"A technically strong stock or market is simply a stock or market which is up-trending and has been up-trending for a while. Just as a fundamentally strong stock is one with good fundamentals (a stock that is healthy and making higher profits year after year and continually improving), a technically strong stock has a healthy uptrend that continues to go up and up. Apple was technically strong until it hit $700 (its price stayed above the 200 day MA for a long period until after it hit $700, then broke down through the 200 day MA shortly after - the uptrend was over). I will usually buy stocks which are both fundamentally and technically strong, as a technically strong stock will generally stay technically strong longer if it also has strong and good fundamentals.\",\n \"Would you also suggest some stock with interesting returns and risks? Because i tried with FB, GS, JNJ, MCD, F and the have low returns in the last 5 years, so when you compare them to commodities you don't see so much difference in stdev and returns.\",\n \"Simple. Say in 2012 you were up 50% (brilliant) but then in 2013 you were down 50% (sorry). i.e. if you started with $1000, you were up to $1500, then down to $750. You lost $250 overall. If you were to compute the mean of the percentages using each method, then: Arithmetic mean: The average of +50% and -50% (really 150% and 50% of each period's initial value) is zero, not up or down. Geometric mean: 1.5 * .5 = .75, i.e. you are down 25% over 2 years, or about 13.4% per year. It should be clear the Geometric makes more sense in such a case.\",\n \"With the S&P 500's cyclically adjusted price to earnings ratio above 26 and inching closer to 30 everyday I would be inclined to disagree. Also price trends and technical indicators say nothing about over and undervaluation. If fact technical indicators are worthless in the real world.\",\n \"I usually look at the high and low exchange rates for the last five years. If the current rate is fairly close to the high for a trade over the past five years, then I do the trade. If the current exchange rate is close to the low, then I wait.\",\n \"\\\"Is option trading permitted in the account? Most 401(k) do not permit this. 1 - it means none traded today. 2 - there are 50 outstanding contracts. Each one has a guy who is long and a guy who is short. 3 - not really, it might depend on the stock. 4 - no. With commissions so low, and the inherent leverage of options, one contract reflecting 100 shares of the underlying stock, the minimum is what you can sleep soundly with. 5 - because GLD does not reflect precisely 1/10 oz of gold's price. If you look at the prospectus, it reads \\\"\\\"The investment objective of the Trust is for the Shares to reflect the performance of the price of gold bullion, less the Trust’s expenses.\\\"\\\" Since there are no dividends to take expenses from, the GLD price will erode by .4% each year compared to the price of 1/10oz gold.\\\"\",\n \"Daily > Weekly > Monthly. This statement says that if you use daily returns you will get more noise than if you used weekly or monthly returns. Much of the research performed uses monthly returns, although weekly returns have been used as well. For HFT you would need to detrend the data in order to spot true turning points.\",\n \"Common financial advice is just that - it is common and general in nature and not specific for your financial needs, your goals and your risk tolerance. Regarding the possibility of a US market not going anywhere over a long period of time, well it is not a possibility, it has happened. See chart below: It took 13 years for the S&P 500 to break through 1550, a level first reached in March 2000, tested in October 2007 (just before the GFC) and finally broken through in March 2013. If you had bought in early 2000 you would still be behind when you take inflation into account. If you took the strategy of dollar cost averaging and bought the same dollar value (say $10,000) of the index every six months (beginning of each January and each July) starting from the start of 2000 and bought your last portion in January 2013, you would have a return of about 35% over 13.5 years (or an average of 2.6% per year). Now lets look at the same chart below, but this time add some trend lines. If we instead bought whenever the price crossed above the downtrend-line and sold whenever the price crossed below the uptrend-line (with the first purchase at the start of January 2000), we would have a return of 93% over the 13.5 years (or an average of 6.9% per year). Another more aggressive option (but manageable if you incorporate a risk management strategy) is to buy long when the price crosses the downtrend-line and sell your existing long position and sell short when the price drops below the uptrend-line. That is profiting both up-trending and down-trending markets. Again we start our buying at the start of January 2000. By shorting the index when the market is in a down-trend you could increase the above returns of 93% by another 54%, for a total return of 147% over 13.5 years (or an average of 10.9% per year). To conclude, using a simple long term strategy to time the markets may result in considerably higher returns than dollar cost averaging over the medium to long term, and I know which strategy would help me sleep better at night.\",\n \"I love technical analysis, and use candlesticks as part of my technical analysis system for trading mutual funds in my 401K. However, I would never use a candlestick chart on its own. I use combination of candlesticks, 2 different EMAs, MACD, bollinger bands, RSI and hand drawn trend lines that I constantly tweak. That's about as much data input as I can handle, but it is possible to graph it all at once and see it at a glance if you have the right trading platform. My approach is very personal, not very aggressive, and took me years to develop. But it's fairly effective - 90% + of my trades are winners. The big advantage of technical analysis is that it forces you to create repeatable rules around which you base your trading. A lot of the time I have little attention at all on what fund I am trading or why it is doing well in that particular market condition. It's basically irrelevant as the technical system tells when to buy and sell, and stops you trying to second guess whether housing, chemicals, gold or asian tigers are is doing well right now. If you don't keep to your own rules, you have only yourself to blame. This keeps you from blaming the market, which is completely out of your control. I explain many of my trades with anotated graphs at http://neurotrade.blogspot.com/\",\n \"The beta of a stock can be interpreted as the average relative movement of a stock with respect to the movement of a market index. In your case, the stock will move on average by 0.8. Thus over a longer time horizon, not on a daily, weekly basis.\",\n \"Yes, it makes sense. Like Lagerbaer says, the usefulness of technical indicators can not be answered with a simple yes or no. Some people gain something from it, others do not. Aside from this, applying technical indicators (or any other form of technical analysis - like order flow) to instruments which are composed of other instruments, such as indexes (more accurately, a derivative of it), does make sense. There are many theories why this is the case, but personally i believe it is a mixture of self fulfilling prophecy, that the instruments the index is composed of (like the stocks in the S&P500) are traded in similar ways as the index (or rather a trade-able derivative of it like ETFs and futures), and the idea that TA just represents human emotion and interaction in trading. This is a very subjective topic, so take this with a grain of salt, but in contrast to JoeTaxpayer i believe that yields are not necessary in order to use TA successfully. As long as the given instrument is liquid enough, TA can be applied and used to gain an edge. On the other hand, to answer your second question, not all stocks in an index correlate all the time, and not all of them will move in sync with the index.\",\n \"\\\"Please note that the following Graham Rating below corresponds to five years: Earnings Stability (100% ⇒ 10 Years): 50.00% Benjamin Graham - once known as The Dean of Wall Street - was a scholar and financial analyst who mentored legendary investors such as Warren Buffett, William J. Ruane, Irving Kahn and Walter J. Schloss. Buffett describes Graham's book - The Intelligent Investor - as \\\"\\\"by far the best book about investing ever written\\\"\\\" (in its preface). Graham's first recommended strategy - for casual investors - was to invest in Index stocks. For more serious investors, Graham recommended three different categories of stocks - Defensive, Enterprising and NCAV - and 17 qualitative and quantitative rules for identifying them. For advanced investors, Graham described various \\\"\\\"special situations\\\"\\\". The first requires almost no analysis, and is easily accomplished today with a good S&P500 Index fund. The last requires more than the average level of ability and experience. Such stocks are also not amenable to impartial algorithmic analysis, and require a case-specific approach. But Defensive, Enterprising and NCAV stocks can be reliably detected by today's data-mining software, and offer a great avenue for accurate automated analysis and profitable investment. For example, given below are the actual Graham ratings for International Business Machines Corp (IBM), with no adjustments other than those for inflation. Defensive Graham investment requires that all ratings be 100% or more. Enterprising Graham investment requires minimum ratings of - N/A, 75%, 90%, 50%, 5%, N/A and 137%. International Business Machines Corp - Graham Ratings Sales | Size (100% ⇒ $500 Million): 18,558.60% Current Assets ÷ [2 x Current Liabilities]: 62.40% Net Current Assets ÷ Long Term Debt: 28.00% Earnings Stability (100% ⇒ 10 Years): 100.00% Dividend Record (100% ⇒ 20 Years): 100.00% Earnings Growth (100% ⇒ 30% Growth): 172.99% Graham Number ÷ Previous Close: 35.81% Not all stocks failing Graham's rules are necessarily bad investments. They may fall under \\\"\\\"special situations\\\"\\\". Graham's rules are also extremely selective. Graham designed and backtested his framework for over 50 years, to deliver the best possible long-term results. Even when stocks don't clear them, Graham's rules give a clear quantifiable measure of a stock's margin of safety. Thank you.\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["The 'standard' in such moving average crossover systems is 50/200. The numbers are essentially arbitrary as long as the long term average is greater than the short term and there is some different between the averages in terms of the smoothing they provide (i.e. comparing a 74 day MA to a 75 day MA isn't what the system is intended for) There are plenty of software programs that will let you run through many possible values for the system over historical data. I concur with the other answers in that this system/indicator alone isn't very good. However, I disagree with their blanket brushing off of technical analysis. There are many successful traders out there. The moving average cross over system is perhaps the second most primitive example of technical strategies categorized as trend following systems (buying new recent highs and selling new recent lows being the most simple). This particular system isn't very powerful because of its poor use of simple moving averages. A simple moving average is intended to smooth out data, but smoothing comes at the cost of lagging from the present. A simple moving average essentially gives you an idealized smoothing of price action for the day at that is one half of their period ago. So your 200 day simple moving average shows you an idealized smoothing of price action 100 days ago. A lot can happen in 100 days and that is why this system is far from ideal.","\"Not sure why this hasn't received any answers yet... the link to the investopedia page you posted explains it pretty well, however when you hear about a golden cross in the media, it is most likely a reference to the 50-day SMA crossing above the 200-day SMA. In general, a golden cross consists of a short term MA that was previously below a long term MA crossing above that LT MA, however the most common reference will imply a 50/200 day cross because this is considered as a stronger signal (compared to shorter MAs). With that said, it's important to realize that the golden cross is just one of many technical analysis \"\"signals\"\", and the entire field of technical analysis is considered controversial, to say the least. Many studies, such as those examined in A Random Walk Down Wall Street, have found that after transactions costs are considered (e.g., the commissions you pay to your broker on every trade), \"\"charting\"\" is a losing proposition in the end.\"","Technical analysis is insufficient. You're halfway to figuring it out if you start to question why a 50 day moving average vs 200 vs 173. Invest in companies that are attractively valued vs. their sales/growth/divends/anythingelsereal","Different moving averages work and not work for different indexes. I have seen simulations where during bull or bear markets the moving averages work differently. Here is an example: http://www.indexresult.com/MovingAverage/Exponential/200/SP500"],"string":"[\n \"The 'standard' in such moving average crossover systems is 50/200. The numbers are essentially arbitrary as long as the long term average is greater than the short term and there is some different between the averages in terms of the smoothing they provide (i.e. comparing a 74 day MA to a 75 day MA isn't what the system is intended for) There are plenty of software programs that will let you run through many possible values for the system over historical data. I concur with the other answers in that this system/indicator alone isn't very good. However, I disagree with their blanket brushing off of technical analysis. There are many successful traders out there. The moving average cross over system is perhaps the second most primitive example of technical strategies categorized as trend following systems (buying new recent highs and selling new recent lows being the most simple). This particular system isn't very powerful because of its poor use of simple moving averages. A simple moving average is intended to smooth out data, but smoothing comes at the cost of lagging from the present. A simple moving average essentially gives you an idealized smoothing of price action for the day at that is one half of their period ago. So your 200 day simple moving average shows you an idealized smoothing of price action 100 days ago. A lot can happen in 100 days and that is why this system is far from ideal.\",\n \"\\\"Not sure why this hasn't received any answers yet... the link to the investopedia page you posted explains it pretty well, however when you hear about a golden cross in the media, it is most likely a reference to the 50-day SMA crossing above the 200-day SMA. In general, a golden cross consists of a short term MA that was previously below a long term MA crossing above that LT MA, however the most common reference will imply a 50/200 day cross because this is considered as a stronger signal (compared to shorter MAs). With that said, it's important to realize that the golden cross is just one of many technical analysis \\\"\\\"signals\\\"\\\", and the entire field of technical analysis is considered controversial, to say the least. Many studies, such as those examined in A Random Walk Down Wall Street, have found that after transactions costs are considered (e.g., the commissions you pay to your broker on every trade), \\\"\\\"charting\\\"\\\" is a losing proposition in the end.\\\"\",\n \"Technical analysis is insufficient. You're halfway to figuring it out if you start to question why a 50 day moving average vs 200 vs 173. Invest in companies that are attractively valued vs. their sales/growth/divends/anythingelsereal\",\n \"Different moving averages work and not work for different indexes. I have seen simulations where during bull or bear markets the moving averages work differently. Here is an example: http://www.indexresult.com/MovingAverage/Exponential/200/SP500\"\n]","isConversational":false}}},{"rowIdx":357,"cells":{"_id":{"kind":"string","value":"8592"},"query":{"kind":"string","value":"Tax implications of exercising ISOs and using proceeds to exercise more ISOs"},"gt_ids":{"kind":"list like","value":["340264","441718","261258"],"string":"[\n \"340264\",\n \"441718\",\n \"261258\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1],"string":"[\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["261258","61919","570112","212025","340264","183166","343219","357500","580534","446628","483147","396180","584917","492321","178059","303193","530410","220147","441718","374867","72677","193717","290468","540292","12034","203334","443354","55893","87283","377944","259072","163566","595605","175563","103437","596518","361482","227064","268423","393439","581866","376800","132111","400730","83012","468047","302735","171819","204388","249687","514970","17184","156092","190687","390864","481283","367742","238903","518088","136042","23217","248393","306688","361507","344372","178614","87331","197151","536610","316037","221715","330848","382381","161155","423929","457059","417295","501214","578022","511066","219762","250623","179398","218695","287325","267067","362874","273829","30070","522319","385310","438666","418951","207788","304918","76556","30973","448659","294097","217124"],"string":"[\n \"261258\",\n \"61919\",\n \"570112\",\n \"212025\",\n \"340264\",\n \"183166\",\n \"343219\",\n \"357500\",\n \"580534\",\n \"446628\",\n \"483147\",\n \"396180\",\n \"584917\",\n \"492321\",\n \"178059\",\n \"303193\",\n \"530410\",\n \"220147\",\n \"441718\",\n \"374867\",\n \"72677\",\n \"193717\",\n \"290468\",\n \"540292\",\n \"12034\",\n \"203334\",\n \"443354\",\n \"55893\",\n \"87283\",\n \"377944\",\n \"259072\",\n \"163566\",\n \"595605\",\n \"175563\",\n \"103437\",\n \"596518\",\n \"361482\",\n \"227064\",\n \"268423\",\n \"393439\",\n \"581866\",\n \"376800\",\n \"132111\",\n \"400730\",\n \"83012\",\n \"468047\",\n \"302735\",\n \"171819\",\n \"204388\",\n \"249687\",\n \"514970\",\n \"17184\",\n \"156092\",\n \"190687\",\n \"390864\",\n \"481283\",\n \"367742\",\n \"238903\",\n \"518088\",\n \"136042\",\n \"23217\",\n \"248393\",\n \"306688\",\n \"361507\",\n \"344372\",\n \"178614\",\n \"87331\",\n \"197151\",\n \"536610\",\n \"316037\",\n \"221715\",\n \"330848\",\n \"382381\",\n \"161155\",\n \"423929\",\n \"457059\",\n \"417295\",\n \"501214\",\n \"578022\",\n \"511066\",\n \"219762\",\n \"250623\",\n \"179398\",\n \"218695\",\n \"287325\",\n \"267067\",\n \"362874\",\n \"273829\",\n \"30070\",\n \"522319\",\n \"385310\",\n \"438666\",\n \"418951\",\n \"207788\",\n \"304918\",\n \"76556\",\n \"30973\",\n \"448659\",\n \"294097\",\n \"217124\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["I've never heard of an employer offering this kind of arrangement before, so my answer assumes there is no special tax treatment that I'm not aware of. Utilizing the clause is probably equivalent to exercising some of your options, selling the shares back to your employer at FMV, and then exercising more options with the proceeds. In this case if you exercise 7500 shares and sell them back at FMV, your proceeds would be 7500 x $5 = $37,500, with which you could exercise the remaining 12,500 options. The tax implications would be (1) short-term capital gains of 7500 x ($5 - $3) = $15,000 and (2) AMT income of 12,500 x ($5 - $3) = $25,000, assuming you don't sell the shares within the calendar year.","\"Alternatively you could exercise 12000 shares for $36000 and immediately sell 7200 shares to recover your exercise price. Then you use the remaining 4800 share to pay the exercise price of the remaining 8000 options. Both scenarios are equivalent but may have different fees associated, so it's worth checking the fine print. Tax wise: The above example is \"\"cash neutral before taxes\"\". The taxes associated with these transaction are substantial, so it's highly recommended to talk with a tax adviser. \"\"cash neutral after taxes\"\" depends highly on your specific tax situation.\"","\"I've bought ISO stock over they years -- in NYSE traded companies. Every time I've done so, they've done what's called \"\"sell-to-cover\"\". And the gubmint treats the difference between FMV and purchase price as if it's part of your salary. And for me, they've sold some stock extra to pay estimated taxes. So, if I got this right... 20,000 shares at $3 costs you 60,000 to buy them. In my sell-to-cover at 5 scenario: did I get that right? Keeping only 4,000 shares out of 20,000 doesn't feel right. Maybe because I've always sold at a much ratio between strike price and FMV. Note I made some assumptions: first is that the company will sell some of the stock to pay the taxes for you. Second is your marginal tax rate. Before you do anything check these. Is there some reason to exercise immediately? I'd wait, personally.\"","The difference is whether your options qualify as incentive stock options (ISOs), or whether they are non-qualifying options. If your options meet all of the criteria for being ISOs (see here), then (a) you are not taxed when you exercise the options. You treat the sale of the underlying stock as a long term capital gain, with the basis being the exercise price (S). There is something about the alternative minimum tax (AMT) as they pertain to these kinds of options. Calculating your AMT basically means that your ISOs are treated as non-qualifying options. So if your exercise bumps you into AMT territory, too bad, so sad. If you exercise earlier, you do get a clock ticking, as you put it, because one of the caveats of having your options qualify as ISOs is that you hold the underlying stock (a) at least two years after you were granted the options and (b) at least one year after you exercise the options.","That is a weird one. Typically one never needs to layout cash to exercise an option. One would only choose to use option 1, if one is seeking to buy the options. This would occur if an employee was leaving a company, would no longer be eligible for the ISO (and thereby forfeit any option grant), and does not want to exercise the options. However, what is not weird is the way income tax works, you are taxed on your income in the US. I assume you are talking about the US here. So if you exercise 10K shares, if under either option, you will be taxed on the profit from those share. Profit = (actual price - strike price) * shares - fees","As I recall, the gain for ISOs is considered ordinary income, and capital losses can only negate up to $3000 of this each year. If you exercised and held the stock, you have ordinary income to the exercise price, and cap gain above that, if you hold the stock for two years. EDIT - as noted below, this answer works for USians who found this question, but not for the OP who is Canadian, or at least asked a question at it relates to Canada's tax code.","You realise a capital gain as soon as you sell the stock. At that point, you will have to pay taxes on the profits when you fill in your tax return. The fact that you used the money to subsequently purchase other stocks is not relevant, unless you sell those stocks within the same tax year. For example, purchase $5000 of stock A in 2010. Sell for $6000 in 2010. Purchase $6000 of stock B in 2010. Sell stock B for $6500 in 2010. Purchase $6500 of stock C in 2010. Sell stock C for $7000 in 2011. You owe capital gains on ($6000 - $5000) + ($6500 - $6000) = $1500 for tax year 2010. You owe capital gains on ($7000 - $6500) = $500 for 2011.","In the question you cited, I assumed immediate exercise, that is why you understood that I was talking about 30 days after grant. I actually mentioned that assumption in the answer. Sec. 83(b) doesn't apply to options, because options are not assets per se. It only applies to restricted stocks. So the 30 days start counting from the time you get the restricted stock, which is when you early-exercise. As to the AMT, the ISO spread will be considered AMT income in the year of the exercise, if you file the 83(b). For NQSO it is ordinary income. That's the whole point of the election. You can find more detailed explanation on this website.","It is a very complex question to answer and it really depends. However, here are some points to consider and verify with your accountant or tax expert. First, if you exercise now, the downside is that you may be subject to Alternative Minimum Tax (AMT) based on the theoretical gain on the stock (current price minus your strike price) when you file your tax return. The other obvious downside is that if the company goes nowhere, you are stuck with the stock and potentially lose money. The benefit is that the clock starts ticking for long-term capital gains so if you sell after 1 year from the exercise date (or your company gets sold) then the gain would be taxed as long-term capital gain which is taxed at a lower rate. If your company were to get sold, the gains are not necessarily taxed as ordinary income. If it is a cash transaction then most likely (unless you have exercised and held the stock for over a year). However, if it is a stock sale, then you may end up getting stock of the company that acquires your company. In that situation, the tax event would be when you sell the new shares vs. the time of company sale. Finally, whether to exercise or not also depends on how you feel about the prospects of the company. If you think they will be sold or of more value down the road then exercising makes sense. If you are not sure then you could hedge your bets by only exercising a portion of it. You should definitely consult with a financial advisor or a tax consultant regarding these matters.","Does this technically mean that she has to pay AMT on $400,000? Yes. Well, not exactly 400,000. She paid $1 per share, so 390,000. And if so, is %28 the AMT for this sum? (0.28 * $400,000 = $112,000)? Or does she have to include her salary on top of that before calculating AMT? (Suppose in the fake example that her salary is $100,000 after 401k). All her income is included in calculating the AMT, minus the AMT exemption amount. The difference between the regular calculated tax and the calculated AMT is then added to the regular tax. Note that some deductions allowed for the regular calculation are not allowed for the AMT calculation. How does California state tax come into play for this? California has its own AMT rules, and in California any stock option exercise is subject to AMT, unless you sell the stock in the same year. Here's a nice and easy to understand write up on the issue from the FTB. When would she have to pay the taxes for this huge AMT? Tax is due when income is received (i.e.: when you exercise the options). However, most people don't actually pay the tax then, but rather discover the huge tax liability when they prepare to submit their tax return on April 15th. To avoid that, I'd suggest trying to estimate the tax and adjust your withholding using form W4 so that by the end of the year you have enough withheld. Suppose in the worst case, the company goes completely under. Does she get her massive amounts of tax back? Or if it's tax credit, where can I find more info on this? That would be capital loss, and only up to $3K a year of capital loss can be deducted from the general income. So it will continue offsetting other capital gains or being deducted $3K a year until it all clears out. Is there any way to avoid this tax? (Can she file an 83b election?) You asked and answered. Yes, filing 83(b) election is the way to go to avoid this situation. This should be done within 30 days of the grant, and submitted to the IRS, and a copy attached to the tax return of the grant year. However, if you're considering exercise - that ship has likely sailed a long time ago. Any advice for Little Susie on how she can even afford to pay that much tax on something she can't even sell anytime soon? Don't exercise the options? Should she take out a loan? (e.g. I've heard that in the extreme case, you can find angel investors who are willing to pay all your taxes/strike price, but want 50% of your equity? I've also heard that you can sell your illiquid shares on SecondMarket?) Is she likely to get audited by IRS for pulling something like this? You can take a loan secured by shares you own, there's nothing illegal in it. If you transfer your shares - the IRS only cares about the taxes being paid, however that may be illegal depending on the terms and the conditions of the grant. You'll need to talk to a lawyer about your situation. I suggest talking to a licensed tax adviser (EA/CPA licensed in your State) about the specifics concerning your situation.","\"No, because you didn't lose anything. When you exercise ISO \"\"at loss\"\" you're buying stock without a discount, that's it.\"","\"I don't think its a taxable event since no income has been constructively received (talking about the RSU shareholders here). I believe you're right with the IRC 1033, and the basis of the RSU is the basis of the original stock option (probably zero). Edit: see below. However, once the stock becomes vested - then it is a taxable event (not when the cash is received, but when the chance of forfeiture diminishes, even if the employee doesn't sell the stock), and is an ordinary income, not capital. That is my understanding of the situation, do not consider it as a tax advice in any way. I gave it a bit more though and I don't think IRC 1033 is relevant. You're not doing any exchange or conversion here, because you didn't have anything to convert to begin with, and don't have anything after the \"\"conversion\"\". Your ISO's are forfeited and no longer available, basically - you treat them as you've never had them. What happened is that you've received RSU's, and you treat them as a regular RSU grant, based on its vesting schedule. The tax consequences are exactly as I described in my original response: you recognize ordinary income on the vested stocks, as they vest. Your basis is zero (i.e.: the whole FMV of the stock at the time of vesting is your ordinary income). It should also be reflected in your W2 accordingly.\"","When you get into reading Revenue Rulings and Treasury Regulations - I'd suggest hiring a professional to do that for you. Especially since you also need to assure that the new stock does indeed qualify as QSBS. However, from the revenue ruling you quoted it doesn't sound like there's any other requirement other than reporting the subsequent purchase as a loss on your schedule D. I wouldn't know, however, if there are subsequent/superseding revenue rulings on the matter since 1998. Professional tax adviser (EA/CPA licensed in your State) would have the means and the ability to research this and give you a proper advice.","\"As I recall from the documentation presented to me, any gain over the strike price from an ISO stock option counts as a long term capital gain (for tax purposes) if it's held from 2 years from the date of grant and 1 year from the date of exercise. If you're planning to take advantage of that tax treatment, exercising your options now will start that 1-year countdown clock now as well, and grant you a little more flexibility with regards to when you can sell in the future. Of course, no one's renewed the \"\"Bush tax cuts\"\" yet, so the long-term capital gains rate is going up, and eventually it seems they'll want to charge you Medicare on those gains as well (because they can... ), soo, the benefit of this tax treatment is being reduced... lovely time to be investing, innnit?\"","Elaborating on kelsham's answer: You buy 100 shares XYZ at $1, for a total cost of $100 plus commissions. You sell 100 shares XYZ at $2, for a total income of $200 minus commissions. Exclusive of commissions, your capital gain is $100 for this trade, and you will pay taxes on that. Even if you proceed to buy 200 shares XYZ at $1, reinvesting all your income from the sale, you still owe taxes on that $100 gain. The IRS has met this trick before.","As littleadv suggested, you are mixing issues. If you have earned income and are able to deduct an IRA deposit, where those actual dollars came from is irrelevant. The fact that you are taking proceeds from one transaction to deposit to the IRA is a booking entry on your side, but the IRS doesn't care. By the way, when you get that $1000 gain, the broker doesn't withhold tax, so if you take the entire $1000 and put it in the IRA, you owe $150 on one line, but save $250 elsewhere, and are still $100 to the positive on your tax return.","For the employee, this is an identical tax situation to an at-the-money option purchase. They're buying an asset with a specific cost basis. For the company, you are just issuing shares from treasury as authorized... debit cash, credit additional paid-in-capital and equity. There is no tax consequence for this money received.","Options granted by an employer to an employee are generally different that the standardized options that are traded on public stock option exchanges. They may or may not have somewhat comparable terms, but generally the terms are fairly different. As a holder of an expiring employee option, you can only choose to exercise it by paying the specified price and receiving the shares, or not. It is common that the exercise system will allow you to exercise all the shares and simultaneously sell enough of the acquired shares to cover the option cost of all the shares, thus leaving you owning some of the stock without having to spend any cash. You will owe taxes on the gain on exercise, regardless of what you do with the stock. If you want to buy publicly-traded options, you should consider that completely separately from your employer options other than thinking about how much exposure you have to your company situation. It is very common for employees to be imprudently overexposed to their company's stock (through direct ownership or options).","This may be a good or a bad deal, depending on the fair market value (FMV) of the stock at the time of exercise. Let's assume the FMV is $6, which is the break even point. In general this would probably be treated as two transactions. So overall you would be cash neutral, but your regular tax income would be increased by $30,000 and your AMT income by $60,000.","Does this make sense? I'm concerned that by buying shares with post tax income, I'll have ended up being taxed twice or have increased my taxable income. ... The company will then re-reimburse me for the difference in stock price between the vesting and the purchase share price. Sure. Assuming you received a 100-share RSU for shares worth $10, and your marginal tax rate is 30% (all made up numbers), either: or So you're in the same spot either way. You paid $300 to get $1,000 worth of stock. Taxes are the same as well. The full value of the RSU will count as income either way, and you'll either pay tax on the gains of the 100 shares in your RSU our you'll pay tax on gains on the 70 shares in your RSU and the 30 shares you bought. Since they're reimbursing you for any difference the cost basis will be the same (although you might get taxed on the reimbursement, but that should be a relatively small amount). This first year I wanted to keep all of the shares, due to tax reasons and because believe the share price will go up. I don't see how this would make a difference from a tax standpoint. You're going to pay tax on the RSU either way - either in shares or in cash. how does the value of the shares going up make a difference in tax? Additionally I'm concerned that by doing this I'm going to be hit by my bank for GBP->USD exchange fees, foreign money transfer charges, broker purchase fees etc. That might be true - if that's the case then you need to decide whether to keep fighting or decide if it's worth the transaction costs.","\"if you buy back the now ITM calls, then you will have a short term loss. That pair of transactions is independent, from a tax perspective, of your long position (which was being used as \"\"collateral\"\" in the very case that occurred). I can see your tax situation and can see the logic of taking a short term loss to balance a short term gain. Referring to D Stanley's answer, #2 and #3 are not the same because you are paying intrinsic value in the options and the skew in #2, whereas #3 has no intrinsic value. Of course, because you can't know the future, the stock price could move higher or lower between #2 and #3. #1 presumes the stock continues to climb.\"","\"You mention \"\"early exercise\"\" in your title, but you seem to misunderstand what early exercise really means. Some companies offer stock options that vest over a number of years, but which can be exercised before they are vested. That is early exercise. You have vested stock options, so early exercise is not relevant. (It may or may not be the case that your stock options could have been early exercised before they vested, but regardless, you didn't exercise them, so the point is moot.) As littleadv said, 83(b) election is for restricted stocks, often from exercising unvested stock options. Your options are already vested, so they won't be restricted stock. So 83(b) election is not relevant for you. A taxable event happen when you exercise. The point of the 83(b) election is that exercising unvested stock options is not a taxable event, so 83(b) election allows you to force it to be a taxable event. But for you, with vested stock options, there is no need to do this. You mention that you want it not to be taxable upon exercise. But that's what Incentive Stock Options (ISOs) are for. ISOs were designed for the purpose of not being taxable for regular income tax purposes when you exercise (although it is still taxable upon exercise for AMT purposes), and it is only taxed when you sell. However, you have Non-qualified Stock Options. Were you given the option to get ISOs at the beginning? Why did your company give you NQSOs? I don't know the specifics of your situation, but since you mentioned \"\"early exercise\"\" and 83(b) elections, I have a hypothesis as to what might have happened. For people who early-exercise (for plans that allow early-exercise), there is a slight advantage to having NQSOs compared to ISOs. This is because if you early exercise immediately upon grant and do 83(b) election, you pay no taxes upon exercise (because the difference between strike price and FMV is 0), and there are no taxes upon vesting (for regular or AMT), and if you hold it for at least 1 year, upon sale it will be long-term capital gains. On the other hand, for ISOs, it's the same except that for long-term capital gains, you have to hold it 2 years after grant and 1 year after exercise, so the period for long-term capital gains is longer. So companies that allow early exercise will often offer employees either NQSOs or ISOs, where you would choose NQSO if you intend to early-exercise, or ISO otherwise. If (hypothetically) that's what happened, then you chose wrong because you got NQSOs and didn't early exercise.\"","Technically yes, in most cases you'll probably get all the AMT you pay for exercising in-the-money incentive stock options (ISOs) credited back to you. Practically, however, inflation could significantly reduce the value of the money when you get it back. Remember you can only recover the differential between regular income tax and the tentative minimum tax (TMT) each year. Depending on your situation, that could be a few thousand dollars or less, in which case $50k of AMT credit would take a while to use up. However, as you point out, if you end up selling your shares you'll likely use up all your AMT credit that year. So yes, you'd probably get your $50k of AMT back, but a lot of people don't have that much to tie up in taxes for an extended period of time.","Is this possible and will it have the intended effect? From the US tax perspective, it most definitely is and will. Is my plan not very similar to Wash Sale? Yes, except that wash sale rules apply for losses, not gains. In any case, since you're not a US tax resident, the US wash sale rules won't apply to you.","I assume I can/will need to file an 83(b) election, in order to avoid tax repercussions? What exactly will this save me from? 83(b) election is for restricted stock grants, not for stock purchases. For restricted stocks, you generally pay income tax when they vest. For startups the price difference between the time of the grant and the time of the vesting can be astronomical and by choosing 83(b) you effectively pay income tax on the value of the grant instead of the value of the vest. Then, you only pay capital gains tax on the difference between the sale price and the grant value when you sell. In your case you're exercising an option, i.e.: you're buying a stock, so 83(b) is irrelevant. What you will pay though is the tax on the difference between the strike price and the stock FMV (unless the stocks you end up buying are restricted - which would have been the case if you exercised your options early, but I don't think is going to be the case now). What steps should I take to (in the eyes of the law) guarantee that the board has received my execution notice? The secretary of the board is a notorious procrastinator and can be very unorganized. You should read what the grant contract/company policy says on that. Ask the HR/manager. Usually, a certified letter with return receipt should be enough, but you should verify the format, the address, and the timeframe.","To explain the capital gains part of the question, non qualified stock options (NSOs) are always treated like earned income and have payroll taxes withheld. It's advantageous for the company to issue these because they can deduct them as expenses just as they do your salary. Articles talking about capital gains would probably be referring to incentive stock options (ISOs) or possibly even restricted stock units (RSUs). If you were granted the option to buy the stock and/or hold it for a period of time, then the stock options could be treated as capital gains, short-term gains if you held them for less than a year, and long-term gains if you held them for more than a year. This payment for your NSOs is exactly like a cash bonus. The withholding follows the same guidelines. You may wish to look at what this will mean for your annual salary and adjust your W-4 withholding up or down as appropriate depending on whether the 25% federal withholding rate is more or less than what you think your final marginal rate will be with this bonus included in your annual salary.","Yes (most likely). If you are exchanging investments for cash, you will have to pay tax on that - disregarding capital losses, capital loss carryovers, AGI thresholds, and other special rules (which there is no indication of in your question). You will have to calculate the gain on Schedule D, and report that as income on your 1040. This is the case whether you buy different or same stocks.","Your three options are: Options 2 and 3 are obviously identical (other than transaction costs), so if you want to keep the stock, go for option 1, otherwise, go for option 3 since you have the same effect as option 2 with no transaction costs. The loss will likely also offset some of the other short term gains you mentioned.","You would not owe any taxes in the 2015 year, unless you got exercised and called away in 2015. The premium would be short term capital gains barring some other exception I'm not aware of, and if you retain a gain on the underlying shares then that would still be long term capital gains. If it gets called in say April 2016, is the premium+profit+dividends all long term capital gains for the year 2016? The profits are long term capital gains and the premium serves to lower your cost basis, dividends have their own conditions so you'll have to do separate research on that, fortunately they'll likely be negligible compared to the potential capital gains and options premium.","Brokerage->Brokerage 13-16 The loss from the previous purchase will be added to the cost basis of the security for the second purchase. Since you sold it at a loss again it would increase your losses. Your loss from the first sale will be disallowed. Your loss will be added to the cost basis of the next purchase. Your gains will be taxed on the total of the cost basis which will reduce your gains. Which you will taxed 'less'. Your gains will be taxed. Your loss is allowed. You will be taxed on both. Wash Sales really only applies to losses. If you sell for gain, the tax man will be happy to take his share. From my understanding, it does not matter if it is IRA or Brokerage, the wash sale rule affects them all. Check this link: http://www.marketwatch.com/story/understanding-the-wash-sale-rules-2015-03-02","What you want is a cashless transaction. It's part of the normal process. My employer gives me 1000 options at $1, I never need to come up with the money, the shares are bought and sold in one set of transactions, and if the stock is worth $10, I see $9000 less tax withholding, hit the account. No need for me to come up with that $1000.","\"You have a Solo 401(k). You can fund it with cash, or I believe, with shares of your own company. You can't pull in other assets such as the ISOs from another employer. I see why that's desirable, but it's not allowed. You wrote \"\"this will mitigate all tax complications with employee stock options.\"\" But - you can't transfer the ISOs from your job into your Solo 401(k). As littleadv notes, it's self dealing. Once the ISO is exercised there's no hiding the gain into that 401(k).\"","\"Yes, you would pay no taxes at the time of purchase. In fact, this is not uncommon. Many early employees of startup companies are offered stock options that can be \"\"early-exercised\"\" (exercised before they vest). In such a case, an employee who exercises immediately upon grant (and assuming the exercise price of the option is the FMV at the time of grant) purchases the stock at FMV, and there no no tax paid when filing 83(b) election.\"","In response to your points #1 and #2: In general, yes it is true that capital gains are only subject to half one's marginal rate of income tax. That doesn't mean 50% of the gain is due as tax... rather, it means that if one's marginal tax rate (tax bracket) on the next $10K would have been, say, 32%, then one is taxed on the gain at 16%. (The percentages are examples, not factual.) However, because these are employee stock options, the tax treatment is different than for a capital gain! Details: On the Federal tax return are lines for reporting Security option benefits (Line 101) and Security options deductions (Line 249). The distinction between a regular capital gain and an employee stock option benefits is important. In many cases the net effect may be the same as a capital gain, but the income is characterized differently and there are cases where it matters. Somebody who is about to or has realized employee stock option benefits should seek professional tax advice. In response to your next two points: No, one cannot transfer a capital gain or other investment income into a TFSA immediately after-the-fact in order to receive the tax-free benefits of the TFSA on that income. Only income and gains earned within a TFSA are free from tax – i.e. The options would have to have been in the TFSA before being exercised. Once a gain or other investment income has been realized in a non-sheltered account, it is considered taxable. The horse has already left the barn, so to speak! However, despite the above, there is another strategy available: One can create an offsetting deduction by contributing some of the realized gain into an RRSP. The RRSP contribution, assuming room is available, would yield a tax deduction to offset some tax due on the gain. However, the RRSP only defers income tax; upon withdrawal of funds, ordinary income tax is due (hopefully, at a lower marginal rate in retirement.) There is no minimum amount of time that money or assets have to be inside a TFSA to benefit from the tax-free nature of the account. However, there are limits on how much money you can move into a TFSA in any given year, and many folks weren't aware of the rules. p.s. Let me add once more that this is a case where I suggest seeking professional tax advice.","Here is how it should look: 100 shares of restricted stock (RSU) vest. 25 shares sold to pay for taxes. W2 (and probably paycheck) shows your income going up by 100 shares worth and your taxes withheld going up by 25 shares worth. Now you own 75 shares with after-tax money. If you stop here, there would be no stock sale and no tax issues. You'd have just earned W2 income and withheld taxes through your W2 job. Now, when you sell those 75 shares whether it is the same day or years later, the basis for those 75 shares is adjusted by the amount that went in to your W2. So if they were bought for $20, your adjusted basis would be 75*$20.","I was not able to find any authority for the opinion you suggest. Wash sale rules should, IMHO, apply. According to the regulations, you attribute the newly purchased shares to the oldest sold shares for the purposes of the calculation of the disallowed loss and cost basis. (c) Where the amount of stock or securities acquired within the 61-day period is less than the amount of stock or securities sold or otherwise disposed of, then the particular shares of stock or securities the loss from the sale or other disposition of which is not deductible shall be those with which the stock or securities acquired are matched in accordance with the following rule: The stock or securities acquired will be matched in accordance with the order of their acquisition (beginning with the earliest acquisition) with an equal number of the shares of stock or securities sold or otherwise disposed of. You can resort to the claim that you have not, in fact, entered into the contract within 30 days, but when you gave the instructions to reinvest dividends. I don't know if such a claim will hold, but to me it sounds reasonable. This is similar to the rules re short sales (in (g) there). In this case, wash sale rules will not apply (unless you instructed to reinvest dividends within the 30 days prior to the sale). But I'd ask a tax professional if such a claim would hold, talk to a EA/CPA licensed in your state.","Stock awards by employers are treated and taxed as salary. I.e.: you pay ordinary rate income tax, FICA taxes, State taxes etc. The fact that you got your salary in shares and not cash is irrelevant for tax purposes. Once you got the shares and paid your taxes on them, the treatment is the same as if you got the salary and immediately bought the shares. Holding period for capital gains tax purposes starts at the time you paid your taxes on the award, which is the time at which you get full ownership (i.e.: vesting time, for the restricted stocks). When you sell these stocks - you treat the sale as any other stock sale: you check the holding period for capital gains tax rates, and you do not pay (or get refund) any FICA taxes on the sales transaction. So bottom line: You got $10K salary and you bought $10K worth of company stock, and you sold it at $8K half a year later. You have $10K wages income and $2K short term capital loss.","You don't. When you sell them - your cost basis would be the price of the stock at which you sold the stocks to cover the taxes, and the difference is your regular capital gain.","Yes, to change which stocks you owe you need to sell one and buy the other, which for tax purposes means taking the profit or loss accrued up to then. On the other hand this establishes a new baseline, so you will not be double-faced on those gains. It just makes a mess of this year's tax return, and forced you to set aside some if the money to cover that.","Now assume these shares are vested, held for at least 1 year, and are then sold for $5 each. Everything I've read implies that the grantee now owes long-term capital gains taxes on the difference, which would be 10k * ($5 - $1). No. That's exactly what the SO is NQ for. Read more on the differences between ISO and NQSO here. Now assume these shares are vested, held for at least 1 year, and are then sold for $5 each. Everything I've read implies that the grantee now owes long-term capital gains taxes on the difference, which would be 10k * ($5 - $1). At this point you no longer have NQSO, you have RSU. If you filed 83(b) when you exercised, then you pay capital gains tax when they vest. If you didn't - its ordinary income to you. NQSO is a red herring here since once exercised they no longer exist. If you didn't file 83(b), then when the stock vests the difference between the FMV at vest and the money you spent on it when exercising (if any) is considered wages and taxed as ordinary income (+FICA etc). From that point the RSU becomes a regular stock investment and the capital gains clock starts ticking.","To try to answer the three explicit questions: Every share of stock is treated proportionately: each share is assigned the same dollar amount of investment (1/176th part of the contribution in the example), and has the same discount amount (15% of $20 or $25, depending on when you sell, usually). So if you immediately sell 120 shares at $25, you have taxable income on the gain for those shares (120*($25-$17)). Either selling immediately or holding for the long term period (12-18 mo) can be advantageous, just in different ways. Selling immediately avoids a risk of a decline in the price of the stock, and allows you to invest elsewhere and earn income on the proceeds for the next 12-18 months that you would not otherwise have had. The downside is that all of your gain ($25-$17 per share) is taxed as ordinary income. Holding for the full period is advantageous in that only the discount (15% of $20 or $25) will be taxed as ordinary income and the rest of the gain (sell price minus $20 or $25) will be taxed at long-term capital gain tax rates, which generally are lower than ordinary rates (all taxes are due in the year you do sell). The catch is you will sell at different price, higher or lower, and thus have a risk of loss (or gain). You will never be (Federally) double taxed in any scenario. The $3000 you put in will not be taxed after all is sold, as it is a return of your capital investment. All money you receive in excess of the $3000 will be taxed, in all scenarios, just potentially at different rates, ordinary or capital gain. (All this ignores AMT considerations, which you likely are not subject to.)","The top long-term capital gains tax rate will rise to 20% effective 1 Jan, 2011, unless Congress decides to do something about it before then. (Will they? Who knows!! There's been talk about it, but, well, it's Congress. They don't even know what they're going to do.) Anyway. The rules about when you can sell stock are mostly concerned with when you can realize a capital loss: if you sell a stock at a loss and then re-buy it for tax purposes within 30 days, it's a wash sale and not eligible for a deduction. However, I don't believe this applies to any stocks once you realize a gain - once you've realized the gain and paid your tax for it, it's all yours, locked in at whatever rate. Your replacement stock will be subject to short-term capital gains for the next year afterwards, and you might need to be careful with identifying the holding period on different lots of your stock, but I don't believe there will be any particular trouble. Please do not rely entirely on my advice and consult also with your tax preparer or lawyer. :) And the IRS documentation: Special Addendum for Nov/Dec 2012! Spoiler alert! Congress did indeed act: they extended the rates, but only temporarily, so now we're looking at tax hikes starting in 2013 instead, only the new top rate++ will be something like 23.8% on account of an extra 3.8% medicare tax on passive earnings (brought to you via Obamacare legislation). But the year and the rates' specifics aside, same thing still applies. And the Republican house and Democratic senate/President are still duking it out. Have fun. ++ 3.8% surtax applies to the lesser of (a) net investment income (b) income over $200,000 ($250k if married). 20% tax rate applies to people in the 15% income tax bracket for ordinary income or higher. Additional tax discounts for property held over 5 years may be available. Consult tax law and your favorite tax professional and prepare to be confused.","\"Yes- you do not realize gains or losses until you actually sell the stock. After you sell the initial stocks/bonds you have realized the gain. When you buy the new, different stocks you haven't realized anything until you then sell those. There is one exception to this, called the \"\"Wash-Sale Rule\"\". From Investopedia.com: With the wash-sale rule, the IRS disallows a loss deduction from the sale of a security if a ‘substantially identical security' was purchased within 30 days before or after the sale. The wash-sale period is actually 61 days, consisting of the 30 days before and the 30 days after the date of the sale. For example, if you bought 100 shares of IBM on December 1 and then sold 100 shares of IBM on December 15 at a loss, the loss deduction would not be allowed. Similarly, selling IBM on December 15 and then buying it back on January 10 of the following year does not permit a deduction. The wash-sale rule is designed to prevent investors from making trades for the sole purpose of avoiding taxes.\"","Yes. As long as the stock is in a taxable account (i.e. not a tax deferred retirement account) you'll pay gain on the profit regardless of subsequent purchases. If the sale is a loss, however, you'll risk delaying the claim for the loss if you repurchase identical shares within 30 days of that sale. This is called a wash sale.","\"I was told by the lawyers there was no tax consequence because the two numbers were the same. That is correct. However, a tax professional tells me that since the start-up stock was \"\"realized\"\" there invokes a taxable event now. That is correct. I'm now led to believe I owe cap-gains tax on the entire 4 year vest this year That is incorrect. You owe capital gains tax on the sale of your startup stock. Which is accidentally the exact same amount you \"\"paid\"\" for the new unvested stocks. There's no taxable event with regards to the new stocks because the amount you paid for them was the amount you got for the old stocks. But you did sell the old stocks, and that is a taxable event.\"","Don't let tax considerations be the main driver. That's generally a bad idea. You should keep tax in mind when making the decision, but don't let it be the main reason for an action. selling the higher priced shares (possibly at a loss even) - I think it's ok to do that, and it doesn't necessarily have to be FIFO? It is OK to do that, but consider also the term. Long term gain has much lower taxes than short term gain, and short term loss will be offsetting long term gain - means you can lose some of the potential tax benefit. any potential writeoffs related to buying a home that can offset capital gains? No, and anyway if you're buying a personal residence (a home for yourself) - there's nothing to write off (except for the mortgage interest and property taxes of course). selling other investments for a capital loss to offset this sale? Again - why sell at a loss? anything related to retirement accounts? e.g. I think I recall being able to take a loan from your retirement account in order to buy a home You can take a loan, and you can also withdraw up to 10K without a penalty (if conditions are met). Bottom line - be prepared to pay the tax on the gains, and check how much it is going to be roughly. You can apply previous year refund to the next year to mitigate the shock, you can put some money aside, and you can raise your salary withholding to make sure you're not hit with a high bill and penalties next April after you do that. As long as you keep in mind the tax bill and put aside an amount to pay it - you'll be fine. I see no reason to sell at loss or pay extra interest to someone just to reduce the nominal amount of the tax. If you're selling at loss - you're losing money. If you're selling at gain and paying tax - you're earning money, even if the earnings are reduced by the tax.","I'm assuming this was a cashless exercise because you had income show up on your w-2. When I had a similar situation, I did the following: If you made $50,000 in salary and $10,000 in stock options then your W-2 now says $60,000. You'll record that on your taxes just like it was regular income. You'll also get a form that talks about your stock sale. But remember, you bought and sold the stock within seconds. Your forms will probably look like this: Bought stock: $10,000 Sold stock: $10,000 + $50 commission Total profit (loss): ($50) From the Turbotax/IRS view point, you lost $50 on the sale of the stock because you paid the commission, but the buy and sell prices were identical or nearly identical.","\"There some specific circumstances when you would have a long-term gain. Option 1: If you meet all of these conditions: Then you've got a long-term gain on the stock. The premium on the option gets rolled into the capital gain on the stock and is not taxed separately. From the IRS: If a call you write is exercised and you sell the underlying stock, increase your amount realized on the sale of the stock by the amount you received for the call when figuring your gain or loss. The gain or loss is long term or short term depending on your holding period of the stock. https://www.irs.gov/publications/p550/ch04.html#en_US_2015_publink100010630 Option 2: If you didn't hold the underlying and the exercise of the call that you wrote resulted in a short position, you might also be able to get to a long-term gain by buying the underlying while keeping your short position open and then \"\"crossing\"\" them to close both positions after one year. (In other words, don't \"\"buy to cover\"\" just \"\"buy\"\" so that your account shows both a long and a short position in the same security. Your broker probably allows this, but if not you, could buy in a different account than the one with the short position.) That would get you to this rule: As a general rule, you determine whether you have short-term or long-term capital gain or loss on a short sale by the amount of time you actually hold the property eventually delivered to the lender to close the short sale. https://www.irs.gov/publications/p550/ch04.html#en_US_2015_publink100010586 Option 1 is probably reasonably common. Option 2, I would guess, is uncommon and likely not worthwhile. I do not think that the wash sale rules can help string along options from expiration to expiration though. Option 1 has some elements of what you wrote in italics (I find that paragraph a bit confusing), but the wash sale does not help you out.\"","You likely received the shares as ordinary income for services of $10k, since they withheld taxes at granting. Separately, you likely had a short term capital loss on sale of $2k, since your holding period seems to have been under one year.","You wouldn't fill out a 1099, your employer would or possibly whoever manages the stock account. The 1099-B imported from E-Trade says I had a transaction with sell price ~$4,500. Yes. You sold ~$4500 of stock to pay income taxes. Both the cost basis and the sale price would probably be ~$4500, so no capital gain. This is because you received and sold the stock at the same time. If they waited a little, you could have had a small gain or loss. The remainder of the stock has a cost basis of ~$5500. There are at least two transactions here. In the future you may sell the remaining stock. It has a cost basis of ~$5500. Sale price of course unknown until then. You may break that into different pieces. So you might sell $500 of cost basis for $1000 with a ~$500 capital gain. Then later sell the remainder for $15,000 for a capital gain of ~$10,000.","You didn't mention a country, and precise rules will be different from country to country. The usual rules are: Shares that you didn't sell don't count. If you buy shares, there is no taxable gain until you sell them. When you sell shares, it is assumed that the shares you are selling are the last ones that you bought. In many places, if you sell shares, and buy the same shares back very quickly, the tax office may have rules to pretend you never sold the shares. For example in the UK, where a good amount of profit per year is tax free, you can't just sell enough shares to stay below your tax limit and then buy them back to take profits out of the shares you own. In your case, you made $30 profit on every share you sold, and that is what you will be taxed for in most countries. According to the rules of your country.","\"When a question is phrased this way, i.e. \"\"for tax purposes\"\" I'm compelled to advise - Don't let the tax tail wag the investing dog. In theory, one can create a loss, up to the $3K, and take it against ordinary income. When sold, the gains may be long term and be at a lower rate. In reality, if you are out of the stock for the required 30 days, it will shoot up in price. If you double up, as LittleAdv correctly offers, it will drop over the 30 days and negate any benefit. The investing dog's water bowl is half full.\"","I think what you're asking is, Can I buy 1000 shares of the stock at $1. For $1000. it goes up to $2, then sell 500 shares of the stock with proceeds of $1000, now having my original $1000 out of it, and still owning 500 shares. And that not create a taxable event. Since all I did was take my cost basis back out, and didn't collect any gains. And then I want to repeat that over and over. Nope, not in the USA anyway. Each sale is a separate taxable event. The first sale will have proceeds of $1000 and a cost basis of $500, with $500 of capital gains, and taxes owed at the time of that sale. The remaining stock will have a cost basis of $500 and proceeds of whatever you sell it for in the future. The next batch of stock will have a cost basis of whatever you pay for it. The only thing that works anything like the way you're thinking, is a Roth IRA... You can put your cost basis in, pull it back out, and put it back in again, all tax free. But every time your cost basis cycles in, that counts towed your contribution limits unless you do it fast enough to call it a rollover.","\"Assuming your investments aren't in any kind of tax-advantaged account (like an IRA), they are generally not tracked and you indeed may pay more taxes. What will likely change, however, is your cost basis. You only pay tax on the difference between the value of the investment when you sell it and its value when you bought it. There is no rule that says once you sell an investment and pay taxes on the gain, you will never again pay any taxes on any other investments you then buy with that money. If you own some investment, and it increases in value, and then you sell it, you had a capital gain and owe taxes (depending on your tax bracket, etc.). If you use the money to buy some other investment, and that increases in value, and then you sell it, you had another separate capital gain and again owe taxes. However, every time you sell, you only are subject to capital gains taxes on the gain, not the entire sale price. The value of the investment at the time you bought it is the cost basis. When you sell, you take the sale price and subtract the cost basis to find your gain, So suppose you bought $1000 worth of some ETF many years ago. It went up to $2000 and you sold it. You have $2000 in cash, but $1000 of that is your original money back, so your capital gain is $1000 and that is the amount on which you owe (or may owe) taxes. Suppose you pay 15% tax on this, as you suggest; that is $150, leaving you with $1850. Now suppose you buy another ETF with that. Your cost basis is now $1850. Suppose the investment now increases in value again to $2000. This time when you sell, you still have $2000 in cash, but this is now only $150 more than you paid, so you only owe capital gains taxes on that $150. (A 15% tax on that would be $22.50.) In that example you had one capital gain of $1000 and a second of $150 and paid a total of $172.50 in taxes (150 + 22.50). Suppose instead that you had held the original investment and it had increased in value to $2150 and you had then sold it. You would have a single capital gain of $1150 (2150 minus the original 1000 you paid). 15% of this would be the same $172.50 you paid under the other arrangement. So in essence you pay the same taxes either way. (This example is simplified, of course; in reality, the rate you pay depends on your overall income, so you could pay more if you sell a lot in a single year, since it could push you into a higher tax bracket.) So none of the money is \"\"tax exempt\"\", but each time you sell, you \"\"reset the counter\"\" by paying tax on your gain, and each time you buy, you start a new counter on the basis of whatever you pay for the investment. Assuming you're dealing with ordinary investment instruments like stocks and ETFs, this basis information is typically tracked by the bank or brokerage where you buy and sell them. Technically speaking it is your responsibility to track and report this when you sell an investment, and if you do complicated things like transfer securities from one brokerage to another you may have to do that yourself. In general, however, your bank/brokerage will keep track of cost basis information for you.\"","I sold it at 609.25 and buy again at 608.75 in the same day If you Sold and bought the same day, it would be considered as intra-day trade. Profit will be due and would be taxed at normal tax brackets. Edits Best Consult a CA. This is covered under Indian Accounting Standard AG51 The following examples illustrate the application of the derecognition principles of this Standard. (e) Wash sale transaction. The repurchase of a financial asset shortly after it has been sold is sometimes referred to as a wash sale. Such a repurchase does not preclude derecognition provided that the original transaction met the derecognition requirements. However, if an agreement to sell a financial asset is entered into concurrently with an agreement to repurchase the same asset at a fixed price or the sale price plus a lender's return, then the asset is not derecognised. This is more relevant now for shares/stocks as Long Term Capital Gains are tax free, Long Term Capital Loss cannot be adjusted against anything. Short Term Gains are taxed differentially. Hence the transaction can be interpreted as tax evasion, professional advise is recommended. A simple way to avoid this situation; sell on a given day and buy it next or few days later.","Eric is right regarding the tax, i.e. ordinary income on discount, cap gain treatment on profit whether long term or short. I would not let the tax tail wag the investing dog. If you would be a holder of the stock, hold on, if not, sell. You are considering a 10-15% delta on the profit to make the decision. Now. I hear you say your wife hasn't worked which potentially puts you in a lower bracket this year. I wrote Topping off your bracket with a Roth Conversion which would help your tax situation long term. Simply put, you convert enough Traditional IRA (or 401(k) money) to use up some of the current bracket you are in, but not hit the next. This may not apply to you, depending on whether you have retirement funds to do this. Note - The cited article offers numbers for a single person, but illustrates the concept. See the tax table for the marginal rates that would apply to you.","Assuming that taxes were withheld when you received the options, you would now only owe tax on the profit from the sale of the stock. The cost basis would be whatever you bought the stock for (the strike price of the options in this case), and the profit will be the total amount received from the sale minus the total cost of those shares. Since you bought the stock more than one year ago, you will get taxed at the long-term capital gains rate of 15% (unless you are in the 39.6% tax bracket, in which case the rate is 20%). As with all tax advice on this site, you need to check with a tax specialist when you actually file, but that should give you a rough indication of what your tax liability is.","The sale of shares on vesting convolutes matters. In a way similar to how reinvested dividends are taxed but the newly purchased fund shares' basis has to be increased, you need to be sure to have the correct per share cost basis. It's easy to confuse the total RSU purchase with the correct numbers, only what remained. The vesting stock is a taxable event, ordinary income. You then own the stock at that cost basis. A sale after that is long or short term and the profit is the to extent it exceeds that basis. The fact that you got these shares in 2013 means you should have paid the tax then. And this is part two of the process. Of course the partial sale means a bit of math to calculate the basis of what remained.","Since the 2 existing answers addressed the question as asked. Let me offer a warning. You have 10,000 options at $1. You've worked four years and the options are vested. The stock is worth $101 when you get a job offer (at another company) which you accept. So you put up $10k and buy the shares. At this moment, you put up $10K for stock worth $1.01M, a $1M profit and ordinary income. You got out of the company just in time. For whatever reason, the stock drops to $21 and at tax time you realize the $1M gain was ordinary income, but now the $800k loss is a capital loss, limited to $3000/yr above capital gains. In other words you have $210k worth of stock but a tax bill on $1M. This is not a contrived story, but a common one from the dotcon bubble. It's a warning that 'buy and hold' has the potential to blow up in your face, even if the shares you buy retain some value.","Yes, if the call expires worthless, leaving you with stock. Then you can exercise your put when the stock goes below put strike price.","It was not 100% clear if you have held all of these stocks for over a year. Therefore, depending on your income tax bracket, it might make sense to hold on to the stock until you have held the individual stock for a year to only be taxed at long-term capital gains rates. Also, you need to take into account the Net Investment Income Tax(NIIT), if your current modified adjusted income is above the current threshold. Beyond these, I would think that you would want to apply the same methodology that caused you to buy these in the first place, as it seems to be working well for you. 2 & 3. No. You trigger a taxable event and therefore have to pay capital gains tax on any gains. If you have a loss in the stock and repurchase the stock within 30 days, you don't get to recognize the loss and have to add the loss to your basis in the stock (Wash Sales Rules).","ISOs (incentive stock options) can be closed out in a cashless transaction. Say the first round vests, 25,000 shares. The stock is worth $7 but your option is to buy at $5 as you say. The broker executes and sells, you get $50,000, with no up front money. Edit based on comment below - you know they vest over 4 years, but how long before they expire? It stands to reason the longer you are able to hold them, the better a chance the company succeeds, and the price rises. The article Understanding employer-granted stock options (PDF) offers a nice discussion of different scenarios supporting my answer.","Note that you're asking about withholding, not about taxing. Withholding doesn't mean this is exactly the tax you'll pay: it means they're withholding a certain amount to make sure you pay taxes on it, but the tax bill at the end of the year is the same regardless of how you choose to do the withholding. Your tax bill may be higher or lower than the withholding amount. As far as tax rate, that will be the same regardless - you're just moving the money from one place to the other. The only difference would be that your tax is based on total shares under the plan - meaning that if you buy 1k shares, for example, at $10, so $1,500 discounted income, if you go the payroll route you get (say) $375 withheld. If you go the share route, you either get $375 worth of stock (so 38 shares) withheld (and then you would lose out on selling that stock, meaning you don't get quite as much out of it at the end) or you would ask them to actually buy rather more shares to make up for it, meaning you'd have a slightly higher total gain. That would involve a slightly higher tax at the end of it, of course. Option 1: Buy and then sell $10000 worth, share-based withholding. Assuming 15% profit, and $10/share at both points, then buy/sell 1000 shares, $1500 in profit to take into account, 38 shares' worth (=$380) withheld. You put in $8500, you get back $9620, net $1120. Option 2: Buy and then sell $13500 worth, share based withholding. Same assumptions. You make about $2000 in pre-tax profit, meaning you owe about $500 in tax withholding. Put in $11475, get back $13000, net $1525. Owe 35% more tax at the end of the year, but you have the full $1500 to spend on whatever you are doing with it. Option 3: Buy and then sell $1000 worth, paycheck withholding. You get the full $10000-$8500 = $1500 up front, but your next paycheck is $375 lighter. Same taxes as Option 1 at the end of the year.","The tax cost at election should be zero. The appreciation is all capital gain beyond your basis, which will be the value at election. IRC §83 applies to property received as compensation for services, where the property is still subject to a substantial risk of forfeiture. It will catch unvested equity given to employees. §83(a) stops taxation until the substantial risk of forfeiture abates (i.e. no tax until stock vests) since the item is revocable and not yet truly income. §83(b) allows the taxpayer to make a quick election (up to 30 days after transfer - firm deadline!) to waive the substantial risk of forfeiture (e.g. treat shares as vested today). The normal operation of §83 takes over after election and the taxable income is generally the value of the vested property minus the price paid for it. If you paid fair market value today, then the difference is zero and your income from the shares is zero. The shares are now yours for tax purposes, though not for legal purposes. That means they are most likely a capital asset in your hands, like other stocks you own or trade. The shares will not be treated as compensation income on vesting, and vesting is not a tax matter for elected shares. If you sell them, you get capital gain (with tax dependent on your holding period) over a basis equal to FMV at the election. The appreciation past election-FMV will be capital gain, rather than ordinary income. This is why the §83(b) election is so valuable. It does not matter at this point whether you bought the restricted shares at FMV or at discount (or received them free) - that only affects the taxes upon §83(b) election.","I like C. Ross and MrChrister's advice to not be heavily weighted in one stock over the long run, especially the stock of your employer. I'll add this: One thing you really ought to find out – and this is where your tax advisor is likely able to help – is whether your company's stock options plan use qualified incentive stock options (ISO) or non-qualified stock options (NQO or NSO). See Wikipedia - Incentive stock option for details. From my understanding, only if your plan is a qualified (or statutory) ISO and you hold the shares for at least 1 year of the date of exercise and 2 years from the date of the option grant could your gain be considered a long-term capital gain. As opposed to: if your options are non-qualified, then your gain may be considered ordinary income no matter how long you wait – in which case there's no tax benefit to waiting to cash out. In terms of hedging the risk if you do choose to hold long, here are some ideas: Sell just enough stock at exercise (i.e. taking some tax hit up front) to at least recover your principal, so your original money is no longer at risk, or If your company has publicly listed options – which is unlikely, if they are very small – then you could purchase put options to insure against losses in your stock. Try a symbol lookup at the CBOE. Note: Hedging with put options is an advanced strategy and I suggest you learn more and seek advice from a pro if you want to consider this route. You'll also need to find out if there are restrictions on trading your employer's public stock or options – many companies have restrictions or black-out periods on employee trading, especially for people who have inside knowledge.","The difference is ordinary income. If the price drops and you sell for exactly what you paid, you have an income of D and a capital loss of D which usually cancel each other, but not always. For example, if you already have over $3000 in losses, this loss won't help you, it will carry forward. The above changes a bit if you hold the stock for 2 years after the beginning of the purchase period. If sold between your purchase price and fair market the day you bought, the gain is only the difference, no gain to fair market + loss. Pretty convoluted. Your company should have provided you with a brief FAQ / Q&A to explain this. My friends at Fairmark have an article that explains the ESPP process clearly, Tax Reporting for Qualifying Dispositions of ESPP Shares.","As far as I know, the AMT implications are the same for a privately held company as for one that is publicly traded. When I was given my ISO package, it came with a big package of articles on AMT to encourage me to exercise as close to the strike price as possible. Remember that the further the actual price at the time of purchase is from the strike price, the more the likely liability for AMT. That is an argument for buying early. Your company should have a common metric for determining the price of the stock that is vetted by outside sources and stable from year to year that is used in a similar way to the publicly traded value when determining AMT liability. During acquisitions stock options often, from what I know of my industry, at least, become options in the new company's stock. This won't always happen, but its possible that your options will simply translate. This can be valuable, because the price of stock during acquisition may triple or quadruple (unless the acquisition is helping out a very troubled company). As long as you are confident that the company will one day be acquired rather than fold and you are able to hold the stock until that one day comes, or you'll be able to sell it back at a likely gain, other than tying up the money I don't see much of a downside to investing now.","Assuming US. The only con that I know of is that hassle factor. You have to remember to sell when you get the new shares, and your taxes become a bit more complicated; the discount that you receive is taxed as ordinary income, and then any change in the price of the stock between when you receive it and you sell it will be considered a capital gain or loss. It's not hard to account for properly if you keep good records.","\"The wash sale rule only applies when the sale in question is at a loss. So the rule does not apply at all to your cases 3, 4, 7, 8, 11, 12, 15, and 16, which all start with a gain. You get a capital gain at the first sale and then a separately computed gain / loss at the second sale, depending on the case, BUT any gain or loss in the IRA is not a taxable event due to the usual tax-advantaged rules for the IRA. The wash sale does not apply to \"\"first\"\" sales in your IRA because there is no taxable gain or loss in that case. That means that you wouldn't be seeking a deduction anyway, and there is nothing to get rolled into the repurchase. This means that the rule does not apply to 1-8. For 5-8, where the second sale is in your brokerage account, you have a \"\"usual\"\" capital gain / loss as if the sale in the IRA didn't happen. (For 1-4, again, the second sale is in the IRA, so that sale is not taxable.) What's left are 9-10 (Brokerage -> IRA) and 13-14 (Brokerage -> Brokerage). The easier two are 13-14. In this case, you cannot take a capital loss deduction for the first sale at a loss. The loss gets added to the basis of the repurchase instead. When you ultimately close the position with the second sale, then you compute your gain or loss based on the modified basis. Note that this means you need to be careful about what you mean by \"\"gain\"\" or \"\"loss\"\" at the second sale, because you need to be careful about when you account for the basis adjustment due to the wash sale. Example 1: All buys and sells are in your brokerage account. You buy initially at $10 and sell at $8, creating a $2 loss. But you buy again within the wash sale window at $9 and sell that at $12. You get no deduction after the first sale because it's wash. You have a $1 capital gain at the second sale because your basis is $11 = $9 + $2 due to the $2 basis adjustment from wash sale. Example 2: Same as Example 1, except that final sale is at $8 instead of at $12. In this case you appear to have taken a $2 loss on the first buy-sell and another $1 loss on the second buy-sell. For taxes however, you cannot claim the loss at the first sale due to the wash. At the second sale, your basis is still $11 (as in Example 1), so your overall capital loss is the $3 dollars that you might expect, computed as the $8 final sale price minus the $11 (wash-adjusted) basis. Now for 9-10 (Brokerage->IRA), things are a little more complicated. In the IRA, you don't worry about the basis of individual stocks that you hold because of the way that tax advantages of those accounts work. You do need to worry about the basis of the IRA account as a whole, however, in some cases. The most common case would be if you have non-deductable contributions to your traditional IRA. When you eventually withdraw, you don't pay tax on any distributions that are attributable to those nondeductible contributions (because you already paid tax on that part). There are other cases where basis of your account matters, but that's a whole question in itself - It's enough for now to understand 1. Basis in your IRA as a whole is a well-defined concept with tax implications, and 2. Basis in individual holdings within your account don't matter. So with the brokerage-IRA wash sale, there are two questions: 1. Can you take the capital loss on the brokerage side? 2. If no because of the wash sale, does this increase the basis of your IRA account (as a whole)? The answer to both is \"\"no,\"\" although the reason is not obvious. The IRS actually put out a Special Bulletin to answer the question specifically because it was unclear in the law. Bottom line for 9-10 is that you apparently are losing your tax deduction completely in that case. In addition, if you were counting on an increase in the basis of your IRA to avoid early distribution penalties, you don't get that either, which will result in yet more tax if you actually take the early distribution. In addition to the Special Bulletin noted above, Publication 550, which talks about wash sale rules for individuals, may also help some.\"","You are long the puts. By exercising them you force the underlying stock to be bought from you at your strike price. Let's say your strike it $100 and the stock is currently $25. Buy 100 shares and exercise 1 (bought/long) put. That gives you $7500 of new money, so do the previous sentence over again in as many 'units' as you can.","\"If you bought them, you can sell them. That does not preclude you from buying again later. You might get yourself into a situation where you need to account for a so-called \"\"wash sale\"\" on your taxes, but your broker should calculate that and report it on your 1099-B at the end of the year. There's nothing illegal about this though - It's just a required step in the accounting of capital gains for tax purposes.\"","\"According to page 56 of the 2015 IRS Publication 550 on Investment Income and Expenses: Wash sales. Your holding period for substantially identical stock or securities you acquire in a wash sale includes the period you held the old stock or securities. It looks like the rule applies to stocks and other securities, including options. It seems like the key is \"\"substantially identical\"\". For your brokerage / trading platform to handle these periods correctly for reporting to IRS, it seems best to trade the same security instead of trying to use something substantially identical.\"","\"You are thinking about it this way: \"\"The longer I wait to exericse, the more knowledge and information I'll have, thus the more confidence I can have that I'll be able to sell at a profit, minimizing risk. If I exercise early and still have to wait, there may never be a chance I can sell at a profit, and I'll have lost the money I paid to exercise and any tax I had to pay when I exercised.\"\" All of that is true. But if you exercise early: The fair market value of the stock will probably be lower, so you may pay less income tax when you exercise. (This depends on your tax situation. Currently, ISO exercises affect your AMT.) If the company goes through a phase where the value is unusually high, you'll be able to sell and still get the tax benefits because you exercised earlier. You avoid the nightmare scenario where you leave the company (voluntarily or not) and can't afford to exercise your options because of the tax implications. In many realistic cases, exercising earlier means less risk. Imagine if you're working at a company that is privately held and you expect to be there for another year or so. You are very optimistic about the company, but not sure when it will IPO or get acquired and that may be several years off. The fair market value of the stock is low now, but may be much higher in a year. In this case, it makes a lot of sense to exercise now. The cost is low because the fair market value is low so it won't result in a huge tax bill. And then when you leave in a year, you won't have to choose between forfeiting your options or borrowing money to pay the much higher taxes due to exercise them then.\"","Is wash rule applicable for this? No - because you made a gain on the sale. You paid $13,500 for the stock and sold it for $14,250. The wash rule prevents you from claiming a loss if you buy the same stock again within 30 days. You have no loss to claim, so the rule does not apply.","If you have held the stocks longer than a year, then there is no tax apart from the STT that is already deducted when you sell the shares. If you have held the stock for less than a year, you would have to pay short term capital gains at the rate of 15% on the profit. Edit: If you buy different shares from the total amount or profits, it makes no difference to taxes.","\"There are different schools of thought. You can ask the IRS - and it would not surprise me if you got different answers on different phone calls. One interpretation is that a put is not \"\"substantially identical\"\" to the disposed stock, therefore no wash is triggered by that sale. However if that put is exercised, then you automatically purchase the security, and that is identical. As to whether the IRS (or your brokerage firm) recognizes the identical security when it falls out of an option, I can't say; but technically they could enforce it because the rule is based on 30 days and a \"\"substantially identical\"\" stock or security. In this interpretation (your investor) would probably at least want to stay out of the money in choosing a strike price, to avoid exercise; however, options are normally either held or sold, rather than be exercised, until at or very close to the expiration date (because time value is left on the table otherwise). So the key driver in this interpretation would be expiration date, which should be at least 31 days out from the stock sale; and it would be prudent to sell an out of the money put as well, in order to avoid the wash sale trigger. However there is also a more unfavorable opinion - see fairmark.com/capgain/wash/wsoption.htm where they hold that a \"\"deep in the money\"\" option is an immediate trigger (regardless of exercise). This article is sage, in that they say that the Treasury (IRS) may interpret an option transaction as a wash if it's ballpark to being exercisable. And, if the IRS throws paper, it always beats each of paper, rock and scissors :( A Schwab article (\"\"A Primer on Wash Sales\"\") says, if the CUSIPs match, bang, wash. This is the one that they may interpret unfavorably on in any case, supporting Schwab's \"\"play it safe\"\" position: \"\"3. Acquire a contract or option to buy substantially identical stock or securities...\"\" . This certainly nails buying a call. As to selling a put, well, it is at least conceivable that an IRS official would call that a contract to buy! SO it's simply not a slam dunk; there are varying opinions that you might describe as ranging from \"\"hell no\"\" to \"\"only if blatant.\"\" If you can get an \"\"official\"\" predetermination, or you like to go aggressive in your tax strategy, there's that; they may act adversely, so Caveat Taxfiler!\"","If the $882 is reported on W2 as your income then it is added to your taxable income on W2 and is taxed as salary. Your basis then becomes $5882. If it is not reported on your W2 - you need to add it yourself. Its salary income. If its not properly reported on W2 it may have some issues with FICA, so I suggest talking to your salary department to verify it is. In any case, this is not short term capital gain. Your broker may or may not be aware of the reporting on W2, and if they report the basis as $5000 on your 1099, when you fill your tax form you can add a statement that it is ESPP reported on W2 and change the basis to correct one. H&R Block and TurboTax both support that (you need to chose the correct type of investment there).","This will work as intended, but there's another point to consider. In the US, the tax rate on proceeds from stock sales is higher for short term holdings, which are defined as held for less than one year. Both rates vary based on your income. Bracket numbers are for fiscal year 2014, filing as single. The difference between short and long term capital gains tax in the US is a minimum of ten percentage points, and works out to 15 percentage points on average. This is substantial. If you won't be reporting much income the year you move to the US (say because you only worked for a portion of the year) it is decidedly to your advantage to wait and sell the stocks in the US, to get that sweet 0% rate. At a minimum, you should hold the position for a year if you sell and rebuy, from a tax optimization perspective. Two caveats:","\"You owe no tax on the option transaction in 2015 in this case. How you ultimately get taxed depends on how you dispose of the position. If it expires, then you will have a short-term capital gain on the option position at expiration. If it is exercised, then the option is \"\"gone\"\" for tax purposes and your basis in the underlying is adjusted. From IRS Publication 550: If a call you write is exercised and you sell the underlying stock, increase your amount realized on the sale of the stock by the amount you received for the call when figuring your gain or loss. The gain or loss is long term or short term depending on your holding period of the stock. In your case, this will be a long-term capital gain. For completeness, if you buy to cover the option back from the market before expiration or exercise, then it is also a short-term capital gain. Also, keep in mind that this all assumes that this covered call is \"\"qualified\"\" so that it does not count as a straddle. You can find more about that in Pub 550. https://www.irs.gov/publications/p550/ch04.html#en_US_2014_publink100010630 All of this is for US tax purposes.\"","\"For restricted stock, I think the vesting date meets the requirements of the second wash sale trigger from IRS Pub 550: Wash Sales: Acquire substantially identical stock or securities in a fully taxable trade I base this on these two quotes from IRS Pub 525: Restricted Property: any income from the property, or the right to use the property, is included in your income as additional compensation in the year you receive the income or have the right to use the property. - Until the property becomes substantially vested, it is owned by the person who makes the transfer to you, usually your employer. So on the vest date: The transfer is taxable Ownership is transferred to you That seems close enough to \"\"a fully taxable trade\"\" for me. Maybe this changes if you pay the tax on the stock on the grant date. See Pub 525: Restricted Property: Choosing to include in income for year of transfer. Obviously, if this is important you should consult your tax advisor. Technicalities aside, I don't think it passes the sniff test. You're getting salable shares when the restricted stock vests. If you're selling other shares at a loss within 30 days of the vesting date, that smells like a wash sale to me.\"","In the US, it is perfectly legal to execute what you've described. However, since you seem to be bullish on the stock, why sell? How do you KNOW the price will continue downwards? Aside from the philosophical reasoning, there can be significant downside to selling shares when you're expecting to repurchase them in the near future, i.e. you will lose your cost basis date which determines whether or not your trade is short-term (less than 1 year) or long-term. This cost basis term will begin anew once you repurchase the shares. IF you are trying to tax harvest and match against some short-term gains, tax loss harvesting prior to long-term treatment may be suitable. Otherwise, reexamine your reasoning and reconsider the sale at all, since you are bullish. Remember: if you could pick where stock prices are headed in the short term with any degree of certainty you are literally one of a kind on this planet ;-). In addition, do remember that in a tax deferred account (e.g. IRA) the term of your trade is typically meaningless but your philosophical reasoning for selling should still be examined.","Assuming you purchased shares that were granted at a discount under the ESPP the 50% exemption would not apply. It's pretty unusual to see a US parent company ESPP qualify for the 110(1)(d) exemption, as most US plans provide for a discount","You mentioned that the 1099B that reports this sale is for 2014, which means that you got the proceeds in 2014. What I suspect happened was that the employer reported this on the next available paycheck, thus reporting it in the 2015 period. If this ends up being a significant difference for you, I'd argue the employer needs to correct both W2s, since you've actually received the money in 2014. However, if the difference for you is not substantial I'd leave it as is and remember that the employer will not know of your ESPP sales until at least several days later when the report from the broker arrives. If you sell on 12/31, you make it very difficult for the employer to account correctly since the report from the broker arrives in the next year.","RSU are taxed when vested, based on their value at that point, as salary. If you don't sell to cover, you need to pay the taxes, if you sell to cover - you sell the portion that is worth the taxes (brokers do that automatically, and remit the taxes on your behalf). Once paid your taxes, it becomes a regular stock position - short term gains if you sell within a year after vesting, long term if you wait for more than a year. The consideration whether to wait or sell is as with any other investment, them being previously restricted has no meaning. You calculate the gain for each position, so the fact that you have more than one position is not a problem. The RSU income and the taxes paid will appear on your W2, so when the broker reports proceeds, you can show the basis and thus calculate the gain. See this question for some useful answers on how to report the RSU sale on your taxes.","\"What could the tax issues with the IRS be? I thought (but not totally certain) that the tax treatment of an ISO option was based on difference between exercise price and FMV at the time of the sale. This is an accounting issue. There were times not so long ago that companies actually did these things on purpose, to boost the stock grant values for their employees (especially senior employees). They would give a grant but date it with an earlier date with a more favorable valuation. This is called \"\"backdating\"\", and it brought companies down and CEOs into criminal courts. In addition, only reasonable compensation is allowed as a deduction for the company, and incorrectly set strike price may be deemed unreasonable. Thus, the deduction the company would take for your compensation can be denied, leading to loss of tax benefit (this was also a weapon used by the IRS at the time against companies doing backdating). Last but not least, company that has intentions of going public cannot allow itself such a blatant disregard of the accounting rules. Even if the mistake was not made on purpose (as it sounds), it is a mistake that has to be corrected. What should I take into consideration to determine whether a 27% increase in shares is a fair exchange for an increase in 270% increase in strike price. Did you know the strike price when you signed the contract? Was it a consideration for you? For most people, the strike price is determined at the board approval, since the valuations are not public and are not disclosed before you actually join, which is already after you've agreed to the terms. So basically, you agreed to get 100 sheets of toilet paper, and instead getting 127 sheets. So you're getting 27 sheets more than you initially agreed to. Why are you complaining? In other words, options are essentially random numbers which are quite useless. By the time you get to exercise them, they'll be diluted through a bunch of additional financing rounds, and their value will be determined for real only after the IPO, or at least when your company's stocks are trading OTC with some reasonable volume. Until then - it's just a number with not much of a meaning. The FMV does matter for early exercise and 83(b) election, if that is an option, but even then - I doubt you can actually negotiate anything.\"","In the US this is considered a sale, and the proceeds will be taxed as if you've sold the stocks in any other way. The decision about the treatment (capital, ordinary, etc) is dependent on what kind of stock that is, how you acquired it, how long have you held it, etc. If it is a regular stock that you bought as an investment and held it for more than a year - then it will likely to be a capital gain treatment. However, this is only relevant for the US taxation. Since you're a UK person, you should also check how it is handled in the UK, which may or may not be different.","the short answer is: No. you do not HAVE to pay $125,000.00 at the end of your first year. that is only the amount IF you decide to exercise. *fine print: But if you leave or get let go (which happens quite frequently at top tier Silicon Valley firms), you lose anything that you don't exercise. you're basically chained by a pair of golden handcuffs. in other words, you're stuck with the company until a liquidation event such as IPO or secondary market selling (you can expect to spend a few years before getting anything out of your stocks) Now, it's hard to say whether or not to exercise at that time, especially given we don't know the details of the company. you only should exercise if you foresee your quitting, anticipate getting fired, AND you strongly feel that stock price will keep going up. if you're in SF bay, i believe you have 10 years until your options expire (at which point they are gone forever, but that's 10 years and usually companies IPO well within 7 years). i would recommend you get a very good tax advisor (someone that understands AMT and stock options tax loopholes/rules like the back of their hand). I'm going to take a long shot and assume that you got an amazing offer and that you got a massive amount of ISOs from them. so i'll give this as an advice - first, congrats on owning a lot on paper today if you're still there. you chose to be an early employee at a good tech company. However, you should be more worried about AMT (alternative min tax). you will get enslaved by the IRS if you exercise your shares and can't pay the AMT. suppose, in your fictional scenario, your stock options increase 2x, on paper. you now own $1 Mil in options. but you would be paying $280000 in taxes if you chose to exercise them right now. Now, unless you can sell that IMMEDIATELY on the secondary market, i would highly advise you not to exercise right now. only exercise your ISOs when you can turn around and sell them (either waiting for IPO, or if company offers secondary market approved trading).","With the Employee Stock Purchase Plan stock, if you sell it in less than 18 months from exercise, the discount you bought it at (normally 15%) becomes taxable income and included in your W-2.","I often sell covered calls, and if they are in the money, let the stock go. I am charged the same fee as if I sold online ($9, I use Schwab) which is better than buying back the option if I'm ok to sell the stock. In my case, If the option is slightly in the money, and I see the options are priced well, i.e. I'd do another covered call anyway, I sometimes buy the option and sell the one a year out. I prefer to do this in my IRA account as the trading creates no tax issue.","Firstly 795 is not even. Secondly - generally you would pay tax on the sale of the 122 shares, whether you buy them back or not, even one minute later, has nothing to do with it. The only reason this would not create a capital gains event is if your country (which you haven't specified) has some odd rules or laws about this that I, and most others, have never heard of before.","Let me restate question for clarity. Facts: Question: Are there any taxes for this transaction? Answer: (Added improvements provided by Eric) Generally No. Generally, it is not considered income until you sell and the sale price is greater than the purchase price. But with currency differences, there is an additional complication, section 988 rules apply. It could result in ordinary income or loss.","When you sell your primary residence, you are required to capitalize any loss or gain at that point; you do not carry over your loss or gain (as you might in an investment property). As such, the timing of the purchase of the next house is not relevant in this discussion: you gained however much you gained already. This changed from the other (rollover) method in 1997 (see this bankrate article for more details.) However, as discussed in IRS Tax Topic 701, you can exclude up to $250,000 (single or filing separately) or $500,000 (married filing jointly) of gain if it is your primary residence and meets a few requirements (mostly, that you owned it for at least 2 years in the past 5 years, and similarly used it as your main home for at least 2 years of the past 5 years). So given you reported 25% gain, as long as your house is under a million dollars or so, you're fine (and if it's over a million dollars, you probably should be paying a CPA for this stuff). For California state tax, it looks like it is the same (see this Turbotax forum answer for a good explanation and links to this California Franchise Tax Board guide which confirms it: For sale or exchanges after May 6, 1997, federal law allows an exclusion of gain on the sale of a personal residence in the amount of $250,000 ($500,000 if married filing jointly). The taxpayer must have owned and occupied the residence as a principal residence for at least 2 of the 5 years before the sale. California conforms to this provision. However, California taxpayers who served in the Peace Corps during the 5 year period ending on the date of the sale may reduce the 2 year period by the period of service, not to exceed 18 months.","\"The $100,000 is taxed separately as \"\"ordinary income\"\". The $350,000 is taxed at long-term capital gains of 15%. Capital gains is not taxed at 20% until $415,050. Even though $100,000 + 350,000 = $450,000, only $350,000 can be taxed at capital gains. The total ordinary income tax burden will be $31,986 if single, in California. Caveat: By creating a holdings corporation (C-corp), you can section 351 that $100,000 into the C-corp for tax deferment, which won't be taxed until you take money from the corporation. Since you will hold 100% of the voting stock, all distributions will be considered pro rata. Additionally, you can issue yourself a dividend under the rules of 26 USC §§243-246 (a greather-than-80% shareholder who receives a dividend can write-off 100% of said dividend). As long as that dividend doesn't trigger §§1.243-246 of The Regulations by keeping the distribution just under 10% of E&P i.e. $10,000. Wages are deductible against basis so pay yourself $35,000 and keep $55,000 in the corporation and you can decrease the total liabilities down to $22,000 from $31,000, which includes the CA franchise tax. You don't have to pay yourself any money out a corporation to use the money.\"","\"You have a sequence of questions here, so a sequence of answers: If you stopped at the point where you had multiple wins with a net profit of $72, then you would pay regular income tax on that $72. It's a short term capital gain, which does not get special tax treatment, and the fact that you made it on multiple transactions does not matter. When you enter your next transaction that takes the hypothetical loss the question gets more complicated. In either case, you are paying a percentage on net gains. If you took a two year view in the second case and you don't have anything to offset your loss in the second year, then I guess you could say that you paid more tax than you won in the total sequence of trades over the two years. Although you picked a sequence of trades where it does not appear to play, if you're going to pursue this type of strategy then you are likely at some point to run into a case where the \"\"wash sale\"\" rules apply, so you should be aware of that. You can find information on this elsewhere on this site and also, for example, here: http://www.marketwatch.com/story/understanding-the-wash-sale-rules-2015-03-02 Basically these rules require you to defer recording a loss under some circumstances where you have rapid wins and losses on \"\"substantially identical\"\" securities. EDIT A slight correction, you can take part of your losses in the second year even if you have no off-setting gain. From the IRS: If your capital losses exceed your capital gains, the amount of the excess loss that you can claim on line 13 of Form 1040 to lower your income is the lesser of $3,000, ($1,500 if you are married filing separately)\"","If you do this, you own a stock worth $1, with a basis of $2. The loss doesn't get realized until the shares are sold. Of course, we hope you see the stock increase above that price, else, why do this?","Stuff I wish I had known, based on having done the following: Obtained employment at a startup that grants Incentive Stock Options (ISOs); Early-exercised a portion of my options when fair market value was very close to my strike price to minimize AMT; made a section 83b) election and paid my AMT up front for that tax year. All this (the exercise and the AMT) was done out of pocket. I've never see EquityZen or Equidate mention anything about loans for your exercise. My understanding is they help you sell your shares once you actually own them. Stayed at said startup long enough to have my exercised portion of these ISOs vest and count as long term capital gains; Tried to sell them on both EquityZen and Equidate with no success, due to not meeting their transaction minimums. Initial contact with EquityZen was very friendly and helpful, and I even got a notice about a potential sale, but then they hired an intern to answer emails and I remember his responses being particularly dismissive, as if I was wasting their time by trying to sell such a small amount of stock. So that didn't go anywhere. Equidate was a little more friendly and was open to the option of pooling shares with other employees to make a sale in order to meet their minimum, but that never happened either. My advice, if you're thinking about exercising and you're worried about liquidity on the secondary markets, would be to find out what the minimums would be for your specific company on these platforms before you plunk any cash down. Eventually brought my request for liquidity back to the company who helped connect me with an interested external buyer, and we completed the transaction that way. As for employer approval - there's really no reason or basis that your company wouldn't allow it (if you paid to exercise then the shares are yours to sell, though the company may have a right of first refusal). It's not really in the company's best interest to have their shares be illiquid on the secondary markets, since that sends a bad signal to potential investors and future employees.","Yes, the net effect is zero. If you own zero shares by Nov 30, for example, and don't buy any more shares by 12/31, the year is done, and nothing left to account for.","I'm not sure where people keep getting this idea, but I see it come up a lot. Anyway, you pay capital gains taxes when you sell an investment that has appreciated. It makes no difference when/if you reinvest the money or what you invest it in. If you are afraid of the tax burden you can minimize it by: 1) Selling a stock that you have held longer than a year to get the lower long-term rate. 2) Sell a stock that hasn't appreciated that much and therefore doesn't have a lot of gains to tax. 3) Sell a stock that's below purchase price (i.e. at a loss) to offset any short term gains.","If it is your primary residence and you lived there continuously and for more than 2 years out of the last 5 - then you can exclude the gain under the IRC Sec. 121. In this case, you'll pay no taxes on your gain. If the property has been a rental or you haven't lived there long enough, the rules become more complicated but you may still be able to exclude some portion of the gain, even all of it, depends on the situation. So it doesn't look like 1031 exchange is good for you here, you don't want to carry excluded gain - you want to recognize it and get the tax benefit. However, refinancing after purchase with cash-out money affects the deductability of the loan interest. You can only deduct interest on money used to buy, not cash-out portion. I believe there's a period (60 days IIRC) during which you can do the cash-out refinance and still count it as purchase money, but check with a licensed tax advier (EA/CPA licensed in your State).","\"Check how long you have to hold the stock after buying it. If you can sell reasonably soon and your company is reasonably stable, you're unlikely to lose and/or be taxed and/or pay enough in fees to lose more than the 30% \"\"free money\"\" they're giving you. Whether you hold it longer than the minimum time depends partly on whether you think you can better invest the money elsewhere, and partly on how you feel about having both your salary and (part of) your investments tied to the company's success? The company would like you to \"\"double down\"\" that way, in the theory that it may make you mors motivated... but some investment councelors would advise keeping that a relatively small part of your total investments, basically for the same reasons you are always advised to diversify.\""],"string":"[\n \"I've never heard of an employer offering this kind of arrangement before, so my answer assumes there is no special tax treatment that I'm not aware of. Utilizing the clause is probably equivalent to exercising some of your options, selling the shares back to your employer at FMV, and then exercising more options with the proceeds. In this case if you exercise 7500 shares and sell them back at FMV, your proceeds would be 7500 x $5 = $37,500, with which you could exercise the remaining 12,500 options. The tax implications would be (1) short-term capital gains of 7500 x ($5 - $3) = $15,000 and (2) AMT income of 12,500 x ($5 - $3) = $25,000, assuming you don't sell the shares within the calendar year.\",\n \"\\\"Alternatively you could exercise 12000 shares for $36000 and immediately sell 7200 shares to recover your exercise price. Then you use the remaining 4800 share to pay the exercise price of the remaining 8000 options. Both scenarios are equivalent but may have different fees associated, so it's worth checking the fine print. Tax wise: The above example is \\\"\\\"cash neutral before taxes\\\"\\\". The taxes associated with these transaction are substantial, so it's highly recommended to talk with a tax adviser. \\\"\\\"cash neutral after taxes\\\"\\\" depends highly on your specific tax situation.\\\"\",\n \"\\\"I've bought ISO stock over they years -- in NYSE traded companies. Every time I've done so, they've done what's called \\\"\\\"sell-to-cover\\\"\\\". And the gubmint treats the difference between FMV and purchase price as if it's part of your salary. And for me, they've sold some stock extra to pay estimated taxes. So, if I got this right... 20,000 shares at $3 costs you 60,000 to buy them. In my sell-to-cover at 5 scenario: did I get that right? Keeping only 4,000 shares out of 20,000 doesn't feel right. Maybe because I've always sold at a much ratio between strike price and FMV. Note I made some assumptions: first is that the company will sell some of the stock to pay the taxes for you. Second is your marginal tax rate. Before you do anything check these. Is there some reason to exercise immediately? I'd wait, personally.\\\"\",\n \"The difference is whether your options qualify as incentive stock options (ISOs), or whether they are non-qualifying options. If your options meet all of the criteria for being ISOs (see here), then (a) you are not taxed when you exercise the options. You treat the sale of the underlying stock as a long term capital gain, with the basis being the exercise price (S). There is something about the alternative minimum tax (AMT) as they pertain to these kinds of options. Calculating your AMT basically means that your ISOs are treated as non-qualifying options. So if your exercise bumps you into AMT territory, too bad, so sad. If you exercise earlier, you do get a clock ticking, as you put it, because one of the caveats of having your options qualify as ISOs is that you hold the underlying stock (a) at least two years after you were granted the options and (b) at least one year after you exercise the options.\",\n \"That is a weird one. Typically one never needs to layout cash to exercise an option. One would only choose to use option 1, if one is seeking to buy the options. This would occur if an employee was leaving a company, would no longer be eligible for the ISO (and thereby forfeit any option grant), and does not want to exercise the options. However, what is not weird is the way income tax works, you are taxed on your income in the US. I assume you are talking about the US here. So if you exercise 10K shares, if under either option, you will be taxed on the profit from those share. Profit = (actual price - strike price) * shares - fees\",\n \"As I recall, the gain for ISOs is considered ordinary income, and capital losses can only negate up to $3000 of this each year. If you exercised and held the stock, you have ordinary income to the exercise price, and cap gain above that, if you hold the stock for two years. EDIT - as noted below, this answer works for USians who found this question, but not for the OP who is Canadian, or at least asked a question at it relates to Canada's tax code.\",\n \"You realise a capital gain as soon as you sell the stock. At that point, you will have to pay taxes on the profits when you fill in your tax return. The fact that you used the money to subsequently purchase other stocks is not relevant, unless you sell those stocks within the same tax year. For example, purchase $5000 of stock A in 2010. Sell for $6000 in 2010. Purchase $6000 of stock B in 2010. Sell stock B for $6500 in 2010. Purchase $6500 of stock C in 2010. Sell stock C for $7000 in 2011. You owe capital gains on ($6000 - $5000) + ($6500 - $6000) = $1500 for tax year 2010. You owe capital gains on ($7000 - $6500) = $500 for 2011.\",\n \"In the question you cited, I assumed immediate exercise, that is why you understood that I was talking about 30 days after grant. I actually mentioned that assumption in the answer. Sec. 83(b) doesn't apply to options, because options are not assets per se. It only applies to restricted stocks. So the 30 days start counting from the time you get the restricted stock, which is when you early-exercise. As to the AMT, the ISO spread will be considered AMT income in the year of the exercise, if you file the 83(b). For NQSO it is ordinary income. That's the whole point of the election. You can find more detailed explanation on this website.\",\n \"It is a very complex question to answer and it really depends. However, here are some points to consider and verify with your accountant or tax expert. First, if you exercise now, the downside is that you may be subject to Alternative Minimum Tax (AMT) based on the theoretical gain on the stock (current price minus your strike price) when you file your tax return. The other obvious downside is that if the company goes nowhere, you are stuck with the stock and potentially lose money. The benefit is that the clock starts ticking for long-term capital gains so if you sell after 1 year from the exercise date (or your company gets sold) then the gain would be taxed as long-term capital gain which is taxed at a lower rate. If your company were to get sold, the gains are not necessarily taxed as ordinary income. If it is a cash transaction then most likely (unless you have exercised and held the stock for over a year). However, if it is a stock sale, then you may end up getting stock of the company that acquires your company. In that situation, the tax event would be when you sell the new shares vs. the time of company sale. Finally, whether to exercise or not also depends on how you feel about the prospects of the company. If you think they will be sold or of more value down the road then exercising makes sense. If you are not sure then you could hedge your bets by only exercising a portion of it. You should definitely consult with a financial advisor or a tax consultant regarding these matters.\",\n \"Does this technically mean that she has to pay AMT on $400,000? Yes. Well, not exactly 400,000. She paid $1 per share, so 390,000. And if so, is %28 the AMT for this sum? (0.28 * $400,000 = $112,000)? Or does she have to include her salary on top of that before calculating AMT? (Suppose in the fake example that her salary is $100,000 after 401k). All her income is included in calculating the AMT, minus the AMT exemption amount. The difference between the regular calculated tax and the calculated AMT is then added to the regular tax. Note that some deductions allowed for the regular calculation are not allowed for the AMT calculation. How does California state tax come into play for this? California has its own AMT rules, and in California any stock option exercise is subject to AMT, unless you sell the stock in the same year. Here's a nice and easy to understand write up on the issue from the FTB. When would she have to pay the taxes for this huge AMT? Tax is due when income is received (i.e.: when you exercise the options). However, most people don't actually pay the tax then, but rather discover the huge tax liability when they prepare to submit their tax return on April 15th. To avoid that, I'd suggest trying to estimate the tax and adjust your withholding using form W4 so that by the end of the year you have enough withheld. Suppose in the worst case, the company goes completely under. Does she get her massive amounts of tax back? Or if it's tax credit, where can I find more info on this? That would be capital loss, and only up to $3K a year of capital loss can be deducted from the general income. So it will continue offsetting other capital gains or being deducted $3K a year until it all clears out. Is there any way to avoid this tax? (Can she file an 83b election?) You asked and answered. Yes, filing 83(b) election is the way to go to avoid this situation. This should be done within 30 days of the grant, and submitted to the IRS, and a copy attached to the tax return of the grant year. However, if you're considering exercise - that ship has likely sailed a long time ago. Any advice for Little Susie on how she can even afford to pay that much tax on something she can't even sell anytime soon? Don't exercise the options? Should she take out a loan? (e.g. I've heard that in the extreme case, you can find angel investors who are willing to pay all your taxes/strike price, but want 50% of your equity? I've also heard that you can sell your illiquid shares on SecondMarket?) Is she likely to get audited by IRS for pulling something like this? You can take a loan secured by shares you own, there's nothing illegal in it. If you transfer your shares - the IRS only cares about the taxes being paid, however that may be illegal depending on the terms and the conditions of the grant. You'll need to talk to a lawyer about your situation. I suggest talking to a licensed tax adviser (EA/CPA licensed in your State) about the specifics concerning your situation.\",\n \"\\\"No, because you didn't lose anything. When you exercise ISO \\\"\\\"at loss\\\"\\\" you're buying stock without a discount, that's it.\\\"\",\n \"\\\"I don't think its a taxable event since no income has been constructively received (talking about the RSU shareholders here). I believe you're right with the IRC 1033, and the basis of the RSU is the basis of the original stock option (probably zero). Edit: see below. However, once the stock becomes vested - then it is a taxable event (not when the cash is received, but when the chance of forfeiture diminishes, even if the employee doesn't sell the stock), and is an ordinary income, not capital. That is my understanding of the situation, do not consider it as a tax advice in any way. I gave it a bit more though and I don't think IRC 1033 is relevant. You're not doing any exchange or conversion here, because you didn't have anything to convert to begin with, and don't have anything after the \\\"\\\"conversion\\\"\\\". Your ISO's are forfeited and no longer available, basically - you treat them as you've never had them. What happened is that you've received RSU's, and you treat them as a regular RSU grant, based on its vesting schedule. The tax consequences are exactly as I described in my original response: you recognize ordinary income on the vested stocks, as they vest. Your basis is zero (i.e.: the whole FMV of the stock at the time of vesting is your ordinary income). It should also be reflected in your W2 accordingly.\\\"\",\n \"When you get into reading Revenue Rulings and Treasury Regulations - I'd suggest hiring a professional to do that for you. Especially since you also need to assure that the new stock does indeed qualify as QSBS. However, from the revenue ruling you quoted it doesn't sound like there's any other requirement other than reporting the subsequent purchase as a loss on your schedule D. I wouldn't know, however, if there are subsequent/superseding revenue rulings on the matter since 1998. Professional tax adviser (EA/CPA licensed in your State) would have the means and the ability to research this and give you a proper advice.\",\n \"\\\"As I recall from the documentation presented to me, any gain over the strike price from an ISO stock option counts as a long term capital gain (for tax purposes) if it's held from 2 years from the date of grant and 1 year from the date of exercise. If you're planning to take advantage of that tax treatment, exercising your options now will start that 1-year countdown clock now as well, and grant you a little more flexibility with regards to when you can sell in the future. Of course, no one's renewed the \\\"\\\"Bush tax cuts\\\"\\\" yet, so the long-term capital gains rate is going up, and eventually it seems they'll want to charge you Medicare on those gains as well (because they can... ), soo, the benefit of this tax treatment is being reduced... lovely time to be investing, innnit?\\\"\",\n \"Elaborating on kelsham's answer: You buy 100 shares XYZ at $1, for a total cost of $100 plus commissions. You sell 100 shares XYZ at $2, for a total income of $200 minus commissions. Exclusive of commissions, your capital gain is $100 for this trade, and you will pay taxes on that. Even if you proceed to buy 200 shares XYZ at $1, reinvesting all your income from the sale, you still owe taxes on that $100 gain. The IRS has met this trick before.\",\n \"As littleadv suggested, you are mixing issues. If you have earned income and are able to deduct an IRA deposit, where those actual dollars came from is irrelevant. The fact that you are taking proceeds from one transaction to deposit to the IRA is a booking entry on your side, but the IRS doesn't care. By the way, when you get that $1000 gain, the broker doesn't withhold tax, so if you take the entire $1000 and put it in the IRA, you owe $150 on one line, but save $250 elsewhere, and are still $100 to the positive on your tax return.\",\n \"For the employee, this is an identical tax situation to an at-the-money option purchase. They're buying an asset with a specific cost basis. For the company, you are just issuing shares from treasury as authorized... debit cash, credit additional paid-in-capital and equity. There is no tax consequence for this money received.\",\n \"Options granted by an employer to an employee are generally different that the standardized options that are traded on public stock option exchanges. They may or may not have somewhat comparable terms, but generally the terms are fairly different. As a holder of an expiring employee option, you can only choose to exercise it by paying the specified price and receiving the shares, or not. It is common that the exercise system will allow you to exercise all the shares and simultaneously sell enough of the acquired shares to cover the option cost of all the shares, thus leaving you owning some of the stock without having to spend any cash. You will owe taxes on the gain on exercise, regardless of what you do with the stock. If you want to buy publicly-traded options, you should consider that completely separately from your employer options other than thinking about how much exposure you have to your company situation. It is very common for employees to be imprudently overexposed to their company's stock (through direct ownership or options).\",\n \"This may be a good or a bad deal, depending on the fair market value (FMV) of the stock at the time of exercise. Let's assume the FMV is $6, which is the break even point. In general this would probably be treated as two transactions. So overall you would be cash neutral, but your regular tax income would be increased by $30,000 and your AMT income by $60,000.\",\n \"Does this make sense? I'm concerned that by buying shares with post tax income, I'll have ended up being taxed twice or have increased my taxable income. ... The company will then re-reimburse me for the difference in stock price between the vesting and the purchase share price. Sure. Assuming you received a 100-share RSU for shares worth $10, and your marginal tax rate is 30% (all made up numbers), either: or So you're in the same spot either way. You paid $300 to get $1,000 worth of stock. Taxes are the same as well. The full value of the RSU will count as income either way, and you'll either pay tax on the gains of the 100 shares in your RSU our you'll pay tax on gains on the 70 shares in your RSU and the 30 shares you bought. Since they're reimbursing you for any difference the cost basis will be the same (although you might get taxed on the reimbursement, but that should be a relatively small amount). This first year I wanted to keep all of the shares, due to tax reasons and because believe the share price will go up. I don't see how this would make a difference from a tax standpoint. You're going to pay tax on the RSU either way - either in shares or in cash. how does the value of the shares going up make a difference in tax? Additionally I'm concerned that by doing this I'm going to be hit by my bank for GBP->USD exchange fees, foreign money transfer charges, broker purchase fees etc. That might be true - if that's the case then you need to decide whether to keep fighting or decide if it's worth the transaction costs.\",\n \"\\\"if you buy back the now ITM calls, then you will have a short term loss. That pair of transactions is independent, from a tax perspective, of your long position (which was being used as \\\"\\\"collateral\\\"\\\" in the very case that occurred). I can see your tax situation and can see the logic of taking a short term loss to balance a short term gain. Referring to D Stanley's answer, #2 and #3 are not the same because you are paying intrinsic value in the options and the skew in #2, whereas #3 has no intrinsic value. Of course, because you can't know the future, the stock price could move higher or lower between #2 and #3. #1 presumes the stock continues to climb.\\\"\",\n \"\\\"You mention \\\"\\\"early exercise\\\"\\\" in your title, but you seem to misunderstand what early exercise really means. Some companies offer stock options that vest over a number of years, but which can be exercised before they are vested. That is early exercise. You have vested stock options, so early exercise is not relevant. (It may or may not be the case that your stock options could have been early exercised before they vested, but regardless, you didn't exercise them, so the point is moot.) As littleadv said, 83(b) election is for restricted stocks, often from exercising unvested stock options. Your options are already vested, so they won't be restricted stock. So 83(b) election is not relevant for you. A taxable event happen when you exercise. The point of the 83(b) election is that exercising unvested stock options is not a taxable event, so 83(b) election allows you to force it to be a taxable event. But for you, with vested stock options, there is no need to do this. You mention that you want it not to be taxable upon exercise. But that's what Incentive Stock Options (ISOs) are for. ISOs were designed for the purpose of not being taxable for regular income tax purposes when you exercise (although it is still taxable upon exercise for AMT purposes), and it is only taxed when you sell. However, you have Non-qualified Stock Options. Were you given the option to get ISOs at the beginning? Why did your company give you NQSOs? I don't know the specifics of your situation, but since you mentioned \\\"\\\"early exercise\\\"\\\" and 83(b) elections, I have a hypothesis as to what might have happened. For people who early-exercise (for plans that allow early-exercise), there is a slight advantage to having NQSOs compared to ISOs. This is because if you early exercise immediately upon grant and do 83(b) election, you pay no taxes upon exercise (because the difference between strike price and FMV is 0), and there are no taxes upon vesting (for regular or AMT), and if you hold it for at least 1 year, upon sale it will be long-term capital gains. On the other hand, for ISOs, it's the same except that for long-term capital gains, you have to hold it 2 years after grant and 1 year after exercise, so the period for long-term capital gains is longer. So companies that allow early exercise will often offer employees either NQSOs or ISOs, where you would choose NQSO if you intend to early-exercise, or ISO otherwise. If (hypothetically) that's what happened, then you chose wrong because you got NQSOs and didn't early exercise.\\\"\",\n \"Technically yes, in most cases you'll probably get all the AMT you pay for exercising in-the-money incentive stock options (ISOs) credited back to you. Practically, however, inflation could significantly reduce the value of the money when you get it back. Remember you can only recover the differential between regular income tax and the tentative minimum tax (TMT) each year. Depending on your situation, that could be a few thousand dollars or less, in which case $50k of AMT credit would take a while to use up. However, as you point out, if you end up selling your shares you'll likely use up all your AMT credit that year. So yes, you'd probably get your $50k of AMT back, but a lot of people don't have that much to tie up in taxes for an extended period of time.\",\n \"Is this possible and will it have the intended effect? From the US tax perspective, it most definitely is and will. Is my plan not very similar to Wash Sale? Yes, except that wash sale rules apply for losses, not gains. In any case, since you're not a US tax resident, the US wash sale rules won't apply to you.\",\n \"I assume I can/will need to file an 83(b) election, in order to avoid tax repercussions? What exactly will this save me from? 83(b) election is for restricted stock grants, not for stock purchases. For restricted stocks, you generally pay income tax when they vest. For startups the price difference between the time of the grant and the time of the vesting can be astronomical and by choosing 83(b) you effectively pay income tax on the value of the grant instead of the value of the vest. Then, you only pay capital gains tax on the difference between the sale price and the grant value when you sell. In your case you're exercising an option, i.e.: you're buying a stock, so 83(b) is irrelevant. What you will pay though is the tax on the difference between the strike price and the stock FMV (unless the stocks you end up buying are restricted - which would have been the case if you exercised your options early, but I don't think is going to be the case now). What steps should I take to (in the eyes of the law) guarantee that the board has received my execution notice? The secretary of the board is a notorious procrastinator and can be very unorganized. You should read what the grant contract/company policy says on that. Ask the HR/manager. Usually, a certified letter with return receipt should be enough, but you should verify the format, the address, and the timeframe.\",\n \"To explain the capital gains part of the question, non qualified stock options (NSOs) are always treated like earned income and have payroll taxes withheld. It's advantageous for the company to issue these because they can deduct them as expenses just as they do your salary. Articles talking about capital gains would probably be referring to incentive stock options (ISOs) or possibly even restricted stock units (RSUs). If you were granted the option to buy the stock and/or hold it for a period of time, then the stock options could be treated as capital gains, short-term gains if you held them for less than a year, and long-term gains if you held them for more than a year. This payment for your NSOs is exactly like a cash bonus. The withholding follows the same guidelines. You may wish to look at what this will mean for your annual salary and adjust your W-4 withholding up or down as appropriate depending on whether the 25% federal withholding rate is more or less than what you think your final marginal rate will be with this bonus included in your annual salary.\",\n \"Yes (most likely). If you are exchanging investments for cash, you will have to pay tax on that - disregarding capital losses, capital loss carryovers, AGI thresholds, and other special rules (which there is no indication of in your question). You will have to calculate the gain on Schedule D, and report that as income on your 1040. This is the case whether you buy different or same stocks.\",\n \"Your three options are: Options 2 and 3 are obviously identical (other than transaction costs), so if you want to keep the stock, go for option 1, otherwise, go for option 3 since you have the same effect as option 2 with no transaction costs. The loss will likely also offset some of the other short term gains you mentioned.\",\n \"You would not owe any taxes in the 2015 year, unless you got exercised and called away in 2015. The premium would be short term capital gains barring some other exception I'm not aware of, and if you retain a gain on the underlying shares then that would still be long term capital gains. If it gets called in say April 2016, is the premium+profit+dividends all long term capital gains for the year 2016? The profits are long term capital gains and the premium serves to lower your cost basis, dividends have their own conditions so you'll have to do separate research on that, fortunately they'll likely be negligible compared to the potential capital gains and options premium.\",\n \"Brokerage->Brokerage 13-16 The loss from the previous purchase will be added to the cost basis of the security for the second purchase. Since you sold it at a loss again it would increase your losses. Your loss from the first sale will be disallowed. Your loss will be added to the cost basis of the next purchase. Your gains will be taxed on the total of the cost basis which will reduce your gains. Which you will taxed 'less'. Your gains will be taxed. Your loss is allowed. You will be taxed on both. Wash Sales really only applies to losses. If you sell for gain, the tax man will be happy to take his share. From my understanding, it does not matter if it is IRA or Brokerage, the wash sale rule affects them all. Check this link: http://www.marketwatch.com/story/understanding-the-wash-sale-rules-2015-03-02\",\n \"What you want is a cashless transaction. It's part of the normal process. My employer gives me 1000 options at $1, I never need to come up with the money, the shares are bought and sold in one set of transactions, and if the stock is worth $10, I see $9000 less tax withholding, hit the account. No need for me to come up with that $1000.\",\n \"\\\"You have a Solo 401(k). You can fund it with cash, or I believe, with shares of your own company. You can't pull in other assets such as the ISOs from another employer. I see why that's desirable, but it's not allowed. You wrote \\\"\\\"this will mitigate all tax complications with employee stock options.\\\"\\\" But - you can't transfer the ISOs from your job into your Solo 401(k). As littleadv notes, it's self dealing. Once the ISO is exercised there's no hiding the gain into that 401(k).\\\"\",\n \"\\\"Yes, you would pay no taxes at the time of purchase. In fact, this is not uncommon. Many early employees of startup companies are offered stock options that can be \\\"\\\"early-exercised\\\"\\\" (exercised before they vest). In such a case, an employee who exercises immediately upon grant (and assuming the exercise price of the option is the FMV at the time of grant) purchases the stock at FMV, and there no no tax paid when filing 83(b) election.\\\"\",\n \"In response to your points #1 and #2: In general, yes it is true that capital gains are only subject to half one's marginal rate of income tax. That doesn't mean 50% of the gain is due as tax... rather, it means that if one's marginal tax rate (tax bracket) on the next $10K would have been, say, 32%, then one is taxed on the gain at 16%. (The percentages are examples, not factual.) However, because these are employee stock options, the tax treatment is different than for a capital gain! Details: On the Federal tax return are lines for reporting Security option benefits (Line 101) and Security options deductions (Line 249). The distinction between a regular capital gain and an employee stock option benefits is important. In many cases the net effect may be the same as a capital gain, but the income is characterized differently and there are cases where it matters. Somebody who is about to or has realized employee stock option benefits should seek professional tax advice. In response to your next two points: No, one cannot transfer a capital gain or other investment income into a TFSA immediately after-the-fact in order to receive the tax-free benefits of the TFSA on that income. Only income and gains earned within a TFSA are free from tax – i.e. The options would have to have been in the TFSA before being exercised. Once a gain or other investment income has been realized in a non-sheltered account, it is considered taxable. The horse has already left the barn, so to speak! However, despite the above, there is another strategy available: One can create an offsetting deduction by contributing some of the realized gain into an RRSP. The RRSP contribution, assuming room is available, would yield a tax deduction to offset some tax due on the gain. However, the RRSP only defers income tax; upon withdrawal of funds, ordinary income tax is due (hopefully, at a lower marginal rate in retirement.) There is no minimum amount of time that money or assets have to be inside a TFSA to benefit from the tax-free nature of the account. However, there are limits on how much money you can move into a TFSA in any given year, and many folks weren't aware of the rules. p.s. Let me add once more that this is a case where I suggest seeking professional tax advice.\",\n \"Here is how it should look: 100 shares of restricted stock (RSU) vest. 25 shares sold to pay for taxes. W2 (and probably paycheck) shows your income going up by 100 shares worth and your taxes withheld going up by 25 shares worth. Now you own 75 shares with after-tax money. If you stop here, there would be no stock sale and no tax issues. You'd have just earned W2 income and withheld taxes through your W2 job. Now, when you sell those 75 shares whether it is the same day or years later, the basis for those 75 shares is adjusted by the amount that went in to your W2. So if they were bought for $20, your adjusted basis would be 75*$20.\",\n \"I was not able to find any authority for the opinion you suggest. Wash sale rules should, IMHO, apply. According to the regulations, you attribute the newly purchased shares to the oldest sold shares for the purposes of the calculation of the disallowed loss and cost basis. (c) Where the amount of stock or securities acquired within the 61-day period is less than the amount of stock or securities sold or otherwise disposed of, then the particular shares of stock or securities the loss from the sale or other disposition of which is not deductible shall be those with which the stock or securities acquired are matched in accordance with the following rule: The stock or securities acquired will be matched in accordance with the order of their acquisition (beginning with the earliest acquisition) with an equal number of the shares of stock or securities sold or otherwise disposed of. You can resort to the claim that you have not, in fact, entered into the contract within 30 days, but when you gave the instructions to reinvest dividends. I don't know if such a claim will hold, but to me it sounds reasonable. This is similar to the rules re short sales (in (g) there). In this case, wash sale rules will not apply (unless you instructed to reinvest dividends within the 30 days prior to the sale). But I'd ask a tax professional if such a claim would hold, talk to a EA/CPA licensed in your state.\",\n \"Stock awards by employers are treated and taxed as salary. I.e.: you pay ordinary rate income tax, FICA taxes, State taxes etc. The fact that you got your salary in shares and not cash is irrelevant for tax purposes. Once you got the shares and paid your taxes on them, the treatment is the same as if you got the salary and immediately bought the shares. Holding period for capital gains tax purposes starts at the time you paid your taxes on the award, which is the time at which you get full ownership (i.e.: vesting time, for the restricted stocks). When you sell these stocks - you treat the sale as any other stock sale: you check the holding period for capital gains tax rates, and you do not pay (or get refund) any FICA taxes on the sales transaction. So bottom line: You got $10K salary and you bought $10K worth of company stock, and you sold it at $8K half a year later. You have $10K wages income and $2K short term capital loss.\",\n \"You don't. When you sell them - your cost basis would be the price of the stock at which you sold the stocks to cover the taxes, and the difference is your regular capital gain.\",\n \"Yes, to change which stocks you owe you need to sell one and buy the other, which for tax purposes means taking the profit or loss accrued up to then. On the other hand this establishes a new baseline, so you will not be double-faced on those gains. It just makes a mess of this year's tax return, and forced you to set aside some if the money to cover that.\",\n \"Now assume these shares are vested, held for at least 1 year, and are then sold for $5 each. Everything I've read implies that the grantee now owes long-term capital gains taxes on the difference, which would be 10k * ($5 - $1). No. That's exactly what the SO is NQ for. Read more on the differences between ISO and NQSO here. Now assume these shares are vested, held for at least 1 year, and are then sold for $5 each. Everything I've read implies that the grantee now owes long-term capital gains taxes on the difference, which would be 10k * ($5 - $1). At this point you no longer have NQSO, you have RSU. If you filed 83(b) when you exercised, then you pay capital gains tax when they vest. If you didn't - its ordinary income to you. NQSO is a red herring here since once exercised they no longer exist. If you didn't file 83(b), then when the stock vests the difference between the FMV at vest and the money you spent on it when exercising (if any) is considered wages and taxed as ordinary income (+FICA etc). From that point the RSU becomes a regular stock investment and the capital gains clock starts ticking.\",\n \"To try to answer the three explicit questions: Every share of stock is treated proportionately: each share is assigned the same dollar amount of investment (1/176th part of the contribution in the example), and has the same discount amount (15% of $20 or $25, depending on when you sell, usually). So if you immediately sell 120 shares at $25, you have taxable income on the gain for those shares (120*($25-$17)). Either selling immediately or holding for the long term period (12-18 mo) can be advantageous, just in different ways. Selling immediately avoids a risk of a decline in the price of the stock, and allows you to invest elsewhere and earn income on the proceeds for the next 12-18 months that you would not otherwise have had. The downside is that all of your gain ($25-$17 per share) is taxed as ordinary income. Holding for the full period is advantageous in that only the discount (15% of $20 or $25) will be taxed as ordinary income and the rest of the gain (sell price minus $20 or $25) will be taxed at long-term capital gain tax rates, which generally are lower than ordinary rates (all taxes are due in the year you do sell). The catch is you will sell at different price, higher or lower, and thus have a risk of loss (or gain). You will never be (Federally) double taxed in any scenario. The $3000 you put in will not be taxed after all is sold, as it is a return of your capital investment. All money you receive in excess of the $3000 will be taxed, in all scenarios, just potentially at different rates, ordinary or capital gain. (All this ignores AMT considerations, which you likely are not subject to.)\",\n \"The top long-term capital gains tax rate will rise to 20% effective 1 Jan, 2011, unless Congress decides to do something about it before then. (Will they? Who knows!! There's been talk about it, but, well, it's Congress. They don't even know what they're going to do.) Anyway. The rules about when you can sell stock are mostly concerned with when you can realize a capital loss: if you sell a stock at a loss and then re-buy it for tax purposes within 30 days, it's a wash sale and not eligible for a deduction. However, I don't believe this applies to any stocks once you realize a gain - once you've realized the gain and paid your tax for it, it's all yours, locked in at whatever rate. Your replacement stock will be subject to short-term capital gains for the next year afterwards, and you might need to be careful with identifying the holding period on different lots of your stock, but I don't believe there will be any particular trouble. Please do not rely entirely on my advice and consult also with your tax preparer or lawyer. :) And the IRS documentation: Special Addendum for Nov/Dec 2012! Spoiler alert! Congress did indeed act: they extended the rates, but only temporarily, so now we're looking at tax hikes starting in 2013 instead, only the new top rate++ will be something like 23.8% on account of an extra 3.8% medicare tax on passive earnings (brought to you via Obamacare legislation). But the year and the rates' specifics aside, same thing still applies. And the Republican house and Democratic senate/President are still duking it out. Have fun. ++ 3.8% surtax applies to the lesser of (a) net investment income (b) income over $200,000 ($250k if married). 20% tax rate applies to people in the 15% income tax bracket for ordinary income or higher. Additional tax discounts for property held over 5 years may be available. Consult tax law and your favorite tax professional and prepare to be confused.\",\n \"\\\"Yes- you do not realize gains or losses until you actually sell the stock. After you sell the initial stocks/bonds you have realized the gain. When you buy the new, different stocks you haven't realized anything until you then sell those. There is one exception to this, called the \\\"\\\"Wash-Sale Rule\\\"\\\". From Investopedia.com: With the wash-sale rule, the IRS disallows a loss deduction from the sale of a security if a ‘substantially identical security' was purchased within 30 days before or after the sale. The wash-sale period is actually 61 days, consisting of the 30 days before and the 30 days after the date of the sale. For example, if you bought 100 shares of IBM on December 1 and then sold 100 shares of IBM on December 15 at a loss, the loss deduction would not be allowed. Similarly, selling IBM on December 15 and then buying it back on January 10 of the following year does not permit a deduction. The wash-sale rule is designed to prevent investors from making trades for the sole purpose of avoiding taxes.\\\"\",\n \"Yes. As long as the stock is in a taxable account (i.e. not a tax deferred retirement account) you'll pay gain on the profit regardless of subsequent purchases. If the sale is a loss, however, you'll risk delaying the claim for the loss if you repurchase identical shares within 30 days of that sale. This is called a wash sale.\",\n \"\\\"I was told by the lawyers there was no tax consequence because the two numbers were the same. That is correct. However, a tax professional tells me that since the start-up stock was \\\"\\\"realized\\\"\\\" there invokes a taxable event now. That is correct. I'm now led to believe I owe cap-gains tax on the entire 4 year vest this year That is incorrect. You owe capital gains tax on the sale of your startup stock. Which is accidentally the exact same amount you \\\"\\\"paid\\\"\\\" for the new unvested stocks. There's no taxable event with regards to the new stocks because the amount you paid for them was the amount you got for the old stocks. But you did sell the old stocks, and that is a taxable event.\\\"\",\n \"Don't let tax considerations be the main driver. That's generally a bad idea. You should keep tax in mind when making the decision, but don't let it be the main reason for an action. selling the higher priced shares (possibly at a loss even) - I think it's ok to do that, and it doesn't necessarily have to be FIFO? It is OK to do that, but consider also the term. Long term gain has much lower taxes than short term gain, and short term loss will be offsetting long term gain - means you can lose some of the potential tax benefit. any potential writeoffs related to buying a home that can offset capital gains? No, and anyway if you're buying a personal residence (a home for yourself) - there's nothing to write off (except for the mortgage interest and property taxes of course). selling other investments for a capital loss to offset this sale? Again - why sell at a loss? anything related to retirement accounts? e.g. I think I recall being able to take a loan from your retirement account in order to buy a home You can take a loan, and you can also withdraw up to 10K without a penalty (if conditions are met). Bottom line - be prepared to pay the tax on the gains, and check how much it is going to be roughly. You can apply previous year refund to the next year to mitigate the shock, you can put some money aside, and you can raise your salary withholding to make sure you're not hit with a high bill and penalties next April after you do that. As long as you keep in mind the tax bill and put aside an amount to pay it - you'll be fine. I see no reason to sell at loss or pay extra interest to someone just to reduce the nominal amount of the tax. If you're selling at loss - you're losing money. If you're selling at gain and paying tax - you're earning money, even if the earnings are reduced by the tax.\",\n \"I'm assuming this was a cashless exercise because you had income show up on your w-2. When I had a similar situation, I did the following: If you made $50,000 in salary and $10,000 in stock options then your W-2 now says $60,000. You'll record that on your taxes just like it was regular income. You'll also get a form that talks about your stock sale. But remember, you bought and sold the stock within seconds. Your forms will probably look like this: Bought stock: $10,000 Sold stock: $10,000 + $50 commission Total profit (loss): ($50) From the Turbotax/IRS view point, you lost $50 on the sale of the stock because you paid the commission, but the buy and sell prices were identical or nearly identical.\",\n \"\\\"There some specific circumstances when you would have a long-term gain. Option 1: If you meet all of these conditions: Then you've got a long-term gain on the stock. The premium on the option gets rolled into the capital gain on the stock and is not taxed separately. From the IRS: If a call you write is exercised and you sell the underlying stock, increase your amount realized on the sale of the stock by the amount you received for the call when figuring your gain or loss. The gain or loss is long term or short term depending on your holding period of the stock. https://www.irs.gov/publications/p550/ch04.html#en_US_2015_publink100010630 Option 2: If you didn't hold the underlying and the exercise of the call that you wrote resulted in a short position, you might also be able to get to a long-term gain by buying the underlying while keeping your short position open and then \\\"\\\"crossing\\\"\\\" them to close both positions after one year. (In other words, don't \\\"\\\"buy to cover\\\"\\\" just \\\"\\\"buy\\\"\\\" so that your account shows both a long and a short position in the same security. Your broker probably allows this, but if not you, could buy in a different account than the one with the short position.) That would get you to this rule: As a general rule, you determine whether you have short-term or long-term capital gain or loss on a short sale by the amount of time you actually hold the property eventually delivered to the lender to close the short sale. https://www.irs.gov/publications/p550/ch04.html#en_US_2015_publink100010586 Option 1 is probably reasonably common. Option 2, I would guess, is uncommon and likely not worthwhile. I do not think that the wash sale rules can help string along options from expiration to expiration though. Option 1 has some elements of what you wrote in italics (I find that paragraph a bit confusing), but the wash sale does not help you out.\\\"\",\n \"You likely received the shares as ordinary income for services of $10k, since they withheld taxes at granting. Separately, you likely had a short term capital loss on sale of $2k, since your holding period seems to have been under one year.\",\n \"You wouldn't fill out a 1099, your employer would or possibly whoever manages the stock account. The 1099-B imported from E-Trade says I had a transaction with sell price ~$4,500. Yes. You sold ~$4500 of stock to pay income taxes. Both the cost basis and the sale price would probably be ~$4500, so no capital gain. This is because you received and sold the stock at the same time. If they waited a little, you could have had a small gain or loss. The remainder of the stock has a cost basis of ~$5500. There are at least two transactions here. In the future you may sell the remaining stock. It has a cost basis of ~$5500. Sale price of course unknown until then. You may break that into different pieces. So you might sell $500 of cost basis for $1000 with a ~$500 capital gain. Then later sell the remainder for $15,000 for a capital gain of ~$10,000.\",\n \"You didn't mention a country, and precise rules will be different from country to country. The usual rules are: Shares that you didn't sell don't count. If you buy shares, there is no taxable gain until you sell them. When you sell shares, it is assumed that the shares you are selling are the last ones that you bought. In many places, if you sell shares, and buy the same shares back very quickly, the tax office may have rules to pretend you never sold the shares. For example in the UK, where a good amount of profit per year is tax free, you can't just sell enough shares to stay below your tax limit and then buy them back to take profits out of the shares you own. In your case, you made $30 profit on every share you sold, and that is what you will be taxed for in most countries. According to the rules of your country.\",\n \"\\\"When a question is phrased this way, i.e. \\\"\\\"for tax purposes\\\"\\\" I'm compelled to advise - Don't let the tax tail wag the investing dog. In theory, one can create a loss, up to the $3K, and take it against ordinary income. When sold, the gains may be long term and be at a lower rate. In reality, if you are out of the stock for the required 30 days, it will shoot up in price. If you double up, as LittleAdv correctly offers, it will drop over the 30 days and negate any benefit. The investing dog's water bowl is half full.\\\"\",\n \"I think what you're asking is, Can I buy 1000 shares of the stock at $1. For $1000. it goes up to $2, then sell 500 shares of the stock with proceeds of $1000, now having my original $1000 out of it, and still owning 500 shares. And that not create a taxable event. Since all I did was take my cost basis back out, and didn't collect any gains. And then I want to repeat that over and over. Nope, not in the USA anyway. Each sale is a separate taxable event. The first sale will have proceeds of $1000 and a cost basis of $500, with $500 of capital gains, and taxes owed at the time of that sale. The remaining stock will have a cost basis of $500 and proceeds of whatever you sell it for in the future. The next batch of stock will have a cost basis of whatever you pay for it. The only thing that works anything like the way you're thinking, is a Roth IRA... You can put your cost basis in, pull it back out, and put it back in again, all tax free. But every time your cost basis cycles in, that counts towed your contribution limits unless you do it fast enough to call it a rollover.\",\n \"\\\"Assuming your investments aren't in any kind of tax-advantaged account (like an IRA), they are generally not tracked and you indeed may pay more taxes. What will likely change, however, is your cost basis. You only pay tax on the difference between the value of the investment when you sell it and its value when you bought it. There is no rule that says once you sell an investment and pay taxes on the gain, you will never again pay any taxes on any other investments you then buy with that money. If you own some investment, and it increases in value, and then you sell it, you had a capital gain and owe taxes (depending on your tax bracket, etc.). If you use the money to buy some other investment, and that increases in value, and then you sell it, you had another separate capital gain and again owe taxes. However, every time you sell, you only are subject to capital gains taxes on the gain, not the entire sale price. The value of the investment at the time you bought it is the cost basis. When you sell, you take the sale price and subtract the cost basis to find your gain, So suppose you bought $1000 worth of some ETF many years ago. It went up to $2000 and you sold it. You have $2000 in cash, but $1000 of that is your original money back, so your capital gain is $1000 and that is the amount on which you owe (or may owe) taxes. Suppose you pay 15% tax on this, as you suggest; that is $150, leaving you with $1850. Now suppose you buy another ETF with that. Your cost basis is now $1850. Suppose the investment now increases in value again to $2000. This time when you sell, you still have $2000 in cash, but this is now only $150 more than you paid, so you only owe capital gains taxes on that $150. (A 15% tax on that would be $22.50.) In that example you had one capital gain of $1000 and a second of $150 and paid a total of $172.50 in taxes (150 + 22.50). Suppose instead that you had held the original investment and it had increased in value to $2150 and you had then sold it. You would have a single capital gain of $1150 (2150 minus the original 1000 you paid). 15% of this would be the same $172.50 you paid under the other arrangement. So in essence you pay the same taxes either way. (This example is simplified, of course; in reality, the rate you pay depends on your overall income, so you could pay more if you sell a lot in a single year, since it could push you into a higher tax bracket.) So none of the money is \\\"\\\"tax exempt\\\"\\\", but each time you sell, you \\\"\\\"reset the counter\\\"\\\" by paying tax on your gain, and each time you buy, you start a new counter on the basis of whatever you pay for the investment. Assuming you're dealing with ordinary investment instruments like stocks and ETFs, this basis information is typically tracked by the bank or brokerage where you buy and sell them. Technically speaking it is your responsibility to track and report this when you sell an investment, and if you do complicated things like transfer securities from one brokerage to another you may have to do that yourself. In general, however, your bank/brokerage will keep track of cost basis information for you.\\\"\",\n \"I sold it at 609.25 and buy again at 608.75 in the same day If you Sold and bought the same day, it would be considered as intra-day trade. Profit will be due and would be taxed at normal tax brackets. Edits Best Consult a CA. This is covered under Indian Accounting Standard AG51 The following examples illustrate the application of the derecognition principles of this Standard. (e) Wash sale transaction. The repurchase of a financial asset shortly after it has been sold is sometimes referred to as a wash sale. Such a repurchase does not preclude derecognition provided that the original transaction met the derecognition requirements. However, if an agreement to sell a financial asset is entered into concurrently with an agreement to repurchase the same asset at a fixed price or the sale price plus a lender's return, then the asset is not derecognised. This is more relevant now for shares/stocks as Long Term Capital Gains are tax free, Long Term Capital Loss cannot be adjusted against anything. Short Term Gains are taxed differentially. Hence the transaction can be interpreted as tax evasion, professional advise is recommended. A simple way to avoid this situation; sell on a given day and buy it next or few days later.\",\n \"Eric is right regarding the tax, i.e. ordinary income on discount, cap gain treatment on profit whether long term or short. I would not let the tax tail wag the investing dog. If you would be a holder of the stock, hold on, if not, sell. You are considering a 10-15% delta on the profit to make the decision. Now. I hear you say your wife hasn't worked which potentially puts you in a lower bracket this year. I wrote Topping off your bracket with a Roth Conversion which would help your tax situation long term. Simply put, you convert enough Traditional IRA (or 401(k) money) to use up some of the current bracket you are in, but not hit the next. This may not apply to you, depending on whether you have retirement funds to do this. Note - The cited article offers numbers for a single person, but illustrates the concept. See the tax table for the marginal rates that would apply to you.\",\n \"Assuming that taxes were withheld when you received the options, you would now only owe tax on the profit from the sale of the stock. The cost basis would be whatever you bought the stock for (the strike price of the options in this case), and the profit will be the total amount received from the sale minus the total cost of those shares. Since you bought the stock more than one year ago, you will get taxed at the long-term capital gains rate of 15% (unless you are in the 39.6% tax bracket, in which case the rate is 20%). As with all tax advice on this site, you need to check with a tax specialist when you actually file, but that should give you a rough indication of what your tax liability is.\",\n \"The sale of shares on vesting convolutes matters. In a way similar to how reinvested dividends are taxed but the newly purchased fund shares' basis has to be increased, you need to be sure to have the correct per share cost basis. It's easy to confuse the total RSU purchase with the correct numbers, only what remained. The vesting stock is a taxable event, ordinary income. You then own the stock at that cost basis. A sale after that is long or short term and the profit is the to extent it exceeds that basis. The fact that you got these shares in 2013 means you should have paid the tax then. And this is part two of the process. Of course the partial sale means a bit of math to calculate the basis of what remained.\",\n \"Since the 2 existing answers addressed the question as asked. Let me offer a warning. You have 10,000 options at $1. You've worked four years and the options are vested. The stock is worth $101 when you get a job offer (at another company) which you accept. So you put up $10k and buy the shares. At this moment, you put up $10K for stock worth $1.01M, a $1M profit and ordinary income. You got out of the company just in time. For whatever reason, the stock drops to $21 and at tax time you realize the $1M gain was ordinary income, but now the $800k loss is a capital loss, limited to $3000/yr above capital gains. In other words you have $210k worth of stock but a tax bill on $1M. This is not a contrived story, but a common one from the dotcon bubble. It's a warning that 'buy and hold' has the potential to blow up in your face, even if the shares you buy retain some value.\",\n \"Yes, if the call expires worthless, leaving you with stock. Then you can exercise your put when the stock goes below put strike price.\",\n \"It was not 100% clear if you have held all of these stocks for over a year. Therefore, depending on your income tax bracket, it might make sense to hold on to the stock until you have held the individual stock for a year to only be taxed at long-term capital gains rates. Also, you need to take into account the Net Investment Income Tax(NIIT), if your current modified adjusted income is above the current threshold. Beyond these, I would think that you would want to apply the same methodology that caused you to buy these in the first place, as it seems to be working well for you. 2 & 3. No. You trigger a taxable event and therefore have to pay capital gains tax on any gains. If you have a loss in the stock and repurchase the stock within 30 days, you don't get to recognize the loss and have to add the loss to your basis in the stock (Wash Sales Rules).\",\n \"ISOs (incentive stock options) can be closed out in a cashless transaction. Say the first round vests, 25,000 shares. The stock is worth $7 but your option is to buy at $5 as you say. The broker executes and sells, you get $50,000, with no up front money. Edit based on comment below - you know they vest over 4 years, but how long before they expire? It stands to reason the longer you are able to hold them, the better a chance the company succeeds, and the price rises. The article Understanding employer-granted stock options (PDF) offers a nice discussion of different scenarios supporting my answer.\",\n \"Note that you're asking about withholding, not about taxing. Withholding doesn't mean this is exactly the tax you'll pay: it means they're withholding a certain amount to make sure you pay taxes on it, but the tax bill at the end of the year is the same regardless of how you choose to do the withholding. Your tax bill may be higher or lower than the withholding amount. As far as tax rate, that will be the same regardless - you're just moving the money from one place to the other. The only difference would be that your tax is based on total shares under the plan - meaning that if you buy 1k shares, for example, at $10, so $1,500 discounted income, if you go the payroll route you get (say) $375 withheld. If you go the share route, you either get $375 worth of stock (so 38 shares) withheld (and then you would lose out on selling that stock, meaning you don't get quite as much out of it at the end) or you would ask them to actually buy rather more shares to make up for it, meaning you'd have a slightly higher total gain. That would involve a slightly higher tax at the end of it, of course. Option 1: Buy and then sell $10000 worth, share-based withholding. Assuming 15% profit, and $10/share at both points, then buy/sell 1000 shares, $1500 in profit to take into account, 38 shares' worth (=$380) withheld. You put in $8500, you get back $9620, net $1120. Option 2: Buy and then sell $13500 worth, share based withholding. Same assumptions. You make about $2000 in pre-tax profit, meaning you owe about $500 in tax withholding. Put in $11475, get back $13000, net $1525. Owe 35% more tax at the end of the year, but you have the full $1500 to spend on whatever you are doing with it. Option 3: Buy and then sell $1000 worth, paycheck withholding. You get the full $10000-$8500 = $1500 up front, but your next paycheck is $375 lighter. Same taxes as Option 1 at the end of the year.\",\n \"The tax cost at election should be zero. The appreciation is all capital gain beyond your basis, which will be the value at election. IRC §83 applies to property received as compensation for services, where the property is still subject to a substantial risk of forfeiture. It will catch unvested equity given to employees. §83(a) stops taxation until the substantial risk of forfeiture abates (i.e. no tax until stock vests) since the item is revocable and not yet truly income. §83(b) allows the taxpayer to make a quick election (up to 30 days after transfer - firm deadline!) to waive the substantial risk of forfeiture (e.g. treat shares as vested today). The normal operation of §83 takes over after election and the taxable income is generally the value of the vested property minus the price paid for it. If you paid fair market value today, then the difference is zero and your income from the shares is zero. The shares are now yours for tax purposes, though not for legal purposes. That means they are most likely a capital asset in your hands, like other stocks you own or trade. The shares will not be treated as compensation income on vesting, and vesting is not a tax matter for elected shares. If you sell them, you get capital gain (with tax dependent on your holding period) over a basis equal to FMV at the election. The appreciation past election-FMV will be capital gain, rather than ordinary income. This is why the §83(b) election is so valuable. It does not matter at this point whether you bought the restricted shares at FMV or at discount (or received them free) - that only affects the taxes upon §83(b) election.\",\n \"I like C. Ross and MrChrister's advice to not be heavily weighted in one stock over the long run, especially the stock of your employer. I'll add this: One thing you really ought to find out – and this is where your tax advisor is likely able to help – is whether your company's stock options plan use qualified incentive stock options (ISO) or non-qualified stock options (NQO or NSO). See Wikipedia - Incentive stock option for details. From my understanding, only if your plan is a qualified (or statutory) ISO and you hold the shares for at least 1 year of the date of exercise and 2 years from the date of the option grant could your gain be considered a long-term capital gain. As opposed to: if your options are non-qualified, then your gain may be considered ordinary income no matter how long you wait – in which case there's no tax benefit to waiting to cash out. In terms of hedging the risk if you do choose to hold long, here are some ideas: Sell just enough stock at exercise (i.e. taking some tax hit up front) to at least recover your principal, so your original money is no longer at risk, or If your company has publicly listed options – which is unlikely, if they are very small – then you could purchase put options to insure against losses in your stock. Try a symbol lookup at the CBOE. Note: Hedging with put options is an advanced strategy and I suggest you learn more and seek advice from a pro if you want to consider this route. You'll also need to find out if there are restrictions on trading your employer's public stock or options – many companies have restrictions or black-out periods on employee trading, especially for people who have inside knowledge.\",\n \"The difference is ordinary income. If the price drops and you sell for exactly what you paid, you have an income of D and a capital loss of D which usually cancel each other, but not always. For example, if you already have over $3000 in losses, this loss won't help you, it will carry forward. The above changes a bit if you hold the stock for 2 years after the beginning of the purchase period. If sold between your purchase price and fair market the day you bought, the gain is only the difference, no gain to fair market + loss. Pretty convoluted. Your company should have provided you with a brief FAQ / Q&A to explain this. My friends at Fairmark have an article that explains the ESPP process clearly, Tax Reporting for Qualifying Dispositions of ESPP Shares.\",\n \"As far as I know, the AMT implications are the same for a privately held company as for one that is publicly traded. When I was given my ISO package, it came with a big package of articles on AMT to encourage me to exercise as close to the strike price as possible. Remember that the further the actual price at the time of purchase is from the strike price, the more the likely liability for AMT. That is an argument for buying early. Your company should have a common metric for determining the price of the stock that is vetted by outside sources and stable from year to year that is used in a similar way to the publicly traded value when determining AMT liability. During acquisitions stock options often, from what I know of my industry, at least, become options in the new company's stock. This won't always happen, but its possible that your options will simply translate. This can be valuable, because the price of stock during acquisition may triple or quadruple (unless the acquisition is helping out a very troubled company). As long as you are confident that the company will one day be acquired rather than fold and you are able to hold the stock until that one day comes, or you'll be able to sell it back at a likely gain, other than tying up the money I don't see much of a downside to investing now.\",\n \"Assuming US. The only con that I know of is that hassle factor. You have to remember to sell when you get the new shares, and your taxes become a bit more complicated; the discount that you receive is taxed as ordinary income, and then any change in the price of the stock between when you receive it and you sell it will be considered a capital gain or loss. It's not hard to account for properly if you keep good records.\",\n \"\\\"The wash sale rule only applies when the sale in question is at a loss. So the rule does not apply at all to your cases 3, 4, 7, 8, 11, 12, 15, and 16, which all start with a gain. You get a capital gain at the first sale and then a separately computed gain / loss at the second sale, depending on the case, BUT any gain or loss in the IRA is not a taxable event due to the usual tax-advantaged rules for the IRA. The wash sale does not apply to \\\"\\\"first\\\"\\\" sales in your IRA because there is no taxable gain or loss in that case. That means that you wouldn't be seeking a deduction anyway, and there is nothing to get rolled into the repurchase. This means that the rule does not apply to 1-8. For 5-8, where the second sale is in your brokerage account, you have a \\\"\\\"usual\\\"\\\" capital gain / loss as if the sale in the IRA didn't happen. (For 1-4, again, the second sale is in the IRA, so that sale is not taxable.) What's left are 9-10 (Brokerage -> IRA) and 13-14 (Brokerage -> Brokerage). The easier two are 13-14. In this case, you cannot take a capital loss deduction for the first sale at a loss. The loss gets added to the basis of the repurchase instead. When you ultimately close the position with the second sale, then you compute your gain or loss based on the modified basis. Note that this means you need to be careful about what you mean by \\\"\\\"gain\\\"\\\" or \\\"\\\"loss\\\"\\\" at the second sale, because you need to be careful about when you account for the basis adjustment due to the wash sale. Example 1: All buys and sells are in your brokerage account. You buy initially at $10 and sell at $8, creating a $2 loss. But you buy again within the wash sale window at $9 and sell that at $12. You get no deduction after the first sale because it's wash. You have a $1 capital gain at the second sale because your basis is $11 = $9 + $2 due to the $2 basis adjustment from wash sale. Example 2: Same as Example 1, except that final sale is at $8 instead of at $12. In this case you appear to have taken a $2 loss on the first buy-sell and another $1 loss on the second buy-sell. For taxes however, you cannot claim the loss at the first sale due to the wash. At the second sale, your basis is still $11 (as in Example 1), so your overall capital loss is the $3 dollars that you might expect, computed as the $8 final sale price minus the $11 (wash-adjusted) basis. Now for 9-10 (Brokerage->IRA), things are a little more complicated. In the IRA, you don't worry about the basis of individual stocks that you hold because of the way that tax advantages of those accounts work. You do need to worry about the basis of the IRA account as a whole, however, in some cases. The most common case would be if you have non-deductable contributions to your traditional IRA. When you eventually withdraw, you don't pay tax on any distributions that are attributable to those nondeductible contributions (because you already paid tax on that part). There are other cases where basis of your account matters, but that's a whole question in itself - It's enough for now to understand 1. Basis in your IRA as a whole is a well-defined concept with tax implications, and 2. Basis in individual holdings within your account don't matter. So with the brokerage-IRA wash sale, there are two questions: 1. Can you take the capital loss on the brokerage side? 2. If no because of the wash sale, does this increase the basis of your IRA account (as a whole)? The answer to both is \\\"\\\"no,\\\"\\\" although the reason is not obvious. The IRS actually put out a Special Bulletin to answer the question specifically because it was unclear in the law. Bottom line for 9-10 is that you apparently are losing your tax deduction completely in that case. In addition, if you were counting on an increase in the basis of your IRA to avoid early distribution penalties, you don't get that either, which will result in yet more tax if you actually take the early distribution. In addition to the Special Bulletin noted above, Publication 550, which talks about wash sale rules for individuals, may also help some.\\\"\",\n \"You are long the puts. By exercising them you force the underlying stock to be bought from you at your strike price. Let's say your strike it $100 and the stock is currently $25. Buy 100 shares and exercise 1 (bought/long) put. That gives you $7500 of new money, so do the previous sentence over again in as many 'units' as you can.\",\n \"\\\"If you bought them, you can sell them. That does not preclude you from buying again later. You might get yourself into a situation where you need to account for a so-called \\\"\\\"wash sale\\\"\\\" on your taxes, but your broker should calculate that and report it on your 1099-B at the end of the year. There's nothing illegal about this though - It's just a required step in the accounting of capital gains for tax purposes.\\\"\",\n \"\\\"According to page 56 of the 2015 IRS Publication 550 on Investment Income and Expenses: Wash sales. Your holding period for substantially identical stock or securities you acquire in a wash sale includes the period you held the old stock or securities. It looks like the rule applies to stocks and other securities, including options. It seems like the key is \\\"\\\"substantially identical\\\"\\\". For your brokerage / trading platform to handle these periods correctly for reporting to IRS, it seems best to trade the same security instead of trying to use something substantially identical.\\\"\",\n \"\\\"You are thinking about it this way: \\\"\\\"The longer I wait to exericse, the more knowledge and information I'll have, thus the more confidence I can have that I'll be able to sell at a profit, minimizing risk. If I exercise early and still have to wait, there may never be a chance I can sell at a profit, and I'll have lost the money I paid to exercise and any tax I had to pay when I exercised.\\\"\\\" All of that is true. But if you exercise early: The fair market value of the stock will probably be lower, so you may pay less income tax when you exercise. (This depends on your tax situation. Currently, ISO exercises affect your AMT.) If the company goes through a phase where the value is unusually high, you'll be able to sell and still get the tax benefits because you exercised earlier. You avoid the nightmare scenario where you leave the company (voluntarily or not) and can't afford to exercise your options because of the tax implications. In many realistic cases, exercising earlier means less risk. Imagine if you're working at a company that is privately held and you expect to be there for another year or so. You are very optimistic about the company, but not sure when it will IPO or get acquired and that may be several years off. The fair market value of the stock is low now, but may be much higher in a year. In this case, it makes a lot of sense to exercise now. The cost is low because the fair market value is low so it won't result in a huge tax bill. And then when you leave in a year, you won't have to choose between forfeiting your options or borrowing money to pay the much higher taxes due to exercise them then.\\\"\",\n \"Is wash rule applicable for this? No - because you made a gain on the sale. You paid $13,500 for the stock and sold it for $14,250. The wash rule prevents you from claiming a loss if you buy the same stock again within 30 days. You have no loss to claim, so the rule does not apply.\",\n \"If you have held the stocks longer than a year, then there is no tax apart from the STT that is already deducted when you sell the shares. If you have held the stock for less than a year, you would have to pay short term capital gains at the rate of 15% on the profit. Edit: If you buy different shares from the total amount or profits, it makes no difference to taxes.\",\n \"\\\"There are different schools of thought. You can ask the IRS - and it would not surprise me if you got different answers on different phone calls. One interpretation is that a put is not \\\"\\\"substantially identical\\\"\\\" to the disposed stock, therefore no wash is triggered by that sale. However if that put is exercised, then you automatically purchase the security, and that is identical. As to whether the IRS (or your brokerage firm) recognizes the identical security when it falls out of an option, I can't say; but technically they could enforce it because the rule is based on 30 days and a \\\"\\\"substantially identical\\\"\\\" stock or security. In this interpretation (your investor) would probably at least want to stay out of the money in choosing a strike price, to avoid exercise; however, options are normally either held or sold, rather than be exercised, until at or very close to the expiration date (because time value is left on the table otherwise). So the key driver in this interpretation would be expiration date, which should be at least 31 days out from the stock sale; and it would be prudent to sell an out of the money put as well, in order to avoid the wash sale trigger. However there is also a more unfavorable opinion - see fairmark.com/capgain/wash/wsoption.htm where they hold that a \\\"\\\"deep in the money\\\"\\\" option is an immediate trigger (regardless of exercise). This article is sage, in that they say that the Treasury (IRS) may interpret an option transaction as a wash if it's ballpark to being exercisable. And, if the IRS throws paper, it always beats each of paper, rock and scissors :( A Schwab article (\\\"\\\"A Primer on Wash Sales\\\"\\\") says, if the CUSIPs match, bang, wash. This is the one that they may interpret unfavorably on in any case, supporting Schwab's \\\"\\\"play it safe\\\"\\\" position: \\\"\\\"3. Acquire a contract or option to buy substantially identical stock or securities...\\\"\\\" . This certainly nails buying a call. As to selling a put, well, it is at least conceivable that an IRS official would call that a contract to buy! SO it's simply not a slam dunk; there are varying opinions that you might describe as ranging from \\\"\\\"hell no\\\"\\\" to \\\"\\\"only if blatant.\\\"\\\" If you can get an \\\"\\\"official\\\"\\\" predetermination, or you like to go aggressive in your tax strategy, there's that; they may act adversely, so Caveat Taxfiler!\\\"\",\n \"If the $882 is reported on W2 as your income then it is added to your taxable income on W2 and is taxed as salary. Your basis then becomes $5882. If it is not reported on your W2 - you need to add it yourself. Its salary income. If its not properly reported on W2 it may have some issues with FICA, so I suggest talking to your salary department to verify it is. In any case, this is not short term capital gain. Your broker may or may not be aware of the reporting on W2, and if they report the basis as $5000 on your 1099, when you fill your tax form you can add a statement that it is ESPP reported on W2 and change the basis to correct one. H&R Block and TurboTax both support that (you need to chose the correct type of investment there).\",\n \"This will work as intended, but there's another point to consider. In the US, the tax rate on proceeds from stock sales is higher for short term holdings, which are defined as held for less than one year. Both rates vary based on your income. Bracket numbers are for fiscal year 2014, filing as single. The difference between short and long term capital gains tax in the US is a minimum of ten percentage points, and works out to 15 percentage points on average. This is substantial. If you won't be reporting much income the year you move to the US (say because you only worked for a portion of the year) it is decidedly to your advantage to wait and sell the stocks in the US, to get that sweet 0% rate. At a minimum, you should hold the position for a year if you sell and rebuy, from a tax optimization perspective. Two caveats:\",\n \"\\\"You owe no tax on the option transaction in 2015 in this case. How you ultimately get taxed depends on how you dispose of the position. If it expires, then you will have a short-term capital gain on the option position at expiration. If it is exercised, then the option is \\\"\\\"gone\\\"\\\" for tax purposes and your basis in the underlying is adjusted. From IRS Publication 550: If a call you write is exercised and you sell the underlying stock, increase your amount realized on the sale of the stock by the amount you received for the call when figuring your gain or loss. The gain or loss is long term or short term depending on your holding period of the stock. In your case, this will be a long-term capital gain. For completeness, if you buy to cover the option back from the market before expiration or exercise, then it is also a short-term capital gain. Also, keep in mind that this all assumes that this covered call is \\\"\\\"qualified\\\"\\\" so that it does not count as a straddle. You can find more about that in Pub 550. https://www.irs.gov/publications/p550/ch04.html#en_US_2014_publink100010630 All of this is for US tax purposes.\\\"\",\n \"\\\"For restricted stock, I think the vesting date meets the requirements of the second wash sale trigger from IRS Pub 550: Wash Sales: Acquire substantially identical stock or securities in a fully taxable trade I base this on these two quotes from IRS Pub 525: Restricted Property: any income from the property, or the right to use the property, is included in your income as additional compensation in the year you receive the income or have the right to use the property. - Until the property becomes substantially vested, it is owned by the person who makes the transfer to you, usually your employer. So on the vest date: The transfer is taxable Ownership is transferred to you That seems close enough to \\\"\\\"a fully taxable trade\\\"\\\" for me. Maybe this changes if you pay the tax on the stock on the grant date. See Pub 525: Restricted Property: Choosing to include in income for year of transfer. Obviously, if this is important you should consult your tax advisor. Technicalities aside, I don't think it passes the sniff test. You're getting salable shares when the restricted stock vests. If you're selling other shares at a loss within 30 days of the vesting date, that smells like a wash sale to me.\\\"\",\n \"In the US, it is perfectly legal to execute what you've described. However, since you seem to be bullish on the stock, why sell? How do you KNOW the price will continue downwards? Aside from the philosophical reasoning, there can be significant downside to selling shares when you're expecting to repurchase them in the near future, i.e. you will lose your cost basis date which determines whether or not your trade is short-term (less than 1 year) or long-term. This cost basis term will begin anew once you repurchase the shares. IF you are trying to tax harvest and match against some short-term gains, tax loss harvesting prior to long-term treatment may be suitable. Otherwise, reexamine your reasoning and reconsider the sale at all, since you are bullish. Remember: if you could pick where stock prices are headed in the short term with any degree of certainty you are literally one of a kind on this planet ;-). In addition, do remember that in a tax deferred account (e.g. IRA) the term of your trade is typically meaningless but your philosophical reasoning for selling should still be examined.\",\n \"Assuming you purchased shares that were granted at a discount under the ESPP the 50% exemption would not apply. It's pretty unusual to see a US parent company ESPP qualify for the 110(1)(d) exemption, as most US plans provide for a discount\",\n \"You mentioned that the 1099B that reports this sale is for 2014, which means that you got the proceeds in 2014. What I suspect happened was that the employer reported this on the next available paycheck, thus reporting it in the 2015 period. If this ends up being a significant difference for you, I'd argue the employer needs to correct both W2s, since you've actually received the money in 2014. However, if the difference for you is not substantial I'd leave it as is and remember that the employer will not know of your ESPP sales until at least several days later when the report from the broker arrives. If you sell on 12/31, you make it very difficult for the employer to account correctly since the report from the broker arrives in the next year.\",\n \"RSU are taxed when vested, based on their value at that point, as salary. If you don't sell to cover, you need to pay the taxes, if you sell to cover - you sell the portion that is worth the taxes (brokers do that automatically, and remit the taxes on your behalf). Once paid your taxes, it becomes a regular stock position - short term gains if you sell within a year after vesting, long term if you wait for more than a year. The consideration whether to wait or sell is as with any other investment, them being previously restricted has no meaning. You calculate the gain for each position, so the fact that you have more than one position is not a problem. The RSU income and the taxes paid will appear on your W2, so when the broker reports proceeds, you can show the basis and thus calculate the gain. See this question for some useful answers on how to report the RSU sale on your taxes.\",\n \"\\\"What could the tax issues with the IRS be? I thought (but not totally certain) that the tax treatment of an ISO option was based on difference between exercise price and FMV at the time of the sale. This is an accounting issue. There were times not so long ago that companies actually did these things on purpose, to boost the stock grant values for their employees (especially senior employees). They would give a grant but date it with an earlier date with a more favorable valuation. This is called \\\"\\\"backdating\\\"\\\", and it brought companies down and CEOs into criminal courts. In addition, only reasonable compensation is allowed as a deduction for the company, and incorrectly set strike price may be deemed unreasonable. Thus, the deduction the company would take for your compensation can be denied, leading to loss of tax benefit (this was also a weapon used by the IRS at the time against companies doing backdating). Last but not least, company that has intentions of going public cannot allow itself such a blatant disregard of the accounting rules. Even if the mistake was not made on purpose (as it sounds), it is a mistake that has to be corrected. What should I take into consideration to determine whether a 27% increase in shares is a fair exchange for an increase in 270% increase in strike price. Did you know the strike price when you signed the contract? Was it a consideration for you? For most people, the strike price is determined at the board approval, since the valuations are not public and are not disclosed before you actually join, which is already after you've agreed to the terms. So basically, you agreed to get 100 sheets of toilet paper, and instead getting 127 sheets. So you're getting 27 sheets more than you initially agreed to. Why are you complaining? In other words, options are essentially random numbers which are quite useless. By the time you get to exercise them, they'll be diluted through a bunch of additional financing rounds, and their value will be determined for real only after the IPO, or at least when your company's stocks are trading OTC with some reasonable volume. Until then - it's just a number with not much of a meaning. The FMV does matter for early exercise and 83(b) election, if that is an option, but even then - I doubt you can actually negotiate anything.\\\"\",\n \"In the US this is considered a sale, and the proceeds will be taxed as if you've sold the stocks in any other way. The decision about the treatment (capital, ordinary, etc) is dependent on what kind of stock that is, how you acquired it, how long have you held it, etc. If it is a regular stock that you bought as an investment and held it for more than a year - then it will likely to be a capital gain treatment. However, this is only relevant for the US taxation. Since you're a UK person, you should also check how it is handled in the UK, which may or may not be different.\",\n \"the short answer is: No. you do not HAVE to pay $125,000.00 at the end of your first year. that is only the amount IF you decide to exercise. *fine print: But if you leave or get let go (which happens quite frequently at top tier Silicon Valley firms), you lose anything that you don't exercise. you're basically chained by a pair of golden handcuffs. in other words, you're stuck with the company until a liquidation event such as IPO or secondary market selling (you can expect to spend a few years before getting anything out of your stocks) Now, it's hard to say whether or not to exercise at that time, especially given we don't know the details of the company. you only should exercise if you foresee your quitting, anticipate getting fired, AND you strongly feel that stock price will keep going up. if you're in SF bay, i believe you have 10 years until your options expire (at which point they are gone forever, but that's 10 years and usually companies IPO well within 7 years). i would recommend you get a very good tax advisor (someone that understands AMT and stock options tax loopholes/rules like the back of their hand). I'm going to take a long shot and assume that you got an amazing offer and that you got a massive amount of ISOs from them. so i'll give this as an advice - first, congrats on owning a lot on paper today if you're still there. you chose to be an early employee at a good tech company. However, you should be more worried about AMT (alternative min tax). you will get enslaved by the IRS if you exercise your shares and can't pay the AMT. suppose, in your fictional scenario, your stock options increase 2x, on paper. you now own $1 Mil in options. but you would be paying $280000 in taxes if you chose to exercise them right now. Now, unless you can sell that IMMEDIATELY on the secondary market, i would highly advise you not to exercise right now. only exercise your ISOs when you can turn around and sell them (either waiting for IPO, or if company offers secondary market approved trading).\",\n \"With the Employee Stock Purchase Plan stock, if you sell it in less than 18 months from exercise, the discount you bought it at (normally 15%) becomes taxable income and included in your W-2.\",\n \"I often sell covered calls, and if they are in the money, let the stock go. I am charged the same fee as if I sold online ($9, I use Schwab) which is better than buying back the option if I'm ok to sell the stock. In my case, If the option is slightly in the money, and I see the options are priced well, i.e. I'd do another covered call anyway, I sometimes buy the option and sell the one a year out. I prefer to do this in my IRA account as the trading creates no tax issue.\",\n \"Firstly 795 is not even. Secondly - generally you would pay tax on the sale of the 122 shares, whether you buy them back or not, even one minute later, has nothing to do with it. The only reason this would not create a capital gains event is if your country (which you haven't specified) has some odd rules or laws about this that I, and most others, have never heard of before.\",\n \"Let me restate question for clarity. Facts: Question: Are there any taxes for this transaction? Answer: (Added improvements provided by Eric) Generally No. Generally, it is not considered income until you sell and the sale price is greater than the purchase price. But with currency differences, there is an additional complication, section 988 rules apply. It could result in ordinary income or loss.\",\n \"When you sell your primary residence, you are required to capitalize any loss or gain at that point; you do not carry over your loss or gain (as you might in an investment property). As such, the timing of the purchase of the next house is not relevant in this discussion: you gained however much you gained already. This changed from the other (rollover) method in 1997 (see this bankrate article for more details.) However, as discussed in IRS Tax Topic 701, you can exclude up to $250,000 (single or filing separately) or $500,000 (married filing jointly) of gain if it is your primary residence and meets a few requirements (mostly, that you owned it for at least 2 years in the past 5 years, and similarly used it as your main home for at least 2 years of the past 5 years). So given you reported 25% gain, as long as your house is under a million dollars or so, you're fine (and if it's over a million dollars, you probably should be paying a CPA for this stuff). For California state tax, it looks like it is the same (see this Turbotax forum answer for a good explanation and links to this California Franchise Tax Board guide which confirms it: For sale or exchanges after May 6, 1997, federal law allows an exclusion of gain on the sale of a personal residence in the amount of $250,000 ($500,000 if married filing jointly). The taxpayer must have owned and occupied the residence as a principal residence for at least 2 of the 5 years before the sale. California conforms to this provision. However, California taxpayers who served in the Peace Corps during the 5 year period ending on the date of the sale may reduce the 2 year period by the period of service, not to exceed 18 months.\",\n \"\\\"The $100,000 is taxed separately as \\\"\\\"ordinary income\\\"\\\". The $350,000 is taxed at long-term capital gains of 15%. Capital gains is not taxed at 20% until $415,050. Even though $100,000 + 350,000 = $450,000, only $350,000 can be taxed at capital gains. The total ordinary income tax burden will be $31,986 if single, in California. Caveat: By creating a holdings corporation (C-corp), you can section 351 that $100,000 into the C-corp for tax deferment, which won't be taxed until you take money from the corporation. Since you will hold 100% of the voting stock, all distributions will be considered pro rata. Additionally, you can issue yourself a dividend under the rules of 26 USC §§243-246 (a greather-than-80% shareholder who receives a dividend can write-off 100% of said dividend). As long as that dividend doesn't trigger §§1.243-246 of The Regulations by keeping the distribution just under 10% of E&P i.e. $10,000. Wages are deductible against basis so pay yourself $35,000 and keep $55,000 in the corporation and you can decrease the total liabilities down to $22,000 from $31,000, which includes the CA franchise tax. You don't have to pay yourself any money out a corporation to use the money.\\\"\",\n \"\\\"You have a sequence of questions here, so a sequence of answers: If you stopped at the point where you had multiple wins with a net profit of $72, then you would pay regular income tax on that $72. It's a short term capital gain, which does not get special tax treatment, and the fact that you made it on multiple transactions does not matter. When you enter your next transaction that takes the hypothetical loss the question gets more complicated. In either case, you are paying a percentage on net gains. If you took a two year view in the second case and you don't have anything to offset your loss in the second year, then I guess you could say that you paid more tax than you won in the total sequence of trades over the two years. Although you picked a sequence of trades where it does not appear to play, if you're going to pursue this type of strategy then you are likely at some point to run into a case where the \\\"\\\"wash sale\\\"\\\" rules apply, so you should be aware of that. You can find information on this elsewhere on this site and also, for example, here: http://www.marketwatch.com/story/understanding-the-wash-sale-rules-2015-03-02 Basically these rules require you to defer recording a loss under some circumstances where you have rapid wins and losses on \\\"\\\"substantially identical\\\"\\\" securities. EDIT A slight correction, you can take part of your losses in the second year even if you have no off-setting gain. From the IRS: If your capital losses exceed your capital gains, the amount of the excess loss that you can claim on line 13 of Form 1040 to lower your income is the lesser of $3,000, ($1,500 if you are married filing separately)\\\"\",\n \"If you do this, you own a stock worth $1, with a basis of $2. The loss doesn't get realized until the shares are sold. Of course, we hope you see the stock increase above that price, else, why do this?\",\n \"Stuff I wish I had known, based on having done the following: Obtained employment at a startup that grants Incentive Stock Options (ISOs); Early-exercised a portion of my options when fair market value was very close to my strike price to minimize AMT; made a section 83b) election and paid my AMT up front for that tax year. All this (the exercise and the AMT) was done out of pocket. I've never see EquityZen or Equidate mention anything about loans for your exercise. My understanding is they help you sell your shares once you actually own them. Stayed at said startup long enough to have my exercised portion of these ISOs vest and count as long term capital gains; Tried to sell them on both EquityZen and Equidate with no success, due to not meeting their transaction minimums. Initial contact with EquityZen was very friendly and helpful, and I even got a notice about a potential sale, but then they hired an intern to answer emails and I remember his responses being particularly dismissive, as if I was wasting their time by trying to sell such a small amount of stock. So that didn't go anywhere. Equidate was a little more friendly and was open to the option of pooling shares with other employees to make a sale in order to meet their minimum, but that never happened either. My advice, if you're thinking about exercising and you're worried about liquidity on the secondary markets, would be to find out what the minimums would be for your specific company on these platforms before you plunk any cash down. Eventually brought my request for liquidity back to the company who helped connect me with an interested external buyer, and we completed the transaction that way. As for employer approval - there's really no reason or basis that your company wouldn't allow it (if you paid to exercise then the shares are yours to sell, though the company may have a right of first refusal). It's not really in the company's best interest to have their shares be illiquid on the secondary markets, since that sends a bad signal to potential investors and future employees.\",\n \"Yes, the net effect is zero. If you own zero shares by Nov 30, for example, and don't buy any more shares by 12/31, the year is done, and nothing left to account for.\",\n \"I'm not sure where people keep getting this idea, but I see it come up a lot. Anyway, you pay capital gains taxes when you sell an investment that has appreciated. It makes no difference when/if you reinvest the money or what you invest it in. If you are afraid of the tax burden you can minimize it by: 1) Selling a stock that you have held longer than a year to get the lower long-term rate. 2) Sell a stock that hasn't appreciated that much and therefore doesn't have a lot of gains to tax. 3) Sell a stock that's below purchase price (i.e. at a loss) to offset any short term gains.\",\n \"If it is your primary residence and you lived there continuously and for more than 2 years out of the last 5 - then you can exclude the gain under the IRC Sec. 121. In this case, you'll pay no taxes on your gain. If the property has been a rental or you haven't lived there long enough, the rules become more complicated but you may still be able to exclude some portion of the gain, even all of it, depends on the situation. So it doesn't look like 1031 exchange is good for you here, you don't want to carry excluded gain - you want to recognize it and get the tax benefit. However, refinancing after purchase with cash-out money affects the deductability of the loan interest. You can only deduct interest on money used to buy, not cash-out portion. I believe there's a period (60 days IIRC) during which you can do the cash-out refinance and still count it as purchase money, but check with a licensed tax advier (EA/CPA licensed in your State).\",\n \"\\\"Check how long you have to hold the stock after buying it. If you can sell reasonably soon and your company is reasonably stable, you're unlikely to lose and/or be taxed and/or pay enough in fees to lose more than the 30% \\\"\\\"free money\\\"\\\" they're giving you. Whether you hold it longer than the minimum time depends partly on whether you think you can better invest the money elsewhere, and partly on how you feel about having both your salary and (part of) your investments tied to the company's success? The company would like you to \\\"\\\"double down\\\"\\\" that way, in the theory that it may make you mors motivated... but some investment councelors would advise keeping that a relatively small part of your total investments, basically for the same reasons you are always advised to diversify.\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["That is a weird one. Typically one never needs to layout cash to exercise an option. One would only choose to use option 1, if one is seeking to buy the options. This would occur if an employee was leaving a company, would no longer be eligible for the ISO (and thereby forfeit any option grant), and does not want to exercise the options. However, what is not weird is the way income tax works, you are taxed on your income in the US. I assume you are talking about the US here. So if you exercise 10K shares, if under either option, you will be taxed on the profit from those share. Profit = (actual price - strike price) * shares - fees","This may be a good or a bad deal, depending on the fair market value (FMV) of the stock at the time of exercise. Let's assume the FMV is $6, which is the break even point. In general this would probably be treated as two transactions. So overall you would be cash neutral, but your regular tax income would be increased by $30,000 and your AMT income by $60,000.","I've never heard of an employer offering this kind of arrangement before, so my answer assumes there is no special tax treatment that I'm not aware of. Utilizing the clause is probably equivalent to exercising some of your options, selling the shares back to your employer at FMV, and then exercising more options with the proceeds. In this case if you exercise 7500 shares and sell them back at FMV, your proceeds would be 7500 x $5 = $37,500, with which you could exercise the remaining 12,500 options. The tax implications would be (1) short-term capital gains of 7500 x ($5 - $3) = $15,000 and (2) AMT income of 12,500 x ($5 - $3) = $25,000, assuming you don't sell the shares within the calendar year."],"string":"[\n \"That is a weird one. Typically one never needs to layout cash to exercise an option. One would only choose to use option 1, if one is seeking to buy the options. This would occur if an employee was leaving a company, would no longer be eligible for the ISO (and thereby forfeit any option grant), and does not want to exercise the options. However, what is not weird is the way income tax works, you are taxed on your income in the US. I assume you are talking about the US here. So if you exercise 10K shares, if under either option, you will be taxed on the profit from those share. Profit = (actual price - strike price) * shares - fees\",\n \"This may be a good or a bad deal, depending on the fair market value (FMV) of the stock at the time of exercise. Let's assume the FMV is $6, which is the break even point. In general this would probably be treated as two transactions. So overall you would be cash neutral, but your regular tax income would be increased by $30,000 and your AMT income by $60,000.\",\n \"I've never heard of an employer offering this kind of arrangement before, so my answer assumes there is no special tax treatment that I'm not aware of. Utilizing the clause is probably equivalent to exercising some of your options, selling the shares back to your employer at FMV, and then exercising more options with the proceeds. In this case if you exercise 7500 shares and sell them back at FMV, your proceeds would be 7500 x $5 = $37,500, with which you could exercise the remaining 12,500 options. The tax implications would be (1) short-term capital gains of 7500 x ($5 - $3) = $15,000 and (2) AMT income of 12,500 x ($5 - $3) = $25,000, assuming you don't sell the shares within the calendar year.\"\n]","isConversational":false}}},{"rowIdx":358,"cells":{"_id":{"kind":"string","value":"4615"},"query":{"kind":"string","value":"Are solar cell panels and wind mills worth the money?"},"gt_ids":{"kind":"list like","value":["496427","261900","262934","69523","421365","596196"],"string":"[\n \"496427\",\n \"261900\",\n \"262934\",\n \"69523\",\n \"421365\",\n \"596196\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1,1,1,1],"string":"[\n 1,\n 1,\n 1,\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["261900","496427","421365","596196","69523","227347","19179","290647","170850","534603","510872","455798","439797","108245","425595","158216","161257","274011","257122","412881","456727","282256","581010","157480","353092","257293","521100","512104","271217","249191","34949","561982","227013","593056","393206","271015","220216","568574","203670","570808","90238","321402","225292","120384","20952","581618","62585","41020","173158","588231","259829","449218","325469","12414","139107","108090","79034","501893","507776","537709","21836","555366","283100","262196","60037","403817","176265","393808","535408","494588","270638","187774","576605","8764","98345","215362","224229","33992","9963","397564","385028","409306","353042","462892","493157","103322","390548","363564","143254","105186","479530","176557","326380","523761","219110","311474","550360","99978","272797","243203"],"string":"[\n \"261900\",\n \"496427\",\n \"421365\",\n \"596196\",\n \"69523\",\n \"227347\",\n \"19179\",\n \"290647\",\n \"170850\",\n \"534603\",\n \"510872\",\n \"455798\",\n \"439797\",\n \"108245\",\n \"425595\",\n \"158216\",\n \"161257\",\n \"274011\",\n \"257122\",\n \"412881\",\n \"456727\",\n \"282256\",\n \"581010\",\n \"157480\",\n \"353092\",\n \"257293\",\n \"521100\",\n \"512104\",\n \"271217\",\n \"249191\",\n \"34949\",\n \"561982\",\n \"227013\",\n \"593056\",\n \"393206\",\n \"271015\",\n \"220216\",\n \"568574\",\n \"203670\",\n \"570808\",\n \"90238\",\n \"321402\",\n \"225292\",\n \"120384\",\n \"20952\",\n \"581618\",\n \"62585\",\n \"41020\",\n \"173158\",\n \"588231\",\n \"259829\",\n \"449218\",\n \"325469\",\n \"12414\",\n \"139107\",\n \"108090\",\n \"79034\",\n \"501893\",\n \"507776\",\n \"537709\",\n \"21836\",\n \"555366\",\n \"283100\",\n \"262196\",\n \"60037\",\n \"403817\",\n \"176265\",\n \"393808\",\n \"535408\",\n \"494588\",\n \"270638\",\n \"187774\",\n \"576605\",\n \"8764\",\n \"98345\",\n \"215362\",\n \"224229\",\n \"33992\",\n \"9963\",\n \"397564\",\n \"385028\",\n \"409306\",\n \"353042\",\n \"462892\",\n \"493157\",\n \"103322\",\n \"390548\",\n \"363564\",\n \"143254\",\n \"105186\",\n \"479530\",\n \"176557\",\n \"326380\",\n \"523761\",\n \"219110\",\n \"311474\",\n \"550360\",\n \"99978\",\n \"272797\",\n \"243203\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"To answer the investment aspect takes a bit of math. First, solar insolation numbers: This represents the average sun-hours per day for a given area. You can see the range from 4 to 6, or 1460 hrs to about 2190 hrs of sun per year depending on location. I believe electricity also has a range of cost, but 15 cents per KWH is a good average. So, a 1KW panel will produce as much as $328 per year of electricity in a high sun-hrs area, but only $219 in a lower sun-hrs area. If we agree to ignore the government subsidies and look for the stable price unaffected by outside influence, an installed price of even $2500 would produce a return of 13% and a reasonable full payback over an 8 year period. I call this installed price a tipping point, the price where this purchase provides a decent return. Some would accept a lower return, and therefore a higher price. As duff points out, this should be treated as the post rebate/tax credit price. Those help to push the price below this point. At the price point where the energy cost per panel is below, the government intervention may be unnecessary. The power companies may find consumer owned panels are the cheapest way to clip the peak consumption which tends to be the most expensive power demand.) One can take the insolation numbers and cost of local power to produce a grid showing the return for a 1KW panel in $$/year. (At this point the cost of money kick in. The present value of $100/yr is far higher today than if short term rates were say, 8%) Once panels drop to where they are compelling for the higher return areas, I'd expect volume to drive continued improvements in cost and better economies of scale. Initially, the need for storage isn't there, as the infrastructure is in place to drive your meter backwards if you produce more than you use. The peek sun coincides with peek demand and the electric companies are happy to have your demand go negative during those times. Update - the conversation with Duff led me to research 'demand charge' a bit more. You see, the utility company has to have equipment to generate the peak demand, usually occurring in the early afternoon, say 12N-2PM as the sun is brightest and AC use in particular, highest. I found that Austin energy has a PDF describing the fee for this. Simply put, the last kW of demand will cost you $14.03 in summer months and $12.65 in winter. This adds to $160/yr that a 1kW panel might save the owner. Even if one does capture the full power at peak every month, $100 is still non-trivial. This factor alone justifies $1000 worth of panel cost, and as Duff points out, the government may find it cheaper to use this method to clip peak demand than by funding bigger power generators. To summarize, the question isn't so much \"\"are they worth it\"\" as \"\"what is a xKW panel worth?\"\" (A function of annual savings and time value of money.) The ever decreasing installed cost for a given system makes solar an inevitable part of the future power technology. I am not a green tree hugging guy, but I do like to breathe fresh air as much as anyone. I'm happy with whatever role solar plays in cutting down pollution.\"","These are two rather distinct questions; only one of which is relevant to a Money web site. In general, the investment is questionable. Leaving aside the green feel-good factor, you need to look at a total cost of ownership (TCO) and payback on the asset. Neither is cheap as such. There are DIY windmill plans, but you likely still need a commercial battery charger/inverter/controller setup. Government incentives, depending on where you live, may change the story considerably. Many jurisdictions around the globe have both incentives to install and then power-feed-in tariffs if you sell back excess power. Your latitude also has an impact on your total available solar energy, along with regular weather patterns for both cloud cover and wind. One of the cheapest solar projects can be hot-water. Particularly if you have a pool, or even for domestic use, if you use a lot. All that said, given the green feel-good factor, if you want a small set of solar panels and have the space/budget, go ahead! You can add more later. For the second question: it is indeed possible to live off grid. Some remote houses do just this, and the methods to accomplish it vary. The number one thing you need to do is work on a power budget; and be both ruthless as well as realistic. Fridge, freezer, AC, furnace, plasma TV, etc. Depending on your climate and preferences, these may not all be possible for an off-grid lifestyle. (Of course, if you get a propane fridge and have a truck come by once a month, does that count as off-grid?)","Solar water heaters are definitely worth the money (if you live in sunny states like South-South-West or Hawaii, at least). In some countries (like Greece, Cyprus and Israel, to name a few) most people use hot water from the solar heaters almost exclusively. I pay $30-$40 a month to PG&E for the privilege. Unfortunately, in the US these heaters are much more expensive than they are in the more advanced European countries, so all the savings go to drain because of the vast price difference ($300 for a gas heater vs $2000 for a solar heater).","Solar water heaters are definitely questionable in the Northeast -- the season when you most need them is also the season when they are least effective. Solar electric isn't a huge moneymaker, but with rebates on installation and carbon-reduction credits (SRECs) -- and a group purchase discount if you can get one, either at a town level or through organizations like One Block Off The Grid -- it can definitely turn a profit. Early estimate was that my setup would pay its initial costs back in 4 years, and the panels are generally considered to be good for a decade before the cells have degraded enough that the panels should be replaced. I haven't had a negative electric bill yet, but I've gotten close, and my setup is a relatively small one (eight panels facing SSE on a 45-degree roof). Admittedly I've also been working to reduce electricity use; I don't think I have an incandescent bulb left in the house.","\"Although this isn't related to homes directly, as an IT professional I know that wind power tends to be cost effective to the point that many data centers (the massive buildings holding the servers that are the backbone of the internet) actually invest in their own wind turbines to slash costs since servers tend to be power hogs. As far as going \"\"off the grid\"\" that ultimately depends on how much wind/sun you're getting at your residence, but if you look at places like Dallas, PA, CA, and other areas where the major hosts place centers, they're typically in areas where there's plenty of sunlight or wind. Going back to small scale thinking however, one of my contacts actually leases a colocation building in PA where he has a few server racks, and while he currently has electric there, he also owns a couple of turbines which have been powering <60% of the demand, and he's actually planning to add solar and also feed that back to the grid at a profit. So overall wind/solar definitely has the potential for a decent ROI, at both large and small levels, but performance will vary greatly from area to area. I know that Lowes actually started advertising about carrying solar panels, so going in and asking about the performance and if you can arrange an audit of your home might be a good place to start. If you Google \"\"green audits\"\" I'm sure you can find a trillion companies \"\"specializing\"\" in green power, but as with any sales rep (including at Lowe's) I'd do some due-diligence so you don't get taken for a ride, and also to check references because I don't think \"\"green audit\"\" companies have any official certifications/standards.\"","I think we have to divide it up into the elements that are 'real' and those that are 'abstractions'. Certainly, it will take a long time for a turbine to 'recoup' the embodied energy of its manufacture, transport, installation, maintenance. After that, tho, it's paying its way. 'Free' energy. Property values are made up, and - while important - I don't think it's fair to include them. As far as $-per-watt hour goes, renewables can't/don't/won't compete with fossil fuels. Digging up millions of years of compressed sunshine has served us well. Looking at the bigger picture, however, renewables start to make sense, and are the only way forward. Any models that require maintenance of 20th century levels of consumption are unrealistic. The future will be slower, more expensive, and less convenient.","\"Yeah, I guess the entire report is probably false because of that. What you're saying is applicable to the renewable industry too. There's all kinds of other investments made on behalf of renewables that aren't calculated into dollar amounts. Most obviously is the money that never even hits the books by subsidizing through consumer/corporate tax breaks. For example: the company you work for more than likely has a recycling program. It doesn't make money because it's not profitable to recycle anything but aluminum, but if they didn't have the program they would get penalized (not directly necessarily but would lose out on \"\"green\"\" initiative funding). The rest of what you are saying is as intangible as the first thing. If you think solar panels on your roof is going to keep the military out of other countries, you're clinical. And if you can't notice a correlation between the total lack of production coupled with the massive amounts of money being wasted then there's no discussion to be had. By the by, that article has no citations and the link to any additional sourcing is broken.\"","If you're looking for a purely financial answer (ignoring the social/environmental aspects) there are a few different ways you can look at it. For these types of improvements the simplest is a payback calculation. How long would it take you to recoup the initial costs? For example, if the entire installation cost $5,000 (including any tax credits), and you save $100 per month (I'm making both numbers up), you'll pay back your investment in 50 months, or about 4 years. (Note that if you borrow money to do the improvement, then your payback period is longer because you're reducing the amount that you're saving each month by paying interest.) If you're deciding between different uses for the money (like investing, or paying down other debt) then you can look at the return that you're getting. Using the same example, you are spending $5,000 and getting $100 per month back, for a 24% annual return ($1,200 / $5,000), which is better than you can get on almost anything but a 401(k) match (meaning don't stop your 401(k) contributions to do this either). The decision on whether or wait or not then becomes - will the price drop faster than the amount of savings you will realize. So if you will save $100 per month in your electric bill, is the price of the complete installation going down by more than $100 each month? If not, you'd be better off buying now and start paying back the investment sooner.","A 2011 study by the consulting firm Management Information Services, Inc. (MISI)[28] estimated the total historical federal subsidies for various energy sources over the years 1950–2010. The study found that oil, natural gas, and coal received $369 billion, $121 billion, and $104 billion (2010 dollars), respectively, or 70% of total energy subsidies over that period. Oh look the US has always subsidized energy in general to maintain a strong stable energy position and now they want to move from CO2 producing dirty tech to more green renewables. Personally I'm glad my tax money is being used for it. While subsidizing it costs have fallen by leaps and bounds, long term it's a great move. Do you think Europe and china would be building solar and wind if it wasn't ?","But it isn't creating energy 17 times faster than conventional / reliable power sources, so these jobs are evidence of waste and inefficiency, not promise. It's also proof that subsidies and mandates can in fact shape market results.","When is the right time to buy a new/emerging technology? When it's trading at a discount that allows you to make your money back and then some. The way you presented it, it is of course impossible to say. You have to look at exactly how much cheaper and efficient it will be, and how long that will take. Time too has a cost, and being invested has opportunity cost, so the returns must not only arrive in expected quantity but also arrive on time. Since you tagged this investing, you should look at the financial forecasts of the business, likely future price trajectories, growth opportunity and so on, and buy if you expect a return commensurate with the risk, and if the risk is tolerable to you. If you are new to investment, I would say avoid Musk, there's too much hype and speculation and their valuations are off the charts. You can't make any sensible analysis with so much emotion running wild. Find a more obscure, boring company that has a sound business plan and a good product you think is worth a try. If you read about it on mainstream news every day you can be sure it's sucker bait. Also, my impression that these panels are actually really expensive and have a snowball's chance in Arizona (heh) in a free market. Recently the market has been manipulated through green energy subsidies of a government with a strong environmentalist voter base. This has recently changed, in case you haven't heard. So the future of solar panels is looking a bit uncertain. I am thinking about buying solar panels for my roof. That's not an investment question, it's a shopping question. Do you actually need a new roof? If no, I'd say don't bother. Last I checked the payoff is very small and it takes over a decade to break even, unless you live in a desert next to the Mexican border. Many places never break even. Electricity is cheap in the United States. If you need a new roof anyway, I suppose look at the difference. If it's about the same you might as well, although it's guaranteed to be more hassle for you with the panels. Waiting makes no sense if you need a new roof, because who knows how long that will take and you need a roof now. If a solar roof appeals to you and you would enjoy having one for the price available, go ahead and get one. Don't do it for the money because there's just too much uncertainty there, and it doesn't scale at all. If you do end up making money, good for you, but that's just a small, unexpected bonus on top of the utility of the product itself.","\"Really? Because at Tier 5 for electricity I'm paying 35 cents a killowatt hour. And at $1 per watt for a panel, and 5 hours of sunlight per day in California, that's 142 days for pay back (grid tie). It seems like Solar panels are cheaper for the \"\"peak load\"\" issues. i.e. when the sun is hottest and people are running their AC's the highest, then the solar panels are kicking in (Grid tie). But using a battery to operate off grid doesn't seem feasible currently. And using solar panels to generate non-peak electricity doesn't seem efficient either.\"","Got the source for China asking for money? I would like to read that and educate myself. China put in more solar last year than the entire world combined. Never underestimate China, they are not bogged down by a bloated irrelevant government. They can just make a decision and go for it. Just walk around their cities and look at the infrastructure they pull off. It's staggering and puts anything in North America to shame.","I saw lots of them out in NM a handful of years back. They looked great on paper, but I'm not sure they'd really hold up. Especially in some areas with more extreme weather. Plus, I'm a pig and like my electricity.","\"Depending on the details of your solar panel setup, the monthly savings may change depending on changes in the law or utility company policy. This could change how long it will take for the solar panels to \"\"pay for themselves\"\". So your bullet point about the \"\"payback period\"\"/\"\"break even point\"\" is not fixed at the moment you buy the solar panels; it depends on costs you will incur over many years, and those costs could turn out to be different from what you originally thought. At least in the US, home solar installations typically work by selling excess power back to the power company. The power company can change the amount that it pays you for that power. There is also typically a minimum charge for being connected to the grid, and the power company can raise that charge. (This article mentions one such possible change.) The power companies want to keep making money, and as more people start adding solar panels, the power companies may change their rate structure to make that less financially feasible. You can avoid many of these issues if your solar panels are not connected to the public electricity grid, and you, for instance, store power with your own battery. However (at least in the US) this is very uncommon because it is more complex and expensive.\"","It's good that you can still use the area solar panels are placed because the space requirements will be extremely large compared to nuclear. Recycling solar panels makes a lot of sense though. Not saying they are a bad idea. Energy storage is a tough problem to crack though.","In our Texas home we subscribe to wind energy and the cost for consumers is so much lower than the other companies who aren't renewable that we have access to. We're in full swing summer, which inevitably brings on groans of power costs - mine was about 1/2 the price of my neighbors, they've all switched. And it truly was an apples-to-apples home situation, the 3 of us live on the same floor of the same building with similar sun exposure and keep our Nest thermostats set to about the same. I am paying 7.2 ¢ per kilowatt hour and they were paying 14+ ¢","For sure they are about to take a hit through winter. People in California either have solar, waiting for better technology (mostly cause by hype of Tesla home batteries) or hate it because of the looks. Then there are people who have shade / low electric bills and just aren't qualified. I've had my whole division in solar (managers, everyone) be laid off in two different companies in two years, after getting promoted too :(. One filed for bankruptcy recently the other has been around awhile and might barely survive...another asked me for an interview...nah I can't take another lay off.","\"I think that all else being equal, if more people have solar panels on our roof, we keep our military in FEWER countries, instead of planning on RAMPING up the number (see: Nigeria). Furthermore, the initial question wasn't whether installing solar panels is going to stop the action. **The conversation started by being about whether solar is actually cheaper when you factor in the amount used to subsidize both sources of energy. Not whether switching to solar would stop subsidies to oil.** What you did is called \"\"moving the goalposts\"\". The word 2016 doesn't show up in the article or in the study it cites. That was a typo. I understand it was about 2013, I was trying to saying that it was about the same year as yours. That was my bad. I read the whole thing originally, and I even read the study. I accept responsibility for the typo though. ANYWAYS, neither set of data is manipulated, my study just includes more things, like foreign tax credits, cleanup subsidies for both coal and oil, tar sands exemption from cleanup funds, Power Africa (a five year, 7 billion dollar program that was only ANNOUNCED in 2013). That overseas stuff that goes on is a HUGE part of the equation. And okay, so they aren't equivalent. Then your point is moot. Yes, both sides have off the book subsidies, but one side's off the book subsidies are so unfathomably bigger that it's laughable to even put them in the same category. Not to mention the costs of war in the middle east stretch beyond money (think lives), and recycling programs actually come with benefits (think smaller landfills).\"","The question is valid, you just need to work backwards. After how much money-time will the lower expense offset the one time fee? Lower expenses will win given the right sum of money and right duration for the investment.","They will be metering their own electric , so yes that's a plus. And yes I looked at it the same way, free money. I wonder if uploaded a imugr link to the drawings of where they are placing the equipment would help people with determining the benefit.","In some places. Solars challenge will always be the scaling to a national grid. It can be cheap as chips and still present insurmountable technical obstacles in large scale. I would be all for it as a supplement to a robust nuclear program.","Gas engines and oil power generation show no promise for greater efficiencies.. Extraction costs for oil are growing. Solar has has grown much more efficient and has more room for growths in efficiency. Recent research into batteries also shows great promise for increases in energy storage efficiency. Should we continue to subsidize the past or invest in the future?","As you said, the next generation will be cheaper and more efficient. Same for the generation after that. From a financial standpoint, there isn't a steadfast theory that supports when to buy the technology. It comes down to primarily personal issues. As far as I know, Musk's claims about the cost were relating to a traditional slate roof, not a traditional asphalt shingle roof. I can't recall if he explicitly said one way or the other, but I have yet to see any math that supports a comparison to asphalt shingles. If you look at all of the demos and marketing material, it's comparisons to various styles of tile roofing, which is already more expensive than asphalt shingles. Do you feel it's worth it to invest now, or do you think it would be more worth it to invest later when the costs are lower? A new roof will last 10-20 years (if not longer...I'm not a roof expert). Do you need a new roof yet? Are your electricity bills high enough that the cost of going solar will offset it enough? Can you sell unused power back to your power company? I could go on, but I think you get the point. It's entirely a personal decision, and not one that will have a definitive answer. If you keep waiting to make a purchase because you're worried that the next generation will be cheaper and more efficient, then you're never going to make the purchase.","No, look: Say a company needs to get $100 per solar panel to make a profit. But a consumer only wants to pay $80 for a solar panel, otherwise it isn't worth it. So, we have two options: 1. We offer a tax reduction to the consumer of $20. They now pay $100 for the solar panel, and get $20 back. The customer has now effectively paid $80 and the company has got $100. Or, 2. We give the company a subsidy for $20 per panel. They now sell the solar panel for $80, then get $20 in subsidy. The customer has now paid $80 and the company has got $100. You're against the 2nd option, in favour of the first. Have I understood you correctly?","Yea that’s my point coal generation gets monopolies and subsidies, alternative gets subsidies. Who gets more as a weighted metric? In a per Capita and absolute sense. Also how you do you calculate out subsidies on panels sold that were subsidized? I don’t know.","\"That's what stood out to me. The headlines make it sound like we're all financially stupid for not going with solar. The question is what is the *retail* price of solar vs other sources. Don't get me wrong; the idea of it going down quickly is itself great. But the title says \"\"cheapest electricity ‘ever, anywhere, by any technology’\"\". Show me the retail bills for solar as being cheaper than other sources and we've got a winner. That phenomenon is the real inflection point of interest.\"","It's an early adoption situation, Tesla's approach is pretty brilliant. Serve the high-end niche markets with a design and performance at the high-end and work your way down in affordability over the long term. Many products have followed this overarching strategy. BTW that includes the early combustion cars which were playthings for the wealthy, and pretty unreliable at the time compared to horse and buggy. As an aside, all those batteries are recyclable into new batteries. Solar panel costs are dropping rapidly and if we can get to the point that investment in industry R&D is self sustainable we will continue get price drops similar to Moore's law in computer speeds.","Are you assuming that net metering will continue forever? Eventually that will have to stop and you'll only receive the market generation rate (the price before all the markups in the submission's graph) for power exported to the grid which is unlikely to net you much profit.","\"If you sell the property before the ten years are up, the panels might have declined in value more than the amount you owe declined. In the original post's situation, this is a negligible risk. Suppose (for the sake of argument) that each year's panels are 10% better than the previous year's panels. Even if the panels lasted forever, and even if the price you could sell the power for stayed the same, then the value of your panels should decline 9% per year. If the panels are financed at a 4.5% APR for 10 years, your principal should decline by 8.1% in the first year. A second risk is that the solar panels might be ugly, or might go out of fashion. When selling a home, \"\"curb appeal\"\" matters. If potential buyers do not like how your home looks with the solar panels, you might not be able to get as much money for the house if you have to sell it. A third risk is that the loan might harm your credit rating, or otherwise restrict your ability to borrow. Even though this deal does not impinge on your disposable income, a bank might think that it raises your debt-service-to-income (DTI) ratio. This could theoretically prevent you from refinancing your home, or raise the interest rates on potential loans you might want to take out. A fourth risk is that the installation process might damage your home in a way that causes expensive damage. Water leakage and electrical fires can potentially destroy homes. You need to have the solar system competently installed. A fifth risk is that the solar power system might make it harder to maintain or replace your roof. Will your roof need to be replaced during the life of the solar power system? If so, consider options that do not force you to throw away the solar power system prematurely.\"","In the second example you are giving up future free cash flows in exchange for a capital gain on the original investment. With that respect the money you will not gain will be the difference of the future cash flows ( net of related costs) minus the net gain on the panel you have sold. The financial result can be considered as the opposite of a sunk cost, that is a cost you have already incurred ( and cannot be recovered) vs net future gains you are giving up. In more sophisticated financial terms we are talking about the benefit-cost ratio: ( from Investopedia)","I have been a long time supporter of this viewpoint, but price drops of solar and battery over the last few years are starting to make it look like nothing will be able to beat the economics of solar. Nuclear is quite expensive and has a long payoff period and I don't think people will choose it over solar and wind much any more. Though I do think we need to update our existing reactors to new technology to solve some of the waste issues if this is possible (though I'm not sure it is)","which is why I said EVs aren't as clean as they're made out to be. however, you can use land that has solar panels on it and it doesn't become radioactive, thus you don't have to build big cooling storage facilities to store them, where they have no use. edit: to my knowledge you can recycle solar panels. can't recycle used fuel rods.","The solar roof is more expensive until you factor in that you get free electricity for life after it's installed. That power has value. It reduces your electric bill. If all you want is to cover your house, then use a tarp.","In the short term, this question is pretty simple: Are occasional use grid-scale natural gas plants economically viable compared to distributed gas generators? Home solar is an amazingly good deal now. Economically, the question isn't whether it'll take over most home power generation, it's how fast that will happen. Currently - at least where I live - the grid is still a good deal for backup power. If that changes, then people will stop using it. You can get a gas generator to cover a normal sized home installed for ~$4000. In places with piped gas, the price for running the generator looks comparable to grid power per kWh. So no, I wouldn't pay triple the price for grid power or buy a ton of extra storage. I'd get a natural gas generator and handle solar downtime locally.","Trump wants a solar wall... I told my wife he should build a solar wall the second I heard he wanted a wall.... Yes solar and wind are efficient. check out the UK. Lego factory and other examples of solar/wind/hydro in action. Why even argue against it? Like why??????","Can no one read? I never said anything about equivalence, it was an example of an off the books subsidy. And I'll pose the same question to you as the other commenter, do you think that having solar panels on your roof will keep the government from sending our military to other countries? Because if you do, that's truly laughable. Apparently that author is clairvoyant enough to announce a 2016 report in an article dated July, 9th 2014. But I'll just assume you didn't actually read any of it. I did, and I'm not saying those figures are wrong, but that report has a clear stated agenda that is anti-oil/coal. The report I linked was to a US agency that was only making the information available. It may also have inaccuracies, but I'm going to assume that data for identical years in these reports being interpreted wildly differently indicates one is manipulating the information. I'd assume that someone with an agenda would be more likely to manipulate the data than an agency just seeking to publish data. Regardless, those inconsistencies should have some explanation.","You did read the massive disclaimer about how not all subsidies are included it the report right? When you cherry pick only the categories you want it makes up whatever argument you want. Try including everything else like grants, foreign tax credits for example and the numbers are staggering. And that not even broaching the money we've spend on attempt to procure and stabilize middle east oil sources. I don't need an army to protect my roof solar panels from ISIS. http://www.energyandcapital.com/report/the-real-truth-about-energy-subsidies/491 Edit: I don't know why I bothered. You post in t_d, conspiracy and cap it all off with libertarian. Class act you are!","\"Using the fact that you'd save $160/mo by spending $7000, I'd look at it this way - If I were to lend you the $7000 at 12%/yr, $160 would pay it off in 58 months. At 18%/yr, 72 months or just 6 years. You can run spreadsheets to get breakeven scenarios, and mhoran is on track with his answer, but breakeven is just one point to consider. Beyond that date, it's free money. My approach is to look at it with a question - \"\"How much interest could I afford to pay to make that monthly savings worthwhile?\"\"\"","You do realize there is such a thing as equilibrum price which is what the market tend to however a single private individual can set any price on anything (that doesn't mean it sells though) Believe it or not overproduction of electricity is a problem, power lines get clogged, when that happens they need to turn the costs down to negative so people consume it instead of it damaging infrastructure, hence negative cost, because at that moment people wish there were less solar panels, not more. Also, my comments were basically a joke, I don't know how you didn't realize that lol","The short answer is that it's never the right time to buy an emerging technology. As long as the technology is emerging, you should expect that newer revisions will be both better and less expensive. With solar, specifically, there are some tax credits to help the early adopters that may help you on the cost/benefit analysis, but in the end, you still have to decide whether the benefits outweigh the costs now, and if not, whether that will change in the near future. For me, part of the solar benefit is the ability to generate electricity when the power goes out. That option does require local battery storage, however. One of the benefits of using Musk's solar tiles instead of actual slate is the weight of the quartz tiles which is much lower than the weight of real slate. In many cases a slate roof is heavy enough to require major reinforcement of the roof trusses before installation. The lower weight also saves significantly on shipping costs. This is where Musk can lower costs enough to be competitive to some of the materials he hope to compete with.","There are few things on reddit that bother me more than seeing someone I disagree with making an honest attempt at reasonable debate, providing facts and arguments to support their position, and being downvoted and *ad hominem*ed away. Thanks for trying to engage intelligently on the topic. I'm all for solar, but you *do* make a good point here.","Lobby lobby lobby, Don't invest in renewable the returns are god awful. Renewable's are so rational and logical as a future energy source that I can't see it being any other way. Producing energy that replenishes over time seems like a no brainer","I've read a study about this. If you have twice the generation capacity in renewables (wind/solar) and can store 20% of your yearly consumption, then you are fine. So let's calculate this for the average americal household (4500kWh/year): * You need to be able to generate 9000kWh/year, this requires a 6kW solar installation (Arizona), estimated at $ 15'000. * You need to de able to store 1000kWh, this requires 70 Tesla powerwalls for $6000 each, grand total of $ 420'000. So even here, storage will kill you financially. References: * Study: http://euanmearns.com/the-quest-for-100-renewables-can-curtailment-replace-storage/ * Average US household consumption: http://www.nationmaster.com/country-info/stats/Energy/Electricity/Consumption-by-households-per-capita#2005 * Arizona solar example: https://solarpowerrocks.com/buying-solar/how-to-calculate-the-amount-of-kilowatt-hours-kwh-your-solar-panel-system-will-produce/","\"Usually it makes sense to invest in individual companies when you're investing in a \"\"hot\"\" sector. Secular funds have their own risks that can be difficult to measure. First Solar is one of the premier PV players. The fund gives you a false sense of diversification. If you bought a mutual fund in 2000 in the computer space, you'd have pieces of HP, Dell, Apple, IBM, EMC, Cisco, Intel etc. Did the sector perform the same as the companies in it? Nooo. As for renewable energy, IMO that ship has sailed for the \"\"pure play\"\" renewable stocks. I'd look at undervalued companies with exposure to renewables that haven't been hyped up. (or included in a sector mutual fund) Examples for this area? The problem with this sector is that the industry is dependent on government subsidies, and the state of government budgets make that a risky play. Proceed with caution!\"","\"nuclear plants + nuclear fuel rod storage facilities together take up a lot of space. also to go back to one of your earlier points, I tried looking up the comparison in mining between nuclear and solar panels, but couldn't find anything. however I think they are similar, not one being more or less than the other. the processes are not too dissimilar, you have to get what you're mining for then wash it down and purify it with chemicals. But if you saw the amount of land that was displaced to get one piece of uranium that wouldn't even make up an entire fuel rod you might not think solar had the heavier mining load. besides, solar generates electricity while the fuel rods have a set amount of energy, so solar will end up paying for itself rather than having to mine for more of a radioactive element once your fuel rods are spent. not sure I explained that last part too well but solar starts at 0 and goes to \"\"infinity\"\" in terms of how much electricity is generated while nuclear fuel rods start at 100 and go down to 0. so I think solar is the better bet edit: I also agree that energy is really hard to solve. every source has their drawbacks unfortunately. except cold fusion lol\"","Who gives a shit? The government is actually giving an incentive to innovate and be a world leader.. They're not taxing, they're not regulating, they're just promoting a form of energy that doesn't require money to go to hostile states such as Russia, Saudi Arabia, West Virginia, or Venezuela","You don't understand how global warming works and where most emissions sources come from (hint: transportation is a huge one). Never mind local air quality. Neither of these things mean we must live devoid of petroleum products. Just that we don't need to burn it and live with the exhaust it creates and the consequences that arise from it. But yes, wind and solar are already becoming the cheapest forms of electricity available. The price point for renewables no longer requires heavy subsidies and is now becoming cost competitive.","> Compares costs of construction of only solar array excluding batteries, continued maintenance, etc. > Compares above fake costs to base load costs using peak production rates. If solar was that cheap it would be prevalent across the world already. Shit I'd be down at Walmart getting in fist fights over the last solar panel to cover the top of my house in solar tomorrow if I could get energy for <$0.13 kWh I pay.","\"Whoops, paywall. Here's a [link around the wall](http://archive.is/6quZg). >The first offshore wind installation in the U.S., a $300 million, 30-megawatt project off Rhode Island, began turning six months ago. >But the Block Island wind farm in the U.S. currently generates power for 24.4 cents per kilowatt-hour, while offshore wind projects in Europe can come in well under 10 cents per kilowatt-hour. Developers are optimistic that, as occurred in Europe, prices will go down as more projects begin and a supplier network takes shape in the U.S. It's interesting the seas are seen as a good place for wind farms, given that land developments are already profitable. Iowa is a [leader](http://www.energyfactcheck.org/fact-checks/wind-power-isn-t-a-significant-part-of-america-s-energy-portfolio). >The levelized (or \"\"all-in\"\") cost of wind energy ranges from $0.07 per kW/h to $0.10 per kW/h, making wind energy cost-competitive with fossil fuels and even cheaper than coal energy in many areas. Of course, it's not easy or efficient to move electricity from Iowa to the coasts, hence the offshore developments.\"","They're trying to, but ratepayers and state governments are fighting back, especially in progressive states. The big issue is the degree to which you can bank your summer power surplus to offset your winter deficit. You'd think that since you're generating power for the grid in summer you'd get equal credit for that to use in winter when the sun shines less, but power companies do their best to prevent this, so state governments have to mandate it.","Don't misunderstand man, I'm all about alternative energy. I bought a Japanese Delica because they have the room I need and they're stupidly good on diesel. (sadly, I blew the head at Christmas, now I need to get a new one, and until then I'm in an 07 Caravan). I'd like to add solar panels to the farmhouse once all the other expenses are taken care of, and over the winter we only burn wood for heat in a high-efficiency triple-burn woodstove.","> It's still free money from US to build a system for THEM so they can sell the power back to us at a profit. Sure, because otherwise they can't make a profit and thus wouldn't build the system. That's the point in subsidises.","Basic business concept here. Sales =/= money for you. You need to take into account the cost to continually produce this stuff. Don't forget the fact that prices will fall in the future as more firms enter the market.","Disappointing to say the least. I'd like to see us invest in updating our nuclear reactors and experimenting with MSRs. I just don't hold out a lot of hope that Solar is going to be the end all, be all.","He's comfortably middle class, but not wealthy. The Tesla was purchased in a multi-owner shared arrangement, and the solar panels were installed by a company that supplies the capital for the panels with a long-term agreement to supply power to the homeowner and takes care of the more complex business agreements to feed back power to the grid. The situation on paper looks like a long term break even - but we'll have to see. Overall, even if he's paying a bit more in electric cost, the arrangement gives a lot of stability in exchange. To me it's clear that going electric car + renewable electric is a long-term good on the principle of becoming nationally independent from geopolitical enganglements, but also more towards becoming individually independent in terms of being isolated from instability in gas prices, utility prices, and even in times of natural disaster.","Yeah, not to disparage solar, but solar. It's not a good idea to have government pick winners and losers. Without government picking oil decades ago we'd probably have solar already, without subsidies. Without government picking automobiles (via government built interstate highways) we'd probably have a robust high speed passenger rail system.","19 x 3.75 = 71.25... without having to actually pump oil, transport it, refine crude, and deal with the health hazards of it. Not bad. Is this supposed to be a dramatic increase or decrease from the current market? Im not sure if im just being stupid, but I wish the article could involve financial comparisons of some sort... because I'm just mostly confused here.","They are a complete waste of money, see my answer here for more details.","Oil wasn't always so valuable. It has had its day in the sun. It is time for new ways to do things that are cleaner and renewable. You are right about that 10% loss, but new products could change that.","Don't both of your first two points also apply to PV panels? In fact, to generate the same load, I'd imagine the material requirements are much higher. And storage doesn't seem like that big of a problem. Don't we already have the holes they were dug up from to put them back in?","It'd be a stimulus so yes. It would create demand for labor, research, materials and what not that will result in more jobs/productivity. Even if climate change isn't real, harnessing alternative sources of energy has alot of benefits. It diversifies the energy sector so that we're not reliant on just one source. See how countries like Saudi Arabia and Venezuela put all their eggs in one basket by just focusing on oil as their main driver. When oil crashes, so do oil based economies. Renewable energy like wind, solar and even nuclear can be clean which means less pollution to clean up and easing the burden of healthcare and improving quality of life. When places are clean, you'll see more uptick in tourism, healthier people going out more, which ultimately leads to more economic activity. If a war can be considered an economic stimulus, building renewable energy resources and the accomodating infrastructure should be too.","\"The answer to this question will vary considerably by state and how utilities are regulated in your area. In New York, ESCOs (Energy Supply Companies) are almost always a ripoff for consumers versus the old-style regulated utility (in NY the utility supply markups are tightly regulated, but ESCOs are less regulated). You also need to really understand the marketplace rules for \"\"locking in\"\" a price. If you can lock in the July price for natural gas for a year, that rocks. There are other factors as well. But even then its a real bet, since weather and supply factors can have a dramatic effect on gas prices in the winter. IMO, the best bet is to run with the market rates and bank the efficiency improvements that you build into your home over time. Some utilities offer \"\"budget plans\"\" that smooth out your payments without interest -- I'd recommend that route if predictable bills are your goal.\"","\"You want to \"\"begin building a nice portfolio\"\" comprised of \"\"real estate\"\" and \"\"solar and wind\"\". There are ways to do that without starting your own solar power farm or buying giant wind turbines, or whole apartment complexes. They're called ETFs. They're diversified and it's unlikely that you'll use the entirety of your initial investment.\"","\"Updating current reactor tech largely reduces \"\"radioactive waste?\"\" Exactly by how much will this reduce radioactive waste? And I hope you can clarify, but when you put \"\"radioactive waste\"\" within quotes you could be misinterpreted as downplaying the perilous nature of a deadly substance who's mere milligrams will poison and even kill every orgasm that ingests it -- over the next 250,000 years. Something /energy ignores and even censors on their subreddit is the question of where will nuclear waste be stored. Our species has had a strong couple thousand years but considering how we collectively mishandle even the simplest of tasks - how arrogant are we to believe we can safeguard the storage of a deadly substance for the next quarter-million years? Windmill 1.0 can just be taken down and even recycled into Windmill 2.0\"","I'm not sure those are as directly correlated as you make it appear. Wouldn't capacity refer to the ability of solar panels to store energy, while production refer to how much is actually generated? If true, then generation could have extreme variance based on where it is installed (i.e. how much access the panels have to sunlight). A person installing a solar panel in Minnesota will have drastically different power generation than a person installing that same panel in the middle of an Arizona desert, but wouldn't their capacity for storage be equal?","There are so many qualifiers in that story that you cannot take it seriously. Solar will be the cheapest way to get some amount of daytime generation to supplement em field generation. When you try to go 100% solar your costs skyrocket because if the storage requirements and supplemental generating capacity you need.","> I don't understand what all the fuss is about a LOT of people are heavily vested in extracting American money, e.g. The Musker and taxpayer subsidies for his cars and solar. Al Gore became super wealthy trading carbon and corporations that feed the frenzy like GE and their bird killing wind turbines","\"This is the best tl;dr I could make, [original](https://www.bloomberg.com/view/articles/2017-07-12/rooftop-solar-is-no-match-for-crony-capitalism) reduced by 93%. (I'm a bot) ***** > It therefore makes economic sense to charge rooftop solar owners extra to maintain the electrical grid - without the grid, after all, a person using only rooftop solar wouldn&#039;t have any electricity at night. > Measures to ban third-party ownership of rooftop solar are crony capitalism, plain and simple. > Eventually, solar power will be so cheap that it makes sense to install rooftop panels even without net metering, and utilities will start switching from power plants to solar farms. ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6n512e/rooftop_solar_is_no_match_for_crony_capitalism/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~166235 tl;drs so far.\"\") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \"\"PM's and comments are monitored, constructive feedback is welcome.\"\") | *Top* *keywords*: **solar**^#1 **utility**^#2 **power**^#3 **company**^#4 **rooftop**^#5\"","Or the far less nefarious response that nobody could have accurate predicted the changes in the cost basis and the financing that has come about for panels 10 years ago. Also, as mentioned, production estimates weren't off by nearly as much. This is like laughing about someone getting an internet expansion estimation wrong in 96, it was clear it was going to go way up, but the errors in just a few percentage points of growth for explosive growth lead to massive differences in outcome.","Depends very much on where you live. Seasonal credits dovetail nicely with hydro generation, which usually peaks in winter and fades in summer, so solar net metering helps fill a gap that would otherwise be fossil fueled. Nevertheless, utilities in hydropowered conservative states like Arizona and Idaho have succeeded in hobbling grid-tied solar by blocking state mandates on credits for seasonal surpluses.","\"This is the best tl;dr I could make, [original](https://www.bloomberg.com/view/articles/2017-07-12/rooftop-solar-is-no-match-for-crony-capitalism) reduced by 93%. (I'm a bot) ***** > It therefore makes economic sense to charge rooftop solar owners extra to maintain the electrical grid - without the grid, after all, a person using only rooftop solar wouldn&#039;t have any electricity at night. > Measures to ban third-party ownership of rooftop solar are crony capitalism, plain and simple. > Eventually, solar power will be so cheap that it makes sense to install rooftop panels even without net metering, and utilities will start switching from power plants to solar farms. ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6nhc7p/rooftop_solar_is_no_match_for_crony_capitalism/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~167580 tl;drs so far.\"\") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \"\"PM's and comments are monitored, constructive feedback is welcome.\"\") | *Top* *keywords*: **solar**^#1 **utility**^#2 **power**^#3 **company**^#4 **rooftop**^#5\"","I mean, it doesn't really apply to a lease/buy decision in a home. The variability due to the variables I discussed makes it not worth the analysis when you're talking about return differences of maybe 1-2%. Even if your house costs $1 million, that's only a difference of $10,000... MAYBE if there's no difference in the other variables, but there will be. My point is that it's not worth doing. DCF models are used for valuation of large projects, not simple home buying problems. There are way better ways to evaluate such a simple problem.","The article does not support this at all. > profits would gush if breakneck growth were to stop. Uber says it is profitable in cities where it has operated longest, such as San Francisco. Nextera says that if it stopped investing in new capacity, it would make $6bn of free cashflow a year.","\"To answer your question: yes, it's often \"\"worth it\"\" to have investments that produce income. Do a Google search for \"\"income vs growth investing\"\" and you'll get a sense for two different approaches to investing in equities. In a nutshell: \"\"growth\"\" stocks (think Netflix, etc) don't pay dividends but are poised to appreciate in price more than \"\"income\"\" stocks (think banks, utilities, etc) that tend to have less volatile prices but pay a consistent dividend. In the long run (decades), growth stocks tend to outperform income stocks. That's why younger investors tend to pick growth stocks while those closer to retirement tend to stick with more stable income-producing portfolio. But there's nothing wrong with a mixed approach, either. I agree with Pete's answer, too.\"","> Home solar doesn't need to completely replace grid power - a 70% reduction in demand would be sufficient to reduce generation requirements to only existing hydro / wind / nuclear plants. That is exactly where the problem is. When your home solar and battery is out of power, then your grid (without traditional backup) is out of power as well. So in the end you need your grid to supply power in the 30% of time when your renewable plus some storage has none. At the same time all household, equipped like yours are out of power as well. So either the grid/power company has conventional backup or huge storage. Of course, the cost of these must be levied over the 30% of time they are used, not economically attractive. So you expect as a household to be able to just get energy from the grid/power company when it is necessary for you as a backup. Are you ready to pay the triple rate during that time ?","I just briefly looked into the gravity battery and it looks like a pain in the neck engineering wise. Making that economically viable with the requirement to replace the installed base seems unfeasible. Also it doesn't seem to take care of one of the main issues - transportation. Running electricity through wires is extremely inefficient because the wires have a certain amount of resistance. So energy company try to minimize the amount of wires used by localizing power plants. For solar and wind, which are efficiency is dependent on region, transportation is the real issue for widespread adoption","I like this idea. The limiting factor of renewables and EV's is mainly in storage capabilities. It's easy to make a Tesla go 400 miles on a single charge but the weight requirement isn't. We need smaller size, longer life, and greater storage. And today's environment provides a profit incentive to pursue these goals.","B2C had a lot to do with this. The original vision of the US government for solar production was massive, Nevada and California installations, while a huge amount of installation today is sold directly to consumers who want to save on their energy bill or be environmentally conscious.",">total destruction Seems a bit harsh given that we don't have a real comparison here. With their new system, you can use solar panels on your roof that last longer than normal roofing tiles and charge your car/power your home. All in all it seems like a great way to go green.","\"This is the best tl;dr I could make, [original](https://about.bnef.com/blog/henbest-energy-2040-faster-shift-clean-dynamic-distributed/) reduced by 94%. (I'm a bot) ***** > Onshore wind costs fall fast, and offshore falls faster. > Around $6 trillion of new investment in wind and solar power between now and 2040 will reshape the world&#039;s electricity markets as we move from a system where coal, gas and oil-fired power plants make up over 60% of capacity, to one where solar and wind are the two largest categories, and where fossil fuels make-up less than a third. > In Germany, new onshore wind and solar already appear to be cost-competitive with new coal and gas; in China today, coal is the lowest-cost, new-build electricity generation, but in 2019, onshore wind gets cheaper, then PV follows two years later; in the U.S., cheap natural gas makes it the lowest-cost source of new electricity right now, but by 2022-23 PV and wind both begin to beat it; and in India, new solar PV starts to look cheaper than new coal, across the country, from 2020. ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6kchsc/energy_to_2040_faster_shift_to_clean_dynamic/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~155602 tl;drs so far.\"\") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \"\"PM's and comments are monitored, constructive feedback is welcome.\"\") | *Top* *keywords*: **wind**^#1 **New**^#2 **solar**^#3 **coal**^#4 **Gas**^#5\"","\"Ever seen a very low price on near-rotten apples or tomatoes? Think the world hates tomatoes or apples \"\"from Solar energy\"\"? Durrp! If you can figure out *which* industry hates electricity ... I'd like to short their stock. It would seem electricity is *not* tainted by its source. Just stupid politicians. The *only* cost that generates negative prices is the cost to the distribution system (the grid) that needs to drain its extra capacity. There's no cost from the marketplace for electricity. That's just stupid.\"","This investment does not have a payback period as the net present value of your investment is negative. Your investment requires an initial cash outlay of $40,000 followed by annual savings of $2060 for the next 20 years. Your discount rate is 5% at which the NPV is $-14327.85 as calculated below by using this JavaScript financial functions library tadJS that is based on a popular tadXL add-in for Excel 2007, 2010 and 2013.","The breakeven amount isn't at 8 years. You calculated how many years of paying $500 it would take to break even with one year of paying $4000. 8 x 10 years = 80 years. So by paying $500/year it will take you 80 years to have spent the same amount ($40000 total) as you did in 10 years. At this point it may seem obvious what the better choice is. Consider where you'll be after 10 years: In scenario #1 you've spent $5000 ($500*10) and have to continue spending $500/year indefinitely. In scenario #2 you've spent $40000 ($4000*10) and don't have to pay any more, but you currently have $35000 ($40000 - $5000) less than you did in scenario #1. If you had stayed with scenario #1 you could invest that $35000 at a measly 1.43% annual return and cover the $500 payments indefinitely without ever dipping into your remaining $35000. Most likely over the long term you'll do better than 1.43% per year and come out far ahead.","\"Yeah, I saw a similar article back in 1976 (and several times since). But then they used the correct word \"\"exponential\"\" to refer to growth. Ironically the author may end up being correct by using \"\"parabolic\"\" -- which is the type of curve you see with \"\"bubbles\"\", as the slow towards the peak and then begin descending with increased rapidity on the other side. And (alas) solar electric power generation placements are very likely to follow THAT curve -- as the investments fail to pay off, people begin to realize that (despite the claims) it is *not* a viable long-term base of power-generation, and so begin to not only reduce investment, but to abandon and even scrap projects as the long term costs mount.\"","This will always be the case unless the tax relief is more than the expenditure, which it never is. There are some ways in which this can become worth it: if the thing you are spending the money on would actually be useful, of it you might be able to sell it for more than four dollars later - or if you can claim a government grant or similar for more than four dollars. And at the level of corporate finance it can get more complicated. But otherwise, No.","> It's been awfully difficult for clean energy startups to raise money lately, and funding those startups would have a lot more impact. With so many green startups going bankrupt, it must seem like a risky and fruitless investment.","The key is measuring. Like any project you need to evaluate a baseline, make a change, then re-evaluate. Otherwise you are blindly spending money to save, or worse, being manipulated by advertising. Like Chris W. Rea said before me, using a tool like a Kill-A-Watt to measure the effectiveness of what you are about to do is the most important step. For example, if you have an incandescent light bulb in a back part of your basement that you never turn on, it doesn't make much sense to replace that bulb with a $9 LED to save money. If you have an empty freezer in your basement, turn that thing off. Measure your power usage, then you can know for sure what is the most effective action. If you have a family like mine, the best of intentions still leave lights on all day or tvs on a screensaver all night. Invest in simple automation like motion sensing outlets or light switches to automatically turn off power. (It is my full time job to go around a turn off lights, and I want to retire) The biggest payback that I know of is insulation and caulking of your home to make the energy you do use more efficient. If you don't have enough insulation, that is a great place to start. Here is a calculator to estimate the payback of adding insulation. The US government has a cool website with a bunch of tips for saving energy.","> No guarantee that the money would go to the right place. https://en.m.wikipedia.org/wiki/Solyndra So to be clear, you think that it went to the wrong place because the company tried to innovate and use new technologies that then didn't work out? And you want to discourage such attempts?","This would be 48x wrong, no need to sensationalize it any more than it already has been. Their 10 year estimate of actual solar production (an emerging market) was off by a factor of 4, which is pretty good.","Big solar fan here. I like your argument for nuclear. With the way that electricity power generation works, we need ideally 3 sources of power. Nuclear is one of them. Base load, if you will. Solar and nat gas can sort of fluctuate against each other as the sunlight changes. And once battery tech updates we can do away with nat gas. I don't know enough about price/economics on nuclear and if you have a few concise things to share I'd appreciate it. Not asking for you to type a tome. I can always research later but appreciate your input!","\"Not \"\"these\"\" batteries, they will still be using a mixture of solar, wind, gas and oil, nuclear and coal. Maybe a generation or two, but definitely not these batteries. I honestly don't care how cheap these things get, until we have an infrastructure to support it, we will be struggling.\"","It looks good. Only thing that I see as lacking is funding and then how you would recover those costs (cause let's be real, if you give things away, that isn't sustainable) other than selling to the government. Is that a feasible method? Per kilowatt-hour to the customer maybe? Regarding the education, I would look at some of the electrical installations they have (the bundles of wires hanging off the pole) and see if your solution would help that problem. Jobs - great. Sustainability - good. As long as you have microgrids. I thought the benefit to a microgrid was, well, less excess energy. I like expansion also.","At what point does it stop being about money, and start being about not killing our planet. Plus, whatever profit Tesla is or is not making, Tesla, SpaceX, SolarCity all seem to be making industry changing splashes in their respective markets.","I never said they're not going to change. I'm saying it will take far more than a year or two. The article say that a $10/barrel can happen in 2 years. I'm saying no. And it's not inefficiency that's causing expensive electricity. Philippines does not have the basic requirements to create cheap and renewable energy to supply what it needs. Nowhere to build a dam for hydro power. And too many strong typhoons/earthquakes for building wind. Solar power would not necessarily work either. The nation is one of the most biodiverse areas in the world. By blocking large chunks of the islands and depriving the land of sunlight, you are causing massive environmental destruction. Palm and agriculture has already devastated many parts of Philippines, what it needs is more vegetation. Tidal power isn't nearly as developed as the other forms of new energy. And it may also disrupt a very busy marine trade route.","Well you would have to take into account 2 things. 1 the taxes and regulations that fossil fuel industries face relative to renewables. 2. subsidies as a percent of fossil fuel industry compared to subsidies as a percent of green energy companies. My hunch is that both of these points show that overall, the fossil fuel industry isn't benefiting from the government and renewable companies are benefiting","[Craig Morganson](http://www.craigmorgansonreports.com/) agrees that it might be beneficial to look around your property and do an evaluation. Do you drink a great deal of bottled water? Those plastic bottles are an environment killer. Contemplate instead putting in a purification unit on your own faucet – these are very inexpensive.","> (Wouldn't renewable investment be) A positive even if climate change is not REAL?!?! No, have a look at [the broken window fallacy](https://en.wikipedia.org/wiki/Parable_of_the_broken_window). Regardless, there is no reason to stoop to this level. Global warming exists and the evidence is unequivocal. Anyone who disagrees are profiting from maintaining the status quo or are victims of the propaganda from the former.","\"This is the best tl;dr I could make, [original](https://www.bloomberg.com/news/articles/2017-06-15/solar-power-will-kill-coal-sooner-than-you-think) reduced by 86%. (I'm a bot) ***** > Natural gas will reap $804 billion, bringing 16 percent more generation capacity and making the fuel central to balancing a grid that&#039;s increasingly dependent on power flowing from intermittent sources, like wind and solar. > Onshore wind, which has dropped 30 percent in price in the past eight years, will fall another 47 percent by the end of BNEF&#039;s forecast horizon. > By 2040, wind and solar will make up almost half of the world&#039;s installed generation capacity, up from just 12 percent now, and account for 34 percent of all the power generated, compared with 5 percent at the moment, BNEF concluded. ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6hwl1b/solar_power_will_kill_coal_faster_than_you_think/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \"\"Version 1.65, ~146897 tl;drs so far.\"\") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \"\"PM's and comments are monitored, constructive feedback is welcome.\"\") | *Top* *keywords*: **percent**^#1 **Energy**^#2 **capacity**^#3 **fuel**^#4 **BNEF**^#5\"","Shop around a bit. You can probably do better than $5k. See this calculator to decide if your payoff period will happen before you think you'll move. If you're at 8% now it may come sooner than you think -- especially if you can lower that closing cost estimate and still get a good rate."],"string":"[\n \"\\\"To answer the investment aspect takes a bit of math. First, solar insolation numbers: This represents the average sun-hours per day for a given area. You can see the range from 4 to 6, or 1460 hrs to about 2190 hrs of sun per year depending on location. I believe electricity also has a range of cost, but 15 cents per KWH is a good average. So, a 1KW panel will produce as much as $328 per year of electricity in a high sun-hrs area, but only $219 in a lower sun-hrs area. If we agree to ignore the government subsidies and look for the stable price unaffected by outside influence, an installed price of even $2500 would produce a return of 13% and a reasonable full payback over an 8 year period. I call this installed price a tipping point, the price where this purchase provides a decent return. Some would accept a lower return, and therefore a higher price. As duff points out, this should be treated as the post rebate/tax credit price. Those help to push the price below this point. At the price point where the energy cost per panel is below, the government intervention may be unnecessary. The power companies may find consumer owned panels are the cheapest way to clip the peak consumption which tends to be the most expensive power demand.) One can take the insolation numbers and cost of local power to produce a grid showing the return for a 1KW panel in $$/year. (At this point the cost of money kick in. The present value of $100/yr is far higher today than if short term rates were say, 8%) Once panels drop to where they are compelling for the higher return areas, I'd expect volume to drive continued improvements in cost and better economies of scale. Initially, the need for storage isn't there, as the infrastructure is in place to drive your meter backwards if you produce more than you use. The peek sun coincides with peek demand and the electric companies are happy to have your demand go negative during those times. Update - the conversation with Duff led me to research 'demand charge' a bit more. You see, the utility company has to have equipment to generate the peak demand, usually occurring in the early afternoon, say 12N-2PM as the sun is brightest and AC use in particular, highest. I found that Austin energy has a PDF describing the fee for this. Simply put, the last kW of demand will cost you $14.03 in summer months and $12.65 in winter. This adds to $160/yr that a 1kW panel might save the owner. Even if one does capture the full power at peak every month, $100 is still non-trivial. This factor alone justifies $1000 worth of panel cost, and as Duff points out, the government may find it cheaper to use this method to clip peak demand than by funding bigger power generators. To summarize, the question isn't so much \\\"\\\"are they worth it\\\"\\\" as \\\"\\\"what is a xKW panel worth?\\\"\\\" (A function of annual savings and time value of money.) The ever decreasing installed cost for a given system makes solar an inevitable part of the future power technology. I am not a green tree hugging guy, but I do like to breathe fresh air as much as anyone. I'm happy with whatever role solar plays in cutting down pollution.\\\"\",\n \"These are two rather distinct questions; only one of which is relevant to a Money web site. In general, the investment is questionable. Leaving aside the green feel-good factor, you need to look at a total cost of ownership (TCO) and payback on the asset. Neither is cheap as such. There are DIY windmill plans, but you likely still need a commercial battery charger/inverter/controller setup. Government incentives, depending on where you live, may change the story considerably. Many jurisdictions around the globe have both incentives to install and then power-feed-in tariffs if you sell back excess power. Your latitude also has an impact on your total available solar energy, along with regular weather patterns for both cloud cover and wind. One of the cheapest solar projects can be hot-water. Particularly if you have a pool, or even for domestic use, if you use a lot. All that said, given the green feel-good factor, if you want a small set of solar panels and have the space/budget, go ahead! You can add more later. For the second question: it is indeed possible to live off grid. Some remote houses do just this, and the methods to accomplish it vary. The number one thing you need to do is work on a power budget; and be both ruthless as well as realistic. Fridge, freezer, AC, furnace, plasma TV, etc. Depending on your climate and preferences, these may not all be possible for an off-grid lifestyle. (Of course, if you get a propane fridge and have a truck come by once a month, does that count as off-grid?)\",\n \"Solar water heaters are definitely worth the money (if you live in sunny states like South-South-West or Hawaii, at least). In some countries (like Greece, Cyprus and Israel, to name a few) most people use hot water from the solar heaters almost exclusively. I pay $30-$40 a month to PG&E for the privilege. Unfortunately, in the US these heaters are much more expensive than they are in the more advanced European countries, so all the savings go to drain because of the vast price difference ($300 for a gas heater vs $2000 for a solar heater).\",\n \"Solar water heaters are definitely questionable in the Northeast -- the season when you most need them is also the season when they are least effective. Solar electric isn't a huge moneymaker, but with rebates on installation and carbon-reduction credits (SRECs) -- and a group purchase discount if you can get one, either at a town level or through organizations like One Block Off The Grid -- it can definitely turn a profit. Early estimate was that my setup would pay its initial costs back in 4 years, and the panels are generally considered to be good for a decade before the cells have degraded enough that the panels should be replaced. I haven't had a negative electric bill yet, but I've gotten close, and my setup is a relatively small one (eight panels facing SSE on a 45-degree roof). Admittedly I've also been working to reduce electricity use; I don't think I have an incandescent bulb left in the house.\",\n \"\\\"Although this isn't related to homes directly, as an IT professional I know that wind power tends to be cost effective to the point that many data centers (the massive buildings holding the servers that are the backbone of the internet) actually invest in their own wind turbines to slash costs since servers tend to be power hogs. As far as going \\\"\\\"off the grid\\\"\\\" that ultimately depends on how much wind/sun you're getting at your residence, but if you look at places like Dallas, PA, CA, and other areas where the major hosts place centers, they're typically in areas where there's plenty of sunlight or wind. Going back to small scale thinking however, one of my contacts actually leases a colocation building in PA where he has a few server racks, and while he currently has electric there, he also owns a couple of turbines which have been powering <60% of the demand, and he's actually planning to add solar and also feed that back to the grid at a profit. So overall wind/solar definitely has the potential for a decent ROI, at both large and small levels, but performance will vary greatly from area to area. I know that Lowes actually started advertising about carrying solar panels, so going in and asking about the performance and if you can arrange an audit of your home might be a good place to start. If you Google \\\"\\\"green audits\\\"\\\" I'm sure you can find a trillion companies \\\"\\\"specializing\\\"\\\" in green power, but as with any sales rep (including at Lowe's) I'd do some due-diligence so you don't get taken for a ride, and also to check references because I don't think \\\"\\\"green audit\\\"\\\" companies have any official certifications/standards.\\\"\",\n \"I think we have to divide it up into the elements that are 'real' and those that are 'abstractions'. Certainly, it will take a long time for a turbine to 'recoup' the embodied energy of its manufacture, transport, installation, maintenance. After that, tho, it's paying its way. 'Free' energy. Property values are made up, and - while important - I don't think it's fair to include them. As far as $-per-watt hour goes, renewables can't/don't/won't compete with fossil fuels. Digging up millions of years of compressed sunshine has served us well. Looking at the bigger picture, however, renewables start to make sense, and are the only way forward. Any models that require maintenance of 20th century levels of consumption are unrealistic. The future will be slower, more expensive, and less convenient.\",\n \"\\\"Yeah, I guess the entire report is probably false because of that. What you're saying is applicable to the renewable industry too. There's all kinds of other investments made on behalf of renewables that aren't calculated into dollar amounts. Most obviously is the money that never even hits the books by subsidizing through consumer/corporate tax breaks. For example: the company you work for more than likely has a recycling program. It doesn't make money because it's not profitable to recycle anything but aluminum, but if they didn't have the program they would get penalized (not directly necessarily but would lose out on \\\"\\\"green\\\"\\\" initiative funding). The rest of what you are saying is as intangible as the first thing. If you think solar panels on your roof is going to keep the military out of other countries, you're clinical. And if you can't notice a correlation between the total lack of production coupled with the massive amounts of money being wasted then there's no discussion to be had. By the by, that article has no citations and the link to any additional sourcing is broken.\\\"\",\n \"If you're looking for a purely financial answer (ignoring the social/environmental aspects) there are a few different ways you can look at it. For these types of improvements the simplest is a payback calculation. How long would it take you to recoup the initial costs? For example, if the entire installation cost $5,000 (including any tax credits), and you save $100 per month (I'm making both numbers up), you'll pay back your investment in 50 months, or about 4 years. (Note that if you borrow money to do the improvement, then your payback period is longer because you're reducing the amount that you're saving each month by paying interest.) If you're deciding between different uses for the money (like investing, or paying down other debt) then you can look at the return that you're getting. Using the same example, you are spending $5,000 and getting $100 per month back, for a 24% annual return ($1,200 / $5,000), which is better than you can get on almost anything but a 401(k) match (meaning don't stop your 401(k) contributions to do this either). The decision on whether or wait or not then becomes - will the price drop faster than the amount of savings you will realize. So if you will save $100 per month in your electric bill, is the price of the complete installation going down by more than $100 each month? If not, you'd be better off buying now and start paying back the investment sooner.\",\n \"A 2011 study by the consulting firm Management Information Services, Inc. (MISI)[28] estimated the total historical federal subsidies for various energy sources over the years 1950–2010. The study found that oil, natural gas, and coal received $369 billion, $121 billion, and $104 billion (2010 dollars), respectively, or 70% of total energy subsidies over that period. Oh look the US has always subsidized energy in general to maintain a strong stable energy position and now they want to move from CO2 producing dirty tech to more green renewables. Personally I'm glad my tax money is being used for it. While subsidizing it costs have fallen by leaps and bounds, long term it's a great move. Do you think Europe and china would be building solar and wind if it wasn't ?\",\n \"But it isn't creating energy 17 times faster than conventional / reliable power sources, so these jobs are evidence of waste and inefficiency, not promise. It's also proof that subsidies and mandates can in fact shape market results.\",\n \"When is the right time to buy a new/emerging technology? When it's trading at a discount that allows you to make your money back and then some. The way you presented it, it is of course impossible to say. You have to look at exactly how much cheaper and efficient it will be, and how long that will take. Time too has a cost, and being invested has opportunity cost, so the returns must not only arrive in expected quantity but also arrive on time. Since you tagged this investing, you should look at the financial forecasts of the business, likely future price trajectories, growth opportunity and so on, and buy if you expect a return commensurate with the risk, and if the risk is tolerable to you. If you are new to investment, I would say avoid Musk, there's too much hype and speculation and their valuations are off the charts. You can't make any sensible analysis with so much emotion running wild. Find a more obscure, boring company that has a sound business plan and a good product you think is worth a try. If you read about it on mainstream news every day you can be sure it's sucker bait. Also, my impression that these panels are actually really expensive and have a snowball's chance in Arizona (heh) in a free market. Recently the market has been manipulated through green energy subsidies of a government with a strong environmentalist voter base. This has recently changed, in case you haven't heard. So the future of solar panels is looking a bit uncertain. I am thinking about buying solar panels for my roof. That's not an investment question, it's a shopping question. Do you actually need a new roof? If no, I'd say don't bother. Last I checked the payoff is very small and it takes over a decade to break even, unless you live in a desert next to the Mexican border. Many places never break even. Electricity is cheap in the United States. If you need a new roof anyway, I suppose look at the difference. If it's about the same you might as well, although it's guaranteed to be more hassle for you with the panels. Waiting makes no sense if you need a new roof, because who knows how long that will take and you need a roof now. If a solar roof appeals to you and you would enjoy having one for the price available, go ahead and get one. Don't do it for the money because there's just too much uncertainty there, and it doesn't scale at all. If you do end up making money, good for you, but that's just a small, unexpected bonus on top of the utility of the product itself.\",\n \"\\\"Really? Because at Tier 5 for electricity I'm paying 35 cents a killowatt hour. And at $1 per watt for a panel, and 5 hours of sunlight per day in California, that's 142 days for pay back (grid tie). It seems like Solar panels are cheaper for the \\\"\\\"peak load\\\"\\\" issues. i.e. when the sun is hottest and people are running their AC's the highest, then the solar panels are kicking in (Grid tie). But using a battery to operate off grid doesn't seem feasible currently. And using solar panels to generate non-peak electricity doesn't seem efficient either.\\\"\",\n \"Got the source for China asking for money? I would like to read that and educate myself. China put in more solar last year than the entire world combined. Never underestimate China, they are not bogged down by a bloated irrelevant government. They can just make a decision and go for it. Just walk around their cities and look at the infrastructure they pull off. It's staggering and puts anything in North America to shame.\",\n \"I saw lots of them out in NM a handful of years back. They looked great on paper, but I'm not sure they'd really hold up. Especially in some areas with more extreme weather. Plus, I'm a pig and like my electricity.\",\n \"\\\"Depending on the details of your solar panel setup, the monthly savings may change depending on changes in the law or utility company policy. This could change how long it will take for the solar panels to \\\"\\\"pay for themselves\\\"\\\". So your bullet point about the \\\"\\\"payback period\\\"\\\"/\\\"\\\"break even point\\\"\\\" is not fixed at the moment you buy the solar panels; it depends on costs you will incur over many years, and those costs could turn out to be different from what you originally thought. At least in the US, home solar installations typically work by selling excess power back to the power company. The power company can change the amount that it pays you for that power. There is also typically a minimum charge for being connected to the grid, and the power company can raise that charge. (This article mentions one such possible change.) The power companies want to keep making money, and as more people start adding solar panels, the power companies may change their rate structure to make that less financially feasible. You can avoid many of these issues if your solar panels are not connected to the public electricity grid, and you, for instance, store power with your own battery. However (at least in the US) this is very uncommon because it is more complex and expensive.\\\"\",\n \"It's good that you can still use the area solar panels are placed because the space requirements will be extremely large compared to nuclear. Recycling solar panels makes a lot of sense though. Not saying they are a bad idea. Energy storage is a tough problem to crack though.\",\n \"In our Texas home we subscribe to wind energy and the cost for consumers is so much lower than the other companies who aren't renewable that we have access to. We're in full swing summer, which inevitably brings on groans of power costs - mine was about 1/2 the price of my neighbors, they've all switched. And it truly was an apples-to-apples home situation, the 3 of us live on the same floor of the same building with similar sun exposure and keep our Nest thermostats set to about the same. I am paying 7.2 ¢ per kilowatt hour and they were paying 14+ ¢\",\n \"For sure they are about to take a hit through winter. People in California either have solar, waiting for better technology (mostly cause by hype of Tesla home batteries) or hate it because of the looks. Then there are people who have shade / low electric bills and just aren't qualified. I've had my whole division in solar (managers, everyone) be laid off in two different companies in two years, after getting promoted too :(. One filed for bankruptcy recently the other has been around awhile and might barely survive...another asked me for an interview...nah I can't take another lay off.\",\n \"\\\"I think that all else being equal, if more people have solar panels on our roof, we keep our military in FEWER countries, instead of planning on RAMPING up the number (see: Nigeria). Furthermore, the initial question wasn't whether installing solar panels is going to stop the action. **The conversation started by being about whether solar is actually cheaper when you factor in the amount used to subsidize both sources of energy. Not whether switching to solar would stop subsidies to oil.** What you did is called \\\"\\\"moving the goalposts\\\"\\\". The word 2016 doesn't show up in the article or in the study it cites. That was a typo. I understand it was about 2013, I was trying to saying that it was about the same year as yours. That was my bad. I read the whole thing originally, and I even read the study. I accept responsibility for the typo though. ANYWAYS, neither set of data is manipulated, my study just includes more things, like foreign tax credits, cleanup subsidies for both coal and oil, tar sands exemption from cleanup funds, Power Africa (a five year, 7 billion dollar program that was only ANNOUNCED in 2013). That overseas stuff that goes on is a HUGE part of the equation. And okay, so they aren't equivalent. Then your point is moot. Yes, both sides have off the book subsidies, but one side's off the book subsidies are so unfathomably bigger that it's laughable to even put them in the same category. Not to mention the costs of war in the middle east stretch beyond money (think lives), and recycling programs actually come with benefits (think smaller landfills).\\\"\",\n \"The question is valid, you just need to work backwards. After how much money-time will the lower expense offset the one time fee? Lower expenses will win given the right sum of money and right duration for the investment.\",\n \"They will be metering their own electric , so yes that's a plus. And yes I looked at it the same way, free money. I wonder if uploaded a imugr link to the drawings of where they are placing the equipment would help people with determining the benefit.\",\n \"In some places. Solars challenge will always be the scaling to a national grid. It can be cheap as chips and still present insurmountable technical obstacles in large scale. I would be all for it as a supplement to a robust nuclear program.\",\n \"Gas engines and oil power generation show no promise for greater efficiencies.. Extraction costs for oil are growing. Solar has has grown much more efficient and has more room for growths in efficiency. Recent research into batteries also shows great promise for increases in energy storage efficiency. Should we continue to subsidize the past or invest in the future?\",\n \"As you said, the next generation will be cheaper and more efficient. Same for the generation after that. From a financial standpoint, there isn't a steadfast theory that supports when to buy the technology. It comes down to primarily personal issues. As far as I know, Musk's claims about the cost were relating to a traditional slate roof, not a traditional asphalt shingle roof. I can't recall if he explicitly said one way or the other, but I have yet to see any math that supports a comparison to asphalt shingles. If you look at all of the demos and marketing material, it's comparisons to various styles of tile roofing, which is already more expensive than asphalt shingles. Do you feel it's worth it to invest now, or do you think it would be more worth it to invest later when the costs are lower? A new roof will last 10-20 years (if not longer...I'm not a roof expert). Do you need a new roof yet? Are your electricity bills high enough that the cost of going solar will offset it enough? Can you sell unused power back to your power company? I could go on, but I think you get the point. It's entirely a personal decision, and not one that will have a definitive answer. If you keep waiting to make a purchase because you're worried that the next generation will be cheaper and more efficient, then you're never going to make the purchase.\",\n \"No, look: Say a company needs to get $100 per solar panel to make a profit. But a consumer only wants to pay $80 for a solar panel, otherwise it isn't worth it. So, we have two options: 1. We offer a tax reduction to the consumer of $20. They now pay $100 for the solar panel, and get $20 back. The customer has now effectively paid $80 and the company has got $100. Or, 2. We give the company a subsidy for $20 per panel. They now sell the solar panel for $80, then get $20 in subsidy. The customer has now paid $80 and the company has got $100. You're against the 2nd option, in favour of the first. Have I understood you correctly?\",\n \"Yea that’s my point coal generation gets monopolies and subsidies, alternative gets subsidies. Who gets more as a weighted metric? In a per Capita and absolute sense. Also how you do you calculate out subsidies on panels sold that were subsidized? I don’t know.\",\n \"\\\"That's what stood out to me. The headlines make it sound like we're all financially stupid for not going with solar. The question is what is the *retail* price of solar vs other sources. Don't get me wrong; the idea of it going down quickly is itself great. But the title says \\\"\\\"cheapest electricity ‘ever, anywhere, by any technology’\\\"\\\". Show me the retail bills for solar as being cheaper than other sources and we've got a winner. That phenomenon is the real inflection point of interest.\\\"\",\n \"It's an early adoption situation, Tesla's approach is pretty brilliant. Serve the high-end niche markets with a design and performance at the high-end and work your way down in affordability over the long term. Many products have followed this overarching strategy. BTW that includes the early combustion cars which were playthings for the wealthy, and pretty unreliable at the time compared to horse and buggy. As an aside, all those batteries are recyclable into new batteries. Solar panel costs are dropping rapidly and if we can get to the point that investment in industry R&D is self sustainable we will continue get price drops similar to Moore's law in computer speeds.\",\n \"Are you assuming that net metering will continue forever? Eventually that will have to stop and you'll only receive the market generation rate (the price before all the markups in the submission's graph) for power exported to the grid which is unlikely to net you much profit.\",\n \"\\\"If you sell the property before the ten years are up, the panels might have declined in value more than the amount you owe declined. In the original post's situation, this is a negligible risk. Suppose (for the sake of argument) that each year's panels are 10% better than the previous year's panels. Even if the panels lasted forever, and even if the price you could sell the power for stayed the same, then the value of your panels should decline 9% per year. If the panels are financed at a 4.5% APR for 10 years, your principal should decline by 8.1% in the first year. A second risk is that the solar panels might be ugly, or might go out of fashion. When selling a home, \\\"\\\"curb appeal\\\"\\\" matters. If potential buyers do not like how your home looks with the solar panels, you might not be able to get as much money for the house if you have to sell it. A third risk is that the loan might harm your credit rating, or otherwise restrict your ability to borrow. Even though this deal does not impinge on your disposable income, a bank might think that it raises your debt-service-to-income (DTI) ratio. This could theoretically prevent you from refinancing your home, or raise the interest rates on potential loans you might want to take out. A fourth risk is that the installation process might damage your home in a way that causes expensive damage. Water leakage and electrical fires can potentially destroy homes. You need to have the solar system competently installed. A fifth risk is that the solar power system might make it harder to maintain or replace your roof. Will your roof need to be replaced during the life of the solar power system? If so, consider options that do not force you to throw away the solar power system prematurely.\\\"\",\n \"In the second example you are giving up future free cash flows in exchange for a capital gain on the original investment. With that respect the money you will not gain will be the difference of the future cash flows ( net of related costs) minus the net gain on the panel you have sold. The financial result can be considered as the opposite of a sunk cost, that is a cost you have already incurred ( and cannot be recovered) vs net future gains you are giving up. In more sophisticated financial terms we are talking about the benefit-cost ratio: ( from Investopedia)\",\n \"I have been a long time supporter of this viewpoint, but price drops of solar and battery over the last few years are starting to make it look like nothing will be able to beat the economics of solar. Nuclear is quite expensive and has a long payoff period and I don't think people will choose it over solar and wind much any more. Though I do think we need to update our existing reactors to new technology to solve some of the waste issues if this is possible (though I'm not sure it is)\",\n \"which is why I said EVs aren't as clean as they're made out to be. however, you can use land that has solar panels on it and it doesn't become radioactive, thus you don't have to build big cooling storage facilities to store them, where they have no use. edit: to my knowledge you can recycle solar panels. can't recycle used fuel rods.\",\n \"The solar roof is more expensive until you factor in that you get free electricity for life after it's installed. That power has value. It reduces your electric bill. If all you want is to cover your house, then use a tarp.\",\n \"In the short term, this question is pretty simple: Are occasional use grid-scale natural gas plants economically viable compared to distributed gas generators? Home solar is an amazingly good deal now. Economically, the question isn't whether it'll take over most home power generation, it's how fast that will happen. Currently - at least where I live - the grid is still a good deal for backup power. If that changes, then people will stop using it. You can get a gas generator to cover a normal sized home installed for ~$4000. In places with piped gas, the price for running the generator looks comparable to grid power per kWh. So no, I wouldn't pay triple the price for grid power or buy a ton of extra storage. I'd get a natural gas generator and handle solar downtime locally.\",\n \"Trump wants a solar wall... I told my wife he should build a solar wall the second I heard he wanted a wall.... Yes solar and wind are efficient. check out the UK. Lego factory and other examples of solar/wind/hydro in action. Why even argue against it? Like why??????\",\n \"Can no one read? I never said anything about equivalence, it was an example of an off the books subsidy. And I'll pose the same question to you as the other commenter, do you think that having solar panels on your roof will keep the government from sending our military to other countries? Because if you do, that's truly laughable. Apparently that author is clairvoyant enough to announce a 2016 report in an article dated July, 9th 2014. But I'll just assume you didn't actually read any of it. I did, and I'm not saying those figures are wrong, but that report has a clear stated agenda that is anti-oil/coal. The report I linked was to a US agency that was only making the information available. It may also have inaccuracies, but I'm going to assume that data for identical years in these reports being interpreted wildly differently indicates one is manipulating the information. I'd assume that someone with an agenda would be more likely to manipulate the data than an agency just seeking to publish data. Regardless, those inconsistencies should have some explanation.\",\n \"You did read the massive disclaimer about how not all subsidies are included it the report right? When you cherry pick only the categories you want it makes up whatever argument you want. Try including everything else like grants, foreign tax credits for example and the numbers are staggering. And that not even broaching the money we've spend on attempt to procure and stabilize middle east oil sources. I don't need an army to protect my roof solar panels from ISIS. http://www.energyandcapital.com/report/the-real-truth-about-energy-subsidies/491 Edit: I don't know why I bothered. You post in t_d, conspiracy and cap it all off with libertarian. Class act you are!\",\n \"\\\"Using the fact that you'd save $160/mo by spending $7000, I'd look at it this way - If I were to lend you the $7000 at 12%/yr, $160 would pay it off in 58 months. At 18%/yr, 72 months or just 6 years. You can run spreadsheets to get breakeven scenarios, and mhoran is on track with his answer, but breakeven is just one point to consider. Beyond that date, it's free money. My approach is to look at it with a question - \\\"\\\"How much interest could I afford to pay to make that monthly savings worthwhile?\\\"\\\"\\\"\",\n \"You do realize there is such a thing as equilibrum price which is what the market tend to however a single private individual can set any price on anything (that doesn't mean it sells though) Believe it or not overproduction of electricity is a problem, power lines get clogged, when that happens they need to turn the costs down to negative so people consume it instead of it damaging infrastructure, hence negative cost, because at that moment people wish there were less solar panels, not more. Also, my comments were basically a joke, I don't know how you didn't realize that lol\",\n \"The short answer is that it's never the right time to buy an emerging technology. As long as the technology is emerging, you should expect that newer revisions will be both better and less expensive. With solar, specifically, there are some tax credits to help the early adopters that may help you on the cost/benefit analysis, but in the end, you still have to decide whether the benefits outweigh the costs now, and if not, whether that will change in the near future. For me, part of the solar benefit is the ability to generate electricity when the power goes out. That option does require local battery storage, however. One of the benefits of using Musk's solar tiles instead of actual slate is the weight of the quartz tiles which is much lower than the weight of real slate. In many cases a slate roof is heavy enough to require major reinforcement of the roof trusses before installation. The lower weight also saves significantly on shipping costs. This is where Musk can lower costs enough to be competitive to some of the materials he hope to compete with.\",\n \"There are few things on reddit that bother me more than seeing someone I disagree with making an honest attempt at reasonable debate, providing facts and arguments to support their position, and being downvoted and *ad hominem*ed away. Thanks for trying to engage intelligently on the topic. I'm all for solar, but you *do* make a good point here.\",\n \"Lobby lobby lobby, Don't invest in renewable the returns are god awful. Renewable's are so rational and logical as a future energy source that I can't see it being any other way. Producing energy that replenishes over time seems like a no brainer\",\n \"I've read a study about this. If you have twice the generation capacity in renewables (wind/solar) and can store 20% of your yearly consumption, then you are fine. So let's calculate this for the average americal household (4500kWh/year): * You need to be able to generate 9000kWh/year, this requires a 6kW solar installation (Arizona), estimated at $ 15'000. * You need to de able to store 1000kWh, this requires 70 Tesla powerwalls for $6000 each, grand total of $ 420'000. So even here, storage will kill you financially. References: * Study: http://euanmearns.com/the-quest-for-100-renewables-can-curtailment-replace-storage/ * Average US household consumption: http://www.nationmaster.com/country-info/stats/Energy/Electricity/Consumption-by-households-per-capita#2005 * Arizona solar example: https://solarpowerrocks.com/buying-solar/how-to-calculate-the-amount-of-kilowatt-hours-kwh-your-solar-panel-system-will-produce/\",\n \"\\\"Usually it makes sense to invest in individual companies when you're investing in a \\\"\\\"hot\\\"\\\" sector. Secular funds have their own risks that can be difficult to measure. First Solar is one of the premier PV players. The fund gives you a false sense of diversification. If you bought a mutual fund in 2000 in the computer space, you'd have pieces of HP, Dell, Apple, IBM, EMC, Cisco, Intel etc. Did the sector perform the same as the companies in it? Nooo. As for renewable energy, IMO that ship has sailed for the \\\"\\\"pure play\\\"\\\" renewable stocks. I'd look at undervalued companies with exposure to renewables that haven't been hyped up. (or included in a sector mutual fund) Examples for this area? The problem with this sector is that the industry is dependent on government subsidies, and the state of government budgets make that a risky play. Proceed with caution!\\\"\",\n \"\\\"nuclear plants + nuclear fuel rod storage facilities together take up a lot of space. also to go back to one of your earlier points, I tried looking up the comparison in mining between nuclear and solar panels, but couldn't find anything. however I think they are similar, not one being more or less than the other. the processes are not too dissimilar, you have to get what you're mining for then wash it down and purify it with chemicals. But if you saw the amount of land that was displaced to get one piece of uranium that wouldn't even make up an entire fuel rod you might not think solar had the heavier mining load. besides, solar generates electricity while the fuel rods have a set amount of energy, so solar will end up paying for itself rather than having to mine for more of a radioactive element once your fuel rods are spent. not sure I explained that last part too well but solar starts at 0 and goes to \\\"\\\"infinity\\\"\\\" in terms of how much electricity is generated while nuclear fuel rods start at 100 and go down to 0. so I think solar is the better bet edit: I also agree that energy is really hard to solve. every source has their drawbacks unfortunately. except cold fusion lol\\\"\",\n \"Who gives a shit? The government is actually giving an incentive to innovate and be a world leader.. They're not taxing, they're not regulating, they're just promoting a form of energy that doesn't require money to go to hostile states such as Russia, Saudi Arabia, West Virginia, or Venezuela\",\n \"You don't understand how global warming works and where most emissions sources come from (hint: transportation is a huge one). Never mind local air quality. Neither of these things mean we must live devoid of petroleum products. Just that we don't need to burn it and live with the exhaust it creates and the consequences that arise from it. But yes, wind and solar are already becoming the cheapest forms of electricity available. The price point for renewables no longer requires heavy subsidies and is now becoming cost competitive.\",\n \"> Compares costs of construction of only solar array excluding batteries, continued maintenance, etc. > Compares above fake costs to base load costs using peak production rates. If solar was that cheap it would be prevalent across the world already. Shit I'd be down at Walmart getting in fist fights over the last solar panel to cover the top of my house in solar tomorrow if I could get energy for <$0.13 kWh I pay.\",\n \"\\\"Whoops, paywall. Here's a [link around the wall](http://archive.is/6quZg). >The first offshore wind installation in the U.S., a $300 million, 30-megawatt project off Rhode Island, began turning six months ago. >But the Block Island wind farm in the U.S. currently generates power for 24.4 cents per kilowatt-hour, while offshore wind projects in Europe can come in well under 10 cents per kilowatt-hour. Developers are optimistic that, as occurred in Europe, prices will go down as more projects begin and a supplier network takes shape in the U.S. It's interesting the seas are seen as a good place for wind farms, given that land developments are already profitable. Iowa is a [leader](http://www.energyfactcheck.org/fact-checks/wind-power-isn-t-a-significant-part-of-america-s-energy-portfolio). >The levelized (or \\\"\\\"all-in\\\"\\\") cost of wind energy ranges from $0.07 per kW/h to $0.10 per kW/h, making wind energy cost-competitive with fossil fuels and even cheaper than coal energy in many areas. Of course, it's not easy or efficient to move electricity from Iowa to the coasts, hence the offshore developments.\\\"\",\n \"They're trying to, but ratepayers and state governments are fighting back, especially in progressive states. The big issue is the degree to which you can bank your summer power surplus to offset your winter deficit. You'd think that since you're generating power for the grid in summer you'd get equal credit for that to use in winter when the sun shines less, but power companies do their best to prevent this, so state governments have to mandate it.\",\n \"Don't misunderstand man, I'm all about alternative energy. I bought a Japanese Delica because they have the room I need and they're stupidly good on diesel. (sadly, I blew the head at Christmas, now I need to get a new one, and until then I'm in an 07 Caravan). I'd like to add solar panels to the farmhouse once all the other expenses are taken care of, and over the winter we only burn wood for heat in a high-efficiency triple-burn woodstove.\",\n \"> It's still free money from US to build a system for THEM so they can sell the power back to us at a profit. Sure, because otherwise they can't make a profit and thus wouldn't build the system. That's the point in subsidises.\",\n \"Basic business concept here. Sales =/= money for you. You need to take into account the cost to continually produce this stuff. Don't forget the fact that prices will fall in the future as more firms enter the market.\",\n \"Disappointing to say the least. I'd like to see us invest in updating our nuclear reactors and experimenting with MSRs. I just don't hold out a lot of hope that Solar is going to be the end all, be all.\",\n \"He's comfortably middle class, but not wealthy. The Tesla was purchased in a multi-owner shared arrangement, and the solar panels were installed by a company that supplies the capital for the panels with a long-term agreement to supply power to the homeowner and takes care of the more complex business agreements to feed back power to the grid. The situation on paper looks like a long term break even - but we'll have to see. Overall, even if he's paying a bit more in electric cost, the arrangement gives a lot of stability in exchange. To me it's clear that going electric car + renewable electric is a long-term good on the principle of becoming nationally independent from geopolitical enganglements, but also more towards becoming individually independent in terms of being isolated from instability in gas prices, utility prices, and even in times of natural disaster.\",\n \"Yeah, not to disparage solar, but solar. It's not a good idea to have government pick winners and losers. Without government picking oil decades ago we'd probably have solar already, without subsidies. Without government picking automobiles (via government built interstate highways) we'd probably have a robust high speed passenger rail system.\",\n \"19 x 3.75 = 71.25... without having to actually pump oil, transport it, refine crude, and deal with the health hazards of it. Not bad. Is this supposed to be a dramatic increase or decrease from the current market? Im not sure if im just being stupid, but I wish the article could involve financial comparisons of some sort... because I'm just mostly confused here.\",\n \"They are a complete waste of money, see my answer here for more details.\",\n \"Oil wasn't always so valuable. It has had its day in the sun. It is time for new ways to do things that are cleaner and renewable. You are right about that 10% loss, but new products could change that.\",\n \"Don't both of your first two points also apply to PV panels? In fact, to generate the same load, I'd imagine the material requirements are much higher. And storage doesn't seem like that big of a problem. Don't we already have the holes they were dug up from to put them back in?\",\n \"It'd be a stimulus so yes. It would create demand for labor, research, materials and what not that will result in more jobs/productivity. Even if climate change isn't real, harnessing alternative sources of energy has alot of benefits. It diversifies the energy sector so that we're not reliant on just one source. See how countries like Saudi Arabia and Venezuela put all their eggs in one basket by just focusing on oil as their main driver. When oil crashes, so do oil based economies. Renewable energy like wind, solar and even nuclear can be clean which means less pollution to clean up and easing the burden of healthcare and improving quality of life. When places are clean, you'll see more uptick in tourism, healthier people going out more, which ultimately leads to more economic activity. If a war can be considered an economic stimulus, building renewable energy resources and the accomodating infrastructure should be too.\",\n \"\\\"The answer to this question will vary considerably by state and how utilities are regulated in your area. In New York, ESCOs (Energy Supply Companies) are almost always a ripoff for consumers versus the old-style regulated utility (in NY the utility supply markups are tightly regulated, but ESCOs are less regulated). You also need to really understand the marketplace rules for \\\"\\\"locking in\\\"\\\" a price. If you can lock in the July price for natural gas for a year, that rocks. There are other factors as well. But even then its a real bet, since weather and supply factors can have a dramatic effect on gas prices in the winter. IMO, the best bet is to run with the market rates and bank the efficiency improvements that you build into your home over time. Some utilities offer \\\"\\\"budget plans\\\"\\\" that smooth out your payments without interest -- I'd recommend that route if predictable bills are your goal.\\\"\",\n \"\\\"You want to \\\"\\\"begin building a nice portfolio\\\"\\\" comprised of \\\"\\\"real estate\\\"\\\" and \\\"\\\"solar and wind\\\"\\\". There are ways to do that without starting your own solar power farm or buying giant wind turbines, or whole apartment complexes. They're called ETFs. They're diversified and it's unlikely that you'll use the entirety of your initial investment.\\\"\",\n \"\\\"Updating current reactor tech largely reduces \\\"\\\"radioactive waste?\\\"\\\" Exactly by how much will this reduce radioactive waste? And I hope you can clarify, but when you put \\\"\\\"radioactive waste\\\"\\\" within quotes you could be misinterpreted as downplaying the perilous nature of a deadly substance who's mere milligrams will poison and even kill every orgasm that ingests it -- over the next 250,000 years. Something /energy ignores and even censors on their subreddit is the question of where will nuclear waste be stored. Our species has had a strong couple thousand years but considering how we collectively mishandle even the simplest of tasks - how arrogant are we to believe we can safeguard the storage of a deadly substance for the next quarter-million years? Windmill 1.0 can just be taken down and even recycled into Windmill 2.0\\\"\",\n \"I'm not sure those are as directly correlated as you make it appear. Wouldn't capacity refer to the ability of solar panels to store energy, while production refer to how much is actually generated? If true, then generation could have extreme variance based on where it is installed (i.e. how much access the panels have to sunlight). A person installing a solar panel in Minnesota will have drastically different power generation than a person installing that same panel in the middle of an Arizona desert, but wouldn't their capacity for storage be equal?\",\n \"There are so many qualifiers in that story that you cannot take it seriously. Solar will be the cheapest way to get some amount of daytime generation to supplement em field generation. When you try to go 100% solar your costs skyrocket because if the storage requirements and supplemental generating capacity you need.\",\n \"> I don't understand what all the fuss is about a LOT of people are heavily vested in extracting American money, e.g. The Musker and taxpayer subsidies for his cars and solar. Al Gore became super wealthy trading carbon and corporations that feed the frenzy like GE and their bird killing wind turbines\",\n \"\\\"This is the best tl;dr I could make, [original](https://www.bloomberg.com/view/articles/2017-07-12/rooftop-solar-is-no-match-for-crony-capitalism) reduced by 93%. (I'm a bot) ***** > It therefore makes economic sense to charge rooftop solar owners extra to maintain the electrical grid - without the grid, after all, a person using only rooftop solar wouldn&#039;t have any electricity at night. > Measures to ban third-party ownership of rooftop solar are crony capitalism, plain and simple. > Eventually, solar power will be so cheap that it makes sense to install rooftop panels even without net metering, and utilities will start switching from power plants to solar farms. ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6n512e/rooftop_solar_is_no_match_for_crony_capitalism/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \\\"\\\"Version 1.65, ~166235 tl;drs so far.\\\"\\\") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \\\"\\\"PM's and comments are monitored, constructive feedback is welcome.\\\"\\\") | *Top* *keywords*: **solar**^#1 **utility**^#2 **power**^#3 **company**^#4 **rooftop**^#5\\\"\",\n \"Or the far less nefarious response that nobody could have accurate predicted the changes in the cost basis and the financing that has come about for panels 10 years ago. Also, as mentioned, production estimates weren't off by nearly as much. This is like laughing about someone getting an internet expansion estimation wrong in 96, it was clear it was going to go way up, but the errors in just a few percentage points of growth for explosive growth lead to massive differences in outcome.\",\n \"Depends very much on where you live. Seasonal credits dovetail nicely with hydro generation, which usually peaks in winter and fades in summer, so solar net metering helps fill a gap that would otherwise be fossil fueled. Nevertheless, utilities in hydropowered conservative states like Arizona and Idaho have succeeded in hobbling grid-tied solar by blocking state mandates on credits for seasonal surpluses.\",\n \"\\\"This is the best tl;dr I could make, [original](https://www.bloomberg.com/view/articles/2017-07-12/rooftop-solar-is-no-match-for-crony-capitalism) reduced by 93%. (I'm a bot) ***** > It therefore makes economic sense to charge rooftop solar owners extra to maintain the electrical grid - without the grid, after all, a person using only rooftop solar wouldn&#039;t have any electricity at night. > Measures to ban third-party ownership of rooftop solar are crony capitalism, plain and simple. > Eventually, solar power will be so cheap that it makes sense to install rooftop panels even without net metering, and utilities will start switching from power plants to solar farms. ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6nhc7p/rooftop_solar_is_no_match_for_crony_capitalism/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \\\"\\\"Version 1.65, ~167580 tl;drs so far.\\\"\\\") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \\\"\\\"PM's and comments are monitored, constructive feedback is welcome.\\\"\\\") | *Top* *keywords*: **solar**^#1 **utility**^#2 **power**^#3 **company**^#4 **rooftop**^#5\\\"\",\n \"I mean, it doesn't really apply to a lease/buy decision in a home. The variability due to the variables I discussed makes it not worth the analysis when you're talking about return differences of maybe 1-2%. Even if your house costs $1 million, that's only a difference of $10,000... MAYBE if there's no difference in the other variables, but there will be. My point is that it's not worth doing. DCF models are used for valuation of large projects, not simple home buying problems. There are way better ways to evaluate such a simple problem.\",\n \"The article does not support this at all. > profits would gush if breakneck growth were to stop. Uber says it is profitable in cities where it has operated longest, such as San Francisco. Nextera says that if it stopped investing in new capacity, it would make $6bn of free cashflow a year.\",\n \"\\\"To answer your question: yes, it's often \\\"\\\"worth it\\\"\\\" to have investments that produce income. Do a Google search for \\\"\\\"income vs growth investing\\\"\\\" and you'll get a sense for two different approaches to investing in equities. In a nutshell: \\\"\\\"growth\\\"\\\" stocks (think Netflix, etc) don't pay dividends but are poised to appreciate in price more than \\\"\\\"income\\\"\\\" stocks (think banks, utilities, etc) that tend to have less volatile prices but pay a consistent dividend. In the long run (decades), growth stocks tend to outperform income stocks. That's why younger investors tend to pick growth stocks while those closer to retirement tend to stick with more stable income-producing portfolio. But there's nothing wrong with a mixed approach, either. I agree with Pete's answer, too.\\\"\",\n \"> Home solar doesn't need to completely replace grid power - a 70% reduction in demand would be sufficient to reduce generation requirements to only existing hydro / wind / nuclear plants. That is exactly where the problem is. When your home solar and battery is out of power, then your grid (without traditional backup) is out of power as well. So in the end you need your grid to supply power in the 30% of time when your renewable plus some storage has none. At the same time all household, equipped like yours are out of power as well. So either the grid/power company has conventional backup or huge storage. Of course, the cost of these must be levied over the 30% of time they are used, not economically attractive. So you expect as a household to be able to just get energy from the grid/power company when it is necessary for you as a backup. Are you ready to pay the triple rate during that time ?\",\n \"I just briefly looked into the gravity battery and it looks like a pain in the neck engineering wise. Making that economically viable with the requirement to replace the installed base seems unfeasible. Also it doesn't seem to take care of one of the main issues - transportation. Running electricity through wires is extremely inefficient because the wires have a certain amount of resistance. So energy company try to minimize the amount of wires used by localizing power plants. For solar and wind, which are efficiency is dependent on region, transportation is the real issue for widespread adoption\",\n \"I like this idea. The limiting factor of renewables and EV's is mainly in storage capabilities. It's easy to make a Tesla go 400 miles on a single charge but the weight requirement isn't. We need smaller size, longer life, and greater storage. And today's environment provides a profit incentive to pursue these goals.\",\n \"B2C had a lot to do with this. The original vision of the US government for solar production was massive, Nevada and California installations, while a huge amount of installation today is sold directly to consumers who want to save on their energy bill or be environmentally conscious.\",\n \">total destruction Seems a bit harsh given that we don't have a real comparison here. With their new system, you can use solar panels on your roof that last longer than normal roofing tiles and charge your car/power your home. All in all it seems like a great way to go green.\",\n \"\\\"This is the best tl;dr I could make, [original](https://about.bnef.com/blog/henbest-energy-2040-faster-shift-clean-dynamic-distributed/) reduced by 94%. (I'm a bot) ***** > Onshore wind costs fall fast, and offshore falls faster. > Around $6 trillion of new investment in wind and solar power between now and 2040 will reshape the world&#039;s electricity markets as we move from a system where coal, gas and oil-fired power plants make up over 60% of capacity, to one where solar and wind are the two largest categories, and where fossil fuels make-up less than a third. > In Germany, new onshore wind and solar already appear to be cost-competitive with new coal and gas; in China today, coal is the lowest-cost, new-build electricity generation, but in 2019, onshore wind gets cheaper, then PV follows two years later; in the U.S., cheap natural gas makes it the lowest-cost source of new electricity right now, but by 2022-23 PV and wind both begin to beat it; and in India, new solar PV starts to look cheaper than new coal, across the country, from 2020. ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6kchsc/energy_to_2040_faster_shift_to_clean_dynamic/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \\\"\\\"Version 1.65, ~155602 tl;drs so far.\\\"\\\") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \\\"\\\"PM's and comments are monitored, constructive feedback is welcome.\\\"\\\") | *Top* *keywords*: **wind**^#1 **New**^#2 **solar**^#3 **coal**^#4 **Gas**^#5\\\"\",\n \"\\\"Ever seen a very low price on near-rotten apples or tomatoes? Think the world hates tomatoes or apples \\\"\\\"from Solar energy\\\"\\\"? Durrp! If you can figure out *which* industry hates electricity ... I'd like to short their stock. It would seem electricity is *not* tainted by its source. Just stupid politicians. The *only* cost that generates negative prices is the cost to the distribution system (the grid) that needs to drain its extra capacity. There's no cost from the marketplace for electricity. That's just stupid.\\\"\",\n \"This investment does not have a payback period as the net present value of your investment is negative. Your investment requires an initial cash outlay of $40,000 followed by annual savings of $2060 for the next 20 years. Your discount rate is 5% at which the NPV is $-14327.85 as calculated below by using this JavaScript financial functions library tadJS that is based on a popular tadXL add-in for Excel 2007, 2010 and 2013.\",\n \"The breakeven amount isn't at 8 years. You calculated how many years of paying $500 it would take to break even with one year of paying $4000. 8 x 10 years = 80 years. So by paying $500/year it will take you 80 years to have spent the same amount ($40000 total) as you did in 10 years. At this point it may seem obvious what the better choice is. Consider where you'll be after 10 years: In scenario #1 you've spent $5000 ($500*10) and have to continue spending $500/year indefinitely. In scenario #2 you've spent $40000 ($4000*10) and don't have to pay any more, but you currently have $35000 ($40000 - $5000) less than you did in scenario #1. If you had stayed with scenario #1 you could invest that $35000 at a measly 1.43% annual return and cover the $500 payments indefinitely without ever dipping into your remaining $35000. Most likely over the long term you'll do better than 1.43% per year and come out far ahead.\",\n \"\\\"Yeah, I saw a similar article back in 1976 (and several times since). But then they used the correct word \\\"\\\"exponential\\\"\\\" to refer to growth. Ironically the author may end up being correct by using \\\"\\\"parabolic\\\"\\\" -- which is the type of curve you see with \\\"\\\"bubbles\\\"\\\", as the slow towards the peak and then begin descending with increased rapidity on the other side. And (alas) solar electric power generation placements are very likely to follow THAT curve -- as the investments fail to pay off, people begin to realize that (despite the claims) it is *not* a viable long-term base of power-generation, and so begin to not only reduce investment, but to abandon and even scrap projects as the long term costs mount.\\\"\",\n \"This will always be the case unless the tax relief is more than the expenditure, which it never is. There are some ways in which this can become worth it: if the thing you are spending the money on would actually be useful, of it you might be able to sell it for more than four dollars later - or if you can claim a government grant or similar for more than four dollars. And at the level of corporate finance it can get more complicated. But otherwise, No.\",\n \"> It's been awfully difficult for clean energy startups to raise money lately, and funding those startups would have a lot more impact. With so many green startups going bankrupt, it must seem like a risky and fruitless investment.\",\n \"The key is measuring. Like any project you need to evaluate a baseline, make a change, then re-evaluate. Otherwise you are blindly spending money to save, or worse, being manipulated by advertising. Like Chris W. Rea said before me, using a tool like a Kill-A-Watt to measure the effectiveness of what you are about to do is the most important step. For example, if you have an incandescent light bulb in a back part of your basement that you never turn on, it doesn't make much sense to replace that bulb with a $9 LED to save money. If you have an empty freezer in your basement, turn that thing off. Measure your power usage, then you can know for sure what is the most effective action. If you have a family like mine, the best of intentions still leave lights on all day or tvs on a screensaver all night. Invest in simple automation like motion sensing outlets or light switches to automatically turn off power. (It is my full time job to go around a turn off lights, and I want to retire) The biggest payback that I know of is insulation and caulking of your home to make the energy you do use more efficient. If you don't have enough insulation, that is a great place to start. Here is a calculator to estimate the payback of adding insulation. The US government has a cool website with a bunch of tips for saving energy.\",\n \"> No guarantee that the money would go to the right place. https://en.m.wikipedia.org/wiki/Solyndra So to be clear, you think that it went to the wrong place because the company tried to innovate and use new technologies that then didn't work out? And you want to discourage such attempts?\",\n \"This would be 48x wrong, no need to sensationalize it any more than it already has been. Their 10 year estimate of actual solar production (an emerging market) was off by a factor of 4, which is pretty good.\",\n \"Big solar fan here. I like your argument for nuclear. With the way that electricity power generation works, we need ideally 3 sources of power. Nuclear is one of them. Base load, if you will. Solar and nat gas can sort of fluctuate against each other as the sunlight changes. And once battery tech updates we can do away with nat gas. I don't know enough about price/economics on nuclear and if you have a few concise things to share I'd appreciate it. Not asking for you to type a tome. I can always research later but appreciate your input!\",\n \"\\\"Not \\\"\\\"these\\\"\\\" batteries, they will still be using a mixture of solar, wind, gas and oil, nuclear and coal. Maybe a generation or two, but definitely not these batteries. I honestly don't care how cheap these things get, until we have an infrastructure to support it, we will be struggling.\\\"\",\n \"It looks good. Only thing that I see as lacking is funding and then how you would recover those costs (cause let's be real, if you give things away, that isn't sustainable) other than selling to the government. Is that a feasible method? Per kilowatt-hour to the customer maybe? Regarding the education, I would look at some of the electrical installations they have (the bundles of wires hanging off the pole) and see if your solution would help that problem. Jobs - great. Sustainability - good. As long as you have microgrids. I thought the benefit to a microgrid was, well, less excess energy. I like expansion also.\",\n \"At what point does it stop being about money, and start being about not killing our planet. Plus, whatever profit Tesla is or is not making, Tesla, SpaceX, SolarCity all seem to be making industry changing splashes in their respective markets.\",\n \"I never said they're not going to change. I'm saying it will take far more than a year or two. The article say that a $10/barrel can happen in 2 years. I'm saying no. And it's not inefficiency that's causing expensive electricity. Philippines does not have the basic requirements to create cheap and renewable energy to supply what it needs. Nowhere to build a dam for hydro power. And too many strong typhoons/earthquakes for building wind. Solar power would not necessarily work either. The nation is one of the most biodiverse areas in the world. By blocking large chunks of the islands and depriving the land of sunlight, you are causing massive environmental destruction. Palm and agriculture has already devastated many parts of Philippines, what it needs is more vegetation. Tidal power isn't nearly as developed as the other forms of new energy. And it may also disrupt a very busy marine trade route.\",\n \"Well you would have to take into account 2 things. 1 the taxes and regulations that fossil fuel industries face relative to renewables. 2. subsidies as a percent of fossil fuel industry compared to subsidies as a percent of green energy companies. My hunch is that both of these points show that overall, the fossil fuel industry isn't benefiting from the government and renewable companies are benefiting\",\n \"[Craig Morganson](http://www.craigmorgansonreports.com/) agrees that it might be beneficial to look around your property and do an evaluation. Do you drink a great deal of bottled water? Those plastic bottles are an environment killer. Contemplate instead putting in a purification unit on your own faucet – these are very inexpensive.\",\n \"> (Wouldn't renewable investment be) A positive even if climate change is not REAL?!?! No, have a look at [the broken window fallacy](https://en.wikipedia.org/wiki/Parable_of_the_broken_window). Regardless, there is no reason to stoop to this level. Global warming exists and the evidence is unequivocal. Anyone who disagrees are profiting from maintaining the status quo or are victims of the propaganda from the former.\",\n \"\\\"This is the best tl;dr I could make, [original](https://www.bloomberg.com/news/articles/2017-06-15/solar-power-will-kill-coal-sooner-than-you-think) reduced by 86%. (I'm a bot) ***** > Natural gas will reap $804 billion, bringing 16 percent more generation capacity and making the fuel central to balancing a grid that&#039;s increasingly dependent on power flowing from intermittent sources, like wind and solar. > Onshore wind, which has dropped 30 percent in price in the past eight years, will fall another 47 percent by the end of BNEF&#039;s forecast horizon. > By 2040, wind and solar will make up almost half of the world&#039;s installed generation capacity, up from just 12 percent now, and account for 34 percent of all the power generated, compared with 5 percent at the moment, BNEF concluded. ***** [**Extended Summary**](http://np.reddit.com/r/autotldr/comments/6hwl1b/solar_power_will_kill_coal_faster_than_you_think/) | [FAQ](http://np.reddit.com/r/autotldr/comments/31b9fm/faq_autotldr_bot/ \\\"\\\"Version 1.65, ~146897 tl;drs so far.\\\"\\\") | [Feedback](http://np.reddit.com/message/compose?to=%23autotldr \\\"\\\"PM's and comments are monitored, constructive feedback is welcome.\\\"\\\") | *Top* *keywords*: **percent**^#1 **Energy**^#2 **capacity**^#3 **fuel**^#4 **BNEF**^#5\\\"\",\n \"Shop around a bit. You can probably do better than $5k. See this calculator to decide if your payoff period will happen before you think you'll move. If you're at 8% now it may come sooner than you think -- especially if you can lower that closing cost estimate and still get a good rate.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["These are two rather distinct questions; only one of which is relevant to a Money web site. In general, the investment is questionable. Leaving aside the green feel-good factor, you need to look at a total cost of ownership (TCO) and payback on the asset. Neither is cheap as such. There are DIY windmill plans, but you likely still need a commercial battery charger/inverter/controller setup. Government incentives, depending on where you live, may change the story considerably. Many jurisdictions around the globe have both incentives to install and then power-feed-in tariffs if you sell back excess power. Your latitude also has an impact on your total available solar energy, along with regular weather patterns for both cloud cover and wind. One of the cheapest solar projects can be hot-water. Particularly if you have a pool, or even for domestic use, if you use a lot. All that said, given the green feel-good factor, if you want a small set of solar panels and have the space/budget, go ahead! You can add more later. For the second question: it is indeed possible to live off grid. Some remote houses do just this, and the methods to accomplish it vary. The number one thing you need to do is work on a power budget; and be both ruthless as well as realistic. Fridge, freezer, AC, furnace, plasma TV, etc. Depending on your climate and preferences, these may not all be possible for an off-grid lifestyle. (Of course, if you get a propane fridge and have a truck come by once a month, does that count as off-grid?)","\"To answer the investment aspect takes a bit of math. First, solar insolation numbers: This represents the average sun-hours per day for a given area. You can see the range from 4 to 6, or 1460 hrs to about 2190 hrs of sun per year depending on location. I believe electricity also has a range of cost, but 15 cents per KWH is a good average. So, a 1KW panel will produce as much as $328 per year of electricity in a high sun-hrs area, but only $219 in a lower sun-hrs area. If we agree to ignore the government subsidies and look for the stable price unaffected by outside influence, an installed price of even $2500 would produce a return of 13% and a reasonable full payback over an 8 year period. I call this installed price a tipping point, the price where this purchase provides a decent return. Some would accept a lower return, and therefore a higher price. As duff points out, this should be treated as the post rebate/tax credit price. Those help to push the price below this point. At the price point where the energy cost per panel is below, the government intervention may be unnecessary. The power companies may find consumer owned panels are the cheapest way to clip the peak consumption which tends to be the most expensive power demand.) One can take the insolation numbers and cost of local power to produce a grid showing the return for a 1KW panel in $$/year. (At this point the cost of money kick in. The present value of $100/yr is far higher today than if short term rates were say, 8%) Once panels drop to where they are compelling for the higher return areas, I'd expect volume to drive continued improvements in cost and better economies of scale. Initially, the need for storage isn't there, as the infrastructure is in place to drive your meter backwards if you produce more than you use. The peek sun coincides with peek demand and the electric companies are happy to have your demand go negative during those times. Update - the conversation with Duff led me to research 'demand charge' a bit more. You see, the utility company has to have equipment to generate the peak demand, usually occurring in the early afternoon, say 12N-2PM as the sun is brightest and AC use in particular, highest. I found that Austin energy has a PDF describing the fee for this. Simply put, the last kW of demand will cost you $14.03 in summer months and $12.65 in winter. This adds to $160/yr that a 1kW panel might save the owner. Even if one does capture the full power at peak every month, $100 is still non-trivial. This factor alone justifies $1000 worth of panel cost, and as Duff points out, the government may find it cheaper to use this method to clip peak demand than by funding bigger power generators. To summarize, the question isn't so much \"\"are they worth it\"\" as \"\"what is a xKW panel worth?\"\" (A function of annual savings and time value of money.) The ever decreasing installed cost for a given system makes solar an inevitable part of the future power technology. I am not a green tree hugging guy, but I do like to breathe fresh air as much as anyone. I'm happy with whatever role solar plays in cutting down pollution.\"","\"I have personally known a family in the hills of Southern Oregon, US who lived off the electricity grid. As far as being \"\"possible\"\" yes, but easy is a certain no. This family was very dedicated to the point of living without grid electricity. A special built home of native field stones, careful alignment with the sun, location within the valley. I would assume that making a normal home be off the electric grid is much more difficult. Not impossible, but pretty darn hard.\"","\"Although this isn't related to homes directly, as an IT professional I know that wind power tends to be cost effective to the point that many data centers (the massive buildings holding the servers that are the backbone of the internet) actually invest in their own wind turbines to slash costs since servers tend to be power hogs. As far as going \"\"off the grid\"\" that ultimately depends on how much wind/sun you're getting at your residence, but if you look at places like Dallas, PA, CA, and other areas where the major hosts place centers, they're typically in areas where there's plenty of sunlight or wind. Going back to small scale thinking however, one of my contacts actually leases a colocation building in PA where he has a few server racks, and while he currently has electric there, he also owns a couple of turbines which have been powering <60% of the demand, and he's actually planning to add solar and also feed that back to the grid at a profit. So overall wind/solar definitely has the potential for a decent ROI, at both large and small levels, but performance will vary greatly from area to area. I know that Lowes actually started advertising about carrying solar panels, so going in and asking about the performance and if you can arrange an audit of your home might be a good place to start. If you Google \"\"green audits\"\" I'm sure you can find a trillion companies \"\"specializing\"\" in green power, but as with any sales rep (including at Lowe's) I'd do some due-diligence so you don't get taken for a ride, and also to check references because I don't think \"\"green audit\"\" companies have any official certifications/standards.\"","Solar water heaters are definitely worth the money (if you live in sunny states like South-South-West or Hawaii, at least). In some countries (like Greece, Cyprus and Israel, to name a few) most people use hot water from the solar heaters almost exclusively. I pay $30-$40 a month to PG&E for the privilege. Unfortunately, in the US these heaters are much more expensive than they are in the more advanced European countries, so all the savings go to drain because of the vast price difference ($300 for a gas heater vs $2000 for a solar heater).","Solar water heaters are definitely questionable in the Northeast -- the season when you most need them is also the season when they are least effective. Solar electric isn't a huge moneymaker, but with rebates on installation and carbon-reduction credits (SRECs) -- and a group purchase discount if you can get one, either at a town level or through organizations like One Block Off The Grid -- it can definitely turn a profit. Early estimate was that my setup would pay its initial costs back in 4 years, and the panels are generally considered to be good for a decade before the cells have degraded enough that the panels should be replaced. I haven't had a negative electric bill yet, but I've gotten close, and my setup is a relatively small one (eight panels facing SSE on a 45-degree roof). Admittedly I've also been working to reduce electricity use; I don't think I have an incandescent bulb left in the house."],"string":"[\n \"These are two rather distinct questions; only one of which is relevant to a Money web site. In general, the investment is questionable. Leaving aside the green feel-good factor, you need to look at a total cost of ownership (TCO) and payback on the asset. Neither is cheap as such. There are DIY windmill plans, but you likely still need a commercial battery charger/inverter/controller setup. Government incentives, depending on where you live, may change the story considerably. Many jurisdictions around the globe have both incentives to install and then power-feed-in tariffs if you sell back excess power. Your latitude also has an impact on your total available solar energy, along with regular weather patterns for both cloud cover and wind. One of the cheapest solar projects can be hot-water. Particularly if you have a pool, or even for domestic use, if you use a lot. All that said, given the green feel-good factor, if you want a small set of solar panels and have the space/budget, go ahead! You can add more later. For the second question: it is indeed possible to live off grid. Some remote houses do just this, and the methods to accomplish it vary. The number one thing you need to do is work on a power budget; and be both ruthless as well as realistic. Fridge, freezer, AC, furnace, plasma TV, etc. Depending on your climate and preferences, these may not all be possible for an off-grid lifestyle. (Of course, if you get a propane fridge and have a truck come by once a month, does that count as off-grid?)\",\n \"\\\"To answer the investment aspect takes a bit of math. First, solar insolation numbers: This represents the average sun-hours per day for a given area. You can see the range from 4 to 6, or 1460 hrs to about 2190 hrs of sun per year depending on location. I believe electricity also has a range of cost, but 15 cents per KWH is a good average. So, a 1KW panel will produce as much as $328 per year of electricity in a high sun-hrs area, but only $219 in a lower sun-hrs area. If we agree to ignore the government subsidies and look for the stable price unaffected by outside influence, an installed price of even $2500 would produce a return of 13% and a reasonable full payback over an 8 year period. I call this installed price a tipping point, the price where this purchase provides a decent return. Some would accept a lower return, and therefore a higher price. As duff points out, this should be treated as the post rebate/tax credit price. Those help to push the price below this point. At the price point where the energy cost per panel is below, the government intervention may be unnecessary. The power companies may find consumer owned panels are the cheapest way to clip the peak consumption which tends to be the most expensive power demand.) One can take the insolation numbers and cost of local power to produce a grid showing the return for a 1KW panel in $$/year. (At this point the cost of money kick in. The present value of $100/yr is far higher today than if short term rates were say, 8%) Once panels drop to where they are compelling for the higher return areas, I'd expect volume to drive continued improvements in cost and better economies of scale. Initially, the need for storage isn't there, as the infrastructure is in place to drive your meter backwards if you produce more than you use. The peek sun coincides with peek demand and the electric companies are happy to have your demand go negative during those times. Update - the conversation with Duff led me to research 'demand charge' a bit more. You see, the utility company has to have equipment to generate the peak demand, usually occurring in the early afternoon, say 12N-2PM as the sun is brightest and AC use in particular, highest. I found that Austin energy has a PDF describing the fee for this. Simply put, the last kW of demand will cost you $14.03 in summer months and $12.65 in winter. This adds to $160/yr that a 1kW panel might save the owner. Even if one does capture the full power at peak every month, $100 is still non-trivial. This factor alone justifies $1000 worth of panel cost, and as Duff points out, the government may find it cheaper to use this method to clip peak demand than by funding bigger power generators. To summarize, the question isn't so much \\\"\\\"are they worth it\\\"\\\" as \\\"\\\"what is a xKW panel worth?\\\"\\\" (A function of annual savings and time value of money.) The ever decreasing installed cost for a given system makes solar an inevitable part of the future power technology. I am not a green tree hugging guy, but I do like to breathe fresh air as much as anyone. I'm happy with whatever role solar plays in cutting down pollution.\\\"\",\n \"\\\"I have personally known a family in the hills of Southern Oregon, US who lived off the electricity grid. As far as being \\\"\\\"possible\\\"\\\" yes, but easy is a certain no. This family was very dedicated to the point of living without grid electricity. A special built home of native field stones, careful alignment with the sun, location within the valley. I would assume that making a normal home be off the electric grid is much more difficult. Not impossible, but pretty darn hard.\\\"\",\n \"\\\"Although this isn't related to homes directly, as an IT professional I know that wind power tends to be cost effective to the point that many data centers (the massive buildings holding the servers that are the backbone of the internet) actually invest in their own wind turbines to slash costs since servers tend to be power hogs. As far as going \\\"\\\"off the grid\\\"\\\" that ultimately depends on how much wind/sun you're getting at your residence, but if you look at places like Dallas, PA, CA, and other areas where the major hosts place centers, they're typically in areas where there's plenty of sunlight or wind. Going back to small scale thinking however, one of my contacts actually leases a colocation building in PA where he has a few server racks, and while he currently has electric there, he also owns a couple of turbines which have been powering <60% of the demand, and he's actually planning to add solar and also feed that back to the grid at a profit. So overall wind/solar definitely has the potential for a decent ROI, at both large and small levels, but performance will vary greatly from area to area. I know that Lowes actually started advertising about carrying solar panels, so going in and asking about the performance and if you can arrange an audit of your home might be a good place to start. If you Google \\\"\\\"green audits\\\"\\\" I'm sure you can find a trillion companies \\\"\\\"specializing\\\"\\\" in green power, but as with any sales rep (including at Lowe's) I'd do some due-diligence so you don't get taken for a ride, and also to check references because I don't think \\\"\\\"green audit\\\"\\\" companies have any official certifications/standards.\\\"\",\n \"Solar water heaters are definitely worth the money (if you live in sunny states like South-South-West or Hawaii, at least). In some countries (like Greece, Cyprus and Israel, to name a few) most people use hot water from the solar heaters almost exclusively. I pay $30-$40 a month to PG&E for the privilege. Unfortunately, in the US these heaters are much more expensive than they are in the more advanced European countries, so all the savings go to drain because of the vast price difference ($300 for a gas heater vs $2000 for a solar heater).\",\n \"Solar water heaters are definitely questionable in the Northeast -- the season when you most need them is also the season when they are least effective. Solar electric isn't a huge moneymaker, but with rebates on installation and carbon-reduction credits (SRECs) -- and a group purchase discount if you can get one, either at a town level or through organizations like One Block Off The Grid -- it can definitely turn a profit. Early estimate was that my setup would pay its initial costs back in 4 years, and the panels are generally considered to be good for a decade before the cells have degraded enough that the panels should be replaced. I haven't had a negative electric bill yet, but I've gotten close, and my setup is a relatively small one (eight panels facing SSE on a 45-degree roof). Admittedly I've also been working to reduce electricity use; I don't think I have an incandescent bulb left in the house.\"\n]","isConversational":false}}},{"rowIdx":359,"cells":{"_id":{"kind":"string","value":"4233"},"query":{"kind":"string","value":"Are personal finance / money management classes taught in high school, anywhere?"},"gt_ids":{"kind":"list like","value":["16270","590836","154886","31377","187129"],"string":"[\n \"16270\",\n \"590836\",\n \"154886\",\n \"31377\",\n \"187129\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1,1,1],"string":"[\n 1,\n 1,\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["16270","187129","590836","335164","154886","31377","35284","545061","447010","353048","348225","320600","524414","49510","129681","406217","213861","269069","170966","583666","385692","168983","140883","141235","113650","133997","429575","282502","361329","96017","423568","249089","481401","537913","462671","750","273618","137378","401004","491491","573760","112669","338707","569206","465555","116804","579882","361741","151375","151442","179640","78259","207482","262885","564454","501189","100087","239484","488015","308962","23116","399511","559990","59562","25014","67301","272328","287192","417128","202145","523310","204171","570611","443676","114576","62047","62244","434733","279047","17463","322228","202208","599731","85558","56329","229177","241416","160366","284288","9957","552106","436437","497731","451794","132606","151811","526683","134995","164732","369255"],"string":"[\n \"16270\",\n \"187129\",\n \"590836\",\n \"335164\",\n \"154886\",\n \"31377\",\n \"35284\",\n \"545061\",\n \"447010\",\n \"353048\",\n \"348225\",\n \"320600\",\n \"524414\",\n \"49510\",\n \"129681\",\n \"406217\",\n \"213861\",\n \"269069\",\n \"170966\",\n \"583666\",\n \"385692\",\n \"168983\",\n \"140883\",\n \"141235\",\n \"113650\",\n \"133997\",\n \"429575\",\n \"282502\",\n \"361329\",\n \"96017\",\n \"423568\",\n \"249089\",\n \"481401\",\n \"537913\",\n \"462671\",\n \"750\",\n \"273618\",\n \"137378\",\n \"401004\",\n \"491491\",\n \"573760\",\n \"112669\",\n \"338707\",\n \"569206\",\n \"465555\",\n \"116804\",\n \"579882\",\n \"361741\",\n \"151375\",\n \"151442\",\n \"179640\",\n \"78259\",\n \"207482\",\n \"262885\",\n \"564454\",\n \"501189\",\n \"100087\",\n \"239484\",\n \"488015\",\n \"308962\",\n \"23116\",\n \"399511\",\n \"559990\",\n \"59562\",\n \"25014\",\n \"67301\",\n \"272328\",\n \"287192\",\n \"417128\",\n \"202145\",\n \"523310\",\n \"204171\",\n \"570611\",\n \"443676\",\n \"114576\",\n \"62047\",\n \"62244\",\n \"434733\",\n \"279047\",\n \"17463\",\n \"322228\",\n \"202208\",\n \"599731\",\n \"85558\",\n \"56329\",\n \"229177\",\n \"241416\",\n \"160366\",\n \"284288\",\n \"9957\",\n \"552106\",\n \"436437\",\n \"497731\",\n \"451794\",\n \"132606\",\n \"151811\",\n \"526683\",\n \"134995\",\n \"164732\",\n \"369255\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["In Houston, Texas USA where I went to a private high school they had a half-semester class in personal finance, but it was optional and didn't give you any credits towards graduation. You are right though, it should be a standard class. After all, who doesn't need that information in their adult lives, and not everyone goes to college.","\"We had a \"\"civics\"\" class when I was a freshman in high school. This was in the Ann Arbor, MI public schools. It covered the very basics (how to balance your checkbook, what are stocks, how do income taxes work, what is interest, etc.) of money management along with an overview of politics and the legal system. It was a really light class, though, and didn't go deeply into personal finance and money management. I agree that such a class would be very valuable, as would cooking, nutrition, and basic home and car repair.\"","Did a little bit of digging, and found this article, from Staples High School in Westport, Connecticut. Hopefully this will be a growing trend. They say: A personal financial management class will now be offered at the beginning of the upcoming school year (2011-2012). According to the course catalogue, the focus of this course will be using mathematics as a tool in developing financial literacy skills. Topics covered in the course will include: earnings, banking, credit cards, loans, taxes, insurance, investing, loans, budgeting, and buying personal property. “In a perfect world, everyone would be required to take a personal finance course,” Principal John Dodig said.","\"My education on this topic at this age range was a little more free-form. We were given a weeklong project in the 6th grade, which I remember pretty clearly: Fast forward 6 years (we were 12). You are about to be kicked out of your parents' house with the clothes on your back, $1,000 cash in your pocket, your high school diploma, and a \"\"best of luck\"\" from your parents. That's it. Your mission is to not be homeless, starving and still wearing only the clothes on your back in 3 months. To do this, you will find an apartment, a job (you must meet the qualifications fresh out of high school with only your diploma; no college, no experience), and a means of transportation. Then, you'll build a budget that includes your rent, estimated utilities, gasoline (calculated based on today's prices, best-guess fuel mileage of the car, and 250% of the best-guess one-way distance between home and job), food (complete nutrition is not a must, but 2000cal/day is), toiletries, clothing, and anything else you want or need to spend your paycheck or nest egg on. Remember that the laundromat isn't free, and neither is buying the washer/dryer yourself. Remember most apartments aren't furnished but do have kitchen appliances, and you can't say you found anything on the side of the road. The end product of your work will be a narrative report of the first month of your new life, a budget for the full 3 months, plus a \"\"continuing\"\" budget for a typical month thereafter to prove you're not just lasting out the 3 months, and all supporting evidence for your numbers, from newspaper clippings to in-store mailers (the Internet and e-commerce were just catching on at the time, Craigslist and eBay didn't exist yet, and not everyone had home Internet to begin with). Extra Credit: Make your budget work with all applicable income and sales taxes. Extra Extra Credit: Have more than your original $1000 in the bank at the end of the 3 months, after the taxes in the Extra Credit. This is a pretty serious project for a 12-year-old. Not only were we looking through the classified ads and deciphering all the common abbreviations, we were were taking trips to the grocery store with shopping lists, the local Wal-Mart or Target, the mall, even Goodwill. Some students had photos of their local gas station's prices, to which someone pointed out that their new apartment would be on the other side of town where gas was more expensive (smart kid). Some students just couldn't make it work (usually the mistakes were to be expected of middle-class middle-schoolers, like finding a job babysitting and stretching that out full-time, only working one job, buying everything new from clothes to furniture, thinking you absolutely need convenience items you can do without, and/or trying to buy the same upscale car your dad takes to work), though most students were able to provide at least a plausible before-tax budget. A few made the extra credit work, which was a lot of extra credit, because not only were you filling out a 1040EZ for your estimated income taxes, you were also figuring FICA and Social Security taxes which even some adults don't know the rates for, and remember, no Internet. Given that the extra-extra credit required you to come out ahead after taxes (good luck), I can't remember that anyone got that far. The meta-lesson that we all learned? Life without a college education is rough.\"","It's not a full credit course but part time comic James Cunningham has speaking tour that promotes personal finance in high schools.","\"In the UK there is a School Rewards System used in many schools to teach kids and teens about finance and economy. In the UK there is a framework for schools called \"\"Every Child Matters\"\" in which ‘achieving economic well-being’ is an important element. I think is important to offer to offer a real-life vehicle for financial learning beyond the theory.\"","A constant answer which I see brought up in a variety of forums is the complaint that schools don't teach money management (budgeting) and how to do taxes. Another good bit of information would be to take apart a credit card statement, show how the interest is calculated, etc. I'd start with those topics, which might take a bit of research on your part (many adults don't understand many of these concepts either), and then build from there. I remember the first time I was able to go from a list of transactions on a credit card statement, and calculate the interest owed from the average daily balance, and it was like a light coming on. Most people use these concepts on a regular basis, but have no conception of what's going on beneath the surface.","I know this question is closed now, but I just found this site that people might be interested in... http://www.practicalmoneyskills.com/games/","If these are children that may be employed, in a few years, it may well be worth walking them through some basics of the deductions around employment, some basic taxes, uses of banks, and give them enough of a basis in how the economy of the world works. For example, if you get a job and get paid $10/hour, that may sound good but how much do various things eat at that so your take-home pay may be much lower? While this does presume that the kids will get jobs somewhere along the way and have to deal with this, it is worth making this part of the education system on some level rather than shocking them otherwise. Rather than focusing on calculations, I'd be more tempted to consider various scenarios like how do you use a bank, what makes insurance worth having(Life, health, car, and any others may be worth teaching on some level), and how does the government and taxes fit into things. While I may be swinging more for the practical, it is worth considering if these kids will be away in college or university in a few years, how will they handle being away from the parents that may supply the money to meet all the financial needs?","Check out Khan Academy if you get a chance - they have a large suite of finance/capital market video clips that cover a lot of the basics of financial theory in short, manageable clips that might be suitable for someone in high school.","I’d suggest going over to Khan Academy. It’s basically a free school with really helpful videos. There are quizzes you can do and forums for each subject. My advice would be to starts the personal finance section because most things build from there and it’ll help you more with real life finance. Good luck!",">Also, I don't know if we should actually Invest in the market or just discuss and learn about the finance market in general. Since you're in highschool I would say that discussing and learning about it is more than enough. Some other things you can cover are budgeting, compounding interest, retirement accounts and advantages of them, credit scores, and credit in general. >What are some good ways to attract people to join the club Advertise it and provide informative handouts that explain what will be discussed and taught. Maybe get a math teacher involved to help explain certain things.","\"My family instilled in me early on that hard work was important, and the output of that work was its reward. My grandparents really made in impression with me about telling the truth and being fair (probably after I was busted for lying and cheating about something) -- I remember my grandfather talking about the solem trust associated with shaking hands over something. I remember opening a savings account at school on bank day and being really excited about the interest accruing... but my folks never really allowed us to spend it on toys or other stuff. I didn't really think about money at all until I was probably about 10 or 11, when I started watching \"\"Wall Street Week\"\" on PBS with my dad on Friday night and bombarding him with dozens of questions. Then games like Sim City really got me going... my grandmother was always amazed that I was talking about bonding construction projects. I think that before 10 or so, kids needn't concern themselves with money, but should understand responsibility, the rewards that come from working hard, and the consequences for not doing so.\"","Financial Economics, although, as I understand it, not all colleges offer this major.","Out Of The Dark OOTD is a budgeting and personal money management web app that does not require you to give out access to your bank accounts or even your personal identity. It's a great tool for people with no financial experience with features like Cash Put-Aside and the Credit Card Debt Terminator and it has tons of instant guides explaining how to use every feature. You can check it out at myootd.org.","\"I am a numbers guy, the math is great. Instead of \"\"jane was twice her son's age when he married, and is now 1.5 times his age.....\"\" questions in math class, I think the math problems should mostly have dollar/pound signs in front of them. In general, I like the idea of relating to the kids' situations as much as possible. When my daughter (14) makes a purchase, I'd ask her to be aware of how many hours she had to work to make the money she plans to spend. Was it worth 4 hours babysitting to buy an iPad case? Was it worth 2 to buy lunch that we could have made you at home? (Note, the 'convert price to hours worked' is a concept that works great when teaching budgeting to anyone, not just kids.) The math of tax and discounts for comparison shopping works great as well so long as they understand value. A $400 sweatshirt at 50% off isn't really a bargain, in my opinion. Next, the math of balancing a checkbook should be high on the list. Accounting for the checks that didn't clear but are outstanding is beyond many people, amazing enough. For the sport fan, there are unlimited math problem one can create for game scores, stats for the season, etc. Young boys who will fall asleep during a stats class will pay attention if instead of abstract numbers, you add 'goals' 'home runs' etc, after the numbers. (Note - this question is probably outside the scope of the board, no right or wrong answer. But I love it as a question in general, and if not here, I hope it finds a good home.)\"","To me, the most important thing for young people to learn about personal finance is the connection between service and income. Most, rightly look for a way to earn money and advance the lifestyle of their home life. How does one do that? Grinding it out in a 9-5 does not seem attractive while living the lifestyles of those on TV would be awesome. The temptation is to try all these tricks to get money, but absent from their plan is how they serve their fellow man in order to receive that money. Stars, like the Kardashians are a marketing machine despite the carefree life displayed on the TV. They have served many budding companies well by selling their products to certain demographics. Most young people do not make that connection. So they try things like trading Forex, gold or whatever the latest thing is. It does not work as there is no service to their fellow man. They get a job at a fast food chain and complain about their pay in accordance with their work. Well sure, but again they are serving such few people that one can only expect a small income. The better and more people one can serve, in general, the higher a person's income.","I had some friends that, when their daughters hit high school, gave them $100 on the first of each month. And that was it. They had to buy their clothes, their school supplies, their lunches and anything else that they wanted out of that $100. Those were three of the most responsible, mature teenage girls you will ever meet.","I am using the term homework generically to mean anything that is a part of school work that you should be working on independently. You can see if the people at r/investing or r/finance will answer your question","Wikipedia has a nice definition of financial literacy (emphasis below is mine): [...] refers to an individual's ability to make informed judgments and effective decisions about the use and management of their money. Raising interest in personal finance is now a focus of state-run programs in countries including Australia, Japan, the United States and the UK. [...] As for how you can become financially literate, here are some suggestions: Learn about how basic financial products works: bank accounts, mortgages, credit cards, investment accounts, insurance (home, car, life, disability, medical.) Free printed & online materials should be available from your existing financial service providers to help you with your existing products. In particular, learn about the fees, interest, or other charges you may incur with these products. Becoming fee-aware is a step towards financial literacy, since financially literate people compare costs. Seek out additional information on each type of product from unbiased sources (i.e. sources not trying to sell you something.) Get out of debt and stay out of debt. This may take a while. Focus on your highest-interest loans first. Learn the difference between good debt and bad debt. Learn about compound interest. Once you understand compound interest, you'll understand why being in debt is bad for your financial well-being. If you aren't already saving money for retirement, start now. Investigate whether your employer offers an advantageous matched 401(k) plan (or group RRSP/DC plan for Canadians) or a pension plan. If your employer offers a good plan, sign up. If you get to choose your own investments, keep it simple and favor low-cost balanced index funds until you understand the different types of investments. Read the material provided by the plan sponsor, try online tools provided, and seek out additional information from unbiased sources. If your employer doesn't offer an advantageous retirement plan, open an individual retirement account or IRA (or personal RRSP for Canadians.) If your employer does offer a plan, you can set one of these up to save even more. You could start with access to a family of low-cost mutual funds (examples: Vanguard for Americans, or TD eFunds for Canadians) or earn advanced credit by learning about discount brokers and self-directed accounts. Understand how income taxes and other taxes work. If you have an accountant prepare your taxes, ask questions. If you prepare your taxes yourself, understand what you're doing and don't file blind. Seek help if necessary. There are many good books on how income tax works. Software packages that help you self-file often have online help worth reading – read it. Learn about life insurance, medical insurance, disability insurance, wills, living wills & powers of attorney, and estate planning. Death and illness can derail your family's finances. Learn how these things can help. Seek out and read key books on personal finance topics. e.g. Your Money Or Your Life, Why Smart People Make Big Money Mistakes, The Four Pillars of Investing, The Random Walk Guide to Investing, and many more. Seek out and read good personal finance blogs. There's a wealth of information available for free on the Internet, but do check facts and assumptions. Here are some suggested blogs for American readers and some suggested blogs for Canadian readers. Subscribe to a personal finance periodical and read it. Good ones to start with are Kiplinger's Personal Finance Magazine in the U.S. and MoneySense Magazine in Canada. The business section in your local newspaper may sometimes have personal finance articles worth reading, too. Shameless plug: Ask more questions on this site. The Personal Finance & Money Stack Exchange is here to help you learn about money & finance, so you can make better financial decisions. We're all here to learn and help others learn about money. Keep learning!","\"The real betrayal is that the so-called education system can't be bothered to teach people anything useful. I had a \"\"bank book\"\" (savings account) in *fifth grade*. We learned to operate checking accounts in sixth, and compound interest the next year. What happened?\"","\"The statement \"\"Finance is something all adults need to deal with but almost nobody learns in school.\"\" hurts me. However I have to disagree, as a finance student, I feel like everyone around me is sound in finance and competition in the finance market is so stiff that I have a hard time even finding a paid internship right now. I think its all about perspective from your circumstances, but back to the question. Personally, I feel that there is no one-size-fits-all financial planning rules. It is very subjective and is absolutely up to an individual regarding his financial goals. The number 1 rule I have of my own is - Do not ever spend what I do not have. Your reflected point is \"\"Always pay off your credit card at the end of each month.\"\", to which I ask, why not spend out of your savings? plan your grocery monies, necessary monthly expenditures, before spending on your \"\"wants\"\" should you have any leftovers. That way, you would not even have to pay credit every month because you don't owe any. Secondly, when you can get the above in check, then you start thinking about saving for the rainy days (i.e. Emergency fund). This is absolutely according to each individual's circumstance and could be regarded as say - 6 months * monthly income. Start saving a portion of your monthly income until you have set up a strong emergency fund you think you will require. After you have done than, and only after, should you start thinking about investments. Personally, health > wealth any time you ask. I always advise my friends/family to secure a minimum health insurance before venturing into investments for returns. You can choose not to and start investing straight away, but should any adverse health conditions hit you, all your returns would be wiped out into paying for treatments unless you are earning disgusting amounts in investment returns. This risk increases when you are handling the bills of your family. When you stick your money into an index ETF, the most powerful tool as a retail investor would be dollar-cost-averaging and I strongly recommend you read up on it. Also, because I am not from the western part of the world, I do not have the cultural mindset that I have to move out and get into a world of debt to live on my own when I reached 18. I have to say I could not be more glad that the culture does not exist in Asian countries. I find that there is absolutely nothing wrong with living with your parents and I still am at age 24. The pressure that culture puts on teenagers is uncalled for and there are no obvious benefits to it, only unmanageable mortgage/rent payments arise from it with the entry level pay that a normal 18 year old could get.\"","I also saw a lot of reference to Mutual Mania Board Game, which is geared towards kids 11yrs+ and helps them learn about spending, saving, profit and loss.","\"If you are wanting to teach your kids basic accounting principles there is some good stuff on Khan Academy. However most of the stuff takes practice to really make it hit home and its kinda boring (Especially to kids who may or may not care about it). Maybe if you help them set up an account on Mint so that they are at least aware of their finances. Think it also has a heap of videos you can watch that teaches basic personal finance. If you actually want them to understand the techniques and methods behind creating & maintaining a personal ledger/journal and reconciling it against a bank account you are getting into what undergraduates study and there are plenty of first year textbooks around. Look around for a second hand one that is a few revisions old and they are usually dirt cheap (I scored one for only a dollar not that long ago). I feel like the mindset is what matters most. Journals and all that jazz are easy if you have the right mindset. That is something that you really have to demonstrate to your children rather than teach. Meaning you yourself keeping your finances in order and showing them how you organise and file your bills/ credit cards etc. (So they learn the importance of keeping financial records; meaning in the future when its talked about it doesn't fall on deaf ears) Emphasize the whole \"\"living within your means\"\" because even if they don't understand bookkeeping or learn anything else at least their finances won't turn out too bad.\"","\"If you are living near a land-grant university, you might be able to find help from the university's Extension Service. In many land-grant universities (the land grants were given to universities formed for the purpose of improving \"\"agricultural and mechanical arts\"\"), the Extension Services have expanded beyond farm-related services to include horticulture, food and nutrition counseling, consumer finance, money management and budgeting advice etc. See, for example this site.\"","The Khan Academy has a huge series on finance (Sal Khan used to work at a hedge fund before he started his magnum opus): http://www.khanacademy.org/#core-finance Some are pretty basic stuff, but he does have some interesting commentary and snippets of more interesting topics. They're all very low-commitment and bite-sized.","I will definitely recommend the following books The above books will open lot of eyes to exactly know what you are doing with your personal finances in a day to day basis.These books will surely be in the top of my list which I will be giving away to my kins in my later stage. The concepts are universally the same, feel free to skip the chapters which were US based. I live in UK and I read most of the above books in late twenties, it surely made lot of changes and also drastically improved my personal finance acumen. I wish I have read these books in my early twenties.","Here's a very good series of classroom lectures by Robert Schiller, one of America's top economists and a prof at Yale: http://www.youtube.com/user/YaleCourses#g/c/8F7E2591EE283A2E This should give you some general insight into basic principles of finance and give you a framework to learn more later.","The Money Girl (Quick and Dirty Tips for a richer life) Podcast is a pretty good source for this type of information. Some Recent Topics:","Itunes U has some really good online classes on economics. And as with a lot of things check out Khanacademy.org. He has a whole financial section of really well made videos. Good books to read regarding the financial crisis are The Big Short by Lewis and Too Big To Fail by Sorkin.","This is such a shame imo. No one here feels like children should be focusing on something other than making profits? Selling shitty services for self betterment? If you teach children that money is god, they will worship it. Like you apparently.","I received an allowance growing up. There were stipulations on what I had to do with it that helped instill the values my parents wanted - in their case they were hoping to teach me to give money to my church, so I had a mandatory amount that I had to give when I received the allowance. To this day I still give money to the church, so I guess it stuck. The allowance was tied to my doing some basic chores around the house - but loosely. It wasn't a reward for doing those chores, but it would be taken away if I didn't do them. Before I was of a legal working age I could do larger unusual tasks around the house for more money. The relationship between chores and some form of allowance is, I think, tricky. I don't think kids should be taught that the only reason to work is to earn money. They won't earn money for keeping their future homes clean or by volunteering at the local food bank, but these are both good things to do. At the same time it is good to teach that work has a reward and that lack of work means lack of a reward. My parents set up a savings account for me quite early. Largely what went in there was birthday cash from relatives (a great thing to talk to any family members who might give your kids gifts about) and the income from my once-yearly sale of baked goods at a craft fair. These were bigger amounts of money that I could take pride in depositing, and keeping them in a bank helped prevent me from spending them willy-nilly. I also got a credit card at the age of 16 (only allowed in some states in the US, not sure about internationally). My parents oversaw my spending habits with it and made sure I always paid in full and on time. The money I spent was tied to my summer work in high school and college. I thought it was extremely valuable to learn how to manage a credit card before college when the card companies often seem to prey on young customers.","Personal finance is a fairly broad area. Which part might you be starting with? From the very basics, make sure you understand your current cashflow: are you bank balances going up or down? Next, make a budget. There's plenty of information to get started here, and it doesn't require a fancy piece of software. This will make sure you have a deeper understanding of where your money is going, and what is it being saved for. Is it just piling up, or is it allocated for specific purchases (i.e. that new car, house, college tuition, retirement, or even a vacation or a rainy day)? As part of the budgeting/cashflow exercise, make sure you have any outstanding debts covered. Are your credit card balances under control? Do you have other outstanding loans (education, auto, mortgage, other)? Normally, you'd address these in order from highest to lowest interest rate. Your budget should address any immediate mandatory expenses (rent, utilities, food) and long term existing debts. Then comes discretionary spending and savings (especially until you have a decent emergency fund). How much can you afford to spend on discretionary purchases? How much do you want to be able to spend? If the want is greater than the can, what steps can you take to rememdy that? With savings you can have a whole new set of planning to consider. How much do you leave in the bank? Do you keep some amount in a CD ladder? How much goes into retirement savings accounts (401k, Roth vs. Traditional IRA), college savings accounts, or a plain brokerage account? How do you balance your overall portfolio (there is a wealth of information on portfolio management)? What level of risk are you comfortable with? What level of risk should you consider, given your age and goals? How involved do you want to be with your portfolio, or do you want someone else to manage it? Silver Dragon's answer contains some good starting points for portfolio management and investing. Definitely spend some time learning the basics of investing and portfolio management even if you decide to solicit professional expertise; understanding what they're doing can help to determine earlier whether your interests are being treated as a priority.","wow thanks for the info. So if i wanted a masters in finance, should i take math electives to get them out of the way earlier? I'm a senior in high school and I'm very interested in finance, but I'll admit not the best at math..","\"You bring up some very high level stuff, each of which can be the subject of a life's work. For taxes, I first read J.K. Lasser's Your Income Tax. I actually read it cover to cover instead of using it as a reference guide. I hit topics that I'd otherwise have never looked up on purpose. Once you familiarize yourself with the current tax code, keeping up on changes to the code goes pretty well. As far as investing goes, William Bernstein has two titles, “The Four Pillars of Investing” and “The Intelligent Asset Allocator”. Others have liked “Personal Finance for Dummies” by Eric Tyson. These are great introductory books, the classic is “Security Analysis” by Graham & Dodd. Warren Buffet was a student of Benjamin Graham and he did fine applying these principals. For retirement, The Number by Lee Eisenberg was a good read. I consider retirement an extension of the investing education, only the money flow is reversed, withdrawals, no new deposits. Of course this is an oversimplification. In my own reading list, I include books such as “Extraordinary Popular Delusions & the Madness of Crowds” by Charles MacKay and “The Great Crash 1929″ by John Kenneth Galbraith. Understanding how these bubbles happen is critical to a complete education. I'm convinced that when it comes to investing if I can teach my daughter to understand the concept of Risk and Reward and to understand there are certain common alerts to such bubbles, the simplest of which is the term \"\"this time is different\"\" as though a hundred years of market dynamics can change in a matter of a few years. Last, there are books like \"\"Stop Acting Rich\"\" by Dr Thomas Stanley. Not quite investing, per se, but a good read to get an idea of how we have a distorted view of certain signs of wealth. Keep reading, no harm in taking books out of the library and returning if the first chapter or two disappoints.\"","Before you even enroll in a good financial school, register for an account with a bank that allows you to manage a stock portfolio. I prefer TD Ameritrade. You do have to be 18 (Just register it under your parents, it doesn't matter. Just make sure they fill out the information portion. Get the SSN and tax info right. Basically it's their account, you're just managing it. ) That way you'll have some good, practical experience going into it. Understand that working with money can be a very cut-throat industry, be ready to be competing with people constantly. Also, surround yourself with books from successful stock brokers, investment bankers, things like that. When you're working you'll want information like that. Good luck, and I hope this helps.","\"This Stack Exchange site is a nice place to find answers and ask questions. Good start! Moving away from the recursive answer... Simply distilling personal finance down to \"\"I have money, I'll need money in the future, what do I do\"\", an easily digestible book with how-to, multi-step guidelines is \"\"I Will Teach You To Be Rich\"\". The author talks about setting up the accounts you should have, making sure all your bills are paid automatically, saving on the big things and tips to increase your take home pay. That link goes to a compilation page on the blog with many of the most fundamental articles. However, \"\"The World’s Easiest Guide To Understanding Retirement Accounts\"\" is a particularly key article. While all the information is on the free blog, the book is well organized and concise. The Simple Dollar is a nice blog with frugal living tips, lifestyle assessments, financial thoughts and reader questions. The author also reviews about a book a week. Investing - hoping to get better returns than savings can provide while minimizing risk. This thread is an excellent list of books to learn about investing. I highly recommend \"\"The Bogleheads' Guide to Investing\"\" and \"\"The Only Investment Guide You'll Ever Need\"\". The world of investment vehicles is huge but it doesn't have to be complicated once you ignore all the fads and risky stuff. Index mutual funds are the place to start (and maybe end). Asset allocation and diversification are themes to guide you. The books on that list will teach you.\"","This is what helped me. - I did my own taxes - get your own job, not from your parents, or parents friends, but entirely by yourself. Complete independence will equate to financial independence - Wikipedia (for specifics and definitions) paired with finance genre movies - audiobook, or YouTube video, 'why an economy grows, and why it doesnt' That's a good start. Good luck! Don't be too gung ho to invest and all that crap, you got lots too learn. Rule 1: don't be too eager, that's how you lose all your money! My best financial investments to date were: 1) my education (engineering) 2) I didn't pay my student loan off, instead, I bought a property, and I made $70,000 in 8 months off of one, and $100,000 off of another one in 2 years, 3) still making minimum payments on my student loan, a dollar today is worth more than a dollar tomorrow 4) pack my own lunches every day, eating out every meal ends up costing more than most mortgage payments. This is in Vancouver BC, Canada.","Pre-finance major here and new to this sub. Quick background, I’m 18 and I’m starting school at the University of Iowa in January. My question is: what resources are out there that you would recommend to help me get introduced to the world of finance? Could be books, online courses, videos, etc. and could be on any subject within the umbrella of finance. Thanks in advance for any recommendations!",">it's a racket. *shrug* Aren't they all? Some are better than others. Carlton Sheets, Robert Kiyosaki, Suzie Orman, etc. Even Dave Ramsey, arguably the best of the bunch, hawks books and seminars frequently. But isn't business school also a racket? Isn't most education?","The free Yale Course taught by Bob Shiller called Financial Markets is really good. Find it on youtube, iTunes U, academic earth, or yale's site.","I asked about this in the last thread, but got no answers because it was 4-5 days old at the time. I'm a finance student, and currently an intern at a big Financial Services firm. The internship is in compliance, though, and that's not exactly where I want to end up later. I don't know exactly what I want to do, but I assume there are some skills that are widely applicable in the entire industry that aren't taught enough, and I want to learn something over the summer (through Coursera/books/videos/whatever). The problem is, I don't know what. Does anyone here have any suggestions? I was thinking something along the lines of programming or some more advanced excel stuff that isn't taught in school, but I don't really have any place to start. Any advise would be appreciated.","If you are not working, I believe you would be getting some money from your family to meet your expenses. In such a case, I would start with maintaining a Cash A/c which would list your monthly expenses and the money you received, which is what I used to do at your age. You can maintain it in a notebook with pen/pencil or using online tools such as Google Sheets. Enter each expense entries each day as debits and entries towards any money you receive as credits. At the end of the month, tally them and see how much you have left. Also, this gives you a clear picture of where your expenses are what is that you can avoid. On longer term, this can help you form an annual budget for your personal finances.","\"I would let them get their hands dirty, learn by practicing. Below you can find a simple program to generate your own efficient frontier, just 29 lines' python. Depending on the age, adult could help in the activity but I would not make it too lecturing. With child-parent relationship, I would make it a challenge, no easy money anymore -- let-your-money work-for-you -attitude, create the efficient portfolio! If there are many children, I would do a competition over years' time-span or make many small competitions. Winner is the one whose portfolio is closest to some efficient portfolio such as lowest-variance-portfolio, I have the code to calculate things like that but it is trivial so build on the code below. Because the efficient frontier is a good way to let participants to investigate different returns and risk between assets classes like stocks, bonds and money, I would make the thing more serious. The winner could get his/her designed portfolio (to keep it fair in your budget, you could limit choices to index funds starting with 1EUR investment or to ask bottle-price-participation-fee, bring me a bottle and you are in. No money issue.). Since they probably don't have much money, I would choose free software. Have fun! Step-by-step instructions for your own Efficient Frontier Copy and run the Python script with $ python simple.py > .datSimple Plot the data with $ gnuplot -e \"\"set ylabel 'Return'; set xlabel 'Risk'; set terminal png; set output 'yourEffFrontier.png'; plot '.datSimple'\"\" or any spreadsheet program. Your first \"\"assets\"\" could well be low-risk candies and some easy-to-stale products like bananas -- but beware, notice the PS. Simple Efficient-frontier generator P.s. do not stagnate with collectibles, such as candies and toys, and retailer products, such as mangos, because they are not really good \"\"investments\"\" per se, a bit more like speculation. The retailer gets a huge percentage, for further information consult Bogleheads.org like here about collectible items.\"","I'm from Canada, so your going to have to take that into account when reading this, as things are done a little differently here. I wouldn't go the accounting route, as it's going to require more education on top of this. Id there is a program that focuses more on the management of finances that would be ideal. There are many mid to entry level positions that deal with the flow of cash throughout the company. From there you work your ass off and see where it can get you. Sometimes they go as far as hiring someone with no experience, but a certificate and a some educational knowledge will go a long ways in helping you. You probably could, if you went to the right sources, gain similar knowledge by learning things yourself. But it won't look nearly as appealing to potential employers. Hope this helps. Also, it blows my mind, the difference in cost of tuition. I spent 12k over 3 years(just finished). Those kids in Montreal have no idea how good they have it.","It depends what you mean by financial knowledge. Often you will work in a group focused on some aspect of the company's business. As an example, I work for a company and my group works on econometric models. Although I have a degree in finance, I don't encounter or talk about corporate or personal finance. I do talk about investing with a friend, but in general, our group is focused on one aspect of finance and economics for the company. From another direction, often financial companies will offer financial literacy training through HR and benefits programs where you can improve your knowledge of finance outside of your groups focus. In the end, you will learn the most by persuing new knowledge through reading on current financial literature. I hope this helps. Edit: If you add some specifics to what you would like to learn about I may be able to point you in the right direction.","I mostly volunteer within a church environment. Given this is reddit, I'm not sure how that comment will fair. But I also see a lot of workshops via networking sites; linkedin has one called 'Financial Culture | Financial Literacy', between the articles and financial counseling workshops in the area I live it would be pretty easy to get involved. Also, START FOLLOWING COMPANIES on linked in. Join groups that are related to what you want to do, they post items all the time about relevant news to their industry. The more educated you can get the better.","\"There are many paths to success, but they all begin with education. You made the first big step just by visiting here. We have 17,000 questions, arranged by tag so you can view those on a given topic. You can sort by votes to see the ones that have the best member acceptance. I'll agree with Ben that one of the best ones is \"\"The correct order of investing.\"\" We both offered answers there, and that helps address a big chunk of your issue. The book recommendations are fine, you'll quickly find that each author has his/her own slant or focus on a certain approach. For example, one financial celebrity (note - in the US, there are private advisors, usually with credentials of some sort, there are those who work for brokers and also offers help, there are financial bloggers (I am one), and there are those who are on the radio or TV who may or may not have any credentials) suggests that credit cards are to be avoided. The line in another answer here, \"\"You're not going to get rich earning 1% on a credit card,\"\" is a direct quote of one such celebrity. I disputed that in my post \"\"I got rich on credit card points!\"\" The article is nearly 2 years old, the account accumulating the rewards has recently passed $34,000. This sum of money is more wealth than 81% of people in the world have. The article was a bit tongue in cheek (sarcastic) but it made a point. A young person should get a credit card, a good one, with no fee, and generous rewards. Use the card to buy only what you can pay back that month. At year end, I can download all my spending. The use of the card helps, not hinders, the budgeting process, and provides a bit of safety with its guarantees and theft protection. Your question really has multiple facets. If these answers aren't helpful enough, I suggest you ask a new question, but focus on one narrow issue. \"\"Paying off debt\"\" \"\"Getting organized\"\" \"\"Saving\"\" \"\"Budgeting\"\" all seem to be part of your one question here.\"","\"I've recommended this book a few times on this site, and I'm going to do it again. Get a Financial Life: Personal Finance in Your Twenties and Thirties by Beth Kobliner Most of the personal finance advice books and blogs I have found focus too much on investing, or are more about \"\"lifestyle\"\" than finances, and left me unimpressed. I like this book because it covers most of the major personal finance topics (budgets, rainy-day fund, insurance, retirement, and non-retirement investment). I have not found another book that covers the topics as concisely as this one. It is no-nonsense, very light reading. Even if you are not a book person, you can finish it in a weekend. It is really geared for the young person starting their career. Not the most current book (pre real-estate boom), but the advice is still sound. Keep in mind that is is starting point, not the ultimate answer to all financial questions.\"","Not sure why people are suggesting CFP or CFA to someone who hasn't graduated with a BS yet. With that said, CFA had a claritas (fundamentals course) with like 20-20 page chapters going over basic finance and investment info. Pretty sure you can still get those pdfs for free. Investopedia is also great for general concepts for banking and investments. CFA is very expensive and I wouldn't touch it until you've taken general business classes and really built up your foundation.","\"Excellent questions! Asking such questions indicates something special about yourself. The desire to learn and adjust your beliefs will increase your chance of success in your life. I would use a wide variety of authors to increase your education. Myself I prefer Dave Ramsey to Clark Howard, but I think Clark is very good. The first thing you should focus on is learning how to do and live by a budget. Often times, adults will assume that you are on a budget because you are broke. It happens with my friends and my youngest child is older than you. Nothing could be further from the truth. A budget is simply a plan on how you will spend your income so you don't run out of money before you run out of month. Along with budgeting I would also focus on goal setting. This is the type of \"\"investing\"\" you should be doing at your age. For example if your primary goal was to become an engineer, my recommendation is to hold off buying stocks/mutual funds and using your current income to get through school with little or no student loans. Another example might be to open your own HVAC business. Your best bet might be to learn the trade, working for someone else, and take night classes for business management. Most 18 year olds have very little earning power. Your focus at this point should be increasing your income and learning how to manage the income you have. Please keep in mind that most debt is bad. It robs you of your income which is your greatest wealth building tool. Car loans and credit card debt is just plain stupid. Often times a business case can be made for reasonable student loans. However, why not challenge yourself to take none. How much further ahead could you be if you graduate, with a degree, when your peers are strapped with a 40K loan? Keep up the good work and keep asking questions.\"","Are there particular, established businesses that provide these services? Yes! There are many fee-based financial advisors that provide such services. These might help: http://www.ricedelman.com/galleries/default-file/how-to-choose-financial-advisor.pdf http://www.ricedelman.com/cs/education/article?articleId=990#.Us7cyPRDt1Y","as someone who made a fair attempt at understanding money subjects, I'd like some more writing from you. I took high school level Marketing; Business economics; commercial law. it took six months on top of my previous High school ( with high level maths). during those months I got medium grades, and failed in- can you believe it - marketing. I had a go at The intelligent investor. I made it to page 96. But honestly I felt like I needed a lot of background in order for me to understand it. English is my second language. Sure I can understand words like liability vs assets. but to this day i still can't remember the difference between a bull and bearish market. I know its about risk assesment on a national/ global level. So who honestly gave finance a go but got their ass kicked. What would you say? any books?","\"What you are looking for is a Money Coach or a Personal Finance Coach. From mymoneycoach.com: \"\"Money Coach: Everyone uses money, but few people fully understand how to use it wisely. To be debt free and enjoy a comfortable lifestyle takes special skills. Money coaches provide solutions for household budgeting, investing, using credit wisely, and saving for retirement. With the principles offered by a money coach, you can live the life you want to live.\"\" Usually money coaches or personal finance coaches will not tell you \"\"you should put your money here or there\"\" but instead they will work with you to identify and correct bad money behaviours that affect more than just your investments, and they will not sell you anything. Maybe you could take a look at some coaches in your area, but a lot of them work via the internet too. Good luck!\"","My reading list for someone just getting into personal finance would include the following I know it's a bunch but I'm trying to cover a few specific things. Yeah it's a bit of reading, but lets face it, nobody is going to care as much about your money as YOU do, and at the very least this kind of knowledge can help fend off a 'shark attack' by someone trying to sell you something not because it's best for you, but because it earns them a fat commission check. Once you've covered those, you have a good foundation, and oh lord there's so many other good books that you could read to help understand more about money, markets etc.. Personally I'd say hit this list, and just about anything on it, is worth your time to read. I've used publishers websites where I could find them, and Amazon otherwise.","Khan academy videos are really good. You should start to read the tutorials for beginners on investopedia.com. Additionally, you should keep yourself informed about the current finance related events. I would suggest reading the wall street journal and watch Bloomberg TV on their website.","CreditKarma review I don't personally use HelloWallet, but I have also heard very good things about it. Independence from financial products is a HUGE thing in the field because so many investment advisers place the firm before the customer (c.f. Too Big To Fail), so having an independent resource is a huge benefit.","The short answer is that there are no great personal finance programs out there any more. In the past, I found Microsoft Money to be slick and feature rich but unfortunately it has been discontinued a few years ago. Your choices now are Quicken and Mint along with the several open-source programs that have been listed by others. In the past, I found the open source programs to be both clunky and not feature-complete for my every day use. It's possible they have improved significantly since I had last looked at them. The biggest limitation I saw with them is weakness of integration with financial service providers (banks, credit card companies, brokerage accounts, etc.) Let's start with Mint. Mint is a web-based tool (owned by the same company as Quicken) whose main feature is its ability to connect to nearly every financial institution you're likely to use. Mint aggregates that data for you and presents it on the homepage. This makes it very easy to see your net worth and changes to it over time, spending trends, track your progress on budgets and long-term goals, etc. Mint allows you to do all of this with little or no data entry. It has support for your investments but does not allow for deep analysis of them. Quicken is a desktop program. It is extremely feature rich in terms of supporting different types of accounts, transactions, reports, reconciliation, etc. One could use Quicken to do everything that I just described about Mint, but the power of Quicken is in its more manual features. For example, while Mint is centred on showing you your status, Quicken allows you to enter transactions in real-time (as you're writing a check, initiating a transfer, etc) and later reconciles them with data from your financial institutions. Link Mint, Quicken has good integration with financial companies so you can generally get away with as little or as much data entry as you want. For example, you can manually enter large checks and transfers (and later match to automatically-downloaded data) but allow small entries like credit card purchases to download automatically. Bottom line, if you're just looking to keep track of where you are at, try Mint. It's very simple and free. If you need more power and want to manage your finances on a more transactional level, try Quicken (though I believe they do not have a trial version, I don't understand why). The learning curve is steep although probably gentler than that of GnuCash. Last note on why Mint.com is free: it's the usual ad-supported model, plus Mint sells aggregated consumer behaviour reports to other institutions (since Mint has everyone's transactions, it can identify consumer trends). If you're not comfortable with that, or with the idea of giving a website passwords to all your financial accounts, you will find Quicken easier to accept. Hope this helps.","\"IMHO It is definitively not too early to start learning and thinking about personal finances and also about investing. If you like to try stock market games, make sure to use one that includes a realistic fee structure simulation as well - otherwise there'll be a very unpleasant awakening when switching to reality... I'd like to stress the need for low fees with the brokerage account! Sit down and calculate how much fees different brokers take for a \"\"portfolio\"\" of say, 1 ETF, 1 bond, 1 share of about $500 or $1000 each (e.g. order fee, annual fee, fee for paying out interest/dividend). In my experience, it is good if you can manage to make the first small investing steps before starting your career. Real jobs tend to need lots of time (particularly at the beginning), so time to learn investing is extremely scarce right at the time when you for the first time in your life earn money that could/should be invested. I'm talking of very slowly starting with a single purchase of say an ETF, a single bond next time you have saved up a suitable amount of toy money, then maybe a single share (and essentially not doing anything with them in order to avoid further fees). While such a \"\"portfolio\"\" is terrible with respect to diversification and relative fees*, this gives you the possibility to learn the procedures, to see how the fees cut in, what to do wrt taxes etc. This is why I speak about toy money and why I consider this money an investment in education. * An order fee of, say, $10 on a $500 position are terrible 4% (2 x $10) for buying + selling - depending on your local taxes, that would be several years of dividend yield for say some arbitrary Dow Jones ETF. Nevertheless, purchase + sale together are less than 3 cinema tickets.\"","\"I found this great resource at MarketWatch.com - a listing on online games that help parents teach kids about saving and finance, set up by age group. Here's an example of some of the content: For children six to nine: www.fleetkids.com, sponsored by the Fleet Bank, has great games -- like \"\"Buy lo, Sell hi\"\" and \"\"Chunka Change\"\" -- that teach kids about spending and saving. Kids can compete for prizes such as computers and backpacks for their schools.\"","\"Between 1 and 2 G is actually pretty decent for a High School Student. Your best bet in my opinion is to wait the next (small) stock market crash, and then invest in an index fund. A fund that tracks the SP500 or the Russel 2000 would be a good choice. By stock market crash, I'm talking about a 20% to 30% drop from the highest point. The stock market is at an all time high, but nobody knows if it's going to keep going. I would avoid penny stocks, at least until you can read their annual report and understand most of what they're claiming, especially the cash flow statement. From the few that I've looked at, penny stock companies just keep issuing stock to raise money for their money loosing operations. I'd also avoid individual stocks for now. You can setup a practice account somewhere online, and try trading. Your classmates probably brag about how much they've made, but they won't tell you how much they lost. You are not misusing your money by \"\"not doing anything with it\"\". Your classmates are gambling with it, they might as well go to a casino. Echoing what others have said, investing in yourself is your best option at this point. Try to get into the best school that you can. Anything that gives you an edge over other people in terms of experience or education is good. So try to get some leadership and team experience. , and some online classes in a field that interests you.\"","Teach them that money can help solve most (if not all the problems) in life. If they truly appreciate the value of saving every single penny, eventually they will come to realize that if you don't touch your money (waste it on useless things you don't need such as eating out) that it can grow. Also teach them the value of compounding interest, even a TFSA/high interest savings account with a modest 3-4% annual ROI can be big with yearly additions and no withdrawals for a lifetime. Tell them to take Johnny Appleseed for example. Johnny starts up his TFSA with help from mom and dad at the age of 15, let's say they put in $5000 all together. Now let's say he adds in a modest $2500 to his TFSA every year until he is 55 years old. If the TFSA has an interest rate of 4%, then when he's 55 he'll have over half a million dollars in the bank and he really didn't have to do much besides not touch it.","\"> These curricula—packed with classes like operations, accounting, statistics, and management—fail to account for students’ individual needs. Yea, because what we really need is more MBAs without basic knowledge of accounting and statistics. The new economy of \"\"make shit up\"\" is working so much better than the old way of doing things.\"","What are your goals? Managing your finances is not the same for everyone. For example, do you want a more hands-off approach to finance or more hands-on? Are you looking at investments as well or just saving money? Those types of questions.","As a parent I think you absolutely have to teach them that income is related to work because (for most people at least) it's a more fundamental principle than budgeting, investments, interest, etc. Once they've learned that the primary source of income is work, then you can start teaching them what to do with it, i.e. how to budget, economise, save, invest, etc.","And what would you believe would be the minimum level necessary to get someone to a point where they are financially literate and can make educated, informed decisions? Do you believe an online accreditation on various aspects of investing in SMEs would help address these issues or would something more comprehensive be necessary?","It's never too early, but age 3 is when we started a piggy bank. Age 4 is when we opened a bank account. When you go shopping with your children, discuss what items cost (such as bread, milk, books, etc.) Start teaching them that everything has a value...then relate it to how much they have saved. Kids need to learn 3 basic things from their parents: how to save/invest, how to spend wisely, how to share/donate","I should also add that the 7/63 won't do much for you. If you're really interested in finance, you have a few options. 1) Sales - in which case the 7/63 is about all you need. The rest is just time and practice. 2) A job as an analyst. Your best bet here is to pursue the CFA charter. 3) A financial planner/advisor. This job is kind of a subcategory of #1. I always like to say that an advisor's primary job is to sell, giving meaningful advice is secondary. Nonetheless, a CFP is helpful here. 4) A trader. CFA charter is helpful here as with #2. 5) High Frequency Trading - Masters/PhD in math or a quant discipline and C++ is a must.","\"For learning about finances my main two financial resources are this site, and the Motley Fool. My secondary sources are keeping up with columns by my favourite economic journalists - in the press in the US, Australia, England, and India. Regarding your comment about feeling green on the basics despite the reading - you're not alone. I've been interested in financials for better than 10 years, but there are a lot of questions on this site where I say to myself, \"\"I've no idea of what the answer could be, what are our resident experts saying?\"\" Having said that, there are some topics where I feel as though I can weigh in - and they tend to be where I have a little book knowledge and a lot of personal experience.\"","His books: The Total Money Makeover - This is a very step by step approach to what he teaches about how to handle money. Financial Peace - This is a more philosophical approach to the same topics. More idea and less application based. You can catch his radio show online for free - or an hour podcast each day in the itunes store - this is free. You can watch his TV show on Hulu.","I rather like The Ascent of Money, by Niall Ferguson. This comes in several formats. There's a video version, a written version (ISBN-13: 978-1594201929), and an audio version. This book covers the history of financial instruments. It covers the rise of money, the history of bonds and stocks, insurance and hedge funds, real-estate, and the spread of finance across the world. It is a great introduction to finance, though its focus is very definitely on the history. It does not cover more advanced topics, and will not leave you with any sort of financial plan, but it's a great way to get a broad overview and historical understanding of money and markets. I strongly recommend both the video and the written or audio version.","Your Money or Your Life is a great book on this topic.","\"I think it's great that you want to contribute. Course Instructor You may want to take a look at becoming an instructor for a course like Dave Ramsey's Financial Peace University. These are commonly offered through churches and other community venues for a fee. This may be a good fit if you want to focus on basic financial literacy, setting up and sticking to a budget, and getting their financial \"\"house\"\" in order. It may not be a good fit if you don't want to teach an existing curriculum, or if you find the tenets of the course too unpalatable. A significant number of the people in Dave's audience are close to or in the middle of a financial meltdown, and so his advice includes controversial ideas such as avoiding credit altogether, often because that's how they got into their current mess. Counselor If you want to run your own show, I know of several people who have built their own practice that is run along the lines of a counselor charging hourly rates, and they work with couples who are having money problems. Building a reputation and a network of referring counselors and professionals is key here, and definitely seems like it would require a full-time commitment. I would avoid \"\"credit counseling\"\" and the like. Most of these organizations are focused on restructuring credit card debt, not spending signficant time on behavioral change. You don't need a series 7, 63, 65 etc. or even a CFA. I've previously acquired a number of these and can confirm that they are investment credentials that are intended to help you get a job and/or get more business as a broker or conventional financial planner, i.e. salesperson of securities. The licensure process is necessary to protect consumers from advice that serves the investment sales force but is bad for the consumer, and because you must be licensed to provide investment advice. There is a class of fee-only financial planners, but they primarily deal with complex issues that allow them to make money, and often give away basic personal finance advice for free in the form of articles, podcasts, etc. Charity For part-time or free work, in my area there are also several charity organizations that help people do their taxes and provide basic budgeting and personal finance instruction, but this is very localized and may vary quite a bit depending on where you live. However, if there are none near you, you can always start one! Journalism If you have an interest in writing, there are also people who work as journalists and write columns, books, or newsletters, and it is much easier now to publish and build a network online, either on your own, through a blog or contributing to a website. Speaker at Community events There are also many opportunities to speak to a specific community such as a church or social organization. For example, where I live there are local organizations for Spanish speaking, Polish speaking, elderly, young professional, young mother and retiree groups for example, all of who might be interested in your advice on issues that specifically address their needs. Good luck!\"","Unless u borrow for a house but just get a financial advisor - i highly recommend the co. I work for. Pm me if u want details though it sounds like u may go the diy route which is fine but 9 out if 10 times it takes nonprofessionals longer. I deal with clients and advisors who do this all the time.","\"Anything by Frank Fabozzi - the de facto authority on financial education. Most of the stuff will be textbook ($$$) so get ready for sticker shock. Hopefully you can find a used copy of something. Quick search on Amazon yielded \"\"The Basics of Finance\"\" for about $150.\"","\"I think this question is perfectly on topic, and probably has been asked and answered many times. However, I cannot help myself. Here are some basics however: Personal Finance is not only about math. As a guy who \"\"took vector calculus just for fun\"\", I have learned that superior math skills do not translate into superior net worth. Personal finance is about 50% behavior. Take a look at the housing crisis, car loans, or payday lenders and you will understand that the desire to be accepted by others often trumps the math surrounding a transaction. Outline your goals What is it that you want in life? A pile of money or to retire early? What does your business look like? How much cash will you need? Do you want to own a ton of rental properties? How does all this happen (set intermediate goals). Then get on a budget A budget is a plan to spend your money in advance. Stick to it. From there you can see how much money you have to implement various goals. Are your goals to aggressive? This is really important as people have a tendency to spend more money then they have. Often times when people receive a bonus at work, they spend that one bonus on two or three times over. A budget will prevent this from happening. Get an Emergency Fund Without an emergency fund, you be subject to the financial whims of people involved in your own life and that of the broader marketplace. Once you have one, you are free to invest with impunity and have less stress in a world that deals out plenty. Bad things will happen to you financially, protect against them. The best first investments are simple: Invest in yourself. Find a way to make a very healthy income with upward mobility. Also get out and stay out of debt. These things are not sexy, but they pay off in the long run. The next best investment is also simple: Index funds. These become the bench mark for all other investments. If you do not stand a good chance of beating the S&P 500 index fund, why bother? Just dump the money in the fund and sleep well at night.\"","Depends what you mean by business world and finance world. NYTimes Sunday business section is a good start - mostly for large business. The Only Investment Guide You'll Ever Need by Andrew Tobias for how to invest your personal money - and you'll see why no one who says they can predict the market is accurate for very long. INC Magazine for running a small company","Hello, I'm very interested in learning money. I used the search function, which led me to Investopedia, and already I'm learning a bunch. Could you recommend me some introductory reading on finance and economics? I have no education on this subject, and I realise that reading isn't anywhere near having a good formal education, but some knowledge is better than none. I'm looking to put this knowledge towards understanding what is a an enormous organ of power, and gaining the ability to recognise opportunities and profit. So yeah, economics and finance, but I will study anything you throw my way, so the more the better. Especially because investments and accounting also seem interesting and useful. P.S.: I'm European, if this makes a difference in what content will be relevant to me. Thank you for reading this.","I didn't take too many finance or economics courses so i can't comment. In my post I recommended the YouTube video or audiobook 'why an economy grows and why it doesn't' I guess it's more economy related than finance related, but is still relevant as it touches on loans and net worth and stuff.","If you are doing this because you are interested... this is one thing. But a degree in economics is probably not going to help you find a job. Before going into it, research available opportunities in the field first. Is it worth the cost of the degree to study it? Are you going into it because your employer wants you to have this knowledge? The answer to the question about Math is yes. There is a lot of math in Economics. A good idea is to get the course catalog for the degree at the university where you would be going and see which classes are required to get the degree. Wannabe2good is completely correct, Money and Banking (one of the classes required for an Eco degree) is something that helps you know why the president of the US is doing what he is doing, but really does not apply much to you personally, and employers will not care. I urge you and ANYONE else who plans to go to school, please research if there are JOBS in the field of your study. I have seen so many people study things they were interested in and then later graduate and were not able to find jobs. Good luck!","If you want to do asset management or investment research, look into the [CFA Program](https://www.cfainstitute.org/programs/cfaprogram/Pages/index.aspx?WPID=Programs&PageName=Homepage). If this looks like your cup of tea, I advise registering for and taking the June 2018 CFA Level I exam. You will receive all the books you need to study.","Does anyone have any good resources for starting up learning about savings, finances, etc? I'm 20 years old and want to begin really saving consistently and learning about 401Ks, IRAs, savings accounts, how to grow your money safely and slowly, etc. I'm mainly looking for a website or application that will help me budget and organize things. A phone app would be nice. And any subreddit where I could learn about these things would be extremely helpful too.","I'm not sure if I am exactly what you are looking for, but I am currently studying finance at a university with a top ten finance program. I would be happy to help you out with your search for a college or program. The stuff about how to dress and act will come later.","Many good sources on YouTube that you can find easily once you know what to look for. Start following the stock market, present value / future value, annuities & perpetuities, bonds, financial ratios, balance sheets and P&L statements, ROI, ROA, ROE, cash flows, net present value and IRR, forecasting, Monte Carlo simulation (heavy on stats but useful in finance), the list goes on. If you can find a cheap textbook, it'll help with the concepts. Investopedia is sometimes useful in learning concepts but not really on application. Khan Academy is a good YouTube channel. The Intelligent Investor is a good foundational book for investing. There are several good case studies on Harvard Business Review to practice with. I've found that case studies are most helpful in learning how to apply concept and think outside the box. Discover how you can apply it to aspects of your everyday life. Finance is a great profession to pursue. Good luck on your studies!","My personal opinion, start a small business and just do it. You will learn faster than anything you can learn online. Keep it small, then when the disasters come, you can recover. Decide what kind of business you want to do, what area, then just start. Feel free to PM me if you need help. Also, SCORE is a consulting group of retired executives, Free, and you can get a lot of advice there too. Classes are fine, but if you want to do business, just do it, you will learn more, faster, than any class (once you figure out what kind of business you want to do)","As a tenured professor, has your SO done any grant or departmental budgeting? If so, perhaps you can ask how your SO managed that and can apply the same techniques to the household budget. If your SO plans to become Chair or move into administration, budgets will be necessary. Although this may frighten you SO and backfire, you should also speak about what might happen if you become ill or otherwise unable to manage the finances. Does your SO have any financially savvy friends or colleagues? A more independent voice may help.","You might like https://planwise.com/index.htm","Not so much on the relevant experience side but I have been learning as much as I can about the investment/financial world. That's my thoughts. School counselor play a strong part in society, however, the earning potential is low as is the opportunity for career advancement. The MBA-finance program at my university takes students from all undergrad backgrounds. I would need to take the GRE this month and applications are due at the end of the month. I just wonder if trying to either go into finance without school or opting to enter the MBA program if I were accepted would be a good option. Do you see an MBA-finance being marketable and having greater earning potential than a school counselor (which is about a 46k/year salary)?","It depends what area of finance, but an ivy league education is not *required*. A good school, probably, but the best thing you can do for yourself is go through the internship program at a bank or financial institution (usually after junior year, but you find the occasional sophomore). There are often many job offers to those that complete it well, and if not, you apply to other firms with your internship as your backing. It would help to know what Gyroisabot asked and know what area and what school you went to.","\"Buy this book. It is a short, simple crash course on personal finance, geared at someone in their 20s just starting out their career. You can easily finish it in a weekend. The book is a little dated at this point (pre housing bubble), but it is still valid. I personally feel it is the best intro to personal finance out there. 99% of the financial advice you read online will be a variation of what is already in this book. If you do what the book says, you should be in a solid position financially. You won't be an investment guru or anything, but you will at least have the fundamentals. There are various \"\"protips\"\" for personal finance that go beyond the book, but I would advise against paying too much attention to them until you have the basics down.\"","Mint.com is a fantastic free personal finance software that can assist you with managing your money, planning budgets and setting financial goals. I've found the features to be more than adequate with keeping me informed of my financial situation. The advantage with Mint over Microsoft Money is that all of your debit/credit transactions are automatically imported and categorized (imperfectly but good enough). Mint is capable of handling bank accounts, credit card accounts, loans, and assets (such as cars, houses, etc). The downsides are:","The software you provided as an example won't teach you much about investing. The most important things of investing are: These are the only free lunches in investing. Allocation tells you how much expected return (and also how much risk) your portfolio has. Diversification is the only way to reduce risk without reducing return; however, just note that there is market risk that cannot be eliminated with diversification. Every penny you save on costs and taxes is important, as it's guaranteed return. If you were to develop e.g. software that calculates the expected return of a portfolio when given allocation as an input, it could teach you something about investing. Similarly, software that calculates the average costs of your mutual fund portfolio would teach you something about investing. But sadly, these kinds of software are uncommon.","Can anyone recommend a good textbook for a first course in finance? I'm not studying it, if it's relevant--I'm just a guy who wants a better understanding of the financial sector. I don't know anything anout finance outside a few basic concepts.","My former accountant, used to provide this service as part of him doing my taxes. During the off season, he would provide a planning session and he would review strategies that I might look into. Since he did not make any money off of providing investments, he was about as unbiased as one could be. However, something like that might not be enough for you guys. You could go with someone online, Scottrade is going into the business of providing advice, as well as Charles Schwab or Fidelity, but you might need someone more personal. In that case, I would use my network. Talk to people, ask who they use, like, and respect. I would say it is very easy to find mediocre investment advisers, the good ones are hard. I would look for one that teaches. It is very easy to tell someone what to do, much harder to teach them what is the right thing. One thing that is easy about your situation: Planning to buy a home. Put money for a down payment in a high interest savings account. What I mean by high interest, is they still pay almost nothing. You can't really make a mistake. If you find one with .5% instead of .85%, what is the real difference after 5 years? About $180?","Got a degree in finance and I'll talk about simple ways to really improve your learning experience: excel will be your best friend. Get comfortable with it. Learn; pivot tables, formulas, formatting, and macros. Learn to type at a decent speed. Many students still type slow. It will hinder you Current events is the best way to stay informed. Always be reading up on business information. Pretty much twice a day. Join a free stock market game and track how you do. Get on it twice a week and make trades frequent based on what you think. I can elaborate more if you have any more questions !","I followed Economics by Michael Parkin for my college level course. It does not involve very complicated mathematics (beyond simple arithmetic and interpreting plots/charts). I found it very enjoyable. Stocks, bonds, and other money market instruments are not covered under this subject usually. They are covered under finance. I normally recommend Hull to people but because you are not interested in mathematics I would recommend Stuart R Veale.","Okay, first of all you have the make up to right into financial behavior field. http://en.wikipedia.org/wiki/Behavioral_finance I am not sure where to go for such a degree or the job prospects afterwords, but frankly 'they' say it will be something of great interest in the future. I am beginning to find in finance it is not so much what you can do, but WHERE you live. I'm not near any major city that has financial headquarters so I may end up moving just to pursue something that interests me.","Financial modeling training - if you ever have any interest in private equity, investment banking, leveraged lending, equity analysis, corporate finance roles, FP&A, or commercial banking in general, you will need to confidently work with three statement financial models. There's lots of good resources out there. Some cost more than others.","I definitely agree with this. Before I could get federal or state loans I had to do this online orientation and while you probably could skip most of it and click accept I actually read through and am competent in how the interest works and how even though not paying until after graduation is an option that'll increase my total loans by like 50%. Almost every other student I've talked to with student loans has little to no knowledge as to how interest works and how it applies to their loans. And the choosing what to study. Because while it is nice to study something fun if you can't practically get a decent paying job in your field then you have a lot of knowledge and nothing to do with it.","Get them into coding and they will never need a degree. I'm 20 years old in college and I strongly believe that is where it is all going. I wish I started earlier. Start them on something like programming or of the equivalent. Teach them simple finances and you won't have to deal with college."],"string":"[\n \"In Houston, Texas USA where I went to a private high school they had a half-semester class in personal finance, but it was optional and didn't give you any credits towards graduation. You are right though, it should be a standard class. After all, who doesn't need that information in their adult lives, and not everyone goes to college.\",\n \"\\\"We had a \\\"\\\"civics\\\"\\\" class when I was a freshman in high school. This was in the Ann Arbor, MI public schools. It covered the very basics (how to balance your checkbook, what are stocks, how do income taxes work, what is interest, etc.) of money management along with an overview of politics and the legal system. It was a really light class, though, and didn't go deeply into personal finance and money management. I agree that such a class would be very valuable, as would cooking, nutrition, and basic home and car repair.\\\"\",\n \"Did a little bit of digging, and found this article, from Staples High School in Westport, Connecticut. Hopefully this will be a growing trend. They say: A personal financial management class will now be offered at the beginning of the upcoming school year (2011-2012). According to the course catalogue, the focus of this course will be using mathematics as a tool in developing financial literacy skills. Topics covered in the course will include: earnings, banking, credit cards, loans, taxes, insurance, investing, loans, budgeting, and buying personal property. “In a perfect world, everyone would be required to take a personal finance course,” Principal John Dodig said.\",\n \"\\\"My education on this topic at this age range was a little more free-form. We were given a weeklong project in the 6th grade, which I remember pretty clearly: Fast forward 6 years (we were 12). You are about to be kicked out of your parents' house with the clothes on your back, $1,000 cash in your pocket, your high school diploma, and a \\\"\\\"best of luck\\\"\\\" from your parents. That's it. Your mission is to not be homeless, starving and still wearing only the clothes on your back in 3 months. To do this, you will find an apartment, a job (you must meet the qualifications fresh out of high school with only your diploma; no college, no experience), and a means of transportation. Then, you'll build a budget that includes your rent, estimated utilities, gasoline (calculated based on today's prices, best-guess fuel mileage of the car, and 250% of the best-guess one-way distance between home and job), food (complete nutrition is not a must, but 2000cal/day is), toiletries, clothing, and anything else you want or need to spend your paycheck or nest egg on. Remember that the laundromat isn't free, and neither is buying the washer/dryer yourself. Remember most apartments aren't furnished but do have kitchen appliances, and you can't say you found anything on the side of the road. The end product of your work will be a narrative report of the first month of your new life, a budget for the full 3 months, plus a \\\"\\\"continuing\\\"\\\" budget for a typical month thereafter to prove you're not just lasting out the 3 months, and all supporting evidence for your numbers, from newspaper clippings to in-store mailers (the Internet and e-commerce were just catching on at the time, Craigslist and eBay didn't exist yet, and not everyone had home Internet to begin with). Extra Credit: Make your budget work with all applicable income and sales taxes. Extra Extra Credit: Have more than your original $1000 in the bank at the end of the 3 months, after the taxes in the Extra Credit. This is a pretty serious project for a 12-year-old. Not only were we looking through the classified ads and deciphering all the common abbreviations, we were were taking trips to the grocery store with shopping lists, the local Wal-Mart or Target, the mall, even Goodwill. Some students had photos of their local gas station's prices, to which someone pointed out that their new apartment would be on the other side of town where gas was more expensive (smart kid). Some students just couldn't make it work (usually the mistakes were to be expected of middle-class middle-schoolers, like finding a job babysitting and stretching that out full-time, only working one job, buying everything new from clothes to furniture, thinking you absolutely need convenience items you can do without, and/or trying to buy the same upscale car your dad takes to work), though most students were able to provide at least a plausible before-tax budget. A few made the extra credit work, which was a lot of extra credit, because not only were you filling out a 1040EZ for your estimated income taxes, you were also figuring FICA and Social Security taxes which even some adults don't know the rates for, and remember, no Internet. Given that the extra-extra credit required you to come out ahead after taxes (good luck), I can't remember that anyone got that far. The meta-lesson that we all learned? Life without a college education is rough.\\\"\",\n \"It's not a full credit course but part time comic James Cunningham has speaking tour that promotes personal finance in high schools.\",\n \"\\\"In the UK there is a School Rewards System used in many schools to teach kids and teens about finance and economy. In the UK there is a framework for schools called \\\"\\\"Every Child Matters\\\"\\\" in which ‘achieving economic well-being’ is an important element. I think is important to offer to offer a real-life vehicle for financial learning beyond the theory.\\\"\",\n \"A constant answer which I see brought up in a variety of forums is the complaint that schools don't teach money management (budgeting) and how to do taxes. Another good bit of information would be to take apart a credit card statement, show how the interest is calculated, etc. I'd start with those topics, which might take a bit of research on your part (many adults don't understand many of these concepts either), and then build from there. I remember the first time I was able to go from a list of transactions on a credit card statement, and calculate the interest owed from the average daily balance, and it was like a light coming on. Most people use these concepts on a regular basis, but have no conception of what's going on beneath the surface.\",\n \"I know this question is closed now, but I just found this site that people might be interested in... http://www.practicalmoneyskills.com/games/\",\n \"If these are children that may be employed, in a few years, it may well be worth walking them through some basics of the deductions around employment, some basic taxes, uses of banks, and give them enough of a basis in how the economy of the world works. For example, if you get a job and get paid $10/hour, that may sound good but how much do various things eat at that so your take-home pay may be much lower? While this does presume that the kids will get jobs somewhere along the way and have to deal with this, it is worth making this part of the education system on some level rather than shocking them otherwise. Rather than focusing on calculations, I'd be more tempted to consider various scenarios like how do you use a bank, what makes insurance worth having(Life, health, car, and any others may be worth teaching on some level), and how does the government and taxes fit into things. While I may be swinging more for the practical, it is worth considering if these kids will be away in college or university in a few years, how will they handle being away from the parents that may supply the money to meet all the financial needs?\",\n \"Check out Khan Academy if you get a chance - they have a large suite of finance/capital market video clips that cover a lot of the basics of financial theory in short, manageable clips that might be suitable for someone in high school.\",\n \"I’d suggest going over to Khan Academy. It’s basically a free school with really helpful videos. There are quizzes you can do and forums for each subject. My advice would be to starts the personal finance section because most things build from there and it’ll help you more with real life finance. Good luck!\",\n \">Also, I don't know if we should actually Invest in the market or just discuss and learn about the finance market in general. Since you're in highschool I would say that discussing and learning about it is more than enough. Some other things you can cover are budgeting, compounding interest, retirement accounts and advantages of them, credit scores, and credit in general. >What are some good ways to attract people to join the club Advertise it and provide informative handouts that explain what will be discussed and taught. Maybe get a math teacher involved to help explain certain things.\",\n \"\\\"My family instilled in me early on that hard work was important, and the output of that work was its reward. My grandparents really made in impression with me about telling the truth and being fair (probably after I was busted for lying and cheating about something) -- I remember my grandfather talking about the solem trust associated with shaking hands over something. I remember opening a savings account at school on bank day and being really excited about the interest accruing... but my folks never really allowed us to spend it on toys or other stuff. I didn't really think about money at all until I was probably about 10 or 11, when I started watching \\\"\\\"Wall Street Week\\\"\\\" on PBS with my dad on Friday night and bombarding him with dozens of questions. Then games like Sim City really got me going... my grandmother was always amazed that I was talking about bonding construction projects. I think that before 10 or so, kids needn't concern themselves with money, but should understand responsibility, the rewards that come from working hard, and the consequences for not doing so.\\\"\",\n \"Financial Economics, although, as I understand it, not all colleges offer this major.\",\n \"Out Of The Dark OOTD is a budgeting and personal money management web app that does not require you to give out access to your bank accounts or even your personal identity. It's a great tool for people with no financial experience with features like Cash Put-Aside and the Credit Card Debt Terminator and it has tons of instant guides explaining how to use every feature. You can check it out at myootd.org.\",\n \"\\\"I am a numbers guy, the math is great. Instead of \\\"\\\"jane was twice her son's age when he married, and is now 1.5 times his age.....\\\"\\\" questions in math class, I think the math problems should mostly have dollar/pound signs in front of them. In general, I like the idea of relating to the kids' situations as much as possible. When my daughter (14) makes a purchase, I'd ask her to be aware of how many hours she had to work to make the money she plans to spend. Was it worth 4 hours babysitting to buy an iPad case? Was it worth 2 to buy lunch that we could have made you at home? (Note, the 'convert price to hours worked' is a concept that works great when teaching budgeting to anyone, not just kids.) The math of tax and discounts for comparison shopping works great as well so long as they understand value. A $400 sweatshirt at 50% off isn't really a bargain, in my opinion. Next, the math of balancing a checkbook should be high on the list. Accounting for the checks that didn't clear but are outstanding is beyond many people, amazing enough. For the sport fan, there are unlimited math problem one can create for game scores, stats for the season, etc. Young boys who will fall asleep during a stats class will pay attention if instead of abstract numbers, you add 'goals' 'home runs' etc, after the numbers. (Note - this question is probably outside the scope of the board, no right or wrong answer. But I love it as a question in general, and if not here, I hope it finds a good home.)\\\"\",\n \"To me, the most important thing for young people to learn about personal finance is the connection between service and income. Most, rightly look for a way to earn money and advance the lifestyle of their home life. How does one do that? Grinding it out in a 9-5 does not seem attractive while living the lifestyles of those on TV would be awesome. The temptation is to try all these tricks to get money, but absent from their plan is how they serve their fellow man in order to receive that money. Stars, like the Kardashians are a marketing machine despite the carefree life displayed on the TV. They have served many budding companies well by selling their products to certain demographics. Most young people do not make that connection. So they try things like trading Forex, gold or whatever the latest thing is. It does not work as there is no service to their fellow man. They get a job at a fast food chain and complain about their pay in accordance with their work. Well sure, but again they are serving such few people that one can only expect a small income. The better and more people one can serve, in general, the higher a person's income.\",\n \"I had some friends that, when their daughters hit high school, gave them $100 on the first of each month. And that was it. They had to buy their clothes, their school supplies, their lunches and anything else that they wanted out of that $100. Those were three of the most responsible, mature teenage girls you will ever meet.\",\n \"I am using the term homework generically to mean anything that is a part of school work that you should be working on independently. You can see if the people at r/investing or r/finance will answer your question\",\n \"Wikipedia has a nice definition of financial literacy (emphasis below is mine): [...] refers to an individual's ability to make informed judgments and effective decisions about the use and management of their money. Raising interest in personal finance is now a focus of state-run programs in countries including Australia, Japan, the United States and the UK. [...] As for how you can become financially literate, here are some suggestions: Learn about how basic financial products works: bank accounts, mortgages, credit cards, investment accounts, insurance (home, car, life, disability, medical.) Free printed & online materials should be available from your existing financial service providers to help you with your existing products. In particular, learn about the fees, interest, or other charges you may incur with these products. Becoming fee-aware is a step towards financial literacy, since financially literate people compare costs. Seek out additional information on each type of product from unbiased sources (i.e. sources not trying to sell you something.) Get out of debt and stay out of debt. This may take a while. Focus on your highest-interest loans first. Learn the difference between good debt and bad debt. Learn about compound interest. Once you understand compound interest, you'll understand why being in debt is bad for your financial well-being. If you aren't already saving money for retirement, start now. Investigate whether your employer offers an advantageous matched 401(k) plan (or group RRSP/DC plan for Canadians) or a pension plan. If your employer offers a good plan, sign up. If you get to choose your own investments, keep it simple and favor low-cost balanced index funds until you understand the different types of investments. Read the material provided by the plan sponsor, try online tools provided, and seek out additional information from unbiased sources. If your employer doesn't offer an advantageous retirement plan, open an individual retirement account or IRA (or personal RRSP for Canadians.) If your employer does offer a plan, you can set one of these up to save even more. You could start with access to a family of low-cost mutual funds (examples: Vanguard for Americans, or TD eFunds for Canadians) or earn advanced credit by learning about discount brokers and self-directed accounts. Understand how income taxes and other taxes work. If you have an accountant prepare your taxes, ask questions. If you prepare your taxes yourself, understand what you're doing and don't file blind. Seek help if necessary. There are many good books on how income tax works. Software packages that help you self-file often have online help worth reading – read it. Learn about life insurance, medical insurance, disability insurance, wills, living wills & powers of attorney, and estate planning. Death and illness can derail your family's finances. Learn how these things can help. Seek out and read key books on personal finance topics. e.g. Your Money Or Your Life, Why Smart People Make Big Money Mistakes, The Four Pillars of Investing, The Random Walk Guide to Investing, and many more. Seek out and read good personal finance blogs. There's a wealth of information available for free on the Internet, but do check facts and assumptions. Here are some suggested blogs for American readers and some suggested blogs for Canadian readers. Subscribe to a personal finance periodical and read it. Good ones to start with are Kiplinger's Personal Finance Magazine in the U.S. and MoneySense Magazine in Canada. The business section in your local newspaper may sometimes have personal finance articles worth reading, too. Shameless plug: Ask more questions on this site. The Personal Finance & Money Stack Exchange is here to help you learn about money & finance, so you can make better financial decisions. We're all here to learn and help others learn about money. Keep learning!\",\n \"\\\"The real betrayal is that the so-called education system can't be bothered to teach people anything useful. I had a \\\"\\\"bank book\\\"\\\" (savings account) in *fifth grade*. We learned to operate checking accounts in sixth, and compound interest the next year. What happened?\\\"\",\n \"\\\"The statement \\\"\\\"Finance is something all adults need to deal with but almost nobody learns in school.\\\"\\\" hurts me. However I have to disagree, as a finance student, I feel like everyone around me is sound in finance and competition in the finance market is so stiff that I have a hard time even finding a paid internship right now. I think its all about perspective from your circumstances, but back to the question. Personally, I feel that there is no one-size-fits-all financial planning rules. It is very subjective and is absolutely up to an individual regarding his financial goals. The number 1 rule I have of my own is - Do not ever spend what I do not have. Your reflected point is \\\"\\\"Always pay off your credit card at the end of each month.\\\"\\\", to which I ask, why not spend out of your savings? plan your grocery monies, necessary monthly expenditures, before spending on your \\\"\\\"wants\\\"\\\" should you have any leftovers. That way, you would not even have to pay credit every month because you don't owe any. Secondly, when you can get the above in check, then you start thinking about saving for the rainy days (i.e. Emergency fund). This is absolutely according to each individual's circumstance and could be regarded as say - 6 months * monthly income. Start saving a portion of your monthly income until you have set up a strong emergency fund you think you will require. After you have done than, and only after, should you start thinking about investments. Personally, health > wealth any time you ask. I always advise my friends/family to secure a minimum health insurance before venturing into investments for returns. You can choose not to and start investing straight away, but should any adverse health conditions hit you, all your returns would be wiped out into paying for treatments unless you are earning disgusting amounts in investment returns. This risk increases when you are handling the bills of your family. When you stick your money into an index ETF, the most powerful tool as a retail investor would be dollar-cost-averaging and I strongly recommend you read up on it. Also, because I am not from the western part of the world, I do not have the cultural mindset that I have to move out and get into a world of debt to live on my own when I reached 18. I have to say I could not be more glad that the culture does not exist in Asian countries. I find that there is absolutely nothing wrong with living with your parents and I still am at age 24. The pressure that culture puts on teenagers is uncalled for and there are no obvious benefits to it, only unmanageable mortgage/rent payments arise from it with the entry level pay that a normal 18 year old could get.\\\"\",\n \"I also saw a lot of reference to Mutual Mania Board Game, which is geared towards kids 11yrs+ and helps them learn about spending, saving, profit and loss.\",\n \"\\\"If you are wanting to teach your kids basic accounting principles there is some good stuff on Khan Academy. However most of the stuff takes practice to really make it hit home and its kinda boring (Especially to kids who may or may not care about it). Maybe if you help them set up an account on Mint so that they are at least aware of their finances. Think it also has a heap of videos you can watch that teaches basic personal finance. If you actually want them to understand the techniques and methods behind creating & maintaining a personal ledger/journal and reconciling it against a bank account you are getting into what undergraduates study and there are plenty of first year textbooks around. Look around for a second hand one that is a few revisions old and they are usually dirt cheap (I scored one for only a dollar not that long ago). I feel like the mindset is what matters most. Journals and all that jazz are easy if you have the right mindset. That is something that you really have to demonstrate to your children rather than teach. Meaning you yourself keeping your finances in order and showing them how you organise and file your bills/ credit cards etc. (So they learn the importance of keeping financial records; meaning in the future when its talked about it doesn't fall on deaf ears) Emphasize the whole \\\"\\\"living within your means\\\"\\\" because even if they don't understand bookkeeping or learn anything else at least their finances won't turn out too bad.\\\"\",\n \"\\\"If you are living near a land-grant university, you might be able to find help from the university's Extension Service. In many land-grant universities (the land grants were given to universities formed for the purpose of improving \\\"\\\"agricultural and mechanical arts\\\"\\\"), the Extension Services have expanded beyond farm-related services to include horticulture, food and nutrition counseling, consumer finance, money management and budgeting advice etc. See, for example this site.\\\"\",\n \"The Khan Academy has a huge series on finance (Sal Khan used to work at a hedge fund before he started his magnum opus): http://www.khanacademy.org/#core-finance Some are pretty basic stuff, but he does have some interesting commentary and snippets of more interesting topics. They're all very low-commitment and bite-sized.\",\n \"I will definitely recommend the following books The above books will open lot of eyes to exactly know what you are doing with your personal finances in a day to day basis.These books will surely be in the top of my list which I will be giving away to my kins in my later stage. The concepts are universally the same, feel free to skip the chapters which were US based. I live in UK and I read most of the above books in late twenties, it surely made lot of changes and also drastically improved my personal finance acumen. I wish I have read these books in my early twenties.\",\n \"Here's a very good series of classroom lectures by Robert Schiller, one of America's top economists and a prof at Yale: http://www.youtube.com/user/YaleCourses#g/c/8F7E2591EE283A2E This should give you some general insight into basic principles of finance and give you a framework to learn more later.\",\n \"The Money Girl (Quick and Dirty Tips for a richer life) Podcast is a pretty good source for this type of information. Some Recent Topics:\",\n \"Itunes U has some really good online classes on economics. And as with a lot of things check out Khanacademy.org. He has a whole financial section of really well made videos. Good books to read regarding the financial crisis are The Big Short by Lewis and Too Big To Fail by Sorkin.\",\n \"This is such a shame imo. No one here feels like children should be focusing on something other than making profits? Selling shitty services for self betterment? If you teach children that money is god, they will worship it. Like you apparently.\",\n \"I received an allowance growing up. There were stipulations on what I had to do with it that helped instill the values my parents wanted - in their case they were hoping to teach me to give money to my church, so I had a mandatory amount that I had to give when I received the allowance. To this day I still give money to the church, so I guess it stuck. The allowance was tied to my doing some basic chores around the house - but loosely. It wasn't a reward for doing those chores, but it would be taken away if I didn't do them. Before I was of a legal working age I could do larger unusual tasks around the house for more money. The relationship between chores and some form of allowance is, I think, tricky. I don't think kids should be taught that the only reason to work is to earn money. They won't earn money for keeping their future homes clean or by volunteering at the local food bank, but these are both good things to do. At the same time it is good to teach that work has a reward and that lack of work means lack of a reward. My parents set up a savings account for me quite early. Largely what went in there was birthday cash from relatives (a great thing to talk to any family members who might give your kids gifts about) and the income from my once-yearly sale of baked goods at a craft fair. These were bigger amounts of money that I could take pride in depositing, and keeping them in a bank helped prevent me from spending them willy-nilly. I also got a credit card at the age of 16 (only allowed in some states in the US, not sure about internationally). My parents oversaw my spending habits with it and made sure I always paid in full and on time. The money I spent was tied to my summer work in high school and college. I thought it was extremely valuable to learn how to manage a credit card before college when the card companies often seem to prey on young customers.\",\n \"Personal finance is a fairly broad area. Which part might you be starting with? From the very basics, make sure you understand your current cashflow: are you bank balances going up or down? Next, make a budget. There's plenty of information to get started here, and it doesn't require a fancy piece of software. This will make sure you have a deeper understanding of where your money is going, and what is it being saved for. Is it just piling up, or is it allocated for specific purchases (i.e. that new car, house, college tuition, retirement, or even a vacation or a rainy day)? As part of the budgeting/cashflow exercise, make sure you have any outstanding debts covered. Are your credit card balances under control? Do you have other outstanding loans (education, auto, mortgage, other)? Normally, you'd address these in order from highest to lowest interest rate. Your budget should address any immediate mandatory expenses (rent, utilities, food) and long term existing debts. Then comes discretionary spending and savings (especially until you have a decent emergency fund). How much can you afford to spend on discretionary purchases? How much do you want to be able to spend? If the want is greater than the can, what steps can you take to rememdy that? With savings you can have a whole new set of planning to consider. How much do you leave in the bank? Do you keep some amount in a CD ladder? How much goes into retirement savings accounts (401k, Roth vs. Traditional IRA), college savings accounts, or a plain brokerage account? How do you balance your overall portfolio (there is a wealth of information on portfolio management)? What level of risk are you comfortable with? What level of risk should you consider, given your age and goals? How involved do you want to be with your portfolio, or do you want someone else to manage it? Silver Dragon's answer contains some good starting points for portfolio management and investing. Definitely spend some time learning the basics of investing and portfolio management even if you decide to solicit professional expertise; understanding what they're doing can help to determine earlier whether your interests are being treated as a priority.\",\n \"wow thanks for the info. So if i wanted a masters in finance, should i take math electives to get them out of the way earlier? I'm a senior in high school and I'm very interested in finance, but I'll admit not the best at math..\",\n \"\\\"You bring up some very high level stuff, each of which can be the subject of a life's work. For taxes, I first read J.K. Lasser's Your Income Tax. I actually read it cover to cover instead of using it as a reference guide. I hit topics that I'd otherwise have never looked up on purpose. Once you familiarize yourself with the current tax code, keeping up on changes to the code goes pretty well. As far as investing goes, William Bernstein has two titles, “The Four Pillars of Investing” and “The Intelligent Asset Allocator”. Others have liked “Personal Finance for Dummies” by Eric Tyson. These are great introductory books, the classic is “Security Analysis” by Graham & Dodd. Warren Buffet was a student of Benjamin Graham and he did fine applying these principals. For retirement, The Number by Lee Eisenberg was a good read. I consider retirement an extension of the investing education, only the money flow is reversed, withdrawals, no new deposits. Of course this is an oversimplification. In my own reading list, I include books such as “Extraordinary Popular Delusions & the Madness of Crowds” by Charles MacKay and “The Great Crash 1929″ by John Kenneth Galbraith. Understanding how these bubbles happen is critical to a complete education. I'm convinced that when it comes to investing if I can teach my daughter to understand the concept of Risk and Reward and to understand there are certain common alerts to such bubbles, the simplest of which is the term \\\"\\\"this time is different\\\"\\\" as though a hundred years of market dynamics can change in a matter of a few years. Last, there are books like \\\"\\\"Stop Acting Rich\\\"\\\" by Dr Thomas Stanley. Not quite investing, per se, but a good read to get an idea of how we have a distorted view of certain signs of wealth. Keep reading, no harm in taking books out of the library and returning if the first chapter or two disappoints.\\\"\",\n \"Before you even enroll in a good financial school, register for an account with a bank that allows you to manage a stock portfolio. I prefer TD Ameritrade. You do have to be 18 (Just register it under your parents, it doesn't matter. Just make sure they fill out the information portion. Get the SSN and tax info right. Basically it's their account, you're just managing it. ) That way you'll have some good, practical experience going into it. Understand that working with money can be a very cut-throat industry, be ready to be competing with people constantly. Also, surround yourself with books from successful stock brokers, investment bankers, things like that. When you're working you'll want information like that. Good luck, and I hope this helps.\",\n \"\\\"This Stack Exchange site is a nice place to find answers and ask questions. Good start! Moving away from the recursive answer... Simply distilling personal finance down to \\\"\\\"I have money, I'll need money in the future, what do I do\\\"\\\", an easily digestible book with how-to, multi-step guidelines is \\\"\\\"I Will Teach You To Be Rich\\\"\\\". The author talks about setting up the accounts you should have, making sure all your bills are paid automatically, saving on the big things and tips to increase your take home pay. That link goes to a compilation page on the blog with many of the most fundamental articles. However, \\\"\\\"The World’s Easiest Guide To Understanding Retirement Accounts\\\"\\\" is a particularly key article. While all the information is on the free blog, the book is well organized and concise. The Simple Dollar is a nice blog with frugal living tips, lifestyle assessments, financial thoughts and reader questions. The author also reviews about a book a week. Investing - hoping to get better returns than savings can provide while minimizing risk. This thread is an excellent list of books to learn about investing. I highly recommend \\\"\\\"The Bogleheads' Guide to Investing\\\"\\\" and \\\"\\\"The Only Investment Guide You'll Ever Need\\\"\\\". The world of investment vehicles is huge but it doesn't have to be complicated once you ignore all the fads and risky stuff. Index mutual funds are the place to start (and maybe end). Asset allocation and diversification are themes to guide you. The books on that list will teach you.\\\"\",\n \"This is what helped me. - I did my own taxes - get your own job, not from your parents, or parents friends, but entirely by yourself. Complete independence will equate to financial independence - Wikipedia (for specifics and definitions) paired with finance genre movies - audiobook, or YouTube video, 'why an economy grows, and why it doesnt' That's a good start. Good luck! Don't be too gung ho to invest and all that crap, you got lots too learn. Rule 1: don't be too eager, that's how you lose all your money! My best financial investments to date were: 1) my education (engineering) 2) I didn't pay my student loan off, instead, I bought a property, and I made $70,000 in 8 months off of one, and $100,000 off of another one in 2 years, 3) still making minimum payments on my student loan, a dollar today is worth more than a dollar tomorrow 4) pack my own lunches every day, eating out every meal ends up costing more than most mortgage payments. This is in Vancouver BC, Canada.\",\n \"Pre-finance major here and new to this sub. Quick background, I’m 18 and I’m starting school at the University of Iowa in January. My question is: what resources are out there that you would recommend to help me get introduced to the world of finance? Could be books, online courses, videos, etc. and could be on any subject within the umbrella of finance. Thanks in advance for any recommendations!\",\n \">it's a racket. *shrug* Aren't they all? Some are better than others. Carlton Sheets, Robert Kiyosaki, Suzie Orman, etc. Even Dave Ramsey, arguably the best of the bunch, hawks books and seminars frequently. But isn't business school also a racket? Isn't most education?\",\n \"The free Yale Course taught by Bob Shiller called Financial Markets is really good. Find it on youtube, iTunes U, academic earth, or yale's site.\",\n \"I asked about this in the last thread, but got no answers because it was 4-5 days old at the time. I'm a finance student, and currently an intern at a big Financial Services firm. The internship is in compliance, though, and that's not exactly where I want to end up later. I don't know exactly what I want to do, but I assume there are some skills that are widely applicable in the entire industry that aren't taught enough, and I want to learn something over the summer (through Coursera/books/videos/whatever). The problem is, I don't know what. Does anyone here have any suggestions? I was thinking something along the lines of programming or some more advanced excel stuff that isn't taught in school, but I don't really have any place to start. Any advise would be appreciated.\",\n \"If you are not working, I believe you would be getting some money from your family to meet your expenses. In such a case, I would start with maintaining a Cash A/c which would list your monthly expenses and the money you received, which is what I used to do at your age. You can maintain it in a notebook with pen/pencil or using online tools such as Google Sheets. Enter each expense entries each day as debits and entries towards any money you receive as credits. At the end of the month, tally them and see how much you have left. Also, this gives you a clear picture of where your expenses are what is that you can avoid. On longer term, this can help you form an annual budget for your personal finances.\",\n \"\\\"I would let them get their hands dirty, learn by practicing. Below you can find a simple program to generate your own efficient frontier, just 29 lines' python. Depending on the age, adult could help in the activity but I would not make it too lecturing. With child-parent relationship, I would make it a challenge, no easy money anymore -- let-your-money work-for-you -attitude, create the efficient portfolio! If there are many children, I would do a competition over years' time-span or make many small competitions. Winner is the one whose portfolio is closest to some efficient portfolio such as lowest-variance-portfolio, I have the code to calculate things like that but it is trivial so build on the code below. Because the efficient frontier is a good way to let participants to investigate different returns and risk between assets classes like stocks, bonds and money, I would make the thing more serious. The winner could get his/her designed portfolio (to keep it fair in your budget, you could limit choices to index funds starting with 1EUR investment or to ask bottle-price-participation-fee, bring me a bottle and you are in. No money issue.). Since they probably don't have much money, I would choose free software. Have fun! Step-by-step instructions for your own Efficient Frontier Copy and run the Python script with $ python simple.py > .datSimple Plot the data with $ gnuplot -e \\\"\\\"set ylabel 'Return'; set xlabel 'Risk'; set terminal png; set output 'yourEffFrontier.png'; plot '.datSimple'\\\"\\\" or any spreadsheet program. Your first \\\"\\\"assets\\\"\\\" could well be low-risk candies and some easy-to-stale products like bananas -- but beware, notice the PS. Simple Efficient-frontier generator P.s. do not stagnate with collectibles, such as candies and toys, and retailer products, such as mangos, because they are not really good \\\"\\\"investments\\\"\\\" per se, a bit more like speculation. The retailer gets a huge percentage, for further information consult Bogleheads.org like here about collectible items.\\\"\",\n \"I'm from Canada, so your going to have to take that into account when reading this, as things are done a little differently here. I wouldn't go the accounting route, as it's going to require more education on top of this. Id there is a program that focuses more on the management of finances that would be ideal. There are many mid to entry level positions that deal with the flow of cash throughout the company. From there you work your ass off and see where it can get you. Sometimes they go as far as hiring someone with no experience, but a certificate and a some educational knowledge will go a long ways in helping you. You probably could, if you went to the right sources, gain similar knowledge by learning things yourself. But it won't look nearly as appealing to potential employers. Hope this helps. Also, it blows my mind, the difference in cost of tuition. I spent 12k over 3 years(just finished). Those kids in Montreal have no idea how good they have it.\",\n \"It depends what you mean by financial knowledge. Often you will work in a group focused on some aspect of the company's business. As an example, I work for a company and my group works on econometric models. Although I have a degree in finance, I don't encounter or talk about corporate or personal finance. I do talk about investing with a friend, but in general, our group is focused on one aspect of finance and economics for the company. From another direction, often financial companies will offer financial literacy training through HR and benefits programs where you can improve your knowledge of finance outside of your groups focus. In the end, you will learn the most by persuing new knowledge through reading on current financial literature. I hope this helps. Edit: If you add some specifics to what you would like to learn about I may be able to point you in the right direction.\",\n \"I mostly volunteer within a church environment. Given this is reddit, I'm not sure how that comment will fair. But I also see a lot of workshops via networking sites; linkedin has one called 'Financial Culture | Financial Literacy', between the articles and financial counseling workshops in the area I live it would be pretty easy to get involved. Also, START FOLLOWING COMPANIES on linked in. Join groups that are related to what you want to do, they post items all the time about relevant news to their industry. The more educated you can get the better.\",\n \"\\\"There are many paths to success, but they all begin with education. You made the first big step just by visiting here. We have 17,000 questions, arranged by tag so you can view those on a given topic. You can sort by votes to see the ones that have the best member acceptance. I'll agree with Ben that one of the best ones is \\\"\\\"The correct order of investing.\\\"\\\" We both offered answers there, and that helps address a big chunk of your issue. The book recommendations are fine, you'll quickly find that each author has his/her own slant or focus on a certain approach. For example, one financial celebrity (note - in the US, there are private advisors, usually with credentials of some sort, there are those who work for brokers and also offers help, there are financial bloggers (I am one), and there are those who are on the radio or TV who may or may not have any credentials) suggests that credit cards are to be avoided. The line in another answer here, \\\"\\\"You're not going to get rich earning 1% on a credit card,\\\"\\\" is a direct quote of one such celebrity. I disputed that in my post \\\"\\\"I got rich on credit card points!\\\"\\\" The article is nearly 2 years old, the account accumulating the rewards has recently passed $34,000. This sum of money is more wealth than 81% of people in the world have. The article was a bit tongue in cheek (sarcastic) but it made a point. A young person should get a credit card, a good one, with no fee, and generous rewards. Use the card to buy only what you can pay back that month. At year end, I can download all my spending. The use of the card helps, not hinders, the budgeting process, and provides a bit of safety with its guarantees and theft protection. Your question really has multiple facets. If these answers aren't helpful enough, I suggest you ask a new question, but focus on one narrow issue. \\\"\\\"Paying off debt\\\"\\\" \\\"\\\"Getting organized\\\"\\\" \\\"\\\"Saving\\\"\\\" \\\"\\\"Budgeting\\\"\\\" all seem to be part of your one question here.\\\"\",\n \"\\\"I've recommended this book a few times on this site, and I'm going to do it again. Get a Financial Life: Personal Finance in Your Twenties and Thirties by Beth Kobliner Most of the personal finance advice books and blogs I have found focus too much on investing, or are more about \\\"\\\"lifestyle\\\"\\\" than finances, and left me unimpressed. I like this book because it covers most of the major personal finance topics (budgets, rainy-day fund, insurance, retirement, and non-retirement investment). I have not found another book that covers the topics as concisely as this one. It is no-nonsense, very light reading. Even if you are not a book person, you can finish it in a weekend. It is really geared for the young person starting their career. Not the most current book (pre real-estate boom), but the advice is still sound. Keep in mind that is is starting point, not the ultimate answer to all financial questions.\\\"\",\n \"Not sure why people are suggesting CFP or CFA to someone who hasn't graduated with a BS yet. With that said, CFA had a claritas (fundamentals course) with like 20-20 page chapters going over basic finance and investment info. Pretty sure you can still get those pdfs for free. Investopedia is also great for general concepts for banking and investments. CFA is very expensive and I wouldn't touch it until you've taken general business classes and really built up your foundation.\",\n \"\\\"Excellent questions! Asking such questions indicates something special about yourself. The desire to learn and adjust your beliefs will increase your chance of success in your life. I would use a wide variety of authors to increase your education. Myself I prefer Dave Ramsey to Clark Howard, but I think Clark is very good. The first thing you should focus on is learning how to do and live by a budget. Often times, adults will assume that you are on a budget because you are broke. It happens with my friends and my youngest child is older than you. Nothing could be further from the truth. A budget is simply a plan on how you will spend your income so you don't run out of money before you run out of month. Along with budgeting I would also focus on goal setting. This is the type of \\\"\\\"investing\\\"\\\" you should be doing at your age. For example if your primary goal was to become an engineer, my recommendation is to hold off buying stocks/mutual funds and using your current income to get through school with little or no student loans. Another example might be to open your own HVAC business. Your best bet might be to learn the trade, working for someone else, and take night classes for business management. Most 18 year olds have very little earning power. Your focus at this point should be increasing your income and learning how to manage the income you have. Please keep in mind that most debt is bad. It robs you of your income which is your greatest wealth building tool. Car loans and credit card debt is just plain stupid. Often times a business case can be made for reasonable student loans. However, why not challenge yourself to take none. How much further ahead could you be if you graduate, with a degree, when your peers are strapped with a 40K loan? Keep up the good work and keep asking questions.\\\"\",\n \"Are there particular, established businesses that provide these services? Yes! There are many fee-based financial advisors that provide such services. These might help: http://www.ricedelman.com/galleries/default-file/how-to-choose-financial-advisor.pdf http://www.ricedelman.com/cs/education/article?articleId=990#.Us7cyPRDt1Y\",\n \"as someone who made a fair attempt at understanding money subjects, I'd like some more writing from you. I took high school level Marketing; Business economics; commercial law. it took six months on top of my previous High school ( with high level maths). during those months I got medium grades, and failed in- can you believe it - marketing. I had a go at The intelligent investor. I made it to page 96. But honestly I felt like I needed a lot of background in order for me to understand it. English is my second language. Sure I can understand words like liability vs assets. but to this day i still can't remember the difference between a bull and bearish market. I know its about risk assesment on a national/ global level. So who honestly gave finance a go but got their ass kicked. What would you say? any books?\",\n \"\\\"What you are looking for is a Money Coach or a Personal Finance Coach. From mymoneycoach.com: \\\"\\\"Money Coach: Everyone uses money, but few people fully understand how to use it wisely. To be debt free and enjoy a comfortable lifestyle takes special skills. Money coaches provide solutions for household budgeting, investing, using credit wisely, and saving for retirement. With the principles offered by a money coach, you can live the life you want to live.\\\"\\\" Usually money coaches or personal finance coaches will not tell you \\\"\\\"you should put your money here or there\\\"\\\" but instead they will work with you to identify and correct bad money behaviours that affect more than just your investments, and they will not sell you anything. Maybe you could take a look at some coaches in your area, but a lot of them work via the internet too. Good luck!\\\"\",\n \"My reading list for someone just getting into personal finance would include the following I know it's a bunch but I'm trying to cover a few specific things. Yeah it's a bit of reading, but lets face it, nobody is going to care as much about your money as YOU do, and at the very least this kind of knowledge can help fend off a 'shark attack' by someone trying to sell you something not because it's best for you, but because it earns them a fat commission check. Once you've covered those, you have a good foundation, and oh lord there's so many other good books that you could read to help understand more about money, markets etc.. Personally I'd say hit this list, and just about anything on it, is worth your time to read. I've used publishers websites where I could find them, and Amazon otherwise.\",\n \"Khan academy videos are really good. You should start to read the tutorials for beginners on investopedia.com. Additionally, you should keep yourself informed about the current finance related events. I would suggest reading the wall street journal and watch Bloomberg TV on their website.\",\n \"CreditKarma review I don't personally use HelloWallet, but I have also heard very good things about it. Independence from financial products is a HUGE thing in the field because so many investment advisers place the firm before the customer (c.f. Too Big To Fail), so having an independent resource is a huge benefit.\",\n \"The short answer is that there are no great personal finance programs out there any more. In the past, I found Microsoft Money to be slick and feature rich but unfortunately it has been discontinued a few years ago. Your choices now are Quicken and Mint along with the several open-source programs that have been listed by others. In the past, I found the open source programs to be both clunky and not feature-complete for my every day use. It's possible they have improved significantly since I had last looked at them. The biggest limitation I saw with them is weakness of integration with financial service providers (banks, credit card companies, brokerage accounts, etc.) Let's start with Mint. Mint is a web-based tool (owned by the same company as Quicken) whose main feature is its ability to connect to nearly every financial institution you're likely to use. Mint aggregates that data for you and presents it on the homepage. This makes it very easy to see your net worth and changes to it over time, spending trends, track your progress on budgets and long-term goals, etc. Mint allows you to do all of this with little or no data entry. It has support for your investments but does not allow for deep analysis of them. Quicken is a desktop program. It is extremely feature rich in terms of supporting different types of accounts, transactions, reports, reconciliation, etc. One could use Quicken to do everything that I just described about Mint, but the power of Quicken is in its more manual features. For example, while Mint is centred on showing you your status, Quicken allows you to enter transactions in real-time (as you're writing a check, initiating a transfer, etc) and later reconciles them with data from your financial institutions. Link Mint, Quicken has good integration with financial companies so you can generally get away with as little or as much data entry as you want. For example, you can manually enter large checks and transfers (and later match to automatically-downloaded data) but allow small entries like credit card purchases to download automatically. Bottom line, if you're just looking to keep track of where you are at, try Mint. It's very simple and free. If you need more power and want to manage your finances on a more transactional level, try Quicken (though I believe they do not have a trial version, I don't understand why). The learning curve is steep although probably gentler than that of GnuCash. Last note on why Mint.com is free: it's the usual ad-supported model, plus Mint sells aggregated consumer behaviour reports to other institutions (since Mint has everyone's transactions, it can identify consumer trends). If you're not comfortable with that, or with the idea of giving a website passwords to all your financial accounts, you will find Quicken easier to accept. Hope this helps.\",\n \"\\\"IMHO It is definitively not too early to start learning and thinking about personal finances and also about investing. If you like to try stock market games, make sure to use one that includes a realistic fee structure simulation as well - otherwise there'll be a very unpleasant awakening when switching to reality... I'd like to stress the need for low fees with the brokerage account! Sit down and calculate how much fees different brokers take for a \\\"\\\"portfolio\\\"\\\" of say, 1 ETF, 1 bond, 1 share of about $500 or $1000 each (e.g. order fee, annual fee, fee for paying out interest/dividend). In my experience, it is good if you can manage to make the first small investing steps before starting your career. Real jobs tend to need lots of time (particularly at the beginning), so time to learn investing is extremely scarce right at the time when you for the first time in your life earn money that could/should be invested. I'm talking of very slowly starting with a single purchase of say an ETF, a single bond next time you have saved up a suitable amount of toy money, then maybe a single share (and essentially not doing anything with them in order to avoid further fees). While such a \\\"\\\"portfolio\\\"\\\" is terrible with respect to diversification and relative fees*, this gives you the possibility to learn the procedures, to see how the fees cut in, what to do wrt taxes etc. This is why I speak about toy money and why I consider this money an investment in education. * An order fee of, say, $10 on a $500 position are terrible 4% (2 x $10) for buying + selling - depending on your local taxes, that would be several years of dividend yield for say some arbitrary Dow Jones ETF. Nevertheless, purchase + sale together are less than 3 cinema tickets.\\\"\",\n \"\\\"I found this great resource at MarketWatch.com - a listing on online games that help parents teach kids about saving and finance, set up by age group. Here's an example of some of the content: For children six to nine: www.fleetkids.com, sponsored by the Fleet Bank, has great games -- like \\\"\\\"Buy lo, Sell hi\\\"\\\" and \\\"\\\"Chunka Change\\\"\\\" -- that teach kids about spending and saving. Kids can compete for prizes such as computers and backpacks for their schools.\\\"\",\n \"\\\"Between 1 and 2 G is actually pretty decent for a High School Student. Your best bet in my opinion is to wait the next (small) stock market crash, and then invest in an index fund. A fund that tracks the SP500 or the Russel 2000 would be a good choice. By stock market crash, I'm talking about a 20% to 30% drop from the highest point. The stock market is at an all time high, but nobody knows if it's going to keep going. I would avoid penny stocks, at least until you can read their annual report and understand most of what they're claiming, especially the cash flow statement. From the few that I've looked at, penny stock companies just keep issuing stock to raise money for their money loosing operations. I'd also avoid individual stocks for now. You can setup a practice account somewhere online, and try trading. Your classmates probably brag about how much they've made, but they won't tell you how much they lost. You are not misusing your money by \\\"\\\"not doing anything with it\\\"\\\". Your classmates are gambling with it, they might as well go to a casino. Echoing what others have said, investing in yourself is your best option at this point. Try to get into the best school that you can. Anything that gives you an edge over other people in terms of experience or education is good. So try to get some leadership and team experience. , and some online classes in a field that interests you.\\\"\",\n \"Teach them that money can help solve most (if not all the problems) in life. If they truly appreciate the value of saving every single penny, eventually they will come to realize that if you don't touch your money (waste it on useless things you don't need such as eating out) that it can grow. Also teach them the value of compounding interest, even a TFSA/high interest savings account with a modest 3-4% annual ROI can be big with yearly additions and no withdrawals for a lifetime. Tell them to take Johnny Appleseed for example. Johnny starts up his TFSA with help from mom and dad at the age of 15, let's say they put in $5000 all together. Now let's say he adds in a modest $2500 to his TFSA every year until he is 55 years old. If the TFSA has an interest rate of 4%, then when he's 55 he'll have over half a million dollars in the bank and he really didn't have to do much besides not touch it.\",\n \"\\\"> These curricula—packed with classes like operations, accounting, statistics, and management—fail to account for students’ individual needs. Yea, because what we really need is more MBAs without basic knowledge of accounting and statistics. The new economy of \\\"\\\"make shit up\\\"\\\" is working so much better than the old way of doing things.\\\"\",\n \"What are your goals? Managing your finances is not the same for everyone. For example, do you want a more hands-off approach to finance or more hands-on? Are you looking at investments as well or just saving money? Those types of questions.\",\n \"As a parent I think you absolutely have to teach them that income is related to work because (for most people at least) it's a more fundamental principle than budgeting, investments, interest, etc. Once they've learned that the primary source of income is work, then you can start teaching them what to do with it, i.e. how to budget, economise, save, invest, etc.\",\n \"And what would you believe would be the minimum level necessary to get someone to a point where they are financially literate and can make educated, informed decisions? Do you believe an online accreditation on various aspects of investing in SMEs would help address these issues or would something more comprehensive be necessary?\",\n \"It's never too early, but age 3 is when we started a piggy bank. Age 4 is when we opened a bank account. When you go shopping with your children, discuss what items cost (such as bread, milk, books, etc.) Start teaching them that everything has a value...then relate it to how much they have saved. Kids need to learn 3 basic things from their parents: how to save/invest, how to spend wisely, how to share/donate\",\n \"I should also add that the 7/63 won't do much for you. If you're really interested in finance, you have a few options. 1) Sales - in which case the 7/63 is about all you need. The rest is just time and practice. 2) A job as an analyst. Your best bet here is to pursue the CFA charter. 3) A financial planner/advisor. This job is kind of a subcategory of #1. I always like to say that an advisor's primary job is to sell, giving meaningful advice is secondary. Nonetheless, a CFP is helpful here. 4) A trader. CFA charter is helpful here as with #2. 5) High Frequency Trading - Masters/PhD in math or a quant discipline and C++ is a must.\",\n \"\\\"For learning about finances my main two financial resources are this site, and the Motley Fool. My secondary sources are keeping up with columns by my favourite economic journalists - in the press in the US, Australia, England, and India. Regarding your comment about feeling green on the basics despite the reading - you're not alone. I've been interested in financials for better than 10 years, but there are a lot of questions on this site where I say to myself, \\\"\\\"I've no idea of what the answer could be, what are our resident experts saying?\\\"\\\" Having said that, there are some topics where I feel as though I can weigh in - and they tend to be where I have a little book knowledge and a lot of personal experience.\\\"\",\n \"His books: The Total Money Makeover - This is a very step by step approach to what he teaches about how to handle money. Financial Peace - This is a more philosophical approach to the same topics. More idea and less application based. You can catch his radio show online for free - or an hour podcast each day in the itunes store - this is free. You can watch his TV show on Hulu.\",\n \"I rather like The Ascent of Money, by Niall Ferguson. This comes in several formats. There's a video version, a written version (ISBN-13: 978-1594201929), and an audio version. This book covers the history of financial instruments. It covers the rise of money, the history of bonds and stocks, insurance and hedge funds, real-estate, and the spread of finance across the world. It is a great introduction to finance, though its focus is very definitely on the history. It does not cover more advanced topics, and will not leave you with any sort of financial plan, but it's a great way to get a broad overview and historical understanding of money and markets. I strongly recommend both the video and the written or audio version.\",\n \"Your Money or Your Life is a great book on this topic.\",\n \"\\\"I think it's great that you want to contribute. Course Instructor You may want to take a look at becoming an instructor for a course like Dave Ramsey's Financial Peace University. These are commonly offered through churches and other community venues for a fee. This may be a good fit if you want to focus on basic financial literacy, setting up and sticking to a budget, and getting their financial \\\"\\\"house\\\"\\\" in order. It may not be a good fit if you don't want to teach an existing curriculum, or if you find the tenets of the course too unpalatable. A significant number of the people in Dave's audience are close to or in the middle of a financial meltdown, and so his advice includes controversial ideas such as avoiding credit altogether, often because that's how they got into their current mess. Counselor If you want to run your own show, I know of several people who have built their own practice that is run along the lines of a counselor charging hourly rates, and they work with couples who are having money problems. Building a reputation and a network of referring counselors and professionals is key here, and definitely seems like it would require a full-time commitment. I would avoid \\\"\\\"credit counseling\\\"\\\" and the like. Most of these organizations are focused on restructuring credit card debt, not spending signficant time on behavioral change. You don't need a series 7, 63, 65 etc. or even a CFA. I've previously acquired a number of these and can confirm that they are investment credentials that are intended to help you get a job and/or get more business as a broker or conventional financial planner, i.e. salesperson of securities. The licensure process is necessary to protect consumers from advice that serves the investment sales force but is bad for the consumer, and because you must be licensed to provide investment advice. There is a class of fee-only financial planners, but they primarily deal with complex issues that allow them to make money, and often give away basic personal finance advice for free in the form of articles, podcasts, etc. Charity For part-time or free work, in my area there are also several charity organizations that help people do their taxes and provide basic budgeting and personal finance instruction, but this is very localized and may vary quite a bit depending on where you live. However, if there are none near you, you can always start one! Journalism If you have an interest in writing, there are also people who work as journalists and write columns, books, or newsletters, and it is much easier now to publish and build a network online, either on your own, through a blog or contributing to a website. Speaker at Community events There are also many opportunities to speak to a specific community such as a church or social organization. For example, where I live there are local organizations for Spanish speaking, Polish speaking, elderly, young professional, young mother and retiree groups for example, all of who might be interested in your advice on issues that specifically address their needs. Good luck!\\\"\",\n \"Unless u borrow for a house but just get a financial advisor - i highly recommend the co. I work for. Pm me if u want details though it sounds like u may go the diy route which is fine but 9 out if 10 times it takes nonprofessionals longer. I deal with clients and advisors who do this all the time.\",\n \"\\\"Anything by Frank Fabozzi - the de facto authority on financial education. Most of the stuff will be textbook ($$$) so get ready for sticker shock. Hopefully you can find a used copy of something. Quick search on Amazon yielded \\\"\\\"The Basics of Finance\\\"\\\" for about $150.\\\"\",\n \"\\\"I think this question is perfectly on topic, and probably has been asked and answered many times. However, I cannot help myself. Here are some basics however: Personal Finance is not only about math. As a guy who \\\"\\\"took vector calculus just for fun\\\"\\\", I have learned that superior math skills do not translate into superior net worth. Personal finance is about 50% behavior. Take a look at the housing crisis, car loans, or payday lenders and you will understand that the desire to be accepted by others often trumps the math surrounding a transaction. Outline your goals What is it that you want in life? A pile of money or to retire early? What does your business look like? How much cash will you need? Do you want to own a ton of rental properties? How does all this happen (set intermediate goals). Then get on a budget A budget is a plan to spend your money in advance. Stick to it. From there you can see how much money you have to implement various goals. Are your goals to aggressive? This is really important as people have a tendency to spend more money then they have. Often times when people receive a bonus at work, they spend that one bonus on two or three times over. A budget will prevent this from happening. Get an Emergency Fund Without an emergency fund, you be subject to the financial whims of people involved in your own life and that of the broader marketplace. Once you have one, you are free to invest with impunity and have less stress in a world that deals out plenty. Bad things will happen to you financially, protect against them. The best first investments are simple: Invest in yourself. Find a way to make a very healthy income with upward mobility. Also get out and stay out of debt. These things are not sexy, but they pay off in the long run. The next best investment is also simple: Index funds. These become the bench mark for all other investments. If you do not stand a good chance of beating the S&P 500 index fund, why bother? Just dump the money in the fund and sleep well at night.\\\"\",\n \"Depends what you mean by business world and finance world. NYTimes Sunday business section is a good start - mostly for large business. The Only Investment Guide You'll Ever Need by Andrew Tobias for how to invest your personal money - and you'll see why no one who says they can predict the market is accurate for very long. INC Magazine for running a small company\",\n \"Hello, I'm very interested in learning money. I used the search function, which led me to Investopedia, and already I'm learning a bunch. Could you recommend me some introductory reading on finance and economics? I have no education on this subject, and I realise that reading isn't anywhere near having a good formal education, but some knowledge is better than none. I'm looking to put this knowledge towards understanding what is a an enormous organ of power, and gaining the ability to recognise opportunities and profit. So yeah, economics and finance, but I will study anything you throw my way, so the more the better. Especially because investments and accounting also seem interesting and useful. P.S.: I'm European, if this makes a difference in what content will be relevant to me. Thank you for reading this.\",\n \"I didn't take too many finance or economics courses so i can't comment. In my post I recommended the YouTube video or audiobook 'why an economy grows and why it doesn't' I guess it's more economy related than finance related, but is still relevant as it touches on loans and net worth and stuff.\",\n \"If you are doing this because you are interested... this is one thing. But a degree in economics is probably not going to help you find a job. Before going into it, research available opportunities in the field first. Is it worth the cost of the degree to study it? Are you going into it because your employer wants you to have this knowledge? The answer to the question about Math is yes. There is a lot of math in Economics. A good idea is to get the course catalog for the degree at the university where you would be going and see which classes are required to get the degree. Wannabe2good is completely correct, Money and Banking (one of the classes required for an Eco degree) is something that helps you know why the president of the US is doing what he is doing, but really does not apply much to you personally, and employers will not care. I urge you and ANYONE else who plans to go to school, please research if there are JOBS in the field of your study. I have seen so many people study things they were interested in and then later graduate and were not able to find jobs. Good luck!\",\n \"If you want to do asset management or investment research, look into the [CFA Program](https://www.cfainstitute.org/programs/cfaprogram/Pages/index.aspx?WPID=Programs&PageName=Homepage). If this looks like your cup of tea, I advise registering for and taking the June 2018 CFA Level I exam. You will receive all the books you need to study.\",\n \"Does anyone have any good resources for starting up learning about savings, finances, etc? I'm 20 years old and want to begin really saving consistently and learning about 401Ks, IRAs, savings accounts, how to grow your money safely and slowly, etc. I'm mainly looking for a website or application that will help me budget and organize things. A phone app would be nice. And any subreddit where I could learn about these things would be extremely helpful too.\",\n \"I'm not sure if I am exactly what you are looking for, but I am currently studying finance at a university with a top ten finance program. I would be happy to help you out with your search for a college or program. The stuff about how to dress and act will come later.\",\n \"Many good sources on YouTube that you can find easily once you know what to look for. Start following the stock market, present value / future value, annuities & perpetuities, bonds, financial ratios, balance sheets and P&L statements, ROI, ROA, ROE, cash flows, net present value and IRR, forecasting, Monte Carlo simulation (heavy on stats but useful in finance), the list goes on. If you can find a cheap textbook, it'll help with the concepts. Investopedia is sometimes useful in learning concepts but not really on application. Khan Academy is a good YouTube channel. The Intelligent Investor is a good foundational book for investing. There are several good case studies on Harvard Business Review to practice with. I've found that case studies are most helpful in learning how to apply concept and think outside the box. Discover how you can apply it to aspects of your everyday life. Finance is a great profession to pursue. Good luck on your studies!\",\n \"My personal opinion, start a small business and just do it. You will learn faster than anything you can learn online. Keep it small, then when the disasters come, you can recover. Decide what kind of business you want to do, what area, then just start. Feel free to PM me if you need help. Also, SCORE is a consulting group of retired executives, Free, and you can get a lot of advice there too. Classes are fine, but if you want to do business, just do it, you will learn more, faster, than any class (once you figure out what kind of business you want to do)\",\n \"As a tenured professor, has your SO done any grant or departmental budgeting? If so, perhaps you can ask how your SO managed that and can apply the same techniques to the household budget. If your SO plans to become Chair or move into administration, budgets will be necessary. Although this may frighten you SO and backfire, you should also speak about what might happen if you become ill or otherwise unable to manage the finances. Does your SO have any financially savvy friends or colleagues? A more independent voice may help.\",\n \"You might like https://planwise.com/index.htm\",\n \"Not so much on the relevant experience side but I have been learning as much as I can about the investment/financial world. That's my thoughts. School counselor play a strong part in society, however, the earning potential is low as is the opportunity for career advancement. The MBA-finance program at my university takes students from all undergrad backgrounds. I would need to take the GRE this month and applications are due at the end of the month. I just wonder if trying to either go into finance without school or opting to enter the MBA program if I were accepted would be a good option. Do you see an MBA-finance being marketable and having greater earning potential than a school counselor (which is about a 46k/year salary)?\",\n \"It depends what area of finance, but an ivy league education is not *required*. A good school, probably, but the best thing you can do for yourself is go through the internship program at a bank or financial institution (usually after junior year, but you find the occasional sophomore). There are often many job offers to those that complete it well, and if not, you apply to other firms with your internship as your backing. It would help to know what Gyroisabot asked and know what area and what school you went to.\",\n \"\\\"Buy this book. It is a short, simple crash course on personal finance, geared at someone in their 20s just starting out their career. You can easily finish it in a weekend. The book is a little dated at this point (pre housing bubble), but it is still valid. I personally feel it is the best intro to personal finance out there. 99% of the financial advice you read online will be a variation of what is already in this book. If you do what the book says, you should be in a solid position financially. You won't be an investment guru or anything, but you will at least have the fundamentals. There are various \\\"\\\"protips\\\"\\\" for personal finance that go beyond the book, but I would advise against paying too much attention to them until you have the basics down.\\\"\",\n \"Mint.com is a fantastic free personal finance software that can assist you with managing your money, planning budgets and setting financial goals. I've found the features to be more than adequate with keeping me informed of my financial situation. The advantage with Mint over Microsoft Money is that all of your debit/credit transactions are automatically imported and categorized (imperfectly but good enough). Mint is capable of handling bank accounts, credit card accounts, loans, and assets (such as cars, houses, etc). The downsides are:\",\n \"The software you provided as an example won't teach you much about investing. The most important things of investing are: These are the only free lunches in investing. Allocation tells you how much expected return (and also how much risk) your portfolio has. Diversification is the only way to reduce risk without reducing return; however, just note that there is market risk that cannot be eliminated with diversification. Every penny you save on costs and taxes is important, as it's guaranteed return. If you were to develop e.g. software that calculates the expected return of a portfolio when given allocation as an input, it could teach you something about investing. Similarly, software that calculates the average costs of your mutual fund portfolio would teach you something about investing. But sadly, these kinds of software are uncommon.\",\n \"Can anyone recommend a good textbook for a first course in finance? I'm not studying it, if it's relevant--I'm just a guy who wants a better understanding of the financial sector. I don't know anything anout finance outside a few basic concepts.\",\n \"My former accountant, used to provide this service as part of him doing my taxes. During the off season, he would provide a planning session and he would review strategies that I might look into. Since he did not make any money off of providing investments, he was about as unbiased as one could be. However, something like that might not be enough for you guys. You could go with someone online, Scottrade is going into the business of providing advice, as well as Charles Schwab or Fidelity, but you might need someone more personal. In that case, I would use my network. Talk to people, ask who they use, like, and respect. I would say it is very easy to find mediocre investment advisers, the good ones are hard. I would look for one that teaches. It is very easy to tell someone what to do, much harder to teach them what is the right thing. One thing that is easy about your situation: Planning to buy a home. Put money for a down payment in a high interest savings account. What I mean by high interest, is they still pay almost nothing. You can't really make a mistake. If you find one with .5% instead of .85%, what is the real difference after 5 years? About $180?\",\n \"Got a degree in finance and I'll talk about simple ways to really improve your learning experience: excel will be your best friend. Get comfortable with it. Learn; pivot tables, formulas, formatting, and macros. Learn to type at a decent speed. Many students still type slow. It will hinder you Current events is the best way to stay informed. Always be reading up on business information. Pretty much twice a day. Join a free stock market game and track how you do. Get on it twice a week and make trades frequent based on what you think. I can elaborate more if you have any more questions !\",\n \"I followed Economics by Michael Parkin for my college level course. It does not involve very complicated mathematics (beyond simple arithmetic and interpreting plots/charts). I found it very enjoyable. Stocks, bonds, and other money market instruments are not covered under this subject usually. They are covered under finance. I normally recommend Hull to people but because you are not interested in mathematics I would recommend Stuart R Veale.\",\n \"Okay, first of all you have the make up to right into financial behavior field. http://en.wikipedia.org/wiki/Behavioral_finance I am not sure where to go for such a degree or the job prospects afterwords, but frankly 'they' say it will be something of great interest in the future. I am beginning to find in finance it is not so much what you can do, but WHERE you live. I'm not near any major city that has financial headquarters so I may end up moving just to pursue something that interests me.\",\n \"Financial modeling training - if you ever have any interest in private equity, investment banking, leveraged lending, equity analysis, corporate finance roles, FP&A, or commercial banking in general, you will need to confidently work with three statement financial models. There's lots of good resources out there. Some cost more than others.\",\n \"I definitely agree with this. Before I could get federal or state loans I had to do this online orientation and while you probably could skip most of it and click accept I actually read through and am competent in how the interest works and how even though not paying until after graduation is an option that'll increase my total loans by like 50%. Almost every other student I've talked to with student loans has little to no knowledge as to how interest works and how it applies to their loans. And the choosing what to study. Because while it is nice to study something fun if you can't practically get a decent paying job in your field then you have a lot of knowledge and nothing to do with it.\",\n \"Get them into coding and they will never need a degree. I'm 20 years old in college and I strongly believe that is where it is all going. I wish I started earlier. Start them on something like programming or of the equivalent. Teach them simple finances and you won't have to deal with college.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["In Houston, Texas USA where I went to a private high school they had a half-semester class in personal finance, but it was optional and didn't give you any credits towards graduation. You are right though, it should be a standard class. After all, who doesn't need that information in their adult lives, and not everyone goes to college.","Did a little bit of digging, and found this article, from Staples High School in Westport, Connecticut. Hopefully this will be a growing trend. They say: A personal financial management class will now be offered at the beginning of the upcoming school year (2011-2012). According to the course catalogue, the focus of this course will be using mathematics as a tool in developing financial literacy skills. Topics covered in the course will include: earnings, banking, credit cards, loans, taxes, insurance, investing, loans, budgeting, and buying personal property. “In a perfect world, everyone would be required to take a personal finance course,” Principal John Dodig said.","It's not a full credit course but part time comic James Cunningham has speaking tour that promotes personal finance in high schools.","\"In the UK there is a School Rewards System used in many schools to teach kids and teens about finance and economy. In the UK there is a framework for schools called \"\"Every Child Matters\"\" in which ‘achieving economic well-being’ is an important element. I think is important to offer to offer a real-life vehicle for financial learning beyond the theory.\"","\"We had a \"\"civics\"\" class when I was a freshman in high school. This was in the Ann Arbor, MI public schools. It covered the very basics (how to balance your checkbook, what are stocks, how do income taxes work, what is interest, etc.) of money management along with an overview of politics and the legal system. It was a really light class, though, and didn't go deeply into personal finance and money management. I agree that such a class would be very valuable, as would cooking, nutrition, and basic home and car repair.\""],"string":"[\n \"In Houston, Texas USA where I went to a private high school they had a half-semester class in personal finance, but it was optional and didn't give you any credits towards graduation. You are right though, it should be a standard class. After all, who doesn't need that information in their adult lives, and not everyone goes to college.\",\n \"Did a little bit of digging, and found this article, from Staples High School in Westport, Connecticut. Hopefully this will be a growing trend. They say: A personal financial management class will now be offered at the beginning of the upcoming school year (2011-2012). According to the course catalogue, the focus of this course will be using mathematics as a tool in developing financial literacy skills. Topics covered in the course will include: earnings, banking, credit cards, loans, taxes, insurance, investing, loans, budgeting, and buying personal property. “In a perfect world, everyone would be required to take a personal finance course,” Principal John Dodig said.\",\n \"It's not a full credit course but part time comic James Cunningham has speaking tour that promotes personal finance in high schools.\",\n \"\\\"In the UK there is a School Rewards System used in many schools to teach kids and teens about finance and economy. In the UK there is a framework for schools called \\\"\\\"Every Child Matters\\\"\\\" in which ‘achieving economic well-being’ is an important element. I think is important to offer to offer a real-life vehicle for financial learning beyond the theory.\\\"\",\n \"\\\"We had a \\\"\\\"civics\\\"\\\" class when I was a freshman in high school. This was in the Ann Arbor, MI public schools. It covered the very basics (how to balance your checkbook, what are stocks, how do income taxes work, what is interest, etc.) of money management along with an overview of politics and the legal system. It was a really light class, though, and didn't go deeply into personal finance and money management. I agree that such a class would be very valuable, as would cooking, nutrition, and basic home and car repair.\\\"\"\n]","isConversational":false}}},{"rowIdx":360,"cells":{"_id":{"kind":"string","value":"8532"},"query":{"kind":"string","value":"What do these options trading terms mean?"},"gt_ids":{"kind":"list like","value":["416307","27401","320101"],"string":"[\n \"416307\",\n \"27401\",\n \"320101\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1],"string":"[\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["6701","416307","575408","387147","195152","351833","131989","22426","594303","176883","22916","154989","428399","320101","347189","147361","468388","281644","189858","421311","383930","163433","229626","305676","487297","209492","512310","16081","310837","190746","279401","249185","13260","469888","70443","388754","230355","182272","176015","349974","368543","253866","536564","238474","343613","253998","376162","415705","131464","163034","161934","573077","166307","27401","528052","463254","414448","519745","118389","270166","30631","516227","465380","393134","215118","173745","21768","103528","120611","265744","362765","12432","294688","580400","42083","482238","258531","92616","242663","108849","318718","440794","575015","591229","259659","16531","181924","23469","433471","374905","259178","189144","449280","140371","565432","484009","442823","203040","288289","493202"],"string":"[\n \"6701\",\n \"416307\",\n \"575408\",\n \"387147\",\n \"195152\",\n \"351833\",\n \"131989\",\n \"22426\",\n \"594303\",\n \"176883\",\n \"22916\",\n \"154989\",\n \"428399\",\n \"320101\",\n \"347189\",\n \"147361\",\n \"468388\",\n \"281644\",\n \"189858\",\n \"421311\",\n \"383930\",\n \"163433\",\n \"229626\",\n \"305676\",\n \"487297\",\n \"209492\",\n \"512310\",\n \"16081\",\n \"310837\",\n \"190746\",\n \"279401\",\n \"249185\",\n \"13260\",\n \"469888\",\n \"70443\",\n \"388754\",\n \"230355\",\n \"182272\",\n \"176015\",\n \"349974\",\n \"368543\",\n \"253866\",\n \"536564\",\n \"238474\",\n \"343613\",\n \"253998\",\n \"376162\",\n \"415705\",\n \"131464\",\n \"163034\",\n \"161934\",\n \"573077\",\n \"166307\",\n \"27401\",\n \"528052\",\n \"463254\",\n \"414448\",\n \"519745\",\n \"118389\",\n \"270166\",\n \"30631\",\n \"516227\",\n \"465380\",\n \"393134\",\n \"215118\",\n \"173745\",\n \"21768\",\n \"103528\",\n \"120611\",\n \"265744\",\n \"362765\",\n \"12432\",\n \"294688\",\n \"580400\",\n \"42083\",\n \"482238\",\n \"258531\",\n \"92616\",\n \"242663\",\n \"108849\",\n \"318718\",\n \"440794\",\n \"575015\",\n \"591229\",\n \"259659\",\n \"16531\",\n \"181924\",\n \"23469\",\n \"433471\",\n \"374905\",\n \"259178\",\n \"189144\",\n \"449280\",\n \"140371\",\n \"565432\",\n \"484009\",\n \"442823\",\n \"203040\",\n \"288289\",\n \"493202\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["Don't know the name but it means you're long with conviction :P Unlimited gains, maximum loss of 95$ + (8-6) = 97$. Basically You are long @ 107 - -2 from 105 to 95. You would have to be ULTRA bullish to initiate this strategy.","\"Can anyone explain what each of them mean and how they're different from each other? When you \"\"buy to open\"\", you are purchasing an option and opening a new position. When you \"\"sell to open\"\", you are creating a brand new options contract and selling it. \"\"Covered\"\" means that you have assets in your account to satisfy the terms of the options contract. A \"\"covered call\"\" is a call option for which you own shares of the underlying stock that you will sell to the buyer at the option's strike price if he exercises the option. If you previously made a \"\"sell to open\"\" trade to create a new position, and you want to close the position, you can buy back the option. If you previously made a \"\"buy to open\"\" trade, you can \"\"sell to close\"\" which will sell back your option and close your position. In summary:\"","An option is freely tradable, and all options (of the same kind) are equal. If your position is 0 and you sell 1 option, your new position in that option is -1. If the counterparty to your trade buys or sells more options to close, open, or even reopen their position afterwards, that doesn't matter to your position at all. Of course there's also the issue with American and European Options. European Options expire at their due date, but American Options expire at their due date or at any time before their due date if the holder decides they expire. With American Options, if a holder of an American Option decides to exercise the option, someone who is short the same option will be assigned as the counterparty (this is usually random). Expiry is after market close, so if one of your short American Options expires early, you will need to reopen the position the next day. Keep in mind dividends for slightly increased complexity. American and European Options do not in any way refer to the continents they are traded on, or to the location of the companies. These terms simply describe the expiry rules.","\"Write means sell to open. It is called that because options writers are creating (i.e. writing) new contracts. No such thing as \"\"reading\"\" an option.\"","Put options are contracts to sell. You pay me a fee for the right to put the stock (or other underlying security) in my hands if you want to. That happens on a specific date (the strike date) and a specified price (the strike price). You can decide not to exercise that right, but I must follow through and let you sell it to me if you want to. Put options can be used by the purchaser to cap losses. For example: You purchase a PUT option for GE Oct19 13.00 from me. On October 19th, you can make me let you sell your GE stock to me for $13.00 a share. If the price for GE has fallen to $12.00, that would be a good idea. If its now at $15.00 a share, you will probably keep the GE or sell it at the current market price. Call options are contracts to buy. The same idea only in the other direction: You pay me a fee for the right to call the stock away from me. Calls also have a strike date and strike price. Like a put, you can choose not to exercises it. You can choose to buy the stock from me (on the strike date for the strike price), but I have to let you buy it from me if you want to. For example: You purchase a CALL option for GE Oct19 16.00 option from me. On October 19th, you can buy my GE stock from me for $16.00 a share. If the current price is $17.50, you should make me let you buy if from me for $16.00. If its less than $16.00, you could by it at the current market price for less. Commonly, options are for a block of 100 shares of the underlying security. Note: this is a general description. Options can be very complicated. The fee you pay for the option and the transaction fees associated with the shares affects whether or not exercising is financially beneficial. Options can be VERY RISKY. You can loose all your money as there is no innate value in the option, only how it relates to the underlying security. Before your brokerage will let you trade, there are disclosures you must read and affirm that you understand the risk.","\"I strongly suggest you read up the Option Greeks. You can be right about a stocks price movement and still not make money b/c other factors come into play from time or volatility. For a \"\"free\"\" option hedge you can look at collars. Buying puts and selling calls to offset the debit you pay for the transaction. Ex: AAPL is 115, You buy the 110 puts and sell the 120 calls. This gives you a collar around he current price. Your hedged below 110 and can still participate in upside move to 120. Also look into time value. Time decays exponentially in the last 30 days. If you are long this hurts you, if you are short(selling) this is good. Be sure to take this into account. Delta: relation of the option to the underlying stock move on a .01-1 scale, .50 is \"\"normal.\"\" Deep in the money options have higher deltas. It is possible other factors can offset this delta move. This is why people will lose money on earnings plays even though they are right. EX: Say you buy an AAPL call at 120, earnings comes out and the stock goes to 121. Even though you are \"\"in the money\"\" your contract may still have less value than what you paid because of VOLATILITY collapse. The market place knows earnings move a stock and that is factored into the price of the options expected volatility. As mentioned watch out for dividend dates. Always be aware of dividend dates and earnings dates and if your contract is going to cover one of these events. Interest rates have an effect as well but since the Fed has near 0 rates there is little impact at the present. Though this could certainly change if the fed starts raising rates. Research the Black Scholes Pricing model. Whenever you trade always think about what the other guys is thinking. Sometimes we forget their is someone else on the other side of my trade that thinks essentially the exact opposite of me. Its a zero sum game. As far as choosing strikes you can look at calculating the At THe money straddle to see if the options are \"\"cheap\"\" [stock Price * Implied Volatility (for 30, 60, 90 days Depending on your holding period)* Sq root of days to expiration] / 19 (which is sq root of days/yr) Add and subtract this number to the current stock price to give you an approximate 1 standard deviation of expected price movement. Keeping with our example. AAPL at 115, lets say your formula spits out a 6; therefore price range is expected to be 109 to 121 for the time period. Helpful for selling options, I would sell the 122 call or the 108 puts. Hope this helps. Start small and get a feel for things.\"","based on my understanding of your query...well you need to understand ATM and ITM options. The delta and gamma factor specifically. Usually delta of ATM is around 0.5 while ITM option is above than that say 0.6 or 0.8 or 0.9 and deep ITM is very close to 1. for every movement of 1 buck the ITM will move say 1.6, ATM 0.5 and OTM 0.3 approx Say a ABC stock price is Rs. 300 so if you check option chart you try to see which one is closer. Suppose you find strikeprice of 320 / 300 / 280. So 320 is ITM, 300 is ATM and 280 is OTM for call options. So will the delta value (e.g 0.66 / 0.55 / 0.35). So suppose if stock price rise by 7% i.e Rs. 321 then strikeprice will rise simultaneously. Say ATM CE300 is rs.10 it will start rising by 0.55 i.e. Rs.10.55. The moment the share price move from Rs.300 to Rs.320 your ATM will turn to ITM. Now the tricker part if you buy OTM and the share price rise by 15% your OTM will now become ITM and your profit will roll around 100% to 120% approx. Hope it answers your query","Out of the money options often have the biggest changes in value, when the stock moves upward. This person could also gain, by the implied (underlying) volatility of the stock rising if it moves erratically to either side. Still seems to be a very risky game, given only 4 days to expiry.","Options, both puts and calls, are typically written/sold at different strike prices. For example, even though the stock of XYZ is currently trading at $12.50, there could be put options for prices ranging from $0.50 to $30.00, just as an example. There are several factors that go into determining the strike prices at which people are willing to write options. The writer/seller of an option is the person on the other side of the trade that has the opposite opinion of you. If you are interested in purchasing a put on a stock to hedge your downside, that means the writer/seller of the put is betting that you are wrong and that the stock price will rise instead.","\"A 'Call' gives you the right, but not the obligation, to buy a stock at a particular price. The price, called the \"\"strike price\"\" is fixed when you buy the option. Let's run through an example - AAPL trades @ $259. You think it's going up over the next year, and you decide to buy the $280 Jan11 call for $12. Here are the details of this trade. Your cost is $1200 as options are traded on 100 shares each. You start to have the potential to make money only as Apple rises above $280 and the option trades \"\"in the money.\"\" It would take a move to $292 for you to break even, but after that, you are making $100 for each dollar it goes higher. At $300, your $1200 would be worth $2000, for example. A 16% move on the stock and a 67% increase on your money. On the other hand, if the stock doesn't rise enough by January 2011, you lose it all. A couple points here - American options are traded at any time. If the stock goes up next week, your $1200 may be worth $1500 and you can sell. If the option is not \"\"in the money\"\" its value is pure time value. There have been claims made that most options expire worthless. This of course is nonsense, you can see there will always be options with a strike below the price of the stock at expiration and those options are \"\"in the money.\"\" Of course, we don't know what those options were traded at. On the other end of this trade is the option seller. If he owns Apple, the sale is called a \"\"covered call\"\" and he is basically saying he's ok if the stock goes up enough that the buyer will get his shares for that price. For him, he knows that he'll get $292 (the $280, plus the option sale of $12) for a stock that is only $259 today. If the stock stays under $280, he just pocketed $12, 4.6% of the stock value, in just 3 months. This is why call writing can be a decent strategy for some investors. Especially if the market goes down, you can think of it as the investor lowering his cost by that $12. This particular strategy works best in a flat to down market. Of course in a fast rising market, the seller misses out on potentially high gains. (I'll call it quits here, just to say a Put is the mirror image, you have the right to sell a stock at a given price. It's the difference similar to shorting a stock as opposed to buying it.) If you have a follow up question - happy to help. EDIT - Apple closed on Jan 21, 2011 at $326.72, the $280 call would have been worth $46.72 vs the purchase price of $12. Nearly 4X return (A 289% gain) in just over 4 months for a stock move of 26%. This is the leverage you can have with options. Any stock could just as easily trade flat to down, and the entire option premium, lost.\"","On expiry, with the underlying share price at $46, we have : You ask : How come they substract 600-100. Why ? Because you have sold the $45 call to open you position, you must now buy it back to close your position. This will cost you $100, so you are debited for $100 and this debit is being represented as a negative (subtracted); i.e., -$100 Because you have purchased the $40 call to open your position, you must now sell it to close your position. Upon selling this option you will receive $600, so you are credited with $600 and this credit is represented as a positive (added) ; i.e., +$600. Therefore, upon settlement, closing your position will get you $600-$100 = $500. This is the first point you are questioning. (However, you should also note that this is the value of the spread at settlement and it does not include the costs of opening the spread position, which are given as $200, so you net profit is $500-$200 = $300.) You then comment : I know I am selling 45 Call that means : As a writer: I want stock price to go down or stay at strike. As a buyer: I want stock price to go up. Here, note that for every penny that the underlying share price rises above $45, the money you will pay to buy back your short $45 call option will be offset by the money you will receive by selling the long $40 call option. Your $40 call option is covering the losses on your short $45 call option. No matter how high the underlying price settles above $45, you will receive the same $500 net credit on settlement. For example, if the underlying price settles at $50, then you will receive a credit of $1000 for selling your $40 call, but you will incur a debit of $500 against for buying back your short $45 call. The net being $500 = $1000-$500. This point is made in response to your comments posted under Dr. Jones answer.","\"Whether or not you make money here depends on whether you are buying or selling the option when you open your position. You certainly would not make money in the scenario where you are buying options at the open. If fact you would end up loosing quite a lot of money. You do not specify whether you are buying or selling the options, so let's assume that you are buying both the call and the put. We'll look a profitable trade at the bottom of my answer. Buying an in-the-money Call option with a strike price of $90 when the underlying asset price is $150 would cost you a small fraction over $6000 = (100 x $60) since the intrinsic value value of the option is $60. Add to this cost any commission charged by your broker. Buying an out-of-the-money Put option with a strike price of $110 when the underlying asset price is $150 would cost you a \"\"small\"\" premium - lets say a premium of something like $0.50. The option has no intrinsic value, only time value and a volatility value, so the exact cost would depend on the time to expiry and the implied volatility of the underlying asset. Since the strike price is \"\"well out of the money\"\", being about 27% below the underlying asset price, the premium would be small. So, assuming the premium of $0.50, you would pay $50 for the option plus any commission applicable. The cash settlement on expiry, with an underlying settlement price of $100, would be a premium of $10 for each of the two options, so you would receive cash of 100 x ($10 + $10) = $2000, less any commission applicable. However, you have paid $6000 + $50 to purchase the options, so you realise a net loss of $6050 - $2000 = $4050 plus any commissions applicable. Thus, you would make a profit on the put option, but you would realise a very large loss on the call option. On the other hand, if you open your position by selling the call option and buying the put option, then you would make money. For the sale of the call option you would receive about $6000. For the purchase of the put option you would pay about $50. On settlement, you would pay $1000 to buy back the call option and you would receive about $1000 when selling the put option. Thus you net profit would be about ($6000 - $1000) for the call position, and ($1000 - $50) for the put position. The net profit would then total $5950 less an commissions payable.\"","An option gives you the option rather than the obligation to buy (or sell) the underlying so you don't have to exercise you can just let the option expire (so long it doesn't have an automatic expiry). After expiration the option is worthless if it is out of the money but other than that has no hangover. Option prices normally drop as the time value of the option decays. An option has two values associated with it; time value and exercise value. Far out of the money (when the price of the underlying is far from the strike price on the losing side) options only have time value whereas deep in the money options (as yours seems to be) has some time value as well as the intrinsic value of the right to buy (sell) at a low (high) price and then sell (buy) the underlying. The time value of the option comes from the possibility that the price of the underlying will move (further) in your favour and make you more money at expiry. As expiry closes it is less likely that there will be a favourable mood so this value declines which can cause prices to move sharply after a period of little to no revaluing. Up to now what I have said applies to both OTC and traded options but exchange traded options have another level of complexity in their trading; because there are fewer traders in the options market the size of trade at which you can move the market is much lower. On the equities markets you may need to trade millions of shares to have be substantial enough to significantly move a price, on the options markets it could be thousands or even hundreds. If these are European style options (which sounds likely) and a single trading entity was holding a large number of the exchange traded options and now thinks that the price will move significantly against them before expiry their sell trade will move the market lower in spite of the options being in the money. Their trade is based on their supposition that by the time they can exercise the option the price will be below the strike and they will lose money. They have cashed out at a price that suited them and limited what they will lose if they are right about the underlying. If I am not correct in my excise style assumption (European) I may need more details on the trade as it seems like you should just exercise now and take the profit if it is that far into the money.","\"The two dimensions are to open the trade (creating a position) and to buy or sell (becoming long or short the option). If you already own an option, you bought it to open and then you would sell it to close. If you don't own an option, you can either buy it to open, or sell it (short it) to open. If you are already short an option, you can buy it back to close. If you sell to open covered, the point is you're creating a \"\"covered call\"\" which means you own the stock, and then sell a call. Since you own the stock, the covered call has a lot of the risk of loss removed, though it also subtracts much of the reward possible from your stock.\"","Being long something is the same as owning it (generally). Being short something is the same as selling it, with the intention (actually obligation) of buying it back in the future. Being 'short' means that you benefit when the price falls. A call is the right to buy a financial asset, most often a share, at some price agreed upon now, while the the right extends for some defined time into the future. A put is the right to sell something you already own for some price defined now but the right extends for some period into the future. A swaption is an option to enter into a swap. A swap is an agreement to trade cash-flows at defined points in the future, usually some fixed rate for some floating rate (say LIBOR+200bps). EDIT: Clarified puts.","\"Yes, long calls, and that's a good point. Let's see... if I bought one contract at the Bid price above... $97.13 at expiry of $96.43 option = out of the money =- option price(x100) = $113 loss. $97.13 at expiry of $97.00 option = out of the money =- option price(x100) = $77 loss. $97.13 at expiry of $97.14 option = in the money by 1-cent=$1/contract profit - option price(x100) = $1-$58 = $57 loss The higher strike prices have much lower losses if they expire with the underlying stock at- or near-the-money. So, they carry \"\"gentler\"\" downside potential, and are priced much higher to reflect that \"\"controlled\"\" risk potential. That makes sense. Thanks.\"","So, child, your goal is to make money? This is usually achieved by selling goods (say, lemonade) at a price that exceeds their cost (say, sugar, water and, well, lemons). Options, at first, are very much same in that you can buy the right to engage in a specific future trade. You make money in this situation if the eventual returns from the scheduled trade cover the cost of purchasing the option. Otherwise you can simply opt out of the trade -- you purchased the right to trade, after all, not any type of obligation. Makes sense? Good. Because what follows is what makes options a little different. That is, if you sell that same right to engage in a specific trade the situation is seemingly reversed: you lock in your return at the outset, but the costs aren't fully realized until the trade is either consumed or declined by the owner of the option. And keep in mind that it is always the owner of the option who is in the driver's seat; they may sell the option, hold on to it and do nothing, or use it to engage in the anticipated trade. And that's really all there's to it.","\"Put Options for Kids: You have a big box of candy bars. You saved up your allowance to get a lot of them, so you could have one whenever you want one. But, you just saw a commercial on TV for a new toy coming out in one month. Your allowance alone won't buy it, and you want that toy more than you want the candy. So, you decide that you'll sell the candy to your friends at school to buy the toy. Now, you have a choice. You can sell the candy now, and put the money in your piggy bank to buy the toy later. Or, you can save the candy, and sell it in a month when you actually need the money to buy the toy. You know that if you sell all the candy you have today, you can get 50 cents a bar. That's not quite enough to buy the toy, but your allowance will cover the rest. What you don't know is how much you might be able to sell the candy for in a month. You might be able to get 75 cents a bar. If you did, you could pay for the toy with just the money from the candy and even have some left over. But, you might only be able to sell them for 25 cents each, and you wouldn't have enough to buy the toy even with your allowance. You'd like to wait and see if you could get 75 cents each, but you don't want to risk getting only 25 cents each. So, you go to your father. He and his co-workers like these candy bars too, so he'd be willing to buy them all and sell them to his friends the way you're planning to do with yours. You ask for the option to sell him all the candy bars for 50 cents each in one month. If you find out you can get more for them at school, you want to be able to take that deal, but if you can't sell them for 50 cents at school, you'll sell them to your dad. Now, your dad knows that he could have the same problem selling the candy at 50 cents or more that you are afraid of. So, he offers a compromise. If you pay him $5 now, he'll agree to the deal. You figure that even without that $5, between your allowance and the candy money, you can still buy the toy. So, you take the deal. In one month, you can offer the candy at school. If nobody will pay 50 cents, you can sell the candy to your dad when you get home, but if the kids at school will pay 50 cents or more, you can sell it all at school. Either way, you have enough money to buy the toy, and you can also choose which price to accept, but you had to pay your dad $5, and you can't get that back, so if it turns out that you can sell the candy at school for 50 cents, same as today, then because you paid the $5 you don't end up with as much as if you'd simply waited. In the financial market, this type of option is a \"\"put option\"\". Someone who owns something that's traded on the market, like a stock, can arrange to sell that stock to someone else at an agreed-on price, and the seller can additionally pay some money to the buyer up front for the option to not sell at that price. Now, if the stock market goes up, the seller lets the contract expire and sells his stock on the open market. If it goes down, he can exercise the option, and sell at the agreed-upon price to the buyer. If, however, the stock stays about the same, whether he chooses to sell or not, the money the seller paid for the option means he ends up with less than he would have if he hadn't bought the option. Call Options for Kids: Let's say that you see another ad on TV for another toy that you like, that was just released. You check the suggested retail price on the company's web site, and you see that if you save your allowance for the next month, you can buy it. But, in school the next day, everybody's talking about this toy, saying how they want one. Some already have enough money, others are saving up and will be able to get it before you can. You're afraid that because everyone else wants one, it'll drive up the price for them at the local store, so that your month's allowance will no longer buy the toy. So, you go to your dad again. You want to be able to use your allowance money for the next month to buy the new toy. You're willing to wait until you actually have the money saved up before you get the toy, but you need that toy in a month. So, you want your dad to buy one for you, and hold it until you can save up to buy it from him. But, you still want it both ways; if the price goes down in a month because the toy's not so new anymore and people don't want it, you don't want to spend your entire month's allowance buying the one from your dad; you just want to go to the store and buy one at the lower price. You'll pay him $5 for the trouble, right now, whether you buy the toy he got you or not. Your dad doesn't want to have a toy he's not using sitting around for a month, especially if you might not end up buying it from him, so he offers a different deal; In one month, if you still want it, he'll stop by the store on his way home and pick up the toy. You'll then reimburse him from the allowance you saved up; if it ends up costing less than a month's allowance, so be it, but if it costs more than that, you won't have to pay any more. This will only cost you $3, because it's easier for him. But, because he's not buying it now, there is a small chance that the item will be out of stock when he goes to buy it, and you'll have to wait until it's back in stock. You agree, on the condition that if you have to wait longer than a month for your toy, because he couldn't get one to sell you, he pays you back your $3 and knocks another $5 off the cost to buy the toy from him. The basic deal to buy something at an agreed price, with the option not to do so, is known as a \"\"call option\"\". Someone who wishes to buy some stocks, bonds or commodities at a future date can arrange a deal with someone who has what they want to buy them at a specific price. The buyer can then pay the seller for the option to not buy. The counter-offer Dad made, where he will buy the toy from the store at whatever price he can find it, then sell it to you for the agreed price, is known as a \"\"naked call\"\" in finance. It simply means that the seller, who is in this case offering the option to the buyer, doesn't actually have what they are agreeing to sell at the future date, and would have to buy it on the open market in order to turn around and sell it. This is typically done when the seller is confident that the price will go down, or won't go up by much, between now and the date of the contract. In those cases, either the buyer won't exercise the option and will just buy what they want on the open market, or they'll exercise the option, but the difference between what the seller is paying to buy the commodity on the market and what he's getting by selling it on contract is within the price he received for the option itself. If, however, the price of an item skyrockets, the seller now has to take a significant, real loss of money by buying something and then selling it for far less than he paid. If the item flat-out isn't available, the buyer is usually entitled to penalties for the seller's failure to deliver. If this is all understood by both parties, it can be thought of as a form of insurance.\"","While open interest usually correlates to volume, the mark of liquidity is the bid ask spread. Even when trading options with spreads as large as an ask 2x the bid, a more realistic price that traders are willing to accept lies somewhere in the middle. Any option can easily be exited at intrinsic value: underlying price - exercise price for calls, exercise price - underlying price for puts. For illiquid options, this will be the best price obtained. For longer term options, something closer to the theoretical price is still possible. If an underlying is extremely liquid, yet the options aren't quite then options traders will be much more ready to trade at the theoretical price. For exiting illiquid options, small, < 4 contracts, and infrequent, > 30 minute intervals, orders are more likely to be filled closer to the theoretical price; however, if one's sells are the only trades, traders on the other side will take note and accept ever lowering implied volatilities. With knowledge of what traders will accept, it is always more optimal to trade out of options rather than exercise because of the added costs and uncertainty involved with exercising and liquidating.","What it means is that the stock has already moved down. Options and other derivatives follow the price of the underlying they are not a precursor to what the underlying is going to do. In other words, the price of a derivative is derived from the underlying.","Option contracts typically each represent 100 shares. So the 1 call contract you sold to open (wrote) grants the buyer of that option the right to purchase your 100 shares for $80.00 per share any time before the option expiration date. You were paid a gross amount of $100 (100 shares times $1.00 premium per share) for taking on the obligation to deliver should the option holder choose to exercise. You received credit in your account of $89.22, which ought to be the $100 less any trading commission (~$10?) and miscellaneous fees (regulatory, exchange, etc.) per contract. You did capture premium. However, your covered call write represents an open short position that, until either (a) the option expires worthless, or (b) is exercised, or (c) is bought back to close the position, will continue to show on your account as a liability. Until the open position is somehow closed, the value of both the short option contract and long stock will continue to fluctuate. This is normal.","There are many stategies with options that you have listed. The one I use frequently is buy in the money calls and sell at the money staddles. Do this ONLY on stocks you do not mind owning because that is the worse thing that can happen and if you like the company you stand less of a chance of being scared out of the trade. It works well with high quality resonable dividend paying stocks. Cat, GE, Mrk, PM etc. Good luck","\"As already noted, options contain inherent leverage (a multiplier on the profit or loss). The amount of \"\"leverage\"\" is dictated primarily by both the options strike relative to the current share price and the time remaining to expiration. Options are a far more difficult investment than stocks because they require that you are right on both the direction and the timing of the future price movement. With a stock, you could choose to buy and hold forever (Buffett style), and even if you are wrong for 5 years, your unrealized losses can suddenly become realized profits if the shares finally start to rise 6 years later. But with options, the profits and losses become very final very quickly. As a professional options trader, the single best piece of advice I can give to investors dabbling in options for the first time is to only purchase significantly ITM (in-the-money) options, for both calls and puts. Do a web search on \"\"in-the-money options\"\" to see what calls or puts qualify. With ITM options, the leverage is still noticeably better than buying/selling the shares outright, but you have a much less chance of losing all your premium. Also, by being fairly deep in-the-money, you reduce the constant bleed in value as you wait for the expected move to happen (the market moves sideways more than people usually expect). Fairly- to deeply-ITM options are the ones that options market-makers like least to trade in, because they offer neither large nor \"\"easy\"\" premiums. And options market-makers make their living by selling options to retail investors and other people that want them like you, so connect the dots. By trading only ITM options until you become quite experienced, you are minimizing your chances of being the average sucker (all else equal). Some amateur options investors believe that similar benefits could be obtained by purchasing long-expiration options (like LEAPS for 1+ years) that are not ITM (like ATM or OTM options). The problem here is that your significant time value is bleeding away slowly every day you wait. With an ITM option, your intrinsic value is not bleeding out at all. Only the relatively smaller time value of the option is at risk. Thus my recommendation to initially deal only in fairly- to deeply-ITM options with expirations of 1-4 months out, depending on how daring you wish to be with your move timing.\"","\"In general there are two types of futures contract, a put and call. Both contract types have both common sides of a transaction, a buyer and a seller. You can sell a put contract, or sell a call contract also; you're just taking the other side of the agreement. If you're selling it would commonly be called a \"\"sell to open\"\" meaning you're opening your position by selling a contract which is different from simply selling an option that you currently own to close your position. A put contract gives the buyer the right to sell shares (or some asset/commodity) for a specified price on a specified date; the buyer of the contract gets to put the shares on someone else. A call contract gives the buyer the right to buy shares (or some asset/commodity) for a specified price on a specified date; the buyer of the contract gets to call on someone for shares. \"\"American\"\" options contracts allow the buyer can exercise their rights under the contract on or before the expiration date; while \"\"European\"\" type contracts can only be exercised on the expiration date. To address your example. Typically for stock an option contract involves 100 shares of a stock. The value of these contracts fluctuates the same way other assets do. Typically retail investors don't actually exercise their contracts, they just close a profitable position before the exercise deadline, and let unprofitable positions expire worthless. If you were to buy a single call contract with an exercise price of $100 with a maturity date of August 1 for $1 per share, the contract will have cost you $100. Let's say on August 1 the underlying shares are now available for $110 per share. You have two options: Option 1: On August 1, you can exercise your contract to buy 100 shares for $100 per share. You would exercise for $10,000 ($100 times 100 shares), then sell the shares for $10 profit per share; less the cost of the contract and transaction costs. Option 2: Your contract is now worth something closer to $10 per share, up from $1 per share when you bought it. You can just sell your contract without ever exercising it to someone with an account large enough to exercise and/or an actual desire to receive the asset or commodity.\"","\"It's talked about quite often among more experienced investors. They were/ are used extensively by hedge funds. Keep in mind that if your option expires when not \"\"in the money\"\" you lose the premium you paid for the purchase of the option. That's where the risk comes in. I've grown really interested in options over the last couple months. Check out McMillan's Guide to Options. It's generally thought of as the quintessential beginners guide to understanding options. Good luck!\"","The answer is that the trader is hoping to profit from a potential rise in Implied volatility. He is isolating his exposure to IV only and mitigating his risk to the directional move of the underlying by hedging with the underlying. Basically, his delta is neutral. His gamma is positive and a potential source of profit, and his theta is negative which is a potential source of loss. He hopes that the profits from long gamma will overcome the loss from the short theta. he achieves this by actively gamma scalping to remain delta neutral over the life of the option.","Think of options as insurance. An insurance company makes money by selling the policies at a rate slightly higher than the average payout. Most options expire worthless. This is because most options are purchased by hedge funds. To 'hedge' means taking out insurance in case your position goes against you. So the sellers of options obtain a price that covers their (averaged) losses plus provides them with a profit for their trouble. An option has an amount that it declines in value each day (called theta). At the expiration date the option is worth zero (if it is out-of-the-money). So it is option writers that, typically, make money in the options market (as they are the sellers of insurance). If they didn't make money selling options they would not sell them. For example, the February call option on SPY strike 200 traded at 8.81 on 12/30. Since then it has crumbled in value to 0.14. The option writer currently stands to make a huge profit. So, just as with insurance, you (generally) never make money by buying insurance. But the sellers of insurance tend to make money as do the writers of options. Edit: Theta @ Investopedia","1.45 and 1.40 are the last trade prices. The last trade (1.45) for the 27 strike call must have occurred earlier than the last trade (1.40) for the 26 strike call. These options have low liquidity and don't trade very often. You have to look at the bid and ask prices to see what people are currently bidding and asking for those options. As you can see, the premium based on the bids and asks does decrease the further you go out of the money.","\"I look for buying a call option only at the money, but first understand the background above: Let's suppose X stock is being traded by $10.00 and it's January The call option is being traded by $0.20 with strike $11.00 for February. (I always look for 2% prize or more) I buy 100 stocks by $10.00 each and sell the option, earning $0.20 for each X stock. I will have to deliver my stocks by $11.00 (strike value agreed). No problem for me here, I took the prize plus the gain of $1.00. (continuing from item 3) I still can sell the option for the next month with strike equal or higher than that I bought. For instance, I can sell a call option of strike $10.00 and it might be worth to deliver stocks by $10.00 and take the prize. (continuing from item 3) Probably, it won't be possible to sell a call option with strike at the price that I paid for the stock, but that's not a problem. At the end of the option life (in February), the strike was $11.00 but the stock's price is $8.00. I got the $0.20 as prize and my stocks are free for trade again. I'll sell the call option for March with strike $9.00 (taking around 2% of prize). Well, I don't want to sell my stocks by $9.00 and make loss, right? But I'm selling the call option anyway. Then I wait till the price of the stock gets near the strike value (almost ATM) and I \"\"re-buy\"\" the option sold (Example: [StockX]C9 where C means month = March) and sell again the call option with higher strike to April (Example [StockX]D10, where D means month = April) PS.: At item 9 there should be no loss between the action of \"\"re-buy\"\" and sell to roll-out to the next month. When re-buying it with the stock's price near the strike, option value for March (C9) will be lower than when selling it to April (D10). This isn't any rule to be followed, this is just a conservative (I think they call it hedge) way to handle options and stocks. Few free to make money according to your goals and your style. The perfect rule is the one that meet your expectation, don't take the generalized rules too serious.\"","If any academic framework worked, your teachers would be the richest people on the planet. However, you must read up on macro and micro economic factors and make an educated guess where the market(or stock) would be at the date of expiry. Subtract the Strike Price from your determined price and calculate your potential profit. Then, if you are getting paid more or less the same thing as of today, sell it and switch to a safer investment till expiry (For example:- Your potential profit was $10, but you are getting $9 as of today, you can sell it and earn interest(Safer investment) for the remaining time.) Its just like buying and selling stocks. You must set a target and must have a stop loss. Sell when you reach that target, and exit if you hit the stop loss. If you have none of these, you will always be confused(Personal experience).","\"Writing options means \"\"selling\"\" options and \"\"put\"\" options are contracts to sell a defined security (the underlying), at a specific date (expiration date) and at a specific price (strike price). So, writing put options simply mean selling to others contracts to sell. Your profit is limited to the premium but your loss may be unlimited in a falling market.\"","Marketwatch reports that the 108 strike call option sells for 1.45, down 1.53 from yesterday. If we split the bid and ask you get 1.415. That is what that contract will, likely, trade at. The biggest problems with options are commissions and liquidity. I have seen a commission as high as $45 per trade. I have also seen open interest disappear overnight. Even if you obtain contracts that become worth more than you paid for them you may find that no one wants to pay you what they are worth. Track your trade over a few weeks to see how you would have done. It is my experience that the only people who make money on options are the brokers.","Options reflect expectations about the underlying asset, and options are commonly priced using the Black-Scholes model: N(d1) and N(d2) are probability functions, S is the spot (current) price of the asset, K is the strike price, r is the risk free rate, and T-t represents time to maturity. Without getting into the mathematics, it suffices to say that higher volatility or expectation of volatility increases the perceived riskiness of the asset, so call options are priced lower and put options are priced higher. Think about it intuitively. If the stock is more likely to go downwards, then there's an increased chance that the call option expires worthless, so call options must be priced lower to accommodate the relative change in expected value of the option. Puts are priced similarly, but they move inversely with respect to call option prices due to Put-Call parity. So if call option prices are falling, then put option prices are rising (Note, however, that call prices falling does not cause put prices to rise. The inverse relationship exists because of changes in the underlying factors and how pricing works.) So the option action signifies that the market believes the stock is headed lower (in the given time frame). That does not mean it will go lower, and option traders assume risk whenever they take a particular position. Bottom line: gotta do your own homework! Best of luck.","\"First, welcome to Money.SE. The selected page is awful. I don't know the value in listing different expirations at the same strike. Usually, all the strikes are grouped by month, so I'd be looking at Jan '15 across all strikes. \"\"In the money\"\" means the price of a stock is trading above the strike price, if a call, or below it, if a put. On 10/20 of some year, Intel was trading at $23.34. The January $25 call strike was just $0.70, and April's was $1.82. These were out of the money. The $25 puts were \"\"in the money\"\" by $1.66 so you could have paid $1.90 for the Jan $25 put, with $.24 of time premium. By November, the price rose and the put fell, to $.85, all time premium. As with stocks, the key thing is to only buy calls of stock that are going to go up. If a stock will fall, buy puts. Curious, what was the class discussion just before the teacher gave you this image?\"","Intuitive? I doubt it. Derivatives are not the simplest thing to understand. The price is either in the money or it isn't. (by the way, exactly 'at the money' is not 'in the money.') An option that's not in the money has time value only. As the price rises, and the option is more and more in the money, the time value drops. We have a $40 stock. It makes sense to me that a $40 strike price is all just a bet the stock will rise, there's no intrinsic value. The option prices at about $4.00 for one year out, with 25% volatility. But the strike of $30 is at $10.68, with $10 in the money and only .68 in time premium. There's a great calculator on line to tinker with. Volatility is a key component of options trading. Think about it. If a stock rises 5%/yr but rarely goes up any more or less, just steady up, why would you even buy an option that was even 10% out of the money? The only way I can describe this is to look at a bell curve and how there's a 1/6 chance the event will be above one standard deviation. If that standard deviation is small, the chance of hitting the higher strikes is also small. I wrote an article Betting on Apple at 9 to 2 in which I describe how a pair of option trades was set up so that a 35% rise in Apple stock would return 354% and Apple had two years to reach its target. I offer this as an example of options trading not being theory, but something that many are engaged in. What I found curious about the trade was that Apple's volatility was high enough that a 35% move didn't seem like the 4.5 to 1 risk the market said it was. As of today, Apple needs to rise 13% in the next 10 months for the trade to pay off. (Disclosure - the long time to expiration was both good and bad, two years to recover 35% seemed reasonable, but 2 years could bring anything in the macro sense. Another recession, some worldwide event that would impact Apple's market, etc. The average investor will not have the patience for these long term option trades.)","\"The question you are asking concerns the exercise of a short option position. The other replies do not appear to address this situation. Suppose that Apple is trading at $96 and you sell a put option with a strike price of $95 for some future delivery date - say August 2016. The option contract is for 100 shares and you sell the contract for a premium of $3.20. When you sell the option your account will be credited with the premium and debited with the broker commission. The premium you receive will be $320 = 100 x $3.20. The commission you pay will depend on you broker. Now suppose that the price of Apple drops to $90 and your option is exercised, either on expiry or prior to expiry. Then you would be obliged to take delivery of 100 Apple shares at the contracted option strike price of $95 costing you $9,500 plus broker commission. If you immediately sell the Apple shares you have purchased under your contract obligations, then assuming you sell the shares at the current market price of $90 you would realise a loss of $500 ( = 100x($95-$90) )plus commission. Since you received a premium of $320 when you sold the put option, your net loss would be $500-$320 = $180 plus any commissions paid to your broker. Now let's look at the case of selling a call option. Again assume that the price of Apple is $96 and you sell a call option for 100 shares with a strike price of $97 for a premium of $3.60. The premium you receive would be $360 = 100 x $3.60. You would also be debited for commission by your broker. Now suppose that the price of Apple shares rises to $101 and your option is exercised. Then you would be obliged to deliver 100 Apple shares to the party exercising the option at the contracted strike price of $97. If you did not own the shares to effect delivery, then you would need to purchase those shares in the market at the current market price of $101, and then sell them to the party exercising the option at the strike price of $97. This would realise an immediate loss of $400 = 100 x ($101-$97) plus any commission payable. If you did own the shares, then you would simply deliver them and possibly pay some commission or a delivery fee to your broker. Since you received $360 when you sold the option, your net loss would be $40 = $400-$360 plus any commission and fees payable to the broker. It is important to understand that in addition to these accounting items, short option positions carry with them a \"\"margin\"\" requirement. You will need to maintain a margin deposit to show \"\"good faith\"\" so long as the short option position is open. If the option you have sold moves against you, then you will be called upon to put up extra margin to cover any potential losses.\"","Today SPY (The S&P ETF) trades at $128. The option to buy at $140 (this is a Jan '13 call) trades for $5. I buy the call, for $500 as they trade in 100 lots. The S&P skyrockets to 1500 and SPY to $150. The call trades for $11, as it still has a month or two before expiring, so I sell it, and get $1100. The S&P rose 17%, but I doubled my money. If it 'only' rose 9%, to less than $140, I'd lose my investment. No, I don't need to buy the SPY I can sell the call any time before expiration. In fact, most options are not exercised, they are sold between purchase and expiration date.","Here's a simple example for a put, from both sides. Assume XYZ stock trades at $200 right now. Let's say John writes a $190 out of the money put on XYZ stock and sells this put to Abby for the premium, which is say $5. Assume the strike date, or date of settlement, is 6 months from now. Thus Abby is long one put option and John is short one put option (the writer of the option is short the option). On settlement date, let's assume two different scenarios: (1) If the price of the stock decreases by $50, then the put that Abby bought is 'in the money'. Abby's profit can be calculated as being strike price 190 - current stock price 150 - premium paid 5 = $35 So not including any transaction fees, that is a $35 dollar return on a $5 investment. (2) If the price of the stock increases by $50, then the put that Abby bought is worthless and her loss was 100%, or her entire $5 premium. For John, he made $5 in 6 months (in reality you need collateral and good credit to be able to write sizable option positions).","\"Great answer by @duffbeer. Only thing to add is that the option itself becomes a tradeable asset. Here's my go at filling out the answer from @duffbeer. \"\"Hey kid... So you have this brand-new video game Manic Mazes that you paid $50 for on Jan 1st that you want to sell two months from now\"\" \"\"Yes, Mr. Video Game Broker, but I want to lock in a price so I know how much to save for a new Tickle Me Elmo for my baby sister.\"\" \"\"Ok, for $3, I'll sell you a 'Put' option so you can sell the game to me for $40 in two months.\"\" Kid says \"\"Ok!\"\", sends $3 to Mr Game Broker who sends our kid a piece of paper saying: The holder of this piece of paper can sell the game Manic Mazes to Mr Game Broker for $40 on March 1st. .... One month later .... News comes out that Manic Mazes is full of bugs, and the price in the shops is heavily discounted to $30. Mr Options Trader realizes that our kid holds a contract written by Mr Game Broker which effectively allows our kid to sell the game at $10 over the price of the new game, so maybe about $15 over the price in the second-hand market (which he reckons might be about $25 on March 1st). He calls up our kid. \"\"Hey kid, you know that Put option that Mr Game Broker sold to you you a month ago, wanna sell it to me for $13?\"\" (He wants to get it a couple of bucks cheaper than his $15 fair valuation.) Kid thinks: hmmm ... that would be a $10 net profit for me on that Put Option, but I wouldn't be able to sell the game for $40 next month, I'd likely only get something like $25 for it. So I would kind-of be getting $10 now rather than potentially getting $12 in a month. Note: The $12 is because there could be $15 from exercising the put option (selling for $40 a game worth only $25 in the second-hand market) minus the original cost of $3 for the Put option. Kid likes the idea and replies: \"\"Done!\"\". Next day kid sends the Put option contract to Mr Options Trader and receives $13 in return. Our kid bought the Put option and later sold it for a profit, and all of this happened before the option reached its expiry date.\"","\"It will be helpful to establish some definitions: Long \"\"Long\"\" is financial slang for \"\"to have possession of an asset\"\", legally, and \"\"to debit an asset\"\", financially. Short \"\"Short\"\" is financial slang for \"\"to be liable for an asset\"\", legally, and \"\"to credit an asset\"\", financially. Option \"\"Option\"\" is financial slang for \"\"to have the right but not obligation to force the liable to perform action\"\", legally. Without limits and when taken to absurdity, this can mean slavery. For equities, this means \"\"to have the right but not the obligation to force the liable to buy/sell a specified asset at a specified price with a specified expiration for that right\"\" for a call/put, respectively. By the above, a call option is \"\"the right but not the obligation to force the liable to buy a specified asset at a specified price with a specified expiration for that right\"\". By the definition of \"\"long\"\" above, a call option is actually not long the underlying. By the definitions above and with a narrower scope applied to equities & indexes, to be \"\"long\"\" the call means \"\"to have the right but not the obligation to force the liable to buy a specified asset at a specified price with a specified expiration for that right\"\" while to be \"\"short\"\" the call means \"\"to have the obligation to be forced to sell a specified asset at a specified price with a specified expiration for that right\"\". So, to be \"\"long\"\" a call means to simply own the call.\"","\"Writing a put for a stock means you are selling the right to sell you stock. Simply put (er no pun intended), \"\"writing put options\"\" means you are selling somebody else the right (a contract) to sell YOU a specific stock at a specific price before a specific date. I imagine the word \"\"write\"\" to refer to the physical act of creating a contract. The specific price is called the STRIKE and the specific date is the EXPIRATION. By \"\"writing a put\"\", you are agreeing to purchase the stock at a particular price (the STRIKE price) before the expiration. You get paid a fee, the \"\"premium\"\", for agreeing to purchase the stock at the strike price if asked to. If the holder of the contract decides to make you buy the stock at the strike price, you have to do it. If the stock never dips below the strike price, then the holder of the put contract (a contract you wrote), will never exercise their right because they'd lose money. But if the stock drops to zero, you could potentially lose up to your strike price (times the number of shares at stake), if the holder of the contract decides to exercise. Therefore, \"\"writing puts\"\" is a LONG position, meaning you stand to gain if the stock goes up. FYI - \"\"LONG\"\" refers direction (UP!), not duration.\"","Your math shows that you bought an 'at the money' option for .35 and when the stock is $1 above the strike, your $35 (options trade as a contract for 100 shares) is now worth $100. You knew this, just spelling it out for future readers. 1 - Yes 2 - An execute/sell may not be nesesary, the ooption will have time value right until expiration, and most ofter the bid/ask will favor selling the option. You should ask the broker what the margin requirement is for an execute/sell. Keep in mind this usually cannot be done on line, if I recall, when I wanted to execute, it was a (n expensive) manual order. 3 - I think I answered in (2), but in general they are not identical, the bid/ask on options can get crazy. Just look at some thinly traded strikes and you'll see what I mean.","Just so I'm clear- the end result is a long call, and you think the stock is going up. There is nothing wrong with that fundamentally. Be aware though: That's a negative theta trade. This means if your stock doesn't increase in price during the remaining time to expiration of your call option, the option will lose some of its value every day. It may still lose some of its value every day, depending on how much the stock price increases. The value of the call option just goes down and down as it approaches maturity, even if the stock price stays about the same. Being long a call (or a put) is a tough way to make money in the options market. I would suggest using an out-of-the-money butterfly spread. The potential returns are a bit less. However, this is a cheap positive theta trade so you avoid time decay on the value of the option.","If it helps you to think about it, long is equivalent to betting for the upside and short is equivalent to betting for the downside. If you are long on options, then you expect the value of such options to increase. If you are long an option, then you own the option. If you are short an option, then generally you sold the option. Someone who is short a call (sometimes called the writer or occasionally the issuer) has sold a call option to someone who is now long a call. Buying a call option that will increase in value is itself a form of investment, just as it's investment to buy stock or other instruments hoping they will appreciate in value. An option's value will rise or fall with the underlying, so being long an option is a way to be long in the underlying. Someone can be long in a stock by buying the stock, or long in a call by buying call options in the stock. The long call generally requires less initial investment than buying the underlying, and lets the option-holder avoid the asset downside during the option term. The risk is that the asset may not appreciate to the point that the call option will pay off. In the conceptual sense, a share of stock is a particular right to the profits and assets of a corporation, both in form of dividends and in liquidation. An option is a particular right to the the share of stock. It's just a further way to formalize and subdivide the various property rights that exist in a corporation. If you can buy a piece of paper with particular rights to corporate profits and assets, then you can buy another piece of paper with particular rights to the former piece of paper.","Two ways to mitigate this risk are to buy a put at a lower premium to the written call, or manage your trade by buying back your call if you see the underlying price going against you - a bit similar to having a stop loss.","\"> It just has to finish below the strike price of the short (which can be higher than the stock's current price). You're talking about a put option. That's one \"\"short\"\" strategy, but it's not shorting a stock, so the terminology is a little jumbled. There are reasons to not do straight options, because they can be quite risky, and you have to get the time frame correct.\"","They can sell a lower price call if they expect the stock to plummet in the near term but they are bullish on the longer term. What they are looking to do is collect the call premium and hope it expires worthless. And then again 'hope' that the stock will ultimately turn around. So yes, a lot of hoping. But can you explain what you mean by 'my brokerage gives premiums for prices lower than the current price'? Do you mean you pay less in commissions for ITM calls?","\"Firstly \"\"Most option traders don't want to actually buy or sell the underlying stock.\"\" THIS IS COMPLETELY UTTERLY FALSE Perhaps the problem is that you are only familiar with the BUY side of options trading. On the sell side of options trading, an options desk engages in DELTA HEDGING. When we sell an option to a client. We will also buy an appropriate amount of underlying to match the delta position of the option. During the life time of the option. We will readjust our hedge position whenever the delta changes (those who follow Black Scholes will know that normally that comes from (underlying) price changes). However, we lose money on each underlying change (we have to cross the bid-ask spread for each trade). That is why we lose money when there is volatility. That is why we are said to be \"\"short VEGA\"\" or \"\"short volatility\"\". So one way to think about \"\"buying\"\" options, is that you are paying someone to execute a specific trading strategy. In general, those who sell options, are also happy to buy options back (at a discount of course, so we make a profit). But when doing so, we need to unroll our hedging position, and that again incurs a cost (to us, the bank). Finally. Since this is \"\"money\"\" stackexchange rather than finance. You are most likely referring to \"\"warrants\"\" rather than \"\"options\"\", which are listed on stock exchanges. The exchange in most regions give us very specific and restrictive regulations that we must abide by. One very common one is that we MUST always list a price which we are willing to buy the warrants back at (which may not be an unreasonable spread from the sell price). Since an Option is a synthetically created investment instrument, when we buy back the Option from the investor, we simply unwind the underlying hedging positions that we booked to synthesize the Options with. Source: I've worked 2 years on a warrant desk, as a desk developer.\"","Someone already mentioned that this is a risk-reversal, but as an aside, in the vol market (delta-hedged options) this is a fundamental skew trade. (buying calls, selling puts or vice versa). Initially vega neutral, the greek that this trade largely isolates is vanna (dvega/dspot or ddelta/dvol).","You're correct. If you have no option position at execution then you carry no risk. Your risk is only based on the net number of options you're holding at execution. This is handled by your broker or clearinghouse. Pretend that you wrote 1000 options, (you're short the call) then you bought 1000 of the same option (bought to cover) ... you are now flat and have zero options exposure. Pretend you bought 1000 options (you're long the calls) then you sold 1000 of them (liquidated your long) ... you are now flat and have zero options exposure.","There are some excellent responses to this question at the time of this post. I have had the greatest success writing 1-month options. The 2 main reasons are as follows: With little time to expiration as stated in the question the implied volatility of the option is dictating the premium. Looking for the highest premiums is a mistake because you are taking a conservative strategy and re-creating it into a high-risk strategy. My sweet spot is a 2-4% monthly return for my initial profit and then mastering management techniques to protect that return and even enhancing it.","\"Being \"\"Long\"\" something means you own it. Being \"\"Short\"\" something means you have created an obligation that you have sold to someone else. If I am long 100 shares of MSFT, that means that I possess 100 shares of MSFT. If I am short 100 shares of MSFT, that means that my broker let me borrow 100 shares of MSFT, and I chose to sell them. While I am short 100 shares of MSFT, I owe 100 shares of MSFT to my broker whenever he demands them back. Until he demands them back, I owe interest on the value of those 100 shares. You short a stock when you feel it is about to drop in price. The idea there is that if MSFT is at $50 and I short it, I borrow 100 shares from my broker and sell for $5000. If MSFT falls to $48 the next day, I buy back the 100 shares and give them back to my broker. I pocket the difference ($50 - $48 = $2/share x 100 shares = $200), minus interest owed. Call and Put options. People manage the risk of owning a stock or speculate on the future move of a stock by buying and selling calls and puts. Call and Put options have 3 important components. The stock symbol they are actionable against (MSFT in this case), the \"\"strike price\"\" - $52 in this case, and an expiration, June. If you buy a MSFT June $52 Call, you are buying the right to purchase MSFT stock before June options expiration (3rd Saturday of the month). They are priced per share (let's say this one cost $0.10/share), and sold in 100 share blocks called a \"\"contract\"\". If you buy 1 MSFT June $52 call in this scenario, it would cost you 100 shares x $0.10/share = $10. If you own this call and the stock spikes to $56 before June, you may exercise your right to purchase this stock (for $52), then immediately sell the stock (at the current price of $56) for a profit of $4 / share ($400 in this case), minus commissions. This is an overly simplified view of this transaction, as this rarely happens, but I have explained it so you understand the value of the option. Typically the exercise of the option is not used, but the option is sold to another party for an equivalent value. You can also sell a Call. Let's say you own 100 shares of MSFT and you would like to make an extra $0.10 a share because you DON'T think the stock price will be up to $52/share by the end of June. So you go to your online brokerage and sell one contract, and receive the $0.10 premium per share, being $10. If the end of June comes and nobody exercises the option you sold, you get to keep the $10 as pure profit (minus commission)! If they do exercise their option, your broker makes you sell your 100 shares of MSFT to that party for the $52 price. If the stock shot up to $56, you don't get to gain from that price move, as you have already committed to selling it to somebody at the $52 price. Again, this exercise scenario is overly simplified, but you should understand the process. A Put is the opposite of a Call. If you own 100 shares of MSFT, and you fear a fall in price, you may buy a PUT with a strike price at your threshold of pain. You might buy a $48 June MSFT Put because you fear the stock falling before June. If the stock does fall below the $48, you are guaranteed that somebody will buy yours at $48, limiting your loss. You will have paid a premium for this right (maybe $0.52/share for example). If the stock never gets down to $48 at the end of June, your option to sell is then worthless, as who would sell their stock at $48 when the market will pay you more? Owning a Put can be treated like owning insurance on the stock from a loss in stock price. Alternatively, if you think there is no way possible it will get down to $48 before the end of June, you may SELL a $48 MSFT June Put. HOWEVER, if the stock does dip down below $48, somebody will exercise their option and force you to buy their stock for $48. Imagine a scenario that MSFT drops to $30 on some drastically terrible news. While everybody else may buy the stock at $30, you are obligated to buy shares for $48. Not good! When you sold the option, somebody paid you a premium for buying that right from you. Often times you will always keep this premium. Sometimes though, you will have to buy a stock at a steep price compared to market. Now options strategies are combinations of buying and selling calls and puts on the same stock. Example -- I could buy a $52 MSFT June Call, and sell a $55 MSFT June Call. I would pay money for the $52 Call that I am long, and receive money for the $55 Call that I am short. The money I receive from the short $55 Call helps offset the cost of buying the $52 Call. If the stock were to go up, I would enjoy the profit within in $52-$55 range, essentially, maxing out my profit at $3/share - what the long/short call spread cost me. There are dozens of strategies of mixing and matching long and short calls and puts depending on what you expect the stock to do, and what you want to profit or protect yourself from. A derivative is any financial device that is derived from some other factor. Options are one of the most simple types of derivatives. The value of the option is derived from the real stock price. Bingo? That's a derivative. Lotto? That is also a derivative. Power companies buy weather derivatives to hedge their energy requirements. There are people selling derivatives based on the number of sunny days in Omaha. Remember those calls and puts on stock prices? There are people that sell calls and puts based on the number of sunny days in Omaha. Sounds kind of ridiculous -- but now imagine that you are a solar power company that gets \"\"free\"\" electricity from the sun and they sell that to their customers. On cloudy days, the solar power company is still on the hook to provide energy to their customers, but they must buy it from a more expensive source. If they own the \"\"Sunny Days in Omaha\"\" derivative, they can make money for every cloudy day over the annual average, thus, hedging their obligation for providing more expensive electricity on cloudy days. For that derivative to work, somebody in the derivative market puts a price on what he believes the odds are of too many cloudy days happening, and somebody who wants to protect his interests from an over abundance of cloudy days purchases this derivative. The energy company buying this derivative has a known cost for the cost of the derivative and works this into their business model. Knowing that they will be compensated for any excessive cloudy days allows them to stabilize their pricing and reduce their risk. The person selling the derivative profits if the number of sunny days is higher than average. The people selling these types of derivatives study the weather in order to make their offers appropriately. This particular example is a fictitious one (I don't believe there is a derivative called \"\"Sunny days in Omaha\"\"), but the concept is real, and the derivatives are based on anything from sunny days, to BLS unemployment statistics, to the apartment vacancy rate of NYC, to the cost of a gallon of milk in Maine. For every situation, somebody is looking to protect themselves from something, and somebody else believes they can profit from it. Now these examples are highly simplified, many derivatives are highly technical, comprised of multiple indicators as a part of its risk profile, and extremely difficult to explain. These things might sound ridiculous, but if you ran a lemonade stand in Omaha, that sunny days derivative just might be your best friend...\"","Depending on the day and even time, you'd get your $2 profit less the $5 commission. Jack's warning is correct, but more so for thinly traded options, either due to the options having little open interest or the stock not quite so popular. In your case you have a just-in-the-money strike for a highly traded stock near expiration. That makes for about the best liquidity one can ask for. One warning is in order - Sometime friday afternoon, there will be a negative time premium. i.e. the bid might seem lower than in the money value. At exactly $110, why would I buy the option? Only if I can buy it, exercise, and sell the stock, all for a profit, even if just pennies.","\"With stocks, you can buy or sell. If you sell first, that's called 'shorting.' As in \"\"I think linkedin is too high, I'm going to short it.\"\" With options, the terminology is different, the normal process is to buy to open/sell to close, but if you were shorting the option itself, you would first sell to open, i.e you are selling a position to start it, effectively selling it short. Eventually, you may close it out, by buying to close. Options trading is not for the amateur. If you plan to trade, study first and be very cautious.\"","\"Your question indicates that you might have a little confusion about put options and/or leveraging. There's no sense I'm aware of in which purchasing a put levers a position. Purchasing a put will cost you money up front. Leveraging typically means entering a transaction that gives you extra money now that you can use to buy other things. If you meant to sell a put, that will make money up front but there is no possibility of making money later. Best case scenario the put is not exercised. The other use of the term \"\"leverage\"\" refers to purchasing an asset that, proportionally, goes up faster than the value of the underlying. For example, a call option. If you purchase a put, you are buying downside protection, which is kind of the opposite of leverage. Notice that for an American put you will most likely be better off selling the put when the price of the underlying falls than exercising it. That way you make the money you would have made by exercising plus whatever optional value the put still contains. That is true unless the time value of money is greater than the optional (insurance) value. Since the time value of money is currently exceptionally low, this is unlikely. Anyway, if you sell the option instead of exercising, you don't need to own any shares at all. Even if you do exercise, you can just buy them on the market and sell right away so I wouldn't worry about what you happen to be holding. The rules for what you can trade with a cash instead of a margin account vary by broker, I think. You can usually buy puts and calls in a cash account, but more advanced strategies, such as writing options, are prohibited. Ask your broker or check their help pages to see what you have available to you.\"","I don't think you understand options. If it expires, you can't write a new call for the same expiration date as it expired that day. Also what if the stock price decreases further to $40 or even more? If you think the stock will move in either way greatly, and you wish to be profit from it, look into straddles.","First, in the money options are scarcely created because most options trade at the money with the rest evenly distributed between in and out, so they are at best half the market when created. They are also closed before expiration. The reason is still unknown, but one theory is: Barely in the money options carry enormous exercise risk because the chance that could be turned into a potentially solvency threatening unhedged liability is great; therefore, option sellers prefer to close barely in the money options so not to take on unhedged liability risk. Statistically, option sellers are risk avoiders.","Yes, selling premium is selling an option that contains premium over it's intrinsic value. Out-of-the-money options contain no intrinsic value, at the money and near the money options contain premium over the intrinsic value. The deeper in-the-money go, the less premium there is.","One broker told me that I have to simply read the ask size and the bid size, seeing what the market makers are offering. This implies that my order would have to match that price exactly, which is unfortunate because options contract spreads can be WIDE. Also, if my planned position size is larger than the best bid/best ask, then I should break up the order, which is also unfortunate because most brokers charge a lot for options orders.","This is exactly how I started, starting a simulation account on the CBOE website just to see what situation was profitable because it was all greek to me. Actually after learning the greeks, I realize that site was worse and eventually read some books and got better tools. The screenshot you have is telling you the strikes, but unfortunately they are showing you the technical name of the contract on the exchanges. For example, just like you type in AAPL to buy shares of AAPL stock, you can type in VIX1616K16E to get that one particular contract, expiration and strike. So lets break it down just by inferring, because this is what I just did with that picture: You know the current price of VIX, $17.06 Calls expiring November 16th, 2016: What is changing? SYMBOL / YEAR / EXPIRATION DAY / STRIKE / OPTION-STYLE (?) So knowing that in the money options will be more expensive, and near the money options will be slightly cheaper, and out the money will be even cheaper, you can see what is going on, per expiration.","The liquidity primarily depends on the specific equity type / position you are looking at. You want to look for stocks or ETFs that have significant volume themselves before trying to jump into an option contract. The most important things you should look at are Volume and Open Interest for the specific contracts, strikes, and expiration. Near the money / in the money contracts from near term expiration tend to have the highest liquidity and the smallest (relative) spreads.","(buy these when you expect the price to go down) You 'lock in' the price you can sell at. If the price goes down below the 'locked-in' price, you buy at the new low price and sell at the higher 'locked-in' price; make money. (buy these when you expect the price to go up) You 'lock in' the price you can buy at. If the price goes up above the 'locked-in' price, you buy at the 'locked-in' price and sell at the new higher price, make money.","\"In real life, you'd see spreads like AMZN 04/13/2017 910.00 C 4.90 +1.67 Bid: 4.75 Ask: 5.20 (with AMZN @ $897 right now) and the fill you'd get on the buy side would be closer to the ask. i.e. I'd offer $5.00 and hope that it filled. Filling a $4 bid when ask is $8 isn't likely unless the stock blipped down enough for your price to fill. Options are a lot like day trading, in most cases. Most members here will agree that day trading isn't investing, it's gambling. Long term, the S&P has been up 10%/yr. But any given day, the noise of the market is a 50/50 zero sum game. Most long term stock 'investors' do well. Those who get in and out, not so much. There are aspects to options that are appealing. As you've seen, the return can be high, even IRL, but your loss can be 100% as well. Let me share with you a blurred line - I wrote \"\"Betting on Apple at 9 to 2\"\" in which I described an option strategy that ran 2 years and would return $10,000 on a $2200 bet. A similar bet that ended a year ago yielded a 100% loss. I don't post there very often, as I keep that trading to a minimum. There are warnings for those who want to start trading options -\"","\"Consider the futures market. Traders buy and sell gold futures, but very few contracts, relatively speaking, result in delivery. The contracts are sold, and \"\"Open interest\"\" dwindles to near zero most months as the final date approaches. The seller buys back his short position, the buyer sells off his longs. When I own a call, and am 'winning,' say the option that cost me $1 is now worth $2, I'd rather sell that option for even $1.95 than to buy 100 shares of a $148 stock. The punchline is that very few option buyers actually hope to own the stock in the end. Just like the futures, open interest falls as expiration approaches.\"","\"Bull means the investor is betting on a rising market. Puts are a type of stock option where the seller of a put option promises to buy 100 shares of stock from the buyer of the put option at a pre-agreed price called the strike price on any day before expiration day. The buyer of the put option does not have to sell (it is optional, thats why it is called buying an option). However, the seller of the put is required to make good on their promise to the buyer. The broker can require the seller of the put option to have a deposit, called margin, to help make sure that they can make good on the promise. Profit... The buyer can profit from the put option if the stock price moves down substantially. The buyer of the put option does not need to own the stock, he can sell the option to someone else. If the buyer of the put option also owns the stock, the put option can be thought of like an insurance policy on the value of the stock. The seller of the put option profits if the stock price stays the same or rises. Basically, the seller comes out best if they can sell put options that no one ends up using by expiration day. A spread is an investment consisting of buying one option and selling another. Let's put bull and put and spread together with an example from Apple. So, if you believed Apple Inc. AAPL (currently 595.32) was going up or staying the same through JAN you could sell the 600 JAN put and buy the 550 put. If the price rises beyond 600, your profit would be the difference in price of the puts. Let's explore this a little deeper (prices from google finance 31 Oct 2012): Worst Case: AAPL drops below 550. The bull put spread investor owes (600-550)x100 shares = $5000 in JAN but received $2,035 for taking this risk. EDIT 2016: The \"\"worst case\"\" was the outcome in this example, the AAPL stock price on options expiry Jan 18, 2013 was about $500/share. Net profit = $2,035 - $5,000 = -$2965 = LOSS of $2965 Best Case: AAPL stays above 600 on expiration day in JAN. Net Profit = $2,035 - 0 = $2035 Break Even: If AAPL drops to 579.65, the value of the 600 JAN AAPL put sold will equal the $2,035 collected and the bull put spread investor will break even. Commissions have been ignored in this example.\"","Let's consider that transaction cost is 0(zero) for calculation. In the scenario you have stated, maximum profit that could be made is 55$, however risk is unlimited. Hedging can also be used to limit your losses, let's consider this scenario. Stock ABC trading @ 100$, I'll buy the stock ABC @ 100$ and buy a put option of ABC @ strike price 90$ for a premium of 5$ with an expiration date of 1 month. Possible outcomes I end up in a loss in 3 out of 4 scenarios, however my loss is limited to 15$, whereas profit is unlimited.","Being long the call is being long the option. The call is a type of option. A put is a type of option If you buy a call, you are long an option and long the underlying asset. If you buy a put, you are long an option and short the underlying asset.","\"If you're looking to leverage your capital more efficiently, at the money options offer the best balance. Options deep in the money will have little time premium remaining on them, but don't allow for greater leverage. On the other hand deep out of the money options may be thinly traded, or might not offer the \"\"mirroring\"\" you'd like of the underlying. By purchasing ATM you will likely be buying some time premium, but still be leveraging your capital, potentially several times over.\"","(Note: I am omitting the currency units. While I strongly suspect it's US$ I don't know from the chart. The system works the same no matter what the currency.) A call or a put is the right to sell (put) or buy (call) shares at a certain price on a certain day. This is why you see a whole range of prices. Not all possible stock values are represented, the number of possibilities has to be kept reasonable. In this case the choices are even units, for an expensive stock they may be spaced even farther apart than this. The top of the chart says it's for June. It's actually the third Friday in the month, June 15th in this case. Thus these are bets on how the stock will move in the next 10 days. While the numbers are per share you can only trade options in lots of 100. The left side of the chart shows calls. Suppose you sell a call at 19 (the top of the chart) The last such trade would have gotten you a premium of 9.70 per share (the flip side of this is when the third friday rolls around it will most likely be exercised and they'll be paying you only 19 a share for a stock now trading at something over 26.) Note the volume, bid and ask columns though--you're not going to get 9.70 for such a call as there is no buyer. The most anybody is offering at present is 7.80 a share. Now, lets look farther down in the chart--say, a strike price of 30. The last trade was only .10--people think it's very unlikely that FB will rise above 30 to make this option worthwhile and thus you get very little for being willing to sell at that price. If FB stays at 26 the option will expire worthless and go away. If it's up to 31 when the 15th rolls around they'll exercise the option, take your shares and pay you 30 for them. Note that you already gave permission for the trade by selling the call, you can't back out later if it becomes a bad deal. Going over to the other side of the chart with the puts: Here the transaction goes the other way, come the 15th they have the option of selling you the shares for the strike price. Lets look at the same values we did before. 19? There's no trading, you can't do it. 30? Here you will collect 3.20 for selling the put. Come the 15th they have the right to sell you the stock for 30 a share. If it's still 26 they're certainly going to do so, but if it's up to 31 it's worthless and you pocket the 3.20 Note that you will normally not be allowed to sell a call if you don't own the shares in question. This is a safety measure as the risk in selling a call without the stock is infinite. If the stock somehow zoomed up to 10,000 when the 15th rolls around you would have to come up with the shares and the only way you could get them is buy them on the open market--you would have to come up with a million dollars. If there simply aren't enough shares available to cover the calls the result is catastrophic--whoever owns the shares simply gets to dictate terms to you. (And in the days of old this sometimes happened.)","Robert is right saying that options' prices are affected by implied volatility but is wrong saying that you have to look at the VIX index. For two reasons: 1) the VIX index is for S&P500 options only. If you are trading other options, it is less useful. 2) if you are trading an option that is not at the money, your implied volatility may be very different (and follow a different dynamics) that the VIX index. So please look at the right implied volatility. In terms of strategy, I don't think that not doing anything is a good strategy. I accept any point of view but you should consider that option traders should be able to adjust positions depending on market view. So you are long 1 call, suppose strike 10. Suppose the underlying price at the time of entry was 10 (so the call was at the money). Now it's 9. 1) you still have a bullish view: buy 1 call strike 9 and sell 2 calls strike 10. This way you have a bull call spread with much higher probability of leading to profit. You are limiting your profit potential but you are also reducing the costs and managing the greeks in a proper way (and in line with your expectations). 2) you become bearish: you can sell 1 call strike 9. This way you end up with a bear call spread. Again, you are limiting your profit potential but you are also reducing the costs and managing the greeks in a proper way (and in line with your expectations). 3) you become neutral: buy 1 call strike 8 and sell 2 calls strike 9. This way you end up with a call butterfly. You are almost delta neutral and you can wait until your view becomes clear enough to become directional. At that point you can modify the butterfly to make it directional. These are just some opportunities you have. There is no reason for you to wait. Options are eroding contracts and you must be fast and adjust the position before time starts eroding your capital at risk. It's true that buying a call doesn't make you loose more than the premium you paid, but it's better to reduce this premium further with some adjustment. Isn't it? Hope that helps. :)","\"In general economic theory, there are always two markets created based on a need for a good; a spot market (where people who need something now can go outbid other people who need the same thing), and a futures market (where people who know they will need something later can agree to buy it for a pre-approved price, even if the good in question doesn't exist yet, like a grain crop). Options exist as a natural extension of the futures market. In a traditional future, you're obligated, by buying the contract, to execute it, for good or ill. If it turns out that you could have gotten a lower price when buying, or a higher price when selling, that's tough; you gave up the ability to say no in return for knowing, a month or three months or even a year in advance, the price you'll get to buy or sell this good that you know you need. Futures thus give both sides the ability to plan based on a known price, but that's their only risk-reduction mechanism. Enter the option. You're the Coors Brewing Company, and you want to buy 50 tons of barley grain for delivery in December in order to brew up for the Super Bowl and other assorted sports parties. A co-op bellies up to close the deal. But, since you're Coors, you compete on price with Budweiser and Miller, and if you end up paying more than the grain's really worth, perhaps because of a mild wet fall and a bumper crop that the almanac predicts, then you're going to have a real bad time of it in January. You ask for the right to say \"\"no\"\" when the contract falls due, if the price you negotiate now is too high based on the spot price. The co-op now has a choice; for such a large shipment, if Coors decided to leave them holding the bag on the contract and instead bought it from them anyway on a depressed spot market, they could lose big if they were counting on getting the contract price and bought equipment or facilities on credit against it. To mitigate those losses, the co-op asks for an option price; basically, this is \"\"insurance\"\" on the contract, and the co-op will, in return for this fee (exactly how and when it's paid is also negotiable), agree to eat any future realized losses if Coors were to back out of the contract. Like any insurance premium, the option price is nominally based on an outwardly simple formula: the probability of Coors \"\"exercising\"\" their option, times the losses the co-op would incur if that happened. Long-term, if these two figures are accurate, the co-op will break even by offering this price and Coors either taking the contract or exercising the option. However, coming up with accurate predictions of these two figures, such that the co-op (or anyone offering such a position) would indeed break even at least, is the stuff that keeps actuaries in business (and awake at night).\"","\"The blue line is illustrating the net profit or loss the investor will realise according to how the price of the underlying asset settles at expiry. The x-axis represents the underlying asset price. The y-axis represents the profit or loss. In the first case, the investor has a \"\"naked put write\"\" position, having sold a put option. The strike price of the put is marked as \"\"A\"\" on the x-axis. The maximum profit possible is equal to the total premium received when the option contract was sold. This is represented by that portion of the blue line that is horizontal and extending from the point above that point marked \"\"A\"\" on the x-axis. This corresponds to the case that the price of the underlying asset settles at or above the strike price on the day of expiry. If the underlying asset settles at a price less than the strike price on the day of expiry, then the option with be \"\"in the money\"\". Therefore the net settlement value will move from a profit to a loss, depending on how far in the money the option is upon expiry. This is represented by the diagonal line moving from above the \"\"A\"\" point on the x-axis and moving from a profit to a loss on the y-axis. The diagonal line crosses the x-axis at the point where the underlying asset price is equal to \"\"A\"\" minus the original premium rate at which the option was written - i.e., net profit = zero. In the second case, the investor has sold a put option with a strike price of \"\"B\"\" and purchase a put option with a strike price \"\"A\"\", where A is less than B. Here, the reasoning is similar to the first example, however since a put option has been purchase this will limit the potential losses should the underlying asset move down strongly in value. The horizontal line above the x-axis marks the maximum profit while the horizontal line below the x-axis marks the maximum loss. Note that the horizontal line above the x-axis is closer to the x-axis that is the horizontal line below the x-axis. This is because the maximum profit is equal to the premium received for selling the put option minus the premium payed for buying the put option at a lower strike price. Losses are limited since any loss in excess of the strike price \"\"A\"\" plus the premium payed for the put purchased at a strike price of \"\"A\"\" is covered by the profit made on the purchased put option at a strike price of \"\"A\"\".\"","The only use of options that I will endorse is selling them. If you believe the market is going down then sell covered, out of the money, calls. Buying calls or buying puts usually wastes money. That is because of a quality called Theta. If the underlying security stays the same the going price of an option will decrease, every day, by the Theta amount. Think of options as insurance. A person only makes money by selling insurance, not by buying it.","The Explanation is correct. The Traders buys the 1st call and profits linearly form 40$ onwards. At at 45 the short call kick in and neutralizes any further profit on the first call.","First, a margin account is required to trade options. If you buy a put, you have the right to deliver 100 shares at a fixed price, 50 can be yours, 50, you'll buy at the market. If you sell a put, you are obligated to buy the shares if put to you. All options are for 100 shares, I am unaware of any partial contract for fewer shares. Not sure what you mean by leveraging the position, can you spell it out more clearly?","You don't mention any specific numbers, so I'll answer in generalities. Say I buy a call option today, and I short the underlying stock with the delta. The value will be the value of the option you bought less the value of the stock you are short. (your premium is not included in the value since it's a sunk cost, but is reflected in your profit/loss) So, say I go out and adjust my portfolio, so I am still delta short in the underlying. It's still the value of your options, less the value of the underlying you are short. What is my PnL over this period? The end value of your portfolio less what you paid for that value, namely the money you received shorting the underlyings less the premium you paid for the option.","\"The current price is $8.05. If you want the right to sell it to someone (put it to the buyer) for $10, you have to pay $2. Since you're looking at an expiration that's so close, the \"\"in the money\"\" value is nearly the same as what it trades for. The JAN 2013 sells for nearly $3.\"","Here is a quick and dirty explanation of options. In a nutshell, you pay a certain amount to buy a contract that gives you the right, but not the obligation, to buy or sell a stock at a predetermined price at some date in the future. They come in a few flavors: I'll give you $100 if you let me buy 10,000 shares of XYZ for $10 more per share than it is trading at today any time before August 10th. I'll give you $100 if you promise to buy 10,000 shares of XYZ from me for $10 less per share than it is trading at today if I ask before August 10th. There are also two main types based on the expiration behavior: There are lots of strategies that employ options, too many to go into. Two key uses are.. Leverage: Buying Call options can give you a much higher return on your investment than just investing in the actual stock. However, with much higher risk of losing all of your investment instead of just some of it when the stock drops. Hedging: If you already own the underlying stock, put options can be used to buy down risk of serious drops in a holding.","\"Some thoughts on your questions in order, Duration: You might want to look at the longest-dated option (often a \"\"LEAP\"\"), for a couple reasons. One is that transaction costs (spread plus commission, especially spread) are killer on options, so a longer option means fewer transactions, since you don't have to keep rolling the option. Two is that any fundamentals-based views on stocks might tend to require 3-5 years to (relatively) reliably work out, so if you're a fundamental investor, a 3-6 month option isn't great. Over 3-6 months, momentum, short-term news, short squeezes, etc. can often dominate fundamentals in determining the price. One exception is if you just want to hedge a short-term event, such as a pending announcement on drug approval or something, and then you would buy the shortest option that still expires after the event; but options are usually super-expensive when they span an event like this. Strike: Strike price on a long option can be thought of as a tradeoff between the max loss and minimizing \"\"insurance costs.\"\" That is, if you buy a deeply in-the-money put or call, the time value will be minimal and thus you aren't paying so much for \"\"insurance,\"\" but you may have 1/3 or 1/2 of the value of the underlying tied up in the option and subject to loss. If you buy a put or call \"\"at the money,\"\" then you might have only say 10% of the value of the underlying tied up in the option and subject to loss, but almost the whole 10% may be time value (insurance cost), so you are losing 10% if the underlying stock price stays flat. I think of the deep in-the-money options as similar to buying stocks on margin (but the \"\"implied\"\" interest costs may be less than consumer margin borrowing rates, and for long options you can't get a margin call). The at-the-money options are more like buying insurance, and it's expensive. The commissions and spreads add significant cost, on top of the natural time value cost of the option. The annual costs would generally exceed the long-run average return on a diversified stock fund, which is daunting. Undervalued/overvalued options, pt. 1: First thing is to be sure the options prices on a given underlying make sense at all; there are things that \"\"should\"\" hold, for example a synthetic long or short should match up to an actual long or short. These kinds of rules can break, for example on LinkedIn (LNKD) after its IPO, when shorting was not permitted, the synthetic long was quite a bit cheaper than a real long. Usually though this happens because the arbitrage is not practical. For example on LNKD, the shares to short weren't really available, so people doing synthetic shorts with options were driving up the price of the synthetic short and down the price of the synthetic long. If you did actually want to be long the stock, then the synthetic long was a great deal. However, a riskless arbitrage (buy synthetic long, short the stock) was not possible, and that's why the prices were messed up. Another basic relationship that should hold is put-call parity: http://en.wikipedia.org/wiki/Put%E2%80%93call_parity Undervalued/overvalued options, pt. 2: Assuming the relationship to the underlying is sane (synthetic positions equivalent to actual positions) then the valuation of the option could focus on volatility. That is, the time value of the option implies the stock will move a certain amount. If the time value is high and you think the stock won't move much, you might short the option, while if the time value is low and you think the stock will move a lot, you might buy the option. You can get implied volatility from your broker perhaps, or Morningstar.com for example has a bunch of data on option prices and the implied components of the price model. I don't know how useful this really is though. The spreads on options are so wide that making money on predicting volatility better than the market is pretty darn hard. That is, the spread probably exceeds the amount of the mispricing. The price of the underlying is more important to the value of an option than the assumed volatility. How many contracts: Each contract is 100 shares, so you just match that up. If you want to hedge 100 shares, buy one contract. To get the notional value of the underlying multiply by 100. So say you buy a call for $30, and the stock is trading at $100, then you have a call on 100 shares which are currently priced at $10,000 and the option will cost $30*100=3,000. You are leveraged about 3 to 1. (This points to an issue with options for individual investors, which is that one contract is a pretty large notional value relative to most portfolios.)\"","Late to the party, but it's just improving your cost basis in a defined risk trade even further. If you want to put up less risk capital but want to test the waters, this can be one way to do it. Another could be buying cheap OTM butterflies or financing a further otm option with the basis reduction from the debit spread if you want to gamble a bit further and venture into 15-20 delta positions. Usually, I am doing debit spreads with a buying atm and selling a couple strikes further otm or at least at the most liquid strikes, but if it's a high flier, it can be disappointing, but a good trade. If you're more of a contrarian in where you buy your calls/puts, it's absolutely a good way to lessen your risk on a calculated bet.","Hi. Straddle: Buy a call and a put with an identical strike price. The strike is the price at which you can exercise the option. You pay a premium (cash) to buy the options. Typically you need a large amount of volatility in pricing movement in order to breakeven on the combined premium paid. Strangle: Purchasing a call and a put option with a non-identical strike price. Once again it is a volatility trading play. You need some type of price movement in the underlying security in order to break even or profit on the trade.","\"I think the issue you are having is that the option value is not a \"\"flow\"\" but rather a liability that changes value over time. It is best to illustrate with a balance sheet. The $33 dollars would be the premium net of expense that you would receive from your brokerage for having shorted the options. This would be your asset. The liability is the right for the option owner (the person you sold it to) to exercise and purchase stock at a fixed price. At the moment you sold it, the \"\"Marked To Market\"\" (MTM) value of that option is $40. Hence you are at a net account value of $33-$40= $-7 which is the commission. Over time, as the price of that option changes the value of your account is simply $33 - 2*(option price)*(100) since each option contract is for 100 shares. In your example above, this implies that the option price is 20 cents. So if I were to redo the chart it would look like this If the next day the option value goes to 21 cents, your liability would now be 2*(0.21)*(100) = $42 dollars. In a sense, 2 dollars have been \"\"debited\"\" from your account to cover your potential liability. Since you also own the stock there will be a credit from that line item (not shown). At the expiry of your option, since you are selling covered calls, if you were to be exercised on, the loss on the option and the gain on the shares you own will net off. The final cost basis of the shares you sold will be adjusted by the premium you've received. You will simply be selling your shares at strike + premium per share (0.20 cents in this example)\"","I have an example of a trade I made some time ago. By entering the position as a covered call, I was out of pocket $5.10, and if the stock traded flat, i.e. closed at the same $7.10 16 months hence, I was up 39% or nearly 30%/yr. As compared to the stock holder, if the stock fell 28%, I'd still break even, vs his loss of 28%. Last, if the stock shot up, I'd get 7.50/5.10 or a 47% return, vs the shareholder who would need a price of $10.44 to reflect that return. Of course, a huge jump in the shares, say to $15, would benefit the option buyer, and I would have left money on the table. But this didn't happen. The stock was at $8 at expiration, and I got my 47% return. The option buyer got 50 cents for his $2 bet. Note, the $2 option price reflected a very high implied volatility.","I would make a change to the answer from olchauvin: If you buy a call, that's because you expect that the value of call options will go up. So if you still think that options prices will go up, then a sell-off in the stock may be a good point to buy more calls for cheaper. It would be your call at that point (no pun intended). Here is some theory which may help. An options trader in a bank would say that the value of a call option can go up for two reasons: The VIX index is a measure of the levels of implied volatility, so you could intuitively say that when you trade options you are taking a view on two components: the underlying stock, and the level of the VIX index. Importantly, as you get closer to the expiry date this second effect diminishes: big jumps up in the VIX will produce smaller increases in the value of the call option. Taking this point to its limit, at maturity the value of the call option is only dependent on the price of the underlying stock. An options trader would say that the vega of a call option decreases as it gets closer to expiry. A consequence of this is that if pure options traders are naturally less inclined to buy and hold to expiry (because otherwise they would really just be taking a view on the stock price rather than the stock price & the implied volatility surface). Trading options without thinking too much about implied volatities is of course a valid strategy -- maybe you just use them because you will automatically have a mechanism which limits losses on your positions. But I am just trying to give you an impression of the bigger picture.","\"There are many reasons. Here are just some possibilities: The stock has a lot of negative sentiment and puts are being \"\"bid up\"\". The stock fell at the close and the options reflect that. The puts closed on the offer and the calls closed on the bid. The traders with big positions marked the puts up and the calls down because they are long puts and short calls. There isn't enough volume in the puts or calls to make any determination - what you are seeing is part of the randomness of a moment in time.\"","Looking at the SPY option chain you posted, all of the call options with a strike price of 199.50 or higher have a bid of N/A. That's because the ask price for all of those options is 0.01, and the bid price has to be less than the ask price, but buyers are not allowed to bid 0.00. It's not accurate to say that no one wants to buy those calls - anyone who wanted to buy one of those calls would just buy it at the ask price of 0.01. So why are people selling those calls for just 0.01? The further out of the money you go as you get closer to expiration, the less likely the underlying stock or ETF (SPY in this case) will go over the strike price, and the less you can sell it for. SPY closed yesterday at about 195, and it would have to go up almost 2.5% today for the 199.50 calls to be in the money, and a 2.5% move in one day is extremely unlikely.","Option prices are computed by determining the cost of obtaining the option returns using a strategy that trades the underlying asset continuously. It sounds like what you are describing is rapidly trading the option in order to obtain returns similar to those of the stock. The equality goes both ways. If the option is appropriately priced, then a strategy that replicates stock returns using the option will cost the same as buying the stock. Because you can't trade continuously, you won't actually be able to replicate the stock return, and it may seem like you are making arbitrage profit (puts may seem abnormally expensive), but you do so by bearing tail risk (i.e., selling puts loses more money than owning the associated stock if an unusually bad event occurs).","Market makers are required to buy options contracts as a condition of being a market maker. It is what keeps the markets functioning and liquid. As to whether or not your trade can be closed at a profit depends on many variables - how much you paid, what the underlying security is, etc CBOE Options expiration FAQs","I understand the question, I think. The tough thing is that trades over the next brief time are random, or appear so. So, just as when a stock is $10.00 bid / $10.05 ask, if you place an order below the ask, a tick down in price may get you a fill, or if the next trades are flat to higher, you might see the close at $10.50, and no fill as it never went down to your limit. This process is no different for options than for stocks. When I want to trade options, I make sure the strike has decent volume, and enter a market order. Edit - I reworded a bit to clarify. The Black–Scholes is a model, not a rigid equation. Say I discover an option that's underpriced, but it trades under right until it expires. It's not like there's a reversion to the mean that will occur. There are some very sophisticated traders who use these tools to trade in some very high volumes, for them, it may produce results. For the small trader you need to know why you want to buy a stock or its option and not worry about the last $0.25 of its price.","\"Suddenly its not just comparing the current price to the price of the contract, or is it? Sure it is. Suppose you bought 100 option contracts (each for 100 shares) and paid a $1 per share premium ($10,000 total). Now those options are trading for $1.50 per share. You have an unrealized $0.50 gain per share, or $5,000. The $10,000 in options you bought are now worth $15,000. It holds whether they were bought to open or close a position, or whether they are puts or calls. The only difference is whether you bought or sold the options (the arithmetic is just reversed for selling an option). But lets say we have an Option, where the payoff is max(St-K, c0) where ct is the market price. What do you do then? Your current, unrealized P&L is different than the payoff. The payoff only happens at maturity. The current P&L is based on current market prices, just like stock. Option prices all have a \"\"time premium\"\" making them worth more than their payoff (intrinsic) value prior to maturity.\"","You bought the right – but not the obligation – to buy a certain number of shares at $15 from whomsoever sold you the option, and you paid a premium for it. You can choose whether you want to buy the shares at $15 during the period agreed upon. If you call for the shares, the other guy has to sell the shares to you for $15 each, even if the market price is higher. You can then turn around and promptly resell the purchased shares at the higher market price. If the market price never rises above $15 at any time while the option is open, you still have the right to buy the shares for $15 if you choose to do so. Most rational people would let the option expire without exercising it, but this is not a legal requirement. Doing things like buying shares at $15 when the market price is below $15 is perfectly legal; just not very savvy. You cannot cancel the option in the sense of going to the seller of the option and demanding your premium money back because you don't intend to exercise the option because the market price is below $15. Of course, if the market price is above $15 and you tell the seller to cancel the contract, they will be happy to do so, since it lets them off the hook. They may or may not give you the premium back in this case.","A long call options spread. In this case, a bet that the USO ETF would recover to $35. You can see, I got in when USO was $28, and it's continued to drop, but it has till Jan '17 to recover. The spread is set up to give leverage, when I entered the trade, a 50% recovery would result in a 200% gain, or 3X my bet. An option spread can be bought using any two strikes, and with different payouts depending on how far out of the money the strikes are.","\"You seem to have it right. You will be selling what's known as a covered call. When you sell the call, you enter it as \"\"sell to open\"\" and the system should see that you own the stock. You need to be approved for options trading, not all accounts are. As far as this particular trade goes - No, the stock doesn't necessarily get called away the day it's in the money, but it can be. If the stock closes just in the money around the time of expiration are you ok will selling it for the strike price? Remember, the option buyer is taking a small risk, the cost of this option, hoping the stock will go far above that price.\"","To expand on the comment made by @NateEldredge, you're looking to take a short position. A short position essentially functions as follows: Here's the rub: you have unlimited loss potential. Maybe you borrow a share and sell it at $10. Maybe in a month you still haven't closed the position and now the share is trading at $1,000. The share lender comes calling for their share and you have to close the position at $1,000 for a loss of $990. Now what if it was $1,000,000 per share, etc. To avoid this unlimited loss risk, you can instead buy a put option contract. In this situation you buy a contract that will expire at some point in the future for the right to sell a share of stock for $x. You get to put that share on to someone else. If the underlying stock price were to instead rise above the put's exercise price, the put will expire worthless — but your loss is limited to the premium paid to acquire the put option contract. There are all sorts of advanced options trades sometimes including taking a short or long position in a security. It's generally not advisable to undertake these sorts of trades until you're very comfortable with the mechanics of the contracts. It's definitely not advisable to take an unhedged short position, either by borrowing someone else's share(s) to sell or selling an option (when you sell the option you take the risk), because of the unlimited loss potential described above.","\"Is option trading permitted in the account? Most 401(k) do not permit this. 1 - it means none traded today. 2 - there are 50 outstanding contracts. Each one has a guy who is long and a guy who is short. 3 - not really, it might depend on the stock. 4 - no. With commissions so low, and the inherent leverage of options, one contract reflecting 100 shares of the underlying stock, the minimum is what you can sleep soundly with. 5 - because GLD does not reflect precisely 1/10 oz of gold's price. If you look at the prospectus, it reads \"\"The investment objective of the Trust is for the Shares to reflect the performance of the price of gold bullion, less the Trust’s expenses.\"\" Since there are no dividends to take expenses from, the GLD price will erode by .4% each year compared to the price of 1/10oz gold.\"","Standard options are contracts for 100 shares. If the option is for $0.75/share and you are buying the contract for 100 shares the price would be $75 plus commission. Some brokers have mini options available which is a contract for 10 shares. I don't know if all brokers offer this option and it is not available on all stocks. The difference between the 1 week and 180 day price is based on anticipated price changes over the given time. Most people would expect more volatility over a 6 month period than a 1 week period thus the demand for a higher premium for the longer option.","An expiration 2 years out will have Sqr(2) (yes the square root of 2!) times the premium of the 1 year expiration. So if the option a year out sell for $1.00, two is only $1.41. And if the stock trades for $10, but the strike is $12, why aren't you just waiting for expiration to write the next one?","\"SELL -10 VERTICAL $IYR 100 AUG 09 32/34 CALL @.80 LMT 1) we are talking about options, these are a derivative product whose price is based on 6 variables. 2) options allow you to create risk out of thin air, and those risks come with shapes, and the only limit is your imagination (and how much your margin/borrowing costs are). Whereas a simple asset like the shares for $IYR only has a linear risk profile. stock goes up, you make money, stock goes down, you lose money, and that risk graph looks linear. a \"\"vertical\"\" has a nonlinear risk profile 3) a vertical is a type of \"\"spread\"\" that requires holding options that expire at the same time, but at different strike prices. 3b) This particular KIND of vertical is called a bear call spread (BCS). Since you are bearish (this makes money if the stock goes down, or stays in a very specific range) but are using calls which are a bullish options product. 4) -10 means you are selling the vertical. +10 means you are buying the vertical. A \"\"long\"\" vertical is initiated by buying an option closer to the money, and selling an option at a higher strike price. This would be +X A \"\"short\"\" vertical is initiated by selling an option closer to the money and buying an option at a higher strike price. The quantity would be -X 5) 32/34 stands for the strike prices. so you would be selling 10 call options at the 32 strike price, and buying 10 call options at the 34 strike price, both options expire in August 6) LMT stands for limit order, and $.80 is the limit order price that is desired. OPENING a vertical spread requires knowledge of options as well as how to send orders. MANAGING a vertical requires even more finesse, as you can \"\"leg-in\"\" and \"\"leg-out\"\" of spreads, without sending the entire order to the exchange floor at once. There is much to learn.\"","As other answers state, selling the options contracts to the market is a definite way out, and probably the best in most cases. If you're determined to exercise your options (or there's not enough liquidity to reasonably sell your contracts to the market), then you could plan ahead and exercise smaller number of contracts at a time and sell the resulting position in the underlying, which will give you funds to exercise some more contracts and sell the underlying. If you think you're going down this path, however, make sure that you take into account your broker's rules for settlement. You may need to start the exercise / sell cycle before the option's expiration date.","The buyer pays $1.99/share for the option of selling a share of AMD to the seller for $10 which is currently $1.94 higher than the price of $8.06/share. If you bought the put and immediately exercised it, you would come out of the deal losing $.05/share."],"string":"[\n \"Don't know the name but it means you're long with conviction :P Unlimited gains, maximum loss of 95$ + (8-6) = 97$. Basically You are long @ 107 - -2 from 105 to 95. You would have to be ULTRA bullish to initiate this strategy.\",\n \"\\\"Can anyone explain what each of them mean and how they're different from each other? When you \\\"\\\"buy to open\\\"\\\", you are purchasing an option and opening a new position. When you \\\"\\\"sell to open\\\"\\\", you are creating a brand new options contract and selling it. \\\"\\\"Covered\\\"\\\" means that you have assets in your account to satisfy the terms of the options contract. A \\\"\\\"covered call\\\"\\\" is a call option for which you own shares of the underlying stock that you will sell to the buyer at the option's strike price if he exercises the option. If you previously made a \\\"\\\"sell to open\\\"\\\" trade to create a new position, and you want to close the position, you can buy back the option. If you previously made a \\\"\\\"buy to open\\\"\\\" trade, you can \\\"\\\"sell to close\\\"\\\" which will sell back your option and close your position. In summary:\\\"\",\n \"An option is freely tradable, and all options (of the same kind) are equal. If your position is 0 and you sell 1 option, your new position in that option is -1. If the counterparty to your trade buys or sells more options to close, open, or even reopen their position afterwards, that doesn't matter to your position at all. Of course there's also the issue with American and European Options. European Options expire at their due date, but American Options expire at their due date or at any time before their due date if the holder decides they expire. With American Options, if a holder of an American Option decides to exercise the option, someone who is short the same option will be assigned as the counterparty (this is usually random). Expiry is after market close, so if one of your short American Options expires early, you will need to reopen the position the next day. Keep in mind dividends for slightly increased complexity. American and European Options do not in any way refer to the continents they are traded on, or to the location of the companies. These terms simply describe the expiry rules.\",\n \"\\\"Write means sell to open. It is called that because options writers are creating (i.e. writing) new contracts. No such thing as \\\"\\\"reading\\\"\\\" an option.\\\"\",\n \"Put options are contracts to sell. You pay me a fee for the right to put the stock (or other underlying security) in my hands if you want to. That happens on a specific date (the strike date) and a specified price (the strike price). You can decide not to exercise that right, but I must follow through and let you sell it to me if you want to. Put options can be used by the purchaser to cap losses. For example: You purchase a PUT option for GE Oct19 13.00 from me. On October 19th, you can make me let you sell your GE stock to me for $13.00 a share. If the price for GE has fallen to $12.00, that would be a good idea. If its now at $15.00 a share, you will probably keep the GE or sell it at the current market price. Call options are contracts to buy. The same idea only in the other direction: You pay me a fee for the right to call the stock away from me. Calls also have a strike date and strike price. Like a put, you can choose not to exercises it. You can choose to buy the stock from me (on the strike date for the strike price), but I have to let you buy it from me if you want to. For example: You purchase a CALL option for GE Oct19 16.00 option from me. On October 19th, you can buy my GE stock from me for $16.00 a share. If the current price is $17.50, you should make me let you buy if from me for $16.00. If its less than $16.00, you could by it at the current market price for less. Commonly, options are for a block of 100 shares of the underlying security. Note: this is a general description. Options can be very complicated. The fee you pay for the option and the transaction fees associated with the shares affects whether or not exercising is financially beneficial. Options can be VERY RISKY. You can loose all your money as there is no innate value in the option, only how it relates to the underlying security. Before your brokerage will let you trade, there are disclosures you must read and affirm that you understand the risk.\",\n \"\\\"I strongly suggest you read up the Option Greeks. You can be right about a stocks price movement and still not make money b/c other factors come into play from time or volatility. For a \\\"\\\"free\\\"\\\" option hedge you can look at collars. Buying puts and selling calls to offset the debit you pay for the transaction. Ex: AAPL is 115, You buy the 110 puts and sell the 120 calls. This gives you a collar around he current price. Your hedged below 110 and can still participate in upside move to 120. Also look into time value. Time decays exponentially in the last 30 days. If you are long this hurts you, if you are short(selling) this is good. Be sure to take this into account. Delta: relation of the option to the underlying stock move on a .01-1 scale, .50 is \\\"\\\"normal.\\\"\\\" Deep in the money options have higher deltas. It is possible other factors can offset this delta move. This is why people will lose money on earnings plays even though they are right. EX: Say you buy an AAPL call at 120, earnings comes out and the stock goes to 121. Even though you are \\\"\\\"in the money\\\"\\\" your contract may still have less value than what you paid because of VOLATILITY collapse. The market place knows earnings move a stock and that is factored into the price of the options expected volatility. As mentioned watch out for dividend dates. Always be aware of dividend dates and earnings dates and if your contract is going to cover one of these events. Interest rates have an effect as well but since the Fed has near 0 rates there is little impact at the present. Though this could certainly change if the fed starts raising rates. Research the Black Scholes Pricing model. Whenever you trade always think about what the other guys is thinking. Sometimes we forget their is someone else on the other side of my trade that thinks essentially the exact opposite of me. Its a zero sum game. As far as choosing strikes you can look at calculating the At THe money straddle to see if the options are \\\"\\\"cheap\\\"\\\" [stock Price * Implied Volatility (for 30, 60, 90 days Depending on your holding period)* Sq root of days to expiration] / 19 (which is sq root of days/yr) Add and subtract this number to the current stock price to give you an approximate 1 standard deviation of expected price movement. Keeping with our example. AAPL at 115, lets say your formula spits out a 6; therefore price range is expected to be 109 to 121 for the time period. Helpful for selling options, I would sell the 122 call or the 108 puts. Hope this helps. Start small and get a feel for things.\\\"\",\n \"based on my understanding of your query...well you need to understand ATM and ITM options. The delta and gamma factor specifically. Usually delta of ATM is around 0.5 while ITM option is above than that say 0.6 or 0.8 or 0.9 and deep ITM is very close to 1. for every movement of 1 buck the ITM will move say 1.6, ATM 0.5 and OTM 0.3 approx Say a ABC stock price is Rs. 300 so if you check option chart you try to see which one is closer. Suppose you find strikeprice of 320 / 300 / 280. So 320 is ITM, 300 is ATM and 280 is OTM for call options. So will the delta value (e.g 0.66 / 0.55 / 0.35). So suppose if stock price rise by 7% i.e Rs. 321 then strikeprice will rise simultaneously. Say ATM CE300 is rs.10 it will start rising by 0.55 i.e. Rs.10.55. The moment the share price move from Rs.300 to Rs.320 your ATM will turn to ITM. Now the tricker part if you buy OTM and the share price rise by 15% your OTM will now become ITM and your profit will roll around 100% to 120% approx. Hope it answers your query\",\n \"Out of the money options often have the biggest changes in value, when the stock moves upward. This person could also gain, by the implied (underlying) volatility of the stock rising if it moves erratically to either side. Still seems to be a very risky game, given only 4 days to expiry.\",\n \"Options, both puts and calls, are typically written/sold at different strike prices. For example, even though the stock of XYZ is currently trading at $12.50, there could be put options for prices ranging from $0.50 to $30.00, just as an example. There are several factors that go into determining the strike prices at which people are willing to write options. The writer/seller of an option is the person on the other side of the trade that has the opposite opinion of you. If you are interested in purchasing a put on a stock to hedge your downside, that means the writer/seller of the put is betting that you are wrong and that the stock price will rise instead.\",\n \"\\\"A 'Call' gives you the right, but not the obligation, to buy a stock at a particular price. The price, called the \\\"\\\"strike price\\\"\\\" is fixed when you buy the option. Let's run through an example - AAPL trades @ $259. You think it's going up over the next year, and you decide to buy the $280 Jan11 call for $12. Here are the details of this trade. Your cost is $1200 as options are traded on 100 shares each. You start to have the potential to make money only as Apple rises above $280 and the option trades \\\"\\\"in the money.\\\"\\\" It would take a move to $292 for you to break even, but after that, you are making $100 for each dollar it goes higher. At $300, your $1200 would be worth $2000, for example. A 16% move on the stock and a 67% increase on your money. On the other hand, if the stock doesn't rise enough by January 2011, you lose it all. A couple points here - American options are traded at any time. If the stock goes up next week, your $1200 may be worth $1500 and you can sell. If the option is not \\\"\\\"in the money\\\"\\\" its value is pure time value. There have been claims made that most options expire worthless. This of course is nonsense, you can see there will always be options with a strike below the price of the stock at expiration and those options are \\\"\\\"in the money.\\\"\\\" Of course, we don't know what those options were traded at. On the other end of this trade is the option seller. If he owns Apple, the sale is called a \\\"\\\"covered call\\\"\\\" and he is basically saying he's ok if the stock goes up enough that the buyer will get his shares for that price. For him, he knows that he'll get $292 (the $280, plus the option sale of $12) for a stock that is only $259 today. If the stock stays under $280, he just pocketed $12, 4.6% of the stock value, in just 3 months. This is why call writing can be a decent strategy for some investors. Especially if the market goes down, you can think of it as the investor lowering his cost by that $12. This particular strategy works best in a flat to down market. Of course in a fast rising market, the seller misses out on potentially high gains. (I'll call it quits here, just to say a Put is the mirror image, you have the right to sell a stock at a given price. It's the difference similar to shorting a stock as opposed to buying it.) If you have a follow up question - happy to help. EDIT - Apple closed on Jan 21, 2011 at $326.72, the $280 call would have been worth $46.72 vs the purchase price of $12. Nearly 4X return (A 289% gain) in just over 4 months for a stock move of 26%. This is the leverage you can have with options. Any stock could just as easily trade flat to down, and the entire option premium, lost.\\\"\",\n \"On expiry, with the underlying share price at $46, we have : You ask : How come they substract 600-100. Why ? Because you have sold the $45 call to open you position, you must now buy it back to close your position. This will cost you $100, so you are debited for $100 and this debit is being represented as a negative (subtracted); i.e., -$100 Because you have purchased the $40 call to open your position, you must now sell it to close your position. Upon selling this option you will receive $600, so you are credited with $600 and this credit is represented as a positive (added) ; i.e., +$600. Therefore, upon settlement, closing your position will get you $600-$100 = $500. This is the first point you are questioning. (However, you should also note that this is the value of the spread at settlement and it does not include the costs of opening the spread position, which are given as $200, so you net profit is $500-$200 = $300.) You then comment : I know I am selling 45 Call that means : As a writer: I want stock price to go down or stay at strike. As a buyer: I want stock price to go up. Here, note that for every penny that the underlying share price rises above $45, the money you will pay to buy back your short $45 call option will be offset by the money you will receive by selling the long $40 call option. Your $40 call option is covering the losses on your short $45 call option. No matter how high the underlying price settles above $45, you will receive the same $500 net credit on settlement. For example, if the underlying price settles at $50, then you will receive a credit of $1000 for selling your $40 call, but you will incur a debit of $500 against for buying back your short $45 call. The net being $500 = $1000-$500. This point is made in response to your comments posted under Dr. Jones answer.\",\n \"\\\"Whether or not you make money here depends on whether you are buying or selling the option when you open your position. You certainly would not make money in the scenario where you are buying options at the open. If fact you would end up loosing quite a lot of money. You do not specify whether you are buying or selling the options, so let's assume that you are buying both the call and the put. We'll look a profitable trade at the bottom of my answer. Buying an in-the-money Call option with a strike price of $90 when the underlying asset price is $150 would cost you a small fraction over $6000 = (100 x $60) since the intrinsic value value of the option is $60. Add to this cost any commission charged by your broker. Buying an out-of-the-money Put option with a strike price of $110 when the underlying asset price is $150 would cost you a \\\"\\\"small\\\"\\\" premium - lets say a premium of something like $0.50. The option has no intrinsic value, only time value and a volatility value, so the exact cost would depend on the time to expiry and the implied volatility of the underlying asset. Since the strike price is \\\"\\\"well out of the money\\\"\\\", being about 27% below the underlying asset price, the premium would be small. So, assuming the premium of $0.50, you would pay $50 for the option plus any commission applicable. The cash settlement on expiry, with an underlying settlement price of $100, would be a premium of $10 for each of the two options, so you would receive cash of 100 x ($10 + $10) = $2000, less any commission applicable. However, you have paid $6000 + $50 to purchase the options, so you realise a net loss of $6050 - $2000 = $4050 plus any commissions applicable. Thus, you would make a profit on the put option, but you would realise a very large loss on the call option. On the other hand, if you open your position by selling the call option and buying the put option, then you would make money. For the sale of the call option you would receive about $6000. For the purchase of the put option you would pay about $50. On settlement, you would pay $1000 to buy back the call option and you would receive about $1000 when selling the put option. Thus you net profit would be about ($6000 - $1000) for the call position, and ($1000 - $50) for the put position. The net profit would then total $5950 less an commissions payable.\\\"\",\n \"An option gives you the option rather than the obligation to buy (or sell) the underlying so you don't have to exercise you can just let the option expire (so long it doesn't have an automatic expiry). After expiration the option is worthless if it is out of the money but other than that has no hangover. Option prices normally drop as the time value of the option decays. An option has two values associated with it; time value and exercise value. Far out of the money (when the price of the underlying is far from the strike price on the losing side) options only have time value whereas deep in the money options (as yours seems to be) has some time value as well as the intrinsic value of the right to buy (sell) at a low (high) price and then sell (buy) the underlying. The time value of the option comes from the possibility that the price of the underlying will move (further) in your favour and make you more money at expiry. As expiry closes it is less likely that there will be a favourable mood so this value declines which can cause prices to move sharply after a period of little to no revaluing. Up to now what I have said applies to both OTC and traded options but exchange traded options have another level of complexity in their trading; because there are fewer traders in the options market the size of trade at which you can move the market is much lower. On the equities markets you may need to trade millions of shares to have be substantial enough to significantly move a price, on the options markets it could be thousands or even hundreds. If these are European style options (which sounds likely) and a single trading entity was holding a large number of the exchange traded options and now thinks that the price will move significantly against them before expiry their sell trade will move the market lower in spite of the options being in the money. Their trade is based on their supposition that by the time they can exercise the option the price will be below the strike and they will lose money. They have cashed out at a price that suited them and limited what they will lose if they are right about the underlying. If I am not correct in my excise style assumption (European) I may need more details on the trade as it seems like you should just exercise now and take the profit if it is that far into the money.\",\n \"\\\"The two dimensions are to open the trade (creating a position) and to buy or sell (becoming long or short the option). If you already own an option, you bought it to open and then you would sell it to close. If you don't own an option, you can either buy it to open, or sell it (short it) to open. If you are already short an option, you can buy it back to close. If you sell to open covered, the point is you're creating a \\\"\\\"covered call\\\"\\\" which means you own the stock, and then sell a call. Since you own the stock, the covered call has a lot of the risk of loss removed, though it also subtracts much of the reward possible from your stock.\\\"\",\n \"Being long something is the same as owning it (generally). Being short something is the same as selling it, with the intention (actually obligation) of buying it back in the future. Being 'short' means that you benefit when the price falls. A call is the right to buy a financial asset, most often a share, at some price agreed upon now, while the the right extends for some defined time into the future. A put is the right to sell something you already own for some price defined now but the right extends for some period into the future. A swaption is an option to enter into a swap. A swap is an agreement to trade cash-flows at defined points in the future, usually some fixed rate for some floating rate (say LIBOR+200bps). EDIT: Clarified puts.\",\n \"\\\"Yes, long calls, and that's a good point. Let's see... if I bought one contract at the Bid price above... $97.13 at expiry of $96.43 option = out of the money =- option price(x100) = $113 loss. $97.13 at expiry of $97.00 option = out of the money =- option price(x100) = $77 loss. $97.13 at expiry of $97.14 option = in the money by 1-cent=$1/contract profit - option price(x100) = $1-$58 = $57 loss The higher strike prices have much lower losses if they expire with the underlying stock at- or near-the-money. So, they carry \\\"\\\"gentler\\\"\\\" downside potential, and are priced much higher to reflect that \\\"\\\"controlled\\\"\\\" risk potential. That makes sense. Thanks.\\\"\",\n \"So, child, your goal is to make money? This is usually achieved by selling goods (say, lemonade) at a price that exceeds their cost (say, sugar, water and, well, lemons). Options, at first, are very much same in that you can buy the right to engage in a specific future trade. You make money in this situation if the eventual returns from the scheduled trade cover the cost of purchasing the option. Otherwise you can simply opt out of the trade -- you purchased the right to trade, after all, not any type of obligation. Makes sense? Good. Because what follows is what makes options a little different. That is, if you sell that same right to engage in a specific trade the situation is seemingly reversed: you lock in your return at the outset, but the costs aren't fully realized until the trade is either consumed or declined by the owner of the option. And keep in mind that it is always the owner of the option who is in the driver's seat; they may sell the option, hold on to it and do nothing, or use it to engage in the anticipated trade. And that's really all there's to it.\",\n \"\\\"Put Options for Kids: You have a big box of candy bars. You saved up your allowance to get a lot of them, so you could have one whenever you want one. But, you just saw a commercial on TV for a new toy coming out in one month. Your allowance alone won't buy it, and you want that toy more than you want the candy. So, you decide that you'll sell the candy to your friends at school to buy the toy. Now, you have a choice. You can sell the candy now, and put the money in your piggy bank to buy the toy later. Or, you can save the candy, and sell it in a month when you actually need the money to buy the toy. You know that if you sell all the candy you have today, you can get 50 cents a bar. That's not quite enough to buy the toy, but your allowance will cover the rest. What you don't know is how much you might be able to sell the candy for in a month. You might be able to get 75 cents a bar. If you did, you could pay for the toy with just the money from the candy and even have some left over. But, you might only be able to sell them for 25 cents each, and you wouldn't have enough to buy the toy even with your allowance. You'd like to wait and see if you could get 75 cents each, but you don't want to risk getting only 25 cents each. So, you go to your father. He and his co-workers like these candy bars too, so he'd be willing to buy them all and sell them to his friends the way you're planning to do with yours. You ask for the option to sell him all the candy bars for 50 cents each in one month. If you find out you can get more for them at school, you want to be able to take that deal, but if you can't sell them for 50 cents at school, you'll sell them to your dad. Now, your dad knows that he could have the same problem selling the candy at 50 cents or more that you are afraid of. So, he offers a compromise. If you pay him $5 now, he'll agree to the deal. You figure that even without that $5, between your allowance and the candy money, you can still buy the toy. So, you take the deal. In one month, you can offer the candy at school. If nobody will pay 50 cents, you can sell the candy to your dad when you get home, but if the kids at school will pay 50 cents or more, you can sell it all at school. Either way, you have enough money to buy the toy, and you can also choose which price to accept, but you had to pay your dad $5, and you can't get that back, so if it turns out that you can sell the candy at school for 50 cents, same as today, then because you paid the $5 you don't end up with as much as if you'd simply waited. In the financial market, this type of option is a \\\"\\\"put option\\\"\\\". Someone who owns something that's traded on the market, like a stock, can arrange to sell that stock to someone else at an agreed-on price, and the seller can additionally pay some money to the buyer up front for the option to not sell at that price. Now, if the stock market goes up, the seller lets the contract expire and sells his stock on the open market. If it goes down, he can exercise the option, and sell at the agreed-upon price to the buyer. If, however, the stock stays about the same, whether he chooses to sell or not, the money the seller paid for the option means he ends up with less than he would have if he hadn't bought the option. Call Options for Kids: Let's say that you see another ad on TV for another toy that you like, that was just released. You check the suggested retail price on the company's web site, and you see that if you save your allowance for the next month, you can buy it. But, in school the next day, everybody's talking about this toy, saying how they want one. Some already have enough money, others are saving up and will be able to get it before you can. You're afraid that because everyone else wants one, it'll drive up the price for them at the local store, so that your month's allowance will no longer buy the toy. So, you go to your dad again. You want to be able to use your allowance money for the next month to buy the new toy. You're willing to wait until you actually have the money saved up before you get the toy, but you need that toy in a month. So, you want your dad to buy one for you, and hold it until you can save up to buy it from him. But, you still want it both ways; if the price goes down in a month because the toy's not so new anymore and people don't want it, you don't want to spend your entire month's allowance buying the one from your dad; you just want to go to the store and buy one at the lower price. You'll pay him $5 for the trouble, right now, whether you buy the toy he got you or not. Your dad doesn't want to have a toy he's not using sitting around for a month, especially if you might not end up buying it from him, so he offers a different deal; In one month, if you still want it, he'll stop by the store on his way home and pick up the toy. You'll then reimburse him from the allowance you saved up; if it ends up costing less than a month's allowance, so be it, but if it costs more than that, you won't have to pay any more. This will only cost you $3, because it's easier for him. But, because he's not buying it now, there is a small chance that the item will be out of stock when he goes to buy it, and you'll have to wait until it's back in stock. You agree, on the condition that if you have to wait longer than a month for your toy, because he couldn't get one to sell you, he pays you back your $3 and knocks another $5 off the cost to buy the toy from him. The basic deal to buy something at an agreed price, with the option not to do so, is known as a \\\"\\\"call option\\\"\\\". Someone who wishes to buy some stocks, bonds or commodities at a future date can arrange a deal with someone who has what they want to buy them at a specific price. The buyer can then pay the seller for the option to not buy. The counter-offer Dad made, where he will buy the toy from the store at whatever price he can find it, then sell it to you for the agreed price, is known as a \\\"\\\"naked call\\\"\\\" in finance. It simply means that the seller, who is in this case offering the option to the buyer, doesn't actually have what they are agreeing to sell at the future date, and would have to buy it on the open market in order to turn around and sell it. This is typically done when the seller is confident that the price will go down, or won't go up by much, between now and the date of the contract. In those cases, either the buyer won't exercise the option and will just buy what they want on the open market, or they'll exercise the option, but the difference between what the seller is paying to buy the commodity on the market and what he's getting by selling it on contract is within the price he received for the option itself. If, however, the price of an item skyrockets, the seller now has to take a significant, real loss of money by buying something and then selling it for far less than he paid. If the item flat-out isn't available, the buyer is usually entitled to penalties for the seller's failure to deliver. If this is all understood by both parties, it can be thought of as a form of insurance.\\\"\",\n \"While open interest usually correlates to volume, the mark of liquidity is the bid ask spread. Even when trading options with spreads as large as an ask 2x the bid, a more realistic price that traders are willing to accept lies somewhere in the middle. Any option can easily be exited at intrinsic value: underlying price - exercise price for calls, exercise price - underlying price for puts. For illiquid options, this will be the best price obtained. For longer term options, something closer to the theoretical price is still possible. If an underlying is extremely liquid, yet the options aren't quite then options traders will be much more ready to trade at the theoretical price. For exiting illiquid options, small, < 4 contracts, and infrequent, > 30 minute intervals, orders are more likely to be filled closer to the theoretical price; however, if one's sells are the only trades, traders on the other side will take note and accept ever lowering implied volatilities. With knowledge of what traders will accept, it is always more optimal to trade out of options rather than exercise because of the added costs and uncertainty involved with exercising and liquidating.\",\n \"What it means is that the stock has already moved down. Options and other derivatives follow the price of the underlying they are not a precursor to what the underlying is going to do. In other words, the price of a derivative is derived from the underlying.\",\n \"Option contracts typically each represent 100 shares. So the 1 call contract you sold to open (wrote) grants the buyer of that option the right to purchase your 100 shares for $80.00 per share any time before the option expiration date. You were paid a gross amount of $100 (100 shares times $1.00 premium per share) for taking on the obligation to deliver should the option holder choose to exercise. You received credit in your account of $89.22, which ought to be the $100 less any trading commission (~$10?) and miscellaneous fees (regulatory, exchange, etc.) per contract. You did capture premium. However, your covered call write represents an open short position that, until either (a) the option expires worthless, or (b) is exercised, or (c) is bought back to close the position, will continue to show on your account as a liability. Until the open position is somehow closed, the value of both the short option contract and long stock will continue to fluctuate. This is normal.\",\n \"There are many stategies with options that you have listed. The one I use frequently is buy in the money calls and sell at the money staddles. Do this ONLY on stocks you do not mind owning because that is the worse thing that can happen and if you like the company you stand less of a chance of being scared out of the trade. It works well with high quality resonable dividend paying stocks. Cat, GE, Mrk, PM etc. Good luck\",\n \"\\\"As already noted, options contain inherent leverage (a multiplier on the profit or loss). The amount of \\\"\\\"leverage\\\"\\\" is dictated primarily by both the options strike relative to the current share price and the time remaining to expiration. Options are a far more difficult investment than stocks because they require that you are right on both the direction and the timing of the future price movement. With a stock, you could choose to buy and hold forever (Buffett style), and even if you are wrong for 5 years, your unrealized losses can suddenly become realized profits if the shares finally start to rise 6 years later. But with options, the profits and losses become very final very quickly. As a professional options trader, the single best piece of advice I can give to investors dabbling in options for the first time is to only purchase significantly ITM (in-the-money) options, for both calls and puts. Do a web search on \\\"\\\"in-the-money options\\\"\\\" to see what calls or puts qualify. With ITM options, the leverage is still noticeably better than buying/selling the shares outright, but you have a much less chance of losing all your premium. Also, by being fairly deep in-the-money, you reduce the constant bleed in value as you wait for the expected move to happen (the market moves sideways more than people usually expect). Fairly- to deeply-ITM options are the ones that options market-makers like least to trade in, because they offer neither large nor \\\"\\\"easy\\\"\\\" premiums. And options market-makers make their living by selling options to retail investors and other people that want them like you, so connect the dots. By trading only ITM options until you become quite experienced, you are minimizing your chances of being the average sucker (all else equal). Some amateur options investors believe that similar benefits could be obtained by purchasing long-expiration options (like LEAPS for 1+ years) that are not ITM (like ATM or OTM options). The problem here is that your significant time value is bleeding away slowly every day you wait. With an ITM option, your intrinsic value is not bleeding out at all. Only the relatively smaller time value of the option is at risk. Thus my recommendation to initially deal only in fairly- to deeply-ITM options with expirations of 1-4 months out, depending on how daring you wish to be with your move timing.\\\"\",\n \"\\\"In general there are two types of futures contract, a put and call. Both contract types have both common sides of a transaction, a buyer and a seller. You can sell a put contract, or sell a call contract also; you're just taking the other side of the agreement. If you're selling it would commonly be called a \\\"\\\"sell to open\\\"\\\" meaning you're opening your position by selling a contract which is different from simply selling an option that you currently own to close your position. A put contract gives the buyer the right to sell shares (or some asset/commodity) for a specified price on a specified date; the buyer of the contract gets to put the shares on someone else. A call contract gives the buyer the right to buy shares (or some asset/commodity) for a specified price on a specified date; the buyer of the contract gets to call on someone for shares. \\\"\\\"American\\\"\\\" options contracts allow the buyer can exercise their rights under the contract on or before the expiration date; while \\\"\\\"European\\\"\\\" type contracts can only be exercised on the expiration date. To address your example. Typically for stock an option contract involves 100 shares of a stock. The value of these contracts fluctuates the same way other assets do. Typically retail investors don't actually exercise their contracts, they just close a profitable position before the exercise deadline, and let unprofitable positions expire worthless. If you were to buy a single call contract with an exercise price of $100 with a maturity date of August 1 for $1 per share, the contract will have cost you $100. Let's say on August 1 the underlying shares are now available for $110 per share. You have two options: Option 1: On August 1, you can exercise your contract to buy 100 shares for $100 per share. You would exercise for $10,000 ($100 times 100 shares), then sell the shares for $10 profit per share; less the cost of the contract and transaction costs. Option 2: Your contract is now worth something closer to $10 per share, up from $1 per share when you bought it. You can just sell your contract without ever exercising it to someone with an account large enough to exercise and/or an actual desire to receive the asset or commodity.\\\"\",\n \"\\\"It's talked about quite often among more experienced investors. They were/ are used extensively by hedge funds. Keep in mind that if your option expires when not \\\"\\\"in the money\\\"\\\" you lose the premium you paid for the purchase of the option. That's where the risk comes in. I've grown really interested in options over the last couple months. Check out McMillan's Guide to Options. It's generally thought of as the quintessential beginners guide to understanding options. Good luck!\\\"\",\n \"The answer is that the trader is hoping to profit from a potential rise in Implied volatility. He is isolating his exposure to IV only and mitigating his risk to the directional move of the underlying by hedging with the underlying. Basically, his delta is neutral. His gamma is positive and a potential source of profit, and his theta is negative which is a potential source of loss. He hopes that the profits from long gamma will overcome the loss from the short theta. he achieves this by actively gamma scalping to remain delta neutral over the life of the option.\",\n \"Think of options as insurance. An insurance company makes money by selling the policies at a rate slightly higher than the average payout. Most options expire worthless. This is because most options are purchased by hedge funds. To 'hedge' means taking out insurance in case your position goes against you. So the sellers of options obtain a price that covers their (averaged) losses plus provides them with a profit for their trouble. An option has an amount that it declines in value each day (called theta). At the expiration date the option is worth zero (if it is out-of-the-money). So it is option writers that, typically, make money in the options market (as they are the sellers of insurance). If they didn't make money selling options they would not sell them. For example, the February call option on SPY strike 200 traded at 8.81 on 12/30. Since then it has crumbled in value to 0.14. The option writer currently stands to make a huge profit. So, just as with insurance, you (generally) never make money by buying insurance. But the sellers of insurance tend to make money as do the writers of options. Edit: Theta @ Investopedia\",\n \"1.45 and 1.40 are the last trade prices. The last trade (1.45) for the 27 strike call must have occurred earlier than the last trade (1.40) for the 26 strike call. These options have low liquidity and don't trade very often. You have to look at the bid and ask prices to see what people are currently bidding and asking for those options. As you can see, the premium based on the bids and asks does decrease the further you go out of the money.\",\n \"\\\"I look for buying a call option only at the money, but first understand the background above: Let's suppose X stock is being traded by $10.00 and it's January The call option is being traded by $0.20 with strike $11.00 for February. (I always look for 2% prize or more) I buy 100 stocks by $10.00 each and sell the option, earning $0.20 for each X stock. I will have to deliver my stocks by $11.00 (strike value agreed). No problem for me here, I took the prize plus the gain of $1.00. (continuing from item 3) I still can sell the option for the next month with strike equal or higher than that I bought. For instance, I can sell a call option of strike $10.00 and it might be worth to deliver stocks by $10.00 and take the prize. (continuing from item 3) Probably, it won't be possible to sell a call option with strike at the price that I paid for the stock, but that's not a problem. At the end of the option life (in February), the strike was $11.00 but the stock's price is $8.00. I got the $0.20 as prize and my stocks are free for trade again. I'll sell the call option for March with strike $9.00 (taking around 2% of prize). Well, I don't want to sell my stocks by $9.00 and make loss, right? But I'm selling the call option anyway. Then I wait till the price of the stock gets near the strike value (almost ATM) and I \\\"\\\"re-buy\\\"\\\" the option sold (Example: [StockX]C9 where C means month = March) and sell again the call option with higher strike to April (Example [StockX]D10, where D means month = April) PS.: At item 9 there should be no loss between the action of \\\"\\\"re-buy\\\"\\\" and sell to roll-out to the next month. When re-buying it with the stock's price near the strike, option value for March (C9) will be lower than when selling it to April (D10). This isn't any rule to be followed, this is just a conservative (I think they call it hedge) way to handle options and stocks. Few free to make money according to your goals and your style. The perfect rule is the one that meet your expectation, don't take the generalized rules too serious.\\\"\",\n \"If any academic framework worked, your teachers would be the richest people on the planet. However, you must read up on macro and micro economic factors and make an educated guess where the market(or stock) would be at the date of expiry. Subtract the Strike Price from your determined price and calculate your potential profit. Then, if you are getting paid more or less the same thing as of today, sell it and switch to a safer investment till expiry (For example:- Your potential profit was $10, but you are getting $9 as of today, you can sell it and earn interest(Safer investment) for the remaining time.) Its just like buying and selling stocks. You must set a target and must have a stop loss. Sell when you reach that target, and exit if you hit the stop loss. If you have none of these, you will always be confused(Personal experience).\",\n \"\\\"Writing options means \\\"\\\"selling\\\"\\\" options and \\\"\\\"put\\\"\\\" options are contracts to sell a defined security (the underlying), at a specific date (expiration date) and at a specific price (strike price). So, writing put options simply mean selling to others contracts to sell. Your profit is limited to the premium but your loss may be unlimited in a falling market.\\\"\",\n \"Marketwatch reports that the 108 strike call option sells for 1.45, down 1.53 from yesterday. If we split the bid and ask you get 1.415. That is what that contract will, likely, trade at. The biggest problems with options are commissions and liquidity. I have seen a commission as high as $45 per trade. I have also seen open interest disappear overnight. Even if you obtain contracts that become worth more than you paid for them you may find that no one wants to pay you what they are worth. Track your trade over a few weeks to see how you would have done. It is my experience that the only people who make money on options are the brokers.\",\n \"Options reflect expectations about the underlying asset, and options are commonly priced using the Black-Scholes model: N(d1) and N(d2) are probability functions, S is the spot (current) price of the asset, K is the strike price, r is the risk free rate, and T-t represents time to maturity. Without getting into the mathematics, it suffices to say that higher volatility or expectation of volatility increases the perceived riskiness of the asset, so call options are priced lower and put options are priced higher. Think about it intuitively. If the stock is more likely to go downwards, then there's an increased chance that the call option expires worthless, so call options must be priced lower to accommodate the relative change in expected value of the option. Puts are priced similarly, but they move inversely with respect to call option prices due to Put-Call parity. So if call option prices are falling, then put option prices are rising (Note, however, that call prices falling does not cause put prices to rise. The inverse relationship exists because of changes in the underlying factors and how pricing works.) So the option action signifies that the market believes the stock is headed lower (in the given time frame). That does not mean it will go lower, and option traders assume risk whenever they take a particular position. Bottom line: gotta do your own homework! Best of luck.\",\n \"\\\"First, welcome to Money.SE. The selected page is awful. I don't know the value in listing different expirations at the same strike. Usually, all the strikes are grouped by month, so I'd be looking at Jan '15 across all strikes. \\\"\\\"In the money\\\"\\\" means the price of a stock is trading above the strike price, if a call, or below it, if a put. On 10/20 of some year, Intel was trading at $23.34. The January $25 call strike was just $0.70, and April's was $1.82. These were out of the money. The $25 puts were \\\"\\\"in the money\\\"\\\" by $1.66 so you could have paid $1.90 for the Jan $25 put, with $.24 of time premium. By November, the price rose and the put fell, to $.85, all time premium. As with stocks, the key thing is to only buy calls of stock that are going to go up. If a stock will fall, buy puts. Curious, what was the class discussion just before the teacher gave you this image?\\\"\",\n \"Intuitive? I doubt it. Derivatives are not the simplest thing to understand. The price is either in the money or it isn't. (by the way, exactly 'at the money' is not 'in the money.') An option that's not in the money has time value only. As the price rises, and the option is more and more in the money, the time value drops. We have a $40 stock. It makes sense to me that a $40 strike price is all just a bet the stock will rise, there's no intrinsic value. The option prices at about $4.00 for one year out, with 25% volatility. But the strike of $30 is at $10.68, with $10 in the money and only .68 in time premium. There's a great calculator on line to tinker with. Volatility is a key component of options trading. Think about it. If a stock rises 5%/yr but rarely goes up any more or less, just steady up, why would you even buy an option that was even 10% out of the money? The only way I can describe this is to look at a bell curve and how there's a 1/6 chance the event will be above one standard deviation. If that standard deviation is small, the chance of hitting the higher strikes is also small. I wrote an article Betting on Apple at 9 to 2 in which I describe how a pair of option trades was set up so that a 35% rise in Apple stock would return 354% and Apple had two years to reach its target. I offer this as an example of options trading not being theory, but something that many are engaged in. What I found curious about the trade was that Apple's volatility was high enough that a 35% move didn't seem like the 4.5 to 1 risk the market said it was. As of today, Apple needs to rise 13% in the next 10 months for the trade to pay off. (Disclosure - the long time to expiration was both good and bad, two years to recover 35% seemed reasonable, but 2 years could bring anything in the macro sense. Another recession, some worldwide event that would impact Apple's market, etc. The average investor will not have the patience for these long term option trades.)\",\n \"\\\"The question you are asking concerns the exercise of a short option position. The other replies do not appear to address this situation. Suppose that Apple is trading at $96 and you sell a put option with a strike price of $95 for some future delivery date - say August 2016. The option contract is for 100 shares and you sell the contract for a premium of $3.20. When you sell the option your account will be credited with the premium and debited with the broker commission. The premium you receive will be $320 = 100 x $3.20. The commission you pay will depend on you broker. Now suppose that the price of Apple drops to $90 and your option is exercised, either on expiry or prior to expiry. Then you would be obliged to take delivery of 100 Apple shares at the contracted option strike price of $95 costing you $9,500 plus broker commission. If you immediately sell the Apple shares you have purchased under your contract obligations, then assuming you sell the shares at the current market price of $90 you would realise a loss of $500 ( = 100x($95-$90) )plus commission. Since you received a premium of $320 when you sold the put option, your net loss would be $500-$320 = $180 plus any commissions paid to your broker. Now let's look at the case of selling a call option. Again assume that the price of Apple is $96 and you sell a call option for 100 shares with a strike price of $97 for a premium of $3.60. The premium you receive would be $360 = 100 x $3.60. You would also be debited for commission by your broker. Now suppose that the price of Apple shares rises to $101 and your option is exercised. Then you would be obliged to deliver 100 Apple shares to the party exercising the option at the contracted strike price of $97. If you did not own the shares to effect delivery, then you would need to purchase those shares in the market at the current market price of $101, and then sell them to the party exercising the option at the strike price of $97. This would realise an immediate loss of $400 = 100 x ($101-$97) plus any commission payable. If you did own the shares, then you would simply deliver them and possibly pay some commission or a delivery fee to your broker. Since you received $360 when you sold the option, your net loss would be $40 = $400-$360 plus any commission and fees payable to the broker. It is important to understand that in addition to these accounting items, short option positions carry with them a \\\"\\\"margin\\\"\\\" requirement. You will need to maintain a margin deposit to show \\\"\\\"good faith\\\"\\\" so long as the short option position is open. If the option you have sold moves against you, then you will be called upon to put up extra margin to cover any potential losses.\\\"\",\n \"Today SPY (The S&P ETF) trades at $128. The option to buy at $140 (this is a Jan '13 call) trades for $5. I buy the call, for $500 as they trade in 100 lots. The S&P skyrockets to 1500 and SPY to $150. The call trades for $11, as it still has a month or two before expiring, so I sell it, and get $1100. The S&P rose 17%, but I doubled my money. If it 'only' rose 9%, to less than $140, I'd lose my investment. No, I don't need to buy the SPY I can sell the call any time before expiration. In fact, most options are not exercised, they are sold between purchase and expiration date.\",\n \"Here's a simple example for a put, from both sides. Assume XYZ stock trades at $200 right now. Let's say John writes a $190 out of the money put on XYZ stock and sells this put to Abby for the premium, which is say $5. Assume the strike date, or date of settlement, is 6 months from now. Thus Abby is long one put option and John is short one put option (the writer of the option is short the option). On settlement date, let's assume two different scenarios: (1) If the price of the stock decreases by $50, then the put that Abby bought is 'in the money'. Abby's profit can be calculated as being strike price 190 - current stock price 150 - premium paid 5 = $35 So not including any transaction fees, that is a $35 dollar return on a $5 investment. (2) If the price of the stock increases by $50, then the put that Abby bought is worthless and her loss was 100%, or her entire $5 premium. For John, he made $5 in 6 months (in reality you need collateral and good credit to be able to write sizable option positions).\",\n \"\\\"Great answer by @duffbeer. Only thing to add is that the option itself becomes a tradeable asset. Here's my go at filling out the answer from @duffbeer. \\\"\\\"Hey kid... So you have this brand-new video game Manic Mazes that you paid $50 for on Jan 1st that you want to sell two months from now\\\"\\\" \\\"\\\"Yes, Mr. Video Game Broker, but I want to lock in a price so I know how much to save for a new Tickle Me Elmo for my baby sister.\\\"\\\" \\\"\\\"Ok, for $3, I'll sell you a 'Put' option so you can sell the game to me for $40 in two months.\\\"\\\" Kid says \\\"\\\"Ok!\\\"\\\", sends $3 to Mr Game Broker who sends our kid a piece of paper saying: The holder of this piece of paper can sell the game Manic Mazes to Mr Game Broker for $40 on March 1st. .... One month later .... News comes out that Manic Mazes is full of bugs, and the price in the shops is heavily discounted to $30. Mr Options Trader realizes that our kid holds a contract written by Mr Game Broker which effectively allows our kid to sell the game at $10 over the price of the new game, so maybe about $15 over the price in the second-hand market (which he reckons might be about $25 on March 1st). He calls up our kid. \\\"\\\"Hey kid, you know that Put option that Mr Game Broker sold to you you a month ago, wanna sell it to me for $13?\\\"\\\" (He wants to get it a couple of bucks cheaper than his $15 fair valuation.) Kid thinks: hmmm ... that would be a $10 net profit for me on that Put Option, but I wouldn't be able to sell the game for $40 next month, I'd likely only get something like $25 for it. So I would kind-of be getting $10 now rather than potentially getting $12 in a month. Note: The $12 is because there could be $15 from exercising the put option (selling for $40 a game worth only $25 in the second-hand market) minus the original cost of $3 for the Put option. Kid likes the idea and replies: \\\"\\\"Done!\\\"\\\". Next day kid sends the Put option contract to Mr Options Trader and receives $13 in return. Our kid bought the Put option and later sold it for a profit, and all of this happened before the option reached its expiry date.\\\"\",\n \"\\\"It will be helpful to establish some definitions: Long \\\"\\\"Long\\\"\\\" is financial slang for \\\"\\\"to have possession of an asset\\\"\\\", legally, and \\\"\\\"to debit an asset\\\"\\\", financially. Short \\\"\\\"Short\\\"\\\" is financial slang for \\\"\\\"to be liable for an asset\\\"\\\", legally, and \\\"\\\"to credit an asset\\\"\\\", financially. Option \\\"\\\"Option\\\"\\\" is financial slang for \\\"\\\"to have the right but not obligation to force the liable to perform action\\\"\\\", legally. Without limits and when taken to absurdity, this can mean slavery. For equities, this means \\\"\\\"to have the right but not the obligation to force the liable to buy/sell a specified asset at a specified price with a specified expiration for that right\\\"\\\" for a call/put, respectively. By the above, a call option is \\\"\\\"the right but not the obligation to force the liable to buy a specified asset at a specified price with a specified expiration for that right\\\"\\\". By the definition of \\\"\\\"long\\\"\\\" above, a call option is actually not long the underlying. By the definitions above and with a narrower scope applied to equities & indexes, to be \\\"\\\"long\\\"\\\" the call means \\\"\\\"to have the right but not the obligation to force the liable to buy a specified asset at a specified price with a specified expiration for that right\\\"\\\" while to be \\\"\\\"short\\\"\\\" the call means \\\"\\\"to have the obligation to be forced to sell a specified asset at a specified price with a specified expiration for that right\\\"\\\". So, to be \\\"\\\"long\\\"\\\" a call means to simply own the call.\\\"\",\n \"\\\"Writing a put for a stock means you are selling the right to sell you stock. Simply put (er no pun intended), \\\"\\\"writing put options\\\"\\\" means you are selling somebody else the right (a contract) to sell YOU a specific stock at a specific price before a specific date. I imagine the word \\\"\\\"write\\\"\\\" to refer to the physical act of creating a contract. The specific price is called the STRIKE and the specific date is the EXPIRATION. By \\\"\\\"writing a put\\\"\\\", you are agreeing to purchase the stock at a particular price (the STRIKE price) before the expiration. You get paid a fee, the \\\"\\\"premium\\\"\\\", for agreeing to purchase the stock at the strike price if asked to. If the holder of the contract decides to make you buy the stock at the strike price, you have to do it. If the stock never dips below the strike price, then the holder of the put contract (a contract you wrote), will never exercise their right because they'd lose money. But if the stock drops to zero, you could potentially lose up to your strike price (times the number of shares at stake), if the holder of the contract decides to exercise. Therefore, \\\"\\\"writing puts\\\"\\\" is a LONG position, meaning you stand to gain if the stock goes up. FYI - \\\"\\\"LONG\\\"\\\" refers direction (UP!), not duration.\\\"\",\n \"Your math shows that you bought an 'at the money' option for .35 and when the stock is $1 above the strike, your $35 (options trade as a contract for 100 shares) is now worth $100. You knew this, just spelling it out for future readers. 1 - Yes 2 - An execute/sell may not be nesesary, the ooption will have time value right until expiration, and most ofter the bid/ask will favor selling the option. You should ask the broker what the margin requirement is for an execute/sell. Keep in mind this usually cannot be done on line, if I recall, when I wanted to execute, it was a (n expensive) manual order. 3 - I think I answered in (2), but in general they are not identical, the bid/ask on options can get crazy. Just look at some thinly traded strikes and you'll see what I mean.\",\n \"Just so I'm clear- the end result is a long call, and you think the stock is going up. There is nothing wrong with that fundamentally. Be aware though: That's a negative theta trade. This means if your stock doesn't increase in price during the remaining time to expiration of your call option, the option will lose some of its value every day. It may still lose some of its value every day, depending on how much the stock price increases. The value of the call option just goes down and down as it approaches maturity, even if the stock price stays about the same. Being long a call (or a put) is a tough way to make money in the options market. I would suggest using an out-of-the-money butterfly spread. The potential returns are a bit less. However, this is a cheap positive theta trade so you avoid time decay on the value of the option.\",\n \"If it helps you to think about it, long is equivalent to betting for the upside and short is equivalent to betting for the downside. If you are long on options, then you expect the value of such options to increase. If you are long an option, then you own the option. If you are short an option, then generally you sold the option. Someone who is short a call (sometimes called the writer or occasionally the issuer) has sold a call option to someone who is now long a call. Buying a call option that will increase in value is itself a form of investment, just as it's investment to buy stock or other instruments hoping they will appreciate in value. An option's value will rise or fall with the underlying, so being long an option is a way to be long in the underlying. Someone can be long in a stock by buying the stock, or long in a call by buying call options in the stock. The long call generally requires less initial investment than buying the underlying, and lets the option-holder avoid the asset downside during the option term. The risk is that the asset may not appreciate to the point that the call option will pay off. In the conceptual sense, a share of stock is a particular right to the profits and assets of a corporation, both in form of dividends and in liquidation. An option is a particular right to the the share of stock. It's just a further way to formalize and subdivide the various property rights that exist in a corporation. If you can buy a piece of paper with particular rights to corporate profits and assets, then you can buy another piece of paper with particular rights to the former piece of paper.\",\n \"Two ways to mitigate this risk are to buy a put at a lower premium to the written call, or manage your trade by buying back your call if you see the underlying price going against you - a bit similar to having a stop loss.\",\n \"\\\"> It just has to finish below the strike price of the short (which can be higher than the stock's current price). You're talking about a put option. That's one \\\"\\\"short\\\"\\\" strategy, but it's not shorting a stock, so the terminology is a little jumbled. There are reasons to not do straight options, because they can be quite risky, and you have to get the time frame correct.\\\"\",\n \"They can sell a lower price call if they expect the stock to plummet in the near term but they are bullish on the longer term. What they are looking to do is collect the call premium and hope it expires worthless. And then again 'hope' that the stock will ultimately turn around. So yes, a lot of hoping. But can you explain what you mean by 'my brokerage gives premiums for prices lower than the current price'? Do you mean you pay less in commissions for ITM calls?\",\n \"\\\"Firstly \\\"\\\"Most option traders don't want to actually buy or sell the underlying stock.\\\"\\\" THIS IS COMPLETELY UTTERLY FALSE Perhaps the problem is that you are only familiar with the BUY side of options trading. On the sell side of options trading, an options desk engages in DELTA HEDGING. When we sell an option to a client. We will also buy an appropriate amount of underlying to match the delta position of the option. During the life time of the option. We will readjust our hedge position whenever the delta changes (those who follow Black Scholes will know that normally that comes from (underlying) price changes). However, we lose money on each underlying change (we have to cross the bid-ask spread for each trade). That is why we lose money when there is volatility. That is why we are said to be \\\"\\\"short VEGA\\\"\\\" or \\\"\\\"short volatility\\\"\\\". So one way to think about \\\"\\\"buying\\\"\\\" options, is that you are paying someone to execute a specific trading strategy. In general, those who sell options, are also happy to buy options back (at a discount of course, so we make a profit). But when doing so, we need to unroll our hedging position, and that again incurs a cost (to us, the bank). Finally. Since this is \\\"\\\"money\\\"\\\" stackexchange rather than finance. You are most likely referring to \\\"\\\"warrants\\\"\\\" rather than \\\"\\\"options\\\"\\\", which are listed on stock exchanges. The exchange in most regions give us very specific and restrictive regulations that we must abide by. One very common one is that we MUST always list a price which we are willing to buy the warrants back at (which may not be an unreasonable spread from the sell price). Since an Option is a synthetically created investment instrument, when we buy back the Option from the investor, we simply unwind the underlying hedging positions that we booked to synthesize the Options with. Source: I've worked 2 years on a warrant desk, as a desk developer.\\\"\",\n \"Someone already mentioned that this is a risk-reversal, but as an aside, in the vol market (delta-hedged options) this is a fundamental skew trade. (buying calls, selling puts or vice versa). Initially vega neutral, the greek that this trade largely isolates is vanna (dvega/dspot or ddelta/dvol).\",\n \"You're correct. If you have no option position at execution then you carry no risk. Your risk is only based on the net number of options you're holding at execution. This is handled by your broker or clearinghouse. Pretend that you wrote 1000 options, (you're short the call) then you bought 1000 of the same option (bought to cover) ... you are now flat and have zero options exposure. Pretend you bought 1000 options (you're long the calls) then you sold 1000 of them (liquidated your long) ... you are now flat and have zero options exposure.\",\n \"There are some excellent responses to this question at the time of this post. I have had the greatest success writing 1-month options. The 2 main reasons are as follows: With little time to expiration as stated in the question the implied volatility of the option is dictating the premium. Looking for the highest premiums is a mistake because you are taking a conservative strategy and re-creating it into a high-risk strategy. My sweet spot is a 2-4% monthly return for my initial profit and then mastering management techniques to protect that return and even enhancing it.\",\n \"\\\"Being \\\"\\\"Long\\\"\\\" something means you own it. Being \\\"\\\"Short\\\"\\\" something means you have created an obligation that you have sold to someone else. If I am long 100 shares of MSFT, that means that I possess 100 shares of MSFT. If I am short 100 shares of MSFT, that means that my broker let me borrow 100 shares of MSFT, and I chose to sell them. While I am short 100 shares of MSFT, I owe 100 shares of MSFT to my broker whenever he demands them back. Until he demands them back, I owe interest on the value of those 100 shares. You short a stock when you feel it is about to drop in price. The idea there is that if MSFT is at $50 and I short it, I borrow 100 shares from my broker and sell for $5000. If MSFT falls to $48 the next day, I buy back the 100 shares and give them back to my broker. I pocket the difference ($50 - $48 = $2/share x 100 shares = $200), minus interest owed. Call and Put options. People manage the risk of owning a stock or speculate on the future move of a stock by buying and selling calls and puts. Call and Put options have 3 important components. The stock symbol they are actionable against (MSFT in this case), the \\\"\\\"strike price\\\"\\\" - $52 in this case, and an expiration, June. If you buy a MSFT June $52 Call, you are buying the right to purchase MSFT stock before June options expiration (3rd Saturday of the month). They are priced per share (let's say this one cost $0.10/share), and sold in 100 share blocks called a \\\"\\\"contract\\\"\\\". If you buy 1 MSFT June $52 call in this scenario, it would cost you 100 shares x $0.10/share = $10. If you own this call and the stock spikes to $56 before June, you may exercise your right to purchase this stock (for $52), then immediately sell the stock (at the current price of $56) for a profit of $4 / share ($400 in this case), minus commissions. This is an overly simplified view of this transaction, as this rarely happens, but I have explained it so you understand the value of the option. Typically the exercise of the option is not used, but the option is sold to another party for an equivalent value. You can also sell a Call. Let's say you own 100 shares of MSFT and you would like to make an extra $0.10 a share because you DON'T think the stock price will be up to $52/share by the end of June. So you go to your online brokerage and sell one contract, and receive the $0.10 premium per share, being $10. If the end of June comes and nobody exercises the option you sold, you get to keep the $10 as pure profit (minus commission)! If they do exercise their option, your broker makes you sell your 100 shares of MSFT to that party for the $52 price. If the stock shot up to $56, you don't get to gain from that price move, as you have already committed to selling it to somebody at the $52 price. Again, this exercise scenario is overly simplified, but you should understand the process. A Put is the opposite of a Call. If you own 100 shares of MSFT, and you fear a fall in price, you may buy a PUT with a strike price at your threshold of pain. You might buy a $48 June MSFT Put because you fear the stock falling before June. If the stock does fall below the $48, you are guaranteed that somebody will buy yours at $48, limiting your loss. You will have paid a premium for this right (maybe $0.52/share for example). If the stock never gets down to $48 at the end of June, your option to sell is then worthless, as who would sell their stock at $48 when the market will pay you more? Owning a Put can be treated like owning insurance on the stock from a loss in stock price. Alternatively, if you think there is no way possible it will get down to $48 before the end of June, you may SELL a $48 MSFT June Put. HOWEVER, if the stock does dip down below $48, somebody will exercise their option and force you to buy their stock for $48. Imagine a scenario that MSFT drops to $30 on some drastically terrible news. While everybody else may buy the stock at $30, you are obligated to buy shares for $48. Not good! When you sold the option, somebody paid you a premium for buying that right from you. Often times you will always keep this premium. Sometimes though, you will have to buy a stock at a steep price compared to market. Now options strategies are combinations of buying and selling calls and puts on the same stock. Example -- I could buy a $52 MSFT June Call, and sell a $55 MSFT June Call. I would pay money for the $52 Call that I am long, and receive money for the $55 Call that I am short. The money I receive from the short $55 Call helps offset the cost of buying the $52 Call. If the stock were to go up, I would enjoy the profit within in $52-$55 range, essentially, maxing out my profit at $3/share - what the long/short call spread cost me. There are dozens of strategies of mixing and matching long and short calls and puts depending on what you expect the stock to do, and what you want to profit or protect yourself from. A derivative is any financial device that is derived from some other factor. Options are one of the most simple types of derivatives. The value of the option is derived from the real stock price. Bingo? That's a derivative. Lotto? That is also a derivative. Power companies buy weather derivatives to hedge their energy requirements. There are people selling derivatives based on the number of sunny days in Omaha. Remember those calls and puts on stock prices? There are people that sell calls and puts based on the number of sunny days in Omaha. Sounds kind of ridiculous -- but now imagine that you are a solar power company that gets \\\"\\\"free\\\"\\\" electricity from the sun and they sell that to their customers. On cloudy days, the solar power company is still on the hook to provide energy to their customers, but they must buy it from a more expensive source. If they own the \\\"\\\"Sunny Days in Omaha\\\"\\\" derivative, they can make money for every cloudy day over the annual average, thus, hedging their obligation for providing more expensive electricity on cloudy days. For that derivative to work, somebody in the derivative market puts a price on what he believes the odds are of too many cloudy days happening, and somebody who wants to protect his interests from an over abundance of cloudy days purchases this derivative. The energy company buying this derivative has a known cost for the cost of the derivative and works this into their business model. Knowing that they will be compensated for any excessive cloudy days allows them to stabilize their pricing and reduce their risk. The person selling the derivative profits if the number of sunny days is higher than average. The people selling these types of derivatives study the weather in order to make their offers appropriately. This particular example is a fictitious one (I don't believe there is a derivative called \\\"\\\"Sunny days in Omaha\\\"\\\"), but the concept is real, and the derivatives are based on anything from sunny days, to BLS unemployment statistics, to the apartment vacancy rate of NYC, to the cost of a gallon of milk in Maine. For every situation, somebody is looking to protect themselves from something, and somebody else believes they can profit from it. Now these examples are highly simplified, many derivatives are highly technical, comprised of multiple indicators as a part of its risk profile, and extremely difficult to explain. These things might sound ridiculous, but if you ran a lemonade stand in Omaha, that sunny days derivative just might be your best friend...\\\"\",\n \"Depending on the day and even time, you'd get your $2 profit less the $5 commission. Jack's warning is correct, but more so for thinly traded options, either due to the options having little open interest or the stock not quite so popular. In your case you have a just-in-the-money strike for a highly traded stock near expiration. That makes for about the best liquidity one can ask for. One warning is in order - Sometime friday afternoon, there will be a negative time premium. i.e. the bid might seem lower than in the money value. At exactly $110, why would I buy the option? Only if I can buy it, exercise, and sell the stock, all for a profit, even if just pennies.\",\n \"\\\"With stocks, you can buy or sell. If you sell first, that's called 'shorting.' As in \\\"\\\"I think linkedin is too high, I'm going to short it.\\\"\\\" With options, the terminology is different, the normal process is to buy to open/sell to close, but if you were shorting the option itself, you would first sell to open, i.e you are selling a position to start it, effectively selling it short. Eventually, you may close it out, by buying to close. Options trading is not for the amateur. If you plan to trade, study first and be very cautious.\\\"\",\n \"\\\"Your question indicates that you might have a little confusion about put options and/or leveraging. There's no sense I'm aware of in which purchasing a put levers a position. Purchasing a put will cost you money up front. Leveraging typically means entering a transaction that gives you extra money now that you can use to buy other things. If you meant to sell a put, that will make money up front but there is no possibility of making money later. Best case scenario the put is not exercised. The other use of the term \\\"\\\"leverage\\\"\\\" refers to purchasing an asset that, proportionally, goes up faster than the value of the underlying. For example, a call option. If you purchase a put, you are buying downside protection, which is kind of the opposite of leverage. Notice that for an American put you will most likely be better off selling the put when the price of the underlying falls than exercising it. That way you make the money you would have made by exercising plus whatever optional value the put still contains. That is true unless the time value of money is greater than the optional (insurance) value. Since the time value of money is currently exceptionally low, this is unlikely. Anyway, if you sell the option instead of exercising, you don't need to own any shares at all. Even if you do exercise, you can just buy them on the market and sell right away so I wouldn't worry about what you happen to be holding. The rules for what you can trade with a cash instead of a margin account vary by broker, I think. You can usually buy puts and calls in a cash account, but more advanced strategies, such as writing options, are prohibited. Ask your broker or check their help pages to see what you have available to you.\\\"\",\n \"I don't think you understand options. If it expires, you can't write a new call for the same expiration date as it expired that day. Also what if the stock price decreases further to $40 or even more? If you think the stock will move in either way greatly, and you wish to be profit from it, look into straddles.\",\n \"First, in the money options are scarcely created because most options trade at the money with the rest evenly distributed between in and out, so they are at best half the market when created. They are also closed before expiration. The reason is still unknown, but one theory is: Barely in the money options carry enormous exercise risk because the chance that could be turned into a potentially solvency threatening unhedged liability is great; therefore, option sellers prefer to close barely in the money options so not to take on unhedged liability risk. Statistically, option sellers are risk avoiders.\",\n \"Yes, selling premium is selling an option that contains premium over it's intrinsic value. Out-of-the-money options contain no intrinsic value, at the money and near the money options contain premium over the intrinsic value. The deeper in-the-money go, the less premium there is.\",\n \"One broker told me that I have to simply read the ask size and the bid size, seeing what the market makers are offering. This implies that my order would have to match that price exactly, which is unfortunate because options contract spreads can be WIDE. Also, if my planned position size is larger than the best bid/best ask, then I should break up the order, which is also unfortunate because most brokers charge a lot for options orders.\",\n \"This is exactly how I started, starting a simulation account on the CBOE website just to see what situation was profitable because it was all greek to me. Actually after learning the greeks, I realize that site was worse and eventually read some books and got better tools. The screenshot you have is telling you the strikes, but unfortunately they are showing you the technical name of the contract on the exchanges. For example, just like you type in AAPL to buy shares of AAPL stock, you can type in VIX1616K16E to get that one particular contract, expiration and strike. So lets break it down just by inferring, because this is what I just did with that picture: You know the current price of VIX, $17.06 Calls expiring November 16th, 2016: What is changing? SYMBOL / YEAR / EXPIRATION DAY / STRIKE / OPTION-STYLE (?) So knowing that in the money options will be more expensive, and near the money options will be slightly cheaper, and out the money will be even cheaper, you can see what is going on, per expiration.\",\n \"The liquidity primarily depends on the specific equity type / position you are looking at. You want to look for stocks or ETFs that have significant volume themselves before trying to jump into an option contract. The most important things you should look at are Volume and Open Interest for the specific contracts, strikes, and expiration. Near the money / in the money contracts from near term expiration tend to have the highest liquidity and the smallest (relative) spreads.\",\n \"(buy these when you expect the price to go down) You 'lock in' the price you can sell at. If the price goes down below the 'locked-in' price, you buy at the new low price and sell at the higher 'locked-in' price; make money. (buy these when you expect the price to go up) You 'lock in' the price you can buy at. If the price goes up above the 'locked-in' price, you buy at the 'locked-in' price and sell at the new higher price, make money.\",\n \"\\\"In real life, you'd see spreads like AMZN 04/13/2017 910.00 C 4.90 +1.67 Bid: 4.75 Ask: 5.20 (with AMZN @ $897 right now) and the fill you'd get on the buy side would be closer to the ask. i.e. I'd offer $5.00 and hope that it filled. Filling a $4 bid when ask is $8 isn't likely unless the stock blipped down enough for your price to fill. Options are a lot like day trading, in most cases. Most members here will agree that day trading isn't investing, it's gambling. Long term, the S&P has been up 10%/yr. But any given day, the noise of the market is a 50/50 zero sum game. Most long term stock 'investors' do well. Those who get in and out, not so much. There are aspects to options that are appealing. As you've seen, the return can be high, even IRL, but your loss can be 100% as well. Let me share with you a blurred line - I wrote \\\"\\\"Betting on Apple at 9 to 2\\\"\\\" in which I described an option strategy that ran 2 years and would return $10,000 on a $2200 bet. A similar bet that ended a year ago yielded a 100% loss. I don't post there very often, as I keep that trading to a minimum. There are warnings for those who want to start trading options -\\\"\",\n \"\\\"Consider the futures market. Traders buy and sell gold futures, but very few contracts, relatively speaking, result in delivery. The contracts are sold, and \\\"\\\"Open interest\\\"\\\" dwindles to near zero most months as the final date approaches. The seller buys back his short position, the buyer sells off his longs. When I own a call, and am 'winning,' say the option that cost me $1 is now worth $2, I'd rather sell that option for even $1.95 than to buy 100 shares of a $148 stock. The punchline is that very few option buyers actually hope to own the stock in the end. Just like the futures, open interest falls as expiration approaches.\\\"\",\n \"\\\"Bull means the investor is betting on a rising market. Puts are a type of stock option where the seller of a put option promises to buy 100 shares of stock from the buyer of the put option at a pre-agreed price called the strike price on any day before expiration day. The buyer of the put option does not have to sell (it is optional, thats why it is called buying an option). However, the seller of the put is required to make good on their promise to the buyer. The broker can require the seller of the put option to have a deposit, called margin, to help make sure that they can make good on the promise. Profit... The buyer can profit from the put option if the stock price moves down substantially. The buyer of the put option does not need to own the stock, he can sell the option to someone else. If the buyer of the put option also owns the stock, the put option can be thought of like an insurance policy on the value of the stock. The seller of the put option profits if the stock price stays the same or rises. Basically, the seller comes out best if they can sell put options that no one ends up using by expiration day. A spread is an investment consisting of buying one option and selling another. Let's put bull and put and spread together with an example from Apple. So, if you believed Apple Inc. AAPL (currently 595.32) was going up or staying the same through JAN you could sell the 600 JAN put and buy the 550 put. If the price rises beyond 600, your profit would be the difference in price of the puts. Let's explore this a little deeper (prices from google finance 31 Oct 2012): Worst Case: AAPL drops below 550. The bull put spread investor owes (600-550)x100 shares = $5000 in JAN but received $2,035 for taking this risk. EDIT 2016: The \\\"\\\"worst case\\\"\\\" was the outcome in this example, the AAPL stock price on options expiry Jan 18, 2013 was about $500/share. Net profit = $2,035 - $5,000 = -$2965 = LOSS of $2965 Best Case: AAPL stays above 600 on expiration day in JAN. Net Profit = $2,035 - 0 = $2035 Break Even: If AAPL drops to 579.65, the value of the 600 JAN AAPL put sold will equal the $2,035 collected and the bull put spread investor will break even. Commissions have been ignored in this example.\\\"\",\n \"Let's consider that transaction cost is 0(zero) for calculation. In the scenario you have stated, maximum profit that could be made is 55$, however risk is unlimited. Hedging can also be used to limit your losses, let's consider this scenario. Stock ABC trading @ 100$, I'll buy the stock ABC @ 100$ and buy a put option of ABC @ strike price 90$ for a premium of 5$ with an expiration date of 1 month. Possible outcomes I end up in a loss in 3 out of 4 scenarios, however my loss is limited to 15$, whereas profit is unlimited.\",\n \"Being long the call is being long the option. The call is a type of option. A put is a type of option If you buy a call, you are long an option and long the underlying asset. If you buy a put, you are long an option and short the underlying asset.\",\n \"\\\"If you're looking to leverage your capital more efficiently, at the money options offer the best balance. Options deep in the money will have little time premium remaining on them, but don't allow for greater leverage. On the other hand deep out of the money options may be thinly traded, or might not offer the \\\"\\\"mirroring\\\"\\\" you'd like of the underlying. By purchasing ATM you will likely be buying some time premium, but still be leveraging your capital, potentially several times over.\\\"\",\n \"(Note: I am omitting the currency units. While I strongly suspect it's US$ I don't know from the chart. The system works the same no matter what the currency.) A call or a put is the right to sell (put) or buy (call) shares at a certain price on a certain day. This is why you see a whole range of prices. Not all possible stock values are represented, the number of possibilities has to be kept reasonable. In this case the choices are even units, for an expensive stock they may be spaced even farther apart than this. The top of the chart says it's for June. It's actually the third Friday in the month, June 15th in this case. Thus these are bets on how the stock will move in the next 10 days. While the numbers are per share you can only trade options in lots of 100. The left side of the chart shows calls. Suppose you sell a call at 19 (the top of the chart) The last such trade would have gotten you a premium of 9.70 per share (the flip side of this is when the third friday rolls around it will most likely be exercised and they'll be paying you only 19 a share for a stock now trading at something over 26.) Note the volume, bid and ask columns though--you're not going to get 9.70 for such a call as there is no buyer. The most anybody is offering at present is 7.80 a share. Now, lets look farther down in the chart--say, a strike price of 30. The last trade was only .10--people think it's very unlikely that FB will rise above 30 to make this option worthwhile and thus you get very little for being willing to sell at that price. If FB stays at 26 the option will expire worthless and go away. If it's up to 31 when the 15th rolls around they'll exercise the option, take your shares and pay you 30 for them. Note that you already gave permission for the trade by selling the call, you can't back out later if it becomes a bad deal. Going over to the other side of the chart with the puts: Here the transaction goes the other way, come the 15th they have the option of selling you the shares for the strike price. Lets look at the same values we did before. 19? There's no trading, you can't do it. 30? Here you will collect 3.20 for selling the put. Come the 15th they have the right to sell you the stock for 30 a share. If it's still 26 they're certainly going to do so, but if it's up to 31 it's worthless and you pocket the 3.20 Note that you will normally not be allowed to sell a call if you don't own the shares in question. This is a safety measure as the risk in selling a call without the stock is infinite. If the stock somehow zoomed up to 10,000 when the 15th rolls around you would have to come up with the shares and the only way you could get them is buy them on the open market--you would have to come up with a million dollars. If there simply aren't enough shares available to cover the calls the result is catastrophic--whoever owns the shares simply gets to dictate terms to you. (And in the days of old this sometimes happened.)\",\n \"Robert is right saying that options' prices are affected by implied volatility but is wrong saying that you have to look at the VIX index. For two reasons: 1) the VIX index is for S&P500 options only. If you are trading other options, it is less useful. 2) if you are trading an option that is not at the money, your implied volatility may be very different (and follow a different dynamics) that the VIX index. So please look at the right implied volatility. In terms of strategy, I don't think that not doing anything is a good strategy. I accept any point of view but you should consider that option traders should be able to adjust positions depending on market view. So you are long 1 call, suppose strike 10. Suppose the underlying price at the time of entry was 10 (so the call was at the money). Now it's 9. 1) you still have a bullish view: buy 1 call strike 9 and sell 2 calls strike 10. This way you have a bull call spread with much higher probability of leading to profit. You are limiting your profit potential but you are also reducing the costs and managing the greeks in a proper way (and in line with your expectations). 2) you become bearish: you can sell 1 call strike 9. This way you end up with a bear call spread. Again, you are limiting your profit potential but you are also reducing the costs and managing the greeks in a proper way (and in line with your expectations). 3) you become neutral: buy 1 call strike 8 and sell 2 calls strike 9. This way you end up with a call butterfly. You are almost delta neutral and you can wait until your view becomes clear enough to become directional. At that point you can modify the butterfly to make it directional. These are just some opportunities you have. There is no reason for you to wait. Options are eroding contracts and you must be fast and adjust the position before time starts eroding your capital at risk. It's true that buying a call doesn't make you loose more than the premium you paid, but it's better to reduce this premium further with some adjustment. Isn't it? Hope that helps. :)\",\n \"\\\"In general economic theory, there are always two markets created based on a need for a good; a spot market (where people who need something now can go outbid other people who need the same thing), and a futures market (where people who know they will need something later can agree to buy it for a pre-approved price, even if the good in question doesn't exist yet, like a grain crop). Options exist as a natural extension of the futures market. In a traditional future, you're obligated, by buying the contract, to execute it, for good or ill. If it turns out that you could have gotten a lower price when buying, or a higher price when selling, that's tough; you gave up the ability to say no in return for knowing, a month or three months or even a year in advance, the price you'll get to buy or sell this good that you know you need. Futures thus give both sides the ability to plan based on a known price, but that's their only risk-reduction mechanism. Enter the option. You're the Coors Brewing Company, and you want to buy 50 tons of barley grain for delivery in December in order to brew up for the Super Bowl and other assorted sports parties. A co-op bellies up to close the deal. But, since you're Coors, you compete on price with Budweiser and Miller, and if you end up paying more than the grain's really worth, perhaps because of a mild wet fall and a bumper crop that the almanac predicts, then you're going to have a real bad time of it in January. You ask for the right to say \\\"\\\"no\\\"\\\" when the contract falls due, if the price you negotiate now is too high based on the spot price. The co-op now has a choice; for such a large shipment, if Coors decided to leave them holding the bag on the contract and instead bought it from them anyway on a depressed spot market, they could lose big if they were counting on getting the contract price and bought equipment or facilities on credit against it. To mitigate those losses, the co-op asks for an option price; basically, this is \\\"\\\"insurance\\\"\\\" on the contract, and the co-op will, in return for this fee (exactly how and when it's paid is also negotiable), agree to eat any future realized losses if Coors were to back out of the contract. Like any insurance premium, the option price is nominally based on an outwardly simple formula: the probability of Coors \\\"\\\"exercising\\\"\\\" their option, times the losses the co-op would incur if that happened. Long-term, if these two figures are accurate, the co-op will break even by offering this price and Coors either taking the contract or exercising the option. However, coming up with accurate predictions of these two figures, such that the co-op (or anyone offering such a position) would indeed break even at least, is the stuff that keeps actuaries in business (and awake at night).\\\"\",\n \"\\\"The blue line is illustrating the net profit or loss the investor will realise according to how the price of the underlying asset settles at expiry. The x-axis represents the underlying asset price. The y-axis represents the profit or loss. In the first case, the investor has a \\\"\\\"naked put write\\\"\\\" position, having sold a put option. The strike price of the put is marked as \\\"\\\"A\\\"\\\" on the x-axis. The maximum profit possible is equal to the total premium received when the option contract was sold. This is represented by that portion of the blue line that is horizontal and extending from the point above that point marked \\\"\\\"A\\\"\\\" on the x-axis. This corresponds to the case that the price of the underlying asset settles at or above the strike price on the day of expiry. If the underlying asset settles at a price less than the strike price on the day of expiry, then the option with be \\\"\\\"in the money\\\"\\\". Therefore the net settlement value will move from a profit to a loss, depending on how far in the money the option is upon expiry. This is represented by the diagonal line moving from above the \\\"\\\"A\\\"\\\" point on the x-axis and moving from a profit to a loss on the y-axis. The diagonal line crosses the x-axis at the point where the underlying asset price is equal to \\\"\\\"A\\\"\\\" minus the original premium rate at which the option was written - i.e., net profit = zero. In the second case, the investor has sold a put option with a strike price of \\\"\\\"B\\\"\\\" and purchase a put option with a strike price \\\"\\\"A\\\"\\\", where A is less than B. Here, the reasoning is similar to the first example, however since a put option has been purchase this will limit the potential losses should the underlying asset move down strongly in value. The horizontal line above the x-axis marks the maximum profit while the horizontal line below the x-axis marks the maximum loss. Note that the horizontal line above the x-axis is closer to the x-axis that is the horizontal line below the x-axis. This is because the maximum profit is equal to the premium received for selling the put option minus the premium payed for buying the put option at a lower strike price. Losses are limited since any loss in excess of the strike price \\\"\\\"A\\\"\\\" plus the premium payed for the put purchased at a strike price of \\\"\\\"A\\\"\\\" is covered by the profit made on the purchased put option at a strike price of \\\"\\\"A\\\"\\\".\\\"\",\n \"The only use of options that I will endorse is selling them. If you believe the market is going down then sell covered, out of the money, calls. Buying calls or buying puts usually wastes money. That is because of a quality called Theta. If the underlying security stays the same the going price of an option will decrease, every day, by the Theta amount. Think of options as insurance. A person only makes money by selling insurance, not by buying it.\",\n \"The Explanation is correct. The Traders buys the 1st call and profits linearly form 40$ onwards. At at 45 the short call kick in and neutralizes any further profit on the first call.\",\n \"First, a margin account is required to trade options. If you buy a put, you have the right to deliver 100 shares at a fixed price, 50 can be yours, 50, you'll buy at the market. If you sell a put, you are obligated to buy the shares if put to you. All options are for 100 shares, I am unaware of any partial contract for fewer shares. Not sure what you mean by leveraging the position, can you spell it out more clearly?\",\n \"You don't mention any specific numbers, so I'll answer in generalities. Say I buy a call option today, and I short the underlying stock with the delta. The value will be the value of the option you bought less the value of the stock you are short. (your premium is not included in the value since it's a sunk cost, but is reflected in your profit/loss) So, say I go out and adjust my portfolio, so I am still delta short in the underlying. It's still the value of your options, less the value of the underlying you are short. What is my PnL over this period? The end value of your portfolio less what you paid for that value, namely the money you received shorting the underlyings less the premium you paid for the option.\",\n \"\\\"The current price is $8.05. If you want the right to sell it to someone (put it to the buyer) for $10, you have to pay $2. Since you're looking at an expiration that's so close, the \\\"\\\"in the money\\\"\\\" value is nearly the same as what it trades for. The JAN 2013 sells for nearly $3.\\\"\",\n \"Here is a quick and dirty explanation of options. In a nutshell, you pay a certain amount to buy a contract that gives you the right, but not the obligation, to buy or sell a stock at a predetermined price at some date in the future. They come in a few flavors: I'll give you $100 if you let me buy 10,000 shares of XYZ for $10 more per share than it is trading at today any time before August 10th. I'll give you $100 if you promise to buy 10,000 shares of XYZ from me for $10 less per share than it is trading at today if I ask before August 10th. There are also two main types based on the expiration behavior: There are lots of strategies that employ options, too many to go into. Two key uses are.. Leverage: Buying Call options can give you a much higher return on your investment than just investing in the actual stock. However, with much higher risk of losing all of your investment instead of just some of it when the stock drops. Hedging: If you already own the underlying stock, put options can be used to buy down risk of serious drops in a holding.\",\n \"\\\"Some thoughts on your questions in order, Duration: You might want to look at the longest-dated option (often a \\\"\\\"LEAP\\\"\\\"), for a couple reasons. One is that transaction costs (spread plus commission, especially spread) are killer on options, so a longer option means fewer transactions, since you don't have to keep rolling the option. Two is that any fundamentals-based views on stocks might tend to require 3-5 years to (relatively) reliably work out, so if you're a fundamental investor, a 3-6 month option isn't great. Over 3-6 months, momentum, short-term news, short squeezes, etc. can often dominate fundamentals in determining the price. One exception is if you just want to hedge a short-term event, such as a pending announcement on drug approval or something, and then you would buy the shortest option that still expires after the event; but options are usually super-expensive when they span an event like this. Strike: Strike price on a long option can be thought of as a tradeoff between the max loss and minimizing \\\"\\\"insurance costs.\\\"\\\" That is, if you buy a deeply in-the-money put or call, the time value will be minimal and thus you aren't paying so much for \\\"\\\"insurance,\\\"\\\" but you may have 1/3 or 1/2 of the value of the underlying tied up in the option and subject to loss. If you buy a put or call \\\"\\\"at the money,\\\"\\\" then you might have only say 10% of the value of the underlying tied up in the option and subject to loss, but almost the whole 10% may be time value (insurance cost), so you are losing 10% if the underlying stock price stays flat. I think of the deep in-the-money options as similar to buying stocks on margin (but the \\\"\\\"implied\\\"\\\" interest costs may be less than consumer margin borrowing rates, and for long options you can't get a margin call). The at-the-money options are more like buying insurance, and it's expensive. The commissions and spreads add significant cost, on top of the natural time value cost of the option. The annual costs would generally exceed the long-run average return on a diversified stock fund, which is daunting. Undervalued/overvalued options, pt. 1: First thing is to be sure the options prices on a given underlying make sense at all; there are things that \\\"\\\"should\\\"\\\" hold, for example a synthetic long or short should match up to an actual long or short. These kinds of rules can break, for example on LinkedIn (LNKD) after its IPO, when shorting was not permitted, the synthetic long was quite a bit cheaper than a real long. Usually though this happens because the arbitrage is not practical. For example on LNKD, the shares to short weren't really available, so people doing synthetic shorts with options were driving up the price of the synthetic short and down the price of the synthetic long. If you did actually want to be long the stock, then the synthetic long was a great deal. However, a riskless arbitrage (buy synthetic long, short the stock) was not possible, and that's why the prices were messed up. Another basic relationship that should hold is put-call parity: http://en.wikipedia.org/wiki/Put%E2%80%93call_parity Undervalued/overvalued options, pt. 2: Assuming the relationship to the underlying is sane (synthetic positions equivalent to actual positions) then the valuation of the option could focus on volatility. That is, the time value of the option implies the stock will move a certain amount. If the time value is high and you think the stock won't move much, you might short the option, while if the time value is low and you think the stock will move a lot, you might buy the option. You can get implied volatility from your broker perhaps, or Morningstar.com for example has a bunch of data on option prices and the implied components of the price model. I don't know how useful this really is though. The spreads on options are so wide that making money on predicting volatility better than the market is pretty darn hard. That is, the spread probably exceeds the amount of the mispricing. The price of the underlying is more important to the value of an option than the assumed volatility. How many contracts: Each contract is 100 shares, so you just match that up. If you want to hedge 100 shares, buy one contract. To get the notional value of the underlying multiply by 100. So say you buy a call for $30, and the stock is trading at $100, then you have a call on 100 shares which are currently priced at $10,000 and the option will cost $30*100=3,000. You are leveraged about 3 to 1. (This points to an issue with options for individual investors, which is that one contract is a pretty large notional value relative to most portfolios.)\\\"\",\n \"Late to the party, but it's just improving your cost basis in a defined risk trade even further. If you want to put up less risk capital but want to test the waters, this can be one way to do it. Another could be buying cheap OTM butterflies or financing a further otm option with the basis reduction from the debit spread if you want to gamble a bit further and venture into 15-20 delta positions. Usually, I am doing debit spreads with a buying atm and selling a couple strikes further otm or at least at the most liquid strikes, but if it's a high flier, it can be disappointing, but a good trade. If you're more of a contrarian in where you buy your calls/puts, it's absolutely a good way to lessen your risk on a calculated bet.\",\n \"Hi. Straddle: Buy a call and a put with an identical strike price. The strike is the price at which you can exercise the option. You pay a premium (cash) to buy the options. Typically you need a large amount of volatility in pricing movement in order to breakeven on the combined premium paid. Strangle: Purchasing a call and a put option with a non-identical strike price. Once again it is a volatility trading play. You need some type of price movement in the underlying security in order to break even or profit on the trade.\",\n \"\\\"I think the issue you are having is that the option value is not a \\\"\\\"flow\\\"\\\" but rather a liability that changes value over time. It is best to illustrate with a balance sheet. The $33 dollars would be the premium net of expense that you would receive from your brokerage for having shorted the options. This would be your asset. The liability is the right for the option owner (the person you sold it to) to exercise and purchase stock at a fixed price. At the moment you sold it, the \\\"\\\"Marked To Market\\\"\\\" (MTM) value of that option is $40. Hence you are at a net account value of $33-$40= $-7 which is the commission. Over time, as the price of that option changes the value of your account is simply $33 - 2*(option price)*(100) since each option contract is for 100 shares. In your example above, this implies that the option price is 20 cents. So if I were to redo the chart it would look like this If the next day the option value goes to 21 cents, your liability would now be 2*(0.21)*(100) = $42 dollars. In a sense, 2 dollars have been \\\"\\\"debited\\\"\\\" from your account to cover your potential liability. Since you also own the stock there will be a credit from that line item (not shown). At the expiry of your option, since you are selling covered calls, if you were to be exercised on, the loss on the option and the gain on the shares you own will net off. The final cost basis of the shares you sold will be adjusted by the premium you've received. You will simply be selling your shares at strike + premium per share (0.20 cents in this example)\\\"\",\n \"I have an example of a trade I made some time ago. By entering the position as a covered call, I was out of pocket $5.10, and if the stock traded flat, i.e. closed at the same $7.10 16 months hence, I was up 39% or nearly 30%/yr. As compared to the stock holder, if the stock fell 28%, I'd still break even, vs his loss of 28%. Last, if the stock shot up, I'd get 7.50/5.10 or a 47% return, vs the shareholder who would need a price of $10.44 to reflect that return. Of course, a huge jump in the shares, say to $15, would benefit the option buyer, and I would have left money on the table. But this didn't happen. The stock was at $8 at expiration, and I got my 47% return. The option buyer got 50 cents for his $2 bet. Note, the $2 option price reflected a very high implied volatility.\",\n \"I would make a change to the answer from olchauvin: If you buy a call, that's because you expect that the value of call options will go up. So if you still think that options prices will go up, then a sell-off in the stock may be a good point to buy more calls for cheaper. It would be your call at that point (no pun intended). Here is some theory which may help. An options trader in a bank would say that the value of a call option can go up for two reasons: The VIX index is a measure of the levels of implied volatility, so you could intuitively say that when you trade options you are taking a view on two components: the underlying stock, and the level of the VIX index. Importantly, as you get closer to the expiry date this second effect diminishes: big jumps up in the VIX will produce smaller increases in the value of the call option. Taking this point to its limit, at maturity the value of the call option is only dependent on the price of the underlying stock. An options trader would say that the vega of a call option decreases as it gets closer to expiry. A consequence of this is that if pure options traders are naturally less inclined to buy and hold to expiry (because otherwise they would really just be taking a view on the stock price rather than the stock price & the implied volatility surface). Trading options without thinking too much about implied volatities is of course a valid strategy -- maybe you just use them because you will automatically have a mechanism which limits losses on your positions. But I am just trying to give you an impression of the bigger picture.\",\n \"\\\"There are many reasons. Here are just some possibilities: The stock has a lot of negative sentiment and puts are being \\\"\\\"bid up\\\"\\\". The stock fell at the close and the options reflect that. The puts closed on the offer and the calls closed on the bid. The traders with big positions marked the puts up and the calls down because they are long puts and short calls. There isn't enough volume in the puts or calls to make any determination - what you are seeing is part of the randomness of a moment in time.\\\"\",\n \"Looking at the SPY option chain you posted, all of the call options with a strike price of 199.50 or higher have a bid of N/A. That's because the ask price for all of those options is 0.01, and the bid price has to be less than the ask price, but buyers are not allowed to bid 0.00. It's not accurate to say that no one wants to buy those calls - anyone who wanted to buy one of those calls would just buy it at the ask price of 0.01. So why are people selling those calls for just 0.01? The further out of the money you go as you get closer to expiration, the less likely the underlying stock or ETF (SPY in this case) will go over the strike price, and the less you can sell it for. SPY closed yesterday at about 195, and it would have to go up almost 2.5% today for the 199.50 calls to be in the money, and a 2.5% move in one day is extremely unlikely.\",\n \"Option prices are computed by determining the cost of obtaining the option returns using a strategy that trades the underlying asset continuously. It sounds like what you are describing is rapidly trading the option in order to obtain returns similar to those of the stock. The equality goes both ways. If the option is appropriately priced, then a strategy that replicates stock returns using the option will cost the same as buying the stock. Because you can't trade continuously, you won't actually be able to replicate the stock return, and it may seem like you are making arbitrage profit (puts may seem abnormally expensive), but you do so by bearing tail risk (i.e., selling puts loses more money than owning the associated stock if an unusually bad event occurs).\",\n \"Market makers are required to buy options contracts as a condition of being a market maker. It is what keeps the markets functioning and liquid. As to whether or not your trade can be closed at a profit depends on many variables - how much you paid, what the underlying security is, etc CBOE Options expiration FAQs\",\n \"I understand the question, I think. The tough thing is that trades over the next brief time are random, or appear so. So, just as when a stock is $10.00 bid / $10.05 ask, if you place an order below the ask, a tick down in price may get you a fill, or if the next trades are flat to higher, you might see the close at $10.50, and no fill as it never went down to your limit. This process is no different for options than for stocks. When I want to trade options, I make sure the strike has decent volume, and enter a market order. Edit - I reworded a bit to clarify. The Black–Scholes is a model, not a rigid equation. Say I discover an option that's underpriced, but it trades under right until it expires. It's not like there's a reversion to the mean that will occur. There are some very sophisticated traders who use these tools to trade in some very high volumes, for them, it may produce results. For the small trader you need to know why you want to buy a stock or its option and not worry about the last $0.25 of its price.\",\n \"\\\"Suddenly its not just comparing the current price to the price of the contract, or is it? Sure it is. Suppose you bought 100 option contracts (each for 100 shares) and paid a $1 per share premium ($10,000 total). Now those options are trading for $1.50 per share. You have an unrealized $0.50 gain per share, or $5,000. The $10,000 in options you bought are now worth $15,000. It holds whether they were bought to open or close a position, or whether they are puts or calls. The only difference is whether you bought or sold the options (the arithmetic is just reversed for selling an option). But lets say we have an Option, where the payoff is max(St-K, c0) where ct is the market price. What do you do then? Your current, unrealized P&L is different than the payoff. The payoff only happens at maturity. The current P&L is based on current market prices, just like stock. Option prices all have a \\\"\\\"time premium\\\"\\\" making them worth more than their payoff (intrinsic) value prior to maturity.\\\"\",\n \"You bought the right – but not the obligation – to buy a certain number of shares at $15 from whomsoever sold you the option, and you paid a premium for it. You can choose whether you want to buy the shares at $15 during the period agreed upon. If you call for the shares, the other guy has to sell the shares to you for $15 each, even if the market price is higher. You can then turn around and promptly resell the purchased shares at the higher market price. If the market price never rises above $15 at any time while the option is open, you still have the right to buy the shares for $15 if you choose to do so. Most rational people would let the option expire without exercising it, but this is not a legal requirement. Doing things like buying shares at $15 when the market price is below $15 is perfectly legal; just not very savvy. You cannot cancel the option in the sense of going to the seller of the option and demanding your premium money back because you don't intend to exercise the option because the market price is below $15. Of course, if the market price is above $15 and you tell the seller to cancel the contract, they will be happy to do so, since it lets them off the hook. They may or may not give you the premium back in this case.\",\n \"A long call options spread. In this case, a bet that the USO ETF would recover to $35. You can see, I got in when USO was $28, and it's continued to drop, but it has till Jan '17 to recover. The spread is set up to give leverage, when I entered the trade, a 50% recovery would result in a 200% gain, or 3X my bet. An option spread can be bought using any two strikes, and with different payouts depending on how far out of the money the strikes are.\",\n \"\\\"You seem to have it right. You will be selling what's known as a covered call. When you sell the call, you enter it as \\\"\\\"sell to open\\\"\\\" and the system should see that you own the stock. You need to be approved for options trading, not all accounts are. As far as this particular trade goes - No, the stock doesn't necessarily get called away the day it's in the money, but it can be. If the stock closes just in the money around the time of expiration are you ok will selling it for the strike price? Remember, the option buyer is taking a small risk, the cost of this option, hoping the stock will go far above that price.\\\"\",\n \"To expand on the comment made by @NateEldredge, you're looking to take a short position. A short position essentially functions as follows: Here's the rub: you have unlimited loss potential. Maybe you borrow a share and sell it at $10. Maybe in a month you still haven't closed the position and now the share is trading at $1,000. The share lender comes calling for their share and you have to close the position at $1,000 for a loss of $990. Now what if it was $1,000,000 per share, etc. To avoid this unlimited loss risk, you can instead buy a put option contract. In this situation you buy a contract that will expire at some point in the future for the right to sell a share of stock for $x. You get to put that share on to someone else. If the underlying stock price were to instead rise above the put's exercise price, the put will expire worthless — but your loss is limited to the premium paid to acquire the put option contract. There are all sorts of advanced options trades sometimes including taking a short or long position in a security. It's generally not advisable to undertake these sorts of trades until you're very comfortable with the mechanics of the contracts. It's definitely not advisable to take an unhedged short position, either by borrowing someone else's share(s) to sell or selling an option (when you sell the option you take the risk), because of the unlimited loss potential described above.\",\n \"\\\"Is option trading permitted in the account? Most 401(k) do not permit this. 1 - it means none traded today. 2 - there are 50 outstanding contracts. Each one has a guy who is long and a guy who is short. 3 - not really, it might depend on the stock. 4 - no. With commissions so low, and the inherent leverage of options, one contract reflecting 100 shares of the underlying stock, the minimum is what you can sleep soundly with. 5 - because GLD does not reflect precisely 1/10 oz of gold's price. If you look at the prospectus, it reads \\\"\\\"The investment objective of the Trust is for the Shares to reflect the performance of the price of gold bullion, less the Trust’s expenses.\\\"\\\" Since there are no dividends to take expenses from, the GLD price will erode by .4% each year compared to the price of 1/10oz gold.\\\"\",\n \"Standard options are contracts for 100 shares. If the option is for $0.75/share and you are buying the contract for 100 shares the price would be $75 plus commission. Some brokers have mini options available which is a contract for 10 shares. I don't know if all brokers offer this option and it is not available on all stocks. The difference between the 1 week and 180 day price is based on anticipated price changes over the given time. Most people would expect more volatility over a 6 month period than a 1 week period thus the demand for a higher premium for the longer option.\",\n \"An expiration 2 years out will have Sqr(2) (yes the square root of 2!) times the premium of the 1 year expiration. So if the option a year out sell for $1.00, two is only $1.41. And if the stock trades for $10, but the strike is $12, why aren't you just waiting for expiration to write the next one?\",\n \"\\\"SELL -10 VERTICAL $IYR 100 AUG 09 32/34 CALL @.80 LMT 1) we are talking about options, these are a derivative product whose price is based on 6 variables. 2) options allow you to create risk out of thin air, and those risks come with shapes, and the only limit is your imagination (and how much your margin/borrowing costs are). Whereas a simple asset like the shares for $IYR only has a linear risk profile. stock goes up, you make money, stock goes down, you lose money, and that risk graph looks linear. a \\\"\\\"vertical\\\"\\\" has a nonlinear risk profile 3) a vertical is a type of \\\"\\\"spread\\\"\\\" that requires holding options that expire at the same time, but at different strike prices. 3b) This particular KIND of vertical is called a bear call spread (BCS). Since you are bearish (this makes money if the stock goes down, or stays in a very specific range) but are using calls which are a bullish options product. 4) -10 means you are selling the vertical. +10 means you are buying the vertical. A \\\"\\\"long\\\"\\\" vertical is initiated by buying an option closer to the money, and selling an option at a higher strike price. This would be +X A \\\"\\\"short\\\"\\\" vertical is initiated by selling an option closer to the money and buying an option at a higher strike price. The quantity would be -X 5) 32/34 stands for the strike prices. so you would be selling 10 call options at the 32 strike price, and buying 10 call options at the 34 strike price, both options expire in August 6) LMT stands for limit order, and $.80 is the limit order price that is desired. OPENING a vertical spread requires knowledge of options as well as how to send orders. MANAGING a vertical requires even more finesse, as you can \\\"\\\"leg-in\\\"\\\" and \\\"\\\"leg-out\\\"\\\" of spreads, without sending the entire order to the exchange floor at once. There is much to learn.\\\"\",\n \"As other answers state, selling the options contracts to the market is a definite way out, and probably the best in most cases. If you're determined to exercise your options (or there's not enough liquidity to reasonably sell your contracts to the market), then you could plan ahead and exercise smaller number of contracts at a time and sell the resulting position in the underlying, which will give you funds to exercise some more contracts and sell the underlying. If you think you're going down this path, however, make sure that you take into account your broker's rules for settlement. You may need to start the exercise / sell cycle before the option's expiration date.\",\n \"The buyer pays $1.99/share for the option of selling a share of AMD to the seller for $10 which is currently $1.94 higher than the price of $8.06/share. If you bought the put and immediately exercised it, you would come out of the deal losing $.05/share.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"Can anyone explain what each of them mean and how they're different from each other? When you \"\"buy to open\"\", you are purchasing an option and opening a new position. When you \"\"sell to open\"\", you are creating a brand new options contract and selling it. \"\"Covered\"\" means that you have assets in your account to satisfy the terms of the options contract. A \"\"covered call\"\" is a call option for which you own shares of the underlying stock that you will sell to the buyer at the option's strike price if he exercises the option. If you previously made a \"\"sell to open\"\" trade to create a new position, and you want to close the position, you can buy back the option. If you previously made a \"\"buy to open\"\" trade, you can \"\"sell to close\"\" which will sell back your option and close your position. In summary:\"","\"With stocks, you can buy or sell. If you sell first, that's called 'shorting.' As in \"\"I think linkedin is too high, I'm going to short it.\"\" With options, the terminology is different, the normal process is to buy to open/sell to close, but if you were shorting the option itself, you would first sell to open, i.e you are selling a position to start it, effectively selling it short. Eventually, you may close it out, by buying to close. Options trading is not for the amateur. If you plan to trade, study first and be very cautious.\"","\"The two dimensions are to open the trade (creating a position) and to buy or sell (becoming long or short the option). If you already own an option, you bought it to open and then you would sell it to close. If you don't own an option, you can either buy it to open, or sell it (short it) to open. If you are already short an option, you can buy it back to close. If you sell to open covered, the point is you're creating a \"\"covered call\"\" which means you own the stock, and then sell a call. Since you own the stock, the covered call has a lot of the risk of loss removed, though it also subtracts much of the reward possible from your stock.\""],"string":"[\n \"\\\"Can anyone explain what each of them mean and how they're different from each other? When you \\\"\\\"buy to open\\\"\\\", you are purchasing an option and opening a new position. When you \\\"\\\"sell to open\\\"\\\", you are creating a brand new options contract and selling it. \\\"\\\"Covered\\\"\\\" means that you have assets in your account to satisfy the terms of the options contract. A \\\"\\\"covered call\\\"\\\" is a call option for which you own shares of the underlying stock that you will sell to the buyer at the option's strike price if he exercises the option. If you previously made a \\\"\\\"sell to open\\\"\\\" trade to create a new position, and you want to close the position, you can buy back the option. If you previously made a \\\"\\\"buy to open\\\"\\\" trade, you can \\\"\\\"sell to close\\\"\\\" which will sell back your option and close your position. In summary:\\\"\",\n \"\\\"With stocks, you can buy or sell. If you sell first, that's called 'shorting.' As in \\\"\\\"I think linkedin is too high, I'm going to short it.\\\"\\\" With options, the terminology is different, the normal process is to buy to open/sell to close, but if you were shorting the option itself, you would first sell to open, i.e you are selling a position to start it, effectively selling it short. Eventually, you may close it out, by buying to close. Options trading is not for the amateur. If you plan to trade, study first and be very cautious.\\\"\",\n \"\\\"The two dimensions are to open the trade (creating a position) and to buy or sell (becoming long or short the option). If you already own an option, you bought it to open and then you would sell it to close. If you don't own an option, you can either buy it to open, or sell it (short it) to open. If you are already short an option, you can buy it back to close. If you sell to open covered, the point is you're creating a \\\"\\\"covered call\\\"\\\" which means you own the stock, and then sell a call. Since you own the stock, the covered call has a lot of the risk of loss removed, though it also subtracts much of the reward possible from your stock.\\\"\"\n]","isConversational":false}}},{"rowIdx":361,"cells":{"_id":{"kind":"string","value":"4007"},"query":{"kind":"string","value":"What is a reasonable salary for the owner and sole member of a small S-Corp?"},"gt_ids":{"kind":"list like","value":["556220","388704","521657"],"string":"[\n \"556220\",\n \"388704\",\n \"521657\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1],"string":"[\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["556220","260385","205341","388704","147358","129540","127347","352838","125696","458431","34887","515233","385073","315552","454035","194955","327232","141458","70109","102995","458079","150219","521933","80866","11401","249322","28347","308255","499189","17166","590310","159162","315780","398600","195637","170933","595822","509111","285895","125140","231719","217472","257703","413694","355897","152502","500744","397920","70452","260848","423074","521489","490630","346374","520584","191473","540834","213185","441568","154931","510441","129503","65040","336917","29835","589398","215920","109546","508078","386869","405721","82628","304479","132738","63047","193367","290452","61798","334603","20036","321500","344340","18850","247760","9748","540334","406561","579628","349348","454537","565540","370542","64598","143862","157233","50310","17215","584160","135595","325677"],"string":"[\n \"556220\",\n \"260385\",\n \"205341\",\n \"388704\",\n \"147358\",\n \"129540\",\n \"127347\",\n \"352838\",\n \"125696\",\n \"458431\",\n \"34887\",\n \"515233\",\n \"385073\",\n \"315552\",\n \"454035\",\n \"194955\",\n \"327232\",\n \"141458\",\n \"70109\",\n \"102995\",\n \"458079\",\n \"150219\",\n \"521933\",\n \"80866\",\n \"11401\",\n \"249322\",\n \"28347\",\n \"308255\",\n \"499189\",\n \"17166\",\n \"590310\",\n \"159162\",\n \"315780\",\n \"398600\",\n \"195637\",\n \"170933\",\n \"595822\",\n \"509111\",\n \"285895\",\n \"125140\",\n \"231719\",\n \"217472\",\n \"257703\",\n \"413694\",\n \"355897\",\n \"152502\",\n \"500744\",\n \"397920\",\n \"70452\",\n \"260848\",\n \"423074\",\n \"521489\",\n \"490630\",\n \"346374\",\n \"520584\",\n \"191473\",\n \"540834\",\n \"213185\",\n \"441568\",\n \"154931\",\n \"510441\",\n \"129503\",\n \"65040\",\n \"336917\",\n \"29835\",\n \"589398\",\n \"215920\",\n \"109546\",\n \"508078\",\n \"386869\",\n \"405721\",\n \"82628\",\n \"304479\",\n \"132738\",\n \"63047\",\n \"193367\",\n \"290452\",\n \"61798\",\n \"334603\",\n \"20036\",\n \"321500\",\n \"344340\",\n \"18850\",\n \"247760\",\n \"9748\",\n \"540334\",\n \"406561\",\n \"579628\",\n \"349348\",\n \"454537\",\n \"565540\",\n \"370542\",\n \"64598\",\n \"143862\",\n \"157233\",\n \"50310\",\n \"17215\",\n \"584160\",\n \"135595\",\n \"325677\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"The answer depends on this: If you had to hire someone to do what you are doing in the S-corp, what would you pay them? If you are doing semi-unskilled work part-time, then $20k might be reasonable. If you are a professional working full time, it's too low. Don't forget that, in addition to \"\"billable\"\" work, you are also doing office tasks, such as invoicing and bookkeeping, that the IRS will also want to see you getting paid for. There was an important court ruling on this subject recently: Watson v. Commissioner. Watson owned an S-Corp where he was the sole employee. The S-Corp itself was a 25% owner in a very successful accounting firm that Watson worked through. All of the revenue that Watson generated at the accounting firm was paid to the S-Corp, which then paid Watson through salary and distributions. Watson was paying himself $24k a year in salary and taking over $175k a year in distributions. For comparison, even first-year accountants at the firm were making more than $24k a year in salary. The IRS determined that this salary amount was too low. To determine an appropriate amount for Watson's salary, the IRS did a study of the salaries of peers in firms of the same size as the firm Watson was working with, taking into account that owners of firms earn a higher salary than non-owners. The number that the IRS arrived at was $93k. Watson was allowed to take the rest ($80k+ each year) as distributions. Again, this number was based on a study of the salaries of peers. It was far short of the $200k+ that the S-Corp was pulling in from the accounting firm. Clearly, Watson was paying himself far too low of a salary. But even at this extreme example, where Watson's S-Corp was directly getting all of its revenue from one accounting firm in which Watson was an owner, the IRS still did not conclude that all of the revenue should have been salary and subject to payroll taxes. You should ask an accountant or attorney for advice. They can help you determine an appropriate amount for your salary. Don't be afraid of an audit, but make sure that you can defend your choices if you do get audited. If your choices are based on professional advice, that will help your case. See these articles for more information:\"","We don't make enough to really consider it a salary, but I've heard using a draw without a salary is a bad idea. As any other illegal action, not paying yourself a reasonable salary when being a corporate officer is indeed a bad idea. I have no idea what I need to do to actually get some money in our pockets. The answer is simple. You need to earn more money. Since it is S-Corp, it doesn't matter if you keep the profits on the corporate account or distribute - the profits will be taxed to you. You are also, as I said above, required by law to pay yourself a reasonable salary. Reasonable meaning corresponding to market rates. Paying a CPA or a Software Engineer a minimum wage will not be reasonable. That is, of course, if you're profitable, you're not required to pay yourself more money than the corporation actually has. Just to be clear, my answer refers to the question asked, and the confusing answer above that made a claim that has no substantiation in the law. I do not intend to write a thesis about pros and cons of using S-Corp every time a question about reasonable salary is asked.","\"Am I on crack, or do the perceived tax savings via S-Corp distributions really not matter at a certain level of business income? You're not on crack. Generally, if all the income is generated by your own personal services - this is the outcome. The benefit of S-Corp is when you have employees who generate your income, and you distribute to yourself profits that come out of other's personal services. In this case your distributions are exempt from FICA since it is not in fact a self-employment income. You'd still have to pay yourself a reasonable salary for your position (as a manager/officer), but it wouldn't have to cover all of the available profits. So if the IRS takes a position against you it would be that your salary should be to include the whole profits, since it is the compensation to you for the personal services that produced the income to the corporation (you). In many cases they might agree that a salary at the SS maximum limit would be reasonable - but that's only a speculation of mine. In that case you might gain some portion of the medicare tax (with the recent law changes at the levels you're talking about you'll pay some medicare anyway). There are a lot of accountants who take more aggressive position saying that not all of the distributions are liable for SE taxes, even if you're the sole employee of the corporation. These cases often end up in the Tax Court, and whatever the outcome, your legal fees become higher than the FICA savings. What is probably missing in your picture is the SS limit of (currently $112K) above which you don't pay social security tax, so whether you get it as a salary or as a distribution - that limit is the same. That is why you don't see a significant difference. I know there are a lot of accountants who'd disagree, but I would argue that for a sole employee of your company, S-Corp doesn't provide significant benefits over the disregarded LLC taxation, but has some additional overhead that adds to your expenses. Here's a link to a lawyer's blog where he suggests (and says many accountants follow) 60/40 division between salary and distributions. I.e.: his take, similarly to mine, is that most of the earnings have to be treated as salary. In your case, when the total is about 300K - you indeed will not get any FICA savings with such a division other than some of the medicare. Unusually low wages when compared to distributions can draw unwanted IRS scrutiny and an audit. An unfavorable audit will likely result in some portion of the distributions being reclassified as earned income for federal income tax purposes, which results in a deficiency assessment (i.e., a tax bill), interest on those unpaid taxes, and IRS penalties. The article also talks about the Watson case (one of the Tax Court cases I referred to), which can be used as the guidelines for determining the \"\"reasonable\"\" compensation. Talk to your tax adviser. I'm neither a tax adviser nor a tax professional. For a tax advice contact a CPA/EA licensed in your state. This is not a tax advice, just my personal opinion.\"","\"Generally if you're a sole S-Corp employee - it is hard to explain how the S-Corp earned more money than your work is worth. So it is reasonable that all the S-Corp profits would be pouring into your salary. Especially when the amounts are below the FICA SS limits when separating salary and distributions are a clear sign of FICA tax evasion. So while it is hard to say if you're going to be subject to audit, my bet is that if you are - the IRS will claim that you underpaid yourself. One of the more recent cases dealing with this issue is Watson v Commissioner. In this case, Watson (through his S-Corp which he solely owned) received distributions from a company in the amounts of ~400K. He drew 24K as salary, and the rest as distributions. The IRS forced re-characterizing distributions into salary up to 93K (the then-SS portion of the FICA limit), and the courts affirmed. Worth noting, that Watson didn't do all the work himself, and that was the reason that some of the income was allowed to be considered distribution. That wouldn't hold in a case where the sole shareholder was the only revenue producer, and that is exactly my point. I feel that it is important to add another paragraph about Nolo, newspaper articles, and charlatans on the Internet. YOU CANNOT RELY ON THEM. You cannot defend your position against IRS by saying \"\"But the article on Nolo said I can not pay SE taxes on my earnings!\"\", you cannot say \"\"Some guy called littleadv lost an argument with some other guy called Ben Miller because Ben Miller was saying what everyone wants to hear\"\", and you can definitely not say \"\"But I don't want to pay taxes!\"\". There's law, there are legal precedents. When some guy on the Internet tells you exactly what you want to hear - beware. Many times when it is too good to be true - it is in fact not true. Many these articles are written by people who are interested in clients/business. By the time you get to them - you're already in deep trouble and will pay them to fix it. They don't care that their own \"\"advice\"\" got you into that trouble, because it is always written in generic enough terms that they can say \"\"Oh, but it doesn't apply to your specific situation\"\". That's the main problem with these free advice - they are worth exactly what you paid for them. When you actually pay your CPA/Attorney - they'll have to take responsibility over their advice. Then suddenly they become cautious. Suddenly they start mentioning precedents and rulings telling you to not do things. Or not, and try and play the audit roulette, but these types are long gone when you get caught.\"","You tagged with S-Corp, so I assume that you have that tax status. Under that situation, you don't get taxed on distributions regardless of what you call them. You get taxed on the portion of the net income that is attributable to you through the Schedule K that the S-Corp should distribute to you when the S-Corp files its tax return. You get taxed on that income whether or not it's distributed. If you also work for the small business, then you need to pay yourself a reasonable wage. The amount that you distribute can be one factor in determining reasonableness. That doesn't seem to be what you asked, but it is something to consider.","\"The first rule I follow is pretty simple: Get paid for what you do. Earn a return on what you own. If you are running your company prudently, you should earn a salary for the position and responsibilities you hold within the business. This salary should be competitive. You should be able to replace yourself in the business at this salary. If your title is \"\"President\"\" or \"\"CEO\"\" - look for market rate salaries for others in that position within your industry and company size. If you wear multiple hats in a small business, you will likely have to blend this salary based on those various positions. Based on how you run your business, the money left over at the end of the year after you and your team takes a competitive wage is your profit. If there isn't any profit, then you might want to do some work on your business model. But if their is a profit, then it's a clear return on what you own and not just a payment for work completed. The idea would be that you could exit the business as an operator, pay someone else to do exactly what you do, and you would continue to get that profit return at the end of the year. This is when a business acts like a true asset. Whether you take your money in salary or profit distributions (or dividends) depending on your structure, taxes are about the same. W2'd salaries get normal employee contributed taxes, but then of course the company matches these. It is identical if you take a guaranteed payment or distribution that gets hit with self employment taxes. Profits are also going to get hit with the same taxes. Follow ups: 1) A fair salary would be a competitive market wage for the position you hold within the business. What is left over would be considered true profits and not just fabricated profits by taking a lower than market wage to boost the appearance of profitability. 2) Shareholders requesting salary information would be covered in your Operating Agreement or Shareholder Agreement. This might be terms you set with your investors. Or you might simply set a term that you only need approval if a single salary exceeds a cap (like $250,000). Which would mean you would need to present why you deserve a higher salary and have your board approve (if you are governed by said board via your investors). Profitability is a different ballpark. Your investors most likely have a right to see a monthly, quarterly, and/or annual Profit & Loss statement which should clearly state profitability. I can't imagine running a completely closed book company to my investors. Actually... I can't really imagine ever investing in a company where I am not permitted to see the financials. Something to also consider here is the threat of trying to keep your profit numbers low in order to not pay taxes or to pay yourself a higher salary. If you ever plan to sell or exit the company, most widely accepted valuations of a business are done from profits (or EBIDTA). You might think you are saving yourself a couple points on taxes by avoiding profits in the short term, but if you exit the business and get a 3-5X (or even up to 12X in some cases) multiplier on your annual profits, you might be kicking yourself for trying to hide them through your accounting practices. Buyers will often sniff out an owner who created false profits by not paying themselves, but what's harder to do is figure out how much profits should have been when there were none on the books. By saving yourself $100,000 in taxes this year, could add up to close to $1,000,000 in an acquisition. Good luck.\"","From your comment: My salary through 7/31 could pass for an annual salary for the industry. I suppose that’s relevant? That information would certainly be relevant if you were the owner since the beginning of the year. If that were the case then I would say you'd be fine skipping the salary for the rest of the year. It would be equivalent to simply front-loading your salary. However, since you didn't own any part of the company during the time you received the salary, I believe you should think of that salary as if it came from an entirely different company. This means that during the 5 months you owned the company you will have taken $0 in salary, and I believe that would not be reasonable if this job is your main source of income. As a side note, regarding this statement you made: During this time, I'd like to avoid the employer half of FICA taxes incurred by paying myself through payroll. You'd actually be avoiding both the employer and employee portion of FICA, since both sides of FICA are paid for employee compensation. FICA is not paid by either side on company profits.","\"If you start an LLC with you as the sole member it will be considered a disregarded entity. This basically means that you have the protection of being a company, but all your revenues will go on your personal tax return and be taxed at whatever rate your personal rate calculates to based on your situation. Now here is the good stuff. If you file Form 2553 you can change your sole member LLC to file as an S Corp. Once you have done this it changes the game on how you can pay out what your company makes. You will need to employ yourself and give a \"\"reasonable\"\" salary. This will be reported to the IRS and you will file your normal tax returns and they will be taxed based on your situation. Now as the sole member you can then pay yourself \"\"distribution to share holders\"\" from your account and this money is not subject to normal fica and social security tax (check with your tax guy) and MAKE SURE to document correctly. The other thing is that on that same form you can elect to have a different fiscal year than the standard calendar IRS tax year. This means that you could then take part of profits in one tax year and part in another so that you don't bump yourself into another tax bracket. Example: You cut a deal and the company makes 100,000 in profit that you want to take as a distribution. If you wrote yourself a check for all of it then it could put you into another tax bracket. If your fiscal year were to end say on sept 30 and you cut the deal before that date then you could write say 50,000 this year and then on jan 1 write the other check.\"","FICA/SE taxes are not 30%. They are at most ~15%, including the employer portion. Employer also pays FUTA tax, and has additional payroll expenses (like fees and worker compensation insurance). The employee's FICA portion is limited up to a certain level of earnings (110100 this year, IIRC). Above it you only pay medicare taxes, not social security. S-Corp earnings are not taxed at 15%, these are not dividends. They're taxed at your ordinary income rate. You don't pay SE taxes on it, that's the only difference. I hope you're talking about tax treatment decision, because there are entirely different factors to keep in mind when you're organizing a business and making a decision between being it a LLC or a corporation. I believe you should pay some money to get a real advice that would apply to you, from a EA/CPA who would be doing the number-crunching (hopefully correctly). I'm a tax practitioner, and this answer was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer.","\"There are no dividends from S-Corp. There are distributions. Big difference. S-Corps fill form 1120S and schedule K-1 per shareholder. In the schedule all the income of your S-Corp will be assigned to various categories that you will later copy to your personal tax return as your personal income. It is not dividend income. The reason people prefer to take distributions from their S-Corps instead of salary is because you don't pay SE taxes on the distributions. That is also the reason why the IRS forces you to pay yourself a reasonable salary. But the tax rate on the income, all of it, is your regular income tax rate, unless the S-Corp income is categorized in a preferred category. The fact that its an S-Corp income doesn't, by itself, allow any preferential treatment. If you're learning the stuff as you go - you should probably get in touch with a tax professional to advise you. All the S-Corp income must be distributed. Its not a matter of \"\"avoiding paying the tax\"\", its the matter of \"\"you must do it\"\". Not a choice. My answer was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer (circ 230 disclaimer).\"","\"Paying yourself through a corporation requires an analysis of a variety of issues. First, a salary paid to yourself creates RRSP contribution room as well as CPP contributions. Paying yourself a dividend achieves neither of those. By having a corporation, you will have to file a corporate (T2) tax return. The corporation is considered a separate legal entity from you. As an individual, you will still need to file a personal (T1) tax return. Never just \"\"draw\"\" money out of a corporation. This can create messy transactions involving loans to shareholders. Interest is due on these amounts and any amounts not paid within one calendar year are considered as wages by Canada Revenue and would need to be reported as income on your next T1 return. You should never withhold EI premiums as the sole owner of a corporation. You are considered exempt from these costs by CRA. Any amounts that have been remitted to CRA can be reclaimed by submitting a formal request. The decision on whether to take a salary or dividends normally requires some detailed analysis. Your accountant or financial advisor should be able to assist in this matter.\"","\"In the United States, with an S-Corp, you pay yourself a salary from company earnings. That portion is taxed at an individual rate. The rest of the company earnings are taxed as a corporation, which often have great tax benefits. If you are making over $80K/year, the difference can be substantial. A con is that there is more paperwork and you have to create a \"\"board\"\" of advisors.\"","It's whatever you decide. Taking money out of an S-Corp via distribution isn't a taxable event. Practically speaking, yes, you should make sure you have enough money to afford the distribution after paying your expenses, lest you have to put money back a few days later in to pay the phone bill. You might not want to distribute every penny of profit the moment you book it, either -- keeping some money in the business checking account is probably a good idea. If you have consistent cash flow you could distribute monthly or quarterly profits 30 or 60 days in arrears, for example, and then still have cash on hand for operations. Your net profit is reflected on the Schedule K for inclusion on your personal tax return. As an S-Corp, the profit is passed through to the shareholders and is taxable whether or not you actually distributed the money. You owe taxes on the profit reported on the Schedule K, not the amounts distributed. You really should get a tax accountant. Long-term, you'll save money by having your books set up correctly from the start rather than have to go back and fix any mistakes. Go to a Chamber of Commerce meeting or ask a colleague, trusted vendor, or customer for a recommendation.","Sounds you need to read up on S corp structures. I think this would benefit you if you generate income even after you physically stopped working which is incomes from membership fees, royalties % of customer revenue, middle man etc... Under the Scorp, you as the sole member must earn a wage that fair and at current market value. You pay social security and Medicare on this wage. The interesting thing here is that an Scorp can pay out earning dividends without having to pay payroll taxes but the catch is that you, as the sole employee must earn a fair wage. As for paying the other member you may want to look into 1099 contract work plus a finders fee. The 1099 hourly wage does not require you to pay Medicare and SS. The common fee I'm used to is 5% of gross invoice. Then you would pay her an hourly wage. The company then bills these hours multiplied by 2 or 3 (or whatever you think is fair) to the client. Deduct expenses from this and that's your profit. Example. Contractor brings Client A which is estimated as a 100 hour project with $100 cost in supplies and requires 2 hours of your time @ $40/hr. You quote 100 hours @ $50 to client, client agrees and gives you down payment. You then present the contract work to your contractor, they complete the work in 100 hours and bill you at $25. You pay your contractor 2500 plus the 5% ($250) and your company earns $2070 (5000 - 2500 - 100-80) And you'll earn $80 minus the payroll tax. Then at the end of the quarter or year or however you want to do earning payouts your LLC- Scorp will write you a check for $2070 or whatever earning % you want to take. This is then taxed at your income tax bracket. One thing to keep in mind is what is preventing this other person from becoming your competition? A partnership would be great motivation to try and bring in as much work under the LLC. But if you start shafting people then they'll just keep the work and cut you out.","\"Agreed on all points. You're still not saving a TON of money, given that you have to have a reasonable balance of salary/distributions, but an S-corp is the way to go if you're making substantial profit in order to save tax money. I'll reiterate (my wife is a CPA and she guides me on my business) - you can't legally save \"\"untaxed earnings\"\" for next year.\"","Do not mix personal accounts and corporate accounts. If you're paid as your self person - this money belongs to you, not the corporation. You can contribute it to the corporation, but it is another tax event and you should understand fully the consequences. Talk to a tax adviser (EA/CPA licensed in your State). If they pay to you personally (1099) - it goes on your Schedule C, and you pay SE taxes on it. If they pay to your corporation, the corporation will pay it to you as salary, and will pay payroll taxes on it. Generally, payroll through corporation will be slightly more expensive than regular schedule C. If you have employees/subcontractors, though, you may earn money which is not from your own performance, in which case S-Corp may be an advantage.","I think you're misunderstanding how S-Corp works. Here are some pointers: I suggest you talk with a EA/CPA licensed in your state and get yourself educated on what you're getting yourself into.","\"Not really, no. The assumption you're making—withdrawals from a corporation are subject to \"\"[ordinary] income tax\"\"—is simplistic. \"\"Income tax\"\" encompasses many taxes, some more benign than others, owing to credits and exemptions based on the kind of income. Moreover, the choices you listed as benefits in the sole-proprietor case—the RRSP, the TFSA, and capital gains treatment for non-registered investments—all remain open to the owner of a small corporation ... the RRSP to the extent that the owner has received salary to create contribution room. A corporation can even, at some expense, establish a defined benefit (DB) pension plan and exceed individual RRSP contribution limits. Yes, there is a more tax-efficient way for small business owners to benefit when it comes time to retirement. Here is an outline of two things I'm aware of: If your retirement withdrawals from your Canadian small business corporation would constitute withdrawal from the corporation's retained earnings (profits), i.e. income to the corporation that had already been subject to corporate income tax in prior years, then the corporation is able to declare such distributions as dividends and issue you a T5 slip (Statement of Investment Income) instead of a T4 slip (Statement of Remuneration Paid). Dividends received by Canadian residents from Canadian corporations benefit from the Dividend Tax Credit (DTC), which substantially increases the amount of income you can receive without incurring income tax. See TaxTips.ca - Non-eligible (small business) dividend tax credit (DTC). Quote: For a single individual with no income other than taxable Canadian dividends which are eligible for the small business dividend tax credit, in 2014 approximately $35,551 [...] could be earned before any federal* taxes were payable. * Provincial DTCs vary, and so combined federal/provincial maximums vary. See here. If you're wondering about \"\"non-eligible\"\" vs. \"\"eligible\"\": private small business corporation dividends are generally considered non-eligible for the best DTC benefit—but they get some benefit—while a large public corporation's dividends would generally be considered eligible. Eligible/non-eligible has to do with the corporation's own income tax rates; since Canadian small businesses already get a big tax break that large companies don't enjoy, the DTC for small businesses isn't as good as the DTC for public company dividends. Finally, even if there is hardly any same-year income tax advantage in taking dividends over salary from an active small business corporation (when you factor in both the income tax paid by the corporation and the individual), dividends still allow a business owner to smooth his income over time, which can result in a lower lifetime average tax rate. So you can use your business as a retained earnings piggy bank to spin off dividends that attract less tax than ordinary income. But! ... if you can convince somebody to buy your business from you, then you can benefit from the lifetime capital gains exemption of up to $800,000 on qualifying small business shares. i.e. you can receive up to $800K tax-free on the sale of your small business shares. This lifetime capital gains exemption is a big carrot—designed, I believe, to incentivize Canadian entrepreneurs to develop going-concern businesses that have value beyond their own time in the business. This means building things that would make your business worth buying, e.g. a valued brand or product, a customer base, intellectual property, etc. Of course, there are details and conditions with all of what I described, and I am not an accountant, so please consult a qualified, conflict-free professional if you need advice specific to your situation.\"","\"Without divulging too many specifics. Net income is 73k. Total income is 136k. Filed as an S-Corp. Using Quickbooks to classify expenses etc. I know its not much information but I don't know what to look out for, like \"\"whoa, net income is 73k, you gotta spend that!\"\" I have a CPA but isn't offering much in the terms of \"\"help\"\" and \"\"explanation\"\". Thanks for your time!\"","I think I may have figured this out but if someone could double check my reasoning I'd appreciate it. So if my company makes $75000 and I decide to pay myself a $30000 salary, then the quarterly payment break down would be like this: 1040ES: Would pay income tax on non salary dividend ($45000) 941: Would pay income tax, SS, medicare on salary ($30000) (I'm the only person on payroll) So I think this answers my question in that after switching from filing as LLC to S-corp, I won't have to pay as much on 1040ES because some of it will now be covered on payroll.","S-Corp income is passed through to owners and is taxed on their 1040 as ordinary income. If you take a wage (pay FICA) and then take additional distributions these are not subject to FICA. A lot of business owners will buy up supplies/ necessary expenses right before the end of the tax year to lower their tax liability.","\"We will bill our clients periodically and will get paid monthly. Who are \"\"we\"\"? If you're not employed - you're not the one doing the work or billing the client. Would IRS care about this or this should be something written in the policy of our company. For example: \"\"Every two months profits get divided 50/50\"\" They won't. S-Corp is a pass-through entity. We plan to use Schedule K when filing taxes for 2015. I've never filled a schedule K before, will the profit distributions be reflected on this form? Yes, that is what it is for. We might need extra help in 2015, so we plan to hire an additional employee (who will not be a shareholder). Will our tax liability go down by doing this? Down in what sense? Payroll is deductible, if that's what you mean. Are there certain other things that should be kept in mind to reduce the tax liability? Yes. Getting a proper tax adviser (EA/CPA licensed in your State) to explain to you what S-Corp is, how it works, how payroll works, how owner-shareholder is taxed etc etc.\"","These are all factually correct claims. S-Corporation is a pass-through entity, so whatever gain you have on the corporate level - is passed to the shareholders. If your S-Corp has capital gains - you'll get your pro-rata share of the capital gains. Interest? The same. Dividends? You get it on your K-1. Earned income? Taxed as such to you. I.e.: whether you earn income as a S-Corp or as a sole proprietor - matters not. That's the answer to your bottom line question. The big issue, however, is this: you cannot have more than 25% passive income in your S-Corp. You pass that limit (three consecutive years, one-off is ok) - your S-Corp automatically converts to C-Corp, and you're taxed at the corporate level at the corporate rates (you then lose the capital gains rates, personal brackets, etc). This means that an S-Corp cannot be an investment company. Most (75%+) of its income has to be earned, not passive. Another problem with S-Corp is that people who work as self-proprietors incorporated as S-Corp try to abuse it and claim that the income they earned by the virtue of their own personal performance shouldn't be taxed as self-employed income. IRS frowns upon such a position, and if considerable amounts are at stake will take you all the way up to the Tax Court to prove you wrong. This has happened before, numerously. You should talk to a licensed tax adviser (EA/CPA/Attorney licensed in your state) to educate you about what S-Corp is and how it is taxed, and whether or not it is appropriate for you.","I see a lot of people making the mistake or being given bad advise in structuring a new business. If you have more than one shareholder, then by all means an S Corporation is a better structure for lower taxes; avoid double taxation. If, however, this is a one shareholder S Corp, then you had better 1099 yourself as a consultant or look into sole proprietorship. The tax benefits are much better either way. Dr. Suraiya Shaik Ali","Lets just get to the point...Ordinary income (gains) earned from S-Corp operations (i.e. income earned after all expenses for providing services or selling products) is passed through to the owners/shareholders and taxed at the owner's personal tax rate. Separately, if an S-Corp earns capital gains (i.e. the S-Corp buys and sells stock, earns dividends from investments, etc), those gains are passed through to the owners and taxed at a capital gains rate Capital gains are not the same as ordinary income (gains). Don't get the two confused, they are as different for S-Corp taxation as they are for personal taxation. In some cases an exception occurs, but only when the S-Corp was formally a C-Corp and the C-Corp had non-distributed earnings or losses. This is a separate issue whereas the undistributed C-Corp gains/losses are treated differently than the S-Corp gains/losses. It takes years of college coursework and work experience to grasp the vast arena of tax. It should not be so complex, but it is this complex. It is not within the scope of the non-tax professional to make sense of this stuff. The CPA exams, although very difficult and thorough, only scrape the surface of tax and accounting. I hope this provides some perspective on any questions regarding business tax for S-Corps and any other entity type. Hire a good CPA... if you can find one.","I am a registered S-corp but for alot of industries that threshold is too low (I'm in housing) >Do you have any insight on average *effective* rates paid by SE owners? > >As a counterpoint to your (very valid) links, filing as S-corp allows for taxes on distributions to be exempt from payroll tax and taxed at much lower rates. Also, being SE allows for various deductions not possible for wage earners. There's probably other examples not immediately coming to mind. > >Also, SE taxes equal taxes otherwise paid by employer + employee. It's just that those employer taxes don't appear on the employee's paystub so not everyone realizes this. The article I posted also doesn't take into account state taxes, do example non deductible B&O, end user Sales tax or impact fees... That Employees don't pay or often even know about, yet some of us small business owners are also employees, so we get double taxed...","@littleadv is right, this depends on your country. Furthermore, this is likely to depend on the type of business you own (in the US: LLC, S-corp, C-corp). In some countries you have to provide yourself a minimum wage if you are classified as a major shareholder and work for the company. When there is a minimum level of wage you have to pay yourself the tax rate on wages is typically higher than on dividends. The wage you then receive is taxed in line with normal wage taxation rules. Above the minimum wage you can pay yourself in dividends.","Let me first start off by saying that you need to be careful with an S-Corp and defined contribution plans. You might want to consider an LLC or some other entity form, depending on your state and other factors. You should read this entire page on the irs site: S-Corp Retirement Plan FAQ, but here is a small clip: Contributions to a Self-Employed Plan You can’t make contributions to a self-employed retirement plan from your S corporation distributions. Although, as an S corporation shareholder, you receive distributions similar to distributions that a partner receives from a partnership, your shareholder distributions aren’t earned income for retirement plan purposes (see IRC section 1402(a)(2)). Therefore, you also can’t establish a self-employed retirement plan for yourself solely based on being an S corporation shareholder. There are also some issues and cases about reasonable compensation in S-Corp. I recommend you read the IRS site's S Corporation Compensation and Medical Insurance Issues page answers as I see them, but I recommend hiring CPA You should be able to do option B. The limitations are in place for the two different types of contributions: Elective deferrals and Employer nonelective contributions. I am going to make a leap and say your talking about a SEP here, therefore you can't setup one were the employee could contribute (post 1997). If your doing self employee 401k, be careful to not make the contributions yourself. If your wife is employed the by company, here calculation is separate and the company could make a separate contribution for her. The limitation for SEP in 2015 are 25% of employee's compensation or $53,000. Since you will be self employed, you need to calculate your net earnings from self-employment which takes into account the eductible part of your self employment tax and contributions business makes to SEP. Good read on SEPs at IRS site. and take a look at chapter 2 of Publication 560. I hope that helps and I recommend hiring a CPA in your area to help.","In theory the integration of taxes make the tax implications of paying salary or dividends equal. This is what happens when you calculate the taxes using a generic tax calculator, however, the theory breaks down in certain cases. If you are earning less than $100k there is very little difference and paying out a salary is usually the better option. In a large stable company the most efficient option is almost always a mix of both. If you are earning more than $100k a year it depends on a number of factors: 1) Are your companies annual earnings over $500,000? In Canada, private companies that earn more than $500,000 annually are taxed at a higher rate than those earning less than $500,000. If the earnings are above $500,000 generally you should reduce the earning to under $500,000 by paying a salary. However, this depends on the province, the other income of the owners are and how much more than $500,000 your company earns. 2) Are you eligible for deductions or benefits only available on earned income? Earned income is income that you have worked for, which does not include dividends. RRSP contribution room, child care expense deductions, CPP, and many other benefits under the CRA rules are only available to people who have an earned income. It is worth taking advantage of these deductions when they are available. 3) Is your company eligible for any tax deductions? The same as with your personal tax deductions and your personal benefits of earning income, having a corporate income is also a benefit. There are a number of tax credits and tax deductions that corporations can take advantage of and when available these should be taken advantage of before paying everything out in salary. Once all these questions are answered the calculation is based on your marginal tax rate and the tax rate of the Corporation. One other reason to have at least a portion of you salary as a dividend is that if you incur capital loss in your corporation you can pass them to your personal taxes. If you were payed 100% in salary this does not work. Other strategies to be more tax efficient: Income splitting (Pay a salary/dividend to yourself, your wife, your children your parents, or anyone you support). Rolling-over property with taxable gains into your private corporation. Buying insurance policies that gives a return of premium or increase your Capital Dividend Account (CDA).","According to the 401K information from the IRS' website, it seems that you could seemingly get away with a salary as low as $53,000. It's tough, and I'd suggest speaking with an Accounting professional to get the clear answers, because as Brick's answer suggests, the IRS isn't super clear about it. An excerpt from a separate page regarding 401K contributions: The annual additions paid to a participant’s account cannot exceed the lesser of: There are separate, smaller limits for SIMPLE 401(k) plans. Example 1: Greg, 46, is employed by an employer with a 401(k) plan and he also works as an independent contractor for an unrelated business. Greg sets up a solo 401(k) plan for his independent contracting business. Greg contributes the maximum amount to his employer’s 401(k) plan for 2015, $18,000. Greg would also like to contribute the maximum amount to his solo 401(k) plan. He is not able to make further elective deferrals to his solo 401(k) plan because he has already contributed his personal maximum, $18,000. He has enough earned income from his business to contribute the overall maximum for the year, $53,000. Greg can make a nonelective contribution of $53,000 to his solo 401(k) plan. This limit is not reduced by the elective deferrals under his employer’s plan because the limit on annual additions applies to each plan separately. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits","Alright, team! I found answers to part 1) and part 2) that I've quote below, but still need help with 3). The facts in the article below seem to point to the ability for the LLC to contribute profit sharing of up to 25% of the wages it paid SE tax on. What part of the SE tax is that? I assume the spirit of the law is to only allow the 25% on the taxable portion of the income, but given that I would have crossed the SS portion of SE tax, I am not 100%. (From http://www.sensefinancial.com/services/solo401k/solo-401k-contribution/) Sole Proprietorship Employee Deferral The owner of a sole proprietorship who is under the age of 50 may make employee deferral contributions of as much as $17,500 to a Solo 401(k) plan for 2013 (Those 50 and older can tack on a $5,500 annual catch-up contribution, bringing their annual deferral contribution to as much as $23,000). Solo 401k contribution deadline rules dictate that plan participant must formally elect to make an employee deferral contribution by Dec. 31. However, the actual contribution can be made up until the tax-filing deadline. Pretax and/or after-tax (Roth) funds can be used to make employee deferral contributions. Profit Sharing Contribution A sole proprietorship may make annual profit-sharing contributions to a Solo 401(k) plan on behalf of the business owner and spouse. Internal Revenue Code Section 401(a)(3) states that employer contributions are limited to 25 percent of the business entity’s income subject to self-employment tax. Schedule C sole-proprietors must base their maximum contribution on earned income, an additional calculation that lowers their maximum contribution to 20 percent of earned income. IRS Publication 560 contains a step-by-step worksheet for this calculation. In general, compensation can be defined as your net earnings from self-employment activity. This definition takes into account the following eligible tax deductions: (1) the deduction for half of self-employment tax and (2) the deduction for contributions on your behalf to the Solo 401(k) plan. A business entity’s Solo 401(k) contributions for profit sharing component must be made by its tax-filing deadline. Single Member LLC Employee Deferral The owner of a single member LLC who is under the age of 50 may make employee deferral contributions of as much as $17,500 to a Solo 401(k) plan for 2013 (Those 50 and older can tack on a $5,500 annual catch-up contribution, bringing their annual deferral contribution to as much as $23,000). Solo 401k contribution deadline rules dictate that plan participant must formally elect to make an employee deferral contribution by Dec. 31. However, the actual contribution can be made up until the tax-filing deadline. Pretax and/or after-tax (Roth) funds can be used to make employee deferral contributions. Profit Sharing Contribution A single member LLC business may make annual profit-sharing contributions to a Solo 401(k) plan on behalf of the business owner and spouse. Internal Revenue Code Section 401(a)(3) states that employer contributions are limited to 25 percent of the business entity’s income subject to self-employment tax. Schedule C sole-proprietors must base their maximum contribution on earned income, an additional calculation that lowers their maximum contribution to 20 percent of earned income. IRS Publication 560 contains a step-by-step worksheet for this calculation. In general, compensation can be defined as your net earnings from self-employment activity. This definition takes into account the following eligible tax deductions: (i) the deduction for half of self-employment tax and (ii) the deduction for contributions on your behalf to the Solo 401(k). A single member LLC’s Solo 401(k) contributions for profit sharing component must be made by its tax-filing deadline.","Do you have any insight on average *effective* rates paid by SE owners? As a counterpoint to your (very valid) links, filing as S-corp allows for taxes on distributions to be exempt from payroll tax and taxed at much lower rates. Also, being SE allows for various deductions not possible for wage earners. There's probably other examples not immediately coming to mind. Also, SE taxes equal taxes otherwise paid by employer + employee. It's just that those employer taxes don't appear on the employee's paystub so not everyone realizes this.","With this level of income, you might consider a Solo 401(k). It would allow you a much higher level of contributions and is more appropriate for your savings than the limited IRA deposits. It also offers a considerable number of options not available for IRAs. A loan for example.","The answer again is yes, you will still show profit. Let's assume a 35% interest rate to show you why. If you have $1.000.000 in net profit, that means your Profit before tax was $1.538.462. So if you pay yourself a $1.000.000 salary then your profit before tax is $538.462 and your net profit is $350.000. I hope that helps you understand.","In addition to the normal limits, A Solo 401(k) allows you to contribute up to 20% of net profits (sole proprietor) or 50% of salary (if a corporation), up to $49,000. Note that the fees for 401(k) accounts are higher than with the IRA. See 401(k)s for small business.","\"S-Corp are taxed very different. Unlike LLC where you just add the profit to your income with S-Corp you have to pay yourself a \"\"reasonable\"\" salary (on w-2) which of course is a lot more paperwork. I think the advantage (but don't hold me accountable for this) is if your S-Corp makes a lot more than a reasonable salary, then the rest of the money can be passed through on your personal return at a lower (corp) rate.\"","Payroll taxes are only paid on salary, so you will be paying SS Tax and Medicare only on the $60,000 you pay yourself. You will still pay income tax on the distribution, of course, but the payroll tax savings seem significant (~$13K according to the calculator below). While tinkering with a new web technology some time ago, I created this JsFiddle application. I can't swear to its correctness, but I'm pretty sure it's solid (use the UI in the bottom right quadrant of the screen): http://jsfiddle.net/psandler/NKAZd/","No there is no way to have untaxed earnings. Single Member LLC are taxed on your personal taxes. Partnership LLC is taxed on your and your partners personal taxes. An C-Corp LLC has its own tax bracket. An S-Corp is taxed on your personal taxes (but does not get taxed as self-employment taxes). At $500,000, YOU SHOULD BE AN S-CORP or C-CORP to save on self-employment taxes.","A combination of market research and tax law would likely be the combination used to set the salary. An elaboration of each: Taxes - In Canada and the US there can be differences in how payments are treated if they are salary,e.g. payroll taxes such as CPP, Social Security and others may apply in this case as well as personal income tax rates, or dividends, which may have different treatments in some jurisdictions I believe. If salary above $250,000 is taxed at 40% and dividends are taxed at 15%, which rate would you rather pay? (This is hypothetical as no jurisdiction has been noted here yet.) Most provinces and states in North America will tax the first few dollars at rather low rates and so it isn't bad to take a nominal rate of $1 or so in salary as usually the higher rates exist for higher salaries. Executive Compensation has come under scrutiny in recent years though it is usually a mix of salary, bonuses, and stock either restricted or options. Market Research - Some companies may research what other small public companies would pay executives as the salary may have to be approved by a board of directors in some cases. At least this would be how I remember things being decided in small companies I worked for in Washington State and the province of Alberta. In a lot of company cases, excess earnings are stored and if there is enough of a pile then a special dividend may be given out though some corporate structures like REITs force dividends to maintain their tax status. Note the payment in dividend here requires that the President be able to dictate what happens with the cash in the bank of a company which isn't going to be the case for the regular employee. Also, the dividends here would go to all the shareholders and thus if there are people besides the President owning shares they would also get their portion based on what they own.","\"If you elect to have the company treated as an S corp, the profits/losses of the company will pass through to the shareholders (i.e. you) on a Schedule K-1 form every year. These amounts on the Schedule K-1 are taxable whether or not the company actually distributed the money to you. Typically, the company will distribute profits to the shareholders because they will have to pay taxes on this amount. https://turbotax.intuit.com/tax-tools/tax-tips/Small-Business-Taxes/What-is-a-Schedule-K-1-Tax-Form-/INF19204.html So the money held in the company's bank accounts won't appear on your taxes per se, but the profits/losses as reported on the company's tax return will pass through to you on the Schedule K-1. Typically these amounts are taxed as income. Your tax accountant can advise you on how much money you can/should take through regular payroll and how much can be distributed as a shareholder, as well as help you prepare the corporate tax returns and schedule(s) K-1 every year. There are tax advantages to taking money out of the company through distributions instead of payroll, but the amounts can be scrutinized and subject to a criterion of \"\"reasonable compensation\"\", hence my recommendation for a tax accountant.\"","Phil's answer is correct. Just to add to his response: Distributions are not taxable events -- you already paid your taxes, so you can take out $50k or $52k and the IRS is not concerned. You can simply write yourself a check for any amount you choose! To answer your specific question: to match your K1 losses and profit exactly, you could take out $50k. But that might leave the business strapped for cash. One way to decide how much to take out is to use your balance sheet. Look at your retained earnings (or just look at the business bank account balance), subtract however much cash you think you need to keep on hand for operations, and write yourself a check for the rest.","As you own a company, you need to know what your role is. You can never just move money into or out of the company, you have to identify the role in which you are doing it, and do it properly. There is Company, and there is You, in three different roles. You are the sole shareholder and director of Company. You are the sole employee of Company. You are also just a private person. You need to keep these three roles separate. As the sole shareholder, you own the company. However, you don't own any assets of the company. The company is yours, but the money in its bank account isn't. As a private person, you give a loan to your company. You write on a sheet of paper that You personally, give a loan to the company, how much a loan is, what interest is paid, and when the loan will be paid back (that could be 'whenever You demands the money paid back'). Then you move the money from your private bank account to the company bank account, and the company has the money it needs to fund its operation. Assume it wasn't you who loaned the money, but I gave the loan to the company. You can imagine that I would have this loan written down and signed before I hand over the cash. And you must have exactly the same papers that I would have. How do you get money from the company? The company can pay back your loan. That should be written down again, in the same way as the loan itself was written down. Other than that, there are three ways how you can get money out of the company: The company can pay You, in your role as its employee, a salary, which it can deduct from its profits. The company can pay money into a pension of the company director (that's You in your role as company director) up to £40,000 or so a year; that money is deducted from its profits again. The company pays 20% tax on its remaining profits. Then the company can pay You, in your role as company director, a dividend, usually twice a year. Each of these payments has to be written down and given to HMRC properly. Best by far to use an accountant to do all the paper work for you and advice you what to do. You can lose a lot of money by just not getting the paperwork right, by filing late etc., which the accountant will get right. The accountant will also tell you what are the optimal amounts for salary and dividend (best is a small salary, about £10,000 a year, dividend of about £30,000 a year, pension as much as the company can afford, which is then all tax free to you). You can't pay more dividend then the company can afford (paying a dividend and then not being able to pay your suppliers is criminal), and if you want higher dividends, then you will have to pay taxes on them.","\"How can I avoid this, so we are taxed as if we are making the $60k/yr that we want to receive? You can't. In the US the income is taxed when received, not when used. If you receive 1M this year, taking out 60K doesn't mean the other 940K \"\"weren't received\"\". They were, and are taxable. Create a pension fund in the corporation, feed it all profits, and pay out $60k/yr of \"\"pension\"\". I doubt that the corporation could deduct a million a year in pension funding. You cannot do that. You can only deposit to a pension plan up to 100% of your salary, and no more than $50K total (maybe a little more this year, its adjusted to inflation). Buy a million dollars in \"\"business equipment\"\" of some sort each year to get a deduction, then sell it over time to fund a $60k/yr salary. I doubt such a vehicle exists. If there's no real business purpose, it will be disallowed and you'll be penalized. Your only purpose is tax avoidance, meaning you're trying to shift income using your business to avoid paying taxes - that's illegal. Do crazy Section 79 life insurance schemes to tax-defer the income. The law caps this so I can only deduct < $100k of the $1 million annually, and there are other problems with this approach.\\ Yes. Wouldn't go there. Added: From what I understand, this is a term life insurance plan sponsored by the employer for the employee. This is not a deferral of income, but rather a deduction: instead of paying your term life insurance with your own after tax money, your employer pays with their pre-tax. It has a limit of $50K per employee, and is only available for employees. There are non-discrimination limitations that may affect your ability to use it, but I don't see how it is at all helpful for you. It gives you a deduction, but its money spent, not money in your pocket. End added. Do some tax avoidance like Facebook does with its Double Irish trick, storing the income in some foreign subsidiary and drawing $60k/yr in salary to be taxed at $60k/yr rates. This is probably cost-prohibitive for a $1MM/yr company. You're not Facebook. What works with a billion, will not work with a million. Keep in mind that you're a one-man business, things that huge corporations like Google or Facebook can get away with are a no-no for a sole-proprietor (even if incorporated). Bottom line you'll probably have to pay the taxes. Get a good tax professional to help you identify as much deductions as possible, and if you can plan income ahead - plan it better.\"","\"The \"\"hire a pro\"\" is quite correct, if you are truly making this kind of money. That said, I believe in a certain amount of self-education so you don't follow a pro's advice blindly. First, I wrote an article that discussed Marginal Tax Rates, and it's worth understanding. It simply means that as your income rises past certain thresholds, the tax rate also will change a bit. You are on track to be in the top rate, 33%. Next, Solo 401(k). You didn't ask about retirement accounts, but the combined situations of making this sum of money and just setting it aside, leads me to suggest this. Since you are both employer and employee, the Solo 401(k) limit is a combined $66,500. Seems like a lot, but if you are really on track to make $500K this year, that's just over 10% saved. Then, whatever the pro recommends for your status, you'll still have some kind of Social Security obligation, as both employer and employee, so that's another 15% or so for the first $110K. Last, some of the answers seemed to imply that you'll settle in April. Not quite. You are required to pay your tax through the year and if you wait until April to pay the tax along with your return, you will have a very unpleasant tax bill. (I mean it will have penalties for underpayment through the year.) This is to be avoided. I offer this because often a pro will have a specialty and not go outside that focus. It's possible to find the guy that knows everything about setting you up as an LLC or Sole Proprietorship, yet doesn't have the 401(k) conversation. Good luck, please let us know here how the Pro discussion goes for you.\"","\"First, point: The CRA wants you to start a business with a \"\"Reasonable expectation of profit\"\". They typically expect to see a profit within 5 years, so you may be inviting unwanted questions from future auditors by using a breakeven strategy. Second point: If the goal is to pay as little tax as possible, you may want to consider having the corporation pay you as little as possible. Corporate income taxes are much lower than personal income taxes, according to these two CRA links: How it works is that your company pays you little as an outright salary and offers you perks like a leased company car, expense account for lunch and entertainment, a mobile phone, computer, etc. The company owns all of this stuff and lets you use it as part of the job. The company pays for all this stuff with corporate pre-tax dollars as opposed to you paying for it with personal after-tax dollars. There are specifics on meals & entertainment which modify this slightly (you can claim 50%) but you get the idea. The actual rate difference will depend on your province of residence and your corporate income level. There is also a requirement for \"\"Reasonable Expenses\"\", such that the expenses have to be in line with what you are doing. If you need to travel to a conference each year, that would be a reasonable expense. Adding your family and making it a vacation for everyone would not. You can claim such expenses as a sole proprietor or a corporation. The sole-proprietorship option puts any after-expense profits into your pocket as taxable income, where the corporate structure allows the corporation to hold funds and limit the amount paid out to you. I've seen this strategy successfully done first-hand, but have not done it myself. I am not a lawyer or accountant, consult these professionals about this tax strategy before taking any action.\"","\"Even under the executive exemption, see Exemption for Executive Employees Under the Fair Labor Standards Act (FLSA) Section 13(a)(1) as defined by Regulations, 29 CFR Part 541, it seems that a minimum compensation is required. To qualify for the executive employee exemption, all of the following tests must be met: The employee must be compensated on a salary basis (as defined in the regulations) at a rate not less than $455 per week... etc. There is one other possibility under FLSA Section 13(a)(1), as a \"\"bona fide exempt executive\"\". Exemption of Business Owners Under a special rule for business owners, an employee who owns at least a bona fide 20-percent equity interest in the enterprise in which employed, regardless of the type of business organization (e.g., corporation, partnership, or other), and who is actively engaged in its management, is considered a bona fide exempt executive.\"","\"Get an accountant. Now. There are many subtle things that you do not know especially if you are just starting with your own corporation. There is also an issue of corporate tax return that you will have to face pretty soon. You should be looking for accountant that does accounting for corporations, there are companies specializing in small business. I do not think you can \"\"just\"\" transfer money to your personal account. They have to be treated as dividends and treated as such for income tax purposes. Or, as you described, you may pay yourself a salary, but then you have to pay CPP and EI on top of that. When you pay yourself dividends your corporation will need to issue T5 slip for you (accountant will do that) that you will need to use when preparing personal tax return. If you pay yourself salary, corporation will need to give you T4 In terms of tax treatment, if we do not take RRSP contributions dividend tax treatment will leave little bit more money in your hands. I'd say if you have RRSP room and/or TFSA room, pay yourself dividends and then do contributions as you see fit, if you need RRSP room, pay yourself salary. TFSA room does not depend on the type of income, so if you have room there, consider filling it first.\"","I heard that a C-Corp being a one person shop (no other employees but the owner) can pay for the full amount 100% of personal rent if the residence is being used as a home office. Sure. Especially if you don't mind being audited. Technically, it doesn't matter how the money gets where it goes as long as the income tax filings accurately describe the tax situation. But the IRS hates it when you make personal expenses from a business account, even if you've paid the required personal income tax (because their computers simply aren't smart enough to keep up with that level of chaos). Also, on a non-tax level, commingling of business and personal funds can reduce the effectiveness of your company's liability protection and you could more easily become personally liable if the company goes bankrupt. From what I understand the 30% would be the expense, and the 70% profit distribution. I recommend you just pay yourself and pay the rent from your personal account and claim the allowed deductions properly like everyone else. Why & when it would make sense to do this? Are there any tax benefits? Never, because, no. You would still have to pay personal income tax on your 70% share of the rent (the 30% you may be able to get deductions for but the rules are quite complicated and you should never just estimate). The only way to get money out of a corporation without paying personal income tax is by having a qualified dividend. That's quite complicated - your accounting has to be clear that the money being issued as a qualified dividend came from an economic profit, not from a paper profit resulting from the fact that you worked hard without paying yourself market value.","\"You probably don't need S-Corp. There's no difference between what you can deduct on your Schedule C and what you can deduct on 1120S, it will just cost you more money. Since you're gambling yourself, you don't need to worry about liability - but if you do, you should probably go LLC route, much cheaper and simpler. The \"\"reasonable salary\"\" trick to avoid FICA won't work. Don't even try. Schedule C for professional gamblers is a very accepted thing, nothing extraordinary about it.\"","\"If you're really interested in the long-term success of your business, and you can get by in your personal finances without taking anything from the business for the time being, then don't. There is no \"\"legal requirement\"\" to pay yourself a prevailing wage if doing so would put the company out of business. it is common for a company's principals not to draw wages from the business until it is viable enough to sustain payroll. I was in that situation when I first began my business, so the notion that somehow I'm violating a law by being fiscally responsible for my own company is nonsense. Be wise with your new business. You didn't state why you feel the need to take some kind of payment out, but this can be a crucial mistake if it imperils your business or if that money could be better spent on marketing or some other areas which improve revenues. You can always create a salary deferral agreement between yourself and your own company which basically states that the company owes you wages but you are, for the time being, willing to defer accepting them until such time that the company has sufficient revenues to pay you. That's one solution, but the simplest answer is, if you don't need the money you're thinking of paying yourself, don't do it. Let that money work for you in the business so that it pays off better in the long run. Good luck!\"","There are many aspects to consider in deciding what sort of company you want to form. Instead of an S-corporation, you should determine whether it would be better to form a Limited Liability Company (LLC), Limited Partnership (LP) or even a professional company (PC). Littleadv is correct: There is minimal benefit in forming an S-corp with you and your wife as the shareholders, if you will be the only contributor-worker. There are costs associated with an S-corporation, or any corporation, that might outweigh benefits from more favorable tax treatment, or personal protection from liability: Filing fees and disclosure rules vary from state to state. For example, my father was a cardiologist who had no employees, other than my grandmother (she worked for free), in a state with income taxes (NM). He was advised that a PC was best in New Mexico, while an S-Corp was better in Florida (there are no personal income taxes in Florida). The only way to know what to do requires that you consult an accountant, a good one, for guidance.","\"If you have an S-Corp with several shareholders - you probably also have a tax adviser who suggested using S-Corp to begin with. You're probably best off asking that adviser about this issue. If you decided to use S-Corp for multiple shareholders without a professional guiding you, you should probably start looking for such a professional, or you may get yourself into trouble. That said, and reminding you that: 1. Free advice on the Internet is worth exactly what you paid for it, and 2. I'm not a tax professional or tax adviser, you should talk to a EA/CPA licensed in your state, here's this: Generally S-Corps are disregarded entities for tax purposes and their income flows to their shareholders individual tax returns through K-1 forms distributed by the S-Corp yearly. The shareholders don't have to actually withdraw the profits, but if not withdrawing - they're added to their cost bases in the shares. I'm guessing your corp doesn't distribute the net income, but keeps it on the corporate account, only distributing enough to cover the shareholders' taxes on their respective income portion. In this case - the amount not distributed is added to their basis, the amount distributed has already been taxed through K-1. If the corporation distributes more than the shareholder's portion of net income, then there can be several different choices, depending on the circumstances: The extra distribution will be treated as salary to the shareholder and a deduction to the corporation (i.e.: increasing the net income for the rest of the shareholders). The extra distribution will be treated as return of investment, reducing that shareholder's basis in the shares, but not affecting the other shareholders. If the basis is 0 then it is treated as income to the shareholder and taxed at ordinary rates. The extra distribution will be treated as \"\"buy-back\"\" - reducing that shareholder's ownership stake in the company and reallocating the \"\"bought-back\"\" portion among the rest of the shareholders. In this case it is treated as a sale of stock, and the gain is calculated as with any other stock sale, including short-term vs. long-term taxation (there's also Sec. 1244 that can come in handy here). The extra distribution will be treated as dividend. This is very rare for S-Corp, but can happen if it was a C-Corp before. In that case it will be taxed as dividends. Note that options #2, #3 and #4 subject the shareholder to the NIIT, while option #1 subjects the shareholder to FICA/Self Employment tax (and subjects the company to payroll taxes). There might be other options. Your licensed tax adviser will go with you through all the facts and circumstances and will suggest the best way to proceed.\"","Perhaps an example will help make it more clear. Any given year: Revenue: 200K, profit 60K You get 40K in profit, plus any salary, he gets 20K Next year you attract the attention of a competitor and they offer and you accept to sell. You would get 100% of the proceeds. This is kind of a bad deal for him as you could easily play accounting tricks to diminish the company's profits and reduce his pay. For the given example, you could pay yourself a 60K bonus and reduce the profit to zero and eliminate his compensation. There should probably be a revenue metric included in his compensation. Edit: It is really nice to hear you have a desire to treat this person fairly. Honesty in business is necessary for long term success. I would simply make his salary dependent upon the revenue he generates. For example, lets say you can make a widget for 4 and you expect to sell them for 10. Your profit would be 6, and with the suggested split he would receive $2, you $4. Instead I would have him receive like 15% of the revenue generated This allows for some discounts for bulk items and covers the cost of processing sales. It also allows him to share revenue with his staff. Alternatively you could also do a split. Perhaps 7.5% of revenue and 10% of profit.","Compared with a Sole Proprietorship, the main disadvantages of an S-Corporation or an LLC are that it adds a lot of management overhead (time, and possibly money if you don't do it all yourself), and there are fees you must pay to incorporate, as well as additional yearly maintenance fees which vary by state. You should be able to weigh the tax savings and liability protection against the extra costs and hassle, and see which way the scales tip. As a rule of thumb, the bigger your business gets or the more income you make, the more attractive incorporating becomes. Note there are some additional taxes that certain jurisdictions impose on business income. For example, IL and CA charge 1.5% tax, NY is less, but NYC is 8.85%! In NYC specifically, you could actually end up paying slightly more tax as an S-Corp than you would as a Sole Proprietorship. In most places though, the nominal local taxes will still be less than the FICA taxes you could potentially save.","IANAL (and nor am I an accountant), so I can't give a definitive answer as to legality, but AFAIK, what you propose is legal. But what's the benefit? Avoiding corporation tax? It's simplistic – and costly – to think in terms like that. You need to run the numbers for different scenarios, and make a plan. You can end up ahead of the game precisely by choosing to pay some corporate tax each year. Really! Read on. One of the many reasons that self-employed Canadians sometimes opt for a corporate structure over being a sole proprietor is to be able to not pay themselves everything the company earns each year. This is especially important when a business has some really good years, and others, meh. Using the corporation to retain earnings can be more tax effective. Example: Imagine your corporation earns, net of accounting & other non-tax costs except for your draws, $120,000/year for 5 years, and $0 in year 6. Assume the business is your only source of income for those 6 years. Would you rather: Pay yourself the entire $120,000/yr in years 1-5, then $0 in year 6 (living off personal savings you hopefully accumulated earlier), subjecting the $120,000/yr to personal income tax only, leaving nothing in the corporation to be taxed? Very roughly speaking, assuming tax rates & brackets are level from year to year, and using this calculator (which simplifies certain things), then in Ontario, then you'd net ~$84,878/yr for years 1-5, and $0 in year 6. Overall, you realized $424,390. Drawing the income in this manner, the average tax rate on the $600,000 was 29.26%. vs. Pay yourself only $100,000/yr in years 1-5, leaving $20,000/yr subject to corporation tax. Assuming a 15.5% combined federal/provincial corporate tax rate (includes the small business deduction), then the corp. is left with $16,900/yr to add to retained earnings in years 1-5. In year 6, the corp. has $84,500 in retained earnings to be distributed to you, the sole owner, as a dividend (of the non-eligible kind.) Again, very roughly speaking, you'd personally net $73,560/yr in years 1-5, and then on the $84,500 dividend in year 6, you'd net $73,658. Overall, you realized $441,458. Drawing the income in this manner, the average tax rate on the $600K was 26.42%. i.e. Scenario 2, which spreads the income out over the six years, saved 2.84% in tax, or $14,400. Smoothing out your income is also a prudent thing to do. Would you rather find yourself in year 6, having no clients and no revenue, with nothing left to draw on? Or would you rather the company had saved money from the good years to pay you in the lean one?","LLC is not a federal tax designation. It's a state-level organization. Your LLC can elect to be treated as a partnership, a disregarded entity (i.e., just report the taxes in your individual income tax), or as an S-Corp for federal tax purposes. If you have elected S-Corp, I expect that all the S-Corp rules will apply, as well as any state-level LLC rules that may apply. Disclaimer: I'm not 100% familiar with S-corp rules, so I can't evaluate whether the statements you made about proportional payouts are correct.","how does a single employee LLC bring in 500k? I mean if you want to have it in a low-tax environment, you can probably invest it in something and then pull them out? I don't think you can put away pre-tax earnings to then use on salary costs.",">Hey, sole proprietorships called A sole proprietorship could incorporate as a Single Member LLC and elect to be taxed as a corporation. But you would still be subject to both sides of the FICA/Medicare taxes. >and they're going to suck out five percent MORE of my GROSS How exactly does a LLC suck out 5% more of your gross? >your payroll costs go through the roof. Again, payroll expenses are generally tax deductible. I'm just trying to help you here.","manage the company properly. If you aren't much aware about company rules and regulation or tax matters, get an accountant so that you don't mess up later. better off paying my self a dividend of 100% profit or as an employee? That depends on how much salary you intend to pay yourself, your dividend or how much business expenses you will incur while running the business. Generally speaking you are better off paying your self a minimum salary and pay the rest as dividends. But check out the dividend tax and the income tax you might need to pay and compare which situation you are better off. If you have a partner, using the dividend way will reduce your NI outgoes. ethical and legal? Ethically the dividend way might burn your conscience but it is perfectly legal way of doing things.","The best way to do this is to pay for the entire car, including gas, insurance, and repairs, from S-corp funds, then meticulously track how many miles are used for personal and how many miles for business. If you pay with S-corp funds, you will claim the personal miles as a taxable benefit from the S-corp on your personal return. The S-corp can then claim all the expenses and depreciation on the vehicle, reducing the S-corp's tax liability.","The only possibility that I've seen in the past is if some of the income is for deferred services which are to be delivered in the following tax year, a portion of the income can be deferred. Also, agree that you should be an S-corp and talk to another CPA if yours hasn't told you that yet.","\"You're conflating LLC with Corporation. They're different animals. LLC does not have \"\"S\"\" or \"\"C\"\" designations, those are just for corporations. I think what you're thinking about is electing pass through status with the IRS. This is the easiest way to go. The company can pay you at irregular intervals in irregular amounts. The IRS doesn't care about these payments. The company will show profit or loss at the end of the year (those payments to you aren't expenses and don't reduce your profit). You report this on your schedule C and pay tax on that amount. (Your state tax authority will have its own rules about how this works.) Alternatively you can elect to have the LLC taxed as a corporation. I don't know of a good reason why someone in your situation would do this, but I'm not an accountant so there may be reasons out there. My recommendation is to get an accountant to prepare your taxes. At least once -- if your situation is the same next year you can use the previous year's forms to figure out what you need to fill in. The investment of a couple hundred dollars is worthwhile. On the question of buying a home in the next couple of years... yes, it does affect things. (Pass through status? Probably doesn't affect much.) If all of your income is coming from self-employment, be prepared for hassles when you are shopping for a mortgage. You can ask around, maybe you have a friendly loan officer at your credit union who knows your history. But in general they will want to see at least two years of self-employment tax returns. You can plan for this in advance: talk to a couple of loan officers now to see what the requirements will be. That way you can plan to be ready when the time comes.\"","As the owner of the S-corp, it is far easier for you to move money in/out of the company as contributions and distributions rather than making loans to the company. Loans require interest payments, 1099-INT forms, and have tax consequences, whereas the distributions don't need to be reported because you pay taxes on net profits regardless of whether the money was distributed. If you were paid interest, disregard this answer. I don't know if or how you could re-categorize the loan once there's a 1099-INT involved. If no interest was ever paid, you just need to account for it properly: If the company didn't pay you any interest and never issued you a 1099-INT form (i.e. you wrote a check to the company, no promissory note, no tax forms, no payments, no interest, etc.) then you can categorize that money as a capital contribution. You can likewise take that money back out of the company as a capital distribution and neither of these events are taxable nor do they need to be reported to the IRS. In Quickbooks, create the following Equity accounts -- one for each shareholder making capital contributions and distributions: When putting money into the company, deposit into your corporate bank account and use the Capital Contribution equity account. When taking money out of the company, write yourself a check and use the Distributions account. At the end of every tax year, you can close out your Contributions and Distributions to Retained Earnings by making a general journal entry. For example, debit retained earnings and credit distributions on Dec 31 every year to zero-out the distributions account. For contributions, do the reverse and credit retained earnings. There are other ways of recording these transactions -- for example I think some people just use a Member Capital equity account instead of separate accounts for contributions and distributions -- and QB might warn you about posting journal entries to the special Retained Earnings account at the end of the year. In any case, this is how my CPA set up my books and it's been working well enough for many years. Still, never a bad idea to get a second opinion from your CPA. Be sure to pay yourself a reasonable salary, you can't get out of payroll taxes and just distribute profits -- that's a big red flag that can trigger an audit. If you're simply distributing back the money you already put into the company, that should be fine.","\"It seems I can make contributions as employee-elective, employer match, or profit sharing; yet they all end up in the same 401k from my money since I'm both the employer and employee in this situation. Correct. What does this mean for my allowed limits for each of the 3 types of contributions? Are all 3 types deductible? \"\"Deductible\"\"? Nothing is deductible. First you need to calculate your \"\"compensation\"\". According to the IRS, it is this: compensation is your “earned income,” which is defined as net earnings from self-employment after deducting both: So assuming (numbers for example, not real numbers) your business netted $30, and $500 is the SE tax (half). You contributed $17.5 (max) for yourself. Your compensation is thus 30-17.5-0.5=12. Your business can contribute up to 25% of that on your behalf, i.e.: $4K. Total that you can contribute in such a scenario is $21.5K. Whatever is contributed to a regular 401k is deferred, i.e.: excluded from income for the current year and taxed when you withdraw it from 401k (not \"\"deducted\"\" - deferred).\"","I wouldn't stress out too much about what you call the category. As long as it makes sense to you and your tax accountant it should be fine. Besides, it's usually pretty easy to rename a category in the future. Just for reference, my accountant set up my categories (also for S-Corp) like this (though this was 8 years ago but I still use them today):","I'll just re-post my comment as an answer as i disagree with Michael Pryor. According to this article (and few others) you may save money by incorporating. These factors don’t change the general payroll tax advantage of an S corporation, however: A S corporation can often save business owners substantial amounts of payroll tax if the business profit greatly exceeds what the business needs to pay owners for their work.","An LLC or an S corp will result in the same tax obligations because both are pass-through tax entities. An LLC is more flexible for the situation you describe because the member and manager responsibilities can be detailed in the operating agreement. You really should get a business attorney to help you get your operating agreement in order. There's also a startups beta site on Stack Exchange that may be able to help you with questions about ways to handle your operating agreement.","I'm not sure I am fully understanding the nuance of your question, but based on your answer in the comments you and your business are not separate legal entities. So your income is the full $70K, there is no distinct business to have income. If you clarify your question to include why you want to know this I might be able to give a more meaningful answer for your situation.","\"Yes, you can make the election to file your LLC as an S-Corp, and Turbo Tax Business can help you with the S-Corp business return. You need to make sure you're set up correctly and there are a lot of things to be aware of. For example, the whole \"\"reasonable salary\"\" thing is a can of worms. So while the answer to your question is \"\"yes, it's manageable, you can do it on your own,\"\" it might be worthwhile to have a professional help you the first year, make sure it's set up right, and then you can do it on your own in subsequent years.\"","It doesn't make much difference in the end. Imagine you have $100 of revenue in your company. You can either pay it to yourself as salary, meaning that you don't pay corporate tax on it, or you can keep it in the company, pay corporate tax on it, then pay yourself a dividend of what is left. While that dividend will be treated better than salary, remember that the company already paid tax on it. You paying less on what's left doesn't equate to paying less overall. Go ahead and run the numbers using your actual corporate tax rate and your personal income tax rate. Try doing your whole salary as dividends - not dollar for dollar, but as how much the company would have as profit to give you a dividend if it didn't spend (and deduct) salary money on you. You are unlikely to see any difference at all. The net final money in your pocket, and the amount that went to the government, will probably be the same. If paying dividends keeps your earned income low, you may find that you can't use RRSP or childcare deductions. You are also not getting CPP credit. That's an argument for salary, or at least a certain minimum amount of salary. You have to deduct taxes at source on salary and send it along to the government, which is an argument for dividends if you feel you could invest that money and use it well before the taxes get around to being due. Possibly you may discover an edge case where you move a few thousand from one marginal tax rate to another and clear a few hundred extra as a result. I don't discourage you from doing the math, I just point out that the various percentages (tax rates, grossups, deductions etc) have all been carefully chosen so that it pretty much works out the same, or gives a small preference to salary. We give excess money to ourselves as bonus rather than dividend having run the numbers a few times. There's no secret trick here.","Sure, just outsource everything that doesn't justify a $70k salary - book keeping, it help desk, janitorial, etc. Hell, outsource software development if you can maybe only employ a senior architect and outsource the rest. Be in b2b Sales so you don't need any front line b2c customer service needs. Make sure your goods are digital so you don't need warehouse or logistics staff. Make sure your revenue is recurring and drafted from the customer automatically so you don't need any accounts receivable staff. Sure, you can use this model - it works great for something like a credit card payment processor, just like it would work well for a boutique financial services firm or a SaaS software company.","\"An unmarried person with a total U.S.-sourced earned income under $ 37,000 during the year 2016 is likely to owe: If the original poster is not an \"\"independent contractor\"\", and is not \"\"billing corp-to-corp\"\" then: In summary: References:\"","You may be able to find the answers to your question on the IRS web site: http://www.irs.gov/businesses/small/article/0,,id=98263,00.html Specifically, using this form to estimate taxes for salary: http://www.irs.gov/pub/irs-pdf/f1120w.pdf and this form to estimate taxes for dividends: http://www.irs.gov/pub/irs-pdf/f1040es.pdf","\"This is actually quite a complicated issue. I suggest you talk to a properly licensed tax adviser (EA/CPA licensed in your State). Legal advice (from an attorney licensed in your State) is also highly recommended. There are many issues at hand here. Income - both types of entities are pass-through, so \"\"earnings\"\" are taxed the same. However, for S-Corp there's a \"\"reasonable compensation\"\" requirement, so while B and C don't do any \"\"work\"\" they may be required to draw salary as executives/directors (if they act as such). Equity - for S-Corp you cannot have different classes of shares, all are the same. So you cannot have 2 partners contribute money and third to contribute nothing (work is compensated, you'll be getting salary) and all three have the same stake in the company. You can have that with an LLC. Expansion - S-Corp is limited to X shareholders, all of which have to be Americans. Once you get a foreign partner, or more than 100 partners - you automatically become C-Corp whether you want it or not. Investors - it would be very hard for you to find external investors if you're a LLC. There are many more things to consider. Do not make this decision lightly. Fixing things is usually much more expensive than doing them right at the first place.\"","\"Disclaimer: I'm not a tax professional, or an expert on S-Corps. However, I do have my own S-Corp, and my decision process for taking a distribution has nothing (directly) to do with K-1 past or present, or profit and loss. If I have \"\"extra\"\" cash in my S-Corp, I take a distribution. Assuming I do my taxes correctly, the money will be taxed whether I take a distribution or leave it in the business. So it really comes down to how much cash the business requires to continue operating and meeting its expenses.\"","\"Be careful here: If ACME were in California, I would pay taxes on USD 17,000 because I had revenue of 20,000 and expenses of 3,000. To CALIFORNIA. And California taxes S-Corps. And, in addition, you'd pay $800 for the right of doing business in the State. All that in addition to the regular Federal and State taxes to the State where you're resident. Suppose that ACME is in Britain (or anywhere else for that matter). My revenue and expenses are the same, but now my money has been earned and my expenses incurred in a foreign country. Same thing exactly. Except that you'll have to pay taxes to the UK. There may be some provision in the tax treaty to help you though, so you may end up paying less taxes when working in the UK than in California. Check with a licensed tax adviser (EA/CPA licensed in your State) who won't run away from you after you say the words \"\"Tax Treaty\"\". Does it even make sense to use my S-Corporation to do business in a foreign country? That should be a business decision, don't let the tax considerations drive your business.\"","In principle, when you are the sole owner of a limited company, and also the sole employee, then it is much easier to assume that someone else is the employee. Let's say your twin brother John Adler. John Adler receives a salary from David Adler's company. Of course John has to pay income tax on his salary. Absolutely in the UK, and in Estonia as well if they have any sensible tax laws at all (which I assume but don't know for sure). Then there is the company. It's profit equals revenue, minus cost. You said £4000 revenue, and John Adler's salary, plus anything the company has to pay on top of the salary, is cost, which is subtracted from the revenue to calculate profit. In the UK, the company pays 20% corporation tax on those profits, and the rest stays in its bank account (or may be in goods that the company purchased). Where does David Adler come in? He owns the company, but doesn't work for it and gets no salary. He owns the company, but he does not own the company's money. He can't just help himself to the money. He can get a loan from the company, and is personally responsible for repaying that loan. If it's not repaid, HMRC will be very angry which will hurt. Or he can pay himself a dividend, and pays dividend tax on it. Or of course he can leave the money in the company. That's exactly how it works in the UK, and I would assume Estonia to be similar. And of course if it's not the twin brother who is the employee, but the OP himself, then the situation is exactly the same.","\"It's not abnormal for a company that is as young as yours seems to be. It seems (based on what little I know), that you have debts, or accounts payable that were formerly covered by the $200 cash, but now aren't, because you paid it to yourself. For now, you're \"\"entitled\"\" to pay yourself a draw or a salary. But if you continue to do so without earning money to cover it, your company will fail.\"","\"If you have a single member LLC there is no need to separate expenses in this way since it is simply treated as part of the owner's normal tax returns. This is the way I've been operating. Owner of Single-Member LLC If a single-member LLC does not elect to be treated as a corporation, the LLC is a \"\"disregarded entity,\"\" and the LLC's activities should be reflected on its owner's federal tax return. If the owner is an individual, the activities of the LLC will generally be reflected on: Form 1040 Schedule C, Profit or Loss from Business (Sole Proprietorship) (PDF) Form 1040 Schedule E, Supplemental Income or Loss (PDF) Form 1040 Schedule F, Profit or Loss from Farming (PDF) An individual owner of a single-member LLC that operates a trade or business is subject to the tax on net earnings from self employment in the same manner as a sole proprietorship. If the single-member LLC is owned by a corporation or partnership, the LLC should be reflected on its owner's federal tax return as a division of the corporation or partnership. https://www.irs.gov/businesses/small-businesses-self-employed/single-member-limited-liability-companies\"","That's really not something that can be answered based on the information provided. There are a lot of factors involved: type of income, your wife's tax bracket, the split between Federal and State (if you're in a high bracket in a high income-tax rate State - it may even be more than 50%), etc etc. The fact that your wife didn't withdraw the money is irrelevant. S-Corp is a pass-through entity, i.e.: owners are taxed on the profits based on their personal marginal tax rates, and it doesn't matter what they did with the money. In this case, your wife re-invested it into the corp (used it to pay off corp debts), which adds back to her basis. You really should talk to a tax adviser (EA/CPA licensed in your State) to learn how S-Corps work and how to use them properly. Your wife, actually, as she's the owner.","\"What you're asking about is called a \"\"distribution\"\" when it comes to an LLC. It's basically you paying yourself some or all of the proceeds of the business, depending on how you're set up. You can pay yourself distributions on a regular schedule, say monthly, or you can do it at the end of the year. Whatever you do in this regard, what you take out as distributions is reported on your personal income tax as taxable income. LLCs in the U.S. use pass-through taxation (unless you intentionally elect to have the LLC treated as a corporation for tax purposes, which some people do), so whatever the principals receive in distribution is personally taxable. Keep in mind that you'll have to pay ALL of the taxes normally covered by an employer, such as self-employment tax (usually about 15%), social security tax, and so on. This is in addition to income tax, so remember that. I hope this helps. Good luck!\"","\"(I'm assuming USA tax code as this is untagged) As the comments above suggest there is no \"\"right\"\" answer or easy formula. The main issue is that you likely got into business to make money and if you make money consistently you will pay taxes. Reinvesting generally should be a business decision where the main concern is revenue growth and taxes are an important but secondary concern. Taxes can be complicated, but for a small LLC shouldn't be that bad. I highly recommend that you take some time closely analyze your business and personal taxes for the previous year. Once you understand the problem better, you can optimize around it. If it is a big concern, some companies buy software so they can estimate their taxes periodically through the year and make better decisions.\"","The IRS Guidance pertaining to the subject. In general the best I can say is your business expense may be deductible. But it depends on the circumstances and what it is you want to deduct. Travel Taxpayers who travel away from home on business may deduct related expenses, including the cost of reaching their destination, the cost of lodging and meals and other ordinary and necessary expenses. Taxpayers are considered “traveling away from home” if their duties require them to be away from home substantially longer than an ordinary day’s work and they need to sleep or rest to meet the demands of their work. The actual cost of meals and incidental expenses may be deducted or the taxpayer may use a standard meal allowance and reduced record keeping requirements. Regardless of the method used, meal deductions are generally limited to 50 percent as stated earlier. Only actual costs for lodging may be claimed as an expense and receipts must be kept for documentation. Expenses must be reasonable and appropriate; deductions for extravagant expenses are not allowable. More information is available in Publication 463, Travel, Entertainment, Gift, and Car Expenses. Entertainment Expenses for entertaining clients, customers or employees may be deducted if they are both ordinary and necessary and meet one of the following tests: Directly-related test: The main purpose of the entertainment activity is the conduct of business, business was actually conducted during the activity and the taxpayer had more than a general expectation of getting income or some other specific business benefit at some future time. Associated test: The entertainment was associated with the active conduct of the taxpayer’s trade or business and occurred directly before or after a substantial business discussion. Publication 463 provides more extensive explanation of these tests as well as other limitations and requirements for deducting entertainment expenses. Gifts Taxpayers may deduct some or all of the cost of gifts given in the course of their trade or business. In general, the deduction is limited to $25 for gifts given directly or indirectly to any one person during the tax year. More discussion of the rules and limitations can be found in Publication 463. If your LLC reimburses you for expenses outside of this guidance it should be treated as Income for tax purposes. Edit for Meal Expenses: Amount of standard meal allowance. The standard meal allowance is the federal M&IE rate. For travel in 2010, the rate for most small localities in the United States is $46 a day. Source IRS P463 Alternately you could reimburse at a per diem rate","In a simple case as the sole UK resident director/shareholder of a company, with that company as your only income, you are usually best paying yourself a salary of the maximum tax free amount allowed under your tax code (~£11k for most people at present). On this you will have to pay some employer and employee National Insurance (NI) contributions (totalling around £1000). Your salary/employer NI counts as an expense, so that is taken off the company profits. You then pay corporation tax on the remainder (20%). The first £5k you take as dividends is tax free, the remainder at a lower tax rate than the equivalent combined income tax/NI (starting at 7.5% instead of 20% tax plus employee plus employer NI), giving a significant saving compared to salaried income even after corporation tax. To declare and pay the tax, you would need to complete a self-assessment tax return. Your company will also need to file a return. The Contractor UK website, although aimed at IT contractors, has some very useful information on operating Ltd companies. That said, finances are rarely that simple so I would concur with the recommendation you engage an accountant, which is a tax-deductible expense.","One way to determine compensation is as a percentage per actual hour billed (and paid by client). Very common place to start is 33% for company overhead/administration (insurance, taxes, office expense, etc), 33% for sales commission/costs (roughly half as direct sales commission, half for marketing), 33% as gross 1099 pay compensation to the employee.","\"There are TWO parts to an LLC or any company structure. This being the entire point of creating an LLC. The context is that a lawyer is after your LLC, and he's arguing that the LLC is not genuine, so he can go after your personal assets - your house, car, IRAs, tap your wife's salary etc. This is called \"\"piercing the corporate veil\"\". What would he use to claim the LLC is not genuine? The determination here is between you and the judge in a lawsuit. Suffice it to say, the way you withdraw money must consider the above issues, or you risk breaking the liability shield and becoming personally liable, which means you've been wasting the $25 every year to keep it registered. The IRS has a word for single member LLCs: \"\"Disregarded entity\"\". The IRS wants to know that the entity exists and it's connected to you. But for reporting tax numbers, they simply want the LLC's numbers folded into your personal numbers, because you are the same entity for tax purposes. The determination here is made by you. *LLCs are incredible versatile structures, and you can actually choose to have it taxed like a corporation where it is a separate \"\"person\"\" which files its own tax return. * The IRS doesn't care how you move money from the LLC to yourself, since it's all the same to them. The upshot is that while your own lawyer prohibits you from thinking of the assets as \"\"all one big pile\"\", IRS requires you to. Yes, it's enough to give you whiplash.\"","\"The limit on SEP IRA is 25%, not 20%. If you're self-employed (filing on Schedule C), then it's taken on net earning, which in your example would be 25% of $90,000. (https://www.irs.gov/retirement-plans/retirement-plans-for-self-employed-people) JoeTaxpayer is correct as regards the 401(k) limits. The elective deferrals are per person - That's a cap in sum across multiple plans and across both traditional and Roth if you have those. In general, it's actually across other retirement plan types too - See below. If you're self-employed and set-up a 401(k) for your own business, the elective deferral is still aggregated with any other 401(k) plans in which you participate that year, but you can still make the employer contribution on your own plan. This IRS page is current a pretty good one on this topic: https://www.irs.gov/retirement-plans/one-participant-401k-plans Key quotes that are relevant: The business owner wears two hats in a 401(k) plan: employee and employer. Contributions can be made to the plan in both capacities. The owner can contribute both: •Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit: ◦$18,000 in 2015 and 2016, or $24,000 in 2015 and 2016 if age 50 or over; plus •Employer nonelective contributions up to: ◦25% of compensation as defined by the plan, or ◦for self-employed individuals, see discussion below It continues with this example: The amount you can defer (including pre-tax and Roth contributions) to all your plans (not including 457(b) plans) is $18,000 in 2015 and 2016. Although a plan's terms may place lower limits on contributions, the total amount allowed under the tax law doesn’t depend on how many plans you belong to or who sponsors those plans. EXAMPLE Ben, age 51, earned $50,000 in W-2 wages from his S Corporation in 2015. He deferred $18,000 in regular elective deferrals plus $6,000 in catch-up contributions to the 401(k) plan. His business contributed 25% of his compensation to the plan, $12,500. Total contributions to the plan for 2015 were $36,500. This is the maximum that can be contributed to the plan for Ben for 2015. A business owner who is also employed by a second company and participating in its 401(k) plan should bear in mind that his limits on elective deferrals are by person, not by plan. He must consider the limit for all elective deferrals he makes during a year. Notice in the example that Ben contributed more that than his elective limit in total (his was $24,000 in the example because he was old enough for the $6,000 catch-up in addition to the $18,000 that applies to everyone else). He did this by declaring an employer contribution of $12,500, which was limited by his compensation but not by any of his elective contributions. Beyond the 401(k), keep in mind that elective contributions are capped across different types of retirement plans as well, so if you have a SEP IRA and a solo 401(k), your total contributions across those plans are also capped. That's also mentioned in the example. Now to the extent that you're considering different types of plans, that's a whole question in itself - One that might be worth consulting a dedicated tax advisor. A few things to consider (not extensive list): As for payroll / self-employment tax: Looks like you will end up paying Medicare, including the new \"\"Additional Medicare\"\" tax that came with the ACA, but not SS: If you have wages, as well as self-employment earnings, the tax on your wages is paid first. But this rule only applies if your total earnings are more than $118,500. For example, if you will have $30,000 in wages and $40,000 in selfemployment income in 2016, you will pay the appropriate Social Security taxes on both your wages and business earnings. In 2016, however, if your wages are $78,000, and you have $40,700 in net earnings from a business, you don’t pay dual Social Security taxes on earnings more than $118,500. Your employer will withhold 7.65 percent in Social Security and Medicare taxes on your $78,000 in earnings. You must pay 15.3 percent in Social Security and Medicare taxes on your first $40,500 in self-employment earnings and 2.9 percent in Medicare tax on the remaining $200 in net earnings. https://www.ssa.gov/pubs/EN-05-10022.pdf Other good IRS resources:\"","If you are the only owner: then morally there is nothing wrong with this, as long as you make sure that everything is tracked so that you pay the proper taxes from the correct entity. The danger for you and your business is if the transfers aren't planned. Because you may not be re-investing enough of the profits back into the company. That means that the equipment may be aging but you aren't replacing it, it can also mean that you aren't spending enough on business development. If you pay yourself so much that you bankrupt the company that isn't good. If you live the good life but starve the employees and they realize it, or if you starve the business and the employees realize it; then you might have a problem motivating and retaining employees.","\"I'm assuming that when you say \"\"convert to S-Corp tax treatment\"\" you're not talking about actually changing your LLC to a Corporation. There are two distinct pieces of the puzzle here. First, there's your organizational form. Your state, which is where the business is legally formed and recognized, creates the LLC or Corporation. \"\"S-Corp\"\" doesn't come into play here: your company is either an LLC or a Corporation. (There are a handful of other organizational types your state might have, e.g. PLLC, Limited Partnership, etc.; none of these are immediately relevant to this discussion). Second, there's the tax treatment you receive by the IRS. If your company was created by the state as an LLC, note that the IRS doesn't recognize LLCs as a distinct organizational type: you elect to be taxed as an individual (for single member LLCs), a partnership (for multiple member LLCs), or as a corporation. The former two elections are \"\"pass through\"\" -- there's no additional level of taxation on corporate profits, everything just passes through to the owners. The latter election introduces a tax on corporate profits. When you elect pass-through treatment, a single-member LLC files on Schedule C; a multiple-member LLC will prepare a form K-1 which you will include on your 1040. If your company was created by the state as a Corporation (not an LLC), you could still elect pass-through taxation if your company qualifies under the rules in Subchapter S (i.e. \"\"an S-Corp\"\"). States do not recognize \"\"S-Corp\"\" as part of the organizational process -- that's just a tax distinction used by the IRS (and possibly your state's tax authorities). In your case, if you are a single-member LLC (and assuming there are no other reasons to organize as a corporation), talking about \"\"S-Corp tax treatment\"\" doesn't make any sense. You'll just file your schedule C; in my experience it's fairly simple. (Note that this is based on my experience of single- and multiple-member LLCs in just two states. Your state may have different rules that affect state-level taxation; and the rules may change from year to year. I've found that hiring a good CPA to prepare the forms saves a good bit of stress and time that can be better applied to the business.)\"","\"It might be best to step back and look at the core information first. You're evaluating an LLC vs a Corporation (both corporate entities). Both have one or more members, and both are seen similarly (emphasis on SIMILAR here, they're not all the same) to the IRS. Specifically, LLC's can opt for a pass-through tax system, basically seen by the IRS the same way an S-Corp is. Put another way, you can be taxed as a corporate entity, or it's P/L statements can \"\"flow through\"\" to your personal taxes. When you opt for a flow-through, the business files and you get a separate schedule to tie into your taxes. You should also look at filing a business expense schedule (Schedule C) on your taxes to claim legitimate business expenses (good reference point here). While there are several differences (see this, and this, and this) between these entities, the best determination on which structure is best for you is usually if you have full time employ while you're running the business. S corps limit shares, shareholders and some deductions, but taxes are only paid by the shareholders. C corps have employees, no restrictions on types or number of stock, and no restrictions on the number of shareholders. However, this means you would become an employee of your business (you have to draw monies from somewhere) and would be subject to paying taxes on your income, both as an individual, and as a business (employment taxes such as Social Security, Medicare, etc). From the broad view of the IRS, in most cases an LLC and a Corp are the same type of entity (tax wise). In fact, most of the differences between LLCs and Corps occur in how Profits/losses are distributed between members (LLCs are arbitrary to a point, and Corps base this on shares). Back to your question IMHO, you should opt for an LLC. This allows you to work out a partnership with your co-worker, and allows you to disburse funds in a more flexible manner. From Wikipedia : A limited liability company with multiple members that elects to be taxed as partnership may specially allocate the members' distributive share of income, gain, loss, deduction, or credit via the company operating agreement on a basis other than the ownership percentage of each member so long as the rules contained in Treasury Regulation (26 CFR) 1.704-1 are met. S corporations may not specially allocate profits, losses and other tax items under US tax law. Hope this helps, please do let me know if you have further questions. As always, this is not legal or tax advice, just what I've learned in setting several LLCs and Corporate structures up over the years. EDIT: As far as your formulas go, the tax rate will be based upon your personal income, for any pass through entity. This means that the same monies earned from and LLC or an S-corp, with the same expenses and the same pass-through options will be taxed the same. More reading: LLC and the law (Google Group)\"","Rather than discuss whether you're thinking about things incorrectly, I'll just show you how to answer the question you asked: Now as to what wage to pay yourself to meet your expenses, do the same thing but only using personal components:","\"Be careful of the other answers here. Many are wrong or partially wrong. The question implies that you knew this, but for everyone else's benefit, you can keep you LLC organization and still elect to be treated as a S-Corp by the IRS just for tax purposes. You do this by filing Form 2553 with the IRS. (You can also, by the way, elect to be taxed as a \"\"regular\"\" C-Corp if you want, although that's probably not advantageous. See Form 8832.) The advantage of electing to be treated as an S-Corp is that income beyond what constitutes a \"\"reasonable salary\"\" are not subject to social security and medicare taxes as they would when paid was wages or counted as self-employment income on Schedule C. Depending on what you need to pay yourself to meet the \"\"reasonable salary\"\" test, your overall income, and other factors about your business, this could result in tax savings. Contrary to other answers here, making this election will not force you to create a board of directors. You are still an LLC for all purposes except taxes, so whatever requirements you had in organization and governance at the state level will not change. You will have to file a \"\"corporate\"\" tax return on Form 1120S (and likely some corresponding state tax form), so that is additional paperwork, but this \"\"corporate\"\" return does not mean the S-Corp pays taxes itself. With a couple of exceptions, the S-Corp pays no taxes directly (and therefore does not pay at the corporate tax rate). Instead the S-Corp apportions its income, expenses, and deductions to the owner(s) on Schedule K. The owners get their portion reported from the S-Corp on Schedule K1 and then include that on their personal Form 1040 to pay tax at their personal rate. In addition to filing Form 1120S, you will have to handle payroll taxes, which will create some additional administrative work and/or cost. Using a payroll service for this will likely be your best option and not terribly expensive. You've also got the issue of determining your reasonable salary within the rules, which is the subject of other questions on this site and other IRS guidance.\"","When in doubt, you should always seek the advice of a professional tax preparer or your accountant. (Many agents/accountants will gladly review your tax preparations to ensure you haven't missed something. That's quicker and cheaper than paying them to do it all.) Having said that... This Illinois resource has detailed information about S-corps: Of relevance to your situation:","You're on the right track, and yes, that small difference is subject to income taxes. Do you use a payroll service? I do the same thing and use my payroll software to tweak the salary until the paycheck is just a few dollars every month (we run payroll once a month), with the rest going to the 401(k) and payroll taxes. So we're rounding up just a bit just so there's an actual paycheck with a positive number, and a bit does get withheld for fed/state income tax. Also keep in mind you can make a company match. If your plan is a solo 401(k) with just you and your wife as the sole employees, consider the 25% match for both of you. The match is not subject to payroll taxes because it is a company expense. IRS web page: http://www.irs.gov/Retirement-Plans/One-Participant-401(k)-Plans","\"An LLC is overkill for 99% of 1 man small businesses. Side-businesses should remain as sole proprieterships until they get much larger and need the benefits of the LLC laws. You can still bill through a company name if you want to start building a brand: And set aside 25% of your gross income for Uncle Sam. He wants you to file a Schedule C with your regular 1040 at tax time. He doesn't care about your company. He just wants your social security number with a big fat check stuck to it. Be sure to maximize your tax savings by tracking your expenses like a hawk. Every mile is worth 50 cents. I recommend using a tracking system like the TaxMinimiser.com (buy the $4 version to see if you like it). Bottom line: EARN MONEY. Don't set up a \"\"corporation\"\".\"","Source Sole trader If you start working for yourself, you’re classed as a self-employed sole trader - even if you’ve not yet told HM Revenue and Customs (HMRC). As a sole trader, you run your own business as an individual. You can keep all your business’s profits after you’ve paid tax on them. You can employ staff. ‘Sole trader’ means you’re responsible for the business, not that you have to work alone.You’re personally responsible for any losses your business makes. Tax responsibilities You must: You’re personally responsible for any losses your business makes. This is one condition which you would need to have a look. If you do some shoddy work and your client wants to recover the losses they can come after your personal money or property. LLPs have the same probelm too. And you pay NI and income tax on all of your profits. If you have a partner then both can take out the profits of a limited company, if both are directors. The tax hit will be less as compared to a single person.","The answer seems to depend on where you live. Perhaps you already found this, but the summary from the IRS is: The insurance laws in some states do not allow a corporation to purchase group health insurance when the corporation only has one employee. Therefore, if the shareholder was the sole corporate employee, the shareholder had to purchase his health insurance in his own name. The IRS issued Notice 2008-1, which ruled that under certain situations the shareholder would be allowed an above-the-line deduction even if the health insurance policy was purchased in the name of the shareholder. Notice 2008-1 provided four examples, including three examples in which the shareholder purchased the health insurance and one in which the S corporation purchased the health insurance. Notice 2008-1 states that if the shareholder purchased the health insurance in his own name and paid for it with his own funds, the shareholder would not be allowed an above-the-line deduction. On the other hand, if the shareholder purchased the health insurance in his own name but the S corporation either directly paid for the health insurance or reimbursed the shareholder for the health insurance and also included the premium payment in the shareholder’s W-2, the shareholder would be allowed an above-the-line deduction. The bottom line is that in order for a shareholder to claim an above-the-line deduction, the health insurance premiums must ultimately be paid by the S corporation and must be reported as taxable compensation in the shareholder’s W-2. https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/S-Corporation-Compensation-and-Medical-Insurance-Issues I understand this to mean that you can only get the deduction in your case (having purchased it in your own name) if your state does not allow your S-Corp to purchase a group health plan because you only have one employee. (I don't know specifically if Illinois fits that description or not.) In addition, there are rules about reporting health insurance premiums for taxes for S-Corp share members that you should also check. Personally, I think that it's complicated enough that advice from a CPA or other tax advisor specific to your situation would be worth the cost.",">This means that you may be able to make about $120,000 per year, which isn’t bad. Except you’ll have expenses, like rent, transportation, repairs, supplies, computers and whatever else. Your expenses will probably run a few thousand a month, so let’s assume **after expenses you’re netting about $80,000**. Then there’s taxes, and not just federal. There will be state, local, real estate, school, tolls, export, import, duties and those hard-to-understand fees on your cable bill. So lop about 30 percent off that $80K and you’re down to a net living of $56,000. $80,000 net income before taxes is quite good for a self employed individual. I don't really see what the problem is. His bit about taxes after that is completely irrelevant because you'll be paying federal and fica no matter what, plus state and real estate taxes if they apply to you.","There are several questions to answer before help can be given. How much revenue did you have this year? What is expected revenue growth for next few years? Are you operating as a sole proprietor, partnership or corporation? If a corporation did you maintain your books on the cash basis or accrual? I recommend you seek a CPA not a bookkeeper. And, don't wait until end of year to fund one.","Mods decided to leave it here, so I'll summarize some of my answers on this question given @OnStartups. You can find them here, here and here. Your options are : You and your business are one and the same. You report your income and expenses for taxes on a Schedule C (for each sole proprietorship a separate schedule), and taxed at your personal rates. There's no liability protection or legal separation between you and your business, and you don't need to have any bureaucratic overhead of managing an entity. You can use your own bank account and have checks written to you directly. You can register for DBA if you want a store-front name to be different from your own name. Depending on State, can cost a lot or close to nothing. Provides certain liability protection (depending on State, single-member and multi-member LLC's may have different liability protections). You can chose to be taxed as either a sole-proprietor (partnership, for multi-member) or as a corporation. You have to separate your activities, have a separate bank account, and some minimal bureaucracy is required to maintain the entity. Benefits include the limited liability, relatively easy to add partners to the business or sell it as a whole, and provides for separation of your personal and business finances. Drawbacks - bureaucracy, additional fees and taxes (especially in CA), and separation of assets. Corporation is an entirely separate entity from yourself, files its own tax returns, has separate bank accounts and is run by the board of directors (which in some cases may require more than 1 person to be on the board, check your state laws on that). As an officer of the corporation you'll have to pay salary to yourself. S-Corp has the benefit of pass-through taxation, C-Corp doesn't and has double taxation. Benefits - liability protection, can sell shares to investors, legally distinct entity. Disadvantages - have to deal with payroll, additional accounting, significant bureaucracy and additional layer of taxes for C-Corp (double taxation). Selling corporate assets is always a taxable event (although in your case it is probably not of an importance). You have to talk to a lawyer in your state about the options re the liability protection and how to form the entities. The formation process is usually simple and straight forward, but the LLC/Partnership operating agreements and Corporation charters/bylaws must be drafted by a lawyer if you're not going to be the sole owner (even if you are - better get a lawyer draft something for you, its just easier to fix and change things when you're the sole owner). You have to talk to a CPA/EA in your state about the taxes and how the choice of entity affects them."],"string":"[\n \"\\\"The answer depends on this: If you had to hire someone to do what you are doing in the S-corp, what would you pay them? If you are doing semi-unskilled work part-time, then $20k might be reasonable. If you are a professional working full time, it's too low. Don't forget that, in addition to \\\"\\\"billable\\\"\\\" work, you are also doing office tasks, such as invoicing and bookkeeping, that the IRS will also want to see you getting paid for. There was an important court ruling on this subject recently: Watson v. Commissioner. Watson owned an S-Corp where he was the sole employee. The S-Corp itself was a 25% owner in a very successful accounting firm that Watson worked through. All of the revenue that Watson generated at the accounting firm was paid to the S-Corp, which then paid Watson through salary and distributions. Watson was paying himself $24k a year in salary and taking over $175k a year in distributions. For comparison, even first-year accountants at the firm were making more than $24k a year in salary. The IRS determined that this salary amount was too low. To determine an appropriate amount for Watson's salary, the IRS did a study of the salaries of peers in firms of the same size as the firm Watson was working with, taking into account that owners of firms earn a higher salary than non-owners. The number that the IRS arrived at was $93k. Watson was allowed to take the rest ($80k+ each year) as distributions. Again, this number was based on a study of the salaries of peers. It was far short of the $200k+ that the S-Corp was pulling in from the accounting firm. Clearly, Watson was paying himself far too low of a salary. But even at this extreme example, where Watson's S-Corp was directly getting all of its revenue from one accounting firm in which Watson was an owner, the IRS still did not conclude that all of the revenue should have been salary and subject to payroll taxes. You should ask an accountant or attorney for advice. They can help you determine an appropriate amount for your salary. Don't be afraid of an audit, but make sure that you can defend your choices if you do get audited. If your choices are based on professional advice, that will help your case. See these articles for more information:\\\"\",\n \"We don't make enough to really consider it a salary, but I've heard using a draw without a salary is a bad idea. As any other illegal action, not paying yourself a reasonable salary when being a corporate officer is indeed a bad idea. I have no idea what I need to do to actually get some money in our pockets. The answer is simple. You need to earn more money. Since it is S-Corp, it doesn't matter if you keep the profits on the corporate account or distribute - the profits will be taxed to you. You are also, as I said above, required by law to pay yourself a reasonable salary. Reasonable meaning corresponding to market rates. Paying a CPA or a Software Engineer a minimum wage will not be reasonable. That is, of course, if you're profitable, you're not required to pay yourself more money than the corporation actually has. Just to be clear, my answer refers to the question asked, and the confusing answer above that made a claim that has no substantiation in the law. I do not intend to write a thesis about pros and cons of using S-Corp every time a question about reasonable salary is asked.\",\n \"\\\"Am I on crack, or do the perceived tax savings via S-Corp distributions really not matter at a certain level of business income? You're not on crack. Generally, if all the income is generated by your own personal services - this is the outcome. The benefit of S-Corp is when you have employees who generate your income, and you distribute to yourself profits that come out of other's personal services. In this case your distributions are exempt from FICA since it is not in fact a self-employment income. You'd still have to pay yourself a reasonable salary for your position (as a manager/officer), but it wouldn't have to cover all of the available profits. So if the IRS takes a position against you it would be that your salary should be to include the whole profits, since it is the compensation to you for the personal services that produced the income to the corporation (you). In many cases they might agree that a salary at the SS maximum limit would be reasonable - but that's only a speculation of mine. In that case you might gain some portion of the medicare tax (with the recent law changes at the levels you're talking about you'll pay some medicare anyway). There are a lot of accountants who take more aggressive position saying that not all of the distributions are liable for SE taxes, even if you're the sole employee of the corporation. These cases often end up in the Tax Court, and whatever the outcome, your legal fees become higher than the FICA savings. What is probably missing in your picture is the SS limit of (currently $112K) above which you don't pay social security tax, so whether you get it as a salary or as a distribution - that limit is the same. That is why you don't see a significant difference. I know there are a lot of accountants who'd disagree, but I would argue that for a sole employee of your company, S-Corp doesn't provide significant benefits over the disregarded LLC taxation, but has some additional overhead that adds to your expenses. Here's a link to a lawyer's blog where he suggests (and says many accountants follow) 60/40 division between salary and distributions. I.e.: his take, similarly to mine, is that most of the earnings have to be treated as salary. In your case, when the total is about 300K - you indeed will not get any FICA savings with such a division other than some of the medicare. Unusually low wages when compared to distributions can draw unwanted IRS scrutiny and an audit. An unfavorable audit will likely result in some portion of the distributions being reclassified as earned income for federal income tax purposes, which results in a deficiency assessment (i.e., a tax bill), interest on those unpaid taxes, and IRS penalties. The article also talks about the Watson case (one of the Tax Court cases I referred to), which can be used as the guidelines for determining the \\\"\\\"reasonable\\\"\\\" compensation. Talk to your tax adviser. I'm neither a tax adviser nor a tax professional. For a tax advice contact a CPA/EA licensed in your state. This is not a tax advice, just my personal opinion.\\\"\",\n \"\\\"Generally if you're a sole S-Corp employee - it is hard to explain how the S-Corp earned more money than your work is worth. So it is reasonable that all the S-Corp profits would be pouring into your salary. Especially when the amounts are below the FICA SS limits when separating salary and distributions are a clear sign of FICA tax evasion. So while it is hard to say if you're going to be subject to audit, my bet is that if you are - the IRS will claim that you underpaid yourself. One of the more recent cases dealing with this issue is Watson v Commissioner. In this case, Watson (through his S-Corp which he solely owned) received distributions from a company in the amounts of ~400K. He drew 24K as salary, and the rest as distributions. The IRS forced re-characterizing distributions into salary up to 93K (the then-SS portion of the FICA limit), and the courts affirmed. Worth noting, that Watson didn't do all the work himself, and that was the reason that some of the income was allowed to be considered distribution. That wouldn't hold in a case where the sole shareholder was the only revenue producer, and that is exactly my point. I feel that it is important to add another paragraph about Nolo, newspaper articles, and charlatans on the Internet. YOU CANNOT RELY ON THEM. You cannot defend your position against IRS by saying \\\"\\\"But the article on Nolo said I can not pay SE taxes on my earnings!\\\"\\\", you cannot say \\\"\\\"Some guy called littleadv lost an argument with some other guy called Ben Miller because Ben Miller was saying what everyone wants to hear\\\"\\\", and you can definitely not say \\\"\\\"But I don't want to pay taxes!\\\"\\\". There's law, there are legal precedents. When some guy on the Internet tells you exactly what you want to hear - beware. Many times when it is too good to be true - it is in fact not true. Many these articles are written by people who are interested in clients/business. By the time you get to them - you're already in deep trouble and will pay them to fix it. They don't care that their own \\\"\\\"advice\\\"\\\" got you into that trouble, because it is always written in generic enough terms that they can say \\\"\\\"Oh, but it doesn't apply to your specific situation\\\"\\\". That's the main problem with these free advice - they are worth exactly what you paid for them. When you actually pay your CPA/Attorney - they'll have to take responsibility over their advice. Then suddenly they become cautious. Suddenly they start mentioning precedents and rulings telling you to not do things. Or not, and try and play the audit roulette, but these types are long gone when you get caught.\\\"\",\n \"You tagged with S-Corp, so I assume that you have that tax status. Under that situation, you don't get taxed on distributions regardless of what you call them. You get taxed on the portion of the net income that is attributable to you through the Schedule K that the S-Corp should distribute to you when the S-Corp files its tax return. You get taxed on that income whether or not it's distributed. If you also work for the small business, then you need to pay yourself a reasonable wage. The amount that you distribute can be one factor in determining reasonableness. That doesn't seem to be what you asked, but it is something to consider.\",\n \"\\\"The first rule I follow is pretty simple: Get paid for what you do. Earn a return on what you own. If you are running your company prudently, you should earn a salary for the position and responsibilities you hold within the business. This salary should be competitive. You should be able to replace yourself in the business at this salary. If your title is \\\"\\\"President\\\"\\\" or \\\"\\\"CEO\\\"\\\" - look for market rate salaries for others in that position within your industry and company size. If you wear multiple hats in a small business, you will likely have to blend this salary based on those various positions. Based on how you run your business, the money left over at the end of the year after you and your team takes a competitive wage is your profit. If there isn't any profit, then you might want to do some work on your business model. But if their is a profit, then it's a clear return on what you own and not just a payment for work completed. The idea would be that you could exit the business as an operator, pay someone else to do exactly what you do, and you would continue to get that profit return at the end of the year. This is when a business acts like a true asset. Whether you take your money in salary or profit distributions (or dividends) depending on your structure, taxes are about the same. W2'd salaries get normal employee contributed taxes, but then of course the company matches these. It is identical if you take a guaranteed payment or distribution that gets hit with self employment taxes. Profits are also going to get hit with the same taxes. Follow ups: 1) A fair salary would be a competitive market wage for the position you hold within the business. What is left over would be considered true profits and not just fabricated profits by taking a lower than market wage to boost the appearance of profitability. 2) Shareholders requesting salary information would be covered in your Operating Agreement or Shareholder Agreement. This might be terms you set with your investors. Or you might simply set a term that you only need approval if a single salary exceeds a cap (like $250,000). Which would mean you would need to present why you deserve a higher salary and have your board approve (if you are governed by said board via your investors). Profitability is a different ballpark. Your investors most likely have a right to see a monthly, quarterly, and/or annual Profit & Loss statement which should clearly state profitability. I can't imagine running a completely closed book company to my investors. Actually... I can't really imagine ever investing in a company where I am not permitted to see the financials. Something to also consider here is the threat of trying to keep your profit numbers low in order to not pay taxes or to pay yourself a higher salary. If you ever plan to sell or exit the company, most widely accepted valuations of a business are done from profits (or EBIDTA). You might think you are saving yourself a couple points on taxes by avoiding profits in the short term, but if you exit the business and get a 3-5X (or even up to 12X in some cases) multiplier on your annual profits, you might be kicking yourself for trying to hide them through your accounting practices. Buyers will often sniff out an owner who created false profits by not paying themselves, but what's harder to do is figure out how much profits should have been when there were none on the books. By saving yourself $100,000 in taxes this year, could add up to close to $1,000,000 in an acquisition. Good luck.\\\"\",\n \"From your comment: My salary through 7/31 could pass for an annual salary for the industry. I suppose that’s relevant? That information would certainly be relevant if you were the owner since the beginning of the year. If that were the case then I would say you'd be fine skipping the salary for the rest of the year. It would be equivalent to simply front-loading your salary. However, since you didn't own any part of the company during the time you received the salary, I believe you should think of that salary as if it came from an entirely different company. This means that during the 5 months you owned the company you will have taken $0 in salary, and I believe that would not be reasonable if this job is your main source of income. As a side note, regarding this statement you made: During this time, I'd like to avoid the employer half of FICA taxes incurred by paying myself through payroll. You'd actually be avoiding both the employer and employee portion of FICA, since both sides of FICA are paid for employee compensation. FICA is not paid by either side on company profits.\",\n \"\\\"If you start an LLC with you as the sole member it will be considered a disregarded entity. This basically means that you have the protection of being a company, but all your revenues will go on your personal tax return and be taxed at whatever rate your personal rate calculates to based on your situation. Now here is the good stuff. If you file Form 2553 you can change your sole member LLC to file as an S Corp. Once you have done this it changes the game on how you can pay out what your company makes. You will need to employ yourself and give a \\\"\\\"reasonable\\\"\\\" salary. This will be reported to the IRS and you will file your normal tax returns and they will be taxed based on your situation. Now as the sole member you can then pay yourself \\\"\\\"distribution to share holders\\\"\\\" from your account and this money is not subject to normal fica and social security tax (check with your tax guy) and MAKE SURE to document correctly. The other thing is that on that same form you can elect to have a different fiscal year than the standard calendar IRS tax year. This means that you could then take part of profits in one tax year and part in another so that you don't bump yourself into another tax bracket. Example: You cut a deal and the company makes 100,000 in profit that you want to take as a distribution. If you wrote yourself a check for all of it then it could put you into another tax bracket. If your fiscal year were to end say on sept 30 and you cut the deal before that date then you could write say 50,000 this year and then on jan 1 write the other check.\\\"\",\n \"FICA/SE taxes are not 30%. They are at most ~15%, including the employer portion. Employer also pays FUTA tax, and has additional payroll expenses (like fees and worker compensation insurance). The employee's FICA portion is limited up to a certain level of earnings (110100 this year, IIRC). Above it you only pay medicare taxes, not social security. S-Corp earnings are not taxed at 15%, these are not dividends. They're taxed at your ordinary income rate. You don't pay SE taxes on it, that's the only difference. I hope you're talking about tax treatment decision, because there are entirely different factors to keep in mind when you're organizing a business and making a decision between being it a LLC or a corporation. I believe you should pay some money to get a real advice that would apply to you, from a EA/CPA who would be doing the number-crunching (hopefully correctly). I'm a tax practitioner, and this answer was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer.\",\n \"\\\"There are no dividends from S-Corp. There are distributions. Big difference. S-Corps fill form 1120S and schedule K-1 per shareholder. In the schedule all the income of your S-Corp will be assigned to various categories that you will later copy to your personal tax return as your personal income. It is not dividend income. The reason people prefer to take distributions from their S-Corps instead of salary is because you don't pay SE taxes on the distributions. That is also the reason why the IRS forces you to pay yourself a reasonable salary. But the tax rate on the income, all of it, is your regular income tax rate, unless the S-Corp income is categorized in a preferred category. The fact that its an S-Corp income doesn't, by itself, allow any preferential treatment. If you're learning the stuff as you go - you should probably get in touch with a tax professional to advise you. All the S-Corp income must be distributed. Its not a matter of \\\"\\\"avoiding paying the tax\\\"\\\", its the matter of \\\"\\\"you must do it\\\"\\\". Not a choice. My answer was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer (circ 230 disclaimer).\\\"\",\n \"\\\"Paying yourself through a corporation requires an analysis of a variety of issues. First, a salary paid to yourself creates RRSP contribution room as well as CPP contributions. Paying yourself a dividend achieves neither of those. By having a corporation, you will have to file a corporate (T2) tax return. The corporation is considered a separate legal entity from you. As an individual, you will still need to file a personal (T1) tax return. Never just \\\"\\\"draw\\\"\\\" money out of a corporation. This can create messy transactions involving loans to shareholders. Interest is due on these amounts and any amounts not paid within one calendar year are considered as wages by Canada Revenue and would need to be reported as income on your next T1 return. You should never withhold EI premiums as the sole owner of a corporation. You are considered exempt from these costs by CRA. Any amounts that have been remitted to CRA can be reclaimed by submitting a formal request. The decision on whether to take a salary or dividends normally requires some detailed analysis. Your accountant or financial advisor should be able to assist in this matter.\\\"\",\n \"\\\"In the United States, with an S-Corp, you pay yourself a salary from company earnings. That portion is taxed at an individual rate. The rest of the company earnings are taxed as a corporation, which often have great tax benefits. If you are making over $80K/year, the difference can be substantial. A con is that there is more paperwork and you have to create a \\\"\\\"board\\\"\\\" of advisors.\\\"\",\n \"It's whatever you decide. Taking money out of an S-Corp via distribution isn't a taxable event. Practically speaking, yes, you should make sure you have enough money to afford the distribution after paying your expenses, lest you have to put money back a few days later in to pay the phone bill. You might not want to distribute every penny of profit the moment you book it, either -- keeping some money in the business checking account is probably a good idea. If you have consistent cash flow you could distribute monthly or quarterly profits 30 or 60 days in arrears, for example, and then still have cash on hand for operations. Your net profit is reflected on the Schedule K for inclusion on your personal tax return. As an S-Corp, the profit is passed through to the shareholders and is taxable whether or not you actually distributed the money. You owe taxes on the profit reported on the Schedule K, not the amounts distributed. You really should get a tax accountant. Long-term, you'll save money by having your books set up correctly from the start rather than have to go back and fix any mistakes. Go to a Chamber of Commerce meeting or ask a colleague, trusted vendor, or customer for a recommendation.\",\n \"Sounds you need to read up on S corp structures. I think this would benefit you if you generate income even after you physically stopped working which is incomes from membership fees, royalties % of customer revenue, middle man etc... Under the Scorp, you as the sole member must earn a wage that fair and at current market value. You pay social security and Medicare on this wage. The interesting thing here is that an Scorp can pay out earning dividends without having to pay payroll taxes but the catch is that you, as the sole employee must earn a fair wage. As for paying the other member you may want to look into 1099 contract work plus a finders fee. The 1099 hourly wage does not require you to pay Medicare and SS. The common fee I'm used to is 5% of gross invoice. Then you would pay her an hourly wage. The company then bills these hours multiplied by 2 or 3 (or whatever you think is fair) to the client. Deduct expenses from this and that's your profit. Example. Contractor brings Client A which is estimated as a 100 hour project with $100 cost in supplies and requires 2 hours of your time @ $40/hr. You quote 100 hours @ $50 to client, client agrees and gives you down payment. You then present the contract work to your contractor, they complete the work in 100 hours and bill you at $25. You pay your contractor 2500 plus the 5% ($250) and your company earns $2070 (5000 - 2500 - 100-80) And you'll earn $80 minus the payroll tax. Then at the end of the quarter or year or however you want to do earning payouts your LLC- Scorp will write you a check for $2070 or whatever earning % you want to take. This is then taxed at your income tax bracket. One thing to keep in mind is what is preventing this other person from becoming your competition? A partnership would be great motivation to try and bring in as much work under the LLC. But if you start shafting people then they'll just keep the work and cut you out.\",\n \"\\\"Agreed on all points. You're still not saving a TON of money, given that you have to have a reasonable balance of salary/distributions, but an S-corp is the way to go if you're making substantial profit in order to save tax money. I'll reiterate (my wife is a CPA and she guides me on my business) - you can't legally save \\\"\\\"untaxed earnings\\\"\\\" for next year.\\\"\",\n \"Do not mix personal accounts and corporate accounts. If you're paid as your self person - this money belongs to you, not the corporation. You can contribute it to the corporation, but it is another tax event and you should understand fully the consequences. Talk to a tax adviser (EA/CPA licensed in your State). If they pay to you personally (1099) - it goes on your Schedule C, and you pay SE taxes on it. If they pay to your corporation, the corporation will pay it to you as salary, and will pay payroll taxes on it. Generally, payroll through corporation will be slightly more expensive than regular schedule C. If you have employees/subcontractors, though, you may earn money which is not from your own performance, in which case S-Corp may be an advantage.\",\n \"I think you're misunderstanding how S-Corp works. Here are some pointers: I suggest you talk with a EA/CPA licensed in your state and get yourself educated on what you're getting yourself into.\",\n \"\\\"Not really, no. The assumption you're making—withdrawals from a corporation are subject to \\\"\\\"[ordinary] income tax\\\"\\\"—is simplistic. \\\"\\\"Income tax\\\"\\\" encompasses many taxes, some more benign than others, owing to credits and exemptions based on the kind of income. Moreover, the choices you listed as benefits in the sole-proprietor case—the RRSP, the TFSA, and capital gains treatment for non-registered investments—all remain open to the owner of a small corporation ... the RRSP to the extent that the owner has received salary to create contribution room. A corporation can even, at some expense, establish a defined benefit (DB) pension plan and exceed individual RRSP contribution limits. Yes, there is a more tax-efficient way for small business owners to benefit when it comes time to retirement. Here is an outline of two things I'm aware of: If your retirement withdrawals from your Canadian small business corporation would constitute withdrawal from the corporation's retained earnings (profits), i.e. income to the corporation that had already been subject to corporate income tax in prior years, then the corporation is able to declare such distributions as dividends and issue you a T5 slip (Statement of Investment Income) instead of a T4 slip (Statement of Remuneration Paid). Dividends received by Canadian residents from Canadian corporations benefit from the Dividend Tax Credit (DTC), which substantially increases the amount of income you can receive without incurring income tax. See TaxTips.ca - Non-eligible (small business) dividend tax credit (DTC). Quote: For a single individual with no income other than taxable Canadian dividends which are eligible for the small business dividend tax credit, in 2014 approximately $35,551 [...] could be earned before any federal* taxes were payable. * Provincial DTCs vary, and so combined federal/provincial maximums vary. See here. If you're wondering about \\\"\\\"non-eligible\\\"\\\" vs. \\\"\\\"eligible\\\"\\\": private small business corporation dividends are generally considered non-eligible for the best DTC benefit—but they get some benefit—while a large public corporation's dividends would generally be considered eligible. Eligible/non-eligible has to do with the corporation's own income tax rates; since Canadian small businesses already get a big tax break that large companies don't enjoy, the DTC for small businesses isn't as good as the DTC for public company dividends. Finally, even if there is hardly any same-year income tax advantage in taking dividends over salary from an active small business corporation (when you factor in both the income tax paid by the corporation and the individual), dividends still allow a business owner to smooth his income over time, which can result in a lower lifetime average tax rate. So you can use your business as a retained earnings piggy bank to spin off dividends that attract less tax than ordinary income. But! ... if you can convince somebody to buy your business from you, then you can benefit from the lifetime capital gains exemption of up to $800,000 on qualifying small business shares. i.e. you can receive up to $800K tax-free on the sale of your small business shares. This lifetime capital gains exemption is a big carrot—designed, I believe, to incentivize Canadian entrepreneurs to develop going-concern businesses that have value beyond their own time in the business. This means building things that would make your business worth buying, e.g. a valued brand or product, a customer base, intellectual property, etc. Of course, there are details and conditions with all of what I described, and I am not an accountant, so please consult a qualified, conflict-free professional if you need advice specific to your situation.\\\"\",\n \"\\\"Without divulging too many specifics. Net income is 73k. Total income is 136k. Filed as an S-Corp. Using Quickbooks to classify expenses etc. I know its not much information but I don't know what to look out for, like \\\"\\\"whoa, net income is 73k, you gotta spend that!\\\"\\\" I have a CPA but isn't offering much in the terms of \\\"\\\"help\\\"\\\" and \\\"\\\"explanation\\\"\\\". Thanks for your time!\\\"\",\n \"I think I may have figured this out but if someone could double check my reasoning I'd appreciate it. So if my company makes $75000 and I decide to pay myself a $30000 salary, then the quarterly payment break down would be like this: 1040ES: Would pay income tax on non salary dividend ($45000) 941: Would pay income tax, SS, medicare on salary ($30000) (I'm the only person on payroll) So I think this answers my question in that after switching from filing as LLC to S-corp, I won't have to pay as much on 1040ES because some of it will now be covered on payroll.\",\n \"S-Corp income is passed through to owners and is taxed on their 1040 as ordinary income. If you take a wage (pay FICA) and then take additional distributions these are not subject to FICA. A lot of business owners will buy up supplies/ necessary expenses right before the end of the tax year to lower their tax liability.\",\n \"\\\"We will bill our clients periodically and will get paid monthly. Who are \\\"\\\"we\\\"\\\"? If you're not employed - you're not the one doing the work or billing the client. Would IRS care about this or this should be something written in the policy of our company. For example: \\\"\\\"Every two months profits get divided 50/50\\\"\\\" They won't. S-Corp is a pass-through entity. We plan to use Schedule K when filing taxes for 2015. I've never filled a schedule K before, will the profit distributions be reflected on this form? Yes, that is what it is for. We might need extra help in 2015, so we plan to hire an additional employee (who will not be a shareholder). Will our tax liability go down by doing this? Down in what sense? Payroll is deductible, if that's what you mean. Are there certain other things that should be kept in mind to reduce the tax liability? Yes. Getting a proper tax adviser (EA/CPA licensed in your State) to explain to you what S-Corp is, how it works, how payroll works, how owner-shareholder is taxed etc etc.\\\"\",\n \"These are all factually correct claims. S-Corporation is a pass-through entity, so whatever gain you have on the corporate level - is passed to the shareholders. If your S-Corp has capital gains - you'll get your pro-rata share of the capital gains. Interest? The same. Dividends? You get it on your K-1. Earned income? Taxed as such to you. I.e.: whether you earn income as a S-Corp or as a sole proprietor - matters not. That's the answer to your bottom line question. The big issue, however, is this: you cannot have more than 25% passive income in your S-Corp. You pass that limit (three consecutive years, one-off is ok) - your S-Corp automatically converts to C-Corp, and you're taxed at the corporate level at the corporate rates (you then lose the capital gains rates, personal brackets, etc). This means that an S-Corp cannot be an investment company. Most (75%+) of its income has to be earned, not passive. Another problem with S-Corp is that people who work as self-proprietors incorporated as S-Corp try to abuse it and claim that the income they earned by the virtue of their own personal performance shouldn't be taxed as self-employed income. IRS frowns upon such a position, and if considerable amounts are at stake will take you all the way up to the Tax Court to prove you wrong. This has happened before, numerously. You should talk to a licensed tax adviser (EA/CPA/Attorney licensed in your state) to educate you about what S-Corp is and how it is taxed, and whether or not it is appropriate for you.\",\n \"I see a lot of people making the mistake or being given bad advise in structuring a new business. If you have more than one shareholder, then by all means an S Corporation is a better structure for lower taxes; avoid double taxation. If, however, this is a one shareholder S Corp, then you had better 1099 yourself as a consultant or look into sole proprietorship. The tax benefits are much better either way. Dr. Suraiya Shaik Ali\",\n \"Lets just get to the point...Ordinary income (gains) earned from S-Corp operations (i.e. income earned after all expenses for providing services or selling products) is passed through to the owners/shareholders and taxed at the owner's personal tax rate. Separately, if an S-Corp earns capital gains (i.e. the S-Corp buys and sells stock, earns dividends from investments, etc), those gains are passed through to the owners and taxed at a capital gains rate Capital gains are not the same as ordinary income (gains). Don't get the two confused, they are as different for S-Corp taxation as they are for personal taxation. In some cases an exception occurs, but only when the S-Corp was formally a C-Corp and the C-Corp had non-distributed earnings or losses. This is a separate issue whereas the undistributed C-Corp gains/losses are treated differently than the S-Corp gains/losses. It takes years of college coursework and work experience to grasp the vast arena of tax. It should not be so complex, but it is this complex. It is not within the scope of the non-tax professional to make sense of this stuff. The CPA exams, although very difficult and thorough, only scrape the surface of tax and accounting. I hope this provides some perspective on any questions regarding business tax for S-Corps and any other entity type. Hire a good CPA... if you can find one.\",\n \"I am a registered S-corp but for alot of industries that threshold is too low (I'm in housing) >Do you have any insight on average *effective* rates paid by SE owners? > >As a counterpoint to your (very valid) links, filing as S-corp allows for taxes on distributions to be exempt from payroll tax and taxed at much lower rates. Also, being SE allows for various deductions not possible for wage earners. There's probably other examples not immediately coming to mind. > >Also, SE taxes equal taxes otherwise paid by employer + employee. It's just that those employer taxes don't appear on the employee's paystub so not everyone realizes this. The article I posted also doesn't take into account state taxes, do example non deductible B&O, end user Sales tax or impact fees... That Employees don't pay or often even know about, yet some of us small business owners are also employees, so we get double taxed...\",\n \"@littleadv is right, this depends on your country. Furthermore, this is likely to depend on the type of business you own (in the US: LLC, S-corp, C-corp). In some countries you have to provide yourself a minimum wage if you are classified as a major shareholder and work for the company. When there is a minimum level of wage you have to pay yourself the tax rate on wages is typically higher than on dividends. The wage you then receive is taxed in line with normal wage taxation rules. Above the minimum wage you can pay yourself in dividends.\",\n \"Let me first start off by saying that you need to be careful with an S-Corp and defined contribution plans. You might want to consider an LLC or some other entity form, depending on your state and other factors. You should read this entire page on the irs site: S-Corp Retirement Plan FAQ, but here is a small clip: Contributions to a Self-Employed Plan You can’t make contributions to a self-employed retirement plan from your S corporation distributions. Although, as an S corporation shareholder, you receive distributions similar to distributions that a partner receives from a partnership, your shareholder distributions aren’t earned income for retirement plan purposes (see IRC section 1402(a)(2)). Therefore, you also can’t establish a self-employed retirement plan for yourself solely based on being an S corporation shareholder. There are also some issues and cases about reasonable compensation in S-Corp. I recommend you read the IRS site's S Corporation Compensation and Medical Insurance Issues page answers as I see them, but I recommend hiring CPA You should be able to do option B. The limitations are in place for the two different types of contributions: Elective deferrals and Employer nonelective contributions. I am going to make a leap and say your talking about a SEP here, therefore you can't setup one were the employee could contribute (post 1997). If your doing self employee 401k, be careful to not make the contributions yourself. If your wife is employed the by company, here calculation is separate and the company could make a separate contribution for her. The limitation for SEP in 2015 are 25% of employee's compensation or $53,000. Since you will be self employed, you need to calculate your net earnings from self-employment which takes into account the eductible part of your self employment tax and contributions business makes to SEP. Good read on SEPs at IRS site. and take a look at chapter 2 of Publication 560. I hope that helps and I recommend hiring a CPA in your area to help.\",\n \"In theory the integration of taxes make the tax implications of paying salary or dividends equal. This is what happens when you calculate the taxes using a generic tax calculator, however, the theory breaks down in certain cases. If you are earning less than $100k there is very little difference and paying out a salary is usually the better option. In a large stable company the most efficient option is almost always a mix of both. If you are earning more than $100k a year it depends on a number of factors: 1) Are your companies annual earnings over $500,000? In Canada, private companies that earn more than $500,000 annually are taxed at a higher rate than those earning less than $500,000. If the earnings are above $500,000 generally you should reduce the earning to under $500,000 by paying a salary. However, this depends on the province, the other income of the owners are and how much more than $500,000 your company earns. 2) Are you eligible for deductions or benefits only available on earned income? Earned income is income that you have worked for, which does not include dividends. RRSP contribution room, child care expense deductions, CPP, and many other benefits under the CRA rules are only available to people who have an earned income. It is worth taking advantage of these deductions when they are available. 3) Is your company eligible for any tax deductions? The same as with your personal tax deductions and your personal benefits of earning income, having a corporate income is also a benefit. There are a number of tax credits and tax deductions that corporations can take advantage of and when available these should be taken advantage of before paying everything out in salary. Once all these questions are answered the calculation is based on your marginal tax rate and the tax rate of the Corporation. One other reason to have at least a portion of you salary as a dividend is that if you incur capital loss in your corporation you can pass them to your personal taxes. If you were payed 100% in salary this does not work. Other strategies to be more tax efficient: Income splitting (Pay a salary/dividend to yourself, your wife, your children your parents, or anyone you support). Rolling-over property with taxable gains into your private corporation. Buying insurance policies that gives a return of premium or increase your Capital Dividend Account (CDA).\",\n \"According to the 401K information from the IRS' website, it seems that you could seemingly get away with a salary as low as $53,000. It's tough, and I'd suggest speaking with an Accounting professional to get the clear answers, because as Brick's answer suggests, the IRS isn't super clear about it. An excerpt from a separate page regarding 401K contributions: The annual additions paid to a participant’s account cannot exceed the lesser of: There are separate, smaller limits for SIMPLE 401(k) plans. Example 1: Greg, 46, is employed by an employer with a 401(k) plan and he also works as an independent contractor for an unrelated business. Greg sets up a solo 401(k) plan for his independent contracting business. Greg contributes the maximum amount to his employer’s 401(k) plan for 2015, $18,000. Greg would also like to contribute the maximum amount to his solo 401(k) plan. He is not able to make further elective deferrals to his solo 401(k) plan because he has already contributed his personal maximum, $18,000. He has enough earned income from his business to contribute the overall maximum for the year, $53,000. Greg can make a nonelective contribution of $53,000 to his solo 401(k) plan. This limit is not reduced by the elective deferrals under his employer’s plan because the limit on annual additions applies to each plan separately. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits\",\n \"Alright, team! I found answers to part 1) and part 2) that I've quote below, but still need help with 3). The facts in the article below seem to point to the ability for the LLC to contribute profit sharing of up to 25% of the wages it paid SE tax on. What part of the SE tax is that? I assume the spirit of the law is to only allow the 25% on the taxable portion of the income, but given that I would have crossed the SS portion of SE tax, I am not 100%. (From http://www.sensefinancial.com/services/solo401k/solo-401k-contribution/) Sole Proprietorship Employee Deferral The owner of a sole proprietorship who is under the age of 50 may make employee deferral contributions of as much as $17,500 to a Solo 401(k) plan for 2013 (Those 50 and older can tack on a $5,500 annual catch-up contribution, bringing their annual deferral contribution to as much as $23,000). Solo 401k contribution deadline rules dictate that plan participant must formally elect to make an employee deferral contribution by Dec. 31. However, the actual contribution can be made up until the tax-filing deadline. Pretax and/or after-tax (Roth) funds can be used to make employee deferral contributions. Profit Sharing Contribution A sole proprietorship may make annual profit-sharing contributions to a Solo 401(k) plan on behalf of the business owner and spouse. Internal Revenue Code Section 401(a)(3) states that employer contributions are limited to 25 percent of the business entity’s income subject to self-employment tax. Schedule C sole-proprietors must base their maximum contribution on earned income, an additional calculation that lowers their maximum contribution to 20 percent of earned income. IRS Publication 560 contains a step-by-step worksheet for this calculation. In general, compensation can be defined as your net earnings from self-employment activity. This definition takes into account the following eligible tax deductions: (1) the deduction for half of self-employment tax and (2) the deduction for contributions on your behalf to the Solo 401(k) plan. A business entity’s Solo 401(k) contributions for profit sharing component must be made by its tax-filing deadline. Single Member LLC Employee Deferral The owner of a single member LLC who is under the age of 50 may make employee deferral contributions of as much as $17,500 to a Solo 401(k) plan for 2013 (Those 50 and older can tack on a $5,500 annual catch-up contribution, bringing their annual deferral contribution to as much as $23,000). Solo 401k contribution deadline rules dictate that plan participant must formally elect to make an employee deferral contribution by Dec. 31. However, the actual contribution can be made up until the tax-filing deadline. Pretax and/or after-tax (Roth) funds can be used to make employee deferral contributions. Profit Sharing Contribution A single member LLC business may make annual profit-sharing contributions to a Solo 401(k) plan on behalf of the business owner and spouse. Internal Revenue Code Section 401(a)(3) states that employer contributions are limited to 25 percent of the business entity’s income subject to self-employment tax. Schedule C sole-proprietors must base their maximum contribution on earned income, an additional calculation that lowers their maximum contribution to 20 percent of earned income. IRS Publication 560 contains a step-by-step worksheet for this calculation. In general, compensation can be defined as your net earnings from self-employment activity. This definition takes into account the following eligible tax deductions: (i) the deduction for half of self-employment tax and (ii) the deduction for contributions on your behalf to the Solo 401(k). A single member LLC’s Solo 401(k) contributions for profit sharing component must be made by its tax-filing deadline.\",\n \"Do you have any insight on average *effective* rates paid by SE owners? As a counterpoint to your (very valid) links, filing as S-corp allows for taxes on distributions to be exempt from payroll tax and taxed at much lower rates. Also, being SE allows for various deductions not possible for wage earners. There's probably other examples not immediately coming to mind. Also, SE taxes equal taxes otherwise paid by employer + employee. It's just that those employer taxes don't appear on the employee's paystub so not everyone realizes this.\",\n \"With this level of income, you might consider a Solo 401(k). It would allow you a much higher level of contributions and is more appropriate for your savings than the limited IRA deposits. It also offers a considerable number of options not available for IRAs. A loan for example.\",\n \"The answer again is yes, you will still show profit. Let's assume a 35% interest rate to show you why. If you have $1.000.000 in net profit, that means your Profit before tax was $1.538.462. So if you pay yourself a $1.000.000 salary then your profit before tax is $538.462 and your net profit is $350.000. I hope that helps you understand.\",\n \"In addition to the normal limits, A Solo 401(k) allows you to contribute up to 20% of net profits (sole proprietor) or 50% of salary (if a corporation), up to $49,000. Note that the fees for 401(k) accounts are higher than with the IRA. See 401(k)s for small business.\",\n \"\\\"S-Corp are taxed very different. Unlike LLC where you just add the profit to your income with S-Corp you have to pay yourself a \\\"\\\"reasonable\\\"\\\" salary (on w-2) which of course is a lot more paperwork. I think the advantage (but don't hold me accountable for this) is if your S-Corp makes a lot more than a reasonable salary, then the rest of the money can be passed through on your personal return at a lower (corp) rate.\\\"\",\n \"Payroll taxes are only paid on salary, so you will be paying SS Tax and Medicare only on the $60,000 you pay yourself. You will still pay income tax on the distribution, of course, but the payroll tax savings seem significant (~$13K according to the calculator below). While tinkering with a new web technology some time ago, I created this JsFiddle application. I can't swear to its correctness, but I'm pretty sure it's solid (use the UI in the bottom right quadrant of the screen): http://jsfiddle.net/psandler/NKAZd/\",\n \"No there is no way to have untaxed earnings. Single Member LLC are taxed on your personal taxes. Partnership LLC is taxed on your and your partners personal taxes. An C-Corp LLC has its own tax bracket. An S-Corp is taxed on your personal taxes (but does not get taxed as self-employment taxes). At $500,000, YOU SHOULD BE AN S-CORP or C-CORP to save on self-employment taxes.\",\n \"A combination of market research and tax law would likely be the combination used to set the salary. An elaboration of each: Taxes - In Canada and the US there can be differences in how payments are treated if they are salary,e.g. payroll taxes such as CPP, Social Security and others may apply in this case as well as personal income tax rates, or dividends, which may have different treatments in some jurisdictions I believe. If salary above $250,000 is taxed at 40% and dividends are taxed at 15%, which rate would you rather pay? (This is hypothetical as no jurisdiction has been noted here yet.) Most provinces and states in North America will tax the first few dollars at rather low rates and so it isn't bad to take a nominal rate of $1 or so in salary as usually the higher rates exist for higher salaries. Executive Compensation has come under scrutiny in recent years though it is usually a mix of salary, bonuses, and stock either restricted or options. Market Research - Some companies may research what other small public companies would pay executives as the salary may have to be approved by a board of directors in some cases. At least this would be how I remember things being decided in small companies I worked for in Washington State and the province of Alberta. In a lot of company cases, excess earnings are stored and if there is enough of a pile then a special dividend may be given out though some corporate structures like REITs force dividends to maintain their tax status. Note the payment in dividend here requires that the President be able to dictate what happens with the cash in the bank of a company which isn't going to be the case for the regular employee. Also, the dividends here would go to all the shareholders and thus if there are people besides the President owning shares they would also get their portion based on what they own.\",\n \"\\\"If you elect to have the company treated as an S corp, the profits/losses of the company will pass through to the shareholders (i.e. you) on a Schedule K-1 form every year. These amounts on the Schedule K-1 are taxable whether or not the company actually distributed the money to you. Typically, the company will distribute profits to the shareholders because they will have to pay taxes on this amount. https://turbotax.intuit.com/tax-tools/tax-tips/Small-Business-Taxes/What-is-a-Schedule-K-1-Tax-Form-/INF19204.html So the money held in the company's bank accounts won't appear on your taxes per se, but the profits/losses as reported on the company's tax return will pass through to you on the Schedule K-1. Typically these amounts are taxed as income. Your tax accountant can advise you on how much money you can/should take through regular payroll and how much can be distributed as a shareholder, as well as help you prepare the corporate tax returns and schedule(s) K-1 every year. There are tax advantages to taking money out of the company through distributions instead of payroll, but the amounts can be scrutinized and subject to a criterion of \\\"\\\"reasonable compensation\\\"\\\", hence my recommendation for a tax accountant.\\\"\",\n \"Phil's answer is correct. Just to add to his response: Distributions are not taxable events -- you already paid your taxes, so you can take out $50k or $52k and the IRS is not concerned. You can simply write yourself a check for any amount you choose! To answer your specific question: to match your K1 losses and profit exactly, you could take out $50k. But that might leave the business strapped for cash. One way to decide how much to take out is to use your balance sheet. Look at your retained earnings (or just look at the business bank account balance), subtract however much cash you think you need to keep on hand for operations, and write yourself a check for the rest.\",\n \"As you own a company, you need to know what your role is. You can never just move money into or out of the company, you have to identify the role in which you are doing it, and do it properly. There is Company, and there is You, in three different roles. You are the sole shareholder and director of Company. You are the sole employee of Company. You are also just a private person. You need to keep these three roles separate. As the sole shareholder, you own the company. However, you don't own any assets of the company. The company is yours, but the money in its bank account isn't. As a private person, you give a loan to your company. You write on a sheet of paper that You personally, give a loan to the company, how much a loan is, what interest is paid, and when the loan will be paid back (that could be 'whenever You demands the money paid back'). Then you move the money from your private bank account to the company bank account, and the company has the money it needs to fund its operation. Assume it wasn't you who loaned the money, but I gave the loan to the company. You can imagine that I would have this loan written down and signed before I hand over the cash. And you must have exactly the same papers that I would have. How do you get money from the company? The company can pay back your loan. That should be written down again, in the same way as the loan itself was written down. Other than that, there are three ways how you can get money out of the company: The company can pay You, in your role as its employee, a salary, which it can deduct from its profits. The company can pay money into a pension of the company director (that's You in your role as company director) up to £40,000 or so a year; that money is deducted from its profits again. The company pays 20% tax on its remaining profits. Then the company can pay You, in your role as company director, a dividend, usually twice a year. Each of these payments has to be written down and given to HMRC properly. Best by far to use an accountant to do all the paper work for you and advice you what to do. You can lose a lot of money by just not getting the paperwork right, by filing late etc., which the accountant will get right. The accountant will also tell you what are the optimal amounts for salary and dividend (best is a small salary, about £10,000 a year, dividend of about £30,000 a year, pension as much as the company can afford, which is then all tax free to you). You can't pay more dividend then the company can afford (paying a dividend and then not being able to pay your suppliers is criminal), and if you want higher dividends, then you will have to pay taxes on them.\",\n \"\\\"How can I avoid this, so we are taxed as if we are making the $60k/yr that we want to receive? You can't. In the US the income is taxed when received, not when used. If you receive 1M this year, taking out 60K doesn't mean the other 940K \\\"\\\"weren't received\\\"\\\". They were, and are taxable. Create a pension fund in the corporation, feed it all profits, and pay out $60k/yr of \\\"\\\"pension\\\"\\\". I doubt that the corporation could deduct a million a year in pension funding. You cannot do that. You can only deposit to a pension plan up to 100% of your salary, and no more than $50K total (maybe a little more this year, its adjusted to inflation). Buy a million dollars in \\\"\\\"business equipment\\\"\\\" of some sort each year to get a deduction, then sell it over time to fund a $60k/yr salary. I doubt such a vehicle exists. If there's no real business purpose, it will be disallowed and you'll be penalized. Your only purpose is tax avoidance, meaning you're trying to shift income using your business to avoid paying taxes - that's illegal. Do crazy Section 79 life insurance schemes to tax-defer the income. The law caps this so I can only deduct < $100k of the $1 million annually, and there are other problems with this approach.\\\\ Yes. Wouldn't go there. Added: From what I understand, this is a term life insurance plan sponsored by the employer for the employee. This is not a deferral of income, but rather a deduction: instead of paying your term life insurance with your own after tax money, your employer pays with their pre-tax. It has a limit of $50K per employee, and is only available for employees. There are non-discrimination limitations that may affect your ability to use it, but I don't see how it is at all helpful for you. It gives you a deduction, but its money spent, not money in your pocket. End added. Do some tax avoidance like Facebook does with its Double Irish trick, storing the income in some foreign subsidiary and drawing $60k/yr in salary to be taxed at $60k/yr rates. This is probably cost-prohibitive for a $1MM/yr company. You're not Facebook. What works with a billion, will not work with a million. Keep in mind that you're a one-man business, things that huge corporations like Google or Facebook can get away with are a no-no for a sole-proprietor (even if incorporated). Bottom line you'll probably have to pay the taxes. Get a good tax professional to help you identify as much deductions as possible, and if you can plan income ahead - plan it better.\\\"\",\n \"\\\"The \\\"\\\"hire a pro\\\"\\\" is quite correct, if you are truly making this kind of money. That said, I believe in a certain amount of self-education so you don't follow a pro's advice blindly. First, I wrote an article that discussed Marginal Tax Rates, and it's worth understanding. It simply means that as your income rises past certain thresholds, the tax rate also will change a bit. You are on track to be in the top rate, 33%. Next, Solo 401(k). You didn't ask about retirement accounts, but the combined situations of making this sum of money and just setting it aside, leads me to suggest this. Since you are both employer and employee, the Solo 401(k) limit is a combined $66,500. Seems like a lot, but if you are really on track to make $500K this year, that's just over 10% saved. Then, whatever the pro recommends for your status, you'll still have some kind of Social Security obligation, as both employer and employee, so that's another 15% or so for the first $110K. Last, some of the answers seemed to imply that you'll settle in April. Not quite. You are required to pay your tax through the year and if you wait until April to pay the tax along with your return, you will have a very unpleasant tax bill. (I mean it will have penalties for underpayment through the year.) This is to be avoided. I offer this because often a pro will have a specialty and not go outside that focus. It's possible to find the guy that knows everything about setting you up as an LLC or Sole Proprietorship, yet doesn't have the 401(k) conversation. Good luck, please let us know here how the Pro discussion goes for you.\\\"\",\n \"\\\"First, point: The CRA wants you to start a business with a \\\"\\\"Reasonable expectation of profit\\\"\\\". They typically expect to see a profit within 5 years, so you may be inviting unwanted questions from future auditors by using a breakeven strategy. Second point: If the goal is to pay as little tax as possible, you may want to consider having the corporation pay you as little as possible. Corporate income taxes are much lower than personal income taxes, according to these two CRA links: How it works is that your company pays you little as an outright salary and offers you perks like a leased company car, expense account for lunch and entertainment, a mobile phone, computer, etc. The company owns all of this stuff and lets you use it as part of the job. The company pays for all this stuff with corporate pre-tax dollars as opposed to you paying for it with personal after-tax dollars. There are specifics on meals & entertainment which modify this slightly (you can claim 50%) but you get the idea. The actual rate difference will depend on your province of residence and your corporate income level. There is also a requirement for \\\"\\\"Reasonable Expenses\\\"\\\", such that the expenses have to be in line with what you are doing. If you need to travel to a conference each year, that would be a reasonable expense. Adding your family and making it a vacation for everyone would not. You can claim such expenses as a sole proprietor or a corporation. The sole-proprietorship option puts any after-expense profits into your pocket as taxable income, where the corporate structure allows the corporation to hold funds and limit the amount paid out to you. I've seen this strategy successfully done first-hand, but have not done it myself. I am not a lawyer or accountant, consult these professionals about this tax strategy before taking any action.\\\"\",\n \"\\\"Even under the executive exemption, see Exemption for Executive Employees Under the Fair Labor Standards Act (FLSA) Section 13(a)(1) as defined by Regulations, 29 CFR Part 541, it seems that a minimum compensation is required. To qualify for the executive employee exemption, all of the following tests must be met: The employee must be compensated on a salary basis (as defined in the regulations) at a rate not less than $455 per week... etc. There is one other possibility under FLSA Section 13(a)(1), as a \\\"\\\"bona fide exempt executive\\\"\\\". Exemption of Business Owners Under a special rule for business owners, an employee who owns at least a bona fide 20-percent equity interest in the enterprise in which employed, regardless of the type of business organization (e.g., corporation, partnership, or other), and who is actively engaged in its management, is considered a bona fide exempt executive.\\\"\",\n \"\\\"Get an accountant. Now. There are many subtle things that you do not know especially if you are just starting with your own corporation. There is also an issue of corporate tax return that you will have to face pretty soon. You should be looking for accountant that does accounting for corporations, there are companies specializing in small business. I do not think you can \\\"\\\"just\\\"\\\" transfer money to your personal account. They have to be treated as dividends and treated as such for income tax purposes. Or, as you described, you may pay yourself a salary, but then you have to pay CPP and EI on top of that. When you pay yourself dividends your corporation will need to issue T5 slip for you (accountant will do that) that you will need to use when preparing personal tax return. If you pay yourself salary, corporation will need to give you T4 In terms of tax treatment, if we do not take RRSP contributions dividend tax treatment will leave little bit more money in your hands. I'd say if you have RRSP room and/or TFSA room, pay yourself dividends and then do contributions as you see fit, if you need RRSP room, pay yourself salary. TFSA room does not depend on the type of income, so if you have room there, consider filling it first.\\\"\",\n \"I heard that a C-Corp being a one person shop (no other employees but the owner) can pay for the full amount 100% of personal rent if the residence is being used as a home office. Sure. Especially if you don't mind being audited. Technically, it doesn't matter how the money gets where it goes as long as the income tax filings accurately describe the tax situation. But the IRS hates it when you make personal expenses from a business account, even if you've paid the required personal income tax (because their computers simply aren't smart enough to keep up with that level of chaos). Also, on a non-tax level, commingling of business and personal funds can reduce the effectiveness of your company's liability protection and you could more easily become personally liable if the company goes bankrupt. From what I understand the 30% would be the expense, and the 70% profit distribution. I recommend you just pay yourself and pay the rent from your personal account and claim the allowed deductions properly like everyone else. Why & when it would make sense to do this? Are there any tax benefits? Never, because, no. You would still have to pay personal income tax on your 70% share of the rent (the 30% you may be able to get deductions for but the rules are quite complicated and you should never just estimate). The only way to get money out of a corporation without paying personal income tax is by having a qualified dividend. That's quite complicated - your accounting has to be clear that the money being issued as a qualified dividend came from an economic profit, not from a paper profit resulting from the fact that you worked hard without paying yourself market value.\",\n \"\\\"You probably don't need S-Corp. There's no difference between what you can deduct on your Schedule C and what you can deduct on 1120S, it will just cost you more money. Since you're gambling yourself, you don't need to worry about liability - but if you do, you should probably go LLC route, much cheaper and simpler. The \\\"\\\"reasonable salary\\\"\\\" trick to avoid FICA won't work. Don't even try. Schedule C for professional gamblers is a very accepted thing, nothing extraordinary about it.\\\"\",\n \"\\\"If you're really interested in the long-term success of your business, and you can get by in your personal finances without taking anything from the business for the time being, then don't. There is no \\\"\\\"legal requirement\\\"\\\" to pay yourself a prevailing wage if doing so would put the company out of business. it is common for a company's principals not to draw wages from the business until it is viable enough to sustain payroll. I was in that situation when I first began my business, so the notion that somehow I'm violating a law by being fiscally responsible for my own company is nonsense. Be wise with your new business. You didn't state why you feel the need to take some kind of payment out, but this can be a crucial mistake if it imperils your business or if that money could be better spent on marketing or some other areas which improve revenues. You can always create a salary deferral agreement between yourself and your own company which basically states that the company owes you wages but you are, for the time being, willing to defer accepting them until such time that the company has sufficient revenues to pay you. That's one solution, but the simplest answer is, if you don't need the money you're thinking of paying yourself, don't do it. Let that money work for you in the business so that it pays off better in the long run. Good luck!\\\"\",\n \"There are many aspects to consider in deciding what sort of company you want to form. Instead of an S-corporation, you should determine whether it would be better to form a Limited Liability Company (LLC), Limited Partnership (LP) or even a professional company (PC). Littleadv is correct: There is minimal benefit in forming an S-corp with you and your wife as the shareholders, if you will be the only contributor-worker. There are costs associated with an S-corporation, or any corporation, that might outweigh benefits from more favorable tax treatment, or personal protection from liability: Filing fees and disclosure rules vary from state to state. For example, my father was a cardiologist who had no employees, other than my grandmother (she worked for free), in a state with income taxes (NM). He was advised that a PC was best in New Mexico, while an S-Corp was better in Florida (there are no personal income taxes in Florida). The only way to know what to do requires that you consult an accountant, a good one, for guidance.\",\n \"\\\"If you have an S-Corp with several shareholders - you probably also have a tax adviser who suggested using S-Corp to begin with. You're probably best off asking that adviser about this issue. If you decided to use S-Corp for multiple shareholders without a professional guiding you, you should probably start looking for such a professional, or you may get yourself into trouble. That said, and reminding you that: 1. Free advice on the Internet is worth exactly what you paid for it, and 2. I'm not a tax professional or tax adviser, you should talk to a EA/CPA licensed in your state, here's this: Generally S-Corps are disregarded entities for tax purposes and their income flows to their shareholders individual tax returns through K-1 forms distributed by the S-Corp yearly. The shareholders don't have to actually withdraw the profits, but if not withdrawing - they're added to their cost bases in the shares. I'm guessing your corp doesn't distribute the net income, but keeps it on the corporate account, only distributing enough to cover the shareholders' taxes on their respective income portion. In this case - the amount not distributed is added to their basis, the amount distributed has already been taxed through K-1. If the corporation distributes more than the shareholder's portion of net income, then there can be several different choices, depending on the circumstances: The extra distribution will be treated as salary to the shareholder and a deduction to the corporation (i.e.: increasing the net income for the rest of the shareholders). The extra distribution will be treated as return of investment, reducing that shareholder's basis in the shares, but not affecting the other shareholders. If the basis is 0 then it is treated as income to the shareholder and taxed at ordinary rates. The extra distribution will be treated as \\\"\\\"buy-back\\\"\\\" - reducing that shareholder's ownership stake in the company and reallocating the \\\"\\\"bought-back\\\"\\\" portion among the rest of the shareholders. In this case it is treated as a sale of stock, and the gain is calculated as with any other stock sale, including short-term vs. long-term taxation (there's also Sec. 1244 that can come in handy here). The extra distribution will be treated as dividend. This is very rare for S-Corp, but can happen if it was a C-Corp before. In that case it will be taxed as dividends. Note that options #2, #3 and #4 subject the shareholder to the NIIT, while option #1 subjects the shareholder to FICA/Self Employment tax (and subjects the company to payroll taxes). There might be other options. Your licensed tax adviser will go with you through all the facts and circumstances and will suggest the best way to proceed.\\\"\",\n \"Perhaps an example will help make it more clear. Any given year: Revenue: 200K, profit 60K You get 40K in profit, plus any salary, he gets 20K Next year you attract the attention of a competitor and they offer and you accept to sell. You would get 100% of the proceeds. This is kind of a bad deal for him as you could easily play accounting tricks to diminish the company's profits and reduce his pay. For the given example, you could pay yourself a 60K bonus and reduce the profit to zero and eliminate his compensation. There should probably be a revenue metric included in his compensation. Edit: It is really nice to hear you have a desire to treat this person fairly. Honesty in business is necessary for long term success. I would simply make his salary dependent upon the revenue he generates. For example, lets say you can make a widget for 4 and you expect to sell them for 10. Your profit would be 6, and with the suggested split he would receive $2, you $4. Instead I would have him receive like 15% of the revenue generated This allows for some discounts for bulk items and covers the cost of processing sales. It also allows him to share revenue with his staff. Alternatively you could also do a split. Perhaps 7.5% of revenue and 10% of profit.\",\n \"Compared with a Sole Proprietorship, the main disadvantages of an S-Corporation or an LLC are that it adds a lot of management overhead (time, and possibly money if you don't do it all yourself), and there are fees you must pay to incorporate, as well as additional yearly maintenance fees which vary by state. You should be able to weigh the tax savings and liability protection against the extra costs and hassle, and see which way the scales tip. As a rule of thumb, the bigger your business gets or the more income you make, the more attractive incorporating becomes. Note there are some additional taxes that certain jurisdictions impose on business income. For example, IL and CA charge 1.5% tax, NY is less, but NYC is 8.85%! In NYC specifically, you could actually end up paying slightly more tax as an S-Corp than you would as a Sole Proprietorship. In most places though, the nominal local taxes will still be less than the FICA taxes you could potentially save.\",\n \"IANAL (and nor am I an accountant), so I can't give a definitive answer as to legality, but AFAIK, what you propose is legal. But what's the benefit? Avoiding corporation tax? It's simplistic – and costly – to think in terms like that. You need to run the numbers for different scenarios, and make a plan. You can end up ahead of the game precisely by choosing to pay some corporate tax each year. Really! Read on. One of the many reasons that self-employed Canadians sometimes opt for a corporate structure over being a sole proprietor is to be able to not pay themselves everything the company earns each year. This is especially important when a business has some really good years, and others, meh. Using the corporation to retain earnings can be more tax effective. Example: Imagine your corporation earns, net of accounting & other non-tax costs except for your draws, $120,000/year for 5 years, and $0 in year 6. Assume the business is your only source of income for those 6 years. Would you rather: Pay yourself the entire $120,000/yr in years 1-5, then $0 in year 6 (living off personal savings you hopefully accumulated earlier), subjecting the $120,000/yr to personal income tax only, leaving nothing in the corporation to be taxed? Very roughly speaking, assuming tax rates & brackets are level from year to year, and using this calculator (which simplifies certain things), then in Ontario, then you'd net ~$84,878/yr for years 1-5, and $0 in year 6. Overall, you realized $424,390. Drawing the income in this manner, the average tax rate on the $600,000 was 29.26%. vs. Pay yourself only $100,000/yr in years 1-5, leaving $20,000/yr subject to corporation tax. Assuming a 15.5% combined federal/provincial corporate tax rate (includes the small business deduction), then the corp. is left with $16,900/yr to add to retained earnings in years 1-5. In year 6, the corp. has $84,500 in retained earnings to be distributed to you, the sole owner, as a dividend (of the non-eligible kind.) Again, very roughly speaking, you'd personally net $73,560/yr in years 1-5, and then on the $84,500 dividend in year 6, you'd net $73,658. Overall, you realized $441,458. Drawing the income in this manner, the average tax rate on the $600K was 26.42%. i.e. Scenario 2, which spreads the income out over the six years, saved 2.84% in tax, or $14,400. Smoothing out your income is also a prudent thing to do. Would you rather find yourself in year 6, having no clients and no revenue, with nothing left to draw on? Or would you rather the company had saved money from the good years to pay you in the lean one?\",\n \"LLC is not a federal tax designation. It's a state-level organization. Your LLC can elect to be treated as a partnership, a disregarded entity (i.e., just report the taxes in your individual income tax), or as an S-Corp for federal tax purposes. If you have elected S-Corp, I expect that all the S-Corp rules will apply, as well as any state-level LLC rules that may apply. Disclaimer: I'm not 100% familiar with S-corp rules, so I can't evaluate whether the statements you made about proportional payouts are correct.\",\n \"how does a single employee LLC bring in 500k? I mean if you want to have it in a low-tax environment, you can probably invest it in something and then pull them out? I don't think you can put away pre-tax earnings to then use on salary costs.\",\n \">Hey, sole proprietorships called A sole proprietorship could incorporate as a Single Member LLC and elect to be taxed as a corporation. But you would still be subject to both sides of the FICA/Medicare taxes. >and they're going to suck out five percent MORE of my GROSS How exactly does a LLC suck out 5% more of your gross? >your payroll costs go through the roof. Again, payroll expenses are generally tax deductible. I'm just trying to help you here.\",\n \"manage the company properly. If you aren't much aware about company rules and regulation or tax matters, get an accountant so that you don't mess up later. better off paying my self a dividend of 100% profit or as an employee? That depends on how much salary you intend to pay yourself, your dividend or how much business expenses you will incur while running the business. Generally speaking you are better off paying your self a minimum salary and pay the rest as dividends. But check out the dividend tax and the income tax you might need to pay and compare which situation you are better off. If you have a partner, using the dividend way will reduce your NI outgoes. ethical and legal? Ethically the dividend way might burn your conscience but it is perfectly legal way of doing things.\",\n \"The best way to do this is to pay for the entire car, including gas, insurance, and repairs, from S-corp funds, then meticulously track how many miles are used for personal and how many miles for business. If you pay with S-corp funds, you will claim the personal miles as a taxable benefit from the S-corp on your personal return. The S-corp can then claim all the expenses and depreciation on the vehicle, reducing the S-corp's tax liability.\",\n \"The only possibility that I've seen in the past is if some of the income is for deferred services which are to be delivered in the following tax year, a portion of the income can be deferred. Also, agree that you should be an S-corp and talk to another CPA if yours hasn't told you that yet.\",\n \"\\\"You're conflating LLC with Corporation. They're different animals. LLC does not have \\\"\\\"S\\\"\\\" or \\\"\\\"C\\\"\\\" designations, those are just for corporations. I think what you're thinking about is electing pass through status with the IRS. This is the easiest way to go. The company can pay you at irregular intervals in irregular amounts. The IRS doesn't care about these payments. The company will show profit or loss at the end of the year (those payments to you aren't expenses and don't reduce your profit). You report this on your schedule C and pay tax on that amount. (Your state tax authority will have its own rules about how this works.) Alternatively you can elect to have the LLC taxed as a corporation. I don't know of a good reason why someone in your situation would do this, but I'm not an accountant so there may be reasons out there. My recommendation is to get an accountant to prepare your taxes. At least once -- if your situation is the same next year you can use the previous year's forms to figure out what you need to fill in. The investment of a couple hundred dollars is worthwhile. On the question of buying a home in the next couple of years... yes, it does affect things. (Pass through status? Probably doesn't affect much.) If all of your income is coming from self-employment, be prepared for hassles when you are shopping for a mortgage. You can ask around, maybe you have a friendly loan officer at your credit union who knows your history. But in general they will want to see at least two years of self-employment tax returns. You can plan for this in advance: talk to a couple of loan officers now to see what the requirements will be. That way you can plan to be ready when the time comes.\\\"\",\n \"As the owner of the S-corp, it is far easier for you to move money in/out of the company as contributions and distributions rather than making loans to the company. Loans require interest payments, 1099-INT forms, and have tax consequences, whereas the distributions don't need to be reported because you pay taxes on net profits regardless of whether the money was distributed. If you were paid interest, disregard this answer. I don't know if or how you could re-categorize the loan once there's a 1099-INT involved. If no interest was ever paid, you just need to account for it properly: If the company didn't pay you any interest and never issued you a 1099-INT form (i.e. you wrote a check to the company, no promissory note, no tax forms, no payments, no interest, etc.) then you can categorize that money as a capital contribution. You can likewise take that money back out of the company as a capital distribution and neither of these events are taxable nor do they need to be reported to the IRS. In Quickbooks, create the following Equity accounts -- one for each shareholder making capital contributions and distributions: When putting money into the company, deposit into your corporate bank account and use the Capital Contribution equity account. When taking money out of the company, write yourself a check and use the Distributions account. At the end of every tax year, you can close out your Contributions and Distributions to Retained Earnings by making a general journal entry. For example, debit retained earnings and credit distributions on Dec 31 every year to zero-out the distributions account. For contributions, do the reverse and credit retained earnings. There are other ways of recording these transactions -- for example I think some people just use a Member Capital equity account instead of separate accounts for contributions and distributions -- and QB might warn you about posting journal entries to the special Retained Earnings account at the end of the year. In any case, this is how my CPA set up my books and it's been working well enough for many years. Still, never a bad idea to get a second opinion from your CPA. Be sure to pay yourself a reasonable salary, you can't get out of payroll taxes and just distribute profits -- that's a big red flag that can trigger an audit. If you're simply distributing back the money you already put into the company, that should be fine.\",\n \"\\\"It seems I can make contributions as employee-elective, employer match, or profit sharing; yet they all end up in the same 401k from my money since I'm both the employer and employee in this situation. Correct. What does this mean for my allowed limits for each of the 3 types of contributions? Are all 3 types deductible? \\\"\\\"Deductible\\\"\\\"? Nothing is deductible. First you need to calculate your \\\"\\\"compensation\\\"\\\". According to the IRS, it is this: compensation is your “earned income,” which is defined as net earnings from self-employment after deducting both: So assuming (numbers for example, not real numbers) your business netted $30, and $500 is the SE tax (half). You contributed $17.5 (max) for yourself. Your compensation is thus 30-17.5-0.5=12. Your business can contribute up to 25% of that on your behalf, i.e.: $4K. Total that you can contribute in such a scenario is $21.5K. Whatever is contributed to a regular 401k is deferred, i.e.: excluded from income for the current year and taxed when you withdraw it from 401k (not \\\"\\\"deducted\\\"\\\" - deferred).\\\"\",\n \"I wouldn't stress out too much about what you call the category. As long as it makes sense to you and your tax accountant it should be fine. Besides, it's usually pretty easy to rename a category in the future. Just for reference, my accountant set up my categories (also for S-Corp) like this (though this was 8 years ago but I still use them today):\",\n \"I'll just re-post my comment as an answer as i disagree with Michael Pryor. According to this article (and few others) you may save money by incorporating. These factors don’t change the general payroll tax advantage of an S corporation, however: A S corporation can often save business owners substantial amounts of payroll tax if the business profit greatly exceeds what the business needs to pay owners for their work.\",\n \"An LLC or an S corp will result in the same tax obligations because both are pass-through tax entities. An LLC is more flexible for the situation you describe because the member and manager responsibilities can be detailed in the operating agreement. You really should get a business attorney to help you get your operating agreement in order. There's also a startups beta site on Stack Exchange that may be able to help you with questions about ways to handle your operating agreement.\",\n \"I'm not sure I am fully understanding the nuance of your question, but based on your answer in the comments you and your business are not separate legal entities. So your income is the full $70K, there is no distinct business to have income. If you clarify your question to include why you want to know this I might be able to give a more meaningful answer for your situation.\",\n \"\\\"Yes, you can make the election to file your LLC as an S-Corp, and Turbo Tax Business can help you with the S-Corp business return. You need to make sure you're set up correctly and there are a lot of things to be aware of. For example, the whole \\\"\\\"reasonable salary\\\"\\\" thing is a can of worms. So while the answer to your question is \\\"\\\"yes, it's manageable, you can do it on your own,\\\"\\\" it might be worthwhile to have a professional help you the first year, make sure it's set up right, and then you can do it on your own in subsequent years.\\\"\",\n \"It doesn't make much difference in the end. Imagine you have $100 of revenue in your company. You can either pay it to yourself as salary, meaning that you don't pay corporate tax on it, or you can keep it in the company, pay corporate tax on it, then pay yourself a dividend of what is left. While that dividend will be treated better than salary, remember that the company already paid tax on it. You paying less on what's left doesn't equate to paying less overall. Go ahead and run the numbers using your actual corporate tax rate and your personal income tax rate. Try doing your whole salary as dividends - not dollar for dollar, but as how much the company would have as profit to give you a dividend if it didn't spend (and deduct) salary money on you. You are unlikely to see any difference at all. The net final money in your pocket, and the amount that went to the government, will probably be the same. If paying dividends keeps your earned income low, you may find that you can't use RRSP or childcare deductions. You are also not getting CPP credit. That's an argument for salary, or at least a certain minimum amount of salary. You have to deduct taxes at source on salary and send it along to the government, which is an argument for dividends if you feel you could invest that money and use it well before the taxes get around to being due. Possibly you may discover an edge case where you move a few thousand from one marginal tax rate to another and clear a few hundred extra as a result. I don't discourage you from doing the math, I just point out that the various percentages (tax rates, grossups, deductions etc) have all been carefully chosen so that it pretty much works out the same, or gives a small preference to salary. We give excess money to ourselves as bonus rather than dividend having run the numbers a few times. There's no secret trick here.\",\n \"Sure, just outsource everything that doesn't justify a $70k salary - book keeping, it help desk, janitorial, etc. Hell, outsource software development if you can maybe only employ a senior architect and outsource the rest. Be in b2b Sales so you don't need any front line b2c customer service needs. Make sure your goods are digital so you don't need warehouse or logistics staff. Make sure your revenue is recurring and drafted from the customer automatically so you don't need any accounts receivable staff. Sure, you can use this model - it works great for something like a credit card payment processor, just like it would work well for a boutique financial services firm or a SaaS software company.\",\n \"\\\"An unmarried person with a total U.S.-sourced earned income under $ 37,000 during the year 2016 is likely to owe: If the original poster is not an \\\"\\\"independent contractor\\\"\\\", and is not \\\"\\\"billing corp-to-corp\\\"\\\" then: In summary: References:\\\"\",\n \"You may be able to find the answers to your question on the IRS web site: http://www.irs.gov/businesses/small/article/0,,id=98263,00.html Specifically, using this form to estimate taxes for salary: http://www.irs.gov/pub/irs-pdf/f1120w.pdf and this form to estimate taxes for dividends: http://www.irs.gov/pub/irs-pdf/f1040es.pdf\",\n \"\\\"This is actually quite a complicated issue. I suggest you talk to a properly licensed tax adviser (EA/CPA licensed in your State). Legal advice (from an attorney licensed in your State) is also highly recommended. There are many issues at hand here. Income - both types of entities are pass-through, so \\\"\\\"earnings\\\"\\\" are taxed the same. However, for S-Corp there's a \\\"\\\"reasonable compensation\\\"\\\" requirement, so while B and C don't do any \\\"\\\"work\\\"\\\" they may be required to draw salary as executives/directors (if they act as such). Equity - for S-Corp you cannot have different classes of shares, all are the same. So you cannot have 2 partners contribute money and third to contribute nothing (work is compensated, you'll be getting salary) and all three have the same stake in the company. You can have that with an LLC. Expansion - S-Corp is limited to X shareholders, all of which have to be Americans. Once you get a foreign partner, or more than 100 partners - you automatically become C-Corp whether you want it or not. Investors - it would be very hard for you to find external investors if you're a LLC. There are many more things to consider. Do not make this decision lightly. Fixing things is usually much more expensive than doing them right at the first place.\\\"\",\n \"\\\"Disclaimer: I'm not a tax professional, or an expert on S-Corps. However, I do have my own S-Corp, and my decision process for taking a distribution has nothing (directly) to do with K-1 past or present, or profit and loss. If I have \\\"\\\"extra\\\"\\\" cash in my S-Corp, I take a distribution. Assuming I do my taxes correctly, the money will be taxed whether I take a distribution or leave it in the business. So it really comes down to how much cash the business requires to continue operating and meeting its expenses.\\\"\",\n \"\\\"Be careful here: If ACME were in California, I would pay taxes on USD 17,000 because I had revenue of 20,000 and expenses of 3,000. To CALIFORNIA. And California taxes S-Corps. And, in addition, you'd pay $800 for the right of doing business in the State. All that in addition to the regular Federal and State taxes to the State where you're resident. Suppose that ACME is in Britain (or anywhere else for that matter). My revenue and expenses are the same, but now my money has been earned and my expenses incurred in a foreign country. Same thing exactly. Except that you'll have to pay taxes to the UK. There may be some provision in the tax treaty to help you though, so you may end up paying less taxes when working in the UK than in California. Check with a licensed tax adviser (EA/CPA licensed in your State) who won't run away from you after you say the words \\\"\\\"Tax Treaty\\\"\\\". Does it even make sense to use my S-Corporation to do business in a foreign country? That should be a business decision, don't let the tax considerations drive your business.\\\"\",\n \"In principle, when you are the sole owner of a limited company, and also the sole employee, then it is much easier to assume that someone else is the employee. Let's say your twin brother John Adler. John Adler receives a salary from David Adler's company. Of course John has to pay income tax on his salary. Absolutely in the UK, and in Estonia as well if they have any sensible tax laws at all (which I assume but don't know for sure). Then there is the company. It's profit equals revenue, minus cost. You said £4000 revenue, and John Adler's salary, plus anything the company has to pay on top of the salary, is cost, which is subtracted from the revenue to calculate profit. In the UK, the company pays 20% corporation tax on those profits, and the rest stays in its bank account (or may be in goods that the company purchased). Where does David Adler come in? He owns the company, but doesn't work for it and gets no salary. He owns the company, but he does not own the company's money. He can't just help himself to the money. He can get a loan from the company, and is personally responsible for repaying that loan. If it's not repaid, HMRC will be very angry which will hurt. Or he can pay himself a dividend, and pays dividend tax on it. Or of course he can leave the money in the company. That's exactly how it works in the UK, and I would assume Estonia to be similar. And of course if it's not the twin brother who is the employee, but the OP himself, then the situation is exactly the same.\",\n \"\\\"It's not abnormal for a company that is as young as yours seems to be. It seems (based on what little I know), that you have debts, or accounts payable that were formerly covered by the $200 cash, but now aren't, because you paid it to yourself. For now, you're \\\"\\\"entitled\\\"\\\" to pay yourself a draw or a salary. But if you continue to do so without earning money to cover it, your company will fail.\\\"\",\n \"\\\"If you have a single member LLC there is no need to separate expenses in this way since it is simply treated as part of the owner's normal tax returns. This is the way I've been operating. Owner of Single-Member LLC If a single-member LLC does not elect to be treated as a corporation, the LLC is a \\\"\\\"disregarded entity,\\\"\\\" and the LLC's activities should be reflected on its owner's federal tax return. If the owner is an individual, the activities of the LLC will generally be reflected on: Form 1040 Schedule C, Profit or Loss from Business (Sole Proprietorship) (PDF) Form 1040 Schedule E, Supplemental Income or Loss (PDF) Form 1040 Schedule F, Profit or Loss from Farming (PDF) An individual owner of a single-member LLC that operates a trade or business is subject to the tax on net earnings from self employment in the same manner as a sole proprietorship. If the single-member LLC is owned by a corporation or partnership, the LLC should be reflected on its owner's federal tax return as a division of the corporation or partnership. https://www.irs.gov/businesses/small-businesses-self-employed/single-member-limited-liability-companies\\\"\",\n \"That's really not something that can be answered based on the information provided. There are a lot of factors involved: type of income, your wife's tax bracket, the split between Federal and State (if you're in a high bracket in a high income-tax rate State - it may even be more than 50%), etc etc. The fact that your wife didn't withdraw the money is irrelevant. S-Corp is a pass-through entity, i.e.: owners are taxed on the profits based on their personal marginal tax rates, and it doesn't matter what they did with the money. In this case, your wife re-invested it into the corp (used it to pay off corp debts), which adds back to her basis. You really should talk to a tax adviser (EA/CPA licensed in your State) to learn how S-Corps work and how to use them properly. Your wife, actually, as she's the owner.\",\n \"\\\"What you're asking about is called a \\\"\\\"distribution\\\"\\\" when it comes to an LLC. It's basically you paying yourself some or all of the proceeds of the business, depending on how you're set up. You can pay yourself distributions on a regular schedule, say monthly, or you can do it at the end of the year. Whatever you do in this regard, what you take out as distributions is reported on your personal income tax as taxable income. LLCs in the U.S. use pass-through taxation (unless you intentionally elect to have the LLC treated as a corporation for tax purposes, which some people do), so whatever the principals receive in distribution is personally taxable. Keep in mind that you'll have to pay ALL of the taxes normally covered by an employer, such as self-employment tax (usually about 15%), social security tax, and so on. This is in addition to income tax, so remember that. I hope this helps. Good luck!\\\"\",\n \"\\\"(I'm assuming USA tax code as this is untagged) As the comments above suggest there is no \\\"\\\"right\\\"\\\" answer or easy formula. The main issue is that you likely got into business to make money and if you make money consistently you will pay taxes. Reinvesting generally should be a business decision where the main concern is revenue growth and taxes are an important but secondary concern. Taxes can be complicated, but for a small LLC shouldn't be that bad. I highly recommend that you take some time closely analyze your business and personal taxes for the previous year. Once you understand the problem better, you can optimize around it. If it is a big concern, some companies buy software so they can estimate their taxes periodically through the year and make better decisions.\\\"\",\n \"The IRS Guidance pertaining to the subject. In general the best I can say is your business expense may be deductible. But it depends on the circumstances and what it is you want to deduct. Travel Taxpayers who travel away from home on business may deduct related expenses, including the cost of reaching their destination, the cost of lodging and meals and other ordinary and necessary expenses. Taxpayers are considered “traveling away from home” if their duties require them to be away from home substantially longer than an ordinary day’s work and they need to sleep or rest to meet the demands of their work. The actual cost of meals and incidental expenses may be deducted or the taxpayer may use a standard meal allowance and reduced record keeping requirements. Regardless of the method used, meal deductions are generally limited to 50 percent as stated earlier. Only actual costs for lodging may be claimed as an expense and receipts must be kept for documentation. Expenses must be reasonable and appropriate; deductions for extravagant expenses are not allowable. More information is available in Publication 463, Travel, Entertainment, Gift, and Car Expenses. Entertainment Expenses for entertaining clients, customers or employees may be deducted if they are both ordinary and necessary and meet one of the following tests: Directly-related test: The main purpose of the entertainment activity is the conduct of business, business was actually conducted during the activity and the taxpayer had more than a general expectation of getting income or some other specific business benefit at some future time. Associated test: The entertainment was associated with the active conduct of the taxpayer’s trade or business and occurred directly before or after a substantial business discussion. Publication 463 provides more extensive explanation of these tests as well as other limitations and requirements for deducting entertainment expenses. Gifts Taxpayers may deduct some or all of the cost of gifts given in the course of their trade or business. In general, the deduction is limited to $25 for gifts given directly or indirectly to any one person during the tax year. More discussion of the rules and limitations can be found in Publication 463. If your LLC reimburses you for expenses outside of this guidance it should be treated as Income for tax purposes. Edit for Meal Expenses: Amount of standard meal allowance. The standard meal allowance is the federal M&IE rate. For travel in 2010, the rate for most small localities in the United States is $46 a day. Source IRS P463 Alternately you could reimburse at a per diem rate\",\n \"In a simple case as the sole UK resident director/shareholder of a company, with that company as your only income, you are usually best paying yourself a salary of the maximum tax free amount allowed under your tax code (~£11k for most people at present). On this you will have to pay some employer and employee National Insurance (NI) contributions (totalling around £1000). Your salary/employer NI counts as an expense, so that is taken off the company profits. You then pay corporation tax on the remainder (20%). The first £5k you take as dividends is tax free, the remainder at a lower tax rate than the equivalent combined income tax/NI (starting at 7.5% instead of 20% tax plus employee plus employer NI), giving a significant saving compared to salaried income even after corporation tax. To declare and pay the tax, you would need to complete a self-assessment tax return. Your company will also need to file a return. The Contractor UK website, although aimed at IT contractors, has some very useful information on operating Ltd companies. That said, finances are rarely that simple so I would concur with the recommendation you engage an accountant, which is a tax-deductible expense.\",\n \"One way to determine compensation is as a percentage per actual hour billed (and paid by client). Very common place to start is 33% for company overhead/administration (insurance, taxes, office expense, etc), 33% for sales commission/costs (roughly half as direct sales commission, half for marketing), 33% as gross 1099 pay compensation to the employee.\",\n \"\\\"There are TWO parts to an LLC or any company structure. This being the entire point of creating an LLC. The context is that a lawyer is after your LLC, and he's arguing that the LLC is not genuine, so he can go after your personal assets - your house, car, IRAs, tap your wife's salary etc. This is called \\\"\\\"piercing the corporate veil\\\"\\\". What would he use to claim the LLC is not genuine? The determination here is between you and the judge in a lawsuit. Suffice it to say, the way you withdraw money must consider the above issues, or you risk breaking the liability shield and becoming personally liable, which means you've been wasting the $25 every year to keep it registered. The IRS has a word for single member LLCs: \\\"\\\"Disregarded entity\\\"\\\". The IRS wants to know that the entity exists and it's connected to you. But for reporting tax numbers, they simply want the LLC's numbers folded into your personal numbers, because you are the same entity for tax purposes. The determination here is made by you. *LLCs are incredible versatile structures, and you can actually choose to have it taxed like a corporation where it is a separate \\\"\\\"person\\\"\\\" which files its own tax return. * The IRS doesn't care how you move money from the LLC to yourself, since it's all the same to them. The upshot is that while your own lawyer prohibits you from thinking of the assets as \\\"\\\"all one big pile\\\"\\\", IRS requires you to. Yes, it's enough to give you whiplash.\\\"\",\n \"\\\"The limit on SEP IRA is 25%, not 20%. If you're self-employed (filing on Schedule C), then it's taken on net earning, which in your example would be 25% of $90,000. (https://www.irs.gov/retirement-plans/retirement-plans-for-self-employed-people) JoeTaxpayer is correct as regards the 401(k) limits. The elective deferrals are per person - That's a cap in sum across multiple plans and across both traditional and Roth if you have those. In general, it's actually across other retirement plan types too - See below. If you're self-employed and set-up a 401(k) for your own business, the elective deferral is still aggregated with any other 401(k) plans in which you participate that year, but you can still make the employer contribution on your own plan. This IRS page is current a pretty good one on this topic: https://www.irs.gov/retirement-plans/one-participant-401k-plans Key quotes that are relevant: The business owner wears two hats in a 401(k) plan: employee and employer. Contributions can be made to the plan in both capacities. The owner can contribute both: •Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit: ◦$18,000 in 2015 and 2016, or $24,000 in 2015 and 2016 if age 50 or over; plus •Employer nonelective contributions up to: ◦25% of compensation as defined by the plan, or ◦for self-employed individuals, see discussion below It continues with this example: The amount you can defer (including pre-tax and Roth contributions) to all your plans (not including 457(b) plans) is $18,000 in 2015 and 2016. Although a plan's terms may place lower limits on contributions, the total amount allowed under the tax law doesn’t depend on how many plans you belong to or who sponsors those plans. EXAMPLE Ben, age 51, earned $50,000 in W-2 wages from his S Corporation in 2015. He deferred $18,000 in regular elective deferrals plus $6,000 in catch-up contributions to the 401(k) plan. His business contributed 25% of his compensation to the plan, $12,500. Total contributions to the plan for 2015 were $36,500. This is the maximum that can be contributed to the plan for Ben for 2015. A business owner who is also employed by a second company and participating in its 401(k) plan should bear in mind that his limits on elective deferrals are by person, not by plan. He must consider the limit for all elective deferrals he makes during a year. Notice in the example that Ben contributed more that than his elective limit in total (his was $24,000 in the example because he was old enough for the $6,000 catch-up in addition to the $18,000 that applies to everyone else). He did this by declaring an employer contribution of $12,500, which was limited by his compensation but not by any of his elective contributions. Beyond the 401(k), keep in mind that elective contributions are capped across different types of retirement plans as well, so if you have a SEP IRA and a solo 401(k), your total contributions across those plans are also capped. That's also mentioned in the example. Now to the extent that you're considering different types of plans, that's a whole question in itself - One that might be worth consulting a dedicated tax advisor. A few things to consider (not extensive list): As for payroll / self-employment tax: Looks like you will end up paying Medicare, including the new \\\"\\\"Additional Medicare\\\"\\\" tax that came with the ACA, but not SS: If you have wages, as well as self-employment earnings, the tax on your wages is paid first. But this rule only applies if your total earnings are more than $118,500. For example, if you will have $30,000 in wages and $40,000 in selfemployment income in 2016, you will pay the appropriate Social Security taxes on both your wages and business earnings. In 2016, however, if your wages are $78,000, and you have $40,700 in net earnings from a business, you don’t pay dual Social Security taxes on earnings more than $118,500. Your employer will withhold 7.65 percent in Social Security and Medicare taxes on your $78,000 in earnings. You must pay 15.3 percent in Social Security and Medicare taxes on your first $40,500 in self-employment earnings and 2.9 percent in Medicare tax on the remaining $200 in net earnings. https://www.ssa.gov/pubs/EN-05-10022.pdf Other good IRS resources:\\\"\",\n \"If you are the only owner: then morally there is nothing wrong with this, as long as you make sure that everything is tracked so that you pay the proper taxes from the correct entity. The danger for you and your business is if the transfers aren't planned. Because you may not be re-investing enough of the profits back into the company. That means that the equipment may be aging but you aren't replacing it, it can also mean that you aren't spending enough on business development. If you pay yourself so much that you bankrupt the company that isn't good. If you live the good life but starve the employees and they realize it, or if you starve the business and the employees realize it; then you might have a problem motivating and retaining employees.\",\n \"\\\"I'm assuming that when you say \\\"\\\"convert to S-Corp tax treatment\\\"\\\" you're not talking about actually changing your LLC to a Corporation. There are two distinct pieces of the puzzle here. First, there's your organizational form. Your state, which is where the business is legally formed and recognized, creates the LLC or Corporation. \\\"\\\"S-Corp\\\"\\\" doesn't come into play here: your company is either an LLC or a Corporation. (There are a handful of other organizational types your state might have, e.g. PLLC, Limited Partnership, etc.; none of these are immediately relevant to this discussion). Second, there's the tax treatment you receive by the IRS. If your company was created by the state as an LLC, note that the IRS doesn't recognize LLCs as a distinct organizational type: you elect to be taxed as an individual (for single member LLCs), a partnership (for multiple member LLCs), or as a corporation. The former two elections are \\\"\\\"pass through\\\"\\\" -- there's no additional level of taxation on corporate profits, everything just passes through to the owners. The latter election introduces a tax on corporate profits. When you elect pass-through treatment, a single-member LLC files on Schedule C; a multiple-member LLC will prepare a form K-1 which you will include on your 1040. If your company was created by the state as a Corporation (not an LLC), you could still elect pass-through taxation if your company qualifies under the rules in Subchapter S (i.e. \\\"\\\"an S-Corp\\\"\\\"). States do not recognize \\\"\\\"S-Corp\\\"\\\" as part of the organizational process -- that's just a tax distinction used by the IRS (and possibly your state's tax authorities). In your case, if you are a single-member LLC (and assuming there are no other reasons to organize as a corporation), talking about \\\"\\\"S-Corp tax treatment\\\"\\\" doesn't make any sense. You'll just file your schedule C; in my experience it's fairly simple. (Note that this is based on my experience of single- and multiple-member LLCs in just two states. Your state may have different rules that affect state-level taxation; and the rules may change from year to year. I've found that hiring a good CPA to prepare the forms saves a good bit of stress and time that can be better applied to the business.)\\\"\",\n \"\\\"It might be best to step back and look at the core information first. You're evaluating an LLC vs a Corporation (both corporate entities). Both have one or more members, and both are seen similarly (emphasis on SIMILAR here, they're not all the same) to the IRS. Specifically, LLC's can opt for a pass-through tax system, basically seen by the IRS the same way an S-Corp is. Put another way, you can be taxed as a corporate entity, or it's P/L statements can \\\"\\\"flow through\\\"\\\" to your personal taxes. When you opt for a flow-through, the business files and you get a separate schedule to tie into your taxes. You should also look at filing a business expense schedule (Schedule C) on your taxes to claim legitimate business expenses (good reference point here). While there are several differences (see this, and this, and this) between these entities, the best determination on which structure is best for you is usually if you have full time employ while you're running the business. S corps limit shares, shareholders and some deductions, but taxes are only paid by the shareholders. C corps have employees, no restrictions on types or number of stock, and no restrictions on the number of shareholders. However, this means you would become an employee of your business (you have to draw monies from somewhere) and would be subject to paying taxes on your income, both as an individual, and as a business (employment taxes such as Social Security, Medicare, etc). From the broad view of the IRS, in most cases an LLC and a Corp are the same type of entity (tax wise). In fact, most of the differences between LLCs and Corps occur in how Profits/losses are distributed between members (LLCs are arbitrary to a point, and Corps base this on shares). Back to your question IMHO, you should opt for an LLC. This allows you to work out a partnership with your co-worker, and allows you to disburse funds in a more flexible manner. From Wikipedia : A limited liability company with multiple members that elects to be taxed as partnership may specially allocate the members' distributive share of income, gain, loss, deduction, or credit via the company operating agreement on a basis other than the ownership percentage of each member so long as the rules contained in Treasury Regulation (26 CFR) 1.704-1 are met. S corporations may not specially allocate profits, losses and other tax items under US tax law. Hope this helps, please do let me know if you have further questions. As always, this is not legal or tax advice, just what I've learned in setting several LLCs and Corporate structures up over the years. EDIT: As far as your formulas go, the tax rate will be based upon your personal income, for any pass through entity. This means that the same monies earned from and LLC or an S-corp, with the same expenses and the same pass-through options will be taxed the same. More reading: LLC and the law (Google Group)\\\"\",\n \"Rather than discuss whether you're thinking about things incorrectly, I'll just show you how to answer the question you asked: Now as to what wage to pay yourself to meet your expenses, do the same thing but only using personal components:\",\n \"\\\"Be careful of the other answers here. Many are wrong or partially wrong. The question implies that you knew this, but for everyone else's benefit, you can keep you LLC organization and still elect to be treated as a S-Corp by the IRS just for tax purposes. You do this by filing Form 2553 with the IRS. (You can also, by the way, elect to be taxed as a \\\"\\\"regular\\\"\\\" C-Corp if you want, although that's probably not advantageous. See Form 8832.) The advantage of electing to be treated as an S-Corp is that income beyond what constitutes a \\\"\\\"reasonable salary\\\"\\\" are not subject to social security and medicare taxes as they would when paid was wages or counted as self-employment income on Schedule C. Depending on what you need to pay yourself to meet the \\\"\\\"reasonable salary\\\"\\\" test, your overall income, and other factors about your business, this could result in tax savings. Contrary to other answers here, making this election will not force you to create a board of directors. You are still an LLC for all purposes except taxes, so whatever requirements you had in organization and governance at the state level will not change. You will have to file a \\\"\\\"corporate\\\"\\\" tax return on Form 1120S (and likely some corresponding state tax form), so that is additional paperwork, but this \\\"\\\"corporate\\\"\\\" return does not mean the S-Corp pays taxes itself. With a couple of exceptions, the S-Corp pays no taxes directly (and therefore does not pay at the corporate tax rate). Instead the S-Corp apportions its income, expenses, and deductions to the owner(s) on Schedule K. The owners get their portion reported from the S-Corp on Schedule K1 and then include that on their personal Form 1040 to pay tax at their personal rate. In addition to filing Form 1120S, you will have to handle payroll taxes, which will create some additional administrative work and/or cost. Using a payroll service for this will likely be your best option and not terribly expensive. You've also got the issue of determining your reasonable salary within the rules, which is the subject of other questions on this site and other IRS guidance.\\\"\",\n \"When in doubt, you should always seek the advice of a professional tax preparer or your accountant. (Many agents/accountants will gladly review your tax preparations to ensure you haven't missed something. That's quicker and cheaper than paying them to do it all.) Having said that... This Illinois resource has detailed information about S-corps: Of relevance to your situation:\",\n \"You're on the right track, and yes, that small difference is subject to income taxes. Do you use a payroll service? I do the same thing and use my payroll software to tweak the salary until the paycheck is just a few dollars every month (we run payroll once a month), with the rest going to the 401(k) and payroll taxes. So we're rounding up just a bit just so there's an actual paycheck with a positive number, and a bit does get withheld for fed/state income tax. Also keep in mind you can make a company match. If your plan is a solo 401(k) with just you and your wife as the sole employees, consider the 25% match for both of you. The match is not subject to payroll taxes because it is a company expense. IRS web page: http://www.irs.gov/Retirement-Plans/One-Participant-401(k)-Plans\",\n \"\\\"An LLC is overkill for 99% of 1 man small businesses. Side-businesses should remain as sole proprieterships until they get much larger and need the benefits of the LLC laws. You can still bill through a company name if you want to start building a brand: And set aside 25% of your gross income for Uncle Sam. He wants you to file a Schedule C with your regular 1040 at tax time. He doesn't care about your company. He just wants your social security number with a big fat check stuck to it. Be sure to maximize your tax savings by tracking your expenses like a hawk. Every mile is worth 50 cents. I recommend using a tracking system like the TaxMinimiser.com (buy the $4 version to see if you like it). Bottom line: EARN MONEY. Don't set up a \\\"\\\"corporation\\\"\\\".\\\"\",\n \"Source Sole trader If you start working for yourself, you’re classed as a self-employed sole trader - even if you’ve not yet told HM Revenue and Customs (HMRC). As a sole trader, you run your own business as an individual. You can keep all your business’s profits after you’ve paid tax on them. You can employ staff. ‘Sole trader’ means you’re responsible for the business, not that you have to work alone.You’re personally responsible for any losses your business makes. Tax responsibilities You must: You’re personally responsible for any losses your business makes. This is one condition which you would need to have a look. If you do some shoddy work and your client wants to recover the losses they can come after your personal money or property. LLPs have the same probelm too. And you pay NI and income tax on all of your profits. If you have a partner then both can take out the profits of a limited company, if both are directors. The tax hit will be less as compared to a single person.\",\n \"The answer seems to depend on where you live. Perhaps you already found this, but the summary from the IRS is: The insurance laws in some states do not allow a corporation to purchase group health insurance when the corporation only has one employee. Therefore, if the shareholder was the sole corporate employee, the shareholder had to purchase his health insurance in his own name. The IRS issued Notice 2008-1, which ruled that under certain situations the shareholder would be allowed an above-the-line deduction even if the health insurance policy was purchased in the name of the shareholder. Notice 2008-1 provided four examples, including three examples in which the shareholder purchased the health insurance and one in which the S corporation purchased the health insurance. Notice 2008-1 states that if the shareholder purchased the health insurance in his own name and paid for it with his own funds, the shareholder would not be allowed an above-the-line deduction. On the other hand, if the shareholder purchased the health insurance in his own name but the S corporation either directly paid for the health insurance or reimbursed the shareholder for the health insurance and also included the premium payment in the shareholder’s W-2, the shareholder would be allowed an above-the-line deduction. The bottom line is that in order for a shareholder to claim an above-the-line deduction, the health insurance premiums must ultimately be paid by the S corporation and must be reported as taxable compensation in the shareholder’s W-2. https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/S-Corporation-Compensation-and-Medical-Insurance-Issues I understand this to mean that you can only get the deduction in your case (having purchased it in your own name) if your state does not allow your S-Corp to purchase a group health plan because you only have one employee. (I don't know specifically if Illinois fits that description or not.) In addition, there are rules about reporting health insurance premiums for taxes for S-Corp share members that you should also check. Personally, I think that it's complicated enough that advice from a CPA or other tax advisor specific to your situation would be worth the cost.\",\n \">This means that you may be able to make about $120,000 per year, which isn’t bad. Except you’ll have expenses, like rent, transportation, repairs, supplies, computers and whatever else. Your expenses will probably run a few thousand a month, so let’s assume **after expenses you’re netting about $80,000**. Then there’s taxes, and not just federal. There will be state, local, real estate, school, tolls, export, import, duties and those hard-to-understand fees on your cable bill. So lop about 30 percent off that $80K and you’re down to a net living of $56,000. $80,000 net income before taxes is quite good for a self employed individual. I don't really see what the problem is. His bit about taxes after that is completely irrelevant because you'll be paying federal and fica no matter what, plus state and real estate taxes if they apply to you.\",\n \"There are several questions to answer before help can be given. How much revenue did you have this year? What is expected revenue growth for next few years? Are you operating as a sole proprietor, partnership or corporation? If a corporation did you maintain your books on the cash basis or accrual? I recommend you seek a CPA not a bookkeeper. And, don't wait until end of year to fund one.\",\n \"Mods decided to leave it here, so I'll summarize some of my answers on this question given @OnStartups. You can find them here, here and here. Your options are : You and your business are one and the same. You report your income and expenses for taxes on a Schedule C (for each sole proprietorship a separate schedule), and taxed at your personal rates. There's no liability protection or legal separation between you and your business, and you don't need to have any bureaucratic overhead of managing an entity. You can use your own bank account and have checks written to you directly. You can register for DBA if you want a store-front name to be different from your own name. Depending on State, can cost a lot or close to nothing. Provides certain liability protection (depending on State, single-member and multi-member LLC's may have different liability protections). You can chose to be taxed as either a sole-proprietor (partnership, for multi-member) or as a corporation. You have to separate your activities, have a separate bank account, and some minimal bureaucracy is required to maintain the entity. Benefits include the limited liability, relatively easy to add partners to the business or sell it as a whole, and provides for separation of your personal and business finances. Drawbacks - bureaucracy, additional fees and taxes (especially in CA), and separation of assets. Corporation is an entirely separate entity from yourself, files its own tax returns, has separate bank accounts and is run by the board of directors (which in some cases may require more than 1 person to be on the board, check your state laws on that). As an officer of the corporation you'll have to pay salary to yourself. S-Corp has the benefit of pass-through taxation, C-Corp doesn't and has double taxation. Benefits - liability protection, can sell shares to investors, legally distinct entity. Disadvantages - have to deal with payroll, additional accounting, significant bureaucracy and additional layer of taxes for C-Corp (double taxation). Selling corporate assets is always a taxable event (although in your case it is probably not of an importance). You have to talk to a lawyer in your state about the options re the liability protection and how to form the entities. The formation process is usually simple and straight forward, but the LLC/Partnership operating agreements and Corporation charters/bylaws must be drafted by a lawyer if you're not going to be the sole owner (even if you are - better get a lawyer draft something for you, its just easier to fix and change things when you're the sole owner). You have to talk to a CPA/EA in your state about the taxes and how the choice of entity affects them.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"The answer depends on this: If you had to hire someone to do what you are doing in the S-corp, what would you pay them? If you are doing semi-unskilled work part-time, then $20k might be reasonable. If you are a professional working full time, it's too low. Don't forget that, in addition to \"\"billable\"\" work, you are also doing office tasks, such as invoicing and bookkeeping, that the IRS will also want to see you getting paid for. There was an important court ruling on this subject recently: Watson v. Commissioner. Watson owned an S-Corp where he was the sole employee. The S-Corp itself was a 25% owner in a very successful accounting firm that Watson worked through. All of the revenue that Watson generated at the accounting firm was paid to the S-Corp, which then paid Watson through salary and distributions. Watson was paying himself $24k a year in salary and taking over $175k a year in distributions. For comparison, even first-year accountants at the firm were making more than $24k a year in salary. The IRS determined that this salary amount was too low. To determine an appropriate amount for Watson's salary, the IRS did a study of the salaries of peers in firms of the same size as the firm Watson was working with, taking into account that owners of firms earn a higher salary than non-owners. The number that the IRS arrived at was $93k. Watson was allowed to take the rest ($80k+ each year) as distributions. Again, this number was based on a study of the salaries of peers. It was far short of the $200k+ that the S-Corp was pulling in from the accounting firm. Clearly, Watson was paying himself far too low of a salary. But even at this extreme example, where Watson's S-Corp was directly getting all of its revenue from one accounting firm in which Watson was an owner, the IRS still did not conclude that all of the revenue should have been salary and subject to payroll taxes. You should ask an accountant or attorney for advice. They can help you determine an appropriate amount for your salary. Don't be afraid of an audit, but make sure that you can defend your choices if you do get audited. If your choices are based on professional advice, that will help your case. See these articles for more information:\"","\"Generally if you're a sole S-Corp employee - it is hard to explain how the S-Corp earned more money than your work is worth. So it is reasonable that all the S-Corp profits would be pouring into your salary. Especially when the amounts are below the FICA SS limits when separating salary and distributions are a clear sign of FICA tax evasion. So while it is hard to say if you're going to be subject to audit, my bet is that if you are - the IRS will claim that you underpaid yourself. One of the more recent cases dealing with this issue is Watson v Commissioner. In this case, Watson (through his S-Corp which he solely owned) received distributions from a company in the amounts of ~400K. He drew 24K as salary, and the rest as distributions. The IRS forced re-characterizing distributions into salary up to 93K (the then-SS portion of the FICA limit), and the courts affirmed. Worth noting, that Watson didn't do all the work himself, and that was the reason that some of the income was allowed to be considered distribution. That wouldn't hold in a case where the sole shareholder was the only revenue producer, and that is exactly my point. I feel that it is important to add another paragraph about Nolo, newspaper articles, and charlatans on the Internet. YOU CANNOT RELY ON THEM. You cannot defend your position against IRS by saying \"\"But the article on Nolo said I can not pay SE taxes on my earnings!\"\", you cannot say \"\"Some guy called littleadv lost an argument with some other guy called Ben Miller because Ben Miller was saying what everyone wants to hear\"\", and you can definitely not say \"\"But I don't want to pay taxes!\"\". There's law, there are legal precedents. When some guy on the Internet tells you exactly what you want to hear - beware. Many times when it is too good to be true - it is in fact not true. Many these articles are written by people who are interested in clients/business. By the time you get to them - you're already in deep trouble and will pay them to fix it. They don't care that their own \"\"advice\"\" got you into that trouble, because it is always written in generic enough terms that they can say \"\"Oh, but it doesn't apply to your specific situation\"\". That's the main problem with these free advice - they are worth exactly what you paid for them. When you actually pay your CPA/Attorney - they'll have to take responsibility over their advice. Then suddenly they become cautious. Suddenly they start mentioning precedents and rulings telling you to not do things. Or not, and try and play the audit roulette, but these types are long gone when you get caught.\"","You can get audited for anything Business owners are more likely to get audited than people filing 1040-EZ's for their simplistic income tax obligation. According to HR Block I hope you enjoy the process where you explain the source of your earnings"],"string":"[\n \"\\\"The answer depends on this: If you had to hire someone to do what you are doing in the S-corp, what would you pay them? If you are doing semi-unskilled work part-time, then $20k might be reasonable. If you are a professional working full time, it's too low. Don't forget that, in addition to \\\"\\\"billable\\\"\\\" work, you are also doing office tasks, such as invoicing and bookkeeping, that the IRS will also want to see you getting paid for. There was an important court ruling on this subject recently: Watson v. Commissioner. Watson owned an S-Corp where he was the sole employee. The S-Corp itself was a 25% owner in a very successful accounting firm that Watson worked through. All of the revenue that Watson generated at the accounting firm was paid to the S-Corp, which then paid Watson through salary and distributions. Watson was paying himself $24k a year in salary and taking over $175k a year in distributions. For comparison, even first-year accountants at the firm were making more than $24k a year in salary. The IRS determined that this salary amount was too low. To determine an appropriate amount for Watson's salary, the IRS did a study of the salaries of peers in firms of the same size as the firm Watson was working with, taking into account that owners of firms earn a higher salary than non-owners. The number that the IRS arrived at was $93k. Watson was allowed to take the rest ($80k+ each year) as distributions. Again, this number was based on a study of the salaries of peers. It was far short of the $200k+ that the S-Corp was pulling in from the accounting firm. Clearly, Watson was paying himself far too low of a salary. But even at this extreme example, where Watson's S-Corp was directly getting all of its revenue from one accounting firm in which Watson was an owner, the IRS still did not conclude that all of the revenue should have been salary and subject to payroll taxes. You should ask an accountant or attorney for advice. They can help you determine an appropriate amount for your salary. Don't be afraid of an audit, but make sure that you can defend your choices if you do get audited. If your choices are based on professional advice, that will help your case. See these articles for more information:\\\"\",\n \"\\\"Generally if you're a sole S-Corp employee - it is hard to explain how the S-Corp earned more money than your work is worth. So it is reasonable that all the S-Corp profits would be pouring into your salary. Especially when the amounts are below the FICA SS limits when separating salary and distributions are a clear sign of FICA tax evasion. So while it is hard to say if you're going to be subject to audit, my bet is that if you are - the IRS will claim that you underpaid yourself. One of the more recent cases dealing with this issue is Watson v Commissioner. In this case, Watson (through his S-Corp which he solely owned) received distributions from a company in the amounts of ~400K. He drew 24K as salary, and the rest as distributions. The IRS forced re-characterizing distributions into salary up to 93K (the then-SS portion of the FICA limit), and the courts affirmed. Worth noting, that Watson didn't do all the work himself, and that was the reason that some of the income was allowed to be considered distribution. That wouldn't hold in a case where the sole shareholder was the only revenue producer, and that is exactly my point. I feel that it is important to add another paragraph about Nolo, newspaper articles, and charlatans on the Internet. YOU CANNOT RELY ON THEM. You cannot defend your position against IRS by saying \\\"\\\"But the article on Nolo said I can not pay SE taxes on my earnings!\\\"\\\", you cannot say \\\"\\\"Some guy called littleadv lost an argument with some other guy called Ben Miller because Ben Miller was saying what everyone wants to hear\\\"\\\", and you can definitely not say \\\"\\\"But I don't want to pay taxes!\\\"\\\". There's law, there are legal precedents. When some guy on the Internet tells you exactly what you want to hear - beware. Many times when it is too good to be true - it is in fact not true. Many these articles are written by people who are interested in clients/business. By the time you get to them - you're already in deep trouble and will pay them to fix it. They don't care that their own \\\"\\\"advice\\\"\\\" got you into that trouble, because it is always written in generic enough terms that they can say \\\"\\\"Oh, but it doesn't apply to your specific situation\\\"\\\". That's the main problem with these free advice - they are worth exactly what you paid for them. When you actually pay your CPA/Attorney - they'll have to take responsibility over their advice. Then suddenly they become cautious. Suddenly they start mentioning precedents and rulings telling you to not do things. Or not, and try and play the audit roulette, but these types are long gone when you get caught.\\\"\",\n \"You can get audited for anything Business owners are more likely to get audited than people filing 1040-EZ's for their simplistic income tax obligation. According to HR Block I hope you enjoy the process where you explain the source of your earnings\"\n]","isConversational":false}}},{"rowIdx":362,"cells":{"_id":{"kind":"string","value":"5083"},"query":{"kind":"string","value":"Co-signer deceased"},"gt_ids":{"kind":"list like","value":["305509","138845"],"string":"[\n \"305509\",\n \"138845\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1],"string":"[\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["305509","325296","273759","453263","403749","594964","361646","413324","361263","347050","205865","6068","270952","249942","176830","102155","34722","84819","515383","567916","447983","495482","94497","573138","254684","391370","57211","437574","395152","369359","264029","295246","368802","519231","212827","408213","403969","565428","322427","2755","24864","6882","541298","227533","525386","118374","345697","322249","141005","44632","599058","369075","28083","192478","588197","507813","465725","302409","461049","105828","214047","473712","26397","595029","62576","253697","301448","421652","267182","371095","229913","182065","13975","427110","599545","551393","409647","91838","53840","84247","390744","158609","244733","526096","295355","51725","90579","393553","100306","335808","244016","138845","356035","131411","375821","274690","474837","115888","466342","80840"],"string":"[\n \"305509\",\n \"325296\",\n \"273759\",\n \"453263\",\n \"403749\",\n \"594964\",\n \"361646\",\n \"413324\",\n \"361263\",\n \"347050\",\n \"205865\",\n \"6068\",\n \"270952\",\n \"249942\",\n \"176830\",\n \"102155\",\n \"34722\",\n \"84819\",\n \"515383\",\n \"567916\",\n \"447983\",\n \"495482\",\n \"94497\",\n \"573138\",\n \"254684\",\n \"391370\",\n \"57211\",\n \"437574\",\n \"395152\",\n \"369359\",\n \"264029\",\n \"295246\",\n \"368802\",\n \"519231\",\n \"212827\",\n \"408213\",\n \"403969\",\n \"565428\",\n \"322427\",\n \"2755\",\n \"24864\",\n \"6882\",\n \"541298\",\n \"227533\",\n \"525386\",\n \"118374\",\n \"345697\",\n \"322249\",\n \"141005\",\n \"44632\",\n \"599058\",\n \"369075\",\n \"28083\",\n \"192478\",\n \"588197\",\n \"507813\",\n \"465725\",\n \"302409\",\n \"461049\",\n \"105828\",\n \"214047\",\n \"473712\",\n \"26397\",\n \"595029\",\n \"62576\",\n \"253697\",\n \"301448\",\n \"421652\",\n \"267182\",\n \"371095\",\n \"229913\",\n \"182065\",\n \"13975\",\n \"427110\",\n \"599545\",\n \"551393\",\n \"409647\",\n \"91838\",\n \"53840\",\n \"84247\",\n \"390744\",\n \"158609\",\n \"244733\",\n \"526096\",\n \"295355\",\n \"51725\",\n \"90579\",\n \"393553\",\n \"100306\",\n \"335808\",\n \"244016\",\n \"138845\",\n \"356035\",\n \"131411\",\n \"375821\",\n \"274690\",\n \"474837\",\n \"115888\",\n \"466342\",\n \"80840\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["Co-signing is not the same as owning. If your elderly lady didn't make any payments on the loan, and isn't on the ownership of the car, and there was no agreement that you would pay her anything, then you do not owe either her or her daughter any money. Also the loan is not affecting the daughter's credit, and the mother's credit is irrelevant (since she is dead). However you should be aware that the finance company will want to know about the demise of the mother, since they can no longer make a claim against her if you default. I would start by approaching the loan company, telling them about the mother's death, and asking to refinance in your name only. If you've really been keeping up the payments well this could be OK with them. If not I would find someone else who is prepared to co-sign a new loan with you, and still refinance. Then just tell the daughter that the loan her mother co-signed for has been discharged, and there is nothing for her to worry about.","\"First of all you do not \"\"co-sign a car\"\". I assume what you mean by this is that you co-signed a loan, and the money was used to buy a car. Once you signed that loan YOU OWED THE MONEY. Once a loan exists, it exists, and you will owe the money until the loan is paid. If you do not want to owe the money, then you need to pay back the money you borrowed. You may not think \"\"you\"\" borrowed the money because the car went to someone else. THE BANK AND THE COURTS DO NOT CARE. All they care about is that YOU signed the loan, so as far as they are concerned YOU owe the money and you owe ALL of the money to the bank, and the only way to change that is to pay the money back.\"","\"The wording of this question is very confusing because \"\"primary signer\"\" would, in ordinary parlance, mean the person borrowing the money and the co-signer (not consigner) would mean the one who is guaranteeing the repayment of the loan: if the borrower does not pay, the co-signer is liable for making the payments. Whose name is on the title of the car? Who borrowed the money to buy the car? Is the loan in your name and your son co-signed the loan to induce the bank to loan you money to purchase the car, or is it the other way around, that your son borrowed the money and you co-signed the loan in order to induce the bank to loan your son the money? If the car title and the loan are in your name, are you defaulting on the loan and so your son is making the loan payments that should have come from you? Or is it that your son borrowed the money to buy the car, his name is on the title, he is making the payments, and you are no longer interested in backing him up in case he defaults and the bank comes after you for the money?\"","Is your name on the title at all? You may have (slightly) more leverage in that case, but co-signing any loans is not a good idea, even for a friend or relative. As this article notes: Generally, co-signing refers to financing, not ownership. If the primary accountholder fails to make payments on the loan or the retail installment sales contract (a type of auto financing dealers sell), the co-signer is responsible for those payments, or their credit will suffer. Even if the co-signer makes the payments, they’re still not the owner if their name isn’t on the title. The Consumer Finance Protection Bureau (CFPB) notes: If you co-sign a loan, you are legally obligated to repay the loan in full. Co-signing a loan does not mean serving as a character reference for someone else. When you co-sign, you promise to pay the loan yourself. It means that you risk having to repay any missed payments immediately. If the borrower defaults on the loan, the creditor can use the same collection methods against you that can be used against the borrower such as demanding that you repay the entire loan yourself, suing you, and garnishing your wages or bank accounts after a judgment. Your credit score(s) may be impacted by any late payments or defaults. Co-signing an auto loan does not mean you have any right to the vehicle, it just means that you have agreed to become obligated to repay the amount of the loan. So make sure you can afford to pay this debt if the borrower cannot. Per this article and this loan.com article, options to remove your name from co-signing include: If you're name isn't on the title, you'll have to convince your ex-boyfriend and the bank to have you removed as the co-signer, but from your brief description above, it doesn't seem that your ex is going to be cooperative. Unfortunately, as the co-signer and guarantor of the loan, you're legally responsible for making the payments if he doesn't. Not making the payments could ruin your credit as well. One final option to consider is bankruptcy. Bankruptcy is a drastic option, and you'll have to weigh whether the disruption to your credit and financial life will be worth it versus repaying the balance of that auto loan. Per this post: Another not so pretty option is bankruptcy. This is an extreme route, and in some instances may not even guarantee a name-removal from the loan. Your best bet is to contact a lawyer or other source of legal help to review your options on how to proceed with this issue.","What can you do? Pay the loan or face the debt collectors. The finance company don't care who now keeps the car, or who drives it. There's money outstanding on the loan, and your signature on the loan form. That's why co-signing a loan for someone else so often ends in tears.","\"Yes. Because you co-signed the loan, you are responsible for the loan just as much as she was. When you co-sign a loan, you are essentially saying \"\"I will pay this loan if the other person can't.\"\"\"","\"I'm sorry you are going through this, but what you are dealing with is exactly is how cosigning works. It is among other reasons why you should never cosign a loan for someone unless you are 100% prepared to pay the loan on their behalf. Unfortunately, the main \"\"benefit\"\" to cosigning a loan is to the bank - they don't care who makes payments, only that someone does. It is not in their interest to educate purchasers who can easily get themselves into the situation you are in. What your options are depends a fair bit on the type of loan it is. The biggest problem is that normally as cosigner you cannot force your friend to do anything. If it is for a car, your best bet is to convince them to sell the car and hopefully recoup more than the cost of the loan. Many workplaces have some sort of free service to provide counseling/guidance on this sort of thing. Look into your employee benefits as you may have some free services there. You can sue your friend in small claims court, but keep in mind: It also depends on how big the loan is relative to your income. While it might feel good to sue your friend in small claims court, if it's for $500 it probably isn't worthwhile - but if your friend just stopped paying off their $30k vehicle assuming you will pay for it, even though they can pay for it themselves?\"","I am sure that laws differ from state to state. My brother and I had to take over my dads finances due to his health. He had a vehicle that had a loan on it. We refinanced the vehicle and it was in our name. One of our family members needed a vehicle and offered to take over the payment. Our attorney advised us to be on the insurance policy with them and make sure if was paid correctly. We are in Indiana. I know it is hard to discuss finances with family members. However, if you co-signed the loan I think it would be wise to either have your name added to the insurance policy or at least have your brother show proof it has been paid. If you are not comfortable with that it may be a good idea to make sure the bank has your correct address and ask if they would notify you if insurance has lapsed. If your on the loan and there is no insurance at the very least if the vehicle was damaged you would still be responsible to pay the loan.","\"Cosigning is explicitly a promise that you will make the payments if the primary signer can not. Don't do it unless you are able to handle the cost and trust the other party will \"\"make you whole\"\" when they can... which means don't do it for anyone you would not lend your money to, since it comes out to about the same level of risk. Having agreed, you're sorta stuck with your ex-friend's problem. I recommend talking to a lawyer about the safest way get out of this. It isn't clear you can even sue the ex-friend at this point.\"","Ordinarily a cosigner does not appear on the car's title (thus, no ownership at all in the vehicle), but they are guaranteeing payment of the loan if the primary borrower does not make the payment. You have essentially two options: Stop making payments for him. If he does not make them, the car will be repossessed and the default will appear on both his and your credit. You will have a credit ding to live with, but he will to and he won't have the car. Continue to make payments if he does not, to preserve your credit, and sue him for the money you have paid. In your suit you could request repayment of the money or have him sign over the title (ownership) to you, if you would be happy with either option. I suspect that he will object to both, so the judge is going to have to decide if he finds your case has merit. If you go with option 1 and he picks up the payments so the car isn't repossessed, you can then still take option 2 to recover the money you have paid. Be prepared to provide documentation to the court of the payments you have made (bank statements showing the out-go, or other form of evidence you made the payment - the finance company's statements aren't going to show who made them).","Sorry for your loss. I am not a lawyer and this isn;t legal advice -- which I am not licensed to give. But I've had to deal with some debt situations of my own. I think the worst case scenario is the creditor can get a judgment, but that won't be against you unless you were a co-signor. The collectors are going to prey on your decency to make you feel like you should pay it, but you are under no legal obligation to do so. If they file in court and then win a judgment, they may be able to collect on the assets of the estate. You mention no money but you mention a house. That is an asset with value, and putting it in your name isn't going to do much. You should see a lawyer on this, because it seems logical that they could collect on the value of the house at the time of the death, and even if it was willed to you it can still be attacked to pay the debt. Here is a good write-up on NJ death and debt and whether it can be inherited by the adult children: https://www.atrbklaw.com/bankruptcy-resources/83-articles/103-can-you-inherit-your-dead-parent-s-debts","The buyer can get another cosigner or you can sell the car to pay off the loan. These are your only options if financing cannot be obtained independently.","My grandmother passed away earlier this year. When I got my car 3 years ago, I did not have good enough credit to do it on my own or have her as a co-signer. We had arranged so that my grandmother was buying the car and I was co-signing. A similar situation was happening and I went to my bank and took out a re-finance loan prior to her passing. I explained to them that my grandmother was sick and on her death bed. They never once requested a power of attorney or required her signature. I am now the sole owner of the vehicle.","There are two different liabilities here. You signed, so the bank can rightfully demand the money from you. Even though it is not your debt. You signed, so you have to pay. However, it's really the business that is responsible for the account, so you can ask the business to refund the money. You might ask them to pay the bank instead if you haven't paid yet.","This is why we tell people not to co-sign unless they are able and willing to risk that money becoming a gift... or are able and willing to treat it as business rather than family. Unfortunately that advice is a bit late now to help you. When you cosigned, you promised the bank that you would make any payments he didn't. The bank doesn't care why he didn't, they just want their money on time. Getting him to repay you for covering this is strictly between the two of you, and unless you signed paperwork at the time establishing a contract other than the promise to cover his loan this becomes Extremely Messy. First step is to make the payments so the loan doesn't continue acquiring fees and hurting your credit rating, and keep it from falling behind again. Then you have to convince him to repay the money you have effectively given him. Depending on your relationship, and financial situations, you may decide to carry him for a while and trust that he'll pay you back when he can, or sic a lawyer on him. You need to make that decision, recognizing that it may be a matter of how much family drama you are willing to tolerate.","The house becomes an asset belonging to the estate of Alice. The debt also goes with the estate. The executor of the will should arrange for the debt to be paid off as part of sorting out the estate - they can't just hand out all the assets and leave nothing to pay off the debts. This could be done by selling the house. But in practice, the executor and the mortgage lender may both be happy if Bob takes out a mortgage, uses that to pay the debt, then inherits the house.","\"This will probably require asking the SO to sign a quitclaim and/or to \"\"sell\"\" him her share of the vehicle's ownership and getting it re-titled in his own name alone, which is the question you actually asked. To cancel the cosigner arrangement, he has to pay off the loan. If he can't or doesn't want to do that in cash, he'd have to qualify for a new loan to refinasnce in his name only, or get someone else (such as yourself) to co-sign. Alternatively, he might sell the car (or something else) to pay what he still owes on it. As noted in other answers, this kind of mess is why you shouldn't get into either cosigning or joint ownership without a written agreement spelling out exactly what happens should one of the parties wish to end this arrangement. Doing business with friends is still doing business.\"","As noted above, this is likely going to need (several) lawyers to straighten out. I am not a lawyer, but I think one should be retained ASAP. However, in the meantime: The authorized user should not be making any charges. Continuing to do so at this point may be a criminal offense. For the protection of any other heirs, this should be brought to the attention of the credit card issuer and law enforcement authorities. As it stands, the account holder's estate will be liable for the full debt, and the authorized user's estate would be untouched. Of course, all this could change if other heirs challenge the estate and file civil suits, in which case it's likely that both estates will be eaten up with legal fees anyway.","Sounds like you need to contact your ex and sort it out. If you have co-signed the loan, changes are you are equally responsible even if on party chooses not to pay, then the bank will come after the other one. If you no longer wish to be part of the arrangement and your ex still wants the car, she will have to buy you out of the car and become fully responsible for the liability.","The absolute first thing you need to do is contact the bank. Also, do you have a copy of the loan papers you signed? You should look over those as soon as possible as well. I'm sure you want these payments going toward your FICO score and not your mothers.","Only if (or to put it even more bluntly, when) they default. If your friend / brother / daughter / whoever needs a cosigner on a loan, it means that people whose job it is to figure out whether or not that loan is a good idea have decided that it isn't. By co-signing, you're saying that you think you know better than the professionals. If / when the borrower defaults, the lender won't pursue them for the loan if you can pay it. You're just as responsible for the loan payments as the original borrower, and given that you were a useful co-signer, probably much more likely to be able to come up with the money. The lender has no reason to go after the original borrower, and won't. If you can't pay, the lender comes after both of you. To put it another way: Don't think of cosigning as helping them get a loan. Think of it as taking out a loan and re-loaning it to them.","If you've been paying on the car for three years, it's possible that your credit is in a place where you don't need a co-signer any more. See if your bank will re-fi with you as the sole debtor. If they won't do it, find another institution who will. The re-fi will take your grandpa off the loan, and whichever institution that does the re-fi will still have a lien on the title until you pay it off. Then, if you can do this soon enough, figure out if grandpa can sign you off the title.","\"Is there any way through this? Yes, but you're not going to like it. If your friend has guaranteed the loans, then it's your friend's obligation to pay them when the brother-in-law is not cooperating. That's what it means to guarantee a loan. (Obligatory: \"\"Before lending your friends or family money, ask yourself which you need more.\"\")\"","I think I'm reading that you cosigned a loan with a friend, and they've stopped paying on their loan. Not a whole lot of options here. You'll have to pay the loan off by yourself or allow the loan to go into collections in hopes that you'll get more money later and pay it off then. Small claims court is definitely an option at that point. Next time, perhaps try not to cosign loans with friends unless you really trust them and are confident that you can pay the loan off if they cannot.","\"I can answer this question for my jurisdiction (Florida, USA), because I lived through it. My Dad (\"\"Alice\"\") passed away in 2008, just as the housing crisis was starting to heat up. What happened to the Mortgage? My Dad had a will in place. It was an old will (from the 1980's), but never-the-less, a will. We had to provide paperwork to the court that my Mom had already passed away, and my oldest brother was living out-of-state (he would have been the executor, otherwise). With the proper paperwork, I became the Executor, and the property passed in to probate. At this point, the \"\"Estate\"\" was responsible for the house and the mortgage on it (meaning me, as I was the Executor). We decided to sell the house, so we hired a realtor, and set an asking price about $40k over what was owed on it. As we waited for it to sell, I had to make monthly mortgage payments, and payments to the HOA (otherwise the HOA could put a lien on the property, making it more difficult to sell, should we find a buyer). Is it Automatically Transferred? In most jurisdictions, I would say not \"\"automatic\"\". I definitely had get an estate lawyer and file the proper legal paperwork with the local county courthouse. Some states have an easier probate process (\"\"Summary Administration\"\" in Florida), that eases the requirements for small estates. Is Bob expected to pay it off all at once? No, the mortgage holder was happy for me to make payments (out of other estate assets) in lieu of my Dad. The were earning interest, after all. This is probably true in most cases. Can the House be Foreclosed on? Yes. In our case, being 2008, we had a hard time selling the property. The asking price quickly went from $40k over what was owed, to $20k over, to $10k over, then to being equal to the mortgage value. Finally, I approached the bank about options. They suggested a \"\"Deed in Lieu of Foreclosure\"\" process. It was easier for us, and the bank had to pay less lawyers and such. Otherwise, a \"\"Deed in Lieu\"\" is effectively the same as a Foreclosure. At that point, we stopped making payments. Eventually, me and all my siblings (the \"\"heirs\"\") had to sign the proper paperwork giving the house over to the bank. In our case, the bank did not pursue us (or rather, the Estate) for the difference between final (auction) sale price and the mortgage balance (it was an FHA loan, so the US Government wound up picking up the difference). From what I understand, this could have happened, and we would have wound up with basically nothing out of the Estate. Can the Lender Force the Sale? I can't give a definite answer on this, but it probably depends. If you don't pay? Yes they sure can--it's usually part of the standard mortgage contract! I see 2 other options:\"","This is not a finance issue, it is a legal one. You need to talk to a lawyer. To save your credit you can pay off the bank now and fight out the details with your ex later. The bank is still owed their money.","\"I am not sure how anyone is answering this unless they know what the loan was for. For instance if it is for a house you can put a lien on the house. If it is for the car in most states you can take over ownership of it. Point being is that you need to go after the asset. If there is no asset you need to go after you \"\"friend\"\". Again we need more specifics to determine the best course of action which could range from you suing and garnishing wages from your friend to going to small claims court. Part of this process is also getting a hold of the lending institution. By letting them know what is going on they may be able to help you - they are good at tracking people down for free. Also the lender may be able to give you options. For example if it is for a car a bank may help you clear this out if you get the car back plus penalty. If a car is not in the red on the loan and it is in good condition the bank turns a profit on the default. If they can recover it for free they will be willing to work with you. I worked in repo when younger and on more than a few occasions we had the cosigner helping. It went down like this... Co-signer gets pissed like you and calls bank, bank works out a plan and tells cosigner to default, cosigner defaults, banks gives cosigner rights to repo vehicle, cosigner helps or actually repos vehicle, bank gets car back, bank inspects car, bank asks cosigner for X amount (sometimes nothing but not usually), cosigner pays X, bank does not hit cosigners credit, bank releases loan and sells car. I am writing this like it is easy but it really requires that asset is still in good condition, that cosigner can get to the asset, and that the \"\"friend\"\" still is around and trusts cosigner. I have seen more than a few cosigners promise to deliver and come up short and couple conspiring with the \"\"friend\"\". I basically think most of the advice you have gotten so far is crap and you haven't provided enough info to give perfect advice. Seeking a lawyer is a joke. Going after a fleeing party could eat up 40-50 billable hours. It isn't like you are suing a business or something. The lawyer could cost as much as repaying the loan - and most lawyers will act like it is a snap of their fingers until they have bled you dry - just really unsound advice. For the most part I would suggest talking to the bank and defaulting but again need 100% of the details. The other part is cosigning the loan. Why the hell would you cosign a loan for a friend? Most parents won't cosign a loan for their own kids. And if you are cosigning a loan, you write up a simple contract and make the non-payment penalties extremely costly for your friend. I have seen simple contracts that include 30% interests rates that were upheld by courts.\"","I believe that your son will need to get a new loan for the car in his name only and use the proceeds of that loan to pay off the one you co-signed on. The only way that will happen is if he can find a lender willing to loan him the money based on his credit only. From the current lender's perspective, if your son isn't a good credit risk, then why would they let someone out of the loan who might be able to pay if your son defaults? If he is a good credit risk, then they, or someone else, should be willing to lend to him without you as co-signer. Also, as Dilip Sarwate mentioned, you might have to do something with the title, depending on whose name it is in.","Sorry for your loss. Like others have said Debts cannot be inherited period (in the US). However, assets sometimes can be made to stand for debts. In most cases, credit card debt has no collateral and thus the credit card companies will often either sell the debt to a debt collector or collections agency, sue you for it, or write it off. Collecting often takes a lot of time and money, thus usually the credit card companies just sell the debt, to a debt collector who tries to get you to pay up before the statute of limitations runs out. That said, some credit card companies will sue the debtor to obtain a judgement, but many don't. In your case, I wouldn't tell them of your loss, let em do their homework, and waste time. Don't give them any info,and consult with a lawyer regarding your father's estate and whether his credit card will even matter. Often, unscrupulous debt collectors will say illegal things (per the FDCPA) to pressure anyone related to the debtor to pay. Don't cave in. Make sure you know your rights, and record all interactions/calls you have with them. You can sue them back for any FDCPA infractions, some attorneys might even take up such a case on contingency, i.e they get a portion of the FDCPA damages you collect. Don't pay even a penny. This often will extend or reset the statute of limitations time for the debt to be collectable. i.e Ex: If in your state, the statute of limitations for credit card debt is 3 years, and you pay them $0.01 on year 2, you just bought them 3 more years to be able to collect. TL;DR: IANAL, most credit card debt has no collateral so don't pay or give any info to the debt collectors. Anytime you pay it extends the statute of limitations. Consult an attorney for the estate matters, and if the debt collectors get too aggressive, and record their calls, and sue them back!","as in, the person you made the agreement with can no longer fulfill the contract's requirements. It's the same thing as if they went bankrupt, you would have to pursue legal channels to recover your dues. Granted in an FX forward you would only have to deliver your part at expiration, so you could hold out if you *know* the counterparty is dead/bankrupt.","Don't pay it, see a lawyer. Given your comment, it will depend on the jurisdiction on the passing of the house and the presence of a will or lack thereof. In some states all the assets will be inherited by your mom. Debts cannot be inherited; however, assets can be made to stand for debts. This is a tricky situation that is state dependent. In the end, with few assets and large credit card debt, the credit card companies are often left without payment. I would not pay the debt unless your lawyer specifically told you to do so. Sorry for your loss.","First off, very sorry for your loss. I lost my father a few years ago and I know it can be tough. My father also had a lot of credit card debt. They attempted to collect the debt from my mother, who was no longer on the account (for over a decade). It was just an attempt to recoup as much money as they could before dealing with a probate court. As others have said, it depends on your state law. You will want to talk to a lawyer, figure out who is going to be the executor of the estate, and determine the next steps in starting to settle debts that your father had. If you want to take possession of the house, then you will likely need to work with the executor and perhaps purchase the house from the estate (which would then use the money to pay off debts).","\"You are co-signer on his car loan. You have no ownership (unless the car is titled in both names). One option (not the best, see below) is to buy the car from him. Arrange your own financing (take over his loan or get a loan of your own to pay him for the car). The bank(s) will help you take care of getting the title into your name. And the bank holding the note will hold the title as well. Best advice is to get with him, sell the car. Take any money left after paying off the loan and use it to buy (cash purchase, not finance) a reliable, efficient, used car -- if you truly need a car at all. If you can get to work by walking, bicycling or public transit, you can save thousands per year, and perhaps use that money to start you down the road to \"\"financial independence\"\". Take a couple of hours and research this. In the US, we tend to view cars as necessary, but this is not always true. (Actually, it's true less than half the time.) Even if you cannot, or choose not to, live within bicycle distance of work, you can still reduce your commuting cost by not financing, and by driving a fuel efficient vehicle. Ask yourself, \"\"Would you give up your expensive vehicle if it meant retiring years earlier?\"\" Maybe as many as ten years earlier.\"","\"It depends on whether the loan is written as a non-recourse debt and what collateral was pledged. \"\"Non-recourse\"\" debt means that the issuer is limited to seizing the pledged collateral but cannot extend beyond those pledged assets. A \"\"recourse debt\"\" allows the issuer to seize the collateral and potentially other assets of those signed to the loan. In your example, a non-recourse loan would stop the issuer at seizing the property pledged as collateral (for instance the land remaining after the golden condor took your house), and it would stop there if that was the entirety of the collateral pledged. In the case of a recourse debt, each of you who signed loan are most likely going to be held responsible for the rest of the debt. http://en.wikipedia.org/wiki/Nonrecourse_debt http://en.wikipedia.org/wiki/Recourse_debt\"","\"I expect that the loan documents show both you and your ex-partner as \"\"jointly and severally liable\"\" for the debt, and thus you're both responsible for it. It doesn't really matter what other paperwork you have that says otherwise or what other promises might have been made. Certainly, the other agreements give you legal ground to go after your ex-partner for the money, but they give you no leverage with the bank. If you end up paying this debt off to save your credit, you need to make sure that the account is closed. Make sure you have paperwork showing it as closed, and showing that it was paid in full, and then keep that paperwork forever. Re #1: I think it will eventually show up on your credit report. You could ask the bank for proof that you owe the money, if you like, but that will probably just delay the inevitable. Re #2: His bankruptcy filing really has no bearing on you and your obligation to repay the loan. If he didn't list this debt, then he is still liable for it as well (and you can still go after him under your other agreements). But either way, you're still on the debt.\"","Re (1), I don't think it makes any difference. What does make a difference is the presence of your signature on the loan documents, unfortunately. And even if your ex-business partner didn't include the LoC in his bankruptcy, if he or his company don't have any money the bank is still going to come after you.","\"You promised to pay the loan if he didn't. That was a commitment, and I recommend \"\"owning\"\" your choice and following it through to its conclusion, even if you never do that again. TLDR: You made a mistake: own it, keep your word, and embrace the lesson. Why? Because you keep your promises. (Nevermind that this is a rare time where your answer will be directly recorded, in your credit report.) This isn't moralism. I see this as a \"\"defining moment\"\" in a long game: 10 years down the road I'd like you to be wise, confident and unafraid in financial matters, with a healthy (if distant) relationship with our somewhat corrupt financial system. I know austerity stinks, but having a strong financial life will bring you a lot more money in the long run. Many are leaping to the conclusions that this is an \"\"EX-friend\"\" who did this deliberately. Don't assume this. For instance, it's quite possible your friend sold the (car?) at a dealer, who failed to pay off this note, or did and the lender botched the paperwork. And when the collector called, he told them that, thinking the collector would fix it, which they don't do. The point is, you don't know: your friend may be an innocent party here. Creditors generally don't report late payments to the credit bureaus until they're 30 days late. But as a co-signer, you're in a bad spot: you're liable for the payments, but they don't send you a bill. So when you hear about it, it's already nearly 30 days late. You don't get any extra grace period as a co-signer. So you need to make a payment right away to keep that from going 30 late, or if it's already 30 late, to keep it from going any later. If it is later determined that it was not necessary for you to make those payments, the lender should give them back to you. A less reputable lender may resist, and you may have to threaten small claims court, which is a great expense to them. Cheaper to pay you. They say France is the nation of love. They say America is the nation of commerce. So it's not surprising that here, people are quick to burn a lasting friendship over a temporary financial issue. Just saying, that isn't necessarily the right answer. I don't know about you, but my friends all have warts. Nobody's perfect. Financial issues are just another kind of wart. And financial life in America is hard, because we let commerce run amok. And because our obsession with it makes it a \"\"loaded\"\" issue and thus hard to talk about. Perhaps your friend is in trouble but the actual villain is a predatory lender. Point is, the friendship may be more important than this temporary adversity. The right answer may be to come together and figure out how to make it work. Yes, it's also possible he's a human leech who hops from person to person, charming them into cosigning for him. But to assume that right out of the gate is a bit silly. The first question I'd ask is \"\"where's the car?\"\" (If it's a car). Many lenders, especially those who loan to poor credit risks, put trackers in the car. They can tell you where it is, or at least, where it was last seen when the tracker stopped working. If that is a car dealer's lot, for instance, that would be very informative. Simply reaching out to the lender may get things moving, if there's just a paperwork issue behind this. Many people deal with life troubles by fleeing: they dread picking up the phone, they fearfully throw summons in the trash. This is a terrifying and miserable way to deal with such a situation. They learn nothing, and it's pure suffering. I prefer and recommend the opposite: turn into it, deal with it head-on, get ahead of it. Ask questions, google things, read, become an expert on the thing. Be the one calling the lender, not the other way round. This way it becomes a technical learning experience that's interesting and fun for you, and the lender is dreading your calls instead of the other way 'round. I've been sued. It sucked. But I took it on boldly, and and actually led the fight and strategy (albeit with counsel). And turned it around so he wound up paying my legal bills. HA! With that precious experience, I know exactly what to do... I don't fear being sued, or if absolutely necessary, suing. You might as well get the best financial education. You're paying the tuition!\"","\"Debts do not inherit to the children. You are absolutely not liable for your parent's debt, in any way whatsoever. ** Collection agents will lie about this; tricking you is their job, and your job is to tell them Heck no, do I look like an idiot? When a person dies, all their personal assets (and debts) go to a fictitious entity called the Estate. This is a holder for the person's assets until they can be dispositioned finally. The estate is managed by a living person, sometimes a company (law firm), called an Executor. Similar to a corporation which is shutting down business, the Executor's job is to act on behalf of the Estate, and in the Estate's best interest (not his own). For instance he can't decide, in his capacity as executor, to give all the estate's money to himself. He has to loyally and selflessly follow state law and any living-trust or wills that may be in place. This role is not for everyone. You can't just decide \"\"la la la, I'm going to live in their house now\"\", that is squatting. The house is an asset and someone inherited that, as dictated by will, trust or state law. That has to be worked out legally. Once they inherit the house, you have to negotiate with them about living there. If you want to live there now, negotiate to rent the house from the estate. This is an efficient way to funnel money into the estate for what I discuss later.** The Estate has assets, and it has debts. Some debts extinguish on the death of the natural person, e.g. student loans, depending on the contract and state law. Did you know corporations are considered a \"\"person\"\"? (that's what Citizens United was all about.) So are estates - both are fictitious persons. The executor can act like a person in that sense. If you have unsecured debt, how can a creditor motivate you to pay? They can annoy and harass you. They can burn your credit rating. Or they can sue you and try to take your assets - but suing is also expensive for them. This is not widely understood, but anyone at any time can go to their creditors and say \"\"Hey creditor, I'm not gonna pay you $10,000. Tough buffaloes. You can sue me, good luck with that. Or, I'll make you a deal. I'll offer you $2000 to settle this debt. What say you? And you'll get one of two answers. Either \"\"OK\"\" or \"\"Nice try, let's try $7000.\"\" If the latter, you start into the cycle of haggling, \"\"3000.\"\" \"\"6000.\"\" \"\"4000.\"\" \"\"5000. \"\"Split the difference, $4500.\"\" \"\"OK.\"\" This is always a one-time, lump sum, one-shot payoff, never partial payments. Creditors will try to convince you to make partial payments. Don't do it. Anyone can do that at any time. Why don't living people do this every day? How about an Estate? Estates are fictitious persons, they don't have a \"\"morality\"\", they have a fiduciary duty. Do they plan on borrowing any more money? Nope. Their credit rating is already 0. They owe no loyalty to USBank. Actually, the executor's fiduciary duty is to get the most possible money for the assets, and settle the debts for the least. So I argue it's unethical to fail to haggle down this debt. If an executor is \"\"not a haggler\"\" or has a moral issue with shortchanging creditors, he is shortchanging the heirs, and he can be sued for that personally - because he has a fiduciary duty to the heirs, not Chase Bank. Like I say, the job is not for everyone. The estate should also make sure to check the paperwork for any other way to escape the debt: does it extinguish on death? Is the debt time-barred? Can they really prove it's valid? Etc. It's not personal, it's business. The estate should not make monthly payments (no credit rating to protect) and should not pay one dime to a creditor except for a one-shot final settlement. Is it secured debt? Let them take the asset. (unless an heir really wants it). When a person dies with a lot of unsecured debt, it's often the case that they don't have a lot of cash lying around. The estate must sell off assets to raise the cash to settle with the creditors. Now here's where things get ugly with the house. ** The estate should try to raise money any other way, but it may have to sell the house to pay the creditors. For the people who would otherwise inherit the house, it may be in their best interest to pay off that debt. Check with lawyers in your area, but it may also be possible for the estate to take a mortgage on the house, use the mortgage cash to pay off the estate's debts (still haggle!), and then bequeath the house-and-mortgage to the heirs. The mortgage lender would have to be on-board with all of this. Then, the heirs would owe the mortgage. Good chance it would be a small mortgage on a big equity, e.g. a $20,000 mortgage on a $100,000 house. Banks love those.\"","The only thing that is important here is the documentation you and your daughter signed. If that documentation states that you were a co-signer and that your daughter was the primary on the loan, and then if the loan is not being reported in your daughter's name, you have a cause for action. If, however, the documentation says the loan is entirely in your name, the mistake is yours. Even in that case, though, your daughter may be able to take over the loan, or she may be able to take out a loan from a separate institution and use that to pay off the current loan. Obviously, this may be difficult if she does not have a credit history, which is what got you here in the first place. :(","The point of co-signing for a friend is that they're your friend. You signed for them in the belief that your friendship would ensure they didn't burn you. If your friend has hung you out to dry, basically they aren't your friend any more. Before you lawyer up, how's about talking to your friend as a friend? Sure he may have moved away from the area, but Facebook is still a thing, right? It's possible he doesn't even realise you're taking the fall for him. And presumably you have mutual friends too. If he's blanking you then he does know you're taking the fall and doesn't care. So call/message them too and let them know the situation. Chances are he doesn't want all his other friends cutting him off because they can see he'd treat them the same way he's treating you. And chances are they'll give you his number and new address, because they don't want to be in the middle. If this fails, look at the loan. If it's a loan secured against something of his (e.g. a car), let it go. The bank will repossess it, and that's job done. Of course it will look bad on your credit for a while, but you're basically stuck with that.","\"Without all the details it's hard to tell what options you may have, but none of them are good. When you cosign you are saying that, you believe the primary signer will make good on the loan, but that if he doesn't you will. You are 100% responsible for this debt. As such, there are some actions you can take. First, really try to stress to your friend, that they need to get you outta this loan. Urge them to re-finance with out you if they can. Next look for \"\"better\"\" ways of defaulting on the loan and take them. Depending on what the loan is for you could deed-in-lue or short sale. You may just have to admit default. If you work with the bank, and try not to drag out the process, you will likely end up in a better place down the line. Also of importance is ownership. If you pay the loan, do you get ownership of the thing the loan was secured against? Usually not, but working with an attorney and the bank, maybe. For example, if it's a car, can the \"\"friend\"\" sign over the car to you, then you sell it, and reduce your debt. Basically as a cosigner, you have some rights, but you have all the responsibilities. You need to talk to an attorney and possibly the bank, and see what your options are. At this point, if you think the friend is not that much of a friend anymore, it's time to make sure that any conversation you have with them is recorded in email, or on paper.\"","In the US, a surviving family member that inherits the entire property may also assume the mortgage. If the new mortgagee fails to uphold the terms of the mortgage (i.e. make timely payments), the mortgagor can begin foreclosure proceedings. There is generally no requirement to pay off the mortgage quickly. This is obviously the simple case where one person inherits the entire property. If the estate is split and no one person inherits the house, or if the house is left to a non-relative, things get more complicated. Effectively in that case the house is either sold to pay off the mortgage or the inheritor needs to take out a new mortgage to pay off the old one.","I would like to add one minor point for clarity: Cosigning means that you, alongside your friend, enter into a contract with the bank. It does not necessarily mean that you now have a contract with your friend, although that could implicitly be concluded. If the bank makes use of their contracted right to make you pay your friend's debts with them, this has no effect on your legal relationship with your friend. Of course, you can hold him or her liable for your damages he or she has caused. It is another question whether this would help you in practice, but that has been discussed before.","You still owe the money because there is a high probability that some other organization bough the account and assets of the failed creditor. That means they will have bought your debt. I have to assume there is language in your note that explains that they might sell your debt. But what should one do if they don't know who bought the entity? You can't pay a non-existent entity, but if you don't have an address, how can you pay the new owner of the debt? First step, is to assume there will be a new owner. A government, a company, an individual; somebody will buy that debt. Read the news and see if you can't figure out what other entity owns your note. You might have to contact them to enquire about where to send payment. Keep records of any such contact. If you put in an honest effort, but just cannot figure out who owns your note, I'd suggest continuing to make regular on-time payments. But put your payments into a new bank account that you open just for this purpose. So when the new owner of the debt does come calling, you'll have reasonable proof you were attempting to pay. You simply settle up from the special account. Any reasonable company will just take the money, and if anybody gets unreasonable and you have to appear in court, you have a paper trail indicating your attempts to honour the debt. You'd have to consult a lawyer if nobody comes asking for the money. There are probably statutes of limitation, but I wouldn't count on that ever happening.","You're driving a car worth about $6000 which has a $12,000 loan against it. You're driving around in a nett debt of $6000. The best thing your grandfather could do for you, if possible, is to take your name off both the title and the loan, refinancing the car in his name only. If possible while still letting you drive the car. When he dies, you will be out of a car, but also out of a $12,000 debt which I'm sure you could do without. Okay, the best thing your grandfather could do, from your wallet's point of view, is paying off the loan for you and then taking his name off the title.","(Can't find the delete button on the Android app -- Family Loans are worth investigating but I'm not sure they're applicable to this case.)","\"It all comes down to how the loan itself is structured and reported - the exact details of how they run the loan paperwork, and how/if they report the activity on the loan to one of the credit bureaus (and which one they report to). It can go generally one of three ways: A) The loan company reports the status to a credit reporting agency on behalf of both the initiating borrower and the cosigner. In this scenario, both individuals get a new account on their credit report. Initially this will generally drop related credit scores somewhat (it's a \"\"hard pull\"\", new account with zero history, and increased debt), but over time this can have a positive effect on both people's credit rating. This is the typical scenario one might logically expect to be the norm, and it effects both parties credit just as if they were a sole signor for the loan. And as always, if the loan is not paid properly it will negatively effect both people's credit, and the owner of the loan can choose to come after either or both parties in whatever order they want. B) The loan company just runs the loan with one person, and only reports to a credit agency on one of you (probably the co-signor), leaving the other as just a backup. If you aren't paying close attention they may even arrange it where the initial party wanting to take the loan isn't even on most of the paperwork. This let the person trying to run the loan get something accepted that might not have been otherwise, or save some time, or was just an error. In this case it will have no effect on Person A's credit. We've had a number of question like this, and this isn't really a rare occurrence. Never assume people selling you things are necessarily accurate or honest - always verify. C) The loan company just doesn't report the loan at all to a credit agency, or does so incorrectly. They are under no obligation to report to credit agencies, it's strictly up to them. If you don't pay then they can report it as something \"\"in collections\"\". This isn't the typical way of doing business for most places, but some businesses still operate this way, including some places that advertise how doing business with them (paying them grossly inflated interest rates) will \"\"help build your credit\"\". Most advertising fraud goes unpunished. Note: Under all of the above scenarios, the loan can only effect the credit rating attached to the bureau it is reported to. If the loan is reported to Equifax, it will not help you with a TransUnion or Experian rating at all. Some loans report to multiple credit bureaus, but many don't bother, and credit bureaus don't automatically copy each other. It's important to remember that there isn't so much a thing as a singular \"\"consumer credit rating\"\", as there are \"\"consumer credit ratings\"\" - 3 of them, for most purposes, and they can vary widely depending on your reported histories. Also, if it is only a short-term loan of 3-6 months then it is unlikely to have a powerful impact on anyone's credit rating. Credit scores are formulas calibrated to care about long-term behavior, where 3 years of perfect credit history is still considered a short period of time and you will be deemed to have a significant risk of default without more data. So don't expect to qualify for a prime-rate mortgage because of a car loan that was paid off in a few months; it might be enough to give you a score if you don't have one, but don't expect much more. As always, please remember that taking out a loan just to improve credit is almost always a terrible idea. Unless you have a very specific reason with a carefully researched and well-vetted plan that means that it's very important you build credit in this specific way, you should generally focus on establishing credit in ways that don't actually cost you any money at all. Look for no fee credit cards that you pay in full each month, even if you have to start with credit-building secured card plans, and switch to cash-value no-fee rewards cards for a 1-3% if you operate your financial life in a way that this doesn't end up manipulating your purchasing decisions to cost you money. Words to the wise: \"\"Don't let the credit score tail wag the personal financial dog!\"\"\"","\"At this point there is not much you can do. The documentation probably points to you being the sole owner and signer on the loan. Then, any civil suit will degenerate into a \"\"he said, she said\"\" scenario. Luckily, no one was truly harmed in the scenario. Obtaining financing through a car dealer is almost always not advisable. So from here, you can do what should have been done in the first place. Go to banks and credit unions so your daughter can refinance the car. You will probably get a lower rate, and there is seldom a fee. I would start with the bank/CU where she does her checking or has some other kind of a relationship. If that fails, anywhere you can actually sit and talk with a loan officer is preferable over the big corporate type banks. Car dealers lying is nothing new, it happens to everyone. Buying a car is like a battle.\"","It sounds like there are no provisions in the loan document for how to proceed in this case. I would view this as creating a brand new loan. The amount owed is going to be (Principal remaining + interest from 2 years + penalties). If you created a new loan for 13 years, that would not be how I would expect a lender to behave. I would expect most repayment plans to be something like make double payments until you are caught up or pay an extra $1000 per month until caught up and then resume normal payments.","In a nutshell, not really. That's the risk you take when you co-sign for someone. The lender only made the loan because of the strength of your brother's credit, not your mother's, so his reputation (in the form of his credit rating) is going to take the hit because of his mother's behaviors. The one thing he can do is this: The credit bureaus allow you to add a comment or explanation to your credit file which may be helpful, provided potential creditors read it, which is never a guarantee. It's worth trying though, so suggest to him to look into it. Here's a link for him/you/anyone to look at that can help explain how this works and what effects it can have: Adding a comment to your credit file for negative items I hope this helps. Good luck!","I know one piece of information that can help you (in a macabe sort of way) - from what my wife has told me, if your partner dies, you are not responsible for paying for their debts, especially student loans. I expect the same thing for credit cards - if someone were to happen to charge $2,000 on their credit card and get hit by a bus, the credit card company can cajole and plead for you to pay for it, but you have no legal requirement to do so. Unfortunately I do not have as much information about as if you spouse is living.","It doesn't matter to the credit agencies if there is a co-signer or not. However, your family member will need to take into consideration if they are willing to be responsible for the loan in the event you are unable to make payments. Being a co-signer means they are agreeing to pay the loan amount. It will also impact their credit score/report, either improve it if all goes well, or destroy it if neither one of you are able to pay the loan. So to you, assuming you can pay all the payments and not default, it makes no difference. But to the co-signer, it could create a huge impact. https://www.thebalance.com/does-co-signing-affect-credit-315368","Depending on jurisdiction, the fact that you made some payments might give you an ownership share in the house in your own right. What share would be a complex question because you might need to consider both the mortgage payments made and maintenance. Your sister might also be able to argue that she was entitled to some recompense for the risk she describes of co-signing, and that's something that would be very hard to quantify, but clearly you would also be entitled to similar recompense in respect of that, as you also co-signed. For the share your mother owned, the normal rules of inheritance apply and by default that would be a 50-50 split as JoeTaxpayer said. You imply that the loan is still outstanding, so all of this only applies to the equity previously built up in the house prior to your mother's death. If you are the only one making the ongoing payments, I would expect any further equity built up to belong solely to you, but again the jurisdiction and the fact that your sister's name is on the deeds could affect this. If you can't resolve this amicably, you might need to get a court involved and it's possible that the cost of doing so would outweigh the eventual benefit to you.","You and your daughter need to consult a lawyer. Generally, the court decides how the family debts get split in a divorce, and it sounds like the court decided that this student debt belongs solely to your daughter and not her husband. Whether that was the correct decision or not depends on lots of details, but of course, your daughter didn't help herself at all by getting a cheap divorce and not having her own attorney. At this point, you and your daughter should consult a good attorney, show him or her the divorce decree and the loan paperwork, and he or she should be able to tell you if anything can be done. As far as your own personal exposure to the debt as the cosigner, that depends on the paperwork you signed and is another question for the attorney.","I think you've made a perfectly valid suggestion, and, if your son is struggling somewhat financially now, one that may be very welcome. If you agree to forgive the debt at this time in lieu of a similar amount forgone in future inheritance, it will eliminate the never ending interest-only payments, free up $200+ a month for you son on a tight budget, and improve your own credit score once you pay off the credit line. It's also, in my opinion, a good idea to be open about this in advance with your other children heirs so that everyone will understand what is expected during the eventual probate. My paternal grandfather was the recipient of a great deal of financial largess from his wealthy mother during her life, and it was fully understood by him, her, and his siblings, that in exchange he would not share in her estate when she passed. He didn't, there were no problems, and he and his siblings stayed close for the rest of their lives.","Your best bet is to refinance the car in your own name only. Hopefully a year of making the payments has improved your credit score enough. If not, you can approach a loan officer at a credit union and make your case (that you haven't missed any payments, etc.). A new title should be sent to the new lien holder, and in that process, if your ex needs to sign any paperwork, it can be done while refinancing.","What did you sign when the account was opened? What did you sign when you left the company, to transfer those responsibilities? Unless the bank has a record of someone else being responsible, they are correct in billing the one who signed their paperwork. Of course this also probably means you still have access to the account, so your ex-partners should be Highly Motivated to help you fix this. If you want a legal opinion, try over in the Law area, or (better) ask a real lawyer in your jurisdiction. That's out of scope here.","\"Despite the unmarried status, you need to see a lawyer. Essentially you have a business with this person owning a home as the asset, and a mortgage for which you are responsible for. A lawyer needs to examine any paperwork you have and with knowledge of your particular jurisdiction's laws can advise you on the proper course of action. You paint a really ugly picture of this guy. I bet you are correct that he is kind of a horrible person. \"\"Tough love\"\" time: You willingly entered into a long term contract with this person. Why would you do such a thing? Perhaps some self reflection and counseling is in order. This is probably more important than worrying about your credit. All that being said, it is good of you to want to break ties with this person. You can rebuild. All will be good if you concentrate on the right things.\"","You haven't mentioned the country. As a general premise, you own them money and the fact that the account was closed has no bearing on the fact that you own them money. My suggestion would be pay them off.","The bank is expected to issue you a check for the balance of your account, make sure your name and address on file is correct as that is who they will make the check to and send it. Have the credit union also contact Chase, or get a statement from the credit union, about their customer. If the check does bounce back to the credit union and the account was under his name, then you will have to deal with the state and his estate and you will have to find a different solution for the bills.","Cosigning a loan for someone else will make net worth decrease, whether backed by security or not.","\"If you're in the US then no. You cannot enter a binding contract therefore you will not get a loan from a bank. Cosigner or no cosigner, anything to do with a loan and a bank will not involve you. Your parents can get a loan, then they can give you the money, then you can pay them for their payments, but none of that means the loan has anything to do with you. It's their loan, if they default it's on them. Given your age, you probably will ignore everyone else's advice here about this trip being a bad idea if you can't afford it, but you should reconsider it. You will be paying for this trip long after the fun and excitement has worn off. This is the cycle that sends alot of families into bankruptcy, and it's a horrible habit to learn so young. \"\"Loan\"\" shouldn't even be in your vocabulary dealing with anything other than a library book.\"","Your credit rating will rise once the loan is repaid or paid regularly (in time). It will not get back to normal instantly. If the property is dead weight you may want to sell it so your credit score will increase in the medium term.","This is an all too common problem and is not easy to resolve. Divorce agreements do not alter prior mortgage contracts. Most importantly, the bank is not required, and will not normally, remove the girlfriend from the mortgage even if she quitclaimed it to her Ex. If he has abandoned the property there is a good chance he will not make any more future payments. She should be prepared to make the payments if he doesn't or expect her credit to continue to deteriorate rapidly. She needs to contact her divorce attorney to review their mutual obligations. A court can issue orders to try to force the Ex to fulfill the divorce agreement. However, a court cannot impose a change to the mortgage obligations the borrowers made to the bank. Focus on this. It's far more important than adding her to a car loan or credit card. Sorry for the bad news. As for the car loan, it's best to leave her off the loan. You will get better terms without her as a joint owner. You can add her as an additional driver for insurance purposes. Adding her to your credit cards will help her credit but not a lot if the mortgage goes to default or foreclosure.","\"The answer is \"\"it depends\"\". What does it depend on? If it's a breakup situation, good luck. Whatever you do, get this issue settled as quickly as possible. In the future, don't make significant purchases with people unless you have a written contract or you are married.\"","It appears that co-signing does impact your debt-to-income ratio, at least in the US. An article on Kiplinger says: An article on Forbes agrees saying: There is a similar question here.","You were approved for the offer based on your current credit, just like any other offer of credit. The offering bank knows you'll likely use their offer if you accept it. If you accept the offer and load up the new card to the max with your (or your relative's) debt and your score will then change. Depending on the other factors that impact your score this could carry some negative consequences related to your own ability to obtain debt. Also, consequently, this will have a tremendously positive effect on your relative's ability to obtain debt. I understand that you trust this person enough to be asking this question. No amount of trust protects from the unforeseen. Ultimately while this debt resides in your name, in the eyes of the creditor it is yours. While you could seek legal remedy from your relative if they don't or can't pay, you will be on the hook to the bank. Again, there are unforeseen events, a car accident, a death, etc. If this person passes, that's your debt. IF (and I can't emphasize the IF enough) I was ever in a position to be considering what you're considering I would do this: I mentioned in a comment under your question. This feels like it would carry a tax consequence (or maybe benefit) to one or both of you. I have no idea of the legalities, or whether or not any of this violates a cardmember agreement, but as other answers have pointed out, I doubt there is a balance transfer police.","First, if it is in any way a joint account, the debt usually goes to the surviving person. Assets in joint accounts usually have their own instructions on how to disperse the assets; for example, full joint bank accounts usually immediately go to the other name on the account and never become part of the estate. Non-cash assets will likely need to be converted to cash and a fair market valuation shown to the probate court, unless the debts can be paid without using them and they can be transferred to next of kin. If, after that, the deceased has any assets at all, there is usually (varies by state) a legally defined order in which debtor types must be paid. This is handled by probating the estate. There is a period during which you publish a death notice and then wait for debt claims and bills to arrive. Then pay as many as possible based on the priority, and inform the others the holder is deceased and the estate is empty. This sometimes needs to be approved by a judge if the assets are less than the debts. Then disperse remaining assets to next of kin. If there are no assets held by just the deceased, as you get bills you just send a certified copy of the death certificate, tell them there is no estate, then forget about them. A lawyer can really help in determining which need to be paid and to work through probate, which is not simple or cheap. But also note that you can negotiate and sometimes get them to accept less, if there are assets. When my mother died, the doctors treating her zeroed her accounts; the hospitals accepted a much reduced total, but the credit cards wanted 100%.","\"I want to first state that I'm not an attorney and this is not a response that would be considered legal advice. I'm going to assume this was a loan was made in the USA. The OP didnt specify. A typical auto loan has a borrower and a co-borrower or \"\"cosigner\"\". The first signer on the contract is considered the \"\"primary\"\". As to your question about a primary being a co-borrower my answer would be no. Primary simply means first signer and you can't be a first signer and a co-borrower. Both borrower and co-borrower, unless the contract specifies different, are equally responsible for the auto loan regardless if you're a borrower or a co-borrower (primary or not primary). I'm not sure if there was a situation not specified that prompted the question. Just remember that when you add a co-borrower their positive and negative financials are handled equally as the borrower. So in some cases a co-borrower can make the loan not qualify. (I worked for an auto finance company for 16 years)\"","He wasn't wrong that a mortgage would help your credit score, assuming that this was a perfect world and everyone held up their end of the bargain. However, now that he hasn't, you are still legally obligated to pay the loan amount (including his portion of it). As for a lawsuit, it would be hard to prove what he said verbally, however, it doesn't hurt to call a lawyer for a free consultation.","You havent signed a contract, so you are only an authorised contact so you have nothing to worry about at all. Your credit reference can only be affected if you are a signed party on the contract. I would imagine that they wont remove your details as you may assist them by contacting your emplorer, and effectively chase the debt for them especially if you seem to be family member or a friend of the business owner. How did you find out about the debt, did they phone you? If you really want peace of mind, you could write to them and confirm that you are not authorised to be contacted by phone or in writing regarding the debt, and that you are not in anyway liable for the debt and that your contact details must be put beyond use, and as you are concerned, say that if they take any further action against you such as affect your credit ref etc then you will take them to 'your' local magistrates court to seek compensation. Use strong terms and insist they must do what you ask rather than just say that you would like something done etc. Say that you 'Will' take further action which is generic, and that you 'May' do specific things so that it sounds strong but you haven't have committed to any thing in particular. This would most likely be more than enough to stop further contact.","Sorry for your loss. If the insurance money is now in an account under your names, you can might be able to withdraw the money. You should put a country tag and state tag on your question. EDIT: my initial response might incorrect -- see comments below. This is going to be state speficic and the amounts may be relevant. Best to seek professional advice!","\"Imagine that, a car dealership lied to someone trusting. Who would have thought. A big question is how well do you get along with your \"\"ex\"\"? Can you be in the same room without fighting? Can you agree on things that are mutually beneficial? The car will have to be paid off, and taken out of his name. The mechanics on how to do this is a bit tricky and you may want to see a lawyer about it. Having you being the sole owner of the car benefits him because he is no longer a cosigner on a loan. This will help him get additional loans if he chooses, or cosign on his next gf's car. And of course this benefits you as you \"\"own\"\" the car instead of both of you. You will probably have to refinance the car in your name only. Do you have sufficient credit? Once this happens can you pay off the car in like a year or so? If you search this site a similar questions is asked about once per month. Car loans are pretty terrible, in the future you should avoid them. Cosigning is even worse and you should never again participate in such a thing. Another option is to just sell the car and start over with your own car hopefully paid for in cash.\"","Unfortunately, there isn't much you can do. If your name was on the mortgage, you owe the money, regardless of who kept the house. They can (and likely will) come after you for the money as well. A bit late in your case, but that's why when people divorce, refinancing the house into one person's name (and the other quit-claiming their interest) is usually part of the settlement. ETA: As others have mentioned, since you are in California, it appears that they cannot come after you for the difference.","You should probably consult an attorney. However, if the owner was a corporation/LLC and it has been officially dissolved, you can provide an evidence of that from your State's department of State/Corporations to show that their request is unfeasible. If the owner was a sole-proprietor, then that may be harder as you'll need to track the person down and have him close the plan.","\"First off learn from this: Never cosign again. There are plenty of other \"\"tales of woe\"\" outlined on this site that started and ended similarly. Secondly do what you can to get off of the loan. First I'd go back to her dad and offer him $1000 to take you off the loan and sign over the car. Maybe go up to $3000 if you have that much cash. If that doesn't work go to the bank and offer them half of the loan balance to take you off. You can sign a personal loan for that amount (maybe). Whatever it takes to get off the loan. If she has a new BF offer him the same deal as the dad. Why do you have to do this? Because you owned an asset that was once valued at 13K and is valued at (probably) less than 4K. Given that you have a loan on it the leverage works against you causing you to lose more money. The goal now is to cut your losses and learn from your mistakes. I feel like the goal of your post was to make your ex-gf look bad. It's more important to do some self examination. If she was such a bad person why did you date her? Why did you enter a business transaction with her? I'd recommend seeking counseling on why you make such poor choices and to help you avoid them in the future. Along these lines I'd also examine your goals in life. If your desire is to be a wealthy person, then why would you borrow money to buy a car? Seek to imitate rich people to become rich. Picking the right friends and mates is an important part of this. If you do not have a desire to be a wealthy person what does it matter? Losing 13K over seven months is a small step in the \"\"right\"\" direction.\"","\"I was in a similar situation about a year ago, and the expedient thing to do would be to remove your grandfather from the Title. He would probably have to agree with this, but I think he will if you approach it correctly. In my case, I was the cosigner for my son's car loan and was told by the dealer that I \"\"had to be on the title\"\". This is not true as far as Virginia is concerned (Illinois may be different). I know this because when my son dropped his auto insurance I got the fine for having an uninsured vehicle and was told during the hearing that the dealer was mistaken. It all worked out in the end, but all we had to do was go down to the DMV and get my name taken off of the title. I'm sure if you approach it this way - you do not want him to be responsible for things that you do (who would get sued if you caused an accident?) he would agree to have his name removed from the title.\"","It looks to me like this is a 'call an attorney' situation, which is always a good idea in situations like this (family legal disputes). But, some information. First off, if your family is going to take the car, you certainly won't need to make payments on it any more at that point, in my opinion. If the will goes through probate (which is the only way they'd really be able to take it), the probate judge should either leave you with the car and the payments, or neither (presumably requiring the family to pay off the loan and settle your interest in the car). Since the car has negative net value, it seems unlikely that the probate judge would take the car away from you, but who knows. Either way, if they do take the car away from you, they'll be doing you a service: you have a $6,000 car that you owe $12,000 on. Let them, and walk away and buy another car for $6,000. Second, I'm not sure they would be allowed to in any event. See the Illinois DMV page on correcting titles in the case of a deceased owner; Illinois I believe is a joint tenancy state, meaning that once one owner dies, the other just gets the car (and the loan, though the loan documents would cover that). Unless you had an explicit agreement with your grandfather, anyway. From that page: Joint Ownership A title in the names of two or more persons is considered to be in joint tenancy. Upon the death of one of them, the surviving joint tenant(s) becomes the owner(s) of the vehicle by law. Third, your grandfather can fix all of this fairly easily by mentioning the disposition of the car and loan in his will, if he's still mentally competent and wishes to do so. If he transfers his ownership of the car to you in the will, it seems like that would be that (though again, it's not clear that the ownership wouldn't just be yours anyway). Finally, I am not a lawyer, and I am not your lawyer, so do not construe any of the text of this post as legal advice; contact a lawyer.","Well, it sounds like you have two options: 1) Continue to jointly own the house. 2) Compensate her for her equity and get the title transferred. I hate to tell you this, but she is entitled to half of the equity regardless of how much she paid into it. That said, she is still on the hook equally for the loan amount, but it won't do you any good if she is not willing to pay. Also, option 2 probably isn't a good deal for your co-signer as she would still be liable for the entire loan loan (just as you are) regardless of the title.","You may have a few options if the company continues to ignore your communication. Even if none of these works out, the debt should still probably be paid out by the estate of your friend.","\"I don't think you've mentioned which State you're in. Here in Ontario, a person who is financially incapable can have their financial responsibility and authority removed, and assigned to a trustee. The trustee might be a responsible next of kin (as her ex, you would appear unsuitable: that being a potential conflict of interest); otherwise, it can be the Public Guardian and Trustee. It that happens, then the trustee handles the money; and handles/makes any contracts on behalf of (in the name of) the incapable person. The incapable person might have income (e.g. spousal support payments) and money (e.g. bank accounts), which the trustee can document in order to demonstrate credit-worthiness (or at least solvency). For the time being, the kids see it as an adventure, but I suspect, it will get old very fast. I hope you have a counsellor to talk with about your personal relationships (I've had or tried several and at least one has been extraordinarily helpful). You're not actually expressing a worry about the children being abused or neglected. :/ Is your motive (for asking) that you want her to have a place, so that the children will like it (being there) better? As long as your kids see it as an adventure, perhaps you can be happy for them. Perhaps (I don't know: depending on the people) too it's a good (or at least a better) thing that they are visiting with friends and relatives; and, a better conversational topic with those people might be how they show your children a good time (instead of your ex's money). One possible way I thought of co-signing is if a portion of child/spousal support goes directly to the landlord. I asked the Child Support Services (who deduct money from my paycheck monthly to pay support to my ex) and they told me that they are not authorized to do this. Perhaps (I don't know) there is some way to do that, if you have your ex's cooperation and a lawyer (and perhaps a judge). You haven't said what portions of your payments are for Child support, versus Spousal support (nor, who has custody, etc). If a large part of the support is for the children, then perhaps the children can rent the place. (/wild idea) Note that, in Ontario, there are two trusteeship decisions to make: 1) financial; and 2) personal care, which includes housing and medical. Someone can retain their own 'self-care' authority even if they're judged financially incapable (or vice versa if there's a personal-care or medical decision which they cannot understand). The technical language is, \"\"Mentally Incapable of Managing Property\"\" This term applies to a person who is unable to understand information that is relevant to making a decision or is unable to appreciate the reasonably foreseeable consequences of a decision or lack of decision about his or her property. Processes for certifying an individual as being mentally incapable of managing property are prescribed in the SDA (Substitute Decisions Act), and in the Mental Health Act.\"\" The Mental Heath Act is for medical emergencies (only); but Ontario has a Substitute Decisions Act as well. An intent of the law is to protect vulnerable people. People may also acquire and/or name their own trustee and/or guardian voluntarily: via a power of attorney, a living will, etc. I don't know: how about offering the landlord a year's rent in advance, or in trust? I guess that 1) a court order can determine/override/guarantee the way in which the child support payments are directed 2) it's easier to get that order/agreement if you and your ex cooperate 3) there are housing specialists in your neighborhood: They can buy housing instead of renting it. Or be given (gifted) housing to live in.\"","\"I don't know of any way to \"\"transfer\"\" a debt to another person without their consent or the lender's consent. You are responsible for the loan, and you need to either pay it or give up the asset that it's tied to (the car). At least you weren't just a cosigner with no title to the car - then you'd be in worse shape. If you don't want your credit tarnished, I would start (or keep) making the payments, knowing that you are getting the equity that results from the principal you're paying (you're only out the interest portion). If it were me, here are the things I would do:\"","\"First, when a debt collector says, \"\"It's to your advantage to give me money now\"\", I'd take that with a grain of salt. My ex-wife declared bankruptcy and when debt collectors couldn't find her, they somehow tracked me down and told me that I should tell her that it would be to her advantage to pay off this debt before the bankruptcy went through. That was total nonsense of course. The whole point of bankruptcy is to not have to pay the debt. Why would you pay it just before it was wiped off the books? (Now that I think of it, I'm surprised that they didn't tell me that I should pay her debts.) As others have noted, this would be controlled by state law. But in general, when someone dies any debts are payed from the assets of the estate, and then whatever is left goes to the heirs. If nothing is left or the debts exceed the assets, then the heirs get nothing, but they don't have to pay somebody else's debts. I don't see how you could \"\"put the house under your name\"\". If he left the house to you in his will, then after any debts are settled in accordance with state law, the house would transfer to you. But you can't just decide to put the house in your name outside of the legal inheritance process. If you could, then people could undermine a will at any time by just deciding to take an asset left to someone else and \"\"put it in their name\"\". Or as in this case, people could undermine the rights of creditors by transferring all assets to themselves before debts were paid. Even if there's some provision in your state for changing the name on a deed prior to probate to facilitate getting mortgages and taxes paid or whatever, I would be quite surprised if this allowed you to shelter assets from legitimate creditors. It would be a gaping loophole in inheritance law. Frankly, if your father's debts are more than the value of his assets, including the value of the house, I suspect you will not be able to keep the house. It will be sold to pay off the creditors. I would certainly talk to a lawyer about this as there might be some provision in the law that you can take advantage of. I'll gladly yield on this point to anyone with specific knowledge of New Jersey inheritance law.\"","I think Joe is right, it seems that you will get the car once grandpa passes. It clearly states that on the DMV page. I would work like crazy to get this car paid off ASAP. Work extra and see if you can get it paid off in less than a year. Once paid off, have grandpa sign it over to you. This is a really toxic situation that you can reduce somewhat by having the car in your name only. Learn from this: have a will and keep it up to date. There is going to be a lot of fighting over the assets that grandpa leaves behind. You don't want that to be your legacy, and you don't want to tarnish your grandfathers memory by participating in such nonsense. My concern is why you have such poor credit. Understand that poor credit is a choice of behavior and there is no one to blame but yourself. I would recommend to stop borrowing completely until this car is paid off and all of your obligations are paid back (that is if you have items that are in collections). No vacations, no eating out, etc... Work don't spend.","It is a legal issue for two reasons. In the United States if both names were on the title both people would have had to sign the paperwork in order to transfer the title. If the car was collateral for the loan, then the bank would have had to be involved in the transaction. The portion of the check need to repay the loan would have had to have been made out to the bank. If the car was sold to a dealership, then paperwork must have been forged. If the car was sold to a person then it is possible that they were too naive to know what paperwork was required, but it is likely still fraud. You need legal advice to protect your money, and your credit score. They should also be able to tell you who needs to be contacted: DMV, the police, the dealership, the bank.","Don't worry about it. One of the big banks who like to whine a lot about defaulting borrowers is sending credit cards to a former resident of my home. The guy died in the late 90s.","California is a non-recourse state, so they won't be coming after you for the balance. If the terms of you divorce were written out that your wife got the house, perhaps a lawyer can get your credit cleared, but that is a long shot. Your chances depend very much on how long your wife made payments, if there is a provable history and the length of that history might help you out. http://wiki.answers.com/Q/Which_states_are_non-recourse_states_for_mortgage_debt","There is a difference between an owner and a signer. An owner is the legal owner of the funds. A signer has access to withdraw the funds. In most cases, when a new personal account is opened the name is added as an owner&signer. However, that is not always the case. A person could be an owner, but not a signer, in a custodial arrangement. For example, a minor child may be an owner only on their account with a custodial parent listed as a signer. The minor could not withdraw from the account. A person could be a signer, but not an owner, in a business or estate/trust account. The business or estate would be the owner with individuals listed as signers only. The business employees do not own the funds, they are only allowed to withdraw and disburse the funds on behalf of the company. The creditor can only garnish/withhold funds that are owned by the indebted. If the second person on the account is only a signer, those funds cannot be withheld as part of a judgment against the second person (they don't own those funds). However, simply titling the second person as a signer only is not sufficient. If you share access with the second person and allow them to spend the money for their own benefit, they are no longer just a signer. They have become an owner because you are sharing your funds with them. Think of the business relationship as an example. The employee is a signer so they can withdraw funds and pay business expenses, like the electric bill. If the employee withdrew funds and bought herself a new dress, she is stealing because she does not own those funds. If the second person on the account buys things for themselves, or transfers some of the money into their own account, they are demonstrating that more than a signer-only relationship exists. A true signer-only relationship is where the individual can only withdraw funds on the owner's behalf. For example, the owner is out of town and needs a bill paid, the signer can write a check and pay the bill for the owner. A limited power of attorney may be worth looking into. With a limited POA, the owner can define the scope and expiration of the power of attorney. With this arrangement, the second person becomes an executor of the owner under certain circumstances. For example, you could write a power of attorney that states something like: John Smith is hereby granted the limited power to withdraw funds from account 1234, on deposit at Anytown Bank, for the purpose of paying debts and obligations and otherwise maintain my estate in the event of my incapacitation or inability to attend to my own affairs. This Power of Attorney shall expire on it's fifth anniversary unless renewed. If the person you have granted the power of attorney abuses their access, you could sue them and you would only have to demonstrate that they overstepped the scope of their power.","\"Short answer: don't do it. Unless you know something that the bank doesn't, it's safe to assume that banks are a lot better at assessing risk than you are. If they think he can't afford it, odds are he can't afford it regardless of what he might say to the contrary. In this case, the best answer may be \"\"sorry for your luck;\"\" you could recommend that he comes up with a larger down payment to reduce his monthly payment (or that he find a way to get some extra income) rather than getting you to cosign. Please also see this article by Dave Ramsey on why you should never cosign loans.\"","My family members, particularly my aunt (his daughter), are telling me that when my grandpa dies they are taking my car. Bring this up with Grandpa. If this is what he wants to have happen, then help him make it happen before you finish paying $12,000 on a car worth only $6,000. Let the Aunt and other relatives deal with the remaining $12,000. If that isn't what he wants to have happen, then work out how you and he can legally make sure that what he wants to have happen actually happens. If the Aunt or others bring it up, make sure they understand that you still owe $12,000 on the car, and if they get the car they also get the loan. If they refuse to pay the loan then make sure they know you will cooperate with the bank when they attempt to repossess the car - up to and including providing them with keys and location. This will hurt your credit, and you will be on the hook for the remaining portion of the loan, but you at least won't have to deal with all of it - they'll sell it at auction and your loan amount will fall a little. But the best course of action is to work with Grandpa, and make sure that he understands the family's threats, how that will affect you since you're on the loan, and what options you'd like to pursue.","\"Don't ignore it. If this is a non-trivial amount of money you need a lawyer. You've acknowledged that a loan exists and have personally guaranteed it, so a court can and will ultimately order you to pay. In doing so, they can put liens on your assests. Depending on the state, how the property is titled and other factors, that can include your home. If you don't have the money and are pretty much broke, try to negotiate a settlement. If they balk, you'll eventually need to start talking about bankruptcy -- that's the \"\"nuclear option\"\" and a motivator to settle. Otherwise, you need to either seriously explore bankruptcy or be prepared to lose your stuff to a judgement and having your dirty laundry aired in court. If you're not broke, but don't have liquid capital, you need to figure out a way to raise the money somehow. Again, you need to consult an attorney.\"","\"People act like lawsuits are the end of the world, her suing shouldn't be considered a threat, it should be considered the accurate course of action to resolve contractual obligations. Of course, it would be convenient if she did nothing at all! If you believe her real goal is to \"\"get it off her credit\"\", then have her come refinance with you. This will give you the opportunity to not have her on it and you to get different terms. Of course, if your credit still is poor then this option also exacerbates the inconvenience. None of the options sounds like they will ruin your credit (unless you are scrounging for cash through credit facilities to pay her off). You have several completely benign options available.\"","Okay, I went through a similar situation when my mother died in March of this year. The estate still needs to go into probate. Especially if there was a will. And when you do this, your husband will be named as the executor. Then what he will need to do is produce both of their death certificates to the bank, have the account closed, and open an estate account with both of their names on it. Their debts & anything like this should be paid from this account as well. Then what you can do is endorse the check as the executor and deposit it into this account. After all debts are paid, the money can be disbursed to the beneficiaries (your husband). Basically, as long as they didn't have any huge debts to pay, he will see the money again. It just may be a couple of months. And you will have to pay some filing fees.","\"I think the best advice you could get would be to find a lawyer. If that foreign company has any presence in the US, they should be the ones signing off as the successor, otherwise you may find yourself in a limbo that would require some legal assistance. Generally, in most States a Corporation cannot be dissolved without resolving issues like this, which is probably why they told you \"\"the plan is terminating\"\". Someone asked them to terminate it. You need to find that someone.\"","Your first step is to talk to the current lender and ask about refinancing in the other person's name. The lender is free to say no, and if they think the other person is unlikely to pay it back, they won't refinance. If you're in this situation because the other person didn't qualify for a loan in the first place, the lender probably won't change their mind, but it's still worth asking. From the lender's point of view, you'll be selling the other person the car. If they qualify for a loan, it's as simple as getting the loan from a bank, then doing whatever is required by your state to sell a car between either private parties or between relatives (depending on who the other person is). The bank might help you with this, or your state's DMV website. Here are a few options that don't involve changing who is on the loan: Taking out a loan for another person is always a big risk. Banks have entire departments devoted to determining who is a good credit risk, and who isn't, so if a person can't get a loan from a bank, it's usually for a good reason. One good thing about your situation: you actually bought the car, and are the listed owner. Had you co-signed on a loan in the other person's name, you'd owe the money, but wouldn't even have the car's value to fall back on when they stopped paying.","Some things you should consider: Balance Transfer Debt Consolidation If you get approved for the Citibank 2 year interest free credit card on balance transfers, you will need another loan of $18K to consolidate your other debt. If you cannot get approval for the credit card you may need to get consolidation loan approval for your full $35K of debt. This approval again will depend on your income and your ability to make repayments. As it sounds like you don't have any assets, you may have to get an unsecured loan which comes with higher interest rates. Remember a consolidation loan is only worthwhile if you can get an interest rate lower than your current interest rates and if you pay as much as possible to reduce the term of the loan and the total interest you end up paying. You haven't given the interest rate for the consolidation loan, but lets assume you could get one at 12% p.a. over a 3 year period. For a loan of $18K you would have to pay $138 per week. Together with the $163.50 per week you would have to pay the credit card balance transfer, your total repayments per week for the first 2 years would be $301.50, then $138 per week for the 3rd year. This option sounds affordable, but without knowing what your income and current expenses are it is hard for others to determine for sure. If you had to get a consolidated loan for the full $35K at say 12% p.a. then your weekly repayments would be $268.30 over a 3 year period. This looks to be achievable too. Being Disciplined As you said you will need to be very disciplined in order to get out of this debt. You will need to set up a proper budget and watch every dollar you spend. You will need to restrict any spending on credit cards and getting any new personal loans. You say you will keep a small credit limit to pay for ongoing online payments for courses. Make sure you uses a 55 day interest free credit card (preferably with no annual fee) for this and pay the full amount due every month, so you don't end up paying any more interest on this card. In case of death would my debts pass on to my next of kin or family? If your debts are unsecured (which personal loans and credit cards are), then no your next of kin or family will not have to pay your debts if you die. When you die any money or assets (which would be sold) in your estate will first be used to pay off any of your debts. If there is not enough money or assets in your estate then your remaining debts may not need to be paid. Other people are only responsible for paying your debts after you die if: Bankruptcy An alternative to Bankruptcy is a Part 9 debt agreement, as I mentioned in my answer to your previous question. In this case you will still need to pay off at least part of the debt but will not be charged any further interest on the debt. This is not as severe as Bankruptcy, but as I mentioned before, should not be taken lightly. Like bankruptcy, a debt agreement will appear on your credit file for seven years and your name will be listed on the National Personal Insolvency Index forever. Bankruptcy or a Debt Agreement should only be used as a last resort if you are unable to undertake any other option. And remember, even if you do take this course of action, you will still need to be disciplined now and into the future, so you don't end up in a similar situation again.","I'm not an attorney, nor am I a licensed tax adviser. I suggest you talk to these two types of professionals. From my limited knowledge, without proper documentation/organization, I can't see how the IRS/State will not consider this as a rent payment. The mortgage responsibility is of the person signing the mortgage contract, and you're under no obligation to pay that person anything. Had you not lived at the property, you might argue that it was a gift (although I'm not sure if it would stand), but since you do live in the property - it is quite obviously a rent payment. Putting your name on the deed may mitigate this slightly but I'm not sure how much - since you're still not obligated to pay the mortgage. However this is probably moot since it is unlikely for a bank to give a mortgage on a property to person A when it is also owned by a person B, without that person B being side to the mortgage contract.","If a person owes someone money, he can be sued for it, and forced to pay via court order. It is completely irrelevant who that person owes money to (here: a not specified 'estate'), and irrelevant what source they get money from (here: life insurance payout). What makes you think there is any special combination that allows the owing person to not pay their debt? If it would exist, everybody would use it to get out of his debt.","Another option, not yet discussed here, is to allow the loan to go into default and let the loaning agency repossess the property the loan was used for, after which they sell it and that sale should discharge some significant portion of the loan. Knowing where the friend and property is, you may be able to help them carry out the repossession by providing them information. Meanwhile, your credit will take a significant hit, but unless your name is on the deed/title of the property then you have little claim that the property is yours just because you're paying the loan. The contract you signed for the loan is not going to be easily bypassed with a lawsuit of any sort, so unless you can produce another contract between you and your friend it's unlikely that you can even sue them. In short, you have no claim to the property, but the loaning agency does - perhaps that's the only way to avoid paying most of the debt, but you do trade some of your credit for it. Hopefully you understand that what you loaned wasn't money, but your credit score and earning potential, and that you will be more careful who you choose to lend this to in the future.","Talk to your parents, and find out if you are reducing the debt or not. Find buyers, sell the place now and get out the deal. Of course you will have to wait to get a good price on it. Short term you haven't lost that much, but long term you will. Take your 25%, and use it as a down payment on a regular bank mortgage. Lesson learned move on."],"string":"[\n \"Co-signing is not the same as owning. If your elderly lady didn't make any payments on the loan, and isn't on the ownership of the car, and there was no agreement that you would pay her anything, then you do not owe either her or her daughter any money. Also the loan is not affecting the daughter's credit, and the mother's credit is irrelevant (since she is dead). However you should be aware that the finance company will want to know about the demise of the mother, since they can no longer make a claim against her if you default. I would start by approaching the loan company, telling them about the mother's death, and asking to refinance in your name only. If you've really been keeping up the payments well this could be OK with them. If not I would find someone else who is prepared to co-sign a new loan with you, and still refinance. Then just tell the daughter that the loan her mother co-signed for has been discharged, and there is nothing for her to worry about.\",\n \"\\\"First of all you do not \\\"\\\"co-sign a car\\\"\\\". I assume what you mean by this is that you co-signed a loan, and the money was used to buy a car. Once you signed that loan YOU OWED THE MONEY. Once a loan exists, it exists, and you will owe the money until the loan is paid. If you do not want to owe the money, then you need to pay back the money you borrowed. You may not think \\\"\\\"you\\\"\\\" borrowed the money because the car went to someone else. THE BANK AND THE COURTS DO NOT CARE. All they care about is that YOU signed the loan, so as far as they are concerned YOU owe the money and you owe ALL of the money to the bank, and the only way to change that is to pay the money back.\\\"\",\n \"\\\"The wording of this question is very confusing because \\\"\\\"primary signer\\\"\\\" would, in ordinary parlance, mean the person borrowing the money and the co-signer (not consigner) would mean the one who is guaranteeing the repayment of the loan: if the borrower does not pay, the co-signer is liable for making the payments. Whose name is on the title of the car? Who borrowed the money to buy the car? Is the loan in your name and your son co-signed the loan to induce the bank to loan you money to purchase the car, or is it the other way around, that your son borrowed the money and you co-signed the loan in order to induce the bank to loan your son the money? If the car title and the loan are in your name, are you defaulting on the loan and so your son is making the loan payments that should have come from you? Or is it that your son borrowed the money to buy the car, his name is on the title, he is making the payments, and you are no longer interested in backing him up in case he defaults and the bank comes after you for the money?\\\"\",\n \"Is your name on the title at all? You may have (slightly) more leverage in that case, but co-signing any loans is not a good idea, even for a friend or relative. As this article notes: Generally, co-signing refers to financing, not ownership. If the primary accountholder fails to make payments on the loan or the retail installment sales contract (a type of auto financing dealers sell), the co-signer is responsible for those payments, or their credit will suffer. Even if the co-signer makes the payments, they’re still not the owner if their name isn’t on the title. The Consumer Finance Protection Bureau (CFPB) notes: If you co-sign a loan, you are legally obligated to repay the loan in full. Co-signing a loan does not mean serving as a character reference for someone else. When you co-sign, you promise to pay the loan yourself. It means that you risk having to repay any missed payments immediately. If the borrower defaults on the loan, the creditor can use the same collection methods against you that can be used against the borrower such as demanding that you repay the entire loan yourself, suing you, and garnishing your wages or bank accounts after a judgment. Your credit score(s) may be impacted by any late payments or defaults. Co-signing an auto loan does not mean you have any right to the vehicle, it just means that you have agreed to become obligated to repay the amount of the loan. So make sure you can afford to pay this debt if the borrower cannot. Per this article and this loan.com article, options to remove your name from co-signing include: If you're name isn't on the title, you'll have to convince your ex-boyfriend and the bank to have you removed as the co-signer, but from your brief description above, it doesn't seem that your ex is going to be cooperative. Unfortunately, as the co-signer and guarantor of the loan, you're legally responsible for making the payments if he doesn't. Not making the payments could ruin your credit as well. One final option to consider is bankruptcy. Bankruptcy is a drastic option, and you'll have to weigh whether the disruption to your credit and financial life will be worth it versus repaying the balance of that auto loan. Per this post: Another not so pretty option is bankruptcy. This is an extreme route, and in some instances may not even guarantee a name-removal from the loan. Your best bet is to contact a lawyer or other source of legal help to review your options on how to proceed with this issue.\",\n \"What can you do? Pay the loan or face the debt collectors. The finance company don't care who now keeps the car, or who drives it. There's money outstanding on the loan, and your signature on the loan form. That's why co-signing a loan for someone else so often ends in tears.\",\n \"\\\"Yes. Because you co-signed the loan, you are responsible for the loan just as much as she was. When you co-sign a loan, you are essentially saying \\\"\\\"I will pay this loan if the other person can't.\\\"\\\"\\\"\",\n \"\\\"I'm sorry you are going through this, but what you are dealing with is exactly is how cosigning works. It is among other reasons why you should never cosign a loan for someone unless you are 100% prepared to pay the loan on their behalf. Unfortunately, the main \\\"\\\"benefit\\\"\\\" to cosigning a loan is to the bank - they don't care who makes payments, only that someone does. It is not in their interest to educate purchasers who can easily get themselves into the situation you are in. What your options are depends a fair bit on the type of loan it is. The biggest problem is that normally as cosigner you cannot force your friend to do anything. If it is for a car, your best bet is to convince them to sell the car and hopefully recoup more than the cost of the loan. Many workplaces have some sort of free service to provide counseling/guidance on this sort of thing. Look into your employee benefits as you may have some free services there. You can sue your friend in small claims court, but keep in mind: It also depends on how big the loan is relative to your income. While it might feel good to sue your friend in small claims court, if it's for $500 it probably isn't worthwhile - but if your friend just stopped paying off their $30k vehicle assuming you will pay for it, even though they can pay for it themselves?\\\"\",\n \"I am sure that laws differ from state to state. My brother and I had to take over my dads finances due to his health. He had a vehicle that had a loan on it. We refinanced the vehicle and it was in our name. One of our family members needed a vehicle and offered to take over the payment. Our attorney advised us to be on the insurance policy with them and make sure if was paid correctly. We are in Indiana. I know it is hard to discuss finances with family members. However, if you co-signed the loan I think it would be wise to either have your name added to the insurance policy or at least have your brother show proof it has been paid. If you are not comfortable with that it may be a good idea to make sure the bank has your correct address and ask if they would notify you if insurance has lapsed. If your on the loan and there is no insurance at the very least if the vehicle was damaged you would still be responsible to pay the loan.\",\n \"\\\"Cosigning is explicitly a promise that you will make the payments if the primary signer can not. Don't do it unless you are able to handle the cost and trust the other party will \\\"\\\"make you whole\\\"\\\" when they can... which means don't do it for anyone you would not lend your money to, since it comes out to about the same level of risk. Having agreed, you're sorta stuck with your ex-friend's problem. I recommend talking to a lawyer about the safest way get out of this. It isn't clear you can even sue the ex-friend at this point.\\\"\",\n \"Ordinarily a cosigner does not appear on the car's title (thus, no ownership at all in the vehicle), but they are guaranteeing payment of the loan if the primary borrower does not make the payment. You have essentially two options: Stop making payments for him. If he does not make them, the car will be repossessed and the default will appear on both his and your credit. You will have a credit ding to live with, but he will to and he won't have the car. Continue to make payments if he does not, to preserve your credit, and sue him for the money you have paid. In your suit you could request repayment of the money or have him sign over the title (ownership) to you, if you would be happy with either option. I suspect that he will object to both, so the judge is going to have to decide if he finds your case has merit. If you go with option 1 and he picks up the payments so the car isn't repossessed, you can then still take option 2 to recover the money you have paid. Be prepared to provide documentation to the court of the payments you have made (bank statements showing the out-go, or other form of evidence you made the payment - the finance company's statements aren't going to show who made them).\",\n \"Sorry for your loss. I am not a lawyer and this isn;t legal advice -- which I am not licensed to give. But I've had to deal with some debt situations of my own. I think the worst case scenario is the creditor can get a judgment, but that won't be against you unless you were a co-signor. The collectors are going to prey on your decency to make you feel like you should pay it, but you are under no legal obligation to do so. If they file in court and then win a judgment, they may be able to collect on the assets of the estate. You mention no money but you mention a house. That is an asset with value, and putting it in your name isn't going to do much. You should see a lawyer on this, because it seems logical that they could collect on the value of the house at the time of the death, and even if it was willed to you it can still be attacked to pay the debt. Here is a good write-up on NJ death and debt and whether it can be inherited by the adult children: https://www.atrbklaw.com/bankruptcy-resources/83-articles/103-can-you-inherit-your-dead-parent-s-debts\",\n \"The buyer can get another cosigner or you can sell the car to pay off the loan. These are your only options if financing cannot be obtained independently.\",\n \"My grandmother passed away earlier this year. When I got my car 3 years ago, I did not have good enough credit to do it on my own or have her as a co-signer. We had arranged so that my grandmother was buying the car and I was co-signing. A similar situation was happening and I went to my bank and took out a re-finance loan prior to her passing. I explained to them that my grandmother was sick and on her death bed. They never once requested a power of attorney or required her signature. I am now the sole owner of the vehicle.\",\n \"There are two different liabilities here. You signed, so the bank can rightfully demand the money from you. Even though it is not your debt. You signed, so you have to pay. However, it's really the business that is responsible for the account, so you can ask the business to refund the money. You might ask them to pay the bank instead if you haven't paid yet.\",\n \"This is why we tell people not to co-sign unless they are able and willing to risk that money becoming a gift... or are able and willing to treat it as business rather than family. Unfortunately that advice is a bit late now to help you. When you cosigned, you promised the bank that you would make any payments he didn't. The bank doesn't care why he didn't, they just want their money on time. Getting him to repay you for covering this is strictly between the two of you, and unless you signed paperwork at the time establishing a contract other than the promise to cover his loan this becomes Extremely Messy. First step is to make the payments so the loan doesn't continue acquiring fees and hurting your credit rating, and keep it from falling behind again. Then you have to convince him to repay the money you have effectively given him. Depending on your relationship, and financial situations, you may decide to carry him for a while and trust that he'll pay you back when he can, or sic a lawyer on him. You need to make that decision, recognizing that it may be a matter of how much family drama you are willing to tolerate.\",\n \"The house becomes an asset belonging to the estate of Alice. The debt also goes with the estate. The executor of the will should arrange for the debt to be paid off as part of sorting out the estate - they can't just hand out all the assets and leave nothing to pay off the debts. This could be done by selling the house. But in practice, the executor and the mortgage lender may both be happy if Bob takes out a mortgage, uses that to pay the debt, then inherits the house.\",\n \"\\\"This will probably require asking the SO to sign a quitclaim and/or to \\\"\\\"sell\\\"\\\" him her share of the vehicle's ownership and getting it re-titled in his own name alone, which is the question you actually asked. To cancel the cosigner arrangement, he has to pay off the loan. If he can't or doesn't want to do that in cash, he'd have to qualify for a new loan to refinasnce in his name only, or get someone else (such as yourself) to co-sign. Alternatively, he might sell the car (or something else) to pay what he still owes on it. As noted in other answers, this kind of mess is why you shouldn't get into either cosigning or joint ownership without a written agreement spelling out exactly what happens should one of the parties wish to end this arrangement. Doing business with friends is still doing business.\\\"\",\n \"As noted above, this is likely going to need (several) lawyers to straighten out. I am not a lawyer, but I think one should be retained ASAP. However, in the meantime: The authorized user should not be making any charges. Continuing to do so at this point may be a criminal offense. For the protection of any other heirs, this should be brought to the attention of the credit card issuer and law enforcement authorities. As it stands, the account holder's estate will be liable for the full debt, and the authorized user's estate would be untouched. Of course, all this could change if other heirs challenge the estate and file civil suits, in which case it's likely that both estates will be eaten up with legal fees anyway.\",\n \"Sounds like you need to contact your ex and sort it out. If you have co-signed the loan, changes are you are equally responsible even if on party chooses not to pay, then the bank will come after the other one. If you no longer wish to be part of the arrangement and your ex still wants the car, she will have to buy you out of the car and become fully responsible for the liability.\",\n \"The absolute first thing you need to do is contact the bank. Also, do you have a copy of the loan papers you signed? You should look over those as soon as possible as well. I'm sure you want these payments going toward your FICO score and not your mothers.\",\n \"Only if (or to put it even more bluntly, when) they default. If your friend / brother / daughter / whoever needs a cosigner on a loan, it means that people whose job it is to figure out whether or not that loan is a good idea have decided that it isn't. By co-signing, you're saying that you think you know better than the professionals. If / when the borrower defaults, the lender won't pursue them for the loan if you can pay it. You're just as responsible for the loan payments as the original borrower, and given that you were a useful co-signer, probably much more likely to be able to come up with the money. The lender has no reason to go after the original borrower, and won't. If you can't pay, the lender comes after both of you. To put it another way: Don't think of cosigning as helping them get a loan. Think of it as taking out a loan and re-loaning it to them.\",\n \"If you've been paying on the car for three years, it's possible that your credit is in a place where you don't need a co-signer any more. See if your bank will re-fi with you as the sole debtor. If they won't do it, find another institution who will. The re-fi will take your grandpa off the loan, and whichever institution that does the re-fi will still have a lien on the title until you pay it off. Then, if you can do this soon enough, figure out if grandpa can sign you off the title.\",\n \"\\\"Is there any way through this? Yes, but you're not going to like it. If your friend has guaranteed the loans, then it's your friend's obligation to pay them when the brother-in-law is not cooperating. That's what it means to guarantee a loan. (Obligatory: \\\"\\\"Before lending your friends or family money, ask yourself which you need more.\\\"\\\")\\\"\",\n \"I think I'm reading that you cosigned a loan with a friend, and they've stopped paying on their loan. Not a whole lot of options here. You'll have to pay the loan off by yourself or allow the loan to go into collections in hopes that you'll get more money later and pay it off then. Small claims court is definitely an option at that point. Next time, perhaps try not to cosign loans with friends unless you really trust them and are confident that you can pay the loan off if they cannot.\",\n \"\\\"I can answer this question for my jurisdiction (Florida, USA), because I lived through it. My Dad (\\\"\\\"Alice\\\"\\\") passed away in 2008, just as the housing crisis was starting to heat up. What happened to the Mortgage? My Dad had a will in place. It was an old will (from the 1980's), but never-the-less, a will. We had to provide paperwork to the court that my Mom had already passed away, and my oldest brother was living out-of-state (he would have been the executor, otherwise). With the proper paperwork, I became the Executor, and the property passed in to probate. At this point, the \\\"\\\"Estate\\\"\\\" was responsible for the house and the mortgage on it (meaning me, as I was the Executor). We decided to sell the house, so we hired a realtor, and set an asking price about $40k over what was owed on it. As we waited for it to sell, I had to make monthly mortgage payments, and payments to the HOA (otherwise the HOA could put a lien on the property, making it more difficult to sell, should we find a buyer). Is it Automatically Transferred? In most jurisdictions, I would say not \\\"\\\"automatic\\\"\\\". I definitely had get an estate lawyer and file the proper legal paperwork with the local county courthouse. Some states have an easier probate process (\\\"\\\"Summary Administration\\\"\\\" in Florida), that eases the requirements for small estates. Is Bob expected to pay it off all at once? No, the mortgage holder was happy for me to make payments (out of other estate assets) in lieu of my Dad. The were earning interest, after all. This is probably true in most cases. Can the House be Foreclosed on? Yes. In our case, being 2008, we had a hard time selling the property. The asking price quickly went from $40k over what was owed, to $20k over, to $10k over, then to being equal to the mortgage value. Finally, I approached the bank about options. They suggested a \\\"\\\"Deed in Lieu of Foreclosure\\\"\\\" process. It was easier for us, and the bank had to pay less lawyers and such. Otherwise, a \\\"\\\"Deed in Lieu\\\"\\\" is effectively the same as a Foreclosure. At that point, we stopped making payments. Eventually, me and all my siblings (the \\\"\\\"heirs\\\"\\\") had to sign the proper paperwork giving the house over to the bank. In our case, the bank did not pursue us (or rather, the Estate) for the difference between final (auction) sale price and the mortgage balance (it was an FHA loan, so the US Government wound up picking up the difference). From what I understand, this could have happened, and we would have wound up with basically nothing out of the Estate. Can the Lender Force the Sale? I can't give a definite answer on this, but it probably depends. If you don't pay? Yes they sure can--it's usually part of the standard mortgage contract! I see 2 other options:\\\"\",\n \"This is not a finance issue, it is a legal one. You need to talk to a lawyer. To save your credit you can pay off the bank now and fight out the details with your ex later. The bank is still owed their money.\",\n \"\\\"I am not sure how anyone is answering this unless they know what the loan was for. For instance if it is for a house you can put a lien on the house. If it is for the car in most states you can take over ownership of it. Point being is that you need to go after the asset. If there is no asset you need to go after you \\\"\\\"friend\\\"\\\". Again we need more specifics to determine the best course of action which could range from you suing and garnishing wages from your friend to going to small claims court. Part of this process is also getting a hold of the lending institution. By letting them know what is going on they may be able to help you - they are good at tracking people down for free. Also the lender may be able to give you options. For example if it is for a car a bank may help you clear this out if you get the car back plus penalty. If a car is not in the red on the loan and it is in good condition the bank turns a profit on the default. If they can recover it for free they will be willing to work with you. I worked in repo when younger and on more than a few occasions we had the cosigner helping. It went down like this... Co-signer gets pissed like you and calls bank, bank works out a plan and tells cosigner to default, cosigner defaults, banks gives cosigner rights to repo vehicle, cosigner helps or actually repos vehicle, bank gets car back, bank inspects car, bank asks cosigner for X amount (sometimes nothing but not usually), cosigner pays X, bank does not hit cosigners credit, bank releases loan and sells car. I am writing this like it is easy but it really requires that asset is still in good condition, that cosigner can get to the asset, and that the \\\"\\\"friend\\\"\\\" still is around and trusts cosigner. I have seen more than a few cosigners promise to deliver and come up short and couple conspiring with the \\\"\\\"friend\\\"\\\". I basically think most of the advice you have gotten so far is crap and you haven't provided enough info to give perfect advice. Seeking a lawyer is a joke. Going after a fleeing party could eat up 40-50 billable hours. It isn't like you are suing a business or something. The lawyer could cost as much as repaying the loan - and most lawyers will act like it is a snap of their fingers until they have bled you dry - just really unsound advice. For the most part I would suggest talking to the bank and defaulting but again need 100% of the details. The other part is cosigning the loan. Why the hell would you cosign a loan for a friend? Most parents won't cosign a loan for their own kids. And if you are cosigning a loan, you write up a simple contract and make the non-payment penalties extremely costly for your friend. I have seen simple contracts that include 30% interests rates that were upheld by courts.\\\"\",\n \"I believe that your son will need to get a new loan for the car in his name only and use the proceeds of that loan to pay off the one you co-signed on. The only way that will happen is if he can find a lender willing to loan him the money based on his credit only. From the current lender's perspective, if your son isn't a good credit risk, then why would they let someone out of the loan who might be able to pay if your son defaults? If he is a good credit risk, then they, or someone else, should be willing to lend to him without you as co-signer. Also, as Dilip Sarwate mentioned, you might have to do something with the title, depending on whose name it is in.\",\n \"Sorry for your loss. Like others have said Debts cannot be inherited period (in the US). However, assets sometimes can be made to stand for debts. In most cases, credit card debt has no collateral and thus the credit card companies will often either sell the debt to a debt collector or collections agency, sue you for it, or write it off. Collecting often takes a lot of time and money, thus usually the credit card companies just sell the debt, to a debt collector who tries to get you to pay up before the statute of limitations runs out. That said, some credit card companies will sue the debtor to obtain a judgement, but many don't. In your case, I wouldn't tell them of your loss, let em do their homework, and waste time. Don't give them any info,and consult with a lawyer regarding your father's estate and whether his credit card will even matter. Often, unscrupulous debt collectors will say illegal things (per the FDCPA) to pressure anyone related to the debtor to pay. Don't cave in. Make sure you know your rights, and record all interactions/calls you have with them. You can sue them back for any FDCPA infractions, some attorneys might even take up such a case on contingency, i.e they get a portion of the FDCPA damages you collect. Don't pay even a penny. This often will extend or reset the statute of limitations time for the debt to be collectable. i.e Ex: If in your state, the statute of limitations for credit card debt is 3 years, and you pay them $0.01 on year 2, you just bought them 3 more years to be able to collect. TL;DR: IANAL, most credit card debt has no collateral so don't pay or give any info to the debt collectors. Anytime you pay it extends the statute of limitations. Consult an attorney for the estate matters, and if the debt collectors get too aggressive, and record their calls, and sue them back!\",\n \"as in, the person you made the agreement with can no longer fulfill the contract's requirements. It's the same thing as if they went bankrupt, you would have to pursue legal channels to recover your dues. Granted in an FX forward you would only have to deliver your part at expiration, so you could hold out if you *know* the counterparty is dead/bankrupt.\",\n \"Don't pay it, see a lawyer. Given your comment, it will depend on the jurisdiction on the passing of the house and the presence of a will or lack thereof. In some states all the assets will be inherited by your mom. Debts cannot be inherited; however, assets can be made to stand for debts. This is a tricky situation that is state dependent. In the end, with few assets and large credit card debt, the credit card companies are often left without payment. I would not pay the debt unless your lawyer specifically told you to do so. Sorry for your loss.\",\n \"First off, very sorry for your loss. I lost my father a few years ago and I know it can be tough. My father also had a lot of credit card debt. They attempted to collect the debt from my mother, who was no longer on the account (for over a decade). It was just an attempt to recoup as much money as they could before dealing with a probate court. As others have said, it depends on your state law. You will want to talk to a lawyer, figure out who is going to be the executor of the estate, and determine the next steps in starting to settle debts that your father had. If you want to take possession of the house, then you will likely need to work with the executor and perhaps purchase the house from the estate (which would then use the money to pay off debts).\",\n \"\\\"You are co-signer on his car loan. You have no ownership (unless the car is titled in both names). One option (not the best, see below) is to buy the car from him. Arrange your own financing (take over his loan or get a loan of your own to pay him for the car). The bank(s) will help you take care of getting the title into your name. And the bank holding the note will hold the title as well. Best advice is to get with him, sell the car. Take any money left after paying off the loan and use it to buy (cash purchase, not finance) a reliable, efficient, used car -- if you truly need a car at all. If you can get to work by walking, bicycling or public transit, you can save thousands per year, and perhaps use that money to start you down the road to \\\"\\\"financial independence\\\"\\\". Take a couple of hours and research this. In the US, we tend to view cars as necessary, but this is not always true. (Actually, it's true less than half the time.) Even if you cannot, or choose not to, live within bicycle distance of work, you can still reduce your commuting cost by not financing, and by driving a fuel efficient vehicle. Ask yourself, \\\"\\\"Would you give up your expensive vehicle if it meant retiring years earlier?\\\"\\\" Maybe as many as ten years earlier.\\\"\",\n \"\\\"It depends on whether the loan is written as a non-recourse debt and what collateral was pledged. \\\"\\\"Non-recourse\\\"\\\" debt means that the issuer is limited to seizing the pledged collateral but cannot extend beyond those pledged assets. A \\\"\\\"recourse debt\\\"\\\" allows the issuer to seize the collateral and potentially other assets of those signed to the loan. In your example, a non-recourse loan would stop the issuer at seizing the property pledged as collateral (for instance the land remaining after the golden condor took your house), and it would stop there if that was the entirety of the collateral pledged. In the case of a recourse debt, each of you who signed loan are most likely going to be held responsible for the rest of the debt. http://en.wikipedia.org/wiki/Nonrecourse_debt http://en.wikipedia.org/wiki/Recourse_debt\\\"\",\n \"\\\"I expect that the loan documents show both you and your ex-partner as \\\"\\\"jointly and severally liable\\\"\\\" for the debt, and thus you're both responsible for it. It doesn't really matter what other paperwork you have that says otherwise or what other promises might have been made. Certainly, the other agreements give you legal ground to go after your ex-partner for the money, but they give you no leverage with the bank. If you end up paying this debt off to save your credit, you need to make sure that the account is closed. Make sure you have paperwork showing it as closed, and showing that it was paid in full, and then keep that paperwork forever. Re #1: I think it will eventually show up on your credit report. You could ask the bank for proof that you owe the money, if you like, but that will probably just delay the inevitable. Re #2: His bankruptcy filing really has no bearing on you and your obligation to repay the loan. If he didn't list this debt, then he is still liable for it as well (and you can still go after him under your other agreements). But either way, you're still on the debt.\\\"\",\n \"Re (1), I don't think it makes any difference. What does make a difference is the presence of your signature on the loan documents, unfortunately. And even if your ex-business partner didn't include the LoC in his bankruptcy, if he or his company don't have any money the bank is still going to come after you.\",\n \"\\\"You promised to pay the loan if he didn't. That was a commitment, and I recommend \\\"\\\"owning\\\"\\\" your choice and following it through to its conclusion, even if you never do that again. TLDR: You made a mistake: own it, keep your word, and embrace the lesson. Why? Because you keep your promises. (Nevermind that this is a rare time where your answer will be directly recorded, in your credit report.) This isn't moralism. I see this as a \\\"\\\"defining moment\\\"\\\" in a long game: 10 years down the road I'd like you to be wise, confident and unafraid in financial matters, with a healthy (if distant) relationship with our somewhat corrupt financial system. I know austerity stinks, but having a strong financial life will bring you a lot more money in the long run. Many are leaping to the conclusions that this is an \\\"\\\"EX-friend\\\"\\\" who did this deliberately. Don't assume this. For instance, it's quite possible your friend sold the (car?) at a dealer, who failed to pay off this note, or did and the lender botched the paperwork. And when the collector called, he told them that, thinking the collector would fix it, which they don't do. The point is, you don't know: your friend may be an innocent party here. Creditors generally don't report late payments to the credit bureaus until they're 30 days late. But as a co-signer, you're in a bad spot: you're liable for the payments, but they don't send you a bill. So when you hear about it, it's already nearly 30 days late. You don't get any extra grace period as a co-signer. So you need to make a payment right away to keep that from going 30 late, or if it's already 30 late, to keep it from going any later. If it is later determined that it was not necessary for you to make those payments, the lender should give them back to you. A less reputable lender may resist, and you may have to threaten small claims court, which is a great expense to them. Cheaper to pay you. They say France is the nation of love. They say America is the nation of commerce. So it's not surprising that here, people are quick to burn a lasting friendship over a temporary financial issue. Just saying, that isn't necessarily the right answer. I don't know about you, but my friends all have warts. Nobody's perfect. Financial issues are just another kind of wart. And financial life in America is hard, because we let commerce run amok. And because our obsession with it makes it a \\\"\\\"loaded\\\"\\\" issue and thus hard to talk about. Perhaps your friend is in trouble but the actual villain is a predatory lender. Point is, the friendship may be more important than this temporary adversity. The right answer may be to come together and figure out how to make it work. Yes, it's also possible he's a human leech who hops from person to person, charming them into cosigning for him. But to assume that right out of the gate is a bit silly. The first question I'd ask is \\\"\\\"where's the car?\\\"\\\" (If it's a car). Many lenders, especially those who loan to poor credit risks, put trackers in the car. They can tell you where it is, or at least, where it was last seen when the tracker stopped working. If that is a car dealer's lot, for instance, that would be very informative. Simply reaching out to the lender may get things moving, if there's just a paperwork issue behind this. Many people deal with life troubles by fleeing: they dread picking up the phone, they fearfully throw summons in the trash. This is a terrifying and miserable way to deal with such a situation. They learn nothing, and it's pure suffering. I prefer and recommend the opposite: turn into it, deal with it head-on, get ahead of it. Ask questions, google things, read, become an expert on the thing. Be the one calling the lender, not the other way round. This way it becomes a technical learning experience that's interesting and fun for you, and the lender is dreading your calls instead of the other way 'round. I've been sued. It sucked. But I took it on boldly, and and actually led the fight and strategy (albeit with counsel). And turned it around so he wound up paying my legal bills. HA! With that precious experience, I know exactly what to do... I don't fear being sued, or if absolutely necessary, suing. You might as well get the best financial education. You're paying the tuition!\\\"\",\n \"\\\"Debts do not inherit to the children. You are absolutely not liable for your parent's debt, in any way whatsoever. ** Collection agents will lie about this; tricking you is their job, and your job is to tell them Heck no, do I look like an idiot? When a person dies, all their personal assets (and debts) go to a fictitious entity called the Estate. This is a holder for the person's assets until they can be dispositioned finally. The estate is managed by a living person, sometimes a company (law firm), called an Executor. Similar to a corporation which is shutting down business, the Executor's job is to act on behalf of the Estate, and in the Estate's best interest (not his own). For instance he can't decide, in his capacity as executor, to give all the estate's money to himself. He has to loyally and selflessly follow state law and any living-trust or wills that may be in place. This role is not for everyone. You can't just decide \\\"\\\"la la la, I'm going to live in their house now\\\"\\\", that is squatting. The house is an asset and someone inherited that, as dictated by will, trust or state law. That has to be worked out legally. Once they inherit the house, you have to negotiate with them about living there. If you want to live there now, negotiate to rent the house from the estate. This is an efficient way to funnel money into the estate for what I discuss later.** The Estate has assets, and it has debts. Some debts extinguish on the death of the natural person, e.g. student loans, depending on the contract and state law. Did you know corporations are considered a \\\"\\\"person\\\"\\\"? (that's what Citizens United was all about.) So are estates - both are fictitious persons. The executor can act like a person in that sense. If you have unsecured debt, how can a creditor motivate you to pay? They can annoy and harass you. They can burn your credit rating. Or they can sue you and try to take your assets - but suing is also expensive for them. This is not widely understood, but anyone at any time can go to their creditors and say \\\"\\\"Hey creditor, I'm not gonna pay you $10,000. Tough buffaloes. You can sue me, good luck with that. Or, I'll make you a deal. I'll offer you $2000 to settle this debt. What say you? And you'll get one of two answers. Either \\\"\\\"OK\\\"\\\" or \\\"\\\"Nice try, let's try $7000.\\\"\\\" If the latter, you start into the cycle of haggling, \\\"\\\"3000.\\\"\\\" \\\"\\\"6000.\\\"\\\" \\\"\\\"4000.\\\"\\\" \\\"\\\"5000. \\\"\\\"Split the difference, $4500.\\\"\\\" \\\"\\\"OK.\\\"\\\" This is always a one-time, lump sum, one-shot payoff, never partial payments. Creditors will try to convince you to make partial payments. Don't do it. Anyone can do that at any time. Why don't living people do this every day? How about an Estate? Estates are fictitious persons, they don't have a \\\"\\\"morality\\\"\\\", they have a fiduciary duty. Do they plan on borrowing any more money? Nope. Their credit rating is already 0. They owe no loyalty to USBank. Actually, the executor's fiduciary duty is to get the most possible money for the assets, and settle the debts for the least. So I argue it's unethical to fail to haggle down this debt. If an executor is \\\"\\\"not a haggler\\\"\\\" or has a moral issue with shortchanging creditors, he is shortchanging the heirs, and he can be sued for that personally - because he has a fiduciary duty to the heirs, not Chase Bank. Like I say, the job is not for everyone. The estate should also make sure to check the paperwork for any other way to escape the debt: does it extinguish on death? Is the debt time-barred? Can they really prove it's valid? Etc. It's not personal, it's business. The estate should not make monthly payments (no credit rating to protect) and should not pay one dime to a creditor except for a one-shot final settlement. Is it secured debt? Let them take the asset. (unless an heir really wants it). When a person dies with a lot of unsecured debt, it's often the case that they don't have a lot of cash lying around. The estate must sell off assets to raise the cash to settle with the creditors. Now here's where things get ugly with the house. ** The estate should try to raise money any other way, but it may have to sell the house to pay the creditors. For the people who would otherwise inherit the house, it may be in their best interest to pay off that debt. Check with lawyers in your area, but it may also be possible for the estate to take a mortgage on the house, use the mortgage cash to pay off the estate's debts (still haggle!), and then bequeath the house-and-mortgage to the heirs. The mortgage lender would have to be on-board with all of this. Then, the heirs would owe the mortgage. Good chance it would be a small mortgage on a big equity, e.g. a $20,000 mortgage on a $100,000 house. Banks love those.\\\"\",\n \"The only thing that is important here is the documentation you and your daughter signed. If that documentation states that you were a co-signer and that your daughter was the primary on the loan, and then if the loan is not being reported in your daughter's name, you have a cause for action. If, however, the documentation says the loan is entirely in your name, the mistake is yours. Even in that case, though, your daughter may be able to take over the loan, or she may be able to take out a loan from a separate institution and use that to pay off the current loan. Obviously, this may be difficult if she does not have a credit history, which is what got you here in the first place. :(\",\n \"The point of co-signing for a friend is that they're your friend. You signed for them in the belief that your friendship would ensure they didn't burn you. If your friend has hung you out to dry, basically they aren't your friend any more. Before you lawyer up, how's about talking to your friend as a friend? Sure he may have moved away from the area, but Facebook is still a thing, right? It's possible he doesn't even realise you're taking the fall for him. And presumably you have mutual friends too. If he's blanking you then he does know you're taking the fall and doesn't care. So call/message them too and let them know the situation. Chances are he doesn't want all his other friends cutting him off because they can see he'd treat them the same way he's treating you. And chances are they'll give you his number and new address, because they don't want to be in the middle. If this fails, look at the loan. If it's a loan secured against something of his (e.g. a car), let it go. The bank will repossess it, and that's job done. Of course it will look bad on your credit for a while, but you're basically stuck with that.\",\n \"\\\"Without all the details it's hard to tell what options you may have, but none of them are good. When you cosign you are saying that, you believe the primary signer will make good on the loan, but that if he doesn't you will. You are 100% responsible for this debt. As such, there are some actions you can take. First, really try to stress to your friend, that they need to get you outta this loan. Urge them to re-finance with out you if they can. Next look for \\\"\\\"better\\\"\\\" ways of defaulting on the loan and take them. Depending on what the loan is for you could deed-in-lue or short sale. You may just have to admit default. If you work with the bank, and try not to drag out the process, you will likely end up in a better place down the line. Also of importance is ownership. If you pay the loan, do you get ownership of the thing the loan was secured against? Usually not, but working with an attorney and the bank, maybe. For example, if it's a car, can the \\\"\\\"friend\\\"\\\" sign over the car to you, then you sell it, and reduce your debt. Basically as a cosigner, you have some rights, but you have all the responsibilities. You need to talk to an attorney and possibly the bank, and see what your options are. At this point, if you think the friend is not that much of a friend anymore, it's time to make sure that any conversation you have with them is recorded in email, or on paper.\\\"\",\n \"In the US, a surviving family member that inherits the entire property may also assume the mortgage. If the new mortgagee fails to uphold the terms of the mortgage (i.e. make timely payments), the mortgagor can begin foreclosure proceedings. There is generally no requirement to pay off the mortgage quickly. This is obviously the simple case where one person inherits the entire property. If the estate is split and no one person inherits the house, or if the house is left to a non-relative, things get more complicated. Effectively in that case the house is either sold to pay off the mortgage or the inheritor needs to take out a new mortgage to pay off the old one.\",\n \"I would like to add one minor point for clarity: Cosigning means that you, alongside your friend, enter into a contract with the bank. It does not necessarily mean that you now have a contract with your friend, although that could implicitly be concluded. If the bank makes use of their contracted right to make you pay your friend's debts with them, this has no effect on your legal relationship with your friend. Of course, you can hold him or her liable for your damages he or she has caused. It is another question whether this would help you in practice, but that has been discussed before.\",\n \"You still owe the money because there is a high probability that some other organization bough the account and assets of the failed creditor. That means they will have bought your debt. I have to assume there is language in your note that explains that they might sell your debt. But what should one do if they don't know who bought the entity? You can't pay a non-existent entity, but if you don't have an address, how can you pay the new owner of the debt? First step, is to assume there will be a new owner. A government, a company, an individual; somebody will buy that debt. Read the news and see if you can't figure out what other entity owns your note. You might have to contact them to enquire about where to send payment. Keep records of any such contact. If you put in an honest effort, but just cannot figure out who owns your note, I'd suggest continuing to make regular on-time payments. But put your payments into a new bank account that you open just for this purpose. So when the new owner of the debt does come calling, you'll have reasonable proof you were attempting to pay. You simply settle up from the special account. Any reasonable company will just take the money, and if anybody gets unreasonable and you have to appear in court, you have a paper trail indicating your attempts to honour the debt. You'd have to consult a lawyer if nobody comes asking for the money. There are probably statutes of limitation, but I wouldn't count on that ever happening.\",\n \"You're driving a car worth about $6000 which has a $12,000 loan against it. You're driving around in a nett debt of $6000. The best thing your grandfather could do for you, if possible, is to take your name off both the title and the loan, refinancing the car in his name only. If possible while still letting you drive the car. When he dies, you will be out of a car, but also out of a $12,000 debt which I'm sure you could do without. Okay, the best thing your grandfather could do, from your wallet's point of view, is paying off the loan for you and then taking his name off the title.\",\n \"(Can't find the delete button on the Android app -- Family Loans are worth investigating but I'm not sure they're applicable to this case.)\",\n \"\\\"It all comes down to how the loan itself is structured and reported - the exact details of how they run the loan paperwork, and how/if they report the activity on the loan to one of the credit bureaus (and which one they report to). It can go generally one of three ways: A) The loan company reports the status to a credit reporting agency on behalf of both the initiating borrower and the cosigner. In this scenario, both individuals get a new account on their credit report. Initially this will generally drop related credit scores somewhat (it's a \\\"\\\"hard pull\\\"\\\", new account with zero history, and increased debt), but over time this can have a positive effect on both people's credit rating. This is the typical scenario one might logically expect to be the norm, and it effects both parties credit just as if they were a sole signor for the loan. And as always, if the loan is not paid properly it will negatively effect both people's credit, and the owner of the loan can choose to come after either or both parties in whatever order they want. B) The loan company just runs the loan with one person, and only reports to a credit agency on one of you (probably the co-signor), leaving the other as just a backup. If you aren't paying close attention they may even arrange it where the initial party wanting to take the loan isn't even on most of the paperwork. This let the person trying to run the loan get something accepted that might not have been otherwise, or save some time, or was just an error. In this case it will have no effect on Person A's credit. We've had a number of question like this, and this isn't really a rare occurrence. Never assume people selling you things are necessarily accurate or honest - always verify. C) The loan company just doesn't report the loan at all to a credit agency, or does so incorrectly. They are under no obligation to report to credit agencies, it's strictly up to them. If you don't pay then they can report it as something \\\"\\\"in collections\\\"\\\". This isn't the typical way of doing business for most places, but some businesses still operate this way, including some places that advertise how doing business with them (paying them grossly inflated interest rates) will \\\"\\\"help build your credit\\\"\\\". Most advertising fraud goes unpunished. Note: Under all of the above scenarios, the loan can only effect the credit rating attached to the bureau it is reported to. If the loan is reported to Equifax, it will not help you with a TransUnion or Experian rating at all. Some loans report to multiple credit bureaus, but many don't bother, and credit bureaus don't automatically copy each other. It's important to remember that there isn't so much a thing as a singular \\\"\\\"consumer credit rating\\\"\\\", as there are \\\"\\\"consumer credit ratings\\\"\\\" - 3 of them, for most purposes, and they can vary widely depending on your reported histories. Also, if it is only a short-term loan of 3-6 months then it is unlikely to have a powerful impact on anyone's credit rating. Credit scores are formulas calibrated to care about long-term behavior, where 3 years of perfect credit history is still considered a short period of time and you will be deemed to have a significant risk of default without more data. So don't expect to qualify for a prime-rate mortgage because of a car loan that was paid off in a few months; it might be enough to give you a score if you don't have one, but don't expect much more. As always, please remember that taking out a loan just to improve credit is almost always a terrible idea. Unless you have a very specific reason with a carefully researched and well-vetted plan that means that it's very important you build credit in this specific way, you should generally focus on establishing credit in ways that don't actually cost you any money at all. Look for no fee credit cards that you pay in full each month, even if you have to start with credit-building secured card plans, and switch to cash-value no-fee rewards cards for a 1-3% if you operate your financial life in a way that this doesn't end up manipulating your purchasing decisions to cost you money. Words to the wise: \\\"\\\"Don't let the credit score tail wag the personal financial dog!\\\"\\\"\\\"\",\n \"\\\"At this point there is not much you can do. The documentation probably points to you being the sole owner and signer on the loan. Then, any civil suit will degenerate into a \\\"\\\"he said, she said\\\"\\\" scenario. Luckily, no one was truly harmed in the scenario. Obtaining financing through a car dealer is almost always not advisable. So from here, you can do what should have been done in the first place. Go to banks and credit unions so your daughter can refinance the car. You will probably get a lower rate, and there is seldom a fee. I would start with the bank/CU where she does her checking or has some other kind of a relationship. If that fails, anywhere you can actually sit and talk with a loan officer is preferable over the big corporate type banks. Car dealers lying is nothing new, it happens to everyone. Buying a car is like a battle.\\\"\",\n \"It sounds like there are no provisions in the loan document for how to proceed in this case. I would view this as creating a brand new loan. The amount owed is going to be (Principal remaining + interest from 2 years + penalties). If you created a new loan for 13 years, that would not be how I would expect a lender to behave. I would expect most repayment plans to be something like make double payments until you are caught up or pay an extra $1000 per month until caught up and then resume normal payments.\",\n \"In a nutshell, not really. That's the risk you take when you co-sign for someone. The lender only made the loan because of the strength of your brother's credit, not your mother's, so his reputation (in the form of his credit rating) is going to take the hit because of his mother's behaviors. The one thing he can do is this: The credit bureaus allow you to add a comment or explanation to your credit file which may be helpful, provided potential creditors read it, which is never a guarantee. It's worth trying though, so suggest to him to look into it. Here's a link for him/you/anyone to look at that can help explain how this works and what effects it can have: Adding a comment to your credit file for negative items I hope this helps. Good luck!\",\n \"I know one piece of information that can help you (in a macabe sort of way) - from what my wife has told me, if your partner dies, you are not responsible for paying for their debts, especially student loans. I expect the same thing for credit cards - if someone were to happen to charge $2,000 on their credit card and get hit by a bus, the credit card company can cajole and plead for you to pay for it, but you have no legal requirement to do so. Unfortunately I do not have as much information about as if you spouse is living.\",\n \"It doesn't matter to the credit agencies if there is a co-signer or not. However, your family member will need to take into consideration if they are willing to be responsible for the loan in the event you are unable to make payments. Being a co-signer means they are agreeing to pay the loan amount. It will also impact their credit score/report, either improve it if all goes well, or destroy it if neither one of you are able to pay the loan. So to you, assuming you can pay all the payments and not default, it makes no difference. But to the co-signer, it could create a huge impact. https://www.thebalance.com/does-co-signing-affect-credit-315368\",\n \"Depending on jurisdiction, the fact that you made some payments might give you an ownership share in the house in your own right. What share would be a complex question because you might need to consider both the mortgage payments made and maintenance. Your sister might also be able to argue that she was entitled to some recompense for the risk she describes of co-signing, and that's something that would be very hard to quantify, but clearly you would also be entitled to similar recompense in respect of that, as you also co-signed. For the share your mother owned, the normal rules of inheritance apply and by default that would be a 50-50 split as JoeTaxpayer said. You imply that the loan is still outstanding, so all of this only applies to the equity previously built up in the house prior to your mother's death. If you are the only one making the ongoing payments, I would expect any further equity built up to belong solely to you, but again the jurisdiction and the fact that your sister's name is on the deeds could affect this. If you can't resolve this amicably, you might need to get a court involved and it's possible that the cost of doing so would outweigh the eventual benefit to you.\",\n \"You and your daughter need to consult a lawyer. Generally, the court decides how the family debts get split in a divorce, and it sounds like the court decided that this student debt belongs solely to your daughter and not her husband. Whether that was the correct decision or not depends on lots of details, but of course, your daughter didn't help herself at all by getting a cheap divorce and not having her own attorney. At this point, you and your daughter should consult a good attorney, show him or her the divorce decree and the loan paperwork, and he or she should be able to tell you if anything can be done. As far as your own personal exposure to the debt as the cosigner, that depends on the paperwork you signed and is another question for the attorney.\",\n \"I think you've made a perfectly valid suggestion, and, if your son is struggling somewhat financially now, one that may be very welcome. If you agree to forgive the debt at this time in lieu of a similar amount forgone in future inheritance, it will eliminate the never ending interest-only payments, free up $200+ a month for you son on a tight budget, and improve your own credit score once you pay off the credit line. It's also, in my opinion, a good idea to be open about this in advance with your other children heirs so that everyone will understand what is expected during the eventual probate. My paternal grandfather was the recipient of a great deal of financial largess from his wealthy mother during her life, and it was fully understood by him, her, and his siblings, that in exchange he would not share in her estate when she passed. He didn't, there were no problems, and he and his siblings stayed close for the rest of their lives.\",\n \"Your best bet is to refinance the car in your own name only. Hopefully a year of making the payments has improved your credit score enough. If not, you can approach a loan officer at a credit union and make your case (that you haven't missed any payments, etc.). A new title should be sent to the new lien holder, and in that process, if your ex needs to sign any paperwork, it can be done while refinancing.\",\n \"What did you sign when the account was opened? What did you sign when you left the company, to transfer those responsibilities? Unless the bank has a record of someone else being responsible, they are correct in billing the one who signed their paperwork. Of course this also probably means you still have access to the account, so your ex-partners should be Highly Motivated to help you fix this. If you want a legal opinion, try over in the Law area, or (better) ask a real lawyer in your jurisdiction. That's out of scope here.\",\n \"\\\"Despite the unmarried status, you need to see a lawyer. Essentially you have a business with this person owning a home as the asset, and a mortgage for which you are responsible for. A lawyer needs to examine any paperwork you have and with knowledge of your particular jurisdiction's laws can advise you on the proper course of action. You paint a really ugly picture of this guy. I bet you are correct that he is kind of a horrible person. \\\"\\\"Tough love\\\"\\\" time: You willingly entered into a long term contract with this person. Why would you do such a thing? Perhaps some self reflection and counseling is in order. This is probably more important than worrying about your credit. All that being said, it is good of you to want to break ties with this person. You can rebuild. All will be good if you concentrate on the right things.\\\"\",\n \"You haven't mentioned the country. As a general premise, you own them money and the fact that the account was closed has no bearing on the fact that you own them money. My suggestion would be pay them off.\",\n \"The bank is expected to issue you a check for the balance of your account, make sure your name and address on file is correct as that is who they will make the check to and send it. Have the credit union also contact Chase, or get a statement from the credit union, about their customer. If the check does bounce back to the credit union and the account was under his name, then you will have to deal with the state and his estate and you will have to find a different solution for the bills.\",\n \"Cosigning a loan for someone else will make net worth decrease, whether backed by security or not.\",\n \"\\\"If you're in the US then no. You cannot enter a binding contract therefore you will not get a loan from a bank. Cosigner or no cosigner, anything to do with a loan and a bank will not involve you. Your parents can get a loan, then they can give you the money, then you can pay them for their payments, but none of that means the loan has anything to do with you. It's their loan, if they default it's on them. Given your age, you probably will ignore everyone else's advice here about this trip being a bad idea if you can't afford it, but you should reconsider it. You will be paying for this trip long after the fun and excitement has worn off. This is the cycle that sends alot of families into bankruptcy, and it's a horrible habit to learn so young. \\\"\\\"Loan\\\"\\\" shouldn't even be in your vocabulary dealing with anything other than a library book.\\\"\",\n \"Your credit rating will rise once the loan is repaid or paid regularly (in time). It will not get back to normal instantly. If the property is dead weight you may want to sell it so your credit score will increase in the medium term.\",\n \"This is an all too common problem and is not easy to resolve. Divorce agreements do not alter prior mortgage contracts. Most importantly, the bank is not required, and will not normally, remove the girlfriend from the mortgage even if she quitclaimed it to her Ex. If he has abandoned the property there is a good chance he will not make any more future payments. She should be prepared to make the payments if he doesn't or expect her credit to continue to deteriorate rapidly. She needs to contact her divorce attorney to review their mutual obligations. A court can issue orders to try to force the Ex to fulfill the divorce agreement. However, a court cannot impose a change to the mortgage obligations the borrowers made to the bank. Focus on this. It's far more important than adding her to a car loan or credit card. Sorry for the bad news. As for the car loan, it's best to leave her off the loan. You will get better terms without her as a joint owner. You can add her as an additional driver for insurance purposes. Adding her to your credit cards will help her credit but not a lot if the mortgage goes to default or foreclosure.\",\n \"\\\"The answer is \\\"\\\"it depends\\\"\\\". What does it depend on? If it's a breakup situation, good luck. Whatever you do, get this issue settled as quickly as possible. In the future, don't make significant purchases with people unless you have a written contract or you are married.\\\"\",\n \"It appears that co-signing does impact your debt-to-income ratio, at least in the US. An article on Kiplinger says: An article on Forbes agrees saying: There is a similar question here.\",\n \"You were approved for the offer based on your current credit, just like any other offer of credit. The offering bank knows you'll likely use their offer if you accept it. If you accept the offer and load up the new card to the max with your (or your relative's) debt and your score will then change. Depending on the other factors that impact your score this could carry some negative consequences related to your own ability to obtain debt. Also, consequently, this will have a tremendously positive effect on your relative's ability to obtain debt. I understand that you trust this person enough to be asking this question. No amount of trust protects from the unforeseen. Ultimately while this debt resides in your name, in the eyes of the creditor it is yours. While you could seek legal remedy from your relative if they don't or can't pay, you will be on the hook to the bank. Again, there are unforeseen events, a car accident, a death, etc. If this person passes, that's your debt. IF (and I can't emphasize the IF enough) I was ever in a position to be considering what you're considering I would do this: I mentioned in a comment under your question. This feels like it would carry a tax consequence (or maybe benefit) to one or both of you. I have no idea of the legalities, or whether or not any of this violates a cardmember agreement, but as other answers have pointed out, I doubt there is a balance transfer police.\",\n \"First, if it is in any way a joint account, the debt usually goes to the surviving person. Assets in joint accounts usually have their own instructions on how to disperse the assets; for example, full joint bank accounts usually immediately go to the other name on the account and never become part of the estate. Non-cash assets will likely need to be converted to cash and a fair market valuation shown to the probate court, unless the debts can be paid without using them and they can be transferred to next of kin. If, after that, the deceased has any assets at all, there is usually (varies by state) a legally defined order in which debtor types must be paid. This is handled by probating the estate. There is a period during which you publish a death notice and then wait for debt claims and bills to arrive. Then pay as many as possible based on the priority, and inform the others the holder is deceased and the estate is empty. This sometimes needs to be approved by a judge if the assets are less than the debts. Then disperse remaining assets to next of kin. If there are no assets held by just the deceased, as you get bills you just send a certified copy of the death certificate, tell them there is no estate, then forget about them. A lawyer can really help in determining which need to be paid and to work through probate, which is not simple or cheap. But also note that you can negotiate and sometimes get them to accept less, if there are assets. When my mother died, the doctors treating her zeroed her accounts; the hospitals accepted a much reduced total, but the credit cards wanted 100%.\",\n \"\\\"I want to first state that I'm not an attorney and this is not a response that would be considered legal advice. I'm going to assume this was a loan was made in the USA. The OP didnt specify. A typical auto loan has a borrower and a co-borrower or \\\"\\\"cosigner\\\"\\\". The first signer on the contract is considered the \\\"\\\"primary\\\"\\\". As to your question about a primary being a co-borrower my answer would be no. Primary simply means first signer and you can't be a first signer and a co-borrower. Both borrower and co-borrower, unless the contract specifies different, are equally responsible for the auto loan regardless if you're a borrower or a co-borrower (primary or not primary). I'm not sure if there was a situation not specified that prompted the question. Just remember that when you add a co-borrower their positive and negative financials are handled equally as the borrower. So in some cases a co-borrower can make the loan not qualify. (I worked for an auto finance company for 16 years)\\\"\",\n \"He wasn't wrong that a mortgage would help your credit score, assuming that this was a perfect world and everyone held up their end of the bargain. However, now that he hasn't, you are still legally obligated to pay the loan amount (including his portion of it). As for a lawsuit, it would be hard to prove what he said verbally, however, it doesn't hurt to call a lawyer for a free consultation.\",\n \"You havent signed a contract, so you are only an authorised contact so you have nothing to worry about at all. Your credit reference can only be affected if you are a signed party on the contract. I would imagine that they wont remove your details as you may assist them by contacting your emplorer, and effectively chase the debt for them especially if you seem to be family member or a friend of the business owner. How did you find out about the debt, did they phone you? If you really want peace of mind, you could write to them and confirm that you are not authorised to be contacted by phone or in writing regarding the debt, and that you are not in anyway liable for the debt and that your contact details must be put beyond use, and as you are concerned, say that if they take any further action against you such as affect your credit ref etc then you will take them to 'your' local magistrates court to seek compensation. Use strong terms and insist they must do what you ask rather than just say that you would like something done etc. Say that you 'Will' take further action which is generic, and that you 'May' do specific things so that it sounds strong but you haven't have committed to any thing in particular. This would most likely be more than enough to stop further contact.\",\n \"Sorry for your loss. If the insurance money is now in an account under your names, you can might be able to withdraw the money. You should put a country tag and state tag on your question. EDIT: my initial response might incorrect -- see comments below. This is going to be state speficic and the amounts may be relevant. Best to seek professional advice!\",\n \"\\\"Imagine that, a car dealership lied to someone trusting. Who would have thought. A big question is how well do you get along with your \\\"\\\"ex\\\"\\\"? Can you be in the same room without fighting? Can you agree on things that are mutually beneficial? The car will have to be paid off, and taken out of his name. The mechanics on how to do this is a bit tricky and you may want to see a lawyer about it. Having you being the sole owner of the car benefits him because he is no longer a cosigner on a loan. This will help him get additional loans if he chooses, or cosign on his next gf's car. And of course this benefits you as you \\\"\\\"own\\\"\\\" the car instead of both of you. You will probably have to refinance the car in your name only. Do you have sufficient credit? Once this happens can you pay off the car in like a year or so? If you search this site a similar questions is asked about once per month. Car loans are pretty terrible, in the future you should avoid them. Cosigning is even worse and you should never again participate in such a thing. Another option is to just sell the car and start over with your own car hopefully paid for in cash.\\\"\",\n \"Unfortunately, there isn't much you can do. If your name was on the mortgage, you owe the money, regardless of who kept the house. They can (and likely will) come after you for the money as well. A bit late in your case, but that's why when people divorce, refinancing the house into one person's name (and the other quit-claiming their interest) is usually part of the settlement. ETA: As others have mentioned, since you are in California, it appears that they cannot come after you for the difference.\",\n \"You should probably consult an attorney. However, if the owner was a corporation/LLC and it has been officially dissolved, you can provide an evidence of that from your State's department of State/Corporations to show that their request is unfeasible. If the owner was a sole-proprietor, then that may be harder as you'll need to track the person down and have him close the plan.\",\n \"\\\"First off learn from this: Never cosign again. There are plenty of other \\\"\\\"tales of woe\\\"\\\" outlined on this site that started and ended similarly. Secondly do what you can to get off of the loan. First I'd go back to her dad and offer him $1000 to take you off the loan and sign over the car. Maybe go up to $3000 if you have that much cash. If that doesn't work go to the bank and offer them half of the loan balance to take you off. You can sign a personal loan for that amount (maybe). Whatever it takes to get off the loan. If she has a new BF offer him the same deal as the dad. Why do you have to do this? Because you owned an asset that was once valued at 13K and is valued at (probably) less than 4K. Given that you have a loan on it the leverage works against you causing you to lose more money. The goal now is to cut your losses and learn from your mistakes. I feel like the goal of your post was to make your ex-gf look bad. It's more important to do some self examination. If she was such a bad person why did you date her? Why did you enter a business transaction with her? I'd recommend seeking counseling on why you make such poor choices and to help you avoid them in the future. Along these lines I'd also examine your goals in life. If your desire is to be a wealthy person, then why would you borrow money to buy a car? Seek to imitate rich people to become rich. Picking the right friends and mates is an important part of this. If you do not have a desire to be a wealthy person what does it matter? Losing 13K over seven months is a small step in the \\\"\\\"right\\\"\\\" direction.\\\"\",\n \"\\\"I was in a similar situation about a year ago, and the expedient thing to do would be to remove your grandfather from the Title. He would probably have to agree with this, but I think he will if you approach it correctly. In my case, I was the cosigner for my son's car loan and was told by the dealer that I \\\"\\\"had to be on the title\\\"\\\". This is not true as far as Virginia is concerned (Illinois may be different). I know this because when my son dropped his auto insurance I got the fine for having an uninsured vehicle and was told during the hearing that the dealer was mistaken. It all worked out in the end, but all we had to do was go down to the DMV and get my name taken off of the title. I'm sure if you approach it this way - you do not want him to be responsible for things that you do (who would get sued if you caused an accident?) he would agree to have his name removed from the title.\\\"\",\n \"It looks to me like this is a 'call an attorney' situation, which is always a good idea in situations like this (family legal disputes). But, some information. First off, if your family is going to take the car, you certainly won't need to make payments on it any more at that point, in my opinion. If the will goes through probate (which is the only way they'd really be able to take it), the probate judge should either leave you with the car and the payments, or neither (presumably requiring the family to pay off the loan and settle your interest in the car). Since the car has negative net value, it seems unlikely that the probate judge would take the car away from you, but who knows. Either way, if they do take the car away from you, they'll be doing you a service: you have a $6,000 car that you owe $12,000 on. Let them, and walk away and buy another car for $6,000. Second, I'm not sure they would be allowed to in any event. See the Illinois DMV page on correcting titles in the case of a deceased owner; Illinois I believe is a joint tenancy state, meaning that once one owner dies, the other just gets the car (and the loan, though the loan documents would cover that). Unless you had an explicit agreement with your grandfather, anyway. From that page: Joint Ownership A title in the names of two or more persons is considered to be in joint tenancy. Upon the death of one of them, the surviving joint tenant(s) becomes the owner(s) of the vehicle by law. Third, your grandfather can fix all of this fairly easily by mentioning the disposition of the car and loan in his will, if he's still mentally competent and wishes to do so. If he transfers his ownership of the car to you in the will, it seems like that would be that (though again, it's not clear that the ownership wouldn't just be yours anyway). Finally, I am not a lawyer, and I am not your lawyer, so do not construe any of the text of this post as legal advice; contact a lawyer.\",\n \"Well, it sounds like you have two options: 1) Continue to jointly own the house. 2) Compensate her for her equity and get the title transferred. I hate to tell you this, but she is entitled to half of the equity regardless of how much she paid into it. That said, she is still on the hook equally for the loan amount, but it won't do you any good if she is not willing to pay. Also, option 2 probably isn't a good deal for your co-signer as she would still be liable for the entire loan loan (just as you are) regardless of the title.\",\n \"You may have a few options if the company continues to ignore your communication. Even if none of these works out, the debt should still probably be paid out by the estate of your friend.\",\n \"\\\"I don't think you've mentioned which State you're in. Here in Ontario, a person who is financially incapable can have their financial responsibility and authority removed, and assigned to a trustee. The trustee might be a responsible next of kin (as her ex, you would appear unsuitable: that being a potential conflict of interest); otherwise, it can be the Public Guardian and Trustee. It that happens, then the trustee handles the money; and handles/makes any contracts on behalf of (in the name of) the incapable person. The incapable person might have income (e.g. spousal support payments) and money (e.g. bank accounts), which the trustee can document in order to demonstrate credit-worthiness (or at least solvency). For the time being, the kids see it as an adventure, but I suspect, it will get old very fast. I hope you have a counsellor to talk with about your personal relationships (I've had or tried several and at least one has been extraordinarily helpful). You're not actually expressing a worry about the children being abused or neglected. :/ Is your motive (for asking) that you want her to have a place, so that the children will like it (being there) better? As long as your kids see it as an adventure, perhaps you can be happy for them. Perhaps (I don't know: depending on the people) too it's a good (or at least a better) thing that they are visiting with friends and relatives; and, a better conversational topic with those people might be how they show your children a good time (instead of your ex's money). One possible way I thought of co-signing is if a portion of child/spousal support goes directly to the landlord. I asked the Child Support Services (who deduct money from my paycheck monthly to pay support to my ex) and they told me that they are not authorized to do this. Perhaps (I don't know) there is some way to do that, if you have your ex's cooperation and a lawyer (and perhaps a judge). You haven't said what portions of your payments are for Child support, versus Spousal support (nor, who has custody, etc). If a large part of the support is for the children, then perhaps the children can rent the place. (/wild idea) Note that, in Ontario, there are two trusteeship decisions to make: 1) financial; and 2) personal care, which includes housing and medical. Someone can retain their own 'self-care' authority even if they're judged financially incapable (or vice versa if there's a personal-care or medical decision which they cannot understand). The technical language is, \\\"\\\"Mentally Incapable of Managing Property\\\"\\\" This term applies to a person who is unable to understand information that is relevant to making a decision or is unable to appreciate the reasonably foreseeable consequences of a decision or lack of decision about his or her property. Processes for certifying an individual as being mentally incapable of managing property are prescribed in the SDA (Substitute Decisions Act), and in the Mental Health Act.\\\"\\\" The Mental Heath Act is for medical emergencies (only); but Ontario has a Substitute Decisions Act as well. An intent of the law is to protect vulnerable people. People may also acquire and/or name their own trustee and/or guardian voluntarily: via a power of attorney, a living will, etc. I don't know: how about offering the landlord a year's rent in advance, or in trust? I guess that 1) a court order can determine/override/guarantee the way in which the child support payments are directed 2) it's easier to get that order/agreement if you and your ex cooperate 3) there are housing specialists in your neighborhood: They can buy housing instead of renting it. Or be given (gifted) housing to live in.\\\"\",\n \"\\\"I don't know of any way to \\\"\\\"transfer\\\"\\\" a debt to another person without their consent or the lender's consent. You are responsible for the loan, and you need to either pay it or give up the asset that it's tied to (the car). At least you weren't just a cosigner with no title to the car - then you'd be in worse shape. If you don't want your credit tarnished, I would start (or keep) making the payments, knowing that you are getting the equity that results from the principal you're paying (you're only out the interest portion). If it were me, here are the things I would do:\\\"\",\n \"\\\"First, when a debt collector says, \\\"\\\"It's to your advantage to give me money now\\\"\\\", I'd take that with a grain of salt. My ex-wife declared bankruptcy and when debt collectors couldn't find her, they somehow tracked me down and told me that I should tell her that it would be to her advantage to pay off this debt before the bankruptcy went through. That was total nonsense of course. The whole point of bankruptcy is to not have to pay the debt. Why would you pay it just before it was wiped off the books? (Now that I think of it, I'm surprised that they didn't tell me that I should pay her debts.) As others have noted, this would be controlled by state law. But in general, when someone dies any debts are payed from the assets of the estate, and then whatever is left goes to the heirs. If nothing is left or the debts exceed the assets, then the heirs get nothing, but they don't have to pay somebody else's debts. I don't see how you could \\\"\\\"put the house under your name\\\"\\\". If he left the house to you in his will, then after any debts are settled in accordance with state law, the house would transfer to you. But you can't just decide to put the house in your name outside of the legal inheritance process. If you could, then people could undermine a will at any time by just deciding to take an asset left to someone else and \\\"\\\"put it in their name\\\"\\\". Or as in this case, people could undermine the rights of creditors by transferring all assets to themselves before debts were paid. Even if there's some provision in your state for changing the name on a deed prior to probate to facilitate getting mortgages and taxes paid or whatever, I would be quite surprised if this allowed you to shelter assets from legitimate creditors. It would be a gaping loophole in inheritance law. Frankly, if your father's debts are more than the value of his assets, including the value of the house, I suspect you will not be able to keep the house. It will be sold to pay off the creditors. I would certainly talk to a lawyer about this as there might be some provision in the law that you can take advantage of. I'll gladly yield on this point to anyone with specific knowledge of New Jersey inheritance law.\\\"\",\n \"I think Joe is right, it seems that you will get the car once grandpa passes. It clearly states that on the DMV page. I would work like crazy to get this car paid off ASAP. Work extra and see if you can get it paid off in less than a year. Once paid off, have grandpa sign it over to you. This is a really toxic situation that you can reduce somewhat by having the car in your name only. Learn from this: have a will and keep it up to date. There is going to be a lot of fighting over the assets that grandpa leaves behind. You don't want that to be your legacy, and you don't want to tarnish your grandfathers memory by participating in such nonsense. My concern is why you have such poor credit. Understand that poor credit is a choice of behavior and there is no one to blame but yourself. I would recommend to stop borrowing completely until this car is paid off and all of your obligations are paid back (that is if you have items that are in collections). No vacations, no eating out, etc... Work don't spend.\",\n \"It is a legal issue for two reasons. In the United States if both names were on the title both people would have had to sign the paperwork in order to transfer the title. If the car was collateral for the loan, then the bank would have had to be involved in the transaction. The portion of the check need to repay the loan would have had to have been made out to the bank. If the car was sold to a dealership, then paperwork must have been forged. If the car was sold to a person then it is possible that they were too naive to know what paperwork was required, but it is likely still fraud. You need legal advice to protect your money, and your credit score. They should also be able to tell you who needs to be contacted: DMV, the police, the dealership, the bank.\",\n \"Don't worry about it. One of the big banks who like to whine a lot about defaulting borrowers is sending credit cards to a former resident of my home. The guy died in the late 90s.\",\n \"California is a non-recourse state, so they won't be coming after you for the balance. If the terms of you divorce were written out that your wife got the house, perhaps a lawyer can get your credit cleared, but that is a long shot. Your chances depend very much on how long your wife made payments, if there is a provable history and the length of that history might help you out. http://wiki.answers.com/Q/Which_states_are_non-recourse_states_for_mortgage_debt\",\n \"There is a difference between an owner and a signer. An owner is the legal owner of the funds. A signer has access to withdraw the funds. In most cases, when a new personal account is opened the name is added as an owner&signer. However, that is not always the case. A person could be an owner, but not a signer, in a custodial arrangement. For example, a minor child may be an owner only on their account with a custodial parent listed as a signer. The minor could not withdraw from the account. A person could be a signer, but not an owner, in a business or estate/trust account. The business or estate would be the owner with individuals listed as signers only. The business employees do not own the funds, they are only allowed to withdraw and disburse the funds on behalf of the company. The creditor can only garnish/withhold funds that are owned by the indebted. If the second person on the account is only a signer, those funds cannot be withheld as part of a judgment against the second person (they don't own those funds). However, simply titling the second person as a signer only is not sufficient. If you share access with the second person and allow them to spend the money for their own benefit, they are no longer just a signer. They have become an owner because you are sharing your funds with them. Think of the business relationship as an example. The employee is a signer so they can withdraw funds and pay business expenses, like the electric bill. If the employee withdrew funds and bought herself a new dress, she is stealing because she does not own those funds. If the second person on the account buys things for themselves, or transfers some of the money into their own account, they are demonstrating that more than a signer-only relationship exists. A true signer-only relationship is where the individual can only withdraw funds on the owner's behalf. For example, the owner is out of town and needs a bill paid, the signer can write a check and pay the bill for the owner. A limited power of attorney may be worth looking into. With a limited POA, the owner can define the scope and expiration of the power of attorney. With this arrangement, the second person becomes an executor of the owner under certain circumstances. For example, you could write a power of attorney that states something like: John Smith is hereby granted the limited power to withdraw funds from account 1234, on deposit at Anytown Bank, for the purpose of paying debts and obligations and otherwise maintain my estate in the event of my incapacitation or inability to attend to my own affairs. This Power of Attorney shall expire on it's fifth anniversary unless renewed. If the person you have granted the power of attorney abuses their access, you could sue them and you would only have to demonstrate that they overstepped the scope of their power.\",\n \"\\\"Short answer: don't do it. Unless you know something that the bank doesn't, it's safe to assume that banks are a lot better at assessing risk than you are. If they think he can't afford it, odds are he can't afford it regardless of what he might say to the contrary. In this case, the best answer may be \\\"\\\"sorry for your luck;\\\"\\\" you could recommend that he comes up with a larger down payment to reduce his monthly payment (or that he find a way to get some extra income) rather than getting you to cosign. Please also see this article by Dave Ramsey on why you should never cosign loans.\\\"\",\n \"My family members, particularly my aunt (his daughter), are telling me that when my grandpa dies they are taking my car. Bring this up with Grandpa. If this is what he wants to have happen, then help him make it happen before you finish paying $12,000 on a car worth only $6,000. Let the Aunt and other relatives deal with the remaining $12,000. If that isn't what he wants to have happen, then work out how you and he can legally make sure that what he wants to have happen actually happens. If the Aunt or others bring it up, make sure they understand that you still owe $12,000 on the car, and if they get the car they also get the loan. If they refuse to pay the loan then make sure they know you will cooperate with the bank when they attempt to repossess the car - up to and including providing them with keys and location. This will hurt your credit, and you will be on the hook for the remaining portion of the loan, but you at least won't have to deal with all of it - they'll sell it at auction and your loan amount will fall a little. But the best course of action is to work with Grandpa, and make sure that he understands the family's threats, how that will affect you since you're on the loan, and what options you'd like to pursue.\",\n \"\\\"Don't ignore it. If this is a non-trivial amount of money you need a lawyer. You've acknowledged that a loan exists and have personally guaranteed it, so a court can and will ultimately order you to pay. In doing so, they can put liens on your assests. Depending on the state, how the property is titled and other factors, that can include your home. If you don't have the money and are pretty much broke, try to negotiate a settlement. If they balk, you'll eventually need to start talking about bankruptcy -- that's the \\\"\\\"nuclear option\\\"\\\" and a motivator to settle. Otherwise, you need to either seriously explore bankruptcy or be prepared to lose your stuff to a judgement and having your dirty laundry aired in court. If you're not broke, but don't have liquid capital, you need to figure out a way to raise the money somehow. Again, you need to consult an attorney.\\\"\",\n \"\\\"People act like lawsuits are the end of the world, her suing shouldn't be considered a threat, it should be considered the accurate course of action to resolve contractual obligations. Of course, it would be convenient if she did nothing at all! If you believe her real goal is to \\\"\\\"get it off her credit\\\"\\\", then have her come refinance with you. This will give you the opportunity to not have her on it and you to get different terms. Of course, if your credit still is poor then this option also exacerbates the inconvenience. None of the options sounds like they will ruin your credit (unless you are scrounging for cash through credit facilities to pay her off). You have several completely benign options available.\\\"\",\n \"Okay, I went through a similar situation when my mother died in March of this year. The estate still needs to go into probate. Especially if there was a will. And when you do this, your husband will be named as the executor. Then what he will need to do is produce both of their death certificates to the bank, have the account closed, and open an estate account with both of their names on it. Their debts & anything like this should be paid from this account as well. Then what you can do is endorse the check as the executor and deposit it into this account. After all debts are paid, the money can be disbursed to the beneficiaries (your husband). Basically, as long as they didn't have any huge debts to pay, he will see the money again. It just may be a couple of months. And you will have to pay some filing fees.\",\n \"\\\"I think the best advice you could get would be to find a lawyer. If that foreign company has any presence in the US, they should be the ones signing off as the successor, otherwise you may find yourself in a limbo that would require some legal assistance. Generally, in most States a Corporation cannot be dissolved without resolving issues like this, which is probably why they told you \\\"\\\"the plan is terminating\\\"\\\". Someone asked them to terminate it. You need to find that someone.\\\"\",\n \"Your first step is to talk to the current lender and ask about refinancing in the other person's name. The lender is free to say no, and if they think the other person is unlikely to pay it back, they won't refinance. If you're in this situation because the other person didn't qualify for a loan in the first place, the lender probably won't change their mind, but it's still worth asking. From the lender's point of view, you'll be selling the other person the car. If they qualify for a loan, it's as simple as getting the loan from a bank, then doing whatever is required by your state to sell a car between either private parties or between relatives (depending on who the other person is). The bank might help you with this, or your state's DMV website. Here are a few options that don't involve changing who is on the loan: Taking out a loan for another person is always a big risk. Banks have entire departments devoted to determining who is a good credit risk, and who isn't, so if a person can't get a loan from a bank, it's usually for a good reason. One good thing about your situation: you actually bought the car, and are the listed owner. Had you co-signed on a loan in the other person's name, you'd owe the money, but wouldn't even have the car's value to fall back on when they stopped paying.\",\n \"Some things you should consider: Balance Transfer Debt Consolidation If you get approved for the Citibank 2 year interest free credit card on balance transfers, you will need another loan of $18K to consolidate your other debt. If you cannot get approval for the credit card you may need to get consolidation loan approval for your full $35K of debt. This approval again will depend on your income and your ability to make repayments. As it sounds like you don't have any assets, you may have to get an unsecured loan which comes with higher interest rates. Remember a consolidation loan is only worthwhile if you can get an interest rate lower than your current interest rates and if you pay as much as possible to reduce the term of the loan and the total interest you end up paying. You haven't given the interest rate for the consolidation loan, but lets assume you could get one at 12% p.a. over a 3 year period. For a loan of $18K you would have to pay $138 per week. Together with the $163.50 per week you would have to pay the credit card balance transfer, your total repayments per week for the first 2 years would be $301.50, then $138 per week for the 3rd year. This option sounds affordable, but without knowing what your income and current expenses are it is hard for others to determine for sure. If you had to get a consolidated loan for the full $35K at say 12% p.a. then your weekly repayments would be $268.30 over a 3 year period. This looks to be achievable too. Being Disciplined As you said you will need to be very disciplined in order to get out of this debt. You will need to set up a proper budget and watch every dollar you spend. You will need to restrict any spending on credit cards and getting any new personal loans. You say you will keep a small credit limit to pay for ongoing online payments for courses. Make sure you uses a 55 day interest free credit card (preferably with no annual fee) for this and pay the full amount due every month, so you don't end up paying any more interest on this card. In case of death would my debts pass on to my next of kin or family? If your debts are unsecured (which personal loans and credit cards are), then no your next of kin or family will not have to pay your debts if you die. When you die any money or assets (which would be sold) in your estate will first be used to pay off any of your debts. If there is not enough money or assets in your estate then your remaining debts may not need to be paid. Other people are only responsible for paying your debts after you die if: Bankruptcy An alternative to Bankruptcy is a Part 9 debt agreement, as I mentioned in my answer to your previous question. In this case you will still need to pay off at least part of the debt but will not be charged any further interest on the debt. This is not as severe as Bankruptcy, but as I mentioned before, should not be taken lightly. Like bankruptcy, a debt agreement will appear on your credit file for seven years and your name will be listed on the National Personal Insolvency Index forever. Bankruptcy or a Debt Agreement should only be used as a last resort if you are unable to undertake any other option. And remember, even if you do take this course of action, you will still need to be disciplined now and into the future, so you don't end up in a similar situation again.\",\n \"I'm not an attorney, nor am I a licensed tax adviser. I suggest you talk to these two types of professionals. From my limited knowledge, without proper documentation/organization, I can't see how the IRS/State will not consider this as a rent payment. The mortgage responsibility is of the person signing the mortgage contract, and you're under no obligation to pay that person anything. Had you not lived at the property, you might argue that it was a gift (although I'm not sure if it would stand), but since you do live in the property - it is quite obviously a rent payment. Putting your name on the deed may mitigate this slightly but I'm not sure how much - since you're still not obligated to pay the mortgage. However this is probably moot since it is unlikely for a bank to give a mortgage on a property to person A when it is also owned by a person B, without that person B being side to the mortgage contract.\",\n \"If a person owes someone money, he can be sued for it, and forced to pay via court order. It is completely irrelevant who that person owes money to (here: a not specified 'estate'), and irrelevant what source they get money from (here: life insurance payout). What makes you think there is any special combination that allows the owing person to not pay their debt? If it would exist, everybody would use it to get out of his debt.\",\n \"Another option, not yet discussed here, is to allow the loan to go into default and let the loaning agency repossess the property the loan was used for, after which they sell it and that sale should discharge some significant portion of the loan. Knowing where the friend and property is, you may be able to help them carry out the repossession by providing them information. Meanwhile, your credit will take a significant hit, but unless your name is on the deed/title of the property then you have little claim that the property is yours just because you're paying the loan. The contract you signed for the loan is not going to be easily bypassed with a lawsuit of any sort, so unless you can produce another contract between you and your friend it's unlikely that you can even sue them. In short, you have no claim to the property, but the loaning agency does - perhaps that's the only way to avoid paying most of the debt, but you do trade some of your credit for it. Hopefully you understand that what you loaned wasn't money, but your credit score and earning potential, and that you will be more careful who you choose to lend this to in the future.\",\n \"Talk to your parents, and find out if you are reducing the debt or not. Find buyers, sell the place now and get out the deal. Of course you will have to wait to get a good price on it. Short term you haven't lost that much, but long term you will. Take your 25%, and use it as a down payment on a regular bank mortgage. Lesson learned move on.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["Co-signing is not the same as owning. If your elderly lady didn't make any payments on the loan, and isn't on the ownership of the car, and there was no agreement that you would pay her anything, then you do not owe either her or her daughter any money. Also the loan is not affecting the daughter's credit, and the mother's credit is irrelevant (since she is dead). However you should be aware that the finance company will want to know about the demise of the mother, since they can no longer make a claim against her if you default. I would start by approaching the loan company, telling them about the mother's death, and asking to refinance in your name only. If you've really been keeping up the payments well this could be OK with them. If not I would find someone else who is prepared to co-sign a new loan with you, and still refinance. Then just tell the daughter that the loan her mother co-signed for has been discharged, and there is nothing for her to worry about.","\"People act like lawsuits are the end of the world, her suing shouldn't be considered a threat, it should be considered the accurate course of action to resolve contractual obligations. Of course, it would be convenient if she did nothing at all! If you believe her real goal is to \"\"get it off her credit\"\", then have her come refinance with you. This will give you the opportunity to not have her on it and you to get different terms. Of course, if your credit still is poor then this option also exacerbates the inconvenience. None of the options sounds like they will ruin your credit (unless you are scrounging for cash through credit facilities to pay her off). You have several completely benign options available.\""],"string":"[\n \"Co-signing is not the same as owning. If your elderly lady didn't make any payments on the loan, and isn't on the ownership of the car, and there was no agreement that you would pay her anything, then you do not owe either her or her daughter any money. Also the loan is not affecting the daughter's credit, and the mother's credit is irrelevant (since she is dead). However you should be aware that the finance company will want to know about the demise of the mother, since they can no longer make a claim against her if you default. I would start by approaching the loan company, telling them about the mother's death, and asking to refinance in your name only. If you've really been keeping up the payments well this could be OK with them. If not I would find someone else who is prepared to co-sign a new loan with you, and still refinance. Then just tell the daughter that the loan her mother co-signed for has been discharged, and there is nothing for her to worry about.\",\n \"\\\"People act like lawsuits are the end of the world, her suing shouldn't be considered a threat, it should be considered the accurate course of action to resolve contractual obligations. Of course, it would be convenient if she did nothing at all! If you believe her real goal is to \\\"\\\"get it off her credit\\\"\\\", then have her come refinance with you. This will give you the opportunity to not have her on it and you to get different terms. Of course, if your credit still is poor then this option also exacerbates the inconvenience. None of the options sounds like they will ruin your credit (unless you are scrounging for cash through credit facilities to pay her off). You have several completely benign options available.\\\"\"\n]","isConversational":false}}},{"rowIdx":363,"cells":{"_id":{"kind":"string","value":"6625"},"query":{"kind":"string","value":"What does a high theta mean for an option position?"},"gt_ids":{"kind":"list like","value":["88892"],"string":"[\n \"88892\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["572579","88892","372105","480337","244448","209492","243163","371621","450910","536564","25080","22426","455611","473015","249801","41160","12779","415281","131989","380672","196001","421311","192721","533132","581315","320184","380427","78769","61853","131464","161934","6701","294688","13260","278310","273598","512310","48050","206377","70443","488009","265744","428399","563769","416286","286189","490365","108849","258986","147361","158717","152788","591229","363335","189858","291173","548067","168006","173374","42438","575015","431946","75437","237161","223687","47827","343613","482238","351833","224069","62151","5018","492346","212981","106573","103013","231646","134689","362473","374905","46291","408288","383896","46105","163670","163433","136805","281533","471611","274839","229626","55535","50726","594948","63363","469382","249869","487297","187401","412951"],"string":"[\n \"572579\",\n \"88892\",\n \"372105\",\n \"480337\",\n \"244448\",\n \"209492\",\n \"243163\",\n \"371621\",\n \"450910\",\n \"536564\",\n \"25080\",\n \"22426\",\n \"455611\",\n \"473015\",\n \"249801\",\n \"41160\",\n \"12779\",\n \"415281\",\n \"131989\",\n \"380672\",\n \"196001\",\n \"421311\",\n \"192721\",\n \"533132\",\n \"581315\",\n \"320184\",\n \"380427\",\n \"78769\",\n \"61853\",\n \"131464\",\n \"161934\",\n \"6701\",\n \"294688\",\n \"13260\",\n \"278310\",\n \"273598\",\n \"512310\",\n \"48050\",\n \"206377\",\n \"70443\",\n \"488009\",\n \"265744\",\n \"428399\",\n \"563769\",\n \"416286\",\n \"286189\",\n \"490365\",\n \"108849\",\n \"258986\",\n \"147361\",\n \"158717\",\n \"152788\",\n \"591229\",\n \"363335\",\n \"189858\",\n \"291173\",\n \"548067\",\n \"168006\",\n \"173374\",\n \"42438\",\n \"575015\",\n \"431946\",\n \"75437\",\n \"237161\",\n \"223687\",\n \"47827\",\n \"343613\",\n \"482238\",\n \"351833\",\n \"224069\",\n \"62151\",\n \"5018\",\n \"492346\",\n \"212981\",\n \"106573\",\n \"103013\",\n \"231646\",\n \"134689\",\n \"362473\",\n \"374905\",\n \"46291\",\n \"408288\",\n \"383896\",\n \"46105\",\n \"163670\",\n \"163433\",\n \"136805\",\n \"281533\",\n \"471611\",\n \"274839\",\n \"229626\",\n \"55535\",\n \"50726\",\n \"594948\",\n \"63363\",\n \"469382\",\n \"249869\",\n \"487297\",\n \"187401\",\n \"412951\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["Theta is a variable in options pricing. Theta aka time decay decreases over time. The reason of this is that you have to think of the option as insurance. It is a hedge against actual holdings in an asset. Would you pay more or less for insurance that covers you for a year's time, would you pay more or less for insurance that covers you for a week? The answer is that the market will pay less for insurance that covers them for a lower period of time. This is one of several ways of thinking about it. There is also the probability that the option will be profitable at all, the further out in the future, the more likely it will be profitable and people will pay a premium for it. There are other variables in the black-scholes formula and it is the most widely used options pricing formula. But keep in mind, the geniuses that made up the formula blew up their hedge fund thinking they could sell the options at an inflated premium from their own formula to everyone. Ironic really.","Option prices consist of two parts: the intrinsic value (the difference between the strike and the current price of the stock) and a time premium, representing the probability that the stock will end up above the strike for a call (or below for a put). All else being equal, options decline in value as time passes, since there is less uncertainty about the expected value of the stock at expiration and thus the time premium is smaller. Theta is the measure of the change in value in one day. So for every day that passes, the calls you sold are going down by $64.71 (which is positive to you since you sold them at a higher value) and the calls you sold are going down by $49.04. So your position (a short spread) is gaining $15.67 each day (assuming no change in stock price or volatility). In reality, the stock price and volatility also change every day, and those are much stronger drivers of the value of your options. In your case, however, the options are deep out of the money, meaning it's very likely that they'll expire worthless, so all you have left is time premium, which is decaying as time goes on.","I understand that ITM have little time value, so they will have small time decay(theta), but why OTM has a lesser theta than ATM? The Time value represents uncertainty. That uncertainty decreases the farther away from ATM you get (in either direction). At-the-money, there is roughly a 50% chance that the option expires worthless. As you get deeper in-the-money, the change that is expires worthless decreases, so there is less uncertainty (there is more certainty that the option will pay off). As you go deeper OTM, the probability that the option expires worthless increases, so there is also less uncertainty. At the TTM decreases, the uncertainty (theta) decreases as well, since there is less time for the option to cross the strike from either direction. Similarly, as volatility decreases, theta decreases, since low-volatility stocks have a less change of crossing the strike.","\"So, if an out-of-the-money option (all time value) has a price P (say $3.00), and there are N days... The extrinsic value isn't solely determined by time value as your quote suggests. It's also based on volatility and demand. Here is a quote from http://www.tradingmarkets.com/options/trading-lessons/the-mystery-of-option-extrinsic-value-767484.html distinguishing between extrinsic time value and extrinsic non-time value: The time value of an option is entirely predictable. Time value premium declines at an accelerating rate, with most time decay occurring in the last one to two months before expiration. This occurs on a predictable curve. Intrinsic value is also predictable and easily followed. It is worth one point for every point the option is in the money. For example, a call with a strike of 30 has three points of intrinsic value when the current value of the underlying stock is $33 per share; and a 40 put has two points of intrinsic value when the underlying stock is worth $38. The third type of premium, extrinsic value, increases or decreases when the underlying stock changes and when the distance between current value of stock and strike of the option get closer together. As a symptom of volatility, extrinsic value may be greater for highly volatile underlying stock, and lower for less volatile stocks. Extrinsic value is the only classification of option premium that is unpredictable. The SPYs you point out probably had a volatility component affecting value. This portion is a factor of expectations or uncertainty. So an event expected to conclude prior to expiration, but of unknown outcome can cause theta to be higher than p/n. For example, a drug company is being sued and the outcome of a trial will determine whether that company pays out millions or not. The extrinsic will be higher than p/n prior to the outcome of the trial then drops after. Of course, the most common situation where this happens is earnings. After the announcement, it's not unusual to see a dramatic drop in the extrinsic portion of options. This is why sometimes a new option trader gets angry when buying calls prior to earnings. When 'surprise' good earnings are announced as hoped, the rise is stock price is largely offset by a fall in extrinsic value giving call holders little or no gain! As for the reverse situation where theta is lower than p/n would expect? Well you can actually have negative theta meaning the extrinsic portion rises over time. (this statement is a little confusing because theta is usually described as negative, but since you describe it as a positive number, negative here means the opposite of what you'd expect). This is a quote from \"\"Option Volatility & Pricing\"\". Keep in mind that they use 'positive' theta to mean the time value increases up over time: Is it ever possible for an option to have a positive theta such that if nothing changes the option will be worth more tomorrow than it is today? When futures options are subject to stock-type settlement, as they currently are in the United States, the carrying cost on a deeply in-the-money option, either a call or a put, can, under some circumstances, be greater than the volatility component. If this happens, and the option is European (no early exercise permitted), it will have a theoretical value less than parity (less than intrinsic value). As expiration approaches, the value of the option will slowly rise to parity. Hence, the option will have a positive theta. Sheldon Natenberg. Option Volatility & Pricing: Advanced Trading Strategies and Techniques (Kindle Locations 1521-1525). Kindle Edition.\"","There's a key assumption made in the calculation of theta: that the future price movement of the underlying is a random walk. The amount of life left in the option times the volatility of the underlying creates a probability distribution of the price of the underlying at expiration. At any given price point, you can calculate the theta of the option. The at-the-money values are the most likely. The way-in-or-way-out-of-the-money values are much less likely. Theta is constructed mathematically to decay linearly over time. So the strikes with the most theta lose the most theta each day. If you are looking for a more intuitive answer, the OTM calls have less theta than the ATM calls because, while they are both 100% time value, the OTM calls cost much less. So it's 100% of a smaller number. Remember decay is linear.","The answer is that the trader is hoping to profit from a potential rise in Implied volatility. He is isolating his exposure to IV only and mitigating his risk to the directional move of the underlying by hedging with the underlying. Basically, his delta is neutral. His gamma is positive and a potential source of profit, and his theta is negative which is a potential source of loss. He hopes that the profits from long gamma will overcome the loss from the short theta. he achieves this by actively gamma scalping to remain delta neutral over the life of the option.","With the netural position delta strategy under high IV returns short vega,there is a possibility to profit from a decline in IV. Of course, if volatility rises higher, the position will lose money. It is therefore best to establish short vega delta-neutral positions when implied volatility is at levels that are in the 90th percentile ranking.","\"You'd need to know the delta and the theta of the option. You can either calculate them yourself using a model like Black-Scholes (assuming you have a market price and can imply a volatility, and know the other factors that go into the model) or, you can see if your broker quotes \"\"greeks\"\" as well (mine does). The delta is the sensitivity (rate of change in value) to the underlying stock price, and the theta is the sensitivity to time passing (usually expressed in $/day). So if your option has a delta of .5 and a theta of -.04, when one day passes and the underlying stock goes up $3, the option will gain roughly $1.50 due to the underlying stock price and lose $0.04 due to time passing.\"","The liquidity is quite bad. I have seen open Intrest drop from thousands to zero. Theta and the lack of liquidity are strong reasons not to buy options. Instead, consider selling them. They say that most Option purchases expire worthless. Why is this so? Because hedge funds buy those out-of-the-money puts in case their position goes against them (like insurance). Make money selling insurance. No one makes money buying insurance.","Just so I'm clear- the end result is a long call, and you think the stock is going up. There is nothing wrong with that fundamentally. Be aware though: That's a negative theta trade. This means if your stock doesn't increase in price during the remaining time to expiration of your call option, the option will lose some of its value every day. It may still lose some of its value every day, depending on how much the stock price increases. The value of the call option just goes down and down as it approaches maturity, even if the stock price stays about the same. Being long a call (or a put) is a tough way to make money in the options market. I would suggest using an out-of-the-money butterfly spread. The potential returns are a bit less. However, this is a cheap positive theta trade so you avoid time decay on the value of the option.","When volatility is higher, the option is more likely to end up in-the-money. Moreover, when it ends up in-the-money, it is likely to be over the strike price by a greater amount. Consider a call option. With high volatility, moves in the stock price are big - both up moves and down moves. If the stock moves up by a lot, the call option holder will benefit greatly. On the other hand, when the stock moves down, below a certain point the option holder does not care how big a down move the stock has. His downside is limited. Hence, the value of the option is increased by high volatility. I know everyone who searches this is looking for this answer. Bump so people are able to get this concept instead of looking all over the web for it.","Out of the money options often have the biggest changes in value, when the stock moves upward. This person could also gain, by the implied (underlying) volatility of the stock rising if it moves erratically to either side. Still seems to be a very risky game, given only 4 days to expiry.","Volatility typically decreases when stocks rise except pending news events or fast markets. It has a great impact of the premium of the option.","\"First lets understand what convexity means: Convexity - convexity refers to non-linearities in a financial model. In other words, if the price of an underlying variable changes, the price of an output does not change linearly, but depends on the second derivative (or, loosely speaking, higher-order terms) of the modeling function. Geometrically, the model is no longer flat but curved, and the degree of curvature is called the convexity. Okay so for us idiots this means: if the price of ABC (we will call P) is determined by X and Y. Then if X decreases by 5 then the value of P might not necessarily decrease by 5 but instead is also dependent on Y (wtf$%#! is Y?, who cares, its not important for us to know, we can understand what convexity is without knowing the math behind it). So if we chart this the line would look like a curve. (clearly this is an over simplification of the math involved but it gives us an idea) So now in terms of options, convexity is also known as gamma, it will probably be easier to talk about gamma instead of using a confusing word like convexity(gamma is the convexity of options). So lets define Gamma: Gamma - The rate of change for delta with respect to the underlying asset's price. So the gamma of an option indicates how the delta of an option will change relative to a 1 point move in the underlying asset. In other words, the Gamma shows the option delta's sensitivity to market price changes. or Gamma shows how volatile an option is relative to movements in the underlying asset. So the answer is: If we are long gamma (convexity of an option) it simply means we are betting on higher volatility in the underlying asset(in your case the VIX). Really that simple? Well kinda, to fully understand how this works you really need to understand the math behind it. But yes being long gamma means being long volatility. An example of being \"\"long gamma\"\" is a \"\"long straddle\"\" Side Note: I personally do trade the VIX and it can be very volatile, you can make or lose lots of money very quickly trading VIX options. Some resources: What does it mean to be \"\"long gamma\"\" in options trading? Convexity(finance) Long Gamma – How to Make a Long Gamma Position Work for You Delta - Investopedia Straddles & Strangles - further reading if your interested. Carry(investment) - even more reading.\"","agreed. shorting the box kills you on commissions. your negative theta on a straight put position won't be a problem until you're at least 60 days from expiration. (i would even argue you're safe until 30 days out.) plus the positive vega can give you some extra juice if gold does end up falling.","If we assume constant volatility, gamma increases as the stock gets closer to the strike price. Thus, delta is increasing at a faster rate as the stock reaches closer to ITM because gamma is the derivative of delta. As the stock gets deeper ITM, the gamma will slow down as delta reaches 1 or -1 (depends if a call or a put). Thus, the value of the option will change depending upon the level of the delta. I am ignoring volatility and time for this description. See this diagram from Investopedia: Gamma","Depending on the structure of you're portfolio, it could be that your portfolio is delta neutral to take advantage of diminishing time value on options, short straddles/strangles would be an example.","I agree that high volatility just means the underlying stock price fluctuates more, and it does not imply if the stock is going up or down. But a high volatility in the price of an underlying also means that there is a higher chance that the underlying price could reach extreme prices (albeit in either direction). However, if you purchased a call option then if the underlying price reached an extremely high value, then you will be richly rewarded. But if the underlying price reached an extremely low value, you won't lose any more than the initial premium that you paid. There is no additional risk on your side, it's capped to the premium that you paid for the call option. It's this asymmetric outcome (Heads - I win, Tails - I don't lose) combined with high volatility that means that call options will increase in value when the underlying price becomes more volatile. If the optionality wasn't there then the price wouldn't be related to the volatility of the underlying. But that would be called a Future or a Forward :-)","based on my understanding of your query...well you need to understand ATM and ITM options. The delta and gamma factor specifically. Usually delta of ATM is around 0.5 while ITM option is above than that say 0.6 or 0.8 or 0.9 and deep ITM is very close to 1. for every movement of 1 buck the ITM will move say 1.6, ATM 0.5 and OTM 0.3 approx Say a ABC stock price is Rs. 300 so if you check option chart you try to see which one is closer. Suppose you find strikeprice of 320 / 300 / 280. So 320 is ITM, 300 is ATM and 280 is OTM for call options. So will the delta value (e.g 0.66 / 0.55 / 0.35). So suppose if stock price rise by 7% i.e Rs. 321 then strikeprice will rise simultaneously. Say ATM CE300 is rs.10 it will start rising by 0.55 i.e. Rs.10.55. The moment the share price move from Rs.300 to Rs.320 your ATM will turn to ITM. Now the tricker part if you buy OTM and the share price rise by 15% your OTM will now become ITM and your profit will roll around 100% to 120% approx. Hope it answers your query","so... asset price inflation decoupled from fundamentals (thank you QE) along with rise in ETF (notorious depressant on volatility) means options trader are underestimating volatility? Who calculates the daily spreads between HV and IV, anyone? Im new to this.","Yes, you've got it right. The change in price is less meaningful as the instrument is further from the price of the underlying. As the delta moves less, the gamma is much less. Gamma is to delta as acceleration is to speed. Speed is movement relative to X, and acceleration is rate of change in speed. Delta is movement relative to S, and gamma is the rate of change in delta. Delta changes quickly when it is around the money, which is another way of saying gamma is higher. Delta is the change of the option price relative to the change in stock price. If the strike price is near the market price, then the odds of being in or out of the money could appear to be changing very quickly - even going back and forth repeatedly. Gamma is the rate of change of the delta, so these sudden lurches in pricing are by definition the gamma. This is to some extent a little mundane and even obvious. But it's a useful heuristic for analyzing prices and movement, as well as for focusing analyst attention on different pricing aspects. You've got it right. If delta is constant (zero 'speed' for the change in price) then gamma is zero (zero 'acceleration').","What it means is that the stock has already moved down. Options and other derivatives follow the price of the underlying they are not a precursor to what the underlying is going to do. In other words, the price of a derivative is derived from the underlying.","It's an artifact of risk-neutral pricing, but the intuition is this: A call option can be viewed as a levered equity position - meaning, you can get the same exposure by borrowing money and buying the stock. Say you can buy some call options for $150 with a position delta of 1 (so it looks just like the stock). You could also buy the stock outright for $1000 (by borrowing $850 at the risk-free rate and using your $150 cash). If the risk-free rate rises, your cost of carry on the stock position increases. In the case of the call option, the change in price can be viewed as the cost of *leverage* increasing.","\"All else being equal, you should look for more volatile (riskier) stocks. Technically, it was all time value - the entire value of an \"\"out of the money\"\" option is time value. What's confusing is that time value is affected by numerous variables, only one of which is time. The reason volatility is the one to look at is that all the rest are likely already intuitive to you, or are too minor an influence to worry about: Current risk-free interest rates and a stock's dividend payout during the life of the option affect the value of the call, but are usually minor infulences. (Higher interest rates makes call values higher, and higher dividend yield makes call values lower.) Longer time to expiration will increase the value of the call, but you're pretty likely already focused on that. The strike price's proximity to the current price affects the call's value - agreeing to sell a stock 5% above current levels will pay more than agreeing to sell it 10% above current levels - but again, this is likely obvious to you. Volatility, or the percent by which the stock is likely to move up or down on a given day, is almost certainly the variable that's not already obvious. Stocks that jump all over the place have higher volatility than those that move more predictably. The reason that options (calls and puts) cost more on higher volatility names is that options' payout is asymmetrical. In the case of calls, the option holder gets all the upside, but none of the downside, other than what they paid for the opotion. If one stock goes up or down $5 every day, and another goes up or down $20 every day and you could pay some fixed amount to get that stock's upside, but not have any exposure to its downside, other than that fixed amount, you'd pay more for the one that pays you $20 or $0 than you would for the one that pays you $5 or $0. That's why higher volatility (meaning larger daily moves) makes optimum prices higher.\"","You are missing a few variables from your calculation, particularly implied volatility. Even so it does not look like it would be too great a predictor even if incorporated. You should focus on calculating the option price at a different point in time (with a different underlying price) instead of using a total position value as that can be done afterwards. I programmed and use the standard Black-Scholes model to calculate expected returns. There are many tools online to help you without doing the programming or calculations yourself.","If you think about it, the value of an option comes from the chance that the price at the expiration date can exceed the strike price. As it gets closer to the expiration date, the chance is getting smaller, because there is simply not enough time for an out-of-money option to hit that strike. Therefore, the value of an option decays.","One way is to compare the implied volatility with the realised volatility over a period similar to the time left to expiry. However there are plenty of reasons why the implied may be higher than the historical, for example because the market volatility has increased overall or because the underlying company is going to report their results before the option expires.","The question is always one of whether people think they can reliably predict that the option will be a good bet. The closer you get to its expiration, the easier it is to make that guess and the less risk there is. That may either increase or decrease the value of the option.","\"But what happen if the stock price went high and then go down near expiry date? When you hold a short (sold) call option position that has an underlying price that is increasing, what will happen (in general) is that your net margin requirements will increase day by day. Thus, you will be required to put up more money as margin to finance your position. Margin money is simply a \"\"good faith\"\" deposit held by your broker. It is not money that is debited as cash from the accounting ledger of your trading account, but is held by your broker to cover any potential losses that may arise when you finally settle you position. Conversely, when the underlying share price is decreasing, the net margin requirements will tend to decrease day by day. (Net margin is the net of \"\"Initial Margin\"\" and \"\"Variation Margin\"\".) As the expiry date approaches, the \"\"time value\"\" component of the option price will be decreasing.\"","Someone already mentioned that this is a risk-reversal, but as an aside, in the vol market (delta-hedged options) this is a fundamental skew trade. (buying calls, selling puts or vice versa). Initially vega neutral, the greek that this trade largely isolates is vanna (dvega/dspot or ddelta/dvol).","There are some excellent responses to this question at the time of this post. I have had the greatest success writing 1-month options. The 2 main reasons are as follows: With little time to expiration as stated in the question the implied volatility of the option is dictating the premium. Looking for the highest premiums is a mistake because you are taking a conservative strategy and re-creating it into a high-risk strategy. My sweet spot is a 2-4% monthly return for my initial profit and then mastering management techniques to protect that return and even enhancing it.","Don't know the name but it means you're long with conviction :P Unlimited gains, maximum loss of 95$ + (8-6) = 97$. Basically You are long @ 107 - -2 from 105 to 95. You would have to be ULTRA bullish to initiate this strategy.","The only use of options that I will endorse is selling them. If you believe the market is going down then sell covered, out of the money, calls. Buying calls or buying puts usually wastes money. That is because of a quality called Theta. If the underlying security stays the same the going price of an option will decrease, every day, by the Theta amount. Think of options as insurance. A person only makes money by selling insurance, not by buying it.","Options reflect expectations about the underlying asset, and options are commonly priced using the Black-Scholes model: N(d1) and N(d2) are probability functions, S is the spot (current) price of the asset, K is the strike price, r is the risk free rate, and T-t represents time to maturity. Without getting into the mathematics, it suffices to say that higher volatility or expectation of volatility increases the perceived riskiness of the asset, so call options are priced lower and put options are priced higher. Think about it intuitively. If the stock is more likely to go downwards, then there's an increased chance that the call option expires worthless, so call options must be priced lower to accommodate the relative change in expected value of the option. Puts are priced similarly, but they move inversely with respect to call option prices due to Put-Call parity. So if call option prices are falling, then put option prices are rising (Note, however, that call prices falling does not cause put prices to rise. The inverse relationship exists because of changes in the underlying factors and how pricing works.) So the option action signifies that the market believes the stock is headed lower (in the given time frame). That does not mean it will go lower, and option traders assume risk whenever they take a particular position. Bottom line: gotta do your own homework! Best of luck.","Don´t forget that changing volatility will have an impact on the time value too! So at times it can happen that your time value is increasing instead of decreasing, if the underlying (market) volatility moves up strongly. Look for articles on option greeks, and how they are interdependent. Some are well explaining in simple language.","Long convexity is achieved by owning long dated low delta options. When a significant move occurs in the underlying the volatility curve will move higher. Instead of a linear relationship between your long position and it's return, you receive a multiple of the linear return. For example: Share price $50 Long 1 (equals 100 shares) contract of a 2 year 100 call Assume this is a 5 delta option If the stock price rises to $70 the delta of the option will rise because it is now closer to the strike. Lets assume it is now a 20 delta option. Then Expected return on a $20 price move higher, 100 shares($20)(.20-.05)=$300 However what happens is the entire volatility surface rises and causes the 20 delta option to be 30 delta option. Then The return on a $20 price move higher, 100 shares($20)(.30-.05)=$500 This $200 extra gain is due to convexity and explains why option traders are willing to pay above the theoretical price for these options.","Think of options as insurance. An insurance company makes money by selling the policies at a rate slightly higher than the average payout. Most options expire worthless. This is because most options are purchased by hedge funds. To 'hedge' means taking out insurance in case your position goes against you. So the sellers of options obtain a price that covers their (averaged) losses plus provides them with a profit for their trouble. An option has an amount that it declines in value each day (called theta). At the expiration date the option is worth zero (if it is out-of-the-money). So it is option writers that, typically, make money in the options market (as they are the sellers of insurance). If they didn't make money selling options they would not sell them. For example, the February call option on SPY strike 200 traded at 8.81 on 12/30. Since then it has crumbled in value to 0.14. The option writer currently stands to make a huge profit. So, just as with insurance, you (generally) never make money by buying insurance. But the sellers of insurance tend to make money as do the writers of options. Edit: Theta @ Investopedia","Convexity refers to vega. Gamma refers to delta. Negative carry refers to time decay.","\"Options are generally viewed as having two types of value: \"\"Intrinsic value\"\" and \"\"time value.\"\" The intrinsic value is based on the difference between the strike price on the option and the spot price of the underlying. The time value is based on the volatility of the underlying and the amount of time left until expiration. As the days pass toward expiration, the time value generally decreases, and the intrinsic value may move up or down depending on the spot price of the underlying. (In theory, time value could increase at some points if the volatility is also rising.) In your case, it looks like the time value is decreasing faster than the intrinsic value is increasing. This may happen because the volatility is also going down (as suggested in the answer by CQM) or may just happen because the time to expiration is getting shorter at equal volatility. As noted by DumbCoder in a comment to the original question, the Black-Scholes formula will give you more analytical insight into this if you're interested.\"","Intuitive? I doubt it. Derivatives are not the simplest thing to understand. The price is either in the money or it isn't. (by the way, exactly 'at the money' is not 'in the money.') An option that's not in the money has time value only. As the price rises, and the option is more and more in the money, the time value drops. We have a $40 stock. It makes sense to me that a $40 strike price is all just a bet the stock will rise, there's no intrinsic value. The option prices at about $4.00 for one year out, with 25% volatility. But the strike of $30 is at $10.68, with $10 in the money and only .68 in time premium. There's a great calculator on line to tinker with. Volatility is a key component of options trading. Think about it. If a stock rises 5%/yr but rarely goes up any more or less, just steady up, why would you even buy an option that was even 10% out of the money? The only way I can describe this is to look at a bell curve and how there's a 1/6 chance the event will be above one standard deviation. If that standard deviation is small, the chance of hitting the higher strikes is also small. I wrote an article Betting on Apple at 9 to 2 in which I describe how a pair of option trades was set up so that a 35% rise in Apple stock would return 354% and Apple had two years to reach its target. I offer this as an example of options trading not being theory, but something that many are engaged in. What I found curious about the trade was that Apple's volatility was high enough that a 35% move didn't seem like the 4.5 to 1 risk the market said it was. As of today, Apple needs to rise 13% in the next 10 months for the trade to pay off. (Disclosure - the long time to expiration was both good and bad, two years to recover 35% seemed reasonable, but 2 years could bring anything in the macro sense. Another recession, some worldwide event that would impact Apple's market, etc. The average investor will not have the patience for these long term option trades.)","$15 - $5 = $10 How did you possibly buy a put for less than the intrinsic value of the option, at $8.25 So we can infer that you would have had to get this put when the stock price was AT LEAST $6.75, but given the 3 months of theta left, it was likely above $7 The value of the put if the price of the underlying asset (the stock ABC) meandered between $5 - $7 would be somewhere between $10 - $8 at expiration. So you don't really stand to lose much in this scenario, and can make a decent gain in this scenario. I mean decent if you were trading stocks and were trying to beat the S&P or keep up with Warren Buffett, but a pretty poor gain since you are trading options! If the stock moves above $7 this is where the put starts to substantially lose value.","Robert is right saying that options' prices are affected by implied volatility but is wrong saying that you have to look at the VIX index. For two reasons: 1) the VIX index is for S&P500 options only. If you are trading other options, it is less useful. 2) if you are trading an option that is not at the money, your implied volatility may be very different (and follow a different dynamics) that the VIX index. So please look at the right implied volatility. In terms of strategy, I don't think that not doing anything is a good strategy. I accept any point of view but you should consider that option traders should be able to adjust positions depending on market view. So you are long 1 call, suppose strike 10. Suppose the underlying price at the time of entry was 10 (so the call was at the money). Now it's 9. 1) you still have a bullish view: buy 1 call strike 9 and sell 2 calls strike 10. This way you have a bull call spread with much higher probability of leading to profit. You are limiting your profit potential but you are also reducing the costs and managing the greeks in a proper way (and in line with your expectations). 2) you become bearish: you can sell 1 call strike 9. This way you end up with a bear call spread. Again, you are limiting your profit potential but you are also reducing the costs and managing the greeks in a proper way (and in line with your expectations). 3) you become neutral: buy 1 call strike 8 and sell 2 calls strike 9. This way you end up with a call butterfly. You are almost delta neutral and you can wait until your view becomes clear enough to become directional. At that point you can modify the butterfly to make it directional. These are just some opportunities you have. There is no reason for you to wait. Options are eroding contracts and you must be fast and adjust the position before time starts eroding your capital at risk. It's true that buying a call doesn't make you loose more than the premium you paid, but it's better to reduce this premium further with some adjustment. Isn't it? Hope that helps. :)","An option gives you the option rather than the obligation to buy (or sell) the underlying so you don't have to exercise you can just let the option expire (so long it doesn't have an automatic expiry). After expiration the option is worthless if it is out of the money but other than that has no hangover. Option prices normally drop as the time value of the option decays. An option has two values associated with it; time value and exercise value. Far out of the money (when the price of the underlying is far from the strike price on the losing side) options only have time value whereas deep in the money options (as yours seems to be) has some time value as well as the intrinsic value of the right to buy (sell) at a low (high) price and then sell (buy) the underlying. The time value of the option comes from the possibility that the price of the underlying will move (further) in your favour and make you more money at expiry. As expiry closes it is less likely that there will be a favourable mood so this value declines which can cause prices to move sharply after a period of little to no revaluing. Up to now what I have said applies to both OTC and traded options but exchange traded options have another level of complexity in their trading; because there are fewer traders in the options market the size of trade at which you can move the market is much lower. On the equities markets you may need to trade millions of shares to have be substantial enough to significantly move a price, on the options markets it could be thousands or even hundreds. If these are European style options (which sounds likely) and a single trading entity was holding a large number of the exchange traded options and now thinks that the price will move significantly against them before expiry their sell trade will move the market lower in spite of the options being in the money. Their trade is based on their supposition that by the time they can exercise the option the price will be below the strike and they will lose money. They have cashed out at a price that suited them and limited what they will lose if they are right about the underlying. If I am not correct in my excise style assumption (European) I may need more details on the trade as it seems like you should just exercise now and take the profit if it is that far into the money.","\"If you look at the definition of time value on Wikipedia, you may notice this line: Time value \"\"can be thought of as the price an investor is willing to pay for potential upside.\"\" https://en.wikipedia.org/wiki/Option_time_value You are right to think that the time value is increasing as the moneyness increases from deeply OTM to ATM. Once the moneyness crosses the strike price threshold, per wiki's interpretation, the upside potential decreases as the underlying price moves away from the strike price. Think it as if an option is already deep in the money, the chance of it getting further ITM is slim. Hence the willingness to pay for that chance (aka. the upside potential) decreases.\"","So, this isn't always the case, but in the example provided the option is most likely in the money or near the money since the delta is nearly 1 - indicating that a $1 move in the underlying results in a $0.92 move in the option - this will happen when the expiration is very far out or the option is in the money. As expiration gets closer, movements in the underlying become more pronounced in the options because the probability of the stock price moving from its current position is lower. As the probability of the stock price moving goes down, the delta of in the money options approaches 100, eventually reaching 100 at expiration. Another way to word this is that the premium on in the money options shrinks as expiration approaches and the intrinsic value of the option increases as percentage of total value so that movements in the underlying stock price become a greater influence on the option price - hence a greater delta. Again, if the option is out of the money, this is not the case.","In absolute terms the risk is about the same. If you own the stock and your put option goes in the money, then you have the option to get rid of your stock at yesterday's higher price. If you don't, you can sell the option for a higher price than you paid for it. But, as you calculated yourself, the net gain or loss (in absolute terms, not percentage terms) is the same either way.","Understanding the BS equation is not needed. What is needed is an understanding of the bell curve. You seem to understand volatility. 68% of the time an event will fall inside one standard deviation. 16% of the time it will be higher, 16%, lower. Now, if my $100 stock has a STD of $10, there's a 16% chance it will trade above $110. But if the STD is $5, the chance is 2.3% per the chart below. The higher volatility makes the option more valuable as there's a highr chance of it being 'in the money.' My answer is an over simplification, per your request.","Late to the party, but it's just improving your cost basis in a defined risk trade even further. If you want to put up less risk capital but want to test the waters, this can be one way to do it. Another could be buying cheap OTM butterflies or financing a further otm option with the basis reduction from the debit spread if you want to gamble a bit further and venture into 15-20 delta positions. Usually, I am doing debit spreads with a buying atm and selling a couple strikes further otm or at least at the most liquid strikes, but if it's a high flier, it can be disappointing, but a good trade. If you're more of a contrarian in where you buy your calls/puts, it's absolutely a good way to lessen your risk on a calculated bet.","If you're talking about just Theta, the amount of decay due to the passage of time (all else being equal), then theoretically, the time value is a continuous function, so it would decay throughout the day (although by the day of expiry the time value is very, very small). Which makes sense, since even with 15 minutes to go, there's still a 50/50 shot of an ATM option expiring in-the-money, so there should be some time value associated with that one-sided probability. The further away from ATM the option is, the smaller the time value will be, and will be virtually zero for options that are deep in- or out-of-the-money. If you're talking about total time value, then yes it will definitely change during the day, since the underlying components (volatility, underlying price, etc.) change more or less continuously.","\"Yes, long calls, and that's a good point. Let's see... if I bought one contract at the Bid price above... $97.13 at expiry of $96.43 option = out of the money =- option price(x100) = $113 loss. $97.13 at expiry of $97.00 option = out of the money =- option price(x100) = $77 loss. $97.13 at expiry of $97.14 option = in the money by 1-cent=$1/contract profit - option price(x100) = $1-$58 = $57 loss The higher strike prices have much lower losses if they expire with the underlying stock at- or near-the-money. So, they carry \"\"gentler\"\" downside potential, and are priced much higher to reflect that \"\"controlled\"\" risk potential. That makes sense. Thanks.\"","It is a fool's errand to attribute abnormal option volume or volatility to any meaningful move in the stock. One side of the chain is frequently more expensive than the other. The relationship between historical volatility and implied volatility is dubious at best, and also a big area of study.","Mostly, when an equity's price rises, its statistical and implied volatilities fall and vice versa. The reason why is a mathematical phenomenon mixed with the reality that a unceasingly falling asset price will soon not exist, skewing the results with survivorship bias. Since volatility is standard deviation of price indexes, a security that changes in price by the same amount every day will have lower volatility, so a rising price will have lower implied volatility because its mostly experiencing positive daily price change while a recently falling price will have higher volatility because factored together with the positive price changes, the negative price changes will widen the standard deviation of the securities price index. Quantitatively, any change, in or out of one's favor, is a risk because change is uncertain, and any uncertainty is a risk. This quantitative interpretation while valid runs almost totally counter to the value opinion, that a lower price relative to value is a lower risk than a higher price relative to value, but both have their place in time. Over long time periods, it's best to use the value interpretation, quantitative for shorter. Using the opposite has hastily destroyed many a fund manager.","I would make a change to the answer from olchauvin: If you buy a call, that's because you expect that the value of call options will go up. So if you still think that options prices will go up, then a sell-off in the stock may be a good point to buy more calls for cheaper. It would be your call at that point (no pun intended). Here is some theory which may help. An options trader in a bank would say that the value of a call option can go up for two reasons: The VIX index is a measure of the levels of implied volatility, so you could intuitively say that when you trade options you are taking a view on two components: the underlying stock, and the level of the VIX index. Importantly, as you get closer to the expiry date this second effect diminishes: big jumps up in the VIX will produce smaller increases in the value of the call option. Taking this point to its limit, at maturity the value of the call option is only dependent on the price of the underlying stock. An options trader would say that the vega of a call option decreases as it gets closer to expiry. A consequence of this is that if pure options traders are naturally less inclined to buy and hold to expiry (because otherwise they would really just be taking a view on the stock price rather than the stock price & the implied volatility surface). Trading options without thinking too much about implied volatities is of course a valid strategy -- maybe you just use them because you will automatically have a mechanism which limits losses on your positions. But I am just trying to give you an impression of the bigger picture.","NL7 is right and his B-S reference, a good one. Time decay happens to occur in a way that 2X the time gives an option 1.414X (the square root of 2) times the value, so half the time means about .707 of the value. This valuation model should help the trader decide on exactly how far out to go for a given trade.","While open interest usually correlates to volume, the mark of liquidity is the bid ask spread. Even when trading options with spreads as large as an ask 2x the bid, a more realistic price that traders are willing to accept lies somewhere in the middle. Any option can easily be exited at intrinsic value: underlying price - exercise price for calls, exercise price - underlying price for puts. For illiquid options, this will be the best price obtained. For longer term options, something closer to the theoretical price is still possible. If an underlying is extremely liquid, yet the options aren't quite then options traders will be much more ready to trade at the theoretical price. For exiting illiquid options, small, < 4 contracts, and infrequent, > 30 minute intervals, orders are more likely to be filled closer to the theoretical price; however, if one's sells are the only trades, traders on the other side will take note and accept ever lowering implied volatilities. With knowledge of what traders will accept, it is always more optimal to trade out of options rather than exercise because of the added costs and uncertainty involved with exercising and liquidating.","My thoughts from the top: 1. If you're already long, which not just buy-write? if you want to sit on the portfolio for some time with little rebalancing collecting some option premiums might not be bad? 2. You can replicate this portfolio on a rolling basis through bull spreads, which should hedge (or at least reduce) your theta and give you some of that sweet sweet convexity, however you will need a large enough size to cover your transaction costs. 3. I agree with maximizing mean / lower semi var (most kids max mean/var)) so good move there. However you need estimates of expected return (not easy!) and semi var (easier). Look into using GARCH (or a form of it) on the semi var for a better estimator. 4. Is this an MSR portfolio? How do you determine your weights? 5. In terms of sizing/leverage, Remember the betting condition that equity needs to be positive for all time. How are you planning to limit your max DD? and how often do you plan on rebalancing/rebetting.","No, it means what it says. Prices change, hence price of the derivative can go down even if the price of the underlying doesn't change (e.g. theta decay in options).","When we 'delta-hedge', we make the value of a portfolio 0. No - you make the risk relative to some underlying 0. The portfolio does have a value, but if whatever underlying you're hedging against changes slightly the value of your portfolio should not change. But, what is the derivative of a portfolio? It's the instantaneous rate of change of the portfolio) relative to some underlying phenomenon. With a portfolio of many stocks, there's not one single factor that drives the value of your portfolio. You have sensitivity to each underlying stock (price and volatility), interest rates, the market as a whole, etc. For simplicity, we might imagine a portfolio that has holdings in .... a call .... a stock .... and a bank account (to borrow and lend money). You will have a delta relative to the stock and a delta relative to the underlying instrument on the option, etc. Those can only be aggregated for each factor (e.g. if the call is an option on the same stock) Theta is the only one you can calculate for the portfolio as a whole - it will be the aggregate theta of all of your positions (since change in time is constant across all investments). All of the others are not aggregatable since they are measuring sensitivities to different phenomena.","Yes, that's the risk. If the stock is bouncing around a lot your options could get assigned. If it heads south you now are the proud owner of more of a falling stock. It's good that you're looking to understand the risks of an investment method. That's important no matter what the method is.","Options are an indication what a particular segment of the market (those who deal a lot in options) think will happen. (and just because people think that, doesn't mean it will) Bearing in mind however that people writing covered-calls may due so simply as part of a strategy to mitigate downside risk at the expense of limiting upside potential. The presence of more people offering up options is to a degree an indication they are thinking the price will fall or hold steady, since that is in effect the 'bet' they are making. OTOH the people buying those options are making the opposite bet.. so who is to say which will be right. The balance between the two and how it affects the price of the options could be taken as an indication of market sentiment (within the options market) as to the future direction the stock is likely to take. (I just noticed that Blackjack posted the forumula that can be used to model all of this) To address the last part of your question 'does that mean it will go lower' I would say this. The degree to which any of this puts actual pressure on the stock of the underlying instrument is highly debatable, since many (likely most) people trading in a stock never look at what the options for that stock are doing, but base their decision on other factors such as price history, momentum, fundamentals and recent news about the company. To presume that actions in the options market would put pressure on a stock price, you would need to believe that a signficant fraction of the buyers and sellers were paying attention to the options market. Which might be the case for some Quants, but likely not for a lot of other buyers. And it could be argued even then that both groups, those trading options, and those trading stocks, are both looking at the same information to make their predictions of the likely future for the stock, and thus even if there is a correlation between what the stock price does in relation to options, there is no real causality that can be established. We would in fact predict that given access to the same information, both groups would by and large be taking similar parallel actions due to coming to similar conclusions regarding the future price of the stock. What is far MORE likely to pressure the price would be just the shear number of buyers or sellers, and also (especially since repeal of the uptick rule) someone who is trying to actively drive down the price via a lot of shorting at progressively lower prices. (something that is alleged to have been carried out by some hedge fund managers in the course of 'bear raids' on particular companies)","I have an example of a trade I made some time ago. By entering the position as a covered call, I was out of pocket $5.10, and if the stock traded flat, i.e. closed at the same $7.10 16 months hence, I was up 39% or nearly 30%/yr. As compared to the stock holder, if the stock fell 28%, I'd still break even, vs his loss of 28%. Last, if the stock shot up, I'd get 7.50/5.10 or a 47% return, vs the shareholder who would need a price of $10.44 to reflect that return. Of course, a huge jump in the shares, say to $15, would benefit the option buyer, and I would have left money on the table. But this didn't happen. The stock was at $8 at expiration, and I got my 47% return. The option buyer got 50 cents for his $2 bet. Note, the $2 option price reflected a very high implied volatility.","At the higher level - yes. The value of an OTM (out of the money) option is pure time value. It's certainly possible that when the stock price gets close to that strike, the value of that option may very well offer you a chance to sell at a profit. Look at any OTM strike bid/ask and see if you can find the contract low for that option. Most will show that there was an opportunity to buy it lower at some point in the past. Your trade. Ask is meaningless when you own an option. A thinly traded one can be bid $0 /ask $0.50. What is the bid on yours?","So this is only a useful strategy if you already own the stock and want protection. The ITM put has a delta closer to 1 than an OTM put. But all LEAPS have massive amounts of theta. Since the delta is closer to 1 it will mimic the price movements of the underlying which has a delta of 1. And then you can sell front month calls on that over time. Note, this strategy will tie up a large amount of capital.","Here's another attempt at explanation: it's basically because parabolas are flat at the bottom. Let me explain. As you might know, the variance of the log stock price in Black Scholes is vol^2 * T, in other words, variance of the log stock price is linear in time to expiry. Now, that means that the standard deviation of your log stock price is square root in time. This is consequential. For normally distributed random variables, in 68% of cases we end up within one standard deviation. So, basically, we expect our log stock price to be within something something times square root of T. So, if your stock has a vol of 16%, it'll be plus/minus 32% in 4 years, plus/minus 16% for one year, plus/minus 8% for 3m, plus/minus 4% for 3-ish weeks, and plus/minus 1% for a business day. As you see, the decay is slow at first, but much more rapid as we get closer. How does the square root function look? It's a sideways parabola. As we come closer to zero, the slope of the square root function goes to infinity. (That is related to the fact that Brownian motion is almost surely no-where differentiable - it just shoots off with infinite slope, returning immediately, of course :-) Another way of looking at it is the old traders rule of thumb that an at-the-money option is worth approximately S * 0.4 * vol * sqrt(T). (Just do a Taylor expansion of Black Scholes). Again, you have the square root of time to expiry in there, and as outlined above, as we get closer to zero, the square root drops slowly at first, and then precipitously.","You will tend to find as options get closer to expiry (within 2 months of expiry) they tend to be traded more. Also the closer they are to being in the money they more they are traded. So there tends to be more demand for these options than long dated ones that are far out of the money. When there is this higher demand there is less need for a market maker to step in to assure liquidity, thus there should be no effect on the underlying stock price due to the high demand for options. I would say that market makers would mainly get involved in providing liquidity for options way out of the money and with long periods until expiry (6+ months), where there is little demand to start with and open interest is usually quite low.","Based on what you wrote, you would be better off with no position to start, and then enter a buy stop 10% above the market, and a sell stop 10% below the market, both to open positions depending on which way the market moves. If the market doesn't move that 10%, you stay flat. However, a long option straddle position requires that the market moves significantly one way or the other just so you recover the premium that you paid for the straddle. If the market doesn't move, you will lose money on your straddle due to theta decay and a drop in volatility. Alternatively, you could buy a strangle, with a call strike 10% out, and a put strike 10% out. The premiums would be much much lower, and these wculd take the place of the stop entries. Personally, I would never buy a straddle, but I do sometimes sell them, especially when implied volatility is very high.","Two ways to mitigate this risk are to buy a put at a lower premium to the written call, or manage your trade by buying back your call if you see the underlying price going against you - a bit similar to having a stop loss.","You don't mention any specific numbers, so I'll answer in generalities. Say I buy a call option today, and I short the underlying stock with the delta. The value will be the value of the option you bought less the value of the stock you are short. (your premium is not included in the value since it's a sunk cost, but is reflected in your profit/loss) So, say I go out and adjust my portfolio, so I am still delta short in the underlying. It's still the value of your options, less the value of the underlying you are short. What is my PnL over this period? The end value of your portfolio less what you paid for that value, namely the money you received shorting the underlyings less the premium you paid for the option.","\"I strongly suggest you read up the Option Greeks. You can be right about a stocks price movement and still not make money b/c other factors come into play from time or volatility. For a \"\"free\"\" option hedge you can look at collars. Buying puts and selling calls to offset the debit you pay for the transaction. Ex: AAPL is 115, You buy the 110 puts and sell the 120 calls. This gives you a collar around he current price. Your hedged below 110 and can still participate in upside move to 120. Also look into time value. Time decays exponentially in the last 30 days. If you are long this hurts you, if you are short(selling) this is good. Be sure to take this into account. Delta: relation of the option to the underlying stock move on a .01-1 scale, .50 is \"\"normal.\"\" Deep in the money options have higher deltas. It is possible other factors can offset this delta move. This is why people will lose money on earnings plays even though they are right. EX: Say you buy an AAPL call at 120, earnings comes out and the stock goes to 121. Even though you are \"\"in the money\"\" your contract may still have less value than what you paid because of VOLATILITY collapse. The market place knows earnings move a stock and that is factored into the price of the options expected volatility. As mentioned watch out for dividend dates. Always be aware of dividend dates and earnings dates and if your contract is going to cover one of these events. Interest rates have an effect as well but since the Fed has near 0 rates there is little impact at the present. Though this could certainly change if the fed starts raising rates. Research the Black Scholes Pricing model. Whenever you trade always think about what the other guys is thinking. Sometimes we forget their is someone else on the other side of my trade that thinks essentially the exact opposite of me. Its a zero sum game. As far as choosing strikes you can look at calculating the At THe money straddle to see if the options are \"\"cheap\"\" [stock Price * Implied Volatility (for 30, 60, 90 days Depending on your holding period)* Sq root of days to expiration] / 19 (which is sq root of days/yr) Add and subtract this number to the current stock price to give you an approximate 1 standard deviation of expected price movement. Keeping with our example. AAPL at 115, lets say your formula spits out a 6; therefore price range is expected to be 109 to 121 for the time period. Helpful for selling options, I would sell the 122 call or the 108 puts. Hope this helps. Start small and get a feel for things.\"","\"You need to interpret \"\"security\"\" appropriately in Wikipedia's definition. You should think of it as saying: to be long in a put, means the holder of the position owns the put and will profit if the price of the put goes up And what makes the price of the put go up? -- the price of the underlying stock going down.\"","[] As you can see from the graphs above, as absolute distance from ATM (At The Money) increases, the ratio represented by Delta begins to approach 0:1 or 1:1. Meaning, as Delta approaches 1 the option price moves up 1 dollar for every 1 dollar the stock price moves up. As Delta approaches 0 the option price does not move as the stock price moves. As the absolute distance from ATM increases Gamma approaches zero (0). Meaning, as the price of the option increases or decrease the change in delta is at its highest as the option price is nearest the money. As the price of the option moves away from the money, in either direction, it changes less drastically. Interestingly, Delta is the first derivative of the value of the option price with respect to the underlying asset price. And Gamma is the first derivative of Delta. Definition of Delta Definition of Gamma","It could be that the contracts were bought at cheaper prices such as $.01 earlier in the day. What you see there with the bid and ask is the CURRENT bid and CURRENT ask. The high ask price means there is no current liquidity, as someone is quoting a very high ask price just in case someone really wants to trade that price. But as you said, no one would buy this with a better price on a closer strike price. The volume likely occurred at a different price than listed on the current ask.","\"This chart concerns an option contract, not a stock. The method of analysis is to assume that the price of an option contract is normally distributed around some mean which is presumably the current price of the underlying asset. As the date of expiration of the contract gets closer the variation around the mean in the possible end price for the contract will decrease. Undoubtedly the publisher has measured typical deviations from the mean as a function of time until expiration from historical data. Based on this data, the program that computes the probability has the following inputs: (1) the mean (current asset price) (2) the time until expiration (3) the expected standard deviation based on (2) With this information the probability distribution that you see is generated (the green hump). This is a \"\"normal\"\" or Gaussian distribution. For a normal distribution the probability of a particular event is equal to the area under the curve to the right of the value line (in the example above the value chosen is 122.49). This area can be computed with the formula: This formula is called the probability density for x, where x is the value (122.49 in the example above). Tau (T) is the reciprocal of the variance (which can be computed from the standard deviation). Mu (μ) is the mean. The main assumption such a calculation makes is that the price of the asset will not change between now and the time of expiration. Obviously that is not true in most cases because the prices of stocks and bonds constantly fluctuate. A secondary assumption is that the distribution of the option price around the mean will a normal (or Gaussian) distribution. This is obviously a crude assumption and common sense would suggest it is not the most accurate distribution. In fact, various studies have shown that the Burr Distribution is actually a more accurate model for the distribution of option contract prices.\"","Excellent, very sharp. No it will not be vega neutral exactly! If you think about it, what does a higher vol imply? That the delta of the option is higher than under BS model. Therefore, the vega should also be greater (simplistic explanation but generally accurate). So no, if you trade a 25-delta risky in equal size per leg, the vega will not be neutral. But, in reality, that is a very small portion of your risk. It plays a part, but in general the vanna position dominates by many many multiples. What do you do that you asked such a question, if you don't mind?","It really centers on the probability of your position falling to $0 and your level of comfort if that were to happen. There are a plethora of situations that could cause an option contract to become worthless. The application of leverage to a position also increases the risk. Zero risk would be an FDIC insured savings account, high risk would be buying options on margin, and there's a very wide grey area in between. I agree that the whole process of assigning a risk level is dubious at best. As you say, it seems using past data could help assign a risk level, look to beta values if you believe in that. The problem here is the main disclaimer in use is that past performance cannot be relied upon for future gains. As an aside, if the US government files bankruptcy you'll have a whole host of more immediate problems than the value of your t-bills. At that point dollars would have been a risky investment.","If you look at it from the hedging perspective, if you're unsure you're going to need to hedge but want to lock in an option premium price if you do need to do so, I could see this making sense.","As the option approaches expiry, the delta will approach zero or one, depending on whether you're in or out of the money. This might be easiest to conceptualise if you look at the option value as a function of the stock price, and then realise that the delta is the slope of that curve. Now, as we get closer to expiry, time value fades away, and we get closer and closer to the intrinsic value, which looks like this hockey stick: __/ As you see, close to expiry, if you're out of the money, you have nothing (with delta zero), while if you're in the money, you have a forward (with delta one).","Not to be a jerk, since I'm learning about options myself, but I think you have a few things wrong about your tesla put postion. First, assuming it was itm or atm within a week of strike it would maybe be worth $12-15, I glanced at the 11/10 put strikes ~325 trades for $12.65 https://www.barchart.com/stocks/quotes/TSLA/options?expiration=2017-11-10 The closer it gets to expiry theta decay reduces put value significantly, the 325's that expire tomorrow are only worth $2.60. Expecting TSLA to drop from 325 to 50 a share by Jan has a .006% chance of occuring according to the current delta. It's a lottery ticket at best. _____ Lastly the $50 price is the expected share price at the date of expiry. The price you pay is 57c for the options. So in order to get to your 494k number TSLA would need to decline $50 dollars to a price of 275 a share. You wouldn't want to buy 50 dollar puts, just the 275 puts, provided it declines very quickly. EDIT: I was looking at the recent expiration to get an idea of atm or itm prices, since it's not like you would hold to expiration. Also the Jan has a 0.6% chance of hitting 50, not .006%. That said what I've noticed when things start to slide is that puts have a weird way of pricing themselves. For example when something gradually goes up all of the calls go up down the chain through time frames, but puts do not in the same fashion. Further out lower priced puts won't move nearly as much unless the company is basically headed for bankruptcy.","\"Seems like you are concerned with something called assignment risk. It's an inherent risk of selling options: you are giving somebody the right, but not the obligation, to sell to you 100 shares of GOOGL. Option buyers pay a premium to have that right - the extrinsic value. When they exercise the option, the option immediately disappears. Together with it, all the extrinsic value disappears. So, the lower the extrinsic value, the higher the assignment risk. Usually, option contracts that are very close to expiration (let's say, around 2 to 3 weeks to expiration or less) have significantly lower extrinsic value than longer option contracts. Also, generally speaking, the deeper ITM an option contract is, the lower extrinsic value it will have. So, to reduce assignment risk, I usually close out my option positions 1-2 weeks before expiration, especially the contracts that are deep in the money. edit: to make sure this is clear, based on a comment I've just seen on your question. To \"\"close out an options position\"\", you just have to create the \"\"opposite\"\" trade. So, if you sell a Put, you close that by buying back that exact same put. Just like stock: if you buy stock, you have a position; you close that position by selling the exact same stock, in the exact same amount. That's a very common thing to do with options. A post in Tradeking's forums, very old post, but with an interesting piece of data from the OCC, states that 35% of the options expire worthless, and 48% are bought or sold before expiration to close the position - only 17% of the contracts are actually exercised! (http://community.tradeking.com/members/optionsguy/blogs/11260-what-percentage-of-options-get-exercised) A few other things to keep in mind: certain stocks have \"\"mini options contracts\"\", that would correspond to a lot of 10 shares of stock. These contracts are usually not very liquid, though, so you might not get great prices when opening/closing positions you said in a comment, \"\"I cannot use this strategy to buy stocks like GOOGL\"\"; if the reason is because 100*GOOGL is too much to fit in your buying power, that's a pretty big risk - the assignment could result in a margin call! if margin call is not really your concern, but your concern is more like the risk of holding 100 shares of GOOGL, you can help manage that by buying some lower strike Puts (that have smaller absolute delta than your Put), or selling some calls against your short put. Both strategies, while very different, will effectively reduce your delta exposure. You'd get 100 deltas from the 100 shares of GOOGL, but you'd get some negative deltas by holding the lower strike Put, or by writing the higher strike Call. So as the stock moves around, your account value would move less than the exposure equivalent to 100 shares of stock.\"","\"Suddenly its not just comparing the current price to the price of the contract, or is it? Sure it is. Suppose you bought 100 option contracts (each for 100 shares) and paid a $1 per share premium ($10,000 total). Now those options are trading for $1.50 per share. You have an unrealized $0.50 gain per share, or $5,000. The $10,000 in options you bought are now worth $15,000. It holds whether they were bought to open or close a position, or whether they are puts or calls. The only difference is whether you bought or sold the options (the arithmetic is just reversed for selling an option). But lets say we have an Option, where the payoff is max(St-K, c0) where ct is the market price. What do you do then? Your current, unrealized P&L is different than the payoff. The payoff only happens at maturity. The current P&L is based on current market prices, just like stock. Option prices all have a \"\"time premium\"\" making them worth more than their payoff (intrinsic) value prior to maturity.\"","Think of it this way: 1) You buy 1k in call options that will let you buy 100k of stock when they expire in the money in a year. 2) You take the 99k you would have spent on the stock and invest it in a risk free savings account. 3) Assume the person who sold you the call, immediately hedges the position by buying 100k of stock to deliver when the options expire. The amount of money you could make on risk free interest needs to be comparable to the premium you paid the option writer for tying up their capital, or they wouldn't have made the trade. So higher risk free rates would mean a higher call price. NOTE: The numbers are not equal because of the risk in writing the option, but they will move the same direction.",">You have to sell 3-5x more LT than you're buying ST in order to be delta neutral, because the ST is much more volatile. I assume that you talking about positions by their DV01 and not by the notional exposure?","It's not that straightforward, even though your gamma will change your delta on the fly, you likely won't see the full $.48 after such a small move. If the vega drops due to lack of volatility while the stock is moving up, those few percentage points up might help your delta (2% gain $50 to $51 in your example) but will be partially negated by volatility going down. I mean, don't be surprised to see it at closer to $1.33 or something. The market is out to make money, not to make you money.","Unfortunately when you deal with options you are going to have to accept some exposure to your greeks. So in your example, you could just buy back month ATM calls. Although delta is going to be pretty static across your portfolio (at least for say the first year, depending on ultima/zomma and other third order greeks) which will keep your lambdas in check, you're still exposed to vega which will ultimately skew lambdas across the board. Such are the caveats of options - in order to obtain leverage you will need to take a *less* passive outlook, but not by much.","\"Long here does not mean you wish for the underlying stock to increase in value, in fact, as the chart shows, just the opposite is true. \"\"Long means you bought the derivative, and you own the option. The guy that sold it to you is at your mercy, he is short the put, and it's your decision to put the stock to him should it fall in value. The value of the put itself rises with the falling stock price, you are long the put and want the put, itself, to rise in value.\"","There are many stategies with options that you have listed. The one I use frequently is buy in the money calls and sell at the money staddles. Do this ONLY on stocks you do not mind owning because that is the worse thing that can happen and if you like the company you stand less of a chance of being scared out of the trade. It works well with high quality resonable dividend paying stocks. Cat, GE, Mrk, PM etc. Good luck","The mathematics make it easier to understand why this is the case. Using very bad shorthand, d1 and d2 are inputs into N(), and N() can be expressed as the probability of the expected value or the most probable value which in this case is the discounted expected stock price at expiration. d1 has two σs which is volatility in the numerator and one in the denominator. Cancelling leaves one on top. Calculating when it's infinity gives an N() of 1 for S and 0 for K, so the call is worth S and the put PV(K). At 0 for σ, it's the opposite. More concise is that any mathematical moment be it variance which mostly influences volatility, mean which determines drift, or kurtosis which mostly influences skew are all uncertanties thus costs, so the higher they are, the higher the price of an option. Economically speaking, uncertainties are costs. Since costs raise prices, and volatility is an uncertainty, volatility raises prices. It should be noted that BS assumes that prices are lognormally distributed. They are not. The closest distribution, currently, is the logVariance Gamma distribution.","\"You are likely making an assumption that the \"\"Short call\"\" part of the article you refer to isn't making: that you own the underlying stock in the first place. Rather, selling short a call has two primary cases with considerably different risk profiles. When you short-sell (or \"\"write\"\") a call option on a stock, your position can either be: covered, which means you already own the underlying stock and will simply need to deliver it if you are assigned, or else uncovered (or naked), which means you do not own the underlying stock. Writing a covered call can be a relatively conservative trade, while writing a naked call (if your broker were to permit such) can be extremely risky. Consider: With an uncovered position, should you be assigned you will be required to buy the underlying at the prevailing price. This is a very real cost — certainly not an opportunity cost. Look a little further in the article you linked, to the Option strategies section, and you will see the covered call mentioned there. That's the kind of trade you describe in your example.\"","Beta is an indication of a Stock's risk with respect to the market. For instance if a stock had a beta of 1 it means it is in tandem with the S&P 500. If it is more than 1, the stock is volatile. If it is less than 1, it implies market movement doesn't affect this stock much. Tech stocks and small cap stocks have high beta, utilities have low beta. (In general, not always). Hope this helps - I've tried to explain it in very simple terms!","I guess I wasn't clear. I want to modestly leverage (3-4x) my portfolio using options. I believe long deep-in-the-money calls would be the best way to do this? (Let me know if not.) It's important to me that the covariance matrix from the equity portfolio scales up but doesn't fundamentally change. (I liken it to systemic change as opposed to idiosyncratic change.) This is what I was thinking: * For the same expiry date, find each positions lowest lambda. * Match all option to the the highest of the lowest lambda. * Adjust number of contracts to compensate for higher leverage. I don't think this will work because if I matched the lowest lambda of options on bond etfs to my equity options they would be out-of-the-money. By the way, thanks for your time.","\"As already noted, options contain inherent leverage (a multiplier on the profit or loss). The amount of \"\"leverage\"\" is dictated primarily by both the options strike relative to the current share price and the time remaining to expiration. Options are a far more difficult investment than stocks because they require that you are right on both the direction and the timing of the future price movement. With a stock, you could choose to buy and hold forever (Buffett style), and even if you are wrong for 5 years, your unrealized losses can suddenly become realized profits if the shares finally start to rise 6 years later. But with options, the profits and losses become very final very quickly. As a professional options trader, the single best piece of advice I can give to investors dabbling in options for the first time is to only purchase significantly ITM (in-the-money) options, for both calls and puts. Do a web search on \"\"in-the-money options\"\" to see what calls or puts qualify. With ITM options, the leverage is still noticeably better than buying/selling the shares outright, but you have a much less chance of losing all your premium. Also, by being fairly deep in-the-money, you reduce the constant bleed in value as you wait for the expected move to happen (the market moves sideways more than people usually expect). Fairly- to deeply-ITM options are the ones that options market-makers like least to trade in, because they offer neither large nor \"\"easy\"\" premiums. And options market-makers make their living by selling options to retail investors and other people that want them like you, so connect the dots. By trading only ITM options until you become quite experienced, you are minimizing your chances of being the average sucker (all else equal). Some amateur options investors believe that similar benefits could be obtained by purchasing long-expiration options (like LEAPS for 1+ years) that are not ITM (like ATM or OTM options). The problem here is that your significant time value is bleeding away slowly every day you wait. With an ITM option, your intrinsic value is not bleeding out at all. Only the relatively smaller time value of the option is at risk. Thus my recommendation to initially deal only in fairly- to deeply-ITM options with expirations of 1-4 months out, depending on how daring you wish to be with your move timing.\"","If the position starts losing money as soon as it is put on, then I would close it out ,taking a small loss. However, if it starts making money,as in the stock inches higher, then you can use part of the premium collected to buy an out of money put, thereby limiting your downside. It is called a collar.","\"people are willing to pay higher premiums for options when stocks go down. Obviously the time value and intrinsic value and interests rates of the option doesn't change because of this so the miscalculation remainder is priced into the implied volatility part of the formula. Basically, anything that suggests the stock price will get volatile (sharp moves in either direction) will increase the implied volatility of the option. For instance, around earnings reports, the IV in both calls and puts in the nearest expiration dates are very high. When stocks go down sharply, the volatility is high because some people are buying puts for protection and others are buying calls because they think there will be a rebound move in the other direction. People (the \"\"sleep-at-night\"\" investors, not the derivatives traders ;) ) tend to be calm when stocks are going up, and fearful when they are going down. The psychology is important to understand and observe and profit from, not to quantitatively prove. The first paragraph should be your qualitative answer\"","No, something doesn't seem right here. There would be virtually no time value to the option 10 minutes before market close on the expiration day. What option is it, and what is the expiration? EDIT: It appears you were looking only at the ASK price. It was $2.05. However, the BID price was only $1.35 and the last transaction was $1.40. So the true value is right about $1.35 to $1.40 at this second. This is a pitfall that tends to occur when you trade options with almost no volume. For instance, the open interest in that option is only 1 contract (assuming that is yours). So the Bid and the Ask can often be very far apart as they are only being generated by computer traders or the result of outdated, irrelevant human orders.","See how you can only make the premium amount but your risk is the same as holding the stock when writing a put option.","If you are in the money at expiration you are going to get assigned to the person on the other side of the contract. This is an extremely high probability. The only randomness comes from before expiration. Where you may be assigned because a holder exercised the option before expiration, this can unbalance some of your strategies. But in exchange, you get all the premium that was still left on the option when they exercised. An in the money option, at expiration, has no premium. The value of your in the money option is Current Stock price - Strike Price, for a call. And Strike price - Current Stock price, for a put. Thats why there is no free lunch in this scenario.","When you buy a call option, you transfer the risk to the owner of the asset. They are risking losing out on gains that may accumulate in addition to the strike price and paid premium. For example, if you buy a $25 call option on stock XYZ for $1 per contract, then any additional gain above $26 per share of XYZ is missed out on by the owner of the stock and solely benefits the option holder.","\"It's talked about quite often among more experienced investors. They were/ are used extensively by hedge funds. Keep in mind that if your option expires when not \"\"in the money\"\" you lose the premium you paid for the purchase of the option. That's where the risk comes in. I've grown really interested in options over the last couple months. Check out McMillan's Guide to Options. It's generally thought of as the quintessential beginners guide to understanding options. Good luck!\"","\"This doesn't make sense to me. Writing a covered call gives him a long delta position - the exact opposite of what he wants. And the tax losses won't turn a losing position into a winning one. Is there something I'm missing? Edit: Also, doesn't \"\"shorting against the box\"\" mean he has to have a long position, and short against that? That means you've got zero net delta, which isn't very useful at all...\"","Let's say a stock trades at $100 right now, and you can buy a $100 call option. When you buy the call option (and the money you paid is gone), one of two things can happen: The share price goes up, or the share price goes down. If the share price goes up, you profit. If the share price goes down, you don't lose! Because once the shares are below $100, you don't exercise the call option, and you don't lose any money. So if you have a share that is rock solid at $100, you don't make money. If you have a share where the company owner took some ridiculous risk, and the shares could go to $200 or the company could go bankrupt, then you have a 50% chance to make $100 and a 50% chance to not lose anything. That's much more preferable."],"string":"[\n \"Theta is a variable in options pricing. Theta aka time decay decreases over time. The reason of this is that you have to think of the option as insurance. It is a hedge against actual holdings in an asset. Would you pay more or less for insurance that covers you for a year's time, would you pay more or less for insurance that covers you for a week? The answer is that the market will pay less for insurance that covers them for a lower period of time. This is one of several ways of thinking about it. There is also the probability that the option will be profitable at all, the further out in the future, the more likely it will be profitable and people will pay a premium for it. There are other variables in the black-scholes formula and it is the most widely used options pricing formula. But keep in mind, the geniuses that made up the formula blew up their hedge fund thinking they could sell the options at an inflated premium from their own formula to everyone. Ironic really.\",\n \"Option prices consist of two parts: the intrinsic value (the difference between the strike and the current price of the stock) and a time premium, representing the probability that the stock will end up above the strike for a call (or below for a put). All else being equal, options decline in value as time passes, since there is less uncertainty about the expected value of the stock at expiration and thus the time premium is smaller. Theta is the measure of the change in value in one day. So for every day that passes, the calls you sold are going down by $64.71 (which is positive to you since you sold them at a higher value) and the calls you sold are going down by $49.04. So your position (a short spread) is gaining $15.67 each day (assuming no change in stock price or volatility). In reality, the stock price and volatility also change every day, and those are much stronger drivers of the value of your options. In your case, however, the options are deep out of the money, meaning it's very likely that they'll expire worthless, so all you have left is time premium, which is decaying as time goes on.\",\n \"I understand that ITM have little time value, so they will have small time decay(theta), but why OTM has a lesser theta than ATM? The Time value represents uncertainty. That uncertainty decreases the farther away from ATM you get (in either direction). At-the-money, there is roughly a 50% chance that the option expires worthless. As you get deeper in-the-money, the change that is expires worthless decreases, so there is less uncertainty (there is more certainty that the option will pay off). As you go deeper OTM, the probability that the option expires worthless increases, so there is also less uncertainty. At the TTM decreases, the uncertainty (theta) decreases as well, since there is less time for the option to cross the strike from either direction. Similarly, as volatility decreases, theta decreases, since low-volatility stocks have a less change of crossing the strike.\",\n \"\\\"So, if an out-of-the-money option (all time value) has a price P (say $3.00), and there are N days... The extrinsic value isn't solely determined by time value as your quote suggests. It's also based on volatility and demand. Here is a quote from http://www.tradingmarkets.com/options/trading-lessons/the-mystery-of-option-extrinsic-value-767484.html distinguishing between extrinsic time value and extrinsic non-time value: The time value of an option is entirely predictable. Time value premium declines at an accelerating rate, with most time decay occurring in the last one to two months before expiration. This occurs on a predictable curve. Intrinsic value is also predictable and easily followed. It is worth one point for every point the option is in the money. For example, a call with a strike of 30 has three points of intrinsic value when the current value of the underlying stock is $33 per share; and a 40 put has two points of intrinsic value when the underlying stock is worth $38. The third type of premium, extrinsic value, increases or decreases when the underlying stock changes and when the distance between current value of stock and strike of the option get closer together. As a symptom of volatility, extrinsic value may be greater for highly volatile underlying stock, and lower for less volatile stocks. Extrinsic value is the only classification of option premium that is unpredictable. The SPYs you point out probably had a volatility component affecting value. This portion is a factor of expectations or uncertainty. So an event expected to conclude prior to expiration, but of unknown outcome can cause theta to be higher than p/n. For example, a drug company is being sued and the outcome of a trial will determine whether that company pays out millions or not. The extrinsic will be higher than p/n prior to the outcome of the trial then drops after. Of course, the most common situation where this happens is earnings. After the announcement, it's not unusual to see a dramatic drop in the extrinsic portion of options. This is why sometimes a new option trader gets angry when buying calls prior to earnings. When 'surprise' good earnings are announced as hoped, the rise is stock price is largely offset by a fall in extrinsic value giving call holders little or no gain! As for the reverse situation where theta is lower than p/n would expect? Well you can actually have negative theta meaning the extrinsic portion rises over time. (this statement is a little confusing because theta is usually described as negative, but since you describe it as a positive number, negative here means the opposite of what you'd expect). This is a quote from \\\"\\\"Option Volatility & Pricing\\\"\\\". Keep in mind that they use 'positive' theta to mean the time value increases up over time: Is it ever possible for an option to have a positive theta such that if nothing changes the option will be worth more tomorrow than it is today? When futures options are subject to stock-type settlement, as they currently are in the United States, the carrying cost on a deeply in-the-money option, either a call or a put, can, under some circumstances, be greater than the volatility component. If this happens, and the option is European (no early exercise permitted), it will have a theoretical value less than parity (less than intrinsic value). As expiration approaches, the value of the option will slowly rise to parity. Hence, the option will have a positive theta. Sheldon Natenberg. Option Volatility & Pricing: Advanced Trading Strategies and Techniques (Kindle Locations 1521-1525). Kindle Edition.\\\"\",\n \"There's a key assumption made in the calculation of theta: that the future price movement of the underlying is a random walk. The amount of life left in the option times the volatility of the underlying creates a probability distribution of the price of the underlying at expiration. At any given price point, you can calculate the theta of the option. The at-the-money values are the most likely. The way-in-or-way-out-of-the-money values are much less likely. Theta is constructed mathematically to decay linearly over time. So the strikes with the most theta lose the most theta each day. If you are looking for a more intuitive answer, the OTM calls have less theta than the ATM calls because, while they are both 100% time value, the OTM calls cost much less. So it's 100% of a smaller number. Remember decay is linear.\",\n \"The answer is that the trader is hoping to profit from a potential rise in Implied volatility. He is isolating his exposure to IV only and mitigating his risk to the directional move of the underlying by hedging with the underlying. Basically, his delta is neutral. His gamma is positive and a potential source of profit, and his theta is negative which is a potential source of loss. He hopes that the profits from long gamma will overcome the loss from the short theta. he achieves this by actively gamma scalping to remain delta neutral over the life of the option.\",\n \"With the netural position delta strategy under high IV returns short vega,there is a possibility to profit from a decline in IV. Of course, if volatility rises higher, the position will lose money. It is therefore best to establish short vega delta-neutral positions when implied volatility is at levels that are in the 90th percentile ranking.\",\n \"\\\"You'd need to know the delta and the theta of the option. You can either calculate them yourself using a model like Black-Scholes (assuming you have a market price and can imply a volatility, and know the other factors that go into the model) or, you can see if your broker quotes \\\"\\\"greeks\\\"\\\" as well (mine does). The delta is the sensitivity (rate of change in value) to the underlying stock price, and the theta is the sensitivity to time passing (usually expressed in $/day). So if your option has a delta of .5 and a theta of -.04, when one day passes and the underlying stock goes up $3, the option will gain roughly $1.50 due to the underlying stock price and lose $0.04 due to time passing.\\\"\",\n \"The liquidity is quite bad. I have seen open Intrest drop from thousands to zero. Theta and the lack of liquidity are strong reasons not to buy options. Instead, consider selling them. They say that most Option purchases expire worthless. Why is this so? Because hedge funds buy those out-of-the-money puts in case their position goes against them (like insurance). Make money selling insurance. No one makes money buying insurance.\",\n \"Just so I'm clear- the end result is a long call, and you think the stock is going up. There is nothing wrong with that fundamentally. Be aware though: That's a negative theta trade. This means if your stock doesn't increase in price during the remaining time to expiration of your call option, the option will lose some of its value every day. It may still lose some of its value every day, depending on how much the stock price increases. The value of the call option just goes down and down as it approaches maturity, even if the stock price stays about the same. Being long a call (or a put) is a tough way to make money in the options market. I would suggest using an out-of-the-money butterfly spread. The potential returns are a bit less. However, this is a cheap positive theta trade so you avoid time decay on the value of the option.\",\n \"When volatility is higher, the option is more likely to end up in-the-money. Moreover, when it ends up in-the-money, it is likely to be over the strike price by a greater amount. Consider a call option. With high volatility, moves in the stock price are big - both up moves and down moves. If the stock moves up by a lot, the call option holder will benefit greatly. On the other hand, when the stock moves down, below a certain point the option holder does not care how big a down move the stock has. His downside is limited. Hence, the value of the option is increased by high volatility. I know everyone who searches this is looking for this answer. Bump so people are able to get this concept instead of looking all over the web for it.\",\n \"Out of the money options often have the biggest changes in value, when the stock moves upward. This person could also gain, by the implied (underlying) volatility of the stock rising if it moves erratically to either side. Still seems to be a very risky game, given only 4 days to expiry.\",\n \"Volatility typically decreases when stocks rise except pending news events or fast markets. It has a great impact of the premium of the option.\",\n \"\\\"First lets understand what convexity means: Convexity - convexity refers to non-linearities in a financial model. In other words, if the price of an underlying variable changes, the price of an output does not change linearly, but depends on the second derivative (or, loosely speaking, higher-order terms) of the modeling function. Geometrically, the model is no longer flat but curved, and the degree of curvature is called the convexity. Okay so for us idiots this means: if the price of ABC (we will call P) is determined by X and Y. Then if X decreases by 5 then the value of P might not necessarily decrease by 5 but instead is also dependent on Y (wtf$%#! is Y?, who cares, its not important for us to know, we can understand what convexity is without knowing the math behind it). So if we chart this the line would look like a curve. (clearly this is an over simplification of the math involved but it gives us an idea) So now in terms of options, convexity is also known as gamma, it will probably be easier to talk about gamma instead of using a confusing word like convexity(gamma is the convexity of options). So lets define Gamma: Gamma - The rate of change for delta with respect to the underlying asset's price. So the gamma of an option indicates how the delta of an option will change relative to a 1 point move in the underlying asset. In other words, the Gamma shows the option delta's sensitivity to market price changes. or Gamma shows how volatile an option is relative to movements in the underlying asset. So the answer is: If we are long gamma (convexity of an option) it simply means we are betting on higher volatility in the underlying asset(in your case the VIX). Really that simple? Well kinda, to fully understand how this works you really need to understand the math behind it. But yes being long gamma means being long volatility. An example of being \\\"\\\"long gamma\\\"\\\" is a \\\"\\\"long straddle\\\"\\\" Side Note: I personally do trade the VIX and it can be very volatile, you can make or lose lots of money very quickly trading VIX options. Some resources: What does it mean to be \\\"\\\"long gamma\\\"\\\" in options trading? Convexity(finance) Long Gamma – How to Make a Long Gamma Position Work for You Delta - Investopedia Straddles & Strangles - further reading if your interested. Carry(investment) - even more reading.\\\"\",\n \"agreed. shorting the box kills you on commissions. your negative theta on a straight put position won't be a problem until you're at least 60 days from expiration. (i would even argue you're safe until 30 days out.) plus the positive vega can give you some extra juice if gold does end up falling.\",\n \"If we assume constant volatility, gamma increases as the stock gets closer to the strike price. Thus, delta is increasing at a faster rate as the stock reaches closer to ITM because gamma is the derivative of delta. As the stock gets deeper ITM, the gamma will slow down as delta reaches 1 or -1 (depends if a call or a put). Thus, the value of the option will change depending upon the level of the delta. I am ignoring volatility and time for this description. See this diagram from Investopedia: Gamma\",\n \"Depending on the structure of you're portfolio, it could be that your portfolio is delta neutral to take advantage of diminishing time value on options, short straddles/strangles would be an example.\",\n \"I agree that high volatility just means the underlying stock price fluctuates more, and it does not imply if the stock is going up or down. But a high volatility in the price of an underlying also means that there is a higher chance that the underlying price could reach extreme prices (albeit in either direction). However, if you purchased a call option then if the underlying price reached an extremely high value, then you will be richly rewarded. But if the underlying price reached an extremely low value, you won't lose any more than the initial premium that you paid. There is no additional risk on your side, it's capped to the premium that you paid for the call option. It's this asymmetric outcome (Heads - I win, Tails - I don't lose) combined with high volatility that means that call options will increase in value when the underlying price becomes more volatile. If the optionality wasn't there then the price wouldn't be related to the volatility of the underlying. But that would be called a Future or a Forward :-)\",\n \"based on my understanding of your query...well you need to understand ATM and ITM options. The delta and gamma factor specifically. Usually delta of ATM is around 0.5 while ITM option is above than that say 0.6 or 0.8 or 0.9 and deep ITM is very close to 1. for every movement of 1 buck the ITM will move say 1.6, ATM 0.5 and OTM 0.3 approx Say a ABC stock price is Rs. 300 so if you check option chart you try to see which one is closer. Suppose you find strikeprice of 320 / 300 / 280. So 320 is ITM, 300 is ATM and 280 is OTM for call options. So will the delta value (e.g 0.66 / 0.55 / 0.35). So suppose if stock price rise by 7% i.e Rs. 321 then strikeprice will rise simultaneously. Say ATM CE300 is rs.10 it will start rising by 0.55 i.e. Rs.10.55. The moment the share price move from Rs.300 to Rs.320 your ATM will turn to ITM. Now the tricker part if you buy OTM and the share price rise by 15% your OTM will now become ITM and your profit will roll around 100% to 120% approx. Hope it answers your query\",\n \"so... asset price inflation decoupled from fundamentals (thank you QE) along with rise in ETF (notorious depressant on volatility) means options trader are underestimating volatility? Who calculates the daily spreads between HV and IV, anyone? Im new to this.\",\n \"Yes, you've got it right. The change in price is less meaningful as the instrument is further from the price of the underlying. As the delta moves less, the gamma is much less. Gamma is to delta as acceleration is to speed. Speed is movement relative to X, and acceleration is rate of change in speed. Delta is movement relative to S, and gamma is the rate of change in delta. Delta changes quickly when it is around the money, which is another way of saying gamma is higher. Delta is the change of the option price relative to the change in stock price. If the strike price is near the market price, then the odds of being in or out of the money could appear to be changing very quickly - even going back and forth repeatedly. Gamma is the rate of change of the delta, so these sudden lurches in pricing are by definition the gamma. This is to some extent a little mundane and even obvious. But it's a useful heuristic for analyzing prices and movement, as well as for focusing analyst attention on different pricing aspects. You've got it right. If delta is constant (zero 'speed' for the change in price) then gamma is zero (zero 'acceleration').\",\n \"What it means is that the stock has already moved down. Options and other derivatives follow the price of the underlying they are not a precursor to what the underlying is going to do. In other words, the price of a derivative is derived from the underlying.\",\n \"It's an artifact of risk-neutral pricing, but the intuition is this: A call option can be viewed as a levered equity position - meaning, you can get the same exposure by borrowing money and buying the stock. Say you can buy some call options for $150 with a position delta of 1 (so it looks just like the stock). You could also buy the stock outright for $1000 (by borrowing $850 at the risk-free rate and using your $150 cash). If the risk-free rate rises, your cost of carry on the stock position increases. In the case of the call option, the change in price can be viewed as the cost of *leverage* increasing.\",\n \"\\\"All else being equal, you should look for more volatile (riskier) stocks. Technically, it was all time value - the entire value of an \\\"\\\"out of the money\\\"\\\" option is time value. What's confusing is that time value is affected by numerous variables, only one of which is time. The reason volatility is the one to look at is that all the rest are likely already intuitive to you, or are too minor an influence to worry about: Current risk-free interest rates and a stock's dividend payout during the life of the option affect the value of the call, but are usually minor infulences. (Higher interest rates makes call values higher, and higher dividend yield makes call values lower.) Longer time to expiration will increase the value of the call, but you're pretty likely already focused on that. The strike price's proximity to the current price affects the call's value - agreeing to sell a stock 5% above current levels will pay more than agreeing to sell it 10% above current levels - but again, this is likely obvious to you. Volatility, or the percent by which the stock is likely to move up or down on a given day, is almost certainly the variable that's not already obvious. Stocks that jump all over the place have higher volatility than those that move more predictably. The reason that options (calls and puts) cost more on higher volatility names is that options' payout is asymmetrical. In the case of calls, the option holder gets all the upside, but none of the downside, other than what they paid for the opotion. If one stock goes up or down $5 every day, and another goes up or down $20 every day and you could pay some fixed amount to get that stock's upside, but not have any exposure to its downside, other than that fixed amount, you'd pay more for the one that pays you $20 or $0 than you would for the one that pays you $5 or $0. That's why higher volatility (meaning larger daily moves) makes optimum prices higher.\\\"\",\n \"You are missing a few variables from your calculation, particularly implied volatility. Even so it does not look like it would be too great a predictor even if incorporated. You should focus on calculating the option price at a different point in time (with a different underlying price) instead of using a total position value as that can be done afterwards. I programmed and use the standard Black-Scholes model to calculate expected returns. There are many tools online to help you without doing the programming or calculations yourself.\",\n \"If you think about it, the value of an option comes from the chance that the price at the expiration date can exceed the strike price. As it gets closer to the expiration date, the chance is getting smaller, because there is simply not enough time for an out-of-money option to hit that strike. Therefore, the value of an option decays.\",\n \"One way is to compare the implied volatility with the realised volatility over a period similar to the time left to expiry. However there are plenty of reasons why the implied may be higher than the historical, for example because the market volatility has increased overall or because the underlying company is going to report their results before the option expires.\",\n \"The question is always one of whether people think they can reliably predict that the option will be a good bet. The closer you get to its expiration, the easier it is to make that guess and the less risk there is. That may either increase or decrease the value of the option.\",\n \"\\\"But what happen if the stock price went high and then go down near expiry date? When you hold a short (sold) call option position that has an underlying price that is increasing, what will happen (in general) is that your net margin requirements will increase day by day. Thus, you will be required to put up more money as margin to finance your position. Margin money is simply a \\\"\\\"good faith\\\"\\\" deposit held by your broker. It is not money that is debited as cash from the accounting ledger of your trading account, but is held by your broker to cover any potential losses that may arise when you finally settle you position. Conversely, when the underlying share price is decreasing, the net margin requirements will tend to decrease day by day. (Net margin is the net of \\\"\\\"Initial Margin\\\"\\\" and \\\"\\\"Variation Margin\\\"\\\".) As the expiry date approaches, the \\\"\\\"time value\\\"\\\" component of the option price will be decreasing.\\\"\",\n \"Someone already mentioned that this is a risk-reversal, but as an aside, in the vol market (delta-hedged options) this is a fundamental skew trade. (buying calls, selling puts or vice versa). Initially vega neutral, the greek that this trade largely isolates is vanna (dvega/dspot or ddelta/dvol).\",\n \"There are some excellent responses to this question at the time of this post. I have had the greatest success writing 1-month options. The 2 main reasons are as follows: With little time to expiration as stated in the question the implied volatility of the option is dictating the premium. Looking for the highest premiums is a mistake because you are taking a conservative strategy and re-creating it into a high-risk strategy. My sweet spot is a 2-4% monthly return for my initial profit and then mastering management techniques to protect that return and even enhancing it.\",\n \"Don't know the name but it means you're long with conviction :P Unlimited gains, maximum loss of 95$ + (8-6) = 97$. Basically You are long @ 107 - -2 from 105 to 95. You would have to be ULTRA bullish to initiate this strategy.\",\n \"The only use of options that I will endorse is selling them. If you believe the market is going down then sell covered, out of the money, calls. Buying calls or buying puts usually wastes money. That is because of a quality called Theta. If the underlying security stays the same the going price of an option will decrease, every day, by the Theta amount. Think of options as insurance. A person only makes money by selling insurance, not by buying it.\",\n \"Options reflect expectations about the underlying asset, and options are commonly priced using the Black-Scholes model: N(d1) and N(d2) are probability functions, S is the spot (current) price of the asset, K is the strike price, r is the risk free rate, and T-t represents time to maturity. Without getting into the mathematics, it suffices to say that higher volatility or expectation of volatility increases the perceived riskiness of the asset, so call options are priced lower and put options are priced higher. Think about it intuitively. If the stock is more likely to go downwards, then there's an increased chance that the call option expires worthless, so call options must be priced lower to accommodate the relative change in expected value of the option. Puts are priced similarly, but they move inversely with respect to call option prices due to Put-Call parity. So if call option prices are falling, then put option prices are rising (Note, however, that call prices falling does not cause put prices to rise. The inverse relationship exists because of changes in the underlying factors and how pricing works.) So the option action signifies that the market believes the stock is headed lower (in the given time frame). That does not mean it will go lower, and option traders assume risk whenever they take a particular position. Bottom line: gotta do your own homework! Best of luck.\",\n \"Don´t forget that changing volatility will have an impact on the time value too! So at times it can happen that your time value is increasing instead of decreasing, if the underlying (market) volatility moves up strongly. Look for articles on option greeks, and how they are interdependent. Some are well explaining in simple language.\",\n \"Long convexity is achieved by owning long dated low delta options. When a significant move occurs in the underlying the volatility curve will move higher. Instead of a linear relationship between your long position and it's return, you receive a multiple of the linear return. For example: Share price $50 Long 1 (equals 100 shares) contract of a 2 year 100 call Assume this is a 5 delta option If the stock price rises to $70 the delta of the option will rise because it is now closer to the strike. Lets assume it is now a 20 delta option. Then Expected return on a $20 price move higher, 100 shares($20)(.20-.05)=$300 However what happens is the entire volatility surface rises and causes the 20 delta option to be 30 delta option. Then The return on a $20 price move higher, 100 shares($20)(.30-.05)=$500 This $200 extra gain is due to convexity and explains why option traders are willing to pay above the theoretical price for these options.\",\n \"Think of options as insurance. An insurance company makes money by selling the policies at a rate slightly higher than the average payout. Most options expire worthless. This is because most options are purchased by hedge funds. To 'hedge' means taking out insurance in case your position goes against you. So the sellers of options obtain a price that covers their (averaged) losses plus provides them with a profit for their trouble. An option has an amount that it declines in value each day (called theta). At the expiration date the option is worth zero (if it is out-of-the-money). So it is option writers that, typically, make money in the options market (as they are the sellers of insurance). If they didn't make money selling options they would not sell them. For example, the February call option on SPY strike 200 traded at 8.81 on 12/30. Since then it has crumbled in value to 0.14. The option writer currently stands to make a huge profit. So, just as with insurance, you (generally) never make money by buying insurance. But the sellers of insurance tend to make money as do the writers of options. Edit: Theta @ Investopedia\",\n \"Convexity refers to vega. Gamma refers to delta. Negative carry refers to time decay.\",\n \"\\\"Options are generally viewed as having two types of value: \\\"\\\"Intrinsic value\\\"\\\" and \\\"\\\"time value.\\\"\\\" The intrinsic value is based on the difference between the strike price on the option and the spot price of the underlying. The time value is based on the volatility of the underlying and the amount of time left until expiration. As the days pass toward expiration, the time value generally decreases, and the intrinsic value may move up or down depending on the spot price of the underlying. (In theory, time value could increase at some points if the volatility is also rising.) In your case, it looks like the time value is decreasing faster than the intrinsic value is increasing. This may happen because the volatility is also going down (as suggested in the answer by CQM) or may just happen because the time to expiration is getting shorter at equal volatility. As noted by DumbCoder in a comment to the original question, the Black-Scholes formula will give you more analytical insight into this if you're interested.\\\"\",\n \"Intuitive? I doubt it. Derivatives are not the simplest thing to understand. The price is either in the money or it isn't. (by the way, exactly 'at the money' is not 'in the money.') An option that's not in the money has time value only. As the price rises, and the option is more and more in the money, the time value drops. We have a $40 stock. It makes sense to me that a $40 strike price is all just a bet the stock will rise, there's no intrinsic value. The option prices at about $4.00 for one year out, with 25% volatility. But the strike of $30 is at $10.68, with $10 in the money and only .68 in time premium. There's a great calculator on line to tinker with. Volatility is a key component of options trading. Think about it. If a stock rises 5%/yr but rarely goes up any more or less, just steady up, why would you even buy an option that was even 10% out of the money? The only way I can describe this is to look at a bell curve and how there's a 1/6 chance the event will be above one standard deviation. If that standard deviation is small, the chance of hitting the higher strikes is also small. I wrote an article Betting on Apple at 9 to 2 in which I describe how a pair of option trades was set up so that a 35% rise in Apple stock would return 354% and Apple had two years to reach its target. I offer this as an example of options trading not being theory, but something that many are engaged in. What I found curious about the trade was that Apple's volatility was high enough that a 35% move didn't seem like the 4.5 to 1 risk the market said it was. As of today, Apple needs to rise 13% in the next 10 months for the trade to pay off. (Disclosure - the long time to expiration was both good and bad, two years to recover 35% seemed reasonable, but 2 years could bring anything in the macro sense. Another recession, some worldwide event that would impact Apple's market, etc. The average investor will not have the patience for these long term option trades.)\",\n \"$15 - $5 = $10 How did you possibly buy a put for less than the intrinsic value of the option, at $8.25 So we can infer that you would have had to get this put when the stock price was AT LEAST $6.75, but given the 3 months of theta left, it was likely above $7 The value of the put if the price of the underlying asset (the stock ABC) meandered between $5 - $7 would be somewhere between $10 - $8 at expiration. So you don't really stand to lose much in this scenario, and can make a decent gain in this scenario. I mean decent if you were trading stocks and were trying to beat the S&P or keep up with Warren Buffett, but a pretty poor gain since you are trading options! If the stock moves above $7 this is where the put starts to substantially lose value.\",\n \"Robert is right saying that options' prices are affected by implied volatility but is wrong saying that you have to look at the VIX index. For two reasons: 1) the VIX index is for S&P500 options only. If you are trading other options, it is less useful. 2) if you are trading an option that is not at the money, your implied volatility may be very different (and follow a different dynamics) that the VIX index. So please look at the right implied volatility. In terms of strategy, I don't think that not doing anything is a good strategy. I accept any point of view but you should consider that option traders should be able to adjust positions depending on market view. So you are long 1 call, suppose strike 10. Suppose the underlying price at the time of entry was 10 (so the call was at the money). Now it's 9. 1) you still have a bullish view: buy 1 call strike 9 and sell 2 calls strike 10. This way you have a bull call spread with much higher probability of leading to profit. You are limiting your profit potential but you are also reducing the costs and managing the greeks in a proper way (and in line with your expectations). 2) you become bearish: you can sell 1 call strike 9. This way you end up with a bear call spread. Again, you are limiting your profit potential but you are also reducing the costs and managing the greeks in a proper way (and in line with your expectations). 3) you become neutral: buy 1 call strike 8 and sell 2 calls strike 9. This way you end up with a call butterfly. You are almost delta neutral and you can wait until your view becomes clear enough to become directional. At that point you can modify the butterfly to make it directional. These are just some opportunities you have. There is no reason for you to wait. Options are eroding contracts and you must be fast and adjust the position before time starts eroding your capital at risk. It's true that buying a call doesn't make you loose more than the premium you paid, but it's better to reduce this premium further with some adjustment. Isn't it? Hope that helps. :)\",\n \"An option gives you the option rather than the obligation to buy (or sell) the underlying so you don't have to exercise you can just let the option expire (so long it doesn't have an automatic expiry). After expiration the option is worthless if it is out of the money but other than that has no hangover. Option prices normally drop as the time value of the option decays. An option has two values associated with it; time value and exercise value. Far out of the money (when the price of the underlying is far from the strike price on the losing side) options only have time value whereas deep in the money options (as yours seems to be) has some time value as well as the intrinsic value of the right to buy (sell) at a low (high) price and then sell (buy) the underlying. The time value of the option comes from the possibility that the price of the underlying will move (further) in your favour and make you more money at expiry. As expiry closes it is less likely that there will be a favourable mood so this value declines which can cause prices to move sharply after a period of little to no revaluing. Up to now what I have said applies to both OTC and traded options but exchange traded options have another level of complexity in their trading; because there are fewer traders in the options market the size of trade at which you can move the market is much lower. On the equities markets you may need to trade millions of shares to have be substantial enough to significantly move a price, on the options markets it could be thousands or even hundreds. If these are European style options (which sounds likely) and a single trading entity was holding a large number of the exchange traded options and now thinks that the price will move significantly against them before expiry their sell trade will move the market lower in spite of the options being in the money. Their trade is based on their supposition that by the time they can exercise the option the price will be below the strike and they will lose money. They have cashed out at a price that suited them and limited what they will lose if they are right about the underlying. If I am not correct in my excise style assumption (European) I may need more details on the trade as it seems like you should just exercise now and take the profit if it is that far into the money.\",\n \"\\\"If you look at the definition of time value on Wikipedia, you may notice this line: Time value \\\"\\\"can be thought of as the price an investor is willing to pay for potential upside.\\\"\\\" https://en.wikipedia.org/wiki/Option_time_value You are right to think that the time value is increasing as the moneyness increases from deeply OTM to ATM. Once the moneyness crosses the strike price threshold, per wiki's interpretation, the upside potential decreases as the underlying price moves away from the strike price. Think it as if an option is already deep in the money, the chance of it getting further ITM is slim. Hence the willingness to pay for that chance (aka. the upside potential) decreases.\\\"\",\n \"So, this isn't always the case, but in the example provided the option is most likely in the money or near the money since the delta is nearly 1 - indicating that a $1 move in the underlying results in a $0.92 move in the option - this will happen when the expiration is very far out or the option is in the money. As expiration gets closer, movements in the underlying become more pronounced in the options because the probability of the stock price moving from its current position is lower. As the probability of the stock price moving goes down, the delta of in the money options approaches 100, eventually reaching 100 at expiration. Another way to word this is that the premium on in the money options shrinks as expiration approaches and the intrinsic value of the option increases as percentage of total value so that movements in the underlying stock price become a greater influence on the option price - hence a greater delta. Again, if the option is out of the money, this is not the case.\",\n \"In absolute terms the risk is about the same. If you own the stock and your put option goes in the money, then you have the option to get rid of your stock at yesterday's higher price. If you don't, you can sell the option for a higher price than you paid for it. But, as you calculated yourself, the net gain or loss (in absolute terms, not percentage terms) is the same either way.\",\n \"Understanding the BS equation is not needed. What is needed is an understanding of the bell curve. You seem to understand volatility. 68% of the time an event will fall inside one standard deviation. 16% of the time it will be higher, 16%, lower. Now, if my $100 stock has a STD of $10, there's a 16% chance it will trade above $110. But if the STD is $5, the chance is 2.3% per the chart below. The higher volatility makes the option more valuable as there's a highr chance of it being 'in the money.' My answer is an over simplification, per your request.\",\n \"Late to the party, but it's just improving your cost basis in a defined risk trade even further. If you want to put up less risk capital but want to test the waters, this can be one way to do it. Another could be buying cheap OTM butterflies or financing a further otm option with the basis reduction from the debit spread if you want to gamble a bit further and venture into 15-20 delta positions. Usually, I am doing debit spreads with a buying atm and selling a couple strikes further otm or at least at the most liquid strikes, but if it's a high flier, it can be disappointing, but a good trade. If you're more of a contrarian in where you buy your calls/puts, it's absolutely a good way to lessen your risk on a calculated bet.\",\n \"If you're talking about just Theta, the amount of decay due to the passage of time (all else being equal), then theoretically, the time value is a continuous function, so it would decay throughout the day (although by the day of expiry the time value is very, very small). Which makes sense, since even with 15 minutes to go, there's still a 50/50 shot of an ATM option expiring in-the-money, so there should be some time value associated with that one-sided probability. The further away from ATM the option is, the smaller the time value will be, and will be virtually zero for options that are deep in- or out-of-the-money. If you're talking about total time value, then yes it will definitely change during the day, since the underlying components (volatility, underlying price, etc.) change more or less continuously.\",\n \"\\\"Yes, long calls, and that's a good point. Let's see... if I bought one contract at the Bid price above... $97.13 at expiry of $96.43 option = out of the money =- option price(x100) = $113 loss. $97.13 at expiry of $97.00 option = out of the money =- option price(x100) = $77 loss. $97.13 at expiry of $97.14 option = in the money by 1-cent=$1/contract profit - option price(x100) = $1-$58 = $57 loss The higher strike prices have much lower losses if they expire with the underlying stock at- or near-the-money. So, they carry \\\"\\\"gentler\\\"\\\" downside potential, and are priced much higher to reflect that \\\"\\\"controlled\\\"\\\" risk potential. That makes sense. Thanks.\\\"\",\n \"It is a fool's errand to attribute abnormal option volume or volatility to any meaningful move in the stock. One side of the chain is frequently more expensive than the other. The relationship between historical volatility and implied volatility is dubious at best, and also a big area of study.\",\n \"Mostly, when an equity's price rises, its statistical and implied volatilities fall and vice versa. The reason why is a mathematical phenomenon mixed with the reality that a unceasingly falling asset price will soon not exist, skewing the results with survivorship bias. Since volatility is standard deviation of price indexes, a security that changes in price by the same amount every day will have lower volatility, so a rising price will have lower implied volatility because its mostly experiencing positive daily price change while a recently falling price will have higher volatility because factored together with the positive price changes, the negative price changes will widen the standard deviation of the securities price index. Quantitatively, any change, in or out of one's favor, is a risk because change is uncertain, and any uncertainty is a risk. This quantitative interpretation while valid runs almost totally counter to the value opinion, that a lower price relative to value is a lower risk than a higher price relative to value, but both have their place in time. Over long time periods, it's best to use the value interpretation, quantitative for shorter. Using the opposite has hastily destroyed many a fund manager.\",\n \"I would make a change to the answer from olchauvin: If you buy a call, that's because you expect that the value of call options will go up. So if you still think that options prices will go up, then a sell-off in the stock may be a good point to buy more calls for cheaper. It would be your call at that point (no pun intended). Here is some theory which may help. An options trader in a bank would say that the value of a call option can go up for two reasons: The VIX index is a measure of the levels of implied volatility, so you could intuitively say that when you trade options you are taking a view on two components: the underlying stock, and the level of the VIX index. Importantly, as you get closer to the expiry date this second effect diminishes: big jumps up in the VIX will produce smaller increases in the value of the call option. Taking this point to its limit, at maturity the value of the call option is only dependent on the price of the underlying stock. An options trader would say that the vega of a call option decreases as it gets closer to expiry. A consequence of this is that if pure options traders are naturally less inclined to buy and hold to expiry (because otherwise they would really just be taking a view on the stock price rather than the stock price & the implied volatility surface). Trading options without thinking too much about implied volatities is of course a valid strategy -- maybe you just use them because you will automatically have a mechanism which limits losses on your positions. But I am just trying to give you an impression of the bigger picture.\",\n \"NL7 is right and his B-S reference, a good one. Time decay happens to occur in a way that 2X the time gives an option 1.414X (the square root of 2) times the value, so half the time means about .707 of the value. This valuation model should help the trader decide on exactly how far out to go for a given trade.\",\n \"While open interest usually correlates to volume, the mark of liquidity is the bid ask spread. Even when trading options with spreads as large as an ask 2x the bid, a more realistic price that traders are willing to accept lies somewhere in the middle. Any option can easily be exited at intrinsic value: underlying price - exercise price for calls, exercise price - underlying price for puts. For illiquid options, this will be the best price obtained. For longer term options, something closer to the theoretical price is still possible. If an underlying is extremely liquid, yet the options aren't quite then options traders will be much more ready to trade at the theoretical price. For exiting illiquid options, small, < 4 contracts, and infrequent, > 30 minute intervals, orders are more likely to be filled closer to the theoretical price; however, if one's sells are the only trades, traders on the other side will take note and accept ever lowering implied volatilities. With knowledge of what traders will accept, it is always more optimal to trade out of options rather than exercise because of the added costs and uncertainty involved with exercising and liquidating.\",\n \"My thoughts from the top: 1. If you're already long, which not just buy-write? if you want to sit on the portfolio for some time with little rebalancing collecting some option premiums might not be bad? 2. You can replicate this portfolio on a rolling basis through bull spreads, which should hedge (or at least reduce) your theta and give you some of that sweet sweet convexity, however you will need a large enough size to cover your transaction costs. 3. I agree with maximizing mean / lower semi var (most kids max mean/var)) so good move there. However you need estimates of expected return (not easy!) and semi var (easier). Look into using GARCH (or a form of it) on the semi var for a better estimator. 4. Is this an MSR portfolio? How do you determine your weights? 5. In terms of sizing/leverage, Remember the betting condition that equity needs to be positive for all time. How are you planning to limit your max DD? and how often do you plan on rebalancing/rebetting.\",\n \"No, it means what it says. Prices change, hence price of the derivative can go down even if the price of the underlying doesn't change (e.g. theta decay in options).\",\n \"When we 'delta-hedge', we make the value of a portfolio 0. No - you make the risk relative to some underlying 0. The portfolio does have a value, but if whatever underlying you're hedging against changes slightly the value of your portfolio should not change. But, what is the derivative of a portfolio? It's the instantaneous rate of change of the portfolio) relative to some underlying phenomenon. With a portfolio of many stocks, there's not one single factor that drives the value of your portfolio. You have sensitivity to each underlying stock (price and volatility), interest rates, the market as a whole, etc. For simplicity, we might imagine a portfolio that has holdings in .... a call .... a stock .... and a bank account (to borrow and lend money). You will have a delta relative to the stock and a delta relative to the underlying instrument on the option, etc. Those can only be aggregated for each factor (e.g. if the call is an option on the same stock) Theta is the only one you can calculate for the portfolio as a whole - it will be the aggregate theta of all of your positions (since change in time is constant across all investments). All of the others are not aggregatable since they are measuring sensitivities to different phenomena.\",\n \"Yes, that's the risk. If the stock is bouncing around a lot your options could get assigned. If it heads south you now are the proud owner of more of a falling stock. It's good that you're looking to understand the risks of an investment method. That's important no matter what the method is.\",\n \"Options are an indication what a particular segment of the market (those who deal a lot in options) think will happen. (and just because people think that, doesn't mean it will) Bearing in mind however that people writing covered-calls may due so simply as part of a strategy to mitigate downside risk at the expense of limiting upside potential. The presence of more people offering up options is to a degree an indication they are thinking the price will fall or hold steady, since that is in effect the 'bet' they are making. OTOH the people buying those options are making the opposite bet.. so who is to say which will be right. The balance between the two and how it affects the price of the options could be taken as an indication of market sentiment (within the options market) as to the future direction the stock is likely to take. (I just noticed that Blackjack posted the forumula that can be used to model all of this) To address the last part of your question 'does that mean it will go lower' I would say this. The degree to which any of this puts actual pressure on the stock of the underlying instrument is highly debatable, since many (likely most) people trading in a stock never look at what the options for that stock are doing, but base their decision on other factors such as price history, momentum, fundamentals and recent news about the company. To presume that actions in the options market would put pressure on a stock price, you would need to believe that a signficant fraction of the buyers and sellers were paying attention to the options market. Which might be the case for some Quants, but likely not for a lot of other buyers. And it could be argued even then that both groups, those trading options, and those trading stocks, are both looking at the same information to make their predictions of the likely future for the stock, and thus even if there is a correlation between what the stock price does in relation to options, there is no real causality that can be established. We would in fact predict that given access to the same information, both groups would by and large be taking similar parallel actions due to coming to similar conclusions regarding the future price of the stock. What is far MORE likely to pressure the price would be just the shear number of buyers or sellers, and also (especially since repeal of the uptick rule) someone who is trying to actively drive down the price via a lot of shorting at progressively lower prices. (something that is alleged to have been carried out by some hedge fund managers in the course of 'bear raids' on particular companies)\",\n \"I have an example of a trade I made some time ago. By entering the position as a covered call, I was out of pocket $5.10, and if the stock traded flat, i.e. closed at the same $7.10 16 months hence, I was up 39% or nearly 30%/yr. As compared to the stock holder, if the stock fell 28%, I'd still break even, vs his loss of 28%. Last, if the stock shot up, I'd get 7.50/5.10 or a 47% return, vs the shareholder who would need a price of $10.44 to reflect that return. Of course, a huge jump in the shares, say to $15, would benefit the option buyer, and I would have left money on the table. But this didn't happen. The stock was at $8 at expiration, and I got my 47% return. The option buyer got 50 cents for his $2 bet. Note, the $2 option price reflected a very high implied volatility.\",\n \"At the higher level - yes. The value of an OTM (out of the money) option is pure time value. It's certainly possible that when the stock price gets close to that strike, the value of that option may very well offer you a chance to sell at a profit. Look at any OTM strike bid/ask and see if you can find the contract low for that option. Most will show that there was an opportunity to buy it lower at some point in the past. Your trade. Ask is meaningless when you own an option. A thinly traded one can be bid $0 /ask $0.50. What is the bid on yours?\",\n \"So this is only a useful strategy if you already own the stock and want protection. The ITM put has a delta closer to 1 than an OTM put. But all LEAPS have massive amounts of theta. Since the delta is closer to 1 it will mimic the price movements of the underlying which has a delta of 1. And then you can sell front month calls on that over time. Note, this strategy will tie up a large amount of capital.\",\n \"Here's another attempt at explanation: it's basically because parabolas are flat at the bottom. Let me explain. As you might know, the variance of the log stock price in Black Scholes is vol^2 * T, in other words, variance of the log stock price is linear in time to expiry. Now, that means that the standard deviation of your log stock price is square root in time. This is consequential. For normally distributed random variables, in 68% of cases we end up within one standard deviation. So, basically, we expect our log stock price to be within something something times square root of T. So, if your stock has a vol of 16%, it'll be plus/minus 32% in 4 years, plus/minus 16% for one year, plus/minus 8% for 3m, plus/minus 4% for 3-ish weeks, and plus/minus 1% for a business day. As you see, the decay is slow at first, but much more rapid as we get closer. How does the square root function look? It's a sideways parabola. As we come closer to zero, the slope of the square root function goes to infinity. (That is related to the fact that Brownian motion is almost surely no-where differentiable - it just shoots off with infinite slope, returning immediately, of course :-) Another way of looking at it is the old traders rule of thumb that an at-the-money option is worth approximately S * 0.4 * vol * sqrt(T). (Just do a Taylor expansion of Black Scholes). Again, you have the square root of time to expiry in there, and as outlined above, as we get closer to zero, the square root drops slowly at first, and then precipitously.\",\n \"You will tend to find as options get closer to expiry (within 2 months of expiry) they tend to be traded more. Also the closer they are to being in the money they more they are traded. So there tends to be more demand for these options than long dated ones that are far out of the money. When there is this higher demand there is less need for a market maker to step in to assure liquidity, thus there should be no effect on the underlying stock price due to the high demand for options. I would say that market makers would mainly get involved in providing liquidity for options way out of the money and with long periods until expiry (6+ months), where there is little demand to start with and open interest is usually quite low.\",\n \"Based on what you wrote, you would be better off with no position to start, and then enter a buy stop 10% above the market, and a sell stop 10% below the market, both to open positions depending on which way the market moves. If the market doesn't move that 10%, you stay flat. However, a long option straddle position requires that the market moves significantly one way or the other just so you recover the premium that you paid for the straddle. If the market doesn't move, you will lose money on your straddle due to theta decay and a drop in volatility. Alternatively, you could buy a strangle, with a call strike 10% out, and a put strike 10% out. The premiums would be much much lower, and these wculd take the place of the stop entries. Personally, I would never buy a straddle, but I do sometimes sell them, especially when implied volatility is very high.\",\n \"Two ways to mitigate this risk are to buy a put at a lower premium to the written call, or manage your trade by buying back your call if you see the underlying price going against you - a bit similar to having a stop loss.\",\n \"You don't mention any specific numbers, so I'll answer in generalities. Say I buy a call option today, and I short the underlying stock with the delta. The value will be the value of the option you bought less the value of the stock you are short. (your premium is not included in the value since it's a sunk cost, but is reflected in your profit/loss) So, say I go out and adjust my portfolio, so I am still delta short in the underlying. It's still the value of your options, less the value of the underlying you are short. What is my PnL over this period? The end value of your portfolio less what you paid for that value, namely the money you received shorting the underlyings less the premium you paid for the option.\",\n \"\\\"I strongly suggest you read up the Option Greeks. You can be right about a stocks price movement and still not make money b/c other factors come into play from time or volatility. For a \\\"\\\"free\\\"\\\" option hedge you can look at collars. Buying puts and selling calls to offset the debit you pay for the transaction. Ex: AAPL is 115, You buy the 110 puts and sell the 120 calls. This gives you a collar around he current price. Your hedged below 110 and can still participate in upside move to 120. Also look into time value. Time decays exponentially in the last 30 days. If you are long this hurts you, if you are short(selling) this is good. Be sure to take this into account. Delta: relation of the option to the underlying stock move on a .01-1 scale, .50 is \\\"\\\"normal.\\\"\\\" Deep in the money options have higher deltas. It is possible other factors can offset this delta move. This is why people will lose money on earnings plays even though they are right. EX: Say you buy an AAPL call at 120, earnings comes out and the stock goes to 121. Even though you are \\\"\\\"in the money\\\"\\\" your contract may still have less value than what you paid because of VOLATILITY collapse. The market place knows earnings move a stock and that is factored into the price of the options expected volatility. As mentioned watch out for dividend dates. Always be aware of dividend dates and earnings dates and if your contract is going to cover one of these events. Interest rates have an effect as well but since the Fed has near 0 rates there is little impact at the present. Though this could certainly change if the fed starts raising rates. Research the Black Scholes Pricing model. Whenever you trade always think about what the other guys is thinking. Sometimes we forget their is someone else on the other side of my trade that thinks essentially the exact opposite of me. Its a zero sum game. As far as choosing strikes you can look at calculating the At THe money straddle to see if the options are \\\"\\\"cheap\\\"\\\" [stock Price * Implied Volatility (for 30, 60, 90 days Depending on your holding period)* Sq root of days to expiration] / 19 (which is sq root of days/yr) Add and subtract this number to the current stock price to give you an approximate 1 standard deviation of expected price movement. Keeping with our example. AAPL at 115, lets say your formula spits out a 6; therefore price range is expected to be 109 to 121 for the time period. Helpful for selling options, I would sell the 122 call or the 108 puts. Hope this helps. Start small and get a feel for things.\\\"\",\n \"\\\"You need to interpret \\\"\\\"security\\\"\\\" appropriately in Wikipedia's definition. You should think of it as saying: to be long in a put, means the holder of the position owns the put and will profit if the price of the put goes up And what makes the price of the put go up? -- the price of the underlying stock going down.\\\"\",\n \"[] As you can see from the graphs above, as absolute distance from ATM (At The Money) increases, the ratio represented by Delta begins to approach 0:1 or 1:1. Meaning, as Delta approaches 1 the option price moves up 1 dollar for every 1 dollar the stock price moves up. As Delta approaches 0 the option price does not move as the stock price moves. As the absolute distance from ATM increases Gamma approaches zero (0). Meaning, as the price of the option increases or decrease the change in delta is at its highest as the option price is nearest the money. As the price of the option moves away from the money, in either direction, it changes less drastically. Interestingly, Delta is the first derivative of the value of the option price with respect to the underlying asset price. And Gamma is the first derivative of Delta. Definition of Delta Definition of Gamma\",\n \"It could be that the contracts were bought at cheaper prices such as $.01 earlier in the day. What you see there with the bid and ask is the CURRENT bid and CURRENT ask. The high ask price means there is no current liquidity, as someone is quoting a very high ask price just in case someone really wants to trade that price. But as you said, no one would buy this with a better price on a closer strike price. The volume likely occurred at a different price than listed on the current ask.\",\n \"\\\"This chart concerns an option contract, not a stock. The method of analysis is to assume that the price of an option contract is normally distributed around some mean which is presumably the current price of the underlying asset. As the date of expiration of the contract gets closer the variation around the mean in the possible end price for the contract will decrease. Undoubtedly the publisher has measured typical deviations from the mean as a function of time until expiration from historical data. Based on this data, the program that computes the probability has the following inputs: (1) the mean (current asset price) (2) the time until expiration (3) the expected standard deviation based on (2) With this information the probability distribution that you see is generated (the green hump). This is a \\\"\\\"normal\\\"\\\" or Gaussian distribution. For a normal distribution the probability of a particular event is equal to the area under the curve to the right of the value line (in the example above the value chosen is 122.49). This area can be computed with the formula: This formula is called the probability density for x, where x is the value (122.49 in the example above). Tau (T) is the reciprocal of the variance (which can be computed from the standard deviation). Mu (μ) is the mean. The main assumption such a calculation makes is that the price of the asset will not change between now and the time of expiration. Obviously that is not true in most cases because the prices of stocks and bonds constantly fluctuate. A secondary assumption is that the distribution of the option price around the mean will a normal (or Gaussian) distribution. This is obviously a crude assumption and common sense would suggest it is not the most accurate distribution. In fact, various studies have shown that the Burr Distribution is actually a more accurate model for the distribution of option contract prices.\\\"\",\n \"Excellent, very sharp. No it will not be vega neutral exactly! If you think about it, what does a higher vol imply? That the delta of the option is higher than under BS model. Therefore, the vega should also be greater (simplistic explanation but generally accurate). So no, if you trade a 25-delta risky in equal size per leg, the vega will not be neutral. But, in reality, that is a very small portion of your risk. It plays a part, but in general the vanna position dominates by many many multiples. What do you do that you asked such a question, if you don't mind?\",\n \"It really centers on the probability of your position falling to $0 and your level of comfort if that were to happen. There are a plethora of situations that could cause an option contract to become worthless. The application of leverage to a position also increases the risk. Zero risk would be an FDIC insured savings account, high risk would be buying options on margin, and there's a very wide grey area in between. I agree that the whole process of assigning a risk level is dubious at best. As you say, it seems using past data could help assign a risk level, look to beta values if you believe in that. The problem here is the main disclaimer in use is that past performance cannot be relied upon for future gains. As an aside, if the US government files bankruptcy you'll have a whole host of more immediate problems than the value of your t-bills. At that point dollars would have been a risky investment.\",\n \"If you look at it from the hedging perspective, if you're unsure you're going to need to hedge but want to lock in an option premium price if you do need to do so, I could see this making sense.\",\n \"As the option approaches expiry, the delta will approach zero or one, depending on whether you're in or out of the money. This might be easiest to conceptualise if you look at the option value as a function of the stock price, and then realise that the delta is the slope of that curve. Now, as we get closer to expiry, time value fades away, and we get closer and closer to the intrinsic value, which looks like this hockey stick: __/ As you see, close to expiry, if you're out of the money, you have nothing (with delta zero), while if you're in the money, you have a forward (with delta one).\",\n \"Not to be a jerk, since I'm learning about options myself, but I think you have a few things wrong about your tesla put postion. First, assuming it was itm or atm within a week of strike it would maybe be worth $12-15, I glanced at the 11/10 put strikes ~325 trades for $12.65 https://www.barchart.com/stocks/quotes/TSLA/options?expiration=2017-11-10 The closer it gets to expiry theta decay reduces put value significantly, the 325's that expire tomorrow are only worth $2.60. Expecting TSLA to drop from 325 to 50 a share by Jan has a .006% chance of occuring according to the current delta. It's a lottery ticket at best. _____ Lastly the $50 price is the expected share price at the date of expiry. The price you pay is 57c for the options. So in order to get to your 494k number TSLA would need to decline $50 dollars to a price of 275 a share. You wouldn't want to buy 50 dollar puts, just the 275 puts, provided it declines very quickly. EDIT: I was looking at the recent expiration to get an idea of atm or itm prices, since it's not like you would hold to expiration. Also the Jan has a 0.6% chance of hitting 50, not .006%. That said what I've noticed when things start to slide is that puts have a weird way of pricing themselves. For example when something gradually goes up all of the calls go up down the chain through time frames, but puts do not in the same fashion. Further out lower priced puts won't move nearly as much unless the company is basically headed for bankruptcy.\",\n \"\\\"Seems like you are concerned with something called assignment risk. It's an inherent risk of selling options: you are giving somebody the right, but not the obligation, to sell to you 100 shares of GOOGL. Option buyers pay a premium to have that right - the extrinsic value. When they exercise the option, the option immediately disappears. Together with it, all the extrinsic value disappears. So, the lower the extrinsic value, the higher the assignment risk. Usually, option contracts that are very close to expiration (let's say, around 2 to 3 weeks to expiration or less) have significantly lower extrinsic value than longer option contracts. Also, generally speaking, the deeper ITM an option contract is, the lower extrinsic value it will have. So, to reduce assignment risk, I usually close out my option positions 1-2 weeks before expiration, especially the contracts that are deep in the money. edit: to make sure this is clear, based on a comment I've just seen on your question. To \\\"\\\"close out an options position\\\"\\\", you just have to create the \\\"\\\"opposite\\\"\\\" trade. So, if you sell a Put, you close that by buying back that exact same put. Just like stock: if you buy stock, you have a position; you close that position by selling the exact same stock, in the exact same amount. That's a very common thing to do with options. A post in Tradeking's forums, very old post, but with an interesting piece of data from the OCC, states that 35% of the options expire worthless, and 48% are bought or sold before expiration to close the position - only 17% of the contracts are actually exercised! (http://community.tradeking.com/members/optionsguy/blogs/11260-what-percentage-of-options-get-exercised) A few other things to keep in mind: certain stocks have \\\"\\\"mini options contracts\\\"\\\", that would correspond to a lot of 10 shares of stock. These contracts are usually not very liquid, though, so you might not get great prices when opening/closing positions you said in a comment, \\\"\\\"I cannot use this strategy to buy stocks like GOOGL\\\"\\\"; if the reason is because 100*GOOGL is too much to fit in your buying power, that's a pretty big risk - the assignment could result in a margin call! if margin call is not really your concern, but your concern is more like the risk of holding 100 shares of GOOGL, you can help manage that by buying some lower strike Puts (that have smaller absolute delta than your Put), or selling some calls against your short put. Both strategies, while very different, will effectively reduce your delta exposure. You'd get 100 deltas from the 100 shares of GOOGL, but you'd get some negative deltas by holding the lower strike Put, or by writing the higher strike Call. So as the stock moves around, your account value would move less than the exposure equivalent to 100 shares of stock.\\\"\",\n \"\\\"Suddenly its not just comparing the current price to the price of the contract, or is it? Sure it is. Suppose you bought 100 option contracts (each for 100 shares) and paid a $1 per share premium ($10,000 total). Now those options are trading for $1.50 per share. You have an unrealized $0.50 gain per share, or $5,000. The $10,000 in options you bought are now worth $15,000. It holds whether they were bought to open or close a position, or whether they are puts or calls. The only difference is whether you bought or sold the options (the arithmetic is just reversed for selling an option). But lets say we have an Option, where the payoff is max(St-K, c0) where ct is the market price. What do you do then? Your current, unrealized P&L is different than the payoff. The payoff only happens at maturity. The current P&L is based on current market prices, just like stock. Option prices all have a \\\"\\\"time premium\\\"\\\" making them worth more than their payoff (intrinsic) value prior to maturity.\\\"\",\n \"Think of it this way: 1) You buy 1k in call options that will let you buy 100k of stock when they expire in the money in a year. 2) You take the 99k you would have spent on the stock and invest it in a risk free savings account. 3) Assume the person who sold you the call, immediately hedges the position by buying 100k of stock to deliver when the options expire. The amount of money you could make on risk free interest needs to be comparable to the premium you paid the option writer for tying up their capital, or they wouldn't have made the trade. So higher risk free rates would mean a higher call price. NOTE: The numbers are not equal because of the risk in writing the option, but they will move the same direction.\",\n \">You have to sell 3-5x more LT than you're buying ST in order to be delta neutral, because the ST is much more volatile. I assume that you talking about positions by their DV01 and not by the notional exposure?\",\n \"It's not that straightforward, even though your gamma will change your delta on the fly, you likely won't see the full $.48 after such a small move. If the vega drops due to lack of volatility while the stock is moving up, those few percentage points up might help your delta (2% gain $50 to $51 in your example) but will be partially negated by volatility going down. I mean, don't be surprised to see it at closer to $1.33 or something. The market is out to make money, not to make you money.\",\n \"Unfortunately when you deal with options you are going to have to accept some exposure to your greeks. So in your example, you could just buy back month ATM calls. Although delta is going to be pretty static across your portfolio (at least for say the first year, depending on ultima/zomma and other third order greeks) which will keep your lambdas in check, you're still exposed to vega which will ultimately skew lambdas across the board. Such are the caveats of options - in order to obtain leverage you will need to take a *less* passive outlook, but not by much.\",\n \"\\\"Long here does not mean you wish for the underlying stock to increase in value, in fact, as the chart shows, just the opposite is true. \\\"\\\"Long means you bought the derivative, and you own the option. The guy that sold it to you is at your mercy, he is short the put, and it's your decision to put the stock to him should it fall in value. The value of the put itself rises with the falling stock price, you are long the put and want the put, itself, to rise in value.\\\"\",\n \"There are many stategies with options that you have listed. The one I use frequently is buy in the money calls and sell at the money staddles. Do this ONLY on stocks you do not mind owning because that is the worse thing that can happen and if you like the company you stand less of a chance of being scared out of the trade. It works well with high quality resonable dividend paying stocks. Cat, GE, Mrk, PM etc. Good luck\",\n \"The mathematics make it easier to understand why this is the case. Using very bad shorthand, d1 and d2 are inputs into N(), and N() can be expressed as the probability of the expected value or the most probable value which in this case is the discounted expected stock price at expiration. d1 has two σs which is volatility in the numerator and one in the denominator. Cancelling leaves one on top. Calculating when it's infinity gives an N() of 1 for S and 0 for K, so the call is worth S and the put PV(K). At 0 for σ, it's the opposite. More concise is that any mathematical moment be it variance which mostly influences volatility, mean which determines drift, or kurtosis which mostly influences skew are all uncertanties thus costs, so the higher they are, the higher the price of an option. Economically speaking, uncertainties are costs. Since costs raise prices, and volatility is an uncertainty, volatility raises prices. It should be noted that BS assumes that prices are lognormally distributed. They are not. The closest distribution, currently, is the logVariance Gamma distribution.\",\n \"\\\"You are likely making an assumption that the \\\"\\\"Short call\\\"\\\" part of the article you refer to isn't making: that you own the underlying stock in the first place. Rather, selling short a call has two primary cases with considerably different risk profiles. When you short-sell (or \\\"\\\"write\\\"\\\") a call option on a stock, your position can either be: covered, which means you already own the underlying stock and will simply need to deliver it if you are assigned, or else uncovered (or naked), which means you do not own the underlying stock. Writing a covered call can be a relatively conservative trade, while writing a naked call (if your broker were to permit such) can be extremely risky. Consider: With an uncovered position, should you be assigned you will be required to buy the underlying at the prevailing price. This is a very real cost — certainly not an opportunity cost. Look a little further in the article you linked, to the Option strategies section, and you will see the covered call mentioned there. That's the kind of trade you describe in your example.\\\"\",\n \"Beta is an indication of a Stock's risk with respect to the market. For instance if a stock had a beta of 1 it means it is in tandem with the S&P 500. If it is more than 1, the stock is volatile. If it is less than 1, it implies market movement doesn't affect this stock much. Tech stocks and small cap stocks have high beta, utilities have low beta. (In general, not always). Hope this helps - I've tried to explain it in very simple terms!\",\n \"I guess I wasn't clear. I want to modestly leverage (3-4x) my portfolio using options. I believe long deep-in-the-money calls would be the best way to do this? (Let me know if not.) It's important to me that the covariance matrix from the equity portfolio scales up but doesn't fundamentally change. (I liken it to systemic change as opposed to idiosyncratic change.) This is what I was thinking: * For the same expiry date, find each positions lowest lambda. * Match all option to the the highest of the lowest lambda. * Adjust number of contracts to compensate for higher leverage. I don't think this will work because if I matched the lowest lambda of options on bond etfs to my equity options they would be out-of-the-money. By the way, thanks for your time.\",\n \"\\\"As already noted, options contain inherent leverage (a multiplier on the profit or loss). The amount of \\\"\\\"leverage\\\"\\\" is dictated primarily by both the options strike relative to the current share price and the time remaining to expiration. Options are a far more difficult investment than stocks because they require that you are right on both the direction and the timing of the future price movement. With a stock, you could choose to buy and hold forever (Buffett style), and even if you are wrong for 5 years, your unrealized losses can suddenly become realized profits if the shares finally start to rise 6 years later. But with options, the profits and losses become very final very quickly. As a professional options trader, the single best piece of advice I can give to investors dabbling in options for the first time is to only purchase significantly ITM (in-the-money) options, for both calls and puts. Do a web search on \\\"\\\"in-the-money options\\\"\\\" to see what calls or puts qualify. With ITM options, the leverage is still noticeably better than buying/selling the shares outright, but you have a much less chance of losing all your premium. Also, by being fairly deep in-the-money, you reduce the constant bleed in value as you wait for the expected move to happen (the market moves sideways more than people usually expect). Fairly- to deeply-ITM options are the ones that options market-makers like least to trade in, because they offer neither large nor \\\"\\\"easy\\\"\\\" premiums. And options market-makers make their living by selling options to retail investors and other people that want them like you, so connect the dots. By trading only ITM options until you become quite experienced, you are minimizing your chances of being the average sucker (all else equal). Some amateur options investors believe that similar benefits could be obtained by purchasing long-expiration options (like LEAPS for 1+ years) that are not ITM (like ATM or OTM options). The problem here is that your significant time value is bleeding away slowly every day you wait. With an ITM option, your intrinsic value is not bleeding out at all. Only the relatively smaller time value of the option is at risk. Thus my recommendation to initially deal only in fairly- to deeply-ITM options with expirations of 1-4 months out, depending on how daring you wish to be with your move timing.\\\"\",\n \"If the position starts losing money as soon as it is put on, then I would close it out ,taking a small loss. However, if it starts making money,as in the stock inches higher, then you can use part of the premium collected to buy an out of money put, thereby limiting your downside. It is called a collar.\",\n \"\\\"people are willing to pay higher premiums for options when stocks go down. Obviously the time value and intrinsic value and interests rates of the option doesn't change because of this so the miscalculation remainder is priced into the implied volatility part of the formula. Basically, anything that suggests the stock price will get volatile (sharp moves in either direction) will increase the implied volatility of the option. For instance, around earnings reports, the IV in both calls and puts in the nearest expiration dates are very high. When stocks go down sharply, the volatility is high because some people are buying puts for protection and others are buying calls because they think there will be a rebound move in the other direction. People (the \\\"\\\"sleep-at-night\\\"\\\" investors, not the derivatives traders ;) ) tend to be calm when stocks are going up, and fearful when they are going down. The psychology is important to understand and observe and profit from, not to quantitatively prove. The first paragraph should be your qualitative answer\\\"\",\n \"No, something doesn't seem right here. There would be virtually no time value to the option 10 minutes before market close on the expiration day. What option is it, and what is the expiration? EDIT: It appears you were looking only at the ASK price. It was $2.05. However, the BID price was only $1.35 and the last transaction was $1.40. So the true value is right about $1.35 to $1.40 at this second. This is a pitfall that tends to occur when you trade options with almost no volume. For instance, the open interest in that option is only 1 contract (assuming that is yours). So the Bid and the Ask can often be very far apart as they are only being generated by computer traders or the result of outdated, irrelevant human orders.\",\n \"See how you can only make the premium amount but your risk is the same as holding the stock when writing a put option.\",\n \"If you are in the money at expiration you are going to get assigned to the person on the other side of the contract. This is an extremely high probability. The only randomness comes from before expiration. Where you may be assigned because a holder exercised the option before expiration, this can unbalance some of your strategies. But in exchange, you get all the premium that was still left on the option when they exercised. An in the money option, at expiration, has no premium. The value of your in the money option is Current Stock price - Strike Price, for a call. And Strike price - Current Stock price, for a put. Thats why there is no free lunch in this scenario.\",\n \"When you buy a call option, you transfer the risk to the owner of the asset. They are risking losing out on gains that may accumulate in addition to the strike price and paid premium. For example, if you buy a $25 call option on stock XYZ for $1 per contract, then any additional gain above $26 per share of XYZ is missed out on by the owner of the stock and solely benefits the option holder.\",\n \"\\\"It's talked about quite often among more experienced investors. They were/ are used extensively by hedge funds. Keep in mind that if your option expires when not \\\"\\\"in the money\\\"\\\" you lose the premium you paid for the purchase of the option. That's where the risk comes in. I've grown really interested in options over the last couple months. Check out McMillan's Guide to Options. It's generally thought of as the quintessential beginners guide to understanding options. Good luck!\\\"\",\n \"\\\"This doesn't make sense to me. Writing a covered call gives him a long delta position - the exact opposite of what he wants. And the tax losses won't turn a losing position into a winning one. Is there something I'm missing? Edit: Also, doesn't \\\"\\\"shorting against the box\\\"\\\" mean he has to have a long position, and short against that? That means you've got zero net delta, which isn't very useful at all...\\\"\",\n \"Let's say a stock trades at $100 right now, and you can buy a $100 call option. When you buy the call option (and the money you paid is gone), one of two things can happen: The share price goes up, or the share price goes down. If the share price goes up, you profit. If the share price goes down, you don't lose! Because once the shares are below $100, you don't exercise the call option, and you don't lose any money. So if you have a share that is rock solid at $100, you don't make money. If you have a share where the company owner took some ridiculous risk, and the shares could go to $200 or the company could go bankrupt, then you have a 50% chance to make $100 and a 50% chance to not lose anything. That's much more preferable.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["Option prices consist of two parts: the intrinsic value (the difference between the strike and the current price of the stock) and a time premium, representing the probability that the stock will end up above the strike for a call (or below for a put). All else being equal, options decline in value as time passes, since there is less uncertainty about the expected value of the stock at expiration and thus the time premium is smaller. Theta is the measure of the change in value in one day. So for every day that passes, the calls you sold are going down by $64.71 (which is positive to you since you sold them at a higher value) and the calls you sold are going down by $49.04. So your position (a short spread) is gaining $15.67 each day (assuming no change in stock price or volatility). In reality, the stock price and volatility also change every day, and those are much stronger drivers of the value of your options. In your case, however, the options are deep out of the money, meaning it's very likely that they'll expire worthless, so all you have left is time premium, which is decaying as time goes on."],"string":"[\n \"Option prices consist of two parts: the intrinsic value (the difference between the strike and the current price of the stock) and a time premium, representing the probability that the stock will end up above the strike for a call (or below for a put). All else being equal, options decline in value as time passes, since there is less uncertainty about the expected value of the stock at expiration and thus the time premium is smaller. Theta is the measure of the change in value in one day. So for every day that passes, the calls you sold are going down by $64.71 (which is positive to you since you sold them at a higher value) and the calls you sold are going down by $49.04. So your position (a short spread) is gaining $15.67 each day (assuming no change in stock price or volatility). In reality, the stock price and volatility also change every day, and those are much stronger drivers of the value of your options. In your case, however, the options are deep out of the money, meaning it's very likely that they'll expire worthless, so all you have left is time premium, which is decaying as time goes on.\"\n]","isConversational":false}}},{"rowIdx":364,"cells":{"_id":{"kind":"string","value":"3735"},"query":{"kind":"string","value":"Shorting Stocks And Margin Account Minimum"},"gt_ids":{"kind":"list like","value":["330041","266900","314478"],"string":"[\n \"330041\",\n \"266900\",\n \"314478\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1],"string":"[\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["565909","32290","94062","300139","5573","266900","68853","469830","330041","283982","314478","294095","458789","356388","547460","537153","370161","272754","104916","545146","333674","511093","231221","247680","331606","155957","190928","521897","389501","115918","258077","527654","533354","5253","520098","104789","32944","100628","45674","543811","273345","338727","109561","344065","336399","545287","392403","141213","122485","330900","292159","235029","61853","499877","1203","254730","356490","473477","282499","396271","54471","144431","94690","271920","153010","459979","441768","364588","259706","326335","212687","93231","508821","467926","358129","7743","193502","419138","499331","72633","459494","289073","530155","280719","210887","500534","273789","209359","35102","23387","584291","474487","564353","99943","107045","42083","279185","402726","112393","274835"],"string":"[\n \"565909\",\n \"32290\",\n \"94062\",\n \"300139\",\n \"5573\",\n \"266900\",\n \"68853\",\n \"469830\",\n \"330041\",\n \"283982\",\n \"314478\",\n \"294095\",\n \"458789\",\n \"356388\",\n \"547460\",\n \"537153\",\n \"370161\",\n \"272754\",\n \"104916\",\n \"545146\",\n \"333674\",\n \"511093\",\n \"231221\",\n \"247680\",\n \"331606\",\n \"155957\",\n \"190928\",\n \"521897\",\n \"389501\",\n \"115918\",\n \"258077\",\n \"527654\",\n \"533354\",\n \"5253\",\n \"520098\",\n \"104789\",\n \"32944\",\n \"100628\",\n \"45674\",\n \"543811\",\n \"273345\",\n \"338727\",\n \"109561\",\n \"344065\",\n \"336399\",\n \"545287\",\n \"392403\",\n \"141213\",\n \"122485\",\n \"330900\",\n \"292159\",\n \"235029\",\n \"61853\",\n \"499877\",\n \"1203\",\n \"254730\",\n \"356490\",\n \"473477\",\n \"282499\",\n \"396271\",\n \"54471\",\n \"144431\",\n \"94690\",\n \"271920\",\n \"153010\",\n \"459979\",\n \"441768\",\n \"364588\",\n \"259706\",\n \"326335\",\n \"212687\",\n \"93231\",\n \"508821\",\n \"467926\",\n \"358129\",\n \"7743\",\n \"193502\",\n \"419138\",\n \"499331\",\n \"72633\",\n \"459494\",\n \"289073\",\n \"530155\",\n \"280719\",\n \"210887\",\n \"500534\",\n \"273789\",\n \"209359\",\n \"35102\",\n \"23387\",\n \"584291\",\n \"474487\",\n \"564353\",\n \"99943\",\n \"107045\",\n \"42083\",\n \"279185\",\n \"402726\",\n \"112393\",\n \"274835\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["If this is the initial transaction, the rules of a short margin account say that if you shorted 1000 share of ABC at $5/share your credit balance would be $5000 from the short plus you would have to put up yourself $5000 cash or $10,000 of marginal securities. So this is not really leveraging using margin. You have to put in just as much as the short generates. Is that what this relates to? Once the initial purchase has been made the minimum maintenance for a stock trading under $5 per share is 100% of the short market value in the margin account or $2.50 per share whichever is greater. For stock trading at $5/share or greater the minimum maintenance requirement is $5/share or 30% of the short market value, whichever is greater. The minimum maintenance requirements can be tighter.","Depends on the stock involved, but for the most part brokerages allow you gain entry at 50%, meaning you can short twice the cash on hand you have. Going forward, you need to maintain 30%, so on a $10,000 short, you'd have to maintain $3000 in your account. Example, an account with $5000 cash - You can short $10,000 securities. Let say 100 shares of xyz at $100 per share. After trade settles, you won't receive a margin call until your balance falls to $3000, probably right around the time xyz rises to $120 per share. Riskier stocks will have higher margin maintenance requirements - leveraged vehicles like FAS/FAZ (triple leveraged) require 90% margin (3x30%) if they are allowed to be 'shorted' at all.","200% margin for a short sale is outrageous. You should only need to put up 150% margin, of which 50% is your money, and the 100% is the proceeds. With $100 of your money, you should be able to buy $100 of GOOG and short $100 of PNQI.","\"In summary: In long form: Spreads and shorts are not allowed in cash accounts, except for covered options. Brokers will allow clients to roll option positions in a single transaction, which look like spreads, but these are not actually \"\"sell to open\"\" transactions. \"\"Sell to open\"\" is forbidden in cash accounts. Short positions from closing the long half of a covered trade are verboten. Day-trading is allowed in both margin and cash accounts. However, \"\"pattern day-trading\"\" only applies to margin accounts, and requires a minimum account balance of $25,000. Cash accounts are free to buy and sell the same security on the same day over and over, provided that there is sufficient buying power to pay for opening a new position. Since proceeds are held for both stock and option sales in a cash account, that means buying power available at the start of the day will drop with each purchase and not rise again until settlement. Unsettled funds are available immediately within margin accounts, without restriction. In cash accounts, using unsettled funds to purchase securities will require you to hold the new position until funds settle -- otherwise your account will be blocked for \"\"free-riding\"\". Legally, you can buy securities in a cash account without available cash on deposit with the broker, but most brokers don't allow this, and some will aggressively liquidate any position that you are somehow able to enter for which you didn't have available cash already on deposit. In a margin account, margin can help gloss over the few days between purchase and deposit, allowing you to be somewhat more aggressive in investing funds. A margin account will allow you to make an investment if you feel the opportunity is right before requiring you to deposit the funds. See a great opportunity? With sufficient margin, you can open the trade immediately and then run to the bank to deposit funds, rather than being stuck waiting for funds to be credited to your account. Margin accounts might show up on your credit report. The possibility of losing more than you invested, having positions liquidated when you least expect it, your broker doing possibly stupid things in order to close out an over-margined account, and other consequences are all very serious risks of margin accounts. Although you mentioned awareness of this issue, any answer is not complete with mentioning those risks.\"","Exact rules may be different depending on the size of the investor, the specific broker, and the country. For both the US and Canada, short sales occur only through one's margin account. And shares that are borrowed for shorting only come from a margin account. Shares held in a cash account are not available for shorting. From Wikipedia Short (finance) - The speculator instructs the broker to sell the shares and the proceeds are credited to his broker's account at the firm upon which the firm can earn interest. Generally, the short seller does not earn interest on the short proceeds and cannot use or encumber the proceeds for another transaction. As with many questions, I'd suggest you contact your broker for the exact details governing your account.","\"The margin money you put up to fund a short position ($6000 in the example given) is simply a \"\"good faith\"\" deposit that is required by the broker in order to show that you are acting in good faith and fully intend to meet any potential losses that may occur. This margin is normally called initial margin. It is not an accounting item, meaning it is not debited from you cash account. Rather, the broker simply segregates these funds so that you may not use them to fund other trading. When you settle your position these funds are released from segregation. In addition, there is a second type of margin, called variation margin, which must be maintained while holding a short position. The variation margin is simply the running profit or loss being incurred on the short position. In you example, if you sold 200 shares at $20 and the price went to $21, then your variation margin would be a debit of $200, while if the price went to $19, the variation margin would be a credit of $200. The variation margin will be netted with the initial margin to give the total margin requirement ($6000 in this example). Margin requirements are computed at the close of business on each trading day. If you are showing a loss of $200 on the variation margin, then you will be required to put up an additional $200 of margin money in order to maintain the $6000 margin requirement - ($6000 - $200 = $5800, so you must add $200 to maintain $6000). If you are showing a profit of $200, then $200 will be released from segregation - ($6000 + $200 = $6200, so $200 will be release from segregation leaving $6000 as required). When you settle your short position by buying back the shares, the margin monies will be release from segregation and the ledger postings to you cash account will be made according to whether you have made a profit or a loss. So if you made a loss of $200 on the trade, then your account will be debited for $200 plus any applicable commissions. If you made a profit of $200 on the trade then your account will be credited with $200 and debited with any applicable commissions.\"","They will make money from brokerage as usual and also from the interest they charge you for lending you the money for you to buy your shares on margin. In other words you will be paying interest on the $30,000 you borrowed from your broker. Also, as per Chris's comment, if you are shorting securities through your margin account, your broker would charge you a fee for lending you the securities to short.","Most brokers have a margin maintenance requirement of 30%. In your example, it would depend on how much money you're borrowing from your broker on margin. Consider this: You have $250, and short AAPL at $500 on margin. This would be a common scenario (federal law requires investors to have at least 50% of their margin equity when opening a transaction). If your broker had a requirement of 30%, they would require that for your $500 position, you have at least $500 * .3 = $150 equity. Since you are currently above that number at $250, you will not be hit with a margin call. Say the price of AAPL doubles, and now your position is worth $1000. $1000 * .3 = $300, which is $50 above your initial equity. Your broker will now consider you eligible for a margin call. Most will not execute the call right away, you will often have some time to either sell/cover stock or add funds to your account. But not all brokers will warn you if you are breaking margin requirements, and sometimes margin calls can take you by surprise if you are not paying attention. Also, many will charge interest on extra margin borrowed.","\"First, you are not exactly \"\"giving\"\" the brokerage $2000. That money is the margin requirement to protect them in the case the stock price rises. If you short 200 shares as in your example and they are holding $6000 from you then they are protected in the event of the stock price increasing to $30/share. Sometime before it gets there the brokerage will require you to deposit more money or they will cover your position by repurchasing the shares for your account. The way you make money on the short sale is if the stock price declines. It is a buy low sell high idea but in reverse. If you believe that prices are going to drop then you could sell now when it is high and buy back later when it is lower. In your example, you are selling 200 shares at $20 and later, buying those at $19. Thus, your profit is $200, not counting any interest or fees you have paid. It's a bit confusing because you are selling something you'll buy in the future. Selling short is usually considered quite risky as your gain is limited to the amount that you sold at initially (if I sell at $20/share the most I can make is if the stock declines to $0). Your potential to lose is unlimited in theory. There is no limit to how high the stock could go in theory so I could end up buying it back at an infinitely high price. Neither of these extremes are likely but they do show the limits of your potential gain and loss. I used $20/share for simplicity assuming you are shorting with a market order vs a limit order. If you are shorting it would be better for you to sell at 20 instead of 19 anyway. If someone says I would like to give you $20 for that item you are selling you aren't likely to tell them \"\"no, I'd really only like $19 for it\"\"\"","\"He sold at 25 cents per pound and then as the price rises, the cash he has will buy less and less which could trigger a margin call as you are missing the \"\"short\"\" part of his position which is rather important here. From Investopedia: A margin account also allows your brokerage firm to liquidate your position if the likelihood that you will return what you've borrowed diminishes. This is part of the agreement that is signed when the margin account is created. From the broker's perspective, this increases the likelihood that you will return the shares before losses become too large and you become unable to return the shares. If you sold at 25 cents per pound and the price goes up, at some point you may be forced to buy to cover the position as brokers don't like to lose their money. As another example of a short going bad, \"\"Devastated\"\" Trader Crushed By Soaring Biotech, Starts Online Begging Campaign To Fund $106,000 Margin Call notes in part: However where this story gets abusrdly entertaining, or woefully tragic, depending on one's perspective, is that one trader, Joe Campbell, was on the wrong side of last night's massive surge. As the RutRho blog, which noticed it first explains, a \"\"dummy\"\" E-trader, Joe Campbell, decided to go $35,000 short KBIO \"\"and now owes $ETFC a wonderful $106K.\"\"\"","\"And what exactly do I profit from the short? I understand it is the difference in the value of the stock. So if my initial investment was $4000 (200 * $20) and I bought it at $3800 (200 * $19) I profit from the difference, which is $200. Do I also receive back the extra $2000 I gave the bank to perform the trade? Either this is extremely poorly worded or you misunderstand the mechanics of a short position. When you open a short position, your are expecting that the stock will decline from here. In a short position you are borrowing shares you don't own and selling them. If the price goes down you get to buy the same shares back for less money and return them to the person you borrowed from. Your profit is the delta between the original sell price and the new lower buy price (less commissions and fees/interest). Opening and closing a short position is two trades, a sell then a buy. Just like a long trade there is no maximum holding period. If you place your order to sell (short) 200 shares at $19, your initial investment is $3,800. In order to open your $3,800 short position your broker may require your account to have at least $5,700 (according to the 1.5 ratio in your question). It's not advisable to open a short position this close to the ratio requirement. Most brokers require a buffer in your account in case the stock goes up, because in a short trade if the stock goes up you're losing money. If the stock goes up such that you've exhausted your buffer you'll receive what's known as a \"\"margin call\"\" where your broker either requires you to wire in more money or sell part or all of your position at a loss to avoid further losses. And remember, you may be charged interest on the value of the shares you're borrowing. When you hold a position long your maximum loss is the money you put in; a position can only fall to zero (though you may owe interest or other fees if you're trading on margin). When you hold a position short your maximum loss is unlimited; there's no limit to how high the value of something can go. There are less risky ways to make short trades by using put options, but you should ensure that you have a firm grasp on what's happening before you use real money. The timing of the trades and execution of the trades is no different than when you take a plain vanilla long position. You place your order, either market or limit or whatever, and it executes when your trade criteria occurs.\"","With your numbers, look at it this way - You borrowed $50. When the stock is $100, you are at 50% margin. What's most important, is that there's margin interest charged, so the amount owed will increase regardless of the stock price. When calculating your return or loss, the interest has to be accounted for or your numbers will be wrong. For a small investor, margin rates can run high, and often, will offset much of your potential gain. What good is a $100 gain if you paid $125 in margin interest?","The setup is a purchase of 200 shares at $40 with a cash deposit of $4000 and margin loan of $4000 which a year later grew to $4240. With a margin requirement of 30%, the loan can be 70% or a total stock value of $6057. 1) $30.29 2) -24.3% (The stock fell to $30.29 from $40) 3) -54.6% (Your $4000 fell to $1817)","\"Derivatives derive their value from underlying assets. This is expressed by the obligation of at least one counterparty to trade with the other counterparty in the future. These can take on as many combinations as one can dream up as it is a matter of contract. For futures, where two parties are obligated to trade at a specific price at a specific date in the future (one buyer, one seller), if you \"\"short\"\" a future, you have entered into a contract to sell the underlying at the time specified. If the price of the future moves against you (goes up), you will have to sell at a loss. The bigger the move, the greater the loss. You go ahead and pay this as well as a little extra to be sure that you satisfy what you owe due to the future. This satisfaction is called margin. If there weren't margin, people could take huge losses on their derivative bets, not pay, and disrupt the markets. Making sure that the money that will trade is already there makes the markets run smoothly. It's the same for shorting stocks where you borrow the stock, sell it, and wait. You have to leave the money with the broker as well as deposit a little extra to be sure you can make good if the market moves to a large degree against you.\"","You can't sell options if you don't have margin account (except covered call). You can't trade futures if you don't have margin account. Everything is immediate when you have margin account. (Including stocks) Margin account is not subject to freeriding rules, but is subject to Pattern Day Trader rules.","You will be charged a stock borrow fee, which is inversely related to the relative supply of the stock you are shorting. IB claims to pay a rebate on the short proceeds, which would offset part or all of that fee, but it doesn't appear relevant in your case because: It is a bit strange to me that IB would not require you to keep the cash in your account, as they need the cash to collateralize the stock borrow with the lending institution. In fact, per Regulation T, the short position requires an initial margin of 150%, which includes the short proceeds. As described by Investopedia: In the first table of Figure 1, a short sale is initiated for 1,000 shares at a price of $50. The proceeds of the short sale are $50,000, and this amount is deposited into the short sale margin account. Along with the proceeds of the sale, an additional 50% margin amount of $25,000 must be deposited in the account, bringing the total margin requirement to $75,000. At this time, the proceeds of the short sale must remain in the account; they cannot be removed or used to purchase other securities. Here is a good answer to your question from The Street: Even though you might see a balance in your brokerage account after shorting a stock, you're actually looking at a false credit, according to one big brokerage firm. That money is acting as collateral for the short position. So, you won't have use of these funds for investment purposes and won't earn interest on it. And there are indeed costs associated with shorting a stock. The broker has to find stock to loan to you. That might come out of a broker's own inventory or might be borrowed from another stock lender.","I agree with Mark. I was quite confuse about the short position at first but then I did a lot of learning and found out that as long as you have enough cash to cover your margin requirement you do not pay any interest since you do not have a debit on your margin balance. This is not true for a long position though, supposed you have 5k cash and 5k margin balance, if you buy 10K worth of stocks then you will need to pay interest on the 5k of the margin balance since it is a debit. Since shorting is done at a credit basis, you actually get interest from the transaction but you still may need to pay the borrowing fees for the stocks so they could simply balance each other out. I have shorted stocks twice through two different companies and neither time I noticed any interest charges. But make sure you have enough cash to cover your margin requirement, because once your margin balance is used to covered your position then interest would accrual. Learn.","The Margin Account holds the funds that are MUST for any margin trades. Any funds excess of the MUST for margin trades are kept in the SMA account. These funds can be used for further Margin trades in new securities [funds get transfered into the Margin Account]. They cannot be used to met the Shortfall due to margin calls on existing trades. New funds need to be arranged. More at http://en.wikipedia.org/wiki/Special_memorandum_account","It is a question of how volatile the stock is perceived to be, its beta correlation to the S&P500 or other index. Margin requirements are derived from the Federal Reserve, Self Regulatory Organizations, the exchange itself, the broker you use, and which margining system you are using. So that makes this a loaded question. There are at least three margin systems, before you have your own risk officer in a glass room that doesn't care how leveraged up you get. Brokers primarily don't want to lose money.","I'd say yes, and hope that my anecdotal evidence serves as proof. My IRA is not a margin account. It can't be. I attempt to create a covered call, buying a stock at say $20, and selling a call for $4, for net $16 cost. The account only had $1610 at the time, and the trades go through just fine. Yes, I needed to enter as a limit order, at the same time, a single order with the $16 debit limit. If this is not enough proof, I'd be curious - why not? The option proceeds must clear, of course, which it does.","Different brokerages have different house rules for margin requirements and margin calls. You will likely get a margin call giving you a small amount of time to deposit the required funds to bring your account balance up to the required margin requirements. In reality, a stock that falls from $50 to $4 in a short period will probably become unmarginable. In short, yes, you will owe the broker for the loss.","Yes, it's completely normal to buy (and sell) puts and other options without holding the underlying. However, every (US) brokerage I know of only permits this within a margin account. I don't know why...probably a legal reason. You don't actually have to use the margin in a margin account. If you want to trade options, though, you will need a margin account.","In the U.S. it is typical that a stock brokerage account can be set up to buy stock with up to half the cost being borrowed from the broker. This is called a margin account. The stock purchased must remain in the account until sold (or the loan is paid off), as it serves as built-in collateral for the loan. If the market price for the stock goes down too much, you will be required to add money, or the stock will be sold to cover the loan. See this question for some more information.","That is the maintenance margin required for that position. Whenever you trade using your margin account, you must (by law, and also separately often by stricter policies from the brokerage) have a certain percentage of equity - at least 25%, often higher. That protects the brokerage from significant losses if your position drops in value significantly (hopefully preventing the brokerage from failing outright in the event of a major collapse). If the amount of equity falls below the maintenance requirement, you will have a margin call and be required to put some cash (or equity) into the account to maintain that level. See Maintenance Margin definition on Investopedia for more information.","\"When margin is calculated as the equity percentage of an account, the point at which a broker will forcibly liquidate is typically called \"\"maintenance margin\"\". In the US, this is 25% for equities. To calculate the price at which this will occur, the initial and maintenance margin must be known. The formula for a long with margin is: and for a short where P_m is the maintenance margin price, P_i is the initial margin price, m_i is the initial margin rate, and m_m is the maintenance margin rate. At an initial margin of 50% and a maintenance margin of 25%, a long equity may fall by 1/3 before forced liquidation, a short one may rise by 50%. This calculation can become very complex with different asset classes with differing maintenance margins because the margin debt is applied to all securities collectively.\"","As the referenced document says, there are 3 formulas, and you need to use the formula which results the greatest margin requirement. In your case, you need to use the 10% formula:","\"All margin is marked to market. Option longs do not post margin because long margin trading is forbidden. Equity longs must post margin if cash is borrowed to fund the purchase. Shorts of all kinds must post margin, and the rates are generally the same: a few standard deviations away from the mean daily change of the underlying. A currency futures trader, because of the involatility of most major monies, can get away with a few percentage points. Commodities can get to around 10%. Single equities are frequently around 20%, while indices can get back down to 10%. A future is a special case because both sides are technically short and long at the same time. The easiest example to perceive is a currency future. Which one is the buyer and which is the seller? Both and neither. Contracts may be denominated for one side as the seller and the other the buyer, but contractually, legally, and effectively, both are liable to the other, and both must take delivery. For non-currency assets, it only appears as if the cash seller is the buyer because cash is not considered an asset in the same way all other assets are, but the \"\"long\"\" is obligated to sell cash and buy the \"\"asset\"\".\"","With margin accounts you will be able to use the proceeds from a closed trade INSTANTLY. Without margin accounts this is the time you close the trade + 3 business days for clearing. In practice this means 4-5 days if there is a weekend or holiday involved between those 3 business days. This ties up your capital for an unfavorable amount of time, where as a margin account lets you continue to use the capital over and over again for more opportunities. You CANNOT sell to open a position in cash accounts. This means no short selling. This means no covered calls or spreads and MANY other strategies. These are the real differences you'll notice in a margin account vs a cash account. Then there are the myriad of regulations that dictate how much cash you should keep in your account for any margin position.","If the underlying is currently moving as aggressively as stated, the broker would immediately forcibly close positions to maintain margin. What securities are in fact closed depends upon the internal algorithms. If the equity in the account remains negative after closing all positions if necessary, the owner of the account shall owe the broker the balance. The broker will close the account and commence collections if the owner of the account does not pay the balance quickly. Sometimes, brokers will impose higher margin requirements than mandated to prevent the above eventuality. Brokers frequently close positions that violate internal or external margin requirements as soon as they are breached.","\"Probably the most significant difference is the Damocles Sword hanging over your head, the Margin Call. In a nutshell, the lender (your broker) is going to require you to have a certain amount of assets in your account relative to your outstanding loan balance. The minimum ratio of liquid funds in the account to the loan is regulated in the US at 50% for the initial margin and 25% for maintenance margins. So here's where it gets sticky. If this ratio gets on the wrong side of the limits, the broker will force you to either add more assets/cash to your account t or immediately liquidate some of your holdings to remedy the situation. Assuming you don't have any/enough cash to fix the problem it can effectively force you to sell while your investments are in the tank and lock in a big loss. In fact, most margin agreements give the brokerage the right to sell your investments without your express consent in these situations. In this situation you might not even have the chance to pick which stock they sell. Source: Investopedia article, \"\"The Dreaded Margin Call\"\" Here's an example from the article: Let's say you purchase $20,000 worth of securities by borrowing $10,000 from your brokerage and paying $10,000 yourself. If the market value of the securities drops to $15,000, the equity in your account falls to $5,000 ($15,000 - $10,000 = $5,000). Assuming a maintenance requirement of 25%, you must have $3,750 in equity in your account (25% of $15,000 = $3,750). Thus, you're fine in this situation as the $5,000 worth of equity in your account is greater than the maintenance margin of $3,750. But let's assume the maintenance requirement of your brokerage is 40% instead of 25%. In this case, your equity of $5,000 is less than the maintenance margin of $6,000 (40% of $15,000 = $6,000). As a result, the brokerage may issue you a margin call. Read more: http://www.investopedia.com/university/margin/margin2.asp#ixzz1RUitwcYg\"","A bit of poking around brought me to this thread on the Motley Fool, asking the same basic question: I think the problem is the stock price. For a stock to be sold short, it has to be marginable which means it has to trade over $ 5.00. The broker, therefore, can't borrow the stock for you to sell short because it isn't held in their clients' margin accounts. My guess is that Etrade, along with other brokers, simply exclude these stocks for short selling. Ivestopedia has an explanation of non-marginable securities. Specific to stocks under $5: Other securities, such as stocks with share prices under $5 or with extremely high betas, may be excluded at the discretion of the broker itself.","\"If you don't have a margin account, then you will not have margin calls. You need a margin account if you wish to \"\"buy on margin\"\", to sell stocks \"\"short\"\", or to sell options, or maybe some other esoteric things I have not thought of. If you don't do those things, then you do not need a margin account and will not get margin calls. In your example, it doesn't sound like margin has been used, If you deposit $20 and used it to buy $20 of stock and it then falls to $5, \"\"they\"\" did not lose the money, you did. But if no margin was used, then no margin call would result.\"","Timothy Sykes specializes in this type of trade, according to his website. He has some recommendations for brokers that allow shorting low-priced stocks:","You buy something on margin. It goes down. You get a margin call. It's not more complex than that. The value of your account has to be X% of the asset you control. The fact that the ETF is bull, bear, triple long/short, doesn't really matter.","\"A derivative contract can be an option, and you can take a short (sell) position , much the same way you would in a stock. When BUYING options you risk only the money you put in. However when selling naked(you don't have the securities or cash to cover all potential losses) options, you are borrowing. Brokers force you to maintain a required amount of cash called, a maintenance requirement. When selling naked calls - theoretically you are able to lose an INFINITE amount of money, so in order to sell this type of options you have to maintain a certain level of cash in your account. If you fail to maintain this level you will enter into whats often referred to as a \"\"margin-call\"\". And yes they will call your phone and tell you :). Your broker has the right to liquidate your positions in order to meet requirements. PS: From experience my broker has never liquidated any of my holdings, but then again I've never been in a margin call for longer then a few days and never with a severe amount. The margin requirement for investors is regulated and brokers follow these regulations.\"","\"So, the term \"\"ready market\"\" simply means that a market exists in which there are legitimate buy/sell offers, meaning there are investors willing to own or trade in the security. A \"\"spot market\"\" means that the security/commodity is being delivered immediately, rather at some predetermined date in the future (hence the term \"\"futures market\"\"). So if you buy oil on the spot market, you'd better be prepared to take immediate delivery, where as when you buy a futures contract, the transaction doesn't happen until some later date. The advantage for futures contract sellers is the ability to lock in the price of what they're selling as a hedge against the possibility of a price drop between now and when they can/will deliver the commodity. In other words, a farmer can pre-sell his grain at a set price for some future delivery date so he can know what he's going to get regardless of the price of grain at the time he delivers it. The downside to the farmer is that if grain prices rise higher than what he sold them for as futures contracts then he loses that additional money. That's the advantage to the buyer, who expects the price to rise so he can resell what he bought from the farmer at a profit. When you trade on margin, you're basically borrowing the money to make a trade, whether you're trading long (buying) or short (selling) on a security. It isn't uncommon for traders to pledge securities they already own as collateral for a margin account, and if they are unable to cover a margin call then those securities can be liquidated or confiscated to satisfy the debt. There still may even be a balance due after such a liquidation if the pledged securities don't cover the margin call. Most of the time you pay a fee (or interest rate) on whatever you borrow on margin, just like taking out a bank loan, so if you're going to trade on margin, you have to include those costs in your calculations as to what you need to earn from your investment to make a profit. When I short trade, I'm selling something I don't own in the expectation I can buy it back later at a lower price and keep the difference. For instance, if I think Apple shares are going to take a steep drop at some point soon, I can short them. So imagine I short-sell 1000 shares of AAPL at the current price of $112. That means my brokerage account is credited with the proceeds of the sale ($112,000), and I now owe my broker 1000 shares of AAPL stock. If the stock drops to $100 and I \"\"cover my short\"\" (buy the shares back to repay the 1000 I borrowed) then I pay $100,000 for them and give them to my broker. I keep the difference ($12,000) between what I sold them for and what I paid to buy them back, minus any brokerage fees and fees the broker may charge me for short-selling. In conclusion, a margin trade is using someone else's money to make a trade, whether it's to buy more or to sell short. A short trade is selling shares I don't even own because I think I can make money in the process. I hope this helps.\"","\"To short: Of course, you may always buy some index correlated ETF that eliminates the above. They use stock futures on the index, and you simply buy the \"\"shorting ETF\"\" in your non-margin account. However, they are surprisingly high cost, and despite the intended correlation, have significant drag. It's a much safer way to short the market (you have great choice in which market ETF) and eliminates the single stock risk.\"","While a margin account is not required to trade options, a margin account is necessary to take delivery of an exercised put. The puts can be bought in a cash account so long as the cash necessary to fund the trade is available. If you do choose to exercise which almost never has a positive expected value relative to selling except after the final trading time before expiration, taxes notwithstanding, then your shares will be put to your counterparty. Since options almost always trade in round lots, 100 shares will have to fund the put exercise, or a margin account must satisfy the difference. For your situation, trading out of both positions would be probably be best.","I don't know what you are on about, as most online brokers should offer standard brokerage without margin. As trading with magin is considered more risky by most (especially if you don't know what you are doing), so one would have to fill out additional application forms and possibly undergo some training before getting a margin account open. A quick search on the net provided some examples, here is one - IG, who provide 3 type of accounts - Spread Betting and CFDs (both leveraged) and Stockbroking (which is non-leveraged).","\"I think to some extent you may be confusing the terms margin and leverage. From Investopedia Two concepts that are important to traders are margin and leverage. Margin is a loan extended by your broker that allows you to leverage the funds and securities in your account to enter larger trades. In order to use margin, you must open and be approved for a margin account. The loan is collateralized by the securities and cash in your margin account. The borrowed money doesn't come free, however; it has to be paid back with interest. If you are a day trader or scalper this may not be a concern; but if you are a swing trader, you can expect to pay between 5 and 10% interest on the borrowed money, or margin. Going hand-in-hand with margin is leverage; you use margin to create leverage. Leverage is the increased buying power that is available to margin account holders. Essentially, leverage allows you to pay less than full price for a trade, giving you the ability to enter larger positions than would be possible with your account funds alone. Leverage is expressed as a ratio. A 2:1 leverage, for example, means that you would be able to hold a position that is twice the value of your trading account. If you had $25,000 in your trading account with 2:1 leverage, you would be able to purchase $50,000 worth of stock. Margin refers to essentially buying with borrowed money. This must be paid back, with interest. You also may have a \"\"margin call\"\" forcing you to liquidate assets if you go beyond your margin limits. Leverage can be achieved in a number of ways when investing, one of which is investing with a margin account.\"","Yes, Regulation T is specified as the equity percentage of assets. So, yes, one can buy double the amount of equity in initial buying power but no more. A broker shouldn't even permit purchases that would violate margin regulation. Maintenance margin is at 25%, so equity must remain above 25% of the total or the brokerage will force liquidations.","You have to call Interactive Brokers for this. This is what you should do, they might even have a web chat. These are very broker specific idiosyncrasies, because although margin rules are standardized to an extent, when they start charging you for interest and giving you margin until settlement may not be standardized. I mean, I can call them and tell you what they said for the 100 rep.","The initial position is worth 40000. You post 50% margin, so you deposited 20000 and borrowed 20000. 6% of 20000 is 1200.","Here's how this works in the United States. There's no law regarding your behavior in this matter and you haven't broken any laws. But your broker-dealer has a law that they must follow. It's documented here: The issue is if you buy stock before your sell has settled (before you've received cash) then you're creating money where before none existed (even though it is just for a day or two). The government fears that this excess will cause undue speculation in the security markets. The SEC calls this practice freeriding, because you're spending money you have not yet received. In summary: your broker is not allowed to loan money to an account than is not set-up for loans; it must be a margin account. People with margin account are able to day-trade because they have the ability to use margin (borrow money). Margin Accounts are subject to Pattern Daytrading Rules. The Rules are set forth by FINRA (The Financial Industry Reporting Authority) and are here:","Yes, via a margin account, one can trade or transfer on unsettled funds. These are tight regulations that begin with the Federal Reserve, extend to FINRA, and downward. In a cash account, this is not possible. Since speed is a necessity, a margin account can actually be approved nearly instantly.","Margin is when you borrow to buy stock. The margin % is the amount you can have borrowed over your own stock. There may also be some other considerations e.g. risk portfolio. Say you have 10,000. Your broker allows you buy on margin with a margin requirement of 100%. So You buy 18,000 of stock. You have 10k of your own and borrowed 8k to buy this. So you have 80% extra stock on margin. Say the stock has a downturn and loses 12% or so. Suddenly you have 16k stock value. But you still owe 8k. You are now at 100% margin. 8k is yours 8k is borrowed money. At this point if you drop anymore you are exceeding 100% margin and your broker may sell to ensure they get their 8k. The benefits of this are of course if the stock goes in your favor. 10% rise is 1,800 instead of 1,000.","High frequency trades are intra day. The would buy a stock for 100 and sell for 100.10 multiple times. So If you start with 100 in your broker account, you buy something [it takes 2-3 days to settle], you sell for 100.10 [it takes 2-3 days to settle]. You again buy something for 100. It is the net value of both buys and sells that you need to look at. Trading on Margin Accounts. Most brokers offer Margin Accounts. The exact leverage ratios varies. What this means is that if you start with 10 [or 15 or 25] in your broker you can buy stock of 100. Of course legally you wont own the stock unless you pay the broker balance, etc.","The spread is two trades, one of which opens up some risk one of which limits/cancels the risk. There is nothing stopping you from selling part of the spread opening the door to the risk. You're required to have a margin account to open risky positions, even if the specific spread trade you're attempting to open has a risk limiting/cancelling counterpart.","Its hard to write much in those comment boxes, so I'll just make an answer, although its really not a formal answer. Regarding commissions, it costs me $5 per trade, so that's actually $10 per trade ($5 to buy, $5 to sell). An ETF like TNA ($58 per share currently) fluctuates $1 or $2 per day. IXC is $40 per share and fluctuates nearly 50 cents per day (a little less). So to make any decent money per trade would mean a share size of 50 shares TNA which means I need $2900 in cash (TNA is not marginable). If it goes up $1 and I sell, that's $10 for the broker and $40 for me. I would consider this to be the minimum share size for TNA. For IXC, 100 shares would cost me $4000 / 2 = $2000 since IXC is marginable. If IXC goes up 50 cents, that's $10 for the broker and $40 for me. IXC also pays a decent dividend. TNA does not. You'll notice the amount of cash needed to capture these gains is roughly the same. (Actually, to capture daily moves in IXC, you'll need a bit more than $2000 because it doesn't vary quite a full 50 cents each day). At first, I thought you were describing range trading or stock channeling, but those systems require stop losses when the range or channel is broken. You're now talking about holding forever until you get 1 or 2 points of profit. Therefore, I wouldn't trade stocks at all. Stocks could go to zero, ETFs will not. It seems to me you're looking for a way to generate small, consistent returns and you're not seeking to strike it rich in one trade. Therefore, buying something that pays a dividend would be a good idea if you plan to hold forever while waiting for your 1 or 2 points. In your system you're also going to have to define when to get back in the trade. If you buy IXC now at $40 and it goes to $41 and you sell, do you wait for it to come back to $40? What if it never does? Are you happy with having only made one trade for $40 profit in your lifetime? What if it goes up to $45 and then dips to $42, do you buy at $42? If so, what stops you from eventually buying at the tippy top? Or even worse, what stops you from feeling even more confident at the top and buying bigger lots? If it gets to $49, surely it will cover that last buck to $50, right? /sarc What if you bought IXC at $40 and it went down. Now what? Do you take up gardening as a hobby while waiting for IXC to come back? Do you buy more at lower prices and average down? Do you find other stocks to trade? If so, how long until you run out of money and you start getting margin calls? Then you'll be forced to sell at the bottom when you should be buying more. All these systems seem easy, but when you actually get in there and try to use them, you'll find they're not so easy. Anything that is obvious, won't work anymore. And even when you find something that is obvious and bet that it stops working, you'll be wrong then too. The thing is, if you think of it, many others just like you also think of it... therefore it can't work because everyone can't make money in stocks just like everyone at the poker table can't make money. If you can make 1% or 2% per day on your money, that's actually quite good and not too many people can do that. Or maybe its better to say, if you can make 2% per trade, and not take a 50% loss per 10 trades, you're doing quite well. If you make $40 per trade profit while working with $2-3k and you do that 50 times per year (50 trades is not a lot in a year), you've doubled your money for the year. Who does that on a consistent basis? To expect that kind of performance is just unrealistic. It much easier to earn $2k with $100k than it is to double $2k in a year. In stocks, money flows TO those who have it and FROM those who don't. You have to plan for all possibilities, form a system then stick to it, and not take on too much risk or expect big (unrealistic) rewards. Daytrading You make 4 roundtrips in 5 days, that broker labels you a pattern daytrader. Once you're labeled, its for life at that brokerage. If you switch to a new broker, the new broker doesn't know your dealings with the old broker, therefore you'll have to establish a new pattern with the new broker in order to be labeled. If the SEC were to ask, the broker would have to say 'yes' or 'no' concering if you established a pattern of daytrading at that brokerage. Suppose you make the 4 roundtrips and then you make a 5th that triggers the call. The broker will call you up and say you either need to deposit enough to bring your account to $25k or you need to never make another daytrade at that firm... ever! That's the only warning you'll ever get. If you're in violation again, they lock your account to closing positions until you send in funds to bring the balance up to $25k. All you need to do is have the money hit your account, you can take it right back out again. Once your account has $25k, you're allowed to trade again.... even if you remove $15k of it that same day. If you trigger the call again, you have to send the $15k back in, then take it back out. Having the label is not all bad... they give you 4x margin. So with $25k, you can buy $100k of marginable stock. I don't know... that could be a bad thing too. You could get a margin call at the end of the day for owning $100k of stock when you're only allowed to own $50k overnight. I believe that's a fed call and its a pretty big deal.","\"You sold $10,000 worth of stock so that money is essentially yours. However, you sold this stock without actually owning any which means that you, through your broker, are currently borrowing shares amounting to (at the time of your sale) $10,000 from someone who actually owns this stock. You will be paying this person interest for the privilege of borrowing their shares, the exact amount charged varies wildly and depends on factors such as short interest in the stock (loads of people want to go short = shareholders can charge high interest) etc. If I remember correctly hovering over the \"\"position\"\" column in your portfolio in the IB Workstation should give you information about the interest rate charged. You will have to buy back these shares from the lender at some point which is why the $10k isn't just \"\"free money.\"\" If the stock has gone up in price in the meantime you are going to be paying more than the $10k you got for the same amount of shares and vice versa.\"","\"Scenario 1 - When you sell the shares in a margin account, you will see your buying power go up, but your \"\"amount available to withdraw\"\" stays the same until settlement. Yes, you can reallocate the same day, no need to wait until settlement. There is no margin interest for this scenario. Scenario 2 - If that stock is marginable to 50%, and all you have is $10,000 in that stock, you can buy another $10,000. Once done, you are at 50% margin, exactly.\"","Margin accounts do not have the problem you are imagining, which is unique to cash accounts","\"But what happen if the stock price went high and then go down near expiry date? When you hold a short (sold) call option position that has an underlying price that is increasing, what will happen (in general) is that your net margin requirements will increase day by day. Thus, you will be required to put up more money as margin to finance your position. Margin money is simply a \"\"good faith\"\" deposit held by your broker. It is not money that is debited as cash from the accounting ledger of your trading account, but is held by your broker to cover any potential losses that may arise when you finally settle you position. Conversely, when the underlying share price is decreasing, the net margin requirements will tend to decrease day by day. (Net margin is the net of \"\"Initial Margin\"\" and \"\"Variation Margin\"\".) As the expiry date approaches, the \"\"time value\"\" component of the option price will be decreasing.\"","\"The reason for selling a stock \"\"short\"\", is for when you believe the stock value will decrease in the near future. Here is an example: Today Exxon-Mobile stock is selling for $100 / share. You are expecting the price to decrease, so you want to short the stock, which means your broker (i.e. eTrade, etc) allows you to borrow shares without paying money, and those shares are transferred into your account, and then you sell them and receive money for the sale. But you didn't actually own those shares, you only borrowed them, so you need to return the shares to your broker sometime in the future. Let's say you borrow 10 shares @ $100, and you sell them at the market price of $100, you receive $1,000 in your account. But you owe your broker 10 shares, which you need to return sometime in the future. A few days later, the share price has decreased to $80. Now you can buy 10 shares from the market at a total cost of $800. You get 10 shares, and return those shares to your broker. Since you originally took in $1,000, and you just paid out $800, you keep a resulting profit of $200\"","When you want to short a stock, you are trying to sell shares (that you are borrowing from your broker), therefore you need buyers for the shares you are selling. The ask prices represent people who are trying to sell shares, and the bid prices represent people who are trying to buy shares. Using your example, you could put in a limit order to short (sell) 1000 shares at $3.01, meaning that your order would become the ask price at $3.01. There is an ask price ahead of you for 500 shares at $3.00. So people would have to buy those 500 shares at $3.00 before anyone could buy your 1000 shares at $3.01. But it's possible that your order to sell 1000 shares at $3.01 never gets filled, if the buyers don't buy all the shares ahead of you. The price could drop to $1.00 without hitting $3.01 and you will have missed out on the trade. If you really wanted to short 1000 shares, you could use a market order. Let's say there's a bid for 750 shares at $2.50, and another bid for 250 shares at $2.49. If you entered a market order to sell 1000 shares, your order would get filled at the best bid prices, so first you would sell 750 shares at $2.50 and then you would sell 250 shares at $2.49. I was just using your example to explain things. In reality there won't be such a wide spread between the bid and ask prices. A stock might have a bid price of $10.50 and an ask price of $10.51, so there would only be a 1 cent difference between putting in a limit order to sell 1000 shares at $10.51 and just using a market order to sell 1000 shares and getting them filled at $10.50. Also, your example probably wouldn't work in real life, because brokers typically don't allow people to short stocks that are trading under $5 per share. As for your question about how often you are unable to make a short sale, it can sometimes happen with stocks that are heavily shorted and your broker may not be able to find any more shares to borrow. Also remember that you can only short stocks with a margin account, you cannot short stocks with a cash account.","A CFD broker will let you open a trade on margin as long as your account balance is more than the margin required on all your open trades. If the required margin increases within a certain percentage of your account balance, you will get a margin call. If you then don't deposit more funds or close losing trades out, the broker will close all your trades. Note: Your account balance is the remaining funds you have left to open new trades with. I always use stop loss orders with all my open trades, and because of this my broker reduces the amount of margin required on each trade. This allows me to have more open trades at the one time without increasing my funds. Effects of a Losing Trade on Margin Say I have an account balance of $2,000 and open a long trade in a share CFD of 1,000 CFDs with a share price of $10 and margin of 10%. The face value of the shares would be $10,000, but my initial margin would be $1,000 (10% of $10,000). If I don't place a stop loss and the price falls to $9, I would have lost $1,000 and my remaining margin would now be $900 (10% of $9,000). So I would have $100 balance remaining in my account. I would probably receive a margin call to deposit more funds in or close out my trade. If I don't respond the broker will close out my position before my balance gets to $0. If instead I placed a stop loss at say $9.50, my initial margin might be reduced to $500. As the price drops to $9.60 I would have lost $400 and my remaining margin would now only be $100, with my account balance at $1,500. When the price drops to $9.50 I will get stopped out, my trade will be closed and I would have lost $500, with my account balance still at $1,500. Effects of a Winning Trade on Margin Say I have the same account balance as before and open the same trade but this time the price moves up. If I don't place a stop loss and the price goes up to $11, I would have made a $1,000 profit and my remaining margin will now be $1,100 (10% of $11,000). So my account balance would now be $2,000 + $1,000 - $1,100 = $1,900. If I had placed a stop loss at say $9.50 again and the price moves up to $10.50, I would have made a profit of $500 and my margin would now be $1,000. My account balance would be $2,000 + $500 - $1,000 = $1,500. However, if after the price went up to $10.50 I also moved my stop loss up to $10, then I would have $500 profit and only $500 margin. So my balance in this case would be $2,000 + $500 - $500 = $2,000. So by using stop losses as part of your risk management you can reduce the margin used from your balance which will allow you to open more trades without any extra funds deposited into your account.","If I sell a covered call, on stock I own 100%, there is no risk of a margin call. The stock goes to zero, I'm still not ask to send in more money. But, if bought on margin, margin rules apply. A naked put would require you to be able to buy the stock if put to you. As the price of the stock drops, you still need to be able to buy it at the put strike price. Mark to market is just an expression describing how your positions are considered each day.","\"It is possible and it depends on your strategy. As short selling interest rates are annual and levied monthly at a prorated rate. Interest rates are also low in general, with the exception of hard to borrow stocks. Therefore you can maintain a short position for weeks on end and notice nothing. Months even, if the position itself has already gained in your favor. There is no additional fee for opening the short position. Although some brokers have a \"\"locate\"\" fee, if it is hard to borrow the stock and they need to go find some shares to short. So you can do it as much as you like.\"","I'm not 100% sure, but I don't think it would be considered a free ride. The idea of a free ride is that you are engaging in a transaction when you do not actually have the money available to cover it, since the broker is technically giving you a 3 day loan whenever you purchase your stock (3 day rule to settle.) However, if you are using a margin account, and you have enough credit available, then you are not actually using unsettled assets, but rather an additional line of credit which was granted to you. You would just need to make sure that your total transactions are less than your purchasing power. That's my take on it anyway. I hope that helps, and hopefully someone can confirm or reject what I have said.","Link only answers aren't good, but the list is pretty long. It's a moving target, the requirement change based on a number of criteria. It usually jumps to force you to sell when you hold a losing position, or when your commodity is about to skyrocket.","Pretty sure the major retail brokerage firms require 25k to daytrade. Read the top comment. You will get crushed by commissions. There are commission free ETFs, but that's not the kind of investing you seem to want to learn about.","What I did not understand when I first called is that margin able account means the ability to borrow margin, but not the necessity of borrowing. Like I was saying, it is something I am going to do a lot of due diligence on before I plunge in. I have a general vague idea of futures, and thus why I was asking for info on the matter.","The day trader in the article was engaging in short selling. Short selling is a technique used to profit when a stock goes down. The investor borrows shares of a stock from someone else and sells them. After the stock price goes down, the investor buys the shares back and returns them, pocketing the difference. As the day trader in the article found out, it is a dangerous practice, because there is no limit to the amount of money you can lose. The stock was trading at $2, and the day trader thought the stock was going to go down to $1. He borrowed and sold 8,400 shares at $2. He hoped to buy them back at $1 and earn $8,400 profit. Instead, the stock went up a lot, and he was forced to buy back the shares at $18.50 per share, or about $155,400. He had had $37,000 with E-Trade, which they took, and he is now over $100,000 in debt.","\"In the United States, regulation of broker dealer credit is dictated by Regulation T, that for a non-margin account, 100% of a trade must be funded. FINRA has supplemented that regulation with an anti-\"\"free rider\"\" rule, Rule 4210(f)(9), which reads No member shall permit a customer (other than a broker-dealer or a “designated account”) to make a practice, directly or indirectly, of effecting transactions in a cash account where the cost of securities purchased is met by the sale of the same securities. No member shall permit a customer to make a practice of selling securities with them in a cash account which are to be received against payment from another broker-dealer where such securities were purchased and are not yet paid for. A member transferring an account which is subject to a Regulation T 90-day freeze to another member firm shall inform the receiving member of such 90-day freeze. It is only funds from uncleared sold equities that are prohibited from being used to purchase securities. This means that an equity in one's account that is settled can be sold and can be purchased only with settled funds. Once the amount required to purchase is in excess of the amount of settled funds, no more purchases can be made, so an equity sold by an account with settled funds can be repurchased immediately with the settled funds so long as the settled funds can fund the purchase. Margin A closed position is not considered a \"\"long\"\" or \"\"short\"\" since it is an account with one loan of security and one asset of security and one cash loan and one cash liability with the excess or deficit equity equal to any profit or loss, respectively, thus unexposed to the market, only to the creditworthiness of the clearing & settling chain. Only open positions are considered \"\"longs\"\" or \"\"shorts\"\", a \"\"long\"\" being a possession of a security, and a \"\"short\"\" being a liability, because they are exposed to the market. Since unsettled funds are not considered \"\"longs\"\" or \"\"shorts\"\", they are not encumbered by previous trades, thus only the Reg T rules apply to new and current positions. Cash vs Margin A cash account cannot purchase with unsettled funds. A margin account can. This means that a margin account could theoretically do an infinite amount of trades using unsettled funds. A cash account's daily purchases are restricted to the amount of settled funds, so once those are exhausted, no more purchases can be made. The opposite is true for cash accounts as well. Unsettled securities cannot be sold either. In summation, unsettled assets can not be traded in a cash account.\"","You're trying to mitigate the risk of having your investments wiped out by fraud committed by your broker by using margin loans to buy stock secured by other, non-cash assets in your account. The solution that you are proposing does not make any sense at all. You mitigate a very low probability/high impact risk by doing something that comes with a high probability/medium impact risk. In addition to interest costs, holding stocks on margin subjects you to the very real risk of being forced to sell assets at inopportune times to meet margin calls. Given the volatility that the markets are experiencing in 2011, there is a high risk that some irrational decision in Greece could wipe you out. If I were worried about this, I would: If you have enough money that SIPC protection limits are an issue, you desperately need a financial adviser. Do not implement any strategy involving margin loans until you talk to a qualified adviser.","\"First, it's much safer to be shorting stocks over $5 than stocks under $5. I use 3 indicators to show that a stock has topped out and about to drop. Key is the timing cause the initial drop is often the biggest. More close you get in at the top, the higher the risk. Using 1D Charts ONLY: - MACD Indicator: I use the histogram, when it reaches a peak height, and the next day it is down 1 \"\"Step\"\". If you wait til the MACD lines cross, you are pretty late IMHO. Need to get in earlier. Timing is everything. - RSI(15) - Needs to topped out and above 67 meaning, \"\"Over bought\"\" - Do not buy when RSI is high above 70. Often stocks go on a Run up when RSI is over 70! - I use Stoch RSI or CCI to confirm my status on RSI. I like to see that all 3 indicators agree. This gives me a 75% chance that the stock will drop. It may take a day or 2.. so you need patience.\"","Initial Margins and Maintenance margins can be used for both stocks as well as futures. It depends on which broker you use and what services they offer. The initial Margin is used to cover the purchase, the maintenance margin is used to ask additional funds in case the value of the underlying equity changes drastically before settlement. You can start with the investopedia article on initial margin and Maintenance margin","\"Yes. I heard back from a couple brokerages that gave detailed responses. Specifically: In a Margin account, there are no SEC trade settlement rules, which means there is no risk of any free ride violations. The SEC has a FAQ page on free-riding, which states that it applies specifically to cash accounts. This led me to dig up the text on Regulation T which gives the \"\"free-riding\"\" rule in §220.8(c), which is titled \"\"90 day freeze\"\". §220.8 is the section on cash accounts. Nothing in the sections on margin accounts mentions such a settlement restriction. From the Wikipedia page on Free Riding, the margin agreement implicitly covers settlement. \"\"Buying Power\"\" doesn't seem to be a Regulation T thing, but it's something that the brokerages that I've seen use to state how much purchasing power a client has. Given the response from the brokerage, above, and my reading of Regulation T and the relevant Wikipedia page, proceeds from the sale of any security in a margin account are available immediately for reinvestment. Settlement is covered implicitly by margin; i.e. it doesn't detract from buying power. Additionally, I have personally been making these types of trades over the last year. In a sub-$25K margin account, proceeds are immediately available. The only thing I still have to look out for is running into the day-trading rules.\"","\"A simple way to ask the question might be to say \"\"why can't I just use the same trick with my own shares to make money on the way down? Why is borrowing someone else's shares necessary to make the concept a viable one? Why isn't it just the inverse of 'going long'?\"\" A simple way to think about it is this: to make money by trading something, you must buy it for less than you sell it for. This applies to stocks like anything else. If you believe the price will go up, then you can buy them first and sell them later for a higher price. But if you believe the price will go down, the only way to buy low and sell high is to sell first and buy later. If you buy the stock and it goes down, any sale you make will lose you money. I'm still not sure I fully understand the point of your example, but one thing to note is that in both cases (i.e., whether you buy the share back at the end or not), you lost money. You say that you \"\"made $5 on the share price dropping\"\", but that isn't true at all: you can see in your example that your final account balance is negative in both cases. You paid $20 for the shares but only got $15 back; you lost $5 (or, in the other version of your example, paid $20 and got back $5 plus the depreciated shares). If you had bought the shares for $20 and sold them for, say, $25, then your account would end up with a positive $5 balance; that is what a gain would look like. But you can't achieve that if you buy the shares for $20 and later sell them for less. At a guess, you seem to be confusing the concept of making a profit with the concept of cutting your losses. It is true that if you buy the shares for $20 and sell them for $15, you lose only $5, whereas if you buy them for $20 and sell for $10, you lose the larger amount of $10. But those are both losses. Selling \"\"early\"\" as the price goes down doesn't make you any money; it just stops you from losing more money than you would if you sold later.\"","The initial and overnight margin requirements are set by the exchanges (who calculate them using the Standard Portfolio of Analysis of Risk, or 'SPAN' system), and positions are market to market according to these at the end of the trading session. To find these margin requirements you will need to consult the website of the exchange on which the contract you are trading is issued (i.e. if you're trading on the London Metal Exchange it's no good looking at the Chicago Mercantile Exchange's margin requirements as a previous answer suggests!). However, for positions entered and exited within the same day, the daytrade margin rate will apply. This is set by your broker rather than the exchange, and can be as little as 10% of the exchange requirement. You can find a useful comparison of different margin types and requirements in the article I have published here: Understanding Margin for Futures Trading.","you need minimum of 25k otherwise youll reach a limit. you have to wait 3 days for the sale to clear unless youre on margin. dont buy anything based on idiots on twitter or the internet. however, theres some good people to follow though that know what theyre doing. dont listen to this guy saying that etrade or those platforms arent fast enough. they all offer level 2 prices so i dont know what hes talking about. successful day traders arent buying and selling a stock every single day. theres not always something to buy and sell...unless youre just gambling, and in that case just go to the casino and lose your money there.","quid's answer explains the settlement period well. However, it should be noted that you can avoid the settlement period by opening a margin account. Any specific broker like Schwab may or may not offer margin accounts. Margin accounts allow you to borrow money to avoid the settlement period or to buy more securities than you can actually afford. Note that if you buy more securities than you can afford using margin, you expose yourself to losses potentially larger than your initial investment. If you fund your account with $50,000 and use margin to purchase $80,000 of stock which then drops in value by 80% you will have lost $64,000 and owe the broker $14,000 plus fees.","\"No, it means that is only the notional value of that underlying asset of that contract, generally. The contract specification itself is listed on the exchange's websites, and there are really no assumptions you can make about a particular contract. Where S&P futures have one set of specifications, such as what it actually represents, how many each contract holds, how to price profits and losses... a different contract, such as FTSE 100 stock futures have a completely different set of specifications. Anyway in this one example the s&p 500 futures contract has an \"\"initial margin\"\" of $19,250, meaning that is how much it would cost you to establish that contract. Futures generally require delivery of 1,000 units of the underlying asset. So you would take the underlying asset's price and multiple it by 1,000. (what price you use is also mentioned in the contract specification), The S&P 500 index is $1588 you mentioned, so on Jun2013 you would have to delivery $1588 x 1000, or $1,588,000. GREAT NEWS, you only have to put up 1.2% in principal to control a 1.5 million dollar asset! Although, if even that amount is too great, you can look at the E-Mini S&P futures, which require about 1/10th the capital and delivery. This answer required that a lot of different subjects be mentioned, so feel free to ask a new question about the more specific topics.\"","\"An important point yet to be mentioned is that, with a standard investment, the most you can lose of your £100 stake is £100 (if the company literally goes bust, say). With shorting on the other hand, your downside is not limited to your initial stake. You could \"\"invest\"\" £100, but end up owing £200, £500, or, well, the sky's the limit. Shorting is dangerous even for experienced investors. For a beginner, it is about the worst possible investment strategy I can think of!\"","It's about how volatile the instrument is. Brokers are concerned not about you but about potential lawsuits stemming from their perceived inadequate risk management - letting you trade extremely volatile stocks with high leverage. On top of that they run the risk of losing money in scenarios where a trader shorts a stock with all of the funds, the company rises 100% or more by the next day, in which case the trader owes money to the broker. If you look in detail you'll see that many of the companies with high margin requirements are extremely volatile pharmaceutical companies which depend heavily of FDA approvals.","\"So, yes, you may be having the inevitable epiphany where you realize that options can synthetically replicate the same risk profile of owning stock outright. Allowing you to manipulate risk and circumvent margin requirement differences amongst asset classes. Naked short puts are analogous to a covered call, but may have different (lesser) margin requirements. This allows you to increase your risk, and the broker has to account for that. The broker's clientele might not understand all the risks associated with that much leverage and so may simply consider it risky \"\"for your protection\"\"\"","\"My take on this is that with any short-selling contract you are engaging in, at a specified time in the future you will need to transfer ownership of the item(s) you sold to the buyer. Whether you own the item(s) or in your case you will buy your friend's used car in the meantime (or dig enough gold out of the ground - in the case of hedging a commodity exposure) is a matter of \"\"trust\"\". Hence there is normally some form of margin or credit-line involved to cover for you failing to deliver on expiry.\"","Leverage is when you borrow in order to invest. Mind you, most people aren't going to just give you money to gamble on the stock market completely unsecured; rather, you deposit (say) $10,000 and buy a stock... and then you have $10k in assets which you can borrow against, so you can buy another $10,000 of that stock. Now if the stock goes up you'll make twice the gain (2x leverage). However, if it goes down, you'll lose twice as much as well. If the value of your stock falls, your line of credit will be reduced as well; in this case, since you used all your credit and are now over your limit, your broker will issue a margin call (they will demand a deposit of additional funds, or they will sell some of your stock at their discretion). This protects you from owing more than you invested, but it's still sometimes possible (for instance, if a company spontaneously goes bankrupt and becomes worthless, and your stock becomes worthless). There are also things like leveraged index funds and commodity funds which aim to return some multiple of the market's earnings. These are designed for intraday trading, though, and usually end up underperforming significantly over the long term. [edit] Mose people who accept borrowed funds should generally accept real cash as well. However, if you're trying to short sell, i.e. borrow shares and sell them (in the hopes you can get them back cheaper later after the stock falls) you will need a margin line of credit to do so as well. [edit 2] clarified margin calls","This essentially depends on how you prefer to measure your performance. I will just give a few simple examples to start. Let me know if you're looking for something more. If you just want to achieve maximum $ return, then you should always use maximum margin, so long as your expected return (%) is higher than your cost to borrow. For example, suppose you can use margin to double your investment, and the cost to borrow is 7%. If you're investing in some security that expects to return 10%, then your annual return on an account opened with $100 is: (2 * $100 * 10% - $100 * 7%) / $100 = 13% So, you see the expected return, amount of leverage, and cost to borrow will all factor in to your return. Suppose you want to also account for the additional risk you're incurring. Then you could use the Sharpe Ratio. For example, suppose the same security has volatility of 20%, and the risk free rate is 5%. Then the Sharpe Ratio without leverage is: (10% - 5%) / 20% = 0.25 The Sharpe Ratio using maximum margin is then: (13% - 5%) / (2 * 20%) = 0.2, where the 13% comes from the above formula. So on a risk-adjusted basis, it's better not to utilize margin in this particular example.","The $500 minimum is a policy of the ASX. As such any broker that offered a different policy would not be offering direct purchase of exchange traded shares. Note however that this policy applies only to the initial purchase. From the CMC FAQs: The ASX requires a minimum parcel of $500 to be traded if you don’t currently hold that particular security. Once you have $500 worth of an individual security, you can purchase any value of shares you like.","\"Below is just a little information on short selling from my small unique book \"\"The small stock trader\"\": Short selling is an advanced stock trading tool with unique risks and rewards. It is primarily a short-term trading strategy of a technical nature, mostly done by small stock traders, market makers, and hedge funds. Most small stock traders mainly use short selling as a short-term speculation tool when they feel the stock price is a bit overvalued. Most long-term short positions are taken by fundamental-oriented long/short equity hedge funds that have identified some major weaknesses in the company. There a few things you should consider before shorting stocks: Despite all the mystique and blame surrounding short selling, especially during bear markets, I personally think regular short selling, not naked short selling, has a more positive impact on the stock market, as: Lastly, small stock traders should not expect to make significant profits by short selling, as even most of the great stock traders (Jesse Livermore, Bernard Baruch, Gerald Loeb, Nicolas Darvas, William O’Neil, and Steven Cohen,) have hardly made significant money from their shorts. it is safe to say that odds are stacked against short sellers. Over the last century or so, Western large caps have returned an annual average of between 8 and 10 percent while the returns of small caps have been slightly higher. I hope the above little information from my small unique book was a little helpful! Mika (author of \"\"The small stock trader\"\")\"","\"Buying (or selling) a futures contract means that you are entering into a contractual agreement to buy (or sell) the contracted commodity or financial instrument in the contracted amount (the contract size) at the price you have bought (or sold) the contract on the contract expire date (maturity date). It is important to understand that futures contracts are tradeable instruments, meaning that you are free to sell (or buy back) your contract at any time before the expiry date. For example, if you buy 1 \"\"lot\"\" (1 contract) of a gold future on the Comex exchange for the contract month of December 2016, then you entering into a contract to buy 100 ounces (the contract size) of gold at the price at which you buy the contract - not the spot price on the day of expiry when the contract comes to maturity. The December 2016 gold futures contract has an expiry date of 28 December. You are free to trade this contract at any time before its expiry by selling it back to another market participant. If you sell the contract at a price higher than you have purchased it, then you will realise a profit of 100 times the difference between the price you bought the contract and the price you sold the contract, where 100 is the contract size of the gold contract. Similarly, if you sell the contract at a price lower than the price you have purchased it, then you will realise a loss. (Commissions paid will also effect your net profit or loss). If you hold your contract until the expiry date and exercise your contract by taking (or making) delivery, then you are obliged to buy (or sell) 100 ounces of gold at the price at which you bought (or sold) the contract - not the current spot price. So long as your contract is \"\"open\"\" (i.e., prior to the expiry date and so long as you own the contract) you are required to make a \"\"good faith deposit\"\" to show that you intend to honour your contractual obligations. This deposit is usually called \"\"initial margin\"\". Typically, the initial margin amount will be about 2% of the total contract value for the gold contract. So if you buy (or sell) one contract for 100 ounces of gold at, say, $1275 an ounce, then the total contract value will be $127,500 and your deposit requirement would be about $2,500. The initial margin is returned to you when you sell (or buy) back your futures contract, or when you exercise your contract on expiry. In addition to initial margin, you will be required to maintain a second type of margin called \"\"variation margin\"\". The variation margin is the running profit or loss you are showing on your open contract. For the sake of simplicity, lets look only at the case where you have purchased a futures contract. If the futures price is higher than your contract (buy) price, then you are showing a profit on your current position and this profit (the variation margin) will be used to offset your initial margin requirement. Conversely, if the futures price has dropped below your contracted (buy) price, then you will be showing a loss on your open position and this loss (the variation margin) will be added to your initial margin and you will be called to put up more money in order to show good faith that you intend to honour your obligations. Note that neither the initial margin nor the variation margin are accounting items. In other words, these are not postings that are debited or credited to the ledger in your trading account. So in some sense \"\"you don't have to pay anything upfront\"\", but you do need to put up a refundable deposit to show good faith.\"","One way a lot of people bypass the pattern trading equity requirement is to open multiple brokerage accounts. You have $10k, put $5k in one and $5k in another. Although I don't recommend it!","If you are comfortable picking individual stocks and can get into Robinhood you only need $1000 to get started. This means buying one stock of this, two stocks of that, etc. but it works.","If the price had dropped to $4 from $50, and you had $5000 to start with on your account, you will be left with $400 in your account if you closed the position now. So you would not be in debt if this was the only possition you had open.","Yes, it can buy back the call, but much before stock hits the $30 mark. Let us say you got 1$ from selling the call. So the total money in your account is 4$ + 1 $ = 5 $. When stock hits 10$ (your strike), the maintenance margin is 5$. As soon as stock goes past 10, your maintenance margin is violated. So broker will buy back your call (at least IB does that, it does not wait for a margin call). Now if the stock gapped up from 8 to 30,then yes, broker will buy it back at 30, so your account will have a negative balance. Assume the call cost 20$ when stock hit 30, your balance is: 5 - (30-10) = -15. Depending on broker, I suppose they will ask you to bring your account balance back up to positive. If they don't do that, they risk going out of business.","I'm not entirely sure about some of the details in your question, since I think you meant to use $10,000 as the value of the futures contract and $3 as the value of the underlying stock. Those numbers would make more sense. That being said, I can give you a simple example of how to calculate the profit and loss from a leveraged futures contract. For the sake of simplicity, I'll use a well-known futures contract: the E-mini S&P500 contract. Each E-mini is worth $50 times the value of the S&P 500 index and has a tick size of 0.25, so the minimum price change is 0.25 * $50 = $12.50. Here's an example. Say the current value of the S&P500 is 1,600; the value of each contract is therefore $50 * 1,600 = $80,000. You purchase one contract on margin, with an initial margin requirement1 of 5%, or $4,000. If the S&P 500 index rises to 1,610, the value of your futures contract increases to $50 * 1,610 = $80,500. Once you return the 80,000 - 4,000 = $76,000 that you borrowed as leverage, your profit is 80,500 - 76,000 = $4,500. Since you used $4,000 of your own funds as an initial margin, your profit, excluding commissions is 4,500 - 4,000 = $500, which is a 500/4000 = 12.5% return. If the index dropped to 1,580, the value of your futures contract decreases to $50 * 1,580 = $79,000. After you return the $76,000 in leverage, you're left with $3,000, or a net loss of (3,000 - 4000)/(4000) = -25%. The math illustrates why using leverage increases your risk, but also increases your potential for return. Consider the first scenario, in which the index increases to 1,610. If you had forgone using margin and spent $80,000 of your own funds, your profit would be (80,500 - 80,000) / 80000 = .625%. This is smaller than your leveraged profit by a factor of 20, the inverse of the margin requirement (.625% / .05 = 12.5%). In this case, the use of leverage dramatically increased your rate of return. However, in the case of a decrease, you spent $80,000, but gained $79,000, for a loss of only 1.25%. This is 20 times smaller in magnitude than your negative return when using leverage. By forgoing leverage, you've decreased your opportunity for upside, but also decreased your downside risk. 1) For futures contracts, the margin requirements are set by the exchange, which is CME group, in the case of the E-mini. The 5% in my example is higher than the actual margin requirement, which is currently $3,850 USD per contract, but it keeps the numbers simple. Also note that CME group refers to the initial margin as the performance bond instead.","When you short a stock, you can lose an unlimited amount of money if the trade goes against you. If the shorted stock gaps up overnight you can lose more money than you have in your account. The best case is you make 100% if the stock goes to zero. And then you have margin fees on top of that. With long positions, it's the other way around. Your max loss is 100% and your gains are potentially unlimited.","\"The margin rules are also more complicated. A simple buy on a non-margin account will never run into margin rules and you can just wait out any dips if you have confidence the stock will recover. A \"\"simple\"\" short sell might get you a call from your broker that you have a margin call, and you can't wait it out without putting more money in. Personally I have trouble keeping the short sale margin rules straight in my head, at least compared to a long sale. I got in way over my head shorting AMZN once, and lost a lot of money because I thought it was overvalued at the time, but it just kept going up and I wanted it to go down. I've never gotten stuck like that on a long position.\"","\"You need to have 3 things if you are considering short-term trading (which I absolutely do not recommend): The ability to completely disconnect your emotions from your gains and losses (yes, even your gains but especially your losses). The winning/losing on a daily basis will cause you to start taking unnecessary risk in order to win again. If you can't disconnect your emotions, then this isn't the game for you. The lowest possible trading costs to enter and exit a position. People will talk about 1% trading costs; that rule-of-thumb doesn't apply anymore. Personally, my trading costs are a total 13.9 basis points to enter and exit a $10,000 position and I think it's still too high (that's just a hair above one-eighth of 1% for you non-traders). The ability to \"\"gut-check\"\" and exit a losing position FAST. Don't hesitate and don't hope for it to go up. GTFO. If you are serious about short-term trading then you must close all positions on a daily basis. Don't do margin in today's market as many valuations are high and some industries are not trending as they have in the past. The leverage will kill you. It's not a question of \"\"if\"\", it's a when. You're new. Don't trade anything larger than a $5,000 position, no matter what. Don't hold more than 10% of your portfolio in the same industry. Don't be afraid to sit on 50% cash or more for months at a time. Use money market funds to park cash because they are T+1 settlement and most firms will let you trade the stock without cash as long as you effect the money market trade on the same day since stock settlement is T+3.\"","You should not have to wait 3 days to sell the stock after purchase. If you are trading with a cash account you will have to wait for the sale to settle (3 business days) before you can use those funds to purchase other stock. If you meet the definition of a pattern day trader which is 4 or more day trades in 5 business days then your brokerage will require you to have a minimum of $25,000 in funds and a margin account.","The initial margin is $5940 and maintenance margin $5400. A simple search of Comex Gold Margin gives the CME group site. You then need to specify CMX metals to see the margins. Gold is currently about $1300. A gold future is 100 oz. So the full contract is worth $130K. You want to 'go long' so you enter into a contract for Dec '14. You put up $5940, and if gold rises, you gain $100 for each $1 it goes up. Likewise on the downside. If gold drops $5.40, you lost $540 and will get a call to end the position or to put up more money. It's similar to stock margin requirements, only the numbers are much lower, your leverage with futures is over 20 to 1.","I just called options express, and apparently you need a margin account for futures and options, but you don't NEED margin to trade futures. I will have to debate the merits, but I think I may try playing with it once I build up my regular stock account.","I'd look into ShareBuilder. You can buy stocks for as low as $2 each, and there is no minimum funding level. You have to be carefull about selling though, as they will charge you $10 each time you want to sell a stock, regardless of how much of it you want to sell.","Rich's answer captures the basic essence of short selling with example. I'd like to add these additional points: You typically need a specially-privileged brokerage account to perform short selling. If you didn't request short selling when you opened your account, odds are good you don't have it, and that's good because it's not something most people should ever consider doing. Short selling is an advanced trading strategy. Be sure you truly grok selling short before doing it. Consider that when buying stock (a.k.a. going long or taking a long position, in contrast to short) then your potential loss as a buyer is limited (i.e. stock goes to zero) and your potential gain unlimited (stock keeps going up, if you're lucky!) Whereas, with short selling, it's reversed: Your loss can be unlimited (stock keeps going up, if you're unlucky!) and your potential gain is limited (i.e. stock goes to zero.) The proceeds you receive from a short sale – and then some – need to stay in your account to offset the short position. Brokers require this. Typically, margin equivalent to 150% the market value of the shares sold short must be maintained in the account while the short position is open. The owner of the borrowed shares is still expecting his dividends, if any. You are responsible for covering the cost of those dividends out of your own pocket. To close or cover your short position, you initiate a buy to cover. This is simply a buy order with the intention that it will close out your matching short position. You may be forced to cover your short position before you want to and when it is to your disadvantage! Even if you have sufficient margin available to cover your short, there are cases when lenders need their shares back. If too many short sellers are forced to close out positions at the same time, they push up demand for the stock, increasing price and deepening their losses. When this happens, it's called a short squeeze. In the eyes of the public who mostly go long buying stock, short sellers are often reviled. However, some people and many short sellers believe they are providing balance to the market and preventing it sometimes from getting ahead of itself. [Disambiguation: A short sale in the stock market is not related to the real estate concept of a short sale, which is when a property owner sells his property for less than he owes the bank.] Additional references:","First, a margin account is required to trade options. If you buy a put, you have the right to deliver 100 shares at a fixed price, 50 can be yours, 50, you'll buy at the market. If you sell a put, you are obligated to buy the shares if put to you. All options are for 100 shares, I am unaware of any partial contract for fewer shares. Not sure what you mean by leveraging the position, can you spell it out more clearly?","\"Simplest way to answer this is that on margin, one is using borrowed assets and thus there are strings that come with doing that. Thus, if the amount of equity left gets too low, the broker has a legal obligation to close the position which can be selling purchased shares or buying back borrowed shares depending on if this is a long or short position respectively. Investopedia has an example that they walk through as the call is where you are asked to either put in more money to the account or the position may be closed because the broker wants their money back. What is Maintenance Margin? A maintenance margin is the required amount of securities an investor must hold in his account if he either purchases shares on margin, or if he sells shares short. If an investor's margin balance falls below the set maintenance margin, the investor would then need to contribute additional funds to the account or liquidate stocks in the account to bring the account back to the initial margin requirement. This request is known as a margin call. As discussed previously, the Federal Reserve Board sets the initial margin requirement (currently at 50%). The Federal Reserve Board also sets the maintenance margin. The maintenance margin, the amount of equity an investor needs to hold in his account if he buys stock on margin or sells shares short, is 25%. Keep in mind, however, that this 25% level is the minimum level set, brokerage firms can increase, but not decrease this level as they desire. Example: Determining when a margin call would occur. Assume that an investor had purchased 500 shares of Newco's stock. The shares were trading at $50 when the transaction was executed. The initial margin requirement on the account was 70% and the maintenance margin is 30%. Assume no transaction costs. Determine the price at which the investor will receive a margin call. Answer: Calculate the price as follows: $50 (1- 0.70) = $21.43 1 - 0.30 A margin call would be received when the price of Newco's stock fell below $21.43 per share. At that time, the investor would either need to deposit additional funds or liquidate shares to satisfy the initial margin requirement. Most people don't want \"\"Margin Calls\"\" but stocks may move in unexpected ways and this is where there are mechanisms to limit losses, especially for the brokerage firm that wants to make as much money as possible. Cancel what trade? No, the broker will close the position if the requirement isn't kept. Basically think of this as a way for the broker to get their money back if necessary while following federal rules. This would be selling in a long position or buying in a short sale situation. The Margin Investor walks through an example where an e-mail would be sent and if the requirement isn't met then the position gets exited as per the law.\"","\"Because it takes 3 business days for the actual transfer of stock to occur after you buy or sell to the next owner, your cash is tied up until that happens. This is called the settlement period. Therefore, brokers offer \"\"margin\"\", which is a form of credit, or loan, to allow you to keep trading while the settlement period occurs, and in other situations unrelated to the presented question. To do this you need a \"\"margin account\"\", you currently have a \"\"cash account\"\". The caveat of having a retail margin account (distinct from a professional margin account) is that there is a limited amount of same-day trades you can make if you have less than $25,000 in the account. This is called the Pattern Day Trader (PDT) rule. You don't need $25k to day trade, you will just wish you had it, as it is easy to get your account frozen or downgraded to a cash account. The way around THAT is to have multiple margin accounts at different brokerages. This will greatly increase the number of same day trades you can make. Many brokers that offer a \"\"solution\"\" to PDT to people that don't have 25k to invest, are offering professional trading accounts, which have additional fees for data, which is free for retail trading accounts. This problem has nothing to do with: So be careful of the advice you get on the internet. It is mostly white noise. Feel free to verify\"","Most UK stock brokers don't require or allow margin trading. A quick web search for 'UK share dealing comparison' shows entries from money.co.uk and moneysupermarket.com who both provide lists of different brokers, e.g. Barclays, Hargraves Lansdown, IG Share Dealing, The Share Centre, TD Direct, Interactive Investor, YouInvest, etc. Some of the UK banks also provide a share dealing service, from quickly looking at their websites, Barclays, HSBC and Halifax all appear to provide share dealing services.","In terms of pricing the asset, this functions in exactly the same way as a regular sell, so bids will have to be hit to fill the trade. When shorting an equity, currency is not borrowed; the equity is, so the value of per share liability is equal to it's last traded price or the ask if the equity is illiquid. Thus when opening a short position, the asks offer nothing to the process except competition for your order getting filled. Part of managing the trade is the interest rate risk. If the asks are as illiquid as detailed in the question, it may be difficult even to locate the shares for borrowing. As a general rule, only illiquid equities or those in free fall may be temporarily unable for shorting. Interactive Brokers posts their securities financing availabilities and could be used as a proxy guide for your broker."],"string":"[\n \"If this is the initial transaction, the rules of a short margin account say that if you shorted 1000 share of ABC at $5/share your credit balance would be $5000 from the short plus you would have to put up yourself $5000 cash or $10,000 of marginal securities. So this is not really leveraging using margin. You have to put in just as much as the short generates. Is that what this relates to? Once the initial purchase has been made the minimum maintenance for a stock trading under $5 per share is 100% of the short market value in the margin account or $2.50 per share whichever is greater. For stock trading at $5/share or greater the minimum maintenance requirement is $5/share or 30% of the short market value, whichever is greater. The minimum maintenance requirements can be tighter.\",\n \"Depends on the stock involved, but for the most part brokerages allow you gain entry at 50%, meaning you can short twice the cash on hand you have. Going forward, you need to maintain 30%, so on a $10,000 short, you'd have to maintain $3000 in your account. Example, an account with $5000 cash - You can short $10,000 securities. Let say 100 shares of xyz at $100 per share. After trade settles, you won't receive a margin call until your balance falls to $3000, probably right around the time xyz rises to $120 per share. Riskier stocks will have higher margin maintenance requirements - leveraged vehicles like FAS/FAZ (triple leveraged) require 90% margin (3x30%) if they are allowed to be 'shorted' at all.\",\n \"200% margin for a short sale is outrageous. You should only need to put up 150% margin, of which 50% is your money, and the 100% is the proceeds. With $100 of your money, you should be able to buy $100 of GOOG and short $100 of PNQI.\",\n \"\\\"In summary: In long form: Spreads and shorts are not allowed in cash accounts, except for covered options. Brokers will allow clients to roll option positions in a single transaction, which look like spreads, but these are not actually \\\"\\\"sell to open\\\"\\\" transactions. \\\"\\\"Sell to open\\\"\\\" is forbidden in cash accounts. Short positions from closing the long half of a covered trade are verboten. Day-trading is allowed in both margin and cash accounts. However, \\\"\\\"pattern day-trading\\\"\\\" only applies to margin accounts, and requires a minimum account balance of $25,000. Cash accounts are free to buy and sell the same security on the same day over and over, provided that there is sufficient buying power to pay for opening a new position. Since proceeds are held for both stock and option sales in a cash account, that means buying power available at the start of the day will drop with each purchase and not rise again until settlement. Unsettled funds are available immediately within margin accounts, without restriction. In cash accounts, using unsettled funds to purchase securities will require you to hold the new position until funds settle -- otherwise your account will be blocked for \\\"\\\"free-riding\\\"\\\". Legally, you can buy securities in a cash account without available cash on deposit with the broker, but most brokers don't allow this, and some will aggressively liquidate any position that you are somehow able to enter for which you didn't have available cash already on deposit. In a margin account, margin can help gloss over the few days between purchase and deposit, allowing you to be somewhat more aggressive in investing funds. A margin account will allow you to make an investment if you feel the opportunity is right before requiring you to deposit the funds. See a great opportunity? With sufficient margin, you can open the trade immediately and then run to the bank to deposit funds, rather than being stuck waiting for funds to be credited to your account. Margin accounts might show up on your credit report. The possibility of losing more than you invested, having positions liquidated when you least expect it, your broker doing possibly stupid things in order to close out an over-margined account, and other consequences are all very serious risks of margin accounts. Although you mentioned awareness of this issue, any answer is not complete with mentioning those risks.\\\"\",\n \"Exact rules may be different depending on the size of the investor, the specific broker, and the country. For both the US and Canada, short sales occur only through one's margin account. And shares that are borrowed for shorting only come from a margin account. Shares held in a cash account are not available for shorting. From Wikipedia Short (finance) - The speculator instructs the broker to sell the shares and the proceeds are credited to his broker's account at the firm upon which the firm can earn interest. Generally, the short seller does not earn interest on the short proceeds and cannot use or encumber the proceeds for another transaction. As with many questions, I'd suggest you contact your broker for the exact details governing your account.\",\n \"\\\"The margin money you put up to fund a short position ($6000 in the example given) is simply a \\\"\\\"good faith\\\"\\\" deposit that is required by the broker in order to show that you are acting in good faith and fully intend to meet any potential losses that may occur. This margin is normally called initial margin. It is not an accounting item, meaning it is not debited from you cash account. Rather, the broker simply segregates these funds so that you may not use them to fund other trading. When you settle your position these funds are released from segregation. In addition, there is a second type of margin, called variation margin, which must be maintained while holding a short position. The variation margin is simply the running profit or loss being incurred on the short position. In you example, if you sold 200 shares at $20 and the price went to $21, then your variation margin would be a debit of $200, while if the price went to $19, the variation margin would be a credit of $200. The variation margin will be netted with the initial margin to give the total margin requirement ($6000 in this example). Margin requirements are computed at the close of business on each trading day. If you are showing a loss of $200 on the variation margin, then you will be required to put up an additional $200 of margin money in order to maintain the $6000 margin requirement - ($6000 - $200 = $5800, so you must add $200 to maintain $6000). If you are showing a profit of $200, then $200 will be released from segregation - ($6000 + $200 = $6200, so $200 will be release from segregation leaving $6000 as required). When you settle your short position by buying back the shares, the margin monies will be release from segregation and the ledger postings to you cash account will be made according to whether you have made a profit or a loss. So if you made a loss of $200 on the trade, then your account will be debited for $200 plus any applicable commissions. If you made a profit of $200 on the trade then your account will be credited with $200 and debited with any applicable commissions.\\\"\",\n \"They will make money from brokerage as usual and also from the interest they charge you for lending you the money for you to buy your shares on margin. In other words you will be paying interest on the $30,000 you borrowed from your broker. Also, as per Chris's comment, if you are shorting securities through your margin account, your broker would charge you a fee for lending you the securities to short.\",\n \"Most brokers have a margin maintenance requirement of 30%. In your example, it would depend on how much money you're borrowing from your broker on margin. Consider this: You have $250, and short AAPL at $500 on margin. This would be a common scenario (federal law requires investors to have at least 50% of their margin equity when opening a transaction). If your broker had a requirement of 30%, they would require that for your $500 position, you have at least $500 * .3 = $150 equity. Since you are currently above that number at $250, you will not be hit with a margin call. Say the price of AAPL doubles, and now your position is worth $1000. $1000 * .3 = $300, which is $50 above your initial equity. Your broker will now consider you eligible for a margin call. Most will not execute the call right away, you will often have some time to either sell/cover stock or add funds to your account. But not all brokers will warn you if you are breaking margin requirements, and sometimes margin calls can take you by surprise if you are not paying attention. Also, many will charge interest on extra margin borrowed.\",\n \"\\\"First, you are not exactly \\\"\\\"giving\\\"\\\" the brokerage $2000. That money is the margin requirement to protect them in the case the stock price rises. If you short 200 shares as in your example and they are holding $6000 from you then they are protected in the event of the stock price increasing to $30/share. Sometime before it gets there the brokerage will require you to deposit more money or they will cover your position by repurchasing the shares for your account. The way you make money on the short sale is if the stock price declines. It is a buy low sell high idea but in reverse. If you believe that prices are going to drop then you could sell now when it is high and buy back later when it is lower. In your example, you are selling 200 shares at $20 and later, buying those at $19. Thus, your profit is $200, not counting any interest or fees you have paid. It's a bit confusing because you are selling something you'll buy in the future. Selling short is usually considered quite risky as your gain is limited to the amount that you sold at initially (if I sell at $20/share the most I can make is if the stock declines to $0). Your potential to lose is unlimited in theory. There is no limit to how high the stock could go in theory so I could end up buying it back at an infinitely high price. Neither of these extremes are likely but they do show the limits of your potential gain and loss. I used $20/share for simplicity assuming you are shorting with a market order vs a limit order. If you are shorting it would be better for you to sell at 20 instead of 19 anyway. If someone says I would like to give you $20 for that item you are selling you aren't likely to tell them \\\"\\\"no, I'd really only like $19 for it\\\"\\\"\\\"\",\n \"\\\"He sold at 25 cents per pound and then as the price rises, the cash he has will buy less and less which could trigger a margin call as you are missing the \\\"\\\"short\\\"\\\" part of his position which is rather important here. From Investopedia: A margin account also allows your brokerage firm to liquidate your position if the likelihood that you will return what you've borrowed diminishes. This is part of the agreement that is signed when the margin account is created. From the broker's perspective, this increases the likelihood that you will return the shares before losses become too large and you become unable to return the shares. If you sold at 25 cents per pound and the price goes up, at some point you may be forced to buy to cover the position as brokers don't like to lose their money. As another example of a short going bad, \\\"\\\"Devastated\\\"\\\" Trader Crushed By Soaring Biotech, Starts Online Begging Campaign To Fund $106,000 Margin Call notes in part: However where this story gets abusrdly entertaining, or woefully tragic, depending on one's perspective, is that one trader, Joe Campbell, was on the wrong side of last night's massive surge. As the RutRho blog, which noticed it first explains, a \\\"\\\"dummy\\\"\\\" E-trader, Joe Campbell, decided to go $35,000 short KBIO \\\"\\\"and now owes $ETFC a wonderful $106K.\\\"\\\"\\\"\",\n \"\\\"And what exactly do I profit from the short? I understand it is the difference in the value of the stock. So if my initial investment was $4000 (200 * $20) and I bought it at $3800 (200 * $19) I profit from the difference, which is $200. Do I also receive back the extra $2000 I gave the bank to perform the trade? Either this is extremely poorly worded or you misunderstand the mechanics of a short position. When you open a short position, your are expecting that the stock will decline from here. In a short position you are borrowing shares you don't own and selling them. If the price goes down you get to buy the same shares back for less money and return them to the person you borrowed from. Your profit is the delta between the original sell price and the new lower buy price (less commissions and fees/interest). Opening and closing a short position is two trades, a sell then a buy. Just like a long trade there is no maximum holding period. If you place your order to sell (short) 200 shares at $19, your initial investment is $3,800. In order to open your $3,800 short position your broker may require your account to have at least $5,700 (according to the 1.5 ratio in your question). It's not advisable to open a short position this close to the ratio requirement. Most brokers require a buffer in your account in case the stock goes up, because in a short trade if the stock goes up you're losing money. If the stock goes up such that you've exhausted your buffer you'll receive what's known as a \\\"\\\"margin call\\\"\\\" where your broker either requires you to wire in more money or sell part or all of your position at a loss to avoid further losses. And remember, you may be charged interest on the value of the shares you're borrowing. When you hold a position long your maximum loss is the money you put in; a position can only fall to zero (though you may owe interest or other fees if you're trading on margin). When you hold a position short your maximum loss is unlimited; there's no limit to how high the value of something can go. There are less risky ways to make short trades by using put options, but you should ensure that you have a firm grasp on what's happening before you use real money. The timing of the trades and execution of the trades is no different than when you take a plain vanilla long position. You place your order, either market or limit or whatever, and it executes when your trade criteria occurs.\\\"\",\n \"With your numbers, look at it this way - You borrowed $50. When the stock is $100, you are at 50% margin. What's most important, is that there's margin interest charged, so the amount owed will increase regardless of the stock price. When calculating your return or loss, the interest has to be accounted for or your numbers will be wrong. For a small investor, margin rates can run high, and often, will offset much of your potential gain. What good is a $100 gain if you paid $125 in margin interest?\",\n \"The setup is a purchase of 200 shares at $40 with a cash deposit of $4000 and margin loan of $4000 which a year later grew to $4240. With a margin requirement of 30%, the loan can be 70% or a total stock value of $6057. 1) $30.29 2) -24.3% (The stock fell to $30.29 from $40) 3) -54.6% (Your $4000 fell to $1817)\",\n \"\\\"Derivatives derive their value from underlying assets. This is expressed by the obligation of at least one counterparty to trade with the other counterparty in the future. These can take on as many combinations as one can dream up as it is a matter of contract. For futures, where two parties are obligated to trade at a specific price at a specific date in the future (one buyer, one seller), if you \\\"\\\"short\\\"\\\" a future, you have entered into a contract to sell the underlying at the time specified. If the price of the future moves against you (goes up), you will have to sell at a loss. The bigger the move, the greater the loss. You go ahead and pay this as well as a little extra to be sure that you satisfy what you owe due to the future. This satisfaction is called margin. If there weren't margin, people could take huge losses on their derivative bets, not pay, and disrupt the markets. Making sure that the money that will trade is already there makes the markets run smoothly. It's the same for shorting stocks where you borrow the stock, sell it, and wait. You have to leave the money with the broker as well as deposit a little extra to be sure you can make good if the market moves to a large degree against you.\\\"\",\n \"You can't sell options if you don't have margin account (except covered call). You can't trade futures if you don't have margin account. Everything is immediate when you have margin account. (Including stocks) Margin account is not subject to freeriding rules, but is subject to Pattern Day Trader rules.\",\n \"You will be charged a stock borrow fee, which is inversely related to the relative supply of the stock you are shorting. IB claims to pay a rebate on the short proceeds, which would offset part or all of that fee, but it doesn't appear relevant in your case because: It is a bit strange to me that IB would not require you to keep the cash in your account, as they need the cash to collateralize the stock borrow with the lending institution. In fact, per Regulation T, the short position requires an initial margin of 150%, which includes the short proceeds. As described by Investopedia: In the first table of Figure 1, a short sale is initiated for 1,000 shares at a price of $50. The proceeds of the short sale are $50,000, and this amount is deposited into the short sale margin account. Along with the proceeds of the sale, an additional 50% margin amount of $25,000 must be deposited in the account, bringing the total margin requirement to $75,000. At this time, the proceeds of the short sale must remain in the account; they cannot be removed or used to purchase other securities. Here is a good answer to your question from The Street: Even though you might see a balance in your brokerage account after shorting a stock, you're actually looking at a false credit, according to one big brokerage firm. That money is acting as collateral for the short position. So, you won't have use of these funds for investment purposes and won't earn interest on it. And there are indeed costs associated with shorting a stock. The broker has to find stock to loan to you. That might come out of a broker's own inventory or might be borrowed from another stock lender.\",\n \"I agree with Mark. I was quite confuse about the short position at first but then I did a lot of learning and found out that as long as you have enough cash to cover your margin requirement you do not pay any interest since you do not have a debit on your margin balance. This is not true for a long position though, supposed you have 5k cash and 5k margin balance, if you buy 10K worth of stocks then you will need to pay interest on the 5k of the margin balance since it is a debit. Since shorting is done at a credit basis, you actually get interest from the transaction but you still may need to pay the borrowing fees for the stocks so they could simply balance each other out. I have shorted stocks twice through two different companies and neither time I noticed any interest charges. But make sure you have enough cash to cover your margin requirement, because once your margin balance is used to covered your position then interest would accrual. Learn.\",\n \"The Margin Account holds the funds that are MUST for any margin trades. Any funds excess of the MUST for margin trades are kept in the SMA account. These funds can be used for further Margin trades in new securities [funds get transfered into the Margin Account]. They cannot be used to met the Shortfall due to margin calls on existing trades. New funds need to be arranged. More at http://en.wikipedia.org/wiki/Special_memorandum_account\",\n \"It is a question of how volatile the stock is perceived to be, its beta correlation to the S&P500 or other index. Margin requirements are derived from the Federal Reserve, Self Regulatory Organizations, the exchange itself, the broker you use, and which margining system you are using. So that makes this a loaded question. There are at least three margin systems, before you have your own risk officer in a glass room that doesn't care how leveraged up you get. Brokers primarily don't want to lose money.\",\n \"I'd say yes, and hope that my anecdotal evidence serves as proof. My IRA is not a margin account. It can't be. I attempt to create a covered call, buying a stock at say $20, and selling a call for $4, for net $16 cost. The account only had $1610 at the time, and the trades go through just fine. Yes, I needed to enter as a limit order, at the same time, a single order with the $16 debit limit. If this is not enough proof, I'd be curious - why not? The option proceeds must clear, of course, which it does.\",\n \"Different brokerages have different house rules for margin requirements and margin calls. You will likely get a margin call giving you a small amount of time to deposit the required funds to bring your account balance up to the required margin requirements. In reality, a stock that falls from $50 to $4 in a short period will probably become unmarginable. In short, yes, you will owe the broker for the loss.\",\n \"Yes, it's completely normal to buy (and sell) puts and other options without holding the underlying. However, every (US) brokerage I know of only permits this within a margin account. I don't know why...probably a legal reason. You don't actually have to use the margin in a margin account. If you want to trade options, though, you will need a margin account.\",\n \"In the U.S. it is typical that a stock brokerage account can be set up to buy stock with up to half the cost being borrowed from the broker. This is called a margin account. The stock purchased must remain in the account until sold (or the loan is paid off), as it serves as built-in collateral for the loan. If the market price for the stock goes down too much, you will be required to add money, or the stock will be sold to cover the loan. See this question for some more information.\",\n \"That is the maintenance margin required for that position. Whenever you trade using your margin account, you must (by law, and also separately often by stricter policies from the brokerage) have a certain percentage of equity - at least 25%, often higher. That protects the brokerage from significant losses if your position drops in value significantly (hopefully preventing the brokerage from failing outright in the event of a major collapse). If the amount of equity falls below the maintenance requirement, you will have a margin call and be required to put some cash (or equity) into the account to maintain that level. See Maintenance Margin definition on Investopedia for more information.\",\n \"\\\"When margin is calculated as the equity percentage of an account, the point at which a broker will forcibly liquidate is typically called \\\"\\\"maintenance margin\\\"\\\". In the US, this is 25% for equities. To calculate the price at which this will occur, the initial and maintenance margin must be known. The formula for a long with margin is: and for a short where P_m is the maintenance margin price, P_i is the initial margin price, m_i is the initial margin rate, and m_m is the maintenance margin rate. At an initial margin of 50% and a maintenance margin of 25%, a long equity may fall by 1/3 before forced liquidation, a short one may rise by 50%. This calculation can become very complex with different asset classes with differing maintenance margins because the margin debt is applied to all securities collectively.\\\"\",\n \"As the referenced document says, there are 3 formulas, and you need to use the formula which results the greatest margin requirement. In your case, you need to use the 10% formula:\",\n \"\\\"All margin is marked to market. Option longs do not post margin because long margin trading is forbidden. Equity longs must post margin if cash is borrowed to fund the purchase. Shorts of all kinds must post margin, and the rates are generally the same: a few standard deviations away from the mean daily change of the underlying. A currency futures trader, because of the involatility of most major monies, can get away with a few percentage points. Commodities can get to around 10%. Single equities are frequently around 20%, while indices can get back down to 10%. A future is a special case because both sides are technically short and long at the same time. The easiest example to perceive is a currency future. Which one is the buyer and which is the seller? Both and neither. Contracts may be denominated for one side as the seller and the other the buyer, but contractually, legally, and effectively, both are liable to the other, and both must take delivery. For non-currency assets, it only appears as if the cash seller is the buyer because cash is not considered an asset in the same way all other assets are, but the \\\"\\\"long\\\"\\\" is obligated to sell cash and buy the \\\"\\\"asset\\\"\\\".\\\"\",\n \"With margin accounts you will be able to use the proceeds from a closed trade INSTANTLY. Without margin accounts this is the time you close the trade + 3 business days for clearing. In practice this means 4-5 days if there is a weekend or holiday involved between those 3 business days. This ties up your capital for an unfavorable amount of time, where as a margin account lets you continue to use the capital over and over again for more opportunities. You CANNOT sell to open a position in cash accounts. This means no short selling. This means no covered calls or spreads and MANY other strategies. These are the real differences you'll notice in a margin account vs a cash account. Then there are the myriad of regulations that dictate how much cash you should keep in your account for any margin position.\",\n \"If the underlying is currently moving as aggressively as stated, the broker would immediately forcibly close positions to maintain margin. What securities are in fact closed depends upon the internal algorithms. If the equity in the account remains negative after closing all positions if necessary, the owner of the account shall owe the broker the balance. The broker will close the account and commence collections if the owner of the account does not pay the balance quickly. Sometimes, brokers will impose higher margin requirements than mandated to prevent the above eventuality. Brokers frequently close positions that violate internal or external margin requirements as soon as they are breached.\",\n \"\\\"Probably the most significant difference is the Damocles Sword hanging over your head, the Margin Call. In a nutshell, the lender (your broker) is going to require you to have a certain amount of assets in your account relative to your outstanding loan balance. The minimum ratio of liquid funds in the account to the loan is regulated in the US at 50% for the initial margin and 25% for maintenance margins. So here's where it gets sticky. If this ratio gets on the wrong side of the limits, the broker will force you to either add more assets/cash to your account t or immediately liquidate some of your holdings to remedy the situation. Assuming you don't have any/enough cash to fix the problem it can effectively force you to sell while your investments are in the tank and lock in a big loss. In fact, most margin agreements give the brokerage the right to sell your investments without your express consent in these situations. In this situation you might not even have the chance to pick which stock they sell. Source: Investopedia article, \\\"\\\"The Dreaded Margin Call\\\"\\\" Here's an example from the article: Let's say you purchase $20,000 worth of securities by borrowing $10,000 from your brokerage and paying $10,000 yourself. If the market value of the securities drops to $15,000, the equity in your account falls to $5,000 ($15,000 - $10,000 = $5,000). Assuming a maintenance requirement of 25%, you must have $3,750 in equity in your account (25% of $15,000 = $3,750). Thus, you're fine in this situation as the $5,000 worth of equity in your account is greater than the maintenance margin of $3,750. But let's assume the maintenance requirement of your brokerage is 40% instead of 25%. In this case, your equity of $5,000 is less than the maintenance margin of $6,000 (40% of $15,000 = $6,000). As a result, the brokerage may issue you a margin call. Read more: http://www.investopedia.com/university/margin/margin2.asp#ixzz1RUitwcYg\\\"\",\n \"A bit of poking around brought me to this thread on the Motley Fool, asking the same basic question: I think the problem is the stock price. For a stock to be sold short, it has to be marginable which means it has to trade over $ 5.00. The broker, therefore, can't borrow the stock for you to sell short because it isn't held in their clients' margin accounts. My guess is that Etrade, along with other brokers, simply exclude these stocks for short selling. Ivestopedia has an explanation of non-marginable securities. Specific to stocks under $5: Other securities, such as stocks with share prices under $5 or with extremely high betas, may be excluded at the discretion of the broker itself.\",\n \"\\\"If you don't have a margin account, then you will not have margin calls. You need a margin account if you wish to \\\"\\\"buy on margin\\\"\\\", to sell stocks \\\"\\\"short\\\"\\\", or to sell options, or maybe some other esoteric things I have not thought of. If you don't do those things, then you do not need a margin account and will not get margin calls. In your example, it doesn't sound like margin has been used, If you deposit $20 and used it to buy $20 of stock and it then falls to $5, \\\"\\\"they\\\"\\\" did not lose the money, you did. But if no margin was used, then no margin call would result.\\\"\",\n \"Timothy Sykes specializes in this type of trade, according to his website. He has some recommendations for brokers that allow shorting low-priced stocks:\",\n \"You buy something on margin. It goes down. You get a margin call. It's not more complex than that. The value of your account has to be X% of the asset you control. The fact that the ETF is bull, bear, triple long/short, doesn't really matter.\",\n \"\\\"A derivative contract can be an option, and you can take a short (sell) position , much the same way you would in a stock. When BUYING options you risk only the money you put in. However when selling naked(you don't have the securities or cash to cover all potential losses) options, you are borrowing. Brokers force you to maintain a required amount of cash called, a maintenance requirement. When selling naked calls - theoretically you are able to lose an INFINITE amount of money, so in order to sell this type of options you have to maintain a certain level of cash in your account. If you fail to maintain this level you will enter into whats often referred to as a \\\"\\\"margin-call\\\"\\\". And yes they will call your phone and tell you :). Your broker has the right to liquidate your positions in order to meet requirements. PS: From experience my broker has never liquidated any of my holdings, but then again I've never been in a margin call for longer then a few days and never with a severe amount. The margin requirement for investors is regulated and brokers follow these regulations.\\\"\",\n \"\\\"So, the term \\\"\\\"ready market\\\"\\\" simply means that a market exists in which there are legitimate buy/sell offers, meaning there are investors willing to own or trade in the security. A \\\"\\\"spot market\\\"\\\" means that the security/commodity is being delivered immediately, rather at some predetermined date in the future (hence the term \\\"\\\"futures market\\\"\\\"). So if you buy oil on the spot market, you'd better be prepared to take immediate delivery, where as when you buy a futures contract, the transaction doesn't happen until some later date. The advantage for futures contract sellers is the ability to lock in the price of what they're selling as a hedge against the possibility of a price drop between now and when they can/will deliver the commodity. In other words, a farmer can pre-sell his grain at a set price for some future delivery date so he can know what he's going to get regardless of the price of grain at the time he delivers it. The downside to the farmer is that if grain prices rise higher than what he sold them for as futures contracts then he loses that additional money. That's the advantage to the buyer, who expects the price to rise so he can resell what he bought from the farmer at a profit. When you trade on margin, you're basically borrowing the money to make a trade, whether you're trading long (buying) or short (selling) on a security. It isn't uncommon for traders to pledge securities they already own as collateral for a margin account, and if they are unable to cover a margin call then those securities can be liquidated or confiscated to satisfy the debt. There still may even be a balance due after such a liquidation if the pledged securities don't cover the margin call. Most of the time you pay a fee (or interest rate) on whatever you borrow on margin, just like taking out a bank loan, so if you're going to trade on margin, you have to include those costs in your calculations as to what you need to earn from your investment to make a profit. When I short trade, I'm selling something I don't own in the expectation I can buy it back later at a lower price and keep the difference. For instance, if I think Apple shares are going to take a steep drop at some point soon, I can short them. So imagine I short-sell 1000 shares of AAPL at the current price of $112. That means my brokerage account is credited with the proceeds of the sale ($112,000), and I now owe my broker 1000 shares of AAPL stock. If the stock drops to $100 and I \\\"\\\"cover my short\\\"\\\" (buy the shares back to repay the 1000 I borrowed) then I pay $100,000 for them and give them to my broker. I keep the difference ($12,000) between what I sold them for and what I paid to buy them back, minus any brokerage fees and fees the broker may charge me for short-selling. In conclusion, a margin trade is using someone else's money to make a trade, whether it's to buy more or to sell short. A short trade is selling shares I don't even own because I think I can make money in the process. I hope this helps.\\\"\",\n \"\\\"To short: Of course, you may always buy some index correlated ETF that eliminates the above. They use stock futures on the index, and you simply buy the \\\"\\\"shorting ETF\\\"\\\" in your non-margin account. However, they are surprisingly high cost, and despite the intended correlation, have significant drag. It's a much safer way to short the market (you have great choice in which market ETF) and eliminates the single stock risk.\\\"\",\n \"While a margin account is not required to trade options, a margin account is necessary to take delivery of an exercised put. The puts can be bought in a cash account so long as the cash necessary to fund the trade is available. If you do choose to exercise which almost never has a positive expected value relative to selling except after the final trading time before expiration, taxes notwithstanding, then your shares will be put to your counterparty. Since options almost always trade in round lots, 100 shares will have to fund the put exercise, or a margin account must satisfy the difference. For your situation, trading out of both positions would be probably be best.\",\n \"I don't know what you are on about, as most online brokers should offer standard brokerage without margin. As trading with magin is considered more risky by most (especially if you don't know what you are doing), so one would have to fill out additional application forms and possibly undergo some training before getting a margin account open. A quick search on the net provided some examples, here is one - IG, who provide 3 type of accounts - Spread Betting and CFDs (both leveraged) and Stockbroking (which is non-leveraged).\",\n \"\\\"I think to some extent you may be confusing the terms margin and leverage. From Investopedia Two concepts that are important to traders are margin and leverage. Margin is a loan extended by your broker that allows you to leverage the funds and securities in your account to enter larger trades. In order to use margin, you must open and be approved for a margin account. The loan is collateralized by the securities and cash in your margin account. The borrowed money doesn't come free, however; it has to be paid back with interest. If you are a day trader or scalper this may not be a concern; but if you are a swing trader, you can expect to pay between 5 and 10% interest on the borrowed money, or margin. Going hand-in-hand with margin is leverage; you use margin to create leverage. Leverage is the increased buying power that is available to margin account holders. Essentially, leverage allows you to pay less than full price for a trade, giving you the ability to enter larger positions than would be possible with your account funds alone. Leverage is expressed as a ratio. A 2:1 leverage, for example, means that you would be able to hold a position that is twice the value of your trading account. If you had $25,000 in your trading account with 2:1 leverage, you would be able to purchase $50,000 worth of stock. Margin refers to essentially buying with borrowed money. This must be paid back, with interest. You also may have a \\\"\\\"margin call\\\"\\\" forcing you to liquidate assets if you go beyond your margin limits. Leverage can be achieved in a number of ways when investing, one of which is investing with a margin account.\\\"\",\n \"Yes, Regulation T is specified as the equity percentage of assets. So, yes, one can buy double the amount of equity in initial buying power but no more. A broker shouldn't even permit purchases that would violate margin regulation. Maintenance margin is at 25%, so equity must remain above 25% of the total or the brokerage will force liquidations.\",\n \"You have to call Interactive Brokers for this. This is what you should do, they might even have a web chat. These are very broker specific idiosyncrasies, because although margin rules are standardized to an extent, when they start charging you for interest and giving you margin until settlement may not be standardized. I mean, I can call them and tell you what they said for the 100 rep.\",\n \"The initial position is worth 40000. You post 50% margin, so you deposited 20000 and borrowed 20000. 6% of 20000 is 1200.\",\n \"Here's how this works in the United States. There's no law regarding your behavior in this matter and you haven't broken any laws. But your broker-dealer has a law that they must follow. It's documented here: The issue is if you buy stock before your sell has settled (before you've received cash) then you're creating money where before none existed (even though it is just for a day or two). The government fears that this excess will cause undue speculation in the security markets. The SEC calls this practice freeriding, because you're spending money you have not yet received. In summary: your broker is not allowed to loan money to an account than is not set-up for loans; it must be a margin account. People with margin account are able to day-trade because they have the ability to use margin (borrow money). Margin Accounts are subject to Pattern Daytrading Rules. The Rules are set forth by FINRA (The Financial Industry Reporting Authority) and are here:\",\n \"Yes, via a margin account, one can trade or transfer on unsettled funds. These are tight regulations that begin with the Federal Reserve, extend to FINRA, and downward. In a cash account, this is not possible. Since speed is a necessity, a margin account can actually be approved nearly instantly.\",\n \"Margin is when you borrow to buy stock. The margin % is the amount you can have borrowed over your own stock. There may also be some other considerations e.g. risk portfolio. Say you have 10,000. Your broker allows you buy on margin with a margin requirement of 100%. So You buy 18,000 of stock. You have 10k of your own and borrowed 8k to buy this. So you have 80% extra stock on margin. Say the stock has a downturn and loses 12% or so. Suddenly you have 16k stock value. But you still owe 8k. You are now at 100% margin. 8k is yours 8k is borrowed money. At this point if you drop anymore you are exceeding 100% margin and your broker may sell to ensure they get their 8k. The benefits of this are of course if the stock goes in your favor. 10% rise is 1,800 instead of 1,000.\",\n \"High frequency trades are intra day. The would buy a stock for 100 and sell for 100.10 multiple times. So If you start with 100 in your broker account, you buy something [it takes 2-3 days to settle], you sell for 100.10 [it takes 2-3 days to settle]. You again buy something for 100. It is the net value of both buys and sells that you need to look at. Trading on Margin Accounts. Most brokers offer Margin Accounts. The exact leverage ratios varies. What this means is that if you start with 10 [or 15 or 25] in your broker you can buy stock of 100. Of course legally you wont own the stock unless you pay the broker balance, etc.\",\n \"The spread is two trades, one of which opens up some risk one of which limits/cancels the risk. There is nothing stopping you from selling part of the spread opening the door to the risk. You're required to have a margin account to open risky positions, even if the specific spread trade you're attempting to open has a risk limiting/cancelling counterpart.\",\n \"Its hard to write much in those comment boxes, so I'll just make an answer, although its really not a formal answer. Regarding commissions, it costs me $5 per trade, so that's actually $10 per trade ($5 to buy, $5 to sell). An ETF like TNA ($58 per share currently) fluctuates $1 or $2 per day. IXC is $40 per share and fluctuates nearly 50 cents per day (a little less). So to make any decent money per trade would mean a share size of 50 shares TNA which means I need $2900 in cash (TNA is not marginable). If it goes up $1 and I sell, that's $10 for the broker and $40 for me. I would consider this to be the minimum share size for TNA. For IXC, 100 shares would cost me $4000 / 2 = $2000 since IXC is marginable. If IXC goes up 50 cents, that's $10 for the broker and $40 for me. IXC also pays a decent dividend. TNA does not. You'll notice the amount of cash needed to capture these gains is roughly the same. (Actually, to capture daily moves in IXC, you'll need a bit more than $2000 because it doesn't vary quite a full 50 cents each day). At first, I thought you were describing range trading or stock channeling, but those systems require stop losses when the range or channel is broken. You're now talking about holding forever until you get 1 or 2 points of profit. Therefore, I wouldn't trade stocks at all. Stocks could go to zero, ETFs will not. It seems to me you're looking for a way to generate small, consistent returns and you're not seeking to strike it rich in one trade. Therefore, buying something that pays a dividend would be a good idea if you plan to hold forever while waiting for your 1 or 2 points. In your system you're also going to have to define when to get back in the trade. If you buy IXC now at $40 and it goes to $41 and you sell, do you wait for it to come back to $40? What if it never does? Are you happy with having only made one trade for $40 profit in your lifetime? What if it goes up to $45 and then dips to $42, do you buy at $42? If so, what stops you from eventually buying at the tippy top? Or even worse, what stops you from feeling even more confident at the top and buying bigger lots? If it gets to $49, surely it will cover that last buck to $50, right? /sarc What if you bought IXC at $40 and it went down. Now what? Do you take up gardening as a hobby while waiting for IXC to come back? Do you buy more at lower prices and average down? Do you find other stocks to trade? If so, how long until you run out of money and you start getting margin calls? Then you'll be forced to sell at the bottom when you should be buying more. All these systems seem easy, but when you actually get in there and try to use them, you'll find they're not so easy. Anything that is obvious, won't work anymore. And even when you find something that is obvious and bet that it stops working, you'll be wrong then too. The thing is, if you think of it, many others just like you also think of it... therefore it can't work because everyone can't make money in stocks just like everyone at the poker table can't make money. If you can make 1% or 2% per day on your money, that's actually quite good and not too many people can do that. Or maybe its better to say, if you can make 2% per trade, and not take a 50% loss per 10 trades, you're doing quite well. If you make $40 per trade profit while working with $2-3k and you do that 50 times per year (50 trades is not a lot in a year), you've doubled your money for the year. Who does that on a consistent basis? To expect that kind of performance is just unrealistic. It much easier to earn $2k with $100k than it is to double $2k in a year. In stocks, money flows TO those who have it and FROM those who don't. You have to plan for all possibilities, form a system then stick to it, and not take on too much risk or expect big (unrealistic) rewards. Daytrading You make 4 roundtrips in 5 days, that broker labels you a pattern daytrader. Once you're labeled, its for life at that brokerage. If you switch to a new broker, the new broker doesn't know your dealings with the old broker, therefore you'll have to establish a new pattern with the new broker in order to be labeled. If the SEC were to ask, the broker would have to say 'yes' or 'no' concering if you established a pattern of daytrading at that brokerage. Suppose you make the 4 roundtrips and then you make a 5th that triggers the call. The broker will call you up and say you either need to deposit enough to bring your account to $25k or you need to never make another daytrade at that firm... ever! That's the only warning you'll ever get. If you're in violation again, they lock your account to closing positions until you send in funds to bring the balance up to $25k. All you need to do is have the money hit your account, you can take it right back out again. Once your account has $25k, you're allowed to trade again.... even if you remove $15k of it that same day. If you trigger the call again, you have to send the $15k back in, then take it back out. Having the label is not all bad... they give you 4x margin. So with $25k, you can buy $100k of marginable stock. I don't know... that could be a bad thing too. You could get a margin call at the end of the day for owning $100k of stock when you're only allowed to own $50k overnight. I believe that's a fed call and its a pretty big deal.\",\n \"\\\"You sold $10,000 worth of stock so that money is essentially yours. However, you sold this stock without actually owning any which means that you, through your broker, are currently borrowing shares amounting to (at the time of your sale) $10,000 from someone who actually owns this stock. You will be paying this person interest for the privilege of borrowing their shares, the exact amount charged varies wildly and depends on factors such as short interest in the stock (loads of people want to go short = shareholders can charge high interest) etc. If I remember correctly hovering over the \\\"\\\"position\\\"\\\" column in your portfolio in the IB Workstation should give you information about the interest rate charged. You will have to buy back these shares from the lender at some point which is why the $10k isn't just \\\"\\\"free money.\\\"\\\" If the stock has gone up in price in the meantime you are going to be paying more than the $10k you got for the same amount of shares and vice versa.\\\"\",\n \"\\\"Scenario 1 - When you sell the shares in a margin account, you will see your buying power go up, but your \\\"\\\"amount available to withdraw\\\"\\\" stays the same until settlement. Yes, you can reallocate the same day, no need to wait until settlement. There is no margin interest for this scenario. Scenario 2 - If that stock is marginable to 50%, and all you have is $10,000 in that stock, you can buy another $10,000. Once done, you are at 50% margin, exactly.\\\"\",\n \"Margin accounts do not have the problem you are imagining, which is unique to cash accounts\",\n \"\\\"But what happen if the stock price went high and then go down near expiry date? When you hold a short (sold) call option position that has an underlying price that is increasing, what will happen (in general) is that your net margin requirements will increase day by day. Thus, you will be required to put up more money as margin to finance your position. Margin money is simply a \\\"\\\"good faith\\\"\\\" deposit held by your broker. It is not money that is debited as cash from the accounting ledger of your trading account, but is held by your broker to cover any potential losses that may arise when you finally settle you position. Conversely, when the underlying share price is decreasing, the net margin requirements will tend to decrease day by day. (Net margin is the net of \\\"\\\"Initial Margin\\\"\\\" and \\\"\\\"Variation Margin\\\"\\\".) As the expiry date approaches, the \\\"\\\"time value\\\"\\\" component of the option price will be decreasing.\\\"\",\n \"\\\"The reason for selling a stock \\\"\\\"short\\\"\\\", is for when you believe the stock value will decrease in the near future. Here is an example: Today Exxon-Mobile stock is selling for $100 / share. You are expecting the price to decrease, so you want to short the stock, which means your broker (i.e. eTrade, etc) allows you to borrow shares without paying money, and those shares are transferred into your account, and then you sell them and receive money for the sale. But you didn't actually own those shares, you only borrowed them, so you need to return the shares to your broker sometime in the future. Let's say you borrow 10 shares @ $100, and you sell them at the market price of $100, you receive $1,000 in your account. But you owe your broker 10 shares, which you need to return sometime in the future. A few days later, the share price has decreased to $80. Now you can buy 10 shares from the market at a total cost of $800. You get 10 shares, and return those shares to your broker. Since you originally took in $1,000, and you just paid out $800, you keep a resulting profit of $200\\\"\",\n \"When you want to short a stock, you are trying to sell shares (that you are borrowing from your broker), therefore you need buyers for the shares you are selling. The ask prices represent people who are trying to sell shares, and the bid prices represent people who are trying to buy shares. Using your example, you could put in a limit order to short (sell) 1000 shares at $3.01, meaning that your order would become the ask price at $3.01. There is an ask price ahead of you for 500 shares at $3.00. So people would have to buy those 500 shares at $3.00 before anyone could buy your 1000 shares at $3.01. But it's possible that your order to sell 1000 shares at $3.01 never gets filled, if the buyers don't buy all the shares ahead of you. The price could drop to $1.00 without hitting $3.01 and you will have missed out on the trade. If you really wanted to short 1000 shares, you could use a market order. Let's say there's a bid for 750 shares at $2.50, and another bid for 250 shares at $2.49. If you entered a market order to sell 1000 shares, your order would get filled at the best bid prices, so first you would sell 750 shares at $2.50 and then you would sell 250 shares at $2.49. I was just using your example to explain things. In reality there won't be such a wide spread between the bid and ask prices. A stock might have a bid price of $10.50 and an ask price of $10.51, so there would only be a 1 cent difference between putting in a limit order to sell 1000 shares at $10.51 and just using a market order to sell 1000 shares and getting them filled at $10.50. Also, your example probably wouldn't work in real life, because brokers typically don't allow people to short stocks that are trading under $5 per share. As for your question about how often you are unable to make a short sale, it can sometimes happen with stocks that are heavily shorted and your broker may not be able to find any more shares to borrow. Also remember that you can only short stocks with a margin account, you cannot short stocks with a cash account.\",\n \"A CFD broker will let you open a trade on margin as long as your account balance is more than the margin required on all your open trades. If the required margin increases within a certain percentage of your account balance, you will get a margin call. If you then don't deposit more funds or close losing trades out, the broker will close all your trades. Note: Your account balance is the remaining funds you have left to open new trades with. I always use stop loss orders with all my open trades, and because of this my broker reduces the amount of margin required on each trade. This allows me to have more open trades at the one time without increasing my funds. Effects of a Losing Trade on Margin Say I have an account balance of $2,000 and open a long trade in a share CFD of 1,000 CFDs with a share price of $10 and margin of 10%. The face value of the shares would be $10,000, but my initial margin would be $1,000 (10% of $10,000). If I don't place a stop loss and the price falls to $9, I would have lost $1,000 and my remaining margin would now be $900 (10% of $9,000). So I would have $100 balance remaining in my account. I would probably receive a margin call to deposit more funds in or close out my trade. If I don't respond the broker will close out my position before my balance gets to $0. If instead I placed a stop loss at say $9.50, my initial margin might be reduced to $500. As the price drops to $9.60 I would have lost $400 and my remaining margin would now only be $100, with my account balance at $1,500. When the price drops to $9.50 I will get stopped out, my trade will be closed and I would have lost $500, with my account balance still at $1,500. Effects of a Winning Trade on Margin Say I have the same account balance as before and open the same trade but this time the price moves up. If I don't place a stop loss and the price goes up to $11, I would have made a $1,000 profit and my remaining margin will now be $1,100 (10% of $11,000). So my account balance would now be $2,000 + $1,000 - $1,100 = $1,900. If I had placed a stop loss at say $9.50 again and the price moves up to $10.50, I would have made a profit of $500 and my margin would now be $1,000. My account balance would be $2,000 + $500 - $1,000 = $1,500. However, if after the price went up to $10.50 I also moved my stop loss up to $10, then I would have $500 profit and only $500 margin. So my balance in this case would be $2,000 + $500 - $500 = $2,000. So by using stop losses as part of your risk management you can reduce the margin used from your balance which will allow you to open more trades without any extra funds deposited into your account.\",\n \"If I sell a covered call, on stock I own 100%, there is no risk of a margin call. The stock goes to zero, I'm still not ask to send in more money. But, if bought on margin, margin rules apply. A naked put would require you to be able to buy the stock if put to you. As the price of the stock drops, you still need to be able to buy it at the put strike price. Mark to market is just an expression describing how your positions are considered each day.\",\n \"\\\"It is possible and it depends on your strategy. As short selling interest rates are annual and levied monthly at a prorated rate. Interest rates are also low in general, with the exception of hard to borrow stocks. Therefore you can maintain a short position for weeks on end and notice nothing. Months even, if the position itself has already gained in your favor. There is no additional fee for opening the short position. Although some brokers have a \\\"\\\"locate\\\"\\\" fee, if it is hard to borrow the stock and they need to go find some shares to short. So you can do it as much as you like.\\\"\",\n \"I'm not 100% sure, but I don't think it would be considered a free ride. The idea of a free ride is that you are engaging in a transaction when you do not actually have the money available to cover it, since the broker is technically giving you a 3 day loan whenever you purchase your stock (3 day rule to settle.) However, if you are using a margin account, and you have enough credit available, then you are not actually using unsettled assets, but rather an additional line of credit which was granted to you. You would just need to make sure that your total transactions are less than your purchasing power. That's my take on it anyway. I hope that helps, and hopefully someone can confirm or reject what I have said.\",\n \"Link only answers aren't good, but the list is pretty long. It's a moving target, the requirement change based on a number of criteria. It usually jumps to force you to sell when you hold a losing position, or when your commodity is about to skyrocket.\",\n \"Pretty sure the major retail brokerage firms require 25k to daytrade. Read the top comment. You will get crushed by commissions. There are commission free ETFs, but that's not the kind of investing you seem to want to learn about.\",\n \"What I did not understand when I first called is that margin able account means the ability to borrow margin, but not the necessity of borrowing. Like I was saying, it is something I am going to do a lot of due diligence on before I plunge in. I have a general vague idea of futures, and thus why I was asking for info on the matter.\",\n \"The day trader in the article was engaging in short selling. Short selling is a technique used to profit when a stock goes down. The investor borrows shares of a stock from someone else and sells them. After the stock price goes down, the investor buys the shares back and returns them, pocketing the difference. As the day trader in the article found out, it is a dangerous practice, because there is no limit to the amount of money you can lose. The stock was trading at $2, and the day trader thought the stock was going to go down to $1. He borrowed and sold 8,400 shares at $2. He hoped to buy them back at $1 and earn $8,400 profit. Instead, the stock went up a lot, and he was forced to buy back the shares at $18.50 per share, or about $155,400. He had had $37,000 with E-Trade, which they took, and he is now over $100,000 in debt.\",\n \"\\\"In the United States, regulation of broker dealer credit is dictated by Regulation T, that for a non-margin account, 100% of a trade must be funded. FINRA has supplemented that regulation with an anti-\\\"\\\"free rider\\\"\\\" rule, Rule 4210(f)(9), which reads No member shall permit a customer (other than a broker-dealer or a “designated account”) to make a practice, directly or indirectly, of effecting transactions in a cash account where the cost of securities purchased is met by the sale of the same securities. No member shall permit a customer to make a practice of selling securities with them in a cash account which are to be received against payment from another broker-dealer where such securities were purchased and are not yet paid for. A member transferring an account which is subject to a Regulation T 90-day freeze to another member firm shall inform the receiving member of such 90-day freeze. It is only funds from uncleared sold equities that are prohibited from being used to purchase securities. This means that an equity in one's account that is settled can be sold and can be purchased only with settled funds. Once the amount required to purchase is in excess of the amount of settled funds, no more purchases can be made, so an equity sold by an account with settled funds can be repurchased immediately with the settled funds so long as the settled funds can fund the purchase. Margin A closed position is not considered a \\\"\\\"long\\\"\\\" or \\\"\\\"short\\\"\\\" since it is an account with one loan of security and one asset of security and one cash loan and one cash liability with the excess or deficit equity equal to any profit or loss, respectively, thus unexposed to the market, only to the creditworthiness of the clearing & settling chain. Only open positions are considered \\\"\\\"longs\\\"\\\" or \\\"\\\"shorts\\\"\\\", a \\\"\\\"long\\\"\\\" being a possession of a security, and a \\\"\\\"short\\\"\\\" being a liability, because they are exposed to the market. Since unsettled funds are not considered \\\"\\\"longs\\\"\\\" or \\\"\\\"shorts\\\"\\\", they are not encumbered by previous trades, thus only the Reg T rules apply to new and current positions. Cash vs Margin A cash account cannot purchase with unsettled funds. A margin account can. This means that a margin account could theoretically do an infinite amount of trades using unsettled funds. A cash account's daily purchases are restricted to the amount of settled funds, so once those are exhausted, no more purchases can be made. The opposite is true for cash accounts as well. Unsettled securities cannot be sold either. In summation, unsettled assets can not be traded in a cash account.\\\"\",\n \"You're trying to mitigate the risk of having your investments wiped out by fraud committed by your broker by using margin loans to buy stock secured by other, non-cash assets in your account. The solution that you are proposing does not make any sense at all. You mitigate a very low probability/high impact risk by doing something that comes with a high probability/medium impact risk. In addition to interest costs, holding stocks on margin subjects you to the very real risk of being forced to sell assets at inopportune times to meet margin calls. Given the volatility that the markets are experiencing in 2011, there is a high risk that some irrational decision in Greece could wipe you out. If I were worried about this, I would: If you have enough money that SIPC protection limits are an issue, you desperately need a financial adviser. Do not implement any strategy involving margin loans until you talk to a qualified adviser.\",\n \"\\\"First, it's much safer to be shorting stocks over $5 than stocks under $5. I use 3 indicators to show that a stock has topped out and about to drop. Key is the timing cause the initial drop is often the biggest. More close you get in at the top, the higher the risk. Using 1D Charts ONLY: - MACD Indicator: I use the histogram, when it reaches a peak height, and the next day it is down 1 \\\"\\\"Step\\\"\\\". If you wait til the MACD lines cross, you are pretty late IMHO. Need to get in earlier. Timing is everything. - RSI(15) - Needs to topped out and above 67 meaning, \\\"\\\"Over bought\\\"\\\" - Do not buy when RSI is high above 70. Often stocks go on a Run up when RSI is over 70! - I use Stoch RSI or CCI to confirm my status on RSI. I like to see that all 3 indicators agree. This gives me a 75% chance that the stock will drop. It may take a day or 2.. so you need patience.\\\"\",\n \"Initial Margins and Maintenance margins can be used for both stocks as well as futures. It depends on which broker you use and what services they offer. The initial Margin is used to cover the purchase, the maintenance margin is used to ask additional funds in case the value of the underlying equity changes drastically before settlement. You can start with the investopedia article on initial margin and Maintenance margin\",\n \"\\\"Yes. I heard back from a couple brokerages that gave detailed responses. Specifically: In a Margin account, there are no SEC trade settlement rules, which means there is no risk of any free ride violations. The SEC has a FAQ page on free-riding, which states that it applies specifically to cash accounts. This led me to dig up the text on Regulation T which gives the \\\"\\\"free-riding\\\"\\\" rule in §220.8(c), which is titled \\\"\\\"90 day freeze\\\"\\\". §220.8 is the section on cash accounts. Nothing in the sections on margin accounts mentions such a settlement restriction. From the Wikipedia page on Free Riding, the margin agreement implicitly covers settlement. \\\"\\\"Buying Power\\\"\\\" doesn't seem to be a Regulation T thing, but it's something that the brokerages that I've seen use to state how much purchasing power a client has. Given the response from the brokerage, above, and my reading of Regulation T and the relevant Wikipedia page, proceeds from the sale of any security in a margin account are available immediately for reinvestment. Settlement is covered implicitly by margin; i.e. it doesn't detract from buying power. Additionally, I have personally been making these types of trades over the last year. In a sub-$25K margin account, proceeds are immediately available. The only thing I still have to look out for is running into the day-trading rules.\\\"\",\n \"\\\"A simple way to ask the question might be to say \\\"\\\"why can't I just use the same trick with my own shares to make money on the way down? Why is borrowing someone else's shares necessary to make the concept a viable one? Why isn't it just the inverse of 'going long'?\\\"\\\" A simple way to think about it is this: to make money by trading something, you must buy it for less than you sell it for. This applies to stocks like anything else. If you believe the price will go up, then you can buy them first and sell them later for a higher price. But if you believe the price will go down, the only way to buy low and sell high is to sell first and buy later. If you buy the stock and it goes down, any sale you make will lose you money. I'm still not sure I fully understand the point of your example, but one thing to note is that in both cases (i.e., whether you buy the share back at the end or not), you lost money. You say that you \\\"\\\"made $5 on the share price dropping\\\"\\\", but that isn't true at all: you can see in your example that your final account balance is negative in both cases. You paid $20 for the shares but only got $15 back; you lost $5 (or, in the other version of your example, paid $20 and got back $5 plus the depreciated shares). If you had bought the shares for $20 and sold them for, say, $25, then your account would end up with a positive $5 balance; that is what a gain would look like. But you can't achieve that if you buy the shares for $20 and later sell them for less. At a guess, you seem to be confusing the concept of making a profit with the concept of cutting your losses. It is true that if you buy the shares for $20 and sell them for $15, you lose only $5, whereas if you buy them for $20 and sell for $10, you lose the larger amount of $10. But those are both losses. Selling \\\"\\\"early\\\"\\\" as the price goes down doesn't make you any money; it just stops you from losing more money than you would if you sold later.\\\"\",\n \"The initial and overnight margin requirements are set by the exchanges (who calculate them using the Standard Portfolio of Analysis of Risk, or 'SPAN' system), and positions are market to market according to these at the end of the trading session. To find these margin requirements you will need to consult the website of the exchange on which the contract you are trading is issued (i.e. if you're trading on the London Metal Exchange it's no good looking at the Chicago Mercantile Exchange's margin requirements as a previous answer suggests!). However, for positions entered and exited within the same day, the daytrade margin rate will apply. This is set by your broker rather than the exchange, and can be as little as 10% of the exchange requirement. You can find a useful comparison of different margin types and requirements in the article I have published here: Understanding Margin for Futures Trading.\",\n \"you need minimum of 25k otherwise youll reach a limit. you have to wait 3 days for the sale to clear unless youre on margin. dont buy anything based on idiots on twitter or the internet. however, theres some good people to follow though that know what theyre doing. dont listen to this guy saying that etrade or those platforms arent fast enough. they all offer level 2 prices so i dont know what hes talking about. successful day traders arent buying and selling a stock every single day. theres not always something to buy and sell...unless youre just gambling, and in that case just go to the casino and lose your money there.\",\n \"quid's answer explains the settlement period well. However, it should be noted that you can avoid the settlement period by opening a margin account. Any specific broker like Schwab may or may not offer margin accounts. Margin accounts allow you to borrow money to avoid the settlement period or to buy more securities than you can actually afford. Note that if you buy more securities than you can afford using margin, you expose yourself to losses potentially larger than your initial investment. If you fund your account with $50,000 and use margin to purchase $80,000 of stock which then drops in value by 80% you will have lost $64,000 and owe the broker $14,000 plus fees.\",\n \"\\\"No, it means that is only the notional value of that underlying asset of that contract, generally. The contract specification itself is listed on the exchange's websites, and there are really no assumptions you can make about a particular contract. Where S&P futures have one set of specifications, such as what it actually represents, how many each contract holds, how to price profits and losses... a different contract, such as FTSE 100 stock futures have a completely different set of specifications. Anyway in this one example the s&p 500 futures contract has an \\\"\\\"initial margin\\\"\\\" of $19,250, meaning that is how much it would cost you to establish that contract. Futures generally require delivery of 1,000 units of the underlying asset. So you would take the underlying asset's price and multiple it by 1,000. (what price you use is also mentioned in the contract specification), The S&P 500 index is $1588 you mentioned, so on Jun2013 you would have to delivery $1588 x 1000, or $1,588,000. GREAT NEWS, you only have to put up 1.2% in principal to control a 1.5 million dollar asset! Although, if even that amount is too great, you can look at the E-Mini S&P futures, which require about 1/10th the capital and delivery. This answer required that a lot of different subjects be mentioned, so feel free to ask a new question about the more specific topics.\\\"\",\n \"\\\"An important point yet to be mentioned is that, with a standard investment, the most you can lose of your £100 stake is £100 (if the company literally goes bust, say). With shorting on the other hand, your downside is not limited to your initial stake. You could \\\"\\\"invest\\\"\\\" £100, but end up owing £200, £500, or, well, the sky's the limit. Shorting is dangerous even for experienced investors. For a beginner, it is about the worst possible investment strategy I can think of!\\\"\",\n \"It's about how volatile the instrument is. Brokers are concerned not about you but about potential lawsuits stemming from their perceived inadequate risk management - letting you trade extremely volatile stocks with high leverage. On top of that they run the risk of losing money in scenarios where a trader shorts a stock with all of the funds, the company rises 100% or more by the next day, in which case the trader owes money to the broker. If you look in detail you'll see that many of the companies with high margin requirements are extremely volatile pharmaceutical companies which depend heavily of FDA approvals.\",\n \"\\\"So, yes, you may be having the inevitable epiphany where you realize that options can synthetically replicate the same risk profile of owning stock outright. Allowing you to manipulate risk and circumvent margin requirement differences amongst asset classes. Naked short puts are analogous to a covered call, but may have different (lesser) margin requirements. This allows you to increase your risk, and the broker has to account for that. The broker's clientele might not understand all the risks associated with that much leverage and so may simply consider it risky \\\"\\\"for your protection\\\"\\\"\\\"\",\n \"\\\"My take on this is that with any short-selling contract you are engaging in, at a specified time in the future you will need to transfer ownership of the item(s) you sold to the buyer. Whether you own the item(s) or in your case you will buy your friend's used car in the meantime (or dig enough gold out of the ground - in the case of hedging a commodity exposure) is a matter of \\\"\\\"trust\\\"\\\". Hence there is normally some form of margin or credit-line involved to cover for you failing to deliver on expiry.\\\"\",\n \"Leverage is when you borrow in order to invest. Mind you, most people aren't going to just give you money to gamble on the stock market completely unsecured; rather, you deposit (say) $10,000 and buy a stock... and then you have $10k in assets which you can borrow against, so you can buy another $10,000 of that stock. Now if the stock goes up you'll make twice the gain (2x leverage). However, if it goes down, you'll lose twice as much as well. If the value of your stock falls, your line of credit will be reduced as well; in this case, since you used all your credit and are now over your limit, your broker will issue a margin call (they will demand a deposit of additional funds, or they will sell some of your stock at their discretion). This protects you from owing more than you invested, but it's still sometimes possible (for instance, if a company spontaneously goes bankrupt and becomes worthless, and your stock becomes worthless). There are also things like leveraged index funds and commodity funds which aim to return some multiple of the market's earnings. These are designed for intraday trading, though, and usually end up underperforming significantly over the long term. [edit] Mose people who accept borrowed funds should generally accept real cash as well. However, if you're trying to short sell, i.e. borrow shares and sell them (in the hopes you can get them back cheaper later after the stock falls) you will need a margin line of credit to do so as well. [edit 2] clarified margin calls\",\n \"This essentially depends on how you prefer to measure your performance. I will just give a few simple examples to start. Let me know if you're looking for something more. If you just want to achieve maximum $ return, then you should always use maximum margin, so long as your expected return (%) is higher than your cost to borrow. For example, suppose you can use margin to double your investment, and the cost to borrow is 7%. If you're investing in some security that expects to return 10%, then your annual return on an account opened with $100 is: (2 * $100 * 10% - $100 * 7%) / $100 = 13% So, you see the expected return, amount of leverage, and cost to borrow will all factor in to your return. Suppose you want to also account for the additional risk you're incurring. Then you could use the Sharpe Ratio. For example, suppose the same security has volatility of 20%, and the risk free rate is 5%. Then the Sharpe Ratio without leverage is: (10% - 5%) / 20% = 0.25 The Sharpe Ratio using maximum margin is then: (13% - 5%) / (2 * 20%) = 0.2, where the 13% comes from the above formula. So on a risk-adjusted basis, it's better not to utilize margin in this particular example.\",\n \"The $500 minimum is a policy of the ASX. As such any broker that offered a different policy would not be offering direct purchase of exchange traded shares. Note however that this policy applies only to the initial purchase. From the CMC FAQs: The ASX requires a minimum parcel of $500 to be traded if you don’t currently hold that particular security. Once you have $500 worth of an individual security, you can purchase any value of shares you like.\",\n \"\\\"Below is just a little information on short selling from my small unique book \\\"\\\"The small stock trader\\\"\\\": Short selling is an advanced stock trading tool with unique risks and rewards. It is primarily a short-term trading strategy of a technical nature, mostly done by small stock traders, market makers, and hedge funds. Most small stock traders mainly use short selling as a short-term speculation tool when they feel the stock price is a bit overvalued. Most long-term short positions are taken by fundamental-oriented long/short equity hedge funds that have identified some major weaknesses in the company. There a few things you should consider before shorting stocks: Despite all the mystique and blame surrounding short selling, especially during bear markets, I personally think regular short selling, not naked short selling, has a more positive impact on the stock market, as: Lastly, small stock traders should not expect to make significant profits by short selling, as even most of the great stock traders (Jesse Livermore, Bernard Baruch, Gerald Loeb, Nicolas Darvas, William O’Neil, and Steven Cohen,) have hardly made significant money from their shorts. it is safe to say that odds are stacked against short sellers. Over the last century or so, Western large caps have returned an annual average of between 8 and 10 percent while the returns of small caps have been slightly higher. I hope the above little information from my small unique book was a little helpful! Mika (author of \\\"\\\"The small stock trader\\\"\\\")\\\"\",\n \"\\\"Buying (or selling) a futures contract means that you are entering into a contractual agreement to buy (or sell) the contracted commodity or financial instrument in the contracted amount (the contract size) at the price you have bought (or sold) the contract on the contract expire date (maturity date). It is important to understand that futures contracts are tradeable instruments, meaning that you are free to sell (or buy back) your contract at any time before the expiry date. For example, if you buy 1 \\\"\\\"lot\\\"\\\" (1 contract) of a gold future on the Comex exchange for the contract month of December 2016, then you entering into a contract to buy 100 ounces (the contract size) of gold at the price at which you buy the contract - not the spot price on the day of expiry when the contract comes to maturity. The December 2016 gold futures contract has an expiry date of 28 December. You are free to trade this contract at any time before its expiry by selling it back to another market participant. If you sell the contract at a price higher than you have purchased it, then you will realise a profit of 100 times the difference between the price you bought the contract and the price you sold the contract, where 100 is the contract size of the gold contract. Similarly, if you sell the contract at a price lower than the price you have purchased it, then you will realise a loss. (Commissions paid will also effect your net profit or loss). If you hold your contract until the expiry date and exercise your contract by taking (or making) delivery, then you are obliged to buy (or sell) 100 ounces of gold at the price at which you bought (or sold) the contract - not the current spot price. So long as your contract is \\\"\\\"open\\\"\\\" (i.e., prior to the expiry date and so long as you own the contract) you are required to make a \\\"\\\"good faith deposit\\\"\\\" to show that you intend to honour your contractual obligations. This deposit is usually called \\\"\\\"initial margin\\\"\\\". Typically, the initial margin amount will be about 2% of the total contract value for the gold contract. So if you buy (or sell) one contract for 100 ounces of gold at, say, $1275 an ounce, then the total contract value will be $127,500 and your deposit requirement would be about $2,500. The initial margin is returned to you when you sell (or buy) back your futures contract, or when you exercise your contract on expiry. In addition to initial margin, you will be required to maintain a second type of margin called \\\"\\\"variation margin\\\"\\\". The variation margin is the running profit or loss you are showing on your open contract. For the sake of simplicity, lets look only at the case where you have purchased a futures contract. If the futures price is higher than your contract (buy) price, then you are showing a profit on your current position and this profit (the variation margin) will be used to offset your initial margin requirement. Conversely, if the futures price has dropped below your contracted (buy) price, then you will be showing a loss on your open position and this loss (the variation margin) will be added to your initial margin and you will be called to put up more money in order to show good faith that you intend to honour your obligations. Note that neither the initial margin nor the variation margin are accounting items. In other words, these are not postings that are debited or credited to the ledger in your trading account. So in some sense \\\"\\\"you don't have to pay anything upfront\\\"\\\", but you do need to put up a refundable deposit to show good faith.\\\"\",\n \"One way a lot of people bypass the pattern trading equity requirement is to open multiple brokerage accounts. You have $10k, put $5k in one and $5k in another. Although I don't recommend it!\",\n \"If you are comfortable picking individual stocks and can get into Robinhood you only need $1000 to get started. This means buying one stock of this, two stocks of that, etc. but it works.\",\n \"If the price had dropped to $4 from $50, and you had $5000 to start with on your account, you will be left with $400 in your account if you closed the position now. So you would not be in debt if this was the only possition you had open.\",\n \"Yes, it can buy back the call, but much before stock hits the $30 mark. Let us say you got 1$ from selling the call. So the total money in your account is 4$ + 1 $ = 5 $. When stock hits 10$ (your strike), the maintenance margin is 5$. As soon as stock goes past 10, your maintenance margin is violated. So broker will buy back your call (at least IB does that, it does not wait for a margin call). Now if the stock gapped up from 8 to 30,then yes, broker will buy it back at 30, so your account will have a negative balance. Assume the call cost 20$ when stock hit 30, your balance is: 5 - (30-10) = -15. Depending on broker, I suppose they will ask you to bring your account balance back up to positive. If they don't do that, they risk going out of business.\",\n \"I'm not entirely sure about some of the details in your question, since I think you meant to use $10,000 as the value of the futures contract and $3 as the value of the underlying stock. Those numbers would make more sense. That being said, I can give you a simple example of how to calculate the profit and loss from a leveraged futures contract. For the sake of simplicity, I'll use a well-known futures contract: the E-mini S&P500 contract. Each E-mini is worth $50 times the value of the S&P 500 index and has a tick size of 0.25, so the minimum price change is 0.25 * $50 = $12.50. Here's an example. Say the current value of the S&P500 is 1,600; the value of each contract is therefore $50 * 1,600 = $80,000. You purchase one contract on margin, with an initial margin requirement1 of 5%, or $4,000. If the S&P 500 index rises to 1,610, the value of your futures contract increases to $50 * 1,610 = $80,500. Once you return the 80,000 - 4,000 = $76,000 that you borrowed as leverage, your profit is 80,500 - 76,000 = $4,500. Since you used $4,000 of your own funds as an initial margin, your profit, excluding commissions is 4,500 - 4,000 = $500, which is a 500/4000 = 12.5% return. If the index dropped to 1,580, the value of your futures contract decreases to $50 * 1,580 = $79,000. After you return the $76,000 in leverage, you're left with $3,000, or a net loss of (3,000 - 4000)/(4000) = -25%. The math illustrates why using leverage increases your risk, but also increases your potential for return. Consider the first scenario, in which the index increases to 1,610. If you had forgone using margin and spent $80,000 of your own funds, your profit would be (80,500 - 80,000) / 80000 = .625%. This is smaller than your leveraged profit by a factor of 20, the inverse of the margin requirement (.625% / .05 = 12.5%). In this case, the use of leverage dramatically increased your rate of return. However, in the case of a decrease, you spent $80,000, but gained $79,000, for a loss of only 1.25%. This is 20 times smaller in magnitude than your negative return when using leverage. By forgoing leverage, you've decreased your opportunity for upside, but also decreased your downside risk. 1) For futures contracts, the margin requirements are set by the exchange, which is CME group, in the case of the E-mini. The 5% in my example is higher than the actual margin requirement, which is currently $3,850 USD per contract, but it keeps the numbers simple. Also note that CME group refers to the initial margin as the performance bond instead.\",\n \"When you short a stock, you can lose an unlimited amount of money if the trade goes against you. If the shorted stock gaps up overnight you can lose more money than you have in your account. The best case is you make 100% if the stock goes to zero. And then you have margin fees on top of that. With long positions, it's the other way around. Your max loss is 100% and your gains are potentially unlimited.\",\n \"\\\"The margin rules are also more complicated. A simple buy on a non-margin account will never run into margin rules and you can just wait out any dips if you have confidence the stock will recover. A \\\"\\\"simple\\\"\\\" short sell might get you a call from your broker that you have a margin call, and you can't wait it out without putting more money in. Personally I have trouble keeping the short sale margin rules straight in my head, at least compared to a long sale. I got in way over my head shorting AMZN once, and lost a lot of money because I thought it was overvalued at the time, but it just kept going up and I wanted it to go down. I've never gotten stuck like that on a long position.\\\"\",\n \"\\\"You need to have 3 things if you are considering short-term trading (which I absolutely do not recommend): The ability to completely disconnect your emotions from your gains and losses (yes, even your gains but especially your losses). The winning/losing on a daily basis will cause you to start taking unnecessary risk in order to win again. If you can't disconnect your emotions, then this isn't the game for you. The lowest possible trading costs to enter and exit a position. People will talk about 1% trading costs; that rule-of-thumb doesn't apply anymore. Personally, my trading costs are a total 13.9 basis points to enter and exit a $10,000 position and I think it's still too high (that's just a hair above one-eighth of 1% for you non-traders). The ability to \\\"\\\"gut-check\\\"\\\" and exit a losing position FAST. Don't hesitate and don't hope for it to go up. GTFO. If you are serious about short-term trading then you must close all positions on a daily basis. Don't do margin in today's market as many valuations are high and some industries are not trending as they have in the past. The leverage will kill you. It's not a question of \\\"\\\"if\\\"\\\", it's a when. You're new. Don't trade anything larger than a $5,000 position, no matter what. Don't hold more than 10% of your portfolio in the same industry. Don't be afraid to sit on 50% cash or more for months at a time. Use money market funds to park cash because they are T+1 settlement and most firms will let you trade the stock without cash as long as you effect the money market trade on the same day since stock settlement is T+3.\\\"\",\n \"You should not have to wait 3 days to sell the stock after purchase. If you are trading with a cash account you will have to wait for the sale to settle (3 business days) before you can use those funds to purchase other stock. If you meet the definition of a pattern day trader which is 4 or more day trades in 5 business days then your brokerage will require you to have a minimum of $25,000 in funds and a margin account.\",\n \"The initial margin is $5940 and maintenance margin $5400. A simple search of Comex Gold Margin gives the CME group site. You then need to specify CMX metals to see the margins. Gold is currently about $1300. A gold future is 100 oz. So the full contract is worth $130K. You want to 'go long' so you enter into a contract for Dec '14. You put up $5940, and if gold rises, you gain $100 for each $1 it goes up. Likewise on the downside. If gold drops $5.40, you lost $540 and will get a call to end the position or to put up more money. It's similar to stock margin requirements, only the numbers are much lower, your leverage with futures is over 20 to 1.\",\n \"I just called options express, and apparently you need a margin account for futures and options, but you don't NEED margin to trade futures. I will have to debate the merits, but I think I may try playing with it once I build up my regular stock account.\",\n \"I'd look into ShareBuilder. You can buy stocks for as low as $2 each, and there is no minimum funding level. You have to be carefull about selling though, as they will charge you $10 each time you want to sell a stock, regardless of how much of it you want to sell.\",\n \"Rich's answer captures the basic essence of short selling with example. I'd like to add these additional points: You typically need a specially-privileged brokerage account to perform short selling. If you didn't request short selling when you opened your account, odds are good you don't have it, and that's good because it's not something most people should ever consider doing. Short selling is an advanced trading strategy. Be sure you truly grok selling short before doing it. Consider that when buying stock (a.k.a. going long or taking a long position, in contrast to short) then your potential loss as a buyer is limited (i.e. stock goes to zero) and your potential gain unlimited (stock keeps going up, if you're lucky!) Whereas, with short selling, it's reversed: Your loss can be unlimited (stock keeps going up, if you're unlucky!) and your potential gain is limited (i.e. stock goes to zero.) The proceeds you receive from a short sale – and then some – need to stay in your account to offset the short position. Brokers require this. Typically, margin equivalent to 150% the market value of the shares sold short must be maintained in the account while the short position is open. The owner of the borrowed shares is still expecting his dividends, if any. You are responsible for covering the cost of those dividends out of your own pocket. To close or cover your short position, you initiate a buy to cover. This is simply a buy order with the intention that it will close out your matching short position. You may be forced to cover your short position before you want to and when it is to your disadvantage! Even if you have sufficient margin available to cover your short, there are cases when lenders need their shares back. If too many short sellers are forced to close out positions at the same time, they push up demand for the stock, increasing price and deepening their losses. When this happens, it's called a short squeeze. In the eyes of the public who mostly go long buying stock, short sellers are often reviled. However, some people and many short sellers believe they are providing balance to the market and preventing it sometimes from getting ahead of itself. [Disambiguation: A short sale in the stock market is not related to the real estate concept of a short sale, which is when a property owner sells his property for less than he owes the bank.] Additional references:\",\n \"First, a margin account is required to trade options. If you buy a put, you have the right to deliver 100 shares at a fixed price, 50 can be yours, 50, you'll buy at the market. If you sell a put, you are obligated to buy the shares if put to you. All options are for 100 shares, I am unaware of any partial contract for fewer shares. Not sure what you mean by leveraging the position, can you spell it out more clearly?\",\n \"\\\"Simplest way to answer this is that on margin, one is using borrowed assets and thus there are strings that come with doing that. Thus, if the amount of equity left gets too low, the broker has a legal obligation to close the position which can be selling purchased shares or buying back borrowed shares depending on if this is a long or short position respectively. Investopedia has an example that they walk through as the call is where you are asked to either put in more money to the account or the position may be closed because the broker wants their money back. What is Maintenance Margin? A maintenance margin is the required amount of securities an investor must hold in his account if he either purchases shares on margin, or if he sells shares short. If an investor's margin balance falls below the set maintenance margin, the investor would then need to contribute additional funds to the account or liquidate stocks in the account to bring the account back to the initial margin requirement. This request is known as a margin call. As discussed previously, the Federal Reserve Board sets the initial margin requirement (currently at 50%). The Federal Reserve Board also sets the maintenance margin. The maintenance margin, the amount of equity an investor needs to hold in his account if he buys stock on margin or sells shares short, is 25%. Keep in mind, however, that this 25% level is the minimum level set, brokerage firms can increase, but not decrease this level as they desire. Example: Determining when a margin call would occur. Assume that an investor had purchased 500 shares of Newco's stock. The shares were trading at $50 when the transaction was executed. The initial margin requirement on the account was 70% and the maintenance margin is 30%. Assume no transaction costs. Determine the price at which the investor will receive a margin call. Answer: Calculate the price as follows: $50 (1- 0.70) = $21.43 1 - 0.30 A margin call would be received when the price of Newco's stock fell below $21.43 per share. At that time, the investor would either need to deposit additional funds or liquidate shares to satisfy the initial margin requirement. Most people don't want \\\"\\\"Margin Calls\\\"\\\" but stocks may move in unexpected ways and this is where there are mechanisms to limit losses, especially for the brokerage firm that wants to make as much money as possible. Cancel what trade? No, the broker will close the position if the requirement isn't kept. Basically think of this as a way for the broker to get their money back if necessary while following federal rules. This would be selling in a long position or buying in a short sale situation. The Margin Investor walks through an example where an e-mail would be sent and if the requirement isn't met then the position gets exited as per the law.\\\"\",\n \"\\\"Because it takes 3 business days for the actual transfer of stock to occur after you buy or sell to the next owner, your cash is tied up until that happens. This is called the settlement period. Therefore, brokers offer \\\"\\\"margin\\\"\\\", which is a form of credit, or loan, to allow you to keep trading while the settlement period occurs, and in other situations unrelated to the presented question. To do this you need a \\\"\\\"margin account\\\"\\\", you currently have a \\\"\\\"cash account\\\"\\\". The caveat of having a retail margin account (distinct from a professional margin account) is that there is a limited amount of same-day trades you can make if you have less than $25,000 in the account. This is called the Pattern Day Trader (PDT) rule. You don't need $25k to day trade, you will just wish you had it, as it is easy to get your account frozen or downgraded to a cash account. The way around THAT is to have multiple margin accounts at different brokerages. This will greatly increase the number of same day trades you can make. Many brokers that offer a \\\"\\\"solution\\\"\\\" to PDT to people that don't have 25k to invest, are offering professional trading accounts, which have additional fees for data, which is free for retail trading accounts. This problem has nothing to do with: So be careful of the advice you get on the internet. It is mostly white noise. Feel free to verify\\\"\",\n \"Most UK stock brokers don't require or allow margin trading. A quick web search for 'UK share dealing comparison' shows entries from money.co.uk and moneysupermarket.com who both provide lists of different brokers, e.g. Barclays, Hargraves Lansdown, IG Share Dealing, The Share Centre, TD Direct, Interactive Investor, YouInvest, etc. Some of the UK banks also provide a share dealing service, from quickly looking at their websites, Barclays, HSBC and Halifax all appear to provide share dealing services.\",\n \"In terms of pricing the asset, this functions in exactly the same way as a regular sell, so bids will have to be hit to fill the trade. When shorting an equity, currency is not borrowed; the equity is, so the value of per share liability is equal to it's last traded price or the ask if the equity is illiquid. Thus when opening a short position, the asks offer nothing to the process except competition for your order getting filled. Part of managing the trade is the interest rate risk. If the asks are as illiquid as detailed in the question, it may be difficult even to locate the shares for borrowing. As a general rule, only illiquid equities or those in free fall may be temporarily unable for shorting. Interactive Brokers posts their securities financing availabilities and could be used as a proxy guide for your broker.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"First, you are not exactly \"\"giving\"\" the brokerage $2000. That money is the margin requirement to protect them in the case the stock price rises. If you short 200 shares as in your example and they are holding $6000 from you then they are protected in the event of the stock price increasing to $30/share. Sometime before it gets there the brokerage will require you to deposit more money or they will cover your position by repurchasing the shares for your account. The way you make money on the short sale is if the stock price declines. It is a buy low sell high idea but in reverse. If you believe that prices are going to drop then you could sell now when it is high and buy back later when it is lower. In your example, you are selling 200 shares at $20 and later, buying those at $19. Thus, your profit is $200, not counting any interest or fees you have paid. It's a bit confusing because you are selling something you'll buy in the future. Selling short is usually considered quite risky as your gain is limited to the amount that you sold at initially (if I sell at $20/share the most I can make is if the stock declines to $0). Your potential to lose is unlimited in theory. There is no limit to how high the stock could go in theory so I could end up buying it back at an infinitely high price. Neither of these extremes are likely but they do show the limits of your potential gain and loss. I used $20/share for simplicity assuming you are shorting with a market order vs a limit order. If you are shorting it would be better for you to sell at 20 instead of 19 anyway. If someone says I would like to give you $20 for that item you are selling you aren't likely to tell them \"\"no, I'd really only like $19 for it\"\"\"","\"The margin money you put up to fund a short position ($6000 in the example given) is simply a \"\"good faith\"\" deposit that is required by the broker in order to show that you are acting in good faith and fully intend to meet any potential losses that may occur. This margin is normally called initial margin. It is not an accounting item, meaning it is not debited from you cash account. Rather, the broker simply segregates these funds so that you may not use them to fund other trading. When you settle your position these funds are released from segregation. In addition, there is a second type of margin, called variation margin, which must be maintained while holding a short position. The variation margin is simply the running profit or loss being incurred on the short position. In you example, if you sold 200 shares at $20 and the price went to $21, then your variation margin would be a debit of $200, while if the price went to $19, the variation margin would be a credit of $200. The variation margin will be netted with the initial margin to give the total margin requirement ($6000 in this example). Margin requirements are computed at the close of business on each trading day. If you are showing a loss of $200 on the variation margin, then you will be required to put up an additional $200 of margin money in order to maintain the $6000 margin requirement - ($6000 - $200 = $5800, so you must add $200 to maintain $6000). If you are showing a profit of $200, then $200 will be released from segregation - ($6000 + $200 = $6200, so $200 will be release from segregation leaving $6000 as required). When you settle your short position by buying back the shares, the margin monies will be release from segregation and the ledger postings to you cash account will be made according to whether you have made a profit or a loss. So if you made a loss of $200 on the trade, then your account will be debited for $200 plus any applicable commissions. If you made a profit of $200 on the trade then your account will be credited with $200 and debited with any applicable commissions.\"","\"And what exactly do I profit from the short? I understand it is the difference in the value of the stock. So if my initial investment was $4000 (200 * $20) and I bought it at $3800 (200 * $19) I profit from the difference, which is $200. Do I also receive back the extra $2000 I gave the bank to perform the trade? Either this is extremely poorly worded or you misunderstand the mechanics of a short position. When you open a short position, your are expecting that the stock will decline from here. In a short position you are borrowing shares you don't own and selling them. If the price goes down you get to buy the same shares back for less money and return them to the person you borrowed from. Your profit is the delta between the original sell price and the new lower buy price (less commissions and fees/interest). Opening and closing a short position is two trades, a sell then a buy. Just like a long trade there is no maximum holding period. If you place your order to sell (short) 200 shares at $19, your initial investment is $3,800. In order to open your $3,800 short position your broker may require your account to have at least $5,700 (according to the 1.5 ratio in your question). It's not advisable to open a short position this close to the ratio requirement. Most brokers require a buffer in your account in case the stock goes up, because in a short trade if the stock goes up you're losing money. If the stock goes up such that you've exhausted your buffer you'll receive what's known as a \"\"margin call\"\" where your broker either requires you to wire in more money or sell part or all of your position at a loss to avoid further losses. And remember, you may be charged interest on the value of the shares you're borrowing. When you hold a position long your maximum loss is the money you put in; a position can only fall to zero (though you may owe interest or other fees if you're trading on margin). When you hold a position short your maximum loss is unlimited; there's no limit to how high the value of something can go. There are less risky ways to make short trades by using put options, but you should ensure that you have a firm grasp on what's happening before you use real money. The timing of the trades and execution of the trades is no different than when you take a plain vanilla long position. You place your order, either market or limit or whatever, and it executes when your trade criteria occurs.\""],"string":"[\n \"\\\"First, you are not exactly \\\"\\\"giving\\\"\\\" the brokerage $2000. That money is the margin requirement to protect them in the case the stock price rises. If you short 200 shares as in your example and they are holding $6000 from you then they are protected in the event of the stock price increasing to $30/share. Sometime before it gets there the brokerage will require you to deposit more money or they will cover your position by repurchasing the shares for your account. The way you make money on the short sale is if the stock price declines. It is a buy low sell high idea but in reverse. If you believe that prices are going to drop then you could sell now when it is high and buy back later when it is lower. In your example, you are selling 200 shares at $20 and later, buying those at $19. Thus, your profit is $200, not counting any interest or fees you have paid. It's a bit confusing because you are selling something you'll buy in the future. Selling short is usually considered quite risky as your gain is limited to the amount that you sold at initially (if I sell at $20/share the most I can make is if the stock declines to $0). Your potential to lose is unlimited in theory. There is no limit to how high the stock could go in theory so I could end up buying it back at an infinitely high price. Neither of these extremes are likely but they do show the limits of your potential gain and loss. I used $20/share for simplicity assuming you are shorting with a market order vs a limit order. If you are shorting it would be better for you to sell at 20 instead of 19 anyway. If someone says I would like to give you $20 for that item you are selling you aren't likely to tell them \\\"\\\"no, I'd really only like $19 for it\\\"\\\"\\\"\",\n \"\\\"The margin money you put up to fund a short position ($6000 in the example given) is simply a \\\"\\\"good faith\\\"\\\" deposit that is required by the broker in order to show that you are acting in good faith and fully intend to meet any potential losses that may occur. This margin is normally called initial margin. It is not an accounting item, meaning it is not debited from you cash account. Rather, the broker simply segregates these funds so that you may not use them to fund other trading. When you settle your position these funds are released from segregation. In addition, there is a second type of margin, called variation margin, which must be maintained while holding a short position. The variation margin is simply the running profit or loss being incurred on the short position. In you example, if you sold 200 shares at $20 and the price went to $21, then your variation margin would be a debit of $200, while if the price went to $19, the variation margin would be a credit of $200. The variation margin will be netted with the initial margin to give the total margin requirement ($6000 in this example). Margin requirements are computed at the close of business on each trading day. If you are showing a loss of $200 on the variation margin, then you will be required to put up an additional $200 of margin money in order to maintain the $6000 margin requirement - ($6000 - $200 = $5800, so you must add $200 to maintain $6000). If you are showing a profit of $200, then $200 will be released from segregation - ($6000 + $200 = $6200, so $200 will be release from segregation leaving $6000 as required). When you settle your short position by buying back the shares, the margin monies will be release from segregation and the ledger postings to you cash account will be made according to whether you have made a profit or a loss. So if you made a loss of $200 on the trade, then your account will be debited for $200 plus any applicable commissions. If you made a profit of $200 on the trade then your account will be credited with $200 and debited with any applicable commissions.\\\"\",\n \"\\\"And what exactly do I profit from the short? I understand it is the difference in the value of the stock. So if my initial investment was $4000 (200 * $20) and I bought it at $3800 (200 * $19) I profit from the difference, which is $200. Do I also receive back the extra $2000 I gave the bank to perform the trade? Either this is extremely poorly worded or you misunderstand the mechanics of a short position. When you open a short position, your are expecting that the stock will decline from here. In a short position you are borrowing shares you don't own and selling them. If the price goes down you get to buy the same shares back for less money and return them to the person you borrowed from. Your profit is the delta between the original sell price and the new lower buy price (less commissions and fees/interest). Opening and closing a short position is two trades, a sell then a buy. Just like a long trade there is no maximum holding period. If you place your order to sell (short) 200 shares at $19, your initial investment is $3,800. In order to open your $3,800 short position your broker may require your account to have at least $5,700 (according to the 1.5 ratio in your question). It's not advisable to open a short position this close to the ratio requirement. Most brokers require a buffer in your account in case the stock goes up, because in a short trade if the stock goes up you're losing money. If the stock goes up such that you've exhausted your buffer you'll receive what's known as a \\\"\\\"margin call\\\"\\\" where your broker either requires you to wire in more money or sell part or all of your position at a loss to avoid further losses. And remember, you may be charged interest on the value of the shares you're borrowing. When you hold a position long your maximum loss is the money you put in; a position can only fall to zero (though you may owe interest or other fees if you're trading on margin). When you hold a position short your maximum loss is unlimited; there's no limit to how high the value of something can go. There are less risky ways to make short trades by using put options, but you should ensure that you have a firm grasp on what's happening before you use real money. The timing of the trades and execution of the trades is no different than when you take a plain vanilla long position. You place your order, either market or limit or whatever, and it executes when your trade criteria occurs.\\\"\"\n]","isConversational":false}}},{"rowIdx":365,"cells":{"_id":{"kind":"string","value":"8040"},"query":{"kind":"string","value":"Best way to make most of savings with ISA and Offset mortgage"},"gt_ids":{"kind":"list like","value":["523058"],"string":"[\n \"523058\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["523058","15631","189881","510736","418235","164044","409402","322825","77781","557734","61007","220733","305135","393857","456588","574691","380382","583918","372350","160464","131365","243520","274922","575279","5668","205273","89216","144111","36190","61264","212320","454287","507445","298776","286023","536693","526115","395099","367924","95321","206298","144114","440719","318823","2393","364802","476068","198468","429338","320265","423628","560915","493336","459705","306842","586626","284153","595317","553277","107068","39676","408518","138835","40241","440891","332832","97842","556072","427076","202527","372921","525557","461937","510469","449294","394474","200900","435576","350145","286466","452474","249054","111580","424826","384968","10908","454543","126965","232930","576609","426215","468831","204478","164819","362468","98294","262496","283530","479659","196119"],"string":"[\n \"523058\",\n \"15631\",\n \"189881\",\n \"510736\",\n \"418235\",\n \"164044\",\n \"409402\",\n \"322825\",\n \"77781\",\n \"557734\",\n \"61007\",\n \"220733\",\n \"305135\",\n \"393857\",\n \"456588\",\n \"574691\",\n \"380382\",\n \"583918\",\n \"372350\",\n \"160464\",\n \"131365\",\n \"243520\",\n \"274922\",\n \"575279\",\n \"5668\",\n \"205273\",\n \"89216\",\n \"144111\",\n \"36190\",\n \"61264\",\n \"212320\",\n \"454287\",\n \"507445\",\n \"298776\",\n \"286023\",\n \"536693\",\n \"526115\",\n \"395099\",\n \"367924\",\n \"95321\",\n \"206298\",\n \"144114\",\n \"440719\",\n \"318823\",\n \"2393\",\n \"364802\",\n \"476068\",\n \"198468\",\n \"429338\",\n \"320265\",\n \"423628\",\n \"560915\",\n \"493336\",\n \"459705\",\n \"306842\",\n \"586626\",\n \"284153\",\n \"595317\",\n \"553277\",\n \"107068\",\n \"39676\",\n \"408518\",\n \"138835\",\n \"40241\",\n \"440891\",\n \"332832\",\n \"97842\",\n \"556072\",\n \"427076\",\n \"202527\",\n \"372921\",\n \"525557\",\n \"461937\",\n \"510469\",\n \"449294\",\n \"394474\",\n \"200900\",\n \"435576\",\n \"350145\",\n \"286466\",\n \"452474\",\n \"249054\",\n \"111580\",\n \"424826\",\n \"384968\",\n \"10908\",\n \"454543\",\n \"126965\",\n \"232930\",\n \"576609\",\n \"426215\",\n \"468831\",\n \"204478\",\n \"164819\",\n \"362468\",\n \"98294\",\n \"262496\",\n \"283530\",\n \"479659\",\n \"196119\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"I am not a Financial Advisor, but I an tell you what I did in exactly this situation - which is pretty much what you are proposing. I put money into the offset savings account until I had only a small amount of mortgage \"\"balance\"\" left (less than a year's worth of mortgage payments), then I set it up so that each month I did the transfer from the offset savings pot into the mortgage itself. This depleted the offset savings in line with the mortgage debt, and the interest on the two balanced out almost to zero. This was self-sustaining and meant that I kept the same margin owing over time (i.e. if I was in this situation for 5 years, for the whole 5 years I would effectively have 1 year remaining on the mortgage). Meanwhile, since I now didn't have any mortgage outgoings from my regular income, I put any spare money into ISA savings. No need to withdraw money from the mortgage to move to the ISA. The benefits of this (as opposed to just paying off the damn mortgage already) were that I kept the full liquidity of the mortgage amount - I could withdraw all the offset savings pot if I wanted to, although I would then have to have funded the mortgage payments differently, and as that liquidity went down over time I was building up other savings in parallel. It worked well for me. It almost doesn't matter what the offset mortgage rate is since you are effectively paying it off by keeping the offset savings pot so high.\"","I think the key thing is flexibility - the money is not tied in with the offset mortgage. If you find a better investment, you can always take some of it out and put it towards that instead. Once it matures, if there is nothing good to reinvest in, then it can go back into the offset mortgage. Once you have had money in the offset account, even if you take it out, you have already (irreversibly) saved money on your mortgage. Right now you would be pressed to find an instant access ISA with a rate higher than 1.5%, so if you need immediate access, then the offset account seems good. On the other hand, for retirement, you might be saving longer term, and then you can get an ISA rate of 3%, currently, which may be better for a part of the money (or perhaps the upcoming Lifetime ISA with 25% yearly bonus may make sense for part of the money), if you do not need easy access to all of it. As Dilip says, this assumes you want safe investments.","I use an offset mortgage. (No interest is paid, but the amount in the savings account is subtracted from the outstanding mortgage amount before interest is calculated, so the mortgage is paid off faster by the interest amount saved). The money is instantly accessible and there is no tax as the benefit is reduced/saved interest. However, the mortgage rate is slightly higher, so it works best if your emergency funds are a reasonably large proportion of the mortgage amount outstanding.","If your savings account linked to the mortgage account is an 100% offset account then you don't need to put extra funds into the mortgage account apart from the minimum payments which is done automatically. Any funds you have in an 100% offset acount reduces the amount of interest you have to pay on the mortgage. So if your mortgage is $100,000 and you have $10,000 in the offset account then you only pay interest on $90,000 within the mortgage. Also the funds in the offset account are at call any time as it is simply a savings account. You can have all your pay go into it and have direct debits set up for all your bills. This way you will benefit from maximising the amounts in your offset account and reducing the amount of interest you pay on your mortgage. If your current linked savings account is not an 100% offset account ask your bank if you can change it over to one that is. If they don't have offset accounts for that particular mortgage account ask them if they have a different mortgage account with offset accounts. If they can't help you then shop arround for a bank or lender that does. I am currently with ANZ and they have a product with 100% offset account and about 0.7% below the standard variable rate, and there are plenty more similar products out there.","The way offset mortgages work, you are keeping savings in an account effectively earning the rate of the mortgage. You have the ability to leave it, paying the mortgage off early, or borrowing back, any time.","\"Assuming no constraints on how much you can move (or how frequently) into and out of your offset mortgage account, the question becomes one of what rate of return you expect from your long-term savings/emergency cash fund. The rate you are getting from the offset mortgage account is known; since it reduces the principal amount owing and thus reduces interest charges, the return is the mortgage rate (though I would not be surprised if the offset mortgage account contract has bells and whistles reducing the effective rate, saying something like 3 pounds reduction of principal for every 5 pounds you put in). So, as a movie character once said, \"\"Do you feel lucky today?\"\" If so, move money from your offset mortgage account to savings, and earn more. If not, move money in the opposite direction. A \"\"guaranteed\"\" 2% return on the offset mortgage account might be better than taking a risk on the vagaries of the stock market, and even the possibility of loss in your long term savings account.\"","\"Your dec ision is actually rather more complex than it first appears. The problem is that the limits on what you can pay into the HTB ISA might make it less attractive - it will all depend. Currently, you can put £15k/year into a normal ISA (Either Cash, or Stocks and Share or a combination). The HTB ISA only allows £200/month = £2,400/year. Since you can only pay into one Cash ISA in any one year you are going to lose out on the other £12,600 that you could save and grow tax free. Having said that, the 25% contribution by the govt. is extremely attractive and probably outweighs any tax saving. It is not so clear whether you can contribute to a HTB ISA (cash) and put the rest of your allowance into a Stocks and Shares ISA - if you can, you should seriously consider doing so. Yes this exposes you to a riskier investment (shares can go down as well as up etc.) but the benefits can be significant (and the gains are tax free). As said above, the rules are that money you have paid into an ISA in earlier years is separate - you can't pay any more into the \"\"old\"\" one whilst paying into a \"\"new\"\" one but you don't have to do anything with the \"\"old\"\" ISA. But you might WANT to do something since institutions are amazingly mean (underhand) in their treatment of customers. You may well find that the interest rate you get on your \"\"old\"\" ISA becomes less competitive over time. You should (Must) check every year what rate you are getting and whether you can get a better rate in a different ISA - if there is a better rate ISA and if it allows transfers IN, you should arrange to make the trasnfer - you ABSOLUTELY MUST TRANSFER between ISAs - never even think of taking the money out and then trying to pay it in to another ISA, it must be transferred directly between ISAs. So overall, yes, stop paying into the \"\"old\"\" ISA, open a new HTB ISA next year and if you can pay in the maximum do so. But if you can afford to save more, you might be able to open a Stocks and Shares ISA as well and pay into that too (max £15k into the pair in one year). And then do not \"\"forget\"\" about the \"\"old\"\" ISA(s) you will probably need to move all the money you have in the \"\"old\"\" one(s) regualrly into new ISAs to obtain a sensible rate. You might do well to read up on all this a lot more - I strongly recommend the site http://www.moneysavingexpert.com/ which gives a lot of helpful advice about everything to do with money (no I don't have any association with them).\"","\"Here in the UK, the rule of thumb is to keep a lot of equity in your home if you can. I assume here that you have a lot of savings you're considering using. If you only have say 10% of the house price you wouldn't actually have a lot of choice in the matter, the mortgage lender will penalise you heavily for low deposits. The practical minimum is 5%, but for most people a 95% mortgage is just silly (albeit not as silly as the 100% or greater mortgages you could get pre-2008), and you should take serious individual advice before considering it. According to Which, the average in the UK for first-time buyers is 20% (not the best source for that data I confess, but a convenient one). Above 20% is not at all unusual. You'll do an affordability calculation to figure out how much you can borrow, which isn't at all the same as how much you should borrow, but does get you started. Basically you, decide how much a month you can spend on mortgage payments. The calculation will let you put every penny into this if you choose to, but in practice you'll want some discretionary income so don't do that. decide the term of the mortgage. For a young first-time buyer in the UK I think you'd typically take a 25-year term and consider early repayment options rather than committing to a shorter term, but you don't have to. Mortgage lenders will offer shorter terms as long as you can afford the payments. decide how much you're putting into a deposit make subtractions for cost of moving (stamp duty if applicable, fees, removals aka \"\"people to lug your stuff\"\"). receive back a number which is the house price you can pay under these constraints (and of course a breakdown of what the mortgage principle would be, and the interest rate you'll pay). This step requires access to lender information, since their rates depend on personal details, deposit percentage, phase of the moon, etc. Our mortgage advisor did multiple runs of the calculation for us for different scenarios, since we hadn't made up our minds entirely. Since you have not yet decided how much deposit to make, you can use multiple calculations to see the effect of different deposits you might make, up to a limit of your total savings. Putting up more deposit both increases the amount you can borrow for a given monthly payment (since mortgage rates are lower when the loan is a lower proportion of house value), and of course increases the house price you can afford. So unless you're getting a very high return on your savings, £1 of deposit gets you somewhat more than £1 of house, and the calculation will tell you how much more. Once you've chosen the house you want, the matter is even simpler: do you prefer to put your savings in the house and borrow less and make lower payments, or prefer to put your savings elsewhere and borrow more and make higher payments but perhaps have some additional income from the savings. Assuming you maintain a contingency fund, a lower mortgage is generally considered a good investment in the UK, but you need to check what's right for you and compare it to other investments you could make. The issue is complicated by the fact that residential property prices are rising quite quickly in most areas of the UK, and have been for a long time, meaning that highly-leveraged property investment appears to be a really good idea. This leads to the imprudent, but tempting, conclusion that you should buy the biggest house you can possibly afford and watch its value rises. I do not endorse this advice personally, but it's certainly true that in a sharply rising house market it's easier to get away with buying a bigger house than you need, than it is to get away with it in a flat or falling market. As Stephen says, an offset mortgage is a no-brainer good idea if the rate is the same. Unfortunately in the UK, the rate isn't the same (or anyway, it wasn't a couple of years ago). Offset mortgages are especially good for those who make a lot of savings from income and for any reason don't want to commit all of those savings to a traditional mortgage payment. Good reasons for not wanting to do that include uncertainty about your future income and a desire to have the flexibility to actually spend some of it if you fancy :-)\"","The offset account is the way to go. The rate is higher and even if interest rates fall further when you go to renew your term deposit the interest rate for that will be lower as well. Also, with a term deposit you will be penalised if you take the money out before the end of the term. Regarding tax, you will pay tax at your marginal tax rate on every dollar earned from the Term deposit ( as long as your income is above the $18,000 tax free threshold). If the mortgage is for your primary residence then you will not pay any tax on the money in your Offset Account, as you are not earning any interest in this account you are saving interest on your mortgage. So definitely the way to go would be with the offset account, you'll get an effective higher interest rate, it will help you pay off your mortgage sooner, the money is always on call, and you will pay no tax.","Yes, you will come out ahead slightly by putting the money in the savings account, then paying off your mortgage later. However, we don't know what will happen to these interest rates after 1 year. If you put the £300 per month into the savings account for a year, then put the money into you mortgage, you will save about £78 for the year over just putting the money toward your mortgage in the first place. For me, I'm more concerned about longer term strategy. What happens to your mortgage rate after 2 years? What happens to your savings account rate after 1 year? The mortgage rate likely goes up and the savings account rate likely goes down, making the savings of this strategy even less after the first year. Instead, you may want to put this £300 per month toward retirement investments (assuming you have no other debt), which should, over the long term, earn more than the savings account.","\"Yes, you can certainly keep it in a savings account until you spend it. You'll get much less interest than you will be paying on the loan, but it will be better than nothing. However, you may want to ask if you can use the loan flexibly instead - i.e. only \"\"draw down\"\" the money you need when you need it, and not start paying interest until that happens. That would save you a lot more money. Note that the ISA limit is currently £5,760 and the limit is on total deposits so you won't be able to reuse the amount later in the tax year. Since that ends on April 5th that probably won't be an issue for you.\"","I would not recommend using your own money to pay off something that is not a strong asset. Use the savings where it will have the maximum return. Why not put (some of) the savings into another investment mortgage? Thanks to the leverage your return would be much higher than 5.5%, plus you would have more income.","This answer is specifically for the UK, but one building society has an account set up specifically for this. You actually refer your friend/family member to set up an account and then it can be linked to your mortgage. They don't get any interest for their account as it's all offset against your mortgage. If you then happen to give them a cash gift (up to £250 or possibly £3000 per year, I can't work out which is the reliable number, as of 2015) then it's all completely above board.","The short answer is that it depends on the taxation laws in your country. The long answer is that there are usually tax avoidance mechanisms that you can use which may make it more economically feasible for you to go one way or the other. Consider the following: The long term average growth rate of the stock market in Australia is around 7%. The average interest on a mortgage is 4.75%. Assuming you have money left over from a 20% deposit, you have a few options. You could: 1) Put that money into an index fund for the long term, understanding that the market may not move for a decade, or even move downwards; 2) Dump that money straight into the mortgage; 3) Put that money in an offset account Option 1 will get you (over the course of 30-40 years) around 7% return. If and when that profit is realised it will be taxed at a minimum of half your marginal tax rate (probably around 20%, netting you around 5.25%) Option 2 will effectively earn you 4.75% pa tax free Option 3 will effectively earn you 4.75% pa tax free with the added bonus that the money is ready for you to draw upon on short notice. Of the three options, until you have a good 3+ months of living expenses covered, I'd go with the offset account every single time. Once you have a few months worth of living expenses covered, I would the adopt a policy of spreading your risk. In Australia, that would mean extra contributions to my Super (401k in the US) and possibly purchasing an investment property as well (once I had the capital to positively gear it). Of course, you should find out more about the tax laws in your country and do your own maths.","The chancellor announced an ISA in this week's budget intended for people saving to buy their first home. For every £200 put in the government will add £50 to the account so I would strongly encourage you to put the money into that as it is also tax free.","Yes, this is fine: You can save up to £20,000 in one type of account or split the allowance across some or all of the other types. You can only pay £4,000 into your Lifetime ISA in a tax year ... Example You could save £11,000 in a cash ISA, £2,000 in a stocks and shares ISA, £3,000 in an innovative finance ISA and £4,000 in a Lifetime ISA in one tax year. https://www.gov.uk/individual-savings-accounts/how-isas-work You might want to consider whether it is wise to be fully invested in shares. If you're going to have to dip into them for things like holidays and a car, you're taking a risk that you might have to sell when the market is low. As a basic rate taxpayer, you have a £1 000 personal savings allowance. You don't need to chase the tax break with a cash ISA, which often have poor rates. However, you should consider keeping some of your savings in cash, for example in a current account that pays decent interest on the balance.","An offset account is simply a savings account which is linked to a loan account. Instead of earning interest in the savings account and thus having to pay tax on the interest earned, it reduces the amount of interest you have to pay on the loan. Example of a 100% offset account: Loan Amount $100,000, Offset Balance $20,000; you pay interest on the loan based on an effective $80,000 loan balance. Example of a 50% offset account: Loan Account $100,000, Offset Balance $20,000; you pay interest on the loan based on an effective $90,000 loan balance. The benefit of an offset account is that you can put all your income into it and use it to pay all your expenses. The more the funds in the offset account build up the less interest you will pay on your loan. You are much better off having the offset account linked to the larger loan because once your funds in the offset increase over $50,000 you will not receive any further benefit if it is linked to the smaller loan. So by offsetting the larger loan you will end up saving the most money. Also, something extra to think about, if you are paying interest only your loan balance will not change over the interest only period and your interest payments will get smaller and smaller as your offset account grows. On the other hand, if you are paying principal and interest then your loan balance will reduce much faster as your offset account increases. This is because with principal and interest you have a minimum amount to pay each month (made up of a portion of principal and a portion of interest). As the offset account grows you will be paying less interest, so a larger portion of the principal is paid off each month.","\"Ultimately you are as stuck as all other investors with low returns which get taxed. However there are a few possible mitigations. You can put up to 15k p.a. into a \"\"normal\"\" ISA (either cash or stocks & shares, or a combination) if your target is to generate the depost over 5 years you should maximise the amount you put in an ISA. Then when you come to buy, you cash in that part needed to top up your other savings for a deposit - i.e. keep the rest in for long term savings. The help to buy ISA might be helpful, but yes there is a limit on the purchase price which in London will restrict you. Several banks are offering good interest on limited sums in current accounts - Santander is probably the best you can get 3% (taxed) on up to 20K - this is a good \"\"safe\"\" return. Just open a 123 Account, arrange to pay out a couple of DDs and pay in £500 a month (you can take the £500 straight out again). I think Lloyds and TSB also offer similar but on much smaller ammounts. Be warned this strategy taken to the limit will involve some complexity checking your various accounts each month. After that you will end up trading better returns for greater risk by using more volatile stock market investments rather than cash deposits.\"","The answer to question 1 is yes, you can always reduce your loan when you remortgage by introducing additional funds. There is some possibility a (relatively) small charge might be applicable for managing the marginally more complex transfer, but it shouldn't be too much.. The answer to question 2 is NONE of your over payment amounts would have gone on interest, but you MIGHT incur penalty charges. Interest is only charged on the outstanding loan amount (i.e. £100K initially, reducing to £85K over 2 years in your example) at the interest rate determined by your mortgage agreement - there is no 'paying off interest' as such. Over payments are essentially all capital payments, reducing the principal/loan amount, so no additional interest would be paid if you opted for over payments. If you used your £10K to made the over payments throughout the 2 year fixed period you would in fact have paid LESS interest by the end of the 2 years, because you would be reducing the loan amount at a quicker rate, and thus the interest you pay each month (based on the lower outstanding loan at that time) would be lower. BUT... over payments might have attracted over payment penalties (typically a percentage of the amount you pay) and these penalties often mean it's not worth doing. Most fixed term mortgages have such penalties, but it depends on the agreement, and many mortgages also allow you to make over payments up to a certain amount each year before you get hit. Edit (additional suggestion): If the example you provide is one based on what you expect might happen to you over the next couple of years, something you could CONSIDER is an offset mortgage. Here your £10K that you accumulate reduces your interest through the 2 years, but you keep it in savings where you can access it if you need to. Accessing it will then cause a corresponding rise in interest payments, but to no higher level than you would have been paying if you had nothing in the savings in the first place. You usually pay a slightly higher interest rate for these sort of mortgage, so it's impossible to know if it would be more economical, and how appropriate it would be for you in other respects depends on many factors.","\"You have a large number of possible choices to make, and a lot of it does depend upon what interests you when you are older. The first thing to note is the difference between ISAs and pension-contribution schemes tax wise, which is of course the taxation point. When you contribute to your pensions scheme, it is done before taxation, which is why when you draw from your pension scheme you have to pay income tax. Conversely, your ISA is something you contribute to after you have already paid income tax - so besides the 10% tax on dividends if you hold any assets which may them, it is tax free when you draw on it regardless of how much you have accrued over the years. Now, when it comes to the question \"\"what is the best way to save\"\", the answer is almost certainly going to be filling your pension to the point where you're going to retire just on the edge of the limit, and then putting the rest into ISAs. This way you will not be paying the higher rates of tax associated with breaking the lifetime limit, but also get maximum contributions into your various schemes. There is an exception to this of course, which is the return on investment. If you do not have access to a SIPP (Self Invested Personal Pension), you may be able to receive a far higher return on investment when using a Stocks & Shares ISA, in which case the fact that you have to pay taxes prior to funding it may not make a significant difference. The other issue you have, as others have mentioned is rent. While now you may be enjoying London, it is in my opinion quite likely that will change when you get older, London has a very high-cost of living, even compared to the home counties, and many of its benefits are not relevant to someone who is retired. When you retire, it is quite possible that you will see it fit to take a large sum out of your various savings, and purchase a house, which means that regardless of how much you are drawing out you will be able to have somewhere to live. Renting is fine when you are working, but when you have a certain amount of (admittedly growing) funds that have to last you indefinitely, who knows if it will last you.\"","but then they make suggestions such as paying extra each month on your mortgage. How else does one pay off his mortgage early other than by paying extra each month? The principal and interest are fixed, no matter how much money you throw at them. The interest rate is fixed. The total interest paid varies depending on how much extra you pay towards the principal. You'll pay the same amount every month regardless. That's factually incorrect. just put the extra money into savings At 1.2%, if you're smart enough to put it in an on-line savings account. until you have enough to pay off the mortgage Which costs you 3.5%. This way, the money is locked up in your home. Who says that all of your money must be locked up in your home? (I'm sure that there are financial advisors who recommend that you throw every single spare dime into extra mortgage payments, but they're rare.) Am I missing something? Yes: the mathematical sense to see that a 3.5% loan costs more than than 1.2% savings earns you","\"Check the terms of your mortgage. If you are in a fixed-term mortgage, you can likely \"\"over-pay\"\" a fixed amount of the capital each year: typically 10%. Eg if you owe £300,000 on the mortgage, you can pay off an additional £30,000 this year. Next year you'd owe something like £260,000 so could pay off £26,000. You'd need to check the terms of your mortgage to see what this limit is. You can actually pay off more than this, but would become liable to pay an \"\"early repayment fee\"\" or similar, which is usually something like 3-5% of the mortgage amount. Note that this usually means you would need to re-finance the mortgage anyway If you are not on a fixed-term mortgage than, in the UK at least, you are pretty much free to over-pay as much as you would like or refinance the mortgage. If you are in a fixed-term mortgage, it is usually better to simply over-pay by that maximum allowed amount until the fixed period ends, at which point you can re-finance onto a mortgage that allows higher overpayments. This isn't always the case, though, depending on your interest rate, how high the early repayment charge is, and how much you are able to over-pay. At the very least, you're going to need to do some sums! If you do choose to over-pay up to the limit, then you'd want to over-pay as much as you can at the start of the year (ie don't divide the over-payment by 12, pay it all as early as you can) to reduce interest payments. Then once you hit the limit, put the rest into a savings account: once you are out of the fixed term you can then pay the rest as a lump sum when refinancing.\"","According the FSCS: If the bank fails FSCS would refund the maximum under our rules (currently £75,000 per person). Any credit balance over and above this would be offset against the mortgage by the insolvency practitioner responsible for the winding up of the bank. FSCS would play no part in that process. (Unless the savings were larger than the debts, but then it wouldn't make sense to have them in a zero interest offset account!) So the money would not be completely lost as such. Whether that would count as an overpayment is an open question, but perhaps a moot point anyway if the bank went under. (Finally, arguably, a pension or other investment might also be better for such amounts.)","\"I've been wondering the same thing - I can't find any \"\"official\"\" information from the banks, but there is the following info: So, if it's all with the same bank - try it! The worst that can happen is that the bank won't credit your ISA and will refund you.\"","I'd put as much of it as possible into an ISA that pays a decent amount of interest so you get the benefit of the money accruing interest tax free. For the rest, I'd shop around for notice accounts, but would also keep an eye out for no-notice accounts. The latter might be beneficial if you expect interest rates to rise and are willing to shop around and move the money into accounts paying better interest every few months. Just make sure you're also factoring in the loss of interest when moving the money. You could look into fixed term savings bonds but I don't think they currently pay enough to make it worthwhile locking away your money.","Pay the the smallest balance first. The sooner you pay that off, the sooner you can pay more on the mortgage.","\"One possibility you may consider is to keep all of your funds in the stocks and shares ISA while investing that proportion you wish to keep in cash into a tradeable \"\"Money Market\"\" ETF. A Money Market ETF will give you rates comparable to interest rates on cash and at the same time it will give you \"\"instant access\"\" subject to normal 3 day settlement of equities. This is not exactly a perfect solution. Most Money Market ETFs will pay monthly dividends, so depending on your timing, you may have to give up some interest. In the worst case, if you were to sell the day before going ex-dividend, then you would be giving up a months interest. In the best case, if you were to sell on the day of going ex-dividend, you would be giving up no interest.\"","Another option is the new 'innovative finance isa' that allow you to put a wrapper round peer to peer lending platform investments. See Zopa, although I don't think they have come out with an ISA yet.","First of all I recommend reading this short e-book that is aimed at young investors. The book is written for American investors but they same rules apply with different terms (e.g. the equivalent tax-free savings wrappers are called ISAs in the UK). If you don't anticipate needing the money any time soon then your best bet is likely a stocks and share ISA in an aggressive portfolio of assets. You are probably better off with an even more aggressive asset allocation than the one in the book, e.g. 0-15% bond funds 85-100% equity funds. In the long term, this will generate the most income. For an up-to-date table of brokers I recommend Monevator. If you are planning to use the money as a deposit on a mortgage then your best bet might be a Help to Buy ISA, you'll have to shop around for the best deals. If you would rather have something more liquid that you can draw into to cover expenses while at school, you can either go for a more conservative ISA (100% bond funds or even a cash ISA) or try to find a savings account with a comparable interest rate.","There are a number of UK banks that offer what passes for reasonable interest on an amount of cash held in their current accounts. I would suggest that you look into these. In the UK the first £1000 of bank or building society interest is paid tax-free for basic rate taxpayers (£500 for higher rate tax-payers) so if your interest income is below these levels then there is no point in investing in a cash ISA as the interest rate is often lower. At the moment Santander-123 bank account pays 1.5% on up to £20000 and Nationwide do 5% on up to £2500. A good source if information on the latest deals is Martin Lewis' Moneysaving Expert Website","A lot depends on whether your mortgage payments are interest only or 'repayment' and what the remaining term is on each of the mortgages. Either way I suspect that the best value for the money you put in will be had by making payments to the larger, newer mortgage. This is because the quicker you reduce the capital owed the less interest you will pay over the whole term of the mortgage and you've already had the older mortgage for sometime (unless you remortgaged) so the benefit you can get from an arbitrary reduction in the capital is inevitably less than you will get from the same reduction in the capital of the newer mortgage. Even if the two mortgages are the same age then the benefit of putting money into the one on the new house is greater due to the greater interest charged on it.","\"None of what I say is advice directed to you. It is how I would continue to analyse the situation you have, were it mine. First off, I prefer to work in certainties more than possibilities. Saying that, paying down the mortgage makes sense as I can calculate the amount I will save. I also believe that rate rises are coming in the future, based on the talk from the BofE, so any money I pay off now means guaranteed less interest to pay in the future. Also, the lower my loan-to-value ratio, the better/lower interest rates I can receive in the mortgage market. If I do not want to work until retirement age, it'd be nice to have as few bills as possible in the decade or so prior to retirement age. I could then do early-retirement or part-time work in the run-up to retirement. I could use my savings to fund life until retirement pays out. I'd be aiming to put 15% of my gross income into \"\"future investing\"\" - using ISAs to build up a savings pot, taking advantage of retirement products. That way all the money is not tied to a normal retirement age before it can accessed. And it's not touchable by future greedy Government taxation... Any income leftover above the 15%, I'd be throwing at the mortgage - taking advantage of the 10% overpay window, remortgaging as LTV comes down. In theory, overpaid mortgage equity is money that could still be accessed (provided house prices don't decline and remortgaging is a possibility). So, in short, I'd follow a plan along these lines of logic. 1) Make sure I have 4-6 months of living expenses as a Rainy Day Fund. Insulate myself from fluctuations in my financial situation. 2) Put away 15% of annual gross income towards \"\"future saving\"\". ISAs first, pension second. 3) Overpay the mortgage and look to remortgage as LTV drops. When LTV nears 60%, look to lock in to a longer-term fix. eg. 2 year fixes at 90% LTV, 5 year fixes at 60%. 4) Reassess steps 2 & 3 as life happens, circumstances change, work fluctuates, etc. 5) Once the mortgage is paid off, build as much wealth as possible - ISAs first, then non-tax efficient savings products. Aim for keeping expenses down and raising my savings % rate as much as possible. [Your analysis was thorough and shows you are thinking through consequences. Never forget to factor in the risk of carrying debt. Having no/low debt as you get older means there's more income left to build wealth. Ignore the American view of carrying debt for life and trusting investments to outperform the debt. You have to pay monthly to keep that debt around - and it ain't a pet!]\"","\"First, bear in mind that you're talking about having an average of ~£2000 saved up at any given time (if you spend all your stipend every quarter at a steady rate you'll start out with all of it and have none left at the end of the quarter), along with any long-term savings you manage to build up over time. In today's low-interest rate environment of ~1% interest rates, we're talking about approximately £20/year interest. So it's not worth a huge amount of effort to optimise this. You mentioned a \"\"bonus\"\", but looking at the Charter Savings website I don't actually see one listed for either the Cash ISA or the savings accounts you mention. In general, banks in the UK actually use bonus rates as a short-term measure to suck in new customers, and the bonuses typically expire after a while leaving you with a worse rate. Also, I don't think either of the rates you mention is guaranteed - they are both listed as \"\"variable\"\". In reality, I doubt they will go down too much more, given that the likely next move in UK interest rates is upwards. The typical main advantage of an ISA is its tax free nature. But from your question I assume you don't have any other income, so you won't need to pay tax on any interest you earn outside an ISA either. Also, given that your budget is quite tight and you expect to spend most or all of your stipend, there's no advantage to using an account where you can build up long-term tax-free savings. Even if you do have a few thousand pounds left over by the end of your PhD, you'll easily be able to put those into an ISA at that point given the annual limit of £20K. You're right not to want to take any risks with the money, and there aren't really any risk-free investments other than savings accounts available, at least on the timescales you're talking about. So overall I'd just go for the 1.26% return. Edit: as @marktristan's answer points out, you will probably be able to find a \"\"loss leader\"\" current account that actually offers more interest than a savings account. You'll need to either use a single current account and manage your budgeting carefully, or use a second current account as your \"\"savings\"\" account and make sure to set things up to satisfy the requirements of the account you choose, such as incoming payments or outgoing direct debits.\"","Similar to what Adam F says above, except instead of just transfering the amount you spend on the credit card into the high interest account, why not keep the majority of your funds (apart from a small amount, say a couple of hundred for emergencies) in the high interest account until the credit card needs to be paid off. Even better, if you have a mortgage with an 100% offset account keep all your funds in this, and pay off your credit card in full from it on or before the due date. Being a 100% offset to your mortgage interest rate you will be saving at a higher rate than a high interest rate savings account, and you will be able to do all your normal banking from it unlike a high interest account which you usually have to link to an additional account to deposit and withdrawl money to and from. If you are to use a credit card keep these simple rules in mind: Hope this has helped, Regards Victor","if the rate of interest on both loans is 6.5%, it does not make any difference against which loan you offset. if you offset it with 50K loan, you will close it sooner [I am assuming your 50K loan is of shorter tenure compared to the 300K without considering offset]. The overall interest outgo looks larger if you close the shorter loan vs closing the larger loan, however the net effect is the same if you start putting out the balance $400 to the 300K loan after you have closed it out.","Your main choices are ISAs and property. You can put over £15,000 per year into an ISA, which means over £450,000 by the time you retire, not allowing for growth in your ISA investments. But if you're paying rent, and worried about being able to pay rent when you retire, the obvious choice is to buy a flat now on a thirty-year mortgage so that you can stop paying rent and the mortgage will be paid off by the time you retire.","The mathematical answer is for you to have a diversified portfolio in your ISA. But that's easier said than done.","\"I love the idea of #1, keep that going. I don't think #2 is very realistic. Given the short time frame putting money at risk for a higher yield may not work in your favor. If it was me, I'd stick to a \"\"high interest\"\" savings account (around 1%). I don't mind #3 either, however, I'd be socking whatever you could to mortgage principle so you can get out of PMI sooner rather than later. That would be my top priority. Given the status of interest rates, you may end up saving money in the long run. I doubt it, but you may. If you choose to go with #3, don't settle for a house that you really don't like. Get something that you want. Who knows it may take you a year or so to find something!\"","If I open and fill an ISA, then leave the account alone for an entire year, will I then be able to add an additional £[Insert ISA limit here] to the original money I put in the account? Yes, you can. Will the full sum of £[Last years limit] + £[This years limit] that is in the account have interest paid on it? Yes, it will. Will the account be closed at the end of the period regardless? No. The account would only be closed if you requested it to be closed. Otherwise it would sit there with the original balance in it earning interest at the stated rate. The only way I can see an ISA being of any worth is by building up a substantial amount this way, but you would need so much cash laying around to max the ISA year on year. Just think of an ISA as like a completely normal savings account except that you don't pay tax on the interest, and there is a limit to how much you can deposit in any given year. Right now, while interest rates have been low for a while, the savings rates on any account (including ISAs) are not desperately attractive; additionally, with the recent changes to how interest on normal savings accounts are taxed, ISAs are not quite such a big deal as they used to be. If you look back to a time when interest rates were around 5%, a higher rate tax payer with £50,000 in a normal savings account would earn £2500 interest in a year, on which they would pay £1000 in tax. That made an ISA a very attractive option indeed.","The other answers have offered some great advice, but here is an alternative that hasn't been mentioned yet. I'm assuming that you have an adequately-sized emergency fund in savings, and that your cars are your only non-mortgage debt. Since you still have car debt, you probably don't have anything saved for buying a new car when your current cars are at the end-of-life. Consider paying off your car loans early, then begin saving for your next car. Having cash in the bank for a car is very freeing, and it changes your mindset when it comes time to purchase a car, as it is easy to waste a lot of money on something that depreciates rapidly when you aren't paying for it immediately. This approach might be counterintuitive if your car loan interest rate is less than your mortgage rate, but you will probably need another car before you need another house, and paying cash for a car is worth doing.","Your question is actually quite broad, so will try to split it into it's key parts: Yes, standard bank ISAs pay very poor rates of interest at the moment. They are however basically risk free and should track inflation. Any investment in the 6-7% return range at the moment will be linked to stock. Stock always carries large risks (~50% swings in capital are pretty standard in the short run. In the long run it generally beats every other asset class by miles). If you can’t handle those types of short terms swings, you shouldn’t get involved. If you do want to invest in stock, there is a hefty ignorance tax waiting at every corner in terms of how brokers construct their fees. In a nutshell, there is a different best value broker in the UK for virtually every band of capital, and they make their money through people signing up when they are in range x, and not moving their money when they reach band y; or just having a large marketing budget and screwing you from the start (Nutmeg at ~1% a year is def in this category). There isn't much of an obvious way around this if you are adamant you don't want to learn about it - the way the market is constructed is just a total predatory minefield for the complete novice. There are middle ground style investments between the two extremes you are looking at: bonds, bond funds and mixes of bonds and small amounts of stock (such as the Vanguard income or Conservative Growth funds outlined here), can return more than savings accounts with less risk than stocks, but again its a very diverse field that's hard to give specific advice about without knowing more about what your risk tolerance, timelines and aims are. If you do go down this (or the pure stock fund) route, it will need to be purchased via a broker in an ISA wrapper. The broker charges a platform fee, the fund charges a fund fee. In both cases you want these as low as possible. The Telegraph has a good heat map for the best value ISA platform providers by capital range here. Fund fees are always in the key investor document (KIID), under 'ongoing charges'.","As you are in UK, you should think in terms of Tax Free (interest and accumulated capital gains) ISA type investments for the long term AND/OR open a SIPP (Self Invested Pension Plan) account where you get back the tax you have paid on the money you deposit for your old age. Pensions are the best bet for money you do not need at present while ISAs are suitable for short term 5 years plus or longer.","There are a lot of open questions about if this is your only accessible money or if you have other emergency funds, and if you have any retirements savings and when do you plan to retire, but leaving this all aside: You currently pay 2.65% on the mortgage, and you make less on savings (maybe 1 or 1.5%). So putting the savings into the mortgage makes you the difference, which is a good deal. However, you need to reflect this with your risk-averisty, and your long term goals, and look at potential even better deals. For example, you could put the savings into higher risk/higher gain investments (let’s assume index funds), and make 6 - 10% per year in average. That obviously is a lot more. Why would you not want to do that? Investing like this is a long term plan. If this is your only savings/emergency fund, or if you need the money within the next five years, you should not do it; it could catch you in a bad market situation, and then it might be a severe loss. If you are sure you don’t need it for at least five if not ten years, invest it and keep the mortgage, you will easily beat its interest rate. If you are risk-averse, and can’t sleep with your savings doing loopings while you watch, that is also not a plan for you. There are many things to consider, and your personal situation is relevant for the decision. Consider all options, and be sure to always have a emergency fund remaining. It is also not black and white - there are options in between of your two propositions - pay some in, and keep some for emergencies.","\"There are two different types of ISA; the \"\"Cash ISA\"\" for cash savings, and the \"\"Stocks and Shares ISA\"\" for stock market investing. You can transfer funds between these two different types of ISA. If your current cash ISA provider does not provide stocks and shares ISAs, then there may be a fee involved when transferring funds between two different providers. If I am reading your notation correctly, you have contributed the full allowance of GBP15,240 in both the current tax year and the previous tax year. Each year you can contribute GBP15,240 (currently) to your ISAs and this can be done in any combination of cash ISA and stocks and shares ISA. For example, you could put GBP5,240 into your cash ISA and GBP10,000 into your stocks and shares ISA. Regarding your questions : It is also important to understand that once you withdraw money from an ISA, it does not affect your previous contributions or allowances. For example, if you have used your full contribution allowance for the current year and chose to withdraw some funds, then you have still used your full contribution allowance and so you cannot redeposit these funds.\"","\"If you don't want to take any risk and you want your money to be liquid, then the best place to \"\"invest\"\" such money is in an insured bank deposit, such as a high interest savings account. However, you aren't likely to find a savings account interest rate that comes close to that charged by your mortgage, so the better decision from a numbers perspective is to pay down more on your mortgage or other debt. Paying down your debt has almost no risk, but has a better payoff than simply saving the money in a bank account. However, if you choose to pay down more debt, I suggest you still keep aside enough cash to have an adequate emergency fund. Since you want safety and liquidity, don't expect high returns from such money.\"","\"In your shoes, I would pay off the mortgage with the after tax investments and be done. You have different goals than I do in that you want to keep the debt. So, I would start calling mortgage brokers and asking for someone who does \"\"manual underwriting\"\". Manual underwriting essentially means they use common sense and look at your situation for what it is instead of saying \"\"income=10K means disapprove mortgage\"\". It may be that your situation is different enough from mortgage guidelines that you can't now get a conforming mortgage (i.e. one that is readily re-sellable to another mortgage holder). If that is the case, you can look for a small bank or credit union that would be interested in adding your loan to their portfolio and not reselling it.\"","\"I doubt you will get an answer equal to \"\"You can't save when you have debt\"\". Because most mortgages are for decades, very few people would be able to save for retirement if they had to wait to be mortgage free. The difficulty in saving occurs when the interest rate is very high (18% or more) and the interest is not deductible. Such as with credit cards. The minimum payment for your mortgage is 30% of your income. If that doesn't include taxes and homeowners insurance in the 30%, then for the United States that would be considered too large. While the general plan to pay down the mortgage is a good idea, make sure that you are able to handle the minimum payments before starting to increase the payments. Try the minimum for a year or two before getting aggressive The calculation is based on the interest rate of the mortgage, the interest rate of the savings account, and the potential tax deduction of the mortgage and the tax rate on the earned interest. Putting extra money into a mortgage, but missing out on matching retirement money would also have to be figured into the calculation. Make sure you do save for retirement , kids education, and emergencies. Unless your country has a complex system where the money can flow in and out of the mortgage, then once you put extra money into the mortgage you can't get it back when the car dies. The nice thing about putting extra money into a mortgage is that you can do it either in an organized way, or only when you feel comfortable. So it is not urgent for you to commit to a plan immediately. One thing to avoid is a plan that charges you a fee to add extra money, or charges a fee to switch to a bi-weekly mortgage. While your ideas is good, these plans should never cost any money to start, and may be a scam if a 3rd party gets between you and the lender.\"","One option might be to use tax certificates to save this money. At the moment they don't pay any interest (unless you deposit more than £100,000 at once), so they aren't very attractive from that point of view. But they do give you a clean way to segregate your money and for the purposes of charging penalty interest, HMRC will treat you as having made the payment at the time you purchased the certificate, if it turns out that you should have paid the actual tax earlier than you did. Another option is a regular saver account. These typically have limits of £250 per month, so you might have to open a few given the amount you have to save. That would add up to a lot of maintenance effort, particularly as you'd have to open new accounts again each year. However, they do typically offer good interest rates compared to what's available elsewhere, and the way they operate fits well with your needs (money coming in regularly and then going out all at once).","Every payment you make on your house will already be increasing your equity in it. For that reason alone, I'd recommend moving additional savings into other long-term funds.","ISAs last for as long as you live - you can accumulate a further £20K each following year (or whatever the limit changes to) and the whole balance including gains is tax free. You can also leave the £21k in the first ISA, and open a new ISA the next year, if you prefer. You can also transfer a balance from one ISA to another (make sure you go through the explicit process for doing that, don't just withdraw it and re-deposit it, otherwise the protection is lost.)","A: Rollover the cash from the previous account into the new one a low-cost IRA like Vanguard. This, and only this. Because your mortgage is, less than 4%, while your retirement plan will earn 7% over the long term. I have no 'retirement' plans because Because you're 28. and essentially will be happy working until I die Unless circumstances change. but as far as I see it this is not such a bad deal because it is like paying taxes on income. (Principal says I will lose up to 30%) You're ignoring the 10% early withdrawal penalty. I am wise with my money for the most part Then don't piss away $3,000 just for a temporary feel good. I earn a high salary in a tech job. As a result of being under 20%, I am paying mortgage insurance of about $300/mo. So -- after building up an Emergency Fund -- throw as much as possible of your high salary against your mortgage to get rid of the PMI.","\"I'm assuming when you say \"\"…put it towards our mortgage payment?\"\", you mean make additional payments on top of your scheduled payment. Strictly speaking, if the interest on your mortgage is higher than the return you can expect by saving, then yes, your excess savings should be put toward your mortgage. This assumes that there are no pre-payment penalties, that you really won't miss that money in the short term (i.e. you say you have enough savings for emergencies, so that's good), and that both choices would use after-tax dollars (i.e. mortgage payment vs RRSP contribution in Canada is a huge discussion).\"","At the moment the interest rate... implies a variable rate mortgage. I believe rates are only going to go up from here. So, if I were in your position, I would pay off the mortgage first. If you don't have 3-6 months in savings for an emergency, I would invest that much money in low risk investments. Anything remaining I would invest in a balanced portfolio of mutual funds. The biggest benefit to this is the flexibility it gives you. Not being burdened by a monthly mortgage frees you up to invest. This may be in your stock portfolio each month or it may be in your community or charitable causes. You have financial margin.","Pay it off....I've only ever paid interest on mortgages to buy the houses I've lived in (I paid both mortgages of years ahead of schedule) & as a result my credit rating's way above average, I use credit cards for everything, pay 'em off in full every month unless I'm paid not to (currently have around 8,000 sitting interest free while the cash earns 6% elsewhere). Life's sweet if you understand the system. Hell if you don't. Keep saving...","I would move some or all of the money. With £30K savings, you have a 20% deposit, whereas you can get a much better mortgage rate with a 40 or 50% deposit. That's true no matter how good/bad your credit rating, and it's possible that with a bad credit rating you may not even be able to get a mortgage with a small deposit. Also, you will almost certainly save significantly more by paying less mortgage interest compared to the interest rates on your savings in the Netherlands. Shop around for a cheap option to transfer money. I had a quick look at Transferwise (no affiliation, they just happen to have a convenient calculator on their website), and the all-in cost for a large one-way transfer seems to be about 0.5%. I think you'll more than make that back in terms of savings on your mortgage. If you intend to move back to the Netherlands at some point, then you are taking some exchange rate risk by moving your savings to the UK - you don't know if it'll be better or worse when you want to transfer money back. But I guess it won't be that soon if you want to buy a house, so I think the risk is probably worthwhile. (I calculated the cost of the transfer by converting €100k into GBP, and then converting the resulting amount back again. That left €99k, so a two-way transfer cost 1% and from that I deduced that a one-way transfer costs roughly 0.5%)","You mention only two debts, mortgage and student loan, but you mention $19K in savings, which suggests that you are a saver, and likely do not have other debts. You did not mention your (net) income and expenses (income statement), but since you have substantial savings, you likely live within your means (income > expenses). Since you mention $38K in retirement, we might conclude you are regularly saving for retirement (are you saving 10% toward retirement)? You did not mention any medical condition or other debts, that might require a large savings, so I would suggest having 6 months savings ($2.5K x 6 = $15K) but should your net expenses be less, you might reduce this ($2K x 6 = $12K). You do not mention any investment you might want to make, but since you did not mention any candidate investments, we can assume you have no (specific) investments you find particularly attractive. You did not mention anything you were saving to purchase that you might want to purchase. You have combined $19K + $50K = $69K savings, and $15K would be a comfortable emergency savings, leaving $54K you could use to reduce mortgage or student loan debt. The mortgage debt interest @4.5%, is higher, so paying that debt off would be like earning 4.5% guaranteed return on your money, tax-free. At your income, your marginal tax rate is low enough that the mortgage interest deduction (if you do itemize) would not reduce this return much (15% if you itemize). The student loan debt interest @2.8%, would be like earning 2.8% guaranteed return on your money, tax-free. Clearly the higher return on your 'investment' in paying off debt would be reducing your mortgage balance (over 50% higher return on investment, compared to the student loan debt). You did not mention any circumstance that might cause the student loan rate to increase, the mortgage rate to increase, nor did you mention any difficulty making both the mortgage and student loan payments, the amounts of either payment, nor the number of years remaining to pay on either. Should you need (or desire) to reduce your payments, you could choose to payoff the student loan to eliminate one payment, and thus decrease your expenses. Or you could choose to pay down the mortgage, and refinance (or refactor) the mortgage to obtain a smaller payment. Another strategy (assuming you have had your house for 5-7 years), might be to pay the mortgage down enough to refinance into a 15 year loan, and (assuming you have a good credit score) obtain a lower (3%) rate. But I am going to suggest you consider a blended approach. Combine the Dave Ramsey Debt Snowball approach with the reduce the interest rate approach. Take the $54K ($57K?) available (after reserving 6 months emergency fund), and split between both. You pay your mortgage down by $27K and your student loan debt down by $27K. Your blended return on investment is (2.8+4.5)/2 = 3.65%, and you have the following Balance Sheet: Assets: Debts: The next steps would be to, There are two great reasons for paying off the student loan debt. One is the Dave Ramsey Debt Snowball approach which is that this is the smaller debt, and thus represents a psychological win, and the other is that student loan debt has special treatment even in bankruptcy.","With the calculator in hand (Excel :) you should follow this advise and save a bundle. 1) Calculate how much you are willing to spend per month. 2) Take the longest (in years) mortgage you can find and cheepest (Euribor+0,2% is better than Euribor+1%). 3) Save the amount you are not spending on your mortgage. Whenever the mortgage cost changes (once a year), calculate whether you get more interests on your savings or on a down payment (look at the total cost). Then decide if you make a down payment or keep on saving. My 0,02€ We took a 20 year mortgage and blindly payed every time we'd have 3K€. We payed our house in 6 years. The total cost of the mortgage was way down this way. However, the above theory has a better yield overall.","\"From April 2017 the plan is that there is now also going to be a \"\"Lifetime ISA\"\" (in addition to the Help to Buy ISA). Assuming those plans do not change, they government will give 25% after each year until you are 50, and the maximum you can put in per year will be £4000. Catches: You can only take the money out for certain \"\"life events\"\", currently: Buying a house below £450000 anywhere in the country (not just London). Passing 60 years of age. If you take it out before or for another reason, you lose the government bonus plus 5%, ie. it currently looks like you will be left with 95% of the total of the money you paid in. You cannot use the bonus payments from this one together with bonus payments from a Help to Buy ISA to buy a home. However you can transfer an existing Help to Buy ISA into this one come 2017. While you are not asking about pensions, it is worth mentioning for other readers that while 25% interest per year sounds great, if you use it for pension purposes, consider that this is after tax, so if you pay mostly 20% tax on your income the difference is not that big (and if your employer matches your contributions up to a point, then it may not be worth it). If you pay a significant amount of tax at 40% or higher, then it may not make sense for pension purposes. Tax bands and the \"\"rates\"\" on this ISA may change, of course. On the other hand, if you intend to use the money for a house/flat purchase in 2 or more years' time, then it would seem like a good option. For you specifically: This \"\"only\"\" covers £4000 per year, ie. not the full amount you talked about, but it is likely a good idea for you to spread things out anyway. That way, if one thing turns out to be not as good as other alternatives it has less impact - it is less likely that all your schemes will turn out to be bad luck. Within the M25 the £450000 limit may restrict you to a small house or flat in 5-10 years time. Again, prices may stall as they seem barely sustainable now. But it is hard to predict (measures like this may help push them upwards :) ). On the plus side, you could then still use the money for pension although I have a hard time seeing governments not adjusting this sort of account between now and your 60th birthday. Like pension funds, there is an element of luck/gambling involved and I think a good strategy is to spread things if you can.\"","The bit I don't quite understand is why you are thinking about staying in debt in the first place - you're basically thinking about shuffling around assets and liabilities in order to stay in debt? I think what I would do in your situation is to liquidate enough of the investments you have and pay off the mortgage. This doesn't change your net worth position less the fees etc that you might incur, but it'll save you the interest for the mortgage over the remaining term of your mortgage.","I'm also a UK, Ltd company contractor that has pondered the same topic. I afraid, however, that I don't understand the maths in the original question. Mortgage interest is flat for the term of the mortgage rather than compounded, so, ignoring the tapering at the end of the lifespan of the mortgage, I get the amount of interest to something like £9,300 (7500 x 0.05 x 25). Does this make the decision any easier for you? As you point out, the total cost of this overpayment from your company account is £12,500. Using the above figure, it would take over 13 years to recoup the £5,000 difference (at £375 interest a year). I used to be of the same opinion that the mortgage should be paid off at all costs first. But now I'm coming round to the American way of thinking; £12,500 invested in a pension with a 5% yield will easily outstrip the interest saved by making the over payment - 12500 x 1.05 ^ 25 = £43,300 - over 250% better off (£43,300 / (£9,300 + £7,500)). I now make no mortgage overpayments at all and instead pay all the money into my pension. This (amongst other things) keeps me below the upper earnings tax threshold, so I'm only paying corporation tax for the money I'm drawing as dividends. There's a massive caveat to this though; I'm 49. I should be able to draw the tax free element of my pension pot in six years time and pay my mortgage off and it's quite unlikely that the government will be changing pensions policy in that time (but drawing 25% tax free has been a feature of pensions for quite some time). I can then chose to keep working or retire. If my pension is still doing well (9% ish pa at the moment), I could chose to not pay my mortgage off at all. In the next twenty or so years, however, all this could change. In your position I would do a bit of both. Make a regular overpayment to pay down your mortgage (even a small amount that you'll barely notice will make quite a difference to the end date of your mortgage - £100 a month will take years off). I didn't start paying properly into my pension until fairly recently and so If you're not already, I'd also make quite substantial, regular payments into one now, directly from your company, 15-17.5% of your gross drawings. Leaving it until later will only make it more painful. Then when you get to retirement age, no matter what, you'll have a decent pension pot. An actuary I worked with pointed out that if you pay something into a pension, when you retire you should have some sort of pot; if you pay nothing, you are absolutely guaranteed to have nothing. And finally, if you haven't already, fix your mortgage. We're three years into a five year fix. The variable rate we were going to be transferred to was 3.99%. We fixed, not because of wanting any sense of security, but because the fixed rate was 2.59% with no fee. There are much better rates than that about now. Rates are starting to rise, so it's a good time.","Awesome, you are a math guy. Very good for you. In theory, what you are proposing, should work out great as the math works out great. However have you taken a economics or finance coursework? The math that they do in these class will leave a most math guys uncomfortable with the imprecision even when one is comfortable with chaos theory. Personal finance is worse. If it were about math things like reverse mortgages, payday lenders, and advances on one income tax returns would not exist. The risk derived from the situation you describe is one born out of behavior. Sometimes it is beyond control of the person attempting your scheme. Suppose one of these happen: In my opinion the market is risky enough without borrowing money in order to invest. Its one thing to not pay extra principle to a mortgage in order to put that money in play in the market, it is another thing to do what you are suggesting. While their may be late fees associated with a mortgage payment, a fixed rate mortgage will not change if you late on payment(s). On these balance transfer CC schemes they will jack your rate up for any excuse possible. I read an article that the most common way to end up with a 23%+ credit card was to start out with a 0% balance transfer. One thing that is often overlooked is that the transfer fee paid jacks up the stated rate of the card. In the end, get out of consumer debt, have an emergency fund, then start investing. Building a firm financial foundation is the best way to go about it. Without one it will be difficult to make headway. With one your net worth will increase faster then you imagined possible.","It looks like with the sale of your current home you have enough liquidity to obtain credit on the best terms without tapping your wife's IRA. The biggest factor to consider is the deduction on mortgage interest which reduces the effective interest on your mortgage significantly, particularly as you jump into a higher tax bracket. Along these lines, deferred retirement savings should have a higher priority than paying down the mortgage or your student loans. Student loans should probably be your biggest priority to pay down. With the mortgage deduction, a 4% rate becomes effectively a 3.4% rate if you are in the 15% bracket, but as low as 2.6% effective rate if you are in the 35% bracket. Both of these are lower than the 3.5% rate that you can get on the student loans after refinancing. This also assumes you aren't hit with the AMT. This is probably worth the cost of a quick consultation with a tax professional to go over these options and how they affect your taxes.","If you expect to pay tax on dividends move dividend producing assets into your ISA. If have a lot of investments you can Look at Zeros (zero dividend preference share) issued by splits (split capital trusts), https://en.wikipedia.org/wiki/Split_capital_investment_trust","\"You understood it pretty right. Every fiscal year (which runs from April 6 year Y to April 5 year Y+1), you can deposit a total GBP15k (this number is subject to an annual increase by HMRC) into your ISAs. You can open 2 new ISA every year but the amount deposited to those ISAs shall not excess GBP15k in total. From the 2016/17 tax year some ISAs now permit you to replace any funds you have withdrawn, without using up your allowance. It used to be that if you deposited GBP15K and then withdrew GBP5K, you could not pay in to that ISA again within that tax year as you had already used your full allowance. Under new Flexible ISA rules this would be allowed providing you replace the funds in the same ISA account and within the same tax year (strongly recommend that you check the small prints related to your account to make sure this is he case). Any gains and losses on the investments held in the ISA accounts are for you to take. i.e. If you make investment gains of GBP5K this does not reduces your allowance. You will still be able to deposit GBP15k (or whatever HMRC increases that number to) in the following year. You are also allowed to consolidate your ISAs. You can ask bank A to transfer the amount held into an ISA with bank held with bank B. This is usually done by filling a special form with the bank that will held the money post transactions. Again here be very careful. DO NOT withdraw the money to transfer it yourself as this would count against the GBP15K limit. Instead follow the procedures from the bank. Finally if you don't use your allowance for a given year, you cannot use it during the following year. i.e. if you don't deposit the GBP15K this year, then you cannot deposit GBP30K next year. NB: I used the word \"\"deposit\"\". It does not matter to HMRC if the money get invested or not. If you are in a rush on April 4th, just make sure the money is wired into the ISA account by the 5th. No need to rush and make bad investment decision. You can invest it later. Hope it helps\"","Only 20, and going through university This is an important question to ask yourself. Your earnings are 0 and will remain so, unless you start working. Are you willing to halve your money, if the markets tank after you put in your money ? Mostly good investors will buy some more, if they know the stocks they have picked are good. Considering that you have no income you will loose out on it. If you are graduating soon, it might make sense to start investing but it should be reliant on the fact on how quickly you will land a job. I would suggest stay put in the ISA for the time being. Check out if you might get a higher rate of interest if possible and transfer there. Check out Moneysupermarket . Don't blindly put money in a ISA, see if you are getting the best deal in the market. And one thing, interest on ISA is calculated daily.","Your plan will probably work. I speak from past experience approx 5-10 years ago, when Lloyds used to offer tiered interest of up to 4% on £5000 in their Vantage accounts. It was allowed for an individual person to have up to three Vantage accounts. The criteria for obtaining the headline interest rates were simply: What I, and many others, did was to set up three Vantage accounts, call them A, B, and C, and a standing order on each to transfer minimum amount + £1 on the same day each month in this manner: This satisfied the letter of conditions, though perhaps not the spirit. Most importantly it satisfied the bank, and all three accounts received that headline interest rate. These days banks have got a little wiser to this and have started including the 'set up n direct debits' condition, which makes this a more time-consuming system to arrange - you must assign your various bills across your accounts - but I believe that the overall plan still works. They don't care where the money comes from, or whether it stays - just that it comes in. Enough people get it wrong that they don't have to worry about the few who get it perfectly right (see also: how 0% balance transfer offers can be profitable...)","Income and Capital are taxed separately in the uk. You probably can't get dividends paid gross even in ISA's you pay the basic rate of tax on dividends only higher rate tax payers get tax benefit from dividends. What you could do is invest in splits (Spilt capital investment trusts ) in the share class where all the return comes as capital and use up some of your yearly CGT allowance that way.","It depends what rate mortgage you can get for any extra loans... If you remortgage you are likely to get a rate of 3.5-4%... depending who you go with. With deposit accounts in the UK maying around 1% (yes, you can get more by tying it up for longer but not a huge amount more) clearly you're better off not having a mortgage rather than money in the bank. Does your 8k income allow for tax? If it does, you are getting 6% return on the money tied up in the flat. If you are getting 6% after tax on the invested money, that's way better than you would get on any left over cash paid into an investment. Borrowing money on a mortgage would cost you less than 6%... so you are better off borrowing rather than selling the flat. If you are getting 6% before tax... depending on your tax rate... it probably makes very little difference. You'd need to work out how much an extra 80k mortgage would cost you, how much the 50k on deposit would earn you and how much you make after tax. There is a different route. Set up a mortgage on the rental flat. You can claim the interest payment off the flat's income... reduce your tax bill so the effective mortgage rate on the flat would be less than what you could get with a mortgage on the new house. Use the money from the flat's mortgage to finance the difference in house price. In fact from a tax view, you may be better off having a mortgage free house and maxing out the mortgage on the flat so you can write off as much as possible against your tax bill. All of the above assume ... that the flat is rented all the time. The odd dry spell on the flat could influence the sums a lot. All of the above assume that your cash flow works whichever route you choose. As no-one on stack exchange has all of the numbers for your specific circumstances it may be worth talking to a tax accountant. They could advise you properly, knowing the numbers, which makes the best sense for you in terms of overall cost, cash flow, risk and so on.","I would first get rid of the student loan. This will leave you with 11K. I would then use this to fund your ROTH. If you are married you can put up to 5K per year each. For any money left over, I would open a regular (not tax advantaged) mutual fund. You can contribute half the money you were paying toward your student loans, and the other half can go to your mortgage. Also I would look at doing a refi on your house. You might be able to move a 10 or 15 year at your current mortgage payment.","Look at my answer here, and then calculate again. If you keep on saving and keep on paying off your highest interest rate loan, you'll be 'making' money. Also look at this answer here for saving or paying back. Basically, you should always calculate whether the money you have is better 'spend' in a savings account or as a return payment to your loan. Always tackle the highest interest loan first. My 0,02€","\"Basically, the easiest way to do this is to chart out the \"\"what-ifs\"\". Applying the amortization formula (see here) using the numbers you supplied and a little guesswork, I calculated an interest rate of 3.75% (which is good) and that you've already made 17 semi-monthly payments (8 and a half months' worth) of $680.04, out of a 30-year, 720-payment loan term. These are the numbers I will use. Let's now suppose that tomorrow, you found $100 extra every two weeks in your budget, and decided to put it toward your mortgage starting with the next payment. That makes the semi-monthly payments $780 each. You would pay off the mortgage in 23 years (making 557 more payments instead of 703 more). Your total payments will be $434,460, down from $478.040, so your interest costs on the loan were reduced by $43,580 (but, my mistake, we can't count this amount as money in the bank; it's included in the next amount of money to come in). Now, after the mortgage is paid off, you have $780 semi-monthly for the remaining 73 months of your original 30-year loan (a total of $113,880) which you can now do something else with. If you stuffed it in your mattress, you'd earn 0% and so that's the worst-case scenario. For anything else to be worth it, you must be getting a rate of return such that $100 payments, 24 times a year for a total of 703 payments must equal $113,880. We use the future value annuity formula (here): v = p*((i+1)n-1)/i, plugging in v ($113880, our FV goal), $100 for P (the monthly payment) and 703 for n (total number of payments. We're looking for i, the interest rate. We're making 24 payments per year, so the value of i we find will be 1/24 of the stated annual interest rate of any account you put it into. We find that in order to make the same amount of money on an annuity that you save by paying off the loan, the interest rate on the account must average 3.07%. However, you're probably not going to stuff the savings from the mortgage in your mattress and sleep on it for 6 years. What if you invest it, in the same security you're considering now? That would be 146 payments of $780 into an interest-bearing account, plus the interest savings. Now, the interest rate on the security must be greater, because you're not only saving money on the mortgage, you're making money on the savings. Assuming the annuity APR stays the same now vs later, we find that the APR on the annuity must equal, surprise, 3.75% in order to end up with the same amount of money. Why is that? Well, the interest growing on your $100 semi-monthly exactly offsets the interest you would save on the mortgage by reducing the principal by $100. Both the loan balance you would remove and the annuity balance you increase would accrue the same interest over the same time if they had the same rate. The main difference, to you, is that by paying into the annuity now, you have cash now; by paying into the mortgage now, you don't have money now, but you have WAY more money later. The actual real time-values of the money, however, are the same; the future value of $200/mo for 30 years is equal to $0/mo for 24 years and then $1560/mo for 6 years, but the real money paid in over 30 years is $72,000 vs $112,320. That kind of math is why analysts encourage people to start retirement saving early. One more thing. If you live in the United States, the interest charges on your mortgage are tax-deductible. So, that $43,580 you saved by paying down the mortgage? Take 25% of it and throw it away as taxes (assuming you're in the most common wage-earner tax bracket). That's $10895 in potential tax savings that you don't get over the life of the loan. If you penalize the \"\"pay-off-early\"\" track by subtracting those extra taxes, you find that the break-even APR on the annuity account is about 3.095%.\"","Pay off your car loan. Here is why: As you mentioned, the interest on your home mortgage is tax deductible. This may not completely offset the difference in interest between your two loans, but it makes them much closer. Once your car debt is gone, you have eliminated a payment from your life. Now, here's the trick: take the money that you had been paying on your car debt, and set it aside for your next car. When the time comes to replace your car, you'll be able to pay cash for your car, which has several advantages.","If it were me, I'd pour my entire savings into paying down the mortgage. I'd also get a HELOC and a personal LOC to use as my emergency fund if I didn't have one already. I personally don't like paying interest on loans when I have cash in the bank to cover it.","Is this the smart thing to do? You're essentially borrowing money at 2.7% to keep it in your bank account. No, that is not a smart financial decision. Pay the difference in cash and replenish your savings with the $1,100 a month. Some other notes:","If you can get a rate of savings that is higher than your debt, you save. If you can't then you pay off your debt. That makes the most of the money you have. Also to think about: what are you goals? Do you want to own a home, start a family, further your education, move to a new town? All of these you would need to save up for. If you can do these large transactions in cash you will be better off. If it were me I would do what I think is a parroting of Dave Ramsay's advice Congratulations by the way. It isn't easy to do what you have accomplished and you will lead a simpler life if you don't have to worry about money everyday.","Others have suggested paying off the student loan, mostly for the satisfaction of one less payment, but I suggest you do the math on how much interest you would save by paying early on each of the loans: When you do the calculations I think you'll see why paying toward the debt with the highest interest rate is almost always the best advice. Whether you can refinance the mortgage to a lower rate is a separate question, but the above calculation would still apply, just with different amortization schedules.","If its deductible, the IRA is a no-brainer. You're netting a positive return just from the tax deduction, and you'll have years of tax-free appreciation. You're already on track to pay off your mortgage in 5 years, the impact of $10,000 on the balance now is not very consequential. On the other hand, you won't have an opportunity to make additional IRA contributions.","\"You seem to really have your financial act together. Your combination of assets, and ongoing savings makes you the ideal candidate for paying it off. One way to look at it is that your mortgage offers you a place to 'invest' at a fixed 2-7/8% rate. \"\"I'd really like to not have a house payment\"\" is all I need to hear. The flip side is the lecture that talks about long term market returns, the fact that the combination of your deductible mortgage, but 15% cap gain rate means you need 2.5% return to break even, and odds are pretty high that will occur over the next 15 years. \"\"pretty high\"\" does not equal \"\"guaranteed\"\". And I won't debate the value of sleeping soundly vs an excess 5-8% return on this money that you'd maybe achieve. You haven't missed anything. In fact, though I advocate saving first, you are already doing that. This is above and beyond. Good work.\"","First: it sounds like you are already making wise choices with your cash surplus. You've looked for ways to keep that growing ahead of inflation and you have made use of tax shelters. So for the rest of this answer I am going to assume you have between 3-6 months expenses already saved up as a “rainy day fund” and you're ready for more sophisticated approaches to growing your funds. To answer this part: Are there any other ways that I can save/ invest that I am not currently doing? Yes, you could look at, for example: 1. Peer to peer These services let you lend to a 'basket' of borrowers and receive a return on your money that is typically higher than what's offered in cash savings accounts. Examples of peer to peer networks are Zopa, Ratesetter and FundingCircle. This involves taking some risks with your money – Zopa's lending section explains the risks. 2. Structured deposits These are a type of cash deposit product where, in return for locking your money away for a time (typically 5 years), you get the opportunity for higher returns e.g. 5% + / year. Your deposit is usually guaranteed under the FSCS (Financial services compensation scheme), however, the returns are dependent on the performance of a stock market index such as the FTSE 100 being higher in x years from now. Also, structured deposits usually require a minimum £3,000 investment. 3. Index funds You mention watching the stock prices of a few companies. I agree with your conclusion – I wouldn't suggest trying to choose individual stocks at this stage. Price history is a poor predictor of future performance, and markets can be volatile. To decide if a stock is worth buying you need to understand the fundamentals, be able to assess the current stock price and future outlook, and be comfortable accepting a range of different risks (including currency and geographic risk). If you buy shares in a small number of companies, you are concentrating your risk (especially if they have things in common with each other). Index funds, while they do carry risks, let you pool your money with other investors to buy shares in a 'basket' of stocks to replicate the movement of an index such as the FTSE All Share. The basket-of-stocks approach at least gives you some built-in diversification against the risks of individual stocks. I suggest index funds (as opposed to actively managed funds, where you pay a management fee to have your investments chosen by a professional who tries to beat the market) because they are low cost and easier to understand. An example of a very low cost index fund is this FTSE All Share tracker from Aberdeen, on the Hargreaves Lansdown platform: http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/a/aberdeen-foundation-growth-accumulation General principle on investing in stock market based index funds: You should always invest with a 5+ year time horizon. This is because prices can move up and down for reasons beyond your anticipation or control (volatility). Time can smooth out volatility; generally, the longer the time period, the greater your likelihood of achieving a positive return. I hope this answer so far helps takes into account the excess funds. So… to answer the second part of your question: Or would it be best to start using any excess funds […] to pay off my student loan quicker? Your student loan is currently costing you 0.9% interest per annum. At this rate it's lower than the last 10 years average inflation. One argument: if you repay your student loan this is effectively a 0.9% guaranteed return on every pound repaid – This is the equivalent of 1.125% on a cash savings account if you're paying basic rate tax on the interest. An opposing argument: 0.9% is lower than the last 10 years' average inflation in the UK. There are so many advantages to making a start with growing your money for the long term, due to the effects of compound returns, that you might choose to defer your loan repayments for a while and focus on building up some investments that stand a chance to beat inflation in the long term.","Gosh don't do either! Unless you are fully funding you ROTH accounts and even then I wouldn't do it. Those interest rates are free money. You are giving away the best bargain in the history of home mortgages. Don't you think you can make more than 4% on your money invested? Don't you think in 5 years you will be able to make 4% on bond/cd's/ and other low risk investments? Don't forget money you pay in the 2020's on beyond to your mortgage are inflationary dollars. Do you think that money will be more valuable in the 20's and beyond? I don't. Roths are free money too. Think if you put 11k in there a year how much would you have at the end of it tax free. There is a reason you can only put $5,500 in them, they are too good a deal tax wise to let people put too much in there. Think about this my parents bought their home in 1967 their mortgage was $170 a month. Inflation hits and the interest they are paying at 8%! mind you, it was still a laughable amount of money each month for mortgage payment from 1977 and on. Also I bought a $450,000 house 38 months ago. Instead of putting down 180 I put down 80 I let the other 100k in my investment account and moved 5.5k over to Roth every year. I now have a roth worth $38k and an investment account worth $105k. I made 40k on my money those three years and the 38k is tax free! If you don't believe me call the help line at clarkhoward.com Get over the emotional need to be debt free and make a logical finical choice. I am begging you to think about this. This post could save you tens of thousands of dollars. Let me put it one more way. 100k in debt with 100k in investments is debt free living. Especially when you debt is under 4% and a tax write off.","Personally, I would split the difference, putting about half into each. Simply because it balances out the problem and I don't have to fret about whether one or the other will provide a significant difference. As bstpierre points out, the one which will make you more in the end is the one which you can grow the fastest. The mortgage payment is locked at 5% growth, which, while modest, is also essentially guaranteed at this point. The CD in your IRA is likely less than that amount, even after tax consideration. A couple additional points to consider:","\"You have 1998-2011 income-contingent student loans, where the interest rate is the lower of (1% + base rate) or RPI (retail price inflation). For the next few years the it's likely to be (1% + base rate) as interest rates stay low and inflation shoots up. These loans only need to be repaid in proportion to your salary, and if they aren't repaid for long enough (e.g. the holder takes a career break for children) they are written off. So all-in-all, they are pretty good debt to have: low interest rate, and you might not have to repay them ever. It's likely that your mortgage will have a significantly higher rate than the student loan, so you'd be better off reducing your mortgage. Also, the higher deposit might mean you can get a lower interest rate on the whole mortgage because the lender will see you as a lower risk, so the return from \"\"investing\"\" it in your mortgage would be even greater than the raw interest rate. Having the student loan outstanding might make some difference to the \"\"affordability\"\" check for your mortgage payments, but lenders will be very familiar with how they work. Reducing your mortgage payments with the higher deposit should easily counterbalance that. Your own suggestion is to invest the £30K in a \"\"reasonably safe portfolio\"\" making 5%. There'll inevitably be some risk in that - 5% is a relatively high return in today's climate - but if you're willing to take that risk, you can investigate the effect on your mortgage to see if it's worth it or not.\"","\"The simplest argument for overpayment is this: Let's suppose your fixed rate mortgage has an interest rate of 4.00%. Every £1 you can afford to overpay gives you a guaranteed effective return of 4.00% gross. Yes your monthly mortgage payment will stay the same; however, the proportion of it that's paying off interest every month will be less, and the amount that's actually going into acquiring the bricks and mortar of your home will be greater. So in a sense your returns are \"\"inverted\"\" i.e. because every £1 you overpay is £1 you don't need to keep paying 4% a year to continue borrowing. In your case this return will be locked away for a few more years, until you can remortgage the property. However, compared to some other things you could do with your excess £1s, this is a very generous and safe return that is well above the average rate of UK inflation for the past ten years. Let's compare that to some other options for your extra £1s: Cash savings: The most competitive rate I can currently find for instant access is 1.63% from ICICI. If you are prepared to lock your money away until March 2020, Melton Mowbray Building Society has a fixed rate bond that will pay you 2.60% gross. On these accounts you pay income tax at your marginal rate on any interest received. For a basic rate taxpayer that's 20%. If you're a higher rate taxpayer that means 40% of this interest is deducted as tax. In other words: assuming you pay income tax at one of these rates, to get an effective return of 4.00% on cash savings you'd have to find an account paying: Cash ISAs: these accounts are tax sheltered, so the income tax equation isn't an issue. However, the best rate I can find on a 4 year fixed rate cash ISA is 2.35% from Leeds Building Society. As you can see, it's a long way below the returns you can get from overpaying. To find returns such as that you would have to take a lot more risk with your money – for example: Stock market investments: For example, an index fund tracking the FTSE 100 (UK-listed blue chip companies) could have given you a total return of 3.62% over the last 3 years (past performance does not equal future returns). Over a longer time period this return should be better – historical performance suggests somewhere between 5 to 6% is the norm. But take a closer look and you'll see that over the last six months of 2015 this fund had a negative return of 6.11%, i.e. for a time you'd have been losing money. How would you feel about that kind of volatility? In conclusion: I understand your frustration at having locked in to a long term fixed rate (effectively insuring against rates going up), then seeing rates stay low for longer than most commentators thought. However, overpaying your mortgage is one way you can turn this situation into a pretty good deal for yourself – a 4% guaranteed return is one that most cash savers would envy. In response to comments, I've uploaded a spreadsheet that I hope will make the numbers clearer. I've used an example of owing £100k over 25 years at an unvarying 4% interest, and shown the scenarios with and without making a £100/month voluntary overpayment, assuming your lender allows this. Here's the sheet: https://www.scribd.com/doc/294640994/Mortgage-Amortization-Sheet-Mortgage-Overpayment-Comparison After one year you have made £1,200 in overpayments. You now owe £1,222.25 less than if you hadn't overpaid. After five years you owe £6,629 less on your mortgage, having overpaid in £6,000 so far. Should you remortgage at this point that £629 is your return so far, and you also have £6k more equity in the property. If you keep going: After 65 months you are paying more capital than interest out of your monthly payment. This takes until 93 months without overpayments. In total, if you keep up £100/month overpayment, you pay £15,533 less interest overall, and end your mortgage six years early. You can play with the spreadsheet inputs to see the effect of different overpayment amounts. Hope this helps.\"","If you want the flexibility to make additional payments you should favour a flexible ISA. Shop around on comparators and you should be able to find a few that responds to your minimum interest rates Fixed-term ISAs are comparable to a bond: money goes in on day one and then no more deposit are allowed. The rate is fixed for the period. Even though they have a fixed you would still be able to withdraw cash but this would cost you an interest penalty. Not being able to withdraw money is asking the banks to take responsibility on your behalf... They won't do that","First of all, look for a savings account with a decent interest rate. Online banks are good at offering those, and you can transfer your money back and forth from the checking account with a couple of business days' delay. ING Direct offers 1.1% APY right now - lame, but much better than nearly-nothing. If you'd like a little nicer rate of return you should also consider putting some of the money (the part you need least) in a short- or intermediate-term bond ETF or mutual fund. You can sell them quite readily, they pay more interest than a savings account, and because of the shorter maturities involved the interest rate risk is limited. (That's the one that makes your bonds less valuable now because the rates went up after you bought them.) I have some NYSE:BIV that's yielding 3.8% or so.","I think there are actually two separate questions here. Will Provider A allow me to transfer only part of an ISA product to Provider B while keeping the other part in Provider A. Only Provider A can answer this. Will HMRC rules allow me to keep making payments to the part that remained in Provider A. I don't have a definitive source for this, but in my experience where the ISA rules have been unclear about particular edge cases and I have asked HMRC similar questions directly, their answer has always been that they will look at the situation in the round at the end of the tax year (they get summaries from the providers) and as long as you haven't attempted to double-benefit or otherwise get around the limits, they won't have an issue with it.","Say one makes $60k/yr. The net gain is that half these funds are received about 2 weeks prior. To keep the math simple, let's assume a 12% return per year on the funds during this time. $30K * 12% is $3600. But 2 weeks is about 4% of a year, so $144. That's at a 12% return. In an offset mortgage the return will be closer to 4%, a $48/yr benefit. With short term rates at or below 1%, we're really looking at a gain of $12 or so for the extra time with the funds.","The calculations you suggest have some issues, but I think they are not necessary to answer the question: It sounds like you are buying the house either way. So the question really is simply whether to pay toward your house first or your loan first. In that case, the answer is simple: pay whichever has the highest interest rate first. Make the minimum payment on the other until the first is paid off. Remember this and make it your mantra for the rest of your life. If you have any debts (such as credit cards) that charge a rate higher than the two options you have presented, do them first. Now, be careful as you compute the interest rates. Most likely you can deduct interest on your mortgage, so its effective interest rate is lower [it is (1-T)*R instead of R, where T is your marginal tax rate]. For a while, the cost of mortgage insurance will make your effective mortgage rate artificially high, but it sounds like you intend to get to that 20% hurdle pretty fast, so my guess is that this is not a big factor. Congratulations on your bonus and good luck with your new home.","Couple of factors here to consider: 1) The savings vehicle 2) The investments Savings Vehicle: Roth IRAs allow you the flexibility to save for retirement and/or your house. Each person can save up to $5,500 in a Roth and you can withdraw your principal at anytime without penalty. (There is a special clause for first time home buyers; however, it limits the amount to $10k per person. Given your estimate of $750k and history of putting down 20%. It would require a bit more.) The only thing is that you can't touch the growth or interest. When you do max out your Roth IRA, it may make sense for you to open a brokerage account (401Ks often have multiple steps in order to convert or withdraw money for your down payment) Investments: Given your timeline (5-7 years) your investments would be more conservative. (More fixed income) While you should stay diversified (both fixed income and equity), the conservative portfolio will allow less fluctuation in your portfolio value while allowing some growth potential.","Unless I'm missing something, this doesn't make sense at all. Why take out money at 3.25% (the Heloc) to reduce the balance on a 3% loan (the refi)? It would be better to move as much from the Heloc to the refi as possible to get the best rate. If this results in a lower monthly payment, keep paying the higher payment and you'll be better off.","\"Understand your own risk tolerance and discipline. From Moneychimp we can see different market results - This is a 15 year span, containing what was arguably one of the most awful decades going. A full 10 year period with a negative return. Yet, the 15 year return was a 6.65% CAGR. You'd net 5.65% after long term cap gains. Your mortgage is likely costing ~4% or 3% after tax (This is not applicable to my Canadian friends, I understand you don't deduct interest). In my not so humble opinion, I'd pay off the highest rate debts first (unlike The David followers who are happy to pay off tens of thousands of dollars in 0% interest debt before the large 18% debt) and invest at the highest rate I'd get long term. The problem is knowing when to flip from one to the other. Here's food for thought - The David insists on his use of the 12% long term market return. The last 100 years have had an average 11.96% return, but you can't spend average, the CAGR, the real compound rate was 10.06%. Why would he recommend paying off a sub 3% loan while using 12% for his long term planning (All my David remarks are not applicable to Canadian members, you all probably know better than to listen to US entertainers)? I am retired, and put my money where my mouth is. The $200K I still owe on my mortgage is offset by over $400K in my 401(k). The money went in at 25%/28% pretax, has grown over these past 20 years, and comes out at 15% to pay my mortgage each month. No regrets. Anyone starting out now, and taking a 30 year mortgage, but putting the delta to a 15 year mortgage payment into their 401(k) is nearly certain to have far more in the retirement account 15 years hence than their remaining balance on the loan, even after taxes are considered. Even more if this money helps them to get the full matching, which too many miss. All that said, keep in mind, the market is likely to see a correction or two in the next 15 years, one of which may be painful. If that would keep you up at night, don't listen to me. If a fixed return of 4% seems more appealing than a 10% return with a 15% standard deviation, pay the mortgage first. Last - if you have a paid off house but no job, the town still wants its property tax, and the utilities still need to be paid. If you lose your job with $400K in your 401(k)/IRA but have a $200K mortgage, you have a lot of time to find a new job or sell the house with little pressure from the debt collectors. (To answer the question in advance - \"\"Joe, at what mortgage rate do you pay it off first?\"\" Good question. I'd deposit to my 401(k) to grab matching deposits first, and then if the mortgage was anywhere north of 6%, prioritize that. This would keep my chances at near 100% of coming out ahead.)\"","First of all, you should absolutely put money into savings until you have at least a 6 month cushion, and preferably longer. It doesn't matter if you get 0% interest in your savings and have a high interest rate mortgage, the cushion is still more important. Once you have a nice emergency fund, you can then consider the question of whether to pay more towards the mortgage if the numbers make sense. However, in my opinion, it's not just a straight comparison of interest rates. In other words, if your savings account gives you 1% and your mortgage is 5%, that's still not an automatic win for the mortgage. The reason is that by putting the money into your mortgage, you're locking it up and can't access it. To me, money in the hand is worth a lot more than money that's yours on paper but not easily accessible. I don't know the math well enough, but you don't really need the math. Just keep in mind that you have to weight the present value of putting that money into savings vs the future value of putting it into your mortgage and paying less interest at some point in the future. Do the math and see how much you will save by paying the mortgage down faster, but also keep in mind that future money is worth less than present money. A LOT less if you suddenly have an emergency or decide on a major purchase and need the money, but then have to jump through hoops to get to it. To me, you need to save a considerable amount by paying down the mortgage, and also understand that your money is getting locked away, for it to make sense.","\"I'm not a financial expert... In my opinion it might be best to have as much in savings (aka being liquid and the funds are insured by the FDIC) as possible for a couple of reasons. If you lose your job, your equity line could then get frozen if the bank finds out. What you want to avoid is only owing 20 grand on your home (because you paid a chunk off with your savings) but because you lost your job you can't take any money out of your home and suddenly you are equity rich, cash poor, and jobless, that is a potential for big trouble. I'm curious why you borrowed on the Heloc since you seem to have a significant amount in savings anyways. What you really might want to look into is lowering your mortgage interest rate to around 3.5% I would use the credit card debt as a reality check. Make sure every month you are making at least a 10% to 15% of the total due payment. This dilutes the interest rate charge and lets you see the true \"\"drag\"\" credit card debt payments really have on your life. I don't know this for sure but the higher amount credit card payments you make probably reflects well on your credit score, and of course, never be late with the credit card payments either.\"","Major things to consider: If you're expecting to look at the property market: it might prove to be sensible to start doing it now, since the market is just recovering, and (IMHO warning -I'm not a professional investor, just a random guy on the internet) prices still hasn't caught up with value fundamentals. check out cash ISA's for a 24-36 month timeframe; most do a reasonable 3-4% AER, with the current inflation rate being around 4%, this will, at the very least, make sure your money doesn't loose it's purchasing power. Finally, a word of caution: SIPPs have a rather rubbish AER rates. This, by itself, wouldn't be much of a problem on a 30-40 years timeframe, but keep the (current, and historically strictly monotonically increasing) 4% inflation rate in mind: this implies the purchasing power of any money tied in these vehicles will loose it's purchasing power, in a compounding manner. Hope this helps, let me know if you have any questions.","\"I've never heard of a loan product like that. Yes, if they keep the funds in an account, it is no risk to the bank, but they would essentially need to go through the loan process twice for the same loan: when you pick a house, they need to reevaluate everything, along with appraising and approving the house. Even if you did find a bank that would do this for you, there are a few problems with this scheme. You would be paying interest before you have a need for this money, negating the savings you might achieve if the interest rates go up. In addition, your \"\"balance\"\" will go down as \"\"payments\"\" are deducted from your loan, and when you finally find a home to buy, you might not have enough for the house you want. You'll need to borrow more than you need, which will further negate any possible savings. It is impossible to know how fast rates will climb. If I were you, I would stick to saving for your down payment, and just get the best rate you can when you are ready to buy. Another potential idea for you is to lock an interest rate. When you apply for a mortgage, the interest rate is often locked for as much as 60 days, to protect the borrower in the event that the rates go up. You could ask the bank if you can pay a fee to lock the rate even longer. I don't know if that is possible or not. And, of course, the fee would eat into your potential savings.\"","Pay off the Highest interest loan rate first. You must be doing something funky with how long your terms are... If you give a bit more info about your loan's such as the term and how much extra you have right now to spend it could be explained in detail why that would be the better choice using your numbers. You have to make sure when you are analyzing your different loan options that you make sure you are comparing apples to apples. IE make sure that you are either comparing the present value, future value or amortization payments... EDIT: using some of your numbers lets say you have 5000 dollars in your pocket you have 3 options. excel makes these calculations easier... Do nothing: in 80 months your Student Loan will be payed in full and you will have 54676.08 owing on your mortgage and 5000 in your pocket(assuming no bank interest) for mortgage: Pay off Student loan and allocate Student loans amortization to Mortgage: in 80 months you will have $47,910.65 owing on mortgage and student loan will be paid in full For mortgage: Pay 5000 on Mortgage: in 80 months student loan will be paid in full and you will have $48,204.92 owing on mortgage For mortgage:","I'm not going to tackle the 2nd part of your question, as any number of the questions tagged with international-transfer should cover you on that. There's no way to transfer an ISA into an Australian tax-free savings account, so no need to worry about anything special there. Don't forget that the FX rates change quite a bit over time, and different methods have varying fees, so moving at the wrong time could easily cost you more than the missed interest! For the first part, it depends. One thing you should seriously consider right away is switching your ISA money into one paying a better rate. Check the best-buy tables online or in a paper, as you can get a lot better than 0.1% on a transfer in, even with current depressed rates. At least that way you'll earn more interest while you decide. As for when to transfer, that's something you'll have to calculate for yourself, based on your marginal tax rate, and your view of how the FX rates will shift. If you're a 40% taxpayer, then 2% in an ISA is worth the same to you as 3.3% gross. Don't forget to consider both your UK and Australian tax rates in the year you move, as most likely you'll have to pay the higher of the two. The westpac rate looks like you might struggle to beat a decent ISA over the course of a year, were you a higher rate tax payer. Oh, and don't forget that you'll likely loose the tax-free status of your ISA once you're an Australian tax resident, so you'll need to start paying tax on interest earnt in the ISA once you're out there.","When I was a contractor I prioritize this way. 6 months salary nest egg while contributing to tax deferred retirement then after that you can pre pay your mortgage. Remember you can't skip a month even if you prepay. So once you pay that extra to your mortgage you lose that flexibility.","\"To begin with, bear in mind that over the time horizon you are talking about, the practical impact of inflation will be quite limited. Inflation for 2017 is forecast at 2.7%, and since you are talking about a bit less than all of 2017, and on average you'll be withdrawing your money halfway through, the overall impact will be <1.3% of your savings. You should consider whether the effort and risk involved in an alternative is worth a few hundred pounds. If you still want to beat inflation, the best suggestion I have is to look at peer-to-peer lending. That comes with some risk, but I think over the course of 1 year, it's quite limited. For example, Zopa is currently offering 3.1% on their \"\"Access\"\" product, and RateSetter are offering 2.9% on the \"\"Everyday\"\" product. Both of these are advertised as instant access, albeit with some caveats. These aren't FSCS-guaranteed bank deposits, and they do come with some risk. Firstly, although both RateSetter and Zopa have a significant level of provision against bad debt, it's always possible that this won't be enough and you'll lose some of your money. I think this is quite unlikely over a one-year time horizon, as there's no sign of trouble yet. Secondly, there's \"\"liquidity\"\" risk. Although the products are advertised as instant access, they are actually backed by longer-duration loans made to people who want to borrow money. For you to be able to cash out, someone else has to be there ready to take your place. Again, this is very likely to be possible in practice, but there's no absolute guarantee.\"","You have to check if the investment vehicle you are planning to buy is acceptable for ISA on a case by case. Then if it is allowed by HMRC you have to check that your ISA provider offers those products (the mainstream providers might offer a more limited range of products and you might have to go to change your provider)"],"string":"[\n \"\\\"I am not a Financial Advisor, but I an tell you what I did in exactly this situation - which is pretty much what you are proposing. I put money into the offset savings account until I had only a small amount of mortgage \\\"\\\"balance\\\"\\\" left (less than a year's worth of mortgage payments), then I set it up so that each month I did the transfer from the offset savings pot into the mortgage itself. This depleted the offset savings in line with the mortgage debt, and the interest on the two balanced out almost to zero. This was self-sustaining and meant that I kept the same margin owing over time (i.e. if I was in this situation for 5 years, for the whole 5 years I would effectively have 1 year remaining on the mortgage). Meanwhile, since I now didn't have any mortgage outgoings from my regular income, I put any spare money into ISA savings. No need to withdraw money from the mortgage to move to the ISA. The benefits of this (as opposed to just paying off the damn mortgage already) were that I kept the full liquidity of the mortgage amount - I could withdraw all the offset savings pot if I wanted to, although I would then have to have funded the mortgage payments differently, and as that liquidity went down over time I was building up other savings in parallel. It worked well for me. It almost doesn't matter what the offset mortgage rate is since you are effectively paying it off by keeping the offset savings pot so high.\\\"\",\n \"I think the key thing is flexibility - the money is not tied in with the offset mortgage. If you find a better investment, you can always take some of it out and put it towards that instead. Once it matures, if there is nothing good to reinvest in, then it can go back into the offset mortgage. Once you have had money in the offset account, even if you take it out, you have already (irreversibly) saved money on your mortgage. Right now you would be pressed to find an instant access ISA with a rate higher than 1.5%, so if you need immediate access, then the offset account seems good. On the other hand, for retirement, you might be saving longer term, and then you can get an ISA rate of 3%, currently, which may be better for a part of the money (or perhaps the upcoming Lifetime ISA with 25% yearly bonus may make sense for part of the money), if you do not need easy access to all of it. As Dilip says, this assumes you want safe investments.\",\n \"I use an offset mortgage. (No interest is paid, but the amount in the savings account is subtracted from the outstanding mortgage amount before interest is calculated, so the mortgage is paid off faster by the interest amount saved). The money is instantly accessible and there is no tax as the benefit is reduced/saved interest. However, the mortgage rate is slightly higher, so it works best if your emergency funds are a reasonably large proportion of the mortgage amount outstanding.\",\n \"If your savings account linked to the mortgage account is an 100% offset account then you don't need to put extra funds into the mortgage account apart from the minimum payments which is done automatically. Any funds you have in an 100% offset acount reduces the amount of interest you have to pay on the mortgage. So if your mortgage is $100,000 and you have $10,000 in the offset account then you only pay interest on $90,000 within the mortgage. Also the funds in the offset account are at call any time as it is simply a savings account. You can have all your pay go into it and have direct debits set up for all your bills. This way you will benefit from maximising the amounts in your offset account and reducing the amount of interest you pay on your mortgage. If your current linked savings account is not an 100% offset account ask your bank if you can change it over to one that is. If they don't have offset accounts for that particular mortgage account ask them if they have a different mortgage account with offset accounts. If they can't help you then shop arround for a bank or lender that does. I am currently with ANZ and they have a product with 100% offset account and about 0.7% below the standard variable rate, and there are plenty more similar products out there.\",\n \"The way offset mortgages work, you are keeping savings in an account effectively earning the rate of the mortgage. You have the ability to leave it, paying the mortgage off early, or borrowing back, any time.\",\n \"\\\"Assuming no constraints on how much you can move (or how frequently) into and out of your offset mortgage account, the question becomes one of what rate of return you expect from your long-term savings/emergency cash fund. The rate you are getting from the offset mortgage account is known; since it reduces the principal amount owing and thus reduces interest charges, the return is the mortgage rate (though I would not be surprised if the offset mortgage account contract has bells and whistles reducing the effective rate, saying something like 3 pounds reduction of principal for every 5 pounds you put in). So, as a movie character once said, \\\"\\\"Do you feel lucky today?\\\"\\\" If so, move money from your offset mortgage account to savings, and earn more. If not, move money in the opposite direction. A \\\"\\\"guaranteed\\\"\\\" 2% return on the offset mortgage account might be better than taking a risk on the vagaries of the stock market, and even the possibility of loss in your long term savings account.\\\"\",\n \"\\\"Your dec ision is actually rather more complex than it first appears. The problem is that the limits on what you can pay into the HTB ISA might make it less attractive - it will all depend. Currently, you can put £15k/year into a normal ISA (Either Cash, or Stocks and Share or a combination). The HTB ISA only allows £200/month = £2,400/year. Since you can only pay into one Cash ISA in any one year you are going to lose out on the other £12,600 that you could save and grow tax free. Having said that, the 25% contribution by the govt. is extremely attractive and probably outweighs any tax saving. It is not so clear whether you can contribute to a HTB ISA (cash) and put the rest of your allowance into a Stocks and Shares ISA - if you can, you should seriously consider doing so. Yes this exposes you to a riskier investment (shares can go down as well as up etc.) but the benefits can be significant (and the gains are tax free). As said above, the rules are that money you have paid into an ISA in earlier years is separate - you can't pay any more into the \\\"\\\"old\\\"\\\" one whilst paying into a \\\"\\\"new\\\"\\\" one but you don't have to do anything with the \\\"\\\"old\\\"\\\" ISA. But you might WANT to do something since institutions are amazingly mean (underhand) in their treatment of customers. You may well find that the interest rate you get on your \\\"\\\"old\\\"\\\" ISA becomes less competitive over time. You should (Must) check every year what rate you are getting and whether you can get a better rate in a different ISA - if there is a better rate ISA and if it allows transfers IN, you should arrange to make the trasnfer - you ABSOLUTELY MUST TRANSFER between ISAs - never even think of taking the money out and then trying to pay it in to another ISA, it must be transferred directly between ISAs. So overall, yes, stop paying into the \\\"\\\"old\\\"\\\" ISA, open a new HTB ISA next year and if you can pay in the maximum do so. But if you can afford to save more, you might be able to open a Stocks and Shares ISA as well and pay into that too (max £15k into the pair in one year). And then do not \\\"\\\"forget\\\"\\\" about the \\\"\\\"old\\\"\\\" ISA(s) you will probably need to move all the money you have in the \\\"\\\"old\\\"\\\" one(s) regualrly into new ISAs to obtain a sensible rate. You might do well to read up on all this a lot more - I strongly recommend the site http://www.moneysavingexpert.com/ which gives a lot of helpful advice about everything to do with money (no I don't have any association with them).\\\"\",\n \"\\\"Here in the UK, the rule of thumb is to keep a lot of equity in your home if you can. I assume here that you have a lot of savings you're considering using. If you only have say 10% of the house price you wouldn't actually have a lot of choice in the matter, the mortgage lender will penalise you heavily for low deposits. The practical minimum is 5%, but for most people a 95% mortgage is just silly (albeit not as silly as the 100% or greater mortgages you could get pre-2008), and you should take serious individual advice before considering it. According to Which, the average in the UK for first-time buyers is 20% (not the best source for that data I confess, but a convenient one). Above 20% is not at all unusual. You'll do an affordability calculation to figure out how much you can borrow, which isn't at all the same as how much you should borrow, but does get you started. Basically you, decide how much a month you can spend on mortgage payments. The calculation will let you put every penny into this if you choose to, but in practice you'll want some discretionary income so don't do that. decide the term of the mortgage. For a young first-time buyer in the UK I think you'd typically take a 25-year term and consider early repayment options rather than committing to a shorter term, but you don't have to. Mortgage lenders will offer shorter terms as long as you can afford the payments. decide how much you're putting into a deposit make subtractions for cost of moving (stamp duty if applicable, fees, removals aka \\\"\\\"people to lug your stuff\\\"\\\"). receive back a number which is the house price you can pay under these constraints (and of course a breakdown of what the mortgage principle would be, and the interest rate you'll pay). This step requires access to lender information, since their rates depend on personal details, deposit percentage, phase of the moon, etc. Our mortgage advisor did multiple runs of the calculation for us for different scenarios, since we hadn't made up our minds entirely. Since you have not yet decided how much deposit to make, you can use multiple calculations to see the effect of different deposits you might make, up to a limit of your total savings. Putting up more deposit both increases the amount you can borrow for a given monthly payment (since mortgage rates are lower when the loan is a lower proportion of house value), and of course increases the house price you can afford. So unless you're getting a very high return on your savings, £1 of deposit gets you somewhat more than £1 of house, and the calculation will tell you how much more. Once you've chosen the house you want, the matter is even simpler: do you prefer to put your savings in the house and borrow less and make lower payments, or prefer to put your savings elsewhere and borrow more and make higher payments but perhaps have some additional income from the savings. Assuming you maintain a contingency fund, a lower mortgage is generally considered a good investment in the UK, but you need to check what's right for you and compare it to other investments you could make. The issue is complicated by the fact that residential property prices are rising quite quickly in most areas of the UK, and have been for a long time, meaning that highly-leveraged property investment appears to be a really good idea. This leads to the imprudent, but tempting, conclusion that you should buy the biggest house you can possibly afford and watch its value rises. I do not endorse this advice personally, but it's certainly true that in a sharply rising house market it's easier to get away with buying a bigger house than you need, than it is to get away with it in a flat or falling market. As Stephen says, an offset mortgage is a no-brainer good idea if the rate is the same. Unfortunately in the UK, the rate isn't the same (or anyway, it wasn't a couple of years ago). Offset mortgages are especially good for those who make a lot of savings from income and for any reason don't want to commit all of those savings to a traditional mortgage payment. Good reasons for not wanting to do that include uncertainty about your future income and a desire to have the flexibility to actually spend some of it if you fancy :-)\\\"\",\n \"The offset account is the way to go. The rate is higher and even if interest rates fall further when you go to renew your term deposit the interest rate for that will be lower as well. Also, with a term deposit you will be penalised if you take the money out before the end of the term. Regarding tax, you will pay tax at your marginal tax rate on every dollar earned from the Term deposit ( as long as your income is above the $18,000 tax free threshold). If the mortgage is for your primary residence then you will not pay any tax on the money in your Offset Account, as you are not earning any interest in this account you are saving interest on your mortgage. So definitely the way to go would be with the offset account, you'll get an effective higher interest rate, it will help you pay off your mortgage sooner, the money is always on call, and you will pay no tax.\",\n \"Yes, you will come out ahead slightly by putting the money in the savings account, then paying off your mortgage later. However, we don't know what will happen to these interest rates after 1 year. If you put the £300 per month into the savings account for a year, then put the money into you mortgage, you will save about £78 for the year over just putting the money toward your mortgage in the first place. For me, I'm more concerned about longer term strategy. What happens to your mortgage rate after 2 years? What happens to your savings account rate after 1 year? The mortgage rate likely goes up and the savings account rate likely goes down, making the savings of this strategy even less after the first year. Instead, you may want to put this £300 per month toward retirement investments (assuming you have no other debt), which should, over the long term, earn more than the savings account.\",\n \"\\\"Yes, you can certainly keep it in a savings account until you spend it. You'll get much less interest than you will be paying on the loan, but it will be better than nothing. However, you may want to ask if you can use the loan flexibly instead - i.e. only \\\"\\\"draw down\\\"\\\" the money you need when you need it, and not start paying interest until that happens. That would save you a lot more money. Note that the ISA limit is currently £5,760 and the limit is on total deposits so you won't be able to reuse the amount later in the tax year. Since that ends on April 5th that probably won't be an issue for you.\\\"\",\n \"I would not recommend using your own money to pay off something that is not a strong asset. Use the savings where it will have the maximum return. Why not put (some of) the savings into another investment mortgage? Thanks to the leverage your return would be much higher than 5.5%, plus you would have more income.\",\n \"This answer is specifically for the UK, but one building society has an account set up specifically for this. You actually refer your friend/family member to set up an account and then it can be linked to your mortgage. They don't get any interest for their account as it's all offset against your mortgage. If you then happen to give them a cash gift (up to £250 or possibly £3000 per year, I can't work out which is the reliable number, as of 2015) then it's all completely above board.\",\n \"The short answer is that it depends on the taxation laws in your country. The long answer is that there are usually tax avoidance mechanisms that you can use which may make it more economically feasible for you to go one way or the other. Consider the following: The long term average growth rate of the stock market in Australia is around 7%. The average interest on a mortgage is 4.75%. Assuming you have money left over from a 20% deposit, you have a few options. You could: 1) Put that money into an index fund for the long term, understanding that the market may not move for a decade, or even move downwards; 2) Dump that money straight into the mortgage; 3) Put that money in an offset account Option 1 will get you (over the course of 30-40 years) around 7% return. If and when that profit is realised it will be taxed at a minimum of half your marginal tax rate (probably around 20%, netting you around 5.25%) Option 2 will effectively earn you 4.75% pa tax free Option 3 will effectively earn you 4.75% pa tax free with the added bonus that the money is ready for you to draw upon on short notice. Of the three options, until you have a good 3+ months of living expenses covered, I'd go with the offset account every single time. Once you have a few months worth of living expenses covered, I would the adopt a policy of spreading your risk. In Australia, that would mean extra contributions to my Super (401k in the US) and possibly purchasing an investment property as well (once I had the capital to positively gear it). Of course, you should find out more about the tax laws in your country and do your own maths.\",\n \"The chancellor announced an ISA in this week's budget intended for people saving to buy their first home. For every £200 put in the government will add £50 to the account so I would strongly encourage you to put the money into that as it is also tax free.\",\n \"Yes, this is fine: You can save up to £20,000 in one type of account or split the allowance across some or all of the other types. You can only pay £4,000 into your Lifetime ISA in a tax year ... Example You could save £11,000 in a cash ISA, £2,000 in a stocks and shares ISA, £3,000 in an innovative finance ISA and £4,000 in a Lifetime ISA in one tax year. https://www.gov.uk/individual-savings-accounts/how-isas-work You might want to consider whether it is wise to be fully invested in shares. If you're going to have to dip into them for things like holidays and a car, you're taking a risk that you might have to sell when the market is low. As a basic rate taxpayer, you have a £1 000 personal savings allowance. You don't need to chase the tax break with a cash ISA, which often have poor rates. However, you should consider keeping some of your savings in cash, for example in a current account that pays decent interest on the balance.\",\n \"An offset account is simply a savings account which is linked to a loan account. Instead of earning interest in the savings account and thus having to pay tax on the interest earned, it reduces the amount of interest you have to pay on the loan. Example of a 100% offset account: Loan Amount $100,000, Offset Balance $20,000; you pay interest on the loan based on an effective $80,000 loan balance. Example of a 50% offset account: Loan Account $100,000, Offset Balance $20,000; you pay interest on the loan based on an effective $90,000 loan balance. The benefit of an offset account is that you can put all your income into it and use it to pay all your expenses. The more the funds in the offset account build up the less interest you will pay on your loan. You are much better off having the offset account linked to the larger loan because once your funds in the offset increase over $50,000 you will not receive any further benefit if it is linked to the smaller loan. So by offsetting the larger loan you will end up saving the most money. Also, something extra to think about, if you are paying interest only your loan balance will not change over the interest only period and your interest payments will get smaller and smaller as your offset account grows. On the other hand, if you are paying principal and interest then your loan balance will reduce much faster as your offset account increases. This is because with principal and interest you have a minimum amount to pay each month (made up of a portion of principal and a portion of interest). As the offset account grows you will be paying less interest, so a larger portion of the principal is paid off each month.\",\n \"\\\"Ultimately you are as stuck as all other investors with low returns which get taxed. However there are a few possible mitigations. You can put up to 15k p.a. into a \\\"\\\"normal\\\"\\\" ISA (either cash or stocks & shares, or a combination) if your target is to generate the depost over 5 years you should maximise the amount you put in an ISA. Then when you come to buy, you cash in that part needed to top up your other savings for a deposit - i.e. keep the rest in for long term savings. The help to buy ISA might be helpful, but yes there is a limit on the purchase price which in London will restrict you. Several banks are offering good interest on limited sums in current accounts - Santander is probably the best you can get 3% (taxed) on up to 20K - this is a good \\\"\\\"safe\\\"\\\" return. Just open a 123 Account, arrange to pay out a couple of DDs and pay in £500 a month (you can take the £500 straight out again). I think Lloyds and TSB also offer similar but on much smaller ammounts. Be warned this strategy taken to the limit will involve some complexity checking your various accounts each month. After that you will end up trading better returns for greater risk by using more volatile stock market investments rather than cash deposits.\\\"\",\n \"The answer to question 1 is yes, you can always reduce your loan when you remortgage by introducing additional funds. There is some possibility a (relatively) small charge might be applicable for managing the marginally more complex transfer, but it shouldn't be too much.. The answer to question 2 is NONE of your over payment amounts would have gone on interest, but you MIGHT incur penalty charges. Interest is only charged on the outstanding loan amount (i.e. £100K initially, reducing to £85K over 2 years in your example) at the interest rate determined by your mortgage agreement - there is no 'paying off interest' as such. Over payments are essentially all capital payments, reducing the principal/loan amount, so no additional interest would be paid if you opted for over payments. If you used your £10K to made the over payments throughout the 2 year fixed period you would in fact have paid LESS interest by the end of the 2 years, because you would be reducing the loan amount at a quicker rate, and thus the interest you pay each month (based on the lower outstanding loan at that time) would be lower. BUT... over payments might have attracted over payment penalties (typically a percentage of the amount you pay) and these penalties often mean it's not worth doing. Most fixed term mortgages have such penalties, but it depends on the agreement, and many mortgages also allow you to make over payments up to a certain amount each year before you get hit. Edit (additional suggestion): If the example you provide is one based on what you expect might happen to you over the next couple of years, something you could CONSIDER is an offset mortgage. Here your £10K that you accumulate reduces your interest through the 2 years, but you keep it in savings where you can access it if you need to. Accessing it will then cause a corresponding rise in interest payments, but to no higher level than you would have been paying if you had nothing in the savings in the first place. You usually pay a slightly higher interest rate for these sort of mortgage, so it's impossible to know if it would be more economical, and how appropriate it would be for you in other respects depends on many factors.\",\n \"\\\"You have a large number of possible choices to make, and a lot of it does depend upon what interests you when you are older. The first thing to note is the difference between ISAs and pension-contribution schemes tax wise, which is of course the taxation point. When you contribute to your pensions scheme, it is done before taxation, which is why when you draw from your pension scheme you have to pay income tax. Conversely, your ISA is something you contribute to after you have already paid income tax - so besides the 10% tax on dividends if you hold any assets which may them, it is tax free when you draw on it regardless of how much you have accrued over the years. Now, when it comes to the question \\\"\\\"what is the best way to save\\\"\\\", the answer is almost certainly going to be filling your pension to the point where you're going to retire just on the edge of the limit, and then putting the rest into ISAs. This way you will not be paying the higher rates of tax associated with breaking the lifetime limit, but also get maximum contributions into your various schemes. There is an exception to this of course, which is the return on investment. If you do not have access to a SIPP (Self Invested Personal Pension), you may be able to receive a far higher return on investment when using a Stocks & Shares ISA, in which case the fact that you have to pay taxes prior to funding it may not make a significant difference. The other issue you have, as others have mentioned is rent. While now you may be enjoying London, it is in my opinion quite likely that will change when you get older, London has a very high-cost of living, even compared to the home counties, and many of its benefits are not relevant to someone who is retired. When you retire, it is quite possible that you will see it fit to take a large sum out of your various savings, and purchase a house, which means that regardless of how much you are drawing out you will be able to have somewhere to live. Renting is fine when you are working, but when you have a certain amount of (admittedly growing) funds that have to last you indefinitely, who knows if it will last you.\\\"\",\n \"but then they make suggestions such as paying extra each month on your mortgage. How else does one pay off his mortgage early other than by paying extra each month? The principal and interest are fixed, no matter how much money you throw at them. The interest rate is fixed. The total interest paid varies depending on how much extra you pay towards the principal. You'll pay the same amount every month regardless. That's factually incorrect. just put the extra money into savings At 1.2%, if you're smart enough to put it in an on-line savings account. until you have enough to pay off the mortgage Which costs you 3.5%. This way, the money is locked up in your home. Who says that all of your money must be locked up in your home? (I'm sure that there are financial advisors who recommend that you throw every single spare dime into extra mortgage payments, but they're rare.) Am I missing something? Yes: the mathematical sense to see that a 3.5% loan costs more than than 1.2% savings earns you\",\n \"\\\"Check the terms of your mortgage. If you are in a fixed-term mortgage, you can likely \\\"\\\"over-pay\\\"\\\" a fixed amount of the capital each year: typically 10%. Eg if you owe £300,000 on the mortgage, you can pay off an additional £30,000 this year. Next year you'd owe something like £260,000 so could pay off £26,000. You'd need to check the terms of your mortgage to see what this limit is. You can actually pay off more than this, but would become liable to pay an \\\"\\\"early repayment fee\\\"\\\" or similar, which is usually something like 3-5% of the mortgage amount. Note that this usually means you would need to re-finance the mortgage anyway If you are not on a fixed-term mortgage than, in the UK at least, you are pretty much free to over-pay as much as you would like or refinance the mortgage. If you are in a fixed-term mortgage, it is usually better to simply over-pay by that maximum allowed amount until the fixed period ends, at which point you can re-finance onto a mortgage that allows higher overpayments. This isn't always the case, though, depending on your interest rate, how high the early repayment charge is, and how much you are able to over-pay. At the very least, you're going to need to do some sums! If you do choose to over-pay up to the limit, then you'd want to over-pay as much as you can at the start of the year (ie don't divide the over-payment by 12, pay it all as early as you can) to reduce interest payments. Then once you hit the limit, put the rest into a savings account: once you are out of the fixed term you can then pay the rest as a lump sum when refinancing.\\\"\",\n \"According the FSCS: If the bank fails FSCS would refund the maximum under our rules (currently £75,000 per person). Any credit balance over and above this would be offset against the mortgage by the insolvency practitioner responsible for the winding up of the bank. FSCS would play no part in that process. (Unless the savings were larger than the debts, but then it wouldn't make sense to have them in a zero interest offset account!) So the money would not be completely lost as such. Whether that would count as an overpayment is an open question, but perhaps a moot point anyway if the bank went under. (Finally, arguably, a pension or other investment might also be better for such amounts.)\",\n \"\\\"I've been wondering the same thing - I can't find any \\\"\\\"official\\\"\\\" information from the banks, but there is the following info: So, if it's all with the same bank - try it! The worst that can happen is that the bank won't credit your ISA and will refund you.\\\"\",\n \"I'd put as much of it as possible into an ISA that pays a decent amount of interest so you get the benefit of the money accruing interest tax free. For the rest, I'd shop around for notice accounts, but would also keep an eye out for no-notice accounts. The latter might be beneficial if you expect interest rates to rise and are willing to shop around and move the money into accounts paying better interest every few months. Just make sure you're also factoring in the loss of interest when moving the money. You could look into fixed term savings bonds but I don't think they currently pay enough to make it worthwhile locking away your money.\",\n \"Pay the the smallest balance first. The sooner you pay that off, the sooner you can pay more on the mortgage.\",\n \"\\\"One possibility you may consider is to keep all of your funds in the stocks and shares ISA while investing that proportion you wish to keep in cash into a tradeable \\\"\\\"Money Market\\\"\\\" ETF. A Money Market ETF will give you rates comparable to interest rates on cash and at the same time it will give you \\\"\\\"instant access\\\"\\\" subject to normal 3 day settlement of equities. This is not exactly a perfect solution. Most Money Market ETFs will pay monthly dividends, so depending on your timing, you may have to give up some interest. In the worst case, if you were to sell the day before going ex-dividend, then you would be giving up a months interest. In the best case, if you were to sell on the day of going ex-dividend, you would be giving up no interest.\\\"\",\n \"Another option is the new 'innovative finance isa' that allow you to put a wrapper round peer to peer lending platform investments. See Zopa, although I don't think they have come out with an ISA yet.\",\n \"First of all I recommend reading this short e-book that is aimed at young investors. The book is written for American investors but they same rules apply with different terms (e.g. the equivalent tax-free savings wrappers are called ISAs in the UK). If you don't anticipate needing the money any time soon then your best bet is likely a stocks and share ISA in an aggressive portfolio of assets. You are probably better off with an even more aggressive asset allocation than the one in the book, e.g. 0-15% bond funds 85-100% equity funds. In the long term, this will generate the most income. For an up-to-date table of brokers I recommend Monevator. If you are planning to use the money as a deposit on a mortgage then your best bet might be a Help to Buy ISA, you'll have to shop around for the best deals. If you would rather have something more liquid that you can draw into to cover expenses while at school, you can either go for a more conservative ISA (100% bond funds or even a cash ISA) or try to find a savings account with a comparable interest rate.\",\n \"There are a number of UK banks that offer what passes for reasonable interest on an amount of cash held in their current accounts. I would suggest that you look into these. In the UK the first £1000 of bank or building society interest is paid tax-free for basic rate taxpayers (£500 for higher rate tax-payers) so if your interest income is below these levels then there is no point in investing in a cash ISA as the interest rate is often lower. At the moment Santander-123 bank account pays 1.5% on up to £20000 and Nationwide do 5% on up to £2500. A good source if information on the latest deals is Martin Lewis' Moneysaving Expert Website\",\n \"A lot depends on whether your mortgage payments are interest only or 'repayment' and what the remaining term is on each of the mortgages. Either way I suspect that the best value for the money you put in will be had by making payments to the larger, newer mortgage. This is because the quicker you reduce the capital owed the less interest you will pay over the whole term of the mortgage and you've already had the older mortgage for sometime (unless you remortgaged) so the benefit you can get from an arbitrary reduction in the capital is inevitably less than you will get from the same reduction in the capital of the newer mortgage. Even if the two mortgages are the same age then the benefit of putting money into the one on the new house is greater due to the greater interest charged on it.\",\n \"\\\"None of what I say is advice directed to you. It is how I would continue to analyse the situation you have, were it mine. First off, I prefer to work in certainties more than possibilities. Saying that, paying down the mortgage makes sense as I can calculate the amount I will save. I also believe that rate rises are coming in the future, based on the talk from the BofE, so any money I pay off now means guaranteed less interest to pay in the future. Also, the lower my loan-to-value ratio, the better/lower interest rates I can receive in the mortgage market. If I do not want to work until retirement age, it'd be nice to have as few bills as possible in the decade or so prior to retirement age. I could then do early-retirement or part-time work in the run-up to retirement. I could use my savings to fund life until retirement pays out. I'd be aiming to put 15% of my gross income into \\\"\\\"future investing\\\"\\\" - using ISAs to build up a savings pot, taking advantage of retirement products. That way all the money is not tied to a normal retirement age before it can accessed. And it's not touchable by future greedy Government taxation... Any income leftover above the 15%, I'd be throwing at the mortgage - taking advantage of the 10% overpay window, remortgaging as LTV comes down. In theory, overpaid mortgage equity is money that could still be accessed (provided house prices don't decline and remortgaging is a possibility). So, in short, I'd follow a plan along these lines of logic. 1) Make sure I have 4-6 months of living expenses as a Rainy Day Fund. Insulate myself from fluctuations in my financial situation. 2) Put away 15% of annual gross income towards \\\"\\\"future saving\\\"\\\". ISAs first, pension second. 3) Overpay the mortgage and look to remortgage as LTV drops. When LTV nears 60%, look to lock in to a longer-term fix. eg. 2 year fixes at 90% LTV, 5 year fixes at 60%. 4) Reassess steps 2 & 3 as life happens, circumstances change, work fluctuates, etc. 5) Once the mortgage is paid off, build as much wealth as possible - ISAs first, then non-tax efficient savings products. Aim for keeping expenses down and raising my savings % rate as much as possible. [Your analysis was thorough and shows you are thinking through consequences. Never forget to factor in the risk of carrying debt. Having no/low debt as you get older means there's more income left to build wealth. Ignore the American view of carrying debt for life and trusting investments to outperform the debt. You have to pay monthly to keep that debt around - and it ain't a pet!]\\\"\",\n \"\\\"First, bear in mind that you're talking about having an average of ~£2000 saved up at any given time (if you spend all your stipend every quarter at a steady rate you'll start out with all of it and have none left at the end of the quarter), along with any long-term savings you manage to build up over time. In today's low-interest rate environment of ~1% interest rates, we're talking about approximately £20/year interest. So it's not worth a huge amount of effort to optimise this. You mentioned a \\\"\\\"bonus\\\"\\\", but looking at the Charter Savings website I don't actually see one listed for either the Cash ISA or the savings accounts you mention. In general, banks in the UK actually use bonus rates as a short-term measure to suck in new customers, and the bonuses typically expire after a while leaving you with a worse rate. Also, I don't think either of the rates you mention is guaranteed - they are both listed as \\\"\\\"variable\\\"\\\". In reality, I doubt they will go down too much more, given that the likely next move in UK interest rates is upwards. The typical main advantage of an ISA is its tax free nature. But from your question I assume you don't have any other income, so you won't need to pay tax on any interest you earn outside an ISA either. Also, given that your budget is quite tight and you expect to spend most or all of your stipend, there's no advantage to using an account where you can build up long-term tax-free savings. Even if you do have a few thousand pounds left over by the end of your PhD, you'll easily be able to put those into an ISA at that point given the annual limit of £20K. You're right not to want to take any risks with the money, and there aren't really any risk-free investments other than savings accounts available, at least on the timescales you're talking about. So overall I'd just go for the 1.26% return. Edit: as @marktristan's answer points out, you will probably be able to find a \\\"\\\"loss leader\\\"\\\" current account that actually offers more interest than a savings account. You'll need to either use a single current account and manage your budgeting carefully, or use a second current account as your \\\"\\\"savings\\\"\\\" account and make sure to set things up to satisfy the requirements of the account you choose, such as incoming payments or outgoing direct debits.\\\"\",\n \"Similar to what Adam F says above, except instead of just transfering the amount you spend on the credit card into the high interest account, why not keep the majority of your funds (apart from a small amount, say a couple of hundred for emergencies) in the high interest account until the credit card needs to be paid off. Even better, if you have a mortgage with an 100% offset account keep all your funds in this, and pay off your credit card in full from it on or before the due date. Being a 100% offset to your mortgage interest rate you will be saving at a higher rate than a high interest rate savings account, and you will be able to do all your normal banking from it unlike a high interest account which you usually have to link to an additional account to deposit and withdrawl money to and from. If you are to use a credit card keep these simple rules in mind: Hope this has helped, Regards Victor\",\n \"if the rate of interest on both loans is 6.5%, it does not make any difference against which loan you offset. if you offset it with 50K loan, you will close it sooner [I am assuming your 50K loan is of shorter tenure compared to the 300K without considering offset]. The overall interest outgo looks larger if you close the shorter loan vs closing the larger loan, however the net effect is the same if you start putting out the balance $400 to the 300K loan after you have closed it out.\",\n \"Your main choices are ISAs and property. You can put over £15,000 per year into an ISA, which means over £450,000 by the time you retire, not allowing for growth in your ISA investments. But if you're paying rent, and worried about being able to pay rent when you retire, the obvious choice is to buy a flat now on a thirty-year mortgage so that you can stop paying rent and the mortgage will be paid off by the time you retire.\",\n \"The mathematical answer is for you to have a diversified portfolio in your ISA. But that's easier said than done.\",\n \"\\\"I love the idea of #1, keep that going. I don't think #2 is very realistic. Given the short time frame putting money at risk for a higher yield may not work in your favor. If it was me, I'd stick to a \\\"\\\"high interest\\\"\\\" savings account (around 1%). I don't mind #3 either, however, I'd be socking whatever you could to mortgage principle so you can get out of PMI sooner rather than later. That would be my top priority. Given the status of interest rates, you may end up saving money in the long run. I doubt it, but you may. If you choose to go with #3, don't settle for a house that you really don't like. Get something that you want. Who knows it may take you a year or so to find something!\\\"\",\n \"If I open and fill an ISA, then leave the account alone for an entire year, will I then be able to add an additional £[Insert ISA limit here] to the original money I put in the account? Yes, you can. Will the full sum of £[Last years limit] + £[This years limit] that is in the account have interest paid on it? Yes, it will. Will the account be closed at the end of the period regardless? No. The account would only be closed if you requested it to be closed. Otherwise it would sit there with the original balance in it earning interest at the stated rate. The only way I can see an ISA being of any worth is by building up a substantial amount this way, but you would need so much cash laying around to max the ISA year on year. Just think of an ISA as like a completely normal savings account except that you don't pay tax on the interest, and there is a limit to how much you can deposit in any given year. Right now, while interest rates have been low for a while, the savings rates on any account (including ISAs) are not desperately attractive; additionally, with the recent changes to how interest on normal savings accounts are taxed, ISAs are not quite such a big deal as they used to be. If you look back to a time when interest rates were around 5%, a higher rate tax payer with £50,000 in a normal savings account would earn £2500 interest in a year, on which they would pay £1000 in tax. That made an ISA a very attractive option indeed.\",\n \"The other answers have offered some great advice, but here is an alternative that hasn't been mentioned yet. I'm assuming that you have an adequately-sized emergency fund in savings, and that your cars are your only non-mortgage debt. Since you still have car debt, you probably don't have anything saved for buying a new car when your current cars are at the end-of-life. Consider paying off your car loans early, then begin saving for your next car. Having cash in the bank for a car is very freeing, and it changes your mindset when it comes time to purchase a car, as it is easy to waste a lot of money on something that depreciates rapidly when you aren't paying for it immediately. This approach might be counterintuitive if your car loan interest rate is less than your mortgage rate, but you will probably need another car before you need another house, and paying cash for a car is worth doing.\",\n \"Your question is actually quite broad, so will try to split it into it's key parts: Yes, standard bank ISAs pay very poor rates of interest at the moment. They are however basically risk free and should track inflation. Any investment in the 6-7% return range at the moment will be linked to stock. Stock always carries large risks (~50% swings in capital are pretty standard in the short run. In the long run it generally beats every other asset class by miles). If you can’t handle those types of short terms swings, you shouldn’t get involved. If you do want to invest in stock, there is a hefty ignorance tax waiting at every corner in terms of how brokers construct their fees. In a nutshell, there is a different best value broker in the UK for virtually every band of capital, and they make their money through people signing up when they are in range x, and not moving their money when they reach band y; or just having a large marketing budget and screwing you from the start (Nutmeg at ~1% a year is def in this category). There isn't much of an obvious way around this if you are adamant you don't want to learn about it - the way the market is constructed is just a total predatory minefield for the complete novice. There are middle ground style investments between the two extremes you are looking at: bonds, bond funds and mixes of bonds and small amounts of stock (such as the Vanguard income or Conservative Growth funds outlined here), can return more than savings accounts with less risk than stocks, but again its a very diverse field that's hard to give specific advice about without knowing more about what your risk tolerance, timelines and aims are. If you do go down this (or the pure stock fund) route, it will need to be purchased via a broker in an ISA wrapper. The broker charges a platform fee, the fund charges a fund fee. In both cases you want these as low as possible. The Telegraph has a good heat map for the best value ISA platform providers by capital range here. Fund fees are always in the key investor document (KIID), under 'ongoing charges'.\",\n \"As you are in UK, you should think in terms of Tax Free (interest and accumulated capital gains) ISA type investments for the long term AND/OR open a SIPP (Self Invested Pension Plan) account where you get back the tax you have paid on the money you deposit for your old age. Pensions are the best bet for money you do not need at present while ISAs are suitable for short term 5 years plus or longer.\",\n \"There are a lot of open questions about if this is your only accessible money or if you have other emergency funds, and if you have any retirements savings and when do you plan to retire, but leaving this all aside: You currently pay 2.65% on the mortgage, and you make less on savings (maybe 1 or 1.5%). So putting the savings into the mortgage makes you the difference, which is a good deal. However, you need to reflect this with your risk-averisty, and your long term goals, and look at potential even better deals. For example, you could put the savings into higher risk/higher gain investments (let’s assume index funds), and make 6 - 10% per year in average. That obviously is a lot more. Why would you not want to do that? Investing like this is a long term plan. If this is your only savings/emergency fund, or if you need the money within the next five years, you should not do it; it could catch you in a bad market situation, and then it might be a severe loss. If you are sure you don’t need it for at least five if not ten years, invest it and keep the mortgage, you will easily beat its interest rate. If you are risk-averse, and can’t sleep with your savings doing loopings while you watch, that is also not a plan for you. There are many things to consider, and your personal situation is relevant for the decision. Consider all options, and be sure to always have a emergency fund remaining. It is also not black and white - there are options in between of your two propositions - pay some in, and keep some for emergencies.\",\n \"\\\"There are two different types of ISA; the \\\"\\\"Cash ISA\\\"\\\" for cash savings, and the \\\"\\\"Stocks and Shares ISA\\\"\\\" for stock market investing. You can transfer funds between these two different types of ISA. If your current cash ISA provider does not provide stocks and shares ISAs, then there may be a fee involved when transferring funds between two different providers. If I am reading your notation correctly, you have contributed the full allowance of GBP15,240 in both the current tax year and the previous tax year. Each year you can contribute GBP15,240 (currently) to your ISAs and this can be done in any combination of cash ISA and stocks and shares ISA. For example, you could put GBP5,240 into your cash ISA and GBP10,000 into your stocks and shares ISA. Regarding your questions : It is also important to understand that once you withdraw money from an ISA, it does not affect your previous contributions or allowances. For example, if you have used your full contribution allowance for the current year and chose to withdraw some funds, then you have still used your full contribution allowance and so you cannot redeposit these funds.\\\"\",\n \"\\\"If you don't want to take any risk and you want your money to be liquid, then the best place to \\\"\\\"invest\\\"\\\" such money is in an insured bank deposit, such as a high interest savings account. However, you aren't likely to find a savings account interest rate that comes close to that charged by your mortgage, so the better decision from a numbers perspective is to pay down more on your mortgage or other debt. Paying down your debt has almost no risk, but has a better payoff than simply saving the money in a bank account. However, if you choose to pay down more debt, I suggest you still keep aside enough cash to have an adequate emergency fund. Since you want safety and liquidity, don't expect high returns from such money.\\\"\",\n \"\\\"In your shoes, I would pay off the mortgage with the after tax investments and be done. You have different goals than I do in that you want to keep the debt. So, I would start calling mortgage brokers and asking for someone who does \\\"\\\"manual underwriting\\\"\\\". Manual underwriting essentially means they use common sense and look at your situation for what it is instead of saying \\\"\\\"income=10K means disapprove mortgage\\\"\\\". It may be that your situation is different enough from mortgage guidelines that you can't now get a conforming mortgage (i.e. one that is readily re-sellable to another mortgage holder). If that is the case, you can look for a small bank or credit union that would be interested in adding your loan to their portfolio and not reselling it.\\\"\",\n \"\\\"I doubt you will get an answer equal to \\\"\\\"You can't save when you have debt\\\"\\\". Because most mortgages are for decades, very few people would be able to save for retirement if they had to wait to be mortgage free. The difficulty in saving occurs when the interest rate is very high (18% or more) and the interest is not deductible. Such as with credit cards. The minimum payment for your mortgage is 30% of your income. If that doesn't include taxes and homeowners insurance in the 30%, then for the United States that would be considered too large. While the general plan to pay down the mortgage is a good idea, make sure that you are able to handle the minimum payments before starting to increase the payments. Try the minimum for a year or two before getting aggressive The calculation is based on the interest rate of the mortgage, the interest rate of the savings account, and the potential tax deduction of the mortgage and the tax rate on the earned interest. Putting extra money into a mortgage, but missing out on matching retirement money would also have to be figured into the calculation. Make sure you do save for retirement , kids education, and emergencies. Unless your country has a complex system where the money can flow in and out of the mortgage, then once you put extra money into the mortgage you can't get it back when the car dies. The nice thing about putting extra money into a mortgage is that you can do it either in an organized way, or only when you feel comfortable. So it is not urgent for you to commit to a plan immediately. One thing to avoid is a plan that charges you a fee to add extra money, or charges a fee to switch to a bi-weekly mortgage. While your ideas is good, these plans should never cost any money to start, and may be a scam if a 3rd party gets between you and the lender.\\\"\",\n \"One option might be to use tax certificates to save this money. At the moment they don't pay any interest (unless you deposit more than £100,000 at once), so they aren't very attractive from that point of view. But they do give you a clean way to segregate your money and for the purposes of charging penalty interest, HMRC will treat you as having made the payment at the time you purchased the certificate, if it turns out that you should have paid the actual tax earlier than you did. Another option is a regular saver account. These typically have limits of £250 per month, so you might have to open a few given the amount you have to save. That would add up to a lot of maintenance effort, particularly as you'd have to open new accounts again each year. However, they do typically offer good interest rates compared to what's available elsewhere, and the way they operate fits well with your needs (money coming in regularly and then going out all at once).\",\n \"Every payment you make on your house will already be increasing your equity in it. For that reason alone, I'd recommend moving additional savings into other long-term funds.\",\n \"ISAs last for as long as you live - you can accumulate a further £20K each following year (or whatever the limit changes to) and the whole balance including gains is tax free. You can also leave the £21k in the first ISA, and open a new ISA the next year, if you prefer. You can also transfer a balance from one ISA to another (make sure you go through the explicit process for doing that, don't just withdraw it and re-deposit it, otherwise the protection is lost.)\",\n \"A: Rollover the cash from the previous account into the new one a low-cost IRA like Vanguard. This, and only this. Because your mortgage is, less than 4%, while your retirement plan will earn 7% over the long term. I have no 'retirement' plans because Because you're 28. and essentially will be happy working until I die Unless circumstances change. but as far as I see it this is not such a bad deal because it is like paying taxes on income. (Principal says I will lose up to 30%) You're ignoring the 10% early withdrawal penalty. I am wise with my money for the most part Then don't piss away $3,000 just for a temporary feel good. I earn a high salary in a tech job. As a result of being under 20%, I am paying mortgage insurance of about $300/mo. So -- after building up an Emergency Fund -- throw as much as possible of your high salary against your mortgage to get rid of the PMI.\",\n \"\\\"I'm assuming when you say \\\"\\\"…put it towards our mortgage payment?\\\"\\\", you mean make additional payments on top of your scheduled payment. Strictly speaking, if the interest on your mortgage is higher than the return you can expect by saving, then yes, your excess savings should be put toward your mortgage. This assumes that there are no pre-payment penalties, that you really won't miss that money in the short term (i.e. you say you have enough savings for emergencies, so that's good), and that both choices would use after-tax dollars (i.e. mortgage payment vs RRSP contribution in Canada is a huge discussion).\\\"\",\n \"At the moment the interest rate... implies a variable rate mortgage. I believe rates are only going to go up from here. So, if I were in your position, I would pay off the mortgage first. If you don't have 3-6 months in savings for an emergency, I would invest that much money in low risk investments. Anything remaining I would invest in a balanced portfolio of mutual funds. The biggest benefit to this is the flexibility it gives you. Not being burdened by a monthly mortgage frees you up to invest. This may be in your stock portfolio each month or it may be in your community or charitable causes. You have financial margin.\",\n \"Pay it off....I've only ever paid interest on mortgages to buy the houses I've lived in (I paid both mortgages of years ahead of schedule) & as a result my credit rating's way above average, I use credit cards for everything, pay 'em off in full every month unless I'm paid not to (currently have around 8,000 sitting interest free while the cash earns 6% elsewhere). Life's sweet if you understand the system. Hell if you don't. Keep saving...\",\n \"I would move some or all of the money. With £30K savings, you have a 20% deposit, whereas you can get a much better mortgage rate with a 40 or 50% deposit. That's true no matter how good/bad your credit rating, and it's possible that with a bad credit rating you may not even be able to get a mortgage with a small deposit. Also, you will almost certainly save significantly more by paying less mortgage interest compared to the interest rates on your savings in the Netherlands. Shop around for a cheap option to transfer money. I had a quick look at Transferwise (no affiliation, they just happen to have a convenient calculator on their website), and the all-in cost for a large one-way transfer seems to be about 0.5%. I think you'll more than make that back in terms of savings on your mortgage. If you intend to move back to the Netherlands at some point, then you are taking some exchange rate risk by moving your savings to the UK - you don't know if it'll be better or worse when you want to transfer money back. But I guess it won't be that soon if you want to buy a house, so I think the risk is probably worthwhile. (I calculated the cost of the transfer by converting €100k into GBP, and then converting the resulting amount back again. That left €99k, so a two-way transfer cost 1% and from that I deduced that a one-way transfer costs roughly 0.5%)\",\n \"You mention only two debts, mortgage and student loan, but you mention $19K in savings, which suggests that you are a saver, and likely do not have other debts. You did not mention your (net) income and expenses (income statement), but since you have substantial savings, you likely live within your means (income > expenses). Since you mention $38K in retirement, we might conclude you are regularly saving for retirement (are you saving 10% toward retirement)? You did not mention any medical condition or other debts, that might require a large savings, so I would suggest having 6 months savings ($2.5K x 6 = $15K) but should your net expenses be less, you might reduce this ($2K x 6 = $12K). You do not mention any investment you might want to make, but since you did not mention any candidate investments, we can assume you have no (specific) investments you find particularly attractive. You did not mention anything you were saving to purchase that you might want to purchase. You have combined $19K + $50K = $69K savings, and $15K would be a comfortable emergency savings, leaving $54K you could use to reduce mortgage or student loan debt. The mortgage debt interest @4.5%, is higher, so paying that debt off would be like earning 4.5% guaranteed return on your money, tax-free. At your income, your marginal tax rate is low enough that the mortgage interest deduction (if you do itemize) would not reduce this return much (15% if you itemize). The student loan debt interest @2.8%, would be like earning 2.8% guaranteed return on your money, tax-free. Clearly the higher return on your 'investment' in paying off debt would be reducing your mortgage balance (over 50% higher return on investment, compared to the student loan debt). You did not mention any circumstance that might cause the student loan rate to increase, the mortgage rate to increase, nor did you mention any difficulty making both the mortgage and student loan payments, the amounts of either payment, nor the number of years remaining to pay on either. Should you need (or desire) to reduce your payments, you could choose to payoff the student loan to eliminate one payment, and thus decrease your expenses. Or you could choose to pay down the mortgage, and refinance (or refactor) the mortgage to obtain a smaller payment. Another strategy (assuming you have had your house for 5-7 years), might be to pay the mortgage down enough to refinance into a 15 year loan, and (assuming you have a good credit score) obtain a lower (3%) rate. But I am going to suggest you consider a blended approach. Combine the Dave Ramsey Debt Snowball approach with the reduce the interest rate approach. Take the $54K ($57K?) available (after reserving 6 months emergency fund), and split between both. You pay your mortgage down by $27K and your student loan debt down by $27K. Your blended return on investment is (2.8+4.5)/2 = 3.65%, and you have the following Balance Sheet: Assets: Debts: The next steps would be to, There are two great reasons for paying off the student loan debt. One is the Dave Ramsey Debt Snowball approach which is that this is the smaller debt, and thus represents a psychological win, and the other is that student loan debt has special treatment even in bankruptcy.\",\n \"With the calculator in hand (Excel :) you should follow this advise and save a bundle. 1) Calculate how much you are willing to spend per month. 2) Take the longest (in years) mortgage you can find and cheepest (Euribor+0,2% is better than Euribor+1%). 3) Save the amount you are not spending on your mortgage. Whenever the mortgage cost changes (once a year), calculate whether you get more interests on your savings or on a down payment (look at the total cost). Then decide if you make a down payment or keep on saving. My 0,02€ We took a 20 year mortgage and blindly payed every time we'd have 3K€. We payed our house in 6 years. The total cost of the mortgage was way down this way. However, the above theory has a better yield overall.\",\n \"\\\"From April 2017 the plan is that there is now also going to be a \\\"\\\"Lifetime ISA\\\"\\\" (in addition to the Help to Buy ISA). Assuming those plans do not change, they government will give 25% after each year until you are 50, and the maximum you can put in per year will be £4000. Catches: You can only take the money out for certain \\\"\\\"life events\\\"\\\", currently: Buying a house below £450000 anywhere in the country (not just London). Passing 60 years of age. If you take it out before or for another reason, you lose the government bonus plus 5%, ie. it currently looks like you will be left with 95% of the total of the money you paid in. You cannot use the bonus payments from this one together with bonus payments from a Help to Buy ISA to buy a home. However you can transfer an existing Help to Buy ISA into this one come 2017. While you are not asking about pensions, it is worth mentioning for other readers that while 25% interest per year sounds great, if you use it for pension purposes, consider that this is after tax, so if you pay mostly 20% tax on your income the difference is not that big (and if your employer matches your contributions up to a point, then it may not be worth it). If you pay a significant amount of tax at 40% or higher, then it may not make sense for pension purposes. Tax bands and the \\\"\\\"rates\\\"\\\" on this ISA may change, of course. On the other hand, if you intend to use the money for a house/flat purchase in 2 or more years' time, then it would seem like a good option. For you specifically: This \\\"\\\"only\\\"\\\" covers £4000 per year, ie. not the full amount you talked about, but it is likely a good idea for you to spread things out anyway. That way, if one thing turns out to be not as good as other alternatives it has less impact - it is less likely that all your schemes will turn out to be bad luck. Within the M25 the £450000 limit may restrict you to a small house or flat in 5-10 years time. Again, prices may stall as they seem barely sustainable now. But it is hard to predict (measures like this may help push them upwards :) ). On the plus side, you could then still use the money for pension although I have a hard time seeing governments not adjusting this sort of account between now and your 60th birthday. Like pension funds, there is an element of luck/gambling involved and I think a good strategy is to spread things if you can.\\\"\",\n \"The bit I don't quite understand is why you are thinking about staying in debt in the first place - you're basically thinking about shuffling around assets and liabilities in order to stay in debt? I think what I would do in your situation is to liquidate enough of the investments you have and pay off the mortgage. This doesn't change your net worth position less the fees etc that you might incur, but it'll save you the interest for the mortgage over the remaining term of your mortgage.\",\n \"I'm also a UK, Ltd company contractor that has pondered the same topic. I afraid, however, that I don't understand the maths in the original question. Mortgage interest is flat for the term of the mortgage rather than compounded, so, ignoring the tapering at the end of the lifespan of the mortgage, I get the amount of interest to something like £9,300 (7500 x 0.05 x 25). Does this make the decision any easier for you? As you point out, the total cost of this overpayment from your company account is £12,500. Using the above figure, it would take over 13 years to recoup the £5,000 difference (at £375 interest a year). I used to be of the same opinion that the mortgage should be paid off at all costs first. But now I'm coming round to the American way of thinking; £12,500 invested in a pension with a 5% yield will easily outstrip the interest saved by making the over payment - 12500 x 1.05 ^ 25 = £43,300 - over 250% better off (£43,300 / (£9,300 + £7,500)). I now make no mortgage overpayments at all and instead pay all the money into my pension. This (amongst other things) keeps me below the upper earnings tax threshold, so I'm only paying corporation tax for the money I'm drawing as dividends. There's a massive caveat to this though; I'm 49. I should be able to draw the tax free element of my pension pot in six years time and pay my mortgage off and it's quite unlikely that the government will be changing pensions policy in that time (but drawing 25% tax free has been a feature of pensions for quite some time). I can then chose to keep working or retire. If my pension is still doing well (9% ish pa at the moment), I could chose to not pay my mortgage off at all. In the next twenty or so years, however, all this could change. In your position I would do a bit of both. Make a regular overpayment to pay down your mortgage (even a small amount that you'll barely notice will make quite a difference to the end date of your mortgage - £100 a month will take years off). I didn't start paying properly into my pension until fairly recently and so If you're not already, I'd also make quite substantial, regular payments into one now, directly from your company, 15-17.5% of your gross drawings. Leaving it until later will only make it more painful. Then when you get to retirement age, no matter what, you'll have a decent pension pot. An actuary I worked with pointed out that if you pay something into a pension, when you retire you should have some sort of pot; if you pay nothing, you are absolutely guaranteed to have nothing. And finally, if you haven't already, fix your mortgage. We're three years into a five year fix. The variable rate we were going to be transferred to was 3.99%. We fixed, not because of wanting any sense of security, but because the fixed rate was 2.59% with no fee. There are much better rates than that about now. Rates are starting to rise, so it's a good time.\",\n \"Awesome, you are a math guy. Very good for you. In theory, what you are proposing, should work out great as the math works out great. However have you taken a economics or finance coursework? The math that they do in these class will leave a most math guys uncomfortable with the imprecision even when one is comfortable with chaos theory. Personal finance is worse. If it were about math things like reverse mortgages, payday lenders, and advances on one income tax returns would not exist. The risk derived from the situation you describe is one born out of behavior. Sometimes it is beyond control of the person attempting your scheme. Suppose one of these happen: In my opinion the market is risky enough without borrowing money in order to invest. Its one thing to not pay extra principle to a mortgage in order to put that money in play in the market, it is another thing to do what you are suggesting. While their may be late fees associated with a mortgage payment, a fixed rate mortgage will not change if you late on payment(s). On these balance transfer CC schemes they will jack your rate up for any excuse possible. I read an article that the most common way to end up with a 23%+ credit card was to start out with a 0% balance transfer. One thing that is often overlooked is that the transfer fee paid jacks up the stated rate of the card. In the end, get out of consumer debt, have an emergency fund, then start investing. Building a firm financial foundation is the best way to go about it. Without one it will be difficult to make headway. With one your net worth will increase faster then you imagined possible.\",\n \"It looks like with the sale of your current home you have enough liquidity to obtain credit on the best terms without tapping your wife's IRA. The biggest factor to consider is the deduction on mortgage interest which reduces the effective interest on your mortgage significantly, particularly as you jump into a higher tax bracket. Along these lines, deferred retirement savings should have a higher priority than paying down the mortgage or your student loans. Student loans should probably be your biggest priority to pay down. With the mortgage deduction, a 4% rate becomes effectively a 3.4% rate if you are in the 15% bracket, but as low as 2.6% effective rate if you are in the 35% bracket. Both of these are lower than the 3.5% rate that you can get on the student loans after refinancing. This also assumes you aren't hit with the AMT. This is probably worth the cost of a quick consultation with a tax professional to go over these options and how they affect your taxes.\",\n \"If you expect to pay tax on dividends move dividend producing assets into your ISA. If have a lot of investments you can Look at Zeros (zero dividend preference share) issued by splits (split capital trusts), https://en.wikipedia.org/wiki/Split_capital_investment_trust\",\n \"\\\"You understood it pretty right. Every fiscal year (which runs from April 6 year Y to April 5 year Y+1), you can deposit a total GBP15k (this number is subject to an annual increase by HMRC) into your ISAs. You can open 2 new ISA every year but the amount deposited to those ISAs shall not excess GBP15k in total. From the 2016/17 tax year some ISAs now permit you to replace any funds you have withdrawn, without using up your allowance. It used to be that if you deposited GBP15K and then withdrew GBP5K, you could not pay in to that ISA again within that tax year as you had already used your full allowance. Under new Flexible ISA rules this would be allowed providing you replace the funds in the same ISA account and within the same tax year (strongly recommend that you check the small prints related to your account to make sure this is he case). Any gains and losses on the investments held in the ISA accounts are for you to take. i.e. If you make investment gains of GBP5K this does not reduces your allowance. You will still be able to deposit GBP15k (or whatever HMRC increases that number to) in the following year. You are also allowed to consolidate your ISAs. You can ask bank A to transfer the amount held into an ISA with bank held with bank B. This is usually done by filling a special form with the bank that will held the money post transactions. Again here be very careful. DO NOT withdraw the money to transfer it yourself as this would count against the GBP15K limit. Instead follow the procedures from the bank. Finally if you don't use your allowance for a given year, you cannot use it during the following year. i.e. if you don't deposit the GBP15K this year, then you cannot deposit GBP30K next year. NB: I used the word \\\"\\\"deposit\\\"\\\". It does not matter to HMRC if the money get invested or not. If you are in a rush on April 4th, just make sure the money is wired into the ISA account by the 5th. No need to rush and make bad investment decision. You can invest it later. Hope it helps\\\"\",\n \"Only 20, and going through university This is an important question to ask yourself. Your earnings are 0 and will remain so, unless you start working. Are you willing to halve your money, if the markets tank after you put in your money ? Mostly good investors will buy some more, if they know the stocks they have picked are good. Considering that you have no income you will loose out on it. If you are graduating soon, it might make sense to start investing but it should be reliant on the fact on how quickly you will land a job. I would suggest stay put in the ISA for the time being. Check out if you might get a higher rate of interest if possible and transfer there. Check out Moneysupermarket . Don't blindly put money in a ISA, see if you are getting the best deal in the market. And one thing, interest on ISA is calculated daily.\",\n \"Your plan will probably work. I speak from past experience approx 5-10 years ago, when Lloyds used to offer tiered interest of up to 4% on £5000 in their Vantage accounts. It was allowed for an individual person to have up to three Vantage accounts. The criteria for obtaining the headline interest rates were simply: What I, and many others, did was to set up three Vantage accounts, call them A, B, and C, and a standing order on each to transfer minimum amount + £1 on the same day each month in this manner: This satisfied the letter of conditions, though perhaps not the spirit. Most importantly it satisfied the bank, and all three accounts received that headline interest rate. These days banks have got a little wiser to this and have started including the 'set up n direct debits' condition, which makes this a more time-consuming system to arrange - you must assign your various bills across your accounts - but I believe that the overall plan still works. They don't care where the money comes from, or whether it stays - just that it comes in. Enough people get it wrong that they don't have to worry about the few who get it perfectly right (see also: how 0% balance transfer offers can be profitable...)\",\n \"Income and Capital are taxed separately in the uk. You probably can't get dividends paid gross even in ISA's you pay the basic rate of tax on dividends only higher rate tax payers get tax benefit from dividends. What you could do is invest in splits (Spilt capital investment trusts ) in the share class where all the return comes as capital and use up some of your yearly CGT allowance that way.\",\n \"It depends what rate mortgage you can get for any extra loans... If you remortgage you are likely to get a rate of 3.5-4%... depending who you go with. With deposit accounts in the UK maying around 1% (yes, you can get more by tying it up for longer but not a huge amount more) clearly you're better off not having a mortgage rather than money in the bank. Does your 8k income allow for tax? If it does, you are getting 6% return on the money tied up in the flat. If you are getting 6% after tax on the invested money, that's way better than you would get on any left over cash paid into an investment. Borrowing money on a mortgage would cost you less than 6%... so you are better off borrowing rather than selling the flat. If you are getting 6% before tax... depending on your tax rate... it probably makes very little difference. You'd need to work out how much an extra 80k mortgage would cost you, how much the 50k on deposit would earn you and how much you make after tax. There is a different route. Set up a mortgage on the rental flat. You can claim the interest payment off the flat's income... reduce your tax bill so the effective mortgage rate on the flat would be less than what you could get with a mortgage on the new house. Use the money from the flat's mortgage to finance the difference in house price. In fact from a tax view, you may be better off having a mortgage free house and maxing out the mortgage on the flat so you can write off as much as possible against your tax bill. All of the above assume ... that the flat is rented all the time. The odd dry spell on the flat could influence the sums a lot. All of the above assume that your cash flow works whichever route you choose. As no-one on stack exchange has all of the numbers for your specific circumstances it may be worth talking to a tax accountant. They could advise you properly, knowing the numbers, which makes the best sense for you in terms of overall cost, cash flow, risk and so on.\",\n \"I would first get rid of the student loan. This will leave you with 11K. I would then use this to fund your ROTH. If you are married you can put up to 5K per year each. For any money left over, I would open a regular (not tax advantaged) mutual fund. You can contribute half the money you were paying toward your student loans, and the other half can go to your mortgage. Also I would look at doing a refi on your house. You might be able to move a 10 or 15 year at your current mortgage payment.\",\n \"Look at my answer here, and then calculate again. If you keep on saving and keep on paying off your highest interest rate loan, you'll be 'making' money. Also look at this answer here for saving or paying back. Basically, you should always calculate whether the money you have is better 'spend' in a savings account or as a return payment to your loan. Always tackle the highest interest loan first. My 0,02€\",\n \"\\\"Basically, the easiest way to do this is to chart out the \\\"\\\"what-ifs\\\"\\\". Applying the amortization formula (see here) using the numbers you supplied and a little guesswork, I calculated an interest rate of 3.75% (which is good) and that you've already made 17 semi-monthly payments (8 and a half months' worth) of $680.04, out of a 30-year, 720-payment loan term. These are the numbers I will use. Let's now suppose that tomorrow, you found $100 extra every two weeks in your budget, and decided to put it toward your mortgage starting with the next payment. That makes the semi-monthly payments $780 each. You would pay off the mortgage in 23 years (making 557 more payments instead of 703 more). Your total payments will be $434,460, down from $478.040, so your interest costs on the loan were reduced by $43,580 (but, my mistake, we can't count this amount as money in the bank; it's included in the next amount of money to come in). Now, after the mortgage is paid off, you have $780 semi-monthly for the remaining 73 months of your original 30-year loan (a total of $113,880) which you can now do something else with. If you stuffed it in your mattress, you'd earn 0% and so that's the worst-case scenario. For anything else to be worth it, you must be getting a rate of return such that $100 payments, 24 times a year for a total of 703 payments must equal $113,880. We use the future value annuity formula (here): v = p*((i+1)n-1)/i, plugging in v ($113880, our FV goal), $100 for P (the monthly payment) and 703 for n (total number of payments. We're looking for i, the interest rate. We're making 24 payments per year, so the value of i we find will be 1/24 of the stated annual interest rate of any account you put it into. We find that in order to make the same amount of money on an annuity that you save by paying off the loan, the interest rate on the account must average 3.07%. However, you're probably not going to stuff the savings from the mortgage in your mattress and sleep on it for 6 years. What if you invest it, in the same security you're considering now? That would be 146 payments of $780 into an interest-bearing account, plus the interest savings. Now, the interest rate on the security must be greater, because you're not only saving money on the mortgage, you're making money on the savings. Assuming the annuity APR stays the same now vs later, we find that the APR on the annuity must equal, surprise, 3.75% in order to end up with the same amount of money. Why is that? Well, the interest growing on your $100 semi-monthly exactly offsets the interest you would save on the mortgage by reducing the principal by $100. Both the loan balance you would remove and the annuity balance you increase would accrue the same interest over the same time if they had the same rate. The main difference, to you, is that by paying into the annuity now, you have cash now; by paying into the mortgage now, you don't have money now, but you have WAY more money later. The actual real time-values of the money, however, are the same; the future value of $200/mo for 30 years is equal to $0/mo for 24 years and then $1560/mo for 6 years, but the real money paid in over 30 years is $72,000 vs $112,320. That kind of math is why analysts encourage people to start retirement saving early. One more thing. If you live in the United States, the interest charges on your mortgage are tax-deductible. So, that $43,580 you saved by paying down the mortgage? Take 25% of it and throw it away as taxes (assuming you're in the most common wage-earner tax bracket). That's $10895 in potential tax savings that you don't get over the life of the loan. If you penalize the \\\"\\\"pay-off-early\\\"\\\" track by subtracting those extra taxes, you find that the break-even APR on the annuity account is about 3.095%.\\\"\",\n \"Pay off your car loan. Here is why: As you mentioned, the interest on your home mortgage is tax deductible. This may not completely offset the difference in interest between your two loans, but it makes them much closer. Once your car debt is gone, you have eliminated a payment from your life. Now, here's the trick: take the money that you had been paying on your car debt, and set it aside for your next car. When the time comes to replace your car, you'll be able to pay cash for your car, which has several advantages.\",\n \"If it were me, I'd pour my entire savings into paying down the mortgage. I'd also get a HELOC and a personal LOC to use as my emergency fund if I didn't have one already. I personally don't like paying interest on loans when I have cash in the bank to cover it.\",\n \"Is this the smart thing to do? You're essentially borrowing money at 2.7% to keep it in your bank account. No, that is not a smart financial decision. Pay the difference in cash and replenish your savings with the $1,100 a month. Some other notes:\",\n \"If you can get a rate of savings that is higher than your debt, you save. If you can't then you pay off your debt. That makes the most of the money you have. Also to think about: what are you goals? Do you want to own a home, start a family, further your education, move to a new town? All of these you would need to save up for. If you can do these large transactions in cash you will be better off. If it were me I would do what I think is a parroting of Dave Ramsay's advice Congratulations by the way. It isn't easy to do what you have accomplished and you will lead a simpler life if you don't have to worry about money everyday.\",\n \"Others have suggested paying off the student loan, mostly for the satisfaction of one less payment, but I suggest you do the math on how much interest you would save by paying early on each of the loans: When you do the calculations I think you'll see why paying toward the debt with the highest interest rate is almost always the best advice. Whether you can refinance the mortgage to a lower rate is a separate question, but the above calculation would still apply, just with different amortization schedules.\",\n \"If its deductible, the IRA is a no-brainer. You're netting a positive return just from the tax deduction, and you'll have years of tax-free appreciation. You're already on track to pay off your mortgage in 5 years, the impact of $10,000 on the balance now is not very consequential. On the other hand, you won't have an opportunity to make additional IRA contributions.\",\n \"\\\"You seem to really have your financial act together. Your combination of assets, and ongoing savings makes you the ideal candidate for paying it off. One way to look at it is that your mortgage offers you a place to 'invest' at a fixed 2-7/8% rate. \\\"\\\"I'd really like to not have a house payment\\\"\\\" is all I need to hear. The flip side is the lecture that talks about long term market returns, the fact that the combination of your deductible mortgage, but 15% cap gain rate means you need 2.5% return to break even, and odds are pretty high that will occur over the next 15 years. \\\"\\\"pretty high\\\"\\\" does not equal \\\"\\\"guaranteed\\\"\\\". And I won't debate the value of sleeping soundly vs an excess 5-8% return on this money that you'd maybe achieve. You haven't missed anything. In fact, though I advocate saving first, you are already doing that. This is above and beyond. Good work.\\\"\",\n \"First: it sounds like you are already making wise choices with your cash surplus. You've looked for ways to keep that growing ahead of inflation and you have made use of tax shelters. So for the rest of this answer I am going to assume you have between 3-6 months expenses already saved up as a “rainy day fund” and you're ready for more sophisticated approaches to growing your funds. To answer this part: Are there any other ways that I can save/ invest that I am not currently doing? Yes, you could look at, for example: 1. Peer to peer These services let you lend to a 'basket' of borrowers and receive a return on your money that is typically higher than what's offered in cash savings accounts. Examples of peer to peer networks are Zopa, Ratesetter and FundingCircle. This involves taking some risks with your money – Zopa's lending section explains the risks. 2. Structured deposits These are a type of cash deposit product where, in return for locking your money away for a time (typically 5 years), you get the opportunity for higher returns e.g. 5% + / year. Your deposit is usually guaranteed under the FSCS (Financial services compensation scheme), however, the returns are dependent on the performance of a stock market index such as the FTSE 100 being higher in x years from now. Also, structured deposits usually require a minimum £3,000 investment. 3. Index funds You mention watching the stock prices of a few companies. I agree with your conclusion – I wouldn't suggest trying to choose individual stocks at this stage. Price history is a poor predictor of future performance, and markets can be volatile. To decide if a stock is worth buying you need to understand the fundamentals, be able to assess the current stock price and future outlook, and be comfortable accepting a range of different risks (including currency and geographic risk). If you buy shares in a small number of companies, you are concentrating your risk (especially if they have things in common with each other). Index funds, while they do carry risks, let you pool your money with other investors to buy shares in a 'basket' of stocks to replicate the movement of an index such as the FTSE All Share. The basket-of-stocks approach at least gives you some built-in diversification against the risks of individual stocks. I suggest index funds (as opposed to actively managed funds, where you pay a management fee to have your investments chosen by a professional who tries to beat the market) because they are low cost and easier to understand. An example of a very low cost index fund is this FTSE All Share tracker from Aberdeen, on the Hargreaves Lansdown platform: http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/a/aberdeen-foundation-growth-accumulation General principle on investing in stock market based index funds: You should always invest with a 5+ year time horizon. This is because prices can move up and down for reasons beyond your anticipation or control (volatility). Time can smooth out volatility; generally, the longer the time period, the greater your likelihood of achieving a positive return. I hope this answer so far helps takes into account the excess funds. So… to answer the second part of your question: Or would it be best to start using any excess funds […] to pay off my student loan quicker? Your student loan is currently costing you 0.9% interest per annum. At this rate it's lower than the last 10 years average inflation. One argument: if you repay your student loan this is effectively a 0.9% guaranteed return on every pound repaid – This is the equivalent of 1.125% on a cash savings account if you're paying basic rate tax on the interest. An opposing argument: 0.9% is lower than the last 10 years' average inflation in the UK. There are so many advantages to making a start with growing your money for the long term, due to the effects of compound returns, that you might choose to defer your loan repayments for a while and focus on building up some investments that stand a chance to beat inflation in the long term.\",\n \"Gosh don't do either! Unless you are fully funding you ROTH accounts and even then I wouldn't do it. Those interest rates are free money. You are giving away the best bargain in the history of home mortgages. Don't you think you can make more than 4% on your money invested? Don't you think in 5 years you will be able to make 4% on bond/cd's/ and other low risk investments? Don't forget money you pay in the 2020's on beyond to your mortgage are inflationary dollars. Do you think that money will be more valuable in the 20's and beyond? I don't. Roths are free money too. Think if you put 11k in there a year how much would you have at the end of it tax free. There is a reason you can only put $5,500 in them, they are too good a deal tax wise to let people put too much in there. Think about this my parents bought their home in 1967 their mortgage was $170 a month. Inflation hits and the interest they are paying at 8%! mind you, it was still a laughable amount of money each month for mortgage payment from 1977 and on. Also I bought a $450,000 house 38 months ago. Instead of putting down 180 I put down 80 I let the other 100k in my investment account and moved 5.5k over to Roth every year. I now have a roth worth $38k and an investment account worth $105k. I made 40k on my money those three years and the 38k is tax free! If you don't believe me call the help line at clarkhoward.com Get over the emotional need to be debt free and make a logical finical choice. I am begging you to think about this. This post could save you tens of thousands of dollars. Let me put it one more way. 100k in debt with 100k in investments is debt free living. Especially when you debt is under 4% and a tax write off.\",\n \"Personally, I would split the difference, putting about half into each. Simply because it balances out the problem and I don't have to fret about whether one or the other will provide a significant difference. As bstpierre points out, the one which will make you more in the end is the one which you can grow the fastest. The mortgage payment is locked at 5% growth, which, while modest, is also essentially guaranteed at this point. The CD in your IRA is likely less than that amount, even after tax consideration. A couple additional points to consider:\",\n \"\\\"You have 1998-2011 income-contingent student loans, where the interest rate is the lower of (1% + base rate) or RPI (retail price inflation). For the next few years the it's likely to be (1% + base rate) as interest rates stay low and inflation shoots up. These loans only need to be repaid in proportion to your salary, and if they aren't repaid for long enough (e.g. the holder takes a career break for children) they are written off. So all-in-all, they are pretty good debt to have: low interest rate, and you might not have to repay them ever. It's likely that your mortgage will have a significantly higher rate than the student loan, so you'd be better off reducing your mortgage. Also, the higher deposit might mean you can get a lower interest rate on the whole mortgage because the lender will see you as a lower risk, so the return from \\\"\\\"investing\\\"\\\" it in your mortgage would be even greater than the raw interest rate. Having the student loan outstanding might make some difference to the \\\"\\\"affordability\\\"\\\" check for your mortgage payments, but lenders will be very familiar with how they work. Reducing your mortgage payments with the higher deposit should easily counterbalance that. Your own suggestion is to invest the £30K in a \\\"\\\"reasonably safe portfolio\\\"\\\" making 5%. There'll inevitably be some risk in that - 5% is a relatively high return in today's climate - but if you're willing to take that risk, you can investigate the effect on your mortgage to see if it's worth it or not.\\\"\",\n \"\\\"The simplest argument for overpayment is this: Let's suppose your fixed rate mortgage has an interest rate of 4.00%. Every £1 you can afford to overpay gives you a guaranteed effective return of 4.00% gross. Yes your monthly mortgage payment will stay the same; however, the proportion of it that's paying off interest every month will be less, and the amount that's actually going into acquiring the bricks and mortar of your home will be greater. So in a sense your returns are \\\"\\\"inverted\\\"\\\" i.e. because every £1 you overpay is £1 you don't need to keep paying 4% a year to continue borrowing. In your case this return will be locked away for a few more years, until you can remortgage the property. However, compared to some other things you could do with your excess £1s, this is a very generous and safe return that is well above the average rate of UK inflation for the past ten years. Let's compare that to some other options for your extra £1s: Cash savings: The most competitive rate I can currently find for instant access is 1.63% from ICICI. If you are prepared to lock your money away until March 2020, Melton Mowbray Building Society has a fixed rate bond that will pay you 2.60% gross. On these accounts you pay income tax at your marginal rate on any interest received. For a basic rate taxpayer that's 20%. If you're a higher rate taxpayer that means 40% of this interest is deducted as tax. In other words: assuming you pay income tax at one of these rates, to get an effective return of 4.00% on cash savings you'd have to find an account paying: Cash ISAs: these accounts are tax sheltered, so the income tax equation isn't an issue. However, the best rate I can find on a 4 year fixed rate cash ISA is 2.35% from Leeds Building Society. As you can see, it's a long way below the returns you can get from overpaying. To find returns such as that you would have to take a lot more risk with your money – for example: Stock market investments: For example, an index fund tracking the FTSE 100 (UK-listed blue chip companies) could have given you a total return of 3.62% over the last 3 years (past performance does not equal future returns). Over a longer time period this return should be better – historical performance suggests somewhere between 5 to 6% is the norm. But take a closer look and you'll see that over the last six months of 2015 this fund had a negative return of 6.11%, i.e. for a time you'd have been losing money. How would you feel about that kind of volatility? In conclusion: I understand your frustration at having locked in to a long term fixed rate (effectively insuring against rates going up), then seeing rates stay low for longer than most commentators thought. However, overpaying your mortgage is one way you can turn this situation into a pretty good deal for yourself – a 4% guaranteed return is one that most cash savers would envy. In response to comments, I've uploaded a spreadsheet that I hope will make the numbers clearer. I've used an example of owing £100k over 25 years at an unvarying 4% interest, and shown the scenarios with and without making a £100/month voluntary overpayment, assuming your lender allows this. Here's the sheet: https://www.scribd.com/doc/294640994/Mortgage-Amortization-Sheet-Mortgage-Overpayment-Comparison After one year you have made £1,200 in overpayments. You now owe £1,222.25 less than if you hadn't overpaid. After five years you owe £6,629 less on your mortgage, having overpaid in £6,000 so far. Should you remortgage at this point that £629 is your return so far, and you also have £6k more equity in the property. If you keep going: After 65 months you are paying more capital than interest out of your monthly payment. This takes until 93 months without overpayments. In total, if you keep up £100/month overpayment, you pay £15,533 less interest overall, and end your mortgage six years early. You can play with the spreadsheet inputs to see the effect of different overpayment amounts. Hope this helps.\\\"\",\n \"If you want the flexibility to make additional payments you should favour a flexible ISA. Shop around on comparators and you should be able to find a few that responds to your minimum interest rates Fixed-term ISAs are comparable to a bond: money goes in on day one and then no more deposit are allowed. The rate is fixed for the period. Even though they have a fixed you would still be able to withdraw cash but this would cost you an interest penalty. Not being able to withdraw money is asking the banks to take responsibility on your behalf... They won't do that\",\n \"First of all, look for a savings account with a decent interest rate. Online banks are good at offering those, and you can transfer your money back and forth from the checking account with a couple of business days' delay. ING Direct offers 1.1% APY right now - lame, but much better than nearly-nothing. If you'd like a little nicer rate of return you should also consider putting some of the money (the part you need least) in a short- or intermediate-term bond ETF or mutual fund. You can sell them quite readily, they pay more interest than a savings account, and because of the shorter maturities involved the interest rate risk is limited. (That's the one that makes your bonds less valuable now because the rates went up after you bought them.) I have some NYSE:BIV that's yielding 3.8% or so.\",\n \"I think there are actually two separate questions here. Will Provider A allow me to transfer only part of an ISA product to Provider B while keeping the other part in Provider A. Only Provider A can answer this. Will HMRC rules allow me to keep making payments to the part that remained in Provider A. I don't have a definitive source for this, but in my experience where the ISA rules have been unclear about particular edge cases and I have asked HMRC similar questions directly, their answer has always been that they will look at the situation in the round at the end of the tax year (they get summaries from the providers) and as long as you haven't attempted to double-benefit or otherwise get around the limits, they won't have an issue with it.\",\n \"Say one makes $60k/yr. The net gain is that half these funds are received about 2 weeks prior. To keep the math simple, let's assume a 12% return per year on the funds during this time. $30K * 12% is $3600. But 2 weeks is about 4% of a year, so $144. That's at a 12% return. In an offset mortgage the return will be closer to 4%, a $48/yr benefit. With short term rates at or below 1%, we're really looking at a gain of $12 or so for the extra time with the funds.\",\n \"The calculations you suggest have some issues, but I think they are not necessary to answer the question: It sounds like you are buying the house either way. So the question really is simply whether to pay toward your house first or your loan first. In that case, the answer is simple: pay whichever has the highest interest rate first. Make the minimum payment on the other until the first is paid off. Remember this and make it your mantra for the rest of your life. If you have any debts (such as credit cards) that charge a rate higher than the two options you have presented, do them first. Now, be careful as you compute the interest rates. Most likely you can deduct interest on your mortgage, so its effective interest rate is lower [it is (1-T)*R instead of R, where T is your marginal tax rate]. For a while, the cost of mortgage insurance will make your effective mortgage rate artificially high, but it sounds like you intend to get to that 20% hurdle pretty fast, so my guess is that this is not a big factor. Congratulations on your bonus and good luck with your new home.\",\n \"Couple of factors here to consider: 1) The savings vehicle 2) The investments Savings Vehicle: Roth IRAs allow you the flexibility to save for retirement and/or your house. Each person can save up to $5,500 in a Roth and you can withdraw your principal at anytime without penalty. (There is a special clause for first time home buyers; however, it limits the amount to $10k per person. Given your estimate of $750k and history of putting down 20%. It would require a bit more.) The only thing is that you can't touch the growth or interest. When you do max out your Roth IRA, it may make sense for you to open a brokerage account (401Ks often have multiple steps in order to convert or withdraw money for your down payment) Investments: Given your timeline (5-7 years) your investments would be more conservative. (More fixed income) While you should stay diversified (both fixed income and equity), the conservative portfolio will allow less fluctuation in your portfolio value while allowing some growth potential.\",\n \"Unless I'm missing something, this doesn't make sense at all. Why take out money at 3.25% (the Heloc) to reduce the balance on a 3% loan (the refi)? It would be better to move as much from the Heloc to the refi as possible to get the best rate. If this results in a lower monthly payment, keep paying the higher payment and you'll be better off.\",\n \"\\\"Understand your own risk tolerance and discipline. From Moneychimp we can see different market results - This is a 15 year span, containing what was arguably one of the most awful decades going. A full 10 year period with a negative return. Yet, the 15 year return was a 6.65% CAGR. You'd net 5.65% after long term cap gains. Your mortgage is likely costing ~4% or 3% after tax (This is not applicable to my Canadian friends, I understand you don't deduct interest). In my not so humble opinion, I'd pay off the highest rate debts first (unlike The David followers who are happy to pay off tens of thousands of dollars in 0% interest debt before the large 18% debt) and invest at the highest rate I'd get long term. The problem is knowing when to flip from one to the other. Here's food for thought - The David insists on his use of the 12% long term market return. The last 100 years have had an average 11.96% return, but you can't spend average, the CAGR, the real compound rate was 10.06%. Why would he recommend paying off a sub 3% loan while using 12% for his long term planning (All my David remarks are not applicable to Canadian members, you all probably know better than to listen to US entertainers)? I am retired, and put my money where my mouth is. The $200K I still owe on my mortgage is offset by over $400K in my 401(k). The money went in at 25%/28% pretax, has grown over these past 20 years, and comes out at 15% to pay my mortgage each month. No regrets. Anyone starting out now, and taking a 30 year mortgage, but putting the delta to a 15 year mortgage payment into their 401(k) is nearly certain to have far more in the retirement account 15 years hence than their remaining balance on the loan, even after taxes are considered. Even more if this money helps them to get the full matching, which too many miss. All that said, keep in mind, the market is likely to see a correction or two in the next 15 years, one of which may be painful. If that would keep you up at night, don't listen to me. If a fixed return of 4% seems more appealing than a 10% return with a 15% standard deviation, pay the mortgage first. Last - if you have a paid off house but no job, the town still wants its property tax, and the utilities still need to be paid. If you lose your job with $400K in your 401(k)/IRA but have a $200K mortgage, you have a lot of time to find a new job or sell the house with little pressure from the debt collectors. (To answer the question in advance - \\\"\\\"Joe, at what mortgage rate do you pay it off first?\\\"\\\" Good question. I'd deposit to my 401(k) to grab matching deposits first, and then if the mortgage was anywhere north of 6%, prioritize that. This would keep my chances at near 100% of coming out ahead.)\\\"\",\n \"First of all, you should absolutely put money into savings until you have at least a 6 month cushion, and preferably longer. It doesn't matter if you get 0% interest in your savings and have a high interest rate mortgage, the cushion is still more important. Once you have a nice emergency fund, you can then consider the question of whether to pay more towards the mortgage if the numbers make sense. However, in my opinion, it's not just a straight comparison of interest rates. In other words, if your savings account gives you 1% and your mortgage is 5%, that's still not an automatic win for the mortgage. The reason is that by putting the money into your mortgage, you're locking it up and can't access it. To me, money in the hand is worth a lot more than money that's yours on paper but not easily accessible. I don't know the math well enough, but you don't really need the math. Just keep in mind that you have to weight the present value of putting that money into savings vs the future value of putting it into your mortgage and paying less interest at some point in the future. Do the math and see how much you will save by paying the mortgage down faster, but also keep in mind that future money is worth less than present money. A LOT less if you suddenly have an emergency or decide on a major purchase and need the money, but then have to jump through hoops to get to it. To me, you need to save a considerable amount by paying down the mortgage, and also understand that your money is getting locked away, for it to make sense.\",\n \"\\\"I'm not a financial expert... In my opinion it might be best to have as much in savings (aka being liquid and the funds are insured by the FDIC) as possible for a couple of reasons. If you lose your job, your equity line could then get frozen if the bank finds out. What you want to avoid is only owing 20 grand on your home (because you paid a chunk off with your savings) but because you lost your job you can't take any money out of your home and suddenly you are equity rich, cash poor, and jobless, that is a potential for big trouble. I'm curious why you borrowed on the Heloc since you seem to have a significant amount in savings anyways. What you really might want to look into is lowering your mortgage interest rate to around 3.5% I would use the credit card debt as a reality check. Make sure every month you are making at least a 10% to 15% of the total due payment. This dilutes the interest rate charge and lets you see the true \\\"\\\"drag\\\"\\\" credit card debt payments really have on your life. I don't know this for sure but the higher amount credit card payments you make probably reflects well on your credit score, and of course, never be late with the credit card payments either.\\\"\",\n \"Major things to consider: If you're expecting to look at the property market: it might prove to be sensible to start doing it now, since the market is just recovering, and (IMHO warning -I'm not a professional investor, just a random guy on the internet) prices still hasn't caught up with value fundamentals. check out cash ISA's for a 24-36 month timeframe; most do a reasonable 3-4% AER, with the current inflation rate being around 4%, this will, at the very least, make sure your money doesn't loose it's purchasing power. Finally, a word of caution: SIPPs have a rather rubbish AER rates. This, by itself, wouldn't be much of a problem on a 30-40 years timeframe, but keep the (current, and historically strictly monotonically increasing) 4% inflation rate in mind: this implies the purchasing power of any money tied in these vehicles will loose it's purchasing power, in a compounding manner. Hope this helps, let me know if you have any questions.\",\n \"\\\"I've never heard of a loan product like that. Yes, if they keep the funds in an account, it is no risk to the bank, but they would essentially need to go through the loan process twice for the same loan: when you pick a house, they need to reevaluate everything, along with appraising and approving the house. Even if you did find a bank that would do this for you, there are a few problems with this scheme. You would be paying interest before you have a need for this money, negating the savings you might achieve if the interest rates go up. In addition, your \\\"\\\"balance\\\"\\\" will go down as \\\"\\\"payments\\\"\\\" are deducted from your loan, and when you finally find a home to buy, you might not have enough for the house you want. You'll need to borrow more than you need, which will further negate any possible savings. It is impossible to know how fast rates will climb. If I were you, I would stick to saving for your down payment, and just get the best rate you can when you are ready to buy. Another potential idea for you is to lock an interest rate. When you apply for a mortgage, the interest rate is often locked for as much as 60 days, to protect the borrower in the event that the rates go up. You could ask the bank if you can pay a fee to lock the rate even longer. I don't know if that is possible or not. And, of course, the fee would eat into your potential savings.\\\"\",\n \"Pay off the Highest interest loan rate first. You must be doing something funky with how long your terms are... If you give a bit more info about your loan's such as the term and how much extra you have right now to spend it could be explained in detail why that would be the better choice using your numbers. You have to make sure when you are analyzing your different loan options that you make sure you are comparing apples to apples. IE make sure that you are either comparing the present value, future value or amortization payments... EDIT: using some of your numbers lets say you have 5000 dollars in your pocket you have 3 options. excel makes these calculations easier... Do nothing: in 80 months your Student Loan will be payed in full and you will have 54676.08 owing on your mortgage and 5000 in your pocket(assuming no bank interest) for mortgage: Pay off Student loan and allocate Student loans amortization to Mortgage: in 80 months you will have $47,910.65 owing on mortgage and student loan will be paid in full For mortgage: Pay 5000 on Mortgage: in 80 months student loan will be paid in full and you will have $48,204.92 owing on mortgage For mortgage:\",\n \"I'm not going to tackle the 2nd part of your question, as any number of the questions tagged with international-transfer should cover you on that. There's no way to transfer an ISA into an Australian tax-free savings account, so no need to worry about anything special there. Don't forget that the FX rates change quite a bit over time, and different methods have varying fees, so moving at the wrong time could easily cost you more than the missed interest! For the first part, it depends. One thing you should seriously consider right away is switching your ISA money into one paying a better rate. Check the best-buy tables online or in a paper, as you can get a lot better than 0.1% on a transfer in, even with current depressed rates. At least that way you'll earn more interest while you decide. As for when to transfer, that's something you'll have to calculate for yourself, based on your marginal tax rate, and your view of how the FX rates will shift. If you're a 40% taxpayer, then 2% in an ISA is worth the same to you as 3.3% gross. Don't forget to consider both your UK and Australian tax rates in the year you move, as most likely you'll have to pay the higher of the two. The westpac rate looks like you might struggle to beat a decent ISA over the course of a year, were you a higher rate tax payer. Oh, and don't forget that you'll likely loose the tax-free status of your ISA once you're an Australian tax resident, so you'll need to start paying tax on interest earnt in the ISA once you're out there.\",\n \"When I was a contractor I prioritize this way. 6 months salary nest egg while contributing to tax deferred retirement then after that you can pre pay your mortgage. Remember you can't skip a month even if you prepay. So once you pay that extra to your mortgage you lose that flexibility.\",\n \"\\\"To begin with, bear in mind that over the time horizon you are talking about, the practical impact of inflation will be quite limited. Inflation for 2017 is forecast at 2.7%, and since you are talking about a bit less than all of 2017, and on average you'll be withdrawing your money halfway through, the overall impact will be <1.3% of your savings. You should consider whether the effort and risk involved in an alternative is worth a few hundred pounds. If you still want to beat inflation, the best suggestion I have is to look at peer-to-peer lending. That comes with some risk, but I think over the course of 1 year, it's quite limited. For example, Zopa is currently offering 3.1% on their \\\"\\\"Access\\\"\\\" product, and RateSetter are offering 2.9% on the \\\"\\\"Everyday\\\"\\\" product. Both of these are advertised as instant access, albeit with some caveats. These aren't FSCS-guaranteed bank deposits, and they do come with some risk. Firstly, although both RateSetter and Zopa have a significant level of provision against bad debt, it's always possible that this won't be enough and you'll lose some of your money. I think this is quite unlikely over a one-year time horizon, as there's no sign of trouble yet. Secondly, there's \\\"\\\"liquidity\\\"\\\" risk. Although the products are advertised as instant access, they are actually backed by longer-duration loans made to people who want to borrow money. For you to be able to cash out, someone else has to be there ready to take your place. Again, this is very likely to be possible in practice, but there's no absolute guarantee.\\\"\",\n \"You have to check if the investment vehicle you are planning to buy is acceptable for ISA on a case by case. Then if it is allowed by HMRC you have to check that your ISA provider offers those products (the mainstream providers might offer a more limited range of products and you might have to go to change your provider)\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"I am not a Financial Advisor, but I an tell you what I did in exactly this situation - which is pretty much what you are proposing. I put money into the offset savings account until I had only a small amount of mortgage \"\"balance\"\" left (less than a year's worth of mortgage payments), then I set it up so that each month I did the transfer from the offset savings pot into the mortgage itself. This depleted the offset savings in line with the mortgage debt, and the interest on the two balanced out almost to zero. This was self-sustaining and meant that I kept the same margin owing over time (i.e. if I was in this situation for 5 years, for the whole 5 years I would effectively have 1 year remaining on the mortgage). Meanwhile, since I now didn't have any mortgage outgoings from my regular income, I put any spare money into ISA savings. No need to withdraw money from the mortgage to move to the ISA. The benefits of this (as opposed to just paying off the damn mortgage already) were that I kept the full liquidity of the mortgage amount - I could withdraw all the offset savings pot if I wanted to, although I would then have to have funded the mortgage payments differently, and as that liquidity went down over time I was building up other savings in parallel. It worked well for me. It almost doesn't matter what the offset mortgage rate is since you are effectively paying it off by keeping the offset savings pot so high.\""],"string":"[\n \"\\\"I am not a Financial Advisor, but I an tell you what I did in exactly this situation - which is pretty much what you are proposing. I put money into the offset savings account until I had only a small amount of mortgage \\\"\\\"balance\\\"\\\" left (less than a year's worth of mortgage payments), then I set it up so that each month I did the transfer from the offset savings pot into the mortgage itself. This depleted the offset savings in line with the mortgage debt, and the interest on the two balanced out almost to zero. This was self-sustaining and meant that I kept the same margin owing over time (i.e. if I was in this situation for 5 years, for the whole 5 years I would effectively have 1 year remaining on the mortgage). Meanwhile, since I now didn't have any mortgage outgoings from my regular income, I put any spare money into ISA savings. No need to withdraw money from the mortgage to move to the ISA. The benefits of this (as opposed to just paying off the damn mortgage already) were that I kept the full liquidity of the mortgage amount - I could withdraw all the offset savings pot if I wanted to, although I would then have to have funded the mortgage payments differently, and as that liquidity went down over time I was building up other savings in parallel. It worked well for me. It almost doesn't matter what the offset mortgage rate is since you are effectively paying it off by keeping the offset savings pot so high.\\\"\"\n]","isConversational":false}}},{"rowIdx":366,"cells":{"_id":{"kind":"string","value":"6005"},"query":{"kind":"string","value":"Why might it be advisable to keep student debt vs. paying it off quickly?"},"gt_ids":{"kind":"list like","value":["135415","478457","345895","73310","384626","176498","149500","572272","414288","507544","390689","414534","270856"],"string":"[\n \"135415\",\n \"478457\",\n \"345895\",\n \"73310\",\n \"384626\",\n \"176498\",\n \"149500\",\n \"572272\",\n \"414288\",\n \"507544\",\n \"390689\",\n \"414534\",\n \"270856\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1,1,1,1,1,1,1,1,1,1,1],"string":"[\n 1,\n 1,\n 1,\n 1,\n 1,\n 1,\n 1,\n 1,\n 1,\n 1,\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["149500","572272","549290","571198","334301","577323","507544","103093","450783","442896","229572","307517","278801","427206","264228","334653","248615","502594","143472","96268","28230","270856","478457","27484","327700","563009","479576","257016","537171","329277","414288","592192","564206","524992","210673","32177","187010","169688","191250","9656","117085","97642","102096","135415","311558","267856","249054","555280","886","26816","243397","32324","289441","414534","7835","402659","63690","170481","352027","143467","260535","384626","278290","394474","85745","480773","78361","517313","277664","285024","568454","248962","576004","431884","52136","519075","451457","73310","546070","124016","466806","585288","396525","167213","354796","574585","586289","63501","470716","542194","357447","433171","35357","85353","431212","98920","79219","445655","546318","14011"],"string":"[\n \"149500\",\n \"572272\",\n \"549290\",\n \"571198\",\n \"334301\",\n \"577323\",\n \"507544\",\n \"103093\",\n \"450783\",\n \"442896\",\n \"229572\",\n \"307517\",\n \"278801\",\n \"427206\",\n \"264228\",\n \"334653\",\n \"248615\",\n \"502594\",\n \"143472\",\n \"96268\",\n \"28230\",\n \"270856\",\n \"478457\",\n \"27484\",\n \"327700\",\n \"563009\",\n \"479576\",\n \"257016\",\n \"537171\",\n \"329277\",\n \"414288\",\n \"592192\",\n \"564206\",\n \"524992\",\n \"210673\",\n \"32177\",\n \"187010\",\n \"169688\",\n \"191250\",\n \"9656\",\n \"117085\",\n \"97642\",\n \"102096\",\n \"135415\",\n \"311558\",\n \"267856\",\n \"249054\",\n \"555280\",\n \"886\",\n \"26816\",\n \"243397\",\n \"32324\",\n \"289441\",\n \"414534\",\n \"7835\",\n \"402659\",\n \"63690\",\n \"170481\",\n \"352027\",\n \"143467\",\n \"260535\",\n \"384626\",\n \"278290\",\n \"394474\",\n \"85745\",\n \"480773\",\n \"78361\",\n \"517313\",\n \"277664\",\n \"285024\",\n \"568454\",\n \"248962\",\n \"576004\",\n \"431884\",\n \"52136\",\n \"519075\",\n \"451457\",\n \"73310\",\n \"546070\",\n \"124016\",\n \"466806\",\n \"585288\",\n \"396525\",\n \"167213\",\n \"354796\",\n \"574585\",\n \"586289\",\n \"63501\",\n \"470716\",\n \"542194\",\n \"357447\",\n \"433171\",\n \"35357\",\n \"85353\",\n \"431212\",\n \"98920\",\n \"79219\",\n \"445655\",\n \"546318\",\n \"14011\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["I see two advantages to not paying student loan debt off more quickly: For #1, however, there are plenty of other ways to build credit and I don't see this as being worth the downsides of not paying off the debt more quickly. In fact, in the United States student loan debt cannot be written off if you go bankrupt. This is important to know and understand. I would generally advise you to pay down your student loans as quickly as you can reasonably do so.","\"If the interest rate on the student loan is lower than inflation, then the student loan will be \"\"cheaper\"\" the longer you take to pay it. This is now a very rare instance, but there were programs and loan consolidation opportunities in the mid-200x's that allowed savvy student's to convert their loans to have an interest rate of around 1.5%. Right now the inflation rate is actually quite low, but it's not expected to stay there, and wasn't that low just a few years ago, so in the long run this type of debt will only be cheaper the longer it takes to pay off. It is risky, as others point out, as it can't be written off in bankruptcy, but there are other situations where it can be written off more easily than other debts, so on balance the risks aren't better or worse than other loans in general. For specific individual situations the risk equation might work out differently, though. Further, student loans aren't considered traditional debt by some lenders for specific lending opportunities, thus allowing you to go into greater debt for certain types of purchases. Whether this is good for you or not depends on the importance of the purchase. If you need to buy a house and the interest rate is higher than your student loan rate, it will be better, financially, to pay off the house first, while paying the minimum on the student loans. If you have no other debt with a higher interest, and the student loan interest is higher than inflation, there is no reason to delay paying off the student loan.\"","I would not advise this for two reasons: Your point that the investment could be lower at the end of the 3 years is a concern, although with a safe investment, it is less so, but this reduces the potential gain. While your interest is not gaining interest, your interest charged is based on the principal. If you pay off the loans, you reduce the principal and therefore you pay less interest in the long run, even if the interest isn't capitalized. All that this means is that you are basically being charged simple interest as opposed to compounding interest, but reducing the principal helps in either case. You are mistaken about the benefits of the tax deduction. You reduce your tax bill by the marginal rate times the student loan interest you paid for the year. So if you are in the 15% tax bracket and paid $100 in interest, you save $15. This is not a reason to keep the loans (because you have to pay $100 to get $15), but you are mistaken on the benefit, it has nothing to do with shifting the tax brackets. Also, speaking of taxes, don't forget that you pay taxes on investment gains.","\"I think you're right that from a pure \"\"expected future value\"\" perspective, it makes sense to pay this loan off as quickly as possible (including not taking the next year's loan). The new student loans with the higher interest rates have changed the balance enough that it's no longer automatically better to keep it going as long as possible. The crucial point in your case, which isn't true for many people, is that you will likely have to pay it off eventually anyway and so in terms of net costs over your lifetime you will do best by paying it off quickly. A few points to set against that, that you might want to consider: Not paying it off is a good hedge against your career not going as well as you expect, e.g. if the economy does badly, you have health problems, you take a career break for any reason. If that happens, you would end up not being forced to pay it off, so will end up gaining from not having done so voluntarily. The money you save in that case could be more valuable to you that the money you would lose if your career does go well. Not paying it off will increase your net cash earlier in life when you are more likely to need it, e.g. for a house deposit. Having more free cash could increase your options, making it possible to buy a house earlier in life. Or it could mean you have a higher deposit when you do buy, reducing the interest rate on the entire mortgage balance. The savings from that could end up being more than the 6% interest on the loan even though when you look at the loan in isolation it seems like a very bad rate.\"","I have been in a similar position as you for the past few years. I put a bunch of cash into a tax free savings account (canadian) instead of paying down debt. My rationale was that I wanted the exposure to the market and had to be in it in order to pay attention. I also put money into an rasp, but only because my employer matched it (100% gain, no brainer). Looking back, I think it would have been a better idea to get debt free sooner. Having that debt weighs on you and haunts everything you try to do. You can't afford rent where you want to be, where you should be. There's no keeping up with the Jones' if you're paying off debt. That being said, in Canada your student loans are secured and if you lose your job, the government makes payments for you. If your loans are structured like this, then you are better off hanging onto that money.","\"I'll use similar logic to Dave Ramsey to answer this question because this is a popular question when we're talking about paying off any debt early. Also, consider this tweet and what it means for student loans - to you, they're debt, to the government, they're assets. If you had no debt at all and enough financial assets to cover the cost, would you borrow money at [interest rate] to obtain a degree? Put it in the housing way, if you paid off your home, would you pull out an equity loan/line for a purchase when you have enough money in savings? I can't answer the question for you or anyone else, as you can probably find many people who will see benefits to either. I can tell you two observations I've made about this question (it comes a lot with housing) over time. First, it tends to come up a lot when stocks are in a bubble to the point where people begin to consider borrowing from 0% interest rate credit cards to buy stocks (or float bills for a while). How quickly people forget what it feels (and looks like) when you see your financial assets drop 50-60%! It's not Wall Street that's greedy, it's most average investors. Second, people asking this question generally overlook the behavior behind the action; as Carnegie said, \"\"Concentration is the key to wealth\"\" and concentrating your financial energy on something, instead of throwing it all over the place, can simplify your life. This is one reason why lottery winners don't keep their winnings: their financial behavior was rotten before winning, and simply getting a lot of money seldom changes behavior. Even if you get paid a lot or little, that's irrelevant to success because success requires behavior and when you master the behavior everything else (like money, happiness, peace of mind, etc) follows.\"","Two different questions: Is it better to be in debt or to pay off the debt? And: Is it better to have student debt than other debt? Any debt needs to be paid off eventually, and any debt makes you less flexible. So if you have the choice between spending/wasting your money and paying off debt, I would recommend paying off the debt. The other question is whether having student debt is better than having other debt. You need to look at the terms of your student debt. Pay off the debt with the worst conditions first. Loan sharks (in Britain: pay-day loans) must be paid first. Credit cards debt must go next. Then general loans. Depending on your situation, you may want some savings as well. In case you lose your job, for example. So if you have $8,000 saved and an $8,000 student loan, you might consider waiting a bit before you pay back the loan. No job + $8,000 student loan + $8,000 in the bank is better than no job + no debt + no money in the bank.","Staying with your numbers - a 7% long term return will have a tax of 15% (today's long term cap gain tax) resulting in a post tax of 5.95%. On the other hand, even if the student loan interest remains deductible, it's subject to phaseout and a really successful grad will quickly lose the deduction. There's a similar debate regarding mortgage debt. When I've commented on my 3.5% mortgage costing 2.5% post tax, there's no consensus agreeing that this loan should remain as long as possible in favor of investing in the market for its long term growth. And in this case the advantage is a full 3.45%/yr. While I've made my decision, Ben's points remain, the market return isn't guaranteed, while that monthly loan payment is fixed and due each month. In the big picture, I'd prioritize to make deposits to the 401(k) up to the match, if offered, pay down any higher interest debt such as credit cards, build an emergency account, and then make extra payments to the student loan. Keep in mind, also - if buying a house is an important goal, the savings toward the downpayment might take priority. Student Loans and Your First Mortgage is an article I wrote which describes the interaction between that loan debt and your mortgage borrowing ability. It's worth understanding the process as paying off the S/L too soon can impact that home purchase.","\"Basically, the money you pay in student loan interest is tax deductible, which means as far as the IRS is concerned, you didn't make that money. However, what that saves you on your taxes is a percentage of a percentage; you save the amount of your current marginal rate on the money you paid as interest. Simple example with made-up numbers: Let's say you had a student loan outstanding, and you were making payments of $150 monthly on it. Total payments to said loan in one tax year would be $1800. Of that amount, let's for the sake of argument say that half, $900, was interest. You get your 1098-E with that number on it, and reduce your taxable income by that amount. You're currently doing well, not outstanding but OK, so you're in the 25% tax bracket that most single middle-classers are in. So, your reduction in taxable income of $900 saves you the 25% that those 900 simoleons would have been taxed at, which is $225. So, all told, this loan is a net drain on your disposable income of $1,575, of which $675 is pure cost of capital; you never received a dollar in disbursements to match this amount you're paying, so it's money lost now in return for previous gains. 10 years later, you pay off the debt. Now that $1800 is yours to keep, and to pay full taxes on. You pay $225 more in taxes (actually, because of amortization, the amount of additional taxes has been steadily increasing as the interest portion of the loan payments has reduced) but have the remaining $1575 in your pocket to do something else. While there is good debt and bad debt, debt is debt; whether deductible or not, the IRS will never credit your tax bill in the amount of interest owed (AFAIK; if someone knows of a loan whose interest is a credit instead of a deduction I'm all ears). So, the deduction on this loan reduces your cost of capital to an effective APR of 4.5%, and because it's a student loan and not a mortgage, you don't have to itemize so this is in effect a \"\"free\"\" deduction (even with an FHA mortgage allowing me to deduct interest, property taxes and PMI, and the residual medical costs after insurance of having our new baby, the $11,900 standard deduction for my wife and I was still the better deal this year). But, you're still losing 4.5% per year to interest. That's your break-even; if the money you could use to pay your debt could earn a better return than 4.5%, then invest it, but if not, pay off the loan. Right now, investments that could make you 4.5% are at the bottom edge of a steep increase in risk and variance, so if your expected ROI is close, I'd lean toward paying off the debt.\"","A friend tweeted a similar question regarding student loans, and I responded with Student Loans and Your First Mortgage. The punchline is that you need to be aware of the 28/36 ratios in a bank qualifying you for your mortgage. Even though you have a house, you may not be aware of this. Simply put, 28% of gross monthly income can be used to qualify for your house burden, loan, taxes, etc. 36% for total debt. So the student loan may fit in that 8% gap, and paying it all off reduces the cash you have without helping you borrow more money. 3-5 years is short term, and to that part of the question, this money should not be invested in anything at risk. A 3 year treasury or CD would be it, in my opinion.","The only real consideration I would give to paying off the debt as slowly as possible is if inflation were much higher than it is now. If you had a nice medium to low interest (fixed rate) loan, like yours, and then inflation spiked to 7-8%, for example, then you're better off not paying it now because it's effectively making you money (and then when inflation calms back down, you pay it off with your gains). However, with a fairly successful and active Federal Reserve being careful to avoid inflation spikes, it seems unlikely that will occur during your time owing this debt - and certainly isn't anywhere near that point now. Make sure you're saving some money not for the return but for the safety net (put it in something very safe), and otherwise pay off your debt.","Paying off the student loans slower and investing the rest has some advantages - the interest is tax deductible (essentially lowering that 7% number), and it helps allow you to build up a liquid emergency fund which is more important to financial security than returns.","\"I am going to respond to a very thin sliver of what's going on. Skip ahead 4 years. When buying that house, is it better to have $48K in the bank but a $48K student loan, or to have neither? That $48K may very well be what it would take to put you over the 20% down payment threshhold thus avoiding PMI. Banks let you have a certain amount of non-mortgage debt before impacting your ability to borrow. It's the difference between the 28% for the mortgage, insurance and property tax, and the total 38% debt service. What I offer above is a bit counter-intuitive, and I only mention it as you said the house is a priority. I'm answering as if you asked \"\"how do I maximize my purchasing power if I wish to buy a house in the next few years?\"\"\"","Pay off your highest-interest debt first: credit card, car, maybe even mortgage. Pay minimums on all else. Student loans are typically low interest, so pay off anything else first, but double-check your rate of course. Even if you have no other debt, you may still want to hang on to your savings instead of paying down your student loans if getting rid of your savings causes you to accrue debt. For example, if you have a low income and no savings, you may accrue credit card debt (high interest). Or you may want to buy a car with cash instead of getting a loan. Even if this is not an issue, consider what you can do with your savings that others who lack them cannot do. You can put it into mutual funds, which may offer higher rate of return (albeit with risk) than your student loan interest. Or you may pay a down payment on a home. The very low interest rates of student loans are, to a person with savings, essentially a source of cheap money that doesn't need to be justified to a bank. You can use it as seed money to start a business, as funds for travel, for living expenses while in the Peace Corps, or whatever else. But if you pay down that principal, you bind yourself. In short, pay down your student loans when there is no better use for the money.","Having a loan also represents risk. IMHO you should retire the loan as soon as feasible in most cases. JoeTaxpayer, as usual, raises a good point. With numbers as he is quoting, it is tolerable to have a loan around on a asset such as a home. While he did not mention it, I am sure that his rate is fixed. If the interest rate is variable: pay it off. If it is a student loan: pay it off. If you can have it retired quickly: pay it off and get the bank off your payroll. If it is consumer debt: pay it off.","\"The rate difference between your student loans and the historical yearly average growth in the S&P500 isn't large enough for me to play the \"\"pay minimums and invest the rest\"\" strategy. If your loans were 2%, I might think about it. However, the 4% loans are guaranteed and mandatory expenses; discharging them even in bankruptcy is unlikely. The quicker you pay them off, the sooner you won't have them hanging over your head in case of a \"\"financial setback\"\" (job loss, large expense uncovered by insurance, etc). (One good reason to pay the minimums, though, is to build up a $1K emergency fund. When your debts are paid, then you can increase its size.)\"","\"As Mr. Money Money Mustache once said: IF YOU HAVE CREDIT CARD DEBT, YOU SHOULD FEEL LIKE YOUR HAIR IS ON FIRE Student loan debt is different than credit card debt. Rather than having spent the money on just about anything, it was invested in improving yourself and probably your financial future. This was probably a good decision. However, unlike most credit card debt, if you ever have to file for bankruptcy, your student loans will not be erased. They will follow you forever. Pay your debts off as quickly as you can. While it may be true that \"\"long-term return on the stock market is about 7%\"\", you cannot assume that this will always be the case, especially in the short term. What if you had made this assumption in 2007? To assume that your stocks will beat a 6.4% guaranteed return over the next few years is not really investing. It's gambling.\"","One extremely important aspect that must be taken into consideration is the state of the housing market. If prices are rising it will probably be a false economy to delay your house purchase. Say you pay off a £5,000 student loan, thus delaying your house purchase another year you could well end up forking out an extra £10,000 on the mortgage due to the rise in house prices. Of course, if the housing market is falling then, without a doubt, pay off the student debt.","It might be a good idea, because later in life if a large expense shows up or an income source disappears, you will only have the mortgage payment, rather than a mortgage AND a student loan payment.","My recommendation would be to pay off your student loan debt as soon as possible. You mention that the difference between your student loan and the historical, long-term return on the stock market is one-half percent. The problem is, the 7% return that you are counting on from the stock market is not guaranteed. You might get 7% over the next few years, but you also might do much worse. The 6.4% interest that you will save by aggressively paying off your debt is guaranteed. You are concerned about the opportunity cost of paying your debt early. However, this cost is only temporary. By drawing out your debt payments, you have a long-term opportunity cost. By this, I mean that 4 years from now, you could still have 6 years of debt payments hanging over your head, or you could be debt free with all of your income available to save, spend, or invest as you see fit. In my opinion, prolonging debt just to try to come out 0.5% ahead is not worth the hassle or risk.","I am answering this in light of the OP mentioning the desire to buy a house. A proper mortgage uses debt to income ratios. Typically 28/36 which means 28% of monthly gross can go toward PITI (principal, interest, tax, insurance) and the total debt can go as high as 36% including credit cards and car payment etc. So, if you earn $5000/mo (for easy math) the 8% gap (between 28 and 36) is $400. If you have zero debt, they don't let you use it for the mortgage, it's just ignored. So a low interest long term student loan should not be accelerated if you are planning to buy a house, better put that money to the down payment. But for credit cards, the $400/mo carries $8000 (banks treat it as though the payment is 5% of debt owed). So, I'd attack that debt with a vengeance. No eating out, no movies, beer, etc. Pay it off as if your life depended on it, and you'll be happier in the long run.","I'm no financial advisor, but I do have student loans and I do choose to pay them off as slowly as I can. I will explain my reasoning for doing so. (FWIW, these are all things that pertain to government student loans in the US, not necessarily private student loans, and not necessarily student loans from other countries) So that's my reasoning. $55 per month for the rest of my life adds up to a large amount of money over the course of my life, but the impact month-to-month is essentially nonexistent. That combined with the low interest and the super-low-pressure-sales-tactics means I just literally don't have any incentive to ever pay it all off. Like I said before, I'm just a guy who has student loans, and not even one who is particularly good with money, but as someone who does choose not to pay off my student loans any faster than I have to, this is why.","Liquidity Say you have $50k in student loan debt. You come into a large amount of money and throw $10k at it. Yes, it's now down to $40k, saving you a lot of money in interest over the long run, but it's money you can no longer 'use'. Now if you invest that same $10k instead, you still potentially have access to it if needed. Paying $10k towards a debt at a 5% interest rate has essentially the same rate of return as investing the $10k at a 5% return. You're 'making' the same amount of money either way. But if you say, get laid off or need money for medical expenses or a down payment on a house, you can tap into that $10k investment if needed. It is a liquid asset.","\"Two things you should consider about paying off student loans ahead of the 10 year amortization schedule: What interest rate are you paying on your loans? What are you earning on your investments in a balanced mutual fund? When you pay off your student loans you are essentially guaranteed a return of the interest rate on your loan (future interest you would have had to pay). However if you are investing well and getting a good return on your investments you will get a greater return. Ex. Half of my student loans are at 6.8%, thr other half are at 2.5%. I make the minimum payments on the loans at 2.5% and invest my money in tax sheltered retirement accounts. The return on these funds has been 8% and that is on per-tax dollars so really closer to 11%. Now there is also downside risk when you invest in the market, but 2.5% guaranteed I will forgoe for 11% in low risk return. However my loans at 6.8% I repay in excess of the minimums because 6.8% guaranteed return is pretty good! So this decision is based on your confidence in your investments and your own risk tolerance. Once you pay your bank on your student loans that money is gone, out of your control. If you need it in the future you may need to pay higher interest on an unsecured loan, or you may not be able to borrow it. When you want to make large purchases (a car, house) that money you per-paid on your loans isn't available to you as a down payment. Banks should want you to have some of your own \"\"skin in the game\"\" on these purchases and the lending standards keep getting tougher. You are better off if you have money saved in your name rather than against the balance on your loan. Yes you can't bankrupt these loans, but the money you repay on them doesn't go toward housing you or paying your bills on a rainy day. I went through the same feeling when I completed my MBA with $50k in debt, you want to pay it off as soon as possible. But you need to step away and realize that it was an investment in your future and your future is long, you need time to make a financial foundation for it. And you will feel a lot more empowered when you have money saved and you can make the decision for how you want to deploy it to work for you. (Ex. I could pay down my student loans with the balance I have in the bank, but I am going to use it to invest in myself and open my own business).\"","Paying off your student loan is an investment, and a completely risk-free one. Every payment of your loan is a purchase of debt at the interest rate of the loan. It would be extremely unusual to be able to find a CD, bond or other low-risk play at a better rate. Any investment in a risky asset such as stocks is just leveraging up your personal balance sheet, which is strictly a personal decision based on your risk appetite, but would nearly universally be regarded as a mistake by a financial advisor. (The only exception I can think of here would be taking out a home mortgage, and even that would be debatable.) Unless your loan interest rate is in the range of corporate or government bonds -- and I'm sure it isn't -- don't think twice about paying them off with any free cash you have.","Ponder this. Suppose that a reputable company or government were to come out and say hey, we are going to issue some 10 year bonds at 6.4%. Anyone interested in buying some? Assume that the company or government is financially solid and there is zero chance that they will go bankrupt. Think those bonds would sell? Would you be interested in buying such a bond? Well, I would wager that these bonds would sell like hotcakes, despite the fact that the long term stock market return beats it by a half percent. Heck, vanguard's junk bond fund is hot right now. It only yields 4.9% and those are junk bonds, not rock solid companies (see vanguard high yield corporate bond fund) Every time you make an extra principal payment on your student loan, you are effectively purchasing a investment with a rock solid, guaranteed 6.4% return for 10 years (or whatever time you have left on the loan if make no extra payments). On top of that, paying off a loan early builds your credit reputation, improves your monthly cash flow once the loan is paid, may increase your purchasing power for a house or car, and if nothing else, it frees you from being a slave to that debt payment every month. Edit Improved wording based on Ross's comment","All great answers. The only thing I didn't see mentioned was that student loans are not dischargable in a bankruptcy. So for example if you took money that could have gone to student loans and poured it into other debt, then for some reason declared bankruptcy later, your student load debt would remain while other debt would be discharged; essentially that money would have been better spent on the student loan. This isn't to advocate that you should pay down student loans with the intent of declaring bankruptcy, or that this makes it a better decision necessarily, just a factor that is sometimes forgotten.","You are on the right track with your math, but be wary of your assumptions. If you can borrow money at x% (and can afford to make payments on the debt), and you can get a return of > x% from investing, then you would make more money by keeping the debt and investing your savings. Another way to think of it: by paying off the debt you are getting a guaranteed 5% return because that's the rate you'd have paid if you kept the debt. Be wary of your assumption of getting a 10% return in the S&P 500. Nothing is guaranteed, even over the long term. Actual results may well be less, and you could lose money. It doesn't have to be all-or-nothing: why not pay off the higher rate debt at 5% and keep the 3% debt? That's a guaranteed 5% return by paying off the NSLSC loan. And 3% is a pretty low interest rate. If you can afford to make the payments, I see nothing wrong with investing your savings instead of paying off the loan. Make sure you have an emergency fund, too.","As others mentioned, the only clear reason to remain in debt is if you can find an investment that yields more than what you're paying to maintain the debt. This can happen if a debt was established during low-rate period and you're in a high-rate period (not what is happening now.) A speculative reason to keep debt is as an inflation bet. If you believe money will shortly lose value, you are better off postponing repayment until the drop occurs. However you're not likely to be able to make these bets successfully. Hope this helps","I recently paid-off $40k in student loan debt. One of the motivations for me to accelerate my payments was that over time, as my income increased, the amount of student loan interest I could write-off on taxes started to phase-out.","Congratulations for achieving an important step in the road to financial freedom. Some view extending loan payment of loans that allow the deduction of interest as a good thing. Some view the hit on the credit score by prematurely paying off an installment loan as a bad thing. Determining the order of paying off multiple loans in conjunction with the reality of income, required monthly living expense, and the need to save for emergencies is highly individualized. Keeping an artificial debt seems to make little sense, it is an expensive insurance policy to chase a diminishing tax benefit and boost to a credit score. Keep in mind it is a deduction, not a credit, so how much you save depends on your tax bracket. It might make sense for somebody to extend the loan out for an extra year or two, but you can't just assume that that advice applies in your situation. Personally I paid off my student loan early, as soon as it made sense based on my income, and my situation. I am glad I did, but for others the opposite made more sense.","My advice is that if you've got the money now to pay off your student loans, do so. You've saved up all of that money in one year's time. If you pay it off now, you'll eliminate all of those monthly payments, you'll be done paying interest, and you should be able to save even more toward your business over the next year. Over the next year, you can get started on your business part time, while still working full time to pile up cash toward your business. Neither you nor your business will be paying interest on anything, and you'll start out in a very strong position. The interest on your student loans might be tax deductible, depending on your situation. However, this doesn't really matter a whole lot, in my opinion. You've got about $22k in debt, and the interest will cost you roughly $1k over the next year. Why pay $1k to the bank to gain maybe $250 in tax savings? Starting a business is stressful. There will be good times and bad. How long will it take you to pay off your debt at $250 a month? 5 or 6 years, probably. By eliminating the debt now, you'll be able to save up capital for your business even faster. And when you experience some slow times in your business, your monthly expenses will be less.","Here's my take on it (and quite a few people might disagree) - student loans aren't bankruptable, so they'll stay with you forever. So if you want to reduce your risk over time and have a funded emergency fund and some cash put aside for, say, a car or another major expense, then I'd try to throw money at the student loan to get rid of it quickly.","If you end up keeping the student loan, it will be a tax deduction. Probably not much but at least it's something.","I don't know much about how student loans work, so there might be some caveats (e.g. does the interest rate stay constant, do you get a discount if you pay off early etc.). Ignoring those caveats: The interest on you student loan looks quite small. Depends a bit where you are in the world, but it seems very likely that you can get more interest than that on a 100% guaranteed investment form, e.g. term bank deposits. So, it seems a no-brainer to not pay back you student loan and invest the money securely for a higher interest rate instead. Similar situation when you think about taking the money as a down-payment for a house. More factors come into play here:","If you can borrow for an asset that gives you income that's more than the cost of carrying the debt, then go for it. But the kinds of debts you have now aren't those kinds of debt, so get rid of them.","\"If I understand correctly, your question boils down to this: \"\"I have $X to invest over 25 years, are guaranteed returns at a 0.6% lower rate better than what I expect to get from the stock market over the same period?\"\" Well, I believe the standard advice would go something like: Rational investors pay a premium to reduce risk/volatility. Or, put another way, guaranteed returns are more valuable than risky returns, all things equal. I don't know enough about student loans in America (I'm Australian). Here a student loan is very low interest and the minimum repayments scale with what you earn not what you owe, starting at $0 for a totally liveable wage - Here I'd say there's a case to just pay the minimum and invest extra money elsewhere. If yours is a private loan though, following the same rules as other loans, remember the organisation extending your loan has access to the stock market too! why would they extend a loan to you on worse terms than they would get by simply dumping money into an index fund? Is the organisation that extends student loans a charity or subsidised in some way? If not, someone has already built a business on the the analysis that returns at 6.4% (including defaults) beats the stock market at 7% in some way. What I would put back to you though, is that your question oversimplifies what is likely your more complex reality, and so answering your question directly doesn't help that much to make a persuasive case - It's too mathematical and sterile. Here are some things off the top of my head that your real personal circumstances might convince you to pay off your loan first, hit up Wall Street second:\"","The interest accrues daily based on the amount you owe. The less you owe the less the daily interest accrual. The faster you pay it off the less you pay in the lifetime of the loan. You are losing money if you bank money rather than applying it to the loan immediately. Since student loans cannot be declared in bankruptcy and interest rates cannot be refinanced, or are nonnegotiable, then you should consider your student loan a priority in case your employment/income runs into problems.","On the face, this appears a sound method to manage long run cumulative interest, but there are some caveats. Maxing out credit cards will destroy your credit rating. You will receive no more reasonable offers for credit, only shady ones. Though your credit rating will rise the moment you bring the balance back down to 10%, even with high income, it's easy to overshoot the 8 months, and then a high interest rate kicks in because of the low credit rating. Further, maxing out credit cards will encourage credit card lenders to begin cutting limits and at worse demand early payment. Now, after month 6 hits, your financial payment obligations skyrocket. A sudden jolt is never easy to manage. This will increase risk of missing a payment, a disaster for such hair line financing. In short, the probability of decimating your financial structure is high for very little benefit. If you are confident that you can pay off $4,000 in 8 months then simply apply those payments to the student loan directly, cutting out the middle man. Your creditors will be pleased to see your total liabilities fall at a high rate while your utilization remains small, encouraging them to offer you more credit and lower rates. The ideal credit card utilization rate is 10%, so it would be wise to use that portion to repay the student loans. Building up credit will allow you to use the credit as an auxiliary cushion when financial disaster strikes. Keeping an excellent credit rating will allow you to finance the largest home possible for your money. Every percentage point of mortgage interest can mean the difference between a million USD home and a $750,000 one.","Simple rule for UK student loans. Never repay early. (http://www.moneysavingexpert.com/students/student-loans-repay) They are not real debt: only payable over threshold and wiped after 30 years (ish). They do not appear as debt with Credit Agencies. If you have other debt, it is almost certainly at a higher rate or worse terms and should be paid off first If you don't have debt, then you can put the cash to better use: whether saving, mortgage deposit or avoiding worse debt in the future.","\"Everyone has made some good points that I was going to mention but to put it in terms that might make it easier to decide. As stated by others, paying off debt and being free is always the goal and desirable. However, you must also consider the \"\"efficiency\"\" of what you do as well. For example, there are two common types of student loans (there are others but let's focus on these) and that is subsidized and unsubsidized. The main difference? Subsidized loans don't earn interest on your balance while you are in school, it only happens when you graduate and come out of repayment grace period. Unsubsidized loans begin accumulating interest the moment they are disbursed, but you are not required to make payments on them until you graduate. All student loans are deferred until you graduate and exhaust your grace period or other means of deferring your payment, say for example a postponement or forbearance. However, it is often recommended that on UNSUBSIDIZED loans, you pay down your principle while still in school to avoid that massive interest amount that will get added to it when you are officially in repayment. On the other hand, it is often (if not always) recommended that you hold off on paying SUBSIDIZED loans until you are done and go into repayment, as for all intents and purposes its not costing you anything extra to wait. Family and parent loans are considered and treated more like personal loans, so treat them as such. Hope that helps. Also, don't forget to take advantage of the income based repayment options, as they will make the payments manageable enough to avoid making them a burden while you are trying to get a job and go post education. Further reading: Income-Driven Plans (Department of Education) Income-Driven Repayment Plans (nelnet)\"","It depends on the terms. Student loans are often very low interest loans which allow you to spread your costs of education over a long time without incurring too much interest. They are often government subsidized. On the other hand, you often get better mortgage rates if you can bring a down payment for the house. Therefore, it might be more beneficial for you to use money for a down payment than paying off the student load.","Competing against other groups and against computers. In this course we have some point in the future where we face a crisis. I would think I need to keep my debt levels low incase I need to get a long-term loan to cover my expenses over the 3rd year. In that case I might just hold off until before that date to maximize the debt load. I also don't know what effect on our stock price our balance sheet has. I feel like when I analyze companies and see their balance sheets have a lot of debt I shy away depending on their share price.","\"There are several ways you can get out of paying your student loans back in the USA: You become disabled and the loan is dismissed once verified by treating doctor or the Social Security Administration. You become a peace officer. You become a teacher; generally K-12, but I have heard from the DOE that teachers at state schools qualify as well. So the \"\"malicious\"\" friend B is prescribing to the theory that if one of those conditions becomes true, friend A will not have to pay back the loan. The longer you drag it out, the more chance you have to fulfill a condition. Given that 2 of these methods require a commitment, my guess is that they are thinking more along the lines of the first one, which is horrible. Financially, it makes no sense to delay paying back your loans because deferred loans are only interest-free until you graduate and are past your grace period, after which they will begin accruing interest. Unsubsidized loans accrue interest from the day you get them, only their payback is deferred until you graduate and exhaust your grace period. Anytime you ask for forbearance, you are still accruing interest and it is capitalizing into your principal — you are just given a chance to delay payback due to financial hardship, bad health, or loss of job. Therefore, at no point are you benefiting beyond the time you are in school and getting an education, still looking for a job, or dealing with health issues. In the current market, no CD, no savings account, and no investment will give you substantially more return that will offset the loss of the interest you are accruing. Even those of us in the old days getting 4.X % rates would not do this. There was a conditional consolidation offer the DOE allowed which could bring all your loans under one roof for a competitive 5.x-6.x % rate allowing you a single payment, but even then you would benefit if you had rates that were substantially higher. From a credit worthiness aspect, you are hurt by the outstanding obligation and any default along the way, so you really want to avoid that — paying off or down your loans are a good way to ensure you don't shoot yourself in the foot.\"","If you have (other) high interest debt, say over 8%, pay it back first. Else, you are likely best off paying this loan back and getting the money working for you long term.","Its almost always better to pay off loans sooner rather than later. Being debt free is amazingly liberating. However, in your case, I'd be reluctant to make significant headway on a loan repayment program. Here's why: The best investment you can make, right now, is in yourself. Completing your education should be the top priority. The next would be to meet the requirements of a job after received after school is complete. So what I would do is estimate the amount of money it would take to complete school. Add to that an estimate of an amount to move to a new city and setup a household. That amount should be held in reserve. Anything above that can used to pay down loans. Once you complete school and get settled into a job, you can then take that money and also throw it at your loans.","\"You have 1998-2011 income-contingent student loans, where the interest rate is the lower of (1% + base rate) or RPI (retail price inflation). For the next few years the it's likely to be (1% + base rate) as interest rates stay low and inflation shoots up. These loans only need to be repaid in proportion to your salary, and if they aren't repaid for long enough (e.g. the holder takes a career break for children) they are written off. So all-in-all, they are pretty good debt to have: low interest rate, and you might not have to repay them ever. It's likely that your mortgage will have a significantly higher rate than the student loan, so you'd be better off reducing your mortgage. Also, the higher deposit might mean you can get a lower interest rate on the whole mortgage because the lender will see you as a lower risk, so the return from \"\"investing\"\" it in your mortgage would be even greater than the raw interest rate. Having the student loan outstanding might make some difference to the \"\"affordability\"\" check for your mortgage payments, but lenders will be very familiar with how they work. Reducing your mortgage payments with the higher deposit should easily counterbalance that. Your own suggestion is to invest the £30K in a \"\"reasonably safe portfolio\"\" making 5%. There'll inevitably be some risk in that - 5% is a relatively high return in today's climate - but if you're willing to take that risk, you can investigate the effect on your mortgage to see if it's worth it or not.\"","\"It's not a bad strategy. I'd rather owe money at 4% interest than at 6-7%. However, there is something to consider. Consolidating debt into a new loan can backfire. When you have money borrowed at 7%, you want to get that paid off as quickly as possible. Once you have that converted to 4%, if you think, \"\"Now I can take my time paying off this debt,\"\" then you aren't really better off. In fact, if you take too long paying off the new loan, you might end up paying more interest than if you had kept the high interest loan and paid it as soon as possible. Don't lose your drive to get out of debt after you refinance. As far as how the student loans affect your debt-to-income ratio, I'm not sure; however, if they do count (I think they do), your ratio will not really be going up by taking out the new loan, since you are using the money to pay other debt. Make sure the new lender knows this, so they take that into consideration when making their decision. Overall, I like your strategy: pay off what you can right away (the car loan and the highest interest student loans) and reduce the interest on the rest. Just make sure that you continue to pay down that debt as quick as you can.\"","I believe this argument is most often used when considering which debts to pay back first, or when there are other options available such as investment options, building up an emergency fund, or saving for a large purchase. In that case, it's simply justifying making minimum payments and paying more over the life of the loan in exchange for larger liquidity in the present. Unfortunately, when it comes to choosing between which debts to pay (e.g. My mom pays more than the minimum on her car because she can't deduct auto loan interest, despite her mortgage carrying a higher interest rate), it's only beneficial if the tax savings offsets the interest savings difference. The formula for that is: tax bracket > (1 - (target loan interest rate / mortgage interest rate)) That said, most people don't think in the long term, either by natural shortsightedness, or by necessity (need to have an emergency fund).","\"I bought a house when I was 22, I also had $10k in student load debt. After the down payment, I had $1,500 to my name and $82k worth of debt. All the advice pointed to \"\"pay the minimum payment and invest the rest.\"\" I discarded the advice and scrimped and put everything extra to those bills. I paid it all off by the time I was 31, and now at 34 I'm self employed, have about $110,000 saved up, a house worth $105,000, 2 cars worth a total of $8,000 and no debt. Keep in mind most of those years I was making $24-$30k a year I might have lost out on a couple years of investments, but right now there are no money worries... wouldn't you rather be like that instead of worrying if you might lose your job?\"","\"There will be many who will judge your proposal on the idea that subsidized loans should be available to those who need them, and should not be used by others who are simply trying to profit from them. Each school has a pool of money available to offer for subsidized and unsubsidized loans. If they are giving you a subsidized loan, they cannot allocate it to someone else who needs it. Once you weigh the investment risks, I agree that it is analogous to investing rather than repaying your mortgage quickly. If you understand the risks, there's no reason why you shouldn't consider other options about what to do with the money. I am more risk averse, so I happen to prefer paying down the mortgage quickly after all other investment/savings goals have been met. Where you fit on that continuum will answer the question of whether or not it is a \"\"bad idea\"\".\"","\"The obvious disadvantage of paying loans off more slowly is that you will pay a lot more in total interest... Which means less savings and less disposable income on the long term. Unless you are doing something with the money which produces more income than the interest costs you, this is very much \"\"penny wise, pound foolish\"\". If you aren't making money by paying that money, all you can do is loose money at the slowest rate you can afford. You do that by paying off the loan as quickly as you can afford to do so. It's up to you to look seriously at your finances and decide what your real needs are, how you're going to meet them, and how much you can afford beyond that while still paying off the loans as quickly as possible. Sloppiness now will cost you much more than you expect layer, due to the compounding you will have missed out on. Really. See the questions about how to start saving/investing for answers that discuss how to prioritize your money. There are some steps you should be taking ASAP if you haven't already done so.\"","Here's another way to look at this that might make the decision easier: Looking at it this way you can turn this into a financial arbitrage opportunity, returning 2.5% compared to paying cash for the vehicle and carrying the student loan. Of course you need to take other factors into account as well, such as your need for liquidity and credit. I hope this helps!","Like all other loan-vs-savings questions, it depends on the terms of the loan. If you have a choice, the usual answer is to pay off the loan with the worst terms (which usually means the highest interest rate) first, and only start with savings when you've paid off all the high-interest loans entirely. If your student loan is on US terms, then pay it off as soon as you can, unless you have commercial debt (credit-card or unsecured personal loan), which you should pay off first, or unless you have or are realistically likely to get eligibility for a forgiveness program. But it does depends on the terms of the debt, which in turn depend on the country you studied in; on UK terms it's a very bad idea to pay off a student loan any faster than you have to. Interest is restricted to the rate of inflation, so good investments probably beat the interest rate of the student loan; the required repayments vary with your income, so savings are more useful than debt repayment if you encounter income difficulties (e.g unemployment) in the future, and finally the debt is automatically forgiven after 30 years, so you may never have to pay it all back anyway - so why pay it off voluntarily if it would get forgiven eventually anyway?","My theory, if you must be in debit, own it at the least expense possible. The interest you will pay by the end, combined with the future value of money. Example: The Future value of $3000 at an effective interest rate of 5% after 3 years =$3472.88 Present value of $3000 at 5% over 3 years =$2591.51 you will need more money in the future to pay for the same item","One other factor to consider is that Mortgage debt can be wiped out in a bankruptcy, but student loan debt can not. Financially it is simple math to figure out which one makes more sense to pay off based on the total expenditures on interest minus tax savings from deductible mortgage interest. However, in terms of risk it might be best to pay off the student loans first.","This is a slightly different reason to any other answer I have seen here about irrationality and how being rationally aware of one's irrationality (in the future or in different circumstances) can lead you to make decisions which on the face of it seem wrong. First of all, why do people sometimes maintain balances on high-interest debt when they have savings? Standard advice on many money-management sites and forums is to withdraw the savings to pay down the debt. However, I think there is a problem with this. Suppose you have $5,000 in a savings account, and a $2,000 credit card balance. You are paying more interest on the credit card than you get from the savings account, and it seems that you should withdraw some money from the savings account, and pay off the cc. However, the difference between the two scenarios, other than the interest you lose by keeping the cc balance, is your motivation for saving. If you have a credit card balance of $2,000, you might be obliged to pay a minimum payment of $100 each month. If you have any extra money, you will be rewarded if you pay more in to the credit card, by seeing the balance go down and understanding that you will soon be free from receiving this awful bill each month. To maintain your savings goal, it's enough to agree with yourself that you won't do any new spending on the cc, or withdraw any savings. Now suppose that you decide to pay off the cc with the savings. There is now nothing 'forcing' you to save $100 each month. When you get to the end of the month, you have to motivate yourself that you will be adding spare cash to your $3,000 savings balance, rather than that you 'have to' pay down your cc. Yes, if you spend the spare cash instead of saving it, you get something in return for it. But it is possible that spending $140 on small-scale discretionary spending (things you don't need) actually gets you less for your money than paying the credit card company $40 interest and saving $100? You might even be tempted to start spending on your credit card again, knowing that you have a 0 balance, and that you 'can always pay it off out of savings'. It's easy to analogize this to a situation with two types of debt. Suppose that you have a $2,000 debt to your parents with no interest and a $2,000 loan at high interest, and you get a $2,000 windfall. Let's assume that your parents don't need the money in a hurry and aren't hassling you to pay them (otherwise you could consider the guilt or the hassle as a form of emotional interest rate). Might it not be better to pay your parents off? If you do, you are likely to keep paying off your loan out of necessity of making the regular payments. In 20 paychecks (or whatever) you might be debt free. If you pay off your loan, you lose the incentive to save. After 20 months you still owe your parents $2,000. I am not saying that this is always what makes sense. Just that it could make sense. Note that this is an opposite to the 'Debt Snowball' method. That method says that it's better to pay off small debts, because that way you have more free cash flow to pay off the larger debts. The above argues that this is a bad idea, because you might spend the increased cash flow on junk. It would be better to keep around as many things as possible which have minimum payments, because it restricts you to paying things rather than gives you the choice of whether to save or spend.","Good credit is calculated (by many lenders) by taking your FICO score which is calculated based upon what is in your credit report. Building credit generally means building up your FICO score. Your FICO score is impacted my many factors, one small one of which is your utilization ratio of your installment loans like student loans. This is the ratio of the current balance to your original balance. To improve your score (slightly) you would want a lower ratio. I would recommend paying your student loan down to 75% ratio as fast as you can and then you can go back to $50/month. A much better way to improve your FICO score is to have revolving credit. Your student loans are not revolving, they are installment loans. Therefore, you should open at least one credit card (assuming you currently have none) right away. The longer you have had a credit card open, the better your FICO score gets. Your revolving credit utilization ratio is way more important than your installment loan ratio. Therefore, to maximize your FICO, try to never have more than 10% utilization on your revolving credit report to the credit bureaus each month. Only the current month's ratio affects your score at any given moment. You can ensure you don't go above 10% by paying your balance before the statement cuts each month to get it below 10% way before any payment would be due. (You should always pay your remaining credit card statement balance in full each month by the due date after the statement cuts to avoid any interest charges.) Note that there is a slight FICO advantage to having at least one major bank credit card instead of just only credit union credit cards. Also, never let all your revolving credit report a zero balance in a month, you must always have at least $1 reporting to the credit bureaus on at least one of your open credit cards or your FICO score will take a big negative hit. If you cannot get a normal credit card, go to a credit union and find one that offers secured credit cards, or a bank that does. A secured credit card is where you place a deposit with the bank that they hold and give you a credit limit to match your security. Ideally it would be a card that graduates to unsecured after your demonstrate good history with them. For example, the Navy Federal Credit Union secured card unsecures for many people. I also believe the Wells Fargo Bank credit card (you can join if there is a family member who served or a roomate who did) also will unsecure. The reason you want it to unsecure and not be forced to open a new account to get an unsecured account is that you want your average age and oldest age of open revolving credit accounts to be as high as possible as this is another impact on your FICO score. Credit unions that anyone can join include, Digital Federal Credit Union, the Pentagon Federal Credit Union (which offers a secured card that does not graduate), and The State Department Federal Credit Union (also offers secured card that I think does not graduate). One other method to boost your FICO score is to get added as an authorized user on one of your parent's credit cards that has been open a long time. Not all lenders will report such an authorized user, however, ones that are known to do so are: Bank of America, Citi Bank, and Capital One. It is a good sign that it will report if they ask for the social security number of the authorized user. However, note that the Authorized User addition can have no impact if the lender is using one of the newer versions of the FICO scoring model, only the older versions reward you for the age of accounts for which you are an authorized user. A very long term boost is to open your first American Express card underwritten directly by Amex such as their Zync card which is pretty easy to get. The advantage of American express is that they remember the date your first credit card was opened with them and if you open new accounts in the future they will back date the date of their opening to match the date your first card was opened. If you let your membership lapse, be sure to record the account number and date opened in your personal files so that you can help them locate it again if you reopen as they can have trouble if it has been on the order of ten years or more. Finally, note that the number of accounts opened in the last twelve months is a small negative mark on your score (along with number of inquiries), so if you open a lot of accounts all at once, in addition to bringing down your average age of accounts, you will also get dinged for how many were opened in the last year.","If the car loan has 0% interest for 5 years, then paying off the student loan is cheaper. No matter when you pay off the car, you will pay the exact same amount (as long as its within 5 years). You could spend $20,000 right now to pay off the car loan or slowly spend $20,000 over the next 5 years. The gross amount paid for the car loan does not change. On the contrary, the longer you wait to pay off the student loans, the more you will end up paying for them. So why not get the student loans out of the way before they rack up more interest and pay the car loan over time? Update: I forgot to add, as Ben Miller said, congratulations on paying off the $40,000!","\"Many years ago I heard a multi-level marketing pitch that pointed out how many doctors don't get out of debt until they are well into their 50's. The selling point was that you can get rich quick, as rich as a doctor, with nothing more then a bit of elbow grease. Of course the pitch failed to mention that most doctors, buy the things doctors buy, when they get that first big job. The big house, expensive cars nerf the income that they receive and they are probably stuck with years of student loan payments. I assume that you are one of the \"\"lucky\"\" ones that have graduated college with a well paying job. By lucky I mean you concentrated on obtaining a skill for which the marketplace has a need. Why not continue to live like a college student for a few more months and pay off all of your student loans ASAP? Get rid of them like you were purging the phone number of that high maintenance girl you dated during a short time of insanity.\"","Regardless. It’s a guaranteed 5.x%. Reducing student loans also allows you other benefits; i.e. reduces your credit risk allowing you to pull out more credit at a cheaper rate in the future etc. Unless you strongly believe in current bull market continuing.. (there is a high overvaluation from market principles atm and it has been the longest rise in history), you should go for the guaranteed change. Additionally, if your loan is pegged to variable interest rates such as the fed funds rate, be cognizant that the fed will probably continue rising rates for the near future of good times continue, meaning your rates will go up while markets go down. Long story short, would recommend paying down debt unless you’re quite confident in your skills. Edit: quick note that if you can do both, this is the best option.","\"A Tweep friend asked me a similar question. In her case it was in the larger context of a marriage and house purchase. In reply I wrote a detail article Student Loans and Your First Mortgage. The loan payment easily fit between the generally accepted qualifying debt ratios, 28% for house/36 for all debt. If the loan payment has no effect on the mortgage one qualifies for, that's one thing, but taking say $20K to pay it off will impact the house you can buy. For a 20% down purchase, this multiplies up to $100k less house. Or worse, a lower down payment percent then requiring PMI. Clearly, I had a specific situation to address, which ultimately becomes part of the list for \"\"pay off student loan? Pro / Con\"\" Absent the scenario I offered, I'd line up debt, highest to lowest rate (tax adjusted of course) and hack away at it all. It's part of the big picture like any other debt, save for the cases where it can be cancelled. Personal finance is exactly that, personal. Advisors (the good ones) make their money by looking carefully at the big picture and not offering a cookie-cutter approach.\"","You could pay off a portion of the debt and your minimum payments should also go down proportionately. Your investment managers may be able to continue making returns in the markets in a sideways and a bear market. So you have 24k contributing to your net worth, and ~50k giving you a negative net worth. At best, you can bring this down to a negative 25k net worth, or you can start and keep using some of the gains from your investment account to supplement your credit payments (along with your income). This is based on chance that your investment managers can continue making gains, compared to paying down 24k and having possibly zero liquid savings now, but having more of your salary to start saving and make the lowered minimum payments, assuming you don't borrow more. Those are the options I've thought of, I don't see either option being necessarily quicker than the other.","Others have suggested paying off the student loan, mostly for the satisfaction of one less payment, but I suggest you do the math on how much interest you would save by paying early on each of the loans: When you do the calculations I think you'll see why paying toward the debt with the highest interest rate is almost always the best advice. Whether you can refinance the mortgage to a lower rate is a separate question, but the above calculation would still apply, just with different amortization schedules.","There are two components to any non-trivial financial decision: Assuming that all things remain equal, borrowing money at a low rate while investing for a higher return is a no-brainer. The problem is, all things do not remain equal. For example: I think that you need to assess your position and preferences. I'd err on the side of being in less debt.","Overall, I strongly recommend cashing out your savings and becoming debt free today, and then never borrowing again except for a house. Advantages: Disadvantages: My wife and I paid of all of my grad school debt last year, and we’re paying off all of her grad school debt this year. To pay that aggressively, we’ve had to learn to live on a much tighter budget. But when we’re done, if we simply invest what we have been paying toward debt into the stock market, our nest egg will compound to over $10 million by the time we retire. According to Dave Ramsey, when the Forbes 400 were polled, 75% of them cited becoming and staying debt-free as the single best way to build wealth: http://www.daveramsey.com/article/three-steps-to-wealth-building-for-young-adults/lifeandmoney_college/text4/","The chances are good that the interest you are going to pay on the debt is going to be higher than the interest you are going to receive on any type of short term investments. That would make the paying off of the debt worth more to you in the long run than saving your money. Note that without the particulars of your situation this is all just theory crafting so consult the details of you loan agreements. I cannot imagine that a credit provider did not discuss this with you before you put pen on paper.","\"Place your savings into safe interest-bearing accounts. Take out the loans. Keep constant track of your net worth. Having 100,000$ and 80,000$ in interest free debt is better than having 20,000$. You can always convert money + debt into less money and less debt, but you cannot always convert less money and less debt into more money and more debt. Now, there are risks; that is why you want an interest-bearing account to place your savings in to offset the debt. This minimizes the risk. It also reduces the return. It is arguable that you should be at your most financially risky at a young age. I'd argue that your future earnings are your by far largest asset at this point, and as a high school student going into college those future earnings have extremely high variability. Your financial situation is extremely unpredictable; being conservative about your high-leverage student-loan + education investments is probably justified. The fact you can manage arbitrage here means you should; and if you are careful, you can eliminate risk and get almost risk-free profit from the maneuver. If your money is in less than perfectly safe accounts, you are now doing leveraged investing and magnifying the risk and return of said investments. If your money must be spent on college or you'll be financially punished, then you may want to consider pulling it out before the last possible legal point just in case something goes wrong. Apparently 529 plans may not treat \"\"paying off student loans\"\" as a valid way to spend the money. You may need to talk to a lawyer or accountant about the legality of using these plans to pay off student loans, and the tax/penalties involved.\"","\"If I were you I would pay off these loans today. Here are the reasons why I would do this: Car Loan For car loans in particular, it's much better to not pay interest on a loan since cars lose value over time. So the longer you hold the debt, the more you end up paying in interest as the car continues to lose value. This is really the opposite of what you want to do in order to build wealth, which is to acquire assets that gain value over time. I would also recommend that once you pay the loan, that you set aside the payment you used to make on the loan as savings for your next car. That way, you will be able to pay cash for your next car, avoiding thousands of dollars of interest. You will also be able to negotiate a better price by paying cash. Just by doing this you will be able to either afford to buy a nicer car with the same amount of money, or to put the extra money toward something else. Student Loan For the student loan, 3% is a very low rate historically. However, the reason I would still pay these off is that the \"\"return\"\" you are getting by doing so is completely risk free. You can't often get this type of return from a risk-free investment instrument, and putting money in the stock market carries risk. So to me, this is an \"\"easy\"\" way to get a guaranteed return on your money. The only reason I might not pay this down immediately is if you have any other debt at a rate higher than 3%. General Reasons to Get out of Debt Overall, one of the basic functions of lifetime financial planning is to convert income into assets that produce cash flow. This is the reason that you save for retirement and a house, so that when your income ends when you're older these assets will produce cash, or in the case of the house, that you will no longer have to make rent payments. Similarly, paying off these debts creates cash flow, as you no longer have to make these payments. It also reduces your overall financial risk, as you'd need less money to live on if you lost your job or had a similar emergency (you can probably reduce your emergency fund a bit too). Discharging these loans will also improve your debt-to-income ratio if you are thinking of buying a house soon. I wonder whether as someone who's responsible with money, the prospect of cutting two large checks feels like \"\"big spending\"\" to you, even though it's really a prudent thing to do and will save you money. However, if you do pay these off, I don't think you'll regret it.\"","Considering I'm in a nearly identical situation, I'll speak to my personal strategy and maybe there's some value for you as well. You have ~$22k in loans, which you say you could pay off today. So, what I read is that you're sitting there with a $22k investment and want to know which investment to make: pay down debt, invest in yourself/start up, or some variation between those options. Any investor worth his salt will ask a couple of questions: what is my risk, and what is my gain? Paying off your student loans offers no financial risk at the cost of opportunity risk, and gains you returns of 3.4%, 6.8%, 3.4%, 4.5%, and 6.8%. Those percentage gains are guaranteed and the opportunity risk is unknown. Investing in a startup is inherently risky, with the potential for big payoffs. But with this investment, you are accepting a lot of risk for potentially some gain (it could be the next Apple, it could also fail). So, with your situation (like mine), I'd say it's best to accept the easy investment for now and fully vet out your tech start up idea in the meantime.","I would recommend not paying it off early for 2 key reasons: If you are a resident of the U.S. you get tax deductibility of mortgage interest, which as pointed out in previous posts, reduces the effective interest rate on your mortgage, never in your life will you ever be allowed to obtain such high leverage at such a low rates. You can probably get higher returns with not much risk. @JoeTaxpayer mentioned various statistics regarding returns when investing in equities. Even though they are a decent bet over the long term, you can get an even better risk reward tradeoff by considering municipal bonds. If you are in the U.S. and invest in the municipal bonds of your state, the interest income will be both federal and state tax-free. In other words, if you were making 3.5% investing in equities, your after tax returns would be significantly less depending on your tax bracket whereas investment-grade municipal bond ETFs will yield probably the same or higher and have no tax. They are also significantly less volatile. Even though they have default risk, the risk is small since most of these bonds are backed by future tax obligations, or other income streams derived from hard assets such as tolls or property. Furthermore, an ETF will have a portfolio of these bonds which will also dampen the impact of any individual defaults. In essence, you are getting paid this spread for simply having access to credit, take advantage of it while you can.","\"What is your biggest wealth building tool? Income. If you \"\"nerf\"\" your income with payments to banks, cable, credit card debt, car payments, and lattes then you are naturally handicapping your wealth building. It is sort of like trying to drive home a nail holding a hammer right underneath the head. Normal is broke, don't be normal. Normal obtains student loans while getting an education. You don't have to. You can work part time, or even full time and get a degree. As an example, here is one way to do it in Florida. Get a job working fast food and get your associates degree using a community college that are cheap. Then apply for the state troopers. Go away for about 5 months, earning an income the whole time. You automatically graduate with a job that pays for state schools. Take the next three years (or more if you want an advanced degree) to get your bachelors. Then start your desirable career. What is better to have \"\"wasted\"\" approx 1.5 years being a state trooper, or to have a student loan payment for 20 years? There is not even pressure to obtain employment right after graduation. BTW, I know someone who is doing exactly what I outlined. Every commercial you watch is geared toward getting you to sign on the line that is dotted, often going into debt to do so. Car commercials will tell you that you are a bad mom or not a real man if you don't drive the 2015 whatever. Think differently, throw out your numbers and shoot for zero debt. EDIT: OP, I have a MS in Comp Sci, and started one in finance. My wife also has a masters. We had debt. We paid that crap off. Work like a fiend and do the same. My wife's was significant. She planned on having her employer pay it off for each year she worked there. (Like 20% each year or something.) Guess what, that did not work out! She went to work somewhere else! Live like you are still in college and use all that extra money to get rid of your debt. Student loans are consumer debt.\"","Pay down cc debt asap, take your time on your student debt, it's low and you can write the interest off related to it. If your a teacher maybe you can get it forgiven. But you borrowed from your future self when you younger so ya you gotta start living reasonable.","\"Although there is no single best answer to your situation, several other people have already suggest it in some form: always pay off your highest after-tax (!) interest loan first! That being said, you probably also have heard about the differentiation for good debt vs. bad debt. Good debt is considered a mortgage for buying your primary home or, as is the case here, debt for education. As far as I am concerned, those are pretty much the only two types of debt I'd ever tolerate. (There may be exceptions for health/medical reasons.) Everything else is consumer debt and my personal rule is, don't buy it if you don't have the money for it! Meaning, don't take on consumer debt. One other thing you may consider before accelerating paying off your student debt, the interest paid on it may be tax deductible. So you should look at what the true interest is on your student loan after taxes. If it is in the (very) low single digits, meaning between 1-3%, you may consider using the extra money towards an automatic investment plan into an ETF index fund. But that would be a question you should discuss with your tax accountant or financial adviser. It is also critical in that case that you don't view the money invested as \"\"found\"\" money later on, unless you have paid off all your debt. (This part is the most difficult for most people so be very cautious and conscious if you decide to go this route!) At any rate, congratulations on making so much progress paying off your debt! Keep it going.\"","You can play with the numbers all you like (and that's good), however, here is a different way to look at it. The debt you have is risk. It limits your choices and eats your cash flow. Without the debt, you can invest at a much greater rate. It frees up you cash flow for all the things you might want to do, or decide in the future you might want to do. Right now is the easiest time for you to focus on debt repayment. It sounds like you are not married and have no children. It is much easier now to cut back your lifestyle and concentrate on paying off this $50k of student debt. This will get harder as your responsibility increases. Build up a small amount of cash for emergencies and put the rest at the debt. You can keep contributing to your 401k to the match if you want. This will give you 2 benefits: Patience. When you actually DO start investing, you will have a new appreciation for the money you are using. If you sacrifice to pay off $50k now, you wont look at money the same for the rest of your life. Drive. If you see the debt as a barrier to achieving your goals, you will work harder to get out of debt. These are all things I would tell my 23 year-old self if i could go back in time. Good luck!","\"Also, since I'm guessing OP isn't flush with cash, not having to come up with additional money to pay the student loans for some time will provide some short-term \"\"debt relief\"\"... possibly reducing the possibility of racking up more CC debt.\"","\"A major thing to consider when deciding whether to invest or pay off debt is cash flow. Specifically, how each choice affects your cash flow, and how your cash flow is affected by various events. Simply enough, your cash flow is the amount of money that passes through your finances during a given period (often a month or a year). Some of this is necessary payments, like staying current on loans, rent, etc., while other parts are not necessary, such as eating out. For example, you currently have $5,500 debt at 3% and another $2,500 at 5%. This means that every month, your cashflow effect of these loans is ($5,500 * 3% / 12) + ($2,500 * 5% / 12) = $24 interest (before any applicable tax effects), plus any required payments toward the principal which you don't state. To have the $8,000 paid off in 30 years, you'd be paying another $33 toward the principal, for a total of about $60 per month before tax effects in your case. If you take the full $7,000 you have available and use it to pay off the debt starting with the higher-interest loan, then your situation changes such that you now: Assuming that the repayment timeline remains the same, the cashflow effect of the above becomes $1,000 * 3% / 12 = $2.50/month interest plus $2.78/month toward the principal, again before tax effects. In one fell swoop, you just reduced your monthly payment from $60 to $5.25. Per year, this means $720 to $63, so on the $7,000 \"\"invested\"\" in repayment you get $657 in return every year for a 9.4% annual return on investment. It will take you about 11 years to use only this money to save another $7,000, as opposed to the 30 years original repayment schedule. If the extra payment goes toward knocking time off the existing repayment schedule but keeping the amount paid toward the principal per month the same, you are now paying $33 toward the principal plus $2.50 interest against the $1,000 loan, which means by paying $35.50/month you will be debt free in 30 months: two and a half years, instead of 30 years, an effective 92% reduction in repayment time. You immediately have another about $25/month in your budget, and in two and a half years you will have $60 per month that you wouldn't have if you stuck with the original repayment schedule. If instead the total amount paid remains the same, you are then paying about $57.50/month toward the principal and will be debt free in less than a year and a half. Not too shabby, if you ask me. Also, don't forget that this is a known, guaranteed return in that you know what you would be paying in interest if you didn't do this, and you know what you will be paying in interest if you do this. Even if the interest rate is variable, you can calculate this to a reasonable degree of certainty. The difference between those two is your return on investment. Compare this to the fact that while an investment in the S&P might have similar returns over long periods of time, the stock market is much more volatile in the shorter term (as the past two decades have so eloquently demonstrated). It doesn't do you much good if an investment returns 10% per year over 30 years, if when you need the money it's down 30% because you bought at a local peak and have held the investment for only a year. Also consider if you go back to school, are you going to feel better about a $5.25/month payment or a $60/month payment? (Even if the payments on old debt are deferred while you are studying, you will still have to pay the money, and it will likely be accruing interest in the meantime.) Now, I really don't advocate emptying your savings account entirely the way I did in the example above. Stuff happens all the time, and some stuff that happens costs money. Instead, you should be keeping some of that money easily available in a liquid, non-volatile form (which basically means a savings account without withdrawal penalties or a money market fund, not the stock market). How much depends on your necessary expenses; a buffer of three months' worth of expenses is an often recommended starting point for an emergency fund. The above should however help you evaluate how much to keep, how much to invest and how much to use to pay off loans early, respectively.\"","One of many things to consider is that in the United States student loan interest is tax deductible. That fact could change the math enough to make it worth putting A's money elsewhere depending on his interest rate and income bracket.","I agree with the advice given, but I'll add another angle from which to look at it. It sounds like you are already viewing the money used to either pay off the loan early or invest in the market as an investment, which is great. You are wise to think about opportunity cost, but like others pointed out, you are overlooking the risk factor. The way I would look at this is: I could take a guaranteed 6.4% return by paying off the loan or a possible 7% return by investing the money. If the risk pays off modestly, all you've done is earned 0.6%, with a huge debt still hanging over you. Personally, I would take the guaranteed 6.4% return by paying off the debt, then invest in the stock market. Now this is looking at the investment as a single, atomic pool of money. But you can split it up a bit. Let's say the amount of extra disposable income you want to invest with is $1,000/mo. Then you could pay an extra $500/mo to your student loan and invest the other $500 in the stock market, or do a 400/600 split, or whatever suits your risk tolerance. You mentioned multiple loans and 6.4% is the highest loan. What I would do, based on what I value personally, is put every extra penny into paying off the 6.4% loan because that is high. Once that is done, if the next loan is 4% of less, then split my income between paying extra to it and investing in the market. Remember, with each loan you pay off, the monthly income that previously went to it is now available, and can be used for the next loan or the other goals.","It's not a question with a single right answer. Other answers have addressed some aspects, my case may provide some guidance as to one way of looking at some of the issues. When I had student loans, the interest rate was RPI¹ and I could get more than that as the return on a savings account. At the time I could get a whole year's worth of loan at the start of the year, save it, and draw from the savings, partly because I had a little working capital saved already. Importantly in my case, the loans were use-it-or-lose-it: if I didn't take the loan out by about halfway through each academic year, it was no longer available to me. The difference in interest rates was probably similar to what you can get with a careful choice of savings account and 0% on the loan (I did this in the 90s when interest rates were higher). Over a four year degree the interest I earned this way added up to no more than about £100, which went someway towards offsetting the fact I would be paying interest after graduation. If you can clear the loan before you pay any interest it would give you a return, but a small one that could easily be eroded by rate changes or errors on your part (like not keeping on top of the paperwork). It still may be beneficial to take out the loans depending on your capital needs -- in my case it made buying a house after graduating much easier, as we still had money for the deposit (downpayment) and student loan rates were much lower than mortgage rates (100% mortgages were also available then, but expensive). ¹ RPI stands for retail price index, a measure of inflation.","\"2.47% is a really, really good rate, doubly so if it's a fixed rate, and quadruply so if the interest is tax-deductible. That's about as close to \"\"free money\"\" as you're ever going to get. Heck, depending on what inflation does over the next few years, it might even be cheaper than free. So if you have the risk tolerance for it, it's probably more effective to invest the money in the stock market than to accelerate your student loan payoff. You can even do better in the bond market (my go-to intermediate-term corporate bond fund is yielding nearly 4% right now.) Just remember the old banker's aphorism: Assets shrink. Liabilities never shrink. You can lose the money you've invested in stocks or bonds, and you'll still have to pay back the loan. And, when in doubt, you can usually assume you're underestimating your risks. If you're feeling up for it, I'd say: make sure you have a good emergency fund outside of your investment money - something you could live on for six months or so and pay your bills while looking for a job, and sock the rest into something like the Vanguard LifeStrategy Moderate Growth fund or a similar instrument (Vanguard's just my personal preference, since I like their style - and by style, I mean low fees - but definitely feel free to consider alternatives). You could also pad your retirement accounts and avoid taxes on any gains instead, but remember that it's easier to put money into those than take it out, so be sure to double-check the state of your emergency fund.\"","I also had a student loan and glad you are taking a good look on interest rate as it really makes a huge difference. One of the strategies I followed was since my credit improved as I stepped out of school. I took advantage of a good 0 percent credit card. I applied for discover and got a decent credit limit. There are 2 particular things you are looking for in a credit card in this situation Usually the initial $0 transaction charge is only for a couple of months so ensure you take advantage of that. What is the benefit: Imagine being able to pay off that higher interest rate balance with 0% and not have to worry about it immediately. That way you save on the interest you would be paying and stress as well Watch out for: Although you have to ensure that you do payoff the money you paid through the 0 percent credit card ( which may have been put off for a year or even 15 months or so) other wise you may have to pay it all at once as the offer is expiring. Note: for credit cards ensure to note when the 0% is expiring as that is usually not mentioned on the statement and you may have to call the customer service. I was in a similar situation and was able to pay it all off fairly quickly. I am sure you will as well.","I'm surprised no one has picked up on this, but the student loan is an exception to the rule. It's inflation bound (for now), you only have to pay it back as a percentage of your salary if you earn over £15k (11% on any amount over that I believe), you don't have to pay it if you lose your job, and it doesn't affect your ability to get credit (except that your repayments will be taken into account). My advice, which is slightly different to the above, is: if you have any shares that have lost more than 10% since you bought them and aren't currently recovering, sell them and pay off your debts with those. The rest is down to you - are they making more than 10% a year? If they are, don't sell them. If your dividends are covering your payments, carry on as you are. Otherwise it's down to you.","I don't understand the calculations in the comments by the OP. He says My monthly savings after mandatory expense is around USD 2000. This includes rent, expenses, emergency fund savings, and the monthly required payment of my auto loan. (emphasis added) He has $2000 USD left over after monthly expenses (which includes rent, food, utilities etc, contribution towards emergency funds, and the required monthly payment on the auto loan). He claims that by applying the $2000 USD per month towards reducing the debt, it would take him 30-36 months to be debt-free. But is it not the case that applying the $2000 to the student loan of $18K+ (while continuing to make the auto loan payments) will pay the student loan off in less than 10 months? If no payments are made on that $18K+ student loan, the accrued interest of about $2K in 10 months (this is (18.25*13.7%*)(10/12) for a total of $20K+). In actuality, with the loan being paid down, the interest will be much less. Once the student loan is paid off, the extra $2000 can go towards what is left of the $10K auto loan each month and pay it off in another 4 or 5 months or so. So we are talking of 15 months max instead of 30-36 months. Of course, as Carlos Briebiescas points out, the car is more valuable as an asset than can be sold in case of job loss creating a need for cash etc, and so paying it off first might be better, but that is a different calculation.","\"The advice to pay off near-7% debt is tough to argue against. That said, I'd project out a few years to understand the home purchase. Will you plan for the 20% down John recommends? The Crazy Truth about PMI can't be ignored. The way the math works, if you put 15% down, the PMI costs you so much, it's nearly like paying 20% interest on that missing 5%. If your answer is that you intend to save for the full downpayment, 20%, and can still knock off the student loan, by all means, go for it. I have to question the validity of \"\"we will definitely be in a higher tax bracket when we retire.\"\" By definition, pretax deposits save tax at the marginal rate. i.e. If you are in the 25% bracket, a $1000 deposit saves you $250 in tax that year. But, withdrawals come at your average rate, i.e. your tax bill divided by gross income. There's the deductions for itemized deductions or the standard. Then 2 exemptions if you are married. Then the 10% bracket, etc. Today, a couple grossing $100K may be in the 25% bracket, but their average rate is 12%. I read this Q&A again and would add one more observation - Student Loans and Your First Mortgage is an article I wrote in response to a friend's similar question. With the OP having plan to buy a house, paying off the loan may be more costly in the long run. It may keep him from qualifying for the size mortgage he needs, or from having enough money to put 20% down, as I noted earlier. With finance, there are very few issues that are simply black and white. It's important to understand all aspects of one's finances to make any decision. Even if thee faster payoff is the right thing, it's not a slam-dunk, the other points should be considered.\"","Debt creates risk. Plain and simple. Comparing interest rates of debt vs. possible investing. To me, it is all meaningless. When you are in debt, you options are limited. If you are not in debt, you have more freedom. To me, it is a no brainer. Become debt free ASAP.","\"You should pay for grad school without taking loans if your circumstances permit. There is the possibility of a tax write off for interest paid on student loans, but it's slightly complicated and it's very much a \"\"give me $10, and I'll give you $5 back\"\" kind of deal. You're better off not borrowing the money to begin with, even though I tend to think that borrowing for things which appreciate-- e.g., a house-- or which can significantly increase your earning capability-- e.g., the right kind of graduate school-- is generally better/wiser/more permissible than borrowing for something which depreciates, like a car. Having no student loan debt after graduation means you have greater freedom than someone who is laboring to pay student loan debt in addition to all of their other bills. My $0.02\"","\"If the balance on the low rate loan is very high (say, an IBR student loan at 6% that accumulates interest every year), and the balance on the high rate loan (say, a CC at 18%) is comparatively very small, then you'd want to make sure that you've at least \"\"stopped the bleeding\"\" on the high balance loan before starting to pay off the CC.\"","If the savings rate is the same as the loan rate, mathematically it doesn't make any difference whether you pay down the loan more and save less or vice versa. However, if the loan rate is higher than the savings rate it's better to pay it down as fast as possible. The chart below compares paying down the loan and saving equally (the gradual scenario), versus paying down the loan quickly at 2 x $193 and then saving 2 x $193. The savings rate, for illustration, is 2%. Paying quickly pays down the loan completely by month 51. On the other hand, in the gradual scheme the loan can't be paid down (with the savings) until month 54, which then leaves 3 months less for saving. In conclusion, it's better to pay down the higher rate loan first. Practically speaking, it may be useful to have some savings available.","The earlier you are in your career, the more willing you should be to take a better opportunity even if it has a short-term financial cost. You go to college even if McDonald's has an opening. After college you may take an entry level job with better long-term prospects even if a higher paying job is available. You may train for some professional qualification. Having expenses you have to pay limits your flexibility to do this. A variable rate loan that goes up later may give you the freedom to make better decisions early on. Thus in this case it may be worthwhile. That said - be very wary of variable rate loans. Unless you have iron discipline, they give the opportunity to bury yourself.","I'm 40 and been carrying student debt for nearly 20 years. Because of life events and various circumstances I've had to defer several times. This means my balance history looks like a rollercoaster. At this point I just consider the Department of Education to be akin to heroin addiction. I feed it as regularly as I can. It starts to get painful when I can't. It requires an ever increasing amount to get that fix. I'm financially fucked and it's my fault. And one day it'll probably kill me. But I just keep trying. What choice do I have?","You're halfway done with the debt elimination. Keep up the good work. The student loan debt will get in your way a couple of ways when you look to finance a house. First, your debt to income ratio will be higher than without the debt, so you'll be able to qualify for a smaller loan with the debt than without. Second, you'll have the student loan payments in addition to your mortgage. This may wear on you. I'd look for ways to make extra money to knock out those student loan debts ASAP. The rates aren't horrible. That, and I think there is still some time before the housing market bottoms out, so you don't need to rush into the house. If you can handle the entire debt load (student loans + mortgage) then if you save up for the down payment, that money isn't being used to pay down your student loans, and paying your students loans off won't get any easier when you get a mortgage on top of that.","Do you have other things you might want to spend that cash on in the near future? (Like a down-payment on a house?) Beyond having emergency cash, the only reason to keep a pile of cash around is because you might need it for another purchase. Unless you are going to have other expenses that will require higher-interest loans to cover them, there's no need to sit on a big pile of cash. As long as you are getting the full match on your 401(k), that's the free money that might be worth more than the interest you are paying on the loans. In any case, I suggest you aim for at least 10% into your 401(k) account moving forward in your life so that you can properly fund retirement. 15% would be even better. It doesn't sound like you would be losing anything by paying the student loans, and you could then use the money freed from your loan payments to pay down your car faster.","\"I will add one thought on to this thread. This is a financial concept called \"\"Net Present Value\"\". In plain English, it means \"\"What's the best use for your money right now?\"\" So, let's say you have an extra €300/month which is not being spent on living expenses. If you leave that money under your pillow (or spend it on beer or fancy electronics!) instead of paying off your startersloan early, that is costing you 300*(0.04/12) per month, every month. So €1/month, or €12/year. This is cumulative for the life of your loan. So not paying €300 this month will ultimately cost you €120 assuming you keep the loan open for 10 years. If you're saying \"\"pay my debts or spend the money on a snappy smartphone?\"\" the answer is that you should pay your debts. Now, here's the important part. Let's suppose you have a better use for the money than beer or electronics. Let's suppose you have a mutual fund which will reliably provide you with a return of 10% a year. If you put that €300/month into a high-yield fund, and if the returns are consistent, you are STILL paying that €12/year (because you invested elsewhere and didn't pay your debts), but you are realizing profits of 300*(0.1/12)=€2.5/month on the invested money. €2.5-1=€1.5/month, which is a net gain. So, in some cases, paying off your debt may not be the best use of your money. There are a number of other questions involved which are related to your exposure to capital gains taxes, incentives or disincentives for holding debt, &c. &c. These are generally country specific. A poster above who seems to be familiar with Netherlands law did a good explanation of some of those incentives. I'm in the US, and our incentive and disincentive system is different. TL;DR: It depends.\"","If you have a debt that has very low interest now, but you are aware that it's not going to stay that way (0% introductory APR on a credit card, for example), it can make sense to pay that off before the higher rate kicks in.","What you're getting at is the same as investing with leverage. Usually this comes in the form in a margin account, which an investor uses to borrow money at a low interest rate, invest the money, and (hopefully!) beat the interest rate. is this approach unwise? That completely depends on how your investments perform and how high your loan's interest rate is. The higher your loan's interest rate, the more risky your investments will have to be in order to beat the interest rate. If you can get a return which beats the interest rates of your loan then congratulations! You have come out ahead and made a profit. If you can keep it up you should make the minimum payment on your loan to maximize the amount of capital you can invest. If not, then it would be better to just use your extra cash to pay down the loan. [are] there really are investments (aside from stocks and such) that I can try to use to my advantage? With interest rates as low as they are right now (at least in the US) you'll probably be hard-pressed to find a savings account or CD that will return a higher interest rate than your loan's. If you're nervous about the risk associated with investing in stocks and bonds (as is healthy!), then know that they come in a wide spectrum of risk. It's up to you to evaluate how much risk you're willing to take on to achieve a higher return.","It would probably never make sense to do that. Why would you? You'll end up in the bankruptcy court either way, since you won't be able to pay off the loan, and you cannot maintain the monthly payments without getting into more debt. IRA is shielded from bankruptcies, in most States, so it will probably stay with you afterwards. In any case - it will provide you some income when you're old and cannot keep up working. Unfortunately, Federal student loans are also shielded, but the rest of you debt - isn't. I suggest trying to fix your budgets and see how you can improve your earnings to be able to maintain your payments. I can't understand how you could have racked up $140K student debt and have a career at which you earn $55K/year for an experienced employee.","If I were you, I would pay off my student loans today or tomorrow. Wouldn't it be nice to be completely debt free and not owe anyone anything? It doesn't matter what the interest rate of the loan is; there is no need to spend anymore time trying to worry about whether or not the market will allow you to make a tiny bit extra over what you are spending in interest on the loan. Just get rid of the debt, and you will get to keep every bit of the growth of your investments from here on out. After the student loans are paid off, that leaves you with $15k. I would take $10k and put it in a savings account for an emergency fund, and put $5k as a start toward your retirement savings in a Roth IRA. At this point, with a fully funded emergency fund, a start on your retirement savings, and no debts, you have really set yourself up for success. Learn how to budget your income so that you spend less than you make and can save up toward goals like a car (paid for in cash) and a down payment on a house.","Just to make the deal sweeter, see if you can negotiate a cash discount for paying for grad school with cash. If not, at least look into paying with a rewards credit card so you can get a rebate through your own means. Pay the school loan. People can default on mortgages, school loans are forever. Nothing wrong with sacrificing your dreams for a house several more years while you save. My wife and I are debt free, but it will take a few more years to save for a down payment on a house. It sure feels good knowing we don't owe anyone anything while we make our money have the purpose we want to give it. When you have to pay the bank interest, you do not have control on some of your money.","I think about debt as a good option for capital investments that offer a return. In my opinion, a house and clothes you need for that new job are good things to borrow for. School is ok, depending on the amount. Car is ok, if it's a 3 year loan. The rest is not good. You should try to carry as little debt as possible, but don't let it dominate your life. If faced between the choice of paying ahead on your student loan and blowing $300 on an XBox, you should pay the loan. If the choice is between taking your kid to the zoo and paying the loan, have fun at the zoo."],"string":"[\n \"I see two advantages to not paying student loan debt off more quickly: For #1, however, there are plenty of other ways to build credit and I don't see this as being worth the downsides of not paying off the debt more quickly. In fact, in the United States student loan debt cannot be written off if you go bankrupt. This is important to know and understand. I would generally advise you to pay down your student loans as quickly as you can reasonably do so.\",\n \"\\\"If the interest rate on the student loan is lower than inflation, then the student loan will be \\\"\\\"cheaper\\\"\\\" the longer you take to pay it. This is now a very rare instance, but there were programs and loan consolidation opportunities in the mid-200x's that allowed savvy student's to convert their loans to have an interest rate of around 1.5%. Right now the inflation rate is actually quite low, but it's not expected to stay there, and wasn't that low just a few years ago, so in the long run this type of debt will only be cheaper the longer it takes to pay off. It is risky, as others point out, as it can't be written off in bankruptcy, but there are other situations where it can be written off more easily than other debts, so on balance the risks aren't better or worse than other loans in general. For specific individual situations the risk equation might work out differently, though. Further, student loans aren't considered traditional debt by some lenders for specific lending opportunities, thus allowing you to go into greater debt for certain types of purchases. Whether this is good for you or not depends on the importance of the purchase. If you need to buy a house and the interest rate is higher than your student loan rate, it will be better, financially, to pay off the house first, while paying the minimum on the student loans. If you have no other debt with a higher interest, and the student loan interest is higher than inflation, there is no reason to delay paying off the student loan.\\\"\",\n \"I would not advise this for two reasons: Your point that the investment could be lower at the end of the 3 years is a concern, although with a safe investment, it is less so, but this reduces the potential gain. While your interest is not gaining interest, your interest charged is based on the principal. If you pay off the loans, you reduce the principal and therefore you pay less interest in the long run, even if the interest isn't capitalized. All that this means is that you are basically being charged simple interest as opposed to compounding interest, but reducing the principal helps in either case. You are mistaken about the benefits of the tax deduction. You reduce your tax bill by the marginal rate times the student loan interest you paid for the year. So if you are in the 15% tax bracket and paid $100 in interest, you save $15. This is not a reason to keep the loans (because you have to pay $100 to get $15), but you are mistaken on the benefit, it has nothing to do with shifting the tax brackets. Also, speaking of taxes, don't forget that you pay taxes on investment gains.\",\n \"\\\"I think you're right that from a pure \\\"\\\"expected future value\\\"\\\" perspective, it makes sense to pay this loan off as quickly as possible (including not taking the next year's loan). The new student loans with the higher interest rates have changed the balance enough that it's no longer automatically better to keep it going as long as possible. The crucial point in your case, which isn't true for many people, is that you will likely have to pay it off eventually anyway and so in terms of net costs over your lifetime you will do best by paying it off quickly. A few points to set against that, that you might want to consider: Not paying it off is a good hedge against your career not going as well as you expect, e.g. if the economy does badly, you have health problems, you take a career break for any reason. If that happens, you would end up not being forced to pay it off, so will end up gaining from not having done so voluntarily. The money you save in that case could be more valuable to you that the money you would lose if your career does go well. Not paying it off will increase your net cash earlier in life when you are more likely to need it, e.g. for a house deposit. Having more free cash could increase your options, making it possible to buy a house earlier in life. Or it could mean you have a higher deposit when you do buy, reducing the interest rate on the entire mortgage balance. The savings from that could end up being more than the 6% interest on the loan even though when you look at the loan in isolation it seems like a very bad rate.\\\"\",\n \"I have been in a similar position as you for the past few years. I put a bunch of cash into a tax free savings account (canadian) instead of paying down debt. My rationale was that I wanted the exposure to the market and had to be in it in order to pay attention. I also put money into an rasp, but only because my employer matched it (100% gain, no brainer). Looking back, I think it would have been a better idea to get debt free sooner. Having that debt weighs on you and haunts everything you try to do. You can't afford rent where you want to be, where you should be. There's no keeping up with the Jones' if you're paying off debt. That being said, in Canada your student loans are secured and if you lose your job, the government makes payments for you. If your loans are structured like this, then you are better off hanging onto that money.\",\n \"\\\"I'll use similar logic to Dave Ramsey to answer this question because this is a popular question when we're talking about paying off any debt early. Also, consider this tweet and what it means for student loans - to you, they're debt, to the government, they're assets. If you had no debt at all and enough financial assets to cover the cost, would you borrow money at [interest rate] to obtain a degree? Put it in the housing way, if you paid off your home, would you pull out an equity loan/line for a purchase when you have enough money in savings? I can't answer the question for you or anyone else, as you can probably find many people who will see benefits to either. I can tell you two observations I've made about this question (it comes a lot with housing) over time. First, it tends to come up a lot when stocks are in a bubble to the point where people begin to consider borrowing from 0% interest rate credit cards to buy stocks (or float bills for a while). How quickly people forget what it feels (and looks like) when you see your financial assets drop 50-60%! It's not Wall Street that's greedy, it's most average investors. Second, people asking this question generally overlook the behavior behind the action; as Carnegie said, \\\"\\\"Concentration is the key to wealth\\\"\\\" and concentrating your financial energy on something, instead of throwing it all over the place, can simplify your life. This is one reason why lottery winners don't keep their winnings: their financial behavior was rotten before winning, and simply getting a lot of money seldom changes behavior. Even if you get paid a lot or little, that's irrelevant to success because success requires behavior and when you master the behavior everything else (like money, happiness, peace of mind, etc) follows.\\\"\",\n \"Two different questions: Is it better to be in debt or to pay off the debt? And: Is it better to have student debt than other debt? Any debt needs to be paid off eventually, and any debt makes you less flexible. So if you have the choice between spending/wasting your money and paying off debt, I would recommend paying off the debt. The other question is whether having student debt is better than having other debt. You need to look at the terms of your student debt. Pay off the debt with the worst conditions first. Loan sharks (in Britain: pay-day loans) must be paid first. Credit cards debt must go next. Then general loans. Depending on your situation, you may want some savings as well. In case you lose your job, for example. So if you have $8,000 saved and an $8,000 student loan, you might consider waiting a bit before you pay back the loan. No job + $8,000 student loan + $8,000 in the bank is better than no job + no debt + no money in the bank.\",\n \"Staying with your numbers - a 7% long term return will have a tax of 15% (today's long term cap gain tax) resulting in a post tax of 5.95%. On the other hand, even if the student loan interest remains deductible, it's subject to phaseout and a really successful grad will quickly lose the deduction. There's a similar debate regarding mortgage debt. When I've commented on my 3.5% mortgage costing 2.5% post tax, there's no consensus agreeing that this loan should remain as long as possible in favor of investing in the market for its long term growth. And in this case the advantage is a full 3.45%/yr. While I've made my decision, Ben's points remain, the market return isn't guaranteed, while that monthly loan payment is fixed and due each month. In the big picture, I'd prioritize to make deposits to the 401(k) up to the match, if offered, pay down any higher interest debt such as credit cards, build an emergency account, and then make extra payments to the student loan. Keep in mind, also - if buying a house is an important goal, the savings toward the downpayment might take priority. Student Loans and Your First Mortgage is an article I wrote which describes the interaction between that loan debt and your mortgage borrowing ability. It's worth understanding the process as paying off the S/L too soon can impact that home purchase.\",\n \"\\\"Basically, the money you pay in student loan interest is tax deductible, which means as far as the IRS is concerned, you didn't make that money. However, what that saves you on your taxes is a percentage of a percentage; you save the amount of your current marginal rate on the money you paid as interest. Simple example with made-up numbers: Let's say you had a student loan outstanding, and you were making payments of $150 monthly on it. Total payments to said loan in one tax year would be $1800. Of that amount, let's for the sake of argument say that half, $900, was interest. You get your 1098-E with that number on it, and reduce your taxable income by that amount. You're currently doing well, not outstanding but OK, so you're in the 25% tax bracket that most single middle-classers are in. So, your reduction in taxable income of $900 saves you the 25% that those 900 simoleons would have been taxed at, which is $225. So, all told, this loan is a net drain on your disposable income of $1,575, of which $675 is pure cost of capital; you never received a dollar in disbursements to match this amount you're paying, so it's money lost now in return for previous gains. 10 years later, you pay off the debt. Now that $1800 is yours to keep, and to pay full taxes on. You pay $225 more in taxes (actually, because of amortization, the amount of additional taxes has been steadily increasing as the interest portion of the loan payments has reduced) but have the remaining $1575 in your pocket to do something else. While there is good debt and bad debt, debt is debt; whether deductible or not, the IRS will never credit your tax bill in the amount of interest owed (AFAIK; if someone knows of a loan whose interest is a credit instead of a deduction I'm all ears). So, the deduction on this loan reduces your cost of capital to an effective APR of 4.5%, and because it's a student loan and not a mortgage, you don't have to itemize so this is in effect a \\\"\\\"free\\\"\\\" deduction (even with an FHA mortgage allowing me to deduct interest, property taxes and PMI, and the residual medical costs after insurance of having our new baby, the $11,900 standard deduction for my wife and I was still the better deal this year). But, you're still losing 4.5% per year to interest. That's your break-even; if the money you could use to pay your debt could earn a better return than 4.5%, then invest it, but if not, pay off the loan. Right now, investments that could make you 4.5% are at the bottom edge of a steep increase in risk and variance, so if your expected ROI is close, I'd lean toward paying off the debt.\\\"\",\n \"A friend tweeted a similar question regarding student loans, and I responded with Student Loans and Your First Mortgage. The punchline is that you need to be aware of the 28/36 ratios in a bank qualifying you for your mortgage. Even though you have a house, you may not be aware of this. Simply put, 28% of gross monthly income can be used to qualify for your house burden, loan, taxes, etc. 36% for total debt. So the student loan may fit in that 8% gap, and paying it all off reduces the cash you have without helping you borrow more money. 3-5 years is short term, and to that part of the question, this money should not be invested in anything at risk. A 3 year treasury or CD would be it, in my opinion.\",\n \"The only real consideration I would give to paying off the debt as slowly as possible is if inflation were much higher than it is now. If you had a nice medium to low interest (fixed rate) loan, like yours, and then inflation spiked to 7-8%, for example, then you're better off not paying it now because it's effectively making you money (and then when inflation calms back down, you pay it off with your gains). However, with a fairly successful and active Federal Reserve being careful to avoid inflation spikes, it seems unlikely that will occur during your time owing this debt - and certainly isn't anywhere near that point now. Make sure you're saving some money not for the return but for the safety net (put it in something very safe), and otherwise pay off your debt.\",\n \"Paying off the student loans slower and investing the rest has some advantages - the interest is tax deductible (essentially lowering that 7% number), and it helps allow you to build up a liquid emergency fund which is more important to financial security than returns.\",\n \"\\\"I am going to respond to a very thin sliver of what's going on. Skip ahead 4 years. When buying that house, is it better to have $48K in the bank but a $48K student loan, or to have neither? That $48K may very well be what it would take to put you over the 20% down payment threshhold thus avoiding PMI. Banks let you have a certain amount of non-mortgage debt before impacting your ability to borrow. It's the difference between the 28% for the mortgage, insurance and property tax, and the total 38% debt service. What I offer above is a bit counter-intuitive, and I only mention it as you said the house is a priority. I'm answering as if you asked \\\"\\\"how do I maximize my purchasing power if I wish to buy a house in the next few years?\\\"\\\"\\\"\",\n \"Pay off your highest-interest debt first: credit card, car, maybe even mortgage. Pay minimums on all else. Student loans are typically low interest, so pay off anything else first, but double-check your rate of course. Even if you have no other debt, you may still want to hang on to your savings instead of paying down your student loans if getting rid of your savings causes you to accrue debt. For example, if you have a low income and no savings, you may accrue credit card debt (high interest). Or you may want to buy a car with cash instead of getting a loan. Even if this is not an issue, consider what you can do with your savings that others who lack them cannot do. You can put it into mutual funds, which may offer higher rate of return (albeit with risk) than your student loan interest. Or you may pay a down payment on a home. The very low interest rates of student loans are, to a person with savings, essentially a source of cheap money that doesn't need to be justified to a bank. You can use it as seed money to start a business, as funds for travel, for living expenses while in the Peace Corps, or whatever else. But if you pay down that principal, you bind yourself. In short, pay down your student loans when there is no better use for the money.\",\n \"Having a loan also represents risk. IMHO you should retire the loan as soon as feasible in most cases. JoeTaxpayer, as usual, raises a good point. With numbers as he is quoting, it is tolerable to have a loan around on a asset such as a home. While he did not mention it, I am sure that his rate is fixed. If the interest rate is variable: pay it off. If it is a student loan: pay it off. If you can have it retired quickly: pay it off and get the bank off your payroll. If it is consumer debt: pay it off.\",\n \"\\\"The rate difference between your student loans and the historical yearly average growth in the S&P500 isn't large enough for me to play the \\\"\\\"pay minimums and invest the rest\\\"\\\" strategy. If your loans were 2%, I might think about it. However, the 4% loans are guaranteed and mandatory expenses; discharging them even in bankruptcy is unlikely. The quicker you pay them off, the sooner you won't have them hanging over your head in case of a \\\"\\\"financial setback\\\"\\\" (job loss, large expense uncovered by insurance, etc). (One good reason to pay the minimums, though, is to build up a $1K emergency fund. When your debts are paid, then you can increase its size.)\\\"\",\n \"\\\"As Mr. Money Money Mustache once said: IF YOU HAVE CREDIT CARD DEBT, YOU SHOULD FEEL LIKE YOUR HAIR IS ON FIRE Student loan debt is different than credit card debt. Rather than having spent the money on just about anything, it was invested in improving yourself and probably your financial future. This was probably a good decision. However, unlike most credit card debt, if you ever have to file for bankruptcy, your student loans will not be erased. They will follow you forever. Pay your debts off as quickly as you can. While it may be true that \\\"\\\"long-term return on the stock market is about 7%\\\"\\\", you cannot assume that this will always be the case, especially in the short term. What if you had made this assumption in 2007? To assume that your stocks will beat a 6.4% guaranteed return over the next few years is not really investing. It's gambling.\\\"\",\n \"One extremely important aspect that must be taken into consideration is the state of the housing market. If prices are rising it will probably be a false economy to delay your house purchase. Say you pay off a £5,000 student loan, thus delaying your house purchase another year you could well end up forking out an extra £10,000 on the mortgage due to the rise in house prices. Of course, if the housing market is falling then, without a doubt, pay off the student debt.\",\n \"It might be a good idea, because later in life if a large expense shows up or an income source disappears, you will only have the mortgage payment, rather than a mortgage AND a student loan payment.\",\n \"My recommendation would be to pay off your student loan debt as soon as possible. You mention that the difference between your student loan and the historical, long-term return on the stock market is one-half percent. The problem is, the 7% return that you are counting on from the stock market is not guaranteed. You might get 7% over the next few years, but you also might do much worse. The 6.4% interest that you will save by aggressively paying off your debt is guaranteed. You are concerned about the opportunity cost of paying your debt early. However, this cost is only temporary. By drawing out your debt payments, you have a long-term opportunity cost. By this, I mean that 4 years from now, you could still have 6 years of debt payments hanging over your head, or you could be debt free with all of your income available to save, spend, or invest as you see fit. In my opinion, prolonging debt just to try to come out 0.5% ahead is not worth the hassle or risk.\",\n \"I am answering this in light of the OP mentioning the desire to buy a house. A proper mortgage uses debt to income ratios. Typically 28/36 which means 28% of monthly gross can go toward PITI (principal, interest, tax, insurance) and the total debt can go as high as 36% including credit cards and car payment etc. So, if you earn $5000/mo (for easy math) the 8% gap (between 28 and 36) is $400. If you have zero debt, they don't let you use it for the mortgage, it's just ignored. So a low interest long term student loan should not be accelerated if you are planning to buy a house, better put that money to the down payment. But for credit cards, the $400/mo carries $8000 (banks treat it as though the payment is 5% of debt owed). So, I'd attack that debt with a vengeance. No eating out, no movies, beer, etc. Pay it off as if your life depended on it, and you'll be happier in the long run.\",\n \"I'm no financial advisor, but I do have student loans and I do choose to pay them off as slowly as I can. I will explain my reasoning for doing so. (FWIW, these are all things that pertain to government student loans in the US, not necessarily private student loans, and not necessarily student loans from other countries) So that's my reasoning. $55 per month for the rest of my life adds up to a large amount of money over the course of my life, but the impact month-to-month is essentially nonexistent. That combined with the low interest and the super-low-pressure-sales-tactics means I just literally don't have any incentive to ever pay it all off. Like I said before, I'm just a guy who has student loans, and not even one who is particularly good with money, but as someone who does choose not to pay off my student loans any faster than I have to, this is why.\",\n \"Liquidity Say you have $50k in student loan debt. You come into a large amount of money and throw $10k at it. Yes, it's now down to $40k, saving you a lot of money in interest over the long run, but it's money you can no longer 'use'. Now if you invest that same $10k instead, you still potentially have access to it if needed. Paying $10k towards a debt at a 5% interest rate has essentially the same rate of return as investing the $10k at a 5% return. You're 'making' the same amount of money either way. But if you say, get laid off or need money for medical expenses or a down payment on a house, you can tap into that $10k investment if needed. It is a liquid asset.\",\n \"\\\"Two things you should consider about paying off student loans ahead of the 10 year amortization schedule: What interest rate are you paying on your loans? What are you earning on your investments in a balanced mutual fund? When you pay off your student loans you are essentially guaranteed a return of the interest rate on your loan (future interest you would have had to pay). However if you are investing well and getting a good return on your investments you will get a greater return. Ex. Half of my student loans are at 6.8%, thr other half are at 2.5%. I make the minimum payments on the loans at 2.5% and invest my money in tax sheltered retirement accounts. The return on these funds has been 8% and that is on per-tax dollars so really closer to 11%. Now there is also downside risk when you invest in the market, but 2.5% guaranteed I will forgoe for 11% in low risk return. However my loans at 6.8% I repay in excess of the minimums because 6.8% guaranteed return is pretty good! So this decision is based on your confidence in your investments and your own risk tolerance. Once you pay your bank on your student loans that money is gone, out of your control. If you need it in the future you may need to pay higher interest on an unsecured loan, or you may not be able to borrow it. When you want to make large purchases (a car, house) that money you per-paid on your loans isn't available to you as a down payment. Banks should want you to have some of your own \\\"\\\"skin in the game\\\"\\\" on these purchases and the lending standards keep getting tougher. You are better off if you have money saved in your name rather than against the balance on your loan. Yes you can't bankrupt these loans, but the money you repay on them doesn't go toward housing you or paying your bills on a rainy day. I went through the same feeling when I completed my MBA with $50k in debt, you want to pay it off as soon as possible. But you need to step away and realize that it was an investment in your future and your future is long, you need time to make a financial foundation for it. And you will feel a lot more empowered when you have money saved and you can make the decision for how you want to deploy it to work for you. (Ex. I could pay down my student loans with the balance I have in the bank, but I am going to use it to invest in myself and open my own business).\\\"\",\n \"Paying off your student loan is an investment, and a completely risk-free one. Every payment of your loan is a purchase of debt at the interest rate of the loan. It would be extremely unusual to be able to find a CD, bond or other low-risk play at a better rate. Any investment in a risky asset such as stocks is just leveraging up your personal balance sheet, which is strictly a personal decision based on your risk appetite, but would nearly universally be regarded as a mistake by a financial advisor. (The only exception I can think of here would be taking out a home mortgage, and even that would be debatable.) Unless your loan interest rate is in the range of corporate or government bonds -- and I'm sure it isn't -- don't think twice about paying them off with any free cash you have.\",\n \"Ponder this. Suppose that a reputable company or government were to come out and say hey, we are going to issue some 10 year bonds at 6.4%. Anyone interested in buying some? Assume that the company or government is financially solid and there is zero chance that they will go bankrupt. Think those bonds would sell? Would you be interested in buying such a bond? Well, I would wager that these bonds would sell like hotcakes, despite the fact that the long term stock market return beats it by a half percent. Heck, vanguard's junk bond fund is hot right now. It only yields 4.9% and those are junk bonds, not rock solid companies (see vanguard high yield corporate bond fund) Every time you make an extra principal payment on your student loan, you are effectively purchasing a investment with a rock solid, guaranteed 6.4% return for 10 years (or whatever time you have left on the loan if make no extra payments). On top of that, paying off a loan early builds your credit reputation, improves your monthly cash flow once the loan is paid, may increase your purchasing power for a house or car, and if nothing else, it frees you from being a slave to that debt payment every month. Edit Improved wording based on Ross's comment\",\n \"All great answers. The only thing I didn't see mentioned was that student loans are not dischargable in a bankruptcy. So for example if you took money that could have gone to student loans and poured it into other debt, then for some reason declared bankruptcy later, your student load debt would remain while other debt would be discharged; essentially that money would have been better spent on the student loan. This isn't to advocate that you should pay down student loans with the intent of declaring bankruptcy, or that this makes it a better decision necessarily, just a factor that is sometimes forgotten.\",\n \"You are on the right track with your math, but be wary of your assumptions. If you can borrow money at x% (and can afford to make payments on the debt), and you can get a return of > x% from investing, then you would make more money by keeping the debt and investing your savings. Another way to think of it: by paying off the debt you are getting a guaranteed 5% return because that's the rate you'd have paid if you kept the debt. Be wary of your assumption of getting a 10% return in the S&P 500. Nothing is guaranteed, even over the long term. Actual results may well be less, and you could lose money. It doesn't have to be all-or-nothing: why not pay off the higher rate debt at 5% and keep the 3% debt? That's a guaranteed 5% return by paying off the NSLSC loan. And 3% is a pretty low interest rate. If you can afford to make the payments, I see nothing wrong with investing your savings instead of paying off the loan. Make sure you have an emergency fund, too.\",\n \"As others mentioned, the only clear reason to remain in debt is if you can find an investment that yields more than what you're paying to maintain the debt. This can happen if a debt was established during low-rate period and you're in a high-rate period (not what is happening now.) A speculative reason to keep debt is as an inflation bet. If you believe money will shortly lose value, you are better off postponing repayment until the drop occurs. However you're not likely to be able to make these bets successfully. Hope this helps\",\n \"I recently paid-off $40k in student loan debt. One of the motivations for me to accelerate my payments was that over time, as my income increased, the amount of student loan interest I could write-off on taxes started to phase-out.\",\n \"Congratulations for achieving an important step in the road to financial freedom. Some view extending loan payment of loans that allow the deduction of interest as a good thing. Some view the hit on the credit score by prematurely paying off an installment loan as a bad thing. Determining the order of paying off multiple loans in conjunction with the reality of income, required monthly living expense, and the need to save for emergencies is highly individualized. Keeping an artificial debt seems to make little sense, it is an expensive insurance policy to chase a diminishing tax benefit and boost to a credit score. Keep in mind it is a deduction, not a credit, so how much you save depends on your tax bracket. It might make sense for somebody to extend the loan out for an extra year or two, but you can't just assume that that advice applies in your situation. Personally I paid off my student loan early, as soon as it made sense based on my income, and my situation. I am glad I did, but for others the opposite made more sense.\",\n \"My advice is that if you've got the money now to pay off your student loans, do so. You've saved up all of that money in one year's time. If you pay it off now, you'll eliminate all of those monthly payments, you'll be done paying interest, and you should be able to save even more toward your business over the next year. Over the next year, you can get started on your business part time, while still working full time to pile up cash toward your business. Neither you nor your business will be paying interest on anything, and you'll start out in a very strong position. The interest on your student loans might be tax deductible, depending on your situation. However, this doesn't really matter a whole lot, in my opinion. You've got about $22k in debt, and the interest will cost you roughly $1k over the next year. Why pay $1k to the bank to gain maybe $250 in tax savings? Starting a business is stressful. There will be good times and bad. How long will it take you to pay off your debt at $250 a month? 5 or 6 years, probably. By eliminating the debt now, you'll be able to save up capital for your business even faster. And when you experience some slow times in your business, your monthly expenses will be less.\",\n \"Here's my take on it (and quite a few people might disagree) - student loans aren't bankruptable, so they'll stay with you forever. So if you want to reduce your risk over time and have a funded emergency fund and some cash put aside for, say, a car or another major expense, then I'd try to throw money at the student loan to get rid of it quickly.\",\n \"If you end up keeping the student loan, it will be a tax deduction. Probably not much but at least it's something.\",\n \"I don't know much about how student loans work, so there might be some caveats (e.g. does the interest rate stay constant, do you get a discount if you pay off early etc.). Ignoring those caveats: The interest on you student loan looks quite small. Depends a bit where you are in the world, but it seems very likely that you can get more interest than that on a 100% guaranteed investment form, e.g. term bank deposits. So, it seems a no-brainer to not pay back you student loan and invest the money securely for a higher interest rate instead. Similar situation when you think about taking the money as a down-payment for a house. More factors come into play here:\",\n \"If you can borrow for an asset that gives you income that's more than the cost of carrying the debt, then go for it. But the kinds of debts you have now aren't those kinds of debt, so get rid of them.\",\n \"\\\"If I understand correctly, your question boils down to this: \\\"\\\"I have $X to invest over 25 years, are guaranteed returns at a 0.6% lower rate better than what I expect to get from the stock market over the same period?\\\"\\\" Well, I believe the standard advice would go something like: Rational investors pay a premium to reduce risk/volatility. Or, put another way, guaranteed returns are more valuable than risky returns, all things equal. I don't know enough about student loans in America (I'm Australian). Here a student loan is very low interest and the minimum repayments scale with what you earn not what you owe, starting at $0 for a totally liveable wage - Here I'd say there's a case to just pay the minimum and invest extra money elsewhere. If yours is a private loan though, following the same rules as other loans, remember the organisation extending your loan has access to the stock market too! why would they extend a loan to you on worse terms than they would get by simply dumping money into an index fund? Is the organisation that extends student loans a charity or subsidised in some way? If not, someone has already built a business on the the analysis that returns at 6.4% (including defaults) beats the stock market at 7% in some way. What I would put back to you though, is that your question oversimplifies what is likely your more complex reality, and so answering your question directly doesn't help that much to make a persuasive case - It's too mathematical and sterile. Here are some things off the top of my head that your real personal circumstances might convince you to pay off your loan first, hit up Wall Street second:\\\"\",\n \"The interest accrues daily based on the amount you owe. The less you owe the less the daily interest accrual. The faster you pay it off the less you pay in the lifetime of the loan. You are losing money if you bank money rather than applying it to the loan immediately. Since student loans cannot be declared in bankruptcy and interest rates cannot be refinanced, or are nonnegotiable, then you should consider your student loan a priority in case your employment/income runs into problems.\",\n \"On the face, this appears a sound method to manage long run cumulative interest, but there are some caveats. Maxing out credit cards will destroy your credit rating. You will receive no more reasonable offers for credit, only shady ones. Though your credit rating will rise the moment you bring the balance back down to 10%, even with high income, it's easy to overshoot the 8 months, and then a high interest rate kicks in because of the low credit rating. Further, maxing out credit cards will encourage credit card lenders to begin cutting limits and at worse demand early payment. Now, after month 6 hits, your financial payment obligations skyrocket. A sudden jolt is never easy to manage. This will increase risk of missing a payment, a disaster for such hair line financing. In short, the probability of decimating your financial structure is high for very little benefit. If you are confident that you can pay off $4,000 in 8 months then simply apply those payments to the student loan directly, cutting out the middle man. Your creditors will be pleased to see your total liabilities fall at a high rate while your utilization remains small, encouraging them to offer you more credit and lower rates. The ideal credit card utilization rate is 10%, so it would be wise to use that portion to repay the student loans. Building up credit will allow you to use the credit as an auxiliary cushion when financial disaster strikes. Keeping an excellent credit rating will allow you to finance the largest home possible for your money. Every percentage point of mortgage interest can mean the difference between a million USD home and a $750,000 one.\",\n \"Simple rule for UK student loans. Never repay early. (http://www.moneysavingexpert.com/students/student-loans-repay) They are not real debt: only payable over threshold and wiped after 30 years (ish). They do not appear as debt with Credit Agencies. If you have other debt, it is almost certainly at a higher rate or worse terms and should be paid off first If you don't have debt, then you can put the cash to better use: whether saving, mortgage deposit or avoiding worse debt in the future.\",\n \"\\\"Everyone has made some good points that I was going to mention but to put it in terms that might make it easier to decide. As stated by others, paying off debt and being free is always the goal and desirable. However, you must also consider the \\\"\\\"efficiency\\\"\\\" of what you do as well. For example, there are two common types of student loans (there are others but let's focus on these) and that is subsidized and unsubsidized. The main difference? Subsidized loans don't earn interest on your balance while you are in school, it only happens when you graduate and come out of repayment grace period. Unsubsidized loans begin accumulating interest the moment they are disbursed, but you are not required to make payments on them until you graduate. All student loans are deferred until you graduate and exhaust your grace period or other means of deferring your payment, say for example a postponement or forbearance. However, it is often recommended that on UNSUBSIDIZED loans, you pay down your principle while still in school to avoid that massive interest amount that will get added to it when you are officially in repayment. On the other hand, it is often (if not always) recommended that you hold off on paying SUBSIDIZED loans until you are done and go into repayment, as for all intents and purposes its not costing you anything extra to wait. Family and parent loans are considered and treated more like personal loans, so treat them as such. Hope that helps. Also, don't forget to take advantage of the income based repayment options, as they will make the payments manageable enough to avoid making them a burden while you are trying to get a job and go post education. Further reading: Income-Driven Plans (Department of Education) Income-Driven Repayment Plans (nelnet)\\\"\",\n \"It depends on the terms. Student loans are often very low interest loans which allow you to spread your costs of education over a long time without incurring too much interest. They are often government subsidized. On the other hand, you often get better mortgage rates if you can bring a down payment for the house. Therefore, it might be more beneficial for you to use money for a down payment than paying off the student load.\",\n \"Competing against other groups and against computers. In this course we have some point in the future where we face a crisis. I would think I need to keep my debt levels low incase I need to get a long-term loan to cover my expenses over the 3rd year. In that case I might just hold off until before that date to maximize the debt load. I also don't know what effect on our stock price our balance sheet has. I feel like when I analyze companies and see their balance sheets have a lot of debt I shy away depending on their share price.\",\n \"\\\"There are several ways you can get out of paying your student loans back in the USA: You become disabled and the loan is dismissed once verified by treating doctor or the Social Security Administration. You become a peace officer. You become a teacher; generally K-12, but I have heard from the DOE that teachers at state schools qualify as well. So the \\\"\\\"malicious\\\"\\\" friend B is prescribing to the theory that if one of those conditions becomes true, friend A will not have to pay back the loan. The longer you drag it out, the more chance you have to fulfill a condition. Given that 2 of these methods require a commitment, my guess is that they are thinking more along the lines of the first one, which is horrible. Financially, it makes no sense to delay paying back your loans because deferred loans are only interest-free until you graduate and are past your grace period, after which they will begin accruing interest. Unsubsidized loans accrue interest from the day you get them, only their payback is deferred until you graduate and exhaust your grace period. Anytime you ask for forbearance, you are still accruing interest and it is capitalizing into your principal — you are just given a chance to delay payback due to financial hardship, bad health, or loss of job. Therefore, at no point are you benefiting beyond the time you are in school and getting an education, still looking for a job, or dealing with health issues. In the current market, no CD, no savings account, and no investment will give you substantially more return that will offset the loss of the interest you are accruing. Even those of us in the old days getting 4.X % rates would not do this. There was a conditional consolidation offer the DOE allowed which could bring all your loans under one roof for a competitive 5.x-6.x % rate allowing you a single payment, but even then you would benefit if you had rates that were substantially higher. From a credit worthiness aspect, you are hurt by the outstanding obligation and any default along the way, so you really want to avoid that — paying off or down your loans are a good way to ensure you don't shoot yourself in the foot.\\\"\",\n \"If you have (other) high interest debt, say over 8%, pay it back first. Else, you are likely best off paying this loan back and getting the money working for you long term.\",\n \"Its almost always better to pay off loans sooner rather than later. Being debt free is amazingly liberating. However, in your case, I'd be reluctant to make significant headway on a loan repayment program. Here's why: The best investment you can make, right now, is in yourself. Completing your education should be the top priority. The next would be to meet the requirements of a job after received after school is complete. So what I would do is estimate the amount of money it would take to complete school. Add to that an estimate of an amount to move to a new city and setup a household. That amount should be held in reserve. Anything above that can used to pay down loans. Once you complete school and get settled into a job, you can then take that money and also throw it at your loans.\",\n \"\\\"You have 1998-2011 income-contingent student loans, where the interest rate is the lower of (1% + base rate) or RPI (retail price inflation). For the next few years the it's likely to be (1% + base rate) as interest rates stay low and inflation shoots up. These loans only need to be repaid in proportion to your salary, and if they aren't repaid for long enough (e.g. the holder takes a career break for children) they are written off. So all-in-all, they are pretty good debt to have: low interest rate, and you might not have to repay them ever. It's likely that your mortgage will have a significantly higher rate than the student loan, so you'd be better off reducing your mortgage. Also, the higher deposit might mean you can get a lower interest rate on the whole mortgage because the lender will see you as a lower risk, so the return from \\\"\\\"investing\\\"\\\" it in your mortgage would be even greater than the raw interest rate. Having the student loan outstanding might make some difference to the \\\"\\\"affordability\\\"\\\" check for your mortgage payments, but lenders will be very familiar with how they work. Reducing your mortgage payments with the higher deposit should easily counterbalance that. Your own suggestion is to invest the £30K in a \\\"\\\"reasonably safe portfolio\\\"\\\" making 5%. There'll inevitably be some risk in that - 5% is a relatively high return in today's climate - but if you're willing to take that risk, you can investigate the effect on your mortgage to see if it's worth it or not.\\\"\",\n \"\\\"It's not a bad strategy. I'd rather owe money at 4% interest than at 6-7%. However, there is something to consider. Consolidating debt into a new loan can backfire. When you have money borrowed at 7%, you want to get that paid off as quickly as possible. Once you have that converted to 4%, if you think, \\\"\\\"Now I can take my time paying off this debt,\\\"\\\" then you aren't really better off. In fact, if you take too long paying off the new loan, you might end up paying more interest than if you had kept the high interest loan and paid it as soon as possible. Don't lose your drive to get out of debt after you refinance. As far as how the student loans affect your debt-to-income ratio, I'm not sure; however, if they do count (I think they do), your ratio will not really be going up by taking out the new loan, since you are using the money to pay other debt. Make sure the new lender knows this, so they take that into consideration when making their decision. Overall, I like your strategy: pay off what you can right away (the car loan and the highest interest student loans) and reduce the interest on the rest. Just make sure that you continue to pay down that debt as quick as you can.\\\"\",\n \"I believe this argument is most often used when considering which debts to pay back first, or when there are other options available such as investment options, building up an emergency fund, or saving for a large purchase. In that case, it's simply justifying making minimum payments and paying more over the life of the loan in exchange for larger liquidity in the present. Unfortunately, when it comes to choosing between which debts to pay (e.g. My mom pays more than the minimum on her car because she can't deduct auto loan interest, despite her mortgage carrying a higher interest rate), it's only beneficial if the tax savings offsets the interest savings difference. The formula for that is: tax bracket > (1 - (target loan interest rate / mortgage interest rate)) That said, most people don't think in the long term, either by natural shortsightedness, or by necessity (need to have an emergency fund).\",\n \"\\\"I bought a house when I was 22, I also had $10k in student load debt. After the down payment, I had $1,500 to my name and $82k worth of debt. All the advice pointed to \\\"\\\"pay the minimum payment and invest the rest.\\\"\\\" I discarded the advice and scrimped and put everything extra to those bills. I paid it all off by the time I was 31, and now at 34 I'm self employed, have about $110,000 saved up, a house worth $105,000, 2 cars worth a total of $8,000 and no debt. Keep in mind most of those years I was making $24-$30k a year I might have lost out on a couple years of investments, but right now there are no money worries... wouldn't you rather be like that instead of worrying if you might lose your job?\\\"\",\n \"\\\"There will be many who will judge your proposal on the idea that subsidized loans should be available to those who need them, and should not be used by others who are simply trying to profit from them. Each school has a pool of money available to offer for subsidized and unsubsidized loans. If they are giving you a subsidized loan, they cannot allocate it to someone else who needs it. Once you weigh the investment risks, I agree that it is analogous to investing rather than repaying your mortgage quickly. If you understand the risks, there's no reason why you shouldn't consider other options about what to do with the money. I am more risk averse, so I happen to prefer paying down the mortgage quickly after all other investment/savings goals have been met. Where you fit on that continuum will answer the question of whether or not it is a \\\"\\\"bad idea\\\"\\\".\\\"\",\n \"\\\"The obvious disadvantage of paying loans off more slowly is that you will pay a lot more in total interest... Which means less savings and less disposable income on the long term. Unless you are doing something with the money which produces more income than the interest costs you, this is very much \\\"\\\"penny wise, pound foolish\\\"\\\". If you aren't making money by paying that money, all you can do is loose money at the slowest rate you can afford. You do that by paying off the loan as quickly as you can afford to do so. It's up to you to look seriously at your finances and decide what your real needs are, how you're going to meet them, and how much you can afford beyond that while still paying off the loans as quickly as possible. Sloppiness now will cost you much more than you expect layer, due to the compounding you will have missed out on. Really. See the questions about how to start saving/investing for answers that discuss how to prioritize your money. There are some steps you should be taking ASAP if you haven't already done so.\\\"\",\n \"Here's another way to look at this that might make the decision easier: Looking at it this way you can turn this into a financial arbitrage opportunity, returning 2.5% compared to paying cash for the vehicle and carrying the student loan. Of course you need to take other factors into account as well, such as your need for liquidity and credit. I hope this helps!\",\n \"Like all other loan-vs-savings questions, it depends on the terms of the loan. If you have a choice, the usual answer is to pay off the loan with the worst terms (which usually means the highest interest rate) first, and only start with savings when you've paid off all the high-interest loans entirely. If your student loan is on US terms, then pay it off as soon as you can, unless you have commercial debt (credit-card or unsecured personal loan), which you should pay off first, or unless you have or are realistically likely to get eligibility for a forgiveness program. But it does depends on the terms of the debt, which in turn depend on the country you studied in; on UK terms it's a very bad idea to pay off a student loan any faster than you have to. Interest is restricted to the rate of inflation, so good investments probably beat the interest rate of the student loan; the required repayments vary with your income, so savings are more useful than debt repayment if you encounter income difficulties (e.g unemployment) in the future, and finally the debt is automatically forgiven after 30 years, so you may never have to pay it all back anyway - so why pay it off voluntarily if it would get forgiven eventually anyway?\",\n \"My theory, if you must be in debit, own it at the least expense possible. The interest you will pay by the end, combined with the future value of money. Example: The Future value of $3000 at an effective interest rate of 5% after 3 years =$3472.88 Present value of $3000 at 5% over 3 years =$2591.51 you will need more money in the future to pay for the same item\",\n \"One other factor to consider is that Mortgage debt can be wiped out in a bankruptcy, but student loan debt can not. Financially it is simple math to figure out which one makes more sense to pay off based on the total expenditures on interest minus tax savings from deductible mortgage interest. However, in terms of risk it might be best to pay off the student loans first.\",\n \"This is a slightly different reason to any other answer I have seen here about irrationality and how being rationally aware of one's irrationality (in the future or in different circumstances) can lead you to make decisions which on the face of it seem wrong. First of all, why do people sometimes maintain balances on high-interest debt when they have savings? Standard advice on many money-management sites and forums is to withdraw the savings to pay down the debt. However, I think there is a problem with this. Suppose you have $5,000 in a savings account, and a $2,000 credit card balance. You are paying more interest on the credit card than you get from the savings account, and it seems that you should withdraw some money from the savings account, and pay off the cc. However, the difference between the two scenarios, other than the interest you lose by keeping the cc balance, is your motivation for saving. If you have a credit card balance of $2,000, you might be obliged to pay a minimum payment of $100 each month. If you have any extra money, you will be rewarded if you pay more in to the credit card, by seeing the balance go down and understanding that you will soon be free from receiving this awful bill each month. To maintain your savings goal, it's enough to agree with yourself that you won't do any new spending on the cc, or withdraw any savings. Now suppose that you decide to pay off the cc with the savings. There is now nothing 'forcing' you to save $100 each month. When you get to the end of the month, you have to motivate yourself that you will be adding spare cash to your $3,000 savings balance, rather than that you 'have to' pay down your cc. Yes, if you spend the spare cash instead of saving it, you get something in return for it. But it is possible that spending $140 on small-scale discretionary spending (things you don't need) actually gets you less for your money than paying the credit card company $40 interest and saving $100? You might even be tempted to start spending on your credit card again, knowing that you have a 0 balance, and that you 'can always pay it off out of savings'. It's easy to analogize this to a situation with two types of debt. Suppose that you have a $2,000 debt to your parents with no interest and a $2,000 loan at high interest, and you get a $2,000 windfall. Let's assume that your parents don't need the money in a hurry and aren't hassling you to pay them (otherwise you could consider the guilt or the hassle as a form of emotional interest rate). Might it not be better to pay your parents off? If you do, you are likely to keep paying off your loan out of necessity of making the regular payments. In 20 paychecks (or whatever) you might be debt free. If you pay off your loan, you lose the incentive to save. After 20 months you still owe your parents $2,000. I am not saying that this is always what makes sense. Just that it could make sense. Note that this is an opposite to the 'Debt Snowball' method. That method says that it's better to pay off small debts, because that way you have more free cash flow to pay off the larger debts. The above argues that this is a bad idea, because you might spend the increased cash flow on junk. It would be better to keep around as many things as possible which have minimum payments, because it restricts you to paying things rather than gives you the choice of whether to save or spend.\",\n \"Good credit is calculated (by many lenders) by taking your FICO score which is calculated based upon what is in your credit report. Building credit generally means building up your FICO score. Your FICO score is impacted my many factors, one small one of which is your utilization ratio of your installment loans like student loans. This is the ratio of the current balance to your original balance. To improve your score (slightly) you would want a lower ratio. I would recommend paying your student loan down to 75% ratio as fast as you can and then you can go back to $50/month. A much better way to improve your FICO score is to have revolving credit. Your student loans are not revolving, they are installment loans. Therefore, you should open at least one credit card (assuming you currently have none) right away. The longer you have had a credit card open, the better your FICO score gets. Your revolving credit utilization ratio is way more important than your installment loan ratio. Therefore, to maximize your FICO, try to never have more than 10% utilization on your revolving credit report to the credit bureaus each month. Only the current month's ratio affects your score at any given moment. You can ensure you don't go above 10% by paying your balance before the statement cuts each month to get it below 10% way before any payment would be due. (You should always pay your remaining credit card statement balance in full each month by the due date after the statement cuts to avoid any interest charges.) Note that there is a slight FICO advantage to having at least one major bank credit card instead of just only credit union credit cards. Also, never let all your revolving credit report a zero balance in a month, you must always have at least $1 reporting to the credit bureaus on at least one of your open credit cards or your FICO score will take a big negative hit. If you cannot get a normal credit card, go to a credit union and find one that offers secured credit cards, or a bank that does. A secured credit card is where you place a deposit with the bank that they hold and give you a credit limit to match your security. Ideally it would be a card that graduates to unsecured after your demonstrate good history with them. For example, the Navy Federal Credit Union secured card unsecures for many people. I also believe the Wells Fargo Bank credit card (you can join if there is a family member who served or a roomate who did) also will unsecure. The reason you want it to unsecure and not be forced to open a new account to get an unsecured account is that you want your average age and oldest age of open revolving credit accounts to be as high as possible as this is another impact on your FICO score. Credit unions that anyone can join include, Digital Federal Credit Union, the Pentagon Federal Credit Union (which offers a secured card that does not graduate), and The State Department Federal Credit Union (also offers secured card that I think does not graduate). One other method to boost your FICO score is to get added as an authorized user on one of your parent's credit cards that has been open a long time. Not all lenders will report such an authorized user, however, ones that are known to do so are: Bank of America, Citi Bank, and Capital One. It is a good sign that it will report if they ask for the social security number of the authorized user. However, note that the Authorized User addition can have no impact if the lender is using one of the newer versions of the FICO scoring model, only the older versions reward you for the age of accounts for which you are an authorized user. A very long term boost is to open your first American Express card underwritten directly by Amex such as their Zync card which is pretty easy to get. The advantage of American express is that they remember the date your first credit card was opened with them and if you open new accounts in the future they will back date the date of their opening to match the date your first card was opened. If you let your membership lapse, be sure to record the account number and date opened in your personal files so that you can help them locate it again if you reopen as they can have trouble if it has been on the order of ten years or more. Finally, note that the number of accounts opened in the last twelve months is a small negative mark on your score (along with number of inquiries), so if you open a lot of accounts all at once, in addition to bringing down your average age of accounts, you will also get dinged for how many were opened in the last year.\",\n \"If the car loan has 0% interest for 5 years, then paying off the student loan is cheaper. No matter when you pay off the car, you will pay the exact same amount (as long as its within 5 years). You could spend $20,000 right now to pay off the car loan or slowly spend $20,000 over the next 5 years. The gross amount paid for the car loan does not change. On the contrary, the longer you wait to pay off the student loans, the more you will end up paying for them. So why not get the student loans out of the way before they rack up more interest and pay the car loan over time? Update: I forgot to add, as Ben Miller said, congratulations on paying off the $40,000!\",\n \"\\\"Many years ago I heard a multi-level marketing pitch that pointed out how many doctors don't get out of debt until they are well into their 50's. The selling point was that you can get rich quick, as rich as a doctor, with nothing more then a bit of elbow grease. Of course the pitch failed to mention that most doctors, buy the things doctors buy, when they get that first big job. The big house, expensive cars nerf the income that they receive and they are probably stuck with years of student loan payments. I assume that you are one of the \\\"\\\"lucky\\\"\\\" ones that have graduated college with a well paying job. By lucky I mean you concentrated on obtaining a skill for which the marketplace has a need. Why not continue to live like a college student for a few more months and pay off all of your student loans ASAP? Get rid of them like you were purging the phone number of that high maintenance girl you dated during a short time of insanity.\\\"\",\n \"Regardless. It’s a guaranteed 5.x%. Reducing student loans also allows you other benefits; i.e. reduces your credit risk allowing you to pull out more credit at a cheaper rate in the future etc. Unless you strongly believe in current bull market continuing.. (there is a high overvaluation from market principles atm and it has been the longest rise in history), you should go for the guaranteed change. Additionally, if your loan is pegged to variable interest rates such as the fed funds rate, be cognizant that the fed will probably continue rising rates for the near future of good times continue, meaning your rates will go up while markets go down. Long story short, would recommend paying down debt unless you’re quite confident in your skills. Edit: quick note that if you can do both, this is the best option.\",\n \"\\\"A Tweep friend asked me a similar question. In her case it was in the larger context of a marriage and house purchase. In reply I wrote a detail article Student Loans and Your First Mortgage. The loan payment easily fit between the generally accepted qualifying debt ratios, 28% for house/36 for all debt. If the loan payment has no effect on the mortgage one qualifies for, that's one thing, but taking say $20K to pay it off will impact the house you can buy. For a 20% down purchase, this multiplies up to $100k less house. Or worse, a lower down payment percent then requiring PMI. Clearly, I had a specific situation to address, which ultimately becomes part of the list for \\\"\\\"pay off student loan? Pro / Con\\\"\\\" Absent the scenario I offered, I'd line up debt, highest to lowest rate (tax adjusted of course) and hack away at it all. It's part of the big picture like any other debt, save for the cases where it can be cancelled. Personal finance is exactly that, personal. Advisors (the good ones) make their money by looking carefully at the big picture and not offering a cookie-cutter approach.\\\"\",\n \"You could pay off a portion of the debt and your minimum payments should also go down proportionately. Your investment managers may be able to continue making returns in the markets in a sideways and a bear market. So you have 24k contributing to your net worth, and ~50k giving you a negative net worth. At best, you can bring this down to a negative 25k net worth, or you can start and keep using some of the gains from your investment account to supplement your credit payments (along with your income). This is based on chance that your investment managers can continue making gains, compared to paying down 24k and having possibly zero liquid savings now, but having more of your salary to start saving and make the lowered minimum payments, assuming you don't borrow more. Those are the options I've thought of, I don't see either option being necessarily quicker than the other.\",\n \"Others have suggested paying off the student loan, mostly for the satisfaction of one less payment, but I suggest you do the math on how much interest you would save by paying early on each of the loans: When you do the calculations I think you'll see why paying toward the debt with the highest interest rate is almost always the best advice. Whether you can refinance the mortgage to a lower rate is a separate question, but the above calculation would still apply, just with different amortization schedules.\",\n \"There are two components to any non-trivial financial decision: Assuming that all things remain equal, borrowing money at a low rate while investing for a higher return is a no-brainer. The problem is, all things do not remain equal. For example: I think that you need to assess your position and preferences. I'd err on the side of being in less debt.\",\n \"Overall, I strongly recommend cashing out your savings and becoming debt free today, and then never borrowing again except for a house. Advantages: Disadvantages: My wife and I paid of all of my grad school debt last year, and we’re paying off all of her grad school debt this year. To pay that aggressively, we’ve had to learn to live on a much tighter budget. But when we’re done, if we simply invest what we have been paying toward debt into the stock market, our nest egg will compound to over $10 million by the time we retire. According to Dave Ramsey, when the Forbes 400 were polled, 75% of them cited becoming and staying debt-free as the single best way to build wealth: http://www.daveramsey.com/article/three-steps-to-wealth-building-for-young-adults/lifeandmoney_college/text4/\",\n \"The chances are good that the interest you are going to pay on the debt is going to be higher than the interest you are going to receive on any type of short term investments. That would make the paying off of the debt worth more to you in the long run than saving your money. Note that without the particulars of your situation this is all just theory crafting so consult the details of you loan agreements. I cannot imagine that a credit provider did not discuss this with you before you put pen on paper.\",\n \"\\\"Place your savings into safe interest-bearing accounts. Take out the loans. Keep constant track of your net worth. Having 100,000$ and 80,000$ in interest free debt is better than having 20,000$. You can always convert money + debt into less money and less debt, but you cannot always convert less money and less debt into more money and more debt. Now, there are risks; that is why you want an interest-bearing account to place your savings in to offset the debt. This minimizes the risk. It also reduces the return. It is arguable that you should be at your most financially risky at a young age. I'd argue that your future earnings are your by far largest asset at this point, and as a high school student going into college those future earnings have extremely high variability. Your financial situation is extremely unpredictable; being conservative about your high-leverage student-loan + education investments is probably justified. The fact you can manage arbitrage here means you should; and if you are careful, you can eliminate risk and get almost risk-free profit from the maneuver. If your money is in less than perfectly safe accounts, you are now doing leveraged investing and magnifying the risk and return of said investments. If your money must be spent on college or you'll be financially punished, then you may want to consider pulling it out before the last possible legal point just in case something goes wrong. Apparently 529 plans may not treat \\\"\\\"paying off student loans\\\"\\\" as a valid way to spend the money. You may need to talk to a lawyer or accountant about the legality of using these plans to pay off student loans, and the tax/penalties involved.\\\"\",\n \"\\\"If I were you I would pay off these loans today. Here are the reasons why I would do this: Car Loan For car loans in particular, it's much better to not pay interest on a loan since cars lose value over time. So the longer you hold the debt, the more you end up paying in interest as the car continues to lose value. This is really the opposite of what you want to do in order to build wealth, which is to acquire assets that gain value over time. I would also recommend that once you pay the loan, that you set aside the payment you used to make on the loan as savings for your next car. That way, you will be able to pay cash for your next car, avoiding thousands of dollars of interest. You will also be able to negotiate a better price by paying cash. Just by doing this you will be able to either afford to buy a nicer car with the same amount of money, or to put the extra money toward something else. Student Loan For the student loan, 3% is a very low rate historically. However, the reason I would still pay these off is that the \\\"\\\"return\\\"\\\" you are getting by doing so is completely risk free. You can't often get this type of return from a risk-free investment instrument, and putting money in the stock market carries risk. So to me, this is an \\\"\\\"easy\\\"\\\" way to get a guaranteed return on your money. The only reason I might not pay this down immediately is if you have any other debt at a rate higher than 3%. General Reasons to Get out of Debt Overall, one of the basic functions of lifetime financial planning is to convert income into assets that produce cash flow. This is the reason that you save for retirement and a house, so that when your income ends when you're older these assets will produce cash, or in the case of the house, that you will no longer have to make rent payments. Similarly, paying off these debts creates cash flow, as you no longer have to make these payments. It also reduces your overall financial risk, as you'd need less money to live on if you lost your job or had a similar emergency (you can probably reduce your emergency fund a bit too). Discharging these loans will also improve your debt-to-income ratio if you are thinking of buying a house soon. I wonder whether as someone who's responsible with money, the prospect of cutting two large checks feels like \\\"\\\"big spending\\\"\\\" to you, even though it's really a prudent thing to do and will save you money. However, if you do pay these off, I don't think you'll regret it.\\\"\",\n \"Considering I'm in a nearly identical situation, I'll speak to my personal strategy and maybe there's some value for you as well. You have ~$22k in loans, which you say you could pay off today. So, what I read is that you're sitting there with a $22k investment and want to know which investment to make: pay down debt, invest in yourself/start up, or some variation between those options. Any investor worth his salt will ask a couple of questions: what is my risk, and what is my gain? Paying off your student loans offers no financial risk at the cost of opportunity risk, and gains you returns of 3.4%, 6.8%, 3.4%, 4.5%, and 6.8%. Those percentage gains are guaranteed and the opportunity risk is unknown. Investing in a startup is inherently risky, with the potential for big payoffs. But with this investment, you are accepting a lot of risk for potentially some gain (it could be the next Apple, it could also fail). So, with your situation (like mine), I'd say it's best to accept the easy investment for now and fully vet out your tech start up idea in the meantime.\",\n \"I would recommend not paying it off early for 2 key reasons: If you are a resident of the U.S. you get tax deductibility of mortgage interest, which as pointed out in previous posts, reduces the effective interest rate on your mortgage, never in your life will you ever be allowed to obtain such high leverage at such a low rates. You can probably get higher returns with not much risk. @JoeTaxpayer mentioned various statistics regarding returns when investing in equities. Even though they are a decent bet over the long term, you can get an even better risk reward tradeoff by considering municipal bonds. If you are in the U.S. and invest in the municipal bonds of your state, the interest income will be both federal and state tax-free. In other words, if you were making 3.5% investing in equities, your after tax returns would be significantly less depending on your tax bracket whereas investment-grade municipal bond ETFs will yield probably the same or higher and have no tax. They are also significantly less volatile. Even though they have default risk, the risk is small since most of these bonds are backed by future tax obligations, or other income streams derived from hard assets such as tolls or property. Furthermore, an ETF will have a portfolio of these bonds which will also dampen the impact of any individual defaults. In essence, you are getting paid this spread for simply having access to credit, take advantage of it while you can.\",\n \"\\\"What is your biggest wealth building tool? Income. If you \\\"\\\"nerf\\\"\\\" your income with payments to banks, cable, credit card debt, car payments, and lattes then you are naturally handicapping your wealth building. It is sort of like trying to drive home a nail holding a hammer right underneath the head. Normal is broke, don't be normal. Normal obtains student loans while getting an education. You don't have to. You can work part time, or even full time and get a degree. As an example, here is one way to do it in Florida. Get a job working fast food and get your associates degree using a community college that are cheap. Then apply for the state troopers. Go away for about 5 months, earning an income the whole time. You automatically graduate with a job that pays for state schools. Take the next three years (or more if you want an advanced degree) to get your bachelors. Then start your desirable career. What is better to have \\\"\\\"wasted\\\"\\\" approx 1.5 years being a state trooper, or to have a student loan payment for 20 years? There is not even pressure to obtain employment right after graduation. BTW, I know someone who is doing exactly what I outlined. Every commercial you watch is geared toward getting you to sign on the line that is dotted, often going into debt to do so. Car commercials will tell you that you are a bad mom or not a real man if you don't drive the 2015 whatever. Think differently, throw out your numbers and shoot for zero debt. EDIT: OP, I have a MS in Comp Sci, and started one in finance. My wife also has a masters. We had debt. We paid that crap off. Work like a fiend and do the same. My wife's was significant. She planned on having her employer pay it off for each year she worked there. (Like 20% each year or something.) Guess what, that did not work out! She went to work somewhere else! Live like you are still in college and use all that extra money to get rid of your debt. Student loans are consumer debt.\\\"\",\n \"Pay down cc debt asap, take your time on your student debt, it's low and you can write the interest off related to it. If your a teacher maybe you can get it forgiven. But you borrowed from your future self when you younger so ya you gotta start living reasonable.\",\n \"\\\"Although there is no single best answer to your situation, several other people have already suggest it in some form: always pay off your highest after-tax (!) interest loan first! That being said, you probably also have heard about the differentiation for good debt vs. bad debt. Good debt is considered a mortgage for buying your primary home or, as is the case here, debt for education. As far as I am concerned, those are pretty much the only two types of debt I'd ever tolerate. (There may be exceptions for health/medical reasons.) Everything else is consumer debt and my personal rule is, don't buy it if you don't have the money for it! Meaning, don't take on consumer debt. One other thing you may consider before accelerating paying off your student debt, the interest paid on it may be tax deductible. So you should look at what the true interest is on your student loan after taxes. If it is in the (very) low single digits, meaning between 1-3%, you may consider using the extra money towards an automatic investment plan into an ETF index fund. But that would be a question you should discuss with your tax accountant or financial adviser. It is also critical in that case that you don't view the money invested as \\\"\\\"found\\\"\\\" money later on, unless you have paid off all your debt. (This part is the most difficult for most people so be very cautious and conscious if you decide to go this route!) At any rate, congratulations on making so much progress paying off your debt! Keep it going.\\\"\",\n \"You can play with the numbers all you like (and that's good), however, here is a different way to look at it. The debt you have is risk. It limits your choices and eats your cash flow. Without the debt, you can invest at a much greater rate. It frees up you cash flow for all the things you might want to do, or decide in the future you might want to do. Right now is the easiest time for you to focus on debt repayment. It sounds like you are not married and have no children. It is much easier now to cut back your lifestyle and concentrate on paying off this $50k of student debt. This will get harder as your responsibility increases. Build up a small amount of cash for emergencies and put the rest at the debt. You can keep contributing to your 401k to the match if you want. This will give you 2 benefits: Patience. When you actually DO start investing, you will have a new appreciation for the money you are using. If you sacrifice to pay off $50k now, you wont look at money the same for the rest of your life. Drive. If you see the debt as a barrier to achieving your goals, you will work harder to get out of debt. These are all things I would tell my 23 year-old self if i could go back in time. Good luck!\",\n \"\\\"Also, since I'm guessing OP isn't flush with cash, not having to come up with additional money to pay the student loans for some time will provide some short-term \\\"\\\"debt relief\\\"\\\"... possibly reducing the possibility of racking up more CC debt.\\\"\",\n \"\\\"A major thing to consider when deciding whether to invest or pay off debt is cash flow. Specifically, how each choice affects your cash flow, and how your cash flow is affected by various events. Simply enough, your cash flow is the amount of money that passes through your finances during a given period (often a month or a year). Some of this is necessary payments, like staying current on loans, rent, etc., while other parts are not necessary, such as eating out. For example, you currently have $5,500 debt at 3% and another $2,500 at 5%. This means that every month, your cashflow effect of these loans is ($5,500 * 3% / 12) + ($2,500 * 5% / 12) = $24 interest (before any applicable tax effects), plus any required payments toward the principal which you don't state. To have the $8,000 paid off in 30 years, you'd be paying another $33 toward the principal, for a total of about $60 per month before tax effects in your case. If you take the full $7,000 you have available and use it to pay off the debt starting with the higher-interest loan, then your situation changes such that you now: Assuming that the repayment timeline remains the same, the cashflow effect of the above becomes $1,000 * 3% / 12 = $2.50/month interest plus $2.78/month toward the principal, again before tax effects. In one fell swoop, you just reduced your monthly payment from $60 to $5.25. Per year, this means $720 to $63, so on the $7,000 \\\"\\\"invested\\\"\\\" in repayment you get $657 in return every year for a 9.4% annual return on investment. It will take you about 11 years to use only this money to save another $7,000, as opposed to the 30 years original repayment schedule. If the extra payment goes toward knocking time off the existing repayment schedule but keeping the amount paid toward the principal per month the same, you are now paying $33 toward the principal plus $2.50 interest against the $1,000 loan, which means by paying $35.50/month you will be debt free in 30 months: two and a half years, instead of 30 years, an effective 92% reduction in repayment time. You immediately have another about $25/month in your budget, and in two and a half years you will have $60 per month that you wouldn't have if you stuck with the original repayment schedule. If instead the total amount paid remains the same, you are then paying about $57.50/month toward the principal and will be debt free in less than a year and a half. Not too shabby, if you ask me. Also, don't forget that this is a known, guaranteed return in that you know what you would be paying in interest if you didn't do this, and you know what you will be paying in interest if you do this. Even if the interest rate is variable, you can calculate this to a reasonable degree of certainty. The difference between those two is your return on investment. Compare this to the fact that while an investment in the S&P might have similar returns over long periods of time, the stock market is much more volatile in the shorter term (as the past two decades have so eloquently demonstrated). It doesn't do you much good if an investment returns 10% per year over 30 years, if when you need the money it's down 30% because you bought at a local peak and have held the investment for only a year. Also consider if you go back to school, are you going to feel better about a $5.25/month payment or a $60/month payment? (Even if the payments on old debt are deferred while you are studying, you will still have to pay the money, and it will likely be accruing interest in the meantime.) Now, I really don't advocate emptying your savings account entirely the way I did in the example above. Stuff happens all the time, and some stuff that happens costs money. Instead, you should be keeping some of that money easily available in a liquid, non-volatile form (which basically means a savings account without withdrawal penalties or a money market fund, not the stock market). How much depends on your necessary expenses; a buffer of three months' worth of expenses is an often recommended starting point for an emergency fund. The above should however help you evaluate how much to keep, how much to invest and how much to use to pay off loans early, respectively.\\\"\",\n \"One of many things to consider is that in the United States student loan interest is tax deductible. That fact could change the math enough to make it worth putting A's money elsewhere depending on his interest rate and income bracket.\",\n \"I agree with the advice given, but I'll add another angle from which to look at it. It sounds like you are already viewing the money used to either pay off the loan early or invest in the market as an investment, which is great. You are wise to think about opportunity cost, but like others pointed out, you are overlooking the risk factor. The way I would look at this is: I could take a guaranteed 6.4% return by paying off the loan or a possible 7% return by investing the money. If the risk pays off modestly, all you've done is earned 0.6%, with a huge debt still hanging over you. Personally, I would take the guaranteed 6.4% return by paying off the debt, then invest in the stock market. Now this is looking at the investment as a single, atomic pool of money. But you can split it up a bit. Let's say the amount of extra disposable income you want to invest with is $1,000/mo. Then you could pay an extra $500/mo to your student loan and invest the other $500 in the stock market, or do a 400/600 split, or whatever suits your risk tolerance. You mentioned multiple loans and 6.4% is the highest loan. What I would do, based on what I value personally, is put every extra penny into paying off the 6.4% loan because that is high. Once that is done, if the next loan is 4% of less, then split my income between paying extra to it and investing in the market. Remember, with each loan you pay off, the monthly income that previously went to it is now available, and can be used for the next loan or the other goals.\",\n \"It's not a question with a single right answer. Other answers have addressed some aspects, my case may provide some guidance as to one way of looking at some of the issues. When I had student loans, the interest rate was RPI¹ and I could get more than that as the return on a savings account. At the time I could get a whole year's worth of loan at the start of the year, save it, and draw from the savings, partly because I had a little working capital saved already. Importantly in my case, the loans were use-it-or-lose-it: if I didn't take the loan out by about halfway through each academic year, it was no longer available to me. The difference in interest rates was probably similar to what you can get with a careful choice of savings account and 0% on the loan (I did this in the 90s when interest rates were higher). Over a four year degree the interest I earned this way added up to no more than about £100, which went someway towards offsetting the fact I would be paying interest after graduation. If you can clear the loan before you pay any interest it would give you a return, but a small one that could easily be eroded by rate changes or errors on your part (like not keeping on top of the paperwork). It still may be beneficial to take out the loans depending on your capital needs -- in my case it made buying a house after graduating much easier, as we still had money for the deposit (downpayment) and student loan rates were much lower than mortgage rates (100% mortgages were also available then, but expensive). ¹ RPI stands for retail price index, a measure of inflation.\",\n \"\\\"2.47% is a really, really good rate, doubly so if it's a fixed rate, and quadruply so if the interest is tax-deductible. That's about as close to \\\"\\\"free money\\\"\\\" as you're ever going to get. Heck, depending on what inflation does over the next few years, it might even be cheaper than free. So if you have the risk tolerance for it, it's probably more effective to invest the money in the stock market than to accelerate your student loan payoff. You can even do better in the bond market (my go-to intermediate-term corporate bond fund is yielding nearly 4% right now.) Just remember the old banker's aphorism: Assets shrink. Liabilities never shrink. You can lose the money you've invested in stocks or bonds, and you'll still have to pay back the loan. And, when in doubt, you can usually assume you're underestimating your risks. If you're feeling up for it, I'd say: make sure you have a good emergency fund outside of your investment money - something you could live on for six months or so and pay your bills while looking for a job, and sock the rest into something like the Vanguard LifeStrategy Moderate Growth fund or a similar instrument (Vanguard's just my personal preference, since I like their style - and by style, I mean low fees - but definitely feel free to consider alternatives). You could also pad your retirement accounts and avoid taxes on any gains instead, but remember that it's easier to put money into those than take it out, so be sure to double-check the state of your emergency fund.\\\"\",\n \"I also had a student loan and glad you are taking a good look on interest rate as it really makes a huge difference. One of the strategies I followed was since my credit improved as I stepped out of school. I took advantage of a good 0 percent credit card. I applied for discover and got a decent credit limit. There are 2 particular things you are looking for in a credit card in this situation Usually the initial $0 transaction charge is only for a couple of months so ensure you take advantage of that. What is the benefit: Imagine being able to pay off that higher interest rate balance with 0% and not have to worry about it immediately. That way you save on the interest you would be paying and stress as well Watch out for: Although you have to ensure that you do payoff the money you paid through the 0 percent credit card ( which may have been put off for a year or even 15 months or so) other wise you may have to pay it all at once as the offer is expiring. Note: for credit cards ensure to note when the 0% is expiring as that is usually not mentioned on the statement and you may have to call the customer service. I was in a similar situation and was able to pay it all off fairly quickly. I am sure you will as well.\",\n \"I'm surprised no one has picked up on this, but the student loan is an exception to the rule. It's inflation bound (for now), you only have to pay it back as a percentage of your salary if you earn over £15k (11% on any amount over that I believe), you don't have to pay it if you lose your job, and it doesn't affect your ability to get credit (except that your repayments will be taken into account). My advice, which is slightly different to the above, is: if you have any shares that have lost more than 10% since you bought them and aren't currently recovering, sell them and pay off your debts with those. The rest is down to you - are they making more than 10% a year? If they are, don't sell them. If your dividends are covering your payments, carry on as you are. Otherwise it's down to you.\",\n \"I don't understand the calculations in the comments by the OP. He says My monthly savings after mandatory expense is around USD 2000. This includes rent, expenses, emergency fund savings, and the monthly required payment of my auto loan. (emphasis added) He has $2000 USD left over after monthly expenses (which includes rent, food, utilities etc, contribution towards emergency funds, and the required monthly payment on the auto loan). He claims that by applying the $2000 USD per month towards reducing the debt, it would take him 30-36 months to be debt-free. But is it not the case that applying the $2000 to the student loan of $18K+ (while continuing to make the auto loan payments) will pay the student loan off in less than 10 months? If no payments are made on that $18K+ student loan, the accrued interest of about $2K in 10 months (this is (18.25*13.7%*)(10/12) for a total of $20K+). In actuality, with the loan being paid down, the interest will be much less. Once the student loan is paid off, the extra $2000 can go towards what is left of the $10K auto loan each month and pay it off in another 4 or 5 months or so. So we are talking of 15 months max instead of 30-36 months. Of course, as Carlos Briebiescas points out, the car is more valuable as an asset than can be sold in case of job loss creating a need for cash etc, and so paying it off first might be better, but that is a different calculation.\",\n \"\\\"The advice to pay off near-7% debt is tough to argue against. That said, I'd project out a few years to understand the home purchase. Will you plan for the 20% down John recommends? The Crazy Truth about PMI can't be ignored. The way the math works, if you put 15% down, the PMI costs you so much, it's nearly like paying 20% interest on that missing 5%. If your answer is that you intend to save for the full downpayment, 20%, and can still knock off the student loan, by all means, go for it. I have to question the validity of \\\"\\\"we will definitely be in a higher tax bracket when we retire.\\\"\\\" By definition, pretax deposits save tax at the marginal rate. i.e. If you are in the 25% bracket, a $1000 deposit saves you $250 in tax that year. But, withdrawals come at your average rate, i.e. your tax bill divided by gross income. There's the deductions for itemized deductions or the standard. Then 2 exemptions if you are married. Then the 10% bracket, etc. Today, a couple grossing $100K may be in the 25% bracket, but their average rate is 12%. I read this Q&A again and would add one more observation - Student Loans and Your First Mortgage is an article I wrote in response to a friend's similar question. With the OP having plan to buy a house, paying off the loan may be more costly in the long run. It may keep him from qualifying for the size mortgage he needs, or from having enough money to put 20% down, as I noted earlier. With finance, there are very few issues that are simply black and white. It's important to understand all aspects of one's finances to make any decision. Even if thee faster payoff is the right thing, it's not a slam-dunk, the other points should be considered.\\\"\",\n \"Debt creates risk. Plain and simple. Comparing interest rates of debt vs. possible investing. To me, it is all meaningless. When you are in debt, you options are limited. If you are not in debt, you have more freedom. To me, it is a no brainer. Become debt free ASAP.\",\n \"\\\"You should pay for grad school without taking loans if your circumstances permit. There is the possibility of a tax write off for interest paid on student loans, but it's slightly complicated and it's very much a \\\"\\\"give me $10, and I'll give you $5 back\\\"\\\" kind of deal. You're better off not borrowing the money to begin with, even though I tend to think that borrowing for things which appreciate-- e.g., a house-- or which can significantly increase your earning capability-- e.g., the right kind of graduate school-- is generally better/wiser/more permissible than borrowing for something which depreciates, like a car. Having no student loan debt after graduation means you have greater freedom than someone who is laboring to pay student loan debt in addition to all of their other bills. My $0.02\\\"\",\n \"\\\"If the balance on the low rate loan is very high (say, an IBR student loan at 6% that accumulates interest every year), and the balance on the high rate loan (say, a CC at 18%) is comparatively very small, then you'd want to make sure that you've at least \\\"\\\"stopped the bleeding\\\"\\\" on the high balance loan before starting to pay off the CC.\\\"\",\n \"If the savings rate is the same as the loan rate, mathematically it doesn't make any difference whether you pay down the loan more and save less or vice versa. However, if the loan rate is higher than the savings rate it's better to pay it down as fast as possible. The chart below compares paying down the loan and saving equally (the gradual scenario), versus paying down the loan quickly at 2 x $193 and then saving 2 x $193. The savings rate, for illustration, is 2%. Paying quickly pays down the loan completely by month 51. On the other hand, in the gradual scheme the loan can't be paid down (with the savings) until month 54, which then leaves 3 months less for saving. In conclusion, it's better to pay down the higher rate loan first. Practically speaking, it may be useful to have some savings available.\",\n \"The earlier you are in your career, the more willing you should be to take a better opportunity even if it has a short-term financial cost. You go to college even if McDonald's has an opening. After college you may take an entry level job with better long-term prospects even if a higher paying job is available. You may train for some professional qualification. Having expenses you have to pay limits your flexibility to do this. A variable rate loan that goes up later may give you the freedom to make better decisions early on. Thus in this case it may be worthwhile. That said - be very wary of variable rate loans. Unless you have iron discipline, they give the opportunity to bury yourself.\",\n \"I'm 40 and been carrying student debt for nearly 20 years. Because of life events and various circumstances I've had to defer several times. This means my balance history looks like a rollercoaster. At this point I just consider the Department of Education to be akin to heroin addiction. I feed it as regularly as I can. It starts to get painful when I can't. It requires an ever increasing amount to get that fix. I'm financially fucked and it's my fault. And one day it'll probably kill me. But I just keep trying. What choice do I have?\",\n \"You're halfway done with the debt elimination. Keep up the good work. The student loan debt will get in your way a couple of ways when you look to finance a house. First, your debt to income ratio will be higher than without the debt, so you'll be able to qualify for a smaller loan with the debt than without. Second, you'll have the student loan payments in addition to your mortgage. This may wear on you. I'd look for ways to make extra money to knock out those student loan debts ASAP. The rates aren't horrible. That, and I think there is still some time before the housing market bottoms out, so you don't need to rush into the house. If you can handle the entire debt load (student loans + mortgage) then if you save up for the down payment, that money isn't being used to pay down your student loans, and paying your students loans off won't get any easier when you get a mortgage on top of that.\",\n \"Do you have other things you might want to spend that cash on in the near future? (Like a down-payment on a house?) Beyond having emergency cash, the only reason to keep a pile of cash around is because you might need it for another purchase. Unless you are going to have other expenses that will require higher-interest loans to cover them, there's no need to sit on a big pile of cash. As long as you are getting the full match on your 401(k), that's the free money that might be worth more than the interest you are paying on the loans. In any case, I suggest you aim for at least 10% into your 401(k) account moving forward in your life so that you can properly fund retirement. 15% would be even better. It doesn't sound like you would be losing anything by paying the student loans, and you could then use the money freed from your loan payments to pay down your car faster.\",\n \"\\\"I will add one thought on to this thread. This is a financial concept called \\\"\\\"Net Present Value\\\"\\\". In plain English, it means \\\"\\\"What's the best use for your money right now?\\\"\\\" So, let's say you have an extra €300/month which is not being spent on living expenses. If you leave that money under your pillow (or spend it on beer or fancy electronics!) instead of paying off your startersloan early, that is costing you 300*(0.04/12) per month, every month. So €1/month, or €12/year. This is cumulative for the life of your loan. So not paying €300 this month will ultimately cost you €120 assuming you keep the loan open for 10 years. If you're saying \\\"\\\"pay my debts or spend the money on a snappy smartphone?\\\"\\\" the answer is that you should pay your debts. Now, here's the important part. Let's suppose you have a better use for the money than beer or electronics. Let's suppose you have a mutual fund which will reliably provide you with a return of 10% a year. If you put that €300/month into a high-yield fund, and if the returns are consistent, you are STILL paying that €12/year (because you invested elsewhere and didn't pay your debts), but you are realizing profits of 300*(0.1/12)=€2.5/month on the invested money. €2.5-1=€1.5/month, which is a net gain. So, in some cases, paying off your debt may not be the best use of your money. There are a number of other questions involved which are related to your exposure to capital gains taxes, incentives or disincentives for holding debt, &c. &c. These are generally country specific. A poster above who seems to be familiar with Netherlands law did a good explanation of some of those incentives. I'm in the US, and our incentive and disincentive system is different. TL;DR: It depends.\\\"\",\n \"If you have a debt that has very low interest now, but you are aware that it's not going to stay that way (0% introductory APR on a credit card, for example), it can make sense to pay that off before the higher rate kicks in.\",\n \"What you're getting at is the same as investing with leverage. Usually this comes in the form in a margin account, which an investor uses to borrow money at a low interest rate, invest the money, and (hopefully!) beat the interest rate. is this approach unwise? That completely depends on how your investments perform and how high your loan's interest rate is. The higher your loan's interest rate, the more risky your investments will have to be in order to beat the interest rate. If you can get a return which beats the interest rates of your loan then congratulations! You have come out ahead and made a profit. If you can keep it up you should make the minimum payment on your loan to maximize the amount of capital you can invest. If not, then it would be better to just use your extra cash to pay down the loan. [are] there really are investments (aside from stocks and such) that I can try to use to my advantage? With interest rates as low as they are right now (at least in the US) you'll probably be hard-pressed to find a savings account or CD that will return a higher interest rate than your loan's. If you're nervous about the risk associated with investing in stocks and bonds (as is healthy!), then know that they come in a wide spectrum of risk. It's up to you to evaluate how much risk you're willing to take on to achieve a higher return.\",\n \"It would probably never make sense to do that. Why would you? You'll end up in the bankruptcy court either way, since you won't be able to pay off the loan, and you cannot maintain the monthly payments without getting into more debt. IRA is shielded from bankruptcies, in most States, so it will probably stay with you afterwards. In any case - it will provide you some income when you're old and cannot keep up working. Unfortunately, Federal student loans are also shielded, but the rest of you debt - isn't. I suggest trying to fix your budgets and see how you can improve your earnings to be able to maintain your payments. I can't understand how you could have racked up $140K student debt and have a career at which you earn $55K/year for an experienced employee.\",\n \"If I were you, I would pay off my student loans today or tomorrow. Wouldn't it be nice to be completely debt free and not owe anyone anything? It doesn't matter what the interest rate of the loan is; there is no need to spend anymore time trying to worry about whether or not the market will allow you to make a tiny bit extra over what you are spending in interest on the loan. Just get rid of the debt, and you will get to keep every bit of the growth of your investments from here on out. After the student loans are paid off, that leaves you with $15k. I would take $10k and put it in a savings account for an emergency fund, and put $5k as a start toward your retirement savings in a Roth IRA. At this point, with a fully funded emergency fund, a start on your retirement savings, and no debts, you have really set yourself up for success. Learn how to budget your income so that you spend less than you make and can save up toward goals like a car (paid for in cash) and a down payment on a house.\",\n \"Just to make the deal sweeter, see if you can negotiate a cash discount for paying for grad school with cash. If not, at least look into paying with a rewards credit card so you can get a rebate through your own means. Pay the school loan. People can default on mortgages, school loans are forever. Nothing wrong with sacrificing your dreams for a house several more years while you save. My wife and I are debt free, but it will take a few more years to save for a down payment on a house. It sure feels good knowing we don't owe anyone anything while we make our money have the purpose we want to give it. When you have to pay the bank interest, you do not have control on some of your money.\",\n \"I think about debt as a good option for capital investments that offer a return. In my opinion, a house and clothes you need for that new job are good things to borrow for. School is ok, depending on the amount. Car is ok, if it's a 3 year loan. The rest is not good. You should try to carry as little debt as possible, but don't let it dominate your life. If faced between the choice of paying ahead on your student loan and blowing $300 on an XBox, you should pay the loan. If the choice is between taking your kid to the zoo and paying the loan, have fun at the zoo.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"There are several ways you can get out of paying your student loans back in the USA: You become disabled and the loan is dismissed once verified by treating doctor or the Social Security Administration. You become a peace officer. You become a teacher; generally K-12, but I have heard from the DOE that teachers at state schools qualify as well. So the \"\"malicious\"\" friend B is prescribing to the theory that if one of those conditions becomes true, friend A will not have to pay back the loan. The longer you drag it out, the more chance you have to fulfill a condition. Given that 2 of these methods require a commitment, my guess is that they are thinking more along the lines of the first one, which is horrible. Financially, it makes no sense to delay paying back your loans because deferred loans are only interest-free until you graduate and are past your grace period, after which they will begin accruing interest. Unsubsidized loans accrue interest from the day you get them, only their payback is deferred until you graduate and exhaust your grace period. Anytime you ask for forbearance, you are still accruing interest and it is capitalizing into your principal — you are just given a chance to delay payback due to financial hardship, bad health, or loss of job. Therefore, at no point are you benefiting beyond the time you are in school and getting an education, still looking for a job, or dealing with health issues. In the current market, no CD, no savings account, and no investment will give you substantially more return that will offset the loss of the interest you are accruing. Even those of us in the old days getting 4.X % rates would not do this. There was a conditional consolidation offer the DOE allowed which could bring all your loans under one roof for a competitive 5.x-6.x % rate allowing you a single payment, but even then you would benefit if you had rates that were substantially higher. From a credit worthiness aspect, you are hurt by the outstanding obligation and any default along the way, so you really want to avoid that — paying off or down your loans are a good way to ensure you don't shoot yourself in the foot.\"","Liquidity Say you have $50k in student loan debt. You come into a large amount of money and throw $10k at it. Yes, it's now down to $40k, saving you a lot of money in interest over the long run, but it's money you can no longer 'use'. Now if you invest that same $10k instead, you still potentially have access to it if needed. Paying $10k towards a debt at a 5% interest rate has essentially the same rate of return as investing the $10k at a 5% return. You're 'making' the same amount of money either way. But if you say, get laid off or need money for medical expenses or a down payment on a house, you can tap into that $10k investment if needed. It is a liquid asset.","\"I have never double-answered till now. This loan can't be taken out of context. By the way, how much is it? What rate? \"\"Debt bad.\"\" Really? Line the debt up. This is the highest debt you have. But, you work for a company that offers a generous match, i.e. the match to your 401(k). Now, it's a choice, pay off 6% debt or deposit that money to get an immediate 100% return. Your question has validity. In the end, we can tell you when to pay off the debt. After - The issue is that you are quoting a third party without having the discussion or ever being privy to it. In court, this is called 'hearsay.' The best we can do is offer both sides of the issue and priority for the payments. Welcome to Money.SE, nice first question.\"","One of many things to consider is that in the United States student loan interest is tax deductible. That fact could change the math enough to make it worth putting A's money elsewhere depending on his interest rate and income bracket.","\"A Tweep friend asked me a similar question. In her case it was in the larger context of a marriage and house purchase. In reply I wrote a detail article Student Loans and Your First Mortgage. The loan payment easily fit between the generally accepted qualifying debt ratios, 28% for house/36 for all debt. If the loan payment has no effect on the mortgage one qualifies for, that's one thing, but taking say $20K to pay it off will impact the house you can buy. For a 20% down purchase, this multiplies up to $100k less house. Or worse, a lower down payment percent then requiring PMI. Clearly, I had a specific situation to address, which ultimately becomes part of the list for \"\"pay off student loan? Pro / Con\"\" Absent the scenario I offered, I'd line up debt, highest to lowest rate (tax adjusted of course) and hack away at it all. It's part of the big picture like any other debt, save for the cases where it can be cancelled. Personal finance is exactly that, personal. Advisors (the good ones) make their money by looking carefully at the big picture and not offering a cookie-cutter approach.\"","\"There are a great number of financial obligations that should be considered more urgent than student loan debt. I'll go ahead and assume that the ones that can land people in jail aren't an issue (unpaid fines, back taxes, etc.). I cannot stress this enough, so I'll say it again: setting money aside for emergencies is so much more important than paying off student loans. I've seen people refer to saving as \"\"paying yourself\"\" if that helps justify it in your mind. My wife and I chose to aggressively pay down debt we had stupidly accrued during college, and I got completely blindsided by a layoff during the downturn. Guess what happened to all those credit cards we'd paid off and almost paid off? Guess what happened to my 401k? If all we had left were student loans, then I still wouldn't prioritize paying those off. There are income limits to Roth IRAs, so if you're in a field where you'll eventually make too much to contribute, then you'll lose that opportunity forever. If you're young and you don't feel like learning too much about investing, plop 100% of your contributions into the low-fee S&P 500 index fund and forget it until you get closer to retirement. Don't get suckered into their high-fee \"\"Retirement 20XX\"\" managed funds. Anyway, sure, if you have at least three months of income replacement in savings, have maximized your employer 401k match, have maximized your Roth IRA contributions for the year, and have no other higher interest debt, then go ahead and knock out those student loans.\"","I see two advantages to not paying student loan debt off more quickly: For #1, however, there are plenty of other ways to build credit and I don't see this as being worth the downsides of not paying off the debt more quickly. In fact, in the United States student loan debt cannot be written off if you go bankrupt. This is important to know and understand. I would generally advise you to pay down your student loans as quickly as you can reasonably do so.","\"If the interest rate on the student loan is lower than inflation, then the student loan will be \"\"cheaper\"\" the longer you take to pay it. This is now a very rare instance, but there were programs and loan consolidation opportunities in the mid-200x's that allowed savvy student's to convert their loans to have an interest rate of around 1.5%. Right now the inflation rate is actually quite low, but it's not expected to stay there, and wasn't that low just a few years ago, so in the long run this type of debt will only be cheaper the longer it takes to pay off. It is risky, as others point out, as it can't be written off in bankruptcy, but there are other situations where it can be written off more easily than other debts, so on balance the risks aren't better or worse than other loans in general. For specific individual situations the risk equation might work out differently, though. Further, student loans aren't considered traditional debt by some lenders for specific lending opportunities, thus allowing you to go into greater debt for certain types of purchases. Whether this is good for you or not depends on the importance of the purchase. If you need to buy a house and the interest rate is higher than your student loan rate, it will be better, financially, to pay off the house first, while paying the minimum on the student loans. If you have no other debt with a higher interest, and the student loan interest is higher than inflation, there is no reason to delay paying off the student loan.\"","Congratulations for achieving an important step in the road to financial freedom. Some view extending loan payment of loans that allow the deduction of interest as a good thing. Some view the hit on the credit score by prematurely paying off an installment loan as a bad thing. Determining the order of paying off multiple loans in conjunction with the reality of income, required monthly living expense, and the need to save for emergencies is highly individualized. Keeping an artificial debt seems to make little sense, it is an expensive insurance policy to chase a diminishing tax benefit and boost to a credit score. Keep in mind it is a deduction, not a credit, so how much you save depends on your tax bracket. It might make sense for somebody to extend the loan out for an extra year or two, but you can't just assume that that advice applies in your situation. Personally I paid off my student loan early, as soon as it made sense based on my income, and my situation. I am glad I did, but for others the opposite made more sense.","Two different questions: Is it better to be in debt or to pay off the debt? And: Is it better to have student debt than other debt? Any debt needs to be paid off eventually, and any debt makes you less flexible. So if you have the choice between spending/wasting your money and paying off debt, I would recommend paying off the debt. The other question is whether having student debt is better than having other debt. You need to look at the terms of your student debt. Pay off the debt with the worst conditions first. Loan sharks (in Britain: pay-day loans) must be paid first. Credit cards debt must go next. Then general loans. Depending on your situation, you may want some savings as well. In case you lose your job, for example. So if you have $8,000 saved and an $8,000 student loan, you might consider waiting a bit before you pay back the loan. No job + $8,000 student loan + $8,000 in the bank is better than no job + no debt + no money in the bank.","You become a teacher; generally K-12, but I have heard from the DOE that teachers at state schools qualify as well. This is not 100% correct. Teaching in certain disciplines and areas (STEM, Special Education, Title 1 schools) can qualify for student loan debt forgiveness DEPENDING on the type of debt. For instance, I believe the Federal loan forgiveness program only covers debt remaining after 10 years of teaching in a qualified discipline. Do verify this as it's been several years since I looked into the matter. The DOE has a student loan forgiveness program, but the scope of it is somewhat narrow. I would encourage anyone considering this approach to investigate it in detail before committing to a career in teaching. Some states have similar programs, but they typically have limitations as well.","Like all other loan-vs-savings questions, it depends on the terms of the loan. If you have a choice, the usual answer is to pay off the loan with the worst terms (which usually means the highest interest rate) first, and only start with savings when you've paid off all the high-interest loans entirely. If your student loan is on US terms, then pay it off as soon as you can, unless you have commercial debt (credit-card or unsecured personal loan), which you should pay off first, or unless you have or are realistically likely to get eligibility for a forgiveness program. But it does depends on the terms of the debt, which in turn depend on the country you studied in; on UK terms it's a very bad idea to pay off a student loan any faster than you have to. Interest is restricted to the rate of inflation, so good investments probably beat the interest rate of the student loan; the required repayments vary with your income, so savings are more useful than debt repayment if you encounter income difficulties (e.g unemployment) in the future, and finally the debt is automatically forgiven after 30 years, so you may never have to pay it all back anyway - so why pay it off voluntarily if it would get forgiven eventually anyway?","I'm no financial advisor, but I do have student loans and I do choose to pay them off as slowly as I can. I will explain my reasoning for doing so. (FWIW, these are all things that pertain to government student loans in the US, not necessarily private student loans, and not necessarily student loans from other countries) So that's my reasoning. $55 per month for the rest of my life adds up to a large amount of money over the course of my life, but the impact month-to-month is essentially nonexistent. That combined with the low interest and the super-low-pressure-sales-tactics means I just literally don't have any incentive to ever pay it all off. Like I said before, I'm just a guy who has student loans, and not even one who is particularly good with money, but as someone who does choose not to pay off my student loans any faster than I have to, this is why."],"string":"[\n \"\\\"There are several ways you can get out of paying your student loans back in the USA: You become disabled and the loan is dismissed once verified by treating doctor or the Social Security Administration. You become a peace officer. You become a teacher; generally K-12, but I have heard from the DOE that teachers at state schools qualify as well. So the \\\"\\\"malicious\\\"\\\" friend B is prescribing to the theory that if one of those conditions becomes true, friend A will not have to pay back the loan. The longer you drag it out, the more chance you have to fulfill a condition. Given that 2 of these methods require a commitment, my guess is that they are thinking more along the lines of the first one, which is horrible. Financially, it makes no sense to delay paying back your loans because deferred loans are only interest-free until you graduate and are past your grace period, after which they will begin accruing interest. Unsubsidized loans accrue interest from the day you get them, only their payback is deferred until you graduate and exhaust your grace period. Anytime you ask for forbearance, you are still accruing interest and it is capitalizing into your principal — you are just given a chance to delay payback due to financial hardship, bad health, or loss of job. Therefore, at no point are you benefiting beyond the time you are in school and getting an education, still looking for a job, or dealing with health issues. In the current market, no CD, no savings account, and no investment will give you substantially more return that will offset the loss of the interest you are accruing. Even those of us in the old days getting 4.X % rates would not do this. There was a conditional consolidation offer the DOE allowed which could bring all your loans under one roof for a competitive 5.x-6.x % rate allowing you a single payment, but even then you would benefit if you had rates that were substantially higher. From a credit worthiness aspect, you are hurt by the outstanding obligation and any default along the way, so you really want to avoid that — paying off or down your loans are a good way to ensure you don't shoot yourself in the foot.\\\"\",\n \"Liquidity Say you have $50k in student loan debt. You come into a large amount of money and throw $10k at it. Yes, it's now down to $40k, saving you a lot of money in interest over the long run, but it's money you can no longer 'use'. Now if you invest that same $10k instead, you still potentially have access to it if needed. Paying $10k towards a debt at a 5% interest rate has essentially the same rate of return as investing the $10k at a 5% return. You're 'making' the same amount of money either way. But if you say, get laid off or need money for medical expenses or a down payment on a house, you can tap into that $10k investment if needed. It is a liquid asset.\",\n \"\\\"I have never double-answered till now. This loan can't be taken out of context. By the way, how much is it? What rate? \\\"\\\"Debt bad.\\\"\\\" Really? Line the debt up. This is the highest debt you have. But, you work for a company that offers a generous match, i.e. the match to your 401(k). Now, it's a choice, pay off 6% debt or deposit that money to get an immediate 100% return. Your question has validity. In the end, we can tell you when to pay off the debt. After - The issue is that you are quoting a third party without having the discussion or ever being privy to it. In court, this is called 'hearsay.' The best we can do is offer both sides of the issue and priority for the payments. Welcome to Money.SE, nice first question.\\\"\",\n \"One of many things to consider is that in the United States student loan interest is tax deductible. That fact could change the math enough to make it worth putting A's money elsewhere depending on his interest rate and income bracket.\",\n \"\\\"A Tweep friend asked me a similar question. In her case it was in the larger context of a marriage and house purchase. In reply I wrote a detail article Student Loans and Your First Mortgage. The loan payment easily fit between the generally accepted qualifying debt ratios, 28% for house/36 for all debt. If the loan payment has no effect on the mortgage one qualifies for, that's one thing, but taking say $20K to pay it off will impact the house you can buy. For a 20% down purchase, this multiplies up to $100k less house. Or worse, a lower down payment percent then requiring PMI. Clearly, I had a specific situation to address, which ultimately becomes part of the list for \\\"\\\"pay off student loan? Pro / Con\\\"\\\" Absent the scenario I offered, I'd line up debt, highest to lowest rate (tax adjusted of course) and hack away at it all. It's part of the big picture like any other debt, save for the cases where it can be cancelled. Personal finance is exactly that, personal. Advisors (the good ones) make their money by looking carefully at the big picture and not offering a cookie-cutter approach.\\\"\",\n \"\\\"There are a great number of financial obligations that should be considered more urgent than student loan debt. I'll go ahead and assume that the ones that can land people in jail aren't an issue (unpaid fines, back taxes, etc.). I cannot stress this enough, so I'll say it again: setting money aside for emergencies is so much more important than paying off student loans. I've seen people refer to saving as \\\"\\\"paying yourself\\\"\\\" if that helps justify it in your mind. My wife and I chose to aggressively pay down debt we had stupidly accrued during college, and I got completely blindsided by a layoff during the downturn. Guess what happened to all those credit cards we'd paid off and almost paid off? Guess what happened to my 401k? If all we had left were student loans, then I still wouldn't prioritize paying those off. There are income limits to Roth IRAs, so if you're in a field where you'll eventually make too much to contribute, then you'll lose that opportunity forever. If you're young and you don't feel like learning too much about investing, plop 100% of your contributions into the low-fee S&P 500 index fund and forget it until you get closer to retirement. Don't get suckered into their high-fee \\\"\\\"Retirement 20XX\\\"\\\" managed funds. Anyway, sure, if you have at least three months of income replacement in savings, have maximized your employer 401k match, have maximized your Roth IRA contributions for the year, and have no other higher interest debt, then go ahead and knock out those student loans.\\\"\",\n \"I see two advantages to not paying student loan debt off more quickly: For #1, however, there are plenty of other ways to build credit and I don't see this as being worth the downsides of not paying off the debt more quickly. In fact, in the United States student loan debt cannot be written off if you go bankrupt. This is important to know and understand. I would generally advise you to pay down your student loans as quickly as you can reasonably do so.\",\n \"\\\"If the interest rate on the student loan is lower than inflation, then the student loan will be \\\"\\\"cheaper\\\"\\\" the longer you take to pay it. This is now a very rare instance, but there were programs and loan consolidation opportunities in the mid-200x's that allowed savvy student's to convert their loans to have an interest rate of around 1.5%. Right now the inflation rate is actually quite low, but it's not expected to stay there, and wasn't that low just a few years ago, so in the long run this type of debt will only be cheaper the longer it takes to pay off. It is risky, as others point out, as it can't be written off in bankruptcy, but there are other situations where it can be written off more easily than other debts, so on balance the risks aren't better or worse than other loans in general. For specific individual situations the risk equation might work out differently, though. Further, student loans aren't considered traditional debt by some lenders for specific lending opportunities, thus allowing you to go into greater debt for certain types of purchases. Whether this is good for you or not depends on the importance of the purchase. If you need to buy a house and the interest rate is higher than your student loan rate, it will be better, financially, to pay off the house first, while paying the minimum on the student loans. If you have no other debt with a higher interest, and the student loan interest is higher than inflation, there is no reason to delay paying off the student loan.\\\"\",\n \"Congratulations for achieving an important step in the road to financial freedom. Some view extending loan payment of loans that allow the deduction of interest as a good thing. Some view the hit on the credit score by prematurely paying off an installment loan as a bad thing. Determining the order of paying off multiple loans in conjunction with the reality of income, required monthly living expense, and the need to save for emergencies is highly individualized. Keeping an artificial debt seems to make little sense, it is an expensive insurance policy to chase a diminishing tax benefit and boost to a credit score. Keep in mind it is a deduction, not a credit, so how much you save depends on your tax bracket. It might make sense for somebody to extend the loan out for an extra year or two, but you can't just assume that that advice applies in your situation. Personally I paid off my student loan early, as soon as it made sense based on my income, and my situation. I am glad I did, but for others the opposite made more sense.\",\n \"Two different questions: Is it better to be in debt or to pay off the debt? And: Is it better to have student debt than other debt? Any debt needs to be paid off eventually, and any debt makes you less flexible. So if you have the choice between spending/wasting your money and paying off debt, I would recommend paying off the debt. The other question is whether having student debt is better than having other debt. You need to look at the terms of your student debt. Pay off the debt with the worst conditions first. Loan sharks (in Britain: pay-day loans) must be paid first. Credit cards debt must go next. Then general loans. Depending on your situation, you may want some savings as well. In case you lose your job, for example. So if you have $8,000 saved and an $8,000 student loan, you might consider waiting a bit before you pay back the loan. No job + $8,000 student loan + $8,000 in the bank is better than no job + no debt + no money in the bank.\",\n \"You become a teacher; generally K-12, but I have heard from the DOE that teachers at state schools qualify as well. This is not 100% correct. Teaching in certain disciplines and areas (STEM, Special Education, Title 1 schools) can qualify for student loan debt forgiveness DEPENDING on the type of debt. For instance, I believe the Federal loan forgiveness program only covers debt remaining after 10 years of teaching in a qualified discipline. Do verify this as it's been several years since I looked into the matter. The DOE has a student loan forgiveness program, but the scope of it is somewhat narrow. I would encourage anyone considering this approach to investigate it in detail before committing to a career in teaching. Some states have similar programs, but they typically have limitations as well.\",\n \"Like all other loan-vs-savings questions, it depends on the terms of the loan. If you have a choice, the usual answer is to pay off the loan with the worst terms (which usually means the highest interest rate) first, and only start with savings when you've paid off all the high-interest loans entirely. If your student loan is on US terms, then pay it off as soon as you can, unless you have commercial debt (credit-card or unsecured personal loan), which you should pay off first, or unless you have or are realistically likely to get eligibility for a forgiveness program. But it does depends on the terms of the debt, which in turn depend on the country you studied in; on UK terms it's a very bad idea to pay off a student loan any faster than you have to. Interest is restricted to the rate of inflation, so good investments probably beat the interest rate of the student loan; the required repayments vary with your income, so savings are more useful than debt repayment if you encounter income difficulties (e.g unemployment) in the future, and finally the debt is automatically forgiven after 30 years, so you may never have to pay it all back anyway - so why pay it off voluntarily if it would get forgiven eventually anyway?\",\n \"I'm no financial advisor, but I do have student loans and I do choose to pay them off as slowly as I can. I will explain my reasoning for doing so. (FWIW, these are all things that pertain to government student loans in the US, not necessarily private student loans, and not necessarily student loans from other countries) So that's my reasoning. $55 per month for the rest of my life adds up to a large amount of money over the course of my life, but the impact month-to-month is essentially nonexistent. That combined with the low interest and the super-low-pressure-sales-tactics means I just literally don't have any incentive to ever pay it all off. Like I said before, I'm just a guy who has student loans, and not even one who is particularly good with money, but as someone who does choose not to pay off my student loans any faster than I have to, this is why.\"\n]","isConversational":false}}},{"rowIdx":367,"cells":{"_id":{"kind":"string","value":"2465"},"query":{"kind":"string","value":"Can capital expenses for volunteer purposes be deducted from income?"},"gt_ids":{"kind":"list like","value":["570680","81046","546509"],"string":"[\n \"570680\",\n \"81046\",\n \"546509\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1],"string":"[\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["37382","18889","130631","546509","398536","310612","186718","82199","551353","510863","366830","539511","208124","262521","327263","551934","510716","127584","116934","146657","107213","302022","207533","541809","331981","414454","202645","418480","140977","35379","305222","187227","426639","432545","364938","581265","59819","299002","532743","291079","304248","205217","278824","513362","246461","136850","256833","480512","560087","507107","39734","176090","578732","84963","494000","531442","517836","153377","51491","357914","224665","103322","381151","416378","101543","476173","371103","570680","434619","100280","152407","544947","338545","589416","97348","106265","434846","182856","107794","293310","77304","451020","442142","14488","31144","466718","153520","144783","257616","427469","134545","390614","324513","468898","327002","131131","164391","30406","33117","156391"],"string":"[\n \"37382\",\n \"18889\",\n \"130631\",\n \"546509\",\n \"398536\",\n \"310612\",\n \"186718\",\n \"82199\",\n \"551353\",\n \"510863\",\n \"366830\",\n \"539511\",\n \"208124\",\n \"262521\",\n \"327263\",\n \"551934\",\n \"510716\",\n \"127584\",\n \"116934\",\n \"146657\",\n \"107213\",\n \"302022\",\n \"207533\",\n \"541809\",\n \"331981\",\n \"414454\",\n \"202645\",\n \"418480\",\n \"140977\",\n \"35379\",\n \"305222\",\n \"187227\",\n \"426639\",\n \"432545\",\n \"364938\",\n \"581265\",\n \"59819\",\n \"299002\",\n \"532743\",\n \"291079\",\n \"304248\",\n \"205217\",\n \"278824\",\n \"513362\",\n \"246461\",\n \"136850\",\n \"256833\",\n \"480512\",\n \"560087\",\n \"507107\",\n \"39734\",\n \"176090\",\n \"578732\",\n \"84963\",\n \"494000\",\n \"531442\",\n \"517836\",\n \"153377\",\n \"51491\",\n \"357914\",\n \"224665\",\n \"103322\",\n \"381151\",\n \"416378\",\n \"101543\",\n \"476173\",\n \"371103\",\n \"570680\",\n \"434619\",\n \"100280\",\n \"152407\",\n \"544947\",\n \"338545\",\n \"589416\",\n \"97348\",\n \"106265\",\n \"434846\",\n \"182856\",\n \"107794\",\n \"293310\",\n \"77304\",\n \"451020\",\n \"442142\",\n \"14488\",\n \"31144\",\n \"466718\",\n \"153520\",\n \"144783\",\n \"257616\",\n \"427469\",\n \"134545\",\n \"390614\",\n \"324513\",\n \"468898\",\n \"327002\",\n \"131131\",\n \"164391\",\n \"30406\",\n \"33117\",\n \"156391\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"If it's work you'd be producing specifically for this organization, that would not be deductable. Per Publication 526, Charitable Deductions, \"\"You can't deduct the value of your time or services, including: … The value of income lost while you work as an unpaid volunteer for a qualified organization.\"\" On the other hand, if you were say an author of a published book or something (not specifically written for this organization), you could donate a copy of the book and probably deduct its fair market value (or perhaps only your basis, if it's your business's inventory).\"","Yes. The S-Corp can deduct up to the amount it actually incurred in expenses. If your actual expenses to build the carport were $1000, then the $1000 would be deductible, and your business should be able to show $1000 in receipts or inventory changes. Note you cannot deduct beyond your actual expenses even if you would normally charge more. For example, suppose you invoiced the non-profit $2000 for the carport, and once the bill was paid you turned around and donated the $2000 back to the non-profit. In that case you would be deducting $1000 for your cost + $2000 donation for a total of $3000. But, you also would have $2000 in income so in the end you would end up with a $1000 loss which is exactly what your expenses were to begin with. It would probably be a good idea to be able to explain why you did this for free. If somehow you personally benefit from it then it could possibly be considered income to you, similar to if you bought a TV for your home with company funds. It would probably be cleaner from an accounting perspective if you followed through as described above- invoice the non-profit and then donate the payment back to them. Though not necessary, it could lesson any doubt about your motives.","\"In the US you are not required to have a corporation to use business expenses to offset your income. The technical term you need is \"\"deducting business expenses\"\", and in matters of taxes it's usually best to go straight to the horse's mouth: the IRS's explanations Deducting Business Expenses Business expenses are the cost of carrying on a trade or business. These expenses are usually deductible if the business operates to make a profit. What Can I Deduct? Cost of Goods Sold, Capital Expenses, Personal versus Business Expenses, Business Use of Your Home, Business Use of Your Car, Other Types of Business Expenses None of this requires any special incorporation or tax arrangements, and are a normal part of operating a business. However, there is a bit of a problem with your scenario. You said you \"\"invested\"\" into a business, but you mentioned buying specific things for the business which is not generally how one accounts for investment. If you are not an owner/operator of the business, then the scenario is not so straight-forward, as you can't simply claim someone else's business expenses as your own because you invested in it. Investments are taxed differently than expenses, and based upon your word choices I'm concerned that you could be getting yourself into a bit of a pickle. I would strongly advise you to speak with a professional, such as a Certified Public Accountant (CPA), to go over your current arrangement and advise you on how you should be structuring your ongoing investment into this shared business. If you are investing you should be receiving equity to reflect your ownership (or stock in the company, etc), and investments of this sort generally cannot be deducted as an expense on your taxes - it's just an investment, the same as buying stock or CDs. If you are just buying things for someone else's benefit, it's possible that this could be looked upon as a personal gift, and you may be in a precarious legal position as well (where the money is, indeed, just a gift). And gifts of this sort aren't deductible, either. Depending on how this is all structured, it's possible that you should both consider a different form of legal organization, such as a formal corporation or at least an official business partnership. A CPA and an appropriate business attorney should be able to advise you for a nominal (few hundred dollars, at most) fee. If a new legal structure is advisable, you can potentially do the work yourself for a few hundred dollars, or pay to have it done (especially if the situation is more complex) for a few hundred to a few thousand. That's a lot less than you'd be on the hook for if this business is being accounted for improperly, or if either of your tax returns are being reported improperly!\"","Costs for home / small business equipment under US$10,000 don't have to be capitalized. They can be expensed (that is, claimed as an expense all in one year.) Unless this printer is one of those behemoths that collates, folds, staples, and mails medium-sized booklets, it cost less than that. Keep track of your costs. Ask the charity to pay you those costs for the product you generate, and then donate that amount of money back to them. This will be good for the charity because they'll correctly account for the cost of printing.","The short answer is no you can only deduct actual expenses. The long answer is that it would be impossible for the IRS to determine the value of your time and it would open the tax system to an enormous amount of fraud (think of being able to make up time spent or writing off time spent volunteering at a soup kitchen or any other charity). Now you can write off expenses you have involved in doing the work, equipment and supplies used to do the work along with any wages you paid an employee or contractor to do said work.","\"You should probably have a tax professional help you with that (generally advisable when doing corporation returns, even if its a small S corp with a single shareholder). Some of it may be deductible, depending on the tax-exemption status of the recipients. Some may be deductible as business expenses. To address Chris's comment: Generally you can deduct as a business on your 1120S anything that is necessary and ordinary for your business. Charitable deductions flow through to your personal 1040, so Colin's reference to pub 526 is the right place to look at (if it was a C-corp, it might be different). Advertisement costs is a necessary and ordinary expense for any business, but you need to look at the essence of the transaction. Did you expect the sponsorship to provide you any new clients? Did you anticipate additional exposure to the potential customers? Was the investment (80 hours of your work) similar to the costs of paid advertisement for the same audience? If so - it is probably a business expense. While you can't deduct the time on its own, you can deduct the salary you paid yourself for working on this, materials, attributed depreciation, etc. If you can't justify it as advertisement, then its a donation, and then you cannot deduct it (because you did receive something in return). It might not be allowed as a business expense, and you might be required to consider it as \"\"personal use\"\", i.e.: salary.\"","If a business owner works for no salary, put time and effort into the business, can those hours be considered a capital investment? No.","\"No, you capitalize all that and deduct as depreciation from the royalties. What it means is that you cannot deduct the expense when it is incurred, but only when you started receiving income that the expense was used to derive. This is similar to capitalizing building improvements which can only be deducted when you start getting rent, or capitalizing software development expenses which can only be deducted once you start selling/licensing the developed software. In the case of book writing - you capitalize the expenses and deduct them once you start receiving royalties. The period over which you deduct (the \"\"depreciation schedule\"\") depends on the type of the expense and the type of the income, so you better get a guidance from a licensed tax accountant (EA or CPA licensed in your State).\"","No, you cannot write off your time. Only money or goods are eligible for donation.1 and 2","No. The equipment costs are not necessarily a direct expense. Depending on the time of purchase and type of the expenditure you may need to capitalize it and depreciate it over time. For example, if you buy a computer - you'll have to depreciate it over 5 years. Some expenditures can be expensed under Section 179 rules, but there are certain conditions to be made, including business revenue. So if your business revenue is $3K - your Sec. 179 deduction is limited to $3K even if more purchases can qualify. Not every purchase qualifies for Sec. 179 treatment, and not all the State tax rules conform to the Federal treatment. Get a professional advice from a CPA/EA licensed in your State.","First, you should probably have a proper consultation with a licensed tax adviser (EA/CPA licensed in your State). In fact you should have had it before you started, but that ship has sailed. You're talking about start-up expenses. You can generally deduct up to $5000 in the year your business starts, and the expenses in excess will be amortized over 180 months (15 years). This is per the IRC Sec. 195. The amortization starts when your business is active (i.e.: you can buy the property, but not actually open the restaurant - you cannot start the depreciation). I have a couple questions about accounting - should all the money I spent be a part of capital spending? Or is it just a part of it? If it qualifies as start-up/organizational expenses - it should be capitalized. If it is spent on capital assets - then it should also be capitalized, but for different reasons and differently. For example, costs of filing paperwork for permits is a start-up expense. Buying a commercial oven is a capital asset purchase which should be depreciated separately, as buying the tables and silverware. If it is a salary expense to your employees - then it is a current expense and shouldn't be capitalized. Our company is LLC if this matters. It matters to how it affects your personal tax return.","If your business pays taxes, it is in your best interest to expense it. Even if you don't pay taxes, setting your capitalization policy low enough to capitalize an office organizer (even a nice one) will give you headaches when your business grows larger.","\"Nope, not deductible. It's true that some investment expenses are deductible, mainly as \"\"miscellaneous itemized expenses\"\", though only the amount that exceeds 2% of your adjusted gross income. But as explained in IRS Pub 550, which lays out the relevant rules: Stockholders' meetings. You cannot deduct transportation and other expenses you pay to attend stockholders' meetings of companies in which you have no interest other than owning stock. This is true even if your purpose in attending is to get information that would be useful in making further investments.\"","Donations need to be with no strings attached. In this case, you make the cash donation, a deduction, and then they pay you, in taxable income. It's a wash. Why not just give them the service for free? Otherwise this is just money going back and forth.","First of all, Dilip's answer explains well how the business deductions generally work. For most (big) expenses you depreciate it. However, in some cases you need to capitalize it, which is another accounting method. When you capitalize your expense, it becomes part of the basis of the product you're creating. Since you're an engineer, this might be relevant for you. Talk to your tax adviser. How exactly you deduct/depreciate/capitalize things, and what expense goes which way depends greatly on the laws and jurisdictions. Even in the US, different states have different laws, and the IRS and State laws don't have to conform (unfortunately). For example, the limitations on Sec. 179 deduction in 2010-2011 were 20 times higher on Federal level than in the State of California. This could have lead to cases where you fully deducted your expense on your Federal tax return, but need to continue and depreciate it on your State return (or vice versa). Good tax adviser is crucial to avoid or manage these cases.","The basis of the home is the cost of land and material. That's it. Your time isn't added to basis. No different than if you spend 1000 hours in a soup kitchen. You deduct miles for your car and expenses you can document but you can't deduct your time. Over 2 years, you could have a gain up to $500K per married couple and pay no tax.","To expand a little on what littleadv said, you can only deduct what something cost you. Even if you had done volunteer work for a charity as a sole prop you could only deduct your actual costs. If you paid an employee to do charity work or to learn something related to the business that would be deductible as a normal business expense. Some common sense would show that if you could deduct something that didn't cost you anything (your time) you could deduct away all of your income and avoid paying taxes altogether. Back to your more nuanced question could 2 businesses you own bill each other for services? Yes, but you will still have to pay taxes for money earned under each of them. You will also need to be careful that the IRS does not construe the transactions as being done solely to lower your tax bill.","Yes you can. You should talk to your tax advisor re the specific expenditures that can be accounted as startup-costs (legal fees are a good candidate, for example). If they add up to significant amounts (>$5K), you'll have to capitalize them over a certain period of time, and deduct from your business' income. This is not a tax advice.:-)","Yes, you can deduct from your taxable profits (almost) any expenses incurred in the course of your business. See here for HMRC's detailed advice on the subject. The fact that you have salaried PAYE employment as well makes no difference.","Yes, you should be able to deduct at least some of these expenses. For expense incurred before you started the business: What Are Deductible Startup Costs? The IRS defines “startup costs” as deductible capital expenses that are used to pay for: 1) The cost of “investigating the creation or acquisition of an active trade or business.” This includes costs incurred for surveying markets, product analysis, labor supply, visiting potential business locations and similar expenditures. 2) The cost of getting a business ready to operate (before you open your doors or start generating income). These include employee training and wages, consultant fees, advertising, and travel costs associated with finding suppliers, distributors, and customers. These expenses can only be claimed if your research and preparation ends with the formation of a successful business. The IRS has more information on how to claim the expenses if you don’t go into business. https://www.sba.gov/blogs/startup-cost-tax-deductions-how-write-expense-starting-your-business Once your business is underway, you can deduct expenses, but the exact details depend on how you organized. If you're a sole proprietor for tax purposes, then you'll deduct them on Schedule C of your Form 1040 on your personal tax. If you are a partnership, C-Corp, or S-Corp, they will be accounted at the business level and either passed on to you on a Schedule K (partnership and S-Corp) or deducted directly by the company (C-Corp). In any case, you will need good records that justify your expenses as business related. It might be well worth at least an initial meeting with a CPA to make sure that you get started on the right foot.","\"The answer is \"\"Yes\"\", You can deduct them. As long as you showed that you put in effort to make a profit then you can deduct business expenses.\"","No, you cannot write off time, period. You should price the time spent into your product. I, occasionally, work on side projects of my own and forgo the possibility of earning direct income for that time. Income not earned is income not taxed, so there's nothing to deduct.","No. Unless you actually laid out cash for it, you can't write it off.","\"No, your business cannot deduct your non-business expenses. You can only deduct from your business income those reasonable expenses you paid in order to earn income for the business. Moreover, for there to be a tax benefit, your business generally has to have income (but I expect there are exceptions; HST input tax credits come to mind.) The employment income from your full-time job wouldn't count as business income for your corporation. The corporation has nothing to do with that income – it's earned personally, by you. With respect to restaurant bills: These fall under a category known as \"\"meals & entertainment\"\". Even if the expense can be considered reasonable and business-related (e.g. meeting customers or vendors) the Canada Revenue Agency decided that a business can only deduct half of those kinds of expenses for tax purposes. With respect to gasoline bills: You would need to keep a mileage and expense log. Only the portion of your automobile expenses that relate to the business can be deducted. Driving to and from your full-time job doesn't count. Of course, I'm not a tax professional. If you're going to have a corporation or side-business, you ought to consult with a tax professional. (A point on terminology: A business doesn't write off eligible business expenses — it deducts them from business income. Write off is an accounting term meaning to reduce the value of an asset to zero. e.g. If you damaged your car beyond repair, one could say \"\"the car is a write-off.\"\")\"","Keep this rather corny acronym in mind. Business expenses must be CORN: As other posters have already pointed out, certain expenses that are capital items (computers, furniture, etc.) must be depreciated over several years, but you have a certain amount of capital items that you can write off in the current tax year.","\"If it's fully expensed, it has zero basis. Any sale is taxable, 100%. To the ordinary income / cap gain issue raised in comment - It's a cap gain, but I believe, as with real estate, special rates apply. This is where I am out of my area of expertise, and as they say - \"\"Consult a professional.\"\"\"","For stocks, bonds, ETF funds and so on - Taxed only on realised gain and losses are deductible from the gain and not from company's income. Corporate tax is calculated only after all expenses have been deducted. Not the other way around. Real estate expenses can be deducted because of repairs and maintenance. In general all expenses related to the operation of the business can be deducted. But you cannot use expenses as willy nilly, as you assume. You cannot deduct your subscription to Playboy as an expense. Doing it is illegal and if caught, the tours to church will increase exponentially. VAT is only paid if you claim VAT on your invoices. Your situation seems quite complicated. I would suggest, get an accountant pronto. There are nuances in your situation, which an accountant only can understand and help.","\"Yes, you may deduct the cost of building the \"\"noise cancellation system\"\" :) sorry couldn't resist. But seriously, yes you can deduct it ONCE (unless you have more cost maintaining it) and its on line 19 (Repairs and maintenance) of IRS Form 8829.\"","Yes, legitimate, documented, expenses are written off against that income.","Explained in T4002. http://www.cra-arc.gc.ca/E/pub/tg/t4002/t4002-e.html If you buy a computer, cellular telephone, fax machine, or other such equipment, you cannot deduct the cost. You can deduct CCA and interest you paid on money you borrowed to buy this equipment that reasonably relates to earning your business income. For more information on CCA, see Chapter 4. It sounds like a class 8 for CCA if you follow the links. Class 8 with a CCA rate of 20% includes certain property that is not included in another class. Examples are furniture, appliances, and a tool costing $500 or more, some fixtures, machinery, outdoor advertising signs, refrigeration equipment, and other equipment you use in business. Photocopiers and electronic communications equipment, such as fax machines and electronic telephone equipment are also included in Class 8.","\"Buying a piece of equipment is not a capital loss. You now have an asset that you can sell for some percentage of the original price. For most assets, that value decreases over time, and you can \"\"write off\"\" the depreciation of the value each year. So you can deduct the depreciation of the asset from your business's income, which would then get passed on to your personal taxes (reducing the profit from your business). If you don't plan to use the equipment for some time, you might be able to depreciate the equipment based on the amount of usage, but I'd check with a CPA in your area to be sure.\"","Yes, it's possible (and quite legitimate) to do that using depreciation expenses. While there's a large up-front cash expense (a capital expenditure), you then get many years (depending on the usable life of the asset) of depreciation expense that reduces your taxable income. Many capital-intensive businesses can be attractive for just that reason (for example, real estate). Your question is a bit of a reverse on the common criticism that companies overemphasize non-GAAP numbers (like EBITDA) to appear more profitable (or profitable at all) compared with their GAAP Net Income. But it is certainly true that plenty of companies (especially private ones) factor tax considerations into capital expenditure timing and choices.","\"When you say \"\"donate\"\", it usually assumes charitable donation with, in this context, tax benefit. That is not what happens in your scenario. Giving someone money with the requirement of that someone to spend that money at your shop is not donation. It is a grant. You can do that, but you won't be able to deduct this as charitable donation, but the money paid to you back would be taxable income to you. I respectfully disagree with Joe that its a wash. It is not. You give them money that you cannot deduct as an expense (as it is not business expense) or donation (as strings are attached). But you do give them the money, it is no longer yours. When they use the money to pay you back - that same money becomes your taxable income. End result: you provide service, and you're the one paying (taxes) for it. Why would you do that?\"","According to HMRC's manual BIM42105, you can't deduct expenses of this kind when calculating your profits for corporation tax: No deduction is allowed for expenditure not incurred wholly and exclusively for trade purposes So at the least, the company will have to pay corporation tax on this donation at some point, assuming it ever makes any profits. There's also the risk that HMRC would say that what is really happening is that you are making a personal donation to this person and the company is giving you income to allow you to do it. In that case, you'd be liable to income tax and employees national insurance, and the company liable to employers national insurance. It should then be deductible from corporation tax, though.","It looks like you can. Take a look at these articles: http://www.googobits.com/articles/1747-taking-an-itemized-deduction-for-job-expenses.html http://www.bankrate.com/finance/money-guides/business-expenses-that-benefit-you.aspx http://www.hrblock.com/taxes/tax_tips/tax_planning/employment.html But of course, go to the source: http://www.irs.gov/publications/p529/ar02.html#en_US_publink100026912 From publication 529: You can deduct certain expenses as miscellaneous itemized deductions on Schedule A (Form 1040 or Form 1040NR). You can claim the amount of expenses that is more than 2% of your adjusted gross income. You figure your deduction on Schedule A by subtracting 2% of your adjusted gross income from the total amount of these expenses. Your adjusted gross income is the amount on Form 1040, line 38, or Form 1040NR, line 36. I hope that helps. Happy deducting!","\"In the US tax system, you cannot \"\"write-off\"\" capital assets. You have to depreciate them, with very specific exceptions. So while you may be purchasing $4500 of equipment, your deduction may be significantly less. For example, computers are depreciated over the period of 5 years, so if you bought a $1000 computer - you write off $200/year until it is completely depreciated, not $1000 at once. There are exceptions however, for example - IRC Sec. 179 is one of them. But you should talk to a tax adviser (EA/CPA licensed in your State) about whether it is applicable to the specific expense you want to \"\"write off\"\" and to what extent. Also, keep in mind that State laws may not conform to the Federal IRC. While you may be able to use Sec. 179 or other exceptions and deduct your expenses on your Federal return, you may end up with a whole different set of deductions on your State return. And last but not least: equipment that you depreciated or otherwise \"\"wrote off\"\" that is later sold - is income to you, since depreciation/deduction reduces basis. Ah, and keep in mind - the IRS frowns upon Schedule C business that consistently show losses. If you have losses for more than 3 in the last 5 years - your business may be classified as \"\"hobby\"\", and deductions may be disallowed. But the bottom line is that yes, it is possible to end up with 0 tax liability with business income offset by business deductions. However, not for prolonged periods of time (not for years consistently, but first year may fly). Again - you should talk to a licensed tax adviser (EA/CPA licensed in your State). It is well worth the money. Do not rely on answers on free Internet forums as a tax advice - it is not.\"","The CPA's mention of $2,500 is probably referring to the recently increased de minimis safe harbor under the final tangible property regulations (used to be $500) without an applicable financial statement. The IRS will not challenge your choice of expense or capitalization on amounts on or below $2500 if you elect the de minimis safe harbor election on your return. However, you must follow whatever you're doing for your books. (So if you are capitalizing your laptops for book purposes, you would also need to capitalize for tax purposes). Section 179 allows you to expense property that you would have otherwise have had to capitalize and depreciate. Section 179 can be annoying, especially if your LLC is treated as a passthrough, because there are recapture provisions when you dispose of the asset too early. For the tax return preparer, it makes the return preparation much more simple if there are no fixed assets to account for in the first place, which is quite possible if you are expensive all items/invoices less than $2,500.","IRS Publication 463 is a great resource to help you understand what you can and can't deduct. It's not a yes/no question, it depends on the exact company use, other use, and contemporaneous record keeping.","\"The relevant IRS publication is 526, Charitable Contributions. The section titled \"\"Contributions you cannot deduct\"\" begins on page 6; item 4 reads: \"\"The value of your time or services.\"\" I read that to mean that, if the website you built were a product, you could deduct its value. I don't understand the legal distinction between goods and services I originally said that I believe that a website is considered a service. Whether a website is a service or a product appears to be much more controversial that I originally thought. I cannot find a clear answer. I'm told that the IRS has a phone number you can call for rulings on this type of question. I've never had to use it, so I don't know how helpful it is. The best I can come up with is the Instructions for Form 1120s, the table titled \"\"Principal Business Activity Codes,\"\" starting on page 39. That table suggests to me that the IRS defines things based on what type of business you are in. Everything I can find in that table that a website could plausibly fall under has the word \"\"service\"\" in its name. I don't really feel like that's a definitive answer, though. Almost as an afterthought, if you were able to deduct the value of the website, you would have to subtract off whatever the value of the advertisement is. You said that it's not much, but there's probably a simple way of estimating that.\"","There are too many qualifying questions like martial status, dependent status, annual income, etc. Your answer is most likely in the Form Pub 970 you referenced: Adjustments to Qualified Education Expenses If you pay qualified education expenses with certain tax-free funds, you cannot claim a deduction for those amounts If the grant is tax free, you can not claim deductions up to that amount. Even if you were able to expense all the educational expenses you list, I doubt you can exceed the grant disbursement disbursement amount. I'm not a tax professional, so take my advice for what it is worth.","From Tax Benefits for Education Student-activity fees and expenses for course-related books, supplies and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. It seems to me the books are not a deduction unless the above criteria is met.","As noted above but with sources An improvement materially adds to the value of your home, considerably prolongs its useful life, or adapts it to new uses. You must add the cost of any improvements to the basis of your home. You cannot deduct these costs. Source Page 11, Adjusted Basis, Improvements Second, A repair keeps your home in an ordinary, efficient operating condition. It does not add to the value of your home or prolong its life. Repairs include repainting your home inside or outside, fixing your gutters or floors, fixing leaks or plastering, and replacing broken window panes. You cannot deduct repair costs and generally cannot add them to the basis of your home. Source Page 12, Adjusted Basis, Repairs versus improvements Generally, an expense for repairing or maintaining your rental property may be deducted if you are not required to capitalize the expense. You must capitalize any expense you pay to improve your rental property. An expense is for an improvement if it results in a betterment to your property, restores your property, or adapts your property to a new or different use. Source Page 5, Repairs and Improvements Good Luck,","\"In the US service animals are treated like durable medical equipment from a tax POV, and some expenses can be deducted. Likewise, expenses associated with working animals are business or hobby expenses than can be deducted to a certain extent. But pets, no. Legally they are \"\"chattels\"\" -- property that can move. Generally speaking, you can't deduct the cost of maintaining your belongings.\"","Yes, the business can count that as an expense but you will need to count that as income because a computer = money.","In the US, you can only take a tax deduction on expenses to the extent that they offset income. For an S corp or LLC, if the business had no income, there's no deduction to take. If you have a sole proprietorship, these expenses can offset other income. You can also carry-forward net operating losses to future years when you have more income. See the article How to Carry Over Business Expenses","\"Yes, this is a miscellaneous itemized deduction. https://www.irs.gov/publications/p529/ar02.html For this to impact your taxes, you have to be itemizing deductions (have total deductions greater than standard deduction), and the total of all miscellaneous deductions needs to exceed the \"\"2% floor\"\" described in the IRS link above.\"","\"You can make a custom category for \"\"Website expenses\"\" under Other Expenses as well. If the domain name only costs a very small amount, like $10, I think expensing it would be reasonable. Mariette IRS Circular 230 Notice: Please note that any tax advice contained in this communication is not intended to be used, and cannot be used, by anyone to avoid penalties that may be imposed under federal tax law.\"","IRS Publication 529 is the go-to document. Without being a tax professional, I'd say if the dues and subscriptions help you in the running of your business, then they're deductible. You're on your own if you take my advice (or don't). ;)","\"Assuming its in the US: No, it is not, and such things are usually treated as \"\"red flags\"\" for audit (and no, golf club memberships are not deductible either). The food expenses are not deductible in their entirety as well, only up to 50% of the actual expense, and only if it is directly business related. From what you've described, it sounds like if you have an audit coming you'll be in trouble. The purposes and activities of a club, not its name, will determine whether or not you can deduct the dues. You cannot deduct dues paid to: Country clubs, Golf and athletic clubs, Airline clubs, Hotel clubs, and Clubs operated to provide meals under circumstances generally considered to be conducive to business discussions.\"","A non-resident alien is only allowed for deductions connected to producing a US-sourced income (See IRC Sec. 873). Thus you can only deduct things that qualify as business expenses, and State taxes on your wages. In addition you can deduct a bunch of stuff explicitly allowed (like tax preparation, charitable contributions, casualty losses, etc) but sales tax is not in that list.","No, you may not deduct the charitable contributions of your children. The Nest covers this in detail: The IRS only allows you to deduct charitable contributions that you personally funded, whether the contribution was made in your name or in someone else's. If your child or dependent makes a donation to a charity, you are not allowed to claim it as a tax deduction. This is true even if your dependent does not claim the contribution on his own tax return because he opts for the standard deduction rather than itemizing or claims exemption. Now, had you constructed the transaction differently, it's possible you could've made the contribution in your child's name and thus claimed the deduction. Allowance is technically a gift, and if she agrees to forgo allowance in exchange for you making a contribution, well, the IRS can't really complain (though they might try if it were a large amount!). Contributions in the name of someone else, but funded by yourself, are deductible: [Y]ou can deduct contributions you make in someone else’s name. So if you donated a certain amount of money to XYZ charity in your child’s name, for example, you would be able to deduct this amount on your taxes, as long as the deduction requirements are met. You will need to keep accurate records of the payment along with the receipt from the organization to prove you financed the donation.","Yes, you can depreciate gifts to your business subject to the special rules in § 1011 and Regulation § 1.1011–1 and 1.167(g)–1. It is dual basis property so when you sell the item your gain/loss basis will be different. Adjusted basis of the donor for gain, FMV on the date received for the loss. Minus any depreciation you add, of course, in both cases.","No, you cannot. You can only deduct expenses that the employer required from you, are used solely for the employer's (not your!) benefit, you were not reimbursed for them and they're above the 2% AGI threshold. And that - only if you're itemizing your deductions.","\"Your corporation would file a corporate income tax return on an annual basis. One single month of no revenue doesn't mean much in that annual scheme of things. Total annual revenue and total annual expenses are what impact the results. In other words, yes, your corporation can book revenues in (say) 11 of 12 months of the year but still incur expenses in all months. Many seasonal businesses operate this way and it is perfectly normal. You could even just have, say, one super-awesome month and spend money the rest of the year. Heck, you could even have zero revenue but still incur expenses—startups often work like that at first. (You'd need investment funding, personal credit, a loan, or retained earnings from earlier profitable periods to do that, of course.) As long as your corporation has a reasonable expectation of a profit and the expenses your corporation incurs are valid business expenses, then yes, you ought to be able to deduct those expenses from your revenue when figuring taxes owed, regardless of whether the expenses were incurred at the same approximate time as revenue was booked—as long as the expense wasn't the acquisition of a depreciable asset. Some things your company would buy—such as the computer in your example—would not be fully deductible in the year the expense is incurred. Depreciable property expenses are deducted over time according to a schedule for the kind of property. The amount of depreciation expense you can claim for such property each year is known as Capital Cost Allowance. A qualified professional accountant can help you understand this. One last thing: You wrote \"\"write off\"\". That is not the same as \"\"deduct\"\". However, you are forgiven, because many people say \"\"write off\"\" when they actually mean \"\"deduct\"\" (for tax purposes). \"\"Write off\"\", rather, is a different accounting term, meaning where you mark down the value of an asset (e.g. a bad loan that will never be repaid) to zero; in effect, you are recognizing it is now a worthless asset. There can be a tax benefit to a write-off, but what you are asking about are clearly expense deductions and not write-offs. They are not the same thing, and the next time you hear somebody using \"\"write off\"\" when they mean \"\"deduction\"\", please correct them.\"","Yes, you will be able to claim it as an expense on your taxes, but not all in the current year. It is split into three categories: Current Expenses - Assets purchased such as inventory would be able to be claimed in the current year. Assets - Vehicles, Buildings, and equipment can be depreciated over time based on the value you purchased them for and the CCA class. Goodwill - In tax terms this is the value of the business purchase that is not eligible in 1 or 2 and is called Eligible Capital Property. This can be expensed over time. From info at CRA website: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/lf-vnts/byng/menu-eng.html","\"According to this post on TurboTax forums, you could deduct it as an \"\"Unreimbursed Employee\"\" expense. This would seem consistent with the IRS Guidelines on such deductions: An expense is ordinary if it is common and accepted in your trade, business, or profession. An expense is necessary if it is appropriate and helpful to your business. An expense does not have to be required to be considered necessary. Office rent is not listed explicitly among the examples of deductible unreimbursed employee expenses, but this doesn't mean it's not allowed. Of course you should check with a tax professional if you want to be sure.\"","You can depreciate equipment as a valid expense, even for a sole proprietorship. The concept is simple, but the details are pretty complicated (and probably even more so given the added complexities of agricultural economics). Definitely speak to an accountant who specializes in the field.","\"Hobby expenses are not tax deductible. Business expenses are, but only if it's a bona fide business. First they look at profitability: if you reported a net profit (i.e. paid taxes) in your first 3 years, they will believe you rant on Youtube for a living. Remember, by the time they get around to auditing you, you'll likely be well into, or through, your third year. There is an exception for farms. Other than that, if you lose money year after year, you better be able to show that you look, walk and quack like a business; and one with a reasonable business reason for delayed profitability. For instance Netflix's old business model of mailing DVDs had very high fixed infrastructure expense that took years to turn profitable, but was a very sensible model. They're fine with that. Pets.com swandived into oblivion but they earnestly tried. They're fine with that too. You can't mix all your activities. If you're an electrician specializing in IoT and smart homes, can you deduct a trip to the CES trade show, you bet. Blackhat conference, arguable. SES? No way. Now if you had a second business of a product-reco site which profited by ads and affiliate links, then SES would be fine to deduct from that business. But if this second business loses money every year, it's a hobby and not deductible at all. That person would want separate accounting books for the electrician and webmaster businesses. That's a basic \"\"duck test\"\" of a business vs. a hobby. You need to be able to show how each business gets income and pays expense separate from every other business and your personal life. It's a best-practice to give each business a separate checking account and checkbook. You don't need to risk tax penalties on a business-larva that may never pupate. You can amend your taxes up to 3 years after the proper filing date. I save my expense reciepts for each tax year, and if a business becomes justifiable, I go back and amend past years' tax forms, taking those deductions. IRS gives me a refund check, with interest!\"","You cannot deduct expenses directly. However, your employer may participate in programs to allow you to make a pretax deduction capped at $255 per month to pay for certain commuting expenses. For personal car commuters the main category is to pay for parking. IRS guidelines Qualified Transportation Benefits This exclusion applies to the following benefits. A ride in a commuter highway vehicle between the employee's home and work place. A transit pass. Qualified parking. Qualified bicycle commuting reimbursement. You may provide an employee with any one or more of the first three benefits at the same time. However, the exclusion for qualified bicycle commuting reimbursement isn't available in any month the employee receives any of the other qualified transportation benefits.","\"Tax cost basis is the amounts you've spent on developing the product which you hasn't deducted yet from previous income. From what you've described, it sounds like your cost basis is $0. Time you spent is not your cost, since time is not money. The fact that you might have earned something if working at that time but you didn't - is irrelevant, because potential income that you didn't get is not a loss that you took. Someone mentioned \"\"intangibles\"\" in the comments - that would be the line of thought of the buyer. However, since you didn't buy the product but rather developed it, you can only deduct the actual expenses you've incurred, that you haven't deducted so far.\"","\"Can I deduct the money that I giving to my team mates from the taxes that I pay? If yes, how should I record the transaction? Why? Why are you giving money to your team mates? That's the most important question, and any answer without taking this into account is not full. You would probably have to talk to a professional tax adviser (a CPA/EA licensed in your state) about the details, but in general - you cannot deduct money you give someone just because you feel like it. Moreover, it may be subject to an additional tax - the gift tax. PS: We don't have any partnership or something similar, it is just each of us on his own. Assuming you want to give your team mates money because you developed the project together - then you do in fact have a partnership. In order to split the income properly, you should get a tax ID for the partnership, and issue a 1065 and K-1 for each team mate. In most states, you don't need to \"\"register\"\" a partnership with the state. Mere \"\"lets do things together\"\" creates a partnership. Otherwise, if they work for you (as opposed to with you in the case above), you can treat it as your own business income, and pay your team mates (who are now your contractors/employees) accordingly. Be careful here, because the difference between contractor and employee in tax law is significant, and you may end up being on the hook for a lot of things you're not aware of. Bottom line, in certain situation you cannot deduct, in others you can - you have to discuss it with a professional. Doing these things on your own without fully understanding what each term means - is dangerous, and IRS doesn't forgive for \"\"honest mistakes\"\".\"","This will always be the case unless the tax relief is more than the expenditure, which it never is. There are some ways in which this can become worth it: if the thing you are spending the money on would actually be useful, of it you might be able to sell it for more than four dollars later - or if you can claim a government grant or similar for more than four dollars. And at the level of corporate finance it can get more complicated. But otherwise, No.","Chris, since you own your own company, nobody can stop you from charging your personal expenses to your business account. IRS is not a huge fan of mixing business and personal expenses and this practice might indicate to them that you are not treating your business seriously, and it should classify your business as a hobby. IRS defines deductible business expense as being both: ordinary AND necessary. Meditation is not an ordinary expense (other S-corps do not incur such expense.) It is not a necessary expense either. Therefore, you cannot deduct this expense. http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Deducting-Business-Expenses","\"Can a company say \"\"StackExchange\"\" donate to a non-profit company say $5,000 in agreement that they will spend that on paying a designer for a new website? And most importantly is this donation still tax deductible? A non-profit would have to typically create a bucket for IT Services or Website design. As long as \"\"StackExchange\"\" specify they employ a profession service to get it done, there would be no issue. If \"\"StackExchange\"\" were to specify an individula/company it would be an issue.\"","\"No, you can't deduct any of that. What they're talking about is a flexible spending plan, otherwise known as \"\"Use it or lose it\"\" money. You choose to put pre-tax dollars into a restricted fund. This money is not taxed, in fact technically, it's not even income. You can only spend out of that fund to buy parking, tolls, transit tickets, things like that. Any money not used for those purposes in a suitable time period evaporates. Gone, and irrecoverable. You can't even take the loss as a tax deduction! You have to set this account up with your employer. You can't just dig up your old transit and parking receipts and stick those on your Schedule A. Take 3 people. As you can see, Fran is shooting herself in the foot. This is where these plans can go wrong.\"","Yes, you can. That the books were purchased from abroad is irrelevant: you incurred an expense in the course of earning your income. If the books are expensive (>$300 per set iirc) you will need to deprecate them over a reasonable life time rather than claiming the entire amount up front. It doesn't matter whether what you got was a VAT Invoice; as long as you have some reasonable documentation of the expense you're ok.","Unless you are a tax-exempt entity and running this server is clearly within your mission statement: YES, it's taxable income. Sorry.","I would suggest to buy your own printer, and calculate the cost for a page including the wear to the printer. Then either deduce these printing expenses, or ask the charity to reimburse you. This is not much different than when you would go to a copyshop, those easily charge 10-30c per page, with your own printer you can probably get it around 5-10c per page, including paper, toner, drum, and amortization. The advantage is that when you do use the printer for other purposes, you wont get into any problems with who owns the printer or deductions.","If a business incurs expenses in the process of its trading, generally those expenses are deductible. Disposing of waste is generally held to be a deductible expense.","The answer is simple. You can generally claim a deduction for an expense if that expense was used to derive an income. Most business expenses are used to derive profits and income, most individual expenses are not. Of course social policy sometimes gets in the way and allows for deductions where they usually wouldn't be allowed. Regarding the interest on a mortgage being deductible whilst the principal isn't, that is because it is the interest which is the annual expense. By the way deductions for mortgage interest in the USA for a house you live in is only allowed due to social policy, as there is no income (rent) being produced here, unlike with an investment property.","Federal income taxes are indeed expenses, they're just not DEDUCTIBLE expenses on your 1120. Federal Income Tax Expense is usually a subcategory under Taxes. This is one of the items that will be a book-to-tax difference on Schedule M-1. I am presuming you are talking about a C corporation, as an S corporation is not likely to be paying federal taxes itself, but would pass the liability through to the members. If you're paying your personal 1040 taxes out of an S-corporation bank account, that's an owner's draw just like paying any of your personal non-business expenses. I would encourage you to get a tax professional to prepare your corporate tax returns. It's not quite as simple as TurboTax Business makes it out to be. ;) Mariette IRS Circular 230 Notice: Please note that any tax advice contained in this communication is not intended to be used, and cannot be used, by anyone to avoid penalties that may be imposed under federal tax law.","If medical, not cosmetic, you can deduct medical expenses to the extent they exceed 7.5% of your adjusted gross income. Note: it's been announced that starting in 2013 the deduction is for amounts exceeding 10% of AGI.","Assuming your country is the United States there is. See schedule C line 9 and the corresponding instructions. There are many rules associated with this, in some cases the entire purchase can be written off but typically if the truck is only used for business. Most people write off partial usage in the form of credits for mileage. You are best to consult with a CPA once your business earns a profit. Good luck.","Any deductable expense will reduce your taxable income not your tax payable. Your Example 1 above is correct and gives you 100% deduction. It is like having a business where your sales are $100,000 and your expenses in making the sales is $40,000. The expenses are your tax deductions and reduce your profits on which you pay tax on to $60,000. If your Example 2 was correct then the situation above would change that you would pay say $30,000 tax on $100,000 sales, then apply your deductions (or expenses) of $40,000 so that you would pay no tax at all and in fact get $10,000 back in your return. In this case the government would not be collecting any taxes but paying out returns to everyone. Your Example 2 is absolutly incorrect.","\"While you'd need to pay tax if you realized a capital gain on the sale of your car, you generally can't deduct any loss arising from the sale of \"\"personal use property\"\". Cars are personal use property. Refer to Canada Revenue Agency – Personal-use property losses. Quote: [...] if you have a capital loss, you usually cannot deduct that loss when you calculate your income for the year. In addition, you cannot use the loss to decrease capital gains on other personal-use property. This is because if a property depreciates through personal use, the resulting loss on its disposition is a personal expense. There are some exceptions. Read up at the source links.\"","Being a professional auditor and accountant, deduction against expenses are claimed in the year in which expenses has been incurred. It has no relationship with when it is paid. For example, we may buy on credit does not mean that they will be allowed in the period in which it is paid. This is against the fundamental accounting principles.","\"When I have a question about my income taxes, the first place I look is generally the Giant Book of Income Tax Information, Publication 17 (officially called \"\"Your Federal Income Tax\"\"). This looks to be covered in Chapter 26 on \"\"Car Expenses and Other Employee Business Expenses\"\". It's possible that there's something in there that applies to you if you need to temporarily commute to a place that isn't your normal workplace for a legitimate business reason or other business-related travel. But for your normal commute from your home to your normal workplace it has this to say: Commuting expenses. You cannot deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. These costs are personal commuting expenses. You cannot deduct commuting expenses no matter how far your home is from your regular place of work. You cannot deduct commuting expenses even if you work during the commuting trip.\"","The good news is that your parent organization is tax exempt and your local organization might be. The national organization even has guidelines and even more details. Regarding donations they have this to say: Please note: The law requires charities to furnish disclosure statements to donors for such quid pro quo donations in excess of $75.00. A quid pro quo contribution is a payment made partly as a contribution and partly for goods or services provided to the donor by the charity. An example of a quid pro quo contribution is when the donor gives a charity $100.00 in consideration for a concert ticket valued at $40.00. In this example, $60.00 would be deductible because the donor’s payment (quid pro quo contribution) exceeds $75.00. The disclosure statement must be furnished even though the deductible amount does not exceed $75.00. Regarding taxes: Leagues included under our group exemption number are responsible for their own tax filings with the I.R.S. Leagues must file Form 990 EZ with Schedule A if gross receipts are in excess of $50,000 but less than $200,000. Similar rules also apply to other youth organizations such as scouts, swim teams, or other youth sports.","If a business tool has a limited lifespan, it's value decreases (depreciates) from year to year. The business can capture that loss of value on some things that it couldn't otherwise write off as expenses. A few tools can be either expenses or depreciated, but only one of those can be chosen for that particular object. This is generally not relevant for individual taxpayers, unless you can show that the item is being used for income-producing purposes.","Assuming the US, if a human assessor audited you, could you show a future profit motive or will they conclude you are expensing a hobby? If you answer yes, you are likely to only be deducting limited expenses this year, carrying forward losses to your profitable years. See the examples in pub 535: http://www.irs.gov/publications/p535/ch01.html#en_US_2014_publink1000208633","In general, for a home you live in, there's maintenance, which is just that, you pay to keep your house in good repair. There's also real improvements. I spend $xxx to turn my poured cement basement into living space. Here, I keep my receipts and the cost (although not my labor) is added to the basis of my home when I sell. The couple things that may offer a deduction have to do with energy. When I insulated my basement, there was a state tax credit which I got back when I filed taxes. There are also credits for installing solar panels. What you've described in your question just sounds like one of the small joys of home ownership.","\"Its is considered a \"\"hobby\"\" income, and you should be reporting it on the 1040 as taxable income. The expenses (what you pay) are hobby expenses, and you report them on Schedule A (if you itemize). You can only deduct the hobby expenses to the extent of your hobby income, and they're subject to the 2% AGI threshold.\"","I suggest to start charging slightly more than needed to cover expenses. All you need is to show profit. It doesn't have to be significant - a couple of hundred of dollars of consistent yearly profit should suffice to show a profitable business. Then you can deduct on Schedule C all the related expenses. The caveat is that the profit (after the deduction of the expenses will be a bit smaller) will be subject to not only income tax but also the self-employment tax. But at least you'll pay tax on profit that is not entirely phantom. I remember suggesting you getting a professional consultation on this matter a while ago. You should really do that - talk to a EA/CPA licensed in your state, it may be well worth the $100-200 fee they'll charge for the consultation (if at all...).","Depending on the improvement, you have to amortize or depreciate it over time, which effectively allows you to write off the value over a period of years, even if you pay for it all up front. This messes with cash flow, which is different than profitability, but when you span the write off over five or ten years, the distinction between cash flow and profitability for a private, self funded company is irrelevant. If the money ain't there, the money ain't there. Operating capital is life blood. Taxes also alter the ROI equation of the investment, since you don't keep all the money you put in. Way over simplified example: Lets say I close out the year with some arbitrary profit - ten million bucks - in my war chest. 3.5 could go to taxes. I also know that my supplier can't handle my volume for next year while the season is hot, so I'd like to buy inventory in the off season. Last year I sold 6.5 mill worth of stuff from this supplier, but I estimate I could sell 9-10 mill if I didn't have availability problems. If I buy 9-10 mill in inventory, I can't pay taxes. If I pay taxes, I can't buy enough to grow next year. Sure, COGS is a deductible expense, but the expense isn't realized until the inventory is sold, which won't be until long after these taxes are due. I now have taxes interfering with my expansion, even though eventually I can write that off. Now lets look at the manufacturer - sure he could expand his capacity and make more money, but he has to deduct the 5 mill machine he needs over twenty years (or ten or whatever) while the purchase price needs to be made today. This year he's gonna pay tax on 90 or 95% of the money he used to buy that machine, which would eat into the money he needs to buy raw materials to fill orders he already has. Of course, the real world is much more complicated, and you can leverage leasing agreements and purchasing terms to alleviate this to some extent, but I wanted to illustrate a point. I hope my extremely simplified example communicated what I mean. Does that make sense?","The regulations you're talking about (TR 1.263) are going into effect starting tax year 2016, so for purchases you made last year they're (kindof...) irrelevant. Kindof, because the IRS promises to not audit those that qualify under the regulations even if they use it before it goes into effect, but it doesn't legally have to. Since the regulations are new, I suggest you talk to a licensed professional who'd explain them to you and interpret them with regards to your specific situation. From my brief read, you can expense under these rules things that you would otherwise capitalize, with the $500 limit to the invoice. Meaning, if you bought a computer paying $500, which you use 50% for your business - you can expense $250. The benefit, comparing to the Sec. 179, is that you're not limited to new items, nor are you limited to business revenue. Otherwise, it looks like the applicability is similar. As I said - talk to a licensed tax adviser (EA/CPA licensed in your State), since these rules are new and untested, and you should probably have a professional provide guidance. I'm not such a professional.","\"From the poster's description of this activity, it doesn't look like he is engaged in a business, so Schedule C would not be appropriate. The first paragraph of the IRS Instructions for Schedule C is as follows: Use Schedule C (Form 1040) to report income or loss from a business you operated or a profession you practiced as a sole proprietor. An activity qualifies as a business if your primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity. For example, a sporadic activity or a hobby does not qualify as a business. To report income from a nonbusiness activity, see the instructions for Form 1040, line 21, or Form 1040NR, line 21. What the poster is doing is acting as a nominee or agent for his members. For instance, if I give you $3.00 and ask you to go into Starbucks and buy me a pumpkin-spice latte, you do not have income or receipts of $3.00, and you are not engaged in a business. The amounts that the poster's members are forwarding him are like this. Money that the poster receives for his trouble should be reported as nonbusiness income on Line 21 of Form 1040, in accordance with the instructions quoted above and the instructions for Form 1040. Finally, it should be noted that the poster cannot take deductions or losses relating to this activity. So he can't deduct any expenses of organizing the group buy on his tax return. Of course, this would not be the case if the group buy really is the poster's business and not just a \"\"hobby.\"\" Of course, it goes without saying that the poster should document all of this activity with receipts, contemporaneous emails (and if available, contracts) - as well as anything else that could possibly be relevant to proving the nature of this activity in the event of an audit.\"","Assuming that it's not inventory that is sold in the following year or a depreciable asset, you can deduct it when you make the purchase. The courts have ruled that credit cards balances are considered debt. It's treated the same way as if you went to the bank, got a loan, and used cash or a check to purchase the items. On your accounting books, you would debit the expense account and credit the credit card liability account. This is only for credit cards, which are considered loans. If you use a store charge card, then you cannot deduct it until you pay. Those are considered accounts payable. I'm an IRS agent and a CPA.","What a coincidence! This was an exam question for my business law class. The main reason why individuals are not allowed to deduct expenses is because income tax revenue would be zero. The reason being, if an individual is allowed to deduct expenses he/she would spend 100% of their income and deduct it all on their tax returns, which would mean he/she would pay virtually no income tax. This is bad for the gov't and the economy. It's bad for the gov't because they loose tax revenue, and it's bad for the economy because people would not have any savings for tough times, which can send the economy into a negative spiral.","There is no tax code I know that would grant you such a privilege. And it just isn't practicable. In your examples, you always sold your product and were thus able, in retrospect, to give a value to your work. What if you don't sell your product? What if in one case your worked hour is reimbursed with one price, with the next product at another (i.e. difference in margin)? No, it won't work like that. And by the way, I think you might have got some definitions upside down. What you want is a salary that your own company pays out to yourself and you can deduct from other profits. But as long as you can't afford to pay yourself a salary, and you don't have access to investors who are willing to front you the money, the time invested is your personal investment and cannot be deducted anywhere - though it might pay off nicely in the long run. That's the risk entrepreneurs take.","If significant amounts are involved, that would be a good time to consult a tax professional (EA/CPA licensed in your state). Generally, sale of a business is an ordinary income and you can only deduct tangible expenses, as Joe said. That would be laptops, bills, expenses per receipt, of course they must all be directly attributable to the business. You will need to be able to show that the laptops has only been used in business, recapture depreciation, etc. Same with all the rest of the expenses. If you're incorporated (i.e.: you hold this software under an S-Corp), then you're selling stocks, not business, and the tax treatment may be different, but I'm guessing this is not the case for you.","If cash donations are not deductable, stock contributions aren't either and I believe the same rules apply as for a private party.","If they charge a fee to accept an item, it's reasonable to assume the item has insignificant value, so the only tax-deductible bit would be the money you donated to their charity. What you describe sounds like a fee for service, not a charitable donation. The organization should provide a fee breakdown to show what percentage (if any) of the fee is a deductible contribution. There could be some additional PA-only tax benefit, but I didn't come across anything in my brief search.","You can deduct this if the main purpose of the trip is to attend the seminar. Travel expenses relating to the attendance at conferences, seminars and other work-related events are deductible to the extent that they relate to your income-producing activities. You will need to apportion your travel expenses where you undertake both work-related and private activities. Travel costs to and from the location of the work-related event will only be deductible where the primary purpose of the travel was to attend the event. Accommodation, food and other incidental costs must be apportioned between work-related and private activities taking into account the types of activities that you did on the day you incurred the cost. You might like to consider in advance what you would tell them if they questioned this - for instance you might say (if they are true):","\"Agreed. One of the comments for this question Good books for learning about tax strategy/planning uses the phrase: \"\"Don't let the tax tail wag the investing dog.\"\" It applies to charitable donations. Donate because it is expected by your church; donate because it makes you feel good; but don't donate just to save money on your taxes. Once you have decided to donate take the steps necessary to be able to deduct your donation. Get the receipt or use a check or credit card so you can deduct the donation.\"","\"To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary. (IRS, Deducting Business Expenses) It seems to me you'd have a hard time convincing an auditor that this is the case. Since business don't commonly own cars for the sole purpose of housing $25 computers, you'd have trouble with the \"\"ordinary\"\" test. And since there are lots of other ways to house a computer other than a car, \"\"necessary\"\" seems problematic also.\"","A rather good IRS paper on the topic states that a donation of a business' in-kind inventory would be Under IRC 170(e)(1), however, the fair market value must be reduced by the amount of gain that would not be long-term capital gain if the property had been sold by the donor at the property's fair market value (determined at the time of the contribution). Under this rule, deductions for donated inventory are limited to the property's basis (generally its cost), where the fair market value exceeds the basis. There are references to IRC regulations in a narrative context you may find helpful: This paper goes on for 16 pages describing detailed exceptions and the political reasons for the exceptions (most of which are concerned with encouraging the donation of prepared food from restaurants/caterers to hunger charities by guaranteeing a value for something that would otherwise be trashed valueless); and a worked out example of fur coats that had a cost of goods of $200 and a market value of $1000.","Yes, #2: the Hackathon prize money counts as income, but a donation to charity is a deductible charitable gift. For more background and a few scenarios: http://people.opposingviews.com/deductible-donor-donates-prize-2517.html","Lending is not a charitable contribution. Its an investment. If the loan becomes a bad debt - you'll have to show that it had become a bad debt. For example - bankruptcy declaration. You'll have to show an arm's length transaction, for example - real intention to repay (evidenced by payments of principal and interest made). Otherwise if you have an intention for the loan to never be repaid, it is in fact a gift, which is not only not deductible - its taxable. Bottom line - be careful and talk to a EA/CPA to get a proper advice with regards to a specific transaction. Edit to answer your revised question: you're not going to pay taxes if you're not going to have gains. However, if you lose the principal, in addition to the said above you would incur the loss as a personal bad debt, and not business. This is because it is not investment. The difference is in tax treatment: personal bad debt is a short-term capital loss (limited deduction), business is an ordinary loss.","If this was a public corporation (stock) and the investment was made in a non-registered account, then you can claim a capital loss. Capital losses are claimed against capital gains (not income), and can be carried back 3 years or carried forward indefinitely. Here's an article I've written on how to claim capital losses that may help.","They are certainly only suggesting that the money you pay to recycle the bulbs is tax deductible as a donation, assuming that they are indeed a 501(c)(3) non-profit. Donations of goods are only deductible at fair market value. Light bulbs that no longer light up have no market value, so only the payment could possibly be deductible."],"string":"[\n \"\\\"If it's work you'd be producing specifically for this organization, that would not be deductable. Per Publication 526, Charitable Deductions, \\\"\\\"You can't deduct the value of your time or services, including: … The value of income lost while you work as an unpaid volunteer for a qualified organization.\\\"\\\" On the other hand, if you were say an author of a published book or something (not specifically written for this organization), you could donate a copy of the book and probably deduct its fair market value (or perhaps only your basis, if it's your business's inventory).\\\"\",\n \"Yes. The S-Corp can deduct up to the amount it actually incurred in expenses. If your actual expenses to build the carport were $1000, then the $1000 would be deductible, and your business should be able to show $1000 in receipts or inventory changes. Note you cannot deduct beyond your actual expenses even if you would normally charge more. For example, suppose you invoiced the non-profit $2000 for the carport, and once the bill was paid you turned around and donated the $2000 back to the non-profit. In that case you would be deducting $1000 for your cost + $2000 donation for a total of $3000. But, you also would have $2000 in income so in the end you would end up with a $1000 loss which is exactly what your expenses were to begin with. It would probably be a good idea to be able to explain why you did this for free. If somehow you personally benefit from it then it could possibly be considered income to you, similar to if you bought a TV for your home with company funds. It would probably be cleaner from an accounting perspective if you followed through as described above- invoice the non-profit and then donate the payment back to them. Though not necessary, it could lesson any doubt about your motives.\",\n \"\\\"In the US you are not required to have a corporation to use business expenses to offset your income. The technical term you need is \\\"\\\"deducting business expenses\\\"\\\", and in matters of taxes it's usually best to go straight to the horse's mouth: the IRS's explanations Deducting Business Expenses Business expenses are the cost of carrying on a trade or business. These expenses are usually deductible if the business operates to make a profit. What Can I Deduct? Cost of Goods Sold, Capital Expenses, Personal versus Business Expenses, Business Use of Your Home, Business Use of Your Car, Other Types of Business Expenses None of this requires any special incorporation or tax arrangements, and are a normal part of operating a business. However, there is a bit of a problem with your scenario. You said you \\\"\\\"invested\\\"\\\" into a business, but you mentioned buying specific things for the business which is not generally how one accounts for investment. If you are not an owner/operator of the business, then the scenario is not so straight-forward, as you can't simply claim someone else's business expenses as your own because you invested in it. Investments are taxed differently than expenses, and based upon your word choices I'm concerned that you could be getting yourself into a bit of a pickle. I would strongly advise you to speak with a professional, such as a Certified Public Accountant (CPA), to go over your current arrangement and advise you on how you should be structuring your ongoing investment into this shared business. If you are investing you should be receiving equity to reflect your ownership (or stock in the company, etc), and investments of this sort generally cannot be deducted as an expense on your taxes - it's just an investment, the same as buying stock or CDs. If you are just buying things for someone else's benefit, it's possible that this could be looked upon as a personal gift, and you may be in a precarious legal position as well (where the money is, indeed, just a gift). And gifts of this sort aren't deductible, either. Depending on how this is all structured, it's possible that you should both consider a different form of legal organization, such as a formal corporation or at least an official business partnership. A CPA and an appropriate business attorney should be able to advise you for a nominal (few hundred dollars, at most) fee. If a new legal structure is advisable, you can potentially do the work yourself for a few hundred dollars, or pay to have it done (especially if the situation is more complex) for a few hundred to a few thousand. That's a lot less than you'd be on the hook for if this business is being accounted for improperly, or if either of your tax returns are being reported improperly!\\\"\",\n \"Costs for home / small business equipment under US$10,000 don't have to be capitalized. They can be expensed (that is, claimed as an expense all in one year.) Unless this printer is one of those behemoths that collates, folds, staples, and mails medium-sized booklets, it cost less than that. Keep track of your costs. Ask the charity to pay you those costs for the product you generate, and then donate that amount of money back to them. This will be good for the charity because they'll correctly account for the cost of printing.\",\n \"The short answer is no you can only deduct actual expenses. The long answer is that it would be impossible for the IRS to determine the value of your time and it would open the tax system to an enormous amount of fraud (think of being able to make up time spent or writing off time spent volunteering at a soup kitchen or any other charity). Now you can write off expenses you have involved in doing the work, equipment and supplies used to do the work along with any wages you paid an employee or contractor to do said work.\",\n \"\\\"You should probably have a tax professional help you with that (generally advisable when doing corporation returns, even if its a small S corp with a single shareholder). Some of it may be deductible, depending on the tax-exemption status of the recipients. Some may be deductible as business expenses. To address Chris's comment: Generally you can deduct as a business on your 1120S anything that is necessary and ordinary for your business. Charitable deductions flow through to your personal 1040, so Colin's reference to pub 526 is the right place to look at (if it was a C-corp, it might be different). Advertisement costs is a necessary and ordinary expense for any business, but you need to look at the essence of the transaction. Did you expect the sponsorship to provide you any new clients? Did you anticipate additional exposure to the potential customers? Was the investment (80 hours of your work) similar to the costs of paid advertisement for the same audience? If so - it is probably a business expense. While you can't deduct the time on its own, you can deduct the salary you paid yourself for working on this, materials, attributed depreciation, etc. If you can't justify it as advertisement, then its a donation, and then you cannot deduct it (because you did receive something in return). It might not be allowed as a business expense, and you might be required to consider it as \\\"\\\"personal use\\\"\\\", i.e.: salary.\\\"\",\n \"If a business owner works for no salary, put time and effort into the business, can those hours be considered a capital investment? No.\",\n \"\\\"No, you capitalize all that and deduct as depreciation from the royalties. What it means is that you cannot deduct the expense when it is incurred, but only when you started receiving income that the expense was used to derive. This is similar to capitalizing building improvements which can only be deducted when you start getting rent, or capitalizing software development expenses which can only be deducted once you start selling/licensing the developed software. In the case of book writing - you capitalize the expenses and deduct them once you start receiving royalties. The period over which you deduct (the \\\"\\\"depreciation schedule\\\"\\\") depends on the type of the expense and the type of the income, so you better get a guidance from a licensed tax accountant (EA or CPA licensed in your State).\\\"\",\n \"No, you cannot write off your time. Only money or goods are eligible for donation.1 and 2\",\n \"No. The equipment costs are not necessarily a direct expense. Depending on the time of purchase and type of the expenditure you may need to capitalize it and depreciate it over time. For example, if you buy a computer - you'll have to depreciate it over 5 years. Some expenditures can be expensed under Section 179 rules, but there are certain conditions to be made, including business revenue. So if your business revenue is $3K - your Sec. 179 deduction is limited to $3K even if more purchases can qualify. Not every purchase qualifies for Sec. 179 treatment, and not all the State tax rules conform to the Federal treatment. Get a professional advice from a CPA/EA licensed in your State.\",\n \"First, you should probably have a proper consultation with a licensed tax adviser (EA/CPA licensed in your State). In fact you should have had it before you started, but that ship has sailed. You're talking about start-up expenses. You can generally deduct up to $5000 in the year your business starts, and the expenses in excess will be amortized over 180 months (15 years). This is per the IRC Sec. 195. The amortization starts when your business is active (i.e.: you can buy the property, but not actually open the restaurant - you cannot start the depreciation). I have a couple questions about accounting - should all the money I spent be a part of capital spending? Or is it just a part of it? If it qualifies as start-up/organizational expenses - it should be capitalized. If it is spent on capital assets - then it should also be capitalized, but for different reasons and differently. For example, costs of filing paperwork for permits is a start-up expense. Buying a commercial oven is a capital asset purchase which should be depreciated separately, as buying the tables and silverware. If it is a salary expense to your employees - then it is a current expense and shouldn't be capitalized. Our company is LLC if this matters. It matters to how it affects your personal tax return.\",\n \"If your business pays taxes, it is in your best interest to expense it. Even if you don't pay taxes, setting your capitalization policy low enough to capitalize an office organizer (even a nice one) will give you headaches when your business grows larger.\",\n \"\\\"Nope, not deductible. It's true that some investment expenses are deductible, mainly as \\\"\\\"miscellaneous itemized expenses\\\"\\\", though only the amount that exceeds 2% of your adjusted gross income. But as explained in IRS Pub 550, which lays out the relevant rules: Stockholders' meetings. You cannot deduct transportation and other expenses you pay to attend stockholders' meetings of companies in which you have no interest other than owning stock. This is true even if your purpose in attending is to get information that would be useful in making further investments.\\\"\",\n \"Donations need to be with no strings attached. In this case, you make the cash donation, a deduction, and then they pay you, in taxable income. It's a wash. Why not just give them the service for free? Otherwise this is just money going back and forth.\",\n \"First of all, Dilip's answer explains well how the business deductions generally work. For most (big) expenses you depreciate it. However, in some cases you need to capitalize it, which is another accounting method. When you capitalize your expense, it becomes part of the basis of the product you're creating. Since you're an engineer, this might be relevant for you. Talk to your tax adviser. How exactly you deduct/depreciate/capitalize things, and what expense goes which way depends greatly on the laws and jurisdictions. Even in the US, different states have different laws, and the IRS and State laws don't have to conform (unfortunately). For example, the limitations on Sec. 179 deduction in 2010-2011 were 20 times higher on Federal level than in the State of California. This could have lead to cases where you fully deducted your expense on your Federal tax return, but need to continue and depreciate it on your State return (or vice versa). Good tax adviser is crucial to avoid or manage these cases.\",\n \"The basis of the home is the cost of land and material. That's it. Your time isn't added to basis. No different than if you spend 1000 hours in a soup kitchen. You deduct miles for your car and expenses you can document but you can't deduct your time. Over 2 years, you could have a gain up to $500K per married couple and pay no tax.\",\n \"To expand a little on what littleadv said, you can only deduct what something cost you. Even if you had done volunteer work for a charity as a sole prop you could only deduct your actual costs. If you paid an employee to do charity work or to learn something related to the business that would be deductible as a normal business expense. Some common sense would show that if you could deduct something that didn't cost you anything (your time) you could deduct away all of your income and avoid paying taxes altogether. Back to your more nuanced question could 2 businesses you own bill each other for services? Yes, but you will still have to pay taxes for money earned under each of them. You will also need to be careful that the IRS does not construe the transactions as being done solely to lower your tax bill.\",\n \"Yes you can. You should talk to your tax advisor re the specific expenditures that can be accounted as startup-costs (legal fees are a good candidate, for example). If they add up to significant amounts (>$5K), you'll have to capitalize them over a certain period of time, and deduct from your business' income. This is not a tax advice.:-)\",\n \"Yes, you can deduct from your taxable profits (almost) any expenses incurred in the course of your business. See here for HMRC's detailed advice on the subject. The fact that you have salaried PAYE employment as well makes no difference.\",\n \"Yes, you should be able to deduct at least some of these expenses. For expense incurred before you started the business: What Are Deductible Startup Costs? The IRS defines “startup costs” as deductible capital expenses that are used to pay for: 1) The cost of “investigating the creation or acquisition of an active trade or business.” This includes costs incurred for surveying markets, product analysis, labor supply, visiting potential business locations and similar expenditures. 2) The cost of getting a business ready to operate (before you open your doors or start generating income). These include employee training and wages, consultant fees, advertising, and travel costs associated with finding suppliers, distributors, and customers. These expenses can only be claimed if your research and preparation ends with the formation of a successful business. The IRS has more information on how to claim the expenses if you don’t go into business. https://www.sba.gov/blogs/startup-cost-tax-deductions-how-write-expense-starting-your-business Once your business is underway, you can deduct expenses, but the exact details depend on how you organized. If you're a sole proprietor for tax purposes, then you'll deduct them on Schedule C of your Form 1040 on your personal tax. If you are a partnership, C-Corp, or S-Corp, they will be accounted at the business level and either passed on to you on a Schedule K (partnership and S-Corp) or deducted directly by the company (C-Corp). In any case, you will need good records that justify your expenses as business related. It might be well worth at least an initial meeting with a CPA to make sure that you get started on the right foot.\",\n \"\\\"The answer is \\\"\\\"Yes\\\"\\\", You can deduct them. As long as you showed that you put in effort to make a profit then you can deduct business expenses.\\\"\",\n \"No, you cannot write off time, period. You should price the time spent into your product. I, occasionally, work on side projects of my own and forgo the possibility of earning direct income for that time. Income not earned is income not taxed, so there's nothing to deduct.\",\n \"No. Unless you actually laid out cash for it, you can't write it off.\",\n \"\\\"No, your business cannot deduct your non-business expenses. You can only deduct from your business income those reasonable expenses you paid in order to earn income for the business. Moreover, for there to be a tax benefit, your business generally has to have income (but I expect there are exceptions; HST input tax credits come to mind.) The employment income from your full-time job wouldn't count as business income for your corporation. The corporation has nothing to do with that income – it's earned personally, by you. With respect to restaurant bills: These fall under a category known as \\\"\\\"meals & entertainment\\\"\\\". Even if the expense can be considered reasonable and business-related (e.g. meeting customers or vendors) the Canada Revenue Agency decided that a business can only deduct half of those kinds of expenses for tax purposes. With respect to gasoline bills: You would need to keep a mileage and expense log. Only the portion of your automobile expenses that relate to the business can be deducted. Driving to and from your full-time job doesn't count. Of course, I'm not a tax professional. If you're going to have a corporation or side-business, you ought to consult with a tax professional. (A point on terminology: A business doesn't write off eligible business expenses — it deducts them from business income. Write off is an accounting term meaning to reduce the value of an asset to zero. e.g. If you damaged your car beyond repair, one could say \\\"\\\"the car is a write-off.\\\"\\\")\\\"\",\n \"Keep this rather corny acronym in mind. Business expenses must be CORN: As other posters have already pointed out, certain expenses that are capital items (computers, furniture, etc.) must be depreciated over several years, but you have a certain amount of capital items that you can write off in the current tax year.\",\n \"\\\"If it's fully expensed, it has zero basis. Any sale is taxable, 100%. To the ordinary income / cap gain issue raised in comment - It's a cap gain, but I believe, as with real estate, special rates apply. This is where I am out of my area of expertise, and as they say - \\\"\\\"Consult a professional.\\\"\\\"\\\"\",\n \"For stocks, bonds, ETF funds and so on - Taxed only on realised gain and losses are deductible from the gain and not from company's income. Corporate tax is calculated only after all expenses have been deducted. Not the other way around. Real estate expenses can be deducted because of repairs and maintenance. In general all expenses related to the operation of the business can be deducted. But you cannot use expenses as willy nilly, as you assume. You cannot deduct your subscription to Playboy as an expense. Doing it is illegal and if caught, the tours to church will increase exponentially. VAT is only paid if you claim VAT on your invoices. Your situation seems quite complicated. I would suggest, get an accountant pronto. There are nuances in your situation, which an accountant only can understand and help.\",\n \"\\\"Yes, you may deduct the cost of building the \\\"\\\"noise cancellation system\\\"\\\" :) sorry couldn't resist. But seriously, yes you can deduct it ONCE (unless you have more cost maintaining it) and its on line 19 (Repairs and maintenance) of IRS Form 8829.\\\"\",\n \"Yes, legitimate, documented, expenses are written off against that income.\",\n \"Explained in T4002. http://www.cra-arc.gc.ca/E/pub/tg/t4002/t4002-e.html If you buy a computer, cellular telephone, fax machine, or other such equipment, you cannot deduct the cost. You can deduct CCA and interest you paid on money you borrowed to buy this equipment that reasonably relates to earning your business income. For more information on CCA, see Chapter 4. It sounds like a class 8 for CCA if you follow the links. Class 8 with a CCA rate of 20% includes certain property that is not included in another class. Examples are furniture, appliances, and a tool costing $500 or more, some fixtures, machinery, outdoor advertising signs, refrigeration equipment, and other equipment you use in business. Photocopiers and electronic communications equipment, such as fax machines and electronic telephone equipment are also included in Class 8.\",\n \"\\\"Buying a piece of equipment is not a capital loss. You now have an asset that you can sell for some percentage of the original price. For most assets, that value decreases over time, and you can \\\"\\\"write off\\\"\\\" the depreciation of the value each year. So you can deduct the depreciation of the asset from your business's income, which would then get passed on to your personal taxes (reducing the profit from your business). If you don't plan to use the equipment for some time, you might be able to depreciate the equipment based on the amount of usage, but I'd check with a CPA in your area to be sure.\\\"\",\n \"Yes, it's possible (and quite legitimate) to do that using depreciation expenses. While there's a large up-front cash expense (a capital expenditure), you then get many years (depending on the usable life of the asset) of depreciation expense that reduces your taxable income. Many capital-intensive businesses can be attractive for just that reason (for example, real estate). Your question is a bit of a reverse on the common criticism that companies overemphasize non-GAAP numbers (like EBITDA) to appear more profitable (or profitable at all) compared with their GAAP Net Income. But it is certainly true that plenty of companies (especially private ones) factor tax considerations into capital expenditure timing and choices.\",\n \"\\\"When you say \\\"\\\"donate\\\"\\\", it usually assumes charitable donation with, in this context, tax benefit. That is not what happens in your scenario. Giving someone money with the requirement of that someone to spend that money at your shop is not donation. It is a grant. You can do that, but you won't be able to deduct this as charitable donation, but the money paid to you back would be taxable income to you. I respectfully disagree with Joe that its a wash. It is not. You give them money that you cannot deduct as an expense (as it is not business expense) or donation (as strings are attached). But you do give them the money, it is no longer yours. When they use the money to pay you back - that same money becomes your taxable income. End result: you provide service, and you're the one paying (taxes) for it. Why would you do that?\\\"\",\n \"According to HMRC's manual BIM42105, you can't deduct expenses of this kind when calculating your profits for corporation tax: No deduction is allowed for expenditure not incurred wholly and exclusively for trade purposes So at the least, the company will have to pay corporation tax on this donation at some point, assuming it ever makes any profits. There's also the risk that HMRC would say that what is really happening is that you are making a personal donation to this person and the company is giving you income to allow you to do it. In that case, you'd be liable to income tax and employees national insurance, and the company liable to employers national insurance. It should then be deductible from corporation tax, though.\",\n \"It looks like you can. Take a look at these articles: http://www.googobits.com/articles/1747-taking-an-itemized-deduction-for-job-expenses.html http://www.bankrate.com/finance/money-guides/business-expenses-that-benefit-you.aspx http://www.hrblock.com/taxes/tax_tips/tax_planning/employment.html But of course, go to the source: http://www.irs.gov/publications/p529/ar02.html#en_US_publink100026912 From publication 529: You can deduct certain expenses as miscellaneous itemized deductions on Schedule A (Form 1040 or Form 1040NR). You can claim the amount of expenses that is more than 2% of your adjusted gross income. You figure your deduction on Schedule A by subtracting 2% of your adjusted gross income from the total amount of these expenses. Your adjusted gross income is the amount on Form 1040, line 38, or Form 1040NR, line 36. I hope that helps. Happy deducting!\",\n \"\\\"In the US tax system, you cannot \\\"\\\"write-off\\\"\\\" capital assets. You have to depreciate them, with very specific exceptions. So while you may be purchasing $4500 of equipment, your deduction may be significantly less. For example, computers are depreciated over the period of 5 years, so if you bought a $1000 computer - you write off $200/year until it is completely depreciated, not $1000 at once. There are exceptions however, for example - IRC Sec. 179 is one of them. But you should talk to a tax adviser (EA/CPA licensed in your State) about whether it is applicable to the specific expense you want to \\\"\\\"write off\\\"\\\" and to what extent. Also, keep in mind that State laws may not conform to the Federal IRC. While you may be able to use Sec. 179 or other exceptions and deduct your expenses on your Federal return, you may end up with a whole different set of deductions on your State return. And last but not least: equipment that you depreciated or otherwise \\\"\\\"wrote off\\\"\\\" that is later sold - is income to you, since depreciation/deduction reduces basis. Ah, and keep in mind - the IRS frowns upon Schedule C business that consistently show losses. If you have losses for more than 3 in the last 5 years - your business may be classified as \\\"\\\"hobby\\\"\\\", and deductions may be disallowed. But the bottom line is that yes, it is possible to end up with 0 tax liability with business income offset by business deductions. However, not for prolonged periods of time (not for years consistently, but first year may fly). Again - you should talk to a licensed tax adviser (EA/CPA licensed in your State). It is well worth the money. Do not rely on answers on free Internet forums as a tax advice - it is not.\\\"\",\n \"The CPA's mention of $2,500 is probably referring to the recently increased de minimis safe harbor under the final tangible property regulations (used to be $500) without an applicable financial statement. The IRS will not challenge your choice of expense or capitalization on amounts on or below $2500 if you elect the de minimis safe harbor election on your return. However, you must follow whatever you're doing for your books. (So if you are capitalizing your laptops for book purposes, you would also need to capitalize for tax purposes). Section 179 allows you to expense property that you would have otherwise have had to capitalize and depreciate. Section 179 can be annoying, especially if your LLC is treated as a passthrough, because there are recapture provisions when you dispose of the asset too early. For the tax return preparer, it makes the return preparation much more simple if there are no fixed assets to account for in the first place, which is quite possible if you are expensive all items/invoices less than $2,500.\",\n \"IRS Publication 463 is a great resource to help you understand what you can and can't deduct. It's not a yes/no question, it depends on the exact company use, other use, and contemporaneous record keeping.\",\n \"\\\"The relevant IRS publication is 526, Charitable Contributions. The section titled \\\"\\\"Contributions you cannot deduct\\\"\\\" begins on page 6; item 4 reads: \\\"\\\"The value of your time or services.\\\"\\\" I read that to mean that, if the website you built were a product, you could deduct its value. I don't understand the legal distinction between goods and services I originally said that I believe that a website is considered a service. Whether a website is a service or a product appears to be much more controversial that I originally thought. I cannot find a clear answer. I'm told that the IRS has a phone number you can call for rulings on this type of question. I've never had to use it, so I don't know how helpful it is. The best I can come up with is the Instructions for Form 1120s, the table titled \\\"\\\"Principal Business Activity Codes,\\\"\\\" starting on page 39. That table suggests to me that the IRS defines things based on what type of business you are in. Everything I can find in that table that a website could plausibly fall under has the word \\\"\\\"service\\\"\\\" in its name. I don't really feel like that's a definitive answer, though. Almost as an afterthought, if you were able to deduct the value of the website, you would have to subtract off whatever the value of the advertisement is. You said that it's not much, but there's probably a simple way of estimating that.\\\"\",\n \"There are too many qualifying questions like martial status, dependent status, annual income, etc. Your answer is most likely in the Form Pub 970 you referenced: Adjustments to Qualified Education Expenses If you pay qualified education expenses with certain tax-free funds, you cannot claim a deduction for those amounts If the grant is tax free, you can not claim deductions up to that amount. Even if you were able to expense all the educational expenses you list, I doubt you can exceed the grant disbursement disbursement amount. I'm not a tax professional, so take my advice for what it is worth.\",\n \"From Tax Benefits for Education Student-activity fees and expenses for course-related books, supplies and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution as a condition of enrollment or attendance. It seems to me the books are not a deduction unless the above criteria is met.\",\n \"As noted above but with sources An improvement materially adds to the value of your home, considerably prolongs its useful life, or adapts it to new uses. You must add the cost of any improvements to the basis of your home. You cannot deduct these costs. Source Page 11, Adjusted Basis, Improvements Second, A repair keeps your home in an ordinary, efficient operating condition. It does not add to the value of your home or prolong its life. Repairs include repainting your home inside or outside, fixing your gutters or floors, fixing leaks or plastering, and replacing broken window panes. You cannot deduct repair costs and generally cannot add them to the basis of your home. Source Page 12, Adjusted Basis, Repairs versus improvements Generally, an expense for repairing or maintaining your rental property may be deducted if you are not required to capitalize the expense. You must capitalize any expense you pay to improve your rental property. An expense is for an improvement if it results in a betterment to your property, restores your property, or adapts your property to a new or different use. Source Page 5, Repairs and Improvements Good Luck,\",\n \"\\\"In the US service animals are treated like durable medical equipment from a tax POV, and some expenses can be deducted. Likewise, expenses associated with working animals are business or hobby expenses than can be deducted to a certain extent. But pets, no. Legally they are \\\"\\\"chattels\\\"\\\" -- property that can move. Generally speaking, you can't deduct the cost of maintaining your belongings.\\\"\",\n \"Yes, the business can count that as an expense but you will need to count that as income because a computer = money.\",\n \"In the US, you can only take a tax deduction on expenses to the extent that they offset income. For an S corp or LLC, if the business had no income, there's no deduction to take. If you have a sole proprietorship, these expenses can offset other income. You can also carry-forward net operating losses to future years when you have more income. See the article How to Carry Over Business Expenses\",\n \"\\\"Yes, this is a miscellaneous itemized deduction. https://www.irs.gov/publications/p529/ar02.html For this to impact your taxes, you have to be itemizing deductions (have total deductions greater than standard deduction), and the total of all miscellaneous deductions needs to exceed the \\\"\\\"2% floor\\\"\\\" described in the IRS link above.\\\"\",\n \"\\\"You can make a custom category for \\\"\\\"Website expenses\\\"\\\" under Other Expenses as well. If the domain name only costs a very small amount, like $10, I think expensing it would be reasonable. Mariette IRS Circular 230 Notice: Please note that any tax advice contained in this communication is not intended to be used, and cannot be used, by anyone to avoid penalties that may be imposed under federal tax law.\\\"\",\n \"IRS Publication 529 is the go-to document. Without being a tax professional, I'd say if the dues and subscriptions help you in the running of your business, then they're deductible. You're on your own if you take my advice (or don't). ;)\",\n \"\\\"Assuming its in the US: No, it is not, and such things are usually treated as \\\"\\\"red flags\\\"\\\" for audit (and no, golf club memberships are not deductible either). The food expenses are not deductible in their entirety as well, only up to 50% of the actual expense, and only if it is directly business related. From what you've described, it sounds like if you have an audit coming you'll be in trouble. The purposes and activities of a club, not its name, will determine whether or not you can deduct the dues. You cannot deduct dues paid to: Country clubs, Golf and athletic clubs, Airline clubs, Hotel clubs, and Clubs operated to provide meals under circumstances generally considered to be conducive to business discussions.\\\"\",\n \"A non-resident alien is only allowed for deductions connected to producing a US-sourced income (See IRC Sec. 873). Thus you can only deduct things that qualify as business expenses, and State taxes on your wages. In addition you can deduct a bunch of stuff explicitly allowed (like tax preparation, charitable contributions, casualty losses, etc) but sales tax is not in that list.\",\n \"No, you may not deduct the charitable contributions of your children. The Nest covers this in detail: The IRS only allows you to deduct charitable contributions that you personally funded, whether the contribution was made in your name or in someone else's. If your child or dependent makes a donation to a charity, you are not allowed to claim it as a tax deduction. This is true even if your dependent does not claim the contribution on his own tax return because he opts for the standard deduction rather than itemizing or claims exemption. Now, had you constructed the transaction differently, it's possible you could've made the contribution in your child's name and thus claimed the deduction. Allowance is technically a gift, and if she agrees to forgo allowance in exchange for you making a contribution, well, the IRS can't really complain (though they might try if it were a large amount!). Contributions in the name of someone else, but funded by yourself, are deductible: [Y]ou can deduct contributions you make in someone else’s name. So if you donated a certain amount of money to XYZ charity in your child’s name, for example, you would be able to deduct this amount on your taxes, as long as the deduction requirements are met. You will need to keep accurate records of the payment along with the receipt from the organization to prove you financed the donation.\",\n \"Yes, you can depreciate gifts to your business subject to the special rules in § 1011 and Regulation § 1.1011–1 and 1.167(g)–1. It is dual basis property so when you sell the item your gain/loss basis will be different. Adjusted basis of the donor for gain, FMV on the date received for the loss. Minus any depreciation you add, of course, in both cases.\",\n \"No, you cannot. You can only deduct expenses that the employer required from you, are used solely for the employer's (not your!) benefit, you were not reimbursed for them and they're above the 2% AGI threshold. And that - only if you're itemizing your deductions.\",\n \"\\\"Your corporation would file a corporate income tax return on an annual basis. One single month of no revenue doesn't mean much in that annual scheme of things. Total annual revenue and total annual expenses are what impact the results. In other words, yes, your corporation can book revenues in (say) 11 of 12 months of the year but still incur expenses in all months. Many seasonal businesses operate this way and it is perfectly normal. You could even just have, say, one super-awesome month and spend money the rest of the year. Heck, you could even have zero revenue but still incur expenses—startups often work like that at first. (You'd need investment funding, personal credit, a loan, or retained earnings from earlier profitable periods to do that, of course.) As long as your corporation has a reasonable expectation of a profit and the expenses your corporation incurs are valid business expenses, then yes, you ought to be able to deduct those expenses from your revenue when figuring taxes owed, regardless of whether the expenses were incurred at the same approximate time as revenue was booked—as long as the expense wasn't the acquisition of a depreciable asset. Some things your company would buy—such as the computer in your example—would not be fully deductible in the year the expense is incurred. Depreciable property expenses are deducted over time according to a schedule for the kind of property. The amount of depreciation expense you can claim for such property each year is known as Capital Cost Allowance. A qualified professional accountant can help you understand this. One last thing: You wrote \\\"\\\"write off\\\"\\\". That is not the same as \\\"\\\"deduct\\\"\\\". However, you are forgiven, because many people say \\\"\\\"write off\\\"\\\" when they actually mean \\\"\\\"deduct\\\"\\\" (for tax purposes). \\\"\\\"Write off\\\"\\\", rather, is a different accounting term, meaning where you mark down the value of an asset (e.g. a bad loan that will never be repaid) to zero; in effect, you are recognizing it is now a worthless asset. There can be a tax benefit to a write-off, but what you are asking about are clearly expense deductions and not write-offs. They are not the same thing, and the next time you hear somebody using \\\"\\\"write off\\\"\\\" when they mean \\\"\\\"deduction\\\"\\\", please correct them.\\\"\",\n \"Yes, you will be able to claim it as an expense on your taxes, but not all in the current year. It is split into three categories: Current Expenses - Assets purchased such as inventory would be able to be claimed in the current year. Assets - Vehicles, Buildings, and equipment can be depreciated over time based on the value you purchased them for and the CCA class. Goodwill - In tax terms this is the value of the business purchase that is not eligible in 1 or 2 and is called Eligible Capital Property. This can be expensed over time. From info at CRA website: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/lf-vnts/byng/menu-eng.html\",\n \"\\\"According to this post on TurboTax forums, you could deduct it as an \\\"\\\"Unreimbursed Employee\\\"\\\" expense. This would seem consistent with the IRS Guidelines on such deductions: An expense is ordinary if it is common and accepted in your trade, business, or profession. An expense is necessary if it is appropriate and helpful to your business. An expense does not have to be required to be considered necessary. Office rent is not listed explicitly among the examples of deductible unreimbursed employee expenses, but this doesn't mean it's not allowed. Of course you should check with a tax professional if you want to be sure.\\\"\",\n \"You can depreciate equipment as a valid expense, even for a sole proprietorship. The concept is simple, but the details are pretty complicated (and probably even more so given the added complexities of agricultural economics). Definitely speak to an accountant who specializes in the field.\",\n \"\\\"Hobby expenses are not tax deductible. Business expenses are, but only if it's a bona fide business. First they look at profitability: if you reported a net profit (i.e. paid taxes) in your first 3 years, they will believe you rant on Youtube for a living. Remember, by the time they get around to auditing you, you'll likely be well into, or through, your third year. There is an exception for farms. Other than that, if you lose money year after year, you better be able to show that you look, walk and quack like a business; and one with a reasonable business reason for delayed profitability. For instance Netflix's old business model of mailing DVDs had very high fixed infrastructure expense that took years to turn profitable, but was a very sensible model. They're fine with that. Pets.com swandived into oblivion but they earnestly tried. They're fine with that too. You can't mix all your activities. If you're an electrician specializing in IoT and smart homes, can you deduct a trip to the CES trade show, you bet. Blackhat conference, arguable. SES? No way. Now if you had a second business of a product-reco site which profited by ads and affiliate links, then SES would be fine to deduct from that business. But if this second business loses money every year, it's a hobby and not deductible at all. That person would want separate accounting books for the electrician and webmaster businesses. That's a basic \\\"\\\"duck test\\\"\\\" of a business vs. a hobby. You need to be able to show how each business gets income and pays expense separate from every other business and your personal life. It's a best-practice to give each business a separate checking account and checkbook. You don't need to risk tax penalties on a business-larva that may never pupate. You can amend your taxes up to 3 years after the proper filing date. I save my expense reciepts for each tax year, and if a business becomes justifiable, I go back and amend past years' tax forms, taking those deductions. IRS gives me a refund check, with interest!\\\"\",\n \"You cannot deduct expenses directly. However, your employer may participate in programs to allow you to make a pretax deduction capped at $255 per month to pay for certain commuting expenses. For personal car commuters the main category is to pay for parking. IRS guidelines Qualified Transportation Benefits This exclusion applies to the following benefits. A ride in a commuter highway vehicle between the employee's home and work place. A transit pass. Qualified parking. Qualified bicycle commuting reimbursement. You may provide an employee with any one or more of the first three benefits at the same time. However, the exclusion for qualified bicycle commuting reimbursement isn't available in any month the employee receives any of the other qualified transportation benefits.\",\n \"\\\"Tax cost basis is the amounts you've spent on developing the product which you hasn't deducted yet from previous income. From what you've described, it sounds like your cost basis is $0. Time you spent is not your cost, since time is not money. The fact that you might have earned something if working at that time but you didn't - is irrelevant, because potential income that you didn't get is not a loss that you took. Someone mentioned \\\"\\\"intangibles\\\"\\\" in the comments - that would be the line of thought of the buyer. However, since you didn't buy the product but rather developed it, you can only deduct the actual expenses you've incurred, that you haven't deducted so far.\\\"\",\n \"\\\"Can I deduct the money that I giving to my team mates from the taxes that I pay? If yes, how should I record the transaction? Why? Why are you giving money to your team mates? That's the most important question, and any answer without taking this into account is not full. You would probably have to talk to a professional tax adviser (a CPA/EA licensed in your state) about the details, but in general - you cannot deduct money you give someone just because you feel like it. Moreover, it may be subject to an additional tax - the gift tax. PS: We don't have any partnership or something similar, it is just each of us on his own. Assuming you want to give your team mates money because you developed the project together - then you do in fact have a partnership. In order to split the income properly, you should get a tax ID for the partnership, and issue a 1065 and K-1 for each team mate. In most states, you don't need to \\\"\\\"register\\\"\\\" a partnership with the state. Mere \\\"\\\"lets do things together\\\"\\\" creates a partnership. Otherwise, if they work for you (as opposed to with you in the case above), you can treat it as your own business income, and pay your team mates (who are now your contractors/employees) accordingly. Be careful here, because the difference between contractor and employee in tax law is significant, and you may end up being on the hook for a lot of things you're not aware of. Bottom line, in certain situation you cannot deduct, in others you can - you have to discuss it with a professional. Doing these things on your own without fully understanding what each term means - is dangerous, and IRS doesn't forgive for \\\"\\\"honest mistakes\\\"\\\".\\\"\",\n \"This will always be the case unless the tax relief is more than the expenditure, which it never is. There are some ways in which this can become worth it: if the thing you are spending the money on would actually be useful, of it you might be able to sell it for more than four dollars later - or if you can claim a government grant or similar for more than four dollars. And at the level of corporate finance it can get more complicated. But otherwise, No.\",\n \"Chris, since you own your own company, nobody can stop you from charging your personal expenses to your business account. IRS is not a huge fan of mixing business and personal expenses and this practice might indicate to them that you are not treating your business seriously, and it should classify your business as a hobby. IRS defines deductible business expense as being both: ordinary AND necessary. Meditation is not an ordinary expense (other S-corps do not incur such expense.) It is not a necessary expense either. Therefore, you cannot deduct this expense. http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Deducting-Business-Expenses\",\n \"\\\"Can a company say \\\"\\\"StackExchange\\\"\\\" donate to a non-profit company say $5,000 in agreement that they will spend that on paying a designer for a new website? And most importantly is this donation still tax deductible? A non-profit would have to typically create a bucket for IT Services or Website design. As long as \\\"\\\"StackExchange\\\"\\\" specify they employ a profession service to get it done, there would be no issue. If \\\"\\\"StackExchange\\\"\\\" were to specify an individula/company it would be an issue.\\\"\",\n \"\\\"No, you can't deduct any of that. What they're talking about is a flexible spending plan, otherwise known as \\\"\\\"Use it or lose it\\\"\\\" money. You choose to put pre-tax dollars into a restricted fund. This money is not taxed, in fact technically, it's not even income. You can only spend out of that fund to buy parking, tolls, transit tickets, things like that. Any money not used for those purposes in a suitable time period evaporates. Gone, and irrecoverable. You can't even take the loss as a tax deduction! You have to set this account up with your employer. You can't just dig up your old transit and parking receipts and stick those on your Schedule A. Take 3 people. As you can see, Fran is shooting herself in the foot. This is where these plans can go wrong.\\\"\",\n \"Yes, you can. That the books were purchased from abroad is irrelevant: you incurred an expense in the course of earning your income. If the books are expensive (>$300 per set iirc) you will need to deprecate them over a reasonable life time rather than claiming the entire amount up front. It doesn't matter whether what you got was a VAT Invoice; as long as you have some reasonable documentation of the expense you're ok.\",\n \"Unless you are a tax-exempt entity and running this server is clearly within your mission statement: YES, it's taxable income. Sorry.\",\n \"I would suggest to buy your own printer, and calculate the cost for a page including the wear to the printer. Then either deduce these printing expenses, or ask the charity to reimburse you. This is not much different than when you would go to a copyshop, those easily charge 10-30c per page, with your own printer you can probably get it around 5-10c per page, including paper, toner, drum, and amortization. The advantage is that when you do use the printer for other purposes, you wont get into any problems with who owns the printer or deductions.\",\n \"If a business incurs expenses in the process of its trading, generally those expenses are deductible. Disposing of waste is generally held to be a deductible expense.\",\n \"The answer is simple. You can generally claim a deduction for an expense if that expense was used to derive an income. Most business expenses are used to derive profits and income, most individual expenses are not. Of course social policy sometimes gets in the way and allows for deductions where they usually wouldn't be allowed. Regarding the interest on a mortgage being deductible whilst the principal isn't, that is because it is the interest which is the annual expense. By the way deductions for mortgage interest in the USA for a house you live in is only allowed due to social policy, as there is no income (rent) being produced here, unlike with an investment property.\",\n \"Federal income taxes are indeed expenses, they're just not DEDUCTIBLE expenses on your 1120. Federal Income Tax Expense is usually a subcategory under Taxes. This is one of the items that will be a book-to-tax difference on Schedule M-1. I am presuming you are talking about a C corporation, as an S corporation is not likely to be paying federal taxes itself, but would pass the liability through to the members. If you're paying your personal 1040 taxes out of an S-corporation bank account, that's an owner's draw just like paying any of your personal non-business expenses. I would encourage you to get a tax professional to prepare your corporate tax returns. It's not quite as simple as TurboTax Business makes it out to be. ;) Mariette IRS Circular 230 Notice: Please note that any tax advice contained in this communication is not intended to be used, and cannot be used, by anyone to avoid penalties that may be imposed under federal tax law.\",\n \"If medical, not cosmetic, you can deduct medical expenses to the extent they exceed 7.5% of your adjusted gross income. Note: it's been announced that starting in 2013 the deduction is for amounts exceeding 10% of AGI.\",\n \"Assuming your country is the United States there is. See schedule C line 9 and the corresponding instructions. There are many rules associated with this, in some cases the entire purchase can be written off but typically if the truck is only used for business. Most people write off partial usage in the form of credits for mileage. You are best to consult with a CPA once your business earns a profit. Good luck.\",\n \"Any deductable expense will reduce your taxable income not your tax payable. Your Example 1 above is correct and gives you 100% deduction. It is like having a business where your sales are $100,000 and your expenses in making the sales is $40,000. The expenses are your tax deductions and reduce your profits on which you pay tax on to $60,000. If your Example 2 was correct then the situation above would change that you would pay say $30,000 tax on $100,000 sales, then apply your deductions (or expenses) of $40,000 so that you would pay no tax at all and in fact get $10,000 back in your return. In this case the government would not be collecting any taxes but paying out returns to everyone. Your Example 2 is absolutly incorrect.\",\n \"\\\"While you'd need to pay tax if you realized a capital gain on the sale of your car, you generally can't deduct any loss arising from the sale of \\\"\\\"personal use property\\\"\\\". Cars are personal use property. Refer to Canada Revenue Agency – Personal-use property losses. Quote: [...] if you have a capital loss, you usually cannot deduct that loss when you calculate your income for the year. In addition, you cannot use the loss to decrease capital gains on other personal-use property. This is because if a property depreciates through personal use, the resulting loss on its disposition is a personal expense. There are some exceptions. Read up at the source links.\\\"\",\n \"Being a professional auditor and accountant, deduction against expenses are claimed in the year in which expenses has been incurred. It has no relationship with when it is paid. For example, we may buy on credit does not mean that they will be allowed in the period in which it is paid. This is against the fundamental accounting principles.\",\n \"\\\"When I have a question about my income taxes, the first place I look is generally the Giant Book of Income Tax Information, Publication 17 (officially called \\\"\\\"Your Federal Income Tax\\\"\\\"). This looks to be covered in Chapter 26 on \\\"\\\"Car Expenses and Other Employee Business Expenses\\\"\\\". It's possible that there's something in there that applies to you if you need to temporarily commute to a place that isn't your normal workplace for a legitimate business reason or other business-related travel. But for your normal commute from your home to your normal workplace it has this to say: Commuting expenses. You cannot deduct the costs of taking a bus, trolley, subway, or taxi, or of driving a car between your home and your main or regular place of work. These costs are personal commuting expenses. You cannot deduct commuting expenses no matter how far your home is from your regular place of work. You cannot deduct commuting expenses even if you work during the commuting trip.\\\"\",\n \"The good news is that your parent organization is tax exempt and your local organization might be. The national organization even has guidelines and even more details. Regarding donations they have this to say: Please note: The law requires charities to furnish disclosure statements to donors for such quid pro quo donations in excess of $75.00. A quid pro quo contribution is a payment made partly as a contribution and partly for goods or services provided to the donor by the charity. An example of a quid pro quo contribution is when the donor gives a charity $100.00 in consideration for a concert ticket valued at $40.00. In this example, $60.00 would be deductible because the donor’s payment (quid pro quo contribution) exceeds $75.00. The disclosure statement must be furnished even though the deductible amount does not exceed $75.00. Regarding taxes: Leagues included under our group exemption number are responsible for their own tax filings with the I.R.S. Leagues must file Form 990 EZ with Schedule A if gross receipts are in excess of $50,000 but less than $200,000. Similar rules also apply to other youth organizations such as scouts, swim teams, or other youth sports.\",\n \"If a business tool has a limited lifespan, it's value decreases (depreciates) from year to year. The business can capture that loss of value on some things that it couldn't otherwise write off as expenses. A few tools can be either expenses or depreciated, but only one of those can be chosen for that particular object. This is generally not relevant for individual taxpayers, unless you can show that the item is being used for income-producing purposes.\",\n \"Assuming the US, if a human assessor audited you, could you show a future profit motive or will they conclude you are expensing a hobby? If you answer yes, you are likely to only be deducting limited expenses this year, carrying forward losses to your profitable years. See the examples in pub 535: http://www.irs.gov/publications/p535/ch01.html#en_US_2014_publink1000208633\",\n \"In general, for a home you live in, there's maintenance, which is just that, you pay to keep your house in good repair. There's also real improvements. I spend $xxx to turn my poured cement basement into living space. Here, I keep my receipts and the cost (although not my labor) is added to the basis of my home when I sell. The couple things that may offer a deduction have to do with energy. When I insulated my basement, there was a state tax credit which I got back when I filed taxes. There are also credits for installing solar panels. What you've described in your question just sounds like one of the small joys of home ownership.\",\n \"\\\"Its is considered a \\\"\\\"hobby\\\"\\\" income, and you should be reporting it on the 1040 as taxable income. The expenses (what you pay) are hobby expenses, and you report them on Schedule A (if you itemize). You can only deduct the hobby expenses to the extent of your hobby income, and they're subject to the 2% AGI threshold.\\\"\",\n \"I suggest to start charging slightly more than needed to cover expenses. All you need is to show profit. It doesn't have to be significant - a couple of hundred of dollars of consistent yearly profit should suffice to show a profitable business. Then you can deduct on Schedule C all the related expenses. The caveat is that the profit (after the deduction of the expenses will be a bit smaller) will be subject to not only income tax but also the self-employment tax. But at least you'll pay tax on profit that is not entirely phantom. I remember suggesting you getting a professional consultation on this matter a while ago. You should really do that - talk to a EA/CPA licensed in your state, it may be well worth the $100-200 fee they'll charge for the consultation (if at all...).\",\n \"Depending on the improvement, you have to amortize or depreciate it over time, which effectively allows you to write off the value over a period of years, even if you pay for it all up front. This messes with cash flow, which is different than profitability, but when you span the write off over five or ten years, the distinction between cash flow and profitability for a private, self funded company is irrelevant. If the money ain't there, the money ain't there. Operating capital is life blood. Taxes also alter the ROI equation of the investment, since you don't keep all the money you put in. Way over simplified example: Lets say I close out the year with some arbitrary profit - ten million bucks - in my war chest. 3.5 could go to taxes. I also know that my supplier can't handle my volume for next year while the season is hot, so I'd like to buy inventory in the off season. Last year I sold 6.5 mill worth of stuff from this supplier, but I estimate I could sell 9-10 mill if I didn't have availability problems. If I buy 9-10 mill in inventory, I can't pay taxes. If I pay taxes, I can't buy enough to grow next year. Sure, COGS is a deductible expense, but the expense isn't realized until the inventory is sold, which won't be until long after these taxes are due. I now have taxes interfering with my expansion, even though eventually I can write that off. Now lets look at the manufacturer - sure he could expand his capacity and make more money, but he has to deduct the 5 mill machine he needs over twenty years (or ten or whatever) while the purchase price needs to be made today. This year he's gonna pay tax on 90 or 95% of the money he used to buy that machine, which would eat into the money he needs to buy raw materials to fill orders he already has. Of course, the real world is much more complicated, and you can leverage leasing agreements and purchasing terms to alleviate this to some extent, but I wanted to illustrate a point. I hope my extremely simplified example communicated what I mean. Does that make sense?\",\n \"The regulations you're talking about (TR 1.263) are going into effect starting tax year 2016, so for purchases you made last year they're (kindof...) irrelevant. Kindof, because the IRS promises to not audit those that qualify under the regulations even if they use it before it goes into effect, but it doesn't legally have to. Since the regulations are new, I suggest you talk to a licensed professional who'd explain them to you and interpret them with regards to your specific situation. From my brief read, you can expense under these rules things that you would otherwise capitalize, with the $500 limit to the invoice. Meaning, if you bought a computer paying $500, which you use 50% for your business - you can expense $250. The benefit, comparing to the Sec. 179, is that you're not limited to new items, nor are you limited to business revenue. Otherwise, it looks like the applicability is similar. As I said - talk to a licensed tax adviser (EA/CPA licensed in your State), since these rules are new and untested, and you should probably have a professional provide guidance. I'm not such a professional.\",\n \"\\\"From the poster's description of this activity, it doesn't look like he is engaged in a business, so Schedule C would not be appropriate. The first paragraph of the IRS Instructions for Schedule C is as follows: Use Schedule C (Form 1040) to report income or loss from a business you operated or a profession you practiced as a sole proprietor. An activity qualifies as a business if your primary purpose for engaging in the activity is for income or profit and you are involved in the activity with continuity and regularity. For example, a sporadic activity or a hobby does not qualify as a business. To report income from a nonbusiness activity, see the instructions for Form 1040, line 21, or Form 1040NR, line 21. What the poster is doing is acting as a nominee or agent for his members. For instance, if I give you $3.00 and ask you to go into Starbucks and buy me a pumpkin-spice latte, you do not have income or receipts of $3.00, and you are not engaged in a business. The amounts that the poster's members are forwarding him are like this. Money that the poster receives for his trouble should be reported as nonbusiness income on Line 21 of Form 1040, in accordance with the instructions quoted above and the instructions for Form 1040. Finally, it should be noted that the poster cannot take deductions or losses relating to this activity. So he can't deduct any expenses of organizing the group buy on his tax return. Of course, this would not be the case if the group buy really is the poster's business and not just a \\\"\\\"hobby.\\\"\\\" Of course, it goes without saying that the poster should document all of this activity with receipts, contemporaneous emails (and if available, contracts) - as well as anything else that could possibly be relevant to proving the nature of this activity in the event of an audit.\\\"\",\n \"Assuming that it's not inventory that is sold in the following year or a depreciable asset, you can deduct it when you make the purchase. The courts have ruled that credit cards balances are considered debt. It's treated the same way as if you went to the bank, got a loan, and used cash or a check to purchase the items. On your accounting books, you would debit the expense account and credit the credit card liability account. This is only for credit cards, which are considered loans. If you use a store charge card, then you cannot deduct it until you pay. Those are considered accounts payable. I'm an IRS agent and a CPA.\",\n \"What a coincidence! This was an exam question for my business law class. The main reason why individuals are not allowed to deduct expenses is because income tax revenue would be zero. The reason being, if an individual is allowed to deduct expenses he/she would spend 100% of their income and deduct it all on their tax returns, which would mean he/she would pay virtually no income tax. This is bad for the gov't and the economy. It's bad for the gov't because they loose tax revenue, and it's bad for the economy because people would not have any savings for tough times, which can send the economy into a negative spiral.\",\n \"There is no tax code I know that would grant you such a privilege. And it just isn't practicable. In your examples, you always sold your product and were thus able, in retrospect, to give a value to your work. What if you don't sell your product? What if in one case your worked hour is reimbursed with one price, with the next product at another (i.e. difference in margin)? No, it won't work like that. And by the way, I think you might have got some definitions upside down. What you want is a salary that your own company pays out to yourself and you can deduct from other profits. But as long as you can't afford to pay yourself a salary, and you don't have access to investors who are willing to front you the money, the time invested is your personal investment and cannot be deducted anywhere - though it might pay off nicely in the long run. That's the risk entrepreneurs take.\",\n \"If significant amounts are involved, that would be a good time to consult a tax professional (EA/CPA licensed in your state). Generally, sale of a business is an ordinary income and you can only deduct tangible expenses, as Joe said. That would be laptops, bills, expenses per receipt, of course they must all be directly attributable to the business. You will need to be able to show that the laptops has only been used in business, recapture depreciation, etc. Same with all the rest of the expenses. If you're incorporated (i.e.: you hold this software under an S-Corp), then you're selling stocks, not business, and the tax treatment may be different, but I'm guessing this is not the case for you.\",\n \"If cash donations are not deductable, stock contributions aren't either and I believe the same rules apply as for a private party.\",\n \"If they charge a fee to accept an item, it's reasonable to assume the item has insignificant value, so the only tax-deductible bit would be the money you donated to their charity. What you describe sounds like a fee for service, not a charitable donation. The organization should provide a fee breakdown to show what percentage (if any) of the fee is a deductible contribution. There could be some additional PA-only tax benefit, but I didn't come across anything in my brief search.\",\n \"You can deduct this if the main purpose of the trip is to attend the seminar. Travel expenses relating to the attendance at conferences, seminars and other work-related events are deductible to the extent that they relate to your income-producing activities. You will need to apportion your travel expenses where you undertake both work-related and private activities. Travel costs to and from the location of the work-related event will only be deductible where the primary purpose of the travel was to attend the event. Accommodation, food and other incidental costs must be apportioned between work-related and private activities taking into account the types of activities that you did on the day you incurred the cost. You might like to consider in advance what you would tell them if they questioned this - for instance you might say (if they are true):\",\n \"\\\"Agreed. One of the comments for this question Good books for learning about tax strategy/planning uses the phrase: \\\"\\\"Don't let the tax tail wag the investing dog.\\\"\\\" It applies to charitable donations. Donate because it is expected by your church; donate because it makes you feel good; but don't donate just to save money on your taxes. Once you have decided to donate take the steps necessary to be able to deduct your donation. Get the receipt or use a check or credit card so you can deduct the donation.\\\"\",\n \"\\\"To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary. (IRS, Deducting Business Expenses) It seems to me you'd have a hard time convincing an auditor that this is the case. Since business don't commonly own cars for the sole purpose of housing $25 computers, you'd have trouble with the \\\"\\\"ordinary\\\"\\\" test. And since there are lots of other ways to house a computer other than a car, \\\"\\\"necessary\\\"\\\" seems problematic also.\\\"\",\n \"A rather good IRS paper on the topic states that a donation of a business' in-kind inventory would be Under IRC 170(e)(1), however, the fair market value must be reduced by the amount of gain that would not be long-term capital gain if the property had been sold by the donor at the property's fair market value (determined at the time of the contribution). Under this rule, deductions for donated inventory are limited to the property's basis (generally its cost), where the fair market value exceeds the basis. There are references to IRC regulations in a narrative context you may find helpful: This paper goes on for 16 pages describing detailed exceptions and the political reasons for the exceptions (most of which are concerned with encouraging the donation of prepared food from restaurants/caterers to hunger charities by guaranteeing a value for something that would otherwise be trashed valueless); and a worked out example of fur coats that had a cost of goods of $200 and a market value of $1000.\",\n \"Yes, #2: the Hackathon prize money counts as income, but a donation to charity is a deductible charitable gift. For more background and a few scenarios: http://people.opposingviews.com/deductible-donor-donates-prize-2517.html\",\n \"Lending is not a charitable contribution. Its an investment. If the loan becomes a bad debt - you'll have to show that it had become a bad debt. For example - bankruptcy declaration. You'll have to show an arm's length transaction, for example - real intention to repay (evidenced by payments of principal and interest made). Otherwise if you have an intention for the loan to never be repaid, it is in fact a gift, which is not only not deductible - its taxable. Bottom line - be careful and talk to a EA/CPA to get a proper advice with regards to a specific transaction. Edit to answer your revised question: you're not going to pay taxes if you're not going to have gains. However, if you lose the principal, in addition to the said above you would incur the loss as a personal bad debt, and not business. This is because it is not investment. The difference is in tax treatment: personal bad debt is a short-term capital loss (limited deduction), business is an ordinary loss.\",\n \"If this was a public corporation (stock) and the investment was made in a non-registered account, then you can claim a capital loss. Capital losses are claimed against capital gains (not income), and can be carried back 3 years or carried forward indefinitely. Here's an article I've written on how to claim capital losses that may help.\",\n \"They are certainly only suggesting that the money you pay to recycle the bulbs is tax deductible as a donation, assuming that they are indeed a 501(c)(3) non-profit. Donations of goods are only deductible at fair market value. Light bulbs that no longer light up have no market value, so only the payment could possibly be deductible.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["I would suggest to buy your own printer, and calculate the cost for a page including the wear to the printer. Then either deduce these printing expenses, or ask the charity to reimburse you. This is not much different than when you would go to a copyshop, those easily charge 10-30c per page, with your own printer you can probably get it around 5-10c per page, including paper, toner, drum, and amortization. The advantage is that when you do use the printer for other purposes, you wont get into any problems with who owns the printer or deductions.","To be safe you should donate the printer to the charity. Or even better, have the charity purchase it and you donate a equivalent number of dollars directed towards purchasing the equipment. Once your wife no longer volunteers with the charity it should be returned to the charity because they own it.","Costs for home / small business equipment under US$10,000 don't have to be capitalized. They can be expensed (that is, claimed as an expense all in one year.) Unless this printer is one of those behemoths that collates, folds, staples, and mails medium-sized booklets, it cost less than that. Keep track of your costs. Ask the charity to pay you those costs for the product you generate, and then donate that amount of money back to them. This will be good for the charity because they'll correctly account for the cost of printing."],"string":"[\n \"I would suggest to buy your own printer, and calculate the cost for a page including the wear to the printer. Then either deduce these printing expenses, or ask the charity to reimburse you. This is not much different than when you would go to a copyshop, those easily charge 10-30c per page, with your own printer you can probably get it around 5-10c per page, including paper, toner, drum, and amortization. The advantage is that when you do use the printer for other purposes, you wont get into any problems with who owns the printer or deductions.\",\n \"To be safe you should donate the printer to the charity. Or even better, have the charity purchase it and you donate a equivalent number of dollars directed towards purchasing the equipment. Once your wife no longer volunteers with the charity it should be returned to the charity because they own it.\",\n \"Costs for home / small business equipment under US$10,000 don't have to be capitalized. They can be expensed (that is, claimed as an expense all in one year.) Unless this printer is one of those behemoths that collates, folds, staples, and mails medium-sized booklets, it cost less than that. Keep track of your costs. Ask the charity to pay you those costs for the product you generate, and then donate that amount of money back to them. This will be good for the charity because they'll correctly account for the cost of printing.\"\n]","isConversational":false}}},{"rowIdx":368,"cells":{"_id":{"kind":"string","value":"7592"},"query":{"kind":"string","value":"few question about debit credit and liabilities"},"gt_ids":{"kind":"list like","value":["273947"],"string":"[\n \"273947\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["264565","81941","195526","563025","3789","28477","530446","26357","568625","265090","77178","165103","291233","102002","40966","287243","457135","152039","589139","304941","569720","308307","388874","32522","598876","208219","506641","424272","412829","119416","414199","84036","15262","23276","311630","405166","24046","542180","479985","273947","419916","81897","292051","123549","333019","217629","322259","10180","456098","593283","205791","66198","444543","78754","428689","6113","2018","513477","380429","331176","288633","138645","446255","556314","83333","289463","412071","351672","344780","176284","217499","213555","153520","473557","473963","167202","347269","201447","7835","28074","33157","558611","15824","383863","246989","323642","456771","256587","89161","533933","554217","176627","99751","314410","488994","208637","498775","399382","428941","385669"],"string":"[\n \"264565\",\n \"81941\",\n \"195526\",\n \"563025\",\n \"3789\",\n \"28477\",\n \"530446\",\n \"26357\",\n \"568625\",\n \"265090\",\n \"77178\",\n \"165103\",\n \"291233\",\n \"102002\",\n \"40966\",\n \"287243\",\n \"457135\",\n \"152039\",\n \"589139\",\n \"304941\",\n \"569720\",\n \"308307\",\n \"388874\",\n \"32522\",\n \"598876\",\n \"208219\",\n \"506641\",\n \"424272\",\n \"412829\",\n \"119416\",\n \"414199\",\n \"84036\",\n \"15262\",\n \"23276\",\n \"311630\",\n \"405166\",\n \"24046\",\n \"542180\",\n \"479985\",\n \"273947\",\n \"419916\",\n \"81897\",\n \"292051\",\n \"123549\",\n \"333019\",\n \"217629\",\n \"322259\",\n \"10180\",\n \"456098\",\n \"593283\",\n \"205791\",\n \"66198\",\n \"444543\",\n \"78754\",\n \"428689\",\n \"6113\",\n \"2018\",\n \"513477\",\n \"380429\",\n \"331176\",\n \"288633\",\n \"138645\",\n \"446255\",\n \"556314\",\n \"83333\",\n \"289463\",\n \"412071\",\n \"351672\",\n \"344780\",\n \"176284\",\n \"217499\",\n \"213555\",\n \"153520\",\n \"473557\",\n \"473963\",\n \"167202\",\n \"347269\",\n \"201447\",\n \"7835\",\n \"28074\",\n \"33157\",\n \"558611\",\n \"15824\",\n \"383863\",\n \"246989\",\n \"323642\",\n \"456771\",\n \"256587\",\n \"89161\",\n \"533933\",\n \"554217\",\n \"176627\",\n \"99751\",\n \"314410\",\n \"488994\",\n \"208637\",\n \"498775\",\n \"399382\",\n \"428941\",\n \"385669\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"The terms debit and credit come from double-entry book-keeping. In this system, every transaction is applied against two accounts: it debits one and credits the other by equal amounts. (Or more technically, it affects two or more accounts, and the total of the credits equals the total of the debits.) Whether a debit or a credit adds or subtracts from the balance depends on the type of account. The types of accounts were defined so that it is always possible to have these matching debits and credits. Assets, like cash or property that you own, are \"\"debit accounts\"\", that is, a debit is an increase in the balance of the account. Liabilities, like money you owe, are \"\"credit accounts\"\", that is, a credit is an increase. To get into all the details would require giving a tutorial on double-entry book-keeping, which I think is beyond the scope of a forum post. By a quick Bing search I find this one: http://simplestudies.com/double-entry-accounting-system.html. I haven't gone through it so I can't say if it's a particularly good tutorial. There are plenty of others on the Web and in bookstores. Note that the terminology can be backwards when someone you're doing business with is describing the account, because their viewpoint may be the opposite of yours. For example, to me, my credit card is a liability: I owe the bank money. So when I post a charge, that's a credit, and when I pay it off, that's a debit. But to the bank, my account is an asset: the customer (me) owes them money. So to the bank, a charge is a debit and a payment is a credit.\"","\"From your question, I believe that you are looking for what these mean in accounting terms and not the difference between a debit and a credit card. I'll deal with purchase and sale first as this is easier. They are the same thing seen from different points of view. If I sell something to you then I have made a sale and you have made a purchase. Every sale is a purchase and every purchase is a sale. Debits and Credits are accounting terms and refer to double column accounting (the most common accounting system used). The way a set of accounts works is, accounts are set up under the following broad headings: The first 3 appear on the Balance Sheet, so called because the accounts balance (Assets = Liabilities + Equity). This is always a \"\"point-in-time\"\" snapshot of the accounts (1 June 2015). That last 3 appear on the Profit and Loss sheet, Profit (or loss) = Income - Cost of Goods Sold - Expenses. This is always an interval measure (1 July 2014 to 30 June 2015). Changes in these accounts flow through to the Equity part of the Balance Sheet. When you enter a transaction the Debits always equal the Credits, they are simply applied to different accounts. Debits increase Assets, Cost of Goods Sold and Expenses and decrease Liabilities, Equity and Income. Credits do the reverse For your examples: 1. a customer buy something from me, what is the debit and credit? I will assume they pay $1,000 and the thing cost you $500 Your cash (asset) goes up by $1,000 (Debit), your inventory (asset) goes down by $500 (Credit), your Sales revenue (income) goes up by $500 (credit). This gives you a profit of $500. 2. a customer buy something of worth 1000 but gives me 500 what is debit and credit Your cash (asset) goes up by $500 (Debit), your debtors (asset) goes up by $500, your inventory (asset) goes down by $500 (Credit), your Sales revenue (income) goes up by $500 (credit). This also gives you a profit of $500. 3. if I buy a product from supplier worth 1000 and pay equally what is credit and debit I assume you mean pay cash: Your cash (asset) goes down by $1000 (Credit), your inventory (asset) goes up by $1000 (Debit). There is no profit or loss here - you have swapped one asset (cash) for another (inventory). 4. if I buy a product from supplier worth 1000 and don't pay what is credit and debit Your creditors (liability) goes up by $1000 (Credit), your inventory (asset) goes up by $1000 (Debit). There is no profit or loss here - you have gained an asset (inventory) but incurred a liability (creditors). The reason for confusion is that most people only see Debits and Credits in one place - their bank statement. Your bank statement is a journal of one of the banks liability accounts - its their liability because they owe the money to you (even loan accounts adopt this convention). Credits happen when you give money to the bank, they credit your account (increase a liability) and debit their cash balance (increase an asset). Debits are when they give money to you, they debit your account (decrease a liability) and credit their cash balance (decrease an asset) . If at the end of the period, you have a credit balance then they owe money to you, a debit balance means you owe money to them. If you were keeping a book of accounts then your record of the transactions would be a mirror image of the bank's because you would be looking at it from your point of view.\"","\"The bank will make this even more confusing because they use the terms from their own perspective. From the bank's perspective (printed on your statements) credit: Money into your account (increases the bank's liabilities) debit: Money out of your account (decrease bank liabilities) From your perspective: It depends on the nature of the transfer of money, but here are the most common for a personal account. Income into your account: Credit Expenses out of your account: Debit Payment on a loan made for an asset (house/car): Credit for the loan account, debit for the equity account for the car/house/etc. Yes, it's complicated. Neither credits nor debits are always a + or -. That's why I agree with the advice of the others here that double-entry accounting is overkill for your personal finances. Note: I simplified the above examples for the purpose of clarity. Technically every transaction in double entry accounting includes both a credit and a debit (hence the \"\"double\"\" in the name). In fact, sometimes a transaction involves more than one credit or debit, but always at least one of each. Also, this is for EACH party. So any transaction between you and your bank involves at least FOUR debits and/or credits when all involved are considered.\"","In view of business, we have to book the entries. Business view, owner and business are different. When capital is invested in business by owner, in future business has to repay it. That's why, capital always credit. When we come about bank (business prospective) - cash, bank, fd are like assets which can help in the business. Bank is current asset (Real account) - Debit (what comes into the business) Credit (what goes out of the business) Hence credit and debit differs from what type of account is it.... credit - when business liables debit - what business has and receivables","Based on the definitions I found on Investopedia, it depends on whether or not it is going against an asset or a liability. I am not sure what type of accounting you are performing, but I know in my personal day-to-day dealings credits are money coming into my account and debits are money going out of my account. Definition: Credit, Definition: Debit","Strictly speaking the terms arise from double entry book keeping terminology, and don't exactly relate to their common English usage, which is part of the confusion. All double entry book keeping operations consist of a (debit, credit) tuple performed on two different books (ledgers). The actual arithmetic operation performed by a debit or a credit depends on the book keeping classification of the ledger it is performed on. Liability accounts behave the way you would expect - a debit is subtraction, and a credit is addition. Asset accounts are the other way around, a debit is an addition, and a credit is a subtraction. The confusion when dealing with banks, partly comes from this classification, since while your deposit account is your asset, it is the bank's liability. So when you deposit 100 cash at the bank, it will perform the operation (debit cash account (an asset), credit deposit account). Each ledger account will have 100 added to it. Similarly when you withdraw cash, the operation is (credit cash, debit deposit). However the operation that your accountant will perform on your own books, is the opposite, since the cash was your asset, and now the deposit account is. For those studying math, it may also help to know that double entry book keeping is one of the earliest known examples of a single error detection/correction algorithm.","There are two basic issues here. First, there is the difference between accounting terms and their dictionary definitions. Second, once you dig into it there are dichotomies similar to put vs call options, long sales vs short sales, bond yield vs interest rate. (That is, while they are relatively simple ideas and opposite sides of the same coin, it will probably take some effort to get comfortable with them.) The salient points from the Wikipedia article on debits and credits: In double-entry bookkeeping debit is used for increases in asset and expense transactions and credit is used for increases in a liability, income (gain) or equity transaction. For bank transactions, money deposited in a checking account is treated as a credit transaction (increase) and money paid out is treated as a debit transaction, because checking account balances are bank liabilities. If cash is deposited, the cash becomes a bank asset and is treated as a debit transaction (increase) to a bank asset account. Thus a cash deposit becomes two equal increases: a debit to cash on hand and a credit to a customer's checking account. Your bank account is an asset to you, but a liability to your bank. That makes for a third issue, namely perspective.","\"The credit and debit terms here is, talking from bank's point of view (shouldn't be a surprise, banks are never known to look at things from the customers' POV ;)). In accounting, a liability (loans, owners capital etc) is a credit balance and asset (cash, buildings and such) is a debit balance. Your account is a liability to the bank (in accounting parlance that is because they owe you every single penny that is there in your account, btw, in literal parlance too if you really make their life harder ;)) So when the bank accepts money from you, they need to increase their asset (cash) which they will debit (higher debit balance for asset means more assets), and at the same time they also have to account for the added liability by \"\"crediting\"\" the deposited money into your account. So when bank says they have credited your account, it means you have more money in your account. Now, if you transfer money from your account to another, or make a payment through your account, your account will be debited and the beneficiary account will be credited(bank's liability towards you reduces) More or less what everyone else said here... but hey, I could also take a swipe at banks ;))\"","When you borrow money - you create a liability to yourself (you credit your Liabilities:Loans account and debit your Asset:Bank account). When you lend money - you create an asset to yourself (you debit your Asset:Loan account and credit your Asset:Bank account).","If one is looking at this from the perspective of a store where debits could be how money comes into the store's account and credit is what has to be paid out to customers, then the employee salaries would also be something going out of the account for the store.","\"The bank \"\"credit's\"\" your account for money coming into it. In double entry accounting, you always have a debit and a credit to balance the accounts. As an Example: for $500 that the bank credited to your checking account, you would post a debit to Cash and a Credit to Income Earned. The accounting equation is: Assets = Liabilities + Owner's Equity $500 = $500 Cash is the \"\"Asset\"\" side of the equation, Income is part of Owner's Equity, and so is the Credit side... to make the equation balanced.\"","Most bank registers (where you write down entries) show deposits (+) to account as a CREDIT. Payments, fees, and withdrawals are DEBITs to your bank accounnt. On loans such as credit card accounts, a credit to your loan account is a payment or other reductions of the amount you owe. A charge to your account is a DEBIT to you loan account. They did this just to confuse us!","Waddler said it right, it depends on whether or not it is going against asset or liability. Your salary is said to be credited in bank's term, whereby the bank experiences a increase in its liability (your bank deposits) and hence its a credit for them. We usually understand that its a credit for us, however not. This is what I understand. Here is an article I found in this context. http://www.quickmba.com/accounting/fin/debits-credits/","Is it normal in QuickBooks to have credit card expenses being shows as liabilities? Is there a way I can correct this? If they are expenses they shouldn't be negative liabilities unless you overpaid your credit card by that amount. It sounds like perhaps when you linked the account the credit/debit mapping may have been mixed up. I've not used QB Online, but it looks like you might have to un-link the account, move all the existing transactions to 'excluded' and then link the account again and flip-flop the debit/credit mapping from what it is now. Hopefully there's an easier way. This QB community thread seems to address the same issue.","It took me a while to understand the concept, so I'll break it down as best as I can. There are three parts to the accounting equation: Assets = Liabilities + Owner's Equity We'll look at this in two ways 1. As a business owner you invest (say) 10,000 USD into your bank. The entry would be: Debit: Assets: Cash for 10,000 Credit: Owner's Equity: Contributions for 10,000 In this case, you have assets of 10,000 from your deposit, but it is due to owner contributions and not business transactions. Another example (say a sale): Debit: Assets: Cash for 10,000 Credit: Owner's Equity: Sales for 10,000 Debit: Assets: Cash for 10,000 Credit: Liabilities: Deposits for 10,000 Deposits are a banking term to reflect a bank's obligation to return the amount on demand (though the bank has free reign with it, see fractional banking) You will NEVER debit or credit your bank as it is assumed you will be storing your money there, note bank reconciliation. Hope this helps, comment with any more questions.","\"When you pay expenses on behalf of someone, you do not Debit your expense accounts. You credit your Bank and debit the Liability. The method that you mentioned (debit expense then credit it back to liability) is an acceptable practice, but the method is only used when you accidentially debited your expense accounts without knowing that it is for someone else (or in the case of split transactions). You need to specify \"\"being expense paid on behalf of someone\"\" when you credit the expense account.\"","First, A credit account is increased by credit transactions and decreased by debits. Liabilities is a credit account and should be a positive number. A debit account is increased by debit transactions and decreased by credit. Assets is a debit account and should be a positive number. Equity = Assets (debit) - Liabilities (credit) may be positive or negative. You currently are subtracting a negative number for a net positive, since your Liabilities is set as a debit account. How you currently are set -> Equity = Assets (debit) - Liabilities (debit) It is easier to understand if you change the columns from Increase/Decrease to Credit/Debit. I believe this is changed through Edit > Preferences > Accounts > Labels > Use formal accounting labels. To fix your situation, open up the Loan account and switch columns on the amounts. This will decrease Opening Balances and increase the loan, per your current column headings. This is a snippet of Opening Balances. You see that Opening Balances is debited and the Loan/Liability account credited. I included Petty Cash to show the reverse. Petty Cash is an asset, so it credits Opening Balances and debits Petty cash. This is a student loan Liability account. As you see, the Opening Balance is debited and decreased. The loan is credited and Liabilities increased. As payments are made, the reverse happens. The loan, being a credit account, is debited and the balance decreases. Opening Balances moves closer to 0 as well. The savings account, being a debit account, is credited and the balance decreases. There has been no change in Equity since Liabilities and Assets decresed by the same amount.","Lets say Debit is what you pay and Credit is what somebody else pays for you. A Debit card will charge your bank account directly. A Credit card will charge your bank account some time later. In both cases the shop owner has the money available directly. It's called Credit because somebody believes you will be able to pay your debt on time (or later with an interest). As for purchase and sales. A customer buys = makes a purchase. A shopkeeper sells = makes a sale. Note from a bar: I made an agreement with the bank. They don't sell beer, I don't give Credit.","\"Debits' and \"\"Credits\"\" are terms used in double-entry bookkeeping. Each transaction is entered in two different places to be able to double-check accuracy. The total debits and total credits being equal is what makes the balance sheet balance. For explaining debits and credits, wikiversity has a good example using eggs that I found helpful as a student. Debits and Credits When a financial transaction is recorded, the Debits (Dr) and Credits (Cr) need to balance in order to keep the accounts in balance. An easy rule to remember is, \"\"Debit the Asset that Increases\"\" For example, if you want to practice accounting for cooking a simple breakfast, you might proceed as follows: To record breaking the eggs and putting the eggs in the frying pan In this transaction, an asset, (the egg) is split into parts and some of the asset goes in the pan and some in the trash. A Debit (Dr) is used to show that the assets in the pan and the trash both increase. A balancing Credit (Cr) is used to show that the amount of assets (whole eggs) in the egg carton has decreased. This transaction is in balance because the total Credits equal the total Debits. Everything that is covered by the Debits (yolk, white and shell) is also covered by the Credits (one whole egg)\"","\"An \"\"asset\"\" is something which you own that has a monetary value. Some examples would be your car, your house, the money in your wallet, and yes the pile of gold in your garage. Assets also include intangible things such as money owed to you for instance; although these are calculated somewhat differently. \"\"liabilities\"\" are what you owe. For instance, your car loan, your mortgage, and your student loan. Liabilities can also include future debts which you may not be paying at the moment.\"","\"When trying to understand accounting, it's always helpful to reference the balance sheet identity, thus , and debits and credits must balance. In this case, one would So that \"\"Cash\"\" is subtracted (credited) from assets, and \"\"Loans to family members\"\" is added (debited) to assets. The income identity is treated differently as So, unless if the \"\"Cash\"\" and \"\"Loans to family members\"\" did not start imbalanced, there was no revenue or expense. A revenue will be any interest paid. The expenses will be any costs related to loaning the money such as drafting a contract or any amount defaulted. Assets are not liabilities A liability on the balance sheet is a liability owed by the entity measured, such as a person or a company. The family members in this case are the borrowers, so they are the ones who must increase their liability accounts like so: The lender to family members would not increase liabilities in this case because the lender is not borrowing from the borrower. Debits, credits, and the balance sheet Debits & credits must be equal, or an identity is violated. Debits add to assets and subtract from liabilities (and equity) while credits subtract from assets and add to liabilities (and equity). If a lender were to try to simultaneously subtract cash from assets and add loans to liabilities to book a loan, the operation would look like this This would cause an immediate imbalance because there are no offsetting debits, but more importantly, crediting Loans to family members as a liability would actually mean that the lender owes Loans to family members.\"","Debit is them taking the money, in your case electronically. Credit is somebody vouching for you and saying you will pay later. They are alternate ways to pay for a product. As a merchant, if you take a credit card you are agreeing that a the issuer of the credit card is going to pay you right away. The issuer of the credit will worry about collecting the money from me. There are a ton of details with regards to why you would use one over another, where the costs in each method are and who pays what for each. The main different is the source of the funds.","There are four sides to this transaction. You increase in money: A debit. (increases your Current Assets, if you will) You also gain the requirement to pay that money in the future. A credit: Definitely a Liability. When you repay the money, your cash will decrease: a credit, and your liabilities will also decrease, which is a debit (since you don't have to repay the money anymore). the account would be short-term loans, the money doesn't have a name, it's just cash and would go into whatever cash accounts you have. The bookkeeping entry would be the same as you would make for any short-term loan.","Credited to your account means amount has been deposited to your account(this will be your income). Debited from your account means withdrawn from your account(This will be your expense). Hope this clarifies your question. Regards Jayanthi","\"In this context, we're talking about terms of art in accounting, specifically double-entry book-keeping. In accounting lingo, an \"\"asset\"\" account represents an actual asset and it's value. So if you buy a car with a loan for $10,000, you apply a $10,000 debit to the asset account and a $10,000 credit to the loan. Debits and credits are confusing when you first start learning about accounting.\"","\"If you are considering this to be an entry for your business this is how you would handle it.... You said you were making a balance sheet for monthly expenses. So on the Balance Sheet, you would be debiting cash. For the Income Statement side you would be crediting Owner's Equity to balance the equation: Assets = Liabilities + Owner's Equity So if you deposited $100 to your account the equation would be affected thus: $ 100 in Assets (Debit to Cash Account) = 0 Liabilities - $100 (Credit to Owner's Equity) It is correctly stated above from the bank's perspective that they would be \"\"Crediting\"\" you account with $100, and any outflow from the bank account would be debiting your account.\"","When you create a liability account with an opening balance, this creates a transaction to the account Equity:Opening Balance. You really want this transaction to be an expense. I would delete the TEST account and the transactions you have made so far, and start again. Make a liability account (call it Liabilities:Overdue Cable Bill or something similar instead of the uninformative TEST) with an opening balance of 0, and create a transaction dated 01/09/14 which debits Liabilities:Overdue Cable Bill (showing up in the right-hand column as a charge) and credits Expenses:Cable (in the left-hand column as an expense). To check that the sign is right, Liabilities:Overdue Cable Bill should now have a positive balance, because money is owed. This indicates that you spent money you didn't have on cable, and now you owe the cable company. When you pay off the debt, make a transaction that debits (right column) Assets:Cash in Wallet and credits Liabilities:Overdue Cable Bill (left column). Now you should have a reduced balance in Assets:Cash in Wallet and a zero balance in Liabilities:Overdue Cable Bill, and the entry in Expenses:Cable is still there to indicate where the money went. This assumes you paid the bill in cash from your wallet; if you paid it by check or bank transfer or something else, you probably want to substitute Assets:Cash in Wallet with Assets:Checking Account or whatever is appropriate.","\"Asset = Equity + (Income - Expense) + Liability Everything could be cancelled out in double entry accounting. By your logic, if the owner contributes capital as asset, Equity is \"\"very similar\"\" to Asset. You will end up cancelling everything, i.e. 0 = 0. You do not understate liability by cancelling them with asset. Say you have $10000 debtors and $10000 creditors. You do not say Net Debtors = $0 on the balance sheet. You are challenging the fundamental concepts of accounting. Certain accounts are contra accounts. For example, Accumulated Depreciation is Contra-Asset. Retained Loss and Unrealized Revaluation Loss is Contra-Equity.\"","I debited the principal and interest accruals to an asset account and credited an equity account Why equity? This is clearly income. Generally, except for open balances and additional owner's investment - you wouldn't credit the equity accounts, ever.","\"I think you misunderstand the purpose of the liability account. I would suggest you review the standard accounting model, but to give you a brief overview: Income and expenses are money coming into and out of your possession. They are the pipes flowing into and out of your \"\"box\"\". Inside your box, you have assets (bank, savings, cash, etc) and liabilities (credit cards, unpaid debts, etc). Money can flow into and out of either asset or liability accounts, for example: deposit a payment (income to asset), buy office supplies with cash (asset to expense), pay a bill with credit card (liability to expense), customer pays one of your debts directly (income to liability). Paying off a debt with an asset does not affect your overall net worth, so paying a check to your credit card bill (asset to liability) doesn't decrease your total balance, it merely moves the value from one bucket to another. Now to your question: Mandatory payments, such as taxes or insurance (or for that matter, utilities, rent, food- all things that \"\"must\"\" be bought occasionally) are not liabilities, instead they are all expenses. They might be paid FROM a liability account, if they are paid on credit for example, but the money still flows from liability to expense. In my own records I have Expense:Taxes and Expense:Insurance, with sub-accounts in each. Where the money comes from depends entirely on how I pay my bills, whether from cash or banks (asset) or whether it's a charge (liability). Sometimes you receive payments back from an insurance company. I find that rather than treating insurance premiums as a positive balance in a liability (with eventual payments as debits to the liability account), it is better to treat any payment from the insurance as income. Hope that helps!\"","\"Dictionary clarifies http://www.oxforddictionaries.com/definition/english/be-in-credit Definition of be in credit: (Of an account) have money in it: \"\"your statement shows your account to be in credit\"\" And http://www.oxforddictionaries.com/definition/english/be-in-debit?q=in+debit Definition of be in debit: (Of an account) show a net balance of money owed to others: \"\"the account is only 120 francs in debit\"\" The word 'debit' contains the letters 'debt' if it helps remember. I agree the website is confusing.\"","\"Ditto Nate Eldredge in many ways, but let me add some other thoughts. BTW there are not four types of account, but five. You're forgetting equity, also called capital. Would it be possible to design an accounting system that does not have 5 types of accounts, maybe is simpler in other ways, and is internally consistent and logical? I'm sure it is. But what's the advantage? As Nate points out, the existing system has been in use for hundreds of years. Lots of people know how it works and understand it. I'd add: People have long since worked out how to deal with all the common situations and 99% of the odd cases you're likely to hit. If you invent your own system, you're starting from scratch. You'd have to come up with conventions to handle all sorts of situations. How do I record buying a consumable with cash? How do I record buying a capital asset with credit? How do I record paying off debts? How do I record depreciation? Etc etc. If you worked at it long and hard enough and you're a reasonably bright guy, maybe you could come up with solutions to all the problems. But why? If you were approaching this saying, \"\"I see these flaws in the way accounting is done today. I have an idea for a new, better way to do accounting\"\", I'd say good luck, you have a lot of work ahead of you working out all the details to make a fully functioning system, and then persuading others to use it, but if you really do have a better idea, maybe you can revolutionize the world of accounting. But, \"\"The present system is too much trouble and I don't want to bother to learn it\"\" ... I think that's a mistake. The work involved in inventing your own system is going to end up being way more than what it would take to learn the existing system. As to, Aren't liabilities a lot like assets? Well, in a sense I suppose. A credit card is like a checking account in that you can use it to pay for things. But they're very different, too. From an accounting point of view, with a checking account you buy something and then the money is gone, so there's one transaction: reduce cash and increase office supplies or whatever. But with a credit card there has to be a second transaction, when you pay off the charge: So, step 1, increase debt and increase office supplies; step 2, decrease debt and decrease cash. Credit cards charge interest, well you don't pay interest to use your own cash. Etc. One of the beauties of double-entry book-keeping is that every transaction involves a debit and a credit of equal amounts (or a set of debits and credits where the total of the debits equals the total of the credits). If you combine assets and liabilities into, whatever you call it, \"\"balance accounts\"\" say, then some transactions would involve a matching debit and credit while others would involve a positive debit and a matching negative debit and no credit. I'm sure you could make such a system work, but one of the neat built-in protections against error is lost. There's a very logical distinction between things that you have or that others owe you, and things that you owe to others. It makes a lot of sense to want to list them separately and manage them separately. I think you'd pretty quickly find yourself saying, \"\"well, we have two types of balance accounts, those that represent things we have and which normally have positive balances, which we list on chart A, and those that represent things we owe and which normally have negative balances, which we list on chart B\"\". And before you know it you've just reinvented assets and liabilities.\"","\"Other responses have focused on getting you software to use, but I'd like to attempt your literal question: how are such transactions managed in systems that handle them? I will answer for \"\"double entry\"\" bookkeeping software such as Quicken or GnuCash (my choice). (Disclaimer: I Am Not An Accountant and accountants will probably find error in my terminology.) Your credit card is a liability to you, and is tracked using a liability account (as opposed to an asset account, such as your bank accounts or cash in your pocket). A liability account is just like an asset except that it is subtracted from rather than added to your total assets (or, from another perspective, its balance is normally negative; the mathematics works out identically). When you make a purchase using your credit card, the transaction you record transfers money from the liability account (increasing the liability) to the expense account for your classification of the expense. When you make a payment on your credit card, the transaction you record transfers money from your checking account (for example) to the credit card account, reducing the liability. Whatever software you choose for tracking your money, I strongly recommend choosing something that is sufficiently powerful to handle representing this as I have described (transfers between accounts as the normal mode of operation, not simply lone increases/decreases of asset accounts).\"","I agree with mbhunter's suggestion of labeling your columns, 'income' and 'expenses'. However, to answer your question, money coming in (a paycheque, for example) is credited to your account. Money going out (a utility bill, for example) is debited from your account. There's no real 'why'... this is simply the definition of the words.","Just for op's reference. A deferred wage entry would be something along the lines of the following scenario: you contract with a worker to perform some work at some point in the future, you would then book deferred wages for the amount to liabilities and deferred labor for that amount to assets, which would increase both and leave equity unchanged.","\"Total Capital This is a very old fashioned term that really is mostly only used in the finance industry today, like when everyone was obsessed with \"\"bank capital\"\". Total Capital = Preferred Equity + Common Equity + Liabilities True blue preferred shares are almost only used by financial companies, banks specifically. The more modern ones that convert to common are used by all other companies. Notes Payable This is another old fashioned term that now carries a different meaning in Generally Accepted Account Principles (GAAP). The oldest definition of a note or a promissory note is a promise to pay a fixed amount of money on a specific date. This has been modified to resemble more a bond and evolved into the zero coupon bond, a bond that makes no cash interest payments but makes one final payment that includes principal & interest. A bank note, like a One Dollar bill, is a note that pays something, in this case One Dollar, never (technically, the repayment date is simply not specified in the contract). While it pays One Dollar, it never pays it back, so it has a constant value of One Dollar. The constant nature, inflation notwithstanding, is what makes bank notes the preferred medium of exchange. GAAP has taken its' own definition to mean any debt payable within 12 months, as it is a current (<12 months) liability.\"","\"The OP does not explain \"\"what we pay for processing the transaction (cost of debiting the customer)\"\". Who exactly do you pay? Someone else, or your own employees/contractors? I will assume that $0.10 is paid to your own employees. Dr $10cash from money people give you Cr $10 liability to them because it is their money in your accounts. Dr $0.10 cash payment of paycheques or supplier invoices Cr $0.10 income statement Operating Eexpense Dr 0.20 liability to depositors for fees they pay, resulting in $9.80 remaining liability for their money you still have. Cr 0.20 income statement Fee Revenues\"","\"Maybe not the official solution satisfying int'l convention / legislation, but at least has some logic to it (though I myself am not 100% convinced as yet): Liabilities ! ... but is it really a liability? Rationale: And simultaneously ups my liabilities: since what difference does it make if I borrow some money (to use it or not use it, repay later) or if someone just wants to \"\"store\"\" some money with me: w.r.t. balance sheet I'd say: zero... ... with the one caveat that it might make a difference w.r.t. taxation ?\"","Not sure I understand your question. If you're talking about paying off the payable, you decrease the liability and decrease an asset. Aka when you actually pay the wages, decrease cash and decrease wages payable. If you're talking about closing expense accounts, you simply credit the expense to zero and debit retained earnings for the same amount (which will reduce RE since RE is equity and has a normal credit balance). If you're talking about accruing revenue, you simply do the opposite of an expense. If revenue is accrued, then you credit a revenue account (increase it) and increase cash or acc receivable. If you're closing a revenue account, you debit the account to zero and credit Retained Earnings or Income Summary (which eventually gets closed into RE anyways). The sum of these revenues and expenses will leave you either with a debit or credit balance in RE. A credit balance means you have a profit and a debit balance means you have a loss. Other expenses like sales tax and other expenses excluding COGS might also be taken directly from RE or identified at the time of sale and held in its own separate account. But I'm not sure if this will answer your question since I'm not sure what you're asking.","\"Exactly what accounts are affected by any given transaction is not a fixed thing. Just for example, in a simple accounting system you might have one account for \"\"stock on hand\"\". In a more complex system you might have this broken out into many accounts for different types of stock, stock in different locations, etc. So I can only suggest example specific accounts. But account type -- asset, liability, capital (or \"\"equity\"\"), income, expense -- should be universal. Debit and credit rules should be universal. 1: Sold product on account: You say it cost you $500 to produce. You don't say the selling price, but let's say it's, oh, $700. Credit (decrease) Asset \"\"Stock on hand\"\" by $500. Debit (increase) Asset \"\"Accounts receivable\"\" by $700. Credit (increase) Income \"\"Sales\"\" by $700. Debit (increase) Expense \"\"Cost of goods sold\"\" by $500. 2: $1000 spent on wedding party by friend I'm not sure how your friend's expenses affect your accounts. Are you asking how he would record this expense? Did you pay it for him? Are you expecting him to pay you back? Did he pay with cash, check, a credit card, bought on credit? I just don't know what's happening here. But just for example, if you're asking how your friend would record this in his own records, and if he paid by check: Credit (decrease) Asset \"\"checking account\"\" by $1000. Debit (increase) Expense \"\"wedding expenses\"\" by $1000. If he paid with a credit card: Credit (increase) Liability \"\"credit card\"\" by $1000. Debit (increase) Expense \"\"wedding expenses\"\" by $1000. When he pays off the credit card: Debit (decrease) Liability \"\"credit card\"\" by $1000. Credit (decrease) Asset \"\"cash\"\" by $1000. (Or more realistically, there are other expenses on the credit card and the amount would be higher.) 3: Issue $3000 in stock to partner company I'm a little shakier on this, I haven't worked with the stock side of accounting. But here's my best stab: Well, did you get anything in return? Like did they pay you for the stock? I wouldn't think you would just give someone stock as a present. If they paid you cash for the stock: Debit (increase) Asset \"\"cash\"\". Credit (decrease) Capital \"\"shareholder equity\"\". Anyone else want to chime in on that one, I'm a little shaky there. Here, let me give you the general rules. My boss years ago described it to me this way: You only need to know three things to understand double-entry accounting: 1: There are five types of accounts: Assets: anything you have that has value, like cash, buildings, equipment, and merchandise. Includes things you may not actually have in your hands but that are rightly yours, like money people owe you but haven't yet paid. Liabilities: Anything you owe to someone else. Debts, merchandise paid for but not yet delivered, and taxes due. Capital (some call it \"\"capital\"\", others call it \"\"equity\"\"): The difference between Assets and Liabilities. The owners investment in the company, retained earnings, etc. Income: Money coming in, the biggest being sales. Expenses: Money going out, like salaries to employees, cost of purchasing merchandise for resale, rent, electric bill, taxes, etc. Okay, that's a big \"\"one thing\"\". 2: Every transaction must update two or more accounts. Each update is either a \"\"debit\"\" or a \"\"credit\"\". The total of the debits must equal the total of the credits. 3: A dollar bill in your pocket is a debit. With a little thought (okay, sometimes a lot of thought) you can figure out everything else from there.\"","\"Fees & liabilities Yes, the first problem is that liabilities are being improperly booked. If the fee you charge is fixed upon deposit then the fee should credit \"\"Revenue\"\", the fee charged to you should be booked by crediting cash and then debiting \"\"Expenses\"\", and the remaining should be booked as a liability. If the fee is fixed upon withdrawal then this will become more complex because of the fact that a change in the fee can occur before it can be applied. In this case, the current fee should be credited as \"\"Revenue\"\" and some \"\"Allowance for fee increase\"\" should also be credited. The amount owed to the withdrawer should be booked as a liability as before. Multiple currency bookings I will assume that this is for a cryptocurrency service of some sort considering the comments in your question and your presence on bitcoin.se. Accounting can become very dangerous when mixing denominations. This is why all major accounting standards mandate books be maintained single currency. In your case, if the deposit is in USD, for example, and the liability is in BTC then two books must be maintained, one for each. To account for your operation properly using single currency accounts, the denominations must be exchanged internally and balanced across the two sets of books. For a deposit of BTC/depository of USD, the operation would be the same as described above, but then the cash should be credited away and the liabilities debited away from the USD books with simultaneous cash debits and liability credits on the BTC books. Considering the extreme volatility of cryptocurrency exchange rates, denominating accounts on the wrong set of books will quickly lead to insolvency or loss from improper accounting or both. From revenue to income Revenue can be construed as a liability since it could theoretically exist on the balance sheet. I mention this because all books, despite their name and quarter, are really simply long T accounts, like a blockchain. A blockchain could be subdivided into users' individual income statements & balance sheets, as the reverse of this concept. Revenues are credited, expenses are debited. The difference, \"\"net income\"\", is debited away with a credit to \"\"owners' equity\"\".\"","\"I have to disagree with you. **Money is a store of value with which you can redeem your accumulated work for a good or service you need, at any time.** Therefore, you don't have to wait until your crop has perished to trade it for what you need. Any store of value that is not purely useful in terms of \"\"I can consume this\"\" or \"\"I can turn this into value directly through labor\"\" is essentially an IOU. It would be more accurate to say, in the context you provide, that for every asset (your apples) there exists an equivalent combination of liability (what you had to borrow to produce the apples) and equity (what you put in of your own in order to get the apples). Since gold in this very simple hypothetical system has absolutely no use other than a **store of value**, it *is* debt. It is the promise that you will at some point in your process of transactions acquire the utility that you require. You can't fertilize with gold, but you can buy fertilizer. **Until you buy that fertilizer, you've only traded your harvest for a promise that you *can* buy your fertilizer.** Something otherwiseyep didn't elaborate on very much, though he mentioned it and it is integral to his story, is the time value of money. That is, if I can borrow 10 gold pieces today for my future work accumulated, I'll pay you back 12 when it's done. This has an effect greater than just injecting value into the economy. It ensures that the negative value experienced by *not* having those 10 gold pieces will be compensated. Credit provides an opportunity for planning for the cyclical nature of markets. It provides an opportunity to make your transaction now - that you don't have to wait until harvest to trade your deer skins for apples. >Economists like Paul Krugman seem to believe that everything can be fixed by increasing demand, but they totally ignore the costs of production. There exists plenty of demand in the US economy right now, but the cooper has died, the barrels must be brought from China. I also disagree with this. Krugman emphasizes the *importance* of demand-side measures, not their exclusivity. Any policy must account for cost curves, and that economic profit for any firm is maximized when marginal revenue (the revenue increase or decrease of a single unit added to production) is equal to marginal cost. The U.S may have some demand right now, but if the cost of production were truly the issue, then these firms would be adjusting their capacity, and not sitting on trillions of dollars of currency that ought to be liquid. If demand was really that high, companies wouldn't be stuffing their mattresses right now to keep the money injected into the economy by QE *out* of circulation. The real problem is that while in the last few decades consumption has been climbing steadily, real wages have flat-lined, and now we have high unemployment. We can't raise wages, we can't hire more workers, and we still want our cars and houses and corn syrup and lead-filled toys. This, I think we can agree, is where credit goes wrong: the gap between consumption and wages was filled with credit. The housing bubble manifested itself thus: not as simply a boom in quantity and a lowering in price, but a lowering in price as a result of faulty (dishonest and misleading) risk assessment - (by the same folks who downgraded US debt), and an implosion as a result of that debt systematically dissolving through defaults and foreclosures (to put it very, very, very, simply). Instead of an increase in consumer credit, we need greater investment by the companies who currently sit on trillions of dollars of frozen cash. Those investments could be better managed, with transparent risk assessment and greater restrictions on lending policy. Or, ideally, that money could be used to hire workers, expand plants and lower marginal costs. To tie it back to your concluding paragraph, credit makes it possible to satisfy the demand for those barrels of apples by buying them at a fair market value from China. If it weren't for China's ability to provide the apples at a \"\"fair\"\" price (you can, for our purposes here, consider this price to be fair market value if you make a transaction - the selling price equals the buying price), there would be an apple shortage, and the price of apples would climb ridiculously high.\"","\"Your first and second paragraphs are two different cases. Moving money between a checking account and a savings account will credit Cash and debit Cash, making a GL transaction unnecessary, unless the amounts in the two bank accounts are tracked as two separate GL accounts. You might have account 1001 (Cash-Checking) and account 1002 (Cash-Savings). In that case, a movement of money between these two accounts should be tracked by a transaction between the GL accounts; credit checking, debit savings. It won't affect your balance sheet, but depending on your definition of liquidity of assets it might affect working capital on your statement of cash flows (if you consider the savings account \"\"illiquid\"\" then money moved to it is a decrease in working capital). Basically, what you are creating with your \"\"store credit\"\" accounts for each client is an \"\"unearned revenue\"\" account. When clients pay you cash for work you haven't done yet, or you refund money for a return as \"\"store credit\"\" instead of cash, the credit is a liability account, balancing an increase in cash, inventory, or an expense (if you're giving credit for free, perhaps due to a mistake on your part, you would debit a \"\"Store Credit Expense\"\" account). This can be split out client-by-client in the GL if you wish, avoiding the need for a holding account. The way you want to do it, you'd have a \"\"Client Holding\"\" account. It must be unique in the GL and to the client, and yes, it is a liability account. To transfer to holding, you simply debit Unearned Revenue and credit Client Holding, logging the transaction as \"\"transfer of client store credit\"\" or similar (moving liability to liability; balance sheet doesn't change). Then, as you sell goods or services to the client, you debit Accounts Receivable and credit Revenue, then to record the payment you credit AR and debit Client Holding (up to its current credit balance, after which the client pays you Cash and you debit that, or the client still owes you). To zero out a remaining balance on the Holding account, debit Client Holding and credit Unearned Revenue. I don't think the Holding account, the way you want to use it, is a good idea. If you want to track each customer's store credit balance with a GL account, then create specialized Unearned Revenue accounts for each client who gets a store credit, named for the client and containing their balance (zero or otherwise). If you don't care about it at the GL level, then pool it in one Unearned Revenue account (have one Store Credit account if you must), and track individual amounts off the books.\"","The question should be - do you need a debit card? Other than American Express I have to tell my other credit card issuers to not make my cards dual debit/credit. Using a debit card card can be summed up easily - It creates a risk of fraud, errors, theft, over draft, and more while providing absolutely no benefit. It was simply a marketing scheme for card companies to reduce risk that has lost favor, although they are still used. That is why banks put it on credit cards by default if they can. (I am talking about logical people who can control not overspending because of debit vs. credit - as it is completely illogical that you would spend more based on what kind of card you have.)","You are right in saying that you cannot go over limit on (most) credit cards, however, with a debit card the majority of banks will extend an overdraft to you if your account goes overdrawn (less than 0). The amount of overdraft extended will depend on your credit rating and standing with the bank and may not be extended if they think that the amount is too large or that you are a credit risk. The drawbacks of overdrafts are that they are very expensive usually having a fixed fee for going into overdraft and charging a high rate of interest. If this overdraft has not been prearranged with the bank these costs are usually much higher.","\"I'm not sure if this is your point of confusion, but when an account is said to be debited (or credited), the words \"\"debited\"\" or \"\"credited\"\" are not referring to a type of account (such as \"\"checking\"\"). They are referring to an operation that is performed on an account. The same account can be credited at one time and debited at another time.\"","When banks create a loan, it is said they write the debit account out of thin air (liability), balanced by the loan (asset). When the person who gets the loans spends the money, the bank has to pay it. If the bank only has 10% reserves of the money it loans, how does the bank pay out it's loans? Does it borrow the money from the Fed and then pay it back?","\"Depending on how you view the loan, it could either be considered an Asset or a Liability. Since you are not charging interest, it might seem more intuitive to create an \"\"Assets:Cash Loan\"\" account, and transfer money to & from it (when you receive payments) like you would with a bank account. Personally, I prefer to think of all loans as liabilities. Whether it's a debt which you owe someone, or a balance which someone else owes you, since it's an 'unsettled' amount I file it under \"\"Liabilities:Loan\"\". Either way, you record the initial balance as a debit from your bank, and then record payments as credits back to your primary account. The only way that income or expenses ever gets involved would be if you charged interest (income) or if you forgave some or all of the loan (expense) at some point in the future.\"","\"The credit card may have advantages in at least two cases: In some instances (at least in the US), a merchant will put a \"\"hold\"\" on a credit card without charging it. This happens a lot at hotels, for example, which use the hold as collateral against damages and incidental charges. On a credit card this temporarily reduces your credit limit but never appears on your bill. I've never tried to do it on a debit card, but my understanding is that they either reject the debit card for this purpose or they actually make the withdrawal and then issue a refund later. You'll actually need to account for this in your cash flow on the debit card but not on the credit card. If you get a fraudulent charge on your credit card, it impacts that account until you detect it and go through the fraud resolution process. On a debit card, the fraudulent charge may ripple through the rest of your life. The rent payment that you made by electronic transfer or (in the US) by check, for example, is now rejected because your bank account is short by the amount of the fraud even if you didn't use the debit card to pay it. Eventually this will probably get sorted out, but it has potential to create a bigger mess than is necessary. Personally, I never use my debit card. I consider it too risky with no apparent benefit.\"","\"In double-entry bookkeeping, no transaction is ever negative. You only deal in positive numbers. We \"\"simulate\"\" negative numbers by calling numbers debits and credits, where one is the negative of the other. Only a balance can be negative. In this case, Income is a credit account. That means that things that increase your balance are credits and things that reduce your balance are debits. So a gift from grandma is a credit. It's a positive number, and you write it in the credit column. You pretty much never subtract from Income except to correct a mistake. Assets, like a checking account, are debit accounts. Increases are debits and decreases are credits. You routinely have both debits and credits on a checking account, i.e. you put money in and you take money out. Every transaction affects (at least) two accounts: one with a debit and one with a credit. So in this case, the gift from grandma credits income and debits checking. Buying food credits checking and debits expenses.\"","\"First, the balance sheet is where assets, liabilities, & equity live. Balance Sheet Identity: Assets = Liabilities (+ Equity) The income statement is where income and expenses live. General Income Statement Identity: Income = Revenue - Expenses If you want to model yourself correctly (like a business), change your \"\"income\"\" account to \"\"revenue\"\". Recognized & Realized If you haven't yet closed the position, your gain/loss is \"\"recognized\"\". If you have closed the position, it's \"\"realized\"\". Recognized Capital Gains(Losses) Assuming no change in margin requirements: Margin interest should increase margin liabilities thus decrease equity and can be booked as an expense on the income statement. Margin requirements for shorts should not be booked under liabilities unless if you also book a contra-asset balancing out the equity. Ask a new question for details on this. Realized Capital Gains(Losses) Balance Sheet Identity Concepts One of the most fundamental things to remember when it comes to the balance sheet identity is that \"\"equity\"\" is derived. If your assets increase/decrease while liabilities remain constant, your equity increases/decreases. Double Entry Accounting The most fundamental concept of double entry accounting is that debits always equal credits. Here's the beauty: if things don't add up, make a new debit/credit account to account for the imbalance. This way, the imbalance is always accounted for and can help you chase it down later, the more specific the account label the better.\"","The money is still their money, it never becomes your money. The reason is as follows, The books now look like this: YOU: Asset: Mattress Liability: 600 THEM: Asset: 600 Liability: Mattress Now, in their books, they mistakenly thought the mattress was returned, and therefore they returned the mattress to you. The books now look like this YOU: Asset: Mattress Liability: 600 THEM: Asset: Mattress (incorrect) Liability: 0 As you see, their books are wrong, but yours are still correct. According to your books, you owe them $600, which you paid, but then they paid you back. You still have the liability. Why not just depreciate the mattress by 50% over two years? Then there will be no liability on your books.","Debit cards can be riskier than credit cards. That's why I personally avoid debit cards unless I have a very good reason to go that direction (e.g. HSA accounts). To explain the risk, consider what happens if someone steals the card or number and starts using it: Credit card: You get a big bill, which you dispute and eventually get dismissed. Debit card: Your bank account balance drops, you don't have access to cash, and your checks start bouncing and you rack up bounced check charges with your bank and stores where you write checks. Eventually, you convince the bank it was fraud and they refund the money to your account. The big difference is that while it is going on you are out the money with a debit card, and with a credit card the BANK is out the money. The above scenario happened to my brother and it wasn't pretty. He was having to borrow money to pay his rent and groceries while the bank sorted it out.","As a general rule of thumb, and assuming you have a choice, my advice is to pay cash for things things that depreciate, expenses, and consumables. Consider credit (even if you have cash) for things that will appreciate in value or generate cash flow. That is, use credit as leverage.","Is my understanding okay ? If so, it seems to me that this system is rather error prone. By that I mean I could easily forget to make a wire some day and be charged interests while I actually have more than enough money on the check account to pay the debt. Which is where the credit card company can add fees so you pay more and they make more money. Don't forget that in the credit case, you are borrowing money rather than using your own. Another thing that bothers me is that the credit card apparently has a rather low credit limit. If I wanted to buy something that costs $2500 but only have a credit limit of $1500, can I make a preemptive wire from my check account to the VISA account to avoid facing the limit ? If so, what is the point for the customer of having two accounts (and two cards for that matter...) ? If you were the credit card company, do you believe people should be given large limits first? There are prepaid credit cards where you could put a dollar amount on and it would reject if the balance gets low enough. Iridium Prepaid MasterCard would be an example here that I received one last year as I was involved in the floods in my area and needed access to government assistance which was given this way. Part of the point of building up a credit history is that this is part of how one can get the credit limits increased on cards so that one can have a higher limit after demonstrating that they will pay it back and otherwise the system could be abused. There may be a risk that if you prepay onto a credit card and then want to take back the money that there may be fees involved in the transaction. Generally, with credit cards the company makes money on the fees involved for transactions which may come from merchants or yourself as a cash advance on a credit card will be charged interest right away while if you buy merchandise in a store there may not be the interest charged right away.","I'm surprised by all the pro-credit answers here, debit has some definite advantages. Most importantly, when you pay with a credit card, the merchant pays around 3% of the transaction to the credit company. In many states, they are forced to charge you the same amount, and this is frequently toted as ''consumer protection''. But consider what this means for the business: they loose money for every credit transaction, and they're legally forbidden to do anything about it. So you're taking 3% from a business and handing it over to a massive cooperation. To make matters worse, the buisness is inevitably going to have to raise their prices (albiet by a small amount), so in the end the average consumer has gained nothing. On the other hand, the credit card company wins big, and they use their profits to pay lobbyists and lawyers to keep these rules in place. To put in the worst possible light, it's essentially legal extortion, verging on corruption. As for the fraud protection offered, while it may be true that credit cards will offer a more hassle-free reimbursement (i.e. you just don't have to pay the bill) if your card is stolen, consumer protection laws also extend to debit: in many cases your bank is legally required to cut you a check for all the money you lost.","\"As i see it, with a debit card, they are taken kinda out of the game. They are not lending money, it seems really bad for them. Not exactly. It is true that they're not lending money, but they charge a hefty commission from the retailers for each swipe which is pure profit with almost no risk. One of the proposals considered (or maybe approved already, don't know) in Congress is to cap that hefty commission, which will really make the debit cards merely a service for the checking account holder, rather than a profit maker for the bank. On the other hand, it's definitely good for individuals. I disagree with that. Debit cards are easier to use than checks, but they provide much less protection than credit cards. Here's what I had to say on this a while ago, and seems like the community agrees. But, why do we really need a credit history to buy some of the more expensive stuff Because the system is broken. It rewards people in debt by giving them more opportunities to get into even more debts, while people who owe nothing to noone cannot get a credit when they do need one. With the current system the potential creditor can only asses the risk of someone who has debt already, they have no way of assessing risks of someone with no debts. To me, all this credit card system seems like an awfully nice way to make loads of money, backed by governments as well. Well, credit cards have nothing to do with it. It's the credit scores system that is broken. If we replace the \"\"card\"\" with \"\"score\"\" in your question - then yes, you're thinking correctly. That of course is true for the US, in other countries I have no knowledge on how the creditors assess the risks.\"","Here's a simple answer: If your debit card has a visa or mc logo, it can be used as a 'credit card'. In order to do so, you shouldn't enter the pin, instead choose 'credit' and sign for it. Unlike a credit card, you can't spend money you don't have but like a credit card, your purchase is protected by the credit card company (visa/mc) and gives you privileges like zero fraud liability and purchase disputes. http://www.moneycone.com/should-you-sign-for-a-debit-card-purchase-or-use-your-pin/","\"Every company has \"\"capital\"\". Even if you have a one man company, you probably stated something like \"\"100 shares of $1 each\"\", which means you had to take that $100 out of your own private pocket and pay it into the company. When the company loses money and runs out of cash, they have the possibilities of (1) borrowing some money from the bank, or from a loan shark, (2) borrowing some money from the company owners, or (3) increase the share capital, for example by increasing the number of shares to 10,000 and each share holder pays his part of the $9,900. That's the case that you have here. However, it is only a \"\"liability\"\" in the sense that it isn't money the company earned, it is money that the owners paid in. They have no right to get the money back; the paid-in capital is actually what the owners lose if a limited company goes bankrupt.\"","\"It's more the opposite...using a credit card as a debit card may be treated as a \"\"cash advance,\"\" since money is debited on the spot...so you could be charged a cash advance fee. If you used your debit card as a credit card, there may simply be a balance on the account that needs to be paid off before it begins accruing interest.\"","\"The basic equation taught in day one of accounting school is that Assets = Liabilities + Equity. My first point was that I looked at the actual financial statements published as of the end of the 2nd quarter 2017, and the total liabilities on their audited balance sheet were like $13 billion, not $20b. I don't know where the author got their numbers from. My second point: Debt usually needs to be paid on prearranged terms agreed upon by the debtor and the debtee, including interest, so it is important for a business to keep track of what they owe and to whom, so they can make timely payments. As long as they have the cash on hand to make payments plus whatever interest they owe, and the owners are happy with the total return on their investment, then it doesn't really matter how debt they have on the balance sheet. Remember the equation A=L+E. There are precisely two ways to finance a business that wants to acquire assets: liabilities and/or equity. The \"\"appropriate\"\" level of debt vs equity on a balance sheet varies wildly, and totally depends on the industry, size of the business, cash flow, personal preferences of the CEO, CFO, shareholders et al, etc. It gets way more detailed and complicated than that obviously, but the point is that looking at debt alone is a meaningless metric. This is corporate finance and accounting 101, so you can probably find tons of great articles and videos if you want to learn more.\"","\"These are two different ways of processing payments. They go through different systems many times, and are treated differently by the banks, credit card issuers and the stores. Merchants pay different fees on transactions paid by debit cards and by credit cards. Debit transactions require PIN, and are deducted from your bank account directly. In order to achieve that, the transaction has to reach the bank in real time, otherwise it will be declined. This means, that the merchant has to have a line of communications open to the relevant processor, that in turn has to be able to connect to the bank and get the authorization - all that while on-line. The bank verifies the PIN, authorizes the transaction, and deducts the amount from your account, while you're still at the counter. Many times these transactions cannot be reversed, and the fraud protections and warranties are different from credit transactions. Credit transactions don't have to go to your card issuer at all. The merchant can accept credit payment without calling anyone, and without getting prior authorizations. Even if the merchant sends the transaction for authorization with its processor, if the processor cannot reach the issuing bank - they can still approve the transaction under certain conditions. This is, however, never true with debit cards (even if used as \"\"credit\"\"). They're not deducted from your bank account, but accumulated on your credit card account. They're posted there when the actual transaction reaches the card issuer, which may be many days (and even many months) after the transaction took place. Credit transactions can be reversed (in some cases very easily), and enjoy from a higher level of fraud protection. In some countries (and most, if not all, of the EU) fraudulent credit transactions are never the consumer's problem, always the bank's. Not so with debit transactions. Banks may be encouraging you to use debit for several reasons: Merchants will probably prefer credit because: Consumers will probably be better off with credit because:\"","\"Yes and No. There's always a \"\"fee\"\". The difference in credit vs debit usually determines how much that fee is and how it's paid. Each vendor who accepts the major credit card is under contract to pay for equipment and meet certain standards. The same is true for debt card transactions. How much the \"\"fee\"\" is can vary based on the contract the vendor has with MasterCard/Visa/AMEX. But in general most debt transactions go back to the bank who distributed the card.\"","\"Is there a word for that $20k owed? Trade Receivables, Accounts Receivables, or just Receivables Is there a different word for that $30k \"\"hypothetical\"\" total? Current Assets (Includes Inventory and other short term assets)\"","I think you're looking a step beyond the question being asked. This is a pretty simple accounting question that doesn't take into account any other activity, like earnings generated during the time period by the employee being paid. It's far more simple. Unpaid wages accrue to liabilities, assets remain constant because no cash leaves the door, this equity decreases equal to the change in liability. He's not deferring an expense, he accrued it at the time the work was done, he simply hasn't paid it. That's not the same as a DTA.","The effect on your credit score would be a positive one. If you have plenty of money now then pay off the balance each month. If you are very disciplined and can pay off the balance each month you could stop using your debit card to make daily purchases and use your credit card instead. That way you can keep your money in an interest bearing account all month and pay the bill in full when it comes due.","\"I'm a mathematician, not an accountant. But my feeling has been that the distinction between Asset and Liability is mainly a sign convention, and comes from a wish to avoid negative numbers. Suppose you take out a loan for $1000 and deposit the proceeds in your bank account. Under normal accounting conventions, your bank account is an Asset and the loan is a Liability. After the loan, Bank has a balance of 1000 and Loan has a balance of 1000. You can compute your net worth by adding all Assets and subtracting all Liabilities (so in this case your net worth remains 0). If you treat Loan as an Asset account, then after taking out the loan, you should give it a balance of -1000. Under this convention, you have lots of negative numbers to deal with everywhere, which I suspect early accountants would have found inconvenient. The Asset/Liability convention means you only need to deal with negative numbers in unusual situations (overdrawn bank account, overpaid loan, etc). Likewise, in theory you could treat Expense accounts as negative Income. But I'm not sure why you feel the need to reinvent the wheel by \"\"simplifying\"\" double-entry accounting like this. The standard conventions are not that complicated, and their major advantage is that they're standard: other people will be able to understand your books if they ever need to. (Say you want to hire somebody to do your taxes at some point: if your books are kept in your own idiosyncratic system, their job will be at best error-prone and at worst impossible.) It's a bit like a proposal to simplify English spelling: shur, a sistum waar yu rit lik this mit bee simplur in sum abstrakt sens, but if nobudee els can reed it eezulee, it izunt ackshyualee veree yusful.\"","\"This depends on your definitions of assets and liabilities. The word \"\"asset\"\" has a fairly straight forward definition. Generally speaking, an asset in finance is something that you own/control that has economic value. The asset has value because it is generating income for you or because you expect that it will be worth something to someone in the future. \"\"Liability\"\" is tougher to define, and depends on context. In accounting, a liability is a debt or obligation that is owed. It is essentially the opposite of an asset; where an asset represents something of value that you own, increasing your balance sheet, a liability is a value that you owe, decreasing your balance sheet. In that sense, a website or domain name that you own is an asset, not a liability, because it is something you own that has some value. It is not a debt. Many people use the word \"\"liability\"\" informally to refer to a bad asset: something that is losing value or is causing more in expenses than it is generating in income. (See definition #5 on Wiktionary.) With this definition, you might consider a website or a domain name a liability if it is losing money. Alternatively, depending on your business, you might not consider it an asset or a liability, but an expense instead. An expense is a cost of doing business. For example, if your business is selling something, you might need a website to make that happen. The website isn't purchased as an investment, and it might not have any value apart from your business. It is simply a necessary expense for your business.\"","\"Should is a very \"\"strong\"\" word. You do what makes most sense to you. Should I be making a single account for Person and crediting / debiting that account? You can do that. Should I be creating a loan for Person? And if so, would I make a new loan each month or would I keep all of the loans in one account? You can create a loan account (your asset), you don't need to create a new account every time - just change the balance of the existing one. That's essentially the implementation of the first way (\"\"making a single account for a Person\"\"). How do I show the money moving from my checking account to Company and then to Person's loan? You make the payment to Company from your Checking, and you adjust the loan amount to Person from Equity for the same amount. When the Person pays - you clear the loan balance and adjust the Checking balance accordingly. This keeps your balance intact for the whole time (i.e.: your total balance sheet doesn't change, money moves from line to line internally but the totals remain the same). This is the proper trail you're looking for. How do I (or should I even) show the money being reimbursed from the expense? You shouldn't. Company is your expense. Payment by the Person is your income. They net out to zero (unless you charge interest). Do I debit the expense at any point? Of course. Company is your expense account. Should I not concern myself with the source of a loan / repayment and instead just increase the size of the loan? Yes. See above.\"","The term business credit normally refers to one or more credit cards which can be used to make purchases on behalf of a business. A business credit card will usually have both the business name and the card holder's name printed or embossed on the card. In most cases the cardholder will have provided a personal guarantee when applying for the card. A personal guarantee ultimately makes the card holder liable for all charges made on the card.","\"I don't know if it's common or necessary to include capital stock as a liability? Yes, if you look at the title of the nonasset part of the balance sheet it actually is titled \"\"Liabilities and Shareholders' Equity\"\". Your capital stock is a component of Equity. This sounds like it was reported in a reasonable manner. \"\"$2,582 listed under Loans from Shareholders (Line 19).\"\" Did you have a basis issue with your distributions? That is did you take shareholder distributions more than your adjusted basis that you have been taxed on? I have seen the practice of considering distributions in excess of basis as short term loans to prevent the additional taxation of the excess distribution. Be careful when you adjust this entry, your balance sheet had to roll from one year to the next. You must have a reasonable transaction to substantiate the removal of the shareholder loan.\"","\"So, did anyone else bother to actually look up the balance sheet? I just pulled it up [here](http://www.nasdaq.com/symbol/nflx/financials?query=balance-sheet&data=quarterly). It looks like as of June 30, 2017, Netflix total liabilities were $13.4 billion. Current liabilities are about $5b and the other ~$8.4 are long term liabilities. That alone makes the \"\"article\"\" questionable because I don't know where exactly they got their bogus numbers from. At any rate, total liabilities don't really matter, as long as they have the cash flow to pay for it, and investors are happy with their total return on equity. This is a low quality shitpost by someone paid by the word at LA Times.\"","Assuming that it's not inventory that is sold in the following year or a depreciable asset, you can deduct it when you make the purchase. The courts have ruled that credit cards balances are considered debt. It's treated the same way as if you went to the bank, got a loan, and used cash or a check to purchase the items. On your accounting books, you would debit the expense account and credit the credit card liability account. This is only for credit cards, which are considered loans. If you use a store charge card, then you cannot deduct it until you pay. Those are considered accounts payable. I'm an IRS agent and a CPA.","seriously money is debt has to be the most ridiculous comparison i've ever heard. that statement implies commutativity and certainly i would never say debt is money. i could take on debt to get money, but the debt itself is a liability and not an asset. your last paragraph about fiat money is correct, but i should say that with modern financial markets price discovery isn't some magic voodoo thing.","\"I was wondering how do we calculate the total capital of a company? Which items should I look for in the financial statements? Total capital usually refers to the sum of long-term debt and total shareholder equity; both of these items can be found on the company's balance sheet. This is one of the calculations that's traditionally used when determining a company's return on capital. I'll use the balance sheet from Gilead Sciences' (GILD) 2012 10-K form as an example. Net long-term debt was $7,054,555,000 and total stockholder equity was $9,550,869,000 which should give a grand total of $16,605,424,000 for total capital. (I know you can do the math, but I always find an example helpful if it uses realistic numbers). You may sometimes hear the term \"\"total capital\"\" referring to \"\"total capital stock\"\" or \"\"total capital assets,\"\" in which case it may be referring to physical capital, i.e. assets like inventory, PP&E, etc., instead of financial capital/leverage. And how do I calculate notes payable? Is the same as accounts payable? As the word \"\"payable\"\" suggests, both are liabilities. However, I've always been taught that accounts payable are debts a business owes to its suppliers, while notes payable are debts a business owes to banks and other institutions with which it has signed a formal agreement and which use formal debt instruments, e.g. a loan contract. This definition seems to match various articles I found online. On a balance sheet, you can usually determine notes payable by combining the short-term debt of the company with the current portion of the long-term debt. These pieces comprise the debt that is due within the fiscal year. In the balance sheet for Gilead Sciences, I would only include the $1,169,490,000 categorized as \"\"Current portion of long-term debt and other obligations, net\"\" term, since the other current liabilities don't look like they would involve formal debt contracts. Since the notes payable section of GILD's balance sheet doesn't seem that diverse and therefore might not make the best example, I'll include the most recent balance sheet Monsanto as well.1 Monsanto's balance sheet lists a term called \"\"Short-term debt, including current portion of long-term debt\"\" with a value of $36 million. This looks like almost the exact definition of notes payable. 1. Note that this financial statement is called a Statement of Consolidated Financial Position on Monsanto's 10-K.\"","Credit in debit way - the card simply functions like a debit card for that transaction - pulling cash from your checking account. No difference. You've simply discovered the fact that some banks are using the same piece of plastic for two functions, debit which draws funds directly from your checking, and credit which offers you time to pay a bill the comes in some time later. It's a personal choice.","\"The term for money owed to you by a company would be a credit balance. Consider, when an item is credited to your account, it's in your favor. Whereas, money you owe to a company may be referred to simply as a balance, or balance owing, or less frequently a debit balance. A related term balance due would be the payment you owe in the current period, i.e. not representative of the entire amount owed. I don't think the terms \"\"positive balance\"\" or \"\"negative balance\"\" are considered idiomatic in business. Rather, accounting terms like debit and credit have taken hold instead – and are often a source of confusion. But I suggest that if you have a negative balance on a credit card, it's a credit balance in your favor. Unless they mix it up.\"","Of course credit cards are viewed as credit. If you're using money on a credit card, you are not directly paying for your transactions on goods/services immediately: this is the act of borrowing credit to pay for them. Debit cards, on the other hand, work where the funds are taken from an account immediately (or subject to a small delay - but usually no more than 24 hours - depending on various factors). You should never miss credit card payments, as that will affect your credit rating. If you have unpaid money on your card this is debt - plain and simple. But to answer your question succinctly - yes, credit cards are a form of credit, as the name suggests. When you apply for a mortgage any unpaid credit (debt) is considered and would adversely affect you if you have such debts. The level to which it affects you depends on the amount of debt. This is how it works in the UK, but to my knowledge it is the same in the US and most other countries. Please clarify if you think this is incorrect.","My theory, if you must be in debit, own it at the least expense possible. The interest you will pay by the end, combined with the future value of money. Example: The Future value of $3000 at an effective interest rate of 5% after 3 years =$3472.88 Present value of $3000 at 5% over 3 years =$2591.51 you will need more money in the future to pay for the same item","\"As anecdotal experience, we have a credit account in my name as offered by bank's marketing before I could qualify by common rules for newcomers (I have an account there for years so they knew my history and reliability dynamics I guess), and my wife is subscribed as a secondary user to the same credit account with a separate card. So we share the same limits (e.g. max month usage/overdraft) and benefits (bank's discounts and bonuses when usage passes certain thresholds - and it's easier to gain these points together than alone) so in the end maintenance of the card costs zero or close to that on most months, while the card is in a program to get discounts from hundreds of shops and even offers a free or discounted airport lounge access in some places :) But the bonus program is just that - benefits come and go as global economics changes; e.g. we had free car assistance available for a couple of years but it is gone since last tariff update. Generally it is beneficial for us to do all transactions including rent etc. via these two credit cards to the same account, and then recharge its overdraft as salaries come in - we have an \"\"up to 50 days\"\" cooloff period (till 20th of next calendar month) with no penalties on having taken the loans - but if we ever did overstretch that, then tens of yearly percents would kick in. Using the card(s) for daily ops, there is a play on building up the credit history as well: while we don't really need the loans to get from month to month, it helps build an image in the face of credit organizations, which can help secure e.g. favorable mortgage rates (and other contract conditions) which are out of pocket money range :) I'd say it is not only a \"\"we against the system\"\" sort of game though, as it sort of trains our own financial discipline - every month we have (a chance) to go over our spendings to see what we did, and so we more regularly think about it in the end - so the bank probably benefits from dealing with more-educated less-random customers when it comes to the bigger loans. Regarding internet, we tend to trust more to a debit card which we populate with pocket money sufficient for upcoming or already placed (blocked) transactions. After all, a malicious shop can not sip off thousands of credit money - but only as much as you've pre-allocated there on debit.\"","\"I am a tax lawyer and ALL the RESPONSES ABOVE are 1/2 Correct but also 1/2 Wrong and in tax law this means 100% WRONG (BECAUSE ANY PART INCORRECT UNDER TAX LAW will get YOU A HUGE PENALY and/or PRISON TIME by way of the IRS! So in ESSENCE ALL the above answers are WRONG! Let me enlighten you to the correct answer in 5 parts, as people that do not practice tax law may understand (but you still probably will not understand, if you are NOT a Lawyer). 1) All public companies are corporations (shown by Ltd.), 2) only Shareholders of Public companies (ie, traded on the NYSE stock market) are never liable for debts of a bankrupt company, due to the concept of limited liability. 2) now Banks may ask a sole proprietorship (who wants to incorp. for example) to give collateral, such as owners stocks/bonds or his/her house, but then of course the loanee can tell the Bank No Thanks and find a lender that may charge higher interest rates but lend money to his company with little to NO collateral. 3) Of course not all companies are publicly traded and these are called private companies. 4)\"\"limited liability\"\" has nothing to do directly with subsequent shareholders (the above answer is inaccurate!), it RELATES rather to INITIAL OWNERS INVESTMENT in their company, limiting the amount of owner loss if the company goes bankrupt. 5) Share Face-value is usually never related to this as shares are sold at market value in real life instances (above or below face-value), or the most money Investments Banks or owners can fetch for the shares they sell (not what the stock's face-value is set at upon issuance). Never forget, stocks are sold in our Capitalistic System to whomever pays the most, as it is that Buyer who gets to purchase the stock!\"","If your debit card/ATM card is stolen or lost, someone else might be able to withdraw money from the checking account that it is tied to, or buy things with the card and have the money taken out of the checking account to pay the merchant. Subject to daily withdrawal limits imposed by your bank, a considerable amount of money could be lost in this way. At least in the US, debit or ATM cards, although they are often branded Mastercard or Visa, do not provide the same level of protection as credit cards for which the liability is limited to $50 until the card is reported as lost or stolen and $0 thereafter. Note also that the money in your savings account is safe, unless you have chosen an automatic overdraft protection feature that automatically transfers money from your savings account into the checking account to cover overdrafts. So that is another reason to keep most of your money in the savings account and only enough for immediately foreseeable needs in the checking account (and to think carefully before accepting automatic overdraft protection offers). These days, with mobile banking available via smartphones and the like, transferring money yourself from savings to checking account as needed might be a preferred way of doing things on the go (until the smartphone is stolen!)","\"The danger of overdrawing the account via the use of a debit card, and the exorbitant fees that can result make me hesitant to use a debit card. The ability to cover all the transactions with one payment is why I use a credit card for these \"\"debit\"\" transactions. Yes there is a risk of a late payment, but that can be easily avoided within the three week grace period. The ability to electronically transfer the money to pay off the card makes this even easier.\"","some of that article is misleading, some of it is just plain wrong. Very wrong... like you end up drawing an incorrect conclusion type wrong. Corporate transaction accounts, whose balances are up recently due to TAG (expires 12/31), are subject to reserve requirements. When you purchase something with a credit card, the bank's asset of your credit increases and the bank's asset of cash decreases (it goes wherever you purchased). There is no change to your deposit account and no change to reserves. The incoming bank's cash account and liability account associated with that business transaction account increase, and it is trivial to transfer the % of cash necessary to reach minimum reserve requirements to the Fed. Secondly, anyone with a smidgen of accounting can tell that his balance sheet won't balance.","\"As others have stated, credit (signature required) is processed through their respective networks (Visa, MasterCard, Discover, or American Express). A \"\"debit\"\" card tied to your checking account, still go through the same credit network even though the funds are guaranteed from your checking rather than a free loan 30-60 days which has the potential to be unpaid. This type of debit card purchase may be eligible for a lower processing rate for less risk. Debit cards can also be processed through the debit network (PIN required, no signature). This is typically a straight fee such as $0.35. Fees vary, but let me give you a simple comparison: Say you are at the supermarket and buy $50 worth of groceries with a debit card with Visa logo. You are asked \"\"credit\"\" or \"\"debit\"\": At my supermarket, this is why I am given the option to enter my PIN first. If I want to pay by credit, I have to tap Cancel to process via credit signature.\"","\"From the HLSS 1st quarter 10Q: \"\"Match funded advances on loans serviced for others result from our transfers of residential loan servicing advances to SPEs in exchange for cash. The SPEs issue debt supported by collections on the transferred advances. We made these transfers under the terms of our advance facility agreements. These transfers do not qualify for sale accounting because we retain control over the transferred assets. As a result, we account for these transfers as financings and classify the transferred advances on our Interim Condensed Consolidated Balance Sheet as Match funded advances and the related liabilities as Match funded liabilities. We use collections on the Match funded advances pledged to the SPEs to repay principal and to pay interest and the expenses of the entity. Holders of the debt issued by this entity can look only to the assets of the entity itself for satisfaction of the debt and have no recourse against HLSS.\"\" I'm not an expert in the accounting of these things but I'll take a stab from the view of a bond investor. Let's assume the mortgage(s) in question have been pooled together and sold into the bond market in the form of a mortgage-backed security (MBS). When a homeowner falls behind on their payment, scheduled principal and interest (their monthly mortgage payment amount, or \"\"P&I\"\") is advanced as if the borrower is still current to the person who holds the MBS. This is typically done from the time they first fall behind until either they 1) catch up on their payments or, 2) are foreclosed upon and the home is sold to repay the mortgage balance. In either instance the advanced monthly payments are recaptured by the servicer before the holder of the MBS is paid. In this sense, the servicer develops a sort of prepaid asset over time by advancing money they are almost certain to recover at a future date (usually via foreclosure and liquidation). Due to a high number of borrowers falling behind on their payments since the housing crisis and the resulting time it takes to foreclose on a property, the servicers (OCN, HLSS, etc.) have built a large balance of advances on the asset side of their balance sheet. To free up this cash prior to liquidation of the home, they have sold short term bonds against this asset (via an SPE), thereby creating the liability you reference. So in essence they have, say, a home they expect to be liquidated in twelve months that they have advanced P&I on. The short term bonds sold via the SPE offset this asset at an equivalent term, thereby making the asset and liability \"\"match funded\"\".\"","Just to put in one more possibility: my credit card can have a positive balance, in which case I earn interest. If more money is due, it will automatically take that from the connected checking account. If that goes into negative, of course I have to pay interest. I chose (argued with the bank in order to get) only a small credit allowance. However, I'll be able to access credit allowance + positive balance. That allows me within a day or so to make larger amounts accessible, while the possible immediate damage by credit card fraud is limited at other times. Actually, the credit card pays more interest than the checkign account. Nevertheless, I don't keep high balance there because the risk of fraud is much higher for the credit card.","\"You're looking at the \"\"wrong\"\" credit. Here's the Wikipedia article about the bookkeeping (vs the Finance, that you've quoted) term.\"","\"You ask about the difference between credit and debit, but that may be because you're missing something important. Regardless of credit/debit, there is value in carrying two different cards associated with two different accounts. The reason is simply that because of loss, fraud, or your own mismanagement, or even the bank's technical error, any card can become unusable for some period of time. Exactly how long depends what happened, but just sending you a new card can easily take more than one business day, which might well be longer than you'd like to go without access to any funds. In that situation you would be glad of a credit card, and you would equally be glad of a second debit card on a separate account. So if your question is \"\"I have one bank account with one debit card, and the only options I'm willing to contemplate are (a) do nothing or (b) take a credit card as well\"\", then the answer is yes, take a credit card as well, regardless of the pros or cons of credit vs debit. Even if you only use the credit card in the event that you drop your debit card down a drain. So what you can now consider is the pros and cons of a credit card vs managing an additional bank account -- unless you seriously hate one or more of the cons of credit cards, the credit card is likely to win. My bank has given me a debit card on a cash savings account, which is a little scary, but would cover most emergencies if I didn't have a credit card too. Of course the interest rate is rubbish and I sometimes empty my savings account into a better investment, so I don't use it as backup, but I could. Your final question \"\"can a merchant know if I give him number of debit or credit card\"\" is already asked: Can merchants tell the difference between a credit card and embossed debit card? Yes they can, and yes there are a few things you can't (or might prefer not to) do with debit. The same could even be said of Visa vs. Mastercard, leading to the conclusion that if you have a Visa debit you should look for a Mastercard credit. But that seems to be less of an issue as time goes on and almost everywhere in Europe apparently takes both or neither. If you travel a lot outside the EU then you might want to be loaded down with every card under the sun, and three different kinds of cash, but you'd already know that without asking ;-)\"","My view is from the Netherlands, a EU country. Con: Credit cards are more risky. If someone finds your card, they can use it for online purchases without knowing any PIN, just by entering the card number, expiration date, and security code on the back. Worse, sometimes that information is stored in databases, and those get stolen by hackers! Also, you can have agreed to do periodic payments on some website and forgot about them, stopped using the service, and be surprised about the charge later. Debit cards usually need some kind of device that requires your PIN to do online payments (the ones I have in the Netherlands do, anyway), and automated periodic payments are authorized at your bank where you can get an overview of the currently active ones. Con: Banks get a percentage of each credit card payment. Unlike debit cards where companies usually pay a tiny fixed fee for each transaction (of, say, half a cent), credit card payments usually cost them a percentage and it comes to much more, a significant part of the profit margin. I feel this is just wrong. Con: automatic monthly payment can come at an unexpected moment With debit cards, the amount is withdrawn immediately and if the money isn't there, you get an error message allowing you to pay some other way (credit card after all, other bank account, cash, etc). When a recent monthly payment from my credit card was due to be charged from my bank account recently, someone else had been paid from it earlier that day and the money wasn't there. So I had to pay interest, on something I bought weeks ago... Pro: Credit cards apparently have some kind of insurance. I've never used this and don't know how it works, but apparently you can get your money back easily after fraudulent charges. Pro: Credit cards can be more easily used internationally for online purchases I don't know how it is with Visa or MC-issued debit cards, but many US sites accept only cards that have number/expiration date/security code and thus my normal bank account debit card isn't useable. Conclusion: definitely have one, but only use it when absolutely necessary.","\"Here's what Suze Orman has to say about it: Good debt is money you borrow to purchase an asset, such as a home you can afford. History shows that home values generally rise in step with the inflation rate, so a mortgage is good debt. Student loans are, too, because they're an investment in the future. Census data pegs the average lifetime earnings of a high school graduate at a million dollars below that of someone with a bachelor's degree. Bad debt is money you borrow to buy a depreciating asset or to finance a \"\"want\"\" rather than a \"\"need.\"\" A car is a depreciating asset; from the day you drive it off the lot, it starts losing value. Credit card balances or a home equity line of credit that's used to pay for indulgences—vacations, shopping, spa days—is bad debt.\"","Expense accounts are closed into equity. Same with revenue. So an increase in an expense means lower equity (lower retained earnings since there is more expense). Ergo, decrease equity and increase a liability. Increase a liability since it was accrued, which is usually used specifically to refer to things that kind of just happen in the background. Aka the firm most likely didn't pay cash for that right then and there so increase a payable.","\"Accounts track value: at any given time, a given account will have a given value. The type of account indicates what the value represents. Roughly: On a balance sheet (a listing of accounts and their values at a given point in time), there is typically only one equity account, representing net worth, I don't know much about GNUCash, though. Income and expenses accounts do not go on the balance sheet, but to find out more, either someone else or the GNUCash manual will have to describe how they work in detail. Equity is more similar to a liability than to assets. The equation Assets = Equity + Liabilities should always hold; you can think of assets as being \"\"what my stuff is worth\"\" and equity and liabilities together as being \"\"who owns it.\"\" The part other people own is liability, and the part you own is equity. See balance sheet, accounting equation, and double-entry bookkeeping for more information. (A corporate balance sheet might actually have more than one equity entry. The purpose of the breakdown is to show how much of their net worth came from investors and how much was earned. That's only relevant if you're trying to assess how a company has performed to date; it's not important for a family's finances.)\"","\"None of the previous answers (which are all good) mention margin accounts (loans from your broker). You may also have heard them described as \"\"leverage\"\". It may seem odd to mention this rather narrow form of debt here, but it's important because overuse of leverage has played a large part in pretty much every financial crisis you can think of (including the most recent one). As the Investopedia definitions indicate, leverage magnifies gains, but also magnifies losses. I consider margin/leverage to be \"\"bad\"\" debt.\"","As you say, if you delay paying your bills, your liabilities will increase. Like say your bills total $10,000 per month. If you normally pay after 30 days, then your short-term liabilities will be $10,000. If you stretch that out to pay after 60 days, then you will be carrying two months worth of bills as a short-term liability, or $20,000. Your liabilities go up. Assume you keep the same amount of cash on hand after you stretch out your payments like this as you did before. Now your liabilities are higher but your assets are the same, so your working capital goes down. For example, suppose you kept $25,000 in the bank before this change and you still keep $30,000 after. Then before your working capital was $25,000 minus $10,000, or $15,000. After it is $25,000 minus $20,000, or only $5,000. So how does this relate to cash flow? While presumably if the company has $10,000 per month in bills, and their bank balance remains at $25,000 month after month, then they must have $10,000 per month in income that's going to pay those bills, or the bank balance would be going down. So now if they DON'T pay that $10,000 in bills this month, but the bank account doesn't go up by $10,000, then they must have spent the $10,000 on something else. That is, they have converted that money from an on-going balance into cash flow. Note that this is a one-time trick. If you stretch out your payment time from 30 days to 60 days, then you are now carrying 2 months worth of bills on your books instead of 1. So the first month that you do this -- if you did it all at once for all your bills -- you would just not pay any bills that month. But then you would have to resume paying the bills the next month. It's not like you're adding $10,000 to your cash flow every month. You're adding $10,000 to your cash flow the month that you make the change. Then you return to equilibrium. To increase your cash flow every month this way, you would have to continually increase the time it takes you to pay your bills: 30 days this month, 45 days the next, 60 the next, then 75, 90, etc. Pretty soon your bills are 20 years past due and no one wants to do business with you any more. Normally people see an action like this as an emergency measure to get over a short-term cash crunch. Adopting it as a long-term policy seems very short-sighted to me, creating a long-term relationship problem with your suppliers in exchange for a one-shot gain. But then, I'm not a big corporate finance officer.","\"Pretty much every american \"\"borrows\"\". Credit cards are essential in building credit history and story. Debit cards got popular in the past few years, but most still borrow at least a little bit on credit and pay it off right away.\"","If you are solvent enough, and organised enough to pay your credit card bill in full each month, then use the credit card. There are no disadvantages and several plus points, already mentioned. Use the debit card when you would be surcharged for using the credit card, or where you can negotiate a discount for not subjecting the vendor to credit card commission.","A debit card takes the funds right from your account. There's no 'credit' issued along the way. The credit card facilitates a short term loan. If you are a pay-in-full customer, as I am, there's a cost to lend the money, but we're not paying it. It's part of the fee charged to the merchant. Thus the higher transaction cost.","\"> 1). How is a loan an asset? I'm the bank and I have 100$. I loan Jimmy 20$. With interest I expect him to pay back 25$. My books sure as shit shouldn't say I'm worth 105$ or even 100$! If you *extend* a loan to someone, the loan is an asset to you and a liability to them. It's a liability to them because they *owe* you the loan + interest back. It's an *asset* to you because you expect to retrieve the full loan principal AND interest back. There is no difference, cash flow wise, between spending $100 on a machine that makes fidget spinners and earns you $110 back ($10 profit) and extending a loan to Billy at 10% interest (you'll get $110 back, $10 profit). > My books sure as shit shouldn't say I'm worth 105$ or even 100$! Why not? I have $100 cash. I loan it out to Billy at 10% interest. Billy is creditworthy and reliable, and certain collateral is in place. I'm worth, essentially, a discounted cash flow of $110 (which as long as my required return is less than 10%, means I'm worth *more* than $100). > I gave away 20$. I'm worth 80$ right? No. That assumes you spent $20 and won't get *any* of it back. It's the same as ordering a $20 pizza and eating it all. Now, the *cash* you have on your *balance sheet* would be $80, but you'd have a loan outstanding as an asset at $20, which is a net 0 movement in equity on the other side. > Sure I can put it on my books that Jimmy owes me 20$ but I cannot be acting like I HAVE that 20$ can I? Well, yes and no. On one hand, you are certainly *worth* more than $80 in your scenario. However, banks have some stringent regulations preventing banks from being overly risky. > Isn't that how the 08' crash happened? No. '08 happened from a culmination of many different events, including risky and predatory loan origination, conflicts of interest in credit rating agencies, and low Fed rates, among other issues, including several \"\"domino effect\"\" secondary issues. > Is the risk of default accounted for? Theoretically, the risk of default is accounted for in two areas: 1. The interest rate extended to the debtor. 2. A provision for loan losses. > \"\" because default risk is not transferred with the asset.\"\" In what context was this seen? No one would willingly sell an asset but hold on to the risk (or they'd charge a high price, at least, for that). Student loans are a special case. In the U.S., they are generally *non-cancellable.* They survive everything, including bankruptcy. They don't have collateral. Basically, they're going to follow the person around, regardless of situation, INCLUDING simply not paying. This makes default risk (or rather loss risk) lower. A large portion of loans come from the federal government, which means to a pretty high degree, they are guaranteed by the government. This also makes loss risk lower. The government can garnish wages and all sorts of unpleasant things to get the money back. Even if losses are realized, taxes can (and will) make up the difference. Private loans have a bit less leeway in these regards, but they still are immune to bankruptcy currently. As such, while they don't have all the tools of the government, they're still essentially invincible.\"","\"It can mean either. When A owes B money, then A is in debit with B and B is in credit with A. What the (Credit) means in this case depends on whether it is meant from the perspective of the utilities company or meant from the perspective of the customer. When the UI is user-friendly, it should describe the situation from the customer perspective which would mean you have credit with the company, but in that case the button \"\"Pay now\"\" would be really confusing (should be something like \"\"Request refund now\"\"). A case of bad UI design. You should use the provided \"\"contact us\"\" link to ask a customer representative for a clarification.\""],"string":"[\n \"\\\"The terms debit and credit come from double-entry book-keeping. In this system, every transaction is applied against two accounts: it debits one and credits the other by equal amounts. (Or more technically, it affects two or more accounts, and the total of the credits equals the total of the debits.) Whether a debit or a credit adds or subtracts from the balance depends on the type of account. The types of accounts were defined so that it is always possible to have these matching debits and credits. Assets, like cash or property that you own, are \\\"\\\"debit accounts\\\"\\\", that is, a debit is an increase in the balance of the account. Liabilities, like money you owe, are \\\"\\\"credit accounts\\\"\\\", that is, a credit is an increase. To get into all the details would require giving a tutorial on double-entry book-keeping, which I think is beyond the scope of a forum post. By a quick Bing search I find this one: http://simplestudies.com/double-entry-accounting-system.html. I haven't gone through it so I can't say if it's a particularly good tutorial. There are plenty of others on the Web and in bookstores. Note that the terminology can be backwards when someone you're doing business with is describing the account, because their viewpoint may be the opposite of yours. For example, to me, my credit card is a liability: I owe the bank money. So when I post a charge, that's a credit, and when I pay it off, that's a debit. But to the bank, my account is an asset: the customer (me) owes them money. So to the bank, a charge is a debit and a payment is a credit.\\\"\",\n \"\\\"From your question, I believe that you are looking for what these mean in accounting terms and not the difference between a debit and a credit card. I'll deal with purchase and sale first as this is easier. They are the same thing seen from different points of view. If I sell something to you then I have made a sale and you have made a purchase. Every sale is a purchase and every purchase is a sale. Debits and Credits are accounting terms and refer to double column accounting (the most common accounting system used). The way a set of accounts works is, accounts are set up under the following broad headings: The first 3 appear on the Balance Sheet, so called because the accounts balance (Assets = Liabilities + Equity). This is always a \\\"\\\"point-in-time\\\"\\\" snapshot of the accounts (1 June 2015). That last 3 appear on the Profit and Loss sheet, Profit (or loss) = Income - Cost of Goods Sold - Expenses. This is always an interval measure (1 July 2014 to 30 June 2015). Changes in these accounts flow through to the Equity part of the Balance Sheet. When you enter a transaction the Debits always equal the Credits, they are simply applied to different accounts. Debits increase Assets, Cost of Goods Sold and Expenses and decrease Liabilities, Equity and Income. Credits do the reverse For your examples: 1. a customer buy something from me, what is the debit and credit? I will assume they pay $1,000 and the thing cost you $500 Your cash (asset) goes up by $1,000 (Debit), your inventory (asset) goes down by $500 (Credit), your Sales revenue (income) goes up by $500 (credit). This gives you a profit of $500. 2. a customer buy something of worth 1000 but gives me 500 what is debit and credit Your cash (asset) goes up by $500 (Debit), your debtors (asset) goes up by $500, your inventory (asset) goes down by $500 (Credit), your Sales revenue (income) goes up by $500 (credit). This also gives you a profit of $500. 3. if I buy a product from supplier worth 1000 and pay equally what is credit and debit I assume you mean pay cash: Your cash (asset) goes down by $1000 (Credit), your inventory (asset) goes up by $1000 (Debit). There is no profit or loss here - you have swapped one asset (cash) for another (inventory). 4. if I buy a product from supplier worth 1000 and don't pay what is credit and debit Your creditors (liability) goes up by $1000 (Credit), your inventory (asset) goes up by $1000 (Debit). There is no profit or loss here - you have gained an asset (inventory) but incurred a liability (creditors). The reason for confusion is that most people only see Debits and Credits in one place - their bank statement. Your bank statement is a journal of one of the banks liability accounts - its their liability because they owe the money to you (even loan accounts adopt this convention). Credits happen when you give money to the bank, they credit your account (increase a liability) and debit their cash balance (increase an asset). Debits are when they give money to you, they debit your account (decrease a liability) and credit their cash balance (decrease an asset) . If at the end of the period, you have a credit balance then they owe money to you, a debit balance means you owe money to them. If you were keeping a book of accounts then your record of the transactions would be a mirror image of the bank's because you would be looking at it from your point of view.\\\"\",\n \"\\\"The bank will make this even more confusing because they use the terms from their own perspective. From the bank's perspective (printed on your statements) credit: Money into your account (increases the bank's liabilities) debit: Money out of your account (decrease bank liabilities) From your perspective: It depends on the nature of the transfer of money, but here are the most common for a personal account. Income into your account: Credit Expenses out of your account: Debit Payment on a loan made for an asset (house/car): Credit for the loan account, debit for the equity account for the car/house/etc. Yes, it's complicated. Neither credits nor debits are always a + or -. That's why I agree with the advice of the others here that double-entry accounting is overkill for your personal finances. Note: I simplified the above examples for the purpose of clarity. Technically every transaction in double entry accounting includes both a credit and a debit (hence the \\\"\\\"double\\\"\\\" in the name). In fact, sometimes a transaction involves more than one credit or debit, but always at least one of each. Also, this is for EACH party. So any transaction between you and your bank involves at least FOUR debits and/or credits when all involved are considered.\\\"\",\n \"In view of business, we have to book the entries. Business view, owner and business are different. When capital is invested in business by owner, in future business has to repay it. That's why, capital always credit. When we come about bank (business prospective) - cash, bank, fd are like assets which can help in the business. Bank is current asset (Real account) - Debit (what comes into the business) Credit (what goes out of the business) Hence credit and debit differs from what type of account is it.... credit - when business liables debit - what business has and receivables\",\n \"Based on the definitions I found on Investopedia, it depends on whether or not it is going against an asset or a liability. I am not sure what type of accounting you are performing, but I know in my personal day-to-day dealings credits are money coming into my account and debits are money going out of my account. Definition: Credit, Definition: Debit\",\n \"Strictly speaking the terms arise from double entry book keeping terminology, and don't exactly relate to their common English usage, which is part of the confusion. All double entry book keeping operations consist of a (debit, credit) tuple performed on two different books (ledgers). The actual arithmetic operation performed by a debit or a credit depends on the book keeping classification of the ledger it is performed on. Liability accounts behave the way you would expect - a debit is subtraction, and a credit is addition. Asset accounts are the other way around, a debit is an addition, and a credit is a subtraction. The confusion when dealing with banks, partly comes from this classification, since while your deposit account is your asset, it is the bank's liability. So when you deposit 100 cash at the bank, it will perform the operation (debit cash account (an asset), credit deposit account). Each ledger account will have 100 added to it. Similarly when you withdraw cash, the operation is (credit cash, debit deposit). However the operation that your accountant will perform on your own books, is the opposite, since the cash was your asset, and now the deposit account is. For those studying math, it may also help to know that double entry book keeping is one of the earliest known examples of a single error detection/correction algorithm.\",\n \"There are two basic issues here. First, there is the difference between accounting terms and their dictionary definitions. Second, once you dig into it there are dichotomies similar to put vs call options, long sales vs short sales, bond yield vs interest rate. (That is, while they are relatively simple ideas and opposite sides of the same coin, it will probably take some effort to get comfortable with them.) The salient points from the Wikipedia article on debits and credits: In double-entry bookkeeping debit is used for increases in asset and expense transactions and credit is used for increases in a liability, income (gain) or equity transaction. For bank transactions, money deposited in a checking account is treated as a credit transaction (increase) and money paid out is treated as a debit transaction, because checking account balances are bank liabilities. If cash is deposited, the cash becomes a bank asset and is treated as a debit transaction (increase) to a bank asset account. Thus a cash deposit becomes two equal increases: a debit to cash on hand and a credit to a customer's checking account. Your bank account is an asset to you, but a liability to your bank. That makes for a third issue, namely perspective.\",\n \"\\\"The credit and debit terms here is, talking from bank's point of view (shouldn't be a surprise, banks are never known to look at things from the customers' POV ;)). In accounting, a liability (loans, owners capital etc) is a credit balance and asset (cash, buildings and such) is a debit balance. Your account is a liability to the bank (in accounting parlance that is because they owe you every single penny that is there in your account, btw, in literal parlance too if you really make their life harder ;)) So when the bank accepts money from you, they need to increase their asset (cash) which they will debit (higher debit balance for asset means more assets), and at the same time they also have to account for the added liability by \\\"\\\"crediting\\\"\\\" the deposited money into your account. So when bank says they have credited your account, it means you have more money in your account. Now, if you transfer money from your account to another, or make a payment through your account, your account will be debited and the beneficiary account will be credited(bank's liability towards you reduces) More or less what everyone else said here... but hey, I could also take a swipe at banks ;))\\\"\",\n \"When you borrow money - you create a liability to yourself (you credit your Liabilities:Loans account and debit your Asset:Bank account). When you lend money - you create an asset to yourself (you debit your Asset:Loan account and credit your Asset:Bank account).\",\n \"If one is looking at this from the perspective of a store where debits could be how money comes into the store's account and credit is what has to be paid out to customers, then the employee salaries would also be something going out of the account for the store.\",\n \"\\\"The bank \\\"\\\"credit's\\\"\\\" your account for money coming into it. In double entry accounting, you always have a debit and a credit to balance the accounts. As an Example: for $500 that the bank credited to your checking account, you would post a debit to Cash and a Credit to Income Earned. The accounting equation is: Assets = Liabilities + Owner's Equity $500 = $500 Cash is the \\\"\\\"Asset\\\"\\\" side of the equation, Income is part of Owner's Equity, and so is the Credit side... to make the equation balanced.\\\"\",\n \"Most bank registers (where you write down entries) show deposits (+) to account as a CREDIT. Payments, fees, and withdrawals are DEBITs to your bank accounnt. On loans such as credit card accounts, a credit to your loan account is a payment or other reductions of the amount you owe. A charge to your account is a DEBIT to you loan account. They did this just to confuse us!\",\n \"Waddler said it right, it depends on whether or not it is going against asset or liability. Your salary is said to be credited in bank's term, whereby the bank experiences a increase in its liability (your bank deposits) and hence its a credit for them. We usually understand that its a credit for us, however not. This is what I understand. Here is an article I found in this context. http://www.quickmba.com/accounting/fin/debits-credits/\",\n \"Is it normal in QuickBooks to have credit card expenses being shows as liabilities? Is there a way I can correct this? If they are expenses they shouldn't be negative liabilities unless you overpaid your credit card by that amount. It sounds like perhaps when you linked the account the credit/debit mapping may have been mixed up. I've not used QB Online, but it looks like you might have to un-link the account, move all the existing transactions to 'excluded' and then link the account again and flip-flop the debit/credit mapping from what it is now. Hopefully there's an easier way. This QB community thread seems to address the same issue.\",\n \"It took me a while to understand the concept, so I'll break it down as best as I can. There are three parts to the accounting equation: Assets = Liabilities + Owner's Equity We'll look at this in two ways 1. As a business owner you invest (say) 10,000 USD into your bank. The entry would be: Debit: Assets: Cash for 10,000 Credit: Owner's Equity: Contributions for 10,000 In this case, you have assets of 10,000 from your deposit, but it is due to owner contributions and not business transactions. Another example (say a sale): Debit: Assets: Cash for 10,000 Credit: Owner's Equity: Sales for 10,000 Debit: Assets: Cash for 10,000 Credit: Liabilities: Deposits for 10,000 Deposits are a banking term to reflect a bank's obligation to return the amount on demand (though the bank has free reign with it, see fractional banking) You will NEVER debit or credit your bank as it is assumed you will be storing your money there, note bank reconciliation. Hope this helps, comment with any more questions.\",\n \"\\\"When you pay expenses on behalf of someone, you do not Debit your expense accounts. You credit your Bank and debit the Liability. The method that you mentioned (debit expense then credit it back to liability) is an acceptable practice, but the method is only used when you accidentially debited your expense accounts without knowing that it is for someone else (or in the case of split transactions). You need to specify \\\"\\\"being expense paid on behalf of someone\\\"\\\" when you credit the expense account.\\\"\",\n \"First, A credit account is increased by credit transactions and decreased by debits. Liabilities is a credit account and should be a positive number. A debit account is increased by debit transactions and decreased by credit. Assets is a debit account and should be a positive number. Equity = Assets (debit) - Liabilities (credit) may be positive or negative. You currently are subtracting a negative number for a net positive, since your Liabilities is set as a debit account. How you currently are set -> Equity = Assets (debit) - Liabilities (debit) It is easier to understand if you change the columns from Increase/Decrease to Credit/Debit. I believe this is changed through Edit > Preferences > Accounts > Labels > Use formal accounting labels. To fix your situation, open up the Loan account and switch columns on the amounts. This will decrease Opening Balances and increase the loan, per your current column headings. This is a snippet of Opening Balances. You see that Opening Balances is debited and the Loan/Liability account credited. I included Petty Cash to show the reverse. Petty Cash is an asset, so it credits Opening Balances and debits Petty cash. This is a student loan Liability account. As you see, the Opening Balance is debited and decreased. The loan is credited and Liabilities increased. As payments are made, the reverse happens. The loan, being a credit account, is debited and the balance decreases. Opening Balances moves closer to 0 as well. The savings account, being a debit account, is credited and the balance decreases. There has been no change in Equity since Liabilities and Assets decresed by the same amount.\",\n \"Lets say Debit is what you pay and Credit is what somebody else pays for you. A Debit card will charge your bank account directly. A Credit card will charge your bank account some time later. In both cases the shop owner has the money available directly. It's called Credit because somebody believes you will be able to pay your debt on time (or later with an interest). As for purchase and sales. A customer buys = makes a purchase. A shopkeeper sells = makes a sale. Note from a bar: I made an agreement with the bank. They don't sell beer, I don't give Credit.\",\n \"\\\"Debits' and \\\"\\\"Credits\\\"\\\" are terms used in double-entry bookkeeping. Each transaction is entered in two different places to be able to double-check accuracy. The total debits and total credits being equal is what makes the balance sheet balance. For explaining debits and credits, wikiversity has a good example using eggs that I found helpful as a student. Debits and Credits When a financial transaction is recorded, the Debits (Dr) and Credits (Cr) need to balance in order to keep the accounts in balance. An easy rule to remember is, \\\"\\\"Debit the Asset that Increases\\\"\\\" For example, if you want to practice accounting for cooking a simple breakfast, you might proceed as follows: To record breaking the eggs and putting the eggs in the frying pan In this transaction, an asset, (the egg) is split into parts and some of the asset goes in the pan and some in the trash. A Debit (Dr) is used to show that the assets in the pan and the trash both increase. A balancing Credit (Cr) is used to show that the amount of assets (whole eggs) in the egg carton has decreased. This transaction is in balance because the total Credits equal the total Debits. Everything that is covered by the Debits (yolk, white and shell) is also covered by the Credits (one whole egg)\\\"\",\n \"\\\"An \\\"\\\"asset\\\"\\\" is something which you own that has a monetary value. Some examples would be your car, your house, the money in your wallet, and yes the pile of gold in your garage. Assets also include intangible things such as money owed to you for instance; although these are calculated somewhat differently. \\\"\\\"liabilities\\\"\\\" are what you owe. For instance, your car loan, your mortgage, and your student loan. Liabilities can also include future debts which you may not be paying at the moment.\\\"\",\n \"\\\"When trying to understand accounting, it's always helpful to reference the balance sheet identity, thus , and debits and credits must balance. In this case, one would So that \\\"\\\"Cash\\\"\\\" is subtracted (credited) from assets, and \\\"\\\"Loans to family members\\\"\\\" is added (debited) to assets. The income identity is treated differently as So, unless if the \\\"\\\"Cash\\\"\\\" and \\\"\\\"Loans to family members\\\"\\\" did not start imbalanced, there was no revenue or expense. A revenue will be any interest paid. The expenses will be any costs related to loaning the money such as drafting a contract or any amount defaulted. Assets are not liabilities A liability on the balance sheet is a liability owed by the entity measured, such as a person or a company. The family members in this case are the borrowers, so they are the ones who must increase their liability accounts like so: The lender to family members would not increase liabilities in this case because the lender is not borrowing from the borrower. Debits, credits, and the balance sheet Debits & credits must be equal, or an identity is violated. Debits add to assets and subtract from liabilities (and equity) while credits subtract from assets and add to liabilities (and equity). If a lender were to try to simultaneously subtract cash from assets and add loans to liabilities to book a loan, the operation would look like this This would cause an immediate imbalance because there are no offsetting debits, but more importantly, crediting Loans to family members as a liability would actually mean that the lender owes Loans to family members.\\\"\",\n \"Debit is them taking the money, in your case electronically. Credit is somebody vouching for you and saying you will pay later. They are alternate ways to pay for a product. As a merchant, if you take a credit card you are agreeing that a the issuer of the credit card is going to pay you right away. The issuer of the credit will worry about collecting the money from me. There are a ton of details with regards to why you would use one over another, where the costs in each method are and who pays what for each. The main different is the source of the funds.\",\n \"There are four sides to this transaction. You increase in money: A debit. (increases your Current Assets, if you will) You also gain the requirement to pay that money in the future. A credit: Definitely a Liability. When you repay the money, your cash will decrease: a credit, and your liabilities will also decrease, which is a debit (since you don't have to repay the money anymore). the account would be short-term loans, the money doesn't have a name, it's just cash and would go into whatever cash accounts you have. The bookkeeping entry would be the same as you would make for any short-term loan.\",\n \"Credited to your account means amount has been deposited to your account(this will be your income). Debited from your account means withdrawn from your account(This will be your expense). Hope this clarifies your question. Regards Jayanthi\",\n \"\\\"In this context, we're talking about terms of art in accounting, specifically double-entry book-keeping. In accounting lingo, an \\\"\\\"asset\\\"\\\" account represents an actual asset and it's value. So if you buy a car with a loan for $10,000, you apply a $10,000 debit to the asset account and a $10,000 credit to the loan. Debits and credits are confusing when you first start learning about accounting.\\\"\",\n \"\\\"If you are considering this to be an entry for your business this is how you would handle it.... You said you were making a balance sheet for monthly expenses. So on the Balance Sheet, you would be debiting cash. For the Income Statement side you would be crediting Owner's Equity to balance the equation: Assets = Liabilities + Owner's Equity So if you deposited $100 to your account the equation would be affected thus: $ 100 in Assets (Debit to Cash Account) = 0 Liabilities - $100 (Credit to Owner's Equity) It is correctly stated above from the bank's perspective that they would be \\\"\\\"Crediting\\\"\\\" you account with $100, and any outflow from the bank account would be debiting your account.\\\"\",\n \"When you create a liability account with an opening balance, this creates a transaction to the account Equity:Opening Balance. You really want this transaction to be an expense. I would delete the TEST account and the transactions you have made so far, and start again. Make a liability account (call it Liabilities:Overdue Cable Bill or something similar instead of the uninformative TEST) with an opening balance of 0, and create a transaction dated 01/09/14 which debits Liabilities:Overdue Cable Bill (showing up in the right-hand column as a charge) and credits Expenses:Cable (in the left-hand column as an expense). To check that the sign is right, Liabilities:Overdue Cable Bill should now have a positive balance, because money is owed. This indicates that you spent money you didn't have on cable, and now you owe the cable company. When you pay off the debt, make a transaction that debits (right column) Assets:Cash in Wallet and credits Liabilities:Overdue Cable Bill (left column). Now you should have a reduced balance in Assets:Cash in Wallet and a zero balance in Liabilities:Overdue Cable Bill, and the entry in Expenses:Cable is still there to indicate where the money went. This assumes you paid the bill in cash from your wallet; if you paid it by check or bank transfer or something else, you probably want to substitute Assets:Cash in Wallet with Assets:Checking Account or whatever is appropriate.\",\n \"\\\"Asset = Equity + (Income - Expense) + Liability Everything could be cancelled out in double entry accounting. By your logic, if the owner contributes capital as asset, Equity is \\\"\\\"very similar\\\"\\\" to Asset. You will end up cancelling everything, i.e. 0 = 0. You do not understate liability by cancelling them with asset. Say you have $10000 debtors and $10000 creditors. You do not say Net Debtors = $0 on the balance sheet. You are challenging the fundamental concepts of accounting. Certain accounts are contra accounts. For example, Accumulated Depreciation is Contra-Asset. Retained Loss and Unrealized Revaluation Loss is Contra-Equity.\\\"\",\n \"I debited the principal and interest accruals to an asset account and credited an equity account Why equity? This is clearly income. Generally, except for open balances and additional owner's investment - you wouldn't credit the equity accounts, ever.\",\n \"\\\"I think you misunderstand the purpose of the liability account. I would suggest you review the standard accounting model, but to give you a brief overview: Income and expenses are money coming into and out of your possession. They are the pipes flowing into and out of your \\\"\\\"box\\\"\\\". Inside your box, you have assets (bank, savings, cash, etc) and liabilities (credit cards, unpaid debts, etc). Money can flow into and out of either asset or liability accounts, for example: deposit a payment (income to asset), buy office supplies with cash (asset to expense), pay a bill with credit card (liability to expense), customer pays one of your debts directly (income to liability). Paying off a debt with an asset does not affect your overall net worth, so paying a check to your credit card bill (asset to liability) doesn't decrease your total balance, it merely moves the value from one bucket to another. Now to your question: Mandatory payments, such as taxes or insurance (or for that matter, utilities, rent, food- all things that \\\"\\\"must\\\"\\\" be bought occasionally) are not liabilities, instead they are all expenses. They might be paid FROM a liability account, if they are paid on credit for example, but the money still flows from liability to expense. In my own records I have Expense:Taxes and Expense:Insurance, with sub-accounts in each. Where the money comes from depends entirely on how I pay my bills, whether from cash or banks (asset) or whether it's a charge (liability). Sometimes you receive payments back from an insurance company. I find that rather than treating insurance premiums as a positive balance in a liability (with eventual payments as debits to the liability account), it is better to treat any payment from the insurance as income. Hope that helps!\\\"\",\n \"\\\"Dictionary clarifies http://www.oxforddictionaries.com/definition/english/be-in-credit Definition of be in credit: (Of an account) have money in it: \\\"\\\"your statement shows your account to be in credit\\\"\\\" And http://www.oxforddictionaries.com/definition/english/be-in-debit?q=in+debit Definition of be in debit: (Of an account) show a net balance of money owed to others: \\\"\\\"the account is only 120 francs in debit\\\"\\\" The word 'debit' contains the letters 'debt' if it helps remember. I agree the website is confusing.\\\"\",\n \"\\\"Ditto Nate Eldredge in many ways, but let me add some other thoughts. BTW there are not four types of account, but five. You're forgetting equity, also called capital. Would it be possible to design an accounting system that does not have 5 types of accounts, maybe is simpler in other ways, and is internally consistent and logical? I'm sure it is. But what's the advantage? As Nate points out, the existing system has been in use for hundreds of years. Lots of people know how it works and understand it. I'd add: People have long since worked out how to deal with all the common situations and 99% of the odd cases you're likely to hit. If you invent your own system, you're starting from scratch. You'd have to come up with conventions to handle all sorts of situations. How do I record buying a consumable with cash? How do I record buying a capital asset with credit? How do I record paying off debts? How do I record depreciation? Etc etc. If you worked at it long and hard enough and you're a reasonably bright guy, maybe you could come up with solutions to all the problems. But why? If you were approaching this saying, \\\"\\\"I see these flaws in the way accounting is done today. I have an idea for a new, better way to do accounting\\\"\\\", I'd say good luck, you have a lot of work ahead of you working out all the details to make a fully functioning system, and then persuading others to use it, but if you really do have a better idea, maybe you can revolutionize the world of accounting. But, \\\"\\\"The present system is too much trouble and I don't want to bother to learn it\\\"\\\" ... I think that's a mistake. The work involved in inventing your own system is going to end up being way more than what it would take to learn the existing system. As to, Aren't liabilities a lot like assets? Well, in a sense I suppose. A credit card is like a checking account in that you can use it to pay for things. But they're very different, too. From an accounting point of view, with a checking account you buy something and then the money is gone, so there's one transaction: reduce cash and increase office supplies or whatever. But with a credit card there has to be a second transaction, when you pay off the charge: So, step 1, increase debt and increase office supplies; step 2, decrease debt and decrease cash. Credit cards charge interest, well you don't pay interest to use your own cash. Etc. One of the beauties of double-entry book-keeping is that every transaction involves a debit and a credit of equal amounts (or a set of debits and credits where the total of the debits equals the total of the credits). If you combine assets and liabilities into, whatever you call it, \\\"\\\"balance accounts\\\"\\\" say, then some transactions would involve a matching debit and credit while others would involve a positive debit and a matching negative debit and no credit. I'm sure you could make such a system work, but one of the neat built-in protections against error is lost. There's a very logical distinction between things that you have or that others owe you, and things that you owe to others. It makes a lot of sense to want to list them separately and manage them separately. I think you'd pretty quickly find yourself saying, \\\"\\\"well, we have two types of balance accounts, those that represent things we have and which normally have positive balances, which we list on chart A, and those that represent things we owe and which normally have negative balances, which we list on chart B\\\"\\\". And before you know it you've just reinvented assets and liabilities.\\\"\",\n \"\\\"Other responses have focused on getting you software to use, but I'd like to attempt your literal question: how are such transactions managed in systems that handle them? I will answer for \\\"\\\"double entry\\\"\\\" bookkeeping software such as Quicken or GnuCash (my choice). (Disclaimer: I Am Not An Accountant and accountants will probably find error in my terminology.) Your credit card is a liability to you, and is tracked using a liability account (as opposed to an asset account, such as your bank accounts or cash in your pocket). A liability account is just like an asset except that it is subtracted from rather than added to your total assets (or, from another perspective, its balance is normally negative; the mathematics works out identically). When you make a purchase using your credit card, the transaction you record transfers money from the liability account (increasing the liability) to the expense account for your classification of the expense. When you make a payment on your credit card, the transaction you record transfers money from your checking account (for example) to the credit card account, reducing the liability. Whatever software you choose for tracking your money, I strongly recommend choosing something that is sufficiently powerful to handle representing this as I have described (transfers between accounts as the normal mode of operation, not simply lone increases/decreases of asset accounts).\\\"\",\n \"I agree with mbhunter's suggestion of labeling your columns, 'income' and 'expenses'. However, to answer your question, money coming in (a paycheque, for example) is credited to your account. Money going out (a utility bill, for example) is debited from your account. There's no real 'why'... this is simply the definition of the words.\",\n \"Just for op's reference. A deferred wage entry would be something along the lines of the following scenario: you contract with a worker to perform some work at some point in the future, you would then book deferred wages for the amount to liabilities and deferred labor for that amount to assets, which would increase both and leave equity unchanged.\",\n \"\\\"Total Capital This is a very old fashioned term that really is mostly only used in the finance industry today, like when everyone was obsessed with \\\"\\\"bank capital\\\"\\\". Total Capital = Preferred Equity + Common Equity + Liabilities True blue preferred shares are almost only used by financial companies, banks specifically. The more modern ones that convert to common are used by all other companies. Notes Payable This is another old fashioned term that now carries a different meaning in Generally Accepted Account Principles (GAAP). The oldest definition of a note or a promissory note is a promise to pay a fixed amount of money on a specific date. This has been modified to resemble more a bond and evolved into the zero coupon bond, a bond that makes no cash interest payments but makes one final payment that includes principal & interest. A bank note, like a One Dollar bill, is a note that pays something, in this case One Dollar, never (technically, the repayment date is simply not specified in the contract). While it pays One Dollar, it never pays it back, so it has a constant value of One Dollar. The constant nature, inflation notwithstanding, is what makes bank notes the preferred medium of exchange. GAAP has taken its' own definition to mean any debt payable within 12 months, as it is a current (<12 months) liability.\\\"\",\n \"\\\"The OP does not explain \\\"\\\"what we pay for processing the transaction (cost of debiting the customer)\\\"\\\". Who exactly do you pay? Someone else, or your own employees/contractors? I will assume that $0.10 is paid to your own employees. Dr $10cash from money people give you Cr $10 liability to them because it is their money in your accounts. Dr $0.10 cash payment of paycheques or supplier invoices Cr $0.10 income statement Operating Eexpense Dr 0.20 liability to depositors for fees they pay, resulting in $9.80 remaining liability for their money you still have. Cr 0.20 income statement Fee Revenues\\\"\",\n \"\\\"Maybe not the official solution satisfying int'l convention / legislation, but at least has some logic to it (though I myself am not 100% convinced as yet): Liabilities ! ... but is it really a liability? Rationale: And simultaneously ups my liabilities: since what difference does it make if I borrow some money (to use it or not use it, repay later) or if someone just wants to \\\"\\\"store\\\"\\\" some money with me: w.r.t. balance sheet I'd say: zero... ... with the one caveat that it might make a difference w.r.t. taxation ?\\\"\",\n \"Not sure I understand your question. If you're talking about paying off the payable, you decrease the liability and decrease an asset. Aka when you actually pay the wages, decrease cash and decrease wages payable. If you're talking about closing expense accounts, you simply credit the expense to zero and debit retained earnings for the same amount (which will reduce RE since RE is equity and has a normal credit balance). If you're talking about accruing revenue, you simply do the opposite of an expense. If revenue is accrued, then you credit a revenue account (increase it) and increase cash or acc receivable. If you're closing a revenue account, you debit the account to zero and credit Retained Earnings or Income Summary (which eventually gets closed into RE anyways). The sum of these revenues and expenses will leave you either with a debit or credit balance in RE. A credit balance means you have a profit and a debit balance means you have a loss. Other expenses like sales tax and other expenses excluding COGS might also be taken directly from RE or identified at the time of sale and held in its own separate account. But I'm not sure if this will answer your question since I'm not sure what you're asking.\",\n \"\\\"Exactly what accounts are affected by any given transaction is not a fixed thing. Just for example, in a simple accounting system you might have one account for \\\"\\\"stock on hand\\\"\\\". In a more complex system you might have this broken out into many accounts for different types of stock, stock in different locations, etc. So I can only suggest example specific accounts. But account type -- asset, liability, capital (or \\\"\\\"equity\\\"\\\"), income, expense -- should be universal. Debit and credit rules should be universal. 1: Sold product on account: You say it cost you $500 to produce. You don't say the selling price, but let's say it's, oh, $700. Credit (decrease) Asset \\\"\\\"Stock on hand\\\"\\\" by $500. Debit (increase) Asset \\\"\\\"Accounts receivable\\\"\\\" by $700. Credit (increase) Income \\\"\\\"Sales\\\"\\\" by $700. Debit (increase) Expense \\\"\\\"Cost of goods sold\\\"\\\" by $500. 2: $1000 spent on wedding party by friend I'm not sure how your friend's expenses affect your accounts. Are you asking how he would record this expense? Did you pay it for him? Are you expecting him to pay you back? Did he pay with cash, check, a credit card, bought on credit? I just don't know what's happening here. But just for example, if you're asking how your friend would record this in his own records, and if he paid by check: Credit (decrease) Asset \\\"\\\"checking account\\\"\\\" by $1000. Debit (increase) Expense \\\"\\\"wedding expenses\\\"\\\" by $1000. If he paid with a credit card: Credit (increase) Liability \\\"\\\"credit card\\\"\\\" by $1000. Debit (increase) Expense \\\"\\\"wedding expenses\\\"\\\" by $1000. When he pays off the credit card: Debit (decrease) Liability \\\"\\\"credit card\\\"\\\" by $1000. Credit (decrease) Asset \\\"\\\"cash\\\"\\\" by $1000. (Or more realistically, there are other expenses on the credit card and the amount would be higher.) 3: Issue $3000 in stock to partner company I'm a little shakier on this, I haven't worked with the stock side of accounting. But here's my best stab: Well, did you get anything in return? Like did they pay you for the stock? I wouldn't think you would just give someone stock as a present. If they paid you cash for the stock: Debit (increase) Asset \\\"\\\"cash\\\"\\\". Credit (decrease) Capital \\\"\\\"shareholder equity\\\"\\\". Anyone else want to chime in on that one, I'm a little shaky there. Here, let me give you the general rules. My boss years ago described it to me this way: You only need to know three things to understand double-entry accounting: 1: There are five types of accounts: Assets: anything you have that has value, like cash, buildings, equipment, and merchandise. Includes things you may not actually have in your hands but that are rightly yours, like money people owe you but haven't yet paid. Liabilities: Anything you owe to someone else. Debts, merchandise paid for but not yet delivered, and taxes due. Capital (some call it \\\"\\\"capital\\\"\\\", others call it \\\"\\\"equity\\\"\\\"): The difference between Assets and Liabilities. The owners investment in the company, retained earnings, etc. Income: Money coming in, the biggest being sales. Expenses: Money going out, like salaries to employees, cost of purchasing merchandise for resale, rent, electric bill, taxes, etc. Okay, that's a big \\\"\\\"one thing\\\"\\\". 2: Every transaction must update two or more accounts. Each update is either a \\\"\\\"debit\\\"\\\" or a \\\"\\\"credit\\\"\\\". The total of the debits must equal the total of the credits. 3: A dollar bill in your pocket is a debit. With a little thought (okay, sometimes a lot of thought) you can figure out everything else from there.\\\"\",\n \"\\\"Fees & liabilities Yes, the first problem is that liabilities are being improperly booked. If the fee you charge is fixed upon deposit then the fee should credit \\\"\\\"Revenue\\\"\\\", the fee charged to you should be booked by crediting cash and then debiting \\\"\\\"Expenses\\\"\\\", and the remaining should be booked as a liability. If the fee is fixed upon withdrawal then this will become more complex because of the fact that a change in the fee can occur before it can be applied. In this case, the current fee should be credited as \\\"\\\"Revenue\\\"\\\" and some \\\"\\\"Allowance for fee increase\\\"\\\" should also be credited. The amount owed to the withdrawer should be booked as a liability as before. Multiple currency bookings I will assume that this is for a cryptocurrency service of some sort considering the comments in your question and your presence on bitcoin.se. Accounting can become very dangerous when mixing denominations. This is why all major accounting standards mandate books be maintained single currency. In your case, if the deposit is in USD, for example, and the liability is in BTC then two books must be maintained, one for each. To account for your operation properly using single currency accounts, the denominations must be exchanged internally and balanced across the two sets of books. For a deposit of BTC/depository of USD, the operation would be the same as described above, but then the cash should be credited away and the liabilities debited away from the USD books with simultaneous cash debits and liability credits on the BTC books. Considering the extreme volatility of cryptocurrency exchange rates, denominating accounts on the wrong set of books will quickly lead to insolvency or loss from improper accounting or both. From revenue to income Revenue can be construed as a liability since it could theoretically exist on the balance sheet. I mention this because all books, despite their name and quarter, are really simply long T accounts, like a blockchain. A blockchain could be subdivided into users' individual income statements & balance sheets, as the reverse of this concept. Revenues are credited, expenses are debited. The difference, \\\"\\\"net income\\\"\\\", is debited away with a credit to \\\"\\\"owners' equity\\\"\\\".\\\"\",\n \"\\\"I have to disagree with you. **Money is a store of value with which you can redeem your accumulated work for a good or service you need, at any time.** Therefore, you don't have to wait until your crop has perished to trade it for what you need. Any store of value that is not purely useful in terms of \\\"\\\"I can consume this\\\"\\\" or \\\"\\\"I can turn this into value directly through labor\\\"\\\" is essentially an IOU. It would be more accurate to say, in the context you provide, that for every asset (your apples) there exists an equivalent combination of liability (what you had to borrow to produce the apples) and equity (what you put in of your own in order to get the apples). Since gold in this very simple hypothetical system has absolutely no use other than a **store of value**, it *is* debt. It is the promise that you will at some point in your process of transactions acquire the utility that you require. You can't fertilize with gold, but you can buy fertilizer. **Until you buy that fertilizer, you've only traded your harvest for a promise that you *can* buy your fertilizer.** Something otherwiseyep didn't elaborate on very much, though he mentioned it and it is integral to his story, is the time value of money. That is, if I can borrow 10 gold pieces today for my future work accumulated, I'll pay you back 12 when it's done. This has an effect greater than just injecting value into the economy. It ensures that the negative value experienced by *not* having those 10 gold pieces will be compensated. Credit provides an opportunity for planning for the cyclical nature of markets. It provides an opportunity to make your transaction now - that you don't have to wait until harvest to trade your deer skins for apples. >Economists like Paul Krugman seem to believe that everything can be fixed by increasing demand, but they totally ignore the costs of production. There exists plenty of demand in the US economy right now, but the cooper has died, the barrels must be brought from China. I also disagree with this. Krugman emphasizes the *importance* of demand-side measures, not their exclusivity. Any policy must account for cost curves, and that economic profit for any firm is maximized when marginal revenue (the revenue increase or decrease of a single unit added to production) is equal to marginal cost. The U.S may have some demand right now, but if the cost of production were truly the issue, then these firms would be adjusting their capacity, and not sitting on trillions of dollars of currency that ought to be liquid. If demand was really that high, companies wouldn't be stuffing their mattresses right now to keep the money injected into the economy by QE *out* of circulation. The real problem is that while in the last few decades consumption has been climbing steadily, real wages have flat-lined, and now we have high unemployment. We can't raise wages, we can't hire more workers, and we still want our cars and houses and corn syrup and lead-filled toys. This, I think we can agree, is where credit goes wrong: the gap between consumption and wages was filled with credit. The housing bubble manifested itself thus: not as simply a boom in quantity and a lowering in price, but a lowering in price as a result of faulty (dishonest and misleading) risk assessment - (by the same folks who downgraded US debt), and an implosion as a result of that debt systematically dissolving through defaults and foreclosures (to put it very, very, very, simply). Instead of an increase in consumer credit, we need greater investment by the companies who currently sit on trillions of dollars of frozen cash. Those investments could be better managed, with transparent risk assessment and greater restrictions on lending policy. Or, ideally, that money could be used to hire workers, expand plants and lower marginal costs. To tie it back to your concluding paragraph, credit makes it possible to satisfy the demand for those barrels of apples by buying them at a fair market value from China. If it weren't for China's ability to provide the apples at a \\\"\\\"fair\\\"\\\" price (you can, for our purposes here, consider this price to be fair market value if you make a transaction - the selling price equals the buying price), there would be an apple shortage, and the price of apples would climb ridiculously high.\\\"\",\n \"\\\"Your first and second paragraphs are two different cases. Moving money between a checking account and a savings account will credit Cash and debit Cash, making a GL transaction unnecessary, unless the amounts in the two bank accounts are tracked as two separate GL accounts. You might have account 1001 (Cash-Checking) and account 1002 (Cash-Savings). In that case, a movement of money between these two accounts should be tracked by a transaction between the GL accounts; credit checking, debit savings. It won't affect your balance sheet, but depending on your definition of liquidity of assets it might affect working capital on your statement of cash flows (if you consider the savings account \\\"\\\"illiquid\\\"\\\" then money moved to it is a decrease in working capital). Basically, what you are creating with your \\\"\\\"store credit\\\"\\\" accounts for each client is an \\\"\\\"unearned revenue\\\"\\\" account. When clients pay you cash for work you haven't done yet, or you refund money for a return as \\\"\\\"store credit\\\"\\\" instead of cash, the credit is a liability account, balancing an increase in cash, inventory, or an expense (if you're giving credit for free, perhaps due to a mistake on your part, you would debit a \\\"\\\"Store Credit Expense\\\"\\\" account). This can be split out client-by-client in the GL if you wish, avoiding the need for a holding account. The way you want to do it, you'd have a \\\"\\\"Client Holding\\\"\\\" account. It must be unique in the GL and to the client, and yes, it is a liability account. To transfer to holding, you simply debit Unearned Revenue and credit Client Holding, logging the transaction as \\\"\\\"transfer of client store credit\\\"\\\" or similar (moving liability to liability; balance sheet doesn't change). Then, as you sell goods or services to the client, you debit Accounts Receivable and credit Revenue, then to record the payment you credit AR and debit Client Holding (up to its current credit balance, after which the client pays you Cash and you debit that, or the client still owes you). To zero out a remaining balance on the Holding account, debit Client Holding and credit Unearned Revenue. I don't think the Holding account, the way you want to use it, is a good idea. If you want to track each customer's store credit balance with a GL account, then create specialized Unearned Revenue accounts for each client who gets a store credit, named for the client and containing their balance (zero or otherwise). If you don't care about it at the GL level, then pool it in one Unearned Revenue account (have one Store Credit account if you must), and track individual amounts off the books.\\\"\",\n \"The question should be - do you need a debit card? Other than American Express I have to tell my other credit card issuers to not make my cards dual debit/credit. Using a debit card card can be summed up easily - It creates a risk of fraud, errors, theft, over draft, and more while providing absolutely no benefit. It was simply a marketing scheme for card companies to reduce risk that has lost favor, although they are still used. That is why banks put it on credit cards by default if they can. (I am talking about logical people who can control not overspending because of debit vs. credit - as it is completely illogical that you would spend more based on what kind of card you have.)\",\n \"You are right in saying that you cannot go over limit on (most) credit cards, however, with a debit card the majority of banks will extend an overdraft to you if your account goes overdrawn (less than 0). The amount of overdraft extended will depend on your credit rating and standing with the bank and may not be extended if they think that the amount is too large or that you are a credit risk. The drawbacks of overdrafts are that they are very expensive usually having a fixed fee for going into overdraft and charging a high rate of interest. If this overdraft has not been prearranged with the bank these costs are usually much higher.\",\n \"\\\"I'm not sure if this is your point of confusion, but when an account is said to be debited (or credited), the words \\\"\\\"debited\\\"\\\" or \\\"\\\"credited\\\"\\\" are not referring to a type of account (such as \\\"\\\"checking\\\"\\\"). They are referring to an operation that is performed on an account. The same account can be credited at one time and debited at another time.\\\"\",\n \"When banks create a loan, it is said they write the debit account out of thin air (liability), balanced by the loan (asset). When the person who gets the loans spends the money, the bank has to pay it. If the bank only has 10% reserves of the money it loans, how does the bank pay out it's loans? Does it borrow the money from the Fed and then pay it back?\",\n \"\\\"Depending on how you view the loan, it could either be considered an Asset or a Liability. Since you are not charging interest, it might seem more intuitive to create an \\\"\\\"Assets:Cash Loan\\\"\\\" account, and transfer money to & from it (when you receive payments) like you would with a bank account. Personally, I prefer to think of all loans as liabilities. Whether it's a debt which you owe someone, or a balance which someone else owes you, since it's an 'unsettled' amount I file it under \\\"\\\"Liabilities:Loan\\\"\\\". Either way, you record the initial balance as a debit from your bank, and then record payments as credits back to your primary account. The only way that income or expenses ever gets involved would be if you charged interest (income) or if you forgave some or all of the loan (expense) at some point in the future.\\\"\",\n \"\\\"The credit card may have advantages in at least two cases: In some instances (at least in the US), a merchant will put a \\\"\\\"hold\\\"\\\" on a credit card without charging it. This happens a lot at hotels, for example, which use the hold as collateral against damages and incidental charges. On a credit card this temporarily reduces your credit limit but never appears on your bill. I've never tried to do it on a debit card, but my understanding is that they either reject the debit card for this purpose or they actually make the withdrawal and then issue a refund later. You'll actually need to account for this in your cash flow on the debit card but not on the credit card. If you get a fraudulent charge on your credit card, it impacts that account until you detect it and go through the fraud resolution process. On a debit card, the fraudulent charge may ripple through the rest of your life. The rent payment that you made by electronic transfer or (in the US) by check, for example, is now rejected because your bank account is short by the amount of the fraud even if you didn't use the debit card to pay it. Eventually this will probably get sorted out, but it has potential to create a bigger mess than is necessary. Personally, I never use my debit card. I consider it too risky with no apparent benefit.\\\"\",\n \"\\\"In double-entry bookkeeping, no transaction is ever negative. You only deal in positive numbers. We \\\"\\\"simulate\\\"\\\" negative numbers by calling numbers debits and credits, where one is the negative of the other. Only a balance can be negative. In this case, Income is a credit account. That means that things that increase your balance are credits and things that reduce your balance are debits. So a gift from grandma is a credit. It's a positive number, and you write it in the credit column. You pretty much never subtract from Income except to correct a mistake. Assets, like a checking account, are debit accounts. Increases are debits and decreases are credits. You routinely have both debits and credits on a checking account, i.e. you put money in and you take money out. Every transaction affects (at least) two accounts: one with a debit and one with a credit. So in this case, the gift from grandma credits income and debits checking. Buying food credits checking and debits expenses.\\\"\",\n \"\\\"First, the balance sheet is where assets, liabilities, & equity live. Balance Sheet Identity: Assets = Liabilities (+ Equity) The income statement is where income and expenses live. General Income Statement Identity: Income = Revenue - Expenses If you want to model yourself correctly (like a business), change your \\\"\\\"income\\\"\\\" account to \\\"\\\"revenue\\\"\\\". Recognized & Realized If you haven't yet closed the position, your gain/loss is \\\"\\\"recognized\\\"\\\". If you have closed the position, it's \\\"\\\"realized\\\"\\\". Recognized Capital Gains(Losses) Assuming no change in margin requirements: Margin interest should increase margin liabilities thus decrease equity and can be booked as an expense on the income statement. Margin requirements for shorts should not be booked under liabilities unless if you also book a contra-asset balancing out the equity. Ask a new question for details on this. Realized Capital Gains(Losses) Balance Sheet Identity Concepts One of the most fundamental things to remember when it comes to the balance sheet identity is that \\\"\\\"equity\\\"\\\" is derived. If your assets increase/decrease while liabilities remain constant, your equity increases/decreases. Double Entry Accounting The most fundamental concept of double entry accounting is that debits always equal credits. Here's the beauty: if things don't add up, make a new debit/credit account to account for the imbalance. This way, the imbalance is always accounted for and can help you chase it down later, the more specific the account label the better.\\\"\",\n \"The money is still their money, it never becomes your money. The reason is as follows, The books now look like this: YOU: Asset: Mattress Liability: 600 THEM: Asset: 600 Liability: Mattress Now, in their books, they mistakenly thought the mattress was returned, and therefore they returned the mattress to you. The books now look like this YOU: Asset: Mattress Liability: 600 THEM: Asset: Mattress (incorrect) Liability: 0 As you see, their books are wrong, but yours are still correct. According to your books, you owe them $600, which you paid, but then they paid you back. You still have the liability. Why not just depreciate the mattress by 50% over two years? Then there will be no liability on your books.\",\n \"Debit cards can be riskier than credit cards. That's why I personally avoid debit cards unless I have a very good reason to go that direction (e.g. HSA accounts). To explain the risk, consider what happens if someone steals the card or number and starts using it: Credit card: You get a big bill, which you dispute and eventually get dismissed. Debit card: Your bank account balance drops, you don't have access to cash, and your checks start bouncing and you rack up bounced check charges with your bank and stores where you write checks. Eventually, you convince the bank it was fraud and they refund the money to your account. The big difference is that while it is going on you are out the money with a debit card, and with a credit card the BANK is out the money. The above scenario happened to my brother and it wasn't pretty. He was having to borrow money to pay his rent and groceries while the bank sorted it out.\",\n \"As a general rule of thumb, and assuming you have a choice, my advice is to pay cash for things things that depreciate, expenses, and consumables. Consider credit (even if you have cash) for things that will appreciate in value or generate cash flow. That is, use credit as leverage.\",\n \"Is my understanding okay ? If so, it seems to me that this system is rather error prone. By that I mean I could easily forget to make a wire some day and be charged interests while I actually have more than enough money on the check account to pay the debt. Which is where the credit card company can add fees so you pay more and they make more money. Don't forget that in the credit case, you are borrowing money rather than using your own. Another thing that bothers me is that the credit card apparently has a rather low credit limit. If I wanted to buy something that costs $2500 but only have a credit limit of $1500, can I make a preemptive wire from my check account to the VISA account to avoid facing the limit ? If so, what is the point for the customer of having two accounts (and two cards for that matter...) ? If you were the credit card company, do you believe people should be given large limits first? There are prepaid credit cards where you could put a dollar amount on and it would reject if the balance gets low enough. Iridium Prepaid MasterCard would be an example here that I received one last year as I was involved in the floods in my area and needed access to government assistance which was given this way. Part of the point of building up a credit history is that this is part of how one can get the credit limits increased on cards so that one can have a higher limit after demonstrating that they will pay it back and otherwise the system could be abused. There may be a risk that if you prepay onto a credit card and then want to take back the money that there may be fees involved in the transaction. Generally, with credit cards the company makes money on the fees involved for transactions which may come from merchants or yourself as a cash advance on a credit card will be charged interest right away while if you buy merchandise in a store there may not be the interest charged right away.\",\n \"I'm surprised by all the pro-credit answers here, debit has some definite advantages. Most importantly, when you pay with a credit card, the merchant pays around 3% of the transaction to the credit company. In many states, they are forced to charge you the same amount, and this is frequently toted as ''consumer protection''. But consider what this means for the business: they loose money for every credit transaction, and they're legally forbidden to do anything about it. So you're taking 3% from a business and handing it over to a massive cooperation. To make matters worse, the buisness is inevitably going to have to raise their prices (albiet by a small amount), so in the end the average consumer has gained nothing. On the other hand, the credit card company wins big, and they use their profits to pay lobbyists and lawyers to keep these rules in place. To put in the worst possible light, it's essentially legal extortion, verging on corruption. As for the fraud protection offered, while it may be true that credit cards will offer a more hassle-free reimbursement (i.e. you just don't have to pay the bill) if your card is stolen, consumer protection laws also extend to debit: in many cases your bank is legally required to cut you a check for all the money you lost.\",\n \"\\\"As i see it, with a debit card, they are taken kinda out of the game. They are not lending money, it seems really bad for them. Not exactly. It is true that they're not lending money, but they charge a hefty commission from the retailers for each swipe which is pure profit with almost no risk. One of the proposals considered (or maybe approved already, don't know) in Congress is to cap that hefty commission, which will really make the debit cards merely a service for the checking account holder, rather than a profit maker for the bank. On the other hand, it's definitely good for individuals. I disagree with that. Debit cards are easier to use than checks, but they provide much less protection than credit cards. Here's what I had to say on this a while ago, and seems like the community agrees. But, why do we really need a credit history to buy some of the more expensive stuff Because the system is broken. It rewards people in debt by giving them more opportunities to get into even more debts, while people who owe nothing to noone cannot get a credit when they do need one. With the current system the potential creditor can only asses the risk of someone who has debt already, they have no way of assessing risks of someone with no debts. To me, all this credit card system seems like an awfully nice way to make loads of money, backed by governments as well. Well, credit cards have nothing to do with it. It's the credit scores system that is broken. If we replace the \\\"\\\"card\\\"\\\" with \\\"\\\"score\\\"\\\" in your question - then yes, you're thinking correctly. That of course is true for the US, in other countries I have no knowledge on how the creditors assess the risks.\\\"\",\n \"Here's a simple answer: If your debit card has a visa or mc logo, it can be used as a 'credit card'. In order to do so, you shouldn't enter the pin, instead choose 'credit' and sign for it. Unlike a credit card, you can't spend money you don't have but like a credit card, your purchase is protected by the credit card company (visa/mc) and gives you privileges like zero fraud liability and purchase disputes. http://www.moneycone.com/should-you-sign-for-a-debit-card-purchase-or-use-your-pin/\",\n \"\\\"Every company has \\\"\\\"capital\\\"\\\". Even if you have a one man company, you probably stated something like \\\"\\\"100 shares of $1 each\\\"\\\", which means you had to take that $100 out of your own private pocket and pay it into the company. When the company loses money and runs out of cash, they have the possibilities of (1) borrowing some money from the bank, or from a loan shark, (2) borrowing some money from the company owners, or (3) increase the share capital, for example by increasing the number of shares to 10,000 and each share holder pays his part of the $9,900. That's the case that you have here. However, it is only a \\\"\\\"liability\\\"\\\" in the sense that it isn't money the company earned, it is money that the owners paid in. They have no right to get the money back; the paid-in capital is actually what the owners lose if a limited company goes bankrupt.\\\"\",\n \"\\\"It's more the opposite...using a credit card as a debit card may be treated as a \\\"\\\"cash advance,\\\"\\\" since money is debited on the spot...so you could be charged a cash advance fee. If you used your debit card as a credit card, there may simply be a balance on the account that needs to be paid off before it begins accruing interest.\\\"\",\n \"\\\"The basic equation taught in day one of accounting school is that Assets = Liabilities + Equity. My first point was that I looked at the actual financial statements published as of the end of the 2nd quarter 2017, and the total liabilities on their audited balance sheet were like $13 billion, not $20b. I don't know where the author got their numbers from. My second point: Debt usually needs to be paid on prearranged terms agreed upon by the debtor and the debtee, including interest, so it is important for a business to keep track of what they owe and to whom, so they can make timely payments. As long as they have the cash on hand to make payments plus whatever interest they owe, and the owners are happy with the total return on their investment, then it doesn't really matter how debt they have on the balance sheet. Remember the equation A=L+E. There are precisely two ways to finance a business that wants to acquire assets: liabilities and/or equity. The \\\"\\\"appropriate\\\"\\\" level of debt vs equity on a balance sheet varies wildly, and totally depends on the industry, size of the business, cash flow, personal preferences of the CEO, CFO, shareholders et al, etc. It gets way more detailed and complicated than that obviously, but the point is that looking at debt alone is a meaningless metric. This is corporate finance and accounting 101, so you can probably find tons of great articles and videos if you want to learn more.\\\"\",\n \"\\\"These are two different ways of processing payments. They go through different systems many times, and are treated differently by the banks, credit card issuers and the stores. Merchants pay different fees on transactions paid by debit cards and by credit cards. Debit transactions require PIN, and are deducted from your bank account directly. In order to achieve that, the transaction has to reach the bank in real time, otherwise it will be declined. This means, that the merchant has to have a line of communications open to the relevant processor, that in turn has to be able to connect to the bank and get the authorization - all that while on-line. The bank verifies the PIN, authorizes the transaction, and deducts the amount from your account, while you're still at the counter. Many times these transactions cannot be reversed, and the fraud protections and warranties are different from credit transactions. Credit transactions don't have to go to your card issuer at all. The merchant can accept credit payment without calling anyone, and without getting prior authorizations. Even if the merchant sends the transaction for authorization with its processor, if the processor cannot reach the issuing bank - they can still approve the transaction under certain conditions. This is, however, never true with debit cards (even if used as \\\"\\\"credit\\\"\\\"). They're not deducted from your bank account, but accumulated on your credit card account. They're posted there when the actual transaction reaches the card issuer, which may be many days (and even many months) after the transaction took place. Credit transactions can be reversed (in some cases very easily), and enjoy from a higher level of fraud protection. In some countries (and most, if not all, of the EU) fraudulent credit transactions are never the consumer's problem, always the bank's. Not so with debit transactions. Banks may be encouraging you to use debit for several reasons: Merchants will probably prefer credit because: Consumers will probably be better off with credit because:\\\"\",\n \"\\\"Yes and No. There's always a \\\"\\\"fee\\\"\\\". The difference in credit vs debit usually determines how much that fee is and how it's paid. Each vendor who accepts the major credit card is under contract to pay for equipment and meet certain standards. The same is true for debt card transactions. How much the \\\"\\\"fee\\\"\\\" is can vary based on the contract the vendor has with MasterCard/Visa/AMEX. But in general most debt transactions go back to the bank who distributed the card.\\\"\",\n \"\\\"Is there a word for that $20k owed? Trade Receivables, Accounts Receivables, or just Receivables Is there a different word for that $30k \\\"\\\"hypothetical\\\"\\\" total? Current Assets (Includes Inventory and other short term assets)\\\"\",\n \"I think you're looking a step beyond the question being asked. This is a pretty simple accounting question that doesn't take into account any other activity, like earnings generated during the time period by the employee being paid. It's far more simple. Unpaid wages accrue to liabilities, assets remain constant because no cash leaves the door, this equity decreases equal to the change in liability. He's not deferring an expense, he accrued it at the time the work was done, he simply hasn't paid it. That's not the same as a DTA.\",\n \"The effect on your credit score would be a positive one. If you have plenty of money now then pay off the balance each month. If you are very disciplined and can pay off the balance each month you could stop using your debit card to make daily purchases and use your credit card instead. That way you can keep your money in an interest bearing account all month and pay the bill in full when it comes due.\",\n \"\\\"I'm a mathematician, not an accountant. But my feeling has been that the distinction between Asset and Liability is mainly a sign convention, and comes from a wish to avoid negative numbers. Suppose you take out a loan for $1000 and deposit the proceeds in your bank account. Under normal accounting conventions, your bank account is an Asset and the loan is a Liability. After the loan, Bank has a balance of 1000 and Loan has a balance of 1000. You can compute your net worth by adding all Assets and subtracting all Liabilities (so in this case your net worth remains 0). If you treat Loan as an Asset account, then after taking out the loan, you should give it a balance of -1000. Under this convention, you have lots of negative numbers to deal with everywhere, which I suspect early accountants would have found inconvenient. The Asset/Liability convention means you only need to deal with negative numbers in unusual situations (overdrawn bank account, overpaid loan, etc). Likewise, in theory you could treat Expense accounts as negative Income. But I'm not sure why you feel the need to reinvent the wheel by \\\"\\\"simplifying\\\"\\\" double-entry accounting like this. The standard conventions are not that complicated, and their major advantage is that they're standard: other people will be able to understand your books if they ever need to. (Say you want to hire somebody to do your taxes at some point: if your books are kept in your own idiosyncratic system, their job will be at best error-prone and at worst impossible.) It's a bit like a proposal to simplify English spelling: shur, a sistum waar yu rit lik this mit bee simplur in sum abstrakt sens, but if nobudee els can reed it eezulee, it izunt ackshyualee veree yusful.\\\"\",\n \"\\\"This depends on your definitions of assets and liabilities. The word \\\"\\\"asset\\\"\\\" has a fairly straight forward definition. Generally speaking, an asset in finance is something that you own/control that has economic value. The asset has value because it is generating income for you or because you expect that it will be worth something to someone in the future. \\\"\\\"Liability\\\"\\\" is tougher to define, and depends on context. In accounting, a liability is a debt or obligation that is owed. It is essentially the opposite of an asset; where an asset represents something of value that you own, increasing your balance sheet, a liability is a value that you owe, decreasing your balance sheet. In that sense, a website or domain name that you own is an asset, not a liability, because it is something you own that has some value. It is not a debt. Many people use the word \\\"\\\"liability\\\"\\\" informally to refer to a bad asset: something that is losing value or is causing more in expenses than it is generating in income. (See definition #5 on Wiktionary.) With this definition, you might consider a website or a domain name a liability if it is losing money. Alternatively, depending on your business, you might not consider it an asset or a liability, but an expense instead. An expense is a cost of doing business. For example, if your business is selling something, you might need a website to make that happen. The website isn't purchased as an investment, and it might not have any value apart from your business. It is simply a necessary expense for your business.\\\"\",\n \"\\\"Should is a very \\\"\\\"strong\\\"\\\" word. You do what makes most sense to you. Should I be making a single account for Person and crediting / debiting that account? You can do that. Should I be creating a loan for Person? And if so, would I make a new loan each month or would I keep all of the loans in one account? You can create a loan account (your asset), you don't need to create a new account every time - just change the balance of the existing one. That's essentially the implementation of the first way (\\\"\\\"making a single account for a Person\\\"\\\"). How do I show the money moving from my checking account to Company and then to Person's loan? You make the payment to Company from your Checking, and you adjust the loan amount to Person from Equity for the same amount. When the Person pays - you clear the loan balance and adjust the Checking balance accordingly. This keeps your balance intact for the whole time (i.e.: your total balance sheet doesn't change, money moves from line to line internally but the totals remain the same). This is the proper trail you're looking for. How do I (or should I even) show the money being reimbursed from the expense? You shouldn't. Company is your expense. Payment by the Person is your income. They net out to zero (unless you charge interest). Do I debit the expense at any point? Of course. Company is your expense account. Should I not concern myself with the source of a loan / repayment and instead just increase the size of the loan? Yes. See above.\\\"\",\n \"The term business credit normally refers to one or more credit cards which can be used to make purchases on behalf of a business. A business credit card will usually have both the business name and the card holder's name printed or embossed on the card. In most cases the cardholder will have provided a personal guarantee when applying for the card. A personal guarantee ultimately makes the card holder liable for all charges made on the card.\",\n \"\\\"I don't know if it's common or necessary to include capital stock as a liability? Yes, if you look at the title of the nonasset part of the balance sheet it actually is titled \\\"\\\"Liabilities and Shareholders' Equity\\\"\\\". Your capital stock is a component of Equity. This sounds like it was reported in a reasonable manner. \\\"\\\"$2,582 listed under Loans from Shareholders (Line 19).\\\"\\\" Did you have a basis issue with your distributions? That is did you take shareholder distributions more than your adjusted basis that you have been taxed on? I have seen the practice of considering distributions in excess of basis as short term loans to prevent the additional taxation of the excess distribution. Be careful when you adjust this entry, your balance sheet had to roll from one year to the next. You must have a reasonable transaction to substantiate the removal of the shareholder loan.\\\"\",\n \"\\\"So, did anyone else bother to actually look up the balance sheet? I just pulled it up [here](http://www.nasdaq.com/symbol/nflx/financials?query=balance-sheet&data=quarterly). It looks like as of June 30, 2017, Netflix total liabilities were $13.4 billion. Current liabilities are about $5b and the other ~$8.4 are long term liabilities. That alone makes the \\\"\\\"article\\\"\\\" questionable because I don't know where exactly they got their bogus numbers from. At any rate, total liabilities don't really matter, as long as they have the cash flow to pay for it, and investors are happy with their total return on equity. This is a low quality shitpost by someone paid by the word at LA Times.\\\"\",\n \"Assuming that it's not inventory that is sold in the following year or a depreciable asset, you can deduct it when you make the purchase. The courts have ruled that credit cards balances are considered debt. It's treated the same way as if you went to the bank, got a loan, and used cash or a check to purchase the items. On your accounting books, you would debit the expense account and credit the credit card liability account. This is only for credit cards, which are considered loans. If you use a store charge card, then you cannot deduct it until you pay. Those are considered accounts payable. I'm an IRS agent and a CPA.\",\n \"seriously money is debt has to be the most ridiculous comparison i've ever heard. that statement implies commutativity and certainly i would never say debt is money. i could take on debt to get money, but the debt itself is a liability and not an asset. your last paragraph about fiat money is correct, but i should say that with modern financial markets price discovery isn't some magic voodoo thing.\",\n \"\\\"I was wondering how do we calculate the total capital of a company? Which items should I look for in the financial statements? Total capital usually refers to the sum of long-term debt and total shareholder equity; both of these items can be found on the company's balance sheet. This is one of the calculations that's traditionally used when determining a company's return on capital. I'll use the balance sheet from Gilead Sciences' (GILD) 2012 10-K form as an example. Net long-term debt was $7,054,555,000 and total stockholder equity was $9,550,869,000 which should give a grand total of $16,605,424,000 for total capital. (I know you can do the math, but I always find an example helpful if it uses realistic numbers). You may sometimes hear the term \\\"\\\"total capital\\\"\\\" referring to \\\"\\\"total capital stock\\\"\\\" or \\\"\\\"total capital assets,\\\"\\\" in which case it may be referring to physical capital, i.e. assets like inventory, PP&E, etc., instead of financial capital/leverage. And how do I calculate notes payable? Is the same as accounts payable? As the word \\\"\\\"payable\\\"\\\" suggests, both are liabilities. However, I've always been taught that accounts payable are debts a business owes to its suppliers, while notes payable are debts a business owes to banks and other institutions with which it has signed a formal agreement and which use formal debt instruments, e.g. a loan contract. This definition seems to match various articles I found online. On a balance sheet, you can usually determine notes payable by combining the short-term debt of the company with the current portion of the long-term debt. These pieces comprise the debt that is due within the fiscal year. In the balance sheet for Gilead Sciences, I would only include the $1,169,490,000 categorized as \\\"\\\"Current portion of long-term debt and other obligations, net\\\"\\\" term, since the other current liabilities don't look like they would involve formal debt contracts. Since the notes payable section of GILD's balance sheet doesn't seem that diverse and therefore might not make the best example, I'll include the most recent balance sheet Monsanto as well.1 Monsanto's balance sheet lists a term called \\\"\\\"Short-term debt, including current portion of long-term debt\\\"\\\" with a value of $36 million. This looks like almost the exact definition of notes payable. 1. Note that this financial statement is called a Statement of Consolidated Financial Position on Monsanto's 10-K.\\\"\",\n \"Credit in debit way - the card simply functions like a debit card for that transaction - pulling cash from your checking account. No difference. You've simply discovered the fact that some banks are using the same piece of plastic for two functions, debit which draws funds directly from your checking, and credit which offers you time to pay a bill the comes in some time later. It's a personal choice.\",\n \"\\\"The term for money owed to you by a company would be a credit balance. Consider, when an item is credited to your account, it's in your favor. Whereas, money you owe to a company may be referred to simply as a balance, or balance owing, or less frequently a debit balance. A related term balance due would be the payment you owe in the current period, i.e. not representative of the entire amount owed. I don't think the terms \\\"\\\"positive balance\\\"\\\" or \\\"\\\"negative balance\\\"\\\" are considered idiomatic in business. Rather, accounting terms like debit and credit have taken hold instead – and are often a source of confusion. But I suggest that if you have a negative balance on a credit card, it's a credit balance in your favor. Unless they mix it up.\\\"\",\n \"Of course credit cards are viewed as credit. If you're using money on a credit card, you are not directly paying for your transactions on goods/services immediately: this is the act of borrowing credit to pay for them. Debit cards, on the other hand, work where the funds are taken from an account immediately (or subject to a small delay - but usually no more than 24 hours - depending on various factors). You should never miss credit card payments, as that will affect your credit rating. If you have unpaid money on your card this is debt - plain and simple. But to answer your question succinctly - yes, credit cards are a form of credit, as the name suggests. When you apply for a mortgage any unpaid credit (debt) is considered and would adversely affect you if you have such debts. The level to which it affects you depends on the amount of debt. This is how it works in the UK, but to my knowledge it is the same in the US and most other countries. Please clarify if you think this is incorrect.\",\n \"My theory, if you must be in debit, own it at the least expense possible. The interest you will pay by the end, combined with the future value of money. Example: The Future value of $3000 at an effective interest rate of 5% after 3 years =$3472.88 Present value of $3000 at 5% over 3 years =$2591.51 you will need more money in the future to pay for the same item\",\n \"\\\"As anecdotal experience, we have a credit account in my name as offered by bank's marketing before I could qualify by common rules for newcomers (I have an account there for years so they knew my history and reliability dynamics I guess), and my wife is subscribed as a secondary user to the same credit account with a separate card. So we share the same limits (e.g. max month usage/overdraft) and benefits (bank's discounts and bonuses when usage passes certain thresholds - and it's easier to gain these points together than alone) so in the end maintenance of the card costs zero or close to that on most months, while the card is in a program to get discounts from hundreds of shops and even offers a free or discounted airport lounge access in some places :) But the bonus program is just that - benefits come and go as global economics changes; e.g. we had free car assistance available for a couple of years but it is gone since last tariff update. Generally it is beneficial for us to do all transactions including rent etc. via these two credit cards to the same account, and then recharge its overdraft as salaries come in - we have an \\\"\\\"up to 50 days\\\"\\\" cooloff period (till 20th of next calendar month) with no penalties on having taken the loans - but if we ever did overstretch that, then tens of yearly percents would kick in. Using the card(s) for daily ops, there is a play on building up the credit history as well: while we don't really need the loans to get from month to month, it helps build an image in the face of credit organizations, which can help secure e.g. favorable mortgage rates (and other contract conditions) which are out of pocket money range :) I'd say it is not only a \\\"\\\"we against the system\\\"\\\" sort of game though, as it sort of trains our own financial discipline - every month we have (a chance) to go over our spendings to see what we did, and so we more regularly think about it in the end - so the bank probably benefits from dealing with more-educated less-random customers when it comes to the bigger loans. Regarding internet, we tend to trust more to a debit card which we populate with pocket money sufficient for upcoming or already placed (blocked) transactions. After all, a malicious shop can not sip off thousands of credit money - but only as much as you've pre-allocated there on debit.\\\"\",\n \"\\\"I am a tax lawyer and ALL the RESPONSES ABOVE are 1/2 Correct but also 1/2 Wrong and in tax law this means 100% WRONG (BECAUSE ANY PART INCORRECT UNDER TAX LAW will get YOU A HUGE PENALY and/or PRISON TIME by way of the IRS! So in ESSENCE ALL the above answers are WRONG! Let me enlighten you to the correct answer in 5 parts, as people that do not practice tax law may understand (but you still probably will not understand, if you are NOT a Lawyer). 1) All public companies are corporations (shown by Ltd.), 2) only Shareholders of Public companies (ie, traded on the NYSE stock market) are never liable for debts of a bankrupt company, due to the concept of limited liability. 2) now Banks may ask a sole proprietorship (who wants to incorp. for example) to give collateral, such as owners stocks/bonds or his/her house, but then of course the loanee can tell the Bank No Thanks and find a lender that may charge higher interest rates but lend money to his company with little to NO collateral. 3) Of course not all companies are publicly traded and these are called private companies. 4)\\\"\\\"limited liability\\\"\\\" has nothing to do directly with subsequent shareholders (the above answer is inaccurate!), it RELATES rather to INITIAL OWNERS INVESTMENT in their company, limiting the amount of owner loss if the company goes bankrupt. 5) Share Face-value is usually never related to this as shares are sold at market value in real life instances (above or below face-value), or the most money Investments Banks or owners can fetch for the shares they sell (not what the stock's face-value is set at upon issuance). Never forget, stocks are sold in our Capitalistic System to whomever pays the most, as it is that Buyer who gets to purchase the stock!\\\"\",\n \"If your debit card/ATM card is stolen or lost, someone else might be able to withdraw money from the checking account that it is tied to, or buy things with the card and have the money taken out of the checking account to pay the merchant. Subject to daily withdrawal limits imposed by your bank, a considerable amount of money could be lost in this way. At least in the US, debit or ATM cards, although they are often branded Mastercard or Visa, do not provide the same level of protection as credit cards for which the liability is limited to $50 until the card is reported as lost or stolen and $0 thereafter. Note also that the money in your savings account is safe, unless you have chosen an automatic overdraft protection feature that automatically transfers money from your savings account into the checking account to cover overdrafts. So that is another reason to keep most of your money in the savings account and only enough for immediately foreseeable needs in the checking account (and to think carefully before accepting automatic overdraft protection offers). These days, with mobile banking available via smartphones and the like, transferring money yourself from savings to checking account as needed might be a preferred way of doing things on the go (until the smartphone is stolen!)\",\n \"\\\"The danger of overdrawing the account via the use of a debit card, and the exorbitant fees that can result make me hesitant to use a debit card. The ability to cover all the transactions with one payment is why I use a credit card for these \\\"\\\"debit\\\"\\\" transactions. Yes there is a risk of a late payment, but that can be easily avoided within the three week grace period. The ability to electronically transfer the money to pay off the card makes this even easier.\\\"\",\n \"some of that article is misleading, some of it is just plain wrong. Very wrong... like you end up drawing an incorrect conclusion type wrong. Corporate transaction accounts, whose balances are up recently due to TAG (expires 12/31), are subject to reserve requirements. When you purchase something with a credit card, the bank's asset of your credit increases and the bank's asset of cash decreases (it goes wherever you purchased). There is no change to your deposit account and no change to reserves. The incoming bank's cash account and liability account associated with that business transaction account increase, and it is trivial to transfer the % of cash necessary to reach minimum reserve requirements to the Fed. Secondly, anyone with a smidgen of accounting can tell that his balance sheet won't balance.\",\n \"\\\"As others have stated, credit (signature required) is processed through their respective networks (Visa, MasterCard, Discover, or American Express). A \\\"\\\"debit\\\"\\\" card tied to your checking account, still go through the same credit network even though the funds are guaranteed from your checking rather than a free loan 30-60 days which has the potential to be unpaid. This type of debit card purchase may be eligible for a lower processing rate for less risk. Debit cards can also be processed through the debit network (PIN required, no signature). This is typically a straight fee such as $0.35. Fees vary, but let me give you a simple comparison: Say you are at the supermarket and buy $50 worth of groceries with a debit card with Visa logo. You are asked \\\"\\\"credit\\\"\\\" or \\\"\\\"debit\\\"\\\": At my supermarket, this is why I am given the option to enter my PIN first. If I want to pay by credit, I have to tap Cancel to process via credit signature.\\\"\",\n \"\\\"From the HLSS 1st quarter 10Q: \\\"\\\"Match funded advances on loans serviced for others result from our transfers of residential loan servicing advances to SPEs in exchange for cash. The SPEs issue debt supported by collections on the transferred advances. We made these transfers under the terms of our advance facility agreements. These transfers do not qualify for sale accounting because we retain control over the transferred assets. As a result, we account for these transfers as financings and classify the transferred advances on our Interim Condensed Consolidated Balance Sheet as Match funded advances and the related liabilities as Match funded liabilities. We use collections on the Match funded advances pledged to the SPEs to repay principal and to pay interest and the expenses of the entity. Holders of the debt issued by this entity can look only to the assets of the entity itself for satisfaction of the debt and have no recourse against HLSS.\\\"\\\" I'm not an expert in the accounting of these things but I'll take a stab from the view of a bond investor. Let's assume the mortgage(s) in question have been pooled together and sold into the bond market in the form of a mortgage-backed security (MBS). When a homeowner falls behind on their payment, scheduled principal and interest (their monthly mortgage payment amount, or \\\"\\\"P&I\\\"\\\") is advanced as if the borrower is still current to the person who holds the MBS. This is typically done from the time they first fall behind until either they 1) catch up on their payments or, 2) are foreclosed upon and the home is sold to repay the mortgage balance. In either instance the advanced monthly payments are recaptured by the servicer before the holder of the MBS is paid. In this sense, the servicer develops a sort of prepaid asset over time by advancing money they are almost certain to recover at a future date (usually via foreclosure and liquidation). Due to a high number of borrowers falling behind on their payments since the housing crisis and the resulting time it takes to foreclose on a property, the servicers (OCN, HLSS, etc.) have built a large balance of advances on the asset side of their balance sheet. To free up this cash prior to liquidation of the home, they have sold short term bonds against this asset (via an SPE), thereby creating the liability you reference. So in essence they have, say, a home they expect to be liquidated in twelve months that they have advanced P&I on. The short term bonds sold via the SPE offset this asset at an equivalent term, thereby making the asset and liability \\\"\\\"match funded\\\"\\\".\\\"\",\n \"Just to put in one more possibility: my credit card can have a positive balance, in which case I earn interest. If more money is due, it will automatically take that from the connected checking account. If that goes into negative, of course I have to pay interest. I chose (argued with the bank in order to get) only a small credit allowance. However, I'll be able to access credit allowance + positive balance. That allows me within a day or so to make larger amounts accessible, while the possible immediate damage by credit card fraud is limited at other times. Actually, the credit card pays more interest than the checkign account. Nevertheless, I don't keep high balance there because the risk of fraud is much higher for the credit card.\",\n \"\\\"You're looking at the \\\"\\\"wrong\\\"\\\" credit. Here's the Wikipedia article about the bookkeeping (vs the Finance, that you've quoted) term.\\\"\",\n \"\\\"You ask about the difference between credit and debit, but that may be because you're missing something important. Regardless of credit/debit, there is value in carrying two different cards associated with two different accounts. The reason is simply that because of loss, fraud, or your own mismanagement, or even the bank's technical error, any card can become unusable for some period of time. Exactly how long depends what happened, but just sending you a new card can easily take more than one business day, which might well be longer than you'd like to go without access to any funds. In that situation you would be glad of a credit card, and you would equally be glad of a second debit card on a separate account. So if your question is \\\"\\\"I have one bank account with one debit card, and the only options I'm willing to contemplate are (a) do nothing or (b) take a credit card as well\\\"\\\", then the answer is yes, take a credit card as well, regardless of the pros or cons of credit vs debit. Even if you only use the credit card in the event that you drop your debit card down a drain. So what you can now consider is the pros and cons of a credit card vs managing an additional bank account -- unless you seriously hate one or more of the cons of credit cards, the credit card is likely to win. My bank has given me a debit card on a cash savings account, which is a little scary, but would cover most emergencies if I didn't have a credit card too. Of course the interest rate is rubbish and I sometimes empty my savings account into a better investment, so I don't use it as backup, but I could. Your final question \\\"\\\"can a merchant know if I give him number of debit or credit card\\\"\\\" is already asked: Can merchants tell the difference between a credit card and embossed debit card? Yes they can, and yes there are a few things you can't (or might prefer not to) do with debit. The same could even be said of Visa vs. Mastercard, leading to the conclusion that if you have a Visa debit you should look for a Mastercard credit. But that seems to be less of an issue as time goes on and almost everywhere in Europe apparently takes both or neither. If you travel a lot outside the EU then you might want to be loaded down with every card under the sun, and three different kinds of cash, but you'd already know that without asking ;-)\\\"\",\n \"My view is from the Netherlands, a EU country. Con: Credit cards are more risky. If someone finds your card, they can use it for online purchases without knowing any PIN, just by entering the card number, expiration date, and security code on the back. Worse, sometimes that information is stored in databases, and those get stolen by hackers! Also, you can have agreed to do periodic payments on some website and forgot about them, stopped using the service, and be surprised about the charge later. Debit cards usually need some kind of device that requires your PIN to do online payments (the ones I have in the Netherlands do, anyway), and automated periodic payments are authorized at your bank where you can get an overview of the currently active ones. Con: Banks get a percentage of each credit card payment. Unlike debit cards where companies usually pay a tiny fixed fee for each transaction (of, say, half a cent), credit card payments usually cost them a percentage and it comes to much more, a significant part of the profit margin. I feel this is just wrong. Con: automatic monthly payment can come at an unexpected moment With debit cards, the amount is withdrawn immediately and if the money isn't there, you get an error message allowing you to pay some other way (credit card after all, other bank account, cash, etc). When a recent monthly payment from my credit card was due to be charged from my bank account recently, someone else had been paid from it earlier that day and the money wasn't there. So I had to pay interest, on something I bought weeks ago... Pro: Credit cards apparently have some kind of insurance. I've never used this and don't know how it works, but apparently you can get your money back easily after fraudulent charges. Pro: Credit cards can be more easily used internationally for online purchases I don't know how it is with Visa or MC-issued debit cards, but many US sites accept only cards that have number/expiration date/security code and thus my normal bank account debit card isn't useable. Conclusion: definitely have one, but only use it when absolutely necessary.\",\n \"\\\"Here's what Suze Orman has to say about it: Good debt is money you borrow to purchase an asset, such as a home you can afford. History shows that home values generally rise in step with the inflation rate, so a mortgage is good debt. Student loans are, too, because they're an investment in the future. Census data pegs the average lifetime earnings of a high school graduate at a million dollars below that of someone with a bachelor's degree. Bad debt is money you borrow to buy a depreciating asset or to finance a \\\"\\\"want\\\"\\\" rather than a \\\"\\\"need.\\\"\\\" A car is a depreciating asset; from the day you drive it off the lot, it starts losing value. Credit card balances or a home equity line of credit that's used to pay for indulgences—vacations, shopping, spa days—is bad debt.\\\"\",\n \"Expense accounts are closed into equity. Same with revenue. So an increase in an expense means lower equity (lower retained earnings since there is more expense). Ergo, decrease equity and increase a liability. Increase a liability since it was accrued, which is usually used specifically to refer to things that kind of just happen in the background. Aka the firm most likely didn't pay cash for that right then and there so increase a payable.\",\n \"\\\"Accounts track value: at any given time, a given account will have a given value. The type of account indicates what the value represents. Roughly: On a balance sheet (a listing of accounts and their values at a given point in time), there is typically only one equity account, representing net worth, I don't know much about GNUCash, though. Income and expenses accounts do not go on the balance sheet, but to find out more, either someone else or the GNUCash manual will have to describe how they work in detail. Equity is more similar to a liability than to assets. The equation Assets = Equity + Liabilities should always hold; you can think of assets as being \\\"\\\"what my stuff is worth\\\"\\\" and equity and liabilities together as being \\\"\\\"who owns it.\\\"\\\" The part other people own is liability, and the part you own is equity. See balance sheet, accounting equation, and double-entry bookkeeping for more information. (A corporate balance sheet might actually have more than one equity entry. The purpose of the breakdown is to show how much of their net worth came from investors and how much was earned. That's only relevant if you're trying to assess how a company has performed to date; it's not important for a family's finances.)\\\"\",\n \"\\\"None of the previous answers (which are all good) mention margin accounts (loans from your broker). You may also have heard them described as \\\"\\\"leverage\\\"\\\". It may seem odd to mention this rather narrow form of debt here, but it's important because overuse of leverage has played a large part in pretty much every financial crisis you can think of (including the most recent one). As the Investopedia definitions indicate, leverage magnifies gains, but also magnifies losses. I consider margin/leverage to be \\\"\\\"bad\\\"\\\" debt.\\\"\",\n \"As you say, if you delay paying your bills, your liabilities will increase. Like say your bills total $10,000 per month. If you normally pay after 30 days, then your short-term liabilities will be $10,000. If you stretch that out to pay after 60 days, then you will be carrying two months worth of bills as a short-term liability, or $20,000. Your liabilities go up. Assume you keep the same amount of cash on hand after you stretch out your payments like this as you did before. Now your liabilities are higher but your assets are the same, so your working capital goes down. For example, suppose you kept $25,000 in the bank before this change and you still keep $30,000 after. Then before your working capital was $25,000 minus $10,000, or $15,000. After it is $25,000 minus $20,000, or only $5,000. So how does this relate to cash flow? While presumably if the company has $10,000 per month in bills, and their bank balance remains at $25,000 month after month, then they must have $10,000 per month in income that's going to pay those bills, or the bank balance would be going down. So now if they DON'T pay that $10,000 in bills this month, but the bank account doesn't go up by $10,000, then they must have spent the $10,000 on something else. That is, they have converted that money from an on-going balance into cash flow. Note that this is a one-time trick. If you stretch out your payment time from 30 days to 60 days, then you are now carrying 2 months worth of bills on your books instead of 1. So the first month that you do this -- if you did it all at once for all your bills -- you would just not pay any bills that month. But then you would have to resume paying the bills the next month. It's not like you're adding $10,000 to your cash flow every month. You're adding $10,000 to your cash flow the month that you make the change. Then you return to equilibrium. To increase your cash flow every month this way, you would have to continually increase the time it takes you to pay your bills: 30 days this month, 45 days the next, 60 the next, then 75, 90, etc. Pretty soon your bills are 20 years past due and no one wants to do business with you any more. Normally people see an action like this as an emergency measure to get over a short-term cash crunch. Adopting it as a long-term policy seems very short-sighted to me, creating a long-term relationship problem with your suppliers in exchange for a one-shot gain. But then, I'm not a big corporate finance officer.\",\n \"\\\"Pretty much every american \\\"\\\"borrows\\\"\\\". Credit cards are essential in building credit history and story. Debit cards got popular in the past few years, but most still borrow at least a little bit on credit and pay it off right away.\\\"\",\n \"If you are solvent enough, and organised enough to pay your credit card bill in full each month, then use the credit card. There are no disadvantages and several plus points, already mentioned. Use the debit card when you would be surcharged for using the credit card, or where you can negotiate a discount for not subjecting the vendor to credit card commission.\",\n \"A debit card takes the funds right from your account. There's no 'credit' issued along the way. The credit card facilitates a short term loan. If you are a pay-in-full customer, as I am, there's a cost to lend the money, but we're not paying it. It's part of the fee charged to the merchant. Thus the higher transaction cost.\",\n \"\\\"> 1). How is a loan an asset? I'm the bank and I have 100$. I loan Jimmy 20$. With interest I expect him to pay back 25$. My books sure as shit shouldn't say I'm worth 105$ or even 100$! If you *extend* a loan to someone, the loan is an asset to you and a liability to them. It's a liability to them because they *owe* you the loan + interest back. It's an *asset* to you because you expect to retrieve the full loan principal AND interest back. There is no difference, cash flow wise, between spending $100 on a machine that makes fidget spinners and earns you $110 back ($10 profit) and extending a loan to Billy at 10% interest (you'll get $110 back, $10 profit). > My books sure as shit shouldn't say I'm worth 105$ or even 100$! Why not? I have $100 cash. I loan it out to Billy at 10% interest. Billy is creditworthy and reliable, and certain collateral is in place. I'm worth, essentially, a discounted cash flow of $110 (which as long as my required return is less than 10%, means I'm worth *more* than $100). > I gave away 20$. I'm worth 80$ right? No. That assumes you spent $20 and won't get *any* of it back. It's the same as ordering a $20 pizza and eating it all. Now, the *cash* you have on your *balance sheet* would be $80, but you'd have a loan outstanding as an asset at $20, which is a net 0 movement in equity on the other side. > Sure I can put it on my books that Jimmy owes me 20$ but I cannot be acting like I HAVE that 20$ can I? Well, yes and no. On one hand, you are certainly *worth* more than $80 in your scenario. However, banks have some stringent regulations preventing banks from being overly risky. > Isn't that how the 08' crash happened? No. '08 happened from a culmination of many different events, including risky and predatory loan origination, conflicts of interest in credit rating agencies, and low Fed rates, among other issues, including several \\\"\\\"domino effect\\\"\\\" secondary issues. > Is the risk of default accounted for? Theoretically, the risk of default is accounted for in two areas: 1. The interest rate extended to the debtor. 2. A provision for loan losses. > \\\"\\\" because default risk is not transferred with the asset.\\\"\\\" In what context was this seen? No one would willingly sell an asset but hold on to the risk (or they'd charge a high price, at least, for that). Student loans are a special case. In the U.S., they are generally *non-cancellable.* They survive everything, including bankruptcy. They don't have collateral. Basically, they're going to follow the person around, regardless of situation, INCLUDING simply not paying. This makes default risk (or rather loss risk) lower. A large portion of loans come from the federal government, which means to a pretty high degree, they are guaranteed by the government. This also makes loss risk lower. The government can garnish wages and all sorts of unpleasant things to get the money back. Even if losses are realized, taxes can (and will) make up the difference. Private loans have a bit less leeway in these regards, but they still are immune to bankruptcy currently. As such, while they don't have all the tools of the government, they're still essentially invincible.\\\"\",\n \"\\\"It can mean either. When A owes B money, then A is in debit with B and B is in credit with A. What the (Credit) means in this case depends on whether it is meant from the perspective of the utilities company or meant from the perspective of the customer. When the UI is user-friendly, it should describe the situation from the customer perspective which would mean you have credit with the company, but in that case the button \\\"\\\"Pay now\\\"\\\" would be really confusing (should be something like \\\"\\\"Request refund now\\\"\\\"). A case of bad UI design. You should use the provided \\\"\\\"contact us\\\"\\\" link to ask a customer representative for a clarification.\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"Exactly what accounts are affected by any given transaction is not a fixed thing. Just for example, in a simple accounting system you might have one account for \"\"stock on hand\"\". In a more complex system you might have this broken out into many accounts for different types of stock, stock in different locations, etc. So I can only suggest example specific accounts. But account type -- asset, liability, capital (or \"\"equity\"\"), income, expense -- should be universal. Debit and credit rules should be universal. 1: Sold product on account: You say it cost you $500 to produce. You don't say the selling price, but let's say it's, oh, $700. Credit (decrease) Asset \"\"Stock on hand\"\" by $500. Debit (increase) Asset \"\"Accounts receivable\"\" by $700. Credit (increase) Income \"\"Sales\"\" by $700. Debit (increase) Expense \"\"Cost of goods sold\"\" by $500. 2: $1000 spent on wedding party by friend I'm not sure how your friend's expenses affect your accounts. Are you asking how he would record this expense? Did you pay it for him? Are you expecting him to pay you back? Did he pay with cash, check, a credit card, bought on credit? I just don't know what's happening here. But just for example, if you're asking how your friend would record this in his own records, and if he paid by check: Credit (decrease) Asset \"\"checking account\"\" by $1000. Debit (increase) Expense \"\"wedding expenses\"\" by $1000. If he paid with a credit card: Credit (increase) Liability \"\"credit card\"\" by $1000. Debit (increase) Expense \"\"wedding expenses\"\" by $1000. When he pays off the credit card: Debit (decrease) Liability \"\"credit card\"\" by $1000. Credit (decrease) Asset \"\"cash\"\" by $1000. (Or more realistically, there are other expenses on the credit card and the amount would be higher.) 3: Issue $3000 in stock to partner company I'm a little shakier on this, I haven't worked with the stock side of accounting. But here's my best stab: Well, did you get anything in return? Like did they pay you for the stock? I wouldn't think you would just give someone stock as a present. If they paid you cash for the stock: Debit (increase) Asset \"\"cash\"\". Credit (decrease) Capital \"\"shareholder equity\"\". Anyone else want to chime in on that one, I'm a little shaky there. Here, let me give you the general rules. My boss years ago described it to me this way: You only need to know three things to understand double-entry accounting: 1: There are five types of accounts: Assets: anything you have that has value, like cash, buildings, equipment, and merchandise. Includes things you may not actually have in your hands but that are rightly yours, like money people owe you but haven't yet paid. Liabilities: Anything you owe to someone else. Debts, merchandise paid for but not yet delivered, and taxes due. Capital (some call it \"\"capital\"\", others call it \"\"equity\"\"): The difference between Assets and Liabilities. The owners investment in the company, retained earnings, etc. Income: Money coming in, the biggest being sales. Expenses: Money going out, like salaries to employees, cost of purchasing merchandise for resale, rent, electric bill, taxes, etc. Okay, that's a big \"\"one thing\"\". 2: Every transaction must update two or more accounts. Each update is either a \"\"debit\"\" or a \"\"credit\"\". The total of the debits must equal the total of the credits. 3: A dollar bill in your pocket is a debit. With a little thought (okay, sometimes a lot of thought) you can figure out everything else from there.\""],"string":"[\n \"\\\"Exactly what accounts are affected by any given transaction is not a fixed thing. Just for example, in a simple accounting system you might have one account for \\\"\\\"stock on hand\\\"\\\". In a more complex system you might have this broken out into many accounts for different types of stock, stock in different locations, etc. So I can only suggest example specific accounts. But account type -- asset, liability, capital (or \\\"\\\"equity\\\"\\\"), income, expense -- should be universal. Debit and credit rules should be universal. 1: Sold product on account: You say it cost you $500 to produce. You don't say the selling price, but let's say it's, oh, $700. Credit (decrease) Asset \\\"\\\"Stock on hand\\\"\\\" by $500. Debit (increase) Asset \\\"\\\"Accounts receivable\\\"\\\" by $700. Credit (increase) Income \\\"\\\"Sales\\\"\\\" by $700. Debit (increase) Expense \\\"\\\"Cost of goods sold\\\"\\\" by $500. 2: $1000 spent on wedding party by friend I'm not sure how your friend's expenses affect your accounts. Are you asking how he would record this expense? Did you pay it for him? Are you expecting him to pay you back? Did he pay with cash, check, a credit card, bought on credit? I just don't know what's happening here. But just for example, if you're asking how your friend would record this in his own records, and if he paid by check: Credit (decrease) Asset \\\"\\\"checking account\\\"\\\" by $1000. Debit (increase) Expense \\\"\\\"wedding expenses\\\"\\\" by $1000. If he paid with a credit card: Credit (increase) Liability \\\"\\\"credit card\\\"\\\" by $1000. Debit (increase) Expense \\\"\\\"wedding expenses\\\"\\\" by $1000. When he pays off the credit card: Debit (decrease) Liability \\\"\\\"credit card\\\"\\\" by $1000. Credit (decrease) Asset \\\"\\\"cash\\\"\\\" by $1000. (Or more realistically, there are other expenses on the credit card and the amount would be higher.) 3: Issue $3000 in stock to partner company I'm a little shakier on this, I haven't worked with the stock side of accounting. But here's my best stab: Well, did you get anything in return? Like did they pay you for the stock? I wouldn't think you would just give someone stock as a present. If they paid you cash for the stock: Debit (increase) Asset \\\"\\\"cash\\\"\\\". Credit (decrease) Capital \\\"\\\"shareholder equity\\\"\\\". Anyone else want to chime in on that one, I'm a little shaky there. Here, let me give you the general rules. My boss years ago described it to me this way: You only need to know three things to understand double-entry accounting: 1: There are five types of accounts: Assets: anything you have that has value, like cash, buildings, equipment, and merchandise. Includes things you may not actually have in your hands but that are rightly yours, like money people owe you but haven't yet paid. Liabilities: Anything you owe to someone else. Debts, merchandise paid for but not yet delivered, and taxes due. Capital (some call it \\\"\\\"capital\\\"\\\", others call it \\\"\\\"equity\\\"\\\"): The difference between Assets and Liabilities. The owners investment in the company, retained earnings, etc. Income: Money coming in, the biggest being sales. Expenses: Money going out, like salaries to employees, cost of purchasing merchandise for resale, rent, electric bill, taxes, etc. Okay, that's a big \\\"\\\"one thing\\\"\\\". 2: Every transaction must update two or more accounts. Each update is either a \\\"\\\"debit\\\"\\\" or a \\\"\\\"credit\\\"\\\". The total of the debits must equal the total of the credits. 3: A dollar bill in your pocket is a debit. With a little thought (okay, sometimes a lot of thought) you can figure out everything else from there.\\\"\"\n]","isConversational":false}}},{"rowIdx":369,"cells":{"_id":{"kind":"string","value":"4539"},"query":{"kind":"string","value":"How should I save money if the real interest rate (after inflation) is negative?"},"gt_ids":{"kind":"list like","value":["370879","275925"],"string":"[\n \"370879\",\n \"275925\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1],"string":"[\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["61586","514003","277548","374400","275925","27037","157972","200690","404352","425479","129352","479659","322816","182195","32744","255769","365605","353028","411143","267627","384968","416188","589286","436777","506306","450228","194080","370879","72717","2393","577134","238786","535931","431799","235972","462618","572340","235322","82482","573713","54008","32855","487205","379419","138788","451923","280967","184838","175442","472837","589394","196378","316219","129345","460398","515974","19591","292615","470334","373013","457122","449745","178691","421535","5602","46587","549773","15385","275223","29828","147437","519352","202527","269226","251146","546598","181574","131365","423745","399584","180429","144304","110674","302448","418020","223872","148541","362250","399751","117222","283066","587636","305946","492028","45067","211026","433371","538673","514417","57605"],"string":"[\n \"61586\",\n \"514003\",\n \"277548\",\n \"374400\",\n \"275925\",\n \"27037\",\n \"157972\",\n \"200690\",\n \"404352\",\n \"425479\",\n \"129352\",\n \"479659\",\n \"322816\",\n \"182195\",\n \"32744\",\n \"255769\",\n \"365605\",\n \"353028\",\n \"411143\",\n \"267627\",\n \"384968\",\n \"416188\",\n \"589286\",\n \"436777\",\n \"506306\",\n \"450228\",\n \"194080\",\n \"370879\",\n \"72717\",\n \"2393\",\n \"577134\",\n \"238786\",\n \"535931\",\n \"431799\",\n \"235972\",\n \"462618\",\n \"572340\",\n \"235322\",\n \"82482\",\n \"573713\",\n \"54008\",\n \"32855\",\n \"487205\",\n \"379419\",\n \"138788\",\n \"451923\",\n \"280967\",\n \"184838\",\n \"175442\",\n \"472837\",\n \"589394\",\n \"196378\",\n \"316219\",\n \"129345\",\n \"460398\",\n \"515974\",\n \"19591\",\n \"292615\",\n \"470334\",\n \"373013\",\n \"457122\",\n \"449745\",\n \"178691\",\n \"421535\",\n \"5602\",\n \"46587\",\n \"549773\",\n \"15385\",\n \"275223\",\n \"29828\",\n \"147437\",\n \"519352\",\n \"202527\",\n \"269226\",\n \"251146\",\n \"546598\",\n \"181574\",\n \"131365\",\n \"423745\",\n \"399584\",\n \"180429\",\n \"144304\",\n \"110674\",\n \"302448\",\n \"418020\",\n \"223872\",\n \"148541\",\n \"362250\",\n \"399751\",\n \"117222\",\n \"283066\",\n \"587636\",\n \"305946\",\n \"492028\",\n \"45067\",\n \"211026\",\n \"433371\",\n \"538673\",\n \"514417\",\n \"57605\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["This does not really fit your liquidity requirement but consider buying a one or two room apartment to rent out with part of your savings. You will get income from it and small apartments sell quickly if you do need the money. This will help offset the negative interest from the rest. One downside is that other people have the same idea at the moment and the real estate prices are inflated somewhat.","How about placing the money in a safety deposit box at the same bank? This will probably work out cheaper than the loss due to negative rates. Although, I'm quite sure the banks won't like this idea.","\"Personally I would have a hard time \"\"locking up\"\" the money for that very little return. I would probably rather earn no interest in favor of the liquidity. However, you should find out what the early removal penalties are. If those are minimal and you are very confident that you will not need the money over the term period then its definitely better to earn something rather than nothing. If inflation is negative you aren't out as much not getting any interest as you would be normally. Consider that in 2014 US inflation was 0.8%. Online liquid savings accounts pay about 1%. so that's only .2% positive. In comparison at -.4% you are better off with no interest than a US person putting their money in a paying savings account. Keep in mind though that inflation can change month to month so just because June was negative doesn't mean the year will be that way. Not sure your ability to invest in the US market or what stable dividend payers may exist in Sweden.... You said you are risk averse, but it may be worth it to find a stable dividend paying fund. I like one called PFF, it pays a monthly dividend of 6% and over 5 years stock price is very stable. Of course this is quite a significant jump in risk because you can lose money if markets tank (PFF is down over 10 years quite a bit). Maybe splitting up the money and diversifying?\"","\"The problem is that every option comes with risk - as you note, if you put money in stocks, you could lose (and many stocks are overpriced). If you put money in bonds, you could lose (many bonds are overpriced). If you buy precious metals, they could fall further currently. If you hold cash, central banks might try to ban cash (we'll hear the typical \"\"This will never happen\"\" from financial advisers - and they'll be wrong). Cryptocurrencies are an option, but boy do they fluctuate, so there's risk here too. Those are options and all come with risks, and here's my preferred approach to handling negative interest rates:\"","\"(Real) interest rates are so low because governments want people to use their money to improve the economy by spending or investing rather than saving. Their idea is that by consuming or investing you will help to create jobs that will employ people who will spend or invest their pay, and so on. If you want to keep this money for the future you don't want to spend it and interest rates make saving unrewarding therefore you ought to invest. That was the why, now the how. Inflation protected securities, mentioned in another answer, are the least risk way to do this. These are government guaranteed and very unlikely to default. On the other hand deflation will cause bigger problems for you and the returns will be pitiful compared with historical interest rates. So what else can be done? Investing in companies is one way of improving returns but risk starts to increase so you need to decide what risk profile is right for you. Investing in companies does not mean having to put money into the stock market either directly or indirectly (through funds) although index tracker funds have good returns and low risk. The corporate bond market is lower risk for a lesser reward than the stock market but with better returns than current interest rates. Investment grade bonds are very low risk, especially in the current economic climate and there are exchange traded funds (ETFs) to diversify more risk away. Since you don't mention willingness to take risk or the kind of amounts that you have to save I've tried to give some low risk options beyond \"\"buy something inflation linked\"\" but you need to take care to understand the risks of any product you buy or use, be they a bank account, TIPS, bond investments or whatever. Avoid anything that you don't fully understand.\"","Series I Savings Bonds would be another option that have part of their return indexed to inflation though currently they are yielding 1.64% through April 30, 2016 though some may question how well is that 3% you quote as an inflation rate. From the first link: Series I savings bonds are a low-risk savings product. While you own them they earn interest and protect you from inflation. You may purchase electronic I bonds via TreasuryDirect or paper I bonds with your IRS tax refund. As a TreasuryDirect account holder, you can purchase, manage, and redeem I bonds directly from your web browser. TIPS vs I Bonds if you want to compare these products that are rather safe in terms of avoiding a nominal loss. This would be where a portion of the funds could go, not all of them at once.","I would put this money to a high-interest savings account. It will not earn you too much, but it will save it from inflation.","Withdraw your savings as cash and stuff them into your mattress? Less flippantly, would the fees for a safe deposit box at a bank big enough to hold CHF 250'000 be less than the negative interest rate that you'd be penalized with if you kept your money in a normal account?","I'd prefer having it (more or less) fluent at any time, if possible... And the Swiss National Bank (SNB) will do their darndest to make this a costly option. That's exactly the point of negative interest rates. They don't want to help you saving money. So you will have to choose what to give up: liquidity, or profitability. But for now, you still have alternatives. The way you described it one could think that all banks will soon start to charge all their clients. That's just a distortion of facts. If you are happy with a (close to) 0 income, you might consider opening multiple bank accounts. Many banks charge the negative interest only from certain thresholds (i.e. CHF 100k). Since you're clearly a Swiss resident, that's easy to do for you. If you don't want to give up making an income, then you have to sacrifice liquidity. There simply aren't any short term (less than 2-3 years) instruments in Swiss Franc that are both safe and yielding a positive income. Which means that you will have to take much more risk then you had with a savings account. Ask your advisor for an investment proposal, but also consider bank independent advisors.","\"As you're saving up for an expenditure instead of investing for the long run, I would stay away from any sort of \"\"parking facility\"\" where you run the risk of not having the principal protected. The riskier investments that would potentially generate a bigger return also carry a bigger downside, ie you might not be able to get the money back that you put in. I'd shop around for a CD or a MMA/regular savings account with a half-decent interest rate. And yes, I'm aware that the return you might get is probably still less than inflation.\"","Buy gold, real coins not paper. And do not keep it in a bank.","\"To begin with, bear in mind that over the time horizon you are talking about, the practical impact of inflation will be quite limited. Inflation for 2017 is forecast at 2.7%, and since you are talking about a bit less than all of 2017, and on average you'll be withdrawing your money halfway through, the overall impact will be <1.3% of your savings. You should consider whether the effort and risk involved in an alternative is worth a few hundred pounds. If you still want to beat inflation, the best suggestion I have is to look at peer-to-peer lending. That comes with some risk, but I think over the course of 1 year, it's quite limited. For example, Zopa is currently offering 3.1% on their \"\"Access\"\" product, and RateSetter are offering 2.9% on the \"\"Everyday\"\" product. Both of these are advertised as instant access, albeit with some caveats. These aren't FSCS-guaranteed bank deposits, and they do come with some risk. Firstly, although both RateSetter and Zopa have a significant level of provision against bad debt, it's always possible that this won't be enough and you'll lose some of your money. I think this is quite unlikely over a one-year time horizon, as there's no sign of trouble yet. Secondly, there's \"\"liquidity\"\" risk. Although the products are advertised as instant access, they are actually backed by longer-duration loans made to people who want to borrow money. For you to be able to cash out, someone else has to be there ready to take your place. Again, this is very likely to be possible in practice, but there's no absolute guarantee.\"","I came up with a real way. I saw once the market be so dumb as to allow this to work. Inflation rate = 2.5%. Home interest rate = 3%. Tax deduction = 1%. Money spent on inflation-adjusted I bonds (at the time these paid 0% net, that is 2.5% gross). Result, .5% profit after accounting for inflation. The kicker: Uncle Sam's I bonds are tax free. Sure it's not possible today, but the rates occasionally drop low enough.","why should i have to make something with my cash? i'll fuking hold it and face losing a few percentage of purchasing power. i'd rather have liquity in these peril times. besides, people that held cash in 2008 had a once in a life time buying opportunity when all assets fell 60-90%.","You are not missing something basic. Putting money in the bank will cost you in terms of purchasing power. The same thing has been true in the US and other places for a long time now. The real interest rate is negative--there is too much aggregate wealth being saved compared to the number of profitable lending opportunities. That means any truly risk-free investment will not make as much money as you will lose to inflation. If the real interest rate appears to be positive in your home country it means one of the following is happening: Capital controls or other barriers are preventing foreigners from investing in your home country, keeping the interest rate there artificially high Expected inflation is not being measured very accurately in your home country Inflation is variable and unpredictable in your home country, so investors are demanding high interest rates to compensate for inflation risk. In other words, bank accounts are not risk-free in your home country. If you find any securities that are beating inflation, you can bet they are taking on risk. Investing in risky securities is fine, but just understand that it's not a substitute for a risk-free bank account. Part of every interest rate is compensation for the time-value-of-money and the rest is compensation for risk. At present, the global time-value-of-money is negative.","Transfer your savings to a dollar-based CD. Or even better, buy some gold on them.","Hmm, looking at the macro economy, hoarding money will decrease the monetary supply, so the Fed will offset that with increases to the monetary supply to achieve target interest rates. Which will lead to higher inflation, hurting your savings minus debt. Exactly what's going on in the rest of the economy. For investment sake, can't you find something with at least some sort of return, rather than getting nothing with physical currency?","You could buy Bitcoins. They are even more deflationary than Swiss Francs. But the exchange rate is currently high, and so is the risk in case of volatility. So maybe buy an AltCoin instead. See altcoin market capitalization for more information. Basically, all you'd be doing is changing SwissFrancs into Bitcoin/AltCoin. You don't need a bank to store it. You don't need to stockpile cash at home. Stays liquid, there's no stock portfolio (albeit a coin portfolio), unlike in stocks there are no noteworthy buy and sell commissions, and the central bank can't just change the bills as in classic-cash-currency. The only risk is volatility in the coin market, which is not necessarely a small risk. Should coins have been going down, then for as long as you don't need that money and keep some for everyday&emergency use on a bank account, you can just wait until said coins re-climb - volatility goes both ways after all.","In October 2011 in the United States, you just don't have any options. Save your money in a savings account and that is the best you can do. Your desire to buy a house means you are a saver not an investor, and you risk tolerance on this pile of money is 0. Save it in a bank account; I highly doubt chasing an interest rate will pay off with any significance. (being highly dependent on your opinion of significant)","Yes, and there are several ways, the safest is a high-yield savings account which will return about 1% yearly, so $35 per month. That's not extremely much, but better than nothing (you probably get almost zero interest on a regular checking account).","First of all, look for a savings account with a decent interest rate. Online banks are good at offering those, and you can transfer your money back and forth from the checking account with a couple of business days' delay. ING Direct offers 1.1% APY right now - lame, but much better than nearly-nothing. If you'd like a little nicer rate of return you should also consider putting some of the money (the part you need least) in a short- or intermediate-term bond ETF or mutual fund. You can sell them quite readily, they pay more interest than a savings account, and because of the shorter maturities involved the interest rate risk is limited. (That's the one that makes your bonds less valuable now because the rates went up after you bought them.) I have some NYSE:BIV that's yielding 3.8% or so.","\"True, absolutely safe are only death and taxes. Apparently [US treasuries](https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield) yield far less than 3,5-4%, but I guess that's as \"\"100% safe\"\" as it gets. However, best I could find while talking to various banks was a reverse convertible bond that yields 3,5% per year, tax excluded. Worst case scenario: 1) I got all my money back and gained 3,5% for one year. 2) after a few years, I find myself with pretty valuable shares and still cashed in the yearly 3,5%. I was wondering if I got lucky with that, or if there are better things out there and if yes, where I should look. Honestly, in the age of negative interests, I'm more than happy to get enough interest to counter inflation.\"","First thing's first: migrate your savings to an interest-bearing savings account (such as from Ally Bank). While it still lags behind inflation, 0.84% is still better than 0.00%. Short-term CDs are also an option. I've personally thought about experimenting with peer-to-peer lending, but a few thousand in savings isn't all that much in the grand scheme of things, and you don't want it tied up in a risky, speculative loan when you might need it the most. As the others have said, the general savings rules apply too: pay off high-interest debt, divert more money into your 401k (especially if you aren't hitting the match yet), then work on either whittling down other debts or saving more for a big purchase in the future.","If you're absolutely certain that you won't buy a house within a year or so, I'd still be tempted to put some of the money into short-term CDs (ie, a max of 12 months). I think that at the moment CDs are a bit of a mug's game though because you'd hardly find one that offers better interest rates than some of the few savings accounts that still offer 1%+ interest. A savings account is probably where I'd put the money unless I could find a really good deal on a CD, but I think you might have to check if they've got withdrawal limits. There are a couple of savings accounts out there that pay at least 1% (yes, I know it's pitiful) so I'd seek out one or two of those. From memory, both Sallie Mae and Amex offer those and I'm sure there are a couple more. It's not great that your money is growing at less than inflation but if you're saving for something like a downpayment on a house I would think that (nominal) capital preservation is probably more important than the potential for a higher return with the associated higher risk.","Put them in Cds. Better than a savings account, you won't lose capital unlike the stock market.","Never invest money you need in the short term. As already suggested, park your money in CDs.","I was asking myself the exact same thing. And i have come to the conclusion that most of your money should be invested, In index etfs and maybe some bond etfs too. If Inflation is about 2% and the interest you make in a savings account is less than 1%. Your actually loosing money in a savings account. Keep a few thousand bucks in your savings account and the majority invested and working for you.","Inflation protected securities (i-bonds or TIPS). TIPS stands for Treasury Inflation Protected Securities. By very definition, they tend to protect your savings against inflation. They won't beat inflation, but will keep up with it. TIPS or iBonds have two parts. A fixed interest part and a variable interest portion which varies depending upon the current rates. The combined rate would match the inflation rate. They can be bought directly from the treasury (or from a broker or bank who might charge a commission)","I'm new to this, but how about putting a big part of your money into an MMA? I don't know about your country, but in Germany, some online banks easily offer as much as 2.1% pa, and you can access the money daily. If you want decent profit without risk this is a great deal, much better than most saving accounts.","\"If you don't want to take any risk and you want your money to be liquid, then the best place to \"\"invest\"\" such money is in an insured bank deposit, such as a high interest savings account. However, you aren't likely to find a savings account interest rate that comes close to that charged by your mortgage, so the better decision from a numbers perspective is to pay down more on your mortgage or other debt. Paying down your debt has almost no risk, but has a better payoff than simply saving the money in a bank account. However, if you choose to pay down more debt, I suggest you still keep aside enough cash to have an adequate emergency fund. Since you want safety and liquidity, don't expect high returns from such money.\"","Your goals are mutually exclusive. You cannot both earn a return that will outpace inflation while simultaneously having zero-risk of losing money, at least not in the 2011 market. In 2008, a 5+% CD would have been a good choice. Here's a potential compromise... sacrifice some immediate liquidity for more earnings. Say you had $10,000 saved: In this scheme, you've diversified a little bit, have access to 50% of your money immediately (either through online transfer or bringing your bonds to a teller), have an implicit US government guarantee for 50% of your money and low risk for the rest, and get inflation protection for 75% of your money.","\"Your #1 problem is the Government both in it's form as a taxation outfit and as a 'law and order' outfit. You'd be very surprised at how fast a bank seizes your bank account in response to a court order. Purchase 100 Mexican 50 Peso Gold (1.2 oz/ea). These coins are cheap (lowest cost to get into) and will not be reportable on sale to taxing authorities. That money is out of the banking system and legal system(s). Do not store them in a bank! You need to find a tax strategist, probably a former IRS agent / CPA type. With the rest remaining money... There's an old saying, Don't fight the Fed. As well as \"\"The trend is your friend\"\". So, the Fed wants all savers fully invested right now (near 0 interest rates). When investing, I find that if you do exactly opposite what you think is the smart thing, that's the best thing. Therefore, it follows: 1) Don't fight the Fed 2) Do opposite of smart 3) Do: Fight the Fed (and stay 100% out of the market and in cash) We're looking like Japan so could remain deflationary for decades to come. Cash is king...\"","If this is truly your emergency fund, then you should keep the money safe. Unfortunately interest rates are very low right now and there is not much you can do about that. However, ask your investment advisor for a CDIC insured high interest account, such as these:","\"Safe short term and \"\"pay almost nothing\"\" go hand in hand. Anything that is safe for the short term will not pay much in interest/appreciation. If you don't know what to do, putting it in a savings account is the safest thing. The purpose of that isn't to earn money, it's just to store the money while you figure out where to move it to earn money.\"","\"You have several options depending on your tolerance for risk. Certainly open an investment account with your bank or through any of the popular discount brokerage services. Then take however much money you're willing to invest and start earning some returns! You can split up the money into various investments, too. A typical default strategy is to take any money you won't need for the long term and put it in an Index Fund like the S&P 500 (or a European equivalent). Yes, it could go down, especially in the short term, but you can sell shares at any time so you're only 2-3 days away at any time from liquidity. Historically this money will generate a positive return in the long run. For smaller time frames, a short-term bond fund often gives a slightly better return than a money market account and some people (like me!) use short-term bond funds as if it were a money market account. There is a very low but real risk of having the fund lose value. So you could take a certain percentage of your money and keep it \"\"close\"\" in a bond fund. Likewise, you can sell shares at any time, win or lose and have the cash available within a couple days.\"","\"If you think your cash will buy fewer goods in the future due to inflation, are there goods you will want or need in the future that you can purchase now? I think the cost of storage would need to be less than the inflation in price for this to make sense. If you used commodity trading there may not actually be a storage cost but likely some fees involved that would need to be weighed against the expected inflation. Basically if \"\"things\"\" are going to cost more in the future, making your cash worth less, can you convert cash into \"\"things\"\" before prices escalate?\"","If I have $100 and put it under the bed it will return 0%. Relatively good in a bear market and relatively bad in a bull market.","Best thing to do is convert your money into something that will retain value. Currency is a symbol of wealth, and can be significantly devalued with inflation. Something such as Gold or Silver might not allow you to see huge benefit, but its perhaps the safest bet (gold in particular, as silver is more volatile), as mentioned above, yes you do pay a little above spot price and receive a little below spot when and if you sell, but current projections for both gold and silver suggest that you won't lose money at least. Safe bet. Suggesting it is a bad idea at this time is just silly, and goes against the majority of advisers out there.","You should talk to a financial fiduciary (make sure they are a fiduciary, not all planners are) about investing your money. Even ultra safe investments such as treasury bonds will beat the 1% interest rate offered by your savings account (the yield on the 5 year treasury is currently around 2%).","If you ever need the money in three years, imagine that today is 2006 and you need the money in 2009. Keep it in savings accounts, money-markets, or CDs maturing at the right time.","\"No. The solution is to simply not force people to use a specific money, ie abolish \"\"legal tender laws\"\". This way, people would save in currencies that have the best-reputation for maintaining their value over time, and no central bank can print their buddies out of bankruptcy at the expense of hardworking savers.\"","CDs or money market funds. Zero-risk for the CD and ultra-low risk for the money market account; better return than most savings accounts.","With the requirement that the money is 100% available immediately and that you can not suffer a loss of principal, the suggestions you gave of an online savings account is a good one. Personally, I use ING.","Remove your money. If you do not need this money for some time, you can convert it to Gold, and now is a good time to buy. Gold is not expected to decrease much in price as we're already at the bottom of the employment cycle and the Depression is already begun and will take about two years to grip the world.","So for each thousand dollars saved you will earn $1.50 more each year. It is up to you to decide whether it is worth the hassle.","It is my understanding that banks pay less than the going rate on savings accounts and require that the person who takes out a loan pay more than the going rate. That is how the bank gets its money. Usually the going rate is affected by the current inflation rate (but that has not been true for the last few weeks). So that means that, typically, the money you have in the bank is, gradually, losing purchasing power as the bank typically pays you less than the inflation rate. So if you want your money to keep pace with inflation (or do a bit better) then you should buy bonds.","Invest in kids, not pension - they never inflate. Without kids your retirement will be miserable anyway. And with them you'll be good. Personally, I do not believe that that our current savings will be worth it in 30 years in these times.","The question in my view is going into Opinion and economics. Why would I buy a bond with a negative yield? I guess you have answered yourself; Although the second point is more relevant for high net worth individual or large financial institutions / Governments where preserving cash is an important consideration. Currently quite a few Govt Bonds are in negative as most Govt want to encourage spending in an effort to revive economy.","\"Is it safe? No in general. Are there any other safe \"\"paper\"\" ways to invest money let's say for 30 years and be sure nothing will happen to them and you will end your life without relying on pension? No. In these times only real properly gives you some sort of warranty in 5-30 years term. Land, buildings, production lines. Not necessary in US - lots of countries have 0 or fairly low property tax. Some gold, platinum, silver and other rare elements to diversify. - This is the only way you can be sure you will not suddenly loose everything.\"","\"Historically, most economists considered a sustained negative interest rate impossible for just the reason you describe: an investor could outperform a bond with a negative interest rate by simply hoarding cash. For background, see Wikipedia. Experimentation by central banks in the wake of the 2007 financial crisis, however, demonstrates that slightly negative interest rates are possible. First of all, note that the \"\"zero lower bound\"\" on interest rates has everything to do with the existence of cash as an alternative. It's a lower bound on the nominal interest rate, rather than the real interest rate—that is, on the rate before adjusting for inflation. In most situations, the real interest rate is more economically meaningful, as it's the real interest rate that measures the market's preference for \"\"stuff now\"\" as opposed to \"\"stuff later.\"\" There's nothing in principle or in practice to stop a negative real interest rate: there are always some people who want stuff now and some people who want stuff later; a negative real interest rate just means that people who want stuff later are more dominant in the market. As I stated earlier, what creates the \"\"zero lower bound\"\" is the existence of cash as an alternative to bonds. Even though that lower bound applies, it's not strict: hoarding cash in large quantities can be difficult and expensive, especially when central banks are doing their best to prevent you from doing it. Consequently, investors who strongly prefer \"\"stuff later\"\" to \"\"stuff now\"\" are willing to pay a slightly negative nominal interest rate on bonds in order to avoid those costs. If it were significantly negative, however, you're right that no sane investor would buy such a bond.\"","You are a saver, not an investor. Your time period is simply too short. You are stuck putting your money into less productive, but safe savings accounts.","Precious metals, treasury bonds, real estate, etc. These are good investments that generally produce low income with low risk. In order to get the economy back to work we need capital to invest in riskier, but more productive endeavors.","US Treasury securities are the safest investment. You can buy short term by buying T-Bills. You buy T-bills at a discount to face. For example, to buy a four week T-bill the treasury will take $99.98 out of your account. In four weeks the treasury will deposit $100 into your account. The $0.02 difference is your Intrest on the loan. Compounded over a year (13 four week periods) you get a 0.24% interest. But (presumably) more importantly (to you) you get your original $99.98 back. Your government cannot nationalize money that you have on loan to the United States Government. Edit : oops, I dropped a decimal position in my original calculation of compounded rate of interest. It is now corrected.","\"Yes... but it is a matter of balancing risks. It is wiser to keep a small amount of \"\"ready cash\"\" as an emergency/buffer -- and to suffer the gradual loss to inflation... Than it is risk becoming \"\"stuck\"\" in an emergency with zero dollars in any (low or no cost) source of funds -- those kinds of \"\"emergencies\"\" ($500 or $1,000 \"\"unexpected/unbudgeted\"\" expenses) are fairly frequent and virtually inevitable. You lose vastly MORE money when you are forced to borrow those amounts (interest -- even **low-rate** loans -- is virtually always higher than the average inflation rate).\"","A somewhat provocative (but not unserious) proposal: Rent, don't buy a house to live in. In 2007/8, the thing that got many people in deep trouble is their mortgage. It's not a productive investment but a speculative bet on what was in fact a bubble and a class of assets that is notoriously slow to recover after a slump. Before thinking about your savings or buying into silly ideas about gold, you should realise that as a middle class worker, the biggest risk after a crisis is losing your job. Renting your accommodation means being able to downgrade or move very quickly and not being forced to sell a house at the worse possible time. If you really do need to liquidate some of your investments at a bad time, having a more diversified portfolio means that you are not losing everything to meet some short-term obligations. Assuming you're in the US, this means forgoing some nice tax advantages that might be too tempting to resist (I'm not so I am basing this on what I read on this site) but, bubbles aside, there is nothing that makes real estate a particularly good investment as such, especially if you also live in the house you're buying. You might very well come out on top but you expose yourself to several risks and are less prepared to face a crisis.","One issue which I don't see addressed in the answers so far is how to structure bank accounts to get the highest return possible. What you're describing sounds like a certificate of deposit (CD): 'ranging from 1% for 9 months to 2.3% for 5 years' There is a concept which was once more common called a CD Ladder, which still allows you to access your money, while also giving you the highest interest rate offered by the bank. To set one up you divide your account into 5 equal parts, then open 5 CDs with different periods (1-5 years). Each time a new CD matures (once a year), you purchase another 5 year CD with those funds, plus any new money you want to save. Thus you're getting a higher and higher rate, until all of your accounts are earning the 5 year CD rate, and you're never more than a year away from getting money out of the account if a need comes up.","I recommend an online savings account. The money is more liquid without early withdrawal fees and frequently you can get a visa/mastercard check card to access the funds. Looking at interest rates, ING is currently paying 1.10% and bankrate reports the best interest rate in the country on a 1 year CD is 1.33%. The .23% difference is not enough to convince me to invest in CDs at a fixed rate vs. an online savings account at a variable rate when we are at (or near) the bottom of CD/savings interest rates.","While it’s your personal choice on HOW you save for later its essential that you save. My sister works in a bank and recommended me not to put any money into retirement plans since the tax-advances seem fine but have to paid back when you take the money out of the accounts (in Switzerland, don't know about the united states). Many reasons exist that you suddenly need the money: Buying a house, needing a new car, health issues or just leaving the country forever (and the government trying to make it as hard as possible for you to get your money back). I recommend putting it on a savings account on a different bank that you normally use, without any cards and so on. In short: It can be dangerous to have money locked away – especially if you could easily have it at your hands and you know you're able to manage it.","\"Edited answer, given that I didn't address the emergency fund aspect originally: None. You've said you don't feel comfortable locking it away where you wouldn't be able to get to it in an emergency. If you don't like locking it away, the answer to \"\"How much money should I lock up in my savings account?\"\" is none. On a more personal note, the interest rates on bonds are just awful. Over five years, you can do better.\"","I assume you're looking for advice, not an actual guaranteed-to-appreciate answer, yes? If you believe Treasury bonds will increase as fast as inflation, that may be the way to go.","\"For a two year time frame, a good insured savings account or a low-cost short-term government bond fund is most likely the way I would go. Depending on the specific amount, it may also be reasonable to look into directly buying government bonds. The reason for this is simply that in such a short time period, the stock market can be extremely volatile. Imagine if you had gone all in with the money on the stock market in, say, 2007, intending to withdraw the money after two years. Take a broad stock market index of your choice and see how much you'd have got back, and consider if you'd have felt comfortable sticking to your plan for the duration. Since you would likely be focused more on preservation of capital than returns during such a relatively short period, the risk of the stock market making a major (or even relatively minor) downturn in the interim would (should) be a bigger consideration than the possibility of a higher return. The \"\"return of capital, not return on capital\"\" rule. If the stock market falls by 10%, it must go up by 11% to break even. If it falls by 25%, it must go up by 33% to break even. If you are looking at a slightly longer time period, such as the example five years, then you might want to add some stocks to the mix for the possibility of a higher return. Still, however, since you have a specific goal in mind that is still reasonably close in time, I would likely keep a large fraction of the money in interest-bearing holdings (bank account, bonds, bond funds) rather than in the stock market. A good compromise may be medium-to-high-yield corporate bonds. It shouldn't be too difficult to find such bond funds that can return a few percentage points above risk-free interest, if you can live with the price volatility. Over time and as you get closer to actually needing the money, shift the holdings to lower-risk holdings to secure the capital amount. Yes, short-term government bonds tend to have dismal returns, particularly currently. (It's pretty much either that, or the country is just about bankrupt already, which means that the risk of default is quite high which is reflected in the interest premiums demanded by investors.) But the risk in most countries' short-term government bonds is also very much limited. And generally, when you are looking at using the money for a specific purpose within a defined (and relatively short) time frame, you want to reduce risk, even if that comes with the price tag of a slightly lower return. And, as always, never put all your eggs in one basket. A combination of government bonds from various countries may be appropriate, just as you should diversify between different stocks in a well-balanced portfolio. Make sure to check the limits on how much money is insured in a single account, for a single individual, in a single institution and for a household - you don't want to chase high interest bank accounts only to be burned by something like that if the institution goes bankrupt. Generally, the sooner you expect to need the money, the less risk you should take, even if that means a lower return on capital. And the risk progression (ignoring currency effects, which affects all of these equally) is roughly short-term government bonds, long-term government bonds or regular corporate bonds, high-yield corporate bonds, stock market large cap, stock market mid and low cap. Yes, there are exceptions, but that's a resonable rule of thumb.\"","Unfortunately, in this market environment your goal is not very realistic. At the moment real interest rates are negative (and have been for some time). This means if you invest in something that will pay out for sure, you can expect to earn less than you lose through inflation. In other words, if you save your $50K, when you withdraw it in a few years you will be able to buy less with it then than you can now. You can invest in risky securities like stocks or mutual funds. These assets can easily generate 10% per year, but they can (and do) also generate negative returns. This means you can and likely will lose money after investing in them. There's an even better chance that you will make money, but that varies year by year. If you invest in something that expects to make 10% per year (meaning it makes that much on average), it will be extremely risky and many years it will lose money, perhaps a lot of it. That's the way risk is. Are you comfortable taking on large amounts of risk (good chances of losing a lot of your money)? You could make some kind of real investment. $50K is a little small to buy real estate, but you may be able to find something like real estate that can generate income, especially if you use it as a down payment to borrow from the bank. There is risk in being a landlord as well, of course, and a lot of work. But real investments like that are a reasonable alternative to financial markets for some people. Another possibility is to just keep it in your bank account or something else with no risk and take $5000 out per year. It will only last you 10 years that way, but if you are not too young, that will be a significant portion of your life. If you are young, you can work and add to it. Unfortunately, financial markets don't magically make people rich. If you make a lot of money in the market, it's because you took a risk and got lucky. If you make a comfortable amount with no risk, it means you invested in a market environment very different from what we see today. --------- EDIT ------------ To get an idea of what risk free investments (after inflation) earn per year at various horizons see this table at the treasury. At the time of this writing you would have to invest in a security with maturity almost 10 years in order to break even with inflation. Beating it by 10% or even 3% per year with minimal risk is a pipe dream.","You should invest a trivial (<500$USD) amount of money in a stock portfolio. If you aren't able to make more on the market than the interest rates of your loans, you are losing money. This question has discussed this topic as well.","There is no absolute answer to this as it depends on your particular situation, but some tips: As to investing versus saving, you need to do some of both: Be careful about stockpiling too much in bank accounts. Inflation will eat that money up over time to the tune of 3-4%/year. You are young and have a longer investment horizon for retirement, take advantage of that and accept a little more risk while you can.","You're losing money. And a lot of it. Consider this: the inflation is 2-4% a year (officially, depending on your spending pattern your own rate might be quite higher). You earn about 1/2%. I.e.: You're losing 3% a year. Guaranteed. You can do much better without any additional risk. 0.1% on savings account? Why not 0.9%? On-line savings account (Ally, CapitalOne-360, American Express, E*Trade, etc) give much higher rates than what you have. Current Ally rates are 0.9% on a regular savings account. 9 times more than what you have, with no additional risk: its a FDIC insured deposit. You can get a slightly higher rate with CDs (0.97% at the same bank for 12 months deposit). IRA - why is it in CD's? Its the longest term investment you have, that's where you can and should take risks, to maximize your compounding returns. Not doing that is actually more risky to you because you're guaranteeing compounding loss, of the said 3% a year. On average, more volatile stock investments have shown to be not losing money over periods of decades, even if they do lose money over shorter periods. Rental - if you can buy a property that you would pay the same amount of money for as for a comparable rental - you should definitely buy. Your debt will be secured by the property, and since you're paying the same amount or less - you're earning the equity. There's no risk here, just benefits, which again you chose to forgo. In the worst case if you default and walk away from the property you lost exactly (or less) what you would have paid for a rental anyway. 14 years old car may be cheaper than 4 years old to buy, but consider the maintenance, licensing and repairs - will it not some up to more than the difference? In my experience - it is likely to. Bottom line - you think you're risk averse, but you're exactly the opposite of that.","As no one has mentioned them I will... The US Treasury issues at least two forms of bonds that tend to always pay some interest even when prevailing rates are zero or negative. The two that I know of are TIPS and I series bonds. Below are links to the descriptions of these bonds: http://www.treasurydirect.gov/indiv/research/indepth/tips/res_tips.htm http://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm","Would it be a reasonable idea to open a savings account in an overseas bank? For the risks you mention, this may not be a good idea for individual. Note HNI / Companies routinely keep funds in various overseas account. For individual the amount of paperwork [reporting in US etc] and fees etc would be high. Plus in adverse conditions, access to this funds would still be stringent and restricted. Some of the other options you can try are Generally for the risks you mention, there is very little an individual can do except to take it if & when it comes.","I do this very thing, but with asset allocation and risk parity in mind. I disagree with the cash or bust answers above, but many of the aforementioned facts are valuable and I don't mean to undermine them in anyway. That said, let's look at two examples: Option 1: All-in For the sake of argument let's say you had $100k invested in the SPY (S&P 500 ETF) in early 2007, and you kept it there until today. Your lowest balance would have been about $51k, and at this point the possibility of you losing your job was probably at a peak. Today you would be left with $170k assuming no withdrawal. Option 2: Risk Parity BUT if you balanced your investments with a risk parity approach, using negatively correlated asset classes you avoid this dilemma. If you had invested 50% in XLP (Consumer Staples Sector ETF) and 50% in TLT ( Long Term Treasury ETF) your investments low point would have been $88k, and your lowest annual return would be +0.69%. Today you would be left with $214k assuming no withdrawals. I chose option #2 and it hasn't failed me yet, even in 2016 so far the results are steady and reliably given the reward. My general opinion is simple: when you have money always grow it. Just be sure to cover your ass and prepare for rain. Backtesting for this was done at portfoliovisualizer.com, the one caveat to this approach is that inflation and a lack of international exposure are a risk here.","\"Ultimately, money derives its value from being spend on a good or service. Investing it is an act of denying your present-self a good or service so that your future-self can obtain (hopefully more) goods or services. Investing is a sensible and responsible default position, but you clearly have passed the point at which the opportunity cost of the dollar not spent today is greater than its benefit in the future. Not all dollars are the same. Remember that money is a temporary store of value but you have to spend it to realize that value. In your search, learn about the \"\"psychology of money.\"\" What are you saving it for? How much do you want left over when you die? If you die tomorrow, will you regret not having spend a little more? I'm sorry to get morbid on you, but saving for the future requires answering the question \"\"How long?\"\" and it's never forever. This may be tangential but it shaped my behaviour towards money nonetheless: Frank Zimbardo on The Psychology of Time. I would hazard a guess and say that you land in the future-oriented camp.\"","I can think of three things you might do: Talk to a fee-only adviser. As the comments suggest, this would only be one or two sessions to lay out what all you have, establish what you want it to do, and write a plan that you are comfortable carrying out yourself. What do your 401k and Roth IRA look like? If you mean for this money to be long-term, then your retirement portfolio might be a good place to start. I don't currently own them, but one of my personally hobby horses is I-Series Savings Bonds, commonly called I Bonds. Even in the current low interest rate environment, they are a good deal relative to everything else out there. I summarized this more fully in my answer to another question. You can invest up to $10,000 per SSN per year, and the interest rate is the sum of a fixed rate plus a floating rate based on CPI. Currently the fixed rate is 0%, but the floating rate is better than what you can get from most other cash-like instruments.","There many car loans at zero percent interest. Finance the car at zero percent, then take your money and invest it. If you want to be super safe buy a CD the same length as the car loan. 5 years you will get 2%. If you still want safety and a better return take up a asset allocation strategy that moves your cash to risky assets when the market is performing well, then to cash, bonds, or cds when the market under-performs. Now you have your car with a zero percent loan and you are making the return on the money instead of the car company.","You can earn significantly more than 0.99% in the stock market. I'd pay the $450/month and invest the rest in a (relatively conservative) stock market fund, making monthly withdrawals for the car note.","Look at my answer here, and then calculate again. If you keep on saving and keep on paying off your highest interest rate loan, you'll be 'making' money. Also look at this answer here for saving or paying back. Basically, you should always calculate whether the money you have is better 'spend' in a savings account or as a return payment to your loan. Always tackle the highest interest loan first. My 0,02€","\"In personal finance, most of your success is determined by personal habit rather than financial savvy. Getting in the habit of making regular deposits to your savings account will have a much larger effect on your situation than worrying about which account pays the highest interest rate (particularly as neither one of them matches the current inflation rate, which is over 3%). So go ahead and put your money in a savings account, but not because of the interest or safety, but because it's a \"\"savings\"\" account.\"","It's not pre-tax but you can consider some short term municipal bonds. The interest is tax free. I would keep to short term ones (1 year maturity), so that you aren't affected by big swings in interest rates and can get your money back within a year.","\"What about getting the saving account - \"\"Bausparen\"\" (~100EUR/month) which you can later use for credit to get better mortgage deal and to buy a flat for renting to others (Anlegerwohnung)?\"","Depends what kind of expenses you intend to use this money for. If you plan to buy housing in the future (eg you're saving a deposit), then you need to ensure that the value doesn't deteriorate relative to the value of the housing you are likely to buy - so you could buy a Residential REIT, or buy some investment property. If you expect to use this money for food, then you should buy suitable assets (eg Wheat futures, etc). Link the current asset to the future expense, and you will be fine. If you buy Gold, then you are making a bet that Gold will retain its value compared to the thing you want to purchase in future. It doesn't matter what the price of Gold does in $US.","but then they make suggestions such as paying extra each month on your mortgage. How else does one pay off his mortgage early other than by paying extra each month? The principal and interest are fixed, no matter how much money you throw at them. The interest rate is fixed. The total interest paid varies depending on how much extra you pay towards the principal. You'll pay the same amount every month regardless. That's factually incorrect. just put the extra money into savings At 1.2%, if you're smart enough to put it in an on-line savings account. until you have enough to pay off the mortgage Which costs you 3.5%. This way, the money is locked up in your home. Who says that all of your money must be locked up in your home? (I'm sure that there are financial advisors who recommend that you throw every single spare dime into extra mortgage payments, but they're rare.) Am I missing something? Yes: the mathematical sense to see that a 3.5% loan costs more than than 1.2% savings earns you","Save enough to build an emergency cushion of 4-6 months total expenses. After that, invest everything you can in areas where you are well researched and have carefully formed your own opinion on the subject. Those who save do not reach financial freedom, those who learn to invest and make their money work for them do. Invest in learning how to invest.","In france you have several options: A good place to starts with: 1% as of may 2015 interest is low, but's money is 100% liquid (you can withdraw antime). You got slightly superior interest rates, and have to wire at least 45€ a month on it. It gives you lots of advantages if you use it to buy a house. You cannot use the money unless you close the account, so it's not as flexible. You get 2% rates as of may 2015 which is quite good. [If you open this account now, it's only 1% making it not so attractive. Look at Life Insurance Instead.] This one is useless: interest rate is too low. I highly recommend this one. You can open it with 0 cost with several online banks (ing, boursorama, ...) Minimum deposit should be around 1000€. Rate is flexible, but usually higher than what you get with the others. You shouldn't withdraw the money before 8 years (because of taxes, but you can still do it if you need). You can add money on it later if you want. Because of the 8 year duration, it's better to open one as soon as you can, even with the minimum amount. Open an PEL + Livret A + Life insurance. Put the minimum on both PEL + life insurance. Put every thing else on Livret A. If you are 100% sure you don't need some of the livret A money, send it to PEL. [As of 2017, PEL is not so attractive anymore. Bet on the Life Insurance instead, unless your account was open prior to this].","Money you need in less than 5 years should be saved not invested. The only place I would be comfortable the money would be a money market account or Certificate of Deposit (CD). I usually go for the money market account because they pay at or close to CD rates and there are no restrictions on getting to the money. However in this case I might choose a CD to keep me from being tempted to borrow some of it for something else. But even after typing that I still think I would put it in a money market, because if interest rates rise they rise in the money market but not the CD, and I just don't think interest can go much lower.","Buy a home. A home is the first and best investment, u can own a home with as little as 3% down and as u pay for your living u pay it off.....also banks will always give you equity loans in case you need your money","Reversing your math, I am assuming you have $312K to work with. In that case, I would simply shop around your local banks and/or credit unions and have them compete for your money and you might be quite surprised how much they are willing to pay. A couple of months ago, you would be able to get about 4.25% from Israel Bonds in Canada on 5 years term (the Jubilee product, with minimum investment of $25K). It's a bit lower now, but you should still be able to get very good rates if you shop around tier-2 banks or credit unions (who are more hungry for capital than the well-funded tier-1 banks). Or you could look at preferred shares of a large corporation. They are different from common shares in the sense they are priced according to the payout rate (i.e. people buy it for the dividend). A quick screen from your favorite stock exchange ought to find you a few options. Another option is commercial bonds. You should be able to get that kind of return from investment grade (BBB- and higher) bonds on large corporations these days. I just did a quick glance at MarketWatch's Bond section (http://cxa.marketwatch.com/finra/BondCenter/Default.aspx) and found AAA grade bonds that will yield > 5%. You will need to investigate their underlying fundamentals, coupon rate and etc before investing (second thought, grab a introduction to bonds book from Chapters first). Hope these helps.","$23,000 Student Loans at 4% This represents guaranteed loss. Paying this off quickly is a conservative move, while your other investments may easily surpass 4% return, they are not guaranteed. Should I just keep my money in my savings account since I want to keep my money available? Or are there other options I have that are not necessarily long term may provide better returns? This all depends on your plans, if you're just trying to keep cash in anticipation of the next big dip, you might strike gold, but you could just as easily miss out on significant market gains while waiting. People have a poor track record of predicting market down-turns. If you are concerned about how exposed to market risk you are in your current positions, then you may be more comfortable with a larger cash position. Savings/CDs are low-interest, but much lower risk. If you currently have no savings (you titled the section savings, but they all look like retirement/investment accounts), then I would recommend focusing on that first, getting a healthy emergency fund saved up, and budgeting for your car/house purchases. There's no way to know if you'd be better off investing everything or piling up cash in the short-term. You have to decide how much risk you are comfortable with and act accordingly.","If you are just trying to curb impulse spending I'd suggest the following: 1) Set up a separate bank account for your savings - Do not order checks or a debit card for this account. 2) Get your employer to split your paycheck to put the saving amount in the new account (most employers will do this) The trick to avoid impulse spending is to make it a chore to get at the money. With the above arrangement you would have to physically go to the bank, fill out a withdrawal slip and get cash. This way you still can access the money in an emergency, but it forces you to plan things out better.","Lets imagine two scenarios: 1) You make 10.4k (40% of total income) yearly contributions to a savings account that earns 1% interest for 10 years. In this scenario, you put in 104k and earned 5.89k in interest, for a total of 109.9k. 2) You make the same 10.4k yearly contribution to an index fund that earns 7% on average for 10 years. In this scenario you put in the same 104k, but earned 49.7k in interest*, for a total of 153.7k. The main advantage is option 1) has more liquidity -- you can get the money out faster. Option 2) requires time to divest any stocks / bonds. So you need enough savings to get you through that divestment period. Imagine another two scenarios where you stop earning income: 1-b) You stop working and have only your 109.9k principal amount in a 1% savings account. If you withdraw 15.6k yearly for your current cost of living, you will run through your savings in 7 years. 2-b) You stop working and have only 20k (2 years of savings) in savings that earns 1% with 153.7k in stocks that earns 7%. If you withdraw your cost of living currently at 15.6k, you will run through your investments in 15 years and your savings in 2 years, for a total of 17 years. The two years of income in savings is extremely generous for how long it starts the divestment process. In summary, invest your money. It wasn't specified what currency we are talking about, but you can easily find access to an investment company no matter where you are in the world. Keep a small amount for a rainy day.","\"Your only real alternative is something like T-Bills via your broker or TreasuryDirect or short-term bond funds like the Vanguard Short-Term Investment-Grade Fund. The problem with this strategy is that these options are different animals than a money market. You're either going to subject yourself to principal risk or lose the flexibility of withdrawing the money. A better strategy IMO is to look at your overall portfolio and what you actually want. If you have $100k in a money market, and you are not going to need $100k in cash for the forseeable future -- you are \"\"paying\"\" (via the low yield) for flexibility that you don't need. If get your money into an appropriately diversified portfolio, you'll end up with a more optimal return. If the money involved is relatively small, doing nothing is a real option as well. $5,000 at 0.5% yields $25, and a 5% return yields only $250. If you need that money soon to pay tuition, use for living expenses, etc, it's not worth the trouble.\"","No, don't bother. You need to decide what you are saving for, and how much risk you are prepared to take. It would make sense if you wanted the money only in x years, and couldn't afford to lose say 20% or more if the stock market crashed the day before you needed the cash. Typically if you are about to retire and buy an annuity, you want to protect your capital. This isn't you. At 28, you might be saving for a wedding, a deposit on a house, possibly for school fees, or for eventual retirement. It doesn't sound like you need to get back exactly 24k in July 2022. Keep the 6 months expenses in accounts that you can withdraw from at short notice. Some of this in a current account, some might be in a savings account that doesn't pay interest if you make withdrawals. After that, I'd stick most of the rest in stock market tracker funds, but you might go for actively managed funds instead (ask another question and take professional advice, there will presumably be local tax considerations too), and add in most of your monthly savings too. These should beat the 2.3% over the 5 years, and you can liquidate them easily if you want to buy a house. If there is a recession and a stock market dip, you presumably have the flexibility to hold on to them longer for the economy to recover. And if you are intending to buy a house, then a recession will probably also involve a fall in house prices, so the loss in your savings will be somewhat balanced by the drop in the purchase price of your house. Of course, the worst case scenario is a severe downturn where you lose your job, are unemployed for a considerable period of time, burn through your emergency fund, and need to sell shares at a considerable loss to meet your expenses. You might have family or dependents that you can borrow from or would need to support, which would change your tolerance for risk. Having money locked away for 5 years in this scenario is even worse. So if you don't want to put all your non-emergency savings into the stock market, you still want to choose something that is accessible at a slightly lower interest rate. But ultimately it sounds like you can afford to lose some of your savings, and the probability is that you will be rewarded with much better returns than 2.3% over 5 years.","\"Gold is not an investment. Gold is a form of money. It and silver have been used as money much longer than paper. Paper money is a relatively recent invention (less than 350 years old) with a horrible track record of preserving wealth. When I exchange my paper US dollars for gold I'm exchanging one form of money for another. US dollars, or US Federal Reserve Notes to be more precise, can be printed ad nauseam by one bank that is totally private and is never audited. Keeping all of your savings in US dollars is ignoring history, it is believing the US Federal Reserve has your best interest in mind, it is hoping that somehow things will be different this time, it is believing that the US dollar will somehow magically be the first fiat currency to last a person's lifetime. TIPS may seem like a good hedge against inflation. However, the government offering TIPS is also the same government that is calculating the inflation rate used to adjust TIPS. What a great deal. If you do some research you discover that the method for calculating the consumer price index is always \"\"modified\"\" since it is always found to over estimate inflation. It is never found to under estimate inflation. Imagine that. Here is a chart showing the inflation rate as if it were calculated the same way as it was calculated in 1980. Buying any government debt is also a way to guarantee you or your children will be taxed in the future since the government will have to obtain the money from someone to pay back bonds. It's like voting for future taxes.\"","That very idea of saving is precisely what Fed monetary policy is trying to prevent. Create demand by forcing savers to spend... then barrow when they run out. You don't have money... you have the next bailout for the banks.","\"You are mixing issues here. And it's tough for members to answer without more detail, the current mortgage rate in your country, for one. It's also interesting to parse out your question. \"\"I wish to safely invest money. Should I invest in real estate.\"\" But then the text offers that it's not an investment, it's a home to live in. This is where the trouble is. And it effectively creates 2 questions to address. The real question - Buy vs Rent. I know you mentioned Euros. Fortunately, mortgages aren't going to be too different, lower/higher, and tax consequence, but all can be adjusted. The New York Times offered a beautiful infographing calculator Is It Better to Rent or Buy? For those not interested in viewing it, they run the math, and the simple punchline is this - The home/rent ratio can have an incredibly wide range. I've read real estate blogs that say the rent should be 2% of the home value. That's a 4 to 1 home/rent (per year). A neighbor rented his higher end home, and the ratio was over 25 to 1. i.e. the rent for the year was about 4% the value of the home. It's this range that makes the choice less than obvious. The second part of your question is how to stay safely invested if you fear your own currency will collapse. That quickly morphs into too speculative a question. Some will quickly say \"\"gold\"\" and others would point out that a stockpile of weapons, ammo, and food would be the best choice to survive that.\"","\"My guess is that the point is that yields on bonds and cash equivalents is so low that inflation will cause the inflation-adjusted returns to be negative. There is something to be said for how much inflation can eat out of investment returns. At the same time, I would note the occupation of the person making that post along with what biases this person likely has. \"\"Entrepreneur, Started & sold several cos, Author 11 books (latest \"\"Choose Yourself!\"\") , Angel Inv., JamesAltucher.com\"\" would to me read as someone that isn't who I'd turn for investment advice when it comes to employer-sponsored plans. Be careful of what you blindly follow as sometimes that is how wolves lead the sheep to slaughter.\"","It's nearly always a good idea to save for your future, if you don't already have sufficient funds to see out the rest of your days. The hardest part of the saving decision is knowing exactly what portion of your funds to save. If we save too aggressively, we risk having an adverse impact on our everyday life and, of course, there's always the possibility that we'll never make it to old age. But if we don't save, we risk the prospect of a poverty stricken retirement. It's not always easy to find a balance. The best solution is to make so much money that we cannot possibly spend it all!","Savings accounts have limitations in case a bank goes belly up and you have a higher amount in the account (more than the insured amount). Mostly big corporations or pension funds cannot rely on a bank to secure their cash but a government bond is secured (with some fine print) and hence they are willing to take negative interest rates.","Bank every dollar possible to have more cash available for investing during the 2008/2009 crisis.","It can be zero or negative given the current market conditions. Any money parked with treasury bonds is 100% risk free. So if I have a large amount of USD, and need a safe place to keep, then in today's environment even the banks (large as well) are at risk. So if I park my money with some large bank and that bank goes bankrupt, my money is gone for good. After a long drawn bankruptcy procedure, I may get back all of it or some of it. Even if the bank does not go bankrupt, it may face liquidity crises and I may not be able to withdraw when I want. Hence it's safer to keep it in Treasury bonds even though I may not gain any interest, or even lose a small amount of money. At least it will be very safe. Today there are very few options for large investors (typically governments and institutional investors.) The Euro is facing uncertainty. The Yuan is still regulated. There is not enough gold to buy (or to store it.) Hence this leads towards the USD. The very fact that USD is safe in today's environment is reflected in the Treasury rates.","BrenBarn did a great job explaining your options so I won't rehash any of that. I know you said that you don't want to save for retirement yet, but I'm going to risk answering that you should anyway. Specifically, I think you should consider a Roth IRA. When it comes to tax advantaged retirement accounts, once the contribution period for a tax year ends, there's no way to make up for it. For example in 2015 you may contribute up to $5,500 to your IRA. You can make those contributions up until tax day of the following year (April 15th, 2016). After that, you cannot contribute money towards 2015 again. So each year that goes by, you're losing out on some potential to contribute. As for why I think a Roth IRA specifically could work well for you: I'm advocating this because I think it's a good balance. You put away some money in a retirement account now, when it will have the most impact on your future retirement assets, taking advantage of a time you will never have again. At a low cost custodian like Vanguard, you can open an IRA with as little as $1,000 to start and choose from excellent fund options that meet your risk requirements. If you end up deciding that you really want that money for a car or a house or beer money, you can withdraw any of the contributions without fear of penalty or additional tax. But if you decide you don't really need to take that money back out, you've contributed to your retirement for a tax year you likely wouldn't have otherwise, and wouldn't be able to make up for later when you have more than enough to max out an IRA each year. I also want to stress that you should have a liquid emergency fund (in a savings or checking account) to deal with unexpected emergencies before funding something like this. But after that, if you have no specific goal for your savings and you don't know for sure you'll actually need to spend it in the near future, funding a Roth IRA is worth considering in my opinion.","10-15% of the bat you want to keep liquid in a savings account with interest at 1.5% that best at the moment. In case of a real emergency. Look in to dividend stocks they can bring in 10-15% on your investment and fairly liquid as well. There's also rental properties but 40k isn't much room to move around with in that area.","\"Invest in other currencies and assets that have \"\"real\"\" value. And personally I don't count gold as something of real value. Of course its used in the industry but besides that its a pretty useless metal and only worth something because everybody else thinks that everybody thinks its worth something. So I would buy land, houses, stocks, ...\"","Remind me again who held and was willing to loan out that debt? The investor classes partly created the risk environment that they now want protection from. convenient. If they're going to sit on their savings, they're going to comparatively lose more to inflation, so what you think will happen probably wouldn't happen. And even if they do, savings don't receive preferential tax treatment anyways."],"string":"[\n \"This does not really fit your liquidity requirement but consider buying a one or two room apartment to rent out with part of your savings. You will get income from it and small apartments sell quickly if you do need the money. This will help offset the negative interest from the rest. One downside is that other people have the same idea at the moment and the real estate prices are inflated somewhat.\",\n \"How about placing the money in a safety deposit box at the same bank? This will probably work out cheaper than the loss due to negative rates. Although, I'm quite sure the banks won't like this idea.\",\n \"\\\"Personally I would have a hard time \\\"\\\"locking up\\\"\\\" the money for that very little return. I would probably rather earn no interest in favor of the liquidity. However, you should find out what the early removal penalties are. If those are minimal and you are very confident that you will not need the money over the term period then its definitely better to earn something rather than nothing. If inflation is negative you aren't out as much not getting any interest as you would be normally. Consider that in 2014 US inflation was 0.8%. Online liquid savings accounts pay about 1%. so that's only .2% positive. In comparison at -.4% you are better off with no interest than a US person putting their money in a paying savings account. Keep in mind though that inflation can change month to month so just because June was negative doesn't mean the year will be that way. Not sure your ability to invest in the US market or what stable dividend payers may exist in Sweden.... You said you are risk averse, but it may be worth it to find a stable dividend paying fund. I like one called PFF, it pays a monthly dividend of 6% and over 5 years stock price is very stable. Of course this is quite a significant jump in risk because you can lose money if markets tank (PFF is down over 10 years quite a bit). Maybe splitting up the money and diversifying?\\\"\",\n \"\\\"The problem is that every option comes with risk - as you note, if you put money in stocks, you could lose (and many stocks are overpriced). If you put money in bonds, you could lose (many bonds are overpriced). If you buy precious metals, they could fall further currently. If you hold cash, central banks might try to ban cash (we'll hear the typical \\\"\\\"This will never happen\\\"\\\" from financial advisers - and they'll be wrong). Cryptocurrencies are an option, but boy do they fluctuate, so there's risk here too. Those are options and all come with risks, and here's my preferred approach to handling negative interest rates:\\\"\",\n \"\\\"(Real) interest rates are so low because governments want people to use their money to improve the economy by spending or investing rather than saving. Their idea is that by consuming or investing you will help to create jobs that will employ people who will spend or invest their pay, and so on. If you want to keep this money for the future you don't want to spend it and interest rates make saving unrewarding therefore you ought to invest. That was the why, now the how. Inflation protected securities, mentioned in another answer, are the least risk way to do this. These are government guaranteed and very unlikely to default. On the other hand deflation will cause bigger problems for you and the returns will be pitiful compared with historical interest rates. So what else can be done? Investing in companies is one way of improving returns but risk starts to increase so you need to decide what risk profile is right for you. Investing in companies does not mean having to put money into the stock market either directly or indirectly (through funds) although index tracker funds have good returns and low risk. The corporate bond market is lower risk for a lesser reward than the stock market but with better returns than current interest rates. Investment grade bonds are very low risk, especially in the current economic climate and there are exchange traded funds (ETFs) to diversify more risk away. Since you don't mention willingness to take risk or the kind of amounts that you have to save I've tried to give some low risk options beyond \\\"\\\"buy something inflation linked\\\"\\\" but you need to take care to understand the risks of any product you buy or use, be they a bank account, TIPS, bond investments or whatever. Avoid anything that you don't fully understand.\\\"\",\n \"Series I Savings Bonds would be another option that have part of their return indexed to inflation though currently they are yielding 1.64% through April 30, 2016 though some may question how well is that 3% you quote as an inflation rate. From the first link: Series I savings bonds are a low-risk savings product. While you own them they earn interest and protect you from inflation. You may purchase electronic I bonds via TreasuryDirect or paper I bonds with your IRS tax refund. As a TreasuryDirect account holder, you can purchase, manage, and redeem I bonds directly from your web browser. TIPS vs I Bonds if you want to compare these products that are rather safe in terms of avoiding a nominal loss. This would be where a portion of the funds could go, not all of them at once.\",\n \"I would put this money to a high-interest savings account. It will not earn you too much, but it will save it from inflation.\",\n \"Withdraw your savings as cash and stuff them into your mattress? Less flippantly, would the fees for a safe deposit box at a bank big enough to hold CHF 250'000 be less than the negative interest rate that you'd be penalized with if you kept your money in a normal account?\",\n \"I'd prefer having it (more or less) fluent at any time, if possible... And the Swiss National Bank (SNB) will do their darndest to make this a costly option. That's exactly the point of negative interest rates. They don't want to help you saving money. So you will have to choose what to give up: liquidity, or profitability. But for now, you still have alternatives. The way you described it one could think that all banks will soon start to charge all their clients. That's just a distortion of facts. If you are happy with a (close to) 0 income, you might consider opening multiple bank accounts. Many banks charge the negative interest only from certain thresholds (i.e. CHF 100k). Since you're clearly a Swiss resident, that's easy to do for you. If you don't want to give up making an income, then you have to sacrifice liquidity. There simply aren't any short term (less than 2-3 years) instruments in Swiss Franc that are both safe and yielding a positive income. Which means that you will have to take much more risk then you had with a savings account. Ask your advisor for an investment proposal, but also consider bank independent advisors.\",\n \"\\\"As you're saving up for an expenditure instead of investing for the long run, I would stay away from any sort of \\\"\\\"parking facility\\\"\\\" where you run the risk of not having the principal protected. The riskier investments that would potentially generate a bigger return also carry a bigger downside, ie you might not be able to get the money back that you put in. I'd shop around for a CD or a MMA/regular savings account with a half-decent interest rate. And yes, I'm aware that the return you might get is probably still less than inflation.\\\"\",\n \"Buy gold, real coins not paper. And do not keep it in a bank.\",\n \"\\\"To begin with, bear in mind that over the time horizon you are talking about, the practical impact of inflation will be quite limited. Inflation for 2017 is forecast at 2.7%, and since you are talking about a bit less than all of 2017, and on average you'll be withdrawing your money halfway through, the overall impact will be <1.3% of your savings. You should consider whether the effort and risk involved in an alternative is worth a few hundred pounds. If you still want to beat inflation, the best suggestion I have is to look at peer-to-peer lending. That comes with some risk, but I think over the course of 1 year, it's quite limited. For example, Zopa is currently offering 3.1% on their \\\"\\\"Access\\\"\\\" product, and RateSetter are offering 2.9% on the \\\"\\\"Everyday\\\"\\\" product. Both of these are advertised as instant access, albeit with some caveats. These aren't FSCS-guaranteed bank deposits, and they do come with some risk. Firstly, although both RateSetter and Zopa have a significant level of provision against bad debt, it's always possible that this won't be enough and you'll lose some of your money. I think this is quite unlikely over a one-year time horizon, as there's no sign of trouble yet. Secondly, there's \\\"\\\"liquidity\\\"\\\" risk. Although the products are advertised as instant access, they are actually backed by longer-duration loans made to people who want to borrow money. For you to be able to cash out, someone else has to be there ready to take your place. Again, this is very likely to be possible in practice, but there's no absolute guarantee.\\\"\",\n \"I came up with a real way. I saw once the market be so dumb as to allow this to work. Inflation rate = 2.5%. Home interest rate = 3%. Tax deduction = 1%. Money spent on inflation-adjusted I bonds (at the time these paid 0% net, that is 2.5% gross). Result, .5% profit after accounting for inflation. The kicker: Uncle Sam's I bonds are tax free. Sure it's not possible today, but the rates occasionally drop low enough.\",\n \"why should i have to make something with my cash? i'll fuking hold it and face losing a few percentage of purchasing power. i'd rather have liquity in these peril times. besides, people that held cash in 2008 had a once in a life time buying opportunity when all assets fell 60-90%.\",\n \"You are not missing something basic. Putting money in the bank will cost you in terms of purchasing power. The same thing has been true in the US and other places for a long time now. The real interest rate is negative--there is too much aggregate wealth being saved compared to the number of profitable lending opportunities. That means any truly risk-free investment will not make as much money as you will lose to inflation. If the real interest rate appears to be positive in your home country it means one of the following is happening: Capital controls or other barriers are preventing foreigners from investing in your home country, keeping the interest rate there artificially high Expected inflation is not being measured very accurately in your home country Inflation is variable and unpredictable in your home country, so investors are demanding high interest rates to compensate for inflation risk. In other words, bank accounts are not risk-free in your home country. If you find any securities that are beating inflation, you can bet they are taking on risk. Investing in risky securities is fine, but just understand that it's not a substitute for a risk-free bank account. Part of every interest rate is compensation for the time-value-of-money and the rest is compensation for risk. At present, the global time-value-of-money is negative.\",\n \"Transfer your savings to a dollar-based CD. Or even better, buy some gold on them.\",\n \"Hmm, looking at the macro economy, hoarding money will decrease the monetary supply, so the Fed will offset that with increases to the monetary supply to achieve target interest rates. Which will lead to higher inflation, hurting your savings minus debt. Exactly what's going on in the rest of the economy. For investment sake, can't you find something with at least some sort of return, rather than getting nothing with physical currency?\",\n \"You could buy Bitcoins. They are even more deflationary than Swiss Francs. But the exchange rate is currently high, and so is the risk in case of volatility. So maybe buy an AltCoin instead. See altcoin market capitalization for more information. Basically, all you'd be doing is changing SwissFrancs into Bitcoin/AltCoin. You don't need a bank to store it. You don't need to stockpile cash at home. Stays liquid, there's no stock portfolio (albeit a coin portfolio), unlike in stocks there are no noteworthy buy and sell commissions, and the central bank can't just change the bills as in classic-cash-currency. The only risk is volatility in the coin market, which is not necessarely a small risk. Should coins have been going down, then for as long as you don't need that money and keep some for everyday&emergency use on a bank account, you can just wait until said coins re-climb - volatility goes both ways after all.\",\n \"In October 2011 in the United States, you just don't have any options. Save your money in a savings account and that is the best you can do. Your desire to buy a house means you are a saver not an investor, and you risk tolerance on this pile of money is 0. Save it in a bank account; I highly doubt chasing an interest rate will pay off with any significance. (being highly dependent on your opinion of significant)\",\n \"Yes, and there are several ways, the safest is a high-yield savings account which will return about 1% yearly, so $35 per month. That's not extremely much, but better than nothing (you probably get almost zero interest on a regular checking account).\",\n \"First of all, look for a savings account with a decent interest rate. Online banks are good at offering those, and you can transfer your money back and forth from the checking account with a couple of business days' delay. ING Direct offers 1.1% APY right now - lame, but much better than nearly-nothing. If you'd like a little nicer rate of return you should also consider putting some of the money (the part you need least) in a short- or intermediate-term bond ETF or mutual fund. You can sell them quite readily, they pay more interest than a savings account, and because of the shorter maturities involved the interest rate risk is limited. (That's the one that makes your bonds less valuable now because the rates went up after you bought them.) I have some NYSE:BIV that's yielding 3.8% or so.\",\n \"\\\"True, absolutely safe are only death and taxes. Apparently [US treasuries](https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield) yield far less than 3,5-4%, but I guess that's as \\\"\\\"100% safe\\\"\\\" as it gets. However, best I could find while talking to various banks was a reverse convertible bond that yields 3,5% per year, tax excluded. Worst case scenario: 1) I got all my money back and gained 3,5% for one year. 2) after a few years, I find myself with pretty valuable shares and still cashed in the yearly 3,5%. I was wondering if I got lucky with that, or if there are better things out there and if yes, where I should look. Honestly, in the age of negative interests, I'm more than happy to get enough interest to counter inflation.\\\"\",\n \"First thing's first: migrate your savings to an interest-bearing savings account (such as from Ally Bank). While it still lags behind inflation, 0.84% is still better than 0.00%. Short-term CDs are also an option. I've personally thought about experimenting with peer-to-peer lending, but a few thousand in savings isn't all that much in the grand scheme of things, and you don't want it tied up in a risky, speculative loan when you might need it the most. As the others have said, the general savings rules apply too: pay off high-interest debt, divert more money into your 401k (especially if you aren't hitting the match yet), then work on either whittling down other debts or saving more for a big purchase in the future.\",\n \"If you're absolutely certain that you won't buy a house within a year or so, I'd still be tempted to put some of the money into short-term CDs (ie, a max of 12 months). I think that at the moment CDs are a bit of a mug's game though because you'd hardly find one that offers better interest rates than some of the few savings accounts that still offer 1%+ interest. A savings account is probably where I'd put the money unless I could find a really good deal on a CD, but I think you might have to check if they've got withdrawal limits. There are a couple of savings accounts out there that pay at least 1% (yes, I know it's pitiful) so I'd seek out one or two of those. From memory, both Sallie Mae and Amex offer those and I'm sure there are a couple more. It's not great that your money is growing at less than inflation but if you're saving for something like a downpayment on a house I would think that (nominal) capital preservation is probably more important than the potential for a higher return with the associated higher risk.\",\n \"Put them in Cds. Better than a savings account, you won't lose capital unlike the stock market.\",\n \"Never invest money you need in the short term. As already suggested, park your money in CDs.\",\n \"I was asking myself the exact same thing. And i have come to the conclusion that most of your money should be invested, In index etfs and maybe some bond etfs too. If Inflation is about 2% and the interest you make in a savings account is less than 1%. Your actually loosing money in a savings account. Keep a few thousand bucks in your savings account and the majority invested and working for you.\",\n \"Inflation protected securities (i-bonds or TIPS). TIPS stands for Treasury Inflation Protected Securities. By very definition, they tend to protect your savings against inflation. They won't beat inflation, but will keep up with it. TIPS or iBonds have two parts. A fixed interest part and a variable interest portion which varies depending upon the current rates. The combined rate would match the inflation rate. They can be bought directly from the treasury (or from a broker or bank who might charge a commission)\",\n \"I'm new to this, but how about putting a big part of your money into an MMA? I don't know about your country, but in Germany, some online banks easily offer as much as 2.1% pa, and you can access the money daily. If you want decent profit without risk this is a great deal, much better than most saving accounts.\",\n \"\\\"If you don't want to take any risk and you want your money to be liquid, then the best place to \\\"\\\"invest\\\"\\\" such money is in an insured bank deposit, such as a high interest savings account. However, you aren't likely to find a savings account interest rate that comes close to that charged by your mortgage, so the better decision from a numbers perspective is to pay down more on your mortgage or other debt. Paying down your debt has almost no risk, but has a better payoff than simply saving the money in a bank account. However, if you choose to pay down more debt, I suggest you still keep aside enough cash to have an adequate emergency fund. Since you want safety and liquidity, don't expect high returns from such money.\\\"\",\n \"Your goals are mutually exclusive. You cannot both earn a return that will outpace inflation while simultaneously having zero-risk of losing money, at least not in the 2011 market. In 2008, a 5+% CD would have been a good choice. Here's a potential compromise... sacrifice some immediate liquidity for more earnings. Say you had $10,000 saved: In this scheme, you've diversified a little bit, have access to 50% of your money immediately (either through online transfer or bringing your bonds to a teller), have an implicit US government guarantee for 50% of your money and low risk for the rest, and get inflation protection for 75% of your money.\",\n \"\\\"Your #1 problem is the Government both in it's form as a taxation outfit and as a 'law and order' outfit. You'd be very surprised at how fast a bank seizes your bank account in response to a court order. Purchase 100 Mexican 50 Peso Gold (1.2 oz/ea). These coins are cheap (lowest cost to get into) and will not be reportable on sale to taxing authorities. That money is out of the banking system and legal system(s). Do not store them in a bank! You need to find a tax strategist, probably a former IRS agent / CPA type. With the rest remaining money... There's an old saying, Don't fight the Fed. As well as \\\"\\\"The trend is your friend\\\"\\\". So, the Fed wants all savers fully invested right now (near 0 interest rates). When investing, I find that if you do exactly opposite what you think is the smart thing, that's the best thing. Therefore, it follows: 1) Don't fight the Fed 2) Do opposite of smart 3) Do: Fight the Fed (and stay 100% out of the market and in cash) We're looking like Japan so could remain deflationary for decades to come. Cash is king...\\\"\",\n \"If this is truly your emergency fund, then you should keep the money safe. Unfortunately interest rates are very low right now and there is not much you can do about that. However, ask your investment advisor for a CDIC insured high interest account, such as these:\",\n \"\\\"Safe short term and \\\"\\\"pay almost nothing\\\"\\\" go hand in hand. Anything that is safe for the short term will not pay much in interest/appreciation. If you don't know what to do, putting it in a savings account is the safest thing. The purpose of that isn't to earn money, it's just to store the money while you figure out where to move it to earn money.\\\"\",\n \"\\\"You have several options depending on your tolerance for risk. Certainly open an investment account with your bank or through any of the popular discount brokerage services. Then take however much money you're willing to invest and start earning some returns! You can split up the money into various investments, too. A typical default strategy is to take any money you won't need for the long term and put it in an Index Fund like the S&P 500 (or a European equivalent). Yes, it could go down, especially in the short term, but you can sell shares at any time so you're only 2-3 days away at any time from liquidity. Historically this money will generate a positive return in the long run. For smaller time frames, a short-term bond fund often gives a slightly better return than a money market account and some people (like me!) use short-term bond funds as if it were a money market account. There is a very low but real risk of having the fund lose value. So you could take a certain percentage of your money and keep it \\\"\\\"close\\\"\\\" in a bond fund. Likewise, you can sell shares at any time, win or lose and have the cash available within a couple days.\\\"\",\n \"\\\"If you think your cash will buy fewer goods in the future due to inflation, are there goods you will want or need in the future that you can purchase now? I think the cost of storage would need to be less than the inflation in price for this to make sense. If you used commodity trading there may not actually be a storage cost but likely some fees involved that would need to be weighed against the expected inflation. Basically if \\\"\\\"things\\\"\\\" are going to cost more in the future, making your cash worth less, can you convert cash into \\\"\\\"things\\\"\\\" before prices escalate?\\\"\",\n \"If I have $100 and put it under the bed it will return 0%. Relatively good in a bear market and relatively bad in a bull market.\",\n \"Best thing to do is convert your money into something that will retain value. Currency is a symbol of wealth, and can be significantly devalued with inflation. Something such as Gold or Silver might not allow you to see huge benefit, but its perhaps the safest bet (gold in particular, as silver is more volatile), as mentioned above, yes you do pay a little above spot price and receive a little below spot when and if you sell, but current projections for both gold and silver suggest that you won't lose money at least. Safe bet. Suggesting it is a bad idea at this time is just silly, and goes against the majority of advisers out there.\",\n \"You should talk to a financial fiduciary (make sure they are a fiduciary, not all planners are) about investing your money. Even ultra safe investments such as treasury bonds will beat the 1% interest rate offered by your savings account (the yield on the 5 year treasury is currently around 2%).\",\n \"If you ever need the money in three years, imagine that today is 2006 and you need the money in 2009. Keep it in savings accounts, money-markets, or CDs maturing at the right time.\",\n \"\\\"No. The solution is to simply not force people to use a specific money, ie abolish \\\"\\\"legal tender laws\\\"\\\". This way, people would save in currencies that have the best-reputation for maintaining their value over time, and no central bank can print their buddies out of bankruptcy at the expense of hardworking savers.\\\"\",\n \"CDs or money market funds. Zero-risk for the CD and ultra-low risk for the money market account; better return than most savings accounts.\",\n \"With the requirement that the money is 100% available immediately and that you can not suffer a loss of principal, the suggestions you gave of an online savings account is a good one. Personally, I use ING.\",\n \"Remove your money. If you do not need this money for some time, you can convert it to Gold, and now is a good time to buy. Gold is not expected to decrease much in price as we're already at the bottom of the employment cycle and the Depression is already begun and will take about two years to grip the world.\",\n \"So for each thousand dollars saved you will earn $1.50 more each year. It is up to you to decide whether it is worth the hassle.\",\n \"It is my understanding that banks pay less than the going rate on savings accounts and require that the person who takes out a loan pay more than the going rate. That is how the bank gets its money. Usually the going rate is affected by the current inflation rate (but that has not been true for the last few weeks). So that means that, typically, the money you have in the bank is, gradually, losing purchasing power as the bank typically pays you less than the inflation rate. So if you want your money to keep pace with inflation (or do a bit better) then you should buy bonds.\",\n \"Invest in kids, not pension - they never inflate. Without kids your retirement will be miserable anyway. And with them you'll be good. Personally, I do not believe that that our current savings will be worth it in 30 years in these times.\",\n \"The question in my view is going into Opinion and economics. Why would I buy a bond with a negative yield? I guess you have answered yourself; Although the second point is more relevant for high net worth individual or large financial institutions / Governments where preserving cash is an important consideration. Currently quite a few Govt Bonds are in negative as most Govt want to encourage spending in an effort to revive economy.\",\n \"\\\"Is it safe? No in general. Are there any other safe \\\"\\\"paper\\\"\\\" ways to invest money let's say for 30 years and be sure nothing will happen to them and you will end your life without relying on pension? No. In these times only real properly gives you some sort of warranty in 5-30 years term. Land, buildings, production lines. Not necessary in US - lots of countries have 0 or fairly low property tax. Some gold, platinum, silver and other rare elements to diversify. - This is the only way you can be sure you will not suddenly loose everything.\\\"\",\n \"\\\"Historically, most economists considered a sustained negative interest rate impossible for just the reason you describe: an investor could outperform a bond with a negative interest rate by simply hoarding cash. For background, see Wikipedia. Experimentation by central banks in the wake of the 2007 financial crisis, however, demonstrates that slightly negative interest rates are possible. First of all, note that the \\\"\\\"zero lower bound\\\"\\\" on interest rates has everything to do with the existence of cash as an alternative. It's a lower bound on the nominal interest rate, rather than the real interest rate—that is, on the rate before adjusting for inflation. In most situations, the real interest rate is more economically meaningful, as it's the real interest rate that measures the market's preference for \\\"\\\"stuff now\\\"\\\" as opposed to \\\"\\\"stuff later.\\\"\\\" There's nothing in principle or in practice to stop a negative real interest rate: there are always some people who want stuff now and some people who want stuff later; a negative real interest rate just means that people who want stuff later are more dominant in the market. As I stated earlier, what creates the \\\"\\\"zero lower bound\\\"\\\" is the existence of cash as an alternative to bonds. Even though that lower bound applies, it's not strict: hoarding cash in large quantities can be difficult and expensive, especially when central banks are doing their best to prevent you from doing it. Consequently, investors who strongly prefer \\\"\\\"stuff later\\\"\\\" to \\\"\\\"stuff now\\\"\\\" are willing to pay a slightly negative nominal interest rate on bonds in order to avoid those costs. If it were significantly negative, however, you're right that no sane investor would buy such a bond.\\\"\",\n \"You are a saver, not an investor. Your time period is simply too short. You are stuck putting your money into less productive, but safe savings accounts.\",\n \"Precious metals, treasury bonds, real estate, etc. These are good investments that generally produce low income with low risk. In order to get the economy back to work we need capital to invest in riskier, but more productive endeavors.\",\n \"US Treasury securities are the safest investment. You can buy short term by buying T-Bills. You buy T-bills at a discount to face. For example, to buy a four week T-bill the treasury will take $99.98 out of your account. In four weeks the treasury will deposit $100 into your account. The $0.02 difference is your Intrest on the loan. Compounded over a year (13 four week periods) you get a 0.24% interest. But (presumably) more importantly (to you) you get your original $99.98 back. Your government cannot nationalize money that you have on loan to the United States Government. Edit : oops, I dropped a decimal position in my original calculation of compounded rate of interest. It is now corrected.\",\n \"\\\"Yes... but it is a matter of balancing risks. It is wiser to keep a small amount of \\\"\\\"ready cash\\\"\\\" as an emergency/buffer -- and to suffer the gradual loss to inflation... Than it is risk becoming \\\"\\\"stuck\\\"\\\" in an emergency with zero dollars in any (low or no cost) source of funds -- those kinds of \\\"\\\"emergencies\\\"\\\" ($500 or $1,000 \\\"\\\"unexpected/unbudgeted\\\"\\\" expenses) are fairly frequent and virtually inevitable. You lose vastly MORE money when you are forced to borrow those amounts (interest -- even **low-rate** loans -- is virtually always higher than the average inflation rate).\\\"\",\n \"A somewhat provocative (but not unserious) proposal: Rent, don't buy a house to live in. In 2007/8, the thing that got many people in deep trouble is their mortgage. It's not a productive investment but a speculative bet on what was in fact a bubble and a class of assets that is notoriously slow to recover after a slump. Before thinking about your savings or buying into silly ideas about gold, you should realise that as a middle class worker, the biggest risk after a crisis is losing your job. Renting your accommodation means being able to downgrade or move very quickly and not being forced to sell a house at the worse possible time. If you really do need to liquidate some of your investments at a bad time, having a more diversified portfolio means that you are not losing everything to meet some short-term obligations. Assuming you're in the US, this means forgoing some nice tax advantages that might be too tempting to resist (I'm not so I am basing this on what I read on this site) but, bubbles aside, there is nothing that makes real estate a particularly good investment as such, especially if you also live in the house you're buying. You might very well come out on top but you expose yourself to several risks and are less prepared to face a crisis.\",\n \"One issue which I don't see addressed in the answers so far is how to structure bank accounts to get the highest return possible. What you're describing sounds like a certificate of deposit (CD): 'ranging from 1% for 9 months to 2.3% for 5 years' There is a concept which was once more common called a CD Ladder, which still allows you to access your money, while also giving you the highest interest rate offered by the bank. To set one up you divide your account into 5 equal parts, then open 5 CDs with different periods (1-5 years). Each time a new CD matures (once a year), you purchase another 5 year CD with those funds, plus any new money you want to save. Thus you're getting a higher and higher rate, until all of your accounts are earning the 5 year CD rate, and you're never more than a year away from getting money out of the account if a need comes up.\",\n \"I recommend an online savings account. The money is more liquid without early withdrawal fees and frequently you can get a visa/mastercard check card to access the funds. Looking at interest rates, ING is currently paying 1.10% and bankrate reports the best interest rate in the country on a 1 year CD is 1.33%. The .23% difference is not enough to convince me to invest in CDs at a fixed rate vs. an online savings account at a variable rate when we are at (or near) the bottom of CD/savings interest rates.\",\n \"While it’s your personal choice on HOW you save for later its essential that you save. My sister works in a bank and recommended me not to put any money into retirement plans since the tax-advances seem fine but have to paid back when you take the money out of the accounts (in Switzerland, don't know about the united states). Many reasons exist that you suddenly need the money: Buying a house, needing a new car, health issues or just leaving the country forever (and the government trying to make it as hard as possible for you to get your money back). I recommend putting it on a savings account on a different bank that you normally use, without any cards and so on. In short: It can be dangerous to have money locked away – especially if you could easily have it at your hands and you know you're able to manage it.\",\n \"\\\"Edited answer, given that I didn't address the emergency fund aspect originally: None. You've said you don't feel comfortable locking it away where you wouldn't be able to get to it in an emergency. If you don't like locking it away, the answer to \\\"\\\"How much money should I lock up in my savings account?\\\"\\\" is none. On a more personal note, the interest rates on bonds are just awful. Over five years, you can do better.\\\"\",\n \"I assume you're looking for advice, not an actual guaranteed-to-appreciate answer, yes? If you believe Treasury bonds will increase as fast as inflation, that may be the way to go.\",\n \"\\\"For a two year time frame, a good insured savings account or a low-cost short-term government bond fund is most likely the way I would go. Depending on the specific amount, it may also be reasonable to look into directly buying government bonds. The reason for this is simply that in such a short time period, the stock market can be extremely volatile. Imagine if you had gone all in with the money on the stock market in, say, 2007, intending to withdraw the money after two years. Take a broad stock market index of your choice and see how much you'd have got back, and consider if you'd have felt comfortable sticking to your plan for the duration. Since you would likely be focused more on preservation of capital than returns during such a relatively short period, the risk of the stock market making a major (or even relatively minor) downturn in the interim would (should) be a bigger consideration than the possibility of a higher return. The \\\"\\\"return of capital, not return on capital\\\"\\\" rule. If the stock market falls by 10%, it must go up by 11% to break even. If it falls by 25%, it must go up by 33% to break even. If you are looking at a slightly longer time period, such as the example five years, then you might want to add some stocks to the mix for the possibility of a higher return. Still, however, since you have a specific goal in mind that is still reasonably close in time, I would likely keep a large fraction of the money in interest-bearing holdings (bank account, bonds, bond funds) rather than in the stock market. A good compromise may be medium-to-high-yield corporate bonds. It shouldn't be too difficult to find such bond funds that can return a few percentage points above risk-free interest, if you can live with the price volatility. Over time and as you get closer to actually needing the money, shift the holdings to lower-risk holdings to secure the capital amount. Yes, short-term government bonds tend to have dismal returns, particularly currently. (It's pretty much either that, or the country is just about bankrupt already, which means that the risk of default is quite high which is reflected in the interest premiums demanded by investors.) But the risk in most countries' short-term government bonds is also very much limited. And generally, when you are looking at using the money for a specific purpose within a defined (and relatively short) time frame, you want to reduce risk, even if that comes with the price tag of a slightly lower return. And, as always, never put all your eggs in one basket. A combination of government bonds from various countries may be appropriate, just as you should diversify between different stocks in a well-balanced portfolio. Make sure to check the limits on how much money is insured in a single account, for a single individual, in a single institution and for a household - you don't want to chase high interest bank accounts only to be burned by something like that if the institution goes bankrupt. Generally, the sooner you expect to need the money, the less risk you should take, even if that means a lower return on capital. And the risk progression (ignoring currency effects, which affects all of these equally) is roughly short-term government bonds, long-term government bonds or regular corporate bonds, high-yield corporate bonds, stock market large cap, stock market mid and low cap. Yes, there are exceptions, but that's a resonable rule of thumb.\\\"\",\n \"Unfortunately, in this market environment your goal is not very realistic. At the moment real interest rates are negative (and have been for some time). This means if you invest in something that will pay out for sure, you can expect to earn less than you lose through inflation. In other words, if you save your $50K, when you withdraw it in a few years you will be able to buy less with it then than you can now. You can invest in risky securities like stocks or mutual funds. These assets can easily generate 10% per year, but they can (and do) also generate negative returns. This means you can and likely will lose money after investing in them. There's an even better chance that you will make money, but that varies year by year. If you invest in something that expects to make 10% per year (meaning it makes that much on average), it will be extremely risky and many years it will lose money, perhaps a lot of it. That's the way risk is. Are you comfortable taking on large amounts of risk (good chances of losing a lot of your money)? You could make some kind of real investment. $50K is a little small to buy real estate, but you may be able to find something like real estate that can generate income, especially if you use it as a down payment to borrow from the bank. There is risk in being a landlord as well, of course, and a lot of work. But real investments like that are a reasonable alternative to financial markets for some people. Another possibility is to just keep it in your bank account or something else with no risk and take $5000 out per year. It will only last you 10 years that way, but if you are not too young, that will be a significant portion of your life. If you are young, you can work and add to it. Unfortunately, financial markets don't magically make people rich. If you make a lot of money in the market, it's because you took a risk and got lucky. If you make a comfortable amount with no risk, it means you invested in a market environment very different from what we see today. --------- EDIT ------------ To get an idea of what risk free investments (after inflation) earn per year at various horizons see this table at the treasury. At the time of this writing you would have to invest in a security with maturity almost 10 years in order to break even with inflation. Beating it by 10% or even 3% per year with minimal risk is a pipe dream.\",\n \"You should invest a trivial (<500$USD) amount of money in a stock portfolio. If you aren't able to make more on the market than the interest rates of your loans, you are losing money. This question has discussed this topic as well.\",\n \"There is no absolute answer to this as it depends on your particular situation, but some tips: As to investing versus saving, you need to do some of both: Be careful about stockpiling too much in bank accounts. Inflation will eat that money up over time to the tune of 3-4%/year. You are young and have a longer investment horizon for retirement, take advantage of that and accept a little more risk while you can.\",\n \"You're losing money. And a lot of it. Consider this: the inflation is 2-4% a year (officially, depending on your spending pattern your own rate might be quite higher). You earn about 1/2%. I.e.: You're losing 3% a year. Guaranteed. You can do much better without any additional risk. 0.1% on savings account? Why not 0.9%? On-line savings account (Ally, CapitalOne-360, American Express, E*Trade, etc) give much higher rates than what you have. Current Ally rates are 0.9% on a regular savings account. 9 times more than what you have, with no additional risk: its a FDIC insured deposit. You can get a slightly higher rate with CDs (0.97% at the same bank for 12 months deposit). IRA - why is it in CD's? Its the longest term investment you have, that's where you can and should take risks, to maximize your compounding returns. Not doing that is actually more risky to you because you're guaranteeing compounding loss, of the said 3% a year. On average, more volatile stock investments have shown to be not losing money over periods of decades, even if they do lose money over shorter periods. Rental - if you can buy a property that you would pay the same amount of money for as for a comparable rental - you should definitely buy. Your debt will be secured by the property, and since you're paying the same amount or less - you're earning the equity. There's no risk here, just benefits, which again you chose to forgo. In the worst case if you default and walk away from the property you lost exactly (or less) what you would have paid for a rental anyway. 14 years old car may be cheaper than 4 years old to buy, but consider the maintenance, licensing and repairs - will it not some up to more than the difference? In my experience - it is likely to. Bottom line - you think you're risk averse, but you're exactly the opposite of that.\",\n \"As no one has mentioned them I will... The US Treasury issues at least two forms of bonds that tend to always pay some interest even when prevailing rates are zero or negative. The two that I know of are TIPS and I series bonds. Below are links to the descriptions of these bonds: http://www.treasurydirect.gov/indiv/research/indepth/tips/res_tips.htm http://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm\",\n \"Would it be a reasonable idea to open a savings account in an overseas bank? For the risks you mention, this may not be a good idea for individual. Note HNI / Companies routinely keep funds in various overseas account. For individual the amount of paperwork [reporting in US etc] and fees etc would be high. Plus in adverse conditions, access to this funds would still be stringent and restricted. Some of the other options you can try are Generally for the risks you mention, there is very little an individual can do except to take it if & when it comes.\",\n \"I do this very thing, but with asset allocation and risk parity in mind. I disagree with the cash or bust answers above, but many of the aforementioned facts are valuable and I don't mean to undermine them in anyway. That said, let's look at two examples: Option 1: All-in For the sake of argument let's say you had $100k invested in the SPY (S&P 500 ETF) in early 2007, and you kept it there until today. Your lowest balance would have been about $51k, and at this point the possibility of you losing your job was probably at a peak. Today you would be left with $170k assuming no withdrawal. Option 2: Risk Parity BUT if you balanced your investments with a risk parity approach, using negatively correlated asset classes you avoid this dilemma. If you had invested 50% in XLP (Consumer Staples Sector ETF) and 50% in TLT ( Long Term Treasury ETF) your investments low point would have been $88k, and your lowest annual return would be +0.69%. Today you would be left with $214k assuming no withdrawals. I chose option #2 and it hasn't failed me yet, even in 2016 so far the results are steady and reliably given the reward. My general opinion is simple: when you have money always grow it. Just be sure to cover your ass and prepare for rain. Backtesting for this was done at portfoliovisualizer.com, the one caveat to this approach is that inflation and a lack of international exposure are a risk here.\",\n \"\\\"Ultimately, money derives its value from being spend on a good or service. Investing it is an act of denying your present-self a good or service so that your future-self can obtain (hopefully more) goods or services. Investing is a sensible and responsible default position, but you clearly have passed the point at which the opportunity cost of the dollar not spent today is greater than its benefit in the future. Not all dollars are the same. Remember that money is a temporary store of value but you have to spend it to realize that value. In your search, learn about the \\\"\\\"psychology of money.\\\"\\\" What are you saving it for? How much do you want left over when you die? If you die tomorrow, will you regret not having spend a little more? I'm sorry to get morbid on you, but saving for the future requires answering the question \\\"\\\"How long?\\\"\\\" and it's never forever. This may be tangential but it shaped my behaviour towards money nonetheless: Frank Zimbardo on The Psychology of Time. I would hazard a guess and say that you land in the future-oriented camp.\\\"\",\n \"I can think of three things you might do: Talk to a fee-only adviser. As the comments suggest, this would only be one or two sessions to lay out what all you have, establish what you want it to do, and write a plan that you are comfortable carrying out yourself. What do your 401k and Roth IRA look like? If you mean for this money to be long-term, then your retirement portfolio might be a good place to start. I don't currently own them, but one of my personally hobby horses is I-Series Savings Bonds, commonly called I Bonds. Even in the current low interest rate environment, they are a good deal relative to everything else out there. I summarized this more fully in my answer to another question. You can invest up to $10,000 per SSN per year, and the interest rate is the sum of a fixed rate plus a floating rate based on CPI. Currently the fixed rate is 0%, but the floating rate is better than what you can get from most other cash-like instruments.\",\n \"There many car loans at zero percent interest. Finance the car at zero percent, then take your money and invest it. If you want to be super safe buy a CD the same length as the car loan. 5 years you will get 2%. If you still want safety and a better return take up a asset allocation strategy that moves your cash to risky assets when the market is performing well, then to cash, bonds, or cds when the market under-performs. Now you have your car with a zero percent loan and you are making the return on the money instead of the car company.\",\n \"You can earn significantly more than 0.99% in the stock market. I'd pay the $450/month and invest the rest in a (relatively conservative) stock market fund, making monthly withdrawals for the car note.\",\n \"Look at my answer here, and then calculate again. If you keep on saving and keep on paying off your highest interest rate loan, you'll be 'making' money. Also look at this answer here for saving or paying back. Basically, you should always calculate whether the money you have is better 'spend' in a savings account or as a return payment to your loan. Always tackle the highest interest loan first. My 0,02€\",\n \"\\\"In personal finance, most of your success is determined by personal habit rather than financial savvy. Getting in the habit of making regular deposits to your savings account will have a much larger effect on your situation than worrying about which account pays the highest interest rate (particularly as neither one of them matches the current inflation rate, which is over 3%). So go ahead and put your money in a savings account, but not because of the interest or safety, but because it's a \\\"\\\"savings\\\"\\\" account.\\\"\",\n \"It's not pre-tax but you can consider some short term municipal bonds. The interest is tax free. I would keep to short term ones (1 year maturity), so that you aren't affected by big swings in interest rates and can get your money back within a year.\",\n \"\\\"What about getting the saving account - \\\"\\\"Bausparen\\\"\\\" (~100EUR/month) which you can later use for credit to get better mortgage deal and to buy a flat for renting to others (Anlegerwohnung)?\\\"\",\n \"Depends what kind of expenses you intend to use this money for. If you plan to buy housing in the future (eg you're saving a deposit), then you need to ensure that the value doesn't deteriorate relative to the value of the housing you are likely to buy - so you could buy a Residential REIT, or buy some investment property. If you expect to use this money for food, then you should buy suitable assets (eg Wheat futures, etc). Link the current asset to the future expense, and you will be fine. If you buy Gold, then you are making a bet that Gold will retain its value compared to the thing you want to purchase in future. It doesn't matter what the price of Gold does in $US.\",\n \"but then they make suggestions such as paying extra each month on your mortgage. How else does one pay off his mortgage early other than by paying extra each month? The principal and interest are fixed, no matter how much money you throw at them. The interest rate is fixed. The total interest paid varies depending on how much extra you pay towards the principal. You'll pay the same amount every month regardless. That's factually incorrect. just put the extra money into savings At 1.2%, if you're smart enough to put it in an on-line savings account. until you have enough to pay off the mortgage Which costs you 3.5%. This way, the money is locked up in your home. Who says that all of your money must be locked up in your home? (I'm sure that there are financial advisors who recommend that you throw every single spare dime into extra mortgage payments, but they're rare.) Am I missing something? Yes: the mathematical sense to see that a 3.5% loan costs more than than 1.2% savings earns you\",\n \"Save enough to build an emergency cushion of 4-6 months total expenses. After that, invest everything you can in areas where you are well researched and have carefully formed your own opinion on the subject. Those who save do not reach financial freedom, those who learn to invest and make their money work for them do. Invest in learning how to invest.\",\n \"In france you have several options: A good place to starts with: 1% as of may 2015 interest is low, but's money is 100% liquid (you can withdraw antime). You got slightly superior interest rates, and have to wire at least 45€ a month on it. It gives you lots of advantages if you use it to buy a house. You cannot use the money unless you close the account, so it's not as flexible. You get 2% rates as of may 2015 which is quite good. [If you open this account now, it's only 1% making it not so attractive. Look at Life Insurance Instead.] This one is useless: interest rate is too low. I highly recommend this one. You can open it with 0 cost with several online banks (ing, boursorama, ...) Minimum deposit should be around 1000€. Rate is flexible, but usually higher than what you get with the others. You shouldn't withdraw the money before 8 years (because of taxes, but you can still do it if you need). You can add money on it later if you want. Because of the 8 year duration, it's better to open one as soon as you can, even with the minimum amount. Open an PEL + Livret A + Life insurance. Put the minimum on both PEL + life insurance. Put every thing else on Livret A. If you are 100% sure you don't need some of the livret A money, send it to PEL. [As of 2017, PEL is not so attractive anymore. Bet on the Life Insurance instead, unless your account was open prior to this].\",\n \"Money you need in less than 5 years should be saved not invested. The only place I would be comfortable the money would be a money market account or Certificate of Deposit (CD). I usually go for the money market account because they pay at or close to CD rates and there are no restrictions on getting to the money. However in this case I might choose a CD to keep me from being tempted to borrow some of it for something else. But even after typing that I still think I would put it in a money market, because if interest rates rise they rise in the money market but not the CD, and I just don't think interest can go much lower.\",\n \"Buy a home. A home is the first and best investment, u can own a home with as little as 3% down and as u pay for your living u pay it off.....also banks will always give you equity loans in case you need your money\",\n \"Reversing your math, I am assuming you have $312K to work with. In that case, I would simply shop around your local banks and/or credit unions and have them compete for your money and you might be quite surprised how much they are willing to pay. A couple of months ago, you would be able to get about 4.25% from Israel Bonds in Canada on 5 years term (the Jubilee product, with minimum investment of $25K). It's a bit lower now, but you should still be able to get very good rates if you shop around tier-2 banks or credit unions (who are more hungry for capital than the well-funded tier-1 banks). Or you could look at preferred shares of a large corporation. They are different from common shares in the sense they are priced according to the payout rate (i.e. people buy it for the dividend). A quick screen from your favorite stock exchange ought to find you a few options. Another option is commercial bonds. You should be able to get that kind of return from investment grade (BBB- and higher) bonds on large corporations these days. I just did a quick glance at MarketWatch's Bond section (http://cxa.marketwatch.com/finra/BondCenter/Default.aspx) and found AAA grade bonds that will yield > 5%. You will need to investigate their underlying fundamentals, coupon rate and etc before investing (second thought, grab a introduction to bonds book from Chapters first). Hope these helps.\",\n \"$23,000 Student Loans at 4% This represents guaranteed loss. Paying this off quickly is a conservative move, while your other investments may easily surpass 4% return, they are not guaranteed. Should I just keep my money in my savings account since I want to keep my money available? Or are there other options I have that are not necessarily long term may provide better returns? This all depends on your plans, if you're just trying to keep cash in anticipation of the next big dip, you might strike gold, but you could just as easily miss out on significant market gains while waiting. People have a poor track record of predicting market down-turns. If you are concerned about how exposed to market risk you are in your current positions, then you may be more comfortable with a larger cash position. Savings/CDs are low-interest, but much lower risk. If you currently have no savings (you titled the section savings, but they all look like retirement/investment accounts), then I would recommend focusing on that first, getting a healthy emergency fund saved up, and budgeting for your car/house purchases. There's no way to know if you'd be better off investing everything or piling up cash in the short-term. You have to decide how much risk you are comfortable with and act accordingly.\",\n \"If you are just trying to curb impulse spending I'd suggest the following: 1) Set up a separate bank account for your savings - Do not order checks or a debit card for this account. 2) Get your employer to split your paycheck to put the saving amount in the new account (most employers will do this) The trick to avoid impulse spending is to make it a chore to get at the money. With the above arrangement you would have to physically go to the bank, fill out a withdrawal slip and get cash. This way you still can access the money in an emergency, but it forces you to plan things out better.\",\n \"Lets imagine two scenarios: 1) You make 10.4k (40% of total income) yearly contributions to a savings account that earns 1% interest for 10 years. In this scenario, you put in 104k and earned 5.89k in interest, for a total of 109.9k. 2) You make the same 10.4k yearly contribution to an index fund that earns 7% on average for 10 years. In this scenario you put in the same 104k, but earned 49.7k in interest*, for a total of 153.7k. The main advantage is option 1) has more liquidity -- you can get the money out faster. Option 2) requires time to divest any stocks / bonds. So you need enough savings to get you through that divestment period. Imagine another two scenarios where you stop earning income: 1-b) You stop working and have only your 109.9k principal amount in a 1% savings account. If you withdraw 15.6k yearly for your current cost of living, you will run through your savings in 7 years. 2-b) You stop working and have only 20k (2 years of savings) in savings that earns 1% with 153.7k in stocks that earns 7%. If you withdraw your cost of living currently at 15.6k, you will run through your investments in 15 years and your savings in 2 years, for a total of 17 years. The two years of income in savings is extremely generous for how long it starts the divestment process. In summary, invest your money. It wasn't specified what currency we are talking about, but you can easily find access to an investment company no matter where you are in the world. Keep a small amount for a rainy day.\",\n \"\\\"Your only real alternative is something like T-Bills via your broker or TreasuryDirect or short-term bond funds like the Vanguard Short-Term Investment-Grade Fund. The problem with this strategy is that these options are different animals than a money market. You're either going to subject yourself to principal risk or lose the flexibility of withdrawing the money. A better strategy IMO is to look at your overall portfolio and what you actually want. If you have $100k in a money market, and you are not going to need $100k in cash for the forseeable future -- you are \\\"\\\"paying\\\"\\\" (via the low yield) for flexibility that you don't need. If get your money into an appropriately diversified portfolio, you'll end up with a more optimal return. If the money involved is relatively small, doing nothing is a real option as well. $5,000 at 0.5% yields $25, and a 5% return yields only $250. If you need that money soon to pay tuition, use for living expenses, etc, it's not worth the trouble.\\\"\",\n \"No, don't bother. You need to decide what you are saving for, and how much risk you are prepared to take. It would make sense if you wanted the money only in x years, and couldn't afford to lose say 20% or more if the stock market crashed the day before you needed the cash. Typically if you are about to retire and buy an annuity, you want to protect your capital. This isn't you. At 28, you might be saving for a wedding, a deposit on a house, possibly for school fees, or for eventual retirement. It doesn't sound like you need to get back exactly 24k in July 2022. Keep the 6 months expenses in accounts that you can withdraw from at short notice. Some of this in a current account, some might be in a savings account that doesn't pay interest if you make withdrawals. After that, I'd stick most of the rest in stock market tracker funds, but you might go for actively managed funds instead (ask another question and take professional advice, there will presumably be local tax considerations too), and add in most of your monthly savings too. These should beat the 2.3% over the 5 years, and you can liquidate them easily if you want to buy a house. If there is a recession and a stock market dip, you presumably have the flexibility to hold on to them longer for the economy to recover. And if you are intending to buy a house, then a recession will probably also involve a fall in house prices, so the loss in your savings will be somewhat balanced by the drop in the purchase price of your house. Of course, the worst case scenario is a severe downturn where you lose your job, are unemployed for a considerable period of time, burn through your emergency fund, and need to sell shares at a considerable loss to meet your expenses. You might have family or dependents that you can borrow from or would need to support, which would change your tolerance for risk. Having money locked away for 5 years in this scenario is even worse. So if you don't want to put all your non-emergency savings into the stock market, you still want to choose something that is accessible at a slightly lower interest rate. But ultimately it sounds like you can afford to lose some of your savings, and the probability is that you will be rewarded with much better returns than 2.3% over 5 years.\",\n \"\\\"Gold is not an investment. Gold is a form of money. It and silver have been used as money much longer than paper. Paper money is a relatively recent invention (less than 350 years old) with a horrible track record of preserving wealth. When I exchange my paper US dollars for gold I'm exchanging one form of money for another. US dollars, or US Federal Reserve Notes to be more precise, can be printed ad nauseam by one bank that is totally private and is never audited. Keeping all of your savings in US dollars is ignoring history, it is believing the US Federal Reserve has your best interest in mind, it is hoping that somehow things will be different this time, it is believing that the US dollar will somehow magically be the first fiat currency to last a person's lifetime. TIPS may seem like a good hedge against inflation. However, the government offering TIPS is also the same government that is calculating the inflation rate used to adjust TIPS. What a great deal. If you do some research you discover that the method for calculating the consumer price index is always \\\"\\\"modified\\\"\\\" since it is always found to over estimate inflation. It is never found to under estimate inflation. Imagine that. Here is a chart showing the inflation rate as if it were calculated the same way as it was calculated in 1980. Buying any government debt is also a way to guarantee you or your children will be taxed in the future since the government will have to obtain the money from someone to pay back bonds. It's like voting for future taxes.\\\"\",\n \"That very idea of saving is precisely what Fed monetary policy is trying to prevent. Create demand by forcing savers to spend... then barrow when they run out. You don't have money... you have the next bailout for the banks.\",\n \"\\\"You are mixing issues here. And it's tough for members to answer without more detail, the current mortgage rate in your country, for one. It's also interesting to parse out your question. \\\"\\\"I wish to safely invest money. Should I invest in real estate.\\\"\\\" But then the text offers that it's not an investment, it's a home to live in. This is where the trouble is. And it effectively creates 2 questions to address. The real question - Buy vs Rent. I know you mentioned Euros. Fortunately, mortgages aren't going to be too different, lower/higher, and tax consequence, but all can be adjusted. The New York Times offered a beautiful infographing calculator Is It Better to Rent or Buy? For those not interested in viewing it, they run the math, and the simple punchline is this - The home/rent ratio can have an incredibly wide range. I've read real estate blogs that say the rent should be 2% of the home value. That's a 4 to 1 home/rent (per year). A neighbor rented his higher end home, and the ratio was over 25 to 1. i.e. the rent for the year was about 4% the value of the home. It's this range that makes the choice less than obvious. The second part of your question is how to stay safely invested if you fear your own currency will collapse. That quickly morphs into too speculative a question. Some will quickly say \\\"\\\"gold\\\"\\\" and others would point out that a stockpile of weapons, ammo, and food would be the best choice to survive that.\\\"\",\n \"\\\"My guess is that the point is that yields on bonds and cash equivalents is so low that inflation will cause the inflation-adjusted returns to be negative. There is something to be said for how much inflation can eat out of investment returns. At the same time, I would note the occupation of the person making that post along with what biases this person likely has. \\\"\\\"Entrepreneur, Started & sold several cos, Author 11 books (latest \\\"\\\"Choose Yourself!\\\"\\\") , Angel Inv., JamesAltucher.com\\\"\\\" would to me read as someone that isn't who I'd turn for investment advice when it comes to employer-sponsored plans. Be careful of what you blindly follow as sometimes that is how wolves lead the sheep to slaughter.\\\"\",\n \"It's nearly always a good idea to save for your future, if you don't already have sufficient funds to see out the rest of your days. The hardest part of the saving decision is knowing exactly what portion of your funds to save. If we save too aggressively, we risk having an adverse impact on our everyday life and, of course, there's always the possibility that we'll never make it to old age. But if we don't save, we risk the prospect of a poverty stricken retirement. It's not always easy to find a balance. The best solution is to make so much money that we cannot possibly spend it all!\",\n \"Savings accounts have limitations in case a bank goes belly up and you have a higher amount in the account (more than the insured amount). Mostly big corporations or pension funds cannot rely on a bank to secure their cash but a government bond is secured (with some fine print) and hence they are willing to take negative interest rates.\",\n \"Bank every dollar possible to have more cash available for investing during the 2008/2009 crisis.\",\n \"It can be zero or negative given the current market conditions. Any money parked with treasury bonds is 100% risk free. So if I have a large amount of USD, and need a safe place to keep, then in today's environment even the banks (large as well) are at risk. So if I park my money with some large bank and that bank goes bankrupt, my money is gone for good. After a long drawn bankruptcy procedure, I may get back all of it or some of it. Even if the bank does not go bankrupt, it may face liquidity crises and I may not be able to withdraw when I want. Hence it's safer to keep it in Treasury bonds even though I may not gain any interest, or even lose a small amount of money. At least it will be very safe. Today there are very few options for large investors (typically governments and institutional investors.) The Euro is facing uncertainty. The Yuan is still regulated. There is not enough gold to buy (or to store it.) Hence this leads towards the USD. The very fact that USD is safe in today's environment is reflected in the Treasury rates.\",\n \"BrenBarn did a great job explaining your options so I won't rehash any of that. I know you said that you don't want to save for retirement yet, but I'm going to risk answering that you should anyway. Specifically, I think you should consider a Roth IRA. When it comes to tax advantaged retirement accounts, once the contribution period for a tax year ends, there's no way to make up for it. For example in 2015 you may contribute up to $5,500 to your IRA. You can make those contributions up until tax day of the following year (April 15th, 2016). After that, you cannot contribute money towards 2015 again. So each year that goes by, you're losing out on some potential to contribute. As for why I think a Roth IRA specifically could work well for you: I'm advocating this because I think it's a good balance. You put away some money in a retirement account now, when it will have the most impact on your future retirement assets, taking advantage of a time you will never have again. At a low cost custodian like Vanguard, you can open an IRA with as little as $1,000 to start and choose from excellent fund options that meet your risk requirements. If you end up deciding that you really want that money for a car or a house or beer money, you can withdraw any of the contributions without fear of penalty or additional tax. But if you decide you don't really need to take that money back out, you've contributed to your retirement for a tax year you likely wouldn't have otherwise, and wouldn't be able to make up for later when you have more than enough to max out an IRA each year. I also want to stress that you should have a liquid emergency fund (in a savings or checking account) to deal with unexpected emergencies before funding something like this. But after that, if you have no specific goal for your savings and you don't know for sure you'll actually need to spend it in the near future, funding a Roth IRA is worth considering in my opinion.\",\n \"10-15% of the bat you want to keep liquid in a savings account with interest at 1.5% that best at the moment. In case of a real emergency. Look in to dividend stocks they can bring in 10-15% on your investment and fairly liquid as well. There's also rental properties but 40k isn't much room to move around with in that area.\",\n \"\\\"Invest in other currencies and assets that have \\\"\\\"real\\\"\\\" value. And personally I don't count gold as something of real value. Of course its used in the industry but besides that its a pretty useless metal and only worth something because everybody else thinks that everybody thinks its worth something. So I would buy land, houses, stocks, ...\\\"\",\n \"Remind me again who held and was willing to loan out that debt? The investor classes partly created the risk environment that they now want protection from. convenient. If they're going to sit on their savings, they're going to comparatively lose more to inflation, so what you think will happen probably wouldn't happen. And even if they do, savings don't receive preferential tax treatment anyways.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["Inflation protected securities (i-bonds or TIPS). TIPS stands for Treasury Inflation Protected Securities. By very definition, they tend to protect your savings against inflation. They won't beat inflation, but will keep up with it. TIPS or iBonds have two parts. A fixed interest part and a variable interest portion which varies depending upon the current rates. The combined rate would match the inflation rate. They can be bought directly from the treasury (or from a broker or bank who might charge a commission)","\"(Real) interest rates are so low because governments want people to use their money to improve the economy by spending or investing rather than saving. Their idea is that by consuming or investing you will help to create jobs that will employ people who will spend or invest their pay, and so on. If you want to keep this money for the future you don't want to spend it and interest rates make saving unrewarding therefore you ought to invest. That was the why, now the how. Inflation protected securities, mentioned in another answer, are the least risk way to do this. These are government guaranteed and very unlikely to default. On the other hand deflation will cause bigger problems for you and the returns will be pitiful compared with historical interest rates. So what else can be done? Investing in companies is one way of improving returns but risk starts to increase so you need to decide what risk profile is right for you. Investing in companies does not mean having to put money into the stock market either directly or indirectly (through funds) although index tracker funds have good returns and low risk. The corporate bond market is lower risk for a lesser reward than the stock market but with better returns than current interest rates. Investment grade bonds are very low risk, especially in the current economic climate and there are exchange traded funds (ETFs) to diversify more risk away. Since you don't mention willingness to take risk or the kind of amounts that you have to save I've tried to give some low risk options beyond \"\"buy something inflation linked\"\" but you need to take care to understand the risks of any product you buy or use, be they a bank account, TIPS, bond investments or whatever. Avoid anything that you don't fully understand.\""],"string":"[\n \"Inflation protected securities (i-bonds or TIPS). TIPS stands for Treasury Inflation Protected Securities. By very definition, they tend to protect your savings against inflation. They won't beat inflation, but will keep up with it. TIPS or iBonds have two parts. A fixed interest part and a variable interest portion which varies depending upon the current rates. The combined rate would match the inflation rate. They can be bought directly from the treasury (or from a broker or bank who might charge a commission)\",\n \"\\\"(Real) interest rates are so low because governments want people to use their money to improve the economy by spending or investing rather than saving. Their idea is that by consuming or investing you will help to create jobs that will employ people who will spend or invest their pay, and so on. If you want to keep this money for the future you don't want to spend it and interest rates make saving unrewarding therefore you ought to invest. That was the why, now the how. Inflation protected securities, mentioned in another answer, are the least risk way to do this. These are government guaranteed and very unlikely to default. On the other hand deflation will cause bigger problems for you and the returns will be pitiful compared with historical interest rates. So what else can be done? Investing in companies is one way of improving returns but risk starts to increase so you need to decide what risk profile is right for you. Investing in companies does not mean having to put money into the stock market either directly or indirectly (through funds) although index tracker funds have good returns and low risk. The corporate bond market is lower risk for a lesser reward than the stock market but with better returns than current interest rates. Investment grade bonds are very low risk, especially in the current economic climate and there are exchange traded funds (ETFs) to diversify more risk away. Since you don't mention willingness to take risk or the kind of amounts that you have to save I've tried to give some low risk options beyond \\\"\\\"buy something inflation linked\\\"\\\" but you need to take care to understand the risks of any product you buy or use, be they a bank account, TIPS, bond investments or whatever. Avoid anything that you don't fully understand.\\\"\"\n]","isConversational":false}}},{"rowIdx":370,"cells":{"_id":{"kind":"string","value":"4641"},"query":{"kind":"string","value":"Where should I park my rainy-day / emergency fund?"},"gt_ids":{"kind":"list like","value":["44594","406219","319954","397358","88327"],"string":"[\n \"44594\",\n \"406219\",\n \"319954\",\n \"397358\",\n \"88327\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1,1,1],"string":"[\n 1,\n 1,\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["44594","535931","88327","253614","257754","406219","527939","355675","580025","416633","419772","311642","323686","497993","376148","50542","487325","214194","285812","116614","451858","282623","167446","400503","583283","158670","304804","59899","495093","593365","270221","425479","14989","487205","260162","43976","487890","390969","5323","319954","213673","384968","32855","238833","64453","19591","205351","241161","164908","221873","180429","450228","372223","151394","32520","545712","551764","21468","179702","108978","80009","295155","436777","336965","319961","532179","424437","467830","156097","534670","470334","2393","303432","189881","274948","116213","550184","380942","553748","251146","111054","457122","436899","252358","254572","312359","583695","536229","278777","433817","569484","235972","266239","4044","343693","538673","276805","569528","158730","549654"],"string":"[\n \"44594\",\n \"535931\",\n \"88327\",\n \"253614\",\n \"257754\",\n \"406219\",\n \"527939\",\n \"355675\",\n \"580025\",\n \"416633\",\n \"419772\",\n \"311642\",\n \"323686\",\n \"497993\",\n \"376148\",\n \"50542\",\n \"487325\",\n \"214194\",\n \"285812\",\n \"116614\",\n \"451858\",\n \"282623\",\n \"167446\",\n \"400503\",\n \"583283\",\n \"158670\",\n \"304804\",\n \"59899\",\n \"495093\",\n \"593365\",\n \"270221\",\n \"425479\",\n \"14989\",\n \"487205\",\n \"260162\",\n \"43976\",\n \"487890\",\n \"390969\",\n \"5323\",\n \"319954\",\n \"213673\",\n \"384968\",\n \"32855\",\n \"238833\",\n \"64453\",\n \"19591\",\n \"205351\",\n \"241161\",\n \"164908\",\n \"221873\",\n \"180429\",\n \"450228\",\n \"372223\",\n \"151394\",\n \"32520\",\n \"545712\",\n \"551764\",\n \"21468\",\n \"179702\",\n \"108978\",\n \"80009\",\n \"295155\",\n \"436777\",\n \"336965\",\n \"319961\",\n \"532179\",\n \"424437\",\n \"467830\",\n \"156097\",\n \"534670\",\n \"470334\",\n \"2393\",\n \"303432\",\n \"189881\",\n \"274948\",\n \"116213\",\n \"550184\",\n \"380942\",\n \"553748\",\n \"251146\",\n \"111054\",\n \"457122\",\n \"436899\",\n \"252358\",\n \"254572\",\n \"312359\",\n \"583695\",\n \"536229\",\n \"278777\",\n \"433817\",\n \"569484\",\n \"235972\",\n \"266239\",\n \"4044\",\n \"343693\",\n \"538673\",\n \"276805\",\n \"569528\",\n \"158730\",\n \"549654\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"First off, you generally want to park your emergency fund somewhere that is \"\"safe\"\", meaning something that is not subject to market fluctuations. Your emergency fund is something you need to be able to count on when times are tough! That rules out things like stock market investments. Secondly, you need to think about how quickly you will need access to the money. If you have an emergency, odds are you don't want to be waiting around for weeks/months/years for the money to become available. This rules out most fixed-term investments (Bonds, traditional CDs, etc). If you are concerned that you will need near-instant access to your emergency money, then you probably want to keep it in a Savings or Money Market Account at the same bank as your checking account. Most banks will let you transfer money between local accounts instantly. Unfortunately, your local bank probably has pitiful interest rates for the Savings/MMA, far below the inflation rate. This means your money will slowly lose value over time. Be prepared to keep contributing to it! For most people, being able to draw the cash from your fund within a few days (<1 week) is sufficient. Worst case, you charge something on your credit card, and then pay down the card when the emergency fund withdrawal arrives. If \"\"money within a few days\"\" is okay for you, there are a few options: Money Market (Mutual) Funds (not to be confused with a Money Market Account) - This is the traditional place to keep an emergency fund. These are investment funds you can buy with a brokerage account. An example of such a fund would be Fidelity Cash Reserves. MMFs are not FDIC insured, so they are not exactly zero risk. However, they are considered extremely safe. They almost never go down in value (only a few times in the past few decades), and when they have, the fund manager or the Federal Govt stepped in to restore the value. They usually offer slightly better return than a local savings account, and are available in taxable and non-taxable varieties. Online High-Yield Savings or Money Market Account - These are a relatively new invention. It's basically a the same thing as what your local bank offers, but it's online-only. No local branch means low overhead, so they offer higher interest rates (2.0% vs 0.5% for your local bank). Some of them used to be over 5% before the economy tanked. Like your local bank, it is FDIC insured. One bit of caution: Some of these accounts have become \"\"gimmicky\"\" lately. They have started to do things like promo rates for a few months, only offering the high interest rate on the first few $K deposited, limiting the amount that can be withdrawn, etc. Be sure to read the details before you open an account! No-Penalty CDs - Certificates of Deposit usually offer a better rate than a Savings Account, but your money is locked up until the CD term is up (e.g. 36 months). If you need to cash out before then, you pay a penalty. Some banks have begun to offer CDs that you can cash out with no penalty at all. These can offer better rates than the savings account. Make sure it really is no-penalty though. Also watch what your options are for slowly adding money over time. This can be an issue if you want to deposit $100 from every paycheck. Rewards Checking Accounts - These are checking accounts that will pay a relatively high interest rate (3% or more) provided you generate enough activity. Most of them will have requirements like you must have direct deposit setup with them, and you must do a minimum number of debit card transactions from the account per month. If you can stay on top of the requirements, these can be a great deal. If you don't stay on top of it, your interest rate usually drops back to something pitiful, though. Personally, we use the Online High-Yield Savings Account for our emergency fund. I'm not going to make a specific recommendation as to which bank to use. The best deal changes almost week to week. Instead, I will say to check out Bankrate.com for a list of savings accounts and CDs that you can sort. The Bank Deals blog is a good place to follow rate changes.\"","If this is truly your emergency fund, then you should keep the money safe. Unfortunately interest rates are very low right now and there is not much you can do about that. However, ask your investment advisor for a CDIC insured high interest account, such as these:","Something with an FDIC guarentee, so a bank. With an emergency fund, I think the 'return of capital' is more important than the 'return on the capital', so I'm fine with putting it in a standard savings account in a local bank(not an internet account) even if it pays next to nothing. The beauty is that since the bank is local, you can walk in and withdraw it all during any weekday.","\"Liquid cash (emergency, rainy day fund) should be safe from a loss in value. Mutual funds don't give you this, especially stock funds. You can find \"\"high yield\"\" savings accounts that are now at around .8% to .9% APY which is much better than .05% and will hopefully go up. Barclays US and American Express are two big banks that normally have the highest rates. Most/all Savings and Money Market accounts should be FDIC insured. Mutual funds are not, though the investment IRA, etc. holding them may be.\"","Most emergencies are less than 1,000 in nature. As such I would keep at least that amount in a checking/savings account at the bank from which you pay your bills or can get cash from. This amount may increase so you can avoid low balance fees, or because of the nature of your life style and income. Beyond that, you can search for yield. I personally like online savings accounts like Amex Personal Savings, Ally or others. Money market accounts will work equally well. There you can keep the bulk of your emergency savings and large purchase savings. Keep in mind you still won't earn much. A 40K emergency fund will only earn you $38/month at Ally.","I would suggest your local credit union or local bank for security and liquidity. Liquidity is probably the most important issue for a emergency fund.","\"The Roth vs not debate is irrelevant to the question. It doesn't matter where your emergency fund is kept, as long as it is liquid and safe. I said it before in an answer to another question: your emergency fund is not an investment -- it's your safety net This answer also says it well: an \"\"emergency fund\"\" is just that... for emergencies... NOT investment. While it \"\"hurts\"\" not to have your emergency money making more money... its MORE IMPORTANT to have quick access to it. So at TD Ameritrade, just park it in their FDIC deposit account. It will not earn any meaningful interest (at least until rates rise), but you'll be able to have access to it when you need it. Note that I would caution against putting it in a money market mutual fund. They're safer than many other investments, but they're not FDIC insured against loss and there is a potential for temporary loss of liquidity. In late 2008 when the credit markets collapsed, a lot of people suddenly became unemployed -- and needed access to their emergency funds. When Lehman Brothers went bust in September, the Reserve Primary Fund (with billions of dollars in their fund) \"\"broke the buck\"\" -- they lowered the price of shares below $1, meaning investors lost principal. The worst part is that investors were not as liquid as they wanted to be: the fund froze and it was hard to get money out. The lesson to take away from this is that one of the times you're likely to need access to your emergency fund is during a macroeconomic crisis. This is also the time when any investment that isn't guaranteed safe may potentially be (at least temporarily) unavailable or decline in value. Emergency funds should be 100% government insured. When you have your Roth funded to the point where there's extra money beyond the emergency fund, you can start investing in higher-yielding vehicles: stock or bond index ETFs would be a good start. But then that part of your Roth starts to look like a retirement account and not an emergency fund. If it were me, I'd open a Roth at a stable local bank and just keep it in their FDIC insured money market deposit account. Then if I wanted a slight boost, I might put the \"\"upper half\"\" of my emergency fund into short term CDs, but even CDs aren't worth much at the moment.\"","While I don't disagree with the other answers as far as CD laddering goes (at least in principle), three months CDs are currently getting much lower rates than money market accounts, at least according to http://www.bankrate.com. A savings account is also more liquid than CDs. Bonds are another option, and they can generally be liquidated quickly on the secondary market. However, they can go down in value if interest rates rise (actually this is true of CDs as well--there is a secondary market, though I believe only for brokerage CDs?). Bottom line, A high yield savings account is likely your best best. As others noted, you should think of your emergency fund as savings, not investment.","\"I don't know Canada very well, but can offer some general points when considering where to park your emergency fund. Savings rates are currently low, but then so is inflation. Always bear in mind that inflation decreases the value of your money, so if you're getting 4% interest and inflation is 2%, you're making 2% gross in real terms. If you're getting 2% and inflation is close to zero, you're actually earning a similar amount, it's just the numbers are going up more slowly. Obviously when and how much tax you pay affects the actual return, it's just worth bearing in mind that low interest and low inflation are actually not that bad a savings environment as they first appear. For an emergency fund the key thing is ease of access, consider keeping some portion of your savings in an instant access account for those emergencies that happen when the banks are closed. In the UK there are various tax-free savings options, I'm guessing Canada has a few too, if so you should explore those options. While these may not have attractive headline rates, you don't pay tax on the interest, this can make them much more competitive (4% tax free is the same as 5% gross if you would have to pay tax at 20%). Normally tax free investments have caps so once you've invested a set amount you can't add anymore. This may be a consideration if you regularly dip into your emergency fund as you might not easily be able to build it up again. My approach is to have about 90% of my \"\"rainy day\"\" fund in easily accessible but tax free savings. This discourages me from spending it unless I really need to. I then keep a slush fund sufficient to cover every day disasters (boiler packing up, needing a hire car for a week etc) in instant access accounts .\"","\"You could put in in a Money Market Fund. These are designed to always be $1 per share, and not lose money. Of course, it still, very rarely, happens and is called \"\"breaking the buck\"\" when they do. Sounds like the high yield savings is the way to go. The rates will be the same as what you can get from a Money Market Fund, but you also have the added advantage that the account is FDIC insured. BTW, using a Roth as an emergency fund is a terrible idea. It is true that, since you already paid taxes on your contributions, you can withdraw those contributions without incurring penalties. However, you have to file paperwork to do it, and since it's not common, the IRA custodian is likely to screw it up. Plus, you have to keep track of what were contributions, and what was investment returns, to not run afoul of the penalties. And it will take time to do it, which you may not have in an emergency. Considering you're only looking at getting 1% interest anyway, there's no reason to use a Roth account as an emergency fund. You can set those same automatic deposits into a savings account.\"","Generally speaking, an emergency fund's primary purpose for being is to be available in an emergency. Income generation is a distant second. As long as you have immediate access to it via checks or an atm card, you're doing ok. If you live in a high-tax state or a place like New York City with federal, state and local income tax, I'd probably err on the side of the municipal fund for your state.","Emergency funds, car funds etc tend to have to be accessible quickly (which tends to rule out CDs unless you have the patience to work something like a monthly CD ladder, an I don't) and you'll want your principal protected. The latter pretty much rules out any proper investment (ETFs, mutual funds, stock market directly, Elbonian dirt futures etc). It's basically a risk-vs-return calculation. Not much risk, not much return but at least you're not losing from a nominal standpoint). Another consideration is that you normally aren't able to decide freely if and when you want to pull money out of an emergency fund. If it is an emergency, waiting three weeks to see if the stock market goes up a little further isn't an option so you might end up having to take a hit that would be irrelevant if you were investing long term but might hurt badly because you're left with no choice. I'd stick that sort of money into a money market account and either add to it if necessary to keep up with inflation or make sure that my non-retirement investments over and above these funds are performing well, as those will and should become a far bigger part of your wealth in the longer run.","It depends on how immediately you think you'll need your emergency fund cash: If you anticipate running into problems where you need cash right away (e.g. you live paycheck to paycheck, and your car breaks down a lot), put it into a checking or money market account. If you don't think your emergencies will require immediate access to cash (e.g. unemployment), then put it in a savings account or CD. If there is a lot of money in your accounts that goes unused, and you want a bigger safety net, then consider investing it. Though it's generally a better idea to pay off debts at this point. I think the best idea is to split your emergency fund between your checking and savings. Maybe 20% checking and 80% savings. That way, you have some extra cash on hand when you need it, while most of your money is growing in savings.","Duffbeer703 covers most everything. The entire point of an emergency fund IS for it to be liquid. Now I do understand (if you feel your situation requires over 6 months of living expenses): That is a lot of money to have sitting in a statement savings account! Under no circumstances should you take any sort of risk with an emergency fund. However, you COULD do this: Invest some of the assets in a six month, 1 year or 2 year CD if returns were enough to be worthwhile. If you don't need the money, then fine, great. But if you do, you can break a Certificate of Deposit before maturity. There will be a penalty fee. You might lose interest too. But you'll have access to your money, no liquidity risk. So maybe you could put most, say 60% of your rainy day funds in truly liquid assets. The remainder could be in longer term CD's which you hopefully won't need because you'll be back to non rainy day living again.","Bond aren't necessarily any safer than the stock market. Ultimately, there is no such thing as a low risk mutual fund. You want something that will allow you get at your money relatively quickly. In other words, CDs (since you you can pick a definite time period for your money to be tied up), money market account or just a plain old savings account. Basically, you want to match inflation and have easy access to the money. Any other returns on top of that are gravy, but don't fret too much about it. See also: Where can I park my rainy-day / emergency fund? Savings accounts don’t generate much interest. Where should I park my rainy-day / emergency fund?","The iron-clad rule of investing is that risk and return are directly related. It is impossible to get a higher return than you are getting without putting principal at risk. Your emergency fund should be in cash, preferably in government insured cash (like a savings account). The best you could probably do is laddered 3-month CDs. That way, you could cash them out, one per month, as they mature.","What worked out well for me is a Capital One High Yield Savings Account, which came with a lower interest rate than most online accounts but higher than a brick & mortar bank. Also, since Capital One has Banking locations now, I can use the ATM card that came with this account to pull out the emergency money if I need it in a pinch at a place that doesn't accept checks.","We put our fund in a local credit union that we only use for the emergency fund. We have a savings account that sweeps all funds into a 6 month CD that automatically renews upon maturity. We pretty much don't think about it, and make a deposit with our excess savings after we pay our property taxes in January and school taxes in September. Why? When my wife and I set it up the emergency fund, the purpose is to have a cushion against emergencies, not earning money or having convenient access. We wanted access to the money to be onerous enough that neither one of us could pull money out of without calling someone or driving over to the branch. We even opted not to take an ATM card. In the event that we need the money, we can terminate the CD early and pay a 3 month interest penalty. With $10k, that translates to about $25.","As others have noted, you can do better than a checking or savings account. If you're going to invest emergency money, the vehicle you put it into should be: Liquid - Wherever you put it, you should be able to quickly cash it out. Highly liquid exchange traded products are good for this. Low volatility/drawdowns - If you need at least 6 months of your paycheck to cover you in the event of an emergency, you don't want to park it in a portfolio that can potentially lose 30% value. Insured - Your investments should have SIPC coverage (protection against losses resulting from failure on part of broker). Moderate/Steady Growth - If the emergency fund doesn't grow, you'll need to continually pump money into it. My 'steady growth' portfolio is majorly allocated to fixed income. Within that, a major portion is allocated to high yielding instruments. Over the past 10 years, it's seen at least a 7% annualized return.","\"Since this is your emergency fund, you generally want to avoid volatility while keeping pace with inflation. You really shouldn't be looking for aggressive growth (which means taking on some risk). That comes from money outside of the emergency fund. The simplest thing to do would be to shop around for a different savings account. There are some deals out there that are better than ING. Here is a good list. The \"\"traditional\"\" places to keep an emergency fund are Money Market Mutual Funds (not to be confused with Money Market Accounts). They are considered extremely safe investments. However, the returns on such a fund is pretty low these days, often lower than a high-yield online savings account. The next step up would be a bond fund (more volatility, slightly better return). Pick something that relies on Government bonds, not \"\"high-yield\"\" (junk) bonds or anything crazy like that. Fidelity Four in One comes pretty close to your \"\"index of indexes\"\" request, but it isn't the most stable thing. You'd probably do better with a safer investment.\"","Let me first start by defining an emergency fund. This is money which is: Because emergency's usually need to be deal with ASAP, boiler breaks, gears box in a car. Generally you need these to be solved as soon as possible, because ou depend on these things working and you can't budget for this type of expenditure using just your monthly salary. This is a personal opinion but I prefer investment types that don't have another fee on access. I really don't like having another fee on top on money that I need right now. Investment Options: Market based investments should be seen as long term investments, therefore they do not really satisfy requirement one, they can also have broker fees, therefore you might pay a small extra charge for taking money out, and so do not satisfy requirement two. Investment Options for Emergency Funds You want to get the best return on your money even if it's your emergency fund. So use regular saving accounts, but from you emergency fund or use tax effective savings accounts, like a cash ISA if based in the UK. Don't think of an emergency money as just sitting there, you have options just makes sure the options fit the requirements. UPDATE Given feedback I appreciate there are levels of emergency fund, the above details things which might be about 1-2 month salary in cost, car repairs, leaks, boiler repairs. Now I have another fund which is in P2P funds which is higher risk than a deposit account but then gives me a better return and is less subject to market fluctuations and it would be the place I go to for loss of job level emergencies say 6 months of salary, this takes a bit longer to access but given I have the above emergency fund I have given myself time to get the money from the P2P account.","\"I'm not a fan of using cash for \"\"emergency\"\" savings. Put it in a stable investment that you can liquidate fairly quickly if you have to. I'd rather use credit cards for a while and then pay them off with investment funds if I must. Meanwhile those investments earn a lot more than the 0.1 percent savings or money market accounts will. Investment grade bond funds, for example, should get you a yield of between 4-6% right now. If you want to take a longer term view put that money into a stock index fund like QQQ or DIA. There is the risk it will go down significantly in a recession but over time the return is 10%. (Currently a lot more than that!) In any event you can liquidate securities and get the money into your bank is less than a week. If you leave it in cash it basically earns nothing while you wait for that rainy day which many never come.\"","I would put about a month's worth of expenses in the highest-paying savings account that you find convenient to access. For the rest, I recommend Ally's High-Yield CDs — specifically, the 5-year option. Normally 5 years would be way too long to commit short-term savings to a CD. However, the Ally CDs allow you to break them for a penalty of only two months worth of interest. If you look at the graph below (from when the rates were 3.09% APY), you can see the effective interest rate at every possible time you break the CD early. Doing the math, if you can keep your savings in the account for at least four months, it will outperform any other current FDIC-backed investment that I am aware of, for the length of time the money was invested. (credit: MyMoneyBlog)","i think emergency fund should be in a more liquid account (like regular saving or money market) so you can withdraw money any time, while your regular saving can be tied up in a long term CD, bond or an investment account.","@mbhunter and @JoeTaxpayer have given good advice. Were I in your situation, the only thing I might do differently is put whatever amount of cash not needed for emergencies in a money market fund with check-writing privileges and/or a debit card. The rate on the account has at least some chance of preserving the value of your principal, and it will be easier to put your money into investments as soon as you're ready. This sort of account is offered by any number of brokerages and financial companies, so pick one you trust and start there.","Another option if you want a higher return is to tier your emergency fund so you are putting a portion in different savings vehicles, each with varying risk and rates of return. One option might be You will need to assess the risk of these vehicles to see if it fits within your tolerance. If not, just using the online savings account is a fine choice. One final note regarding I-bonds - they can't be cashed out until 1 year after you buy them. This may be too limiting to some depending on their perceived need for their emergency fund over the next year; others may be more comfortable with it.","I am understanding the OP to mean that this is for an emergency fund savings account meant to cover 3 to 6 months of living expenses, not a 3-6 month investment horizon. Assuming this is the case, I would recommend keeping these funds in a Money Market account and not in an investment-grade bond fund for three reasons:","Why are you saving your emergency fund in a Roth-IRA? That type of fund should be for retirement. I know you can pull out your principal but that would mean in a crisis you will be destroying your retirement fund. Remember there is an annual limit, it could take years to replenish it if you have to pay for a big repair, or period of unemployment. The emergency fund should be kept in a very safe account. I would just keep in a high yeild account at a Credit Union","For maximum liquidity of an emergency fund, having demand deposits and fixed deposits would be the best, as they are the most liquid instruments around. If you invest in other higher yielding instruments they would be less liquid, so it's a tradeoff and you've got to decide for yourself what's best given your requirements.","This is a somewhat subjective question, but if you are following a particular personal finance methodology, just do whatever they recommend. For example, I believe that Dave Ramsey's program calls for the emergency fund to be in a different account.","\"There are no risk-free high-liquidity instruments that pay a significant amount of interest. There are some money-market accounts around that pay 1%-2%, but they often have minimum balance or transaction limits. Even if you could get 3%, on a $4K balance that would be $120 per year, or $10 per month. You can do much better than that by just going to $tarbucks two less times per month (or whatever you can cut from your expenses) and putting that into the savings account. Or work a few extra hours and increase your income. I appreciate the desire to \"\"maximize\"\" the return on your money, but in reality increasing income and reducing expenses have a much greater impact until you build up significant savings and are able to absorb more risk. Emergency funds should be highly liquid and risk-free, so traditional investments aren't appropriate vehicles for them.\"","\"As you're saving up for an expenditure instead of investing for the long run, I would stay away from any sort of \"\"parking facility\"\" where you run the risk of not having the principal protected. The riskier investments that would potentially generate a bigger return also carry a bigger downside, ie you might not be able to get the money back that you put in. I'd shop around for a CD or a MMA/regular savings account with a half-decent interest rate. And yes, I'm aware that the return you might get is probably still less than inflation.\"","I know this is heresy but if you have funds for significantly more than 6 months of expenses (let's say 12 months), how risky would it be to put it all into stock index funds? Quite risky as if you do need to dip into it, how fast could you get the cash? Also, do you realize the tax implications when you do sell the shares should you have an emergency? In the worst-case scenario, let's say you have a financial emergency at the same time the stock market crashes and loses half its value. You could still liquidate the rest and have sufficient funds for 6 months. Am I underestimating the risks of this strategy? That's not worst case scenario though. Worst case scenario would be another 9/11 where the markets are closed for nearly a week and you need the money but can't get the funds converted to cash in the bank that you can use. This is in addition to the potential wait for a settlement in the case of using ETFs if you choose to go that way. In the case of money market funds, CDs and other near cash equivalents these can be accessed relatively easily which is part of the point. A staggered approach where some cash is kept in house, some in accounts that can easily accessed and some in other investments may make sense though the breakdown would differ depending on how much risk people are willing to take. If it truly is an emergency fund then the odds of needing it should be very slim, so why live with near zero return on that money? Something to consider is what is called an emergency here? For some people a sudden $1,000 bill to fix their car that just broke down is an emergency. For others, there could be emergency trips to visit family that may have gotten into accidents or gotten a diagnosis that they may pass away soon. Consider what do you want to call an emergency here as chances are you may not be considering all that people would think is an emergency. There is the question of what other sources of money do you have to cover should issues arise.","With the requirement that the money is 100% available immediately and that you can not suffer a loss of principal, the suggestions you gave of an online savings account is a good one. Personally, I use ING.","You can also create a CD ladder (say 1/3 in a 6 month CD, 1/3 in a 1 year CD, 1/3 in a 2 year CD) with half of your emergency fund money. You always want to leave some of it in a liquid account so you can get at it immediately without any interest penalty. CD's provide higher interest than a savings account. By staggering the lengths of the CD's, you give yourself more options, and can roll them over into CD's with higher rates (since interest rates are soooo low right now) as the CD's mature.","Emergency funds, by the name it implies that they should be available on hand at a very short notice if needed. Conservation of principal (not withstanding inflation, but rather in absolute terms) is also a very important criteria of any kind of account that you will use to save the emergency fund. I would suggest the following breakup. The number in brackets signifies the amount of per month expenses that you can keep in that account. = total 6 months living expenses","\"An alternative to a savings account is a money market account. Not a bank \"\"Money Market\"\" account which pays effectively the same silly rate as a savings account, but an actual Money Market investment account. You can even write checks against some Money Market investment accounts. I have several accounts worth about 13,000 each. Originally, my \"\"emergency fund\"\" was in a CD ladder. I started experimenting with two different Money market investment accounts recently. Here's my latest results: August returns on various accounts worth about $13k: - Discover Bank CD: $13.22 - Discover Bank CD: $13.27 - Discover Bank CD: $13.20 - Discover Savings: $13.18 - Credit Union \"\"Money Market\"\" Savings account: $1.80 - Fidelity Money Market Account (SPAXX): $7.35 - Vanguard Money market Account (VMFXX): $10.86 The actual account values are approximate. The Fidelity Money Market Account holds the least value, and the Credit Union account by far the most. The result of the experiment is that as the CDs mature, I'll be moving out of Discover Bank into the Vanguard Money Market account. You can put your money into more traditional equities mutual fund. The danger with them is the stock market may drop big the day before you want to make your withdrawl... and then you don't have the down payment for your house anymore. But a well chosen mutual fund will yield better. There are 3 ways a mutual fund increase in value: Here's how three of my mutual funds did in the past month... adjusted as if the accounts had started off to be worth about $13,000: Those must vary wildly month-to-month. By the way, if you look up the ticker symbols, VASGX is a Vanguard \"\"Fund of Funds\"\" -- it invests not 100% in the stock market, but 80% in the stock market and 20% in bonds. VSMGX is a 60/40 split. Interesting that VASGX grew less than VSMGX...but that assumes my spreadsheet is correct. Most of my mutual funds pay dividends and capital gains once or twice a year. I don't think any pay in August.\"","\"IMO, you can do whatever you want with an emergency fund, as long as it is in a deposit-type account. The purpose of the fund is for emergencies, not to make money, so you want it to be liquid so that you can access it in an emergency. Personally, I'm willing to take accept a potential penalty for withdrawing. Here's some examples of what I mean: You don't want \"\"emergency\"\" funds in a marketable security, because your emergency could be directly or indirectly related to some sort of market crisis. If you absolutely needed to liquidate an investment in the days after the collapse of Lehman brothers, you probably would have taken a bath -- even secure, US State bonds fell in value. If you feel that this is taking too much cash off the table, that's ok, just don't consider the part that you invest part of your \"\"emergency\"\" fund. The 3-8 months of expenses thing depends on your situation. If you're a salesman, err towards 8. If you're a unionized civil service worker with seniority, 3 months is probably appropriate.\"","Since returning of capital is the most important, I would go to bankrate.com and find either an online bank savings account or MMA account. By going to bankrate.com, you can find higher rates. Sometimes you can find rates that are higher than a CD and are still FDIC insured. I've found ally bank's raise your rate 2 year CD to always have the best rate. In addition, if rates go up, you are able to raise the rate to the current rate.","I am using ING for my emergency savings, but sometime last year I discovered SmartyPig. As of 4/24/2010 they offer 2.1%, which is even better than the 1 year CDs at most banks. I've switched two small accounts to SmartyPig and plan to switch my emergency savings. Their accounts are geared around monthly contributions, but you don't have to use that feature.","\"Opinions vary but I've always thought that an \"\"emergency fund\"\" is just that... for emergencies... NOT investment. While it \"\"hurts\"\" not to have your emergency money making more money... its MORE IMPORTANT to have quick access to it. As long as the interest rate keeps up with the rate of inflation leave it alone. Fill up your emergency fund with 3-6 mos salary and then INVEST your money beyond that however you see fit. Dave Ramsey's \"\"Financial Peace University\"\" is a very good audiobook and I would recommend it to anyone asking questions such as this one.\"","First of all, look for a savings account with a decent interest rate. Online banks are good at offering those, and you can transfer your money back and forth from the checking account with a couple of business days' delay. ING Direct offers 1.1% APY right now - lame, but much better than nearly-nothing. If you'd like a little nicer rate of return you should also consider putting some of the money (the part you need least) in a short- or intermediate-term bond ETF or mutual fund. You can sell them quite readily, they pay more interest than a savings account, and because of the shorter maturities involved the interest rate risk is limited. (That's the one that makes your bonds less valuable now because the rates went up after you bought them.) I have some NYSE:BIV that's yielding 3.8% or so.","CDs or money market funds. Zero-risk for the CD and ultra-low risk for the money market account; better return than most savings accounts.","I would suggest a high interest checking account if you qualify, or if you don't, an Investor's Deposit Account (IDA).","I'd be concerned about using CDs (or other non-liquid source) for your emergency fund because you become likely to use debt instead of tapping your emergency fund because you are worried about penalties (which typically only affect interest). This mind set can make you loan the bank money at 1-2% (buy a cd) and borrow money from the bank at 18-25% (credit card). Don't create psychological barriers to using your emergency fund in a true emergency Also, you recommend 3-8 months of expenses. The purpose of an emergency fund is to cover both a loss of income for 3-8 months, or a one time large expense (new roof, new sewer pipe to the house, etc.). A tiered solution solves the loss of income solution, but does not readily address the need for a one time, large emergency. I'd keep all of your emergency fund liquid.","I recommend an online savings account. The money is more liquid without early withdrawal fees and frequently you can get a visa/mastercard check card to access the funds. Looking at interest rates, ING is currently paying 1.10% and bankrate reports the best interest rate in the country on a 1 year CD is 1.33%. The .23% difference is not enough to convince me to invest in CDs at a fixed rate vs. an online savings account at a variable rate when we are at (or near) the bottom of CD/savings interest rates.","A CD ladder is an ideal way to hold your emergency funds and eke out a few more percentage points of return. Buy CDs in denominations close to one month's expenses, and ladder 1 per month with 3, 6 or 12 month CDs (depending on your total cash allocation to emergency funds). By using a frequency that matches your available funds, in a best case scenario, you can perpetually roll over (or as your savings increase, extend to a longer frequency). If you have an emergency, you have a month's expenses in cash or cash coming in within a month.","A Roth IRA is intended for retirement. Before age 59.5 (I think), you can only withdraw the amount you deposited without penalty. It's great you're saving in a Roth, but you shouldn't put savings in there that you will need before you reach sufficient age. And since it's long-term, you can invest in things you expect to grow over the long term, like equities. You should keep emergency funds either in federally insured, extremely liquid accounts (bank savings) or money market funds (which aren't insured, but are close enough to zero-risk). Yes, the interest rates are terrible right now. But anything else would potentially leave you with insufficient funds in the event of, you know, an emergency.","In today's market being paid 1% for risk and free access money is pretty darn good. If 50k is what you feel comfortable with an emergency fund, then you are doing a fine enough job. To me that is a lot to keep in an emergency fund, however several factors play into this: We both drive older cars, so I also keep enough money around to replace one of them. Considering all that I keep a specific amount in savings that for me earns .89%. Some of that is kept in our checking accounts which earns nothing. You have to go through some analysis of your own situation and keep that amount where it is. If that amount is less than 50K, you have some money to play with. Here are some options:","\"Shem - I recommend looking into online banks or credit unions. I know ally has around ~0.8% rate on their savings accounts NOT MMS. Meaning you don't need a ~$2,500 minimum balance so your money is COMPLETELY liquid. CD's and MMC/S are worth next to nothing, and if you ask me are pointless with the minimum balances they require. Ally also reimburses you for all ATM withdrawal fees, meaning you have complete access to all your money, with next to no minimum, with at least some % back that is comparable to CD rates currently offered. CD's are around ~1.8-2% with tens of thousands of dollars (50-75k+) which isn't worth keeping \"\"liquid\"\",if you would consider CD's liquid (because you can withdraw on a penalty or have laddered CD's), unless you're rich and that's your emergency fund. If I were you I would look into a retirement account, and saving what you need to in an Emergency Fund. Check out a 401(k), Traditional IRA or Roth IRA. They each have their benefits and you need to assess your financial situation before picking one. I would recommend spending a great deal of time researching this before making your decision, because switching from one to another could cost you, depending on your choice. This is, of course, if you live in the U.S.\"","Money you need in less than 5 years should be saved not invested. The only place I would be comfortable the money would be a money market account or Certificate of Deposit (CD). I usually go for the money market account because they pay at or close to CD rates and there are no restrictions on getting to the money. However in this case I might choose a CD to keep me from being tempted to borrow some of it for something else. But even after typing that I still think I would put it in a money market, because if interest rates rise they rise in the money market but not the CD, and I just don't think interest can go much lower.","Never invest money you need in the short term. As already suggested, park your money in CDs.","$1000 is not that much, and I think the best you can do with them is keeping them in a high-yield savings account (look at the online savings accounts that give 1% and more, not the regular bank savings accounts which are worthless). If you need money all of a sudden (for a school book, or rent, or bills, or some other emergency expense), you don't want to deal with selling stocks or funds (which may be at loss) or breaking into your CD's. It is usually considered a good practice to keep cash that would keep you afloat for 5-6 months in savings or some cash equivalent, as an emergency fund.","Based on your question, I am going to assume your criterion are: Based on these, I believe you'd be interested in a different savings account, a CD, or money market account. Savings account can get you up to 1.3% and money market accounts can get up to 1.5%. CDs can get you a little more, but they're a little trickier. For example, a 5 year CD could get up to 2%. However, now you're money is locked away for the next few years, so this is not a good option if this money is your emergency fund or you want to use it soon. Also, if interest rates increase then your money market and savings accounts' interest rates will increase but your CD's interest rate misses out. Conversely, if interest rates drop, you're still locked into a higher rate.","If you're relatively certain that you're going to meet the requirements, it sounds like a good move for you. The #1 priority with emergency funds should be easy access to the money when you need it. Before the current economic situation, money market funds were great for this since they preserved the value of the dollars you put in. Now the rates on money market accounts are barely better than the 0.2% you're currently getting.","In the short-term, a savings account with an online bank can net you ~1% interest, while many banks/credit unions with local branches are 0.05%. Most of the online savings accounts allow 6 withdrawals per month (they'll let you do more, but charge a fee), if you pair it with a checking account, you can transfer your expected monthly need in one or two planned transfers to your checking account. Any other options that may result in a higher yield will either tie up your money for a set length of time, or expose you to risk of losing money. I wouldn't recommend gambling on short-term stock gains if you need the money during the off-season.","Here are some options: Park your money in a bank that works best for you.","\"If you've already got emergency savings sufficient for your needs, I agree that you'd be better served by sending that $500 to your student loan(s). I, personally, house the bulk of my emergency savings in CDs because I'm not planning to touch it and it yields a little better than a vanilla savings account. To address the comment about liquidity. In addition to my emergency savings I keep plain vanilla savings accounts for miscellaenous sudden expenses. To me \"\"emergency\"\" means lost job, not new water pump for my car; I have other budgeted savings for that but would spend it on a credit card and reimburse myself anyway so liquidity there isn't even that important. The 18 month CDs I use are barely less liquid than vanilla savings and the penalty is just a couple months of the accrued interest. When you compare a possible early distribution penalty against the years of increased yield you're likely to come out ahead after years of never touching your emergency savings, unless you're budgeted such that a car insurance deductible is an emergency expense. Emergency funds should be guaranteed and non-volatile. If I lose my job, 90 days of accrued interest isn't a hindrance to breaking open some of my CDs, and the process isn't so daunting that I'd meaningfully harm my finances. Liquidity in 2017 and liquidity in whatever year a text book was initially written are two totally different animals. My \"\"very illiquid\"\" brokerage account funds are only one transaction and 3 settlement days less liquid than my \"\"very liquid\"\" savings account. There's no call the bank, sell the security, wait for it to clear, my brokerage cuts a check, mail the check, cash the check, etc. I can go from Apple stock on Monday to cash in my hand on like Thursday. On the web portal for the bank that holds my CDs I can instantly transfer the funds from a CD to my checking account there net of a negligible penalty for early distribution. To call CDs illiquid in 2017 is silly.\"","\"An emergency fund is very well defined, both on this site and across the web. An emergency fund is a cash account where you keep money for emergencies so you don't need to take on debt like a loan or credit cards. Car breaks down? emergency fund can help pay that. Lose your job? The emergency fund is there to pay rent and for groceries until you're back up an running. There are several schools of thought on how much money should be in your emergency fund, but it boils down to how high your risk assessment is. Typically, the average is to have 3 months in cash available at all times (like in a savings account). It'd be better to have more, but that's a typical goal. You're also asking about investments in the comments. An emergency fund should be readily available. If you already have $10K in savings, set aside what you would need to cover a few months of bills into a cash-ready savings account, then invest the rest. Investments sometimes take time, or have penalties, if you withdraw them. Additionally, as @JoeTaxpayer so correctly pointed out, getting into the habit of maintaining a separate emergency fund helps protect your other investments from becoming a crutch and instead used to save up for larger things like a house or, especially, retirement. See also: What expenses should be covered by an emergency fund What should I reserve \"\"emergency savings\"\" for? What expenses do most people not prepare for that turn into \"\"emergencies\"\" but are not covered by an Emergency Fund? Less than a year at my first job out of college, what do I save for first?\"","Stop trying to make money with your emergency fund. It's purpose is to sit there idly waiting for a bad day. A day when you need that cash (liquid) not in a bank or a line-of-credit. The few dollars you might make trying to chase interest/investments with your emergency fund aren't worth it if a true emergency came up and you couldn't get to your cash in time. Once you have a fully funded EF then start investing heavily. That's your future game plan. Not the EF.","Firstly well done on building a really sold base of savings. An emergency fund needs to have two key characteristics: Be enough to get you through a typical emergency event (often seen as approx. ~6 months’ salary in your style of situation assuming you have no dependents etc) Be liquid and available to you instantly if an emergency arises Once you have decided how much you will need for 1), you then generally find the best interest available on an instant access savings account and leave it there. It's important to note that because you need it very liquid and very secure you will basically never make (nor should you expect to make) any sizeable rate of interest on your emergency fund. Once this is done, whatever left should be invested in an asset/mix of assets that best fit your risk profile - of which long term bonds are a completely legitimate option, but it's hard to say without knowing more about your long term aims/liabilities/job market etc.","I would disagree with your analysis. To me there are two purposes for a money market (MM): Your emergency fund should be from 3 to 6 months of expenses. Think of it of an insurance policy against Murphy. You may want to have some money designated for big expenses, or even sinking funds. For example, I keep some money in a MM for a car as both the wife, daughter, and I driver older vehicles. I may need to replace them. If you were planning on making a larger purchase car, house, boat, engagement ring I would put the money in a MM fund so you are not subject to the whims of the market. After that you are free to invest all your money. Its likely that you should have some money outside of tax advantaged funds so if you want to start a business you will not have to do high cost withdrawals.","If you're absolutely certain that you won't buy a house within a year or so, I'd still be tempted to put some of the money into short-term CDs (ie, a max of 12 months). I think that at the moment CDs are a bit of a mug's game though because you'd hardly find one that offers better interest rates than some of the few savings accounts that still offer 1%+ interest. A savings account is probably where I'd put the money unless I could find a really good deal on a CD, but I think you might have to check if they've got withdrawal limits. There are a couple of savings accounts out there that pay at least 1% (yes, I know it's pitiful) so I'd seek out one or two of those. From memory, both Sallie Mae and Amex offer those and I'm sure there are a couple more. It's not great that your money is growing at less than inflation but if you're saving for something like a downpayment on a house I would think that (nominal) capital preservation is probably more important than the potential for a higher return with the associated higher risk.","Not OP, but let's see: My money-market account is showing 0.25% interest rate. My savings account, 0.20%. And checking, 0.22%. It doesn't matter where I keep my emergency fund and what I keep my checking balance. It's making fuck-all for interest. And I need to keep a couple thousand in there because my mortgage hits for about $1600. And my monthly CC spend averages ~$3500 monthly. I simply can't keep a couple hundred in there.","\"These good rates all tend to be \"\"on up to $X\"\" where X is some low'ish number that could require multiple accounts. They often also come with other strings, like set up automatic deposits/withdrawals, and use debit card at least 15 times per month. The two you mention have these flaws, whether or not it's worth it depends on if you are happy to meet those requirements and how big your emergency fund is. Personally, I'd rather get rewards on a credit card than use a debit card, and I don't want to open a bunch of accounts, so I have a boring savings account with a pretty low interest rate for my emergency fund. It's liquid, earns some interest, and I don't have to think about it.\"","A CDIC-insured high-interest savings bank account is both safe and liquid (i.e. you can withdraw your money at any time.) At present time, you could earn interest of ~1.35% per year, if you shop around. If you are willing to truly lock in for 2 years minimum, rates go up slightly, but perhaps not enough to warrant loss of liquidity. Look at GIC rates to get an idea. Any other investments – such as mutual funds, stocks, index funds, ETFs, etc. – are generally not consistent with your stated risk objective and time frame. Better returns are generally only possible if you accept the risk of loss of capital, or lock in for longer time periods.","Keeping your “big emergency” fund in stocks if you have 12 months income saved is OK. However you should keep your “small emergency” fund in cash. (However I find that even my stock broker accounts have some cash in them, as I like to let the dividends build up enough to make the dealing charges worthwhile. You don’t wish to be forced to sell at a bad time due to your boiler needing replacing or your car breaking down. However if you lost your job in the same week that your boiler broke down and your car needed replacing then being forced to sell stocks at a bad time is not much of an issue. Also if you are saving say 1/3 of your income each month and you have a credit card with large unused credit limit that is paid of each month, then most “small emergency” that are under 2/3 of your monthly income can be covered on the credit card with little or no interest charges. One option is to check you bank balance on the day after you are paid, and if it is more than 2x your monthly income, then move some of it to long term savings, but only if you tend to spend a lot less then you earn most months.","Look at a mixture of low-fee index funds, low-fee bond funds, and CDs. The exact allocation has to be tailored to your appetite for risk. If you only want to park the money with essentially no risk of loss then you need FDIC insured products like CDs or a money market account (as opposed to a money market fund which is not FDIC insured). However as others have said, interest rates are awful now. Since you are in your early 30's, and expect to keep this investment for 10+ years, you can probably tolerate a bit of risk. Also considering speaking to a tax professional to determine the specific tax benefits/drawbacks of one investment strategy (funds and CDs) versus another (e.g. real estate).","Congrats on making it this far debt free. It is rare, but nice to be in the situation that you are in. The important thing here is that you want to remain debt free. That's really what the emergency fund is all about: it keeps you from needing to go into debt should something unexpected happen. You've got 1.5 months worth of expenses saved up, and that's great. If you don't have a family or other responsibilities, that might be enough, but think about this: how are you paying for school, and what would happen if those funds stopped coming in? If you are paying for school out of your own income, what happens if you lose your job? If someone else, perhaps your parents, is paying for school, what happens if they are suddenly no longer able to do so? While you have extra cash, you want to be saving it up for situations like this. If I were you, I would build up that emergency fund until it got to the point where it could pay all your expenses and tuition until graduation. Hopefully, you won't need to touch it, but it will be there if you need it. Since you need to be able to access your money quickly, it is generally recommended to park this money in a savings account, where it is very safe. Mutual funds are a great way to invest, but they are not safe in the short term. Don't stress out about not being able to start retirement investing just yet. Making sure you can finish school debt free is the best investment you can make right now. After you graduate and land a job, you can start investing aggressively.","There is no such animal. If you are looking to give up FDIC protection, investing in a short-term, high quality bond fund or a tax-free bond fund with short durations is a good way to balance safety vs. return. Make sure you buy funds -- buying individual bonds isn't appropriate for folks without a high net worth. Another option is savings bonds, but the yields on these is awful today.","\"Edited answer, given that I didn't address the emergency fund aspect originally: None. You've said you don't feel comfortable locking it away where you wouldn't be able to get to it in an emergency. If you don't like locking it away, the answer to \"\"How much money should I lock up in my savings account?\"\" is none. On a more personal note, the interest rates on bonds are just awful. Over five years, you can do better.\"","\"If you don't want to take any risk and you want your money to be liquid, then the best place to \"\"invest\"\" such money is in an insured bank deposit, such as a high interest savings account. However, you aren't likely to find a savings account interest rate that comes close to that charged by your mortgage, so the better decision from a numbers perspective is to pay down more on your mortgage or other debt. Paying down your debt has almost no risk, but has a better payoff than simply saving the money in a bank account. However, if you choose to pay down more debt, I suggest you still keep aside enough cash to have an adequate emergency fund. Since you want safety and liquidity, don't expect high returns from such money.\"","\"As soon as you specify FDIC you immediately eliminate what most people would call investing. The word you use in the title \"\"Parking\"\" is really appropriate. You want to preserve the value. Therefore bank or credit union deposits into either a high yield account or a Certificate of Deposit are the way to go. Because you are not planning on a lot of transactions you should also look at some of the online only banks, of course only those with FDIC coverage. The money may need to be available over the next 2-5 years to cover college tuition If needing it for college tuition is a high probability you could consider putting some of the money in your state's 529 plan. Many states give you a tax deduction for contributions. You need to check how much is the maximum you can contribute in a year. There may be a maximum for your state. Also gift tax provisions have to be considered. You will also want to understand what is the amount you will need to cover tuition and other eligible expenses. There is a big difference between living at home and going to a state school, and going out of state. The good news is that if you have gains and you use the money for permissible expenses, the gains are tax free. Most states have a plan that becomes more conservative as the child gets closer to college, therefore the chance of losses will be low. The plan is trying to avoid having a large drop in value just a the kid hits their late teens, exactly what you are looking for.\"","I use an offset mortgage. (No interest is paid, but the amount in the savings account is subtracted from the outstanding mortgage amount before interest is calculated, so the mortgage is paid off faster by the interest amount saved). The money is instantly accessible and there is no tax as the benefit is reduced/saved interest. However, the mortgage rate is slightly higher, so it works best if your emergency funds are a reasonably large proportion of the mortgage amount outstanding.","Try and save up for another month's expenses in your emergency fund, but while you are doing so begin building what is called a ladder of CDs. Tomorrow is April 1, so open a three-month CD (yes, the rates are abysmal but better than money-market fund rates) with one month's emergency fund. Repeat the process on May 1. So now you have two CDs maturing on July 1 and August 1. On June 1, take whatever of that extra month's expense you have saved up and open yet another three-month CD. On July 1, re-invest the proceeds of the first CD into a new three-month CD. Ditto on August 1. On September 1, add the additional savings towards the additional month that you managed to make to the smaller CD to bring it closer to one month's expenses. Lather, rinse, repeat. You will, I hope, soon be in a state where you will have four months of expenses in your emergency fund: one month on hand for immediate use if needed right away, and three months of additional expenses becoming available in 30 days or less, between 30 and 60 days, and between 60 and 90 days.","You can open Savings Bank Account with some Banks that offer better interest rate. Note there would be restriction on number of withdrawals in quarter. There are better interest rates if you lock in for 90+ days. The other option to explore is to open a Demat / Brokrage account and invest in liquid funds. Note depending on various factors it may or may not suite your requirements.","Consider also setting up a CD ladder. CD rates are often better than savings account rates. You have a 12-month CD that you purchase in January with a twelfth of your money, then another small one in February, then another in March.... then, when January comes around again, you a little more money to the first CD, and the ladder is complete. The idea is that you have more access to your money than one big CD, since you'll always have a CD maturing next month that you can get to in case of an emergency, and you can get better rates on a 1-year CD than on something else (with less risk of being locked into a bad interest rate). And you'll be less tempted to tap it all at once to buy some fancy car or what-not because you can't get at it all at once (without a penalty). And in a major emergency, losing a few percent of your interest for early withdrawals is likely the least of your problems.","\"Most online \"\"high yield\"\" savings accounts are paying just above 1%. That would be 1.05% for American Express personal savings, or 1.15% for Synchrony Bank (currently). Depending on the length of the season, you might want to work in some CD's. Six months CDs can be had at 1.2%, and 9 month at 1.25%. So if you know you won't need some of your earnings for 9 months, you could earn 1.25% on your money. However, I would proceed with caution on anything other than the high yield savings account. With your one friend having such a low emergency fund, there is very little room for error. Perhaps until that amount is built up into something significant, it is just best to stick with the online savings. Of course, one solution would be to find a way to create income during the off season. That will go a long way into helping one build wealth.\"","\"It sounds like you want a place to park some money that's reasonably safe and liquid, but can sustain light to moderate losses. Consider some bond funds or bond ETFs filled with medium-term corporate bonds. It looks like you can get 3-3.5% or so. (I'd skip the municipal bond market right now, but \"\"why\"\" is a matter for its own question). Avoid long-term bonds or CDs if you're worried about inflation; interest rates will rise and the immediate value of the bonds will fall until the final payout value matches those rates.\"","It's not pre-tax but you can consider some short term municipal bonds. The interest is tax free. I would keep to short term ones (1 year maturity), so that you aren't affected by big swings in interest rates and can get your money back within a year.","\"Between 6 months and a year is normally regarded as the \"\"standard\"\". Plan out what your monthly expenses are and save that money away. One thing to consider is what extras can you give up. If you are currently eating steak and lobster every day can you live with switching to ramen noodles for a period of time? Can you switch from premium cable to basic cable (or cancel it altogether)? Questions like this can greatly impact the amount you have to set aside. I personally have my emergency fund in CDs that mature the first of every month. I know there is less liquidity in this approach but I'm ok with that. My emergency fund is a sum of cash I'll always have so I wanted to reap the benefits of a higher yield. If it comes down to it I can place an expense on a credit card and pay off the credit card when funds become available.\"","\"For a two year time frame, a good insured savings account or a low-cost short-term government bond fund is most likely the way I would go. Depending on the specific amount, it may also be reasonable to look into directly buying government bonds. The reason for this is simply that in such a short time period, the stock market can be extremely volatile. Imagine if you had gone all in with the money on the stock market in, say, 2007, intending to withdraw the money after two years. Take a broad stock market index of your choice and see how much you'd have got back, and consider if you'd have felt comfortable sticking to your plan for the duration. Since you would likely be focused more on preservation of capital than returns during such a relatively short period, the risk of the stock market making a major (or even relatively minor) downturn in the interim would (should) be a bigger consideration than the possibility of a higher return. The \"\"return of capital, not return on capital\"\" rule. If the stock market falls by 10%, it must go up by 11% to break even. If it falls by 25%, it must go up by 33% to break even. If you are looking at a slightly longer time period, such as the example five years, then you might want to add some stocks to the mix for the possibility of a higher return. Still, however, since you have a specific goal in mind that is still reasonably close in time, I would likely keep a large fraction of the money in interest-bearing holdings (bank account, bonds, bond funds) rather than in the stock market. A good compromise may be medium-to-high-yield corporate bonds. It shouldn't be too difficult to find such bond funds that can return a few percentage points above risk-free interest, if you can live with the price volatility. Over time and as you get closer to actually needing the money, shift the holdings to lower-risk holdings to secure the capital amount. Yes, short-term government bonds tend to have dismal returns, particularly currently. (It's pretty much either that, or the country is just about bankrupt already, which means that the risk of default is quite high which is reflected in the interest premiums demanded by investors.) But the risk in most countries' short-term government bonds is also very much limited. And generally, when you are looking at using the money for a specific purpose within a defined (and relatively short) time frame, you want to reduce risk, even if that comes with the price tag of a slightly lower return. And, as always, never put all your eggs in one basket. A combination of government bonds from various countries may be appropriate, just as you should diversify between different stocks in a well-balanced portfolio. Make sure to check the limits on how much money is insured in a single account, for a single individual, in a single institution and for a household - you don't want to chase high interest bank accounts only to be burned by something like that if the institution goes bankrupt. Generally, the sooner you expect to need the money, the less risk you should take, even if that means a lower return on capital. And the risk progression (ignoring currency effects, which affects all of these equally) is roughly short-term government bonds, long-term government bonds or regular corporate bonds, high-yield corporate bonds, stock market large cap, stock market mid and low cap. Yes, there are exceptions, but that's a resonable rule of thumb.\"","\"I think that its ok to keep your \"\"emergency fund\"\" money in cash in your home. By emergency fund, I mean $1,000-2,500, that doesn't get touched. There are risks. You have a risk that the money will be stolen, or be wholly or partially destroyed, or even lost if you stash it somewhere and forget. You're also not going to earn interest. So go for it. But keep your emergency funds in cash -- if you want to buy silver and gold, that's fine...you need to treat them as commodity investments.\"","\"So long as you have complete, virtually instant access to funds through checks, debit card, or ATM transaction, then yes it would be a better option than a \"\"vanilla\"\" savings account. If it's in a brokerage account that you would need to process a transfer and potentially wait a few days for everything to settle, then I would just keep it in savings. The amount earned in interest isn't worth the extra hassle. A compromise might be to keep a few thousand in a savings account and the rest in a money market. That way you earn some interest and still have instant access to enough funds to cover most emergencies.\"","From a budgeting perspective, the emergency fund is a category in which you've budgeted funds for the unexpected. These are things that weren't able to be predicted and budgeted for in advance, or things that exceeded the expected costs. For example you might budget $150 per month for car maintenance, and typically spend some of it while the rest builds up over time for unexpected repairs, so you have a few hundred available for that. But this month your transmission died and you have a $3,000 bill. You'll then fund most of this out of your emergency fund. This doesn't cover where to store that money though, which leads me to my next point. Emergencies are emergencies because they come without warning, without you having a chance to plan. Thefore the primary things you want in an emergency fund account are stability and quick access. You can structure investments to be whatever you think of as safe or stable but you don't want to be thinking about whether it's a good time to sell when you need the money right now. But the bigger problem is access. When you need the funds on a weekend, holiday, anytime outside of market hours, you're not going to be able to just sell some stocks and go to an ATM. This is the reason why it's recommended to have these funds in a checking or savings account usually. The reason I mentioned the budgeting side first is because I wanted to point out that if you're budgeting well, most of the unexpected expenses you have should have been expected in a sense; you can still plan for something without knowing when or if it will happen. So in the example of a car repair, ideally you're already budgeting for possible repairs, if you own a home you're budgeting for things that would go wrong, budgeting for speeding tickets, for surprise out of pocket medical costs, etc. These then become part of your normal budget: they aren't part of the emergency fund anymore. The bright side about budgeting for something unexpected is that you know what that money is for, and do you likely also know how quickly you'll need it. For example you know if you have unexpected medical costs that happen very quickly, you're not likely you need a bag of cash on a moment's notice. So those last two points lead to the fact that your actual emergency fund, the dollars that are for things you simply could not foresee, will be relatively small. A few thousand dollars or so in most cases. If you've got things structured like this, you'll be happy to have a few grand available at a moment's notice. The bulk of the money you would use for other surprise expenses (or things like 6 months of living expenses) is represented in other specific categories and you already know the timeframe in which you need it (probably enough time that it could be invested, risk to taste). In short: by expecting the unexpected, you can sidestep this issue and not worry so much about missed returns on the emergency fund.","There are many considerations before deciding on the best place for your funds: How liquid do you need the funds to be? If this is for an emergency fund I would keep at least some in an account that you have instant access to, What is your risk (volatility) tolerance? Would you be OK with the value dropping by as much as 30% in a year knowing that over time you'll probably earn 8-12% on it? If not, then equity funds or other stock investments are probably not the best move for you. Do you need the funds now or are they for long-term (retirement) savings? Are you eligible to fund an IRA? That would defer your taxes until you withdraw the funds from the account, but there are age restrictions that you must heed to avoid penalties. Are CDs a good idea? They do pay decent interest, but in return for that you lock up your funds for a set period of time. All that to say that there are many facets to determining the best place for your funds. If you provide more specifics you can get a more specific answer.","\"The above answers are great. I would only add to the \"\"rainy day\"\" part, that even though the cash provides a good cushion, \"\"a stormy day\"\" could mean even losing those emergency savings to the unignorable randomness that governs the world economy. Though unlikely, what happened to the russian ruble and the latest decision of the swiss cental bank are just two recent reminders that uncertainty must be treated as a constant. I would therefore advise you to invest some of the money in land capable of agriculture. How expensive is land over there in the UK?\"","A cash management account from an investment firm like Fidelity or Schwab will do that: you can access funds by check or ATM and get a bit of interest. The interest rates are very low. Or you could put it in a money market account and access it by check with a slightly less worse interest rate. You can pursue higher returns by investing part of the money, but with increasing risk as you seek higher returns. Options include putting some of the money into a short term bond fund, for example.","\"What you're describing makes sense. I'd probably call the non-liquid portion something besides my \"\"emergency fund\"\", but that's semantics mostly. If you have 3 months of \"\"very liquid\"\" cash in this emergency fund and you're comfortable that this amount is good for your situation, then I don't see why you can't have additional savings in more or less liquid vehicles. Whatever you set up, you'll want to think about how to tap it when you need it. You might have a CD ladder with one maturing every three months. That would give you access to these funds after your liquid funds dry up. (Or for a small/short term emergency, you'll be able to replenish the liquid fund with the next-maturing CD.) Or set up a T Bill ladder with the same structure. This might provide you with a tax advantage.\"","\"If all of the money needs to be liquid, T-Bills from a broker are the way to go. Treasury Direct is a little onerous -- I'm not sure that you could actually get money out of there in a week. If you can sacrifice some liquidity, I'd recommend a mix of treasury, brokered CDs, agency and municipal securities. The government has implicitly guaranteed that \"\"too big to fail\"\" entities are going to be backed by the faith & credit of the United States, so investments in general obligation bonds from big states like New York, California and Florida and cities like New York City will yield you better returns, come with significant tax benefits, and represent only marginal additional short-term risk.\"","\"I would split the savings as you may need some of it quickly for an emergency. At least 1/2 should be very liquid, such as cash or MMA/Checking. From there, look at longer term CDs, from 30 day to 180 day, depending upon your situation. Don't be surprised if by the time you've saved the money up, your desire for the car will have waned. How many years will it take to save up enough? 2? 5? 10? You may want to review your current work position instead, so you'll make more and hopefully save more towards what you do want. Important: Be prepared for the speed bumps of life. My landlord sold the house I was renting out from under me, as I was on a month-to-month contract. I had to have a full second deposit at the ready to put down when renting elsewhere, as well as the moving expenses. Luckily, I had done what my tax attorney had said, which is \"\"Create a cushion of liquid assets which can cover at least three months of your entire outgoing expenses.\"\" The Mormon philosophy is to carry at least one year's worth of supplies (food, water, materials) at all times in your home, for any contingency. Not Mormon, not religious, but willing to listen to others' opinions. As always, YMMV. Your Mileage May Vary.\"","\"You have several options depending on your tolerance for risk. Certainly open an investment account with your bank or through any of the popular discount brokerage services. Then take however much money you're willing to invest and start earning some returns! You can split up the money into various investments, too. A typical default strategy is to take any money you won't need for the long term and put it in an Index Fund like the S&P 500 (or a European equivalent). Yes, it could go down, especially in the short term, but you can sell shares at any time so you're only 2-3 days away at any time from liquidity. Historically this money will generate a positive return in the long run. For smaller time frames, a short-term bond fund often gives a slightly better return than a money market account and some people (like me!) use short-term bond funds as if it were a money market account. There is a very low but real risk of having the fund lose value. So you could take a certain percentage of your money and keep it \"\"close\"\" in a bond fund. Likewise, you can sell shares at any time, win or lose and have the cash available within a couple days.\"","If you need the money in the short-term, you want to invest in something fairly safe. These include saving accounts, CDs, and money market funds from someplace like Vanguard. The last two might give you a slightly better return than the local branch of a national bank.","Just to offer another alternative, consider Certificates of Deposit (CDs) at an FDIC insured bank or credit union for small or short-term investments. If you don't need access to the money, as stated, and are not willing to take much risk, you could put money into a number of CDs instead of investing it in stocks, or just letting it sit in a regular savings/checking account. You are essentially lending money to the bank for a guaranteed length of time (anywhere from 3 to 60 months), and therefore they can give you a better rate of return than a savings account (which is basically lending it to them with the condition that you could ask for it all back at any time). Your rate of return in CDs is lower a typical stock investment, but carries no risk at all. CD rates typically increase with the length of the CD. For example, my credit union currently offers a 2.3% APY on a 5-year CD, but only 0.75% for 12 month CDs, and a mere 0.1% APY on regular savings/checking accounts. Putting your full $10K deposit into one or more CDs would yield $230 a year instead of a mere $10 in their savings account. If you go this route with some or all of your principal, note that withdrawing the money from a CD before the end of the deposit term will mean forfeiting the interest earned. Some banks may let you withdraw just a portion of a CD, but typically not. Work around this by splitting your funds into multiple CDs, and possibly different term lengths as well, to give you more flexibility in accessing the funds. Personally, I have a rolling emergency fund (~6 months living expenses, separate from all investments and day-to-day income/expenses) split evenly among 5 CDs, each with a 5-year deposit term (for the highest rate) with evenly staggered maturity dates. In any given year, I could close one of these CDs to cover an emergency and lose only a few months of interest on just 20% of my emergency fund, instead of several years interest on all of it. If I needed more funds, I could withdraw more of the CDs as needed, in order of youngest deposit age to minimize the interest loss - although that loss would probably be the least of my worries by then, if I'm dipping deeply into these funds I'll be needing them pretty badly. Initially I created the CDs with a very small amount and differing term lengths (1 year increments from 1-5 years) and then as each matured, I rolled it back into a 5 year CD. Now every year when one matures, I add a little more principal (to account for increased living expenses), and roll everything back in for another 5 years. Minimal thought and effort, no risk, much higher return than savings, fairly liquid (accessible) in an emergency, and great peace of mind. Plus it ensures I don't blow the money on something else, and that I have something to fall back on if all my other investments completely tanked, or I had massive medical bills, or lost my job, etc.","\"The answer to your question depends very much on your definition of \"\"long-term\"\". Because let's make something clear: an investment horizon of three to six months is not long term. And you need to consider the length of time from when an \"\"emergency\"\" develops until you will need to tap into the money. Emergencies almost by definition are unplanned. When talking about investment risk, the real word that should be used is volatility. Stocks aren't inherently riskier than bonds issued by the same company. They are likely to be a more volatile instrument, however. This means that while stocks can easily gain 15-20 percent or more in a year if you are lucky (as a holder), they can also easily lose just as much (which is good if you are looking to buy, unless the loss is precipitated by significantly weaker fundamentals such as earning lookout). Most of the time stocks rebound and regain lost valuation, but this can take some time. If you have to sell during that period, then you lose money. The purpose of an emergency fund is generally to be liquid, easily accessible without penalties, stable in value, and provide a cushion against potentially large, unplanned expenses. If you live on your own, have good insurance, rent your home, don't have any major household (or other) items that might break and require immediate replacement or repair, then just looking at your emergency fund in terms of months of normal outlay makes sense. If you own your home, have dependents, lack insurance and have major possessions which you need, then you need to factor those risks into deciding how large an emergency fund you might need, and perhaps consider not just normal outlays but also some exceptional situations. What if the refrigerator and water heater breaks down at the same time that something breaks a few windows, for example? What if you also need to make an emergency trip near the same time because a relative becomes seriously ill? Notice that the purpose of the emergency fund is specifically not to generate significant interest or dividend income. Since it needs to be stable in value (not depreciate) and liquid, an emergency fund will tend towards lower-risk and thus lower-yield investments, the extreme being cash or the for many more practical option of a savings account. Account forms geared toward retirement savings tend to not be particularly liquid. Sure, you can usually swap out one investment vehicle for another, but you can't easily withdraw your money without significant penalties if at all. Bonds are generally more stable in value than stocks, which is a good thing for a longer-term portion of an emergency fund. Just make sure that you are able to withdraw the money with short notice without significant penalties, and pick bonds issued by stable companies (or a fund of investment-grade bonds). However, in the present investment climate, this means that you are looking at returns not significantly better than those of a high-yield savings account while taking on a certain amount of additional risk. Bonds today can easily have a place if you have to pick some form of investment vehicle, but if you have the option of keeping the cash in a high-yield savings account, that might actually be a better option. Any stock market investments should be seen as investments rather than a safety net. Hopefully they will grow over time, but it is perfectly possible that they will lose value. If what triggers your financial emergency is anything more than local, it is certainly possible to have that same trigger cause a decline in the stock market. Money that you need for regular expenses, even unplanned ones, should not be in investments. Thus, you first decide how large an emergency fund you need based on your particular situation. Then, you build up that amount of money in a savings vehicle rather than an investment vehicle. Once you have the emergency fund in savings, then by all means continue to put the same amount of money into investments instead. Just make sure to, if you tap into the emergency fund, replenish it as quickly as possible.\"","10-15% of the bat you want to keep liquid in a savings account with interest at 1.5% that best at the moment. In case of a real emergency. Look in to dividend stocks they can bring in 10-15% on your investment and fairly liquid as well. There's also rental properties but 40k isn't much room to move around with in that area.","\"From a quick look at sources on the web, it looks to me like Money Market Accounts and savings accounts are both paying about the same rate today: around 1%, give or take maybe 0.4%. I suppose that's better than nothing, but it's not a whole lot better than nothing. (I saw several savings accounts advertising 0.1% interest. If they mailed you a check, the postage could be more than the returns.) Personally, I keep a modest amount of emergency cash in my checking account, and I put my \"\"savings\"\" in a very safe mutual fund. That generally gets somewhere from making maybe 3% a year to losing a small amount. Certainly nothing to sing about, but better than savings or money markets. Whether you are willing to tolerate the modest risk or the sales charges is a matter for your personal situation and feelings.\"","Savings accounts with 8% APY? Unheard of these days. You're lucky if you find one at 1%. You should use checking and savings accounts only to hold an emergency fund (6 to 12 months of living expenses), or money that you will need in 2 years or so. The rest, invest in stocks and bonds.","This is a great idea and I can't think of any downside. The best part about it is in the future when you have built up your emergency fund beyond the maximum contributions to the Roth IRA, you can then move your Roth funds into a higher yielding investment. I might take it a step further. In addition to this, try to get a line of credit from your bank (with no annual fee). In case of emergency, you can decide if you want to take the money from your Roth or borrow from the line and pay some interest temporarily. Depending on the situation it may actually make sense to pay a little bit of interest and leave the money in the Roth, since over the long run the future earnings of that money could easily make you more than the interest you'll pay for (let's hope) a short amount of time. To really hit home why your idea is fantastic:","Overall I think it sounds like it's worth it. It's hard to find that high of a rate on a checking account these days. It looks like you're looking at this bank, and I can see they have a few more requirements that seem a little tedious: If you don't do these things every month, then you lose the great interest rate. If you can think of an easy way to jump through these hoops and not forget, then it's probably worth it. For example, if you routinely eat out for lunch or buy a morning coffee, you can use that card to pay for it. Set yourself a recurring reminder in your calendar or smartphone to remind you to login to the online banking site. Ultimately, since this is an emergency fund, it's a good idea to keep it nice and liquid in a checking account. You're not likely going to find many other options that will give you a better (and safe) return and still keep your funds available for when you need them. In summary, it sounds like a good idea to me so long as you think you can reliably jump through their hoops."],"string":"[\n \"\\\"First off, you generally want to park your emergency fund somewhere that is \\\"\\\"safe\\\"\\\", meaning something that is not subject to market fluctuations. Your emergency fund is something you need to be able to count on when times are tough! That rules out things like stock market investments. Secondly, you need to think about how quickly you will need access to the money. If you have an emergency, odds are you don't want to be waiting around for weeks/months/years for the money to become available. This rules out most fixed-term investments (Bonds, traditional CDs, etc). If you are concerned that you will need near-instant access to your emergency money, then you probably want to keep it in a Savings or Money Market Account at the same bank as your checking account. Most banks will let you transfer money between local accounts instantly. Unfortunately, your local bank probably has pitiful interest rates for the Savings/MMA, far below the inflation rate. This means your money will slowly lose value over time. Be prepared to keep contributing to it! For most people, being able to draw the cash from your fund within a few days (<1 week) is sufficient. Worst case, you charge something on your credit card, and then pay down the card when the emergency fund withdrawal arrives. If \\\"\\\"money within a few days\\\"\\\" is okay for you, there are a few options: Money Market (Mutual) Funds (not to be confused with a Money Market Account) - This is the traditional place to keep an emergency fund. These are investment funds you can buy with a brokerage account. An example of such a fund would be Fidelity Cash Reserves. MMFs are not FDIC insured, so they are not exactly zero risk. However, they are considered extremely safe. They almost never go down in value (only a few times in the past few decades), and when they have, the fund manager or the Federal Govt stepped in to restore the value. They usually offer slightly better return than a local savings account, and are available in taxable and non-taxable varieties. Online High-Yield Savings or Money Market Account - These are a relatively new invention. It's basically a the same thing as what your local bank offers, but it's online-only. No local branch means low overhead, so they offer higher interest rates (2.0% vs 0.5% for your local bank). Some of them used to be over 5% before the economy tanked. Like your local bank, it is FDIC insured. One bit of caution: Some of these accounts have become \\\"\\\"gimmicky\\\"\\\" lately. They have started to do things like promo rates for a few months, only offering the high interest rate on the first few $K deposited, limiting the amount that can be withdrawn, etc. Be sure to read the details before you open an account! No-Penalty CDs - Certificates of Deposit usually offer a better rate than a Savings Account, but your money is locked up until the CD term is up (e.g. 36 months). If you need to cash out before then, you pay a penalty. Some banks have begun to offer CDs that you can cash out with no penalty at all. These can offer better rates than the savings account. Make sure it really is no-penalty though. Also watch what your options are for slowly adding money over time. This can be an issue if you want to deposit $100 from every paycheck. Rewards Checking Accounts - These are checking accounts that will pay a relatively high interest rate (3% or more) provided you generate enough activity. Most of them will have requirements like you must have direct deposit setup with them, and you must do a minimum number of debit card transactions from the account per month. If you can stay on top of the requirements, these can be a great deal. If you don't stay on top of it, your interest rate usually drops back to something pitiful, though. Personally, we use the Online High-Yield Savings Account for our emergency fund. I'm not going to make a specific recommendation as to which bank to use. The best deal changes almost week to week. Instead, I will say to check out Bankrate.com for a list of savings accounts and CDs that you can sort. The Bank Deals blog is a good place to follow rate changes.\\\"\",\n \"If this is truly your emergency fund, then you should keep the money safe. Unfortunately interest rates are very low right now and there is not much you can do about that. However, ask your investment advisor for a CDIC insured high interest account, such as these:\",\n \"Something with an FDIC guarentee, so a bank. With an emergency fund, I think the 'return of capital' is more important than the 'return on the capital', so I'm fine with putting it in a standard savings account in a local bank(not an internet account) even if it pays next to nothing. The beauty is that since the bank is local, you can walk in and withdraw it all during any weekday.\",\n \"\\\"Liquid cash (emergency, rainy day fund) should be safe from a loss in value. Mutual funds don't give you this, especially stock funds. You can find \\\"\\\"high yield\\\"\\\" savings accounts that are now at around .8% to .9% APY which is much better than .05% and will hopefully go up. Barclays US and American Express are two big banks that normally have the highest rates. Most/all Savings and Money Market accounts should be FDIC insured. Mutual funds are not, though the investment IRA, etc. holding them may be.\\\"\",\n \"Most emergencies are less than 1,000 in nature. As such I would keep at least that amount in a checking/savings account at the bank from which you pay your bills or can get cash from. This amount may increase so you can avoid low balance fees, or because of the nature of your life style and income. Beyond that, you can search for yield. I personally like online savings accounts like Amex Personal Savings, Ally or others. Money market accounts will work equally well. There you can keep the bulk of your emergency savings and large purchase savings. Keep in mind you still won't earn much. A 40K emergency fund will only earn you $38/month at Ally.\",\n \"I would suggest your local credit union or local bank for security and liquidity. Liquidity is probably the most important issue for a emergency fund.\",\n \"\\\"The Roth vs not debate is irrelevant to the question. It doesn't matter where your emergency fund is kept, as long as it is liquid and safe. I said it before in an answer to another question: your emergency fund is not an investment -- it's your safety net This answer also says it well: an \\\"\\\"emergency fund\\\"\\\" is just that... for emergencies... NOT investment. While it \\\"\\\"hurts\\\"\\\" not to have your emergency money making more money... its MORE IMPORTANT to have quick access to it. So at TD Ameritrade, just park it in their FDIC deposit account. It will not earn any meaningful interest (at least until rates rise), but you'll be able to have access to it when you need it. Note that I would caution against putting it in a money market mutual fund. They're safer than many other investments, but they're not FDIC insured against loss and there is a potential for temporary loss of liquidity. In late 2008 when the credit markets collapsed, a lot of people suddenly became unemployed -- and needed access to their emergency funds. When Lehman Brothers went bust in September, the Reserve Primary Fund (with billions of dollars in their fund) \\\"\\\"broke the buck\\\"\\\" -- they lowered the price of shares below $1, meaning investors lost principal. The worst part is that investors were not as liquid as they wanted to be: the fund froze and it was hard to get money out. The lesson to take away from this is that one of the times you're likely to need access to your emergency fund is during a macroeconomic crisis. This is also the time when any investment that isn't guaranteed safe may potentially be (at least temporarily) unavailable or decline in value. Emergency funds should be 100% government insured. When you have your Roth funded to the point where there's extra money beyond the emergency fund, you can start investing in higher-yielding vehicles: stock or bond index ETFs would be a good start. But then that part of your Roth starts to look like a retirement account and not an emergency fund. If it were me, I'd open a Roth at a stable local bank and just keep it in their FDIC insured money market deposit account. Then if I wanted a slight boost, I might put the \\\"\\\"upper half\\\"\\\" of my emergency fund into short term CDs, but even CDs aren't worth much at the moment.\\\"\",\n \"While I don't disagree with the other answers as far as CD laddering goes (at least in principle), three months CDs are currently getting much lower rates than money market accounts, at least according to http://www.bankrate.com. A savings account is also more liquid than CDs. Bonds are another option, and they can generally be liquidated quickly on the secondary market. However, they can go down in value if interest rates rise (actually this is true of CDs as well--there is a secondary market, though I believe only for brokerage CDs?). Bottom line, A high yield savings account is likely your best best. As others noted, you should think of your emergency fund as savings, not investment.\",\n \"\\\"I don't know Canada very well, but can offer some general points when considering where to park your emergency fund. Savings rates are currently low, but then so is inflation. Always bear in mind that inflation decreases the value of your money, so if you're getting 4% interest and inflation is 2%, you're making 2% gross in real terms. If you're getting 2% and inflation is close to zero, you're actually earning a similar amount, it's just the numbers are going up more slowly. Obviously when and how much tax you pay affects the actual return, it's just worth bearing in mind that low interest and low inflation are actually not that bad a savings environment as they first appear. For an emergency fund the key thing is ease of access, consider keeping some portion of your savings in an instant access account for those emergencies that happen when the banks are closed. In the UK there are various tax-free savings options, I'm guessing Canada has a few too, if so you should explore those options. While these may not have attractive headline rates, you don't pay tax on the interest, this can make them much more competitive (4% tax free is the same as 5% gross if you would have to pay tax at 20%). Normally tax free investments have caps so once you've invested a set amount you can't add anymore. This may be a consideration if you regularly dip into your emergency fund as you might not easily be able to build it up again. My approach is to have about 90% of my \\\"\\\"rainy day\\\"\\\" fund in easily accessible but tax free savings. This discourages me from spending it unless I really need to. I then keep a slush fund sufficient to cover every day disasters (boiler packing up, needing a hire car for a week etc) in instant access accounts .\\\"\",\n \"\\\"You could put in in a Money Market Fund. These are designed to always be $1 per share, and not lose money. Of course, it still, very rarely, happens and is called \\\"\\\"breaking the buck\\\"\\\" when they do. Sounds like the high yield savings is the way to go. The rates will be the same as what you can get from a Money Market Fund, but you also have the added advantage that the account is FDIC insured. BTW, using a Roth as an emergency fund is a terrible idea. It is true that, since you already paid taxes on your contributions, you can withdraw those contributions without incurring penalties. However, you have to file paperwork to do it, and since it's not common, the IRA custodian is likely to screw it up. Plus, you have to keep track of what were contributions, and what was investment returns, to not run afoul of the penalties. And it will take time to do it, which you may not have in an emergency. Considering you're only looking at getting 1% interest anyway, there's no reason to use a Roth account as an emergency fund. You can set those same automatic deposits into a savings account.\\\"\",\n \"Generally speaking, an emergency fund's primary purpose for being is to be available in an emergency. Income generation is a distant second. As long as you have immediate access to it via checks or an atm card, you're doing ok. If you live in a high-tax state or a place like New York City with federal, state and local income tax, I'd probably err on the side of the municipal fund for your state.\",\n \"Emergency funds, car funds etc tend to have to be accessible quickly (which tends to rule out CDs unless you have the patience to work something like a monthly CD ladder, an I don't) and you'll want your principal protected. The latter pretty much rules out any proper investment (ETFs, mutual funds, stock market directly, Elbonian dirt futures etc). It's basically a risk-vs-return calculation. Not much risk, not much return but at least you're not losing from a nominal standpoint). Another consideration is that you normally aren't able to decide freely if and when you want to pull money out of an emergency fund. If it is an emergency, waiting three weeks to see if the stock market goes up a little further isn't an option so you might end up having to take a hit that would be irrelevant if you were investing long term but might hurt badly because you're left with no choice. I'd stick that sort of money into a money market account and either add to it if necessary to keep up with inflation or make sure that my non-retirement investments over and above these funds are performing well, as those will and should become a far bigger part of your wealth in the longer run.\",\n \"It depends on how immediately you think you'll need your emergency fund cash: If you anticipate running into problems where you need cash right away (e.g. you live paycheck to paycheck, and your car breaks down a lot), put it into a checking or money market account. If you don't think your emergencies will require immediate access to cash (e.g. unemployment), then put it in a savings account or CD. If there is a lot of money in your accounts that goes unused, and you want a bigger safety net, then consider investing it. Though it's generally a better idea to pay off debts at this point. I think the best idea is to split your emergency fund between your checking and savings. Maybe 20% checking and 80% savings. That way, you have some extra cash on hand when you need it, while most of your money is growing in savings.\",\n \"Duffbeer703 covers most everything. The entire point of an emergency fund IS for it to be liquid. Now I do understand (if you feel your situation requires over 6 months of living expenses): That is a lot of money to have sitting in a statement savings account! Under no circumstances should you take any sort of risk with an emergency fund. However, you COULD do this: Invest some of the assets in a six month, 1 year or 2 year CD if returns were enough to be worthwhile. If you don't need the money, then fine, great. But if you do, you can break a Certificate of Deposit before maturity. There will be a penalty fee. You might lose interest too. But you'll have access to your money, no liquidity risk. So maybe you could put most, say 60% of your rainy day funds in truly liquid assets. The remainder could be in longer term CD's which you hopefully won't need because you'll be back to non rainy day living again.\",\n \"Bond aren't necessarily any safer than the stock market. Ultimately, there is no such thing as a low risk mutual fund. You want something that will allow you get at your money relatively quickly. In other words, CDs (since you you can pick a definite time period for your money to be tied up), money market account or just a plain old savings account. Basically, you want to match inflation and have easy access to the money. Any other returns on top of that are gravy, but don't fret too much about it. See also: Where can I park my rainy-day / emergency fund? Savings accounts don’t generate much interest. Where should I park my rainy-day / emergency fund?\",\n \"The iron-clad rule of investing is that risk and return are directly related. It is impossible to get a higher return than you are getting without putting principal at risk. Your emergency fund should be in cash, preferably in government insured cash (like a savings account). The best you could probably do is laddered 3-month CDs. That way, you could cash them out, one per month, as they mature.\",\n \"What worked out well for me is a Capital One High Yield Savings Account, which came with a lower interest rate than most online accounts but higher than a brick & mortar bank. Also, since Capital One has Banking locations now, I can use the ATM card that came with this account to pull out the emergency money if I need it in a pinch at a place that doesn't accept checks.\",\n \"We put our fund in a local credit union that we only use for the emergency fund. We have a savings account that sweeps all funds into a 6 month CD that automatically renews upon maturity. We pretty much don't think about it, and make a deposit with our excess savings after we pay our property taxes in January and school taxes in September. Why? When my wife and I set it up the emergency fund, the purpose is to have a cushion against emergencies, not earning money or having convenient access. We wanted access to the money to be onerous enough that neither one of us could pull money out of without calling someone or driving over to the branch. We even opted not to take an ATM card. In the event that we need the money, we can terminate the CD early and pay a 3 month interest penalty. With $10k, that translates to about $25.\",\n \"As others have noted, you can do better than a checking or savings account. If you're going to invest emergency money, the vehicle you put it into should be: Liquid - Wherever you put it, you should be able to quickly cash it out. Highly liquid exchange traded products are good for this. Low volatility/drawdowns - If you need at least 6 months of your paycheck to cover you in the event of an emergency, you don't want to park it in a portfolio that can potentially lose 30% value. Insured - Your investments should have SIPC coverage (protection against losses resulting from failure on part of broker). Moderate/Steady Growth - If the emergency fund doesn't grow, you'll need to continually pump money into it. My 'steady growth' portfolio is majorly allocated to fixed income. Within that, a major portion is allocated to high yielding instruments. Over the past 10 years, it's seen at least a 7% annualized return.\",\n \"\\\"Since this is your emergency fund, you generally want to avoid volatility while keeping pace with inflation. You really shouldn't be looking for aggressive growth (which means taking on some risk). That comes from money outside of the emergency fund. The simplest thing to do would be to shop around for a different savings account. There are some deals out there that are better than ING. Here is a good list. The \\\"\\\"traditional\\\"\\\" places to keep an emergency fund are Money Market Mutual Funds (not to be confused with Money Market Accounts). They are considered extremely safe investments. However, the returns on such a fund is pretty low these days, often lower than a high-yield online savings account. The next step up would be a bond fund (more volatility, slightly better return). Pick something that relies on Government bonds, not \\\"\\\"high-yield\\\"\\\" (junk) bonds or anything crazy like that. Fidelity Four in One comes pretty close to your \\\"\\\"index of indexes\\\"\\\" request, but it isn't the most stable thing. You'd probably do better with a safer investment.\\\"\",\n \"Let me first start by defining an emergency fund. This is money which is: Because emergency's usually need to be deal with ASAP, boiler breaks, gears box in a car. Generally you need these to be solved as soon as possible, because ou depend on these things working and you can't budget for this type of expenditure using just your monthly salary. This is a personal opinion but I prefer investment types that don't have another fee on access. I really don't like having another fee on top on money that I need right now. Investment Options: Market based investments should be seen as long term investments, therefore they do not really satisfy requirement one, they can also have broker fees, therefore you might pay a small extra charge for taking money out, and so do not satisfy requirement two. Investment Options for Emergency Funds You want to get the best return on your money even if it's your emergency fund. So use regular saving accounts, but from you emergency fund or use tax effective savings accounts, like a cash ISA if based in the UK. Don't think of an emergency money as just sitting there, you have options just makes sure the options fit the requirements. UPDATE Given feedback I appreciate there are levels of emergency fund, the above details things which might be about 1-2 month salary in cost, car repairs, leaks, boiler repairs. Now I have another fund which is in P2P funds which is higher risk than a deposit account but then gives me a better return and is less subject to market fluctuations and it would be the place I go to for loss of job level emergencies say 6 months of salary, this takes a bit longer to access but given I have the above emergency fund I have given myself time to get the money from the P2P account.\",\n \"\\\"I'm not a fan of using cash for \\\"\\\"emergency\\\"\\\" savings. Put it in a stable investment that you can liquidate fairly quickly if you have to. I'd rather use credit cards for a while and then pay them off with investment funds if I must. Meanwhile those investments earn a lot more than the 0.1 percent savings or money market accounts will. Investment grade bond funds, for example, should get you a yield of between 4-6% right now. If you want to take a longer term view put that money into a stock index fund like QQQ or DIA. There is the risk it will go down significantly in a recession but over time the return is 10%. (Currently a lot more than that!) In any event you can liquidate securities and get the money into your bank is less than a week. If you leave it in cash it basically earns nothing while you wait for that rainy day which many never come.\\\"\",\n \"I would put about a month's worth of expenses in the highest-paying savings account that you find convenient to access. For the rest, I recommend Ally's High-Yield CDs — specifically, the 5-year option. Normally 5 years would be way too long to commit short-term savings to a CD. However, the Ally CDs allow you to break them for a penalty of only two months worth of interest. If you look at the graph below (from when the rates were 3.09% APY), you can see the effective interest rate at every possible time you break the CD early. Doing the math, if you can keep your savings in the account for at least four months, it will outperform any other current FDIC-backed investment that I am aware of, for the length of time the money was invested. (credit: MyMoneyBlog)\",\n \"i think emergency fund should be in a more liquid account (like regular saving or money market) so you can withdraw money any time, while your regular saving can be tied up in a long term CD, bond or an investment account.\",\n \"@mbhunter and @JoeTaxpayer have given good advice. Were I in your situation, the only thing I might do differently is put whatever amount of cash not needed for emergencies in a money market fund with check-writing privileges and/or a debit card. The rate on the account has at least some chance of preserving the value of your principal, and it will be easier to put your money into investments as soon as you're ready. This sort of account is offered by any number of brokerages and financial companies, so pick one you trust and start there.\",\n \"Another option if you want a higher return is to tier your emergency fund so you are putting a portion in different savings vehicles, each with varying risk and rates of return. One option might be You will need to assess the risk of these vehicles to see if it fits within your tolerance. If not, just using the online savings account is a fine choice. One final note regarding I-bonds - they can't be cashed out until 1 year after you buy them. This may be too limiting to some depending on their perceived need for their emergency fund over the next year; others may be more comfortable with it.\",\n \"I am understanding the OP to mean that this is for an emergency fund savings account meant to cover 3 to 6 months of living expenses, not a 3-6 month investment horizon. Assuming this is the case, I would recommend keeping these funds in a Money Market account and not in an investment-grade bond fund for three reasons:\",\n \"Why are you saving your emergency fund in a Roth-IRA? That type of fund should be for retirement. I know you can pull out your principal but that would mean in a crisis you will be destroying your retirement fund. Remember there is an annual limit, it could take years to replenish it if you have to pay for a big repair, or period of unemployment. The emergency fund should be kept in a very safe account. I would just keep in a high yeild account at a Credit Union\",\n \"For maximum liquidity of an emergency fund, having demand deposits and fixed deposits would be the best, as they are the most liquid instruments around. If you invest in other higher yielding instruments they would be less liquid, so it's a tradeoff and you've got to decide for yourself what's best given your requirements.\",\n \"This is a somewhat subjective question, but if you are following a particular personal finance methodology, just do whatever they recommend. For example, I believe that Dave Ramsey's program calls for the emergency fund to be in a different account.\",\n \"\\\"There are no risk-free high-liquidity instruments that pay a significant amount of interest. There are some money-market accounts around that pay 1%-2%, but they often have minimum balance or transaction limits. Even if you could get 3%, on a $4K balance that would be $120 per year, or $10 per month. You can do much better than that by just going to $tarbucks two less times per month (or whatever you can cut from your expenses) and putting that into the savings account. Or work a few extra hours and increase your income. I appreciate the desire to \\\"\\\"maximize\\\"\\\" the return on your money, but in reality increasing income and reducing expenses have a much greater impact until you build up significant savings and are able to absorb more risk. Emergency funds should be highly liquid and risk-free, so traditional investments aren't appropriate vehicles for them.\\\"\",\n \"\\\"As you're saving up for an expenditure instead of investing for the long run, I would stay away from any sort of \\\"\\\"parking facility\\\"\\\" where you run the risk of not having the principal protected. The riskier investments that would potentially generate a bigger return also carry a bigger downside, ie you might not be able to get the money back that you put in. I'd shop around for a CD or a MMA/regular savings account with a half-decent interest rate. And yes, I'm aware that the return you might get is probably still less than inflation.\\\"\",\n \"I know this is heresy but if you have funds for significantly more than 6 months of expenses (let's say 12 months), how risky would it be to put it all into stock index funds? Quite risky as if you do need to dip into it, how fast could you get the cash? Also, do you realize the tax implications when you do sell the shares should you have an emergency? In the worst-case scenario, let's say you have a financial emergency at the same time the stock market crashes and loses half its value. You could still liquidate the rest and have sufficient funds for 6 months. Am I underestimating the risks of this strategy? That's not worst case scenario though. Worst case scenario would be another 9/11 where the markets are closed for nearly a week and you need the money but can't get the funds converted to cash in the bank that you can use. This is in addition to the potential wait for a settlement in the case of using ETFs if you choose to go that way. In the case of money market funds, CDs and other near cash equivalents these can be accessed relatively easily which is part of the point. A staggered approach where some cash is kept in house, some in accounts that can easily accessed and some in other investments may make sense though the breakdown would differ depending on how much risk people are willing to take. If it truly is an emergency fund then the odds of needing it should be very slim, so why live with near zero return on that money? Something to consider is what is called an emergency here? For some people a sudden $1,000 bill to fix their car that just broke down is an emergency. For others, there could be emergency trips to visit family that may have gotten into accidents or gotten a diagnosis that they may pass away soon. Consider what do you want to call an emergency here as chances are you may not be considering all that people would think is an emergency. There is the question of what other sources of money do you have to cover should issues arise.\",\n \"With the requirement that the money is 100% available immediately and that you can not suffer a loss of principal, the suggestions you gave of an online savings account is a good one. Personally, I use ING.\",\n \"You can also create a CD ladder (say 1/3 in a 6 month CD, 1/3 in a 1 year CD, 1/3 in a 2 year CD) with half of your emergency fund money. You always want to leave some of it in a liquid account so you can get at it immediately without any interest penalty. CD's provide higher interest than a savings account. By staggering the lengths of the CD's, you give yourself more options, and can roll them over into CD's with higher rates (since interest rates are soooo low right now) as the CD's mature.\",\n \"Emergency funds, by the name it implies that they should be available on hand at a very short notice if needed. Conservation of principal (not withstanding inflation, but rather in absolute terms) is also a very important criteria of any kind of account that you will use to save the emergency fund. I would suggest the following breakup. The number in brackets signifies the amount of per month expenses that you can keep in that account. = total 6 months living expenses\",\n \"\\\"An alternative to a savings account is a money market account. Not a bank \\\"\\\"Money Market\\\"\\\" account which pays effectively the same silly rate as a savings account, but an actual Money Market investment account. You can even write checks against some Money Market investment accounts. I have several accounts worth about 13,000 each. Originally, my \\\"\\\"emergency fund\\\"\\\" was in a CD ladder. I started experimenting with two different Money market investment accounts recently. Here's my latest results: August returns on various accounts worth about $13k: - Discover Bank CD: $13.22 - Discover Bank CD: $13.27 - Discover Bank CD: $13.20 - Discover Savings: $13.18 - Credit Union \\\"\\\"Money Market\\\"\\\" Savings account: $1.80 - Fidelity Money Market Account (SPAXX): $7.35 - Vanguard Money market Account (VMFXX): $10.86 The actual account values are approximate. The Fidelity Money Market Account holds the least value, and the Credit Union account by far the most. The result of the experiment is that as the CDs mature, I'll be moving out of Discover Bank into the Vanguard Money Market account. You can put your money into more traditional equities mutual fund. The danger with them is the stock market may drop big the day before you want to make your withdrawl... and then you don't have the down payment for your house anymore. But a well chosen mutual fund will yield better. There are 3 ways a mutual fund increase in value: Here's how three of my mutual funds did in the past month... adjusted as if the accounts had started off to be worth about $13,000: Those must vary wildly month-to-month. By the way, if you look up the ticker symbols, VASGX is a Vanguard \\\"\\\"Fund of Funds\\\"\\\" -- it invests not 100% in the stock market, but 80% in the stock market and 20% in bonds. VSMGX is a 60/40 split. Interesting that VASGX grew less than VSMGX...but that assumes my spreadsheet is correct. Most of my mutual funds pay dividends and capital gains once or twice a year. I don't think any pay in August.\\\"\",\n \"\\\"IMO, you can do whatever you want with an emergency fund, as long as it is in a deposit-type account. The purpose of the fund is for emergencies, not to make money, so you want it to be liquid so that you can access it in an emergency. Personally, I'm willing to take accept a potential penalty for withdrawing. Here's some examples of what I mean: You don't want \\\"\\\"emergency\\\"\\\" funds in a marketable security, because your emergency could be directly or indirectly related to some sort of market crisis. If you absolutely needed to liquidate an investment in the days after the collapse of Lehman brothers, you probably would have taken a bath -- even secure, US State bonds fell in value. If you feel that this is taking too much cash off the table, that's ok, just don't consider the part that you invest part of your \\\"\\\"emergency\\\"\\\" fund. The 3-8 months of expenses thing depends on your situation. If you're a salesman, err towards 8. If you're a unionized civil service worker with seniority, 3 months is probably appropriate.\\\"\",\n \"Since returning of capital is the most important, I would go to bankrate.com and find either an online bank savings account or MMA account. By going to bankrate.com, you can find higher rates. Sometimes you can find rates that are higher than a CD and are still FDIC insured. I've found ally bank's raise your rate 2 year CD to always have the best rate. In addition, if rates go up, you are able to raise the rate to the current rate.\",\n \"I am using ING for my emergency savings, but sometime last year I discovered SmartyPig. As of 4/24/2010 they offer 2.1%, which is even better than the 1 year CDs at most banks. I've switched two small accounts to SmartyPig and plan to switch my emergency savings. Their accounts are geared around monthly contributions, but you don't have to use that feature.\",\n \"\\\"Opinions vary but I've always thought that an \\\"\\\"emergency fund\\\"\\\" is just that... for emergencies... NOT investment. While it \\\"\\\"hurts\\\"\\\" not to have your emergency money making more money... its MORE IMPORTANT to have quick access to it. As long as the interest rate keeps up with the rate of inflation leave it alone. Fill up your emergency fund with 3-6 mos salary and then INVEST your money beyond that however you see fit. Dave Ramsey's \\\"\\\"Financial Peace University\\\"\\\" is a very good audiobook and I would recommend it to anyone asking questions such as this one.\\\"\",\n \"First of all, look for a savings account with a decent interest rate. Online banks are good at offering those, and you can transfer your money back and forth from the checking account with a couple of business days' delay. ING Direct offers 1.1% APY right now - lame, but much better than nearly-nothing. If you'd like a little nicer rate of return you should also consider putting some of the money (the part you need least) in a short- or intermediate-term bond ETF or mutual fund. You can sell them quite readily, they pay more interest than a savings account, and because of the shorter maturities involved the interest rate risk is limited. (That's the one that makes your bonds less valuable now because the rates went up after you bought them.) I have some NYSE:BIV that's yielding 3.8% or so.\",\n \"CDs or money market funds. Zero-risk for the CD and ultra-low risk for the money market account; better return than most savings accounts.\",\n \"I would suggest a high interest checking account if you qualify, or if you don't, an Investor's Deposit Account (IDA).\",\n \"I'd be concerned about using CDs (or other non-liquid source) for your emergency fund because you become likely to use debt instead of tapping your emergency fund because you are worried about penalties (which typically only affect interest). This mind set can make you loan the bank money at 1-2% (buy a cd) and borrow money from the bank at 18-25% (credit card). Don't create psychological barriers to using your emergency fund in a true emergency Also, you recommend 3-8 months of expenses. The purpose of an emergency fund is to cover both a loss of income for 3-8 months, or a one time large expense (new roof, new sewer pipe to the house, etc.). A tiered solution solves the loss of income solution, but does not readily address the need for a one time, large emergency. I'd keep all of your emergency fund liquid.\",\n \"I recommend an online savings account. The money is more liquid without early withdrawal fees and frequently you can get a visa/mastercard check card to access the funds. Looking at interest rates, ING is currently paying 1.10% and bankrate reports the best interest rate in the country on a 1 year CD is 1.33%. The .23% difference is not enough to convince me to invest in CDs at a fixed rate vs. an online savings account at a variable rate when we are at (or near) the bottom of CD/savings interest rates.\",\n \"A CD ladder is an ideal way to hold your emergency funds and eke out a few more percentage points of return. Buy CDs in denominations close to one month's expenses, and ladder 1 per month with 3, 6 or 12 month CDs (depending on your total cash allocation to emergency funds). By using a frequency that matches your available funds, in a best case scenario, you can perpetually roll over (or as your savings increase, extend to a longer frequency). If you have an emergency, you have a month's expenses in cash or cash coming in within a month.\",\n \"A Roth IRA is intended for retirement. Before age 59.5 (I think), you can only withdraw the amount you deposited without penalty. It's great you're saving in a Roth, but you shouldn't put savings in there that you will need before you reach sufficient age. And since it's long-term, you can invest in things you expect to grow over the long term, like equities. You should keep emergency funds either in federally insured, extremely liquid accounts (bank savings) or money market funds (which aren't insured, but are close enough to zero-risk). Yes, the interest rates are terrible right now. But anything else would potentially leave you with insufficient funds in the event of, you know, an emergency.\",\n \"In today's market being paid 1% for risk and free access money is pretty darn good. If 50k is what you feel comfortable with an emergency fund, then you are doing a fine enough job. To me that is a lot to keep in an emergency fund, however several factors play into this: We both drive older cars, so I also keep enough money around to replace one of them. Considering all that I keep a specific amount in savings that for me earns .89%. Some of that is kept in our checking accounts which earns nothing. You have to go through some analysis of your own situation and keep that amount where it is. If that amount is less than 50K, you have some money to play with. Here are some options:\",\n \"\\\"Shem - I recommend looking into online banks or credit unions. I know ally has around ~0.8% rate on their savings accounts NOT MMS. Meaning you don't need a ~$2,500 minimum balance so your money is COMPLETELY liquid. CD's and MMC/S are worth next to nothing, and if you ask me are pointless with the minimum balances they require. Ally also reimburses you for all ATM withdrawal fees, meaning you have complete access to all your money, with next to no minimum, with at least some % back that is comparable to CD rates currently offered. CD's are around ~1.8-2% with tens of thousands of dollars (50-75k+) which isn't worth keeping \\\"\\\"liquid\\\"\\\",if you would consider CD's liquid (because you can withdraw on a penalty or have laddered CD's), unless you're rich and that's your emergency fund. If I were you I would look into a retirement account, and saving what you need to in an Emergency Fund. Check out a 401(k), Traditional IRA or Roth IRA. They each have their benefits and you need to assess your financial situation before picking one. I would recommend spending a great deal of time researching this before making your decision, because switching from one to another could cost you, depending on your choice. This is, of course, if you live in the U.S.\\\"\",\n \"Money you need in less than 5 years should be saved not invested. The only place I would be comfortable the money would be a money market account or Certificate of Deposit (CD). I usually go for the money market account because they pay at or close to CD rates and there are no restrictions on getting to the money. However in this case I might choose a CD to keep me from being tempted to borrow some of it for something else. But even after typing that I still think I would put it in a money market, because if interest rates rise they rise in the money market but not the CD, and I just don't think interest can go much lower.\",\n \"Never invest money you need in the short term. As already suggested, park your money in CDs.\",\n \"$1000 is not that much, and I think the best you can do with them is keeping them in a high-yield savings account (look at the online savings accounts that give 1% and more, not the regular bank savings accounts which are worthless). If you need money all of a sudden (for a school book, or rent, or bills, or some other emergency expense), you don't want to deal with selling stocks or funds (which may be at loss) or breaking into your CD's. It is usually considered a good practice to keep cash that would keep you afloat for 5-6 months in savings or some cash equivalent, as an emergency fund.\",\n \"Based on your question, I am going to assume your criterion are: Based on these, I believe you'd be interested in a different savings account, a CD, or money market account. Savings account can get you up to 1.3% and money market accounts can get up to 1.5%. CDs can get you a little more, but they're a little trickier. For example, a 5 year CD could get up to 2%. However, now you're money is locked away for the next few years, so this is not a good option if this money is your emergency fund or you want to use it soon. Also, if interest rates increase then your money market and savings accounts' interest rates will increase but your CD's interest rate misses out. Conversely, if interest rates drop, you're still locked into a higher rate.\",\n \"If you're relatively certain that you're going to meet the requirements, it sounds like a good move for you. The #1 priority with emergency funds should be easy access to the money when you need it. Before the current economic situation, money market funds were great for this since they preserved the value of the dollars you put in. Now the rates on money market accounts are barely better than the 0.2% you're currently getting.\",\n \"In the short-term, a savings account with an online bank can net you ~1% interest, while many banks/credit unions with local branches are 0.05%. Most of the online savings accounts allow 6 withdrawals per month (they'll let you do more, but charge a fee), if you pair it with a checking account, you can transfer your expected monthly need in one or two planned transfers to your checking account. Any other options that may result in a higher yield will either tie up your money for a set length of time, or expose you to risk of losing money. I wouldn't recommend gambling on short-term stock gains if you need the money during the off-season.\",\n \"Here are some options: Park your money in a bank that works best for you.\",\n \"\\\"If you've already got emergency savings sufficient for your needs, I agree that you'd be better served by sending that $500 to your student loan(s). I, personally, house the bulk of my emergency savings in CDs because I'm not planning to touch it and it yields a little better than a vanilla savings account. To address the comment about liquidity. In addition to my emergency savings I keep plain vanilla savings accounts for miscellaenous sudden expenses. To me \\\"\\\"emergency\\\"\\\" means lost job, not new water pump for my car; I have other budgeted savings for that but would spend it on a credit card and reimburse myself anyway so liquidity there isn't even that important. The 18 month CDs I use are barely less liquid than vanilla savings and the penalty is just a couple months of the accrued interest. When you compare a possible early distribution penalty against the years of increased yield you're likely to come out ahead after years of never touching your emergency savings, unless you're budgeted such that a car insurance deductible is an emergency expense. Emergency funds should be guaranteed and non-volatile. If I lose my job, 90 days of accrued interest isn't a hindrance to breaking open some of my CDs, and the process isn't so daunting that I'd meaningfully harm my finances. Liquidity in 2017 and liquidity in whatever year a text book was initially written are two totally different animals. My \\\"\\\"very illiquid\\\"\\\" brokerage account funds are only one transaction and 3 settlement days less liquid than my \\\"\\\"very liquid\\\"\\\" savings account. There's no call the bank, sell the security, wait for it to clear, my brokerage cuts a check, mail the check, cash the check, etc. I can go from Apple stock on Monday to cash in my hand on like Thursday. On the web portal for the bank that holds my CDs I can instantly transfer the funds from a CD to my checking account there net of a negligible penalty for early distribution. To call CDs illiquid in 2017 is silly.\\\"\",\n \"\\\"An emergency fund is very well defined, both on this site and across the web. An emergency fund is a cash account where you keep money for emergencies so you don't need to take on debt like a loan or credit cards. Car breaks down? emergency fund can help pay that. Lose your job? The emergency fund is there to pay rent and for groceries until you're back up an running. There are several schools of thought on how much money should be in your emergency fund, but it boils down to how high your risk assessment is. Typically, the average is to have 3 months in cash available at all times (like in a savings account). It'd be better to have more, but that's a typical goal. You're also asking about investments in the comments. An emergency fund should be readily available. If you already have $10K in savings, set aside what you would need to cover a few months of bills into a cash-ready savings account, then invest the rest. Investments sometimes take time, or have penalties, if you withdraw them. Additionally, as @JoeTaxpayer so correctly pointed out, getting into the habit of maintaining a separate emergency fund helps protect your other investments from becoming a crutch and instead used to save up for larger things like a house or, especially, retirement. See also: What expenses should be covered by an emergency fund What should I reserve \\\"\\\"emergency savings\\\"\\\" for? What expenses do most people not prepare for that turn into \\\"\\\"emergencies\\\"\\\" but are not covered by an Emergency Fund? Less than a year at my first job out of college, what do I save for first?\\\"\",\n \"Stop trying to make money with your emergency fund. It's purpose is to sit there idly waiting for a bad day. A day when you need that cash (liquid) not in a bank or a line-of-credit. The few dollars you might make trying to chase interest/investments with your emergency fund aren't worth it if a true emergency came up and you couldn't get to your cash in time. Once you have a fully funded EF then start investing heavily. That's your future game plan. Not the EF.\",\n \"Firstly well done on building a really sold base of savings. An emergency fund needs to have two key characteristics: Be enough to get you through a typical emergency event (often seen as approx. ~6 months’ salary in your style of situation assuming you have no dependents etc) Be liquid and available to you instantly if an emergency arises Once you have decided how much you will need for 1), you then generally find the best interest available on an instant access savings account and leave it there. It's important to note that because you need it very liquid and very secure you will basically never make (nor should you expect to make) any sizeable rate of interest on your emergency fund. Once this is done, whatever left should be invested in an asset/mix of assets that best fit your risk profile - of which long term bonds are a completely legitimate option, but it's hard to say without knowing more about your long term aims/liabilities/job market etc.\",\n \"I would disagree with your analysis. To me there are two purposes for a money market (MM): Your emergency fund should be from 3 to 6 months of expenses. Think of it of an insurance policy against Murphy. You may want to have some money designated for big expenses, or even sinking funds. For example, I keep some money in a MM for a car as both the wife, daughter, and I driver older vehicles. I may need to replace them. If you were planning on making a larger purchase car, house, boat, engagement ring I would put the money in a MM fund so you are not subject to the whims of the market. After that you are free to invest all your money. Its likely that you should have some money outside of tax advantaged funds so if you want to start a business you will not have to do high cost withdrawals.\",\n \"If you're absolutely certain that you won't buy a house within a year or so, I'd still be tempted to put some of the money into short-term CDs (ie, a max of 12 months). I think that at the moment CDs are a bit of a mug's game though because you'd hardly find one that offers better interest rates than some of the few savings accounts that still offer 1%+ interest. A savings account is probably where I'd put the money unless I could find a really good deal on a CD, but I think you might have to check if they've got withdrawal limits. There are a couple of savings accounts out there that pay at least 1% (yes, I know it's pitiful) so I'd seek out one or two of those. From memory, both Sallie Mae and Amex offer those and I'm sure there are a couple more. It's not great that your money is growing at less than inflation but if you're saving for something like a downpayment on a house I would think that (nominal) capital preservation is probably more important than the potential for a higher return with the associated higher risk.\",\n \"Not OP, but let's see: My money-market account is showing 0.25% interest rate. My savings account, 0.20%. And checking, 0.22%. It doesn't matter where I keep my emergency fund and what I keep my checking balance. It's making fuck-all for interest. And I need to keep a couple thousand in there because my mortgage hits for about $1600. And my monthly CC spend averages ~$3500 monthly. I simply can't keep a couple hundred in there.\",\n \"\\\"These good rates all tend to be \\\"\\\"on up to $X\\\"\\\" where X is some low'ish number that could require multiple accounts. They often also come with other strings, like set up automatic deposits/withdrawals, and use debit card at least 15 times per month. The two you mention have these flaws, whether or not it's worth it depends on if you are happy to meet those requirements and how big your emergency fund is. Personally, I'd rather get rewards on a credit card than use a debit card, and I don't want to open a bunch of accounts, so I have a boring savings account with a pretty low interest rate for my emergency fund. It's liquid, earns some interest, and I don't have to think about it.\\\"\",\n \"A CDIC-insured high-interest savings bank account is both safe and liquid (i.e. you can withdraw your money at any time.) At present time, you could earn interest of ~1.35% per year, if you shop around. If you are willing to truly lock in for 2 years minimum, rates go up slightly, but perhaps not enough to warrant loss of liquidity. Look at GIC rates to get an idea. Any other investments – such as mutual funds, stocks, index funds, ETFs, etc. – are generally not consistent with your stated risk objective and time frame. Better returns are generally only possible if you accept the risk of loss of capital, or lock in for longer time periods.\",\n \"Keeping your “big emergency” fund in stocks if you have 12 months income saved is OK. However you should keep your “small emergency” fund in cash. (However I find that even my stock broker accounts have some cash in them, as I like to let the dividends build up enough to make the dealing charges worthwhile. You don’t wish to be forced to sell at a bad time due to your boiler needing replacing or your car breaking down. However if you lost your job in the same week that your boiler broke down and your car needed replacing then being forced to sell stocks at a bad time is not much of an issue. Also if you are saving say 1/3 of your income each month and you have a credit card with large unused credit limit that is paid of each month, then most “small emergency” that are under 2/3 of your monthly income can be covered on the credit card with little or no interest charges. One option is to check you bank balance on the day after you are paid, and if it is more than 2x your monthly income, then move some of it to long term savings, but only if you tend to spend a lot less then you earn most months.\",\n \"Look at a mixture of low-fee index funds, low-fee bond funds, and CDs. The exact allocation has to be tailored to your appetite for risk. If you only want to park the money with essentially no risk of loss then you need FDIC insured products like CDs or a money market account (as opposed to a money market fund which is not FDIC insured). However as others have said, interest rates are awful now. Since you are in your early 30's, and expect to keep this investment for 10+ years, you can probably tolerate a bit of risk. Also considering speaking to a tax professional to determine the specific tax benefits/drawbacks of one investment strategy (funds and CDs) versus another (e.g. real estate).\",\n \"Congrats on making it this far debt free. It is rare, but nice to be in the situation that you are in. The important thing here is that you want to remain debt free. That's really what the emergency fund is all about: it keeps you from needing to go into debt should something unexpected happen. You've got 1.5 months worth of expenses saved up, and that's great. If you don't have a family or other responsibilities, that might be enough, but think about this: how are you paying for school, and what would happen if those funds stopped coming in? If you are paying for school out of your own income, what happens if you lose your job? If someone else, perhaps your parents, is paying for school, what happens if they are suddenly no longer able to do so? While you have extra cash, you want to be saving it up for situations like this. If I were you, I would build up that emergency fund until it got to the point where it could pay all your expenses and tuition until graduation. Hopefully, you won't need to touch it, but it will be there if you need it. Since you need to be able to access your money quickly, it is generally recommended to park this money in a savings account, where it is very safe. Mutual funds are a great way to invest, but they are not safe in the short term. Don't stress out about not being able to start retirement investing just yet. Making sure you can finish school debt free is the best investment you can make right now. After you graduate and land a job, you can start investing aggressively.\",\n \"There is no such animal. If you are looking to give up FDIC protection, investing in a short-term, high quality bond fund or a tax-free bond fund with short durations is a good way to balance safety vs. return. Make sure you buy funds -- buying individual bonds isn't appropriate for folks without a high net worth. Another option is savings bonds, but the yields on these is awful today.\",\n \"\\\"Edited answer, given that I didn't address the emergency fund aspect originally: None. You've said you don't feel comfortable locking it away where you wouldn't be able to get to it in an emergency. If you don't like locking it away, the answer to \\\"\\\"How much money should I lock up in my savings account?\\\"\\\" is none. On a more personal note, the interest rates on bonds are just awful. Over five years, you can do better.\\\"\",\n \"\\\"If you don't want to take any risk and you want your money to be liquid, then the best place to \\\"\\\"invest\\\"\\\" such money is in an insured bank deposit, such as a high interest savings account. However, you aren't likely to find a savings account interest rate that comes close to that charged by your mortgage, so the better decision from a numbers perspective is to pay down more on your mortgage or other debt. Paying down your debt has almost no risk, but has a better payoff than simply saving the money in a bank account. However, if you choose to pay down more debt, I suggest you still keep aside enough cash to have an adequate emergency fund. Since you want safety and liquidity, don't expect high returns from such money.\\\"\",\n \"\\\"As soon as you specify FDIC you immediately eliminate what most people would call investing. The word you use in the title \\\"\\\"Parking\\\"\\\" is really appropriate. You want to preserve the value. Therefore bank or credit union deposits into either a high yield account or a Certificate of Deposit are the way to go. Because you are not planning on a lot of transactions you should also look at some of the online only banks, of course only those with FDIC coverage. The money may need to be available over the next 2-5 years to cover college tuition If needing it for college tuition is a high probability you could consider putting some of the money in your state's 529 plan. Many states give you a tax deduction for contributions. You need to check how much is the maximum you can contribute in a year. There may be a maximum for your state. Also gift tax provisions have to be considered. You will also want to understand what is the amount you will need to cover tuition and other eligible expenses. There is a big difference between living at home and going to a state school, and going out of state. The good news is that if you have gains and you use the money for permissible expenses, the gains are tax free. Most states have a plan that becomes more conservative as the child gets closer to college, therefore the chance of losses will be low. The plan is trying to avoid having a large drop in value just a the kid hits their late teens, exactly what you are looking for.\\\"\",\n \"I use an offset mortgage. (No interest is paid, but the amount in the savings account is subtracted from the outstanding mortgage amount before interest is calculated, so the mortgage is paid off faster by the interest amount saved). The money is instantly accessible and there is no tax as the benefit is reduced/saved interest. However, the mortgage rate is slightly higher, so it works best if your emergency funds are a reasonably large proportion of the mortgage amount outstanding.\",\n \"Try and save up for another month's expenses in your emergency fund, but while you are doing so begin building what is called a ladder of CDs. Tomorrow is April 1, so open a three-month CD (yes, the rates are abysmal but better than money-market fund rates) with one month's emergency fund. Repeat the process on May 1. So now you have two CDs maturing on July 1 and August 1. On June 1, take whatever of that extra month's expense you have saved up and open yet another three-month CD. On July 1, re-invest the proceeds of the first CD into a new three-month CD. Ditto on August 1. On September 1, add the additional savings towards the additional month that you managed to make to the smaller CD to bring it closer to one month's expenses. Lather, rinse, repeat. You will, I hope, soon be in a state where you will have four months of expenses in your emergency fund: one month on hand for immediate use if needed right away, and three months of additional expenses becoming available in 30 days or less, between 30 and 60 days, and between 60 and 90 days.\",\n \"You can open Savings Bank Account with some Banks that offer better interest rate. Note there would be restriction on number of withdrawals in quarter. There are better interest rates if you lock in for 90+ days. The other option to explore is to open a Demat / Brokrage account and invest in liquid funds. Note depending on various factors it may or may not suite your requirements.\",\n \"Consider also setting up a CD ladder. CD rates are often better than savings account rates. You have a 12-month CD that you purchase in January with a twelfth of your money, then another small one in February, then another in March.... then, when January comes around again, you a little more money to the first CD, and the ladder is complete. The idea is that you have more access to your money than one big CD, since you'll always have a CD maturing next month that you can get to in case of an emergency, and you can get better rates on a 1-year CD than on something else (with less risk of being locked into a bad interest rate). And you'll be less tempted to tap it all at once to buy some fancy car or what-not because you can't get at it all at once (without a penalty). And in a major emergency, losing a few percent of your interest for early withdrawals is likely the least of your problems.\",\n \"\\\"Most online \\\"\\\"high yield\\\"\\\" savings accounts are paying just above 1%. That would be 1.05% for American Express personal savings, or 1.15% for Synchrony Bank (currently). Depending on the length of the season, you might want to work in some CD's. Six months CDs can be had at 1.2%, and 9 month at 1.25%. So if you know you won't need some of your earnings for 9 months, you could earn 1.25% on your money. However, I would proceed with caution on anything other than the high yield savings account. With your one friend having such a low emergency fund, there is very little room for error. Perhaps until that amount is built up into something significant, it is just best to stick with the online savings. Of course, one solution would be to find a way to create income during the off season. That will go a long way into helping one build wealth.\\\"\",\n \"\\\"It sounds like you want a place to park some money that's reasonably safe and liquid, but can sustain light to moderate losses. Consider some bond funds or bond ETFs filled with medium-term corporate bonds. It looks like you can get 3-3.5% or so. (I'd skip the municipal bond market right now, but \\\"\\\"why\\\"\\\" is a matter for its own question). Avoid long-term bonds or CDs if you're worried about inflation; interest rates will rise and the immediate value of the bonds will fall until the final payout value matches those rates.\\\"\",\n \"It's not pre-tax but you can consider some short term municipal bonds. The interest is tax free. I would keep to short term ones (1 year maturity), so that you aren't affected by big swings in interest rates and can get your money back within a year.\",\n \"\\\"Between 6 months and a year is normally regarded as the \\\"\\\"standard\\\"\\\". Plan out what your monthly expenses are and save that money away. One thing to consider is what extras can you give up. If you are currently eating steak and lobster every day can you live with switching to ramen noodles for a period of time? Can you switch from premium cable to basic cable (or cancel it altogether)? Questions like this can greatly impact the amount you have to set aside. I personally have my emergency fund in CDs that mature the first of every month. I know there is less liquidity in this approach but I'm ok with that. My emergency fund is a sum of cash I'll always have so I wanted to reap the benefits of a higher yield. If it comes down to it I can place an expense on a credit card and pay off the credit card when funds become available.\\\"\",\n \"\\\"For a two year time frame, a good insured savings account or a low-cost short-term government bond fund is most likely the way I would go. Depending on the specific amount, it may also be reasonable to look into directly buying government bonds. The reason for this is simply that in such a short time period, the stock market can be extremely volatile. Imagine if you had gone all in with the money on the stock market in, say, 2007, intending to withdraw the money after two years. Take a broad stock market index of your choice and see how much you'd have got back, and consider if you'd have felt comfortable sticking to your plan for the duration. Since you would likely be focused more on preservation of capital than returns during such a relatively short period, the risk of the stock market making a major (or even relatively minor) downturn in the interim would (should) be a bigger consideration than the possibility of a higher return. The \\\"\\\"return of capital, not return on capital\\\"\\\" rule. If the stock market falls by 10%, it must go up by 11% to break even. If it falls by 25%, it must go up by 33% to break even. If you are looking at a slightly longer time period, such as the example five years, then you might want to add some stocks to the mix for the possibility of a higher return. Still, however, since you have a specific goal in mind that is still reasonably close in time, I would likely keep a large fraction of the money in interest-bearing holdings (bank account, bonds, bond funds) rather than in the stock market. A good compromise may be medium-to-high-yield corporate bonds. It shouldn't be too difficult to find such bond funds that can return a few percentage points above risk-free interest, if you can live with the price volatility. Over time and as you get closer to actually needing the money, shift the holdings to lower-risk holdings to secure the capital amount. Yes, short-term government bonds tend to have dismal returns, particularly currently. (It's pretty much either that, or the country is just about bankrupt already, which means that the risk of default is quite high which is reflected in the interest premiums demanded by investors.) But the risk in most countries' short-term government bonds is also very much limited. And generally, when you are looking at using the money for a specific purpose within a defined (and relatively short) time frame, you want to reduce risk, even if that comes with the price tag of a slightly lower return. And, as always, never put all your eggs in one basket. A combination of government bonds from various countries may be appropriate, just as you should diversify between different stocks in a well-balanced portfolio. Make sure to check the limits on how much money is insured in a single account, for a single individual, in a single institution and for a household - you don't want to chase high interest bank accounts only to be burned by something like that if the institution goes bankrupt. Generally, the sooner you expect to need the money, the less risk you should take, even if that means a lower return on capital. And the risk progression (ignoring currency effects, which affects all of these equally) is roughly short-term government bonds, long-term government bonds or regular corporate bonds, high-yield corporate bonds, stock market large cap, stock market mid and low cap. Yes, there are exceptions, but that's a resonable rule of thumb.\\\"\",\n \"\\\"I think that its ok to keep your \\\"\\\"emergency fund\\\"\\\" money in cash in your home. By emergency fund, I mean $1,000-2,500, that doesn't get touched. There are risks. You have a risk that the money will be stolen, or be wholly or partially destroyed, or even lost if you stash it somewhere and forget. You're also not going to earn interest. So go for it. But keep your emergency funds in cash -- if you want to buy silver and gold, that's fine...you need to treat them as commodity investments.\\\"\",\n \"\\\"So long as you have complete, virtually instant access to funds through checks, debit card, or ATM transaction, then yes it would be a better option than a \\\"\\\"vanilla\\\"\\\" savings account. If it's in a brokerage account that you would need to process a transfer and potentially wait a few days for everything to settle, then I would just keep it in savings. The amount earned in interest isn't worth the extra hassle. A compromise might be to keep a few thousand in a savings account and the rest in a money market. That way you earn some interest and still have instant access to enough funds to cover most emergencies.\\\"\",\n \"From a budgeting perspective, the emergency fund is a category in which you've budgeted funds for the unexpected. These are things that weren't able to be predicted and budgeted for in advance, or things that exceeded the expected costs. For example you might budget $150 per month for car maintenance, and typically spend some of it while the rest builds up over time for unexpected repairs, so you have a few hundred available for that. But this month your transmission died and you have a $3,000 bill. You'll then fund most of this out of your emergency fund. This doesn't cover where to store that money though, which leads me to my next point. Emergencies are emergencies because they come without warning, without you having a chance to plan. Thefore the primary things you want in an emergency fund account are stability and quick access. You can structure investments to be whatever you think of as safe or stable but you don't want to be thinking about whether it's a good time to sell when you need the money right now. But the bigger problem is access. When you need the funds on a weekend, holiday, anytime outside of market hours, you're not going to be able to just sell some stocks and go to an ATM. This is the reason why it's recommended to have these funds in a checking or savings account usually. The reason I mentioned the budgeting side first is because I wanted to point out that if you're budgeting well, most of the unexpected expenses you have should have been expected in a sense; you can still plan for something without knowing when or if it will happen. So in the example of a car repair, ideally you're already budgeting for possible repairs, if you own a home you're budgeting for things that would go wrong, budgeting for speeding tickets, for surprise out of pocket medical costs, etc. These then become part of your normal budget: they aren't part of the emergency fund anymore. The bright side about budgeting for something unexpected is that you know what that money is for, and do you likely also know how quickly you'll need it. For example you know if you have unexpected medical costs that happen very quickly, you're not likely you need a bag of cash on a moment's notice. So those last two points lead to the fact that your actual emergency fund, the dollars that are for things you simply could not foresee, will be relatively small. A few thousand dollars or so in most cases. If you've got things structured like this, you'll be happy to have a few grand available at a moment's notice. The bulk of the money you would use for other surprise expenses (or things like 6 months of living expenses) is represented in other specific categories and you already know the timeframe in which you need it (probably enough time that it could be invested, risk to taste). In short: by expecting the unexpected, you can sidestep this issue and not worry so much about missed returns on the emergency fund.\",\n \"There are many considerations before deciding on the best place for your funds: How liquid do you need the funds to be? If this is for an emergency fund I would keep at least some in an account that you have instant access to, What is your risk (volatility) tolerance? Would you be OK with the value dropping by as much as 30% in a year knowing that over time you'll probably earn 8-12% on it? If not, then equity funds or other stock investments are probably not the best move for you. Do you need the funds now or are they for long-term (retirement) savings? Are you eligible to fund an IRA? That would defer your taxes until you withdraw the funds from the account, but there are age restrictions that you must heed to avoid penalties. Are CDs a good idea? They do pay decent interest, but in return for that you lock up your funds for a set period of time. All that to say that there are many facets to determining the best place for your funds. If you provide more specifics you can get a more specific answer.\",\n \"\\\"The above answers are great. I would only add to the \\\"\\\"rainy day\\\"\\\" part, that even though the cash provides a good cushion, \\\"\\\"a stormy day\\\"\\\" could mean even losing those emergency savings to the unignorable randomness that governs the world economy. Though unlikely, what happened to the russian ruble and the latest decision of the swiss cental bank are just two recent reminders that uncertainty must be treated as a constant. I would therefore advise you to invest some of the money in land capable of agriculture. How expensive is land over there in the UK?\\\"\",\n \"A cash management account from an investment firm like Fidelity or Schwab will do that: you can access funds by check or ATM and get a bit of interest. The interest rates are very low. Or you could put it in a money market account and access it by check with a slightly less worse interest rate. You can pursue higher returns by investing part of the money, but with increasing risk as you seek higher returns. Options include putting some of the money into a short term bond fund, for example.\",\n \"\\\"What you're describing makes sense. I'd probably call the non-liquid portion something besides my \\\"\\\"emergency fund\\\"\\\", but that's semantics mostly. If you have 3 months of \\\"\\\"very liquid\\\"\\\" cash in this emergency fund and you're comfortable that this amount is good for your situation, then I don't see why you can't have additional savings in more or less liquid vehicles. Whatever you set up, you'll want to think about how to tap it when you need it. You might have a CD ladder with one maturing every three months. That would give you access to these funds after your liquid funds dry up. (Or for a small/short term emergency, you'll be able to replenish the liquid fund with the next-maturing CD.) Or set up a T Bill ladder with the same structure. This might provide you with a tax advantage.\\\"\",\n \"\\\"If all of the money needs to be liquid, T-Bills from a broker are the way to go. Treasury Direct is a little onerous -- I'm not sure that you could actually get money out of there in a week. If you can sacrifice some liquidity, I'd recommend a mix of treasury, brokered CDs, agency and municipal securities. The government has implicitly guaranteed that \\\"\\\"too big to fail\\\"\\\" entities are going to be backed by the faith & credit of the United States, so investments in general obligation bonds from big states like New York, California and Florida and cities like New York City will yield you better returns, come with significant tax benefits, and represent only marginal additional short-term risk.\\\"\",\n \"\\\"I would split the savings as you may need some of it quickly for an emergency. At least 1/2 should be very liquid, such as cash or MMA/Checking. From there, look at longer term CDs, from 30 day to 180 day, depending upon your situation. Don't be surprised if by the time you've saved the money up, your desire for the car will have waned. How many years will it take to save up enough? 2? 5? 10? You may want to review your current work position instead, so you'll make more and hopefully save more towards what you do want. Important: Be prepared for the speed bumps of life. My landlord sold the house I was renting out from under me, as I was on a month-to-month contract. I had to have a full second deposit at the ready to put down when renting elsewhere, as well as the moving expenses. Luckily, I had done what my tax attorney had said, which is \\\"\\\"Create a cushion of liquid assets which can cover at least three months of your entire outgoing expenses.\\\"\\\" The Mormon philosophy is to carry at least one year's worth of supplies (food, water, materials) at all times in your home, for any contingency. Not Mormon, not religious, but willing to listen to others' opinions. As always, YMMV. Your Mileage May Vary.\\\"\",\n \"\\\"You have several options depending on your tolerance for risk. Certainly open an investment account with your bank or through any of the popular discount brokerage services. Then take however much money you're willing to invest and start earning some returns! You can split up the money into various investments, too. A typical default strategy is to take any money you won't need for the long term and put it in an Index Fund like the S&P 500 (or a European equivalent). Yes, it could go down, especially in the short term, but you can sell shares at any time so you're only 2-3 days away at any time from liquidity. Historically this money will generate a positive return in the long run. For smaller time frames, a short-term bond fund often gives a slightly better return than a money market account and some people (like me!) use short-term bond funds as if it were a money market account. There is a very low but real risk of having the fund lose value. So you could take a certain percentage of your money and keep it \\\"\\\"close\\\"\\\" in a bond fund. Likewise, you can sell shares at any time, win or lose and have the cash available within a couple days.\\\"\",\n \"If you need the money in the short-term, you want to invest in something fairly safe. These include saving accounts, CDs, and money market funds from someplace like Vanguard. The last two might give you a slightly better return than the local branch of a national bank.\",\n \"Just to offer another alternative, consider Certificates of Deposit (CDs) at an FDIC insured bank or credit union for small or short-term investments. If you don't need access to the money, as stated, and are not willing to take much risk, you could put money into a number of CDs instead of investing it in stocks, or just letting it sit in a regular savings/checking account. You are essentially lending money to the bank for a guaranteed length of time (anywhere from 3 to 60 months), and therefore they can give you a better rate of return than a savings account (which is basically lending it to them with the condition that you could ask for it all back at any time). Your rate of return in CDs is lower a typical stock investment, but carries no risk at all. CD rates typically increase with the length of the CD. For example, my credit union currently offers a 2.3% APY on a 5-year CD, but only 0.75% for 12 month CDs, and a mere 0.1% APY on regular savings/checking accounts. Putting your full $10K deposit into one or more CDs would yield $230 a year instead of a mere $10 in their savings account. If you go this route with some or all of your principal, note that withdrawing the money from a CD before the end of the deposit term will mean forfeiting the interest earned. Some banks may let you withdraw just a portion of a CD, but typically not. Work around this by splitting your funds into multiple CDs, and possibly different term lengths as well, to give you more flexibility in accessing the funds. Personally, I have a rolling emergency fund (~6 months living expenses, separate from all investments and day-to-day income/expenses) split evenly among 5 CDs, each with a 5-year deposit term (for the highest rate) with evenly staggered maturity dates. In any given year, I could close one of these CDs to cover an emergency and lose only a few months of interest on just 20% of my emergency fund, instead of several years interest on all of it. If I needed more funds, I could withdraw more of the CDs as needed, in order of youngest deposit age to minimize the interest loss - although that loss would probably be the least of my worries by then, if I'm dipping deeply into these funds I'll be needing them pretty badly. Initially I created the CDs with a very small amount and differing term lengths (1 year increments from 1-5 years) and then as each matured, I rolled it back into a 5 year CD. Now every year when one matures, I add a little more principal (to account for increased living expenses), and roll everything back in for another 5 years. Minimal thought and effort, no risk, much higher return than savings, fairly liquid (accessible) in an emergency, and great peace of mind. Plus it ensures I don't blow the money on something else, and that I have something to fall back on if all my other investments completely tanked, or I had massive medical bills, or lost my job, etc.\",\n \"\\\"The answer to your question depends very much on your definition of \\\"\\\"long-term\\\"\\\". Because let's make something clear: an investment horizon of three to six months is not long term. And you need to consider the length of time from when an \\\"\\\"emergency\\\"\\\" develops until you will need to tap into the money. Emergencies almost by definition are unplanned. When talking about investment risk, the real word that should be used is volatility. Stocks aren't inherently riskier than bonds issued by the same company. They are likely to be a more volatile instrument, however. This means that while stocks can easily gain 15-20 percent or more in a year if you are lucky (as a holder), they can also easily lose just as much (which is good if you are looking to buy, unless the loss is precipitated by significantly weaker fundamentals such as earning lookout). Most of the time stocks rebound and regain lost valuation, but this can take some time. If you have to sell during that period, then you lose money. The purpose of an emergency fund is generally to be liquid, easily accessible without penalties, stable in value, and provide a cushion against potentially large, unplanned expenses. If you live on your own, have good insurance, rent your home, don't have any major household (or other) items that might break and require immediate replacement or repair, then just looking at your emergency fund in terms of months of normal outlay makes sense. If you own your home, have dependents, lack insurance and have major possessions which you need, then you need to factor those risks into deciding how large an emergency fund you might need, and perhaps consider not just normal outlays but also some exceptional situations. What if the refrigerator and water heater breaks down at the same time that something breaks a few windows, for example? What if you also need to make an emergency trip near the same time because a relative becomes seriously ill? Notice that the purpose of the emergency fund is specifically not to generate significant interest or dividend income. Since it needs to be stable in value (not depreciate) and liquid, an emergency fund will tend towards lower-risk and thus lower-yield investments, the extreme being cash or the for many more practical option of a savings account. Account forms geared toward retirement savings tend to not be particularly liquid. Sure, you can usually swap out one investment vehicle for another, but you can't easily withdraw your money without significant penalties if at all. Bonds are generally more stable in value than stocks, which is a good thing for a longer-term portion of an emergency fund. Just make sure that you are able to withdraw the money with short notice without significant penalties, and pick bonds issued by stable companies (or a fund of investment-grade bonds). However, in the present investment climate, this means that you are looking at returns not significantly better than those of a high-yield savings account while taking on a certain amount of additional risk. Bonds today can easily have a place if you have to pick some form of investment vehicle, but if you have the option of keeping the cash in a high-yield savings account, that might actually be a better option. Any stock market investments should be seen as investments rather than a safety net. Hopefully they will grow over time, but it is perfectly possible that they will lose value. If what triggers your financial emergency is anything more than local, it is certainly possible to have that same trigger cause a decline in the stock market. Money that you need for regular expenses, even unplanned ones, should not be in investments. Thus, you first decide how large an emergency fund you need based on your particular situation. Then, you build up that amount of money in a savings vehicle rather than an investment vehicle. Once you have the emergency fund in savings, then by all means continue to put the same amount of money into investments instead. Just make sure to, if you tap into the emergency fund, replenish it as quickly as possible.\\\"\",\n \"10-15% of the bat you want to keep liquid in a savings account with interest at 1.5% that best at the moment. In case of a real emergency. Look in to dividend stocks they can bring in 10-15% on your investment and fairly liquid as well. There's also rental properties but 40k isn't much room to move around with in that area.\",\n \"\\\"From a quick look at sources on the web, it looks to me like Money Market Accounts and savings accounts are both paying about the same rate today: around 1%, give or take maybe 0.4%. I suppose that's better than nothing, but it's not a whole lot better than nothing. (I saw several savings accounts advertising 0.1% interest. If they mailed you a check, the postage could be more than the returns.) Personally, I keep a modest amount of emergency cash in my checking account, and I put my \\\"\\\"savings\\\"\\\" in a very safe mutual fund. That generally gets somewhere from making maybe 3% a year to losing a small amount. Certainly nothing to sing about, but better than savings or money markets. Whether you are willing to tolerate the modest risk or the sales charges is a matter for your personal situation and feelings.\\\"\",\n \"Savings accounts with 8% APY? Unheard of these days. You're lucky if you find one at 1%. You should use checking and savings accounts only to hold an emergency fund (6 to 12 months of living expenses), or money that you will need in 2 years or so. The rest, invest in stocks and bonds.\",\n \"This is a great idea and I can't think of any downside. The best part about it is in the future when you have built up your emergency fund beyond the maximum contributions to the Roth IRA, you can then move your Roth funds into a higher yielding investment. I might take it a step further. In addition to this, try to get a line of credit from your bank (with no annual fee). In case of emergency, you can decide if you want to take the money from your Roth or borrow from the line and pay some interest temporarily. Depending on the situation it may actually make sense to pay a little bit of interest and leave the money in the Roth, since over the long run the future earnings of that money could easily make you more than the interest you'll pay for (let's hope) a short amount of time. To really hit home why your idea is fantastic:\",\n \"Overall I think it sounds like it's worth it. It's hard to find that high of a rate on a checking account these days. It looks like you're looking at this bank, and I can see they have a few more requirements that seem a little tedious: If you don't do these things every month, then you lose the great interest rate. If you can think of an easy way to jump through these hoops and not forget, then it's probably worth it. For example, if you routinely eat out for lunch or buy a morning coffee, you can use that card to pay for it. Set yourself a recurring reminder in your calendar or smartphone to remind you to login to the online banking site. Ultimately, since this is an emergency fund, it's a good idea to keep it nice and liquid in a checking account. You're not likely going to find many other options that will give you a better (and safe) return and still keep your funds available for when you need them. In summary, it sounds like a good idea to me so long as you think you can reliably jump through their hoops.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"First off, you generally want to park your emergency fund somewhere that is \"\"safe\"\", meaning something that is not subject to market fluctuations. Your emergency fund is something you need to be able to count on when times are tough! That rules out things like stock market investments. Secondly, you need to think about how quickly you will need access to the money. If you have an emergency, odds are you don't want to be waiting around for weeks/months/years for the money to become available. This rules out most fixed-term investments (Bonds, traditional CDs, etc). If you are concerned that you will need near-instant access to your emergency money, then you probably want to keep it in a Savings or Money Market Account at the same bank as your checking account. Most banks will let you transfer money between local accounts instantly. Unfortunately, your local bank probably has pitiful interest rates for the Savings/MMA, far below the inflation rate. This means your money will slowly lose value over time. Be prepared to keep contributing to it! For most people, being able to draw the cash from your fund within a few days (<1 week) is sufficient. Worst case, you charge something on your credit card, and then pay down the card when the emergency fund withdrawal arrives. If \"\"money within a few days\"\" is okay for you, there are a few options: Money Market (Mutual) Funds (not to be confused with a Money Market Account) - This is the traditional place to keep an emergency fund. These are investment funds you can buy with a brokerage account. An example of such a fund would be Fidelity Cash Reserves. MMFs are not FDIC insured, so they are not exactly zero risk. However, they are considered extremely safe. They almost never go down in value (only a few times in the past few decades), and when they have, the fund manager or the Federal Govt stepped in to restore the value. They usually offer slightly better return than a local savings account, and are available in taxable and non-taxable varieties. Online High-Yield Savings or Money Market Account - These are a relatively new invention. It's basically a the same thing as what your local bank offers, but it's online-only. No local branch means low overhead, so they offer higher interest rates (2.0% vs 0.5% for your local bank). Some of them used to be over 5% before the economy tanked. Like your local bank, it is FDIC insured. One bit of caution: Some of these accounts have become \"\"gimmicky\"\" lately. They have started to do things like promo rates for a few months, only offering the high interest rate on the first few $K deposited, limiting the amount that can be withdrawn, etc. Be sure to read the details before you open an account! No-Penalty CDs - Certificates of Deposit usually offer a better rate than a Savings Account, but your money is locked up until the CD term is up (e.g. 36 months). If you need to cash out before then, you pay a penalty. Some banks have begun to offer CDs that you can cash out with no penalty at all. These can offer better rates than the savings account. Make sure it really is no-penalty though. Also watch what your options are for slowly adding money over time. This can be an issue if you want to deposit $100 from every paycheck. Rewards Checking Accounts - These are checking accounts that will pay a relatively high interest rate (3% or more) provided you generate enough activity. Most of them will have requirements like you must have direct deposit setup with them, and you must do a minimum number of debit card transactions from the account per month. If you can stay on top of the requirements, these can be a great deal. If you don't stay on top of it, your interest rate usually drops back to something pitiful, though. Personally, we use the Online High-Yield Savings Account for our emergency fund. I'm not going to make a specific recommendation as to which bank to use. The best deal changes almost week to week. Instead, I will say to check out Bankrate.com for a list of savings accounts and CDs that you can sort. The Bank Deals blog is a good place to follow rate changes.\"","I would suggest your local credit union or local bank for security and liquidity. Liquidity is probably the most important issue for a emergency fund.","I am using ING for my emergency savings, but sometime last year I discovered SmartyPig. As of 4/24/2010 they offer 2.1%, which is even better than the 1 year CDs at most banks. I've switched two small accounts to SmartyPig and plan to switch my emergency savings. Their accounts are geared around monthly contributions, but you don't have to use that feature.","This is probably a good time to note that credit is not a liquid asset, and not an emergency fund. Credit can be revoked or denied at any time, and Murphy's law states that you may have issues with credit when everything else goes wrong too.","Something with an FDIC guarentee, so a bank. With an emergency fund, I think the 'return of capital' is more important than the 'return on the capital', so I'm fine with putting it in a standard savings account in a local bank(not an internet account) even if it pays next to nothing. The beauty is that since the bank is local, you can walk in and withdraw it all during any weekday."],"string":"[\n \"\\\"First off, you generally want to park your emergency fund somewhere that is \\\"\\\"safe\\\"\\\", meaning something that is not subject to market fluctuations. Your emergency fund is something you need to be able to count on when times are tough! That rules out things like stock market investments. Secondly, you need to think about how quickly you will need access to the money. If you have an emergency, odds are you don't want to be waiting around for weeks/months/years for the money to become available. This rules out most fixed-term investments (Bonds, traditional CDs, etc). If you are concerned that you will need near-instant access to your emergency money, then you probably want to keep it in a Savings or Money Market Account at the same bank as your checking account. Most banks will let you transfer money between local accounts instantly. Unfortunately, your local bank probably has pitiful interest rates for the Savings/MMA, far below the inflation rate. This means your money will slowly lose value over time. Be prepared to keep contributing to it! For most people, being able to draw the cash from your fund within a few days (<1 week) is sufficient. Worst case, you charge something on your credit card, and then pay down the card when the emergency fund withdrawal arrives. If \\\"\\\"money within a few days\\\"\\\" is okay for you, there are a few options: Money Market (Mutual) Funds (not to be confused with a Money Market Account) - This is the traditional place to keep an emergency fund. These are investment funds you can buy with a brokerage account. An example of such a fund would be Fidelity Cash Reserves. MMFs are not FDIC insured, so they are not exactly zero risk. However, they are considered extremely safe. They almost never go down in value (only a few times in the past few decades), and when they have, the fund manager or the Federal Govt stepped in to restore the value. They usually offer slightly better return than a local savings account, and are available in taxable and non-taxable varieties. Online High-Yield Savings or Money Market Account - These are a relatively new invention. It's basically a the same thing as what your local bank offers, but it's online-only. No local branch means low overhead, so they offer higher interest rates (2.0% vs 0.5% for your local bank). Some of them used to be over 5% before the economy tanked. Like your local bank, it is FDIC insured. One bit of caution: Some of these accounts have become \\\"\\\"gimmicky\\\"\\\" lately. They have started to do things like promo rates for a few months, only offering the high interest rate on the first few $K deposited, limiting the amount that can be withdrawn, etc. Be sure to read the details before you open an account! No-Penalty CDs - Certificates of Deposit usually offer a better rate than a Savings Account, but your money is locked up until the CD term is up (e.g. 36 months). If you need to cash out before then, you pay a penalty. Some banks have begun to offer CDs that you can cash out with no penalty at all. These can offer better rates than the savings account. Make sure it really is no-penalty though. Also watch what your options are for slowly adding money over time. This can be an issue if you want to deposit $100 from every paycheck. Rewards Checking Accounts - These are checking accounts that will pay a relatively high interest rate (3% or more) provided you generate enough activity. Most of them will have requirements like you must have direct deposit setup with them, and you must do a minimum number of debit card transactions from the account per month. If you can stay on top of the requirements, these can be a great deal. If you don't stay on top of it, your interest rate usually drops back to something pitiful, though. Personally, we use the Online High-Yield Savings Account for our emergency fund. I'm not going to make a specific recommendation as to which bank to use. The best deal changes almost week to week. Instead, I will say to check out Bankrate.com for a list of savings accounts and CDs that you can sort. The Bank Deals blog is a good place to follow rate changes.\\\"\",\n \"I would suggest your local credit union or local bank for security and liquidity. Liquidity is probably the most important issue for a emergency fund.\",\n \"I am using ING for my emergency savings, but sometime last year I discovered SmartyPig. As of 4/24/2010 they offer 2.1%, which is even better than the 1 year CDs at most banks. I've switched two small accounts to SmartyPig and plan to switch my emergency savings. Their accounts are geared around monthly contributions, but you don't have to use that feature.\",\n \"This is probably a good time to note that credit is not a liquid asset, and not an emergency fund. Credit can be revoked or denied at any time, and Murphy's law states that you may have issues with credit when everything else goes wrong too.\",\n \"Something with an FDIC guarentee, so a bank. With an emergency fund, I think the 'return of capital' is more important than the 'return on the capital', so I'm fine with putting it in a standard savings account in a local bank(not an internet account) even if it pays next to nothing. The beauty is that since the bank is local, you can walk in and withdraw it all during any weekday.\"\n]","isConversational":false}}},{"rowIdx":371,"cells":{"_id":{"kind":"string","value":"559"},"query":{"kind":"string","value":"Challenged an apparently bogus credit card charge, what happens now?"},"gt_ids":{"kind":"list like","value":["246459"],"string":"[\n \"246459\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["360586","538217","432114","52636","372039","26758","520998","304100","93523","44113","225760","450031","361917","469383","219846","398258","233040","100443","417560","298313","410243","182684","176742","92463","581889","531137","582064","417868","315796","115712","522734","467737","585282","169275","46433","139518","97329","384608","393710","115868","401678","207992","75252","452405","246459","3243","90958","546028","152711","86245","328760","567201","380595","573531","548014","366735","161062","109164","375652","81815","259764","189662","73390","287481","163016","492226","49321","157715","390461","169287","161422","583321","59352","72854","352291","388295","79633","120457","339365","125827","271472","414170","181697","100936","175448","306510","569987","331155","146909","435825","34997","198269","13582","398091","197093","103970","34358","181757","251258","122617"],"string":"[\n \"360586\",\n \"538217\",\n \"432114\",\n \"52636\",\n \"372039\",\n \"26758\",\n \"520998\",\n \"304100\",\n \"93523\",\n \"44113\",\n \"225760\",\n \"450031\",\n \"361917\",\n \"469383\",\n \"219846\",\n \"398258\",\n \"233040\",\n \"100443\",\n \"417560\",\n \"298313\",\n \"410243\",\n \"182684\",\n \"176742\",\n \"92463\",\n \"581889\",\n \"531137\",\n \"582064\",\n \"417868\",\n \"315796\",\n \"115712\",\n \"522734\",\n \"467737\",\n \"585282\",\n \"169275\",\n \"46433\",\n \"139518\",\n \"97329\",\n \"384608\",\n \"393710\",\n \"115868\",\n \"401678\",\n \"207992\",\n \"75252\",\n \"452405\",\n \"246459\",\n \"3243\",\n \"90958\",\n \"546028\",\n \"152711\",\n \"86245\",\n \"328760\",\n \"567201\",\n \"380595\",\n \"573531\",\n \"548014\",\n \"366735\",\n \"161062\",\n \"109164\",\n \"375652\",\n \"81815\",\n \"259764\",\n \"189662\",\n \"73390\",\n \"287481\",\n \"163016\",\n \"492226\",\n \"49321\",\n \"157715\",\n \"390461\",\n \"169287\",\n \"161422\",\n \"583321\",\n \"59352\",\n \"72854\",\n \"352291\",\n \"388295\",\n \"79633\",\n \"120457\",\n \"339365\",\n \"125827\",\n \"271472\",\n \"414170\",\n \"181697\",\n \"100936\",\n \"175448\",\n \"306510\",\n \"569987\",\n \"331155\",\n \"146909\",\n \"435825\",\n \"34997\",\n \"198269\",\n \"13582\",\n \"398091\",\n \"197093\",\n \"103970\",\n \"34358\",\n \"181757\",\n \"251258\",\n \"122617\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"Every legitimate claim I've filed regarding fraudulent charges on my card includes signing a legal document. If your \"\"friend\"\" completes such a document and you can verify that it is untrue, he's in deeper trouble than you. Unfortunately, if he's successful in filing a claim that is later proven to be fraudulent, it puts your account in a poor status until it's fully cleared. Even then, corporate inertia may result in longer duration inaccurate information. Once you've cleared the fraudulent claim, you'll want to contact your credit agency to ensure they are provided with correct and proper documentation.\"","I would keep the letter in a file for follow-up, and I would do what you are already planning to do and wait to see what shows up on the credit report. If this does reflect an identity theft attempt, chances are that others will follow, so vigilance is key here. If there is a hard credit check, then you can dispute that on your credit report. If there is not a hard credit check, there is nothing further this credit card company can do to help you anyway.","Mine did. It was withdrawls on an ATM card (at an ATM without a camera, ofc). I signed a statement, and the cash was put back into my account immediately while they conducted the investigation. Nothing resulted from the investigation, but my CU ate the charges, didn't pass them on to me.","The credit card company isn't the one losing money here. It's the airline. The airline credited you back twice (once with the fraud report, once with the credit from the thief). Maybe you should call them if you want it resolved sooner. In any case, if/when they do come looking for their money, they will have the paperwork to prove that it belongs to them. You can spend the money now and risk paying it back later, you can watch and wait, or you can be proactive and ask the airline to fix it. They may or may not care about that sum.","\"The debt collection agency needs to see a copy of the notice from the bank that the $300 charge is a disputed and fraudulent charge. Also require them to provide proof. To reduce your stress, you should contact a lawyer to handle the debt collection agency. Disputing the information on your credit report is exactly the way to \"\"fix\"\" that issue. All they need to see is the bank letter stating that the charges were fraudulent. The credit reports should show that item as disputed for at least a month if not remove it entirely. The bank should be able to provide with copies although you may have to pay a research charge if the information is old enough. I recommend talking to your local branch manager to get what you need.\"","I have already talked to them over the phone and they insist they haven't charged me yet, and I will not be charged. When I informed them I had in fact been charged they agreed it would be reversed. So I have tried to resolve the issue and I don't have any confidence they will reverse the charge as it has not been done yet. They are difficult to communicate which makes the whole process more difficult. Your best next step is to call the credit card company and share this story. I believe the likely result is that the credit card company will initiate a charge back. My question is, is this a valid reason to file a chargeback on my credit card? Yes. If you attempted to work it out with the vendor and it is not working out, this is an appropriate time to initiate a charge back.","I would go speak to the bank manager. With Wells, you have to make sure it is the bank manager and not a service manager or something you are talking to (I learned that a few months ago). Tell her/him exactly what happened in detail and that you want the credit card closed and the credit inquiry removed from your credit report. Further, say that once all of that is done, you will decide whether to continue banking with them and whether any legal action is appropriate. If they give you any kind of push back, I'd get advice from a lawyer. The truth is they did open an account against your expressed wishes and it required them to check your credit so it does constitute fraud unless they can produce a signed document saying you agreed to the card. Edit: I just saw that this happened about a year ago. It may have been easier if you had done something at the time and may be more difficult if you've used the card in the meantime.","> But I pretty much followed the procedure I was told to, its just I don't know why we wouldn't get the money back. First, you're in the wrong spot. Go to /r/personalfinance. Second, does it *really* make sense that you'd still get paid? If someone stole your wallet and bought something for $100, can you not go to the store and demand your $100? Or do you have to go and find the thief THEN get back *that* item and THEN return it to the store and THEN get your cash back? It's easier both logistically and logically to stop the payment going to the store, and have the store consider it a theft of their merchandise.","The simple answer is that you have to read the terms and conditions when you sign up for a checking account at the bank. The process of fraud investigation varies from bank to bank. Ultimately most banks will refund the money if you are not deemed negligent. Some banks offer quick reimbursement during fraud claims, but many will not refund the money until the investigation is complete (which can take several weeks). Checking accounts are terrible security problems. If you're looking for ways to avoid a hassle, stop writing checks and using ATM/Debit cards. If you must send checks to pay bills, use the bill-pay system that is now common with most banks (they use a service to send checks on your behalf and don't even charge you for postage unless you ask for expedited processing).","Are you sure the payment has actually posted and isn't sitting in a pre-auth status? If it is, it'll fall off in a few days and they're probably telling the truth. If not, and it has fully posted to your account, I agree with the others. It's very appropriate to initiate a chargeback. You can provide documentation showing they confirmed a cancellation, further, you can show proof that they had no intent of charging you. Good luck!","\"As far as the banker himself goes, it's a customer service issue. WF is not going to tell you about their internal discipline (or oughtn't, anyway), other than potentially to confirm that the banker does or does not still work there; that's the closest they should get to telling you about it. I'm a (very) former retail manager, and that's absolutely the most I'd ever do in a case like this; and trust me, even with good customer service reps, you get requests to fire someone a lot, sometimes valid, sometimes not. You did the correct thing from your end: you brought the issue to their attention. Despite the quota, it's (hopefully) not permitted to sign people up without their permission (since that's illegal!), and I can say that in my retail experience, with these promotions with great incentive to cheat in this manner, one of the main things our loss prevention department did was to monitor data to see if people were illicitly signing people up for cards or otherwise cheating the system. That could be a very bad thing from a customer service point of view and from a legal point of view. What you should have done (or possibly did, but it's not clear in your post) is, after you reported the issue, asked for a re-contact on a particular date in the future - not \"\"after you've looked into it\"\", but \"\"Next friday I would like to get a call from you to discuss the resolution.\"\" Again, they're not going to tell you the discipline, but they should tell you at least that they've investigated it and will make sure it doesn't happen again, or similar. It's possible they will want more information from you at this point, and this is a useful way to make sure that request doesn't fall off of their plate. They should be able to, at least, tell you if there was a perceived issue on their end - it might be something meaningless to you, like \"\"He thought you said to sign up\"\", or something more descriptive, like \"\"He pushed the button to send you a notice, but our computer system screwed that up and made it an application\"\". You never know these days how easy it is to screw these things up. Now, they certainly should have fixed the issues on your end. Hopefully they did whatever you needed them to do banking-wise, or else you withdrew your money and went somewhere else. If not, follow up with that supervisor's supervisor, or go up a level or two to a regional director or equivalent. They may not be able to cancel the card for you, but the other banking-related things they certainly should fix. The card you probably just have to cancel and be done with. As far as the misuse of personal information, one thing I'd consider doing is placing a freeze on your credit report. Then this could never have happened - you would have to lift it to have your report pulled to be given the card. This is not free, though, so consider this before doing this.\"","\"The Fair Credit Reporting Act specifies in some detail on pages 50-54 (as labeled in the footer, 55-59 as pages in pdf) the process that occurs when a consumer initiates a dispute. The safe outcome for the reporting agency is to remove the information in dispute from reports within 30 days if the reporting party does not certify the information is complete and accurate (with other statutory timelines for communication to the customer and the reporter). If you initiate a dispute, then the agency is following the law by deleting the reported information, outside new input from the furnisher. If this is unsatisfactory, you have the following statutory right within § 611. Procedure in case of disputed accuracy [15 U.S.C. § 1681i (d) Notification of deletion of disputed information. Following any deletion of information which is found to be inaccurate or whose accuracy can no longer be verified or any notation as to disputed information, the consumer reporting agency shall, at the request of the consumer, furnish notification that the item has been deleted or the statement, codification or summary pursuant to subsection (b) or (c) of this section to any person specifically designated by the consumer who has within two years prior thereto received a consumer report for employment purposes, or within six months prior thereto received a consumer report for any other purpose, which contained the deleted or disputed information. The section that binds furnishers of information (§ 623. Responsibilities of furnishers of information to consumer reporting agencies [15 U.S.C. § 1681s-2], starting on page 78 in the footer) places on them the following specific duties: (B) Reporting information after notice and confirmation of errors. A person shall not furnish information relating to a consumer to any consumer reporting agency if (i) the person has been notified by the consumer, at the address specified by the person for such notices, that specific information is inaccurate; and (ii) the information is, in fact, inaccurate. ... (2) Duty to correct and update information. A person who (A) regularly and in the ordinary course of business furnishes information to one or more consumer reporting agencies about the person’s transactions or experiences with any consumer; and (B) has furnished to a consumer reporting agency information that the person determines is not complete or accurate, shall promptly notify the consumer reporting agency of that determination and provide to the agency any corrections to that information, or any additional information, that is necessary to make the information provided by the person to the agency complete and accurate, and shall not thereafter furnish to the agency any of the information that remains not complete or accurate. So there you have it: they have to stop reporting inaccurate information, and \"\"promptly\"\" notify the credit agency once they've determined what is incomplete or inaccurate. I note no specific statutory timeline for this investigation.\"","As it is international debits, this will take a while. BofA is right, You have to dispute this with Card Issuer, i.e. HDFC. The worst case for me was around 1 month. Keep chasing and sending out reminders every 3-4 days.","So, what's the point of a charge-back, if they simply take the word of the merchant? tl;dr: They don't. As both a merchant and a consumer I have been on both ends of credit card chargebacks, and have received what I consider to be mostly fair outcomes in all cases. Here are some examples: Takeaways from this: I strongly urge all consumers who are considering doing a chargeback to try to work with the merchant first, and use the CC dispute as a last resort. In general, you can think of the credit card dispute department like a judge. They hear the arguments presented by both sides, and consider them to the best of their ability. They don't always get it right, but they make their best attempt given the limited information they are provided.","\"It's very straightforward for an honest vendor to refund the charge, and the transaction only costs him a few pennies at most. If you initiate a chargeback, the merchant is immediately charged an irreversible fee of about $20 simply as an administrative fee. He'll also have to refund the charge if it's reversed. To an honest merchant who would've happily refunded you, it's unfair and hurtful. In any case, now that he's out-of-pocket on the administrative fee, his best bet is to fight the chargeback - since he's already paid for the privilege to fight. Also, a chargeback is a \"\"strike\"\" against the merchant. If his chargeback rate is higher than the norm in his industry, they may raise his fees, or ban him entirely from taking Visa/MC. For a small merchant doing a small volume, a single chargeback can have an impact on his overall chargeback rate. The \"\"threshold of proof\"\" for a chargeback varies by patterns of fraud and the merchant's ability to recover. If you bought something readily fungible to cash - like a gift card, casino chips, concert tickets etc., forget it. Likewise if you already extracted the value (last month's Netflix bill). Credit card chargeback only withdraws a payment method. Your bill is still due and payable. The merchant is within his rights to \"\"dun\"\" you for payment and send you to collections or court. Most merchants don't bother, because they know it'll be a fight, an unpleasant distraction and bad for business. But they'd be within their rights. Working with the merchant to settle the matter is a final resolution.\"","What you are describing here is the opposite of a problem: You're trying to contact a debt-collector to pay them money, but THEY'RE ignoring YOU and won't return your calls! LOL! All joking aside, having 'incidental' charges show up as negative marks on your credit history is an annoyance- thankfully you're not the first to deal with such problems, and there are processes in place to remedy the situation. Contact the credit bureau(s) on which the debt is listed, and file a petition to have it removed from your history. If everything that you say here is true, then it should be relatively easy. Edit: See here for Equifax's dispute resolution process- it sounds like you've already completed the first two steps.","I just had this happen to me with Chase and speaking with my executive support contact, they will not return the funds unless you request them back. Which I find appalling and just one more reason that I don't like working with Chase!","If you are the main account holder I would try contacting your bank directly, some of them have very accommodating services for this kind of thing. You might even consider going in person if you have a local branch, this might just make communicating easier. They will probably go over your recent transactions with you to identify the fraudulent ones. You might do this first by yourself if you have an online account. Once you identify the fraudulent purchases they will probably take a week or two to investigate/process and reimburse you. But do NOT just close the account and forget about it- first off closing an account that is close to $2,000 in debt probably isn't even possible. Second, if you forgot about it for a long time and just let you credit take a hit you could end up really paying for it(in the form of higher interest payments) later in life when you try to get anything financed like car or house or even student loans for college. And make no mistake that can amount to *maaany* thousands of dollars more than you would otherwise pay over the course of a loan. So don't damage your credit if you can avoid it. Long story short, banks have special departments to handle this kind of thing, so work with your bank. See how that goes, if you run into hangups you may need to bring your parents into the loop. Good luck!","No one can say for sure but I'd bet big money they charged you and had a nice chat about you being an asshole... Not saying they're right (lol jk I totally am), just saying they probably did both.","Oh I don't think I have the right to the person's stolen money, I've had this happen before and the CC owner wasn't charged anything and the CC company reimbursed us and we made a report about the thefts. I'm just asking why the situation changed this time around.","Short of canceling the card, you could just report the card as lost and ask for a new card number on the same account. Another option is to just make a note to look for the charge and keep disputing it. It has been a while since I did credit card processing at my business, but I think the company gets dinged if too many customers dispute charges and kicks them into a higher fee schedule with the credit card company.","PayPal will be contacting you shortly, I'm sure. You'll see the reversal on their site in a few days as well as a fee from their end I bet.","\"Personally, I would just dispute this one with your CC. I had a situation where a subscription I had cancelled the prior year was billed to me. I called up to have a refund issued, they couldn't find me in their system under three phone numbers and two addresses. The solution they proposed was \"\"send us your credit card statement with the charge circled,\"\" to which I responded \"\"there's no way in hell I'm sending you my CC statement.\"\" Then I disputed the charge with the CC bank and it was gone about two days later. I partially expect to have the same charge appear next year when they try to renew my non-existent subscription again. Now, whether or not this is a normal practice for the company, or just a call center person making a good-faith but insecure attempt to solve your problem is irrelevant. Fact of the matter is, you tried to resolve this with the merchant and the merchant asked for something that's likely outside the bounds of your CC Terms and Conditions; sending your entire number via email. Dispute it and move on. The dispute process exists for a reason.\"","\"Contact your bank immediately, if you haven't done so already. They will almost certainly have some sort of \"\"fraud hotline\"\" which can take appropriate action.\"","First thing to do when you notice a credit card fraud is to call the respective banks who issues the credit card and most banks immediately (as far as my experience goes - twice) they will cancel the credit card and issue a new card with different number. Your credit card account will remain the same, no effect on credit score as the account is still active, its just the credit card number is changed. If you are more concerned about Identity Theft, there are two further options you can pursue. Place a Fraud Alert : Ask 1 of the 3 credit reporting companies to put a fraud alert on your credit report. They must tell the other 2 companies. An initial fraud alert can make it harder for an identity thief to open more accounts in your name. The alert lasts 90 days but you can renew it. - as per Federal Trade Commission Credit Freeze : If you’re concerned about identity theft, those reported mega-data breaches, or someone gaining access to your credit report without your permission, you might consider placing a credit freeze on your report. - as per Federal Trade Commission","\"I was I a similar position as you, and sometimes credit bureaus might be difficult to deal with, especially when high amounts of money are involved. To make the long story short, someone opened a store credit card under my name and made a charge of around 3k. After reporting this to the bureaus, they did not want to remove the account from my credit report citing that the claim was \"\"frivolous\"\". After filing a police report, the police officer gave me the phone number for the fraud department of this store credit card, and after they investigated, they removed the account from my credit. I would suggest to do the following: Communicating with Creditors and Debt Collectors You have the right to: Stop creditors and debt collectors from reporting fraudulent accounts. After you give them a copy of a valid identity theft report, they may not report fraudulent accounts to the credit reporting companies. Get copies of documents related to the theft of your identity, like transaction records or applications for new accounts. Write to the company that has the documents, and include a copy of your identity theft report. You also can tell the company to give the documents to a specific law enforcement agency. Stop a debt collector from contacting you. In most cases, debt collectors must stop contacting you after you send them a letter telling them to stop. Get written information from a debt collector about a debt, including the name of the creditor and the amount you supposedly owe. If a debt collector contacts you about a debt, request this information in writing. I know that you said that the main problem was that your credit account was combined with another. But there might be a chance that identity theft was involved. If this is the case, and you can prove it, then you might have access to more tools to help you. For example, you can file a report with the FTC, and along with a police report, this can be a powerful tool in stopping these charges. Feel free to go to the identitytheft.gov website for more information.\"","\"I don't know what the legal situation in the US is, but in the UK I would take the bank to court. Your case is simple - you never authorised the transactions, and they have provided no evidence to you that you did. The details of the VISA \"\"zero liability\"\" promise you mention may also be worth quoting as it ought to form part of your contract with the bank.\"","Absolutely nothing will happen. These credit history companies have no scruples and no reason to give a damn about consumers. Every recourse you have to fix inaccuracies in your credit history were won with legislation or litigation. They don't care about you.","I wouldn't lose any sleep on it until it actually happens. I believe generally the agreement of the merchant with the credit card company says they must submit to the company's arbitration. If they come back to you, I would definitely get in touch with Visa to complain. Here's some great advice on dealing with unscrupulous debt collection, the main points being It's actually you that should be threatening to sue them if the repairs were incompetent or dangerous!","fine because the application was declined anyway. No it isn't fine. Credit card applications generally need a hard pull, so get it rectified. Firstly check if an application was really made on your behalf. Some companies use this ploy to pull you into a scheme of making you apply for a credit card. Secondly call up the credit card company and ask them about the details of who had made the application as you haven't done so and inform them that it was a fraudulent application. It might be somebody is using your personal details to do a identity theft in your name. Thirdly get in touch with the credit rating firms and see if a check has been made on your credit report. Dispute it if you see a check in your record and have it removed from your report. If you subscribe to credit agency, get the identity theft protection, helps you in such cases. And finally keep a diligent eye on your credit records from now on. Once bitten, twice shy.","You need to find out if the credit card has been reporting these failed automated payments as late or missed payments to your credit report. To do this, go to annualcreditreport.com (the official site to get your free credit reports) and request your report from all three bureaus. If you see late or missing payments reported for the months where you made a payment but then they did an automatic payment anyway, you should call up the credit card company, explain the situation, and ask them to retract those negative reports. If they refuse, you should dispute the reports directly with the credit bureaus. If they have been reporting late payments even though you have been making the payments, that will impact your credit much more than the fact that they closed your account. Unfortunately, they can turn off your credit account for any reason they like, and there isn't much you can do about that. Find yourself another job as soon as you can, get back on your feet, pay off your debt, and think very carefully before you open another credit card in the future. Don't start a new credit card unless you can ensure that you will pay it off in full every month.","You're not missing anything. Consumer protection in the US is very basic and limited, if at all. So if someone claims you owe them something, it would be really hard for you to prove otherwise unless you actually drag them to court. Especially if there actually was a relationship, and there probably is some paperwork to substantiate the claim. I suggest talking to a consumer issues attorney.","\"I think your confusion comes from the negative impact when a creditor writes off your bad credit and ceases attempting to collect it. \"\"Chargebacks\"\" as you call them are an attempt to undo fraudulent charges on your card, whether from stolen credit card info or from a merchant who is using shady business practices. For what it's worth, if you joined on December 20, January 20 seems like a reasonable date for the next billing cycle, with the December 31 date reflecting the fact that their system couldn't automatically bill you the day you joined. I also think it's reasonable for you to ask them to refund the bill for the second month if you do not plan to use their gym further. So the dispute seems like a reasonable one on both sides. Good luck.\"","You also might want to see what sort of documentation the credit card company has. Companies can get pretty lazy sometimes about recordkeeping; there have been cases where banks tried to foreclose on a property but weren't able to produce documents establishing the mortgage. With your father dead, is there anything other than the credit card company's word that the debt is valid?","Most merchants (also in Europe) are reasonable, and typically are willing to work with you. credit card companies ask if you tried to work with the merchant first, so although they do not enforce it, it should be the first try. I recommend to give it a try and contact them first. If it doesn't work, you can always go to the credit card company and have the charge reversed. None of this has any effect on your credit score (except if you do nothing and then don't pay your credit card bill). For the future: when a transaction supposedly 'doesn't go through', have them write this on the receipt and give it to you. Only then pay cash. I am travelling 100+ days a year in Europe, using my US credit cards all the time, and there were never any issues - this is not a common problem.","Visa, Mastercard have very strong consumer protection. I have been wondering about this question for a while but never got around to asking it here: What happens if a retailer knowingly defrauds me? My guess is the first party to ask for help is Visa, Mastercard: a retailer knowingly defrauding you is unlikely to refund you any money. However, slip-ups do happen. If this is a retailer of good repute, they will not only refund you the money but send you a gift card too! Please do followup this post with what helped you in the end, but my guess is, your first (and last) line of defense would be Visa, Mastercard. Anything that would go through the bank would take such a lot of time and effort, that you would be better off writing it off.","Generally when items go to collection you will receive a letter in the mail not an email. You can try to dispute the charge with the credit companies (TransUnion, Equifax, and Experian) showing that the charge came after you left the country. Like the answer above me said, disputing it may cause the 7 year clock to restart which leaves it on your account longer. It may just be simpler to try to improve your credit score instead. You can check your credit score as often as you want using Credit Karma online or on your phone.","All three credit bureaus allow you to file a dispute online. Some allow you to upload documentation at the same time, others will ask you to mail it to them. Send them the letter you got from your bank, they will then return to the collection company. For $300.00 most likely they will not pursue it any further and the credit bureaus will delete the entry from your file. If the collection company want to make a case out of it they will have to view to cost of trying to get a Court Judgment against the value of the amount they are claiming. Almost certainly they will view at not cost effective and your credit rating will return to where it was prior to the negative impact","If you tell the collector that the claim isn't valid, they're obliged to go back to the creditor to verify it. Sometimes that gets a real person, instead of their automatic billing system, to look at the claim, and if you're right, they'll drop it.","In the end, I was not required to pay the fee. After some frustrating initial attempts, I ended up writing a letter and sending a copy to card services, customer support, complaints and the legal department. It basically said: 1 - I never signed anything. 2 - I spoke to a very aggressive person at the airport who told me that she was just taking down my information in order to send information about the card, and that I was under no obligation 3 - I never received a card, activated a card, or used a card. 4 - I want this charge canceled immediately 5 - If this ever shows up on my credit report, I will contact my lawyer regarding this unscrupulous business practice. After that I received a notice in the mail confirming that everything had been cancelled and all charges were reversed.","When in doubt, call (the card issuer) and ask. Ask if you overpay your current bill if the overpayment becomes available credit and tell them why you are asking. It can go either way.","With a check, there are limits on cashing the stale check, but that is set by the banks involved. With a debit card transaction, it will be up the the debit card company and your bank. Imagine a situation where a person finds an old check and tries to cash it at their bank. If the bank considers the check stale, they might reject it, or put a longer hold on the check. When the check writers bank gets the transaction, they will also decide what to do. If they reject it, the first bank will reverse the transaction. You can't count on a 90 day, or 180 day limit; most banks will ask you to put a stop payment on an old check that you don't want cashed. This is especially important step if you write a replacement check. Because there is no check number to put a stop payment on, in fact the temporary hold will fall off after a few days. There doesn't appear to be a way to stop an old transaction. Be careful if you do contact the restaurant, you could end up double paying for the meal if they swipe your card again. Your best option may be just to keep the transaction as pending.","Obviously, the credit card's administators know who this charge was submitted by. Contact them, tell them that you don't recognize the charge, and ask them to tell you who it was from. If they can't or won't, tell them you suspect fraud and want it charged back, then wait to see who contacts you to complain that the payment was cancelled. Note that you should charge back any charge you firmly believe is an error, if attempts to resolve it with the company aren't working. Also note that if you really ghink this is fraud, you should contact your bank and ask them to issue a new card number. Standard procedures exist. Use them when appropriate.","I went to the bank with my friends and told them that I saw the money in my account, that it's not mine, and that they should investigate and send it back to wherever it came from Right thing to do. Did you give this in writing? Do you have a stamped copy of the letter from Bank that they accepted your complaint? he has been calling with different phone number threatening me, saying that he will kill me, he will make sure I don't return to my country alive, and all. Lodge a formal police complaint. And also I have not heard from the bank at all. What should I do? Ensure that all your communication and follow-up is in writing. Even email is fine. But periodically send this via certified post with tracking number. Even when you call up the bank, keep a track of calls. After a day or two, send a email saying further to calls 1, calls 2, calls 3 etc you are still awaiting a response from Bank. Even after face to face visits, record all your follow-up and periodically send via email and after few email take a print of everything [even if its 10 pages] and send via certified mail. The reason it is very important to have a written trail is if things go wrong, Law enforcement can accuse you to be part of fraud/scam. It will be difficult to establish you were the one who complained about it. If not too difficult, change you phone numbers. Yes definitely open the new Bank Account; and don't give this to a random stranger on Internet.","Yes. For $15 it's not worth anyone's time to dig deep just for this specific occurrence. What you should do, however, is keep an eye on your credit card bills and accounts and watch for any other suspicious activity. It is possible that your number was stolen somehow and someone is using it fraudulently, so you want to be on the lookout in case they try to use it again. However, your credit card company is going to be much, much better than you at detecting patterns of fraud, which is why you should leave it to them unless and until you actually see more suspicious activity.","I would presume this goes entirely through the credit card network rather than the banking network. I am guessing that it's essentially the same operation as if you had returned something purchased on a card to the store for credit, but I'm not sure whether it really looks like a vendor credit to the network or if it is marked as a different type of transaction.","You should talk to your bank and explain what happened. Your bank may contact vendor bank to discuss the account, but really that is up to them. Then you should contact your police department and report the fraud. Realistically, your chances of recovering any money is negligible. I think your best chance is convincing your bank to work with vendor bank on a reversal(if it was a domestic transfer), although it is more likely that the vendor bank account is already empty and closed.","\"Use with moderation. Powerful stuff. Your caller could be an offshore scammer too. Summarizing from http://www.creditinfocenter.com/rebuild/debt-validation.shtml: You can dispute the debt, and demand that the collector give you the name and address of the original creditor and show that it isn't past the statute of limitations. If they can't \"\"validate\"\" the debt by providing that info, in writing, they must drop it until they can do so. You can sue (though generally not for very much) if they don't. You may have to make this request in writing, so it has a paper trail. A valid verification respond must include: If they don't respond within 30 days, they are in violation of the Fair Credit Reporting Act (FDCPA section 809b), and you can send registered mail threatening them with a lawsuit if they don't immediately drop it and remove it from your credit report. They should respond to that within two weeks, and if they don't have darned good evidence will probably cave. If they can prove you do owe the money ... Well, you can hope they aren't licensed to collect in your state; if they aren't you can try to challenge them on that basis. Unlikely to work. If they agree, remember to send a copy of the letter to the credit reporting agencies to make sure it's taken off your record. If this isn't enough to resolve it, you'll probably need to bring suit. That's another long list of steps; I'm going to refer you to the linked site rather than summarize them here since at that point you should get a lawyer involved to make sure it's done promptly.\"","But this isn't cash though, its credit card. They'll just chargeback and we have to now report it to the police for stolen items. But we followed the general procedure, and the thieves had the pin of the CC which is why I'm a bit confused. Now we still have to verify the signature, but if the signature ends up being right should we get the money back? Because at this point the CC holder should be a lot more responsible about the CC and other people shouldn't know their PIN. If anything the signature is understandable cause you can just forge it since its in the back of the card.","Send a well-documented payment to the original creditor. Do it in such a way that you would have the ability to prove that you sent a payment if they reject it. Should they reject it, demonstrate that to the credit reporting bureaus.","Yes, they're referring to the credit card dispute (chargeback) process. In the case of dispute, credit card company will refund/freeze your charge so you don't have to pay until the dispute is resolved (or at all, if resolved in your favor). If the dispute is resolved in your favor, your credit card company will charge back the merchant's service provider which in turn will charge back (if it can) the merchant itself. So the one taking the most risk in this scenario is the merchant provider, this is why merchants that are high risk pay significantly higher fees or get dropped.","\"A bona-fide company never needs your credit card details, certainly not your 3-digit-on-back-of-card #, to issue a refund. On an older charge, they might have to work with their merchant provider. But they should be able to do it within the credit card handling system, and in fact are required to. Asking for details via email doesn't pass the \"\"sniff test\"\" either. To get a credit card merchant account, a company needs to go through a security assessment process called PCI-DSS. Security gets drummed into you pretty good. Of course they could be using one of the dumbed-down services like Square, but those services make refunds ridiculously easy. How did you come to be corresponding on this email address? Did they initially contact you? Did you find it on a third party website? Some of those are fraudulent and many others, like Yelp, it's very easy to insert false contact information for a business. Consumer forums, even moreso. You might take another swing at finding a proper contact for the company. Stop asking for a cheque. That also circumvents the credit card system. And obviously a scammer won't send a check... at least not one you'd want! If all else fails: call your bank and tell them you want to do a chargeback on that transaction. This is where the bank intervenes to reverse the charge. It's rather straightforward (especially if the merchant has agreed in principle to a refund) but requires some paperwork or e-paperwork. Don't chargeback lightly. Don't use it casually or out of laziness or unwillingness to speak with the merchant, e.g. to cancel an order. The bank charges the merchant a $20 or larger investigation fee, separate from the refund. Each chargeback is also a \"\"strike\"\"; too many \"\"strikes\"\" and the merchant is barred from taking credit cards. It's serious business. As a merchant, I would never send a cheque to an angry customer. Because if I did, they'd cash the cheque and still do a chargeback, so then I'd be out the money twice, plus the investigation fee to boot.\"","Open a dispute for the preauth. It is effectively a double charge, since you have already paid for the item. You can provide evidence of the other transaction. This forces them to go through some hassle and waste some time on the issue.","\"My experiment has concluded, with the same exact result that Aganju told me to expect. Just pulled Equifax report on CreditKarma, and confirmed that my bank reported the balance as $0. I expect that TransUnion will be the same; I'll update if it's different (evidently TU is still behind on the updates from my bank; I'll check again next week.) Regarding my score: I went from 1.333% card utilization to 0%, but my \"\"VantageScore 3.0\"\" did not change at all; not even by one point.\"","Unfortunately, this is a customer service issue. The bank has a set of term and conditions (Ts and Cs) which you received with the card or when you applied. It included your limit, and what happens when you go over, likely, a penalty for going over the limit. At the very least, they expect you to pay the overage or you'll see an over-limit charge next cycle too. In the future, I'd suggest checking your account on line to monitor your balance. Some accounts offer an alert email, mine will let me set an alert for when my balance goes over $xxx, which is helpful, as I can send in an early payment to bring that balance down. It still never hurts to ask. They might waive fees if any, if this is your first time. You can still try calling them, explain the odd timing, and see if you can get a temporary increase in credit line. In the end, you need to review your finances. Carrying balances month to month at 12-18% is no way to have a successful financial future. It's one of the first things to getting your situation under control. After that, a small savings account, an emergency fund, is the next step. One month of charges should never put you in this bad situation.","You should start a dispute with the credit card company, and they might be able to recover some/all of the money. Usually, if you act fast enough, credit companies (on the merchant's side) have enough of the deposits not yet disbursed to the merchant, and they'll just reverse the charge. The earlier you start the process - the more chances you have. Otherwise you'll have to sue, I'm not familiar with the Canadian legal system.","Have you signed anything? If not - then tell them you don't know who they are and have not agreed to pay. If you did sign that piece of paper at the airport, then you have probably agreed to pay. Either way, it won't go away. As you've already discovered, ignoring things doesn't make them go away. You should make an effort, as hard as it may be, and call them. Notify them that you have never asked for this card, never activated it, and in fact never had it in your possession. You should stress out that it was issued without your authorization, which is probably illegal. And you wish the account to be closed and the charge reversed. Otherwise it will just grow and make your life miserable.","\"Step 1. Log onto chase.com Step 2. Click on the account in question Step 3. Add \"\"Outstanding balance\"\" to \"\"Pending charges\"\" Step 4. Pay said total amount With all the energy you spent trying to find out if they're doing something illegal, you could've resolved the original issue yourself and be done with it.\"","They will credit your account and it will be applied to future purchases. If the credit card is not used for several months, they will send you a check or transfer it to your bank account. Some people on this site have actually considered sending money to the credit card company in advance, so that the amount that can be charged is temporarily inflated. Keep in mind they will eventually refund the money. Plus you will not earn interest on the refund.","\"Yes, you should contact the bank and report it. They will eventually \"\"find\"\" that money if it's not yours. You better get it over with rather than having more surprises later.\"","\"I don't know the details of whether or not you should pay this money, or who is at fault. But clearly, you believe that you do not owe the money, and the bank investigation seems to agree with you, since they gave you your money back. Since you have your money, and they haven't sued you, the only issue yet remaining is your credit report. Here is what I would suggest. First, make sure you check all three credit reports, to see which reports the collection appears on. Then dispute the report with each credit bureau reporting the problem. There is an article on CreditKarma that explains the process. When you file your dispute with the credit bureau(s), they will investigate. This usually involves asking the creditor for proof of the debt, and if you didn't sign anything, they probably won't have any proof. Hopefully, the credit bureaus will come to the same conclusion as the bank did, and remove the collection from your credit reports. In my opinion, it doesn't make sense to pay them now, if you don't believe you owe it. Paying them won't remove all the bad stuff from your credit report (but it will improve it), and you don't want to pay them and then immediately sue them. If, however, the credit bureaus side with the landlord and leave this on your report, paying the $300 is better on your report than leaving the \"\"unpaid debt\"\" on there.\"","\"First of all, whatever you do, DON'T PAY! Credit reporting agencies operate on aged records, and paying it now will most certainly not improve your score. For example, let's say that you had an unpaid debt that was reported as a \"\"charge-off\"\" to the credit bureaus. After, say, six months, the negative effect on your score is reduced. It is reduced even further after a year or two, and after two years, the negative effect on your score is negligible. Now, say you were to pay the debt after the two years. This would \"\"refresh\"\" the record, and show as a \"\"paid charge-off\"\". Sure, now it shows as paid, but it also shows the date of the record as being today, which increases the effect on your credit drastically. In other words, you would have just shot yourself in the foot, big-time. As others have noted, the best option is to dispute the item. If, for some reason, it isn't removed, you are allowed to submit an annotation to the item, explaining your side of the story. Anyone pulling your credit record would see this note, which can help you in some instances. In any case, these scam artists don't deserve your money. Finally, you should check who is the local ombusdman, and report this agent to them. She could lose her license for such a practice.\"","Where do I stand with this? The money was not your's. So co-operate with the bank to get this sent back ASAP. It is good that the equipment is still with you. Yes Bank would need evidence that you were a victim and not party to this crime. Co-operate with the relevant authorities and get this resolved. It is a lesson learnt where luckily no money was lost, but quite a bit of hassle and personal time lost.","I found a german article describing the legal situation in Germany. To summarize As outlined by the many possible reasons in the other answer, it is unclear from the information I have, whether condition 1 holds. Also condition 2 may not hold since the credit card was frozen. I suppose this makes a good argument to MasterCard and my bank, but I also suspect they will not care unless it comes with a attorney letterhead.","This can be a case of someone trying to use your identity to obtain credit. I would put a fraud alert on my credit immediately. I went through something similar... got denial letters for credit I didn't apply to. A few months later I get hit with a credit ding from a pay day loan company that apparently allowed the thief to get a loan who obviously didn't pay it back. I had no contact with this company before they put the lates on my credit and it took over a year to get this cleaned up. Apparently this loan was obtained about a week after I got the first denial letter so if I put a fraud alert on immediately it would have most likely stopped this fraudulent pay day loan before it happened.","The best way is to either file a dispute (or threaten to) with their regulator. They do NOT need negative attention from a bank regulator, so it should get their attention if you show that you are aware of and willing to contact them. They take this extremely seriously. You can figure out who the regulator is using this helpful page on the Office of Comptroller of Currency's (OCC) website. If the OCC itself regulates the bank you can file a dispute using this web page.","Request verification in writing of the debt. They are required to provide this by law. Keep this for your records. Send them a notice by certified mail stating that this is not your debt and not to contact you again. Indicate that you will take legal action if they continue to try and collect. Keep a log of if/when they continue to call or harass you. Contact counsel about your rights under the fair debt collection laws, but if they keep harassing you after being provided proof of your identity, they are liable. You could win a judgement in court if you have proof of bad behavior. If your identity is stolen, you are not legally responsible for the charges. However it is a mess to clean up, so pull your credit reports and review your accounts to be sure.","I believe it is so. It doesn't sound like they did anything outright illegal, just a pushy upsell. You can complain to the bank manager. If you want you can mention the employee by name (if you know who they are). Ultimately, you can change banks. From what you say it sounds like you are dissatisfied with this bank, so I think you should at least begin evaluating other banks and consider switching. You can also let your current bank know you are planning to take all your money away from them specifically because of their poor customer service. You could consider filing a complaint with the Consumer Financial Protection Bureau alleging that the bank engaged in some kind of deceptive marketing of their financial products. Of course you can also file a complaint with something like the Better Business Bureau, or even just write a negative Yelp review. But these actions won't really result in any penalty for the bank as a result of what they did in your specific case; they just express your dissatisfaction in a way that will be recorded and possibly made public (e.g., in a list of complaints) to protect future consumers. If you're really gung-ho and have time and money to burn, you could hire a lawyer and get legal advice about whether it is possible to sue the bank for fraud or misuse of your personal information. Needless to say, I think this would be overkill for this situation. I would just cancel the credit card, tell the bank you're dissatisfied, switch banks, and move on.","\"To answer the heart of your question, it would be illegal for any credit bureau or creditor to somehow \"\"penalize\"\" you just for trying to make sure that what's being reported about you is accurate. That's why the Fair Credit Reporting Act exists -- that's where the rights (and mechanisms) come from for letting you learn about and request accurate reporting of your credit history. Every creditor is responsible for reporting its own data to the bureaus, using the format provided by those bureaus for doing so. A creditor may not provide all of the information that can be reported, and it may not report information in as timely a manner as it could or should (e.g., payments made may not show up for weeks or even months after they were made, etc.). The bottom line is that the credit bureaus are not arbiters of the data they report. They simply report. They don't draw conclusions, they don't make decisions on what data to report. If a creditor provides data that is within the parameters of what the bureaus ask to be provided, then the bureaus report precisely that -- nothing more, nothing less. If there is an inaccuracy or mistake on your report, it is the fault (and responsibility) of the creditor, and it is therefore up to the creditor to correct it once it has been brought to their attention. Federal laws spell out the process that the bureau has to comply with when you file a dispute, and there are strict standards requiring the creditor to promptly verify valid information or remove anything which is not correct. The credit bureaus are simply automated clearinghouses for the information provided by the creditors who choose to subscribe to each bureau's system. A creditor can choose which (or none) of the bureaus they wish to report to, which is why some accounts show on one bureau's report on you but not another's. What I caution is, just because a credit bureaus reports on your credit doesn't mean they have anything to do with the accuracy or detail of what is being reported. That's up to the creditors.\"","Your simplest option, and probably the only reasonable one, is to dispute the original charge with your bank. Since you used a debit card and not a credit card, you don't have quite as much protection, but you still can dispute the charge and ask your bank to step in and help. See this debit card dispute article for more information on disputing a charge for a debit card. You may or may not have a case here, depending on the specifics. If the merchant accepted your payment without letting you know you should have used paypal, you may have a shot at getting the full refund; but if it was clearly labelled that you should have used paypal, it may be harder.","Run your credit reports for the 3 major agencies to find out which of them have the debt was reported on and initiate the dispute process with each agency that reports the invalid debt. This will cause the person who put it on the report to either prove that it is valid or remove it from your report. Ignoring debt collector calls is not a good option, regardless of whether the debt is valid. They obviously think the debt is yours so their response is naturally to put it on your credit report. In most cases it is a good idea to respond in writing that it is not your debt. I doubt you have much recourse against the creditor. For one thing they DID try to contact you and you dodged them. That is not their fault. Secondly, it is unlikely you would prevail unless you could prove that they maliciously put false information on your credit or through gross incompetence did so. More likely is that they are mismatching you to a debt from someone with a similar name, or there is an accounting error somewhere. Or possibly you owe the debt and no one ever sent you a bill. It happens with medical bills all the time.","\"You should dispute the transaction with the credit card. Describe the story and attach the cash payment receipt, and dispute it as a duplicate charge. There will be no impact on your score, but if you don't have the cash receipt or any other proof of the alternative payment - it's your word against the merchant, and he has proof that you actually used your card there. So worst case - you just paid twice. If you dispute the charge and it is accepted - the merchant will pay a penalty. If it is not accepted - you may pay the penalty (on top of the original charge, depending on your credit card issuer - some charge for \"\"frivolous\"\" charge backs). It will take several more years for either the European merchants to learn how to deal with the US half-baked chip cards, or the American banks to start issue proper chip-and-PIN card as everywhere else. Either way, until then - if the merchant doesn't know how to handle signatures with the American credit cards - just don't use them. Pay cash. Given the controversy in the comments - my intention was not to say \"\"no, don't talk to the merchant\"\". From the description of the situation it didn't strike me as the merchant would even bother to consider the situation. A less than honest merchant knows that you have no leverage, and since you're a tourist and will probably not be returning there anyway - what's the worst you can do to them? A bad yelp review? You can definitely get in touch with the merchant and ask for a refund, but I would not expect much to come out from that.\"","This shows the impact of the inquiries. It's from Credit Karma, and reflects my inquiries over the past two years. In my case, I refinanced 2 properties and the hit is after this fact, so my score at 766 is lower than when approved. You can go to Credit Karma and see how your score was impacted. If in fact the first inquiry did this, you have cause for action. In court, you get more attention by having sufficient specific data to support your claim, including your exact damages.","\"To answer your question as clarified in a comment: All I wanted to know what will happen if I enter my debit card number in the sixteen digit account number they offer on the application for balance transfer. That's all. Almost certainly (subject to the particular terms and conditions of the offer), no money will move, the only question is exactly when and how they will say no. If you do it online, and their system is clever enough to look up the IIN (the first six digits) of the card number you enter, their system might learn straight away that you have entered a debit card number (eg a card starting 431940 is a Bank of Ireland debit card). Otherwise, you'll have to wait until the request goes to their back office system, which will eventually lead to the card issuer's system being contacted, at which point it will become clear that it's a debit card, and your transfer request will be refused at that point. That said, some credit card companies do offer a \"\"Money Transfer\"\" aka \"\"Super Balance Transfer\"\", which is an offer to transfer money directly into a bank account, putting the resulting debt on the credit card. I've never seen these offered without having to call a service centre and talk to a person, though, presumably so that they can check that the details they have for you (about income etc) are still correct.\"","\"You need to talk to your bank. If you're unable to contact your bank until Monday, then wait until Monday. Don't fixate on the idea that the transaction may \"\"hard post\"\" on Monday. If it happens, it happens, but it's not the end of the world. Even if the transaction posts, it's not the end of the world. If the retailer is legit, they will refund your money, although it may take some time for things to get sorted out. Even if the transaction posts and the retailer is not legit, it's still not the end of the world. Your bank may help you in trying to recover the funds. That's why you need to talk to your bank. As you have realized, blindly calling the number in the email is not a good idea, because if it's fake, you're calling the scammers. Instead, what you should do is try to contact your bank through known trusted channels. That is, look on your bank's website. Do they have a phone number listed for fraud reporting or related inquiries? Is it the same number you see in the email? If so, you can call it. If it is not the same number, but the number on your bank's website is a 24-hour number, you can call them at that number and tell them the situation. Based on what you've described, my own guess would be that the retailer is legit, but that the unusual large transaction was flagged by your bank as potentially fraudulent, which is why you got the email. The fact that you happened to get the email just after canceling the order could be a coincidence. This is especially true if all this happened in a short time. Information about these transactions can't be transmitted and analyzed instantaneously, nor can emails be sent instantaneously; there may have been a delay in sending the email so it only arrived after the cancellation. As far as your worries about how \"\"enfact\"\" got your info, it is likely a fraud-detection service used by your bank. Doing a bit of googling reveals that it appears to be a legit service, but there have also been instances of phishing attacks using faked \"\"enfact\"\" emails. However, from what I see, these worked by trying to get you to click on a link, not call a phone number. Also, if a scammer is able to send you a scam email that includes your actual order details, that's not a phish, it's an outright hack. In that case the bank and/or retailer (whichever was hacked) would certainly want to know about it and would likely fall all over themselves trying to refund your money to avoid negative PR.\"","\"Banks have a financial, and regulational duty called \"\"Know your customer\"\", established to avoid a number of historical problems occurring again, such as money laundering, terrorism financing, fraud, etc. Thanks to the scale, and scope of the problem (millions of customers, billions of transactions a day), the way they're handling this usually involves fuzzy logics matching, looking for irregular patterns, problem escalation, and other warning signs. When exceeding some pre-set limit, these signal clues are then filtered, and passed on for human inspection. Needless to say, these algorithms are not perfect, although, thanks to financial pressure, they are improving. In order to understand why your trading account has been suspended, it's useful to look at the incentives: false positives -suspending your trade, and assuming you guilty until proven otherwise- could cost them merely your LTV (lifetime value of customer -how much your business brings in as profit); while false negatives -not catching you while engaging in activities listed above- might cost them multi-month investigations, penalties, and court. Ultimately, this isn't against you. I've been with the bank for 15 years and the money in the accounts has been very slowly accumulated via direct-deposit paychecks over that time. From this I gather the most likely explanation, is that you've hit somekind of account threshold, that the average credit-happy customers usually do not exceed, which triggered a routine checkup. How do you deal with it? Practice puppetry! There is only one way to survive angry customers emotionally: you have to realize that they’re not angry at you; they’re angry at your business, and you just happen to be a convenient representative of that business. And since they’re treating you like a puppet, an iconic stand-in for the real business, you need to treat yourself as a puppet, too. Pretend you’re a puppeteer. The customer is yelling at the puppet. They’re not yelling at you. They’re angry with the puppet. Your job is to figure out, “gosh, what can I make the puppet say that will make this person a happy customer?” In an investigation case, go with boredom: The puppet doesn't care, have no feelings, and is eternally patient. Figure out what are the most likely words that will have the matter \"\"mentally resolved\"\" from the investigator's point of view, tell them what they have to hear, and you'll have case closed in no time. Hope this helps.\"","\"A day or so later I get an email from the mattress company where the rep informs me that they will need to issue me a paper check for the full amount and that I would have to contact Affirm to stop charging me. To which I rapidly answered \"\"Please confirm that with Affirm prior to mailing anything out. On my end the loan was cancelled.\"\" To which the rep replied \"\"confirmed. It has been cancelled.\"\" I think your communication could have been more explicit mentioning that not only was the loan cancelled, you got your initial payments. You have not paid for the mattress. The refund if any should go to Affirm. The Rep has only confirmed that loan has been cancelled. at what point, if any, am i free to use this money? I was planning to just let it sit there until the shoe drops and just returning. But for how long is too long? Sooner or later the error would get realized and you would have to pay this back.\"","\"Your bank will undoubtedly charge you a fee for the \"\"chargeback\"\" and so while you will get your money back faster, you will likely end up with less than you would if you were not so impatient and just waited a few days for the refund to show up. I suppose it depends on whether you consider this a downside or not.\"","\"This is somewhat unbelievable. I mean if you had a business of collecting debts, wouldn't you want to collect said debts? Rather than attempting to browbeat people with these delinquent debts into paying, you have someone volunteering to pay. Would you want to service that client? This would not happen in just about any other industry, but such is the lunacy of debt collecting. The big question is why do you need this cleared off your credit? If it is just for a credit score, it probably is not as important as your more recent entries. I would just wait it out, until 7 years has passed, and you can then write the reporting agencies to remove it from your credit. If you are attempting to buy a home or similarly large purpose and the mortgage company is insisting that you deal with this, then I would do the following: Write the company to address the issue. This has to be certified/return receipt requested. If they respond, pay it and insist that it be marked as paid in full on your credit. I would do this with a money order or cashiers check. Done. Dispute the charge with the credit reporting agencies, providing the documentation of no response. This should remove the item from your credit. Provide this documentation to the mortgage broker. This should remove any hangup they might have. Optional: Sue the company in small claims court. This will take a bit of time and money, but it should yield a profit. There was a post on here a few days ago about how to do this. Make part of any settlement to have your name cleared of the debt. It is counterproductive to fall into the trap of the pursuit of a perfect credit score. A person with a 750 often receives the same rate options as a person with 850. Also your relationship with a particular lender could trump your credit score. Currently I am \"\"enjoying\"\" the highest credit score of my life, over 820. Do you know how I did it? I got out of debt (including paying off the mortgage) and I have no intentions of ever going into debt for anything. So why does it matter? It is a bit ridiculous.\"","When you initiate a chargeback, the merchant has the right to dispute the chargeback. If they can provide proof that the purchase actually took place, the chargeback will fail. We don't know all the details of your situation, of course, but it appears from what you have said that the tax chain probably has documents that you signed agreeing to the charges. They prepared your return (even if they did a poor job), and so from their perspective, they have decided that they deserve to be paid. Whether or not they did a good job is a matter of opinion, of course; their position might be that they did it correctly, and the second business did it poorly. The chargeback is a powerful tool, but it is not a magic button that makes a charge disappear. If the merchant can show that a sale did indeed take place and show that the proper amount was charged, the chargeback will fail. For a service, it isn't enough usually to simply state that you were unsatisfied; if you received the service at the agreed-upon price, the charge is valid. A chargeback is sort of a nuclear option when it comes to getting a refund. There are negative ramifications and expenses every time a merchant gets a chargeback (even if they ultimately win), and so often they will be willing to work something out to avoid a chargeback. You should go to the merchant first, if you can, and ask for a refund before considering the chargeback option. If you file a chargeback without even giving them the opportunity to work it out with you, the merchant will usually want to fight back.","\"I have some experience with this. I have had fraudulent charges appear on my credit card statement and had to change my card number several times, despite (I believe) no carelessness on my part. Every time that this has happened, I have never lost a penny due to fraud on my credit card. The bank has ultimately removed the fraudulent charges in every instance. Given this, you'd think the consumer doesn't need to worry about this at all. But it seems like credit card companies beg to differ. Yes, because although I have never lost a penny to fraud, the bank (or the merchant) loses money every time it happens. The $0 liability protects you; the card security measures protect the bank. But... why should a consumer ever bother worrying about these in the first place, when he knows he legally can't be held responsible for fraudulent charges? What exactly is this new \"\"peace of mind\"\" that he supposedly gets by (say) using features like virtual account numbers that he doesn't already have? Although you shouldn't end up out any money when this happens, it is an inconvenience. The bank will cancel your card and issue you a new number. It may take a few days for you to receive your new card. If you have another card to use, this isn't a big deal. If you are out of state the day before you need to check out of a hotel and return a rental car with no backup credit card (as I have been), it is a big deal. (In my case, I had to have the credit card company talk to the hotel to give them the new card number, and they were able to overnight me a new credit card so I could get home. I now make sure I carry a backup credit card.) Should a consumer put any effort into worrying about this at all? (Why?) In my opinion, it makes sense to be careful what you do with your credit card number, if only to avoid the inconvenience. Don't type your credit card number into an e-mail message, for example, and only use it on websites that you trust. That having been said, it is not worth it to be paranoid about it, either. No matter how careful you are, eventually you will probably use it at a store that gets hacked, or your card will get skimmed somewhere, and you'll need to get a new credit card number. The best way to protect yourself is to make sure that you go over your credit card statement each month and look for any fraudulent charges that the bank didn't catch.\"","JohnFx is right: banks hate visits and attention from the regulator (both positive and negative). I would not threaten to file, just file away and let them get in contact with you. The local branch is stalling you. Do not play their game. Since you already went through the first level of support (local branch, phone support), get the bank ombudsman contact and file a complain. It is a major bank, most of the time getting a high level complain will be routed from the upside down through their structure, and hit them. Remember I said they are stalling you? Probably something went wrong, and they are buying time to try and fix it. Also it is worth noting that the ombudsman is usually a line of support above the phone customer support. If going through the ombudsman does not work and/or if you are not willing to wait anymore, file a complain with the government central bank, or similiar institution (trying to be broad here, even if you tagged USA - JohnFx has the link in his answer for the USA's regulator). You can even file a small claims lawsuit, though I do not know the cost of doing it in the USA (in my country small claims court is free for private citizens). Do not report your money as stolen; banks are bureaucratic institutions by nature, and they can silver tongue out of this claim.","If this is a pre-authorized automatic billing, and if you have signed any contract with the merchant, cancelling may not block any future charges from the merchant. Happens with gyms, magazines, memberships quite often. There is a time period after the cancellation this will occur, then it'll be completely dead.","\"Concealing parts of a document in order to obtain a signature is illegal. The company committed signature forgery because they effectively modified the document after you signed it (i.e. unfolded the parts that were previously folded). I suggest that you go to your local police department to file a report, citing \"\"signature forgery\"\". Once you have the police report, call your bank's fraud department (not the general billing dispute line) and cite the police report right away, specifically calling out \"\"signature forgery\"\". I would be surprised if you don't get a favorable outcome.\"","\"Why would you consider it null and void? It might be that something went wrong and the business \"\"lost\"\" the transaction one way or another. It might be something else. It might never appear. It might appear. In one of the questions a while ago someone posted a link of a story where an account was overdrawn because of a forgotten debit card charge that resurfaced months later. Can't find the link right now, but it can definitely happen.\"","Sorry to hear about this happening to you. You should file a lawsuit in small claims court and get a judgement. Unfortunately, you are probably one of many creditors, and are unlikely to get much, if any, money back.","Generally if there are enough details, they would match this up with your loan account and pass appropriate credit. The worst that can happen is; In either case, watch your Loan account statement and it should show you the credit. If this does not then ask the company and they should be able to trace it and rectify. Under no scenario you would lose money.","Of course, as a 'good' person (or maybe a 'stupid' person), I should call them, (wait 30 minutes in the queue), and then try to explain the issue to the service desk. I actually did that, and the guy thought I am nuts to even call, and told me to 'just use them they are yours now'. I don't feel like calling again and again until I get someone that believes it, just to return them their points. Calling generally does not solve this problem. You would need to write a letter using certified mail and send some reminders. Hopefully they should notice it, if not you at least have evidence that you have communicated. I could just toss the card and forget about it. However, I had quite some points on it that really belong to me, so that feels like I pay for their fault. There is no need. You can continue to use the card as usual. Use them and play stupid. This is not a good idea. They are clearly not yours. Somewhere in Terms and Conditions you will find some fine print about notifying Bank/Financial Institution about the errors. Best course, after intimating informing them via letters, keep using your card as normal and use your points as normal. You would roughly know your points balance.","I would expect so--the block from spending funds probably does not put a block in place for receiving funds. But ask your bank. Expect a 50% chance that they give you the wrong answer. (Some banks are better than others, but on average this is how often I have found bank employees to be incorrect about anything nonstandard). It may help to ask the bank how often it happens and who actually sorts out problems with blocked cards--and then talk to that person. Then you should only expect a 25% chance that they are wrong.","Things are generally fine. A credit balance is not a horrible thing. The argument against maintaining a credit balance is that you are essentially loaning the credit card issuer money at 0% interest. You probably have alternative investments that would pay better interest, so it's usually better to park your money there. All that said, it's unlikely that the interest on whatever balance you have is enough to be more than pennies. The way that a credit card works, you run up a balance in one period. Then there is a grace period. If you don't pay off the balance during the grace period, they start charging you interest. You also may have a minimum payment to make. If you don't make that payment, they'll charge you a late fee. The typical period to rack up charges is from the first to the last day of a month. The typical grace period is through the 20th or 25th of the next month. Your card may be different. So check the documentation (user agreement) for your card if you want the real data. It sounds like you paid off some purchases while you were still in the period where you rack up charges. While those purchases were posted to the account, they may not be counted in the balance calculation. If your credit balance exactly matches the payment you made, that's probably what happened. It's also possible that you overpaid the balance. If your credit balance is just a small amount, that's probably what happened. If you really want to be sure, you should call the credit card issuer and ask them. At best we can tell you how it normally works. Since this is your first month, you could just wait for your first bill and respond to that. So long as you pay off the entire balance shown there by the deadline, everything should be fine. Don't wait until the last day to pay. It's usually best to pay a week or so early so as to leave time for the mail to deliver the check and for them to process it. You can wait longer for an online payment, but a few business days early to give you a chance to handle potential problems is still good.","The answer is - the money got bounced back to their account :(","Call your bank and inquire if they send out the kinds of notices like the one you received. Don't call the number in the message, because if it is a scam, you're calling the scammers themselves, more than likely. Be very cautious about this situation, and if your bank is local then it might not hurt to pay a visit to a local branch to talk to someone in person. Print out the message(s) you receive to show them and let their fraud division look into it.","tl;dr: Be patient, money is probably sitting somewhere, and it will eventually be credited back to your account. I had a similar problem about 10 years ago. I sent an international wire transfer, from my own bank account in Germany to my bank account in Central America. I had done this before, and there had been no issues, but in this case, even though all the information was correct, the bank rejected the wire because it was above $10K, and in that case, the bank needs written proof from the owner of the receiving account (me) , and so didn't know where the funds were coming from. I had to call the local Sparkasse bank in Germany, as well as an intermediary bank in London to sort it all out, and in total, had to wait about 3-4 weeks to get the money back in my Sparkasse bank account. At one point I thought I may never see that money back, especially since there was an intermediary bank to deal with, but it all worked out in the end.","Details, as usual, will depend on local culture and jurisdiction, but in most jurisdictions, there is generally no obligation for you to actively return something (money, parcel, whatever) you received in error - usually it's enough to notify the sender. Actually, it might be a dangerous mistake to return it yourself - what if you send it to the wrong account? So you probably have done all you had to, and can close your account without further delay. However, until the time specified by Statute of limitations or similar concept in your jurisdiction has passed (usually a few years), the company could ask you to return the money. If they do ask, be prepared to return it - so do not spend it. My recommendation would be: Then lean back and wait :-).","\"This question has the [united kingdom] tag, so the information about USA or other law and procedures is probably only of tangential use. Except for understanding that no, this is not something to ignore. It may well indicate someone trying to use your id fraudulently, or some other sort of data-processing foul-up that may adversely impact your credit rating. The first thing I would do is phone the credit card company that sent the letter to inform them that I did not make his application, and ask firmly but politely to speak to their fraud team. I would hope that they would be helpful. It's in their interests as well as yours. (Added later) By the way, do not trust anything written on the letter. It may be a fake letter trying to lure or panic you into some other sort of scam, such as closing your \"\"compromised\"\" bank account and transferring the money in it to the \"\"fraud team\"\" for \"\"safety\"\". (Yes, it sounds stupid, but con-men are experts at what they do, and even finance industry professionals have fallen victim to such scams) So find a telephone number for that credit card company independently, for example Google, and then call that number. If it's the wrong department they'll be able to transfer you internally. If the card company is unhelpful, you have certain legal rights that do not cost much if anything. This credit company is obliged to tell you as an absolute minimum, which credit reference agencies they used when deciding to decline \"\"your\"\" application. Yes, you did not make it, but it was in your name and affected your credit rating. There are three main credit rating agencies, and whether or not the bank used them, I would spend the statutory £2 fee (if necessary) with each of them to obtain your statutory credit report, which basically is all data that they hold about you. They are obliged to correct anything which is inaccurate, and you have an absolute right to attach a note to your file explaining, for example, that you allege entries x,y, and z were fraudulently caused by an unknown third party trying to steal your ID. (They may be factually correct, e.g. \"\"Credit search on \"\", so it's possible that you cannot have them removed, and it may not be in your interests to have them removed, but you certainly want them flagged as unauthorized). If you think the fraudster may be known to you, you can also use the Data Protection Act on the company which write to you, requiring them to send you a copy of all data allegedly concerning yourself which it holds. AFAIR this costs £10. In particular you will require sight of the application and signature, if it was made on paper, and the IP address details, if it was made electronically, as well as all the data content and subsequent communications. You may recognise the handwriting, but even if not, you then have documentary evidence that it is not yours. As for the IP address, you can deduce the internet service provider and then use the Data Protection act on them. They may decline to give any details if the fraudster used his own credentials, in which case again you have documentary evidence that it was not you ... and something to give the police and bank fraud investigators if they get interested. I suspect they won't be very interested, if all you uncover is fraudulent applications that were declined. However, you may uncover a successful fraud, i.e. a live card in your name being used by a criminal, or a store or phone credit agreement. In which case obviously get in touch with that company a.s.a.p. to get it shut down and to get the authorities involved in dealing with the crime. In general, write down everything you are told, including phone contact names, and keep it. Confirm anything that you have agreed in writing, and keep copies of the letters you write and of course, the replies you receive. You shouldn't need any lawyer. The UK credit law puts the onus very much on the credit card company to prove that you owe it money, and if a random stranger has stolen your id, it won't be able to do that. In fact, it's most unlikely that it will even try, unless you have a criminal record or a record of financial delinquency. But it may be an awful lot of aggravation for years to come, if somebody has successfully stolen your ID. So even if the first lot of credit reference agency print-outs look \"\"clean\"\", check again in about six weeks time and yet again in maybe 3 months. Finally there is a scheme that you can join if you have been a victim of ID theft. I've forgotten its name but you will probably be told about it. Baically, your credit reference files will be tagged at your request with a requirement for extra precautions to be taken. This should not affect your credit rating but might make obtaining credit more hassle (for example, requests for additional ID before your account is opened after the approval process). Oh, and post a letter to yourself pdq. It's not unknown for fraudsters to persuade the Post Office to redirect all your mail to their address!\"","After doing some investigating, my employers contract with the credit card company has a clause that basically specifies that despite my name being on the credit card, and bills being sent to me, all liability is on the company. Additionally, the employer reserves the right to garnish wages in the event of a balance on the card. So it looks like it won't affect my credit score. I appreciate all of the advice.","Here is what happened: The company delivered a mattress, so you owed them $600. They used a credit card company to get the payment from you, so your money went to the credit card company, which passed it on to the mattress company, and you didn't owe anything for the mattress anymore. The company should have refunded a small amount, and should have asked the credit card company to refund a small amount, say $20 (just guessing so we have a number). The credit card company instead refunded $600. That money is yours. What happened there is just between you and your credit card company. However, since the mattress company now hasn't received any money from you, you still owe the mattress company $580, and they can ask you for that money for quite a long time, once they get their act together. Probably two or three years.","The way that credit card transactions happen are: In your example, the card is authorized for the charge but the transaction never actually moves on to the next step. However, your available credit should drop by whatever the authorized amount is and this will not disappear until it naturally goes away when the transaction does not move onto the next step.","I have had a couple of businesses do this to me. I simply ask them to come over to talk about the bill. Sometimes this ends it. If they come over then I call the cops to file a report on fraud. A lot of times the police will do nothing unless they have had a load of complaints but it certainly gets the company off your back. And if they are truly unscrupulous it doesn't hurt to get a picture of them talking with the police and their van, and then post the whole situation online - you will see others come forward really quick after doing something like this.","\"If any creditor thinks they're going to put their fuck up on my \"\"identity\"\" they got on another thing coming. I will not waste my time clearing up my credit score, I will not waste my time electronically verifying my identity, they will see a certified letter, and then they'll see me personaly in a court room.\""],"string":"[\n \"\\\"Every legitimate claim I've filed regarding fraudulent charges on my card includes signing a legal document. If your \\\"\\\"friend\\\"\\\" completes such a document and you can verify that it is untrue, he's in deeper trouble than you. Unfortunately, if he's successful in filing a claim that is later proven to be fraudulent, it puts your account in a poor status until it's fully cleared. Even then, corporate inertia may result in longer duration inaccurate information. Once you've cleared the fraudulent claim, you'll want to contact your credit agency to ensure they are provided with correct and proper documentation.\\\"\",\n \"I would keep the letter in a file for follow-up, and I would do what you are already planning to do and wait to see what shows up on the credit report. If this does reflect an identity theft attempt, chances are that others will follow, so vigilance is key here. If there is a hard credit check, then you can dispute that on your credit report. If there is not a hard credit check, there is nothing further this credit card company can do to help you anyway.\",\n \"Mine did. It was withdrawls on an ATM card (at an ATM without a camera, ofc). I signed a statement, and the cash was put back into my account immediately while they conducted the investigation. Nothing resulted from the investigation, but my CU ate the charges, didn't pass them on to me.\",\n \"The credit card company isn't the one losing money here. It's the airline. The airline credited you back twice (once with the fraud report, once with the credit from the thief). Maybe you should call them if you want it resolved sooner. In any case, if/when they do come looking for their money, they will have the paperwork to prove that it belongs to them. You can spend the money now and risk paying it back later, you can watch and wait, or you can be proactive and ask the airline to fix it. They may or may not care about that sum.\",\n \"\\\"The debt collection agency needs to see a copy of the notice from the bank that the $300 charge is a disputed and fraudulent charge. Also require them to provide proof. To reduce your stress, you should contact a lawyer to handle the debt collection agency. Disputing the information on your credit report is exactly the way to \\\"\\\"fix\\\"\\\" that issue. All they need to see is the bank letter stating that the charges were fraudulent. The credit reports should show that item as disputed for at least a month if not remove it entirely. The bank should be able to provide with copies although you may have to pay a research charge if the information is old enough. I recommend talking to your local branch manager to get what you need.\\\"\",\n \"I have already talked to them over the phone and they insist they haven't charged me yet, and I will not be charged. When I informed them I had in fact been charged they agreed it would be reversed. So I have tried to resolve the issue and I don't have any confidence they will reverse the charge as it has not been done yet. They are difficult to communicate which makes the whole process more difficult. Your best next step is to call the credit card company and share this story. I believe the likely result is that the credit card company will initiate a charge back. My question is, is this a valid reason to file a chargeback on my credit card? Yes. If you attempted to work it out with the vendor and it is not working out, this is an appropriate time to initiate a charge back.\",\n \"I would go speak to the bank manager. With Wells, you have to make sure it is the bank manager and not a service manager or something you are talking to (I learned that a few months ago). Tell her/him exactly what happened in detail and that you want the credit card closed and the credit inquiry removed from your credit report. Further, say that once all of that is done, you will decide whether to continue banking with them and whether any legal action is appropriate. If they give you any kind of push back, I'd get advice from a lawyer. The truth is they did open an account against your expressed wishes and it required them to check your credit so it does constitute fraud unless they can produce a signed document saying you agreed to the card. Edit: I just saw that this happened about a year ago. It may have been easier if you had done something at the time and may be more difficult if you've used the card in the meantime.\",\n \"> But I pretty much followed the procedure I was told to, its just I don't know why we wouldn't get the money back. First, you're in the wrong spot. Go to /r/personalfinance. Second, does it *really* make sense that you'd still get paid? If someone stole your wallet and bought something for $100, can you not go to the store and demand your $100? Or do you have to go and find the thief THEN get back *that* item and THEN return it to the store and THEN get your cash back? It's easier both logistically and logically to stop the payment going to the store, and have the store consider it a theft of their merchandise.\",\n \"The simple answer is that you have to read the terms and conditions when you sign up for a checking account at the bank. The process of fraud investigation varies from bank to bank. Ultimately most banks will refund the money if you are not deemed negligent. Some banks offer quick reimbursement during fraud claims, but many will not refund the money until the investigation is complete (which can take several weeks). Checking accounts are terrible security problems. If you're looking for ways to avoid a hassle, stop writing checks and using ATM/Debit cards. If you must send checks to pay bills, use the bill-pay system that is now common with most banks (they use a service to send checks on your behalf and don't even charge you for postage unless you ask for expedited processing).\",\n \"Are you sure the payment has actually posted and isn't sitting in a pre-auth status? If it is, it'll fall off in a few days and they're probably telling the truth. If not, and it has fully posted to your account, I agree with the others. It's very appropriate to initiate a chargeback. You can provide documentation showing they confirmed a cancellation, further, you can show proof that they had no intent of charging you. Good luck!\",\n \"\\\"As far as the banker himself goes, it's a customer service issue. WF is not going to tell you about their internal discipline (or oughtn't, anyway), other than potentially to confirm that the banker does or does not still work there; that's the closest they should get to telling you about it. I'm a (very) former retail manager, and that's absolutely the most I'd ever do in a case like this; and trust me, even with good customer service reps, you get requests to fire someone a lot, sometimes valid, sometimes not. You did the correct thing from your end: you brought the issue to their attention. Despite the quota, it's (hopefully) not permitted to sign people up without their permission (since that's illegal!), and I can say that in my retail experience, with these promotions with great incentive to cheat in this manner, one of the main things our loss prevention department did was to monitor data to see if people were illicitly signing people up for cards or otherwise cheating the system. That could be a very bad thing from a customer service point of view and from a legal point of view. What you should have done (or possibly did, but it's not clear in your post) is, after you reported the issue, asked for a re-contact on a particular date in the future - not \\\"\\\"after you've looked into it\\\"\\\", but \\\"\\\"Next friday I would like to get a call from you to discuss the resolution.\\\"\\\" Again, they're not going to tell you the discipline, but they should tell you at least that they've investigated it and will make sure it doesn't happen again, or similar. It's possible they will want more information from you at this point, and this is a useful way to make sure that request doesn't fall off of their plate. They should be able to, at least, tell you if there was a perceived issue on their end - it might be something meaningless to you, like \\\"\\\"He thought you said to sign up\\\"\\\", or something more descriptive, like \\\"\\\"He pushed the button to send you a notice, but our computer system screwed that up and made it an application\\\"\\\". You never know these days how easy it is to screw these things up. Now, they certainly should have fixed the issues on your end. Hopefully they did whatever you needed them to do banking-wise, or else you withdrew your money and went somewhere else. If not, follow up with that supervisor's supervisor, or go up a level or two to a regional director or equivalent. They may not be able to cancel the card for you, but the other banking-related things they certainly should fix. The card you probably just have to cancel and be done with. As far as the misuse of personal information, one thing I'd consider doing is placing a freeze on your credit report. Then this could never have happened - you would have to lift it to have your report pulled to be given the card. This is not free, though, so consider this before doing this.\\\"\",\n \"\\\"The Fair Credit Reporting Act specifies in some detail on pages 50-54 (as labeled in the footer, 55-59 as pages in pdf) the process that occurs when a consumer initiates a dispute. The safe outcome for the reporting agency is to remove the information in dispute from reports within 30 days if the reporting party does not certify the information is complete and accurate (with other statutory timelines for communication to the customer and the reporter). If you initiate a dispute, then the agency is following the law by deleting the reported information, outside new input from the furnisher. If this is unsatisfactory, you have the following statutory right within § 611. Procedure in case of disputed accuracy [15 U.S.C. § 1681i (d) Notification of deletion of disputed information. Following any deletion of information which is found to be inaccurate or whose accuracy can no longer be verified or any notation as to disputed information, the consumer reporting agency shall, at the request of the consumer, furnish notification that the item has been deleted or the statement, codification or summary pursuant to subsection (b) or (c) of this section to any person specifically designated by the consumer who has within two years prior thereto received a consumer report for employment purposes, or within six months prior thereto received a consumer report for any other purpose, which contained the deleted or disputed information. The section that binds furnishers of information (§ 623. Responsibilities of furnishers of information to consumer reporting agencies [15 U.S.C. § 1681s-2], starting on page 78 in the footer) places on them the following specific duties: (B) Reporting information after notice and confirmation of errors. A person shall not furnish information relating to a consumer to any consumer reporting agency if (i) the person has been notified by the consumer, at the address specified by the person for such notices, that specific information is inaccurate; and (ii) the information is, in fact, inaccurate. ... (2) Duty to correct and update information. A person who (A) regularly and in the ordinary course of business furnishes information to one or more consumer reporting agencies about the person’s transactions or experiences with any consumer; and (B) has furnished to a consumer reporting agency information that the person determines is not complete or accurate, shall promptly notify the consumer reporting agency of that determination and provide to the agency any corrections to that information, or any additional information, that is necessary to make the information provided by the person to the agency complete and accurate, and shall not thereafter furnish to the agency any of the information that remains not complete or accurate. So there you have it: they have to stop reporting inaccurate information, and \\\"\\\"promptly\\\"\\\" notify the credit agency once they've determined what is incomplete or inaccurate. I note no specific statutory timeline for this investigation.\\\"\",\n \"As it is international debits, this will take a while. BofA is right, You have to dispute this with Card Issuer, i.e. HDFC. The worst case for me was around 1 month. Keep chasing and sending out reminders every 3-4 days.\",\n \"So, what's the point of a charge-back, if they simply take the word of the merchant? tl;dr: They don't. As both a merchant and a consumer I have been on both ends of credit card chargebacks, and have received what I consider to be mostly fair outcomes in all cases. Here are some examples: Takeaways from this: I strongly urge all consumers who are considering doing a chargeback to try to work with the merchant first, and use the CC dispute as a last resort. In general, you can think of the credit card dispute department like a judge. They hear the arguments presented by both sides, and consider them to the best of their ability. They don't always get it right, but they make their best attempt given the limited information they are provided.\",\n \"\\\"It's very straightforward for an honest vendor to refund the charge, and the transaction only costs him a few pennies at most. If you initiate a chargeback, the merchant is immediately charged an irreversible fee of about $20 simply as an administrative fee. He'll also have to refund the charge if it's reversed. To an honest merchant who would've happily refunded you, it's unfair and hurtful. In any case, now that he's out-of-pocket on the administrative fee, his best bet is to fight the chargeback - since he's already paid for the privilege to fight. Also, a chargeback is a \\\"\\\"strike\\\"\\\" against the merchant. If his chargeback rate is higher than the norm in his industry, they may raise his fees, or ban him entirely from taking Visa/MC. For a small merchant doing a small volume, a single chargeback can have an impact on his overall chargeback rate. The \\\"\\\"threshold of proof\\\"\\\" for a chargeback varies by patterns of fraud and the merchant's ability to recover. If you bought something readily fungible to cash - like a gift card, casino chips, concert tickets etc., forget it. Likewise if you already extracted the value (last month's Netflix bill). Credit card chargeback only withdraws a payment method. Your bill is still due and payable. The merchant is within his rights to \\\"\\\"dun\\\"\\\" you for payment and send you to collections or court. Most merchants don't bother, because they know it'll be a fight, an unpleasant distraction and bad for business. But they'd be within their rights. Working with the merchant to settle the matter is a final resolution.\\\"\",\n \"What you are describing here is the opposite of a problem: You're trying to contact a debt-collector to pay them money, but THEY'RE ignoring YOU and won't return your calls! LOL! All joking aside, having 'incidental' charges show up as negative marks on your credit history is an annoyance- thankfully you're not the first to deal with such problems, and there are processes in place to remedy the situation. Contact the credit bureau(s) on which the debt is listed, and file a petition to have it removed from your history. If everything that you say here is true, then it should be relatively easy. Edit: See here for Equifax's dispute resolution process- it sounds like you've already completed the first two steps.\",\n \"I just had this happen to me with Chase and speaking with my executive support contact, they will not return the funds unless you request them back. Which I find appalling and just one more reason that I don't like working with Chase!\",\n \"If you are the main account holder I would try contacting your bank directly, some of them have very accommodating services for this kind of thing. You might even consider going in person if you have a local branch, this might just make communicating easier. They will probably go over your recent transactions with you to identify the fraudulent ones. You might do this first by yourself if you have an online account. Once you identify the fraudulent purchases they will probably take a week or two to investigate/process and reimburse you. But do NOT just close the account and forget about it- first off closing an account that is close to $2,000 in debt probably isn't even possible. Second, if you forgot about it for a long time and just let you credit take a hit you could end up really paying for it(in the form of higher interest payments) later in life when you try to get anything financed like car or house or even student loans for college. And make no mistake that can amount to *maaany* thousands of dollars more than you would otherwise pay over the course of a loan. So don't damage your credit if you can avoid it. Long story short, banks have special departments to handle this kind of thing, so work with your bank. See how that goes, if you run into hangups you may need to bring your parents into the loop. Good luck!\",\n \"No one can say for sure but I'd bet big money they charged you and had a nice chat about you being an asshole... Not saying they're right (lol jk I totally am), just saying they probably did both.\",\n \"Oh I don't think I have the right to the person's stolen money, I've had this happen before and the CC owner wasn't charged anything and the CC company reimbursed us and we made a report about the thefts. I'm just asking why the situation changed this time around.\",\n \"Short of canceling the card, you could just report the card as lost and ask for a new card number on the same account. Another option is to just make a note to look for the charge and keep disputing it. It has been a while since I did credit card processing at my business, but I think the company gets dinged if too many customers dispute charges and kicks them into a higher fee schedule with the credit card company.\",\n \"PayPal will be contacting you shortly, I'm sure. You'll see the reversal on their site in a few days as well as a fee from their end I bet.\",\n \"\\\"Personally, I would just dispute this one with your CC. I had a situation where a subscription I had cancelled the prior year was billed to me. I called up to have a refund issued, they couldn't find me in their system under three phone numbers and two addresses. The solution they proposed was \\\"\\\"send us your credit card statement with the charge circled,\\\"\\\" to which I responded \\\"\\\"there's no way in hell I'm sending you my CC statement.\\\"\\\" Then I disputed the charge with the CC bank and it was gone about two days later. I partially expect to have the same charge appear next year when they try to renew my non-existent subscription again. Now, whether or not this is a normal practice for the company, or just a call center person making a good-faith but insecure attempt to solve your problem is irrelevant. Fact of the matter is, you tried to resolve this with the merchant and the merchant asked for something that's likely outside the bounds of your CC Terms and Conditions; sending your entire number via email. Dispute it and move on. The dispute process exists for a reason.\\\"\",\n \"\\\"Contact your bank immediately, if you haven't done so already. They will almost certainly have some sort of \\\"\\\"fraud hotline\\\"\\\" which can take appropriate action.\\\"\",\n \"First thing to do when you notice a credit card fraud is to call the respective banks who issues the credit card and most banks immediately (as far as my experience goes - twice) they will cancel the credit card and issue a new card with different number. Your credit card account will remain the same, no effect on credit score as the account is still active, its just the credit card number is changed. If you are more concerned about Identity Theft, there are two further options you can pursue. Place a Fraud Alert : Ask 1 of the 3 credit reporting companies to put a fraud alert on your credit report. They must tell the other 2 companies. An initial fraud alert can make it harder for an identity thief to open more accounts in your name. The alert lasts 90 days but you can renew it. - as per Federal Trade Commission Credit Freeze : If you’re concerned about identity theft, those reported mega-data breaches, or someone gaining access to your credit report without your permission, you might consider placing a credit freeze on your report. - as per Federal Trade Commission\",\n \"\\\"I was I a similar position as you, and sometimes credit bureaus might be difficult to deal with, especially when high amounts of money are involved. To make the long story short, someone opened a store credit card under my name and made a charge of around 3k. After reporting this to the bureaus, they did not want to remove the account from my credit report citing that the claim was \\\"\\\"frivolous\\\"\\\". After filing a police report, the police officer gave me the phone number for the fraud department of this store credit card, and after they investigated, they removed the account from my credit. I would suggest to do the following: Communicating with Creditors and Debt Collectors You have the right to: Stop creditors and debt collectors from reporting fraudulent accounts. After you give them a copy of a valid identity theft report, they may not report fraudulent accounts to the credit reporting companies. Get copies of documents related to the theft of your identity, like transaction records or applications for new accounts. Write to the company that has the documents, and include a copy of your identity theft report. You also can tell the company to give the documents to a specific law enforcement agency. Stop a debt collector from contacting you. In most cases, debt collectors must stop contacting you after you send them a letter telling them to stop. Get written information from a debt collector about a debt, including the name of the creditor and the amount you supposedly owe. If a debt collector contacts you about a debt, request this information in writing. I know that you said that the main problem was that your credit account was combined with another. But there might be a chance that identity theft was involved. If this is the case, and you can prove it, then you might have access to more tools to help you. For example, you can file a report with the FTC, and along with a police report, this can be a powerful tool in stopping these charges. Feel free to go to the identitytheft.gov website for more information.\\\"\",\n \"\\\"I don't know what the legal situation in the US is, but in the UK I would take the bank to court. Your case is simple - you never authorised the transactions, and they have provided no evidence to you that you did. The details of the VISA \\\"\\\"zero liability\\\"\\\" promise you mention may also be worth quoting as it ought to form part of your contract with the bank.\\\"\",\n \"Absolutely nothing will happen. These credit history companies have no scruples and no reason to give a damn about consumers. Every recourse you have to fix inaccuracies in your credit history were won with legislation or litigation. They don't care about you.\",\n \"I wouldn't lose any sleep on it until it actually happens. I believe generally the agreement of the merchant with the credit card company says they must submit to the company's arbitration. If they come back to you, I would definitely get in touch with Visa to complain. Here's some great advice on dealing with unscrupulous debt collection, the main points being It's actually you that should be threatening to sue them if the repairs were incompetent or dangerous!\",\n \"fine because the application was declined anyway. No it isn't fine. Credit card applications generally need a hard pull, so get it rectified. Firstly check if an application was really made on your behalf. Some companies use this ploy to pull you into a scheme of making you apply for a credit card. Secondly call up the credit card company and ask them about the details of who had made the application as you haven't done so and inform them that it was a fraudulent application. It might be somebody is using your personal details to do a identity theft in your name. Thirdly get in touch with the credit rating firms and see if a check has been made on your credit report. Dispute it if you see a check in your record and have it removed from your report. If you subscribe to credit agency, get the identity theft protection, helps you in such cases. And finally keep a diligent eye on your credit records from now on. Once bitten, twice shy.\",\n \"You need to find out if the credit card has been reporting these failed automated payments as late or missed payments to your credit report. To do this, go to annualcreditreport.com (the official site to get your free credit reports) and request your report from all three bureaus. If you see late or missing payments reported for the months where you made a payment but then they did an automatic payment anyway, you should call up the credit card company, explain the situation, and ask them to retract those negative reports. If they refuse, you should dispute the reports directly with the credit bureaus. If they have been reporting late payments even though you have been making the payments, that will impact your credit much more than the fact that they closed your account. Unfortunately, they can turn off your credit account for any reason they like, and there isn't much you can do about that. Find yourself another job as soon as you can, get back on your feet, pay off your debt, and think very carefully before you open another credit card in the future. Don't start a new credit card unless you can ensure that you will pay it off in full every month.\",\n \"You're not missing anything. Consumer protection in the US is very basic and limited, if at all. So if someone claims you owe them something, it would be really hard for you to prove otherwise unless you actually drag them to court. Especially if there actually was a relationship, and there probably is some paperwork to substantiate the claim. I suggest talking to a consumer issues attorney.\",\n \"\\\"I think your confusion comes from the negative impact when a creditor writes off your bad credit and ceases attempting to collect it. \\\"\\\"Chargebacks\\\"\\\" as you call them are an attempt to undo fraudulent charges on your card, whether from stolen credit card info or from a merchant who is using shady business practices. For what it's worth, if you joined on December 20, January 20 seems like a reasonable date for the next billing cycle, with the December 31 date reflecting the fact that their system couldn't automatically bill you the day you joined. I also think it's reasonable for you to ask them to refund the bill for the second month if you do not plan to use their gym further. So the dispute seems like a reasonable one on both sides. Good luck.\\\"\",\n \"You also might want to see what sort of documentation the credit card company has. Companies can get pretty lazy sometimes about recordkeeping; there have been cases where banks tried to foreclose on a property but weren't able to produce documents establishing the mortgage. With your father dead, is there anything other than the credit card company's word that the debt is valid?\",\n \"Most merchants (also in Europe) are reasonable, and typically are willing to work with you. credit card companies ask if you tried to work with the merchant first, so although they do not enforce it, it should be the first try. I recommend to give it a try and contact them first. If it doesn't work, you can always go to the credit card company and have the charge reversed. None of this has any effect on your credit score (except if you do nothing and then don't pay your credit card bill). For the future: when a transaction supposedly 'doesn't go through', have them write this on the receipt and give it to you. Only then pay cash. I am travelling 100+ days a year in Europe, using my US credit cards all the time, and there were never any issues - this is not a common problem.\",\n \"Visa, Mastercard have very strong consumer protection. I have been wondering about this question for a while but never got around to asking it here: What happens if a retailer knowingly defrauds me? My guess is the first party to ask for help is Visa, Mastercard: a retailer knowingly defrauding you is unlikely to refund you any money. However, slip-ups do happen. If this is a retailer of good repute, they will not only refund you the money but send you a gift card too! Please do followup this post with what helped you in the end, but my guess is, your first (and last) line of defense would be Visa, Mastercard. Anything that would go through the bank would take such a lot of time and effort, that you would be better off writing it off.\",\n \"Generally when items go to collection you will receive a letter in the mail not an email. You can try to dispute the charge with the credit companies (TransUnion, Equifax, and Experian) showing that the charge came after you left the country. Like the answer above me said, disputing it may cause the 7 year clock to restart which leaves it on your account longer. It may just be simpler to try to improve your credit score instead. You can check your credit score as often as you want using Credit Karma online or on your phone.\",\n \"All three credit bureaus allow you to file a dispute online. Some allow you to upload documentation at the same time, others will ask you to mail it to them. Send them the letter you got from your bank, they will then return to the collection company. For $300.00 most likely they will not pursue it any further and the credit bureaus will delete the entry from your file. If the collection company want to make a case out of it they will have to view to cost of trying to get a Court Judgment against the value of the amount they are claiming. Almost certainly they will view at not cost effective and your credit rating will return to where it was prior to the negative impact\",\n \"If you tell the collector that the claim isn't valid, they're obliged to go back to the creditor to verify it. Sometimes that gets a real person, instead of their automatic billing system, to look at the claim, and if you're right, they'll drop it.\",\n \"In the end, I was not required to pay the fee. After some frustrating initial attempts, I ended up writing a letter and sending a copy to card services, customer support, complaints and the legal department. It basically said: 1 - I never signed anything. 2 - I spoke to a very aggressive person at the airport who told me that she was just taking down my information in order to send information about the card, and that I was under no obligation 3 - I never received a card, activated a card, or used a card. 4 - I want this charge canceled immediately 5 - If this ever shows up on my credit report, I will contact my lawyer regarding this unscrupulous business practice. After that I received a notice in the mail confirming that everything had been cancelled and all charges were reversed.\",\n \"When in doubt, call (the card issuer) and ask. Ask if you overpay your current bill if the overpayment becomes available credit and tell them why you are asking. It can go either way.\",\n \"With a check, there are limits on cashing the stale check, but that is set by the banks involved. With a debit card transaction, it will be up the the debit card company and your bank. Imagine a situation where a person finds an old check and tries to cash it at their bank. If the bank considers the check stale, they might reject it, or put a longer hold on the check. When the check writers bank gets the transaction, they will also decide what to do. If they reject it, the first bank will reverse the transaction. You can't count on a 90 day, or 180 day limit; most banks will ask you to put a stop payment on an old check that you don't want cashed. This is especially important step if you write a replacement check. Because there is no check number to put a stop payment on, in fact the temporary hold will fall off after a few days. There doesn't appear to be a way to stop an old transaction. Be careful if you do contact the restaurant, you could end up double paying for the meal if they swipe your card again. Your best option may be just to keep the transaction as pending.\",\n \"Obviously, the credit card's administators know who this charge was submitted by. Contact them, tell them that you don't recognize the charge, and ask them to tell you who it was from. If they can't or won't, tell them you suspect fraud and want it charged back, then wait to see who contacts you to complain that the payment was cancelled. Note that you should charge back any charge you firmly believe is an error, if attempts to resolve it with the company aren't working. Also note that if you really ghink this is fraud, you should contact your bank and ask them to issue a new card number. Standard procedures exist. Use them when appropriate.\",\n \"I went to the bank with my friends and told them that I saw the money in my account, that it's not mine, and that they should investigate and send it back to wherever it came from Right thing to do. Did you give this in writing? Do you have a stamped copy of the letter from Bank that they accepted your complaint? he has been calling with different phone number threatening me, saying that he will kill me, he will make sure I don't return to my country alive, and all. Lodge a formal police complaint. And also I have not heard from the bank at all. What should I do? Ensure that all your communication and follow-up is in writing. Even email is fine. But periodically send this via certified post with tracking number. Even when you call up the bank, keep a track of calls. After a day or two, send a email saying further to calls 1, calls 2, calls 3 etc you are still awaiting a response from Bank. Even after face to face visits, record all your follow-up and periodically send via email and after few email take a print of everything [even if its 10 pages] and send via certified mail. The reason it is very important to have a written trail is if things go wrong, Law enforcement can accuse you to be part of fraud/scam. It will be difficult to establish you were the one who complained about it. If not too difficult, change you phone numbers. Yes definitely open the new Bank Account; and don't give this to a random stranger on Internet.\",\n \"Yes. For $15 it's not worth anyone's time to dig deep just for this specific occurrence. What you should do, however, is keep an eye on your credit card bills and accounts and watch for any other suspicious activity. It is possible that your number was stolen somehow and someone is using it fraudulently, so you want to be on the lookout in case they try to use it again. However, your credit card company is going to be much, much better than you at detecting patterns of fraud, which is why you should leave it to them unless and until you actually see more suspicious activity.\",\n \"I would presume this goes entirely through the credit card network rather than the banking network. I am guessing that it's essentially the same operation as if you had returned something purchased on a card to the store for credit, but I'm not sure whether it really looks like a vendor credit to the network or if it is marked as a different type of transaction.\",\n \"You should talk to your bank and explain what happened. Your bank may contact vendor bank to discuss the account, but really that is up to them. Then you should contact your police department and report the fraud. Realistically, your chances of recovering any money is negligible. I think your best chance is convincing your bank to work with vendor bank on a reversal(if it was a domestic transfer), although it is more likely that the vendor bank account is already empty and closed.\",\n \"\\\"Use with moderation. Powerful stuff. Your caller could be an offshore scammer too. Summarizing from http://www.creditinfocenter.com/rebuild/debt-validation.shtml: You can dispute the debt, and demand that the collector give you the name and address of the original creditor and show that it isn't past the statute of limitations. If they can't \\\"\\\"validate\\\"\\\" the debt by providing that info, in writing, they must drop it until they can do so. You can sue (though generally not for very much) if they don't. You may have to make this request in writing, so it has a paper trail. A valid verification respond must include: If they don't respond within 30 days, they are in violation of the Fair Credit Reporting Act (FDCPA section 809b), and you can send registered mail threatening them with a lawsuit if they don't immediately drop it and remove it from your credit report. They should respond to that within two weeks, and if they don't have darned good evidence will probably cave. If they can prove you do owe the money ... Well, you can hope they aren't licensed to collect in your state; if they aren't you can try to challenge them on that basis. Unlikely to work. If they agree, remember to send a copy of the letter to the credit reporting agencies to make sure it's taken off your record. If this isn't enough to resolve it, you'll probably need to bring suit. That's another long list of steps; I'm going to refer you to the linked site rather than summarize them here since at that point you should get a lawyer involved to make sure it's done promptly.\\\"\",\n \"But this isn't cash though, its credit card. They'll just chargeback and we have to now report it to the police for stolen items. But we followed the general procedure, and the thieves had the pin of the CC which is why I'm a bit confused. Now we still have to verify the signature, but if the signature ends up being right should we get the money back? Because at this point the CC holder should be a lot more responsible about the CC and other people shouldn't know their PIN. If anything the signature is understandable cause you can just forge it since its in the back of the card.\",\n \"Send a well-documented payment to the original creditor. Do it in such a way that you would have the ability to prove that you sent a payment if they reject it. Should they reject it, demonstrate that to the credit reporting bureaus.\",\n \"Yes, they're referring to the credit card dispute (chargeback) process. In the case of dispute, credit card company will refund/freeze your charge so you don't have to pay until the dispute is resolved (or at all, if resolved in your favor). If the dispute is resolved in your favor, your credit card company will charge back the merchant's service provider which in turn will charge back (if it can) the merchant itself. So the one taking the most risk in this scenario is the merchant provider, this is why merchants that are high risk pay significantly higher fees or get dropped.\",\n \"\\\"A bona-fide company never needs your credit card details, certainly not your 3-digit-on-back-of-card #, to issue a refund. On an older charge, they might have to work with their merchant provider. But they should be able to do it within the credit card handling system, and in fact are required to. Asking for details via email doesn't pass the \\\"\\\"sniff test\\\"\\\" either. To get a credit card merchant account, a company needs to go through a security assessment process called PCI-DSS. Security gets drummed into you pretty good. Of course they could be using one of the dumbed-down services like Square, but those services make refunds ridiculously easy. How did you come to be corresponding on this email address? Did they initially contact you? Did you find it on a third party website? Some of those are fraudulent and many others, like Yelp, it's very easy to insert false contact information for a business. Consumer forums, even moreso. You might take another swing at finding a proper contact for the company. Stop asking for a cheque. That also circumvents the credit card system. And obviously a scammer won't send a check... at least not one you'd want! If all else fails: call your bank and tell them you want to do a chargeback on that transaction. This is where the bank intervenes to reverse the charge. It's rather straightforward (especially if the merchant has agreed in principle to a refund) but requires some paperwork or e-paperwork. Don't chargeback lightly. Don't use it casually or out of laziness or unwillingness to speak with the merchant, e.g. to cancel an order. The bank charges the merchant a $20 or larger investigation fee, separate from the refund. Each chargeback is also a \\\"\\\"strike\\\"\\\"; too many \\\"\\\"strikes\\\"\\\" and the merchant is barred from taking credit cards. It's serious business. As a merchant, I would never send a cheque to an angry customer. Because if I did, they'd cash the cheque and still do a chargeback, so then I'd be out the money twice, plus the investigation fee to boot.\\\"\",\n \"Open a dispute for the preauth. It is effectively a double charge, since you have already paid for the item. You can provide evidence of the other transaction. This forces them to go through some hassle and waste some time on the issue.\",\n \"\\\"My experiment has concluded, with the same exact result that Aganju told me to expect. Just pulled Equifax report on CreditKarma, and confirmed that my bank reported the balance as $0. I expect that TransUnion will be the same; I'll update if it's different (evidently TU is still behind on the updates from my bank; I'll check again next week.) Regarding my score: I went from 1.333% card utilization to 0%, but my \\\"\\\"VantageScore 3.0\\\"\\\" did not change at all; not even by one point.\\\"\",\n \"Unfortunately, this is a customer service issue. The bank has a set of term and conditions (Ts and Cs) which you received with the card or when you applied. It included your limit, and what happens when you go over, likely, a penalty for going over the limit. At the very least, they expect you to pay the overage or you'll see an over-limit charge next cycle too. In the future, I'd suggest checking your account on line to monitor your balance. Some accounts offer an alert email, mine will let me set an alert for when my balance goes over $xxx, which is helpful, as I can send in an early payment to bring that balance down. It still never hurts to ask. They might waive fees if any, if this is your first time. You can still try calling them, explain the odd timing, and see if you can get a temporary increase in credit line. In the end, you need to review your finances. Carrying balances month to month at 12-18% is no way to have a successful financial future. It's one of the first things to getting your situation under control. After that, a small savings account, an emergency fund, is the next step. One month of charges should never put you in this bad situation.\",\n \"You should start a dispute with the credit card company, and they might be able to recover some/all of the money. Usually, if you act fast enough, credit companies (on the merchant's side) have enough of the deposits not yet disbursed to the merchant, and they'll just reverse the charge. The earlier you start the process - the more chances you have. Otherwise you'll have to sue, I'm not familiar with the Canadian legal system.\",\n \"Have you signed anything? If not - then tell them you don't know who they are and have not agreed to pay. If you did sign that piece of paper at the airport, then you have probably agreed to pay. Either way, it won't go away. As you've already discovered, ignoring things doesn't make them go away. You should make an effort, as hard as it may be, and call them. Notify them that you have never asked for this card, never activated it, and in fact never had it in your possession. You should stress out that it was issued without your authorization, which is probably illegal. And you wish the account to be closed and the charge reversed. Otherwise it will just grow and make your life miserable.\",\n \"\\\"Step 1. Log onto chase.com Step 2. Click on the account in question Step 3. Add \\\"\\\"Outstanding balance\\\"\\\" to \\\"\\\"Pending charges\\\"\\\" Step 4. Pay said total amount With all the energy you spent trying to find out if they're doing something illegal, you could've resolved the original issue yourself and be done with it.\\\"\",\n \"They will credit your account and it will be applied to future purchases. If the credit card is not used for several months, they will send you a check or transfer it to your bank account. Some people on this site have actually considered sending money to the credit card company in advance, so that the amount that can be charged is temporarily inflated. Keep in mind they will eventually refund the money. Plus you will not earn interest on the refund.\",\n \"\\\"Yes, you should contact the bank and report it. They will eventually \\\"\\\"find\\\"\\\" that money if it's not yours. You better get it over with rather than having more surprises later.\\\"\",\n \"\\\"I don't know the details of whether or not you should pay this money, or who is at fault. But clearly, you believe that you do not owe the money, and the bank investigation seems to agree with you, since they gave you your money back. Since you have your money, and they haven't sued you, the only issue yet remaining is your credit report. Here is what I would suggest. First, make sure you check all three credit reports, to see which reports the collection appears on. Then dispute the report with each credit bureau reporting the problem. There is an article on CreditKarma that explains the process. When you file your dispute with the credit bureau(s), they will investigate. This usually involves asking the creditor for proof of the debt, and if you didn't sign anything, they probably won't have any proof. Hopefully, the credit bureaus will come to the same conclusion as the bank did, and remove the collection from your credit reports. In my opinion, it doesn't make sense to pay them now, if you don't believe you owe it. Paying them won't remove all the bad stuff from your credit report (but it will improve it), and you don't want to pay them and then immediately sue them. If, however, the credit bureaus side with the landlord and leave this on your report, paying the $300 is better on your report than leaving the \\\"\\\"unpaid debt\\\"\\\" on there.\\\"\",\n \"\\\"First of all, whatever you do, DON'T PAY! Credit reporting agencies operate on aged records, and paying it now will most certainly not improve your score. For example, let's say that you had an unpaid debt that was reported as a \\\"\\\"charge-off\\\"\\\" to the credit bureaus. After, say, six months, the negative effect on your score is reduced. It is reduced even further after a year or two, and after two years, the negative effect on your score is negligible. Now, say you were to pay the debt after the two years. This would \\\"\\\"refresh\\\"\\\" the record, and show as a \\\"\\\"paid charge-off\\\"\\\". Sure, now it shows as paid, but it also shows the date of the record as being today, which increases the effect on your credit drastically. In other words, you would have just shot yourself in the foot, big-time. As others have noted, the best option is to dispute the item. If, for some reason, it isn't removed, you are allowed to submit an annotation to the item, explaining your side of the story. Anyone pulling your credit record would see this note, which can help you in some instances. In any case, these scam artists don't deserve your money. Finally, you should check who is the local ombusdman, and report this agent to them. She could lose her license for such a practice.\\\"\",\n \"Where do I stand with this? The money was not your's. So co-operate with the bank to get this sent back ASAP. It is good that the equipment is still with you. Yes Bank would need evidence that you were a victim and not party to this crime. Co-operate with the relevant authorities and get this resolved. It is a lesson learnt where luckily no money was lost, but quite a bit of hassle and personal time lost.\",\n \"I found a german article describing the legal situation in Germany. To summarize As outlined by the many possible reasons in the other answer, it is unclear from the information I have, whether condition 1 holds. Also condition 2 may not hold since the credit card was frozen. I suppose this makes a good argument to MasterCard and my bank, but I also suspect they will not care unless it comes with a attorney letterhead.\",\n \"This can be a case of someone trying to use your identity to obtain credit. I would put a fraud alert on my credit immediately. I went through something similar... got denial letters for credit I didn't apply to. A few months later I get hit with a credit ding from a pay day loan company that apparently allowed the thief to get a loan who obviously didn't pay it back. I had no contact with this company before they put the lates on my credit and it took over a year to get this cleaned up. Apparently this loan was obtained about a week after I got the first denial letter so if I put a fraud alert on immediately it would have most likely stopped this fraudulent pay day loan before it happened.\",\n \"The best way is to either file a dispute (or threaten to) with their regulator. They do NOT need negative attention from a bank regulator, so it should get their attention if you show that you are aware of and willing to contact them. They take this extremely seriously. You can figure out who the regulator is using this helpful page on the Office of Comptroller of Currency's (OCC) website. If the OCC itself regulates the bank you can file a dispute using this web page.\",\n \"Request verification in writing of the debt. They are required to provide this by law. Keep this for your records. Send them a notice by certified mail stating that this is not your debt and not to contact you again. Indicate that you will take legal action if they continue to try and collect. Keep a log of if/when they continue to call or harass you. Contact counsel about your rights under the fair debt collection laws, but if they keep harassing you after being provided proof of your identity, they are liable. You could win a judgement in court if you have proof of bad behavior. If your identity is stolen, you are not legally responsible for the charges. However it is a mess to clean up, so pull your credit reports and review your accounts to be sure.\",\n \"I believe it is so. It doesn't sound like they did anything outright illegal, just a pushy upsell. You can complain to the bank manager. If you want you can mention the employee by name (if you know who they are). Ultimately, you can change banks. From what you say it sounds like you are dissatisfied with this bank, so I think you should at least begin evaluating other banks and consider switching. You can also let your current bank know you are planning to take all your money away from them specifically because of their poor customer service. You could consider filing a complaint with the Consumer Financial Protection Bureau alleging that the bank engaged in some kind of deceptive marketing of their financial products. Of course you can also file a complaint with something like the Better Business Bureau, or even just write a negative Yelp review. But these actions won't really result in any penalty for the bank as a result of what they did in your specific case; they just express your dissatisfaction in a way that will be recorded and possibly made public (e.g., in a list of complaints) to protect future consumers. If you're really gung-ho and have time and money to burn, you could hire a lawyer and get legal advice about whether it is possible to sue the bank for fraud or misuse of your personal information. Needless to say, I think this would be overkill for this situation. I would just cancel the credit card, tell the bank you're dissatisfied, switch banks, and move on.\",\n \"\\\"To answer the heart of your question, it would be illegal for any credit bureau or creditor to somehow \\\"\\\"penalize\\\"\\\" you just for trying to make sure that what's being reported about you is accurate. That's why the Fair Credit Reporting Act exists -- that's where the rights (and mechanisms) come from for letting you learn about and request accurate reporting of your credit history. Every creditor is responsible for reporting its own data to the bureaus, using the format provided by those bureaus for doing so. A creditor may not provide all of the information that can be reported, and it may not report information in as timely a manner as it could or should (e.g., payments made may not show up for weeks or even months after they were made, etc.). The bottom line is that the credit bureaus are not arbiters of the data they report. They simply report. They don't draw conclusions, they don't make decisions on what data to report. If a creditor provides data that is within the parameters of what the bureaus ask to be provided, then the bureaus report precisely that -- nothing more, nothing less. If there is an inaccuracy or mistake on your report, it is the fault (and responsibility) of the creditor, and it is therefore up to the creditor to correct it once it has been brought to their attention. Federal laws spell out the process that the bureau has to comply with when you file a dispute, and there are strict standards requiring the creditor to promptly verify valid information or remove anything which is not correct. The credit bureaus are simply automated clearinghouses for the information provided by the creditors who choose to subscribe to each bureau's system. A creditor can choose which (or none) of the bureaus they wish to report to, which is why some accounts show on one bureau's report on you but not another's. What I caution is, just because a credit bureaus reports on your credit doesn't mean they have anything to do with the accuracy or detail of what is being reported. That's up to the creditors.\\\"\",\n \"Your simplest option, and probably the only reasonable one, is to dispute the original charge with your bank. Since you used a debit card and not a credit card, you don't have quite as much protection, but you still can dispute the charge and ask your bank to step in and help. See this debit card dispute article for more information on disputing a charge for a debit card. You may or may not have a case here, depending on the specifics. If the merchant accepted your payment without letting you know you should have used paypal, you may have a shot at getting the full refund; but if it was clearly labelled that you should have used paypal, it may be harder.\",\n \"Run your credit reports for the 3 major agencies to find out which of them have the debt was reported on and initiate the dispute process with each agency that reports the invalid debt. This will cause the person who put it on the report to either prove that it is valid or remove it from your report. Ignoring debt collector calls is not a good option, regardless of whether the debt is valid. They obviously think the debt is yours so their response is naturally to put it on your credit report. In most cases it is a good idea to respond in writing that it is not your debt. I doubt you have much recourse against the creditor. For one thing they DID try to contact you and you dodged them. That is not their fault. Secondly, it is unlikely you would prevail unless you could prove that they maliciously put false information on your credit or through gross incompetence did so. More likely is that they are mismatching you to a debt from someone with a similar name, or there is an accounting error somewhere. Or possibly you owe the debt and no one ever sent you a bill. It happens with medical bills all the time.\",\n \"\\\"You should dispute the transaction with the credit card. Describe the story and attach the cash payment receipt, and dispute it as a duplicate charge. There will be no impact on your score, but if you don't have the cash receipt or any other proof of the alternative payment - it's your word against the merchant, and he has proof that you actually used your card there. So worst case - you just paid twice. If you dispute the charge and it is accepted - the merchant will pay a penalty. If it is not accepted - you may pay the penalty (on top of the original charge, depending on your credit card issuer - some charge for \\\"\\\"frivolous\\\"\\\" charge backs). It will take several more years for either the European merchants to learn how to deal with the US half-baked chip cards, or the American banks to start issue proper chip-and-PIN card as everywhere else. Either way, until then - if the merchant doesn't know how to handle signatures with the American credit cards - just don't use them. Pay cash. Given the controversy in the comments - my intention was not to say \\\"\\\"no, don't talk to the merchant\\\"\\\". From the description of the situation it didn't strike me as the merchant would even bother to consider the situation. A less than honest merchant knows that you have no leverage, and since you're a tourist and will probably not be returning there anyway - what's the worst you can do to them? A bad yelp review? You can definitely get in touch with the merchant and ask for a refund, but I would not expect much to come out from that.\\\"\",\n \"This shows the impact of the inquiries. It's from Credit Karma, and reflects my inquiries over the past two years. In my case, I refinanced 2 properties and the hit is after this fact, so my score at 766 is lower than when approved. You can go to Credit Karma and see how your score was impacted. If in fact the first inquiry did this, you have cause for action. In court, you get more attention by having sufficient specific data to support your claim, including your exact damages.\",\n \"\\\"To answer your question as clarified in a comment: All I wanted to know what will happen if I enter my debit card number in the sixteen digit account number they offer on the application for balance transfer. That's all. Almost certainly (subject to the particular terms and conditions of the offer), no money will move, the only question is exactly when and how they will say no. If you do it online, and their system is clever enough to look up the IIN (the first six digits) of the card number you enter, their system might learn straight away that you have entered a debit card number (eg a card starting 431940 is a Bank of Ireland debit card). Otherwise, you'll have to wait until the request goes to their back office system, which will eventually lead to the card issuer's system being contacted, at which point it will become clear that it's a debit card, and your transfer request will be refused at that point. That said, some credit card companies do offer a \\\"\\\"Money Transfer\\\"\\\" aka \\\"\\\"Super Balance Transfer\\\"\\\", which is an offer to transfer money directly into a bank account, putting the resulting debt on the credit card. I've never seen these offered without having to call a service centre and talk to a person, though, presumably so that they can check that the details they have for you (about income etc) are still correct.\\\"\",\n \"\\\"You need to talk to your bank. If you're unable to contact your bank until Monday, then wait until Monday. Don't fixate on the idea that the transaction may \\\"\\\"hard post\\\"\\\" on Monday. If it happens, it happens, but it's not the end of the world. Even if the transaction posts, it's not the end of the world. If the retailer is legit, they will refund your money, although it may take some time for things to get sorted out. Even if the transaction posts and the retailer is not legit, it's still not the end of the world. Your bank may help you in trying to recover the funds. That's why you need to talk to your bank. As you have realized, blindly calling the number in the email is not a good idea, because if it's fake, you're calling the scammers. Instead, what you should do is try to contact your bank through known trusted channels. That is, look on your bank's website. Do they have a phone number listed for fraud reporting or related inquiries? Is it the same number you see in the email? If so, you can call it. If it is not the same number, but the number on your bank's website is a 24-hour number, you can call them at that number and tell them the situation. Based on what you've described, my own guess would be that the retailer is legit, but that the unusual large transaction was flagged by your bank as potentially fraudulent, which is why you got the email. The fact that you happened to get the email just after canceling the order could be a coincidence. This is especially true if all this happened in a short time. Information about these transactions can't be transmitted and analyzed instantaneously, nor can emails be sent instantaneously; there may have been a delay in sending the email so it only arrived after the cancellation. As far as your worries about how \\\"\\\"enfact\\\"\\\" got your info, it is likely a fraud-detection service used by your bank. Doing a bit of googling reveals that it appears to be a legit service, but there have also been instances of phishing attacks using faked \\\"\\\"enfact\\\"\\\" emails. However, from what I see, these worked by trying to get you to click on a link, not call a phone number. Also, if a scammer is able to send you a scam email that includes your actual order details, that's not a phish, it's an outright hack. In that case the bank and/or retailer (whichever was hacked) would certainly want to know about it and would likely fall all over themselves trying to refund your money to avoid negative PR.\\\"\",\n \"\\\"Banks have a financial, and regulational duty called \\\"\\\"Know your customer\\\"\\\", established to avoid a number of historical problems occurring again, such as money laundering, terrorism financing, fraud, etc. Thanks to the scale, and scope of the problem (millions of customers, billions of transactions a day), the way they're handling this usually involves fuzzy logics matching, looking for irregular patterns, problem escalation, and other warning signs. When exceeding some pre-set limit, these signal clues are then filtered, and passed on for human inspection. Needless to say, these algorithms are not perfect, although, thanks to financial pressure, they are improving. In order to understand why your trading account has been suspended, it's useful to look at the incentives: false positives -suspending your trade, and assuming you guilty until proven otherwise- could cost them merely your LTV (lifetime value of customer -how much your business brings in as profit); while false negatives -not catching you while engaging in activities listed above- might cost them multi-month investigations, penalties, and court. Ultimately, this isn't against you. I've been with the bank for 15 years and the money in the accounts has been very slowly accumulated via direct-deposit paychecks over that time. From this I gather the most likely explanation, is that you've hit somekind of account threshold, that the average credit-happy customers usually do not exceed, which triggered a routine checkup. How do you deal with it? Practice puppetry! There is only one way to survive angry customers emotionally: you have to realize that they’re not angry at you; they’re angry at your business, and you just happen to be a convenient representative of that business. And since they’re treating you like a puppet, an iconic stand-in for the real business, you need to treat yourself as a puppet, too. Pretend you’re a puppeteer. The customer is yelling at the puppet. They’re not yelling at you. They’re angry with the puppet. Your job is to figure out, “gosh, what can I make the puppet say that will make this person a happy customer?” In an investigation case, go with boredom: The puppet doesn't care, have no feelings, and is eternally patient. Figure out what are the most likely words that will have the matter \\\"\\\"mentally resolved\\\"\\\" from the investigator's point of view, tell them what they have to hear, and you'll have case closed in no time. Hope this helps.\\\"\",\n \"\\\"A day or so later I get an email from the mattress company where the rep informs me that they will need to issue me a paper check for the full amount and that I would have to contact Affirm to stop charging me. To which I rapidly answered \\\"\\\"Please confirm that with Affirm prior to mailing anything out. On my end the loan was cancelled.\\\"\\\" To which the rep replied \\\"\\\"confirmed. It has been cancelled.\\\"\\\" I think your communication could have been more explicit mentioning that not only was the loan cancelled, you got your initial payments. You have not paid for the mattress. The refund if any should go to Affirm. The Rep has only confirmed that loan has been cancelled. at what point, if any, am i free to use this money? I was planning to just let it sit there until the shoe drops and just returning. But for how long is too long? Sooner or later the error would get realized and you would have to pay this back.\\\"\",\n \"\\\"Your bank will undoubtedly charge you a fee for the \\\"\\\"chargeback\\\"\\\" and so while you will get your money back faster, you will likely end up with less than you would if you were not so impatient and just waited a few days for the refund to show up. I suppose it depends on whether you consider this a downside or not.\\\"\",\n \"\\\"This is somewhat unbelievable. I mean if you had a business of collecting debts, wouldn't you want to collect said debts? Rather than attempting to browbeat people with these delinquent debts into paying, you have someone volunteering to pay. Would you want to service that client? This would not happen in just about any other industry, but such is the lunacy of debt collecting. The big question is why do you need this cleared off your credit? If it is just for a credit score, it probably is not as important as your more recent entries. I would just wait it out, until 7 years has passed, and you can then write the reporting agencies to remove it from your credit. If you are attempting to buy a home or similarly large purpose and the mortgage company is insisting that you deal with this, then I would do the following: Write the company to address the issue. This has to be certified/return receipt requested. If they respond, pay it and insist that it be marked as paid in full on your credit. I would do this with a money order or cashiers check. Done. Dispute the charge with the credit reporting agencies, providing the documentation of no response. This should remove the item from your credit. Provide this documentation to the mortgage broker. This should remove any hangup they might have. Optional: Sue the company in small claims court. This will take a bit of time and money, but it should yield a profit. There was a post on here a few days ago about how to do this. Make part of any settlement to have your name cleared of the debt. It is counterproductive to fall into the trap of the pursuit of a perfect credit score. A person with a 750 often receives the same rate options as a person with 850. Also your relationship with a particular lender could trump your credit score. Currently I am \\\"\\\"enjoying\\\"\\\" the highest credit score of my life, over 820. Do you know how I did it? I got out of debt (including paying off the mortgage) and I have no intentions of ever going into debt for anything. So why does it matter? It is a bit ridiculous.\\\"\",\n \"When you initiate a chargeback, the merchant has the right to dispute the chargeback. If they can provide proof that the purchase actually took place, the chargeback will fail. We don't know all the details of your situation, of course, but it appears from what you have said that the tax chain probably has documents that you signed agreeing to the charges. They prepared your return (even if they did a poor job), and so from their perspective, they have decided that they deserve to be paid. Whether or not they did a good job is a matter of opinion, of course; their position might be that they did it correctly, and the second business did it poorly. The chargeback is a powerful tool, but it is not a magic button that makes a charge disappear. If the merchant can show that a sale did indeed take place and show that the proper amount was charged, the chargeback will fail. For a service, it isn't enough usually to simply state that you were unsatisfied; if you received the service at the agreed-upon price, the charge is valid. A chargeback is sort of a nuclear option when it comes to getting a refund. There are negative ramifications and expenses every time a merchant gets a chargeback (even if they ultimately win), and so often they will be willing to work something out to avoid a chargeback. You should go to the merchant first, if you can, and ask for a refund before considering the chargeback option. If you file a chargeback without even giving them the opportunity to work it out with you, the merchant will usually want to fight back.\",\n \"\\\"I have some experience with this. I have had fraudulent charges appear on my credit card statement and had to change my card number several times, despite (I believe) no carelessness on my part. Every time that this has happened, I have never lost a penny due to fraud on my credit card. The bank has ultimately removed the fraudulent charges in every instance. Given this, you'd think the consumer doesn't need to worry about this at all. But it seems like credit card companies beg to differ. Yes, because although I have never lost a penny to fraud, the bank (or the merchant) loses money every time it happens. The $0 liability protects you; the card security measures protect the bank. But... why should a consumer ever bother worrying about these in the first place, when he knows he legally can't be held responsible for fraudulent charges? What exactly is this new \\\"\\\"peace of mind\\\"\\\" that he supposedly gets by (say) using features like virtual account numbers that he doesn't already have? Although you shouldn't end up out any money when this happens, it is an inconvenience. The bank will cancel your card and issue you a new number. It may take a few days for you to receive your new card. If you have another card to use, this isn't a big deal. If you are out of state the day before you need to check out of a hotel and return a rental car with no backup credit card (as I have been), it is a big deal. (In my case, I had to have the credit card company talk to the hotel to give them the new card number, and they were able to overnight me a new credit card so I could get home. I now make sure I carry a backup credit card.) Should a consumer put any effort into worrying about this at all? (Why?) In my opinion, it makes sense to be careful what you do with your credit card number, if only to avoid the inconvenience. Don't type your credit card number into an e-mail message, for example, and only use it on websites that you trust. That having been said, it is not worth it to be paranoid about it, either. No matter how careful you are, eventually you will probably use it at a store that gets hacked, or your card will get skimmed somewhere, and you'll need to get a new credit card number. The best way to protect yourself is to make sure that you go over your credit card statement each month and look for any fraudulent charges that the bank didn't catch.\\\"\",\n \"JohnFx is right: banks hate visits and attention from the regulator (both positive and negative). I would not threaten to file, just file away and let them get in contact with you. The local branch is stalling you. Do not play their game. Since you already went through the first level of support (local branch, phone support), get the bank ombudsman contact and file a complain. It is a major bank, most of the time getting a high level complain will be routed from the upside down through their structure, and hit them. Remember I said they are stalling you? Probably something went wrong, and they are buying time to try and fix it. Also it is worth noting that the ombudsman is usually a line of support above the phone customer support. If going through the ombudsman does not work and/or if you are not willing to wait anymore, file a complain with the government central bank, or similiar institution (trying to be broad here, even if you tagged USA - JohnFx has the link in his answer for the USA's regulator). You can even file a small claims lawsuit, though I do not know the cost of doing it in the USA (in my country small claims court is free for private citizens). Do not report your money as stolen; banks are bureaucratic institutions by nature, and they can silver tongue out of this claim.\",\n \"If this is a pre-authorized automatic billing, and if you have signed any contract with the merchant, cancelling may not block any future charges from the merchant. Happens with gyms, magazines, memberships quite often. There is a time period after the cancellation this will occur, then it'll be completely dead.\",\n \"\\\"Concealing parts of a document in order to obtain a signature is illegal. The company committed signature forgery because they effectively modified the document after you signed it (i.e. unfolded the parts that were previously folded). I suggest that you go to your local police department to file a report, citing \\\"\\\"signature forgery\\\"\\\". Once you have the police report, call your bank's fraud department (not the general billing dispute line) and cite the police report right away, specifically calling out \\\"\\\"signature forgery\\\"\\\". I would be surprised if you don't get a favorable outcome.\\\"\",\n \"\\\"Why would you consider it null and void? It might be that something went wrong and the business \\\"\\\"lost\\\"\\\" the transaction one way or another. It might be something else. It might never appear. It might appear. In one of the questions a while ago someone posted a link of a story where an account was overdrawn because of a forgotten debit card charge that resurfaced months later. Can't find the link right now, but it can definitely happen.\\\"\",\n \"Sorry to hear about this happening to you. You should file a lawsuit in small claims court and get a judgement. Unfortunately, you are probably one of many creditors, and are unlikely to get much, if any, money back.\",\n \"Generally if there are enough details, they would match this up with your loan account and pass appropriate credit. The worst that can happen is; In either case, watch your Loan account statement and it should show you the credit. If this does not then ask the company and they should be able to trace it and rectify. Under no scenario you would lose money.\",\n \"Of course, as a 'good' person (or maybe a 'stupid' person), I should call them, (wait 30 minutes in the queue), and then try to explain the issue to the service desk. I actually did that, and the guy thought I am nuts to even call, and told me to 'just use them they are yours now'. I don't feel like calling again and again until I get someone that believes it, just to return them their points. Calling generally does not solve this problem. You would need to write a letter using certified mail and send some reminders. Hopefully they should notice it, if not you at least have evidence that you have communicated. I could just toss the card and forget about it. However, I had quite some points on it that really belong to me, so that feels like I pay for their fault. There is no need. You can continue to use the card as usual. Use them and play stupid. This is not a good idea. They are clearly not yours. Somewhere in Terms and Conditions you will find some fine print about notifying Bank/Financial Institution about the errors. Best course, after intimating informing them via letters, keep using your card as normal and use your points as normal. You would roughly know your points balance.\",\n \"I would expect so--the block from spending funds probably does not put a block in place for receiving funds. But ask your bank. Expect a 50% chance that they give you the wrong answer. (Some banks are better than others, but on average this is how often I have found bank employees to be incorrect about anything nonstandard). It may help to ask the bank how often it happens and who actually sorts out problems with blocked cards--and then talk to that person. Then you should only expect a 25% chance that they are wrong.\",\n \"Things are generally fine. A credit balance is not a horrible thing. The argument against maintaining a credit balance is that you are essentially loaning the credit card issuer money at 0% interest. You probably have alternative investments that would pay better interest, so it's usually better to park your money there. All that said, it's unlikely that the interest on whatever balance you have is enough to be more than pennies. The way that a credit card works, you run up a balance in one period. Then there is a grace period. If you don't pay off the balance during the grace period, they start charging you interest. You also may have a minimum payment to make. If you don't make that payment, they'll charge you a late fee. The typical period to rack up charges is from the first to the last day of a month. The typical grace period is through the 20th or 25th of the next month. Your card may be different. So check the documentation (user agreement) for your card if you want the real data. It sounds like you paid off some purchases while you were still in the period where you rack up charges. While those purchases were posted to the account, they may not be counted in the balance calculation. If your credit balance exactly matches the payment you made, that's probably what happened. It's also possible that you overpaid the balance. If your credit balance is just a small amount, that's probably what happened. If you really want to be sure, you should call the credit card issuer and ask them. At best we can tell you how it normally works. Since this is your first month, you could just wait for your first bill and respond to that. So long as you pay off the entire balance shown there by the deadline, everything should be fine. Don't wait until the last day to pay. It's usually best to pay a week or so early so as to leave time for the mail to deliver the check and for them to process it. You can wait longer for an online payment, but a few business days early to give you a chance to handle potential problems is still good.\",\n \"The answer is - the money got bounced back to their account :(\",\n \"Call your bank and inquire if they send out the kinds of notices like the one you received. Don't call the number in the message, because if it is a scam, you're calling the scammers themselves, more than likely. Be very cautious about this situation, and if your bank is local then it might not hurt to pay a visit to a local branch to talk to someone in person. Print out the message(s) you receive to show them and let their fraud division look into it.\",\n \"tl;dr: Be patient, money is probably sitting somewhere, and it will eventually be credited back to your account. I had a similar problem about 10 years ago. I sent an international wire transfer, from my own bank account in Germany to my bank account in Central America. I had done this before, and there had been no issues, but in this case, even though all the information was correct, the bank rejected the wire because it was above $10K, and in that case, the bank needs written proof from the owner of the receiving account (me) , and so didn't know where the funds were coming from. I had to call the local Sparkasse bank in Germany, as well as an intermediary bank in London to sort it all out, and in total, had to wait about 3-4 weeks to get the money back in my Sparkasse bank account. At one point I thought I may never see that money back, especially since there was an intermediary bank to deal with, but it all worked out in the end.\",\n \"Details, as usual, will depend on local culture and jurisdiction, but in most jurisdictions, there is generally no obligation for you to actively return something (money, parcel, whatever) you received in error - usually it's enough to notify the sender. Actually, it might be a dangerous mistake to return it yourself - what if you send it to the wrong account? So you probably have done all you had to, and can close your account without further delay. However, until the time specified by Statute of limitations or similar concept in your jurisdiction has passed (usually a few years), the company could ask you to return the money. If they do ask, be prepared to return it - so do not spend it. My recommendation would be: Then lean back and wait :-).\",\n \"\\\"This question has the [united kingdom] tag, so the information about USA or other law and procedures is probably only of tangential use. Except for understanding that no, this is not something to ignore. It may well indicate someone trying to use your id fraudulently, or some other sort of data-processing foul-up that may adversely impact your credit rating. The first thing I would do is phone the credit card company that sent the letter to inform them that I did not make his application, and ask firmly but politely to speak to their fraud team. I would hope that they would be helpful. It's in their interests as well as yours. (Added later) By the way, do not trust anything written on the letter. It may be a fake letter trying to lure or panic you into some other sort of scam, such as closing your \\\"\\\"compromised\\\"\\\" bank account and transferring the money in it to the \\\"\\\"fraud team\\\"\\\" for \\\"\\\"safety\\\"\\\". (Yes, it sounds stupid, but con-men are experts at what they do, and even finance industry professionals have fallen victim to such scams) So find a telephone number for that credit card company independently, for example Google, and then call that number. If it's the wrong department they'll be able to transfer you internally. If the card company is unhelpful, you have certain legal rights that do not cost much if anything. This credit company is obliged to tell you as an absolute minimum, which credit reference agencies they used when deciding to decline \\\"\\\"your\\\"\\\" application. Yes, you did not make it, but it was in your name and affected your credit rating. There are three main credit rating agencies, and whether or not the bank used them, I would spend the statutory £2 fee (if necessary) with each of them to obtain your statutory credit report, which basically is all data that they hold about you. They are obliged to correct anything which is inaccurate, and you have an absolute right to attach a note to your file explaining, for example, that you allege entries x,y, and z were fraudulently caused by an unknown third party trying to steal your ID. (They may be factually correct, e.g. \\\"\\\"Credit search on \\\"\\\", so it's possible that you cannot have them removed, and it may not be in your interests to have them removed, but you certainly want them flagged as unauthorized). If you think the fraudster may be known to you, you can also use the Data Protection Act on the company which write to you, requiring them to send you a copy of all data allegedly concerning yourself which it holds. AFAIR this costs £10. In particular you will require sight of the application and signature, if it was made on paper, and the IP address details, if it was made electronically, as well as all the data content and subsequent communications. You may recognise the handwriting, but even if not, you then have documentary evidence that it is not yours. As for the IP address, you can deduce the internet service provider and then use the Data Protection act on them. They may decline to give any details if the fraudster used his own credentials, in which case again you have documentary evidence that it was not you ... and something to give the police and bank fraud investigators if they get interested. I suspect they won't be very interested, if all you uncover is fraudulent applications that were declined. However, you may uncover a successful fraud, i.e. a live card in your name being used by a criminal, or a store or phone credit agreement. In which case obviously get in touch with that company a.s.a.p. to get it shut down and to get the authorities involved in dealing with the crime. In general, write down everything you are told, including phone contact names, and keep it. Confirm anything that you have agreed in writing, and keep copies of the letters you write and of course, the replies you receive. You shouldn't need any lawyer. The UK credit law puts the onus very much on the credit card company to prove that you owe it money, and if a random stranger has stolen your id, it won't be able to do that. In fact, it's most unlikely that it will even try, unless you have a criminal record or a record of financial delinquency. But it may be an awful lot of aggravation for years to come, if somebody has successfully stolen your ID. So even if the first lot of credit reference agency print-outs look \\\"\\\"clean\\\"\\\", check again in about six weeks time and yet again in maybe 3 months. Finally there is a scheme that you can join if you have been a victim of ID theft. I've forgotten its name but you will probably be told about it. Baically, your credit reference files will be tagged at your request with a requirement for extra precautions to be taken. This should not affect your credit rating but might make obtaining credit more hassle (for example, requests for additional ID before your account is opened after the approval process). Oh, and post a letter to yourself pdq. It's not unknown for fraudsters to persuade the Post Office to redirect all your mail to their address!\\\"\",\n \"After doing some investigating, my employers contract with the credit card company has a clause that basically specifies that despite my name being on the credit card, and bills being sent to me, all liability is on the company. Additionally, the employer reserves the right to garnish wages in the event of a balance on the card. So it looks like it won't affect my credit score. I appreciate all of the advice.\",\n \"Here is what happened: The company delivered a mattress, so you owed them $600. They used a credit card company to get the payment from you, so your money went to the credit card company, which passed it on to the mattress company, and you didn't owe anything for the mattress anymore. The company should have refunded a small amount, and should have asked the credit card company to refund a small amount, say $20 (just guessing so we have a number). The credit card company instead refunded $600. That money is yours. What happened there is just between you and your credit card company. However, since the mattress company now hasn't received any money from you, you still owe the mattress company $580, and they can ask you for that money for quite a long time, once they get their act together. Probably two or three years.\",\n \"The way that credit card transactions happen are: In your example, the card is authorized for the charge but the transaction never actually moves on to the next step. However, your available credit should drop by whatever the authorized amount is and this will not disappear until it naturally goes away when the transaction does not move onto the next step.\",\n \"I have had a couple of businesses do this to me. I simply ask them to come over to talk about the bill. Sometimes this ends it. If they come over then I call the cops to file a report on fraud. A lot of times the police will do nothing unless they have had a load of complaints but it certainly gets the company off your back. And if they are truly unscrupulous it doesn't hurt to get a picture of them talking with the police and their van, and then post the whole situation online - you will see others come forward really quick after doing something like this.\",\n \"\\\"If any creditor thinks they're going to put their fuck up on my \\\"\\\"identity\\\"\\\" they got on another thing coming. I will not waste my time clearing up my credit score, I will not waste my time electronically verifying my identity, they will see a certified letter, and then they'll see me personaly in a court room.\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["Yes. For $15 it's not worth anyone's time to dig deep just for this specific occurrence. What you should do, however, is keep an eye on your credit card bills and accounts and watch for any other suspicious activity. It is possible that your number was stolen somehow and someone is using it fraudulently, so you want to be on the lookout in case they try to use it again. However, your credit card company is going to be much, much better than you at detecting patterns of fraud, which is why you should leave it to them unless and until you actually see more suspicious activity."],"string":"[\n \"Yes. For $15 it's not worth anyone's time to dig deep just for this specific occurrence. What you should do, however, is keep an eye on your credit card bills and accounts and watch for any other suspicious activity. It is possible that your number was stolen somehow and someone is using it fraudulently, so you want to be on the lookout in case they try to use it again. However, your credit card company is going to be much, much better than you at detecting patterns of fraud, which is why you should leave it to them unless and until you actually see more suspicious activity.\"\n]","isConversational":false}}},{"rowIdx":372,"cells":{"_id":{"kind":"string","value":"4504"},"query":{"kind":"string","value":"what is the best way of investment which gives returns forever?"},"gt_ids":{"kind":"list like","value":["2981","566458"],"string":"[\n \"2981\",\n \"566458\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1],"string":"[\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["2981","566458","350082","266848","373119","239459","540919","407663","326019","70575","415511","144304","175442","387717","85222","211713","21957","35971","509064","361592","566074","332064","273575","493660","306571","499418","323049","568624","408322","282483","147251","80033","423438","451782","412586","580313","272174","88698","164895","144114","168315","591909","487348","478711","328770","442122","60495","211622","207914","584662","125868","534291","118999","427819","59394","356987","248853","38510","51182","518664","589515","274738","323519","516214","376709","133935","477295","375199","117960","567079","160170","367415","405281","513953","264095","448890","350607","65006","513016","107688","425435","157038","355716","117875","116865","172946","566069","550252","194669","234640","89714","115932","231195","148335","423083","299284","503261","542649","237273","594959"],"string":"[\n \"2981\",\n \"566458\",\n \"350082\",\n \"266848\",\n \"373119\",\n \"239459\",\n \"540919\",\n \"407663\",\n \"326019\",\n \"70575\",\n \"415511\",\n \"144304\",\n \"175442\",\n \"387717\",\n \"85222\",\n \"211713\",\n \"21957\",\n \"35971\",\n \"509064\",\n \"361592\",\n \"566074\",\n \"332064\",\n \"273575\",\n \"493660\",\n \"306571\",\n \"499418\",\n \"323049\",\n \"568624\",\n \"408322\",\n \"282483\",\n \"147251\",\n \"80033\",\n \"423438\",\n \"451782\",\n \"412586\",\n \"580313\",\n \"272174\",\n \"88698\",\n \"164895\",\n \"144114\",\n \"168315\",\n \"591909\",\n \"487348\",\n \"478711\",\n \"328770\",\n \"442122\",\n \"60495\",\n \"211622\",\n \"207914\",\n \"584662\",\n \"125868\",\n \"534291\",\n \"118999\",\n \"427819\",\n \"59394\",\n \"356987\",\n \"248853\",\n \"38510\",\n \"51182\",\n \"518664\",\n \"589515\",\n \"274738\",\n \"323519\",\n \"516214\",\n \"376709\",\n \"133935\",\n \"477295\",\n \"375199\",\n \"117960\",\n \"567079\",\n \"160170\",\n \"367415\",\n \"405281\",\n \"513953\",\n \"264095\",\n \"448890\",\n \"350607\",\n \"65006\",\n \"513016\",\n \"107688\",\n \"425435\",\n \"157038\",\n \"355716\",\n \"117875\",\n \"116865\",\n \"172946\",\n \"566069\",\n \"550252\",\n \"194669\",\n \"234640\",\n \"89714\",\n \"115932\",\n \"231195\",\n \"148335\",\n \"423083\",\n \"299284\",\n \"503261\",\n \"542649\",\n \"237273\",\n \"594959\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"What is the best way that I can invest money so that I can always get returns? Would it be to set up an FD in a bank, to buy land, to buy a rental house, to buy a field, or maybe to purchase gold? Forever is a long time. Of the options you listed, the only one guaranteed to generate returns is a bank account. The returns may well be very small, but (absent an economy-wide financial failure) you will get the stated return. Land doesn't always retain its value, nor do rental houses or fields. Gold clearly fluctuates. But you would be better served to think about goals and how you can attain them. What do you want to do with the \"\"returns\"\"? If you are trying to set yourself up for purchasing a home, paying for college, or retirement, then the small returns on a bank account may be insufficient. And in that case you might be better served by worrying more about the size of the returns you need than the certainty of them. There may be many \"\"better investments\"\" if you more clearly define what you expect to achieve by your investment.\"","What is the best way that I can invest money so that I can always get returns? If you want something that doesn't require any work on your end, consider having a fee-only financial planner make a plan so that your investments can be automated to generate a cash flow for you or get an annuity as the other classic choices here as most other choices will require some time commitment in one form or other. Note that for stock investments there could be rare instances like what happened for a week in September in 2001 where the markets were closed for 5 days straight that can be the hiccup in having stocks. Bonds can carry a risk of default where there have been municipalities that defaulted on debt as well as federal governments like Russia in the 1990s. Real estate may be subject to natural disasters or other market forces that may prevent there always being a monthly payment coming as if you own a rental property then what happens if there aren't tenants because there was an evacuation of the area? There may be some insurance products to cover some of these cases though what if there are exceptionally high claims all at once that may have an insurance company go under? Would it be to set up an FD in a bank, to buy land, to buy a rental house, to buy a field, or maybe to purchase gold? What investment of your own time do you plan on making here? Both in terms of understanding what your long-term strategy is and then the maintenance of the plan. If you put the money in the bank, are you expecting that the interest rate will always be high enough to give you sufficient cash to live as well as having no financial crisis with the bank or currency you are using? Are there any better investments? You may want to reconsider what assumptions you want to make and what risks you want to accept as there isn't likely to be a single solution here that would be perfect.","I know of no way to answer your question without 'spamming' a particular investment. First off, if you are a USA citizen, max out your 401-K. Whatever your employer matches will be an immediate boost to your investment. Secondly, you want your our gains to be tax deferred. A 401-K is tax deferred as well as a traditional IRA. Thirdly, you probably want the safety of diversification. You achieve this by buying an ETF (or mutual fund) that then buys individual stocks. Now for the recommendation that may be called spamming by others : As REITs pass the tax liability on to you, and as an IRA is tax deferred, you can get stellar returns by buying a mREIT ETF. To get you started here are five: mREITs Lastly, avoid commissions by having your dividends automatically reinvested by using that feature at Scottrade. You will have to pay commissions on new purchases but your purchases from your dividend Reinvestment will be commission free. Edit: Taking my own advice I just entered orders to liquidate some positions so I would have the $ on hand to buy into MORL and get some of that sweet 29% dividend return.","\"I compared investing in real estate a few years ago to investing in stocks that paid double digit dividends (hard to find, however, managing and maintaining real estate is just as hard). After discussing with many in the real estate world, I counted the average and learned that most averaged about 6 - 8% on real estate after taxes. This does not include anything else like Dilip mentions (maintenance, insurance, etc). For those who want to avoid that route, you can buy some companies that invest in real estate or REIT funds like Dilip mentions. However, they are also susceptible to the problems mentioned above this. In terms of other investment opportunities like stocks or funds, think about businesses that will always be around and will always be needed. We won't outgrow our need for real estate, but we won't outgrow our need for food or tangible goods either. You can diversify into these companies along with real estate or buy a general mutual fund. Finally, one of your best investments is your career field - software. Do some extra work on the side and see if you can get an adviser position at a start-up (it's actually not that hard and it will help you build your skill set) or create a site which generates passive revenue (again, not that hard). One software engineer told me a few years ago that the stock market is a relic of the past and the new passive income would be generated by businesses that had tools which did all the work through automation (think of a smart phone application that you build once, yet continues to generate revenue). This was right before the crash, and after it, everyone talked about another \"\"lost decade.\"\" While it does require extra work initially, like all things software related, you'll be discovering tools in programming that you can use again and again in other applications - meaning your first one may be the most difficult. All it takes in this case is one really good idea ...\"","How can I use $4000 to make $250 per month for the rest of my life? This means the investment should generate close to 6.25% return per month or around 75% per year. There is no investment that gives this kind of return. The long term return of stock market is around 15-22% depending on the year range and country.","As you have already good on your retirement kitty. Assuming you have a sufficient cash for difficult situations, explore the options of investing in Shares and Mutual Funds. As you are new to Stock Market, begin slowly by investing into Mutual Funds and ETF for precious metals. This will help you understand and give you confidence on markets and returns. Real estate is a good option, the down side being the hassle of getting rental and the illiquid nature of the investment.","The highest growth for an investment has historically been in stocks. Investing in mature companies that offer dividends is great for you since it is compound growth. Many oil and gas companies provide dividends.","Returns: Variable, as with all investments. Legitimate: Contact the usual major investment-fund houses.","I'm surprised nobody else has suggested this yet: before you start investing in stocks or bonds, buy a house. Not just any house, but the house you want to live in 20 years from now, in a place where you want to live 20 years from now - but you also have to be savvy about which part of the country or world you buy in. I'm also assuming that you are in the USA, although my suggestion tends to apply equally anywhere in the world. Why? Simple: as long as you own a house, you won't ever have to pay rent (you do have to pay taxes and maintenance, of course). You have a guaranteed return on investment, and the best part is: because it's not money you earn but money you don't have to spend, it's tax free. Even if the house loses value over time, you still come out ahead. And if you live abroad temporarily, you can rent out the house and add the rent to your savings (although that does make various things more complicated). You only asked for options, so that is mine. I'll add some caveats. OK, now here are the caveats:","\"I don't think there is a recession proof investment.Every investment is bound to their ups and downs. If you buy land, a change in law can change the whole situation it may become worthless, same applies for home as well. Gold - dependent on world economy. Stock - dependent on world economy Best way is to stay ever vigilant of world around you and keep shuffling from one investment to another balance out your portfolio. \"\"The most valuable commodity I know of is information.\"\" - Wall Street -movie\"","Dividends. There are blue chip companies that have paid and raised their dividends for 20 or more years. As an example: Altria (MO). There are also ETFs that specialize in such stocks such as SDY.","Buy a home. A home is the first and best investment, u can own a home with as little as 3% down and as u pay for your living u pay it off.....also banks will always give you equity loans in case you need your money","\"Is it safe? No in general. Are there any other safe \"\"paper\"\" ways to invest money let's say for 30 years and be sure nothing will happen to them and you will end your life without relying on pension? No. In these times only real properly gives you some sort of warranty in 5-30 years term. Land, buildings, production lines. Not necessary in US - lots of countries have 0 or fairly low property tax. Some gold, platinum, silver and other rare elements to diversify. - This is the only way you can be sure you will not suddenly loose everything.\"","Real estate investment is a proven creator of wealth. Check into the history of the rich and you will find real estate investment. Starting your investment in multi-family is a great idea. It is a good way to gain experience in real estate while exponentially increasing cash flow. If you turn the properties over to a reputable property management company, your cash flow will be a little less but so will your headaches. (Expect to pay 8 - 10% of gross income.) You could start investing now by looking into discounted real estate such as foreclosures, tax sales, short sales etc while the market is still depressed. This way your return on investment should be higher. From there you could expand into land development (i.e. subdivision) or commercial investments. Commercial properties with triple net leases can be a great low-stress investment opportunity (but they take more cash upfront). Attending some local real estate investment classes would be a great idea for starters.","The best investment is always in yourself and increasing your usable skills. If you invest the money in expanding your skills, it won't matter what the economy does, you will always be useful.","The best way to invest in college for your kid is to buy an investment property and rent it out. You might think I am really crazy to ask you to you to buy a real estate property when everyone is running from real estate. Go where others are running away from it. Look where others are not looking. Find out the need for a decent rental property in your city or county and start following the real estate market to understand the real activities including the rental market. I would say follow it for 6 months before jumping in with any investment. And manage your property with good tenants until your kid is ready to go to college. By the time your kid is ready for college, the property would have been paid off by the rents and you can sell the property to send your kid to college.","\"I don't understand the OP's desire \"\" I'd love to have a few hundred dollars coming in each month until I really get the hang of things. \"\" When growing your wealth so that it will be large enough in retirement to throw off enough profits to live on ... you must not touch the profits generated along the way. You must reinvest them to earn even more profits. The profits you earn need not show up as 'cash'. Most investments also grow in re-sale value. This growth is called capital gains, and is just-as/more important than cash flows like interest income or dividends. When evaluating investing choices, you think of your returns as a percent of your total savings at any time. So expecting $100/month equals $1,200/year would require a $12,000 investment to earn 10%/yr. From the sounds of it the OP's principal is not near that amount, and an average 10% should not be expected by an investment with reasonable risk. I would conclude that 'There is no free lunch'. You need to continually save and add to your principal. You must invest to expect a reasonable return (less than 10%) and you must reinvest all profits (whether cash or capital gains). Or else start a business - which cannot be compared to passive investing.\"","Dividend reinvestment plans are a great option for some of your savings. By making small, regular investments, combined with reinvested dividends, you can accumulate a significant nest egg. Pick a medium to large cap company that looks to be around for the foreseeable future, such as JNJ, 3M, GE, or even Exxon. These companies typically raise their dividends every year or so, and this can be a significant portion of your long term gains. Plus, these programs are usually offered with miniscule fees. Also, have a go at the interest rate formulas contained in your favorite spreadsheet application. Calculate the FutureValue of a series of payments at various interest rates, to see what you can expect. While you cannot depend on earning a specific rate with a stock investment, a basic familiarity with the formula can help you determine a rate of return you should aim for.","I recommend you two things: I like these investments because they are not high risk. I hope this helps.","\"In the US, the \"\"first class forever\"\" postage stamps. The post office has never lowered the cost of a stamp, but has raise it several times recently. Given that the gov't has bailed out everyone else, I believe it is a safe bet that they would bail out the post office if it financially fell apart. And you can always use them to send a letter. They aren't very liquid, and it would probably be difficult to invest in them in large quantities. Although, when the post office does raise rates, you could sell yours off on ebay or something.\"","Anyone have any recommendations for a long term investment? I’m thinking like holding for 30 years, Iv got a bunch invested already but they are all only from my view. Lots are in the renewable energy sector such as solar wind and hydro. But I’m looking for 1 or two more maybe to put an extra 5k down on and just sit for 30 years and hopefully it grows","It looks like you need a lot more education on the subject. I suggest you pick up a book on investing and portfolio management to get a first idea. Dividend yields are currently way below 5% on blue chips. Unlike coupons from fixed income instruments (which, in the same risk category, pay a lot less), dividend yields are not guaranteed and neither is the invested principal amount. In either case, your calculation is far away from reality. Sure, there are investments (such as the mentioned direct investments in companies or housings in emerging economies) that can potentially earn you two digit percentage returns. Just remember: risk always goes both ways. A higher earning potential means higher loss potential. Also, a direct investment is a lot less liquid than an investment on a publicly quoted high turnover market place. If you suddenly need money, you really don't want to be pressed to sell real estate in an emerging market (keyword: bid ask spread). My advice: the money that you can set aside for the long term (10 years plus), invest it in stock ETFs, globally. Everything else should be invested in bond funds or even deposits, depending on when you will need the access. As others have pointed out, consider getting professional advice.","Last year was a great opportunity for dividend stocks and MLPs. I have a few which are earning 6-9% of my investment basis cost. Municipal bonds are a good value now. If you have the connections, passive investments in convenience franchises or other commercial property are a good income stream. A Dunkin Donuts used to be an amazing money printing machine.","I talk about this subject on my blog on investing, I share everything that has worked for me personally and that makes sense. I would say the ideal investment would be to continue the entrepreneur route. Just make sure you have a clear plan and exit strategy. For me it's all about passion, I love blogging about personal experiences with life, money, and anything that affects our lives. Find something that you would talk about whether you were paid or not and create a business off of it. You'll never work a day in your life because you love it.","Gold is not really an investment at all, because it doesn't generate an income. It's only worth money because people think it's worth money (it has some industrial uses, but most gold is used as a store of value and not for industrial purposes), not because of its income stream.","\"> Basically, the whole idea of passive/mindless (\"\"set it and forget it\"\") gains from investments being the path to \"\"wealth\"\" has to go bye-bye -- it was never really \"\"real\"\" to begin with (unless you \"\"timed\"\" the market just right), and the vast majority of the gains were nominal anyway. Couldn't have said it much better. > a lucky generation or two got away with it (sheerly by accident in the timing of their birth, something they really had no input into). While I agree a majority was luck to be born at the right time, Boomers are to blame (IMHO) for the loss of \"\"guaranteed retirement.\"\" Pensions were one of the greatest things that came out of the industrialization and unionization of the late 19th-mid 20th century and Boomers allowed government to change regulations that permitted corporations to raid pension funds, monkey around with them, and then cry about them being burdensome after they hollowed them out. The vast majority of people are not smart enough to save sufficiently for their future and pensions were the safeguard for that. Boomers let that go for higher immediate take home and, now, will be reliant on SSI and meager savings. > Instead I think one will ALWAYS need to be \"\"working\"\" in some manner or another -- actively overseeing ones investments and remaining \"\"agile\"\" in response. And of course there is risk involved in that (as if there is really any reason we should expect there NOT to be? Anyone who thinks that way IMO is simply ignorant of the vast scope of human history). For those of us here, that is feasible. However, most people will not have the interest or ability to manage their own investments. Where does this requirement leave them? Still working and, in doing so, keeping those jobs from opening up for new graduates/new people entering the workforce. > The best I think one can do is to TRULY diversify (and that does NOT mean \"\"mutual funds\"\") -- to separate your eggs into various \"\"baskets\"\", holding some major part in solid (as solid as can be) form (even with the possibility of zero return and/or some \"\"loss\"\" -- i.e. owning primary housing clear of debt, some PM's in physical form, etc); having other assets in what are fairly solid \"\"bets\"\" (based on demographic trends, company quality, etc); and then some things (several small bets) that are \"\"long shots\"\" but potentially high-return things (where just one \"\"win\"\" can not only offset a dozen non-performers/losers, but gain you a substantial real profit). I could not agree more. I have done the same thing and used the same argument; even to the point of purchasing a whole life insurance policy. Diversification, in case one or multiple investments tank, is the only way to survive. I have also decided that, for some of my assets, I am just a DCA/DRIP buy and hold guy of 10-20 diversified stocks from different industries. Leave it up to time and compounding over my own ability to time/pick. Anyway, I guess that's the whole answer; there is no right answer. Diversification and continued diligence are key. Good discussing with you. Best of luck.\"","Investing for your future through stocks isn’t for the faint of heart. While there are stocks that can withstand our volatile market, there are few that can guarantee their business will still be a business 20 or 30 years from now. [Compound Stock Earnings](http://www.compoundstockearnings.com) Report Benigans would always be with us, but they no longer exist.","Index funds are well-known to give the best long-term investment. Are they? Maybe not all the time! If you had invested in an index fund tracking the S&P500 at the start of 2000 you would still be behind in terms of capital appreciation when taking inflation into considerations. Your only returns in 13.5 years would have been any dividends you may have received. See the monthly chart of the S&P500 below. Diversification can be good for your overall returns, but diversification simply for diversification sake is as you said, a way of reducing your overall returns in order of smoothing out your equity curve. After looking up indexes for various countries the only one that had made decent returns over a 13.5 year period was the Indian BSE 30 index, almost 400% over 13.5 years, although it also has gone nowhere since the end of 2007 (5.5 years). See monthly chart below. So investing internationally (especially in developing countries when developed nations are stagnating) can improve your returns, but I would learn about the various international markets first before plunging straight in. Regarding investing in an Index fund vs direct investment in a select group of shares, I did a search on the US markets with the following criteria on the 3rd January 2000: If the resulting top 10 from the search were bought on 3rd January 2000 and held up until the close of the market on the 19th June 2013, the results would be as per the table below: The result, almost 250% return in 13.5 years compared to almost no return if you had invested into the whole S&P 500 Index. Note, this table lists only the top ten from the search without screening through the charts, and no risk management was applied (if risk management was applied the 4 losses of 40%+ would have been limited to a maximum of 20%, but possibly much smaller losses or even for gains, as they might have gone into positive territory before coming back down - as I have not looked at any of the charts I cannot confirm this). This is one simple example how selecting good shares can result in much better returns than investing into a whole Index, as you are not pulled down by the bad stocks.","The best investment opportunity that guarantees unending cash flows. You will get a replicated website with your own payment button that opens unending and continuous flow of $5 payments directly into your account. There are other biz opportunities (complete home base business) inside the member area. All these opportunities will be yours in less than 10 minutes. Respond to this ad now and start your journey to prosperity","In general, investors with a long period of time until they would need to withdraw the cash are best off holding mostly equities. While the dividends that equities would return are less than the interest you would get in peer-to-peer lending, over long periods of time not only do you get the dividends from equity investment but the value of the stock will grow faster than interest on loans. The higher returns from stocks, however, comes with more risk of big downturns. Many people pull their investments out of stocks right after crashes which really hurts their long term returns. So, in order to get the benefit of investing in stocks you need to be strong enough to continue to hold the stocks through the crash and into the recovery. As for which stocks to invest in, generally it is best to invest in low-fee index funds/etfs where you own a broad collection of stocks so that if (when) any one stock goes bust that your portfolio does not take much damage. Try to own both international and domestic stocks to get good diversification. The consensus recommends adding just a little bit of REITs and bonds to your investments, but for someone at 25 it might not be worth it yet. Warren Buffett had some good thoughts on index investing.","Can anyone suggest all type of investments in India which are recession proof? There are no such investments. Quite a few think bullions like Gold tend to go up during recession, which is true to an extent; however there are enough articles that show it is not necessarily true. There are no fool proof investments. The only fool proof way is to mitigate risks. Have a diversified portfolio that has Debt [Fixed Deposits, Bonds] and equity [Stocks], Bullion [Gold], etc. And stay invested for long as the effects tend to cancel out in the long run.","People in the United States in the mid-2000's thought that real estate was safe. Then they discovered that when the bubble burst the value of their house dropped 10 to 50%. Then they realized that they couldn't sell, even if they had the cash to make the lender whole. Some lost their houses to foreclosure, others walked away and took massive hits to their wealth and credit scores. When it is hard or impossible to sell, that means you can't move to where the jobs are. While it is possible to make money in real estate, treating your house as an investment vehicle means that you are putting not only all your eggs into one basket; you are also living in the basket. In general you should assume that all investment involves risk. So if you are trying to avoid all chances of losing money then the safest form of investment is via your bank account and government bonds. Your national government has a program to insure bank accounts, you need to understand the rules for that program, including types of accounts and amounts. You should also look into your national programs for retirement accounts, to make sure you are investing for the long term. Many people invest via the stock market or the bond market. These investments are not guaranteed, though there may be some protection for fraud. The more specific your investments (individual companies) the more time you need to invest in research and tracking. Many investors do so via mutual funds or Exchange Traded Funds, this involves less of a time investment because you are paying the management comp nay for the fund to do that research for all their investors.","Your post seems to read as if you want to invest only in real estate rental properties as a start because they will be a reliable investment guaranteed to generate profits that you will be plowing back into buying even more rental properties, but you are willing to consider (possibly in later years) other forms of investment (in real estate) that will not require active participation in the management of the rental properties. While many participants here do own rental real estate and even manage it entirely, for most people, that is only a small part of their investment portfolio, and I suspect that hardly any will recommend real estate as the only investment the way you seem to want to do. Also, you might want to look more closely at the realities of rental real estate operations before jumping in. Things are not necessarily as rosy as they appear to you now. Not all your units will be rented all the time, and the rental income might not always be enough to cover the mortgage payments and the property taxes and the insurance payments and the repairs and maintenance and ... Depreciation of the property is another matter that you might not have thought about. That being said, you can invest in real estate through real estate investment trusts (REITs) or through limited partnerships where you have only a passive role. There are even mutual funds that invest in REITs or in REIT indexes.","Investing in mutual funds, ETF, etc. won't build a large pool of money. Be an active investor if your nature aligns. For e.g. Invest in buying out a commercial space (on bank finance) like a office space and then rent it out. That would give you better return than a savings account. In few years time, you may be able to pay back your financing and then the total return is your net return. Look for options like this for a multiple growth in your worth.","If you will leave the money invested for a good long while (years) then dividend paying stocks would be appropriate. There are many that pay yields of 3 to 4 percent, which you can take as income or reinvest to compound the growth. There is a lot of good analysis of stocks (and mutual funds that specialize in dividend paying stocks) at Morningstar.com","you should invest in a range of stock market indexes. Ex : Dow jones, S&P500, Nasdaq and keep it there until you are ready to retire. I'm invested half in SLYV and SLYG (S&P600 small cap value and S&P600 small cap growth; Respectively). It brings on average between 8-13% a year (since 1971). This is not investment advice. Talk to your broker before doing this.","For a time period as short as a matter of months, commercial paper or bonds about to mature are the highest returning investments, as defined by Benjamin Graham: An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative. There are no well-known methods that can be applied to cryptocurrencies or forex for such short time periods to promise safety of principal. The problem is that with $1,500, it will be impossible to buy any worthy credit directly and hold to maturity; besides, the need for liquidity eats up the return, risk-adjusted. The only alternative is a bond ETF which has a high probability of getting crushed as interest rates continue to rise, so that fails the above criteria. The only alternative for investment now is a short term deposit with a bank. For speculation, anything goes... The best strategy is to take the money and continue to build up a financial structure: saving for risk-adjusted and time-discounted future annual cash flows. After the average unemployment cycle is funded, approximately six or so years, then long-term investments should be accumulated, internationally diversified equities.","This is a long term investment but can be very useful during tough times. Be prepared not only to take but to give as well. Moreover:","DRiPs come to mind as something that may be worth examining. If you take the Microsoft example, consider what would happen if you bought additional shares each year by re-investing the dividends and the stock also went up over the years. A combination of capital appreciation in the share price plus the additional shares purchased over time can produce a good income stream over time. The key is to consider how long are you contributing, how much are you contributing and what end result are you expecting as some companies can have larger dividends if you look at REITs for example.","As you are in UK, you should think in terms of Tax Free (interest and accumulated capital gains) ISA type investments for the long term AND/OR open a SIPP (Self Invested Pension Plan) account where you get back the tax you have paid on the money you deposit for your old age. Pensions are the best bet for money you do not need at present while ISAs are suitable for short term 5 years plus or longer.","Assuming that the financial system broke down, not enough supply of essential commodities or food but there is political and administrative stability and no such chaos that threatens your life by physical attacks. The best investment would then be some paddy fields, land, some cows, chickens and enough clothing , a safe house to stay and a healthy life style that enables you to work for food and some virtue at heart and management skills to get people work for you on your resources so that they can survive with you (may be you earn some profit -that is up to your moral standards to decide, how much). It all begins to start again; a new Financial System has to be in place….!","As stated in the comments, Index Funds are the way to go. Stocks have the best return on investment, if you can stomach the volatility, and the diversification index funds bring you is unbeatable, while keeping costs low. You don't need an Individual Savings Account (UK), 401(k) (US) or similar, though they would be helpful to boost investment performance. These are tax advantaged accounts; without them you will have to pay taxes on your investment gains. However, there's still a lot to gain from investing, specially if the alternative is to place them in the vault or similar. Bear in mind that inflation makes your money shrink in real terms. Even a small interest is better than no interest. By best I mean that is safe (regulated by the financial authorities, so your money is safe and insured up to a certain amount) and has reasonable fees (keeping costs low is a must in any scenario). The two main concerns when designing your portfolio are diversification and low TER (Total Expense Ratio). As when we chose broker, our concern is to be as safe as we possibly can (diversification helps with this) and to keep costs at the bare minimum. Some issues might restrict your election or make others seem better. Depending on the country you live and the one of the fund, you might have to pay more taxes on gains/dividends. e.g. The US keeps some of them if your country doesn't have a special treaty with them. Look for W-8Ben and tax withholding for more information. Vanguard and Blackrock offer nice index funds. Morningstar might be a good place for gathering information. Don't trust blindly the 'rating'. Some values are 'not rated' and kick ass the 4 star ones. Again: seek low TER. Not a big fan of this point, but I'm bound to mention it. It can be actually helpful for sorting out tax related issues, which might decide the kind of index fund you pick, and if you find this topic somewhat daunting. You start with a good chunk of money, so it might make even more sense in your scenario to hire someone knowledgeable and trustworthy. I hope this helps to get you started. Best of luck.","Wow, everyone tells you different investment strategies. You have all your life ahead of you. Your main focus should not be getting the best return rate, but ensuring your existence. Who cares if you get 7% if you'll lose all in the next market crash and stand on the street with no education, no job and nothing to fall back on? I would go a completely different route in your place: The best advise given above was to not consider this as an option to never work again. It's not enough money for that, unless you want to live poorly and always be afraid that the next financial crises wipes you out completely.","As I tell all my clients... remember WHY you are investing in the first. Make a plan and stick to it. Find a strategy and perfect it. A profit is not a profit until you take it. the same goes with a loss. You never loose till you sell for less than what you paid. Stop jumping for one market to the next, find one strategy that works for you. Making money in the stock market is easy when you perfect your trading strategy. As for your questions: Precious metal... Buying or selling look for the trends and time frame for your desired holdings. Foreign investments... They have problem in their economy just as we do, if you know someone that specializes in that... good for you. Bonds and CD are not investments in my opinion... I look at them as parking lots for your cash. At this moment in time with the devaluation of the US dollar and inflation both killing any returns even the best bonds are giving out I see no point in them at this time. There are so many ways to easily and safely make money here in our stock market why look elsewhere. Find a strategy and perfect it, make a plan and stick to it. As for me I love Dividend Capturing and Dividend Stocks, some of these companies have been paying out dividends for decades. Some have been increasing their payouts to their investors since Kennedy was in office.","\"This may be a great idea, or a very bad one, or it may simply not be applicable to you, depending on your personal circumstances and interests. The general idea is to avoid passive investments such as stocks and bonds, because they tend to grow by \"\"only\"\" a few percent per year. Instead, invest in things where you will be actively involved in some form. With those, much higher investment returns are common (but also the risk is higher, and you may be tied down and have to limit the traveling you want to do). So here are a few different ways to do that: Get a college degree, but only if you are interested in the field, and it ends up paying you well. If you aren't interested in the field, you won't land the $100k+ jobs later. And if you study early-childhood education, you may love the job, but it won't pay enough to make it a good investment. Of course, it also has to fit with your life plans, but that might be easier than it seems. You want to travel. Have you thought about anthropology, marine biology or archeology? Pick a reputable, hard-to-get-into, academic school rather than a vocation-oriented oe, and make sure that they have at least some research program. That's one way to distinguish between the for-profit schools (who tend to be very expensive and land you in low-paying jobs), and schools that actually lead to a well-paying future. Or if your interest runs more in a different direction: start a business. Your best bet might be to buy a franchise. Many of the fast-food chains, such as McDonalds, will let you buy as long as you have around $300k net worth. Most franchises also require that you are qualified. It may often make sense to buy not just one franchised store, but several in an area. You can increase your income (and your risk) by getting a loan - you can probably buy at least $5 million worth of franchises with your \"\"seed money\"\". BTW, I'm only using McDonalds as an example. Well-known fast food franchises used to be money-making machines, but their popularity may well have peaked. There are franchises in all kinds of industries, though. Some tend to be very short-term (there is a franchise based on selling customer's stuff on ebay), while others can be very long-lived (many real-estate brokerages are actually franchises). Do be careful which ones you buy. Some can be a \"\"license to print money\"\" while others may fail, and there are some fraudsters in the franchising market, out to separate you from your money. Advantage over investing in stocks and bonds: if you choose well, your return on investment can be much higher. That's generally true for any business that you get personally involved in. If you do well, you may well end up retiring a multimillionaire. Drawback: you will be exposed to considerable risk. The investment will be a major chunk of your net worth, and you may have to put all your eggs in none basket. If your business fails, you may lose everything. A third option (but only if you have a real interest in it!): get a commercial driver's license and buy an 18-wheeler truck. I hear that owner-operators can easily make well over $100k, and that's with having to pay off a bank loan. But if you don't love trucker culture, it is likely not worth doing. Overall, you probably get the idea: the principle is to use your funds as seed money to launch something profitable and secure, as well as enjoyable for you.\"","All of this makes perfect sense and I can definitely see the logic behind it. But I don't think Hedge Funds are the way to go. The real money lies in real estate, more specifically land-banking. The problem, though, is that a lot of land-banking investments are really just scams and it's really hard to tell which ones are real and which ones are fake.","Imagine a stock where the share price equals the earnings per share. You pay say $100 for a share. In the next year, the company makes $100 per share. They can pay a $100 dividend, so now you have your money back, and you still own the share. Next year, they make $100 per share, pay a $100 dividend, so now you have your money back, plus $100 in your pocket, plus you own the share. Wow. What an incredible investment.","\"On reflection there are financial products that do what you want, whole-life insurance policies that guarantee an annual dividend calculation on some index with a ceiling and floor. So you will have a return within a defined minimum and maximum range. There are a lot of opinions on the internet on this. This Consumer Reports article is balanced These have a reputation for being bad for the consumer compared to buying term life and investing in a mutual fund separately, but if you want the guarantee (or are a \"\"moral hazard\"\" for a life insurance policy, closer to death than you appear on paper) it may be a product for you. If you're very wealthy, there is an estate tax exploit in insurance death benefits that can make this an exceptional shield on assets for your heirs, with the market return just the gravy.\"","Since you mentioned moving, you can buy real state very cheap here in Mexico that will give you income monthly. I will tell you some numbers in case you're interested. Now to investments: you can buy houses for rent, and prices are as follows: Average house $25k which will give about $220 monthly of income. Let's say you buy 20 of these that would be $4400 USD monthly. Now you have a very high standard here and you will never have to work again, and each year the income will increase about 2% and you still have $576k left.","I-series Treasury bonds are the closest thing you can get to an investment where your principal is guaranteed to be returned (even accounting for inflation). https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm Treasury Inflation Protected Securities are another option, but if you have to sell before maturity then 'the market' may not pay you back your initial investment. https://www.treasurydirect.gov/indiv/products/prod_tips_glance.htm","This is called a Life Annuity, and any life insurance salesperson will gladly sell you one.","If you are an entrepreneur, and you are looking forward to strike on your own ( the very definition of entrepreneur) then I suggest that you don't invest in anything except your business and yourself. You will need all the money you have when you launch your business. There will be times when your revenue won't be able to cover your living costs, and that's when you need your cash. At that point of time, do you really want to have your cash tie up in stock market/property? Some more, instead of diverting your attention to learn how the stock market/property works, focus on your business. You will find that the reward is much, much greater. The annual stock market return is 7% to 15%. But the return from entrepreneurship can be many times higher than that. So make sure you go for the bigger prize, not the smaller gains. It's only when your business no longer requires your capital then you can try to find other means of investment.","\"To be completely honest, I think that a target of 10-15% is very high and if there were an easy way to attain it, everyone would do it. If you want to have such a high return, you'll always have the risk of losing the same amount of money. Option 1 I personally think that you can make the highest return if you invest in real estate, and actively manage your property(s). If you do this well with short term rental and/or Airbnb I think you can make healthy returns BUT it will cost a lot of time and effort which may diminish its appeal. Think about talking to your estate agent to find renters, or always ensuring your AirBnB place is in good nick so you get a high rating and keep getting good customers. If you're looking for \"\"passive\"\" income, I don't think this is a good choice. Also make sure you take note of karancan's point of costs. No matter what you plan for, your costs will always be higher than you think. Think about water damage, a tenant that breaks things/doesn't take care of stuff etc. Option 2 I think taking a loan is unnecessarily risky if you're in good financial shape (as it seems), unless you're gonna buy a house with a mortgage and live in it. Option 3 I think your best option is to buy bonds and shares. You can follow karancan's 100 minus your age rule, which seems very reasonable (personally I invest all my money in shares because that's how my father brought me up, but it's really a matter of taste. Both can be risky though bonds are usually safer). I think I should note that you cannot expect a return of 10% or more because, as everyone always says, if there were a way to guarantee it, everyone would do it. You say you don't have any idea how this works so I'd go to my bank and ask them. You probably have access to private banking so that should mean someone will be able to sit you down and talk you through. Also look at other banks that have better rates and/or pretend you're leaving your bank to negotiate a better deal. If I were you I'd invest in blue chips (big international companies listed on the main indeces (DAX, FTSE 100, Dow Jones)), or (passively managed) mutual funds/ETFs that track these indeces. Just remember to diversify by country and industry a bit. Note: i would not buy the vehicles/plans that my bank (no matter what they promise, and they promise a lot) suggest because if you do that then the bank always takes a cut off your money. TlDr, dont expect to make 10-15% on a passive investment and do what a lot of others do: shares and bonds. Also make sure you get a lot of peoples opinions :)\"","There is none, whatever sector you invest in will be subject to cyclical market difficulties, however alpha can be generated from two sources: Timing and selection. Its much easier to get the timing done over a long period of time.","\"Invest in a high quality dividend paying group of stocks. Look up \"\"stock aristocrats\"\" to find longterm quality stocks that have regularly increased their dividends for over 20'years. 10'years is a safe period of time to invest in stocks. If you had bought stocks at their hight in 2007 and kept them through the 40% decline thru 2008 and 2009 and held on to them for 10 years until 2017, you would have earned a 40 % increase from when you purchased them. That is pretty much a worst case scenerio. If you had invested in dividend paying stocks and had earned an additional 2.5% per year, you would have exceeded your 5% goal. The lifetime yearly return of the stock market is 10%. Time is the only downside, but with ten years, you are almost certainly immune.\"","\"Depends on your definition of \"\"secure\"\". The most \"\"secure\"\" investment from a preservation of principal point of view is a non-tradable, general obligation government bond. (Like a US or Canadian savings bond.) Why? There is no interest rate risk -- you can't lose money. The downside is that the rate is not so good. If you want returns and a reasonably high level of security, you need a diversified portfolio.\"","The trend in ETFs is total return: where the ETF automatically reinvests dividends. This philosophy is undoubtedly influenced by that trend. The rich and retired receive nearly all income from interest, dividends, and capital gains; therefore, one who receives income exclusively from dividends and capital gains must fund by withdrawing dividends and/or liquidating holdings. For a total return ETF, the situation is even more limiting: income can only be funded by liquidation. The expected profit is lost for the dividend as well as liquidating since the dividend can merely be converted back into securities new or pre-existing. In this regard, dividends and investments are equal. One who withdraws dividends and liquidates holdings should be careful not to liquidate faster than the rate of growth.","1) Don't trade individual stocks. You expose yourself to unnecessary risk. 2) Pick a fund with low expenses that pays a dividend. Reinvest the dividend back into the fund. To quote Einstein: The greatest power on earth is compound interest. Something is wrong with the software of the site. It will not allow me to answer mark with another comment. So I have to edit this answer to be able to answer him. @mark No, I am not hoping the price will go up. The price is only relevant in comparison to the dividend. It is the dividend that is important, not the price. The price is irrelevant if you never sell. Dividend paying securities are what you buy and hold. Then you reinvest the dividend and buy more of the security. As I am buying the security with the dividend I am actually pleasantly surprised when the price goes down. When the price goes down, but the dividend remains the same, I am able to buy more shares of the security withwith that dividend. So if the price goes down, and the dividend remains the same, it is a good thing. Again, the site will not allow me to add another comment. @mark I profit from my investment, without selling, by receiving the dividend. I used to be a speculator, trying to get ahead of the market by 'buy low, sell high' but all that did was make money for the broker. I lost as much as I gained trying to do that. The broker made money on each transaction, regardless if I did or not. It took me decades to learn the lesson that 'buy and hold' of dividend paying securities is the way to go. Don't make my mistake. I now get, at least, 5.5% yeald on my investment (look at PGF, which forms the backbone of my investments). That is almost 0.5% per month. Each month that dividend is reinvested into PGF, with no commission. You can't beat that with a stick.","Fundamental rule of investing money : Now come to the point, best money investment","The big question is whether you will be flexible about when you'll get that house. The overall best investment (in terms of yielding a good risk/return ratio and requiring little effort) is a broad index fund (mutual or ETF), especially if you're contributing continuously and thereby take advantage of cost averaging. But the downside is that you have some volatility: during an economic downturn, your investment may be worth only half of what it's worth when the economy is booming. And of course it's very bad to have that happening just when you want to get your house. Then again, chances are that house prices will also go down in such times. If you want to avoid ever having to see the value of your investment go down, then you're pretty much stuck with things like your high-interest savings account (which sounds like a very good fit for your requirements.","You could buy debt/notes or other instruments that pay out periodically. Some examples are If there is an income stream you can discount the present value and then buy it/own the rights to income stream. Typically you pay a discounted price for the face value and then receive the income stream over time.","Or you could flip houses. i'm not sure where you live but hwere im from its not uncommon to buy a house for 5k or a duplex for 8k. put about 4k into it and charge about 600 rent. or put 4k into the 8k, thats 12k sell it for 20. if it takes a year that's a 66% return on your investment in one year. and its small risk. also, if it doesnt sell, youre still renting it out with month to month or 3-6 month leases.","A perpetuity in the mathematical context is the equation in your link. A perpetuity in the legal sense is a liability that never matures, presumably paying endlessly, except for a banknote that pays nothing. An example would be UK war bonds during WWII. Real estate can be modeled like a perpetuity for convenience, but it is not a legal obligation to pay forever if one excludes taxes. If one starts with capital and ends with a perpetuity, one has bought a perpetuity. If one starts out with nothing and ends with capital by way of a perpetuity, one has sold a perpetuity.","\"TL;DR - go with something like Barry Ritholtz's All Century Portfolio: 20 percent total U.S stock market 5 percent U.S. REITs 5 percent U.S. small cap value 15 percent Pacific equities 15 percent European equities 10 percent U.S. TIPs 10 percent U.S. high yield corp bonds 20 percent U.S. total bond UK property market are absurdly high and will be crashing a lot very soon The price to rent ratio is certainly very high in the UK. According to this article, it takes 48 years of rent to pay for the same apartment in London. That sounds like a terrible deal to me. I have no idea about where prices will go in the future, but I wouldn't voluntarily buy in that market. I'm hesitant to invest in stocks for the fear of losing everything A stock index fund is a collection of stocks. For example the S&P 500 index fund is a collection of the largest 500 US public companies (Apple, Google, Shell, Ford, etc.). If you buy the S&P 500 index, the 500 largest US companies would have to go bankrupt for you to \"\"lose everything\"\" - there would have to be a zombie apocalypse. He's trying to get me to invest in Gold and Silver (but mostly silver), but I neither know anything about gold or silver, nor know anyone who takes this approach. This is what Jeremy Siegel said about gold in late 2013: \"\"I’m not enthusiastic about gold because I think gold is priced for either hyperinflation or the end of the world.\"\" Barry Ritholtz also speaks much wisdom about gold. In short, don't buy it and stop listening to your friend. Is buying a property now with the intention of selling it in a couple of years for profit (and repeat until I have substantial amount to invest in something big) a bad idea? If the home price does not appreciate, will this approach save you or lose you money? In other words, would it be profitable to substitute your rent payment for a mortgage payment? If not, you will be speculating, not investing. Here's an articles that discusses the difference between speculating and investing. I don't recommend speculating.\"","\"anything that produces steady income will produce a \"\"real return\"\" (return above inflation) in a zero-interest rate environment: Note, however, that all of these will decline in value if interest rates rise.\"","\"I have money to invest. Where should I put it? Anyone who answers with \"\"Give it to me, I'll invest it for you, don't worry.\"\" needs to be avoided. If your financial advisor gives you this line or equivalent, fire him/her and find another. Before you think about where you should put your money, learn about investing. Take courses, read books, consume blogs and videos on investing in stocks, businesses, real estate, and precious metals. Learn what the risks and rewards are for each, and make an informed decision based on what you learned. Find differing opinions on each type of investment and come to your own conclusions for each. I for example, do not understand stocks, and so do not seriously work the stock market. Mutual funds make money for the folks selling them whether or not the price goes up or down. You assume all the risk while the mutual fund advisor gets the reward. If you find a mutual fund advisor who cannot recommend the purchase of a product he doesn't sell, he's not an advisor, he's a salesman. Investing in business requires you either to intimately understand businesses and how to fund them, or to hire someone who can make an objective evaluation for you. Again this requires training. I have no such training, and avoid investing in businesses. Investing in real estate also requires you to know what to look for in a property that produces cash flow or capital gains. I took a course, read some books, gained experience and have a knowledgeable team at my disposal so my wins are greater than my losses. Do not be fooled by people telling you that higher risk means higher reward. Risks that you understand and have a detailed plan to mitigate are not risks. It is possible to have higher reward without increasing risk. Again, do your own research. The richest people in the world do not own mutual funds or IRAs or RRSPs or TFSAs, they do their own research and invest in the things I mentioned above.\"","Look at the aristocrat dividend paying stocks (https://en.m.wikipedia.org/wiki/S%26P_500_Dividend_Aristocrats). These all pay dividends and have consistently outperformed the S&P 500 - 10.6% vs 7.4% the last ten years. While stocks should not be generally considered for short-term investing, I personally think the market is showing a general up trend for the next few years. Also, the dividends add an additional buffer. Because you would be making regular monthly investments, you should choose a fund that invests in aristocrat stocks so you can set up an automatic depost.","Currencies are a zero-sum game. If you make money, someone else will lose it. Because bank notes sitting in a pile don't create anything useful. But shares in companies are different, because companies actually do useful things and make money, so it's possible for all investors to make money. The best way to benefit is generally to put your money into a low-cost index fund and then forget about it for at least five years.","Be very careful to hold on tight to your money! I agree with paying for an investment advisor, but I would say use at least two to get different viewpoints, and get credentials and references! Don't let relatives convince you to invest in their business, or help them out, or any other such nonsense. Real estate still is one of the best investments out there in my opinion. You could buy a fixer upper and rent it out?","CDs pay less than the going rate so that the banks can earn money. Investing is risky right now due to the inaction of the Fed. Try your independent life insurance agent. You could get endowment life insurance. It would pay out at age 21. If you decide to invest it yourself try to buy a stable equity fund. My 'bedrock' fund is PGF. It pays dividends each month and is currently yealding 5.5% per year. Scottrade has a facility to automatically reinvest the dividend each month at no commission. http://www.marketwatch.com/investing/Fund/PGF?CountryCode=US","What explains the most of the future returns of a portfolio is the allocation between asset classes. In the long term, stock investments are almost certain to return more than any other kinds of investments. For 40+ years, I would choose a portfolio of 100% stocks. How to construct the portfolio, then? Diversification is the key. You should diversify in time (don't put a large sum of money into your stock portfolio immediately; if you have a large sum to invest, spread it around several years). You should diversify based on company size (invest in both large and small companies). You should also diversify internationally (don't invest in just US companies). If you prefer to pick individual stocks, 20 very carefully selected stocks may provide enough diversification if you keep diversification in mind during stock picking. However, careful stock picking cannot be expected to yield excess returns, and if you pick stocks manually, you need to rebalance your portfolio occasionally. Thus, if you're lazy, I would recommend a mutual fund, or many mutual funds if you have difficulty finding a low-cost one that is internationally diversified. The most important consideration is the cost. You cannot expect careful fund selection to yield excess returns before expenses. However, the expenses are certain costs, so prefer low-cost funds. Almost always this means picking index funds. Avoid funds that have a small number of stocks, because they typically invest only in the largest companies, which means you fail to get diversification in company size. So, instead of Euro STOXX 50, select STOXX 600 when investing to the European market. ETFs may have lower costs than traditional mutual funds, so keep ETFs in mind when selecting the mutual funds in which to invest. For international diversification, do not forget emerging markets. It is not excessive to invest e.g. 20% to emerging markets. Emerging markets have a higher risk but they also have a higher return. A portfolio that does not include emerging markets is not in my opinion well diversified. When getting close to retirement age, I would consider increasing the percentage of bonds in the portfolio. This should be done primarily by putting additional money to bonds instead of selling existing investments to avoid additional taxes (not sure if this applies to other taxation systems than the Finnish one). Bond investments are best made though low-cost mutual funds as well. Keep bond investments in your local currency and risk-free assets (i.e. select US government bonds). Whatever you do, remember that historical return is no guarantee of future return. Actually, the opposite may be true: there is a mean reversion law. If a particular investment has returned well in the past, it often means its price has gone up, making it more likely that the price goes down in the future. So don't select a fund based on its historical return; instead, select a fund based on low costs. However, I'm 99% certain that over a period of 40 years, stocks will return better than other investments. In addition to fund costs, taxes are the other certain thing that will be deducted from your returns. Research what options you have to reduce the taxes you need to pay. 401-K was explained in another answer; this may be a good option. Some things recommended in other answers that I would avoid:","If you are going to work on making as much money as humanly possible, then you ought to consider investing in the market. [Compound Stock Earnings](http://www.compoundstockearnings.com) agrees that investing in stocks is a fantastic technique to acquire prosperity on your own. Believe it or not, it’s the greatest source of wealth in the history of the world. For that reason, you need to ensure that you get started at the earliest opportunity.","If your requirements are hard (must have $1000/month, must have the same or bigger in capital at the end), stocks are a poor choice of investment. However, in many cases, people are willing to tolerate some level of risk to achieve the expected returns. You also do not mention inflation, which can take quite a lot out of your portfolio over the course of ten years. If we make some simplifying assumptions, you want to generate $12,000 a year. You can realistically expect the (whole) stock market, long term (i.e. over time periods substantially longer than 10 years), to return approximately 4 - 5% after factoring in inflation. That means an investment of $240,000 - $300,000 (the math is simplified somewhat here). If you don't care about inflation, you can up the percentage rather somewhat. According to this article, the S&P 500 returned an average of 11.31% from 1928 through 2010 (not factoring in inflation), which would require an investment of approximately $106,100. But! This opens you up to substantial risk. The stock market may go down 30% this year! According to the above article, the S&P returned only 3.54% from 2001 to 2010. Long-term, it goes up, but your investment case is really unsuited to investing in an index to the entire stock market given your requirements. You may be better suited investing primarily in stable bonds, or perhaps a mix of bonds and stocks. Alternatively, you may want to consider even more stable investments such as treasury notes. Treasury notes are all but guaranteed, but with a lousy rate of return. Heck, you could consider a GIC (that may be Canada-only) or even a savings account. There's also the possibility of purchasing an annuity, though almost everyone will advise against such. Personally, I'd go for a mutual fund which invested approximately 70% bonds and the rest in stocks over such a time period. Something like ING Direct's Streetwise Balanced Income Portfolio, if you were in Canada. It substantially lowers your expected return but also lowers your risk. I can't honestly say what the expected return there is; at this point, it's returned 4% per year (before inflation), but has been around only since the beginning of 2008. And to be clear, this is absolutely not free of risk.","Best is indeed subjective. You could for example, get a Universal Life Policy that pays a guaranteed interest on all monies (even those in excess of what you need to pay to cover the policy). Most people will tell you (probably correctly) that using life insurance as an investment vehicle is a bad idea, however. The growth of the money in a UL policy, however, is usually tax deductible and grows at a guaranteed rate. NWML here in the U.S. pays a guaranteed (unless they go broke I suppose) 4% per year; historically, however, they've been paying 6% per year. That's pretty good, except a lot of your money goes into buying the policy the first few years.","\"Your relatively young age and the current very low bond interest rates make annuities a very poor buy. And most of the other suggestions you have mentioned have very low diversification, which exposes you to imprudent risks. Buying shares for dividend income can solve the diversification problem by averaging out your totals as different shares change by different amounts. There is no really good solution to the problem of share price volatility except to ignore it: Take your dividends and pretty much ignore the bouncing around of the share price. They usually recover in a year or three. Owning shares of companies that reliably increase their dividend payouts is the only investment type that gives you both diversification and regularly increasing income to counteract inflation over the years. Read some investment books and consider consulting with a financial advisor who charges a fee for the advice. I.e., you don't want \"\"free\"\" advice.\"","As always with investments, it depends on your risk adversity. I don't want to repeat the content of hundreds of recommendations here, so just the nutshell: (For qualified investments,) the more risk you are willing to take, the more returns you'll get. The upper end is the mutual funds and share market, where you have long-term expectations of 8 - 10 % (and corresponding risks of maybe +/- 50% per year), the lower end is a CD, where you can expect little to no interest, corresponding to little to no risk. Investing in shares/funds is not 'better' than investing in CDs, it is different. Not everybody likes financial roller-coasters, and some people mainly consider the high risk, which gives them sleepless nights; while others just consider the expected high long-term gains as all that counts. Find out what your personal risk adversity is, and then pick accordingly.","\"The key is to look at total return, that is dividend yields plus capital growth. Some stocks have yields of 5%-7%, and no growth. In that case, you get the dividends, and not a whole lot more. These are called dividend stocks. Other stocks pay no dividends. But if they can grow at 15%-20% a year or more, you're fine.These are called growth stocks. The safest way is to get a \"\"balanced\"\" combination of dividends and growth, say a yield of 3% growing at 8%-10% a year, for a total return of 11%-13%. meaning that you get the best of both worlds.These are called dividend growth stocks.\"","There are quite a few options. Suggest you put a mix of things and begin investing into Mutual Funds.","\"There's no such thing as true \"\"passive income.\"\" You are being paid the risk free rate to delay consumption (i.e., the super low rate you are getting on savings accounts and CDs) and a higher rate to bear risk. You will not find truly risk-free investments that earn more than the types of investments you have been looking at...most likely you will not keep up with inflation in risk-free investments. For a person who is very risk averse but wants to make a little more money than the risk-free rate, the solution is not to invest completely in slightly risky things. Instead the best thing you can do is invest partially in a fully diversified portfolio. A diversified portfolio (containing stocks, bonds, etc) will earn you the most return for the given amount of risk. If you want very little risk, put very little in that portfolio and keep the rest in your CDs. Put 90% of your money in a CD or something and the other 10% in stocks/bonds. Or choose a different percentage. You can also buy real assets, like real estate, but you will find yourself taking a different type of risk and doing a different type of work with those assets.\"","Since you mention the religion restriction, you should probably look into the stock market or funds investing in it. Owning stock basically means you own a part of a company and benefit from any increase in value the company may have (and 'loose' on decreases, provided you sell your stock) and you also earn dividends over the company's profit. If you do your research properly and buy into stable companies you shouldn't need to bother about temporary market movements or crashes (do pay attention to deterioration on the businesses you own though). When buying stocks you should be aiming for the very long run. As mentioned by Victor, do your research, I recommend you start it by looking into 'value stocks' should you choose that path.","It requires fairly large levels of capital, but what about seed funding/angel investments in startups? This would be before venture capital gets involved, so the amounts are relatively low (tens of thousands, vs. millions of USD), but as valuations this early in the game are also low, you can get a significant portion of equity in a startup that you feel is being run by good people and is in a promising market. Paul Graham of Y-Combinator has a number of articles about this from both sides of the table that you can take a look at and see if this is for you. It's definitely very high-risk, but if you can pick successful startups before their valuation shoots up, get some equity, help them succeed, and they eventually go public or get acquired, you can stand to bring in some big returns. Note that this isn't a hands-off investment. You'll need to build connections in the startup community, and it isn't uncommon for angel investors to become involved in the day-to-day operations of the businesses in which they invest.","It is only wise to invest in what you understand (ala Warren Buffet style). Depending on how much money you have, you might see fit to consult a good independent financial advisor instead of seeking advice from this website. A famous quote goes: “Those who say, do not know. Those who know, do not say”","\"The stock market may not grow \"\"forever\"\". There will be growth in the stock market, though. The stock market is a positive-sum game, since it is driven in large part by the profits earned by the companies. This doesn't mean that any individual stock will go up forever, it doesn't mean that any given index will go up forever, and it doesn't mean there won't be periods when the market as a whole drops. But it is reasonable to expect that long-term investing in the market as a whole will continue to return profits that reflect the success of companies invested in. Historically, that return has averaged about 8%; future results may be different and exact results will depend on exactly when and how you invest. Re \"\"what about Japan, which has been flat over 30 years\"\": Market being flat doesn't mean individual companies may not be growing strongly. Picking stocks may become more important, and we might need to relearn to focus on dividends rather than being so monomaniacal about growth (dividends are not reflected in the indices, please note), but there will be money to be made. How much, and how much effort is required to get it, and whether the market offers the best available bets, deponent sayeth not. Past results are no guarantee of future returns, and your results may be better or worse than average. You should be diversified into bonds and such anyway, rather than only in the stock market.\"","If you are in an economy which has a decent liquid debt market (corporate bonds, etc.), then you may look into investing in AA or AA+ rated bonds. They can provide higher returns than bank deposits and are virtually risk-free. (Though in severe economic downturns, you can see defaults in even very high-rated bonds, leading to partial or complete loss of value however, this is statistically quite rare). You can make this investment through a debt mutual fund but please make sure that you read through the offer document carefully to understand the investment style of the mutual fund and their expense ratio (which directly affect your returns). In any case, it is always recommended to reach out to an investment adviser who is good with local tax laws to minimize taxes and maximize returns.","\"They pretty much already have what you are looking for. They are called Unit Investment Trusts. The key behind these is (a) the trust starts out with a fixed pool of securities. It is completely unmanaged and there is no buying or selling of the securities, (b) they terminate after a fixed period of time, at which time all assets are distributed among the owners. According to Investment Company Institute, \"\"securities in a UIT are professionally selected to meet a stated investment objective, such as growth, income, or capital appreciation.\"\" UITs sell a fixed number of units at one-time public offering. Securities in a UIT do not trade actively, rather, UITs use a strategy known as buy-and-hold. The UIT purchases a certain amount of securities and holds them until its termination date. Holdings rarely change throughout the life of the trust so unit holders know exactly what they're investing in, and the trust lists all securities in its prospectus. Unit trusts normally sell redeemable units - this obligates the trust to re-purchase investor's units at their net asset value at the investors request.\"","If you buy a gold brick and put it in a pillow, after one year you still have one gold brick. People may value it more than before or less then before, but it's still the one gold brick you had. If you buy a cow and put it on a pasture, after one year you have a fatter cow and plenty of milk. You now have more of the cow and milk you didn't have before. Now that's an investment.","The simplest way is to invest in a few ETFs, depending on your tolerance for risk; assuming you're very short-term risk tolerant you can invest almost all in a stock ETF like VOO or VTI. Stock market ETFs return close to 10% (unadjusted) over long periods of time, which will out-earn almost any other option and are very easy for a non-finance person to invest in (You don't trade actively - you leave the money there for years). If you want to hedge some of your risk, you can also invest in Bond funds, which tend to move up in stock market downturns - but if you're looking for the long term, you don't need to put much there. Otherwise, try to make sure you take advantage of tax breaks when you can - IRAs, 401Ks, etc.; most of those will have ETFs (whether Vanguard or similar) available to invest in. Look for funds that have low expense ratios and are fairly diversified (ie, don't just invest in one small sector of the economy); as long as the economy continues to grow, the ETFs will grow.","\"Invest in productive assets and by that I mean companies. Edit: I'll elaborate on \"\"productive assets\"\": any asset that produces something; whether it produces cash or a commodity, you'll automatically accumulate more of its byproduct in the future. The rest is self explanatory\"","\"While you want it to grow faster than inflation, there are things like I-bonds that can carry some inflation protection with them for an idea that may make sense for part of this. There are now some more details and I'd think this seems alright initially though I would suggest considering having some kind of on-going plan to handle periodically seeing how much more to invest here and what kind of taxes will this generate for you as taxable accounts can carry a mix of dividends, interest and capital gains that you may have to pay even though you didn't see the gain yourself. Keep in mind that if you do go with a big-name investment bank, this could well add more fees as well as other stuff. Lehman Brothers was a big name investment bank once upon a time and they went broke. While you may want to be hands-off, I'd still suggest having some kind of timeline for how often are your investments to be reviewed and things re-allocated. Each quarter, semi-annually, or annual? There isn't so much a right or wrong answer here as much as I'd point out that one should be aware of the trade-offs in each case. If you take annual and wonder each week how it is doing, then something a bit more frequent may make sense. On the other hand, some people may well \"\"set it and forget it\"\" which can work as long as there is something to know about where to go if something does go broke. As these are managed investments, the SIPC check I'd make may not hold though this would be the equivalent of FDIC for deposits when dealing with securities. The REIT can be useful for diversification, sure. You do realize that there may be some interesting taxes for you in the next few years given the nature of a REIT investment, right? The \"\"Return of Capital\"\" that a REIT may pass through as a REIT to maintain its tax status must distribute 90% of its net income each year that can be quite a off shoot of funds. Where would those proceeds be invested? This isn't mentioned in your post and thus I'm curious as if the REIT passes out a dividend yield of say 5% then this is $2,000/year that could go somewhere.\"","I would say that the three most important skills are: Note that some costs are hidden. So, for example, a mutual fund investing in other countries than where you live in may mean the investment target country charges a certain percentage of dividends going to the mutual fund. The mutual fund company doesn't usually want to tell you this. There may be clever financial instruments (derivatives) that can be used to avoid this, but they are not without their problems. If you diversify into equities at low cost, you will have a very wealthy future. I would recommend you to compare two options: ...and pick from these options the cheaper one. If your time has a high value, and you wish to take this value into account, I would say it is almost always far better option to choose an index fund. Whatever you do, don't pay for active management! It is a mathematical truth that before costs, actively managed investments will yield the same return than indexed investments. However, the costs are higher in active management, so you will have less total return. Don't believe that good historical return would imply good future return. However, if for some reason you see an index fund that continuously loses to the index more than by the amount of stated costs, beware!","With a long enough time horizon, no matter when you buy, equities almost always outperform cash and bonds. There's an article here with some info: http://www.fool.co.uk/investing-basics/how-when-and-where-to-invest/ Holding period where shares have beaten cash There was a similar study done which showed if you picked any day in the last 100 years, no matter if the market was at a high or low, after 1 year your probability of being in profit was only 0.5, but after 10-20 years it was almost certainly 1.0. Equities compound dividends too, and the best place to invest is in diversified stock indices such as the S&P500, FTSE100, DOW30 or indices/funds which pay dividends. The best way to capture returns is to dollar cost average (e.g. place a lump sum, then add $x every month), to re-invest dividends, and oh, to forget about it in an IRA or SIPP (Self invested pension) or other vehicle which discourages tampering with your investment. Yes, values rise and fall but we humans are so short sighted, if we had bought the S&P in 2007 and sold in 2009 in fear, we would have missed out on the 25% gain (excluding dividends) from 2007-2014. That's about 3% a year gain even if you bought the 2007 high -beating cash or bonds even after the financial crisis. Now imagine had you dollar cost averaged the entire period from 2007-2014 where your gain would be. Your equity curve would have the same shape as the S&P (with its drastic dip in 2009) but an accelerated growth after. There are studies if you dig that demonstrate the above. From experience I can tell you timing the market is nigh impossible and most fund managers are unable to beat the indices. Far better to DCA and re-invest dividends and not care about market gyrations! ..","There is no best way, you can send the money to India or invest into shares in US. It depends on the risk you are ready to take.","I am not interested in watching stock exchange rates all day long. I just want to place it somewhere and let it grow Your intuition is spot on! To buy & hold is the sensible thing to do. There is no need to constantly monitor the stock market. To invest successfully you only need some basic pointers. People make it look like it's more complicated than it actually is for individual investors. You might find useful some wisdom pearls I wish I had learned even earlier. Stocks & Bonds are the best passive investment available. Stocks offer the best return, while bonds are reduce risk. The stock/bond allocation depends of your risk tolerance. Since you're as young as it gets, I would forget about bonds until later and go with a full stock portfolio. Banks are glorified money mausoleums; the interest you can get from them is rarely noticeable. Index investing is the best alternative. How so? Because 'you can't beat the market'. Nobody can; but people like to try and fail. So instead of trying, some fund managers simply track a market index (always successfully) while others try to beat it (consistently failing). Actively managed mutual funds have higher costs for the extra work involved. Avoid them like the plague. Look for a diversified index fund with low TER (Total Expense Ratio). These are the most important factors. Diversification will increase safety, while low costs guarantee that you get the most out of your money. Vanguard has truly good index funds, as well as Blackrock (iShares). Since you can't simply buy equity by yourself, you need a broker to buy and sell. Luckily, there are many good online brokers in Europe. What we're looking for in a broker is safety (run background checks, ask other wise individual investors that have taken time out of their schedules to read the small print) and that charges us with low fees. You probably can do this through the bank, but... well, it defeats its own purpose. US citizens have their 401(k) accounts. Very neat stuff. Check your country's law to see if you can make use of something similar to reduce the tax cost of investing. Your government will want a slice of those juicy dividends. An alternative is to buy an index fund on which dividends are not distributed, but are automatically reinvested instead. Some links for further reference: Investment 101, and why index investment rocks: However the author is based in the US, so you might find the next link useful. Investment for Europeans: Very useful to check specific information regarding European investing. Portfolio Ideas: You'll realise you don't actually need many equities, since the diversification is built-in the index funds. I hope this helps! There's not much more, but it's all condensed in a handful of blogs.","Have you considered investing in real estate? Property is cheap now and you have enough money for several properties. The income from tenants could be very helpful. If you find it's not for you, you can also sell your property and recover your initial investment, assuming house prices go up in the next few years.","\"I get the sense that this is a \"\"the world is unfair; there's no way I can succeed\"\" question, so let's back up a few steps. Income is the starting point to all of this. That could be a job (or jobs), or running your own business. From there, you can do four things with your income: Obviously Spend and Give do not provide a monetary return - they give a return in other ways, such as quality of life, helping others, etc. Save gives you reserves for future expenses, but it does not provide growth. So that just leaves Invest. You seem to be focused on stock market investments, which you are right, take a very long time to grow, although you can get returns of up to 12% depending on how much volatility you're willing to absorb. But there are other ways to invest. You can invest in yourself by getting a degree or other training to improve your income. You can invest by starting a business, which can dramatically increase your income (in fact, this is the most common path to \"\"millionaire\"\" in the US, and probably in other free markets). You can invest by growing your own existing business. You can invest in someone else's business. You can invest in real estate, that can provide both value appreciation and rental income. So yes, \"\"investment\"\" is a key aspect of wealth building, but it is not limited to just stock market investment. You can also look at reducing expenses in order to have more money to invest. Also keep in mind that investment with higher returns come with higher risk (both in terms of volatility and risk of complete loss), and that borrowing money to invest is almost always unwise, since the interest paid directly reduces the return without reducing the risk.\"","The advice I have is short and sweet. Be an investor, not a speculator. Adopt the philosophy of Warren Buffet which is the 'buy and hold' philosophy. Avoid individual stocks and buy mutual funds or ETFs. Pick something that pays dividends and reinvest those dividends. Don't become a speculator, meaning avoid the 'buy low, sell high' philosophy. EDIT:For some reason I cannot add a comment, so I am putting my response here. @jad The 'buy low, sell high' approach makes money for the stock broker, not necessarily you. As we learn in the movie Trading Places, each buy or sell creates a commission for the broker. It is those commission expenses that eat away at your nestegg. Just don't sell. If a security is trading at $10 a share and pays $0.25 a share each quarter then you are getting 10% ROI if you buy that security (and if it continues to pay $0.25 a share each quarter). If the price goes up then the ROI for new buyers will go down, but your ROI will still be the same. You will continue to get 10% for as long as you hold that security. A mutual fund buys the individual stocks for you. The value of the fund is only calculated at the end of the day. An ETF is like a mutual fund but the value of the ETF is calculated moment by moment.","\"Are there other options I haven't thought of? Mutual funds, stocks, bonds. To buy and sell these you don't need a lawyer, a real-estate broker and a banker. Much more flexible than owning real estate. Edit: Re Option 3: With no knowledge of investing the first thing you should do is read a few books. The second thing you should do is invest in mutual funds (and/or ETFs) that track an index, such as the FTSE graph that was posted. Index funds are the safest way to invest for those with no experience. With the substantial amount that you are considering investing it would also be wise to do it gradually. Look up \"\"dollar cost averaging.\"\"\"","Your initial investment in this case is $9 on the first morning. Every other morning you are using part of your profits to buy the new piece of jewelry, so you are actually not investing any new funds. So each day you are effectively keeping $1 of your profits and re_re-investing $9. But your initial investment of your own funds is only the first $9. In other words if you only had $9 in the bank at the start of the year you could make $365 profits during the year and finish up with $374 in the the bank at the end of the year.","Anybody that offers a bigger return than a deposit claiming 100% safe is a fraud. There is always a risk: Yes, you can gain 30% in a year, but nobody can guarantee that you'll repeat that gain the next. My own experience (and I do take risks), one year I go up, the next year I go down...","\"I can think of one major income source you didn't mention, dividends. Rather than withdrawing from your pension pot, you can roll it over to a SIPP, invest it in quality dividend growth stocks, then (depending on your pension size) withdraw only the dividends to live on. The goal here is that you buy quality dividend growth stocks. This will mean you rarely have to sell your investments, and can weather the ups and downs of the market in relative comfort, while using the dividends as your income to live off of. The growth aspect comes into play when considering keeping up with inflation, or simply growing your income. In effect, companies grow the size of their dividend payments and you use that to beat the effects of inflation. Meanwhile, you do get the benefit of principle growth in the companies you've invested in. I don't know the history of the UK stock market, but the US market has averaged over 7% total return (including dividends) over the long term. A typical dividend payout is not much better than your annuity option though -- 3% to 4% is probably achievable. Although, looking at the list of UK Dividend Champion list (companies that have grown their dividend for 25 years continuous), some of them have higher yields than that right now. Though that might be a warning sign... BTW, given all the legal changes around buy-to-lets recently (increases stamp duty on purchase, reduction in mortgage interest deduction, increased paperwork burden due to \"\"right to rent\"\" laws, etc.) you want to check this carefully to make sure you're safe on forecasting your return.\""],"string":"[\n \"\\\"What is the best way that I can invest money so that I can always get returns? Would it be to set up an FD in a bank, to buy land, to buy a rental house, to buy a field, or maybe to purchase gold? Forever is a long time. Of the options you listed, the only one guaranteed to generate returns is a bank account. The returns may well be very small, but (absent an economy-wide financial failure) you will get the stated return. Land doesn't always retain its value, nor do rental houses or fields. Gold clearly fluctuates. But you would be better served to think about goals and how you can attain them. What do you want to do with the \\\"\\\"returns\\\"\\\"? If you are trying to set yourself up for purchasing a home, paying for college, or retirement, then the small returns on a bank account may be insufficient. And in that case you might be better served by worrying more about the size of the returns you need than the certainty of them. There may be many \\\"\\\"better investments\\\"\\\" if you more clearly define what you expect to achieve by your investment.\\\"\",\n \"What is the best way that I can invest money so that I can always get returns? If you want something that doesn't require any work on your end, consider having a fee-only financial planner make a plan so that your investments can be automated to generate a cash flow for you or get an annuity as the other classic choices here as most other choices will require some time commitment in one form or other. Note that for stock investments there could be rare instances like what happened for a week in September in 2001 where the markets were closed for 5 days straight that can be the hiccup in having stocks. Bonds can carry a risk of default where there have been municipalities that defaulted on debt as well as federal governments like Russia in the 1990s. Real estate may be subject to natural disasters or other market forces that may prevent there always being a monthly payment coming as if you own a rental property then what happens if there aren't tenants because there was an evacuation of the area? There may be some insurance products to cover some of these cases though what if there are exceptionally high claims all at once that may have an insurance company go under? Would it be to set up an FD in a bank, to buy land, to buy a rental house, to buy a field, or maybe to purchase gold? What investment of your own time do you plan on making here? Both in terms of understanding what your long-term strategy is and then the maintenance of the plan. If you put the money in the bank, are you expecting that the interest rate will always be high enough to give you sufficient cash to live as well as having no financial crisis with the bank or currency you are using? Are there any better investments? You may want to reconsider what assumptions you want to make and what risks you want to accept as there isn't likely to be a single solution here that would be perfect.\",\n \"I know of no way to answer your question without 'spamming' a particular investment. First off, if you are a USA citizen, max out your 401-K. Whatever your employer matches will be an immediate boost to your investment. Secondly, you want your our gains to be tax deferred. A 401-K is tax deferred as well as a traditional IRA. Thirdly, you probably want the safety of diversification. You achieve this by buying an ETF (or mutual fund) that then buys individual stocks. Now for the recommendation that may be called spamming by others : As REITs pass the tax liability on to you, and as an IRA is tax deferred, you can get stellar returns by buying a mREIT ETF. To get you started here are five: mREITs Lastly, avoid commissions by having your dividends automatically reinvested by using that feature at Scottrade. You will have to pay commissions on new purchases but your purchases from your dividend Reinvestment will be commission free. Edit: Taking my own advice I just entered orders to liquidate some positions so I would have the $ on hand to buy into MORL and get some of that sweet 29% dividend return.\",\n \"\\\"I compared investing in real estate a few years ago to investing in stocks that paid double digit dividends (hard to find, however, managing and maintaining real estate is just as hard). After discussing with many in the real estate world, I counted the average and learned that most averaged about 6 - 8% on real estate after taxes. This does not include anything else like Dilip mentions (maintenance, insurance, etc). For those who want to avoid that route, you can buy some companies that invest in real estate or REIT funds like Dilip mentions. However, they are also susceptible to the problems mentioned above this. In terms of other investment opportunities like stocks or funds, think about businesses that will always be around and will always be needed. We won't outgrow our need for real estate, but we won't outgrow our need for food or tangible goods either. You can diversify into these companies along with real estate or buy a general mutual fund. Finally, one of your best investments is your career field - software. Do some extra work on the side and see if you can get an adviser position at a start-up (it's actually not that hard and it will help you build your skill set) or create a site which generates passive revenue (again, not that hard). One software engineer told me a few years ago that the stock market is a relic of the past and the new passive income would be generated by businesses that had tools which did all the work through automation (think of a smart phone application that you build once, yet continues to generate revenue). This was right before the crash, and after it, everyone talked about another \\\"\\\"lost decade.\\\"\\\" While it does require extra work initially, like all things software related, you'll be discovering tools in programming that you can use again and again in other applications - meaning your first one may be the most difficult. All it takes in this case is one really good idea ...\\\"\",\n \"How can I use $4000 to make $250 per month for the rest of my life? This means the investment should generate close to 6.25% return per month or around 75% per year. There is no investment that gives this kind of return. The long term return of stock market is around 15-22% depending on the year range and country.\",\n \"As you have already good on your retirement kitty. Assuming you have a sufficient cash for difficult situations, explore the options of investing in Shares and Mutual Funds. As you are new to Stock Market, begin slowly by investing into Mutual Funds and ETF for precious metals. This will help you understand and give you confidence on markets and returns. Real estate is a good option, the down side being the hassle of getting rental and the illiquid nature of the investment.\",\n \"The highest growth for an investment has historically been in stocks. Investing in mature companies that offer dividends is great for you since it is compound growth. Many oil and gas companies provide dividends.\",\n \"Returns: Variable, as with all investments. Legitimate: Contact the usual major investment-fund houses.\",\n \"I'm surprised nobody else has suggested this yet: before you start investing in stocks or bonds, buy a house. Not just any house, but the house you want to live in 20 years from now, in a place where you want to live 20 years from now - but you also have to be savvy about which part of the country or world you buy in. I'm also assuming that you are in the USA, although my suggestion tends to apply equally anywhere in the world. Why? Simple: as long as you own a house, you won't ever have to pay rent (you do have to pay taxes and maintenance, of course). You have a guaranteed return on investment, and the best part is: because it's not money you earn but money you don't have to spend, it's tax free. Even if the house loses value over time, you still come out ahead. And if you live abroad temporarily, you can rent out the house and add the rent to your savings (although that does make various things more complicated). You only asked for options, so that is mine. I'll add some caveats. OK, now here are the caveats:\",\n \"\\\"I don't think there is a recession proof investment.Every investment is bound to their ups and downs. If you buy land, a change in law can change the whole situation it may become worthless, same applies for home as well. Gold - dependent on world economy. Stock - dependent on world economy Best way is to stay ever vigilant of world around you and keep shuffling from one investment to another balance out your portfolio. \\\"\\\"The most valuable commodity I know of is information.\\\"\\\" - Wall Street -movie\\\"\",\n \"Dividends. There are blue chip companies that have paid and raised their dividends for 20 or more years. As an example: Altria (MO). There are also ETFs that specialize in such stocks such as SDY.\",\n \"Buy a home. A home is the first and best investment, u can own a home with as little as 3% down and as u pay for your living u pay it off.....also banks will always give you equity loans in case you need your money\",\n \"\\\"Is it safe? No in general. Are there any other safe \\\"\\\"paper\\\"\\\" ways to invest money let's say for 30 years and be sure nothing will happen to them and you will end your life without relying on pension? No. In these times only real properly gives you some sort of warranty in 5-30 years term. Land, buildings, production lines. Not necessary in US - lots of countries have 0 or fairly low property tax. Some gold, platinum, silver and other rare elements to diversify. - This is the only way you can be sure you will not suddenly loose everything.\\\"\",\n \"Real estate investment is a proven creator of wealth. Check into the history of the rich and you will find real estate investment. Starting your investment in multi-family is a great idea. It is a good way to gain experience in real estate while exponentially increasing cash flow. If you turn the properties over to a reputable property management company, your cash flow will be a little less but so will your headaches. (Expect to pay 8 - 10% of gross income.) You could start investing now by looking into discounted real estate such as foreclosures, tax sales, short sales etc while the market is still depressed. This way your return on investment should be higher. From there you could expand into land development (i.e. subdivision) or commercial investments. Commercial properties with triple net leases can be a great low-stress investment opportunity (but they take more cash upfront). Attending some local real estate investment classes would be a great idea for starters.\",\n \"The best investment is always in yourself and increasing your usable skills. If you invest the money in expanding your skills, it won't matter what the economy does, you will always be useful.\",\n \"The best way to invest in college for your kid is to buy an investment property and rent it out. You might think I am really crazy to ask you to you to buy a real estate property when everyone is running from real estate. Go where others are running away from it. Look where others are not looking. Find out the need for a decent rental property in your city or county and start following the real estate market to understand the real activities including the rental market. I would say follow it for 6 months before jumping in with any investment. And manage your property with good tenants until your kid is ready to go to college. By the time your kid is ready for college, the property would have been paid off by the rents and you can sell the property to send your kid to college.\",\n \"\\\"I don't understand the OP's desire \\\"\\\" I'd love to have a few hundred dollars coming in each month until I really get the hang of things. \\\"\\\" When growing your wealth so that it will be large enough in retirement to throw off enough profits to live on ... you must not touch the profits generated along the way. You must reinvest them to earn even more profits. The profits you earn need not show up as 'cash'. Most investments also grow in re-sale value. This growth is called capital gains, and is just-as/more important than cash flows like interest income or dividends. When evaluating investing choices, you think of your returns as a percent of your total savings at any time. So expecting $100/month equals $1,200/year would require a $12,000 investment to earn 10%/yr. From the sounds of it the OP's principal is not near that amount, and an average 10% should not be expected by an investment with reasonable risk. I would conclude that 'There is no free lunch'. You need to continually save and add to your principal. You must invest to expect a reasonable return (less than 10%) and you must reinvest all profits (whether cash or capital gains). Or else start a business - which cannot be compared to passive investing.\\\"\",\n \"Dividend reinvestment plans are a great option for some of your savings. By making small, regular investments, combined with reinvested dividends, you can accumulate a significant nest egg. Pick a medium to large cap company that looks to be around for the foreseeable future, such as JNJ, 3M, GE, or even Exxon. These companies typically raise their dividends every year or so, and this can be a significant portion of your long term gains. Plus, these programs are usually offered with miniscule fees. Also, have a go at the interest rate formulas contained in your favorite spreadsheet application. Calculate the FutureValue of a series of payments at various interest rates, to see what you can expect. While you cannot depend on earning a specific rate with a stock investment, a basic familiarity with the formula can help you determine a rate of return you should aim for.\",\n \"I recommend you two things: I like these investments because they are not high risk. I hope this helps.\",\n \"\\\"In the US, the \\\"\\\"first class forever\\\"\\\" postage stamps. The post office has never lowered the cost of a stamp, but has raise it several times recently. Given that the gov't has bailed out everyone else, I believe it is a safe bet that they would bail out the post office if it financially fell apart. And you can always use them to send a letter. They aren't very liquid, and it would probably be difficult to invest in them in large quantities. Although, when the post office does raise rates, you could sell yours off on ebay or something.\\\"\",\n \"Anyone have any recommendations for a long term investment? I’m thinking like holding for 30 years, Iv got a bunch invested already but they are all only from my view. Lots are in the renewable energy sector such as solar wind and hydro. But I’m looking for 1 or two more maybe to put an extra 5k down on and just sit for 30 years and hopefully it grows\",\n \"It looks like you need a lot more education on the subject. I suggest you pick up a book on investing and portfolio management to get a first idea. Dividend yields are currently way below 5% on blue chips. Unlike coupons from fixed income instruments (which, in the same risk category, pay a lot less), dividend yields are not guaranteed and neither is the invested principal amount. In either case, your calculation is far away from reality. Sure, there are investments (such as the mentioned direct investments in companies or housings in emerging economies) that can potentially earn you two digit percentage returns. Just remember: risk always goes both ways. A higher earning potential means higher loss potential. Also, a direct investment is a lot less liquid than an investment on a publicly quoted high turnover market place. If you suddenly need money, you really don't want to be pressed to sell real estate in an emerging market (keyword: bid ask spread). My advice: the money that you can set aside for the long term (10 years plus), invest it in stock ETFs, globally. Everything else should be invested in bond funds or even deposits, depending on when you will need the access. As others have pointed out, consider getting professional advice.\",\n \"Last year was a great opportunity for dividend stocks and MLPs. I have a few which are earning 6-9% of my investment basis cost. Municipal bonds are a good value now. If you have the connections, passive investments in convenience franchises or other commercial property are a good income stream. A Dunkin Donuts used to be an amazing money printing machine.\",\n \"I talk about this subject on my blog on investing, I share everything that has worked for me personally and that makes sense. I would say the ideal investment would be to continue the entrepreneur route. Just make sure you have a clear plan and exit strategy. For me it's all about passion, I love blogging about personal experiences with life, money, and anything that affects our lives. Find something that you would talk about whether you were paid or not and create a business off of it. You'll never work a day in your life because you love it.\",\n \"Gold is not really an investment at all, because it doesn't generate an income. It's only worth money because people think it's worth money (it has some industrial uses, but most gold is used as a store of value and not for industrial purposes), not because of its income stream.\",\n \"\\\"> Basically, the whole idea of passive/mindless (\\\"\\\"set it and forget it\\\"\\\") gains from investments being the path to \\\"\\\"wealth\\\"\\\" has to go bye-bye -- it was never really \\\"\\\"real\\\"\\\" to begin with (unless you \\\"\\\"timed\\\"\\\" the market just right), and the vast majority of the gains were nominal anyway. Couldn't have said it much better. > a lucky generation or two got away with it (sheerly by accident in the timing of their birth, something they really had no input into). While I agree a majority was luck to be born at the right time, Boomers are to blame (IMHO) for the loss of \\\"\\\"guaranteed retirement.\\\"\\\" Pensions were one of the greatest things that came out of the industrialization and unionization of the late 19th-mid 20th century and Boomers allowed government to change regulations that permitted corporations to raid pension funds, monkey around with them, and then cry about them being burdensome after they hollowed them out. The vast majority of people are not smart enough to save sufficiently for their future and pensions were the safeguard for that. Boomers let that go for higher immediate take home and, now, will be reliant on SSI and meager savings. > Instead I think one will ALWAYS need to be \\\"\\\"working\\\"\\\" in some manner or another -- actively overseeing ones investments and remaining \\\"\\\"agile\\\"\\\" in response. And of course there is risk involved in that (as if there is really any reason we should expect there NOT to be? Anyone who thinks that way IMO is simply ignorant of the vast scope of human history). For those of us here, that is feasible. However, most people will not have the interest or ability to manage their own investments. Where does this requirement leave them? Still working and, in doing so, keeping those jobs from opening up for new graduates/new people entering the workforce. > The best I think one can do is to TRULY diversify (and that does NOT mean \\\"\\\"mutual funds\\\"\\\") -- to separate your eggs into various \\\"\\\"baskets\\\"\\\", holding some major part in solid (as solid as can be) form (even with the possibility of zero return and/or some \\\"\\\"loss\\\"\\\" -- i.e. owning primary housing clear of debt, some PM's in physical form, etc); having other assets in what are fairly solid \\\"\\\"bets\\\"\\\" (based on demographic trends, company quality, etc); and then some things (several small bets) that are \\\"\\\"long shots\\\"\\\" but potentially high-return things (where just one \\\"\\\"win\\\"\\\" can not only offset a dozen non-performers/losers, but gain you a substantial real profit). I could not agree more. I have done the same thing and used the same argument; even to the point of purchasing a whole life insurance policy. Diversification, in case one or multiple investments tank, is the only way to survive. I have also decided that, for some of my assets, I am just a DCA/DRIP buy and hold guy of 10-20 diversified stocks from different industries. Leave it up to time and compounding over my own ability to time/pick. Anyway, I guess that's the whole answer; there is no right answer. Diversification and continued diligence are key. Good discussing with you. Best of luck.\\\"\",\n \"Investing for your future through stocks isn’t for the faint of heart. While there are stocks that can withstand our volatile market, there are few that can guarantee their business will still be a business 20 or 30 years from now. [Compound Stock Earnings](http://www.compoundstockearnings.com) Report Benigans would always be with us, but they no longer exist.\",\n \"Index funds are well-known to give the best long-term investment. Are they? Maybe not all the time! If you had invested in an index fund tracking the S&P500 at the start of 2000 you would still be behind in terms of capital appreciation when taking inflation into considerations. Your only returns in 13.5 years would have been any dividends you may have received. See the monthly chart of the S&P500 below. Diversification can be good for your overall returns, but diversification simply for diversification sake is as you said, a way of reducing your overall returns in order of smoothing out your equity curve. After looking up indexes for various countries the only one that had made decent returns over a 13.5 year period was the Indian BSE 30 index, almost 400% over 13.5 years, although it also has gone nowhere since the end of 2007 (5.5 years). See monthly chart below. So investing internationally (especially in developing countries when developed nations are stagnating) can improve your returns, but I would learn about the various international markets first before plunging straight in. Regarding investing in an Index fund vs direct investment in a select group of shares, I did a search on the US markets with the following criteria on the 3rd January 2000: If the resulting top 10 from the search were bought on 3rd January 2000 and held up until the close of the market on the 19th June 2013, the results would be as per the table below: The result, almost 250% return in 13.5 years compared to almost no return if you had invested into the whole S&P 500 Index. Note, this table lists only the top ten from the search without screening through the charts, and no risk management was applied (if risk management was applied the 4 losses of 40%+ would have been limited to a maximum of 20%, but possibly much smaller losses or even for gains, as they might have gone into positive territory before coming back down - as I have not looked at any of the charts I cannot confirm this). This is one simple example how selecting good shares can result in much better returns than investing into a whole Index, as you are not pulled down by the bad stocks.\",\n \"The best investment opportunity that guarantees unending cash flows. You will get a replicated website with your own payment button that opens unending and continuous flow of $5 payments directly into your account. There are other biz opportunities (complete home base business) inside the member area. All these opportunities will be yours in less than 10 minutes. Respond to this ad now and start your journey to prosperity\",\n \"In general, investors with a long period of time until they would need to withdraw the cash are best off holding mostly equities. While the dividends that equities would return are less than the interest you would get in peer-to-peer lending, over long periods of time not only do you get the dividends from equity investment but the value of the stock will grow faster than interest on loans. The higher returns from stocks, however, comes with more risk of big downturns. Many people pull their investments out of stocks right after crashes which really hurts their long term returns. So, in order to get the benefit of investing in stocks you need to be strong enough to continue to hold the stocks through the crash and into the recovery. As for which stocks to invest in, generally it is best to invest in low-fee index funds/etfs where you own a broad collection of stocks so that if (when) any one stock goes bust that your portfolio does not take much damage. Try to own both international and domestic stocks to get good diversification. The consensus recommends adding just a little bit of REITs and bonds to your investments, but for someone at 25 it might not be worth it yet. Warren Buffett had some good thoughts on index investing.\",\n \"Can anyone suggest all type of investments in India which are recession proof? There are no such investments. Quite a few think bullions like Gold tend to go up during recession, which is true to an extent; however there are enough articles that show it is not necessarily true. There are no fool proof investments. The only fool proof way is to mitigate risks. Have a diversified portfolio that has Debt [Fixed Deposits, Bonds] and equity [Stocks], Bullion [Gold], etc. And stay invested for long as the effects tend to cancel out in the long run.\",\n \"People in the United States in the mid-2000's thought that real estate was safe. Then they discovered that when the bubble burst the value of their house dropped 10 to 50%. Then they realized that they couldn't sell, even if they had the cash to make the lender whole. Some lost their houses to foreclosure, others walked away and took massive hits to their wealth and credit scores. When it is hard or impossible to sell, that means you can't move to where the jobs are. While it is possible to make money in real estate, treating your house as an investment vehicle means that you are putting not only all your eggs into one basket; you are also living in the basket. In general you should assume that all investment involves risk. So if you are trying to avoid all chances of losing money then the safest form of investment is via your bank account and government bonds. Your national government has a program to insure bank accounts, you need to understand the rules for that program, including types of accounts and amounts. You should also look into your national programs for retirement accounts, to make sure you are investing for the long term. Many people invest via the stock market or the bond market. These investments are not guaranteed, though there may be some protection for fraud. The more specific your investments (individual companies) the more time you need to invest in research and tracking. Many investors do so via mutual funds or Exchange Traded Funds, this involves less of a time investment because you are paying the management comp nay for the fund to do that research for all their investors.\",\n \"Your post seems to read as if you want to invest only in real estate rental properties as a start because they will be a reliable investment guaranteed to generate profits that you will be plowing back into buying even more rental properties, but you are willing to consider (possibly in later years) other forms of investment (in real estate) that will not require active participation in the management of the rental properties. While many participants here do own rental real estate and even manage it entirely, for most people, that is only a small part of their investment portfolio, and I suspect that hardly any will recommend real estate as the only investment the way you seem to want to do. Also, you might want to look more closely at the realities of rental real estate operations before jumping in. Things are not necessarily as rosy as they appear to you now. Not all your units will be rented all the time, and the rental income might not always be enough to cover the mortgage payments and the property taxes and the insurance payments and the repairs and maintenance and ... Depreciation of the property is another matter that you might not have thought about. That being said, you can invest in real estate through real estate investment trusts (REITs) or through limited partnerships where you have only a passive role. There are even mutual funds that invest in REITs or in REIT indexes.\",\n \"Investing in mutual funds, ETF, etc. won't build a large pool of money. Be an active investor if your nature aligns. For e.g. Invest in buying out a commercial space (on bank finance) like a office space and then rent it out. That would give you better return than a savings account. In few years time, you may be able to pay back your financing and then the total return is your net return. Look for options like this for a multiple growth in your worth.\",\n \"If you will leave the money invested for a good long while (years) then dividend paying stocks would be appropriate. There are many that pay yields of 3 to 4 percent, which you can take as income or reinvest to compound the growth. There is a lot of good analysis of stocks (and mutual funds that specialize in dividend paying stocks) at Morningstar.com\",\n \"you should invest in a range of stock market indexes. Ex : Dow jones, S&P500, Nasdaq and keep it there until you are ready to retire. I'm invested half in SLYV and SLYG (S&P600 small cap value and S&P600 small cap growth; Respectively). It brings on average between 8-13% a year (since 1971). This is not investment advice. Talk to your broker before doing this.\",\n \"For a time period as short as a matter of months, commercial paper or bonds about to mature are the highest returning investments, as defined by Benjamin Graham: An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative. There are no well-known methods that can be applied to cryptocurrencies or forex for such short time periods to promise safety of principal. The problem is that with $1,500, it will be impossible to buy any worthy credit directly and hold to maturity; besides, the need for liquidity eats up the return, risk-adjusted. The only alternative is a bond ETF which has a high probability of getting crushed as interest rates continue to rise, so that fails the above criteria. The only alternative for investment now is a short term deposit with a bank. For speculation, anything goes... The best strategy is to take the money and continue to build up a financial structure: saving for risk-adjusted and time-discounted future annual cash flows. After the average unemployment cycle is funded, approximately six or so years, then long-term investments should be accumulated, internationally diversified equities.\",\n \"This is a long term investment but can be very useful during tough times. Be prepared not only to take but to give as well. Moreover:\",\n \"DRiPs come to mind as something that may be worth examining. If you take the Microsoft example, consider what would happen if you bought additional shares each year by re-investing the dividends and the stock also went up over the years. A combination of capital appreciation in the share price plus the additional shares purchased over time can produce a good income stream over time. The key is to consider how long are you contributing, how much are you contributing and what end result are you expecting as some companies can have larger dividends if you look at REITs for example.\",\n \"As you are in UK, you should think in terms of Tax Free (interest and accumulated capital gains) ISA type investments for the long term AND/OR open a SIPP (Self Invested Pension Plan) account where you get back the tax you have paid on the money you deposit for your old age. Pensions are the best bet for money you do not need at present while ISAs are suitable for short term 5 years plus or longer.\",\n \"Assuming that the financial system broke down, not enough supply of essential commodities or food but there is political and administrative stability and no such chaos that threatens your life by physical attacks. The best investment would then be some paddy fields, land, some cows, chickens and enough clothing , a safe house to stay and a healthy life style that enables you to work for food and some virtue at heart and management skills to get people work for you on your resources so that they can survive with you (may be you earn some profit -that is up to your moral standards to decide, how much). It all begins to start again; a new Financial System has to be in place….!\",\n \"As stated in the comments, Index Funds are the way to go. Stocks have the best return on investment, if you can stomach the volatility, and the diversification index funds bring you is unbeatable, while keeping costs low. You don't need an Individual Savings Account (UK), 401(k) (US) or similar, though they would be helpful to boost investment performance. These are tax advantaged accounts; without them you will have to pay taxes on your investment gains. However, there's still a lot to gain from investing, specially if the alternative is to place them in the vault or similar. Bear in mind that inflation makes your money shrink in real terms. Even a small interest is better than no interest. By best I mean that is safe (regulated by the financial authorities, so your money is safe and insured up to a certain amount) and has reasonable fees (keeping costs low is a must in any scenario). The two main concerns when designing your portfolio are diversification and low TER (Total Expense Ratio). As when we chose broker, our concern is to be as safe as we possibly can (diversification helps with this) and to keep costs at the bare minimum. Some issues might restrict your election or make others seem better. Depending on the country you live and the one of the fund, you might have to pay more taxes on gains/dividends. e.g. The US keeps some of them if your country doesn't have a special treaty with them. Look for W-8Ben and tax withholding for more information. Vanguard and Blackrock offer nice index funds. Morningstar might be a good place for gathering information. Don't trust blindly the 'rating'. Some values are 'not rated' and kick ass the 4 star ones. Again: seek low TER. Not a big fan of this point, but I'm bound to mention it. It can be actually helpful for sorting out tax related issues, which might decide the kind of index fund you pick, and if you find this topic somewhat daunting. You start with a good chunk of money, so it might make even more sense in your scenario to hire someone knowledgeable and trustworthy. I hope this helps to get you started. Best of luck.\",\n \"Wow, everyone tells you different investment strategies. You have all your life ahead of you. Your main focus should not be getting the best return rate, but ensuring your existence. Who cares if you get 7% if you'll lose all in the next market crash and stand on the street with no education, no job and nothing to fall back on? I would go a completely different route in your place: The best advise given above was to not consider this as an option to never work again. It's not enough money for that, unless you want to live poorly and always be afraid that the next financial crises wipes you out completely.\",\n \"As I tell all my clients... remember WHY you are investing in the first. Make a plan and stick to it. Find a strategy and perfect it. A profit is not a profit until you take it. the same goes with a loss. You never loose till you sell for less than what you paid. Stop jumping for one market to the next, find one strategy that works for you. Making money in the stock market is easy when you perfect your trading strategy. As for your questions: Precious metal... Buying or selling look for the trends and time frame for your desired holdings. Foreign investments... They have problem in their economy just as we do, if you know someone that specializes in that... good for you. Bonds and CD are not investments in my opinion... I look at them as parking lots for your cash. At this moment in time with the devaluation of the US dollar and inflation both killing any returns even the best bonds are giving out I see no point in them at this time. There are so many ways to easily and safely make money here in our stock market why look elsewhere. Find a strategy and perfect it, make a plan and stick to it. As for me I love Dividend Capturing and Dividend Stocks, some of these companies have been paying out dividends for decades. Some have been increasing their payouts to their investors since Kennedy was in office.\",\n \"\\\"This may be a great idea, or a very bad one, or it may simply not be applicable to you, depending on your personal circumstances and interests. The general idea is to avoid passive investments such as stocks and bonds, because they tend to grow by \\\"\\\"only\\\"\\\" a few percent per year. Instead, invest in things where you will be actively involved in some form. With those, much higher investment returns are common (but also the risk is higher, and you may be tied down and have to limit the traveling you want to do). So here are a few different ways to do that: Get a college degree, but only if you are interested in the field, and it ends up paying you well. If you aren't interested in the field, you won't land the $100k+ jobs later. And if you study early-childhood education, you may love the job, but it won't pay enough to make it a good investment. Of course, it also has to fit with your life plans, but that might be easier than it seems. You want to travel. Have you thought about anthropology, marine biology or archeology? Pick a reputable, hard-to-get-into, academic school rather than a vocation-oriented oe, and make sure that they have at least some research program. That's one way to distinguish between the for-profit schools (who tend to be very expensive and land you in low-paying jobs), and schools that actually lead to a well-paying future. Or if your interest runs more in a different direction: start a business. Your best bet might be to buy a franchise. Many of the fast-food chains, such as McDonalds, will let you buy as long as you have around $300k net worth. Most franchises also require that you are qualified. It may often make sense to buy not just one franchised store, but several in an area. You can increase your income (and your risk) by getting a loan - you can probably buy at least $5 million worth of franchises with your \\\"\\\"seed money\\\"\\\". BTW, I'm only using McDonalds as an example. Well-known fast food franchises used to be money-making machines, but their popularity may well have peaked. There are franchises in all kinds of industries, though. Some tend to be very short-term (there is a franchise based on selling customer's stuff on ebay), while others can be very long-lived (many real-estate brokerages are actually franchises). Do be careful which ones you buy. Some can be a \\\"\\\"license to print money\\\"\\\" while others may fail, and there are some fraudsters in the franchising market, out to separate you from your money. Advantage over investing in stocks and bonds: if you choose well, your return on investment can be much higher. That's generally true for any business that you get personally involved in. If you do well, you may well end up retiring a multimillionaire. Drawback: you will be exposed to considerable risk. The investment will be a major chunk of your net worth, and you may have to put all your eggs in none basket. If your business fails, you may lose everything. A third option (but only if you have a real interest in it!): get a commercial driver's license and buy an 18-wheeler truck. I hear that owner-operators can easily make well over $100k, and that's with having to pay off a bank loan. But if you don't love trucker culture, it is likely not worth doing. Overall, you probably get the idea: the principle is to use your funds as seed money to launch something profitable and secure, as well as enjoyable for you.\\\"\",\n \"All of this makes perfect sense and I can definitely see the logic behind it. But I don't think Hedge Funds are the way to go. The real money lies in real estate, more specifically land-banking. The problem, though, is that a lot of land-banking investments are really just scams and it's really hard to tell which ones are real and which ones are fake.\",\n \"Imagine a stock where the share price equals the earnings per share. You pay say $100 for a share. In the next year, the company makes $100 per share. They can pay a $100 dividend, so now you have your money back, and you still own the share. Next year, they make $100 per share, pay a $100 dividend, so now you have your money back, plus $100 in your pocket, plus you own the share. Wow. What an incredible investment.\",\n \"\\\"On reflection there are financial products that do what you want, whole-life insurance policies that guarantee an annual dividend calculation on some index with a ceiling and floor. So you will have a return within a defined minimum and maximum range. There are a lot of opinions on the internet on this. This Consumer Reports article is balanced These have a reputation for being bad for the consumer compared to buying term life and investing in a mutual fund separately, but if you want the guarantee (or are a \\\"\\\"moral hazard\\\"\\\" for a life insurance policy, closer to death than you appear on paper) it may be a product for you. If you're very wealthy, there is an estate tax exploit in insurance death benefits that can make this an exceptional shield on assets for your heirs, with the market return just the gravy.\\\"\",\n \"Since you mentioned moving, you can buy real state very cheap here in Mexico that will give you income monthly. I will tell you some numbers in case you're interested. Now to investments: you can buy houses for rent, and prices are as follows: Average house $25k which will give about $220 monthly of income. Let's say you buy 20 of these that would be $4400 USD monthly. Now you have a very high standard here and you will never have to work again, and each year the income will increase about 2% and you still have $576k left.\",\n \"I-series Treasury bonds are the closest thing you can get to an investment where your principal is guaranteed to be returned (even accounting for inflation). https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm Treasury Inflation Protected Securities are another option, but if you have to sell before maturity then 'the market' may not pay you back your initial investment. https://www.treasurydirect.gov/indiv/products/prod_tips_glance.htm\",\n \"This is called a Life Annuity, and any life insurance salesperson will gladly sell you one.\",\n \"If you are an entrepreneur, and you are looking forward to strike on your own ( the very definition of entrepreneur) then I suggest that you don't invest in anything except your business and yourself. You will need all the money you have when you launch your business. There will be times when your revenue won't be able to cover your living costs, and that's when you need your cash. At that point of time, do you really want to have your cash tie up in stock market/property? Some more, instead of diverting your attention to learn how the stock market/property works, focus on your business. You will find that the reward is much, much greater. The annual stock market return is 7% to 15%. But the return from entrepreneurship can be many times higher than that. So make sure you go for the bigger prize, not the smaller gains. It's only when your business no longer requires your capital then you can try to find other means of investment.\",\n \"\\\"To be completely honest, I think that a target of 10-15% is very high and if there were an easy way to attain it, everyone would do it. If you want to have such a high return, you'll always have the risk of losing the same amount of money. Option 1 I personally think that you can make the highest return if you invest in real estate, and actively manage your property(s). If you do this well with short term rental and/or Airbnb I think you can make healthy returns BUT it will cost a lot of time and effort which may diminish its appeal. Think about talking to your estate agent to find renters, or always ensuring your AirBnB place is in good nick so you get a high rating and keep getting good customers. If you're looking for \\\"\\\"passive\\\"\\\" income, I don't think this is a good choice. Also make sure you take note of karancan's point of costs. No matter what you plan for, your costs will always be higher than you think. Think about water damage, a tenant that breaks things/doesn't take care of stuff etc. Option 2 I think taking a loan is unnecessarily risky if you're in good financial shape (as it seems), unless you're gonna buy a house with a mortgage and live in it. Option 3 I think your best option is to buy bonds and shares. You can follow karancan's 100 minus your age rule, which seems very reasonable (personally I invest all my money in shares because that's how my father brought me up, but it's really a matter of taste. Both can be risky though bonds are usually safer). I think I should note that you cannot expect a return of 10% or more because, as everyone always says, if there were a way to guarantee it, everyone would do it. You say you don't have any idea how this works so I'd go to my bank and ask them. You probably have access to private banking so that should mean someone will be able to sit you down and talk you through. Also look at other banks that have better rates and/or pretend you're leaving your bank to negotiate a better deal. If I were you I'd invest in blue chips (big international companies listed on the main indeces (DAX, FTSE 100, Dow Jones)), or (passively managed) mutual funds/ETFs that track these indeces. Just remember to diversify by country and industry a bit. Note: i would not buy the vehicles/plans that my bank (no matter what they promise, and they promise a lot) suggest because if you do that then the bank always takes a cut off your money. TlDr, dont expect to make 10-15% on a passive investment and do what a lot of others do: shares and bonds. Also make sure you get a lot of peoples opinions :)\\\"\",\n \"There is none, whatever sector you invest in will be subject to cyclical market difficulties, however alpha can be generated from two sources: Timing and selection. Its much easier to get the timing done over a long period of time.\",\n \"\\\"Invest in a high quality dividend paying group of stocks. Look up \\\"\\\"stock aristocrats\\\"\\\" to find longterm quality stocks that have regularly increased their dividends for over 20'years. 10'years is a safe period of time to invest in stocks. If you had bought stocks at their hight in 2007 and kept them through the 40% decline thru 2008 and 2009 and held on to them for 10 years until 2017, you would have earned a 40 % increase from when you purchased them. That is pretty much a worst case scenerio. If you had invested in dividend paying stocks and had earned an additional 2.5% per year, you would have exceeded your 5% goal. The lifetime yearly return of the stock market is 10%. Time is the only downside, but with ten years, you are almost certainly immune.\\\"\",\n \"\\\"Depends on your definition of \\\"\\\"secure\\\"\\\". The most \\\"\\\"secure\\\"\\\" investment from a preservation of principal point of view is a non-tradable, general obligation government bond. (Like a US or Canadian savings bond.) Why? There is no interest rate risk -- you can't lose money. The downside is that the rate is not so good. If you want returns and a reasonably high level of security, you need a diversified portfolio.\\\"\",\n \"The trend in ETFs is total return: where the ETF automatically reinvests dividends. This philosophy is undoubtedly influenced by that trend. The rich and retired receive nearly all income from interest, dividends, and capital gains; therefore, one who receives income exclusively from dividends and capital gains must fund by withdrawing dividends and/or liquidating holdings. For a total return ETF, the situation is even more limiting: income can only be funded by liquidation. The expected profit is lost for the dividend as well as liquidating since the dividend can merely be converted back into securities new or pre-existing. In this regard, dividends and investments are equal. One who withdraws dividends and liquidates holdings should be careful not to liquidate faster than the rate of growth.\",\n \"1) Don't trade individual stocks. You expose yourself to unnecessary risk. 2) Pick a fund with low expenses that pays a dividend. Reinvest the dividend back into the fund. To quote Einstein: The greatest power on earth is compound interest. Something is wrong with the software of the site. It will not allow me to answer mark with another comment. So I have to edit this answer to be able to answer him. @mark No, I am not hoping the price will go up. The price is only relevant in comparison to the dividend. It is the dividend that is important, not the price. The price is irrelevant if you never sell. Dividend paying securities are what you buy and hold. Then you reinvest the dividend and buy more of the security. As I am buying the security with the dividend I am actually pleasantly surprised when the price goes down. When the price goes down, but the dividend remains the same, I am able to buy more shares of the security withwith that dividend. So if the price goes down, and the dividend remains the same, it is a good thing. Again, the site will not allow me to add another comment. @mark I profit from my investment, without selling, by receiving the dividend. I used to be a speculator, trying to get ahead of the market by 'buy low, sell high' but all that did was make money for the broker. I lost as much as I gained trying to do that. The broker made money on each transaction, regardless if I did or not. It took me decades to learn the lesson that 'buy and hold' of dividend paying securities is the way to go. Don't make my mistake. I now get, at least, 5.5% yeald on my investment (look at PGF, which forms the backbone of my investments). That is almost 0.5% per month. Each month that dividend is reinvested into PGF, with no commission. You can't beat that with a stick.\",\n \"Fundamental rule of investing money : Now come to the point, best money investment\",\n \"The big question is whether you will be flexible about when you'll get that house. The overall best investment (in terms of yielding a good risk/return ratio and requiring little effort) is a broad index fund (mutual or ETF), especially if you're contributing continuously and thereby take advantage of cost averaging. But the downside is that you have some volatility: during an economic downturn, your investment may be worth only half of what it's worth when the economy is booming. And of course it's very bad to have that happening just when you want to get your house. Then again, chances are that house prices will also go down in such times. If you want to avoid ever having to see the value of your investment go down, then you're pretty much stuck with things like your high-interest savings account (which sounds like a very good fit for your requirements.\",\n \"You could buy debt/notes or other instruments that pay out periodically. Some examples are If there is an income stream you can discount the present value and then buy it/own the rights to income stream. Typically you pay a discounted price for the face value and then receive the income stream over time.\",\n \"Or you could flip houses. i'm not sure where you live but hwere im from its not uncommon to buy a house for 5k or a duplex for 8k. put about 4k into it and charge about 600 rent. or put 4k into the 8k, thats 12k sell it for 20. if it takes a year that's a 66% return on your investment in one year. and its small risk. also, if it doesnt sell, youre still renting it out with month to month or 3-6 month leases.\",\n \"A perpetuity in the mathematical context is the equation in your link. A perpetuity in the legal sense is a liability that never matures, presumably paying endlessly, except for a banknote that pays nothing. An example would be UK war bonds during WWII. Real estate can be modeled like a perpetuity for convenience, but it is not a legal obligation to pay forever if one excludes taxes. If one starts with capital and ends with a perpetuity, one has bought a perpetuity. If one starts out with nothing and ends with capital by way of a perpetuity, one has sold a perpetuity.\",\n \"\\\"TL;DR - go with something like Barry Ritholtz's All Century Portfolio: 20 percent total U.S stock market 5 percent U.S. REITs 5 percent U.S. small cap value 15 percent Pacific equities 15 percent European equities 10 percent U.S. TIPs 10 percent U.S. high yield corp bonds 20 percent U.S. total bond UK property market are absurdly high and will be crashing a lot very soon The price to rent ratio is certainly very high in the UK. According to this article, it takes 48 years of rent to pay for the same apartment in London. That sounds like a terrible deal to me. I have no idea about where prices will go in the future, but I wouldn't voluntarily buy in that market. I'm hesitant to invest in stocks for the fear of losing everything A stock index fund is a collection of stocks. For example the S&P 500 index fund is a collection of the largest 500 US public companies (Apple, Google, Shell, Ford, etc.). If you buy the S&P 500 index, the 500 largest US companies would have to go bankrupt for you to \\\"\\\"lose everything\\\"\\\" - there would have to be a zombie apocalypse. He's trying to get me to invest in Gold and Silver (but mostly silver), but I neither know anything about gold or silver, nor know anyone who takes this approach. This is what Jeremy Siegel said about gold in late 2013: \\\"\\\"I’m not enthusiastic about gold because I think gold is priced for either hyperinflation or the end of the world.\\\"\\\" Barry Ritholtz also speaks much wisdom about gold. In short, don't buy it and stop listening to your friend. Is buying a property now with the intention of selling it in a couple of years for profit (and repeat until I have substantial amount to invest in something big) a bad idea? If the home price does not appreciate, will this approach save you or lose you money? In other words, would it be profitable to substitute your rent payment for a mortgage payment? If not, you will be speculating, not investing. Here's an articles that discusses the difference between speculating and investing. I don't recommend speculating.\\\"\",\n \"\\\"anything that produces steady income will produce a \\\"\\\"real return\\\"\\\" (return above inflation) in a zero-interest rate environment: Note, however, that all of these will decline in value if interest rates rise.\\\"\",\n \"\\\"I have money to invest. Where should I put it? Anyone who answers with \\\"\\\"Give it to me, I'll invest it for you, don't worry.\\\"\\\" needs to be avoided. If your financial advisor gives you this line or equivalent, fire him/her and find another. Before you think about where you should put your money, learn about investing. Take courses, read books, consume blogs and videos on investing in stocks, businesses, real estate, and precious metals. Learn what the risks and rewards are for each, and make an informed decision based on what you learned. Find differing opinions on each type of investment and come to your own conclusions for each. I for example, do not understand stocks, and so do not seriously work the stock market. Mutual funds make money for the folks selling them whether or not the price goes up or down. You assume all the risk while the mutual fund advisor gets the reward. If you find a mutual fund advisor who cannot recommend the purchase of a product he doesn't sell, he's not an advisor, he's a salesman. Investing in business requires you either to intimately understand businesses and how to fund them, or to hire someone who can make an objective evaluation for you. Again this requires training. I have no such training, and avoid investing in businesses. Investing in real estate also requires you to know what to look for in a property that produces cash flow or capital gains. I took a course, read some books, gained experience and have a knowledgeable team at my disposal so my wins are greater than my losses. Do not be fooled by people telling you that higher risk means higher reward. Risks that you understand and have a detailed plan to mitigate are not risks. It is possible to have higher reward without increasing risk. Again, do your own research. The richest people in the world do not own mutual funds or IRAs or RRSPs or TFSAs, they do their own research and invest in the things I mentioned above.\\\"\",\n \"Look at the aristocrat dividend paying stocks (https://en.m.wikipedia.org/wiki/S%26P_500_Dividend_Aristocrats). These all pay dividends and have consistently outperformed the S&P 500 - 10.6% vs 7.4% the last ten years. While stocks should not be generally considered for short-term investing, I personally think the market is showing a general up trend for the next few years. Also, the dividends add an additional buffer. Because you would be making regular monthly investments, you should choose a fund that invests in aristocrat stocks so you can set up an automatic depost.\",\n \"Currencies are a zero-sum game. If you make money, someone else will lose it. Because bank notes sitting in a pile don't create anything useful. But shares in companies are different, because companies actually do useful things and make money, so it's possible for all investors to make money. The best way to benefit is generally to put your money into a low-cost index fund and then forget about it for at least five years.\",\n \"Be very careful to hold on tight to your money! I agree with paying for an investment advisor, but I would say use at least two to get different viewpoints, and get credentials and references! Don't let relatives convince you to invest in their business, or help them out, or any other such nonsense. Real estate still is one of the best investments out there in my opinion. You could buy a fixer upper and rent it out?\",\n \"CDs pay less than the going rate so that the banks can earn money. Investing is risky right now due to the inaction of the Fed. Try your independent life insurance agent. You could get endowment life insurance. It would pay out at age 21. If you decide to invest it yourself try to buy a stable equity fund. My 'bedrock' fund is PGF. It pays dividends each month and is currently yealding 5.5% per year. Scottrade has a facility to automatically reinvest the dividend each month at no commission. http://www.marketwatch.com/investing/Fund/PGF?CountryCode=US\",\n \"What explains the most of the future returns of a portfolio is the allocation between asset classes. In the long term, stock investments are almost certain to return more than any other kinds of investments. For 40+ years, I would choose a portfolio of 100% stocks. How to construct the portfolio, then? Diversification is the key. You should diversify in time (don't put a large sum of money into your stock portfolio immediately; if you have a large sum to invest, spread it around several years). You should diversify based on company size (invest in both large and small companies). You should also diversify internationally (don't invest in just US companies). If you prefer to pick individual stocks, 20 very carefully selected stocks may provide enough diversification if you keep diversification in mind during stock picking. However, careful stock picking cannot be expected to yield excess returns, and if you pick stocks manually, you need to rebalance your portfolio occasionally. Thus, if you're lazy, I would recommend a mutual fund, or many mutual funds if you have difficulty finding a low-cost one that is internationally diversified. The most important consideration is the cost. You cannot expect careful fund selection to yield excess returns before expenses. However, the expenses are certain costs, so prefer low-cost funds. Almost always this means picking index funds. Avoid funds that have a small number of stocks, because they typically invest only in the largest companies, which means you fail to get diversification in company size. So, instead of Euro STOXX 50, select STOXX 600 when investing to the European market. ETFs may have lower costs than traditional mutual funds, so keep ETFs in mind when selecting the mutual funds in which to invest. For international diversification, do not forget emerging markets. It is not excessive to invest e.g. 20% to emerging markets. Emerging markets have a higher risk but they also have a higher return. A portfolio that does not include emerging markets is not in my opinion well diversified. When getting close to retirement age, I would consider increasing the percentage of bonds in the portfolio. This should be done primarily by putting additional money to bonds instead of selling existing investments to avoid additional taxes (not sure if this applies to other taxation systems than the Finnish one). Bond investments are best made though low-cost mutual funds as well. Keep bond investments in your local currency and risk-free assets (i.e. select US government bonds). Whatever you do, remember that historical return is no guarantee of future return. Actually, the opposite may be true: there is a mean reversion law. If a particular investment has returned well in the past, it often means its price has gone up, making it more likely that the price goes down in the future. So don't select a fund based on its historical return; instead, select a fund based on low costs. However, I'm 99% certain that over a period of 40 years, stocks will return better than other investments. In addition to fund costs, taxes are the other certain thing that will be deducted from your returns. Research what options you have to reduce the taxes you need to pay. 401-K was explained in another answer; this may be a good option. Some things recommended in other answers that I would avoid:\",\n \"If you are going to work on making as much money as humanly possible, then you ought to consider investing in the market. [Compound Stock Earnings](http://www.compoundstockearnings.com) agrees that investing in stocks is a fantastic technique to acquire prosperity on your own. Believe it or not, it’s the greatest source of wealth in the history of the world. For that reason, you need to ensure that you get started at the earliest opportunity.\",\n \"If your requirements are hard (must have $1000/month, must have the same or bigger in capital at the end), stocks are a poor choice of investment. However, in many cases, people are willing to tolerate some level of risk to achieve the expected returns. You also do not mention inflation, which can take quite a lot out of your portfolio over the course of ten years. If we make some simplifying assumptions, you want to generate $12,000 a year. You can realistically expect the (whole) stock market, long term (i.e. over time periods substantially longer than 10 years), to return approximately 4 - 5% after factoring in inflation. That means an investment of $240,000 - $300,000 (the math is simplified somewhat here). If you don't care about inflation, you can up the percentage rather somewhat. According to this article, the S&P 500 returned an average of 11.31% from 1928 through 2010 (not factoring in inflation), which would require an investment of approximately $106,100. But! This opens you up to substantial risk. The stock market may go down 30% this year! According to the above article, the S&P returned only 3.54% from 2001 to 2010. Long-term, it goes up, but your investment case is really unsuited to investing in an index to the entire stock market given your requirements. You may be better suited investing primarily in stable bonds, or perhaps a mix of bonds and stocks. Alternatively, you may want to consider even more stable investments such as treasury notes. Treasury notes are all but guaranteed, but with a lousy rate of return. Heck, you could consider a GIC (that may be Canada-only) or even a savings account. There's also the possibility of purchasing an annuity, though almost everyone will advise against such. Personally, I'd go for a mutual fund which invested approximately 70% bonds and the rest in stocks over such a time period. Something like ING Direct's Streetwise Balanced Income Portfolio, if you were in Canada. It substantially lowers your expected return but also lowers your risk. I can't honestly say what the expected return there is; at this point, it's returned 4% per year (before inflation), but has been around only since the beginning of 2008. And to be clear, this is absolutely not free of risk.\",\n \"Best is indeed subjective. You could for example, get a Universal Life Policy that pays a guaranteed interest on all monies (even those in excess of what you need to pay to cover the policy). Most people will tell you (probably correctly) that using life insurance as an investment vehicle is a bad idea, however. The growth of the money in a UL policy, however, is usually tax deductible and grows at a guaranteed rate. NWML here in the U.S. pays a guaranteed (unless they go broke I suppose) 4% per year; historically, however, they've been paying 6% per year. That's pretty good, except a lot of your money goes into buying the policy the first few years.\",\n \"\\\"Your relatively young age and the current very low bond interest rates make annuities a very poor buy. And most of the other suggestions you have mentioned have very low diversification, which exposes you to imprudent risks. Buying shares for dividend income can solve the diversification problem by averaging out your totals as different shares change by different amounts. There is no really good solution to the problem of share price volatility except to ignore it: Take your dividends and pretty much ignore the bouncing around of the share price. They usually recover in a year or three. Owning shares of companies that reliably increase their dividend payouts is the only investment type that gives you both diversification and regularly increasing income to counteract inflation over the years. Read some investment books and consider consulting with a financial advisor who charges a fee for the advice. I.e., you don't want \\\"\\\"free\\\"\\\" advice.\\\"\",\n \"As always with investments, it depends on your risk adversity. I don't want to repeat the content of hundreds of recommendations here, so just the nutshell: (For qualified investments,) the more risk you are willing to take, the more returns you'll get. The upper end is the mutual funds and share market, where you have long-term expectations of 8 - 10 % (and corresponding risks of maybe +/- 50% per year), the lower end is a CD, where you can expect little to no interest, corresponding to little to no risk. Investing in shares/funds is not 'better' than investing in CDs, it is different. Not everybody likes financial roller-coasters, and some people mainly consider the high risk, which gives them sleepless nights; while others just consider the expected high long-term gains as all that counts. Find out what your personal risk adversity is, and then pick accordingly.\",\n \"\\\"The key is to look at total return, that is dividend yields plus capital growth. Some stocks have yields of 5%-7%, and no growth. In that case, you get the dividends, and not a whole lot more. These are called dividend stocks. Other stocks pay no dividends. But if they can grow at 15%-20% a year or more, you're fine.These are called growth stocks. The safest way is to get a \\\"\\\"balanced\\\"\\\" combination of dividends and growth, say a yield of 3% growing at 8%-10% a year, for a total return of 11%-13%. meaning that you get the best of both worlds.These are called dividend growth stocks.\\\"\",\n \"There are quite a few options. Suggest you put a mix of things and begin investing into Mutual Funds.\",\n \"\\\"There's no such thing as true \\\"\\\"passive income.\\\"\\\" You are being paid the risk free rate to delay consumption (i.e., the super low rate you are getting on savings accounts and CDs) and a higher rate to bear risk. You will not find truly risk-free investments that earn more than the types of investments you have been looking at...most likely you will not keep up with inflation in risk-free investments. For a person who is very risk averse but wants to make a little more money than the risk-free rate, the solution is not to invest completely in slightly risky things. Instead the best thing you can do is invest partially in a fully diversified portfolio. A diversified portfolio (containing stocks, bonds, etc) will earn you the most return for the given amount of risk. If you want very little risk, put very little in that portfolio and keep the rest in your CDs. Put 90% of your money in a CD or something and the other 10% in stocks/bonds. Or choose a different percentage. You can also buy real assets, like real estate, but you will find yourself taking a different type of risk and doing a different type of work with those assets.\\\"\",\n \"Since you mention the religion restriction, you should probably look into the stock market or funds investing in it. Owning stock basically means you own a part of a company and benefit from any increase in value the company may have (and 'loose' on decreases, provided you sell your stock) and you also earn dividends over the company's profit. If you do your research properly and buy into stable companies you shouldn't need to bother about temporary market movements or crashes (do pay attention to deterioration on the businesses you own though). When buying stocks you should be aiming for the very long run. As mentioned by Victor, do your research, I recommend you start it by looking into 'value stocks' should you choose that path.\",\n \"It requires fairly large levels of capital, but what about seed funding/angel investments in startups? This would be before venture capital gets involved, so the amounts are relatively low (tens of thousands, vs. millions of USD), but as valuations this early in the game are also low, you can get a significant portion of equity in a startup that you feel is being run by good people and is in a promising market. Paul Graham of Y-Combinator has a number of articles about this from both sides of the table that you can take a look at and see if this is for you. It's definitely very high-risk, but if you can pick successful startups before their valuation shoots up, get some equity, help them succeed, and they eventually go public or get acquired, you can stand to bring in some big returns. Note that this isn't a hands-off investment. You'll need to build connections in the startup community, and it isn't uncommon for angel investors to become involved in the day-to-day operations of the businesses in which they invest.\",\n \"It is only wise to invest in what you understand (ala Warren Buffet style). Depending on how much money you have, you might see fit to consult a good independent financial advisor instead of seeking advice from this website. A famous quote goes: “Those who say, do not know. Those who know, do not say”\",\n \"\\\"The stock market may not grow \\\"\\\"forever\\\"\\\". There will be growth in the stock market, though. The stock market is a positive-sum game, since it is driven in large part by the profits earned by the companies. This doesn't mean that any individual stock will go up forever, it doesn't mean that any given index will go up forever, and it doesn't mean there won't be periods when the market as a whole drops. But it is reasonable to expect that long-term investing in the market as a whole will continue to return profits that reflect the success of companies invested in. Historically, that return has averaged about 8%; future results may be different and exact results will depend on exactly when and how you invest. Re \\\"\\\"what about Japan, which has been flat over 30 years\\\"\\\": Market being flat doesn't mean individual companies may not be growing strongly. Picking stocks may become more important, and we might need to relearn to focus on dividends rather than being so monomaniacal about growth (dividends are not reflected in the indices, please note), but there will be money to be made. How much, and how much effort is required to get it, and whether the market offers the best available bets, deponent sayeth not. Past results are no guarantee of future returns, and your results may be better or worse than average. You should be diversified into bonds and such anyway, rather than only in the stock market.\\\"\",\n \"If you are in an economy which has a decent liquid debt market (corporate bonds, etc.), then you may look into investing in AA or AA+ rated bonds. They can provide higher returns than bank deposits and are virtually risk-free. (Though in severe economic downturns, you can see defaults in even very high-rated bonds, leading to partial or complete loss of value however, this is statistically quite rare). You can make this investment through a debt mutual fund but please make sure that you read through the offer document carefully to understand the investment style of the mutual fund and their expense ratio (which directly affect your returns). In any case, it is always recommended to reach out to an investment adviser who is good with local tax laws to minimize taxes and maximize returns.\",\n \"\\\"They pretty much already have what you are looking for. They are called Unit Investment Trusts. The key behind these is (a) the trust starts out with a fixed pool of securities. It is completely unmanaged and there is no buying or selling of the securities, (b) they terminate after a fixed period of time, at which time all assets are distributed among the owners. According to Investment Company Institute, \\\"\\\"securities in a UIT are professionally selected to meet a stated investment objective, such as growth, income, or capital appreciation.\\\"\\\" UITs sell a fixed number of units at one-time public offering. Securities in a UIT do not trade actively, rather, UITs use a strategy known as buy-and-hold. The UIT purchases a certain amount of securities and holds them until its termination date. Holdings rarely change throughout the life of the trust so unit holders know exactly what they're investing in, and the trust lists all securities in its prospectus. Unit trusts normally sell redeemable units - this obligates the trust to re-purchase investor's units at their net asset value at the investors request.\\\"\",\n \"If you buy a gold brick and put it in a pillow, after one year you still have one gold brick. People may value it more than before or less then before, but it's still the one gold brick you had. If you buy a cow and put it on a pasture, after one year you have a fatter cow and plenty of milk. You now have more of the cow and milk you didn't have before. Now that's an investment.\",\n \"The simplest way is to invest in a few ETFs, depending on your tolerance for risk; assuming you're very short-term risk tolerant you can invest almost all in a stock ETF like VOO or VTI. Stock market ETFs return close to 10% (unadjusted) over long periods of time, which will out-earn almost any other option and are very easy for a non-finance person to invest in (You don't trade actively - you leave the money there for years). If you want to hedge some of your risk, you can also invest in Bond funds, which tend to move up in stock market downturns - but if you're looking for the long term, you don't need to put much there. Otherwise, try to make sure you take advantage of tax breaks when you can - IRAs, 401Ks, etc.; most of those will have ETFs (whether Vanguard or similar) available to invest in. Look for funds that have low expense ratios and are fairly diversified (ie, don't just invest in one small sector of the economy); as long as the economy continues to grow, the ETFs will grow.\",\n \"\\\"Invest in productive assets and by that I mean companies. Edit: I'll elaborate on \\\"\\\"productive assets\\\"\\\": any asset that produces something; whether it produces cash or a commodity, you'll automatically accumulate more of its byproduct in the future. The rest is self explanatory\\\"\",\n \"\\\"While you want it to grow faster than inflation, there are things like I-bonds that can carry some inflation protection with them for an idea that may make sense for part of this. There are now some more details and I'd think this seems alright initially though I would suggest considering having some kind of on-going plan to handle periodically seeing how much more to invest here and what kind of taxes will this generate for you as taxable accounts can carry a mix of dividends, interest and capital gains that you may have to pay even though you didn't see the gain yourself. Keep in mind that if you do go with a big-name investment bank, this could well add more fees as well as other stuff. Lehman Brothers was a big name investment bank once upon a time and they went broke. While you may want to be hands-off, I'd still suggest having some kind of timeline for how often are your investments to be reviewed and things re-allocated. Each quarter, semi-annually, or annual? There isn't so much a right or wrong answer here as much as I'd point out that one should be aware of the trade-offs in each case. If you take annual and wonder each week how it is doing, then something a bit more frequent may make sense. On the other hand, some people may well \\\"\\\"set it and forget it\\\"\\\" which can work as long as there is something to know about where to go if something does go broke. As these are managed investments, the SIPC check I'd make may not hold though this would be the equivalent of FDIC for deposits when dealing with securities. The REIT can be useful for diversification, sure. You do realize that there may be some interesting taxes for you in the next few years given the nature of a REIT investment, right? The \\\"\\\"Return of Capital\\\"\\\" that a REIT may pass through as a REIT to maintain its tax status must distribute 90% of its net income each year that can be quite a off shoot of funds. Where would those proceeds be invested? This isn't mentioned in your post and thus I'm curious as if the REIT passes out a dividend yield of say 5% then this is $2,000/year that could go somewhere.\\\"\",\n \"I would say that the three most important skills are: Note that some costs are hidden. So, for example, a mutual fund investing in other countries than where you live in may mean the investment target country charges a certain percentage of dividends going to the mutual fund. The mutual fund company doesn't usually want to tell you this. There may be clever financial instruments (derivatives) that can be used to avoid this, but they are not without their problems. If you diversify into equities at low cost, you will have a very wealthy future. I would recommend you to compare two options: ...and pick from these options the cheaper one. If your time has a high value, and you wish to take this value into account, I would say it is almost always far better option to choose an index fund. Whatever you do, don't pay for active management! It is a mathematical truth that before costs, actively managed investments will yield the same return than indexed investments. However, the costs are higher in active management, so you will have less total return. Don't believe that good historical return would imply good future return. However, if for some reason you see an index fund that continuously loses to the index more than by the amount of stated costs, beware!\",\n \"With a long enough time horizon, no matter when you buy, equities almost always outperform cash and bonds. There's an article here with some info: http://www.fool.co.uk/investing-basics/how-when-and-where-to-invest/ Holding period where shares have beaten cash There was a similar study done which showed if you picked any day in the last 100 years, no matter if the market was at a high or low, after 1 year your probability of being in profit was only 0.5, but after 10-20 years it was almost certainly 1.0. Equities compound dividends too, and the best place to invest is in diversified stock indices such as the S&P500, FTSE100, DOW30 or indices/funds which pay dividends. The best way to capture returns is to dollar cost average (e.g. place a lump sum, then add $x every month), to re-invest dividends, and oh, to forget about it in an IRA or SIPP (Self invested pension) or other vehicle which discourages tampering with your investment. Yes, values rise and fall but we humans are so short sighted, if we had bought the S&P in 2007 and sold in 2009 in fear, we would have missed out on the 25% gain (excluding dividends) from 2007-2014. That's about 3% a year gain even if you bought the 2007 high -beating cash or bonds even after the financial crisis. Now imagine had you dollar cost averaged the entire period from 2007-2014 where your gain would be. Your equity curve would have the same shape as the S&P (with its drastic dip in 2009) but an accelerated growth after. There are studies if you dig that demonstrate the above. From experience I can tell you timing the market is nigh impossible and most fund managers are unable to beat the indices. Far better to DCA and re-invest dividends and not care about market gyrations! ..\",\n \"There is no best way, you can send the money to India or invest into shares in US. It depends on the risk you are ready to take.\",\n \"I am not interested in watching stock exchange rates all day long. I just want to place it somewhere and let it grow Your intuition is spot on! To buy & hold is the sensible thing to do. There is no need to constantly monitor the stock market. To invest successfully you only need some basic pointers. People make it look like it's more complicated than it actually is for individual investors. You might find useful some wisdom pearls I wish I had learned even earlier. Stocks & Bonds are the best passive investment available. Stocks offer the best return, while bonds are reduce risk. The stock/bond allocation depends of your risk tolerance. Since you're as young as it gets, I would forget about bonds until later and go with a full stock portfolio. Banks are glorified money mausoleums; the interest you can get from them is rarely noticeable. Index investing is the best alternative. How so? Because 'you can't beat the market'. Nobody can; but people like to try and fail. So instead of trying, some fund managers simply track a market index (always successfully) while others try to beat it (consistently failing). Actively managed mutual funds have higher costs for the extra work involved. Avoid them like the plague. Look for a diversified index fund with low TER (Total Expense Ratio). These are the most important factors. Diversification will increase safety, while low costs guarantee that you get the most out of your money. Vanguard has truly good index funds, as well as Blackrock (iShares). Since you can't simply buy equity by yourself, you need a broker to buy and sell. Luckily, there are many good online brokers in Europe. What we're looking for in a broker is safety (run background checks, ask other wise individual investors that have taken time out of their schedules to read the small print) and that charges us with low fees. You probably can do this through the bank, but... well, it defeats its own purpose. US citizens have their 401(k) accounts. Very neat stuff. Check your country's law to see if you can make use of something similar to reduce the tax cost of investing. Your government will want a slice of those juicy dividends. An alternative is to buy an index fund on which dividends are not distributed, but are automatically reinvested instead. Some links for further reference: Investment 101, and why index investment rocks: However the author is based in the US, so you might find the next link useful. Investment for Europeans: Very useful to check specific information regarding European investing. Portfolio Ideas: You'll realise you don't actually need many equities, since the diversification is built-in the index funds. I hope this helps! There's not much more, but it's all condensed in a handful of blogs.\",\n \"Have you considered investing in real estate? Property is cheap now and you have enough money for several properties. The income from tenants could be very helpful. If you find it's not for you, you can also sell your property and recover your initial investment, assuming house prices go up in the next few years.\",\n \"\\\"I get the sense that this is a \\\"\\\"the world is unfair; there's no way I can succeed\\\"\\\" question, so let's back up a few steps. Income is the starting point to all of this. That could be a job (or jobs), or running your own business. From there, you can do four things with your income: Obviously Spend and Give do not provide a monetary return - they give a return in other ways, such as quality of life, helping others, etc. Save gives you reserves for future expenses, but it does not provide growth. So that just leaves Invest. You seem to be focused on stock market investments, which you are right, take a very long time to grow, although you can get returns of up to 12% depending on how much volatility you're willing to absorb. But there are other ways to invest. You can invest in yourself by getting a degree or other training to improve your income. You can invest by starting a business, which can dramatically increase your income (in fact, this is the most common path to \\\"\\\"millionaire\\\"\\\" in the US, and probably in other free markets). You can invest by growing your own existing business. You can invest in someone else's business. You can invest in real estate, that can provide both value appreciation and rental income. So yes, \\\"\\\"investment\\\"\\\" is a key aspect of wealth building, but it is not limited to just stock market investment. You can also look at reducing expenses in order to have more money to invest. Also keep in mind that investment with higher returns come with higher risk (both in terms of volatility and risk of complete loss), and that borrowing money to invest is almost always unwise, since the interest paid directly reduces the return without reducing the risk.\\\"\",\n \"The advice I have is short and sweet. Be an investor, not a speculator. Adopt the philosophy of Warren Buffet which is the 'buy and hold' philosophy. Avoid individual stocks and buy mutual funds or ETFs. Pick something that pays dividends and reinvest those dividends. Don't become a speculator, meaning avoid the 'buy low, sell high' philosophy. EDIT:For some reason I cannot add a comment, so I am putting my response here. @jad The 'buy low, sell high' approach makes money for the stock broker, not necessarily you. As we learn in the movie Trading Places, each buy or sell creates a commission for the broker. It is those commission expenses that eat away at your nestegg. Just don't sell. If a security is trading at $10 a share and pays $0.25 a share each quarter then you are getting 10% ROI if you buy that security (and if it continues to pay $0.25 a share each quarter). If the price goes up then the ROI for new buyers will go down, but your ROI will still be the same. You will continue to get 10% for as long as you hold that security. A mutual fund buys the individual stocks for you. The value of the fund is only calculated at the end of the day. An ETF is like a mutual fund but the value of the ETF is calculated moment by moment.\",\n \"\\\"Are there other options I haven't thought of? Mutual funds, stocks, bonds. To buy and sell these you don't need a lawyer, a real-estate broker and a banker. Much more flexible than owning real estate. Edit: Re Option 3: With no knowledge of investing the first thing you should do is read a few books. The second thing you should do is invest in mutual funds (and/or ETFs) that track an index, such as the FTSE graph that was posted. Index funds are the safest way to invest for those with no experience. With the substantial amount that you are considering investing it would also be wise to do it gradually. Look up \\\"\\\"dollar cost averaging.\\\"\\\"\\\"\",\n \"Your initial investment in this case is $9 on the first morning. Every other morning you are using part of your profits to buy the new piece of jewelry, so you are actually not investing any new funds. So each day you are effectively keeping $1 of your profits and re_re-investing $9. But your initial investment of your own funds is only the first $9. In other words if you only had $9 in the bank at the start of the year you could make $365 profits during the year and finish up with $374 in the the bank at the end of the year.\",\n \"Anybody that offers a bigger return than a deposit claiming 100% safe is a fraud. There is always a risk: Yes, you can gain 30% in a year, but nobody can guarantee that you'll repeat that gain the next. My own experience (and I do take risks), one year I go up, the next year I go down...\",\n \"\\\"I can think of one major income source you didn't mention, dividends. Rather than withdrawing from your pension pot, you can roll it over to a SIPP, invest it in quality dividend growth stocks, then (depending on your pension size) withdraw only the dividends to live on. The goal here is that you buy quality dividend growth stocks. This will mean you rarely have to sell your investments, and can weather the ups and downs of the market in relative comfort, while using the dividends as your income to live off of. The growth aspect comes into play when considering keeping up with inflation, or simply growing your income. In effect, companies grow the size of their dividend payments and you use that to beat the effects of inflation. Meanwhile, you do get the benefit of principle growth in the companies you've invested in. I don't know the history of the UK stock market, but the US market has averaged over 7% total return (including dividends) over the long term. A typical dividend payout is not much better than your annuity option though -- 3% to 4% is probably achievable. Although, looking at the list of UK Dividend Champion list (companies that have grown their dividend for 25 years continuous), some of them have higher yields than that right now. Though that might be a warning sign... BTW, given all the legal changes around buy-to-lets recently (increases stamp duty on purchase, reduction in mortgage interest deduction, increased paperwork burden due to \\\"\\\"right to rent\\\"\\\" laws, etc.) you want to check this carefully to make sure you're safe on forecasting your return.\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"What is the best way that I can invest money so that I can always get returns? Would it be to set up an FD in a bank, to buy land, to buy a rental house, to buy a field, or maybe to purchase gold? Forever is a long time. Of the options you listed, the only one guaranteed to generate returns is a bank account. The returns may well be very small, but (absent an economy-wide financial failure) you will get the stated return. Land doesn't always retain its value, nor do rental houses or fields. Gold clearly fluctuates. But you would be better served to think about goals and how you can attain them. What do you want to do with the \"\"returns\"\"? If you are trying to set yourself up for purchasing a home, paying for college, or retirement, then the small returns on a bank account may be insufficient. And in that case you might be better served by worrying more about the size of the returns you need than the certainty of them. There may be many \"\"better investments\"\" if you more clearly define what you expect to achieve by your investment.\"","What is the best way that I can invest money so that I can always get returns? If you want something that doesn't require any work on your end, consider having a fee-only financial planner make a plan so that your investments can be automated to generate a cash flow for you or get an annuity as the other classic choices here as most other choices will require some time commitment in one form or other. Note that for stock investments there could be rare instances like what happened for a week in September in 2001 where the markets were closed for 5 days straight that can be the hiccup in having stocks. Bonds can carry a risk of default where there have been municipalities that defaulted on debt as well as federal governments like Russia in the 1990s. Real estate may be subject to natural disasters or other market forces that may prevent there always being a monthly payment coming as if you own a rental property then what happens if there aren't tenants because there was an evacuation of the area? There may be some insurance products to cover some of these cases though what if there are exceptionally high claims all at once that may have an insurance company go under? Would it be to set up an FD in a bank, to buy land, to buy a rental house, to buy a field, or maybe to purchase gold? What investment of your own time do you plan on making here? Both in terms of understanding what your long-term strategy is and then the maintenance of the plan. If you put the money in the bank, are you expecting that the interest rate will always be high enough to give you sufficient cash to live as well as having no financial crisis with the bank or currency you are using? Are there any better investments? You may want to reconsider what assumptions you want to make and what risks you want to accept as there isn't likely to be a single solution here that would be perfect."],"string":"[\n \"\\\"What is the best way that I can invest money so that I can always get returns? Would it be to set up an FD in a bank, to buy land, to buy a rental house, to buy a field, or maybe to purchase gold? Forever is a long time. Of the options you listed, the only one guaranteed to generate returns is a bank account. The returns may well be very small, but (absent an economy-wide financial failure) you will get the stated return. Land doesn't always retain its value, nor do rental houses or fields. Gold clearly fluctuates. But you would be better served to think about goals and how you can attain them. What do you want to do with the \\\"\\\"returns\\\"\\\"? If you are trying to set yourself up for purchasing a home, paying for college, or retirement, then the small returns on a bank account may be insufficient. And in that case you might be better served by worrying more about the size of the returns you need than the certainty of them. There may be many \\\"\\\"better investments\\\"\\\" if you more clearly define what you expect to achieve by your investment.\\\"\",\n \"What is the best way that I can invest money so that I can always get returns? If you want something that doesn't require any work on your end, consider having a fee-only financial planner make a plan so that your investments can be automated to generate a cash flow for you or get an annuity as the other classic choices here as most other choices will require some time commitment in one form or other. Note that for stock investments there could be rare instances like what happened for a week in September in 2001 where the markets were closed for 5 days straight that can be the hiccup in having stocks. Bonds can carry a risk of default where there have been municipalities that defaulted on debt as well as federal governments like Russia in the 1990s. Real estate may be subject to natural disasters or other market forces that may prevent there always being a monthly payment coming as if you own a rental property then what happens if there aren't tenants because there was an evacuation of the area? There may be some insurance products to cover some of these cases though what if there are exceptionally high claims all at once that may have an insurance company go under? Would it be to set up an FD in a bank, to buy land, to buy a rental house, to buy a field, or maybe to purchase gold? What investment of your own time do you plan on making here? Both in terms of understanding what your long-term strategy is and then the maintenance of the plan. If you put the money in the bank, are you expecting that the interest rate will always be high enough to give you sufficient cash to live as well as having no financial crisis with the bank or currency you are using? Are there any better investments? You may want to reconsider what assumptions you want to make and what risks you want to accept as there isn't likely to be a single solution here that would be perfect.\"\n]","isConversational":false}}},{"rowIdx":373,"cells":{"_id":{"kind":"string","value":"3480"},"query":{"kind":"string","value":"Why is OkPay not allowed in the United States?"},"gt_ids":{"kind":"list like","value":["53468","418352","221015","75568"],"string":"[\n \"53468\",\n \"418352\",\n \"221015\",\n \"75568\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1,1],"string":"[\n 1,\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["221015","53468","418352","75568","54007","320405","517006","550557","166400","496385","96674","199328","482332","445339","326690","340271","446345","92385","102682","563884","326833","483659","289700","235930","539272","117958","233001","298638","596431","193152","264425","336140","32097","220223","337099","491969","588345","286935","572515","506065","421348","490651","193766","394296","462601","557929","111891","78395","284832","244133","549787","566091","569993","475267","465292","556692","122227","359753","321612","60345","211428","441105","585916","261345","240328","351114","594414","453371","332422","84596","398132","518784","568636","362231","78597","156581","47175","450659","305997","270286","340661","346495","65418","520055","333292","566028","524752","286992","466943","295544","364975","417455","399404","97295","59349","82193","507701","458181","218950","304159"],"string":"[\n \"221015\",\n \"53468\",\n \"418352\",\n \"75568\",\n \"54007\",\n \"320405\",\n \"517006\",\n \"550557\",\n \"166400\",\n \"496385\",\n \"96674\",\n \"199328\",\n \"482332\",\n \"445339\",\n \"326690\",\n \"340271\",\n \"446345\",\n \"92385\",\n \"102682\",\n \"563884\",\n \"326833\",\n \"483659\",\n \"289700\",\n \"235930\",\n \"539272\",\n \"117958\",\n \"233001\",\n \"298638\",\n \"596431\",\n \"193152\",\n \"264425\",\n \"336140\",\n \"32097\",\n \"220223\",\n \"337099\",\n \"491969\",\n \"588345\",\n \"286935\",\n \"572515\",\n \"506065\",\n \"421348\",\n \"490651\",\n \"193766\",\n \"394296\",\n \"462601\",\n \"557929\",\n \"111891\",\n \"78395\",\n \"284832\",\n \"244133\",\n \"549787\",\n \"566091\",\n \"569993\",\n \"475267\",\n \"465292\",\n \"556692\",\n \"122227\",\n \"359753\",\n \"321612\",\n \"60345\",\n \"211428\",\n \"441105\",\n \"585916\",\n \"261345\",\n \"240328\",\n \"351114\",\n \"594414\",\n \"453371\",\n \"332422\",\n \"84596\",\n \"398132\",\n \"518784\",\n \"568636\",\n \"362231\",\n \"78597\",\n \"156581\",\n \"47175\",\n \"450659\",\n \"305997\",\n \"270286\",\n \"340661\",\n \"346495\",\n \"65418\",\n \"520055\",\n \"333292\",\n \"566028\",\n \"524752\",\n \"286992\",\n \"466943\",\n \"295544\",\n \"364975\",\n \"417455\",\n \"399404\",\n \"97295\",\n \"59349\",\n \"82193\",\n \"507701\",\n \"458181\",\n \"218950\",\n \"304159\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["If you read the link that MD-Tech provided, it actually indicates that the foreign companies (mostly banks) are choosing not to work with the United States in their latest answer, so it looks like it's not OkPay, but the financial companies that they use. On further research, the reason that this is banned is to prevent capital flight in the future. OkPay offers may ways to transfer funds in and out, such as traditional credit cards, like VISA and MasterCard, and other non-traditional ways, such as crypto-coins. Here is another example of how the US government is limiting what US consumers can do with their money. Apparently while no one was looking in 2010, they were able to pass some new restrictions.","\"The U.S. requires money transfer services to be licensed under 31 USC 5330 in addition to any applicable laws at the state level. According to multiple sources online, including the thread referenced by MD-Tech's answer, OkPay either cannot or will not get a license, so they are out. I dug on this a bit more because I thought it was interesting, and OkPay has other issues with U.S. and other regulators related to its interaction with Bitcoins, which themselves are a hot potato for regulation right now and may explain the licensing problem. It seems to also be facing regulatory pressure in other countries, by the way, so it's not strictly a problem they face in the U.S. Just for whatever reason, the problem is greater here. Some interesting summary points: With mounting pressure on online money exchanges from US regulators, payments processor OKPay has announced that it is suspending processing for all Bitcoin exchanges, including industry leader Mt. Gox. ... Earlier this month, the US Department of Homeland Security seized Mt. Gox's account with mobile payment processor Dwolla, on allegations that the account was in violation of US Code 18 USC § 1960 by operating an \"\"unlicensed money transmitting business.\"\" Just where the Bitcoin market falls under US law is unclear, because the legality of Bitcoin transactions has yet to be tried in court and law enforcement has refused to comment on ongoing investigations, such as the Dwolla case. http://www.theregister.co.uk/2013/05/29/okpay_suspends_bitcoin_processing/ In March, the US Treasury said any firms dealing in the virtual currency would be considered \"\"money services businesses\"\" just like any other, which means they must hand over transaction information to the government and work to prevent money laundering. http://www.theregister.co.uk/2013/05/15/mt_gox_us_court/ In the UK, it apparently has also had trouble with banking partners (quoting a OkPay official regarding changing bank providers): The UK bank that we used before did not make a final decision on whether to handle transactions in favour of crypto-currencies or not. Therefore the compliance department of the bank asked us to restrict such transfers. This apparently allowed them to reverse a policy in the UK: OKPAY's policy shift comes just months after it stipulated that GBP users check a box, verifying that their funds would not be spent on cryptocurrency, a feature that further incited users. http://www.coindesk.com/okpay-gbp-bitcoin-transactions/ I hadn't heard of this company prior to your question, but having done some research, I tend to think that at least the part of this quote about language, attributed to a user, is true: OKPAY are quite paranoid about AML and another problem is that their support people seem to be very bad at English, so their replies are often hard to understand. Their support are also slow [sic]. However in my experience they are an honest company. I found at least one case where rumors that the entire company were going to shut down were traced back to a poorly translated message issued by the company. Again, I know only what I read just now about this company, but it looked like there were a few red flags - the problems with the US probably not being the most important. This type of service is probably part of the future, but I'm not sure that I'd send money through it now in its current state or organization and regulation.\"","according to their client services it is a licensing issue: Thread: OKpay didn't Accept USA clients? They do not elaborate but do suggest that they don't plan to fix that issue.","Here's the real reason OKPay (actually the banks they interface with) won't accept US Citizens. The Foreign Account Tax Compliance Act Congress passed the Foreign Account Tax Compliance Act (FATCA) in 2010 without much fanfare. One reason the act was so quiet was its four-year long ramp up; FATCA did not really take effect until 2014. Never before had a single national government attempted, and so far succeeded in, forcing compliance standards on banks across the world. FATCA requires any non-U.S. bank to report accounts held by American citizens worth over $50,000 or else be subject to 30% withholding penalties and possible exclusion from U.S. markets. By mid-2015, more than 100,000 foreign entities had agreed to share financial information with the IRS. Even Russia and China agreed to FATCA. The only major global economy to fight the Feds is Canada; however it was private citizens, not the Canadian government, who filed suit to block FATCA under the International Governmental Agreement clause making it illegal to turn over private bank account information. Read more: The Tax Implications of Opening a Foreign Bank Account | Investopedia http://www.investopedia.com/articles/personal-finance/102915/tax-implications-opening-foreign-bank-account.asp#ixzz4TzEck9Yo Follow us: Investopedia on Facebook","Have a great lawyer and a fuck ton of money Not only are financial regulations on online payment processors quite complex, each state and the federal gov have required licenses which cost in total around $5 million upfront and $1-2 million annually.","I can only imagine the regulatory difficulty you're going through, and for that I empathize. First, bankers everywhere mostly do not know if a bank policy is due to regulation or internal rules. Other banks may be more flexible, but only the most reputable should be used. Re Paypal, they first deposit 1 USD and then withdraw it, but things may be different in Cyprus. Also, Paypal now has debit cards, so if Paypal is permitted to issue cards in Russia then it could presumably be used in Cyprus. Again, local regulation notwithstanding. Paypal now has phone support at the very back of their site, so I suggest a call to them. In countries that permit, Western Union can be used to wire money into an account from cash. The Bitcoin route should be used as a last resort. You could wake up tomorrow losting 25% easy. The regulations are a distant second compared to this problem. With all of the above methods, there will be varying delays from days to weeks.","I would guess that this is due to the card issuer, not Paypal. Credit card transactions are tagged with a code describing the type of purchase, and some issuers disallow certain types (such as gambling).","The underlying condescension of this article is palpable. I would imagine that given any lack of compulsory regulation, that Americans are using whatever means of payment that suits them. There's always this assumption that Americans are the most backwards people around. And Americans are always willing to just sit there and willingly and unquestionably imbibe the yokel-dom status ascribed to them by these elitists. I'm calling bullshit on this one.","This is all somewhat true. The likely scenario was that those transactions were flagged in the banks suspicious activity monitoring system for potential layering activity and they may have filed a suspicious activity report with FinCEN and may have a policy to close accounts with suspicious activity.","\"You are right in insisting upon a proper B2B contract in any business relationship. You wish to reduce your risk and be compensated fairly. In addition to the cost and complexity of international wire transfers, the US companies may also be considering the fact that as an international contractor in a relatively hard-to-reach jurisdiction, payments to you place the company at higher risk than payments to a domestic contractor. By insisting upon PayPal or similar transmitters, they are reducing their internal complexity and reducing their financial exposure to unfulfilled/disputed contract terms. Therefore, wire payments are \"\"hard\"\" in an internal business sense, as well as in a remittance transfer reporting sense. The internal business procedure will likely be the hardest to overcome--changing risk management is harder than filling out forms.\"","I don't see how Paypal can stop you from transferring USD funds from your paypal account to a USD account held with a bank. Just tell them to do the transfer to your account. The issue could be around USD onshore / offshore regulation. Is the US government preventing EU citizens from taking USD income offshore? If that's the case then you need a correspondent bank. So in other words, like using your friend. But what you can do is ask your bank who is their correspondent bank in the US, and whether they have the license required to transfer USD funds offshore. So you shift the regulation issues to your bank, and then you have to accept your bank's exchange rate - which is going to be better than paypal, who charges too much for FX transactions.","Paypal is already forbidden from doing business with ISIS. When the government levies sanctions against a group or country, all companies based in that country are forbidden from doing business with that entity, and the penalties are strong enough that companies don't fuck around with that. PayPal hasn't handled business for ISIS in years.","\"Yes. From their TOS: \"\"By creating a Square Account, you confirm that you are either a legal resident of the United States, a United States citizen, or a business entity...\"\".\"","If that is what you insist upon, don't use PayPal. This is one of the supposed justifications for the existence of cryptocurrencies","Does the above mean I will not be able to send money to myself or my mother Yes that is right. PayPal will only be used for small trades. The credits into PayPal cannot be used to purchase anything, and will have to be credited back to the linked Bank Account. This is to ensure right reporting and taxes are being paid. You could use alternative Bank channels for getting funds.","The solution was to get a foreign bank in each country we do business in. Get a credit card processor there, and simply make our money and keep our money in that country, and taking quarterly gains from those accounts and bringing them to the US account.","If I remember correctly my own experience : no you can't. Paypal will block the money even if it's only for online payement.",">Oh, but when you look at PayPal and VISA/MasterCard, there's like one. Or two. Yeah, no. I work in credit card processing, PayPal isn't even the largest, let alone the only processing company, nor is it the only way (or even the safest or best way) to make online purchases. And Visa/Mastercard don't control the issuing of cards to individuals, banks do. Every credit card is issued by a bank. >Denying legal use of money in a de facto monopoly is to me not morally better than denying legal use of money in a public utility monopoly. No one is denying legal use of money and PayPal is nowhere close to having a monopoly.","\"Are most big US based financial institutions and banks in such a close relationship with USCIS (United States Citizenship And Immigration Services) so they can easily request the information about market traders? Yes. They must be in order to enforce the laws required by the sanctions. What online broker would you suggest that probably won't focus on that dual citizenship matter? \"\"Dual\"\" citizenship isn't actually relevant here. Nearly anyone in the world can invest in US banks except for those few countries that the US has imposed sanctions against. Since you are a citizen of one of those countries, you are ineligible to participate. The fact that you are also a US citizen isn't relevant in this case. I believe the reasoning behind this is that the US doesn't encourage dual citizenship: The U.S. Government does not encourage dual nationality. While recognizing the existence of dual nationality and permitting Americans to have other nationalities, the U.S. Government also recognizes the problems which it may cause. Claims of other countries upon U.S. dual-nationals often place them in situations where their obligations to one country are in conflict with the laws of the other. In addition, their dual nationality may hamper efforts of the U.S. Government to provide consular protection to them when they are abroad, especially when they are in the country of their second nationality. If I had to guess, I'd say the thinking there is that if you (and enough other people that are citizens of that country) want to participate in something in the US that sanctions forbid, you (collectively) could try to persuade that country's government to change its actions so that the sanctions are lifted. Alternatively, you could renounce your citizenship in the other country. Either of those actions would help further the cause that the US perceives to be correct. What it basically boils down to is that even though you are a US citizen, your rights can be limited due to having another citizenship in a country that is not favorable in the current political climate. Thus there are pros and cons to having dual citizenship.\"","Western Union is one way to send emergency cash to a family member. It seems suspicious as a method of goods payment because many frauds have used it as a means of collecting irreversible payments. EBay and Paypal would be a better more trustworthy way to sell to usa customers. Most USA banks need a USA address for the account owner..... But you may not need a USA bank account as PayPal can store and exchange funds to other currencies.","The workaround that I use in a recent time is very simple, effective and it is spreading very quickly - Payoneer. What you will need is http://www.payoneer.com/USPService.aspx which will get you US bank account that you can link to your paypal account.","A true capitalist economy would use a monetary system selected by the market, which would probably be facilitated by competition between multiple decentralized digital currencies. PayPal's behaviour is made possible because we are forced to use a centrally controlled monetary system at gunpoint.","The laws of the United States of America require that the federal currency issued is accepted as legal tender for all goods and services anywhere within this country. One really has to wonder what the motivation behind this story is. VISA obviously knows that such a move is illegal. I am skeptical that there's any truth to the article at all.","\"tl;dr: Anyone who doesn't like what VISA and MasterCard did to wikileaks should not be in favour of this. This is a slippery slope (yes, really), where participating the the marketplace shall only be allowed by people the powers that be likes. What is \"\"intolerance\"\"? Should James Damore never be allowed to use paypal for any purpose? How about VISA, MasterCard, should he never be allowed to have a credit card again? If the government doesn't \"\"like\"\" what you're doing then they have made (or can make) it illegal, and you are taken out of the marketplace of ideas and money, if the government thinks this is best. This is government-sized actions (denying people the possibility to deal with money) done extrajudicially by private entities. \"\"I have decided that your legal enterprise should not be allowed to make money\"\" is terrible! If you are in favour of this then you should be in favour of the phone company, the electricity company, and gas company to deny service to anyone who's ever been accused of being a paedophile.\"","\"> You can't claim this is government retribution I didn't. > just because it's a big company or a \"\"government-sized\"\" action. I'm saying I don't think non-government should be in the position to be able to do government-sized actions, at least not negative and targeted ones. > PayPal is not a utility. The Internet is not yet a utility everywhere. Are petrol stations? Non-emergency medical care? (that last one may fall under some other must-serve definition). Let's say the two ISPs in the US decide that since there's no net neutrality they'll throttle your business to 1 bit per week. Maybe because of your views. Maybe because you compete with them, it's their business and they don't have to justify it. > You're making incorrect comparisons. I don't think that I am. OK, let's say all non-utilities are allowed to deny access based on political views of customers or other arbitrary things. What if all the paint stores decided that you are a horrible person, so you are not allowed to buy paint. Eventually your house rots because you need to repaint it every now and then, and now you're homeless. Seems unlikely that they all would do this, right? Oh, but when you look at PayPal and VISA/MasterCard, there's like one. Or two. What if the quorum of bitcoin transactory things do it? It's not that many, as I understand it. Denying legal use of money in a de facto monopoly is to me not morally better than denying legal use of money in a public utility monopoly.\"","Take a look at Google Checkout but keep in mind that there is a different list of countries that they support as sellers vs. buyers. The buyer list is much more comprehensive, and I believe covers CIS (Russia, Ukraine and Belarus) while the seller list does not (yet) which means that your client will need to create a U.S. or U.K. based entity to accept payments, however they will be able to accept payments from buyers both in CIS and internationally. Удачи.","\"The only way to prevent it is to not use PayPal. The terms of usage are draconian, and by using the service you agree to them. I'm sure that when the case gets to a court of law, they will find where it is authorized. Paypal is not a bank, and the money there is basically \"\"entrusted\"\" with the company and is not insured by anyone. They don't need or have to be subject to the regulations on the banking industry, and they're no different than your neighbour carrying money for you to the grocery store when you're sick. Other options are wire transfer, services like Western Union or Moneygram, checks (better certified/cashier's checks), money orders or even cash. You can also charge via credit card, but you can get similar problems there (although it is still safer than PayPal because with credit card - the card owner must initiate the charge back, it doesn't appear on its own because they feel like it).\"","Your sister-in-law should know that anybody, US citizen or not, can open a US bank account. She should do that and then pay her 20k fee to the company. I'm a Canadian citizen and I have a US bank account and I don't even live nor work in the United States. I only use it when I travel for leisure and order online. This looks like a scam, but if you know well your sister-in-law, it may not be.","paypal says it works with CBE but can't seem to link my account with them, but skrill works perfectly just go to www.skrill.com sign up and you can link your bank account with your skrill account, i've had a few transactions so it should work for you too.","\"> an opaque, esoteric instrument used by gun-runners and drug-dealers on the Dark Web that should be avoided. As long as the \"\"see something, say something\"\" Law&Order™ axis provides willing volunteers to support the \"\"American\"\" [cheka](https://en.wikipedia.org/wiki/Cheka), Joe Walmart will 'see': 1. \"\"Hoarding\"\" 2. Human trafficking 3. OMG! Tax Avoidance!! ...and clamor for 'alternative' currencies to be shut down.\"","NL7 is most likely right. With the rise of regulatory burden some financial institutions are refusing to do business for which they are at risk of not being compliant (because of complexity) or where being compliant is to onerous. Would suggest you have a look at Good luck","It's important to note that the US is also the country that taxes its expats when they live abroad, and forces foreign banks to disclose assets of US citizens. Americans are literally the property of their government. America is a tax farm and its citizens can't leave the farm. Wherever you go, you are owned. And that now appears to be true of your Bitcoin as well. Even if you spend 50 years outside the USA, your masters want a piece of what you earn. Land of the Free.","\"> But I explicitly mentioned the customer experience, which is completely different and no matter how much you want your industry experience to matter for that, it doesn't affect it. You mentioned the customer experience randomly in some parts, then threw in Wikileaks in others. If we're talking about the customer experience, we need to drop the payment processors aspect, because the majority of the time, the consumer doesn't even know who processes their card payments let alone care, and again, PayPal is not even close to the only option. If this were 1998 and people were really wary of buying online, then it would be a bigger deal to be banned from PayPal. But it's not 1998, and a ton of people don't care, and there are all kinds of alternatives. PayPal can deny service all it wants (and it does that on a regular basis) and that in no way means that a business can't accept cards. You're \"\"customer experience\"\" premise is flawed. I literally spend all day helping businesses set up credit card processing, and PayPal is a drop in the bucket. >Could you clarify for me how VISA/MasterCard managed to block a merchant, who presumably wasn't a direct customer (but instead a payment processor customer), but cannot block a card holder? (yes, this is an honest question) Visa and Mastercard have relationships with banks and/or processors, who have relationships with merchants. Visa and MC's agreements with banks and processors stipulate that those banks and processors can't offer services to companies engaging in illegal activity. Wikileaks was (allegedly) engaging in illegal activity, and it's on that basis that Visa and MC denied service to WL. Visa and Mastercard have almost nothing to do with cardholders. They don't issue credit cards to cardholders, they aren't the ones that do credit checks to determine creditworthiness, they aren't the ones helping you with your monthly statement or a dispute, etc. Cardholders aren't Visa and MC's clients. When a transaction is run, it's authenticated by the bank that issued the card, not by Visa or MC, and it's the bank, not Visa or MC, that would block transactions or freeze a cardholder account. >The WikiLeaks blockade was clearly political. What makes you say otherwise? And this is political. So your argument is that anything political is the same as anything else political? Kind of a stretch.. Wikileaks was denied service by the card brands for allegedly engaging in illegal activity. PayPal is denying service of its own volition, which FYI, it does every day to legal businesses. As long as their reasons for doing so aren't discriminatory based on status in a protected class, they are (and should be) allowed to refuse service.\"","Looks to be a competitor of PayPal, you transfer money and they keep it in virtual account ... enable transfer and receive funds ... Nope the funds are not backed by any Central Banks if that is what you are looking at. If you want to use it, my recommendation is not to keep a large balance. If it goes down, one cannot even trace their owners.","> But, banks won't allow it. It's not just banks - the Republican party seems to have had it in for the US Postal Service for the past decade. Possibly because it's seen as trustworthy and effective, so they want to make it worse so people won't have things like that associated with government. In 2006 at the height of their majorities in Congress they managed to pass that bill that forces the USPS to lose money rapidly, and has been forcing it to lay off people and close post offices and chip away at how convenient and effective it is. But, postal banking could turn that around. With it the USPS might bring in some income to balance out the expenses of that 2006 legislation. People might even object more to post offices closing, or try to reopen them. It would undermine a major part of Republican policy.","you dont need any permits or be inside the US to trade the exact same securities on US exchanges. you can literally move your bitcoin from a chinese exchange to us exchange in seconds. i don't see how you can possibly run into legal issues if anyone from outside the country can trade bitcoins on an exchange inside the country without any permit. a lot of these exchanges dont ask for ID or social security number anyways. none of it is government regulated. also trading anything is never a passive income. theres no such thing as an easy or obvious investment. there are always risks- and the actual risk is often deceivingly low","\"This sounds like a FATCA issue. I will attempt to explain, but please confirm with your own research, as I am not a FATCA expert. If a foreign institution has made a policy decision not to accept US customers because of the Foreign Financial Institution (FFI) obligations under FATCA, then that will of course exclude you even if you are resident outside the US. The US government asserts the principle of universal tax jurisdiction over its citizens. The institution may have a publicly available FATCA policy statement or otherwise be covered in a new story, so you can confirm this is what has happened. Failing that, I would follow up and ask for clarification. You may be able to find an institution that accepts US citizens as investors. This requires some research, maybe some legwork. Renunciation of your citizenship is the most certain way to circumvent this issue, if you are prepared to take such a drastic step. Such a step would require thought and planning. Note that there would be an expatriation tax (\"\"exit tax\"\") that deems a disposition of all your assets (mark to market for all your assets) under IRC § 877. A less direct but far less extreme measure would be to use an intermediary, either one that has access or a foreign entity (i.e. non-US entity) that can gain access. A Non-Financial Foreign Entity (NFFE) is itself subject to withholding rules of FATCA, so it must withhold payments to you and any other US persons. But the investing institutions will not become FFIs by paying an NFFE; the obligation rests on the FFI. PWC Australia has a nice little writeup that explains some of the key terms and concepts of FATCA. Of course, the simplest solution is probably to use US institutions, where possible. Non-foreign entities do not have foreign obligations under FATCA.\"","If you’re concerned about transferring USD, I can’t really help you there. But if you’re looking to transfer wealth, I believe that’s where something like Bitcoin could help you. In fact a small or nonexistent processing fee is one of Bitcoin’s biggest strengths as a currency. Off the top of my head, I believe BitPay has services that would suit your needs. And if you’re worried about the volatility of Bitcoin, you can always convert it straight to USD just so you can avoid service fees!","Not just America, and I assume not ALL companies, but heaps in Australia are doing the same thing. I work for one that does, I mean all of the Visa workers in here are wonderful people so it's not a big deal to me. I can definitely relate to people being annoyed about this though, especially as many foreigners send a lot of their money overseas instead of spending it here.","\"The other answers describe why this is highly likely to be a scam. This answer describes why you don't want to get involved, even in the unlikely case that it isn't a scam. I'm describing this using US law (which I'm not particularly familiar with, so if I go astray I'd suggest others fix any flaws in this answer), but most other countries have similar laws as these laws are all implementations of a small number of international treaties have very large memberships. The service you describe (accepting money transfers from one party and transferring them to another) is one which, if you engage in it for profit, would classify you as a \"\"financial institution\"\" under 31 USC 5312, specifically paragraph (a)(2)(R): any other person who engages as a business in the transmission of funds, including any person who engages as a business in an informal money transfer system Because you would be acting as a financial institution: Failure to follow such requirements can lead to a fine of up to $250,000 or a 5 year prison sentence (31 USC 5322). See also: Customer Identification Program and Know Your Customer.\"","Well i'm not saying it will be terrible, i could have said this wrong but it might be terrible. Dollar is not the international currency just in oil but mostly everything. Different countries uses dollar to trade, this is one of the core reasons of US economy being the strongest. US should not be tolerant about this sort of stuff since if this trend continuous it could be disastrous.","\"Who's \"\"they\"\"? The brokerage is incorporated in Cyprus, which is known to harbor illegal/unethical financial firms (and for Russian money laundering). It's not easy to regulate unfortunately. As a side-note, they're obviously targeting football fans to attract all the bookies guys and sports gamblers. Sad to see...\"","I won't think so. Too much trouble for the compliance and internal audit team. Unless you are moving money from Russia, Iran or those non-FATCA countries.","If you are a Russian citizen a much easier and common solution would be a USD or EUR withdrawal from your Webmoney account to your Cyprus bank account. You will need to create a Webmoney account (www.webmoney.ru), get a primary certificate in your local Webmoney office in Russia (The list is available at the website), create WMZ (for USD) and WME (for EURO) accounts in Webmoney (done online). Then you can easily top up your Webmoney WMR (Rubles) account (created automatically) with Rubles, convert the sum into USD (According to the Webmoney rate, which is only slightly different from the official central bank rate) and then withdraw the money from your USD Webmoney account to your Cyprus bank account. The money will be transfered to your Cyprus bank account from UK Webmoney dealer. The transaction description would say that this sum is transfered according to the contract of sale of securities. This method prevents any Russian regulatory authorities from seeing your transactions. And the best thig in Webmoney is that they have stable exchange rates and they use classic currencies such as USD, RUR, EUR, etc. Webmoney also has WMG accounts (Gold) and WMX accounts (Bitcoin). Non-Russian residents can also open a Webmoney accounts. You can get one even in Cyprus, by the way:)","\">\"\"I have decided that your legal enterprise should not be allowed to make money\"\" is terrible! That's not what's happening. They're simply saying that their private company service won't be the one to enable that money making. You can't claim this is government retribution just because it's a big company or a \"\"government-sized\"\" action. >If you are in favour of this then you should be in favour of the phone company, the electricity company, and gas company to deny service to anyone who's ever been accused of being a paedophile. PayPal is not a utility. You're making incorrect comparisons.\"",">Pyramid schemes are illegal in many countries or regions including Albania, Australia,[20][21] Austria,[22] Belgium,[23] Brazil, Canada, China,[24] Colombia,[25] Denmark, the Dominican Republic,[26] Estonia,[27] Finland,[28] France, Germany, Hong Kong,[29] Hungary, Iceland, Iran,[30] the Republic of Ireland,[31] Italy,[32] Japan,[33] Malaysia, Maldives, Mexico, Nepal, the Netherlands,[34] New Zealand,[35] Norway,[36] Peru, Philippines,[37] Poland, Portugal, Romania,[38] Russian Federation, Serbia,[39] South Africa,[40] Spain, Sri Lanka,[41] Sweden,[42] Switzerland, Taiwan, Thailand,[43] Turkey,[44] Ukraine,[45] the United Kingdom,[46] and the United States.[7] https://en.wikipedia.org/wiki/Pyramid_scheme","They are not as good of an option when compared to a card you open chosen based on features and rates. Get a card with a lower rate that can be used anywhere.","This is a typical scam. Yes, you just got listed with the terrorists as trying to launder money internationally. Terrorist organizations will try to find someone in the US who will accept deposits from overseas sources then send that money to one of their operatives. Cooperate with whichever police force comes knocking on your door. Pray that it isn't Homeland Security. They do not need warrants.","Here's a very simple answer, ask your broker/bank. Mine uses ofx. When asked if they would reimburse me for any unauthorized activity, the answer was no. Simple enough, the banks that use it don't feel its secure enough.","I've used PayPal for my business for a long time. Sometimes PayPal doesn't trust credit cards. Debit or direct bank transfer are reliable. There is also a charge for using a credit card but I don't think that is the reason. You may be trying to purchase a high value item. That would be a possible reason why PayPal allowed you to use credit cards in the past, but will not allow you to do so now, for these particular transactions.","I just tried doing that on my PP which is in the Netherlands, I have added a USD bank account (from my dutch bank) and they sent the verification amount in Euros, I called the bank and wonder why they didn't let me choose account currency they said it's not possible and if I cashout Dollars that I have in my PP (cause we usually do international business so we set it to dollars) it will be changed to Euros, So we decided to keep the dollars in account to pay our bills instead of getting ripped off by PayPal in xchange rates.","The model itself is fairly common for serving particular niche markets. A few other organizations which operate in similar setups: prepaid card providers such as NetSpend, GreenDot, AccountNow, etc; startups such as SmartyPig, PerkStreet, WePay, and HigherOne. Still, nobody else seems to be providing full-service online banking to mainstream customers the way we plan to. We plan to have much better security than most banks, which isn't hard given the current sorry state of online banking in the US. And having an intermediary who's looking out for your interests can be a good thing. David, my co-founder Josh lays out our launch plans and why we are invite-only in his latest post. In short, we made a decision to build our own call center rather than outsource it, and that limits how quickly we can bring people on.","\"Are you in the US? One thing you can do is prepay taxes at a rate of a 1.8% fee. Much lower than paypal. I would do this on what is \"\"left over\"\". Here are somethings that I would tend to do in your case: Those are some of the things I would be looking at. Do you care to share the details of your offer?\"","I agree, and admit that I probably assumed a bit too much context. >hate group exists for a specific hateful purpose, whereas a country does not I agree, but PayPal *is* into taking highly-publicized regional action based on social and political issues. For example, consider the transgender bathroom rights issue taking place in North Carolina last year. Not even close to every resident of the State supported it, yet PayPal made State-level decisions based on it—such as their choice to pull out of plans for a new global headquarters in Charlotte, NC. See here: http://money.cnn.com/2016/04/05/technology/paypal-north-carolina-lgbt/index.html If all residents in Saudia Arabia don't believe in discrimination, and therefore PayPal doesn't exclude business with the country as a whole :: Then all residents of NC not agreeing with another form of discrimination shouldn't exclude business from NC as a whole—yet it did. The difference? PayPal isn't going to lose a recurring amount of money by moving their operations to a different State, especially when they haven't really laid down too much sunk cost. Cessation of payment processing, on the other hand, would have had an impact on their bottom line. They like to flex their Political and Social Opinion, but seem to be very cost-effective in how they choose to do so. I respect them for taking initiative to use their influence to impact the world in a way they see most-fit, but I also believe that many people over-applaud or over-blame them. PayPal isn't risking business for causes in the same way that a soldier might risk their life for a cause—they're only risking their reputation like a Politician might in openly supporting or opposing a war.","\"There are a number of companies that will issue pre-paid chip and pin Mastercards this is probably the easiest way to deal with the issue. Most of them are limited to UK residents but with a very quick google I found this one http://public.neteller.com/content/en_US/cards_index.htm which seems to be open to US residents. I have no experience of using this company but when I googled \"\"chip and pin usa pre paid credit card\"\" they came up.\"","Not exactly the *best* reminder that PayPal is an arbitrary and capricious payment system with far too little oversight and far too much influence, but hey, I have room in my heart to hate Illinois Nazis and Peter Thiel on the same day.","Sure these groups suck ass but Paypal should act as a utility. Otherwise where do you draw the line? Do all businesses become politically driven entities? Do lobbyists start drilling for dirt and reasons to pull services form their competitors, or even make it up? I get **this** is good, and usually I'm not a fan of the slippery slope style arguement, though in this situation for what is largely an essential service it seems valid.","The problem was that it was such a niche offering that was only used by hardcore bitcoin fans. It's such a hassle just to buy bitcoin, as Coinbase makes you wait a week. If you don't already have bitcoin, there was (and still, I assume) no reason to not use paypal or a credit card, which offer much better protection to the buyer. Gyft, an online e gift card company which carries every major retailer, was offering a percentage off to people who paid in bitcoin. I was getting Amazon cards through them but once they stopped offering bitcoin discounts, I have stopped using bitcoin all together as an online purchase tool.","You could find a relative in another country who has the ability to receive PayPal, and have them transfer the money to you via Western Union or Hawala.","I've had fairly extensive experience using Entropay, with a few hiccups along the way. I suspect your transaction or repeated top-ups has been flagged as 'suspicious' activity. Read: potentially fraudulent or money laundering. You've also tried to buy expensive electronic goods, a common use of fraud/laundering. Finally, Entropay does NOT provide address validation. Again, with laptops being a common use for fraud, it is more than likely Lenovo attempted to do an address validation on your card details, which failed and may have led to the hold. How to resolve it? You will probably need to provide documentation to Entropay including proof of identity and where you live.","When you buy a currency via FX market, really you are just exchanging one country's currency for another. So if it is permitted to hold one currency electronically, surely it must be permitted to hold a different country's currency electronically.","There are thousands of processors. But I explicitly mentioned the customer experience, which is completely different and no matter how much you want your industry experience to matter for that, it doesn't affect it. This you did not read and comprehend. Could you clarify for me how VISA/MasterCard managed to block a merchant, who presumably wasn't a direct customer (but instead a payment processor customer), but cannot block a card holder? (yes, this is an honest question) > Visa and Mastercard prohibited payments to Wikileaks on the basis of WL allegedly facilitating illegal activity. How is that relevant to what PayPal's doing? The WikiLeaks blockade was clearly political. What makes you say otherwise? And this is political. > No one is unable to accept payments if they're barred from PayPal. In this case, yes. So who is morally and/or legally responsible when everyone does the same thing?","Yes. I have a US based website that accepts payments via PayPal and can confirm we have many customers from India. Here is a list of countries PayPal supports. Note typically there are some additional fees associated with currency conversion.","If it's real, it's illegal. She needs someone to be a middle man who transfers money and doesn't ask questions. The list of possible reasons should be plenty obvious and range anywhere from fraud to terrorism. There are thousands of ways to get already transferred money back from your account. If the source of the money is some kind of fraud that's only detected 2 years later, someone will ask you for the money back in 2 years. If real people who operate within legal and moral boundaries want to pay someone, they do not ask someone on Facebook to do it for them.","The RDFI (Receiving Depository Institution) is the place where you keep your money and where the Debit is going to be made. Unfortunately the Debit did not go through for some kind of regulatory reason that I don't understand. You could ask them why people are not allowed to make ACH Debits there or you can try to pay through a different bank.","Permanent employees are the distinct opposite of contractors. Upwork can easily have business entities (limited liability company equivalents) in multiple countries, and it can make payments between them. Or they can merely use existing payment infrastructure (paypal, amazon) to accomplish the same thing. Their corporate structure is a red herring and most likely unrelated to what they've accomplished.","\"Here's an excerpt from VISA's Card Acceptance Guidelines for Visa Merchants (PDF) The merchant name is the single most important factor in cardholder recognition of transactions. Therefore, it is critical that the merchant name, while reflecting the merchant’s “Doing Business As” (DBA) name, also be clearly identifiable to the cardholder. This can minimize copy requests resulting from unrecognizable merchant descriptors. Merchant applications typically list the merchant name as the merchant DBA. This may differ from the legal name (which can represent the corporate owner or parent company), and may differ from the owner’s name which, for sole proprietorships, may reflect the business owner. I think that the key statement above is \"\"Therefore, it is critical that the merchant name [...] be clearly identifiable to the cardholder.\"\" Since this merchant was not clearly identifiable to the cardholder, they are in breach of a critical point in these guidelines. This is from VISA, but I would assume that all other major credit cards would have similar guidelines for their merchants. However keep in mind that these are \"\"guidelines\"\", and not (necessarily) rules.\"","This is not allowed, and there is a name for it: IBAN discrimination. Searching for that term will give you some pointers what to do about it. The EU regulation that prohibits this is 260/2012, article 9, paragraph 2: A payee accepting a credit transfer or using a direct debit to collect funds from a payer holding a payment account located within the Union shall not specify the Member State in which that payment account is to be located, provided that the payment account is reachable in accordance with Article 3. You can report this at the relevant national authorities. In the Netherlands, this is De Nederlandsche Bank, which has a special e-mail address for this: meldpuntIBANdiscriminatie@dnb.nl","This doesn't directly pertain to international transactions but may be relevant. I got an American Express gift card over the holidays, and I tried to use it at an online merchant. The card was declined because it failed address verification. I called American Express gift card services (number was on the gift card), and they knew immediately what the problem was and fixed it. They simply took my address and added it as a billing address on the card. I retried the payment and it went through right away. It may be worth calling the gift card company and asking them to simply add your billing address.","\">You could say the same about any public utility. (except the one largest one, technically) There are literally thousands and thousands of processors, which is not the case with utilities. Additionally, processors don't need to have any kind of office or presence anywhere near the business they're serving, which means being able to choose without geographical restrictions. Also, PayPal is not a utility. This is not a relevant comparison. >Are you saying they are unable, both contractually and technically, to affect the consumer side? They'd have to revoke their partnerships with banks who issue cards, which they aren't going to do, because consumers using cards is how they make money. Banks could choose not to issue cards, but they're already free to do that. (There's no right to a credit card.) >But also by selectively quoting me you are (deliberately?) side-stepping what actually happened in the WikiLeaks case, to focus on the consumer side. Visa and Mastercard prohibited payments to Wikileaks on the basis of WL allegedly facilitating illegal activity. How is that relevant to what PayPal's doing? >You must buy things in different corners of the Internet than I do. The customer experience (to me) is that there is \"\"the store\"\" or you can pay with PayPal. Yes, \"\"the store\"\" is actually a payment processor but this is a quick slippery slope to \"\"what? You can just set up your own payment processor once they've all blocked your legal business\"\". What are you talking about? You acknowledge that the store has its own processing but somehow that's not enough because someday they might not have processing and have to go through PayPal? Processors *already* deny service to legal businesses. Notably, anything considered \"\"high risk\"\" - which includes travel services, pharmaceuticals, firearms, adult entertainment, telemarketing, debt collection, tobacco, and more - but also for businesses with poor credit, high chargebacks, business practices they don't agree with, lots of international transactions, etc. It literally happens all the time. And, there are so many processors (tens of thousands) that there's another processor willing to step in. Tons of websites don't even use PayPal anymore, and the ones that do often layer it on top of a different payment option. (PayPal is trying hard to increase their presence in stores because of the competition in the internet space.) No one is unable to accept payments if they're barred from PayPal. PayPal actually cuts off accounts all the time because people use it for things against PayPal's TOS. Amazon payments, Shopify, and Stripe are the ones that most people know off the tops of their heads for online processing, but there are literally thousands. No one is somehow unable to conduct business if they can't use PayPal. The only time that businesses can't really get processing is if they do something like rack up chargebacks and disappear or commit fraud against a processor. In those cases, the processor can put that business on the Terminated Merchant File (or MATCH list) and other processors will see that there's been a problem with that customer and not take them on. Even in those cases, businesses can rectify the issue and get off the MATCH list or they can look for processors that will serve them anyway and expect to pay a premium for it.\"","\">These companies should not be playing moral gatekeeper Processors already play moral gatekeeper, and it hasn't bothered anyone before. See: Firearms are considered a \"\"high-risk\"\" business, a distinction in processing typically reserved for industries with high rates of chargebacks (like travel services) or questionable practices. (Like debt collection.) High risk businesses have less options for processing and pay higher fees. >they should be providing a service. Companies should also be able to decide who they want to provide that service to. Other than refusing service based on membership in a protected class, businesses should be able to choose to provide service or not.\"","Putting aside whether that characterization is reasonable, it doesn't follow from what Speckles said. He is suggesting that PayPal shutting people out of its own service would make alternatives to that service *more* of a fringe thing. I don't see how.","As far as I can see, this is an issue of the bank's policy rather than some legal regulation. That means that you'll need to work it out with the bank. To give you a couple of ideas to work with when you talk with them, maybe something from this list will work: Good luck!","I'm guessing that you've reached the value limit of a payment that can be made without linking your account to a bank account. While you want privacy, PayPal wants to not be a money launderer. You may need to seek an alternative way to pay for this if you're trying to be private about it.","MoneyGram said that the person sending money should also be an Indian. There shouldn't be any such restriction. Can you check again what exactly the issue was? Is there another way so I can get money without any problem. You can try Bank Transfers or alternative remittance like Western Union","In the very unlikely event that it is not a scam, there would be a distinct probability that it is someone trying to launder money. You don't want to get caught up with drug dealers or ISIS terrorists, so forget it. There is also the possibility that your post is a scam, looking for people who would believe such nonsense. I wonder if people who reply are going to get phished.","Capitalism? Like, this is the natural progression of the libertarian/conservative idea that government doesn't need to regulate things, and the free market will sort this stuff out on their own. PayPal (or Twitter, or whoever) deciding what is and isn't acceptable for consumers using their platform to do is like, free market capitalism at its most pure.","In addition to there being no real guarantee on the guarantee page, note that the domain was registered on May 27, 2013, so there's no substantial track record of reliability. Finally, their Terms of Service explicitly note that they are not liable for loss of funds due to system malfunction, unauthorized access, etc. etc. Perfect Money is going out of their way to ensure they are offering no guarantees and will not be liable for any losses. How safe are your funds? You should not consider your funds to be safe if stored there. There's no guarantee you'll lose your funds, but no significant reason to believe you won't. Additionally, Perfect Money shut down access to all U.S. citizens on July 1st, 2013 with only two weeks of notice. Anyone who did not withdraw their money within this time lost access to it.","\"Many people do not know that bank online bill paying services are not provided directly by the bank. Banks often \"\"farm out\"\" this task to third party providers of bill paying services. These services in turn may farm out the customer service function to agents in foreign countries. These customer service agents have access to your account number, social security number, and your balance. This means that people have your personal information in countries where you have no rights and where security is not good and where enemies of your nation can easily access that information.\"","\"Certain phrases are blacklisted, I am not 100% about tithing but it might be they don't want any flak about people claiming that Wells Fargo is the one tithing (with a religious connotation) Either that or a super conservative ban on \"\"tit\"\", but I would guess the former more likely.\"","Unless you started a bank or other kind of a financial institution (brokerage, merchant processor, etc etc), the page you linked to is irrelevant. That said, there's enough in the US tax code for you to reconsider your decision of not living in the US, or at least of being a shareholder of a foreign company. Your compliance costs are going to go through the roof. If you haven't broken any US tax laws yet (which is very unlikely), you may renounce your citizenship and save yourself a lot of money and trouble. But in the more likely case of you already being a criminal with regards the US tax law, you should probably get a proper tax advice from a US-licensed CPA/EA who's also proficient in the Japanese-American tax treaty and expats' compliance issues resolution.","\"Can you tell me please, is it really hard to make international wire transfer for payment my job and can i resolve this problem without using third party services? This is mostly a barrier, the form at times is quite complicated. For Russia, one has to enter \"\"Purpose of remittance\"\" ... at times select intermediate banks, give BIC and other details. This can become unnerving to people who are not used to it. The other option you can try is set-up a credit card gateway and get funds via cards.\"","Unprintable, yes, it's a scam. Nobody will ever have any legitimate reason to run money through your account. Period.","\"> PayPal isn't even the largest, let alone the only processing company, You could say the same about any public utility. (except the one largest one, technically) > And Visa/Mastercard don't control the issuing of cards to individuals, banks do. My point was that VISA/MasterCard have stepped in to block on the merchant side, in the case of WikiLeaks. Are you saying they are unable, *both* contractually *and* technically, to affect the consumer side? But also by selectively quoting me you are (deliberately?) side-stepping what *actually happened* in the WikiLeaks case, to focus on the consumer side. > No one is denying legal use of money and PayPal is nowhere close to having a monopoly. You must buy things in different corners of the Internet than I do. The customer experience (to me) is that there is \"\"the store\"\" or you can pay with PayPal. Yes, \"\"the store\"\" is actually a payment processor but this is a quick slippery slope to \"\"what? You can just set up your own payment processor once they've all blocked your legal business\"\".\"","Nowadays, all checks you write will not be send to your bank anymore, but instead the bank where they get deposited does an ACH from your bank. That implies that not allowing this to happen, your bank would not be able to honor any checks you wrote (without enforcing paper check delivery in the mail, but the Check21 bill does not allow such enforcing anymore). Basically, your bank would not be able to do business with anyone. The obvious conclusion is that no such bank exists.","As other people have said they should register with a broker in the country they reside in that can deal in US stocks, then fill out a W8-BEN form. I have personally done this as I am from the Uk, it's not a very complicated process. I would assume that most US brokers don't allow foreign customers due to the person having to pay tax where they reside and the US brokers don't want to have to keep approximately 200 different tax codes in track.","The banks are required to file Currency Transaction Reports (CTR) to the IRS for aggregate transfers of over $10k. They file Suspicious Activity Reports for suspicious activity with an aggregate value of over $5,000 to the US Treasury. You're probably ok for what you're doing provided you aren't doing to regularly, but I would consider looking into alternate means of transferring funds such as a check to avoid the appearance of impropriety. Also, you should be able to call your bank to do a one time ACH transfer for up to $100k with minimal fees.","\"Is there a solution here that would allow me to provide him with a debit card in his name that I could fund, that wouldn't have foreign transaction fees associated with it (I'd probably be okay with a small fixed ATM fee). There are separate issues here. There is no law limiting bank accounts to U.S. citizens, but most banks will not open an account for a non-citizen outside their declared service area. There are substantial legal liabilities to the bank in allowing it, whether a citizen or non-citizen. The difficulty will be compliance with the Patriot Act. This is an extension of the older \"\"Know Your Customer\"\" doctrine. It is improbable that the bank could comply with the Act without the potential customer being physically present. You would have to check with your bank in advance as to their policies. Banks are not required to accept a customer outside their policies. As to waiving the foreign transaction fee, that is very improbable. Although a handful of institutions do this in specific cases it is uncommon because the bank isn't actually charging the fee, they are passing it along. With a credit card they collect interest and waiving the fee can be thought of as a reduction in interest income, that isn't possible on a debit card. You would want to make sure you have a scrupulously honest nephew. You could be held criminally liable for any actions he takes at both the state and the federal level. U.S. law is global. A citizen who commits a crime in any country of the world can be charged for it in the United States. By being on the account you can acquire any liabilities that are created as an accomplice. This is a bigger issue at the federal level because 4,000 federal laws do not require criminal intent. Some do not require you to even know the action happened. Unlike state law which generally requires you intended to commit a crime and had to be aware of it, federal law often does not. It is also not adequate that the action is legal in Russia if it would be illegal in the United States. If I get a card in my name, and give it to him to use to withdraw money from ATMs, is that legal? What problems might that cause? It is legal, but you are now strictly liable for its use. See the above answer. It would probably get shut down anyway when they phone you and asked: \"\"are you in Russia right now?\"\" The bank is still liable for you giving away the card. The bank may close out all your accounts and submit a currency transaction report on you to the Treasury for possible money laundering. Wire the money. Plan out how much and when, but just wire it.\"","There is not any fraud involved. Anybody can gift money to another person.","I know this may be difficult for you and like so many other people pointed out here, you either only read what you want or do not comprehend what you read. I was specifically talking about MS the entire time, never said anything about the bakery you are referencing so once again you are making a moot point with your protected class information...I was talking about how the entire state was burned in Reddit when some bigoted business owners decided to not do business with LGBT people about 8 months ago. Again, just because you think something should be some way, doesn't mean it is. Wish and hope all you want to but until the law says they are protected, they are not. So again, what paypal did is not different than what the businesses in ms did, but your type of people had the opposite reaction then than you do now and I was merely trying to point it out like almost everyone else you are arguing with in this thread has tried to but fell on deaf ears. They are the same but they do not match your opinion so you put up you blinders and shove your fingers in your ears while screaming like a child at anyone trying to point out a fallacy in your logic. Also what does my politics have to do with this? I hate to burst your bubble but I'm not libertarian...regardless, it does not matter. You bring up politics as if it would effect me by you calling me libertarian...why? Just because my opinion is different you automatically call me out as [insert political party here] that does not agree with you to try and invalidate anything I'm saying. Well, I'm done. It is pointless to try and tell you anything that differs from your opinion. I grow tired of telling you the same thing over and over again especially when you apparently do not read replies or skip over any part that you disagree with. Good luck with your line of thinking. Hopefully one day someone like PayPal does not block your business or a business you do business with because it differs from their opinion. Your opinion now aligns with theirs, but what happens next time it doesn't and they have the same kind of power. Let them do it once, next time you well not have a choice. Don't worry about replying, I'm no longer interested in hearing your opinion as I have now made up my mind that you are small minded and lack basic thought required to see past your immediate fields of view. They are burning someone else now, eventually they well burn you since you are so happy to let them do it too someone else. Don't make a stand now, they will not let you make a stand later.","I've definitely seen a similar conversation about this, I personally don't buy from eBay (Amazon for me). So I turned to the internet to see what I could find to offer you any additional information (albeit not my personal experience). I first read this article: CodeNerdz Article and was pretty horrified by the scamming that can happen by buyers. Then, this article by another regular user of eBay, Selling on eBay without PayPal : eBay Guides confirmed the trouble people have with PayPal & eBay. Payment Services permitted on eBay: Allpay.net, Canadian Tire Money, cash2india, CertaPay, Checkfree.com, hyperwallet.com, Moneybookers.com, Nochex.com, Ozpay.biz, Paymate.com.au, Propay.com, XOOM Have you looked into any or all of these?","Many European countires allow you to an account for non-residents. You have to appear in the bank personally to open it, some of them even to get your own tax number for non-residents from the local government. I'm not sure if you get a Visa (Electron) chip card immediatelly or you have to wait for like 3 months before being issued one. I've heard that getting a tax number for non-residents and opening a bank account is easily done in one day in Brezice, Republic of Slovenia. They seem to have agile local bureaucracy and banks, since many pople from neighbouring (non-EU) countries (used to) come there to open an EU bank account. Funds can be transfered via Internet banking - US banks have that, do they? SWIFT and IBAN codes are used for international money transfer. But it takes some time (days!) for it to arrive to destination. Tansfers below $20000 per month or per transaction are considered normal, but for amouts above that the destination bank might ask you to explain the purpose, to prove it is not illegal. Some of them accept the explanaiton in writing (they forward it to the regulator that tracks such large transfers), some of them ask you to appear there in person for an interview and to sign a statement. Can't believe US banks are still issuing paing magnet stripe cards like it's still 1980s. I'd expect Europe to be 10 years behind USA in technology, but this seems to be a weird reverse. I've beed using Internet banking with one-time passwd tokens and TAN lists for almost 10 years, and chip cards exclusivley for over 5y. Can't remeber the last time I've seen mag stripe card only. American Express (event the regular green one) got the chip at least 5 years ago. And it is accepted regularly in Europe. Alegedly it's more popular in Europe (although Mastercard is a definite #1, with Visa close to that) that in USA.","\"> Once again remember, it's ZH. There's a Reuters cite almost immediately at the top of the story. Do you have an updated list of the OK-to-post media sources? > The US has had ATM limits since, well I can't even remember, with the max being at most $200 a day. If by \"\"the US\"\" you mean \"\"some people at some banks in the US, depending on the rules of that bank\"\" then yeah - but if what you were attempting to imply is some USA-wide ATM limit ala the one being discussed, then that's simply wrong.\"","\"When Laurence Olivier took the role of Douglas Macarthur in the Unification Church's filming of Inchon, he told the press, \"\"People ask me why I'm playing in this picture. The answer is simple: Money, dear boy.\"\" Banking systems are typically decades old and subject to innumerable legal and technical restrictions. Moving money more quickly from one client's account to another would definitely be in the clients' interest, but\"","\"> They're simply saying that their private company service won't be the one to enable that money making. The problem I have with this line of logic is that it's pretty much the anti-net neutrality argument. \"\"Why shouldn't private companies be able to determine which data to send/allow/prioritize over their services?\"\"\"","Nothing new, PayPal has never hesitated to express their opinions before. I would have already assumed this was the case. I wonder though, do they still do business with countries that execute people for certain sexual orientations? It'd seem *killall[insert race here]people.com* drives a little less business for them than say, *Saudia Arabia*—and makes for easy PR.","PayPal. Or even Western Union or MoneyGram. Despite their fees, there is a reason those companies are still in business.","Any such amount has to be reported by Skrill and the Bank to RBI. As long as your earnings are legitimate and you are paying the taxes you shouldn't be worried. If its for services rendered, you would have a contract and / or invoice ... ie some paper work. It is important to keep the paper work in order.","Regulated vs unregulated crypto makes sense - it seems like it's easier for government officials to simply enforce a blanket restriction on cryptocurrency transactions of all kinds than bother to make the distinctions between different types. I expect China's shutdown will be the first of many in terms of national governments on cryptocurrency.","Visit paypalblows.org to find out more reasons. PayPal wants your bank account info on file before they allow you to take payment. So setup a bank account strictly for this service, and if they give you trouble or suspend your account, simply never use them again and tell others of your experience. I think the only reason why PayPal wants a bank account is so they can dip into it and take chargeback money."],"string":"[\n \"If you read the link that MD-Tech provided, it actually indicates that the foreign companies (mostly banks) are choosing not to work with the United States in their latest answer, so it looks like it's not OkPay, but the financial companies that they use. On further research, the reason that this is banned is to prevent capital flight in the future. OkPay offers may ways to transfer funds in and out, such as traditional credit cards, like VISA and MasterCard, and other non-traditional ways, such as crypto-coins. Here is another example of how the US government is limiting what US consumers can do with their money. Apparently while no one was looking in 2010, they were able to pass some new restrictions.\",\n \"\\\"The U.S. requires money transfer services to be licensed under 31 USC 5330 in addition to any applicable laws at the state level. According to multiple sources online, including the thread referenced by MD-Tech's answer, OkPay either cannot or will not get a license, so they are out. I dug on this a bit more because I thought it was interesting, and OkPay has other issues with U.S. and other regulators related to its interaction with Bitcoins, which themselves are a hot potato for regulation right now and may explain the licensing problem. It seems to also be facing regulatory pressure in other countries, by the way, so it's not strictly a problem they face in the U.S. Just for whatever reason, the problem is greater here. Some interesting summary points: With mounting pressure on online money exchanges from US regulators, payments processor OKPay has announced that it is suspending processing for all Bitcoin exchanges, including industry leader Mt. Gox. ... Earlier this month, the US Department of Homeland Security seized Mt. Gox's account with mobile payment processor Dwolla, on allegations that the account was in violation of US Code 18 USC § 1960 by operating an \\\"\\\"unlicensed money transmitting business.\\\"\\\" Just where the Bitcoin market falls under US law is unclear, because the legality of Bitcoin transactions has yet to be tried in court and law enforcement has refused to comment on ongoing investigations, such as the Dwolla case. http://www.theregister.co.uk/2013/05/29/okpay_suspends_bitcoin_processing/ In March, the US Treasury said any firms dealing in the virtual currency would be considered \\\"\\\"money services businesses\\\"\\\" just like any other, which means they must hand over transaction information to the government and work to prevent money laundering. http://www.theregister.co.uk/2013/05/15/mt_gox_us_court/ In the UK, it apparently has also had trouble with banking partners (quoting a OkPay official regarding changing bank providers): The UK bank that we used before did not make a final decision on whether to handle transactions in favour of crypto-currencies or not. Therefore the compliance department of the bank asked us to restrict such transfers. This apparently allowed them to reverse a policy in the UK: OKPAY's policy shift comes just months after it stipulated that GBP users check a box, verifying that their funds would not be spent on cryptocurrency, a feature that further incited users. http://www.coindesk.com/okpay-gbp-bitcoin-transactions/ I hadn't heard of this company prior to your question, but having done some research, I tend to think that at least the part of this quote about language, attributed to a user, is true: OKPAY are quite paranoid about AML and another problem is that their support people seem to be very bad at English, so their replies are often hard to understand. Their support are also slow [sic]. However in my experience they are an honest company. I found at least one case where rumors that the entire company were going to shut down were traced back to a poorly translated message issued by the company. Again, I know only what I read just now about this company, but it looked like there were a few red flags - the problems with the US probably not being the most important. This type of service is probably part of the future, but I'm not sure that I'd send money through it now in its current state or organization and regulation.\\\"\",\n \"according to their client services it is a licensing issue: Thread: OKpay didn't Accept USA clients? They do not elaborate but do suggest that they don't plan to fix that issue.\",\n \"Here's the real reason OKPay (actually the banks they interface with) won't accept US Citizens. The Foreign Account Tax Compliance Act Congress passed the Foreign Account Tax Compliance Act (FATCA) in 2010 without much fanfare. One reason the act was so quiet was its four-year long ramp up; FATCA did not really take effect until 2014. Never before had a single national government attempted, and so far succeeded in, forcing compliance standards on banks across the world. FATCA requires any non-U.S. bank to report accounts held by American citizens worth over $50,000 or else be subject to 30% withholding penalties and possible exclusion from U.S. markets. By mid-2015, more than 100,000 foreign entities had agreed to share financial information with the IRS. Even Russia and China agreed to FATCA. The only major global economy to fight the Feds is Canada; however it was private citizens, not the Canadian government, who filed suit to block FATCA under the International Governmental Agreement clause making it illegal to turn over private bank account information. Read more: The Tax Implications of Opening a Foreign Bank Account | Investopedia http://www.investopedia.com/articles/personal-finance/102915/tax-implications-opening-foreign-bank-account.asp#ixzz4TzEck9Yo Follow us: Investopedia on Facebook\",\n \"Have a great lawyer and a fuck ton of money Not only are financial regulations on online payment processors quite complex, each state and the federal gov have required licenses which cost in total around $5 million upfront and $1-2 million annually.\",\n \"I can only imagine the regulatory difficulty you're going through, and for that I empathize. First, bankers everywhere mostly do not know if a bank policy is due to regulation or internal rules. Other banks may be more flexible, but only the most reputable should be used. Re Paypal, they first deposit 1 USD and then withdraw it, but things may be different in Cyprus. Also, Paypal now has debit cards, so if Paypal is permitted to issue cards in Russia then it could presumably be used in Cyprus. Again, local regulation notwithstanding. Paypal now has phone support at the very back of their site, so I suggest a call to them. In countries that permit, Western Union can be used to wire money into an account from cash. The Bitcoin route should be used as a last resort. You could wake up tomorrow losting 25% easy. The regulations are a distant second compared to this problem. With all of the above methods, there will be varying delays from days to weeks.\",\n \"I would guess that this is due to the card issuer, not Paypal. Credit card transactions are tagged with a code describing the type of purchase, and some issuers disallow certain types (such as gambling).\",\n \"The underlying condescension of this article is palpable. I would imagine that given any lack of compulsory regulation, that Americans are using whatever means of payment that suits them. There's always this assumption that Americans are the most backwards people around. And Americans are always willing to just sit there and willingly and unquestionably imbibe the yokel-dom status ascribed to them by these elitists. I'm calling bullshit on this one.\",\n \"This is all somewhat true. The likely scenario was that those transactions were flagged in the banks suspicious activity monitoring system for potential layering activity and they may have filed a suspicious activity report with FinCEN and may have a policy to close accounts with suspicious activity.\",\n \"\\\"You are right in insisting upon a proper B2B contract in any business relationship. You wish to reduce your risk and be compensated fairly. In addition to the cost and complexity of international wire transfers, the US companies may also be considering the fact that as an international contractor in a relatively hard-to-reach jurisdiction, payments to you place the company at higher risk than payments to a domestic contractor. By insisting upon PayPal or similar transmitters, they are reducing their internal complexity and reducing their financial exposure to unfulfilled/disputed contract terms. Therefore, wire payments are \\\"\\\"hard\\\"\\\" in an internal business sense, as well as in a remittance transfer reporting sense. The internal business procedure will likely be the hardest to overcome--changing risk management is harder than filling out forms.\\\"\",\n \"I don't see how Paypal can stop you from transferring USD funds from your paypal account to a USD account held with a bank. Just tell them to do the transfer to your account. The issue could be around USD onshore / offshore regulation. Is the US government preventing EU citizens from taking USD income offshore? If that's the case then you need a correspondent bank. So in other words, like using your friend. But what you can do is ask your bank who is their correspondent bank in the US, and whether they have the license required to transfer USD funds offshore. So you shift the regulation issues to your bank, and then you have to accept your bank's exchange rate - which is going to be better than paypal, who charges too much for FX transactions.\",\n \"Paypal is already forbidden from doing business with ISIS. When the government levies sanctions against a group or country, all companies based in that country are forbidden from doing business with that entity, and the penalties are strong enough that companies don't fuck around with that. PayPal hasn't handled business for ISIS in years.\",\n \"\\\"Yes. From their TOS: \\\"\\\"By creating a Square Account, you confirm that you are either a legal resident of the United States, a United States citizen, or a business entity...\\\"\\\".\\\"\",\n \"If that is what you insist upon, don't use PayPal. This is one of the supposed justifications for the existence of cryptocurrencies\",\n \"Does the above mean I will not be able to send money to myself or my mother Yes that is right. PayPal will only be used for small trades. The credits into PayPal cannot be used to purchase anything, and will have to be credited back to the linked Bank Account. This is to ensure right reporting and taxes are being paid. You could use alternative Bank channels for getting funds.\",\n \"The solution was to get a foreign bank in each country we do business in. Get a credit card processor there, and simply make our money and keep our money in that country, and taking quarterly gains from those accounts and bringing them to the US account.\",\n \"If I remember correctly my own experience : no you can't. Paypal will block the money even if it's only for online payement.\",\n \">Oh, but when you look at PayPal and VISA/MasterCard, there's like one. Or two. Yeah, no. I work in credit card processing, PayPal isn't even the largest, let alone the only processing company, nor is it the only way (or even the safest or best way) to make online purchases. And Visa/Mastercard don't control the issuing of cards to individuals, banks do. Every credit card is issued by a bank. >Denying legal use of money in a de facto monopoly is to me not morally better than denying legal use of money in a public utility monopoly. No one is denying legal use of money and PayPal is nowhere close to having a monopoly.\",\n \"\\\"Are most big US based financial institutions and banks in such a close relationship with USCIS (United States Citizenship And Immigration Services) so they can easily request the information about market traders? Yes. They must be in order to enforce the laws required by the sanctions. What online broker would you suggest that probably won't focus on that dual citizenship matter? \\\"\\\"Dual\\\"\\\" citizenship isn't actually relevant here. Nearly anyone in the world can invest in US banks except for those few countries that the US has imposed sanctions against. Since you are a citizen of one of those countries, you are ineligible to participate. The fact that you are also a US citizen isn't relevant in this case. I believe the reasoning behind this is that the US doesn't encourage dual citizenship: The U.S. Government does not encourage dual nationality. While recognizing the existence of dual nationality and permitting Americans to have other nationalities, the U.S. Government also recognizes the problems which it may cause. Claims of other countries upon U.S. dual-nationals often place them in situations where their obligations to one country are in conflict with the laws of the other. In addition, their dual nationality may hamper efforts of the U.S. Government to provide consular protection to them when they are abroad, especially when they are in the country of their second nationality. If I had to guess, I'd say the thinking there is that if you (and enough other people that are citizens of that country) want to participate in something in the US that sanctions forbid, you (collectively) could try to persuade that country's government to change its actions so that the sanctions are lifted. Alternatively, you could renounce your citizenship in the other country. Either of those actions would help further the cause that the US perceives to be correct. What it basically boils down to is that even though you are a US citizen, your rights can be limited due to having another citizenship in a country that is not favorable in the current political climate. Thus there are pros and cons to having dual citizenship.\\\"\",\n \"Western Union is one way to send emergency cash to a family member. It seems suspicious as a method of goods payment because many frauds have used it as a means of collecting irreversible payments. EBay and Paypal would be a better more trustworthy way to sell to usa customers. Most USA banks need a USA address for the account owner..... But you may not need a USA bank account as PayPal can store and exchange funds to other currencies.\",\n \"The workaround that I use in a recent time is very simple, effective and it is spreading very quickly - Payoneer. What you will need is http://www.payoneer.com/USPService.aspx which will get you US bank account that you can link to your paypal account.\",\n \"A true capitalist economy would use a monetary system selected by the market, which would probably be facilitated by competition between multiple decentralized digital currencies. PayPal's behaviour is made possible because we are forced to use a centrally controlled monetary system at gunpoint.\",\n \"The laws of the United States of America require that the federal currency issued is accepted as legal tender for all goods and services anywhere within this country. One really has to wonder what the motivation behind this story is. VISA obviously knows that such a move is illegal. I am skeptical that there's any truth to the article at all.\",\n \"\\\"tl;dr: Anyone who doesn't like what VISA and MasterCard did to wikileaks should not be in favour of this. This is a slippery slope (yes, really), where participating the the marketplace shall only be allowed by people the powers that be likes. What is \\\"\\\"intolerance\\\"\\\"? Should James Damore never be allowed to use paypal for any purpose? How about VISA, MasterCard, should he never be allowed to have a credit card again? If the government doesn't \\\"\\\"like\\\"\\\" what you're doing then they have made (or can make) it illegal, and you are taken out of the marketplace of ideas and money, if the government thinks this is best. This is government-sized actions (denying people the possibility to deal with money) done extrajudicially by private entities. \\\"\\\"I have decided that your legal enterprise should not be allowed to make money\\\"\\\" is terrible! If you are in favour of this then you should be in favour of the phone company, the electricity company, and gas company to deny service to anyone who's ever been accused of being a paedophile.\\\"\",\n \"\\\"> You can't claim this is government retribution I didn't. > just because it's a big company or a \\\"\\\"government-sized\\\"\\\" action. I'm saying I don't think non-government should be in the position to be able to do government-sized actions, at least not negative and targeted ones. > PayPal is not a utility. The Internet is not yet a utility everywhere. Are petrol stations? Non-emergency medical care? (that last one may fall under some other must-serve definition). Let's say the two ISPs in the US decide that since there's no net neutrality they'll throttle your business to 1 bit per week. Maybe because of your views. Maybe because you compete with them, it's their business and they don't have to justify it. > You're making incorrect comparisons. I don't think that I am. OK, let's say all non-utilities are allowed to deny access based on political views of customers or other arbitrary things. What if all the paint stores decided that you are a horrible person, so you are not allowed to buy paint. Eventually your house rots because you need to repaint it every now and then, and now you're homeless. Seems unlikely that they all would do this, right? Oh, but when you look at PayPal and VISA/MasterCard, there's like one. Or two. What if the quorum of bitcoin transactory things do it? It's not that many, as I understand it. Denying legal use of money in a de facto monopoly is to me not morally better than denying legal use of money in a public utility monopoly.\\\"\",\n \"Take a look at Google Checkout but keep in mind that there is a different list of countries that they support as sellers vs. buyers. The buyer list is much more comprehensive, and I believe covers CIS (Russia, Ukraine and Belarus) while the seller list does not (yet) which means that your client will need to create a U.S. or U.K. based entity to accept payments, however they will be able to accept payments from buyers both in CIS and internationally. Удачи.\",\n \"\\\"The only way to prevent it is to not use PayPal. The terms of usage are draconian, and by using the service you agree to them. I'm sure that when the case gets to a court of law, they will find where it is authorized. Paypal is not a bank, and the money there is basically \\\"\\\"entrusted\\\"\\\" with the company and is not insured by anyone. They don't need or have to be subject to the regulations on the banking industry, and they're no different than your neighbour carrying money for you to the grocery store when you're sick. Other options are wire transfer, services like Western Union or Moneygram, checks (better certified/cashier's checks), money orders or even cash. You can also charge via credit card, but you can get similar problems there (although it is still safer than PayPal because with credit card - the card owner must initiate the charge back, it doesn't appear on its own because they feel like it).\\\"\",\n \"Your sister-in-law should know that anybody, US citizen or not, can open a US bank account. She should do that and then pay her 20k fee to the company. I'm a Canadian citizen and I have a US bank account and I don't even live nor work in the United States. I only use it when I travel for leisure and order online. This looks like a scam, but if you know well your sister-in-law, it may not be.\",\n \"paypal says it works with CBE but can't seem to link my account with them, but skrill works perfectly just go to www.skrill.com sign up and you can link your bank account with your skrill account, i've had a few transactions so it should work for you too.\",\n \"\\\"> an opaque, esoteric instrument used by gun-runners and drug-dealers on the Dark Web that should be avoided. As long as the \\\"\\\"see something, say something\\\"\\\" Law&Order™ axis provides willing volunteers to support the \\\"\\\"American\\\"\\\" [cheka](https://en.wikipedia.org/wiki/Cheka), Joe Walmart will 'see': 1. \\\"\\\"Hoarding\\\"\\\" 2. Human trafficking 3. OMG! Tax Avoidance!! ...and clamor for 'alternative' currencies to be shut down.\\\"\",\n \"NL7 is most likely right. With the rise of regulatory burden some financial institutions are refusing to do business for which they are at risk of not being compliant (because of complexity) or where being compliant is to onerous. Would suggest you have a look at Good luck\",\n \"It's important to note that the US is also the country that taxes its expats when they live abroad, and forces foreign banks to disclose assets of US citizens. Americans are literally the property of their government. America is a tax farm and its citizens can't leave the farm. Wherever you go, you are owned. And that now appears to be true of your Bitcoin as well. Even if you spend 50 years outside the USA, your masters want a piece of what you earn. Land of the Free.\",\n \"\\\"> But I explicitly mentioned the customer experience, which is completely different and no matter how much you want your industry experience to matter for that, it doesn't affect it. You mentioned the customer experience randomly in some parts, then threw in Wikileaks in others. If we're talking about the customer experience, we need to drop the payment processors aspect, because the majority of the time, the consumer doesn't even know who processes their card payments let alone care, and again, PayPal is not even close to the only option. If this were 1998 and people were really wary of buying online, then it would be a bigger deal to be banned from PayPal. But it's not 1998, and a ton of people don't care, and there are all kinds of alternatives. PayPal can deny service all it wants (and it does that on a regular basis) and that in no way means that a business can't accept cards. You're \\\"\\\"customer experience\\\"\\\" premise is flawed. I literally spend all day helping businesses set up credit card processing, and PayPal is a drop in the bucket. >Could you clarify for me how VISA/MasterCard managed to block a merchant, who presumably wasn't a direct customer (but instead a payment processor customer), but cannot block a card holder? (yes, this is an honest question) Visa and Mastercard have relationships with banks and/or processors, who have relationships with merchants. Visa and MC's agreements with banks and processors stipulate that those banks and processors can't offer services to companies engaging in illegal activity. Wikileaks was (allegedly) engaging in illegal activity, and it's on that basis that Visa and MC denied service to WL. Visa and Mastercard have almost nothing to do with cardholders. They don't issue credit cards to cardholders, they aren't the ones that do credit checks to determine creditworthiness, they aren't the ones helping you with your monthly statement or a dispute, etc. Cardholders aren't Visa and MC's clients. When a transaction is run, it's authenticated by the bank that issued the card, not by Visa or MC, and it's the bank, not Visa or MC, that would block transactions or freeze a cardholder account. >The WikiLeaks blockade was clearly political. What makes you say otherwise? And this is political. So your argument is that anything political is the same as anything else political? Kind of a stretch.. Wikileaks was denied service by the card brands for allegedly engaging in illegal activity. PayPal is denying service of its own volition, which FYI, it does every day to legal businesses. As long as their reasons for doing so aren't discriminatory based on status in a protected class, they are (and should be) allowed to refuse service.\\\"\",\n \"Looks to be a competitor of PayPal, you transfer money and they keep it in virtual account ... enable transfer and receive funds ... Nope the funds are not backed by any Central Banks if that is what you are looking at. If you want to use it, my recommendation is not to keep a large balance. If it goes down, one cannot even trace their owners.\",\n \"> But, banks won't allow it. It's not just banks - the Republican party seems to have had it in for the US Postal Service for the past decade. Possibly because it's seen as trustworthy and effective, so they want to make it worse so people won't have things like that associated with government. In 2006 at the height of their majorities in Congress they managed to pass that bill that forces the USPS to lose money rapidly, and has been forcing it to lay off people and close post offices and chip away at how convenient and effective it is. But, postal banking could turn that around. With it the USPS might bring in some income to balance out the expenses of that 2006 legislation. People might even object more to post offices closing, or try to reopen them. It would undermine a major part of Republican policy.\",\n \"you dont need any permits or be inside the US to trade the exact same securities on US exchanges. you can literally move your bitcoin from a chinese exchange to us exchange in seconds. i don't see how you can possibly run into legal issues if anyone from outside the country can trade bitcoins on an exchange inside the country without any permit. a lot of these exchanges dont ask for ID or social security number anyways. none of it is government regulated. also trading anything is never a passive income. theres no such thing as an easy or obvious investment. there are always risks- and the actual risk is often deceivingly low\",\n \"\\\"This sounds like a FATCA issue. I will attempt to explain, but please confirm with your own research, as I am not a FATCA expert. If a foreign institution has made a policy decision not to accept US customers because of the Foreign Financial Institution (FFI) obligations under FATCA, then that will of course exclude you even if you are resident outside the US. The US government asserts the principle of universal tax jurisdiction over its citizens. The institution may have a publicly available FATCA policy statement or otherwise be covered in a new story, so you can confirm this is what has happened. Failing that, I would follow up and ask for clarification. You may be able to find an institution that accepts US citizens as investors. This requires some research, maybe some legwork. Renunciation of your citizenship is the most certain way to circumvent this issue, if you are prepared to take such a drastic step. Such a step would require thought and planning. Note that there would be an expatriation tax (\\\"\\\"exit tax\\\"\\\") that deems a disposition of all your assets (mark to market for all your assets) under IRC § 877. A less direct but far less extreme measure would be to use an intermediary, either one that has access or a foreign entity (i.e. non-US entity) that can gain access. A Non-Financial Foreign Entity (NFFE) is itself subject to withholding rules of FATCA, so it must withhold payments to you and any other US persons. But the investing institutions will not become FFIs by paying an NFFE; the obligation rests on the FFI. PWC Australia has a nice little writeup that explains some of the key terms and concepts of FATCA. Of course, the simplest solution is probably to use US institutions, where possible. Non-foreign entities do not have foreign obligations under FATCA.\\\"\",\n \"If you’re concerned about transferring USD, I can’t really help you there. But if you’re looking to transfer wealth, I believe that’s where something like Bitcoin could help you. In fact a small or nonexistent processing fee is one of Bitcoin’s biggest strengths as a currency. Off the top of my head, I believe BitPay has services that would suit your needs. And if you’re worried about the volatility of Bitcoin, you can always convert it straight to USD just so you can avoid service fees!\",\n \"Not just America, and I assume not ALL companies, but heaps in Australia are doing the same thing. I work for one that does, I mean all of the Visa workers in here are wonderful people so it's not a big deal to me. I can definitely relate to people being annoyed about this though, especially as many foreigners send a lot of their money overseas instead of spending it here.\",\n \"\\\"The other answers describe why this is highly likely to be a scam. This answer describes why you don't want to get involved, even in the unlikely case that it isn't a scam. I'm describing this using US law (which I'm not particularly familiar with, so if I go astray I'd suggest others fix any flaws in this answer), but most other countries have similar laws as these laws are all implementations of a small number of international treaties have very large memberships. The service you describe (accepting money transfers from one party and transferring them to another) is one which, if you engage in it for profit, would classify you as a \\\"\\\"financial institution\\\"\\\" under 31 USC 5312, specifically paragraph (a)(2)(R): any other person who engages as a business in the transmission of funds, including any person who engages as a business in an informal money transfer system Because you would be acting as a financial institution: Failure to follow such requirements can lead to a fine of up to $250,000 or a 5 year prison sentence (31 USC 5322). See also: Customer Identification Program and Know Your Customer.\\\"\",\n \"Well i'm not saying it will be terrible, i could have said this wrong but it might be terrible. Dollar is not the international currency just in oil but mostly everything. Different countries uses dollar to trade, this is one of the core reasons of US economy being the strongest. US should not be tolerant about this sort of stuff since if this trend continuous it could be disastrous.\",\n \"\\\"Who's \\\"\\\"they\\\"\\\"? The brokerage is incorporated in Cyprus, which is known to harbor illegal/unethical financial firms (and for Russian money laundering). It's not easy to regulate unfortunately. As a side-note, they're obviously targeting football fans to attract all the bookies guys and sports gamblers. Sad to see...\\\"\",\n \"I won't think so. Too much trouble for the compliance and internal audit team. Unless you are moving money from Russia, Iran or those non-FATCA countries.\",\n \"If you are a Russian citizen a much easier and common solution would be a USD or EUR withdrawal from your Webmoney account to your Cyprus bank account. You will need to create a Webmoney account (www.webmoney.ru), get a primary certificate in your local Webmoney office in Russia (The list is available at the website), create WMZ (for USD) and WME (for EURO) accounts in Webmoney (done online). Then you can easily top up your Webmoney WMR (Rubles) account (created automatically) with Rubles, convert the sum into USD (According to the Webmoney rate, which is only slightly different from the official central bank rate) and then withdraw the money from your USD Webmoney account to your Cyprus bank account. The money will be transfered to your Cyprus bank account from UK Webmoney dealer. The transaction description would say that this sum is transfered according to the contract of sale of securities. This method prevents any Russian regulatory authorities from seeing your transactions. And the best thig in Webmoney is that they have stable exchange rates and they use classic currencies such as USD, RUR, EUR, etc. Webmoney also has WMG accounts (Gold) and WMX accounts (Bitcoin). Non-Russian residents can also open a Webmoney accounts. You can get one even in Cyprus, by the way:)\",\n \"\\\">\\\"\\\"I have decided that your legal enterprise should not be allowed to make money\\\"\\\" is terrible! That's not what's happening. They're simply saying that their private company service won't be the one to enable that money making. You can't claim this is government retribution just because it's a big company or a \\\"\\\"government-sized\\\"\\\" action. >If you are in favour of this then you should be in favour of the phone company, the electricity company, and gas company to deny service to anyone who's ever been accused of being a paedophile. PayPal is not a utility. You're making incorrect comparisons.\\\"\",\n \">Pyramid schemes are illegal in many countries or regions including Albania, Australia,[20][21] Austria,[22] Belgium,[23] Brazil, Canada, China,[24] Colombia,[25] Denmark, the Dominican Republic,[26] Estonia,[27] Finland,[28] France, Germany, Hong Kong,[29] Hungary, Iceland, Iran,[30] the Republic of Ireland,[31] Italy,[32] Japan,[33] Malaysia, Maldives, Mexico, Nepal, the Netherlands,[34] New Zealand,[35] Norway,[36] Peru, Philippines,[37] Poland, Portugal, Romania,[38] Russian Federation, Serbia,[39] South Africa,[40] Spain, Sri Lanka,[41] Sweden,[42] Switzerland, Taiwan, Thailand,[43] Turkey,[44] Ukraine,[45] the United Kingdom,[46] and the United States.[7] https://en.wikipedia.org/wiki/Pyramid_scheme\",\n \"They are not as good of an option when compared to a card you open chosen based on features and rates. Get a card with a lower rate that can be used anywhere.\",\n \"This is a typical scam. Yes, you just got listed with the terrorists as trying to launder money internationally. Terrorist organizations will try to find someone in the US who will accept deposits from overseas sources then send that money to one of their operatives. Cooperate with whichever police force comes knocking on your door. Pray that it isn't Homeland Security. They do not need warrants.\",\n \"Here's a very simple answer, ask your broker/bank. Mine uses ofx. When asked if they would reimburse me for any unauthorized activity, the answer was no. Simple enough, the banks that use it don't feel its secure enough.\",\n \"I've used PayPal for my business for a long time. Sometimes PayPal doesn't trust credit cards. Debit or direct bank transfer are reliable. There is also a charge for using a credit card but I don't think that is the reason. You may be trying to purchase a high value item. That would be a possible reason why PayPal allowed you to use credit cards in the past, but will not allow you to do so now, for these particular transactions.\",\n \"I just tried doing that on my PP which is in the Netherlands, I have added a USD bank account (from my dutch bank) and they sent the verification amount in Euros, I called the bank and wonder why they didn't let me choose account currency they said it's not possible and if I cashout Dollars that I have in my PP (cause we usually do international business so we set it to dollars) it will be changed to Euros, So we decided to keep the dollars in account to pay our bills instead of getting ripped off by PayPal in xchange rates.\",\n \"The model itself is fairly common for serving particular niche markets. A few other organizations which operate in similar setups: prepaid card providers such as NetSpend, GreenDot, AccountNow, etc; startups such as SmartyPig, PerkStreet, WePay, and HigherOne. Still, nobody else seems to be providing full-service online banking to mainstream customers the way we plan to. We plan to have much better security than most banks, which isn't hard given the current sorry state of online banking in the US. And having an intermediary who's looking out for your interests can be a good thing. David, my co-founder Josh lays out our launch plans and why we are invite-only in his latest post. In short, we made a decision to build our own call center rather than outsource it, and that limits how quickly we can bring people on.\",\n \"\\\"Are you in the US? One thing you can do is prepay taxes at a rate of a 1.8% fee. Much lower than paypal. I would do this on what is \\\"\\\"left over\\\"\\\". Here are somethings that I would tend to do in your case: Those are some of the things I would be looking at. Do you care to share the details of your offer?\\\"\",\n \"I agree, and admit that I probably assumed a bit too much context. >hate group exists for a specific hateful purpose, whereas a country does not I agree, but PayPal *is* into taking highly-publicized regional action based on social and political issues. For example, consider the transgender bathroom rights issue taking place in North Carolina last year. Not even close to every resident of the State supported it, yet PayPal made State-level decisions based on it—such as their choice to pull out of plans for a new global headquarters in Charlotte, NC. See here: http://money.cnn.com/2016/04/05/technology/paypal-north-carolina-lgbt/index.html If all residents in Saudia Arabia don't believe in discrimination, and therefore PayPal doesn't exclude business with the country as a whole :: Then all residents of NC not agreeing with another form of discrimination shouldn't exclude business from NC as a whole—yet it did. The difference? PayPal isn't going to lose a recurring amount of money by moving their operations to a different State, especially when they haven't really laid down too much sunk cost. Cessation of payment processing, on the other hand, would have had an impact on their bottom line. They like to flex their Political and Social Opinion, but seem to be very cost-effective in how they choose to do so. I respect them for taking initiative to use their influence to impact the world in a way they see most-fit, but I also believe that many people over-applaud or over-blame them. PayPal isn't risking business for causes in the same way that a soldier might risk their life for a cause—they're only risking their reputation like a Politician might in openly supporting or opposing a war.\",\n \"\\\"There are a number of companies that will issue pre-paid chip and pin Mastercards this is probably the easiest way to deal with the issue. Most of them are limited to UK residents but with a very quick google I found this one http://public.neteller.com/content/en_US/cards_index.htm which seems to be open to US residents. I have no experience of using this company but when I googled \\\"\\\"chip and pin usa pre paid credit card\\\"\\\" they came up.\\\"\",\n \"Not exactly the *best* reminder that PayPal is an arbitrary and capricious payment system with far too little oversight and far too much influence, but hey, I have room in my heart to hate Illinois Nazis and Peter Thiel on the same day.\",\n \"Sure these groups suck ass but Paypal should act as a utility. Otherwise where do you draw the line? Do all businesses become politically driven entities? Do lobbyists start drilling for dirt and reasons to pull services form their competitors, or even make it up? I get **this** is good, and usually I'm not a fan of the slippery slope style arguement, though in this situation for what is largely an essential service it seems valid.\",\n \"The problem was that it was such a niche offering that was only used by hardcore bitcoin fans. It's such a hassle just to buy bitcoin, as Coinbase makes you wait a week. If you don't already have bitcoin, there was (and still, I assume) no reason to not use paypal or a credit card, which offer much better protection to the buyer. Gyft, an online e gift card company which carries every major retailer, was offering a percentage off to people who paid in bitcoin. I was getting Amazon cards through them but once they stopped offering bitcoin discounts, I have stopped using bitcoin all together as an online purchase tool.\",\n \"You could find a relative in another country who has the ability to receive PayPal, and have them transfer the money to you via Western Union or Hawala.\",\n \"I've had fairly extensive experience using Entropay, with a few hiccups along the way. I suspect your transaction or repeated top-ups has been flagged as 'suspicious' activity. Read: potentially fraudulent or money laundering. You've also tried to buy expensive electronic goods, a common use of fraud/laundering. Finally, Entropay does NOT provide address validation. Again, with laptops being a common use for fraud, it is more than likely Lenovo attempted to do an address validation on your card details, which failed and may have led to the hold. How to resolve it? You will probably need to provide documentation to Entropay including proof of identity and where you live.\",\n \"When you buy a currency via FX market, really you are just exchanging one country's currency for another. So if it is permitted to hold one currency electronically, surely it must be permitted to hold a different country's currency electronically.\",\n \"There are thousands of processors. But I explicitly mentioned the customer experience, which is completely different and no matter how much you want your industry experience to matter for that, it doesn't affect it. This you did not read and comprehend. Could you clarify for me how VISA/MasterCard managed to block a merchant, who presumably wasn't a direct customer (but instead a payment processor customer), but cannot block a card holder? (yes, this is an honest question) > Visa and Mastercard prohibited payments to Wikileaks on the basis of WL allegedly facilitating illegal activity. How is that relevant to what PayPal's doing? The WikiLeaks blockade was clearly political. What makes you say otherwise? And this is political. > No one is unable to accept payments if they're barred from PayPal. In this case, yes. So who is morally and/or legally responsible when everyone does the same thing?\",\n \"Yes. I have a US based website that accepts payments via PayPal and can confirm we have many customers from India. Here is a list of countries PayPal supports. Note typically there are some additional fees associated with currency conversion.\",\n \"If it's real, it's illegal. She needs someone to be a middle man who transfers money and doesn't ask questions. The list of possible reasons should be plenty obvious and range anywhere from fraud to terrorism. There are thousands of ways to get already transferred money back from your account. If the source of the money is some kind of fraud that's only detected 2 years later, someone will ask you for the money back in 2 years. If real people who operate within legal and moral boundaries want to pay someone, they do not ask someone on Facebook to do it for them.\",\n \"The RDFI (Receiving Depository Institution) is the place where you keep your money and where the Debit is going to be made. Unfortunately the Debit did not go through for some kind of regulatory reason that I don't understand. You could ask them why people are not allowed to make ACH Debits there or you can try to pay through a different bank.\",\n \"Permanent employees are the distinct opposite of contractors. Upwork can easily have business entities (limited liability company equivalents) in multiple countries, and it can make payments between them. Or they can merely use existing payment infrastructure (paypal, amazon) to accomplish the same thing. Their corporate structure is a red herring and most likely unrelated to what they've accomplished.\",\n \"\\\"Here's an excerpt from VISA's Card Acceptance Guidelines for Visa Merchants (PDF) The merchant name is the single most important factor in cardholder recognition of transactions. Therefore, it is critical that the merchant name, while reflecting the merchant’s “Doing Business As” (DBA) name, also be clearly identifiable to the cardholder. This can minimize copy requests resulting from unrecognizable merchant descriptors. Merchant applications typically list the merchant name as the merchant DBA. This may differ from the legal name (which can represent the corporate owner or parent company), and may differ from the owner’s name which, for sole proprietorships, may reflect the business owner. I think that the key statement above is \\\"\\\"Therefore, it is critical that the merchant name [...] be clearly identifiable to the cardholder.\\\"\\\" Since this merchant was not clearly identifiable to the cardholder, they are in breach of a critical point in these guidelines. This is from VISA, but I would assume that all other major credit cards would have similar guidelines for their merchants. However keep in mind that these are \\\"\\\"guidelines\\\"\\\", and not (necessarily) rules.\\\"\",\n \"This is not allowed, and there is a name for it: IBAN discrimination. Searching for that term will give you some pointers what to do about it. The EU regulation that prohibits this is 260/2012, article 9, paragraph 2: A payee accepting a credit transfer or using a direct debit to collect funds from a payer holding a payment account located within the Union shall not specify the Member State in which that payment account is to be located, provided that the payment account is reachable in accordance with Article 3. You can report this at the relevant national authorities. In the Netherlands, this is De Nederlandsche Bank, which has a special e-mail address for this: meldpuntIBANdiscriminatie@dnb.nl\",\n \"This doesn't directly pertain to international transactions but may be relevant. I got an American Express gift card over the holidays, and I tried to use it at an online merchant. The card was declined because it failed address verification. I called American Express gift card services (number was on the gift card), and they knew immediately what the problem was and fixed it. They simply took my address and added it as a billing address on the card. I retried the payment and it went through right away. It may be worth calling the gift card company and asking them to simply add your billing address.\",\n \"\\\">You could say the same about any public utility. (except the one largest one, technically) There are literally thousands and thousands of processors, which is not the case with utilities. Additionally, processors don't need to have any kind of office or presence anywhere near the business they're serving, which means being able to choose without geographical restrictions. Also, PayPal is not a utility. This is not a relevant comparison. >Are you saying they are unable, both contractually and technically, to affect the consumer side? They'd have to revoke their partnerships with banks who issue cards, which they aren't going to do, because consumers using cards is how they make money. Banks could choose not to issue cards, but they're already free to do that. (There's no right to a credit card.) >But also by selectively quoting me you are (deliberately?) side-stepping what actually happened in the WikiLeaks case, to focus on the consumer side. Visa and Mastercard prohibited payments to Wikileaks on the basis of WL allegedly facilitating illegal activity. How is that relevant to what PayPal's doing? >You must buy things in different corners of the Internet than I do. The customer experience (to me) is that there is \\\"\\\"the store\\\"\\\" or you can pay with PayPal. Yes, \\\"\\\"the store\\\"\\\" is actually a payment processor but this is a quick slippery slope to \\\"\\\"what? You can just set up your own payment processor once they've all blocked your legal business\\\"\\\". What are you talking about? You acknowledge that the store has its own processing but somehow that's not enough because someday they might not have processing and have to go through PayPal? Processors *already* deny service to legal businesses. Notably, anything considered \\\"\\\"high risk\\\"\\\" - which includes travel services, pharmaceuticals, firearms, adult entertainment, telemarketing, debt collection, tobacco, and more - but also for businesses with poor credit, high chargebacks, business practices they don't agree with, lots of international transactions, etc. It literally happens all the time. And, there are so many processors (tens of thousands) that there's another processor willing to step in. Tons of websites don't even use PayPal anymore, and the ones that do often layer it on top of a different payment option. (PayPal is trying hard to increase their presence in stores because of the competition in the internet space.) No one is unable to accept payments if they're barred from PayPal. PayPal actually cuts off accounts all the time because people use it for things against PayPal's TOS. Amazon payments, Shopify, and Stripe are the ones that most people know off the tops of their heads for online processing, but there are literally thousands. No one is somehow unable to conduct business if they can't use PayPal. The only time that businesses can't really get processing is if they do something like rack up chargebacks and disappear or commit fraud against a processor. In those cases, the processor can put that business on the Terminated Merchant File (or MATCH list) and other processors will see that there's been a problem with that customer and not take them on. Even in those cases, businesses can rectify the issue and get off the MATCH list or they can look for processors that will serve them anyway and expect to pay a premium for it.\\\"\",\n \"\\\">These companies should not be playing moral gatekeeper Processors already play moral gatekeeper, and it hasn't bothered anyone before. See: Firearms are considered a \\\"\\\"high-risk\\\"\\\" business, a distinction in processing typically reserved for industries with high rates of chargebacks (like travel services) or questionable practices. (Like debt collection.) High risk businesses have less options for processing and pay higher fees. >they should be providing a service. Companies should also be able to decide who they want to provide that service to. Other than refusing service based on membership in a protected class, businesses should be able to choose to provide service or not.\\\"\",\n \"Putting aside whether that characterization is reasonable, it doesn't follow from what Speckles said. He is suggesting that PayPal shutting people out of its own service would make alternatives to that service *more* of a fringe thing. I don't see how.\",\n \"As far as I can see, this is an issue of the bank's policy rather than some legal regulation. That means that you'll need to work it out with the bank. To give you a couple of ideas to work with when you talk with them, maybe something from this list will work: Good luck!\",\n \"I'm guessing that you've reached the value limit of a payment that can be made without linking your account to a bank account. While you want privacy, PayPal wants to not be a money launderer. You may need to seek an alternative way to pay for this if you're trying to be private about it.\",\n \"MoneyGram said that the person sending money should also be an Indian. There shouldn't be any such restriction. Can you check again what exactly the issue was? Is there another way so I can get money without any problem. You can try Bank Transfers or alternative remittance like Western Union\",\n \"In the very unlikely event that it is not a scam, there would be a distinct probability that it is someone trying to launder money. You don't want to get caught up with drug dealers or ISIS terrorists, so forget it. There is also the possibility that your post is a scam, looking for people who would believe such nonsense. I wonder if people who reply are going to get phished.\",\n \"Capitalism? Like, this is the natural progression of the libertarian/conservative idea that government doesn't need to regulate things, and the free market will sort this stuff out on their own. PayPal (or Twitter, or whoever) deciding what is and isn't acceptable for consumers using their platform to do is like, free market capitalism at its most pure.\",\n \"In addition to there being no real guarantee on the guarantee page, note that the domain was registered on May 27, 2013, so there's no substantial track record of reliability. Finally, their Terms of Service explicitly note that they are not liable for loss of funds due to system malfunction, unauthorized access, etc. etc. Perfect Money is going out of their way to ensure they are offering no guarantees and will not be liable for any losses. How safe are your funds? You should not consider your funds to be safe if stored there. There's no guarantee you'll lose your funds, but no significant reason to believe you won't. Additionally, Perfect Money shut down access to all U.S. citizens on July 1st, 2013 with only two weeks of notice. Anyone who did not withdraw their money within this time lost access to it.\",\n \"\\\"Many people do not know that bank online bill paying services are not provided directly by the bank. Banks often \\\"\\\"farm out\\\"\\\" this task to third party providers of bill paying services. These services in turn may farm out the customer service function to agents in foreign countries. These customer service agents have access to your account number, social security number, and your balance. This means that people have your personal information in countries where you have no rights and where security is not good and where enemies of your nation can easily access that information.\\\"\",\n \"\\\"Certain phrases are blacklisted, I am not 100% about tithing but it might be they don't want any flak about people claiming that Wells Fargo is the one tithing (with a religious connotation) Either that or a super conservative ban on \\\"\\\"tit\\\"\\\", but I would guess the former more likely.\\\"\",\n \"Unless you started a bank or other kind of a financial institution (brokerage, merchant processor, etc etc), the page you linked to is irrelevant. That said, there's enough in the US tax code for you to reconsider your decision of not living in the US, or at least of being a shareholder of a foreign company. Your compliance costs are going to go through the roof. If you haven't broken any US tax laws yet (which is very unlikely), you may renounce your citizenship and save yourself a lot of money and trouble. But in the more likely case of you already being a criminal with regards the US tax law, you should probably get a proper tax advice from a US-licensed CPA/EA who's also proficient in the Japanese-American tax treaty and expats' compliance issues resolution.\",\n \"\\\"Can you tell me please, is it really hard to make international wire transfer for payment my job and can i resolve this problem without using third party services? This is mostly a barrier, the form at times is quite complicated. For Russia, one has to enter \\\"\\\"Purpose of remittance\\\"\\\" ... at times select intermediate banks, give BIC and other details. This can become unnerving to people who are not used to it. The other option you can try is set-up a credit card gateway and get funds via cards.\\\"\",\n \"Unprintable, yes, it's a scam. Nobody will ever have any legitimate reason to run money through your account. Period.\",\n \"\\\"> PayPal isn't even the largest, let alone the only processing company, You could say the same about any public utility. (except the one largest one, technically) > And Visa/Mastercard don't control the issuing of cards to individuals, banks do. My point was that VISA/MasterCard have stepped in to block on the merchant side, in the case of WikiLeaks. Are you saying they are unable, *both* contractually *and* technically, to affect the consumer side? But also by selectively quoting me you are (deliberately?) side-stepping what *actually happened* in the WikiLeaks case, to focus on the consumer side. > No one is denying legal use of money and PayPal is nowhere close to having a monopoly. You must buy things in different corners of the Internet than I do. The customer experience (to me) is that there is \\\"\\\"the store\\\"\\\" or you can pay with PayPal. Yes, \\\"\\\"the store\\\"\\\" is actually a payment processor but this is a quick slippery slope to \\\"\\\"what? You can just set up your own payment processor once they've all blocked your legal business\\\"\\\".\\\"\",\n \"Nowadays, all checks you write will not be send to your bank anymore, but instead the bank where they get deposited does an ACH from your bank. That implies that not allowing this to happen, your bank would not be able to honor any checks you wrote (without enforcing paper check delivery in the mail, but the Check21 bill does not allow such enforcing anymore). Basically, your bank would not be able to do business with anyone. The obvious conclusion is that no such bank exists.\",\n \"As other people have said they should register with a broker in the country they reside in that can deal in US stocks, then fill out a W8-BEN form. I have personally done this as I am from the Uk, it's not a very complicated process. I would assume that most US brokers don't allow foreign customers due to the person having to pay tax where they reside and the US brokers don't want to have to keep approximately 200 different tax codes in track.\",\n \"The banks are required to file Currency Transaction Reports (CTR) to the IRS for aggregate transfers of over $10k. They file Suspicious Activity Reports for suspicious activity with an aggregate value of over $5,000 to the US Treasury. You're probably ok for what you're doing provided you aren't doing to regularly, but I would consider looking into alternate means of transferring funds such as a check to avoid the appearance of impropriety. Also, you should be able to call your bank to do a one time ACH transfer for up to $100k with minimal fees.\",\n \"\\\"Is there a solution here that would allow me to provide him with a debit card in his name that I could fund, that wouldn't have foreign transaction fees associated with it (I'd probably be okay with a small fixed ATM fee). There are separate issues here. There is no law limiting bank accounts to U.S. citizens, but most banks will not open an account for a non-citizen outside their declared service area. There are substantial legal liabilities to the bank in allowing it, whether a citizen or non-citizen. The difficulty will be compliance with the Patriot Act. This is an extension of the older \\\"\\\"Know Your Customer\\\"\\\" doctrine. It is improbable that the bank could comply with the Act without the potential customer being physically present. You would have to check with your bank in advance as to their policies. Banks are not required to accept a customer outside their policies. As to waiving the foreign transaction fee, that is very improbable. Although a handful of institutions do this in specific cases it is uncommon because the bank isn't actually charging the fee, they are passing it along. With a credit card they collect interest and waiving the fee can be thought of as a reduction in interest income, that isn't possible on a debit card. You would want to make sure you have a scrupulously honest nephew. You could be held criminally liable for any actions he takes at both the state and the federal level. U.S. law is global. A citizen who commits a crime in any country of the world can be charged for it in the United States. By being on the account you can acquire any liabilities that are created as an accomplice. This is a bigger issue at the federal level because 4,000 federal laws do not require criminal intent. Some do not require you to even know the action happened. Unlike state law which generally requires you intended to commit a crime and had to be aware of it, federal law often does not. It is also not adequate that the action is legal in Russia if it would be illegal in the United States. If I get a card in my name, and give it to him to use to withdraw money from ATMs, is that legal? What problems might that cause? It is legal, but you are now strictly liable for its use. See the above answer. It would probably get shut down anyway when they phone you and asked: \\\"\\\"are you in Russia right now?\\\"\\\" The bank is still liable for you giving away the card. The bank may close out all your accounts and submit a currency transaction report on you to the Treasury for possible money laundering. Wire the money. Plan out how much and when, but just wire it.\\\"\",\n \"There is not any fraud involved. Anybody can gift money to another person.\",\n \"I know this may be difficult for you and like so many other people pointed out here, you either only read what you want or do not comprehend what you read. I was specifically talking about MS the entire time, never said anything about the bakery you are referencing so once again you are making a moot point with your protected class information...I was talking about how the entire state was burned in Reddit when some bigoted business owners decided to not do business with LGBT people about 8 months ago. Again, just because you think something should be some way, doesn't mean it is. Wish and hope all you want to but until the law says they are protected, they are not. So again, what paypal did is not different than what the businesses in ms did, but your type of people had the opposite reaction then than you do now and I was merely trying to point it out like almost everyone else you are arguing with in this thread has tried to but fell on deaf ears. They are the same but they do not match your opinion so you put up you blinders and shove your fingers in your ears while screaming like a child at anyone trying to point out a fallacy in your logic. Also what does my politics have to do with this? I hate to burst your bubble but I'm not libertarian...regardless, it does not matter. You bring up politics as if it would effect me by you calling me libertarian...why? Just because my opinion is different you automatically call me out as [insert political party here] that does not agree with you to try and invalidate anything I'm saying. Well, I'm done. It is pointless to try and tell you anything that differs from your opinion. I grow tired of telling you the same thing over and over again especially when you apparently do not read replies or skip over any part that you disagree with. Good luck with your line of thinking. Hopefully one day someone like PayPal does not block your business or a business you do business with because it differs from their opinion. Your opinion now aligns with theirs, but what happens next time it doesn't and they have the same kind of power. Let them do it once, next time you well not have a choice. Don't worry about replying, I'm no longer interested in hearing your opinion as I have now made up my mind that you are small minded and lack basic thought required to see past your immediate fields of view. They are burning someone else now, eventually they well burn you since you are so happy to let them do it too someone else. Don't make a stand now, they will not let you make a stand later.\",\n \"I've definitely seen a similar conversation about this, I personally don't buy from eBay (Amazon for me). So I turned to the internet to see what I could find to offer you any additional information (albeit not my personal experience). I first read this article: CodeNerdz Article and was pretty horrified by the scamming that can happen by buyers. Then, this article by another regular user of eBay, Selling on eBay without PayPal : eBay Guides confirmed the trouble people have with PayPal & eBay. Payment Services permitted on eBay: Allpay.net, Canadian Tire Money, cash2india, CertaPay, Checkfree.com, hyperwallet.com, Moneybookers.com, Nochex.com, Ozpay.biz, Paymate.com.au, Propay.com, XOOM Have you looked into any or all of these?\",\n \"Many European countires allow you to an account for non-residents. You have to appear in the bank personally to open it, some of them even to get your own tax number for non-residents from the local government. I'm not sure if you get a Visa (Electron) chip card immediatelly or you have to wait for like 3 months before being issued one. I've heard that getting a tax number for non-residents and opening a bank account is easily done in one day in Brezice, Republic of Slovenia. They seem to have agile local bureaucracy and banks, since many pople from neighbouring (non-EU) countries (used to) come there to open an EU bank account. Funds can be transfered via Internet banking - US banks have that, do they? SWIFT and IBAN codes are used for international money transfer. But it takes some time (days!) for it to arrive to destination. Tansfers below $20000 per month or per transaction are considered normal, but for amouts above that the destination bank might ask you to explain the purpose, to prove it is not illegal. Some of them accept the explanaiton in writing (they forward it to the regulator that tracks such large transfers), some of them ask you to appear there in person for an interview and to sign a statement. Can't believe US banks are still issuing paing magnet stripe cards like it's still 1980s. I'd expect Europe to be 10 years behind USA in technology, but this seems to be a weird reverse. I've beed using Internet banking with one-time passwd tokens and TAN lists for almost 10 years, and chip cards exclusivley for over 5y. Can't remeber the last time I've seen mag stripe card only. American Express (event the regular green one) got the chip at least 5 years ago. And it is accepted regularly in Europe. Alegedly it's more popular in Europe (although Mastercard is a definite #1, with Visa close to that) that in USA.\",\n \"\\\"> Once again remember, it's ZH. There's a Reuters cite almost immediately at the top of the story. Do you have an updated list of the OK-to-post media sources? > The US has had ATM limits since, well I can't even remember, with the max being at most $200 a day. If by \\\"\\\"the US\\\"\\\" you mean \\\"\\\"some people at some banks in the US, depending on the rules of that bank\\\"\\\" then yeah - but if what you were attempting to imply is some USA-wide ATM limit ala the one being discussed, then that's simply wrong.\\\"\",\n \"\\\"When Laurence Olivier took the role of Douglas Macarthur in the Unification Church's filming of Inchon, he told the press, \\\"\\\"People ask me why I'm playing in this picture. The answer is simple: Money, dear boy.\\\"\\\" Banking systems are typically decades old and subject to innumerable legal and technical restrictions. Moving money more quickly from one client's account to another would definitely be in the clients' interest, but\\\"\",\n \"\\\"> They're simply saying that their private company service won't be the one to enable that money making. The problem I have with this line of logic is that it's pretty much the anti-net neutrality argument. \\\"\\\"Why shouldn't private companies be able to determine which data to send/allow/prioritize over their services?\\\"\\\"\\\"\",\n \"Nothing new, PayPal has never hesitated to express their opinions before. I would have already assumed this was the case. I wonder though, do they still do business with countries that execute people for certain sexual orientations? It'd seem *killall[insert race here]people.com* drives a little less business for them than say, *Saudia Arabia*—and makes for easy PR.\",\n \"PayPal. Or even Western Union or MoneyGram. Despite their fees, there is a reason those companies are still in business.\",\n \"Any such amount has to be reported by Skrill and the Bank to RBI. As long as your earnings are legitimate and you are paying the taxes you shouldn't be worried. If its for services rendered, you would have a contract and / or invoice ... ie some paper work. It is important to keep the paper work in order.\",\n \"Regulated vs unregulated crypto makes sense - it seems like it's easier for government officials to simply enforce a blanket restriction on cryptocurrency transactions of all kinds than bother to make the distinctions between different types. I expect China's shutdown will be the first of many in terms of national governments on cryptocurrency.\",\n \"Visit paypalblows.org to find out more reasons. PayPal wants your bank account info on file before they allow you to take payment. So setup a bank account strictly for this service, and if they give you trouble or suspend your account, simply never use them again and tell others of your experience. I think the only reason why PayPal wants a bank account is so they can dip into it and take chargeback money.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"The U.S. requires money transfer services to be licensed under 31 USC 5330 in addition to any applicable laws at the state level. According to multiple sources online, including the thread referenced by MD-Tech's answer, OkPay either cannot or will not get a license, so they are out. I dug on this a bit more because I thought it was interesting, and OkPay has other issues with U.S. and other regulators related to its interaction with Bitcoins, which themselves are a hot potato for regulation right now and may explain the licensing problem. It seems to also be facing regulatory pressure in other countries, by the way, so it's not strictly a problem they face in the U.S. Just for whatever reason, the problem is greater here. Some interesting summary points: With mounting pressure on online money exchanges from US regulators, payments processor OKPay has announced that it is suspending processing for all Bitcoin exchanges, including industry leader Mt. Gox. ... Earlier this month, the US Department of Homeland Security seized Mt. Gox's account with mobile payment processor Dwolla, on allegations that the account was in violation of US Code 18 USC § 1960 by operating an \"\"unlicensed money transmitting business.\"\" Just where the Bitcoin market falls under US law is unclear, because the legality of Bitcoin transactions has yet to be tried in court and law enforcement has refused to comment on ongoing investigations, such as the Dwolla case. http://www.theregister.co.uk/2013/05/29/okpay_suspends_bitcoin_processing/ In March, the US Treasury said any firms dealing in the virtual currency would be considered \"\"money services businesses\"\" just like any other, which means they must hand over transaction information to the government and work to prevent money laundering. http://www.theregister.co.uk/2013/05/15/mt_gox_us_court/ In the UK, it apparently has also had trouble with banking partners (quoting a OkPay official regarding changing bank providers): The UK bank that we used before did not make a final decision on whether to handle transactions in favour of crypto-currencies or not. Therefore the compliance department of the bank asked us to restrict such transfers. This apparently allowed them to reverse a policy in the UK: OKPAY's policy shift comes just months after it stipulated that GBP users check a box, verifying that their funds would not be spent on cryptocurrency, a feature that further incited users. http://www.coindesk.com/okpay-gbp-bitcoin-transactions/ I hadn't heard of this company prior to your question, but having done some research, I tend to think that at least the part of this quote about language, attributed to a user, is true: OKPAY are quite paranoid about AML and another problem is that their support people seem to be very bad at English, so their replies are often hard to understand. Their support are also slow [sic]. However in my experience they are an honest company. I found at least one case where rumors that the entire company were going to shut down were traced back to a poorly translated message issued by the company. Again, I know only what I read just now about this company, but it looked like there were a few red flags - the problems with the US probably not being the most important. This type of service is probably part of the future, but I'm not sure that I'd send money through it now in its current state or organization and regulation.\"","according to their client services it is a licensing issue: Thread: OKpay didn't Accept USA clients? They do not elaborate but do suggest that they don't plan to fix that issue.","If you read the link that MD-Tech provided, it actually indicates that the foreign companies (mostly banks) are choosing not to work with the United States in their latest answer, so it looks like it's not OkPay, but the financial companies that they use. On further research, the reason that this is banned is to prevent capital flight in the future. OkPay offers may ways to transfer funds in and out, such as traditional credit cards, like VISA and MasterCard, and other non-traditional ways, such as crypto-coins. Here is another example of how the US government is limiting what US consumers can do with their money. Apparently while no one was looking in 2010, they were able to pass some new restrictions.","Here's the real reason OKPay (actually the banks they interface with) won't accept US Citizens. The Foreign Account Tax Compliance Act Congress passed the Foreign Account Tax Compliance Act (FATCA) in 2010 without much fanfare. One reason the act was so quiet was its four-year long ramp up; FATCA did not really take effect until 2014. Never before had a single national government attempted, and so far succeeded in, forcing compliance standards on banks across the world. FATCA requires any non-U.S. bank to report accounts held by American citizens worth over $50,000 or else be subject to 30% withholding penalties and possible exclusion from U.S. markets. By mid-2015, more than 100,000 foreign entities had agreed to share financial information with the IRS. Even Russia and China agreed to FATCA. The only major global economy to fight the Feds is Canada; however it was private citizens, not the Canadian government, who filed suit to block FATCA under the International Governmental Agreement clause making it illegal to turn over private bank account information. Read more: The Tax Implications of Opening a Foreign Bank Account | Investopedia http://www.investopedia.com/articles/personal-finance/102915/tax-implications-opening-foreign-bank-account.asp#ixzz4TzEck9Yo Follow us: Investopedia on Facebook"],"string":"[\n \"\\\"The U.S. requires money transfer services to be licensed under 31 USC 5330 in addition to any applicable laws at the state level. According to multiple sources online, including the thread referenced by MD-Tech's answer, OkPay either cannot or will not get a license, so they are out. I dug on this a bit more because I thought it was interesting, and OkPay has other issues with U.S. and other regulators related to its interaction with Bitcoins, which themselves are a hot potato for regulation right now and may explain the licensing problem. It seems to also be facing regulatory pressure in other countries, by the way, so it's not strictly a problem they face in the U.S. Just for whatever reason, the problem is greater here. Some interesting summary points: With mounting pressure on online money exchanges from US regulators, payments processor OKPay has announced that it is suspending processing for all Bitcoin exchanges, including industry leader Mt. Gox. ... Earlier this month, the US Department of Homeland Security seized Mt. Gox's account with mobile payment processor Dwolla, on allegations that the account was in violation of US Code 18 USC § 1960 by operating an \\\"\\\"unlicensed money transmitting business.\\\"\\\" Just where the Bitcoin market falls under US law is unclear, because the legality of Bitcoin transactions has yet to be tried in court and law enforcement has refused to comment on ongoing investigations, such as the Dwolla case. http://www.theregister.co.uk/2013/05/29/okpay_suspends_bitcoin_processing/ In March, the US Treasury said any firms dealing in the virtual currency would be considered \\\"\\\"money services businesses\\\"\\\" just like any other, which means they must hand over transaction information to the government and work to prevent money laundering. http://www.theregister.co.uk/2013/05/15/mt_gox_us_court/ In the UK, it apparently has also had trouble with banking partners (quoting a OkPay official regarding changing bank providers): The UK bank that we used before did not make a final decision on whether to handle transactions in favour of crypto-currencies or not. Therefore the compliance department of the bank asked us to restrict such transfers. This apparently allowed them to reverse a policy in the UK: OKPAY's policy shift comes just months after it stipulated that GBP users check a box, verifying that their funds would not be spent on cryptocurrency, a feature that further incited users. http://www.coindesk.com/okpay-gbp-bitcoin-transactions/ I hadn't heard of this company prior to your question, but having done some research, I tend to think that at least the part of this quote about language, attributed to a user, is true: OKPAY are quite paranoid about AML and another problem is that their support people seem to be very bad at English, so their replies are often hard to understand. Their support are also slow [sic]. However in my experience they are an honest company. I found at least one case where rumors that the entire company were going to shut down were traced back to a poorly translated message issued by the company. Again, I know only what I read just now about this company, but it looked like there were a few red flags - the problems with the US probably not being the most important. This type of service is probably part of the future, but I'm not sure that I'd send money through it now in its current state or organization and regulation.\\\"\",\n \"according to their client services it is a licensing issue: Thread: OKpay didn't Accept USA clients? They do not elaborate but do suggest that they don't plan to fix that issue.\",\n \"If you read the link that MD-Tech provided, it actually indicates that the foreign companies (mostly banks) are choosing not to work with the United States in their latest answer, so it looks like it's not OkPay, but the financial companies that they use. On further research, the reason that this is banned is to prevent capital flight in the future. OkPay offers may ways to transfer funds in and out, such as traditional credit cards, like VISA and MasterCard, and other non-traditional ways, such as crypto-coins. Here is another example of how the US government is limiting what US consumers can do with their money. Apparently while no one was looking in 2010, they were able to pass some new restrictions.\",\n \"Here's the real reason OKPay (actually the banks they interface with) won't accept US Citizens. The Foreign Account Tax Compliance Act Congress passed the Foreign Account Tax Compliance Act (FATCA) in 2010 without much fanfare. One reason the act was so quiet was its four-year long ramp up; FATCA did not really take effect until 2014. Never before had a single national government attempted, and so far succeeded in, forcing compliance standards on banks across the world. FATCA requires any non-U.S. bank to report accounts held by American citizens worth over $50,000 or else be subject to 30% withholding penalties and possible exclusion from U.S. markets. By mid-2015, more than 100,000 foreign entities had agreed to share financial information with the IRS. Even Russia and China agreed to FATCA. The only major global economy to fight the Feds is Canada; however it was private citizens, not the Canadian government, who filed suit to block FATCA under the International Governmental Agreement clause making it illegal to turn over private bank account information. Read more: The Tax Implications of Opening a Foreign Bank Account | Investopedia http://www.investopedia.com/articles/personal-finance/102915/tax-implications-opening-foreign-bank-account.asp#ixzz4TzEck9Yo Follow us: Investopedia on Facebook\"\n]","isConversational":false}}},{"rowIdx":374,"cells":{"_id":{"kind":"string","value":"3830"},"query":{"kind":"string","value":"US citizen transferring money to Indian fiance to buy property"},"gt_ids":{"kind":"list like","value":["54952"],"string":"[\n \"54952\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["54952","131164","167660","476550","203889","107924","251370","281000","93099","120312","322838","307404","199789","96062","472681","360770","78813","438149","343744","21488","507630","452384","391420","245766","198315","426216","445680","306800","524443","40682","467641","80657","564648","115932","412258","393579","453221","77596","463207","146557","229911","200425","259021","263648","553205","210853","265398","157712","185146","488566","283459","417286","242359","344335","45069","512621","521753","446190","132693","581173","553106","519314","288559","483081","427119","507298","516756","236031","531306","169598","276408","365847","60952","379065","450925","150903","183800","394899","232043","20283","63666","529731","99102","336045","551964","78597","456773","66039","385344","56907","570639","563812","272173","55108","287999","466943","202570","130208","320012","13496"],"string":"[\n \"54952\",\n \"131164\",\n \"167660\",\n \"476550\",\n \"203889\",\n \"107924\",\n \"251370\",\n \"281000\",\n \"93099\",\n \"120312\",\n \"322838\",\n \"307404\",\n \"199789\",\n \"96062\",\n \"472681\",\n \"360770\",\n \"78813\",\n \"438149\",\n \"343744\",\n \"21488\",\n \"507630\",\n \"452384\",\n \"391420\",\n \"245766\",\n \"198315\",\n \"426216\",\n \"445680\",\n \"306800\",\n \"524443\",\n \"40682\",\n \"467641\",\n \"80657\",\n \"564648\",\n \"115932\",\n \"412258\",\n \"393579\",\n \"453221\",\n \"77596\",\n \"463207\",\n \"146557\",\n \"229911\",\n \"200425\",\n \"259021\",\n \"263648\",\n \"553205\",\n \"210853\",\n \"265398\",\n \"157712\",\n \"185146\",\n \"488566\",\n \"283459\",\n \"417286\",\n \"242359\",\n \"344335\",\n \"45069\",\n \"512621\",\n \"521753\",\n \"446190\",\n \"132693\",\n \"581173\",\n \"553106\",\n \"519314\",\n \"288559\",\n \"483081\",\n \"427119\",\n \"507298\",\n \"516756\",\n \"236031\",\n \"531306\",\n \"169598\",\n \"276408\",\n \"365847\",\n \"60952\",\n \"379065\",\n \"450925\",\n \"150903\",\n \"183800\",\n \"394899\",\n \"232043\",\n \"20283\",\n \"63666\",\n \"529731\",\n \"99102\",\n \"336045\",\n \"551964\",\n \"78597\",\n \"456773\",\n \"66039\",\n \"385344\",\n \"56907\",\n \"570639\",\n \"563812\",\n \"272173\",\n \"55108\",\n \"287999\",\n \"466943\",\n \"202570\",\n \"130208\",\n \"320012\",\n \"13496\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["A. Kindly avoid taking dollars in form of cash to india unless and until it is an emergency. Once the dollar value is in excess of $10,000, you need to declare the same with Indian customs at the destination. Even though it is not a cumbersome procedure, why unnecessarily undergo all sort of documentation and most importantly at all security checks, you will be asked questions on dollars and you need to keep answering. Finally safety issue is always there during the journey. B.There is no Tax on the amount you declare. You can bring in any amount. All you need is to declare the same. C. It is always better to do a wire transfer. D. Any transfer in excess of $14,000 from US, will atract gift tax as per IRS guidelines. You need to declare the same while filing your Income Tax in US and pay the gift tax accordingly. E. Once your fiance receives the money , any amount in excess of Rs 50,000 would be treated as individual income and he has to show the same under Income from other sources while filing the taxes. Taxes will be as per the slab he falls under. F.Only for blood relatives , this limit of 50,000 does not apply. G. Reg the Loan option, suggest do not opt for the same. Incase you want to go ahead, then pl ensure that you fully comply with IRS rules on Loans made to a foreign person from a US citizen or resident. The person lending the money must report the interest payment as income on his or her yearly tax return provided the loan has interest element. No deduction is allowed if the proceeds are used for personal or non-business purposes.In the case of no-interest loans, most people believe there is no taxable income because no interest is paid. The IRS views this seriously and the tax rules are astonishingly complex when it comes to no-interest loans. Even though no interest is paid to the lender, the IRS will treat the transaction as if the borrower paid interest at the applicable federal rate to the lender and the lender subsequently gifted the interest back to the borrower.The lender is taxed on the imaginary interest income and, depending on the amount, may also be liable for gift tax on the imaginary payment made back to the borrower. Hope the above claryfies your query. Since this involves taxation suggest you take an opinion from a Tax attorney and also ask your fiance to consult a Charted Accountant on the same. Regards","As the college education is very costly, I want to send USD 25,000 to him as a gift. What is the procedure and what Indian and American tax laws are involved ? This transaction will be treated as gift. As per Indian law you can transfer unlimited amount to your close relative [son-in-law/grandchildren/daughter/etc]. In US the gift tax is on donor, as you are no US citizen you are not bound by this. As your son-in-law/grandchildren are US citizens, there is no tax to them. Your son-in-law may still need to declare this in Form 3250 or such relevant returns. Under the Liberalized remittance scheme [Refer Q3], you can transfer upto USD 250,000 per year. There maybe some forms that you need to fill. Ask your Bank. If the amount is more than USD 25,000 a CA certificate along with 15CA, 15CB need to be filled. Essentially the CA certifies that taxes on the funds being transferred have already been paid to Govt of India. Can I send money to him directly or to his father who is submitting tax returns in USA? This does not make any difference in India. Someone else may answer this question if it makes a difference in US.","Best consult a CA. There is no clear guideline on this. Some articles do suggest that if engaged and planning to marry, one can transfer money to fiancée without any tax implication.","Can I transfer directly from my US saving account to their Axis bank in India? Yes you can. any kind of tax my parents need to pay? No. From you parents point of view, its a Gift from their daughter and would come under the provisions of Gift Tax [and Not Income Tax]. Gifts from specified relatives [Daughter /sons /parent /siblings] is tax free. It would make sense to keep some paper work around this, for example a simple letter stating that this is a Gift, specify the amount, the date of transfer, the amount actually credited, details of the credit [Bank Statement]. If there is a scrutiny by income tax, it would ease things. any kind of tax I need to pay? In India NO. In US I am assuming your have already paid tax hence no tax.","We have a house here in India worth Rs. 2 Crores. We want to sell it and take money with us. Selling the house in India will attract Capital Gains Tax. Essentially the price at which you sell the property less of the property was purchased [or deemed value when inherited by you]. The difference is Capital Gains. You have to pay tax on this gains. This is currently at 10% without Indexation and 20% with Indexation. Please note if you hold these funds for more than an year, you would additionally be liable for Wealth tax at 1% above Rs 50 lacs. Can I gift this whole amount to my US Citizen Daughter or what is the maximum limit of Gift amount What will be the tax liability on me and on my Daughter in case of Gift Whether I have to show it in my Income Tax Return or in my Daughter's Tax Return. What US Income Tax Laws says. What will be the procedure to send money as Gift to my Daughter. Assuming you are still Indian citizen when to gift the funds; From Indian tax point of you there is no tax to you. As you daughter is US citizen, there is no gift tax to her. There is no limit in India or US. So you can effectively gift the entire amount without any taxes. If you transfer this after you become a US Resident [for tax purposes], then there is a limit of USD 14,000/- per year per recipient. Effective you can gift your daughter and son-in-law 14,000/- ea and your husband can do the same. Net 14,000 * 4 USD per year. Beyond this you either pay tax or declare this and deduct it from life time estate quota. Again there is no tax for your daughter. What are the routes to take money from India to US Will the money will go directly from my Bank Act.to my Daughter's Bank Account. Will there will be wire transfer from bank to bank Can I send money through other money sender Certified Companies also. The best way is via Bank to Bank transfer. A CA Certificate is required to certify that taxes have been paid on this funds being transferred. Under the liberalized remittance scheme in India, there is a limit of USD 1 Million per year for moving funds outside of India. So you can move around Rs 6-7 Crore a year.","From India Tax Point of view, your parents can Gift you the money. There is no tax due to this in India for your parents or for you. Transferring the funds out of India is also possible. Under the Liberalized Remittance Scheme by RBI, one can transfer upto 200,000 USD. Please check with your Bank for the exact paperwork. Typically PAN and a CA certificate mentioning the relevant clauses and certifying the purpose is required. Bank may have some more paperwork on its own.","If the funds are in NRE account, then there is no issue. You just instruct your bank in India to transfer. If your tax status in India is Non-Resident Indian, you should not be holding a normal Savings bank account. Under the liberalized remittance scheme you can transfer upto 2,50,000 USD per year. You would need to instruct your bank in India to initiate a international wire transfer. The FAQs are here","From an India tax point of view your father can gift you unlimited amount of money and the transfer would be under Gift Tax act. As per the act there is NO tax on this transaction. I does not matter if you get yourself added into the joint account or not. From a US tax point of view, this transfer would come under gift tax, however in US the gift tax is applicable on the Donor [i.e. your father]. As your father is not a US Citizen the provisions are not applicable to him. Edit Under the liberalized remittance scheme, an individual can transfer upto USD 1 million every year. A CA certificate is required certifying that the taxes on the funds have been paid. Your Bank would be able to guide you on the exact process.","Are there any IRS regulations I should be aware of when sending money to India? None. As long as you are following the standard banking channels. You are also declaring all the accounts held outside US in your tax returns. FBAR. Is it legal to do so? Yes it is legal. do I have to declare how much I am investing and pay extra taxes? As part of FBAR. Income earned [including interest, capital gains, etc] needs to be paid in India [there are some exemptions for example interest on NRE accounts] as well as in the US [relief can be claimed under DTAA Indian version here and US here]. So if you already have paid taxes on salary and say transfer USD 10K to India; there is no tax on this 10K. If this 10K generates an income of say 2K; this 2K is taxable as per normal classification and rules.","Like for example I use transferwise to send $x to my dad's account in India, would it show my name as the depositor ? That would depend from bank to bank, it may or may not show your name. Would it be considered as income for my dad ? Assuming your parents are Indian Residents for tax purposes. No. It would be considered as Gift. Gifts between father and son are tax free in India and there is no limit. Any special care/precaution to take before using such services ? Not really. Just to be safe, keep a copy of the transfer instruction / details of debit to you account etc, so that if there is enquiry you have all the data handy. Edit: Clarifying the comment, if you are Resident Alien in US for tax purposes, you would be liable to Gift Tax [Not your parents as they are Indian Residents and would follow Indian tax rules]. As per IRS the liability of Gift tax is on Donor subject to limit of $14000 per year per Donee. So you and your wife can gift your father and mother $14000 each. i.e. $56000 each year. Anything more will be taxable or can be reduced from the overall estate limit.","How much amount can we transfer from India to the USA? Is the limit per year? As I understand your father in law is Indian Citizen and his tax paid earnings need to be transferred outside of India. Under the Liberalized Remittance Scheme by RBI, one can transfer upto 2,50,000 USD. Please check with your Bank for the exact paperwork. A form 15CA and 15CB [by CA] are required to establish taxes have been paid. What documents we have to present to the bank? See above. Should money be transferred to company's account(Indian Company) to USA company? or can be transferred to my husband's account. Transfer of funds by a Indian Company to US Company has some restrictions. Please check with CA for details. If you father in law has sold the Indian Company and paid the taxes in India; he can transfer the proceeds to his son in US as per the Liberalized Remittance Scheme. Can they just gift the whole amount to my husband? What will be the tax implication on my husband's part in USA and on my father in law in India. The whole amount can be gifted by your father in law to your husband [his son]. There is no tax implication in India as being an Indian resident, gift between close relatives is tax free. There is no tax implication to your husband as he is a US Citizen and as per gift tax the person giving the gift should be paying the applicable taxes. Since the person gifting is not US Citizen; this is not applicable.","I am a non-resident alien transferring a limited amount ( in dollars post tax) to India every couple of months. Assuming you are transferring this into an NRE account in India or atleast NRO account in India. As a NRI, by regulations one should not hold normal Savings account. This has to be converted into NRO. I put that money as a fixed deposit in a bank (which gives 6-7 percent annual return) Assuming you have FCNR deposits. Also assuming that you are declaring the taxes in your US Tax returns and paying tax accordingly. There is no tax in India on FCNR. If this was in ordinary FD or in NRO account, you are declaring and paying taxes in India as well as in US. What is the max limit on transferring money back from India to USA? If you have transferred this into NRE account, there is no limit. Other account there is a limit. Read more at Liberalized Remittance Scheme and here. What are the legitimate ways to transfer the money? From India point of view, this has to be Bank to Bank transfers. You can't carry cash [Indian Rupees] outside of India beyond Rs 25000 [or 15000?]. You can't hold excess of USD 250 without valid purpose. Western Union is not authorized to transfer funds out of India. Will there be any tax levied? No assuming you are already paying taxes on the Interest in US and depending on the type of account in India.","The money was sent from my US bank to my father in India Your father can receive unlimited amount of money as GIFT from you. There is no tax implication on this transaction. Related question After 3 years, my father received a note from the income tax dept. asking him to pay income taxes. Possibly because the income does not match and there maybe high value transactions. This should be replied preferably with the help of CA. Now, the CA is asking him to pay tax in the money I transferred. Is that correct? This is incorrect. Please change the CA and get someone competent. If not, what should I or he do in this case? Get guidance from another CA. Your father can establish that this was convenience and show evidence of transfer from you [need bank statements from your bank and Indian bank]. Property registration payments receipts, etc. Or he can also show this as Gift. If required get a gift deed created.","India has Foreign Exchange Management Act. Under the liberalized scheme, there are limits for individuals to move funds out of India for specific purposes. Any such transfer require a CA certificate, so it would be advisable to talk to a CA to understand the specifics of your case.","India and the United States have a tax treaty agreement whereby double taxation is avoided. However check with your accountant in the US who should be able to guide you further in this regard. It is now easier to transfer money out of India. As long as the source of the money is legal and can be verified. So if you decide to sell a property, get payments by way of documented bank transactions like cheques and avoid cash deals. Once taxes are paid money can usually be transferred out.","India and the United States have a tax treaty, so if you pay tax in the United States, YOU DO NOT HAVE TO PAY TAX IN INDIA OR VICE VERSA. Your father in law can wire the money back to your US bank account if you provide him with your routing number and swift code. He might be charged a little fee depending on the amount he is sending(It is usually Rs.1000/-), but once the money comes back it is absolutely tax free. If it is a lot of money, you might get an inquiry, but assuming you have already payed taxes on it, it should reflect on your W2, so you do not have to pay any further taxes. Cheers!","The simplest way is you transfer the funds into your NRE account in India. From the NRE account transfer the funds to your brother-in-law and show the purpose as Loan. From 2012 onwards RBI has simplified things under FMEA and your brother-in-law can deposit/repay the loan back into the NRE account. Once the funds are in NRE account you can repatriate then whenever you like. This entire process requires less paperwork. The option you have suggested is also fine, however your brother-in-law needs to engage the services of a CA and he will authenticate the purpose of remittance to the Bank. Based on this certificate the Bank will transfer the funds outside of India.","Will I have to pay Income Tax/Capital Gain Tax in India for the full amount or 50% of the amount. Assuming you were the owner of the plot, you have to pay capital gains tax on the full amount. Current at 10% without indexation and 20% with indexation. Rest of amount will be used to purchase property in India. If you are re-investing the money into capital assets, you are not liable to pay Capital Gains for the amount invested. This is applicable only for first 2 houses. Consult a CA. What is the procedure to transferring the money to him. What declaration in have to give to the Bank (any Forms to fill) Under the liberalized remittance scheme you can transfer upto USD 1 Million per year. A CA certificate is required declaring the purpose and giving certificate that taxes are paid. Please contact your Bank or CA to guide further.","My brother is worried as in US a transaction of more than 10K can be flagged by IRS. Transactions may be flagged to IRS or any other regulators as required. If the intent is correct, there is nothing wrong, your Brother would have to establish that it was for legit reason. Will it be safe to transfer through wire to wire Transfer or is there any other alternatives All legit transfer mechanism would have the same reporting regulation. There is no one better than other method. As stated earlier, if the purpose is bonafide, there shouldn't be anything to worry about.","Take a look at Transferwise. I find them good for currency conversions and paying people in India from a US bank account.","Yes. You may be subjected to the US gift tax (if you transfer to anyone other than your legally married spouse or yourself). The receivers will have to deal with the Indian tax laws, which I'm not familiar with.","Can she send money to me in India through their NRI account? She can transfer the money to her NRE account and then to your Savings Account. Alternatively she can also transfer money directly to your savings account. There is no tax for this transaction in India as it is gift and exempt under gift tax act. If the amounts are large [run in quite a few tens of lacs], have some paperwork showing this as Gift. You can transfer this to son or doing anything you like with it.","You friend would only be able to deposit this in NRO account. You may have to explain the source of money. If you declare it as gift, then you would need to pay gift tax. What you are doing is converting USD to INR outside the normal banking network and this maybe in volition of FEMA [Foreign Exchange Management Act].","The best way is to approach your bank and fill out a transfer form to send USD to your US account (if you are visiting India). They will require quite a number of proof (AADHAR, PAN, Passport) copies. Otherwise speak to your bank about how to do a wire transfer from your India A/C to US; after de-moitization regulations have tightened, the best course of action would be to speak to your bank directly.","From what I understand, you have money earned in US and after paying taxes that are due in the US, you have transferred a portion of this to your brother. As you have earned this money outside India, there is not tax liability of this amount in India. Your giving it to your brother would at best be treated as GIFT [and not Income]. As you are giving it to your brother there is no limit on the amount of money that can be gifted. There is no tax liability for your brother. For more details read the http://www.moneycontrol.com/news/tax/gift-tax-whatsa-gift_664238.html http://www.thehindubusinessline.in/bline/blnri/exp-tax.htm","Most Banks allow to make an international transfer. As the amounts is very small, there is no paperwork required. Have your dad walk into any Bank and request for a transfer. He should be knowing your Bank's SWIFT BIC, Name and Address and account number. Edit: Under the liberalised remittance scheme, any individual can transfer upto 1 million USD or eq. A CA certificate is required. Please get in touch with your bank in India for exact steps","From an India Tax perspective, someone may add the US aspect; As you have given your Father-In-Law [FIL] some money, and do not have loan documents, the amount your FIL has repaid will be treated as GIFT to you. Gift Tax by Father-In-Law to Son-in-Law is 100% tax free and there is no limit of amount. The funds can be got into NRO account and not in NRE account. There is limit of USD 125,000 that can be reptriated outside India. Refer the RBI Q&A 56","If you are a non resident Indian, the income you earn and transfer to India is tax free in India. You can hold the funds in USD or convert then into INR, there is no tax implication.","If you had purchased the land directly from your NRI account in your name [with power of attorney] in your wife's name, it would have been very simple to get the funds back. Whenever you sell the land, transfer the funds into NRO account. From NRO account you can repatriate back USD 1 Million. A CA certificate is required detailing the purpose and that tax is paid on the funds, talk to your bank and it should be easy. The gains will be taxable in India as well as in the US. You can claim rebate to the extent of taxes paid in India.","I was wondering if I could make part of the payment here in USD legally? Although not directly illegal ... From an India tax and FMEA point of view this would be a bit complicated. A NRI Seller cannot repatriate the proceeds from sale of house unless he had purchased this from NRE account and repatriation is only possible for original purchase amount. For the gains Seller has to apply for repatriation of funds. A NRI Seller has to pay taxes on gains and this transaction should not look like facilitating a tax fraud in case NRI Seller does not pay his taxes. As a Buyer if you make the purchase from your NRE account [i.e. Move US funds into India into NRE Account], it will ease you ability to repatriate funds in future. Depending on the property value and PAN card availability of seller, you have to deduct 1% to 30.12% tax from the value and deposit this with Income Tax India. PS: It is recommended that you consult a Professional CA to help you with modalities.","You can use xoom.com or western union. They are both pretty much the same, as they do not charge any fees but take a cut of 0.7-0.8% on every dollar. However, there is a minimum and maximum limit of sending money. If you want to transfer more, you can wire money in through a financial institution such as Wells Fargo or Chase bank or look to see if there is a State bank of India around you. I am quite sure that they charge $15 plus 0.20-0.30% on every dollar( The last time I used it). Hope this helps.","I want to transfer about 60 Lakhs INR from my NRO account in India to my US bank account Yes you can. However there is some paperwork you need to follow. As per FEMA [Foreign Exchange Management Act], any transfer by individuals outside of India need the 15CA & 15CB form. The 15CB is from a CA to state that taxes have been paid on the funds being transferred. The limit is 1 million USD per year. Read more at Liberalized Remittance Scheme and here. What is the best way to transfer it with minimum fees/taxes Assuming you were already declaring the funds held in Banks outside of US in your regular IRS filings, there is no other formality. Question on Minimum fees service recommendation is out of scope on this site. Outward remittance can only be done by Bank Transfer.","Your NRI friend can use normal Banks or specialized remittance services. There are questions on this website that give pro's and con's. From Indian tax point of you, you have received a gift from friend and as such it falls under Gift Tax act. Any amount upto Rs 50,000 is tax free. Anything above it is taxable as per tax bracket.","There is no best way, you can send the money to India or invest into shares in US. It depends on the risk you are ready to take.","Can I wire transfer money from the my NRO account in India to my checking account in the USA? Yes you can. However there is some paperwork you need to follow. As per FEMA [Foreign Exchange Management Act], any transfer by individuals outside of India need the 15CA & 15CB form. The 15CB is from a CA to state that taxes have been paid on the funds being transferred. The limit is 1 million USD per year. Read more at Liberalized Remittance Scheme and here. Any limit on the amount and do I have to report this to IRS or any other legal formality? Assuming you were already declaring the funds held in Banks outside of US in your regular IRS filings, there is no other formality.","You can use Skrill or any other service like paypal or SWIFT wire. There is no legal restriction to bring money into India. You need to pay taxes depending on how you earned the income, of course the assumption is you earned the money in a legal way.","I use xoom.com to transfer money to India. I've been using them for over 2 years now, they are the fastest and the cheapest for me (the funds are usually available the same day). They seem to have added a lot of European countries to their list. Definitely worth a shot.","From you question I understand that you are not an Indian citizen, are staying in India, and transferring your funds for your living / expenses in India. There is no limit on such transfers and the amount is not taxed. The tax comes into picture if you are treated as a resident in India from a tax perspective. Even then the tax is not because you have transferred the funds into India, but the policy of taxing global income. The article at http://www.pwc.in/en_IN/in/assets/pdfs/foreign-nationals-working-in-india.pdf should give you more inputs.","In short getting funds converted outside of the Banking channel is illegal in India as Foreign Exchange is still regulated. If you show only a credit from your friend's NRE account to your NRO account [note it can't be your NRE account], it would be treated as GIFT and taxed accordingly, else you would have to show it as loan and pay back. You may show the payback in USD. But then there is a limit of Fx every individual can get converted/repatriate out of India and there is a purpose of remittance, all these complicate this further.","What are the steps to bring the money to the US? It is worth 1.25 Crore and I have already paid the 20% tax in India. Under the Liberalized Remittance Scheme an Individual can repatriate funds upto USD 250,000 without any paperwork. However most banks would be cautious and request for Form 15CA and Form 15CB if you are moving funds from NRO Account. Form 15 CA you would need to declare why you are moving the said funds. The Form 15 CB is to be filled by Chartered Account certifying that relevant taxes have been already paid to Income Tax. Most Banks would offer these services. Compare the Fx Rate and Fees before you make a decision as to which Bank to proceed with.","Please find out whether you are considered to be a tax resident of the US from the date that you received the permanent immigrant visa or from the date that you first enter the US on that visa. If the former, and you received the visa after April 30, you might be a part-year resident of India for Indian Income Tax purposes for the current tax year. You need to convert your bank accounts including Fixed Deposits (the FDs that you mention) to NRO accounts as soon as possible. You will need to keep at least one NRO account open for a year or more to receive the final interest payments on your FDs as well as the proceeds of cashing in the FDs, not to mention any refunds of Indian Income Tax that may be due to you for last year or the current year. Once you are done with all these, follow the procedures outlined in this excellent answer by @Dheer to transfer the money to your US account. At this point, you can close the NRO account if you wish. As PeterK's comment says, it is not a good idea to bring a large sum of cash with you unless you are really really paranoid about banking channels. Note that if you insist on bringing cash (whether it is INR or USD) or negotiable instruments (checks or bank drafts) with you when you land in the US, these will have to be declared on entry if the total exceeds US$ 10K. There is no limit to how much you can bring with you as long as you declare it. Transfers of your own money from India to the US is not taxable income to you in the US, and income tax will already have been paid/withheld on that money in India, and so there is no income tax liability in India either on the sum transferred.","\"Any inward remittance received by your Parents cannot be treated as \"\"Income\"\" as per the definitaion. This can at best be treated as \"\"Gift\"\". However in India there is No Gift tax for certain relations and there is no ceiling on the amount. In your case gifting of money by son to father or viceversa is allowed without any limits and tax implication. However if you father were to invest this money in his name and make gains, the gains would be taxable. However if the Money is being transfered with specific purpose such as to buy a property, etc make sure you have the Bank give your dad an certificate of Inward remittance. This is also advisable even otherwise, the Inwared Remittance certificate from Bank certifies that the credit entry in the account is because or funds comming into India and if the tax authorities were to question the large amount of credits, it would be proof that it is due to Inward remittance and not due to say a sale of property by your dad Helpful Links: http://www.moneycontrol.com/news/tax/gift-tax-whatsa-gift_664238.html http://www.thehindubusinessline.in/bline/blnri/exp-tax.htm Edit 1: What you father does with the money is treated as EXPENSE, ie spends on day to day expense or pays off your Loans or Pay off his loans have no relevance from a Tax Prespective in India. The only issue comes in say you have transfered the funds to buy a property and there was no purpose of remittance specified by Bank's letter and one want to reptriate this funds back to US, then its an issue. If you transfer the funds directly to your Loan account again there is no tax implication to you in India as you are NRI.\"","\"The wire is probably the quick way to go. There may be a lower cost method through an international bank like Citi or HSBC. If you are a US resident or have a \"\"substantial presence\"\" in the United States, the IRS may be interested in the origins of your money.\"","On my recent visit to the bank, I was told that money coming into the NRE account can only be foreign currency and for NRO accounts, the money can come in local currency but has to be a valid source of income (e.g. rent or investments in India). Yes this is correct as per FMEA regulation in India. Now if we use 3rd party remittances like Remitly or Transferwise etc, they usually covert the foreign currency into local currency like INR and then deposit it. The remittance services are better suited for transferring funds to Normal Savings accounts of your loved ones. Most remittance services would transfer funds using a domestic clearing network [NEFT] and hence the trace that funds originated outside of India is lost. There could be some generic remittance that may have direct tie-up with some banks to do direct transfers. How can we achieve this in either NRE/NRO accounts? If not, what are the other options ? You can do a Wire Transfer [SWIFT] from US to Indian NRE account. You can also use the remittance services [if available] from Banks where you hold NRE Account. For example RemittoIndia from HDFC for an NRE account in HDFC, or Money2India from ICICI for an NRE account in ICICI or QuickRemit from SBI etc. These would preserve the history that funds originated from outside India. Similarly you can also deposit a Foreign Currency Check into Indian Bank Account. The funds would take around month or so to get credited. All other funds can be deposited in NRO account.","The liabilities are the same regardless of the route, besides tax evasion schemes such as handing the money to her as cash. Taxes will run up to half of the amount. The best routes are: Western union, moneygram, and similar services- about 2k You are allowed to gift 14k tax free. You can increase this amount by sending to multiple trusted people. See here. https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax-Made-Simple/INF12127.html The gifter pay taxes, the giftee does not- unless the gifter fails to pay. Let me know which route you prefer. If you do a bank transfer then you will have to work that out with your bank. If you chose to do a wire transfer, yes. Yes, if it's no more than about $2000.","Check with Lawyer and CA who deals with international laws. It maybe illegal in Saudi Arabia. From India tax point of view, any credits into NRE account is not taxable. However credits to friends/family will be treated as GIFT and friends/family will be liable to pay a gift tax if such transfer are more than Rs 50,000/- per year. Although FEMA does not prohibit explicitly such arrangement, these look like round about way of moving money and can be investigated.","\"Assuming you are Non-Resident Indian for tax purposes, this transaction is not taxable. Indian tax law doesn't qualify \"\"gifts\"\" as taxable income.\"","I am a US citizen and I want to transfer some amount 10 lakhs+ to my brother from my NRE account in India to his account. My brother is going to purchase something for his business. He is going to return my amount after 3-4 Months From the description it looks like you would like to loan to your brother on repatriation basis. Yes this is allowed. See the RBI Guide here and here for more details. There are some conditions; (iv) Scheme for raising loans from NRIs on repatriation basis Borrowings not exceeding US$ 2,50,000 or its equivalent in foreign exchange by an individual resident in India from his close relatives resident outside India, subject to the conditions that - a) the loan is free of interest; b) the minimum maturity period of the loan is seven years; c) The amount of loan is received by inward remittance in free foreign exchange through normal banking channels or by debit to the NRE/FCNR account of the non-resident lender; d) The loan is utilised for the borrower's personal purposes or for carrying on his normal business activity but not for carrying on agricultural/plantation activities, purchase of immovable property or shares/debentures/bonds issued by companies in India or for re-lending. Although it is mentioned as Seven years, this is revised to one year. Since he cannot deposit into my NRE account I guess he has to deposit it into my NRO account. A repatriate-able loan as above can be deposited into NRE Account. Is there any illegality here doing such transaction? No. Please ensure proper paper work to show this as loan and document the money trail. Also once I get my money in NRO account do I need to pay taxes in India on the money he deposited? This question does not arise.","The best, cheapest and safe way is to wire transfer that money from their Bank Account to yours. Ask your bank about information regarding inbound international wire transfer and provide those details to your dad. About how much amounts can he do so : if the amount is more than $10K, you need to provide enough information about where the money is coming from, sources and other legal details. Whatever way you chose, never do transfers in small chunks (which is called structuring), to avoid the legal hassle - as that might result in more issues and every bank has checks in place to find out this way of structuring. I would suggest wire transfer all the money, through proper channel, through the banks. It's better to pay some fees, follow the law and live peacefully than to go through some improper channels to avoid paltry fees and get into serious issues.","Yes. The bank is right. The funds need to be deposited in NRO account. Under the liberalised remittance scheme, you can transfer upto 1 million USD per year. There are prescribed forms that need to be signed by a CA (essentially stating taxes are paid). You can then move this out of India.","\"Please declare everything you earn in India as well as the total amount of assets (it's called FBAR). The penalties for not declaring is jail time no matter how small the amount (and lots of ordinary people every 2-3 years are regularly sent to jail for not declaring such income). It's taken very seriously by the IRS - and any Indian bank who has an office in the US or does business here, can be asked by IRS to provide any bank account details for you. You will get deductions for taxes already paid to a foreign country due to double taxation, so there won't be any additional taxes because income taxes in US are on par or even lower than that in India. Using tricks (like transferring ownership to your brother) may not be worth it. Note: you pay taxes only when you realize gains anyway - both in India or here, so why do you want to take such hassles. If you transfer to your brother, it will be taxed only until you hold them. Make sure you have exact dates of gains between the date you came to US and the date you \"\"gifted\"\" to your brother. As long as you clearly document that the stocks transferred to your brother was a gift and you have no more claims on them, it should be ok, but best to consult a CPA in the US. If you have claims on them, example agreement that you will repurchase them, then you will still continue to pay taxes. If you sell your real estate investments in India, you have to pay tax on the gains in the US (and you need proof of the original buying cost and your sale). If you have paid taxes on the real estate gains in India, then you can get deduction due to double tax avoidance treaty. No issues in bringing over the capital from India to US.\"","Meagrely transferring money within your own accounts doesn't result in any tax, however legally once you are an NRI you cannot operate a savings account at all as per Reserve Bank Guidelines found here One option is for you to transfer to a joint account held by a close relative of yours with you and this would be tax free in India.","Bank-to-Bank wire transfer would be the best option. Dollar is going up nowadays, so if he brought the money not so long ago he might even earn the cost of the transfers back through the difference of the exchange rates. Re the IRS - they don't care. Same goes to the Israeli Tax Authority. What you and your friend need to show, if asked, is the paper trail. I.e.: if he brought you the $10K in cash - that may be an issue unless he kept all the receipts for getting it. But for such a low amount you can always resort to claiming it is a gift from you, in this case.","Taxes Yes. You haven't indicated why the transfer is being made. If it is without any reason, it would attract a Gift Tax. legal liability It would definitely be investigated to see if Money Laundering or any other illegal activities is happening. If things are in order you have nothing to worry. charges Normally none. Your Bank can confirm better. friend of mine Are you sure he is a friend and this is not some kind of scam ... it typically starts of with you will get huge money and then calls like its stuck with RBI you need to paysome one to fast track or any such stories to get money out of you.","I can't answer from the Indian side but on the UK side, if you and your friend are not related then there is no tax implication - you are effectively giving each other gifts - other than a possible inheritance tax liability if one of you dies within 7 years of the transfer and has an estate above the IHT allowance.","Gift tax is not an issue here. If a U.S. Person were to receive the wire transfer for me, and then immediately transfer the money to me This is a classic money laundering/scamming technique. You and your friend may end up talking to the FBI, not the IRS.","I am on employment based visa in USA and want to send dollars from USA to India from my savings (after paying Tax). How much maximum dollars I can send in a day? month? or in a year regularly? There is no such limit. You can transfer as money you like to yourself anywhere. To pay the Bank Loan-student Loan how much maximum dollars I can send in a day, in a month or in a year? to pay that I have to pay directly to that Bank Account or in any account I can send money? You can transfer to your NRE account in India and move it further. You can also send it directly to the Loan Account [Check with the Bank, they may not be able to receive funds from outside for a Loan Account] My mother is having Green Card. She is not working. She has a NRE account in India. Can I send dollars from my USA Bank account to her NRE account in India? what are the rules for that? any Tax or limit for that? Or I have to get any permission before sending it? If you are sending money to your mother, it would come under Gift Tax act in US. There is no issue in India. Suggest you transfer to your own NRE account.","\"I assume you are filing US taxes because you are a US citizen, resident alien, or other \"\"US person\"\". If you have a total of $10,000 or more in assets in non-US accounts, you are required to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts, also known as FBAR, to report those accounts. See Comparison of Form 8938 and FBAR Requirements. Note this refers to the total balance in the account (combined with any other accounts you may have); the amount you transferred this year is not relevant. Also note that the FBAR is filed separately from your income tax return (it does not go to the IRS), though if you have over $50,000 in offshore assets you may also have to file IRS Form 8938. Simply reporting those accounts does not necessarily mean you will owe extra taxes. Most US taxes are based on income, not assets. According to the page linked, the maximum penalty for a \"\"willful\"\" failure to report such accounts is a fine of $100,000 or 50% of the assets in question, whichever is greater, in addition to possible criminal sanctions. There may be other US filing requirements that I don't know about, so you may want to consult a tax professional. I do not know anything about your filing requirements under Indian law.\"","First, you'll need to find a service that can handle transferring that amount of money, whether it's using a bank, or wire transferring service. Any major Wall Street bank (Wells Fargo, Chase, Bank of America, etc.) should be able to handle it. You could also use services such as Western Union. As for your legal and tax obligations, according to Western Union: Individuals in Canada and the U.K. don’t have any tax considerations, unless international payments are received as income or in the form of capital gains. Only then must they report it on their income taxes, says Ilyas Patel, director at Ilyas Patel Chartered Certified Accountants based in Preston, U.K., and the director of Tax Expert, a tax advice website. To that end, when considering their tax obligations, individuals should take care to look into the reporting requirements on foreign income or gifts ranging up to a certain amount. For example, in the U.S., the Internal Revenue Service (IRS) requires individuals who receive more than $100,000 U.S. dollars from a foreign source to report it on a Form 3520. “You may not owe taxes on the money, but it informs the IRS that you received it,” Gragg says, stressing the importance of consulting with a professional. “They’re looking for certain terrorist activities and other illegal activity.” Due to the large sum of money your transferring, it would be in your best interest to speak with a banker (maybe even a lawyer or CPA) about this.","Is it true that my father and I get better exchange rate if he uses citibank than his local bank and my local bank? No. The rates vary from Bank to Bank and some days some bank may give a better rate and there is no Golden rule that One Bank will always give better rate. For the amount specified, your father needs to walk into his Bank, preferably the branch that deals with Forex or the Main Branch in the city. A better rate would be given. So any leading Bank like HDFC, ICICI, SBI, SBH, Axis will be similar. Please note a CA certificate is required to make such remittance outside of India. having my father send me money in USD in India and I get USD here. In that case, my father would have to pay exchange fees Yes this is the only option. You have to convert INR to USD in India. having my father send me money in INR in India and I exchange INR to USD in the US. In this case, exchange fees would be on me INR cannot be sent to US electronically. It will automatically get converted to USD. There is no bank in US that holds an INR account for you to convert amount into USD.","You haven't indicated where the funds are held. They should ideally be held in NRO account. If you haven't, have this done ASAP. Once the funds are in NRO account, you can repatriate this outside of India subject to a limit of 1 million USD. A CA certificate is required. Please contact your Indian Bank and they should be able to guide you. There are no tax implications of this in US as much as I know, someone else may post the US tax aspect.","\"HSBC, also known as \"\"The Hong Kong and Shanghai Banking Corporation\"\" has banks in India. I would imagine that might be a place to start. Paypal, which is commonly used to pay for items on eBay -- is also available in both India and China. You should, of course, respect any laws regulating this kind of money transfer.\"","In any case you need a CA. Please consult one. I am selling a plot of land that I own in India. This would be treated as capital gains event and you would owe taxes on the gains. I would like to purchase an apartment in India for my parents use. Yes you can. You maybe able to offset some gains on land sale against the apartment. Would like to gift part the money (about INR 20 lakhs) towards my US born son's college education in the US. As you are NRI; Under FEMA, you can transfer funds from your NRO account to US. A form 15CAB and 15CB need to be submitted to the bank to enable transer.","1.What are the tax implications - income tax, gift tax, wealth tax etc. for the money credited in the NRO Account? As the funds are transferred by your wife to you, there is NO Income. Hence Income Tax rules don't apply. It would be treated as GIFT and come uder Gift Act. As per gift Act, one can transfer unlimited amount between close releatives. The defination of close relative as per Income Tax includes parents, spouse, siblings etc. The interest you earn in NRO account is taxable in India. 2.Can I transfer this money to my parents and would that attract any tax?. I understand my parents will have bear any tax based on income they earn on my transfer... Are there any tax implications for me? You can transfer this money to your parents. This will not be taxable to you. It will not be taxable to your parents as its Gift. Any income earned by your parents on this will ofcourse be taxable. 3.Can I move this money to NRE account and what is the process for that and how easy it is? Its best if you had your wife send funds into NRE account. Direct transfer as much as know is not allowed. Having said that, it is possible to transfer funds out of India via proper paperwork, there is also a limit [quite large] on the amount that can be transferred a year. Get a CA to help you with the paperwork.","There's no tax on wire transfer, but it would be easier on everyone if he would wire himself from his own account. Withdrawing money, depositing to your account and then wiring back to him may raise some flags with FinCEN and IRS with questions about money laundering or gift taxes. Why do you want to complicate things?","Can I Send the money back to my personal account of my mother/father in India? Why not? A huge number of Indians working in US are sending money to their parents. There may be multiple reasons like paying a mortgage/loan or sister's wedding or any personal reasons. Usually, there may be a reason column when you send money through any Remittance company. Do I need to pay any tax here in US or my parents back in India? Parents are direct dependents in India. So you can share your money with your dependents. Your parents have to pay tax for whatever they are earning in India based on the tax slab and age they fit in. So you can even give them the power of Attorney to control your properties in India.","As you are not a tax resident in India, the income you have earned can be moved to India tax free. However if you are investing the funds into say shares / fixed deposits etc, the income you earn on these funds is taxable in India. The funds can be transferred directly into savings account. However its advisible to open an NRE/NRO account as its easier to track funds for tax purposes. i.e. these accounts by nature certify that the funds received into them are from foreign sources and can easily be explained to the tax authorities. However establishing the origin of funds in ordinary savings accounts needs more paper work. Whenever there is a scrutiny by tax authorities on this savings account, it would need more efforts to establish that the credits are from foreign earnings.","India is better as the exchange rate conversion will be better. In the US, banks or exchange rate converters do not hold much INR and likely to quote a much worse rate. Best way is to open HSBC premier accounts in both US and India and use their global transfers as in premier accounts the conversion rates are usually decent. HSBC Premier also has good tools to link two accounts, so the process would be transparent. Best conversion rates are given by Middle East banks or FX converters due to the large number of Indians working there, but I suspect opening a bank account in Dubai might not be feasible.","Can I Send the money back to my personal account of my mother/father in India? Yes you can. Do I need to pay any tax here in US or my parents back in India? There is no tax in India to your parents as it's treated as gift and is tax free between close relatives. In US you would need to pay gift tax if amount is more than USD 16000 a year. See other questions on this site for gift tax rules in US.","Best consult a CA as you may anyway need his/her service. I am NRI, availed secured loan (Against house property) in India and now I want to get that money transferred to Finland. Loans by NRI taken in India cannot be transferred outside of India. Refer FOREIGN EXCHANGE MANAGEMENT (BORROWING AND LENDING IN RUPEES) REGULATIONS Loans in Rupees to non-residents 1[***]. 7. Subject to the directions issued by the Reserve Bank from time to time in this regard, an authorised dealer in India may grant loan to a non-resident Indian, (B) against the security of immovable property (other than agricultural or plantation property or farm house), held by him in accordance with the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000 : ...... Provided that- (d) the loan amount shall not be remitted outside India; Alternative: Sell the property in India, transfer the proceeds to NRO account. Repatriate the funds outside India as per Liberalized Remittance Scheme. Form 15CA/CB with CA certificate will be required.","Please consult a tax advisor. You may be voilating the FEMA [Foreign Exchange Management Act] and can land into trouble. Further what you are doing can land up into various other acts as illegal including AML. Further if there is income generated by Indian citizen in India, he is still liable to pay tax, irrespective of whether you get the funds back into India. Edit: AML is Anti Money Laundering. Your transaction is sure to raise AML triggers as it looks like converting Black Money to White in round about way. Once the triggers are raised, RBI division will investigate further to verify what you are doing. If you are able to prove that this is a valid transaction, you would be OK on AML front. How will Income Tax Know? - If they don't know does not mean you are not liable for tax. - Any suspicious transactions would get investigated and sooner or later Income Tax would know about it and can cause a serious problem. - It is irrelevant where you have kept the money, if you have earned something, its taxable. For it not to be taxable you need to conduct this business differently. Please consult a tax adviser who will advice you on the tax-ability of this type of transaction.","\"I'm not familiar with the law and taxes in India but can provide guidance based on general accounting and tax principles. You are right that receiving money as a loan is not income and isn't liable to income tax. Therefore i suggest you actually formalise this loan through a written contract with your friend. The contract should include all the usual elements of a loan: amount, interest (even if preferential or zero), principal, term, consequences of default and currency of loan. You can then simply state the purpose of transfer as \"\"Personal Loan Agreement\"\". If you have such a document and are questioned by tax authorities you can easily show that the inward remittance is from a loan and should therefore be treated like any commercial loan for tax purposes. As long as you disclose the debt in your tax return (if required in India) and your friend discloses any interest received as income i think you'll be above board and won't be liable for any income tax. To make sure, you might be better off having a quick consultation with an accountant or tax specialist in India to advise you and draft the loan agreement.\"","how could I transfer the money from UK There are multiple ways, walk into your Bank and ask them to wire transfer to the Bank Account in India. You would need the SWIFT BIC of Bank in India, Account Number, etc. Quite a few Banks [State bank of India, HDFC, ICICI etc] also offer remittance service. Visit their website for more details. does it cost the tax and how much Assuming your status is NRI [Non Resident], there is no tax implications of this in India.","There are multiple ways in which you can get money to India; - Citi Bank / HDFC Bank offere similar services [and the credit account can be ICICI Bank] - Ask for a Wire/SWIFT transfer, there would be some changes [in the range of USD 30] - Ask for a company check, it would take around 30 days for you to encash in into your bank account in India.","How to send the full loan amount from Saudi Arabia (money exchange), because I have a money transfer limit? There is no limit for sending money into India. Just use the right banking channel and transfer the funds. If I sent to India, what about tax and all that in India? In a financial year if you are outside of India for more than 182 days, you are Non-Resident for tax purposes. Any money you earn outside of India is tax free in India. i.e. there is no tax for this funds in India. If it is possible to send the money, to whom do I have to send it (my account, or my parents account) Whatever is convenient, preferably to your own NRE/NRO account. Any documents I have to show for tax issues (in case tax) You have to establish that you are NRI and hence this funds are not taxable. Hence its best you transfer into NRE/NRO account. If you transfer to your parents account, you would need a gift deed to make this non-taxable to your parents. I have savings account my self in Axis Bank, for the past 3 years I am paying taxes, if I send to my Axis Bank account how can I withdraw the full amount (10 lakhs (1,000,000)) on single day Withdrawal is possible by cash or cheque You can write a check, do a NEFT/RTGS transfer to your loan account, you can withdraw cash by giving some notice time to the Branch Manager of your Branch.","Use a remitting service such as Ria Money Transfer. Almost all these services allow you to transfer upto $2999 at a time. So, you would be able to transfer the entire amount of $4500 within 2 business days(There is a monthly limit too, but it will definitely be more than $4500). There are no fees to use these services, but they do scrape off a bit on the currency rate. As of today you are getting 624 GBP for $1000 whereas the market rate is $641.95. You still save roughly $17 and 4 transactions, which adds up to more than $100. Here is a link to Ria's website. Other services, include Xoom, Western Union, Money Dart and Money Gram.","http://www.irs.gov/publications/p950/ar02.html Gift tax is owed by the giver, not the recipient. So my first guess is that you can make the transfer in your home country, and as the givers will not be subject to US tax, it won't apply at all. You can then transfer the money into the US freely. In any case, there's a lifetime exemption of 1mn USD. So, unless non-US persons don't get the exemption, I can't see the tax being a problem anyway unless there are going to be several more such transfers.","Do an semi-online transfer. I had a similar situation where i had to transfer 5K USD to a commercial entity. You can request the publisher to give you their bank account details. You will need the SWIFT code of the bank( SWIFT code is a international code that each bank gets to transfer money) You will need bank account number, account name, bank address, address of the publisher. Then just walk into your bank with the above details. Note that you will have to visit a branch in your city that allows forex transfers. They will give you a set of forms to fill up. The above details will be needed to fill up these forms In addition to the above, you will be asked to fill up a purpose code maintained by RBI. This code is used by RBI to understand the reason why you are transferring the money. The bank will provide you with a sheet which will have these codes and explanation of these codes. Read through the codes and in case of any questions ask the bank officials to help Tip: If you have accounts with any private sector banks, please approach them. Public sector banks will give you tough time Hope this helps! Regards, Ravi","Is it liable for taxation in India? Taxation does not depend on whether to transfer money to India or keep it in GCC. It depends on your tax status. In a given Financial year; 1st April to 31st March, if you are outside of India for more than 182 days, your are Non-Resident Indian, NRI for tax purposes. If you are NRI, income earned outside of India is not taxable in India [even if you transfer the funds to India]. If you are not an NRI, you income in GCC will be taxable in India [Even if you keep the money in GCC]. We both send our salary into a friends account in India and then transfer an amount to our own accounts This is an incorrect practise, If you are NRI, you should not be holding a Savings account, it should be converted into NRO and you can if you want open an NRE account. For your friend where you are transferring money, if there is an income tax audit, there would be quite a few questions asked and your friend has to establish and keep records that this is not GIFT, but more of a convenience agreement.","As an Indian resident you can open an Resident Foreign Currency Account, i.e. an USD account. This facility is provided by all major banks. I am not sure if PayPal would transfer money to these accounts or would convert. The alternative is to give this account number along with other Bank details to the company in US and ask them to send money via remittance services.","Disclaimer: it's hard to be definitive as there may be some law or tax rule I'm not aware of. From a UK perspective, this should be perfectly legal. If it's just a one-off or occasional thing for personal reasons, rather than being done in the course of a business, there probably aren't any tax implications. In theory if there's an identifiable profit from the transaction, e.g. because you originally obtained the INR at a lower exchange rate, then you might be liable to capital gains tax. However this is only payable above approximately £10K capital gains (see http://www.hmrc.gov.uk/rates/cgt.htm) so unless this is a very large transaction or you have other gains in the tax year, you don't need to worry about that. I would only recommend doing this if you trust each other. If one side transfers the money and the other doesn't, the international nature will make it quite hard in practice to enforce the agreement legally, even though I think that in theory it should be possible. If the sums involved are large, you may find that the transaction is automatically reported to the authorities by your bank under money laundering regulations, or they may want documentation of the source of the funds/reason for the transaction. This doesn't automatically mean you'll have a problem, but the transaction may receive some scrutiny. I think that reporting typically kicks in when several thousand pounds are involved.","There is no limit on how much money you can bring into the USA, in Cash or through electronic transfer. You only need to be able to proof or convincingly show that you earned it legally and paid all potential US taxes that you had to pay. If you chose to bring it in cash, you need to tell customs when arriving (and again, be prepared to proof the legal sources). Wire transfer, cash in the suitcase, whatever you like. There is no tax for bringing the money, and the tax for making that money supposedly is already paid. Once the money is in the US, and earns more money, you will owe taxes on the gain (not on the capital itself, just on the amounts it increases by) I hope you understand that if you live in the US, and you have money anywhere in the world, you might need to report it to the IRS; and if your money makes interest anywhere in the world (including of course in India), you might be are required to pay US taxes on the gains. That is independent of your question; but if you don't do it, you are cheating the IRS, and they will ask this when you bring the money back.","Since your question is very particular on the details, I'm assuming you did your research. Unfortunately you won't get a better answer here than what you've found on the Internet already. This is not a clear-cut situation as the situation you're describing has been a source to some confusion. Mainly, the question is whether the US bank account is a tangible asset or not. To the best of my knowledge, this has not yet been settled, so I suggest going to a professional tax adviser (EA/CPA licensed in the US) who'd advise you the best course of action. I think it would be safer to transfer the money directly from the foreign account to the US beneficiary (although even then, if the IRS decides to start digging, it may claim that you're essentially disguising a transfer from a US account, so I suggest talking to a professional before doing anything). In any case, the US recipient will need to report the gift (if it is $100K or more) using the form 3520 with his/her tax return.","A non-cash transaction will not be a problem. The bank will have to fill out federal paperwork if there are large amounts of cash involved. This is to stop the underground economy. This can even extend to non-banks. If you were to walk into a car dealer or some other stores and hand them a bag of cash they will also report it. You can do what you propose without having to transfer any money between accounts. Your girlfriend can put the furniture and landscaping on her credit card, or write checks to the stores or companies. Based on the number of questions on this site regarding how to transfer funds between banks and accounts, the mechanics of the transfer is the hard part. Resist the urge to use cash to make the transfer. That will require paperwork. Many people find that the old standard of using checks to transfer funds is easy, safe and quick.","You do not need to set this up as a loan. Try finding an Indian student. He is eligible to get cash (using a travel card, may be) from India tax-free. As long as it doesn't exceed the i-20 amount, he will not have any problems. Since, $10,000 is very small amount, the student shouldn't be having any problem.","MoneyGram said that the person sending money should also be an Indian. There shouldn't be any such restriction. Can you check again what exactly the issue was? Is there another way so I can get money without any problem. You can try Bank Transfers or alternative remittance like Western Union","Give a cheque. You can. Your friend would have to deposit this in a Bank that does this service. Not all Banks offer this service in US. It generally would take 1-3 months for the funds to reach. Give a dollar-denominated cheque You can NOT write check on a Rupee account and put USD. You can definitely buy a USD Draft generally payable in the US. There would be some charge for you here and send it by courier, post. It would get paid into your friends account in about a week. Do a SWIFT transfer Yes you can. You may need to walk into a Branch and fill up forms. If the amount is more than specified limit a CA certificate is required. Am I correct in understanding Yes Use my ATM card in the US Yes you can. Specialised money transfer services like Western Union Transfer money out of India is not allowed by Money Transfer services","The US will let you keep as much money as you want to within its borders regardless of your citizenship. You'll owe capital gains tax in the US unless you're subject to a tax treaty (which you would probably make as an election in the year of the transaction). I don't know if India has any rules about how it governs its citizens' foreign assets, but the US requires citizens to file a form annually declaring foreign accounts over $10,000. You may be subject to additional Indian taxes if India taxes global income like the US does.","Chase has a limit of $500,000 per day. A banker should be able to help you determine any immediate tax liabilities that will arise as a direct result of the transaction. You may wish to consult with a tax professional about any indirect implications the transfer may have. This transaction will be reported to the government but assuming that you are not involved in any illegitimate activities the likelihood of the US government taking any action on the notice is incredibly low. I have heard of 7 and 14 day holds being placed on out of character transfers but if you are buying property you should work with your bank to help facilitate. Bankers understand the business and can help you avoid any appearances of impropriety that the government flags. Should your account be flagged, I would retain a lawyer immediately. If you feel you have a reason to be concerned, then I would contact a lawyer in the US and Thailand before initiating the transfer. As they say an ounce of prevention is worth a pound of cure.","Yes, you can transfer money to your account, any bank will do it. The conversion charges will be there i.e. the diff between USD and the rate at which the bank sells it, usually Rs. 2/-, appx. In addition, transaction charge (not very high). As for taking from friends & repaying in India, check UAE tax treatement for taking money from friends (is it considered as your income & are you liable for taxes). As for giving back, get some documentation done as a loan, otherwise your friends may be considered to be taking gift/consideration/income from you and taxed. Most straight forward way is to transfer the money from your mother's account.","\"Transferring the money or keeping it in US does has no effect on taxes. Your residency status has. Assuming you are Resident Alien in US for tax purpose and have paid the taxes to IRS and you are \"\"Non-Resident\"\" Indian for tax purposes in India as you are more than 182 outside India. How would it effect my Tax in US and India If you are \"\"Non-Resident\"\" in India for tax purposes, there is no tax liability of this in India. I have transferred an amount of approx 15-20k$ to Indian Account (not NRE) By RBI regulation, if you are \"\"Non-Resident\"\" then you should get your savings account converted to \"\"NRO\"\". You may not may not choose to open an NRE account. To keep the paper work clear it helps that you open an NRE account in India. Any investment needed ? Where do i need to declare if any ? These are not relevant. Note any income generated in India, i.e. interest in Savings account / FDs / Rent etc; taxes need to be paid in India and declared in US and taxes paid in US as well. There is some relief under DTAA. There are quite a few question on this site that will help you clarify what needs to be done.\"","If you are a citizen of India and working in Germany, then you are most likely an NRI (NonResident Indian). If so, you are not entitled to hold an ordinary Indian bank account, and all such existing accounts must be converted to NRO (NonResident Ordinary) accounts. If your Indian bank knows about NRO accounts, then it will be eager to assist you in the process of converting your existing accounts to NRO accounts most likely it also offers a money remittance scheme (names like Remit2India or Money2India) which will take Euros from your EU bank account and deposit INR into your NRO account. Or, you can create an NRE (NonResident External) account to receive remittances from outside India. The difference is that interest earned in an NRO account is taxable income to you in India (and subject to TDS, tax deduction at source) while interest earned in an NRE account is not taxable in India. The remittance process takes a while to set up, but once in place, most remittances take 5 to 6 business days to complete.","Assuming you are Indian Citizen / Resident for Tax purposes. Your friend in US Citizen / Resident for tax purposes. As you are borrowing these funds and returning, this would NOT be treated as Gift but as Loan. Ensure that you have the right documentation in place. There is no tax when you receive the funds/loan or rebate when you pay back the loan. From India FEMA (Foreign Exchange Management Act) point of view, if you take loan from friends, you cannot by default repatriate funds. You have to take special permission to repatriate the funds out of India.","From what I understand this is what you can do : You need to raise an invoice to your brother's company in USA Your brother makes a payment into your Indian company's bank account using wire transfer straight into a bank account in your company's name. Your brother wont have to pay taxes on the money that he pays you against an invoice as it would be an expense and would not be considered as profit for tax purposes. Once you have the money you can then file your income tax returns after deducting your own expenses etc in India. I hope this helps.","Should we have to prepare any documents or deed or we simply asked our son to send on line a scanned copy on simple paper signed by him to declare that this amt is given as gift which is gifted to us through this cheque number/date/bank etc? Depending on amount, if few thousands don't bother. If few lacs get it on a simple plain paper, if in crores, get a proper gift deed executed. There is no tax for you. My son wants to remit some money in his mother's account jointly with me(father). It is very much clear that it will be tax free in india being a gift but how will this amt be treated as gift in the eyes of income tax people? Should we have to prepare any documents or deed or we simply asked our son to send on line a scanned copy on simple paper signed by him to declare that this amt is given as gift which is gifted to us through this cheque number/date/bank etc? Whether our son shows that amt as gift in his yearly return or not. what are the implications to his tax return due to gifted As your son is US citizen, he can only gift USD 14,000 to you and equal amount to your mother in a year. Similarly your daughter in law can give you both 14000 each. If it is more, he has to pay taxes or claim it against life time exemption of 1 million (?) USD","There is not any fraud involved. Anybody can gift money to another person.","I think you are asking quite a few questions here; If you have Rs 10000, its better you get it converted in India before you leave. Most Banks and Exchange houses like Western Union would take Rupees and Give you USD. What do they do with USD, there are other who give them USD and need Rupees. They make a spread in this process. If you are getting a salary in USD in US, whenever you want to transfer money to India, the Banks or Remittance services like Western Union would take USD from your US Account and Transfter equivalent Money into your Bank Account in India in Rupees. They will tell the exchange rate applicable. Depending on why visa type & the duration you are going, your company should be able to tell you your tax liabilities in the US. Read similar questions here to get a general idea.","\"I'm not certain about international transfers, but that amount is large enough that it could be subject to gift tax. https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Gift-Taxes Note that the threshold for this tax is \"\"per person, per person\"\". For example, if you gave your father $12,5k, and gave your mother $12.5k, and your wife gave them each the same amounts, each of those gifts is small enough to be within the $14,000 exclusion and you and your wife would owe no gift tax. If you aren't married, you might want to spread this gift over two years to stay under that threshold.\"","There is a startup targeted specifically to serve you for the situation you describe: - http://peertransfer.com There are other methods. CurrencyFair is one service that might help: - http://currencyfair.com And, there is bitcoin. Because it is new yet, there aren't very liquid markets where bitcoins are exchanged for Rupees or Yuan at decent rates at the present. Once you receive bitcoins transferred to you however, those funds are easily transferred to your B Of A account (using Dwolla to send via ACH to your bank). - https://en.bitcoin.it/wiki/Buying_bitcoins","An Indian citizen who is not a resident of India (an NRI) or a Person of Indian Origin (a PIO) is not permitted to sell or gift immovable property in India (real property for US readers) to another NRI or PIO; the property must be sold or gifted to a resident of India. So, assuming that the property in question is in India, you cannot sell it to your NRI friend."],"string":"[\n \"A. Kindly avoid taking dollars in form of cash to india unless and until it is an emergency. Once the dollar value is in excess of $10,000, you need to declare the same with Indian customs at the destination. Even though it is not a cumbersome procedure, why unnecessarily undergo all sort of documentation and most importantly at all security checks, you will be asked questions on dollars and you need to keep answering. Finally safety issue is always there during the journey. B.There is no Tax on the amount you declare. You can bring in any amount. All you need is to declare the same. C. It is always better to do a wire transfer. D. Any transfer in excess of $14,000 from US, will atract gift tax as per IRS guidelines. You need to declare the same while filing your Income Tax in US and pay the gift tax accordingly. E. Once your fiance receives the money , any amount in excess of Rs 50,000 would be treated as individual income and he has to show the same under Income from other sources while filing the taxes. Taxes will be as per the slab he falls under. F.Only for blood relatives , this limit of 50,000 does not apply. G. Reg the Loan option, suggest do not opt for the same. Incase you want to go ahead, then pl ensure that you fully comply with IRS rules on Loans made to a foreign person from a US citizen or resident. The person lending the money must report the interest payment as income on his or her yearly tax return provided the loan has interest element. No deduction is allowed if the proceeds are used for personal or non-business purposes.In the case of no-interest loans, most people believe there is no taxable income because no interest is paid. The IRS views this seriously and the tax rules are astonishingly complex when it comes to no-interest loans. Even though no interest is paid to the lender, the IRS will treat the transaction as if the borrower paid interest at the applicable federal rate to the lender and the lender subsequently gifted the interest back to the borrower.The lender is taxed on the imaginary interest income and, depending on the amount, may also be liable for gift tax on the imaginary payment made back to the borrower. Hope the above claryfies your query. Since this involves taxation suggest you take an opinion from a Tax attorney and also ask your fiance to consult a Charted Accountant on the same. Regards\",\n \"As the college education is very costly, I want to send USD 25,000 to him as a gift. What is the procedure and what Indian and American tax laws are involved ? This transaction will be treated as gift. As per Indian law you can transfer unlimited amount to your close relative [son-in-law/grandchildren/daughter/etc]. In US the gift tax is on donor, as you are no US citizen you are not bound by this. As your son-in-law/grandchildren are US citizens, there is no tax to them. Your son-in-law may still need to declare this in Form 3250 or such relevant returns. Under the Liberalized remittance scheme [Refer Q3], you can transfer upto USD 250,000 per year. There maybe some forms that you need to fill. Ask your Bank. If the amount is more than USD 25,000 a CA certificate along with 15CA, 15CB need to be filled. Essentially the CA certifies that taxes on the funds being transferred have already been paid to Govt of India. Can I send money to him directly or to his father who is submitting tax returns in USA? This does not make any difference in India. Someone else may answer this question if it makes a difference in US.\",\n \"Best consult a CA. There is no clear guideline on this. Some articles do suggest that if engaged and planning to marry, one can transfer money to fiancée without any tax implication.\",\n \"Can I transfer directly from my US saving account to their Axis bank in India? Yes you can. any kind of tax my parents need to pay? No. From you parents point of view, its a Gift from their daughter and would come under the provisions of Gift Tax [and Not Income Tax]. Gifts from specified relatives [Daughter /sons /parent /siblings] is tax free. It would make sense to keep some paper work around this, for example a simple letter stating that this is a Gift, specify the amount, the date of transfer, the amount actually credited, details of the credit [Bank Statement]. If there is a scrutiny by income tax, it would ease things. any kind of tax I need to pay? In India NO. In US I am assuming your have already paid tax hence no tax.\",\n \"We have a house here in India worth Rs. 2 Crores. We want to sell it and take money with us. Selling the house in India will attract Capital Gains Tax. Essentially the price at which you sell the property less of the property was purchased [or deemed value when inherited by you]. The difference is Capital Gains. You have to pay tax on this gains. This is currently at 10% without Indexation and 20% with Indexation. Please note if you hold these funds for more than an year, you would additionally be liable for Wealth tax at 1% above Rs 50 lacs. Can I gift this whole amount to my US Citizen Daughter or what is the maximum limit of Gift amount What will be the tax liability on me and on my Daughter in case of Gift Whether I have to show it in my Income Tax Return or in my Daughter's Tax Return. What US Income Tax Laws says. What will be the procedure to send money as Gift to my Daughter. Assuming you are still Indian citizen when to gift the funds; From Indian tax point of you there is no tax to you. As you daughter is US citizen, there is no gift tax to her. There is no limit in India or US. So you can effectively gift the entire amount without any taxes. If you transfer this after you become a US Resident [for tax purposes], then there is a limit of USD 14,000/- per year per recipient. Effective you can gift your daughter and son-in-law 14,000/- ea and your husband can do the same. Net 14,000 * 4 USD per year. Beyond this you either pay tax or declare this and deduct it from life time estate quota. Again there is no tax for your daughter. What are the routes to take money from India to US Will the money will go directly from my Bank Act.to my Daughter's Bank Account. Will there will be wire transfer from bank to bank Can I send money through other money sender Certified Companies also. The best way is via Bank to Bank transfer. A CA Certificate is required to certify that taxes have been paid on this funds being transferred. Under the liberalized remittance scheme in India, there is a limit of USD 1 Million per year for moving funds outside of India. So you can move around Rs 6-7 Crore a year.\",\n \"From India Tax Point of view, your parents can Gift you the money. There is no tax due to this in India for your parents or for you. Transferring the funds out of India is also possible. Under the Liberalized Remittance Scheme by RBI, one can transfer upto 200,000 USD. Please check with your Bank for the exact paperwork. Typically PAN and a CA certificate mentioning the relevant clauses and certifying the purpose is required. Bank may have some more paperwork on its own.\",\n \"If the funds are in NRE account, then there is no issue. You just instruct your bank in India to transfer. If your tax status in India is Non-Resident Indian, you should not be holding a normal Savings bank account. Under the liberalized remittance scheme you can transfer upto 2,50,000 USD per year. You would need to instruct your bank in India to initiate a international wire transfer. The FAQs are here\",\n \"From an India tax point of view your father can gift you unlimited amount of money and the transfer would be under Gift Tax act. As per the act there is NO tax on this transaction. I does not matter if you get yourself added into the joint account or not. From a US tax point of view, this transfer would come under gift tax, however in US the gift tax is applicable on the Donor [i.e. your father]. As your father is not a US Citizen the provisions are not applicable to him. Edit Under the liberalized remittance scheme, an individual can transfer upto USD 1 million every year. A CA certificate is required certifying that the taxes on the funds have been paid. Your Bank would be able to guide you on the exact process.\",\n \"Are there any IRS regulations I should be aware of when sending money to India? None. As long as you are following the standard banking channels. You are also declaring all the accounts held outside US in your tax returns. FBAR. Is it legal to do so? Yes it is legal. do I have to declare how much I am investing and pay extra taxes? As part of FBAR. Income earned [including interest, capital gains, etc] needs to be paid in India [there are some exemptions for example interest on NRE accounts] as well as in the US [relief can be claimed under DTAA Indian version here and US here]. So if you already have paid taxes on salary and say transfer USD 10K to India; there is no tax on this 10K. If this 10K generates an income of say 2K; this 2K is taxable as per normal classification and rules.\",\n \"Like for example I use transferwise to send $x to my dad's account in India, would it show my name as the depositor ? That would depend from bank to bank, it may or may not show your name. Would it be considered as income for my dad ? Assuming your parents are Indian Residents for tax purposes. No. It would be considered as Gift. Gifts between father and son are tax free in India and there is no limit. Any special care/precaution to take before using such services ? Not really. Just to be safe, keep a copy of the transfer instruction / details of debit to you account etc, so that if there is enquiry you have all the data handy. Edit: Clarifying the comment, if you are Resident Alien in US for tax purposes, you would be liable to Gift Tax [Not your parents as they are Indian Residents and would follow Indian tax rules]. As per IRS the liability of Gift tax is on Donor subject to limit of $14000 per year per Donee. So you and your wife can gift your father and mother $14000 each. i.e. $56000 each year. Anything more will be taxable or can be reduced from the overall estate limit.\",\n \"How much amount can we transfer from India to the USA? Is the limit per year? As I understand your father in law is Indian Citizen and his tax paid earnings need to be transferred outside of India. Under the Liberalized Remittance Scheme by RBI, one can transfer upto 2,50,000 USD. Please check with your Bank for the exact paperwork. A form 15CA and 15CB [by CA] are required to establish taxes have been paid. What documents we have to present to the bank? See above. Should money be transferred to company's account(Indian Company) to USA company? or can be transferred to my husband's account. Transfer of funds by a Indian Company to US Company has some restrictions. Please check with CA for details. If you father in law has sold the Indian Company and paid the taxes in India; he can transfer the proceeds to his son in US as per the Liberalized Remittance Scheme. Can they just gift the whole amount to my husband? What will be the tax implication on my husband's part in USA and on my father in law in India. The whole amount can be gifted by your father in law to your husband [his son]. There is no tax implication in India as being an Indian resident, gift between close relatives is tax free. There is no tax implication to your husband as he is a US Citizen and as per gift tax the person giving the gift should be paying the applicable taxes. Since the person gifting is not US Citizen; this is not applicable.\",\n \"I am a non-resident alien transferring a limited amount ( in dollars post tax) to India every couple of months. Assuming you are transferring this into an NRE account in India or atleast NRO account in India. As a NRI, by regulations one should not hold normal Savings account. This has to be converted into NRO. I put that money as a fixed deposit in a bank (which gives 6-7 percent annual return) Assuming you have FCNR deposits. Also assuming that you are declaring the taxes in your US Tax returns and paying tax accordingly. There is no tax in India on FCNR. If this was in ordinary FD or in NRO account, you are declaring and paying taxes in India as well as in US. What is the max limit on transferring money back from India to USA? If you have transferred this into NRE account, there is no limit. Other account there is a limit. Read more at Liberalized Remittance Scheme and here. What are the legitimate ways to transfer the money? From India point of view, this has to be Bank to Bank transfers. You can't carry cash [Indian Rupees] outside of India beyond Rs 25000 [or 15000?]. You can't hold excess of USD 250 without valid purpose. Western Union is not authorized to transfer funds out of India. Will there be any tax levied? No assuming you are already paying taxes on the Interest in US and depending on the type of account in India.\",\n \"The money was sent from my US bank to my father in India Your father can receive unlimited amount of money as GIFT from you. There is no tax implication on this transaction. Related question After 3 years, my father received a note from the income tax dept. asking him to pay income taxes. Possibly because the income does not match and there maybe high value transactions. This should be replied preferably with the help of CA. Now, the CA is asking him to pay tax in the money I transferred. Is that correct? This is incorrect. Please change the CA and get someone competent. If not, what should I or he do in this case? Get guidance from another CA. Your father can establish that this was convenience and show evidence of transfer from you [need bank statements from your bank and Indian bank]. Property registration payments receipts, etc. Or he can also show this as Gift. If required get a gift deed created.\",\n \"India has Foreign Exchange Management Act. Under the liberalized scheme, there are limits for individuals to move funds out of India for specific purposes. Any such transfer require a CA certificate, so it would be advisable to talk to a CA to understand the specifics of your case.\",\n \"India and the United States have a tax treaty agreement whereby double taxation is avoided. However check with your accountant in the US who should be able to guide you further in this regard. It is now easier to transfer money out of India. As long as the source of the money is legal and can be verified. So if you decide to sell a property, get payments by way of documented bank transactions like cheques and avoid cash deals. Once taxes are paid money can usually be transferred out.\",\n \"India and the United States have a tax treaty, so if you pay tax in the United States, YOU DO NOT HAVE TO PAY TAX IN INDIA OR VICE VERSA. Your father in law can wire the money back to your US bank account if you provide him with your routing number and swift code. He might be charged a little fee depending on the amount he is sending(It is usually Rs.1000/-), but once the money comes back it is absolutely tax free. If it is a lot of money, you might get an inquiry, but assuming you have already payed taxes on it, it should reflect on your W2, so you do not have to pay any further taxes. Cheers!\",\n \"The simplest way is you transfer the funds into your NRE account in India. From the NRE account transfer the funds to your brother-in-law and show the purpose as Loan. From 2012 onwards RBI has simplified things under FMEA and your brother-in-law can deposit/repay the loan back into the NRE account. Once the funds are in NRE account you can repatriate then whenever you like. This entire process requires less paperwork. The option you have suggested is also fine, however your brother-in-law needs to engage the services of a CA and he will authenticate the purpose of remittance to the Bank. Based on this certificate the Bank will transfer the funds outside of India.\",\n \"Will I have to pay Income Tax/Capital Gain Tax in India for the full amount or 50% of the amount. Assuming you were the owner of the plot, you have to pay capital gains tax on the full amount. Current at 10% without indexation and 20% with indexation. Rest of amount will be used to purchase property in India. If you are re-investing the money into capital assets, you are not liable to pay Capital Gains for the amount invested. This is applicable only for first 2 houses. Consult a CA. What is the procedure to transferring the money to him. What declaration in have to give to the Bank (any Forms to fill) Under the liberalized remittance scheme you can transfer upto USD 1 Million per year. A CA certificate is required declaring the purpose and giving certificate that taxes are paid. Please contact your Bank or CA to guide further.\",\n \"My brother is worried as in US a transaction of more than 10K can be flagged by IRS. Transactions may be flagged to IRS or any other regulators as required. If the intent is correct, there is nothing wrong, your Brother would have to establish that it was for legit reason. Will it be safe to transfer through wire to wire Transfer or is there any other alternatives All legit transfer mechanism would have the same reporting regulation. There is no one better than other method. As stated earlier, if the purpose is bonafide, there shouldn't be anything to worry about.\",\n \"Take a look at Transferwise. I find them good for currency conversions and paying people in India from a US bank account.\",\n \"Yes. You may be subjected to the US gift tax (if you transfer to anyone other than your legally married spouse or yourself). The receivers will have to deal with the Indian tax laws, which I'm not familiar with.\",\n \"Can she send money to me in India through their NRI account? She can transfer the money to her NRE account and then to your Savings Account. Alternatively she can also transfer money directly to your savings account. There is no tax for this transaction in India as it is gift and exempt under gift tax act. If the amounts are large [run in quite a few tens of lacs], have some paperwork showing this as Gift. You can transfer this to son or doing anything you like with it.\",\n \"You friend would only be able to deposit this in NRO account. You may have to explain the source of money. If you declare it as gift, then you would need to pay gift tax. What you are doing is converting USD to INR outside the normal banking network and this maybe in volition of FEMA [Foreign Exchange Management Act].\",\n \"The best way is to approach your bank and fill out a transfer form to send USD to your US account (if you are visiting India). They will require quite a number of proof (AADHAR, PAN, Passport) copies. Otherwise speak to your bank about how to do a wire transfer from your India A/C to US; after de-moitization regulations have tightened, the best course of action would be to speak to your bank directly.\",\n \"From what I understand, you have money earned in US and after paying taxes that are due in the US, you have transferred a portion of this to your brother. As you have earned this money outside India, there is not tax liability of this amount in India. Your giving it to your brother would at best be treated as GIFT [and not Income]. As you are giving it to your brother there is no limit on the amount of money that can be gifted. There is no tax liability for your brother. For more details read the http://www.moneycontrol.com/news/tax/gift-tax-whatsa-gift_664238.html http://www.thehindubusinessline.in/bline/blnri/exp-tax.htm\",\n \"Most Banks allow to make an international transfer. As the amounts is very small, there is no paperwork required. Have your dad walk into any Bank and request for a transfer. He should be knowing your Bank's SWIFT BIC, Name and Address and account number. Edit: Under the liberalised remittance scheme, any individual can transfer upto 1 million USD or eq. A CA certificate is required. Please get in touch with your bank in India for exact steps\",\n \"From an India Tax perspective, someone may add the US aspect; As you have given your Father-In-Law [FIL] some money, and do not have loan documents, the amount your FIL has repaid will be treated as GIFT to you. Gift Tax by Father-In-Law to Son-in-Law is 100% tax free and there is no limit of amount. The funds can be got into NRO account and not in NRE account. There is limit of USD 125,000 that can be reptriated outside India. Refer the RBI Q&A 56\",\n \"If you are a non resident Indian, the income you earn and transfer to India is tax free in India. You can hold the funds in USD or convert then into INR, there is no tax implication.\",\n \"If you had purchased the land directly from your NRI account in your name [with power of attorney] in your wife's name, it would have been very simple to get the funds back. Whenever you sell the land, transfer the funds into NRO account. From NRO account you can repatriate back USD 1 Million. A CA certificate is required detailing the purpose and that tax is paid on the funds, talk to your bank and it should be easy. The gains will be taxable in India as well as in the US. You can claim rebate to the extent of taxes paid in India.\",\n \"I was wondering if I could make part of the payment here in USD legally? Although not directly illegal ... From an India tax and FMEA point of view this would be a bit complicated. A NRI Seller cannot repatriate the proceeds from sale of house unless he had purchased this from NRE account and repatriation is only possible for original purchase amount. For the gains Seller has to apply for repatriation of funds. A NRI Seller has to pay taxes on gains and this transaction should not look like facilitating a tax fraud in case NRI Seller does not pay his taxes. As a Buyer if you make the purchase from your NRE account [i.e. Move US funds into India into NRE Account], it will ease you ability to repatriate funds in future. Depending on the property value and PAN card availability of seller, you have to deduct 1% to 30.12% tax from the value and deposit this with Income Tax India. PS: It is recommended that you consult a Professional CA to help you with modalities.\",\n \"You can use xoom.com or western union. They are both pretty much the same, as they do not charge any fees but take a cut of 0.7-0.8% on every dollar. However, there is a minimum and maximum limit of sending money. If you want to transfer more, you can wire money in through a financial institution such as Wells Fargo or Chase bank or look to see if there is a State bank of India around you. I am quite sure that they charge $15 plus 0.20-0.30% on every dollar( The last time I used it). Hope this helps.\",\n \"I want to transfer about 60 Lakhs INR from my NRO account in India to my US bank account Yes you can. However there is some paperwork you need to follow. As per FEMA [Foreign Exchange Management Act], any transfer by individuals outside of India need the 15CA & 15CB form. The 15CB is from a CA to state that taxes have been paid on the funds being transferred. The limit is 1 million USD per year. Read more at Liberalized Remittance Scheme and here. What is the best way to transfer it with minimum fees/taxes Assuming you were already declaring the funds held in Banks outside of US in your regular IRS filings, there is no other formality. Question on Minimum fees service recommendation is out of scope on this site. Outward remittance can only be done by Bank Transfer.\",\n \"Your NRI friend can use normal Banks or specialized remittance services. There are questions on this website that give pro's and con's. From Indian tax point of you, you have received a gift from friend and as such it falls under Gift Tax act. Any amount upto Rs 50,000 is tax free. Anything above it is taxable as per tax bracket.\",\n \"There is no best way, you can send the money to India or invest into shares in US. It depends on the risk you are ready to take.\",\n \"Can I wire transfer money from the my NRO account in India to my checking account in the USA? Yes you can. However there is some paperwork you need to follow. As per FEMA [Foreign Exchange Management Act], any transfer by individuals outside of India need the 15CA & 15CB form. The 15CB is from a CA to state that taxes have been paid on the funds being transferred. The limit is 1 million USD per year. Read more at Liberalized Remittance Scheme and here. Any limit on the amount and do I have to report this to IRS or any other legal formality? Assuming you were already declaring the funds held in Banks outside of US in your regular IRS filings, there is no other formality.\",\n \"You can use Skrill or any other service like paypal or SWIFT wire. There is no legal restriction to bring money into India. You need to pay taxes depending on how you earned the income, of course the assumption is you earned the money in a legal way.\",\n \"I use xoom.com to transfer money to India. I've been using them for over 2 years now, they are the fastest and the cheapest for me (the funds are usually available the same day). They seem to have added a lot of European countries to their list. Definitely worth a shot.\",\n \"From you question I understand that you are not an Indian citizen, are staying in India, and transferring your funds for your living / expenses in India. There is no limit on such transfers and the amount is not taxed. The tax comes into picture if you are treated as a resident in India from a tax perspective. Even then the tax is not because you have transferred the funds into India, but the policy of taxing global income. The article at http://www.pwc.in/en_IN/in/assets/pdfs/foreign-nationals-working-in-india.pdf should give you more inputs.\",\n \"In short getting funds converted outside of the Banking channel is illegal in India as Foreign Exchange is still regulated. If you show only a credit from your friend's NRE account to your NRO account [note it can't be your NRE account], it would be treated as GIFT and taxed accordingly, else you would have to show it as loan and pay back. You may show the payback in USD. But then there is a limit of Fx every individual can get converted/repatriate out of India and there is a purpose of remittance, all these complicate this further.\",\n \"What are the steps to bring the money to the US? It is worth 1.25 Crore and I have already paid the 20% tax in India. Under the Liberalized Remittance Scheme an Individual can repatriate funds upto USD 250,000 without any paperwork. However most banks would be cautious and request for Form 15CA and Form 15CB if you are moving funds from NRO Account. Form 15 CA you would need to declare why you are moving the said funds. The Form 15 CB is to be filled by Chartered Account certifying that relevant taxes have been already paid to Income Tax. Most Banks would offer these services. Compare the Fx Rate and Fees before you make a decision as to which Bank to proceed with.\",\n \"Please find out whether you are considered to be a tax resident of the US from the date that you received the permanent immigrant visa or from the date that you first enter the US on that visa. If the former, and you received the visa after April 30, you might be a part-year resident of India for Indian Income Tax purposes for the current tax year. You need to convert your bank accounts including Fixed Deposits (the FDs that you mention) to NRO accounts as soon as possible. You will need to keep at least one NRO account open for a year or more to receive the final interest payments on your FDs as well as the proceeds of cashing in the FDs, not to mention any refunds of Indian Income Tax that may be due to you for last year or the current year. Once you are done with all these, follow the procedures outlined in this excellent answer by @Dheer to transfer the money to your US account. At this point, you can close the NRO account if you wish. As PeterK's comment says, it is not a good idea to bring a large sum of cash with you unless you are really really paranoid about banking channels. Note that if you insist on bringing cash (whether it is INR or USD) or negotiable instruments (checks or bank drafts) with you when you land in the US, these will have to be declared on entry if the total exceeds US$ 10K. There is no limit to how much you can bring with you as long as you declare it. Transfers of your own money from India to the US is not taxable income to you in the US, and income tax will already have been paid/withheld on that money in India, and so there is no income tax liability in India either on the sum transferred.\",\n \"\\\"Any inward remittance received by your Parents cannot be treated as \\\"\\\"Income\\\"\\\" as per the definitaion. This can at best be treated as \\\"\\\"Gift\\\"\\\". However in India there is No Gift tax for certain relations and there is no ceiling on the amount. In your case gifting of money by son to father or viceversa is allowed without any limits and tax implication. However if you father were to invest this money in his name and make gains, the gains would be taxable. However if the Money is being transfered with specific purpose such as to buy a property, etc make sure you have the Bank give your dad an certificate of Inward remittance. This is also advisable even otherwise, the Inwared Remittance certificate from Bank certifies that the credit entry in the account is because or funds comming into India and if the tax authorities were to question the large amount of credits, it would be proof that it is due to Inward remittance and not due to say a sale of property by your dad Helpful Links: http://www.moneycontrol.com/news/tax/gift-tax-whatsa-gift_664238.html http://www.thehindubusinessline.in/bline/blnri/exp-tax.htm Edit 1: What you father does with the money is treated as EXPENSE, ie spends on day to day expense or pays off your Loans or Pay off his loans have no relevance from a Tax Prespective in India. The only issue comes in say you have transfered the funds to buy a property and there was no purpose of remittance specified by Bank's letter and one want to reptriate this funds back to US, then its an issue. If you transfer the funds directly to your Loan account again there is no tax implication to you in India as you are NRI.\\\"\",\n \"\\\"The wire is probably the quick way to go. There may be a lower cost method through an international bank like Citi or HSBC. If you are a US resident or have a \\\"\\\"substantial presence\\\"\\\" in the United States, the IRS may be interested in the origins of your money.\\\"\",\n \"On my recent visit to the bank, I was told that money coming into the NRE account can only be foreign currency and for NRO accounts, the money can come in local currency but has to be a valid source of income (e.g. rent or investments in India). Yes this is correct as per FMEA regulation in India. Now if we use 3rd party remittances like Remitly or Transferwise etc, they usually covert the foreign currency into local currency like INR and then deposit it. The remittance services are better suited for transferring funds to Normal Savings accounts of your loved ones. Most remittance services would transfer funds using a domestic clearing network [NEFT] and hence the trace that funds originated outside of India is lost. There could be some generic remittance that may have direct tie-up with some banks to do direct transfers. How can we achieve this in either NRE/NRO accounts? If not, what are the other options ? You can do a Wire Transfer [SWIFT] from US to Indian NRE account. You can also use the remittance services [if available] from Banks where you hold NRE Account. For example RemittoIndia from HDFC for an NRE account in HDFC, or Money2India from ICICI for an NRE account in ICICI or QuickRemit from SBI etc. These would preserve the history that funds originated from outside India. Similarly you can also deposit a Foreign Currency Check into Indian Bank Account. The funds would take around month or so to get credited. All other funds can be deposited in NRO account.\",\n \"The liabilities are the same regardless of the route, besides tax evasion schemes such as handing the money to her as cash. Taxes will run up to half of the amount. The best routes are: Western union, moneygram, and similar services- about 2k You are allowed to gift 14k tax free. You can increase this amount by sending to multiple trusted people. See here. https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Planning-and-Checklists/The-Gift-Tax-Made-Simple/INF12127.html The gifter pay taxes, the giftee does not- unless the gifter fails to pay. Let me know which route you prefer. If you do a bank transfer then you will have to work that out with your bank. If you chose to do a wire transfer, yes. Yes, if it's no more than about $2000.\",\n \"Check with Lawyer and CA who deals with international laws. It maybe illegal in Saudi Arabia. From India tax point of view, any credits into NRE account is not taxable. However credits to friends/family will be treated as GIFT and friends/family will be liable to pay a gift tax if such transfer are more than Rs 50,000/- per year. Although FEMA does not prohibit explicitly such arrangement, these look like round about way of moving money and can be investigated.\",\n \"\\\"Assuming you are Non-Resident Indian for tax purposes, this transaction is not taxable. Indian tax law doesn't qualify \\\"\\\"gifts\\\"\\\" as taxable income.\\\"\",\n \"I am a US citizen and I want to transfer some amount 10 lakhs+ to my brother from my NRE account in India to his account. My brother is going to purchase something for his business. He is going to return my amount after 3-4 Months From the description it looks like you would like to loan to your brother on repatriation basis. Yes this is allowed. See the RBI Guide here and here for more details. There are some conditions; (iv) Scheme for raising loans from NRIs on repatriation basis Borrowings not exceeding US$ 2,50,000 or its equivalent in foreign exchange by an individual resident in India from his close relatives resident outside India, subject to the conditions that - a) the loan is free of interest; b) the minimum maturity period of the loan is seven years; c) The amount of loan is received by inward remittance in free foreign exchange through normal banking channels or by debit to the NRE/FCNR account of the non-resident lender; d) The loan is utilised for the borrower's personal purposes or for carrying on his normal business activity but not for carrying on agricultural/plantation activities, purchase of immovable property or shares/debentures/bonds issued by companies in India or for re-lending. Although it is mentioned as Seven years, this is revised to one year. Since he cannot deposit into my NRE account I guess he has to deposit it into my NRO account. A repatriate-able loan as above can be deposited into NRE Account. Is there any illegality here doing such transaction? No. Please ensure proper paper work to show this as loan and document the money trail. Also once I get my money in NRO account do I need to pay taxes in India on the money he deposited? This question does not arise.\",\n \"The best, cheapest and safe way is to wire transfer that money from their Bank Account to yours. Ask your bank about information regarding inbound international wire transfer and provide those details to your dad. About how much amounts can he do so : if the amount is more than $10K, you need to provide enough information about where the money is coming from, sources and other legal details. Whatever way you chose, never do transfers in small chunks (which is called structuring), to avoid the legal hassle - as that might result in more issues and every bank has checks in place to find out this way of structuring. I would suggest wire transfer all the money, through proper channel, through the banks. It's better to pay some fees, follow the law and live peacefully than to go through some improper channels to avoid paltry fees and get into serious issues.\",\n \"Yes. The bank is right. The funds need to be deposited in NRO account. Under the liberalised remittance scheme, you can transfer upto 1 million USD per year. There are prescribed forms that need to be signed by a CA (essentially stating taxes are paid). You can then move this out of India.\",\n \"\\\"Please declare everything you earn in India as well as the total amount of assets (it's called FBAR). The penalties for not declaring is jail time no matter how small the amount (and lots of ordinary people every 2-3 years are regularly sent to jail for not declaring such income). It's taken very seriously by the IRS - and any Indian bank who has an office in the US or does business here, can be asked by IRS to provide any bank account details for you. You will get deductions for taxes already paid to a foreign country due to double taxation, so there won't be any additional taxes because income taxes in US are on par or even lower than that in India. Using tricks (like transferring ownership to your brother) may not be worth it. Note: you pay taxes only when you realize gains anyway - both in India or here, so why do you want to take such hassles. If you transfer to your brother, it will be taxed only until you hold them. Make sure you have exact dates of gains between the date you came to US and the date you \\\"\\\"gifted\\\"\\\" to your brother. As long as you clearly document that the stocks transferred to your brother was a gift and you have no more claims on them, it should be ok, but best to consult a CPA in the US. If you have claims on them, example agreement that you will repurchase them, then you will still continue to pay taxes. If you sell your real estate investments in India, you have to pay tax on the gains in the US (and you need proof of the original buying cost and your sale). If you have paid taxes on the real estate gains in India, then you can get deduction due to double tax avoidance treaty. No issues in bringing over the capital from India to US.\\\"\",\n \"Meagrely transferring money within your own accounts doesn't result in any tax, however legally once you are an NRI you cannot operate a savings account at all as per Reserve Bank Guidelines found here One option is for you to transfer to a joint account held by a close relative of yours with you and this would be tax free in India.\",\n \"Bank-to-Bank wire transfer would be the best option. Dollar is going up nowadays, so if he brought the money not so long ago he might even earn the cost of the transfers back through the difference of the exchange rates. Re the IRS - they don't care. Same goes to the Israeli Tax Authority. What you and your friend need to show, if asked, is the paper trail. I.e.: if he brought you the $10K in cash - that may be an issue unless he kept all the receipts for getting it. But for such a low amount you can always resort to claiming it is a gift from you, in this case.\",\n \"Taxes Yes. You haven't indicated why the transfer is being made. If it is without any reason, it would attract a Gift Tax. legal liability It would definitely be investigated to see if Money Laundering or any other illegal activities is happening. If things are in order you have nothing to worry. charges Normally none. Your Bank can confirm better. friend of mine Are you sure he is a friend and this is not some kind of scam ... it typically starts of with you will get huge money and then calls like its stuck with RBI you need to paysome one to fast track or any such stories to get money out of you.\",\n \"I can't answer from the Indian side but on the UK side, if you and your friend are not related then there is no tax implication - you are effectively giving each other gifts - other than a possible inheritance tax liability if one of you dies within 7 years of the transfer and has an estate above the IHT allowance.\",\n \"Gift tax is not an issue here. If a U.S. Person were to receive the wire transfer for me, and then immediately transfer the money to me This is a classic money laundering/scamming technique. You and your friend may end up talking to the FBI, not the IRS.\",\n \"I am on employment based visa in USA and want to send dollars from USA to India from my savings (after paying Tax). How much maximum dollars I can send in a day? month? or in a year regularly? There is no such limit. You can transfer as money you like to yourself anywhere. To pay the Bank Loan-student Loan how much maximum dollars I can send in a day, in a month or in a year? to pay that I have to pay directly to that Bank Account or in any account I can send money? You can transfer to your NRE account in India and move it further. You can also send it directly to the Loan Account [Check with the Bank, they may not be able to receive funds from outside for a Loan Account] My mother is having Green Card. She is not working. She has a NRE account in India. Can I send dollars from my USA Bank account to her NRE account in India? what are the rules for that? any Tax or limit for that? Or I have to get any permission before sending it? If you are sending money to your mother, it would come under Gift Tax act in US. There is no issue in India. Suggest you transfer to your own NRE account.\",\n \"\\\"I assume you are filing US taxes because you are a US citizen, resident alien, or other \\\"\\\"US person\\\"\\\". If you have a total of $10,000 or more in assets in non-US accounts, you are required to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts, also known as FBAR, to report those accounts. See Comparison of Form 8938 and FBAR Requirements. Note this refers to the total balance in the account (combined with any other accounts you may have); the amount you transferred this year is not relevant. Also note that the FBAR is filed separately from your income tax return (it does not go to the IRS), though if you have over $50,000 in offshore assets you may also have to file IRS Form 8938. Simply reporting those accounts does not necessarily mean you will owe extra taxes. Most US taxes are based on income, not assets. According to the page linked, the maximum penalty for a \\\"\\\"willful\\\"\\\" failure to report such accounts is a fine of $100,000 or 50% of the assets in question, whichever is greater, in addition to possible criminal sanctions. There may be other US filing requirements that I don't know about, so you may want to consult a tax professional. I do not know anything about your filing requirements under Indian law.\\\"\",\n \"First, you'll need to find a service that can handle transferring that amount of money, whether it's using a bank, or wire transferring service. Any major Wall Street bank (Wells Fargo, Chase, Bank of America, etc.) should be able to handle it. You could also use services such as Western Union. As for your legal and tax obligations, according to Western Union: Individuals in Canada and the U.K. don’t have any tax considerations, unless international payments are received as income or in the form of capital gains. Only then must they report it on their income taxes, says Ilyas Patel, director at Ilyas Patel Chartered Certified Accountants based in Preston, U.K., and the director of Tax Expert, a tax advice website. To that end, when considering their tax obligations, individuals should take care to look into the reporting requirements on foreign income or gifts ranging up to a certain amount. For example, in the U.S., the Internal Revenue Service (IRS) requires individuals who receive more than $100,000 U.S. dollars from a foreign source to report it on a Form 3520. “You may not owe taxes on the money, but it informs the IRS that you received it,” Gragg says, stressing the importance of consulting with a professional. “They’re looking for certain terrorist activities and other illegal activity.” Due to the large sum of money your transferring, it would be in your best interest to speak with a banker (maybe even a lawyer or CPA) about this.\",\n \"Is it true that my father and I get better exchange rate if he uses citibank than his local bank and my local bank? No. The rates vary from Bank to Bank and some days some bank may give a better rate and there is no Golden rule that One Bank will always give better rate. For the amount specified, your father needs to walk into his Bank, preferably the branch that deals with Forex or the Main Branch in the city. A better rate would be given. So any leading Bank like HDFC, ICICI, SBI, SBH, Axis will be similar. Please note a CA certificate is required to make such remittance outside of India. having my father send me money in USD in India and I get USD here. In that case, my father would have to pay exchange fees Yes this is the only option. You have to convert INR to USD in India. having my father send me money in INR in India and I exchange INR to USD in the US. In this case, exchange fees would be on me INR cannot be sent to US electronically. It will automatically get converted to USD. There is no bank in US that holds an INR account for you to convert amount into USD.\",\n \"You haven't indicated where the funds are held. They should ideally be held in NRO account. If you haven't, have this done ASAP. Once the funds are in NRO account, you can repatriate this outside of India subject to a limit of 1 million USD. A CA certificate is required. Please contact your Indian Bank and they should be able to guide you. There are no tax implications of this in US as much as I know, someone else may post the US tax aspect.\",\n \"\\\"HSBC, also known as \\\"\\\"The Hong Kong and Shanghai Banking Corporation\\\"\\\" has banks in India. I would imagine that might be a place to start. Paypal, which is commonly used to pay for items on eBay -- is also available in both India and China. You should, of course, respect any laws regulating this kind of money transfer.\\\"\",\n \"In any case you need a CA. Please consult one. I am selling a plot of land that I own in India. This would be treated as capital gains event and you would owe taxes on the gains. I would like to purchase an apartment in India for my parents use. Yes you can. You maybe able to offset some gains on land sale against the apartment. Would like to gift part the money (about INR 20 lakhs) towards my US born son's college education in the US. As you are NRI; Under FEMA, you can transfer funds from your NRO account to US. A form 15CAB and 15CB need to be submitted to the bank to enable transer.\",\n \"1.What are the tax implications - income tax, gift tax, wealth tax etc. for the money credited in the NRO Account? As the funds are transferred by your wife to you, there is NO Income. Hence Income Tax rules don't apply. It would be treated as GIFT and come uder Gift Act. As per gift Act, one can transfer unlimited amount between close releatives. The defination of close relative as per Income Tax includes parents, spouse, siblings etc. The interest you earn in NRO account is taxable in India. 2.Can I transfer this money to my parents and would that attract any tax?. I understand my parents will have bear any tax based on income they earn on my transfer... Are there any tax implications for me? You can transfer this money to your parents. This will not be taxable to you. It will not be taxable to your parents as its Gift. Any income earned by your parents on this will ofcourse be taxable. 3.Can I move this money to NRE account and what is the process for that and how easy it is? Its best if you had your wife send funds into NRE account. Direct transfer as much as know is not allowed. Having said that, it is possible to transfer funds out of India via proper paperwork, there is also a limit [quite large] on the amount that can be transferred a year. Get a CA to help you with the paperwork.\",\n \"There's no tax on wire transfer, but it would be easier on everyone if he would wire himself from his own account. Withdrawing money, depositing to your account and then wiring back to him may raise some flags with FinCEN and IRS with questions about money laundering or gift taxes. Why do you want to complicate things?\",\n \"Can I Send the money back to my personal account of my mother/father in India? Why not? A huge number of Indians working in US are sending money to their parents. There may be multiple reasons like paying a mortgage/loan or sister's wedding or any personal reasons. Usually, there may be a reason column when you send money through any Remittance company. Do I need to pay any tax here in US or my parents back in India? Parents are direct dependents in India. So you can share your money with your dependents. Your parents have to pay tax for whatever they are earning in India based on the tax slab and age they fit in. So you can even give them the power of Attorney to control your properties in India.\",\n \"As you are not a tax resident in India, the income you have earned can be moved to India tax free. However if you are investing the funds into say shares / fixed deposits etc, the income you earn on these funds is taxable in India. The funds can be transferred directly into savings account. However its advisible to open an NRE/NRO account as its easier to track funds for tax purposes. i.e. these accounts by nature certify that the funds received into them are from foreign sources and can easily be explained to the tax authorities. However establishing the origin of funds in ordinary savings accounts needs more paper work. Whenever there is a scrutiny by tax authorities on this savings account, it would need more efforts to establish that the credits are from foreign earnings.\",\n \"India is better as the exchange rate conversion will be better. In the US, banks or exchange rate converters do not hold much INR and likely to quote a much worse rate. Best way is to open HSBC premier accounts in both US and India and use their global transfers as in premier accounts the conversion rates are usually decent. HSBC Premier also has good tools to link two accounts, so the process would be transparent. Best conversion rates are given by Middle East banks or FX converters due to the large number of Indians working there, but I suspect opening a bank account in Dubai might not be feasible.\",\n \"Can I Send the money back to my personal account of my mother/father in India? Yes you can. Do I need to pay any tax here in US or my parents back in India? There is no tax in India to your parents as it's treated as gift and is tax free between close relatives. In US you would need to pay gift tax if amount is more than USD 16000 a year. See other questions on this site for gift tax rules in US.\",\n \"Best consult a CA as you may anyway need his/her service. I am NRI, availed secured loan (Against house property) in India and now I want to get that money transferred to Finland. Loans by NRI taken in India cannot be transferred outside of India. Refer FOREIGN EXCHANGE MANAGEMENT (BORROWING AND LENDING IN RUPEES) REGULATIONS Loans in Rupees to non-residents 1[***]. 7. Subject to the directions issued by the Reserve Bank from time to time in this regard, an authorised dealer in India may grant loan to a non-resident Indian, (B) against the security of immovable property (other than agricultural or plantation property or farm house), held by him in accordance with the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000 : ...... Provided that- (d) the loan amount shall not be remitted outside India; Alternative: Sell the property in India, transfer the proceeds to NRO account. Repatriate the funds outside India as per Liberalized Remittance Scheme. Form 15CA/CB with CA certificate will be required.\",\n \"Please consult a tax advisor. You may be voilating the FEMA [Foreign Exchange Management Act] and can land into trouble. Further what you are doing can land up into various other acts as illegal including AML. Further if there is income generated by Indian citizen in India, he is still liable to pay tax, irrespective of whether you get the funds back into India. Edit: AML is Anti Money Laundering. Your transaction is sure to raise AML triggers as it looks like converting Black Money to White in round about way. Once the triggers are raised, RBI division will investigate further to verify what you are doing. If you are able to prove that this is a valid transaction, you would be OK on AML front. How will Income Tax Know? - If they don't know does not mean you are not liable for tax. - Any suspicious transactions would get investigated and sooner or later Income Tax would know about it and can cause a serious problem. - It is irrelevant where you have kept the money, if you have earned something, its taxable. For it not to be taxable you need to conduct this business differently. Please consult a tax adviser who will advice you on the tax-ability of this type of transaction.\",\n \"\\\"I'm not familiar with the law and taxes in India but can provide guidance based on general accounting and tax principles. You are right that receiving money as a loan is not income and isn't liable to income tax. Therefore i suggest you actually formalise this loan through a written contract with your friend. The contract should include all the usual elements of a loan: amount, interest (even if preferential or zero), principal, term, consequences of default and currency of loan. You can then simply state the purpose of transfer as \\\"\\\"Personal Loan Agreement\\\"\\\". If you have such a document and are questioned by tax authorities you can easily show that the inward remittance is from a loan and should therefore be treated like any commercial loan for tax purposes. As long as you disclose the debt in your tax return (if required in India) and your friend discloses any interest received as income i think you'll be above board and won't be liable for any income tax. To make sure, you might be better off having a quick consultation with an accountant or tax specialist in India to advise you and draft the loan agreement.\\\"\",\n \"how could I transfer the money from UK There are multiple ways, walk into your Bank and ask them to wire transfer to the Bank Account in India. You would need the SWIFT BIC of Bank in India, Account Number, etc. Quite a few Banks [State bank of India, HDFC, ICICI etc] also offer remittance service. Visit their website for more details. does it cost the tax and how much Assuming your status is NRI [Non Resident], there is no tax implications of this in India.\",\n \"There are multiple ways in which you can get money to India; - Citi Bank / HDFC Bank offere similar services [and the credit account can be ICICI Bank] - Ask for a Wire/SWIFT transfer, there would be some changes [in the range of USD 30] - Ask for a company check, it would take around 30 days for you to encash in into your bank account in India.\",\n \"How to send the full loan amount from Saudi Arabia (money exchange), because I have a money transfer limit? There is no limit for sending money into India. Just use the right banking channel and transfer the funds. If I sent to India, what about tax and all that in India? In a financial year if you are outside of India for more than 182 days, you are Non-Resident for tax purposes. Any money you earn outside of India is tax free in India. i.e. there is no tax for this funds in India. If it is possible to send the money, to whom do I have to send it (my account, or my parents account) Whatever is convenient, preferably to your own NRE/NRO account. Any documents I have to show for tax issues (in case tax) You have to establish that you are NRI and hence this funds are not taxable. Hence its best you transfer into NRE/NRO account. If you transfer to your parents account, you would need a gift deed to make this non-taxable to your parents. I have savings account my self in Axis Bank, for the past 3 years I am paying taxes, if I send to my Axis Bank account how can I withdraw the full amount (10 lakhs (1,000,000)) on single day Withdrawal is possible by cash or cheque You can write a check, do a NEFT/RTGS transfer to your loan account, you can withdraw cash by giving some notice time to the Branch Manager of your Branch.\",\n \"Use a remitting service such as Ria Money Transfer. Almost all these services allow you to transfer upto $2999 at a time. So, you would be able to transfer the entire amount of $4500 within 2 business days(There is a monthly limit too, but it will definitely be more than $4500). There are no fees to use these services, but they do scrape off a bit on the currency rate. As of today you are getting 624 GBP for $1000 whereas the market rate is $641.95. You still save roughly $17 and 4 transactions, which adds up to more than $100. Here is a link to Ria's website. Other services, include Xoom, Western Union, Money Dart and Money Gram.\",\n \"http://www.irs.gov/publications/p950/ar02.html Gift tax is owed by the giver, not the recipient. So my first guess is that you can make the transfer in your home country, and as the givers will not be subject to US tax, it won't apply at all. You can then transfer the money into the US freely. In any case, there's a lifetime exemption of 1mn USD. So, unless non-US persons don't get the exemption, I can't see the tax being a problem anyway unless there are going to be several more such transfers.\",\n \"Do an semi-online transfer. I had a similar situation where i had to transfer 5K USD to a commercial entity. You can request the publisher to give you their bank account details. You will need the SWIFT code of the bank( SWIFT code is a international code that each bank gets to transfer money) You will need bank account number, account name, bank address, address of the publisher. Then just walk into your bank with the above details. Note that you will have to visit a branch in your city that allows forex transfers. They will give you a set of forms to fill up. The above details will be needed to fill up these forms In addition to the above, you will be asked to fill up a purpose code maintained by RBI. This code is used by RBI to understand the reason why you are transferring the money. The bank will provide you with a sheet which will have these codes and explanation of these codes. Read through the codes and in case of any questions ask the bank officials to help Tip: If you have accounts with any private sector banks, please approach them. Public sector banks will give you tough time Hope this helps! Regards, Ravi\",\n \"Is it liable for taxation in India? Taxation does not depend on whether to transfer money to India or keep it in GCC. It depends on your tax status. In a given Financial year; 1st April to 31st March, if you are outside of India for more than 182 days, your are Non-Resident Indian, NRI for tax purposes. If you are NRI, income earned outside of India is not taxable in India [even if you transfer the funds to India]. If you are not an NRI, you income in GCC will be taxable in India [Even if you keep the money in GCC]. We both send our salary into a friends account in India and then transfer an amount to our own accounts This is an incorrect practise, If you are NRI, you should not be holding a Savings account, it should be converted into NRO and you can if you want open an NRE account. For your friend where you are transferring money, if there is an income tax audit, there would be quite a few questions asked and your friend has to establish and keep records that this is not GIFT, but more of a convenience agreement.\",\n \"As an Indian resident you can open an Resident Foreign Currency Account, i.e. an USD account. This facility is provided by all major banks. I am not sure if PayPal would transfer money to these accounts or would convert. The alternative is to give this account number along with other Bank details to the company in US and ask them to send money via remittance services.\",\n \"Disclaimer: it's hard to be definitive as there may be some law or tax rule I'm not aware of. From a UK perspective, this should be perfectly legal. If it's just a one-off or occasional thing for personal reasons, rather than being done in the course of a business, there probably aren't any tax implications. In theory if there's an identifiable profit from the transaction, e.g. because you originally obtained the INR at a lower exchange rate, then you might be liable to capital gains tax. However this is only payable above approximately £10K capital gains (see http://www.hmrc.gov.uk/rates/cgt.htm) so unless this is a very large transaction or you have other gains in the tax year, you don't need to worry about that. I would only recommend doing this if you trust each other. If one side transfers the money and the other doesn't, the international nature will make it quite hard in practice to enforce the agreement legally, even though I think that in theory it should be possible. If the sums involved are large, you may find that the transaction is automatically reported to the authorities by your bank under money laundering regulations, or they may want documentation of the source of the funds/reason for the transaction. This doesn't automatically mean you'll have a problem, but the transaction may receive some scrutiny. I think that reporting typically kicks in when several thousand pounds are involved.\",\n \"There is no limit on how much money you can bring into the USA, in Cash or through electronic transfer. You only need to be able to proof or convincingly show that you earned it legally and paid all potential US taxes that you had to pay. If you chose to bring it in cash, you need to tell customs when arriving (and again, be prepared to proof the legal sources). Wire transfer, cash in the suitcase, whatever you like. There is no tax for bringing the money, and the tax for making that money supposedly is already paid. Once the money is in the US, and earns more money, you will owe taxes on the gain (not on the capital itself, just on the amounts it increases by) I hope you understand that if you live in the US, and you have money anywhere in the world, you might need to report it to the IRS; and if your money makes interest anywhere in the world (including of course in India), you might be are required to pay US taxes on the gains. That is independent of your question; but if you don't do it, you are cheating the IRS, and they will ask this when you bring the money back.\",\n \"Since your question is very particular on the details, I'm assuming you did your research. Unfortunately you won't get a better answer here than what you've found on the Internet already. This is not a clear-cut situation as the situation you're describing has been a source to some confusion. Mainly, the question is whether the US bank account is a tangible asset or not. To the best of my knowledge, this has not yet been settled, so I suggest going to a professional tax adviser (EA/CPA licensed in the US) who'd advise you the best course of action. I think it would be safer to transfer the money directly from the foreign account to the US beneficiary (although even then, if the IRS decides to start digging, it may claim that you're essentially disguising a transfer from a US account, so I suggest talking to a professional before doing anything). In any case, the US recipient will need to report the gift (if it is $100K or more) using the form 3520 with his/her tax return.\",\n \"A non-cash transaction will not be a problem. The bank will have to fill out federal paperwork if there are large amounts of cash involved. This is to stop the underground economy. This can even extend to non-banks. If you were to walk into a car dealer or some other stores and hand them a bag of cash they will also report it. You can do what you propose without having to transfer any money between accounts. Your girlfriend can put the furniture and landscaping on her credit card, or write checks to the stores or companies. Based on the number of questions on this site regarding how to transfer funds between banks and accounts, the mechanics of the transfer is the hard part. Resist the urge to use cash to make the transfer. That will require paperwork. Many people find that the old standard of using checks to transfer funds is easy, safe and quick.\",\n \"You do not need to set this up as a loan. Try finding an Indian student. He is eligible to get cash (using a travel card, may be) from India tax-free. As long as it doesn't exceed the i-20 amount, he will not have any problems. Since, $10,000 is very small amount, the student shouldn't be having any problem.\",\n \"MoneyGram said that the person sending money should also be an Indian. There shouldn't be any such restriction. Can you check again what exactly the issue was? Is there another way so I can get money without any problem. You can try Bank Transfers or alternative remittance like Western Union\",\n \"Give a cheque. You can. Your friend would have to deposit this in a Bank that does this service. Not all Banks offer this service in US. It generally would take 1-3 months for the funds to reach. Give a dollar-denominated cheque You can NOT write check on a Rupee account and put USD. You can definitely buy a USD Draft generally payable in the US. There would be some charge for you here and send it by courier, post. It would get paid into your friends account in about a week. Do a SWIFT transfer Yes you can. You may need to walk into a Branch and fill up forms. If the amount is more than specified limit a CA certificate is required. Am I correct in understanding Yes Use my ATM card in the US Yes you can. Specialised money transfer services like Western Union Transfer money out of India is not allowed by Money Transfer services\",\n \"The US will let you keep as much money as you want to within its borders regardless of your citizenship. You'll owe capital gains tax in the US unless you're subject to a tax treaty (which you would probably make as an election in the year of the transaction). I don't know if India has any rules about how it governs its citizens' foreign assets, but the US requires citizens to file a form annually declaring foreign accounts over $10,000. You may be subject to additional Indian taxes if India taxes global income like the US does.\",\n \"Chase has a limit of $500,000 per day. A banker should be able to help you determine any immediate tax liabilities that will arise as a direct result of the transaction. You may wish to consult with a tax professional about any indirect implications the transfer may have. This transaction will be reported to the government but assuming that you are not involved in any illegitimate activities the likelihood of the US government taking any action on the notice is incredibly low. I have heard of 7 and 14 day holds being placed on out of character transfers but if you are buying property you should work with your bank to help facilitate. Bankers understand the business and can help you avoid any appearances of impropriety that the government flags. Should your account be flagged, I would retain a lawyer immediately. If you feel you have a reason to be concerned, then I would contact a lawyer in the US and Thailand before initiating the transfer. As they say an ounce of prevention is worth a pound of cure.\",\n \"Yes, you can transfer money to your account, any bank will do it. The conversion charges will be there i.e. the diff between USD and the rate at which the bank sells it, usually Rs. 2/-, appx. In addition, transaction charge (not very high). As for taking from friends & repaying in India, check UAE tax treatement for taking money from friends (is it considered as your income & are you liable for taxes). As for giving back, get some documentation done as a loan, otherwise your friends may be considered to be taking gift/consideration/income from you and taxed. Most straight forward way is to transfer the money from your mother's account.\",\n \"\\\"Transferring the money or keeping it in US does has no effect on taxes. Your residency status has. Assuming you are Resident Alien in US for tax purpose and have paid the taxes to IRS and you are \\\"\\\"Non-Resident\\\"\\\" Indian for tax purposes in India as you are more than 182 outside India. How would it effect my Tax in US and India If you are \\\"\\\"Non-Resident\\\"\\\" in India for tax purposes, there is no tax liability of this in India. I have transferred an amount of approx 15-20k$ to Indian Account (not NRE) By RBI regulation, if you are \\\"\\\"Non-Resident\\\"\\\" then you should get your savings account converted to \\\"\\\"NRO\\\"\\\". You may not may not choose to open an NRE account. To keep the paper work clear it helps that you open an NRE account in India. Any investment needed ? Where do i need to declare if any ? These are not relevant. Note any income generated in India, i.e. interest in Savings account / FDs / Rent etc; taxes need to be paid in India and declared in US and taxes paid in US as well. There is some relief under DTAA. There are quite a few question on this site that will help you clarify what needs to be done.\\\"\",\n \"If you are a citizen of India and working in Germany, then you are most likely an NRI (NonResident Indian). If so, you are not entitled to hold an ordinary Indian bank account, and all such existing accounts must be converted to NRO (NonResident Ordinary) accounts. If your Indian bank knows about NRO accounts, then it will be eager to assist you in the process of converting your existing accounts to NRO accounts most likely it also offers a money remittance scheme (names like Remit2India or Money2India) which will take Euros from your EU bank account and deposit INR into your NRO account. Or, you can create an NRE (NonResident External) account to receive remittances from outside India. The difference is that interest earned in an NRO account is taxable income to you in India (and subject to TDS, tax deduction at source) while interest earned in an NRE account is not taxable in India. The remittance process takes a while to set up, but once in place, most remittances take 5 to 6 business days to complete.\",\n \"Assuming you are Indian Citizen / Resident for Tax purposes. Your friend in US Citizen / Resident for tax purposes. As you are borrowing these funds and returning, this would NOT be treated as Gift but as Loan. Ensure that you have the right documentation in place. There is no tax when you receive the funds/loan or rebate when you pay back the loan. From India FEMA (Foreign Exchange Management Act) point of view, if you take loan from friends, you cannot by default repatriate funds. You have to take special permission to repatriate the funds out of India.\",\n \"From what I understand this is what you can do : You need to raise an invoice to your brother's company in USA Your brother makes a payment into your Indian company's bank account using wire transfer straight into a bank account in your company's name. Your brother wont have to pay taxes on the money that he pays you against an invoice as it would be an expense and would not be considered as profit for tax purposes. Once you have the money you can then file your income tax returns after deducting your own expenses etc in India. I hope this helps.\",\n \"Should we have to prepare any documents or deed or we simply asked our son to send on line a scanned copy on simple paper signed by him to declare that this amt is given as gift which is gifted to us through this cheque number/date/bank etc? Depending on amount, if few thousands don't bother. If few lacs get it on a simple plain paper, if in crores, get a proper gift deed executed. There is no tax for you. My son wants to remit some money in his mother's account jointly with me(father). It is very much clear that it will be tax free in india being a gift but how will this amt be treated as gift in the eyes of income tax people? Should we have to prepare any documents or deed or we simply asked our son to send on line a scanned copy on simple paper signed by him to declare that this amt is given as gift which is gifted to us through this cheque number/date/bank etc? Whether our son shows that amt as gift in his yearly return or not. what are the implications to his tax return due to gifted As your son is US citizen, he can only gift USD 14,000 to you and equal amount to your mother in a year. Similarly your daughter in law can give you both 14000 each. If it is more, he has to pay taxes or claim it against life time exemption of 1 million (?) USD\",\n \"There is not any fraud involved. Anybody can gift money to another person.\",\n \"I think you are asking quite a few questions here; If you have Rs 10000, its better you get it converted in India before you leave. Most Banks and Exchange houses like Western Union would take Rupees and Give you USD. What do they do with USD, there are other who give them USD and need Rupees. They make a spread in this process. If you are getting a salary in USD in US, whenever you want to transfer money to India, the Banks or Remittance services like Western Union would take USD from your US Account and Transfter equivalent Money into your Bank Account in India in Rupees. They will tell the exchange rate applicable. Depending on why visa type & the duration you are going, your company should be able to tell you your tax liabilities in the US. Read similar questions here to get a general idea.\",\n \"\\\"I'm not certain about international transfers, but that amount is large enough that it could be subject to gift tax. https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Frequently-Asked-Questions-on-Gift-Taxes Note that the threshold for this tax is \\\"\\\"per person, per person\\\"\\\". For example, if you gave your father $12,5k, and gave your mother $12.5k, and your wife gave them each the same amounts, each of those gifts is small enough to be within the $14,000 exclusion and you and your wife would owe no gift tax. If you aren't married, you might want to spread this gift over two years to stay under that threshold.\\\"\",\n \"There is a startup targeted specifically to serve you for the situation you describe: - http://peertransfer.com There are other methods. CurrencyFair is one service that might help: - http://currencyfair.com And, there is bitcoin. Because it is new yet, there aren't very liquid markets where bitcoins are exchanged for Rupees or Yuan at decent rates at the present. Once you receive bitcoins transferred to you however, those funds are easily transferred to your B Of A account (using Dwolla to send via ACH to your bank). - https://en.bitcoin.it/wiki/Buying_bitcoins\",\n \"An Indian citizen who is not a resident of India (an NRI) or a Person of Indian Origin (a PIO) is not permitted to sell or gift immovable property in India (real property for US readers) to another NRI or PIO; the property must be sold or gifted to a resident of India. So, assuming that the property in question is in India, you cannot sell it to your NRI friend.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["A. Kindly avoid taking dollars in form of cash to india unless and until it is an emergency. Once the dollar value is in excess of $10,000, you need to declare the same with Indian customs at the destination. Even though it is not a cumbersome procedure, why unnecessarily undergo all sort of documentation and most importantly at all security checks, you will be asked questions on dollars and you need to keep answering. Finally safety issue is always there during the journey. B.There is no Tax on the amount you declare. You can bring in any amount. All you need is to declare the same. C. It is always better to do a wire transfer. D. Any transfer in excess of $14,000 from US, will atract gift tax as per IRS guidelines. You need to declare the same while filing your Income Tax in US and pay the gift tax accordingly. E. Once your fiance receives the money , any amount in excess of Rs 50,000 would be treated as individual income and he has to show the same under Income from other sources while filing the taxes. Taxes will be as per the slab he falls under. F.Only for blood relatives , this limit of 50,000 does not apply. G. Reg the Loan option, suggest do not opt for the same. Incase you want to go ahead, then pl ensure that you fully comply with IRS rules on Loans made to a foreign person from a US citizen or resident. The person lending the money must report the interest payment as income on his or her yearly tax return provided the loan has interest element. No deduction is allowed if the proceeds are used for personal or non-business purposes.In the case of no-interest loans, most people believe there is no taxable income because no interest is paid. The IRS views this seriously and the tax rules are astonishingly complex when it comes to no-interest loans. Even though no interest is paid to the lender, the IRS will treat the transaction as if the borrower paid interest at the applicable federal rate to the lender and the lender subsequently gifted the interest back to the borrower.The lender is taxed on the imaginary interest income and, depending on the amount, may also be liable for gift tax on the imaginary payment made back to the borrower. Hope the above claryfies your query. Since this involves taxation suggest you take an opinion from a Tax attorney and also ask your fiance to consult a Charted Accountant on the same. Regards"],"string":"[\n \"A. Kindly avoid taking dollars in form of cash to india unless and until it is an emergency. Once the dollar value is in excess of $10,000, you need to declare the same with Indian customs at the destination. Even though it is not a cumbersome procedure, why unnecessarily undergo all sort of documentation and most importantly at all security checks, you will be asked questions on dollars and you need to keep answering. Finally safety issue is always there during the journey. B.There is no Tax on the amount you declare. You can bring in any amount. All you need is to declare the same. C. It is always better to do a wire transfer. D. Any transfer in excess of $14,000 from US, will atract gift tax as per IRS guidelines. You need to declare the same while filing your Income Tax in US and pay the gift tax accordingly. E. Once your fiance receives the money , any amount in excess of Rs 50,000 would be treated as individual income and he has to show the same under Income from other sources while filing the taxes. Taxes will be as per the slab he falls under. F.Only for blood relatives , this limit of 50,000 does not apply. G. Reg the Loan option, suggest do not opt for the same. Incase you want to go ahead, then pl ensure that you fully comply with IRS rules on Loans made to a foreign person from a US citizen or resident. The person lending the money must report the interest payment as income on his or her yearly tax return provided the loan has interest element. No deduction is allowed if the proceeds are used for personal or non-business purposes.In the case of no-interest loans, most people believe there is no taxable income because no interest is paid. The IRS views this seriously and the tax rules are astonishingly complex when it comes to no-interest loans. Even though no interest is paid to the lender, the IRS will treat the transaction as if the borrower paid interest at the applicable federal rate to the lender and the lender subsequently gifted the interest back to the borrower.The lender is taxed on the imaginary interest income and, depending on the amount, may also be liable for gift tax on the imaginary payment made back to the borrower. Hope the above claryfies your query. Since this involves taxation suggest you take an opinion from a Tax attorney and also ask your fiance to consult a Charted Accountant on the same. Regards\"\n]","isConversational":false}}},{"rowIdx":375,"cells":{"_id":{"kind":"string","value":"1670"},"query":{"kind":"string","value":"Investing in hemp producers in advance of possible legalization in Canada?"},"gt_ids":{"kind":"list like","value":["290887","393898","493792"],"string":"[\n \"290887\",\n \"393898\",\n \"493792\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1],"string":"[\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["493792","26674","290887","393898","243232","575918","440305","195114","3574","216559","221285","591320","38174","105790","104094","195372","535469","275690","12712","295507","344641","258745","396069","522325","23423","22263","300703","263852","63787","431370","218326","177194","118521","125683","113619","317262","100721","61314","500445","124350","350872","45022","327997","407663","209349","39660","291220","388057","108747","94408","308281","24032","226748","68094","538198","157038","315568","328073","374819","383188","285105","442122","264740","12414","60175","327267","2235","550646","481612","517810","68270","277482","502091","387022","302808","33117","20778","447555","332467","140282","66460","25431","317412","13083","364837","102113","416767","148208","59689","549763","573213","335376","206876","59290","461231","88698","35461","357739","303041","596821"],"string":"[\n \"493792\",\n \"26674\",\n \"290887\",\n \"393898\",\n \"243232\",\n \"575918\",\n \"440305\",\n \"195114\",\n \"3574\",\n \"216559\",\n \"221285\",\n \"591320\",\n \"38174\",\n \"105790\",\n \"104094\",\n \"195372\",\n \"535469\",\n \"275690\",\n \"12712\",\n \"295507\",\n \"344641\",\n \"258745\",\n \"396069\",\n \"522325\",\n \"23423\",\n \"22263\",\n \"300703\",\n \"263852\",\n \"63787\",\n \"431370\",\n \"218326\",\n \"177194\",\n \"118521\",\n \"125683\",\n \"113619\",\n \"317262\",\n \"100721\",\n \"61314\",\n \"500445\",\n \"124350\",\n \"350872\",\n \"45022\",\n \"327997\",\n \"407663\",\n \"209349\",\n \"39660\",\n \"291220\",\n \"388057\",\n \"108747\",\n \"94408\",\n \"308281\",\n \"24032\",\n \"226748\",\n \"68094\",\n \"538198\",\n \"157038\",\n \"315568\",\n \"328073\",\n \"374819\",\n \"383188\",\n \"285105\",\n \"442122\",\n \"264740\",\n \"12414\",\n \"60175\",\n \"327267\",\n \"2235\",\n \"550646\",\n \"481612\",\n \"517810\",\n \"68270\",\n \"277482\",\n \"502091\",\n \"387022\",\n \"302808\",\n \"33117\",\n \"20778\",\n \"447555\",\n \"332467\",\n \"140282\",\n \"66460\",\n \"25431\",\n \"317412\",\n \"13083\",\n \"364837\",\n \"102113\",\n \"416767\",\n \"148208\",\n \"59689\",\n \"549763\",\n \"573213\",\n \"335376\",\n \"206876\",\n \"59290\",\n \"461231\",\n \"88698\",\n \"35461\",\n \"357739\",\n \"303041\",\n \"596821\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["The legalization of Cannabis will drastically alter supply and demand of cannabis and hemp. The distribution channels that work well for hemp may or may not work well for cannabis and may or may not continue to work well once cannabis is widely available. Companies may have avoided sponsoring hemp products because of it's association with marijuana. If Marijuana is made legal, that stigma may or may not go away, changing which companies are interested in distribution. I don't believe that legalizing cannabis will create a great investing opportunity into existing hemp producers.","Many gains to be had, but the two rules of investing are don't lose money. So if you are to invest in marijuana, wait until marijuana is legal, and wait for the market leader to emerge, and see what their financials are like. Then invest, with enough information.","\"It is such a touchy subject for many people, I have to say that simple \"\"set it and forget it\"\" kind of investing isn't likely in the near term. Instead, if this is something you believe in, treat it like any other business opportunity and do some detailed research into people operating in the field. Look into their business plans and visit their operations. If there is a plan, and idea, a team and the intangible it you might consider doing some direct investing with a local company. Basically become a small business owner, silent partner or investor. If you believe in it go for it. If you don't believe in it that much, I think this is a market somebody else needs to develop before we invest.\"","Hemp is already pretty easily grown by farmers here. Canada had 50,000 acres of legal hemp in 2006, but it's been in decline the last 3 years due to the cost, lack of demand, and the high values of some other crops. It's also difficult to harvest due to its size. It's possible that the demand for hemp products will increase, but given that many Asian countries (Russia, China and Korea, for example) never banned it in the first place, there's a pretty ready supply already in place. In Canada, the big reason to grow it is as an alternative crop for use in rotation that has some commercial demand, but it's certainly not as valuable as crops like canola, oats or soy beans.","There's a bunch of publicly traded companies in Canada. Canopy Growth, CanniMed, MedReleaf, and a few others that are slipping me right now. You can also go to Motif Investing and look at all the marijuana ETF's which will also have the underlying stock.","Is there any truth to this, or is this another niche scam that's been brewing the last few years? While it may not be an outright scam, such schemes do tend to be on borderline of scams. Technically most of what is being said claimed can be true, however in reality such windfall gains never happen to the investors. Whatever gains are there will be cornered by the growers, trades, other entities in supply chain leaving very little to the investors. It is best to stay away from such investments.","In that case, forget this whole pot shop and look into buying some REITs (Real estate investment trusts). Or invest in QCLN, a ETF that invests in companies that produce and distribute green energy. You're looking for a get rich quick scheme, not a solid investment. You don't even have any money. You can't afford to lose $92,000 when you have $0.","there is a trend to decriminalize weed. when weed is no longer a crime to grow, who is going to pay you two cents for a small handful of it? answer: nobody. and then what will your stock be worth? the word shit comes to mind, lol.. it is a weed that manufactures itself, and the only reason that it has any value at all if that only certain people are allowed to grow it. and, even if it isnt decriminalized, what happens when this medicinal bullsht takes off and the cigarette companies start selling packs of joints for twelve bucks? again, your stock will be worth shit, and everybody that invested in weed will be high and upside down.","They'll largely be fine. They're to the point where it's all about business plans and securing financing. Determining long term risk for these types of firms are the main hold up at this point. But, given that everything else is flooded with investment capital already, I expect more and more lenders to get into the space.","This sort of question pops up with every new or sexy technology, and it's born (IMO) from the misguided opinion that a growth industry is a source of huge, guaranteed profit. The reality is that, even in rapidly growing tech sectors, there is a high infant mortality rate. A lot of balloons go up, many pop, some drift far off course, some get tangled in the branches... and a few rise to the heavens, making the early investors look like supergeniuses. Some very few of them were! They did their research, they made calculated risk assessments, and they chose AAPL over competitive companies. Some bought AAPL near the IPO through luck. If your investment strategy idealizes these guys, go to Las Vegas and bet on red. Red never fails. Plus: you'll get free drinks, a buffet, and a nice stage show while you go bankrupt. But in general, companies within a new, rising sector like marijuana dispensaries/farms/whatever aren't guaranteed growth. Do your research, and diversify your investments!","No. I have partaken of but not lately. It's only become non-taboo here in the last 10 years and I was raised to think it was bad and people who do it are slackers or lazy and the like. I've thankfully grown out of that old way of thinking and now know how profitable it is and feel this is a good venture to begin building a nice portfolio. I'd also like to get into real estate and solar and wind as well","Meh, that's good for pain if that works, but that's a relatively small market compared to pharmaceuticals from a business perspective, much lower profit margins because anyone can grow it. It's a highly competitive field, and as soon as it becomes legal federally you know that Altria and other huge corporations are going to be able to sell it and put the small producers out of business. Many great minds also never did drugs. Again, I'm just going by my experiences, and none of the smart/successful people at my company or in my group of friends smoke pot.","It's interesting that legacy manufacturing practices are now becoming important. How long until we see a lot of the traditional industrial control world get involved in the cannabis business? I can't wait to see Eaton and Siemens spin up their marijuana divisions.","Investing in commodities is iffy in the best of times. Potash already has expectations priced in, so I prefer to play CNI, the railroad doing most of the hauling. Uranium? No. Uranium has been touted for a decade or more without results. Thorium is the preferable future nuclear fuel, and there is lots of it.","\"Gee son. That's a potential for a better than 10% gain in a short amount of time. If bought within a tax advantaged account like a IRA then you don't even pay capital gains. Does Lube know? Last I checked he was obsessing over \"\"bowels\"\" or some shit.\"","\"Someone asked this over in /r/darknetmarkets , they were asking how to profit off NV specifically, but here's what I wrote there, I'd be curious what you guys think: > Go back in time about 6 mo, case the medical scene for movers and shakers, write some proposals to help them expand. Traditional banks won't touch financing these guys with a 10ft stick right now, the Fed has told them straight up they will lose FDIC membership if they touch \"\"drug money\"\" (cough cough tobacco and alcohol don't count? cough cough). If you don't have a time machine, either come up with a way to be a bank to these guys without going to a Fed lockup, or go finance expansion in the next state which legalizes. It's gonna be a while until these guys get integrated with the regular money system to the point they have stocks and such. Or maybe the Fed freezing them out as they make a fortune will just push forward crypto currency and hasten the collapse of the current money oligarchy, who knows. There was also some comments about shipping from NV to home states, which is probably a bad idea for many reasons. I did however feel I can offer some insight on a legal president for this kind of behavior, but exactly how legal reshipping to avoid direct shipping of a purchase to a state is (I mean, once it's your proper legal property and you're just shipping it to yourself that does seem legal, right?) or if it would get the same blind eye when done with pot are huge unknowns: >I'm sure the Feds will not see a problem with sending drugs to yourself across state lines! Actually funny enough I live in the wine region of CA and there is a whole business here of wine \"\"storage and shipping\"\" places. It's up to the states to decide how or if they allow alcohol to be shipped into their state from others, and a bunch of state have very complex rules or just don't allow it. So if you come out here for tourism, drink some wine at a winery, like it, and ask if you can have some shipped home, the answer is about 50/50 to be 'no'. And if you're a average income pleb, that's your answer. If you're some rich dude however, you can say \"\"ah gotcha, pesky laws... well here's the address of my storage and shipping place, send the 2 cases there then\"\", nobody bats an eye, and off the cases go. Guy goes home, calls up the shipping place, and says \"\"hey pull those cases, my personal property, and ship them to me\"\" and, somehow, magically, this is now legal. I have no idea who's taking on the liability here, if the shipping place has them sign off \"\"we will ship wherever you ask, it's not our job to verify the legality of your request\"\" then I guess it's on the consumer, but if you have an entire business built around circumventing state law it would seem to me that this should be a legal problem. But, wine is a high-end commodity, rich people make their own rules, and if CA turns a blind eye to this practice they get to collect the sales tax as it's sold in CA and shipped to a location in CA, whereas fighting it would hurt their tourism and also send the tax income to the states being shipped to. C.R.E.A.M. baby! Re-reading this now I'm not even sure if there IS a liability here. They bought the property in CA, paid tax in CA, and had it sent to a mailing address in CA. What they do after that with their personal property is not the states business, right? I'd imagine this would be drastically different if shipping for resale. Similarly, I think this all only works if you complete the transaction while physically in the state. So at most this might turn on some weed tourism. The big difference in all of this is that the Fed is fine with alcohol, but not weed, so, while I suspect someone will form such a weed storage and shipping place at some point, I don't really want to be first in line to see how this flys and if it lands you in trouble with the Fed.\"","No chance. First off, unless the company provides audited financials (and they don't from what I can tell), there is no way I'm tinkering with a bunch of small business owners. Transparency is a substantial part of investing and this actually exempts or excludes these companies, from what I can tell.","This just proves when you're able to offer a physical product or service it is always a good investment. Especially because they own so much land. It's nice to see a company IPO that isn't an investment group, or an online business, but an actual producer of physical goods. And also the fact that it has a market cap of $3.3 bln, a number that looks like it can easily grow over time (citing Facebook's ~$100 bln entry point).","\"John Robbins is an idiot. Hamed Hoshyarsar has no idea what he's doing. >\"\"Hey, I'm going to throw money I can't afford to lose into something I know nothing about.\"\" Someone needs to take their money before they hurt themselves with it.\"","\"Those \"\"haters\"\" are trying to convince you away from making a poor investment. It would honestly be unethical for us not to. Tell you what. Meet with these people in real life. Take a tour of their current operations. Do your due diligence. Ask them hard questions. Like. Why they need to reach out to friends for investment, rather than a venture capitalist or a bank loan? At worst they are lying and it is fraud. At best they are in over their head with bad business sense and you're about to get sucked into it. Just because weed in general is going to take off, does not mean YOUR weed shop is going to take off. Example: Smartphones have taken over the world. Microsoft recently axed its windows phone because it did not work out for them. Your weed shop could be the iphone of weed. It also could be the windows phone of weed. I know you've gone over how he has experienced high demand. There's a saying we like here: Past performance is not indicative of future results. Its entirely possible a large retail chain (Amazon perhaps?) could enter the market and undercut you to the point that you are making a loss.\"","She said he's been in business for 3 years and I've Googled it and found it to be accurate from the paperwork I've seen that's public knowledge. I know this isn't a get-rich-quick thing bc hard work and money went into making and building not only a business but a brand as well. Brand building is a lot harder than business building. Anyone can get a loan with decent enough credit and open up a shop: it's keeping people coming in that is the hard part. I understand all areas of this business except for the growing part. I've never known how to grow weed or the technicalities it takes to maintain healthy plants and things. I'm just looking to invest in something I believe in because weed shouldn't be illegal and the medicinal reports state that it's far from a gateway drug or anything of the sort. I do wanna thank you for (so far) being the nicest reply to my post. We seem to have some haters and naysayers on here who like to just start shit and while you may find it hard to believe that I'm trying to just get rich, that simply isn't the case. I believe her and I believe in her so I know what she's trying to do is all legit","Sedar is I guess the Canadian equivalent of EDGAR. You can find the company's filings there. Here's a picture from their filings. Can't post the link, if you go and find the filing through Sedar you'll know why (it's not as nice a site as EDGAR). The 4.8 million is from unrealized gain on biological assets. So that's what it is. The reason, I think, as to why Operating Income is a positive 2.67 even though Operating Expense and Gross Profit are both negative is because Google Finance backed into Operating Expense. Operating Income is the same between the two sources, it's just the unrealized gain that moves.","Definitely more in the economics wheelhouse, but I thought it would be interesting to write a research paper on the black market premium. With marijuana becoming legalized in more and more districts it's interesting to see the effect on prices. I live in Canada and many of my friends are very sure that prices will rise because of taxes. I am not so sure. I think economies of scale and getting rid of the black market premium will more than make up for the costs of regulation and taxation.","Agriculture is a great sector to get into right now. The average farmer in US and Canada are at or near retirement age (well past 60). And because most farmers are old, the sector really hasn't changed much. They're proud to say that what they do is passed down for generations. The sector is ready for new blood and ripe for a revolution to increase productivity. All that is missing is the capital needed.","Not medical! Y'all need some business courses. Liability insurance, etc. no factory will let you operate machinery stoned. No bank will let you move money between people's accounts stoned. Banks are more concerned with fraud than anything else and people with expensive drug habits steal more.","Yes. The real question is whether you should. You should consider your investment options, and take into the account that there's much more hype than value in many companies.","The most obvious route is to short the lenders, preferably subprime. Since there are no lenders that operate exclusively in San Francisco, you could look north at Canada. The Canadian real estate market (esp. Vancouver) is just as overheated as the San Francisco market. As a start, famous short seller Marc Cohodes recommends HCG (Home Capital Group) as an opportune short.","Unless you have insider information (ILLEGAL!!!) don't go high risk over this time frame. It makes about as much sense as betting on the horses. Stick it in a 3 or 6 month GIC at the pathetic rates the banks are giving.","Invest heavily in the healthcare industry? Unless you think that prices and profits will be disconnected.","From a moral perspective, this would be so great. From a marketing perspective, all it would take is to 'leak' more videos that show how industrial meat production actually looks like to turn a large number of consumers to something that's ethically better (and probably can also be argued to be healthier). Excited to see this, less from an investment perspective, but because this could really change how humans interact with animals in a significant way.","The company released its 2nd Quarter Revenue of $1,957,921 a couple days ago however the stock did not move up in any way. Why? If the company is making money shouldn't the stock go up. But that result doesn't indicate that the company is making money. The word for making money is profit, not revenue. Profit equals revenue minus costs. An increasing revenue could mean decreasing profits. For example, marketing expenses could eat up the entirety of the new revenue. This is one of the most basic aspects of researching stocks. If you are having trouble with this, you might find yourself better suited to invest in mutual funds, where they do this research for you. In particular, the safest kind of mutual funds for an inexperienced investor are index funds that track a major index, like the S&P 500. Another issue is that stock prices aren't based on historical results but on expected future results. Many a company has reported smaller than expected profits and had their price fall even though profits increased from previous results. Looking at it long term would it hurt me in anyway to buy ~100,000 shares which right now would run be about $24 (including to fee) and sit on it? It would cost you $24. You might get a return some day. Or you might waste your money. Given the comparatively large upside, the consensus seems to be that you will probably waste your money. That said, it's not a lot of money to waste. So it won't hurt you that much. The most likely result remains that the company will go bankrupt, leaving your stock worthless.","I thought that as well. Not sure. As I stated she may be just unable to due to the relationship they have or she may know my current financial situation and is looking out for me and throwing me a bone. Initially if I'd found someone else I would've gotten a percentage of the monthly profits but I'm looking to be the sole investor so I can get out of my current living situation and become a productive member of society. Also to move to California and be closer to it only friends I have out there but also closer to the business itself. I fully plan to learn all about weed and what and why and how etc but for now I just wanna invest","\"And now it is at about $3. Many times \"\"skeletons\"\" are bought and inflated for various reasons. Some are legitimate (for example a private business merging into a defunct but public corporation to avoid wasting resources on going public), some are not (mainly pump-and-dump scams that are using \"\"skeletons\"\"). I don't know what was the case here (probably speculation based on the new marijuana laws in the US), but clearly the inflated price was completely unjustified since it went crashing down.\"","It's legal. I have documentation to prove it. Also a location and phone number for said legal weed shop. On top of all that I trust my celeb friend implicitly. Why would she try to fuck me over?","\"I mean, in the eyes of investors it is a good investment. > \"\"Demand for stock from fund managers exceeded supply by more than 29 times at that price, two people said.\"\" They also have plantations in Malaysia and Indonesia, along with refining plants in China, Indonesia, Turkey, and South Africa. So it already has a stable foot hold in various economies. Like I said, it's nice to see a business IPO that offers a tangible product with a relatively cheap IPO along with a chance to see much growth. You don't see many of these around nowadays.\"","Melbourne Australia and I'm 20. I'd get some management experience in this field first but I can certainly feel that happening soon. I'm in no rush to do this but it is 100% something I would do I have a friend who is an accountant who will be in this with me :)","a) Nothing would support this company going back to $.50 per share b) Fundamentally the market for this sectors has been obliterated and the fundamentals don't look like they will improve. Similar companies experience what this one is and will be going through, they borrow the hilt and hope they can pump enough oil and sell the oil at a high price. Oil goes below, WAYYY below the price they can sell it at and even break even, so they are burning cash until they declare bankruptcy. This company is not an exception. So here is what to look at on their balance sheet: assets and liabilities. Liabilities are debt. Their debt is over 50% of their assets, that debt has interest and there is NO WAY they are making a profit. Their website's last financial statement is from September 30th.. LOL, so they haven't even released a quarterly financial statement in two quarters straight, so have they released anything? Given what we know about the dire state of the entire oil drilling industry, lets see if these guys are the exception to the rule (spoiler; they aren't) February 15th, 2015 http://www.marketwatch.com/story/strategic-oil-gas-ltd-provides-operations-update-2015-02-19-16173591 The Company prudently elected to stop the winter Muskeg drilling program in order to preserve capital. So now they aren't even getting new assets to resale, they aren't making any money from that operation, their debt still has interest payments though. Approximately 700 Boe/d of production has been shut-in by suspending operations at Bistcho, Cameron Hills and Larne, which are not economic at current commodity prices. Predictable. Also, you should notice from their actual financial statements (from 6 months ago, lol) (when the price of oil was over 100% higher than it is today, lol), this company already wasn't a good performer. They have been financing themselves by doing private placements, by issuing shares to investors that are not you, and diluting the share value of ALL OTHER SHAREHOLDERS. Dead in the water. I got this from skimming their financial report, without even being familiar with how canadian companies report. Its just bad news. You shouldn't be married to this investment.","you very well may know better than me, honestly; but with any volatile investment, it is necessarily hard to predict their intermediate term trends. that would be my only caution to you! if you want speculative positions to hold, you might consider lower priced biopharms (though not pure penny positions). i made a bit of money on CCXI, for example. if you want more engagement/trading activity, consider tech trading or options (my personal favorite).","I'm not too sure. you'll need to open up new shops, so real estate, staff, computers, bank accounts, that's not even getting into farming weed. It'll definitely take a bite out of other vices for sure though.","I have a low position. Only 300 shares but will probably purchase more when it's in the .2-.3 range. They're pumping this company so it'll meet the NASDAQ requirements so i'm predicting executives will be putting a lot into the pool. Let's ride, boys.","Judge this stock no differently than any other is the answer. Optimism isn't fact. http://clarkhoward.com/liveweb/shownotes/2007/06/06/12304/?printer=1 Now because you get to buy extremely low, and sell for probably higher and you believe in the stock, I'd say go ahead and purchase the stock, manage it for taxes with the advice of your advisor and get your portfolio rebalanced as soon as you can. That might admittedly be a year or more, but as you say you have time. Like any investment, don't spend money you can't lose.","As BobbyScon said in the comments, invest in a company that is developing in that field. Or invest in a company which supplies that field. The people who got rich in the California gold rush were those selling shovels and other miners' supplies. Or bet against whatever you think this will displace. If automobiles are the hot new thing, it might be a bad time to invest in harness leather. Or ... figure out how else it might impact the economy and invest appropriately. But you have to do that evaluation yourself. Or ignore it and stick with your existing strategy, which should have been diversified enough to deliver reasonable results whether this sector takes off or not. Remember that if someone gives you a free tip, they are probably just hoping to pump up the value of their own stock rather than help you.","\"The recommendation is not to make the investment. In general, a company does not have to sell their shares to you or allow you to become an investor, because, as you have stated, it is a private company not quoted on the stock market. If everyone were trustworthy, you could buy the tools for $11000 -- so that you own the tools -- and sign a lease of the tools to the company whereby they pay you $X/month. The lease should be reviewed by a lawyer before it is signed, and perhaps give the buyer the right to demand back the tools at any time. However, even this arrangement is very risky, because the \"\"company\"\" could simply steal or damage the tools and disappear. It is not an investment that I would make, because it sounds too good to be true. $2800/mo steady cash flow for $11,000 invested. No, I don't think so. The following information may also be useful, either to you, or future readers: If you still want to make this investment, then you should know that: The offering for sale of shares by companies located in the USA is subject to a wild array of complex laws. This is true in many other countries as well. These laws, called securities laws or regulations, can require certain disclosures, require that investors have a high net worth so that they can afford to lose the money or conduct their own investigations and legal actions, or require that the investors know the company founders personally, and can prohibit or limit resale by the buyer/investor. Promoters who say you can still invest and are ignoring or disobeying the securities laws are being at least negligent, but more likely are dishonest and probably criminal. Even if you trust in the investment, can you trust negligent managers to do a good job executing that investment? What about dishonest managers? What about criminals and thieves?\"","Returns: Variable, as with all investments. Legitimate: Contact the usual major investment-fund houses.","\"I'll take a stab at this question and offer a disclosure: I recently got in RING (5.1), NEM (16.4), ASX:RIO (46.3), and FCX (8.2). While I won't add to my positions at current prices, I may add other positions, or more to them if they fall further. This is called catching a falling dagger and it's a high risk move. Cons (let's scare everyone away) Pros The ECB didn't engage in as much QE as the market hoped and look at how it reacted, especially commodities. Consider that the ECB's actions were \"\"tighter\"\" than expected and the Fed plans to raise rates, or claims so. Commodities should be falling off a cliff on that news. While most American/Western attention is on the latest news or entertainment, China has been seizing commodities around the globe like crazy, and the media have failed to mention that even with its market failing, China is still seizing commodities. If China was truly panicked about its market, it would stop investing in other countries and commodities and just bail out its own country. Yet, it's not doing that. The whole \"\"China crisis\"\" is completely oversold in the West; China is saying one thing (\"\"oh no\"\"), but doing another (using its money to snap up cheap commodities). Capitalism works because hard times strengthen good companies. You know how many bailouts ExxonMobil has received compared to Goldman Sachs? You know who owns more real wealth? Oil doesn't get bailed out, banks do, and banks can't innovate to save their lives, while oil innovates. Hard times strengthen good companies. This means that this harsh bust in commodities will separate the winners from the losers and history shows the winners do very well in the long run. Related to the above point: how many bailouts from tax payers do you think mining companies will get? Zero. At least you're investing in companies that don't steal your money through government confiscation. If you're like me, you can probably find at least 9 people out of 10 who think \"\"investing in miners is a VERY BAD idea.\"\" What do they think is a good idea? \"\"Duh, Snapchat and Twitter, bruh!\"\" Then there's the old saying, \"\"Be greedy when everyone's fearful and fearful when everyone's greedy.\"\" Finally, miners own hard assets. Benjamin Graham used to point this out with the \"\"dead company\"\" strategy like finding a used cigarette with one more smoke. You're getting assets cheap, while other investors are overpaying for stocks, hoping that the Fed unleashes moar QE! Think strategy here: seize cheap assets, begin limiting the supply of these assets (if you're the saver and not borrowing), then watch as the price begins to rise for them because of low supply. Remember, investors are part owners in companies - take more control to limit the supply. Using Graham's analogy, stock pile those one-puff cigarettes for a day when there's a low supply of cigarettes. Many miners are in trouble now because they've borrowed too much and must sell at a low profit, or in some cases, must lose. When you own assets debt free, you can cut the supply. This will also help the Federal Reserve, who's been desperately trying to figure out how to raise inflation. The new patriotic thing to do is stimulate the economy by sending inflation up, and limiting the supply here is key.\"","Okay as long as you aren't dumb enough to actually think this would be worth pursuing. I don't want you to waste your money when it could go towards something nice, like your house budget. If you really do believe they are overvalued there are much better strategies.","\"With debts exceeding assets by a billion dollars, this activity likely comes from penny stock speculators and \"\"pump and dump\"\" schemers. There is no rational expectation that the stock is even worth multiple pennies when the company is that far upside-down on its debts. Even if the debts could be restructured in a chapter 11, the equity shares would likely lose all of their value in the bankruptcy proceedings. Shareholders are at the bottom of the totem-pole when debts are being adjusted by the courts.\"","\"As of right now it looks like you can't issue an ETF at least because the underlying \"\"commodity\"\" isn't regulated. (See Winkelvoss ETF). I suspect you would run into this problem with any 1940 act fund (mutual fund), but it's more a situation of \"\"not approved\"\" rather than illegal, so an MLP hedge fund structure would probably be fine. And some googling finds Iterative Instinct Management's Storj SPV.\"","Perhaps look into how prohibition worked out for distillers and brewers. It doesn't take something as arcane as outright prohibition to ruin an industry. Onerous rules and regulations will do it as well. Either way Romney or Obama are going to do the exact same things, and this guy is just a useful partisan idiot.","comments discuss investing in potato futures. Learn / ready about commodity trading or commodity futures. An investopedia article How To Invest In Commodities is a good start. There are quite a few commodities offered for normal trade or as futures. Potatos may not be offered on quite a few exchanges. Found some here Investing in commodities is fraught with quite a bit of risk, some like you have already pointed out. Of course you can't eat all and have to sell.","im not hating whats so ever man. I'm saying exactly what golfman is saying and that is to do your due diligence. Answer me this question so i know you have some kind of info on this business. What is their profit margin and overhead costs?","\"I really want a CEO to play up impending doom one time. \"\"We seriously need funding. Anybody out there want some equity with warrants?\"\" Here's to hoping that this company does well. As of now, that is too much for me to pay for a car.\"","Corporations are removed from the options markets. They can neither permit nor forbid others from trading them, local laws notwithstanding. No national options market is as prolific as the US's. In fact, most countries don't even have options trading. Some won't even allow options but rather option-like derivatives. Finance in Canada is much more tightly regulated than the US. This primer on Canadian option eligibility shows how much. While US eligibility is also stringent, the quotas are far less restrictive, so a highly liquid small company can also be included where it would be excluded in Canada for failing the top 25% rule.","Depending on your perspective of it, I can see reasons for and against this idea. Only with the benefit of hindsight can one say how wise or unwise it is to do so. Earlier in my career, I invested and lost it all. Understand if you do buy when would you be able to sell, do you have to have an account with the underwriter, what fees may there be in having such an account, and would there be restrictions on when you could sell.","\"I don't know if what they're doing is legal, however I believe you should be able to roll over the funds in your 401(k) to a self-administered IRA in which you can buy any stock you want. Is the company publicly traded? Also, you say the stock is \"\"expected\"\" to surpass its previous high? By who? You? Spokespeople at the company? Certainly not the market itself, as it wouldn't have fallen so much otherwise. I'm not saying you're wrong, just that you have to make your own judgments about these things, don't go by others' \"\"expectations\"\".\"","It is only wise to invest in what you understand (ala Warren Buffet style). Depending on how much money you have, you might see fit to consult a good independent financial advisor instead of seeking advice from this website. A famous quote goes: “Those who say, do not know. Those who know, do not say”","A cautionary tale: About 25 years ago I decided that I should try my hand at investing in some technology companies. I was in the computer biz but decided that I might suffer from myopia there, so I researched some medical startups. And I did some reasonably good research, given the available resources (the Internet was quite primitive). I narrowed things down to 4-5 companies, studying their technology plans, then researched their business plans and their personnel. In the end I picked a drug company. Not only did it have a promising business plan, but it had as it's CEO a hotshot from some other company, and the BOD was populated buy big names from tech companies and the like. AND the company had like $2 of cash for every $1 of outstanding share value, following their recent IPO. So I sold a bit of stock I had in my employer and bought like $3000 worth of this company. Then, taking the advice I'd seen several places, I forgot about it for about 6 months. When I went back to look their stock value had dropped a little, and the cash reserves were down about 20%. I wasn't too worried. 6 months later the cash was down 50%. Worrying a little. After I'd had the stock for about 2 years the stock price was about 10% of what I'd paid. Hardly worth selling, so I hung on for awhile longer. The company was eventually sold to some other company and I got maybe $50 in stock in the new company.","You don't have to wait. If you sell your shares now, your gain can be considered a capital gain for income tax purposes. Unlike in the United States, Canada does not distinguish between short-term vs. long-term gains where you'd pay different rates on each type of gain. Whether you buy and sell a stock within minutes or buy and sell over years, any gain you make on a stock can generally be considered a capital gain. I said generally because there is an exception: If you are deemed by CRA to be trading professionally -- that is, if you make a living buying and selling stocks frequently -- then you could be considered doing day trading as a business and have your gains instead taxed as regular income (but you'd also be able to claim additional deductions.) Anyway, as long as your primary source of income isn't from trading, this isn't likely to be a problem. Here are some good articles on these subjects:","Assuming you have no non-public material information, it should be perfectly legal. I suspect it's not a great idea for the reasons that Joe outlined, but it should be legal.","I am using the PRIME MY BODY CBD and have been in Network Marketing for years. The company is not a pyramid scheme (those are illegal). The product's nano enhanced technology is awesome. I am seeing amazing results and you do not have to become an affiliate unless you want discounts. Many people will sign up as affiliates and not move into business but want the oil discounted. That is perfectly fine. You can also opt to order retail as strictly a customer. So those are options. But if she wants to go into a great home based business, I would seriously look at this as a viable option . CBD/Cannabis and Medical Marijuana is going to be a multi billion dollar industry and the stigma of the STONERS etc is being taken away and more people are understanding the natural health benefits of the plant....","I don't see it getting blocked in a world of Kraft-Heinz and WalMart, CVS, Target, etc. Then again, I could be completely freaking wrong, and the wisdom of the market has left more than a few corpses behind its wake. EDIT: I'm a corpse, but not for the reason of blocking.","All of this makes perfect sense and I can definitely see the logic behind it. But I don't think Hedge Funds are the way to go. The real money lies in real estate, more specifically land-banking. The problem, though, is that a lot of land-banking investments are really just scams and it's really hard to tell which ones are real and which ones are fake.","There is the iShares Jantzi Social Index Fund.","Basic business concept here. Sales =/= money for you. You need to take into account the cost to continually produce this stuff. Don't forget the fact that prices will fall in the future as more firms enter the market.","If you've decided to ignore the sound advice re: oil company stocks, and you want something directly linked to the price of oil, do the following: Understand that oil producers would like avoid the risk of a price drop, and oil consumers (refiners, electric utilities, etc.) would like to avoid the risk of a price rise. Understand that you are about to assume their risk.","You can also grow your produce, cook your own food, hell you can make your own electronics if you want to, and yet supermarkets, restaurants, and tech companies all seem to be doing fine. Just because weed has been decriminalized doesn't mean that people have the experience and knowledge to grow it or want to invest the time and effort to make it a successful venture. To my knowledge, you also have to be licensed to both grow and sell it, and holding small quantities is legal...if you're just some guy growing 1,000 plants in the woods and holding 500 pounds in your basement, you're going to get shut down and arrested. Have you not seen the great success of weed stores in places like Colorado? They offer far more than just weed in Ziplock baggies. If weed becomes legal nationally in the US, you will absolutely see large companies form for the exact reason that they form in every other industry: it's cheaper to consolidate operations and greater volume of sales means higher profit.","Given what you state you should shop around for an advisor. Think of the time required to pursue your strategies that you list? They already have studied much of what you seek to learn about. Any good investor should understand the basics. This is Canadian based but many of the concepts are universal. Hope you find it helpful. http://www.getsmarteraboutmoney.ca/Pages/default.aspx","Easy for someone who knows absolutely nothing about business to say like yourself. Are you going to pay for the lawsuit from an injury or death? Don't try to tell me these weed smokers only do it occasionally. They're usually daily smokers and losers.","Quick look through your post history definitely confirms that. I still think you should delete the info that exposed her identity and seriously reconsider whether you can afford to make such a speculative and highly leveraged investment in a California weed shop. In the end its up to you.","I mean, when the federal government can pull your bank charter and the FDIC can revoke your government insurance, it's not worth the benefit just to support some small town pot grower. It's likely to be this way until the federal government legalizes it or gives outright approval to the banks.","I like Keshlam's answer and would like to add a few notes: While your enthusiasm to invest is admirable learning patience is a key aspect of wealth building and keeping.","At the time of writing, the Canadian dollar is worth roughly $0.75 U.S. Now, it's not possible for you to accurately predict what it'll be worth in, say, ten years. Maybe it'll be worth $0.50 U.S. Maybe $0.67. Maybe $1.00. Additionally, you can't know in advance if the Canadian economy will grow faster than the U.S., or slower, or by how much. Let's say you don't want to make a prediction. You just want to invest 50% of your money in Canadian stocks, 50% in U.S. Great. Do that, and don't worry about the current interest rates. Let's say that you do want to make a prediction. You are firmly of the belief that the Canadian dollar will be worth $1.00 U.S. dollar in approximately ten years. And furthermore, the Canadian economy and the U.S. economy will grow at roughly equal rates, in their local currencies. Great. You should put more of your money in Canadian stocks. Let's say that you want to make a prediction. The Canadian economy is tanking. It's going to be worth $0.67 or less in ten years. And on top of that, the U.S. economy is primed for growth. It's going to grow far faster than the Canadian economy. In that case, you want to invest mostly in U.S. stocks. Let's get more complicated. You think the Canadian dollar is going to recover, but boy, maple syrup futures are in trouble. The next decade is all about Micky Mouse. Now what should you do? Well, it depends on how fast the U.S. economy expands, compared to the currency difference. What should you do? I can't tell you that because I can't predict the future. What did I do? I bought 25% Canadian stocks, 25% U.S. stocks, 25% world stocks, and 25% Canadian bonds (roughly), back when the Canadian dollar was stronger. What am I doing now? Same thing. I don't know enough about the respective economies to judge. If I had a firm opinion, though, I'd certainly be happy to change my percentages a little. Not a lot, but a little.","It is a publicly traded company. My interest is more in their motivation for instituting the new policy. *I* expect the stock to go up, I'm not being told that by someone else. Thanks for looking out though :)","\"Yes, in my humble opinion, it can be \"\"safe\"\" to assume that — but not in the sense that your assumption is necessarily or likely correct. Rather, it can be \"\"safe\"\" in the respect that assuming the worst — even if wrong! — could save you from a likely painful and unsuccessful speculation in the highly volatile stock of a tiny company with no revenue, no profits, next to no assets, and continued challenges to its existence: \"\"There is material uncertainty about whether the Company will be able to obtain the required financing. This material uncertainty casts significant doubt about the Company’s ability to continue as a going concern.\"\" As a penny stock, they are in good company. Still, there are a variety of other reasons why such a stock might have gone up, or down, and no one [here] can say for sure. Even if there was a news item, any price reaction to news could just amount to speculation on the part of others having enough money to move the stock. There are better investments out there, and cheaper thrills, than most penny stocks.\"","If the company is stable. I like to recoup losses by buying in the valley and selling it all at the plateau and then learning as all beginners do, don't buy stocks because there's a feeding frenzy...or because Joe told me too. Pick your strategy in stocks and learn to stick with that. If you have no strategy, buy land.","If this was a public corporation (stock) and the investment was made in a non-registered account, then you can claim a capital loss. Capital losses are claimed against capital gains (not income), and can be carried back 3 years or carried forward indefinitely. Here's an article I've written on how to claim capital losses that may help.","Flash Boys was kind of full of shit, though. And it was basically an ad for another guy trying to make it with his exchange. Canada is actually heating up from an algo/HFT perspective. Does that affect you at all? I'm seeing a lot more of this type of activity and the lack of dark pools creates for an interesting environment. I always look forward to RBC's coverage on the topic, given the general lack of info.","Haha. I'm not suggesting you had anything to do with this particular incident, just that lots of people know about these things before they hit the news so you basically have to be the person doing it to have any advantage on the market. Such stories typically hit the news a long time after regulators, large investors and people working in the industry hear about them.","You should sell all your stock immediately and reinvest the money in index funds. As of right now you're competing against prop trading shops, multinational banks, and the like, who probably know a teensy bit more about that particular stock than you do. I'm sorry, any other advice is missing the point that you shouldn't be picking stocks in the first place.","Hedge what risk? What is your risk exposure? I don't seem to understand what is your risk factor (is it a basket of metals), if its a non market product you can do the following: 1. Calculate correlation matrix between your basket and potential candidates (mining, etf's etc) 2. Sell the strongest correlation, however be careful as you are not only selling the rare earth prices but also the extraction margin and market risk. 3. Ideally you would find a futures contract or create some way to isolate the rare earths while cancelling out the margins (will be tough!).","This security looks like it will require patience for it to pay off. The 200 day moving average looks as if it will soon cross over the 20 day moving average. When that happens the security can be said to be in a bull run. http://stockcharts.com/h-sc/ui?s=UWTI&p=D&yr=1&mn=6&dy=0&id=p10888728027 However, this is just speculation... trying to make money via 'buy low, sell high' as I have stated previously, you have about a 25% chance of buying at the low and selling at the high. Better to buy into a fund that pays dividends and reinvest those dividends. Such as: http://www.dividend.com/dividend-stocks/uncategorized/other/pgf-invesco-powershares-financial-preferred-portfolio/ http://stockcharts.com/h-sc/ui?s=PGF&p=D&yr=1&mn=6&dy=0&id=p59773821284","* Absolutely agree with /u/IsAnAlpaca * You /must/ not agree to this without seeing his balance sheet. * That means assets and liabilities, but also ask for the last 12 months' cash flow * Inability or unwillingness to provide any of those things is a HUGE no-go red flag.","The price of the stock is not really relevant, as your return is measured as a percentage, 6% return on a $100 stock is the same as a 6% return on a $1 stock, you just hold 100 times more shares at the lower price. I personally really like Eurosun Mining ESM, they are greatly undervalued and have the potential to double or triple in the very near term.","The risk is that everything could go wrong in any phase at any time or they could run out of cash and go bankrupt waiting for results. Then there is the FDA that might take forever in approving their drug, or not approve it at all. Human trials could go horribly wrong. The company may be incompetent in bringing a product to market (after FDA rubberstamping), there might not be a market for their particular METHOD of treatment (is it a pill, or is it a torture device you have to strap yourself into for 5 hours a day). And maybe they are never able to make a profit with all the debt they have taken to stay afloat.","I'm a bot, *bleep*, *bloop*. Someone has linked to this thread from another place on reddit: - [/r/talkbusiness] [You could make $70,000 right out of college with a degree in marijuana studies](https://np.reddit.com/r/talkbusiness/comments/787m53/you_could_make_70000_right_out_of_college_with_a/) [](#footer)*^(If you follow any of the above links, please respect the rules of reddit and don't vote in the other threads.) ^\\([Info](/r/TotesMessenger) ^/ ^[Contact](/message/compose?to=/r/TotesMessenger))* [](#bot)","\"Your math is correct. These kind of returns are possible in the capital markets. (By the way, Google Finance shows something completely different for $CANV than my trading console in ThinkorSwim, ToS shows a high of $201, but I believe there may have been some reverse splits that are not accurately reflected in either of these charts) The problems with this strategy are liquidity and timing. Let's talk about liquidity, because that is a greater factor here than the random psychological factors that would have affected you LONG LONG before your $1,000 allowance was worth a million dollars. If you bought $1000 worth of this stock at $.05 share, this would have been 20,000 shares. The week of October 11th, 2011, during the ENTIRE WEEK only 5,000 shares were traded. From this alone, you can see that it would have been impossible for you to even acquire 20,000 shares, for yourself at $.05 because there was nobody to sell them to you. We can't even look at the next week, because there WERE NO TRADES WHATSOEVER, so we have to skip all the way to November 11th, where indeed over 30,000 shares were traded. But this pushed the price all the way up to $2.00, again, there was no way you could have gotten 20,000 shares at $.05 So now, lets talk about liquidation of your shares. After several other highs and lows in the $20s and $30s, are you telling me that after holding this stock for 2 years you WOULDN'T have taken a $500,000 profit at $25.00 ? We are talking about someone that is investing with $1,000 here. I have my doubts that there was no time between October 2011 and January 2014 that you didn't think \"\"hm this extra $100,000 would be really useful right now.. sell!\"\" Lets say you actually held your $1,000 to $85.55 there were EXACTLY TWO DAYS where that was the top of the market, and in those two days the volume was ~24,000 shares one day and ~11,000 shares the next day. This is BARELY enough time for you to sell your shares, because you would have been the majority of the volume, most likely QUADRUPLING the sell side quotes. As soon as the market saw your sell order there would be a massive selloff of people trying to sell before you do, because they could barely get their shares filled (not enough buyers) let alone someone with five times the amount of shares that day. Yes, you could have made a lot of money. Doing that simplistic math does not tell you the whole story.\"","\"The Indian regulator (SEBI) has banned trading in 300 shell companies that it views as being \"\"Shady\"\", including VB Industries. According to Money Control (.com): all these shady companies have started to rally and there was a complaint to SEBI that investors are getting SMSs from various brokerage firms to invest in them This suggests evidence of \"\"pump and dump\"\" style stock promotion. On the plus side, the SEBI will permit trading in these securities once a month : Trading in these securities shall be permitted once a month (First Monday of the month). Further, any upward price movement in these securities shall not be permitted beyond the last traded price and additional surveillance deposit of 200 percent of trade value shall be collected form the Buyers which shall be retained with Exchanges for a period of five months. This will give you an opportunity to exit your position, however, finding a buyer may be a problem and because of the severe restrictions placed on trading, any bid prices in the market are going to be a fraction of the last trade price.\"","If you buy US stocks when the CAD is high and sell them when the CAD is lower you will make a currency gain on top of any profit or loss from the stock investments. If you buy US stocks when the CAD is low and sell when the CAD is higher any profits from gains from the stock investment will be reduced and any losses will be increased. If you are just starting out you may be better off investing in your own country to avoid any currency risk adding to your stock market risk.","I am American but live in Japan as a network and systems engineer. I always drink the white one when in the US. So many of them to pick from when I visit my family. Not confident enough to invest based on this but for my own non-monetary selfish reasons I hope this suceeds well.","Invest in solid companies, not in esoteric products built on sand. The problem is with finance, not with real economy: oil companies make money, mobile phone companies make money, airlines make money...","Yes, it is. Got to start somewhere. Typically directly through a company itself. Check out this site that lists a bunch of them and their minimum requirements. Not many only accept $100 but there are a few. ie. ACTIVEnergy Income Fund, CIBC, COMPASS Income Fund, Suncor Energy Inc. and a few others.","\"You're being scammed. I'd be willing to bet this 'celebrity' friend is a fake account on Instagram with 20k followers that befriends lonely neckbeards then tries to scam them. Save your money. Even if this is a legitimate long term friend whom you trust, you should put a lot more thought into \"\"investing\"\" money (that you don't have) into her brothers drug shop.\"","Just saw the update: Here's some ETFs for Canada from Vanguard.","Long time /r/economy subscriber and early Ethereum investor here. I'm 100% biased (full disclosure) but I believe this tech has legs. There are a lot of companies backing it, governments exploring it and developers building upon it. It's currently at $365 with a $35bil market cap. Look for 3 upgrades in the works: 1) Raiden - Should increase transaction capabilities to that of Visa 2) Sharding - Allows for lite clients and partial downloads of the nodes 3) Proof of Stake - No more video card farms wasting electricity. Put your ethereum as stake to help the network reach consensus and earn a percentage return I've you've got commodities in your portfolio, I would strongly suggest taking a look at Ethereum","Marijuana should be decriminalized. It would stop giving insurance companies loopholes to deny claims, and would let the government hire better cybersecurity experts. Digital forensics agencies have been complaining for years that they can't fill positions fast enough because so many applicants don't want to comply with their marijuana policies.","This is a long term investment but can be very useful during tough times. Be prepared not only to take but to give as well. Moreover:","I'll consent to this. I get it. But the shop itself is making about 80-100k a month in sales. I realize the wind could shift but as long as I recoup the initial 92k I wouldn't be out any monies. It would take almost a year since each harvest period is 66 days but I get what you mean","While I am not an advocate of shorting anything (unlimited downside, capped upside), you can:","\"Not specifically a \"\"stream\"\", but there are royalty companies that operate based on a similar concept. With a royalty, a party will pay upfront to a another party, usually a product manufacturer, oil & gas producer, or miner, and in return they will receive a percentage of the proceeds from the sale of the goods. For example, Company A owns 100 sections of land which carry mineral rights and they would like to drill on the land to produce oil & gas. However, Company A does not have the capital to produce the resource. Company B, a royalty company, agrees to provide upfront capital to Company A in return for a royalty, sometimes fixed, sometimes sliding scale based on other factors. The royalty is calculated based on a percentage of the sales proceeds that Company A receives from the sale of their oil & gas production. In this way, royalty companies act similarly to streaming companies, where they provide upfront capital and in return receive a cash flow stream that is dependant on another party's actions. What is different is that the selling price is not fixed. Instead, it is the % of proceeds that is fixed, at least in the short term. In Canada, PrairieSky Royalty and Freehold Royalties do exactly this.\"","looking over some historical data I cannot really a find a case where a stock went from $0.0005 to $1 it almost seem that once a stock crosses a minimum threshold the stock never goes back up. Is there any truth to that? That would be a 2000X (200,000%) increase in the per-share value which would be extraordinary. When looking at stock returns you have to look at percentage returns, not dollar returns. A gain of $1 would be minuscule for Berkshire-Hathaway stock but would be astronomical for this stock,. If the company is making money shouldn't the stock go up? Not necessarily. The price of a stock is a measure of expected future performance, not necessarily past performance. If the earnings had been more that the market expected, then the price might go up, but if the market sees it as an anomaly that won't continue then there may not be enough buyers to move the stock up. looking at it long term would it hurt me in anyway to buy ~100,000 shares which right now would run be about $24 (including to fee) and sit on it? If you can afford to lose all $24 then no, it won't hurt. But I wouldn't expect that $24 to turn into anything higher than about $100. At best it might be an interesting learning experience."],"string":"[\n \"The legalization of Cannabis will drastically alter supply and demand of cannabis and hemp. The distribution channels that work well for hemp may or may not work well for cannabis and may or may not continue to work well once cannabis is widely available. Companies may have avoided sponsoring hemp products because of it's association with marijuana. If Marijuana is made legal, that stigma may or may not go away, changing which companies are interested in distribution. I don't believe that legalizing cannabis will create a great investing opportunity into existing hemp producers.\",\n \"Many gains to be had, but the two rules of investing are don't lose money. So if you are to invest in marijuana, wait until marijuana is legal, and wait for the market leader to emerge, and see what their financials are like. Then invest, with enough information.\",\n \"\\\"It is such a touchy subject for many people, I have to say that simple \\\"\\\"set it and forget it\\\"\\\" kind of investing isn't likely in the near term. Instead, if this is something you believe in, treat it like any other business opportunity and do some detailed research into people operating in the field. Look into their business plans and visit their operations. If there is a plan, and idea, a team and the intangible it you might consider doing some direct investing with a local company. Basically become a small business owner, silent partner or investor. If you believe in it go for it. If you don't believe in it that much, I think this is a market somebody else needs to develop before we invest.\\\"\",\n \"Hemp is already pretty easily grown by farmers here. Canada had 50,000 acres of legal hemp in 2006, but it's been in decline the last 3 years due to the cost, lack of demand, and the high values of some other crops. It's also difficult to harvest due to its size. It's possible that the demand for hemp products will increase, but given that many Asian countries (Russia, China and Korea, for example) never banned it in the first place, there's a pretty ready supply already in place. In Canada, the big reason to grow it is as an alternative crop for use in rotation that has some commercial demand, but it's certainly not as valuable as crops like canola, oats or soy beans.\",\n \"There's a bunch of publicly traded companies in Canada. Canopy Growth, CanniMed, MedReleaf, and a few others that are slipping me right now. You can also go to Motif Investing and look at all the marijuana ETF's which will also have the underlying stock.\",\n \"Is there any truth to this, or is this another niche scam that's been brewing the last few years? While it may not be an outright scam, such schemes do tend to be on borderline of scams. Technically most of what is being said claimed can be true, however in reality such windfall gains never happen to the investors. Whatever gains are there will be cornered by the growers, trades, other entities in supply chain leaving very little to the investors. It is best to stay away from such investments.\",\n \"In that case, forget this whole pot shop and look into buying some REITs (Real estate investment trusts). Or invest in QCLN, a ETF that invests in companies that produce and distribute green energy. You're looking for a get rich quick scheme, not a solid investment. You don't even have any money. You can't afford to lose $92,000 when you have $0.\",\n \"there is a trend to decriminalize weed. when weed is no longer a crime to grow, who is going to pay you two cents for a small handful of it? answer: nobody. and then what will your stock be worth? the word shit comes to mind, lol.. it is a weed that manufactures itself, and the only reason that it has any value at all if that only certain people are allowed to grow it. and, even if it isnt decriminalized, what happens when this medicinal bullsht takes off and the cigarette companies start selling packs of joints for twelve bucks? again, your stock will be worth shit, and everybody that invested in weed will be high and upside down.\",\n \"They'll largely be fine. They're to the point where it's all about business plans and securing financing. Determining long term risk for these types of firms are the main hold up at this point. But, given that everything else is flooded with investment capital already, I expect more and more lenders to get into the space.\",\n \"This sort of question pops up with every new or sexy technology, and it's born (IMO) from the misguided opinion that a growth industry is a source of huge, guaranteed profit. The reality is that, even in rapidly growing tech sectors, there is a high infant mortality rate. A lot of balloons go up, many pop, some drift far off course, some get tangled in the branches... and a few rise to the heavens, making the early investors look like supergeniuses. Some very few of them were! They did their research, they made calculated risk assessments, and they chose AAPL over competitive companies. Some bought AAPL near the IPO through luck. If your investment strategy idealizes these guys, go to Las Vegas and bet on red. Red never fails. Plus: you'll get free drinks, a buffet, and a nice stage show while you go bankrupt. But in general, companies within a new, rising sector like marijuana dispensaries/farms/whatever aren't guaranteed growth. Do your research, and diversify your investments!\",\n \"No. I have partaken of but not lately. It's only become non-taboo here in the last 10 years and I was raised to think it was bad and people who do it are slackers or lazy and the like. I've thankfully grown out of that old way of thinking and now know how profitable it is and feel this is a good venture to begin building a nice portfolio. I'd also like to get into real estate and solar and wind as well\",\n \"Meh, that's good for pain if that works, but that's a relatively small market compared to pharmaceuticals from a business perspective, much lower profit margins because anyone can grow it. It's a highly competitive field, and as soon as it becomes legal federally you know that Altria and other huge corporations are going to be able to sell it and put the small producers out of business. Many great minds also never did drugs. Again, I'm just going by my experiences, and none of the smart/successful people at my company or in my group of friends smoke pot.\",\n \"It's interesting that legacy manufacturing practices are now becoming important. How long until we see a lot of the traditional industrial control world get involved in the cannabis business? I can't wait to see Eaton and Siemens spin up their marijuana divisions.\",\n \"Investing in commodities is iffy in the best of times. Potash already has expectations priced in, so I prefer to play CNI, the railroad doing most of the hauling. Uranium? No. Uranium has been touted for a decade or more without results. Thorium is the preferable future nuclear fuel, and there is lots of it.\",\n \"\\\"Gee son. That's a potential for a better than 10% gain in a short amount of time. If bought within a tax advantaged account like a IRA then you don't even pay capital gains. Does Lube know? Last I checked he was obsessing over \\\"\\\"bowels\\\"\\\" or some shit.\\\"\",\n \"\\\"Someone asked this over in /r/darknetmarkets , they were asking how to profit off NV specifically, but here's what I wrote there, I'd be curious what you guys think: > Go back in time about 6 mo, case the medical scene for movers and shakers, write some proposals to help them expand. Traditional banks won't touch financing these guys with a 10ft stick right now, the Fed has told them straight up they will lose FDIC membership if they touch \\\"\\\"drug money\\\"\\\" (cough cough tobacco and alcohol don't count? cough cough). If you don't have a time machine, either come up with a way to be a bank to these guys without going to a Fed lockup, or go finance expansion in the next state which legalizes. It's gonna be a while until these guys get integrated with the regular money system to the point they have stocks and such. Or maybe the Fed freezing them out as they make a fortune will just push forward crypto currency and hasten the collapse of the current money oligarchy, who knows. There was also some comments about shipping from NV to home states, which is probably a bad idea for many reasons. I did however feel I can offer some insight on a legal president for this kind of behavior, but exactly how legal reshipping to avoid direct shipping of a purchase to a state is (I mean, once it's your proper legal property and you're just shipping it to yourself that does seem legal, right?) or if it would get the same blind eye when done with pot are huge unknowns: >I'm sure the Feds will not see a problem with sending drugs to yourself across state lines! Actually funny enough I live in the wine region of CA and there is a whole business here of wine \\\"\\\"storage and shipping\\\"\\\" places. It's up to the states to decide how or if they allow alcohol to be shipped into their state from others, and a bunch of state have very complex rules or just don't allow it. So if you come out here for tourism, drink some wine at a winery, like it, and ask if you can have some shipped home, the answer is about 50/50 to be 'no'. And if you're a average income pleb, that's your answer. If you're some rich dude however, you can say \\\"\\\"ah gotcha, pesky laws... well here's the address of my storage and shipping place, send the 2 cases there then\\\"\\\", nobody bats an eye, and off the cases go. Guy goes home, calls up the shipping place, and says \\\"\\\"hey pull those cases, my personal property, and ship them to me\\\"\\\" and, somehow, magically, this is now legal. I have no idea who's taking on the liability here, if the shipping place has them sign off \\\"\\\"we will ship wherever you ask, it's not our job to verify the legality of your request\\\"\\\" then I guess it's on the consumer, but if you have an entire business built around circumventing state law it would seem to me that this should be a legal problem. But, wine is a high-end commodity, rich people make their own rules, and if CA turns a blind eye to this practice they get to collect the sales tax as it's sold in CA and shipped to a location in CA, whereas fighting it would hurt their tourism and also send the tax income to the states being shipped to. C.R.E.A.M. baby! Re-reading this now I'm not even sure if there IS a liability here. They bought the property in CA, paid tax in CA, and had it sent to a mailing address in CA. What they do after that with their personal property is not the states business, right? I'd imagine this would be drastically different if shipping for resale. Similarly, I think this all only works if you complete the transaction while physically in the state. So at most this might turn on some weed tourism. The big difference in all of this is that the Fed is fine with alcohol, but not weed, so, while I suspect someone will form such a weed storage and shipping place at some point, I don't really want to be first in line to see how this flys and if it lands you in trouble with the Fed.\\\"\",\n \"No chance. First off, unless the company provides audited financials (and they don't from what I can tell), there is no way I'm tinkering with a bunch of small business owners. Transparency is a substantial part of investing and this actually exempts or excludes these companies, from what I can tell.\",\n \"This just proves when you're able to offer a physical product or service it is always a good investment. Especially because they own so much land. It's nice to see a company IPO that isn't an investment group, or an online business, but an actual producer of physical goods. And also the fact that it has a market cap of $3.3 bln, a number that looks like it can easily grow over time (citing Facebook's ~$100 bln entry point).\",\n \"\\\"John Robbins is an idiot. Hamed Hoshyarsar has no idea what he's doing. >\\\"\\\"Hey, I'm going to throw money I can't afford to lose into something I know nothing about.\\\"\\\" Someone needs to take their money before they hurt themselves with it.\\\"\",\n \"\\\"Those \\\"\\\"haters\\\"\\\" are trying to convince you away from making a poor investment. It would honestly be unethical for us not to. Tell you what. Meet with these people in real life. Take a tour of their current operations. Do your due diligence. Ask them hard questions. Like. Why they need to reach out to friends for investment, rather than a venture capitalist or a bank loan? At worst they are lying and it is fraud. At best they are in over their head with bad business sense and you're about to get sucked into it. Just because weed in general is going to take off, does not mean YOUR weed shop is going to take off. Example: Smartphones have taken over the world. Microsoft recently axed its windows phone because it did not work out for them. Your weed shop could be the iphone of weed. It also could be the windows phone of weed. I know you've gone over how he has experienced high demand. There's a saying we like here: Past performance is not indicative of future results. Its entirely possible a large retail chain (Amazon perhaps?) could enter the market and undercut you to the point that you are making a loss.\\\"\",\n \"She said he's been in business for 3 years and I've Googled it and found it to be accurate from the paperwork I've seen that's public knowledge. I know this isn't a get-rich-quick thing bc hard work and money went into making and building not only a business but a brand as well. Brand building is a lot harder than business building. Anyone can get a loan with decent enough credit and open up a shop: it's keeping people coming in that is the hard part. I understand all areas of this business except for the growing part. I've never known how to grow weed or the technicalities it takes to maintain healthy plants and things. I'm just looking to invest in something I believe in because weed shouldn't be illegal and the medicinal reports state that it's far from a gateway drug or anything of the sort. I do wanna thank you for (so far) being the nicest reply to my post. We seem to have some haters and naysayers on here who like to just start shit and while you may find it hard to believe that I'm trying to just get rich, that simply isn't the case. I believe her and I believe in her so I know what she's trying to do is all legit\",\n \"Sedar is I guess the Canadian equivalent of EDGAR. You can find the company's filings there. Here's a picture from their filings. Can't post the link, if you go and find the filing through Sedar you'll know why (it's not as nice a site as EDGAR). The 4.8 million is from unrealized gain on biological assets. So that's what it is. The reason, I think, as to why Operating Income is a positive 2.67 even though Operating Expense and Gross Profit are both negative is because Google Finance backed into Operating Expense. Operating Income is the same between the two sources, it's just the unrealized gain that moves.\",\n \"Definitely more in the economics wheelhouse, but I thought it would be interesting to write a research paper on the black market premium. With marijuana becoming legalized in more and more districts it's interesting to see the effect on prices. I live in Canada and many of my friends are very sure that prices will rise because of taxes. I am not so sure. I think economies of scale and getting rid of the black market premium will more than make up for the costs of regulation and taxation.\",\n \"Agriculture is a great sector to get into right now. The average farmer in US and Canada are at or near retirement age (well past 60). And because most farmers are old, the sector really hasn't changed much. They're proud to say that what they do is passed down for generations. The sector is ready for new blood and ripe for a revolution to increase productivity. All that is missing is the capital needed.\",\n \"Not medical! Y'all need some business courses. Liability insurance, etc. no factory will let you operate machinery stoned. No bank will let you move money between people's accounts stoned. Banks are more concerned with fraud than anything else and people with expensive drug habits steal more.\",\n \"Yes. The real question is whether you should. You should consider your investment options, and take into the account that there's much more hype than value in many companies.\",\n \"The most obvious route is to short the lenders, preferably subprime. Since there are no lenders that operate exclusively in San Francisco, you could look north at Canada. The Canadian real estate market (esp. Vancouver) is just as overheated as the San Francisco market. As a start, famous short seller Marc Cohodes recommends HCG (Home Capital Group) as an opportune short.\",\n \"Unless you have insider information (ILLEGAL!!!) don't go high risk over this time frame. It makes about as much sense as betting on the horses. Stick it in a 3 or 6 month GIC at the pathetic rates the banks are giving.\",\n \"Invest heavily in the healthcare industry? Unless you think that prices and profits will be disconnected.\",\n \"From a moral perspective, this would be so great. From a marketing perspective, all it would take is to 'leak' more videos that show how industrial meat production actually looks like to turn a large number of consumers to something that's ethically better (and probably can also be argued to be healthier). Excited to see this, less from an investment perspective, but because this could really change how humans interact with animals in a significant way.\",\n \"The company released its 2nd Quarter Revenue of $1,957,921 a couple days ago however the stock did not move up in any way. Why? If the company is making money shouldn't the stock go up. But that result doesn't indicate that the company is making money. The word for making money is profit, not revenue. Profit equals revenue minus costs. An increasing revenue could mean decreasing profits. For example, marketing expenses could eat up the entirety of the new revenue. This is one of the most basic aspects of researching stocks. If you are having trouble with this, you might find yourself better suited to invest in mutual funds, where they do this research for you. In particular, the safest kind of mutual funds for an inexperienced investor are index funds that track a major index, like the S&P 500. Another issue is that stock prices aren't based on historical results but on expected future results. Many a company has reported smaller than expected profits and had their price fall even though profits increased from previous results. Looking at it long term would it hurt me in anyway to buy ~100,000 shares which right now would run be about $24 (including to fee) and sit on it? It would cost you $24. You might get a return some day. Or you might waste your money. Given the comparatively large upside, the consensus seems to be that you will probably waste your money. That said, it's not a lot of money to waste. So it won't hurt you that much. The most likely result remains that the company will go bankrupt, leaving your stock worthless.\",\n \"I thought that as well. Not sure. As I stated she may be just unable to due to the relationship they have or she may know my current financial situation and is looking out for me and throwing me a bone. Initially if I'd found someone else I would've gotten a percentage of the monthly profits but I'm looking to be the sole investor so I can get out of my current living situation and become a productive member of society. Also to move to California and be closer to it only friends I have out there but also closer to the business itself. I fully plan to learn all about weed and what and why and how etc but for now I just wanna invest\",\n \"\\\"And now it is at about $3. Many times \\\"\\\"skeletons\\\"\\\" are bought and inflated for various reasons. Some are legitimate (for example a private business merging into a defunct but public corporation to avoid wasting resources on going public), some are not (mainly pump-and-dump scams that are using \\\"\\\"skeletons\\\"\\\"). I don't know what was the case here (probably speculation based on the new marijuana laws in the US), but clearly the inflated price was completely unjustified since it went crashing down.\\\"\",\n \"It's legal. I have documentation to prove it. Also a location and phone number for said legal weed shop. On top of all that I trust my celeb friend implicitly. Why would she try to fuck me over?\",\n \"\\\"I mean, in the eyes of investors it is a good investment. > \\\"\\\"Demand for stock from fund managers exceeded supply by more than 29 times at that price, two people said.\\\"\\\" They also have plantations in Malaysia and Indonesia, along with refining plants in China, Indonesia, Turkey, and South Africa. So it already has a stable foot hold in various economies. Like I said, it's nice to see a business IPO that offers a tangible product with a relatively cheap IPO along with a chance to see much growth. You don't see many of these around nowadays.\\\"\",\n \"Melbourne Australia and I'm 20. I'd get some management experience in this field first but I can certainly feel that happening soon. I'm in no rush to do this but it is 100% something I would do I have a friend who is an accountant who will be in this with me :)\",\n \"a) Nothing would support this company going back to $.50 per share b) Fundamentally the market for this sectors has been obliterated and the fundamentals don't look like they will improve. Similar companies experience what this one is and will be going through, they borrow the hilt and hope they can pump enough oil and sell the oil at a high price. Oil goes below, WAYYY below the price they can sell it at and even break even, so they are burning cash until they declare bankruptcy. This company is not an exception. So here is what to look at on their balance sheet: assets and liabilities. Liabilities are debt. Their debt is over 50% of their assets, that debt has interest and there is NO WAY they are making a profit. Their website's last financial statement is from September 30th.. LOL, so they haven't even released a quarterly financial statement in two quarters straight, so have they released anything? Given what we know about the dire state of the entire oil drilling industry, lets see if these guys are the exception to the rule (spoiler; they aren't) February 15th, 2015 http://www.marketwatch.com/story/strategic-oil-gas-ltd-provides-operations-update-2015-02-19-16173591 The Company prudently elected to stop the winter Muskeg drilling program in order to preserve capital. So now they aren't even getting new assets to resale, they aren't making any money from that operation, their debt still has interest payments though. Approximately 700 Boe/d of production has been shut-in by suspending operations at Bistcho, Cameron Hills and Larne, which are not economic at current commodity prices. Predictable. Also, you should notice from their actual financial statements (from 6 months ago, lol) (when the price of oil was over 100% higher than it is today, lol), this company already wasn't a good performer. They have been financing themselves by doing private placements, by issuing shares to investors that are not you, and diluting the share value of ALL OTHER SHAREHOLDERS. Dead in the water. I got this from skimming their financial report, without even being familiar with how canadian companies report. Its just bad news. You shouldn't be married to this investment.\",\n \"you very well may know better than me, honestly; but with any volatile investment, it is necessarily hard to predict their intermediate term trends. that would be my only caution to you! if you want speculative positions to hold, you might consider lower priced biopharms (though not pure penny positions). i made a bit of money on CCXI, for example. if you want more engagement/trading activity, consider tech trading or options (my personal favorite).\",\n \"I'm not too sure. you'll need to open up new shops, so real estate, staff, computers, bank accounts, that's not even getting into farming weed. It'll definitely take a bite out of other vices for sure though.\",\n \"I have a low position. Only 300 shares but will probably purchase more when it's in the .2-.3 range. They're pumping this company so it'll meet the NASDAQ requirements so i'm predicting executives will be putting a lot into the pool. Let's ride, boys.\",\n \"Judge this stock no differently than any other is the answer. Optimism isn't fact. http://clarkhoward.com/liveweb/shownotes/2007/06/06/12304/?printer=1 Now because you get to buy extremely low, and sell for probably higher and you believe in the stock, I'd say go ahead and purchase the stock, manage it for taxes with the advice of your advisor and get your portfolio rebalanced as soon as you can. That might admittedly be a year or more, but as you say you have time. Like any investment, don't spend money you can't lose.\",\n \"As BobbyScon said in the comments, invest in a company that is developing in that field. Or invest in a company which supplies that field. The people who got rich in the California gold rush were those selling shovels and other miners' supplies. Or bet against whatever you think this will displace. If automobiles are the hot new thing, it might be a bad time to invest in harness leather. Or ... figure out how else it might impact the economy and invest appropriately. But you have to do that evaluation yourself. Or ignore it and stick with your existing strategy, which should have been diversified enough to deliver reasonable results whether this sector takes off or not. Remember that if someone gives you a free tip, they are probably just hoping to pump up the value of their own stock rather than help you.\",\n \"\\\"The recommendation is not to make the investment. In general, a company does not have to sell their shares to you or allow you to become an investor, because, as you have stated, it is a private company not quoted on the stock market. If everyone were trustworthy, you could buy the tools for $11000 -- so that you own the tools -- and sign a lease of the tools to the company whereby they pay you $X/month. The lease should be reviewed by a lawyer before it is signed, and perhaps give the buyer the right to demand back the tools at any time. However, even this arrangement is very risky, because the \\\"\\\"company\\\"\\\" could simply steal or damage the tools and disappear. It is not an investment that I would make, because it sounds too good to be true. $2800/mo steady cash flow for $11,000 invested. No, I don't think so. The following information may also be useful, either to you, or future readers: If you still want to make this investment, then you should know that: The offering for sale of shares by companies located in the USA is subject to a wild array of complex laws. This is true in many other countries as well. These laws, called securities laws or regulations, can require certain disclosures, require that investors have a high net worth so that they can afford to lose the money or conduct their own investigations and legal actions, or require that the investors know the company founders personally, and can prohibit or limit resale by the buyer/investor. Promoters who say you can still invest and are ignoring or disobeying the securities laws are being at least negligent, but more likely are dishonest and probably criminal. Even if you trust in the investment, can you trust negligent managers to do a good job executing that investment? What about dishonest managers? What about criminals and thieves?\\\"\",\n \"Returns: Variable, as with all investments. Legitimate: Contact the usual major investment-fund houses.\",\n \"\\\"I'll take a stab at this question and offer a disclosure: I recently got in RING (5.1), NEM (16.4), ASX:RIO (46.3), and FCX (8.2). While I won't add to my positions at current prices, I may add other positions, or more to them if they fall further. This is called catching a falling dagger and it's a high risk move. Cons (let's scare everyone away) Pros The ECB didn't engage in as much QE as the market hoped and look at how it reacted, especially commodities. Consider that the ECB's actions were \\\"\\\"tighter\\\"\\\" than expected and the Fed plans to raise rates, or claims so. Commodities should be falling off a cliff on that news. While most American/Western attention is on the latest news or entertainment, China has been seizing commodities around the globe like crazy, and the media have failed to mention that even with its market failing, China is still seizing commodities. If China was truly panicked about its market, it would stop investing in other countries and commodities and just bail out its own country. Yet, it's not doing that. The whole \\\"\\\"China crisis\\\"\\\" is completely oversold in the West; China is saying one thing (\\\"\\\"oh no\\\"\\\"), but doing another (using its money to snap up cheap commodities). Capitalism works because hard times strengthen good companies. You know how many bailouts ExxonMobil has received compared to Goldman Sachs? You know who owns more real wealth? Oil doesn't get bailed out, banks do, and banks can't innovate to save their lives, while oil innovates. Hard times strengthen good companies. This means that this harsh bust in commodities will separate the winners from the losers and history shows the winners do very well in the long run. Related to the above point: how many bailouts from tax payers do you think mining companies will get? Zero. At least you're investing in companies that don't steal your money through government confiscation. If you're like me, you can probably find at least 9 people out of 10 who think \\\"\\\"investing in miners is a VERY BAD idea.\\\"\\\" What do they think is a good idea? \\\"\\\"Duh, Snapchat and Twitter, bruh!\\\"\\\" Then there's the old saying, \\\"\\\"Be greedy when everyone's fearful and fearful when everyone's greedy.\\\"\\\" Finally, miners own hard assets. Benjamin Graham used to point this out with the \\\"\\\"dead company\\\"\\\" strategy like finding a used cigarette with one more smoke. You're getting assets cheap, while other investors are overpaying for stocks, hoping that the Fed unleashes moar QE! Think strategy here: seize cheap assets, begin limiting the supply of these assets (if you're the saver and not borrowing), then watch as the price begins to rise for them because of low supply. Remember, investors are part owners in companies - take more control to limit the supply. Using Graham's analogy, stock pile those one-puff cigarettes for a day when there's a low supply of cigarettes. Many miners are in trouble now because they've borrowed too much and must sell at a low profit, or in some cases, must lose. When you own assets debt free, you can cut the supply. This will also help the Federal Reserve, who's been desperately trying to figure out how to raise inflation. The new patriotic thing to do is stimulate the economy by sending inflation up, and limiting the supply here is key.\\\"\",\n \"Okay as long as you aren't dumb enough to actually think this would be worth pursuing. I don't want you to waste your money when it could go towards something nice, like your house budget. If you really do believe they are overvalued there are much better strategies.\",\n \"\\\"With debts exceeding assets by a billion dollars, this activity likely comes from penny stock speculators and \\\"\\\"pump and dump\\\"\\\" schemers. There is no rational expectation that the stock is even worth multiple pennies when the company is that far upside-down on its debts. Even if the debts could be restructured in a chapter 11, the equity shares would likely lose all of their value in the bankruptcy proceedings. Shareholders are at the bottom of the totem-pole when debts are being adjusted by the courts.\\\"\",\n \"\\\"As of right now it looks like you can't issue an ETF at least because the underlying \\\"\\\"commodity\\\"\\\" isn't regulated. (See Winkelvoss ETF). I suspect you would run into this problem with any 1940 act fund (mutual fund), but it's more a situation of \\\"\\\"not approved\\\"\\\" rather than illegal, so an MLP hedge fund structure would probably be fine. And some googling finds Iterative Instinct Management's Storj SPV.\\\"\",\n \"Perhaps look into how prohibition worked out for distillers and brewers. It doesn't take something as arcane as outright prohibition to ruin an industry. Onerous rules and regulations will do it as well. Either way Romney or Obama are going to do the exact same things, and this guy is just a useful partisan idiot.\",\n \"comments discuss investing in potato futures. Learn / ready about commodity trading or commodity futures. An investopedia article How To Invest In Commodities is a good start. There are quite a few commodities offered for normal trade or as futures. Potatos may not be offered on quite a few exchanges. Found some here Investing in commodities is fraught with quite a bit of risk, some like you have already pointed out. Of course you can't eat all and have to sell.\",\n \"im not hating whats so ever man. I'm saying exactly what golfman is saying and that is to do your due diligence. Answer me this question so i know you have some kind of info on this business. What is their profit margin and overhead costs?\",\n \"\\\"I really want a CEO to play up impending doom one time. \\\"\\\"We seriously need funding. Anybody out there want some equity with warrants?\\\"\\\" Here's to hoping that this company does well. As of now, that is too much for me to pay for a car.\\\"\",\n \"Corporations are removed from the options markets. They can neither permit nor forbid others from trading them, local laws notwithstanding. No national options market is as prolific as the US's. In fact, most countries don't even have options trading. Some won't even allow options but rather option-like derivatives. Finance in Canada is much more tightly regulated than the US. This primer on Canadian option eligibility shows how much. While US eligibility is also stringent, the quotas are far less restrictive, so a highly liquid small company can also be included where it would be excluded in Canada for failing the top 25% rule.\",\n \"Depending on your perspective of it, I can see reasons for and against this idea. Only with the benefit of hindsight can one say how wise or unwise it is to do so. Earlier in my career, I invested and lost it all. Understand if you do buy when would you be able to sell, do you have to have an account with the underwriter, what fees may there be in having such an account, and would there be restrictions on when you could sell.\",\n \"\\\"I don't know if what they're doing is legal, however I believe you should be able to roll over the funds in your 401(k) to a self-administered IRA in which you can buy any stock you want. Is the company publicly traded? Also, you say the stock is \\\"\\\"expected\\\"\\\" to surpass its previous high? By who? You? Spokespeople at the company? Certainly not the market itself, as it wouldn't have fallen so much otherwise. I'm not saying you're wrong, just that you have to make your own judgments about these things, don't go by others' \\\"\\\"expectations\\\"\\\".\\\"\",\n \"It is only wise to invest in what you understand (ala Warren Buffet style). Depending on how much money you have, you might see fit to consult a good independent financial advisor instead of seeking advice from this website. A famous quote goes: “Those who say, do not know. Those who know, do not say”\",\n \"A cautionary tale: About 25 years ago I decided that I should try my hand at investing in some technology companies. I was in the computer biz but decided that I might suffer from myopia there, so I researched some medical startups. And I did some reasonably good research, given the available resources (the Internet was quite primitive). I narrowed things down to 4-5 companies, studying their technology plans, then researched their business plans and their personnel. In the end I picked a drug company. Not only did it have a promising business plan, but it had as it's CEO a hotshot from some other company, and the BOD was populated buy big names from tech companies and the like. AND the company had like $2 of cash for every $1 of outstanding share value, following their recent IPO. So I sold a bit of stock I had in my employer and bought like $3000 worth of this company. Then, taking the advice I'd seen several places, I forgot about it for about 6 months. When I went back to look their stock value had dropped a little, and the cash reserves were down about 20%. I wasn't too worried. 6 months later the cash was down 50%. Worrying a little. After I'd had the stock for about 2 years the stock price was about 10% of what I'd paid. Hardly worth selling, so I hung on for awhile longer. The company was eventually sold to some other company and I got maybe $50 in stock in the new company.\",\n \"You don't have to wait. If you sell your shares now, your gain can be considered a capital gain for income tax purposes. Unlike in the United States, Canada does not distinguish between short-term vs. long-term gains where you'd pay different rates on each type of gain. Whether you buy and sell a stock within minutes or buy and sell over years, any gain you make on a stock can generally be considered a capital gain. I said generally because there is an exception: If you are deemed by CRA to be trading professionally -- that is, if you make a living buying and selling stocks frequently -- then you could be considered doing day trading as a business and have your gains instead taxed as regular income (but you'd also be able to claim additional deductions.) Anyway, as long as your primary source of income isn't from trading, this isn't likely to be a problem. Here are some good articles on these subjects:\",\n \"Assuming you have no non-public material information, it should be perfectly legal. I suspect it's not a great idea for the reasons that Joe outlined, but it should be legal.\",\n \"I am using the PRIME MY BODY CBD and have been in Network Marketing for years. The company is not a pyramid scheme (those are illegal). The product's nano enhanced technology is awesome. I am seeing amazing results and you do not have to become an affiliate unless you want discounts. Many people will sign up as affiliates and not move into business but want the oil discounted. That is perfectly fine. You can also opt to order retail as strictly a customer. So those are options. But if she wants to go into a great home based business, I would seriously look at this as a viable option . CBD/Cannabis and Medical Marijuana is going to be a multi billion dollar industry and the stigma of the STONERS etc is being taken away and more people are understanding the natural health benefits of the plant....\",\n \"I don't see it getting blocked in a world of Kraft-Heinz and WalMart, CVS, Target, etc. Then again, I could be completely freaking wrong, and the wisdom of the market has left more than a few corpses behind its wake. EDIT: I'm a corpse, but not for the reason of blocking.\",\n \"All of this makes perfect sense and I can definitely see the logic behind it. But I don't think Hedge Funds are the way to go. The real money lies in real estate, more specifically land-banking. The problem, though, is that a lot of land-banking investments are really just scams and it's really hard to tell which ones are real and which ones are fake.\",\n \"There is the iShares Jantzi Social Index Fund.\",\n \"Basic business concept here. Sales =/= money for you. You need to take into account the cost to continually produce this stuff. Don't forget the fact that prices will fall in the future as more firms enter the market.\",\n \"If you've decided to ignore the sound advice re: oil company stocks, and you want something directly linked to the price of oil, do the following: Understand that oil producers would like avoid the risk of a price drop, and oil consumers (refiners, electric utilities, etc.) would like to avoid the risk of a price rise. Understand that you are about to assume their risk.\",\n \"You can also grow your produce, cook your own food, hell you can make your own electronics if you want to, and yet supermarkets, restaurants, and tech companies all seem to be doing fine. Just because weed has been decriminalized doesn't mean that people have the experience and knowledge to grow it or want to invest the time and effort to make it a successful venture. To my knowledge, you also have to be licensed to both grow and sell it, and holding small quantities is legal...if you're just some guy growing 1,000 plants in the woods and holding 500 pounds in your basement, you're going to get shut down and arrested. Have you not seen the great success of weed stores in places like Colorado? They offer far more than just weed in Ziplock baggies. If weed becomes legal nationally in the US, you will absolutely see large companies form for the exact reason that they form in every other industry: it's cheaper to consolidate operations and greater volume of sales means higher profit.\",\n \"Given what you state you should shop around for an advisor. Think of the time required to pursue your strategies that you list? They already have studied much of what you seek to learn about. Any good investor should understand the basics. This is Canadian based but many of the concepts are universal. Hope you find it helpful. http://www.getsmarteraboutmoney.ca/Pages/default.aspx\",\n \"Easy for someone who knows absolutely nothing about business to say like yourself. Are you going to pay for the lawsuit from an injury or death? Don't try to tell me these weed smokers only do it occasionally. They're usually daily smokers and losers.\",\n \"Quick look through your post history definitely confirms that. I still think you should delete the info that exposed her identity and seriously reconsider whether you can afford to make such a speculative and highly leveraged investment in a California weed shop. In the end its up to you.\",\n \"I mean, when the federal government can pull your bank charter and the FDIC can revoke your government insurance, it's not worth the benefit just to support some small town pot grower. It's likely to be this way until the federal government legalizes it or gives outright approval to the banks.\",\n \"I like Keshlam's answer and would like to add a few notes: While your enthusiasm to invest is admirable learning patience is a key aspect of wealth building and keeping.\",\n \"At the time of writing, the Canadian dollar is worth roughly $0.75 U.S. Now, it's not possible for you to accurately predict what it'll be worth in, say, ten years. Maybe it'll be worth $0.50 U.S. Maybe $0.67. Maybe $1.00. Additionally, you can't know in advance if the Canadian economy will grow faster than the U.S., or slower, or by how much. Let's say you don't want to make a prediction. You just want to invest 50% of your money in Canadian stocks, 50% in U.S. Great. Do that, and don't worry about the current interest rates. Let's say that you do want to make a prediction. You are firmly of the belief that the Canadian dollar will be worth $1.00 U.S. dollar in approximately ten years. And furthermore, the Canadian economy and the U.S. economy will grow at roughly equal rates, in their local currencies. Great. You should put more of your money in Canadian stocks. Let's say that you want to make a prediction. The Canadian economy is tanking. It's going to be worth $0.67 or less in ten years. And on top of that, the U.S. economy is primed for growth. It's going to grow far faster than the Canadian economy. In that case, you want to invest mostly in U.S. stocks. Let's get more complicated. You think the Canadian dollar is going to recover, but boy, maple syrup futures are in trouble. The next decade is all about Micky Mouse. Now what should you do? Well, it depends on how fast the U.S. economy expands, compared to the currency difference. What should you do? I can't tell you that because I can't predict the future. What did I do? I bought 25% Canadian stocks, 25% U.S. stocks, 25% world stocks, and 25% Canadian bonds (roughly), back when the Canadian dollar was stronger. What am I doing now? Same thing. I don't know enough about the respective economies to judge. If I had a firm opinion, though, I'd certainly be happy to change my percentages a little. Not a lot, but a little.\",\n \"It is a publicly traded company. My interest is more in their motivation for instituting the new policy. *I* expect the stock to go up, I'm not being told that by someone else. Thanks for looking out though :)\",\n \"\\\"Yes, in my humble opinion, it can be \\\"\\\"safe\\\"\\\" to assume that — but not in the sense that your assumption is necessarily or likely correct. Rather, it can be \\\"\\\"safe\\\"\\\" in the respect that assuming the worst — even if wrong! — could save you from a likely painful and unsuccessful speculation in the highly volatile stock of a tiny company with no revenue, no profits, next to no assets, and continued challenges to its existence: \\\"\\\"There is material uncertainty about whether the Company will be able to obtain the required financing. This material uncertainty casts significant doubt about the Company’s ability to continue as a going concern.\\\"\\\" As a penny stock, they are in good company. Still, there are a variety of other reasons why such a stock might have gone up, or down, and no one [here] can say for sure. Even if there was a news item, any price reaction to news could just amount to speculation on the part of others having enough money to move the stock. There are better investments out there, and cheaper thrills, than most penny stocks.\\\"\",\n \"If the company is stable. I like to recoup losses by buying in the valley and selling it all at the plateau and then learning as all beginners do, don't buy stocks because there's a feeding frenzy...or because Joe told me too. Pick your strategy in stocks and learn to stick with that. If you have no strategy, buy land.\",\n \"If this was a public corporation (stock) and the investment was made in a non-registered account, then you can claim a capital loss. Capital losses are claimed against capital gains (not income), and can be carried back 3 years or carried forward indefinitely. Here's an article I've written on how to claim capital losses that may help.\",\n \"Flash Boys was kind of full of shit, though. And it was basically an ad for another guy trying to make it with his exchange. Canada is actually heating up from an algo/HFT perspective. Does that affect you at all? I'm seeing a lot more of this type of activity and the lack of dark pools creates for an interesting environment. I always look forward to RBC's coverage on the topic, given the general lack of info.\",\n \"Haha. I'm not suggesting you had anything to do with this particular incident, just that lots of people know about these things before they hit the news so you basically have to be the person doing it to have any advantage on the market. Such stories typically hit the news a long time after regulators, large investors and people working in the industry hear about them.\",\n \"You should sell all your stock immediately and reinvest the money in index funds. As of right now you're competing against prop trading shops, multinational banks, and the like, who probably know a teensy bit more about that particular stock than you do. I'm sorry, any other advice is missing the point that you shouldn't be picking stocks in the first place.\",\n \"Hedge what risk? What is your risk exposure? I don't seem to understand what is your risk factor (is it a basket of metals), if its a non market product you can do the following: 1. Calculate correlation matrix between your basket and potential candidates (mining, etf's etc) 2. Sell the strongest correlation, however be careful as you are not only selling the rare earth prices but also the extraction margin and market risk. 3. Ideally you would find a futures contract or create some way to isolate the rare earths while cancelling out the margins (will be tough!).\",\n \"This security looks like it will require patience for it to pay off. The 200 day moving average looks as if it will soon cross over the 20 day moving average. When that happens the security can be said to be in a bull run. http://stockcharts.com/h-sc/ui?s=UWTI&p=D&yr=1&mn=6&dy=0&id=p10888728027 However, this is just speculation... trying to make money via 'buy low, sell high' as I have stated previously, you have about a 25% chance of buying at the low and selling at the high. Better to buy into a fund that pays dividends and reinvest those dividends. Such as: http://www.dividend.com/dividend-stocks/uncategorized/other/pgf-invesco-powershares-financial-preferred-portfolio/ http://stockcharts.com/h-sc/ui?s=PGF&p=D&yr=1&mn=6&dy=0&id=p59773821284\",\n \"* Absolutely agree with /u/IsAnAlpaca * You /must/ not agree to this without seeing his balance sheet. * That means assets and liabilities, but also ask for the last 12 months' cash flow * Inability or unwillingness to provide any of those things is a HUGE no-go red flag.\",\n \"The price of the stock is not really relevant, as your return is measured as a percentage, 6% return on a $100 stock is the same as a 6% return on a $1 stock, you just hold 100 times more shares at the lower price. I personally really like Eurosun Mining ESM, they are greatly undervalued and have the potential to double or triple in the very near term.\",\n \"The risk is that everything could go wrong in any phase at any time or they could run out of cash and go bankrupt waiting for results. Then there is the FDA that might take forever in approving their drug, or not approve it at all. Human trials could go horribly wrong. The company may be incompetent in bringing a product to market (after FDA rubberstamping), there might not be a market for their particular METHOD of treatment (is it a pill, or is it a torture device you have to strap yourself into for 5 hours a day). And maybe they are never able to make a profit with all the debt they have taken to stay afloat.\",\n \"I'm a bot, *bleep*, *bloop*. Someone has linked to this thread from another place on reddit: - [/r/talkbusiness] [You could make $70,000 right out of college with a degree in marijuana studies](https://np.reddit.com/r/talkbusiness/comments/787m53/you_could_make_70000_right_out_of_college_with_a/) [](#footer)*^(If you follow any of the above links, please respect the rules of reddit and don't vote in the other threads.) ^\\\\([Info](/r/TotesMessenger) ^/ ^[Contact](/message/compose?to=/r/TotesMessenger))* [](#bot)\",\n \"\\\"Your math is correct. These kind of returns are possible in the capital markets. (By the way, Google Finance shows something completely different for $CANV than my trading console in ThinkorSwim, ToS shows a high of $201, but I believe there may have been some reverse splits that are not accurately reflected in either of these charts) The problems with this strategy are liquidity and timing. Let's talk about liquidity, because that is a greater factor here than the random psychological factors that would have affected you LONG LONG before your $1,000 allowance was worth a million dollars. If you bought $1000 worth of this stock at $.05 share, this would have been 20,000 shares. The week of October 11th, 2011, during the ENTIRE WEEK only 5,000 shares were traded. From this alone, you can see that it would have been impossible for you to even acquire 20,000 shares, for yourself at $.05 because there was nobody to sell them to you. We can't even look at the next week, because there WERE NO TRADES WHATSOEVER, so we have to skip all the way to November 11th, where indeed over 30,000 shares were traded. But this pushed the price all the way up to $2.00, again, there was no way you could have gotten 20,000 shares at $.05 So now, lets talk about liquidation of your shares. After several other highs and lows in the $20s and $30s, are you telling me that after holding this stock for 2 years you WOULDN'T have taken a $500,000 profit at $25.00 ? We are talking about someone that is investing with $1,000 here. I have my doubts that there was no time between October 2011 and January 2014 that you didn't think \\\"\\\"hm this extra $100,000 would be really useful right now.. sell!\\\"\\\" Lets say you actually held your $1,000 to $85.55 there were EXACTLY TWO DAYS where that was the top of the market, and in those two days the volume was ~24,000 shares one day and ~11,000 shares the next day. This is BARELY enough time for you to sell your shares, because you would have been the majority of the volume, most likely QUADRUPLING the sell side quotes. As soon as the market saw your sell order there would be a massive selloff of people trying to sell before you do, because they could barely get their shares filled (not enough buyers) let alone someone with five times the amount of shares that day. Yes, you could have made a lot of money. Doing that simplistic math does not tell you the whole story.\\\"\",\n \"\\\"The Indian regulator (SEBI) has banned trading in 300 shell companies that it views as being \\\"\\\"Shady\\\"\\\", including VB Industries. According to Money Control (.com): all these shady companies have started to rally and there was a complaint to SEBI that investors are getting SMSs from various brokerage firms to invest in them This suggests evidence of \\\"\\\"pump and dump\\\"\\\" style stock promotion. On the plus side, the SEBI will permit trading in these securities once a month : Trading in these securities shall be permitted once a month (First Monday of the month). Further, any upward price movement in these securities shall not be permitted beyond the last traded price and additional surveillance deposit of 200 percent of trade value shall be collected form the Buyers which shall be retained with Exchanges for a period of five months. This will give you an opportunity to exit your position, however, finding a buyer may be a problem and because of the severe restrictions placed on trading, any bid prices in the market are going to be a fraction of the last trade price.\\\"\",\n \"If you buy US stocks when the CAD is high and sell them when the CAD is lower you will make a currency gain on top of any profit or loss from the stock investments. If you buy US stocks when the CAD is low and sell when the CAD is higher any profits from gains from the stock investment will be reduced and any losses will be increased. If you are just starting out you may be better off investing in your own country to avoid any currency risk adding to your stock market risk.\",\n \"I am American but live in Japan as a network and systems engineer. I always drink the white one when in the US. So many of them to pick from when I visit my family. Not confident enough to invest based on this but for my own non-monetary selfish reasons I hope this suceeds well.\",\n \"Invest in solid companies, not in esoteric products built on sand. The problem is with finance, not with real economy: oil companies make money, mobile phone companies make money, airlines make money...\",\n \"Yes, it is. Got to start somewhere. Typically directly through a company itself. Check out this site that lists a bunch of them and their minimum requirements. Not many only accept $100 but there are a few. ie. ACTIVEnergy Income Fund, CIBC, COMPASS Income Fund, Suncor Energy Inc. and a few others.\",\n \"\\\"You're being scammed. I'd be willing to bet this 'celebrity' friend is a fake account on Instagram with 20k followers that befriends lonely neckbeards then tries to scam them. Save your money. Even if this is a legitimate long term friend whom you trust, you should put a lot more thought into \\\"\\\"investing\\\"\\\" money (that you don't have) into her brothers drug shop.\\\"\",\n \"Just saw the update: Here's some ETFs for Canada from Vanguard.\",\n \"Long time /r/economy subscriber and early Ethereum investor here. I'm 100% biased (full disclosure) but I believe this tech has legs. There are a lot of companies backing it, governments exploring it and developers building upon it. It's currently at $365 with a $35bil market cap. Look for 3 upgrades in the works: 1) Raiden - Should increase transaction capabilities to that of Visa 2) Sharding - Allows for lite clients and partial downloads of the nodes 3) Proof of Stake - No more video card farms wasting electricity. Put your ethereum as stake to help the network reach consensus and earn a percentage return I've you've got commodities in your portfolio, I would strongly suggest taking a look at Ethereum\",\n \"Marijuana should be decriminalized. It would stop giving insurance companies loopholes to deny claims, and would let the government hire better cybersecurity experts. Digital forensics agencies have been complaining for years that they can't fill positions fast enough because so many applicants don't want to comply with their marijuana policies.\",\n \"This is a long term investment but can be very useful during tough times. Be prepared not only to take but to give as well. Moreover:\",\n \"I'll consent to this. I get it. But the shop itself is making about 80-100k a month in sales. I realize the wind could shift but as long as I recoup the initial 92k I wouldn't be out any monies. It would take almost a year since each harvest period is 66 days but I get what you mean\",\n \"While I am not an advocate of shorting anything (unlimited downside, capped upside), you can:\",\n \"\\\"Not specifically a \\\"\\\"stream\\\"\\\", but there are royalty companies that operate based on a similar concept. With a royalty, a party will pay upfront to a another party, usually a product manufacturer, oil & gas producer, or miner, and in return they will receive a percentage of the proceeds from the sale of the goods. For example, Company A owns 100 sections of land which carry mineral rights and they would like to drill on the land to produce oil & gas. However, Company A does not have the capital to produce the resource. Company B, a royalty company, agrees to provide upfront capital to Company A in return for a royalty, sometimes fixed, sometimes sliding scale based on other factors. The royalty is calculated based on a percentage of the sales proceeds that Company A receives from the sale of their oil & gas production. In this way, royalty companies act similarly to streaming companies, where they provide upfront capital and in return receive a cash flow stream that is dependant on another party's actions. What is different is that the selling price is not fixed. Instead, it is the % of proceeds that is fixed, at least in the short term. In Canada, PrairieSky Royalty and Freehold Royalties do exactly this.\\\"\",\n \"looking over some historical data I cannot really a find a case where a stock went from $0.0005 to $1 it almost seem that once a stock crosses a minimum threshold the stock never goes back up. Is there any truth to that? That would be a 2000X (200,000%) increase in the per-share value which would be extraordinary. When looking at stock returns you have to look at percentage returns, not dollar returns. A gain of $1 would be minuscule for Berkshire-Hathaway stock but would be astronomical for this stock,. If the company is making money shouldn't the stock go up? Not necessarily. The price of a stock is a measure of expected future performance, not necessarily past performance. If the earnings had been more that the market expected, then the price might go up, but if the market sees it as an anomaly that won't continue then there may not be enough buyers to move the stock up. looking at it long term would it hurt me in anyway to buy ~100,000 shares which right now would run be about $24 (including to fee) and sit on it? If you can afford to lose all $24 then no, it won't hurt. But I wouldn't expect that $24 to turn into anything higher than about $100. At best it might be an interesting learning experience.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"It is such a touchy subject for many people, I have to say that simple \"\"set it and forget it\"\" kind of investing isn't likely in the near term. Instead, if this is something you believe in, treat it like any other business opportunity and do some detailed research into people operating in the field. Look into their business plans and visit their operations. If there is a plan, and idea, a team and the intangible it you might consider doing some direct investing with a local company. Basically become a small business owner, silent partner or investor. If you believe in it go for it. If you don't believe in it that much, I think this is a market somebody else needs to develop before we invest.\"","Hemp is already pretty easily grown by farmers here. Canada had 50,000 acres of legal hemp in 2006, but it's been in decline the last 3 years due to the cost, lack of demand, and the high values of some other crops. It's also difficult to harvest due to its size. It's possible that the demand for hemp products will increase, but given that many Asian countries (Russia, China and Korea, for example) never banned it in the first place, there's a pretty ready supply already in place. In Canada, the big reason to grow it is as an alternative crop for use in rotation that has some commercial demand, but it's certainly not as valuable as crops like canola, oats or soy beans.","The legalization of Cannabis will drastically alter supply and demand of cannabis and hemp. The distribution channels that work well for hemp may or may not work well for cannabis and may or may not continue to work well once cannabis is widely available. Companies may have avoided sponsoring hemp products because of it's association with marijuana. If Marijuana is made legal, that stigma may or may not go away, changing which companies are interested in distribution. I don't believe that legalizing cannabis will create a great investing opportunity into existing hemp producers."],"string":"[\n \"\\\"It is such a touchy subject for many people, I have to say that simple \\\"\\\"set it and forget it\\\"\\\" kind of investing isn't likely in the near term. Instead, if this is something you believe in, treat it like any other business opportunity and do some detailed research into people operating in the field. Look into their business plans and visit their operations. If there is a plan, and idea, a team and the intangible it you might consider doing some direct investing with a local company. Basically become a small business owner, silent partner or investor. If you believe in it go for it. If you don't believe in it that much, I think this is a market somebody else needs to develop before we invest.\\\"\",\n \"Hemp is already pretty easily grown by farmers here. Canada had 50,000 acres of legal hemp in 2006, but it's been in decline the last 3 years due to the cost, lack of demand, and the high values of some other crops. It's also difficult to harvest due to its size. It's possible that the demand for hemp products will increase, but given that many Asian countries (Russia, China and Korea, for example) never banned it in the first place, there's a pretty ready supply already in place. In Canada, the big reason to grow it is as an alternative crop for use in rotation that has some commercial demand, but it's certainly not as valuable as crops like canola, oats or soy beans.\",\n \"The legalization of Cannabis will drastically alter supply and demand of cannabis and hemp. The distribution channels that work well for hemp may or may not work well for cannabis and may or may not continue to work well once cannabis is widely available. Companies may have avoided sponsoring hemp products because of it's association with marijuana. If Marijuana is made legal, that stigma may or may not go away, changing which companies are interested in distribution. I don't believe that legalizing cannabis will create a great investing opportunity into existing hemp producers.\"\n]","isConversational":false}}},{"rowIdx":376,"cells":{"_id":{"kind":"string","value":"6647"},"query":{"kind":"string","value":"What is meant by “priced in”?"},"gt_ids":{"kind":"list like","value":["69790","428017","462265"],"string":"[\n \"69790\",\n \"428017\",\n \"462265\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1],"string":"[\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["462265","428017","534734","266167","10558","155880","145925","56405","118520","499874","519297","146628","421311","456373","441300","535470","41912","214935","379759","517279","325330","109678","373903","483588","185278","116846","269709","404132","475671","10526","539251","12331","367137","546969","589132","387515","289","9274","146926","111768","271691","184051","160029","307593","548067","524846","215596","129309","196173","87659","334313","535793","387767","304461","598184","323244","476891","64943","196461","502953","523609","583080","69790","466972","64130","442433","189761","510323","434925","186805","582313","404471","209754","132171","357127","13260","519241","77652","209863","72510","466315","88385","114822","317363","400620","234616","113844","154725","350850","480811","355315","68249","324779","466107","469916","87398","571015","115517","504996","48947"],"string":"[\n \"462265\",\n \"428017\",\n \"534734\",\n \"266167\",\n \"10558\",\n \"155880\",\n \"145925\",\n \"56405\",\n \"118520\",\n \"499874\",\n \"519297\",\n \"146628\",\n \"421311\",\n \"456373\",\n \"441300\",\n \"535470\",\n \"41912\",\n \"214935\",\n \"379759\",\n \"517279\",\n \"325330\",\n \"109678\",\n \"373903\",\n \"483588\",\n \"185278\",\n \"116846\",\n \"269709\",\n \"404132\",\n \"475671\",\n \"10526\",\n \"539251\",\n \"12331\",\n \"367137\",\n \"546969\",\n \"589132\",\n \"387515\",\n \"289\",\n \"9274\",\n \"146926\",\n \"111768\",\n \"271691\",\n \"184051\",\n \"160029\",\n \"307593\",\n \"548067\",\n \"524846\",\n \"215596\",\n \"129309\",\n \"196173\",\n \"87659\",\n \"334313\",\n \"535793\",\n \"387767\",\n \"304461\",\n \"598184\",\n \"323244\",\n \"476891\",\n \"64943\",\n \"196461\",\n \"502953\",\n \"523609\",\n \"583080\",\n \"69790\",\n \"466972\",\n \"64130\",\n \"442433\",\n \"189761\",\n \"510323\",\n \"434925\",\n \"186805\",\n \"582313\",\n \"404471\",\n \"209754\",\n \"132171\",\n \"357127\",\n \"13260\",\n \"519241\",\n \"77652\",\n \"209863\",\n \"72510\",\n \"466315\",\n \"88385\",\n \"114822\",\n \"317363\",\n \"400620\",\n \"234616\",\n \"113844\",\n \"154725\",\n \"350850\",\n \"480811\",\n \"355315\",\n \"68249\",\n \"324779\",\n \"466107\",\n \"469916\",\n \"87398\",\n \"571015\",\n \"115517\",\n \"504996\",\n \"48947\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"Priced in just means that the speaker thinks the current price has already taken that factor into account. For example, the difference in price right before and right after a dividend is released often differ exactly by that dividend -- the fact that the dividend would function as a \"\"relate\"\" on the purchase price was priced into the earlier quote, and its absence for another year was priced into the later quote. The ten can be applied to any expected or likely event, if you really think the price reflects that opportunity of risk. It just means that this factor, in the speaker's opinion, doesn't create an opportunity one can take advantage of.\"","\"I think the first misconception to clear up is that you are implying the price of a stock is set by a specific person. It is not. The price of a stock is equal to the value that someone most recently traded at. If Apple last traded at $100/share, then Apple shares are worth $100. If good news about Apple hits the market and people holding the shares ask for more money, and the most recent trade becomes $105, then that is now what Apple shares are worth. Remember that generally speaking, the company itself does not sell you its shares - instead, some other investor sells you shares they already own. When a company sells you shares, it is called a 'public offering'. To get to your actual question, saying something is 'priced in' implies that the 'market' (that is, investors who are buying and selling shares in the company) has already considered the impacts of that something. For example, if you open up your newspaper and read an article about IBM inventing a new type of computer chip, you might want to invest in IBM. But, the rest of the market has also heard the news. So everyone else has already traded IBM assuming that this new chip would be made. That means when you buy, even if sales later go up because of the new chip, those sales were already considered by the person who chose the price to sell you the shares at. One principle of the stock market (not agreed to by all) is called market efficiency. Generally, if there were perfect market efficiency, then every piece of public information about a company would be perfectly integrated into its stock price. In such a scenario, the only way to get real value when buying a company would be to have secret information of some sort. It would mean that everyone's collective best-guess about what will happen to the company has been \"\"priced-in\"\" to the most recent share trade.\"","\"Systemic and well know patterns in sales are priced in to the security. Typically companies with very cyclical earnings like this will issue guidance of earnings per share within a range. These expected earnings are priced in before the earnings are actually booked. If a company meets these expectations the stock will likely stay relatively flat. If the company misses this expectation, the stock, generally, will get slammed. This kind of Wall Street behavior typically mystifies media outlets when a company's stock declines after reporting a record high level of whatever metric. The record high is irrelevant if it misses the expectation. There is no crystal ball but if something is both well known and expected it's already been \"\"priced in.\"\" If the well known expected event doesn't occur, maybe it's a new normal.\"","\"Often you are right, and the current information is \"\"priced in\"\", but I would say in times of market boom like this that the market can definitely overprice. Price is driven by trades/last trade. Someone may be willing to pay X, and do so, making the price now X, but that does not mean it is worth X. You could very well be paying a premium for it's perceived desirability. This is why investors/analysts spend time and energy on valuations, they want to compare the markets current price to what the price theoretically should/would be if it were purely driven by the data, in effect trying to remove sentiment from the equation to gain a more realistic idea of what a company is worth. Side note adding on that, don't mistake this as saying one should pay a lot of attention to analysts or their price targets, though analysts do have insightful things to say.\"","\"At the most fundamental level, every market is comprised of buyers and selling trading securities. These buyers and sellers decide what and how to trade based on the probability of future events, as they see it. That's a simple statement, but an example demonstrates how complicated it can be. Picture a company that's about to announce earnings. Some investors/traders (from here on, \"\"agents\"\") will have purchased the company's stock a while ago, with the expectation that the company will have strong earnings and grow going forward. Other agents will have sold the stock short, bought put options, etc. with the expectation that the company won't do as well in the future. Still others may be unsure about the future of the company, but still expecting a lot of volatility around the earnings announcement, so they'll have bought/sold the stock, options, futures, etc. to take advantage of that volatility. All of these various predictions, expectations, etc. factor into what agents are bidding and asking for the stock, its associated derivatives, and other securities, which in turn determines its price (along with overall economic factors, like the sector's performance, interest rates, etc.) It can be very difficult to determine exactly how markets are factoring in information about an event, though. Take the example in your question. The article states that if market expectations of higher interest rates tightened credit conditions... In this case, lenders could expect higher interest rates in the future, so they may be less willing to lend money now because they expect to earn a higher interest rate in the future. You could also see this reflected in bond prices, because since interest rates are inversely related to bond prices, higher interest rates could decrease the value of bond portfolios. This could lead agents to sell bonds now in order to lock in their profits, while other agents could wait to buy bonds because they expect to be able to purchase bonds with a higher rate in the future. Furthermore, higher interest rates make taking out loans more expensive for individuals and businesses. This potential decline in investment could lead to decreased revenue/profits for businesses, which could in turn cause declines in the stock market. Agents expecting these declines could sell now in order to lock in their profits, buy derivatives to hedge against or ride out possible declines, etc. However, the current low interest rate environment makes it cheaper for businesses to obtain loans, which can in turn drive investment and lead to increases in the stock market. This is one criticism of the easy money/quantitative easing policies of the US Federal Reserve, i.e. the low interest rates are driving a bubble in the stock market. One quick example of how tricky this can be. The usual assumption is that positive economic news, e.g. low unemployment numbers, strong business/residential investment, etc. will lead to price increases in the stock market as more agents see growth in the future and buy accordingly. However, in the US, positive economic news has recently led to declines in the market because agents are worried that positive news will lead the Federal Reserve to taper/stop quantitative easing sooner rather than later, thus ending the low interest rate environment and possibly tampering growth. Summary: In short, markets incorporate information about an event because the buyers and sellers trade securities based on the likelihood of that event, its possible effects, and the behavior of other buyers and sellers as they react to the same information. Information may lead agents to buy and sell in multiple markets, e.g. equity and fixed-income, different types of derivatives, etc. which can in turn affect prices and yields throughout numerous markets.\"","While there are lots of really plausible explanations for why the market moves a certain way on a certain day, no one really knows for sure. In order to do that, you would need to understand the 'minds' of all the market players. These days many of these players are secret proprietary algorithms. I'm not quibbling with the specifics of these explanations (I have no better) just pointing out that these are just really hypotheses and if the market starts following different patterns, they will be tossed into the dust bin of 'old thinking'. I think the best thing you can explain to your son is that the stock market is basically a gigantic highly complex poker game. The daily gyrations of the market are about individuals trying to predict where the herd is going to go next and then after that and then after that etc. If you want to help him understand the market, I suggest two things. The first is to find or create a simple market game and play it with him. The other would be to teach him about how bonds are priced and why prices move the way they do. I know this might sound weird and most people think bonds are esoteric but there are bonds have a much simpler pricing model based on fundamental financial logic. It's much easier then to get your head around the moves of the bond markets because the part of the price based on beliefs is much more limited (i.e. will the company be able pay & where are rates going.) Once you have that understanding, you can start thinking about the different ways stocks can be valued (there are many) and what the market movements mean about how people are valuing different companies. With regard to this specific situation, here's a different take on it from the 'priced in' explanation which isn't really different but might make more sense to your son: Pretend for a second that at some point these stocks did move seasonally. In the late fall and winter when sales went up, the stock price increased in kind. So some smart people see this happening every year and realize that if they bought these stocks in the summer, they would get them cheap and then sell them off when they go up. More and more people are doing this and making easy money. So many people are doing it that the stock starts to rise in the Summer now. People now see that if they want to get in before everyone else, they need to buy earlier in the Spring. Now the prices start rising in the Spring. People start buying in the beginning of the year... You can see where this is going, right? Essentially, a strategy to take advantage of well known seasonal patterns is unstable. You can't profit off of the seasonal changes unless everyone else in the market is too stupid to see that you are simply anticipating their moves and react accordingly.","Was already priced in. The market is smarter than ratings agencies that are fighting to stay relevant by trying to instill crisis mode on a global economy that is already very fragile. Their only announcements nowadays are on companies/nations that are on the front page of the global newswire. Almost seems like they want the global economy to tank on their information and ratings cuts. Too bad nobody really cares about the agencies anymore.","\"No, but it is certainly a possibility. the efficient market hypothesis would say that this means that the market perceives the present value of all future earning as negative. These earnings might take the form of a writedown of assets at some point. (Companies carry a goodwill asset that is generally imaginary. They book that asset when they buy companies for more than they are worth.) It would be as if PRUN was a stock tracking my life. If I bought my house in 2006 for $1 million cash. I might have a book value of $1 million. However, PRUN might trade at $500k because the market knows that my asset isn't really worth $1 million and at some point my earnings will take a hit to reflect that. It might also mean that future \"\"real\"\" earnings \"\"ie actual profit and loss on sales\"\" are going to be negative. This would mean bankruptcy is more likely.\"","In short, yes. Implied volatility will capture any expected upcoming material announcements. There is also supply/demand impact bundled in which may inflate an option price, and by extension increase implied volatility. OTM and ITM options are particularly predisposed to this phenomenon -- which is of course at odds with the traditional BS model assumptions -- the result is referred to as the volatility smile. Implied volatility is quoted as an annualised measure but isn't necessarily an annual value -- it will correspond to the option time period.","In the equity world, if a stock trades at 110 and is going to pay a dividend of 10 in a few days, an option expiring after the ex date would take the dividend into account and would trade as if the stock were trading at 100. (Negative) interest rates may also lead to a similar effect. In the commodity world the cost of carry needs to be taken into account.","\"This refers to the faulty idea that the stock market will behave differently than it has in the past. For example, in the late 1990s, internet stocks rose to ridiculous heights in price, to be followed soon after with the Dot-Com Bubble crash. In the future, it's likely that there will be another such bubble with another hot stock - we just don't know what kind. Saying that \"\"this time it will be different\"\" could mean that you expect this bubble not to burst when, historically, that is never the case.\"","\"I would differentiate between pricing and valuation a bit more: Valuation is the result of investment analysis and the result of coming up with a fair value for a company and its shares; this is done usually by equity analysts. I have never heard about pricing a security in this context. Pricing would indicate that the price of a product or security is \"\"set\"\" by someone (i.e. a car manufacturer sets the prices of its new cars). The price of a security however is not set by an analyst or an institution, it is solely set by the stock market (perhaps based on the valuations of different analysts). There is only one exception to this: pricing an IPO before its shares are actually traded on an exchange. In this case the underwriting banks set the price (based on the valuation) at which the shares are distributed.\"","What it means is that the stock has already moved down. Options and other derivatives follow the price of the underlying they are not a precursor to what the underlying is going to do. In other words, the price of a derivative is derived from the underlying.","\"Generally, a share of stock entitles the owner to all future per-share dividends paid by the company, plus a fraction of the company's assets net value in the event of liquidation. If one knew in advance the time and value of all such payouts, the value of the stock should equal the present cash value of that payout stream, which would in turn be the sum of the cash values of all the individual payouts. As time goes by, the present cash value of each upcoming payout will increase until such time as it is actually paid, whereupon it will cease to contribute to the stock's value. Because people are not clairvoyant, they generally don't know exactly what future payouts a stock is going to make. A sane price for a stock, however, may be assigned by estimating the present cash value of its future payments. If unfolding events would cause a reasonable person to revise estimates of future payments upward, the price of the stock should increase. If events cause estimates to be revised downward, the price should fall. In a sane marketplace, if the price of a stock is below people's estimates of its payouts' current cash value, people should buy the stock and push the price upward. If it is above people's estimates, they should sell the stock and push the price downward. Note that in a sane marketplace, rising prices are a red-flag indicator for people to stop buying. Unfortunately, sometimes bulls see a red flag as a signal to charge ahead. When that happens, prices may soar through the roof, but it's important to note that the value of the stock will still be the present cash value of its future payouts. If that value is $10/share, someone who buys a share for $50 basically gives the seller $40 that he was not entitled to, and which the buyer will never get back. The buyer might manage to convince someone else to pay him $60 for the share, but that simply means the new buyer is giving the the previous one $50 that he wasn't entitled to either. If the price falls back to $10, calling that fall a \"\"market correction\"\" wouldn't be a euphemism, but rather state a fact: the share was worth $10 before people sold it for crazy prices, and still worth $10 afterward. It was the market price that was in error. The important thing to focus on as a sane investor is what the stock is actually going to pay out in relation to what you put in. It's not necessary to look only at present price/earnings ratios, since some stocks may pay little or nothing today but pay handsomely next year. What's important, however, is that there be a reasonable likelihood that in the foreseeable future the stock will pay dividends sufficient to justify its cost.\"","Pricing would just be another way to describe valuation. I guess if you want to get technical, pricing - is the act of getting somethings valuation. While valuation - is the estimate of somethings worth. Security analysis - An examination and evaluation of the various factors affecting the value of a security. Side Note: While pricing is valuation, price is not. Price is how much the stock, or security costs most commonly determined by a market. Add On: The meaning of two words might matter depending on what context it is being used in. For example if we were talking about a market where an individual actually sets a price at random without doing any type of evaluation then this->answer that AlexR provides would better highlight the differences.","\"With my current, limited knowledge (see end), I understand it the following way: Are share prices really described as \"\"memoryless\"\"? Yes. Is there a technical meaning of the term? What does it really mean? The meaning comes from Markov Models: Think of the behavior of the stock market over time as a Markov Chain, i.e. a probabilistic model with states and probabilistic transitions. A state is the current price of all stocks of the market, a transition is a step in time. Memoryless means that transitions that the stock market might make can be modelled by a relation from one state to another, i.e. it only depends on the current state. The model is a Markov Chain, as opposed to a more general Stochastic Process where the next state depends on more than the current state. So in a Markov Chain, all the history of one stock is \"\"encoded\"\" already in its current price (more precisely in all stock's prices). The memorylessness of stocks is the main statement of the Efficient Market Theory (EMT). If a company's circumstances don't change, then a drop in its share price is going to be followed by a rise later. So if the EMT holds, your statement above is not necessarily true. I personally belief the EMT is a good approximation - only large corporations (e.g. Renaissance Technologies) have enough ressources (hundreds of mathematicians, billions of $) to be able to leverage tiny non-random movements that stem from a not completely random, mostly chaotic market. The prices can of course change when the company's circumstances change, but they aren't \"\"memoryless\"\" either. A company's future state is influenced by its past. In the EMT, a stock's future state is only influenced by its past as much as is encoded in its current price (more precisely, the complete market's current state). Whether that price was reached by a drop or a rise makes no difference. The above is my believe, but I'm by far no finance expert. I am working professionally with probabilistic models, but have only read one book on finance: Kommer's \"\"Souverän investieren mit Indexfonds und ETFs\"\". It's supposed to contain many statements of Malkiel's \"\"A Random Walk Down Wall Street\"\".\"","\"What does it mean in terms of share price? Should the share price increase by 15 cents? No, but you're on the right track. In theory, the price of a share reflects it's \"\"share\"\" of time discounted future earnings. To put it concretely, imagine a company consistently earning 15 cents a share every year and paying it all out as dividends. If you only paid 25 cents for it, you could earn five cents a share by just holding it for two years. If you imagine that stocks are priced assuming a holding period of 20 years or so, so we'd expect the stock to cost less than 3 dollars. More accurately, the share price reflects expected future earnings. If everyone is assuming this company is growing earnings every quarter, an announcement will only confirm information people have already been trading based on. So if this 15 cents announcement is a surprise, then we'd expect the stock price to rise as a function of both the \"\"surprise\"\" in earnings, and how long we expect them to stay at this new profitability level before competition claws their earnings away. Concretely, if 5 cents a share of that announcement were \"\"earnings surprise,\"\" you'd expect it to rise somewhere around a dollar.\"","If you believe in the efficient market hypothesis then the stock price reflects the information known to market participants. Consequently, if the 'market' expected earnings to rise, and they did, then the price won't change. Clearly there are circumstances, especially in the short term and for illiquid stocks, where this isn't true, but a lot of work points to this being the case on average.","It depends to some extent on how you interpret the situation, so I think this is the general idea. Say you purchase one share at $50, and soon after, the price moves up, say, to $55. You now have an unrealized profit of $5. Now, you can either sell and realize that profit, or hold on to the position, expecting a further price appreciation. In either case, you will consider the price change from this traded price, which is $55, and not the price you actually bought at. Hence, if the price fell to $52 in the next trade, you have a loss of $3 on your previous profit of $5. This (even though your net P&L is calculated from the initial purchase price of $50), allows you to think in terms of your positions at the latest known prices. This is similar to a Markov process, in the sense that it doesn't matter which route the stock price (and your position's P&L) took to get to the current point; your decision should be based on the current/latest price level.","\"If the time horizon is not indicated, this is just a \"\"fair price\"\". The price of the stock, which corresponds with the fair value of the whole company. The value, which the whole business is worth, taking into consideration its net income, current bonds yield, level of risk of the business, perspective of the business etc.. The analyst thinks the price will sooner or later hit the target level (if the price is high, investors will exit stocks, if the price is cheap, investors will jump in), but no one knows, how much time will it take.\"","From every article I've encountered, the chicken and egg aspect suggests that IV is produced by looking at options pricing, and calculating the IV from that. The implication is that whatever is known at that time is included in the price. And that when you see a particular option trade an unusual number of contracts at a given price, the implication is that someone thinks they know something that's not already priced in, i.e. that the current price is not accurate, they can profit on the future event.","This depends entirely on what the market guesses the news will be and how much of that guess has already been factored into the price. There is no general answer beyond that. Note that this explains the apparently paradoxical responses where a stock good down on good news (the market expected better) or up on bad news (the market expected worse).","\"I think the question can be answered by realizing that whoever is buying the stock is buying it from someone who can do the same mathematics. Ask your son to imagine that everyone planned to buy the stock exactly one week before Christmas. Would the price still be cheap? The problem is that if everyone knows the price will go up, the people who own it already won't want to sell. If you're buying something from someone who doesn't really want to sell it, you have to pay more to get it. So the price goes up a week before Christmas, rather than after Christmas. But of course everyone else can figure this out too. So they are going to buy 2 weeks before, but that means the price goes up 2 weeks before rather than 1 week. You play this game over and over, and eventually the expected increased Christmas sales are \"\"priced in\"\". But of course there is a chance people are setting the price based on a mistaken belief. So the winner isn't the person who buys just before the others, but rather the one who can more accurately predict what the sales will be (this is why insider trading is so tempting even if it's illegal). The price you see right now represents what people anticipate the price will be in the future, what dividends are expected in the future, how much risk people think there is, and how that compares with other available investments.\"","That's exactly what immunofort is saying, and it lines up with established financial theory (well, some of it). The general argument is that stocks are priced according to what risks they're exposed to. Several (although not all) of the major financial economics theories propose (and find empirical evidence for this) that the market as whole is a risk factor, so individual stocks would be priced in part based on how correlated they are with the market. Strictly speaking, the risk free rate is purely theoretical and can't be directly observed, but the US T-bill yield is usually considered to be a pretty good proxy for it.","\"Investopedia's explanation of overbought: An asset that has experienced sharp upward movements over a very short period of time is often deemed to be overbought. Determining the degree in which an asset is overbought is very subjective and can differ between investors. Technicians use indicators such as the relative strength index, the stochastic oscillator or the money flow index to identify securities that are becoming overbought. An overbought security is the opposite of one that is oversold. Something to consider is the \"\"potential buyers\"\" and \"\"potential sellers\"\" of a stock. In the case of overbought, there are many more buyers that have appeared and driven the price to a point that may be seen as \"\"unsustainably high\"\" and thus may well come down soon if one looks at the first explanation. For oversold, consider the flip side of this. A real life scenario here would be to consider airline tickets where a flight may be \"\"overbooked\"\" that could also be seen as \"\"oversold\"\" in that more tickets were sold than seats that are available and thus people will be bumped as not all tickets can be honored in this case. For a stock scenario of \"\"oversold\"\" consider how IPOs work where several buyers have to exist to buy the shares so the investment bank isn't stuck holding them which sends up the price since the amount wanted by the buyers may be more than what can be sold. The price shifts in bringing out more of one side than the other is the point you are missing. In shifting the price up, this attracts more sellers to satisfy the buyers. However, if there is a surge of buyers that flood the market, then there could be a perception that the security is overbought in the sense that there may be few buyers left for the security and thus the price may fall in the near term. If the price is coming down, this attracts more buyers to achieve the other side. The potential part is what you don't see and I wonder if you can imagine this part of the market. The airline example I give as an example as you don't seem to think either side of buying or selling can be overloaded. In the case of an oversold flight, there were more seats sold than available so yes it is possible. Stocks exist in finite quantities as there are only X shares of a company trading at any one time if you look into the concept of a float.\"","\"When people talk about \"\"the price\"\" of a stock, they usually mean one of the following: Last price: The price at which a trade most recently took place. If someone sold (and someone else bought) shares of XYZ for $20 each, then until another trade occurs, the last price of the stock will be quoted at $20. Bid price: The highest price at which someone is currently offering to buy the stock. Ask price: The lowest price at which someone is currently offering to sell the stock. As you can see, all of these are completely determined by the people buying and selling the stock.\"","\"To a certain degree \"\"the only sure thing I know is the price I paid for the stock is the fair price at the time I buy it\"\" is absolutely right, by definition, and by the law of the free and efficient market and forces of supply and demand, freedom of public information about share price sensitive information, etc, etc, etc, and you've made a good point that eludes many investors I'd say. However, in practise, the market has many participants, and they will all be arriving at a different idea of what the \"\"fair price\"\" is by way of a slightly different analysis and slightly different information. In theory they all have the same information, but unfortunately in practise there is always some disparity. When one participant feels a stock is undervalued though the last thing they want to do is say so, instead they will start buying stock. They might feel it is undervalued by 20%, but that doesn't mean they'll keep buying and buying until it gets to 20%, they might push the price up just a little, then let the price drift down again, buy some more, relax, buy some more, etc. Over time the price will rise of course because the supply will become weaker, but even if the participant is correct about the 20% the price might have only risen 7% by the time they acquire all the stock they want given their risk models, market exposure and margin guidelines, etc, and it might be more than a year later before the price has actually risen to 20%, presumably because more and more other market participants have come to the same conclusion. The opposite can obviously also happen, a participant might dump stock it feels is over valued long before it hits the values it believes in. So right away you can see that pricing might not really reflect value, or \"\"fair price\"\".\"","It probably would have already been priced in the moment the markets opened today. So, my guess is, unless you already owned it at $68.78 on Friday, chances are it would have been near impossible to get it at that price since this morning. It already increased more than 18% from the opening bell today. Hope my answer helped clarify some things.","It means that your money does not have the same amount of buying power.","\"[...] are all bonds priced in such a way so that they all return the same amount (on average), after accounting for risk? In other words, do risk premiums ONLY compensate for the amount investors might lose? No. GE might be able to issue a bond with lower yield than, say, a company from China with no previous records of its presence in the U.S. markets. A bond price not only contains the risk of default, but also encompasses the servicability of the bond by the issuer with a specific stream of income, location of main business, any specific terms and conditions in the prospectus, e.g.callable or not, insurances against default, etc. Else for the same payoff, why would you take a higher risk? The payoff of a higher risk (not only default, but term structure, e.g. 5 years or 10 years, coupon payments) bond is more, to compensate for the extra risk it entails for the bondholder. The yield of a high risk bond will always be higher than a bond with lower risk. If you travel back in time, to 2011-2012, you would see the yields on Greek bonds were in the range of 25-30%, to reflect the high risk of a Greek default. Some hedge funds made a killing by buying Greek bonds during the eurozone crisis. If you go through the Efficient frontier theory, your argument is a counter statement to it. Same with individual bonds, or a portfolio of bonds. You always want to be compensated for the risk you take. The higher the risk, the higher the compensation, and vice versa. When investors buy the bond at this price, they are essentially buying a \"\"risk free\"\" bond [...] Logically yes, but no it isn't, and you shouldn't make that assumption.\"","> you're also signaling the value of tangible things like storage, weather, and transportation costs as well as intangibles such as future macroeconomic events, global policy decisions, etc. To whom? I, as a buyer of the future, only get to know this from normal news, as can other people. Or is the assumption that I have a special source that not all people have access to, and hence when I buy the contract, other people think that I have some special information that they don't, and use this fact to then derive the prices of whatever? Apologies if what I say makes no sense. I am a noob to finance. Please also provide some links for Price Discovery if you feel my understanding is wrong.","\"China's chief central banker warned markets are fully valued and therefore susceptible to a drastic price correction - triggered by a wide-spread, simultaneous reversal of opinion in the markets. Basically the point when the \"\"Greater Fool\"\" phenomenon ends and and selling pressure spikes as everyone starts getting out because they think everyone is. Simplified af but thats the laymen interpration of a minsky moment.\"","Imagine that the existing interest rate is 5%. So on a bond with face value of 100, you would be getting a $5 coupon implying a 5% yield. Now, if let's say the interest rates go up to 10%, then a new bond issued with a face value of 100 will give you a coupon of $10 implying a 10% yield. If someone in the bond market buys your bond after interest price adjustment, in order to make the 10% yield (which means that an investor typically targets at least the risk-free rate on his investments) he needs to buy your bond at $50 so that a $5 coupon can give a 10% yield. The reverse happens when interest rates go down. I hope this somewhat clears the picture. Yield = Coupon/Investment Amount Update: Since the interest rate of the bond does not change after its issuance, the arbitrage in the interest rate is reflected in the market price of the bond. This helps in bringing back the yields of old bonds in-line with the freshly issued bonds.","\"When you buy a stock, you're really paying for a STREAM of earnings, from now till whenever. The job of an investor is to figure out how large that stream will be in the future. But if the stock price were the same as \"\"earnings\"\" (for one year), it would mean that you would get all future earnings for \"\"free.\"\" That's not likely to happen unless 1) the company is in liquidation,\"\" meaning \"\"no future\"\" and 2) it earned ALL of the money it ever earned in the past year, meaning \"\"no past.\"\" If there are likely to be any earnings in the future, you will have to pay for those future earnings, over and above what was earned in the most recent year.\"","\"Essentially, he means \"\"one ignores history at their own peril\"\". We often hear people arguing that \"\"the old rules no longer apply\"\". Whether it be to valuations, borrowing, or any of the other common metrics, to ignore the lessons of the past is to invite disaster. History shows us that major crises in the markets usually occur when the old rules are ignored and people believe that current exceptional market conditions are justified by special circumstances.\"","How about looking into the market price of risk? Ive always wanted to know if risk is or should be priced the same across markets/asset classes/etc. Eh? Let me know what you figure out. Edit: I just realized you people probably consider it to be the Sharpe ratio. That's not what I meant. I meant in the sense of option pricing.","\"So you're basically saying that average market fluctuations have an affect on individual stocks, because individual stocks are often priced in relation to the growth of the market as a whole? Also, what kinds of investments would be considered \"\"risk free\"\" in this nomenclature?\"","\"Futures are an agreement to buy or sell something in the future. The futures \"\"price\"\" is the price at which you agree to make the trade. This price does not indicate what will happen in the future so much as it indicates the cost of buying the item today and holding it until the future date. Hence, for very liquid products such as stock index futures, the futures price is a very simple function of today's stock index value and current short-term interest rates. If the stock exchange is closed but the futures exchange is open, then using the futures price and interest rates one can back out an implied \"\"fair value\"\" for the index, which is in essence the market's estimate of what the stock index value would be right now if the stock market were open. Of course, as soon as the stock exchange opens, the futures price trades to within a narrow band of the actual index value, where the size of the band depends on transaction costs (bid-ask spread, commissions, etc.).\"","\"You have actually asked several questions, so I think what I'll do is give you an intuition about risk-neutral pricing to get you started. Then I think the answer to many of your questions will become clear. Physical Probability There is some probability of every event out there actually occurring, including the price of a stock going up. That's what we call the physical probability. It's very intuitive, but not directly useful for finding the price of something because price is not the weighted average of future outcomes. For example, if you have a stock that is highly correlated with the market and has 50% chance of being worth $20 dollars tomorrow and a 50% chance of being worth $10, it's value today is not $15. It will be worth less, because it's a risky stock and must earn a premium. When you are dealing with physical probabilities, if you want to compute value you have to take the probability-weighted average of all the prices it could have tomorrow and then add in some kind of compensation for risk, which may be hard to compute. Risk-Neutral Probability Finance theory has shown that instead of computing values this way, we can embed risk-compensation into our probabilities. That is, we can create a new set up \"\"probabilities\"\" by adjusting the probability of good market outcomes downward and increasing the probability of bad market outcomes. This may sound crazy because these probabilities are no longer physical, but it has the desirable property that we then use this set of probabilities to price of every asset out there: all of them (equity, options, bonds, savings accounts, etc.). We call these adjusted probabilities that risk-neutral probabilities. When I say price I mean that you can multiply every outcome by its risk-neutral probability and discount at the risk-free rate to find its correct price. To be clear, we have changed the probability of the market going up and down, not our probability of a particular stock moving independent of the market. Because moves that are independent of the market do not affect prices, we don't have to adjust the probabilities of them happening in order to get risk-neutral probabilities. Anyway, the best way to think of risk-neutral probabilities is as a set of bogus probabilities that consistently give the correct price of every asset in the economy without having to add a risk premium. If we just take the risk-neutral probability-weighted average of all outcomes and discount at the risk-free rate, we get the price. Very handy if you have them. Risk-Neutral Pricing We can't get risk-neutral probabilities from research about how likely a stock is to actually go up or down. That would be the physical probability. Instead, we can figure out the risk-neutral probabilities from prices. If a stock has only two possible prices tomorrow, U and D, and the risk-neutral probability of U is q, then Price = [ Uq + D(1-q) ] / e^(rt) The exponential there is just discounting by the risk-free rate. This is the beginning of the equations you have mentioned. The main thing to remember is that q is not the physical probability, it's the risk-neutral one. I can't emphasize that enough. If you have prespecified what U and D can be, then there is only one unknown in that equation: q. That means you can look at the stock price and solve for the risk neutral probability of the stock going up. The reason this is useful is that you can same risk-neutral probability to price the associated option. In the case of the option you don't know its price today (yet) but you do know how much money it will be worth if the stock moves up or down. Use those values and the risk-neutral probability you computed from the stock to compute the option's price. That's what's going on here. To remember: the same risk-neutral probability measure prices everything out there. That is, if you choose an asset, multiply each possibly outcome by its risk-neutral probability, and discount at the risk-free rate, you get its price. In general we use prices of things we know to infer things about the risk-neutral probability measure in order to get prices we do not know.\"","Option prices can predict the range of movement of the underlying, but not if the underlying is going up or down. An option price gives an implied volatility for an underlying . That IV number helps predict a range for the underlying price over the next few days,months, upto a year.","\"That characterisation of arbitrage-free pricing sounds a bit like the \"\"relative vs. fundamental\"\" approaches to asset pricing that Cochrane outlines (in his text, *Asset Pricing*). Rebonato also makes this distinction with regard to term structure models in *Volatility and Correlation*. On one extreme you have CAPM-style models in which asset prices are completely determined by investors' risk preferences; on the other extreme, you would have something like a SABR-Libor Market Model where you take everything up to and including the volatility surface as given. What's interesting to me is the way in which these different classes of models get used in various parts of the financial industry. So, buy side firms tend to rely a lot more on equilibrium-style models, since they ultimately care about things like how the equity risk premium or the bond risk premium affect asset prices. In contrast, derivatives quants working at a big sell-side bank who are pricing exotics don't care about what the \"\"fundamental\"\" value of their underlying assets is; they just take that as given and price the exotic accordingly.\"","The point is that the bid and ask prices dictate what you can buy and sell at (at market, at least), and the difference between the two, or spread, contributes implicitly to your gains or losses. For example, say your $1 stock actually had a bid of $0.90 and an ask of $1.10; i.e. say that $1 was the last price. You would have to buy the stock at the ask price of $1.10, but now you can only sell that stock at the bid price of $0.90. Thus, you would need to make at least that $0.20 spread before you can make a profit.","\"https://en.wikipedia.org/wiki/Irrational_exuberance > Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? > — \"\"The Challenge of Central Banking in a Democratic Society\"\", 1996-12-05\"","I understand now. Thank you. How important is the existence of effective price discovery tools in a market? And the example that you gave of a farmer is good, but when I as the owner of a company, get futures regarding, say, the stocks that I own of my company, won't that be insider trading if I do that after knowing that the value of my stocks will fall? If people assume price discovery in this case, won't they also have to assume that I am doing insider trading?","No, it means what it says. Prices change, hence price of the derivative can go down even if the price of the underlying doesn't change (e.g. theta decay in options).","\"Here, check out my updated reply above - I added an example that might clarify some of your questions? Also, to answer the \"\"to whom\"\" question, you're signaling those things to the market. By trading at what you believe to be fair value, you're helping the market price all of those \"\"events\"\" contained in a futures contract.\"","\"Currently, when \"\"implied volatility\"\" is spoken, the Black-Scholes-Merton model is implied. This model has been shown to be deficient, thus the Variance Gamma Model should be used. However, as nearly no one uses VG, it can be assumed that BS is still being implied. The BS formula has multiple variables. Some are external to the underlying in question. The rest are internal. When all but one variable is known or assumed, the last variable can be calculated, so if one has the price of the underlying and all else except the volatility, the volatility can be calculated thus implied. If one selects an implied volatility, and all variables except the underlying price is known, the underlying price can be calculated. For the present, one uses the current price of the underlying to calculate the implied volatility. For future option prices, one assumes an implied volatility at a later date to calculate a possible price. For prices not at the money, the BS model is extremely imprecise. The VG model can better determine a potential future price.\"","\"I was wondering how \"\"future cash flows of the asset\"\" are predicted? Are they also predicted using fundamental and/or technical analysis? There are a many ways to forecast the future cash flows of assets. For example, for companies: It seems like calculating expected/required rate using CAPM does not belong to either fundamental or technical analysis, does it? I would qualify the CAPM as quantitative analysis because it's mathematics and statistics. It's not really fundamental since its does not relies on economical data (except the prices). And as for technical analysis, the term is often used as a synonym for graphical analysis or chartism, but quantitative analysis can also be referred as technical analysis. the present value of future cash flows [...] (called intrinsic price/value, if I am correct?) Yes you are correct. I wonder when deciding whether an asset is over/fair/under-valued, ususally what kind of price is compared to what other kind of price? If it's only to compare with the price, usually, the Net asset value (which is the book value), the Discount Cash flows (the intrinsic value) and the price of comparable companies and the CAPM are used in comparison to current market price of the asset that you are studying. Why is it in the quote to compare the first two kinds of prices, instead of comparing the current real price on the markets to any of the other three kinds? Actually the last line of the quote says that the comparison is done on the observed price which is the market price (the other prices can't really be observed). But, think that the part: an asset is correctly priced when its estimated price is the same as the present value of future cash flows of the asset means that, since the CAPM gives you an expected rate of return, by using this rate to compute the present value of future cash flows of the asset, you should have the same predicted price. I wrote this post explaining some valuation strategies. Maybe you can find some more information by reading it.\"","Suppose I purchase $10,000 worth of a particular share today. If the person(s) I am purchasing the shares from paid $9,000 for those shares, then I replacing their $9,000 investment with my $10,000 investment. This is a net inflow of $1,000 into the market. Similarly, if the person(s) I am purchasing the shares from paid $11,000 for those shares, then their $11,000 investment is being replace by my $10,000 investment. This is a net outflow of $1,000 out of the market. The aggregate of all such inflows and outflows in the net inflow/outflow into the market over a given period of time. (Here we are ignoring the effects of new share issues.)","\"This effect has much empirical evidence as googling \"\"dividend price effect evidence\"\" will show. As the financial economic schools of thought run the gamut so do the theories. One school goes as far to call it a market inefficiency since the earning power thus the value of an equity that's affected is no different or at least not riskier by the percentage of market capitalization paid. Most papers offer that by the efficient market hypothesis and arbitrage theory, the value of an equity is known by the market at any point in time given by its price, so if an equity pays a dividend, the adjusted price would be efficient since the holder receives no excess of the price instantly before payment as after including the dividend since that dividend information was already discounted so would otherwise produce an arbitrage.\"","\"It means price movements in the past do not affect price movements in the future. Think of the situation of a coin, if you flip it once, and then you flip it a second time, the results are independent of each other. If the first time, you flipped a HEAD, it does not mean that the coin will remember it, and produce a TAIL the second time. This is the meaning of \"\"memoryless\"\". FYI, stock markets are clearly not memoryless. It is just an assumption for academic purposes.\"","\"@jidugger mostly got it right. It basically mean that past performance of a stock, or a basket of stocks, are not at all useful when trying to predict its future. There is no proven correlation between past and future performance. If there was such a correlation, that was \"\"proven\"\" or known, then investors would quickly exploit this correlation by buying or selling this stock, thus nullifying the prediction. It doesn't mean the specific individuals cannot predict the future stock market - hell, if I set up 2^100 different robots, where every robots gives a different series of answers to the 100 questions \"\"how will stock X do Y days from now\"\" (for 1<=Y<=100), then one of those robots would be perfectly correct. The problem is that an outside observer has no way of knowing which of the predictor robots is right. To say that stock is memoryless strikes me as not quite right -- to the extent that stocks are valued based on earnings, much of what we infer about future earnings relies on past and present earnings. To put it another way - you have $1000 now, and need to decide whether to invest in a particular stock, or a stock index. The \"\"memoryless\"\" property means that no matter how many earning reports you view ... by the time you see them, the stock price already accounts for them, so they're not useful to you. If the earning reports are positive, the stock is already \"\"too high\"\" because people bought it before you did. So on average, you can't use this information to predict the stock's future performance, and are better off investing in an index fund (unless you desire extra risk that doesn't come with more profitability).\"","Stock prices are indeed proportional to supply and demand. The greater the demand for a stock, the greater the price. If they are, would this mean that stock prices completely depend on HOW the public FEELS/THINKS about the stock instead of what it is actually worth? This is a question people have argued for decades. Literature in behavioral finance suggests that investors are not rational and thus markets are subject to wild fluctuation based on investor sentiment. The efficient market theory (EMT) argues that the stock market is efficient and that a stock's price is an accurate reflection of its underlying or intrinsic value. This philosophy took birth with Harry Markovitz's efficient frontier, and Eugene Fama is generally seen as the champion of EMT in the 1960's and onward. Most investors today would agree that the markets are not perfectly efficient, and that a stock's price does not always reflect its value. The renowned professor Benjamin Graham once wrote: In the short run, the market is a voting machine but in the long run it is a weighing machine. This suggests that prices in the short term are mainly influenced by how people feel about the stock, while in the long run the price reflects what it's actually worth. For example, people are really big fans of tech stocks right now, which suggests why LinkedIn (stock: LNKD) has such a high share price despite its modest earnings (relative to valuation). People feel really good about it, and the price might sustain if LinkedIn becomes more and more profitable, but it's also possible that their results won't be absolutely stellar, so the stock price will fall until it reflects the company's fundamentals.","\"It's a statement that seems to be true about our tendency to believe we won't make the same mistake twice, even though we do, and that somehow what's occurring in the present is completely different, even when the underlying fundamentals of the situation may be nearly identical. It's a form of self-delusion and, sometimes, mass-delusion, and it has been a major contributing factor to many of our worst financial disasters. If you look at every housing bubble, for instance, we examine the aftermath, put new regulations and procedures into place, theoretically to prevent it from happening again, and then move forward. When the cycle starts to repeat itself, we ignore the signals, telling ourselves, \"\"oh, that can't happen again -- this time it's different.\"\" When investors begin to ignore the warning signs because they think the current situation is somehow totally different and therefore there will be a different outcome than the last disaster, that's when things actually do go bad. The 2008 housing crisis was caused by the same essential forces that brought about similar (albeit smaller scale) housing disasters in the 80's and 90's -- greed caused banks and other participants in the housing sector to make loans they knew were no good (an oversimplification to be sure, but apt nonetheless), and eventually the roof caved in on the market. In 2008, the essential dynamics were the same, but everyone had convinced themselves that the markets were more sophisticated and could never allow things like that to happen again. So, everyone told themselves this was different, and they dove into the markets headlong, ignoring all of the warning signs along the way that clearly told the story of what was coming had anyone bothered to notice.\"","Let's use an example: You buy 10 machines for 100k, and those machines produce products sold for a total of 10k/year in profit (ignoring labor/electricity/sales costs etc). If the typical investor requires a rate of return of 10% on this business, your company would be worth 100k. In investing terms, you would have a PE ratio of 10. The immediately-required return will be lower if substantially greater returns are expected in the future (expected growth), and the immediately required return will be higher if your business is expected to shrink. If at the end of the year you take your 10k and purchase another machine, your valuation will rise to 110k, because you can now produce 11k in earnings per year. If your business has issued 10,000 shares, your share price will rise from $10 to $11. Note that you did not just put cash in the bank, and that you now have a higher share price. At the end of year 2, with 11 machines, lets imagine that customer demand has fallen and you are forced to cut prices. You somehow produce only 10k in profit, instead of the anticipated 11k. Investors believe this 10k in annual profit will continue into the forseable future. The investor who requires 10% return would then only value your company at 100k, and your share price would fall back from $11 to $10. If your earnings had fallen even further to 9k, they might value you at 90k (9k/0.1=$90k). You still have the same machines, but the market has changed in a way that make those machines less valuable. If you've gone from earning 10k in year one with 10 machines to 9k in year two with 11 machines, an investor might assume you'll make even less in year three, potentially only 8k, so the value of your company might even fall to 80k or lower. Once it is assumed that your earnings will continue to shrink, an investor might value your business based on a higher required rate of return (e.g. maybe 20% instead of 10%), which would cause your share price to fall even further.","A share is more than something that yields dividends, it is part ownership of the company and all of its assets. If the company were to be liquidated immediately the shareholders would get (a proportion of) the net value (assets - liabilities) of the company because they own it. If a firm is doing well then its assets are increasing (i.e. more cash assets from profits) therefore the value of the underlying company has risen and the intrinsic value of the shares has also increased. The price will not reflect the current value of the firms assets and liabilities because it will also include the net present value of expected future flows. Working out the expected future flows is a science on par with palmistry and reading chicken entrails so don't expect to work out why a company is trading at a price so much higher than current assets - liabilities (or so much lower in companies that are expected to fail). This speculation is in addition to price speculation that you mention in the question.","\"I'm not an economist, but I understand the idea of value or \"\"price\"\" is purely \"\"what people agree it to be\"\". The quants and analysts I've worked with always talk about \"\"discovering the price\"\" - it's an unknown until someone says \"\"I will pay X\"\". Are my 2nd hand Nikes worth $20? Put em on ebay to find out. If someone buys them, then yes, 2nd hand Nikes are worth $20. If they don't sell then they're not worth $20. Obviously ebay is not the most efficient market out there. The exchanges attempt to be that with prices varying by fractions of cent in fractions of seconds (milliseconds). EDIT* Perhaps another way to look at it is \"\"What is the 'correct' value of a computer game, say 'Skyrim'?\"\" Your idea of the value of labour and production costs produces some figure. But in the real world, what actually happens? On release day the game is priced at, say, $60. And lots of people say \"\"I will pay $60\"\". Many people don't, but many people do. Months later, Steam has a sale and they suggest Skyrim is now worth $30. Lot's of people who didn't think it was worth $60 do think it is worth $30. The amount of labour that went into is hasn't changed. So what it the true or 'correct' value/price of the game? What is the correct value/price of *amything*? It is *what people will pay for it*.\"","This seemed very unrealistic, I mean who would do that? But to my immense surprise the market price increased to 5.50$ in the following week! Why is that? This is strange. It seems that people mistakenly [?] believe that the company should be at 5.5 and currently available cheap. This looks like irrational behaviour. Most of the past 6 months the said stock in range bound to 4.5 to 5. The last time it hit around 5.5 was Feb. So this is definitely strange. If the company had set a price of 6.00$ in the rights offering, would the price have increased to 6$? Obviously the company thinks that their shares are worth that much but why did the market suddenly agree? Possibly yes, possible no. It can be answered. More often the rights issue are priced at slight discount to market price. Why did this happen? Obviously management thinks that the company is worth that much, but why did the market simply believe this statement without any additional information? I don't see any other information; if the new shares had some special privileges [in terms of voting rights, dividends, etc] then yes. However the announcements says the rights issues is for common shares.","What it is trying to describe is the psychology around the current price of the stock. In candlestick charts for example, if you get what is called a Bearish Engulfing Candle (where the open is higher than the previous day's close and the close is lower than the previous day's open) at the top of an uptrend, this could mean that the top may have been reached and the bears are taking over the bulls. A Bearish Engulfing candle is seen as a bearish reversal pattern, as the bulls start the day by opening the stock at a higher price than yesterday's close, but by the end of the day the bears have taken over as the price drops below yesterday's open. This reversal pattern can be even more pronounced and effective if it coincides with other chart indicators, such as an overbought momentum indicator. If you want to learn more look up about the Psychology of the market and Candlestick Charting.","\"**Tulip mania** Tulip mania, tulipmania, or tulipomania (Dutch names include: tulpenmanie, tulpomanie, tulpenwoede, tulpengekte and bollengekte) was a period in the Dutch Golden Age during which contract prices for bulbs of the recently introduced tulip reached extraordinarily high levels and then dramatically collapsed in February 1637. It is generally considered the first recorded speculative bubble (or economic bubble), although some researchers have noted that the Kipper-und Wipperzeit (literally Tipper and See-saw) episode in 1619–22, a Europe-wide chain of debasement of the metal content of coins to fund warfare, featured mania-like similarities to a bubble. In many ways, the tulip mania was more of a hitherto unknown socio-economic phenomenon than a significant economic crisis (or financial crisis). And historically, it had no critical influence on the prosperity of the Dutch Republic, the world's leading economic and financial power in the 17th century. *** **Greater fool theory** The greater fool theory states that the price of an object is determined not by its intrinsic value, but rather by irrational beliefs and expectations of market participants. A price can be justified by a rational buyer under the belief that another party is willing to pay an even higher price. In other words, one may pay a price that seems \"\"foolishly\"\" high because one may rationally have the expectation that the item can be resold to a \"\"greater fool\"\" later. *** ^[ [^PM](https://www.reddit.com/message/compose?to=kittens_from_space) ^| [^Exclude ^me](https://reddit.com/message/compose?to=WikiTextBot&message=Excludeme&subject=Excludeme) ^| [^Exclude ^from ^subreddit](https://np.reddit.com/r/business/about/banned) ^| [^FAQ ^/ ^Information](https://np.reddit.com/r/WikiTextBot/wiki/index) ^| [^Source](https://github.com/kittenswolf/WikiTextBot) ^] ^Downvote ^to ^remove ^| ^v0.24\"","I think he was trying to say that in the long term the company's fundamental intrinsic value will drive the price of a company's stock, but in the short term stocks move on emotion and publicity that are not necessarily a reflection of their true underlying value.","As yet another explanation of why it does not really matter, you can look at this from the valuation point of view. Stock price is the present value of its future cash flows (be it free cash flow of the firm or dividends, depending on the model). Let's have a look at the dividends case. Imagine, the price of the stock is based on only three dividends streams $5 dollars each: dividend to be paid today, in year 1, and in year 2. Each should be discounted back to today (say, at 10%), except today's dividend, since today is now. Once that dividend is paid, it is no longer in the stream of cash flows. So if we just delete that first $5 from the formula, the price will adjust itself down by the amount of the dividend to $8.68. NOTE that this is a very simple example, since in reality cash flows streams are arguably infinite and because there are many other factors affecting stock price. But simply for your understanding, this example should provide you with the reason simply from the valuation perspective.","Anyone who wants to can use any method they want. Ultimately, the price of the stock will settle on the valuation that people tend to agree on. If you think the priced in numbers are too low, buy the stock as that would mean that its price will go up as the future earnings materialize. If you think it's too high, short the stock, as its price will go down as future earnings fail to materialize. The current price represents the price at which just as much pressure pushes the price up as down. That means people agree it's reasonably approximating the expected future value. Imagine if I needed money now and sold at auction whatever salary I make in 2019. How much will I make in 2019? I might be disabled. I might be a high earner. Who knows? But if I auction off those earnings, whatever price it sells for represents everyone's best estimate of that value. But each participant in the auction can estimate that value however they want. If you want to know what something is worth, you see what you can sell it for.","The price to earnings ratio is a measure of the company's current share price compared to the annual net earnings per share. The other way to think about this is the number of years a company would take to pay back the share price if the earnings stay constant. This ignores factors like inflation and can be used as an indicator of risk. During the internet bubble many companies had P/E above 24 and no possible means of earning back the share prices that were inflated largely due to speculation. Most tools like Google Finance will list the P/E for a particular quote.","\"Even though the article doesn't actually use the word \"\"discount\"\", I think the corresponding word you are looking for is \"\"premium\"\". The words are used quite frequently even outside of the context of negative rates. In general, bonds are issued with coupons close to the prevailing level of interest rates, i.e. their price is close to par (100 dollar price). Suppose yields go up the next day, then the price moves inversely to yields, and that bond will now trade at a \"\"discount to par\"\" (less than 100 dollar price). And vice versa, if yields went down, prices go up, and the bond is now at a \"\"premium to par\"\" (greater than 100 dollar price)\"","Yes and no. There is no actual money involved - just assumed value. Imagine you own a picture that you painted yourself, and all your friends agree it is worth 1000 $. You feel like you have a 1000 $-picture. Now a guy with some more knowledge visits you, and tells you that it is really only worth about a 100 $. Did you just lose 900 $? If yes, where did the money go?","Imagine a $1,000 face value bond paying 10% interest semi-annually. That means every 6 months there is $50 being paid. Now, if the price of that bond doubled to $2,000, what is the yield? It is still paying $50 every 6 months but now sports a 5% yield as the price went up a great deal. Similarly, if the price of the bond was cut in half to $500, now it is yielding 20% because it is still paying out the $50 every 6 months. The dollar figure is fixed. What percentage of the price it is can vary and that is why there is the inverse relationship between prices and yields. Note that the length of the bond isn't mentioned here where while usually longer bonds will have higher yields, there can be inverted yield curves as well as calls on some bonds. Also, inflation-indexed and convertible bonds could have different calculations used as principal adjustments or possible conversion to stock can change a perception on the overall return.","Ah, pardon me, so it's not *either* 10x return or zero, but also includes points in between there? Is it path dependent? Do you have any history on the asset? The usual crutches for dealing with unknown probabilities are using risk neutrality or arbitrage pricing, but if the market is inefficient then that will be an estimation at best.","\"If markets are efficient they will be unpredictable. If all past information is already priced into a stock then movement will only occur when new information is introduced. Since no one can predict future events stocks will move in an unpredictable way. If markets are inefficient in the short term, people should be able to figure out the long-term price movements. This doesn't seem to be the case. This is why the authoritative book on market efficiency is called \"\"A **Random** Walk Down Wall Street\"\".\"",">Conclusion >Covert operations organized and abetted by foreign governments have played a substantial role in the political and economic development of poorer countries around the world. We look at CIA-backed coups against governments which had nationalized a considerable amount of foreign investment. Using an event-study methodology, we find that private information regarding coup authorizations and planning increased the stock prices of expropriated multinationals that stood to benefit from the regime change. ***The presence of these abnormal returns suggests that there were leaks of classified information to asset traders.*** Consistent with theories of asset price determination under private information, this information often took some time to be fully reflected in the stock price. We find that coup authorizations, on net, contributed substantially more to stock price rises of highly exposed companies than the coup events themselves. >This suggests that most of the value of the coup to the affected companies had already been anticipated and incorporated into the asset price before the operation was undertaken.","Imagine that I own 10% of a company, and yesterday my portion was valued at $1 Million, therefore the company is valued at $10 Million. Today the company accepts an offer to sell 1% of the company for $500 Thousand: now my portion is worth $5 Million, and company is worth $50 Million. The latest stock price sets the value of the company. If next week the news is all bad and the new investor sells their shares to somebody else for pennies on the dollar, the value of the company will drop accordingly.","\"Well said. And I get it, really I do. Rational means something very specific in the theoretical model of EMH, and it's not the same way that \"\"rational\"\" is usually used. When a person actually gets to the point where he can trade on the stock market, you expect they would have information like \"\"know which stock you're trading\"\". Maybe these people didn't. And even if we assume people have perfect information, they still make mistakes. Regularly. Repeatedly. Sometimes predictably. And those mistakes can overwhelm the right-price-finding effect of EMH.\"","\"The value of a stock ultimately is related to the valuation of a corporation. As part of the valuation, you can estimate the cash flows (discounted to present time) of the expected cash flows from owning a share. This stock value is the so-called \"\"fundamental\"\" value of a stock. What you are really asking is, how is the stock's market price and the fundamental value related? And by asking this, you have implicitly assumed they are not the same. The reason that the fundamental value and market price can diverge is that simply, most shareholders will not continue holding the stock for the lifespan of a company (indeed some companies have been around for centuries). This means that without dividends or buybacks or liquidations or mergers/acquisitions, a typical shareholder cannot reasonably expect to recoup their share of the company's equity. In this case, the chief price driver is the aggregate expectation of buyers and sellers in the marketplace, not fundamental evaluation of the company's balance sheet. Now obviously some expectations are based on fundamentals and expert opinions can differ, but even when all the experts agree roughly on the numbers, it may be that the market price is quite a ways away from their estimates. An interesting example is given in this survey of behavioral finance. It concerns Palm, a wholly-owned subsidiary of 3Com. When Palm went public, its shares went for such a high price, they were significantly higher than 3Com's shares. This mispricing persisted for several weeks. Note that this facet of pricing is often given short shrift in standard explanations of the stock market. It seems despite decades of academic research (and Nobel prizes being handed out to behavioral economists), the knowledge has been slow to trickle down to laymen, although any observant person will realize something is amiss with the standard explanations. For example, before 2012, the last time Apple paid out dividends was 1995. Are we really to believe that people were pumping up Apple's stock price from 1995 to 2012 because they were waiting for dividends, or hoping for a merger or liquidation? It doesn't seem plausible to me, especially since after Apple announced dividends that year, Apple stock ended up taking a deep dive, despite Wall Street analysts stating the company was doing better than ever. That the stock price reflects expectations of the future cash flows from the stock is a thinly-disguised form of the Efficient Market Hypothesis (EMH), and there's a lot of evidence contrary to the EMH (see references in the previously-linked survey). If you believe what happened in Apple's case was just a rational re-evaluation of Apple stock, then I think you must be a hard-core EMH advocate. Basically (and this is elaborated at length in the survey above), fundamentals and market pricing can become decoupled. This is because there are frictions in the marketplace making it difficult for people to take advantage of the mispricing. In some cases, this can go on for extended periods of time, possibly even years. Part of the friction is caused by strong beliefs by market participants which can often shift pressure to supply or demand. Two popular sayings on Wall Street are, \"\"It doesn't matter if you're right. You have to be right at the right time.\"\" and \"\"It doesn't matter if you're right, if the market disagrees with you.\"\" They suggest that you can make the right decision with where to put your money, but being \"\"right\"\" isn't what drives prices. The market does what it does, and it's subject to the whims of its participants.\"","If you have two other assets whose payoffs tomorrow are known and whose prices today are known, you can value it. Let's say you can observe a risk-free bond and a stock. Using those, you can calculate the state prices/risk-neutral probabilities. NOTE: You do not need to know the true probabilities. The value of your asset is then the state-price weighted sum of future payoffs.","Since the market is in general rather efficient, the price of the ETF will most of the time reflects the prices of the underlying securities. However, there are times when ETF price deviates from its fundamental value. This is called trading at a premium/discount. This creates arbitrage opportunity, which is actually being studied in finance literature.","Options reflect expectations about the underlying asset, and options are commonly priced using the Black-Scholes model: N(d1) and N(d2) are probability functions, S is the spot (current) price of the asset, K is the strike price, r is the risk free rate, and T-t represents time to maturity. Without getting into the mathematics, it suffices to say that higher volatility or expectation of volatility increases the perceived riskiness of the asset, so call options are priced lower and put options are priced higher. Think about it intuitively. If the stock is more likely to go downwards, then there's an increased chance that the call option expires worthless, so call options must be priced lower to accommodate the relative change in expected value of the option. Puts are priced similarly, but they move inversely with respect to call option prices due to Put-Call parity. So if call option prices are falling, then put option prices are rising (Note, however, that call prices falling does not cause put prices to rise. The inverse relationship exists because of changes in the underlying factors and how pricing works.) So the option action signifies that the market believes the stock is headed lower (in the given time frame). That does not mean it will go lower, and option traders assume risk whenever they take a particular position. Bottom line: gotta do your own homework! Best of luck.","\"There is no official price. There is only the price a seller is willing to offer and a buyer is willing to accept at that moment. It tends to be close to the price negotiated for the last such sale, but that's just market statistics, not anything actively managed or guaranteed. \"\"Past performance is no guarantee of future results;\"\" this buyer and seller may not agree with the previous pair. Especially when the market has been closed overnight but real-world events have continued to occur.\"","\"The markets are not as information efficient as some might have you believe. But on the contrary, looking up what the aggregate professional analysts have said is also part of \"\"doing your homework\"\"\"","\"IPO's are priced so that there's a pop\"\" on the opening day.\"\" If I were IPOing my company and the price \"\"popped\"\" on the open, I would think the underwriter priced it too low. In fact if I were to IPO, I'd seek an underwriter whose offerings consistently traded on the first day pretty unchanged. That means they priced it correctly. In the 90's IPO boom, there were stocks that opened up 3X and more. The original owners must have been pretty upset as the poor pricing guidance the underwriter offered.\"","Asset prices are inversely related to interest rates. If you're valuing a business or a bond, if you use a lower interest rate you get a higher valuation. Historic equity returns benefit from a falling interest rate environment which won't be repeated as interest rates can only go so low. edit: typo","Why does the rising price of a bond pushes it's yield down? The bond price and its yield are linked; if one goes up, the other must go down. This is because the cash flows from the bond are fixed, predetermined. The market price of the bond fluctuates. Now what if people are suddenly willing to pay more for the same fixed payments? It must mean that the return, i.e. the yield, will be lower. Here we see that risk associated with the bonds in question has skyrocketed, and thus bonds' returns has skyrocketed, too. Am I right? The default risk has increased, yes. Now, I assume that bonds' price is determined by the market (issued by a state, traded at the market). Is that correct? Correct, as long as you are talking about the market price. Then who determines bonds' yields? I mean, isn't it fixed? Or - in the FT quote above - they are talking about the yields for the new bonds issued that particular month? The yield is not fixed - the cash flows are. Yield is the internal rate of return. See my answer above to your first question.","\"Your explanation is nearly perfect and not \"\"hand wavy\"\" at all. Stock prices reflect the collective wisdom of all participating investors. Investors value stocks based on how much value they expect the stock to produce now and in the future. So, the stability of the stock prices is a reflection of the accuracy of the investors predictions. Investor naivity can be seen as a sequence of increasingly sophisticated stock pricing strategies: If investors were able to predict the future perfectly, then all stock prices would rise at the same constant rate. In theory, if a particular investor is able to \"\"beat the market\"\", it is because they are better at predicting the future profits of companies (or they are lucky, or they are better at predicting the irrational behavior of other investors......)\"","\"Isn't this effectively saying that the market responds principally to itself, and not to either economic fundamentals, or the profitability of the underlying companies. If so, the market as a \"\"price discovery mechanism\"\" is broken, and investors would be wise to do their own research.\"","\"In a rational market, the market caps (total value of all shares of the company) should be determined by the expected future profits of the company, plus the book value (that is the value of all assets that the company holds). The share price is then calculated as market caps divided by number of shares - a company worth a billion dollar could have a million shares at $1000 each or a billion shares at $1 each or anything in between. When profits drop, every investor has to re-think what the expected future profits of the company are. If all the investors say \"\"I thought this company would make a billion profit in the next ten years, but based on the drop in profits I changed my mind and I think they will only make 500 million\"\", then the share price drops. On the other hand, if profits dropped because of some predictable event, then that drop was already priced into the share price. If the profits dropped less than expected, the share price might even go up. You can see the opposite effect: Share price might be very high because everyone expects huge growth in profits over the next ten years. If profits grow less than expected, the share price will drop. Share price depends on predicted future profits, not on profits today.\"","\"Let's say you see a café. You're looking to buy a café so you walk into one and ask the manager how much profit he makes in a year. He says $N and you walk out and think to yourself, \"\"I'd be willing to pay $500,000 for this café.\"\" You arrange to meet again to discuss purchasing the business (and he's looking for someone to purchase it). You go into the store again the following day and the manager says, \"\"Sorry, I told you we make $N. I've checked the numbers and it's actually only $0.8N (20% lower than what you thought).\"\" Are you still willing to buy the café for $500,000 as well? No, of course you're not. I think that this is a sufficient analogy to public companies.\"","\"Yes, and the reason for that is because things that are above the market (eg regulators, politicians et al) manipulate it constantly. I think personally the market is still a price discovery mechanism, the rules of the game have just changed. I.e. risk now has taken on additional dimensions, so a lot of conventional theories of asset pricing can effectively be chucked out the window. Whether we ever see the return to a more \"\"econ\"\"-driven reality in market expectations (and by that extent therefore asset pricing) is anyone's guess, for now bye-bye to the established light-touch framework of decades past, hello to interventionist randomness.\"","\"It reminds me of the Efficient Market Hypothesis, except that just states in its weakest form that the current market price accounts for all information embedded in previous market prices. In other words, people buying today at 42 know it was selling for 40 yesterday, and the patterns and such. To say that stock is memoryless strikes me as not quite right -- to the extent that stocks are valued based on earnings, much of what we infer about future earnings relies on past and present earnings. One obvious counterexample to this \"\"memoryless\"\" claim is bankruptcy. If a stock files bankruptcy, and there isn't enough money to pay senior debt, your shares are worth 0 in perpetuity.\"","A lower Price/Book Value means company is undervalued. It could also mean something horribly wrong. While it may look like a good deal, remember;","If a market is efficient then risk/reward should be linear. In simple markets like stocks and bonds, everyone thinks the same way and the risk/reward calculation is simple, so everyone can have an accurate idea of the risk/reward ratio, unless the company has serious undisclosed problems. But in other markets like derivatives and mortgage bonds, few people understand what they're buying so the risks remain hidden. Someone might think a company will do well, so they buy an derivative on that company. But no one understands risk/reward calculations on derivatives, so the risk/reward on the derivative could be way off the price on the derivative.","Knowing the answer to this question is generally not as useful as it may seem. The stock's current price is the consensus of thousands of people who are looking at the many relevant factors (dividend rate, growth prospects, volatility, risk, industry, etc.) that determine its value. A stock's price is the market's valuation of the cash flows it entitles you to in the future. Researching a stock's value means trying to figure out if there is something relevant to these cash flows that the market doesn't know about or has misjudged. Pretty much anything we can list for you here that will affect a stock's price is something the market knows about, so it's not likely to help you know if something is mispriced. Therefore it's not useful to you. If you are not a true expert on how important the relevant factors are and how the market is reacting to them currently (and often even if you are), then you are essentially guessing. How likely are you to catch something that the thousands of other investors have missed and how likely are you to miss something that other investors have understood? I don't view gambling as inherently evil, but you should be clear and honest with yourself about what you are doing if you are trying to outperform the market. As people become knowledgeable about and experienced with finance, they try less and less to be the one to find an undervalued stock in their personal portfolio. Instead they seek to hold a fully diversified portfolio with low transactions costs and build wealth in the long term without wasting time and money on the guessing game. My suggestion for you is to transition as quickly as you can to behave like someone who knows a lot about finance.","\"Limited Price is probably equivalent to the current par value of a \"\"limit order\"\". Markets move fast, and if the commodity is seeing some volatility in the buy and sell prices, if you place an ordinary buy order you may not get the price you were quoted. A \"\"limit order\"\" tells your broker or whomever or whatever is making the order on your behalf that you will pay no more than X yuan. While the market is below that price, the trader will attempt to get you the quantity you want, but if they can't get you your full order for an average price less than the limit, the whole thing is rolled back. You can set a limit at any price, but a limit order of 1 yuan for a pound of sterling silver will likely never be executed as long as the market itself is functioning. So, you are being provided with a \"\"par value\"\" that they can guarantee will be executed in the current market. Entrustment prices are probably prices offered to the managers of trust funds. A trust is simply a set of securities and/or cash which is placed under the nominal control of a third party, who then must in good faith attempt to fulfill the goals of the actual owner of the securities with regards to growth or retention of value. Trustees almost never speculate with the money they control, but when they do move money it's often a sizeble chunk (hundreds of thousands or millions of dollars instead of a few thousand dollars here and there). So, in return for the long-term holdings, large buys and sells, and thus the reduced cost of maintaining a business relationship with the broker, the broker may offer better prices to trust fund managers.\"","\"In this instance \"\"quotational\"\" is a reference to a market price quote, not a mathematical function. Staunch \"\"value investors\"\" like Graham, Dodd, Munger, Buffett et al. believe there is a material difference between what security is \"\"worth\"\" and what the current market mood quotes as its price. You, the investor, perform your analysis then derive a value for a security. If there has been no material change to an aspect of the security you analyzed then there hasn't been a change in that security's value, even if there has been a decline in the price quoted by the market, that is a \"\"quotational loss.\"\"\"","In fact markets are not efficient and participants are not rational. That is why we have booms and busts in markets. Emotions and psychology play a role when investors and/or traders make decisions, sometimes causing them to behave in unpredictable or irrational ways. That is why stocks can be undervalued or overvalued compared to their true value. Also, different market participants may put a different true value on a stock (depending on their methods of analysis and the information they use to base their analysis on). This is why there are always many opportunities to profit (or lose your money) in liquid markets. Doing your research, homework, or analysis can be related to fundamental analysis, technical analysis, or a combination of the two. For example, you could use fundamental analysis to determine what to buy and then use technical analysis to determine when to buy. To me, doing your homework means to get yourself educated, to have a plan, to do your analysis (both FA and TA), to invest or trade according to your plan and to have a risk management strategy in place. Most people are too lazy to do their homework so will pay someone else to do it for them or they will just speculate (on the latest hot tip) and lose most of their money.","I think I may have gotten my reasoning backwards, since beta can be thought of as just the quantification of the relationship in prices but in itself isn't the actual reason behind them. Risk free are things such as Treasury bonds/bills.","\"I always liked the answer that in the short term, the market is a voting machine and in the long term the market is a weighing machine. People can \"\"vote\"\" a stock up or down in the short term. In the long term, typically, the intrinsic value of a company will be reflected in the price. It's a rule of thumb, not perfect, but it is generally true. I think it's from an old investing book that talks about \"\"Mr. Market\"\". Maybe it's from one of Warren Buffet's annual letters. Anyone know? :)\"","I am currently trying out some variations (moving terms around ...) of the formula for the present value of money The relationship between yield and price is much simpler than that. If you pay £1015 for a bond and its current yield is 4.69%, that means you will receive in income each year: 4.69% * £1015 = £47.60 The income from the bond is defined by its coupon rate and its face value, not the market value. So that bond will continue to pay £47.60 each year, regardless of the market price. The market price will go up or down according to the market as a whole, and the credit rating of the issuer. If the issuer is likely to default, the market price goes down and the yield goes up. If similar companies start offering bonds with higher yields, the market price goes down to make the bond competitive in the market, again raising yield. So if the yield goes up to 4.87%, what is the price such that 4.87% of that price is £47.60? £47.60 / 4.87% = £977.48 Another way to think of it: if the yield goes up from 4.69% to 4.87%, then yield has increased by a factor of: 4.87% / 4.69% = 1.0384 Consequently, market price must decrease by the same factor: £1015 / 1.0384 = £977.48","The quote price is simply the last price at which a trade completed.","At a risk of stating the obvious: a passive portfolio doesn't try to speculate on such matters.","Overvalued does not mean an opportunity to short. As long as a company's earnings are decent and there are limited other opportunities in the market, a stock would stay overvalued. its just that future returns on the stock might be limited. For shorting you need an expected trigger. Say you expect an overvalued company's earnings to decline or significantly miss expectations. This would be a candidate for shorting..","You'd likely be most familiar with them with respect to options and futures on commodities but they're used for credit/interest as well. The intrinsic value of an option is *derived* from the spread between call/put price and strike price; the value of the contract I've paid for or sold is derived from the current market value of the underlying asset, be it rice, platinum, or the Swedish kroner"],"string":"[\n \"\\\"Priced in just means that the speaker thinks the current price has already taken that factor into account. For example, the difference in price right before and right after a dividend is released often differ exactly by that dividend -- the fact that the dividend would function as a \\\"\\\"relate\\\"\\\" on the purchase price was priced into the earlier quote, and its absence for another year was priced into the later quote. The ten can be applied to any expected or likely event, if you really think the price reflects that opportunity of risk. It just means that this factor, in the speaker's opinion, doesn't create an opportunity one can take advantage of.\\\"\",\n \"\\\"I think the first misconception to clear up is that you are implying the price of a stock is set by a specific person. It is not. The price of a stock is equal to the value that someone most recently traded at. If Apple last traded at $100/share, then Apple shares are worth $100. If good news about Apple hits the market and people holding the shares ask for more money, and the most recent trade becomes $105, then that is now what Apple shares are worth. Remember that generally speaking, the company itself does not sell you its shares - instead, some other investor sells you shares they already own. When a company sells you shares, it is called a 'public offering'. To get to your actual question, saying something is 'priced in' implies that the 'market' (that is, investors who are buying and selling shares in the company) has already considered the impacts of that something. For example, if you open up your newspaper and read an article about IBM inventing a new type of computer chip, you might want to invest in IBM. But, the rest of the market has also heard the news. So everyone else has already traded IBM assuming that this new chip would be made. That means when you buy, even if sales later go up because of the new chip, those sales were already considered by the person who chose the price to sell you the shares at. One principle of the stock market (not agreed to by all) is called market efficiency. Generally, if there were perfect market efficiency, then every piece of public information about a company would be perfectly integrated into its stock price. In such a scenario, the only way to get real value when buying a company would be to have secret information of some sort. It would mean that everyone's collective best-guess about what will happen to the company has been \\\"\\\"priced-in\\\"\\\" to the most recent share trade.\\\"\",\n \"\\\"Systemic and well know patterns in sales are priced in to the security. Typically companies with very cyclical earnings like this will issue guidance of earnings per share within a range. These expected earnings are priced in before the earnings are actually booked. If a company meets these expectations the stock will likely stay relatively flat. If the company misses this expectation, the stock, generally, will get slammed. This kind of Wall Street behavior typically mystifies media outlets when a company's stock declines after reporting a record high level of whatever metric. The record high is irrelevant if it misses the expectation. There is no crystal ball but if something is both well known and expected it's already been \\\"\\\"priced in.\\\"\\\" If the well known expected event doesn't occur, maybe it's a new normal.\\\"\",\n \"\\\"Often you are right, and the current information is \\\"\\\"priced in\\\"\\\", but I would say in times of market boom like this that the market can definitely overprice. Price is driven by trades/last trade. Someone may be willing to pay X, and do so, making the price now X, but that does not mean it is worth X. You could very well be paying a premium for it's perceived desirability. This is why investors/analysts spend time and energy on valuations, they want to compare the markets current price to what the price theoretically should/would be if it were purely driven by the data, in effect trying to remove sentiment from the equation to gain a more realistic idea of what a company is worth. Side note adding on that, don't mistake this as saying one should pay a lot of attention to analysts or their price targets, though analysts do have insightful things to say.\\\"\",\n \"\\\"At the most fundamental level, every market is comprised of buyers and selling trading securities. These buyers and sellers decide what and how to trade based on the probability of future events, as they see it. That's a simple statement, but an example demonstrates how complicated it can be. Picture a company that's about to announce earnings. Some investors/traders (from here on, \\\"\\\"agents\\\"\\\") will have purchased the company's stock a while ago, with the expectation that the company will have strong earnings and grow going forward. Other agents will have sold the stock short, bought put options, etc. with the expectation that the company won't do as well in the future. Still others may be unsure about the future of the company, but still expecting a lot of volatility around the earnings announcement, so they'll have bought/sold the stock, options, futures, etc. to take advantage of that volatility. All of these various predictions, expectations, etc. factor into what agents are bidding and asking for the stock, its associated derivatives, and other securities, which in turn determines its price (along with overall economic factors, like the sector's performance, interest rates, etc.) It can be very difficult to determine exactly how markets are factoring in information about an event, though. Take the example in your question. The article states that if market expectations of higher interest rates tightened credit conditions... In this case, lenders could expect higher interest rates in the future, so they may be less willing to lend money now because they expect to earn a higher interest rate in the future. You could also see this reflected in bond prices, because since interest rates are inversely related to bond prices, higher interest rates could decrease the value of bond portfolios. This could lead agents to sell bonds now in order to lock in their profits, while other agents could wait to buy bonds because they expect to be able to purchase bonds with a higher rate in the future. Furthermore, higher interest rates make taking out loans more expensive for individuals and businesses. This potential decline in investment could lead to decreased revenue/profits for businesses, which could in turn cause declines in the stock market. Agents expecting these declines could sell now in order to lock in their profits, buy derivatives to hedge against or ride out possible declines, etc. However, the current low interest rate environment makes it cheaper for businesses to obtain loans, which can in turn drive investment and lead to increases in the stock market. This is one criticism of the easy money/quantitative easing policies of the US Federal Reserve, i.e. the low interest rates are driving a bubble in the stock market. One quick example of how tricky this can be. The usual assumption is that positive economic news, e.g. low unemployment numbers, strong business/residential investment, etc. will lead to price increases in the stock market as more agents see growth in the future and buy accordingly. However, in the US, positive economic news has recently led to declines in the market because agents are worried that positive news will lead the Federal Reserve to taper/stop quantitative easing sooner rather than later, thus ending the low interest rate environment and possibly tampering growth. Summary: In short, markets incorporate information about an event because the buyers and sellers trade securities based on the likelihood of that event, its possible effects, and the behavior of other buyers and sellers as they react to the same information. Information may lead agents to buy and sell in multiple markets, e.g. equity and fixed-income, different types of derivatives, etc. which can in turn affect prices and yields throughout numerous markets.\\\"\",\n \"While there are lots of really plausible explanations for why the market moves a certain way on a certain day, no one really knows for sure. In order to do that, you would need to understand the 'minds' of all the market players. These days many of these players are secret proprietary algorithms. I'm not quibbling with the specifics of these explanations (I have no better) just pointing out that these are just really hypotheses and if the market starts following different patterns, they will be tossed into the dust bin of 'old thinking'. I think the best thing you can explain to your son is that the stock market is basically a gigantic highly complex poker game. The daily gyrations of the market are about individuals trying to predict where the herd is going to go next and then after that and then after that etc. If you want to help him understand the market, I suggest two things. The first is to find or create a simple market game and play it with him. The other would be to teach him about how bonds are priced and why prices move the way they do. I know this might sound weird and most people think bonds are esoteric but there are bonds have a much simpler pricing model based on fundamental financial logic. It's much easier then to get your head around the moves of the bond markets because the part of the price based on beliefs is much more limited (i.e. will the company be able pay & where are rates going.) Once you have that understanding, you can start thinking about the different ways stocks can be valued (there are many) and what the market movements mean about how people are valuing different companies. With regard to this specific situation, here's a different take on it from the 'priced in' explanation which isn't really different but might make more sense to your son: Pretend for a second that at some point these stocks did move seasonally. In the late fall and winter when sales went up, the stock price increased in kind. So some smart people see this happening every year and realize that if they bought these stocks in the summer, they would get them cheap and then sell them off when they go up. More and more people are doing this and making easy money. So many people are doing it that the stock starts to rise in the Summer now. People now see that if they want to get in before everyone else, they need to buy earlier in the Spring. Now the prices start rising in the Spring. People start buying in the beginning of the year... You can see where this is going, right? Essentially, a strategy to take advantage of well known seasonal patterns is unstable. You can't profit off of the seasonal changes unless everyone else in the market is too stupid to see that you are simply anticipating their moves and react accordingly.\",\n \"Was already priced in. The market is smarter than ratings agencies that are fighting to stay relevant by trying to instill crisis mode on a global economy that is already very fragile. Their only announcements nowadays are on companies/nations that are on the front page of the global newswire. Almost seems like they want the global economy to tank on their information and ratings cuts. Too bad nobody really cares about the agencies anymore.\",\n \"\\\"No, but it is certainly a possibility. the efficient market hypothesis would say that this means that the market perceives the present value of all future earning as negative. These earnings might take the form of a writedown of assets at some point. (Companies carry a goodwill asset that is generally imaginary. They book that asset when they buy companies for more than they are worth.) It would be as if PRUN was a stock tracking my life. If I bought my house in 2006 for $1 million cash. I might have a book value of $1 million. However, PRUN might trade at $500k because the market knows that my asset isn't really worth $1 million and at some point my earnings will take a hit to reflect that. It might also mean that future \\\"\\\"real\\\"\\\" earnings \\\"\\\"ie actual profit and loss on sales\\\"\\\" are going to be negative. This would mean bankruptcy is more likely.\\\"\",\n \"In short, yes. Implied volatility will capture any expected upcoming material announcements. There is also supply/demand impact bundled in which may inflate an option price, and by extension increase implied volatility. OTM and ITM options are particularly predisposed to this phenomenon -- which is of course at odds with the traditional BS model assumptions -- the result is referred to as the volatility smile. Implied volatility is quoted as an annualised measure but isn't necessarily an annual value -- it will correspond to the option time period.\",\n \"In the equity world, if a stock trades at 110 and is going to pay a dividend of 10 in a few days, an option expiring after the ex date would take the dividend into account and would trade as if the stock were trading at 100. (Negative) interest rates may also lead to a similar effect. In the commodity world the cost of carry needs to be taken into account.\",\n \"\\\"This refers to the faulty idea that the stock market will behave differently than it has in the past. For example, in the late 1990s, internet stocks rose to ridiculous heights in price, to be followed soon after with the Dot-Com Bubble crash. In the future, it's likely that there will be another such bubble with another hot stock - we just don't know what kind. Saying that \\\"\\\"this time it will be different\\\"\\\" could mean that you expect this bubble not to burst when, historically, that is never the case.\\\"\",\n \"\\\"I would differentiate between pricing and valuation a bit more: Valuation is the result of investment analysis and the result of coming up with a fair value for a company and its shares; this is done usually by equity analysts. I have never heard about pricing a security in this context. Pricing would indicate that the price of a product or security is \\\"\\\"set\\\"\\\" by someone (i.e. a car manufacturer sets the prices of its new cars). The price of a security however is not set by an analyst or an institution, it is solely set by the stock market (perhaps based on the valuations of different analysts). There is only one exception to this: pricing an IPO before its shares are actually traded on an exchange. In this case the underwriting banks set the price (based on the valuation) at which the shares are distributed.\\\"\",\n \"What it means is that the stock has already moved down. Options and other derivatives follow the price of the underlying they are not a precursor to what the underlying is going to do. In other words, the price of a derivative is derived from the underlying.\",\n \"\\\"Generally, a share of stock entitles the owner to all future per-share dividends paid by the company, plus a fraction of the company's assets net value in the event of liquidation. If one knew in advance the time and value of all such payouts, the value of the stock should equal the present cash value of that payout stream, which would in turn be the sum of the cash values of all the individual payouts. As time goes by, the present cash value of each upcoming payout will increase until such time as it is actually paid, whereupon it will cease to contribute to the stock's value. Because people are not clairvoyant, they generally don't know exactly what future payouts a stock is going to make. A sane price for a stock, however, may be assigned by estimating the present cash value of its future payments. If unfolding events would cause a reasonable person to revise estimates of future payments upward, the price of the stock should increase. If events cause estimates to be revised downward, the price should fall. In a sane marketplace, if the price of a stock is below people's estimates of its payouts' current cash value, people should buy the stock and push the price upward. If it is above people's estimates, they should sell the stock and push the price downward. Note that in a sane marketplace, rising prices are a red-flag indicator for people to stop buying. Unfortunately, sometimes bulls see a red flag as a signal to charge ahead. When that happens, prices may soar through the roof, but it's important to note that the value of the stock will still be the present cash value of its future payouts. If that value is $10/share, someone who buys a share for $50 basically gives the seller $40 that he was not entitled to, and which the buyer will never get back. The buyer might manage to convince someone else to pay him $60 for the share, but that simply means the new buyer is giving the the previous one $50 that he wasn't entitled to either. If the price falls back to $10, calling that fall a \\\"\\\"market correction\\\"\\\" wouldn't be a euphemism, but rather state a fact: the share was worth $10 before people sold it for crazy prices, and still worth $10 afterward. It was the market price that was in error. The important thing to focus on as a sane investor is what the stock is actually going to pay out in relation to what you put in. It's not necessary to look only at present price/earnings ratios, since some stocks may pay little or nothing today but pay handsomely next year. What's important, however, is that there be a reasonable likelihood that in the foreseeable future the stock will pay dividends sufficient to justify its cost.\\\"\",\n \"Pricing would just be another way to describe valuation. I guess if you want to get technical, pricing - is the act of getting somethings valuation. While valuation - is the estimate of somethings worth. Security analysis - An examination and evaluation of the various factors affecting the value of a security. Side Note: While pricing is valuation, price is not. Price is how much the stock, or security costs most commonly determined by a market. Add On: The meaning of two words might matter depending on what context it is being used in. For example if we were talking about a market where an individual actually sets a price at random without doing any type of evaluation then this->answer that AlexR provides would better highlight the differences.\",\n \"\\\"With my current, limited knowledge (see end), I understand it the following way: Are share prices really described as \\\"\\\"memoryless\\\"\\\"? Yes. Is there a technical meaning of the term? What does it really mean? The meaning comes from Markov Models: Think of the behavior of the stock market over time as a Markov Chain, i.e. a probabilistic model with states and probabilistic transitions. A state is the current price of all stocks of the market, a transition is a step in time. Memoryless means that transitions that the stock market might make can be modelled by a relation from one state to another, i.e. it only depends on the current state. The model is a Markov Chain, as opposed to a more general Stochastic Process where the next state depends on more than the current state. So in a Markov Chain, all the history of one stock is \\\"\\\"encoded\\\"\\\" already in its current price (more precisely in all stock's prices). The memorylessness of stocks is the main statement of the Efficient Market Theory (EMT). If a company's circumstances don't change, then a drop in its share price is going to be followed by a rise later. So if the EMT holds, your statement above is not necessarily true. I personally belief the EMT is a good approximation - only large corporations (e.g. Renaissance Technologies) have enough ressources (hundreds of mathematicians, billions of $) to be able to leverage tiny non-random movements that stem from a not completely random, mostly chaotic market. The prices can of course change when the company's circumstances change, but they aren't \\\"\\\"memoryless\\\"\\\" either. A company's future state is influenced by its past. In the EMT, a stock's future state is only influenced by its past as much as is encoded in its current price (more precisely, the complete market's current state). Whether that price was reached by a drop or a rise makes no difference. The above is my believe, but I'm by far no finance expert. I am working professionally with probabilistic models, but have only read one book on finance: Kommer's \\\"\\\"Souverän investieren mit Indexfonds und ETFs\\\"\\\". It's supposed to contain many statements of Malkiel's \\\"\\\"A Random Walk Down Wall Street\\\"\\\".\\\"\",\n \"\\\"What does it mean in terms of share price? Should the share price increase by 15 cents? No, but you're on the right track. In theory, the price of a share reflects it's \\\"\\\"share\\\"\\\" of time discounted future earnings. To put it concretely, imagine a company consistently earning 15 cents a share every year and paying it all out as dividends. If you only paid 25 cents for it, you could earn five cents a share by just holding it for two years. If you imagine that stocks are priced assuming a holding period of 20 years or so, so we'd expect the stock to cost less than 3 dollars. More accurately, the share price reflects expected future earnings. If everyone is assuming this company is growing earnings every quarter, an announcement will only confirm information people have already been trading based on. So if this 15 cents announcement is a surprise, then we'd expect the stock price to rise as a function of both the \\\"\\\"surprise\\\"\\\" in earnings, and how long we expect them to stay at this new profitability level before competition claws their earnings away. Concretely, if 5 cents a share of that announcement were \\\"\\\"earnings surprise,\\\"\\\" you'd expect it to rise somewhere around a dollar.\\\"\",\n \"If you believe in the efficient market hypothesis then the stock price reflects the information known to market participants. Consequently, if the 'market' expected earnings to rise, and they did, then the price won't change. Clearly there are circumstances, especially in the short term and for illiquid stocks, where this isn't true, but a lot of work points to this being the case on average.\",\n \"It depends to some extent on how you interpret the situation, so I think this is the general idea. Say you purchase one share at $50, and soon after, the price moves up, say, to $55. You now have an unrealized profit of $5. Now, you can either sell and realize that profit, or hold on to the position, expecting a further price appreciation. In either case, you will consider the price change from this traded price, which is $55, and not the price you actually bought at. Hence, if the price fell to $52 in the next trade, you have a loss of $3 on your previous profit of $5. This (even though your net P&L is calculated from the initial purchase price of $50), allows you to think in terms of your positions at the latest known prices. This is similar to a Markov process, in the sense that it doesn't matter which route the stock price (and your position's P&L) took to get to the current point; your decision should be based on the current/latest price level.\",\n \"\\\"If the time horizon is not indicated, this is just a \\\"\\\"fair price\\\"\\\". The price of the stock, which corresponds with the fair value of the whole company. The value, which the whole business is worth, taking into consideration its net income, current bonds yield, level of risk of the business, perspective of the business etc.. The analyst thinks the price will sooner or later hit the target level (if the price is high, investors will exit stocks, if the price is cheap, investors will jump in), but no one knows, how much time will it take.\\\"\",\n \"From every article I've encountered, the chicken and egg aspect suggests that IV is produced by looking at options pricing, and calculating the IV from that. The implication is that whatever is known at that time is included in the price. And that when you see a particular option trade an unusual number of contracts at a given price, the implication is that someone thinks they know something that's not already priced in, i.e. that the current price is not accurate, they can profit on the future event.\",\n \"This depends entirely on what the market guesses the news will be and how much of that guess has already been factored into the price. There is no general answer beyond that. Note that this explains the apparently paradoxical responses where a stock good down on good news (the market expected better) or up on bad news (the market expected worse).\",\n \"\\\"I think the question can be answered by realizing that whoever is buying the stock is buying it from someone who can do the same mathematics. Ask your son to imagine that everyone planned to buy the stock exactly one week before Christmas. Would the price still be cheap? The problem is that if everyone knows the price will go up, the people who own it already won't want to sell. If you're buying something from someone who doesn't really want to sell it, you have to pay more to get it. So the price goes up a week before Christmas, rather than after Christmas. But of course everyone else can figure this out too. So they are going to buy 2 weeks before, but that means the price goes up 2 weeks before rather than 1 week. You play this game over and over, and eventually the expected increased Christmas sales are \\\"\\\"priced in\\\"\\\". But of course there is a chance people are setting the price based on a mistaken belief. So the winner isn't the person who buys just before the others, but rather the one who can more accurately predict what the sales will be (this is why insider trading is so tempting even if it's illegal). The price you see right now represents what people anticipate the price will be in the future, what dividends are expected in the future, how much risk people think there is, and how that compares with other available investments.\\\"\",\n \"That's exactly what immunofort is saying, and it lines up with established financial theory (well, some of it). The general argument is that stocks are priced according to what risks they're exposed to. Several (although not all) of the major financial economics theories propose (and find empirical evidence for this) that the market as whole is a risk factor, so individual stocks would be priced in part based on how correlated they are with the market. Strictly speaking, the risk free rate is purely theoretical and can't be directly observed, but the US T-bill yield is usually considered to be a pretty good proxy for it.\",\n \"\\\"Investopedia's explanation of overbought: An asset that has experienced sharp upward movements over a very short period of time is often deemed to be overbought. Determining the degree in which an asset is overbought is very subjective and can differ between investors. Technicians use indicators such as the relative strength index, the stochastic oscillator or the money flow index to identify securities that are becoming overbought. An overbought security is the opposite of one that is oversold. Something to consider is the \\\"\\\"potential buyers\\\"\\\" and \\\"\\\"potential sellers\\\"\\\" of a stock. In the case of overbought, there are many more buyers that have appeared and driven the price to a point that may be seen as \\\"\\\"unsustainably high\\\"\\\" and thus may well come down soon if one looks at the first explanation. For oversold, consider the flip side of this. A real life scenario here would be to consider airline tickets where a flight may be \\\"\\\"overbooked\\\"\\\" that could also be seen as \\\"\\\"oversold\\\"\\\" in that more tickets were sold than seats that are available and thus people will be bumped as not all tickets can be honored in this case. For a stock scenario of \\\"\\\"oversold\\\"\\\" consider how IPOs work where several buyers have to exist to buy the shares so the investment bank isn't stuck holding them which sends up the price since the amount wanted by the buyers may be more than what can be sold. The price shifts in bringing out more of one side than the other is the point you are missing. In shifting the price up, this attracts more sellers to satisfy the buyers. However, if there is a surge of buyers that flood the market, then there could be a perception that the security is overbought in the sense that there may be few buyers left for the security and thus the price may fall in the near term. If the price is coming down, this attracts more buyers to achieve the other side. The potential part is what you don't see and I wonder if you can imagine this part of the market. The airline example I give as an example as you don't seem to think either side of buying or selling can be overloaded. In the case of an oversold flight, there were more seats sold than available so yes it is possible. Stocks exist in finite quantities as there are only X shares of a company trading at any one time if you look into the concept of a float.\\\"\",\n \"\\\"When people talk about \\\"\\\"the price\\\"\\\" of a stock, they usually mean one of the following: Last price: The price at which a trade most recently took place. If someone sold (and someone else bought) shares of XYZ for $20 each, then until another trade occurs, the last price of the stock will be quoted at $20. Bid price: The highest price at which someone is currently offering to buy the stock. Ask price: The lowest price at which someone is currently offering to sell the stock. As you can see, all of these are completely determined by the people buying and selling the stock.\\\"\",\n \"\\\"To a certain degree \\\"\\\"the only sure thing I know is the price I paid for the stock is the fair price at the time I buy it\\\"\\\" is absolutely right, by definition, and by the law of the free and efficient market and forces of supply and demand, freedom of public information about share price sensitive information, etc, etc, etc, and you've made a good point that eludes many investors I'd say. However, in practise, the market has many participants, and they will all be arriving at a different idea of what the \\\"\\\"fair price\\\"\\\" is by way of a slightly different analysis and slightly different information. In theory they all have the same information, but unfortunately in practise there is always some disparity. When one participant feels a stock is undervalued though the last thing they want to do is say so, instead they will start buying stock. They might feel it is undervalued by 20%, but that doesn't mean they'll keep buying and buying until it gets to 20%, they might push the price up just a little, then let the price drift down again, buy some more, relax, buy some more, etc. Over time the price will rise of course because the supply will become weaker, but even if the participant is correct about the 20% the price might have only risen 7% by the time they acquire all the stock they want given their risk models, market exposure and margin guidelines, etc, and it might be more than a year later before the price has actually risen to 20%, presumably because more and more other market participants have come to the same conclusion. The opposite can obviously also happen, a participant might dump stock it feels is over valued long before it hits the values it believes in. So right away you can see that pricing might not really reflect value, or \\\"\\\"fair price\\\"\\\".\\\"\",\n \"It probably would have already been priced in the moment the markets opened today. So, my guess is, unless you already owned it at $68.78 on Friday, chances are it would have been near impossible to get it at that price since this morning. It already increased more than 18% from the opening bell today. Hope my answer helped clarify some things.\",\n \"It means that your money does not have the same amount of buying power.\",\n \"\\\"[...] are all bonds priced in such a way so that they all return the same amount (on average), after accounting for risk? In other words, do risk premiums ONLY compensate for the amount investors might lose? No. GE might be able to issue a bond with lower yield than, say, a company from China with no previous records of its presence in the U.S. markets. A bond price not only contains the risk of default, but also encompasses the servicability of the bond by the issuer with a specific stream of income, location of main business, any specific terms and conditions in the prospectus, e.g.callable or not, insurances against default, etc. Else for the same payoff, why would you take a higher risk? The payoff of a higher risk (not only default, but term structure, e.g. 5 years or 10 years, coupon payments) bond is more, to compensate for the extra risk it entails for the bondholder. The yield of a high risk bond will always be higher than a bond with lower risk. If you travel back in time, to 2011-2012, you would see the yields on Greek bonds were in the range of 25-30%, to reflect the high risk of a Greek default. Some hedge funds made a killing by buying Greek bonds during the eurozone crisis. If you go through the Efficient frontier theory, your argument is a counter statement to it. Same with individual bonds, or a portfolio of bonds. You always want to be compensated for the risk you take. The higher the risk, the higher the compensation, and vice versa. When investors buy the bond at this price, they are essentially buying a \\\"\\\"risk free\\\"\\\" bond [...] Logically yes, but no it isn't, and you shouldn't make that assumption.\\\"\",\n \"> you're also signaling the value of tangible things like storage, weather, and transportation costs as well as intangibles such as future macroeconomic events, global policy decisions, etc. To whom? I, as a buyer of the future, only get to know this from normal news, as can other people. Or is the assumption that I have a special source that not all people have access to, and hence when I buy the contract, other people think that I have some special information that they don't, and use this fact to then derive the prices of whatever? Apologies if what I say makes no sense. I am a noob to finance. Please also provide some links for Price Discovery if you feel my understanding is wrong.\",\n \"\\\"China's chief central banker warned markets are fully valued and therefore susceptible to a drastic price correction - triggered by a wide-spread, simultaneous reversal of opinion in the markets. Basically the point when the \\\"\\\"Greater Fool\\\"\\\" phenomenon ends and and selling pressure spikes as everyone starts getting out because they think everyone is. Simplified af but thats the laymen interpration of a minsky moment.\\\"\",\n \"Imagine that the existing interest rate is 5%. So on a bond with face value of 100, you would be getting a $5 coupon implying a 5% yield. Now, if let's say the interest rates go up to 10%, then a new bond issued with a face value of 100 will give you a coupon of $10 implying a 10% yield. If someone in the bond market buys your bond after interest price adjustment, in order to make the 10% yield (which means that an investor typically targets at least the risk-free rate on his investments) he needs to buy your bond at $50 so that a $5 coupon can give a 10% yield. The reverse happens when interest rates go down. I hope this somewhat clears the picture. Yield = Coupon/Investment Amount Update: Since the interest rate of the bond does not change after its issuance, the arbitrage in the interest rate is reflected in the market price of the bond. This helps in bringing back the yields of old bonds in-line with the freshly issued bonds.\",\n \"\\\"When you buy a stock, you're really paying for a STREAM of earnings, from now till whenever. The job of an investor is to figure out how large that stream will be in the future. But if the stock price were the same as \\\"\\\"earnings\\\"\\\" (for one year), it would mean that you would get all future earnings for \\\"\\\"free.\\\"\\\" That's not likely to happen unless 1) the company is in liquidation,\\\"\\\" meaning \\\"\\\"no future\\\"\\\" and 2) it earned ALL of the money it ever earned in the past year, meaning \\\"\\\"no past.\\\"\\\" If there are likely to be any earnings in the future, you will have to pay for those future earnings, over and above what was earned in the most recent year.\\\"\",\n \"\\\"Essentially, he means \\\"\\\"one ignores history at their own peril\\\"\\\". We often hear people arguing that \\\"\\\"the old rules no longer apply\\\"\\\". Whether it be to valuations, borrowing, or any of the other common metrics, to ignore the lessons of the past is to invite disaster. History shows us that major crises in the markets usually occur when the old rules are ignored and people believe that current exceptional market conditions are justified by special circumstances.\\\"\",\n \"How about looking into the market price of risk? Ive always wanted to know if risk is or should be priced the same across markets/asset classes/etc. Eh? Let me know what you figure out. Edit: I just realized you people probably consider it to be the Sharpe ratio. That's not what I meant. I meant in the sense of option pricing.\",\n \"\\\"So you're basically saying that average market fluctuations have an affect on individual stocks, because individual stocks are often priced in relation to the growth of the market as a whole? Also, what kinds of investments would be considered \\\"\\\"risk free\\\"\\\" in this nomenclature?\\\"\",\n \"\\\"Futures are an agreement to buy or sell something in the future. The futures \\\"\\\"price\\\"\\\" is the price at which you agree to make the trade. This price does not indicate what will happen in the future so much as it indicates the cost of buying the item today and holding it until the future date. Hence, for very liquid products such as stock index futures, the futures price is a very simple function of today's stock index value and current short-term interest rates. If the stock exchange is closed but the futures exchange is open, then using the futures price and interest rates one can back out an implied \\\"\\\"fair value\\\"\\\" for the index, which is in essence the market's estimate of what the stock index value would be right now if the stock market were open. Of course, as soon as the stock exchange opens, the futures price trades to within a narrow band of the actual index value, where the size of the band depends on transaction costs (bid-ask spread, commissions, etc.).\\\"\",\n \"\\\"You have actually asked several questions, so I think what I'll do is give you an intuition about risk-neutral pricing to get you started. Then I think the answer to many of your questions will become clear. Physical Probability There is some probability of every event out there actually occurring, including the price of a stock going up. That's what we call the physical probability. It's very intuitive, but not directly useful for finding the price of something because price is not the weighted average of future outcomes. For example, if you have a stock that is highly correlated with the market and has 50% chance of being worth $20 dollars tomorrow and a 50% chance of being worth $10, it's value today is not $15. It will be worth less, because it's a risky stock and must earn a premium. When you are dealing with physical probabilities, if you want to compute value you have to take the probability-weighted average of all the prices it could have tomorrow and then add in some kind of compensation for risk, which may be hard to compute. Risk-Neutral Probability Finance theory has shown that instead of computing values this way, we can embed risk-compensation into our probabilities. That is, we can create a new set up \\\"\\\"probabilities\\\"\\\" by adjusting the probability of good market outcomes downward and increasing the probability of bad market outcomes. This may sound crazy because these probabilities are no longer physical, but it has the desirable property that we then use this set of probabilities to price of every asset out there: all of them (equity, options, bonds, savings accounts, etc.). We call these adjusted probabilities that risk-neutral probabilities. When I say price I mean that you can multiply every outcome by its risk-neutral probability and discount at the risk-free rate to find its correct price. To be clear, we have changed the probability of the market going up and down, not our probability of a particular stock moving independent of the market. Because moves that are independent of the market do not affect prices, we don't have to adjust the probabilities of them happening in order to get risk-neutral probabilities. Anyway, the best way to think of risk-neutral probabilities is as a set of bogus probabilities that consistently give the correct price of every asset in the economy without having to add a risk premium. If we just take the risk-neutral probability-weighted average of all outcomes and discount at the risk-free rate, we get the price. Very handy if you have them. Risk-Neutral Pricing We can't get risk-neutral probabilities from research about how likely a stock is to actually go up or down. That would be the physical probability. Instead, we can figure out the risk-neutral probabilities from prices. If a stock has only two possible prices tomorrow, U and D, and the risk-neutral probability of U is q, then Price = [ Uq + D(1-q) ] / e^(rt) The exponential there is just discounting by the risk-free rate. This is the beginning of the equations you have mentioned. The main thing to remember is that q is not the physical probability, it's the risk-neutral one. I can't emphasize that enough. If you have prespecified what U and D can be, then there is only one unknown in that equation: q. That means you can look at the stock price and solve for the risk neutral probability of the stock going up. The reason this is useful is that you can same risk-neutral probability to price the associated option. In the case of the option you don't know its price today (yet) but you do know how much money it will be worth if the stock moves up or down. Use those values and the risk-neutral probability you computed from the stock to compute the option's price. That's what's going on here. To remember: the same risk-neutral probability measure prices everything out there. That is, if you choose an asset, multiply each possibly outcome by its risk-neutral probability, and discount at the risk-free rate, you get its price. In general we use prices of things we know to infer things about the risk-neutral probability measure in order to get prices we do not know.\\\"\",\n \"Option prices can predict the range of movement of the underlying, but not if the underlying is going up or down. An option price gives an implied volatility for an underlying . That IV number helps predict a range for the underlying price over the next few days,months, upto a year.\",\n \"\\\"That characterisation of arbitrage-free pricing sounds a bit like the \\\"\\\"relative vs. fundamental\\\"\\\" approaches to asset pricing that Cochrane outlines (in his text, *Asset Pricing*). Rebonato also makes this distinction with regard to term structure models in *Volatility and Correlation*. On one extreme you have CAPM-style models in which asset prices are completely determined by investors' risk preferences; on the other extreme, you would have something like a SABR-Libor Market Model where you take everything up to and including the volatility surface as given. What's interesting to me is the way in which these different classes of models get used in various parts of the financial industry. So, buy side firms tend to rely a lot more on equilibrium-style models, since they ultimately care about things like how the equity risk premium or the bond risk premium affect asset prices. In contrast, derivatives quants working at a big sell-side bank who are pricing exotics don't care about what the \\\"\\\"fundamental\\\"\\\" value of their underlying assets is; they just take that as given and price the exotic accordingly.\\\"\",\n \"The point is that the bid and ask prices dictate what you can buy and sell at (at market, at least), and the difference between the two, or spread, contributes implicitly to your gains or losses. For example, say your $1 stock actually had a bid of $0.90 and an ask of $1.10; i.e. say that $1 was the last price. You would have to buy the stock at the ask price of $1.10, but now you can only sell that stock at the bid price of $0.90. Thus, you would need to make at least that $0.20 spread before you can make a profit.\",\n \"\\\"https://en.wikipedia.org/wiki/Irrational_exuberance > Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? > — \\\"\\\"The Challenge of Central Banking in a Democratic Society\\\"\\\", 1996-12-05\\\"\",\n \"I understand now. Thank you. How important is the existence of effective price discovery tools in a market? And the example that you gave of a farmer is good, but when I as the owner of a company, get futures regarding, say, the stocks that I own of my company, won't that be insider trading if I do that after knowing that the value of my stocks will fall? If people assume price discovery in this case, won't they also have to assume that I am doing insider trading?\",\n \"No, it means what it says. Prices change, hence price of the derivative can go down even if the price of the underlying doesn't change (e.g. theta decay in options).\",\n \"\\\"Here, check out my updated reply above - I added an example that might clarify some of your questions? Also, to answer the \\\"\\\"to whom\\\"\\\" question, you're signaling those things to the market. By trading at what you believe to be fair value, you're helping the market price all of those \\\"\\\"events\\\"\\\" contained in a futures contract.\\\"\",\n \"\\\"Currently, when \\\"\\\"implied volatility\\\"\\\" is spoken, the Black-Scholes-Merton model is implied. This model has been shown to be deficient, thus the Variance Gamma Model should be used. However, as nearly no one uses VG, it can be assumed that BS is still being implied. The BS formula has multiple variables. Some are external to the underlying in question. The rest are internal. When all but one variable is known or assumed, the last variable can be calculated, so if one has the price of the underlying and all else except the volatility, the volatility can be calculated thus implied. If one selects an implied volatility, and all variables except the underlying price is known, the underlying price can be calculated. For the present, one uses the current price of the underlying to calculate the implied volatility. For future option prices, one assumes an implied volatility at a later date to calculate a possible price. For prices not at the money, the BS model is extremely imprecise. The VG model can better determine a potential future price.\\\"\",\n \"\\\"I was wondering how \\\"\\\"future cash flows of the asset\\\"\\\" are predicted? Are they also predicted using fundamental and/or technical analysis? There are a many ways to forecast the future cash flows of assets. For example, for companies: It seems like calculating expected/required rate using CAPM does not belong to either fundamental or technical analysis, does it? I would qualify the CAPM as quantitative analysis because it's mathematics and statistics. It's not really fundamental since its does not relies on economical data (except the prices). And as for technical analysis, the term is often used as a synonym for graphical analysis or chartism, but quantitative analysis can also be referred as technical analysis. the present value of future cash flows [...] (called intrinsic price/value, if I am correct?) Yes you are correct. I wonder when deciding whether an asset is over/fair/under-valued, ususally what kind of price is compared to what other kind of price? If it's only to compare with the price, usually, the Net asset value (which is the book value), the Discount Cash flows (the intrinsic value) and the price of comparable companies and the CAPM are used in comparison to current market price of the asset that you are studying. Why is it in the quote to compare the first two kinds of prices, instead of comparing the current real price on the markets to any of the other three kinds? Actually the last line of the quote says that the comparison is done on the observed price which is the market price (the other prices can't really be observed). But, think that the part: an asset is correctly priced when its estimated price is the same as the present value of future cash flows of the asset means that, since the CAPM gives you an expected rate of return, by using this rate to compute the present value of future cash flows of the asset, you should have the same predicted price. I wrote this post explaining some valuation strategies. Maybe you can find some more information by reading it.\\\"\",\n \"Suppose I purchase $10,000 worth of a particular share today. If the person(s) I am purchasing the shares from paid $9,000 for those shares, then I replacing their $9,000 investment with my $10,000 investment. This is a net inflow of $1,000 into the market. Similarly, if the person(s) I am purchasing the shares from paid $11,000 for those shares, then their $11,000 investment is being replace by my $10,000 investment. This is a net outflow of $1,000 out of the market. The aggregate of all such inflows and outflows in the net inflow/outflow into the market over a given period of time. (Here we are ignoring the effects of new share issues.)\",\n \"\\\"This effect has much empirical evidence as googling \\\"\\\"dividend price effect evidence\\\"\\\" will show. As the financial economic schools of thought run the gamut so do the theories. One school goes as far to call it a market inefficiency since the earning power thus the value of an equity that's affected is no different or at least not riskier by the percentage of market capitalization paid. Most papers offer that by the efficient market hypothesis and arbitrage theory, the value of an equity is known by the market at any point in time given by its price, so if an equity pays a dividend, the adjusted price would be efficient since the holder receives no excess of the price instantly before payment as after including the dividend since that dividend information was already discounted so would otherwise produce an arbitrage.\\\"\",\n \"\\\"It means price movements in the past do not affect price movements in the future. Think of the situation of a coin, if you flip it once, and then you flip it a second time, the results are independent of each other. If the first time, you flipped a HEAD, it does not mean that the coin will remember it, and produce a TAIL the second time. This is the meaning of \\\"\\\"memoryless\\\"\\\". FYI, stock markets are clearly not memoryless. It is just an assumption for academic purposes.\\\"\",\n \"\\\"@jidugger mostly got it right. It basically mean that past performance of a stock, or a basket of stocks, are not at all useful when trying to predict its future. There is no proven correlation between past and future performance. If there was such a correlation, that was \\\"\\\"proven\\\"\\\" or known, then investors would quickly exploit this correlation by buying or selling this stock, thus nullifying the prediction. It doesn't mean the specific individuals cannot predict the future stock market - hell, if I set up 2^100 different robots, where every robots gives a different series of answers to the 100 questions \\\"\\\"how will stock X do Y days from now\\\"\\\" (for 1<=Y<=100), then one of those robots would be perfectly correct. The problem is that an outside observer has no way of knowing which of the predictor robots is right. To say that stock is memoryless strikes me as not quite right -- to the extent that stocks are valued based on earnings, much of what we infer about future earnings relies on past and present earnings. To put it another way - you have $1000 now, and need to decide whether to invest in a particular stock, or a stock index. The \\\"\\\"memoryless\\\"\\\" property means that no matter how many earning reports you view ... by the time you see them, the stock price already accounts for them, so they're not useful to you. If the earning reports are positive, the stock is already \\\"\\\"too high\\\"\\\" because people bought it before you did. So on average, you can't use this information to predict the stock's future performance, and are better off investing in an index fund (unless you desire extra risk that doesn't come with more profitability).\\\"\",\n \"Stock prices are indeed proportional to supply and demand. The greater the demand for a stock, the greater the price. If they are, would this mean that stock prices completely depend on HOW the public FEELS/THINKS about the stock instead of what it is actually worth? This is a question people have argued for decades. Literature in behavioral finance suggests that investors are not rational and thus markets are subject to wild fluctuation based on investor sentiment. The efficient market theory (EMT) argues that the stock market is efficient and that a stock's price is an accurate reflection of its underlying or intrinsic value. This philosophy took birth with Harry Markovitz's efficient frontier, and Eugene Fama is generally seen as the champion of EMT in the 1960's and onward. Most investors today would agree that the markets are not perfectly efficient, and that a stock's price does not always reflect its value. The renowned professor Benjamin Graham once wrote: In the short run, the market is a voting machine but in the long run it is a weighing machine. This suggests that prices in the short term are mainly influenced by how people feel about the stock, while in the long run the price reflects what it's actually worth. For example, people are really big fans of tech stocks right now, which suggests why LinkedIn (stock: LNKD) has such a high share price despite its modest earnings (relative to valuation). People feel really good about it, and the price might sustain if LinkedIn becomes more and more profitable, but it's also possible that their results won't be absolutely stellar, so the stock price will fall until it reflects the company's fundamentals.\",\n \"\\\"It's a statement that seems to be true about our tendency to believe we won't make the same mistake twice, even though we do, and that somehow what's occurring in the present is completely different, even when the underlying fundamentals of the situation may be nearly identical. It's a form of self-delusion and, sometimes, mass-delusion, and it has been a major contributing factor to many of our worst financial disasters. If you look at every housing bubble, for instance, we examine the aftermath, put new regulations and procedures into place, theoretically to prevent it from happening again, and then move forward. When the cycle starts to repeat itself, we ignore the signals, telling ourselves, \\\"\\\"oh, that can't happen again -- this time it's different.\\\"\\\" When investors begin to ignore the warning signs because they think the current situation is somehow totally different and therefore there will be a different outcome than the last disaster, that's when things actually do go bad. The 2008 housing crisis was caused by the same essential forces that brought about similar (albeit smaller scale) housing disasters in the 80's and 90's -- greed caused banks and other participants in the housing sector to make loans they knew were no good (an oversimplification to be sure, but apt nonetheless), and eventually the roof caved in on the market. In 2008, the essential dynamics were the same, but everyone had convinced themselves that the markets were more sophisticated and could never allow things like that to happen again. So, everyone told themselves this was different, and they dove into the markets headlong, ignoring all of the warning signs along the way that clearly told the story of what was coming had anyone bothered to notice.\\\"\",\n \"Let's use an example: You buy 10 machines for 100k, and those machines produce products sold for a total of 10k/year in profit (ignoring labor/electricity/sales costs etc). If the typical investor requires a rate of return of 10% on this business, your company would be worth 100k. In investing terms, you would have a PE ratio of 10. The immediately-required return will be lower if substantially greater returns are expected in the future (expected growth), and the immediately required return will be higher if your business is expected to shrink. If at the end of the year you take your 10k and purchase another machine, your valuation will rise to 110k, because you can now produce 11k in earnings per year. If your business has issued 10,000 shares, your share price will rise from $10 to $11. Note that you did not just put cash in the bank, and that you now have a higher share price. At the end of year 2, with 11 machines, lets imagine that customer demand has fallen and you are forced to cut prices. You somehow produce only 10k in profit, instead of the anticipated 11k. Investors believe this 10k in annual profit will continue into the forseable future. The investor who requires 10% return would then only value your company at 100k, and your share price would fall back from $11 to $10. If your earnings had fallen even further to 9k, they might value you at 90k (9k/0.1=$90k). You still have the same machines, but the market has changed in a way that make those machines less valuable. If you've gone from earning 10k in year one with 10 machines to 9k in year two with 11 machines, an investor might assume you'll make even less in year three, potentially only 8k, so the value of your company might even fall to 80k or lower. Once it is assumed that your earnings will continue to shrink, an investor might value your business based on a higher required rate of return (e.g. maybe 20% instead of 10%), which would cause your share price to fall even further.\",\n \"A share is more than something that yields dividends, it is part ownership of the company and all of its assets. If the company were to be liquidated immediately the shareholders would get (a proportion of) the net value (assets - liabilities) of the company because they own it. If a firm is doing well then its assets are increasing (i.e. more cash assets from profits) therefore the value of the underlying company has risen and the intrinsic value of the shares has also increased. The price will not reflect the current value of the firms assets and liabilities because it will also include the net present value of expected future flows. Working out the expected future flows is a science on par with palmistry and reading chicken entrails so don't expect to work out why a company is trading at a price so much higher than current assets - liabilities (or so much lower in companies that are expected to fail). This speculation is in addition to price speculation that you mention in the question.\",\n \"\\\"I'm not an economist, but I understand the idea of value or \\\"\\\"price\\\"\\\" is purely \\\"\\\"what people agree it to be\\\"\\\". The quants and analysts I've worked with always talk about \\\"\\\"discovering the price\\\"\\\" - it's an unknown until someone says \\\"\\\"I will pay X\\\"\\\". Are my 2nd hand Nikes worth $20? Put em on ebay to find out. If someone buys them, then yes, 2nd hand Nikes are worth $20. If they don't sell then they're not worth $20. Obviously ebay is not the most efficient market out there. The exchanges attempt to be that with prices varying by fractions of cent in fractions of seconds (milliseconds). EDIT* Perhaps another way to look at it is \\\"\\\"What is the 'correct' value of a computer game, say 'Skyrim'?\\\"\\\" Your idea of the value of labour and production costs produces some figure. But in the real world, what actually happens? On release day the game is priced at, say, $60. And lots of people say \\\"\\\"I will pay $60\\\"\\\". Many people don't, but many people do. Months later, Steam has a sale and they suggest Skyrim is now worth $30. Lot's of people who didn't think it was worth $60 do think it is worth $30. The amount of labour that went into is hasn't changed. So what it the true or 'correct' value/price of the game? What is the correct value/price of *amything*? It is *what people will pay for it*.\\\"\",\n \"This seemed very unrealistic, I mean who would do that? But to my immense surprise the market price increased to 5.50$ in the following week! Why is that? This is strange. It seems that people mistakenly [?] believe that the company should be at 5.5 and currently available cheap. This looks like irrational behaviour. Most of the past 6 months the said stock in range bound to 4.5 to 5. The last time it hit around 5.5 was Feb. So this is definitely strange. If the company had set a price of 6.00$ in the rights offering, would the price have increased to 6$? Obviously the company thinks that their shares are worth that much but why did the market suddenly agree? Possibly yes, possible no. It can be answered. More often the rights issue are priced at slight discount to market price. Why did this happen? Obviously management thinks that the company is worth that much, but why did the market simply believe this statement without any additional information? I don't see any other information; if the new shares had some special privileges [in terms of voting rights, dividends, etc] then yes. However the announcements says the rights issues is for common shares.\",\n \"What it is trying to describe is the psychology around the current price of the stock. In candlestick charts for example, if you get what is called a Bearish Engulfing Candle (where the open is higher than the previous day's close and the close is lower than the previous day's open) at the top of an uptrend, this could mean that the top may have been reached and the bears are taking over the bulls. A Bearish Engulfing candle is seen as a bearish reversal pattern, as the bulls start the day by opening the stock at a higher price than yesterday's close, but by the end of the day the bears have taken over as the price drops below yesterday's open. This reversal pattern can be even more pronounced and effective if it coincides with other chart indicators, such as an overbought momentum indicator. If you want to learn more look up about the Psychology of the market and Candlestick Charting.\",\n \"\\\"**Tulip mania** Tulip mania, tulipmania, or tulipomania (Dutch names include: tulpenmanie, tulpomanie, tulpenwoede, tulpengekte and bollengekte) was a period in the Dutch Golden Age during which contract prices for bulbs of the recently introduced tulip reached extraordinarily high levels and then dramatically collapsed in February 1637. It is generally considered the first recorded speculative bubble (or economic bubble), although some researchers have noted that the Kipper-und Wipperzeit (literally Tipper and See-saw) episode in 1619–22, a Europe-wide chain of debasement of the metal content of coins to fund warfare, featured mania-like similarities to a bubble. In many ways, the tulip mania was more of a hitherto unknown socio-economic phenomenon than a significant economic crisis (or financial crisis). And historically, it had no critical influence on the prosperity of the Dutch Republic, the world's leading economic and financial power in the 17th century. *** **Greater fool theory** The greater fool theory states that the price of an object is determined not by its intrinsic value, but rather by irrational beliefs and expectations of market participants. A price can be justified by a rational buyer under the belief that another party is willing to pay an even higher price. In other words, one may pay a price that seems \\\"\\\"foolishly\\\"\\\" high because one may rationally have the expectation that the item can be resold to a \\\"\\\"greater fool\\\"\\\" later. *** ^[ [^PM](https://www.reddit.com/message/compose?to=kittens_from_space) ^| [^Exclude ^me](https://reddit.com/message/compose?to=WikiTextBot&message=Excludeme&subject=Excludeme) ^| [^Exclude ^from ^subreddit](https://np.reddit.com/r/business/about/banned) ^| [^FAQ ^/ ^Information](https://np.reddit.com/r/WikiTextBot/wiki/index) ^| [^Source](https://github.com/kittenswolf/WikiTextBot) ^] ^Downvote ^to ^remove ^| ^v0.24\\\"\",\n \"I think he was trying to say that in the long term the company's fundamental intrinsic value will drive the price of a company's stock, but in the short term stocks move on emotion and publicity that are not necessarily a reflection of their true underlying value.\",\n \"As yet another explanation of why it does not really matter, you can look at this from the valuation point of view. Stock price is the present value of its future cash flows (be it free cash flow of the firm or dividends, depending on the model). Let's have a look at the dividends case. Imagine, the price of the stock is based on only three dividends streams $5 dollars each: dividend to be paid today, in year 1, and in year 2. Each should be discounted back to today (say, at 10%), except today's dividend, since today is now. Once that dividend is paid, it is no longer in the stream of cash flows. So if we just delete that first $5 from the formula, the price will adjust itself down by the amount of the dividend to $8.68. NOTE that this is a very simple example, since in reality cash flows streams are arguably infinite and because there are many other factors affecting stock price. But simply for your understanding, this example should provide you with the reason simply from the valuation perspective.\",\n \"Anyone who wants to can use any method they want. Ultimately, the price of the stock will settle on the valuation that people tend to agree on. If you think the priced in numbers are too low, buy the stock as that would mean that its price will go up as the future earnings materialize. If you think it's too high, short the stock, as its price will go down as future earnings fail to materialize. The current price represents the price at which just as much pressure pushes the price up as down. That means people agree it's reasonably approximating the expected future value. Imagine if I needed money now and sold at auction whatever salary I make in 2019. How much will I make in 2019? I might be disabled. I might be a high earner. Who knows? But if I auction off those earnings, whatever price it sells for represents everyone's best estimate of that value. But each participant in the auction can estimate that value however they want. If you want to know what something is worth, you see what you can sell it for.\",\n \"The price to earnings ratio is a measure of the company's current share price compared to the annual net earnings per share. The other way to think about this is the number of years a company would take to pay back the share price if the earnings stay constant. This ignores factors like inflation and can be used as an indicator of risk. During the internet bubble many companies had P/E above 24 and no possible means of earning back the share prices that were inflated largely due to speculation. Most tools like Google Finance will list the P/E for a particular quote.\",\n \"\\\"Even though the article doesn't actually use the word \\\"\\\"discount\\\"\\\", I think the corresponding word you are looking for is \\\"\\\"premium\\\"\\\". The words are used quite frequently even outside of the context of negative rates. In general, bonds are issued with coupons close to the prevailing level of interest rates, i.e. their price is close to par (100 dollar price). Suppose yields go up the next day, then the price moves inversely to yields, and that bond will now trade at a \\\"\\\"discount to par\\\"\\\" (less than 100 dollar price). And vice versa, if yields went down, prices go up, and the bond is now at a \\\"\\\"premium to par\\\"\\\" (greater than 100 dollar price)\\\"\",\n \"Yes and no. There is no actual money involved - just assumed value. Imagine you own a picture that you painted yourself, and all your friends agree it is worth 1000 $. You feel like you have a 1000 $-picture. Now a guy with some more knowledge visits you, and tells you that it is really only worth about a 100 $. Did you just lose 900 $? If yes, where did the money go?\",\n \"Imagine a $1,000 face value bond paying 10% interest semi-annually. That means every 6 months there is $50 being paid. Now, if the price of that bond doubled to $2,000, what is the yield? It is still paying $50 every 6 months but now sports a 5% yield as the price went up a great deal. Similarly, if the price of the bond was cut in half to $500, now it is yielding 20% because it is still paying out the $50 every 6 months. The dollar figure is fixed. What percentage of the price it is can vary and that is why there is the inverse relationship between prices and yields. Note that the length of the bond isn't mentioned here where while usually longer bonds will have higher yields, there can be inverted yield curves as well as calls on some bonds. Also, inflation-indexed and convertible bonds could have different calculations used as principal adjustments or possible conversion to stock can change a perception on the overall return.\",\n \"Ah, pardon me, so it's not *either* 10x return or zero, but also includes points in between there? Is it path dependent? Do you have any history on the asset? The usual crutches for dealing with unknown probabilities are using risk neutrality or arbitrage pricing, but if the market is inefficient then that will be an estimation at best.\",\n \"\\\"If markets are efficient they will be unpredictable. If all past information is already priced into a stock then movement will only occur when new information is introduced. Since no one can predict future events stocks will move in an unpredictable way. If markets are inefficient in the short term, people should be able to figure out the long-term price movements. This doesn't seem to be the case. This is why the authoritative book on market efficiency is called \\\"\\\"A **Random** Walk Down Wall Street\\\"\\\".\\\"\",\n \">Conclusion >Covert operations organized and abetted by foreign governments have played a substantial role in the political and economic development of poorer countries around the world. We look at CIA-backed coups against governments which had nationalized a considerable amount of foreign investment. Using an event-study methodology, we find that private information regarding coup authorizations and planning increased the stock prices of expropriated multinationals that stood to benefit from the regime change. ***The presence of these abnormal returns suggests that there were leaks of classified information to asset traders.*** Consistent with theories of asset price determination under private information, this information often took some time to be fully reflected in the stock price. We find that coup authorizations, on net, contributed substantially more to stock price rises of highly exposed companies than the coup events themselves. >This suggests that most of the value of the coup to the affected companies had already been anticipated and incorporated into the asset price before the operation was undertaken.\",\n \"Imagine that I own 10% of a company, and yesterday my portion was valued at $1 Million, therefore the company is valued at $10 Million. Today the company accepts an offer to sell 1% of the company for $500 Thousand: now my portion is worth $5 Million, and company is worth $50 Million. The latest stock price sets the value of the company. If next week the news is all bad and the new investor sells their shares to somebody else for pennies on the dollar, the value of the company will drop accordingly.\",\n \"\\\"Well said. And I get it, really I do. Rational means something very specific in the theoretical model of EMH, and it's not the same way that \\\"\\\"rational\\\"\\\" is usually used. When a person actually gets to the point where he can trade on the stock market, you expect they would have information like \\\"\\\"know which stock you're trading\\\"\\\". Maybe these people didn't. And even if we assume people have perfect information, they still make mistakes. Regularly. Repeatedly. Sometimes predictably. And those mistakes can overwhelm the right-price-finding effect of EMH.\\\"\",\n \"\\\"The value of a stock ultimately is related to the valuation of a corporation. As part of the valuation, you can estimate the cash flows (discounted to present time) of the expected cash flows from owning a share. This stock value is the so-called \\\"\\\"fundamental\\\"\\\" value of a stock. What you are really asking is, how is the stock's market price and the fundamental value related? And by asking this, you have implicitly assumed they are not the same. The reason that the fundamental value and market price can diverge is that simply, most shareholders will not continue holding the stock for the lifespan of a company (indeed some companies have been around for centuries). This means that without dividends or buybacks or liquidations or mergers/acquisitions, a typical shareholder cannot reasonably expect to recoup their share of the company's equity. In this case, the chief price driver is the aggregate expectation of buyers and sellers in the marketplace, not fundamental evaluation of the company's balance sheet. Now obviously some expectations are based on fundamentals and expert opinions can differ, but even when all the experts agree roughly on the numbers, it may be that the market price is quite a ways away from their estimates. An interesting example is given in this survey of behavioral finance. It concerns Palm, a wholly-owned subsidiary of 3Com. When Palm went public, its shares went for such a high price, they were significantly higher than 3Com's shares. This mispricing persisted for several weeks. Note that this facet of pricing is often given short shrift in standard explanations of the stock market. It seems despite decades of academic research (and Nobel prizes being handed out to behavioral economists), the knowledge has been slow to trickle down to laymen, although any observant person will realize something is amiss with the standard explanations. For example, before 2012, the last time Apple paid out dividends was 1995. Are we really to believe that people were pumping up Apple's stock price from 1995 to 2012 because they were waiting for dividends, or hoping for a merger or liquidation? It doesn't seem plausible to me, especially since after Apple announced dividends that year, Apple stock ended up taking a deep dive, despite Wall Street analysts stating the company was doing better than ever. That the stock price reflects expectations of the future cash flows from the stock is a thinly-disguised form of the Efficient Market Hypothesis (EMH), and there's a lot of evidence contrary to the EMH (see references in the previously-linked survey). If you believe what happened in Apple's case was just a rational re-evaluation of Apple stock, then I think you must be a hard-core EMH advocate. Basically (and this is elaborated at length in the survey above), fundamentals and market pricing can become decoupled. This is because there are frictions in the marketplace making it difficult for people to take advantage of the mispricing. In some cases, this can go on for extended periods of time, possibly even years. Part of the friction is caused by strong beliefs by market participants which can often shift pressure to supply or demand. Two popular sayings on Wall Street are, \\\"\\\"It doesn't matter if you're right. You have to be right at the right time.\\\"\\\" and \\\"\\\"It doesn't matter if you're right, if the market disagrees with you.\\\"\\\" They suggest that you can make the right decision with where to put your money, but being \\\"\\\"right\\\"\\\" isn't what drives prices. The market does what it does, and it's subject to the whims of its participants.\\\"\",\n \"If you have two other assets whose payoffs tomorrow are known and whose prices today are known, you can value it. Let's say you can observe a risk-free bond and a stock. Using those, you can calculate the state prices/risk-neutral probabilities. NOTE: You do not need to know the true probabilities. The value of your asset is then the state-price weighted sum of future payoffs.\",\n \"Since the market is in general rather efficient, the price of the ETF will most of the time reflects the prices of the underlying securities. However, there are times when ETF price deviates from its fundamental value. This is called trading at a premium/discount. This creates arbitrage opportunity, which is actually being studied in finance literature.\",\n \"Options reflect expectations about the underlying asset, and options are commonly priced using the Black-Scholes model: N(d1) and N(d2) are probability functions, S is the spot (current) price of the asset, K is the strike price, r is the risk free rate, and T-t represents time to maturity. Without getting into the mathematics, it suffices to say that higher volatility or expectation of volatility increases the perceived riskiness of the asset, so call options are priced lower and put options are priced higher. Think about it intuitively. If the stock is more likely to go downwards, then there's an increased chance that the call option expires worthless, so call options must be priced lower to accommodate the relative change in expected value of the option. Puts are priced similarly, but they move inversely with respect to call option prices due to Put-Call parity. So if call option prices are falling, then put option prices are rising (Note, however, that call prices falling does not cause put prices to rise. The inverse relationship exists because of changes in the underlying factors and how pricing works.) So the option action signifies that the market believes the stock is headed lower (in the given time frame). That does not mean it will go lower, and option traders assume risk whenever they take a particular position. Bottom line: gotta do your own homework! Best of luck.\",\n \"\\\"There is no official price. There is only the price a seller is willing to offer and a buyer is willing to accept at that moment. It tends to be close to the price negotiated for the last such sale, but that's just market statistics, not anything actively managed or guaranteed. \\\"\\\"Past performance is no guarantee of future results;\\\"\\\" this buyer and seller may not agree with the previous pair. Especially when the market has been closed overnight but real-world events have continued to occur.\\\"\",\n \"\\\"The markets are not as information efficient as some might have you believe. But on the contrary, looking up what the aggregate professional analysts have said is also part of \\\"\\\"doing your homework\\\"\\\"\\\"\",\n \"\\\"IPO's are priced so that there's a pop\\\"\\\" on the opening day.\\\"\\\" If I were IPOing my company and the price \\\"\\\"popped\\\"\\\" on the open, I would think the underwriter priced it too low. In fact if I were to IPO, I'd seek an underwriter whose offerings consistently traded on the first day pretty unchanged. That means they priced it correctly. In the 90's IPO boom, there were stocks that opened up 3X and more. The original owners must have been pretty upset as the poor pricing guidance the underwriter offered.\\\"\",\n \"Asset prices are inversely related to interest rates. If you're valuing a business or a bond, if you use a lower interest rate you get a higher valuation. Historic equity returns benefit from a falling interest rate environment which won't be repeated as interest rates can only go so low. edit: typo\",\n \"Why does the rising price of a bond pushes it's yield down? The bond price and its yield are linked; if one goes up, the other must go down. This is because the cash flows from the bond are fixed, predetermined. The market price of the bond fluctuates. Now what if people are suddenly willing to pay more for the same fixed payments? It must mean that the return, i.e. the yield, will be lower. Here we see that risk associated with the bonds in question has skyrocketed, and thus bonds' returns has skyrocketed, too. Am I right? The default risk has increased, yes. Now, I assume that bonds' price is determined by the market (issued by a state, traded at the market). Is that correct? Correct, as long as you are talking about the market price. Then who determines bonds' yields? I mean, isn't it fixed? Or - in the FT quote above - they are talking about the yields for the new bonds issued that particular month? The yield is not fixed - the cash flows are. Yield is the internal rate of return. See my answer above to your first question.\",\n \"\\\"Your explanation is nearly perfect and not \\\"\\\"hand wavy\\\"\\\" at all. Stock prices reflect the collective wisdom of all participating investors. Investors value stocks based on how much value they expect the stock to produce now and in the future. So, the stability of the stock prices is a reflection of the accuracy of the investors predictions. Investor naivity can be seen as a sequence of increasingly sophisticated stock pricing strategies: If investors were able to predict the future perfectly, then all stock prices would rise at the same constant rate. In theory, if a particular investor is able to \\\"\\\"beat the market\\\"\\\", it is because they are better at predicting the future profits of companies (or they are lucky, or they are better at predicting the irrational behavior of other investors......)\\\"\",\n \"\\\"Isn't this effectively saying that the market responds principally to itself, and not to either economic fundamentals, or the profitability of the underlying companies. If so, the market as a \\\"\\\"price discovery mechanism\\\"\\\" is broken, and investors would be wise to do their own research.\\\"\",\n \"\\\"In a rational market, the market caps (total value of all shares of the company) should be determined by the expected future profits of the company, plus the book value (that is the value of all assets that the company holds). The share price is then calculated as market caps divided by number of shares - a company worth a billion dollar could have a million shares at $1000 each or a billion shares at $1 each or anything in between. When profits drop, every investor has to re-think what the expected future profits of the company are. If all the investors say \\\"\\\"I thought this company would make a billion profit in the next ten years, but based on the drop in profits I changed my mind and I think they will only make 500 million\\\"\\\", then the share price drops. On the other hand, if profits dropped because of some predictable event, then that drop was already priced into the share price. If the profits dropped less than expected, the share price might even go up. You can see the opposite effect: Share price might be very high because everyone expects huge growth in profits over the next ten years. If profits grow less than expected, the share price will drop. Share price depends on predicted future profits, not on profits today.\\\"\",\n \"\\\"Let's say you see a café. You're looking to buy a café so you walk into one and ask the manager how much profit he makes in a year. He says $N and you walk out and think to yourself, \\\"\\\"I'd be willing to pay $500,000 for this café.\\\"\\\" You arrange to meet again to discuss purchasing the business (and he's looking for someone to purchase it). You go into the store again the following day and the manager says, \\\"\\\"Sorry, I told you we make $N. I've checked the numbers and it's actually only $0.8N (20% lower than what you thought).\\\"\\\" Are you still willing to buy the café for $500,000 as well? No, of course you're not. I think that this is a sufficient analogy to public companies.\\\"\",\n \"\\\"Yes, and the reason for that is because things that are above the market (eg regulators, politicians et al) manipulate it constantly. I think personally the market is still a price discovery mechanism, the rules of the game have just changed. I.e. risk now has taken on additional dimensions, so a lot of conventional theories of asset pricing can effectively be chucked out the window. Whether we ever see the return to a more \\\"\\\"econ\\\"\\\"-driven reality in market expectations (and by that extent therefore asset pricing) is anyone's guess, for now bye-bye to the established light-touch framework of decades past, hello to interventionist randomness.\\\"\",\n \"\\\"It reminds me of the Efficient Market Hypothesis, except that just states in its weakest form that the current market price accounts for all information embedded in previous market prices. In other words, people buying today at 42 know it was selling for 40 yesterday, and the patterns and such. To say that stock is memoryless strikes me as not quite right -- to the extent that stocks are valued based on earnings, much of what we infer about future earnings relies on past and present earnings. One obvious counterexample to this \\\"\\\"memoryless\\\"\\\" claim is bankruptcy. If a stock files bankruptcy, and there isn't enough money to pay senior debt, your shares are worth 0 in perpetuity.\\\"\",\n \"A lower Price/Book Value means company is undervalued. It could also mean something horribly wrong. While it may look like a good deal, remember;\",\n \"If a market is efficient then risk/reward should be linear. In simple markets like stocks and bonds, everyone thinks the same way and the risk/reward calculation is simple, so everyone can have an accurate idea of the risk/reward ratio, unless the company has serious undisclosed problems. But in other markets like derivatives and mortgage bonds, few people understand what they're buying so the risks remain hidden. Someone might think a company will do well, so they buy an derivative on that company. But no one understands risk/reward calculations on derivatives, so the risk/reward on the derivative could be way off the price on the derivative.\",\n \"Knowing the answer to this question is generally not as useful as it may seem. The stock's current price is the consensus of thousands of people who are looking at the many relevant factors (dividend rate, growth prospects, volatility, risk, industry, etc.) that determine its value. A stock's price is the market's valuation of the cash flows it entitles you to in the future. Researching a stock's value means trying to figure out if there is something relevant to these cash flows that the market doesn't know about or has misjudged. Pretty much anything we can list for you here that will affect a stock's price is something the market knows about, so it's not likely to help you know if something is mispriced. Therefore it's not useful to you. If you are not a true expert on how important the relevant factors are and how the market is reacting to them currently (and often even if you are), then you are essentially guessing. How likely are you to catch something that the thousands of other investors have missed and how likely are you to miss something that other investors have understood? I don't view gambling as inherently evil, but you should be clear and honest with yourself about what you are doing if you are trying to outperform the market. As people become knowledgeable about and experienced with finance, they try less and less to be the one to find an undervalued stock in their personal portfolio. Instead they seek to hold a fully diversified portfolio with low transactions costs and build wealth in the long term without wasting time and money on the guessing game. My suggestion for you is to transition as quickly as you can to behave like someone who knows a lot about finance.\",\n \"\\\"Limited Price is probably equivalent to the current par value of a \\\"\\\"limit order\\\"\\\". Markets move fast, and if the commodity is seeing some volatility in the buy and sell prices, if you place an ordinary buy order you may not get the price you were quoted. A \\\"\\\"limit order\\\"\\\" tells your broker or whomever or whatever is making the order on your behalf that you will pay no more than X yuan. While the market is below that price, the trader will attempt to get you the quantity you want, but if they can't get you your full order for an average price less than the limit, the whole thing is rolled back. You can set a limit at any price, but a limit order of 1 yuan for a pound of sterling silver will likely never be executed as long as the market itself is functioning. So, you are being provided with a \\\"\\\"par value\\\"\\\" that they can guarantee will be executed in the current market. Entrustment prices are probably prices offered to the managers of trust funds. A trust is simply a set of securities and/or cash which is placed under the nominal control of a third party, who then must in good faith attempt to fulfill the goals of the actual owner of the securities with regards to growth or retention of value. Trustees almost never speculate with the money they control, but when they do move money it's often a sizeble chunk (hundreds of thousands or millions of dollars instead of a few thousand dollars here and there). So, in return for the long-term holdings, large buys and sells, and thus the reduced cost of maintaining a business relationship with the broker, the broker may offer better prices to trust fund managers.\\\"\",\n \"\\\"In this instance \\\"\\\"quotational\\\"\\\" is a reference to a market price quote, not a mathematical function. Staunch \\\"\\\"value investors\\\"\\\" like Graham, Dodd, Munger, Buffett et al. believe there is a material difference between what security is \\\"\\\"worth\\\"\\\" and what the current market mood quotes as its price. You, the investor, perform your analysis then derive a value for a security. If there has been no material change to an aspect of the security you analyzed then there hasn't been a change in that security's value, even if there has been a decline in the price quoted by the market, that is a \\\"\\\"quotational loss.\\\"\\\"\\\"\",\n \"In fact markets are not efficient and participants are not rational. That is why we have booms and busts in markets. Emotions and psychology play a role when investors and/or traders make decisions, sometimes causing them to behave in unpredictable or irrational ways. That is why stocks can be undervalued or overvalued compared to their true value. Also, different market participants may put a different true value on a stock (depending on their methods of analysis and the information they use to base their analysis on). This is why there are always many opportunities to profit (or lose your money) in liquid markets. Doing your research, homework, or analysis can be related to fundamental analysis, technical analysis, or a combination of the two. For example, you could use fundamental analysis to determine what to buy and then use technical analysis to determine when to buy. To me, doing your homework means to get yourself educated, to have a plan, to do your analysis (both FA and TA), to invest or trade according to your plan and to have a risk management strategy in place. Most people are too lazy to do their homework so will pay someone else to do it for them or they will just speculate (on the latest hot tip) and lose most of their money.\",\n \"I think I may have gotten my reasoning backwards, since beta can be thought of as just the quantification of the relationship in prices but in itself isn't the actual reason behind them. Risk free are things such as Treasury bonds/bills.\",\n \"\\\"I always liked the answer that in the short term, the market is a voting machine and in the long term the market is a weighing machine. People can \\\"\\\"vote\\\"\\\" a stock up or down in the short term. In the long term, typically, the intrinsic value of a company will be reflected in the price. It's a rule of thumb, not perfect, but it is generally true. I think it's from an old investing book that talks about \\\"\\\"Mr. Market\\\"\\\". Maybe it's from one of Warren Buffet's annual letters. Anyone know? :)\\\"\",\n \"I am currently trying out some variations (moving terms around ...) of the formula for the present value of money The relationship between yield and price is much simpler than that. If you pay £1015 for a bond and its current yield is 4.69%, that means you will receive in income each year: 4.69% * £1015 = £47.60 The income from the bond is defined by its coupon rate and its face value, not the market value. So that bond will continue to pay £47.60 each year, regardless of the market price. The market price will go up or down according to the market as a whole, and the credit rating of the issuer. If the issuer is likely to default, the market price goes down and the yield goes up. If similar companies start offering bonds with higher yields, the market price goes down to make the bond competitive in the market, again raising yield. So if the yield goes up to 4.87%, what is the price such that 4.87% of that price is £47.60? £47.60 / 4.87% = £977.48 Another way to think of it: if the yield goes up from 4.69% to 4.87%, then yield has increased by a factor of: 4.87% / 4.69% = 1.0384 Consequently, market price must decrease by the same factor: £1015 / 1.0384 = £977.48\",\n \"The quote price is simply the last price at which a trade completed.\",\n \"At a risk of stating the obvious: a passive portfolio doesn't try to speculate on such matters.\",\n \"Overvalued does not mean an opportunity to short. As long as a company's earnings are decent and there are limited other opportunities in the market, a stock would stay overvalued. its just that future returns on the stock might be limited. For shorting you need an expected trigger. Say you expect an overvalued company's earnings to decline or significantly miss expectations. This would be a candidate for shorting..\",\n \"You'd likely be most familiar with them with respect to options and futures on commodities but they're used for credit/interest as well. The intrinsic value of an option is *derived* from the spread between call/put price and strike price; the value of the contract I've paid for or sold is derived from the current market value of the underlying asset, be it rice, platinum, or the Swedish kroner\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["Anyone who wants to can use any method they want. Ultimately, the price of the stock will settle on the valuation that people tend to agree on. If you think the priced in numbers are too low, buy the stock as that would mean that its price will go up as the future earnings materialize. If you think it's too high, short the stock, as its price will go down as future earnings fail to materialize. The current price represents the price at which just as much pressure pushes the price up as down. That means people agree it's reasonably approximating the expected future value. Imagine if I needed money now and sold at auction whatever salary I make in 2019. How much will I make in 2019? I might be disabled. I might be a high earner. Who knows? But if I auction off those earnings, whatever price it sells for represents everyone's best estimate of that value. But each participant in the auction can estimate that value however they want. If you want to know what something is worth, you see what you can sell it for.","\"I think the first misconception to clear up is that you are implying the price of a stock is set by a specific person. It is not. The price of a stock is equal to the value that someone most recently traded at. If Apple last traded at $100/share, then Apple shares are worth $100. If good news about Apple hits the market and people holding the shares ask for more money, and the most recent trade becomes $105, then that is now what Apple shares are worth. Remember that generally speaking, the company itself does not sell you its shares - instead, some other investor sells you shares they already own. When a company sells you shares, it is called a 'public offering'. To get to your actual question, saying something is 'priced in' implies that the 'market' (that is, investors who are buying and selling shares in the company) has already considered the impacts of that something. For example, if you open up your newspaper and read an article about IBM inventing a new type of computer chip, you might want to invest in IBM. But, the rest of the market has also heard the news. So everyone else has already traded IBM assuming that this new chip would be made. That means when you buy, even if sales later go up because of the new chip, those sales were already considered by the person who chose the price to sell you the shares at. One principle of the stock market (not agreed to by all) is called market efficiency. Generally, if there were perfect market efficiency, then every piece of public information about a company would be perfectly integrated into its stock price. In such a scenario, the only way to get real value when buying a company would be to have secret information of some sort. It would mean that everyone's collective best-guess about what will happen to the company has been \"\"priced-in\"\" to the most recent share trade.\"","\"Priced in just means that the speaker thinks the current price has already taken that factor into account. For example, the difference in price right before and right after a dividend is released often differ exactly by that dividend -- the fact that the dividend would function as a \"\"relate\"\" on the purchase price was priced into the earlier quote, and its absence for another year was priced into the later quote. The ten can be applied to any expected or likely event, if you really think the price reflects that opportunity of risk. It just means that this factor, in the speaker's opinion, doesn't create an opportunity one can take advantage of.\""],"string":"[\n \"Anyone who wants to can use any method they want. Ultimately, the price of the stock will settle on the valuation that people tend to agree on. If you think the priced in numbers are too low, buy the stock as that would mean that its price will go up as the future earnings materialize. If you think it's too high, short the stock, as its price will go down as future earnings fail to materialize. The current price represents the price at which just as much pressure pushes the price up as down. That means people agree it's reasonably approximating the expected future value. Imagine if I needed money now and sold at auction whatever salary I make in 2019. How much will I make in 2019? I might be disabled. I might be a high earner. Who knows? But if I auction off those earnings, whatever price it sells for represents everyone's best estimate of that value. But each participant in the auction can estimate that value however they want. If you want to know what something is worth, you see what you can sell it for.\",\n \"\\\"I think the first misconception to clear up is that you are implying the price of a stock is set by a specific person. It is not. The price of a stock is equal to the value that someone most recently traded at. If Apple last traded at $100/share, then Apple shares are worth $100. If good news about Apple hits the market and people holding the shares ask for more money, and the most recent trade becomes $105, then that is now what Apple shares are worth. Remember that generally speaking, the company itself does not sell you its shares - instead, some other investor sells you shares they already own. When a company sells you shares, it is called a 'public offering'. To get to your actual question, saying something is 'priced in' implies that the 'market' (that is, investors who are buying and selling shares in the company) has already considered the impacts of that something. For example, if you open up your newspaper and read an article about IBM inventing a new type of computer chip, you might want to invest in IBM. But, the rest of the market has also heard the news. So everyone else has already traded IBM assuming that this new chip would be made. That means when you buy, even if sales later go up because of the new chip, those sales were already considered by the person who chose the price to sell you the shares at. One principle of the stock market (not agreed to by all) is called market efficiency. Generally, if there were perfect market efficiency, then every piece of public information about a company would be perfectly integrated into its stock price. In such a scenario, the only way to get real value when buying a company would be to have secret information of some sort. It would mean that everyone's collective best-guess about what will happen to the company has been \\\"\\\"priced-in\\\"\\\" to the most recent share trade.\\\"\",\n \"\\\"Priced in just means that the speaker thinks the current price has already taken that factor into account. For example, the difference in price right before and right after a dividend is released often differ exactly by that dividend -- the fact that the dividend would function as a \\\"\\\"relate\\\"\\\" on the purchase price was priced into the earlier quote, and its absence for another year was priced into the later quote. The ten can be applied to any expected or likely event, if you really think the price reflects that opportunity of risk. It just means that this factor, in the speaker's opinion, doesn't create an opportunity one can take advantage of.\\\"\"\n]","isConversational":false}}},{"rowIdx":377,"cells":{"_id":{"kind":"string","value":"5369"},"query":{"kind":"string","value":"Paying for things on credit and immediately paying them off: any help for credit rating?"},"gt_ids":{"kind":"list like","value":["171339","44223"],"string":"[\n \"171339\",\n \"44223\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1],"string":"[\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["504293","422139","572426","379892","401267","540959","502748","409927","550471","344203","379891","275356","532414","272890","137414","349764","208909","32985","434082","110953","414629","290490","453074","390598","551175","289463","75300","354618","382551","363691","279534","220168","105694","479095","16277","47979","409910","32867","121233","459257","113651","590370","393817","483595","175380","336922","159783","44223","367397","218709","417130","171339","366477","78230","477656","250722","278071","166875","33673","336908","550166","450372","403934","233544","248091","585654","15202","499483","477720","165619","238310","482932","542915","592670","244650","30770","152279","427535","399904","433213","159264","58304","142536","91471","266659","431091","141459","153088","448614","496080","589308","170481","328821","517874","277003","49270","574065","373497","42044","157872"],"string":"[\n \"504293\",\n \"422139\",\n \"572426\",\n \"379892\",\n \"401267\",\n \"540959\",\n \"502748\",\n \"409927\",\n \"550471\",\n \"344203\",\n \"379891\",\n \"275356\",\n \"532414\",\n \"272890\",\n \"137414\",\n \"349764\",\n \"208909\",\n \"32985\",\n \"434082\",\n \"110953\",\n \"414629\",\n \"290490\",\n \"453074\",\n \"390598\",\n \"551175\",\n \"289463\",\n \"75300\",\n \"354618\",\n \"382551\",\n \"363691\",\n \"279534\",\n \"220168\",\n \"105694\",\n \"479095\",\n \"16277\",\n \"47979\",\n \"409910\",\n \"32867\",\n \"121233\",\n \"459257\",\n \"113651\",\n \"590370\",\n \"393817\",\n \"483595\",\n \"175380\",\n \"336922\",\n \"159783\",\n \"44223\",\n \"367397\",\n \"218709\",\n \"417130\",\n \"171339\",\n \"366477\",\n \"78230\",\n \"477656\",\n \"250722\",\n \"278071\",\n \"166875\",\n \"33673\",\n \"336908\",\n \"550166\",\n \"450372\",\n \"403934\",\n \"233544\",\n \"248091\",\n \"585654\",\n \"15202\",\n \"499483\",\n \"477720\",\n \"165619\",\n \"238310\",\n \"482932\",\n \"542915\",\n \"592670\",\n \"244650\",\n \"30770\",\n \"152279\",\n \"427535\",\n \"399904\",\n \"433213\",\n \"159264\",\n \"58304\",\n \"142536\",\n \"91471\",\n \"266659\",\n \"431091\",\n \"141459\",\n \"153088\",\n \"448614\",\n \"496080\",\n \"589308\",\n \"170481\",\n \"328821\",\n \"517874\",\n \"277003\",\n \"49270\",\n \"574065\",\n \"373497\",\n \"42044\",\n \"157872\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["This is a good idea, but it will barely affect your credit score at all. Credit cards, while a good tool to use for giving a minor boost to your credit score and for purchasing things while also building up rewards with those purchases, aren't very good for building credit. This is because when banks calculate your credit report, they look at your long-term credit history, and weigh larger, longer-term debt much higher than short-term debt that you pay off right away. While having your credit card is better than nothing, it's a relatively small drop in the pond when it comes to credit. I would still recommend getting a credit card though - it will, if you haven't already started paying off a debt like a student or car loan, give you a credit identity and rewards depending on the credit card you choose. But if you do, do not ever let yourself fall into delinquency. Failing to pay off loans will damage your credit score. So if you do plan to get a credit card, it is much better to do as you've said and pay it all off as soon as possible. Edit: In addition to the above, using a credit card has the added benefit of having greater security over Debit cards, and ensures that your own money won't be stolen (though you will still have to report a fraudulent charge).","The banks will love you as you pay your debts on time; although they make interest money on people that don't pay full on time, they lose money on those who never pay. In overall, you will be their preferred customer. Also, they make a more than enough money on you using your credit cards, you are basically a nearly risk-free money making machine for them. Aside from those arguments, as a 'proof of concept': I do the same thing for 10+ years and have ~840 rating. You can't get much better.","If you pay it off before the cycle closes it will look like you have 100% available credit. So if you credit card statement closes on the 7th pay it off on the 6th in full don't pay it when its due 2/3 weeks later. Then after three months of doing that your credit score will go up based on the fact that your debt ratio is so low. That ratio is 30% of your credit score. It will help quite alot.","From what I have heard on Clark Howard if you pay your balance off before the statement's closing date it will help your utilization score. He has had callers confirm this but I don't have first hand knowledge for this to be true. Also this will take two months to make the difference. So it will be boarder line if you will get the benefit in time. Sign up for credit karma if you like. You can get suggestions on how to help your score.","Regardless of how it exactly impacts the credit score, the question is does it help improve your credit situation? If the score does go up, but it goes up slowly that was a lot of effort to retard credit score growth. Learning to use a credit card wisely will help you become more financially mature. Start to use the card for a class of purchases: groceries, gas, restaurants. Pick one that won't overwhelm your finances if you lose track of the exact amount you have been charging. You can also use it to pay some utilities or other monthly expenses automatically. As you use the card more often, and you don't overuse it, the credit card company will generally raise your credit limit. This will then help you because that will drop your utilization ratio. Just repeat the process by adding another class of charges to you credit card usage. This expanded use of credit will in the long run help your score. The online systems allow you to see every day what your balance is, thus minimizing surprises.","Credit history is built over time, so paying this loan off immediately wouldn’t do much if anything for you. Best thing to do is to start with a low limit credit card and pay it off every month. You’ll build favorable history and avoid interest. Check r/personalfinance for more advice.","\"Not sure what you mean by \"\"missing\"\". Credit card debt can be paid back in full when you get the bill, or you can \"\"take a loan\"\" and \"\"pay in installments\"\". If you do the latter, and pay back at least the minimum required amount on time, you are not \"\"missing\"\" your payment. Technically, you are taking a small, but expensive loan, and if you pay that loan back according to the terms and conditions that apply to your credit card, this is reported to the credit bureau and improves your credit. If you are really \"\"missing your payment\"\", paying late (more than a few days), less than minimum or nothing at all, this won't help to improve your credit. A \"\"first-time offender\"\" won't always be reported to the credit bureau, but if he is, it won't be a positive report.\"","\"When you say \"\"promptly paying off the outstanding balance\"\", do you mean you pay it off literally as soon as you have incurred the debt? It is important to actually let the debt post on a statement before you pay it off. If you pay it off before the statement posts then this won't help your credit at all. Once the statement posts you can pay the entire balance off before the due date and you will still pay no interest. Assuming you are allowing the balance to actually post on your statements, you can simply continue to do this and your credit score will improve over time as your account(s) get older and you show that you are reliable. The only other way to improve your credit score is to open more accounts. In the short term this will actually hurt your score, as it will decrease your average age of account and add an inquiry. However in the mid-long term, this will improve your score as having more accounts of a variety of types is better for your score. Having an installment loan such as an auto loan or home loan is good for your score as it is different from a credit card - however you should definitely not engage in one of these unless it makes financial sense for other reasons. Don't add debt just to build your credit score. You could just open more credit cards. Like I said it will hurt your score in the short term but improve it in the mid-long term. Open cards with a variety of benefits so you can use them for different things to get better rewards.\"","Absolutely. It's the way credit is calculated. The most important things here are credit utilization (how much of your open credit you're using, the less the better for your score) and and length of open credit. The longer you've had a credit card, the more it helps your score. If you use your card and pay it off before the bill comes, the credit card company still knows you're using the card and won't close it. I recommend you download credit karma so you can track your score and learn more about how credit is calculated.","A) The Credit Rating Agencies only look at the month-end totals that are on your credit card, as this is all they ever get from the issuing bank. So a higher usage frequency as described would not make any direct difference to your credit rating. B) The issuing bank will know if you use the credit with the higher frequency, but it probably has little effect on your limit. Typically, after two to three month, they reevaluate your credit limit, and it could go up considerably if you never overdrew (and at this time, it could indirectly positively affect your credit rating). You could consider calling the issuing bank after two month and try to explain the history a bit and get them to increase the limit, but that only makes sense if your credit score has recovered. Your business paperwork could go a long way to convince someone, if you do so well now. C) If your credit rating is still bad, you need to find out why. It should have normalized to a medium range with the bad historic issues dropped.","Pay them off immediately. But, as I note in my article Too Little Debt?, a zero utilization is actually a negative hit. So you want to just use the cards to get over 1%. i.e. if the lines add to $38K, just charge say, gas and some groceries, $100/wk. Pay in full every month. It's the amount on the statement that counts, not the amount carried month to month accruing interest, which, I hope is zero for you from now on.","If you can use and pay off your credit card in full every month, there are plenty of benefits including improved credit, reward points and more. Many fall into the trap of just making the minimum payments and facing high interest charges or missing payments and getting a hit on their credit reports. To start off, put something small that you know you can pay off every month. It could be your Netflix or your gas. Make sure you pay it off before any interest is accrued. Over time, you can ask for higher limits to boost your utilization rate.","Scenario A: get a $60 tank of gas once a month, immediately pay it off when I get home Scenario B: Spend about $300 in $25-$50 increments throughout the month on things like groceries, food, gas, etc, but immediately pay it off every time Would my credit get better and/or faster in Scenario B due to the more use?","The answer to your question is no. Your credit rating is the way creditors let each other know whether you are in a good position and have a strong tendency to repay your debts, not whether you are an easy target for making money on interest and penalties associated with failing to repay debts in full. The fact that you make your payments on time will definitely not lower your credit rating. While the banks are not making as much money on you as they would if you carried a balance, they are also not spending a lot of money on you, nor losing a lot of money on people like you failing to repay debts. The transactions charged to the retailers cover the costs of operating your card and then a little bit. That is enough to make you worth keeping as a customer. They are happy with your arrangement. The formula for credit rating computation is proprietary, but we know what the factors are overall. Making payments on time consistently is a positive, not a negative factor. However, they do look at the number of cards and overall mix of cards and other types of debt. For example, if you have a very large amount of credit capacity in your cards and no mortgage, that could possibly be a negative. If you have opened some of those accounts recently, it could be a negative. If you have a larger number credit cards than they think is good, that could be a negative. There are other things as well that could be bringing your score down. Probably worth it to take a look. If you want to get an idea of what factors are adding positively and negatively to your credit score, I'd encourage you to visit CreditKarma.com, Quizzle.com, or another source intended to help you understand and improve your credit rating.","\"The weird thing is that if you use the credit impact simulators with the credit monitoring services, they show that the impact of paying your credit cards off completely is more negative than carrying a small balance, which doesn't make a great deal of sense, one would think. From what I can gather, the rationale is that carrying a small balance shows you making payments over time, as opposed to having a zero balance. This doesn't quite compute with me, but I don't truly understand the inner workings of the scoring models. To confirm this, I used simulators with both TransUnion and Experian, and both showed this. I know that it's easy to find people on both sides of this argument, so I can't say which is the best option (certainly whichever side someone falls on is the one they'll argue is the right one! chuckle). In all fairness, your best tool is time. The effects of your prior bad decisions will lessen over time as they move further away in your history and then disappear altogether. Obtaining a credit card just because you think you need one is not a compelling argument, by any means. If you can't rationalize reasons why you need it then maybe you should question the wisdom of such a decision. If you don't have a particular need for better credit right now, why be in a hurry to take on debt? Whatever the formulas are for calculating credit scores, the specific details are a pretty closely-guarded secret (they're proprietary for starters, plus it theoretically prevents people from \"\"gaming the system\"\" for a better score), but if you do enough research online, you can get a pretty good sense of how they work in general. Whatever you do with your credit should be in line with your overall financial goals. If you want to remain debt-free (at least for now) then having a credit card you can't otherwise justify a need for just introduces temptations which could prove tough to resist (\"\"wants\"\" quickly turn into \"\"needs\"\" when you can put it on a card you pay later), then you're right back in the same place you were earlier in your life. Instead of trying to figure out the \"\"best strategy\"\" for a credit card, first ask yourself how necessary it is to you right now in light of your financial objectives, then go from there. I hope this helps. Good luck!\"","Paying weekly to be able to have maneuver room under your credit limit is a way to handle low credit limits. Doing it to boost your credit score when you have no immediate need for a loan is wasting energy. A few months in advance of buying a car or house, you can start to worry about your utilization rate. When you apply for the loan they will pull your credit file, and that will lock in your utilization rates. Then make sure that you pay the balance quickly, and if you need to make a big purchase pay the bill before the account closes for the month. Keep in mind that if you pay the balance every month the highest utilization rate will occur the day the payment is due. This is because it not only has all the purchases from the previous bill, but all the purchases you have made since that bill closed. For example if you have a credit limit of 10K and you spend 2K a month on the credit card, on the day the payment is due it is not unusual to see the total owed to be above 3K. If they pulled your file on that day, your utilization rate would appear to be above 30%.","5% cashback? Wow. No, this would not generally affect your credit rating. You aren't altering anything that is generally tracked by the credit rating agencies. You put a purchase on your credit card which temporarily increases your utilisation, but then immediately pay it off, leaving your utilisation practically unchanged.","This can make a difference of a few points. When your balance is reported on a monthly basis to the bureaus that current balance is used to determine your utilization. Keeping it paid down will help in this case. If you are monitoring your credit regularly, you can see what time of the month your balance is reported and pay before then (just make sure you include enough padding to be sure your payment clears before the reporting date--normally only a business day or so, but weekends can throw it all off).","Banks only send your balance to credit bureaus once a month; usually a few days after your statement date. Thus, as long as your usage is below 10% in that date range, you're ok. Regarding paying it off early: sure. Every Sunday night, I pay our cards' charges from the previous week. (The internet makes this too easy.)","I do this all the time, my credit rating over time plotted on a graph looks like saw blades going upward on a slope I use a credit alert service to get my credit reports quarterly, and I know when the credit agencies update their files (every three months), so I never have a high balance at those particular times Basically, I use the negative hard pulls to propel my credit score upwards with a the consequentially lowered credit utilization ratio, and the credit history. So here is how it works for me, but I am not an impulse buyer and I wouldn't recommend it for most people as I have seen spending habits: Month 1: charge cards, pay minimum balance (raises score multiple points) Month 2: PAY OFF ALL CREDIT CARDS, massive deleveraging using actual money I already have (raises score multiple points) Month 3: get credit report showing low balance, charge cards, pay minimum balance ask for extensions of credit, AND followup on new credit line offers (lowers score several points per credit inquiry) Month 4: charge cards, pay minimum balance, discretionally approving hard pulls - always have room for one or two random hard pulls, such as for a new cell phone contract, or renting a car, or employment, etc Month 5: PAY OFF CREDIT CARDS using actual money you have. (the trick is to NEVER really go above a 15% credit utilization ratio, and to never overleverage. Tricky because very quickly you will get enough credit to go bankrupt) Month 6: get credit report showing low balances, a slight dip in score from last quarter, but still high continue.","Short-term it will not help, it will actually hurt your credit score. Long-term, it will help for a couple of reasons: The mix that others refer to is mortgage and auto loans which do not count as revolving credit. A mortgage will help more than a credit card in this case, but may not make sense in your circumstances.","It does not matter. Your credit score is affected by late payments, by credit usage and by age of credit. DO NOT PAY LATE. Paying early is only good in that it means you don't pay late. Your credit usage is calculated by percentage of the credit you have that you actually use. Keep your usage to under 20% of your limit and you look great as a credit risk as you have lots of buffer.","\"This does not directly address the question, but how the Bank views your behaviour is not the same as a credit reporting bureau. If you do not \"\"go deep\"\" on your card at all, you may be deemed not to be exercising the facility, indeed they may ask you to reduce your credit limit. This is not the same as \"\"missing a payment\"\". At the same time, do not just make the minimum payment. Ideally you should clear it within 3 months. Think of it as a very short term line of credit. Not clearing the balance within three months (or turning it over) demonstrates a cash flow problem, as does clearing it from another card. Some banks call this \"\"kite flying\"\" after similar behaviour in older days with cheque accounts. If you use the credit and show you can pay it off, you should never need to ask for a credit increase, it will be offered. The Bureau will be informed of these offers. Also, depending upon how much the bank trusts you, the Bureau may see a \"\"monthly\"\" periodic credit review, which is good if you have no delinquencies. Amex does this as a rule.\"","Since recent changes to credit scoring (July 2017) it may not be necassary to do this, as more emphasis is placed on having a timely payment history and less emphasis is placed on having a low credit utilization ratio. Using what’s known as trended data is the biggest change. The phrase means credit scores will take into account the trajectory of a borrower’s debts on a month-to-month basis. In fact, having a low credit utilization ratio may even negatively effect you (if your available credit line value is high): ... VantageScore will now mark a borrower negatively for having excessively large credit card limits, on the theory that the person could run up a high credit card debt quickly. Those who have prime credit scores may be hurt the most, since they are most likely to have multiple cards open. But those who like to play the credit card rewards program points game could be affected as well. source","Is it possible to pay off my balance more than once in a payment period in order to increase the amount I can spend in a payment period? Yes you can pay off the balance more than once even if its not due. This will get applied to outstanding and you will be able to spend again. If so, is there a reason not to do this? There is no harm. However note that it generally takes 2-3 days for the credit to be applied to the card. Hence factor this in before you make new purchases. I just got a credit card to start rebuilding my credit. Spending close to you credit limit does not help much; compared to spending less than 10% of your credit limit. So the sooner you get your limit on card increased the better.","The effect on your credit score would be a positive one. If you have plenty of money now then pay off the balance each month. If you are very disciplined and can pay off the balance each month you could stop using your debit card to make daily purchases and use your credit card instead. That way you can keep your money in an interest bearing account all month and pay the bill in full when it comes due.","\"This question has been absolutely perplexing to me. It has spawned a few heated debates amongst fellow colleagues and friends. My laymen understanding has provided me with what I believe to be a simple answer to the originator's question. I'm trying to use common sense here; so be gentle. FICO scores, while very complex and mysterious, are speculatively calculated from data derived from things like length of credit history, utilization, types of credit, payment history, etc. Only a select few know the actual algorithms (closely guarded secrets?). Are these really secrets? I don't know but it's the word on the street so I'm going with it! Creditors report data to these agencies on certain dates- weekly, monthly or annually. These dates may be ascertained by simply calling the respective creditor and asking. Making sure that revolving credit accounts are paid in full during the creditors \"\"data dump\"\" may or may not have a positive impact on ones FICO score. A zero balance reported every time on a certain account may appear to be inactive depending on how the algorithm has been written and vice versa; utilization and payment history may outweigh the negativity that a constantly zero balance could imply. Oh Lord, did that last sentence just come out of my head? I reread it four times just make sure it makes sense. My personal experience with revolving credit and FICO I was professionally advised to: Without any other life changing credit instances- just using the credit card in this fashion- my FICO score increased by 44 points. I did end up paying a little in interest but it was well worth it. Top tier feels great! In conclusion I would say that the answer to this question is not cut and dry as so many would imply. HMMMMM\"","Great question. First, my recommendation would be for you to get a card that does not have a yearly fee. There are many credit cards out there that provide cash back on your purchases or points to redeem for gift cards or other items. Be sure to cancel the credit card that you have now so you don't forget about that yearly fee. Canceling will have a temporary impact on your credit score if the credit card is your longest held line of credit. Second, it is recommended not to use more than 20% of all the available credit, staying above that line can affect your credit score. I think that is what you are hearing about running up large balances on your credit card. If you are worried about staying below the 20% line, you can always request a larger line of credit. Just keep paying it off each month though and you will be fine. You already have a history of credit if you have begun paying off your student loans.","Doubtful. But even if it does, it would be by a minuscule amount and would be a temporary bump. I find it hard to believe that such a small and short term impact on your credit would outweigh the savings in interest charges.","I think you got the message mixed up a little: Racking up big balances can hurt your scores, regardless of whether you pay your bills in full each month. What's typically reported to the credit bureaus, and thus calculated into your scores, are the balances reported on your last statements. (That doesn't mean paying off your balances each month isn't financially smart -- it is -- just that the credit scores don't care.) You typically can increase your scores by limiting your charges to 30% or less of a card's limit. -- from 7 Ways to Fix Your Credit Score In other words, ALWAYS pay off your balance if you can. But don't fill up your card to the max of your credit limit each month. i.e. if your credit limit is $5000, only spend $2000 each month.","Utilization is near real-time. What that means is that what is reported is what is taken in terms of debt-to-income (DTI) ratios. When a mortgage broker pulls your credit, they will pull the latest balances with the minimum payments. This is what is taken to determine DTI along with your gross monthly income. If you do not pay your account in full before the statement date, then you more than likely will have to wait an additional statement cycle before it reports to the credit bureaus. Therefore, your utilization is dynamic and the history of your utilization month-to-month is not recorded forever. Only the current balance. What is maintained and reported is your payment history. So you want to never be late if you want to be approved anytime soon for a mortgage. A lower DTI will not help your interest rate. As long as you stay away from the maximum DTI for the mortgage vehicle you are attempting to be approved for (VA, FHA, Conventional, etc), then your DTI should not be a concern. If you are borderline at the time of underwriting, you can take the opportunity and pay off the balances. The mortgage company can then do what is called a credit supplement which entails contacting those lenders where you have proven you have a zero balance and manually input the zero balance cards, that have not yet reported to the bureaus, in your final application to the mortgage company for underwriting approval.","I can think of one short-term solution: lower your debt-to-credit ratio. Even if you pay off your credit card before the due date, the balance you owe is registered as a debt on your credit score for that statement period. If you pay off your balance before the statement period closes, the amount will be zero. Debt-to-credit ratio is one of highest impact factors used in computing the credit score. The dip from the hard pull should be only temporary. Additionally, there are different FICO scoring models that lenders use, which can provide significant variance. Once your score is in the mid 700s, however, that and sufficient income should be sufficient for a prime-rate loan, credit card, or other service for which the credit score is relevant.","To add to what others have said, INSTALLMENT CREDIT is a stronger factor when building credit. An installment credit is essentially a loan with a fixed repay amount such as a student loan and a car loan. Banks (when it comes to buying your first home) want to see that you are financially able to repay a big debt (car loan). But be careful, if you cannot pay cash, you cannot afford it. My rule of thumb is that when I'm charging something to my CC, I MUST pay it off when it posts to my account. I just became debt free (paid off about 15k in CC and student loan debt in 18 months) and I love it.","\"Curious, why are you interested in building/improving your credit score? Is it better to use your card and pay off the bill completely every month? Yes. How is credit utiltization calculated? Is it average utilization over the month, or total amount owed/credit_limit per month? It depends on how often your bank reports your balances to the reporting agencies. It can be daily, when your statement cycle closes, or some other interval. How does credit utilization affect your score? Closest to zero without actually being zero is best. This translates to making some charges, even $1 so your statement shows a balance each statement that you pay off. This shows as active use. If you pay off your balance before the statement closes, then it can sometimes be reported as inactive/unused. Is too much a bad thing? Yes. Is too little a bad thing? Depends. Being debt free has its advantages... but if your goal is to raise your credit score, then having a low utilization rate is a good metric. Less than 7% utilization seems to be the optimal level. \"\"Last year we started using a number, not as a recommendation, but as a fact that most of the people with really high FICO scores have credit utilization rates that are 7 percent or lower,\"\" Watts said. Read more: http://www.bankrate.com/finance/credit-cards/how-to-bump-up-your-credit-score.aspx Remember that on-time payment is the most important factor. Second is how much you owe. Third is length of credit history. Maintain these factors in good standing and you will improve your score: http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx\"","The only time the utilization percentage makes a difference is when the data is being pulled for a credit check. During the months leading up to the loan application through the settlement date of the loan keeping this percentage low makes sense. The number reported is the current value of the ratio not an average. You can pre-fund the credit card but don't go overboard. If you keep a negative balance (lets say they owe you $100) for a few months they may decide to send you a check for the balance they owe you.","\"I always hesitate to provide an answer to \"\"how does this affect my credit score?\"\" questions, because the credit agencies do not publish their formulas and the formulas do change over time. And many others have done more reverse engineering than I to figure out what factors do affect the scores. To some extent, there is no way to know other than to get your credit score and track it over time. (The credit report will tell you what the largest negative factors are.) However, let me make my prediction. You have credit, you aren't using a large percentage of it, and don't have defaults/late payments. So, yes, I think it would help your credit score and would build a history of credit. Since this is so unusual, this is just an educated guess.\"","In addition to the already good answers: I am assuming you are playing a long game and have no specific need for a high credit score in the next couple of years. This list is just good practice that will raise you score.","This works even better when you have a good credit score when you want to arbitrarily inflate it for bragging rights or lowest interest rates, I'm only pointing this out because it has nothing to do with your current score and CK's recommendation. The presence of an installment loans is 10% of your credit score, according to some credit scoring models. So theoretically someone with a solid 720 score could gain 72 points, while someone with a 480 score would only gain 48 points. But the scores are weighted so you wouldn't get that kind out outcome regardless, it will have less of an impact. You can do this, amongst other things, but if that installment loan alters your utilization of credit it will more greatly lower your score, and the hard inquiry to apply for the loan will also temporarily hurt your score and you also might not be approved. These are the things to consider (but fortunately utilization has no history). Yes you can pay the loan off with a monthly payment. The loan's interest will cost slightly more than the monthly payments, by the end of the loan term. I've done this with a 5 year $500 installment loan at a credit union. As others pointed out, you don't have to spend money to raise your credit score (unnecessary interest, in this case), but you certainly can!","A few things for you to consider: (1) Yes, if your average daily balance is lower [because you paid it off when you received your paycheck, then slowly used the card for the remainder of the month, until it's at the same balance next paycheck, vs just having the card at a flat $5k the whole month], you will accrue less interest, thereby allowing you to pay it off faster by reducing your interest payments. BUT: (2) Carrying a balance on your credit card is a big financial no-no, and eliminating it should be an immediate priority for you. If there is anything you can do (step 1: budget your expenses and then track actuals to see where you stand - step 2: see what expenses you can reduce - step 3: see if you can increase your income - step 4: rebudget with your new goals, determine how long it would take to pay off the card, possibly considering consolidating/refinancing your debt at a lower interest rate) to pay it off faster, then do it. However (3) If you have absolutely zero cash on hand, then taking your paycheck and immediately paying down your credit card, and then relying on that card to pay for things until the next paycheck, puts you at risk of your available credit changing. ie: if you have 5k on the card, and pay it down to 4.25k, then what happens to you if the credit card company [because they view you as a risk, or for whatever other reason - including a temporary hold because of fraudulent activity at no fault of your own] reduces your available credit to 4.5k? Suddenly, you will only have $250 in available spending power until your next paycheck. Therefore it may be wise for you to hold onto some amount of cash that you do not touch except for emergencies, even before you pay off your credit card. I really recommend you search this site for other questions related to budgeting and credit cards. There are many good answers, and some of what I've said above is just opinion, so you shouldn't just take my word for it, you should try to become familiar with these topics yourself. Good luck!","I am going to break rank slightly with the consensus so far. Here's the deal, it probably DOES help your credit slightly to pay it multiple times per month if it isn't a hassle, but the bump is likely to be minimal and very temporary. Here's why: A key component of your score is your credit usage ratio. That is the ratio of how much of your credit limits you are using. You want to keep this number down as low as possible. Now here is where it gets tricky. Although you have a grace period to pay off your card with no interest, the credit card companies don't generally report the balance as of the due date. They either report the high balance or an average balance over the month. That is, it is based on how much you use, not how much balance you carry over each month. It isn't very intuitive, but that's just how it is. So technically, keeping that balance lower over the course of the month WILL probably help you, but the credit usage ratio is generally a rolling average over the last x months, so the effect will wear off quickly. So it is probably not worth doing unless you know you are going to apply for a loan in the next 6 months and need a temporary, small bump. Another consideration is that paying early provides no real financial benefit in terms of finance charges, but you are giving up liquidity which does have some value. 1) You probably could get at least a little interest for keeping the money in your account a few more weeks. 2) If you have a major financial emergency, e.g. broken down car, you might appreciate the fact that you kept your options open to carry that balance over a month.","You should pay things off every month. You don't want to be paying 10%-25% interest if you don't have to. If you regularly use you card, the credit agencies can't tell the difference. The way it works is that every month, they send the credit agencies your current balance and if you paid the last bill on time. There is nothing that indicates if this is a standing balance, or if you charged all of it since the last payment. Any business that you legitimately owe a debt to can report that to the credit agencies. Not all of them do. This includes utilities, cell phone companies, landlords, etc. If any of them report overdue items it will show up on your credit report, and your credit card company can use that to raise you interest rate. Some cards will automatically raise you credit limit. They are basically looking to make money fro you. If you often charge near the limit, and pay the minimum balance each month, they may raise your limit to get you to charge more, and pay more interest. You can also call them and ask. They have some internal rules to decide if, based on your history with them and your credit history, if you are a good risk.","In six months, there is little you can do that will significantly affect your future credit rating other than trying to avoid paying for something by leaving the country. As we keep telling people, the best things you can do for your credit rating are to have a good income and Don't Be Stupid about misusing credit.","MrChrister's answer is just plain wrong. Your history of carrying debt or paying interest has nothing to do with your credit score. The biggest factors are payment history, debt to available credit ratio and length of credit history. If you have active credit accounts for 5 years, have 10-15k in limits on credit cards and put gas and groceries on a credit card that is paid in full each month, you'll have a top notch credit rating. There is no way to tell from a credit report whether you carry a balance for pay in full. Anyone who gets into debt to improve a credit score is ignorant of the process. If you have bad credit, here's how you improve it:","What the other's said is right. You build credit by paying over time. Keeping your balance under the halfway mark of your limit and paying it down over the course of a fair amount of periods yields the best results. So if you have a limit of $1500 then charge a $600 credit and pay $100+ interest over 6 months. Best yet are loans with fix installments. This behavior tells the credit agencies you are responsible and you pay your debts. In their eyes you are a low risk high ROI, statistically speaking.","The right answer is use it, but use it responsibly. The point of the credit report is to prove to potential creditors that you are a responsible person who pays their bills on time. If you don't use the new credit card, you can't prove that. However, of course there is a limit. If you max out the card, you have only proven that you are irresponsible with credit. Try to stay around 50% of your max limit. More is O.K., but never go over 89%. Always pay your bills on time. Always. Not just this new credit card, but all bills. The best way to ruin your credit is not paying your bills. Even if you are having a dispute with a company, pay the bill anyway to save your credit and then dispute the situation and try to get your money back. Prove to creditors that they can trust you and you'll have an excellent credit score.","Is it possible to pay off my balance more than once in a payment period in order to increase the amount I can spend in a payment period? Yes, but you should only do that if you expect an expense that is larger than your limit allows. Then, provide an extra payment before your expense occurs since it will take longer for the issuer to apply it to the outstanding balance. For instance, when going on holiday you could deposit additional money to increase your balance temporarily. That said if your goal is to improve your credit score I would recommend using the card, staying within your limit and pay it off every month. The 2 largest factors going into calculating your credit score are: By paying off the balance each month you After 6-9 months you can probably get a bigger limit, to improve your score. I wouldn't change to a different card or get a second one, as some issuers will run a check on your creditscore that lowers it temporarily. Also: you're entitled to a free credit report each year. I'd recommend asking for one every year so you can keep track on how your credit score improves. It also gives you the opportunity to check for mistakes on your report. Check here for more information: http://www.myfico.com/crediteducation/whatsinyourscore.aspx","AIUI credit cards report three main things. The potential problem with your strategy is that by pre loading you never actually get a bill and so your provider may not report your payments. Better to wait until the bill comes and then pay it in full. That ensures that your use of the card is properly reported.","The biggest risk is Credit Utilization rate. If you have a total of $10,000 in revolving credit (ie: credit card line) and you ever have more than 50% (or 33% to be conservative) on the card at any time then your credit score will be negatively impacted. This will be a negative impact even if you charge it on day one and pay it off in full on day 2. Doesn't make much sense but credit companies are playing the averages: on average they find that people who get close to maxing their credit limit are in some sort of financial trouble. You're better off to make small purchases each month, under $100, and pay them off right away. That will build a better credit history - and score.","No, it will have no negative impact on getting a mortgage. You are building up a history with regular payments and are not carrying a balance on the card each month. Your ability to get a mortgage will ultimately be based on other things. Money Saving Expert has a good guide on what will affect your credit score. A further discussion on the topic that backs up that what a mortgage company is interested in is affordability and a stable history. They really don't care about utilisation ratios. (Though might be spooked by almost maxed out cards - sign of poor spending control, or large unused limits - too easy to go into bad debt.)","Paying up in full before the statement is posted does not seem a good idea. I feel you should keep some small amount to be posted as a statement balance and pay that in full each month. If you keep your statements as always 0 will give creditors an impression that you have cards and you don't utilize them, so they cant really gauge how you preform being debt, whether you are able to manage your debt well etc. I always keep <100 dollar in every credit card I have to be posted a statement balance. I have >100k credit line over 3 cards. So if I take air ticket to SE Asia runs into 3000$ for my family, I pay 2900.00 a day before statement generates and keep 100 for statement to be posted. pay 100 the next day or as auto debit. This way you have some utilization + lower credit card outstanding at any point make your utilization right in single digits.","Building your credit takes time. The basic idea is pay bills on time, and keep the available credit high. So you spend between 10-30% on the card and pay off in full each month. If you have student loans, once you start paying on those, that will help too, after you get some payment history, but again, it will take time.","\"One of the factors of a credit score is the \"\"length of time revolving accounts have been established\"\". Having a credit card with any line of credit will help in this regard. The account will age regardless of your use or utilization. If you are having issues with credit limits and no credit history, you may have trouble getting financing for the purchase. You should be sure you're approved for financing, and not just that the financing option is \"\"available\"\" (potentially with the caveat of \"\"for well qualified borrowers\"\"). Generally, if you've gotten approved for financing, that will come in the form of another credit card account (many contracting and plumbing companies will do this in hopes you will use the card for future purchases) or a bank loan account (more common for auto and home loans). With the credit card account, you might be able to perform a balance transfer, but there are usually fees associated with that. For bank loan accounts, you probably can't pay that off with a credit card. You'll need to transfer money to the account via ACH or send in a check. In short: I wouldn't bet on paying with your current credit card to get any benefit. IANAL. Utilizing promotional offers, whether interest-free for __ months, no balance transfer fees, or whatever, and passing your debt around is not illegal, not fraudulent, and in many cases advised (this is a link), though that is more for people to distribute utilization across multiple cards, and to minimize interest accrued. Many people, myself included, use a credit card for purchasing EVERYTHING, then pay it off in full every month (or sometimes immediately) to reap the benefit of cash back rewards and other cardholder benefits. I've also made a major payment (tuition, actually) on a Discover card, and opened up a new Visa card with 18-months of no interest and no balance transfer fees to let the bill sit for 12 months while I finished school and got a job.\"","It is COMPLETELY no use to pay earlier (during a billing cycle) to better your credit score! Your credit score gets affected ONLY once a month from each creditor, and that happens when they post your monthly statement. Thus, no matter what you do or pay and how many times a month or how many days earlier than your due date, it has NO EFFECT WHATSOEVER on your score. Anything you do will be reflected only after the statement. What you pay in between those two statements is irrelevant. So, as far as credit score goes IT DOESN'T MATTER. However, if you want to save on interest being charged, it is wise to pay as early as possible, so your balance is as low as possible for day-by-day calculation of your interest.","Ways to build credit without applying for credit cards: It takes some time for these types of actions to positively affect you. I'd say at the very least 6 months. You won't get the full benefit for several years. However, the earlier you get started, the better.","\"1 - yes, it's fine to pay in full and it helps your score. 2 - see chart above, it's calculated based on what the bill shows each month. 3 - answered by chart. 1-19% utilization is ideal. 0% is actually worse than 41-60% Note: The above image was from Credit Karma. A slightly different image appears at the article The Relationship Between Your Credit Score and Credit Card Utilization Rate. I don't know how true this really is. Since writing this answer, I've seen offers of a true \"\"FICO score\"\" from multiple credit cards, and have tinkered with my utilization. I paid my active cards before the reporting date, and saw 845-850 once my utilization hit 0. Credit Karma still has me at 800.\"","Paying on time is the most critical factor. Paying ahead on the loan will not help you from a credit score POV, but it will not hurt you either. In general, to maintain a good credit history, don't bother focusing on credit scores. Frankly, there is very little reason for you to even know what your score is. Just do the following: Lenders want to deal with people with long histories of paying debts back on time.","\"I strongly suggest you look at CreditKarma and see how each aspect of what you are doing impacts your score. Here's my take - There's an anti-credit approach that many have which, to me, is over the top. \"\"Zero cards, zero credit\"\" feels to me like one step shy of \"\"off the grid.\"\" It's so far to the right that it actually is more of an effort than just playing the game a bit. You are depositing to the card frequently to do what you are doing. That takes time and effort. Why not just pay the bill in full each month, and just track purchases so you move the cash to the account in advance, whether that's physical or on paper? In your case, it's the same as charging one item every few months to keep the card active. If that's what you'd like to do, that's fine. I'd just avoid having the card take up too much of your time and thought. (Disclaimer - I've used and written about Credit Karma. I have no business relationship with them, my articles are to help readers, and not paid placement.) mhoran's response is in line with my thinking. His advice to use the card to build your score is what the zero-credit folk criticize as \"\"a great debt score.\"\" Nonsense. If you use debt wisely, you'll never pay interest (except for a mortgage, perhaps) and you may gain rewards with no cost to you.\"","'Perfect' credit would be defined by your credit score. You may have a perfect repayment history, but that is only one factor in your credit score. Paying off a loan early doesn't by itself cause your score to go down. A lack of history, however, will result in a lower score. Lenders use the score because the general consensus is that what you have done in the past is the best indicator of what you will do in the future. In essence, your credit score tells a potential creditor what type of risk they are taking by lending you money. If you have very little history, the risk is not necessarily higher, but it is less predictable, so you have a lower score. These pages explain what makes up your credit score: http://www.myfico.com/credit-education/whats-in-your-credit-score/ https://www.cnbc.com/id/36737279 https://www.creditcards.com/credit-card-news/help/5-parts-components-fico-credit-score-6000.php","\"One of the things that you have to be aware of is a little gotcha in the credit utilization rate. They, or at least the credit company I worked for, used the \"\"high balance\"\" in figuring the credit utilization, not the ending balance. For example, say you had a single card with a $2000 credit limit and used it to charge everything during the month. Say that the high balance was $1900 and you paid it down to zero at the end of the month. The company would calculate your credit utilization at 95%. This is not good and not really fair, but that was the way it was done. Increasing the credit limit helps, but you can also usually make interim payments, say as a paycheck comes in, during the month, if you have an online account.\"","A credit card can be a long running line of credit that will help to boost your FICO score. However if you have student loans, a mortgage, or car payments those will work just as well. If you ever get to the point where you don't have any recent lines of credit, this may eventually end up hurting your score, but until then you really don't need any extras.","No, it won't affect your score until your statement is posted. Paying your bill before your statement is posted is actually a good way to keep your credit utilization low. If you're worried about high credit utilization negatively affecting your credit score, consider paying your bill several times a month to ensure that when your final monthly statement is posted, your utilization is still low. When my credit limit was very low while I was in college, I did this almost every month, and I've seen other sites recommend this practice as well. From creditkarma.com: The easiest way [to lower credit utilization] is to make credit card payments more than once a month so that your balance never gets too high. and creditcards.com: Consider making payments to creditors more than once each month. Otherwise, if you put a major expense -- like a new appliance -- on a credit card, even if you plan to pay it off, your FICO score may take a hit. The reason is that credit scores are calculated as a snapshot in time, so if that happens to be right after you charged a new $700 washing machine, your utilization ratio will look worryingly high. Remember, though, that it's best to have some balance on your card when your statement is posted (assuming you pay it off in full each month), because as the chart shows, 0% utilization is about as bad as utilization > 31-40%: Also, remember that credit utilization affects your credit score in real time, so if you have high utilization one month but a lower utilization the next month, the hit to your score will disappear once a statement with low utilization is posted.","Much money is made by creditors on the transaction value of a client in addition to interest value. Knowing that, I pay off all my cards every month, have never made a late payment, and get a number of offers every year for reward type cards. Don't ever be worried about paying off your card in full, just be sure you're using your card and that you pay on time, every time.","An activity which can help improve your credit score and actually make you money is stoozing. It's a little complicated but can be beneficial to do. Using either a credit card which allows fee free money withdrawals from cashpoints or building up debt using your credit card gives you access to your credit amount. You then use a long term 0% balance transfer card to transfer the debt which you pay off at the minimum rate. It's 0% so no costs are associated except for the initial fee paid for the balance transfer amount. The money that would have been used to pay off the credit amount (or money withdrawn from a cashpoint) can then be deposited in a savings account so you are now earning interest on the credit balance. Continuing to make monthly minimum payments via direct debit will help improve your credit rating and the savings money will earn interest. (it is also available if you suddenly need to pay off the 0% card)","There is a reason - your credit score. If you ever take out a mortgage, you might pay dearly for your behavior. The bank where you have the credit card reports the amount on the bill to the credit rating agencies. If you pay before the bill date, they will always report zero. You should wait at least till the day after the billing cycle ends, and then pay off (you don't need to have the paper bill in your hands - you can see online when the cycle closed). Depending on your other financial behavior, this will have between zero and significant effect, on the percentages you get offered for car loans, mortgages, etc.","One factor you may be missing is that, even if you pay your balance in full each month, the utilization probably won't be zero, since the reporting period isn't usually lined up perfectly with the due date on your payment. In short: Your utilization is not the same thing as how much balance you carry over. My advice would be: don't try carry a balance just to get a minuscule benefit on your credit score (if there is one at all). It is certainly not worth the interest charges you will pay to do so. I think the advice you quoted is a mangled explanation of something that can benefit your credit. Specifically, don't let your cards go unused for long periods of time, which would make your utilization show as zero. At least a few times a year you should actually use those cards, even just a small amount, to make the accounts show that you are utilizing your credit.","Some aspects of your general financial lifestyle make a big difference in your score. Always pay late; declare bankruptcy; have bills go to collection, these will hurt your overall score. Some aspects of your life start with a low score and rise over time: the number of years you have had credit. Some only have short term and transient impacts: what is your utilization rate today; when was your last hard pull. Any agonizing you do over the transient aspects during a period of time when your score doesn't matter, is a waste of energy. If you are looking for a new mortgage, or a another type of loan, then act in a way that will improve your score. But If you see no immediate need then don't sweat the details. If your credit limit is too low for your lifestyle, then ask for it to be increased. Just don't ask for the increase a few days before you put in the auto loan application.","If credit scoring works in the UK like it does in the US, then I think the fact that you own+use a credit card and pay off your everyday expenses will give you perfectly good credit. Just keep doing what you're doing. I have seen people in the United States with very high credit scores based solely upon owning & occasionally using a credit card, paid in full and on time every month.","I too was very confused when I tried to be tricky and paid down my balance BEFORE the bill date. I thought this would be a great thing because it would show my utilization near zero percent. The opposite happen, it dropped my credit score from 762 to 708. Here is the best example I can come up with when it comes to utilization. Lets pretend you are an insurance company and you trying to figure out who are the best risk drivers. The people that drive 10% of the day are a better risk than the people that drive 50% of the day. The people that drive 50% of the day are a better risk than the people that drive 90% of the day. Here is the rub when people drive 0%. When you look at the people at 0% they appear to be walking, busing or flying. What they are NOT doing is driving. Since they are not driving (using Credit) they are viewed as POOR drivers since they are not keeping up on their driving skills. (Paying bills, watching how they spend, and managing their debt). So, now before the billing date I pay down my balance to something between 5 to 10% of my utilization. After the bill is issued, I pay it off in FULL. ( I am not going to PAY these crazy interest rates). What shows up on my credit report is a person that is driving his credit between 5 and 10% utilization. It shows I know I how to manage my revolving accounts. I know it's dumb, you would think they reward people that have zero debt, I don't hate banks I hate the game. ( I do love me some reward points =))","Yes. You can pay towards your credit card before the actual bill becomes due every month. However, your credit usage ratio does not get sent to credit reporting agencies exactly on the day of your bill; this data can be sent to the agencies any day of the month. So, keep your balance low at all times throughout the month, not just right before your statement closing date.","The length of time you have established credit does improve your credit score in the long run. As long as you can avoid paying interest, you might see if you can get a card with cash back rewards. I have one from Citi that sends me a $50 check every so often when I have enough rewards built up.","The best way to use your new credit card to establish credit history is to use it for small-medium purchases and pay it off in full each month. There is no reward for using it more than once a month. If you are getting some sort of rewards for using the credit card to pay your health insurance (air miles, points, etc.), then you could go ahead and use it. Your credit score will take a temporary hit for high utilization. You can actually avoid this by making a partial payment before the end of the billing cycle so that your utilization is never reported as near 100%.","K, welcome to Money.SE. You knew enough to add good tags to the question. Now, you should search on the dozens of questions with those tags to understand (in less than an hour) far more than that banker knows about credit and credit scores. My advice is first, never miss a payment. Ever. The advice your father passed on to you is nonsense, plain and simple. I'm just a few chapters shy of being able to write a book about the incorrect advice I'd heard bank people give their customers. The second bit of advice is that you don't need to pay interest to have credit cards show good payment history. i.e. if you choose to use credit cards, use them for the convenience, cash/rebates, tracking, and guarantees they can offer. Pay in full each bill. Last - use a free service, first, AnnualCreditReport.com to get a copy of your credit report, and then a service like Credit Karma for a simulated FICO score and advice on how to improve it. As member @Agop has commented, Discover (not just for cardholders) offers a look at your actual score, as do a number of other credit cards for members. (By the way, I wouldn't be inclined to discuss this with dad. Most people take offense that you'd believe strangers more than them. Most of the answers here are well documented with links to IRS, etc, and if not, quickly peer-reviewed. When I make a mistake, a top-rated member will correct me within a day, if not just minutes)","\"Patience has never been my strong suit Unfortunately this is what you need to build up credit. The activities that increase your credit score are paying your bills on time and not using too much of the available credit that you do have. The rest (age of accounts, recent pulls, etc.) are short-term indicators that indicate changes in behavior that will make lenders pause and understand what the reasons behind the events are. Also keep in mind that your credit score shouldn't run your life. It should be a passive indicator of your financial habits - not something that you actively manipulate. Is there anything I can do to raise my score without having to take out a loan with interest? Pay your bills on time, and don't take out more credit than you need. You're already in the \"\"excellent\"\" category, so there's no reason to panic or try to manipulate it. Even if you temporarily dip below, if you need to make a big purchase (house), your loan-to-value and debt/income ratio will be much bigger factors in what interest rate you can get. As far as the BofA card goes, if you don't need it, cancel it. It might cause a temporary dip in your credit, but it will go away quickly, and you're better off not having credit cards that you don't need.\"","No. Credit scores are primarily built by doing the following: To build credit, get a few major credit cards and a couple of store cards. Use one of them to make routine purchases like gas and groceries. Pay them on time every month. You're good to go. I would hate to sell stocks to pay off a loan -- try finding a better loan. If you financed through the dealer, try joining a credit union and see if you can get a better rate.","Some credit card rewards programs will not give you rewards for balances paid off early. I have a Capitol One Platinum card, and once paid off the full balance; both the full amount due for the recently ended billing period, and the amount that had accrued for the current billing period. I never received any reward points for the additional amount. Though this sounds like it's paying even earlier than you're talking about.","How will going from 75% Credit Utilization to 0% Credit Utilization affect my credit score? might answer your question if US based. In the US, what counts is what shows on the bill. I've run $20K through a card with a $10K limit, but still ended the month under $2K by making extra payments. As long as you stay ahead of the limit by making mid-cycle payments, I see no issue with this strategy. If you keep running $30K/mo through a card with a $10K limit, the bank will eventually catch this and raise your limit as you will have proven you are more credit worthy.","Always pay on time, and stop listening to whoever is telling you not to -- they are clueless. Credit cards are revolving accounts with a grace period. The balance owed is due on the statement date, and you have a grace period of 20-40 days to pay. Paying bills on time is the single most important thing that you can do to have a good credit score. Always pay on time.","Buy one and use it but never spend more than you can pay off at the end of the month. Also, remember that the length of credit affects your rating too, so don't go canceling cards and/or getting new ones every time a new gimmick comes along.","\"Ironically, the worst financial advice I read comes from \"\"bankers.\"\" The top dozen members here can be trusted to give better advice than the average banker. Your score is not improved by maintaining a balance, only by using the card(s) regularly. No need to carry charges month to month and pay interest, rather, have the bill reflect a 1-9% utilization. I'd recommend Credit Karma to see how the factors affect your score. FICO scoring prefers to see a large number of accounts, low utilization, high average account age, low number of inquiries, no late payments. CK will let you see a simulated score and how it changes based on these variables.\"","Carrying a small balance is generally better for your credit score that paying off in full every month by virtue of the statistics and models that give you a credit score for a certain product. Banks don't want to lend to customers that aren't going to be profitable, in my experience customers who can show that they have credit over time are generally awarded a higher score. So my advice would be to keep a small, manageable balance on the credit card, paying off the balance and then spending a little again on the card to keep at roughly constant balance. This revolving credit is the purpose of the product, and by showing you can use it sensibly, you will be rewarded over time. Source: I build credit scoring models for a big UK lender, specialising in credit cards and personal loan modelling.","I'm really going to go against the crowd here--paying it too fast could be a problem. The thing is you want them reporting that you paid the bill as agreed. To do that you need to pay the bills--which means you need to leave the charges there to get billed for. Paying less than the total is fine, paying as soon as they bill you but before you even get the bill is fine.","I have to second what the poster said above me. The person at the dealership is outright lying to you, and I really don't know where the misconception comes from. I work in finance and specialize in credit. Credit is your ability to repay. Simple as that. To lenders, constant carrying a balance on your credit cards looks like your don't have the ability/discipline to repay your debt and will look bad in the future if you are ever trying to borrow more.","Problems with your plan (in no particular order) there is a limit, once they have decided that you have enough credit they won't offer any more. If the economy changes (like it did in 2008) they can reduce the limit on existing accounts. If you don't use them, they may decide to close them. Using existing cards will encourage the bank to increase the limit on that card. opening cards can make some lenders nervous. Having a new card close to when you are applying for a mortgage or a car loan can make them less likely to lend you the max. You have to decide: Are you trying to buildup your credit limit? or your credit score?","\"My credit Union has a \"\"credit builder\"\" loan, they loan $1000 and put it in a savings account you cant withdraw from and take out automatic payments. That would be better, the whole point of credit is on time payments, but my lender told me the effects on credit would be minimum. Probably best for those with no credit history.\"","If you are planning to get new cards, it is probably best to open the accounts as soon as possible to start establishing a history of good credit use. You might also wish to open multiple accounts so that future lines will have less of an impact on your average age of open credit lines. Since you will probably have higher interest rates it is also advisable never to carry a balance on any of your newly acquired cards. This will prevent a recurrence of the problems you are now trying to recover from.","As long as the fine print permits this, it's a quick 2%. Be careful that your credit score may drop momentarily if you use the credit and for that cycle have high utilization.","It will be considered 'unused credit'. I have tried it yeas ago. They just report zero usage.","12% is ridiculously high and routine for loans with no credit history, esp. from the dealer. I don't think though paying off would hurt your credit - you've already got installment loan on your report, and you have history of payments, so it shouldn't matter how long the history is (warning: this is kind of guesswork compiled from personal experience and stuff read on the net, since officially how credit score calculated is Top Secret). If you have the loan and credit card with good payments, only thing you need to build credit is time (and, of course, keeping everything nicely paid). Of course, if you could find a loan with lower rate somewhere it's be great to refinance but with low credit you would probably not get the best rates from anywhere, unfortunately.","it is better for your credit score to pay them down over time. This is a myth. Will it make much of a difference? You are paying additional interest even though you have the means to pay off the cards completely. Credit score is a dynamic number and it really only matters if you are looking to make a big purchase (vehicle, home), or perhaps auto insurance or employment. Pay off your credit cards, consolidate your debt, and buy yourself a beer with the money you will be saving. :)","Your plan will work to increase your total credit capacity (good for your credit score) and reduce your utilization (also good). As mentioned, you will need to be careful to use these cards periodically or they will get closed, but it will work. The question is whether this will help you or not. In addition to credit capacity and utilization, your credit score looks at things like These factors may hurt you as you continue to open accounts. You can easily get to the stage where your score is not benefitting much from increased capacity and it is getting hurt a lot by pulls and low average age. BTW you are correct that closing accounts generally hurts your score. It probably reduces average age, may reduce maximum age, reduces your capacity, and increases your utilization.","Payment history is probably the most significant contributor to your credit score. Having a solid history of making, at least the minimum, payments on time will have a positive impact on your credit score. Whether or not this specific transaction means anything to that equation is up for debate. If you have no credit lines now and 0% for 18 months on a computer makes sense to you, then yes, making this purchase this way and paying on time will have a positive impact on your credit score. Paying interest doesn't help your credit score. Repay this computer before the 18 month period ends, then be sure to pay your balance in full every month thereafter.","Good credit is calculated (by many lenders) by taking your FICO score which is calculated based upon what is in your credit report. Building credit generally means building up your FICO score. Your FICO score is impacted my many factors, one small one of which is your utilization ratio of your installment loans like student loans. This is the ratio of the current balance to your original balance. To improve your score (slightly) you would want a lower ratio. I would recommend paying your student loan down to 75% ratio as fast as you can and then you can go back to $50/month. A much better way to improve your FICO score is to have revolving credit. Your student loans are not revolving, they are installment loans. Therefore, you should open at least one credit card (assuming you currently have none) right away. The longer you have had a credit card open, the better your FICO score gets. Your revolving credit utilization ratio is way more important than your installment loan ratio. Therefore, to maximize your FICO, try to never have more than 10% utilization on your revolving credit report to the credit bureaus each month. Only the current month's ratio affects your score at any given moment. You can ensure you don't go above 10% by paying your balance before the statement cuts each month to get it below 10% way before any payment would be due. (You should always pay your remaining credit card statement balance in full each month by the due date after the statement cuts to avoid any interest charges.) Note that there is a slight FICO advantage to having at least one major bank credit card instead of just only credit union credit cards. Also, never let all your revolving credit report a zero balance in a month, you must always have at least $1 reporting to the credit bureaus on at least one of your open credit cards or your FICO score will take a big negative hit. If you cannot get a normal credit card, go to a credit union and find one that offers secured credit cards, or a bank that does. A secured credit card is where you place a deposit with the bank that they hold and give you a credit limit to match your security. Ideally it would be a card that graduates to unsecured after your demonstrate good history with them. For example, the Navy Federal Credit Union secured card unsecures for many people. I also believe the Wells Fargo Bank credit card (you can join if there is a family member who served or a roomate who did) also will unsecure. The reason you want it to unsecure and not be forced to open a new account to get an unsecured account is that you want your average age and oldest age of open revolving credit accounts to be as high as possible as this is another impact on your FICO score. Credit unions that anyone can join include, Digital Federal Credit Union, the Pentagon Federal Credit Union (which offers a secured card that does not graduate), and The State Department Federal Credit Union (also offers secured card that I think does not graduate). One other method to boost your FICO score is to get added as an authorized user on one of your parent's credit cards that has been open a long time. Not all lenders will report such an authorized user, however, ones that are known to do so are: Bank of America, Citi Bank, and Capital One. It is a good sign that it will report if they ask for the social security number of the authorized user. However, note that the Authorized User addition can have no impact if the lender is using one of the newer versions of the FICO scoring model, only the older versions reward you for the age of accounts for which you are an authorized user. A very long term boost is to open your first American Express card underwritten directly by Amex such as their Zync card which is pretty easy to get. The advantage of American express is that they remember the date your first credit card was opened with them and if you open new accounts in the future they will back date the date of their opening to match the date your first card was opened. If you let your membership lapse, be sure to record the account number and date opened in your personal files so that you can help them locate it again if you reopen as they can have trouble if it has been on the order of ten years or more. Finally, note that the number of accounts opened in the last twelve months is a small negative mark on your score (along with number of inquiries), so if you open a lot of accounts all at once, in addition to bringing down your average age of accounts, you will also get dinged for how many were opened in the last year.","\"I wrote How Old is Your Credit Card? some time ago. The answer is yes, this helps the credit score, but this factor, age of accounts, is pretty minimal. Grabbing deals, as you did, I'm actually down to a \"\"C\"\" for this part of my score, but still maintain a 770 score.\"","\"If you are the type of person that gets drawn in to \"\"suspect\"\" offers, then it is conceivable that if you are not signing the services offered your credit would be improved as your long term credit strengthens and the number of new lines of credit are reduced. But if you just throw it all away anyway then it is unlikely to help improve your score. But there is no direct impact on your credit score.\"","If you're looking for cause-effect, applying for another card won't matter at all if you're not paying any interest, or not looking to get another installment loan for which the rate you get depends on your credit rating. If you are looking to get another installment loan, then having more credit at your disposal might hurt a small amount. I wouldn't want to cancel your oldest card. The GEMB card looks like a good candidate if you want to cancel because you're not using it, and it's a relatively new card.","\"The simple answer is that what you are doing is an incredible waste of time. The normal process is to charge, say, in January, the bill is cut at month end, and due by the 15th of February. No interest accrues. As long as the credit line is sufficient for your monthly spending, that's it. Now, if you are watching your score closely, utilization might become an issue, if the statement amount is much over 20%, there's an impact to your score. This is easily addressed with a second monthly payment, made just before the bill is cut. Keep in mind, the phrase \"\"carrying a balance\"\" commonly means not paying the bill in full, and letting interest accumulate. I understand you didn't mean that. The way you are paying your account isn't common, and really serves no value.\"","\"The fact that you pay the bill reliably is going to count more for your credit rating than anything else, even if you are paying it off in full every month. Lenders seem to like to see at least one instance where you charged a large balance, held it a couple months, then paid it off in full... but I wouldn't go out of my way to do that. Remember that the credit card company is making money on transaction fees as well as interest. If you're pushing money through their system, they're happy. They'd be happier if you were paying them interest too -- reportedly, they actually refer to those of us who pay in full every month as \"\"deadbeats\"\" -- but they aren't going to kick you out or ding your credit rating for it. The quote you give says that a small balance \"\"may be slightly better\"\". I submit that \"\"may be slightly\"\" is too small a difference to be worth worrying about, unless you have reason to believe that your credit rating actively needs to be repaired. (And as noted in the comments, it's actually stated even less strongly than that!) Personal recommendation: You can get a free credit report each year from each of the \"\"big three\"\" credit rating agencies. Those reports usually include a brief explanation of what they think the most negative item on your record is. The phrasing of those explanations is often somewhat misleading, but I'd still suggest that you get these reports and see what they think would improve your rating. I'm willing to bet it won't be \"\"doesn't carry a high enough debt balance.\"\"\"","\"0% furniture loans can hurt your credit rating. I was told by a bank mortgage officer (sorry I can't cite a document) that credit rating algorithms consider \"\"consumer\"\" loans like 0% appliance loans and certain store-specific credit cards as a negative factor, lowering your overall score. The rationalization given was that that taking that type of credit is an indicator that you have zero cash reserves. The actual algorithms are proprietary, so I don't know how you could verify this. If true, it runs counter to the conventional wisdom that getting credit and then paying it off builds your credit score.\"","Credit cards are meant to be used so generally it doesn't hurt your credit score to use them. To top it off you even get an interest grace period so you don't have to rush home and pay balances as soon as they're charged. In general you accrue charges during your statement period, we'll call it September 1 through September 30. The statement due date is something like 20 days after the close of the statement period, so we'll call it October 20. As long as you habitually pay your entire statement balance by the due date you will never pay interest. You charge your laptop on September 3, it shows up on your statement as $1,300, you pay $1,300 on October 18, you pay no interest. However, if you pay $1,000 on October 18 leaving a $300 balance to be carried in to the next statement period (a carried balance) you will pay interest. Generally interest is calculated based on your average daily balance during the statement period, which is now be the October 1 to October 31 period. You'll notice that you didn't pay anything until the October 18, that means the entire $1,300 will be included in your average daily balance up to the 18th of the month. Add to that, anything else you charge on the card now will be included in your average daily balance for interest charge calculation purposes. The moral of the story is, use your card, and pay your entire statement balance before the due date. Now how much will this impact your credit score? It's tough to say. Utilization is not a bad thing until it's a big number. I've read that 70% utilization and over is really the point at which lenders will raise an eyebrow and under 30% is considered excellent. If you have one card and $1,300 is a significant portion of your available limit, then yes you should probably pay it down quickly. Spend six or so months using the card and paying it, then call your bank and ask for a credit line increase.","How bad would maxing out my credit card once a year affect my score is a related discussion. You shouldn't be using 20%, but rather keep the monthly statement below 20%. If the credit lines add to $5000, charging gas and paying in full each month will help your score (obviously, I assume you don't pay more than $1000/mo for gas). Letting the balance go unpaid month to month means you are paying interest. Probably 18% or more. This is bad."],"string":"[\n \"This is a good idea, but it will barely affect your credit score at all. Credit cards, while a good tool to use for giving a minor boost to your credit score and for purchasing things while also building up rewards with those purchases, aren't very good for building credit. This is because when banks calculate your credit report, they look at your long-term credit history, and weigh larger, longer-term debt much higher than short-term debt that you pay off right away. While having your credit card is better than nothing, it's a relatively small drop in the pond when it comes to credit. I would still recommend getting a credit card though - it will, if you haven't already started paying off a debt like a student or car loan, give you a credit identity and rewards depending on the credit card you choose. But if you do, do not ever let yourself fall into delinquency. Failing to pay off loans will damage your credit score. So if you do plan to get a credit card, it is much better to do as you've said and pay it all off as soon as possible. Edit: In addition to the above, using a credit card has the added benefit of having greater security over Debit cards, and ensures that your own money won't be stolen (though you will still have to report a fraudulent charge).\",\n \"The banks will love you as you pay your debts on time; although they make interest money on people that don't pay full on time, they lose money on those who never pay. In overall, you will be their preferred customer. Also, they make a more than enough money on you using your credit cards, you are basically a nearly risk-free money making machine for them. Aside from those arguments, as a 'proof of concept': I do the same thing for 10+ years and have ~840 rating. You can't get much better.\",\n \"If you pay it off before the cycle closes it will look like you have 100% available credit. So if you credit card statement closes on the 7th pay it off on the 6th in full don't pay it when its due 2/3 weeks later. Then after three months of doing that your credit score will go up based on the fact that your debt ratio is so low. That ratio is 30% of your credit score. It will help quite alot.\",\n \"From what I have heard on Clark Howard if you pay your balance off before the statement's closing date it will help your utilization score. He has had callers confirm this but I don't have first hand knowledge for this to be true. Also this will take two months to make the difference. So it will be boarder line if you will get the benefit in time. Sign up for credit karma if you like. You can get suggestions on how to help your score.\",\n \"Regardless of how it exactly impacts the credit score, the question is does it help improve your credit situation? If the score does go up, but it goes up slowly that was a lot of effort to retard credit score growth. Learning to use a credit card wisely will help you become more financially mature. Start to use the card for a class of purchases: groceries, gas, restaurants. Pick one that won't overwhelm your finances if you lose track of the exact amount you have been charging. You can also use it to pay some utilities or other monthly expenses automatically. As you use the card more often, and you don't overuse it, the credit card company will generally raise your credit limit. This will then help you because that will drop your utilization ratio. Just repeat the process by adding another class of charges to you credit card usage. This expanded use of credit will in the long run help your score. The online systems allow you to see every day what your balance is, thus minimizing surprises.\",\n \"Credit history is built over time, so paying this loan off immediately wouldn’t do much if anything for you. Best thing to do is to start with a low limit credit card and pay it off every month. You’ll build favorable history and avoid interest. Check r/personalfinance for more advice.\",\n \"\\\"Not sure what you mean by \\\"\\\"missing\\\"\\\". Credit card debt can be paid back in full when you get the bill, or you can \\\"\\\"take a loan\\\"\\\" and \\\"\\\"pay in installments\\\"\\\". If you do the latter, and pay back at least the minimum required amount on time, you are not \\\"\\\"missing\\\"\\\" your payment. Technically, you are taking a small, but expensive loan, and if you pay that loan back according to the terms and conditions that apply to your credit card, this is reported to the credit bureau and improves your credit. If you are really \\\"\\\"missing your payment\\\"\\\", paying late (more than a few days), less than minimum or nothing at all, this won't help to improve your credit. A \\\"\\\"first-time offender\\\"\\\" won't always be reported to the credit bureau, but if he is, it won't be a positive report.\\\"\",\n \"\\\"When you say \\\"\\\"promptly paying off the outstanding balance\\\"\\\", do you mean you pay it off literally as soon as you have incurred the debt? It is important to actually let the debt post on a statement before you pay it off. If you pay it off before the statement posts then this won't help your credit at all. Once the statement posts you can pay the entire balance off before the due date and you will still pay no interest. Assuming you are allowing the balance to actually post on your statements, you can simply continue to do this and your credit score will improve over time as your account(s) get older and you show that you are reliable. The only other way to improve your credit score is to open more accounts. In the short term this will actually hurt your score, as it will decrease your average age of account and add an inquiry. However in the mid-long term, this will improve your score as having more accounts of a variety of types is better for your score. Having an installment loan such as an auto loan or home loan is good for your score as it is different from a credit card - however you should definitely not engage in one of these unless it makes financial sense for other reasons. Don't add debt just to build your credit score. You could just open more credit cards. Like I said it will hurt your score in the short term but improve it in the mid-long term. Open cards with a variety of benefits so you can use them for different things to get better rewards.\\\"\",\n \"Absolutely. It's the way credit is calculated. The most important things here are credit utilization (how much of your open credit you're using, the less the better for your score) and and length of open credit. The longer you've had a credit card, the more it helps your score. If you use your card and pay it off before the bill comes, the credit card company still knows you're using the card and won't close it. I recommend you download credit karma so you can track your score and learn more about how credit is calculated.\",\n \"A) The Credit Rating Agencies only look at the month-end totals that are on your credit card, as this is all they ever get from the issuing bank. So a higher usage frequency as described would not make any direct difference to your credit rating. B) The issuing bank will know if you use the credit with the higher frequency, but it probably has little effect on your limit. Typically, after two to three month, they reevaluate your credit limit, and it could go up considerably if you never overdrew (and at this time, it could indirectly positively affect your credit rating). You could consider calling the issuing bank after two month and try to explain the history a bit and get them to increase the limit, but that only makes sense if your credit score has recovered. Your business paperwork could go a long way to convince someone, if you do so well now. C) If your credit rating is still bad, you need to find out why. It should have normalized to a medium range with the bad historic issues dropped.\",\n \"Pay them off immediately. But, as I note in my article Too Little Debt?, a zero utilization is actually a negative hit. So you want to just use the cards to get over 1%. i.e. if the lines add to $38K, just charge say, gas and some groceries, $100/wk. Pay in full every month. It's the amount on the statement that counts, not the amount carried month to month accruing interest, which, I hope is zero for you from now on.\",\n \"If you can use and pay off your credit card in full every month, there are plenty of benefits including improved credit, reward points and more. Many fall into the trap of just making the minimum payments and facing high interest charges or missing payments and getting a hit on their credit reports. To start off, put something small that you know you can pay off every month. It could be your Netflix or your gas. Make sure you pay it off before any interest is accrued. Over time, you can ask for higher limits to boost your utilization rate.\",\n \"Scenario A: get a $60 tank of gas once a month, immediately pay it off when I get home Scenario B: Spend about $300 in $25-$50 increments throughout the month on things like groceries, food, gas, etc, but immediately pay it off every time Would my credit get better and/or faster in Scenario B due to the more use?\",\n \"The answer to your question is no. Your credit rating is the way creditors let each other know whether you are in a good position and have a strong tendency to repay your debts, not whether you are an easy target for making money on interest and penalties associated with failing to repay debts in full. The fact that you make your payments on time will definitely not lower your credit rating. While the banks are not making as much money on you as they would if you carried a balance, they are also not spending a lot of money on you, nor losing a lot of money on people like you failing to repay debts. The transactions charged to the retailers cover the costs of operating your card and then a little bit. That is enough to make you worth keeping as a customer. They are happy with your arrangement. The formula for credit rating computation is proprietary, but we know what the factors are overall. Making payments on time consistently is a positive, not a negative factor. However, they do look at the number of cards and overall mix of cards and other types of debt. For example, if you have a very large amount of credit capacity in your cards and no mortgage, that could possibly be a negative. If you have opened some of those accounts recently, it could be a negative. If you have a larger number credit cards than they think is good, that could be a negative. There are other things as well that could be bringing your score down. Probably worth it to take a look. If you want to get an idea of what factors are adding positively and negatively to your credit score, I'd encourage you to visit CreditKarma.com, Quizzle.com, or another source intended to help you understand and improve your credit rating.\",\n \"\\\"The weird thing is that if you use the credit impact simulators with the credit monitoring services, they show that the impact of paying your credit cards off completely is more negative than carrying a small balance, which doesn't make a great deal of sense, one would think. From what I can gather, the rationale is that carrying a small balance shows you making payments over time, as opposed to having a zero balance. This doesn't quite compute with me, but I don't truly understand the inner workings of the scoring models. To confirm this, I used simulators with both TransUnion and Experian, and both showed this. I know that it's easy to find people on both sides of this argument, so I can't say which is the best option (certainly whichever side someone falls on is the one they'll argue is the right one! chuckle). In all fairness, your best tool is time. The effects of your prior bad decisions will lessen over time as they move further away in your history and then disappear altogether. Obtaining a credit card just because you think you need one is not a compelling argument, by any means. If you can't rationalize reasons why you need it then maybe you should question the wisdom of such a decision. If you don't have a particular need for better credit right now, why be in a hurry to take on debt? Whatever the formulas are for calculating credit scores, the specific details are a pretty closely-guarded secret (they're proprietary for starters, plus it theoretically prevents people from \\\"\\\"gaming the system\\\"\\\" for a better score), but if you do enough research online, you can get a pretty good sense of how they work in general. Whatever you do with your credit should be in line with your overall financial goals. If you want to remain debt-free (at least for now) then having a credit card you can't otherwise justify a need for just introduces temptations which could prove tough to resist (\\\"\\\"wants\\\"\\\" quickly turn into \\\"\\\"needs\\\"\\\" when you can put it on a card you pay later), then you're right back in the same place you were earlier in your life. Instead of trying to figure out the \\\"\\\"best strategy\\\"\\\" for a credit card, first ask yourself how necessary it is to you right now in light of your financial objectives, then go from there. I hope this helps. Good luck!\\\"\",\n \"Paying weekly to be able to have maneuver room under your credit limit is a way to handle low credit limits. Doing it to boost your credit score when you have no immediate need for a loan is wasting energy. A few months in advance of buying a car or house, you can start to worry about your utilization rate. When you apply for the loan they will pull your credit file, and that will lock in your utilization rates. Then make sure that you pay the balance quickly, and if you need to make a big purchase pay the bill before the account closes for the month. Keep in mind that if you pay the balance every month the highest utilization rate will occur the day the payment is due. This is because it not only has all the purchases from the previous bill, but all the purchases you have made since that bill closed. For example if you have a credit limit of 10K and you spend 2K a month on the credit card, on the day the payment is due it is not unusual to see the total owed to be above 3K. If they pulled your file on that day, your utilization rate would appear to be above 30%.\",\n \"5% cashback? Wow. No, this would not generally affect your credit rating. You aren't altering anything that is generally tracked by the credit rating agencies. You put a purchase on your credit card which temporarily increases your utilisation, but then immediately pay it off, leaving your utilisation practically unchanged.\",\n \"This can make a difference of a few points. When your balance is reported on a monthly basis to the bureaus that current balance is used to determine your utilization. Keeping it paid down will help in this case. If you are monitoring your credit regularly, you can see what time of the month your balance is reported and pay before then (just make sure you include enough padding to be sure your payment clears before the reporting date--normally only a business day or so, but weekends can throw it all off).\",\n \"Banks only send your balance to credit bureaus once a month; usually a few days after your statement date. Thus, as long as your usage is below 10% in that date range, you're ok. Regarding paying it off early: sure. Every Sunday night, I pay our cards' charges from the previous week. (The internet makes this too easy.)\",\n \"I do this all the time, my credit rating over time plotted on a graph looks like saw blades going upward on a slope I use a credit alert service to get my credit reports quarterly, and I know when the credit agencies update their files (every three months), so I never have a high balance at those particular times Basically, I use the negative hard pulls to propel my credit score upwards with a the consequentially lowered credit utilization ratio, and the credit history. So here is how it works for me, but I am not an impulse buyer and I wouldn't recommend it for most people as I have seen spending habits: Month 1: charge cards, pay minimum balance (raises score multiple points) Month 2: PAY OFF ALL CREDIT CARDS, massive deleveraging using actual money I already have (raises score multiple points) Month 3: get credit report showing low balance, charge cards, pay minimum balance ask for extensions of credit, AND followup on new credit line offers (lowers score several points per credit inquiry) Month 4: charge cards, pay minimum balance, discretionally approving hard pulls - always have room for one or two random hard pulls, such as for a new cell phone contract, or renting a car, or employment, etc Month 5: PAY OFF CREDIT CARDS using actual money you have. (the trick is to NEVER really go above a 15% credit utilization ratio, and to never overleverage. Tricky because very quickly you will get enough credit to go bankrupt) Month 6: get credit report showing low balances, a slight dip in score from last quarter, but still high continue.\",\n \"Short-term it will not help, it will actually hurt your credit score. Long-term, it will help for a couple of reasons: The mix that others refer to is mortgage and auto loans which do not count as revolving credit. A mortgage will help more than a credit card in this case, but may not make sense in your circumstances.\",\n \"It does not matter. Your credit score is affected by late payments, by credit usage and by age of credit. DO NOT PAY LATE. Paying early is only good in that it means you don't pay late. Your credit usage is calculated by percentage of the credit you have that you actually use. Keep your usage to under 20% of your limit and you look great as a credit risk as you have lots of buffer.\",\n \"\\\"This does not directly address the question, but how the Bank views your behaviour is not the same as a credit reporting bureau. If you do not \\\"\\\"go deep\\\"\\\" on your card at all, you may be deemed not to be exercising the facility, indeed they may ask you to reduce your credit limit. This is not the same as \\\"\\\"missing a payment\\\"\\\". At the same time, do not just make the minimum payment. Ideally you should clear it within 3 months. Think of it as a very short term line of credit. Not clearing the balance within three months (or turning it over) demonstrates a cash flow problem, as does clearing it from another card. Some banks call this \\\"\\\"kite flying\\\"\\\" after similar behaviour in older days with cheque accounts. If you use the credit and show you can pay it off, you should never need to ask for a credit increase, it will be offered. The Bureau will be informed of these offers. Also, depending upon how much the bank trusts you, the Bureau may see a \\\"\\\"monthly\\\"\\\" periodic credit review, which is good if you have no delinquencies. Amex does this as a rule.\\\"\",\n \"Since recent changes to credit scoring (July 2017) it may not be necassary to do this, as more emphasis is placed on having a timely payment history and less emphasis is placed on having a low credit utilization ratio. Using what’s known as trended data is the biggest change. The phrase means credit scores will take into account the trajectory of a borrower’s debts on a month-to-month basis. In fact, having a low credit utilization ratio may even negatively effect you (if your available credit line value is high): ... VantageScore will now mark a borrower negatively for having excessively large credit card limits, on the theory that the person could run up a high credit card debt quickly. Those who have prime credit scores may be hurt the most, since they are most likely to have multiple cards open. But those who like to play the credit card rewards program points game could be affected as well. source\",\n \"Is it possible to pay off my balance more than once in a payment period in order to increase the amount I can spend in a payment period? Yes you can pay off the balance more than once even if its not due. This will get applied to outstanding and you will be able to spend again. If so, is there a reason not to do this? There is no harm. However note that it generally takes 2-3 days for the credit to be applied to the card. Hence factor this in before you make new purchases. I just got a credit card to start rebuilding my credit. Spending close to you credit limit does not help much; compared to spending less than 10% of your credit limit. So the sooner you get your limit on card increased the better.\",\n \"The effect on your credit score would be a positive one. If you have plenty of money now then pay off the balance each month. If you are very disciplined and can pay off the balance each month you could stop using your debit card to make daily purchases and use your credit card instead. That way you can keep your money in an interest bearing account all month and pay the bill in full when it comes due.\",\n \"\\\"This question has been absolutely perplexing to me. It has spawned a few heated debates amongst fellow colleagues and friends. My laymen understanding has provided me with what I believe to be a simple answer to the originator's question. I'm trying to use common sense here; so be gentle. FICO scores, while very complex and mysterious, are speculatively calculated from data derived from things like length of credit history, utilization, types of credit, payment history, etc. Only a select few know the actual algorithms (closely guarded secrets?). Are these really secrets? I don't know but it's the word on the street so I'm going with it! Creditors report data to these agencies on certain dates- weekly, monthly or annually. These dates may be ascertained by simply calling the respective creditor and asking. Making sure that revolving credit accounts are paid in full during the creditors \\\"\\\"data dump\\\"\\\" may or may not have a positive impact on ones FICO score. A zero balance reported every time on a certain account may appear to be inactive depending on how the algorithm has been written and vice versa; utilization and payment history may outweigh the negativity that a constantly zero balance could imply. Oh Lord, did that last sentence just come out of my head? I reread it four times just make sure it makes sense. My personal experience with revolving credit and FICO I was professionally advised to: Without any other life changing credit instances- just using the credit card in this fashion- my FICO score increased by 44 points. I did end up paying a little in interest but it was well worth it. Top tier feels great! In conclusion I would say that the answer to this question is not cut and dry as so many would imply. HMMMMM\\\"\",\n \"Great question. First, my recommendation would be for you to get a card that does not have a yearly fee. There are many credit cards out there that provide cash back on your purchases or points to redeem for gift cards or other items. Be sure to cancel the credit card that you have now so you don't forget about that yearly fee. Canceling will have a temporary impact on your credit score if the credit card is your longest held line of credit. Second, it is recommended not to use more than 20% of all the available credit, staying above that line can affect your credit score. I think that is what you are hearing about running up large balances on your credit card. If you are worried about staying below the 20% line, you can always request a larger line of credit. Just keep paying it off each month though and you will be fine. You already have a history of credit if you have begun paying off your student loans.\",\n \"Doubtful. But even if it does, it would be by a minuscule amount and would be a temporary bump. I find it hard to believe that such a small and short term impact on your credit would outweigh the savings in interest charges.\",\n \"I think you got the message mixed up a little: Racking up big balances can hurt your scores, regardless of whether you pay your bills in full each month. What's typically reported to the credit bureaus, and thus calculated into your scores, are the balances reported on your last statements. (That doesn't mean paying off your balances each month isn't financially smart -- it is -- just that the credit scores don't care.) You typically can increase your scores by limiting your charges to 30% or less of a card's limit. -- from 7 Ways to Fix Your Credit Score In other words, ALWAYS pay off your balance if you can. But don't fill up your card to the max of your credit limit each month. i.e. if your credit limit is $5000, only spend $2000 each month.\",\n \"Utilization is near real-time. What that means is that what is reported is what is taken in terms of debt-to-income (DTI) ratios. When a mortgage broker pulls your credit, they will pull the latest balances with the minimum payments. This is what is taken to determine DTI along with your gross monthly income. If you do not pay your account in full before the statement date, then you more than likely will have to wait an additional statement cycle before it reports to the credit bureaus. Therefore, your utilization is dynamic and the history of your utilization month-to-month is not recorded forever. Only the current balance. What is maintained and reported is your payment history. So you want to never be late if you want to be approved anytime soon for a mortgage. A lower DTI will not help your interest rate. As long as you stay away from the maximum DTI for the mortgage vehicle you are attempting to be approved for (VA, FHA, Conventional, etc), then your DTI should not be a concern. If you are borderline at the time of underwriting, you can take the opportunity and pay off the balances. The mortgage company can then do what is called a credit supplement which entails contacting those lenders where you have proven you have a zero balance and manually input the zero balance cards, that have not yet reported to the bureaus, in your final application to the mortgage company for underwriting approval.\",\n \"I can think of one short-term solution: lower your debt-to-credit ratio. Even if you pay off your credit card before the due date, the balance you owe is registered as a debt on your credit score for that statement period. If you pay off your balance before the statement period closes, the amount will be zero. Debt-to-credit ratio is one of highest impact factors used in computing the credit score. The dip from the hard pull should be only temporary. Additionally, there are different FICO scoring models that lenders use, which can provide significant variance. Once your score is in the mid 700s, however, that and sufficient income should be sufficient for a prime-rate loan, credit card, or other service for which the credit score is relevant.\",\n \"To add to what others have said, INSTALLMENT CREDIT is a stronger factor when building credit. An installment credit is essentially a loan with a fixed repay amount such as a student loan and a car loan. Banks (when it comes to buying your first home) want to see that you are financially able to repay a big debt (car loan). But be careful, if you cannot pay cash, you cannot afford it. My rule of thumb is that when I'm charging something to my CC, I MUST pay it off when it posts to my account. I just became debt free (paid off about 15k in CC and student loan debt in 18 months) and I love it.\",\n \"\\\"Curious, why are you interested in building/improving your credit score? Is it better to use your card and pay off the bill completely every month? Yes. How is credit utiltization calculated? Is it average utilization over the month, or total amount owed/credit_limit per month? It depends on how often your bank reports your balances to the reporting agencies. It can be daily, when your statement cycle closes, or some other interval. How does credit utilization affect your score? Closest to zero without actually being zero is best. This translates to making some charges, even $1 so your statement shows a balance each statement that you pay off. This shows as active use. If you pay off your balance before the statement closes, then it can sometimes be reported as inactive/unused. Is too much a bad thing? Yes. Is too little a bad thing? Depends. Being debt free has its advantages... but if your goal is to raise your credit score, then having a low utilization rate is a good metric. Less than 7% utilization seems to be the optimal level. \\\"\\\"Last year we started using a number, not as a recommendation, but as a fact that most of the people with really high FICO scores have credit utilization rates that are 7 percent or lower,\\\"\\\" Watts said. Read more: http://www.bankrate.com/finance/credit-cards/how-to-bump-up-your-credit-score.aspx Remember that on-time payment is the most important factor. Second is how much you owe. Third is length of credit history. Maintain these factors in good standing and you will improve your score: http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx\\\"\",\n \"The only time the utilization percentage makes a difference is when the data is being pulled for a credit check. During the months leading up to the loan application through the settlement date of the loan keeping this percentage low makes sense. The number reported is the current value of the ratio not an average. You can pre-fund the credit card but don't go overboard. If you keep a negative balance (lets say they owe you $100) for a few months they may decide to send you a check for the balance they owe you.\",\n \"\\\"I always hesitate to provide an answer to \\\"\\\"how does this affect my credit score?\\\"\\\" questions, because the credit agencies do not publish their formulas and the formulas do change over time. And many others have done more reverse engineering than I to figure out what factors do affect the scores. To some extent, there is no way to know other than to get your credit score and track it over time. (The credit report will tell you what the largest negative factors are.) However, let me make my prediction. You have credit, you aren't using a large percentage of it, and don't have defaults/late payments. So, yes, I think it would help your credit score and would build a history of credit. Since this is so unusual, this is just an educated guess.\\\"\",\n \"In addition to the already good answers: I am assuming you are playing a long game and have no specific need for a high credit score in the next couple of years. This list is just good practice that will raise you score.\",\n \"This works even better when you have a good credit score when you want to arbitrarily inflate it for bragging rights or lowest interest rates, I'm only pointing this out because it has nothing to do with your current score and CK's recommendation. The presence of an installment loans is 10% of your credit score, according to some credit scoring models. So theoretically someone with a solid 720 score could gain 72 points, while someone with a 480 score would only gain 48 points. But the scores are weighted so you wouldn't get that kind out outcome regardless, it will have less of an impact. You can do this, amongst other things, but if that installment loan alters your utilization of credit it will more greatly lower your score, and the hard inquiry to apply for the loan will also temporarily hurt your score and you also might not be approved. These are the things to consider (but fortunately utilization has no history). Yes you can pay the loan off with a monthly payment. The loan's interest will cost slightly more than the monthly payments, by the end of the loan term. I've done this with a 5 year $500 installment loan at a credit union. As others pointed out, you don't have to spend money to raise your credit score (unnecessary interest, in this case), but you certainly can!\",\n \"A few things for you to consider: (1) Yes, if your average daily balance is lower [because you paid it off when you received your paycheck, then slowly used the card for the remainder of the month, until it's at the same balance next paycheck, vs just having the card at a flat $5k the whole month], you will accrue less interest, thereby allowing you to pay it off faster by reducing your interest payments. BUT: (2) Carrying a balance on your credit card is a big financial no-no, and eliminating it should be an immediate priority for you. If there is anything you can do (step 1: budget your expenses and then track actuals to see where you stand - step 2: see what expenses you can reduce - step 3: see if you can increase your income - step 4: rebudget with your new goals, determine how long it would take to pay off the card, possibly considering consolidating/refinancing your debt at a lower interest rate) to pay it off faster, then do it. However (3) If you have absolutely zero cash on hand, then taking your paycheck and immediately paying down your credit card, and then relying on that card to pay for things until the next paycheck, puts you at risk of your available credit changing. ie: if you have 5k on the card, and pay it down to 4.25k, then what happens to you if the credit card company [because they view you as a risk, or for whatever other reason - including a temporary hold because of fraudulent activity at no fault of your own] reduces your available credit to 4.5k? Suddenly, you will only have $250 in available spending power until your next paycheck. Therefore it may be wise for you to hold onto some amount of cash that you do not touch except for emergencies, even before you pay off your credit card. I really recommend you search this site for other questions related to budgeting and credit cards. There are many good answers, and some of what I've said above is just opinion, so you shouldn't just take my word for it, you should try to become familiar with these topics yourself. Good luck!\",\n \"I am going to break rank slightly with the consensus so far. Here's the deal, it probably DOES help your credit slightly to pay it multiple times per month if it isn't a hassle, but the bump is likely to be minimal and very temporary. Here's why: A key component of your score is your credit usage ratio. That is the ratio of how much of your credit limits you are using. You want to keep this number down as low as possible. Now here is where it gets tricky. Although you have a grace period to pay off your card with no interest, the credit card companies don't generally report the balance as of the due date. They either report the high balance or an average balance over the month. That is, it is based on how much you use, not how much balance you carry over each month. It isn't very intuitive, but that's just how it is. So technically, keeping that balance lower over the course of the month WILL probably help you, but the credit usage ratio is generally a rolling average over the last x months, so the effect will wear off quickly. So it is probably not worth doing unless you know you are going to apply for a loan in the next 6 months and need a temporary, small bump. Another consideration is that paying early provides no real financial benefit in terms of finance charges, but you are giving up liquidity which does have some value. 1) You probably could get at least a little interest for keeping the money in your account a few more weeks. 2) If you have a major financial emergency, e.g. broken down car, you might appreciate the fact that you kept your options open to carry that balance over a month.\",\n \"You should pay things off every month. You don't want to be paying 10%-25% interest if you don't have to. If you regularly use you card, the credit agencies can't tell the difference. The way it works is that every month, they send the credit agencies your current balance and if you paid the last bill on time. There is nothing that indicates if this is a standing balance, or if you charged all of it since the last payment. Any business that you legitimately owe a debt to can report that to the credit agencies. Not all of them do. This includes utilities, cell phone companies, landlords, etc. If any of them report overdue items it will show up on your credit report, and your credit card company can use that to raise you interest rate. Some cards will automatically raise you credit limit. They are basically looking to make money fro you. If you often charge near the limit, and pay the minimum balance each month, they may raise your limit to get you to charge more, and pay more interest. You can also call them and ask. They have some internal rules to decide if, based on your history with them and your credit history, if you are a good risk.\",\n \"In six months, there is little you can do that will significantly affect your future credit rating other than trying to avoid paying for something by leaving the country. As we keep telling people, the best things you can do for your credit rating are to have a good income and Don't Be Stupid about misusing credit.\",\n \"MrChrister's answer is just plain wrong. Your history of carrying debt or paying interest has nothing to do with your credit score. The biggest factors are payment history, debt to available credit ratio and length of credit history. If you have active credit accounts for 5 years, have 10-15k in limits on credit cards and put gas and groceries on a credit card that is paid in full each month, you'll have a top notch credit rating. There is no way to tell from a credit report whether you carry a balance for pay in full. Anyone who gets into debt to improve a credit score is ignorant of the process. If you have bad credit, here's how you improve it:\",\n \"What the other's said is right. You build credit by paying over time. Keeping your balance under the halfway mark of your limit and paying it down over the course of a fair amount of periods yields the best results. So if you have a limit of $1500 then charge a $600 credit and pay $100+ interest over 6 months. Best yet are loans with fix installments. This behavior tells the credit agencies you are responsible and you pay your debts. In their eyes you are a low risk high ROI, statistically speaking.\",\n \"The right answer is use it, but use it responsibly. The point of the credit report is to prove to potential creditors that you are a responsible person who pays their bills on time. If you don't use the new credit card, you can't prove that. However, of course there is a limit. If you max out the card, you have only proven that you are irresponsible with credit. Try to stay around 50% of your max limit. More is O.K., but never go over 89%. Always pay your bills on time. Always. Not just this new credit card, but all bills. The best way to ruin your credit is not paying your bills. Even if you are having a dispute with a company, pay the bill anyway to save your credit and then dispute the situation and try to get your money back. Prove to creditors that they can trust you and you'll have an excellent credit score.\",\n \"Is it possible to pay off my balance more than once in a payment period in order to increase the amount I can spend in a payment period? Yes, but you should only do that if you expect an expense that is larger than your limit allows. Then, provide an extra payment before your expense occurs since it will take longer for the issuer to apply it to the outstanding balance. For instance, when going on holiday you could deposit additional money to increase your balance temporarily. That said if your goal is to improve your credit score I would recommend using the card, staying within your limit and pay it off every month. The 2 largest factors going into calculating your credit score are: By paying off the balance each month you After 6-9 months you can probably get a bigger limit, to improve your score. I wouldn't change to a different card or get a second one, as some issuers will run a check on your creditscore that lowers it temporarily. Also: you're entitled to a free credit report each year. I'd recommend asking for one every year so you can keep track on how your credit score improves. It also gives you the opportunity to check for mistakes on your report. Check here for more information: http://www.myfico.com/crediteducation/whatsinyourscore.aspx\",\n \"AIUI credit cards report three main things. The potential problem with your strategy is that by pre loading you never actually get a bill and so your provider may not report your payments. Better to wait until the bill comes and then pay it in full. That ensures that your use of the card is properly reported.\",\n \"The biggest risk is Credit Utilization rate. If you have a total of $10,000 in revolving credit (ie: credit card line) and you ever have more than 50% (or 33% to be conservative) on the card at any time then your credit score will be negatively impacted. This will be a negative impact even if you charge it on day one and pay it off in full on day 2. Doesn't make much sense but credit companies are playing the averages: on average they find that people who get close to maxing their credit limit are in some sort of financial trouble. You're better off to make small purchases each month, under $100, and pay them off right away. That will build a better credit history - and score.\",\n \"No, it will have no negative impact on getting a mortgage. You are building up a history with regular payments and are not carrying a balance on the card each month. Your ability to get a mortgage will ultimately be based on other things. Money Saving Expert has a good guide on what will affect your credit score. A further discussion on the topic that backs up that what a mortgage company is interested in is affordability and a stable history. They really don't care about utilisation ratios. (Though might be spooked by almost maxed out cards - sign of poor spending control, or large unused limits - too easy to go into bad debt.)\",\n \"Paying up in full before the statement is posted does not seem a good idea. I feel you should keep some small amount to be posted as a statement balance and pay that in full each month. If you keep your statements as always 0 will give creditors an impression that you have cards and you don't utilize them, so they cant really gauge how you preform being debt, whether you are able to manage your debt well etc. I always keep <100 dollar in every credit card I have to be posted a statement balance. I have >100k credit line over 3 cards. So if I take air ticket to SE Asia runs into 3000$ for my family, I pay 2900.00 a day before statement generates and keep 100 for statement to be posted. pay 100 the next day or as auto debit. This way you have some utilization + lower credit card outstanding at any point make your utilization right in single digits.\",\n \"Building your credit takes time. The basic idea is pay bills on time, and keep the available credit high. So you spend between 10-30% on the card and pay off in full each month. If you have student loans, once you start paying on those, that will help too, after you get some payment history, but again, it will take time.\",\n \"\\\"One of the factors of a credit score is the \\\"\\\"length of time revolving accounts have been established\\\"\\\". Having a credit card with any line of credit will help in this regard. The account will age regardless of your use or utilization. If you are having issues with credit limits and no credit history, you may have trouble getting financing for the purchase. You should be sure you're approved for financing, and not just that the financing option is \\\"\\\"available\\\"\\\" (potentially with the caveat of \\\"\\\"for well qualified borrowers\\\"\\\"). Generally, if you've gotten approved for financing, that will come in the form of another credit card account (many contracting and plumbing companies will do this in hopes you will use the card for future purchases) or a bank loan account (more common for auto and home loans). With the credit card account, you might be able to perform a balance transfer, but there are usually fees associated with that. For bank loan accounts, you probably can't pay that off with a credit card. You'll need to transfer money to the account via ACH or send in a check. In short: I wouldn't bet on paying with your current credit card to get any benefit. IANAL. Utilizing promotional offers, whether interest-free for __ months, no balance transfer fees, or whatever, and passing your debt around is not illegal, not fraudulent, and in many cases advised (this is a link), though that is more for people to distribute utilization across multiple cards, and to minimize interest accrued. Many people, myself included, use a credit card for purchasing EVERYTHING, then pay it off in full every month (or sometimes immediately) to reap the benefit of cash back rewards and other cardholder benefits. I've also made a major payment (tuition, actually) on a Discover card, and opened up a new Visa card with 18-months of no interest and no balance transfer fees to let the bill sit for 12 months while I finished school and got a job.\\\"\",\n \"It is COMPLETELY no use to pay earlier (during a billing cycle) to better your credit score! Your credit score gets affected ONLY once a month from each creditor, and that happens when they post your monthly statement. Thus, no matter what you do or pay and how many times a month or how many days earlier than your due date, it has NO EFFECT WHATSOEVER on your score. Anything you do will be reflected only after the statement. What you pay in between those two statements is irrelevant. So, as far as credit score goes IT DOESN'T MATTER. However, if you want to save on interest being charged, it is wise to pay as early as possible, so your balance is as low as possible for day-by-day calculation of your interest.\",\n \"Ways to build credit without applying for credit cards: It takes some time for these types of actions to positively affect you. I'd say at the very least 6 months. You won't get the full benefit for several years. However, the earlier you get started, the better.\",\n \"\\\"1 - yes, it's fine to pay in full and it helps your score. 2 - see chart above, it's calculated based on what the bill shows each month. 3 - answered by chart. 1-19% utilization is ideal. 0% is actually worse than 41-60% Note: The above image was from Credit Karma. A slightly different image appears at the article The Relationship Between Your Credit Score and Credit Card Utilization Rate. I don't know how true this really is. Since writing this answer, I've seen offers of a true \\\"\\\"FICO score\\\"\\\" from multiple credit cards, and have tinkered with my utilization. I paid my active cards before the reporting date, and saw 845-850 once my utilization hit 0. Credit Karma still has me at 800.\\\"\",\n \"Paying on time is the most critical factor. Paying ahead on the loan will not help you from a credit score POV, but it will not hurt you either. In general, to maintain a good credit history, don't bother focusing on credit scores. Frankly, there is very little reason for you to even know what your score is. Just do the following: Lenders want to deal with people with long histories of paying debts back on time.\",\n \"\\\"I strongly suggest you look at CreditKarma and see how each aspect of what you are doing impacts your score. Here's my take - There's an anti-credit approach that many have which, to me, is over the top. \\\"\\\"Zero cards, zero credit\\\"\\\" feels to me like one step shy of \\\"\\\"off the grid.\\\"\\\" It's so far to the right that it actually is more of an effort than just playing the game a bit. You are depositing to the card frequently to do what you are doing. That takes time and effort. Why not just pay the bill in full each month, and just track purchases so you move the cash to the account in advance, whether that's physical or on paper? In your case, it's the same as charging one item every few months to keep the card active. If that's what you'd like to do, that's fine. I'd just avoid having the card take up too much of your time and thought. (Disclaimer - I've used and written about Credit Karma. I have no business relationship with them, my articles are to help readers, and not paid placement.) mhoran's response is in line with my thinking. His advice to use the card to build your score is what the zero-credit folk criticize as \\\"\\\"a great debt score.\\\"\\\" Nonsense. If you use debt wisely, you'll never pay interest (except for a mortgage, perhaps) and you may gain rewards with no cost to you.\\\"\",\n \"'Perfect' credit would be defined by your credit score. You may have a perfect repayment history, but that is only one factor in your credit score. Paying off a loan early doesn't by itself cause your score to go down. A lack of history, however, will result in a lower score. Lenders use the score because the general consensus is that what you have done in the past is the best indicator of what you will do in the future. In essence, your credit score tells a potential creditor what type of risk they are taking by lending you money. If you have very little history, the risk is not necessarily higher, but it is less predictable, so you have a lower score. These pages explain what makes up your credit score: http://www.myfico.com/credit-education/whats-in-your-credit-score/ https://www.cnbc.com/id/36737279 https://www.creditcards.com/credit-card-news/help/5-parts-components-fico-credit-score-6000.php\",\n \"\\\"One of the things that you have to be aware of is a little gotcha in the credit utilization rate. They, or at least the credit company I worked for, used the \\\"\\\"high balance\\\"\\\" in figuring the credit utilization, not the ending balance. For example, say you had a single card with a $2000 credit limit and used it to charge everything during the month. Say that the high balance was $1900 and you paid it down to zero at the end of the month. The company would calculate your credit utilization at 95%. This is not good and not really fair, but that was the way it was done. Increasing the credit limit helps, but you can also usually make interim payments, say as a paycheck comes in, during the month, if you have an online account.\\\"\",\n \"A credit card can be a long running line of credit that will help to boost your FICO score. However if you have student loans, a mortgage, or car payments those will work just as well. If you ever get to the point where you don't have any recent lines of credit, this may eventually end up hurting your score, but until then you really don't need any extras.\",\n \"No, it won't affect your score until your statement is posted. Paying your bill before your statement is posted is actually a good way to keep your credit utilization low. If you're worried about high credit utilization negatively affecting your credit score, consider paying your bill several times a month to ensure that when your final monthly statement is posted, your utilization is still low. When my credit limit was very low while I was in college, I did this almost every month, and I've seen other sites recommend this practice as well. From creditkarma.com: The easiest way [to lower credit utilization] is to make credit card payments more than once a month so that your balance never gets too high. and creditcards.com: Consider making payments to creditors more than once each month. Otherwise, if you put a major expense -- like a new appliance -- on a credit card, even if you plan to pay it off, your FICO score may take a hit. The reason is that credit scores are calculated as a snapshot in time, so if that happens to be right after you charged a new $700 washing machine, your utilization ratio will look worryingly high. Remember, though, that it's best to have some balance on your card when your statement is posted (assuming you pay it off in full each month), because as the chart shows, 0% utilization is about as bad as utilization > 31-40%: Also, remember that credit utilization affects your credit score in real time, so if you have high utilization one month but a lower utilization the next month, the hit to your score will disappear once a statement with low utilization is posted.\",\n \"Much money is made by creditors on the transaction value of a client in addition to interest value. Knowing that, I pay off all my cards every month, have never made a late payment, and get a number of offers every year for reward type cards. Don't ever be worried about paying off your card in full, just be sure you're using your card and that you pay on time, every time.\",\n \"An activity which can help improve your credit score and actually make you money is stoozing. It's a little complicated but can be beneficial to do. Using either a credit card which allows fee free money withdrawals from cashpoints or building up debt using your credit card gives you access to your credit amount. You then use a long term 0% balance transfer card to transfer the debt which you pay off at the minimum rate. It's 0% so no costs are associated except for the initial fee paid for the balance transfer amount. The money that would have been used to pay off the credit amount (or money withdrawn from a cashpoint) can then be deposited in a savings account so you are now earning interest on the credit balance. Continuing to make monthly minimum payments via direct debit will help improve your credit rating and the savings money will earn interest. (it is also available if you suddenly need to pay off the 0% card)\",\n \"There is a reason - your credit score. If you ever take out a mortgage, you might pay dearly for your behavior. The bank where you have the credit card reports the amount on the bill to the credit rating agencies. If you pay before the bill date, they will always report zero. You should wait at least till the day after the billing cycle ends, and then pay off (you don't need to have the paper bill in your hands - you can see online when the cycle closed). Depending on your other financial behavior, this will have between zero and significant effect, on the percentages you get offered for car loans, mortgages, etc.\",\n \"One factor you may be missing is that, even if you pay your balance in full each month, the utilization probably won't be zero, since the reporting period isn't usually lined up perfectly with the due date on your payment. In short: Your utilization is not the same thing as how much balance you carry over. My advice would be: don't try carry a balance just to get a minuscule benefit on your credit score (if there is one at all). It is certainly not worth the interest charges you will pay to do so. I think the advice you quoted is a mangled explanation of something that can benefit your credit. Specifically, don't let your cards go unused for long periods of time, which would make your utilization show as zero. At least a few times a year you should actually use those cards, even just a small amount, to make the accounts show that you are utilizing your credit.\",\n \"Some aspects of your general financial lifestyle make a big difference in your score. Always pay late; declare bankruptcy; have bills go to collection, these will hurt your overall score. Some aspects of your life start with a low score and rise over time: the number of years you have had credit. Some only have short term and transient impacts: what is your utilization rate today; when was your last hard pull. Any agonizing you do over the transient aspects during a period of time when your score doesn't matter, is a waste of energy. If you are looking for a new mortgage, or a another type of loan, then act in a way that will improve your score. But If you see no immediate need then don't sweat the details. If your credit limit is too low for your lifestyle, then ask for it to be increased. Just don't ask for the increase a few days before you put in the auto loan application.\",\n \"If credit scoring works in the UK like it does in the US, then I think the fact that you own+use a credit card and pay off your everyday expenses will give you perfectly good credit. Just keep doing what you're doing. I have seen people in the United States with very high credit scores based solely upon owning & occasionally using a credit card, paid in full and on time every month.\",\n \"I too was very confused when I tried to be tricky and paid down my balance BEFORE the bill date. I thought this would be a great thing because it would show my utilization near zero percent. The opposite happen, it dropped my credit score from 762 to 708. Here is the best example I can come up with when it comes to utilization. Lets pretend you are an insurance company and you trying to figure out who are the best risk drivers. The people that drive 10% of the day are a better risk than the people that drive 50% of the day. The people that drive 50% of the day are a better risk than the people that drive 90% of the day. Here is the rub when people drive 0%. When you look at the people at 0% they appear to be walking, busing or flying. What they are NOT doing is driving. Since they are not driving (using Credit) they are viewed as POOR drivers since they are not keeping up on their driving skills. (Paying bills, watching how they spend, and managing their debt). So, now before the billing date I pay down my balance to something between 5 to 10% of my utilization. After the bill is issued, I pay it off in FULL. ( I am not going to PAY these crazy interest rates). What shows up on my credit report is a person that is driving his credit between 5 and 10% utilization. It shows I know I how to manage my revolving accounts. I know it's dumb, you would think they reward people that have zero debt, I don't hate banks I hate the game. ( I do love me some reward points =))\",\n \"Yes. You can pay towards your credit card before the actual bill becomes due every month. However, your credit usage ratio does not get sent to credit reporting agencies exactly on the day of your bill; this data can be sent to the agencies any day of the month. So, keep your balance low at all times throughout the month, not just right before your statement closing date.\",\n \"The length of time you have established credit does improve your credit score in the long run. As long as you can avoid paying interest, you might see if you can get a card with cash back rewards. I have one from Citi that sends me a $50 check every so often when I have enough rewards built up.\",\n \"The best way to use your new credit card to establish credit history is to use it for small-medium purchases and pay it off in full each month. There is no reward for using it more than once a month. If you are getting some sort of rewards for using the credit card to pay your health insurance (air miles, points, etc.), then you could go ahead and use it. Your credit score will take a temporary hit for high utilization. You can actually avoid this by making a partial payment before the end of the billing cycle so that your utilization is never reported as near 100%.\",\n \"K, welcome to Money.SE. You knew enough to add good tags to the question. Now, you should search on the dozens of questions with those tags to understand (in less than an hour) far more than that banker knows about credit and credit scores. My advice is first, never miss a payment. Ever. The advice your father passed on to you is nonsense, plain and simple. I'm just a few chapters shy of being able to write a book about the incorrect advice I'd heard bank people give their customers. The second bit of advice is that you don't need to pay interest to have credit cards show good payment history. i.e. if you choose to use credit cards, use them for the convenience, cash/rebates, tracking, and guarantees they can offer. Pay in full each bill. Last - use a free service, first, AnnualCreditReport.com to get a copy of your credit report, and then a service like Credit Karma for a simulated FICO score and advice on how to improve it. As member @Agop has commented, Discover (not just for cardholders) offers a look at your actual score, as do a number of other credit cards for members. (By the way, I wouldn't be inclined to discuss this with dad. Most people take offense that you'd believe strangers more than them. Most of the answers here are well documented with links to IRS, etc, and if not, quickly peer-reviewed. When I make a mistake, a top-rated member will correct me within a day, if not just minutes)\",\n \"\\\"Patience has never been my strong suit Unfortunately this is what you need to build up credit. The activities that increase your credit score are paying your bills on time and not using too much of the available credit that you do have. The rest (age of accounts, recent pulls, etc.) are short-term indicators that indicate changes in behavior that will make lenders pause and understand what the reasons behind the events are. Also keep in mind that your credit score shouldn't run your life. It should be a passive indicator of your financial habits - not something that you actively manipulate. Is there anything I can do to raise my score without having to take out a loan with interest? Pay your bills on time, and don't take out more credit than you need. You're already in the \\\"\\\"excellent\\\"\\\" category, so there's no reason to panic or try to manipulate it. Even if you temporarily dip below, if you need to make a big purchase (house), your loan-to-value and debt/income ratio will be much bigger factors in what interest rate you can get. As far as the BofA card goes, if you don't need it, cancel it. It might cause a temporary dip in your credit, but it will go away quickly, and you're better off not having credit cards that you don't need.\\\"\",\n \"No. Credit scores are primarily built by doing the following: To build credit, get a few major credit cards and a couple of store cards. Use one of them to make routine purchases like gas and groceries. Pay them on time every month. You're good to go. I would hate to sell stocks to pay off a loan -- try finding a better loan. If you financed through the dealer, try joining a credit union and see if you can get a better rate.\",\n \"Some credit card rewards programs will not give you rewards for balances paid off early. I have a Capitol One Platinum card, and once paid off the full balance; both the full amount due for the recently ended billing period, and the amount that had accrued for the current billing period. I never received any reward points for the additional amount. Though this sounds like it's paying even earlier than you're talking about.\",\n \"How will going from 75% Credit Utilization to 0% Credit Utilization affect my credit score? might answer your question if US based. In the US, what counts is what shows on the bill. I've run $20K through a card with a $10K limit, but still ended the month under $2K by making extra payments. As long as you stay ahead of the limit by making mid-cycle payments, I see no issue with this strategy. If you keep running $30K/mo through a card with a $10K limit, the bank will eventually catch this and raise your limit as you will have proven you are more credit worthy.\",\n \"Always pay on time, and stop listening to whoever is telling you not to -- they are clueless. Credit cards are revolving accounts with a grace period. The balance owed is due on the statement date, and you have a grace period of 20-40 days to pay. Paying bills on time is the single most important thing that you can do to have a good credit score. Always pay on time.\",\n \"Buy one and use it but never spend more than you can pay off at the end of the month. Also, remember that the length of credit affects your rating too, so don't go canceling cards and/or getting new ones every time a new gimmick comes along.\",\n \"\\\"Ironically, the worst financial advice I read comes from \\\"\\\"bankers.\\\"\\\" The top dozen members here can be trusted to give better advice than the average banker. Your score is not improved by maintaining a balance, only by using the card(s) regularly. No need to carry charges month to month and pay interest, rather, have the bill reflect a 1-9% utilization. I'd recommend Credit Karma to see how the factors affect your score. FICO scoring prefers to see a large number of accounts, low utilization, high average account age, low number of inquiries, no late payments. CK will let you see a simulated score and how it changes based on these variables.\\\"\",\n \"Carrying a small balance is generally better for your credit score that paying off in full every month by virtue of the statistics and models that give you a credit score for a certain product. Banks don't want to lend to customers that aren't going to be profitable, in my experience customers who can show that they have credit over time are generally awarded a higher score. So my advice would be to keep a small, manageable balance on the credit card, paying off the balance and then spending a little again on the card to keep at roughly constant balance. This revolving credit is the purpose of the product, and by showing you can use it sensibly, you will be rewarded over time. Source: I build credit scoring models for a big UK lender, specialising in credit cards and personal loan modelling.\",\n \"I'm really going to go against the crowd here--paying it too fast could be a problem. The thing is you want them reporting that you paid the bill as agreed. To do that you need to pay the bills--which means you need to leave the charges there to get billed for. Paying less than the total is fine, paying as soon as they bill you but before you even get the bill is fine.\",\n \"I have to second what the poster said above me. The person at the dealership is outright lying to you, and I really don't know where the misconception comes from. I work in finance and specialize in credit. Credit is your ability to repay. Simple as that. To lenders, constant carrying a balance on your credit cards looks like your don't have the ability/discipline to repay your debt and will look bad in the future if you are ever trying to borrow more.\",\n \"Problems with your plan (in no particular order) there is a limit, once they have decided that you have enough credit they won't offer any more. If the economy changes (like it did in 2008) they can reduce the limit on existing accounts. If you don't use them, they may decide to close them. Using existing cards will encourage the bank to increase the limit on that card. opening cards can make some lenders nervous. Having a new card close to when you are applying for a mortgage or a car loan can make them less likely to lend you the max. You have to decide: Are you trying to buildup your credit limit? or your credit score?\",\n \"\\\"My credit Union has a \\\"\\\"credit builder\\\"\\\" loan, they loan $1000 and put it in a savings account you cant withdraw from and take out automatic payments. That would be better, the whole point of credit is on time payments, but my lender told me the effects on credit would be minimum. Probably best for those with no credit history.\\\"\",\n \"If you are planning to get new cards, it is probably best to open the accounts as soon as possible to start establishing a history of good credit use. You might also wish to open multiple accounts so that future lines will have less of an impact on your average age of open credit lines. Since you will probably have higher interest rates it is also advisable never to carry a balance on any of your newly acquired cards. This will prevent a recurrence of the problems you are now trying to recover from.\",\n \"As long as the fine print permits this, it's a quick 2%. Be careful that your credit score may drop momentarily if you use the credit and for that cycle have high utilization.\",\n \"It will be considered 'unused credit'. I have tried it yeas ago. They just report zero usage.\",\n \"12% is ridiculously high and routine for loans with no credit history, esp. from the dealer. I don't think though paying off would hurt your credit - you've already got installment loan on your report, and you have history of payments, so it shouldn't matter how long the history is (warning: this is kind of guesswork compiled from personal experience and stuff read on the net, since officially how credit score calculated is Top Secret). If you have the loan and credit card with good payments, only thing you need to build credit is time (and, of course, keeping everything nicely paid). Of course, if you could find a loan with lower rate somewhere it's be great to refinance but with low credit you would probably not get the best rates from anywhere, unfortunately.\",\n \"it is better for your credit score to pay them down over time. This is a myth. Will it make much of a difference? You are paying additional interest even though you have the means to pay off the cards completely. Credit score is a dynamic number and it really only matters if you are looking to make a big purchase (vehicle, home), or perhaps auto insurance or employment. Pay off your credit cards, consolidate your debt, and buy yourself a beer with the money you will be saving. :)\",\n \"Your plan will work to increase your total credit capacity (good for your credit score) and reduce your utilization (also good). As mentioned, you will need to be careful to use these cards periodically or they will get closed, but it will work. The question is whether this will help you or not. In addition to credit capacity and utilization, your credit score looks at things like These factors may hurt you as you continue to open accounts. You can easily get to the stage where your score is not benefitting much from increased capacity and it is getting hurt a lot by pulls and low average age. BTW you are correct that closing accounts generally hurts your score. It probably reduces average age, may reduce maximum age, reduces your capacity, and increases your utilization.\",\n \"Payment history is probably the most significant contributor to your credit score. Having a solid history of making, at least the minimum, payments on time will have a positive impact on your credit score. Whether or not this specific transaction means anything to that equation is up for debate. If you have no credit lines now and 0% for 18 months on a computer makes sense to you, then yes, making this purchase this way and paying on time will have a positive impact on your credit score. Paying interest doesn't help your credit score. Repay this computer before the 18 month period ends, then be sure to pay your balance in full every month thereafter.\",\n \"Good credit is calculated (by many lenders) by taking your FICO score which is calculated based upon what is in your credit report. Building credit generally means building up your FICO score. Your FICO score is impacted my many factors, one small one of which is your utilization ratio of your installment loans like student loans. This is the ratio of the current balance to your original balance. To improve your score (slightly) you would want a lower ratio. I would recommend paying your student loan down to 75% ratio as fast as you can and then you can go back to $50/month. A much better way to improve your FICO score is to have revolving credit. Your student loans are not revolving, they are installment loans. Therefore, you should open at least one credit card (assuming you currently have none) right away. The longer you have had a credit card open, the better your FICO score gets. Your revolving credit utilization ratio is way more important than your installment loan ratio. Therefore, to maximize your FICO, try to never have more than 10% utilization on your revolving credit report to the credit bureaus each month. Only the current month's ratio affects your score at any given moment. You can ensure you don't go above 10% by paying your balance before the statement cuts each month to get it below 10% way before any payment would be due. (You should always pay your remaining credit card statement balance in full each month by the due date after the statement cuts to avoid any interest charges.) Note that there is a slight FICO advantage to having at least one major bank credit card instead of just only credit union credit cards. Also, never let all your revolving credit report a zero balance in a month, you must always have at least $1 reporting to the credit bureaus on at least one of your open credit cards or your FICO score will take a big negative hit. If you cannot get a normal credit card, go to a credit union and find one that offers secured credit cards, or a bank that does. A secured credit card is where you place a deposit with the bank that they hold and give you a credit limit to match your security. Ideally it would be a card that graduates to unsecured after your demonstrate good history with them. For example, the Navy Federal Credit Union secured card unsecures for many people. I also believe the Wells Fargo Bank credit card (you can join if there is a family member who served or a roomate who did) also will unsecure. The reason you want it to unsecure and not be forced to open a new account to get an unsecured account is that you want your average age and oldest age of open revolving credit accounts to be as high as possible as this is another impact on your FICO score. Credit unions that anyone can join include, Digital Federal Credit Union, the Pentagon Federal Credit Union (which offers a secured card that does not graduate), and The State Department Federal Credit Union (also offers secured card that I think does not graduate). One other method to boost your FICO score is to get added as an authorized user on one of your parent's credit cards that has been open a long time. Not all lenders will report such an authorized user, however, ones that are known to do so are: Bank of America, Citi Bank, and Capital One. It is a good sign that it will report if they ask for the social security number of the authorized user. However, note that the Authorized User addition can have no impact if the lender is using one of the newer versions of the FICO scoring model, only the older versions reward you for the age of accounts for which you are an authorized user. A very long term boost is to open your first American Express card underwritten directly by Amex such as their Zync card which is pretty easy to get. The advantage of American express is that they remember the date your first credit card was opened with them and if you open new accounts in the future they will back date the date of their opening to match the date your first card was opened. If you let your membership lapse, be sure to record the account number and date opened in your personal files so that you can help them locate it again if you reopen as they can have trouble if it has been on the order of ten years or more. Finally, note that the number of accounts opened in the last twelve months is a small negative mark on your score (along with number of inquiries), so if you open a lot of accounts all at once, in addition to bringing down your average age of accounts, you will also get dinged for how many were opened in the last year.\",\n \"\\\"I wrote How Old is Your Credit Card? some time ago. The answer is yes, this helps the credit score, but this factor, age of accounts, is pretty minimal. Grabbing deals, as you did, I'm actually down to a \\\"\\\"C\\\"\\\" for this part of my score, but still maintain a 770 score.\\\"\",\n \"\\\"If you are the type of person that gets drawn in to \\\"\\\"suspect\\\"\\\" offers, then it is conceivable that if you are not signing the services offered your credit would be improved as your long term credit strengthens and the number of new lines of credit are reduced. But if you just throw it all away anyway then it is unlikely to help improve your score. But there is no direct impact on your credit score.\\\"\",\n \"If you're looking for cause-effect, applying for another card won't matter at all if you're not paying any interest, or not looking to get another installment loan for which the rate you get depends on your credit rating. If you are looking to get another installment loan, then having more credit at your disposal might hurt a small amount. I wouldn't want to cancel your oldest card. The GEMB card looks like a good candidate if you want to cancel because you're not using it, and it's a relatively new card.\",\n \"\\\"The simple answer is that what you are doing is an incredible waste of time. The normal process is to charge, say, in January, the bill is cut at month end, and due by the 15th of February. No interest accrues. As long as the credit line is sufficient for your monthly spending, that's it. Now, if you are watching your score closely, utilization might become an issue, if the statement amount is much over 20%, there's an impact to your score. This is easily addressed with a second monthly payment, made just before the bill is cut. Keep in mind, the phrase \\\"\\\"carrying a balance\\\"\\\" commonly means not paying the bill in full, and letting interest accumulate. I understand you didn't mean that. The way you are paying your account isn't common, and really serves no value.\\\"\",\n \"\\\"The fact that you pay the bill reliably is going to count more for your credit rating than anything else, even if you are paying it off in full every month. Lenders seem to like to see at least one instance where you charged a large balance, held it a couple months, then paid it off in full... but I wouldn't go out of my way to do that. Remember that the credit card company is making money on transaction fees as well as interest. If you're pushing money through their system, they're happy. They'd be happier if you were paying them interest too -- reportedly, they actually refer to those of us who pay in full every month as \\\"\\\"deadbeats\\\"\\\" -- but they aren't going to kick you out or ding your credit rating for it. The quote you give says that a small balance \\\"\\\"may be slightly better\\\"\\\". I submit that \\\"\\\"may be slightly\\\"\\\" is too small a difference to be worth worrying about, unless you have reason to believe that your credit rating actively needs to be repaired. (And as noted in the comments, it's actually stated even less strongly than that!) Personal recommendation: You can get a free credit report each year from each of the \\\"\\\"big three\\\"\\\" credit rating agencies. Those reports usually include a brief explanation of what they think the most negative item on your record is. The phrasing of those explanations is often somewhat misleading, but I'd still suggest that you get these reports and see what they think would improve your rating. I'm willing to bet it won't be \\\"\\\"doesn't carry a high enough debt balance.\\\"\\\"\\\"\",\n \"\\\"0% furniture loans can hurt your credit rating. I was told by a bank mortgage officer (sorry I can't cite a document) that credit rating algorithms consider \\\"\\\"consumer\\\"\\\" loans like 0% appliance loans and certain store-specific credit cards as a negative factor, lowering your overall score. The rationalization given was that that taking that type of credit is an indicator that you have zero cash reserves. The actual algorithms are proprietary, so I don't know how you could verify this. If true, it runs counter to the conventional wisdom that getting credit and then paying it off builds your credit score.\\\"\",\n \"Credit cards are meant to be used so generally it doesn't hurt your credit score to use them. To top it off you even get an interest grace period so you don't have to rush home and pay balances as soon as they're charged. In general you accrue charges during your statement period, we'll call it September 1 through September 30. The statement due date is something like 20 days after the close of the statement period, so we'll call it October 20. As long as you habitually pay your entire statement balance by the due date you will never pay interest. You charge your laptop on September 3, it shows up on your statement as $1,300, you pay $1,300 on October 18, you pay no interest. However, if you pay $1,000 on October 18 leaving a $300 balance to be carried in to the next statement period (a carried balance) you will pay interest. Generally interest is calculated based on your average daily balance during the statement period, which is now be the October 1 to October 31 period. You'll notice that you didn't pay anything until the October 18, that means the entire $1,300 will be included in your average daily balance up to the 18th of the month. Add to that, anything else you charge on the card now will be included in your average daily balance for interest charge calculation purposes. The moral of the story is, use your card, and pay your entire statement balance before the due date. Now how much will this impact your credit score? It's tough to say. Utilization is not a bad thing until it's a big number. I've read that 70% utilization and over is really the point at which lenders will raise an eyebrow and under 30% is considered excellent. If you have one card and $1,300 is a significant portion of your available limit, then yes you should probably pay it down quickly. Spend six or so months using the card and paying it, then call your bank and ask for a credit line increase.\",\n \"How bad would maxing out my credit card once a year affect my score is a related discussion. You shouldn't be using 20%, but rather keep the monthly statement below 20%. If the credit lines add to $5000, charging gas and paying in full each month will help your score (obviously, I assume you don't pay more than $1000/mo for gas). Letting the balance go unpaid month to month means you are paying interest. Probably 18% or more. This is bad.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"One of the factors of a credit score is the \"\"length of time revolving accounts have been established\"\". Having a credit card with any line of credit will help in this regard. The account will age regardless of your use or utilization. If you are having issues with credit limits and no credit history, you may have trouble getting financing for the purchase. You should be sure you're approved for financing, and not just that the financing option is \"\"available\"\" (potentially with the caveat of \"\"for well qualified borrowers\"\"). Generally, if you've gotten approved for financing, that will come in the form of another credit card account (many contracting and plumbing companies will do this in hopes you will use the card for future purchases) or a bank loan account (more common for auto and home loans). With the credit card account, you might be able to perform a balance transfer, but there are usually fees associated with that. For bank loan accounts, you probably can't pay that off with a credit card. You'll need to transfer money to the account via ACH or send in a check. In short: I wouldn't bet on paying with your current credit card to get any benefit. IANAL. Utilizing promotional offers, whether interest-free for __ months, no balance transfer fees, or whatever, and passing your debt around is not illegal, not fraudulent, and in many cases advised (this is a link), though that is more for people to distribute utilization across multiple cards, and to minimize interest accrued. Many people, myself included, use a credit card for purchasing EVERYTHING, then pay it off in full every month (or sometimes immediately) to reap the benefit of cash back rewards and other cardholder benefits. I've also made a major payment (tuition, actually) on a Discover card, and opened up a new Visa card with 18-months of no interest and no balance transfer fees to let the bill sit for 12 months while I finished school and got a job.\"","The biggest risk is Credit Utilization rate. If you have a total of $10,000 in revolving credit (ie: credit card line) and you ever have more than 50% (or 33% to be conservative) on the card at any time then your credit score will be negatively impacted. This will be a negative impact even if you charge it on day one and pay it off in full on day 2. Doesn't make much sense but credit companies are playing the averages: on average they find that people who get close to maxing their credit limit are in some sort of financial trouble. You're better off to make small purchases each month, under $100, and pay them off right away. That will build a better credit history - and score."],"string":"[\n \"\\\"One of the factors of a credit score is the \\\"\\\"length of time revolving accounts have been established\\\"\\\". Having a credit card with any line of credit will help in this regard. The account will age regardless of your use or utilization. If you are having issues with credit limits and no credit history, you may have trouble getting financing for the purchase. You should be sure you're approved for financing, and not just that the financing option is \\\"\\\"available\\\"\\\" (potentially with the caveat of \\\"\\\"for well qualified borrowers\\\"\\\"). Generally, if you've gotten approved for financing, that will come in the form of another credit card account (many contracting and plumbing companies will do this in hopes you will use the card for future purchases) or a bank loan account (more common for auto and home loans). With the credit card account, you might be able to perform a balance transfer, but there are usually fees associated with that. For bank loan accounts, you probably can't pay that off with a credit card. You'll need to transfer money to the account via ACH or send in a check. In short: I wouldn't bet on paying with your current credit card to get any benefit. IANAL. Utilizing promotional offers, whether interest-free for __ months, no balance transfer fees, or whatever, and passing your debt around is not illegal, not fraudulent, and in many cases advised (this is a link), though that is more for people to distribute utilization across multiple cards, and to minimize interest accrued. Many people, myself included, use a credit card for purchasing EVERYTHING, then pay it off in full every month (or sometimes immediately) to reap the benefit of cash back rewards and other cardholder benefits. I've also made a major payment (tuition, actually) on a Discover card, and opened up a new Visa card with 18-months of no interest and no balance transfer fees to let the bill sit for 12 months while I finished school and got a job.\\\"\",\n \"The biggest risk is Credit Utilization rate. If you have a total of $10,000 in revolving credit (ie: credit card line) and you ever have more than 50% (or 33% to be conservative) on the card at any time then your credit score will be negatively impacted. This will be a negative impact even if you charge it on day one and pay it off in full on day 2. Doesn't make much sense but credit companies are playing the averages: on average they find that people who get close to maxing their credit limit are in some sort of financial trouble. You're better off to make small purchases each month, under $100, and pay them off right away. That will build a better credit history - and score.\"\n]","isConversational":false}}},{"rowIdx":378,"cells":{"_id":{"kind":"string","value":"9126"},"query":{"kind":"string","value":"Short an option - random assignment?"},"gt_ids":{"kind":"list like","value":["514831"],"string":"[\n \"514831\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["334473","477588","469382","575408","388754","281533","362473","118360","27401","374331","588836","292045","383930","271109","111301","433471","89484","514831","576976","253998","594303","504326","140371","494186","314478","338782","182272","440794","347966","163034","273142","42083","247902","61853","103147","228810","1203","166227","160169","415705","118389","485612","238474","31587","478600","154989","349974","294522","228058","517873","102316","22426","148728","414448","461062","22916","507828","307155","355450","173374","324564","273612","21608","339875","393083","191060","63363","192900","387147","12779","23469","352588","63301","181924","249185","105373","581672","72024","30070","320101","401447","267113","347189","13631","575015","510006","557582","100103","274835","188152","277760","282005","53669","226984","222498","253866","499536","227399","259178","482238"],"string":"[\n \"334473\",\n \"477588\",\n \"469382\",\n \"575408\",\n \"388754\",\n \"281533\",\n \"362473\",\n \"118360\",\n \"27401\",\n \"374331\",\n \"588836\",\n \"292045\",\n \"383930\",\n \"271109\",\n \"111301\",\n \"433471\",\n \"89484\",\n \"514831\",\n \"576976\",\n \"253998\",\n \"594303\",\n \"504326\",\n \"140371\",\n \"494186\",\n \"314478\",\n \"338782\",\n \"182272\",\n \"440794\",\n \"347966\",\n \"163034\",\n \"273142\",\n \"42083\",\n \"247902\",\n \"61853\",\n \"103147\",\n \"228810\",\n \"1203\",\n \"166227\",\n \"160169\",\n \"415705\",\n \"118389\",\n \"485612\",\n \"238474\",\n \"31587\",\n \"478600\",\n \"154989\",\n \"349974\",\n \"294522\",\n \"228058\",\n \"517873\",\n \"102316\",\n \"22426\",\n \"148728\",\n \"414448\",\n \"461062\",\n \"22916\",\n \"507828\",\n \"307155\",\n \"355450\",\n \"173374\",\n \"324564\",\n \"273612\",\n \"21608\",\n \"339875\",\n \"393083\",\n \"191060\",\n \"63363\",\n \"192900\",\n \"387147\",\n \"12779\",\n \"23469\",\n \"352588\",\n \"63301\",\n \"181924\",\n \"249185\",\n \"105373\",\n \"581672\",\n \"72024\",\n \"30070\",\n \"320101\",\n \"401447\",\n \"267113\",\n \"347189\",\n \"13631\",\n \"575015\",\n \"510006\",\n \"557582\",\n \"100103\",\n \"274835\",\n \"188152\",\n \"277760\",\n \"282005\",\n \"53669\",\n \"226984\",\n \"222498\",\n \"253866\",\n \"499536\",\n \"227399\",\n \"259178\",\n \"482238\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["You can buy a put and exercise it. The ideal option in this case will have little time premium left and very near the money. Who lent you the shares? The person that sold you the option! In reality, when you exercise, assignment can be random, but everything is [supposedly] accounted for as the option seller had to put up margin collateral to sell the option.","\"Yes, if it's an American style option. American style options may be exercised at any time prior to expiration (even if they're not in-the-money). Generally, you are required to deliver or accept delivery of the underlying by the beginning of the next trading day. If you are short, you may be chosen by the clearinghouse to fulfill the exercise (a process called \"\"assignment\"\"). Because the clearinghouse is the counter-party to every options trade, you can be assigned even if the specific person who purchased the option you wrote didn't exercise, but someone else who holds a long position did. Similarly, you might not be assigned if that person did exercise. The clearinghouse randomly chooses a brokerage to fulfill an assignment, and the brokerage will randomly choose an individual account. If you're going to be writing options, especially using spreads, you need to have a plan ahead of time on what to do if one of your legs gets assigned. This is more likely to happen just before a dividend payment, if the payment is more than the remaining time value.\"","If you are in the money at expiration you are going to get assigned to the person on the other side of the contract. This is an extremely high probability. The only randomness comes from before expiration. Where you may be assigned because a holder exercised the option before expiration, this can unbalance some of your strategies. But in exchange, you get all the premium that was still left on the option when they exercised. An in the money option, at expiration, has no premium. The value of your in the money option is Current Stock price - Strike Price, for a call. And Strike price - Current Stock price, for a put. Thats why there is no free lunch in this scenario.","An option is freely tradable, and all options (of the same kind) are equal. If your position is 0 and you sell 1 option, your new position in that option is -1. If the counterparty to your trade buys or sells more options to close, open, or even reopen their position afterwards, that doesn't matter to your position at all. Of course there's also the issue with American and European Options. European Options expire at their due date, but American Options expire at their due date or at any time before their due date if the holder decides they expire. With American Options, if a holder of an American Option decides to exercise the option, someone who is short the same option will be assigned as the counterparty (this is usually random). Expiry is after market close, so if one of your short American Options expires early, you will need to reopen the position the next day. Keep in mind dividends for slightly increased complexity. American and European Options do not in any way refer to the continents they are traded on, or to the location of the companies. These terms simply describe the expiry rules.","\"The question you are asking concerns the exercise of a short option position. The other replies do not appear to address this situation. Suppose that Apple is trading at $96 and you sell a put option with a strike price of $95 for some future delivery date - say August 2016. The option contract is for 100 shares and you sell the contract for a premium of $3.20. When you sell the option your account will be credited with the premium and debited with the broker commission. The premium you receive will be $320 = 100 x $3.20. The commission you pay will depend on you broker. Now suppose that the price of Apple drops to $90 and your option is exercised, either on expiry or prior to expiry. Then you would be obliged to take delivery of 100 Apple shares at the contracted option strike price of $95 costing you $9,500 plus broker commission. If you immediately sell the Apple shares you have purchased under your contract obligations, then assuming you sell the shares at the current market price of $90 you would realise a loss of $500 ( = 100x($95-$90) )plus commission. Since you received a premium of $320 when you sold the put option, your net loss would be $500-$320 = $180 plus any commissions paid to your broker. Now let's look at the case of selling a call option. Again assume that the price of Apple is $96 and you sell a call option for 100 shares with a strike price of $97 for a premium of $3.60. The premium you receive would be $360 = 100 x $3.60. You would also be debited for commission by your broker. Now suppose that the price of Apple shares rises to $101 and your option is exercised. Then you would be obliged to deliver 100 Apple shares to the party exercising the option at the contracted strike price of $97. If you did not own the shares to effect delivery, then you would need to purchase those shares in the market at the current market price of $101, and then sell them to the party exercising the option at the strike price of $97. This would realise an immediate loss of $400 = 100 x ($101-$97) plus any commission payable. If you did own the shares, then you would simply deliver them and possibly pay some commission or a delivery fee to your broker. Since you received $360 when you sold the option, your net loss would be $40 = $400-$360 plus any commission and fees payable to the broker. It is important to understand that in addition to these accounting items, short option positions carry with them a \"\"margin\"\" requirement. You will need to maintain a margin deposit to show \"\"good faith\"\" so long as the short option position is open. If the option you have sold moves against you, then you will be called upon to put up extra margin to cover any potential losses.\"","\"You are likely making an assumption that the \"\"Short call\"\" part of the article you refer to isn't making: that you own the underlying stock in the first place. Rather, selling short a call has two primary cases with considerably different risk profiles. When you short-sell (or \"\"write\"\") a call option on a stock, your position can either be: covered, which means you already own the underlying stock and will simply need to deliver it if you are assigned, or else uncovered (or naked), which means you do not own the underlying stock. Writing a covered call can be a relatively conservative trade, while writing a naked call (if your broker were to permit such) can be extremely risky. Consider: With an uncovered position, should you be assigned you will be required to buy the underlying at the prevailing price. This is a very real cost — certainly not an opportunity cost. Look a little further in the article you linked, to the Option strategies section, and you will see the covered call mentioned there. That's the kind of trade you describe in your example.\"","\"Seems like you are concerned with something called assignment risk. It's an inherent risk of selling options: you are giving somebody the right, but not the obligation, to sell to you 100 shares of GOOGL. Option buyers pay a premium to have that right - the extrinsic value. When they exercise the option, the option immediately disappears. Together with it, all the extrinsic value disappears. So, the lower the extrinsic value, the higher the assignment risk. Usually, option contracts that are very close to expiration (let's say, around 2 to 3 weeks to expiration or less) have significantly lower extrinsic value than longer option contracts. Also, generally speaking, the deeper ITM an option contract is, the lower extrinsic value it will have. So, to reduce assignment risk, I usually close out my option positions 1-2 weeks before expiration, especially the contracts that are deep in the money. edit: to make sure this is clear, based on a comment I've just seen on your question. To \"\"close out an options position\"\", you just have to create the \"\"opposite\"\" trade. So, if you sell a Put, you close that by buying back that exact same put. Just like stock: if you buy stock, you have a position; you close that position by selling the exact same stock, in the exact same amount. That's a very common thing to do with options. A post in Tradeking's forums, very old post, but with an interesting piece of data from the OCC, states that 35% of the options expire worthless, and 48% are bought or sold before expiration to close the position - only 17% of the contracts are actually exercised! (http://community.tradeking.com/members/optionsguy/blogs/11260-what-percentage-of-options-get-exercised) A few other things to keep in mind: certain stocks have \"\"mini options contracts\"\", that would correspond to a lot of 10 shares of stock. These contracts are usually not very liquid, though, so you might not get great prices when opening/closing positions you said in a comment, \"\"I cannot use this strategy to buy stocks like GOOGL\"\"; if the reason is because 100*GOOGL is too much to fit in your buying power, that's a pretty big risk - the assignment could result in a margin call! if margin call is not really your concern, but your concern is more like the risk of holding 100 shares of GOOGL, you can help manage that by buying some lower strike Puts (that have smaller absolute delta than your Put), or selling some calls against your short put. Both strategies, while very different, will effectively reduce your delta exposure. You'd get 100 deltas from the 100 shares of GOOGL, but you'd get some negative deltas by holding the lower strike Put, or by writing the higher strike Call. So as the stock moves around, your account value would move less than the exposure equivalent to 100 shares of stock.\"","First, it depends on your broker. Full service firms will tear you a new one, discount brokers may charge ~nothing. You'll have to check with your broker on assignment fees. Theoretically, this is the case of the opposite of my answer in this question: Are underlying assets supposed to be sold/bought immediately after being bought/sold in call/put option? Your trading strategy/reasoning for your covered call notwithstanding, in your case, as an option writer covering in the money calls, you want to hold and pray that your option expires worthless. As I said in the other answer, there is always a theoretical premium of option price + exercise price to underlying prices, no matter how slight, right up until expiration, so on that basis, it doesn't pay to close out the option. However, there's a reality that I didn't mention in the other answer: if it's a deep in the money option, you can actually put a bid < stock price - exercise price - trade fee and hope for the best since the market makers rarely bid above stock price - exercise price for illiquid options, but it's unlikely that you'll beat the market makers + hft. They're systems are too fast. I know the philly exchange allows you to put in implied volatility orders, but they're expensive, and I couldn't tell you if a broker/exchange allows for dynamic orders with the equation I specified above, but it may be worth a shot to check out; however, it's unlikely that such a low order would ever be filled since you'll at best be lined up with the market makers, and it would require a big player dumping all its' holdings at once to get to your order. If you're doing a traditional, true-blue covered call, there's absolutely nothing wrong being assigned except for the tax implications. When your counterparty calls away your underlyings, it is a sell for tax purposes. If you're not covering with the underlying but with a more complex spread, things could get hairy for you real quick if someone were to exercise on you, but that's always a risk. If your broker is extremely strict, they may close the rest of your spread for you at the offer. In illiquid markets, that would be a huge percentage loss considering the wide bid/ask spreads.","\"With stocks, you can buy or sell. If you sell first, that's called 'shorting.' As in \"\"I think linkedin is too high, I'm going to short it.\"\" With options, the terminology is different, the normal process is to buy to open/sell to close, but if you were shorting the option itself, you would first sell to open, i.e you are selling a position to start it, effectively selling it short. Eventually, you may close it out, by buying to close. Options trading is not for the amateur. If you plan to trade, study first and be very cautious.\"","\"By their agreements with the central counterparty - in the US, the exchange or the Options Clearing Corporation, which interposes itself between the counterparties of each trade and guarantees that they settle. From the CCP article: A clearing house stands between two clearing firms (also known as member firms or participants). Its purpose is to reduce the risk a member firm failing to honor its trade settlement obligations. A CCP reduces the settlement risks by netting offsetting transactions between multiple counterparties, by requiring collateral deposits (also called \"\"margin deposits\"\"), by providing independent valuation of trades and collateral, by monitoring the credit worthiness of the member firms, and in many cases, by providing a guarantee fund that can be used to cover losses that exceed a defaulting member's collateral on deposit. Exercisers on most contracts are matched against random writers during the assignment process, and if the writer doesn't deliver/buy the stock, the OCC does so using its funds and goes after the defaulting party.\"","Fair enough. I would imagine the ETF could get a better option pricing if that were the case, plus liquidity and counterpart risk concerns but your point is well taken. Serves me right to shoot my mouth off on something I do not do (short). Speaking of which, do you do a lot of shorting? Cover positions or speculation?","\"When the strike price ($25 in this case) is in-the-money, even by $0.01, your shares will be sold the day after expiration if you take no action. If you want to let your shares go,. allow assignment rather than close the short position and sell the long position...it will be cheaper that way. If you want to keep your shares you must buy back the option prior to 4Pm EST on expiration Friday. First ask yourself why you want to keep the shares. Is it to write another option? Is it to hold for a longer term strategy? Assuming this is a covered call writing account, you should consider \"\"rolling\"\" the option. This involves buying back the near-term option and selling the later date option of a similar or higher strike. Make sure to check to see if there is an upcoming earnings report in the latter month because you may want to avoid writing a call in that situation. I never write a call when there's an upcoming ER prior to expiration. Good luck. Alan\"","Option contracts typically each represent 100 shares. So the 1 call contract you sold to open (wrote) grants the buyer of that option the right to purchase your 100 shares for $80.00 per share any time before the option expiration date. You were paid a gross amount of $100 (100 shares times $1.00 premium per share) for taking on the obligation to deliver should the option holder choose to exercise. You received credit in your account of $89.22, which ought to be the $100 less any trading commission (~$10?) and miscellaneous fees (regulatory, exchange, etc.) per contract. You did capture premium. However, your covered call write represents an open short position that, until either (a) the option expires worthless, or (b) is exercised, or (c) is bought back to close the position, will continue to show on your account as a liability. Until the open position is somehow closed, the value of both the short option contract and long stock will continue to fluctuate. This is normal.","The put vs call assignment risk, is actually the reverse: in-the-money calls are more likely to be exercised early than puts. Exercising a call locks in profit for the option holder because they can buy the shares at below market price, and immediately sell them at the higher market price. If there are dividends due, the risk is even higher. By contrast, exercising an in-the-money put locks in a loss for the holder, so it's less common.","To Chris' comment, find out if the assignment commission is the same as the commission for an executed trade. If that does affect the profit, just let it expire. I've had spreads (buy a call, sell a higher strike call, same dates) so deep in the money, I just made sense to let both exercise at expiration. Don't panic if all legs ofthe trade don't show until Sunday or even Monday morning.","I understand the question, I think. The tough thing is that trades over the next brief time are random, or appear so. So, just as when a stock is $10.00 bid / $10.05 ask, if you place an order below the ask, a tick down in price may get you a fill, or if the next trades are flat to higher, you might see the close at $10.50, and no fill as it never went down to your limit. This process is no different for options than for stocks. When I want to trade options, I make sure the strike has decent volume, and enter a market order. Edit - I reworded a bit to clarify. The Black–Scholes is a model, not a rigid equation. Say I discover an option that's underpriced, but it trades under right until it expires. It's not like there's a reversion to the mean that will occur. There are some very sophisticated traders who use these tools to trade in some very high volumes, for them, it may produce results. For the small trader you need to know why you want to buy a stock or its option and not worry about the last $0.25 of its price.","You could have both options exercised (and assigned to you) on the same day, but I don't think you could lose money on both on the same day. The reason is that while exercises are immediate, assignments are processed after the markets close at the end of each day. See http://www.888options.com/help/faq/assignment.jsp for details. So you would get both assignments at the same time, that night. The net effect should be that you don't own any stock (someone would put you the stock, then it'd be called away) and you don't have the options anymore. You should have incoming cash of $1500 selling the stock to the call exerciser and outgoing cash of $1300 buying from the put exerciser, right? So you would have no more options but $200 more cash in your account in the morning. You bought at 13 and sold at 15. This options position is an agreement to buy at 13 and sell at 15 at someone else's option. The way you lose money is if one of the options isn't exercised while the other is, i.e. if the stock is below 13 so nobody is going to opt to buy from you at 15, but they'll sell to you at 13; or above 15 so nobody is going to opt to sell to you at 13, but they'll buy from you at 15. You make money if neither is exercised (you keep the premium you sold for) or both are exercised (you keep the gap between the two, plus the premium). Having both exercised is surely rare, since early exercise is rare to begin with, and tends to happen when options are deep in the money; so you'd expect both to be exercised if both are deep in the money at some point. Having both be exercised on the same day ... can't be common, but it's maybe most likely just before expiration with minimal time value, if the stock moves around quickly so both options are in the money at some point during the day.","\"You've described the process fairly well. It's tough to answer a question that ultimately is 'how is this fair?' It's fair in that it's part of the known risk. And for the fact that it applies to all, pretty equally. In general, this is not very common. (No, I don't have percents handy, I'm just suggesting from decades of trading it's probably occurring less than 10% of the time). Why? Because there's usually more value to the buyer in simply selling the option and using the proceeds to buy the stock. The option will have 2 components, its intrinsic value (\"\"in the money\"\") and the time premium. It takes the odd combination of low-to-no time premium, but desire of the buyer to own the stock that makes the exercise desirable.\"","\"Am I getting it right that in India in terms of short selling in F&O market its what in the rest of the world is called naked short and you actually make promise to depositary that you will deliver that security you sold on settlement without actually owning the security or going through SLB mechanism? In Future and Options; there is no concept of short selling. You buy a future for a security / index. On the settlement day; the exchange determines the settlement price. The trade is closed in cash. i.e. Based on the settlement price, you [and the other party] will either get money [other party looses money] or you loose money [other party gets the money]. Similarly for Options; on expiry, the all \"\"In Money\"\" [or At Money] Options are settled in cash and you are credit with funds [the option writer is debited with funds]. If the option is \"\"out of money\"\" it expires and you loose the premium you paid to exercise the option.\"","\"> It just has to finish below the strike price of the short (which can be higher than the stock's current price). You're talking about a put option. That's one \"\"short\"\" strategy, but it's not shorting a stock, so the terminology is a little jumbled. There are reasons to not do straight options, because they can be quite risky, and you have to get the time frame correct.\"","Options, both puts and calls, are typically written/sold at different strike prices. For example, even though the stock of XYZ is currently trading at $12.50, there could be put options for prices ranging from $0.50 to $30.00, just as an example. There are several factors that go into determining the strike prices at which people are willing to write options. The writer/seller of an option is the person on the other side of the trade that has the opposite opinion of you. If you are interested in purchasing a put on a stock to hedge your downside, that means the writer/seller of the put is betting that you are wrong and that the stock price will rise instead.","Shorts need a buyer on the other end somewhere, if there is no one interested in taking the other side of it, you probably won't find anywhere you will be able to execute that trade. Take a look on your broker's site, see if it's an option they will even give you.","To expand on the comment made by @NateEldredge, you're looking to take a short position. A short position essentially functions as follows: Here's the rub: you have unlimited loss potential. Maybe you borrow a share and sell it at $10. Maybe in a month you still haven't closed the position and now the share is trading at $1,000. The share lender comes calling for their share and you have to close the position at $1,000 for a loss of $990. Now what if it was $1,000,000 per share, etc. To avoid this unlimited loss risk, you can instead buy a put option contract. In this situation you buy a contract that will expire at some point in the future for the right to sell a share of stock for $x. You get to put that share on to someone else. If the underlying stock price were to instead rise above the put's exercise price, the put will expire worthless — but your loss is limited to the premium paid to acquire the put option contract. There are all sorts of advanced options trades sometimes including taking a short or long position in a security. It's generally not advisable to undertake these sorts of trades until you're very comfortable with the mechanics of the contracts. It's definitely not advisable to take an unhedged short position, either by borrowing someone else's share(s) to sell or selling an option (when you sell the option you take the risk), because of the unlimited loss potential described above.","You sold a call, I trust? I bought a call. I have the right to exercise at my will. No sense if out of the money, of course, but if in the money, I might want to capture a dividend or just start the clock for long term gains. Once I exercise, you have no option (pun intended) but to let it go. The assignment is notification, not a request for permission.","\"And what exactly do I profit from the short? I understand it is the difference in the value of the stock. So if my initial investment was $4000 (200 * $20) and I bought it at $3800 (200 * $19) I profit from the difference, which is $200. Do I also receive back the extra $2000 I gave the bank to perform the trade? Either this is extremely poorly worded or you misunderstand the mechanics of a short position. When you open a short position, your are expecting that the stock will decline from here. In a short position you are borrowing shares you don't own and selling them. If the price goes down you get to buy the same shares back for less money and return them to the person you borrowed from. Your profit is the delta between the original sell price and the new lower buy price (less commissions and fees/interest). Opening and closing a short position is two trades, a sell then a buy. Just like a long trade there is no maximum holding period. If you place your order to sell (short) 200 shares at $19, your initial investment is $3,800. In order to open your $3,800 short position your broker may require your account to have at least $5,700 (according to the 1.5 ratio in your question). It's not advisable to open a short position this close to the ratio requirement. Most brokers require a buffer in your account in case the stock goes up, because in a short trade if the stock goes up you're losing money. If the stock goes up such that you've exhausted your buffer you'll receive what's known as a \"\"margin call\"\" where your broker either requires you to wire in more money or sell part or all of your position at a loss to avoid further losses. And remember, you may be charged interest on the value of the shares you're borrowing. When you hold a position long your maximum loss is the money you put in; a position can only fall to zero (though you may owe interest or other fees if you're trading on margin). When you hold a position short your maximum loss is unlimited; there's no limit to how high the value of something can go. There are less risky ways to make short trades by using put options, but you should ensure that you have a firm grasp on what's happening before you use real money. The timing of the trades and execution of the trades is no different than when you take a plain vanilla long position. You place your order, either market or limit or whatever, and it executes when your trade criteria occurs.\"","Any portfolio, even one composed of risk-free assets is subject to risk. That said, to short an equity without margin risk, puts can provide. To replicate a short without excess margin, an at the money put should be used. To take on less leverage, a deep in the money put can be used. Puts are not available on equities deemed illiquid by regulation. A long/short portfolio can help mitigate variance risk, but then the problem becomes the risk of a lack of volatility since options decline in value over time and without a beneficial change in the underlying.","Here's a simple example for a put, from both sides. Assume XYZ stock trades at $200 right now. Let's say John writes a $190 out of the money put on XYZ stock and sells this put to Abby for the premium, which is say $5. Assume the strike date, or date of settlement, is 6 months from now. Thus Abby is long one put option and John is short one put option (the writer of the option is short the option). On settlement date, let's assume two different scenarios: (1) If the price of the stock decreases by $50, then the put that Abby bought is 'in the money'. Abby's profit can be calculated as being strike price 190 - current stock price 150 - premium paid 5 = $35 So not including any transaction fees, that is a $35 dollar return on a $5 investment. (2) If the price of the stock increases by $50, then the put that Abby bought is worthless and her loss was 100%, or her entire $5 premium. For John, he made $5 in 6 months (in reality you need collateral and good credit to be able to write sizable option positions).","\"I think the issue you are having is that the option value is not a \"\"flow\"\" but rather a liability that changes value over time. It is best to illustrate with a balance sheet. The $33 dollars would be the premium net of expense that you would receive from your brokerage for having shorted the options. This would be your asset. The liability is the right for the option owner (the person you sold it to) to exercise and purchase stock at a fixed price. At the moment you sold it, the \"\"Marked To Market\"\" (MTM) value of that option is $40. Hence you are at a net account value of $33-$40= $-7 which is the commission. Over time, as the price of that option changes the value of your account is simply $33 - 2*(option price)*(100) since each option contract is for 100 shares. In your example above, this implies that the option price is 20 cents. So if I were to redo the chart it would look like this If the next day the option value goes to 21 cents, your liability would now be 2*(0.21)*(100) = $42 dollars. In a sense, 2 dollars have been \"\"debited\"\" from your account to cover your potential liability. Since you also own the stock there will be a credit from that line item (not shown). At the expiry of your option, since you are selling covered calls, if you were to be exercised on, the loss on the option and the gain on the shares you own will net off. The final cost basis of the shares you sold will be adjusted by the premium you've received. You will simply be selling your shares at strike + premium per share (0.20 cents in this example)\"","I use over half my buying power of my portfolio for options, and I'm not a fan of any of the strategies listed above either (I stay away from negative theta trades for the most part), but I just listed them to point out that saying the reason someone wouldn't enter a short position is for fear of infinite losses is asinine. It's easy enough to make any trade risk defined if that is something the trader cares about.","You're correct. If you have no option position at execution then you carry no risk. Your risk is only based on the net number of options you're holding at execution. This is handled by your broker or clearinghouse. Pretend that you wrote 1000 options, (you're short the call) then you bought 1000 of the same option (bought to cover) ... you are now flat and have zero options exposure. Pretend you bought 1000 options (you're long the calls) then you sold 1000 of them (liquidated your long) ... you are now flat and have zero options exposure.","\"I would think that a lot of brokers would put the restriction suggested in @homer150mw in place or something more restrictive, so that's the first line of answer. If you did get assigned on your short option, then (I think) the T+3 settlement rules would matter for you. Basically you have 3 days to deliver. You'll get a note from your broker demanding that you provide the stock and probably threatening to liquidate assets in your account to cover their costs if you don't comply. If you still have the long-leg of the calendar spread then you can obtain the stock by exercising your long call, or, if you have sufficient funds available, you can just buy the stock and keep your long call. (If you're planning to exercise the long call to cover the position, then you need to check with your broker to see how quickly the stock so-obtained will get credited to your account since it also has some settlement timeline. It's possible that you may not be able to get the stock quickly enough, especially if you act on day 3.) Note that this is why you must buy the call with the far date. It is your \"\"insurance\"\" against a big move against you and getting assigned on your short call at a price that you cannot cover. With the IRA, you have some additional concerns over regular cash account - Namely you cannot freely contribute new cash any time that you want. That means that you have to have some coherent strategy in place here that ensures you can cover your obligations no matter what scenario unfolds. Usually brokers put additional restrictions on trades within IRAs just for this reason. Finally, in the cash account and assuming that you are assigned on your short call, you could potentially could get hit with a good faith, cash liquidation, or free riding violation when your short call is assigned, depending on how you deliver the stock and other things that you're doing in the same account. There are other questions on that on this site and lots of information online. The rules aren't super-simple, so I won't try to reproduce them here. Some related questions to those rules: An external reference also on potential violations in a cash account: https://www.fidelity.com/learning-center/trading-investing/trading/avoiding-cash-trading-violations\"","First, a margin account is required to trade options. If you buy a put, you have the right to deliver 100 shares at a fixed price, 50 can be yours, 50, you'll buy at the market. If you sell a put, you are obligated to buy the shares if put to you. All options are for 100 shares, I am unaware of any partial contract for fewer shares. Not sure what you mean by leveraging the position, can you spell it out more clearly?","If you buy puts, there are no guaranteed proceeds though. If you short against the box, you've got immediate proceeds with a nice capital loss if it doesn't work out. Conversely, you could write a covered call, take the contract proceeds, and write off the long position losses. Nobody ever factors tax consequences into the equation here.","\"But what happen if the stock price went high and then go down near expiry date? When you hold a short (sold) call option position that has an underlying price that is increasing, what will happen (in general) is that your net margin requirements will increase day by day. Thus, you will be required to put up more money as margin to finance your position. Margin money is simply a \"\"good faith\"\" deposit held by your broker. It is not money that is debited as cash from the accounting ledger of your trading account, but is held by your broker to cover any potential losses that may arise when you finally settle you position. Conversely, when the underlying share price is decreasing, the net margin requirements will tend to decrease day by day. (Net margin is the net of \"\"Initial Margin\"\" and \"\"Variation Margin\"\".) As the expiry date approaches, the \"\"time value\"\" component of the option price will be decreasing.\"","The original option writer (seller) can close his short position in the contracts he wrote by purchasing back matching contracts (i.e. contracts with the same terms: underlying, option type, strike price, expiration date) from any others who hold long positions, or else who write new matching contract instances. Rather than buyer and seller settling directly, options are settled through a central options clearing house, being the Options Clearing Corporation for exchange-listed options in the U.S. See also Wikipedia - Clearing house (finance). So, the original buyer of the put maintains his position (insurance) and the clearing process ensures he is matched up with somebody else holding a matching obligation, if he chooses to exercise his put. I also answered a similar question but in more detail, here.","No, if your stock is called away, the stock is sold at the agreed upon price. You cannot get it back at your original price. If you don't want your stock to be called, make sure you have the short call position closed by expiration if it is ITM. Also you could be at risk for early assignment if the option has little to no extrinsic value, although probably not. But when dividends are coming, make sure you close your short ITM options. If the dividend is worth more than the extrinsic value, you are pretty much guaranteed to be assigned. Been assigned that way too many times. Especially in ETFs where the dividends aren't dates are not always easy to find. It happens typically during triple witching. If you are assigned on your short option, you will be short stock and you will have to pay the dividend to the shareholder of your short stock. So if you have a covered call on, and you are assigned, your stock will be called away, and you will have to pay the dividend.","When you want to short a stock, you are trying to sell shares (that you are borrowing from your broker), therefore you need buyers for the shares you are selling. The ask prices represent people who are trying to sell shares, and the bid prices represent people who are trying to buy shares. Using your example, you could put in a limit order to short (sell) 1000 shares at $3.01, meaning that your order would become the ask price at $3.01. There is an ask price ahead of you for 500 shares at $3.00. So people would have to buy those 500 shares at $3.00 before anyone could buy your 1000 shares at $3.01. But it's possible that your order to sell 1000 shares at $3.01 never gets filled, if the buyers don't buy all the shares ahead of you. The price could drop to $1.00 without hitting $3.01 and you will have missed out on the trade. If you really wanted to short 1000 shares, you could use a market order. Let's say there's a bid for 750 shares at $2.50, and another bid for 250 shares at $2.49. If you entered a market order to sell 1000 shares, your order would get filled at the best bid prices, so first you would sell 750 shares at $2.50 and then you would sell 250 shares at $2.49. I was just using your example to explain things. In reality there won't be such a wide spread between the bid and ask prices. A stock might have a bid price of $10.50 and an ask price of $10.51, so there would only be a 1 cent difference between putting in a limit order to sell 1000 shares at $10.51 and just using a market order to sell 1000 shares and getting them filled at $10.50. Also, your example probably wouldn't work in real life, because brokers typically don't allow people to short stocks that are trading under $5 per share. As for your question about how often you are unable to make a short sale, it can sometimes happen with stocks that are heavily shorted and your broker may not be able to find any more shares to borrow. Also remember that you can only short stocks with a margin account, you cannot short stocks with a cash account.","First off, you should phone your broker and ask them just to be 100% certain. You will be exercised on the short option that was in the money. It is irrelevant that your portfolio does not contain AAPL stock. You will simply be charged the amount it costs to purchase the shares that you owe. I believe your broker would just take this money from your margin/cash account, they would not have let you put the position on if your account could not cover it. I can't see how you having a long dated 2017 call matters. You would still be long this call once assignment of the short call was settled.","Yes, theoretically you can flip the shares you agreed to buy and make a profit, but you're banking on the market behaving in some very precise and potentially unlikely ways. In practice it's very tricky for you to successfully navigate paying arbitrarily more for a stock than it's currently listed for, and selling it back again for enough to cover the difference. Yes, the price could drop to $28, but it could just as easily drop to $27.73 (or further) and now you're hurting, before even taking into account the potentially hefty commissions involved. Another way to think about it is to recognize that an option transaction is a bet; the buyer is betting a small amount of money that a stock will move in the direction they expect, the seller is betting a large amount of money that the same stock will not. One of you has to lose. And unless you've some reason to be solidly confident in your predictive powers the loser, long term, is quite likely to be you. Now that said, it is possible (particularly when selling puts) to create win-win scenarios for yourself, where you're betting one direction, but you'd be perfectly happy with the alternative(s). Here's an example. Suppose, unrelated to the option chain, you've come to the conclusion that you'd be happy paying $28 for BBY. It's currently (June 2011) at ~$31, so you can't buy it on the open market for a price you'd be happy with. But you could sell a $28 put, promising to buy it at that price should someone want to sell it (presumably, because the price is now below $28). Either the put expires worthless and you pocket a few bucks and you're basically no worse off because the stock is still overpriced by your estimates, or the option is executed, and you receive 100 shares of BBY at a price you previously decided you were willing to pay. Even if the list price is now lower, long term you expect the stock to be worth more than $28. Conceptually, this makes selling a put very similar to being paid to place a limit order to buy the stock itself. Of course, you could be wrong in your estimate (too low, and you now have a position that might not become profitable; too high, and you never get in and instead just watch the stock gain in value), but that is not unique to options - if you're bad at estimating value (which is not to be confused with predicting price movement) you're doomed just about whatever you do.","\"Firstly \"\"Most option traders don't want to actually buy or sell the underlying stock.\"\" THIS IS COMPLETELY UTTERLY FALSE Perhaps the problem is that you are only familiar with the BUY side of options trading. On the sell side of options trading, an options desk engages in DELTA HEDGING. When we sell an option to a client. We will also buy an appropriate amount of underlying to match the delta position of the option. During the life time of the option. We will readjust our hedge position whenever the delta changes (those who follow Black Scholes will know that normally that comes from (underlying) price changes). However, we lose money on each underlying change (we have to cross the bid-ask spread for each trade). That is why we lose money when there is volatility. That is why we are said to be \"\"short VEGA\"\" or \"\"short volatility\"\". So one way to think about \"\"buying\"\" options, is that you are paying someone to execute a specific trading strategy. In general, those who sell options, are also happy to buy options back (at a discount of course, so we make a profit). But when doing so, we need to unroll our hedging position, and that again incurs a cost (to us, the bank). Finally. Since this is \"\"money\"\" stackexchange rather than finance. You are most likely referring to \"\"warrants\"\" rather than \"\"options\"\", which are listed on stock exchanges. The exchange in most regions give us very specific and restrictive regulations that we must abide by. One very common one is that we MUST always list a price which we are willing to buy the warrants back at (which may not be an unreasonable spread from the sell price). Since an Option is a synthetically created investment instrument, when we buy back the Option from the investor, we simply unwind the underlying hedging positions that we booked to synthesize the Options with. Source: I've worked 2 years on a warrant desk, as a desk developer.\"","One broker told me that I have to simply read the ask size and the bid size, seeing what the market makers are offering. This implies that my order would have to match that price exactly, which is unfortunate because options contract spreads can be WIDE. Also, if my planned position size is larger than the best bid/best ask, then I should break up the order, which is also unfortunate because most brokers charge a lot for options orders.","I'll just copypasta out of the book for the sake of clarity: * If you think about it, you see that the only brokers who touch the switch for light bulb number 64 are those whose numbers are divisors of 64. That is, light bulb 64 has its state changed by brokers whose numbers are factors of 64. This means brokers 1, 2, 4, 8, 16, 32, 64. Because light bulb 64 is originally off, it must be after this odd number of switches that it is on. * You want to be short a put if you expect a price rise. In this case, you expect to keep the option premium when the option expires worthless. There are a few pages worth of questions for the options, so the explanation for the IBM one is somewhat limited.","If it helps you to think about it, long is equivalent to betting for the upside and short is equivalent to betting for the downside. If you are long on options, then you expect the value of such options to increase. If you are long an option, then you own the option. If you are short an option, then generally you sold the option. Someone who is short a call (sometimes called the writer or occasionally the issuer) has sold a call option to someone who is now long a call. Buying a call option that will increase in value is itself a form of investment, just as it's investment to buy stock or other instruments hoping they will appreciate in value. An option's value will rise or fall with the underlying, so being long an option is a way to be long in the underlying. Someone can be long in a stock by buying the stock, or long in a call by buying call options in the stock. The long call generally requires less initial investment than buying the underlying, and lets the option-holder avoid the asset downside during the option term. The risk is that the asset may not appreciate to the point that the call option will pay off. In the conceptual sense, a share of stock is a particular right to the profits and assets of a corporation, both in form of dividends and in liquidation. An option is a particular right to the the share of stock. It's just a further way to formalize and subdivide the various property rights that exist in a corporation. If you can buy a piece of paper with particular rights to corporate profits and assets, then you can buy another piece of paper with particular rights to the former piece of paper.","Exchange traded options are issued in a way that there is no counter party risk. Consider, stocks and options are held in street name. So, for example, if I am short and you are long shares, no matter what happens on my end, your shares are yours. To be complete, it's possible to enter into a direct deal, where you have a contract for some non-standard option, but that would be very rare for the average investor.","\"The tax comes when you close the position. If the option expires worthless it's as if you bought it back for $0. There's a short-term capital gain for the difference between your short-sale price and your buyback price on the option. I believe the capital gain is always short-term because short sales are treated as short-term even if you hold them open more than one year. If the option is exercised (calling away your stock) then you add the premium to your sale price on the stock and then compute the capital gain. So in this case you can end up treating the premium as a long-term capital gain. See IRS pub 550 http://www.irs.gov/publications/p550/ch04.html#en_US_2010_publink100010619 Search for \"\"Writers of puts and calls\"\"\"","\"Whether or not you make money here depends on whether you are buying or selling the option when you open your position. You certainly would not make money in the scenario where you are buying options at the open. If fact you would end up loosing quite a lot of money. You do not specify whether you are buying or selling the options, so let's assume that you are buying both the call and the put. We'll look a profitable trade at the bottom of my answer. Buying an in-the-money Call option with a strike price of $90 when the underlying asset price is $150 would cost you a small fraction over $6000 = (100 x $60) since the intrinsic value value of the option is $60. Add to this cost any commission charged by your broker. Buying an out-of-the-money Put option with a strike price of $110 when the underlying asset price is $150 would cost you a \"\"small\"\" premium - lets say a premium of something like $0.50. The option has no intrinsic value, only time value and a volatility value, so the exact cost would depend on the time to expiry and the implied volatility of the underlying asset. Since the strike price is \"\"well out of the money\"\", being about 27% below the underlying asset price, the premium would be small. So, assuming the premium of $0.50, you would pay $50 for the option plus any commission applicable. The cash settlement on expiry, with an underlying settlement price of $100, would be a premium of $10 for each of the two options, so you would receive cash of 100 x ($10 + $10) = $2000, less any commission applicable. However, you have paid $6000 + $50 to purchase the options, so you realise a net loss of $6050 - $2000 = $4050 plus any commissions applicable. Thus, you would make a profit on the put option, but you would realise a very large loss on the call option. On the other hand, if you open your position by selling the call option and buying the put option, then you would make money. For the sale of the call option you would receive about $6000. For the purchase of the put option you would pay about $50. On settlement, you would pay $1000 to buy back the call option and you would receive about $1000 when selling the put option. Thus you net profit would be about ($6000 - $1000) for the call position, and ($1000 - $50) for the put position. The net profit would then total $5950 less an commissions payable.\"","\"It will be helpful to establish some definitions: Long \"\"Long\"\" is financial slang for \"\"to have possession of an asset\"\", legally, and \"\"to debit an asset\"\", financially. Short \"\"Short\"\" is financial slang for \"\"to be liable for an asset\"\", legally, and \"\"to credit an asset\"\", financially. Option \"\"Option\"\" is financial slang for \"\"to have the right but not obligation to force the liable to perform action\"\", legally. Without limits and when taken to absurdity, this can mean slavery. For equities, this means \"\"to have the right but not the obligation to force the liable to buy/sell a specified asset at a specified price with a specified expiration for that right\"\" for a call/put, respectively. By the above, a call option is \"\"the right but not the obligation to force the liable to buy a specified asset at a specified price with a specified expiration for that right\"\". By the definition of \"\"long\"\" above, a call option is actually not long the underlying. By the definitions above and with a narrower scope applied to equities & indexes, to be \"\"long\"\" the call means \"\"to have the right but not the obligation to force the liable to buy a specified asset at a specified price with a specified expiration for that right\"\" while to be \"\"short\"\" the call means \"\"to have the obligation to be forced to sell a specified asset at a specified price with a specified expiration for that right\"\". So, to be \"\"long\"\" a call means to simply own the call.\"","It this a real situation or is it a made up example? Because for a stock that has a last traded priced of $5 or $6 and volume traded over $4M (i.e. it seems to be quite liquid), it is hardly likely that the difference from bid to ask would be as large as $1 (maybe for a stock that has volume of 4 to 5 thousand, but not for one having volume of 4 to 5 million). In regards to your question, if you were short selling the order would go in exactly the same as if you were selling a stock you owned. So your order would be on the ask side and would need to be matched up with a price on the bid side for there to be a trade.","\"In addition to JoeTaxpayer's answer there are articles that describe the writing of options as \"\"being the casino\"\". When you write, or sell to open an option, you are selling one of the most desirable things in the world to sell: a depreciating asset. Writing options are not without risk, but they can be a very conservative strategy. Who wins these massive losses? Sometimes run of the mill investors, myself being one of them.\"","You sold a call, and have a risk if the stock rises. You bought a put and gain when the stock drops. You, sir, have a synthetic short position. It's Case 3 from your linked example: Suppose you own Long Stock and the company is going to report earnings but you’re going on vacation. How can you hedge your position without selling your stock? You can short the stock synthetically with options! Short Stock = Short Call + Long Put They conclude with the net zero remark, because the premise was an existing long position. A long plus this synthetic short results in a neutral set of positions (and the author's ability to go on vacation not concerned about any movement in the stock.)","Assignment risk. In your example, if someone exercises OTM call, your account could be assigned. In that case, if you do nothing, you could lose more money than there is in the account. The broker won't do it for you because there is more than one way to handle the assignment. For example, you might choose to exercise the long call, or buy a different call and exercise that. Selling the long call may be enough to satisfy any resulting margin call.","Out of the money options often have the biggest changes in value, when the stock moves upward. This person could also gain, by the implied (underlying) volatility of the stock rising if it moves erratically to either side. Still seems to be a very risky game, given only 4 days to expiry.","\"Assuming these are standardized and regulated contracts, the short answer is yes. In your example, Trader A is short while Trader B is long. If Trader B wants to exit his long position, he merely enters a \"\"sell to close\"\" order with his broker. Trader B never goes short as you state. He was long while he held the contract, then he \"\"sold to close\"\". As to who finds the buyer of Trader B's contract, I believe that would be the exchange or a market maker. Therefore, Trader C ends up the counterparty to Trader A's short position after buying from Trader B. Assuming the contract is held until expiration, Trader A is responsible for delivering contracted product to Trader C for contracted price. In reality this is generally settled up in cash, and Trader A and Trader C never even know each other's identity.\"","First, in the money options are scarcely created because most options trade at the money with the rest evenly distributed between in and out, so they are at best half the market when created. They are also closed before expiration. The reason is still unknown, but one theory is: Barely in the money options carry enormous exercise risk because the chance that could be turned into a potentially solvency threatening unhedged liability is great; therefore, option sellers prefer to close barely in the money options so not to take on unhedged liability risk. Statistically, option sellers are risk avoiders.","\"For the same reason that people bet on different teams. Some think the Tigers will win, others thing the Yankees will win. They wager $5 on it. One of them wins, the other loses. In a short, one person bets that the stock goes down, the other bets that the stock goes up (or hold). You're basically saying \"\"I think this stock is going to hold it's value or go up. If I thought it would go down, like you do, I would sell it myself right now. Instead, I'll let you have it for a while because when I get it back I think I'll come out on top.\"\"\"","On expiry, with the underlying share price at $46, we have : You ask : How come they substract 600-100. Why ? Because you have sold the $45 call to open you position, you must now buy it back to close your position. This will cost you $100, so you are debited for $100 and this debit is being represented as a negative (subtracted); i.e., -$100 Because you have purchased the $40 call to open your position, you must now sell it to close your position. Upon selling this option you will receive $600, so you are credited with $600 and this credit is represented as a positive (added) ; i.e., +$600. Therefore, upon settlement, closing your position will get you $600-$100 = $500. This is the first point you are questioning. (However, you should also note that this is the value of the spread at settlement and it does not include the costs of opening the spread position, which are given as $200, so you net profit is $500-$200 = $300.) You then comment : I know I am selling 45 Call that means : As a writer: I want stock price to go down or stay at strike. As a buyer: I want stock price to go up. Here, note that for every penny that the underlying share price rises above $45, the money you will pay to buy back your short $45 call option will be offset by the money you will receive by selling the long $40 call option. Your $40 call option is covering the losses on your short $45 call option. No matter how high the underlying price settles above $45, you will receive the same $500 net credit on settlement. For example, if the underlying price settles at $50, then you will receive a credit of $1000 for selling your $40 call, but you will incur a debit of $500 against for buying back your short $45 call. The net being $500 = $1000-$500. This point is made in response to your comments posted under Dr. Jones answer.","\"I'm adding to @Dilip's basic answer, to cover the additional points in your question. I'll assume you are referring to publicly traded stock options, such as those found on the CBOE, and not an option contract entered into privately between two specific counterparties (e.g. as in an employer stock option plan). Since you are not obligated to exercise a call option you purchased on the market, you don't need to maintain funds on account for possible exercising. You could instead let the option expire, or resell the option, neither of which requires funds available for purchase of the underlying shares. However, should you actually choose to exercise the call option (and usually this is done close to expiration, if at all), you will be required to fund your account much like if you bought the underlying shares in the first place. Call your broker to determine the exact rules and timing for when they need the money for a call-option exercise. And to expand on the idea of \"\"cancelling\"\" an option you purchased: No, you cannot \"\"cancel\"\" an option contract, per se. But, you are permitted to sell the call option to somebody else willing to buy, via the market. When you sell your call option, you'll either make or lose money on the sale – depending on the price of the underlying shares at the time (are they in- or out- of the money?), volatility in the market, and remaining time value. Once you sell, you're back to \"\"no position\"\". That's not the same as \"\"cancelled\"\", but you are out of the trade, whether at profit or loss. Furthermore, the option writer (i.e. the seller who \"\"sold to open\"\" a position, in writing the call in the first place) is also not permitted to cancel the option he wrote. However, the option writer is permitted to close out the original short position by simply buying back a matching call option on the market. Again, this would occur at either profit or loss based on market prices at the time. This second kind of buy order – i.e. made by someone who initially wrote a call option – is called a \"\"buy to close\"\", meaning the purchase of an offsetting position. (The other kind of buy is the \"\"buy to open\"\".) Then, consider: Since an option buyer is free to re-sell the option purchased, and since an option writer (who \"\"sold to open\"\" the new contract) is also free to buy back an offsetting option, a process known as clearing is required to match remaining buyers exercising the call options held with the remaining option writers having open short positions for the contract. For CBOE options, this clearing is performed by the Options Clearing Corporation. Here's how it works (see here): What is the OCC? The Options Clearing Corporation is the sole issuer of all securities options listed at the CBOE, four other U.S. stock exchanges and the National Association of Securities Dealers, Inc. (NASD), and is the entity through which all CBOE option transactions are ultimately cleared. As the issuer of all options, OCC essentially takes the opposite side of every option traded. Because OCC basically becomes the buyer for every seller and the seller for every buyer, it allows options traders to buy and sell in a secondary market without having to find the original opposite party. [...] [emphasis above is mine] When a call option writer must deliver shares to a call option buyer exercising a call, it's called assignment. (I have been assigned before, and it isn't pleasant to see a position called away that otherwise would have been very profitable if the call weren't written in the first place!) Also, re: \"\"I know my counter party cannot sell his shares\"\" ... that's not strictly true. You are thinking of a covered call. But, an option writer doesn't necessarily need to own the underlying shares. Look up Naked call (Wikipedia). Naked calls aren't frequently undertaken because a naked call \"\"is one of the riskiest options strategies because it carries unlimited risk\"\". The average individual trader isn't usually permitted by their broker to enter such an order, but there are market participants who can do such a trade. Finally, you can learn more about options at The Options Industry Council (OIC).\"","This is copying my own answer to another question, but this is definitely relevant for you: A bid is an offer to buy something on an order book, so for example you may post an offer to buy one share, at $5. An ask is an offer to sell something on an order book, at a set price. For example you may post an offer to sell shares at $6. A trade happens when there are bids/asks that overlap each other, or are at the same price, so there is always a spread of at least one of the smallest currency unit the exchange allows. Betting that the price of an asset will go down, traditionally by borrowing some of that asset and then selling it, hoping to buy it back at a lower price and pocket the difference (minus interest). Going long, as you may have guessed, is the opposite of going short. Instead of betting that the price will go down, you buy shares in the hope that the price will go up. So, let's say as per your example you borrow 100 shares of company 'X', expecting the price of them to go down. You take your shares to the market and sell them - you make a market sell order (a market 'ask'). This matches against a bid and you receive a price of $5 per share. Now, let's pretend that you change your mind and you think the price is going to go up, you instantly regret your decision. In order to pay back the shares, you now need to buy back your shares as $6 - which is the price off the ask offers on the order book. Similarly, the same is true in the reverse if you are going long. Because of this spread, you have lost money. You sold at a low price and bought at a high price, meaning it costs you more money to repay your borrowed shares. So, when you are shorting you need the spread to be as tight as possible.","Thanks for your reply. I’m not familiar with the term “Held-For-Trading Security”. My securities are generally held as collateral against my shorts. To clarify, I am just trying to track the “money in” and “money out” entries in my account for the shorts I write. The transaction is relatively straight forward, except there is a ton of information attached! In simple terms, for the ticker CSR and short contract CSRUQ8, the relevant entries look something like this: There are no entries for expiries. I need to ensure that funds are available for future margin calls and assignments. The sale side using covered calls is as involved.","Yes, that's the risk. If the stock is bouncing around a lot your options could get assigned. If it heads south you now are the proud owner of more of a falling stock. It's good that you're looking to understand the risks of an investment method. That's important no matter what the method is.","I have held an in the money long position on an option into expiration, on etrade, and nothing happened. (Scalping expiring options - high risk) The option expired a penny or two ITM, and was not worth exercising, nor did I have the purchasing power to exercise it. (AAPL) From etrade's website: Here are a few things to keep in mind about exercises and assignments: Equity options $0.01 or more in the money will be automatically exercised for you unless you instruct us not to exercise them. For example, a September $25 call will be automatically exercised if the underlying security's closing price is $25.01 or higher at expiration. If the closing price is below $25.01, you would need to call an E*TRADE Securities broker at 1-800-ETRADE-1 with specific instructions for exercising the option. You would also need to call an E*TRADE Securities broker if the closing price is higher than $25.01 at expiration and you do not wish to exercise the call option. Index options $0.01 or more in the money will be automatically exercised for you unless you instruct us not to exercise them. Options that are out of the money will expire worthless. You may request to exercise American style options anytime prior to expiration. A request not to exercise options may be made only on the last trading day prior to expiration. If you'd like to exercise options or submit do-not-exercise instructions, call an E*TRADE Securities broker at 1-800-ETRADE-1. You won't be charged our normal fee for broker-assisted trades, but the regular options commission will apply. Requests are processed on a best-efforts basis. When equity options are exercised or assigned, you'll receive a Smart Alert message letting you know. You can also check View Orders to see which stock you bought or sold, the number of shares, and the strike price. Notes: If you do not have sufficient purchasing power in your account to accept the assignment or exercise, your expiring options positions may be closed, without notification, on the last trading day for the specific options series. Additionally, if your expiring position is not closed and you do not have sufficient purchasing power, E*TRADE Securities may submit do-not-exercise instructions without notification. Find out more about options expiration dates.","\"If your shares get called on stock at a price below what you paid for the stock, your gain or loss depends on what premium you got for the options you sold. \"\"can I deliver shares at that assigned strike using margin or additional capital if I have it? Can the broker just take care of it and let me collect the time premium? \"\" You don't need margin or any cash because you already hold the shares. A covered call means your cash requirements are 'covered'. So they'll just buy your shares at the strike price of $50. And you still get to keep the premium (which you should have gotten when you sold the covered call). You only need cash or margin when you've sold an uncovered call or put.\"","\"Yeah. This shorting the box nonsense is an extremely expensive way to capture downside. If I just drop $1000 on a long-dated out-of-the-money put I have significantly more downside exposure for much much less than the [100 X $160 - (call premium)]. That's like 16 grand dude!!! It does keep you more delta neutral, but still, stupid way to go about it, especially if you are concerned about \"\"cheap\"\".\"","I would never use a market order. Some brokerages have an approval process your short-sale goes through before going to market. This can take some time. So the market prices may well be quite different later. Some brokerages use a separate account for short sales, so you must get their approval for the account before you can do the trade. I like the listing of shares available for shorting the Interactive Brokers has but I have experienced orders simply going into dead-air and sitting there on the screen, not being rejected, not going to market, not doing anything --- even though the shares are on the list.","Some ADRs have standardized options that trade on US exchanges. If your stock/ADR is one of those, then you find the put option through most brokerages that deal with stock options and trade the option like you would on a regular stock. If your ADR does not have standardized options, then your options will depend on where the ADR trades. If it's OTC, you might not even be able to short it. If it trades on a major exchange, the shorting the ADR may be a viable choice.","\"I would suggest the following rationale : This appears to be a most unsatisfactory state of affairs, however, you can bet that this is how things are handled. As to who receives the dividend you have payed, this will be whoever the counter-party (or counter-parties) are that were assigned the exercise. EDIT Looking at the Dec16 SPY options, we see that the expiry date is 23 Dec. Therefore, your options have been exercised prior to expiry. The 3AM time stamp is probably due to the \"\"overnight batch processing\"\" of your brokers computer system. The party exercising the options will have chosen to exercise on the day prior to ex-dividend in order to receive the dividends.\"","See how you can only make the premium amount but your risk is the same as holding the stock when writing a put option.","This is the bird's eye view of how shorting works: When you place an order to sell a stock short, your broker attempts to grab the desired number of shares from any accounts of its other customers and makes them available for you to sell. If no other customers own shares of this stock, then generally you are out of luck (It is more complicated like that in practice, but this is just an overview). Your odds are better if the particular stock has a large float (i.e. a large number of shares that are actually available for trading) and its short ratio is low (which means relatively few shares are currently being sold short). Also, a large brokerage may be more likely to have access to the shares than a small niche-market broker. The example you've given, Angie's List (ANGI) is a $600M small-cap with a comparatively low float, and though I haven't been able to glean the short ratio, it appears that a lot of investors are bearish on this stock and probably already had the same idea to short it. There is really no way to find out if a specific broker has shares in inventory available for shorting, short of (forgive the pun) checking directly with the broker.","\"Write means sell to open. It is called that because options writers are creating (i.e. writing) new contracts. No such thing as \"\"reading\"\" an option.\"","Depending on the structure of you're portfolio, it could be that your portfolio is delta neutral to take advantage of diminishing time value on options, short straddles/strangles would be an example.","Market makers are required to buy options contracts as a condition of being a market maker. It is what keeps the markets functioning and liquid. As to whether or not your trade can be closed at a profit depends on many variables - how much you paid, what the underlying security is, etc CBOE Options expiration FAQs","You're assuming options traded on the open market. To close open positions, a seller buys them back on the open market. If there's little on offer, this will drive the price up.","You are the one lending yourself the shares to sell;you purchase the stock at market price and sell at the strike price of the option to the put seller when you exercise the option.","Option prices are computed by determining the cost of obtaining the option returns using a strategy that trades the underlying asset continuously. It sounds like what you are describing is rapidly trading the option in order to obtain returns similar to those of the stock. The equality goes both ways. If the option is appropriately priced, then a strategy that replicates stock returns using the option will cost the same as buying the stock. Because you can't trade continuously, you won't actually be able to replicate the stock return, and it may seem like you are making arbitrage profit (puts may seem abnormally expensive), but you do so by bearing tail risk (i.e., selling puts loses more money than owning the associated stock if an unusually bad event occurs).","Marketwatch reports that the 108 strike call option sells for 1.45, down 1.53 from yesterday. If we split the bid and ask you get 1.415. That is what that contract will, likely, trade at. The biggest problems with options are commissions and liquidity. I have seen a commission as high as $45 per trade. I have also seen open interest disappear overnight. Even if you obtain contracts that become worth more than you paid for them you may find that no one wants to pay you what they are worth. Track your trade over a few weeks to see how you would have done. It is my experience that the only people who make money on options are the brokers.","It's unclear what you're asking. When I originally read your question, it seemed that you had closed out one options position and opened another. When I read your question the second time, it seemed that you were writing a second option while the first was still open. In the second case, you have one covered and one naked position. The covered call will expire worthless, the naked call will expire in the money. How your broker will resolve that is a question best left for them, but my expectation is that they will assign the non-worthless calls. Whereas, if both options expired in the money, you would be assigned and you would have to come up with the additional shares (and again, that depends on how your broker works). In general, for both cases, your net is the premiums you received, plus the difference between strike price and the price that you paid for the stock, minus any cost to close out the position. So whether you make a profit is very much dependent on how much you received for your premiums. Scenario #1: close first call, write second: Scenario #2: write covered + naked, one expires worthless Scenario #3: write covered + naked, both expire in the money Disclaimer: the SEC does not consider me a financial/investment advisor, so this is not financial/investment advice","Here is the answer from my brokerage: Regular equity monthly options expire on the 3rd Friday of every month. The last time to trade them is by market close at 4 PM Eastern time. The weekly options will expire on the Friday of that week, also with a last trading time of 4 PM Eastern time. Options that expire in the money by .01 or more are automatically exercised. If you are long an option that is out of the money at expiration, it will expire worthless. If you are short an option, even if it expires out of the money, you are still at risk for possible assignment since the long option holder always has the right to exercise an option prior to expiration.*","\"Not all call options that have value at expiration, exercise by purchasing the security (or attempting to, with funds in your account). On ETNs, they often (always?) settle in cash. As an example of an option I'm currently looking at, AVSPY, it settles in cash (please confirm by reading the documentation on this set of options at http://www.nasdaqomxtrader.com/Micro.aspx?id=Alpha, but it is an example of this). There's nothing it can settle into (as you can't purchase the AVSPY index, only options on it). You may quickly look (wikipedia) at the difference between \"\"American Style\"\" options and \"\"European Style\"\" options, for more understanding here. Interestingly I just spoke to my broker about this subject for a trade execution. Before I go into that, let me also quickly refer to Joe's answer: what you buy, you can sell. That's one of the jobs of a market maker, to provide liquidity in a market. So, when you buy a stock, you can sell it. When you buy an option, you can sell it. That's at any time before expiration (although how close you do it before the closing bell on expiration Friday/Saturday is your discretion). When a market maker lists an option price, they list a bid and an ask. If you are willing to sell at the bid price, they need to purchase it (generally speaking). That's why they put a spread between the bid and ask price, but that's another topic not related to your question -- just note the point of them buying at the bid price, and selling at the ask price -- that's what they're saying they'll do. Now, one major difference with options vs. stocks is that options are contracts. So, therefore, we can note just as easily that YOU can sell the option on something (particularly if you own either the underlying, or an option deeper in the money). If you own the underlying instrument/stock, and you sell a CALL option on it, this is a strategy typically referred to as a covered call, considered a \"\"risk reduction\"\" strategy. You forfeit (potential) gains on the upside, for money you receive in selling the option. The point of this discussion is, is simply: what one buys one can sell; what one sells one can buy -- that's how a \"\"market\"\" is supposed to work. And also, not to think that making money in options is buying first, then selling. It may be selling, and either buying back or ideally that option expiring worthless. -- Now, a final example. Let's say you buy a deep in the money call on a stock trading at $150, and you own the $100 calls. At expiration, these have a value of $50. But let's say, you don't have any money in your account, to take ownership of the underlying security (you have to come up with the additional $100 per share you are missing). In that case, need to call your broker and see how they handle it, and it will depend on the type of account you have (e.g. margin or not, IRA, etc). Generally speaking though, the \"\"margin department\"\" makes these decisions, and they look through folks that have options on things that have value, and are expiring, and whether they have the funds in their account to absorb the security they are going to need to own. Exchange-wise, options that have value at expiration, are exercised. But what if the person who has the option, doesn't have the funds to own the whole stock? Well, ideally on Monday they'll buy all the shares with the options you have at the current price, and immediately liquidate the amount you can't afford to own, but they don't have to. I'm mentioning this detail so that it helps you see what's going or needs to go on with exchanges and brokerages and individuals, so you have a broader picture.\"","I often sell covered calls, and if they are in the money, let the stock go. I am charged the same fee as if I sold online ($9, I use Schwab) which is better than buying back the option if I'm ok to sell the stock. In my case, If the option is slightly in the money, and I see the options are priced well, i.e. I'd do another covered call anyway, I sometimes buy the option and sell the one a year out. I prefer to do this in my IRA account as the trading creates no tax issue.","\"The two dimensions are to open the trade (creating a position) and to buy or sell (becoming long or short the option). If you already own an option, you bought it to open and then you would sell it to close. If you don't own an option, you can either buy it to open, or sell it (short it) to open. If you are already short an option, you can buy it back to close. If you sell to open covered, the point is you're creating a \"\"covered call\"\" which means you own the stock, and then sell a call. Since you own the stock, the covered call has a lot of the risk of loss removed, though it also subtracts much of the reward possible from your stock.\"","SPX options are cash settled European style. You cannot exercise European style options before the expiration date. Assuming it is the day of expiration and you own 2,000 strike puts and the index settlement value is 1,950 - you would exercise and receive cash for the in the money amount times the contract multiplier. If instead you owned put options on the S&P 500 SPDR ETF (symbol SPY) those are American style, physically settled options. You can exercise a long American style option anytime between when your purchase it and when it expires. If you exercised SPY puts without owning shares of SPY you would end up short stock at the strike price.","The nature of options requires you to understand that they are essentially a bet. In one sense, so is investing in stocks. We imagine a bell curve (first mistake) with a median return at 10%/yr and a standard deviation of about 14%. Then we say that odds are that over some period of time a monte-carlo simulation can give us the picture of the likely returns. Now, when you buy short term options, say one month or so, you are hoping the outcome is a rise in price that will yield some pretty high return, right? There was a time I noticed a particular stock would move a large percent based on earnings. And earnings were a day before options expiration. So I'd buy the call that was just out of the money and if the surprise was up, I'd make 3-4X my money. But I was always prepared to lose it all and often did. I never called this investing. I know of no recovery strategy. Sorry.","Being long something is the same as owning it (generally). Being short something is the same as selling it, with the intention (actually obligation) of buying it back in the future. Being 'short' means that you benefit when the price falls. A call is the right to buy a financial asset, most often a share, at some price agreed upon now, while the the right extends for some defined time into the future. A put is the right to sell something you already own for some price defined now but the right extends for some period into the future. A swaption is an option to enter into a swap. A swap is an agreement to trade cash-flows at defined points in the future, usually some fixed rate for some floating rate (say LIBOR+200bps). EDIT: Clarified puts.","The answer provide by @mbhunter is correct, however there are contexts, shorting in spot market and carrying the position over settlement usually does not entail payment of dividend to the broker, one of the reason being post ex-date the price of the share downward adjusts to the extent of the dividend, so practically if you have shorted at 100 and post ex-date (assuming a dividend of 2 and no movement of the stock price), the price would slide to 98, the party who longed the stock @ 100 now is sitting on a price of 98 and received a dividend of 2 which equates to 100. The above is also contextual to the law of the country governing the exchange and the security exchange board regulations.","I have an example of a trade I made some time ago. By entering the position as a covered call, I was out of pocket $5.10, and if the stock traded flat, i.e. closed at the same $7.10 16 months hence, I was up 39% or nearly 30%/yr. As compared to the stock holder, if the stock fell 28%, I'd still break even, vs his loss of 28%. Last, if the stock shot up, I'd get 7.50/5.10 or a 47% return, vs the shareholder who would need a price of $10.44 to reflect that return. Of course, a huge jump in the shares, say to $15, would benefit the option buyer, and I would have left money on the table. But this didn't happen. The stock was at $8 at expiration, and I got my 47% return. The option buyer got 50 cents for his $2 bet. Note, the $2 option price reflected a very high implied volatility.","The problem with short options is they expire and have to be covered. An inverse ETF is the way to go in my opinion. Because the real issue isn't if the market is overvalued but when will it correct. That's the risk and no one knows that answer","Absolutely. There is no requirement that an option be in-the-money for you to close out a position. Remember that there are alwayes two sides to a trade - a buyer and a seller. When you bought your option, it's entirely possible that someone else was closing out their long position by selling it to you.","Firstly, going short on a stock and worrying if the price suddenly gaps up a lot due to good news is the same as being long on a stock and worrying that the price will suddenly collapse due to bad news. Secondly, an out of the money call option would be cheaper than an in the money call option, in fact the further out of the money the cheaper the premium will be, all other things being equal. So a good risk management strategy would be to set your stop orders as per your trading plan and if you wish to have added protection in case of a large gap is to buy a far out of the money call option. The premium should not be too expensive. Something you should also consider is the time until expiry for the option, if your time frame for trading is days to weeks you make consider a cheaper option that expires in about a month, but if you are planning on holding the position for more than a month you might need a longer expiry period on the option, which will increase the premium. Another option to consider, if your broker offers it, is to use a guaranteed stop loss order. You will pay a little premium for this type of order and not all brokers offer it, but if it is offered you will be protected against any price gaps past your guaranteed stop loss price.","In terms of pricing the asset, this functions in exactly the same way as a regular sell, so bids will have to be hit to fill the trade. When shorting an equity, currency is not borrowed; the equity is, so the value of per share liability is equal to it's last traded price or the ask if the equity is illiquid. Thus when opening a short position, the asks offer nothing to the process except competition for your order getting filled. Part of managing the trade is the interest rate risk. If the asks are as illiquid as detailed in the question, it may be difficult even to locate the shares for borrowing. As a general rule, only illiquid equities or those in free fall may be temporarily unable for shorting. Interactive Brokers posts their securities financing availabilities and could be used as a proxy guide for your broker.","hmmm. I think it's because in both cases, you must pay for it up front, before the positions are closed out. You own nothing except the right to buy the stock re: the call, and the obligation to buy the stock re: the short. You buy a call, but must borrow the stock, for which you must put some margin collateral and there is a cost to borrow. You pay for that, of course. I wouldn't call it lending though.","Shorts are difficult because you have to find someone to lend the stock to you. In contrast, put options don't require that. They also have some nice properties like you're only out the contract price. The options chain for BSFT will give you an idea of where the market is. Keep in mind that BSFT only IPO'd last year and announced blowout earnings recently. Make sure the P:E you're looking at is using recent earnings reports!","\"Q: A: Everyone that is short is paying interest to the owners of the shares that the short seller borrowed. Although this quells your conundrum, this is also unrelated to the term. Interest in this context is just the number. In the options market, each contract also has an open interest, which tells you how many of that contract is being held. For your sake, think of it as \"\"how many are interested\"\", but really its just a completely different context.\"","Options do act, somewhat, like insurance.... However.... An insurance policy will not have such short term expiration time frames. A 20 year term life insurance policy can be thought of as insurance with an expiration. But the expiration on options is in weeks, not decades. So (IMO) options make terrible insurance policies because of the very short term expirations they have.","\"The settlement date for any trade is the date on which the seller gets the buyer's money and the buyer gets the seller's product. In US equities markets the settlement date is (almost universally) three trading days after the trade date. This settlement period gives the exchanges, the clearing houses, and the brokers time to figure out how many shares and how many dollars need to actually be moved around in order to give everyone what they're owed (and then to actually do all that moving around). So, \"\"settling\"\" a short trade is the same thing as settling any other trade. It has nothing to do with \"\"closing\"\" (or covering) the seller's short position. Q: Is this referring to when a short is initiated, or closed? A: Initiated. If you initiate a short position by selling borrowed shares on day 1, then settlement occurs on day 4. (Regardless of whether your short position is still open or has been closed.) Q: All open shorts which are still open by the settlement date have to be reported by the due date. A: Not exactly. The requirement is that all short positions evaluated based on their settlement dates (rather than their trade dates) still open on the deadline have to be reported by the due date. You sell short 100 AAPL on day 1. You then cover that short by buying 100 AAPL on day 2. As far as the clearing houses and brokers are concerned, however, you don't even get into the short position until your sell settles at the end of day 4, and you finally get out of your short position (in their eyes) when your buy settles at the end of day 5. So imagine the following scenarios: The NASDAQ deadline happens to be the end of day 2. Since your (FINRA member) broker has been told to report based on settlement date, it would report no open position for you in AAPL even though you executed a trade to sell on day 1. The NASDAQ deadline happens to be the end of day 3. Your sell still has not settled, so there's still no open position to report for you. The NASDAQ deadline happens to be the end of day 4. Your sell has settled but your buy has not, so the broker reports a 100 share open short position for you. The NASDAQ deadline happens to be the end of day 5. Your sell and buy have both settled, so the broker once again has no open position to report for you. So, the point is that when dealing with settlement dates you just pretend the world is 3 days behind where it actually is.\"","Yes. There are levels of option trading permission. For example, I've never set myself up for naked put writing. But, if you already have the call spread, buying back the shorted call will leave you with a long call. This wouldn't be an issue. As long as you have the cash/margin to buy back that higher strike call.","Your math shows that you bought an 'at the money' option for .35 and when the stock is $1 above the strike, your $35 (options trade as a contract for 100 shares) is now worth $100. You knew this, just spelling it out for future readers. 1 - Yes 2 - An execute/sell may not be nesesary, the ooption will have time value right until expiration, and most ofter the bid/ask will favor selling the option. You should ask the broker what the margin requirement is for an execute/sell. Keep in mind this usually cannot be done on line, if I recall, when I wanted to execute, it was a (n expensive) manual order. 3 - I think I answered in (2), but in general they are not identical, the bid/ask on options can get crazy. Just look at some thinly traded strikes and you'll see what I mean.","It depends on your cost structure and knowledge of the exchanges. It could be optimal to make a manual exchange selection so long as it's cheaper to do so. For brokers with trade fees, this is a lost cause because the cost of the trade is already so high that auto routing will be no cheaper than manual routing. For brokers who charge extra to manually route, this could be a good policy if the exchange chosen has very high rebates. This does not apply to equities because they are so cheap, but there are still a few expensive option exchanges. This all presumes that one's broker shares exchange rebates which nearly all do not. If one has direct access to the exchanges, they are presumably doing this already. To do this effectively, one needs: For anyone trading with brokers without shared rebates or who does not have knowledge of the exchange prices and their liquidities, it's best to auto route.","It depends on the broker, each one's rules may vary. Your broker should be able to answer this question for how they handle such a situation. The broker I used would execute and immediately sell the stock if the option was 25 cents in the money at expiration. If they simply executed and news broke over the weekend (option expiration is always on Friday), the client could wake up Monday to a bad margin call, or worse.","You bought the right – but not the obligation – to buy a certain number of shares at $15 from whomsoever sold you the option, and you paid a premium for it. You can choose whether you want to buy the shares at $15 during the period agreed upon. If you call for the shares, the other guy has to sell the shares to you for $15 each, even if the market price is higher. You can then turn around and promptly resell the purchased shares at the higher market price. If the market price never rises above $15 at any time while the option is open, you still have the right to buy the shares for $15 if you choose to do so. Most rational people would let the option expire without exercising it, but this is not a legal requirement. Doing things like buying shares at $15 when the market price is below $15 is perfectly legal; just not very savvy. You cannot cancel the option in the sense of going to the seller of the option and demanding your premium money back because you don't intend to exercise the option because the market price is below $15. Of course, if the market price is above $15 and you tell the seller to cancel the contract, they will be happy to do so, since it lets them off the hook. They may or may not give you the premium back in this case.","You don't mention any specific numbers, so I'll answer in generalities. Say I buy a call option today, and I short the underlying stock with the delta. The value will be the value of the option you bought less the value of the stock you are short. (your premium is not included in the value since it's a sunk cost, but is reflected in your profit/loss) So, say I go out and adjust my portfolio, so I am still delta short in the underlying. It's still the value of your options, less the value of the underlying you are short. What is my PnL over this period? The end value of your portfolio less what you paid for that value, namely the money you received shorting the underlyings less the premium you paid for the option."],"string":"[\n \"You can buy a put and exercise it. The ideal option in this case will have little time premium left and very near the money. Who lent you the shares? The person that sold you the option! In reality, when you exercise, assignment can be random, but everything is [supposedly] accounted for as the option seller had to put up margin collateral to sell the option.\",\n \"\\\"Yes, if it's an American style option. American style options may be exercised at any time prior to expiration (even if they're not in-the-money). Generally, you are required to deliver or accept delivery of the underlying by the beginning of the next trading day. If you are short, you may be chosen by the clearinghouse to fulfill the exercise (a process called \\\"\\\"assignment\\\"\\\"). Because the clearinghouse is the counter-party to every options trade, you can be assigned even if the specific person who purchased the option you wrote didn't exercise, but someone else who holds a long position did. Similarly, you might not be assigned if that person did exercise. The clearinghouse randomly chooses a brokerage to fulfill an assignment, and the brokerage will randomly choose an individual account. If you're going to be writing options, especially using spreads, you need to have a plan ahead of time on what to do if one of your legs gets assigned. This is more likely to happen just before a dividend payment, if the payment is more than the remaining time value.\\\"\",\n \"If you are in the money at expiration you are going to get assigned to the person on the other side of the contract. This is an extremely high probability. The only randomness comes from before expiration. Where you may be assigned because a holder exercised the option before expiration, this can unbalance some of your strategies. But in exchange, you get all the premium that was still left on the option when they exercised. An in the money option, at expiration, has no premium. The value of your in the money option is Current Stock price - Strike Price, for a call. And Strike price - Current Stock price, for a put. Thats why there is no free lunch in this scenario.\",\n \"An option is freely tradable, and all options (of the same kind) are equal. If your position is 0 and you sell 1 option, your new position in that option is -1. If the counterparty to your trade buys or sells more options to close, open, or even reopen their position afterwards, that doesn't matter to your position at all. Of course there's also the issue with American and European Options. European Options expire at their due date, but American Options expire at their due date or at any time before their due date if the holder decides they expire. With American Options, if a holder of an American Option decides to exercise the option, someone who is short the same option will be assigned as the counterparty (this is usually random). Expiry is after market close, so if one of your short American Options expires early, you will need to reopen the position the next day. Keep in mind dividends for slightly increased complexity. American and European Options do not in any way refer to the continents they are traded on, or to the location of the companies. These terms simply describe the expiry rules.\",\n \"\\\"The question you are asking concerns the exercise of a short option position. The other replies do not appear to address this situation. Suppose that Apple is trading at $96 and you sell a put option with a strike price of $95 for some future delivery date - say August 2016. The option contract is for 100 shares and you sell the contract for a premium of $3.20. When you sell the option your account will be credited with the premium and debited with the broker commission. The premium you receive will be $320 = 100 x $3.20. The commission you pay will depend on you broker. Now suppose that the price of Apple drops to $90 and your option is exercised, either on expiry or prior to expiry. Then you would be obliged to take delivery of 100 Apple shares at the contracted option strike price of $95 costing you $9,500 plus broker commission. If you immediately sell the Apple shares you have purchased under your contract obligations, then assuming you sell the shares at the current market price of $90 you would realise a loss of $500 ( = 100x($95-$90) )plus commission. Since you received a premium of $320 when you sold the put option, your net loss would be $500-$320 = $180 plus any commissions paid to your broker. Now let's look at the case of selling a call option. Again assume that the price of Apple is $96 and you sell a call option for 100 shares with a strike price of $97 for a premium of $3.60. The premium you receive would be $360 = 100 x $3.60. You would also be debited for commission by your broker. Now suppose that the price of Apple shares rises to $101 and your option is exercised. Then you would be obliged to deliver 100 Apple shares to the party exercising the option at the contracted strike price of $97. If you did not own the shares to effect delivery, then you would need to purchase those shares in the market at the current market price of $101, and then sell them to the party exercising the option at the strike price of $97. This would realise an immediate loss of $400 = 100 x ($101-$97) plus any commission payable. If you did own the shares, then you would simply deliver them and possibly pay some commission or a delivery fee to your broker. Since you received $360 when you sold the option, your net loss would be $40 = $400-$360 plus any commission and fees payable to the broker. It is important to understand that in addition to these accounting items, short option positions carry with them a \\\"\\\"margin\\\"\\\" requirement. You will need to maintain a margin deposit to show \\\"\\\"good faith\\\"\\\" so long as the short option position is open. If the option you have sold moves against you, then you will be called upon to put up extra margin to cover any potential losses.\\\"\",\n \"\\\"You are likely making an assumption that the \\\"\\\"Short call\\\"\\\" part of the article you refer to isn't making: that you own the underlying stock in the first place. Rather, selling short a call has two primary cases with considerably different risk profiles. When you short-sell (or \\\"\\\"write\\\"\\\") a call option on a stock, your position can either be: covered, which means you already own the underlying stock and will simply need to deliver it if you are assigned, or else uncovered (or naked), which means you do not own the underlying stock. Writing a covered call can be a relatively conservative trade, while writing a naked call (if your broker were to permit such) can be extremely risky. Consider: With an uncovered position, should you be assigned you will be required to buy the underlying at the prevailing price. This is a very real cost — certainly not an opportunity cost. Look a little further in the article you linked, to the Option strategies section, and you will see the covered call mentioned there. That's the kind of trade you describe in your example.\\\"\",\n \"\\\"Seems like you are concerned with something called assignment risk. It's an inherent risk of selling options: you are giving somebody the right, but not the obligation, to sell to you 100 shares of GOOGL. Option buyers pay a premium to have that right - the extrinsic value. When they exercise the option, the option immediately disappears. Together with it, all the extrinsic value disappears. So, the lower the extrinsic value, the higher the assignment risk. Usually, option contracts that are very close to expiration (let's say, around 2 to 3 weeks to expiration or less) have significantly lower extrinsic value than longer option contracts. Also, generally speaking, the deeper ITM an option contract is, the lower extrinsic value it will have. So, to reduce assignment risk, I usually close out my option positions 1-2 weeks before expiration, especially the contracts that are deep in the money. edit: to make sure this is clear, based on a comment I've just seen on your question. To \\\"\\\"close out an options position\\\"\\\", you just have to create the \\\"\\\"opposite\\\"\\\" trade. So, if you sell a Put, you close that by buying back that exact same put. Just like stock: if you buy stock, you have a position; you close that position by selling the exact same stock, in the exact same amount. That's a very common thing to do with options. A post in Tradeking's forums, very old post, but with an interesting piece of data from the OCC, states that 35% of the options expire worthless, and 48% are bought or sold before expiration to close the position - only 17% of the contracts are actually exercised! (http://community.tradeking.com/members/optionsguy/blogs/11260-what-percentage-of-options-get-exercised) A few other things to keep in mind: certain stocks have \\\"\\\"mini options contracts\\\"\\\", that would correspond to a lot of 10 shares of stock. These contracts are usually not very liquid, though, so you might not get great prices when opening/closing positions you said in a comment, \\\"\\\"I cannot use this strategy to buy stocks like GOOGL\\\"\\\"; if the reason is because 100*GOOGL is too much to fit in your buying power, that's a pretty big risk - the assignment could result in a margin call! if margin call is not really your concern, but your concern is more like the risk of holding 100 shares of GOOGL, you can help manage that by buying some lower strike Puts (that have smaller absolute delta than your Put), or selling some calls against your short put. Both strategies, while very different, will effectively reduce your delta exposure. You'd get 100 deltas from the 100 shares of GOOGL, but you'd get some negative deltas by holding the lower strike Put, or by writing the higher strike Call. So as the stock moves around, your account value would move less than the exposure equivalent to 100 shares of stock.\\\"\",\n \"First, it depends on your broker. Full service firms will tear you a new one, discount brokers may charge ~nothing. You'll have to check with your broker on assignment fees. Theoretically, this is the case of the opposite of my answer in this question: Are underlying assets supposed to be sold/bought immediately after being bought/sold in call/put option? Your trading strategy/reasoning for your covered call notwithstanding, in your case, as an option writer covering in the money calls, you want to hold and pray that your option expires worthless. As I said in the other answer, there is always a theoretical premium of option price + exercise price to underlying prices, no matter how slight, right up until expiration, so on that basis, it doesn't pay to close out the option. However, there's a reality that I didn't mention in the other answer: if it's a deep in the money option, you can actually put a bid < stock price - exercise price - trade fee and hope for the best since the market makers rarely bid above stock price - exercise price for illiquid options, but it's unlikely that you'll beat the market makers + hft. They're systems are too fast. I know the philly exchange allows you to put in implied volatility orders, but they're expensive, and I couldn't tell you if a broker/exchange allows for dynamic orders with the equation I specified above, but it may be worth a shot to check out; however, it's unlikely that such a low order would ever be filled since you'll at best be lined up with the market makers, and it would require a big player dumping all its' holdings at once to get to your order. If you're doing a traditional, true-blue covered call, there's absolutely nothing wrong being assigned except for the tax implications. When your counterparty calls away your underlyings, it is a sell for tax purposes. If you're not covering with the underlying but with a more complex spread, things could get hairy for you real quick if someone were to exercise on you, but that's always a risk. If your broker is extremely strict, they may close the rest of your spread for you at the offer. In illiquid markets, that would be a huge percentage loss considering the wide bid/ask spreads.\",\n \"\\\"With stocks, you can buy or sell. If you sell first, that's called 'shorting.' As in \\\"\\\"I think linkedin is too high, I'm going to short it.\\\"\\\" With options, the terminology is different, the normal process is to buy to open/sell to close, but if you were shorting the option itself, you would first sell to open, i.e you are selling a position to start it, effectively selling it short. Eventually, you may close it out, by buying to close. Options trading is not for the amateur. If you plan to trade, study first and be very cautious.\\\"\",\n \"\\\"By their agreements with the central counterparty - in the US, the exchange or the Options Clearing Corporation, which interposes itself between the counterparties of each trade and guarantees that they settle. From the CCP article: A clearing house stands between two clearing firms (also known as member firms or participants). Its purpose is to reduce the risk a member firm failing to honor its trade settlement obligations. A CCP reduces the settlement risks by netting offsetting transactions between multiple counterparties, by requiring collateral deposits (also called \\\"\\\"margin deposits\\\"\\\"), by providing independent valuation of trades and collateral, by monitoring the credit worthiness of the member firms, and in many cases, by providing a guarantee fund that can be used to cover losses that exceed a defaulting member's collateral on deposit. Exercisers on most contracts are matched against random writers during the assignment process, and if the writer doesn't deliver/buy the stock, the OCC does so using its funds and goes after the defaulting party.\\\"\",\n \"Fair enough. I would imagine the ETF could get a better option pricing if that were the case, plus liquidity and counterpart risk concerns but your point is well taken. Serves me right to shoot my mouth off on something I do not do (short). Speaking of which, do you do a lot of shorting? Cover positions or speculation?\",\n \"\\\"When the strike price ($25 in this case) is in-the-money, even by $0.01, your shares will be sold the day after expiration if you take no action. If you want to let your shares go,. allow assignment rather than close the short position and sell the long position...it will be cheaper that way. If you want to keep your shares you must buy back the option prior to 4Pm EST on expiration Friday. First ask yourself why you want to keep the shares. Is it to write another option? Is it to hold for a longer term strategy? Assuming this is a covered call writing account, you should consider \\\"\\\"rolling\\\"\\\" the option. This involves buying back the near-term option and selling the later date option of a similar or higher strike. Make sure to check to see if there is an upcoming earnings report in the latter month because you may want to avoid writing a call in that situation. I never write a call when there's an upcoming ER prior to expiration. Good luck. Alan\\\"\",\n \"Option contracts typically each represent 100 shares. So the 1 call contract you sold to open (wrote) grants the buyer of that option the right to purchase your 100 shares for $80.00 per share any time before the option expiration date. You were paid a gross amount of $100 (100 shares times $1.00 premium per share) for taking on the obligation to deliver should the option holder choose to exercise. You received credit in your account of $89.22, which ought to be the $100 less any trading commission (~$10?) and miscellaneous fees (regulatory, exchange, etc.) per contract. You did capture premium. However, your covered call write represents an open short position that, until either (a) the option expires worthless, or (b) is exercised, or (c) is bought back to close the position, will continue to show on your account as a liability. Until the open position is somehow closed, the value of both the short option contract and long stock will continue to fluctuate. This is normal.\",\n \"The put vs call assignment risk, is actually the reverse: in-the-money calls are more likely to be exercised early than puts. Exercising a call locks in profit for the option holder because they can buy the shares at below market price, and immediately sell them at the higher market price. If there are dividends due, the risk is even higher. By contrast, exercising an in-the-money put locks in a loss for the holder, so it's less common.\",\n \"To Chris' comment, find out if the assignment commission is the same as the commission for an executed trade. If that does affect the profit, just let it expire. I've had spreads (buy a call, sell a higher strike call, same dates) so deep in the money, I just made sense to let both exercise at expiration. Don't panic if all legs ofthe trade don't show until Sunday or even Monday morning.\",\n \"I understand the question, I think. The tough thing is that trades over the next brief time are random, or appear so. So, just as when a stock is $10.00 bid / $10.05 ask, if you place an order below the ask, a tick down in price may get you a fill, or if the next trades are flat to higher, you might see the close at $10.50, and no fill as it never went down to your limit. This process is no different for options than for stocks. When I want to trade options, I make sure the strike has decent volume, and enter a market order. Edit - I reworded a bit to clarify. The Black–Scholes is a model, not a rigid equation. Say I discover an option that's underpriced, but it trades under right until it expires. It's not like there's a reversion to the mean that will occur. There are some very sophisticated traders who use these tools to trade in some very high volumes, for them, it may produce results. For the small trader you need to know why you want to buy a stock or its option and not worry about the last $0.25 of its price.\",\n \"You could have both options exercised (and assigned to you) on the same day, but I don't think you could lose money on both on the same day. The reason is that while exercises are immediate, assignments are processed after the markets close at the end of each day. See http://www.888options.com/help/faq/assignment.jsp for details. So you would get both assignments at the same time, that night. The net effect should be that you don't own any stock (someone would put you the stock, then it'd be called away) and you don't have the options anymore. You should have incoming cash of $1500 selling the stock to the call exerciser and outgoing cash of $1300 buying from the put exerciser, right? So you would have no more options but $200 more cash in your account in the morning. You bought at 13 and sold at 15. This options position is an agreement to buy at 13 and sell at 15 at someone else's option. The way you lose money is if one of the options isn't exercised while the other is, i.e. if the stock is below 13 so nobody is going to opt to buy from you at 15, but they'll sell to you at 13; or above 15 so nobody is going to opt to sell to you at 13, but they'll buy from you at 15. You make money if neither is exercised (you keep the premium you sold for) or both are exercised (you keep the gap between the two, plus the premium). Having both exercised is surely rare, since early exercise is rare to begin with, and tends to happen when options are deep in the money; so you'd expect both to be exercised if both are deep in the money at some point. Having both be exercised on the same day ... can't be common, but it's maybe most likely just before expiration with minimal time value, if the stock moves around quickly so both options are in the money at some point during the day.\",\n \"\\\"You've described the process fairly well. It's tough to answer a question that ultimately is 'how is this fair?' It's fair in that it's part of the known risk. And for the fact that it applies to all, pretty equally. In general, this is not very common. (No, I don't have percents handy, I'm just suggesting from decades of trading it's probably occurring less than 10% of the time). Why? Because there's usually more value to the buyer in simply selling the option and using the proceeds to buy the stock. The option will have 2 components, its intrinsic value (\\\"\\\"in the money\\\"\\\") and the time premium. It takes the odd combination of low-to-no time premium, but desire of the buyer to own the stock that makes the exercise desirable.\\\"\",\n \"\\\"Am I getting it right that in India in terms of short selling in F&O market its what in the rest of the world is called naked short and you actually make promise to depositary that you will deliver that security you sold on settlement without actually owning the security or going through SLB mechanism? In Future and Options; there is no concept of short selling. You buy a future for a security / index. On the settlement day; the exchange determines the settlement price. The trade is closed in cash. i.e. Based on the settlement price, you [and the other party] will either get money [other party looses money] or you loose money [other party gets the money]. Similarly for Options; on expiry, the all \\\"\\\"In Money\\\"\\\" [or At Money] Options are settled in cash and you are credit with funds [the option writer is debited with funds]. If the option is \\\"\\\"out of money\\\"\\\" it expires and you loose the premium you paid to exercise the option.\\\"\",\n \"\\\"> It just has to finish below the strike price of the short (which can be higher than the stock's current price). You're talking about a put option. That's one \\\"\\\"short\\\"\\\" strategy, but it's not shorting a stock, so the terminology is a little jumbled. There are reasons to not do straight options, because they can be quite risky, and you have to get the time frame correct.\\\"\",\n \"Options, both puts and calls, are typically written/sold at different strike prices. For example, even though the stock of XYZ is currently trading at $12.50, there could be put options for prices ranging from $0.50 to $30.00, just as an example. There are several factors that go into determining the strike prices at which people are willing to write options. The writer/seller of an option is the person on the other side of the trade that has the opposite opinion of you. If you are interested in purchasing a put on a stock to hedge your downside, that means the writer/seller of the put is betting that you are wrong and that the stock price will rise instead.\",\n \"Shorts need a buyer on the other end somewhere, if there is no one interested in taking the other side of it, you probably won't find anywhere you will be able to execute that trade. Take a look on your broker's site, see if it's an option they will even give you.\",\n \"To expand on the comment made by @NateEldredge, you're looking to take a short position. A short position essentially functions as follows: Here's the rub: you have unlimited loss potential. Maybe you borrow a share and sell it at $10. Maybe in a month you still haven't closed the position and now the share is trading at $1,000. The share lender comes calling for their share and you have to close the position at $1,000 for a loss of $990. Now what if it was $1,000,000 per share, etc. To avoid this unlimited loss risk, you can instead buy a put option contract. In this situation you buy a contract that will expire at some point in the future for the right to sell a share of stock for $x. You get to put that share on to someone else. If the underlying stock price were to instead rise above the put's exercise price, the put will expire worthless — but your loss is limited to the premium paid to acquire the put option contract. There are all sorts of advanced options trades sometimes including taking a short or long position in a security. It's generally not advisable to undertake these sorts of trades until you're very comfortable with the mechanics of the contracts. It's definitely not advisable to take an unhedged short position, either by borrowing someone else's share(s) to sell or selling an option (when you sell the option you take the risk), because of the unlimited loss potential described above.\",\n \"You sold a call, I trust? I bought a call. I have the right to exercise at my will. No sense if out of the money, of course, but if in the money, I might want to capture a dividend or just start the clock for long term gains. Once I exercise, you have no option (pun intended) but to let it go. The assignment is notification, not a request for permission.\",\n \"\\\"And what exactly do I profit from the short? I understand it is the difference in the value of the stock. So if my initial investment was $4000 (200 * $20) and I bought it at $3800 (200 * $19) I profit from the difference, which is $200. Do I also receive back the extra $2000 I gave the bank to perform the trade? Either this is extremely poorly worded or you misunderstand the mechanics of a short position. When you open a short position, your are expecting that the stock will decline from here. In a short position you are borrowing shares you don't own and selling them. If the price goes down you get to buy the same shares back for less money and return them to the person you borrowed from. Your profit is the delta between the original sell price and the new lower buy price (less commissions and fees/interest). Opening and closing a short position is two trades, a sell then a buy. Just like a long trade there is no maximum holding period. If you place your order to sell (short) 200 shares at $19, your initial investment is $3,800. In order to open your $3,800 short position your broker may require your account to have at least $5,700 (according to the 1.5 ratio in your question). It's not advisable to open a short position this close to the ratio requirement. Most brokers require a buffer in your account in case the stock goes up, because in a short trade if the stock goes up you're losing money. If the stock goes up such that you've exhausted your buffer you'll receive what's known as a \\\"\\\"margin call\\\"\\\" where your broker either requires you to wire in more money or sell part or all of your position at a loss to avoid further losses. And remember, you may be charged interest on the value of the shares you're borrowing. When you hold a position long your maximum loss is the money you put in; a position can only fall to zero (though you may owe interest or other fees if you're trading on margin). When you hold a position short your maximum loss is unlimited; there's no limit to how high the value of something can go. There are less risky ways to make short trades by using put options, but you should ensure that you have a firm grasp on what's happening before you use real money. The timing of the trades and execution of the trades is no different than when you take a plain vanilla long position. You place your order, either market or limit or whatever, and it executes when your trade criteria occurs.\\\"\",\n \"Any portfolio, even one composed of risk-free assets is subject to risk. That said, to short an equity without margin risk, puts can provide. To replicate a short without excess margin, an at the money put should be used. To take on less leverage, a deep in the money put can be used. Puts are not available on equities deemed illiquid by regulation. A long/short portfolio can help mitigate variance risk, but then the problem becomes the risk of a lack of volatility since options decline in value over time and without a beneficial change in the underlying.\",\n \"Here's a simple example for a put, from both sides. Assume XYZ stock trades at $200 right now. Let's say John writes a $190 out of the money put on XYZ stock and sells this put to Abby for the premium, which is say $5. Assume the strike date, or date of settlement, is 6 months from now. Thus Abby is long one put option and John is short one put option (the writer of the option is short the option). On settlement date, let's assume two different scenarios: (1) If the price of the stock decreases by $50, then the put that Abby bought is 'in the money'. Abby's profit can be calculated as being strike price 190 - current stock price 150 - premium paid 5 = $35 So not including any transaction fees, that is a $35 dollar return on a $5 investment. (2) If the price of the stock increases by $50, then the put that Abby bought is worthless and her loss was 100%, or her entire $5 premium. For John, he made $5 in 6 months (in reality you need collateral and good credit to be able to write sizable option positions).\",\n \"\\\"I think the issue you are having is that the option value is not a \\\"\\\"flow\\\"\\\" but rather a liability that changes value over time. It is best to illustrate with a balance sheet. The $33 dollars would be the premium net of expense that you would receive from your brokerage for having shorted the options. This would be your asset. The liability is the right for the option owner (the person you sold it to) to exercise and purchase stock at a fixed price. At the moment you sold it, the \\\"\\\"Marked To Market\\\"\\\" (MTM) value of that option is $40. Hence you are at a net account value of $33-$40= $-7 which is the commission. Over time, as the price of that option changes the value of your account is simply $33 - 2*(option price)*(100) since each option contract is for 100 shares. In your example above, this implies that the option price is 20 cents. So if I were to redo the chart it would look like this If the next day the option value goes to 21 cents, your liability would now be 2*(0.21)*(100) = $42 dollars. In a sense, 2 dollars have been \\\"\\\"debited\\\"\\\" from your account to cover your potential liability. Since you also own the stock there will be a credit from that line item (not shown). At the expiry of your option, since you are selling covered calls, if you were to be exercised on, the loss on the option and the gain on the shares you own will net off. The final cost basis of the shares you sold will be adjusted by the premium you've received. You will simply be selling your shares at strike + premium per share (0.20 cents in this example)\\\"\",\n \"I use over half my buying power of my portfolio for options, and I'm not a fan of any of the strategies listed above either (I stay away from negative theta trades for the most part), but I just listed them to point out that saying the reason someone wouldn't enter a short position is for fear of infinite losses is asinine. It's easy enough to make any trade risk defined if that is something the trader cares about.\",\n \"You're correct. If you have no option position at execution then you carry no risk. Your risk is only based on the net number of options you're holding at execution. This is handled by your broker or clearinghouse. Pretend that you wrote 1000 options, (you're short the call) then you bought 1000 of the same option (bought to cover) ... you are now flat and have zero options exposure. Pretend you bought 1000 options (you're long the calls) then you sold 1000 of them (liquidated your long) ... you are now flat and have zero options exposure.\",\n \"\\\"I would think that a lot of brokers would put the restriction suggested in @homer150mw in place or something more restrictive, so that's the first line of answer. If you did get assigned on your short option, then (I think) the T+3 settlement rules would matter for you. Basically you have 3 days to deliver. You'll get a note from your broker demanding that you provide the stock and probably threatening to liquidate assets in your account to cover their costs if you don't comply. If you still have the long-leg of the calendar spread then you can obtain the stock by exercising your long call, or, if you have sufficient funds available, you can just buy the stock and keep your long call. (If you're planning to exercise the long call to cover the position, then you need to check with your broker to see how quickly the stock so-obtained will get credited to your account since it also has some settlement timeline. It's possible that you may not be able to get the stock quickly enough, especially if you act on day 3.) Note that this is why you must buy the call with the far date. It is your \\\"\\\"insurance\\\"\\\" against a big move against you and getting assigned on your short call at a price that you cannot cover. With the IRA, you have some additional concerns over regular cash account - Namely you cannot freely contribute new cash any time that you want. That means that you have to have some coherent strategy in place here that ensures you can cover your obligations no matter what scenario unfolds. Usually brokers put additional restrictions on trades within IRAs just for this reason. Finally, in the cash account and assuming that you are assigned on your short call, you could potentially could get hit with a good faith, cash liquidation, or free riding violation when your short call is assigned, depending on how you deliver the stock and other things that you're doing in the same account. There are other questions on that on this site and lots of information online. The rules aren't super-simple, so I won't try to reproduce them here. Some related questions to those rules: An external reference also on potential violations in a cash account: https://www.fidelity.com/learning-center/trading-investing/trading/avoiding-cash-trading-violations\\\"\",\n \"First, a margin account is required to trade options. If you buy a put, you have the right to deliver 100 shares at a fixed price, 50 can be yours, 50, you'll buy at the market. If you sell a put, you are obligated to buy the shares if put to you. All options are for 100 shares, I am unaware of any partial contract for fewer shares. Not sure what you mean by leveraging the position, can you spell it out more clearly?\",\n \"If you buy puts, there are no guaranteed proceeds though. If you short against the box, you've got immediate proceeds with a nice capital loss if it doesn't work out. Conversely, you could write a covered call, take the contract proceeds, and write off the long position losses. Nobody ever factors tax consequences into the equation here.\",\n \"\\\"But what happen if the stock price went high and then go down near expiry date? When you hold a short (sold) call option position that has an underlying price that is increasing, what will happen (in general) is that your net margin requirements will increase day by day. Thus, you will be required to put up more money as margin to finance your position. Margin money is simply a \\\"\\\"good faith\\\"\\\" deposit held by your broker. It is not money that is debited as cash from the accounting ledger of your trading account, but is held by your broker to cover any potential losses that may arise when you finally settle you position. Conversely, when the underlying share price is decreasing, the net margin requirements will tend to decrease day by day. (Net margin is the net of \\\"\\\"Initial Margin\\\"\\\" and \\\"\\\"Variation Margin\\\"\\\".) As the expiry date approaches, the \\\"\\\"time value\\\"\\\" component of the option price will be decreasing.\\\"\",\n \"The original option writer (seller) can close his short position in the contracts he wrote by purchasing back matching contracts (i.e. contracts with the same terms: underlying, option type, strike price, expiration date) from any others who hold long positions, or else who write new matching contract instances. Rather than buyer and seller settling directly, options are settled through a central options clearing house, being the Options Clearing Corporation for exchange-listed options in the U.S. See also Wikipedia - Clearing house (finance). So, the original buyer of the put maintains his position (insurance) and the clearing process ensures he is matched up with somebody else holding a matching obligation, if he chooses to exercise his put. I also answered a similar question but in more detail, here.\",\n \"No, if your stock is called away, the stock is sold at the agreed upon price. You cannot get it back at your original price. If you don't want your stock to be called, make sure you have the short call position closed by expiration if it is ITM. Also you could be at risk for early assignment if the option has little to no extrinsic value, although probably not. But when dividends are coming, make sure you close your short ITM options. If the dividend is worth more than the extrinsic value, you are pretty much guaranteed to be assigned. Been assigned that way too many times. Especially in ETFs where the dividends aren't dates are not always easy to find. It happens typically during triple witching. If you are assigned on your short option, you will be short stock and you will have to pay the dividend to the shareholder of your short stock. So if you have a covered call on, and you are assigned, your stock will be called away, and you will have to pay the dividend.\",\n \"When you want to short a stock, you are trying to sell shares (that you are borrowing from your broker), therefore you need buyers for the shares you are selling. The ask prices represent people who are trying to sell shares, and the bid prices represent people who are trying to buy shares. Using your example, you could put in a limit order to short (sell) 1000 shares at $3.01, meaning that your order would become the ask price at $3.01. There is an ask price ahead of you for 500 shares at $3.00. So people would have to buy those 500 shares at $3.00 before anyone could buy your 1000 shares at $3.01. But it's possible that your order to sell 1000 shares at $3.01 never gets filled, if the buyers don't buy all the shares ahead of you. The price could drop to $1.00 without hitting $3.01 and you will have missed out on the trade. If you really wanted to short 1000 shares, you could use a market order. Let's say there's a bid for 750 shares at $2.50, and another bid for 250 shares at $2.49. If you entered a market order to sell 1000 shares, your order would get filled at the best bid prices, so first you would sell 750 shares at $2.50 and then you would sell 250 shares at $2.49. I was just using your example to explain things. In reality there won't be such a wide spread between the bid and ask prices. A stock might have a bid price of $10.50 and an ask price of $10.51, so there would only be a 1 cent difference between putting in a limit order to sell 1000 shares at $10.51 and just using a market order to sell 1000 shares and getting them filled at $10.50. Also, your example probably wouldn't work in real life, because brokers typically don't allow people to short stocks that are trading under $5 per share. As for your question about how often you are unable to make a short sale, it can sometimes happen with stocks that are heavily shorted and your broker may not be able to find any more shares to borrow. Also remember that you can only short stocks with a margin account, you cannot short stocks with a cash account.\",\n \"First off, you should phone your broker and ask them just to be 100% certain. You will be exercised on the short option that was in the money. It is irrelevant that your portfolio does not contain AAPL stock. You will simply be charged the amount it costs to purchase the shares that you owe. I believe your broker would just take this money from your margin/cash account, they would not have let you put the position on if your account could not cover it. I can't see how you having a long dated 2017 call matters. You would still be long this call once assignment of the short call was settled.\",\n \"Yes, theoretically you can flip the shares you agreed to buy and make a profit, but you're banking on the market behaving in some very precise and potentially unlikely ways. In practice it's very tricky for you to successfully navigate paying arbitrarily more for a stock than it's currently listed for, and selling it back again for enough to cover the difference. Yes, the price could drop to $28, but it could just as easily drop to $27.73 (or further) and now you're hurting, before even taking into account the potentially hefty commissions involved. Another way to think about it is to recognize that an option transaction is a bet; the buyer is betting a small amount of money that a stock will move in the direction they expect, the seller is betting a large amount of money that the same stock will not. One of you has to lose. And unless you've some reason to be solidly confident in your predictive powers the loser, long term, is quite likely to be you. Now that said, it is possible (particularly when selling puts) to create win-win scenarios for yourself, where you're betting one direction, but you'd be perfectly happy with the alternative(s). Here's an example. Suppose, unrelated to the option chain, you've come to the conclusion that you'd be happy paying $28 for BBY. It's currently (June 2011) at ~$31, so you can't buy it on the open market for a price you'd be happy with. But you could sell a $28 put, promising to buy it at that price should someone want to sell it (presumably, because the price is now below $28). Either the put expires worthless and you pocket a few bucks and you're basically no worse off because the stock is still overpriced by your estimates, or the option is executed, and you receive 100 shares of BBY at a price you previously decided you were willing to pay. Even if the list price is now lower, long term you expect the stock to be worth more than $28. Conceptually, this makes selling a put very similar to being paid to place a limit order to buy the stock itself. Of course, you could be wrong in your estimate (too low, and you now have a position that might not become profitable; too high, and you never get in and instead just watch the stock gain in value), but that is not unique to options - if you're bad at estimating value (which is not to be confused with predicting price movement) you're doomed just about whatever you do.\",\n \"\\\"Firstly \\\"\\\"Most option traders don't want to actually buy or sell the underlying stock.\\\"\\\" THIS IS COMPLETELY UTTERLY FALSE Perhaps the problem is that you are only familiar with the BUY side of options trading. On the sell side of options trading, an options desk engages in DELTA HEDGING. When we sell an option to a client. We will also buy an appropriate amount of underlying to match the delta position of the option. During the life time of the option. We will readjust our hedge position whenever the delta changes (those who follow Black Scholes will know that normally that comes from (underlying) price changes). However, we lose money on each underlying change (we have to cross the bid-ask spread for each trade). That is why we lose money when there is volatility. That is why we are said to be \\\"\\\"short VEGA\\\"\\\" or \\\"\\\"short volatility\\\"\\\". So one way to think about \\\"\\\"buying\\\"\\\" options, is that you are paying someone to execute a specific trading strategy. In general, those who sell options, are also happy to buy options back (at a discount of course, so we make a profit). But when doing so, we need to unroll our hedging position, and that again incurs a cost (to us, the bank). Finally. Since this is \\\"\\\"money\\\"\\\" stackexchange rather than finance. You are most likely referring to \\\"\\\"warrants\\\"\\\" rather than \\\"\\\"options\\\"\\\", which are listed on stock exchanges. The exchange in most regions give us very specific and restrictive regulations that we must abide by. One very common one is that we MUST always list a price which we are willing to buy the warrants back at (which may not be an unreasonable spread from the sell price). Since an Option is a synthetically created investment instrument, when we buy back the Option from the investor, we simply unwind the underlying hedging positions that we booked to synthesize the Options with. Source: I've worked 2 years on a warrant desk, as a desk developer.\\\"\",\n \"One broker told me that I have to simply read the ask size and the bid size, seeing what the market makers are offering. This implies that my order would have to match that price exactly, which is unfortunate because options contract spreads can be WIDE. Also, if my planned position size is larger than the best bid/best ask, then I should break up the order, which is also unfortunate because most brokers charge a lot for options orders.\",\n \"I'll just copypasta out of the book for the sake of clarity: * If you think about it, you see that the only brokers who touch the switch for light bulb number 64 are those whose numbers are divisors of 64. That is, light bulb 64 has its state changed by brokers whose numbers are factors of 64. This means brokers 1, 2, 4, 8, 16, 32, 64. Because light bulb 64 is originally off, it must be after this odd number of switches that it is on. * You want to be short a put if you expect a price rise. In this case, you expect to keep the option premium when the option expires worthless. There are a few pages worth of questions for the options, so the explanation for the IBM one is somewhat limited.\",\n \"If it helps you to think about it, long is equivalent to betting for the upside and short is equivalent to betting for the downside. If you are long on options, then you expect the value of such options to increase. If you are long an option, then you own the option. If you are short an option, then generally you sold the option. Someone who is short a call (sometimes called the writer or occasionally the issuer) has sold a call option to someone who is now long a call. Buying a call option that will increase in value is itself a form of investment, just as it's investment to buy stock or other instruments hoping they will appreciate in value. An option's value will rise or fall with the underlying, so being long an option is a way to be long in the underlying. Someone can be long in a stock by buying the stock, or long in a call by buying call options in the stock. The long call generally requires less initial investment than buying the underlying, and lets the option-holder avoid the asset downside during the option term. The risk is that the asset may not appreciate to the point that the call option will pay off. In the conceptual sense, a share of stock is a particular right to the profits and assets of a corporation, both in form of dividends and in liquidation. An option is a particular right to the the share of stock. It's just a further way to formalize and subdivide the various property rights that exist in a corporation. If you can buy a piece of paper with particular rights to corporate profits and assets, then you can buy another piece of paper with particular rights to the former piece of paper.\",\n \"Exchange traded options are issued in a way that there is no counter party risk. Consider, stocks and options are held in street name. So, for example, if I am short and you are long shares, no matter what happens on my end, your shares are yours. To be complete, it's possible to enter into a direct deal, where you have a contract for some non-standard option, but that would be very rare for the average investor.\",\n \"\\\"The tax comes when you close the position. If the option expires worthless it's as if you bought it back for $0. There's a short-term capital gain for the difference between your short-sale price and your buyback price on the option. I believe the capital gain is always short-term because short sales are treated as short-term even if you hold them open more than one year. If the option is exercised (calling away your stock) then you add the premium to your sale price on the stock and then compute the capital gain. So in this case you can end up treating the premium as a long-term capital gain. See IRS pub 550 http://www.irs.gov/publications/p550/ch04.html#en_US_2010_publink100010619 Search for \\\"\\\"Writers of puts and calls\\\"\\\"\\\"\",\n \"\\\"Whether or not you make money here depends on whether you are buying or selling the option when you open your position. You certainly would not make money in the scenario where you are buying options at the open. If fact you would end up loosing quite a lot of money. You do not specify whether you are buying or selling the options, so let's assume that you are buying both the call and the put. We'll look a profitable trade at the bottom of my answer. Buying an in-the-money Call option with a strike price of $90 when the underlying asset price is $150 would cost you a small fraction over $6000 = (100 x $60) since the intrinsic value value of the option is $60. Add to this cost any commission charged by your broker. Buying an out-of-the-money Put option with a strike price of $110 when the underlying asset price is $150 would cost you a \\\"\\\"small\\\"\\\" premium - lets say a premium of something like $0.50. The option has no intrinsic value, only time value and a volatility value, so the exact cost would depend on the time to expiry and the implied volatility of the underlying asset. Since the strike price is \\\"\\\"well out of the money\\\"\\\", being about 27% below the underlying asset price, the premium would be small. So, assuming the premium of $0.50, you would pay $50 for the option plus any commission applicable. The cash settlement on expiry, with an underlying settlement price of $100, would be a premium of $10 for each of the two options, so you would receive cash of 100 x ($10 + $10) = $2000, less any commission applicable. However, you have paid $6000 + $50 to purchase the options, so you realise a net loss of $6050 - $2000 = $4050 plus any commissions applicable. Thus, you would make a profit on the put option, but you would realise a very large loss on the call option. On the other hand, if you open your position by selling the call option and buying the put option, then you would make money. For the sale of the call option you would receive about $6000. For the purchase of the put option you would pay about $50. On settlement, you would pay $1000 to buy back the call option and you would receive about $1000 when selling the put option. Thus you net profit would be about ($6000 - $1000) for the call position, and ($1000 - $50) for the put position. The net profit would then total $5950 less an commissions payable.\\\"\",\n \"\\\"It will be helpful to establish some definitions: Long \\\"\\\"Long\\\"\\\" is financial slang for \\\"\\\"to have possession of an asset\\\"\\\", legally, and \\\"\\\"to debit an asset\\\"\\\", financially. Short \\\"\\\"Short\\\"\\\" is financial slang for \\\"\\\"to be liable for an asset\\\"\\\", legally, and \\\"\\\"to credit an asset\\\"\\\", financially. Option \\\"\\\"Option\\\"\\\" is financial slang for \\\"\\\"to have the right but not obligation to force the liable to perform action\\\"\\\", legally. Without limits and when taken to absurdity, this can mean slavery. For equities, this means \\\"\\\"to have the right but not the obligation to force the liable to buy/sell a specified asset at a specified price with a specified expiration for that right\\\"\\\" for a call/put, respectively. By the above, a call option is \\\"\\\"the right but not the obligation to force the liable to buy a specified asset at a specified price with a specified expiration for that right\\\"\\\". By the definition of \\\"\\\"long\\\"\\\" above, a call option is actually not long the underlying. By the definitions above and with a narrower scope applied to equities & indexes, to be \\\"\\\"long\\\"\\\" the call means \\\"\\\"to have the right but not the obligation to force the liable to buy a specified asset at a specified price with a specified expiration for that right\\\"\\\" while to be \\\"\\\"short\\\"\\\" the call means \\\"\\\"to have the obligation to be forced to sell a specified asset at a specified price with a specified expiration for that right\\\"\\\". So, to be \\\"\\\"long\\\"\\\" a call means to simply own the call.\\\"\",\n \"It this a real situation or is it a made up example? Because for a stock that has a last traded priced of $5 or $6 and volume traded over $4M (i.e. it seems to be quite liquid), it is hardly likely that the difference from bid to ask would be as large as $1 (maybe for a stock that has volume of 4 to 5 thousand, but not for one having volume of 4 to 5 million). In regards to your question, if you were short selling the order would go in exactly the same as if you were selling a stock you owned. So your order would be on the ask side and would need to be matched up with a price on the bid side for there to be a trade.\",\n \"\\\"In addition to JoeTaxpayer's answer there are articles that describe the writing of options as \\\"\\\"being the casino\\\"\\\". When you write, or sell to open an option, you are selling one of the most desirable things in the world to sell: a depreciating asset. Writing options are not without risk, but they can be a very conservative strategy. Who wins these massive losses? Sometimes run of the mill investors, myself being one of them.\\\"\",\n \"You sold a call, and have a risk if the stock rises. You bought a put and gain when the stock drops. You, sir, have a synthetic short position. It's Case 3 from your linked example: Suppose you own Long Stock and the company is going to report earnings but you’re going on vacation. How can you hedge your position without selling your stock? You can short the stock synthetically with options! Short Stock = Short Call + Long Put They conclude with the net zero remark, because the premise was an existing long position. A long plus this synthetic short results in a neutral set of positions (and the author's ability to go on vacation not concerned about any movement in the stock.)\",\n \"Assignment risk. In your example, if someone exercises OTM call, your account could be assigned. In that case, if you do nothing, you could lose more money than there is in the account. The broker won't do it for you because there is more than one way to handle the assignment. For example, you might choose to exercise the long call, or buy a different call and exercise that. Selling the long call may be enough to satisfy any resulting margin call.\",\n \"Out of the money options often have the biggest changes in value, when the stock moves upward. This person could also gain, by the implied (underlying) volatility of the stock rising if it moves erratically to either side. Still seems to be a very risky game, given only 4 days to expiry.\",\n \"\\\"Assuming these are standardized and regulated contracts, the short answer is yes. In your example, Trader A is short while Trader B is long. If Trader B wants to exit his long position, he merely enters a \\\"\\\"sell to close\\\"\\\" order with his broker. Trader B never goes short as you state. He was long while he held the contract, then he \\\"\\\"sold to close\\\"\\\". As to who finds the buyer of Trader B's contract, I believe that would be the exchange or a market maker. Therefore, Trader C ends up the counterparty to Trader A's short position after buying from Trader B. Assuming the contract is held until expiration, Trader A is responsible for delivering contracted product to Trader C for contracted price. In reality this is generally settled up in cash, and Trader A and Trader C never even know each other's identity.\\\"\",\n \"First, in the money options are scarcely created because most options trade at the money with the rest evenly distributed between in and out, so they are at best half the market when created. They are also closed before expiration. The reason is still unknown, but one theory is: Barely in the money options carry enormous exercise risk because the chance that could be turned into a potentially solvency threatening unhedged liability is great; therefore, option sellers prefer to close barely in the money options so not to take on unhedged liability risk. Statistically, option sellers are risk avoiders.\",\n \"\\\"For the same reason that people bet on different teams. Some think the Tigers will win, others thing the Yankees will win. They wager $5 on it. One of them wins, the other loses. In a short, one person bets that the stock goes down, the other bets that the stock goes up (or hold). You're basically saying \\\"\\\"I think this stock is going to hold it's value or go up. If I thought it would go down, like you do, I would sell it myself right now. Instead, I'll let you have it for a while because when I get it back I think I'll come out on top.\\\"\\\"\\\"\",\n \"On expiry, with the underlying share price at $46, we have : You ask : How come they substract 600-100. Why ? Because you have sold the $45 call to open you position, you must now buy it back to close your position. This will cost you $100, so you are debited for $100 and this debit is being represented as a negative (subtracted); i.e., -$100 Because you have purchased the $40 call to open your position, you must now sell it to close your position. Upon selling this option you will receive $600, so you are credited with $600 and this credit is represented as a positive (added) ; i.e., +$600. Therefore, upon settlement, closing your position will get you $600-$100 = $500. This is the first point you are questioning. (However, you should also note that this is the value of the spread at settlement and it does not include the costs of opening the spread position, which are given as $200, so you net profit is $500-$200 = $300.) You then comment : I know I am selling 45 Call that means : As a writer: I want stock price to go down or stay at strike. As a buyer: I want stock price to go up. Here, note that for every penny that the underlying share price rises above $45, the money you will pay to buy back your short $45 call option will be offset by the money you will receive by selling the long $40 call option. Your $40 call option is covering the losses on your short $45 call option. No matter how high the underlying price settles above $45, you will receive the same $500 net credit on settlement. For example, if the underlying price settles at $50, then you will receive a credit of $1000 for selling your $40 call, but you will incur a debit of $500 against for buying back your short $45 call. The net being $500 = $1000-$500. This point is made in response to your comments posted under Dr. Jones answer.\",\n \"\\\"I'm adding to @Dilip's basic answer, to cover the additional points in your question. I'll assume you are referring to publicly traded stock options, such as those found on the CBOE, and not an option contract entered into privately between two specific counterparties (e.g. as in an employer stock option plan). Since you are not obligated to exercise a call option you purchased on the market, you don't need to maintain funds on account for possible exercising. You could instead let the option expire, or resell the option, neither of which requires funds available for purchase of the underlying shares. However, should you actually choose to exercise the call option (and usually this is done close to expiration, if at all), you will be required to fund your account much like if you bought the underlying shares in the first place. Call your broker to determine the exact rules and timing for when they need the money for a call-option exercise. And to expand on the idea of \\\"\\\"cancelling\\\"\\\" an option you purchased: No, you cannot \\\"\\\"cancel\\\"\\\" an option contract, per se. But, you are permitted to sell the call option to somebody else willing to buy, via the market. When you sell your call option, you'll either make or lose money on the sale – depending on the price of the underlying shares at the time (are they in- or out- of the money?), volatility in the market, and remaining time value. Once you sell, you're back to \\\"\\\"no position\\\"\\\". That's not the same as \\\"\\\"cancelled\\\"\\\", but you are out of the trade, whether at profit or loss. Furthermore, the option writer (i.e. the seller who \\\"\\\"sold to open\\\"\\\" a position, in writing the call in the first place) is also not permitted to cancel the option he wrote. However, the option writer is permitted to close out the original short position by simply buying back a matching call option on the market. Again, this would occur at either profit or loss based on market prices at the time. This second kind of buy order – i.e. made by someone who initially wrote a call option – is called a \\\"\\\"buy to close\\\"\\\", meaning the purchase of an offsetting position. (The other kind of buy is the \\\"\\\"buy to open\\\"\\\".) Then, consider: Since an option buyer is free to re-sell the option purchased, and since an option writer (who \\\"\\\"sold to open\\\"\\\" the new contract) is also free to buy back an offsetting option, a process known as clearing is required to match remaining buyers exercising the call options held with the remaining option writers having open short positions for the contract. For CBOE options, this clearing is performed by the Options Clearing Corporation. Here's how it works (see here): What is the OCC? The Options Clearing Corporation is the sole issuer of all securities options listed at the CBOE, four other U.S. stock exchanges and the National Association of Securities Dealers, Inc. (NASD), and is the entity through which all CBOE option transactions are ultimately cleared. As the issuer of all options, OCC essentially takes the opposite side of every option traded. Because OCC basically becomes the buyer for every seller and the seller for every buyer, it allows options traders to buy and sell in a secondary market without having to find the original opposite party. [...] [emphasis above is mine] When a call option writer must deliver shares to a call option buyer exercising a call, it's called assignment. (I have been assigned before, and it isn't pleasant to see a position called away that otherwise would have been very profitable if the call weren't written in the first place!) Also, re: \\\"\\\"I know my counter party cannot sell his shares\\\"\\\" ... that's not strictly true. You are thinking of a covered call. But, an option writer doesn't necessarily need to own the underlying shares. Look up Naked call (Wikipedia). Naked calls aren't frequently undertaken because a naked call \\\"\\\"is one of the riskiest options strategies because it carries unlimited risk\\\"\\\". The average individual trader isn't usually permitted by their broker to enter such an order, but there are market participants who can do such a trade. Finally, you can learn more about options at The Options Industry Council (OIC).\\\"\",\n \"This is copying my own answer to another question, but this is definitely relevant for you: A bid is an offer to buy something on an order book, so for example you may post an offer to buy one share, at $5. An ask is an offer to sell something on an order book, at a set price. For example you may post an offer to sell shares at $6. A trade happens when there are bids/asks that overlap each other, or are at the same price, so there is always a spread of at least one of the smallest currency unit the exchange allows. Betting that the price of an asset will go down, traditionally by borrowing some of that asset and then selling it, hoping to buy it back at a lower price and pocket the difference (minus interest). Going long, as you may have guessed, is the opposite of going short. Instead of betting that the price will go down, you buy shares in the hope that the price will go up. So, let's say as per your example you borrow 100 shares of company 'X', expecting the price of them to go down. You take your shares to the market and sell them - you make a market sell order (a market 'ask'). This matches against a bid and you receive a price of $5 per share. Now, let's pretend that you change your mind and you think the price is going to go up, you instantly regret your decision. In order to pay back the shares, you now need to buy back your shares as $6 - which is the price off the ask offers on the order book. Similarly, the same is true in the reverse if you are going long. Because of this spread, you have lost money. You sold at a low price and bought at a high price, meaning it costs you more money to repay your borrowed shares. So, when you are shorting you need the spread to be as tight as possible.\",\n \"Thanks for your reply. I’m not familiar with the term “Held-For-Trading Security”. My securities are generally held as collateral against my shorts. To clarify, I am just trying to track the “money in” and “money out” entries in my account for the shorts I write. The transaction is relatively straight forward, except there is a ton of information attached! In simple terms, for the ticker CSR and short contract CSRUQ8, the relevant entries look something like this: There are no entries for expiries. I need to ensure that funds are available for future margin calls and assignments. The sale side using covered calls is as involved.\",\n \"Yes, that's the risk. If the stock is bouncing around a lot your options could get assigned. If it heads south you now are the proud owner of more of a falling stock. It's good that you're looking to understand the risks of an investment method. That's important no matter what the method is.\",\n \"I have held an in the money long position on an option into expiration, on etrade, and nothing happened. (Scalping expiring options - high risk) The option expired a penny or two ITM, and was not worth exercising, nor did I have the purchasing power to exercise it. (AAPL) From etrade's website: Here are a few things to keep in mind about exercises and assignments: Equity options $0.01 or more in the money will be automatically exercised for you unless you instruct us not to exercise them. For example, a September $25 call will be automatically exercised if the underlying security's closing price is $25.01 or higher at expiration. If the closing price is below $25.01, you would need to call an E*TRADE Securities broker at 1-800-ETRADE-1 with specific instructions for exercising the option. You would also need to call an E*TRADE Securities broker if the closing price is higher than $25.01 at expiration and you do not wish to exercise the call option. Index options $0.01 or more in the money will be automatically exercised for you unless you instruct us not to exercise them. Options that are out of the money will expire worthless. You may request to exercise American style options anytime prior to expiration. A request not to exercise options may be made only on the last trading day prior to expiration. If you'd like to exercise options or submit do-not-exercise instructions, call an E*TRADE Securities broker at 1-800-ETRADE-1. You won't be charged our normal fee for broker-assisted trades, but the regular options commission will apply. Requests are processed on a best-efforts basis. When equity options are exercised or assigned, you'll receive a Smart Alert message letting you know. You can also check View Orders to see which stock you bought or sold, the number of shares, and the strike price. Notes: If you do not have sufficient purchasing power in your account to accept the assignment or exercise, your expiring options positions may be closed, without notification, on the last trading day for the specific options series. Additionally, if your expiring position is not closed and you do not have sufficient purchasing power, E*TRADE Securities may submit do-not-exercise instructions without notification. Find out more about options expiration dates.\",\n \"\\\"If your shares get called on stock at a price below what you paid for the stock, your gain or loss depends on what premium you got for the options you sold. \\\"\\\"can I deliver shares at that assigned strike using margin or additional capital if I have it? Can the broker just take care of it and let me collect the time premium? \\\"\\\" You don't need margin or any cash because you already hold the shares. A covered call means your cash requirements are 'covered'. So they'll just buy your shares at the strike price of $50. And you still get to keep the premium (which you should have gotten when you sold the covered call). You only need cash or margin when you've sold an uncovered call or put.\\\"\",\n \"\\\"Yeah. This shorting the box nonsense is an extremely expensive way to capture downside. If I just drop $1000 on a long-dated out-of-the-money put I have significantly more downside exposure for much much less than the [100 X $160 - (call premium)]. That's like 16 grand dude!!! It does keep you more delta neutral, but still, stupid way to go about it, especially if you are concerned about \\\"\\\"cheap\\\"\\\".\\\"\",\n \"I would never use a market order. Some brokerages have an approval process your short-sale goes through before going to market. This can take some time. So the market prices may well be quite different later. Some brokerages use a separate account for short sales, so you must get their approval for the account before you can do the trade. I like the listing of shares available for shorting the Interactive Brokers has but I have experienced orders simply going into dead-air and sitting there on the screen, not being rejected, not going to market, not doing anything --- even though the shares are on the list.\",\n \"Some ADRs have standardized options that trade on US exchanges. If your stock/ADR is one of those, then you find the put option through most brokerages that deal with stock options and trade the option like you would on a regular stock. If your ADR does not have standardized options, then your options will depend on where the ADR trades. If it's OTC, you might not even be able to short it. If it trades on a major exchange, the shorting the ADR may be a viable choice.\",\n \"\\\"I would suggest the following rationale : This appears to be a most unsatisfactory state of affairs, however, you can bet that this is how things are handled. As to who receives the dividend you have payed, this will be whoever the counter-party (or counter-parties) are that were assigned the exercise. EDIT Looking at the Dec16 SPY options, we see that the expiry date is 23 Dec. Therefore, your options have been exercised prior to expiry. The 3AM time stamp is probably due to the \\\"\\\"overnight batch processing\\\"\\\" of your brokers computer system. The party exercising the options will have chosen to exercise on the day prior to ex-dividend in order to receive the dividends.\\\"\",\n \"See how you can only make the premium amount but your risk is the same as holding the stock when writing a put option.\",\n \"This is the bird's eye view of how shorting works: When you place an order to sell a stock short, your broker attempts to grab the desired number of shares from any accounts of its other customers and makes them available for you to sell. If no other customers own shares of this stock, then generally you are out of luck (It is more complicated like that in practice, but this is just an overview). Your odds are better if the particular stock has a large float (i.e. a large number of shares that are actually available for trading) and its short ratio is low (which means relatively few shares are currently being sold short). Also, a large brokerage may be more likely to have access to the shares than a small niche-market broker. The example you've given, Angie's List (ANGI) is a $600M small-cap with a comparatively low float, and though I haven't been able to glean the short ratio, it appears that a lot of investors are bearish on this stock and probably already had the same idea to short it. There is really no way to find out if a specific broker has shares in inventory available for shorting, short of (forgive the pun) checking directly with the broker.\",\n \"\\\"Write means sell to open. It is called that because options writers are creating (i.e. writing) new contracts. No such thing as \\\"\\\"reading\\\"\\\" an option.\\\"\",\n \"Depending on the structure of you're portfolio, it could be that your portfolio is delta neutral to take advantage of diminishing time value on options, short straddles/strangles would be an example.\",\n \"Market makers are required to buy options contracts as a condition of being a market maker. It is what keeps the markets functioning and liquid. As to whether or not your trade can be closed at a profit depends on many variables - how much you paid, what the underlying security is, etc CBOE Options expiration FAQs\",\n \"You're assuming options traded on the open market. To close open positions, a seller buys them back on the open market. If there's little on offer, this will drive the price up.\",\n \"You are the one lending yourself the shares to sell;you purchase the stock at market price and sell at the strike price of the option to the put seller when you exercise the option.\",\n \"Option prices are computed by determining the cost of obtaining the option returns using a strategy that trades the underlying asset continuously. It sounds like what you are describing is rapidly trading the option in order to obtain returns similar to those of the stock. The equality goes both ways. If the option is appropriately priced, then a strategy that replicates stock returns using the option will cost the same as buying the stock. Because you can't trade continuously, you won't actually be able to replicate the stock return, and it may seem like you are making arbitrage profit (puts may seem abnormally expensive), but you do so by bearing tail risk (i.e., selling puts loses more money than owning the associated stock if an unusually bad event occurs).\",\n \"Marketwatch reports that the 108 strike call option sells for 1.45, down 1.53 from yesterday. If we split the bid and ask you get 1.415. That is what that contract will, likely, trade at. The biggest problems with options are commissions and liquidity. I have seen a commission as high as $45 per trade. I have also seen open interest disappear overnight. Even if you obtain contracts that become worth more than you paid for them you may find that no one wants to pay you what they are worth. Track your trade over a few weeks to see how you would have done. It is my experience that the only people who make money on options are the brokers.\",\n \"It's unclear what you're asking. When I originally read your question, it seemed that you had closed out one options position and opened another. When I read your question the second time, it seemed that you were writing a second option while the first was still open. In the second case, you have one covered and one naked position. The covered call will expire worthless, the naked call will expire in the money. How your broker will resolve that is a question best left for them, but my expectation is that they will assign the non-worthless calls. Whereas, if both options expired in the money, you would be assigned and you would have to come up with the additional shares (and again, that depends on how your broker works). In general, for both cases, your net is the premiums you received, plus the difference between strike price and the price that you paid for the stock, minus any cost to close out the position. So whether you make a profit is very much dependent on how much you received for your premiums. Scenario #1: close first call, write second: Scenario #2: write covered + naked, one expires worthless Scenario #3: write covered + naked, both expire in the money Disclaimer: the SEC does not consider me a financial/investment advisor, so this is not financial/investment advice\",\n \"Here is the answer from my brokerage: Regular equity monthly options expire on the 3rd Friday of every month. The last time to trade them is by market close at 4 PM Eastern time. The weekly options will expire on the Friday of that week, also with a last trading time of 4 PM Eastern time. Options that expire in the money by .01 or more are automatically exercised. If you are long an option that is out of the money at expiration, it will expire worthless. If you are short an option, even if it expires out of the money, you are still at risk for possible assignment since the long option holder always has the right to exercise an option prior to expiration.*\",\n \"\\\"Not all call options that have value at expiration, exercise by purchasing the security (or attempting to, with funds in your account). On ETNs, they often (always?) settle in cash. As an example of an option I'm currently looking at, AVSPY, it settles in cash (please confirm by reading the documentation on this set of options at http://www.nasdaqomxtrader.com/Micro.aspx?id=Alpha, but it is an example of this). There's nothing it can settle into (as you can't purchase the AVSPY index, only options on it). You may quickly look (wikipedia) at the difference between \\\"\\\"American Style\\\"\\\" options and \\\"\\\"European Style\\\"\\\" options, for more understanding here. Interestingly I just spoke to my broker about this subject for a trade execution. Before I go into that, let me also quickly refer to Joe's answer: what you buy, you can sell. That's one of the jobs of a market maker, to provide liquidity in a market. So, when you buy a stock, you can sell it. When you buy an option, you can sell it. That's at any time before expiration (although how close you do it before the closing bell on expiration Friday/Saturday is your discretion). When a market maker lists an option price, they list a bid and an ask. If you are willing to sell at the bid price, they need to purchase it (generally speaking). That's why they put a spread between the bid and ask price, but that's another topic not related to your question -- just note the point of them buying at the bid price, and selling at the ask price -- that's what they're saying they'll do. Now, one major difference with options vs. stocks is that options are contracts. So, therefore, we can note just as easily that YOU can sell the option on something (particularly if you own either the underlying, or an option deeper in the money). If you own the underlying instrument/stock, and you sell a CALL option on it, this is a strategy typically referred to as a covered call, considered a \\\"\\\"risk reduction\\\"\\\" strategy. You forfeit (potential) gains on the upside, for money you receive in selling the option. The point of this discussion is, is simply: what one buys one can sell; what one sells one can buy -- that's how a \\\"\\\"market\\\"\\\" is supposed to work. And also, not to think that making money in options is buying first, then selling. It may be selling, and either buying back or ideally that option expiring worthless. -- Now, a final example. Let's say you buy a deep in the money call on a stock trading at $150, and you own the $100 calls. At expiration, these have a value of $50. But let's say, you don't have any money in your account, to take ownership of the underlying security (you have to come up with the additional $100 per share you are missing). In that case, need to call your broker and see how they handle it, and it will depend on the type of account you have (e.g. margin or not, IRA, etc). Generally speaking though, the \\\"\\\"margin department\\\"\\\" makes these decisions, and they look through folks that have options on things that have value, and are expiring, and whether they have the funds in their account to absorb the security they are going to need to own. Exchange-wise, options that have value at expiration, are exercised. But what if the person who has the option, doesn't have the funds to own the whole stock? Well, ideally on Monday they'll buy all the shares with the options you have at the current price, and immediately liquidate the amount you can't afford to own, but they don't have to. I'm mentioning this detail so that it helps you see what's going or needs to go on with exchanges and brokerages and individuals, so you have a broader picture.\\\"\",\n \"I often sell covered calls, and if they are in the money, let the stock go. I am charged the same fee as if I sold online ($9, I use Schwab) which is better than buying back the option if I'm ok to sell the stock. In my case, If the option is slightly in the money, and I see the options are priced well, i.e. I'd do another covered call anyway, I sometimes buy the option and sell the one a year out. I prefer to do this in my IRA account as the trading creates no tax issue.\",\n \"\\\"The two dimensions are to open the trade (creating a position) and to buy or sell (becoming long or short the option). If you already own an option, you bought it to open and then you would sell it to close. If you don't own an option, you can either buy it to open, or sell it (short it) to open. If you are already short an option, you can buy it back to close. If you sell to open covered, the point is you're creating a \\\"\\\"covered call\\\"\\\" which means you own the stock, and then sell a call. Since you own the stock, the covered call has a lot of the risk of loss removed, though it also subtracts much of the reward possible from your stock.\\\"\",\n \"SPX options are cash settled European style. You cannot exercise European style options before the expiration date. Assuming it is the day of expiration and you own 2,000 strike puts and the index settlement value is 1,950 - you would exercise and receive cash for the in the money amount times the contract multiplier. If instead you owned put options on the S&P 500 SPDR ETF (symbol SPY) those are American style, physically settled options. You can exercise a long American style option anytime between when your purchase it and when it expires. If you exercised SPY puts without owning shares of SPY you would end up short stock at the strike price.\",\n \"The nature of options requires you to understand that they are essentially a bet. In one sense, so is investing in stocks. We imagine a bell curve (first mistake) with a median return at 10%/yr and a standard deviation of about 14%. Then we say that odds are that over some period of time a monte-carlo simulation can give us the picture of the likely returns. Now, when you buy short term options, say one month or so, you are hoping the outcome is a rise in price that will yield some pretty high return, right? There was a time I noticed a particular stock would move a large percent based on earnings. And earnings were a day before options expiration. So I'd buy the call that was just out of the money and if the surprise was up, I'd make 3-4X my money. But I was always prepared to lose it all and often did. I never called this investing. I know of no recovery strategy. Sorry.\",\n \"Being long something is the same as owning it (generally). Being short something is the same as selling it, with the intention (actually obligation) of buying it back in the future. Being 'short' means that you benefit when the price falls. A call is the right to buy a financial asset, most often a share, at some price agreed upon now, while the the right extends for some defined time into the future. A put is the right to sell something you already own for some price defined now but the right extends for some period into the future. A swaption is an option to enter into a swap. A swap is an agreement to trade cash-flows at defined points in the future, usually some fixed rate for some floating rate (say LIBOR+200bps). EDIT: Clarified puts.\",\n \"The answer provide by @mbhunter is correct, however there are contexts, shorting in spot market and carrying the position over settlement usually does not entail payment of dividend to the broker, one of the reason being post ex-date the price of the share downward adjusts to the extent of the dividend, so practically if you have shorted at 100 and post ex-date (assuming a dividend of 2 and no movement of the stock price), the price would slide to 98, the party who longed the stock @ 100 now is sitting on a price of 98 and received a dividend of 2 which equates to 100. The above is also contextual to the law of the country governing the exchange and the security exchange board regulations.\",\n \"I have an example of a trade I made some time ago. By entering the position as a covered call, I was out of pocket $5.10, and if the stock traded flat, i.e. closed at the same $7.10 16 months hence, I was up 39% or nearly 30%/yr. As compared to the stock holder, if the stock fell 28%, I'd still break even, vs his loss of 28%. Last, if the stock shot up, I'd get 7.50/5.10 or a 47% return, vs the shareholder who would need a price of $10.44 to reflect that return. Of course, a huge jump in the shares, say to $15, would benefit the option buyer, and I would have left money on the table. But this didn't happen. The stock was at $8 at expiration, and I got my 47% return. The option buyer got 50 cents for his $2 bet. Note, the $2 option price reflected a very high implied volatility.\",\n \"The problem with short options is they expire and have to be covered. An inverse ETF is the way to go in my opinion. Because the real issue isn't if the market is overvalued but when will it correct. That's the risk and no one knows that answer\",\n \"Absolutely. There is no requirement that an option be in-the-money for you to close out a position. Remember that there are alwayes two sides to a trade - a buyer and a seller. When you bought your option, it's entirely possible that someone else was closing out their long position by selling it to you.\",\n \"Firstly, going short on a stock and worrying if the price suddenly gaps up a lot due to good news is the same as being long on a stock and worrying that the price will suddenly collapse due to bad news. Secondly, an out of the money call option would be cheaper than an in the money call option, in fact the further out of the money the cheaper the premium will be, all other things being equal. So a good risk management strategy would be to set your stop orders as per your trading plan and if you wish to have added protection in case of a large gap is to buy a far out of the money call option. The premium should not be too expensive. Something you should also consider is the time until expiry for the option, if your time frame for trading is days to weeks you make consider a cheaper option that expires in about a month, but if you are planning on holding the position for more than a month you might need a longer expiry period on the option, which will increase the premium. Another option to consider, if your broker offers it, is to use a guaranteed stop loss order. You will pay a little premium for this type of order and not all brokers offer it, but if it is offered you will be protected against any price gaps past your guaranteed stop loss price.\",\n \"In terms of pricing the asset, this functions in exactly the same way as a regular sell, so bids will have to be hit to fill the trade. When shorting an equity, currency is not borrowed; the equity is, so the value of per share liability is equal to it's last traded price or the ask if the equity is illiquid. Thus when opening a short position, the asks offer nothing to the process except competition for your order getting filled. Part of managing the trade is the interest rate risk. If the asks are as illiquid as detailed in the question, it may be difficult even to locate the shares for borrowing. As a general rule, only illiquid equities or those in free fall may be temporarily unable for shorting. Interactive Brokers posts their securities financing availabilities and could be used as a proxy guide for your broker.\",\n \"hmmm. I think it's because in both cases, you must pay for it up front, before the positions are closed out. You own nothing except the right to buy the stock re: the call, and the obligation to buy the stock re: the short. You buy a call, but must borrow the stock, for which you must put some margin collateral and there is a cost to borrow. You pay for that, of course. I wouldn't call it lending though.\",\n \"Shorts are difficult because you have to find someone to lend the stock to you. In contrast, put options don't require that. They also have some nice properties like you're only out the contract price. The options chain for BSFT will give you an idea of where the market is. Keep in mind that BSFT only IPO'd last year and announced blowout earnings recently. Make sure the P:E you're looking at is using recent earnings reports!\",\n \"\\\"Q: A: Everyone that is short is paying interest to the owners of the shares that the short seller borrowed. Although this quells your conundrum, this is also unrelated to the term. Interest in this context is just the number. In the options market, each contract also has an open interest, which tells you how many of that contract is being held. For your sake, think of it as \\\"\\\"how many are interested\\\"\\\", but really its just a completely different context.\\\"\",\n \"Options do act, somewhat, like insurance.... However.... An insurance policy will not have such short term expiration time frames. A 20 year term life insurance policy can be thought of as insurance with an expiration. But the expiration on options is in weeks, not decades. So (IMO) options make terrible insurance policies because of the very short term expirations they have.\",\n \"\\\"The settlement date for any trade is the date on which the seller gets the buyer's money and the buyer gets the seller's product. In US equities markets the settlement date is (almost universally) three trading days after the trade date. This settlement period gives the exchanges, the clearing houses, and the brokers time to figure out how many shares and how many dollars need to actually be moved around in order to give everyone what they're owed (and then to actually do all that moving around). So, \\\"\\\"settling\\\"\\\" a short trade is the same thing as settling any other trade. It has nothing to do with \\\"\\\"closing\\\"\\\" (or covering) the seller's short position. Q: Is this referring to when a short is initiated, or closed? A: Initiated. If you initiate a short position by selling borrowed shares on day 1, then settlement occurs on day 4. (Regardless of whether your short position is still open or has been closed.) Q: All open shorts which are still open by the settlement date have to be reported by the due date. A: Not exactly. The requirement is that all short positions evaluated based on their settlement dates (rather than their trade dates) still open on the deadline have to be reported by the due date. You sell short 100 AAPL on day 1. You then cover that short by buying 100 AAPL on day 2. As far as the clearing houses and brokers are concerned, however, you don't even get into the short position until your sell settles at the end of day 4, and you finally get out of your short position (in their eyes) when your buy settles at the end of day 5. So imagine the following scenarios: The NASDAQ deadline happens to be the end of day 2. Since your (FINRA member) broker has been told to report based on settlement date, it would report no open position for you in AAPL even though you executed a trade to sell on day 1. The NASDAQ deadline happens to be the end of day 3. Your sell still has not settled, so there's still no open position to report for you. The NASDAQ deadline happens to be the end of day 4. Your sell has settled but your buy has not, so the broker reports a 100 share open short position for you. The NASDAQ deadline happens to be the end of day 5. Your sell and buy have both settled, so the broker once again has no open position to report for you. So, the point is that when dealing with settlement dates you just pretend the world is 3 days behind where it actually is.\\\"\",\n \"Yes. There are levels of option trading permission. For example, I've never set myself up for naked put writing. But, if you already have the call spread, buying back the shorted call will leave you with a long call. This wouldn't be an issue. As long as you have the cash/margin to buy back that higher strike call.\",\n \"Your math shows that you bought an 'at the money' option for .35 and when the stock is $1 above the strike, your $35 (options trade as a contract for 100 shares) is now worth $100. You knew this, just spelling it out for future readers. 1 - Yes 2 - An execute/sell may not be nesesary, the ooption will have time value right until expiration, and most ofter the bid/ask will favor selling the option. You should ask the broker what the margin requirement is for an execute/sell. Keep in mind this usually cannot be done on line, if I recall, when I wanted to execute, it was a (n expensive) manual order. 3 - I think I answered in (2), but in general they are not identical, the bid/ask on options can get crazy. Just look at some thinly traded strikes and you'll see what I mean.\",\n \"It depends on your cost structure and knowledge of the exchanges. It could be optimal to make a manual exchange selection so long as it's cheaper to do so. For brokers with trade fees, this is a lost cause because the cost of the trade is already so high that auto routing will be no cheaper than manual routing. For brokers who charge extra to manually route, this could be a good policy if the exchange chosen has very high rebates. This does not apply to equities because they are so cheap, but there are still a few expensive option exchanges. This all presumes that one's broker shares exchange rebates which nearly all do not. If one has direct access to the exchanges, they are presumably doing this already. To do this effectively, one needs: For anyone trading with brokers without shared rebates or who does not have knowledge of the exchange prices and their liquidities, it's best to auto route.\",\n \"It depends on the broker, each one's rules may vary. Your broker should be able to answer this question for how they handle such a situation. The broker I used would execute and immediately sell the stock if the option was 25 cents in the money at expiration. If they simply executed and news broke over the weekend (option expiration is always on Friday), the client could wake up Monday to a bad margin call, or worse.\",\n \"You bought the right – but not the obligation – to buy a certain number of shares at $15 from whomsoever sold you the option, and you paid a premium for it. You can choose whether you want to buy the shares at $15 during the period agreed upon. If you call for the shares, the other guy has to sell the shares to you for $15 each, even if the market price is higher. You can then turn around and promptly resell the purchased shares at the higher market price. If the market price never rises above $15 at any time while the option is open, you still have the right to buy the shares for $15 if you choose to do so. Most rational people would let the option expire without exercising it, but this is not a legal requirement. Doing things like buying shares at $15 when the market price is below $15 is perfectly legal; just not very savvy. You cannot cancel the option in the sense of going to the seller of the option and demanding your premium money back because you don't intend to exercise the option because the market price is below $15. Of course, if the market price is above $15 and you tell the seller to cancel the contract, they will be happy to do so, since it lets them off the hook. They may or may not give you the premium back in this case.\",\n \"You don't mention any specific numbers, so I'll answer in generalities. Say I buy a call option today, and I short the underlying stock with the delta. The value will be the value of the option you bought less the value of the stock you are short. (your premium is not included in the value since it's a sunk cost, but is reflected in your profit/loss) So, say I go out and adjust my portfolio, so I am still delta short in the underlying. It's still the value of your options, less the value of the underlying you are short. What is my PnL over this period? The end value of your portfolio less what you paid for that value, namely the money you received shorting the underlyings less the premium you paid for the option.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"You've described the process fairly well. It's tough to answer a question that ultimately is 'how is this fair?' It's fair in that it's part of the known risk. And for the fact that it applies to all, pretty equally. In general, this is not very common. (No, I don't have percents handy, I'm just suggesting from decades of trading it's probably occurring less than 10% of the time). Why? Because there's usually more value to the buyer in simply selling the option and using the proceeds to buy the stock. The option will have 2 components, its intrinsic value (\"\"in the money\"\") and the time premium. It takes the odd combination of low-to-no time premium, but desire of the buyer to own the stock that makes the exercise desirable.\""],"string":"[\n \"\\\"You've described the process fairly well. It's tough to answer a question that ultimately is 'how is this fair?' It's fair in that it's part of the known risk. And for the fact that it applies to all, pretty equally. In general, this is not very common. (No, I don't have percents handy, I'm just suggesting from decades of trading it's probably occurring less than 10% of the time). Why? Because there's usually more value to the buyer in simply selling the option and using the proceeds to buy the stock. The option will have 2 components, its intrinsic value (\\\"\\\"in the money\\\"\\\") and the time premium. It takes the odd combination of low-to-no time premium, but desire of the buyer to own the stock that makes the exercise desirable.\\\"\"\n]","isConversational":false}}},{"rowIdx":379,"cells":{"_id":{"kind":"string","value":"2516"},"query":{"kind":"string","value":"Which banks have cash-deposit machines in Germany?"},"gt_ids":{"kind":"list like","value":["505678","199508","446340","566602"],"string":"[\n \"505678\",\n \"199508\",\n \"446340\",\n \"566602\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1,1],"string":"[\n 1,\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["505678","566602","362374","446340","278423","442503","190919","143894","108390","72464","119350","503362","515254","367185","177714","40338","547449","210821","389056","91707","393467","487057","413078","252978","399118","276906","100498","182866","311136","514003","553133","444548","16348","276321","115968","132122","567161","76562","562194","56342","491855","224667","450851","350508","207882","549375","97988","431637","152827","556233","504951","342212","385182","590082","489199","358743","580935","210536","453408","270339","536048","120036","72088","505562","13800","518394","38893","89510","266840","36625","310207","199508","92462","17765","35159","74668","508754","474266","563812","581831","526743","557393","115653","516549","197862","488948","229246","410476","96791","8186","280593","233954","579313","13847","259530","466162","307082","281246","405358","417455"],"string":"[\n \"505678\",\n \"566602\",\n \"362374\",\n \"446340\",\n \"278423\",\n \"442503\",\n \"190919\",\n \"143894\",\n \"108390\",\n \"72464\",\n \"119350\",\n \"503362\",\n \"515254\",\n \"367185\",\n \"177714\",\n \"40338\",\n \"547449\",\n \"210821\",\n \"389056\",\n \"91707\",\n \"393467\",\n \"487057\",\n \"413078\",\n \"252978\",\n \"399118\",\n \"276906\",\n \"100498\",\n \"182866\",\n \"311136\",\n \"514003\",\n \"553133\",\n \"444548\",\n \"16348\",\n \"276321\",\n \"115968\",\n \"132122\",\n \"567161\",\n \"76562\",\n \"562194\",\n \"56342\",\n \"491855\",\n \"224667\",\n \"450851\",\n \"350508\",\n \"207882\",\n \"549375\",\n \"97988\",\n \"431637\",\n \"152827\",\n \"556233\",\n \"504951\",\n \"342212\",\n \"385182\",\n \"590082\",\n \"489199\",\n \"358743\",\n \"580935\",\n \"210536\",\n \"453408\",\n \"270339\",\n \"536048\",\n \"120036\",\n \"72088\",\n \"505562\",\n \"13800\",\n \"518394\",\n \"38893\",\n \"89510\",\n \"266840\",\n \"36625\",\n \"310207\",\n \"199508\",\n \"92462\",\n \"17765\",\n \"35159\",\n \"74668\",\n \"508754\",\n \"474266\",\n \"563812\",\n \"581831\",\n \"526743\",\n \"557393\",\n \"115653\",\n \"516549\",\n \"197862\",\n \"488948\",\n \"229246\",\n \"410476\",\n \"96791\",\n \"8186\",\n \"280593\",\n \"233954\",\n \"579313\",\n \"13847\",\n \"259530\",\n \"466162\",\n \"307082\",\n \"281246\",\n \"405358\",\n \"417455\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"HypoVereinsbank (member of UniCredit group), a few savings banks (\"\"Sparkasse\"\") and VR Banks offer cash (bill) deposit machines. However, it can take a few business days until the deposit is credited to your checking account, which has to be with the same bank. Google for \"\"Bargeldeinzahlungsautomat\"\" (=cash deposit machine). As Duffbeer stated correctly, HSBC Trinkaus which is the German arm of the HSBC group does not operate any ATMs in Germany. In addition they do not share the same bank accounts. So I would recommend going with the classic banks mentioned above.\"","In my experience Sparkasse or VR Bank have them quite often. They stick out in my mind because when you make a withdrawal you have to reach in to get your money instead of it spitting it out. I'm always afraid its going to chop my hand off.","You could buy a money order with your cash, then mail the money order to Deutsche Bank Germany for deposit into your account. You could also buy a prepaid debit card (like a Visa/AMEX giftcard) with your cash. Then, open a new Paypal account and add this prepaid card. Finally, send money to yourself using the prepaid card as the funding source. You could use a money transfer service, like Western Union, to transfer the cash to a friend/family in Germany. Then ask them to deposit it for you at Deutsche Bank Germany.","I know that many HSBC ATMs at branches in the US and Canada offer this service (they actually scan and shred checks as you deposit them). Perhaps they do same in Germany... but not all ATMs offer this feature.","Barclays Bank, RBS, and Deutsche Bank have an agreement as part of the Global ATM Alliance that allows you to make withdrawals at Deutsche Bank ATMs at no charge. The usefulness of this arrangement to you depends on how you use your money and would entail opening an account at Barclays or Royal Bank of Scotland. Edit: David, it looks like you will need some kind of residency to open a Barclays account, but you may be able to qualify with the proper supporting documentation. See this website: UK banking services and UK bank accounts, from Barclays Wealth International","To start with, you are right, there shouldn't be any additional fees other than the currency exchange fee - I'm not sure of the exact fee for Natwest, but for Halifax this was around 2.5% for big currencies like the Euro. However, Germany doesn't actually use debit cards nearly as much as we do here in the UK, so you will almost certainly need cash. Rather than taking this from a currency exchange booth, what you should do in order to get the lowest fees is head straight to the ATM of any bank, and put your card in to make a cash withdrawal. It will almost certainly ask if you want to use their exchange rate, which it will show you, and you will almost certainly be better turning this down and allowing Natwest to do this for you. Dependent on the bank their currency exchange spread may be as high as 4.5%. I hope this helps, it certainly saved me a lot of money when I have been going abroad.","\"Many services are available to people who are wealthy enough to use private banks. The linked Wikipedia article says: ...banking services (deposit taking and payments), discretionary asset management, brokerage, limited tax advisory services and some basic concierge-type services, offered by a single designated relationship manager. Having cash delivered to your door would come under \"\"basic concierge-type services\"\".\"","Without access to the ATM/debit card and with almost nothing in savings, you will probably have to visit a branch to make a cash deposit. If it is too far to drive you might be able to turn the cash into a money order and mail it to the bank, but I would check with the bank to see if that would work. Of course mail will take a day or two.","There were several incidences of cash shortages in the Danish system recently. On particular saturdays when the streets were bloated with shoppers, you could see the queues for the ATMs stretching for 40-50 yards, and people shaking their heads about why their cards didnt work in the shops. They have a separate national system to visa called Dankort which everyone is very proud of. But it is curiously prone to failures from time to time. Large cash transactions (over 10,000 DKK) are monitored and questioned verbally when withdrawn or deposited in banks. Interesting also how Danish banks are the most heavily leveraged in Europe...","The last time I checked (more than a year ago), Wells Fargo had the best rates and they provide next day delivery. They also have international ATMs in New York City.","There are good reasons to not go the cash route here (see Jay's answer). If one insists however, at 30 k€ anti-money laundering regulations have to be considered (and are not mentioned by the existing answers so far). Depositing amounts larger than 10 k€ will trigger questions about the source of the money to fight tax evasion and organized crime (splitting the amount may still trigger the process). So prepare good proof concerning the origin of that money and a paper trail that shows it is legal money and that it has been taxed already. I.e. the latest Anti-Money Laundering Directive is supposed to be implemented by national laws, thus including Spain. The European Union Fourth Anti-Money Laundering Directive is the most sweeping AML legislation in Europe in several years. On 25 June 2015, the EU Fourth Directive was enacted, which replaces the previous Third Directive. With a two-year window for implementation, all EU member states must be compliant with the new mandates by 26 June 2017. Source","\"The UK has Islamic banks. I don't know whether Germany has the same or not (with a quick search I can find articles stating intentions to establish one, but not the results). Even if there's none in Germany, I assume that with some difficulty you could use banks elsewhere in the EU and even non-Euro-denominated. I can't recommend a specific provider or product (never used them and probably wouldn't offer recommendations on this site anyway), but they advertise savings accounts. I've found one using a web search that offers an \"\"expected profit rate\"\" of 1.9% for a 12 month fix, which is roughly comparable with \"\"typical\"\" cash savings products in pounds sterling. Typical to me I mean, not to you ;-) Naturally you'd want to look into the risk as well. Their definition of Halal might not precisely match yours, but I'm sure you can satisfy yourself by looking into the details. I've noticed for example a statement that the bank doesn't invest your money in tobacco or alcohol, which you don't give as a requirement but I'm going to guess wouldn't object to!\"","\"The €100'000 limit is per bank, where \"\"bank\"\" is defined as a financial institution with a banking license from one of the ECB members. \"\"WeltSparen\"\", is operated by the MHB-Bank which is a German bank, recognized by the Bundesbank. That means your money is initially guaranteed by the Bundesbank. When it's moved to the final saving account, you'll be saving at other banks, which are identified in the individual offerings. This can be an effective technique to split capitals in excess of €100.000. You should obviously look for banks that are backed by ECB member banks, but keep in mind what happened to Iceland: the national banks can also fail. In particular, the Bank of Italy at the moment is looking a bit shaky because Monte dei Paschi di Siena is currently failing and will require a bail-out. There's no official back-up for failing national banks within the ECB system.\"","For those who are interested, I am answering my own question: We used Postbank and transferred 6000 Euro, we chose to Transfer in US$, and selected Shared Fees. There were three fees in total: All in all, I paid ~37$; this is about half of what I expected; and I got a perfect exchange rate. Postbank might have its downsides, but it seems they are still a good deal.","You may want to look at services like https://transferwise.com/. For transferring money abroad they may be cheaper than you own bank. Here is a list of similar services: https://www.icomparefx.com/transferwise-competitors/. Which one is the cheapest depends on the amount of money you want to transfer. You would still need an account at a german bank or a trustworthy friend with a german account.","\"If you are going to keep your US bank account for any period of time, the very best option I know of is to withdraw Euros from an atm using your US card once you are in Germany. I draw on my US account regularly (I'm in Munich) and always get the going \"\"mid market\"\" exchange rate, which is better than what you get from a currency conversion service, transfer agency, or bank transfer, and there are no fees from the atm or my bank for the currency conversion or withdrawal. Of course you should check with your bank to verify their rules and fees for atm use internationally. It would also be wise to put a travel advisory on your account to be sure your transaction is not denied because you are out of country.\"","Deutsche Bank states here (couldn't find it in english) that SEPA transfers (all transfers in EUR to EU states that have EUR) are free. So you could just transfer the money. Your custom daily transfer limit (by default 1000€ for online banking transfers) applies. You can change the limit online or by going to one of their branches. You would then transfer your money over the course of several days. You need the SWIFT and BIC code of your new account.","TD Bank (Northeast US) has free change counting machines at its branches. You don't have to have an account to use them.","Most banks should give them. I exchange all the time.","All banks in the US that I have ever worked with will allow you to deposit checks if: In your case, you have 3 options:","\"If you want to deposit checks or conduct business at a window, you should look at a local savings bank or credit union. Generally, you can find one that will offer \"\"free\"\" checking in exchange for direct deposit or a minimum balance. Some are totally free, but those banks pay zippo for interest. If you don't care about location, I would look at Charles Schwab Bank. I've been using them for a couple of years and have been really satisfied with them. They provide free checking, ATM fee reimbursement, free checks and pre-paid deposit envelopes. You also can easily move money between Schwab brokerage or savings accounts. Other brokers offer similar services as well.\"","Then, is it possible to deposit rubles at the same ATM to get USD in my account at the same rate? No this is not possible. Generally deposits into accounts outside country and not offered.","Most US banks allow to initiate wire transfers online. (I do it regularly with BoA and JPMorgan-Chase) Once you have your account details in Germany, you log on to your US account, set it up, and initiate the transfer; that should go through within one day. The exchange ratio is better than anything you would get buying/selling currency (paper cash money), no matter where you do it. Chase takes a fee of 40$ per online transaction; BoA 45$. The receiving bank might or might not take additional fees, they should be lower though (I have experienced between 0€ and 0.35%). Therefore, it is a good idea to bundle your transfers into one, if you can.","Capital One 360. No minimums balance, no fees. Everything's online. Make deposits using an app or an image of the check. ATMs are free almost everywhere.","My wife and I have two Schwab brokerage accounts, one for retirement and one for non-retirement investments. The latter also has a checking/savings account which we use as our main account. Schwab is very happy with us, as we are cheapskates and save a lot of money. The checking account, which seems to act like any ordinary checking account, gives us all the things listed above. They pay the ATM fees, which is not a lot of money, but seems like a nice thing to me. We can also do cash deposits and we can go to any Schwab branch to talk to someone face to face. We've only had to do the latter once in 10 or so years, and the former maybe once or twice.","How often do you need to actually go to a bank? atm's, debit and credit cards work where ever. you can even deposit checks by taking a picture of them. dealing with cash would be more troublesome though.","Banks need to provide a free mechanism to deposit and withdrawal money. Banks are free to charge fees as long as it is well published. If you are not happy with services you can complain to Banking ombudsman.","\"When I deposit my paycheck in CapOne I have an email before I am out of the app that they received my check. I have access to some portion of the cash now and the rest the next business day, however they put things in order to NOT overdraft me. For instance, if I am overdrawn $150 but the charge is \"\"pending\"\", putting the check in they will deposit the check before posting the charge that would overdraft me. Plus I can use Apple Pay with it. My local CUs have app deposit, but it takes DAYS for a deposit to just show up. Plus, no Apple Pay.\"","\"Visa Electron should be usable in any ATM (and shop) that accepts Visa, especially if the ATM also contains the \"\"Plus\"\" logo. However, if it's (for example) the card issued by La Banque Postale (in French) there are quite low withdrawal and spending limits. These limits are over a period of the most recent seven days, so it can take a while before you can withdraw more. So maybe not suitable to transfer a significant amount to your CZK account. As an alternative to finding an ATM that might have a fee, you can maybe use it to buy something small, then get cashback from stores that offer that. As it's a debit card, it needs to check the balance in real-time, so there are reports of it being often declined if it can't get a fast response from the home bank. In other words, make sure you have an alternative.\"","How about placing the money in a safety deposit box at the same bank? This will probably work out cheaper than the loss due to negative rates. Although, I'm quite sure the banks won't like this idea.","\"A couple of thoughts and experiences (Germany/Italy): First of all, I recommend talking to the Belgian bank (and possibly to a Dutch bank of your choice). I have similar conditions for my German bank accounts. But even though they talk about it as salary account (\"\"Gehaltskonto\"\") all they really ask for is a monthly inflow of more than xxxx € - which can be satisfied with an automatic direct transfer (I have some money automatically circulating for this reason which \"\"earns\"\" about 4% p.a. by saving fees). In that case it may be a feasible way to have a Belgian and a Dutch bank account and set up some money circulation. Experiences working in Italy (some years ago, SEPA payments were kind of new and the debits weren't implemented then): My guess with your service providers is that they are allowed to offer you contracts that are bound to rather arbitrary payment conditions. After all, you probably can also get a prepaid phone or a contract with a bill that you can then pay by wire transfer - however, AFAIK they are allowed to offer discounts/ask fees for different payment methods. Just like there is no law that forces the store around your corner to accept credit cards or even large EUR denominations as long as they tell you so beforehand. AFAIK, there is EU regulation saying your bank isn't allowed to charge you more for wire transger to foreign country within the SEPA zone than a national wire transfer.\"","\"I think you're talking about two types of machines, at least in the United States. The term change machine usually refers to a machine that accepts large denominations of currency and returns an equal amount of currency in smaller bills or coins. Typically these machines are used to provide coins in exchange for paper currency, in which case they are also often known as bill changers. Exactly what bills or coins these machines return depends on the machine. Read the instructions on the machine to get the details (they're usually right on the machine). For example my apartment building has a machine that converts small bills like ones and fives to quarters, since the laundry machines only took quarters. The other type of machine are coin-cashing machines, like the Coinstar machines you might see at a grocery store. Many banks used to have these machines as well although in my area they're few and far between now. These machines perform the opposite function of the traditional change machine and convert smaller denominations (mostly coins) into bill form. For example if you dump all your accumulated pennies into the machine, it will probably give you bills and larger coins like quarters, dimes, nickels in exchange, after subtracting a small fee. I've heard that now, some of these machines may give you a gift card of some kind instead of bills, although they'll still subtract a fee from your original amount, usually. Once again just read the instructions and they should tell you. When my bank had one of these machines, they didn't charge a fee as long as you were a customer at the bank. I'm sure that varies from place to place and bank to bank though. Wikipedia's article has this to say (see the article for references): In some sections of the U.S., regional banks have begun offering free coin-counting services in the amount of a gift card. Refunds are often given in cash rather than in the form of a gift card. In some cases, it is not even necessary for the customer to have an account at the bank; the free service is offered as a way to attract new business from individuals who are not current account holders. TD Bank's \"\"Penny Arcade\"\" coin counters were free and available to both customers and non-customers in many branches, but as of November 2010, the bank charges a 6% fee for non-customers to use the machine.\"","When I traveled to Germany, I found it was much better to get cash at ATMs and use credit cards. The exchange rate was better than exchanging dollars for Euros at an exchange center. Just make sure you have enough cash to get from the airport to whereever your are traveling. The airport exchange rates were terrible.","I think your approach of looking exclusively at USD deposits is a prudent one. Here are my responses to your questions. 1) It is highly unlikely that a USD deposit abroad be converted to local currency upon withdrawal. The reason for offering a deposit in a particular currency in the first place is that the bank wants to attract funds in this currency. 2) Interest rate is a function of various risks mostly supply and demand, central bank policy, perceived risk etc. In recent years low-interest rate policy as led by U.S., European and Japanese central banks has led particularly low yields in certain countries disregarding their level of risk, which can vary substantially (thus e.g. Eastern Europe has very low yields at the moment in spite of its perceived higher risk). Some countries offer depository insurance. 3) I would focus on banks which are among the largest in the country and boast good corporate governance i.e. their ownership is clean and transparent and they are true to their business purpose. Thus, ownership is key, then come financials. Country depository insurance, low external threat (low war risk) is also important. Most banks require a personal visit in order to open the account, thus I wouldn't split much further than 2-3 banks, assuming these are good quality.","Is this even legal? How can a bank refuse to deposit legal tender in the United States? Legal for all debts, public or private, doesn't mean quite what I used to think, either. Per The Fed: This statute means that all United States money as identified above is a valid and legal offer of payment for debts when tendered to a creditor. There is, however, no Federal statute mandating that a private business, a person, or an organization must accept currency or coins as payment for goods or services. Private businesses are free to develop their own policies on whether to accept cash unless there is a state law which says otherwise. Yes, they can refuse loose change. Also, they aren't refusing your deposit, just requiring that it be rolled. What do I do with my change? I do not want to spend the time rolling it, and I am not going to pay a fee to cash my change. There aren't many other options, change is a nuisance. I believe Coinstar machines reduce/remove their fee if you exchange coins for gift cards, so that might be the best option for convenience and retaining value.","> … Sycamore lined up financing from **UBS Group AG, Bank of America Corp.’s Merrill Lynch, Deutsche Bank AG, Credit Suisse Group AG, Royal Bank of Canada, Jefferies Group LLC, Wells Fargo & Co. and Fifth Third Bank. Merrill Lynch and Deutsche Bank** … > Staples, meanwhile, got financial advice on the deal from **Barclays Plc and Morgan Stanley** … Any banks in the world missing?","Asking a bank for which ATM/branch network it belongs to and where those networks are would be your best bet.","Unfortunately I do not have much experience with European banks. However, I do know of ways to earn interest on bank accounts. CDs (Certificates of Deposit) are a good way to earn interest. Its basically a savings account that you cannot touch for a fixed rate of time. You can set it from an average of 6 months to 12 months. You can pull the money out early if there is an emergency as well. I would also look into different types of bank accounts. If you go with an account other than a free one, the interest rate will be higher and as long as you have the minimum amount required you should not be charged. Hope I was able to help!","\"Chase allows you to take a picture of checks and deposit into your accounts (free for personal checking customers) works on iPhone + android Obviously, they have bill payment. You can ACH money to/from YOUR accounts at other banks. You get the benefit of finding a branch in many cities around the world. As for \"\"web interface that doesn't suck\"\", well... that's kinda personal. I think it's not too bad.\"","Tackling your last point, all banks in the EU should be covered to around €100,000. The exact figure varies slightly between countries, and generally only private deposits are covered. In the UK it's the FSCS that covers private deposits, to a value of £85,000, see this for more information on what's covered. In France (for a euro denominated example), there's coverage up to €100,000 provided by Fonds de Garantie des Dépôts, see this (in French) for full details. There's a fairly good Wikipedia Article that covers all this too. I'll let someone else chime in on the mechanics of opening something covered by the schemes though!","I've never forgotten mine either, but it's a constant fear for me. Couple of friends of mine have. I honestly don't know which machines beep and which don't, but I've heard of people forgetting their cards in ATMs, cigarette vending machines, train ticket machines, McDonald's express order machines and some others I can't remember. The screen of these machines always reminds you, and I think it's hard to forget it, but evidently it does happen. I still use my cards, it's not like I have a crippling fear every time I use it, I just made a habit of always carrying cash and using it for small stuff. I live in Germany, cash is (still?) Accepted everywhere.","Sure; you can deposit cash. A few notes apply: Does the source of cash need to be declared ? If you deposit more than $10,000 in cash or other negotiable instruments, you'll be asked to complete a form called a Currency Transaction Report (here's the US Government's guidance for consumers about this form). There's some very important information in that guidance document about structuring, which is a fairly serious crime that you can commit if you break up your deposits to avoid reporting. Don't do this. The linked document gives examples. Also don't refuse to make your deposit and walk away when presented with a CTR form. In addition, you are also required to report to Customs and Border Protection when you bring more than $10,000 in or out of the country. If you are caught not doing so, the money may be seized and you could be prosecuted criminally. Many countries have similar requirements, often with different dollar amounts, so it's important to make sure you comply with their laws as well. The information from this reporting goes to the government and is used to enforce finance and tax laws, but there's nothing wrong or illegal about depositing cash as long as you don't evade the reporting requirements. You will not need to declare precisely where the cash comes from, but they will want the information required on the forms. Is it taxable ? Simply depositing cash into your bank account is not taxable. Receiving some forms of income, whether as cash or a bank deposit, is taxable. If you seem to have a large amount of unexplained cash income, it is possible an IRS audit will want an explanation from you as to where it comes from and why it isn't taxable. In short, if the income was taxable, you should have paid taxes on it whether or not you deposit it in a bank account. What is the limit of the deposit ? There is no government limit. An individual bank may have their own limit and/or may charge a fee for larger deposits. You could always call the bank and ask.","Rather than screwing around with foreign currencies, hop over to Germany and open an account at the first branch of Deutsche or Commerzbank you see. If the euro really does disintegrate, you want to have your money in the strongest country of the lot. Edit: and what I meant to say is that if the euro implodes, you'll end up with deutschmarks, which, unlike the new IEP, will *not* need to devalue. (And in the meantime, you've still got euros, so you have no FX risk.)","From a Canadian point of view, I think we are generally very similar to how you describe Austria. The only thing I use cash for, is to pay for my coffee at a local micro-roaster who only accepts cash. Cheques, I only use to pay friends. Everything else is debit or credit card. Very few businesses around here will even accept cheques anymore.","Actually What you Can do here, Deposit the money to someones account who has an Account in abroad and Linked to Master Card. Or Another option is You can take help from two banks Standard Chartard or HSBC, they provide RFCD Account, which is a Dollar Account and International Cards which you can use in abroad.","Check out CitiGold from Citibank. Not sure about incoming international wires but everything else seems to be covered.","Look for EU banks that have US branches. Open an account there and look for the SWIFT code of your bank in US. Withdraw money using SWIFT US code.","US Bank just introduced this feature, but they want $.50 per deposit! No way man. Schwab has an Android App I have used a dozen times. Very easy and pretty consistent. It worked on folded checks, pictures on a reflective background (kitchen table top), big company issued checks and of course personal checks. Very positive feeling from this app and the ability to deposit.","\"Generally when you open a new account, you'd be given a checkbook (usually \"\"starter\"\" checks with no personal information, but some banks will later mail you a proper checkbook with your personal details) and a debit card (again, some banks will give you a \"\"starter\"\" one on the spot with a personalized following up in the mail, others will mail you). With the debit card you can use your bank's ATM to withdraw cash from your account, or use it for purchases (will debit, as the name says, directly from your account). You can also use it in other ATMs, but that will usually be with significant fees ($2-$5 per withdrawal to both the ATM owner and your bank). Checks - you can write a check to someone or use the check to go to the cashier in the bank and withdraw money (although usually they have special withdrawal slips for that in the branches, so you don't really need to waste your own checks). As to how to deposit money in your home country - you'll have to check with the bank you have an account at back at home. Usually, you can \"\"wire\"\" transfer money from your BoA account to the account back home, but that is usually comes at a fee of about $30-$50 per transfer (in the US, additional fees may be charged at the receiving end + currency conversion costs). You can also write yourself a check and deposit that check at the home country bank, but that depends on the specific bank whether it is possible, how much it would cost, and how long it would take for them to credit the money to your account after they take your check - may take weeks with personal checks.\"","You can invest in a couple of Sharia-conform ETFs which are available in Germany and issued by Deutsche Bank (and other financial institutions). For instance, have a look at these ETFs: DB Sharia ETFs In addition, Kuveyt Turk Bank aims to become Germany's first Islamic bank offering Sharia conform investments (Reuters).","\"The type of savings account your are referring to is an \"\"Instant Access\"\" account which offers little or no interest in savings. To solve your problem I would suggest opening a higher interest Current Account, there are several on the market which offer equivalent rates of interest as an Instant Access account but still allow access via a debit card. Usually there are requirements for a regular salary transfer into the account or a minimum balance to qualify for interest. Banks that are well know for offering high interest Current Accounts include Nationwide, Santander, TSB and most of the build societies.\"","I've been a landlord and also a tenant. I have been able to deposit money in an account, where I have the account number, and/or a deposit slip. In a foreign bank you can deposit by a machine if in the bank or someone is there for you and knows the account number. With regards to cashing a check in another country, it is up to the bank and the time is at least 14 to 21 business days, with a fee is added. As of a winning check, since its in your name, if you are in another country sign the check, for deposit only with a deposit slip and send it to your out of country bank by FedEx - you will have a tracking number, where as regular mail it might get there in 3 months. I hope by now you came to your solution.","Since you have presumably now been living here for six months you may already have discovered that Australian banks charge a transaction fee whether the funds are deposited from overseas by check/cheque or telegraphically. I have an account with Bank of America and used to be able to draw funds from Australian bank Westpac via their ATMs without incurring a fee, because BofA and Westpac are both members of a Global ATM Alliance that did not charge fees to each others customers. But now they have initiated a new policy, and take 3% of every sum withdrawn. Not quite usury, but in the same ballpark. I'm now investigating the possibility of opening a Schwab or a Capital One account in the US, and using one of their credit cards, which, I believe, would allow withdrawals at Australian ATMs for no fee. If you find or have found a good answer to your dilemma I hope you will share it.","Ask the dealer to drive to the bank with you, if they really want cash.","\"It's possible to cash cheques by post. When I did this, it involved filling out a \"\"paying-in slip\"\" (I had a book of these provided by the bank) and posting the cheque together with the slip to an address provided by the bank. You could also bring the paying-in slip and the cheque to a branch and deposit them there, and it wasn't necessary that you were the account holder, just that the details on the slip matched the account you were paying into. I Googled \"\"paying-in slip\"\" and found the instructions for HSBC as an example: Paying-In Slips. It explicitly mentions that you don't need to be the account holder to do this, and moreover there are even blank slips in the branch, which you just need to fill in with the correct account details. I think the procedure is much the same for other banks, but presumably you could check the relevant bank's website for specific guidance.\"","Remote Deposit usually means a scanner and some software and has a monthly fee associated with it (so it only makes sense for businesses, and even then only some businesses). Chase and USAA allow you to make deposits via your iPhone which is aimed at consumers and has some deposit limits associated with it (checks have to be less than some $$). I've used both. Remote Deposit is super easy, the software usually sucks, but it's too expensive for personal users ($60/month at citibank). Chase deposits have worked on my iPhone usually after 2 or 3 tries but that did save me from walking to the bank.","Online banks are the future. As long as you don't need a clerk to talk to (and why would you need?) there's nothing you can't do with an online bank that you can with a brick and mortar robbers. I use E*Trade trading account as a checking account (it allows writing paper checks, debit card transactions, ACH in/out, free ATM, etc). If you don't need paper checks that often you can use ING or something similar. You can always go to a local credit union, but those will wave the fee in exchange for direct deposit or high balance, and that you can also get from the large banks as well, so no much difference there. Oh where where did Washington Mutual go....","\"The simple answer would be - if you want to take Euros from Germany to Spain as cash and deposit them, you're not breaking any laws, there is nothing to declare to customs (you're still in the EU), it is not \"\"income\"\" so there is nothing to tax, and your bank should be able to receive it without issue (no currency conversion after all). It does however come with the risk of loss/theft en route. So it really depends on how comfortable you are walking around with that much on your person. If you don't want to carry that much around and your banks are imposing unreasonable fees, here's something you could investigate further (I have not tested it myself): Transferwise offers a service that lets people send money to foreign accounts (in different currencies) for a small fee, at mid-market rates. However, they also offer a \"\"request money\"\" feature which allows EUR-EUR transfers (and some other same currency transfers). So perhaps you could use this feature to simply request money from yourself. The requester puts in how much they want to receive. Then they send a generated link to the other party. When clicked, that link sets up a transaction for the requested amount, and sometimes a nominal fee (I created a link for a GBP-GBP transfer and it wanted 1 pound extra, but when I did the same for EUR-EUR it didn't want any extra). I assume you would need two Transferwise accounts, though maybe not? And I'm not sure whether doing this is technically allowed in their terms of service, so you should read those to be sure. The advantage, if this works, is that neither bank sees it as a \"\"transfer\"\". Rather, the originating bank makes a payment to Transferwise, and then Transferwise makes a deposit to the receiving account. So I can't imagine either bank would be able to impose their foreign-bank-transfer fees for the transaction. https://transferwise.com/request-money I have used Transferwise for currency conversions, but not the request money feature, maybe other users could chime in if they have used it.\"","PKO Bank polski has a feature of free incoming,outgoing transfer.","If it's always the same person, you could open a joint account. Then fees are avoided altogether. How fast the funds are available depends on what you deposit. Cash is immediate.","It's not too difficult. Every state has a few local banks that don't do this shit and with new current technology most have apps and allow you to deposit money without going to the bank itself. Yeah you don't have an ATMs everywhere but the need for ATMs deacreses each year. My local bank will even refunds me ATM charges up to 100$ a year.","No you won't. Germany taxes income, not bank accounts. Note that this changes immediately when your bank account makes interest - you will owe taxes on this interest. However, chances are you won't get a bank account. Without residency or income, typically the banks wouldn't give you an account. Feel free to try, though.","\"I don't think there is a law against it. For example comdirect offers multi banking so you can access your accounts from other banks through the comdirect website. My guess would be: Germans are very conservative when it comes to their money (preferring cash above cards, using \"\"safe\"\" low interest saving accounts instead of stocks) so there just might be no market for such a tool. There are desktop apps with bank syncing that offer different levels of personal finance management. Some I know are MoneyMoney, outbank, numbrs, GNUCash and StarMoney.\"","I don't know that. I know mine has a great mobile app where I can deposit a check online. And all the smaller banks I've seen dont build their own sites or apps, they white label generic ones from common vendors.","POS stands for Point of Sale (like a specific store location) which indicates that the purchase occurred by using your debit card, but it can also be the on-line transaction done via 3-D Secure. Checking with bank, they said that Kirchstrasse transaction could be related to direct marketing subscription service ordered on-line. Investigating further what I've found these kind of transactions are performed by 2BuySafe company registered at Kirchstrasse in Liechtenstein with went through the MultiCards on-line cashier which can be used for paying different variety of services (e.g. in this case it was polish on-line storage service called Chomikuj). These kind of transactions can be tracked by checking the e-mail (e.g. in gmail by the following query: after:2014/09/02 before:2014/09/02 Order). Remember, that if you still don't recognise your transaction, you should call your bank. I have found also some other people concerns about that kind of transactions who ask: Is 2BuySafe.com and www.multicards.com some sort of Scam? Provided answer says: MultiCards Internet Billing is a provider of online credit card and debit card processing and payment solutions to many retailers worldwide. MultiCards was one of the pioneer companies offering this type of service since 1995 and is a PCI / DSS certified Internet Payment Service Provider (IPSP) providing service to hundreds of retail websites worldwide MultiCards is a registered Internet Payment Service Provider and has implemented various fraud protection tools including, but not limited to, MultiCards Fraud Score Tool and 'Verified by Visa' and 'MasterCard SecureCode' to protect card holder's card details. 2BuySafe.com Is also Secured and Verified By GeoTrust The certificate should be trusted by all major web browsers (all the correct intermediate certificates are installed). The certificate was issued by GeoTrust. Entering Incorrect information can lead to a card being rejected as @ TOS 2BuySafe.com is hosted on the Multicards Server site","If you're looking for an alternative, HSBC also has an online only savings account that used to be called HSBC Direct, but is now called HSBC Advance. They offer high interest savings (currently 1.1%) with no minimum balance, CDs and give you an ATM card. I've been a satisfied customer for a few years. https://www.us.hsbc.com/1/2/1?code=MIW0000431","I had great difficulty buying my $17,000 truck for cash. One TD Canada Trust branch only let me have $5,000, the other branch down the street only $3,000. They both said they were low on cash. They kept trying to convince me to use a bank draft, but I didn't have a name or total amount as I was still shopping around. I don't think banks carry much cash and it wouldn't take much to clean them out.","DCU, Alliant Credit Union has completely scan only options (no need to mail in checks later). BofA, SchoolsFirstCU allow initial scan, but you need to mail in checks later. All these are no fee.","The easiest options appear to be to open an account with one of the large multinational banks like Citi. They have options such as opening two separate checking accounts, one in each currency, and Citi in particular has an international account that appears to make mutli-currency personal banking easier. All of the options have minimum balance requirements or fees for conversion, but if you need quick access this seems to be the best bet. Even if this is a one-time event and you don't need the account, a bank like Citi may be able to help you cash the check and get access to the funds quicker than a national or local bank. http://www.citibank.com/ipb-global/homepage/newsite/content/english/multi_cap_bank_depo.htm Alternatively if you know anyone with a US bank account you can deposit it with them and take the cash withdrawal from their account, assuming they agree, the check isn't too large, etc.","All banks allow online banking. HSBC is reputed the most international traditional one. That said, opening a bank account in a 100% online bank would get you to near 0 cost, and is probably the preferred option. Every online bank is very similar to each other, so I won't make any recommandation here. Exemples are ing-direct, boursorama, Fortuneo. I'm afraid none offer english service, and it might be difficult to get in line with a decent english speaker. All theses banks will likely offer a gold/premier mastercard/visa, so travelling will not be an issue. The fees should be <2% for foreign currencies (it vary slightly), and <3€ if you use the ATM in none euro ones.","Looks like you have three options: Outside of this you might need to look for a different type of account. Hope that helps.","This may not answer your question but it may be an alternative. My credit union credits my account for deposits immediately (ones I make in an envelope). They view it as a service to their members. They take the risk that the member could deposit an empty envelope, say they deposited $400, and then withdraw the money. There may be banks in your country that do business this way.","Are there banks where you can open a bank account without being a citizen of that country without having to visit the bank in person? I've done it the other way around, opened a bank account in the UK so I have a way to store GBP. Given that Britain is still in the EU you can basically open an account anywhere. German online banks for instance allow you to administrate anything online, should there be cards issued you would need an address in the country. And for opening an account a passport is sufficient, you can identify yourself in a video chat. Now what's the downside? French banks' online services are in French, German banks' services are in German. If that doesn't put you off, I would name such banks in the comments if asked. Are there any online services for investing money that aren't tied to any particular country? Can you clarify that? You should at least be able to buy into any European or American stock through your broker. That should give you an ease of mind being FCA-regulated. However, those are usually GDRs (global depository receipts) and denominated in GBp (pence) so you'd be visually exposed to currency rates, by which I mean that if the stock goes up 1% but the GBP goes up 1% in the same period then your GDR would show a 0% profit on that day; also, and more annoyingly, dividends are distributed in the foreign currency, then exchanged by the issuer of the GDR on that day and booked into your account, so if you want to be in full control of the cashflows you should get a trading account denominated in the currency (and maybe situated in the country) you're planning to invest in. If you're really serious about it, some brokers/banks offer multi-currency trading accounts (again I will name them if asked) where you can trade a wide range of instruments natively (i.e. on the primary exchanges) and you get to manage everything in one interface. Those accounts typically include access to the foreign exchange markets so you can move cash between your accounts freely (well for a surcharge). Also, typically each subaccount is issued its own IBAN.","They don't need to accept deposits from normal persons, but that's how they make lots of money. Banks make money off the fees they charge retailers when those folks swipe their debit cards at the retailer. It's their bread and butter. In order to facilitate you accruing swipe fees for them, they need to allow you to make deposits, on which they can charge the retailers swipe fees.","\"In the U.S. at least, a lot of these CoinStar machines are now owned and operated by the store or other venue in which they're placed, as a convenience to customers, and the fee for using it is waived. These machines, even without a fee attached, are still beneficial to the store, for two reasons. First, they bring in potential customers; the machine usually spits out a ticket that you take to the cashier, meaning you pass by all the impulse items they put in the checkout lines, and someone using the change catcher will invariably pick up a pack of gum or a magazine to spend your newfound wealth. The fact that one store has a change machine while another doesn't can also be the difference between choosing that store over the other for a planned shopping trip. Second, and less obvious, a store that owns a CoinStar machine has full access to the change people put in it (hey, they own the machine and are paying out cash on the receipts it spits out). During normal use of a cash drawer or register to take in money, large bills ($20/20€ or larger) are accumulated to be \"\"broken\"\", small to medium bills (1-10 units) stay roughly static in number as payments are made and larger bills are broken, and coins are invariably depleted as change is paid out. This means the average retail store needs a constant incoming supply of coinage, and that generally happens either through armored car service or similar commercial banking (which costs the store money), or through \"\"change catchers\"\" like gumball machines (which usually can't supply all the needed denominations). The Coinstar machine effectively reverses at least a portion of this attrition of coins and accumulation of large bills; the store can now receive coins and pay out large bills as a part of its day to day business, reducing or even eliminating the need to have a bank or armored car perform this service. Anyway, check and see whether the CoinStar machine you last used is still operating on a percentage-fee basis; it might be the case that the store has purchased the machine outright and is offering its services free of charge. If not, look around; other stores may be waiving the CoinStar fee where this one isn't (or they may have similar, non-CoinStar branded machines). Lastly, as other answers have mentioned, if you cash out in the form of a gift card, there's no fee, so you can pick a gift card to a store you're likely to visit anyway; in the U.S. there are a lot of good choices, like home improvement stores, Starbucks, major department stores/clothing retailers, and even an airline.\"","\"Due to the zero percent interest rate on the Euro right now you won't find any investment giving you 5% which isn't equivalent to gambling. One of the few investment forms which still promises gains without unreasonable risks right now seems to be real estate, because real estate prices in German urban areas (not so in rural areas!) are growing a lot recently. One reason for that is in fact the low interest rate, because it makes it very cheap right now to take a loan and buy a home. This increased demand is driving up the prices. Note that you don't need to buy a property yourself to invest in real estate (20k in one of the larger cities of Germany will get you... maybe a cardboard box below a bridge?). You can invest your money in a real estate fund (\"\"Immobilienfond\"\"). You then don't own a specific property, you own a tiny fraction of a whole bunch of different properties. This spreads out the risk and allows you to invest exactly as much money as you want. However, most real estate funds do not allow you to sell in the first two years and require that you announce your sale one year in advance, so it's not a very liquid asset. Also, it is still a risky investment. Raising real estate prices might hint to a bubble which might burst eventually. Financial analysts have different opinions about this. But fact is, when the European Central Bank starts to take interest again, then the demand for real estate property will drop and so will the prices. When you are not sure what to do, ask your bank for investment advise. German banks are usually trustworthy in this regard.\"","\"I have checked with Bank of America, and they say the ONLY way to cash (or deposit, or otherwise get access to the funds represented by a check made out to my business) is to open a business account. They tell me this is a Federal regulation, and every bank will say the same thing. To do this, I need a state-issued \"\"dba\"\" certificate (from the county clerk's office) as well as an Employer ID Number (EIN) issued by the IRS. AND their CHEAPEST business banking account costs $15 / month. I think I can go to the bank that the check is drawn upon, and they will cash it, assuming I have documentation showing that I am the sole proprietor. But I'm not sure.... What a racket!!\"","This is a facility called Home Banking, which banks in some locations offer. You do not necessarily have to be super-rich to use it though. Kotak Mahindra Bank has been offering it here in India for about 10 years now. Other banks have followed suit with similar offerings. I am not super-rich or anywhere close1, but I have used this facility occasionally when I couldn't visit an ATM or the branch, to either get cash delivered to me, or to deposit cash into my account. The banks do charge a convenience fee for this facility as you might expect, but they waive it off if your average monthly balance exceeds a certain amount. Not sure about how it works in other countries, but here in India, if you have an account with one of the top customer-friendly banks, this facility is as mundane as a cheque book or a debit card. 1 If I were, I probably wouldn't be posting here. ;-)","If you are a citizen of India and working in Germany, then you are most likely an NRI (NonResident Indian). If so, you are not entitled to hold an ordinary Indian bank account, and all such existing accounts must be converted to NRO (NonResident Ordinary) accounts. If your Indian bank knows about NRO accounts, then it will be eager to assist you in the process of converting your existing accounts to NRO accounts most likely it also offers a money remittance scheme (names like Remit2India or Money2India) which will take Euros from your EU bank account and deposit INR into your NRO account. Or, you can create an NRE (NonResident External) account to receive remittances from outside India. The difference is that interest earned in an NRO account is taxable income to you in India (and subject to TDS, tax deduction at source) while interest earned in an NRE account is not taxable in India. The remittance process takes a while to set up, but once in place, most remittances take 5 to 6 business days to complete.","ATM surcharges exist based on the preference of the ATM owner, not the country where it sits. I believe that any country could have these ATMs if the owner so desired.","Santander - Spains largest bank was unable to fulfill it's obligation to finance the airline Norwegian's purchase of new planes. The contract was signed, but Santander had no money. They will now meet angry Norwegian's in court. If I had any money in any Spanish financial institution - bank, stocks, bonds, pension- or other funds - I would get them out today. They have been cooking their books. This is not Lehman Brothers, this is another Enron.","They are networked machines and they talk to all the banks in order to look up the details of your account to provide you with that money. The protocol they use has known vulnerabilities. A blackhat conference about 5 years ago they made one of the machines output money onto the street.","Have you tried your local panhandler? She/He will probably accept 50€ in small change.","I just set up an account with Scottrade bank (affiliated with the stock trading company). I get free checking, free checks, and automatic reimbursement for all ATM fees up to 10 withdrawals per month. Beat that, Bane of America!","Avoid talking to a person: Just use an automated system, such as an ATM or a cellphone app. Automated systems will ONLY scan for the RTN # and Account number at the bottom of the check (the funny looking blocky numbers). The automated system will not care who the check is made out to, or who is present, so long as you have an account to credit the money into, and the account number on the check can get the money debited properly.","Have you tried calling a Forex broker and asking them if you can take delivery on currency? Their spreads are likely to be much lower than banks/ATMs.","There are a couple of advantages that I can think of. Since the machines are less complicated because they don't have to handle cash, they are less expensive and require less maintenance. Machines that handle cash require lots of moving parts. Cash machines require lots of employee interaction. The machines need to be stocked with cash each day, and at the end of the day the cash needs to be taken out and counted. With a cashless machine, the computer does all the work.","\"I don't know if those machines work this way in the UK too, but here in the US you can often avoid the coin-counting fee if you opt to convert the money into a gift certificate instead of cash. I routinely convert my coins to Amazon gift certificate money with no charge. Individual machines differ in which particular gift cards they use, but at the least, almost all of them offer the option for a no-fee conversion to a voucher/gift certificate to the store where the machine is. So it's likely you'd be able to use the machine to convert the cash to \"\"money\"\" you can use to buy groceries.\"","\"See my comment below about the official exchange rate. There is no \"\"official\"\" exchange rate to apply as far as I'm aware. However the bank is already applying the same exchange rate you can find in the forex markets. They are simply applying a spread (meaning they will add some amount to the exchange rate whichever way you are exchanging currency). You will almost certainly not find a bank that doesn't apply a spread. Of course, their spread might be large, so that's why it is good to compare rates. By the way, 5 GBP/month seems reasonable for a foreign currency (or any) acct. The transaction fees might be cheaper in a different \"\"package\"\" so check. You should consider trying PayPal. Their spread is quite small - and publicly disclosed - and their per-transaction fees are very low. Of course, this is not a bank account. But you can easily connect it to your bank account and transfer the money between accounts quickly. They also offer free foreign currency accounts that you can basically open and close in a click. Transfers are instantaneous. I am based in Germany but I haven't had a problem with clients from various English-speaking countries using PayPal. They actually seem to prefer it in many instances.\"","I'm looking for another one right now. Here's what I've found: Los Alamos National Bank (www.lanb.com) has tokens ($5?), but I think they only open accounts for New Mexico residents. I've had one for several years. USAA Savings Bank (usaa.com) has tokens ($5 or free, I don't remember). I'm pretty sure you do NOT need to be a USAA member to open an account. I've had one for a couple of years. Several banks (Frost Bank, American National Bank of Texas, Amegy Bank, and probably many, many more) offer them as part of their Treasury Management accounts, meant for big businesses and charged for accordingly. Happy State Bank (in, where else, Happy, Texas) has a web page saying they have them but their services charges were more than I wanted to pay. ClearSky Bank (an Internet bank started by Chesapeake Bank) claims on their web page to have them but I haven't verified that yet. Still looking...","Typically, withdrawing cash from an ATM once abroad gives you the best exchange rate, but check if your bank imposes ATM withdrawal fees. This works well for all major currencies, such as GBP, Euro, Yen, AUD. I've also withdrawn Croatian kunas, Brazilian reais and Moroccan dirhams without any trouble. In Southeast Asia, it may be a different story. Thai ATMs, for example, reportedly impose a surcharge of about $5.","It's a good saving account from the persepective of usability. Easy to open, easy to manage, and free at least in Italy. Anyway be aware that in 2008 you would not probably have been so happy to know that your saving were in bank that was close to go banckrupcy. On October/19/2008 the Ducth government had to inject 10 billions euro into ING Group to save it from a probable collapse. At least the CEO Michel Tilmant was fired, and also 7000 poor employees was cutted off. After that, it seems they just went on selling themslevs in pieces in order to restructure source: http://en.wikipedia.org/wiki/ING_Group#History But they also partially repaid the Dutch goverment and now their rating is around A, so it seems to be a safe place to put your saving for now.","In addition to the other answers, Harris Bank (now owned by BMO) allows Canadians living in Canada to open accounts, perhaps they consider other countries as well. They have excellent customer service.","Sorry, in the US (Bank of America). The kind of account we have has that high fee, but they also have free account options that have lower or zero balance requirements, you just have to setup direct deposit. The one we have has free checks, free safe deposit box, an English speaking customer service rep guaranteed to answer my call in something like 3 rings, and a bunch of other stuff I'll never use.","Gnucash uses aqbanking, so I'd suggest looking at aqbanking to see if it will do what you want. It seems to be actively developed (as of 26.2.2011), but the main page is in German and my German is a bit rusty... You might also try asking on the gnucash-users list.","Years ago, I had a tenant who bounced a check now and then. I started going to the bank where his account was. With my ID they were agreeable to cashing the check against his account. The teller first checked his balance and only cashed when there were enough funds. One time he was $10 short. I wrote a deposit slip and added the $10 it took to clear the check. As they say, your mileage may vary, I hear some banks won't even break a large bill for a non customer.","I'd have a look at Capital One's Online account too, they've got 1.35% interest rate with 10% bonus if you have over $15k deposited. It is still low like all interest rates, but at least it is on top (or at least close)!","In addition to the money-laundering, lifestyle, income tax, etc issues discussed already in other answers, one other matter that might concern the bank is whether that cash you are bringing in to deposit is genuine currency or (some or all of) the bills are counterfeit and you are using this mechanism to get them into circulation. Even if you withdraw a very large amount in cash from your bank, step out the door and come back just a few minutes later saying that you have changed your mind and want to put that money back into your account, there is still the question as to whether the cash you have brought back is exactly the same as you took out or a substitution was made in the interim. I once needed a bank draft for $1000 and went to my bank to get it, taking with me a check made out to Cash for $1003 (the bank's fee was $3). The bank would not give me a bank draft in exchange for the check, or if I cashed the check right then and there and paid for the bank draft using the cash that the teller had just handed me. I had to tear up the check, write another one payable to the bank, and then I got my bank draft. As JoeTaxpayer says, it is a matter of paper trail. Additional matter added in edit: According to Wikipedia, because of the Bank Secrecy Act of 1970, Many banks will no longer sell negotiable instruments when they are purchased with cash, requiring the purchase to be withdrawn from an account at that institution. which was exactly my experience. Furthermore, even the banks that will still sell you a cashier's check or money order for cash must keep a Monetary Instrument Log (MIL) that records all such cash transactions for amounts between $3000 and $10,000, keep the records for at least five years, and produce it upon request of a bank examiner or auditor (and presumably upon subpoena by a district attorney or divorce lawyer). Cash transactions of $10,000 or over are, of course, reported to the IRS on Currency Transaction Reports. In short, a paper trail exists for some time even for cash transactions quite a bit smaller than $10,000.","Yes, you can do everything that Fidelity promises with the cash management account. Your benefits are: The downsides? They don't have branches everywhere, so if you do need to see a person, you may not be able to do so. Likewise, you won't be able to do cash deposits. Before anyone says it's too good to be true, brokerages like Schwab and Fidelity offer this because the hope is that you'll end up establishing or using other services they offer, so they do have ways to profit from this. Still, compared to the joke that is many other banks, it's a good deal provide you're aware of the two downsides listed above this.","Many European countires allow you to an account for non-residents. You have to appear in the bank personally to open it, some of them even to get your own tax number for non-residents from the local government. I'm not sure if you get a Visa (Electron) chip card immediatelly or you have to wait for like 3 months before being issued one. I've heard that getting a tax number for non-residents and opening a bank account is easily done in one day in Brezice, Republic of Slovenia. They seem to have agile local bureaucracy and banks, since many pople from neighbouring (non-EU) countries (used to) come there to open an EU bank account. Funds can be transfered via Internet banking - US banks have that, do they? SWIFT and IBAN codes are used for international money transfer. But it takes some time (days!) for it to arrive to destination. Tansfers below $20000 per month or per transaction are considered normal, but for amouts above that the destination bank might ask you to explain the purpose, to prove it is not illegal. Some of them accept the explanaiton in writing (they forward it to the regulator that tracks such large transfers), some of them ask you to appear there in person for an interview and to sign a statement. Can't believe US banks are still issuing paing magnet stripe cards like it's still 1980s. I'd expect Europe to be 10 years behind USA in technology, but this seems to be a weird reverse. I've beed using Internet banking with one-time passwd tokens and TAN lists for almost 10 years, and chip cards exclusivley for over 5y. Can't remeber the last time I've seen mag stripe card only. American Express (event the regular green one) got the chip at least 5 years ago. And it is accepted regularly in Europe. Alegedly it's more popular in Europe (although Mastercard is a definite #1, with Visa close to that) that in USA."],"string":"[\n \"\\\"HypoVereinsbank (member of UniCredit group), a few savings banks (\\\"\\\"Sparkasse\\\"\\\") and VR Banks offer cash (bill) deposit machines. However, it can take a few business days until the deposit is credited to your checking account, which has to be with the same bank. Google for \\\"\\\"Bargeldeinzahlungsautomat\\\"\\\" (=cash deposit machine). As Duffbeer stated correctly, HSBC Trinkaus which is the German arm of the HSBC group does not operate any ATMs in Germany. In addition they do not share the same bank accounts. So I would recommend going with the classic banks mentioned above.\\\"\",\n \"In my experience Sparkasse or VR Bank have them quite often. They stick out in my mind because when you make a withdrawal you have to reach in to get your money instead of it spitting it out. I'm always afraid its going to chop my hand off.\",\n \"You could buy a money order with your cash, then mail the money order to Deutsche Bank Germany for deposit into your account. You could also buy a prepaid debit card (like a Visa/AMEX giftcard) with your cash. Then, open a new Paypal account and add this prepaid card. Finally, send money to yourself using the prepaid card as the funding source. You could use a money transfer service, like Western Union, to transfer the cash to a friend/family in Germany. Then ask them to deposit it for you at Deutsche Bank Germany.\",\n \"I know that many HSBC ATMs at branches in the US and Canada offer this service (they actually scan and shred checks as you deposit them). Perhaps they do same in Germany... but not all ATMs offer this feature.\",\n \"Barclays Bank, RBS, and Deutsche Bank have an agreement as part of the Global ATM Alliance that allows you to make withdrawals at Deutsche Bank ATMs at no charge. The usefulness of this arrangement to you depends on how you use your money and would entail opening an account at Barclays or Royal Bank of Scotland. Edit: David, it looks like you will need some kind of residency to open a Barclays account, but you may be able to qualify with the proper supporting documentation. See this website: UK banking services and UK bank accounts, from Barclays Wealth International\",\n \"To start with, you are right, there shouldn't be any additional fees other than the currency exchange fee - I'm not sure of the exact fee for Natwest, but for Halifax this was around 2.5% for big currencies like the Euro. However, Germany doesn't actually use debit cards nearly as much as we do here in the UK, so you will almost certainly need cash. Rather than taking this from a currency exchange booth, what you should do in order to get the lowest fees is head straight to the ATM of any bank, and put your card in to make a cash withdrawal. It will almost certainly ask if you want to use their exchange rate, which it will show you, and you will almost certainly be better turning this down and allowing Natwest to do this for you. Dependent on the bank their currency exchange spread may be as high as 4.5%. I hope this helps, it certainly saved me a lot of money when I have been going abroad.\",\n \"\\\"Many services are available to people who are wealthy enough to use private banks. The linked Wikipedia article says: ...banking services (deposit taking and payments), discretionary asset management, brokerage, limited tax advisory services and some basic concierge-type services, offered by a single designated relationship manager. Having cash delivered to your door would come under \\\"\\\"basic concierge-type services\\\"\\\".\\\"\",\n \"Without access to the ATM/debit card and with almost nothing in savings, you will probably have to visit a branch to make a cash deposit. If it is too far to drive you might be able to turn the cash into a money order and mail it to the bank, but I would check with the bank to see if that would work. Of course mail will take a day or two.\",\n \"There were several incidences of cash shortages in the Danish system recently. On particular saturdays when the streets were bloated with shoppers, you could see the queues for the ATMs stretching for 40-50 yards, and people shaking their heads about why their cards didnt work in the shops. They have a separate national system to visa called Dankort which everyone is very proud of. But it is curiously prone to failures from time to time. Large cash transactions (over 10,000 DKK) are monitored and questioned verbally when withdrawn or deposited in banks. Interesting also how Danish banks are the most heavily leveraged in Europe...\",\n \"The last time I checked (more than a year ago), Wells Fargo had the best rates and they provide next day delivery. They also have international ATMs in New York City.\",\n \"There are good reasons to not go the cash route here (see Jay's answer). If one insists however, at 30 k€ anti-money laundering regulations have to be considered (and are not mentioned by the existing answers so far). Depositing amounts larger than 10 k€ will trigger questions about the source of the money to fight tax evasion and organized crime (splitting the amount may still trigger the process). So prepare good proof concerning the origin of that money and a paper trail that shows it is legal money and that it has been taxed already. I.e. the latest Anti-Money Laundering Directive is supposed to be implemented by national laws, thus including Spain. The European Union Fourth Anti-Money Laundering Directive is the most sweeping AML legislation in Europe in several years. On 25 June 2015, the EU Fourth Directive was enacted, which replaces the previous Third Directive. With a two-year window for implementation, all EU member states must be compliant with the new mandates by 26 June 2017. Source\",\n \"\\\"The UK has Islamic banks. I don't know whether Germany has the same or not (with a quick search I can find articles stating intentions to establish one, but not the results). Even if there's none in Germany, I assume that with some difficulty you could use banks elsewhere in the EU and even non-Euro-denominated. I can't recommend a specific provider or product (never used them and probably wouldn't offer recommendations on this site anyway), but they advertise savings accounts. I've found one using a web search that offers an \\\"\\\"expected profit rate\\\"\\\" of 1.9% for a 12 month fix, which is roughly comparable with \\\"\\\"typical\\\"\\\" cash savings products in pounds sterling. Typical to me I mean, not to you ;-) Naturally you'd want to look into the risk as well. Their definition of Halal might not precisely match yours, but I'm sure you can satisfy yourself by looking into the details. I've noticed for example a statement that the bank doesn't invest your money in tobacco or alcohol, which you don't give as a requirement but I'm going to guess wouldn't object to!\\\"\",\n \"\\\"The €100'000 limit is per bank, where \\\"\\\"bank\\\"\\\" is defined as a financial institution with a banking license from one of the ECB members. \\\"\\\"WeltSparen\\\"\\\", is operated by the MHB-Bank which is a German bank, recognized by the Bundesbank. That means your money is initially guaranteed by the Bundesbank. When it's moved to the final saving account, you'll be saving at other banks, which are identified in the individual offerings. This can be an effective technique to split capitals in excess of €100.000. You should obviously look for banks that are backed by ECB member banks, but keep in mind what happened to Iceland: the national banks can also fail. In particular, the Bank of Italy at the moment is looking a bit shaky because Monte dei Paschi di Siena is currently failing and will require a bail-out. There's no official back-up for failing national banks within the ECB system.\\\"\",\n \"For those who are interested, I am answering my own question: We used Postbank and transferred 6000 Euro, we chose to Transfer in US$, and selected Shared Fees. There were three fees in total: All in all, I paid ~37$; this is about half of what I expected; and I got a perfect exchange rate. Postbank might have its downsides, but it seems they are still a good deal.\",\n \"You may want to look at services like https://transferwise.com/. For transferring money abroad they may be cheaper than you own bank. Here is a list of similar services: https://www.icomparefx.com/transferwise-competitors/. Which one is the cheapest depends on the amount of money you want to transfer. You would still need an account at a german bank or a trustworthy friend with a german account.\",\n \"\\\"If you are going to keep your US bank account for any period of time, the very best option I know of is to withdraw Euros from an atm using your US card once you are in Germany. I draw on my US account regularly (I'm in Munich) and always get the going \\\"\\\"mid market\\\"\\\" exchange rate, which is better than what you get from a currency conversion service, transfer agency, or bank transfer, and there are no fees from the atm or my bank for the currency conversion or withdrawal. Of course you should check with your bank to verify their rules and fees for atm use internationally. It would also be wise to put a travel advisory on your account to be sure your transaction is not denied because you are out of country.\\\"\",\n \"Deutsche Bank states here (couldn't find it in english) that SEPA transfers (all transfers in EUR to EU states that have EUR) are free. So you could just transfer the money. Your custom daily transfer limit (by default 1000€ for online banking transfers) applies. You can change the limit online or by going to one of their branches. You would then transfer your money over the course of several days. You need the SWIFT and BIC code of your new account.\",\n \"TD Bank (Northeast US) has free change counting machines at its branches. You don't have to have an account to use them.\",\n \"Most banks should give them. I exchange all the time.\",\n \"All banks in the US that I have ever worked with will allow you to deposit checks if: In your case, you have 3 options:\",\n \"\\\"If you want to deposit checks or conduct business at a window, you should look at a local savings bank or credit union. Generally, you can find one that will offer \\\"\\\"free\\\"\\\" checking in exchange for direct deposit or a minimum balance. Some are totally free, but those banks pay zippo for interest. If you don't care about location, I would look at Charles Schwab Bank. I've been using them for a couple of years and have been really satisfied with them. They provide free checking, ATM fee reimbursement, free checks and pre-paid deposit envelopes. You also can easily move money between Schwab brokerage or savings accounts. Other brokers offer similar services as well.\\\"\",\n \"Then, is it possible to deposit rubles at the same ATM to get USD in my account at the same rate? No this is not possible. Generally deposits into accounts outside country and not offered.\",\n \"Most US banks allow to initiate wire transfers online. (I do it regularly with BoA and JPMorgan-Chase) Once you have your account details in Germany, you log on to your US account, set it up, and initiate the transfer; that should go through within one day. The exchange ratio is better than anything you would get buying/selling currency (paper cash money), no matter where you do it. Chase takes a fee of 40$ per online transaction; BoA 45$. The receiving bank might or might not take additional fees, they should be lower though (I have experienced between 0€ and 0.35%). Therefore, it is a good idea to bundle your transfers into one, if you can.\",\n \"Capital One 360. No minimums balance, no fees. Everything's online. Make deposits using an app or an image of the check. ATMs are free almost everywhere.\",\n \"My wife and I have two Schwab brokerage accounts, one for retirement and one for non-retirement investments. The latter also has a checking/savings account which we use as our main account. Schwab is very happy with us, as we are cheapskates and save a lot of money. The checking account, which seems to act like any ordinary checking account, gives us all the things listed above. They pay the ATM fees, which is not a lot of money, but seems like a nice thing to me. We can also do cash deposits and we can go to any Schwab branch to talk to someone face to face. We've only had to do the latter once in 10 or so years, and the former maybe once or twice.\",\n \"How often do you need to actually go to a bank? atm's, debit and credit cards work where ever. you can even deposit checks by taking a picture of them. dealing with cash would be more troublesome though.\",\n \"Banks need to provide a free mechanism to deposit and withdrawal money. Banks are free to charge fees as long as it is well published. If you are not happy with services you can complain to Banking ombudsman.\",\n \"\\\"When I deposit my paycheck in CapOne I have an email before I am out of the app that they received my check. I have access to some portion of the cash now and the rest the next business day, however they put things in order to NOT overdraft me. For instance, if I am overdrawn $150 but the charge is \\\"\\\"pending\\\"\\\", putting the check in they will deposit the check before posting the charge that would overdraft me. Plus I can use Apple Pay with it. My local CUs have app deposit, but it takes DAYS for a deposit to just show up. Plus, no Apple Pay.\\\"\",\n \"\\\"Visa Electron should be usable in any ATM (and shop) that accepts Visa, especially if the ATM also contains the \\\"\\\"Plus\\\"\\\" logo. However, if it's (for example) the card issued by La Banque Postale (in French) there are quite low withdrawal and spending limits. These limits are over a period of the most recent seven days, so it can take a while before you can withdraw more. So maybe not suitable to transfer a significant amount to your CZK account. As an alternative to finding an ATM that might have a fee, you can maybe use it to buy something small, then get cashback from stores that offer that. As it's a debit card, it needs to check the balance in real-time, so there are reports of it being often declined if it can't get a fast response from the home bank. In other words, make sure you have an alternative.\\\"\",\n \"How about placing the money in a safety deposit box at the same bank? This will probably work out cheaper than the loss due to negative rates. Although, I'm quite sure the banks won't like this idea.\",\n \"\\\"A couple of thoughts and experiences (Germany/Italy): First of all, I recommend talking to the Belgian bank (and possibly to a Dutch bank of your choice). I have similar conditions for my German bank accounts. But even though they talk about it as salary account (\\\"\\\"Gehaltskonto\\\"\\\") all they really ask for is a monthly inflow of more than xxxx € - which can be satisfied with an automatic direct transfer (I have some money automatically circulating for this reason which \\\"\\\"earns\\\"\\\" about 4% p.a. by saving fees). In that case it may be a feasible way to have a Belgian and a Dutch bank account and set up some money circulation. Experiences working in Italy (some years ago, SEPA payments were kind of new and the debits weren't implemented then): My guess with your service providers is that they are allowed to offer you contracts that are bound to rather arbitrary payment conditions. After all, you probably can also get a prepaid phone or a contract with a bill that you can then pay by wire transfer - however, AFAIK they are allowed to offer discounts/ask fees for different payment methods. Just like there is no law that forces the store around your corner to accept credit cards or even large EUR denominations as long as they tell you so beforehand. AFAIK, there is EU regulation saying your bank isn't allowed to charge you more for wire transger to foreign country within the SEPA zone than a national wire transfer.\\\"\",\n \"\\\"I think you're talking about two types of machines, at least in the United States. The term change machine usually refers to a machine that accepts large denominations of currency and returns an equal amount of currency in smaller bills or coins. Typically these machines are used to provide coins in exchange for paper currency, in which case they are also often known as bill changers. Exactly what bills or coins these machines return depends on the machine. Read the instructions on the machine to get the details (they're usually right on the machine). For example my apartment building has a machine that converts small bills like ones and fives to quarters, since the laundry machines only took quarters. The other type of machine are coin-cashing machines, like the Coinstar machines you might see at a grocery store. Many banks used to have these machines as well although in my area they're few and far between now. These machines perform the opposite function of the traditional change machine and convert smaller denominations (mostly coins) into bill form. For example if you dump all your accumulated pennies into the machine, it will probably give you bills and larger coins like quarters, dimes, nickels in exchange, after subtracting a small fee. I've heard that now, some of these machines may give you a gift card of some kind instead of bills, although they'll still subtract a fee from your original amount, usually. Once again just read the instructions and they should tell you. When my bank had one of these machines, they didn't charge a fee as long as you were a customer at the bank. I'm sure that varies from place to place and bank to bank though. Wikipedia's article has this to say (see the article for references): In some sections of the U.S., regional banks have begun offering free coin-counting services in the amount of a gift card. Refunds are often given in cash rather than in the form of a gift card. In some cases, it is not even necessary for the customer to have an account at the bank; the free service is offered as a way to attract new business from individuals who are not current account holders. TD Bank's \\\"\\\"Penny Arcade\\\"\\\" coin counters were free and available to both customers and non-customers in many branches, but as of November 2010, the bank charges a 6% fee for non-customers to use the machine.\\\"\",\n \"When I traveled to Germany, I found it was much better to get cash at ATMs and use credit cards. The exchange rate was better than exchanging dollars for Euros at an exchange center. Just make sure you have enough cash to get from the airport to whereever your are traveling. The airport exchange rates were terrible.\",\n \"I think your approach of looking exclusively at USD deposits is a prudent one. Here are my responses to your questions. 1) It is highly unlikely that a USD deposit abroad be converted to local currency upon withdrawal. The reason for offering a deposit in a particular currency in the first place is that the bank wants to attract funds in this currency. 2) Interest rate is a function of various risks mostly supply and demand, central bank policy, perceived risk etc. In recent years low-interest rate policy as led by U.S., European and Japanese central banks has led particularly low yields in certain countries disregarding their level of risk, which can vary substantially (thus e.g. Eastern Europe has very low yields at the moment in spite of its perceived higher risk). Some countries offer depository insurance. 3) I would focus on banks which are among the largest in the country and boast good corporate governance i.e. their ownership is clean and transparent and they are true to their business purpose. Thus, ownership is key, then come financials. Country depository insurance, low external threat (low war risk) is also important. Most banks require a personal visit in order to open the account, thus I wouldn't split much further than 2-3 banks, assuming these are good quality.\",\n \"Is this even legal? How can a bank refuse to deposit legal tender in the United States? Legal for all debts, public or private, doesn't mean quite what I used to think, either. Per The Fed: This statute means that all United States money as identified above is a valid and legal offer of payment for debts when tendered to a creditor. There is, however, no Federal statute mandating that a private business, a person, or an organization must accept currency or coins as payment for goods or services. Private businesses are free to develop their own policies on whether to accept cash unless there is a state law which says otherwise. Yes, they can refuse loose change. Also, they aren't refusing your deposit, just requiring that it be rolled. What do I do with my change? I do not want to spend the time rolling it, and I am not going to pay a fee to cash my change. There aren't many other options, change is a nuisance. I believe Coinstar machines reduce/remove their fee if you exchange coins for gift cards, so that might be the best option for convenience and retaining value.\",\n \"> … Sycamore lined up financing from **UBS Group AG, Bank of America Corp.’s Merrill Lynch, Deutsche Bank AG, Credit Suisse Group AG, Royal Bank of Canada, Jefferies Group LLC, Wells Fargo & Co. and Fifth Third Bank. Merrill Lynch and Deutsche Bank** … > Staples, meanwhile, got financial advice on the deal from **Barclays Plc and Morgan Stanley** … Any banks in the world missing?\",\n \"Asking a bank for which ATM/branch network it belongs to and where those networks are would be your best bet.\",\n \"Unfortunately I do not have much experience with European banks. However, I do know of ways to earn interest on bank accounts. CDs (Certificates of Deposit) are a good way to earn interest. Its basically a savings account that you cannot touch for a fixed rate of time. You can set it from an average of 6 months to 12 months. You can pull the money out early if there is an emergency as well. I would also look into different types of bank accounts. If you go with an account other than a free one, the interest rate will be higher and as long as you have the minimum amount required you should not be charged. Hope I was able to help!\",\n \"\\\"Chase allows you to take a picture of checks and deposit into your accounts (free for personal checking customers) works on iPhone + android Obviously, they have bill payment. You can ACH money to/from YOUR accounts at other banks. You get the benefit of finding a branch in many cities around the world. As for \\\"\\\"web interface that doesn't suck\\\"\\\", well... that's kinda personal. I think it's not too bad.\\\"\",\n \"Tackling your last point, all banks in the EU should be covered to around €100,000. The exact figure varies slightly between countries, and generally only private deposits are covered. In the UK it's the FSCS that covers private deposits, to a value of £85,000, see this for more information on what's covered. In France (for a euro denominated example), there's coverage up to €100,000 provided by Fonds de Garantie des Dépôts, see this (in French) for full details. There's a fairly good Wikipedia Article that covers all this too. I'll let someone else chime in on the mechanics of opening something covered by the schemes though!\",\n \"I've never forgotten mine either, but it's a constant fear for me. Couple of friends of mine have. I honestly don't know which machines beep and which don't, but I've heard of people forgetting their cards in ATMs, cigarette vending machines, train ticket machines, McDonald's express order machines and some others I can't remember. The screen of these machines always reminds you, and I think it's hard to forget it, but evidently it does happen. I still use my cards, it's not like I have a crippling fear every time I use it, I just made a habit of always carrying cash and using it for small stuff. I live in Germany, cash is (still?) Accepted everywhere.\",\n \"Sure; you can deposit cash. A few notes apply: Does the source of cash need to be declared ? If you deposit more than $10,000 in cash or other negotiable instruments, you'll be asked to complete a form called a Currency Transaction Report (here's the US Government's guidance for consumers about this form). There's some very important information in that guidance document about structuring, which is a fairly serious crime that you can commit if you break up your deposits to avoid reporting. Don't do this. The linked document gives examples. Also don't refuse to make your deposit and walk away when presented with a CTR form. In addition, you are also required to report to Customs and Border Protection when you bring more than $10,000 in or out of the country. If you are caught not doing so, the money may be seized and you could be prosecuted criminally. Many countries have similar requirements, often with different dollar amounts, so it's important to make sure you comply with their laws as well. The information from this reporting goes to the government and is used to enforce finance and tax laws, but there's nothing wrong or illegal about depositing cash as long as you don't evade the reporting requirements. You will not need to declare precisely where the cash comes from, but they will want the information required on the forms. Is it taxable ? Simply depositing cash into your bank account is not taxable. Receiving some forms of income, whether as cash or a bank deposit, is taxable. If you seem to have a large amount of unexplained cash income, it is possible an IRS audit will want an explanation from you as to where it comes from and why it isn't taxable. In short, if the income was taxable, you should have paid taxes on it whether or not you deposit it in a bank account. What is the limit of the deposit ? There is no government limit. An individual bank may have their own limit and/or may charge a fee for larger deposits. You could always call the bank and ask.\",\n \"Rather than screwing around with foreign currencies, hop over to Germany and open an account at the first branch of Deutsche or Commerzbank you see. If the euro really does disintegrate, you want to have your money in the strongest country of the lot. Edit: and what I meant to say is that if the euro implodes, you'll end up with deutschmarks, which, unlike the new IEP, will *not* need to devalue. (And in the meantime, you've still got euros, so you have no FX risk.)\",\n \"From a Canadian point of view, I think we are generally very similar to how you describe Austria. The only thing I use cash for, is to pay for my coffee at a local micro-roaster who only accepts cash. Cheques, I only use to pay friends. Everything else is debit or credit card. Very few businesses around here will even accept cheques anymore.\",\n \"Actually What you Can do here, Deposit the money to someones account who has an Account in abroad and Linked to Master Card. Or Another option is You can take help from two banks Standard Chartard or HSBC, they provide RFCD Account, which is a Dollar Account and International Cards which you can use in abroad.\",\n \"Check out CitiGold from Citibank. Not sure about incoming international wires but everything else seems to be covered.\",\n \"Look for EU banks that have US branches. Open an account there and look for the SWIFT code of your bank in US. Withdraw money using SWIFT US code.\",\n \"US Bank just introduced this feature, but they want $.50 per deposit! No way man. Schwab has an Android App I have used a dozen times. Very easy and pretty consistent. It worked on folded checks, pictures on a reflective background (kitchen table top), big company issued checks and of course personal checks. Very positive feeling from this app and the ability to deposit.\",\n \"\\\"Generally when you open a new account, you'd be given a checkbook (usually \\\"\\\"starter\\\"\\\" checks with no personal information, but some banks will later mail you a proper checkbook with your personal details) and a debit card (again, some banks will give you a \\\"\\\"starter\\\"\\\" one on the spot with a personalized following up in the mail, others will mail you). With the debit card you can use your bank's ATM to withdraw cash from your account, or use it for purchases (will debit, as the name says, directly from your account). You can also use it in other ATMs, but that will usually be with significant fees ($2-$5 per withdrawal to both the ATM owner and your bank). Checks - you can write a check to someone or use the check to go to the cashier in the bank and withdraw money (although usually they have special withdrawal slips for that in the branches, so you don't really need to waste your own checks). As to how to deposit money in your home country - you'll have to check with the bank you have an account at back at home. Usually, you can \\\"\\\"wire\\\"\\\" transfer money from your BoA account to the account back home, but that is usually comes at a fee of about $30-$50 per transfer (in the US, additional fees may be charged at the receiving end + currency conversion costs). You can also write yourself a check and deposit that check at the home country bank, but that depends on the specific bank whether it is possible, how much it would cost, and how long it would take for them to credit the money to your account after they take your check - may take weeks with personal checks.\\\"\",\n \"You can invest in a couple of Sharia-conform ETFs which are available in Germany and issued by Deutsche Bank (and other financial institutions). For instance, have a look at these ETFs: DB Sharia ETFs In addition, Kuveyt Turk Bank aims to become Germany's first Islamic bank offering Sharia conform investments (Reuters).\",\n \"\\\"The type of savings account your are referring to is an \\\"\\\"Instant Access\\\"\\\" account which offers little or no interest in savings. To solve your problem I would suggest opening a higher interest Current Account, there are several on the market which offer equivalent rates of interest as an Instant Access account but still allow access via a debit card. Usually there are requirements for a regular salary transfer into the account or a minimum balance to qualify for interest. Banks that are well know for offering high interest Current Accounts include Nationwide, Santander, TSB and most of the build societies.\\\"\",\n \"I've been a landlord and also a tenant. I have been able to deposit money in an account, where I have the account number, and/or a deposit slip. In a foreign bank you can deposit by a machine if in the bank or someone is there for you and knows the account number. With regards to cashing a check in another country, it is up to the bank and the time is at least 14 to 21 business days, with a fee is added. As of a winning check, since its in your name, if you are in another country sign the check, for deposit only with a deposit slip and send it to your out of country bank by FedEx - you will have a tracking number, where as regular mail it might get there in 3 months. I hope by now you came to your solution.\",\n \"Since you have presumably now been living here for six months you may already have discovered that Australian banks charge a transaction fee whether the funds are deposited from overseas by check/cheque or telegraphically. I have an account with Bank of America and used to be able to draw funds from Australian bank Westpac via their ATMs without incurring a fee, because BofA and Westpac are both members of a Global ATM Alliance that did not charge fees to each others customers. But now they have initiated a new policy, and take 3% of every sum withdrawn. Not quite usury, but in the same ballpark. I'm now investigating the possibility of opening a Schwab or a Capital One account in the US, and using one of their credit cards, which, I believe, would allow withdrawals at Australian ATMs for no fee. If you find or have found a good answer to your dilemma I hope you will share it.\",\n \"Ask the dealer to drive to the bank with you, if they really want cash.\",\n \"\\\"It's possible to cash cheques by post. When I did this, it involved filling out a \\\"\\\"paying-in slip\\\"\\\" (I had a book of these provided by the bank) and posting the cheque together with the slip to an address provided by the bank. You could also bring the paying-in slip and the cheque to a branch and deposit them there, and it wasn't necessary that you were the account holder, just that the details on the slip matched the account you were paying into. I Googled \\\"\\\"paying-in slip\\\"\\\" and found the instructions for HSBC as an example: Paying-In Slips. It explicitly mentions that you don't need to be the account holder to do this, and moreover there are even blank slips in the branch, which you just need to fill in with the correct account details. I think the procedure is much the same for other banks, but presumably you could check the relevant bank's website for specific guidance.\\\"\",\n \"Remote Deposit usually means a scanner and some software and has a monthly fee associated with it (so it only makes sense for businesses, and even then only some businesses). Chase and USAA allow you to make deposits via your iPhone which is aimed at consumers and has some deposit limits associated with it (checks have to be less than some $$). I've used both. Remote Deposit is super easy, the software usually sucks, but it's too expensive for personal users ($60/month at citibank). Chase deposits have worked on my iPhone usually after 2 or 3 tries but that did save me from walking to the bank.\",\n \"Online banks are the future. As long as you don't need a clerk to talk to (and why would you need?) there's nothing you can't do with an online bank that you can with a brick and mortar robbers. I use E*Trade trading account as a checking account (it allows writing paper checks, debit card transactions, ACH in/out, free ATM, etc). If you don't need paper checks that often you can use ING or something similar. You can always go to a local credit union, but those will wave the fee in exchange for direct deposit or high balance, and that you can also get from the large banks as well, so no much difference there. Oh where where did Washington Mutual go....\",\n \"\\\"The simple answer would be - if you want to take Euros from Germany to Spain as cash and deposit them, you're not breaking any laws, there is nothing to declare to customs (you're still in the EU), it is not \\\"\\\"income\\\"\\\" so there is nothing to tax, and your bank should be able to receive it without issue (no currency conversion after all). It does however come with the risk of loss/theft en route. So it really depends on how comfortable you are walking around with that much on your person. If you don't want to carry that much around and your banks are imposing unreasonable fees, here's something you could investigate further (I have not tested it myself): Transferwise offers a service that lets people send money to foreign accounts (in different currencies) for a small fee, at mid-market rates. However, they also offer a \\\"\\\"request money\\\"\\\" feature which allows EUR-EUR transfers (and some other same currency transfers). So perhaps you could use this feature to simply request money from yourself. The requester puts in how much they want to receive. Then they send a generated link to the other party. When clicked, that link sets up a transaction for the requested amount, and sometimes a nominal fee (I created a link for a GBP-GBP transfer and it wanted 1 pound extra, but when I did the same for EUR-EUR it didn't want any extra). I assume you would need two Transferwise accounts, though maybe not? And I'm not sure whether doing this is technically allowed in their terms of service, so you should read those to be sure. The advantage, if this works, is that neither bank sees it as a \\\"\\\"transfer\\\"\\\". Rather, the originating bank makes a payment to Transferwise, and then Transferwise makes a deposit to the receiving account. So I can't imagine either bank would be able to impose their foreign-bank-transfer fees for the transaction. https://transferwise.com/request-money I have used Transferwise for currency conversions, but not the request money feature, maybe other users could chime in if they have used it.\\\"\",\n \"PKO Bank polski has a feature of free incoming,outgoing transfer.\",\n \"If it's always the same person, you could open a joint account. Then fees are avoided altogether. How fast the funds are available depends on what you deposit. Cash is immediate.\",\n \"It's not too difficult. Every state has a few local banks that don't do this shit and with new current technology most have apps and allow you to deposit money without going to the bank itself. Yeah you don't have an ATMs everywhere but the need for ATMs deacreses each year. My local bank will even refunds me ATM charges up to 100$ a year.\",\n \"No you won't. Germany taxes income, not bank accounts. Note that this changes immediately when your bank account makes interest - you will owe taxes on this interest. However, chances are you won't get a bank account. Without residency or income, typically the banks wouldn't give you an account. Feel free to try, though.\",\n \"\\\"I don't think there is a law against it. For example comdirect offers multi banking so you can access your accounts from other banks through the comdirect website. My guess would be: Germans are very conservative when it comes to their money (preferring cash above cards, using \\\"\\\"safe\\\"\\\" low interest saving accounts instead of stocks) so there just might be no market for such a tool. There are desktop apps with bank syncing that offer different levels of personal finance management. Some I know are MoneyMoney, outbank, numbrs, GNUCash and StarMoney.\\\"\",\n \"I don't know that. I know mine has a great mobile app where I can deposit a check online. And all the smaller banks I've seen dont build their own sites or apps, they white label generic ones from common vendors.\",\n \"POS stands for Point of Sale (like a specific store location) which indicates that the purchase occurred by using your debit card, but it can also be the on-line transaction done via 3-D Secure. Checking with bank, they said that Kirchstrasse transaction could be related to direct marketing subscription service ordered on-line. Investigating further what I've found these kind of transactions are performed by 2BuySafe company registered at Kirchstrasse in Liechtenstein with went through the MultiCards on-line cashier which can be used for paying different variety of services (e.g. in this case it was polish on-line storage service called Chomikuj). These kind of transactions can be tracked by checking the e-mail (e.g. in gmail by the following query: after:2014/09/02 before:2014/09/02 Order). Remember, that if you still don't recognise your transaction, you should call your bank. I have found also some other people concerns about that kind of transactions who ask: Is 2BuySafe.com and www.multicards.com some sort of Scam? Provided answer says: MultiCards Internet Billing is a provider of online credit card and debit card processing and payment solutions to many retailers worldwide. MultiCards was one of the pioneer companies offering this type of service since 1995 and is a PCI / DSS certified Internet Payment Service Provider (IPSP) providing service to hundreds of retail websites worldwide MultiCards is a registered Internet Payment Service Provider and has implemented various fraud protection tools including, but not limited to, MultiCards Fraud Score Tool and 'Verified by Visa' and 'MasterCard SecureCode' to protect card holder's card details. 2BuySafe.com Is also Secured and Verified By GeoTrust The certificate should be trusted by all major web browsers (all the correct intermediate certificates are installed). The certificate was issued by GeoTrust. Entering Incorrect information can lead to a card being rejected as @ TOS 2BuySafe.com is hosted on the Multicards Server site\",\n \"If you're looking for an alternative, HSBC also has an online only savings account that used to be called HSBC Direct, but is now called HSBC Advance. They offer high interest savings (currently 1.1%) with no minimum balance, CDs and give you an ATM card. I've been a satisfied customer for a few years. https://www.us.hsbc.com/1/2/1?code=MIW0000431\",\n \"I had great difficulty buying my $17,000 truck for cash. One TD Canada Trust branch only let me have $5,000, the other branch down the street only $3,000. They both said they were low on cash. They kept trying to convince me to use a bank draft, but I didn't have a name or total amount as I was still shopping around. I don't think banks carry much cash and it wouldn't take much to clean them out.\",\n \"DCU, Alliant Credit Union has completely scan only options (no need to mail in checks later). BofA, SchoolsFirstCU allow initial scan, but you need to mail in checks later. All these are no fee.\",\n \"The easiest options appear to be to open an account with one of the large multinational banks like Citi. They have options such as opening two separate checking accounts, one in each currency, and Citi in particular has an international account that appears to make mutli-currency personal banking easier. All of the options have minimum balance requirements or fees for conversion, but if you need quick access this seems to be the best bet. Even if this is a one-time event and you don't need the account, a bank like Citi may be able to help you cash the check and get access to the funds quicker than a national or local bank. http://www.citibank.com/ipb-global/homepage/newsite/content/english/multi_cap_bank_depo.htm Alternatively if you know anyone with a US bank account you can deposit it with them and take the cash withdrawal from their account, assuming they agree, the check isn't too large, etc.\",\n \"All banks allow online banking. HSBC is reputed the most international traditional one. That said, opening a bank account in a 100% online bank would get you to near 0 cost, and is probably the preferred option. Every online bank is very similar to each other, so I won't make any recommandation here. Exemples are ing-direct, boursorama, Fortuneo. I'm afraid none offer english service, and it might be difficult to get in line with a decent english speaker. All theses banks will likely offer a gold/premier mastercard/visa, so travelling will not be an issue. The fees should be <2% for foreign currencies (it vary slightly), and <3€ if you use the ATM in none euro ones.\",\n \"Looks like you have three options: Outside of this you might need to look for a different type of account. Hope that helps.\",\n \"This may not answer your question but it may be an alternative. My credit union credits my account for deposits immediately (ones I make in an envelope). They view it as a service to their members. They take the risk that the member could deposit an empty envelope, say they deposited $400, and then withdraw the money. There may be banks in your country that do business this way.\",\n \"Are there banks where you can open a bank account without being a citizen of that country without having to visit the bank in person? I've done it the other way around, opened a bank account in the UK so I have a way to store GBP. Given that Britain is still in the EU you can basically open an account anywhere. German online banks for instance allow you to administrate anything online, should there be cards issued you would need an address in the country. And for opening an account a passport is sufficient, you can identify yourself in a video chat. Now what's the downside? French banks' online services are in French, German banks' services are in German. If that doesn't put you off, I would name such banks in the comments if asked. Are there any online services for investing money that aren't tied to any particular country? Can you clarify that? You should at least be able to buy into any European or American stock through your broker. That should give you an ease of mind being FCA-regulated. However, those are usually GDRs (global depository receipts) and denominated in GBp (pence) so you'd be visually exposed to currency rates, by which I mean that if the stock goes up 1% but the GBP goes up 1% in the same period then your GDR would show a 0% profit on that day; also, and more annoyingly, dividends are distributed in the foreign currency, then exchanged by the issuer of the GDR on that day and booked into your account, so if you want to be in full control of the cashflows you should get a trading account denominated in the currency (and maybe situated in the country) you're planning to invest in. If you're really serious about it, some brokers/banks offer multi-currency trading accounts (again I will name them if asked) where you can trade a wide range of instruments natively (i.e. on the primary exchanges) and you get to manage everything in one interface. Those accounts typically include access to the foreign exchange markets so you can move cash between your accounts freely (well for a surcharge). Also, typically each subaccount is issued its own IBAN.\",\n \"They don't need to accept deposits from normal persons, but that's how they make lots of money. Banks make money off the fees they charge retailers when those folks swipe their debit cards at the retailer. It's their bread and butter. In order to facilitate you accruing swipe fees for them, they need to allow you to make deposits, on which they can charge the retailers swipe fees.\",\n \"\\\"In the U.S. at least, a lot of these CoinStar machines are now owned and operated by the store or other venue in which they're placed, as a convenience to customers, and the fee for using it is waived. These machines, even without a fee attached, are still beneficial to the store, for two reasons. First, they bring in potential customers; the machine usually spits out a ticket that you take to the cashier, meaning you pass by all the impulse items they put in the checkout lines, and someone using the change catcher will invariably pick up a pack of gum or a magazine to spend your newfound wealth. The fact that one store has a change machine while another doesn't can also be the difference between choosing that store over the other for a planned shopping trip. Second, and less obvious, a store that owns a CoinStar machine has full access to the change people put in it (hey, they own the machine and are paying out cash on the receipts it spits out). During normal use of a cash drawer or register to take in money, large bills ($20/20€ or larger) are accumulated to be \\\"\\\"broken\\\"\\\", small to medium bills (1-10 units) stay roughly static in number as payments are made and larger bills are broken, and coins are invariably depleted as change is paid out. This means the average retail store needs a constant incoming supply of coinage, and that generally happens either through armored car service or similar commercial banking (which costs the store money), or through \\\"\\\"change catchers\\\"\\\" like gumball machines (which usually can't supply all the needed denominations). The Coinstar machine effectively reverses at least a portion of this attrition of coins and accumulation of large bills; the store can now receive coins and pay out large bills as a part of its day to day business, reducing or even eliminating the need to have a bank or armored car perform this service. Anyway, check and see whether the CoinStar machine you last used is still operating on a percentage-fee basis; it might be the case that the store has purchased the machine outright and is offering its services free of charge. If not, look around; other stores may be waiving the CoinStar fee where this one isn't (or they may have similar, non-CoinStar branded machines). Lastly, as other answers have mentioned, if you cash out in the form of a gift card, there's no fee, so you can pick a gift card to a store you're likely to visit anyway; in the U.S. there are a lot of good choices, like home improvement stores, Starbucks, major department stores/clothing retailers, and even an airline.\\\"\",\n \"\\\"Due to the zero percent interest rate on the Euro right now you won't find any investment giving you 5% which isn't equivalent to gambling. One of the few investment forms which still promises gains without unreasonable risks right now seems to be real estate, because real estate prices in German urban areas (not so in rural areas!) are growing a lot recently. One reason for that is in fact the low interest rate, because it makes it very cheap right now to take a loan and buy a home. This increased demand is driving up the prices. Note that you don't need to buy a property yourself to invest in real estate (20k in one of the larger cities of Germany will get you... maybe a cardboard box below a bridge?). You can invest your money in a real estate fund (\\\"\\\"Immobilienfond\\\"\\\"). You then don't own a specific property, you own a tiny fraction of a whole bunch of different properties. This spreads out the risk and allows you to invest exactly as much money as you want. However, most real estate funds do not allow you to sell in the first two years and require that you announce your sale one year in advance, so it's not a very liquid asset. Also, it is still a risky investment. Raising real estate prices might hint to a bubble which might burst eventually. Financial analysts have different opinions about this. But fact is, when the European Central Bank starts to take interest again, then the demand for real estate property will drop and so will the prices. When you are not sure what to do, ask your bank for investment advise. German banks are usually trustworthy in this regard.\\\"\",\n \"\\\"I have checked with Bank of America, and they say the ONLY way to cash (or deposit, or otherwise get access to the funds represented by a check made out to my business) is to open a business account. They tell me this is a Federal regulation, and every bank will say the same thing. To do this, I need a state-issued \\\"\\\"dba\\\"\\\" certificate (from the county clerk's office) as well as an Employer ID Number (EIN) issued by the IRS. AND their CHEAPEST business banking account costs $15 / month. I think I can go to the bank that the check is drawn upon, and they will cash it, assuming I have documentation showing that I am the sole proprietor. But I'm not sure.... What a racket!!\\\"\",\n \"This is a facility called Home Banking, which banks in some locations offer. You do not necessarily have to be super-rich to use it though. Kotak Mahindra Bank has been offering it here in India for about 10 years now. Other banks have followed suit with similar offerings. I am not super-rich or anywhere close1, but I have used this facility occasionally when I couldn't visit an ATM or the branch, to either get cash delivered to me, or to deposit cash into my account. The banks do charge a convenience fee for this facility as you might expect, but they waive it off if your average monthly balance exceeds a certain amount. Not sure about how it works in other countries, but here in India, if you have an account with one of the top customer-friendly banks, this facility is as mundane as a cheque book or a debit card. 1 If I were, I probably wouldn't be posting here. ;-)\",\n \"If you are a citizen of India and working in Germany, then you are most likely an NRI (NonResident Indian). If so, you are not entitled to hold an ordinary Indian bank account, and all such existing accounts must be converted to NRO (NonResident Ordinary) accounts. If your Indian bank knows about NRO accounts, then it will be eager to assist you in the process of converting your existing accounts to NRO accounts most likely it also offers a money remittance scheme (names like Remit2India or Money2India) which will take Euros from your EU bank account and deposit INR into your NRO account. Or, you can create an NRE (NonResident External) account to receive remittances from outside India. The difference is that interest earned in an NRO account is taxable income to you in India (and subject to TDS, tax deduction at source) while interest earned in an NRE account is not taxable in India. The remittance process takes a while to set up, but once in place, most remittances take 5 to 6 business days to complete.\",\n \"ATM surcharges exist based on the preference of the ATM owner, not the country where it sits. I believe that any country could have these ATMs if the owner so desired.\",\n \"Santander - Spains largest bank was unable to fulfill it's obligation to finance the airline Norwegian's purchase of new planes. The contract was signed, but Santander had no money. They will now meet angry Norwegian's in court. If I had any money in any Spanish financial institution - bank, stocks, bonds, pension- or other funds - I would get them out today. They have been cooking their books. This is not Lehman Brothers, this is another Enron.\",\n \"They are networked machines and they talk to all the banks in order to look up the details of your account to provide you with that money. The protocol they use has known vulnerabilities. A blackhat conference about 5 years ago they made one of the machines output money onto the street.\",\n \"Have you tried your local panhandler? She/He will probably accept 50€ in small change.\",\n \"I just set up an account with Scottrade bank (affiliated with the stock trading company). I get free checking, free checks, and automatic reimbursement for all ATM fees up to 10 withdrawals per month. Beat that, Bane of America!\",\n \"Avoid talking to a person: Just use an automated system, such as an ATM or a cellphone app. Automated systems will ONLY scan for the RTN # and Account number at the bottom of the check (the funny looking blocky numbers). The automated system will not care who the check is made out to, or who is present, so long as you have an account to credit the money into, and the account number on the check can get the money debited properly.\",\n \"Have you tried calling a Forex broker and asking them if you can take delivery on currency? Their spreads are likely to be much lower than banks/ATMs.\",\n \"There are a couple of advantages that I can think of. Since the machines are less complicated because they don't have to handle cash, they are less expensive and require less maintenance. Machines that handle cash require lots of moving parts. Cash machines require lots of employee interaction. The machines need to be stocked with cash each day, and at the end of the day the cash needs to be taken out and counted. With a cashless machine, the computer does all the work.\",\n \"\\\"I don't know if those machines work this way in the UK too, but here in the US you can often avoid the coin-counting fee if you opt to convert the money into a gift certificate instead of cash. I routinely convert my coins to Amazon gift certificate money with no charge. Individual machines differ in which particular gift cards they use, but at the least, almost all of them offer the option for a no-fee conversion to a voucher/gift certificate to the store where the machine is. So it's likely you'd be able to use the machine to convert the cash to \\\"\\\"money\\\"\\\" you can use to buy groceries.\\\"\",\n \"\\\"See my comment below about the official exchange rate. There is no \\\"\\\"official\\\"\\\" exchange rate to apply as far as I'm aware. However the bank is already applying the same exchange rate you can find in the forex markets. They are simply applying a spread (meaning they will add some amount to the exchange rate whichever way you are exchanging currency). You will almost certainly not find a bank that doesn't apply a spread. Of course, their spread might be large, so that's why it is good to compare rates. By the way, 5 GBP/month seems reasonable for a foreign currency (or any) acct. The transaction fees might be cheaper in a different \\\"\\\"package\\\"\\\" so check. You should consider trying PayPal. Their spread is quite small - and publicly disclosed - and their per-transaction fees are very low. Of course, this is not a bank account. But you can easily connect it to your bank account and transfer the money between accounts quickly. They also offer free foreign currency accounts that you can basically open and close in a click. Transfers are instantaneous. I am based in Germany but I haven't had a problem with clients from various English-speaking countries using PayPal. They actually seem to prefer it in many instances.\\\"\",\n \"I'm looking for another one right now. Here's what I've found: Los Alamos National Bank (www.lanb.com) has tokens ($5?), but I think they only open accounts for New Mexico residents. I've had one for several years. USAA Savings Bank (usaa.com) has tokens ($5 or free, I don't remember). I'm pretty sure you do NOT need to be a USAA member to open an account. I've had one for a couple of years. Several banks (Frost Bank, American National Bank of Texas, Amegy Bank, and probably many, many more) offer them as part of their Treasury Management accounts, meant for big businesses and charged for accordingly. Happy State Bank (in, where else, Happy, Texas) has a web page saying they have them but their services charges were more than I wanted to pay. ClearSky Bank (an Internet bank started by Chesapeake Bank) claims on their web page to have them but I haven't verified that yet. Still looking...\",\n \"Typically, withdrawing cash from an ATM once abroad gives you the best exchange rate, but check if your bank imposes ATM withdrawal fees. This works well for all major currencies, such as GBP, Euro, Yen, AUD. I've also withdrawn Croatian kunas, Brazilian reais and Moroccan dirhams without any trouble. In Southeast Asia, it may be a different story. Thai ATMs, for example, reportedly impose a surcharge of about $5.\",\n \"It's a good saving account from the persepective of usability. Easy to open, easy to manage, and free at least in Italy. Anyway be aware that in 2008 you would not probably have been so happy to know that your saving were in bank that was close to go banckrupcy. On October/19/2008 the Ducth government had to inject 10 billions euro into ING Group to save it from a probable collapse. At least the CEO Michel Tilmant was fired, and also 7000 poor employees was cutted off. After that, it seems they just went on selling themslevs in pieces in order to restructure source: http://en.wikipedia.org/wiki/ING_Group#History But they also partially repaid the Dutch goverment and now their rating is around A, so it seems to be a safe place to put your saving for now.\",\n \"In addition to the other answers, Harris Bank (now owned by BMO) allows Canadians living in Canada to open accounts, perhaps they consider other countries as well. They have excellent customer service.\",\n \"Sorry, in the US (Bank of America). The kind of account we have has that high fee, but they also have free account options that have lower or zero balance requirements, you just have to setup direct deposit. The one we have has free checks, free safe deposit box, an English speaking customer service rep guaranteed to answer my call in something like 3 rings, and a bunch of other stuff I'll never use.\",\n \"Gnucash uses aqbanking, so I'd suggest looking at aqbanking to see if it will do what you want. It seems to be actively developed (as of 26.2.2011), but the main page is in German and my German is a bit rusty... You might also try asking on the gnucash-users list.\",\n \"Years ago, I had a tenant who bounced a check now and then. I started going to the bank where his account was. With my ID they were agreeable to cashing the check against his account. The teller first checked his balance and only cashed when there were enough funds. One time he was $10 short. I wrote a deposit slip and added the $10 it took to clear the check. As they say, your mileage may vary, I hear some banks won't even break a large bill for a non customer.\",\n \"I'd have a look at Capital One's Online account too, they've got 1.35% interest rate with 10% bonus if you have over $15k deposited. It is still low like all interest rates, but at least it is on top (or at least close)!\",\n \"In addition to the money-laundering, lifestyle, income tax, etc issues discussed already in other answers, one other matter that might concern the bank is whether that cash you are bringing in to deposit is genuine currency or (some or all of) the bills are counterfeit and you are using this mechanism to get them into circulation. Even if you withdraw a very large amount in cash from your bank, step out the door and come back just a few minutes later saying that you have changed your mind and want to put that money back into your account, there is still the question as to whether the cash you have brought back is exactly the same as you took out or a substitution was made in the interim. I once needed a bank draft for $1000 and went to my bank to get it, taking with me a check made out to Cash for $1003 (the bank's fee was $3). The bank would not give me a bank draft in exchange for the check, or if I cashed the check right then and there and paid for the bank draft using the cash that the teller had just handed me. I had to tear up the check, write another one payable to the bank, and then I got my bank draft. As JoeTaxpayer says, it is a matter of paper trail. Additional matter added in edit: According to Wikipedia, because of the Bank Secrecy Act of 1970, Many banks will no longer sell negotiable instruments when they are purchased with cash, requiring the purchase to be withdrawn from an account at that institution. which was exactly my experience. Furthermore, even the banks that will still sell you a cashier's check or money order for cash must keep a Monetary Instrument Log (MIL) that records all such cash transactions for amounts between $3000 and $10,000, keep the records for at least five years, and produce it upon request of a bank examiner or auditor (and presumably upon subpoena by a district attorney or divorce lawyer). Cash transactions of $10,000 or over are, of course, reported to the IRS on Currency Transaction Reports. In short, a paper trail exists for some time even for cash transactions quite a bit smaller than $10,000.\",\n \"Yes, you can do everything that Fidelity promises with the cash management account. Your benefits are: The downsides? They don't have branches everywhere, so if you do need to see a person, you may not be able to do so. Likewise, you won't be able to do cash deposits. Before anyone says it's too good to be true, brokerages like Schwab and Fidelity offer this because the hope is that you'll end up establishing or using other services they offer, so they do have ways to profit from this. Still, compared to the joke that is many other banks, it's a good deal provide you're aware of the two downsides listed above this.\",\n \"Many European countires allow you to an account for non-residents. You have to appear in the bank personally to open it, some of them even to get your own tax number for non-residents from the local government. I'm not sure if you get a Visa (Electron) chip card immediatelly or you have to wait for like 3 months before being issued one. I've heard that getting a tax number for non-residents and opening a bank account is easily done in one day in Brezice, Republic of Slovenia. They seem to have agile local bureaucracy and banks, since many pople from neighbouring (non-EU) countries (used to) come there to open an EU bank account. Funds can be transfered via Internet banking - US banks have that, do they? SWIFT and IBAN codes are used for international money transfer. But it takes some time (days!) for it to arrive to destination. Tansfers below $20000 per month or per transaction are considered normal, but for amouts above that the destination bank might ask you to explain the purpose, to prove it is not illegal. Some of them accept the explanaiton in writing (they forward it to the regulator that tracks such large transfers), some of them ask you to appear there in person for an interview and to sign a statement. Can't believe US banks are still issuing paing magnet stripe cards like it's still 1980s. I'd expect Europe to be 10 years behind USA in technology, but this seems to be a weird reverse. I've beed using Internet banking with one-time passwd tokens and TAN lists for almost 10 years, and chip cards exclusivley for over 5y. Can't remeber the last time I've seen mag stripe card only. American Express (event the regular green one) got the chip at least 5 years ago. And it is accepted regularly in Europe. Alegedly it's more popular in Europe (although Mastercard is a definite #1, with Visa close to that) that in USA.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"HypoVereinsbank (member of UniCredit group), a few savings banks (\"\"Sparkasse\"\") and VR Banks offer cash (bill) deposit machines. However, it can take a few business days until the deposit is credited to your checking account, which has to be with the same bank. Google for \"\"Bargeldeinzahlungsautomat\"\" (=cash deposit machine). As Duffbeer stated correctly, HSBC Trinkaus which is the German arm of the HSBC group does not operate any ATMs in Germany. In addition they do not share the same bank accounts. So I would recommend going with the classic banks mentioned above.\"","This may not answer your question but it may be an alternative. My credit union credits my account for deposits immediately (ones I make in an envelope). They view it as a service to their members. They take the risk that the member could deposit an empty envelope, say they deposited $400, and then withdraw the money. There may be banks in your country that do business this way.","I know that many HSBC ATMs at branches in the US and Canada offer this service (they actually scan and shred checks as you deposit them). Perhaps they do same in Germany... but not all ATMs offer this feature.","In my experience Sparkasse or VR Bank have them quite often. They stick out in my mind because when you make a withdrawal you have to reach in to get your money instead of it spitting it out. I'm always afraid its going to chop my hand off."],"string":"[\n \"\\\"HypoVereinsbank (member of UniCredit group), a few savings banks (\\\"\\\"Sparkasse\\\"\\\") and VR Banks offer cash (bill) deposit machines. However, it can take a few business days until the deposit is credited to your checking account, which has to be with the same bank. Google for \\\"\\\"Bargeldeinzahlungsautomat\\\"\\\" (=cash deposit machine). As Duffbeer stated correctly, HSBC Trinkaus which is the German arm of the HSBC group does not operate any ATMs in Germany. In addition they do not share the same bank accounts. So I would recommend going with the classic banks mentioned above.\\\"\",\n \"This may not answer your question but it may be an alternative. My credit union credits my account for deposits immediately (ones I make in an envelope). They view it as a service to their members. They take the risk that the member could deposit an empty envelope, say they deposited $400, and then withdraw the money. There may be banks in your country that do business this way.\",\n \"I know that many HSBC ATMs at branches in the US and Canada offer this service (they actually scan and shred checks as you deposit them). Perhaps they do same in Germany... but not all ATMs offer this feature.\",\n \"In my experience Sparkasse or VR Bank have them quite often. They stick out in my mind because when you make a withdrawal you have to reach in to get your money instead of it spitting it out. I'm always afraid its going to chop my hand off.\"\n]","isConversational":false}}},{"rowIdx":380,"cells":{"_id":{"kind":"string","value":"3177"},"query":{"kind":"string","value":"Vanguard ETF vs mutual fund"},"gt_ids":{"kind":"list like","value":["17208","536120","268289"],"string":"[\n \"17208\",\n \"536120\",\n \"268289\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1],"string":"[\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["153112","454224","358997","480315","138383","364735","370244","377429","473658","96926","106863","500486","539263","312015","161019","195191","536120","268289","270992","159471","87722","200212","153660","143238","17208","408524","479420","288679","99568","518735","454610","367960","473150","419985","107462","172374","172703","49168","237133","472663","524612","314008","332278","580802","20504","230997","392465","254230","387277","511559","324697","550319","183898","560783","7208","271825","200360","27930","566429","220486","370470","451598","427842","526346","580820","65587","536282","498645","122679","206876","356202","176342","451196","183910","102904","466845","97836","437875","130188","236036","504301","460347","459596","70898","189868","286227","551155","240651","523810","434734","119819","217002","201714","172569","528880","210257","161041","48800","88823","445322"],"string":"[\n \"153112\",\n \"454224\",\n \"358997\",\n \"480315\",\n \"138383\",\n \"364735\",\n \"370244\",\n \"377429\",\n \"473658\",\n \"96926\",\n \"106863\",\n \"500486\",\n \"539263\",\n \"312015\",\n \"161019\",\n \"195191\",\n \"536120\",\n \"268289\",\n \"270992\",\n \"159471\",\n \"87722\",\n \"200212\",\n \"153660\",\n \"143238\",\n \"17208\",\n \"408524\",\n \"479420\",\n \"288679\",\n \"99568\",\n \"518735\",\n \"454610\",\n \"367960\",\n \"473150\",\n \"419985\",\n \"107462\",\n \"172374\",\n \"172703\",\n \"49168\",\n \"237133\",\n \"472663\",\n \"524612\",\n \"314008\",\n \"332278\",\n \"580802\",\n \"20504\",\n \"230997\",\n \"392465\",\n \"254230\",\n \"387277\",\n \"511559\",\n \"324697\",\n \"550319\",\n \"183898\",\n \"560783\",\n \"7208\",\n \"271825\",\n \"200360\",\n \"27930\",\n \"566429\",\n \"220486\",\n \"370470\",\n \"451598\",\n \"427842\",\n \"526346\",\n \"580820\",\n \"65587\",\n \"536282\",\n \"498645\",\n \"122679\",\n \"206876\",\n \"356202\",\n \"176342\",\n \"451196\",\n \"183910\",\n \"102904\",\n \"466845\",\n \"97836\",\n \"437875\",\n \"130188\",\n \"236036\",\n \"504301\",\n \"460347\",\n \"459596\",\n \"70898\",\n \"189868\",\n \"286227\",\n \"551155\",\n \"240651\",\n \"523810\",\n \"434734\",\n \"119819\",\n \"217002\",\n \"201714\",\n \"172569\",\n \"528880\",\n \"210257\",\n \"161041\",\n \"48800\",\n \"88823\",\n \"445322\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["The ETF is likely better in this case. The ETF will generally generate less capital gains taxes along the way. In order to pay off investors who leave a mutual fund, the manager will have to sell the fund's assets. This creates a capital gain, which must be distributed to shareholders at the end of the year. The mutual fund holder is essentially taxed on this turnover. The ETF does not have to sell any stock when an investor sells his shares because the investor sells the shares himself on the open market. This will result in a capital gain for the specific person exiting his position, but it does not create a taxable event for anyone else holding the ETF shares.","A mutual fund has several classes of shares that are charged different fees. Some shares are sold through brokers and carry a sales charge (called load) that compensates the broker in lieu of a fee that the broker would charge the client for the service. Vanguard does not have sales charge on its funds and you don't need to go through a broker to buy its shares; you can buy directly from them. Admiral shares of Vanguard funds are charged lower annual expenses than regular shares (yes, all mutual funds charge expenses for fund adninistration that reduce the return that you get, and Vanguard has some of the lowest expense ratios) but Admiral shares are available only for large investments, typically $50K or so. If you have invested in a Vanguard mutual fund, your shares can be set to automatically convert to Admiral shares when the investment reaches the right level. A mutual fund manager can buy and sell stocks to achieve the objectives of the fund, so what stockes you are invested in as a share holder in a mutual fund will typically be unknown to you on a day-to-day basis. On the other hand, Exchange-traded funds (ETFs) are fixed baskets of stocks, and you can buy shares in the ETF. These shares are bought and sold through a broker (so you pay a transaction fee each time) but expenses are lower since there is no manager to buy and sell stocks: the basket is fixed. Many ETFs follow specific market indexes (e.g. S&P 500). Another difference between ETFs and mutual funds is that you can buy and sell ETFs at any time of the day just as if you could if you held stocks. With mutual funds, any buy and sell requests made during the day are processed at the end of the day and the value of the shares that you buy or sell is determined by the closing price of the stocks held by the mutual fund. With ETFs, you are getting the intra-day price at the time the buy or sell order is executed by your broker.","What is your time horizon? Over long horizons, you absolutely want to minimise the expense ratio – a seemingly puny 2% fee p.a. can cost you a third of your savings over 35 years. Over short horizons, the cost of trading in and trading out might matter more. A mutual fund might be front-loaded, i.e. charge a fixed initial percentage when you first purchase it. ETFs, traded daily on an exchange just like a stock, don't have that. What you'll pay there is the broker commission, and the bid-ask spread (and possibly any premium/discount the ETF has vis-a-vis the underlying asset value). Another thing to keep in mind is tracking error: how closely does the fond mirror the underlying index it attempts to track? More often than not it works against you. However, not sure there is a systematic difference between ETFs and funds there. Size and age of a fund can matter, indeed - I've had new and smallish ETFs that didn't take off close down, so I had to sell and re-allocate the money. Two more minor aspects: Synthetic ETFs and lending to short sellers. 1) Some ETFs are synthetic, that is, they don't buy all the underlying shares replicating the index, actually owning the shares. Instead, they put the money in the bank and enter a swap with a counter-party, typically an investment bank, that promises to pay them the equivalent return of holding that share portfolio. In this case, you have (implicit) credit exposure to that counter-party - if the index performs well, and they don't pay up, well, tough luck. The ETF was relying on that swap, never really held the shares comprising the index, and won't necessarily cough up the difference. 2) In a similar vein, some (non-synthetic) ETFs hold the shares, but then lend them out to short sellers, earning extra money. This will increase the profit of the ETF provider, and potentially decrease your expense ratio (if they pass some of the profit on, or charge lower fees). So, that's a good thing. In case of an operational screw up, or if the short seller can't fulfil their obligations to return the shares, there is a risk of a loss. These two considerations are not really a factor in normal times (except in improving ETF expense ratios), but during the 2009 meltdown they were floated as things to consider. Mutual funds and ETFs re-invest or pay out dividends. For a given mutual fund, you might be able to choose, while ETFs typically are of one type or the other. Not sure how tax treatment differs there, though, sorry (not something I have to deal with in my jurisdiction). As a rule of thumb though, as alex vieux says, for a popular index, ETFs will be cheaper over the long term. Very low cost mutual funds, such as Vanguard, might be competitive though.","\"ETFs purchases are subject to a bid/ask spread, which is the difference between the highest available purchase offer (\"\"bid\"\") and the lowest available sell offer (\"\"ask\"\"). You can read more about this concept here. This cost doesn't exist for mutual funds, which are priced once per day, and buyers and sellers all use the same price for transactions that day. ETFs allow you to trade any time that the market is open. If you're investing for the long term (which means you're not trying to time your buy/sell orders to a particular time of day), and the pricing is otherwise equal between the ETF and the mutual fund (which they are in the case of Vanguard's ETFs and Admiral Shares mutual funds), I would go with the mutual fund because it eliminates any cost associated with bid/ask spread.\"","Bond ETFs are just another way to buy a bond mutual fund. An ETF lets you trade mutual fund shares the way you trade stocks, in small share-size increments. The content of this answer applies equally to both stock and bond funds. If you are intending to buy and hold these securities, your main concerns should be purchase fees and expense ratios. Different brokerages will charge you different amounts to purchase these securities. Some brokerages have their own mutual funds for which they charge no trading fees, but they charge trading fees for ETFs. Brokerage A will let you buy Brokerage A's mutual funds for no trading fee but will charge a fee if you purchase Brokerage B's mutual fund in your Brokerage A account. Some brokerages have multiple classes of the same mutual fund. For example, Vanguard for many of its mutual funds has an Investor class (minimum $3,000 initial investment), Admiral class (minimum $10,000 initial investment), and an ETF (share price as initial investment). Investor class has the highest expense ratio (ER). Admiral class and the ETF generally have much lower ER, usually the same number. For example, Vanguard's Total Bond Market Index mutual fund has Investor class (symbol VBMFX) with 0.16% ER, Admiral (symbol VBTLX) with 0.06% ER, and ETF (symbol BND) with 0.06% ER (same as Admiral). See Vanguard ETF/mutual fund comparison page. Note that you can initially buy Investor class shares with Vanguard and Vanguard will automatically convert them to the lower-ER Admiral class shares when your investment has grown to the Admiral threshold. Choosing your broker and your funds may end up being more important than choosing the form of mutual fund versus ETF. Some brokers charge very high purchase/redemption fees for mutual funds. Many brokers have no ETFs that they will trade for free. Between funds, index funds are passively managed and are just designed to track a certain index; they have lower ERs. Actively managed funds are run by managers who try to beat the market; they have higher ERs and tend to actually fall below the performance of index funds, a double whammy. See also Vanguard's explanation of mutual funds vs. ETFs at Vanguard. See also Investopedia's explanation of mutual funds vs. ETFs in general.","I think that assuming that you're not looking to trade the fund, an index Mutual Fund is a better overall value than an ETF. The cost difference is negligible, and the ability to dollar-cost average future contributions with no transaction costs. You also have to be careful with ETFs; the spreads are wide on a low-volume fund and some ETFs are going more exotic things that can burn a novice investor. Track two similar funds (say Vanguard Total Stock Market: VTSMX and Vanguard Total Stock Market ETF: VTI), you'll see that they track similarly. If you are a more sophisticated investor, ETFs give you the ability to use options to hedge against declines in value without having to incur capital gains from the sale of the fund. (ie. 20 years from now, can use puts to make up for short-term losses instead of selling shares to avoid losses) For most retail investors, I think you really need to justify using ETFs versus mutual funds. If anything, the limitations of mutual funds (no intra-day trading, no options, etc) discourage speculative behavior that is ultimately not in your best interest. EDIT: Since this answer was written, many brokers have begun offering a suite of ETFs with no transaction fees. That may push the cost equation over to support Index ETFs over Index Mutual Funds, particularly if it's a big ETF with narrow spreads..","Behind the scenes, mutual funds and ETFs are very similar. Both can vary widely in purpose and policies, which is why understanding the prospectus before investing is so important. Since both mutual funds and ETFs cover a wide range of choices, any discussion of management, assets, or expenses when discussing the differences between the two is inaccurate. Mutual funds and ETFs can both be either managed or index-based, high expense or low expense, stock or commodity backed. Method of investing When you invest in a mutual fund, you typically set up an account with the mutual fund company and send your money directly to them. There is often a minimum initial investment required to open your mutual fund account. Mutual funds sometimes, but not always, have a load, which is a fee that you pay either when you put money in or take money out. An ETF is a mutual fund that is traded like a stock. To invest, you need a brokerage account that can buy and sell stocks. When you invest, you pay a transaction fee, just as you would if you purchase a stock. There isn't really a minimum investment required as there is with a traditional mutual fund, but you usually need to purchase whole shares of the ETF. There is inherently no load with ETFs. Tax treatment Mutual funds and ETFs are usually taxed the same. However, capital gain distributions, which are taxable events that occur while you are holding the investment, are more common with mutual funds than they are with ETFs, due to the way that ETFs are structured. (See Fidelity: ETF versus mutual funds: Tax efficiency for more details.) That having been said, in an index fund, capital gain distributions are rare anyway, due to the low turnover of the fund. Conclusion When comparing a mutual fund and ETF with similar objectives and expenses and deciding which to choose, it more often comes down to convenience. If you already have a brokerage account and you are planning on making a one-time investment, an ETF could be more convenient. If, on the other hand, you have more than the minimum initial investment required and you also plan on making additional regular monthly investments, a traditional no-load mutual fund account could be more convenient and less expensive.","In the case of VFIAX versus VOO, if you're a buy-and-hold investor, you're probably better off with the mutual fund because you can buy fractional shares. However, in general the expense ratio for ETFs will be lower than equivalent mutual funds (even passive index funds). They are the same in this case because the mutual fund is Admiral Class, which has a $10,000 minimum investment that not all people may be able to meet. Additionally, ETFs are useful when you don't have an account with the mutual fund company (i.e. Vanguard), and buying the mutual fund would incur heavy transaction fees.","ETFs offer the flexibility of stocks while retaining many of the benefits of mutual funds. Since an ETF is an actual fund, it has the diversification of its potentially many underlying securities. You can find ETFs with stocks at various market caps and style categories. You can have bond or mixed ETFs. You can even get ETFs with equal or fundamental weighting. In short, all the variety benefits of mutual funds. ETFs are typically much less expensive than mutual funds both in terms of management fees (expense ratio) and taxable gains. Most of them are not actively managed; instead they follow an index and therefore have a low turnover. A mutual fund may actively trade and, if not balanced with a loss, will generate capital gains that you pay taxes on. An ETF will produce gains only when shifting to keep inline with the index or you yourself sell. As a reminder: while expense ratio always matters, capital gains and dividends don't matter if the ETF or mutual fund is in a tax-advantaged account. ETFs have no load fees. Instead, because you trade it like a stock, you will pay a commission. Commissions are straight, up-front and perfectly clear. Much easier to understand than the various ways funds might charge you. There are no account minimums to entry with ETFs, but you will need to buy complete shares. Only a few places allow partial shares. It is generally harder to dollar-cost average into an ETF with regular automated investments. Also, like trading stocks, you can do those fancy things like selling short, buying on margin, options, etc. And you can pay attention to the price fluctuations throughout the day if you really want to. Things to make you pause: if you buy (no-load) mutual funds through the parent company, you'll get them at no commission. Many brokerages have No Transaction Fee (NTF) agreements with companies so that you can buy many funds for free. Still look out for that expense ratio though (which is probably paying for that NTF advantage). As sort of a middle ground: index funds can have very low expense ratios, track the same index as an ETF, can be tax-efficient or tax-managed, free to purchase, easy to dollar-cost average and easier to automate/understand. Further reading:","The mutual fund will price at day's end, while the ETF trades during the day, like a stock. If you decide at 10am, that some event will occur during the day that will send the market up, the ETF is preferable. Aside from that, the expenses are identical, a low .14%. No real difference especially in a Roth.","The main difference between a mutual fund and an ETF are how they are bought and sold (from the investors perspective). An ETF is transacted on the open market. This means you normally can't buy partial shares with your initial investment. Having to transact on the open market also means you pay a market price. The market price is always a little bit different from the Net Asset Value (NAV) of the fund. During market hours, the ETF will trade at a premium/discount to the NAV calculated on the previous day. Morningstar's fund analysis will show a graph of the premium/discount to NAV for an ETF. With a mutual fund on the other hand, your investment goes to a fund company, which then grants you shares while under the hood buying the underlying investments. You pay the NAV price and are allowed to buy partial shares. Usually an ETF has a lower expense ratio, but if that's equal and any initial fees/commissions are equal, I would prefer the mutual fund in order to buy partial shares (so your initial investment will be fully invested) and so you don't have to worry about paying premium to NAV","First, it's not always the case that ETFs have lower expenses than the equivalent mutual funds. For example, in the Vanguard family of funds the expense ratio for the ETF version is the same as it is for the Admiral share class in the mutual fund version. With that in mind, the main advantages of a mutual fund over an equivalent ETF are: From a long-term investor's point of view, the main disadvantage of mutual funds relative to ETFs is the minimum account sizes. Especially if the fund has multiple share classes (i.e., where better classes get lower expense ratios), you might have to have quite a lot of money invested in the fund in order to get the same expense ratio as the ETF. There are some other differences that matter to more active investors (e.g., intraday trading, options, etc.), but for a passive investor the ones above are the major ones. Apart from those mutual funds and ETFs are pretty similar. Personally, I prefer mutual funds because I'm at a point where the fund minimums aren't really an issue, and I don't want to deal with the more fiddly aspects of ETFs. For investors just starting out the lower minimum investment for an ETF is a big win, as long as you can get commission-free trades (which is what I've assumed above.)","There are times when investing in an ETF is more convenient than a mutual fund. When you invest in a mutual fund, you often have an account directly with the mutual fund company, or you have an account with a mutual fund broker. Mutual funds often have either a front end or back end load, which essentially gives you a penalty for jumping in and out of funds. ETFs are traded exactly like stocks, so there is inherently no load when buying or selling. If you have a brokerage account and you want to move funds from a stock to a mutual fund, an ETF might be more convenient. With some accounts, an ETF allows you to invest in a fund that you would not be able to invest in otherwise. For example, you might have a 401k account through your employer. You might want to invest in a Vanguard mutual fund, but Vanguard funds are not available with your 401k. If you have access to a brokerage account inside your 401k, you can invest in the Vanguard fund through the associated ETF. Another reason that you might choose an ETF over a mutual fund is if you want to try to short the fund.","I see a couple of reasons why you could consider choosing a mutual fund over an ETF In some cases index mutual funds can be a cheaper alternative to ETFs. In the UK where I am based, Fidelity is offering a management fee of 0.07% on its FTSE All shares tracker. Last time I checked, no ETF was beating that There are quite a few cost you have to foot when dealing ETFs In some cases, when dealing for relatively small amounts (e.g. a monthly investment plan) you can get a better deal, if your broker has negotiated discounts for you with a fund provider. My broker asks £12.5 when dealing in shares (£1.5 for the regular investment plan) whereas he asks £0 when dealing in funds and I get a 100% discount on the initial charge of the fund. As a conclusion, I would suggest you look at the all-in costs over total investment period you are considering for the exact amount you are planning to invest. Despite all the hype, ETFs are not always the cheapest alternative.","Your tax efficient reasoning is solid for where you want to distribute your assets. ETFs are often more tax efficient than their equivalent mutual funds but the exact differences would depend on the comparison between the fund and ETF you were considering. The one exception to this rule is Vanguard funds and ETFs which have the exact same tax-efficiency because ETFs are a share class of the corresponding mutual fund.","Something to consider is how do you want to handle fractional shares. Most open-end funds can easily go to fractional shares to that if you want to invest $500 in a fund each month, it is a relatively easy transaction where some shares will be fractional and handled easily. An ETF may not always work that way unless you go through something like Sharebuilder that would allow the fractional shares as if the ETF is trading at $150/share, you could buy 3 shares but still have $50 that you want to invest but can't as stocks trade in whole share numbers usually. This is without adding brokerage commissions. Depending on the broker, re-investing dividends may or may not be that simple as fractional shares could be a problem since those 3 shares aren't likely to have enough of a dividend to equal another share being bought with the proceeds. If you want the flexibility of stop and limit orders then the ETF may make more sense while the open-end fund is simply to invest whole dollar amounts that then lead to fractional shares. Don't forget to factor in minimums and other stuff as VFIAX may have a bit of a minimum to it as well as possible fees that could be annoying as I remember VFINX having some account maintenance fees that were a bit irksome back in the day that may still be around in some cases so be sure to read the fine print on things.","Where are you planning on buying this ETF? I'm guessing it's directly through Vanguard? If so, that's likely your first reason - the majority of brokerage accounts charge a commission per trade for ETFs (and equities) but not for mutual funds. Another reason is that people who work in the financial industry (brokerages, mutual fund companies, etc) have to request permission for every trade before placing an order. This applies to equities and ETFs but does not apply to mutual funds. It's common for a request to be denied (if the brokerage has inside information due to other business lines they'll block trading, if a mutual fund company is trading the same security they'll block trading, etc) without an explanation. This can happen for months. For these folks it's typically easier to use mutual funds. So, if someone can open an account with Vanguard and doesn't work in the financial industry then I agree with your premise. The Vanguard Admiral shares have a much lower expense, typically very close to their ETFs. Source: worked for a brokerage and mutual fund company","\"One reason is that it is not possible (at Vanguard and at many other brokerages) to auto-invest into ETFs. Because the ETF trades like a stock, you typically must buy a whole number of shares. This makes it difficult to do auto-investing where you invest, say, a fixed dollar amount each month. If you're investing $100 and the ETF trades for $30 a share, you must either buy 3 shares and leave $10 unspent, or buy 4 and spend $20 more than you planned. This makes auto-investing with dollar amounts difficult. (It would be cool if there were brokerages that handled this for you, for instance by accumulating \"\"leftover\"\" cash until an additional whole share could be purchased, but I don't know of any.) A difference of 0.12% in the expense ratios is real, but small. It may be outweighed by the psychological gains of being able to adopt a \"\"hands-off\"\" auto-investing plan. With ETFs, you generally must remember to \"\"manually\"\" buy the shares yourself every so often. For many average investors, the advantage of being able to invest without having to think about it at all is worth a small increase in expense ratio. The 0.12% savings don't do you any good if you never remember to buy shares until the market is already up.\"","The main difference between an ETF and a Mutual Fund is Management. An ETF will track a specific index with NO manager input. A Mutual Fund has a manager that is trying to choose securities for its fund based on the mandate of the fund. Liquidity ETFs trade like a stock, so you can buy at 10am and sell at 11 if you wish. Mutual Funds (most) are valued at the end of each business day, so no intraday trading. Also ETFs are similar to stocks in that you need a buyer/seller for the ETF that you want/have. Whereas a mutual fund's units are sold back to itself. I do not know of many if any liquity issues with an ETF, but you could be stuck holding it if you can not find a buyer (usually the market maker). Mutual Funds can be closed to trading, however it is rare. Tax treatment Both come down to the underlying holdings in the fund or ETF. However, more often in Mutual Funds you could be stuck paying someone else's taxes, not true with an ETF. For example, you buy an Equity Mutual Fund 5 years ago, you sell the fund yourself today for little to no gain. I buy the fund a month ago and the fund manager sells a bunch of the stocks they bought for it 10 years ago for a hefty gain. I have a tax liability, you do not even though it is possible that neither of us have any gains in our pocket. It can even go one step further and 6 months from now I could be down money on paper and still have a tax liability. Expenses A Mutual Fund has an MER or Management Expense Ratio, you pay it no matter what. If the fund has a positive return of 12.5% in any given year and it has an MER of 2.5%, then you are up 10%. However if the fund loses 7.5% with the same MER, you are down 10%. An ETF has a much smaller management fee (typically 0.10-0.95%) but you will have trading costs associated with any trades. Risks involved in these as well as any investment are many and likely too long to go into here. However in general, if you have a Canadian Stock ETF it will have similar risks to a Canadian Equity Mutual Fund. I hope this helps.","Why don't you look at the actual funds and etfs in question rather than seeking a general conclusion about all pairs of funds and etfs? For example, Vanguard's total stock market index fund (VTSAX) and ETF (VTI). Comparing the two on yahoo finance I find no difference over the last 5 years visually. For a different pair of funds you may find something very slightly different. In many cases the index fund and ETF will not have the same benchmark and fees so comparisons get a little more cloudy. I recall a while ago there was an article that was pointing out that at the time emerging market ETF's had higher fees than corresponding index funds. For this reason I think you should examine your question on a case-by-case basis. Index fund and ETF returns are all publicly available so you don't have to guess.","In my opinion, if you are doing long-term investing, this is a non-issue. The difference of hours in being able to trade an ETF during the day vs. only being able to trade a traditional mutual fund at day-end is irrelevant if you are holding the investment for a long time. If you are engaging in day trading, market timing, or other advanced/controversial trading practices, then I suppose it could make a difference. For the way I invest (index funds, long-term, set-it-and-forget-it), ETFs have no advantage over traditional mutual funds.","http://www.efficientfrontier.com/ef/104/stupid.htm would have some data though a bit old about open-end funds vs an ETF that would be one point. Secondly, do you know that the Math on your ETF will always work out to whole numbers of shares or do you plan on using brokers that would allow fractional shares easily? This is a factor as $3,000 of an open-end fund will automatically go into fractional shares that isn't necessarily the case of an ETF where you have to specify a number of shares when you purchase as well as consider are you doing a market or limit order? These are a couple of things to keep in mind here. Lastly, what if the broker you use charges account maintenance fees for your account? In buying the mutual fund from the fund company directly, there may be a lower likelihood of having such fees. I don't know of any way to buy shares in the ETF directly without using a broker.","\"For a non-ETF mutual fund, you can only buy shares of the mutual fund from the mutual fund itself (at a price that the mutual fund will reveal only at the end of the day) and can only shares back to the mutual fund (again at a price that the mutual fund will reveal only at the end of the day). There is no open market in the sense that you cannot put in a bid to buy, say, 100 shares of VFINX at $217 per share through a brokerage, and if there is a seller willing to sell 100 shares of VFINX to you at $217, then the sale is consummated and you are now the proud owner of 100 shares of VFINX. The only buyer or seller of VFINX is the mutual find itself, and you tell it that you \"\"want to buy 100 shares of VFINX and please take the money out of my checking account\"\". If this order is entered before the markets close at 4 pm, the mutual fund determines its share price as of the end of the day, opens a new account for you and puts 100 shares of VFINX in it (or adds 100 shares of VFINX to your already existing pile of shares) and takes the purchase price out of your checking account via an ACH transfer. Similarly for redeeming/selling shares of VFINX that you own (and these are held in an account at the mutual fund itself, not by your brokerage): you tell the mutual fund to that you \"\"wish to redeem 100 shares and please send the proceeds to my bank account\"\" and the mutual fund does this at the end of the day, and the money appears in your bank account via ACH transfer two or three days later. Generally, these transactions do not need to be for round lots of multiples of 100 shares for efficiency; most mutual fund will gladly sell you fractional shares down to a thousandth of a share. In contrast, shares of an exchange-traded fund (ETF) are just like stock shares in that they can be bought and sold on the open market and your broker will charge you fees for buying and selling them. Selling fractional shares on the open market is generally not possible, and trading in round lots is less expensive. Also, trades occur at all times of the stock exchange day, not just at the end of the day as with non-ETF funds, and the price can fluctuate during the day too. Many non-ETF mutual funds have an ETF equivalent: VOO is the symbol for Vanguard's S&P 500 Index ETF while VFINX is the non-ETF version of the same index fund. Read more about the differences between ETFs and mutual funds, for example, here.\"","\"There are a few reasons why an index mutual fund may be preferable to an ETF: I looked at the iShare S&P 500 ETF and it has an expense ratio of 0.07%. The Vanguard Admiral S&P 500 index has an expense ratio of 0.05% and the Investor Shares have an expense ratio of 0.17%, do I don't necessarily agree with your statement \"\"admiral class Vanguard shares don't beat the iShares ETF\"\".\"","See my comment for some discussion of why one might choose an identical fund over an ETF. As to why someone would choose the higher cost fund in this instance ... The Admiral Shares version of the fund (VFIAX) has the same expense ratio as the ETF but has a minimum investment of $10K. Some investors may want to eventually own the Admiral Shares fund but do not yet have $10K. If they begin with the Investor Shares now and then convert to Admiral later, that conversion will be a non-taxable event. If, however, they start with ETF shares now and then sell them later to buy the fund, that sale will be a taxable event. Vanguard ETFs are only commission-free to Vanguard clients using Vanguard Brokerage Services. Some investors using other brokers may face all sorts of penalties for purchasing third-party ETFs. Some retirement plan participants (either at Vanguard or another broker) may not even be allowed to purchase ETFs.","Index Funds & ETFs, if they are tracking the same index, will be the same in an ideal world. The difference would be because of the following factors: Expense ratio: i.e. the expense the funds charge. This varies and hence it would lead to a difference in performance. Tracking error: this means that there is a small percentage of error between the actual index composition and the fund composition. This is due to various reasons. Effectively this would result in the difference between values. Demand / Supply: with ETFs, the fund is traded on stock exchanges like a stock. If the general feeling is that the index is rising, it could lead to an increase in the price of the ETF. Index funds on the other hand would remain the same for the day and are less liquid. This results in a price increase / decrease depending on the market. The above explains the reason for the difference. Regarding which one to buy, one would need to consider other factors like: a) How easy is it to buy ETFs? Do you already hold Demat A/C & access to brokers to help you conduct the transaction or do you need to open an additional account at some cost. b) Normally funds do not need any account, but are you OK with less liquidity as it would take more time to redeem funds.","Mutual funds buy (and sell) shares in companies in accordance with the policies set forth in their prospectus, not according to the individual needs of an investor, that is, when you invest money in (or withdraw money from) a mutual fund, the manager buys or sells whatever shares that, in the manager's judgement, will be the most appropriate ones (consistent with the investment policies). Thus, a large-cap mutual fund manager will not buy the latest hot small-cap stock that will likely be hugely profitable; he/she must choose only between various large capitalization companies. Some exchange-traded funds are fixed baskets of stocks. Suppose you will not invest in a company X as a matter of principle. Unless a mutual fund prospectus says that it will not invest in X, you may well end up having an investment in X at some time because the fund manager bought shares in X. With such an ETF, you know what is in the basket, and if the basket does not include stock in X now, it will not own stock in X at a later date. Some exchange-traded funds are constructed based on some index and track the index as a matter of policy. Thus, you will not be investing in X unless X becomes part of the index because Standard or Poor or Russell or somebody changed their minds, and the ETF buys X in order to track the index. Finally, some ETFs are exactly like general mutual funds except that you can buy or sell ETF shares at any time at the price at the instant that your order is executed whereas with mutual funds, the price of the mutual fund shares that you have bought or sold is the NAV of the mutual fund shares for that day, which is established based on the closing prices at the end of the trading day of the stocks, bonds etc that the fund owns. So, you might end up owning stock in X at any time based on what the fund manager thinks about X.","ETFs are both liquid (benefits active traders) and a simple way for people to invest in funds even if they don't have the minimum balance needed to invest in a mutual fund (EDIT: in which purchases are resolved at the end of the trading day). One big difference between ETFs and mutual funds is that you must buy ETFs in whole units, whereas you can add $100 to a mutual fund and the fund will determine -- usually to 4 decimal places -- how many shares you've purchased.","\"The majority (about 80%) of mutual funds are underperforming their underlying indexes. This is why ETFs have seen massive capital inflows compared to equity funds, which have seen significant withdrawals in the last years. I would definitively recommend going with an ETF. In addition to pure index based ETFs that (almost) track broad market indexes like the S&P 500 there are quite a few more \"\"quant\"\" oriented ETFs that even outperformed the S&P. I am long the S&P trough iShares ETFs and have dividend paying ETFs and some quant ETFS on top (Invesco Powershares) in my portfolio.\"","There is little difference between buying shares in your broker's index fund and shares of their corresponding ETF. In many cases the money invested in an ETF gets essentially stuffed right into the index fund (I believe Vanguard does this, for example). In either case you will be paying a little bit of tax. In the ETF case it will be on the dividends that are paid out. In the index fund case it will additionally be on the capital gains that have been realized within the fund, which are very few for an index fund. Not a ton in either case. The more important tax consideration is between purchase and sale, which is the same in either case. I'd say stick it wherever the lowest fees are.","\"I wonder if ETF's are further removed from the actual underlying holdings or assets giving value to the fund, as compared to regular mutual funds. Not exactly removed. But slightly different. Whenever a Fund want to launch an ETF, it would buy the underlying shares; create units. Lets say it purchased 10 of A, 20 of B and 25 of C. And created 100 units for price x. As part of listing, the ETF company will keep the purchased shares of A,B,C with a custodian. Only then it is allowed to sell the 100 units into the market. Once created, units are bought or sold like regular stock. In case the demand is huge, more units are created and the underlying shares kept with custodian. So, for instance, would VTI and Total Stock Market Index Admiral Shares be equally anchored to the underlying shares of the companies within the index? Yes they are. Are they both connected? Yes to an extent. The way Vanguard is managing this is given a Index [Investment Objective]; it is further splitting the common set of assets into different class. Read more at Share Class. The Portfolio & Management gives out the assets per share class. So Vanguard Total Stock Market Index is a common pool that has VTI ETF, Admiral and Investor Share and possibly Institutional share. Is VTI more of a \"\"derivative\"\"? No it is not a derivative. It is a Mutual Fund.\"","\"I think you are asking about actively managed funds vs. indexes and possibly also vs. diversified funds like target date funds. This is also related to the question of mutual fund vs. ETF. First, a fund can be either actively managed or it can attempt to track an index. An actively managed fund has a fund manager who tries to find the best stocks to invest in within some constraints, like \"\"this fund invests in large cap US companies\"\". An index fund tries to match as closely as possible the performance of an index like the S&P 500. A fund may also try to offer a portfolio that is suitable for someone to put their entire account into. For example, a target date fund is a fund that may invest in a mix of stocks, bonds and foreign stock in a proportion that would be appropriate to someone expecting to retire in a certain year. These are not what people tend to think of as the canonical examples of mutual funds, even though they share the same legal structure and investment mechanisms. Secondly, a fund can either be a traditional mutual fund or it can be an exchange traded fund (ETF). To invest in a traditional mutual fund, you send money to the fund, and they give you a number of shares equal to what that money would have bought of the net asset value (NAV) of the fund at the end of trading on the day they receive your deposit, possibly minus a sales charge. To invest in an ETF, you buy shares of the ETF on the stock market like any other stock. Under the covers, an ETF does have something similar to the mechanism of depositing money to get shares, but only big traders can use that, and it's not used for investing, but only for people who are making a market in the stock (if lots of people are buying VTI, Big Dealer Co will get 100,000 shares from Vanguard so that they can sell them on the market the next day). Historically and traditionally, ETFs are associated with an indexing strategy, while if not specifically mentioned, people assume that traditional mutual funds are actively managed. Many ETFs, notably all the Vanguard ETFs, are actually just a different way to hold the same underlying fund. The best way to understand this is to read the prospectus for a mutual fund and an ETF. It's all there in reasonably plain English.\"","Price, whether related to a stock or ETF, has little to do with anything. The fund or company has a total value and the value is distributed among the number of units or shares. Vanguard's S&P ETF has a unit price of $196 and Schwab's S&P mutual fund has a unit price of $35, it's essentially just a matter of the fund's total assets divided by number of units outstanding. Vanguard's VOO has assets of about $250 billion and Schwab's SWPPX has assets of about $25 billion. Additionally, Apple has a share price of $100, Google has a share price of $800, that doesn't mean Google is more valuable than Apple. Apple's market capitalization is about $630 billion while Google's is about $560 billion. Or on the extreme a single share of Berkshire's Class A stock is $216,000, and Berkshire's market cap is just $360 billion. It's all just a matter of value divided by shares/units.","There's really no right or wrong answer here because you'll be fine either way. If you've investing amounts in the low 5 figures you're likely just getting started, and if your asset allocation is not optimal it's not that big a deal because you have a long time horizon to adjust it, and the expense ratio differences here won't add up to that much. A third option is Vanguard ETFs, which have the expense ratio of Admiral Shares but have lower minimums (i.e. the cost of a single share, typically on the order of $100). However, they are a bit more advanced than mutual funds in that they trade on the market and require you to place orders rather than just specifying the amount you want to buy. A downside here is you might end up with a small amount of cash that you can't invest, since you can initially only buy whole numbers of ETFs shares. So what I'd recommend is buying roughly the correct number of ETFs shares you want except for your largest allocation, then use the rest of your cash on Admiral Shares of that (if possible). For example, let's say you have $15k to invest and you want to be 2/3 U.S. stock, 1/6 international stock, and 1/6 U.S. bond. I would buy as many shares of VXUS (international stock ETF) and BND (U.S. bond ETF) as you can get for $2500 each, then whatever is left over (~$10k) put into VTSAX (U.S. stock Admiral Shares mutual fund).","So, why or why should I not invest in the cheaper index fund? They are both same, one is not cheaper than other. You get something that is worth $1000. To give a simple illustration; There is an item for $100, Vanguard creates 10 Units out of this so price per unit is $10. Schwab creates 25 units out of this, so the per unit price is $4. Now if you are looking at investing $20; with Vanguard you would get 2 units, with Schwab you would get 5 units. This does not mean one is cheaper than other. Both are at the same value of $20. The Factors you need to consider are; Related question What differentiates index funds and ETFs?","If you just want to track an index, then ETFs are, generally speaking, the better way.","No, some of Vanguard's funds are index funds like their Total Stock Market Index and 500 Index. In contrast, there are funds like Vanguard PRIMECAP and Vanguard Wellington that are actively managed. There are index funds in both open-end and exchange-traded formats. VTI is the ticker for Vanguard's Total Stock Market ETF while VTSMX is an open-end mutual fund format. VOO would be the S & P 500 ETF ticker while VFINX is one of the open-end mutual fund tickers, where VIIIX has a really low expense ratio but a pretty stiff minimum to my mind. As a general note, open-end mutual funds will generally have a 5 letter ticker ending in X while an ETF will generally be shorter at 3 or 4 letters in length.","The creation mechanism for ETF's ensures that the value of the underlying stocks do not diverge significantly from the Fund's value. Authorized participants have a strong incentive to arbitrage any pricing differences and create/redeem blocks of stock/etf until the prices are back inline. Contrary to what was stated in a previous answer, this mechanism lowers the cost of management of ETF's when compared to mutual funds that must access the market on a regular basis when any investors enter/exit the fund. The ETF only needs to create/redeem in a wholesale basis, this allows them to operate with management fees that are much lower than those of a mutual fund. Expenses Due to the passive nature of indexed strategies, the internal expenses of most ETFs are considerably lower than those of many mutual funds. Of the more than 900 available ETFs listed on Morningstar in 2010, those with the lowest expense ratios charged about .10%, while those with the highest expenses ran about 1.25%. By comparison, the lowest fund fees range from .01% to more than 10% per year for other funds. (For more on mutual fund feeds, read Stop Paying High Fees.)","\"If your intention is to purchase ETFs on a regular basis (like $x per month), then ETFs may not make sense. You may have to pay a fixed transaction cost like you were buying a stock for each purchase. In a similar no load mutual fund, there are more likely to be no transaction costs (depending on how it is bought). The above paragraph is not very definitive, and is really dependent upon how you would purchase either ETFs or Mutual funds. For example if you have a Fidelity brokerage account, they may let you buy certain ETFs commission free. Okay then either ETFs make great sense. It would not make sense to buy ones that they charge $35 per transaction if you have regular transactions that are smallish. The last two questions seem to be asking if you should buy MF or buy stocks directly. For most people the later is a losing proposition. They do not have the time or ability to buy stocks directly, effectively. Even if they did they may not have the capital to make enough of a difference when one considers all the cost involved. However, if that kind of thing interests you, perhaps you should dabble. Start out small and look at the higher costs of doing so as part of the \"\"cost of doing business\"\".\"","\"An Exchange-Traded Fund (ETF) is a special type of mutual fund that is traded on the stock exchange like a stock. To invest, you buy it through a stock broker, just as you would if you were buying an individual stock. When looking at a mutual fund based in the U.S., the easiest way to tell whether or not it is an ETF is by looking at the ticker symbol. Traditional mutual funds have ticker symbols that end in \"\"X\"\", and ETFs have ticker symbols that do not end in \"\"X\"\". The JPMorgan Emerging Markets Equity Fund, with ticker symbol JFAMX, is a traditional mutual fund, not an ETF. JPMorgan does have ETFs; the JPMorgan Diversified Return Emerging Markets Equity ETF, with ticker symbol JPEM, is an example. This ETF invests in similar stocks as JFAMX; however, because it is an index-based fund instead of an actively managed fund, it has lower fees. If you aren't sure about the ticker symbol, the advertising/prospectus of any ETF should clearly state that it is an ETF. (In the example of JPEM above, they put \"\"ETF\"\" right in the fund name.) If you don't see ETF mentioned, it is most likely a traditional mutual fund. Another way to tell is by looking at the \"\"investment minimums\"\" of the fund. JFAMX has a minimum initial investment of $1000. ETFs, however, do not have an investment minimum listed; because it is traded like a stock, you simply buy whole shares at whatever the current share price is. So if you look at the \"\"Fees and Investment Minimums\"\" section of the JPEM page, you'll see the fees listed, but not any investment minimums.\"","ETFs are a type of investment, not a specific choice. In other words, there are good ETFs and bad. What you see is the general statement that ETFs are preferable to most mutual funds, if only for the fact that they are low cost. An index ETF such as SPY (which reflects the S&P 500 index) has a .09% annual expense, vs a mutual fund which average a full percent or more. sheegaon isn't wrong, I just have a different spin to offer you. Given a long term return of say even 8% (note - this question is not a debate of the long term return, and I purposely chose a low number compared to the long term average, closer to 10%) and the current CD rate of <1%, a 1% hit for the commission on the buy side doesn't bother me. The sell won't occur for a long time, and $8 on a $10K sale is no big deal. I'd not expect you to save $1K/yr in cash/CDs for the years it would take to make that $8 fee look tiny. Not when over time the growth will overshaddow this. One day you will be in a position where the swings in the market will produce the random increase or decrease to your net worth in the $10s of thousands. Do you know why you won't lose a night's sleep over this? Because when you invested your first $1K, and started to pay attention to the market, you saw how some days had swings of 3 or 4%, and you built up an immunity to the day to day noise. You stayed invested and as you gained wealth, you stuck to the right rebalancing each year, so a market crash which took others down by 30%, only impacted you by 15-20, and you were ready for the next move to the upside. And you also saw that since mutual funds with their 1% fees never beat the index over time, you were happy to say you lagged the S&P by .09%, or 1% over 11 year's time vs those whose funds had some great years, but lost it all in the bad years. And by the way, right until you are in the 25% bracket, Roth is the way to go. When you are at 25%, that's the time to use pre-tax accounts to get just below the cuttoff. Last, welcome to SE. Edit - see sheegaon's answer below. I agree, I missed the cost of the bid/ask spread. Going with the lowest cost (index) funds may make better sense for you. To clarify, Sheehan points out that ETFs trade like a stock, a commission, and a bid/ask, both add to transaction cost. So, agreeing this is the case, an indexed-based mutual fund can provide the best of possible options. Reflecting the S&P (for example) less a small anual expense, .1% or less.","\"I'm assuming the question is about how to compare two ETFs that track the same index. I'd look at (for ETFs -- ignoring index funds): So, for example you might compare SPY vs IVV: SPY has about 100x the volume. Sure, IVV has 2M shares trading, so it is liquid \"\"enough\"\". But the bigger volume on SPY might matter to you if you use options: open interest is as much as 1000x more on SPY. Even if you have no interest in options, the spreads on SPY are probably going to be slightly smaller. They both have 0.09% expense ratios. When I looked on 2010-9-6, SPY was trading at a slight discount, IVV was at a slight premium. Looking for any sort of trend is left as an exercise to the reader... Grab the prospectus for each to examine the rules they set for fund makeup. Both come from well-known issuers and have a decent history. (Rather than crazy Uncle Ed's pawn shop, or the Central Bank of Stilumunistan.) So unless you find something in the SPY prospectus that makes you queasy, the higher volume and equal expense ratios would seem to suggest it over IVV. The fact that it is at a (tiny) discount right now is a (tiny) bonus.\"","One of the often cited advantages of ETFs is that they have a higher liquidity and that they can be traded at any time during the trading hours. On the other hand they are often proposed as a simple way to invest private funds for people that do not want to always keep an eye on the market, hence the intraday trading is mostly irrelevant for them. I am pretty sure that this is a subjective idea. The fact is you may buy GOOG, AAPL, F or whatever you wish(ETF as well, such as QQQ, SPY etc.) and keep them for a long time. In both cases, if you do not want to keep an on the market it is ok. Because, if you keep them it is called investment(the idea is collecting dividends etc.), if you are day trading then is it called speculation, because you main goal is to earn by buying and selling, of course you may loose as well. So, you do not care about dividends or owning some percent of the company. As, ETFs are derived instruments, their volatility depends on the volatility of the related shares. I'm wondering whether there are secondary effects that make the liquidity argument interesting for private investors, despite not using it themselves. What would these effects be and how do they impact when compared, for example, to mutual funds? Liquidity(ability to turn cash) could create high volatility which means high risk and high reward. From this point of view mutual funds are more safe. Because, money managers know how to diversify the total portfolio and manage income under any market conditions.","You cannot do a 1031 exchange with stocks, bonds, mutual funds, or ETFs. There really isn't much difference between an ETF and its equivalent index mutual fund. Both will have minimal capital gains distributions. I would not recommend selling an index mutual fund and taking a short-term capital gain just to buy the equivalent ETF.","that's just it, though - they are splitting up the 1%! and in most cases, especially vanguard, they are splitting up far less. ETFs don't have 12b-1 fees. explaining why you're experiencing different returns for ETFs will almost certainly involve something other than their expense. again, this is especially true for vanguard. they have the cheapest ETFs around (though i think schwab beats them on a few now). i can only guess at the full compensation structure. betterment likely earns money on cash reserves and securities hypothecation (i guess?). they also charge a small fee from what i understand. finance is very slim these days. i guess i'm wondering what your ultimate question is. if it's the inter corporate compensation structure, above is my best guess. if it's about performance, then we need to compare the ETFs you are looking at. if it's about the fees on funds, i think we covered that! as an advisor, it's my experience that very specific inquiries about fees have a deeper concern. people hear a lot about being overcharged so cost is a very standard place for clients to initially look when trying to compare performance of portfolios or securities.","\"Back in the olden days, if you wanted to buy the S&P, you had to have a lot of money so you can buy the shares. Then somebody had the bright idea of making a fund that just buys the S&P, and then sells small pieces of it to investor without huge mountains of capital. Enter the ETFs. The guy running the ETF, of course, doesn't do it for free. He skims a little bit of money off the top. This is the \"\"fee\"\". The major S&P ETFs all have tiny fees, in the percents of a percent. If you're buying the index, you're probably looking at gains (or losses) to the tune of 5, 10, 20% - unless you're doing something really silly, you wouldn't even notice the fee. As often happens, when one guy starts doing something and making money, there will immediately be copycats. So now we have competing ETFs all providing the same service. You are technically a competitor as well, since you could compete with all these funds by just buying a basket of shares yourself, thereby running your own private fund for yourself. The reason this stuff even started was that people said, \"\"well why bother with mutual funds when they charge such huge fees and still don't beat the index anyway\"\", so the index ETFs are supposed to be a low cost alternative to mutual funds. Thus one thing ETFs compete on is fees: You can see how VOO has lower fees than SPY and IVV, in keeping with Vanguard's philosophy of minimal management (and management fees). Incidentally, if you buy the shares directly, you wouldn't charge yourself fees, but you would have to pay commissions on each stock and it would destroy you - another benefit of the ETFs. Moreover, these ETFs claim they track the index, but of course there is no real way to peg an asset to another. So they ensure tracking by keeping a carefully curated portfolio. Of course nobody is perfect, and there's tracking error. You can in theory compare the ETFs in this respect and buy the one with the least tracking error. However they all basically track very closely, again the error is fractions of the percent, if it is a legitimate concern in your books then you're not doing index investing right. The actual prices of each fund may vary, but the price hardly matters - the key metric is does it go up 20% when the index goes up 20%? And they all do. So what do you compare them on? Well, typically companies offer people perks to attract them to their own product. If you are a Fidelity customer, and you buy IVV, they will waive your commission if you hold it for a month. I believe Vanguard will also sell VOO for free. But for instance Fidelity will take commission from VOO trades and vice versa. So, this would be your main factor. Though, then again, you can just make an account on Robinhood and they're all commission free. A second factor is reliability of the operator. Frankly, I doubt any of these operators are at all untrustworthy, and you'd be buying your own broker's ETF anyway, and presumably you already went with the most trustworthy broker. Besides that, like I said, there's trivial matters like fees and tracking error, but you might as well just flip a coin. It doesn't really matter.\"","\"Your question is one of semantics. ETFs and mutual funds have many things in common and provide essentially the same service to investors with minimal differences. It's reasonably correct to say \"\"An ETF is a mutual fund that...\"\" and then follow up with some stuff that is not true of a typical mutual fund. You could do the same with, for example, a hedge fund. \"\"A hedge fund is a mutual fund that doesn't comply with most SEC regulations and thus is limited to accredited investors.\"\" As a matter of practice, when people say \"\"mutual fund\"\" they are talking about traditional mutual funds and pretty much never including ETFs. So is an ETF a mutual fund as the word is commonly used? No.\"","The issue with trading stocks vs. mutual funds (or ETFs) is all about risk. You trade Microsoft you now have a Stock Risk in your portfolio. It drops 5% you are down 5%. Instead if you want to buy Tech and you buy QQQ if MSFT fell 5% the QQQs would not be as impacted to the downside. So if you want to trade a mutual fund, but you want to be able to put in stop sell orders trade ETFs instead. Considering mutual funds it is better to say Invest vs. Trade. Since all fund families have different rules and once you sell (if you sell it early) you will pay a fee and will not be able to invest in that same fund for x number of days (30, 60...)","ETFs are just like any other mutual fund; they hold a mix of assets described by their prospectus. If that mix fits your needs for diversification and the costs of buying/selling/holding are low, it's as worth considering as a traditional fund with the same mix. A bond fund will hold a mixture of bonds. Whether that mix is sufficiently diversified for you, or whether you want a different fund or a mix of funds, is a judgement call. I want my money to take care of itself for the most part, so most of the bond portion is in a low-fee Total Bond Market Index fund (which tries to match the performance of bonds in general). That could as easily be an ETF, but happens not to be.","\"While nothing is guaranteed - any stock market or country could collapse tomorrow - if you have a fairly long window (15+ years is certainly long), ETFs are likely to earn you well above inflation. Looking at long term ETFs, you typically see close to 10% annual growth over almost any ten year period in the US, and while I don't know European indexes, they're probably well above inflation at least. The downside of ETFs is that your money is somewhat less liquid than in a savings account, and any given year you might not earn anything - you easily could lose money in a particular year. As such, you shouldn't have money in ETFs that you expect to use in the next few months or year or even a few years, perhaps. But as long as you're willing to play the long game - ie, invest in ETF, don't touch it for 15 years except to reinvest the dividends - as long as you go with someone like Vanguard, and use a very low expense ratio fund (mine are 0.06% and 0.10%, I believe), you are likely in the long term to come out ahead. You can diversify your holdings - hold 10% to 20% in bond funds, for example - if you're concerned about risk; look at how some of the \"\"Target\"\" retirement funds allocate their investments to see how diversification can work [Target retirement funds assume high risk tolerance far out and then as the age grows the risk tolerance drops; don't invest in them, but it can be a good example of how to do it.] All of this does require a tolerance of risk, though, and you have to be able to not touch your funds even if they go down - studies have repeatedly shown that trying to time the market is a net loss for most people, and the best thing you can do when your (diverse) investments go down is stay neutral (talking about large funds here and not individual stocks). I think this answers 3 and 4. For 1, share price AND quantity matter (assuming no splits). This depends somewhat on the fund; but at minimum, funds must dividend to you what they receive as dividends. There are Dividend focused ETFs, which are an interesting topic in themselves; but a regular ETF doesn't usually have all that large of dividends. For more information, investopedia has an article on the subject. Note that there are also capital gains distributions, which are typically distributed to help offset capital gains taxes that may occur from time to time with an ETF. Those aren't really returns - you may have to hand most or all over to the IRS - so don't consider distributions the same way. The share price tracks the total net asset value of the fund divided by the number of shares (roughly, assuming no supply/demand split). This should go up as the stocks the ETF owns go up; overall, this is (for non-dividend ETFs) more often the larger volatility both up and down. For Vanguard's S&P500 ETF which you can see here, there were about $3.50 in dividends over 2014, which works out to about a 2% return ($185-$190 share price). On the other hand, the share price went from around $168 at the beginning of 2014 to $190 at the end of 2014, for a return of 13%. That was during a 'good' year for the market, of course; there will be years where you get 2-3% in dividends and lose money; in 2011 it opened at 116 and closed the year at 115 (I don't have the dividend for that year; certainly lower than 3.5% I'd think, but likely nonzero.) The one caveat here is that you do have stock splits, where they cut the price (say) in half and give you double the shares. That of course is revenue neutral - you have the same value the day after the split as before, net of market movements. All of this is good from a tax point of view, by the way; changes in price don't hit you until you sell the stock/fund (unless the fund has some capital gains), while dividends and distributions do. ETFs are seen as 'tax-friendly' for this reason. For 2, Vanguard is pretty good about this (in the US); I wouldn't necessarily invest monthly, but quarterly shouldn't be a problem. Just pay attention to the fees and figure out what the optimal frequency is (ie, assuming 10% return, what is your break even point). You would want to have some liquid assets anyway, so allow that liquid amount to rise over the quarter, then invest what you don't immediately see a need to use. You can see here Vanguard in the US has no fees for buying shares, but has a minimum of one share; so if you're buying their S&P500 (VOO), you'd need to wait until you had $200 or so to invest in order to invest additional funds.\"","One of the key things to look for is trading volume. I think the price spread will be better on high volume ETFs, which means you'll be able to sell for more when the time comes. Check Google or Yahoo finance for those stats.","This depends on a lot actually - with the overall being your goals and how much you like risk. Question: What are your fees/commissions for selling? $8.95/trade will wipe out some gains on those trades. (.69% if all are sold with $8.95 commission - not including the commission payed when purchased that should be factored into the cost basis) Also, I would recommend doing commission free ETFs. You can get the same affect as a mutual fund without the fees associated with paying someone to invest in ETFs and stocks. On another note: Your portfolio looks rather risky. Although everyone has their own risk preference so this might be yours but if you are thinking about a mutual fund instead of individual stocks you probably are risk averse. I would suggest consulting with an adviser on how to set up for the future. Financial advice is free flowing from your local barber, dentist, and of course StackExchange but I would look towards a professional. Disclaimer: These are my thoughts and opinions only ;) Feel free to add comments below.","It is true that this is possible, however, it's very remote in the case of the large and reputable fund companies such as Vanguard. FDIC insurance protects against precisely this for bank accounts, but mutual funds and ETFs do not have an equivalent to FDIC insurance. One thing that does help you in the case of a mutual fund or ETF is that you indirectly (through the fund) own actual assets. In a cash account at a bank, you have a promise from the bank to pay, and then the bank can go off and use your money to make loans. You don't in any sense own the bank's loans. With a fund, the fund company cannot (legally) take your money out of the fund, except to pay the expense ratio. They have to use your money to buy stocks, bonds, or whatever the fund invests in. Those assets are then owned by the fund. Legally, a mutual fund is a special kind of company defined in the Investment Company Act of 1940, and is a separate company from the investment advisor (such as Vanguard): http://www.sec.gov/answers/mfinvco.htm Funds have their own boards, and in principle a fund board can even fire the company advising the fund, though this is not likely since boards aren't usually independent. (a quick google found this article for more, maybe someone can find a better one: http://www.marketwatch.com/story/mutual-fund-independent-board-rule-all-but-dead) If Vanguard goes under, the funds could continue to exist and get a new adviser, or could be liquidated with investors receiving whatever the assets are worth. Of course, all this legal stuff doesn't help you with outright fraud. If a fund's adviser says it bought the S&P 500, but really some guy bought himself a yacht, Madoff-style, then you have a problem. But a huge well-known ETF has auditors, tons of different employees, lots of brokerage and exchange traffic, etc. so to me at least it's tough to imagine a risk here. With a small fund company with just a few people - and there are lots of these! - then there's more risk, and you'd want to carefully look at what independent agent holds their assets, who their auditors are, and so forth. With regular mutual funds (not ETFs) there are more issues with diversifying across fund companies: With ETFs, there probably isn't much downside to diversifying since you could buy them all from one brokerage account. Maybe it even happens naturally if you pick the best ETFs you can find. Personally, I would just pick the best ETFs and not worry about advisor diversity. Update: maybe also deserving a mention are exchange-traded notes (ETNs). An ETN's legal structure is more like the bank account, minus the FDIC insurance of course. It's an IOU from the company that runs the ETN, where they promise to pay back the value of some index. There's no investment company as with a fund, and therefore you don't own a share of any actual assets. If the ETN's sponsor went bankrupt, you would indeed have a problem, much more so than if an ETF's sponsor went bankrupt.","Mutual funds don't do what ETFs do because, according to how the fund was built in their contract, they can't. That is not how they are built and the people that invested in them expect them to act in a certain way. That is ok, though. Many people still invest in mutual funds partially because of their history but there are some advantages to mutual funds over etfs. Mainly mutual funds must mark-to-market at the end of day while etf values can drift from the asset value especially in crisis. As long enough people invest in mutual funds the funds make enough money on their fees they don't need to change. Maybe mutual funds will go extinct as etfs do have significant advantages, but it likely won't happen soon.","Some other suggestions: Index-tracking mutual funds. These have the same exposure as ETFs, but may have different costs; for example, my investment manager (in the UK) charges a transaction fee on ETFs, but not funds, but caps platform fees on ETFs and not funds! Target date funds. If you are saving for a particular date (often retirement, but could also be buying a house, kids going to college, mid-life crisis motorbike purchase, a luxury cruise to see an eclipse, etc), these will automatically rebalance the investment from risk-tolerant (ie equities) to risk-averse (ie fixed income) as the date approaches. You can get reasonably low fees from Vanguard, and i imagine others. Income funds/ETFs, focusing on stocks which are expected to pay a good dividend. The idea is that a consistent dividend helps smooth out volatility in prices, giving you a more consistent return. Historically, that worked pretty well, but given fees and the current low yields, it might not be smart right now. That said Vanguard Equity Income costs 0.17%, and i think yields 2.73%, which isn't bad.","One of the things to consider is that most Vanguard funds are very tax efficient, that is they don't throw off much in the way of cap gains or taxable dividends while they grow. So if you do it right you won't have to pay much in the way of taxes on your investments even if they are in taxable accounts until retirement when at the very least you will have a lot more flexibility in managing your money and very likely be in a lower tax bracket. Roth is better if you are planning other types of investments, but if you are planning to hold an efficient Vanguard fund the difference isn't that bit.","\"If anything, the price of an ETF is more tightly coupled to the underlying holdings or assets than a mutual fund, because of the independent creation/destruction mechanism. With a mutual fund, the price is generally set once at the end of each day, and the mutual fund manager has to deal with investments and redemptions at that price. By the time they get to buying or selling the underlying assets, the market may have moved or they may even move the market with those transactions. With an ETF, investment and redemption is handled by independent \"\"authorized participants\"\". They can create new units of the ETF by buying up the underlying assets and delivering them to the ETF manager, and vice versa they can cancel units by requesting the underlying assets from the ETF manager. ETFs trade intraday (i.e. at any time during trading hours) and any time the price diverges too far from the underlying assets, one of the authorized participants has an incentive to make a small profit by creating or destroying units of the ETF, also intraday.\"","Also, when they mean SP500 fund - it means that fund which invests in the top 500 companies in the SP Index, is my understanding correct? Yes that is right. In reality they may not be able to invest in all 500 companies in same proportion, but is reflective of the composition. I wanted to know whether India also has a company similar to Vanguard which offers low cost index funds. Almost all mutual fund companies offer a NIFTY index fund, both as mutual fund as well as ETF. You can search for index fund and see the total assets to find out which is bigger compared to others.","If liquidity and cost are your primary objectives, Vanguard is indeed a good bet. They are the walmart of finance and the absolute best at minimizing fees and other expenses. Your main portfolio holding should be VTI, the total stock market fund. Highly liquid and has the lowest fees out there at 0.05%. You can augment this with a world-minus-US fund if you want. No need to buy sector or specific geography funds when you can get the whole market for less. Add some bond funds and alternative investments (but not too much) if you want to be fully diversified.","\"You cannot actually buy an index in the true sense of the word. An index is created and maintained by a company like Standard and Poor's who licenses the use of the index to firms like Vanguard. The S&P 500 is an example of an index. The S&P 500 \"\"index includes 500 leading companies\"\", many finical companies sell products which track to this index. The two most popular products which track to indexes are Mutual Funds (as called Index Funds and Index Mutual Funds) and Exchange Traded Funds (as called ETFs). Each Index Mutual Fund or ETF has an index which it tracks against, meaning they hold securities which make up a sample of the index (some indexes like bond indexes are very hard to hold everything that makes them up). Looking at the Vanguard S&P 500 Index Mutual Fund (ticker VFINX) we see that it tracks against the S&P 500 index. Looking at its holdings we see the 500-ish stocks that it holds along with a small amount of bonds and cash to handle cash flow for people buying and sell shares. If we look at the Vanguard S&P 500 ETF (ticker VOO) we see that it also tracks against the S&P 500 index. Looking at its holdings we see they are very similar to the similar Index Mutual Fund. Other companies like T. Rowe Price have similar offering. Look at the T. Rowe Price Equity Index 500 Fund (ticker PREIX) its holdings in stocks are the same as the similar Vanguard fund and like the Vanguard fund it also holds a small amount of bonds and cash to handle cash flow. The only real difference between different products which track against the same index is in the expense ratio (fees for managing the fund) and in the small differences in the execution of the funds. For the most part execution of the funds do not really matter to most people (it has a very small effect), what matters is the expense (the fees paid to own the fund). If we just compare the expense ratio of the Vanguard and T. Rowe Price funds we see (as of 27 Feb 2016) Vanguard has an expense ratio of 0.17% for it Index Mutual Fund and 0.05% for its ETF, while T. Rowe Price has an expense ratio of 0.27%. These are just the fees for the funds themselves, there are also account maintenance fees (which normally go down as the amount of money you have invested at a firm go up) and in the case of ETFs execution cost (cost to trade the shares along with the difference between the bid and ask on the shares). If you are just starting out I would say going with the Index Mutual Fund would easier and most likely would cost less over-all if you are buying a small amount of shares every month. When choosing a company look at the expense ratio on the funds and the account maintenance fees (along with the account minimals). Vanguard is well known for having low fees and they in fact were the first to offer Index Mutual Funds. For more info on the S&P 500 index see also this Investopedia entry on the S&P 500 index. Do not worry if this is all a bit confusing it is to most people (myself included) at first.\"","An interesting read. As of lately, my office has been getting calls from Hartford, Fidelity, Oppenheimer, First Trust, and now Prudential regarding their ETFs. A lot of them just received their 3 year number and the companies are trying to get inflows into them. Prudential's has not launched yet, but is expecting to drop end of summer or early fall. Fidelity is currently the only major competitor in the space. They have a slightly lower internal cost compared to Vanguard and their position are almost identical to the iShares ETFs offered by Black Rock. You can think of Black Rock as Bounty brand paper towels while Fidelity is more like Kirkland Signature. Essentially the same thing with a slight savings on price. One thing to look out for is the very thin trading volume on some of these new ETFs. Oppenheimer and Hartford have very thin levels of volume which makes owning them feel like a game of old maid. You don't want to be stuck holding the bag if something happens in the sector ETF that was purchased. Always make sure there is a market for some of these ETFs before you buy it. Fidelity has overcome some of these volume problems... but some of the ETFs are still a little thin. Just stick with Vanguard for the thinly traded sectors and consider Fidelity if you want to shave a few bps on internal cost. This has just been my personal observation of the industry.","The simple answer is that whatever strategy is implemented with e-series, could be implemented at a lower cost with ETFs.","There are hundreds of entities which offer mutual funds - too many to adequately address here. If you need to pick one, just go with Vanguard for the low low low fees. Yes, this is important. A typical expense ratio of 1% may not sound like much until you realize that the annualized real rate of return on the stock market - after inflation - is about 4%... so the fund eats a quarter of your earnings. (Vanguard's typical expense ratios are closer to 0.1-0.2%). If your company offers a tax-deferred retirement account such as a 401(k), you'll probably find it advantageous to use whatever funds that plan offers just to get the tax advantage, and roll over the account to a cheaper provider when you change employers. You can also buy mutual funds and exchange-traded funds (ETFs) through most brokerages. E*Trade has a nice mutual fund screener, with over 6700 mutual funds and 1180 ETFs. Charles Schwab has one you can browse without even having an account.","One thing to be aware of when choosing mutual funds and index ETFs is the total fees and costs. The TD Ameritrade site almost certainly had links that would let you see the total fees (as an annual percentage) for each of the funds. Within a category, the lowest fees percentage is best, since that is directly subtracted from your performance. As an aside, your allocation seems overly conservative to me for someone that is 25 years old. You will likely work for 40 or so years and the average stock market cycle is about 7 years. So you will likely see 5 or so complete cycles. Worrying about stability of principal too young will really cut into your returns. My daughter is your age and I have advised her to be 100% in equities and then to start dialing that back in about 25 years or so.","and seems to do better than the S&P 500 too. No, that's not true. In fact, this fund is somewhere between S&P500 and the NASDAQ Composite indexes wrt to performance. From my experience (I have it too), it seems to fall almost in the middle between SPY and QQQ in daily moves. So it does provide diversification, but you're basically diversifying between various indexes. The cost is the higher expense ratios (compare VTI to VOO).","Some index funds offer lower expense ratios to those who invest large amounts of money. For example, Vanguard offers Admiral Shares of many of its mutual funds (including several index funds) to individuals who invest more than $50K or $100K, and these Shares have lower expense ratios than the Investor shares in the fund. There are Institutional Shares designed for investments by pension plans, 401k plans of large companies etc which have even lower expenses than Admiral Shares. Individuals working for large companies sometimes get access to Institutional Shares through their 401k plans. Thus, there is something to gained by investing in just one index fund (for a particular index) that offers lower expense ratios for large investments instead of diversifying into several index funds all tracking the same index. Of course, this advantage might be offset by failure to track the index closely, but this tracking should be monitored not on a daily basis but over much longer periods of time to test whether your favorite fund is perennially trailing the index by far more than its competitors with larger expense ratios. Remember that the Net Asset Value (NAV) published by each mutual fund after the markets close already take into account the expense ratio.","ETrade allows this without fees (when investing into one of the No-Load/No-Fees funds from their list). The Sharebuilder plan is better when investing into ETF's or stocks, not for mutual funds, their choice (of no-fees funds) is rather limited on Sharebuilder.","\"Bonds might not be simple, but in general there are only a few variables that need to be understood: bid, coupon (interest) rate, maturity, and yield. Bond tables clearly lay those out, and if you're talking about government bonds a lot of things (like convertibles) don't apply (although default is still a concern). This might be overly simplistic, but I view ETF's primarily as an easy way to bring somewhat esoteric instruments (like grain futures) into the easily available markets of Nasdaq and the NYSE. That they got \"\"enhanced\"\" with leveraged funds and the such is interesting, but perhaps not the original intent of the instrument. Complicating your situation a bit more is the fee that gets tacked onto the ETF. Even Vanguard government bond funds hang out north of 0.1%. That's not huge, but it's not particularly appealing either considering that (unlike rounding up live cattle futures), it's not that much work to buy US government bonds, so the expense might not seem worth it to someone who's comfortable purchasing the securities directly. I'd be interested to see someone else's view on this, but in general I'd say that if you know what you want and know how to buy it, the government bond ETF becomes a lot less relevant as the liquidity offered (including the actual \"\"ease of transacting\"\") seem to to be the biggest factors in favor. From Investopedia's description: The bond ETF is an exciting new addition to the bond market, offering an excellent alternative to self-directed investors who, looking for ease of trading and increased price transparency, want to practice indexing or active bond trading. However, bond ETFs are suitable for particular strategies. If, for instance, you are looking to create a specific income stream, bond ETFs may not be for you. Be sure to compare your alternatives before investing.\"","For your purposes, I would recommend using direct investment in a no-load mutual fund. I mostly use Vanguard and would recommend them. They just about invented index funds, usually have the lowest (internal) expenses for index and many other funds, if you take electronic instead of paper statements there is no maintenance fee, have no transaction commission, can do periodic automatic investment from a bank account etc. A typical index fund there would require an initial $3000 investment and would have a minimum of $100 for each additional investment. If you can't come up with an initial sum of that size, you might be able to find a broker with a lower minimum and suitable free ETFs trades as others have suggested.","Just saw the update: Here's some ETFs for Canada from Vanguard.","\"One other thing to consider, particularly with Vanguard, is the total dollar amount available. Vanguard has \"\"Admiralty\"\" shares of funds which offer lower expense ratios, around 15-20% lower, but require a fairly large investment in each fund (often 10k) to earn the discounted rate. It is a tradeoff between slightly lower expense ratios and possibly a somewhat less diverse holding if you are relatively early in your savings and only have say 20-30k (which would mean 2 or 3 Admiralty share funds only).\"","Vanguard has low cost ETFs that track the S&P 500. The ticker is VOO, its expense ratio is 0.05%, which is pretty low compared to others in the market. Someone correct me if I'm wrong, but you won't have to pay tax on the dividends if it's in a retirement account such as a Traditional(pay taxes when you withdraw) or Roth IRA(pay income/federal/fica etc, but no taxes on withdrawal)...","Life Strategy funds are more appropriate if you want to maintain a specific allocation between stocks and bonds that doesn't automatically adjustment like the Target Retirement funds which have a specific date. Thus, it may make more sense to take whichever Life Strategy fund seems the most appropriate and ride with it for a while unless you know when you plan to retire and access those funds. In theory, you could use Vanguard's Total Market funds,i.e. Total Stock Market, Total International, and Total Bond, and have your own allocations between stocks and bonds be managed pretty easily and don't forget that the fees can come in a couple of flavors as betterment doesn't specify where the transaction fees for buying the ETFs are coming out just as something to consider.","The problem there is that there's a tax due on that dividend. So, if you wish, you can buy the ETF and specify to reinvest dividends, but you'll have to pay a bit of tax on them, and keep track of your basis, if the account isn't a retirement account.","This is a Vanguard-specific difference in the sense that in the US, Vanguard is a leader in lowering management fees for the mutual funds that they offer. Of course, several US mutual fund companies have also been lowering the expense ratio of their mutual funds in recent years because more and more investors have been paying attention to this particular performance parameter, and opting for funds that have low expense ratios. But many US funds have not reduced their expense ratios very much and continue to have expense ratios of 1% or even higher. For example, American Funds Developing World Growth and Income Fund (DWGAX) charges a 1.39% expense ratio while their 2060 Retirement Fund (AANTX) charges 1.12% (the funds also have a 5.75% sales charge); Putnam Capital Opportunities Fund charges 1.91% for their Class C shares, and so on. Many funds with high expense ratios (and sometimes sales charges as well) show up as options in far too many 401(k) plans, especially 401(k) plans of small companies, because small companies do not enjoy economies of scale and do not have much negotiating power when dealing with 401(k) custodians and administrators.","There are a few ETFs that fall into the money market category: SHV, BIL, PVI and MINT. What normally looks like an insignificant expense ratio looks pretty big when compared to the small yields offered by these funds. The same holds for the spread and transaction fees. For that reason, I'm not sure if the fund route is worth it.","Most ETFs are index funds, meaning you get built in diversification so that any one stock going down won't hurt the overall performance much. You can also get essentially the same index funds by directly purchasing them from the mutual fund company. To buy an ETF you need a brokerage account and have to pay a transaction fee. Buying only $1000 at a time the broker transaction fee will eat too much of your money. You want to keep such fees way down below 0.1%. Pay attention to transaction fees and fund expense ratios. Or buy an equivalent index fund directly from the mutual fund company. This generally costs nothing in transaction fees if you have at least the minimum account value built up. If you buy every month or two you are dollar cost averaging, no matter what kind of account you are using. Keep doing that, even if the market values are going down. (Especially if the market values are going down!) If you can keep doing this then forget about certificates of deposit. At current rates you cannot build wealth with CDs.","An index fund is inherently diversified across its index -- no one stock will either make or break the results. In that case it's a matter of picking the index(es) you want to put the money into. ETFs do permit smaller initial purchases, which would let you do a reasonable mix of sectors. (That seems to be the one advantage of ETFs over traditional funds...?)","ETFs trade on specific exchanges. If your broker deals with those exchanges, you should have access to the ETF. If your broker does not deal with that exchange, then you will not have access through that broker. This is different than, say, mutual funds, which don't trade on the exchanges are proprietary to certain brokerages or financial institutions.","For Vanguard: Vanguard does compare its fees with similar funds from its competitors on this tab, but then again, this is Vanguard giving you this information, so take with a grain of salt.","What decision are you trying to make? Are you interested day trading stocks to make it rich? Or are you looking at your investment options and trying to decide between an actively managed mutual fund and an ETF? If the former, then precise statistics are hard to come by, but I believe that 99% of day traders would do better investing in an ETF. If the latter, then there are lots of studies that show that most actively managed funds do worse than index funds, so with most actively managed funds you are paying higher fees for worse performance. Here is a quote from the Bogleheads Guide to Investing: Index funds outperform approximately 80 percent of all actively managed funds over long periods of time. They do so for one simple reason: rock-bottom costs. In a random market, we don't know what future returns will be. However, we do know that an investor who keeps his or her costs low will earn a higher return than one who does not. That's the indexer's edge. Many people believe that your best option for investing is a diverse portfolio of ETFs, like this. This is what I do.","As has been pointed out, one isn't cheaper than the other. One may have a lower price per share than the other, but that's not the same thing. Let's pretend that the total market valuation of all the stocks within the index was $10,000,000. (Look, I said let's pretend.) You want to invest $1,000. For the time being, let's also pretend that your purchasing 0.01% of all the stock won't affect prices anywhere. One company splits the index into 10,000 parts worth $1,000 each. The other splits the same index into 10,000,000 parts worth $1 each. Both track the underlying index perfectly. If you invest $1,000 with the first company, you get one part; if you invest $1,000 with the second, you get 1,000 parts. Ignoring spreads, transaction fees and the like, immediately after the purchase, both are worth exactly $1,000 to you. Now, suppose the index goes up 2%. The first company's shares of the index (of which you would have exactly one) are now worth $1,020 each, and the second company's shares of the index (of which you would have exactly 1,000) are worth $1.02 each. In each case, you now have index shares valued at $1,020 for a 2% increase ($1,020 / $1,000 = 1.02 = 102% of your original investment). As you can see, there is no reason to look at the price per share unless you have to buy in terms of whole shares, which is common in the stock market but not necessarily common at all in mutual funds. Because in this case, both funds track the same underlying index, there is no real reason to purchase one rather than the other because you believe they will perform differently. In an ideal world, the two will perform exactly equally. The way to compare the price of mutual funds is to look at the expense ratio. The lower the expense ratio is, the cheaper the fund is, and the less of your money is being eroded every day in fees. Unless you have some very good reason to do differently, that is how you should compare the price of any investment vehicles that track the same underlying commodity (in this case, the S&P 500).","\"Morningstar is often considered a trusted industry standard when it comes to rating mutual funds and ETFs. They offer the same data-centric information for other investments as well, such as individual stocks and bonds. You can consult Morningstar directly if you like, but any established broker will usually provide you with Morningstar's ratings for the products it is trying to sell to you. Vanguard offers a few Emerging Markets stock and bond funds, some actively managed, some index funds. Other investment management companies (Fidelity, Schwab, etc.) presumably do as well. You could start by looking in Morningstar (or on the individual companies' websites) to find what the similarities and differences are among these funds. That can help answer some important questions: I personally just shove a certain percentage of my portfolio into non-US stocks and bonds, and of that allocation a certain fraction goes into \"\"established\"\" economies and a certain fraction into \"\"emerging\"\" ones. I do all this with just a few basic index funds, because the indices make sense (to me) and index funds cost very little.\"","\"Regarding SPY: \"\"One SPDR unit is valued at approximately 1/10 of the value of the S&P 500. Dividends are distributed quarterly, and are based on the accumulated stock dividends held in trust, less any expenses of the trust.\"\" (source) These are depository receipts, not the actual stocks. Regarding IVV: \"\"The component stocks are weighted according to the total float-adjusted market value of their outstanding shares. The Fund invests in sectors, such as energy, information technology, industrials, financials, consumer staples, healthcare, telecom services, consumer discretionary and materials.\"\" (more here) VOO is the Vanguard S&P 500 ETF. The tracking error seems pretty small to me. I went to Google Finance and plotted the percent change for all four on one chart. They lie pretty much on top of one another. The actual dollar value of each one doesn't matter nearly as much as the fact that they move up and down almost in lock-step. There may be a larger difference going farther out, but for three separate financial products, the agreement is still remarkably good.\"","That expense ratio on the bank fund is criminally high. Use the Vanguard one, they have really low expenses.","diversifying; but isn't that what mutual funds already do? They diversify and reduce stock-specific risk by moving from individual stocks to many stocks, but you can diversify even further by selecting different fund types (e.g. large-cal, small-cap, fixed- income (bond) funds, international, etc.). Your target-date fund probably includes a few different types already, and will automatically reallocate to less risky investments as you get close to the target date. I would look at the fees of different types of funds, and compare them to the historical returns of those funds. You can also use things like morningstar and other ratings as guides, but they are generally very large buckets and may not be much help distinguishing between individual funds. So to answer the question, yes you can diversify further - and probably get better returns (and lower fees) that a target-date fund. The question is - is it worth your time and effort to do so? You're obviously comfortable investing for the long-term, so you might get some benefit by spending a little time looking for different funds to increase your diversification. Note that ETFs don't really diversify any differently than mutual funds, they are just a different mechanism to invest in funds, and allow different trading strategies (trading during the day, derivatives, selling short, etc.).","I believe that kind of micro-tuning for every participant would make the operating costs of the fund intolerable. A better approach, if this is important to you, would be to find a fund or funds designed for people who share your criteria. If the goals and criteria aren't mutual, a mutual fund -- traditional or ETF -- is probably not the right tool.","First of all an IRA is a type of account that says nothing about how your money is invested. It seems like you are trying to compare an IRA with a market ETF (like Vanguard Total Market Admiral VTSAX), but the reality is that you can have both. Depending on your IRA some of the investment options may be limited, but you will probably be able to find some version of a passive fund following an index you are interested in. The IRA account is tax advantaged, but you may invest the money in your IRA in an ETF. As for how often a non-IRA account is taxed and how much, that depends on how often you sell. If you park your money in an ETF and do not sell, the IRS will not claim any taxes from it. The taxable event happens when you sell. But if you gain $1000 in a year and a day and you decide to sell, you will owe $150 (assuming 15% capital gains tax), bringing your earnings down to $850. If your investments go poorly and you lose money, there will be no capital gains tax to pay.","Why is that? With all the successful investors (including myself on a not-infrequent basis) going for individual companies directly, wouldn't it make more sense to suggest that new investors learn how to analyse companies and then make their best guess after taking into account those factors? I have a different perspective here than the other answers. I recently started investing in a Roth IRA for retirement. I do not have interest in micromanaging individual company research (I don't find this enjoyable at all) but I know I want to save for retirement. Could I learn all the details? Probably, as an engineer/software person I suspect I could. But I really don't want to. But here's the thing: For anyone else in a similar situation to me, the net return on investing into a mutual fund type arrangement (even if it returns only 4%) is still likely considerably higher than the return on trying to invest in stocks (which likely results in $0 invested, and a return of 0%). I suspect the overwhelming majority of people in the world are more similar to me than you - in that they have minimal interest in spending hours managing their money. For us, mutual funds or ETFs are perfect for this.","I assume that with both companies you can buy stock mutual funds, bonds mutual funds, ETFs and money market accounts. They should both offer all of these as IRAs, Roth IRAs, and non-retirement accounts. You need to make sure they offer the types of investments you want. Most 401K or 403b plans only offer a handful of options, but for non-company sponsored plans you want to have many more choices. To look at the costs see how much they charge you when you buy or sell shares. Also look at the annual expenses for those funds. Each company website should show you all the fees for each fund. Take a few funds that you are likely to invest in, and have a match in the other fund family, and compare. The benefit of the retirement accounts is that if you make a less than perfect choice now, it is easy to move the money within the family of funds or even to another family of funds later. The roll over or transfer doesn't involve taxes.","\"You seem to be assuming that ETFs must all work like the more traditional closed-end funds, where the market price per share tends—based on supply and demand—to significantly deviate from the underlying net asset value per share. The assumption is simplistic. What are traditionally referred to as closed-end funds (CEFs), where unit creation and redemption are very tightly controlled, have been around for a long time, and yes, they do often trade at a premium or discount to NAV because the quantity is inflexible. Yet, what is generally meant when the label \"\"ETF\"\" is used (despite CEFs also being both \"\"exchange-traded\"\" and \"\"funds\"\") are those securities which are not just exchange-traded, and funds, but also typically have two specific characteristics: (a) that they are based on some published index, and (b) that a mechanism exists for shares to be created or redeemed by large market participants. These characteristics facilitate efficient pricing through arbitrage. Essentially, when large market participants notice the price of an ETF diverging from the value of the shares held by the fund, new units of the ETF can get created or redeemed in bulk. The divergence quickly narrows as these participants buy or sell ETF units to capture the difference. So, the persistent premium (sometimes dear) or discount (sometimes deep) one can easily witness in the CEF universe tend not to occur with the typical ETF. Much of the time, prices for ETFs will tend to be very close to their net asset value. However, it isn't always the case, so proceed with some caution anyway. Both CEF and ETF providers generally publish information about their funds online. You will want to find out what is the underlying Net Asset Value (NAV) per share, and then you can determine if the market price trades at a premium or a discount to NAV. Assuming little difference in an ETF's price vs. its NAV, the more interesting question to ask about an ETF then becomes whether the NAV itself is a bargain, or not. That means you'll need to be more concerned with what stocks are in the index the fund tracks, and whether those stocks are a bargain, or not, at their current prices. i.e. The ETF is a basket, so look at each thing in the basket. Of course, most people buy ETFs because they don't want to do this kind of analysis and are happy with market average returns. Even so, sector-based ETFs are often used by traders to buy (or sell) entire sectors that may be undervalued (or overvalued).\"","Market cap probably isn't as big of an issue as the bid/ask spread and the liquidity, although they tend to be related. The spread is likely to be wider on lesser traded ETF funds we are talking about pennies, likely not an issue unless you are trading in and out frequently. The expense ratios will also tend to be slightly higher again not a huge issue but it might be a consideration. You are unlikely to make up the cost of paying the commission to buy into a larger ETF any time soon though.","Ohhhh. Well thank you for that info. I know I could've Googled it all and while I'm a sticker for doing your own research, it's nice to hear it from someone in the know. Gotta pass on knowledge to those who don't know. Is it cheap to buy an ETF?","There are hundreds if not thousands of index funds and ETFs in the EU, far too many to enumerate here. It's worth pointing out that Vanguard themselves operate in the UK. The minimum investment if you go direct to Vanguard is £100,000, but you can make smaller investments through a number of fund platforms.","Here're some findings upon researches: Two main things to watch out for: Estate tax and the 30% tax withholding. These 2 could be get around by investing in Luxembourg or Ireland domiciled ETF. For instance there's no tax withholding on Ireland domiciled ETF dividend, and the estate tax is not as high. (source: BogleHead forums) Some Vanguard ETF offered in UK stock market: https://www.vanguard.co.uk/uk/mvc/investments/etf#docstab. Do note that the returns of S&P 500 ETF (VUSA) are adjusted after the 30% tax withholding! Due to VUSA's higher TER (0.09%), VOO should remain a superior choice. The FTSE Emerging Markets and All-World ETFs though, are better than their US-counterparts, for non-US residents. Non-US residents are able to claim back partials of the withhold tax, by filing the US tax form 1040NR. In 2013, non-US resident can claim back at least $3,900. Kindly correct me if anything is inaccurate.","\"As with ANY investment the first answer is....do not invest in any that you do not fully understand. ETF's are very versatile and can be used for many different people for many different parts of their portfolio, so I don't think there can be a blanket statement of \"\"this\"\" one is good or bad for all.\"","ETF is essentially a stock, from accounting perspective. Treat it as just another stock in the portfolio.","The main difference is that VOO trades on US stock exchanges while VUSA/VUSD trade on the London Stock Exchange. (VUSA is listed in British pounds while VUSD is listed in US dollars.) They are essentially the same product, but the fees and legal hurdles for a European citizen to trade on the LSE may be quite different from those on US stock exchanges.","\"Vanguard's Admiral shares are like regular (\"\"investor\"\") shares in their funds, only they charge lower expense ratios. They have higher investment minimums, though. (For instance, the Vanguard Total Stock Market Index Fund has a minimum of $3,000 and an expense ratio of .18% for the Investor Shares class, but a minimum of $10,000 and an expense ratio of .07% for Admiral Shares). If you've bought a bunch of investor shares and now meet the (recently-reduced) minimum for Admiral shares, or if you have some and buy some more investor shares in the future and meet the minimums, you will qualify for a free, no-tax-impact conversion to the Admiral Shares and save yourself some money. For more information, see the Vanguard article on their recent changes to Admiral Shares minimums. Vanguard also offers institutional-class shares with even lower expense ratios than that (with a minimum of $5 million, .06% expense ratios on the same fund). A lot of the costs of operating a fund are per-individual, so they don't need to charge you extra fees for putting in more money after a certain point. They'd rather be competitive and offer it at cost. Vanguard's funds typically have very low expense ratios to begin with. (The investor shares I've been using as an example are advertised as \"\"84% lower than the average expense ratio of funds with similar holdings\"\".) In fact, Vanguard's whole reason for existing is the premise (stated in founder John C Bogle's undergraduate thesis at Princeton) that individuals can generally get better returns by investing in a cheap fund that tracks an index than by investing in mutual funds that try to pick stocks and beat the index and charge you a steep markup. The average real return of the stock market is supposedly something like 4%; even a small-looking percentage like 1% can eat a big portion of that. Over the course of 40 years waiting for retirement, saving 1% on expenses could leave you with something like 50% more money when you've retired. If you are interested in the lower expense ratios of the Admiral share classes but cannot meet the minimums, note that funds which are available as ETFs can be traded from Vanguard brokerage accounts commission-free and typically charge the same expense ratios as the Admiral shares without any minimums (but you need to trade them as individual shares, and this is less convenient than moving them around in specific dollar amounts).\"","I think you can do better than the straight indexes. For instance Vanguard's High Yield Tax Exempt Fund has made 4.19% over the past 5 years. The S&P 500 Index has lost -2.25% in the same period. I think good mutual funds will continue to outperform the markets because you have skilled managers taking care of your money. The index is just a bet on the whole market. That said, whatever you do, you should diversify. List of Vanguard Funds"],"string":"[\n \"The ETF is likely better in this case. The ETF will generally generate less capital gains taxes along the way. In order to pay off investors who leave a mutual fund, the manager will have to sell the fund's assets. This creates a capital gain, which must be distributed to shareholders at the end of the year. The mutual fund holder is essentially taxed on this turnover. The ETF does not have to sell any stock when an investor sells his shares because the investor sells the shares himself on the open market. This will result in a capital gain for the specific person exiting his position, but it does not create a taxable event for anyone else holding the ETF shares.\",\n \"A mutual fund has several classes of shares that are charged different fees. Some shares are sold through brokers and carry a sales charge (called load) that compensates the broker in lieu of a fee that the broker would charge the client for the service. Vanguard does not have sales charge on its funds and you don't need to go through a broker to buy its shares; you can buy directly from them. Admiral shares of Vanguard funds are charged lower annual expenses than regular shares (yes, all mutual funds charge expenses for fund adninistration that reduce the return that you get, and Vanguard has some of the lowest expense ratios) but Admiral shares are available only for large investments, typically $50K or so. If you have invested in a Vanguard mutual fund, your shares can be set to automatically convert to Admiral shares when the investment reaches the right level. A mutual fund manager can buy and sell stocks to achieve the objectives of the fund, so what stockes you are invested in as a share holder in a mutual fund will typically be unknown to you on a day-to-day basis. On the other hand, Exchange-traded funds (ETFs) are fixed baskets of stocks, and you can buy shares in the ETF. These shares are bought and sold through a broker (so you pay a transaction fee each time) but expenses are lower since there is no manager to buy and sell stocks: the basket is fixed. Many ETFs follow specific market indexes (e.g. S&P 500). Another difference between ETFs and mutual funds is that you can buy and sell ETFs at any time of the day just as if you could if you held stocks. With mutual funds, any buy and sell requests made during the day are processed at the end of the day and the value of the shares that you buy or sell is determined by the closing price of the stocks held by the mutual fund. With ETFs, you are getting the intra-day price at the time the buy or sell order is executed by your broker.\",\n \"What is your time horizon? Over long horizons, you absolutely want to minimise the expense ratio – a seemingly puny 2% fee p.a. can cost you a third of your savings over 35 years. Over short horizons, the cost of trading in and trading out might matter more. A mutual fund might be front-loaded, i.e. charge a fixed initial percentage when you first purchase it. ETFs, traded daily on an exchange just like a stock, don't have that. What you'll pay there is the broker commission, and the bid-ask spread (and possibly any premium/discount the ETF has vis-a-vis the underlying asset value). Another thing to keep in mind is tracking error: how closely does the fond mirror the underlying index it attempts to track? More often than not it works against you. However, not sure there is a systematic difference between ETFs and funds there. Size and age of a fund can matter, indeed - I've had new and smallish ETFs that didn't take off close down, so I had to sell and re-allocate the money. Two more minor aspects: Synthetic ETFs and lending to short sellers. 1) Some ETFs are synthetic, that is, they don't buy all the underlying shares replicating the index, actually owning the shares. Instead, they put the money in the bank and enter a swap with a counter-party, typically an investment bank, that promises to pay them the equivalent return of holding that share portfolio. In this case, you have (implicit) credit exposure to that counter-party - if the index performs well, and they don't pay up, well, tough luck. The ETF was relying on that swap, never really held the shares comprising the index, and won't necessarily cough up the difference. 2) In a similar vein, some (non-synthetic) ETFs hold the shares, but then lend them out to short sellers, earning extra money. This will increase the profit of the ETF provider, and potentially decrease your expense ratio (if they pass some of the profit on, or charge lower fees). So, that's a good thing. In case of an operational screw up, or if the short seller can't fulfil their obligations to return the shares, there is a risk of a loss. These two considerations are not really a factor in normal times (except in improving ETF expense ratios), but during the 2009 meltdown they were floated as things to consider. Mutual funds and ETFs re-invest or pay out dividends. For a given mutual fund, you might be able to choose, while ETFs typically are of one type or the other. Not sure how tax treatment differs there, though, sorry (not something I have to deal with in my jurisdiction). As a rule of thumb though, as alex vieux says, for a popular index, ETFs will be cheaper over the long term. Very low cost mutual funds, such as Vanguard, might be competitive though.\",\n \"\\\"ETFs purchases are subject to a bid/ask spread, which is the difference between the highest available purchase offer (\\\"\\\"bid\\\"\\\") and the lowest available sell offer (\\\"\\\"ask\\\"\\\"). You can read more about this concept here. This cost doesn't exist for mutual funds, which are priced once per day, and buyers and sellers all use the same price for transactions that day. ETFs allow you to trade any time that the market is open. If you're investing for the long term (which means you're not trying to time your buy/sell orders to a particular time of day), and the pricing is otherwise equal between the ETF and the mutual fund (which they are in the case of Vanguard's ETFs and Admiral Shares mutual funds), I would go with the mutual fund because it eliminates any cost associated with bid/ask spread.\\\"\",\n \"Bond ETFs are just another way to buy a bond mutual fund. An ETF lets you trade mutual fund shares the way you trade stocks, in small share-size increments. The content of this answer applies equally to both stock and bond funds. If you are intending to buy and hold these securities, your main concerns should be purchase fees and expense ratios. Different brokerages will charge you different amounts to purchase these securities. Some brokerages have their own mutual funds for which they charge no trading fees, but they charge trading fees for ETFs. Brokerage A will let you buy Brokerage A's mutual funds for no trading fee but will charge a fee if you purchase Brokerage B's mutual fund in your Brokerage A account. Some brokerages have multiple classes of the same mutual fund. For example, Vanguard for many of its mutual funds has an Investor class (minimum $3,000 initial investment), Admiral class (minimum $10,000 initial investment), and an ETF (share price as initial investment). Investor class has the highest expense ratio (ER). Admiral class and the ETF generally have much lower ER, usually the same number. For example, Vanguard's Total Bond Market Index mutual fund has Investor class (symbol VBMFX) with 0.16% ER, Admiral (symbol VBTLX) with 0.06% ER, and ETF (symbol BND) with 0.06% ER (same as Admiral). See Vanguard ETF/mutual fund comparison page. Note that you can initially buy Investor class shares with Vanguard and Vanguard will automatically convert them to the lower-ER Admiral class shares when your investment has grown to the Admiral threshold. Choosing your broker and your funds may end up being more important than choosing the form of mutual fund versus ETF. Some brokers charge very high purchase/redemption fees for mutual funds. Many brokers have no ETFs that they will trade for free. Between funds, index funds are passively managed and are just designed to track a certain index; they have lower ERs. Actively managed funds are run by managers who try to beat the market; they have higher ERs and tend to actually fall below the performance of index funds, a double whammy. See also Vanguard's explanation of mutual funds vs. ETFs at Vanguard. See also Investopedia's explanation of mutual funds vs. ETFs in general.\",\n \"I think that assuming that you're not looking to trade the fund, an index Mutual Fund is a better overall value than an ETF. The cost difference is negligible, and the ability to dollar-cost average future contributions with no transaction costs. You also have to be careful with ETFs; the spreads are wide on a low-volume fund and some ETFs are going more exotic things that can burn a novice investor. Track two similar funds (say Vanguard Total Stock Market: VTSMX and Vanguard Total Stock Market ETF: VTI), you'll see that they track similarly. If you are a more sophisticated investor, ETFs give you the ability to use options to hedge against declines in value without having to incur capital gains from the sale of the fund. (ie. 20 years from now, can use puts to make up for short-term losses instead of selling shares to avoid losses) For most retail investors, I think you really need to justify using ETFs versus mutual funds. If anything, the limitations of mutual funds (no intra-day trading, no options, etc) discourage speculative behavior that is ultimately not in your best interest. EDIT: Since this answer was written, many brokers have begun offering a suite of ETFs with no transaction fees. That may push the cost equation over to support Index ETFs over Index Mutual Funds, particularly if it's a big ETF with narrow spreads..\",\n \"Behind the scenes, mutual funds and ETFs are very similar. Both can vary widely in purpose and policies, which is why understanding the prospectus before investing is so important. Since both mutual funds and ETFs cover a wide range of choices, any discussion of management, assets, or expenses when discussing the differences between the two is inaccurate. Mutual funds and ETFs can both be either managed or index-based, high expense or low expense, stock or commodity backed. Method of investing When you invest in a mutual fund, you typically set up an account with the mutual fund company and send your money directly to them. There is often a minimum initial investment required to open your mutual fund account. Mutual funds sometimes, but not always, have a load, which is a fee that you pay either when you put money in or take money out. An ETF is a mutual fund that is traded like a stock. To invest, you need a brokerage account that can buy and sell stocks. When you invest, you pay a transaction fee, just as you would if you purchase a stock. There isn't really a minimum investment required as there is with a traditional mutual fund, but you usually need to purchase whole shares of the ETF. There is inherently no load with ETFs. Tax treatment Mutual funds and ETFs are usually taxed the same. However, capital gain distributions, which are taxable events that occur while you are holding the investment, are more common with mutual funds than they are with ETFs, due to the way that ETFs are structured. (See Fidelity: ETF versus mutual funds: Tax efficiency for more details.) That having been said, in an index fund, capital gain distributions are rare anyway, due to the low turnover of the fund. Conclusion When comparing a mutual fund and ETF with similar objectives and expenses and deciding which to choose, it more often comes down to convenience. If you already have a brokerage account and you are planning on making a one-time investment, an ETF could be more convenient. If, on the other hand, you have more than the minimum initial investment required and you also plan on making additional regular monthly investments, a traditional no-load mutual fund account could be more convenient and less expensive.\",\n \"In the case of VFIAX versus VOO, if you're a buy-and-hold investor, you're probably better off with the mutual fund because you can buy fractional shares. However, in general the expense ratio for ETFs will be lower than equivalent mutual funds (even passive index funds). They are the same in this case because the mutual fund is Admiral Class, which has a $10,000 minimum investment that not all people may be able to meet. Additionally, ETFs are useful when you don't have an account with the mutual fund company (i.e. Vanguard), and buying the mutual fund would incur heavy transaction fees.\",\n \"ETFs offer the flexibility of stocks while retaining many of the benefits of mutual funds. Since an ETF is an actual fund, it has the diversification of its potentially many underlying securities. You can find ETFs with stocks at various market caps and style categories. You can have bond or mixed ETFs. You can even get ETFs with equal or fundamental weighting. In short, all the variety benefits of mutual funds. ETFs are typically much less expensive than mutual funds both in terms of management fees (expense ratio) and taxable gains. Most of them are not actively managed; instead they follow an index and therefore have a low turnover. A mutual fund may actively trade and, if not balanced with a loss, will generate capital gains that you pay taxes on. An ETF will produce gains only when shifting to keep inline with the index or you yourself sell. As a reminder: while expense ratio always matters, capital gains and dividends don't matter if the ETF or mutual fund is in a tax-advantaged account. ETFs have no load fees. Instead, because you trade it like a stock, you will pay a commission. Commissions are straight, up-front and perfectly clear. Much easier to understand than the various ways funds might charge you. There are no account minimums to entry with ETFs, but you will need to buy complete shares. Only a few places allow partial shares. It is generally harder to dollar-cost average into an ETF with regular automated investments. Also, like trading stocks, you can do those fancy things like selling short, buying on margin, options, etc. And you can pay attention to the price fluctuations throughout the day if you really want to. Things to make you pause: if you buy (no-load) mutual funds through the parent company, you'll get them at no commission. Many brokerages have No Transaction Fee (NTF) agreements with companies so that you can buy many funds for free. Still look out for that expense ratio though (which is probably paying for that NTF advantage). As sort of a middle ground: index funds can have very low expense ratios, track the same index as an ETF, can be tax-efficient or tax-managed, free to purchase, easy to dollar-cost average and easier to automate/understand. Further reading:\",\n \"The mutual fund will price at day's end, while the ETF trades during the day, like a stock. If you decide at 10am, that some event will occur during the day that will send the market up, the ETF is preferable. Aside from that, the expenses are identical, a low .14%. No real difference especially in a Roth.\",\n \"The main difference between a mutual fund and an ETF are how they are bought and sold (from the investors perspective). An ETF is transacted on the open market. This means you normally can't buy partial shares with your initial investment. Having to transact on the open market also means you pay a market price. The market price is always a little bit different from the Net Asset Value (NAV) of the fund. During market hours, the ETF will trade at a premium/discount to the NAV calculated on the previous day. Morningstar's fund analysis will show a graph of the premium/discount to NAV for an ETF. With a mutual fund on the other hand, your investment goes to a fund company, which then grants you shares while under the hood buying the underlying investments. You pay the NAV price and are allowed to buy partial shares. Usually an ETF has a lower expense ratio, but if that's equal and any initial fees/commissions are equal, I would prefer the mutual fund in order to buy partial shares (so your initial investment will be fully invested) and so you don't have to worry about paying premium to NAV\",\n \"First, it's not always the case that ETFs have lower expenses than the equivalent mutual funds. For example, in the Vanguard family of funds the expense ratio for the ETF version is the same as it is for the Admiral share class in the mutual fund version. With that in mind, the main advantages of a mutual fund over an equivalent ETF are: From a long-term investor's point of view, the main disadvantage of mutual funds relative to ETFs is the minimum account sizes. Especially if the fund has multiple share classes (i.e., where better classes get lower expense ratios), you might have to have quite a lot of money invested in the fund in order to get the same expense ratio as the ETF. There are some other differences that matter to more active investors (e.g., intraday trading, options, etc.), but for a passive investor the ones above are the major ones. Apart from those mutual funds and ETFs are pretty similar. Personally, I prefer mutual funds because I'm at a point where the fund minimums aren't really an issue, and I don't want to deal with the more fiddly aspects of ETFs. For investors just starting out the lower minimum investment for an ETF is a big win, as long as you can get commission-free trades (which is what I've assumed above.)\",\n \"There are times when investing in an ETF is more convenient than a mutual fund. When you invest in a mutual fund, you often have an account directly with the mutual fund company, or you have an account with a mutual fund broker. Mutual funds often have either a front end or back end load, which essentially gives you a penalty for jumping in and out of funds. ETFs are traded exactly like stocks, so there is inherently no load when buying or selling. If you have a brokerage account and you want to move funds from a stock to a mutual fund, an ETF might be more convenient. With some accounts, an ETF allows you to invest in a fund that you would not be able to invest in otherwise. For example, you might have a 401k account through your employer. You might want to invest in a Vanguard mutual fund, but Vanguard funds are not available with your 401k. If you have access to a brokerage account inside your 401k, you can invest in the Vanguard fund through the associated ETF. Another reason that you might choose an ETF over a mutual fund is if you want to try to short the fund.\",\n \"I see a couple of reasons why you could consider choosing a mutual fund over an ETF In some cases index mutual funds can be a cheaper alternative to ETFs. In the UK where I am based, Fidelity is offering a management fee of 0.07% on its FTSE All shares tracker. Last time I checked, no ETF was beating that There are quite a few cost you have to foot when dealing ETFs In some cases, when dealing for relatively small amounts (e.g. a monthly investment plan) you can get a better deal, if your broker has negotiated discounts for you with a fund provider. My broker asks £12.5 when dealing in shares (£1.5 for the regular investment plan) whereas he asks £0 when dealing in funds and I get a 100% discount on the initial charge of the fund. As a conclusion, I would suggest you look at the all-in costs over total investment period you are considering for the exact amount you are planning to invest. Despite all the hype, ETFs are not always the cheapest alternative.\",\n \"Your tax efficient reasoning is solid for where you want to distribute your assets. ETFs are often more tax efficient than their equivalent mutual funds but the exact differences would depend on the comparison between the fund and ETF you were considering. The one exception to this rule is Vanguard funds and ETFs which have the exact same tax-efficiency because ETFs are a share class of the corresponding mutual fund.\",\n \"Something to consider is how do you want to handle fractional shares. Most open-end funds can easily go to fractional shares to that if you want to invest $500 in a fund each month, it is a relatively easy transaction where some shares will be fractional and handled easily. An ETF may not always work that way unless you go through something like Sharebuilder that would allow the fractional shares as if the ETF is trading at $150/share, you could buy 3 shares but still have $50 that you want to invest but can't as stocks trade in whole share numbers usually. This is without adding brokerage commissions. Depending on the broker, re-investing dividends may or may not be that simple as fractional shares could be a problem since those 3 shares aren't likely to have enough of a dividend to equal another share being bought with the proceeds. If you want the flexibility of stop and limit orders then the ETF may make more sense while the open-end fund is simply to invest whole dollar amounts that then lead to fractional shares. Don't forget to factor in minimums and other stuff as VFIAX may have a bit of a minimum to it as well as possible fees that could be annoying as I remember VFINX having some account maintenance fees that were a bit irksome back in the day that may still be around in some cases so be sure to read the fine print on things.\",\n \"Where are you planning on buying this ETF? I'm guessing it's directly through Vanguard? If so, that's likely your first reason - the majority of brokerage accounts charge a commission per trade for ETFs (and equities) but not for mutual funds. Another reason is that people who work in the financial industry (brokerages, mutual fund companies, etc) have to request permission for every trade before placing an order. This applies to equities and ETFs but does not apply to mutual funds. It's common for a request to be denied (if the brokerage has inside information due to other business lines they'll block trading, if a mutual fund company is trading the same security they'll block trading, etc) without an explanation. This can happen for months. For these folks it's typically easier to use mutual funds. So, if someone can open an account with Vanguard and doesn't work in the financial industry then I agree with your premise. The Vanguard Admiral shares have a much lower expense, typically very close to their ETFs. Source: worked for a brokerage and mutual fund company\",\n \"\\\"One reason is that it is not possible (at Vanguard and at many other brokerages) to auto-invest into ETFs. Because the ETF trades like a stock, you typically must buy a whole number of shares. This makes it difficult to do auto-investing where you invest, say, a fixed dollar amount each month. If you're investing $100 and the ETF trades for $30 a share, you must either buy 3 shares and leave $10 unspent, or buy 4 and spend $20 more than you planned. This makes auto-investing with dollar amounts difficult. (It would be cool if there were brokerages that handled this for you, for instance by accumulating \\\"\\\"leftover\\\"\\\" cash until an additional whole share could be purchased, but I don't know of any.) A difference of 0.12% in the expense ratios is real, but small. It may be outweighed by the psychological gains of being able to adopt a \\\"\\\"hands-off\\\"\\\" auto-investing plan. With ETFs, you generally must remember to \\\"\\\"manually\\\"\\\" buy the shares yourself every so often. For many average investors, the advantage of being able to invest without having to think about it at all is worth a small increase in expense ratio. The 0.12% savings don't do you any good if you never remember to buy shares until the market is already up.\\\"\",\n \"The main difference between an ETF and a Mutual Fund is Management. An ETF will track a specific index with NO manager input. A Mutual Fund has a manager that is trying to choose securities for its fund based on the mandate of the fund. Liquidity ETFs trade like a stock, so you can buy at 10am and sell at 11 if you wish. Mutual Funds (most) are valued at the end of each business day, so no intraday trading. Also ETFs are similar to stocks in that you need a buyer/seller for the ETF that you want/have. Whereas a mutual fund's units are sold back to itself. I do not know of many if any liquity issues with an ETF, but you could be stuck holding it if you can not find a buyer (usually the market maker). Mutual Funds can be closed to trading, however it is rare. Tax treatment Both come down to the underlying holdings in the fund or ETF. However, more often in Mutual Funds you could be stuck paying someone else's taxes, not true with an ETF. For example, you buy an Equity Mutual Fund 5 years ago, you sell the fund yourself today for little to no gain. I buy the fund a month ago and the fund manager sells a bunch of the stocks they bought for it 10 years ago for a hefty gain. I have a tax liability, you do not even though it is possible that neither of us have any gains in our pocket. It can even go one step further and 6 months from now I could be down money on paper and still have a tax liability. Expenses A Mutual Fund has an MER or Management Expense Ratio, you pay it no matter what. If the fund has a positive return of 12.5% in any given year and it has an MER of 2.5%, then you are up 10%. However if the fund loses 7.5% with the same MER, you are down 10%. An ETF has a much smaller management fee (typically 0.10-0.95%) but you will have trading costs associated with any trades. Risks involved in these as well as any investment are many and likely too long to go into here. However in general, if you have a Canadian Stock ETF it will have similar risks to a Canadian Equity Mutual Fund. I hope this helps.\",\n \"Why don't you look at the actual funds and etfs in question rather than seeking a general conclusion about all pairs of funds and etfs? For example, Vanguard's total stock market index fund (VTSAX) and ETF (VTI). Comparing the two on yahoo finance I find no difference over the last 5 years visually. For a different pair of funds you may find something very slightly different. In many cases the index fund and ETF will not have the same benchmark and fees so comparisons get a little more cloudy. I recall a while ago there was an article that was pointing out that at the time emerging market ETF's had higher fees than corresponding index funds. For this reason I think you should examine your question on a case-by-case basis. Index fund and ETF returns are all publicly available so you don't have to guess.\",\n \"In my opinion, if you are doing long-term investing, this is a non-issue. The difference of hours in being able to trade an ETF during the day vs. only being able to trade a traditional mutual fund at day-end is irrelevant if you are holding the investment for a long time. If you are engaging in day trading, market timing, or other advanced/controversial trading practices, then I suppose it could make a difference. For the way I invest (index funds, long-term, set-it-and-forget-it), ETFs have no advantage over traditional mutual funds.\",\n \"http://www.efficientfrontier.com/ef/104/stupid.htm would have some data though a bit old about open-end funds vs an ETF that would be one point. Secondly, do you know that the Math on your ETF will always work out to whole numbers of shares or do you plan on using brokers that would allow fractional shares easily? This is a factor as $3,000 of an open-end fund will automatically go into fractional shares that isn't necessarily the case of an ETF where you have to specify a number of shares when you purchase as well as consider are you doing a market or limit order? These are a couple of things to keep in mind here. Lastly, what if the broker you use charges account maintenance fees for your account? In buying the mutual fund from the fund company directly, there may be a lower likelihood of having such fees. I don't know of any way to buy shares in the ETF directly without using a broker.\",\n \"\\\"For a non-ETF mutual fund, you can only buy shares of the mutual fund from the mutual fund itself (at a price that the mutual fund will reveal only at the end of the day) and can only shares back to the mutual fund (again at a price that the mutual fund will reveal only at the end of the day). There is no open market in the sense that you cannot put in a bid to buy, say, 100 shares of VFINX at $217 per share through a brokerage, and if there is a seller willing to sell 100 shares of VFINX to you at $217, then the sale is consummated and you are now the proud owner of 100 shares of VFINX. The only buyer or seller of VFINX is the mutual find itself, and you tell it that you \\\"\\\"want to buy 100 shares of VFINX and please take the money out of my checking account\\\"\\\". If this order is entered before the markets close at 4 pm, the mutual fund determines its share price as of the end of the day, opens a new account for you and puts 100 shares of VFINX in it (or adds 100 shares of VFINX to your already existing pile of shares) and takes the purchase price out of your checking account via an ACH transfer. Similarly for redeeming/selling shares of VFINX that you own (and these are held in an account at the mutual fund itself, not by your brokerage): you tell the mutual fund to that you \\\"\\\"wish to redeem 100 shares and please send the proceeds to my bank account\\\"\\\" and the mutual fund does this at the end of the day, and the money appears in your bank account via ACH transfer two or three days later. Generally, these transactions do not need to be for round lots of multiples of 100 shares for efficiency; most mutual fund will gladly sell you fractional shares down to a thousandth of a share. In contrast, shares of an exchange-traded fund (ETF) are just like stock shares in that they can be bought and sold on the open market and your broker will charge you fees for buying and selling them. Selling fractional shares on the open market is generally not possible, and trading in round lots is less expensive. Also, trades occur at all times of the stock exchange day, not just at the end of the day as with non-ETF funds, and the price can fluctuate during the day too. Many non-ETF mutual funds have an ETF equivalent: VOO is the symbol for Vanguard's S&P 500 Index ETF while VFINX is the non-ETF version of the same index fund. Read more about the differences between ETFs and mutual funds, for example, here.\\\"\",\n \"\\\"There are a few reasons why an index mutual fund may be preferable to an ETF: I looked at the iShare S&P 500 ETF and it has an expense ratio of 0.07%. The Vanguard Admiral S&P 500 index has an expense ratio of 0.05% and the Investor Shares have an expense ratio of 0.17%, do I don't necessarily agree with your statement \\\"\\\"admiral class Vanguard shares don't beat the iShares ETF\\\"\\\".\\\"\",\n \"See my comment for some discussion of why one might choose an identical fund over an ETF. As to why someone would choose the higher cost fund in this instance ... The Admiral Shares version of the fund (VFIAX) has the same expense ratio as the ETF but has a minimum investment of $10K. Some investors may want to eventually own the Admiral Shares fund but do not yet have $10K. If they begin with the Investor Shares now and then convert to Admiral later, that conversion will be a non-taxable event. If, however, they start with ETF shares now and then sell them later to buy the fund, that sale will be a taxable event. Vanguard ETFs are only commission-free to Vanguard clients using Vanguard Brokerage Services. Some investors using other brokers may face all sorts of penalties for purchasing third-party ETFs. Some retirement plan participants (either at Vanguard or another broker) may not even be allowed to purchase ETFs.\",\n \"Index Funds & ETFs, if they are tracking the same index, will be the same in an ideal world. The difference would be because of the following factors: Expense ratio: i.e. the expense the funds charge. This varies and hence it would lead to a difference in performance. Tracking error: this means that there is a small percentage of error between the actual index composition and the fund composition. This is due to various reasons. Effectively this would result in the difference between values. Demand / Supply: with ETFs, the fund is traded on stock exchanges like a stock. If the general feeling is that the index is rising, it could lead to an increase in the price of the ETF. Index funds on the other hand would remain the same for the day and are less liquid. This results in a price increase / decrease depending on the market. The above explains the reason for the difference. Regarding which one to buy, one would need to consider other factors like: a) How easy is it to buy ETFs? Do you already hold Demat A/C & access to brokers to help you conduct the transaction or do you need to open an additional account at some cost. b) Normally funds do not need any account, but are you OK with less liquidity as it would take more time to redeem funds.\",\n \"Mutual funds buy (and sell) shares in companies in accordance with the policies set forth in their prospectus, not according to the individual needs of an investor, that is, when you invest money in (or withdraw money from) a mutual fund, the manager buys or sells whatever shares that, in the manager's judgement, will be the most appropriate ones (consistent with the investment policies). Thus, a large-cap mutual fund manager will not buy the latest hot small-cap stock that will likely be hugely profitable; he/she must choose only between various large capitalization companies. Some exchange-traded funds are fixed baskets of stocks. Suppose you will not invest in a company X as a matter of principle. Unless a mutual fund prospectus says that it will not invest in X, you may well end up having an investment in X at some time because the fund manager bought shares in X. With such an ETF, you know what is in the basket, and if the basket does not include stock in X now, it will not own stock in X at a later date. Some exchange-traded funds are constructed based on some index and track the index as a matter of policy. Thus, you will not be investing in X unless X becomes part of the index because Standard or Poor or Russell or somebody changed their minds, and the ETF buys X in order to track the index. Finally, some ETFs are exactly like general mutual funds except that you can buy or sell ETF shares at any time at the price at the instant that your order is executed whereas with mutual funds, the price of the mutual fund shares that you have bought or sold is the NAV of the mutual fund shares for that day, which is established based on the closing prices at the end of the trading day of the stocks, bonds etc that the fund owns. So, you might end up owning stock in X at any time based on what the fund manager thinks about X.\",\n \"ETFs are both liquid (benefits active traders) and a simple way for people to invest in funds even if they don't have the minimum balance needed to invest in a mutual fund (EDIT: in which purchases are resolved at the end of the trading day). One big difference between ETFs and mutual funds is that you must buy ETFs in whole units, whereas you can add $100 to a mutual fund and the fund will determine -- usually to 4 decimal places -- how many shares you've purchased.\",\n \"\\\"The majority (about 80%) of mutual funds are underperforming their underlying indexes. This is why ETFs have seen massive capital inflows compared to equity funds, which have seen significant withdrawals in the last years. I would definitively recommend going with an ETF. In addition to pure index based ETFs that (almost) track broad market indexes like the S&P 500 there are quite a few more \\\"\\\"quant\\\"\\\" oriented ETFs that even outperformed the S&P. I am long the S&P trough iShares ETFs and have dividend paying ETFs and some quant ETFS on top (Invesco Powershares) in my portfolio.\\\"\",\n \"There is little difference between buying shares in your broker's index fund and shares of their corresponding ETF. In many cases the money invested in an ETF gets essentially stuffed right into the index fund (I believe Vanguard does this, for example). In either case you will be paying a little bit of tax. In the ETF case it will be on the dividends that are paid out. In the index fund case it will additionally be on the capital gains that have been realized within the fund, which are very few for an index fund. Not a ton in either case. The more important tax consideration is between purchase and sale, which is the same in either case. I'd say stick it wherever the lowest fees are.\",\n \"\\\"I wonder if ETF's are further removed from the actual underlying holdings or assets giving value to the fund, as compared to regular mutual funds. Not exactly removed. But slightly different. Whenever a Fund want to launch an ETF, it would buy the underlying shares; create units. Lets say it purchased 10 of A, 20 of B and 25 of C. And created 100 units for price x. As part of listing, the ETF company will keep the purchased shares of A,B,C with a custodian. Only then it is allowed to sell the 100 units into the market. Once created, units are bought or sold like regular stock. In case the demand is huge, more units are created and the underlying shares kept with custodian. So, for instance, would VTI and Total Stock Market Index Admiral Shares be equally anchored to the underlying shares of the companies within the index? Yes they are. Are they both connected? Yes to an extent. The way Vanguard is managing this is given a Index [Investment Objective]; it is further splitting the common set of assets into different class. Read more at Share Class. The Portfolio & Management gives out the assets per share class. So Vanguard Total Stock Market Index is a common pool that has VTI ETF, Admiral and Investor Share and possibly Institutional share. Is VTI more of a \\\"\\\"derivative\\\"\\\"? No it is not a derivative. It is a Mutual Fund.\\\"\",\n \"\\\"I think you are asking about actively managed funds vs. indexes and possibly also vs. diversified funds like target date funds. This is also related to the question of mutual fund vs. ETF. First, a fund can be either actively managed or it can attempt to track an index. An actively managed fund has a fund manager who tries to find the best stocks to invest in within some constraints, like \\\"\\\"this fund invests in large cap US companies\\\"\\\". An index fund tries to match as closely as possible the performance of an index like the S&P 500. A fund may also try to offer a portfolio that is suitable for someone to put their entire account into. For example, a target date fund is a fund that may invest in a mix of stocks, bonds and foreign stock in a proportion that would be appropriate to someone expecting to retire in a certain year. These are not what people tend to think of as the canonical examples of mutual funds, even though they share the same legal structure and investment mechanisms. Secondly, a fund can either be a traditional mutual fund or it can be an exchange traded fund (ETF). To invest in a traditional mutual fund, you send money to the fund, and they give you a number of shares equal to what that money would have bought of the net asset value (NAV) of the fund at the end of trading on the day they receive your deposit, possibly minus a sales charge. To invest in an ETF, you buy shares of the ETF on the stock market like any other stock. Under the covers, an ETF does have something similar to the mechanism of depositing money to get shares, but only big traders can use that, and it's not used for investing, but only for people who are making a market in the stock (if lots of people are buying VTI, Big Dealer Co will get 100,000 shares from Vanguard so that they can sell them on the market the next day). Historically and traditionally, ETFs are associated with an indexing strategy, while if not specifically mentioned, people assume that traditional mutual funds are actively managed. Many ETFs, notably all the Vanguard ETFs, are actually just a different way to hold the same underlying fund. The best way to understand this is to read the prospectus for a mutual fund and an ETF. It's all there in reasonably plain English.\\\"\",\n \"Price, whether related to a stock or ETF, has little to do with anything. The fund or company has a total value and the value is distributed among the number of units or shares. Vanguard's S&P ETF has a unit price of $196 and Schwab's S&P mutual fund has a unit price of $35, it's essentially just a matter of the fund's total assets divided by number of units outstanding. Vanguard's VOO has assets of about $250 billion and Schwab's SWPPX has assets of about $25 billion. Additionally, Apple has a share price of $100, Google has a share price of $800, that doesn't mean Google is more valuable than Apple. Apple's market capitalization is about $630 billion while Google's is about $560 billion. Or on the extreme a single share of Berkshire's Class A stock is $216,000, and Berkshire's market cap is just $360 billion. It's all just a matter of value divided by shares/units.\",\n \"There's really no right or wrong answer here because you'll be fine either way. If you've investing amounts in the low 5 figures you're likely just getting started, and if your asset allocation is not optimal it's not that big a deal because you have a long time horizon to adjust it, and the expense ratio differences here won't add up to that much. A third option is Vanguard ETFs, which have the expense ratio of Admiral Shares but have lower minimums (i.e. the cost of a single share, typically on the order of $100). However, they are a bit more advanced than mutual funds in that they trade on the market and require you to place orders rather than just specifying the amount you want to buy. A downside here is you might end up with a small amount of cash that you can't invest, since you can initially only buy whole numbers of ETFs shares. So what I'd recommend is buying roughly the correct number of ETFs shares you want except for your largest allocation, then use the rest of your cash on Admiral Shares of that (if possible). For example, let's say you have $15k to invest and you want to be 2/3 U.S. stock, 1/6 international stock, and 1/6 U.S. bond. I would buy as many shares of VXUS (international stock ETF) and BND (U.S. bond ETF) as you can get for $2500 each, then whatever is left over (~$10k) put into VTSAX (U.S. stock Admiral Shares mutual fund).\",\n \"So, why or why should I not invest in the cheaper index fund? They are both same, one is not cheaper than other. You get something that is worth $1000. To give a simple illustration; There is an item for $100, Vanguard creates 10 Units out of this so price per unit is $10. Schwab creates 25 units out of this, so the per unit price is $4. Now if you are looking at investing $20; with Vanguard you would get 2 units, with Schwab you would get 5 units. This does not mean one is cheaper than other. Both are at the same value of $20. The Factors you need to consider are; Related question What differentiates index funds and ETFs?\",\n \"If you just want to track an index, then ETFs are, generally speaking, the better way.\",\n \"No, some of Vanguard's funds are index funds like their Total Stock Market Index and 500 Index. In contrast, there are funds like Vanguard PRIMECAP and Vanguard Wellington that are actively managed. There are index funds in both open-end and exchange-traded formats. VTI is the ticker for Vanguard's Total Stock Market ETF while VTSMX is an open-end mutual fund format. VOO would be the S & P 500 ETF ticker while VFINX is one of the open-end mutual fund tickers, where VIIIX has a really low expense ratio but a pretty stiff minimum to my mind. As a general note, open-end mutual funds will generally have a 5 letter ticker ending in X while an ETF will generally be shorter at 3 or 4 letters in length.\",\n \"The creation mechanism for ETF's ensures that the value of the underlying stocks do not diverge significantly from the Fund's value. Authorized participants have a strong incentive to arbitrage any pricing differences and create/redeem blocks of stock/etf until the prices are back inline. Contrary to what was stated in a previous answer, this mechanism lowers the cost of management of ETF's when compared to mutual funds that must access the market on a regular basis when any investors enter/exit the fund. The ETF only needs to create/redeem in a wholesale basis, this allows them to operate with management fees that are much lower than those of a mutual fund. Expenses Due to the passive nature of indexed strategies, the internal expenses of most ETFs are considerably lower than those of many mutual funds. Of the more than 900 available ETFs listed on Morningstar in 2010, those with the lowest expense ratios charged about .10%, while those with the highest expenses ran about 1.25%. By comparison, the lowest fund fees range from .01% to more than 10% per year for other funds. (For more on mutual fund feeds, read Stop Paying High Fees.)\",\n \"\\\"If your intention is to purchase ETFs on a regular basis (like $x per month), then ETFs may not make sense. You may have to pay a fixed transaction cost like you were buying a stock for each purchase. In a similar no load mutual fund, there are more likely to be no transaction costs (depending on how it is bought). The above paragraph is not very definitive, and is really dependent upon how you would purchase either ETFs or Mutual funds. For example if you have a Fidelity brokerage account, they may let you buy certain ETFs commission free. Okay then either ETFs make great sense. It would not make sense to buy ones that they charge $35 per transaction if you have regular transactions that are smallish. The last two questions seem to be asking if you should buy MF or buy stocks directly. For most people the later is a losing proposition. They do not have the time or ability to buy stocks directly, effectively. Even if they did they may not have the capital to make enough of a difference when one considers all the cost involved. However, if that kind of thing interests you, perhaps you should dabble. Start out small and look at the higher costs of doing so as part of the \\\"\\\"cost of doing business\\\"\\\".\\\"\",\n \"\\\"An Exchange-Traded Fund (ETF) is a special type of mutual fund that is traded on the stock exchange like a stock. To invest, you buy it through a stock broker, just as you would if you were buying an individual stock. When looking at a mutual fund based in the U.S., the easiest way to tell whether or not it is an ETF is by looking at the ticker symbol. Traditional mutual funds have ticker symbols that end in \\\"\\\"X\\\"\\\", and ETFs have ticker symbols that do not end in \\\"\\\"X\\\"\\\". The JPMorgan Emerging Markets Equity Fund, with ticker symbol JFAMX, is a traditional mutual fund, not an ETF. JPMorgan does have ETFs; the JPMorgan Diversified Return Emerging Markets Equity ETF, with ticker symbol JPEM, is an example. This ETF invests in similar stocks as JFAMX; however, because it is an index-based fund instead of an actively managed fund, it has lower fees. If you aren't sure about the ticker symbol, the advertising/prospectus of any ETF should clearly state that it is an ETF. (In the example of JPEM above, they put \\\"\\\"ETF\\\"\\\" right in the fund name.) If you don't see ETF mentioned, it is most likely a traditional mutual fund. Another way to tell is by looking at the \\\"\\\"investment minimums\\\"\\\" of the fund. JFAMX has a minimum initial investment of $1000. ETFs, however, do not have an investment minimum listed; because it is traded like a stock, you simply buy whole shares at whatever the current share price is. So if you look at the \\\"\\\"Fees and Investment Minimums\\\"\\\" section of the JPEM page, you'll see the fees listed, but not any investment minimums.\\\"\",\n \"ETFs are a type of investment, not a specific choice. In other words, there are good ETFs and bad. What you see is the general statement that ETFs are preferable to most mutual funds, if only for the fact that they are low cost. An index ETF such as SPY (which reflects the S&P 500 index) has a .09% annual expense, vs a mutual fund which average a full percent or more. sheegaon isn't wrong, I just have a different spin to offer you. Given a long term return of say even 8% (note - this question is not a debate of the long term return, and I purposely chose a low number compared to the long term average, closer to 10%) and the current CD rate of <1%, a 1% hit for the commission on the buy side doesn't bother me. The sell won't occur for a long time, and $8 on a $10K sale is no big deal. I'd not expect you to save $1K/yr in cash/CDs for the years it would take to make that $8 fee look tiny. Not when over time the growth will overshaddow this. One day you will be in a position where the swings in the market will produce the random increase or decrease to your net worth in the $10s of thousands. Do you know why you won't lose a night's sleep over this? Because when you invested your first $1K, and started to pay attention to the market, you saw how some days had swings of 3 or 4%, and you built up an immunity to the day to day noise. You stayed invested and as you gained wealth, you stuck to the right rebalancing each year, so a market crash which took others down by 30%, only impacted you by 15-20, and you were ready for the next move to the upside. And you also saw that since mutual funds with their 1% fees never beat the index over time, you were happy to say you lagged the S&P by .09%, or 1% over 11 year's time vs those whose funds had some great years, but lost it all in the bad years. And by the way, right until you are in the 25% bracket, Roth is the way to go. When you are at 25%, that's the time to use pre-tax accounts to get just below the cuttoff. Last, welcome to SE. Edit - see sheegaon's answer below. I agree, I missed the cost of the bid/ask spread. Going with the lowest cost (index) funds may make better sense for you. To clarify, Sheehan points out that ETFs trade like a stock, a commission, and a bid/ask, both add to transaction cost. So, agreeing this is the case, an indexed-based mutual fund can provide the best of possible options. Reflecting the S&P (for example) less a small anual expense, .1% or less.\",\n \"\\\"I'm assuming the question is about how to compare two ETFs that track the same index. I'd look at (for ETFs -- ignoring index funds): So, for example you might compare SPY vs IVV: SPY has about 100x the volume. Sure, IVV has 2M shares trading, so it is liquid \\\"\\\"enough\\\"\\\". But the bigger volume on SPY might matter to you if you use options: open interest is as much as 1000x more on SPY. Even if you have no interest in options, the spreads on SPY are probably going to be slightly smaller. They both have 0.09% expense ratios. When I looked on 2010-9-6, SPY was trading at a slight discount, IVV was at a slight premium. Looking for any sort of trend is left as an exercise to the reader... Grab the prospectus for each to examine the rules they set for fund makeup. Both come from well-known issuers and have a decent history. (Rather than crazy Uncle Ed's pawn shop, or the Central Bank of Stilumunistan.) So unless you find something in the SPY prospectus that makes you queasy, the higher volume and equal expense ratios would seem to suggest it over IVV. The fact that it is at a (tiny) discount right now is a (tiny) bonus.\\\"\",\n \"One of the often cited advantages of ETFs is that they have a higher liquidity and that they can be traded at any time during the trading hours. On the other hand they are often proposed as a simple way to invest private funds for people that do not want to always keep an eye on the market, hence the intraday trading is mostly irrelevant for them. I am pretty sure that this is a subjective idea. The fact is you may buy GOOG, AAPL, F or whatever you wish(ETF as well, such as QQQ, SPY etc.) and keep them for a long time. In both cases, if you do not want to keep an on the market it is ok. Because, if you keep them it is called investment(the idea is collecting dividends etc.), if you are day trading then is it called speculation, because you main goal is to earn by buying and selling, of course you may loose as well. So, you do not care about dividends or owning some percent of the company. As, ETFs are derived instruments, their volatility depends on the volatility of the related shares. I'm wondering whether there are secondary effects that make the liquidity argument interesting for private investors, despite not using it themselves. What would these effects be and how do they impact when compared, for example, to mutual funds? Liquidity(ability to turn cash) could create high volatility which means high risk and high reward. From this point of view mutual funds are more safe. Because, money managers know how to diversify the total portfolio and manage income under any market conditions.\",\n \"You cannot do a 1031 exchange with stocks, bonds, mutual funds, or ETFs. There really isn't much difference between an ETF and its equivalent index mutual fund. Both will have minimal capital gains distributions. I would not recommend selling an index mutual fund and taking a short-term capital gain just to buy the equivalent ETF.\",\n \"that's just it, though - they are splitting up the 1%! and in most cases, especially vanguard, they are splitting up far less. ETFs don't have 12b-1 fees. explaining why you're experiencing different returns for ETFs will almost certainly involve something other than their expense. again, this is especially true for vanguard. they have the cheapest ETFs around (though i think schwab beats them on a few now). i can only guess at the full compensation structure. betterment likely earns money on cash reserves and securities hypothecation (i guess?). they also charge a small fee from what i understand. finance is very slim these days. i guess i'm wondering what your ultimate question is. if it's the inter corporate compensation structure, above is my best guess. if it's about performance, then we need to compare the ETFs you are looking at. if it's about the fees on funds, i think we covered that! as an advisor, it's my experience that very specific inquiries about fees have a deeper concern. people hear a lot about being overcharged so cost is a very standard place for clients to initially look when trying to compare performance of portfolios or securities.\",\n \"\\\"Back in the olden days, if you wanted to buy the S&P, you had to have a lot of money so you can buy the shares. Then somebody had the bright idea of making a fund that just buys the S&P, and then sells small pieces of it to investor without huge mountains of capital. Enter the ETFs. The guy running the ETF, of course, doesn't do it for free. He skims a little bit of money off the top. This is the \\\"\\\"fee\\\"\\\". The major S&P ETFs all have tiny fees, in the percents of a percent. If you're buying the index, you're probably looking at gains (or losses) to the tune of 5, 10, 20% - unless you're doing something really silly, you wouldn't even notice the fee. As often happens, when one guy starts doing something and making money, there will immediately be copycats. So now we have competing ETFs all providing the same service. You are technically a competitor as well, since you could compete with all these funds by just buying a basket of shares yourself, thereby running your own private fund for yourself. The reason this stuff even started was that people said, \\\"\\\"well why bother with mutual funds when they charge such huge fees and still don't beat the index anyway\\\"\\\", so the index ETFs are supposed to be a low cost alternative to mutual funds. Thus one thing ETFs compete on is fees: You can see how VOO has lower fees than SPY and IVV, in keeping with Vanguard's philosophy of minimal management (and management fees). Incidentally, if you buy the shares directly, you wouldn't charge yourself fees, but you would have to pay commissions on each stock and it would destroy you - another benefit of the ETFs. Moreover, these ETFs claim they track the index, but of course there is no real way to peg an asset to another. So they ensure tracking by keeping a carefully curated portfolio. Of course nobody is perfect, and there's tracking error. You can in theory compare the ETFs in this respect and buy the one with the least tracking error. However they all basically track very closely, again the error is fractions of the percent, if it is a legitimate concern in your books then you're not doing index investing right. The actual prices of each fund may vary, but the price hardly matters - the key metric is does it go up 20% when the index goes up 20%? And they all do. So what do you compare them on? Well, typically companies offer people perks to attract them to their own product. If you are a Fidelity customer, and you buy IVV, they will waive your commission if you hold it for a month. I believe Vanguard will also sell VOO for free. But for instance Fidelity will take commission from VOO trades and vice versa. So, this would be your main factor. Though, then again, you can just make an account on Robinhood and they're all commission free. A second factor is reliability of the operator. Frankly, I doubt any of these operators are at all untrustworthy, and you'd be buying your own broker's ETF anyway, and presumably you already went with the most trustworthy broker. Besides that, like I said, there's trivial matters like fees and tracking error, but you might as well just flip a coin. It doesn't really matter.\\\"\",\n \"\\\"Your question is one of semantics. ETFs and mutual funds have many things in common and provide essentially the same service to investors with minimal differences. It's reasonably correct to say \\\"\\\"An ETF is a mutual fund that...\\\"\\\" and then follow up with some stuff that is not true of a typical mutual fund. You could do the same with, for example, a hedge fund. \\\"\\\"A hedge fund is a mutual fund that doesn't comply with most SEC regulations and thus is limited to accredited investors.\\\"\\\" As a matter of practice, when people say \\\"\\\"mutual fund\\\"\\\" they are talking about traditional mutual funds and pretty much never including ETFs. So is an ETF a mutual fund as the word is commonly used? No.\\\"\",\n \"The issue with trading stocks vs. mutual funds (or ETFs) is all about risk. You trade Microsoft you now have a Stock Risk in your portfolio. It drops 5% you are down 5%. Instead if you want to buy Tech and you buy QQQ if MSFT fell 5% the QQQs would not be as impacted to the downside. So if you want to trade a mutual fund, but you want to be able to put in stop sell orders trade ETFs instead. Considering mutual funds it is better to say Invest vs. Trade. Since all fund families have different rules and once you sell (if you sell it early) you will pay a fee and will not be able to invest in that same fund for x number of days (30, 60...)\",\n \"ETFs are just like any other mutual fund; they hold a mix of assets described by their prospectus. If that mix fits your needs for diversification and the costs of buying/selling/holding are low, it's as worth considering as a traditional fund with the same mix. A bond fund will hold a mixture of bonds. Whether that mix is sufficiently diversified for you, or whether you want a different fund or a mix of funds, is a judgement call. I want my money to take care of itself for the most part, so most of the bond portion is in a low-fee Total Bond Market Index fund (which tries to match the performance of bonds in general). That could as easily be an ETF, but happens not to be.\",\n \"\\\"While nothing is guaranteed - any stock market or country could collapse tomorrow - if you have a fairly long window (15+ years is certainly long), ETFs are likely to earn you well above inflation. Looking at long term ETFs, you typically see close to 10% annual growth over almost any ten year period in the US, and while I don't know European indexes, they're probably well above inflation at least. The downside of ETFs is that your money is somewhat less liquid than in a savings account, and any given year you might not earn anything - you easily could lose money in a particular year. As such, you shouldn't have money in ETFs that you expect to use in the next few months or year or even a few years, perhaps. But as long as you're willing to play the long game - ie, invest in ETF, don't touch it for 15 years except to reinvest the dividends - as long as you go with someone like Vanguard, and use a very low expense ratio fund (mine are 0.06% and 0.10%, I believe), you are likely in the long term to come out ahead. You can diversify your holdings - hold 10% to 20% in bond funds, for example - if you're concerned about risk; look at how some of the \\\"\\\"Target\\\"\\\" retirement funds allocate their investments to see how diversification can work [Target retirement funds assume high risk tolerance far out and then as the age grows the risk tolerance drops; don't invest in them, but it can be a good example of how to do it.] All of this does require a tolerance of risk, though, and you have to be able to not touch your funds even if they go down - studies have repeatedly shown that trying to time the market is a net loss for most people, and the best thing you can do when your (diverse) investments go down is stay neutral (talking about large funds here and not individual stocks). I think this answers 3 and 4. For 1, share price AND quantity matter (assuming no splits). This depends somewhat on the fund; but at minimum, funds must dividend to you what they receive as dividends. There are Dividend focused ETFs, which are an interesting topic in themselves; but a regular ETF doesn't usually have all that large of dividends. For more information, investopedia has an article on the subject. Note that there are also capital gains distributions, which are typically distributed to help offset capital gains taxes that may occur from time to time with an ETF. Those aren't really returns - you may have to hand most or all over to the IRS - so don't consider distributions the same way. The share price tracks the total net asset value of the fund divided by the number of shares (roughly, assuming no supply/demand split). This should go up as the stocks the ETF owns go up; overall, this is (for non-dividend ETFs) more often the larger volatility both up and down. For Vanguard's S&P500 ETF which you can see here, there were about $3.50 in dividends over 2014, which works out to about a 2% return ($185-$190 share price). On the other hand, the share price went from around $168 at the beginning of 2014 to $190 at the end of 2014, for a return of 13%. That was during a 'good' year for the market, of course; there will be years where you get 2-3% in dividends and lose money; in 2011 it opened at 116 and closed the year at 115 (I don't have the dividend for that year; certainly lower than 3.5% I'd think, but likely nonzero.) The one caveat here is that you do have stock splits, where they cut the price (say) in half and give you double the shares. That of course is revenue neutral - you have the same value the day after the split as before, net of market movements. All of this is good from a tax point of view, by the way; changes in price don't hit you until you sell the stock/fund (unless the fund has some capital gains), while dividends and distributions do. ETFs are seen as 'tax-friendly' for this reason. For 2, Vanguard is pretty good about this (in the US); I wouldn't necessarily invest monthly, but quarterly shouldn't be a problem. Just pay attention to the fees and figure out what the optimal frequency is (ie, assuming 10% return, what is your break even point). You would want to have some liquid assets anyway, so allow that liquid amount to rise over the quarter, then invest what you don't immediately see a need to use. You can see here Vanguard in the US has no fees for buying shares, but has a minimum of one share; so if you're buying their S&P500 (VOO), you'd need to wait until you had $200 or so to invest in order to invest additional funds.\\\"\",\n \"One of the key things to look for is trading volume. I think the price spread will be better on high volume ETFs, which means you'll be able to sell for more when the time comes. Check Google or Yahoo finance for those stats.\",\n \"This depends on a lot actually - with the overall being your goals and how much you like risk. Question: What are your fees/commissions for selling? $8.95/trade will wipe out some gains on those trades. (.69% if all are sold with $8.95 commission - not including the commission payed when purchased that should be factored into the cost basis) Also, I would recommend doing commission free ETFs. You can get the same affect as a mutual fund without the fees associated with paying someone to invest in ETFs and stocks. On another note: Your portfolio looks rather risky. Although everyone has their own risk preference so this might be yours but if you are thinking about a mutual fund instead of individual stocks you probably are risk averse. I would suggest consulting with an adviser on how to set up for the future. Financial advice is free flowing from your local barber, dentist, and of course StackExchange but I would look towards a professional. Disclaimer: These are my thoughts and opinions only ;) Feel free to add comments below.\",\n \"It is true that this is possible, however, it's very remote in the case of the large and reputable fund companies such as Vanguard. FDIC insurance protects against precisely this for bank accounts, but mutual funds and ETFs do not have an equivalent to FDIC insurance. One thing that does help you in the case of a mutual fund or ETF is that you indirectly (through the fund) own actual assets. In a cash account at a bank, you have a promise from the bank to pay, and then the bank can go off and use your money to make loans. You don't in any sense own the bank's loans. With a fund, the fund company cannot (legally) take your money out of the fund, except to pay the expense ratio. They have to use your money to buy stocks, bonds, or whatever the fund invests in. Those assets are then owned by the fund. Legally, a mutual fund is a special kind of company defined in the Investment Company Act of 1940, and is a separate company from the investment advisor (such as Vanguard): http://www.sec.gov/answers/mfinvco.htm Funds have their own boards, and in principle a fund board can even fire the company advising the fund, though this is not likely since boards aren't usually independent. (a quick google found this article for more, maybe someone can find a better one: http://www.marketwatch.com/story/mutual-fund-independent-board-rule-all-but-dead) If Vanguard goes under, the funds could continue to exist and get a new adviser, or could be liquidated with investors receiving whatever the assets are worth. Of course, all this legal stuff doesn't help you with outright fraud. If a fund's adviser says it bought the S&P 500, but really some guy bought himself a yacht, Madoff-style, then you have a problem. But a huge well-known ETF has auditors, tons of different employees, lots of brokerage and exchange traffic, etc. so to me at least it's tough to imagine a risk here. With a small fund company with just a few people - and there are lots of these! - then there's more risk, and you'd want to carefully look at what independent agent holds their assets, who their auditors are, and so forth. With regular mutual funds (not ETFs) there are more issues with diversifying across fund companies: With ETFs, there probably isn't much downside to diversifying since you could buy them all from one brokerage account. Maybe it even happens naturally if you pick the best ETFs you can find. Personally, I would just pick the best ETFs and not worry about advisor diversity. Update: maybe also deserving a mention are exchange-traded notes (ETNs). An ETN's legal structure is more like the bank account, minus the FDIC insurance of course. It's an IOU from the company that runs the ETN, where they promise to pay back the value of some index. There's no investment company as with a fund, and therefore you don't own a share of any actual assets. If the ETN's sponsor went bankrupt, you would indeed have a problem, much more so than if an ETF's sponsor went bankrupt.\",\n \"Mutual funds don't do what ETFs do because, according to how the fund was built in their contract, they can't. That is not how they are built and the people that invested in them expect them to act in a certain way. That is ok, though. Many people still invest in mutual funds partially because of their history but there are some advantages to mutual funds over etfs. Mainly mutual funds must mark-to-market at the end of day while etf values can drift from the asset value especially in crisis. As long enough people invest in mutual funds the funds make enough money on their fees they don't need to change. Maybe mutual funds will go extinct as etfs do have significant advantages, but it likely won't happen soon.\",\n \"Some other suggestions: Index-tracking mutual funds. These have the same exposure as ETFs, but may have different costs; for example, my investment manager (in the UK) charges a transaction fee on ETFs, but not funds, but caps platform fees on ETFs and not funds! Target date funds. If you are saving for a particular date (often retirement, but could also be buying a house, kids going to college, mid-life crisis motorbike purchase, a luxury cruise to see an eclipse, etc), these will automatically rebalance the investment from risk-tolerant (ie equities) to risk-averse (ie fixed income) as the date approaches. You can get reasonably low fees from Vanguard, and i imagine others. Income funds/ETFs, focusing on stocks which are expected to pay a good dividend. The idea is that a consistent dividend helps smooth out volatility in prices, giving you a more consistent return. Historically, that worked pretty well, but given fees and the current low yields, it might not be smart right now. That said Vanguard Equity Income costs 0.17%, and i think yields 2.73%, which isn't bad.\",\n \"One of the things to consider is that most Vanguard funds are very tax efficient, that is they don't throw off much in the way of cap gains or taxable dividends while they grow. So if you do it right you won't have to pay much in the way of taxes on your investments even if they are in taxable accounts until retirement when at the very least you will have a lot more flexibility in managing your money and very likely be in a lower tax bracket. Roth is better if you are planning other types of investments, but if you are planning to hold an efficient Vanguard fund the difference isn't that bit.\",\n \"\\\"If anything, the price of an ETF is more tightly coupled to the underlying holdings or assets than a mutual fund, because of the independent creation/destruction mechanism. With a mutual fund, the price is generally set once at the end of each day, and the mutual fund manager has to deal with investments and redemptions at that price. By the time they get to buying or selling the underlying assets, the market may have moved or they may even move the market with those transactions. With an ETF, investment and redemption is handled by independent \\\"\\\"authorized participants\\\"\\\". They can create new units of the ETF by buying up the underlying assets and delivering them to the ETF manager, and vice versa they can cancel units by requesting the underlying assets from the ETF manager. ETFs trade intraday (i.e. at any time during trading hours) and any time the price diverges too far from the underlying assets, one of the authorized participants has an incentive to make a small profit by creating or destroying units of the ETF, also intraday.\\\"\",\n \"Also, when they mean SP500 fund - it means that fund which invests in the top 500 companies in the SP Index, is my understanding correct? Yes that is right. In reality they may not be able to invest in all 500 companies in same proportion, but is reflective of the composition. I wanted to know whether India also has a company similar to Vanguard which offers low cost index funds. Almost all mutual fund companies offer a NIFTY index fund, both as mutual fund as well as ETF. You can search for index fund and see the total assets to find out which is bigger compared to others.\",\n \"If liquidity and cost are your primary objectives, Vanguard is indeed a good bet. They are the walmart of finance and the absolute best at minimizing fees and other expenses. Your main portfolio holding should be VTI, the total stock market fund. Highly liquid and has the lowest fees out there at 0.05%. You can augment this with a world-minus-US fund if you want. No need to buy sector or specific geography funds when you can get the whole market for less. Add some bond funds and alternative investments (but not too much) if you want to be fully diversified.\",\n \"\\\"You cannot actually buy an index in the true sense of the word. An index is created and maintained by a company like Standard and Poor's who licenses the use of the index to firms like Vanguard. The S&P 500 is an example of an index. The S&P 500 \\\"\\\"index includes 500 leading companies\\\"\\\", many finical companies sell products which track to this index. The two most popular products which track to indexes are Mutual Funds (as called Index Funds and Index Mutual Funds) and Exchange Traded Funds (as called ETFs). Each Index Mutual Fund or ETF has an index which it tracks against, meaning they hold securities which make up a sample of the index (some indexes like bond indexes are very hard to hold everything that makes them up). Looking at the Vanguard S&P 500 Index Mutual Fund (ticker VFINX) we see that it tracks against the S&P 500 index. Looking at its holdings we see the 500-ish stocks that it holds along with a small amount of bonds and cash to handle cash flow for people buying and sell shares. If we look at the Vanguard S&P 500 ETF (ticker VOO) we see that it also tracks against the S&P 500 index. Looking at its holdings we see they are very similar to the similar Index Mutual Fund. Other companies like T. Rowe Price have similar offering. Look at the T. Rowe Price Equity Index 500 Fund (ticker PREIX) its holdings in stocks are the same as the similar Vanguard fund and like the Vanguard fund it also holds a small amount of bonds and cash to handle cash flow. The only real difference between different products which track against the same index is in the expense ratio (fees for managing the fund) and in the small differences in the execution of the funds. For the most part execution of the funds do not really matter to most people (it has a very small effect), what matters is the expense (the fees paid to own the fund). If we just compare the expense ratio of the Vanguard and T. Rowe Price funds we see (as of 27 Feb 2016) Vanguard has an expense ratio of 0.17% for it Index Mutual Fund and 0.05% for its ETF, while T. Rowe Price has an expense ratio of 0.27%. These are just the fees for the funds themselves, there are also account maintenance fees (which normally go down as the amount of money you have invested at a firm go up) and in the case of ETFs execution cost (cost to trade the shares along with the difference between the bid and ask on the shares). If you are just starting out I would say going with the Index Mutual Fund would easier and most likely would cost less over-all if you are buying a small amount of shares every month. When choosing a company look at the expense ratio on the funds and the account maintenance fees (along with the account minimals). Vanguard is well known for having low fees and they in fact were the first to offer Index Mutual Funds. For more info on the S&P 500 index see also this Investopedia entry on the S&P 500 index. Do not worry if this is all a bit confusing it is to most people (myself included) at first.\\\"\",\n \"An interesting read. As of lately, my office has been getting calls from Hartford, Fidelity, Oppenheimer, First Trust, and now Prudential regarding their ETFs. A lot of them just received their 3 year number and the companies are trying to get inflows into them. Prudential's has not launched yet, but is expecting to drop end of summer or early fall. Fidelity is currently the only major competitor in the space. They have a slightly lower internal cost compared to Vanguard and their position are almost identical to the iShares ETFs offered by Black Rock. You can think of Black Rock as Bounty brand paper towels while Fidelity is more like Kirkland Signature. Essentially the same thing with a slight savings on price. One thing to look out for is the very thin trading volume on some of these new ETFs. Oppenheimer and Hartford have very thin levels of volume which makes owning them feel like a game of old maid. You don't want to be stuck holding the bag if something happens in the sector ETF that was purchased. Always make sure there is a market for some of these ETFs before you buy it. Fidelity has overcome some of these volume problems... but some of the ETFs are still a little thin. Just stick with Vanguard for the thinly traded sectors and consider Fidelity if you want to shave a few bps on internal cost. This has just been my personal observation of the industry.\",\n \"The simple answer is that whatever strategy is implemented with e-series, could be implemented at a lower cost with ETFs.\",\n \"There are hundreds of entities which offer mutual funds - too many to adequately address here. If you need to pick one, just go with Vanguard for the low low low fees. Yes, this is important. A typical expense ratio of 1% may not sound like much until you realize that the annualized real rate of return on the stock market - after inflation - is about 4%... so the fund eats a quarter of your earnings. (Vanguard's typical expense ratios are closer to 0.1-0.2%). If your company offers a tax-deferred retirement account such as a 401(k), you'll probably find it advantageous to use whatever funds that plan offers just to get the tax advantage, and roll over the account to a cheaper provider when you change employers. You can also buy mutual funds and exchange-traded funds (ETFs) through most brokerages. E*Trade has a nice mutual fund screener, with over 6700 mutual funds and 1180 ETFs. Charles Schwab has one you can browse without even having an account.\",\n \"One thing to be aware of when choosing mutual funds and index ETFs is the total fees and costs. The TD Ameritrade site almost certainly had links that would let you see the total fees (as an annual percentage) for each of the funds. Within a category, the lowest fees percentage is best, since that is directly subtracted from your performance. As an aside, your allocation seems overly conservative to me for someone that is 25 years old. You will likely work for 40 or so years and the average stock market cycle is about 7 years. So you will likely see 5 or so complete cycles. Worrying about stability of principal too young will really cut into your returns. My daughter is your age and I have advised her to be 100% in equities and then to start dialing that back in about 25 years or so.\",\n \"and seems to do better than the S&P 500 too. No, that's not true. In fact, this fund is somewhere between S&P500 and the NASDAQ Composite indexes wrt to performance. From my experience (I have it too), it seems to fall almost in the middle between SPY and QQQ in daily moves. So it does provide diversification, but you're basically diversifying between various indexes. The cost is the higher expense ratios (compare VTI to VOO).\",\n \"Some index funds offer lower expense ratios to those who invest large amounts of money. For example, Vanguard offers Admiral Shares of many of its mutual funds (including several index funds) to individuals who invest more than $50K or $100K, and these Shares have lower expense ratios than the Investor shares in the fund. There are Institutional Shares designed for investments by pension plans, 401k plans of large companies etc which have even lower expenses than Admiral Shares. Individuals working for large companies sometimes get access to Institutional Shares through their 401k plans. Thus, there is something to gained by investing in just one index fund (for a particular index) that offers lower expense ratios for large investments instead of diversifying into several index funds all tracking the same index. Of course, this advantage might be offset by failure to track the index closely, but this tracking should be monitored not on a daily basis but over much longer periods of time to test whether your favorite fund is perennially trailing the index by far more than its competitors with larger expense ratios. Remember that the Net Asset Value (NAV) published by each mutual fund after the markets close already take into account the expense ratio.\",\n \"ETrade allows this without fees (when investing into one of the No-Load/No-Fees funds from their list). The Sharebuilder plan is better when investing into ETF's or stocks, not for mutual funds, their choice (of no-fees funds) is rather limited on Sharebuilder.\",\n \"\\\"Bonds might not be simple, but in general there are only a few variables that need to be understood: bid, coupon (interest) rate, maturity, and yield. Bond tables clearly lay those out, and if you're talking about government bonds a lot of things (like convertibles) don't apply (although default is still a concern). This might be overly simplistic, but I view ETF's primarily as an easy way to bring somewhat esoteric instruments (like grain futures) into the easily available markets of Nasdaq and the NYSE. That they got \\\"\\\"enhanced\\\"\\\" with leveraged funds and the such is interesting, but perhaps not the original intent of the instrument. Complicating your situation a bit more is the fee that gets tacked onto the ETF. Even Vanguard government bond funds hang out north of 0.1%. That's not huge, but it's not particularly appealing either considering that (unlike rounding up live cattle futures), it's not that much work to buy US government bonds, so the expense might not seem worth it to someone who's comfortable purchasing the securities directly. I'd be interested to see someone else's view on this, but in general I'd say that if you know what you want and know how to buy it, the government bond ETF becomes a lot less relevant as the liquidity offered (including the actual \\\"\\\"ease of transacting\\\"\\\") seem to to be the biggest factors in favor. From Investopedia's description: The bond ETF is an exciting new addition to the bond market, offering an excellent alternative to self-directed investors who, looking for ease of trading and increased price transparency, want to practice indexing or active bond trading. However, bond ETFs are suitable for particular strategies. If, for instance, you are looking to create a specific income stream, bond ETFs may not be for you. Be sure to compare your alternatives before investing.\\\"\",\n \"For your purposes, I would recommend using direct investment in a no-load mutual fund. I mostly use Vanguard and would recommend them. They just about invented index funds, usually have the lowest (internal) expenses for index and many other funds, if you take electronic instead of paper statements there is no maintenance fee, have no transaction commission, can do periodic automatic investment from a bank account etc. A typical index fund there would require an initial $3000 investment and would have a minimum of $100 for each additional investment. If you can't come up with an initial sum of that size, you might be able to find a broker with a lower minimum and suitable free ETFs trades as others have suggested.\",\n \"Just saw the update: Here's some ETFs for Canada from Vanguard.\",\n \"\\\"One other thing to consider, particularly with Vanguard, is the total dollar amount available. Vanguard has \\\"\\\"Admiralty\\\"\\\" shares of funds which offer lower expense ratios, around 15-20% lower, but require a fairly large investment in each fund (often 10k) to earn the discounted rate. It is a tradeoff between slightly lower expense ratios and possibly a somewhat less diverse holding if you are relatively early in your savings and only have say 20-30k (which would mean 2 or 3 Admiralty share funds only).\\\"\",\n \"Vanguard has low cost ETFs that track the S&P 500. The ticker is VOO, its expense ratio is 0.05%, which is pretty low compared to others in the market. Someone correct me if I'm wrong, but you won't have to pay tax on the dividends if it's in a retirement account such as a Traditional(pay taxes when you withdraw) or Roth IRA(pay income/federal/fica etc, but no taxes on withdrawal)...\",\n \"Life Strategy funds are more appropriate if you want to maintain a specific allocation between stocks and bonds that doesn't automatically adjustment like the Target Retirement funds which have a specific date. Thus, it may make more sense to take whichever Life Strategy fund seems the most appropriate and ride with it for a while unless you know when you plan to retire and access those funds. In theory, you could use Vanguard's Total Market funds,i.e. Total Stock Market, Total International, and Total Bond, and have your own allocations between stocks and bonds be managed pretty easily and don't forget that the fees can come in a couple of flavors as betterment doesn't specify where the transaction fees for buying the ETFs are coming out just as something to consider.\",\n \"The problem there is that there's a tax due on that dividend. So, if you wish, you can buy the ETF and specify to reinvest dividends, but you'll have to pay a bit of tax on them, and keep track of your basis, if the account isn't a retirement account.\",\n \"This is a Vanguard-specific difference in the sense that in the US, Vanguard is a leader in lowering management fees for the mutual funds that they offer. Of course, several US mutual fund companies have also been lowering the expense ratio of their mutual funds in recent years because more and more investors have been paying attention to this particular performance parameter, and opting for funds that have low expense ratios. But many US funds have not reduced their expense ratios very much and continue to have expense ratios of 1% or even higher. For example, American Funds Developing World Growth and Income Fund (DWGAX) charges a 1.39% expense ratio while their 2060 Retirement Fund (AANTX) charges 1.12% (the funds also have a 5.75% sales charge); Putnam Capital Opportunities Fund charges 1.91% for their Class C shares, and so on. Many funds with high expense ratios (and sometimes sales charges as well) show up as options in far too many 401(k) plans, especially 401(k) plans of small companies, because small companies do not enjoy economies of scale and do not have much negotiating power when dealing with 401(k) custodians and administrators.\",\n \"There are a few ETFs that fall into the money market category: SHV, BIL, PVI and MINT. What normally looks like an insignificant expense ratio looks pretty big when compared to the small yields offered by these funds. The same holds for the spread and transaction fees. For that reason, I'm not sure if the fund route is worth it.\",\n \"Most ETFs are index funds, meaning you get built in diversification so that any one stock going down won't hurt the overall performance much. You can also get essentially the same index funds by directly purchasing them from the mutual fund company. To buy an ETF you need a brokerage account and have to pay a transaction fee. Buying only $1000 at a time the broker transaction fee will eat too much of your money. You want to keep such fees way down below 0.1%. Pay attention to transaction fees and fund expense ratios. Or buy an equivalent index fund directly from the mutual fund company. This generally costs nothing in transaction fees if you have at least the minimum account value built up. If you buy every month or two you are dollar cost averaging, no matter what kind of account you are using. Keep doing that, even if the market values are going down. (Especially if the market values are going down!) If you can keep doing this then forget about certificates of deposit. At current rates you cannot build wealth with CDs.\",\n \"An index fund is inherently diversified across its index -- no one stock will either make or break the results. In that case it's a matter of picking the index(es) you want to put the money into. ETFs do permit smaller initial purchases, which would let you do a reasonable mix of sectors. (That seems to be the one advantage of ETFs over traditional funds...?)\",\n \"ETFs trade on specific exchanges. If your broker deals with those exchanges, you should have access to the ETF. If your broker does not deal with that exchange, then you will not have access through that broker. This is different than, say, mutual funds, which don't trade on the exchanges are proprietary to certain brokerages or financial institutions.\",\n \"For Vanguard: Vanguard does compare its fees with similar funds from its competitors on this tab, but then again, this is Vanguard giving you this information, so take with a grain of salt.\",\n \"What decision are you trying to make? Are you interested day trading stocks to make it rich? Or are you looking at your investment options and trying to decide between an actively managed mutual fund and an ETF? If the former, then precise statistics are hard to come by, but I believe that 99% of day traders would do better investing in an ETF. If the latter, then there are lots of studies that show that most actively managed funds do worse than index funds, so with most actively managed funds you are paying higher fees for worse performance. Here is a quote from the Bogleheads Guide to Investing: Index funds outperform approximately 80 percent of all actively managed funds over long periods of time. They do so for one simple reason: rock-bottom costs. In a random market, we don't know what future returns will be. However, we do know that an investor who keeps his or her costs low will earn a higher return than one who does not. That's the indexer's edge. Many people believe that your best option for investing is a diverse portfolio of ETFs, like this. This is what I do.\",\n \"As has been pointed out, one isn't cheaper than the other. One may have a lower price per share than the other, but that's not the same thing. Let's pretend that the total market valuation of all the stocks within the index was $10,000,000. (Look, I said let's pretend.) You want to invest $1,000. For the time being, let's also pretend that your purchasing 0.01% of all the stock won't affect prices anywhere. One company splits the index into 10,000 parts worth $1,000 each. The other splits the same index into 10,000,000 parts worth $1 each. Both track the underlying index perfectly. If you invest $1,000 with the first company, you get one part; if you invest $1,000 with the second, you get 1,000 parts. Ignoring spreads, transaction fees and the like, immediately after the purchase, both are worth exactly $1,000 to you. Now, suppose the index goes up 2%. The first company's shares of the index (of which you would have exactly one) are now worth $1,020 each, and the second company's shares of the index (of which you would have exactly 1,000) are worth $1.02 each. In each case, you now have index shares valued at $1,020 for a 2% increase ($1,020 / $1,000 = 1.02 = 102% of your original investment). As you can see, there is no reason to look at the price per share unless you have to buy in terms of whole shares, which is common in the stock market but not necessarily common at all in mutual funds. Because in this case, both funds track the same underlying index, there is no real reason to purchase one rather than the other because you believe they will perform differently. In an ideal world, the two will perform exactly equally. The way to compare the price of mutual funds is to look at the expense ratio. The lower the expense ratio is, the cheaper the fund is, and the less of your money is being eroded every day in fees. Unless you have some very good reason to do differently, that is how you should compare the price of any investment vehicles that track the same underlying commodity (in this case, the S&P 500).\",\n \"\\\"Morningstar is often considered a trusted industry standard when it comes to rating mutual funds and ETFs. They offer the same data-centric information for other investments as well, such as individual stocks and bonds. You can consult Morningstar directly if you like, but any established broker will usually provide you with Morningstar's ratings for the products it is trying to sell to you. Vanguard offers a few Emerging Markets stock and bond funds, some actively managed, some index funds. Other investment management companies (Fidelity, Schwab, etc.) presumably do as well. You could start by looking in Morningstar (or on the individual companies' websites) to find what the similarities and differences are among these funds. That can help answer some important questions: I personally just shove a certain percentage of my portfolio into non-US stocks and bonds, and of that allocation a certain fraction goes into \\\"\\\"established\\\"\\\" economies and a certain fraction into \\\"\\\"emerging\\\"\\\" ones. I do all this with just a few basic index funds, because the indices make sense (to me) and index funds cost very little.\\\"\",\n \"\\\"Regarding SPY: \\\"\\\"One SPDR unit is valued at approximately 1/10 of the value of the S&P 500. Dividends are distributed quarterly, and are based on the accumulated stock dividends held in trust, less any expenses of the trust.\\\"\\\" (source) These are depository receipts, not the actual stocks. Regarding IVV: \\\"\\\"The component stocks are weighted according to the total float-adjusted market value of their outstanding shares. The Fund invests in sectors, such as energy, information technology, industrials, financials, consumer staples, healthcare, telecom services, consumer discretionary and materials.\\\"\\\" (more here) VOO is the Vanguard S&P 500 ETF. The tracking error seems pretty small to me. I went to Google Finance and plotted the percent change for all four on one chart. They lie pretty much on top of one another. The actual dollar value of each one doesn't matter nearly as much as the fact that they move up and down almost in lock-step. There may be a larger difference going farther out, but for three separate financial products, the agreement is still remarkably good.\\\"\",\n \"That expense ratio on the bank fund is criminally high. Use the Vanguard one, they have really low expenses.\",\n \"diversifying; but isn't that what mutual funds already do? They diversify and reduce stock-specific risk by moving from individual stocks to many stocks, but you can diversify even further by selecting different fund types (e.g. large-cal, small-cap, fixed- income (bond) funds, international, etc.). Your target-date fund probably includes a few different types already, and will automatically reallocate to less risky investments as you get close to the target date. I would look at the fees of different types of funds, and compare them to the historical returns of those funds. You can also use things like morningstar and other ratings as guides, but they are generally very large buckets and may not be much help distinguishing between individual funds. So to answer the question, yes you can diversify further - and probably get better returns (and lower fees) that a target-date fund. The question is - is it worth your time and effort to do so? You're obviously comfortable investing for the long-term, so you might get some benefit by spending a little time looking for different funds to increase your diversification. Note that ETFs don't really diversify any differently than mutual funds, they are just a different mechanism to invest in funds, and allow different trading strategies (trading during the day, derivatives, selling short, etc.).\",\n \"I believe that kind of micro-tuning for every participant would make the operating costs of the fund intolerable. A better approach, if this is important to you, would be to find a fund or funds designed for people who share your criteria. If the goals and criteria aren't mutual, a mutual fund -- traditional or ETF -- is probably not the right tool.\",\n \"First of all an IRA is a type of account that says nothing about how your money is invested. It seems like you are trying to compare an IRA with a market ETF (like Vanguard Total Market Admiral VTSAX), but the reality is that you can have both. Depending on your IRA some of the investment options may be limited, but you will probably be able to find some version of a passive fund following an index you are interested in. The IRA account is tax advantaged, but you may invest the money in your IRA in an ETF. As for how often a non-IRA account is taxed and how much, that depends on how often you sell. If you park your money in an ETF and do not sell, the IRS will not claim any taxes from it. The taxable event happens when you sell. But if you gain $1000 in a year and a day and you decide to sell, you will owe $150 (assuming 15% capital gains tax), bringing your earnings down to $850. If your investments go poorly and you lose money, there will be no capital gains tax to pay.\",\n \"Why is that? With all the successful investors (including myself on a not-infrequent basis) going for individual companies directly, wouldn't it make more sense to suggest that new investors learn how to analyse companies and then make their best guess after taking into account those factors? I have a different perspective here than the other answers. I recently started investing in a Roth IRA for retirement. I do not have interest in micromanaging individual company research (I don't find this enjoyable at all) but I know I want to save for retirement. Could I learn all the details? Probably, as an engineer/software person I suspect I could. But I really don't want to. But here's the thing: For anyone else in a similar situation to me, the net return on investing into a mutual fund type arrangement (even if it returns only 4%) is still likely considerably higher than the return on trying to invest in stocks (which likely results in $0 invested, and a return of 0%). I suspect the overwhelming majority of people in the world are more similar to me than you - in that they have minimal interest in spending hours managing their money. For us, mutual funds or ETFs are perfect for this.\",\n \"I assume that with both companies you can buy stock mutual funds, bonds mutual funds, ETFs and money market accounts. They should both offer all of these as IRAs, Roth IRAs, and non-retirement accounts. You need to make sure they offer the types of investments you want. Most 401K or 403b plans only offer a handful of options, but for non-company sponsored plans you want to have many more choices. To look at the costs see how much they charge you when you buy or sell shares. Also look at the annual expenses for those funds. Each company website should show you all the fees for each fund. Take a few funds that you are likely to invest in, and have a match in the other fund family, and compare. The benefit of the retirement accounts is that if you make a less than perfect choice now, it is easy to move the money within the family of funds or even to another family of funds later. The roll over or transfer doesn't involve taxes.\",\n \"\\\"You seem to be assuming that ETFs must all work like the more traditional closed-end funds, where the market price per share tends—based on supply and demand—to significantly deviate from the underlying net asset value per share. The assumption is simplistic. What are traditionally referred to as closed-end funds (CEFs), where unit creation and redemption are very tightly controlled, have been around for a long time, and yes, they do often trade at a premium or discount to NAV because the quantity is inflexible. Yet, what is generally meant when the label \\\"\\\"ETF\\\"\\\" is used (despite CEFs also being both \\\"\\\"exchange-traded\\\"\\\" and \\\"\\\"funds\\\"\\\") are those securities which are not just exchange-traded, and funds, but also typically have two specific characteristics: (a) that they are based on some published index, and (b) that a mechanism exists for shares to be created or redeemed by large market participants. These characteristics facilitate efficient pricing through arbitrage. Essentially, when large market participants notice the price of an ETF diverging from the value of the shares held by the fund, new units of the ETF can get created or redeemed in bulk. The divergence quickly narrows as these participants buy or sell ETF units to capture the difference. So, the persistent premium (sometimes dear) or discount (sometimes deep) one can easily witness in the CEF universe tend not to occur with the typical ETF. Much of the time, prices for ETFs will tend to be very close to their net asset value. However, it isn't always the case, so proceed with some caution anyway. Both CEF and ETF providers generally publish information about their funds online. You will want to find out what is the underlying Net Asset Value (NAV) per share, and then you can determine if the market price trades at a premium or a discount to NAV. Assuming little difference in an ETF's price vs. its NAV, the more interesting question to ask about an ETF then becomes whether the NAV itself is a bargain, or not. That means you'll need to be more concerned with what stocks are in the index the fund tracks, and whether those stocks are a bargain, or not, at their current prices. i.e. The ETF is a basket, so look at each thing in the basket. Of course, most people buy ETFs because they don't want to do this kind of analysis and are happy with market average returns. Even so, sector-based ETFs are often used by traders to buy (or sell) entire sectors that may be undervalued (or overvalued).\\\"\",\n \"Market cap probably isn't as big of an issue as the bid/ask spread and the liquidity, although they tend to be related. The spread is likely to be wider on lesser traded ETF funds we are talking about pennies, likely not an issue unless you are trading in and out frequently. The expense ratios will also tend to be slightly higher again not a huge issue but it might be a consideration. You are unlikely to make up the cost of paying the commission to buy into a larger ETF any time soon though.\",\n \"Ohhhh. Well thank you for that info. I know I could've Googled it all and while I'm a sticker for doing your own research, it's nice to hear it from someone in the know. Gotta pass on knowledge to those who don't know. Is it cheap to buy an ETF?\",\n \"There are hundreds if not thousands of index funds and ETFs in the EU, far too many to enumerate here. It's worth pointing out that Vanguard themselves operate in the UK. The minimum investment if you go direct to Vanguard is £100,000, but you can make smaller investments through a number of fund platforms.\",\n \"Here're some findings upon researches: Two main things to watch out for: Estate tax and the 30% tax withholding. These 2 could be get around by investing in Luxembourg or Ireland domiciled ETF. For instance there's no tax withholding on Ireland domiciled ETF dividend, and the estate tax is not as high. (source: BogleHead forums) Some Vanguard ETF offered in UK stock market: https://www.vanguard.co.uk/uk/mvc/investments/etf#docstab. Do note that the returns of S&P 500 ETF (VUSA) are adjusted after the 30% tax withholding! Due to VUSA's higher TER (0.09%), VOO should remain a superior choice. The FTSE Emerging Markets and All-World ETFs though, are better than their US-counterparts, for non-US residents. Non-US residents are able to claim back partials of the withhold tax, by filing the US tax form 1040NR. In 2013, non-US resident can claim back at least $3,900. Kindly correct me if anything is inaccurate.\",\n \"\\\"As with ANY investment the first answer is....do not invest in any that you do not fully understand. ETF's are very versatile and can be used for many different people for many different parts of their portfolio, so I don't think there can be a blanket statement of \\\"\\\"this\\\"\\\" one is good or bad for all.\\\"\",\n \"ETF is essentially a stock, from accounting perspective. Treat it as just another stock in the portfolio.\",\n \"The main difference is that VOO trades on US stock exchanges while VUSA/VUSD trade on the London Stock Exchange. (VUSA is listed in British pounds while VUSD is listed in US dollars.) They are essentially the same product, but the fees and legal hurdles for a European citizen to trade on the LSE may be quite different from those on US stock exchanges.\",\n \"\\\"Vanguard's Admiral shares are like regular (\\\"\\\"investor\\\"\\\") shares in their funds, only they charge lower expense ratios. They have higher investment minimums, though. (For instance, the Vanguard Total Stock Market Index Fund has a minimum of $3,000 and an expense ratio of .18% for the Investor Shares class, but a minimum of $10,000 and an expense ratio of .07% for Admiral Shares). If you've bought a bunch of investor shares and now meet the (recently-reduced) minimum for Admiral shares, or if you have some and buy some more investor shares in the future and meet the minimums, you will qualify for a free, no-tax-impact conversion to the Admiral Shares and save yourself some money. For more information, see the Vanguard article on their recent changes to Admiral Shares minimums. Vanguard also offers institutional-class shares with even lower expense ratios than that (with a minimum of $5 million, .06% expense ratios on the same fund). A lot of the costs of operating a fund are per-individual, so they don't need to charge you extra fees for putting in more money after a certain point. They'd rather be competitive and offer it at cost. Vanguard's funds typically have very low expense ratios to begin with. (The investor shares I've been using as an example are advertised as \\\"\\\"84% lower than the average expense ratio of funds with similar holdings\\\"\\\".) In fact, Vanguard's whole reason for existing is the premise (stated in founder John C Bogle's undergraduate thesis at Princeton) that individuals can generally get better returns by investing in a cheap fund that tracks an index than by investing in mutual funds that try to pick stocks and beat the index and charge you a steep markup. The average real return of the stock market is supposedly something like 4%; even a small-looking percentage like 1% can eat a big portion of that. Over the course of 40 years waiting for retirement, saving 1% on expenses could leave you with something like 50% more money when you've retired. If you are interested in the lower expense ratios of the Admiral share classes but cannot meet the minimums, note that funds which are available as ETFs can be traded from Vanguard brokerage accounts commission-free and typically charge the same expense ratios as the Admiral shares without any minimums (but you need to trade them as individual shares, and this is less convenient than moving them around in specific dollar amounts).\\\"\",\n \"I think you can do better than the straight indexes. For instance Vanguard's High Yield Tax Exempt Fund has made 4.19% over the past 5 years. The S&P 500 Index has lost -2.25% in the same period. I think good mutual funds will continue to outperform the markets because you have skilled managers taking care of your money. The index is just a bet on the whole market. That said, whatever you do, you should diversify. List of Vanguard Funds\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["See my comment for some discussion of why one might choose an identical fund over an ETF. As to why someone would choose the higher cost fund in this instance ... The Admiral Shares version of the fund (VFIAX) has the same expense ratio as the ETF but has a minimum investment of $10K. Some investors may want to eventually own the Admiral Shares fund but do not yet have $10K. If they begin with the Investor Shares now and then convert to Admiral later, that conversion will be a non-taxable event. If, however, they start with ETF shares now and then sell them later to buy the fund, that sale will be a taxable event. Vanguard ETFs are only commission-free to Vanguard clients using Vanguard Brokerage Services. Some investors using other brokers may face all sorts of penalties for purchasing third-party ETFs. Some retirement plan participants (either at Vanguard or another broker) may not even be allowed to purchase ETFs.","Where are you planning on buying this ETF? I'm guessing it's directly through Vanguard? If so, that's likely your first reason - the majority of brokerage accounts charge a commission per trade for ETFs (and equities) but not for mutual funds. Another reason is that people who work in the financial industry (brokerages, mutual fund companies, etc) have to request permission for every trade before placing an order. This applies to equities and ETFs but does not apply to mutual funds. It's common for a request to be denied (if the brokerage has inside information due to other business lines they'll block trading, if a mutual fund company is trading the same security they'll block trading, etc) without an explanation. This can happen for months. For these folks it's typically easier to use mutual funds. So, if someone can open an account with Vanguard and doesn't work in the financial industry then I agree with your premise. The Vanguard Admiral shares have a much lower expense, typically very close to their ETFs. Source: worked for a brokerage and mutual fund company","\"One reason is that it is not possible (at Vanguard and at many other brokerages) to auto-invest into ETFs. Because the ETF trades like a stock, you typically must buy a whole number of shares. This makes it difficult to do auto-investing where you invest, say, a fixed dollar amount each month. If you're investing $100 and the ETF trades for $30 a share, you must either buy 3 shares and leave $10 unspent, or buy 4 and spend $20 more than you planned. This makes auto-investing with dollar amounts difficult. (It would be cool if there were brokerages that handled this for you, for instance by accumulating \"\"leftover\"\" cash until an additional whole share could be purchased, but I don't know of any.) A difference of 0.12% in the expense ratios is real, but small. It may be outweighed by the psychological gains of being able to adopt a \"\"hands-off\"\" auto-investing plan. With ETFs, you generally must remember to \"\"manually\"\" buy the shares yourself every so often. For many average investors, the advantage of being able to invest without having to think about it at all is worth a small increase in expense ratio. The 0.12% savings don't do you any good if you never remember to buy shares until the market is already up.\""],"string":"[\n \"See my comment for some discussion of why one might choose an identical fund over an ETF. As to why someone would choose the higher cost fund in this instance ... The Admiral Shares version of the fund (VFIAX) has the same expense ratio as the ETF but has a minimum investment of $10K. Some investors may want to eventually own the Admiral Shares fund but do not yet have $10K. If they begin with the Investor Shares now and then convert to Admiral later, that conversion will be a non-taxable event. If, however, they start with ETF shares now and then sell them later to buy the fund, that sale will be a taxable event. Vanguard ETFs are only commission-free to Vanguard clients using Vanguard Brokerage Services. Some investors using other brokers may face all sorts of penalties for purchasing third-party ETFs. Some retirement plan participants (either at Vanguard or another broker) may not even be allowed to purchase ETFs.\",\n \"Where are you planning on buying this ETF? I'm guessing it's directly through Vanguard? If so, that's likely your first reason - the majority of brokerage accounts charge a commission per trade for ETFs (and equities) but not for mutual funds. Another reason is that people who work in the financial industry (brokerages, mutual fund companies, etc) have to request permission for every trade before placing an order. This applies to equities and ETFs but does not apply to mutual funds. It's common for a request to be denied (if the brokerage has inside information due to other business lines they'll block trading, if a mutual fund company is trading the same security they'll block trading, etc) without an explanation. This can happen for months. For these folks it's typically easier to use mutual funds. So, if someone can open an account with Vanguard and doesn't work in the financial industry then I agree with your premise. The Vanguard Admiral shares have a much lower expense, typically very close to their ETFs. Source: worked for a brokerage and mutual fund company\",\n \"\\\"One reason is that it is not possible (at Vanguard and at many other brokerages) to auto-invest into ETFs. Because the ETF trades like a stock, you typically must buy a whole number of shares. This makes it difficult to do auto-investing where you invest, say, a fixed dollar amount each month. If you're investing $100 and the ETF trades for $30 a share, you must either buy 3 shares and leave $10 unspent, or buy 4 and spend $20 more than you planned. This makes auto-investing with dollar amounts difficult. (It would be cool if there were brokerages that handled this for you, for instance by accumulating \\\"\\\"leftover\\\"\\\" cash until an additional whole share could be purchased, but I don't know of any.) A difference of 0.12% in the expense ratios is real, but small. It may be outweighed by the psychological gains of being able to adopt a \\\"\\\"hands-off\\\"\\\" auto-investing plan. With ETFs, you generally must remember to \\\"\\\"manually\\\"\\\" buy the shares yourself every so often. For many average investors, the advantage of being able to invest without having to think about it at all is worth a small increase in expense ratio. The 0.12% savings don't do you any good if you never remember to buy shares until the market is already up.\\\"\"\n]","isConversational":false}}},{"rowIdx":381,"cells":{"_id":{"kind":"string","value":"9174"},"query":{"kind":"string","value":"Which U.S. online discount broker is the best value for money?"},"gt_ids":{"kind":"list like","value":["431652","535317","160218","544576","405217"],"string":"[\n \"431652\",\n \"535317\",\n \"160218\",\n \"544576\",\n \"405217\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1,1,1],"string":"[\n 1,\n 1,\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["405217","236931","358770","160218","192910","431652","294517","515144","274987","108671","110608","361383","532672","586649","296725","158091","486557","526235","234747","256881","563334","129466","311202","544576","597351","208296","93727","325426","57716","421065","513281","535317","597699","238173","74554","31936","231972","31978","399118","579292","434734","21986","95683","108087","555506","250038","229788","30417","413856","44578","374375","536282","386796","206270","31703","296913","373501","71293","99943","176489","404339","89351","510061","80272","58026","271516","319992","96467","172336","566429","536990","358227","30524","4883","113644","310112","511072","503981","497344","311798","279106","322725","535549","122679","381341","49930","496923","526346","4168","123418","115815","283159","393467","47579","49893","555047","592636","358154","580935","223792"],"string":"[\n \"405217\",\n \"236931\",\n \"358770\",\n \"160218\",\n \"192910\",\n \"431652\",\n \"294517\",\n \"515144\",\n \"274987\",\n \"108671\",\n \"110608\",\n \"361383\",\n \"532672\",\n \"586649\",\n \"296725\",\n \"158091\",\n \"486557\",\n \"526235\",\n \"234747\",\n \"256881\",\n \"563334\",\n \"129466\",\n \"311202\",\n \"544576\",\n \"597351\",\n \"208296\",\n \"93727\",\n \"325426\",\n \"57716\",\n \"421065\",\n \"513281\",\n \"535317\",\n \"597699\",\n \"238173\",\n \"74554\",\n \"31936\",\n \"231972\",\n \"31978\",\n \"399118\",\n \"579292\",\n \"434734\",\n \"21986\",\n \"95683\",\n \"108087\",\n \"555506\",\n \"250038\",\n \"229788\",\n \"30417\",\n \"413856\",\n \"44578\",\n \"374375\",\n \"536282\",\n \"386796\",\n \"206270\",\n \"31703\",\n \"296913\",\n \"373501\",\n \"71293\",\n \"99943\",\n \"176489\",\n \"404339\",\n \"89351\",\n \"510061\",\n \"80272\",\n \"58026\",\n \"271516\",\n \"319992\",\n \"96467\",\n \"172336\",\n \"566429\",\n \"536990\",\n \"358227\",\n \"30524\",\n \"4883\",\n \"113644\",\n \"310112\",\n \"511072\",\n \"503981\",\n \"497344\",\n \"311798\",\n \"279106\",\n \"322725\",\n \"535549\",\n \"122679\",\n \"381341\",\n \"49930\",\n \"496923\",\n \"526346\",\n \"4168\",\n \"123418\",\n \"115815\",\n \"283159\",\n \"393467\",\n \"47579\",\n \"49893\",\n \"555047\",\n \"592636\",\n \"358154\",\n \"580935\",\n \"223792\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["For self-service type online customers, OptionsXpress gives me far better trading features(like technicals advanced conditions) and tools, ACH money management & scheduling, fullfillment too. $9 stock trades. I don't know if they yet share Schwab's (their new parent company?) commission-free ETFs getting so trendy nowadays.","Discount brokers come and go. They tend to come with ridiculously cheap prices, and they go when they fail to gain traction, or raise their prices, at which point they can be undercut by a new player. Some brokers are nicer to people with more money, while others cater to small traders on simple low commissions. No matter which broker you choose, you aren't liable to make much money doing frequent trades with a small account. You either risk most of your money on every trade, or several small trades get sapped by commissions. It is understandable that you want to pay less given the disadvantages of a small account. Just2Trade, USAA, Sogotrade, etc. have each been reasonable options in the < $4 a trade range. Many websites will give you a list of the top discount brokers of the year. As with any heavy discounter/deal that is too good to be true, find reputable referrals from people who use the service, and complaints from customers who have been burned.","I have used TradeKing for a couple of years now and love it. It really is a great site. They hold an IRA trading account for me and have been helpful in rolling money into that account, and with answering the occasional question. Previously I have used Scottrade and found that TradeKing is a much better value.","\"If you have at least $25,000, Wells Fargo is the place to be, as you get 100 free trades per account. I have three investment accounts with them and get 100 free trades in each a year, though I only ever actually use 10-20. i can't vouch for their phone service as I've never needed it, but free is very hard to beat in the \"\"value for money\"\" department. Update: Apparently in some states the requirement is $50,000. However, they count 10% of your mortgage as well as all deposit and investment accounts toward that balance.\"","This very informative link gives a clear and comprehensive comparison (pros and cons) of various popular brokers: https://www.nerdwallet.com/blog/investing/best-online-brokers-for-stock-trading/ (Best Online Brokers for Stock Trading 2016) There are indeed some significant cons for the super-low commission fee. Just for a quick example, the Interactive Broker requires a minimum of 10k account balance, as well as the frequent trading activity even on monthly basis (or the minimum $10 commission would be charged).","I agree, Schwab representatives are easy to reach and very helpful. I also like Vanguard for their low mutual fund fees, so I do my retirement stuff with them, but it took forever to get in touch with a representative just to ask a simple question. Now that they are lowering their rates to 8.95 per trade (effective January 19th), the value for your money is even better.","Have you looked at OptionsHouse? They charge $2.95 per trade and are one of the lowest when it comes to fees. Bare bones interface, but fast execution.","If seeing all of your balances in one place matters that much to you, go to a broker that has an online bank like Schwab, ING or ETrade. If you're not comfortable with online banking, I'd suggest dropping the requirement to see everything on one statement/website. All of the major brokers have easy ways to transfer money to and from their accounts. I have accounts at Schwab and TD Ameritrade, which both offer online transfer via ACH transactions for no fee. It's just like paying a credit card online. Investments are a profit center for banks, you pay a higher cost and the guy who signs you up gets points towards his incentive vacation to the Caribbean.","I personally like Schwab. Great service, low fees, wide variety of fund are available at no fee. TD Ameritrade is good too.","Fidelity, Charles Schwab, TDA, and just about every make online brokerage gives you massive amounts of free trades each year and when you sign up. Pretty much the same as 100+ free trades /yr over a 10 year period. Also, you get commission-free trade for the most popular ETFs, which is much more important. Lastly, if you care about free trades, you're probably investing poorly. Non-professionals shouldn't be making that many non-ETF trades in a year. Professional traders wouldn't blink over a tiny $5-10 commission fee.","I don't know where your trade figures are from. ETrade, TD Ameritrade, Fidelity, etc all have trading costs under 10 USD per share, so I'm not sure where your costs are coming from. I doubt currency conversion or anything like that will double the cost. As for your question, the answer is: It depends How much trading will you do? In what types of investments? For example, Schwab charges no commission on ETF purchases, but this is not an advantage if you wont buy ETFs. Consider minimums. Different brokers have different minimum cash balance/deposit requirements, so make sure you can meet those. It's true that you can get real time quotes anywhere, but consider the other services. For example, TD Ameritrade pools research reports for many publicly traded companies which are nice to read about what analysts have to say. Different brokers given different research tools, so read about offerings and see what's most useful to you. You can open different brokerage accounts, but it's much more convenient to have a one-stop place where you can do all you trading. Pick a broker which is low cost and offers a variety of investments as well as good customer support and a straightforward system.","Consider trying a broker that offers free trading. Robinhood is one such broker.","Magazines like SmartMoney often have an annual issue that reviews brokers. One broker may have a wider variety of no-fee mutual funds, and if that's your priority, then the stock commissions may be a moot issue for you. In general, you can't go wrong with a Fidelity or Schwab, and to choose investments within the accounts with an eye toward low expenses.","\"Generally, yes. Rather than ask, \"\"why are these guys so cheap?\"\", you should be asking why the big names are so expensive. :) Marketing spend plays a big role there. Getting babies to shill for your company during the super bowl requires a heck of a lot of commissions. Due to the difficulties involved in setting up a brokerage, it's unlikely that you'll see a scam. A brokerage might go bankrupt for random reasons, but that's what investor insurance is for. \"\"Safeness\"\" is mostly the likelihood that you'll be able to get access to your funds on deposit with the broker. Investment funds are insured by SIPC for up to $500,000, with a lower limit on cash. The specific limits vary by broker, with some offering greater protection paid for on their own dime. Check with the broker -- it's usually on their web pages under \"\"Security\"\". Funds in \"\"cash\"\" might be swept into an interest-earning investment vehicle for which insurance is different, and that depends on the broker, too. A few Forex brokers went bankrupt last year, although that's a new market with fewer regulatory protections for traders. I heard that one bankruptcy in the space resulted in a 7% loss for traders with accounts there, and that there was a Ponzi-ish scam company as well. Luckily, the more stringent regulation of stock brokerages makes that space much safer for investors. If you want to assess the reliability of an online broker, I suggest the following: It's tempting to look at when the brokerage was founded. Fly-by-night scams, by definition, won't be around very long -- and usually that means under a few months. Any company with a significant online interface will have to have been around long enough to develop that client interface, their backend databases, and the interface with the markets and their clearing house. The two brokerages you mentioned have been around for 7+ years, so that lends strength to the supposition of a strong business model. That said, there could well be a new company that offers services or prices that fit your investment need, and in that case definitely look into their registrations and third-party reviews. Finally, note that the smaller, independent brokerages will probably have stiffer margin rules. If you're playing a complex, novel, and/or high-risk strategy that can't handle the volatility of a market crash, even a short excursion such as the 2010 flash crash, stiff margin rules might have consequences that a novice investor would rather pretend didn't exist.\"","That all depends on you. The cheaper places are certainly going to cost less, but when it comes to comparing value that is a subjective decision that only you can make. Maybe the more expensive one has an easier to user website, friendlier customer service, or something else you value enough to pay more for trades.","Since you are not starting with a lot of cash the commissions may eat into your account. So go with somebody that has no inactivity fee and low/free commission. I think there are number of sites and the ING sharebuilder.com comes to mind. Scottrade also one of the cheaper ones that i used.","\"TDAmeritrade, an online stock broker, provides banking services within their brokerage accounts. The service offers all of what you are looking for. HOWEVER, this service is only available for free with their \"\"Apex\"\" qualification. Here is a tariff of their fees and services.\"","\"Always use limit orders never market orders. Period. Do that and you will always pay what you said you would when the transaction goes through. Whichever broker you use is not going to \"\"negotiate\"\" for the best price on your trade if you choose a market order. Their job is to fill that order so they will always buy it for more than market and sell it for less to ensure the order goes through. It is not even a factor when choosing between TradeKing and Scottrade. I use Trade King and my friend uses ScottTrade. Besides the transaction fee (TK is a few $$ cheaper), the only other things to consider are the tools and research (and customer service if you need it) that each site offers. I went with TK and the lower transaction fee since tools and research can be had from other sources. I basically only use it when I want to make a trade since I don't find the tools particularly useful and I never take an analyst's opinion of a stock at face value anyway since everybody always has their own agenda.\"","Lower fees are always better, everything else equal. A lower fee makes your transaction overall a better deal, all else equal. Other transactions costs (like the SEC fee on sales) are mostly the same across brokers and there is unlikely to be any difference in execution quality either. When comparing brokers be sure to consider the other issues: To me, most of these are minor issues. For that reason, I'd say let transaction cost be your guide. I hear a lot of talk about the quality of the interface. If you just want to buy or sell a stock, they are all pretty easy. Some brokers have better tools for monitoring the market or looking at technical indicators, if you are into that.","They're not negotiating trade rates for you, you set the trade rates in your order. What they might have is a slightly slower system, delivering your orders a second later than the competition would. If that's critical to you then you should look at that, otherwise look at their fees, customer support and research aids because that's where the broker value is.","There are quite a few online brokers ... All of these have different pricing structure and the right one would depend on the amount of & type of trading you are doing, for example Reliance Money offer 1 paise brokrage, but with a higer anual fees, so it makes sense if you are doing delivery trades and not IPO or Day trades ... Others changes less of anual fees but more of brokrage.","I wouldn't only consider the entry/exit cost per trade. That's a good comparison page by the way. I would also consider the following. This depends if you are planning on using your online broker to provide all the information for you to trade. I have lower expectations of my online broker, not meant to be harsh on the online brokers, but I expect brokers to assist me in buying/selling, not in selecting. Edit: to add to the answer following a comment. Here are three pieces of software to assist in stock selection","Indiabulls. Low brokerage (If you bargain) I'm user of it and I'm getting 25paisa for delivery and 5 paisa for intraday. All transactions can be done online. Also they provide an stand alone application PowerIndiabulls, which is too good and appraised by many users as best in the industry. Not sure about it, but I think Powerindiabulls application is the answer for this. Please have a look at their website for more details.","\"I've never used them myself, but Scottrade might be something for you to look at. They do $7 internet trades, but also offer $27 broker assisted trades (that's for stocks, in both cases). Plus, they have brick-and-morter storefronts all over the US for that extra \"\"I gotta have a human touch\"\". :-) Also, they do have after hours trading, for the same commission as regular trading.\"","It sounds for the most part you are a 'buy and hold' type investor and continue to contribute monthly. I follow the same philosophy and continue to contribute monthly as well. I use Questrade.com as my online broker. For trading it costs a penny per share with a minimum cost of $4.95 (so if you only buy 100 shares you will still pay $4.95) up to a maximum of $9.95 per trade (so if you buy 10,000 shares you only pay $9.95. Three trades at $4.95 per month across the year would be $178.20. This is assuming you are trading less then 495 share each trade. So switching to Questrade would save you an additional $111.80 per year! Multiply over number of year before you retire plus compound interest which could accrue and that can quite a bit of extra savings. You pay nothing else to Questrade either. No management fees, etc. You manage the accounts.","My main criterion for choosing a broker is the fee schedule. I care about investing in index funds and paying as little as possible in fees. In the US that brings everyone to Vanguard or Fidelity, and currently Vanguard edges Fidelity out on costs for the particular funds I am invested in.","I've looked into Thinkorswim; my father uses it. Although better than eTrade, it wasn't quite what I was looking for. Interactive Brokers is a name I had heard a long time ago but forgotten. Thank you for that, it seems to be just what I need.","\"Previously (prior to Capital One acquisition -- it's kind of like K-Mart buying Sears) Sharebuilder offered 12 automatic (i.e. pre-scheduled) stock purchases per month if you subscribed to their $12/mo \"\"Advantage\"\" plan. So, 12 trades for $1 a trade. Great deal. Except then they flattened their pricing to everyone's acclaim (that is, everyone except for the non-millionaire casual investors) and jacked it up to $4 per automatic investment. As far as I know, Sharebuilder's 12 no-fee investments for $12/mo was rather unique in the online trading world -- and now it's very sadly extinct. They do have no-fee mutual fund investing, however, for what it's worth.\"","If you don't know how to evaluate funds and are looking for someone to help you make good investment decisions, then you want a financial advisor. My suggestion is to look for one that 1) doesn't try to sell you insurance first (since insurance is an expense, not an investment), 2) can explain to you the the relationship between risk and return (and what mix is right for you) and 3) recommends funds that have good demonstrated returns after fees have been removed. If you plan to pick your own funds and just want a transaction broker, go with one of the free/cheap online discount brokers. Many let you invest in hundreds of different funds, so look for brokers with the cheapest fees.","All in all it's not easy to beat the perks, service, reliability and use of cutting edge technology that you get when you join any stock trading. Choose your the best online brokers for stock trading wisely. To know more about them, log on to http://www.stocktipsblog.com/","\"First, let me say that $1000 is not that much of amount to invest in stocks. You need to remember that each transaction (buy/sell) has fees, which vary between $4-$40 (depending on the broker, you mentioned Scottrade - they charge $7 per transaction for stocks and about twice as much for some mutual funds). Consider this: you invest $1000, you gain $100. You'll pay $15 in fees just to buy/sell, that's 1.5% expense ratio. If you invest in more than 1 stock - multiply your fees. To avoid that you can look into mutual funds. Different brokers offer different funds for free, and almost all of them carry many of the rest for a fee. When looking into funds, you can find their expense ratio and compare. Remember that a fund with 1% expense ratio diversifies and invests in many stocks, while for you 1.5% expense ratio is for investing in a single stock. Is it a good idea to invest only in US or diversify worldwide? You can invest in the US, but in funds that diversify worldwide or across industries. Generally it is a good idea to diversify. I am 28. Should I be a conservative investor or take some risks? Depends on how bad of a shape will you be if you lose all your principle. What online brokerage service is the best? I have heard a lot about Scotttrade but want to be sure before I start. It seems to be the least expensive and most user-friendly to me. \"\"Best\"\" is a problematic term. Scottrade is OK, E*Trade is OK, you can try Sharebuilder, Ameritrade, there are several \"\"discount\"\" online brokers and plenty of on-line reviews and comparisons amongst them. What is a margin account and how would it affect my investing? From what I understand it comes into play when an investor borrows money from the broker. Do I need to use it at all as I won't be investing on a big scale yet. You understand right. There are rules to use margin accounts, and with the amount you have I'd advise against them even if you get approved. Read through the brokers' FAQ's on their requirement. Should I keep adding money on a monthly basis to my brokerage account to give me more money to invest or keep it at a certain amount for an extended period of time? Sharebuilder has a mechanism to purchase monthly at discounted prices. But be careful, they give you discounted prices to buy, but not to sell. You may end up with a lot of positions, and the discounts you've gotten to buy will cause you spend much more on selling. Generally, averaging (investing monthly) is a good way to save and mitigate some risks, but the risks are still there. This is good only for long term savings. How should my breakdown my investments in terms of bonds vs stocks? Depends on your vulnerability and risk thresholds.\"","I am very happy with Charles Schwab. I use both their investing tools and banking tool, but I don't do much investing besides buy more shares a random mutual fund I purchase 4 years ago I did once need to call in about an IRA rollover and I got a person on the phone immediately who answered my questions and followed up as he said he would. It is anecdotal, but I am happy with them.","I think your best bet would be commission-free ETFs, which have no minimum and many have a share price under $100. Most online brokerages have these now, e.g. Vanguard, Fidelity, etc. Just have to watch out for any non-trading fees brokerages may charge with a low balance.","I've been a retail trader for close to 7 years and while I have a specialized futures account, I use Interactive Brokers for my other trading. They charge per share or contract rather than per trade (good for smaller accounts or if you want to piece into and out of positions). You can also trade just about anything. Futures, options, options on futures, individual stocks, ETFs, Bonds (futures), currencies. The interface is pretty good as well. I have seperate charts (eSignal) so I'm not sure how good their charting is","http://www.moneysupermarket.com/shares/CompareSharesForm.asp lists many. I found the Interactive Investor website to be excruciatingly bad. I switched to TD Waterhouse and found the website good but the telephone service a bit abrupt. I often use the data presented on SelfTrade but don't have an account there.","If you want the cheapest online broker in Australia, you can't go past CMC Markets, they charge $9.90 upto a $10,000 trade and 0.1% above that. There is no ongoing fees unless you choose to have dynamic data (stock prices get updated automatically as they change). However, the dynamic data fee does get waived if you have about 10 or more trades per month. You don't really need the dynamic data unless you are a regular trader anyway. They also provide some good research tools and some basic charting. Your funds with them are kept segragated in a Bankwest Account, so are resonably safe. They don't provide the best interest on funds kept in the account, so it is best to just deposit the funds when you are looking to buy, and move your funds elswhere (earning higher interest) when selling. Hopes this helps, regards Victor. Update They have now increased their basic brokerage to a minimum of $11 per trade unless you are a frequent trader.","Many brokers offer a selection of ETFs with no transaction costs. TD Ameritrade and Schwab both have good offerings. Going this route will maximize diversification while minimizing friction.","The following have been recommended to me for the UK: When I was doing my investigations, all had good reputations but Interactive Investor looked to have the nicer service and their fees seemed a bit more reasonable. TD Waterhouse has the advantage of a number of sites serving local markets (TD Ameritrade for the US, for instance).","My wife and I have two Schwab brokerage accounts, one for retirement and one for non-retirement investments. The latter also has a checking/savings account which we use as our main account. Schwab is very happy with us, as we are cheapskates and save a lot of money. The checking account, which seems to act like any ordinary checking account, gives us all the things listed above. They pay the ATM fees, which is not a lot of money, but seems like a nice thing to me. We can also do cash deposits and we can go to any Schwab branch to talk to someone face to face. We've only had to do the latter once in 10 or so years, and the former maybe once or twice.","These interest rates are very low. One of the reasons that I prefer E*Trade is because on their on-line savings account the interest rates are several times higher than on ScotTrade margin accounts (currently it's 0.7% on E*Trade, on any amount, IIRC). The transfers between the accounts on E*Trade are immediate, and they allow using the money for investing immediately even for transfers from outside source. If you can wait a couple of days for the money to arrive before your investment (unless ScotTrade, like E*Trade, allow investing external transfers immediately), you can look at AMEX, ING Direct or Capitol One on-line savings accounts for even higher rates. Oh, and needless to mention, on-line savings accounts are FDIC insured, I'm not sure if the uninvested deposits on Scottrade are.","I assume that with both companies you can buy stock mutual funds, bonds mutual funds, ETFs and money market accounts. They should both offer all of these as IRAs, Roth IRAs, and non-retirement accounts. You need to make sure they offer the types of investments you want. Most 401K or 403b plans only offer a handful of options, but for non-company sponsored plans you want to have many more choices. To look at the costs see how much they charge you when you buy or sell shares. Also look at the annual expenses for those funds. Each company website should show you all the fees for each fund. Take a few funds that you are likely to invest in, and have a match in the other fund family, and compare. The benefit of the retirement accounts is that if you make a less than perfect choice now, it is easy to move the money within the family of funds or even to another family of funds later. The roll over or transfer doesn't involve taxes.","\"It really depends on the value your financial adviser provides. Does he help with your 401K? Does he help you avoid making foolish moves? Does he really help you find funds that beat average market returns? Many people answer \"\"no\"\" to all of these questions and do their investing on their own. I personally prefer Fidelity because I find their web site easier to work with, but Vanguard is another option. At Fidelity you will have zero fee per year. You can buy Fidelity and many other mutual funds with no cost. You can buy iShares ETFs at no cost. Some funds do have a fee to purchase, but they are pretty low ($35) and are only collected when you buy, not yearly. Now some people do go it alone and it is a huge mistake. The news tends to only report negative stock market events, and many people were scared away from 2008 and missed wonderful gains since that time. If you pull your money out during corrections, stick with a financial adviser. If you will stop contributing because of a correction, stick with a financial adviser. In those cases the fee is well worth the cost. Also if your guy provides education in association with investment advice, the fee might also be worth it. If you are able to stomach losses, able to keep on contributing like clockwork, and can read a Morning star mutual fund chart, then you might be best to go it alone. One thing would really help is to have a friend that is also interested in investing to share ideas with.\"","Unless you're an active trader, 30 trades per month is a number you'll probably never hit, so you might as well take advantage of the offer while you have it. But don't trade more than you normally would. Discount brokerages make money on the arbitrage between the bid and ask prices on the exchanges (legal as long as you get a price that was available on the open market - they disclose this in the fine print in your account paperwork). So they want you to trade as often as they can get you to. As you say, it's really just a mind game. There is always a cost to doing business with a bank or brokerage. They charge you fees for services and they make money on your deposits while you're not using them. So while it looks like they're paying you interest, which they are, they're not paying you all the interest they've earned using your money. So there's the cost. It was only when interest rates dropped so low that they were starting to feel it, that they started rolling out more overt fees for services. If you'll notice, the conditions that cause the fees to be waived in your account all lead to increased deposits or transactions, either directly or indirectly. If your main concern is the efficiency of your investments, which by your description appear to be rather modest, you should consider dollar-cost averaging (DCA) into a mutual fund (of which there are plenty of high quality no-load/no-fee options around), or into a stock if your brokerage offers a lower-fee DCA program for stocks (where you can often buy partial shares).","They make money off you by increasing the spread you buy and sell your stocks through them. So for example, if the normal spread for a stock was $10.00 for a buy and $10.02 for a sell, they might have a spread of $9.98 for the buy and $10.02 for the sell. So for an order of 1000 shares (approx. $10000) they would make $0.02 per share which would equal $20.00.","I can't provide a list, but when I took out my Stocks and Shares, I extensively researched for a good, cheap, flexible option and I went with FoolShareDealing. I've found them to be good, and their online trading system works well. I hope that's still the case.","My go-to response whenever anyone asks me this is the Monevator table of platform fees. It looks a little complicated at first, but scroll past the table for a couple of paragraphs of useful info to help narrow down your search. The general tone of the page is geared more towards investors in index funds, but the fees on share-dealing are right there in the table too. There are also special notes if there are discounts for frequent traders and that sort of thing, so not too much passive-investor elitism on show!","The least expensive way to buy such small amounts is through ING's Sharebuilder service. You can perform a real-time trade for $9, or you can add a one-time trade to their investment schedule for $4 (transaction will be processed on the next upcoming Tuesday morning). They also allow you to purchase fractional shares.","Zero. Zero is reasonable. That's what Schwab offers with a low minimum to open the IRA. The fact is, you'll have expenses for the investments, whether a commission on stock purchase or ongoing expense of a fund or ETF. But, in my opinion, .25% is criminal. An S&P fund or ETF will have a sub-.10% expense. To spend .25% before any other fees are added is just wrong.","In terms of building the initial investment using some kind of mutual fund, I'd suggest you see my answer to this similar question https://money.stackexchange.com/questions/9943/cheapest-or-free-online-broker-for-beginner For buying individual stocks later, you could look at sharebuilder, or a low cost broker, however most of them charge between $5-$7 per trade, and if you are doing small dollar value trades then that can really really eat into things if you try to trade a lot.","\"I use TIAA-Cref for my 403(b) and Fidelity for my solo 401(k) and IRAs. I have previously used Vanguard and have also used other discount brokers for my IRA. All of these companies will charge you nothing for an IRA, so there's really no point in comparing cost in that respect. They are all the \"\"cheapest\"\" in this respect. Each one will allow you to purchase their mutual funds and those of their partners for free. They will charge you some kind of fee to invest in mutual funds of their competitors (like $35 or something). So the real question is this: which of these institutions offers the best mutual and index funds. While they are not the worst out there, you will find that TIAA-Cref are dominated by both Vanguard and Fidelity. The latter two offer far more and larger funds and their funds will always have lower expense ratios than their TIAA-Cref equivalent. If I could take my money out of TIAA-Cref and put it in Fidelity, I'd do so right now. BTW, you may or may not want to buy individual stocks or ETFs in your account. Vanguard will let you trade their ETFs for free, and they have lots. For other ETFs and stocks you will pay $7 or so (depends on your account size). Fidelity will give you free trades in the many iShares ETFs and charge you $5 for other trades. TIAA-Cref will not give you any free ETFs and will charge you $8 per trade. Each of these will give you investment advice for free, but that's about what it's worth as well. The quality of the advice will depend on who picks up the phone, not which institution you use. I would not make a decision based on this.\"","\"If you are not worried about timing the market and want to buy primarily \"\"blue chip\"\" stocks to hold for a while, consider using Loyal3. They don't charge any commission. The downside is that trades are executed at the end of the day and there's only about 60 companies currently available (but there are some really good ones currently available).\"","ETrade allows this without fees (when investing into one of the No-Load/No-Fees funds from their list). The Sharebuilder plan is better when investing into ETF's or stocks, not for mutual funds, their choice (of no-fees funds) is rather limited on Sharebuilder.","I have had accounts at both IB and Questrade. Whatever you've heard about Questrade, sadly much of it is true pertaining to 2007-2009. I have not had any issues with their service, and making the few trades I do with the QuestraderWEB service has been flawless. In the time that I've had the account, their service has constantly been improving (statements are easier to read, customer service is more responsive). You should read what FrugalTrader and Canadian Capitalist have to say along with the combined 1000+ comments before deciding. Interactive Brokers is a whole different world. Those guys are the definition of real-time. You can get daily and weekly statements, along with the typical monthly statements. Buying power, margin, etc, is all updated in real-time and viewable in their TWS software. Trading fees are definitely lower than Questrade unless you're routinely trading 800-1000+ shares. Most of my trades cost $1. Options have a lower limit before Questrade makes more sense. And nothing beats IB for forex. Ultimately it really depends on what you will be doing. Note that IB charges a minimum monthly fee of $10 ($3 if you're young and foolish). If you don't hit that with commissions, the balance is taken from your account. Also, all other fees are passed on to you (e.g. data, order cancellation). IB also doesn't have any registered accounts such as TFSA or RRSP, and doesn't plan to. If you'll be doing a bunch of hefty trading, IB offers a trading platform free of charge, but charges for everything else. Questrade instead has a monthly fee for its QuestraderPRO and QuestraderELITE services, but that includes data and flat rate commissions. If you're just looking for a place to invest cheaply without extra fees and plan on making a few trades a year, Questrade might be the right choice.","Since I am having the same question so I made couple of phone calls based on some answers above. The 1st one was TD Amertrade: They don't directly accept money from China. The 2nd one was Charles Schwab: NO FEES to accept the money from China whatsoever! Open an account is free with ACH function and more. Hope it helps for anyone who needed.","It depends what you want to do with them. If you are just simply going to drip-feed into pre-identified shares or ETFs every few months at the market price, you don't need fancy features: just go with whoever is cheaper. You can always open another account later if you need something more exotic. Some brokerages are associated with banks and that may give you a benefit if you already deal with that bank: faster transfers (anz-etrade), or zero brokerage (westpac brokerage on westpac structured products.) There's normally no account fee so you can shop around.","From what I see, it is more like .70 per contract, with a $1 minimum (for options that trade over a dime.) IB does not provide any help, at all, so you have to know what you are doing. I use tradeking, which charges about $6 for a contract, but you can call them for help if needed. There looks to be other fees for IB, like when you cancel an order, but that can be offset by other trades. It is one of the reason the Motley Fool Stock Adviser service has recommended IB for an investment.","The minimum at Schwab to open an IRA is $1000. Why don't you check the two you listed to see what their minimum opening balance is? If you plan to go with ETFs, you want to ask them what their commission is for a minimum trade. In Is investing in an ETF generally your best option after establishing a Roth IRA? sheegaon points out that for the smaller investor, index mutual funds are cheaper than the ETFs, part due to commission, part the bid/ask spread.","Thanks, at the moment I don't plan to do alot of trading just need to sell a few shares at the moment and might sell some more more at another point, but other than that I don't plan on touching the stock and just plan on letting it re-invest itself. Since I don't plan on doing alot of selling I don't know how much I need to worry about fee's as long as they aren't too steep.","I'd look into ShareBuilder. You can buy stocks for as low as $2 each, and there is no minimum funding level. You have to be carefull about selling though, as they will charge you $10 each time you want to sell a stock, regardless of how much of it you want to sell.","(For people looking at this question many years later...) Schwab and Fidelity offer a wide selection of commission-free ETFs. You need an initial purchase amount, though, of (when last I checked at Schwab) $1,000.","I was wondering what relations are between brokerage companies and exchanges? Are brokers representing investors to trade on exchanges? Yes...but a broker may also buy and sell stocks for his own account. This is called broker-delaer firm. For individual investors, what are some cons and pros of trading on the exchanges directly versus indirectly via brokers? Doesn't the former save the investors any costs/expenses paid to the brokers? Yes, but to trade directly on an exchange, you need to register with them. That costs money and only a limited number of people can register I believe. Note that some (or all?) exchanges have their websites where I think trading can be done electronically, such as NASDAQ and BATS? Can almost all stocks be found and traded on almost every exchange? In other words, is it possible that a popular stock can only be found and traded on one exchange, but not found on the other exchange? If needed to be more specific, I am particularly interested in the U.S. case,and for example, Apple's stock. Yes, it is very much possible with smaller companies. Big companies are usually on multiple exchanges. What are your advices for choosing exchange and choosing brokerage companies? What exchanges and brokerage companies do you recommend? For brokerage companies, a beginner can go with discount broker. For sophisticated investors can opt for full service brokers. Usually your bank will have a brokerage firm. For exchanges, it depends...if you are in US, you should send to the US exchanges. IF you wish to send to other exchanges in other countries, you should check with the broker about that.","Interactive Brokers offers many foreign markets (19 countries) for US based investors. You can trade all these local markets within one universal account which is very convenient in my view. IB offering","\"My broker (thinkorswim) offers this from the platform's trade tab. I believe this feature isn't crippled in the PaperMoney version which is effectively a \"\"free online service.\"\"\"","I'm currently using Halifax. Pros: Cons: I'm might start using TD Waterhouse in future, as they claim to have no admin charge.","Agree with Michael here. The exchanges help you more than they will hurt. It begs the question why you want to avoid exchanges and the brokers since they do provide a valuable service. If you want to avoid big fees, most of the discount brokerages have tiny fees these days (optionshouse is down to $4), plus many have deals where you get 60 or more trades for free.","I think I get your question, but your wording is throwing a lot of us off. If what you want is a clean, effective and efficient interface over port 80, then USAA.com has done some great usability work. Additionally, they have really done some pioneering work with web services and mobile applications. On top of that, they have excellent document archiving. I can navigate their site more quickly than any of the other I've used.","For most of the people who are involved in the activity of investing in online stock trading, there will be the need of online brokers. With the investments in the online trades, people will be required to put their stock accounts in a particular platform. To know more about the best online brokers for stock trading, log on to http://www.stocktipsblog.com/","you can try CME DataSuite. Your broker gives you real time options quotes. If you do not have one you can open a scottrade account with just $500 deposit. When I moved my money from scottrade to ameritrade they did not close my account even till this day I can access my scottrade account and see real time quotes and the same research they offered me before. You can try withdrawing your deposit and see if it stays open like mine did.","Instead of saying which one is better, which is too subjective, I think it is more important to understand what these institutions are. They are kind of different animals. Edward Jones pretty much a full service wealth manager. They meet with you in person, advise you on what retirement and savings accounts to get, they talk to you to evaluate your risk preferences. They will talk to you about planning for your kids' college and about your insurance situation. They will probably attend your kids' bar mitzvahs and stuff too. Of course, this isn't free. With Edward Jones you will pay a fixed percentage of your managed wealth to them every year. And they will likely put your money in expensive mutual funds. And those mutual funds will charge a special 12b-1 fee, which is a kickback to the wealth manager. Plan on giving 2% or so of your total wealth to the manager per year, plus whatever the mutual funds charge. I don't have experience with Betterment, but they appear to be a robo advisor. Robo advisors attempt to do the same kinds of things as wealth managers, but rely on computer algorithms and web pages to give you advice whenever possible. This makes some sense because most people aren't actually that special in terms of their financial situation. I don't know their cost structure, but presumably it will be significantly cheaper than Edward Jones. They will almost certainly put you in cheaper funds (index funds and ETF's). Think of it as a cost-conscious alternative to Edward Jones. Vanguard is a discount broker and a mutual fund family. Their funds are among the biggest and cheapest in the world. Fees on many of these funds will be a fraction of the equivalent funds Edward Jones will put you in. They will charge you nothing at all to manage your money. They will give you some assistance and advice if you call them but don't expect any house calls. They aren't particularly in the business of giving advice. If you know what you want to invest in, this is the cheapest way to do it by far. Basically you won't have to pay anything at all except the actual cost of the assets you are investing in. Which is the best? Depends on your own preferences and ability. If you do not want to learn about personal finance and don't particularly care about whether you are getting the best return--if you don't mind paying for a personal touch--Edward Jones might be a good choice. For most people who are comfortable asking this type of question online and interested in learning about finance even a little bit, I'd expect that Betterment or Vanguard will be a better choice. For people who are willing to learn a bit of finance and manage their own affairs, using Vanguard (or a close competitor, like Fidelity) will ultimately result in the most wealth generated (the least given away to the financial industry).","If liquidity and cost are your primary objectives, Vanguard is indeed a good bet. They are the walmart of finance and the absolute best at minimizing fees and other expenses. Your main portfolio holding should be VTI, the total stock market fund. Highly liquid and has the lowest fees out there at 0.05%. You can augment this with a world-minus-US fund if you want. No need to buy sector or specific geography funds when you can get the whole market for less. Add some bond funds and alternative investments (but not too much) if you want to be fully diversified.","\"Traditional brokers There are tons of players in this market, especially in USA. You have traditional brokers, brokers tied to your bank and a bunch of startups. The easiest is probably a broker tied to your bank, because you probably don't have to wait to fund your brokerage account and can start trading immediately. Often the older/traditional brokers don't have very intuitive interfaces, it's the startups who do a better job at this. But honestly it doesn't really matter, because you can use reporting services that are different from the services you use to execute your trades. Meaning that you only use the interface of your broker to execute trades (buy or sell), and use third party services to monitor your holdings. Monitoring services: Google Finance, Yahoo Finance, Sigfig, Morningstar,... are services allowing you to monitor your holdings. But you can't execute trades with them. Start-ups: Then there are a bunch of startups that offer investment services besides the traditional brokers. Start-up > Robinhood The most ambitious one is Robinhood, which offers the same service as a traditional broker, but completely free (most of the traditional brokers charge a flat fee and/or percentage when buying/selling hodlings) and with an intuitive interface. They're mobile first, but announced they will be launching their service on the web soon. Start-up > Acorns Another popular, mobile-first start-up is Acorns. They offer a lazy-investing service which rounds your everyday purchases and uses the change to invest. It's great when investing is not on your mind, but you still want to invest without realizing it. Start-ups > Robo-advisors Robo-advisors auto-invest your money across a bunch of funds picked based on your risk profile. Because the robo-advisers are fairly new, they often have the most intuitive interfaces. These robo-advisors often don't allow you to pick individual holdings, so these services are best when you want to passively invest. Meaning you don't want to look at it very often, and let them do the investing for you. There are tons of robo-advisor start-ups: Betterment, Wealthfront, Personal Capital, Sigfig, FutureAdvisor,... Also bigger parties jumped on this trend with their offerings: Schwab Intelligent Portfolios, Ally Managed Portfolio, Vanguard Personal Advisor, etc. Summary: It's fun to pick individual stocks, but if you start out it can be overwhelming. Robinhood is probably the best start, they have reduced functionality, but gets you going with an attractive interface. But soon you'll realize it's extremely hard to beat the market. Meaning that hand-picking stocks statistically gives you a worse return than just buying into the general stock market (like S&P500). So you can decide to just buy one fund with a traditional broker that covers the general stock market. Or you can decide to try out one of the many robo-advisors. They haven't been around that long, so it's hard to tell how effective these are and whether they beat the market. If you're young, and you believe in start-ups (who often try to challenge the traditional players), try out one of the robo-advisors. If you want to play a bit and are addicted to your smartphone, try out Robinhood. If you are addicted to your phone, but don't want to check up on your investments all the time, go for Acorns. Of course you can combine all these. Lastly, there are tons of cryptocurrencies which might give you a large return. Tons of startups offer intuitive interfaces to trade cryptocurrencies like Coinbase, Gemini, Kraken. But beware, there is a lot of risk involved in trading cryptocurrencies, it's completely unregulated etc. But definitely check them out. Oh, and you can also invest by giving out loans through LendingClub, Prosper etc. Who can you trust? Above gives you an overview of your options intermingled with some reasoning. But regarding your question \"\"who can I trust\"\" in terms of advice, it's up to yourself. Most traditional broker services don't give you any advice at all, you're on your own. Robo-advisors don't give you advice either, but let their proprietary algorithm do the job. Are these reliable? Nobody can tell, they haven't been around long enough, and they need to go through a bear market (a crash) to see how they respond during rough times. Some robo-advisors offer you personal consultancy (I believe Sigfig and PersonalCapital) does this (limited to a few hours per year). But obviously they'll try to promote their robo-advisor services.\"","\"Check the transactions costs, \"\"Desk fees\"\" and the whole structure, sit down with them and list everything. Then make a spreadsheet and calculate all the stuff they hit you with and figure out how good you have to be in trading to make money, (in terms of accuracy and p/l).\"","Your cost of platform is built into your commission rates...SC is free if I sign up to a broker that charges more commissions. Right now I am with IB as my broker. With the cost of my charting, if I were to make 10 round turns per month, I would pay $4.50 per side commission on FOREX, $3.25 per side on EQUITIES. Still a better deal than ToS.","Retail brokers and are generally not members of exchanges and would generally not be members of exchanges unless they are directly routing orders to those exchanges. Most retail brokers charging $7 are considered discount brokers and such brokers route order to Market Makers (who are members of the exchanges). All brokers and market makers must be members of FINRA and must pay FINRA registration and licensing fees. Discount brokers also have operational costs which include the cost of their facilities, technology, clearing fees, regulation and human capital. Market makers will have the same costs but the cost of technology is probably much higher. Discount brokers will also have market data fees which they will have to pay to the exchanges for the right to show customer real time quotes. Some of their fees can be offset through payment for order flow (POF) where market makers pay routing brokers a small fee for sending orders to them for execution. The practice of POF has actually allowed retail brokers to keep their costs lower but to to shrinking margins and spread market makers POF has significantly declined over the years. Markets makers generally do not pass along Exchange access fees which are capped at $.003 (not .0035) to routing brokers. Also note that The SEC and FINRA charges transactions fees. SEC fee for sales are generally passed along to customers and noted on trade confirms. FINRA TAF is born by the market makers and often subtracted from POF paid to routing firms. Other (full service brokers) charging higher commissions are charging for the added value of their brokers providing advice and expertise in helping investors with investment strategies. They will generally also have the same fees associated with membership of all the exchanges as they are also market makers subject to some of the list of cost mentioned above. One point of note is that Market Making technology is quite sophisticates and very expensive. It has driven most of wholesale market makers of the 90s into consolidation. Retail routing firm's save a significant amount of money for not having to operate such a system (as well as worry about the regulatory headaches associated with running such a system). This allows them to provide much lower commissions that the (full service) or bulge bracket brokers.","OptionsXpress includes India in the list of countries where is possible to open an international account to invest in the US Stock Market. They just merged with Charles Schwab and they have a nice online trading platform. Stocks and ETFs are little bit pricey.. Get in touch with them to get more information.","\"The first consideration for the banking part of your portfolio is safety. In the United States that is FDIC protection, or the equivalent for a Credit Union. The second consideration is does it have the level of service you need. For this I mean the location of branches, ATMs, or its online services meet your needs for speed, accuracy, and ability to access or move the money as you need. The rest are then balanced on the extras. For your situation those extras include the ability to make free trades. For other it might be a discount on their mortgage. For others it is free checking. In your current situation if the first two things are met, and you are using those extra benefits then don't change. For me the free trades wouldn't be a benefit, so any major degradation in the safety and service would cause me to leave. Keep in mind that free services exist to entice you to make a deposit: which they can then make money by lending it out; or they offer a free service to entice you to use a service they can charge you to use. All Free services come with a cost. I earned a completely paltry $3.33 YTD over the last 9 months on my savings at my bank presumably in exchange for these \"\"free\"\" trades. Without knowing how much you had deposited in your savings account there is no way to know how much you could have made at the bank across the street. But with the low rates of the last decade there is not big money to be made off the emergency savings of a typical american family.\"","Both Scottrade and ING Direct (CapitalOne) have physical branches. Scottrade are wide-spread, ING/CapitalOne are less common (in California where I live, I have a bunch of Scottrade branches around where I live, but the only ING presence I know of is in LA on Sepulveda at Santa Monica). So one way to verify the company is legit is to go to their physical location and talk to the people there. Similarly, you can find physical locations in major metropolitan areas for many other web-based discount brokers. In my area (SF Bay Area) we have Scottrade, ETrade, Fidelity, TD Ameritrade, and that's just those I've actually seen with my own eyes. You can just walk in and talk to the people there about their options and their web operations. It is hard and unlikely for a sting operation to set up a web of brick-and-mortar offices across the nation. Even Madoff had only one or two offices. Of course I totally agree with Chris's answer, especially with regards to the SSL certificates' verification and spoofing and phishing avoidance.","\"Before the prevalence of electronic trading, trading stocks was very costly, dropping from ~15c in the late 1970s to less than a nickel per share today. Exchange fees for liquidity takers are ~0.3c per share, currently. When orders were negotiated exclusively by humans, stocks used to be quoted in fractions rather than decimal, such as $50 1/2 instead of something more precise like $50.02. That necessary ease of negotiation for humans to rapidly trade extended to trade size as well. Traders preferred to handle orders in \"\"round lots\"\", 100 shares, for ease of calculation of the total cost of the trade, so 100 shares at $50 1/2 would have a total cost of $5,050. The time for a human to calculate an \"\"odd lot\"\" of 72 shares at $50.02 would take much longer so would cost more per share, and these costs were passed on to the client. These issues have been negated by electronic trading and simply no longer exist except for obsolete brokerages. There are cost advantages for extremely large trades, well above 100 shares per trade. Brokerage fees today run the gamut: they can be as insignificant as what Interactive Brokers charges to as high as a full service broker that could charge hundreds of USD for a few thousand USD trade. With full service brokerages, the charges are frequently mystifying and quoted at the time a trade is requested. With discount brokerages, there is usually a fee per trade and a fee per share or contract. Interactive Brokers will charge a fee per share or option only and will even refund parts of the liquidity rebates exchanges provide, as close as possible to having a seat on an exchange. Even if a trader does not meet Interactive Brokers' minimum trading requirement, the monthly fee is so low that it is possible that a buy and hold investor could benefit from the de minimis trade fees. It should be noted that liquidity providing hidden orders are typically not rebated but are at least discounted. The core costs of all trades are the exchange fees which are per share or contract. Over the long run, costs charged by brokers will be in excess of charges by exchanges, and Interactive Brokers' fee schedule shows that it can be reduced to a simple markup over exchange fees. Exchanges sometimes have a fee schedule with lower charges for larger trades, but these are out of reach of the average individual.\"","\"For equities, buy direct from the transfer agent. You have to buy one full share at a minimum but after that dividend reinvestment is free. There are others like share builder and foliofn that let you buy fractional shares. As the other poster said their roster is limited so you cannot buy every ETF out there. With your example of not wanting to spend $200 I agree with the others that you should invest in a mutual fund. Vanguard will have every index fund you need and can invest as little as $50, as long as you sign up for a systematic investment draft from your bank. Plus vanguard typically has the lowest fees in the industry. The most important thing is to start investing as soon as possible and as regular as possible. \"\"Pay yourself first\"\"\"","The same reason a company would offer coupons. I'd guess they're just doing it as a way to entice people to do their investing with them. Since it is any ETF I doubt they are being compensated by the ETF companies, as is sometimes the case (iShares does this with Fidelity, for example). And they still get the commission on the sale.","I strongly suggest personal referral. Ask all of your friends/family/neighbors/co-workers/dog-sitter what they think of their brokers until you find someone who loves his broker. As for transferring assets, I've found it to be quite easy. It's in the new broker's best interest to get those assets, so he should be more than willing to help.","In the past 10 years there have been mutual funds that would act as a single bucket of stocks and bonds. A good example is Fidelity's Four In One. The trade off was a management fee for the fund in exchange for having to manage the portfolio itself and pay separate commissions and fees. These days though it is very simple and pretty cheap to put together a basket of 5-6 ETFs that would represent a balanced portfolio. Whats even more interesting is that large online brokerage houses are starting to offer commission free trading of a number of ETFs, as long as they are not day traded and are held for a period similar to NTF mutual funds. I think you could easily put together a basket of 5-6 ETFs to trade on Fidelity or TD Ameritrade commission free, and one that would represent a nice diversified portfolio. The main advantage is that you are not giving money to the fund manager but rather paying the minimal cost of investing in an index ETF. Overall this can save you an extra .5-1% annually on your portfolio, just in fees. Here are links to commission free ETF trading on Fidelity and TD Ameritrade.","\"I'm *really* surprised to see Schwab as \"\"only\"\" #5.. They don't specialize in \"\"niche\"\" ETFs, but for the core \"\"lazy portfolio\"\" style ETFs, I've always considered them neck-and-neck with Vanguard. That said - There's nothing wrong with obscure players in the market! I'd rather they had more exposure and therefore lower ERs, but the fact that something like $BBC *can* exist makes me sooo happy! That's pretty much my personal \"\"ultra high risk\"\" basket in one convenient form!\"","For your purposes, I would recommend using direct investment in a no-load mutual fund. I mostly use Vanguard and would recommend them. They just about invented index funds, usually have the lowest (internal) expenses for index and many other funds, if you take electronic instead of paper statements there is no maintenance fee, have no transaction commission, can do periodic automatic investment from a bank account etc. A typical index fund there would require an initial $3000 investment and would have a minimum of $100 for each additional investment. If you can't come up with an initial sum of that size, you might be able to find a broker with a lower minimum and suitable free ETFs trades as others have suggested.","\"Banks often offer cash to people who open savings accounts in order to drive new business. Their gain is pretty much as you think, to grow their asset base. A survey released in 2008 by UK-based Age Concern declared that only 16% of the British population have ever switched their banks‚ while 45% of marriages now end in divorce. Yip, till death do most part. In the US, similar analysis is pointing to a decline in people moving banks from the typical rate of 15% annually. If people are unwilling to change banks then how much more difficult for online brokers to get customers to switch? TD Ameritrade is offering you 30 days commission-free and some cash (0.2% - 0.4% depending on the funds you invest). Most people - especially those who use the opportunity to buy and hold - won't make much money for them, but it only takes a few more aggressive traders for them to gain overall. For financial institutions the question is straightforward: how much must they pay you to overcome your switching cost of changing institutions? If that number is sufficiently smaller than what they feel they can make in profits on having your business then they will pay. EDIT TO ELABORATE: The mechanism by which any financial institution makes money by offering cash to customers is essentially one of the \"\"law of large numbers\"\". If all you did is transfer in, say, $100,000, buy an ETF within the 30-day window (or any of the ongoing commission-free ones) and hold, then sell after a few years, they will probably lose money on you. I imagine they expect that on a large number of people taking advantage of this offer. Credit card companies are no different. More than half of people pay their monthly credit balance without incurring any interest charges. They get 30 days of credit for free. Everyone else makes the company a fortune. TD Ameritrade's fees are quite comprehensive outside of this special offer. Besides transactional commissions, their value-added services include subscription fees, administration fees, transaction fees, a few extra-special value-added services and, then, when you wish to cash out and realise your returns, an outbound transfer fee. However, you're a captured market. Since most people won't change their online brokers any more often than they'd change their bank, TD Ameritrade will be looking to offer you all sorts of new services and take commission on all of it. At most they spend $500-$600 to get you as a customer, or, to get you to transfer a lot more cash into their funds. And they get to keep you for how long? Ten years, maybe more? You think they might be able to sell you a few big-ticket items in the interim? Maybe interest you in some subscription service? This isn't grocery shopping. They can afford to think long-term.\"","I'm going to assume that you want to be invested all the time and each trade consists in selling a security and buying another one (similar to your example). How much commissions you are willing to pay depends on several factors, but one way to think about it is as follows. You have a position in stock A and you want to switch to stock B because you think it will perform better. If you think there's a good chance (>50%) that B will outperform A by more than x% then you can happily pay up to x/2% commissions and still make money over a long time horizon. If you like formulae, one way to express it is: Where: Example: if you tend to be right 51% of the time (hit rate), and gain 110% more than you lose on average (win loss ratio), you can see that your expected profit is: 5.1% - commissions, so you could pay 2.5% commissions on entering and closing the position and still make money*. Unfortunately, common sense, statistics and numerous studies tell us a sad truth: on average, people have a hit rate of 50% and a win/loss ratio of 100%. Which means that their expected profit per trade is 0% - commission. Based on that crude observation - unless you can prove to yourself that you are better than average - you should aim at reducing commissions paid to your broker as much as possible through: * 51% and 110% are not random numbers, they correspond to the results of the top 15% (professional) managers in a research paper using a sample of 215 funds managing $150bn.","Have you looked at ThinkorSwim, which is now part of TD Ameritrade? Because of their new owner, you'll certainly be accepted as a US customer and the support will likely be responsive. They are certainly pushing webinars and learning resources around the ThinkorSwim platform. At the least you can start a Live Help session and get your answers. That link will take you to the supported order types list. Another tab there will show you the currency pairs. USD is available with both CAD and JPY. Looks like the minimum balance requirement is $25k across all ThinkorSwim accounts. Barron's likes the platform and their annual review may help you find reasons to like it. Here is more specific news from a press release: OMAHA, Neb., Aug 24, 2010 (BUSINESS WIRE) -- TD AMERITRADE Holding Corporation (NASDAQ: AMTD) today announced that futures and spot forex (foreign exchange) trading capabilities are now available via the firm's thinkorswim from TD AMERITRADE trading platform, joining the recently introduced complex options functionality.","One thing to be aware of when choosing mutual funds and index ETFs is the total fees and costs. The TD Ameritrade site almost certainly had links that would let you see the total fees (as an annual percentage) for each of the funds. Within a category, the lowest fees percentage is best, since that is directly subtracted from your performance. As an aside, your allocation seems overly conservative to me for someone that is 25 years old. You will likely work for 40 or so years and the average stock market cycle is about 7 years. So you will likely see 5 or so complete cycles. Worrying about stability of principal too young will really cut into your returns. My daughter is your age and I have advised her to be 100% in equities and then to start dialing that back in about 25 years or so.","\"For \"\"smaller trades\"\", I'm not sure you can beat FXCM.com, a large, dedicated FX trading shop with extremely tight spreads, and a \"\"Micro\"\" account that you can open for as little as $25(US). Their \"\"main\"\" offering has a minimum account size of $2k (US), but recommends an account size of $10k or more. But they also have a \"\"micro\"\" account, which can be opened for as little as $25, with a $500 or higher recommended size. I haven't used them personally, but they're well known in the discount FX space. One strong positive indicator, in my opinion, is that they sell an online FX training course for $19.99. Why is that positive? It means that their margins on your activity are small, and they're not trying to get you \"\"hooked\"\". If that were not the case, they'd give the course away, since they'd be able to afford to, and they would expect to make so much of your subsequent activity. They do have some free online materials, too, but not the video stuff. Another plus is that they encourage you to use less leverage than they allow. This does potentially serve their interests, by getting more of your deposits with them, but a lot of FX shops advertise the leverage to appeal to users' hope to make more faster, which isn't a great sign, in my opinion. Note that the micro account has no human support; you can only get support via email. On the other hand, the cost to test them out is close to nil; you can literally open an account for $25.\"","\"(I answered a similar question before.) Essentially, you shouldn't trust a site you find on the Internet merely because it looks professional and real. Before signing up with any new service provider you found online, you should verify the authenticity of both the organization itself and their web site address. Even if the name displayed by a web site represents a legitimate brokerage firm, any site you happen to come across on the Internet could be an elaborate spoof of a real company, intended to capture your personal details (or worse). First, to check if a brokerage firm is in fact registered to trade securities – in the United States – you can consult FINRA's BrokerCheck online service. This might be the first of many checks you should undertake ... after you convince yourself that FINRA is legitimate. A meta-problem ;-) Then, if you want to know if the web site address is authentic, one way is to contact that broker offline using the contact information found from a trusted source, such as the FINRA BrokerCheck details. Unfortunately, those details do not currently appear to contain the broker's web site URL. (Else, that could be useful.) Another thing to look at is the site's login or sign-up page, for a valid SSL certificate that is both issued to the correct legal name of the brokerage firm as well as has been signed by a well-known certificate authority (e.g. VeriSign). For a financial services firm of any kind, you should look for and expect to see an Extended Validation Certificate. Any other kind of certificate might only assert that the certificate was issued to the domain-name owner, and not necessarily to an organization with the registered legal name. (Yes, anybody can register a domain with a similar name and then acquire a basic SSL certificate for that domain.) FWIW, Scottrade and ShareBuilder are both legitimate brokers (I was aware already of each, but I also just checked in the FINRA tool), and the URLs currently linked to by the question are legitimate web site addresses for each. Also, you can see their EV certificates in action on secured pages here and here. As to whether your investments with those brokers would be \"\"safe\"\" in the event of the broker failing (e.g. goes bankrupt), you'll want to know that they are members of the Securities Investor Protection Corporation (Wikipedia). (Of course, this kind of protection doesn't protect you if your investments simply go down in value.) But do your own due diligence – always.\"","\"Free, huh? From their Commission and Fee Schedule: So if you literally bought two shares, then the SEC added one penny in fees and FINRA added one penny as a \"\"Trading Activity Fee\"\" Note that there are several other fees on their schedule that may not apply to you. If you had bought 100 shares instead, your total fees would have still been only 2 cents, but you would have lost $4 on the trade. So the fees are minuscule when you start doing larger orders. However, That should not discourage you from experimenting and learning. I'd rather pay 2 cents in fees on a 4 cent loss than 2 cents in fees on a $400 loss. Just chalk it up to the cost of experience.\"","First--and I'm only repeating what has been said already--roboadvisors are a great way to avoid paying high MERs and still not have to do much yourself. The Canadian Couch Potato method is great IF you are disciplined and spend the time every few months to regularly re-balance your portfolio. However, any savings you gain in low MERs is going to very likely be lost if you aren't re-balancing or if you aren't patient and disciplined in your investing. For that reason, the Couch Potato way isn't appropriate for 97% of the general population in my opinion. But if you are reading this, you probably already aren't a member of the general population. For myself, life seems always too busy and I've got a kid on the way. I see a huge value in using a robo-advisor (or alternatively Tangerine) and saving time in my day. The next question, which robo-advisor is best? I did a bunch of research here and my conclusion is that they are all fairly similar. My final three came down to Wealthbar/Wealthsimple/NestWeatlh. Price structures vary, but minus a few dollars here or there, there isn't a lot of difference in costs. What made WealthSimple stick out was that they provide some options for US citizens that help me prevent tax headaches. They also got back to me by email with really detailed answers when I had questions, which was really appreciated. Their site and monthly updates are minimalist and intuitive to navigate. Great user experience all around (I do web design myself). My gut feeling is that they have their act together and will stick around as a company for a long while.","\"If you want to deposit checks or conduct business at a window, you should look at a local savings bank or credit union. Generally, you can find one that will offer \"\"free\"\" checking in exchange for direct deposit or a minimum balance. Some are totally free, but those banks pay zippo for interest. If you don't care about location, I would look at Charles Schwab Bank. I've been using them for a couple of years and have been really satisfied with them. They provide free checking, ATM fee reimbursement, free checks and pre-paid deposit envelopes. You also can easily move money between Schwab brokerage or savings accounts. Other brokers offer similar services as well.\"","It is more easier if you select a Broker in India that would allow you these services. The reason being the broker in India will follow the required norms by India and allow you to invest without much hassel. Further as the institution would be in India, it would be more easy for resolving any disputes. ICICI Direct an Indian online broker allows one to trade in US stocks. For more details refer to ICIC Direct. Reliance Money also offers limited trading in US stocks. Selecting a Broker in US maybe more difficult as your would have to met their KYC norm's and also operate a Bank account in US. I am not aware of the requirements. For more details visit ICICI Direct website. Refer to http://www.finance-trading-times.com/2007/10/investing-in-us-stocks-and-options.html for a news article. TDAmeritrade or Charlesschwab are good online brokers, however from what I read they are more for US nationals holding Social Security. Further with the recent events and KYC norms becoming more stringent, it would be difficult for an individual [Indian Citizen] to open an account directly with these firms.","About 10 years ago, I used to use MetaStock Trader which was a very sound tool, with a large number of indicators, but it has been a number of years since I have used it, so my comments on it will be out of date. At the time it relied upon me purchasing trading data myself, which is why I switched to Incredible Charts. I currently use Incredible Charts which I have done for a number of years, initially on the free adware service, now on the $10/year for EOD data access. There are quicker levels of data access, which might suit you, but I can't comment on these. It is web-based which is key for me. The data quality is very good and the number of inbuilt indicators is excellent. You can build search routines on the basis of specific indicators which is very effective. I'm looking at VectorVest, as a replacement for (or in addition to) Incredible Charts, as it has very powerful backtesting routines and the ability to run test portfolios with specific buy/sell criteria that can simulate and backtest a number of trading scenarios at the same time. The advantage of all of these is they are not tied to a particular broker.","I traded futures for a brief period in school using the BrokersXpress platform (now part of OptionsXpress, which is in turn now part of Charles Schwab). They had a virtual trading platform, and apparently still do, and it was excellent. Since my main account was enabled for futures, this carried over to the virtual account, so I could trade a whole range of futures, options, stocks, etc. I spoke with OptionsXpress, and you don't need to fund your acount to use the virtual trading platform. However, they will cancel your account after an arbitrary period of time if you don't log in every few days. According to their customer service, there is no inactivity fee on your main account if you don't fund it and make no trades. I also used Stock-Trak for a class and despite finding the occasional bug or website performance issue, it provided a good experience. I received a discount because I used it through an educational institution, and customer service was quite good (probably for the same reason), but I don't know if those same benefits would apply to an individual signing up for it. I signed up for top10traders about seven years ago when I was in secondary school, and it's completely free. Unfortunately, you get what you pay for, and the interface was poorly designed and slow. Furthermore, at that time, there were no restrictions that limited the number of shares you could buy to the number of outstanding shares, so you could buy as many as you could afford, even if you exceeded the number that physically existed. While this isn't an issue for large companies, it meant you could earn a killing trading highly illiquid pink sheet stocks because you could purchase billions of shares of companies with only a few thousand shares actually outstanding. I don't know if these issues have been corrected or not, but at the time, I and several other users took advantage of these oversights to rack up hundreds of trillions of dollars in a matter of days, so if you want a realistic simulation, this isn't it. Investopedia also has a stock simulator that I've heard positive things about, although I haven't used it personally.","Go to fidelity.com and open a free brokerage account. Deposit money from your bank account into your fidelity account. (expect a minimum of $2500, FBIDX requires more I believe) Buy free to trade ETF Funds of your liking. I tend to prefer US Bonds to stocks, FBIDX is a decent intermediate US Bond etf, but the euro zone has added a little more volatile lately than I'd like. If you do really want to trade stocks, you may want to go with a large cap fund like FLCSX, but it is more risky especially in this economy. (but buy low sell high right?) I've put my savings into FBIDX and FGMNX (basically the same thing, intermediate bond ETF funds) and made $700 in interest and capitol gains last year. (started with zero initially, have 30k in there now)","\"You can start investing with any amount. You can use the ShareBuilder account to purchase \"\"partial\"\" stocks through their automatic investment plan. Usually brokers don't sell parts of stock, and ShareBuilder is the only one allowing it IMHO using its own tricks. What they do basically is buy a stock and then divide it internally among several investors who bought it, while each of the investors doesn't really own it directly. That's perfect for investing small amounts and making first steps in investing.\"","Online banks are the future. As long as you don't need a clerk to talk to (and why would you need?) there's nothing you can't do with an online bank that you can with a brick and mortar robbers. I use E*Trade trading account as a checking account (it allows writing paper checks, debit card transactions, ACH in/out, free ATM, etc). If you don't need paper checks that often you can use ING or something similar. You can always go to a local credit union, but those will wave the fee in exchange for direct deposit or high balance, and that you can also get from the large banks as well, so no much difference there. Oh where where did Washington Mutual go....","Each trade will cost you nearly $10 to buy and then $10 to sell. With $1800 that is literally 1% of your initial investment lost to fees. It would be far wiser for you to learn with play money instead. Head over to investopedia and use pretend money: http://www.investopedia.com/simulator/ If you're absolutely fine with losing your $1800 than go ahead and jump into some companies you like. I would not recommend that though. Put the $1800 into one single position that you will hold for a few years and play with pretend money to get a better feel for short term trades."],"string":"[\n \"For self-service type online customers, OptionsXpress gives me far better trading features(like technicals advanced conditions) and tools, ACH money management & scheduling, fullfillment too. $9 stock trades. I don't know if they yet share Schwab's (their new parent company?) commission-free ETFs getting so trendy nowadays.\",\n \"Discount brokers come and go. They tend to come with ridiculously cheap prices, and they go when they fail to gain traction, or raise their prices, at which point they can be undercut by a new player. Some brokers are nicer to people with more money, while others cater to small traders on simple low commissions. No matter which broker you choose, you aren't liable to make much money doing frequent trades with a small account. You either risk most of your money on every trade, or several small trades get sapped by commissions. It is understandable that you want to pay less given the disadvantages of a small account. Just2Trade, USAA, Sogotrade, etc. have each been reasonable options in the < $4 a trade range. Many websites will give you a list of the top discount brokers of the year. As with any heavy discounter/deal that is too good to be true, find reputable referrals from people who use the service, and complaints from customers who have been burned.\",\n \"I have used TradeKing for a couple of years now and love it. It really is a great site. They hold an IRA trading account for me and have been helpful in rolling money into that account, and with answering the occasional question. Previously I have used Scottrade and found that TradeKing is a much better value.\",\n \"\\\"If you have at least $25,000, Wells Fargo is the place to be, as you get 100 free trades per account. I have three investment accounts with them and get 100 free trades in each a year, though I only ever actually use 10-20. i can't vouch for their phone service as I've never needed it, but free is very hard to beat in the \\\"\\\"value for money\\\"\\\" department. Update: Apparently in some states the requirement is $50,000. However, they count 10% of your mortgage as well as all deposit and investment accounts toward that balance.\\\"\",\n \"This very informative link gives a clear and comprehensive comparison (pros and cons) of various popular brokers: https://www.nerdwallet.com/blog/investing/best-online-brokers-for-stock-trading/ (Best Online Brokers for Stock Trading 2016) There are indeed some significant cons for the super-low commission fee. Just for a quick example, the Interactive Broker requires a minimum of 10k account balance, as well as the frequent trading activity even on monthly basis (or the minimum $10 commission would be charged).\",\n \"I agree, Schwab representatives are easy to reach and very helpful. I also like Vanguard for their low mutual fund fees, so I do my retirement stuff with them, but it took forever to get in touch with a representative just to ask a simple question. Now that they are lowering their rates to 8.95 per trade (effective January 19th), the value for your money is even better.\",\n \"Have you looked at OptionsHouse? They charge $2.95 per trade and are one of the lowest when it comes to fees. Bare bones interface, but fast execution.\",\n \"If seeing all of your balances in one place matters that much to you, go to a broker that has an online bank like Schwab, ING or ETrade. If you're not comfortable with online banking, I'd suggest dropping the requirement to see everything on one statement/website. All of the major brokers have easy ways to transfer money to and from their accounts. I have accounts at Schwab and TD Ameritrade, which both offer online transfer via ACH transactions for no fee. It's just like paying a credit card online. Investments are a profit center for banks, you pay a higher cost and the guy who signs you up gets points towards his incentive vacation to the Caribbean.\",\n \"I personally like Schwab. Great service, low fees, wide variety of fund are available at no fee. TD Ameritrade is good too.\",\n \"Fidelity, Charles Schwab, TDA, and just about every make online brokerage gives you massive amounts of free trades each year and when you sign up. Pretty much the same as 100+ free trades /yr over a 10 year period. Also, you get commission-free trade for the most popular ETFs, which is much more important. Lastly, if you care about free trades, you're probably investing poorly. Non-professionals shouldn't be making that many non-ETF trades in a year. Professional traders wouldn't blink over a tiny $5-10 commission fee.\",\n \"I don't know where your trade figures are from. ETrade, TD Ameritrade, Fidelity, etc all have trading costs under 10 USD per share, so I'm not sure where your costs are coming from. I doubt currency conversion or anything like that will double the cost. As for your question, the answer is: It depends How much trading will you do? In what types of investments? For example, Schwab charges no commission on ETF purchases, but this is not an advantage if you wont buy ETFs. Consider minimums. Different brokers have different minimum cash balance/deposit requirements, so make sure you can meet those. It's true that you can get real time quotes anywhere, but consider the other services. For example, TD Ameritrade pools research reports for many publicly traded companies which are nice to read about what analysts have to say. Different brokers given different research tools, so read about offerings and see what's most useful to you. You can open different brokerage accounts, but it's much more convenient to have a one-stop place where you can do all you trading. Pick a broker which is low cost and offers a variety of investments as well as good customer support and a straightforward system.\",\n \"Consider trying a broker that offers free trading. Robinhood is one such broker.\",\n \"Magazines like SmartMoney often have an annual issue that reviews brokers. One broker may have a wider variety of no-fee mutual funds, and if that's your priority, then the stock commissions may be a moot issue for you. In general, you can't go wrong with a Fidelity or Schwab, and to choose investments within the accounts with an eye toward low expenses.\",\n \"\\\"Generally, yes. Rather than ask, \\\"\\\"why are these guys so cheap?\\\"\\\", you should be asking why the big names are so expensive. :) Marketing spend plays a big role there. Getting babies to shill for your company during the super bowl requires a heck of a lot of commissions. Due to the difficulties involved in setting up a brokerage, it's unlikely that you'll see a scam. A brokerage might go bankrupt for random reasons, but that's what investor insurance is for. \\\"\\\"Safeness\\\"\\\" is mostly the likelihood that you'll be able to get access to your funds on deposit with the broker. Investment funds are insured by SIPC for up to $500,000, with a lower limit on cash. The specific limits vary by broker, with some offering greater protection paid for on their own dime. Check with the broker -- it's usually on their web pages under \\\"\\\"Security\\\"\\\". Funds in \\\"\\\"cash\\\"\\\" might be swept into an interest-earning investment vehicle for which insurance is different, and that depends on the broker, too. A few Forex brokers went bankrupt last year, although that's a new market with fewer regulatory protections for traders. I heard that one bankruptcy in the space resulted in a 7% loss for traders with accounts there, and that there was a Ponzi-ish scam company as well. Luckily, the more stringent regulation of stock brokerages makes that space much safer for investors. If you want to assess the reliability of an online broker, I suggest the following: It's tempting to look at when the brokerage was founded. Fly-by-night scams, by definition, won't be around very long -- and usually that means under a few months. Any company with a significant online interface will have to have been around long enough to develop that client interface, their backend databases, and the interface with the markets and their clearing house. The two brokerages you mentioned have been around for 7+ years, so that lends strength to the supposition of a strong business model. That said, there could well be a new company that offers services or prices that fit your investment need, and in that case definitely look into their registrations and third-party reviews. Finally, note that the smaller, independent brokerages will probably have stiffer margin rules. If you're playing a complex, novel, and/or high-risk strategy that can't handle the volatility of a market crash, even a short excursion such as the 2010 flash crash, stiff margin rules might have consequences that a novice investor would rather pretend didn't exist.\\\"\",\n \"That all depends on you. The cheaper places are certainly going to cost less, but when it comes to comparing value that is a subjective decision that only you can make. Maybe the more expensive one has an easier to user website, friendlier customer service, or something else you value enough to pay more for trades.\",\n \"Since you are not starting with a lot of cash the commissions may eat into your account. So go with somebody that has no inactivity fee and low/free commission. I think there are number of sites and the ING sharebuilder.com comes to mind. Scottrade also one of the cheaper ones that i used.\",\n \"\\\"TDAmeritrade, an online stock broker, provides banking services within their brokerage accounts. The service offers all of what you are looking for. HOWEVER, this service is only available for free with their \\\"\\\"Apex\\\"\\\" qualification. Here is a tariff of their fees and services.\\\"\",\n \"\\\"Always use limit orders never market orders. Period. Do that and you will always pay what you said you would when the transaction goes through. Whichever broker you use is not going to \\\"\\\"negotiate\\\"\\\" for the best price on your trade if you choose a market order. Their job is to fill that order so they will always buy it for more than market and sell it for less to ensure the order goes through. It is not even a factor when choosing between TradeKing and Scottrade. I use Trade King and my friend uses ScottTrade. Besides the transaction fee (TK is a few $$ cheaper), the only other things to consider are the tools and research (and customer service if you need it) that each site offers. I went with TK and the lower transaction fee since tools and research can be had from other sources. I basically only use it when I want to make a trade since I don't find the tools particularly useful and I never take an analyst's opinion of a stock at face value anyway since everybody always has their own agenda.\\\"\",\n \"Lower fees are always better, everything else equal. A lower fee makes your transaction overall a better deal, all else equal. Other transactions costs (like the SEC fee on sales) are mostly the same across brokers and there is unlikely to be any difference in execution quality either. When comparing brokers be sure to consider the other issues: To me, most of these are minor issues. For that reason, I'd say let transaction cost be your guide. I hear a lot of talk about the quality of the interface. If you just want to buy or sell a stock, they are all pretty easy. Some brokers have better tools for monitoring the market or looking at technical indicators, if you are into that.\",\n \"They're not negotiating trade rates for you, you set the trade rates in your order. What they might have is a slightly slower system, delivering your orders a second later than the competition would. If that's critical to you then you should look at that, otherwise look at their fees, customer support and research aids because that's where the broker value is.\",\n \"There are quite a few online brokers ... All of these have different pricing structure and the right one would depend on the amount of & type of trading you are doing, for example Reliance Money offer 1 paise brokrage, but with a higer anual fees, so it makes sense if you are doing delivery trades and not IPO or Day trades ... Others changes less of anual fees but more of brokrage.\",\n \"I wouldn't only consider the entry/exit cost per trade. That's a good comparison page by the way. I would also consider the following. This depends if you are planning on using your online broker to provide all the information for you to trade. I have lower expectations of my online broker, not meant to be harsh on the online brokers, but I expect brokers to assist me in buying/selling, not in selecting. Edit: to add to the answer following a comment. Here are three pieces of software to assist in stock selection\",\n \"Indiabulls. Low brokerage (If you bargain) I'm user of it and I'm getting 25paisa for delivery and 5 paisa for intraday. All transactions can be done online. Also they provide an stand alone application PowerIndiabulls, which is too good and appraised by many users as best in the industry. Not sure about it, but I think Powerindiabulls application is the answer for this. Please have a look at their website for more details.\",\n \"\\\"I've never used them myself, but Scottrade might be something for you to look at. They do $7 internet trades, but also offer $27 broker assisted trades (that's for stocks, in both cases). Plus, they have brick-and-morter storefronts all over the US for that extra \\\"\\\"I gotta have a human touch\\\"\\\". :-) Also, they do have after hours trading, for the same commission as regular trading.\\\"\",\n \"It sounds for the most part you are a 'buy and hold' type investor and continue to contribute monthly. I follow the same philosophy and continue to contribute monthly as well. I use Questrade.com as my online broker. For trading it costs a penny per share with a minimum cost of $4.95 (so if you only buy 100 shares you will still pay $4.95) up to a maximum of $9.95 per trade (so if you buy 10,000 shares you only pay $9.95. Three trades at $4.95 per month across the year would be $178.20. This is assuming you are trading less then 495 share each trade. So switching to Questrade would save you an additional $111.80 per year! Multiply over number of year before you retire plus compound interest which could accrue and that can quite a bit of extra savings. You pay nothing else to Questrade either. No management fees, etc. You manage the accounts.\",\n \"My main criterion for choosing a broker is the fee schedule. I care about investing in index funds and paying as little as possible in fees. In the US that brings everyone to Vanguard or Fidelity, and currently Vanguard edges Fidelity out on costs for the particular funds I am invested in.\",\n \"I've looked into Thinkorswim; my father uses it. Although better than eTrade, it wasn't quite what I was looking for. Interactive Brokers is a name I had heard a long time ago but forgotten. Thank you for that, it seems to be just what I need.\",\n \"\\\"Previously (prior to Capital One acquisition -- it's kind of like K-Mart buying Sears) Sharebuilder offered 12 automatic (i.e. pre-scheduled) stock purchases per month if you subscribed to their $12/mo \\\"\\\"Advantage\\\"\\\" plan. So, 12 trades for $1 a trade. Great deal. Except then they flattened their pricing to everyone's acclaim (that is, everyone except for the non-millionaire casual investors) and jacked it up to $4 per automatic investment. As far as I know, Sharebuilder's 12 no-fee investments for $12/mo was rather unique in the online trading world -- and now it's very sadly extinct. They do have no-fee mutual fund investing, however, for what it's worth.\\\"\",\n \"If you don't know how to evaluate funds and are looking for someone to help you make good investment decisions, then you want a financial advisor. My suggestion is to look for one that 1) doesn't try to sell you insurance first (since insurance is an expense, not an investment), 2) can explain to you the the relationship between risk and return (and what mix is right for you) and 3) recommends funds that have good demonstrated returns after fees have been removed. If you plan to pick your own funds and just want a transaction broker, go with one of the free/cheap online discount brokers. Many let you invest in hundreds of different funds, so look for brokers with the cheapest fees.\",\n \"All in all it's not easy to beat the perks, service, reliability and use of cutting edge technology that you get when you join any stock trading. Choose your the best online brokers for stock trading wisely. To know more about them, log on to http://www.stocktipsblog.com/\",\n \"\\\"First, let me say that $1000 is not that much of amount to invest in stocks. You need to remember that each transaction (buy/sell) has fees, which vary between $4-$40 (depending on the broker, you mentioned Scottrade - they charge $7 per transaction for stocks and about twice as much for some mutual funds). Consider this: you invest $1000, you gain $100. You'll pay $15 in fees just to buy/sell, that's 1.5% expense ratio. If you invest in more than 1 stock - multiply your fees. To avoid that you can look into mutual funds. Different brokers offer different funds for free, and almost all of them carry many of the rest for a fee. When looking into funds, you can find their expense ratio and compare. Remember that a fund with 1% expense ratio diversifies and invests in many stocks, while for you 1.5% expense ratio is for investing in a single stock. Is it a good idea to invest only in US or diversify worldwide? You can invest in the US, but in funds that diversify worldwide or across industries. Generally it is a good idea to diversify. I am 28. Should I be a conservative investor or take some risks? Depends on how bad of a shape will you be if you lose all your principle. What online brokerage service is the best? I have heard a lot about Scotttrade but want to be sure before I start. It seems to be the least expensive and most user-friendly to me. \\\"\\\"Best\\\"\\\" is a problematic term. Scottrade is OK, E*Trade is OK, you can try Sharebuilder, Ameritrade, there are several \\\"\\\"discount\\\"\\\" online brokers and plenty of on-line reviews and comparisons amongst them. What is a margin account and how would it affect my investing? From what I understand it comes into play when an investor borrows money from the broker. Do I need to use it at all as I won't be investing on a big scale yet. You understand right. There are rules to use margin accounts, and with the amount you have I'd advise against them even if you get approved. Read through the brokers' FAQ's on their requirement. Should I keep adding money on a monthly basis to my brokerage account to give me more money to invest or keep it at a certain amount for an extended period of time? Sharebuilder has a mechanism to purchase monthly at discounted prices. But be careful, they give you discounted prices to buy, but not to sell. You may end up with a lot of positions, and the discounts you've gotten to buy will cause you spend much more on selling. Generally, averaging (investing monthly) is a good way to save and mitigate some risks, but the risks are still there. This is good only for long term savings. How should my breakdown my investments in terms of bonds vs stocks? Depends on your vulnerability and risk thresholds.\\\"\",\n \"I am very happy with Charles Schwab. I use both their investing tools and banking tool, but I don't do much investing besides buy more shares a random mutual fund I purchase 4 years ago I did once need to call in about an IRA rollover and I got a person on the phone immediately who answered my questions and followed up as he said he would. It is anecdotal, but I am happy with them.\",\n \"I think your best bet would be commission-free ETFs, which have no minimum and many have a share price under $100. Most online brokerages have these now, e.g. Vanguard, Fidelity, etc. Just have to watch out for any non-trading fees brokerages may charge with a low balance.\",\n \"I've been a retail trader for close to 7 years and while I have a specialized futures account, I use Interactive Brokers for my other trading. They charge per share or contract rather than per trade (good for smaller accounts or if you want to piece into and out of positions). You can also trade just about anything. Futures, options, options on futures, individual stocks, ETFs, Bonds (futures), currencies. The interface is pretty good as well. I have seperate charts (eSignal) so I'm not sure how good their charting is\",\n \"http://www.moneysupermarket.com/shares/CompareSharesForm.asp lists many. I found the Interactive Investor website to be excruciatingly bad. I switched to TD Waterhouse and found the website good but the telephone service a bit abrupt. I often use the data presented on SelfTrade but don't have an account there.\",\n \"If you want the cheapest online broker in Australia, you can't go past CMC Markets, they charge $9.90 upto a $10,000 trade and 0.1% above that. There is no ongoing fees unless you choose to have dynamic data (stock prices get updated automatically as they change). However, the dynamic data fee does get waived if you have about 10 or more trades per month. You don't really need the dynamic data unless you are a regular trader anyway. They also provide some good research tools and some basic charting. Your funds with them are kept segragated in a Bankwest Account, so are resonably safe. They don't provide the best interest on funds kept in the account, so it is best to just deposit the funds when you are looking to buy, and move your funds elswhere (earning higher interest) when selling. Hopes this helps, regards Victor. Update They have now increased their basic brokerage to a minimum of $11 per trade unless you are a frequent trader.\",\n \"Many brokers offer a selection of ETFs with no transaction costs. TD Ameritrade and Schwab both have good offerings. Going this route will maximize diversification while minimizing friction.\",\n \"The following have been recommended to me for the UK: When I was doing my investigations, all had good reputations but Interactive Investor looked to have the nicer service and their fees seemed a bit more reasonable. TD Waterhouse has the advantage of a number of sites serving local markets (TD Ameritrade for the US, for instance).\",\n \"My wife and I have two Schwab brokerage accounts, one for retirement and one for non-retirement investments. The latter also has a checking/savings account which we use as our main account. Schwab is very happy with us, as we are cheapskates and save a lot of money. The checking account, which seems to act like any ordinary checking account, gives us all the things listed above. They pay the ATM fees, which is not a lot of money, but seems like a nice thing to me. We can also do cash deposits and we can go to any Schwab branch to talk to someone face to face. We've only had to do the latter once in 10 or so years, and the former maybe once or twice.\",\n \"These interest rates are very low. One of the reasons that I prefer E*Trade is because on their on-line savings account the interest rates are several times higher than on ScotTrade margin accounts (currently it's 0.7% on E*Trade, on any amount, IIRC). The transfers between the accounts on E*Trade are immediate, and they allow using the money for investing immediately even for transfers from outside source. If you can wait a couple of days for the money to arrive before your investment (unless ScotTrade, like E*Trade, allow investing external transfers immediately), you can look at AMEX, ING Direct or Capitol One on-line savings accounts for even higher rates. Oh, and needless to mention, on-line savings accounts are FDIC insured, I'm not sure if the uninvested deposits on Scottrade are.\",\n \"I assume that with both companies you can buy stock mutual funds, bonds mutual funds, ETFs and money market accounts. They should both offer all of these as IRAs, Roth IRAs, and non-retirement accounts. You need to make sure they offer the types of investments you want. Most 401K or 403b plans only offer a handful of options, but for non-company sponsored plans you want to have many more choices. To look at the costs see how much they charge you when you buy or sell shares. Also look at the annual expenses for those funds. Each company website should show you all the fees for each fund. Take a few funds that you are likely to invest in, and have a match in the other fund family, and compare. The benefit of the retirement accounts is that if you make a less than perfect choice now, it is easy to move the money within the family of funds or even to another family of funds later. The roll over or transfer doesn't involve taxes.\",\n \"\\\"It really depends on the value your financial adviser provides. Does he help with your 401K? Does he help you avoid making foolish moves? Does he really help you find funds that beat average market returns? Many people answer \\\"\\\"no\\\"\\\" to all of these questions and do their investing on their own. I personally prefer Fidelity because I find their web site easier to work with, but Vanguard is another option. At Fidelity you will have zero fee per year. You can buy Fidelity and many other mutual funds with no cost. You can buy iShares ETFs at no cost. Some funds do have a fee to purchase, but they are pretty low ($35) and are only collected when you buy, not yearly. Now some people do go it alone and it is a huge mistake. The news tends to only report negative stock market events, and many people were scared away from 2008 and missed wonderful gains since that time. If you pull your money out during corrections, stick with a financial adviser. If you will stop contributing because of a correction, stick with a financial adviser. In those cases the fee is well worth the cost. Also if your guy provides education in association with investment advice, the fee might also be worth it. If you are able to stomach losses, able to keep on contributing like clockwork, and can read a Morning star mutual fund chart, then you might be best to go it alone. One thing would really help is to have a friend that is also interested in investing to share ideas with.\\\"\",\n \"Unless you're an active trader, 30 trades per month is a number you'll probably never hit, so you might as well take advantage of the offer while you have it. But don't trade more than you normally would. Discount brokerages make money on the arbitrage between the bid and ask prices on the exchanges (legal as long as you get a price that was available on the open market - they disclose this in the fine print in your account paperwork). So they want you to trade as often as they can get you to. As you say, it's really just a mind game. There is always a cost to doing business with a bank or brokerage. They charge you fees for services and they make money on your deposits while you're not using them. So while it looks like they're paying you interest, which they are, they're not paying you all the interest they've earned using your money. So there's the cost. It was only when interest rates dropped so low that they were starting to feel it, that they started rolling out more overt fees for services. If you'll notice, the conditions that cause the fees to be waived in your account all lead to increased deposits or transactions, either directly or indirectly. If your main concern is the efficiency of your investments, which by your description appear to be rather modest, you should consider dollar-cost averaging (DCA) into a mutual fund (of which there are plenty of high quality no-load/no-fee options around), or into a stock if your brokerage offers a lower-fee DCA program for stocks (where you can often buy partial shares).\",\n \"They make money off you by increasing the spread you buy and sell your stocks through them. So for example, if the normal spread for a stock was $10.00 for a buy and $10.02 for a sell, they might have a spread of $9.98 for the buy and $10.02 for the sell. So for an order of 1000 shares (approx. $10000) they would make $0.02 per share which would equal $20.00.\",\n \"I can't provide a list, but when I took out my Stocks and Shares, I extensively researched for a good, cheap, flexible option and I went with FoolShareDealing. I've found them to be good, and their online trading system works well. I hope that's still the case.\",\n \"My go-to response whenever anyone asks me this is the Monevator table of platform fees. It looks a little complicated at first, but scroll past the table for a couple of paragraphs of useful info to help narrow down your search. The general tone of the page is geared more towards investors in index funds, but the fees on share-dealing are right there in the table too. There are also special notes if there are discounts for frequent traders and that sort of thing, so not too much passive-investor elitism on show!\",\n \"The least expensive way to buy such small amounts is through ING's Sharebuilder service. You can perform a real-time trade for $9, or you can add a one-time trade to their investment schedule for $4 (transaction will be processed on the next upcoming Tuesday morning). They also allow you to purchase fractional shares.\",\n \"Zero. Zero is reasonable. That's what Schwab offers with a low minimum to open the IRA. The fact is, you'll have expenses for the investments, whether a commission on stock purchase or ongoing expense of a fund or ETF. But, in my opinion, .25% is criminal. An S&P fund or ETF will have a sub-.10% expense. To spend .25% before any other fees are added is just wrong.\",\n \"In terms of building the initial investment using some kind of mutual fund, I'd suggest you see my answer to this similar question https://money.stackexchange.com/questions/9943/cheapest-or-free-online-broker-for-beginner For buying individual stocks later, you could look at sharebuilder, or a low cost broker, however most of them charge between $5-$7 per trade, and if you are doing small dollar value trades then that can really really eat into things if you try to trade a lot.\",\n \"\\\"I use TIAA-Cref for my 403(b) and Fidelity for my solo 401(k) and IRAs. I have previously used Vanguard and have also used other discount brokers for my IRA. All of these companies will charge you nothing for an IRA, so there's really no point in comparing cost in that respect. They are all the \\\"\\\"cheapest\\\"\\\" in this respect. Each one will allow you to purchase their mutual funds and those of their partners for free. They will charge you some kind of fee to invest in mutual funds of their competitors (like $35 or something). So the real question is this: which of these institutions offers the best mutual and index funds. While they are not the worst out there, you will find that TIAA-Cref are dominated by both Vanguard and Fidelity. The latter two offer far more and larger funds and their funds will always have lower expense ratios than their TIAA-Cref equivalent. If I could take my money out of TIAA-Cref and put it in Fidelity, I'd do so right now. BTW, you may or may not want to buy individual stocks or ETFs in your account. Vanguard will let you trade their ETFs for free, and they have lots. For other ETFs and stocks you will pay $7 or so (depends on your account size). Fidelity will give you free trades in the many iShares ETFs and charge you $5 for other trades. TIAA-Cref will not give you any free ETFs and will charge you $8 per trade. Each of these will give you investment advice for free, but that's about what it's worth as well. The quality of the advice will depend on who picks up the phone, not which institution you use. I would not make a decision based on this.\\\"\",\n \"\\\"If you are not worried about timing the market and want to buy primarily \\\"\\\"blue chip\\\"\\\" stocks to hold for a while, consider using Loyal3. They don't charge any commission. The downside is that trades are executed at the end of the day and there's only about 60 companies currently available (but there are some really good ones currently available).\\\"\",\n \"ETrade allows this without fees (when investing into one of the No-Load/No-Fees funds from their list). The Sharebuilder plan is better when investing into ETF's or stocks, not for mutual funds, their choice (of no-fees funds) is rather limited on Sharebuilder.\",\n \"I have had accounts at both IB and Questrade. Whatever you've heard about Questrade, sadly much of it is true pertaining to 2007-2009. I have not had any issues with their service, and making the few trades I do with the QuestraderWEB service has been flawless. In the time that I've had the account, their service has constantly been improving (statements are easier to read, customer service is more responsive). You should read what FrugalTrader and Canadian Capitalist have to say along with the combined 1000+ comments before deciding. Interactive Brokers is a whole different world. Those guys are the definition of real-time. You can get daily and weekly statements, along with the typical monthly statements. Buying power, margin, etc, is all updated in real-time and viewable in their TWS software. Trading fees are definitely lower than Questrade unless you're routinely trading 800-1000+ shares. Most of my trades cost $1. Options have a lower limit before Questrade makes more sense. And nothing beats IB for forex. Ultimately it really depends on what you will be doing. Note that IB charges a minimum monthly fee of $10 ($3 if you're young and foolish). If you don't hit that with commissions, the balance is taken from your account. Also, all other fees are passed on to you (e.g. data, order cancellation). IB also doesn't have any registered accounts such as TFSA or RRSP, and doesn't plan to. If you'll be doing a bunch of hefty trading, IB offers a trading platform free of charge, but charges for everything else. Questrade instead has a monthly fee for its QuestraderPRO and QuestraderELITE services, but that includes data and flat rate commissions. If you're just looking for a place to invest cheaply without extra fees and plan on making a few trades a year, Questrade might be the right choice.\",\n \"Since I am having the same question so I made couple of phone calls based on some answers above. The 1st one was TD Amertrade: They don't directly accept money from China. The 2nd one was Charles Schwab: NO FEES to accept the money from China whatsoever! Open an account is free with ACH function and more. Hope it helps for anyone who needed.\",\n \"It depends what you want to do with them. If you are just simply going to drip-feed into pre-identified shares or ETFs every few months at the market price, you don't need fancy features: just go with whoever is cheaper. You can always open another account later if you need something more exotic. Some brokerages are associated with banks and that may give you a benefit if you already deal with that bank: faster transfers (anz-etrade), or zero brokerage (westpac brokerage on westpac structured products.) There's normally no account fee so you can shop around.\",\n \"From what I see, it is more like .70 per contract, with a $1 minimum (for options that trade over a dime.) IB does not provide any help, at all, so you have to know what you are doing. I use tradeking, which charges about $6 for a contract, but you can call them for help if needed. There looks to be other fees for IB, like when you cancel an order, but that can be offset by other trades. It is one of the reason the Motley Fool Stock Adviser service has recommended IB for an investment.\",\n \"The minimum at Schwab to open an IRA is $1000. Why don't you check the two you listed to see what their minimum opening balance is? If you plan to go with ETFs, you want to ask them what their commission is for a minimum trade. In Is investing in an ETF generally your best option after establishing a Roth IRA? sheegaon points out that for the smaller investor, index mutual funds are cheaper than the ETFs, part due to commission, part the bid/ask spread.\",\n \"Thanks, at the moment I don't plan to do alot of trading just need to sell a few shares at the moment and might sell some more more at another point, but other than that I don't plan on touching the stock and just plan on letting it re-invest itself. Since I don't plan on doing alot of selling I don't know how much I need to worry about fee's as long as they aren't too steep.\",\n \"I'd look into ShareBuilder. You can buy stocks for as low as $2 each, and there is no minimum funding level. You have to be carefull about selling though, as they will charge you $10 each time you want to sell a stock, regardless of how much of it you want to sell.\",\n \"(For people looking at this question many years later...) Schwab and Fidelity offer a wide selection of commission-free ETFs. You need an initial purchase amount, though, of (when last I checked at Schwab) $1,000.\",\n \"I was wondering what relations are between brokerage companies and exchanges? Are brokers representing investors to trade on exchanges? Yes...but a broker may also buy and sell stocks for his own account. This is called broker-delaer firm. For individual investors, what are some cons and pros of trading on the exchanges directly versus indirectly via brokers? Doesn't the former save the investors any costs/expenses paid to the brokers? Yes, but to trade directly on an exchange, you need to register with them. That costs money and only a limited number of people can register I believe. Note that some (or all?) exchanges have their websites where I think trading can be done electronically, such as NASDAQ and BATS? Can almost all stocks be found and traded on almost every exchange? In other words, is it possible that a popular stock can only be found and traded on one exchange, but not found on the other exchange? If needed to be more specific, I am particularly interested in the U.S. case,and for example, Apple's stock. Yes, it is very much possible with smaller companies. Big companies are usually on multiple exchanges. What are your advices for choosing exchange and choosing brokerage companies? What exchanges and brokerage companies do you recommend? For brokerage companies, a beginner can go with discount broker. For sophisticated investors can opt for full service brokers. Usually your bank will have a brokerage firm. For exchanges, it depends...if you are in US, you should send to the US exchanges. IF you wish to send to other exchanges in other countries, you should check with the broker about that.\",\n \"Interactive Brokers offers many foreign markets (19 countries) for US based investors. You can trade all these local markets within one universal account which is very convenient in my view. IB offering\",\n \"\\\"My broker (thinkorswim) offers this from the platform's trade tab. I believe this feature isn't crippled in the PaperMoney version which is effectively a \\\"\\\"free online service.\\\"\\\"\\\"\",\n \"I'm currently using Halifax. Pros: Cons: I'm might start using TD Waterhouse in future, as they claim to have no admin charge.\",\n \"Agree with Michael here. The exchanges help you more than they will hurt. It begs the question why you want to avoid exchanges and the brokers since they do provide a valuable service. If you want to avoid big fees, most of the discount brokerages have tiny fees these days (optionshouse is down to $4), plus many have deals where you get 60 or more trades for free.\",\n \"I think I get your question, but your wording is throwing a lot of us off. If what you want is a clean, effective and efficient interface over port 80, then USAA.com has done some great usability work. Additionally, they have really done some pioneering work with web services and mobile applications. On top of that, they have excellent document archiving. I can navigate their site more quickly than any of the other I've used.\",\n \"For most of the people who are involved in the activity of investing in online stock trading, there will be the need of online brokers. With the investments in the online trades, people will be required to put their stock accounts in a particular platform. To know more about the best online brokers for stock trading, log on to http://www.stocktipsblog.com/\",\n \"you can try CME DataSuite. Your broker gives you real time options quotes. If you do not have one you can open a scottrade account with just $500 deposit. When I moved my money from scottrade to ameritrade they did not close my account even till this day I can access my scottrade account and see real time quotes and the same research they offered me before. You can try withdrawing your deposit and see if it stays open like mine did.\",\n \"Instead of saying which one is better, which is too subjective, I think it is more important to understand what these institutions are. They are kind of different animals. Edward Jones pretty much a full service wealth manager. They meet with you in person, advise you on what retirement and savings accounts to get, they talk to you to evaluate your risk preferences. They will talk to you about planning for your kids' college and about your insurance situation. They will probably attend your kids' bar mitzvahs and stuff too. Of course, this isn't free. With Edward Jones you will pay a fixed percentage of your managed wealth to them every year. And they will likely put your money in expensive mutual funds. And those mutual funds will charge a special 12b-1 fee, which is a kickback to the wealth manager. Plan on giving 2% or so of your total wealth to the manager per year, plus whatever the mutual funds charge. I don't have experience with Betterment, but they appear to be a robo advisor. Robo advisors attempt to do the same kinds of things as wealth managers, but rely on computer algorithms and web pages to give you advice whenever possible. This makes some sense because most people aren't actually that special in terms of their financial situation. I don't know their cost structure, but presumably it will be significantly cheaper than Edward Jones. They will almost certainly put you in cheaper funds (index funds and ETF's). Think of it as a cost-conscious alternative to Edward Jones. Vanguard is a discount broker and a mutual fund family. Their funds are among the biggest and cheapest in the world. Fees on many of these funds will be a fraction of the equivalent funds Edward Jones will put you in. They will charge you nothing at all to manage your money. They will give you some assistance and advice if you call them but don't expect any house calls. They aren't particularly in the business of giving advice. If you know what you want to invest in, this is the cheapest way to do it by far. Basically you won't have to pay anything at all except the actual cost of the assets you are investing in. Which is the best? Depends on your own preferences and ability. If you do not want to learn about personal finance and don't particularly care about whether you are getting the best return--if you don't mind paying for a personal touch--Edward Jones might be a good choice. For most people who are comfortable asking this type of question online and interested in learning about finance even a little bit, I'd expect that Betterment or Vanguard will be a better choice. For people who are willing to learn a bit of finance and manage their own affairs, using Vanguard (or a close competitor, like Fidelity) will ultimately result in the most wealth generated (the least given away to the financial industry).\",\n \"If liquidity and cost are your primary objectives, Vanguard is indeed a good bet. They are the walmart of finance and the absolute best at minimizing fees and other expenses. Your main portfolio holding should be VTI, the total stock market fund. Highly liquid and has the lowest fees out there at 0.05%. You can augment this with a world-minus-US fund if you want. No need to buy sector or specific geography funds when you can get the whole market for less. Add some bond funds and alternative investments (but not too much) if you want to be fully diversified.\",\n \"\\\"Traditional brokers There are tons of players in this market, especially in USA. You have traditional brokers, brokers tied to your bank and a bunch of startups. The easiest is probably a broker tied to your bank, because you probably don't have to wait to fund your brokerage account and can start trading immediately. Often the older/traditional brokers don't have very intuitive interfaces, it's the startups who do a better job at this. But honestly it doesn't really matter, because you can use reporting services that are different from the services you use to execute your trades. Meaning that you only use the interface of your broker to execute trades (buy or sell), and use third party services to monitor your holdings. Monitoring services: Google Finance, Yahoo Finance, Sigfig, Morningstar,... are services allowing you to monitor your holdings. But you can't execute trades with them. Start-ups: Then there are a bunch of startups that offer investment services besides the traditional brokers. Start-up > Robinhood The most ambitious one is Robinhood, which offers the same service as a traditional broker, but completely free (most of the traditional brokers charge a flat fee and/or percentage when buying/selling hodlings) and with an intuitive interface. They're mobile first, but announced they will be launching their service on the web soon. Start-up > Acorns Another popular, mobile-first start-up is Acorns. They offer a lazy-investing service which rounds your everyday purchases and uses the change to invest. It's great when investing is not on your mind, but you still want to invest without realizing it. Start-ups > Robo-advisors Robo-advisors auto-invest your money across a bunch of funds picked based on your risk profile. Because the robo-advisers are fairly new, they often have the most intuitive interfaces. These robo-advisors often don't allow you to pick individual holdings, so these services are best when you want to passively invest. Meaning you don't want to look at it very often, and let them do the investing for you. There are tons of robo-advisor start-ups: Betterment, Wealthfront, Personal Capital, Sigfig, FutureAdvisor,... Also bigger parties jumped on this trend with their offerings: Schwab Intelligent Portfolios, Ally Managed Portfolio, Vanguard Personal Advisor, etc. Summary: It's fun to pick individual stocks, but if you start out it can be overwhelming. Robinhood is probably the best start, they have reduced functionality, but gets you going with an attractive interface. But soon you'll realize it's extremely hard to beat the market. Meaning that hand-picking stocks statistically gives you a worse return than just buying into the general stock market (like S&P500). So you can decide to just buy one fund with a traditional broker that covers the general stock market. Or you can decide to try out one of the many robo-advisors. They haven't been around that long, so it's hard to tell how effective these are and whether they beat the market. If you're young, and you believe in start-ups (who often try to challenge the traditional players), try out one of the robo-advisors. If you want to play a bit and are addicted to your smartphone, try out Robinhood. If you are addicted to your phone, but don't want to check up on your investments all the time, go for Acorns. Of course you can combine all these. Lastly, there are tons of cryptocurrencies which might give you a large return. Tons of startups offer intuitive interfaces to trade cryptocurrencies like Coinbase, Gemini, Kraken. But beware, there is a lot of risk involved in trading cryptocurrencies, it's completely unregulated etc. But definitely check them out. Oh, and you can also invest by giving out loans through LendingClub, Prosper etc. Who can you trust? Above gives you an overview of your options intermingled with some reasoning. But regarding your question \\\"\\\"who can I trust\\\"\\\" in terms of advice, it's up to yourself. Most traditional broker services don't give you any advice at all, you're on your own. Robo-advisors don't give you advice either, but let their proprietary algorithm do the job. Are these reliable? Nobody can tell, they haven't been around long enough, and they need to go through a bear market (a crash) to see how they respond during rough times. Some robo-advisors offer you personal consultancy (I believe Sigfig and PersonalCapital) does this (limited to a few hours per year). But obviously they'll try to promote their robo-advisor services.\\\"\",\n \"\\\"Check the transactions costs, \\\"\\\"Desk fees\\\"\\\" and the whole structure, sit down with them and list everything. Then make a spreadsheet and calculate all the stuff they hit you with and figure out how good you have to be in trading to make money, (in terms of accuracy and p/l).\\\"\",\n \"Your cost of platform is built into your commission rates...SC is free if I sign up to a broker that charges more commissions. Right now I am with IB as my broker. With the cost of my charting, if I were to make 10 round turns per month, I would pay $4.50 per side commission on FOREX, $3.25 per side on EQUITIES. Still a better deal than ToS.\",\n \"Retail brokers and are generally not members of exchanges and would generally not be members of exchanges unless they are directly routing orders to those exchanges. Most retail brokers charging $7 are considered discount brokers and such brokers route order to Market Makers (who are members of the exchanges). All brokers and market makers must be members of FINRA and must pay FINRA registration and licensing fees. Discount brokers also have operational costs which include the cost of their facilities, technology, clearing fees, regulation and human capital. Market makers will have the same costs but the cost of technology is probably much higher. Discount brokers will also have market data fees which they will have to pay to the exchanges for the right to show customer real time quotes. Some of their fees can be offset through payment for order flow (POF) where market makers pay routing brokers a small fee for sending orders to them for execution. The practice of POF has actually allowed retail brokers to keep their costs lower but to to shrinking margins and spread market makers POF has significantly declined over the years. Markets makers generally do not pass along Exchange access fees which are capped at $.003 (not .0035) to routing brokers. Also note that The SEC and FINRA charges transactions fees. SEC fee for sales are generally passed along to customers and noted on trade confirms. FINRA TAF is born by the market makers and often subtracted from POF paid to routing firms. Other (full service brokers) charging higher commissions are charging for the added value of their brokers providing advice and expertise in helping investors with investment strategies. They will generally also have the same fees associated with membership of all the exchanges as they are also market makers subject to some of the list of cost mentioned above. One point of note is that Market Making technology is quite sophisticates and very expensive. It has driven most of wholesale market makers of the 90s into consolidation. Retail routing firm's save a significant amount of money for not having to operate such a system (as well as worry about the regulatory headaches associated with running such a system). This allows them to provide much lower commissions that the (full service) or bulge bracket brokers.\",\n \"OptionsXpress includes India in the list of countries where is possible to open an international account to invest in the US Stock Market. They just merged with Charles Schwab and they have a nice online trading platform. Stocks and ETFs are little bit pricey.. Get in touch with them to get more information.\",\n \"\\\"The first consideration for the banking part of your portfolio is safety. In the United States that is FDIC protection, or the equivalent for a Credit Union. The second consideration is does it have the level of service you need. For this I mean the location of branches, ATMs, or its online services meet your needs for speed, accuracy, and ability to access or move the money as you need. The rest are then balanced on the extras. For your situation those extras include the ability to make free trades. For other it might be a discount on their mortgage. For others it is free checking. In your current situation if the first two things are met, and you are using those extra benefits then don't change. For me the free trades wouldn't be a benefit, so any major degradation in the safety and service would cause me to leave. Keep in mind that free services exist to entice you to make a deposit: which they can then make money by lending it out; or they offer a free service to entice you to use a service they can charge you to use. All Free services come with a cost. I earned a completely paltry $3.33 YTD over the last 9 months on my savings at my bank presumably in exchange for these \\\"\\\"free\\\"\\\" trades. Without knowing how much you had deposited in your savings account there is no way to know how much you could have made at the bank across the street. But with the low rates of the last decade there is not big money to be made off the emergency savings of a typical american family.\\\"\",\n \"Both Scottrade and ING Direct (CapitalOne) have physical branches. Scottrade are wide-spread, ING/CapitalOne are less common (in California where I live, I have a bunch of Scottrade branches around where I live, but the only ING presence I know of is in LA on Sepulveda at Santa Monica). So one way to verify the company is legit is to go to their physical location and talk to the people there. Similarly, you can find physical locations in major metropolitan areas for many other web-based discount brokers. In my area (SF Bay Area) we have Scottrade, ETrade, Fidelity, TD Ameritrade, and that's just those I've actually seen with my own eyes. You can just walk in and talk to the people there about their options and their web operations. It is hard and unlikely for a sting operation to set up a web of brick-and-mortar offices across the nation. Even Madoff had only one or two offices. Of course I totally agree with Chris's answer, especially with regards to the SSL certificates' verification and spoofing and phishing avoidance.\",\n \"\\\"Before the prevalence of electronic trading, trading stocks was very costly, dropping from ~15c in the late 1970s to less than a nickel per share today. Exchange fees for liquidity takers are ~0.3c per share, currently. When orders were negotiated exclusively by humans, stocks used to be quoted in fractions rather than decimal, such as $50 1/2 instead of something more precise like $50.02. That necessary ease of negotiation for humans to rapidly trade extended to trade size as well. Traders preferred to handle orders in \\\"\\\"round lots\\\"\\\", 100 shares, for ease of calculation of the total cost of the trade, so 100 shares at $50 1/2 would have a total cost of $5,050. The time for a human to calculate an \\\"\\\"odd lot\\\"\\\" of 72 shares at $50.02 would take much longer so would cost more per share, and these costs were passed on to the client. These issues have been negated by electronic trading and simply no longer exist except for obsolete brokerages. There are cost advantages for extremely large trades, well above 100 shares per trade. Brokerage fees today run the gamut: they can be as insignificant as what Interactive Brokers charges to as high as a full service broker that could charge hundreds of USD for a few thousand USD trade. With full service brokerages, the charges are frequently mystifying and quoted at the time a trade is requested. With discount brokerages, there is usually a fee per trade and a fee per share or contract. Interactive Brokers will charge a fee per share or option only and will even refund parts of the liquidity rebates exchanges provide, as close as possible to having a seat on an exchange. Even if a trader does not meet Interactive Brokers' minimum trading requirement, the monthly fee is so low that it is possible that a buy and hold investor could benefit from the de minimis trade fees. It should be noted that liquidity providing hidden orders are typically not rebated but are at least discounted. The core costs of all trades are the exchange fees which are per share or contract. Over the long run, costs charged by brokers will be in excess of charges by exchanges, and Interactive Brokers' fee schedule shows that it can be reduced to a simple markup over exchange fees. Exchanges sometimes have a fee schedule with lower charges for larger trades, but these are out of reach of the average individual.\\\"\",\n \"\\\"For equities, buy direct from the transfer agent. You have to buy one full share at a minimum but after that dividend reinvestment is free. There are others like share builder and foliofn that let you buy fractional shares. As the other poster said their roster is limited so you cannot buy every ETF out there. With your example of not wanting to spend $200 I agree with the others that you should invest in a mutual fund. Vanguard will have every index fund you need and can invest as little as $50, as long as you sign up for a systematic investment draft from your bank. Plus vanguard typically has the lowest fees in the industry. The most important thing is to start investing as soon as possible and as regular as possible. \\\"\\\"Pay yourself first\\\"\\\"\\\"\",\n \"The same reason a company would offer coupons. I'd guess they're just doing it as a way to entice people to do their investing with them. Since it is any ETF I doubt they are being compensated by the ETF companies, as is sometimes the case (iShares does this with Fidelity, for example). And they still get the commission on the sale.\",\n \"I strongly suggest personal referral. Ask all of your friends/family/neighbors/co-workers/dog-sitter what they think of their brokers until you find someone who loves his broker. As for transferring assets, I've found it to be quite easy. It's in the new broker's best interest to get those assets, so he should be more than willing to help.\",\n \"In the past 10 years there have been mutual funds that would act as a single bucket of stocks and bonds. A good example is Fidelity's Four In One. The trade off was a management fee for the fund in exchange for having to manage the portfolio itself and pay separate commissions and fees. These days though it is very simple and pretty cheap to put together a basket of 5-6 ETFs that would represent a balanced portfolio. Whats even more interesting is that large online brokerage houses are starting to offer commission free trading of a number of ETFs, as long as they are not day traded and are held for a period similar to NTF mutual funds. I think you could easily put together a basket of 5-6 ETFs to trade on Fidelity or TD Ameritrade commission free, and one that would represent a nice diversified portfolio. The main advantage is that you are not giving money to the fund manager but rather paying the minimal cost of investing in an index ETF. Overall this can save you an extra .5-1% annually on your portfolio, just in fees. Here are links to commission free ETF trading on Fidelity and TD Ameritrade.\",\n \"\\\"I'm *really* surprised to see Schwab as \\\"\\\"only\\\"\\\" #5.. They don't specialize in \\\"\\\"niche\\\"\\\" ETFs, but for the core \\\"\\\"lazy portfolio\\\"\\\" style ETFs, I've always considered them neck-and-neck with Vanguard. That said - There's nothing wrong with obscure players in the market! I'd rather they had more exposure and therefore lower ERs, but the fact that something like $BBC *can* exist makes me sooo happy! That's pretty much my personal \\\"\\\"ultra high risk\\\"\\\" basket in one convenient form!\\\"\",\n \"For your purposes, I would recommend using direct investment in a no-load mutual fund. I mostly use Vanguard and would recommend them. They just about invented index funds, usually have the lowest (internal) expenses for index and many other funds, if you take electronic instead of paper statements there is no maintenance fee, have no transaction commission, can do periodic automatic investment from a bank account etc. A typical index fund there would require an initial $3000 investment and would have a minimum of $100 for each additional investment. If you can't come up with an initial sum of that size, you might be able to find a broker with a lower minimum and suitable free ETFs trades as others have suggested.\",\n \"\\\"Banks often offer cash to people who open savings accounts in order to drive new business. Their gain is pretty much as you think, to grow their asset base. A survey released in 2008 by UK-based Age Concern declared that only 16% of the British population have ever switched their banks‚ while 45% of marriages now end in divorce. Yip, till death do most part. In the US, similar analysis is pointing to a decline in people moving banks from the typical rate of 15% annually. If people are unwilling to change banks then how much more difficult for online brokers to get customers to switch? TD Ameritrade is offering you 30 days commission-free and some cash (0.2% - 0.4% depending on the funds you invest). Most people - especially those who use the opportunity to buy and hold - won't make much money for them, but it only takes a few more aggressive traders for them to gain overall. For financial institutions the question is straightforward: how much must they pay you to overcome your switching cost of changing institutions? If that number is sufficiently smaller than what they feel they can make in profits on having your business then they will pay. EDIT TO ELABORATE: The mechanism by which any financial institution makes money by offering cash to customers is essentially one of the \\\"\\\"law of large numbers\\\"\\\". If all you did is transfer in, say, $100,000, buy an ETF within the 30-day window (or any of the ongoing commission-free ones) and hold, then sell after a few years, they will probably lose money on you. I imagine they expect that on a large number of people taking advantage of this offer. Credit card companies are no different. More than half of people pay their monthly credit balance without incurring any interest charges. They get 30 days of credit for free. Everyone else makes the company a fortune. TD Ameritrade's fees are quite comprehensive outside of this special offer. Besides transactional commissions, their value-added services include subscription fees, administration fees, transaction fees, a few extra-special value-added services and, then, when you wish to cash out and realise your returns, an outbound transfer fee. However, you're a captured market. Since most people won't change their online brokers any more often than they'd change their bank, TD Ameritrade will be looking to offer you all sorts of new services and take commission on all of it. At most they spend $500-$600 to get you as a customer, or, to get you to transfer a lot more cash into their funds. And they get to keep you for how long? Ten years, maybe more? You think they might be able to sell you a few big-ticket items in the interim? Maybe interest you in some subscription service? This isn't grocery shopping. They can afford to think long-term.\\\"\",\n \"I'm going to assume that you want to be invested all the time and each trade consists in selling a security and buying another one (similar to your example). How much commissions you are willing to pay depends on several factors, but one way to think about it is as follows. You have a position in stock A and you want to switch to stock B because you think it will perform better. If you think there's a good chance (>50%) that B will outperform A by more than x% then you can happily pay up to x/2% commissions and still make money over a long time horizon. If you like formulae, one way to express it is: Where: Example: if you tend to be right 51% of the time (hit rate), and gain 110% more than you lose on average (win loss ratio), you can see that your expected profit is: 5.1% - commissions, so you could pay 2.5% commissions on entering and closing the position and still make money*. Unfortunately, common sense, statistics and numerous studies tell us a sad truth: on average, people have a hit rate of 50% and a win/loss ratio of 100%. Which means that their expected profit per trade is 0% - commission. Based on that crude observation - unless you can prove to yourself that you are better than average - you should aim at reducing commissions paid to your broker as much as possible through: * 51% and 110% are not random numbers, they correspond to the results of the top 15% (professional) managers in a research paper using a sample of 215 funds managing $150bn.\",\n \"Have you looked at ThinkorSwim, which is now part of TD Ameritrade? Because of their new owner, you'll certainly be accepted as a US customer and the support will likely be responsive. They are certainly pushing webinars and learning resources around the ThinkorSwim platform. At the least you can start a Live Help session and get your answers. That link will take you to the supported order types list. Another tab there will show you the currency pairs. USD is available with both CAD and JPY. Looks like the minimum balance requirement is $25k across all ThinkorSwim accounts. Barron's likes the platform and their annual review may help you find reasons to like it. Here is more specific news from a press release: OMAHA, Neb., Aug 24, 2010 (BUSINESS WIRE) -- TD AMERITRADE Holding Corporation (NASDAQ: AMTD) today announced that futures and spot forex (foreign exchange) trading capabilities are now available via the firm's thinkorswim from TD AMERITRADE trading platform, joining the recently introduced complex options functionality.\",\n \"One thing to be aware of when choosing mutual funds and index ETFs is the total fees and costs. The TD Ameritrade site almost certainly had links that would let you see the total fees (as an annual percentage) for each of the funds. Within a category, the lowest fees percentage is best, since that is directly subtracted from your performance. As an aside, your allocation seems overly conservative to me for someone that is 25 years old. You will likely work for 40 or so years and the average stock market cycle is about 7 years. So you will likely see 5 or so complete cycles. Worrying about stability of principal too young will really cut into your returns. My daughter is your age and I have advised her to be 100% in equities and then to start dialing that back in about 25 years or so.\",\n \"\\\"For \\\"\\\"smaller trades\\\"\\\", I'm not sure you can beat FXCM.com, a large, dedicated FX trading shop with extremely tight spreads, and a \\\"\\\"Micro\\\"\\\" account that you can open for as little as $25(US). Their \\\"\\\"main\\\"\\\" offering has a minimum account size of $2k (US), but recommends an account size of $10k or more. But they also have a \\\"\\\"micro\\\"\\\" account, which can be opened for as little as $25, with a $500 or higher recommended size. I haven't used them personally, but they're well known in the discount FX space. One strong positive indicator, in my opinion, is that they sell an online FX training course for $19.99. Why is that positive? It means that their margins on your activity are small, and they're not trying to get you \\\"\\\"hooked\\\"\\\". If that were not the case, they'd give the course away, since they'd be able to afford to, and they would expect to make so much of your subsequent activity. They do have some free online materials, too, but not the video stuff. Another plus is that they encourage you to use less leverage than they allow. This does potentially serve their interests, by getting more of your deposits with them, but a lot of FX shops advertise the leverage to appeal to users' hope to make more faster, which isn't a great sign, in my opinion. Note that the micro account has no human support; you can only get support via email. On the other hand, the cost to test them out is close to nil; you can literally open an account for $25.\\\"\",\n \"\\\"(I answered a similar question before.) Essentially, you shouldn't trust a site you find on the Internet merely because it looks professional and real. Before signing up with any new service provider you found online, you should verify the authenticity of both the organization itself and their web site address. Even if the name displayed by a web site represents a legitimate brokerage firm, any site you happen to come across on the Internet could be an elaborate spoof of a real company, intended to capture your personal details (or worse). First, to check if a brokerage firm is in fact registered to trade securities – in the United States – you can consult FINRA's BrokerCheck online service. This might be the first of many checks you should undertake ... after you convince yourself that FINRA is legitimate. A meta-problem ;-) Then, if you want to know if the web site address is authentic, one way is to contact that broker offline using the contact information found from a trusted source, such as the FINRA BrokerCheck details. Unfortunately, those details do not currently appear to contain the broker's web site URL. (Else, that could be useful.) Another thing to look at is the site's login or sign-up page, for a valid SSL certificate that is both issued to the correct legal name of the brokerage firm as well as has been signed by a well-known certificate authority (e.g. VeriSign). For a financial services firm of any kind, you should look for and expect to see an Extended Validation Certificate. Any other kind of certificate might only assert that the certificate was issued to the domain-name owner, and not necessarily to an organization with the registered legal name. (Yes, anybody can register a domain with a similar name and then acquire a basic SSL certificate for that domain.) FWIW, Scottrade and ShareBuilder are both legitimate brokers (I was aware already of each, but I also just checked in the FINRA tool), and the URLs currently linked to by the question are legitimate web site addresses for each. Also, you can see their EV certificates in action on secured pages here and here. As to whether your investments with those brokers would be \\\"\\\"safe\\\"\\\" in the event of the broker failing (e.g. goes bankrupt), you'll want to know that they are members of the Securities Investor Protection Corporation (Wikipedia). (Of course, this kind of protection doesn't protect you if your investments simply go down in value.) But do your own due diligence – always.\\\"\",\n \"\\\"Free, huh? From their Commission and Fee Schedule: So if you literally bought two shares, then the SEC added one penny in fees and FINRA added one penny as a \\\"\\\"Trading Activity Fee\\\"\\\" Note that there are several other fees on their schedule that may not apply to you. If you had bought 100 shares instead, your total fees would have still been only 2 cents, but you would have lost $4 on the trade. So the fees are minuscule when you start doing larger orders. However, That should not discourage you from experimenting and learning. I'd rather pay 2 cents in fees on a 4 cent loss than 2 cents in fees on a $400 loss. Just chalk it up to the cost of experience.\\\"\",\n \"First--and I'm only repeating what has been said already--roboadvisors are a great way to avoid paying high MERs and still not have to do much yourself. The Canadian Couch Potato method is great IF you are disciplined and spend the time every few months to regularly re-balance your portfolio. However, any savings you gain in low MERs is going to very likely be lost if you aren't re-balancing or if you aren't patient and disciplined in your investing. For that reason, the Couch Potato way isn't appropriate for 97% of the general population in my opinion. But if you are reading this, you probably already aren't a member of the general population. For myself, life seems always too busy and I've got a kid on the way. I see a huge value in using a robo-advisor (or alternatively Tangerine) and saving time in my day. The next question, which robo-advisor is best? I did a bunch of research here and my conclusion is that they are all fairly similar. My final three came down to Wealthbar/Wealthsimple/NestWeatlh. Price structures vary, but minus a few dollars here or there, there isn't a lot of difference in costs. What made WealthSimple stick out was that they provide some options for US citizens that help me prevent tax headaches. They also got back to me by email with really detailed answers when I had questions, which was really appreciated. Their site and monthly updates are minimalist and intuitive to navigate. Great user experience all around (I do web design myself). My gut feeling is that they have their act together and will stick around as a company for a long while.\",\n \"\\\"If you want to deposit checks or conduct business at a window, you should look at a local savings bank or credit union. Generally, you can find one that will offer \\\"\\\"free\\\"\\\" checking in exchange for direct deposit or a minimum balance. Some are totally free, but those banks pay zippo for interest. If you don't care about location, I would look at Charles Schwab Bank. I've been using them for a couple of years and have been really satisfied with them. They provide free checking, ATM fee reimbursement, free checks and pre-paid deposit envelopes. You also can easily move money between Schwab brokerage or savings accounts. Other brokers offer similar services as well.\\\"\",\n \"It is more easier if you select a Broker in India that would allow you these services. The reason being the broker in India will follow the required norms by India and allow you to invest without much hassel. Further as the institution would be in India, it would be more easy for resolving any disputes. ICICI Direct an Indian online broker allows one to trade in US stocks. For more details refer to ICIC Direct. Reliance Money also offers limited trading in US stocks. Selecting a Broker in US maybe more difficult as your would have to met their KYC norm's and also operate a Bank account in US. I am not aware of the requirements. For more details visit ICICI Direct website. Refer to http://www.finance-trading-times.com/2007/10/investing-in-us-stocks-and-options.html for a news article. TDAmeritrade or Charlesschwab are good online brokers, however from what I read they are more for US nationals holding Social Security. Further with the recent events and KYC norms becoming more stringent, it would be difficult for an individual [Indian Citizen] to open an account directly with these firms.\",\n \"About 10 years ago, I used to use MetaStock Trader which was a very sound tool, with a large number of indicators, but it has been a number of years since I have used it, so my comments on it will be out of date. At the time it relied upon me purchasing trading data myself, which is why I switched to Incredible Charts. I currently use Incredible Charts which I have done for a number of years, initially on the free adware service, now on the $10/year for EOD data access. There are quicker levels of data access, which might suit you, but I can't comment on these. It is web-based which is key for me. The data quality is very good and the number of inbuilt indicators is excellent. You can build search routines on the basis of specific indicators which is very effective. I'm looking at VectorVest, as a replacement for (or in addition to) Incredible Charts, as it has very powerful backtesting routines and the ability to run test portfolios with specific buy/sell criteria that can simulate and backtest a number of trading scenarios at the same time. The advantage of all of these is they are not tied to a particular broker.\",\n \"I traded futures for a brief period in school using the BrokersXpress platform (now part of OptionsXpress, which is in turn now part of Charles Schwab). They had a virtual trading platform, and apparently still do, and it was excellent. Since my main account was enabled for futures, this carried over to the virtual account, so I could trade a whole range of futures, options, stocks, etc. I spoke with OptionsXpress, and you don't need to fund your acount to use the virtual trading platform. However, they will cancel your account after an arbitrary period of time if you don't log in every few days. According to their customer service, there is no inactivity fee on your main account if you don't fund it and make no trades. I also used Stock-Trak for a class and despite finding the occasional bug or website performance issue, it provided a good experience. I received a discount because I used it through an educational institution, and customer service was quite good (probably for the same reason), but I don't know if those same benefits would apply to an individual signing up for it. I signed up for top10traders about seven years ago when I was in secondary school, and it's completely free. Unfortunately, you get what you pay for, and the interface was poorly designed and slow. Furthermore, at that time, there were no restrictions that limited the number of shares you could buy to the number of outstanding shares, so you could buy as many as you could afford, even if you exceeded the number that physically existed. While this isn't an issue for large companies, it meant you could earn a killing trading highly illiquid pink sheet stocks because you could purchase billions of shares of companies with only a few thousand shares actually outstanding. I don't know if these issues have been corrected or not, but at the time, I and several other users took advantage of these oversights to rack up hundreds of trillions of dollars in a matter of days, so if you want a realistic simulation, this isn't it. Investopedia also has a stock simulator that I've heard positive things about, although I haven't used it personally.\",\n \"Go to fidelity.com and open a free brokerage account. Deposit money from your bank account into your fidelity account. (expect a minimum of $2500, FBIDX requires more I believe) Buy free to trade ETF Funds of your liking. I tend to prefer US Bonds to stocks, FBIDX is a decent intermediate US Bond etf, but the euro zone has added a little more volatile lately than I'd like. If you do really want to trade stocks, you may want to go with a large cap fund like FLCSX, but it is more risky especially in this economy. (but buy low sell high right?) I've put my savings into FBIDX and FGMNX (basically the same thing, intermediate bond ETF funds) and made $700 in interest and capitol gains last year. (started with zero initially, have 30k in there now)\",\n \"\\\"You can start investing with any amount. You can use the ShareBuilder account to purchase \\\"\\\"partial\\\"\\\" stocks through their automatic investment plan. Usually brokers don't sell parts of stock, and ShareBuilder is the only one allowing it IMHO using its own tricks. What they do basically is buy a stock and then divide it internally among several investors who bought it, while each of the investors doesn't really own it directly. That's perfect for investing small amounts and making first steps in investing.\\\"\",\n \"Online banks are the future. As long as you don't need a clerk to talk to (and why would you need?) there's nothing you can't do with an online bank that you can with a brick and mortar robbers. I use E*Trade trading account as a checking account (it allows writing paper checks, debit card transactions, ACH in/out, free ATM, etc). If you don't need paper checks that often you can use ING or something similar. You can always go to a local credit union, but those will wave the fee in exchange for direct deposit or high balance, and that you can also get from the large banks as well, so no much difference there. Oh where where did Washington Mutual go....\",\n \"Each trade will cost you nearly $10 to buy and then $10 to sell. With $1800 that is literally 1% of your initial investment lost to fees. It would be far wiser for you to learn with play money instead. Head over to investopedia and use pretend money: http://www.investopedia.com/simulator/ If you're absolutely fine with losing your $1800 than go ahead and jump into some companies you like. I would not recommend that though. Put the $1800 into one single position that you will hold for a few years and play with pretend money to get a better feel for short term trades.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["I agree, Schwab representatives are easy to reach and very helpful. I also like Vanguard for their low mutual fund fees, so I do my retirement stuff with them, but it took forever to get in touch with a representative just to ask a simple question. Now that they are lowering their rates to 8.95 per trade (effective January 19th), the value for your money is even better.","I am very happy with Charles Schwab. I use both their investing tools and banking tool, but I don't do much investing besides buy more shares a random mutual fund I purchase 4 years ago I did once need to call in about an IRA rollover and I got a person on the phone immediately who answered my questions and followed up as he said he would. It is anecdotal, but I am happy with them.","\"If you have at least $25,000, Wells Fargo is the place to be, as you get 100 free trades per account. I have three investment accounts with them and get 100 free trades in each a year, though I only ever actually use 10-20. i can't vouch for their phone service as I've never needed it, but free is very hard to beat in the \"\"value for money\"\" department. Update: Apparently in some states the requirement is $50,000. However, they count 10% of your mortgage as well as all deposit and investment accounts toward that balance.\"","\"I've never used them myself, but Scottrade might be something for you to look at. They do $7 internet trades, but also offer $27 broker assisted trades (that's for stocks, in both cases). Plus, they have brick-and-morter storefronts all over the US for that extra \"\"I gotta have a human touch\"\". :-) Also, they do have after hours trading, for the same commission as regular trading.\"","For self-service type online customers, OptionsXpress gives me far better trading features(like technicals advanced conditions) and tools, ACH money management & scheduling, fullfillment too. $9 stock trades. I don't know if they yet share Schwab's (their new parent company?) commission-free ETFs getting so trendy nowadays."],"string":"[\n \"I agree, Schwab representatives are easy to reach and very helpful. I also like Vanguard for their low mutual fund fees, so I do my retirement stuff with them, but it took forever to get in touch with a representative just to ask a simple question. Now that they are lowering their rates to 8.95 per trade (effective January 19th), the value for your money is even better.\",\n \"I am very happy with Charles Schwab. I use both their investing tools and banking tool, but I don't do much investing besides buy more shares a random mutual fund I purchase 4 years ago I did once need to call in about an IRA rollover and I got a person on the phone immediately who answered my questions and followed up as he said he would. It is anecdotal, but I am happy with them.\",\n \"\\\"If you have at least $25,000, Wells Fargo is the place to be, as you get 100 free trades per account. I have three investment accounts with them and get 100 free trades in each a year, though I only ever actually use 10-20. i can't vouch for their phone service as I've never needed it, but free is very hard to beat in the \\\"\\\"value for money\\\"\\\" department. Update: Apparently in some states the requirement is $50,000. However, they count 10% of your mortgage as well as all deposit and investment accounts toward that balance.\\\"\",\n \"\\\"I've never used them myself, but Scottrade might be something for you to look at. They do $7 internet trades, but also offer $27 broker assisted trades (that's for stocks, in both cases). Plus, they have brick-and-morter storefronts all over the US for that extra \\\"\\\"I gotta have a human touch\\\"\\\". :-) Also, they do have after hours trading, for the same commission as regular trading.\\\"\",\n \"For self-service type online customers, OptionsXpress gives me far better trading features(like technicals advanced conditions) and tools, ACH money management & scheduling, fullfillment too. $9 stock trades. I don't know if they yet share Schwab's (their new parent company?) commission-free ETFs getting so trendy nowadays.\"\n]","isConversational":false}}},{"rowIdx":382,"cells":{"_id":{"kind":"string","value":"7590"},"query":{"kind":"string","value":"Why are US target retirement funds weighted so heavily towards US stocks?"},"gt_ids":{"kind":"list like","value":["105165","222505"],"string":"[\n \"105165\",\n \"222505\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1],"string":"[\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["105165","222505","569834","293679","269579","315959","554126","346474","542795","79275","57070","597434","19040","549188","575435","575046","248799","118800","268731","31954","7969","499166","128077","186575","252918","240975","330743","545760","562305","142631","81304","462581","400356","586029","309157","329425","206118","112369","155242","267904","374225","562061","324661","418551","568443","119392","451196","214264","102904","584627","578427","466403","365295","446697","105666","250195","344783","196721","150707","358704","247051","118691","513474","370281","102620","60032","272790","435746","307409","96021","246253","513818","335136","222076","135765","268023","593879","34986","599293","94875","522257","185443","107554","216391","599436","9465","381104","127263","331492","167194","579319","178438","392826","562919","135453","60232","124042","589602","84642","66607"],"string":"[\n \"105165\",\n \"222505\",\n \"569834\",\n \"293679\",\n \"269579\",\n \"315959\",\n \"554126\",\n \"346474\",\n \"542795\",\n \"79275\",\n \"57070\",\n \"597434\",\n \"19040\",\n \"549188\",\n \"575435\",\n \"575046\",\n \"248799\",\n \"118800\",\n \"268731\",\n \"31954\",\n \"7969\",\n \"499166\",\n \"128077\",\n \"186575\",\n \"252918\",\n \"240975\",\n \"330743\",\n \"545760\",\n \"562305\",\n \"142631\",\n \"81304\",\n \"462581\",\n \"400356\",\n \"586029\",\n \"309157\",\n \"329425\",\n \"206118\",\n \"112369\",\n \"155242\",\n \"267904\",\n \"374225\",\n \"562061\",\n \"324661\",\n \"418551\",\n \"568443\",\n \"119392\",\n \"451196\",\n \"214264\",\n \"102904\",\n \"584627\",\n \"578427\",\n \"466403\",\n \"365295\",\n \"446697\",\n \"105666\",\n \"250195\",\n \"344783\",\n \"196721\",\n \"150707\",\n \"358704\",\n \"247051\",\n \"118691\",\n \"513474\",\n \"370281\",\n \"102620\",\n \"60032\",\n \"272790\",\n \"435746\",\n \"307409\",\n \"96021\",\n \"246253\",\n \"513818\",\n \"335136\",\n \"222076\",\n \"135765\",\n \"268023\",\n \"593879\",\n \"34986\",\n \"599293\",\n \"94875\",\n \"522257\",\n \"185443\",\n \"107554\",\n \"216391\",\n \"599436\",\n \"9465\",\n \"381104\",\n \"127263\",\n \"331492\",\n \"167194\",\n \"579319\",\n \"178438\",\n \"392826\",\n \"562919\",\n \"135453\",\n \"60232\",\n \"124042\",\n \"589602\",\n \"84642\",\n \"66607\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"Excellent question, though any why question can be challenging to answer because it depends on the financial products in question. At least, I haven't seen many target date retirement funds that include a high percent of foreign stocks, so below explains the ones I've seen which are primarily US stocks. The United States (before the last twenty years) has been seen as a country of stability. This is not true anymore, and it's difficult for my generation to understand because we grew up in the U.S.A being challenged (and tend to think that China and India have always been powers), but when we read investors, like Benjamin Graham (who had significant influence with Warren Buffett), we can see this bias - the U.S.A to them is stable, and other countries are \"\"risky.\"\" Again, with the national debt and the political game in our current time, it does not feel this way. But that bias is often reflect in financial instruments. The US Dollar is still the reserve currency, though it's influence is declining and I would expect it to decline. Contrary to my view (because I could be wrong here) is Mish, who argues that no one wants to have the reserve currency because having a reserve currency brings disadvantages (see here: Bogus Threats to US Reserve Currency Status: No Country Really Wants It!; I present this to show that my view could be wrong). Finally, there tends to be the \"\"go with what you know.\"\" Many of these funds are managed by U.S. citizens, so they tend to have a U.S. bias and feel more comfortable investing their money \"\"at home\"\" (in fact a famous mutual fund manager, Peter Lynch, had a similar mentality - buy the company behind the stock and what company do we tend to know best? The ones around us.). One final note, I'm not saying this mentality is correct, just what the attitude is like. I think you may find that younger mutual fund managers tend to include more foreign stocks, as they've seen that different world.\"","A target date fund is NOT a world market index. There is no requirement that it be weighted based on the weights of the various world stock markets. If anything, historically (since the invention of target date funds), a 2:1 ratio is actually pretty low. 6:1 is, or was, probably more common. Just a token amount to non-US investments.","\"To expand a bit on @MSalters's answer ... When I read your question title I assumed that by \"\"retirement funds\"\" you meant target-date funds that are close to their target dates (say, the 2015 target fund). When I saw that you were referring to all target-date funds, it occurred to me that examining how such funds modify their portfolios over time would actually help answer your question. If you look at a near-term target fund you can see that a smaller percent is invested internationally, the same way a smaller percent is invested in stocks. It's because of risk. Since it's more likely that you will need some of the money soon, and since you'll be cashing out said money in US Dollars, it's risky to have too much invested in foreign currencies. If you need money that's currently invested in a foreign currency and that currency happens to be doing poorly against USD at the moment, then you'll lose money simply because you need it now. This is the same rationale that goes into target-date funds' moving from stocks to bonds over time. Since the value of a stock portfolio has a lot more natural volatility than the value of a bond portfolio, if you're heavily invested in stocks when you need to withdraw money, there's a higher probability that you'll need to cash out just when stocks happen to be doing relatively poorly. Being invested more in bonds around when you'll need your money is less risky. Similarly, being more invested in US dollars than in foreign currencies around when you'll need your money is also less risky.\"","Googling vanguard target asset allocation led me to this page on the Bogleheads wiki which has detailed breakdowns of the Target Retirement funds; that page in turn has a link to this Vanguard PDF which goes into a good level of detail on the construction of these funds' portfolios. I excerpt: (To the question of why so much weight in equities:) In our view, two important considerations justify an expectation of an equity risk premium. The first is the historical record: In the past, and in many countries, stock market investors have been rewarded with such a premium. ... Historically, bond returns have lagged equity returns by about 5–6 percentage points, annualized—amounting to an enormous return differential in most circumstances over longer time periods. Consequently, retirement savers investing only in “safe” assets must dramatically increase their savings rates to compensate for the lower expected returns those investments offer. ... The second strategic principle underlying our glidepath construction—that younger investors are better able to withstand risk—recognizes that an individual’s total net worth consists of both their current financial holdings and their future work earnings. For younger individuals, the majority of their ultimate retirement wealth is in the form of what they will earn in the future, or their “human capital.” Therefore, a large commitment to stocks in a younger person’s portfolio may be appropriate to balance and diversify risk exposure to work-related earnings (To the question of how the exact allocations were decided:) As part of the process of evaluating and identifying an appropriate glide path given this theoretical framework, we ran various financial simulations using the Vanguard Capital Markets Model. We examined different risk-reward scenarios and the potential implications of different glide paths and TDF approaches. The PDF is highly readable, I would say, and includes references to quant articles, for those that like that sort of thing.","You need growth in your retirement fund. Sad to say but the broad U.S. marks still has better growth perspective than the emerging markets. Look at China they are only at 6.7% growth for next year the same as this year. Russia's economy is shrinking. These are the other two super powers of 2015. The USA is still the best market to invest in historically and in the present. That's why the USA market tends to be overweight in most retirement portfolios. Now by only investing in the USA market do you miss out on trends internationally? Well you do a bit but not entirely. Many USA companies are highly international in regards to their growth. Here are some: So in short the USA market still seems to be the best growth market and you still get some international exposure. Also by investing in USA companies they sometimes are more ethical in their book keeping as opposed to some other markets. I don't think I'm the only one that is skeptical of the numbers China's government reports.","\"It's likely that the main reason is the additional currency risk for non-USD investments. A wider diversification in general lowers risk, but that has to be balanced by the risk incurred when investing abroad. This implies that the key factor isn't so much the country of residence, but the currency of the listing. Euro funds can invest across the whole Euro zone. Things become more complex when you consider countries whose currency is less trusted and whose economy is less diversified. In those cases, the \"\"currency risk\"\" may be more due to the national currency, which justifies a more global investment strategy.\"","\"When you have multiple assets available and a risk-free asset (cash or borrowing) you will always end up blending them if you have a reasonable objective function. However, you seem to have constrained yourself to 100% investment. Combine that with the fact that you are considering only two assets and you can easily have a solution where only one asset is desired in the portfolio. The fact that you describe the US fund as \"\"dominating\"\" the forign fund indicates that this may be the case for you. Ordinarily diversification benefits the overall portfolio even if one asset \"\"dominates\"\" another but it may not in your special case. Notice that these funds are both already highly diversified, so all you are getting is cross-border diversification by getting more than one. That may be why you are getting the solution you are. I've seen a lot of suggested allocations that have weights similar to what you are using. Finding an optimal portfolio given a vector of expected returns and a covariance matrix is very easy, with some reliable results. Fancy models get pretty much the same kinds of answers as simple ones. However, getting a good covariance matrix is hard and getting a good expected return vector is all but impossible. Unfortunately portfolio results are very sensitive to these inputs. For that reason, most of us use portfolio theory to guide our intuition, but seldom do the math for our own portfolio. In any model you use, your weak link is the expected return and covariance. More sophisticated models don't usually help produce a more reasonable result. For that reason, your original strategy (80-20) sounds pretty good to me. Not sure why you are not diversifying outside of equities, but I suppose you have your reasons.\"","I'm looking for ways to geared to save for retirement, not general investment. Many mutual fund companies offer a range of target retirement funds for different retirement dates (usually in increments of 5 years). These are funds of funds, that is, a Target 2040 Fund, say, will be invested in five or six different stock and bond mutual funds offered by the same company. Over the years and as the target date approaches closer, the investment mix will change from extra weight given to stock mutual funds towards extra weight being given to bond mutual funds. The disadvantage to these funds is that the Target Fund charges its own expense ratio over and above the expense ratios charged by the mutual funds it invests in: you could do the same investments yourself (or pick your own mix and weighting of various funds) and save the extra expense ratio. However, over the years, as the Target Fund changes its mix, withdrawing money from the stock mutual funds and investing the proceeds into bond mutual funds, you do not have to pay taxes on the profits generated by these transactions except insofar as some part of the profits become distributions from the Target Fund itself. If you were doing the same transactions outside the Target Fund, you would be liable for taxes on the profits when you withdrew money from a stock fund and invested the proceeds into the bond fund.","So I did some queries on Google Scholar, and the term of art academics seem to use is target date fund. I notice divided opinions among academics on the matter. W. Pfau gave a nice set of citations of papers with which he disagrees, so I'll start with them. In 1969, Paul Sameulson published the paper Lifetime Portfolio Selection By Dynamic Stochaistic Programming, which found that there's no mathematical foundation for an age based risk tolerance. There seems to be a fundamental quibble relating to present value of future wages; if they are stable and uncorrelated with the market, one analysis suggests the optimal lifecycle investment should start at roughly 300 percent of your portfolio in stocks (via crazy borrowing). Other people point out that if your wages are correlated with stock returns, allocations to stock as low as 20 percent might be optimal. So theory isn't helping much. Perhaps with the advent of computers we can find some kind of empirical data. Robert Shiller authored a study on lifecycle funds when they were proposed for personal Social Security accounts. Lifecycle strategies fare poorly in his historical simulation: Moreover, with these life cycle portfolios, relatively little is contributed when the allocation to stocks is high, since earnings are relatively low in the younger years. Workers contribute only a little to stocks, and do not enjoy a strong effect of compounding, since the proceeds of the early investments are taken out of the stock market as time goes on. Basu and Drew follow up on that assertion with a set of lifecycle strategies and their contrarian counterparts: whereas a the lifecycle plan starts high stock exposure and trails off near retirement, the contrarian ones will invest in bonds and cash early in life and move to stocks after a few years. They show that contrarian strategies have higher average returns, even at the low 25th percentile of returns. It's only at the bottom 5 or 10 percent where this is reversed. One problem with these empirical studies is isolating the effect of the glide path from rebalancing. It could be that a simple fixed allocation works plenty fine, and that selling winners and doubling down on losers is the fundamental driver of returns. Schleef and Eisinger compare lifecycle strategy with a number of fixed asset allocation schemes in Monte Carlo simulations and conclude that a 70% equity, 30% long term corp bonds does as well as all of the lifecycle funds. Finally, the earlier W Pfau paper offers a Monte Carlo simulation similar to Schleef and Eisinger, and runs final portfolio values through a utility function designed to calculate diminishing returns to more money. This seems like a good point, as the risk of your portfolio isn't all or nothing, but your first dollar is more valuable than your millionth. Pfau finds that for some risk-aversion coefficients, lifecycles offer greater utility than portfolios with fixed allocations. And Pfau does note that applying their strategies to the historical record makes a strong recommendation for 100 percent stocks in all but 5 years from 1940-2011. So maybe the best retirement allocation is good old low cost S&P index funds!","Foreign stocks tend to be more volatile -- higher risk trades off against higher return potential, always. The better reason for having some money in that area is that, as with bonds, it moves out-of-sync with the US markets and once you pick your preferred distribution, maintaining that balance semi-automatically takes advantage of that to improve your return-vs-risk position. I have a few percent of my total investments in an international stock index fund, and a few percent in an international REIT, both being fairly low-fee. (Low fees mean more of the money reaches you, and seems to be one of the better reasons for preferring one fund over another following the same segment of the market.) They're there because the model my investment advisor uses -- and validated with monte-carlo simulation of my specific mix -- shows that keeping them in the mix at this low level is likely to result in a better long-term outcome than if i left them out. No guarantees, but probabilities lean toward this specfic mix doing what i need. I don't pretend to be able to justify that via theory or to explain why these specific ratios work... but I understand enough about the process to trust that they are on (perhaps of many) reasonable solutions to get the best odds given my specific risk tolerance, timeline, and distaste for actively managing my money more than a few times a year. If that.","Mostly you nailed it. It's a good question, and the points you raise are excellent and comprise good analysis. Probably the biggest drawback is if you don't agree with the asset allocation strategy. It may be too much/too little into stocks/bonds/international/cash. I am kind of in this boat. My 401K offers very little choices in funds, but offers Vanguard target funds. These tend to be a bit too conservative for my taste, so I actually put money in the 2060 target fund. If I live that long, I will be 94 in 2060. So if the target funds are a bit too aggressive for you, move down in years. If they are a bit too conservative, move up.","Keep in mind that the bond market is dominated by US Treasury securities... if there were an S&P 500 for bonds, the US would take positions 1-400. Be careful that you understand what's in your bond funds -- you may not be as diversified as you think.","\"The thing about the glide path is that the closer you're to the retirement age, the less risk you should be taking with your investments. All investments carry risk, but if you invest in a volatile stock market at the age of 20 and lose all your retirement money - it will not have the same effect on your retirement as if you'd invest in a volatile stock market at the age of 65 and then lose all your retirement money. Static allocation throughout your life without changing the risk factor, will lead you to a very conservative investment path, which would mean you're not likely to lose your investments, but you're not likely to gain much either. The point of the glide path is to allow you taking more risks early with more chances of higher gains, but to limit your risks down the road, also limiting your potential gains. That is why it is always suggested to start your retirement funds early in your life, to make sure you have enough time to invest in potentially high return stocks (with high risk), but when you get close to your retirement age, it is advised to do exactly the opposite. The date-targeted funds do that for you, but you can do it on your own as well. As to the academic research - you don't need to go that far. Just look at the graphs to see that over long period investments in stocks give much better return than \"\"conservative\"\" bonds and treasuries (especially when averaging the investments, as it usually is with the retirement funds), but over a given short period, investments in stocks are much more likely to significantly lose in value.\"","\"If you read Joel Greenblatt's The Little Book That Beats the Market, he says: Owning two stocks eliminates 46% of the non market risk of owning just one stock. This risk is reduced by 72% with 4 stocks, by 81% with 8 stocks, by 93% with 16 stocks, by 96% with 32 stocks, and by 99% with 500 stocks. Conclusion: After purchasing 6-8 stocks, benefits of adding stocks to decrease risk are small. Overall market risk won't be eliminated merely by adding more stocks. And that's just specific stocks. So you're very right that allocating a 1% share to a specific type of fund is not going to offset your other funds by much. You are correct that you can emulate the lifecycle fund by simply buying all the underlying funds, but there are two caveats: Generally, these funds are supposed to be cheaper than buying the separate funds individually. Check over your math and make sure everything is in order. Call the fund manager and tell him about your findings and see what they have to say. If you are going to emulate the lifecycle fund, be sure to stay on top of rebalancing. One advantage of buying the actual fund is that the portfolio distributions are managed for you, so if you're going to buy separate ETFs, make sure you're rebalancing. As for whether you need all those funds, my answer is a definite no. Consider Mark Cuban's blog post Wall Street's new lie to Main Street - Asset Allocation. Although there are some highly questionable points in the article, one portion is indisputably clear: Let me translate this all for you. “I want you to invest 5pct in cash and the rest in 10 different funds about which you know absolutely nothing. I want you to make this investment knowing that even if there were 128 hours in a day and you had a year long vacation, you could not possibly begin to understand all of these products. In fact, I don’t understand them either, but because I know it sounds good and everyone is making the same kind of recommendations, we all can pretend we are smart and going to make a lot of money. Until we don’t\"\" Standard theory says that you want to invest in low-cost funds (like those provided by Vanguard), and you want to have enough variety to protect against risk. Although I can't give a specific allocation recommendation because I don't know your personal circumstances, you should ideally have some in US Equities, US Fixed Income, International Equities, Commodities, of varying sizes to have adequate diversification \"\"as defined by theory.\"\" You can either do your own research to establish a distribution, or speak to an investment advisor to get help on what your target allocation should be.\"","The target date investment will automatically reduce equity exposure and increase bond exposure as it approaches retirement date. If you are unlikely to make adjustments as you get older, you may be setting yourself up for more risk down the road. Only you can decide what level of risk you can tolerate as you chase higher gains.","why should I have any bias in favour of my local economy? The main reason is because your expenses are in the local currency. If you are planning on spending most of your money on foreign travel, that's one thing. But for most of us, the bulk of our expenses are incurred locally. So it makes sense for us to invest in things where the investment return is local. You might argue that you can always exchange foreign results into local currency, and that's true. But then you have two risks. One risk you'll have anywhere: your investments may go down. The other risk with a foreign investment is that the currency may lose value relative to your currency. If that happens, even a good performing investment can go down in terms of what it can return to you. That fund denominated in your currency is really doing these conversions behind the scenes. Unless the bulk of your purchases are from imports and have prices that fluctuate with your currency, you will probably be better off in local investments. As a rough rule of thumb, your country's import percentage is a good estimate of how much you should invest globally. That looks to be about 20% for Australia. So consider something like 50% local stocks, 20% local bonds, 15% foreign stocks, 5% foreign bonds, and 10% local cash. That will insulate you a bit from a weak local currency while not leaving you out to dry with a strong local currency. It's possible that your particular expenses might be more (or less) vulnerable to foreign price fluctuations than the typical. But hopefully this gives you a starting point until you can come up with a way of estimating your personal vulnerability.","\"I don't think the advice to take lots more risk when young makes so much sense. The additional returns from loading up on stocks are overblown; and the rocky road from owning 75-100% stocks will almost certainly mess you up and make you lose money. Everyone thinks they're different, but none of us are. One big advantage of stocks over bonds is tax efficiency only if you buy index funds and don't ever sell them. But this does not matter in a retirement account, and outside a retirement account you can use tax-exempt bonds. Stocks have higher returns in theory but to have a reasonable guarantee of higher returns from them, you need around a 30-year horizon. That is a long, long time. Psychologically, a 60/40 stocks/bonds portfolio, or something with similar risk mixing in a few more alternative assets like Swenson's, is SO MUCH better. With 100% stocks you can spend 10 or 15 years saving money and your investment returns may get you nowhere. Think what that does to your motivation to save. (And how much you save is way more important than what you invest in.) The same doesn't happen with a balanced portfolio. With a balanced portfolio you get reasonably steady progress. You can still have a down year, but you're a lot less likely to have a down decade or even a down few years. You save steadily and your balance goes up fairly steadily. The way humans really work, this is so important. For the same kind of reason, I think it's great to buy one fund that has both stocks and bonds in there. This forces you to view the thing as a whole instead of wrongly looking at the individual asset class \"\"buckets.\"\" And it also means rebalancing will happen automatically, without having to remember to do it, which you won't. Or if you remember you won't do it when you should, because stocks are doing so well, or some other rationalization. Speaking of rebalancing, that's where a lot of the steady, predictable returns come from if you have a nice balanced portfolio. You can make money over time even if both asset classes end up going nowhere, as long as they bounce around somewhat independently, so you'll buy low and sell high when you rebalance. To me the ideal is an all-in-one fund that aims for about 60/40 stocks/bonds level of risk, somewhat more diversified than stocks/bonds is great (international stock, commodities, high yield, REIT, etc.). You can just buy that at age 20 and keep it until you retire. In beautiful ideal-world economic theory, buy 90% stocks when young. Real world with human brain involved: I love balanced funds. The steady gains are such a mental win. The \"\"target retirement\"\" funds are not a bad option, but if you buy the matching year for your age, I personally wish they had less in stocks. If you want to read more on the \"\"equity premium\"\" (how much more you make from owning stocks) here are a couple of posts on it from a blog I like: Update: I wrote this up more comprehensively on my blog,\"","I think we resolved this via comments above. Many finance authors are not fans of target date funds, as they have higher fees than you'd pay constructing the mix yourself, and they can't take into account your own risk tolerance. Not every 24 year old should have the same mix. That said - I suggest you give thought to the pre-tax / post tax (i.e. traditional vs Roth) mix. I recently wrote The 15% solution, which attempts to show how to minimize your lifetime taxes by using the split that's ideal for your situation.","I like that you are hedging ONLY the Roth IRA - more than likely you will not touch that until retirement. Looking at fees, I noticed Vanguard Target retirement funds are .17% - 0.19% expense ratios, versus 0.04 - 0.14% for their Small/Mid/Large cap stocks.","\"I think Swenson's insight was that the traditional recommendation of 60% stocks plus 40% bonds has two serious flaws: 1) You are exposed to way too much risk by having a portfolio that is so strongly tied to US equities (especially in the way it has historically been recommend). 2) You have too little reward by investing so much of your portfolio in bonds. If you can mix a decent number of asset classes that all have equity-like returns, and those asset classes have a low correlation with each other, then you can achieve equity-like returns without the equity-like risk. This improvement can be explicitly measured in the Sharpe ratio of you portfolio. (The Vanguard Risk Factor looks pretty squishy and lame to me.) The book the \"\"The Ivy Portfolio\"\" does a great job at covering the Swenson model and explains how to reasonably replicate it yourself using low fee ETFs.\"","If you don't want to pay much attention to your investments, target date funds -- assuming you find one (like Vanguard's) with no management fees beyond those acquired from the underlying funds -- are usually a great choice: when the target date is far off, they invest almost entirely (usually 90% or so) in (mutual funds that in turn consist of many) stocks, with the remainder in bonds; as the date gets closer, the mix is automatically shifted to more bonds and less stocks (i.e. less risk, but less potential return too).","It's all about risk. These guidelines were all developed based on the risk characteristics of the various asset categories. Bonds are ultra-low-risk, large caps are low-risk (you don't see most big stocks like Coca-Cola going anywhere soon), foreign stocks are medium-risk (subject to additional political risk and currency risk, especially so in developing markets) and small-caps are higher risk (more to gain, but more likely to go out of business). Moreover, the risks of different asset classes tend to balance each other out some. When stocks fall, bonds typically rise (the recent credit crunch being a notable but temporary exception) as people flock to safety or as the Fed adjusts interest rates. When stocks soar, bonds don't look as attractive, and interest rates may rise (a bummer when you already own the bonds). Is the US economy stumbling with the dollar in the dumps, while the rest of the world passes us by? Your foreign holdings will be worth more in dollar terms. If you'd like to work alternative asset classes (real estate, gold and other commodities, etc) into your mix, consider their risk characteristics, and what will make them go up and down. A good asset allocation should limit the amount of 'down' that can happen all at once; the more conservative the allocation needs to be, the less 'down' is possible (at the expense of the 'up'). .... As for what risks you are willing to take, that will depend on your position in life, and what risks you are presently are exposed to (including: your job, how stable your company is and whether it could fold or do layoffs in a recession like this one, whether you're married, whether you have kids, where you live). For instance, if you're a realtor by trade, you should probably avoid investing too much in real estate or it'll be a double-whammy if the market crashes. A good financial advisor can discuss these matters with you in detail.","\"The question you should be asking yourself is this: \"\"Why am I putting money into a 401(k)?\"\" For many people, the answer is to grow a (large) nest egg and save for future retirement expenses. Investors are balancing risk and potential reward, so the asset categories you're putting your 401(k) contribution towards will be a reflection on how much risk you're willing to take. Per a US News & World Report article: Ultimately, investors would do well to remember one of the key tenants of investing: diversify. The narrower you are with your investments, the greater your risk, says Vanguard's Bruno: \"\"[Diversification] doesn't ensure against a loss, but it does help lessen a significant loss.\"\" Generally, investing in your employer's stock in your 401(k) is considered very risk. In fact, one Forbes columnist recommends not putting any money into company stock. FINRA notes: Simply stated, if you put too many eggs in one basket, you can expose yourself to significant risk. In financial terms, you are under-diversified: you have too much of your holdings tied to a single investment—your company's stock. Investing heavily in company stock may seem like a good thing when your company and its stock are doing well. But many companies experience fluctuations in both operational performance and stock price. Not only do you expose yourself to the risk that the stock market as a whole could flounder, but you take on a lot of company risk, the risk that an individual firm—your company—will falter or fail. In simpler terms, if you invest a large portion of your 401(k) funds into company stock, if your company runs into trouble, you could lose both your job AND your retirement investments. For the other investment assets/vehicles, you should review a few things: Personally, I prefer to keep my portfolio simple and just pick just a few options based on my own risk tolerance. From your fund examples, without knowing specifics about your financial situation and risk tolerance, I would have created a portfolio that looks like this when I was in my 20's: I avoided the bond and income/money market funds because the growth potential is too low for my investing horizon. Like some of the other answers have noted, the Target Date funds invest in other funds and add some additional fee overhead, which I'm trying to avoid by investing primarily in index funds. Again, your risk tolerance and personal preference might result in a completely different portfolio mix.\"","You're missing the concept of systemic risk, which is the risk of the entire market or an entire asset class. Diversification is about achieving a balance between risk and return that's appropriate for you. Your investment in Vanguard's fund, although diversified between many public companies, is still restricted to one asset class in one country. Yes, you lower your risk by investing in all of these companies, but you don't erase it entirely. Clearly, there is still risk, despite your diversification. You may decide that you want other investments or a different asset allocation that reduce the overall risk of your portfolio. Over the long run, you may earn a high level of return, but never forget that there is still risk involved. bonds seem pretty worthless, at least until I retire According to your profile, you're about my age. Our cohort will probably begin retiring sometime around 2050 or later, and no one knows what the bond market will look like over the next 40 years. We may have forecasts for the next few years, but not for almost four decades. Writing off an entire asset class for almost four decades doesn't seem like a good idea. Also, bonds are like equity, and all other asset classes, in that there are different levels of risk within the asset class too. When calculating the overall risk/return profile of my portfolio, I certainly don't consider Treasuries as the same risk level as corporate bonds or high-yield (or junk) bonds from abroad. Depending on your risk preferences, you may find that an asset allocation that includes US and/or international bonds/fixed-income, international equities, real-estate, and cash (to make rebalancing your asset allocation easier) reduces your risk to levels you're willing to tolerate, while still allowing you to achieve returns during periods where one asset class, e.g. equities, is losing value or performing below your expectations.","\"Target Date Funds automatically change their diversification balance over time, rebalancing and reassigning new contributions to become progressively more protective of what you've already earned. (As opposed to other funds which continue to maintain the same balance of investments until you explicitly move the money around.) You can certainly make that same evolution manually; we all used to do that before target funds were made available, and many of us still do so. I'm still handling the relative allocations by hand. But I'm also close to my retirement target, so a target fund wouldn't be changing that much more anyway, and since I'm already tracking the curve... Note that if you feel a bit braver, or a bit more cautious, than the \"\"average investor\"\" the target fund was designed for, you can tweak the risk/benefit curve of a Target Date Fund by selecting a fund with a target date a bit later or earlier, respectively, than the date at which you intend to start pulling money back out of the fund.\"","First, you should diversify your portfolio. If your entire portfolio is in the Roth IRA, then you should eventually diversify that. However, if you have an IRA and a 401k, then it's perfectly fine for the IRA to be in a single fund. For example, I used my IRA to buy a riskier REIT that my 401k doesn't support. Second, if you only have a small amount currently invested, e.g. $5500, it may make sense to put everything in a single fund until you have enough to get past the low balance fees. It's not uncommon for funds to charge lower fees to someone who has $8000, $10,000, or $12,000 invested. Note that if you deposit $10,000 and the fund loses money, they'll usually charge you the rate for less than $10,000. So try to exceed the minimum with a decent cushion. A balanced fund may make sense as a first fund. That way they handle the diversification for you. A targeted fund is a special kind of balanced fund that changes the balance over time. Some have reported that targeted funds charge higher fees. Commissions on those higher fees may explain why your bank wants you to buy. I personally don't like the asset mixes that I've seen from targeted funds. They often change the stock/bond ratio, which is not really correct. The stock/bond ratio should stay the same. It's the securities (stocks and bonds) to monetary equivalents that should change, and that only starting five to ten years before retirement. Prior to that the only reason to put money into monetary equivalents is to provide time to pick the right securities fund. Retirees should maintain about a five year cushion in monetary equivalents so as not to be forced to sell into a bad market. Long term, I'd prefer low-load index funds. A bond fund and two or three stock funds. You might want to build your balance first though. It doesn't really make sense to have a separate fund until you have enough money to get the best fees. 70-75% stocks and 25-30% bonds (should add to 100%, e.g. 73% and 27%). Balance annually when you make your new deposit.","There are fund of funds,e.g. life cycle funds or target retirement funds, that could cover a lot of these with an initial investment that one could invest into for a few years and then after building up a balance large enough, then it may make sense to switch to having more control.","Fire your fund manager. There are several passive funds that seek to duplicate the S&P 500 Index returns. They have lower management fees, which will make returns lower than S&P, and they have less risk by following a broadly diversified strategy (versus midcap growing stocks). There's also ETFs, but evidence is growing that they're not as safe as hoped. But here's the deal: the S&P has been on a tear lately. It could be overvalued and what looks like a good investment could start falling again. A possible alternative would be one of the Lifetime funds that seek to perform portfolio adjustment with a retirement decade target; they're fairly new which mostly means nobody knows how they screw you over yet. In theory, this decade structure means the brokerage can execute trading cash for stocks, stocks for bonds, and bonds for cash in house.","\"The goal of the single-fund with a retirement date is that they do the rebalancing for you. They have some set of magic ratios (specific to each fund) that go something like this: Note: I completely made up those numbers and asset mix. When you invest in the \"\"Mutual-Fund Super Account 2025 fund\"\" you get the benefit that in 2015 (10 years until retirement) they automatically change your asset mix and when you hit 2025, they do it again. You can replace the functionality by being on top of your rebalancing. That being said, I don't think you need to exactly match the fund choices they provide, just research asset allocation strategies and remember to adjust them as you get closer to retirement.\"","As a general rule of thumb, age and resiliency of your profession (in terms of high and stable wages) in most cases imply that you have the ABILITY to accept higher than average level of risk by investing in stocks (rather than bonds) in search for capital appreciation (rather than income), simply because you have more time to offset any losses, should you have any, and make capital gains. Dividend yield is mostly sough after by people at or near retirement who need to have some cash inflows but cannot accept high risk of equity investments (hence low risk dividend stocks and greater allocation to bonds). Since you accept passive investment approach, you could consider investing in Target Date Funds (TDFs), which re-allocate assets (roughly, from higher- to lower-risk) gradually as the fund approaches it target, which for you could be your retirement age, or even beyond. Also, why are you so hesitant to consider taking professional advice from a financial adviser?","You can look the Vanguard funds up on their website and view a risk factor provided by Vanguard on a scale of 1 to 5. Short term bond funds tend to get their lowest risk factor, long term bond funds and blended investments go up to about 3, some stock mutual funds are 4 and some are 5. Note that in 2008 Swenson himself had slightly different target percentages out here that break out the international stocks into emerging versus developed markets. So the average risk of this portfolio is 3.65 out of 5. My guess would be that a typical twenty-something who expects to retire no earlier than 60 could take more risk, but I don't know your personal goals or circumstances. If you are looking to maximize return for a level of risk, look into Modern Portfolio Theory and the work of economist Harry Markowitz, who did extensive work on the topic of maximizing the return given a set risk tolerance. More info on my question here. This question provides some great book resources for learning as well. You can also check out a great comparison and contrast of different portfolio allocations here.","I would recommend using growth/value/income/bond based asset allocation because your goal is to find asset classes that have different performance trends (when 1 is up, the other is down and vice-versa). If you chose Domestic, US stocks and diversified between Med Cap and Large Cap stocks, they would not exactly mirror each other, but they would roughly rise and fall at the same time, preventing you from taking full advantage of diversification, increasing risk and lowering returns.","\"Your funds are in a retirement account. Withdrawals from your IRA will be penalized if you withdraw before you turn 59.5 years old, and you appear to be decades away from that age. The general advice I would give you is to pick a \"\"target year fund\"\" that targets the year you turn 59.5. The stock market is more volatile, but its average gains will protect you from inflation just eating your funds. Bonds are in counterpoint to your stocks - more stable, and protecting you from the chance that stocks dip right before you want to withdraw. Target year funds start with higher amounts of stock, and gradually rebalance towards bonds over time. Thus, you take your market risks earlier while you can benefit from the market's gains, and then have stability when you actually would want to retire and depend on the savings.\"","I agree with others here that suggest that you should be taking higher risk since it is repaid with higher returns. You have 40 years or so to go before you might switch to safer but lower return funds. I suggest that you look at the Morningstar rating for the funds you are considering: http://www.morningstar.com/ A fund rated five stars means that the fund performs in the top 20% compared to all similar funds. I prefer five star funds. Next, check the management fees. Here is an example from one of the funds you mentioned; https://www.google.com/finance?cid=466533039917726 Next, I suggest you compare how each fund has performed compared to a benchmark. Here are some common indices: Compare an equity fund to, for example, the S&P 500. Has your fund beat or closely matched the S&P for 1, 5 and 10 years? If not, you may as well buy an index fund, such as SPY.","Rephrasing your question: Am I diversified if I have more than 50% US stocks? I would say that you can certainly be diversified and have more than 50% of your portfolio invested in US Stocks. I view the amount of international stocks (non-US) as a risk choice. My observations have been that my international stocks have higher risk which comes with a higher reward. I'm not comfortable with putting too much of my portfolio into a very high risk category. I personally invest 25% directly in mutual funds that invest in foreign stocks. When you couple that with the money I invest in US stocks via mutual funds that have foreign interests (Coke, GE, etc.), I'm somewhat over 25% international in my portfolio.","\"Anything under 0.20% is \"\"really good, leave it alone.\"\" However, since you have access to their institutional funds, it isn't unreasonable to come up with your own desired asset allocation and save another half of the fees. If you're happy with the Target Retirement date fund, just stick with it, but if you've got a particular AA you want to maintain, go for that with the cheaper underlying funds.\"","Most of the “recommendations” are just total market allocations. Within domestic stocks, the performance rotates. Sometimes large cap outperform, sometimes small cap outperform. You can see the chart here (examine year by year): https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1428692400000&chddm=99646&chls=IntervalBasedLine&cmpto=NYSEARCA:VO;NYSEARCA:VB&cmptdms=0;0&q=NYSEARCA:VV&ntsp=0&ei=_sIqVbHYB4HDrgGA-oGoDA Conventional wisdom is to buy the entire market. If large cap currently make up 80% of the market, you would allocate 80% of domestic stocks to large cap. Same case with International Stocks (Developed). If Japan and UK make up the largest market internationally, then so be it. Similar case with domestic bonds, it is usually total bond market allocation in the beginning. Then there is the question of when you want to withdraw the money. If you are withdrawing in a couple years, you do not want to expose too much to currency risks, thus you would allocate less to international markets. If you are investing for retirement, you will get the total world market. Then there is the question of risk tolerance. Bonds are somewhat negatively correlated with Stocks. When stock dips by 5% in a month, bonds might go up by 2%. Under normal circumstances they both go upward. Bond/Stock allocation ratio is by age I’m sure you knew that already. Then there is the case of Modern portfolio theory. There will be slight adjustments to the ETF weights if it is found that adjusting them would give a smaller portfolio variance, while sacrificing small gains. You can try it yourself using Excel solver. There is a strategy called Sector Rotation. Google it and you will find examples of overweighting the winners periodically. It is difficult to time the rotation, but Healthcare has somehow consistently outperformed. Nonetheless, those “recommendations” you mentioned are likely to be market allocations again. The “Robo-advisors” list out every asset allocation in detail to make you feel overwhelmed and resort to using their service. In extreme cases, they can even break down the holdings to 2/3/4 digit Standard Industrial Classification codes, or break down the bond duration etc. Some “Robo-advisors” would suggest you as many ETF as possible to increase trade commissions (if it isn’t commission free). For example, suggesting you to buy VB, VO, VV instead a VTI.","\"I can think of a few reasons for this. First, bonds are not as correlated with the stock market so having some in your portfolio will reduce volatility by a bit. This is nice because it makes you panic less about the value changes in your portfolio when the stock market is acting up, and I'm sure that fund managers would rather you make less money consistently then more money in a more volatile way. Secondly, you never know when you might need that money, and since stock market crashes tend to be correlated with people losing their jobs, it would be really unfortunate to have to sell off stocks when they are under-priced due to market shenanigans. The bond portion of your portfolio would be more likely to be stable and easier to sell to help you get through a rough patch. I have some investment money I don't plan to touch for 20 years and I have the bond portion set to 5-10% since I might as well go for a \"\"high growth\"\" position, but if you're more conservative, and might make withdrawals, it's better to have more in bonds... I definitely will switch over more into bonds when I get ready to retire-- I'd rather have slow consistent payments for my retirement than lose a lot in an unexpected crash at a bad time!\"","You have to look at the market conditions and make decisions based on them. Ideally, you may want to have 30% of your portfolio in bonds. But from a practical point of view, it's probably not so smart to invest in bond funds right at this moment given the interest rate market. Styles of funds tend to go into and out of style. I personally do asset allocation two ways in my 457 plan (like a 401k for government workers): In my IRA, I invest in a portfolio of 5-6 stocks. The approach you take is dependent on what you are able to put into it. I invest about 10 hours a week into investment related research. If you can't do that, you want a strategy that is simpler -- but you still need to be cognizant of market conditions.","Stock index funds are likely, but not certainly, to be a good long-term investment. In countries other than the USA, there have been 30+ year periods where stocks either underperformed compared to bonds, or even lost value in absolute terms. This suggests that it may be an overgeneralization to assume that they always do well in the long term. Furthermore, it may suggest that they are persistently overvalued for the risk, and perhaps due for a long-term correction. (If everybody assumes they're safe, the equity risk premium is likely to be eaten up.) Putting all of your money into them would, for most people, be taking an unnecessary risk. You should cover some other asset classes too. If stocks do very well, a portfolio with some allocation to more stable assets will still do fairly well. If they crash, a portfolio with less risky assets will have a better chance of being at least adequate.","\"First of all, it's great you're now taking full advantage of your employer match – i.e. free money. Next, on the question of the use of a life cycle / target date fund as a \"\"hedge\"\": Life cycle funds were introduced for hands-off, one-stop-shopping investors who don't like a hassle or don't understand. Such funds are gaining in popularity: employers can use them as a default choice for automatic enrollment, which results in more participation in retirement savings plans than if employees had to opt-in. I think life cycle funds are a good innovation for that reason. But, the added service and convenience typically comes with higher fees. If you are going to be hands-off, make sure you're cost-conscious: Fees can devastate a portfolio's performance. In your case, it sounds like you are willing to do some work for your portfolio. If you are confident that you've chosen a good equity glide path – that is, the initial and final stock/bond allocations and the rebalancing plan to get from one to the other – then you're not going to benefit much by having a life cycle fund in your portfolio duplicating your own effort with inferior components. (I assume you are selecting great low-cost, liquid index funds for your own strategy!) Life cycle are neat, but replicating them isn't rocket science. However, I see a few cases in which life cycle funds may still be useful even if one has made a decision to be more involved in portfolio construction: Similar to your case: You have a company savings plan that you're taking advantage of because of a matching contribution. Chances are your company plan doesn't offer a wide variety of funds. Since a life cycle fund is available, it can be a good choice for that account. But make sure fees aren't out of hand. If much lower-cost equity and bond funds are available, consider them instead. Let's say you had another smaller account that you were unable to consolidate into your main account. (e.g. a Traditional IRA vs. your Roth, and you didn't necessarily want to convert it.) Even if that account had access to a wide variety of funds, it still might not be worth the added hassle or trading costs of owning and rebalancing multiple funds inside the smaller account. There, perhaps, the life cycle fund can help you out, while you use your own strategy in your main account. Finally, let's assume you had a single main account and you buy partially into the idea of a life cycle fund and you find a great one with low fees. Except: you want a bit of something else in your portfolio not provided by the life cycle fund, e.g. some more emerging markets, international, or commodity stock exposure. (Is this one reason you're doing it yourself?) In that case, where the life cycle fund doesn't quite have everything you want, you could still use it for the bulk of the portfolio (e.g. 85-95%) and then select one or two specific additional ETFs to complement it. Just make sure you factor in those additional components into the overall equity weighting and adjust your life cycle fund choice accordingly (e.g. perhaps go more conservative in the life cycle, to compensate.) I hope that helps! Additional References:\"","Here's the 2009-2014 return of the S&P 500 (SPY) vs. Vanguard FTSE ex-US (VEU) (higher returns bolded) Another argument for them is their low correlation to U.S stocks. Looking at history however, I don't see it. Most times U.S stocks have done badly, foreign stocks have also done badly. Looking at the last 6 years (and current YTD), 1 in 3 years have international stocks doing better. I invest a portion of my investments in international because they aren't well correlated.","\"Making these difficult portfolio decisions for you is the point of Target-Date Retirement Funds. You pick a date at which you're going to start needing to withdraw the money, and the company managing the fund slowly turns down the aggressiveness of the fund as the target date approaches. Typically you would pick the target date to be around, say, your 65th birthday. Many mutual fund companies offer a variety of funds to suit your needs. Your desire to never \"\"have to recover\"\" indicates that you have not yet done quite enough reading on the subject of investing. (Or possibly that your sources have been misleading you.) A basic understanding of investing includes the knowledge that markets go up and down, and that no portfolio will always go up. Some \"\"recovery\"\" will always be necessary; having a less aggressive portfolio will never shield you completely from losing money, it just makes loss less likely. The important thing is to only invest money that you can afford to lose in the short-term (with the understanding that you'll make it back in the long term). Money that you'll need in the short-term should be kept in the absolute safest investment vehicles, such as a savings account, a money market account, short-term certificates of deposit, or short-term US government bonds.\"","\"Aggressiveness in a retirement portfolio is usually a function of your age and your risk tolerance. Your portfolio is usually a mix of the following asset classes: You can break down these asset classes further, but each one is a topic unto itself. If you are young, you want to invest in things that have a higher return, but are more volatile, because market fluctuations (like the current financial meltdown) will be long gone before you reach retirement age. This means that at a younger age, you should be investing more in stocks and foreign/developing countries. If you are older, you need to be into more conservative investments (bonds, money market, etc). If you were in your 50s-60s and still heavily invested in stock, something like the current financial crisis could have ruined your retirement plans. (A lot of baby boomers learned this the hard way.) For most of your life, you will probably be somewhere in between these two. Start aggressive, and gradually get more conservative as you get older. You will probably need to re-check your asset allocation once every 5 years or so. As for how much of each investment class, there are no hard and fast rules. The idea is to maximize return while accepting a certain amount of risk. There are two big unknowns in there: (1) how much return do you expect from the various investments, and (2) how much risk are you willing to accept. #1 is a big guess, and #2 is personal opinion. A general portfolio guideline is \"\"100 minus your age\"\". This means if you are 20, you should have 80% of your retirement portfolio in stocks. If you are 60, your retirement portfolio should be 40% stock. Over the years, the \"\"100\"\" number has varied. Some financial advisor types have suggested \"\"150\"\" or \"\"200\"\". Unfortunately, that's why a lot of baby boomers can't retire now. Above all, re-balance your portfolio regularly. At least once a year, perhaps quarterly if the market is going wild. Make sure you are still in-line with your desired asset allocation. If the stock market tanks and you are under-invested in stocks, buy more stock, selling off other funds if necessary. (I've read interviews with fund managers who say failure to rebalance in a down stock market is one of the big mistakes people make when managing a retirement portfolio.) As for specific mutual fund suggestions, I'm not going to do that, because it depends on what your 401k or IRA has available as investment options. I do suggest that your focus on selecting a \"\"passive\"\" index fund, not an actively managed fund with a high expense ratio. Personally, I like \"\"total market\"\" funds to give you the broadest allocation of small and big companies. (This makes your question about large/small cap stocks moot.) The next best choice would be an S&P 500 index fund. You should also be able to find a low-cost Bond Index Fund that will give you a healthy mix of different bond types. However, you need to look at expense ratios to make an informed decision. A better-performing fund is pointless if you lose it all to fees! Also, watch out for overlap between your fund choices. Investing in both a Total Market fund, and an S&P 500 fund undermines the idea of a diversified portfolio. An aggressive portfolio usually includes some Foreign/Developing Nation investments. There aren't many index fund options here, so you may have to go with an actively-managed fund (with a much higher expense ratio). However, this kind of investment can be worth it to take advantage of the economic growth in places like China. http://www.getrichslowly.org/blog/2009/04/27/how-to-create-your-own-target-date-mutual-fund/\"","Because stock markets don't always go up, sometimes they go down. Sometimes they go way down. Between 2007 and 2009 the S&P 500 lost over half its value. So if in 2007 you thought you had just enough to retire on, in 2009 you'd suddenly find you had only half of what you needed! Of course over the next few years, many of the stocks recovered value, but if you had retired in 2008 and depended on a 401k that consisted entirely of stocks, you'd have been forced to sell a bunch of stocks near the bottom of the market to cover your retirement living expenses. Bonds go up and down too, but usually not to the same extent as stocks, and ideally you aren't selling the bonds for your living expenses, just collecting the interest that's due you for the year. Of course, some companies and cities went bankrupt in the 2008 crisis too, and they stopped making interest payments. Another risk is that you may be forced to retire before you were actually planning to. As you age you are at increasing risk for medical problems that may force an early retirement. Many businesses coped with the 2008 recession by laying off their older workers who were earning higher salaries. It wasn't an easy environment for older workers to find jobs in, so many folks were forced into early retirement. Nothing is risk free, so you need to make an effort to understand what the risks are, and decide which ones you are comfortable with.","Generally a diversified portfolio will give you a better overall return --a couple of factors that may address what you are looking at - 1) Correlation - The correlation between your two funds is still very high -- it's partially a function of how global economies are related and many companies are now multi-national. It may help if you diversified into other types of products. 2) Diversification - Following up from before, you may want to also look into diversifying into some bonds, commodities, reits, etc. They will have a much smaller correlation with a total domestic stock fund. 3) Returns - I'm not sure if by dominate you mean that it has better overall returns, but the point of diversification is to to get you the highest returns. It's really the ability to limit the risk for the returns - this really translates to limiting the volatility. This may mean that overall your max returns could be lower-- ie: maybe VTSAX gives potential average returns between 3%-11%. A diversified portfolio may give you potential average returns of 5%-9%. A similar article debating the merits of 'smart beta ETFs' if you are curious. Hope that helps.","Life Strategy funds are more appropriate if you want to maintain a specific allocation between stocks and bonds that doesn't automatically adjustment like the Target Retirement funds which have a specific date. Thus, it may make more sense to take whichever Life Strategy fund seems the most appropriate and ride with it for a while unless you know when you plan to retire and access those funds. In theory, you could use Vanguard's Total Market funds,i.e. Total Stock Market, Total International, and Total Bond, and have your own allocations between stocks and bonds be managed pretty easily and don't forget that the fees can come in a couple of flavors as betterment doesn't specify where the transaction fees for buying the ETFs are coming out just as something to consider.","I believe it is because you can withstand a loss in your early life better than you can in your retirement. If you lose 25% in your 20s it is a lot less than 25% in your 60s. You, hopefully earn more in your 60s and you have a lot more already in the bank in your 60s.","This is a Vanguard-specific difference in the sense that in the US, Vanguard is a leader in lowering management fees for the mutual funds that they offer. Of course, several US mutual fund companies have also been lowering the expense ratio of their mutual funds in recent years because more and more investors have been paying attention to this particular performance parameter, and opting for funds that have low expense ratios. But many US funds have not reduced their expense ratios very much and continue to have expense ratios of 1% or even higher. For example, American Funds Developing World Growth and Income Fund (DWGAX) charges a 1.39% expense ratio while their 2060 Retirement Fund (AANTX) charges 1.12% (the funds also have a 5.75% sales charge); Putnam Capital Opportunities Fund charges 1.91% for their Class C shares, and so on. Many funds with high expense ratios (and sometimes sales charges as well) show up as options in far too many 401(k) plans, especially 401(k) plans of small companies, because small companies do not enjoy economies of scale and do not have much negotiating power when dealing with 401(k) custodians and administrators.","the whole room basically jumped on me I really have an issue with this. Someone providing advice should offer data, and guidance. Not bully you or attack you. You offer 3 choices. And I see intelligent answers advising you against #1. But I don't believe these are the only choices. My 401(k) has an S&P fund, a short term bond fund, and about 8 other choices including foreign, small cap, etc. I may be mistaken, but I thought regulations forced more choices. From the 2 choices, S&P and short term bond, I can create a stock bond mix to my liking. With respect to the 2 answers here, I agree, 100% might not be wise, but 50% stock may be too little. Moving to such a conservative mix too young, and you'll see lower returns. I like your plan to shift more conservative as you approach retirement. Edit - in response to the disclosure of the fees - 1.18% for Aggressive, .96% for Moderate I wrote an article 5 years back, Are you 401(k)o'ed in which I discuss the level of fees that result in my suggestion to not deposit above the match. Clearly, any fee above .90% would quickly erode the average tax benefit one might expect. I also recommend you watch a PBS Frontline episode titled The Retirement Gamble It makes the point as well as I can, if not better. The benefit of a 401(k) aside from the match (which you should never pass up) is the ability to take advantage of the difference in your marginal tax rate at retirement vs when earned. For the typical taxpayer, this means working and taking those deposits at the 25% bracket, and in retirement, withdrawing at 15%. When you invest in a fund with a fee above 1%, you can see it will wipe out the difference over time. An investor can pay .05% for the VOO ETF, paying as much over an investing lifetime, say 50 years, as you will pay in just over 2 years. They jumped on you? People pushing funds with these fees should be in jail, not offering financial advice.","\"Stock market indexes are generally based on market capitalization, which is not the same as GDP. GDP includes the value of all goods and services produced in a country; this includes a large amount of small-scale production which may not be reflected in stock market capitalizations. Thus the ratio between countries' GDPs may not be the same as the ratio of their total market capitalization. For instance, US GDP is approximately 3.8 times as much as Japan's (see here), but US total market cap is about 5.5 as much as Japan's (see here). The discrepancy can be even more severe when comparing \"\"developed\"\" economies like the US to \"\"developing\"\" (or \"\"less-developed\"\") economies in which there is less participation in large-scale financial systems like stock markets. For instance, US GDP is roughly 10 times that of Brazil, but US total market cap is roughly 36 times that of Brazil. Switzerland has a total market cap nearly double that of Brazil despite its total GDP being less than half of Brazil's. Since the all-world index includes all investable economies, it will include many economies whose share of market cap is disproportionately lower than their share of GDP. In addition, according to the fact sheet you linked to, that index tracks only large- and mid-cap stocks. This will further skew the weighting to developed economies and to the US in particular, since the US has a disproportionate share of the largest companies. Obviously one would need to take a more detailed look at all the weights to determine if these factors account precisely for the level of discrepancy you see in this particular index. But hopefully that explanation gives an idea of why the US might be weighted more heavily in a stock index than it is in raw GDP.\"","It looks like an improvement to me, if for no other reason than lowering the expenses. But if you are around 35 years away from retirement you could consider eliminating all bond funds for now. They will pay better in a few years. And the stock market(s) will definitely go up more than bonds over the next 35 years.","\"Tricky question, basically, you just want to first spread risk around, and then seek abnormal returns after you understand what portions of your portfolio are influenced by (and understand your own investment goals) For a relevant timely example: the German stock exchange and it's equity prices are reaching all time highs, while the Greek asset prices are reaching all time lows. If you just invested in \"\"Europe\"\" your portfolio will experience only the mean, while suffering from exchange rate changes. You will likely lose because you arbitrarily invested internationally, for the sake of being international, instead of targeting a key country or sector. Just boils down to more research for you, if you want to be a passive investor you will get passive investor returns. I'm not personally familiar with funds that are good at taking care of this part for you, in the international markets.\"","There are a few main economic reasons given why investors show a strong home bias: Interestingly, though if you ask investors about the future of their home country compared with other countries they will generally (though not always) significantly overestimate the future of their own country. It is difficult to definitively say what drives investors but this psychological home bias could be one of the larger factors. Edit in response to the bounty: Maybe this Vanguard article on their recommended international exposure is what you are looking for though they only briefly speculate about why people so consistently show a home bias in investing. The Wikipedia article mentioned above has some very good references and while there may be no complete answer with the certainty that you seek (as there are as many reasons as there are investors) a combination of the above list seems to capture much of what is going on across different countries.","\"First, congratulations on choosing to invest in low cost passively managed plans. If you choose any one of these options and stick with it, you will already be well ahead of most individual investors. Almost all plans will allow you to re-balance between asset classes. With some companies, sales agents will encourage you to sell your overweighted assets and buy underweighted assets as this generates brokerage commissions for them, but when you only need to make minor adjustments, you can simply change the allocation of the new money going into your account until you are back to your target weights. Most plans will let you do this for free, and in general, you will only need to do this every few years at most. I don't see much reason for you to be in the Target funds. The main feature of these plans is that they gradually shift you to a more conservative asset allocation over time, and are designed to prevent people who are close to retirement from being too aggressive and risking a major loss just before retirement. It's very likely that at your age, most plans will have very similar recommendations for your allocation, with equities at 80% or more, and this is unlikely to change for the next few decades. The main benefits of betterment seems to be simplicity and ease of use, but there is one concern I would have for you with betterment. Precisely because it is so easy to tweak your allocation, I'm concerned that you might hurt your long-term results by reacting to short-term market conditions: I know I said I wanted a hands off account, but what if the stock market crashes and I want to allocate more to bonds??? One of the biggest reasons that stock returns are better than bond returns on average is that you are being paid to accept additional risk, and living with significant ups and downs is part of what it means to be in the stock market. If you are tempted to take money out of an asset class when it has been \"\"losing/feels dangerous\"\" and put more in when it is \"\"winning/feels safe\"\", my concerns is that you will end up buying high and selling low. I'd recommend taking a look at this article on the emotional cycle of investing. My point is simply that it's very likely that if you are moving money in and out of stocks based on volatility, you're much less likely to get the full market return over the long term, and might be better off putting more weight in asset classes with lower volatility. Either way, I'd recommend taking one or more risk tolerance assessments online and making sure you're committed to sticking with a long-term plan that doesn't involve more risk than you can really live with. I tend to lean toward Vanguard Life Strategy simply because Vanguard as a company has been around longer, but betterment does seem very accessible to a new investor. Best of luck with your decision!\"","In your case, you could very well leave it in something like FFFFX, which for readers is a self balancing fund with a target retirement date of 2040. These funds are a conglomeration of other funds that tend to move more conservatively as time passes. However, I like to put no more than 10% of my portfolio in one fund with exceptions made for balances less than 20K. So If I had 18K it really wouldn't matter if it was in FUSEX a S&P 500 index fund. However by investing in FFFFX you pretty much meet that requirement. So you are golden if that fund meets your goals. For me, I kind of hate bonds and despite being of similar age, I have almost no money invested in bonds.","\"There are some good answers about the benefits of diversification, but I'm going to go into what is going on mathematically with what you are attempting. I was always under the assumption that as long as two securities are less than perfectly correlated (i.e. 1), that the standard deviation/risk would be less than if I had put 100% into either of the securities. While there does exist a minimum variance portfolio that is a combination of the two with lower vol than 100% of either individually, this portfolio is not necessarily the portfolio with highest utility under your metric. Your metric includes returns not just volatility/variance so the different returns bias the result away from the min-vol portfolio. Using the utility function: E[x] - .5*A*sig^2 results in the highest utility of 100% VTSAX. So here the Sharpe ratio (risk adjusted return) of the U.S. portfolio is so much higher than the international portfolio over the period tracked that the loss of returns from adding more international stocks outweigh the lower risk that you would get from both just adding the lower vol international stocks and the diversification effects from having a correlation less than one. The key point in the above is \"\"over the period tracked\"\". When you do this type of analysis you implicitly assume that the returns/risk observed in the past will be similar to the returns/risk in the future. Certainly, if you had invested 100% in the U.S. recently you would have done better than investing in a mix of US/Intl. However, while the risk and correlations of assets can be (somewhat) stable over time relative returns can vary wildly! This uncertainty of future returns is why most people use a diversified portfolio of assets. What is the exact right amount is a very hard question though.\"","As these all seem to be US Equity, just getting one broad based US Equity index might offer similar diversification at lower cost. Over 5 years, 20 basis points in fees will only make about 1% difference. However, for longer periods (retirement saving), it is worth it to aim for the lowest fees. For further diversification, you might want to consider other asset classes, such as foreign equity, fixed income, etc.","Defined benefit pension funds will typically target treasuries + a spread that depends on how well funded the plan is and the duration of the liabilities. So for example, if a DB fund is 90% funded (meaning assets are 90% of liabilities) and the liabilities have a duration of 20 years, they will target the 20 year treasury rate + a spread that will bring the plan to just over 100% funded in around 20 years. This spread will usually be much lower than 8% p.a. Obviously it's much more complicated than this, but hopefully this gives a general idea.","Placing bets on targeted sectors of the market totally makes sense in my opinion. Especially if you've done research, with a non-biased eye, that convinces you those sectors will continue to outperform. However, the funds you've boxed in red all appear to be actively managed funds (I only double-checked on the first.) There is a bit of research showing that very few active managers consistently beat an index over the long term. By buying these funds, especially since you hope to hold for decades, you are placing bets that these managers maintain their edge over an equivalent index. This seems unlikely to be a winning bet the longer you hold the position. Perhaps there are no sector index funds for the sectors or focuses you have? But if there were, and it was my money that I planned to park for the long term, I'd pick the index fund over the active managed fund. Index funds also have an advantage in costs or fees. They can charge substantially less than an actively managed fund does. And fees can be a big drag on total return.","At your age, I don't think its a bad idea to invest entirely in stocks. The concern with stocks is their volatility, and at 40+ years from retirement, volatility does not concern you. Just remember that if you ever want to call upon your 401(k) for anything other than retirement, such as a down payment on a home (which is a qualified distribution that is not subject to early distribution penalties), then you should reconsider your retirement allocations. I would not invest 100% into stocks if I knew I were going to buy a house in five years and needed that money for a down payment. If your truly saving strictly for a retirement that could occur forty years in the future, first good for you, and second, put it all in an index fund. An S&P index has a ridiculously low expense ratio, and with so many years away from retirement, it gives you an immense amount of flexibility to choose what to do with those funds as your retirement date approaches closer every year.","\"There are a lot of funds that exist only to feed people's belief that existing funds are not diversified or specialized enough. That's why you have so many options. Just choose the ones with the lowest fees. I'd suggest the following: I wouldn't mess around with funds that try and specialize in \"\"value\"\" or those target date funds. If you really don't want to think and don't mind paying slightly higher fees, just pick the target date fund that corresponds to when you will retire and put all your money there. On the traditional/Roth question, if your tax bracket will be higher when you retire than it is now (unlikely), choose Roth. Otherwise choose traditional.\"","\"Most people advocate a passively managed, low fee mutual fund that simply aims to track a given benchmark (say S&P 500). Few funds can beat the S&P consistently, so investors are often better served finding a no load passive fund. First thing I would do is ask your benefits rep why you don't have an option to invest in a Fidelity passive index fund like Spartan 500. Ideally young people would be heavy in equities and slowly divest for less risky stuff as retirement comes closer, and rebalance the portfolio regularly when market swings put you off risk targets. Few people know how to do this and actually do so. So there are mutual funds that do it for you, for a fee. These in are called \"\"lifecycle\"\" funds (The Freedom funds here). I hesitate to recommend them because they're still fairly new. If you take a look at underlying assets, these things generally just reinvest in the broker's other funds, which themselves have expenses & fees. And there's all kinds personal situations that might lead to you place a portion with a different investment.\"","\"I went to Morningstar's \"\"Performance\"\" page for FUSEX (Fideltiy's S&P 500 index fund) and used the \"\"compare\"\" tool to compare it with FOSFX and FWWFX, as well as FEMKX (Fidelity Emerging Markets fund). According to the data there, FOSFX outperformed FUSEX in 2012, FEMKX outperformed FUSED in 2010, and FWWFX outperformed FUSEX in both 2010 and 2012. When looking at 10- and 15-year trailing returns, both FEMKX and FWWFX outperformed FUSEX. What does this mean? It means it matters what time period you're looking at. US stocks have been on an almost unbroken increase since early 2009. It's not surprising that if you look at recent returns, international markets will not stack up well. If you go back further, though, you can find periods where international funds outperformed the US; and even within recent years, there have been individual years where international funds won. As for correlation, I guess it depends what you mean by \"\"low\"\". According to this calculator, for instance, FOSFX and FUSEX had a correlation of about 0.84 over the last 15 years. That may seem high, but it's still lower than, say, the 0.91 correlation between FUSEX and FSLCX (Fideltiy Small Cap). It's difficult to find truly low correlations among equity funds, since the interconnectedness of the global economy means that bull and bear markets tend to spread from one country to another. To get lower correlations you need to look at different asset classes (e.g., bonds). So the answer is basically that some of the funds you were already looking at may be the ones you were looking for. The trick is that no category will outperform any other over all periods. That's exactly what volatility means --- it means the same category that overperforms in some periods will underperform in others. If international funds always outperformed, no one would ever buy US funds. Ultimately, if you're trying to decide on investments for yourself, you need to take all this information into account and combine it with your own personal preferences, risk tolerance, etc. Anecdotally, I recently did some simulation-based analyses of Vanguard funds using data from the past 15 years. Over this period, Vanguard's emerging markets fund (VEIEX) comes out far ahead of US funds, and is also the least-correlated with the S&P 500. But, again, this analysis is based only on a particular slice of time.\"","You are diversified within a particular type of security. Notably the stock market. A truly diversified portfolio not only has multiple types of holdings within a single type of security (what your broad market fund does) but between different types. You have partially succeeded in doing this with the international fund - that way your risk is spread between domestic and international stocks. But there are other holdings. Cash, bonds, commodities, real estate, etc. There are broad index funds/ETFs for those as well, which may reduce your risk when the stock market as a whole tanks - which it does on occasion.","\"This turned out be a lot longer than I expected. So, here's the overview. Despite the presence of asset allocation calculators and what not, this is a subjective matter. Only you know how much risk you are willing to take. You seem to be aware of one rule of thumb, namely that with a longer investing horizon you can stand to take on more risk. However, how much risk you should take is subject to your own risk aversion. Honestly, the best way to answer your questions is to educate yourself about the individual topics. There are just too many variables to provide neat, concise answers to such a broad question. There are no easy ways around this. You should not blindly rely on the opinions of others, but rather use your own judgment to asses their advice. Some of the links I provide in the main text: S&P 500: Total and Inflation-Adjusted Historical Returns 10-year index fund returns The Motley Fool Risk aversion Disclaimer: These are the opinions of an enthusiastic amateur. Why should I invest 20% in domestic large cap and 10% in developing markets instead of 10% in domestic large cap and 20% in developing markets? Should I invest in REITs? Why or why not? Simply put, developing markets are very risky. Even if you have a long investment horizon, you should pace yourself and not take on too much risk. How much is \"\"too much\"\" is ultimately subjective. Specific to why 10% in developing vs 20% in large cap, it is probably because 10% seems like a reasonable amount of your total portfolio to gamble. Another way to look at this is to consider that 10% as gone, because it is invested in very risky markets. So, if you're willing to take a 20% haircut, then by all means do that. However, realize that you may be throwing 1/5 of your money out the window. Meanwhile, REITs can be quite risky as investing in the real estate market itself can be quite risky. One reason is that the assets are very much fixed in place and thus can not be liquidated in the same way as other assets. Thus, you are subject to the vicissitudes of a relatively small market. Another issue is the large capital outlays required for most commercial building projects, thus typically requiring quite a bit of credit and risk. Another way to put it: Donald Trump made his name in real estate, but it was (and still is) a very bumpy ride. Yet another way to put it: you have to build it before they will come and there is no guarantee that they will like what you built. What mutual funds or index funds should I investigate to implement these strategies? I would generally avoid actively managed mutual funds, due to the expenses. They can seriously eat into the returns. There is a reason that the most mutual funds compare themselves to the Lipper average instead of something like the S&P 500. All of those costs involved in managing a mutual fund (teams of people and trading costs) tend to weigh down on them quite heavily. As the Motley Fool expounded on years ago, if you can not do better than the S&P 500, you should save yourself the headaches and simply invest in an S&P 500 index fund. That said, depending on your skill (and luck) picking stocks (or even funds), you may very well have been able to beat the S&P 500 over the past 10 years. Of course, you may have also done a whole lot worse. This article discusses the performance of the S&P 500 over the past 60 years. As you can see, the past 10 years have been a very bumpy ride yielding in a negative return. Again, keep in mind that you could have done much worse with other investments. That site, Simple Stock Investing may be a good place to start educating yourself. I am not familiar with the site, so do not take this as an endorsement. A quick once-over of the material on the site leads me to believe that it may provide a good bit of information in readily digestible forms. The Motley Fool was a favorite site of mine in the past for the individual investor. However, they seem to have turned to the dark side, charging for much of their advice. That said, it may still be a good place to get started. You may also decide that it is worth paying for their advice. This blog post, though dated, compares some Vanguard index funds and is a light introduction into the contrarian view of investing. Simply put, this view holds that one should not be a lemming following the crowd, rather one should do the opposite of what everyone else is doing. One strong argument in favor of this view is the fact that as more people pile onto an investing strategy or into a particular market, the yields thin out and the risk of a correction (i.e. a downturn) increases. In the worst case, this leads to a bubble, which corrects itself suddenly (or \"\"pops\"\" thus the term \"\"bubble\"\") leading to quite a bit of pain for the unprepared participants. An unprepared participant is one who is not hedged properly. Basically, this means they were not invested in other markets/strategies that would increase in yield as a result of the event that caused the bubble to pop. Note that the recent housing bubble and resulting credit crunch beat quite heavily on the both the stock and bond markets. So, the easy hedge for stocks being bonds did not necessarily work out so well. This makes sense, as the housing bubble burst due to concerns over easy credit. Unfortunately, I don't have any good resources on hand that may provide starting points or discuss the various investing strategies. I must admit that I am turning my interests back to investing after a hiatus. As I stated, I used to really like the Motley Fool, but now I am somewhat suspicious of them. The main reason is the fact that as they were exploring alternatives to advertising driven revenue for their site, they promised to always have free resources available for those unwilling to pay for their advice. A cursory review of their site does show a decent amount of general investing information, so take these words with a grain of salt. (Another reason I am suspicious of them is the fact that they \"\"spammed\"\" me with lots of enticements to pay for their advice which seemed just like the type of advice they spoke against.) Anyway, time to put the soapbox away. As I do that though, I should explain the reason for this soapboxing. Simply put, investing is a risky endeavor, any way you slice it. You can never eliminate risk, you can only hope to reduce it to an acceptable level. What is acceptable is subject to your situation and to the magnitude of your risk aversion. Ultimately, it is rather subjective and you should not blindly follow someone else's opinion (professional or otherwise). Point being, use your judgment to evaluate anything you read about investing. If it sounds too good to be true, it probably is. If someone purports to have some strategy for guaranteed (steady) returns, be very suspicious of it. (Read up on the Bernard Madoff scandal.) If someone is putting on a heavy sales pitch, be weary. Be especially suspicious of anyone asking you to pay for their advice before giving you any solid understanding of their strategy. Sure, many people want to get paid for their advice in some way (in fact, I am getting \"\"paid\"\" with reputation on this site). However, if they take the sketchy approach of a slimy salesmen, they are likely making more money from selling their strategy, than they are from the advice itself. Most likely, if they were getting outsized returns from their strategy they would keep quiet about it and continue using it themselves. As stated before, the more people pile onto a strategy, the smaller the returns. The typical model for selling is to make money from the sale. When the item being sold is an intangible good, your risk as a buyer increases. You may wonder why I have written at length without much discussion of asset allocation. One reason is that I am still a relative neophyte and have a mostly high level understanding of the various strategies. While I feel confident enough in my understanding for my own purposes, I do not necessarily feel confident creating an asset allocation strategy for someone else. The more important reason is that this is a subjective matter with a lot of variables to consider. If you want a quick and simple answer, I am afraid you will be disappointed. The best approach is to educate yourself and make these decisions for yourself. Hence, my attempt to educate you as best as I can at this point in time. Personally, I suggest you do what I did. Start reading the Wall Street Journal every day. (An acceptable substitute may be the business section of the New York Times.) At first you will be overwhelmed with information, but in the long run it will pay off. Another good piece of advice is to be patient and not rush into investing. If you are in a hurry to determine how you should invest in a 401(k) or other such investment vehicle due to a desire to take advantage of an employer's matching funds, then I would place my money in an S&P 500 index fund. I would also explore placing some of that money into broad index funds from other regions of the globe. The reason for broad index funds is to provide some protection from the normal fluctuations and to reduce the risk of a sudden downturn causing you a lot pain while you determine the best approach for yourself. In this scenario, think more about capital preservation and hedging against inflation then about \"\"beating\"\" the market.\"","\"In a cap-weighted fund, the fund itself isn't buying or selling at all (except to support redemptions or purchases of the fund). As the value of a stock in the index goes up, then its value in the fund goes up naturally. This is the advantage of a cap-weighted fund, that it doesn't have to trade (buy and sell), it just sits on the stocks. That makes a cap-weighted fund inexpensive (low trading costs) and tax-efficient (doesn't trigger capital gains due to sales). The buying high and selling low referred to by \"\"fundamental indexation\"\" advocates like Wisdom Tree is buying high and selling low on the part of the investor. That is, when you purchase the market-cap-weighted fund, at that time that you purchase, you will spend more on the higher-priced stocks, just because they account for more of the value of the fund, and less money goes to the cheaper stocks which account for less of the value of the fund. In the prospectus for a fund they should tell you which index they use, and if the prospectus doesn't describe the weighting of the index, you could do a web search for the index name and find out how that index is constructed. A market-cap-weighted fund is the standard kind of weighting which is what you get if you buy the stocks in the index and then hold them without buying or selling. Most of the famous indexes (e.g. S&P500) are cap-weighted, with the notable exception of the Dow Jones Industrial Average which is \"\"price-weighted\"\" http://en.wikipedia.org/wiki/Price-weighted_index. Price-weighting is just an archaic tradition, not something one would use for a new index design today. A fund weighted by \"\"fundamentals\"\" or equal-weighted, rather than cap-weighted, is effectively doing a kind of rebalancing, selling what's gone up to buy more of what's gone down. Rather than buying an exotic fund, you could get a similar effect by buying a balanced fund (one that mixes stocks and bonds). Then when stocks go up, your fund would sell them and buy bonds, and the fund would sell the most of the highest-market-cap stocks that make up more of the index. And vice versa of course. But the fundamental-weighted funds are fine, the more important considerations include your stocks vs. bonds percentages (asset allocation) and whether you make irrational trades instead of sticking to a plan.\"","The top ten holdings for these funds don't overlap by even one stock. It seems to me they are targeting an index for comparison, but making no attempt to replicate a list of holdings as would, say, a true S&P index.","\"JoeTaxpayer's advice is solid - reallocating to your target asset allocation is the right move. You should have an Investor Policy Statement (IPS) that maps out your financial objectives, risk tolerance, liquidity constraints, etc. From the IPS, you can determine your target asset allocation and rebalance accordingly. A few more comments: It sounds like 100% of your 401k is in US stocks. You might have other accounts that make your overall portfolio globally diversified, but if not, you want to make sure to set a target asset allocation for a global portfolio. Your statement \"\"If this were in my brokerage account I'd probably cash out some of the profits and hold onto it and buy more shares as the market eventually comes back down. But this being a 401k which has semi-monthly deposits from my paycheck, do I just leave it?\"\" is a bit counterintuitive. If you are going to try to time the market (a very hard task), it is better to use a retirement account, so you don't have to realize capital gains. Timing the market is probably a bad idea, but if you engage in market timing, it is probably better to use a retirement account than a brokerage account. If you would like to tilt your asset allocation based on the market valuation, I recommend researching Shiller's Cyclically Adjusted Price to Earnings ratio.\"","I choose lifecycle funds because I am placing faith (perhaps foolishly) that a full time fund manager knows better what to pick than I. The same reason I go with mutual funds in general apply to to why I also have the lifecycle funds. Presently my diversification strategy is really just index funds and lifecycle funds. The radio advice guy Clark Howard often promotes them. http://www.wacotrib.com/none/content/shared/money/stories/clark/0601/060425money.html (I count in the intimidated group)","\"An investment portfolio is typically divided into three components: All three of those can be accessed through mutual funds or ETFs. A 401(k) will probably have a small set of mutual funds for you to pick from. Mutual funds may charge you silly expenses if you pick a bad one. Look at the prospectus for the expense ratio. If it's over 1% you're definitely paying too much. If it's over 0.5% you're probably paying too much. If it's less than 0.1% you have a really good deal. US stocks are generally the core holding until you move into retirement (or get close to spending the money on something else if it's not invested for retirement). International stocks are riskier than US stocks, but provide opportunity for diversification and better returns than the US stocks. Bonds, or fixed-income investments, are generally very safe, but have limited opportunities for returns. They tend to do better when stocks are doing poorly. When you've got a while to invest, you should be looking at riskier investments; when you don't, you should be looking for safer investments. A quick (and rough) rule of thumb is that \"\"your age should match the portion of your portfolio in bonds\"\". So if you're 50 years old and approaching retirement in 15 years or so, you should have about 50% in bonds. Roughly. People whose employment and future income is particularly tied to one sector of the market would also do well to avoid investing there, because they already are at risk if it performs badly. For instance, if you work in the technology sector, loading up on tech stocks is extra risky: if there's a big bust, you're not just out of a job, your portfolio is dead as well. More exotic options are available to diversify a portfolio: While many portfolios could benefit from these sorts of holdings, they come with their own advantages and disadvantages and should be researched carefully before taking a significant stake in them.\"","Stock portfolios have diversifiable risk and undiversifiable risk. The market rewards investors for taking undiversifiable risk (e.g. owning an index of oil producing companies) and does not reward investors for assuming diversifiable risk (e.g. owning a single oil producing company). The market will not provide investors with any extra return for owning a single oil company when they can buy an oil index fund at no additional cost. Similarly, the market will not reward you for owning a small-cap index fund when you can purchase a globally diversified / capitalization diversified index fund at no additional cost. This article provides a more detailed description. The Vanguard Total World Stock Index Fund is a much better staring point for an equity portfolio. You will need to make sure that the asset allocation of your overall portfolio (e.g. stocks, bonds, P2P lending, cash) is consistent with your time horizon (5-10 years).","\"Typically you diversify a portfolio to reduce risk. The S&P 500 is a collection of large-cap stocks; a diversified portfolio today probably contains a mix of large cap, small cap, bonds, international equity and cash. Right now, if you have a bond component, that part of your portfolio isn't performing as well. The idea of diversification is that you \"\"smooth out\"\" the ups and downs of the market and come out ahead in most situations. If you don't have a bond or cash component in your portfolio, you may have picked (or had someone pick for you) lousy funds. Without more detail, that's about all that can be said. EDIT: You provided more detail, so I want to add a little to my answer. Basically, you're in a fund that has high fees (1.58% annually) and performance that trails the mid-cap index. The S&P 500 is a large-cap index (large cap == large company), so a direct comparison is not necessarily meaningful. Since you seem to be new at this, I'd recommend starting out with the Vanguard Total Stock Market Index Fund (VTSMX) or ETF (VTI). This is a nice option because it represents the entire stock market and is cheap... it's a good way to get started without knowing alot. If your broker charges a transaction fee to purchase Vanguard funds and you don't want to change brokers or pay ETF commissions, look for or ask about transaction-fee free \"\"broad market\"\" indexes. The expense ratio should be below 0.50% per year and optimally under 0.20%. If you're not having luck finding investment options, swtich to a discount broker like TD Ameritrade, Schwab, ScottTrade or Fidelity (in no particular order)\"","They made an analysis of my readiness to assume a risk and found out that I am willing to take only small risks. I would agree with this analysis. You really should rethink this part. At your age, you have no rational reason whatsoever to be risk-averse! Especially since any reasonably diversified fund already eliminates actual risk (of complete loss) almost completely. Going into bonds and real estate does not reduce risk at all; it reduces volatility - and you're giving up a lot of money merely to avoid seeing your investments go down temporarily(!)","How much should a rational investor have in individual stocks? Probably none. An additional dollar invested in a ETF or low cost index fund comprised of many stocks will be far less risky than a specific stock. And you'd need a lot more capital to make buying, voting, and selling in individual stocks as if you were running your own personal index fund worthwhile. I think in index funds use weightings to make it easier to track the index without constantly trading. So my advice here is to allocate based not on some financial principal but just loss aversion. Don't gamble with more than you can afford to lose. Figure out how much of that 320k you need. It doesn't sound like you can actually afford to lose it all. So I'd say 5 percent and make sure that's funded from other equity holdings or you'll end up overweight in stocks.","I think not. I think a discussion of optimum mix is pretty independent of age. While a 20 year old may have 40 years till retirement, a 60 year old retiree has to plan for 30 years or more of spending. I'd bet that no two posters here would give the same optimum mix for a given age, why would anyone expect the Wall Street firms to come up with something better than your own gut suggests?","\"A diversified portfolio (such as a 60% stocks / 40% bonds balanced fund) is much more predictable and reliable than an all-stocks portfolio, and the returns are perfectly adequate. The extra returns on 100% stocks vs. 60% are 1.2% per year (historically) according to https://personal.vanguard.com/us/insights/saving-investing/model-portfolio-allocations To get those average higher stock returns, you need to be thinking 20-30 years (even 10 years is too short-term). Over the 20-30 years, you must never panic and go to cash, or you will destroy the higher returns. You must never get discouraged and stop saving, or you will destroy the higher returns. You have to avoid the panic and discouragement despite the likelihood that some 10-year period in your 20-30 years the stock market will go nowhere. You also must never have an emergency or other reason to withdraw money early. If you look at \"\"dry periods\"\" in stocks, like 2000 to 2011, a 60/40 portfolio made significant money and stocks went nowhere. A diversified portfolio means that price volatility makes you money (due to rebalancing) while a 100% stocks portfolio means that price volatility is just a lot of stress with no benefit. It's somewhat possible, probably, to predict dry periods in stocks; if I remember the statistics, about 50% of the variability in the market price 10 years out can be explained by normalized market valuation (normalized = adjusted for business cycle and abnormal profit margins). Some funds such as http://hussmanfunds.com/ are completely based on this, though a lot of money managers consider it. With a balanced portfolio and rebalancing, though, you don't have to worry about it very much. In my view, the proper goal is not to beat the market, nor match the market, nor is it to earn the absolute highest possible returns. Instead, the goal is to have the highest chance of financing your non-financial goals (such as retirement, or buying a house). To maximize your chances of supporting your life goals with your financial decisions, predictability is more important than maximized returns. Your results are primarily determined by your savings rate - which realistic investment returns will never compensate for if it's too low. You can certainly make a 40-year projection in which 1.2% difference in returns makes a big difference. But you have to remember that a projection in which value steadily and predictably compounds is not the same as real life, where you could have emergency or emotional factors, where the market will move erratically and might have a big plunge at just the wrong time (end of the 40 years), and so on. If your plan \"\"relies\"\" on the extra 1.2% returns then it's not a reasonable plan anyhow, in my opinion, since you can't count on them. So why suffer the stress and extra risk created by an all-stocks portfolio?\"","When you look at managed funds the expense ratios are always high. They have the expense of analyzing the market, deciding where to invest, and then tracking the new investments. The lowest expenses are with the passive investments. What you have noticed is exactly what you expect. Now if you want to invest in active funds that throw off dividends and capital gains, the 401K is the perfect place to do it, because that income will not be immediately taxable. If the money is in a Roth 401K it is even better because that income will never be taxed.","International means from all over the world. In the U.S. A Foreign Equity fund would be non-US stocks. There's an odd third choice I'm aware of, a fund of US companies that derive their sales from overseas, primarily.","I'm a believer in broad index funds for the vast majority of investors. However, I'm sure someone here is more qualified than me to speak to the correct allocation. I'm mostly pointing out low-hanging fruit: you should (almost) never invest in the company that pays your wages. You could just dump it in the S&P or some broad market index and be in a better position.","The literal answer to your question is that a number of different types of mutual funds did not have significant downturns in 2008. Money Market Funds are intended to always preserve capital. VMMXX made 2.77% in 2008. It was a major scandal broke the buck, that its holders took a 3% loss. Inverse funds, which go up when the market goes down, obviously did well that year (RYARX), but if you have a low risk tolerance, that's obviously not what you're looking for. (and they have other problems as well when held long-term) But you're a 24-year-old talking about your retirement funds, you should have a much longer time horizon, at least 30 years. Over a period that long, stocks have never had negative real (inflation-adjusted) returns, dating back at least to the civil war. If you look at the charts here or here, you can see that despite the risk in any individual year, as the period grows longer, the average return for the period gets tighter and tighter. If you look at the second graph here, you see that 2011 was the first time since the civil war that the trailing 30-year return on t-bills exceeded that for stocks, and 1981-2011 was period that saw bond yields drop almost continuously, leading to steady rise in bond prices. Although past performance is no guarantee of future results, everything we've seen historically suggests that the risk of a broad stock-market portfolio held for 30 years is not that large, and it should make up the bulk of your holdings. For example, Vanguard's Target retirement 2055 fund is 90% in stocks (US + international), and only 10% in bonds.","\"First, decide on your asset allocation; are you looking for a fund with 60% stocks/risky-stuff, or 40% or 20%? Second, look for funds that have a mix of stocks and bonds. Good keywords would be: \"\"target retirement,\"\" \"\"lifecycle,\"\" \"\"balanced,\"\" \"\"conservative/moderate allocation.\"\" As you discover these funds, probably the fund website (but at least Morningstar.com) will tell you the percentage in stocks and risk assets, vs. in conservative bonds. Look for funds that have the percentage you decided on, or as close to it as possible. Third, build a list of funds that meet your allocation goal, and compare the details. Are they based on index funds, or are they actively managed? What is the expense ratio? Is the fund from a reputable company? You could certainly ask more questions here if you have several candidates and aren't sure how to choose. For investing in US dollars one can't-go-wrong choice is Vanguard and they have several suitable funds, but unfortunately if you spend in NIS then you should probably invest in that currency, and I don't know anything about funds in Israel. Update: two other options here. One is a financial advisor who agrees to do rebalancing for you. If you get a cheap one, it could be worth it. Two is that some 401k plans have an automatic rebalancing feature, where you have multiple funds but you can set it up so their computer auto-rebalances you. That's almost as good as having a single fund, though it does still encourage some \"\"mental accounting\"\" so you'd have to try to only look at the total balance, not the individual fund balances, over time. Anyway both of these could be alternatives ways to go on autopilot, besides a single fund.\"","\"First - yes, take the 2.5%. It could be better, but it's better than many get. Second - choosing from \"\"a bunch\"\" can be tough. Start by looking at the expenses for each. Read a bit of the description, if you can't tell your spouse what the fund's goal is, don't buy it.\"","The problem is aggregating information from so many sources, countries, and economies. You are probably more aware of local laws, local tax changes, local economic performance, etc, so it makes sense that you'd be more in tune with your own country. If your intent is to be fully diversified, then buy a total world fund. A lot of hedge funds do what you are suggesting, but I think it requires either some serious math or some serious research. Note: I'm invested in emerging markets (EEM) for exactly the reason you suggest... diversification.","\"1. Interest rates What you should know is that the longer the \"\"term\"\" of a bond fund, the more it will be affected by interest rates. So a short-term bond fund will not be subject to large gains or losses due to rate changes, an intermediate-term bond fund will be subject to moderate gains or losses, and a long-term bond fund will be subject to the largest gains or losses. When a book or financial planner says to buy \"\"bonds\"\" with no other qualification, they almost always mean investment-grade intermediate-term bond funds (or for individual bonds, the equivalent would be a bond ladder averaging an intermediate term). If you want technical details, look at the \"\"average duration\"\" or \"\"average maturity\"\" of the bond fund; as a rough guide, if the duration is 10, then a 1% change in interest rates would be a 10% gain or loss on the fund. Another thing you can do is look at long-term (10 years or ideally longer) performance history on some short, intermediate, and long term bond index funds, and you can see how the long term funds bounced around more. Non-investment-grade bonds (aka junk bonds or high yield bonds) are more affected by factors other than interest rates, including some of the same factors (economic booms or recessions) that affect stocks. As a result, they aren't as good for diversifying a portfolio that otherwise consists of stocks. (Having stocks, investment grade bonds, and also a little bit in high-yield bonds can add diversification, though. Just don't replace your bond allocation with high-yield bonds.) A variety of \"\"complicated\"\" bonds exist (convertible bonds are an example) and these are tough to analyze. There are also \"\"floating rate\"\" bonds (bank loan funds), these have minimal interest rate sensitivity because the rate goes up to offset rate rises. These funds still have credit risks, in the credit crisis some of them lost a lot of money. 2. Diversification The purpose of diversification is risk control. Your non-bond funds will outperform in many years, but in other years (say the -37% S&P 500 drop in 2008) they may not. You will not know in advance which year you'll get. You get risk control in at least a few ways. There's also an academic Modern Portfolio Theory explanation for why you should diversify among risky assets (aka stocks), something like: for a given desired risk/return ratio, it's better to leverage up a diverse portfolio than to use a non-diverse portfolio, because risk that can be eliminated through diversification is not compensated by increased returns. The theory also goes that you should choose your diversification between risk assets and the risk-free asset according to your risk tolerance (i.e. select the highest return with tolerable risk). See http://en.wikipedia.org/wiki/Modern_portfolio_theory for excruciating detail. The translation of the MPT stuff to practical steps is typically, put as much in stock index funds as you can tolerate over your time horizon, and put the rest in (intermediate-term investment-grade) bond index funds. That's probably what your planner is asking you to do. My personal view, which is not the standard view, is that you should take as much risk as you need to take, not as much as you think you can tolerate: http://blog.ometer.com/2010/11/10/take-risks-in-life-for-savings-choose-a-balanced-fund/ But almost everyone else will say to do the 80/20 if you have decades to retirement and feel you can tolerate the risk, so my view that 60/40 is the max desirable allocation to stocks is not mainstream. Your planner's 80/20 advice is the standard advice. Before doing 100% stocks I'd give you at least a couple cautions: See also:\"","If the ship is sinking, switching cabins with your neighbor isn't necessarily a good survival strategy. Index funds have sucked, because frankly just about everything has sucked lately. I still think it is a viable long term strategy as long as you are doing some dollar cost averaging. You can't think about long term investing as a steady climb up a hill, markets are erratic, but over long periods of time trend upwards. Now is your chance to get in near the ground floor. I can completely empathize that it is painful right now, but I am a believer in market efficiency and that over the long haul smart money is just more expensive (in terms of fees) than set-it-and-forget it diversified investments or target funds.","Since you already have twice your target in that emergency fund, putting that overage to work is a good idea. The impression that I get is that you'd still like to stay on the safe side. What you're looking for is a Balanced Fund. In a balanced fund the managers invest in both stocks and bonds (and cash). Since you have that diversification between those two asset classes, their returns tend to be much less volatile than other funds. Also, because of their intended audience and the traditions from that class of funds' long history, they tend to invest somewhat more conservatively in both asset classes. There are two general types of balanced funds: Conservative Allocation funds and Moderate Allocation funds. Conservative allocation funds invest in more fixed income than equity (the classic mix is 60% bonds, 40% stocks). Moderate allocation funds invest in more equity than fixed income (classic mix: 40% bonds, 60% stocks). A good pair of funds that are similar but exemplify the difference between conservative allocation and moderate allocation are Vanguard's Wellesley Income Fund (VWINX) for the former and Vanguard's Wellington Fund (VWELX) for the latter. (Disclaimer: though both funds are broadly considered excellent, this is not a recommendation.) Good luck sorting this out!","The article links to William Bernstein’s plan that he outlined for Business Insider, which says: Modelling this investment strategy Picking three funds from Google and running some numbers. The international stock index only goes back to April 29th 1996, so a run of 21 years was modelled. Based on 15% of a salary of $550 per month with various annual raises: Broadly speaking, this investment doubles the value of the contributions over two decades. Note: Rebalancing fees are not included in the simulation. Below is the code used to run the simulation. If you have Mathematica you can try with different funds. Notice above how the bond index (VBMFX) preserves value during the 2008 crash. This illustrates the rationale for diversifying across different fund types.","I really like keshlam's answer. Your age is also a consideration. If you make your own target fund by matching the allocations of whatever Vanguard offers, I'd suggest re-balancing every year or every other year. But if you're just going to match the allocations of their target fund, you might as well just invest in the target fund itself. Most (not all, just most) target funds do not charge an additional management fee. So you just pay the fees of the underlying funds, same as if you mirrored the target fund yourself. (Check the prospectus to see if an additional fee is charged or not.) You may want to consider a more aggressive approach than the target funds. You can accomplish this by selecting a target fund later than your actual retirement age, or by picking your own allocations. The target funds become more conservative as you approach retirement age, so selecting a later target is a way of moving the risk/reward ratio. (I'm not saying target funds are necessarily the best choice, you should get professional advice, etc etc.)","Since you're 20-30 years out of retirement, you should be 90% to 100% in stocks, and in one or two broad stock market funds likely. I'm not sure about the minimums at TD Ameritrade, but at Vanguard even $3k will get you into the basic funds. One option is the Targeted Retirement Year funds, which automatically rebalance as you get closer to retirement. They're a bit higher expense usually than a basic stock market fund, but they're often not too bad. (Look for expenses under 0.5% annually, and preferably much lower - I pay 0.05% on mine for example.) Otherwise, I'd just put everything into something simple - an S&P500 tracker for example (SPY or VOO are two examples) that has very low management fees. Then when your 401(k) gets up and running, that may have fewer options and thus you may end up in something more conservative - don't feel like you have to balance each account separately when they're just starting, think of them as one whole balancing act for the first year or two. Once they're each over $10k or so, then you can balance them individually (which you do want to do, to allow you to get better returns).","There many asset allocation strategies to chose from that beat lifestyle funds. For example: Relative Strength Asset Allocation keeps your money in Stocks when stocks perform well, bonds when they outperform stocks, and cash when both bonds and stocks are under-performing. The re-allocation happens on a monthly basis.","Look into the asset allocations of lifecycle funds offered by a company like Vanguard. This page allows you to select your current age and find a fund based on that. You could pick a fund, like the Target Retirement 2055 Fund (ages 21-25), and examine its allocation in the Portfolio & Management tab. For this fund, the breakdown is: Then, look at the allocation of the underlying funds that comprise the lifecycle fund, in the same tab. Look at each of those funds and see what asset allocation they use, and that should give you a rough idea for an age-based allocation. For example, the Total Stock Market Index Fund page has a sector breakdown, so if you wanted to get very fine-grained with your allocation, you could. (You're probably much better off investing in the index fund, low-cost ETFs, or the lifecycle fund itself, however; it'll be much cheaper). Doing this for several lifecycle funds should be a good start. Keep in mind, however, that these funds are rebalanced as the target date approaches, so if you're following the allocation of some particular funds, you'll have to rebalance as well. If you really want an age-based allocation that you don't have to think about, invest in a lifecycle fund directly. You'll probably pay a lower expense ratio than if you invested in a whole slew of funds directory, and it's less work for someone who isn't comfortable managing their portfolio themselves. Furthermore, with Vanguard, the expense ratios are already fairly low. This is only one example of an allocation, however; your tolerance of risk, age, etc. may affect what allocation you're willing to accept. Full disclosure: Part of my Roth IRA is invested in the Target 2055 fund I used as an example above, and another part uses a similar rebalancing strategy to the one I used above, but with Admiral Share funds, which have higher minimum investments but lower expense ratios.","It doesn't matter which way you use. As long as your comfortable with the overall level of risk/reward in your portfolio, that's what matters. (Though I will say that there are more investment vehicles than stocks, bonds, and cash that are worth considering.)","Let's simplify things by assuming you only own 2 stocks. By owning VOO and VTI, you're overweight on large- and mid-cap stocks relative to the market composition. Likewise, by owning VTI and VT, you're overweight on U.S. stocks; conversely, by owning VXUS and VT, you're overweight on non-U.S. stocks. These are all perfectly fine positions to take if that's what you intend and have justification for. For example, if you're in the U.S., it may be a good idea to hold more U.S. stocks than VT because of currency risk. But 4 equity index ETFs is probably overcomplicating things. It is perfectly fine to hold only VTI and VXUS because these funds comprise thousands of stocks and thus give you sufficient diversification. I would recommend holding those 2 ETFs based on a domestic/international allocation that makes sense to you (Vanguard recommends 40% of your stock allocation to be international), and if for some reason you want to be overweight in large- and mid-cap companies, throw in VOO. You can use Morningstar X-Ray to look at your proposed portfolio and find your optimal mix of geographic and stock style allocation.","As other posters have pointed out, many other potential factors at play here besides value, but that said, a huge part of my long-term money that I don't want to manage myself is in actively managed EM funds.","Thanks for the huge insight. I am still a student doing an intern and this was given as my first task, more of trying to give the IA another perspective looking at these funds rather than picking. I was not given the investors preference in terms of return and risk tolerances so it was really open-ended. However, thanks so much for the quick response. At least now I have a better idea of what I am going to deliver or at least try to show to the IA.","Yours two funds are redundant. Both are designed to have a mix of bonds and stocks and allow you to put all your money in them. Pick the one that has the lowest fees and stick with that (I didn't look at the funds you didn't select...they didn't look great either). Although all your funds have high fees, some are higher than others, so don't ignore fees. When you have decided on your portfolio weights, prioritize your money thus: Contribute enough to your 401(k) to get the full match from your employer Put everything else toward paying off that credit card until you have 0 balance. It's ok to use the card, but let it be little enough that you pay your statement balance off each month so you pay no interest. Then set aside some savings and invest any retirement money into a Roth IRA. At your income level your taxes are low so Roth is better than traditional IRA or 401(k). If you max out your Roth, put any other retirement savings in your 401(k).","The first two answers to this are very good, but I feel like there are a couple of points they left out that were a little too long for comments. First off take a look at the expense percentage,the load fees, and the average turnover ratio for the funds in your retirement account (assuming they are mutual funds). Having low expense fees <1% preferably and turnover ratios will help tremendously because those eat into returns whether the value of the fund goes up or down. The load fees (either incoming or outgoing) will lower the amount of money you actually put in and get out of the fund. There are thousands of no-load funds and most that have a backend load for taking the money out have clauses that lower that percentage to zero over several years. It is mostly there to keep people from trying to swing trade with mutual funds and pull their money out too quickly. The last thing I would suggest is to look at diversifying the holdings in your account. Bond funds have been up this year even though the stock market has done poorly. And they provide interest income that can increase the amount of shares you own even when the value of the bonds might have gone down.","\"Having worked for a financial company for years, my advice is to stay away from all the \"\"Freedom Funds\"\" offered. They're a new way for Fidelity to justify charging a higher management fee on those particular funds. That extra 1% or so a year is great for making the company money; it will kill your rate of return over the next 25+ years you're putting money into your retirement account. All these funds do is change the percentage of your funds in stocks vs. more fixed investments (bonds, etc.) so you have a higher percentage in stocks while you're young and slowly move the percentage more towards fixed as you get older. If you take a few hours every 5 years to re-balance your portfolio and just slowly shift more money towards fixed investments, you'll achieve the same thing WITHOUT the extra annual fee. So how much difference are we talking here? Let's do a quick example. Based on your salary of $70k and a 4% match by your company, you'll have $5,600 a year to put in your 401(k) (your 4% plus matched 4%). I'll also assume an 8% annual return for both funds. Here is what that 1% extra service charge will cost you: Fund with a 1% service charge: Annual Fee Paid Year 1 - $60.00 Annual Fee Paid Year 25 (assuming 8% growth in assets) - $301.00 Total Fees Year 1 through 25: $3,782 Fund with a 2% service charge: Annual Fee Paid Year 1 - $121.00 Annual Fee Paid Year 25 (assuming 8% growth in assets) - $472.00 Total Fees Year 1 through 25: $6,489 That's a total of $2,707 in extra fees over 25 years on just the investment you make this year! Next year if you invest the same amount in your 401k that will be another $2,707 paid over 25 years to the management company. This pattern repeats EACH year you pay the higher management fee. Trust me, if you invest that money in stock instead of paying it as fees, you'll have a whole lot more money saved when it's time to retire. My advice, pick a percentage you're comfortable with in stocks at your age, maybe 85 - 90%, and pick the stock funds with the lowest management fees (the remaining 10 - 15% should go into a fixed fund). Make sure you pick at least some of your stock money, I do 20 - 25%, and select a diverse (lots of different countries) international fund. For any retirement money you plan to save above the 4% getting matched by your company, set up a Roth IRA. That will give you the freedom to invest in any stocks or funds you want. Find some low-cost index funds (such as VTI for stocks, and BND for bonds) and put your money in those. Invest the same amount every month, automatically, and your cost average will work itself out through up markets and down. Good luck!\"","From The Prospectus for VTIVX; as compared to the Total Stock Market Fund; You can see how the Target date fund is a 'pass through' type of expense. It's not an adder. That's how I read this."],"string":"[\n \"\\\"Excellent question, though any why question can be challenging to answer because it depends on the financial products in question. At least, I haven't seen many target date retirement funds that include a high percent of foreign stocks, so below explains the ones I've seen which are primarily US stocks. The United States (before the last twenty years) has been seen as a country of stability. This is not true anymore, and it's difficult for my generation to understand because we grew up in the U.S.A being challenged (and tend to think that China and India have always been powers), but when we read investors, like Benjamin Graham (who had significant influence with Warren Buffett), we can see this bias - the U.S.A to them is stable, and other countries are \\\"\\\"risky.\\\"\\\" Again, with the national debt and the political game in our current time, it does not feel this way. But that bias is often reflect in financial instruments. The US Dollar is still the reserve currency, though it's influence is declining and I would expect it to decline. Contrary to my view (because I could be wrong here) is Mish, who argues that no one wants to have the reserve currency because having a reserve currency brings disadvantages (see here: Bogus Threats to US Reserve Currency Status: No Country Really Wants It!; I present this to show that my view could be wrong). Finally, there tends to be the \\\"\\\"go with what you know.\\\"\\\" Many of these funds are managed by U.S. citizens, so they tend to have a U.S. bias and feel more comfortable investing their money \\\"\\\"at home\\\"\\\" (in fact a famous mutual fund manager, Peter Lynch, had a similar mentality - buy the company behind the stock and what company do we tend to know best? The ones around us.). One final note, I'm not saying this mentality is correct, just what the attitude is like. I think you may find that younger mutual fund managers tend to include more foreign stocks, as they've seen that different world.\\\"\",\n \"A target date fund is NOT a world market index. There is no requirement that it be weighted based on the weights of the various world stock markets. If anything, historically (since the invention of target date funds), a 2:1 ratio is actually pretty low. 6:1 is, or was, probably more common. Just a token amount to non-US investments.\",\n \"\\\"To expand a bit on @MSalters's answer ... When I read your question title I assumed that by \\\"\\\"retirement funds\\\"\\\" you meant target-date funds that are close to their target dates (say, the 2015 target fund). When I saw that you were referring to all target-date funds, it occurred to me that examining how such funds modify their portfolios over time would actually help answer your question. If you look at a near-term target fund you can see that a smaller percent is invested internationally, the same way a smaller percent is invested in stocks. It's because of risk. Since it's more likely that you will need some of the money soon, and since you'll be cashing out said money in US Dollars, it's risky to have too much invested in foreign currencies. If you need money that's currently invested in a foreign currency and that currency happens to be doing poorly against USD at the moment, then you'll lose money simply because you need it now. This is the same rationale that goes into target-date funds' moving from stocks to bonds over time. Since the value of a stock portfolio has a lot more natural volatility than the value of a bond portfolio, if you're heavily invested in stocks when you need to withdraw money, there's a higher probability that you'll need to cash out just when stocks happen to be doing relatively poorly. Being invested more in bonds around when you'll need your money is less risky. Similarly, being more invested in US dollars than in foreign currencies around when you'll need your money is also less risky.\\\"\",\n \"Googling vanguard target asset allocation led me to this page on the Bogleheads wiki which has detailed breakdowns of the Target Retirement funds; that page in turn has a link to this Vanguard PDF which goes into a good level of detail on the construction of these funds' portfolios. I excerpt: (To the question of why so much weight in equities:) In our view, two important considerations justify an expectation of an equity risk premium. The first is the historical record: In the past, and in many countries, stock market investors have been rewarded with such a premium. ... Historically, bond returns have lagged equity returns by about 5–6 percentage points, annualized—amounting to an enormous return differential in most circumstances over longer time periods. Consequently, retirement savers investing only in “safe” assets must dramatically increase their savings rates to compensate for the lower expected returns those investments offer. ... The second strategic principle underlying our glidepath construction—that younger investors are better able to withstand risk—recognizes that an individual’s total net worth consists of both their current financial holdings and their future work earnings. For younger individuals, the majority of their ultimate retirement wealth is in the form of what they will earn in the future, or their “human capital.” Therefore, a large commitment to stocks in a younger person’s portfolio may be appropriate to balance and diversify risk exposure to work-related earnings (To the question of how the exact allocations were decided:) As part of the process of evaluating and identifying an appropriate glide path given this theoretical framework, we ran various financial simulations using the Vanguard Capital Markets Model. We examined different risk-reward scenarios and the potential implications of different glide paths and TDF approaches. The PDF is highly readable, I would say, and includes references to quant articles, for those that like that sort of thing.\",\n \"You need growth in your retirement fund. Sad to say but the broad U.S. marks still has better growth perspective than the emerging markets. Look at China they are only at 6.7% growth for next year the same as this year. Russia's economy is shrinking. These are the other two super powers of 2015. The USA is still the best market to invest in historically and in the present. That's why the USA market tends to be overweight in most retirement portfolios. Now by only investing in the USA market do you miss out on trends internationally? Well you do a bit but not entirely. Many USA companies are highly international in regards to their growth. Here are some: So in short the USA market still seems to be the best growth market and you still get some international exposure. Also by investing in USA companies they sometimes are more ethical in their book keeping as opposed to some other markets. I don't think I'm the only one that is skeptical of the numbers China's government reports.\",\n \"\\\"It's likely that the main reason is the additional currency risk for non-USD investments. A wider diversification in general lowers risk, but that has to be balanced by the risk incurred when investing abroad. This implies that the key factor isn't so much the country of residence, but the currency of the listing. Euro funds can invest across the whole Euro zone. Things become more complex when you consider countries whose currency is less trusted and whose economy is less diversified. In those cases, the \\\"\\\"currency risk\\\"\\\" may be more due to the national currency, which justifies a more global investment strategy.\\\"\",\n \"\\\"When you have multiple assets available and a risk-free asset (cash or borrowing) you will always end up blending them if you have a reasonable objective function. However, you seem to have constrained yourself to 100% investment. Combine that with the fact that you are considering only two assets and you can easily have a solution where only one asset is desired in the portfolio. The fact that you describe the US fund as \\\"\\\"dominating\\\"\\\" the forign fund indicates that this may be the case for you. Ordinarily diversification benefits the overall portfolio even if one asset \\\"\\\"dominates\\\"\\\" another but it may not in your special case. Notice that these funds are both already highly diversified, so all you are getting is cross-border diversification by getting more than one. That may be why you are getting the solution you are. I've seen a lot of suggested allocations that have weights similar to what you are using. Finding an optimal portfolio given a vector of expected returns and a covariance matrix is very easy, with some reliable results. Fancy models get pretty much the same kinds of answers as simple ones. However, getting a good covariance matrix is hard and getting a good expected return vector is all but impossible. Unfortunately portfolio results are very sensitive to these inputs. For that reason, most of us use portfolio theory to guide our intuition, but seldom do the math for our own portfolio. In any model you use, your weak link is the expected return and covariance. More sophisticated models don't usually help produce a more reasonable result. For that reason, your original strategy (80-20) sounds pretty good to me. Not sure why you are not diversifying outside of equities, but I suppose you have your reasons.\\\"\",\n \"I'm looking for ways to geared to save for retirement, not general investment. Many mutual fund companies offer a range of target retirement funds for different retirement dates (usually in increments of 5 years). These are funds of funds, that is, a Target 2040 Fund, say, will be invested in five or six different stock and bond mutual funds offered by the same company. Over the years and as the target date approaches closer, the investment mix will change from extra weight given to stock mutual funds towards extra weight being given to bond mutual funds. The disadvantage to these funds is that the Target Fund charges its own expense ratio over and above the expense ratios charged by the mutual funds it invests in: you could do the same investments yourself (or pick your own mix and weighting of various funds) and save the extra expense ratio. However, over the years, as the Target Fund changes its mix, withdrawing money from the stock mutual funds and investing the proceeds into bond mutual funds, you do not have to pay taxes on the profits generated by these transactions except insofar as some part of the profits become distributions from the Target Fund itself. If you were doing the same transactions outside the Target Fund, you would be liable for taxes on the profits when you withdrew money from a stock fund and invested the proceeds into the bond fund.\",\n \"So I did some queries on Google Scholar, and the term of art academics seem to use is target date fund. I notice divided opinions among academics on the matter. W. Pfau gave a nice set of citations of papers with which he disagrees, so I'll start with them. In 1969, Paul Sameulson published the paper Lifetime Portfolio Selection By Dynamic Stochaistic Programming, which found that there's no mathematical foundation for an age based risk tolerance. There seems to be a fundamental quibble relating to present value of future wages; if they are stable and uncorrelated with the market, one analysis suggests the optimal lifecycle investment should start at roughly 300 percent of your portfolio in stocks (via crazy borrowing). Other people point out that if your wages are correlated with stock returns, allocations to stock as low as 20 percent might be optimal. So theory isn't helping much. Perhaps with the advent of computers we can find some kind of empirical data. Robert Shiller authored a study on lifecycle funds when they were proposed for personal Social Security accounts. Lifecycle strategies fare poorly in his historical simulation: Moreover, with these life cycle portfolios, relatively little is contributed when the allocation to stocks is high, since earnings are relatively low in the younger years. Workers contribute only a little to stocks, and do not enjoy a strong effect of compounding, since the proceeds of the early investments are taken out of the stock market as time goes on. Basu and Drew follow up on that assertion with a set of lifecycle strategies and their contrarian counterparts: whereas a the lifecycle plan starts high stock exposure and trails off near retirement, the contrarian ones will invest in bonds and cash early in life and move to stocks after a few years. They show that contrarian strategies have higher average returns, even at the low 25th percentile of returns. It's only at the bottom 5 or 10 percent where this is reversed. One problem with these empirical studies is isolating the effect of the glide path from rebalancing. It could be that a simple fixed allocation works plenty fine, and that selling winners and doubling down on losers is the fundamental driver of returns. Schleef and Eisinger compare lifecycle strategy with a number of fixed asset allocation schemes in Monte Carlo simulations and conclude that a 70% equity, 30% long term corp bonds does as well as all of the lifecycle funds. Finally, the earlier W Pfau paper offers a Monte Carlo simulation similar to Schleef and Eisinger, and runs final portfolio values through a utility function designed to calculate diminishing returns to more money. This seems like a good point, as the risk of your portfolio isn't all or nothing, but your first dollar is more valuable than your millionth. Pfau finds that for some risk-aversion coefficients, lifecycles offer greater utility than portfolios with fixed allocations. And Pfau does note that applying their strategies to the historical record makes a strong recommendation for 100 percent stocks in all but 5 years from 1940-2011. So maybe the best retirement allocation is good old low cost S&P index funds!\",\n \"Foreign stocks tend to be more volatile -- higher risk trades off against higher return potential, always. The better reason for having some money in that area is that, as with bonds, it moves out-of-sync with the US markets and once you pick your preferred distribution, maintaining that balance semi-automatically takes advantage of that to improve your return-vs-risk position. I have a few percent of my total investments in an international stock index fund, and a few percent in an international REIT, both being fairly low-fee. (Low fees mean more of the money reaches you, and seems to be one of the better reasons for preferring one fund over another following the same segment of the market.) They're there because the model my investment advisor uses -- and validated with monte-carlo simulation of my specific mix -- shows that keeping them in the mix at this low level is likely to result in a better long-term outcome than if i left them out. No guarantees, but probabilities lean toward this specfic mix doing what i need. I don't pretend to be able to justify that via theory or to explain why these specific ratios work... but I understand enough about the process to trust that they are on (perhaps of many) reasonable solutions to get the best odds given my specific risk tolerance, timeline, and distaste for actively managing my money more than a few times a year. If that.\",\n \"Mostly you nailed it. It's a good question, and the points you raise are excellent and comprise good analysis. Probably the biggest drawback is if you don't agree with the asset allocation strategy. It may be too much/too little into stocks/bonds/international/cash. I am kind of in this boat. My 401K offers very little choices in funds, but offers Vanguard target funds. These tend to be a bit too conservative for my taste, so I actually put money in the 2060 target fund. If I live that long, I will be 94 in 2060. So if the target funds are a bit too aggressive for you, move down in years. If they are a bit too conservative, move up.\",\n \"Keep in mind that the bond market is dominated by US Treasury securities... if there were an S&P 500 for bonds, the US would take positions 1-400. Be careful that you understand what's in your bond funds -- you may not be as diversified as you think.\",\n \"\\\"The thing about the glide path is that the closer you're to the retirement age, the less risk you should be taking with your investments. All investments carry risk, but if you invest in a volatile stock market at the age of 20 and lose all your retirement money - it will not have the same effect on your retirement as if you'd invest in a volatile stock market at the age of 65 and then lose all your retirement money. Static allocation throughout your life without changing the risk factor, will lead you to a very conservative investment path, which would mean you're not likely to lose your investments, but you're not likely to gain much either. The point of the glide path is to allow you taking more risks early with more chances of higher gains, but to limit your risks down the road, also limiting your potential gains. That is why it is always suggested to start your retirement funds early in your life, to make sure you have enough time to invest in potentially high return stocks (with high risk), but when you get close to your retirement age, it is advised to do exactly the opposite. The date-targeted funds do that for you, but you can do it on your own as well. As to the academic research - you don't need to go that far. Just look at the graphs to see that over long period investments in stocks give much better return than \\\"\\\"conservative\\\"\\\" bonds and treasuries (especially when averaging the investments, as it usually is with the retirement funds), but over a given short period, investments in stocks are much more likely to significantly lose in value.\\\"\",\n \"\\\"If you read Joel Greenblatt's The Little Book That Beats the Market, he says: Owning two stocks eliminates 46% of the non market risk of owning just one stock. This risk is reduced by 72% with 4 stocks, by 81% with 8 stocks, by 93% with 16 stocks, by 96% with 32 stocks, and by 99% with 500 stocks. Conclusion: After purchasing 6-8 stocks, benefits of adding stocks to decrease risk are small. Overall market risk won't be eliminated merely by adding more stocks. And that's just specific stocks. So you're very right that allocating a 1% share to a specific type of fund is not going to offset your other funds by much. You are correct that you can emulate the lifecycle fund by simply buying all the underlying funds, but there are two caveats: Generally, these funds are supposed to be cheaper than buying the separate funds individually. Check over your math and make sure everything is in order. Call the fund manager and tell him about your findings and see what they have to say. If you are going to emulate the lifecycle fund, be sure to stay on top of rebalancing. One advantage of buying the actual fund is that the portfolio distributions are managed for you, so if you're going to buy separate ETFs, make sure you're rebalancing. As for whether you need all those funds, my answer is a definite no. Consider Mark Cuban's blog post Wall Street's new lie to Main Street - Asset Allocation. Although there are some highly questionable points in the article, one portion is indisputably clear: Let me translate this all for you. “I want you to invest 5pct in cash and the rest in 10 different funds about which you know absolutely nothing. I want you to make this investment knowing that even if there were 128 hours in a day and you had a year long vacation, you could not possibly begin to understand all of these products. In fact, I don’t understand them either, but because I know it sounds good and everyone is making the same kind of recommendations, we all can pretend we are smart and going to make a lot of money. Until we don’t\\\"\\\" Standard theory says that you want to invest in low-cost funds (like those provided by Vanguard), and you want to have enough variety to protect against risk. Although I can't give a specific allocation recommendation because I don't know your personal circumstances, you should ideally have some in US Equities, US Fixed Income, International Equities, Commodities, of varying sizes to have adequate diversification \\\"\\\"as defined by theory.\\\"\\\" You can either do your own research to establish a distribution, or speak to an investment advisor to get help on what your target allocation should be.\\\"\",\n \"The target date investment will automatically reduce equity exposure and increase bond exposure as it approaches retirement date. If you are unlikely to make adjustments as you get older, you may be setting yourself up for more risk down the road. Only you can decide what level of risk you can tolerate as you chase higher gains.\",\n \"why should I have any bias in favour of my local economy? The main reason is because your expenses are in the local currency. If you are planning on spending most of your money on foreign travel, that's one thing. But for most of us, the bulk of our expenses are incurred locally. So it makes sense for us to invest in things where the investment return is local. You might argue that you can always exchange foreign results into local currency, and that's true. But then you have two risks. One risk you'll have anywhere: your investments may go down. The other risk with a foreign investment is that the currency may lose value relative to your currency. If that happens, even a good performing investment can go down in terms of what it can return to you. That fund denominated in your currency is really doing these conversions behind the scenes. Unless the bulk of your purchases are from imports and have prices that fluctuate with your currency, you will probably be better off in local investments. As a rough rule of thumb, your country's import percentage is a good estimate of how much you should invest globally. That looks to be about 20% for Australia. So consider something like 50% local stocks, 20% local bonds, 15% foreign stocks, 5% foreign bonds, and 10% local cash. That will insulate you a bit from a weak local currency while not leaving you out to dry with a strong local currency. It's possible that your particular expenses might be more (or less) vulnerable to foreign price fluctuations than the typical. But hopefully this gives you a starting point until you can come up with a way of estimating your personal vulnerability.\",\n \"\\\"I don't think the advice to take lots more risk when young makes so much sense. The additional returns from loading up on stocks are overblown; and the rocky road from owning 75-100% stocks will almost certainly mess you up and make you lose money. Everyone thinks they're different, but none of us are. One big advantage of stocks over bonds is tax efficiency only if you buy index funds and don't ever sell them. But this does not matter in a retirement account, and outside a retirement account you can use tax-exempt bonds. Stocks have higher returns in theory but to have a reasonable guarantee of higher returns from them, you need around a 30-year horizon. That is a long, long time. Psychologically, a 60/40 stocks/bonds portfolio, or something with similar risk mixing in a few more alternative assets like Swenson's, is SO MUCH better. With 100% stocks you can spend 10 or 15 years saving money and your investment returns may get you nowhere. Think what that does to your motivation to save. (And how much you save is way more important than what you invest in.) The same doesn't happen with a balanced portfolio. With a balanced portfolio you get reasonably steady progress. You can still have a down year, but you're a lot less likely to have a down decade or even a down few years. You save steadily and your balance goes up fairly steadily. The way humans really work, this is so important. For the same kind of reason, I think it's great to buy one fund that has both stocks and bonds in there. This forces you to view the thing as a whole instead of wrongly looking at the individual asset class \\\"\\\"buckets.\\\"\\\" And it also means rebalancing will happen automatically, without having to remember to do it, which you won't. Or if you remember you won't do it when you should, because stocks are doing so well, or some other rationalization. Speaking of rebalancing, that's where a lot of the steady, predictable returns come from if you have a nice balanced portfolio. You can make money over time even if both asset classes end up going nowhere, as long as they bounce around somewhat independently, so you'll buy low and sell high when you rebalance. To me the ideal is an all-in-one fund that aims for about 60/40 stocks/bonds level of risk, somewhat more diversified than stocks/bonds is great (international stock, commodities, high yield, REIT, etc.). You can just buy that at age 20 and keep it until you retire. In beautiful ideal-world economic theory, buy 90% stocks when young. Real world with human brain involved: I love balanced funds. The steady gains are such a mental win. The \\\"\\\"target retirement\\\"\\\" funds are not a bad option, but if you buy the matching year for your age, I personally wish they had less in stocks. If you want to read more on the \\\"\\\"equity premium\\\"\\\" (how much more you make from owning stocks) here are a couple of posts on it from a blog I like: Update: I wrote this up more comprehensively on my blog,\\\"\",\n \"I think we resolved this via comments above. Many finance authors are not fans of target date funds, as they have higher fees than you'd pay constructing the mix yourself, and they can't take into account your own risk tolerance. Not every 24 year old should have the same mix. That said - I suggest you give thought to the pre-tax / post tax (i.e. traditional vs Roth) mix. I recently wrote The 15% solution, which attempts to show how to minimize your lifetime taxes by using the split that's ideal for your situation.\",\n \"I like that you are hedging ONLY the Roth IRA - more than likely you will not touch that until retirement. Looking at fees, I noticed Vanguard Target retirement funds are .17% - 0.19% expense ratios, versus 0.04 - 0.14% for their Small/Mid/Large cap stocks.\",\n \"\\\"I think Swenson's insight was that the traditional recommendation of 60% stocks plus 40% bonds has two serious flaws: 1) You are exposed to way too much risk by having a portfolio that is so strongly tied to US equities (especially in the way it has historically been recommend). 2) You have too little reward by investing so much of your portfolio in bonds. If you can mix a decent number of asset classes that all have equity-like returns, and those asset classes have a low correlation with each other, then you can achieve equity-like returns without the equity-like risk. This improvement can be explicitly measured in the Sharpe ratio of you portfolio. (The Vanguard Risk Factor looks pretty squishy and lame to me.) The book the \\\"\\\"The Ivy Portfolio\\\"\\\" does a great job at covering the Swenson model and explains how to reasonably replicate it yourself using low fee ETFs.\\\"\",\n \"If you don't want to pay much attention to your investments, target date funds -- assuming you find one (like Vanguard's) with no management fees beyond those acquired from the underlying funds -- are usually a great choice: when the target date is far off, they invest almost entirely (usually 90% or so) in (mutual funds that in turn consist of many) stocks, with the remainder in bonds; as the date gets closer, the mix is automatically shifted to more bonds and less stocks (i.e. less risk, but less potential return too).\",\n \"It's all about risk. These guidelines were all developed based on the risk characteristics of the various asset categories. Bonds are ultra-low-risk, large caps are low-risk (you don't see most big stocks like Coca-Cola going anywhere soon), foreign stocks are medium-risk (subject to additional political risk and currency risk, especially so in developing markets) and small-caps are higher risk (more to gain, but more likely to go out of business). Moreover, the risks of different asset classes tend to balance each other out some. When stocks fall, bonds typically rise (the recent credit crunch being a notable but temporary exception) as people flock to safety or as the Fed adjusts interest rates. When stocks soar, bonds don't look as attractive, and interest rates may rise (a bummer when you already own the bonds). Is the US economy stumbling with the dollar in the dumps, while the rest of the world passes us by? Your foreign holdings will be worth more in dollar terms. If you'd like to work alternative asset classes (real estate, gold and other commodities, etc) into your mix, consider their risk characteristics, and what will make them go up and down. A good asset allocation should limit the amount of 'down' that can happen all at once; the more conservative the allocation needs to be, the less 'down' is possible (at the expense of the 'up'). .... As for what risks you are willing to take, that will depend on your position in life, and what risks you are presently are exposed to (including: your job, how stable your company is and whether it could fold or do layoffs in a recession like this one, whether you're married, whether you have kids, where you live). For instance, if you're a realtor by trade, you should probably avoid investing too much in real estate or it'll be a double-whammy if the market crashes. A good financial advisor can discuss these matters with you in detail.\",\n \"\\\"The question you should be asking yourself is this: \\\"\\\"Why am I putting money into a 401(k)?\\\"\\\" For many people, the answer is to grow a (large) nest egg and save for future retirement expenses. Investors are balancing risk and potential reward, so the asset categories you're putting your 401(k) contribution towards will be a reflection on how much risk you're willing to take. Per a US News & World Report article: Ultimately, investors would do well to remember one of the key tenants of investing: diversify. The narrower you are with your investments, the greater your risk, says Vanguard's Bruno: \\\"\\\"[Diversification] doesn't ensure against a loss, but it does help lessen a significant loss.\\\"\\\" Generally, investing in your employer's stock in your 401(k) is considered very risk. In fact, one Forbes columnist recommends not putting any money into company stock. FINRA notes: Simply stated, if you put too many eggs in one basket, you can expose yourself to significant risk. In financial terms, you are under-diversified: you have too much of your holdings tied to a single investment—your company's stock. Investing heavily in company stock may seem like a good thing when your company and its stock are doing well. But many companies experience fluctuations in both operational performance and stock price. Not only do you expose yourself to the risk that the stock market as a whole could flounder, but you take on a lot of company risk, the risk that an individual firm—your company—will falter or fail. In simpler terms, if you invest a large portion of your 401(k) funds into company stock, if your company runs into trouble, you could lose both your job AND your retirement investments. For the other investment assets/vehicles, you should review a few things: Personally, I prefer to keep my portfolio simple and just pick just a few options based on my own risk tolerance. From your fund examples, without knowing specifics about your financial situation and risk tolerance, I would have created a portfolio that looks like this when I was in my 20's: I avoided the bond and income/money market funds because the growth potential is too low for my investing horizon. Like some of the other answers have noted, the Target Date funds invest in other funds and add some additional fee overhead, which I'm trying to avoid by investing primarily in index funds. Again, your risk tolerance and personal preference might result in a completely different portfolio mix.\\\"\",\n \"You're missing the concept of systemic risk, which is the risk of the entire market or an entire asset class. Diversification is about achieving a balance between risk and return that's appropriate for you. Your investment in Vanguard's fund, although diversified between many public companies, is still restricted to one asset class in one country. Yes, you lower your risk by investing in all of these companies, but you don't erase it entirely. Clearly, there is still risk, despite your diversification. You may decide that you want other investments or a different asset allocation that reduce the overall risk of your portfolio. Over the long run, you may earn a high level of return, but never forget that there is still risk involved. bonds seem pretty worthless, at least until I retire According to your profile, you're about my age. Our cohort will probably begin retiring sometime around 2050 or later, and no one knows what the bond market will look like over the next 40 years. We may have forecasts for the next few years, but not for almost four decades. Writing off an entire asset class for almost four decades doesn't seem like a good idea. Also, bonds are like equity, and all other asset classes, in that there are different levels of risk within the asset class too. When calculating the overall risk/return profile of my portfolio, I certainly don't consider Treasuries as the same risk level as corporate bonds or high-yield (or junk) bonds from abroad. Depending on your risk preferences, you may find that an asset allocation that includes US and/or international bonds/fixed-income, international equities, real-estate, and cash (to make rebalancing your asset allocation easier) reduces your risk to levels you're willing to tolerate, while still allowing you to achieve returns during periods where one asset class, e.g. equities, is losing value or performing below your expectations.\",\n \"\\\"Target Date Funds automatically change their diversification balance over time, rebalancing and reassigning new contributions to become progressively more protective of what you've already earned. (As opposed to other funds which continue to maintain the same balance of investments until you explicitly move the money around.) You can certainly make that same evolution manually; we all used to do that before target funds were made available, and many of us still do so. I'm still handling the relative allocations by hand. But I'm also close to my retirement target, so a target fund wouldn't be changing that much more anyway, and since I'm already tracking the curve... Note that if you feel a bit braver, or a bit more cautious, than the \\\"\\\"average investor\\\"\\\" the target fund was designed for, you can tweak the risk/benefit curve of a Target Date Fund by selecting a fund with a target date a bit later or earlier, respectively, than the date at which you intend to start pulling money back out of the fund.\\\"\",\n \"First, you should diversify your portfolio. If your entire portfolio is in the Roth IRA, then you should eventually diversify that. However, if you have an IRA and a 401k, then it's perfectly fine for the IRA to be in a single fund. For example, I used my IRA to buy a riskier REIT that my 401k doesn't support. Second, if you only have a small amount currently invested, e.g. $5500, it may make sense to put everything in a single fund until you have enough to get past the low balance fees. It's not uncommon for funds to charge lower fees to someone who has $8000, $10,000, or $12,000 invested. Note that if you deposit $10,000 and the fund loses money, they'll usually charge you the rate for less than $10,000. So try to exceed the minimum with a decent cushion. A balanced fund may make sense as a first fund. That way they handle the diversification for you. A targeted fund is a special kind of balanced fund that changes the balance over time. Some have reported that targeted funds charge higher fees. Commissions on those higher fees may explain why your bank wants you to buy. I personally don't like the asset mixes that I've seen from targeted funds. They often change the stock/bond ratio, which is not really correct. The stock/bond ratio should stay the same. It's the securities (stocks and bonds) to monetary equivalents that should change, and that only starting five to ten years before retirement. Prior to that the only reason to put money into monetary equivalents is to provide time to pick the right securities fund. Retirees should maintain about a five year cushion in monetary equivalents so as not to be forced to sell into a bad market. Long term, I'd prefer low-load index funds. A bond fund and two or three stock funds. You might want to build your balance first though. It doesn't really make sense to have a separate fund until you have enough money to get the best fees. 70-75% stocks and 25-30% bonds (should add to 100%, e.g. 73% and 27%). Balance annually when you make your new deposit.\",\n \"There are fund of funds,e.g. life cycle funds or target retirement funds, that could cover a lot of these with an initial investment that one could invest into for a few years and then after building up a balance large enough, then it may make sense to switch to having more control.\",\n \"Fire your fund manager. There are several passive funds that seek to duplicate the S&P 500 Index returns. They have lower management fees, which will make returns lower than S&P, and they have less risk by following a broadly diversified strategy (versus midcap growing stocks). There's also ETFs, but evidence is growing that they're not as safe as hoped. But here's the deal: the S&P has been on a tear lately. It could be overvalued and what looks like a good investment could start falling again. A possible alternative would be one of the Lifetime funds that seek to perform portfolio adjustment with a retirement decade target; they're fairly new which mostly means nobody knows how they screw you over yet. In theory, this decade structure means the brokerage can execute trading cash for stocks, stocks for bonds, and bonds for cash in house.\",\n \"\\\"The goal of the single-fund with a retirement date is that they do the rebalancing for you. They have some set of magic ratios (specific to each fund) that go something like this: Note: I completely made up those numbers and asset mix. When you invest in the \\\"\\\"Mutual-Fund Super Account 2025 fund\\\"\\\" you get the benefit that in 2015 (10 years until retirement) they automatically change your asset mix and when you hit 2025, they do it again. You can replace the functionality by being on top of your rebalancing. That being said, I don't think you need to exactly match the fund choices they provide, just research asset allocation strategies and remember to adjust them as you get closer to retirement.\\\"\",\n \"As a general rule of thumb, age and resiliency of your profession (in terms of high and stable wages) in most cases imply that you have the ABILITY to accept higher than average level of risk by investing in stocks (rather than bonds) in search for capital appreciation (rather than income), simply because you have more time to offset any losses, should you have any, and make capital gains. Dividend yield is mostly sough after by people at or near retirement who need to have some cash inflows but cannot accept high risk of equity investments (hence low risk dividend stocks and greater allocation to bonds). Since you accept passive investment approach, you could consider investing in Target Date Funds (TDFs), which re-allocate assets (roughly, from higher- to lower-risk) gradually as the fund approaches it target, which for you could be your retirement age, or even beyond. Also, why are you so hesitant to consider taking professional advice from a financial adviser?\",\n \"You can look the Vanguard funds up on their website and view a risk factor provided by Vanguard on a scale of 1 to 5. Short term bond funds tend to get their lowest risk factor, long term bond funds and blended investments go up to about 3, some stock mutual funds are 4 and some are 5. Note that in 2008 Swenson himself had slightly different target percentages out here that break out the international stocks into emerging versus developed markets. So the average risk of this portfolio is 3.65 out of 5. My guess would be that a typical twenty-something who expects to retire no earlier than 60 could take more risk, but I don't know your personal goals or circumstances. If you are looking to maximize return for a level of risk, look into Modern Portfolio Theory and the work of economist Harry Markowitz, who did extensive work on the topic of maximizing the return given a set risk tolerance. More info on my question here. This question provides some great book resources for learning as well. You can also check out a great comparison and contrast of different portfolio allocations here.\",\n \"I would recommend using growth/value/income/bond based asset allocation because your goal is to find asset classes that have different performance trends (when 1 is up, the other is down and vice-versa). If you chose Domestic, US stocks and diversified between Med Cap and Large Cap stocks, they would not exactly mirror each other, but they would roughly rise and fall at the same time, preventing you from taking full advantage of diversification, increasing risk and lowering returns.\",\n \"\\\"Your funds are in a retirement account. Withdrawals from your IRA will be penalized if you withdraw before you turn 59.5 years old, and you appear to be decades away from that age. The general advice I would give you is to pick a \\\"\\\"target year fund\\\"\\\" that targets the year you turn 59.5. The stock market is more volatile, but its average gains will protect you from inflation just eating your funds. Bonds are in counterpoint to your stocks - more stable, and protecting you from the chance that stocks dip right before you want to withdraw. Target year funds start with higher amounts of stock, and gradually rebalance towards bonds over time. Thus, you take your market risks earlier while you can benefit from the market's gains, and then have stability when you actually would want to retire and depend on the savings.\\\"\",\n \"I agree with others here that suggest that you should be taking higher risk since it is repaid with higher returns. You have 40 years or so to go before you might switch to safer but lower return funds. I suggest that you look at the Morningstar rating for the funds you are considering: http://www.morningstar.com/ A fund rated five stars means that the fund performs in the top 20% compared to all similar funds. I prefer five star funds. Next, check the management fees. Here is an example from one of the funds you mentioned; https://www.google.com/finance?cid=466533039917726 Next, I suggest you compare how each fund has performed compared to a benchmark. Here are some common indices: Compare an equity fund to, for example, the S&P 500. Has your fund beat or closely matched the S&P for 1, 5 and 10 years? If not, you may as well buy an index fund, such as SPY.\",\n \"Rephrasing your question: Am I diversified if I have more than 50% US stocks? I would say that you can certainly be diversified and have more than 50% of your portfolio invested in US Stocks. I view the amount of international stocks (non-US) as a risk choice. My observations have been that my international stocks have higher risk which comes with a higher reward. I'm not comfortable with putting too much of my portfolio into a very high risk category. I personally invest 25% directly in mutual funds that invest in foreign stocks. When you couple that with the money I invest in US stocks via mutual funds that have foreign interests (Coke, GE, etc.), I'm somewhat over 25% international in my portfolio.\",\n \"\\\"Anything under 0.20% is \\\"\\\"really good, leave it alone.\\\"\\\" However, since you have access to their institutional funds, it isn't unreasonable to come up with your own desired asset allocation and save another half of the fees. If you're happy with the Target Retirement date fund, just stick with it, but if you've got a particular AA you want to maintain, go for that with the cheaper underlying funds.\\\"\",\n \"Most of the “recommendations” are just total market allocations. Within domestic stocks, the performance rotates. Sometimes large cap outperform, sometimes small cap outperform. You can see the chart here (examine year by year): https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1428692400000&chddm=99646&chls=IntervalBasedLine&cmpto=NYSEARCA:VO;NYSEARCA:VB&cmptdms=0;0&q=NYSEARCA:VV&ntsp=0&ei=_sIqVbHYB4HDrgGA-oGoDA Conventional wisdom is to buy the entire market. If large cap currently make up 80% of the market, you would allocate 80% of domestic stocks to large cap. Same case with International Stocks (Developed). If Japan and UK make up the largest market internationally, then so be it. Similar case with domestic bonds, it is usually total bond market allocation in the beginning. Then there is the question of when you want to withdraw the money. If you are withdrawing in a couple years, you do not want to expose too much to currency risks, thus you would allocate less to international markets. If you are investing for retirement, you will get the total world market. Then there is the question of risk tolerance. Bonds are somewhat negatively correlated with Stocks. When stock dips by 5% in a month, bonds might go up by 2%. Under normal circumstances they both go upward. Bond/Stock allocation ratio is by age I’m sure you knew that already. Then there is the case of Modern portfolio theory. There will be slight adjustments to the ETF weights if it is found that adjusting them would give a smaller portfolio variance, while sacrificing small gains. You can try it yourself using Excel solver. There is a strategy called Sector Rotation. Google it and you will find examples of overweighting the winners periodically. It is difficult to time the rotation, but Healthcare has somehow consistently outperformed. Nonetheless, those “recommendations” you mentioned are likely to be market allocations again. The “Robo-advisors” list out every asset allocation in detail to make you feel overwhelmed and resort to using their service. In extreme cases, they can even break down the holdings to 2/3/4 digit Standard Industrial Classification codes, or break down the bond duration etc. Some “Robo-advisors” would suggest you as many ETF as possible to increase trade commissions (if it isn’t commission free). For example, suggesting you to buy VB, VO, VV instead a VTI.\",\n \"\\\"I can think of a few reasons for this. First, bonds are not as correlated with the stock market so having some in your portfolio will reduce volatility by a bit. This is nice because it makes you panic less about the value changes in your portfolio when the stock market is acting up, and I'm sure that fund managers would rather you make less money consistently then more money in a more volatile way. Secondly, you never know when you might need that money, and since stock market crashes tend to be correlated with people losing their jobs, it would be really unfortunate to have to sell off stocks when they are under-priced due to market shenanigans. The bond portion of your portfolio would be more likely to be stable and easier to sell to help you get through a rough patch. I have some investment money I don't plan to touch for 20 years and I have the bond portion set to 5-10% since I might as well go for a \\\"\\\"high growth\\\"\\\" position, but if you're more conservative, and might make withdrawals, it's better to have more in bonds... I definitely will switch over more into bonds when I get ready to retire-- I'd rather have slow consistent payments for my retirement than lose a lot in an unexpected crash at a bad time!\\\"\",\n \"You have to look at the market conditions and make decisions based on them. Ideally, you may want to have 30% of your portfolio in bonds. But from a practical point of view, it's probably not so smart to invest in bond funds right at this moment given the interest rate market. Styles of funds tend to go into and out of style. I personally do asset allocation two ways in my 457 plan (like a 401k for government workers): In my IRA, I invest in a portfolio of 5-6 stocks. The approach you take is dependent on what you are able to put into it. I invest about 10 hours a week into investment related research. If you can't do that, you want a strategy that is simpler -- but you still need to be cognizant of market conditions.\",\n \"Stock index funds are likely, but not certainly, to be a good long-term investment. In countries other than the USA, there have been 30+ year periods where stocks either underperformed compared to bonds, or even lost value in absolute terms. This suggests that it may be an overgeneralization to assume that they always do well in the long term. Furthermore, it may suggest that they are persistently overvalued for the risk, and perhaps due for a long-term correction. (If everybody assumes they're safe, the equity risk premium is likely to be eaten up.) Putting all of your money into them would, for most people, be taking an unnecessary risk. You should cover some other asset classes too. If stocks do very well, a portfolio with some allocation to more stable assets will still do fairly well. If they crash, a portfolio with less risky assets will have a better chance of being at least adequate.\",\n \"\\\"First of all, it's great you're now taking full advantage of your employer match – i.e. free money. Next, on the question of the use of a life cycle / target date fund as a \\\"\\\"hedge\\\"\\\": Life cycle funds were introduced for hands-off, one-stop-shopping investors who don't like a hassle or don't understand. Such funds are gaining in popularity: employers can use them as a default choice for automatic enrollment, which results in more participation in retirement savings plans than if employees had to opt-in. I think life cycle funds are a good innovation for that reason. But, the added service and convenience typically comes with higher fees. If you are going to be hands-off, make sure you're cost-conscious: Fees can devastate a portfolio's performance. In your case, it sounds like you are willing to do some work for your portfolio. If you are confident that you've chosen a good equity glide path – that is, the initial and final stock/bond allocations and the rebalancing plan to get from one to the other – then you're not going to benefit much by having a life cycle fund in your portfolio duplicating your own effort with inferior components. (I assume you are selecting great low-cost, liquid index funds for your own strategy!) Life cycle are neat, but replicating them isn't rocket science. However, I see a few cases in which life cycle funds may still be useful even if one has made a decision to be more involved in portfolio construction: Similar to your case: You have a company savings plan that you're taking advantage of because of a matching contribution. Chances are your company plan doesn't offer a wide variety of funds. Since a life cycle fund is available, it can be a good choice for that account. But make sure fees aren't out of hand. If much lower-cost equity and bond funds are available, consider them instead. Let's say you had another smaller account that you were unable to consolidate into your main account. (e.g. a Traditional IRA vs. your Roth, and you didn't necessarily want to convert it.) Even if that account had access to a wide variety of funds, it still might not be worth the added hassle or trading costs of owning and rebalancing multiple funds inside the smaller account. There, perhaps, the life cycle fund can help you out, while you use your own strategy in your main account. Finally, let's assume you had a single main account and you buy partially into the idea of a life cycle fund and you find a great one with low fees. Except: you want a bit of something else in your portfolio not provided by the life cycle fund, e.g. some more emerging markets, international, or commodity stock exposure. (Is this one reason you're doing it yourself?) In that case, where the life cycle fund doesn't quite have everything you want, you could still use it for the bulk of the portfolio (e.g. 85-95%) and then select one or two specific additional ETFs to complement it. Just make sure you factor in those additional components into the overall equity weighting and adjust your life cycle fund choice accordingly (e.g. perhaps go more conservative in the life cycle, to compensate.) I hope that helps! Additional References:\\\"\",\n \"Here's the 2009-2014 return of the S&P 500 (SPY) vs. Vanguard FTSE ex-US (VEU) (higher returns bolded) Another argument for them is their low correlation to U.S stocks. Looking at history however, I don't see it. Most times U.S stocks have done badly, foreign stocks have also done badly. Looking at the last 6 years (and current YTD), 1 in 3 years have international stocks doing better. I invest a portion of my investments in international because they aren't well correlated.\",\n \"\\\"Making these difficult portfolio decisions for you is the point of Target-Date Retirement Funds. You pick a date at which you're going to start needing to withdraw the money, and the company managing the fund slowly turns down the aggressiveness of the fund as the target date approaches. Typically you would pick the target date to be around, say, your 65th birthday. Many mutual fund companies offer a variety of funds to suit your needs. Your desire to never \\\"\\\"have to recover\\\"\\\" indicates that you have not yet done quite enough reading on the subject of investing. (Or possibly that your sources have been misleading you.) A basic understanding of investing includes the knowledge that markets go up and down, and that no portfolio will always go up. Some \\\"\\\"recovery\\\"\\\" will always be necessary; having a less aggressive portfolio will never shield you completely from losing money, it just makes loss less likely. The important thing is to only invest money that you can afford to lose in the short-term (with the understanding that you'll make it back in the long term). Money that you'll need in the short-term should be kept in the absolute safest investment vehicles, such as a savings account, a money market account, short-term certificates of deposit, or short-term US government bonds.\\\"\",\n \"\\\"Aggressiveness in a retirement portfolio is usually a function of your age and your risk tolerance. Your portfolio is usually a mix of the following asset classes: You can break down these asset classes further, but each one is a topic unto itself. If you are young, you want to invest in things that have a higher return, but are more volatile, because market fluctuations (like the current financial meltdown) will be long gone before you reach retirement age. This means that at a younger age, you should be investing more in stocks and foreign/developing countries. If you are older, you need to be into more conservative investments (bonds, money market, etc). If you were in your 50s-60s and still heavily invested in stock, something like the current financial crisis could have ruined your retirement plans. (A lot of baby boomers learned this the hard way.) For most of your life, you will probably be somewhere in between these two. Start aggressive, and gradually get more conservative as you get older. You will probably need to re-check your asset allocation once every 5 years or so. As for how much of each investment class, there are no hard and fast rules. The idea is to maximize return while accepting a certain amount of risk. There are two big unknowns in there: (1) how much return do you expect from the various investments, and (2) how much risk are you willing to accept. #1 is a big guess, and #2 is personal opinion. A general portfolio guideline is \\\"\\\"100 minus your age\\\"\\\". This means if you are 20, you should have 80% of your retirement portfolio in stocks. If you are 60, your retirement portfolio should be 40% stock. Over the years, the \\\"\\\"100\\\"\\\" number has varied. Some financial advisor types have suggested \\\"\\\"150\\\"\\\" or \\\"\\\"200\\\"\\\". Unfortunately, that's why a lot of baby boomers can't retire now. Above all, re-balance your portfolio regularly. At least once a year, perhaps quarterly if the market is going wild. Make sure you are still in-line with your desired asset allocation. If the stock market tanks and you are under-invested in stocks, buy more stock, selling off other funds if necessary. (I've read interviews with fund managers who say failure to rebalance in a down stock market is one of the big mistakes people make when managing a retirement portfolio.) As for specific mutual fund suggestions, I'm not going to do that, because it depends on what your 401k or IRA has available as investment options. I do suggest that your focus on selecting a \\\"\\\"passive\\\"\\\" index fund, not an actively managed fund with a high expense ratio. Personally, I like \\\"\\\"total market\\\"\\\" funds to give you the broadest allocation of small and big companies. (This makes your question about large/small cap stocks moot.) The next best choice would be an S&P 500 index fund. You should also be able to find a low-cost Bond Index Fund that will give you a healthy mix of different bond types. However, you need to look at expense ratios to make an informed decision. A better-performing fund is pointless if you lose it all to fees! Also, watch out for overlap between your fund choices. Investing in both a Total Market fund, and an S&P 500 fund undermines the idea of a diversified portfolio. An aggressive portfolio usually includes some Foreign/Developing Nation investments. There aren't many index fund options here, so you may have to go with an actively-managed fund (with a much higher expense ratio). However, this kind of investment can be worth it to take advantage of the economic growth in places like China. http://www.getrichslowly.org/blog/2009/04/27/how-to-create-your-own-target-date-mutual-fund/\\\"\",\n \"Because stock markets don't always go up, sometimes they go down. Sometimes they go way down. Between 2007 and 2009 the S&P 500 lost over half its value. So if in 2007 you thought you had just enough to retire on, in 2009 you'd suddenly find you had only half of what you needed! Of course over the next few years, many of the stocks recovered value, but if you had retired in 2008 and depended on a 401k that consisted entirely of stocks, you'd have been forced to sell a bunch of stocks near the bottom of the market to cover your retirement living expenses. Bonds go up and down too, but usually not to the same extent as stocks, and ideally you aren't selling the bonds for your living expenses, just collecting the interest that's due you for the year. Of course, some companies and cities went bankrupt in the 2008 crisis too, and they stopped making interest payments. Another risk is that you may be forced to retire before you were actually planning to. As you age you are at increasing risk for medical problems that may force an early retirement. Many businesses coped with the 2008 recession by laying off their older workers who were earning higher salaries. It wasn't an easy environment for older workers to find jobs in, so many folks were forced into early retirement. Nothing is risk free, so you need to make an effort to understand what the risks are, and decide which ones you are comfortable with.\",\n \"Generally a diversified portfolio will give you a better overall return --a couple of factors that may address what you are looking at - 1) Correlation - The correlation between your two funds is still very high -- it's partially a function of how global economies are related and many companies are now multi-national. It may help if you diversified into other types of products. 2) Diversification - Following up from before, you may want to also look into diversifying into some bonds, commodities, reits, etc. They will have a much smaller correlation with a total domestic stock fund. 3) Returns - I'm not sure if by dominate you mean that it has better overall returns, but the point of diversification is to to get you the highest returns. It's really the ability to limit the risk for the returns - this really translates to limiting the volatility. This may mean that overall your max returns could be lower-- ie: maybe VTSAX gives potential average returns between 3%-11%. A diversified portfolio may give you potential average returns of 5%-9%. A similar article debating the merits of 'smart beta ETFs' if you are curious. Hope that helps.\",\n \"Life Strategy funds are more appropriate if you want to maintain a specific allocation between stocks and bonds that doesn't automatically adjustment like the Target Retirement funds which have a specific date. Thus, it may make more sense to take whichever Life Strategy fund seems the most appropriate and ride with it for a while unless you know when you plan to retire and access those funds. In theory, you could use Vanguard's Total Market funds,i.e. Total Stock Market, Total International, and Total Bond, and have your own allocations between stocks and bonds be managed pretty easily and don't forget that the fees can come in a couple of flavors as betterment doesn't specify where the transaction fees for buying the ETFs are coming out just as something to consider.\",\n \"I believe it is because you can withstand a loss in your early life better than you can in your retirement. If you lose 25% in your 20s it is a lot less than 25% in your 60s. You, hopefully earn more in your 60s and you have a lot more already in the bank in your 60s.\",\n \"This is a Vanguard-specific difference in the sense that in the US, Vanguard is a leader in lowering management fees for the mutual funds that they offer. Of course, several US mutual fund companies have also been lowering the expense ratio of their mutual funds in recent years because more and more investors have been paying attention to this particular performance parameter, and opting for funds that have low expense ratios. But many US funds have not reduced their expense ratios very much and continue to have expense ratios of 1% or even higher. For example, American Funds Developing World Growth and Income Fund (DWGAX) charges a 1.39% expense ratio while their 2060 Retirement Fund (AANTX) charges 1.12% (the funds also have a 5.75% sales charge); Putnam Capital Opportunities Fund charges 1.91% for their Class C shares, and so on. Many funds with high expense ratios (and sometimes sales charges as well) show up as options in far too many 401(k) plans, especially 401(k) plans of small companies, because small companies do not enjoy economies of scale and do not have much negotiating power when dealing with 401(k) custodians and administrators.\",\n \"the whole room basically jumped on me I really have an issue with this. Someone providing advice should offer data, and guidance. Not bully you or attack you. You offer 3 choices. And I see intelligent answers advising you against #1. But I don't believe these are the only choices. My 401(k) has an S&P fund, a short term bond fund, and about 8 other choices including foreign, small cap, etc. I may be mistaken, but I thought regulations forced more choices. From the 2 choices, S&P and short term bond, I can create a stock bond mix to my liking. With respect to the 2 answers here, I agree, 100% might not be wise, but 50% stock may be too little. Moving to such a conservative mix too young, and you'll see lower returns. I like your plan to shift more conservative as you approach retirement. Edit - in response to the disclosure of the fees - 1.18% for Aggressive, .96% for Moderate I wrote an article 5 years back, Are you 401(k)o'ed in which I discuss the level of fees that result in my suggestion to not deposit above the match. Clearly, any fee above .90% would quickly erode the average tax benefit one might expect. I also recommend you watch a PBS Frontline episode titled The Retirement Gamble It makes the point as well as I can, if not better. The benefit of a 401(k) aside from the match (which you should never pass up) is the ability to take advantage of the difference in your marginal tax rate at retirement vs when earned. For the typical taxpayer, this means working and taking those deposits at the 25% bracket, and in retirement, withdrawing at 15%. When you invest in a fund with a fee above 1%, you can see it will wipe out the difference over time. An investor can pay .05% for the VOO ETF, paying as much over an investing lifetime, say 50 years, as you will pay in just over 2 years. They jumped on you? People pushing funds with these fees should be in jail, not offering financial advice.\",\n \"\\\"Stock market indexes are generally based on market capitalization, which is not the same as GDP. GDP includes the value of all goods and services produced in a country; this includes a large amount of small-scale production which may not be reflected in stock market capitalizations. Thus the ratio between countries' GDPs may not be the same as the ratio of their total market capitalization. For instance, US GDP is approximately 3.8 times as much as Japan's (see here), but US total market cap is about 5.5 as much as Japan's (see here). The discrepancy can be even more severe when comparing \\\"\\\"developed\\\"\\\" economies like the US to \\\"\\\"developing\\\"\\\" (or \\\"\\\"less-developed\\\"\\\") economies in which there is less participation in large-scale financial systems like stock markets. For instance, US GDP is roughly 10 times that of Brazil, but US total market cap is roughly 36 times that of Brazil. Switzerland has a total market cap nearly double that of Brazil despite its total GDP being less than half of Brazil's. Since the all-world index includes all investable economies, it will include many economies whose share of market cap is disproportionately lower than their share of GDP. In addition, according to the fact sheet you linked to, that index tracks only large- and mid-cap stocks. This will further skew the weighting to developed economies and to the US in particular, since the US has a disproportionate share of the largest companies. Obviously one would need to take a more detailed look at all the weights to determine if these factors account precisely for the level of discrepancy you see in this particular index. But hopefully that explanation gives an idea of why the US might be weighted more heavily in a stock index than it is in raw GDP.\\\"\",\n \"It looks like an improvement to me, if for no other reason than lowering the expenses. But if you are around 35 years away from retirement you could consider eliminating all bond funds for now. They will pay better in a few years. And the stock market(s) will definitely go up more than bonds over the next 35 years.\",\n \"\\\"Tricky question, basically, you just want to first spread risk around, and then seek abnormal returns after you understand what portions of your portfolio are influenced by (and understand your own investment goals) For a relevant timely example: the German stock exchange and it's equity prices are reaching all time highs, while the Greek asset prices are reaching all time lows. If you just invested in \\\"\\\"Europe\\\"\\\" your portfolio will experience only the mean, while suffering from exchange rate changes. You will likely lose because you arbitrarily invested internationally, for the sake of being international, instead of targeting a key country or sector. Just boils down to more research for you, if you want to be a passive investor you will get passive investor returns. I'm not personally familiar with funds that are good at taking care of this part for you, in the international markets.\\\"\",\n \"There are a few main economic reasons given why investors show a strong home bias: Interestingly, though if you ask investors about the future of their home country compared with other countries they will generally (though not always) significantly overestimate the future of their own country. It is difficult to definitively say what drives investors but this psychological home bias could be one of the larger factors. Edit in response to the bounty: Maybe this Vanguard article on their recommended international exposure is what you are looking for though they only briefly speculate about why people so consistently show a home bias in investing. The Wikipedia article mentioned above has some very good references and while there may be no complete answer with the certainty that you seek (as there are as many reasons as there are investors) a combination of the above list seems to capture much of what is going on across different countries.\",\n \"\\\"First, congratulations on choosing to invest in low cost passively managed plans. If you choose any one of these options and stick with it, you will already be well ahead of most individual investors. Almost all plans will allow you to re-balance between asset classes. With some companies, sales agents will encourage you to sell your overweighted assets and buy underweighted assets as this generates brokerage commissions for them, but when you only need to make minor adjustments, you can simply change the allocation of the new money going into your account until you are back to your target weights. Most plans will let you do this for free, and in general, you will only need to do this every few years at most. I don't see much reason for you to be in the Target funds. The main feature of these plans is that they gradually shift you to a more conservative asset allocation over time, and are designed to prevent people who are close to retirement from being too aggressive and risking a major loss just before retirement. It's very likely that at your age, most plans will have very similar recommendations for your allocation, with equities at 80% or more, and this is unlikely to change for the next few decades. The main benefits of betterment seems to be simplicity and ease of use, but there is one concern I would have for you with betterment. Precisely because it is so easy to tweak your allocation, I'm concerned that you might hurt your long-term results by reacting to short-term market conditions: I know I said I wanted a hands off account, but what if the stock market crashes and I want to allocate more to bonds??? One of the biggest reasons that stock returns are better than bond returns on average is that you are being paid to accept additional risk, and living with significant ups and downs is part of what it means to be in the stock market. If you are tempted to take money out of an asset class when it has been \\\"\\\"losing/feels dangerous\\\"\\\" and put more in when it is \\\"\\\"winning/feels safe\\\"\\\", my concerns is that you will end up buying high and selling low. I'd recommend taking a look at this article on the emotional cycle of investing. My point is simply that it's very likely that if you are moving money in and out of stocks based on volatility, you're much less likely to get the full market return over the long term, and might be better off putting more weight in asset classes with lower volatility. Either way, I'd recommend taking one or more risk tolerance assessments online and making sure you're committed to sticking with a long-term plan that doesn't involve more risk than you can really live with. I tend to lean toward Vanguard Life Strategy simply because Vanguard as a company has been around longer, but betterment does seem very accessible to a new investor. Best of luck with your decision!\\\"\",\n \"In your case, you could very well leave it in something like FFFFX, which for readers is a self balancing fund with a target retirement date of 2040. These funds are a conglomeration of other funds that tend to move more conservatively as time passes. However, I like to put no more than 10% of my portfolio in one fund with exceptions made for balances less than 20K. So If I had 18K it really wouldn't matter if it was in FUSEX a S&P 500 index fund. However by investing in FFFFX you pretty much meet that requirement. So you are golden if that fund meets your goals. For me, I kind of hate bonds and despite being of similar age, I have almost no money invested in bonds.\",\n \"\\\"There are some good answers about the benefits of diversification, but I'm going to go into what is going on mathematically with what you are attempting. I was always under the assumption that as long as two securities are less than perfectly correlated (i.e. 1), that the standard deviation/risk would be less than if I had put 100% into either of the securities. While there does exist a minimum variance portfolio that is a combination of the two with lower vol than 100% of either individually, this portfolio is not necessarily the portfolio with highest utility under your metric. Your metric includes returns not just volatility/variance so the different returns bias the result away from the min-vol portfolio. Using the utility function: E[x] - .5*A*sig^2 results in the highest utility of 100% VTSAX. So here the Sharpe ratio (risk adjusted return) of the U.S. portfolio is so much higher than the international portfolio over the period tracked that the loss of returns from adding more international stocks outweigh the lower risk that you would get from both just adding the lower vol international stocks and the diversification effects from having a correlation less than one. The key point in the above is \\\"\\\"over the period tracked\\\"\\\". When you do this type of analysis you implicitly assume that the returns/risk observed in the past will be similar to the returns/risk in the future. Certainly, if you had invested 100% in the U.S. recently you would have done better than investing in a mix of US/Intl. However, while the risk and correlations of assets can be (somewhat) stable over time relative returns can vary wildly! This uncertainty of future returns is why most people use a diversified portfolio of assets. What is the exact right amount is a very hard question though.\\\"\",\n \"As these all seem to be US Equity, just getting one broad based US Equity index might offer similar diversification at lower cost. Over 5 years, 20 basis points in fees will only make about 1% difference. However, for longer periods (retirement saving), it is worth it to aim for the lowest fees. For further diversification, you might want to consider other asset classes, such as foreign equity, fixed income, etc.\",\n \"Defined benefit pension funds will typically target treasuries + a spread that depends on how well funded the plan is and the duration of the liabilities. So for example, if a DB fund is 90% funded (meaning assets are 90% of liabilities) and the liabilities have a duration of 20 years, they will target the 20 year treasury rate + a spread that will bring the plan to just over 100% funded in around 20 years. This spread will usually be much lower than 8% p.a. Obviously it's much more complicated than this, but hopefully this gives a general idea.\",\n \"Placing bets on targeted sectors of the market totally makes sense in my opinion. Especially if you've done research, with a non-biased eye, that convinces you those sectors will continue to outperform. However, the funds you've boxed in red all appear to be actively managed funds (I only double-checked on the first.) There is a bit of research showing that very few active managers consistently beat an index over the long term. By buying these funds, especially since you hope to hold for decades, you are placing bets that these managers maintain their edge over an equivalent index. This seems unlikely to be a winning bet the longer you hold the position. Perhaps there are no sector index funds for the sectors or focuses you have? But if there were, and it was my money that I planned to park for the long term, I'd pick the index fund over the active managed fund. Index funds also have an advantage in costs or fees. They can charge substantially less than an actively managed fund does. And fees can be a big drag on total return.\",\n \"At your age, I don't think its a bad idea to invest entirely in stocks. The concern with stocks is their volatility, and at 40+ years from retirement, volatility does not concern you. Just remember that if you ever want to call upon your 401(k) for anything other than retirement, such as a down payment on a home (which is a qualified distribution that is not subject to early distribution penalties), then you should reconsider your retirement allocations. I would not invest 100% into stocks if I knew I were going to buy a house in five years and needed that money for a down payment. If your truly saving strictly for a retirement that could occur forty years in the future, first good for you, and second, put it all in an index fund. An S&P index has a ridiculously low expense ratio, and with so many years away from retirement, it gives you an immense amount of flexibility to choose what to do with those funds as your retirement date approaches closer every year.\",\n \"\\\"There are a lot of funds that exist only to feed people's belief that existing funds are not diversified or specialized enough. That's why you have so many options. Just choose the ones with the lowest fees. I'd suggest the following: I wouldn't mess around with funds that try and specialize in \\\"\\\"value\\\"\\\" or those target date funds. If you really don't want to think and don't mind paying slightly higher fees, just pick the target date fund that corresponds to when you will retire and put all your money there. On the traditional/Roth question, if your tax bracket will be higher when you retire than it is now (unlikely), choose Roth. Otherwise choose traditional.\\\"\",\n \"\\\"Most people advocate a passively managed, low fee mutual fund that simply aims to track a given benchmark (say S&P 500). Few funds can beat the S&P consistently, so investors are often better served finding a no load passive fund. First thing I would do is ask your benefits rep why you don't have an option to invest in a Fidelity passive index fund like Spartan 500. Ideally young people would be heavy in equities and slowly divest for less risky stuff as retirement comes closer, and rebalance the portfolio regularly when market swings put you off risk targets. Few people know how to do this and actually do so. So there are mutual funds that do it for you, for a fee. These in are called \\\"\\\"lifecycle\\\"\\\" funds (The Freedom funds here). I hesitate to recommend them because they're still fairly new. If you take a look at underlying assets, these things generally just reinvest in the broker's other funds, which themselves have expenses & fees. And there's all kinds personal situations that might lead to you place a portion with a different investment.\\\"\",\n \"\\\"I went to Morningstar's \\\"\\\"Performance\\\"\\\" page for FUSEX (Fideltiy's S&P 500 index fund) and used the \\\"\\\"compare\\\"\\\" tool to compare it with FOSFX and FWWFX, as well as FEMKX (Fidelity Emerging Markets fund). According to the data there, FOSFX outperformed FUSEX in 2012, FEMKX outperformed FUSED in 2010, and FWWFX outperformed FUSEX in both 2010 and 2012. When looking at 10- and 15-year trailing returns, both FEMKX and FWWFX outperformed FUSEX. What does this mean? It means it matters what time period you're looking at. US stocks have been on an almost unbroken increase since early 2009. It's not surprising that if you look at recent returns, international markets will not stack up well. If you go back further, though, you can find periods where international funds outperformed the US; and even within recent years, there have been individual years where international funds won. As for correlation, I guess it depends what you mean by \\\"\\\"low\\\"\\\". According to this calculator, for instance, FOSFX and FUSEX had a correlation of about 0.84 over the last 15 years. That may seem high, but it's still lower than, say, the 0.91 correlation between FUSEX and FSLCX (Fideltiy Small Cap). It's difficult to find truly low correlations among equity funds, since the interconnectedness of the global economy means that bull and bear markets tend to spread from one country to another. To get lower correlations you need to look at different asset classes (e.g., bonds). So the answer is basically that some of the funds you were already looking at may be the ones you were looking for. The trick is that no category will outperform any other over all periods. That's exactly what volatility means --- it means the same category that overperforms in some periods will underperform in others. If international funds always outperformed, no one would ever buy US funds. Ultimately, if you're trying to decide on investments for yourself, you need to take all this information into account and combine it with your own personal preferences, risk tolerance, etc. Anecdotally, I recently did some simulation-based analyses of Vanguard funds using data from the past 15 years. Over this period, Vanguard's emerging markets fund (VEIEX) comes out far ahead of US funds, and is also the least-correlated with the S&P 500. But, again, this analysis is based only on a particular slice of time.\\\"\",\n \"You are diversified within a particular type of security. Notably the stock market. A truly diversified portfolio not only has multiple types of holdings within a single type of security (what your broad market fund does) but between different types. You have partially succeeded in doing this with the international fund - that way your risk is spread between domestic and international stocks. But there are other holdings. Cash, bonds, commodities, real estate, etc. There are broad index funds/ETFs for those as well, which may reduce your risk when the stock market as a whole tanks - which it does on occasion.\",\n \"\\\"This turned out be a lot longer than I expected. So, here's the overview. Despite the presence of asset allocation calculators and what not, this is a subjective matter. Only you know how much risk you are willing to take. You seem to be aware of one rule of thumb, namely that with a longer investing horizon you can stand to take on more risk. However, how much risk you should take is subject to your own risk aversion. Honestly, the best way to answer your questions is to educate yourself about the individual topics. There are just too many variables to provide neat, concise answers to such a broad question. There are no easy ways around this. You should not blindly rely on the opinions of others, but rather use your own judgment to asses their advice. Some of the links I provide in the main text: S&P 500: Total and Inflation-Adjusted Historical Returns 10-year index fund returns The Motley Fool Risk aversion Disclaimer: These are the opinions of an enthusiastic amateur. Why should I invest 20% in domestic large cap and 10% in developing markets instead of 10% in domestic large cap and 20% in developing markets? Should I invest in REITs? Why or why not? Simply put, developing markets are very risky. Even if you have a long investment horizon, you should pace yourself and not take on too much risk. How much is \\\"\\\"too much\\\"\\\" is ultimately subjective. Specific to why 10% in developing vs 20% in large cap, it is probably because 10% seems like a reasonable amount of your total portfolio to gamble. Another way to look at this is to consider that 10% as gone, because it is invested in very risky markets. So, if you're willing to take a 20% haircut, then by all means do that. However, realize that you may be throwing 1/5 of your money out the window. Meanwhile, REITs can be quite risky as investing in the real estate market itself can be quite risky. One reason is that the assets are very much fixed in place and thus can not be liquidated in the same way as other assets. Thus, you are subject to the vicissitudes of a relatively small market. Another issue is the large capital outlays required for most commercial building projects, thus typically requiring quite a bit of credit and risk. Another way to put it: Donald Trump made his name in real estate, but it was (and still is) a very bumpy ride. Yet another way to put it: you have to build it before they will come and there is no guarantee that they will like what you built. What mutual funds or index funds should I investigate to implement these strategies? I would generally avoid actively managed mutual funds, due to the expenses. They can seriously eat into the returns. There is a reason that the most mutual funds compare themselves to the Lipper average instead of something like the S&P 500. All of those costs involved in managing a mutual fund (teams of people and trading costs) tend to weigh down on them quite heavily. As the Motley Fool expounded on years ago, if you can not do better than the S&P 500, you should save yourself the headaches and simply invest in an S&P 500 index fund. That said, depending on your skill (and luck) picking stocks (or even funds), you may very well have been able to beat the S&P 500 over the past 10 years. Of course, you may have also done a whole lot worse. This article discusses the performance of the S&P 500 over the past 60 years. As you can see, the past 10 years have been a very bumpy ride yielding in a negative return. Again, keep in mind that you could have done much worse with other investments. That site, Simple Stock Investing may be a good place to start educating yourself. I am not familiar with the site, so do not take this as an endorsement. A quick once-over of the material on the site leads me to believe that it may provide a good bit of information in readily digestible forms. The Motley Fool was a favorite site of mine in the past for the individual investor. However, they seem to have turned to the dark side, charging for much of their advice. That said, it may still be a good place to get started. You may also decide that it is worth paying for their advice. This blog post, though dated, compares some Vanguard index funds and is a light introduction into the contrarian view of investing. Simply put, this view holds that one should not be a lemming following the crowd, rather one should do the opposite of what everyone else is doing. One strong argument in favor of this view is the fact that as more people pile onto an investing strategy or into a particular market, the yields thin out and the risk of a correction (i.e. a downturn) increases. In the worst case, this leads to a bubble, which corrects itself suddenly (or \\\"\\\"pops\\\"\\\" thus the term \\\"\\\"bubble\\\"\\\") leading to quite a bit of pain for the unprepared participants. An unprepared participant is one who is not hedged properly. Basically, this means they were not invested in other markets/strategies that would increase in yield as a result of the event that caused the bubble to pop. Note that the recent housing bubble and resulting credit crunch beat quite heavily on the both the stock and bond markets. So, the easy hedge for stocks being bonds did not necessarily work out so well. This makes sense, as the housing bubble burst due to concerns over easy credit. Unfortunately, I don't have any good resources on hand that may provide starting points or discuss the various investing strategies. I must admit that I am turning my interests back to investing after a hiatus. As I stated, I used to really like the Motley Fool, but now I am somewhat suspicious of them. The main reason is the fact that as they were exploring alternatives to advertising driven revenue for their site, they promised to always have free resources available for those unwilling to pay for their advice. A cursory review of their site does show a decent amount of general investing information, so take these words with a grain of salt. (Another reason I am suspicious of them is the fact that they \\\"\\\"spammed\\\"\\\" me with lots of enticements to pay for their advice which seemed just like the type of advice they spoke against.) Anyway, time to put the soapbox away. As I do that though, I should explain the reason for this soapboxing. Simply put, investing is a risky endeavor, any way you slice it. You can never eliminate risk, you can only hope to reduce it to an acceptable level. What is acceptable is subject to your situation and to the magnitude of your risk aversion. Ultimately, it is rather subjective and you should not blindly follow someone else's opinion (professional or otherwise). Point being, use your judgment to evaluate anything you read about investing. If it sounds too good to be true, it probably is. If someone purports to have some strategy for guaranteed (steady) returns, be very suspicious of it. (Read up on the Bernard Madoff scandal.) If someone is putting on a heavy sales pitch, be weary. Be especially suspicious of anyone asking you to pay for their advice before giving you any solid understanding of their strategy. Sure, many people want to get paid for their advice in some way (in fact, I am getting \\\"\\\"paid\\\"\\\" with reputation on this site). However, if they take the sketchy approach of a slimy salesmen, they are likely making more money from selling their strategy, than they are from the advice itself. Most likely, if they were getting outsized returns from their strategy they would keep quiet about it and continue using it themselves. As stated before, the more people pile onto a strategy, the smaller the returns. The typical model for selling is to make money from the sale. When the item being sold is an intangible good, your risk as a buyer increases. You may wonder why I have written at length without much discussion of asset allocation. One reason is that I am still a relative neophyte and have a mostly high level understanding of the various strategies. While I feel confident enough in my understanding for my own purposes, I do not necessarily feel confident creating an asset allocation strategy for someone else. The more important reason is that this is a subjective matter with a lot of variables to consider. If you want a quick and simple answer, I am afraid you will be disappointed. The best approach is to educate yourself and make these decisions for yourself. Hence, my attempt to educate you as best as I can at this point in time. Personally, I suggest you do what I did. Start reading the Wall Street Journal every day. (An acceptable substitute may be the business section of the New York Times.) At first you will be overwhelmed with information, but in the long run it will pay off. Another good piece of advice is to be patient and not rush into investing. If you are in a hurry to determine how you should invest in a 401(k) or other such investment vehicle due to a desire to take advantage of an employer's matching funds, then I would place my money in an S&P 500 index fund. I would also explore placing some of that money into broad index funds from other regions of the globe. The reason for broad index funds is to provide some protection from the normal fluctuations and to reduce the risk of a sudden downturn causing you a lot pain while you determine the best approach for yourself. In this scenario, think more about capital preservation and hedging against inflation then about \\\"\\\"beating\\\"\\\" the market.\\\"\",\n \"\\\"In a cap-weighted fund, the fund itself isn't buying or selling at all (except to support redemptions or purchases of the fund). As the value of a stock in the index goes up, then its value in the fund goes up naturally. This is the advantage of a cap-weighted fund, that it doesn't have to trade (buy and sell), it just sits on the stocks. That makes a cap-weighted fund inexpensive (low trading costs) and tax-efficient (doesn't trigger capital gains due to sales). The buying high and selling low referred to by \\\"\\\"fundamental indexation\\\"\\\" advocates like Wisdom Tree is buying high and selling low on the part of the investor. That is, when you purchase the market-cap-weighted fund, at that time that you purchase, you will spend more on the higher-priced stocks, just because they account for more of the value of the fund, and less money goes to the cheaper stocks which account for less of the value of the fund. In the prospectus for a fund they should tell you which index they use, and if the prospectus doesn't describe the weighting of the index, you could do a web search for the index name and find out how that index is constructed. A market-cap-weighted fund is the standard kind of weighting which is what you get if you buy the stocks in the index and then hold them without buying or selling. Most of the famous indexes (e.g. S&P500) are cap-weighted, with the notable exception of the Dow Jones Industrial Average which is \\\"\\\"price-weighted\\\"\\\" http://en.wikipedia.org/wiki/Price-weighted_index. Price-weighting is just an archaic tradition, not something one would use for a new index design today. A fund weighted by \\\"\\\"fundamentals\\\"\\\" or equal-weighted, rather than cap-weighted, is effectively doing a kind of rebalancing, selling what's gone up to buy more of what's gone down. Rather than buying an exotic fund, you could get a similar effect by buying a balanced fund (one that mixes stocks and bonds). Then when stocks go up, your fund would sell them and buy bonds, and the fund would sell the most of the highest-market-cap stocks that make up more of the index. And vice versa of course. But the fundamental-weighted funds are fine, the more important considerations include your stocks vs. bonds percentages (asset allocation) and whether you make irrational trades instead of sticking to a plan.\\\"\",\n \"The top ten holdings for these funds don't overlap by even one stock. It seems to me they are targeting an index for comparison, but making no attempt to replicate a list of holdings as would, say, a true S&P index.\",\n \"\\\"JoeTaxpayer's advice is solid - reallocating to your target asset allocation is the right move. You should have an Investor Policy Statement (IPS) that maps out your financial objectives, risk tolerance, liquidity constraints, etc. From the IPS, you can determine your target asset allocation and rebalance accordingly. A few more comments: It sounds like 100% of your 401k is in US stocks. You might have other accounts that make your overall portfolio globally diversified, but if not, you want to make sure to set a target asset allocation for a global portfolio. Your statement \\\"\\\"If this were in my brokerage account I'd probably cash out some of the profits and hold onto it and buy more shares as the market eventually comes back down. But this being a 401k which has semi-monthly deposits from my paycheck, do I just leave it?\\\"\\\" is a bit counterintuitive. If you are going to try to time the market (a very hard task), it is better to use a retirement account, so you don't have to realize capital gains. Timing the market is probably a bad idea, but if you engage in market timing, it is probably better to use a retirement account than a brokerage account. If you would like to tilt your asset allocation based on the market valuation, I recommend researching Shiller's Cyclically Adjusted Price to Earnings ratio.\\\"\",\n \"I choose lifecycle funds because I am placing faith (perhaps foolishly) that a full time fund manager knows better what to pick than I. The same reason I go with mutual funds in general apply to to why I also have the lifecycle funds. Presently my diversification strategy is really just index funds and lifecycle funds. The radio advice guy Clark Howard often promotes them. http://www.wacotrib.com/none/content/shared/money/stories/clark/0601/060425money.html (I count in the intimidated group)\",\n \"\\\"An investment portfolio is typically divided into three components: All three of those can be accessed through mutual funds or ETFs. A 401(k) will probably have a small set of mutual funds for you to pick from. Mutual funds may charge you silly expenses if you pick a bad one. Look at the prospectus for the expense ratio. If it's over 1% you're definitely paying too much. If it's over 0.5% you're probably paying too much. If it's less than 0.1% you have a really good deal. US stocks are generally the core holding until you move into retirement (or get close to spending the money on something else if it's not invested for retirement). International stocks are riskier than US stocks, but provide opportunity for diversification and better returns than the US stocks. Bonds, or fixed-income investments, are generally very safe, but have limited opportunities for returns. They tend to do better when stocks are doing poorly. When you've got a while to invest, you should be looking at riskier investments; when you don't, you should be looking for safer investments. A quick (and rough) rule of thumb is that \\\"\\\"your age should match the portion of your portfolio in bonds\\\"\\\". So if you're 50 years old and approaching retirement in 15 years or so, you should have about 50% in bonds. Roughly. People whose employment and future income is particularly tied to one sector of the market would also do well to avoid investing there, because they already are at risk if it performs badly. For instance, if you work in the technology sector, loading up on tech stocks is extra risky: if there's a big bust, you're not just out of a job, your portfolio is dead as well. More exotic options are available to diversify a portfolio: While many portfolios could benefit from these sorts of holdings, they come with their own advantages and disadvantages and should be researched carefully before taking a significant stake in them.\\\"\",\n \"Stock portfolios have diversifiable risk and undiversifiable risk. The market rewards investors for taking undiversifiable risk (e.g. owning an index of oil producing companies) and does not reward investors for assuming diversifiable risk (e.g. owning a single oil producing company). The market will not provide investors with any extra return for owning a single oil company when they can buy an oil index fund at no additional cost. Similarly, the market will not reward you for owning a small-cap index fund when you can purchase a globally diversified / capitalization diversified index fund at no additional cost. This article provides a more detailed description. The Vanguard Total World Stock Index Fund is a much better staring point for an equity portfolio. You will need to make sure that the asset allocation of your overall portfolio (e.g. stocks, bonds, P2P lending, cash) is consistent with your time horizon (5-10 years).\",\n \"\\\"Typically you diversify a portfolio to reduce risk. The S&P 500 is a collection of large-cap stocks; a diversified portfolio today probably contains a mix of large cap, small cap, bonds, international equity and cash. Right now, if you have a bond component, that part of your portfolio isn't performing as well. The idea of diversification is that you \\\"\\\"smooth out\\\"\\\" the ups and downs of the market and come out ahead in most situations. If you don't have a bond or cash component in your portfolio, you may have picked (or had someone pick for you) lousy funds. Without more detail, that's about all that can be said. EDIT: You provided more detail, so I want to add a little to my answer. Basically, you're in a fund that has high fees (1.58% annually) and performance that trails the mid-cap index. The S&P 500 is a large-cap index (large cap == large company), so a direct comparison is not necessarily meaningful. Since you seem to be new at this, I'd recommend starting out with the Vanguard Total Stock Market Index Fund (VTSMX) or ETF (VTI). This is a nice option because it represents the entire stock market and is cheap... it's a good way to get started without knowing alot. If your broker charges a transaction fee to purchase Vanguard funds and you don't want to change brokers or pay ETF commissions, look for or ask about transaction-fee free \\\"\\\"broad market\\\"\\\" indexes. The expense ratio should be below 0.50% per year and optimally under 0.20%. If you're not having luck finding investment options, swtich to a discount broker like TD Ameritrade, Schwab, ScottTrade or Fidelity (in no particular order)\\\"\",\n \"They made an analysis of my readiness to assume a risk and found out that I am willing to take only small risks. I would agree with this analysis. You really should rethink this part. At your age, you have no rational reason whatsoever to be risk-averse! Especially since any reasonably diversified fund already eliminates actual risk (of complete loss) almost completely. Going into bonds and real estate does not reduce risk at all; it reduces volatility - and you're giving up a lot of money merely to avoid seeing your investments go down temporarily(!)\",\n \"How much should a rational investor have in individual stocks? Probably none. An additional dollar invested in a ETF or low cost index fund comprised of many stocks will be far less risky than a specific stock. And you'd need a lot more capital to make buying, voting, and selling in individual stocks as if you were running your own personal index fund worthwhile. I think in index funds use weightings to make it easier to track the index without constantly trading. So my advice here is to allocate based not on some financial principal but just loss aversion. Don't gamble with more than you can afford to lose. Figure out how much of that 320k you need. It doesn't sound like you can actually afford to lose it all. So I'd say 5 percent and make sure that's funded from other equity holdings or you'll end up overweight in stocks.\",\n \"I think not. I think a discussion of optimum mix is pretty independent of age. While a 20 year old may have 40 years till retirement, a 60 year old retiree has to plan for 30 years or more of spending. I'd bet that no two posters here would give the same optimum mix for a given age, why would anyone expect the Wall Street firms to come up with something better than your own gut suggests?\",\n \"\\\"A diversified portfolio (such as a 60% stocks / 40% bonds balanced fund) is much more predictable and reliable than an all-stocks portfolio, and the returns are perfectly adequate. The extra returns on 100% stocks vs. 60% are 1.2% per year (historically) according to https://personal.vanguard.com/us/insights/saving-investing/model-portfolio-allocations To get those average higher stock returns, you need to be thinking 20-30 years (even 10 years is too short-term). Over the 20-30 years, you must never panic and go to cash, or you will destroy the higher returns. You must never get discouraged and stop saving, or you will destroy the higher returns. You have to avoid the panic and discouragement despite the likelihood that some 10-year period in your 20-30 years the stock market will go nowhere. You also must never have an emergency or other reason to withdraw money early. If you look at \\\"\\\"dry periods\\\"\\\" in stocks, like 2000 to 2011, a 60/40 portfolio made significant money and stocks went nowhere. A diversified portfolio means that price volatility makes you money (due to rebalancing) while a 100% stocks portfolio means that price volatility is just a lot of stress with no benefit. It's somewhat possible, probably, to predict dry periods in stocks; if I remember the statistics, about 50% of the variability in the market price 10 years out can be explained by normalized market valuation (normalized = adjusted for business cycle and abnormal profit margins). Some funds such as http://hussmanfunds.com/ are completely based on this, though a lot of money managers consider it. With a balanced portfolio and rebalancing, though, you don't have to worry about it very much. In my view, the proper goal is not to beat the market, nor match the market, nor is it to earn the absolute highest possible returns. Instead, the goal is to have the highest chance of financing your non-financial goals (such as retirement, or buying a house). To maximize your chances of supporting your life goals with your financial decisions, predictability is more important than maximized returns. Your results are primarily determined by your savings rate - which realistic investment returns will never compensate for if it's too low. You can certainly make a 40-year projection in which 1.2% difference in returns makes a big difference. But you have to remember that a projection in which value steadily and predictably compounds is not the same as real life, where you could have emergency or emotional factors, where the market will move erratically and might have a big plunge at just the wrong time (end of the 40 years), and so on. If your plan \\\"\\\"relies\\\"\\\" on the extra 1.2% returns then it's not a reasonable plan anyhow, in my opinion, since you can't count on them. So why suffer the stress and extra risk created by an all-stocks portfolio?\\\"\",\n \"When you look at managed funds the expense ratios are always high. They have the expense of analyzing the market, deciding where to invest, and then tracking the new investments. The lowest expenses are with the passive investments. What you have noticed is exactly what you expect. Now if you want to invest in active funds that throw off dividends and capital gains, the 401K is the perfect place to do it, because that income will not be immediately taxable. If the money is in a Roth 401K it is even better because that income will never be taxed.\",\n \"International means from all over the world. In the U.S. A Foreign Equity fund would be non-US stocks. There's an odd third choice I'm aware of, a fund of US companies that derive their sales from overseas, primarily.\",\n \"I'm a believer in broad index funds for the vast majority of investors. However, I'm sure someone here is more qualified than me to speak to the correct allocation. I'm mostly pointing out low-hanging fruit: you should (almost) never invest in the company that pays your wages. You could just dump it in the S&P or some broad market index and be in a better position.\",\n \"The literal answer to your question is that a number of different types of mutual funds did not have significant downturns in 2008. Money Market Funds are intended to always preserve capital. VMMXX made 2.77% in 2008. It was a major scandal broke the buck, that its holders took a 3% loss. Inverse funds, which go up when the market goes down, obviously did well that year (RYARX), but if you have a low risk tolerance, that's obviously not what you're looking for. (and they have other problems as well when held long-term) But you're a 24-year-old talking about your retirement funds, you should have a much longer time horizon, at least 30 years. Over a period that long, stocks have never had negative real (inflation-adjusted) returns, dating back at least to the civil war. If you look at the charts here or here, you can see that despite the risk in any individual year, as the period grows longer, the average return for the period gets tighter and tighter. If you look at the second graph here, you see that 2011 was the first time since the civil war that the trailing 30-year return on t-bills exceeded that for stocks, and 1981-2011 was period that saw bond yields drop almost continuously, leading to steady rise in bond prices. Although past performance is no guarantee of future results, everything we've seen historically suggests that the risk of a broad stock-market portfolio held for 30 years is not that large, and it should make up the bulk of your holdings. For example, Vanguard's Target retirement 2055 fund is 90% in stocks (US + international), and only 10% in bonds.\",\n \"\\\"First, decide on your asset allocation; are you looking for a fund with 60% stocks/risky-stuff, or 40% or 20%? Second, look for funds that have a mix of stocks and bonds. Good keywords would be: \\\"\\\"target retirement,\\\"\\\" \\\"\\\"lifecycle,\\\"\\\" \\\"\\\"balanced,\\\"\\\" \\\"\\\"conservative/moderate allocation.\\\"\\\" As you discover these funds, probably the fund website (but at least Morningstar.com) will tell you the percentage in stocks and risk assets, vs. in conservative bonds. Look for funds that have the percentage you decided on, or as close to it as possible. Third, build a list of funds that meet your allocation goal, and compare the details. Are they based on index funds, or are they actively managed? What is the expense ratio? Is the fund from a reputable company? You could certainly ask more questions here if you have several candidates and aren't sure how to choose. For investing in US dollars one can't-go-wrong choice is Vanguard and they have several suitable funds, but unfortunately if you spend in NIS then you should probably invest in that currency, and I don't know anything about funds in Israel. Update: two other options here. One is a financial advisor who agrees to do rebalancing for you. If you get a cheap one, it could be worth it. Two is that some 401k plans have an automatic rebalancing feature, where you have multiple funds but you can set it up so their computer auto-rebalances you. That's almost as good as having a single fund, though it does still encourage some \\\"\\\"mental accounting\\\"\\\" so you'd have to try to only look at the total balance, not the individual fund balances, over time. Anyway both of these could be alternatives ways to go on autopilot, besides a single fund.\\\"\",\n \"\\\"First - yes, take the 2.5%. It could be better, but it's better than many get. Second - choosing from \\\"\\\"a bunch\\\"\\\" can be tough. Start by looking at the expenses for each. Read a bit of the description, if you can't tell your spouse what the fund's goal is, don't buy it.\\\"\",\n \"The problem is aggregating information from so many sources, countries, and economies. You are probably more aware of local laws, local tax changes, local economic performance, etc, so it makes sense that you'd be more in tune with your own country. If your intent is to be fully diversified, then buy a total world fund. A lot of hedge funds do what you are suggesting, but I think it requires either some serious math or some serious research. Note: I'm invested in emerging markets (EEM) for exactly the reason you suggest... diversification.\",\n \"\\\"1. Interest rates What you should know is that the longer the \\\"\\\"term\\\"\\\" of a bond fund, the more it will be affected by interest rates. So a short-term bond fund will not be subject to large gains or losses due to rate changes, an intermediate-term bond fund will be subject to moderate gains or losses, and a long-term bond fund will be subject to the largest gains or losses. When a book or financial planner says to buy \\\"\\\"bonds\\\"\\\" with no other qualification, they almost always mean investment-grade intermediate-term bond funds (or for individual bonds, the equivalent would be a bond ladder averaging an intermediate term). If you want technical details, look at the \\\"\\\"average duration\\\"\\\" or \\\"\\\"average maturity\\\"\\\" of the bond fund; as a rough guide, if the duration is 10, then a 1% change in interest rates would be a 10% gain or loss on the fund. Another thing you can do is look at long-term (10 years or ideally longer) performance history on some short, intermediate, and long term bond index funds, and you can see how the long term funds bounced around more. Non-investment-grade bonds (aka junk bonds or high yield bonds) are more affected by factors other than interest rates, including some of the same factors (economic booms or recessions) that affect stocks. As a result, they aren't as good for diversifying a portfolio that otherwise consists of stocks. (Having stocks, investment grade bonds, and also a little bit in high-yield bonds can add diversification, though. Just don't replace your bond allocation with high-yield bonds.) A variety of \\\"\\\"complicated\\\"\\\" bonds exist (convertible bonds are an example) and these are tough to analyze. There are also \\\"\\\"floating rate\\\"\\\" bonds (bank loan funds), these have minimal interest rate sensitivity because the rate goes up to offset rate rises. These funds still have credit risks, in the credit crisis some of them lost a lot of money. 2. Diversification The purpose of diversification is risk control. Your non-bond funds will outperform in many years, but in other years (say the -37% S&P 500 drop in 2008) they may not. You will not know in advance which year you'll get. You get risk control in at least a few ways. There's also an academic Modern Portfolio Theory explanation for why you should diversify among risky assets (aka stocks), something like: for a given desired risk/return ratio, it's better to leverage up a diverse portfolio than to use a non-diverse portfolio, because risk that can be eliminated through diversification is not compensated by increased returns. The theory also goes that you should choose your diversification between risk assets and the risk-free asset according to your risk tolerance (i.e. select the highest return with tolerable risk). See http://en.wikipedia.org/wiki/Modern_portfolio_theory for excruciating detail. The translation of the MPT stuff to practical steps is typically, put as much in stock index funds as you can tolerate over your time horizon, and put the rest in (intermediate-term investment-grade) bond index funds. That's probably what your planner is asking you to do. My personal view, which is not the standard view, is that you should take as much risk as you need to take, not as much as you think you can tolerate: http://blog.ometer.com/2010/11/10/take-risks-in-life-for-savings-choose-a-balanced-fund/ But almost everyone else will say to do the 80/20 if you have decades to retirement and feel you can tolerate the risk, so my view that 60/40 is the max desirable allocation to stocks is not mainstream. Your planner's 80/20 advice is the standard advice. Before doing 100% stocks I'd give you at least a couple cautions: See also:\\\"\",\n \"If the ship is sinking, switching cabins with your neighbor isn't necessarily a good survival strategy. Index funds have sucked, because frankly just about everything has sucked lately. I still think it is a viable long term strategy as long as you are doing some dollar cost averaging. You can't think about long term investing as a steady climb up a hill, markets are erratic, but over long periods of time trend upwards. Now is your chance to get in near the ground floor. I can completely empathize that it is painful right now, but I am a believer in market efficiency and that over the long haul smart money is just more expensive (in terms of fees) than set-it-and-forget it diversified investments or target funds.\",\n \"Since you already have twice your target in that emergency fund, putting that overage to work is a good idea. The impression that I get is that you'd still like to stay on the safe side. What you're looking for is a Balanced Fund. In a balanced fund the managers invest in both stocks and bonds (and cash). Since you have that diversification between those two asset classes, their returns tend to be much less volatile than other funds. Also, because of their intended audience and the traditions from that class of funds' long history, they tend to invest somewhat more conservatively in both asset classes. There are two general types of balanced funds: Conservative Allocation funds and Moderate Allocation funds. Conservative allocation funds invest in more fixed income than equity (the classic mix is 60% bonds, 40% stocks). Moderate allocation funds invest in more equity than fixed income (classic mix: 40% bonds, 60% stocks). A good pair of funds that are similar but exemplify the difference between conservative allocation and moderate allocation are Vanguard's Wellesley Income Fund (VWINX) for the former and Vanguard's Wellington Fund (VWELX) for the latter. (Disclaimer: though both funds are broadly considered excellent, this is not a recommendation.) Good luck sorting this out!\",\n \"The article links to William Bernstein’s plan that he outlined for Business Insider, which says: Modelling this investment strategy Picking three funds from Google and running some numbers. The international stock index only goes back to April 29th 1996, so a run of 21 years was modelled. Based on 15% of a salary of $550 per month with various annual raises: Broadly speaking, this investment doubles the value of the contributions over two decades. Note: Rebalancing fees are not included in the simulation. Below is the code used to run the simulation. If you have Mathematica you can try with different funds. Notice above how the bond index (VBMFX) preserves value during the 2008 crash. This illustrates the rationale for diversifying across different fund types.\",\n \"I really like keshlam's answer. Your age is also a consideration. If you make your own target fund by matching the allocations of whatever Vanguard offers, I'd suggest re-balancing every year or every other year. But if you're just going to match the allocations of their target fund, you might as well just invest in the target fund itself. Most (not all, just most) target funds do not charge an additional management fee. So you just pay the fees of the underlying funds, same as if you mirrored the target fund yourself. (Check the prospectus to see if an additional fee is charged or not.) You may want to consider a more aggressive approach than the target funds. You can accomplish this by selecting a target fund later than your actual retirement age, or by picking your own allocations. The target funds become more conservative as you approach retirement age, so selecting a later target is a way of moving the risk/reward ratio. (I'm not saying target funds are necessarily the best choice, you should get professional advice, etc etc.)\",\n \"Since you're 20-30 years out of retirement, you should be 90% to 100% in stocks, and in one or two broad stock market funds likely. I'm not sure about the minimums at TD Ameritrade, but at Vanguard even $3k will get you into the basic funds. One option is the Targeted Retirement Year funds, which automatically rebalance as you get closer to retirement. They're a bit higher expense usually than a basic stock market fund, but they're often not too bad. (Look for expenses under 0.5% annually, and preferably much lower - I pay 0.05% on mine for example.) Otherwise, I'd just put everything into something simple - an S&P500 tracker for example (SPY or VOO are two examples) that has very low management fees. Then when your 401(k) gets up and running, that may have fewer options and thus you may end up in something more conservative - don't feel like you have to balance each account separately when they're just starting, think of them as one whole balancing act for the first year or two. Once they're each over $10k or so, then you can balance them individually (which you do want to do, to allow you to get better returns).\",\n \"There many asset allocation strategies to chose from that beat lifestyle funds. For example: Relative Strength Asset Allocation keeps your money in Stocks when stocks perform well, bonds when they outperform stocks, and cash when both bonds and stocks are under-performing. The re-allocation happens on a monthly basis.\",\n \"Look into the asset allocations of lifecycle funds offered by a company like Vanguard. This page allows you to select your current age and find a fund based on that. You could pick a fund, like the Target Retirement 2055 Fund (ages 21-25), and examine its allocation in the Portfolio & Management tab. For this fund, the breakdown is: Then, look at the allocation of the underlying funds that comprise the lifecycle fund, in the same tab. Look at each of those funds and see what asset allocation they use, and that should give you a rough idea for an age-based allocation. For example, the Total Stock Market Index Fund page has a sector breakdown, so if you wanted to get very fine-grained with your allocation, you could. (You're probably much better off investing in the index fund, low-cost ETFs, or the lifecycle fund itself, however; it'll be much cheaper). Doing this for several lifecycle funds should be a good start. Keep in mind, however, that these funds are rebalanced as the target date approaches, so if you're following the allocation of some particular funds, you'll have to rebalance as well. If you really want an age-based allocation that you don't have to think about, invest in a lifecycle fund directly. You'll probably pay a lower expense ratio than if you invested in a whole slew of funds directory, and it's less work for someone who isn't comfortable managing their portfolio themselves. Furthermore, with Vanguard, the expense ratios are already fairly low. This is only one example of an allocation, however; your tolerance of risk, age, etc. may affect what allocation you're willing to accept. Full disclosure: Part of my Roth IRA is invested in the Target 2055 fund I used as an example above, and another part uses a similar rebalancing strategy to the one I used above, but with Admiral Share funds, which have higher minimum investments but lower expense ratios.\",\n \"It doesn't matter which way you use. As long as your comfortable with the overall level of risk/reward in your portfolio, that's what matters. (Though I will say that there are more investment vehicles than stocks, bonds, and cash that are worth considering.)\",\n \"Let's simplify things by assuming you only own 2 stocks. By owning VOO and VTI, you're overweight on large- and mid-cap stocks relative to the market composition. Likewise, by owning VTI and VT, you're overweight on U.S. stocks; conversely, by owning VXUS and VT, you're overweight on non-U.S. stocks. These are all perfectly fine positions to take if that's what you intend and have justification for. For example, if you're in the U.S., it may be a good idea to hold more U.S. stocks than VT because of currency risk. But 4 equity index ETFs is probably overcomplicating things. It is perfectly fine to hold only VTI and VXUS because these funds comprise thousands of stocks and thus give you sufficient diversification. I would recommend holding those 2 ETFs based on a domestic/international allocation that makes sense to you (Vanguard recommends 40% of your stock allocation to be international), and if for some reason you want to be overweight in large- and mid-cap companies, throw in VOO. You can use Morningstar X-Ray to look at your proposed portfolio and find your optimal mix of geographic and stock style allocation.\",\n \"As other posters have pointed out, many other potential factors at play here besides value, but that said, a huge part of my long-term money that I don't want to manage myself is in actively managed EM funds.\",\n \"Thanks for the huge insight. I am still a student doing an intern and this was given as my first task, more of trying to give the IA another perspective looking at these funds rather than picking. I was not given the investors preference in terms of return and risk tolerances so it was really open-ended. However, thanks so much for the quick response. At least now I have a better idea of what I am going to deliver or at least try to show to the IA.\",\n \"Yours two funds are redundant. Both are designed to have a mix of bonds and stocks and allow you to put all your money in them. Pick the one that has the lowest fees and stick with that (I didn't look at the funds you didn't select...they didn't look great either). Although all your funds have high fees, some are higher than others, so don't ignore fees. When you have decided on your portfolio weights, prioritize your money thus: Contribute enough to your 401(k) to get the full match from your employer Put everything else toward paying off that credit card until you have 0 balance. It's ok to use the card, but let it be little enough that you pay your statement balance off each month so you pay no interest. Then set aside some savings and invest any retirement money into a Roth IRA. At your income level your taxes are low so Roth is better than traditional IRA or 401(k). If you max out your Roth, put any other retirement savings in your 401(k).\",\n \"The first two answers to this are very good, but I feel like there are a couple of points they left out that were a little too long for comments. First off take a look at the expense percentage,the load fees, and the average turnover ratio for the funds in your retirement account (assuming they are mutual funds). Having low expense fees <1% preferably and turnover ratios will help tremendously because those eat into returns whether the value of the fund goes up or down. The load fees (either incoming or outgoing) will lower the amount of money you actually put in and get out of the fund. There are thousands of no-load funds and most that have a backend load for taking the money out have clauses that lower that percentage to zero over several years. It is mostly there to keep people from trying to swing trade with mutual funds and pull their money out too quickly. The last thing I would suggest is to look at diversifying the holdings in your account. Bond funds have been up this year even though the stock market has done poorly. And they provide interest income that can increase the amount of shares you own even when the value of the bonds might have gone down.\",\n \"\\\"Having worked for a financial company for years, my advice is to stay away from all the \\\"\\\"Freedom Funds\\\"\\\" offered. They're a new way for Fidelity to justify charging a higher management fee on those particular funds. That extra 1% or so a year is great for making the company money; it will kill your rate of return over the next 25+ years you're putting money into your retirement account. All these funds do is change the percentage of your funds in stocks vs. more fixed investments (bonds, etc.) so you have a higher percentage in stocks while you're young and slowly move the percentage more towards fixed as you get older. If you take a few hours every 5 years to re-balance your portfolio and just slowly shift more money towards fixed investments, you'll achieve the same thing WITHOUT the extra annual fee. So how much difference are we talking here? Let's do a quick example. Based on your salary of $70k and a 4% match by your company, you'll have $5,600 a year to put in your 401(k) (your 4% plus matched 4%). I'll also assume an 8% annual return for both funds. Here is what that 1% extra service charge will cost you: Fund with a 1% service charge: Annual Fee Paid Year 1 - $60.00 Annual Fee Paid Year 25 (assuming 8% growth in assets) - $301.00 Total Fees Year 1 through 25: $3,782 Fund with a 2% service charge: Annual Fee Paid Year 1 - $121.00 Annual Fee Paid Year 25 (assuming 8% growth in assets) - $472.00 Total Fees Year 1 through 25: $6,489 That's a total of $2,707 in extra fees over 25 years on just the investment you make this year! Next year if you invest the same amount in your 401k that will be another $2,707 paid over 25 years to the management company. This pattern repeats EACH year you pay the higher management fee. Trust me, if you invest that money in stock instead of paying it as fees, you'll have a whole lot more money saved when it's time to retire. My advice, pick a percentage you're comfortable with in stocks at your age, maybe 85 - 90%, and pick the stock funds with the lowest management fees (the remaining 10 - 15% should go into a fixed fund). Make sure you pick at least some of your stock money, I do 20 - 25%, and select a diverse (lots of different countries) international fund. For any retirement money you plan to save above the 4% getting matched by your company, set up a Roth IRA. That will give you the freedom to invest in any stocks or funds you want. Find some low-cost index funds (such as VTI for stocks, and BND for bonds) and put your money in those. Invest the same amount every month, automatically, and your cost average will work itself out through up markets and down. Good luck!\\\"\",\n \"From The Prospectus for VTIVX; as compared to the Total Stock Market Fund; You can see how the Target date fund is a 'pass through' type of expense. It's not an adder. That's how I read this.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"Excellent question, though any why question can be challenging to answer because it depends on the financial products in question. At least, I haven't seen many target date retirement funds that include a high percent of foreign stocks, so below explains the ones I've seen which are primarily US stocks. The United States (before the last twenty years) has been seen as a country of stability. This is not true anymore, and it's difficult for my generation to understand because we grew up in the U.S.A being challenged (and tend to think that China and India have always been powers), but when we read investors, like Benjamin Graham (who had significant influence with Warren Buffett), we can see this bias - the U.S.A to them is stable, and other countries are \"\"risky.\"\" Again, with the national debt and the political game in our current time, it does not feel this way. But that bias is often reflect in financial instruments. The US Dollar is still the reserve currency, though it's influence is declining and I would expect it to decline. Contrary to my view (because I could be wrong here) is Mish, who argues that no one wants to have the reserve currency because having a reserve currency brings disadvantages (see here: Bogus Threats to US Reserve Currency Status: No Country Really Wants It!; I present this to show that my view could be wrong). Finally, there tends to be the \"\"go with what you know.\"\" Many of these funds are managed by U.S. citizens, so they tend to have a U.S. bias and feel more comfortable investing their money \"\"at home\"\" (in fact a famous mutual fund manager, Peter Lynch, had a similar mentality - buy the company behind the stock and what company do we tend to know best? The ones around us.). One final note, I'm not saying this mentality is correct, just what the attitude is like. I think you may find that younger mutual fund managers tend to include more foreign stocks, as they've seen that different world.\"","A target date fund is NOT a world market index. There is no requirement that it be weighted based on the weights of the various world stock markets. If anything, historically (since the invention of target date funds), a 2:1 ratio is actually pretty low. 6:1 is, or was, probably more common. Just a token amount to non-US investments."],"string":"[\n \"\\\"Excellent question, though any why question can be challenging to answer because it depends on the financial products in question. At least, I haven't seen many target date retirement funds that include a high percent of foreign stocks, so below explains the ones I've seen which are primarily US stocks. The United States (before the last twenty years) has been seen as a country of stability. This is not true anymore, and it's difficult for my generation to understand because we grew up in the U.S.A being challenged (and tend to think that China and India have always been powers), but when we read investors, like Benjamin Graham (who had significant influence with Warren Buffett), we can see this bias - the U.S.A to them is stable, and other countries are \\\"\\\"risky.\\\"\\\" Again, with the national debt and the political game in our current time, it does not feel this way. But that bias is often reflect in financial instruments. The US Dollar is still the reserve currency, though it's influence is declining and I would expect it to decline. Contrary to my view (because I could be wrong here) is Mish, who argues that no one wants to have the reserve currency because having a reserve currency brings disadvantages (see here: Bogus Threats to US Reserve Currency Status: No Country Really Wants It!; I present this to show that my view could be wrong). Finally, there tends to be the \\\"\\\"go with what you know.\\\"\\\" Many of these funds are managed by U.S. citizens, so they tend to have a U.S. bias and feel more comfortable investing their money \\\"\\\"at home\\\"\\\" (in fact a famous mutual fund manager, Peter Lynch, had a similar mentality - buy the company behind the stock and what company do we tend to know best? The ones around us.). One final note, I'm not saying this mentality is correct, just what the attitude is like. I think you may find that younger mutual fund managers tend to include more foreign stocks, as they've seen that different world.\\\"\",\n \"A target date fund is NOT a world market index. There is no requirement that it be weighted based on the weights of the various world stock markets. If anything, historically (since the invention of target date funds), a 2:1 ratio is actually pretty low. 6:1 is, or was, probably more common. Just a token amount to non-US investments.\"\n]","isConversational":false}}},{"rowIdx":383,"cells":{"_id":{"kind":"string","value":"2398"},"query":{"kind":"string","value":"Frustrated Landlord"},"gt_ids":{"kind":"list like","value":["118730","509391","363810","224654","590489"],"string":"[\n \"118730\",\n \"509391\",\n \"363810\",\n \"224654\",\n \"590489\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1,1,1],"string":"[\n 1,\n 1,\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["363810","556453","359177","430123","389217","560195","588612","561653","593976","40796","390744","456064","246484","141935","407982","26177","504703","436875","321314","524472","372884","118730","348510","44058","19837","509391","1377","184070","472682","310992","222095","565409","386348","478221","325722","99896","314289","120852","513775","112535","308462","235285","323573","593133","101369","145566","545380","309393","571920","426705","585975","244973","146603","231985","438112","517633","339042","333583","346270","70029","168089","438893","415104","298547","286245","381068","224654","92861","345366","388016","573552","417107","232394","503742","536126","42739","59388","528553","576966","249195","113855","482991","431110","588479","175649","278168","247952","21598","241136","393883","99619","448759","80840","310871","280435","387700","489401","528206","64440","430861"],"string":"[\n \"363810\",\n \"556453\",\n \"359177\",\n \"430123\",\n \"389217\",\n \"560195\",\n \"588612\",\n \"561653\",\n \"593976\",\n \"40796\",\n \"390744\",\n \"456064\",\n \"246484\",\n \"141935\",\n \"407982\",\n \"26177\",\n \"504703\",\n \"436875\",\n \"321314\",\n \"524472\",\n \"372884\",\n \"118730\",\n \"348510\",\n \"44058\",\n \"19837\",\n \"509391\",\n \"1377\",\n \"184070\",\n \"472682\",\n \"310992\",\n \"222095\",\n \"565409\",\n \"386348\",\n \"478221\",\n \"325722\",\n \"99896\",\n \"314289\",\n \"120852\",\n \"513775\",\n \"112535\",\n \"308462\",\n \"235285\",\n \"323573\",\n \"593133\",\n \"101369\",\n \"145566\",\n \"545380\",\n \"309393\",\n \"571920\",\n \"426705\",\n \"585975\",\n \"244973\",\n \"146603\",\n \"231985\",\n \"438112\",\n \"517633\",\n \"339042\",\n \"333583\",\n \"346270\",\n \"70029\",\n \"168089\",\n \"438893\",\n \"415104\",\n \"298547\",\n \"286245\",\n \"381068\",\n \"224654\",\n \"92861\",\n \"345366\",\n \"388016\",\n \"573552\",\n \"417107\",\n \"232394\",\n \"503742\",\n \"536126\",\n \"42739\",\n \"59388\",\n \"528553\",\n \"576966\",\n \"249195\",\n \"113855\",\n \"482991\",\n \"431110\",\n \"588479\",\n \"175649\",\n \"278168\",\n \"247952\",\n \"21598\",\n \"241136\",\n \"393883\",\n \"99619\",\n \"448759\",\n \"80840\",\n \"310871\",\n \"280435\",\n \"387700\",\n \"489401\",\n \"528206\",\n \"64440\",\n \"430861\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"If you're losing money or breaking even, you own a bad investment. The problem you have is that you are emotionally invested in your tenant. That isn't a bad thing in general but it's costing you money and, unless interest rates fall enough to justify a refi or property taxes go down in your area, that's kind of unlikely to change. Option #1 - Tell your wife that you are willing to accept a loss up to a certain level because of your long term relationship with your tenant. In a perfect world, the two of you would then discuss what the \"\"magic number\"\" would be where you got out and come to a compromise. For example, if you are comfortable losing up to $3,000 per year and she is unhappy with any loss, you may agree on selling the house when your losses climb to $1,500. In a less perfect world, it would cause an argument as she has already told you what she wants you to do. Option #2 - Raise the rent to the break even point. From what you've said, this will likely result in the loss of your tenant but you could then rent to someone else for significantly more. Option #3 - Sell the house. It's an investment property which means it's supposed to make money for you. It can do that very quickly by way of a sale and then it's no longer your problem. Option #4 - Sell the house to your tenant. You bought it for $50,000 and it's currently worth $150,000 (roughly). The problem you face is that property taxes have gone up and caused your mortgage to increase past your tenants ability to pay. My guess is, after 15 years, your payoff is somewhere in the high $20's to mid 30's assuming you got a 30 year loan and haven't refinanced. If you sell to her for say $75,000 (or even up to $90,000) you will still make a profit (wife is happy), she will get a mortgage she can afford and be able to stay in the house (you and the tenant are happy). Added bonus is that her property taxes would be lower (assuming a different rate for investment property in your area). I would discuss this at length with your wife as well before making such an offer. Option #5 - Get a property management company. As mentioned above, they will keep a percentage but will remove your emotions from the equation altogether and turn the situation into a winner. I don't know if your wife is right in saying you don't have the stomach for this, but I do think your heart is getting in the way in this particular situation. I get the feeling that if your tenant was 25 years old and had only been renting from you since last October, you would have no problem raising the rent to market levels at every renewal.\"","\"> No, I really do. Things break at least once a month, and never get fixed. Hmmm, maybe you're just the \"\"tenant from hell\"\" to your landlord. :) I'm sorry you're having problems. But it's possible your landlord is also having problems - have you tried talking about the problems instead of just calling him names?\"","Heres what you need to know: This can be prevented by what a previous renter did to us. This is a smart, kind of a jerky way to do it but its VERY SMART, as long as your property is worth it, raise the rent higher. You must have a very nice, clean, everything working, house. You must be willing to have anything fixed. this is all to make up the high rent. You don't want the rent way out of proportion but just a bit higher. This is because, more than likely, people who are going to pay for a higher rent don't usually leave a mess, (higher class families vs lower class people living alone..) What might also help from the risk of damage is create a fee (also what my renter did) of any painting needed done like finger prints on the wall, nails in the wall, carpet stains, etc when the tenant is ready to move out. I would suggest a required professional carpet cleaning as well when lease is up. My renter was very nice, but very strict and did all these things. He has a few properties that are very nice middle class houses. Your home sounds like it could easily pass for this kind of business depending on where you live. If the tenant leaves before his lease is up you could charge a 1-2 month's rent to be able to find a new tenant. Be proactive on finding a tenant before the lease is up. This would be a bit of work to first set up and usually maintain, but its a good thing to think about.","\"Frankly, I was just listing off reasons that I and others might be pissed off at our landlords. Yeah, I've lived in student-focused housing too, and student rentals suck balls. Hell, that's the reason I wound up in the \"\"upscale\"\" city of Cambridge instead of living in the \"\"cheaper\"\" young-people areas of Allston or Brighton: because those places have had their rents pushed up by students *way* beyond what it's worth paying for a tiny, near-windowless, roach-infested hole built in the 1940s with rats running free in the streets. And yeah, I understand that those places suck so bad because many students are shitty tenants. But my real point was: my landlord doesn't provide me a place to live, he charges me ever-increasing rent for a place to live that he didn't build, maintains to the minimum required by the lease, and doesn't ever upgrade.\"","Firstly, how far behind on rent are they? Have you sent them notices in writing about late rent, and if so how many have you had to send? How often do they say they are going to do things (like pay overdue rent) and they never do? To tell you the truth IMHO, if they are starting to be regularly late in rent payments and they don't do things they say they are going to do - then it is time to evict them. In NSW Australia, if the tenant is more than 2 weeks late in rent, and prior to them reaching 2 weeks late you have called them asking for late rent and sent notices, you can evict the tenants. If the tenants do not leave you can apply to the Tribunal to get them out and ask for outstanding money to be paid to you. However, if it does get to this stage, the tenants may be pissed off so may do some damage to the property in retaliation. Then you have to go back to the Tribunal to get the Tenant's Bond (Security Deposit) and any other funds to repair any damages done to your place. The longer you leave it the worse it will get. We had some tenants similar to this which we finally got out earlier this year. They would say they would pay rent due by the end of the week and no money would come by the end of the week. We took them to Tribunal and got them out, and we got the Bond plus unpaid rent and other money for damages and leaving the place dirty (over and above the Bond) awarded to us - just under $4K. The tenants said they couldn't pay and so went on a payment plan to pay about $135 every 2 weeks. They didn't pay any of the payments, so then we went to the local court to get a sheriff to go to their new place and take their property. The must have gotten scared from this because they approached the local court and agreed to pay $60 per week. We have currently received about 10 payments so it will be a long time before we get all our money back. As I said the longer you leave it the worse it can get. You should also look at improving your criteria for selecting new tenants. I have given an answer to this question How to choose a good tenant as a private landlord? Hopefully it can give you some ideas of what to ask for when searching for your next tenant. Update due update in Question Six weeks behind in rent is quite a bit to be behind. If the landlord had been asking the tenant to pay the late rent during this period and the tenant had been giving excuses why the rent was late and saying they would pay it by a certain time but never did - it is a big sign that they will tell you lies. If this is the first time they have been late in paying rent and now they are back up to date with the rent, you might want to give them one more chance. If this is a pattern that happens regularly it is better to get them out, as it will happen again, you will get in an argument with them and then they might stop paying rent altogether. You can usually gain a better perspective of the tenants from their action rather than their words - that is why ascertaining their past rental history is so important when finding a new tenant.","\"Risk is the capital you have staked in pursuit of profit. The danger is that you lose what you have risked. For some bets (risks), you can get insurance to cover for losses. Now the \"\"game\"\" of Landlord and Tenant requires you to play fully by the rules set forth by your legislators. In your case, that is the legislators of the State of Texas. Without knowing those rules, you could be liable (open to civil prosecution) for violating those rules. Tenants could be savvy to those rules or savvy enough to hire someone, a lawyer, who knows those rules. As well, in the game of Landlord and Tenant, you must ascertain the creditworthiness of your would-be tenant. If the tenant fails to pay rent, that tenant can detain the residence. You will incur additional outlays to gain possession of your property (ownership in your rental). Now the game of Landlord vs Landlord is different. You can't pick up houses easily enough and even if you could, likely the expense of doing so could wipe out any would profits from having the house as a rental. So, in Landlord vs Landlord, you get constrained by where your rental sits. Thus you must forecast what will the neighborhood look like in five, ten, fifteen years.\"","Disadvantage is that tenant could sue you for something, and in an unfavorable judgement they would have access to your house as property to possess. You could lose the house. Even if you make an LLC to hold the house, they'll either sue you or the LLC and either way you could lose the house. This might be why the landlord is moving to Florida where their house cannot be possessed in a judgement because of the state's strong homestead exemption ;)","\"This is fairly simple, actually. You should insist on payment for the rent payment you never received and stop accepting cash payments. If you want to be nice, and believe the story, allow the tenant additional time or payment in installments for the missing $750, but this is a textbook example of why it's a bad idea to transact with cash. Insist on cash equivalents that are traceable and verifiable - check, money order or cashier's check, made out to you or your company name. Also, for what it's worth, you are not out $750, unless you choose to be. Your tenant is. \"\"I put cash in your mailbox\"\" is not proof of payment, and doesn't fly as payment anywhere. If it did, I'd never pay any of my bills.\"","And he has to pay for it every home repair and every month the property sets empty. His loss each month is not $250, but probably closer to $500. In generally you need to clear at least $200 ABOVE PTI (principle, taxes and interest) to cover repair and the like to property. From your post, it sounds like your dad was forced into the land-lord business by the recession. Unless he plans to hold the property until its rental value has increased by $500 a month, he should consider selling it and writing-off the loss. Losing money bit by bit on a house isn't a tax write-off event. Selling a property for less than you bought it for generally is. FYI, I got the $500/month loss by assuming that repairs/emptiness/etc will cost you about $200 a month, and added $50 for your dad's time managing the property.","Question: I live in half of a duplex together with other college students. I put my rent (roughly $750 in cash) in the landlord's mailbox while he was out of town for three weeks. I told him ahead that I would do this, but he claims I never did, and he would have asked me not to. Anyway, now he claims the money was not there when he returned and I still owe $750. Answer: Well, that's tough. It could be that the money was stolen from the mailbox. It could be that the landlord pocketed the money and is trying to scam you. Your problem is that you have no receipt, and no evidence at all that you paid the money. There's little you can do other than paying up (again) and learning from this expensive lesson.","\"I don't think you've mentioned which State you're in. Here in Ontario, a person who is financially incapable can have their financial responsibility and authority removed, and assigned to a trustee. The trustee might be a responsible next of kin (as her ex, you would appear unsuitable: that being a potential conflict of interest); otherwise, it can be the Public Guardian and Trustee. It that happens, then the trustee handles the money; and handles/makes any contracts on behalf of (in the name of) the incapable person. The incapable person might have income (e.g. spousal support payments) and money (e.g. bank accounts), which the trustee can document in order to demonstrate credit-worthiness (or at least solvency). For the time being, the kids see it as an adventure, but I suspect, it will get old very fast. I hope you have a counsellor to talk with about your personal relationships (I've had or tried several and at least one has been extraordinarily helpful). You're not actually expressing a worry about the children being abused or neglected. :/ Is your motive (for asking) that you want her to have a place, so that the children will like it (being there) better? As long as your kids see it as an adventure, perhaps you can be happy for them. Perhaps (I don't know: depending on the people) too it's a good (or at least a better) thing that they are visiting with friends and relatives; and, a better conversational topic with those people might be how they show your children a good time (instead of your ex's money). One possible way I thought of co-signing is if a portion of child/spousal support goes directly to the landlord. I asked the Child Support Services (who deduct money from my paycheck monthly to pay support to my ex) and they told me that they are not authorized to do this. Perhaps (I don't know) there is some way to do that, if you have your ex's cooperation and a lawyer (and perhaps a judge). You haven't said what portions of your payments are for Child support, versus Spousal support (nor, who has custody, etc). If a large part of the support is for the children, then perhaps the children can rent the place. (/wild idea) Note that, in Ontario, there are two trusteeship decisions to make: 1) financial; and 2) personal care, which includes housing and medical. Someone can retain their own 'self-care' authority even if they're judged financially incapable (or vice versa if there's a personal-care or medical decision which they cannot understand). The technical language is, \"\"Mentally Incapable of Managing Property\"\" This term applies to a person who is unable to understand information that is relevant to making a decision or is unable to appreciate the reasonably foreseeable consequences of a decision or lack of decision about his or her property. Processes for certifying an individual as being mentally incapable of managing property are prescribed in the SDA (Substitute Decisions Act), and in the Mental Health Act.\"\" The Mental Heath Act is for medical emergencies (only); but Ontario has a Substitute Decisions Act as well. An intent of the law is to protect vulnerable people. People may also acquire and/or name their own trustee and/or guardian voluntarily: via a power of attorney, a living will, etc. I don't know: how about offering the landlord a year's rent in advance, or in trust? I guess that 1) a court order can determine/override/guarantee the way in which the child support payments are directed 2) it's easier to get that order/agreement if you and your ex cooperate 3) there are housing specialists in your neighborhood: They can buy housing instead of renting it. Or be given (gifted) housing to live in.\"","Sell the house, in the scenario you describe he is using the property as an investment with a $250 per month buy-in. This investment doesn't make a return right now and when you add in the cost of dealing with the tenant (even if he doesn't have those cost now, he will when they move out)he is out of more than $250 a month and he has no direct knowledge that the value will definitely increase. He would be better spent selling the house and putting the funds into an investment, even a risky investment. It will have less maintenance cost associated with the risky investment than the rental property. Besides sitting on the property for 10-15 years would cost him 30-45k plus the cost of re-renting the house when empty.Not to mention the inevitable increases in taxes over that time which will either increase his deficit or eat up the rent increase he is able to charge. Don't take the loss on the sale, just short sale it and take the money and invest! One last thought... An alternative is to creatively finance a sale (take payments from a buyer until they can buy outright) that will cover the FULL mortgage and get him the price he needs. You can look up owner financing to find out more on how to do this. Hope this helps!","\"I saw where you said \"\"I thought of co-signing is if a portion of child/spousal support goes directly to the landlord. I asked the Child Support Services (who deduct money from my paycheck monthly to pay support to my ex) and they told me that they are not authorized to do this.\"\" I know going back to court isn't a pleasant thought, but from the looks of things, your suggestion is the only way to accomplish this. It's ridiculous for anyone to suggest you keep up your payments and cosign, yet the ex has no obligation to use that income to actually pay her rent. From what you've said, she sounds irresponsible and self-destructive. As someone who has had bad tenants, I'd not go near her, even with a cosigner. It's just not worth the risk.\"","\"The value of getting into the landlord business -- or any other business -- depends on circumstances at the time. How much will it cost you to buy the property? How much can you reasonably expect to collect in rent? How easy or difficult is it to find a tenant? Etc. I owned a rental property for about ten years and I lost a bundle of money on it. Things people often don't consider when calculating likely rental income are: There will be times when you have no tenant. Someone moves out and you don't always find a new tenant right away. Maintenance. There's always something that the tenant expects you to fix. Tenants aren't likely to take as good a care of the property as someone who owned it would. And while a homeowner might fix little things himself, like a broken light switch or doorknob, the tenant expects the landlord to fix such things. If you live nearby and have the time and ability to do minor maintenance, this may be no big deal. If you have to call a professional, this can get very expensive very quickly. Like for example, I once had a tenant complain that the water heater wasn't working. I called a plumber. He found that the knob on the water heater was set to \"\"low\"\". So he turned it up. He charged me, I think it was $200. I can't really complain about the charge. He had to drive to the property, figure out that that was all the problem was, turn the knob, and then verify that that really solved the problem. Tenants don't always pay the rent on time, or at all. I had several tenants who apparently saw the rent as something optional, to be paid if they had money left over that they couldn't think of anything better to do with. You may get bad tenants who destroy the place. I had one tenant who did $10,000 worth of damage. That include six inches deep of trash all over the house that had to be cleared out, rotting food all over, excrement smeared on walls, holes in the walls, and many things broken. I thought it was disgusting just to have to go in to clean it up, I can't imagine living like that, but whatever. Depending on the laws in your area, it may be very difficult to kick out a bad tenant. In my case, I had to evict two tenants, and it took about three months each time to go through the legal process. On the slip side, the big advantage to owning real estate is that once you pay it off, you own it and can continue to collect rent. And as most currencies in the world are subject to inflation, the rent you can charge will normally go up while your mortgage payments are constant.\"","On the off chance that you might want more on the above or you are battling with obligation whether you are a landlord or tenant then get in touch with Open-House-North-West-Manchester property letting agent as they can help and place you in contact with the opportune individuals!","Unless you think it's likely that you'll move back soon, this is probably not the best way to get experience as a landlord. You might want to talk to a property management company and look at the fees they would charge to do your job as landlord. You should also consider that your mortgage may require you to occupy the house for a certain amount of time. Mortgages for non-owner-occupied properties usually have a higher interest rate and vetting criteria are more strict.","\"Assuming the renter was properly vetted, the only question worth asking is \"\"what has changed in your life?\"\" Perhaps one of the earners has lost a job, or has moved out because a couple has broken up. If nothing has changed but they just don't feel like paying you, start the eviction process. If something has changed and you assess that it's temporary (I lent my brother money and he didn't pay me back - I'll be behind for a few months but I will catch up; my employer went out of business and didn't pay me for the last two weeks - I have a new job already and am waiting for my first paycheque) then perhaps you are willing to wait. If something has changed and it seems pretty permanent then you might reluctantly start the process. Depending on how long it takes where you live, the renter might get things under control before you finish.\"","You need to get some thing called landlord insurance, tenants only covers his belongings. Any property damage caused deliberately or unknowingly is not covered in this, its upon the owner to get landlord insurance.","There are many property management companies are available in India. You can easily find trusted companies just searching on the google. They manage all these things legally. You just try this","This tale makes me sad the more I learn of it. I am impressed with your dedication and caring for your ex-wife and particularly your kids; you seem like a good person from your questions. But you are tired and exasperated too. You have every right to be. The problem isn't how this woman can rent a new apartment (which there isn't a good way that won't screw over some unsuspecting landlord) but how to get this woman into conseling on a regular basis. Not just money, but personal or group therapy. She honestly needs help and must face this problem herself otherwise these questions will never stop. I know you mentioned this doesn't appear to be an option, anf maybe it isn't your job, but I. See your questions are much deeper than personal finance. I wish you the best and I really do admire your resolve to take care of your kids.","\"You need to get the current tax software, the 2013 filing software is out already, even though it needs to update itself before filing, as the final forms aren't ready yet. Then you will look carefully at Schedule E to understand what gets written off. I see you are looking at the $2200 rent vs your own rent of $2100, but of course, the tax form doesn't care about your rent. You offset the expenses of that house against the income. The expenses are the usual suspects, mortgage interest, property tax, repairs, etc. But there's one big thing new landlords are prone to forgetting. Depreciation. It's not optional. Say the house cost you $400K. This is your basis. You need to separate the value of land which is not depreciated. For a condo with no land it can be as little as 10%, when we bought our house, for insurance purposes, the land was nearly 40% of the full value. Say you do the research and decide 30% (for land), then 70% = $280K. Depreciation is taken each year over a 27.5 year period, or just over $10,000 per year. (Note, the forms will help you get your year 1 number, as you didn't have a full year.) This depreciation helps with your cash flow during the year (as you should do the math, and if you keep the house, adjust your W4 withholdings for 2014, that lump sum you'll get in April won't pay the bills each month) but is 'recaptured' on sale. At some point in the future, you may save enough to buy a house where you wish to live, but need to sell the rental. Consider a 1031 Exchange. It's a way to sell a rental and buy a new one without triggering a taxable event. What I don't know is how long the new house must be a rental before the IRS would then allow you to move in. The same way you turned your home into a rental, a rental can be turned back to a primary residence. I just doubt you can do it right after the purchase. As fellow member @littleadv would advise, \"\"get professional advice.\"\" And he's right. I've just offered what you might consider. The first year tax return with that Schedule E is the toughest as it's brand new. The next year is simple in comparison. The question of selling immediately is tough. Only you can decide whether the risk of keeping it is too great. You're saying you don't have the money to cover two month's vacancy. That scares me. I'd focus on beefing up the emergency account. And securing a credit line. You mentioned the tax savings. My opinion is that for any investment,the tax tail should never wag the investing dog. Buy or sell a stock based on the stock, not the potential tax bill for the sale. In your situation, the rent and expenses will cancel each other, and the depreciation is a short term loan, from a tax perspective. If you sold today, what do you net? If you analyzed the numbers now, what is your true income from the property each year? Is that return worth it? A good property will provide cash flow, principal reduction each year, and normal increase in value. This takes a bit of careful looking at the numbers. You might feel you're just breaking even, but if the principal is $12K less after a year, that's something you shouldn't ignore. On the other hand, an exact 'break-even' with little equity at stake offered you a leveraged property where any gains are a magnified percentage of what you have at risk. Last - welcome to Money.SE - consider adding some more details to your profile.\"","You are not a landlord. You have choices: The current situation is charity. And that's ok, so long as you acknowledge it. In the big picture, anything less than market rent is a gift that you are giving the person living in your house. A good tenant might keep the place in better shape, and deserve a lower rent, but that's a quid pro quo. In the end, landlording is a business. If you had 10-20 apartments, they would be proving an income to you and you would have a large chunk of your wealth tied up in it. You would keep the apartments in good shape both to be legal and not a slumlord, but you'd also collect market rent. $100/apt would be $1000-$2000/mo income to you and your family. You wife is right. As always. You have a decision to make to stop the bleeding.","Have you tried complaining to the Real Estate Institute in your state, and if that doesn't work try taking them to Fair Trading. I know from doing some work for real estates that getting money from them is like getting blood from a stone, but you just need to keep bugging them, talk to the manager or director, and tell them you have been waiting too long for your money, give them a deadline (not more than 3 business days) and tell them if you have not received the money by then you will make a complaint to the Real Estate Institute and take them to Fair Trading. Sometimes you have to go to the person who owns/ runs the business as the workers usually don't care, especially when it is extra work for them and they get no reward for doing it (plus the longer the Real Estate don't pay you the longer they earn interest on your money).","__________ _________ ____________ Therefore, I get the outcome I want. The human brain must think: it can't stop. If you don't believe me, try meditating. The mental process of putting stuff in those blanks is called rationalization. This is a bored mind who wants something. If that mind is not particularly well disciplined, those things will get pretty unrealistic. That is what has happened to your friend. Landlords do not like drama. They do like money. Generally a landlord will be happy to take your money any reasonable way that they can achieve. It sounds like either your landlord lost the ability to do credit cards, or he got sick of paying the 3% overhead, or some other overhead costs that may be higher because he does not have the right credit card merchant service. For instance PayPal Here charges 2.70% flat, but a traditional swiper can cost up to $2000 a year in trumped up fees and charges. As soon as the landlord calls the rent a debt, he has to take cash. But in most places, rental is at-will, and the landlord can evict for any reason or no reason at all (except race, creed, color, national origin, family, running a daycare center and a few other protected reasons)... and there's not a whole lot you can do about it. Even for a lease he can trump up a reason. Your friend would be wise to have a meeting of the minds with the landlord about how he'd like to pay. Business is done by mutual consent, not non-consensual legal tricks. I agree, I wouldn't do ACH either. One problem with ACH (or credit) is the landlord can charge anything he pleases, and that's when they start sneaking in devious surcharges for things. Once he's pulled the money out, you're really at a disadvantage to argue, since he already has the money. And it's really difficult to do a chargeback on part of a payment, so you end up having to chargeback the entire rent check, and now he can evict you.","There are tax strategies you could take advantage of if you own the property. Find local real estate investors that like 'buy and hold'. Additional strategy is to buy a property and sell it with owner financing (you use a Residential Mortgage Loan Officer to facilitate.) What is great is you can get a great % real return on your money without being a landlord.","You're worried about your tenant. That just means you're a nice guy, and it's ok to be nice. At the same time, you can't be expected to lose money on the property or charge well below market on the rent. My suggestions: You know what? She'll totally understand. You've been super nice in keeping the rent low for so many years, and she's been a great tenant, too. At a certain point, inflation kicks in and you have to raise the rent. She'll get that. If she can find a cheaper place, that's a win for both of you. Help her move if you want to be extra nice. Then decide if you want to sell the place or raise the rent. Either option is fine. Listen to your wife. That's just general advice.","\"I don't have a crystal ball but chances are your tenant is definitely lying. Rent was late and now the money intended to cover the rent; miraculously is lost in the mailbox. Anyhow, you were already nice to tolerate the late \"\"payment\"\". Keshlam's option 1.5 in the comments above is the ideal way to settle in which both parties have learned a lesson and are at a loss. Demand the rent payment but settle for half as a one time courtesy. If this continues or this tenant has shown shady predicaments such as this, you should look for legal means to evict this tenant. College students are very creative and who's to say this won't happen again? \"\"The neighbors dog took my wallet.\"\"\"","I'm surprised by all these complicated answers. Yes @Victor, you can create a form that asks people to put down their financial information but you want to be careful and not put off potential tenants by asking for too many details. Depending on the OP's typical tenants, an extensive background and credit check may not be necessary. For example, if I have proof that someone is a graduate student at the local university, that's usually good enough for me because I am willing to bet that they will follow my contract. Bidding war doesn't sound doable, you advertise a price correct? You can only be haggled down not up. So my suggestion is to look at other rental advertisements in the area. Compare what you're offering (location, quality of house, cleanliness, amenities, etc) to the competition and price accordingly. If you're getting a flood of interest, then you're probably pricing below the average price in your area. Or you live in an area where demand is just much higher than supply, in which case you can also raise your rent.","I wouldn't start a bidding war if I were you. Sometimes you may get potentially bad tenants who cannot find a property anywhere else offering more money just to get in a place. If you know nothing else about these people how can you guarantee they will keep paying the rent once they get in. The things you should be doing is checking the prospective tenant's employment and income status, making sure they are able to easily pay the rent. You should check their credit report to see if they have a history of bad debts. And you should be checking with their previous landlords or real estate agents to see if they caused any damages to their previous properties. You should create a form that prospective tenants can fill out providing you with all the essential information you are after. Get them so sign a statement that gives you authority to ask information about them with other people (their previous landlords/ real estate agents, and their employers). Have a system set out on how you will assess all applicants and for the information the applicants need to provide you with. Treat it as a business.","Complexity has mentioned some good points. I'd also like to add on the downsides: It's not that easy to get rid of a tenant! Imagine if your tenant passed your background check with flying colors but then turned out to be the tenant from hell... How would you resolve the situation? If the thought of that kind of situation stresses you (it would stress me!), I would consider carefully whether you really want to be a landlord.","Don't over analyze it - check with some local landlords that are willing to share some information and resources Then analyze the Worst Case Scenarios and the likelihood of them happening and if you could deal with it if it did happen Then Dive In - Real Estate is a long term investment so you have plenty of time to learn everything..... Most people fail.... because they fail to take the first leap of faith !!!","As a landlord for 14 years with 10 properties, I can give a few pointers: be able and skilled enough to perform the majority of maintenance because this is your biggest expense otherwise. it will shock you how much maintenance rental units require. don't invest in real estate where the locality/state favors the tenant (e.g., New York City) in disputes. A great state is Florida where you can have someone evicted very quickly. require a minimum credit score of 620 for all tenants over 21. This seems to be the magic number that keeps most of the nightmare tenants out makes sure they have a job nearby that pays at least three times their annual rent every renewal, adjust your tenant's rent to be approximately 5% less than going rates in your area. Use Zillow as a guide. Keeping just below market rates keeps tenants from moving to cheaper options. do not rent to anyone under 30 and single. Trust me trust me trust me. you can't legally do this officially, but do it while offering another acceptable reason for rejection; there's always something you could say that's legitimate (bad credit, or chose another tenant, etc.) charge a 5% late fee starting 10 days after the rent is due. 20 days late, file for eviction to let the tenant know you mean business. Don't sink yourself too much in debt, put enough money down so that you start profitable. I made the mistake of burying myself and I haven't barely been able to breathe for the entire 14 years. It's just now finally coming into profitability. Don't get adjustable rate or balloon loans under any circumstances. Fixed 30 only. You can pay it down in 20 years and get the same benefits as if you got a fixed 20, but you will want the option of paying less some months so get the 30 and treat it like a 20. don't even try to find your own tenants. Use a realtor and take the 10% cost hit. They actually save you money because they can show your place to a lot more prospective tenants and it will be rented much sooner. Empty place = empty wallet. Also, block out the part of the realtor's agreement-to-lease where it states they keep getting the 10% every year thereafter. Most realtors will go along with this just to get the first year, but if they don't, find another realtor. buy all in the same community if you can, then you can use the same vendor list, the same lease agreement, the same realtor, the same documentation, spreadsheets, etc. Much much easier to have everything a clone. They say don't put all your eggs in one basket, but the reality is, running a bunch of properties is a lot of work, and the more similar they are, the more you can duplicate your work for free. That's worth a lot more day-to-day than the remote chance your entire community goes up in flames","Sounds like a terrible situation. The only thing I can think of (if you have the cash for it) is to pay down enough of the Mortgage and refinance to the point where the rent covers the mortgage plus expenses. On the one hand, this feels like literally burning money in the fireplace, as you will likely never see back the difference between the likely value when you sell and what you are putting in now. On the other hand, every time you make an interest payment, you are burning the (smaller amount of) money with no hope of seeing it back ever. If you don't have the cash, or you find that just throwing away money, then I would get out as fast as I can. Every month you hold you are paying a huge amount of interest. If you sold at $300,000, you would have only a $30,000 debt to manage. The total amount it would take to pay that off (at anything resembling normal interest rates) would probably be less than you have already sunk into this thing. Of course, if you are willing to bet that the market will come back and make you profitable on what you will have to put in from now on, then you might want to hold on. Personally, I would not make that bet. All around a terrible situation. I wish you lots of luck in resolving it.","\"If it is true that for the same price, you could get a better place (or that for a lower price you could get an equivalent place), you should do some soul-searching to decide what monetary value you would place on the hassle of moving to such an alternative. You should then negotiate aggressively for a rent that is no more than the rent of the alternative place plus your hassle costs, and if the landlord does not meet your price, you should refuse to renew your lease, and instead move out to an alternative. (Of course, you might also want to double-check your research to ensure you really can get such a good alternative, and that your new landlords won't try a similar bait-and-switch and force you to move again in a year.) Barring local ordinances such as rent control laws, I don't think it's worth it to worry about whether the increase is \"\"normal\"\". If you can get a better deal somewhere else, then what your landlords are asking is too much. If you have a good relationship with them on a personal level you may be able to tell them this in a nice way and thus get them to make a more reasonable offer. Otherwise, the landlords will learn that their expectations are unreasonable when all their tenants move out to cheaper places.\"","I would suggest the use of a management company to handle a rental property. They will take care of things like collecting rent, coordinating repairs and all the little things that come up when dealing with a renters. They typically charge a percentage of the rent or a flat fee, so make sure you include that in your rent calculation. You take a little bit of a financial hit, but save a lot of head aches - especially if you decide to acquire multiple properties in the future.","STEP #1. Get a copy of whatever you have signed, this is the most important step. STEP #2. Find a reference to the landlord/tenant laws for you city, county and or state if there are any. STEP #3. Google for a tenants union in your city, state or county. ie, Washington State Tenants Union STEP #4. Try get a free consultation, or an affordable consultation with a lawyer in your area who specializes in tenant law. STEP #5. Between the tenant laws for you, and the limits of what you have signed try to negotiate a cancellation of the contract, if you are bound by it.","\"I'd say your tenant is out $750, not you. How you handle it is totally personal preference. If you want to be the super-nice landlord and eat the loss this one time, then you might gain some karma and hopefully they'll be awesome tenants for the remainder of their stay. Are they the kind of tenants you want to be nice to because they deserve it? You (and she) have no way to prove she ever actually tried to pay you. Sound like she is learning a $750 lesson. \"\"Don't leave cash in a mailbox, and always get a receipt for rent paid.\"\" Your insurance company would likely not pay out as it'd be below a typical deductible and you can't really prove the money ever existed. You'd be better off just taking the loss. Think about it this way: How would you expect a bank or utility company to respond to this situation? \"\"Yeah, I left my mortgage as a cash-filled envelope on your doorstep. You didn't get it? I told you I'd do it!\"\" Guess who's paying double mortgage and a late fee? You're not stuck with option 1, you're choosing to do it. She could refuse and fight you on it, which might not be worth the headache and potential small-claims court. But you're entitled to receive the rent and she is obligated to pay it. And \"\"paying it\"\" means making sure you actually receive it.\"","\"I debated whether to put this in an answer or a comment, because I'm not sure that this can be answered usefully without a lot more information, which actually would then probably make it a candidate for closing as \"\"too localized\"\". At the very least we would need to know where (which jurisdiction) she is located in. So, speaking in a generic way, the options available as I see them are: Contact the mortgage companies and explain she can't continue to make payments. They will likely foreclose on the properties and if she still ends up owing money after that (if you are in the US this also depends on whether you are in a \"\"non-recourse\"\" state) then she could be declared bankrupt. This is rather the \"\"nuclear option\"\" and definitely not something to be undertaken lightly, but would at least wipe the slate clean and give her some degree of certainty about her situation. Look very carefully at the portfolio of properties and get some proper valuations done on them (depending on where she is located this may be free). Also do a careful analysis of the property sales and rental markets, to see whether property prices / rental rates are going up or down. Then decide on an individual basis whether each property is better kept or sold. You may be able to get discounts on fees if you sell multiple properties in one transaction. This option would require some cold hard analysis and decision making without letting yourselves get emotionally invested in the situation (difficult, I know). Depending on how long she has had the properties for and how she came to own them, it MIGHT be an option to pursue action against whoever advised her to acquire them. Clearly a large portfolio of decaying rental properties is not a suitable investment for a relatively elderly lady and if she only came by them relatively recently, on advice from an investment consultant or similar, you might have some redress there. Another option: could she live in one of the properties herself to reduce costs? If she owns her own home as well then she could sell that, live in the one of the rentals and use the money saved to finance the sale of the other rentals. Aside from these thoughts, one final piece of advice: don't get your own finances tangled up in hers (so don't take out a mortgage against your own property, for example). Obviously if you have the leeway to help her out of your budget then that is great, but I would restrict that to doing things like paying for grocery shopping or whatever. If she is heading for bankruptcy or other financial difficulties, it won't help if you are entangled too.\"","\"Should you negotiate? Yes, what harm can it possibly do? The landlord is unlikely to come back and say \"\"Because you tried to negotiate, I'm putting the rent up by 10% instead.\"\", or to evict a paying tenant merely because they tried to negotiate. Is the proposed rent increase \"\"normal\"\"? Yes. Landlords will generally try to get as high a rent as they can.\"","In addition to what @HartCO and @rocketman wrote, being a successful landlord either takes a lot of either:","Alternative solution with possibly better results: Use a 3rd party to transfer money between both of you. 2 Services you may want to look at: Rent share might be the best option. We are using it to split payment between 3 people in our unit. The owner is getting a single check that appears to be coming from all of us. The payment is automatic and goes through every month. I'm not sure if you as the owner could collect money electronically as opposed to receiving a check. It sounded like you didn't necessarily care about that though.","I'm confused - I don't see your original post, and I wasn't referring to you in my post, so your answer is confusing. But I know student housing often sucks; my son just finished 4 years of living in student apts. But i also know the student tenants often suck, too. I would have hated to own the apt I rented in college, and have tenants like my friends and I. And some of my son's friends were total tenants from hell who cared not a bit what they did to the place.","\"The biggest disadvantage to you is that your tenant now knows your bank information, which means he can easily identify your source of money in the event he wins a lawsuit and wins a judgement. He will be able to have a court marshall freeze your account. However, if you deposit your tenant's check into your account as opposed to an EFT, then your tenant can basically still obtain your bank account information and freeze your account, it would just take him a bit longer to get that information. I am definitely anti-landlord in these situations because I've had to deal with so many bad ones here in NYC, but as a landlord, the best thing you can do is to create a \"\"buffer\"\" account for you to deposit tenant rent money into, then transfer the money from the buffer account to your regular account. This would prevent the tenant from knowing your personal bank information and greatly delay the tenant receiving his judgement from an assumed court win against you. My source: I had to take my landlord to court, and after obtaining a judgement, I got a court marshall to begin the process of closing access to her account (she couldn't access the money in that account). The process resulted in her sending me a check (assuming from her other account) for the judgement since her account was frozen and she couldn't access any of her money.\"","Since the tenant reportedly left money in your mailbox, and now the money is missing, a crime must have been committed. As such, have her file a report with law enforcement and provide you with a copy of that report. Remind her that, for her safety, it is best to file the report during daylight hours with other people present. You didn't make it clear to your tenant the methods in which she could provide payment. That was a mistake. At the same time, her decision to leave cash in a mailbox was foolish. If she is willing to file a report with law enforcement and provide you with a copy, tell her that you will split the loss and only require half her rent as a one-time courtesy. Make it clear that you are losing half the money too. If she is not willing to file a report, require the full rent.","Consider contracting with a property management company to lease and maintain the house until it can be sold. Rent on the property should cover the mortgage, property taxes, etc. The property management company can handle maintenance and the tenant would be responsible for utilities.","You're going to want to work with a collection agency or law firm that specializes in collections. They'll buy the debt from you for something like 10-25% depending on the state and whether they are interested in something this small. People who don't pay rent and get wages garnished for $6k are a bad risk. They'll discount the judgement significantly since the risk of bankruptcy is probably pretty high.","So home owners should simply only charge low rents and only rent to long term renters out of the goodness of their hearts, yes? How do you expect to convince them ALL to act the way you want on a macro level?","\"Maybe a bit off topic, but I suggest reading \"\"Rich Dad Poor Dad\"\" by Robert Kiyosaki. An investment is something that puts money to your pocket. If your properties don't put money to your pocket (and this seems to be the case), then they're not an investment. Instead, they drain money from you pocket. Therefore you should instead turn these \"\"investments\"\" into real investments. Make everything to earn some money using them, not to earn money somewhere else to cover the loses they create. If that's not possible, get rid of them and find something that \"\"puts money into your pocket\"\".\"","\"No. The full text of the Landlord-Tenant Act (specifically, section 554.614 of Act 348 of the year 1972) makes no mention of this. Searching the law for \"\"interest\"\" doesn't yield anything of interest (pardon the pun). Specifically, section 554.604 of the same law states that: (1) The security deposit shall be deposited in a regulated financial institution. A landlord may use the moneys so deposited for any purposes he desires if he deposits with the secretary of state a cash bond or surety bond written by a surety company licensed to do business in this state and acceptable to the attorney general to secure the entire deposits up to $50,000.00 and 25% of any amount exceeding $50,000.00. The attorney general may find a bond unacceptable based only upon reasonable criteria relating to the sufficiency of the bond, and shall notify the landlord in writing of his reasons for the unacceptability of the bond. (2) The bond shall be for the benefit of persons making security deposits with the landlord. A person for whose benefit the bond is written or his legal representative may bring an action in the district, common pleas or municipal court where the landlord resides or does business for collection on the bond. While it does sound like the landlord is required to deposit the money in a bank or other secured form, e.g. the Secretary of State, he/she isn't required to place it in an account that will earn interest.\"","\"Okay so I am going to break this answer into a couple sections: Okay so first things first. Did you get a good deal? This is challenging to answer for a number of reasons. First, a good deal is relative to the buyers goals. If you're attempting to buy an asset that provides passive income then maybe you met your goal and got a good deal. If you're attempting to buy an asset that provides long term growth, and you purchased above market (I'm speculating of course) then you may have made a bad deal. So how do you determine if you got a good deal? Does your \"\"Gross Rental Multiplier\"\" equal that or is less than that of the average GRM in your area. The lower the better. So how do you use the GRM to determine if you're getting a good deal? Divide your purchase price by the average city (or area) GRM and that will tell you what you should be getting annually in rent. You can also use the GRM to determine if a future purchase is over or under priced. Just replace purchase price with asking price. Alright, so these are the tools you can use to decide if you made a bad business deal or not. There are many ways to skin a cat so to speak. These are the tools I use BEFORE I purchase a home. Many people are penny wise and pound foolish. Take your time when making large purchases. It's OKAY to say PASS. Okay next thing is this new purchase you're looking at. The number one rule when working a franchise is you don't open a second store until you have a perfect working model to go off of. If you've never had to file a tax return for your current rental. Then you need to wait. If you've never read your local and state rental laws. Then you need to WAIT. If you've never had to leave an event early, wake up in the middle of the night, or get a text while you're on a date from one of your tenants. THEN YOU NEED TO WAIT. Give it a year or two. Just learn the unknown about rental properties. Use your first as your test bed. It's WAY more cheaper then if you make a bad mistake and roll it over multiple properties. Finally I will leave you with this. No one on this site, myself included, knows everything there is to know about real estate. Anyone that claims they do, send their ass packing. This is a complex COMPLEX business. There is always something to learn and if you don't have the passion to continue learning then hand it off to someone who does. There is tax law, rental law, city repair law, contract law and this doesn't even include the stuff that makes you money, like knowing how to leverage low or no money down loans. Please take some time and go out and learn. Good luck! -AR\"","\"I used to be the sort of person who would tell you that I've left money for you somewhere and in fact not have done so, and I also used to be the last person you'd expect to do something like that. I've not done this exact thing but I've done similar. Not gonna go into detail but at that time I was in a state of poverty, barely able to buy food and drink, and the money I saved by \"\"conning people\"\" in similar ways was spent on food and warmth. Personally, I think she's going through a very hard patch financially and as such has done exactly that. Me? I'm not a landlord and I'm probably far too generous. I would explain that I think she's lying but let it slide this month. Clearly a property owner is more financially capable of soaking up this expense than a tenant. On the other hand, you don't become a property owner and landlord by letting people get away without paying their rent. All in all, I would probably push for a 50/50 decision. She pays half rent this month which alleviates her finances a bit if she is genuinely in trouble and has lied, and you still get something for your efforts. If you're lucky, when you suggest it she will come clean. I would make it clear if you do or don't believe her, as she may well confess if you express your doubts. If she does, I wouldn't hold her to paying the full amount unless she offers to do so. Also, make it very obvious that this can and will not happen again. Next time, she gives you cash or uses a banking service. Goes without saying I guess. You should note that legally speaking, by accepting anything other than full payment you could be acknowledging that she did attempt to make a payment and any future legal cases will not consider that favorably for you. I would strongly recommend discussing this with a solicitor before agreeing to anything other than full payment.\"","It's very possible that someone would lie to their landlord/landlady, but not be prepared to lie to the police. So here's what I would do. Advise your tenant that since her money has been stolen from your letterbox, she should report the theft to the police. If she refuses to report the theft to the police, then her story is probably a lie. In which case, treat the rent as deliquent and demand payment in full. Invoke whatever kind of recourse is available in your jurisdiction. If she goes ahead and reports the theft, then it's very likely that her story is true. It's probably in your interest to stay on good terms with such a tenant, so you could offer to split the loss with her. But let her know that this is a one-time offer, and you won't be so generous again.","Your tenant made a mistake. You deal with this exactly as you would deal with a delinquent tenant, which is a hard and sticky question that involves you, your lease, your relationship with the tenant, your priorities, your values, local laws, your estimation of tenant's honest and creditworthiness, and so forth. It's not an easy question. It just falls under the question of how to deal with delinquency that happens to involve the circumstance of allegedly paying cash and having it stolen, which is a hard question.","Get a lawyer. If you're having legal issues - get a lawyer. If you're having contract issues - get a lawyer.","You may have to ask each tenant to provide copies of bank statements or copied of deposited checks indicating what was paid, to whom and when. Using a spreadsheet is a good idea. It doesn't have to be complicated. If everyone co-operates then this exercise might not be too much of a hassle. But if anyone is combative or unwilling to produce these records, I would recommend reminding them that their other choice is to take each other to court where these records would be required anyway - or face eviction if the landlord doesn't get paid.","If I was you I would not borrow from my 401K and shred the credit card offer. Both are very risky ventures, and you are already in a situation that is risky. Doing either will increase your risk significantly. I'd also consider selling the rental house. You seem to be cutting very close on the numbers if you can't raise 17K in cash to refi the house. What happens if you need a roof on the rental, and an HVAC in your current home? My assumption is that you will not sell the home, okay I get it. I would recommend either giving your tenant a better deal then the have now, or something very similar. Having a good tenant is an asset.","Then tax the 1% and tell the NY government to knock it off with shitty building codes, you need more construction, right? You getting upset with people maximizing their investments is futile. If you own something, IT IS YOUR JOB TO MAXIMIZE ITS VALUE.","I wouldn't confront him. It's really none of your business what he has done or not done with your money as long as you've been a faithful tenant. Whoever gets the house after the foreclosure wants you to stay. I mean, a faithful tenant paying rent is a whole lot better than no one in the house at all. The new landlord (if it's the bank) probably will leave you alone for the most part. Just take MrChrister's advice and document everything and don't let the bank bully you around. It's not your fault the owner got foreclosed on. Remember that the foreclosure process takes months so just because papers got served today (hypothetically) doesn't mean next week the bank takes over the house.","Take them to small claims court or just forget about it.","This is almost exactally what the BK attorneys I work with have always said. If you have trouble offer a larger down payment. . . . that is the point of the down payment after all. You do sometimes have better luck with renting from individual people rather than larger corporately owned rentals. There are options out there.","Well, it sucks that your landlord doesn't try to make you happier, and it doesn't sound like a very good place to live for very long. But I don't really see reasons for getting pissed or calling him a slumlord - I mainly just see reasons to move out. Really, what you've said is no reason to be pissed off at him. He didn't build it? Who the hell builds their own home or apt? Maintains to the minimum required by the lease? Well, that's certainly not the definition of a slumlord, and at least he's basically doing what is required. It's nice if he does more, but as you said, he's doing what's required. Upgrading falls into the last category... if he doesn't feel that it's worthwhile upgrading, why should he do it? You know, just because he owns the place doesn't mean he's rich; he may be just getting by, and may need all his extra income to support his sick mother or something. It's not fair to call someone like that a slumlord - maybe the ones you mentioned in Allston or Brighton are. I don't think I've ever actually lived in any rental that was upgraded while I was living there. And I usually didn't want to be bothered with it anyway. As long as everything worked like it did when I moved in, that was all I wanted or expected.","\"Sue the friend. When you win, garnish his wages. It does not have to be by so much that it makes him quit his job, but get 75.00 per pay period to come to you. This may require the use of a private investigator but, if you want to make this \"\"friend\"\" face consequences, this is your only option. Otherwise, let it go and keep paying his bill.\"","He doesn't have to follow through on this, but he could tell this sister that he will stop making mortgage payments, which will result in foreclosure and sale at lower price than might be realized by a voluntary sale. Translation: the house will sold, sis. Do you want to maximize your share of the proceeds? And, as I said in a comment above: I hope that he is keeping careful records of mortgage an utility payments, as he might (should) be entitled to a refund from the proceeds of an eventual sale (possibly adjusted by the fair rent value of the time which he spent living there)","\"I don't know what country you live in or what the laws and practical circumstances of owning rental property there are. But I own a rental property in the U.S., and I can tell you that there are a lot of headaches that go with it. One: Maintenance. You say you have to pay an annual fee of 2,400 for \"\"building maintenance\"\". Does that cover all maintenance to the unit or only the exterior? I mean, here in the U.S. if you own a condo (we call a unit like you describe a \"\"condo\"\" -- if you rent it, it's an apartment; if you own it, it's a condo) you typically pay an annual fee that cover maintenance \"\"from the walls out\"\", that is, it covers maintenance to the exterior of the building, the parking lot, any common recreational areas like a swimming pool, etc. But it doesn't cover interior maintenance. If there's a problem with interior wiring or plumbing or the carpet needs to be replaced or the place needs painting, that's up to you. With a rental unit, those expenses can be substantial. On my rental property, sure, most months the maintenance is zero: things don't break every month. But if the furnace needs to be replaced or there's a major plumbing problem, it can cost thousands. And you can get hit with lots of nitnoid expenses. While my place was vacant I turned the water heater down to save on utility expenses. Then a tenant moved in and complained that the water heater didn't work. We sent a plumber out who quickly figured out that she didn't realize she had to turn the knob up. Then of course he had to hang around while the water heated up to make sure that was all it was. It cost me, umm, I think $170 to have someone turn that knob. (But I probably saved over $15 on the gas bill by turning it down for the couple of months the place was empty!) Two: What happens when you get a bad tenant? Here in the U.S., theoretically you only have to give 3 days notice to evict a tenant who damages the property or fails to pay the rent. But in practice, they don't leave. Then you have to go to court to get the police to throw them out. When you contact the court, they will schedule a hearing in a month or two. If your case is clear cut -- like the tenant hasn't paid the rent for two months or more -- you will win easily. Both times I've had to do this the tenant didn't even bother to show up so I won by default. So then you have a piece of paper saying the court orders them to leave. You have to wait another month or two for the police to get around to actually going to the unit and ordering them out. So say a tenant fails to pay the rent. In real life you're probably not going to evict someone for being a day or two late, but let's say you're pretty hard-nosed about it and start eviction proceedings when they're a month late. There's at least another two or three months before they're actually going to be out of the place. Of course once you send them an eviction notice they're not going to pay the rent any more. So you have to go four, five months with these people living in your property but not paying any rent. On top of that, some tenants do serious damage to the property. It's not theirs: they don't have much incentive to take care of it. If you evict someone, they may deliberately trash the place out of spite. One tenant I had to evict did over $13,000 in damage. So I'm not saying, don't rent the place out. What I am saying is, be sure to include all your real costs in your calculation. Think of all the things that could go wrong as well as all the things that could go right.\"","A tenant is a tenant regardless of your relationship to them, and as long as the property is classified as an investment property, you can claim depreciation and regular business losses just as you would on any property with any tenant.","You can consider opening accounts either in Paypal or Google Wallet. In this way, you link your bank information to these accounts and the only information you need to provide your tenant is your e-mail id. Its safe and in this scenario -- just money transfer through bank account, there is no fee either for the sender (your tenant) or the receiver (you).","Renting your property out at less than market rates is a form of charity. Your heart says that this is the right thing to do, your bank account says no. And so does your wife. This isn't a question for the Money stack exchange, I think ... But since you are asking here:","Step back and take a deep breath. Pay your mortgage. repeat 1 and 2 monthly until equity > mortgage.","To make matters worse, if you pay the property tax your mother in law can't take the deduction either. You may be better off paying rent and having her handle the property correctly, as a rental.","Regarding doing this with your HOA: the cost could be very high. In my community the annual dues is less than $100 a year. When people don't pay they are aggressive. There is a late fee after 30 days, then a higher penalty at 60 days. That 2nd notice comes from a lawyer. The community charges the homeowner the lawer's fee. After another 30 days they file a lien. With those costs a small bill has ballooned to over $1,000. Property tax has two other issues. The government can sell your house. The lender can foreclose. Neither is good.","As Andy T says, it is very common for landlords to have a residential mortgage (typically capital + interest) on their own home, and a buy-to-let mortgage (typically interest-only) on each rental property that they own. However, before going down this route, you will need to do some homework. Buying and letting a property is covered by a fair amount of legislation and tax rules; and in the last couple of years, the amount of regulation has increased, as has the amount of tax you're likely to pay. Letting a property can be profitable, but you need to do the maths first, and make sure you do everything by the book. Using a reputable letting agent, at least for your first tenant, should help avoid common pitfalls. There are a number of good websites on this subject. Note that the rules in England, Wales, Scotland and Northern Ireland are all different, so make sure that you get the right information!","A landlord or any creditor can still put negative information in your credit report without your social security number - it just takes a bit more sleuthing on their part. If you want perfect credit, either 1. don't break your lease; 2. break it with the written permission of the landlord (by paying some compensation, for example); or 3. break it with legal permission by asking a court to vacate the terms of the lease.","There are several factors that can help you make a decision. How friendly are the laws to tenants as opposed to landlords? How easy will it be for you to collect rent? How much management is needed? Do you desire to own rental properties? What does your schedule look like? Based upon pure numbers I would keep this property. It looks like you can earn 3K per year, which you may have done some math wrong, on about a 15,000 per year investment. About 20%, very good. Even if you only collect half your profits due to maintenance or missed rent checks the numbers still look really good. If you don't need the extra funds, you can always pay more on the mortgage. The other thing to consider is the rest of your fiances. Can you cover a couple of months of missed rent? Do you have an emergency fund? Do you have other debts?","\"I have been a landlord in Texas for just over 3 years now. I still feel like a novice, but I will give you the benefit of my experience. If you are relying on rental properties for current income versus a long term return you are going to have to do a good job at shopping for bargains to get monthly cash flow versus equity growth that is locked up in the property until you sell it. If you want to pull a lot of cash out of a property on a regular basis you probably are going to have to get into flipping them, which is decidedly not passive investing. Also, it is easy to underestimate the expenses associated with rental properties. Texas is pretty landlord friendly legally, however it does have higher than usual property taxes, which will eat into your return. Also, you need to factor in maintenance, vacancy, tenant turnover costs, etc. It can add up to a lot more than you would expect. If you are handy and can do a lot of repairs yourself you can increase your return, but that makes it less of a passive investment. The two most common rules I have heard for initially evaluating whether an investment property is likely to be cash flow positive are the 1% and 50% rules. The 1% rule says the expected monthly rent needs to be 1% or greater of the purchase price of the house. So your hypothetical $150K/$10K scenario doesn't pass that test. Some people say this rule is 2% for new landlords, but in my experience you'd have to get lucky in Texas to find a house priced that competitively that didn't need a lot of work to get rents that high. The 50% rule says that the rent needs to be double your mortgage payment to account for expenses. You also have to factor in the hassle of dealing with tenants, the following are not going to happen when you own a mutual fund, but are almost inevitable if you are a landlord long enough: For whatever reason you have to go to court and evict a tenant. A tenant that probably lost their job, or had major medical issues. The nicest tenant you ever met with the cutest kids in the world that you are threatening to make homeless. Every fiber of your being wants to cut them some slack, but you have a mortgage to pay and can't set an expectation that paying the rent on time is a suggestion not a rule. or the tenant, who seemed nice at first, but now considers you \"\"the man\"\" decides to fight the eviction and won't move out. You have to go through a court process, then eventually get the Sheriff to come out and forcibly remove them from the property, which they are treating like crap because they are mad at you. All the while not paying rent or letting you re-let the place. The tenant isn't maintaining the lawn and the HOA is getting on your butt about it. Do you pay someone to mow the grass for them and then try to squeeze the money out of the tenant who \"\"never agreed to pay for that\"\"? You rent to a college kid who has never lived on their own and has adopted you as their new parent figure. \"\"The light in the closet went out, can you come replace the bulb?\"\" Tenants flat out lying to your face. \"\"Of course I don't have any pets that I didn't pay the deposit for!\"\" (Pics all over facebook of their kids playing with a dog in the \"\"pet-free\"\" house)\"","You should absolutely go for it, and I encourage you to look for multi-unit (up to 4) properties if there are any in your area. With nulti-unit properties it is far more common than not that the other units pay the mortgage. To comment on your point about slowly building an asset if the renter covers the payment; that's true, but you're also missing the fact that you get to write off the interest on your income taxes, that's another great benefit. If you intend to make a habit out of being a landlord, I highly encourage you to use a property management company. Most charge less than 10% and will handle all of the tough stuff for you, like: fielding sob stories from tenants, evicting tenants, finding new tenants, checking to make sure the property is maintained... It's worth it. There fees are also tax-deductible... It makes a boat load of sense. Just look at the world around you. How many wealthy people rent??? I've met one, but they own investment properties though...","Talk to a lawyer. Most will give a free consult and let you know your options. One of the options you will likely have is a letter from a lawyer threatening further legal action if payment is not received. Reluctant clients are often more willing to pay if they know you aren't willing to take it in the shorts.","\"Per your comment that your landlord is a large property management firm, I think your credit is definitely in jeopardy. Assuming that your name is on the lease, there's no distinction of \"\"fair share\"\", you're all responsible. So, if your roommates can't pay their share, you might have to pay it for them, break the lease (more money, depending on terms) and get out of there. Alternatively, you might be able to find new roommates who would be able to pay their share(s).\"","As others have suggested, if you're considering taking a 50% discount on a revenue stream you feel is low risk because you're having cash flow issues paying those property taxes - I'd recommend you seriously separating these two unrelated concerns and deal with each in most financially astute manner individually. You'll keep more of your hard earned cash You don't have the hassle factor and uncertainty of trying to become proficient in an esoteric field of financial knowledge by Christmas!","Personally, it is the tenant's stupidity to leave cash and not get a receipt. If it were me, I would demand payment. But then $750 to me is a lot more than it may be to others. This is entirely a personal decision, legally I don't think the tenant has a leg to stand on because they have no proof they actually paid you, regardless of how or where they 'left it'.","\"My point was basically anti-capitalist: my landlord is a leech, and a rich leech who dodges their property taxes at that (did I mention my landlord is **MIT**?). There's no actual reason my building *needs* a landlord other than \"\"because capitalism\"\" and \"\"because MIT and Harvard are always sitting there waiting to buy any property that comes onto the market in Cambridge\"\".\"","\"I would not advise buying a home because you think you will make money. (1) Return on Investment If you have $290K, have you asked yourself how much your investment would grow if you invested it in other ways. At 2% growth re-invested, your money would grow to $307K (or 17K) after 4 years. $290,000 * 1.02 = $295,800 * 1.02 = $301,716 * 1.02 = $307,750 (2) Homeowner Experience Without the experience of owning your own home, it's hard to know relate to complaints and expectations that your tenants might have. It's hard to know to anticipate problems and repairs and costs due to home ownership. Homeowners have many decisions to make regarding upkeep of a home. The costs are difficult to predict if you have no experience to draw upon. (3) Managing Rental Property: It's a \"\"job\"\". You either take on this responsibility, or you subcontract it to someone else who you pay to manage the property and contracts! Is this something you are passionate about doing? If you need to travel back to the home, it's clear across country. It's not close enough to visit.\"","I don't see how this is a problem. It's their homes, not yours. And why are your needs as a long term renter more important than the needs of the other people renting short term? If it truly were a problem, the returns on investment to short term would be lower than long term. I.e., you are ripping off your landlord, he should raise his rent or kick you out and make an airbnb.","What are the most important facts to keep in mind as I consider this? IMHO, the most important consideration to keep in mind is - do you really want to be in the landlord business, and if so, how much experience do you have in this business?","\"I don't have a direct answer for you, but here are some other things you might consider to help you decide on a course of action in addition to Joe's note about consulting a CPA... Get a couple contractors out to look the place over and give you some quotes on the work needed, most will do so for free, or a nominal fee. Everything about the extent and cost of repairs is complete guess work until you have some firm numbers. You might also consider getting an up-to-date appraisal, particularly if you can find someone willing to give you an \"\"after improvements\"\" estimate as well. The housing market has fluctuated a bunch in the last couple years, your current value may have shifted significantly from where you think it is if you haven't done one recently. You will definitely have to pay for this service, I would estimate around $500 based on one I got in St Louis a few months ago. You might also consider reaching out to a local property management company to find out where they think you would fall in the scope of the current rental market and what improvements they would recommend. You will probably want to be onsite to talk to any of the above people about the work they are proposing, and your intended goals, so figure some travel costs and time into your evaluation. As one of your noted concerns was the state of the roof, I can tell you that in St Louis County, and the spec sheet for most shingle manufacturers, you are limited to two layers of shingles, then the roof is supposed to be stripped and redone from the bare wood. Personally, I won't even do the second layer, I always go to bare wood and start over, if for no other reason than it gives me an opportunity to inspect the deck and deal with any minor problem areas before they become big problems. I don't know Greene County to know what the local code may be like, but odds are high that the shingle manufacture would not honor any warranty with this installation. Another potential gotcha that may be lurking out there is your ex may still have a lingering claim to the home if you go to sell it. I don't know the rules in Missouri off hand, but where I grew up (with family in the real estate and title insurance businesses) there was a law regarding homestead rights. If a spouse spent even one night in a property, they had an interest in it and an explicit waiver had to be signed to release said interest. Review your divorce settlement and/or contact your attorney to confirm your status in this regard. Also consider the potential of refinancing your mortgage to either reduce the payment, or get funds for the improvements/repairs. Final note, I understand wanting to help out a friend (I have done similar things more times than I can count), but seriously look at the situation and see if you can't get the rent or other compensation up to the level of the mortgage at least. You mentioned that you have belongings still on the property, what would a storage unit for said items cost? In terms of juggling the numbers you could potentially use that value as justification to adjust the friends rent as a caretaker fee without any issue. (Verify with your CPA) Talk to the friend and see if there are other parts of the job they would be willing and able to take on as consideration for the reduced rent (make sure you have at least a simple contract on any such agreement). Or if none of the above are sufficient to balance the numbers, see if they would be willing to take on an actual room mate to help make up the difference.\"","\"You are assuming 100% occupancy and 100% rent collection. This is unrealistic. You could get lucky and find that long term tenant with great credit that always pays their bills... but in reality that person usually buys a home they do not rent long term. So you will need to be prepared for periods of no renters and periods of non payment. The expenses here I would expect could wipe out more than you can make in \"\"profit\"\" based on your numbers. Have you checked to find out what the insurance on a rental property is? I am guessing it will go up probably 200-500 a year possibly more depending on coverage. You will need a different type of insurance for rental property. Have you checked with your mortgage provider to make sure that you can convert to a rental property? Some mortgages (mine is one) restrict the use of the home from being a rental property. You may be required to refinance your home which could cost you more, in addition if you are under water it will be hard to find a new financier willing to write that mortgage with anything like reasonable terms. You are correct you would be taking on a new expense in rental. It is non deductible, and the IRS knows this well. As Littleadv's answer stated you can deduct some expenses from your rental property. I am not sure that you will have a net wash or loss when you add those expenses. If you do then you have a problem since you have a business losing money. This does not even address the headaches that come with being a landlord. By my quick calculations if you want to break even your rental property should be about 2175/Month. This accounts for 80% occupancy and 80% rental payment. If you get better than that you should make a bit of a profit... dont worry im sure the house will find a way to reclaim it.\"","\"Several, actually: Maintenance costs. As landlord, you are liable for maintaining the basic systems of the dwelling - structure, electrical, plumbing, HVAC. On top of that, you typically also have to maintain anything that comes with the space, so if you're including appliances like a W/D or fridge, if they crap out you could spend a months' rent or more replacing them. You are also required to keep the property up to city codes as far as groundskeeping unless you specifically assign those responsibilities to your tenant (and in some states you are not allowed to do so, and in many cases renters expect groundskeeping to come out of their rent one way or the other). Failure to do these things can put you in danger of giving your tenant a free out on the lease contract, and even expose you to civil and criminal penalties if you're running a real slum. Escrow payments. The combination of property tax and homeowner's insurance usually doubles the monthly housing payment over principal and interest, and that's if you got a mortgage for 20% down. Also, because this is not your primary residence, it's ineligible for Homestead Act exemptions (where available; states like Texas are considering extending Homestead exemptions to landlords, with the expectation it will trickle down to renters), however mortgage interest and state taxes do count as \"\"rental expenses\"\" and can be deducted on Schedule C as ordinary business expenses offsetting revenues. Income tax. The money you make in rent on this property is taxable as self-employment income tax; you're effectively running a sole proprietorship real-estate management company, so not only does any profit (you are allowed to deduct maintenance and administrative costs from the rent revenues) get added to whatever you make in salary at your day job, you're also liable for the full employee and employer portions of Medicare/Medicaid/SS taxes. You are, however, also allowed to depreciate the property over its expected life and deduct depreciation; the life of a house is pretty long, and if you depreciate more than the house's actual loss of value, you take a huge hit if/when you sell because any amount of the sale price above the depreciated price of the house is a capital gain (though, it can work to your advantage by depreciating the maximum allowable to reduce ordinary income, then paying lower capital gains rates on the sale). Legal costs. The rental agreement typically has to be drafted by a lawyer in order to avoid things that can cause the entire contract to be thrown out (though there are boilerplate contracts available from state landlords' associations). This will cost you a few hundred dollars up front and to update it every few years. It is deductible as an ordinary expense. Advertising. Putting up a \"\"For Rent\"\" sign out front is typically just the tip of the iceberg. Online and print ads, an ad agency, these things cost money. It's deductible as an ordinary expense. Add this all up and you may end up losing money in the first year you rent the property, when legal, advertising, initial maintenance/purchases to get the place tenant-ready, etc are first spent; deduct it properly and it'll save you some taxes, but you better have the nest egg to cover these things on top of everything your lender will expect you to bring to closing (assuming you don't have $100k+ lying around to buy the house in cash).\"","You should actually contact the company, not just try to. There are ways to do this. For example, show up in person, send registered mail. All other advice is moot until you actually contact the company.","Much information comes from this source. Your tags say you are in New York. New York security deposit law requires that you store the security deposit in a banking institution. Additionally, the deposit must be stored in a separate account, not your own personal account. If the lease is for six months or more, the money must be stored in an interest-bearing account, though this is apparently not necessary if the property has fewer than six units. Investing the money in e.g. a mutual fund would probably be illegal, and would be a bad idea anyway. If your investment turns out not to be profitable, you'd have to make up the difference. Security deposits are meant to be deposits, not investments. Besides, you have to pay interest on the deposit to your tenant; any interest over 1% must be given back to the tenant.","To answer some parts of the question which are answerable as-is: Yes, mortgage interest is deductible. So is depreciation. See this question and others. It would be a good idea to put some money away for tax season, just as you should save some money to cover unexpected property expenses. But as @JoeTaxpayer says, this is a good problem to have, assuming you own the property, it's low-maintenance, your tenant is good, and your rent is at market levels.","Explain the situation to a landlord and offer to prepay a few months of rent in advance as a guarantee. This may or may not work, but being honest and committed may just be the answer.","Slightly abbreviated version of the guidance from NOLO.com California state law limits credit check or application screening fees landlords can charge prospective tenants and specifies what landlords must do when accepting these types of fees. (Cal. Civ. Code § 1950.6.) Here are key provisions: I am not a lawyer, but it would seem you have two options if you catch a landlord violating these rules. An idea to avoid the whole problem in the first place: Get a copy of your credit report yourself and take a copy with you to meet the landlord. If they want an application fee, ask why they need it making it clear you know the above law. If they say for a credit report offer to give them a copy in lieu of the fee.","\"This can be done, and there have been many good suggestions on things to do and watch out for. But to my shock I don't see anyone offering any words of caution about property managers! Whatever you do, don't assume they have your best interests at heart. Do not assume that \"\"no news is good news\"\" and that if you aren't hearing of problems and are just collecting rent checks, everything must be fine. You can easily end up with tenants you would never have allowed yourself, or tenants with pets that you would not have allowed, etc. Especially if the manager doesn't want you to have a vacancy and potentially lose you as a client, they may very well lower their standards just to get the place occupied. And a year or two or three later, you may find yourself looking at a very large repair bill and wonder how on earth it could have happened when you supposedly had someone looking out for your property! There are quality, ethical property managers out there. They are not all bad to be certain. But whatever you do, check up on them. And with multiple properties - especially if in multiple areas/states etc. - this can be nearly a full time job in itself. As the saying goes, \"\"Trust, but verify\"\". I have never found this to apply more than with rental properties and property management. Don't leave anything significant to them 100%. You can't even assume that a rule like \"\"all expenses over $50 must be cleared by me first\"\", as that can simply mean that they don't bother to come to you for certain kinds of repairs that would cost more than that, or that they just get them \"\"taken care of\"\" by their own person (done poorly, illegally, etc.) and never tell you. Never trust their choice of tenants blindly. Visit the place yourself at least every few months - a quick driveby at a minimum or better if you can, arrange a reason to walk through the house personally. Check the back yard, never assume that the front yard is indicative of anything else. Never assume that a \"\"no pets\"\" rule will be followed, or that tenants wouldn't lie to the management about having pets. Never assume that the tenants won't move additional people into the property as well. Always expect a bare minimum of 1 month vacancy every year, and an additional minimum of 1 month's rental revenue in unexpected maintenance/repairs every year. This is at a minimum! You might do much better than this, and have a high quality tenant in place for years who costs next to nothing in extra maintenance. But do not count on it. Rental real estate investing looks so simple on paper, where it's just numbers. But reality has a very rude habit of surprising you when you least expect it. After all, no one expects the Spanish Inquisition! Good luck!\"","Talk to your parents, and find out if you are reducing the debt or not. Find buyers, sell the place now and get out the deal. Of course you will have to wait to get a good price on it. Short term you haven't lost that much, but long term you will. Take your 25%, and use it as a down payment on a regular bank mortgage. Lesson learned move on.","I have this exact same issue. Event the dollar amounts are close. Here is how I am looking at the problem. Option 1: Walk away. Goodbye credit for 7+ years. Luckily I can operate in cash with the extra $800 per month, but should I have a non medical emergency I might be SOL. With a family I am not sure I am willing to risk it. What if my car dies the month after I quit paying and the bank chooses to foreclose? What if my wife or I lose our job and we have no credit to live? Option 2: Short sale. Good if I can let it happen. I might or might not be on the hook for the balance depending on the state. If I am on the hook, okay, suck but I could live. If I am not on the hook, it is going to hurt my credit the same as foreclosure. It isn't easy, you need an experienced real estate agent and a willing bank. Option 3: Keep paying. I am going for this. At the moment I can still afford the house even though it is at the expense of some luxuries in my live. (Cable TV, driving to work, a new computer). I am wagering the market fixes itself in the next several years. Should the S hit the fan in most any manner, the mortgage is the first thing I stop paying. I don't know what other options I have. I can't re-fi; too upside down. I can't sell; the house isn't worth the mortgage (and I don't have the cash for the balance). I can't walk away; the credit hit wouldn't be worth the monthly money gain. I have no emotions about the house. I am in a real bad investment and getting out now seems like a good idea, but I am going to guess that having the house 10 years from now is better than not. I don't care about the bank at all, nor do I feel I owe them the money because I took the loan. They assumed risk loaning me the money in the first place. The minute it gets worse for me than for the bank; I will stop paying. Summary Not much to do without a serious consequence. I would suggest holding out for the very long term if you feel you can. The best way to minimize the bad investment is to ride it out and pray it gets better. I am thinking I am a landlord for the next 10 years.","\"To the best of my knowledge, in California there's no such thing as registering a place as a business. There's zoning (residential/commercial/mixed/etc), and there's \"\"a business registered at a place\"\". But there's no \"\"place registered as a business\"\". So you better clarify what it is that you think your landlord did. It may be that the place is used for short term rentals, in which case the landlord may have to have registered a business of short term rentals there, depending on the local municipal or county rules. Specifically regarding the deposit, however, there's a very clear treatment in the California law. The landlord must provide itemized receipt for the amounts out of the deposit that were used, and the prices should be reasonable and based on the actual charges by the actual vendors. If you didn't get such a receipt, or the amounts are bogus and unsubstantiated - you have protection under the CA law.\"","\"You are a \"\"strategic\"\" investor, which is to say that you are in the best position to evaluate the deal because you already live there. Others don't have this advantage going in, which is why they might not be inclined to do what you're doing. Your biggest advantage is that you know at least one tenant. In essence, you are your own \"\"tenant\"\" for the top floor You also presumably have a pretty good idea of the neighborhood. These are arguments for owning your own home, although it does get a bit trickier with a second tenant, whom you may not know. Do check credit and references, etc. You might ask the landlord why he wants to sell. Presumably it's because he wants to retire or move, and not a problem with the property. But it does no harm to ask.\"","One option is to try to get a month ahead on your mortgage payments. Rather than using the current month's rent to pay the current month's mortgage payments, try to use the previous month's rent to pay the current month's mortgage payments. This should allow you to pay on time rather than late but not unacceptably late.","\"Rather than thinking of becoming a landlord as a passive \"\"investment\"\" (like a bank account or mutual fund), it may be useful to think of it as \"\"starting a small part-time business\"\". While certainly many people can and do start their own businesses, and there are many success stories, there are many cases where things don't work out quite as they hoped. I wouldn't call starting any new business \"\"low risk\"\", even one that isn't expected to be one's main full-time job, though some may be \"\"acceptable risk\"\" for your particular circumstances. But if you're going to start a part-time business, is there any particular reason you'd do so in real estate as opposed to some other activity? It sounds like you'd be completely new to real estate, so perhaps for your first business you're starting you'd want it to be something you're more familiar with. Or, if you do want to enter the real estate world (or any other new business), be sure to do a lot of research, come up with a business plan, and be prepared for the possibility of losing money as with any investment or new business.\"","Other options would be to use paypal, your tenant would only need your e-mail address. Most banks have a similar system to do a person-to-person transfers. My bank uses an e-mail address and only the last 4 digits of the account number.","\"In San Francisco (home of super-expensive real estate and more than a bit of marijuana use) you'll see people asking up front for \"\"first and last months' rent\"\" plus a security deposit when you move in somewhere. If someone can't come up with the cash, then it looks like this is the last month... and time to look for a new roommate. of course, it can be difficult to implement this arrangement if you've already moved in with a bunch of people, and if it's not common in an area people may balk at the money required up front, but.... it is a reliable way to deal with people flaking out on the rent money.\""],"string":"[\n \"\\\"If you're losing money or breaking even, you own a bad investment. The problem you have is that you are emotionally invested in your tenant. That isn't a bad thing in general but it's costing you money and, unless interest rates fall enough to justify a refi or property taxes go down in your area, that's kind of unlikely to change. Option #1 - Tell your wife that you are willing to accept a loss up to a certain level because of your long term relationship with your tenant. In a perfect world, the two of you would then discuss what the \\\"\\\"magic number\\\"\\\" would be where you got out and come to a compromise. For example, if you are comfortable losing up to $3,000 per year and she is unhappy with any loss, you may agree on selling the house when your losses climb to $1,500. In a less perfect world, it would cause an argument as she has already told you what she wants you to do. Option #2 - Raise the rent to the break even point. From what you've said, this will likely result in the loss of your tenant but you could then rent to someone else for significantly more. Option #3 - Sell the house. It's an investment property which means it's supposed to make money for you. It can do that very quickly by way of a sale and then it's no longer your problem. Option #4 - Sell the house to your tenant. You bought it for $50,000 and it's currently worth $150,000 (roughly). The problem you face is that property taxes have gone up and caused your mortgage to increase past your tenants ability to pay. My guess is, after 15 years, your payoff is somewhere in the high $20's to mid 30's assuming you got a 30 year loan and haven't refinanced. If you sell to her for say $75,000 (or even up to $90,000) you will still make a profit (wife is happy), she will get a mortgage she can afford and be able to stay in the house (you and the tenant are happy). Added bonus is that her property taxes would be lower (assuming a different rate for investment property in your area). I would discuss this at length with your wife as well before making such an offer. Option #5 - Get a property management company. As mentioned above, they will keep a percentage but will remove your emotions from the equation altogether and turn the situation into a winner. I don't know if your wife is right in saying you don't have the stomach for this, but I do think your heart is getting in the way in this particular situation. I get the feeling that if your tenant was 25 years old and had only been renting from you since last October, you would have no problem raising the rent to market levels at every renewal.\\\"\",\n \"\\\"> No, I really do. Things break at least once a month, and never get fixed. Hmmm, maybe you're just the \\\"\\\"tenant from hell\\\"\\\" to your landlord. :) I'm sorry you're having problems. But it's possible your landlord is also having problems - have you tried talking about the problems instead of just calling him names?\\\"\",\n \"Heres what you need to know: This can be prevented by what a previous renter did to us. This is a smart, kind of a jerky way to do it but its VERY SMART, as long as your property is worth it, raise the rent higher. You must have a very nice, clean, everything working, house. You must be willing to have anything fixed. this is all to make up the high rent. You don't want the rent way out of proportion but just a bit higher. This is because, more than likely, people who are going to pay for a higher rent don't usually leave a mess, (higher class families vs lower class people living alone..) What might also help from the risk of damage is create a fee (also what my renter did) of any painting needed done like finger prints on the wall, nails in the wall, carpet stains, etc when the tenant is ready to move out. I would suggest a required professional carpet cleaning as well when lease is up. My renter was very nice, but very strict and did all these things. He has a few properties that are very nice middle class houses. Your home sounds like it could easily pass for this kind of business depending on where you live. If the tenant leaves before his lease is up you could charge a 1-2 month's rent to be able to find a new tenant. Be proactive on finding a tenant before the lease is up. This would be a bit of work to first set up and usually maintain, but its a good thing to think about.\",\n \"\\\"Frankly, I was just listing off reasons that I and others might be pissed off at our landlords. Yeah, I've lived in student-focused housing too, and student rentals suck balls. Hell, that's the reason I wound up in the \\\"\\\"upscale\\\"\\\" city of Cambridge instead of living in the \\\"\\\"cheaper\\\"\\\" young-people areas of Allston or Brighton: because those places have had their rents pushed up by students *way* beyond what it's worth paying for a tiny, near-windowless, roach-infested hole built in the 1940s with rats running free in the streets. And yeah, I understand that those places suck so bad because many students are shitty tenants. But my real point was: my landlord doesn't provide me a place to live, he charges me ever-increasing rent for a place to live that he didn't build, maintains to the minimum required by the lease, and doesn't ever upgrade.\\\"\",\n \"Firstly, how far behind on rent are they? Have you sent them notices in writing about late rent, and if so how many have you had to send? How often do they say they are going to do things (like pay overdue rent) and they never do? To tell you the truth IMHO, if they are starting to be regularly late in rent payments and they don't do things they say they are going to do - then it is time to evict them. In NSW Australia, if the tenant is more than 2 weeks late in rent, and prior to them reaching 2 weeks late you have called them asking for late rent and sent notices, you can evict the tenants. If the tenants do not leave you can apply to the Tribunal to get them out and ask for outstanding money to be paid to you. However, if it does get to this stage, the tenants may be pissed off so may do some damage to the property in retaliation. Then you have to go back to the Tribunal to get the Tenant's Bond (Security Deposit) and any other funds to repair any damages done to your place. The longer you leave it the worse it will get. We had some tenants similar to this which we finally got out earlier this year. They would say they would pay rent due by the end of the week and no money would come by the end of the week. We took them to Tribunal and got them out, and we got the Bond plus unpaid rent and other money for damages and leaving the place dirty (over and above the Bond) awarded to us - just under $4K. The tenants said they couldn't pay and so went on a payment plan to pay about $135 every 2 weeks. They didn't pay any of the payments, so then we went to the local court to get a sheriff to go to their new place and take their property. The must have gotten scared from this because they approached the local court and agreed to pay $60 per week. We have currently received about 10 payments so it will be a long time before we get all our money back. As I said the longer you leave it the worse it can get. You should also look at improving your criteria for selecting new tenants. I have given an answer to this question How to choose a good tenant as a private landlord? Hopefully it can give you some ideas of what to ask for when searching for your next tenant. Update due update in Question Six weeks behind in rent is quite a bit to be behind. If the landlord had been asking the tenant to pay the late rent during this period and the tenant had been giving excuses why the rent was late and saying they would pay it by a certain time but never did - it is a big sign that they will tell you lies. If this is the first time they have been late in paying rent and now they are back up to date with the rent, you might want to give them one more chance. If this is a pattern that happens regularly it is better to get them out, as it will happen again, you will get in an argument with them and then they might stop paying rent altogether. You can usually gain a better perspective of the tenants from their action rather than their words - that is why ascertaining their past rental history is so important when finding a new tenant.\",\n \"\\\"Risk is the capital you have staked in pursuit of profit. The danger is that you lose what you have risked. For some bets (risks), you can get insurance to cover for losses. Now the \\\"\\\"game\\\"\\\" of Landlord and Tenant requires you to play fully by the rules set forth by your legislators. In your case, that is the legislators of the State of Texas. Without knowing those rules, you could be liable (open to civil prosecution) for violating those rules. Tenants could be savvy to those rules or savvy enough to hire someone, a lawyer, who knows those rules. As well, in the game of Landlord and Tenant, you must ascertain the creditworthiness of your would-be tenant. If the tenant fails to pay rent, that tenant can detain the residence. You will incur additional outlays to gain possession of your property (ownership in your rental). Now the game of Landlord vs Landlord is different. You can't pick up houses easily enough and even if you could, likely the expense of doing so could wipe out any would profits from having the house as a rental. So, in Landlord vs Landlord, you get constrained by where your rental sits. Thus you must forecast what will the neighborhood look like in five, ten, fifteen years.\\\"\",\n \"Disadvantage is that tenant could sue you for something, and in an unfavorable judgement they would have access to your house as property to possess. You could lose the house. Even if you make an LLC to hold the house, they'll either sue you or the LLC and either way you could lose the house. This might be why the landlord is moving to Florida where their house cannot be possessed in a judgement because of the state's strong homestead exemption ;)\",\n \"\\\"This is fairly simple, actually. You should insist on payment for the rent payment you never received and stop accepting cash payments. If you want to be nice, and believe the story, allow the tenant additional time or payment in installments for the missing $750, but this is a textbook example of why it's a bad idea to transact with cash. Insist on cash equivalents that are traceable and verifiable - check, money order or cashier's check, made out to you or your company name. Also, for what it's worth, you are not out $750, unless you choose to be. Your tenant is. \\\"\\\"I put cash in your mailbox\\\"\\\" is not proof of payment, and doesn't fly as payment anywhere. If it did, I'd never pay any of my bills.\\\"\",\n \"And he has to pay for it every home repair and every month the property sets empty. His loss each month is not $250, but probably closer to $500. In generally you need to clear at least $200 ABOVE PTI (principle, taxes and interest) to cover repair and the like to property. From your post, it sounds like your dad was forced into the land-lord business by the recession. Unless he plans to hold the property until its rental value has increased by $500 a month, he should consider selling it and writing-off the loss. Losing money bit by bit on a house isn't a tax write-off event. Selling a property for less than you bought it for generally is. FYI, I got the $500/month loss by assuming that repairs/emptiness/etc will cost you about $200 a month, and added $50 for your dad's time managing the property.\",\n \"Question: I live in half of a duplex together with other college students. I put my rent (roughly $750 in cash) in the landlord's mailbox while he was out of town for three weeks. I told him ahead that I would do this, but he claims I never did, and he would have asked me not to. Anyway, now he claims the money was not there when he returned and I still owe $750. Answer: Well, that's tough. It could be that the money was stolen from the mailbox. It could be that the landlord pocketed the money and is trying to scam you. Your problem is that you have no receipt, and no evidence at all that you paid the money. There's little you can do other than paying up (again) and learning from this expensive lesson.\",\n \"\\\"I don't think you've mentioned which State you're in. Here in Ontario, a person who is financially incapable can have their financial responsibility and authority removed, and assigned to a trustee. The trustee might be a responsible next of kin (as her ex, you would appear unsuitable: that being a potential conflict of interest); otherwise, it can be the Public Guardian and Trustee. It that happens, then the trustee handles the money; and handles/makes any contracts on behalf of (in the name of) the incapable person. The incapable person might have income (e.g. spousal support payments) and money (e.g. bank accounts), which the trustee can document in order to demonstrate credit-worthiness (or at least solvency). For the time being, the kids see it as an adventure, but I suspect, it will get old very fast. I hope you have a counsellor to talk with about your personal relationships (I've had or tried several and at least one has been extraordinarily helpful). You're not actually expressing a worry about the children being abused or neglected. :/ Is your motive (for asking) that you want her to have a place, so that the children will like it (being there) better? As long as your kids see it as an adventure, perhaps you can be happy for them. Perhaps (I don't know: depending on the people) too it's a good (or at least a better) thing that they are visiting with friends and relatives; and, a better conversational topic with those people might be how they show your children a good time (instead of your ex's money). One possible way I thought of co-signing is if a portion of child/spousal support goes directly to the landlord. I asked the Child Support Services (who deduct money from my paycheck monthly to pay support to my ex) and they told me that they are not authorized to do this. Perhaps (I don't know) there is some way to do that, if you have your ex's cooperation and a lawyer (and perhaps a judge). You haven't said what portions of your payments are for Child support, versus Spousal support (nor, who has custody, etc). If a large part of the support is for the children, then perhaps the children can rent the place. (/wild idea) Note that, in Ontario, there are two trusteeship decisions to make: 1) financial; and 2) personal care, which includes housing and medical. Someone can retain their own 'self-care' authority even if they're judged financially incapable (or vice versa if there's a personal-care or medical decision which they cannot understand). The technical language is, \\\"\\\"Mentally Incapable of Managing Property\\\"\\\" This term applies to a person who is unable to understand information that is relevant to making a decision or is unable to appreciate the reasonably foreseeable consequences of a decision or lack of decision about his or her property. Processes for certifying an individual as being mentally incapable of managing property are prescribed in the SDA (Substitute Decisions Act), and in the Mental Health Act.\\\"\\\" The Mental Heath Act is for medical emergencies (only); but Ontario has a Substitute Decisions Act as well. An intent of the law is to protect vulnerable people. People may also acquire and/or name their own trustee and/or guardian voluntarily: via a power of attorney, a living will, etc. I don't know: how about offering the landlord a year's rent in advance, or in trust? I guess that 1) a court order can determine/override/guarantee the way in which the child support payments are directed 2) it's easier to get that order/agreement if you and your ex cooperate 3) there are housing specialists in your neighborhood: They can buy housing instead of renting it. Or be given (gifted) housing to live in.\\\"\",\n \"Sell the house, in the scenario you describe he is using the property as an investment with a $250 per month buy-in. This investment doesn't make a return right now and when you add in the cost of dealing with the tenant (even if he doesn't have those cost now, he will when they move out)he is out of more than $250 a month and he has no direct knowledge that the value will definitely increase. He would be better spent selling the house and putting the funds into an investment, even a risky investment. It will have less maintenance cost associated with the risky investment than the rental property. Besides sitting on the property for 10-15 years would cost him 30-45k plus the cost of re-renting the house when empty.Not to mention the inevitable increases in taxes over that time which will either increase his deficit or eat up the rent increase he is able to charge. Don't take the loss on the sale, just short sale it and take the money and invest! One last thought... An alternative is to creatively finance a sale (take payments from a buyer until they can buy outright) that will cover the FULL mortgage and get him the price he needs. You can look up owner financing to find out more on how to do this. Hope this helps!\",\n \"\\\"I saw where you said \\\"\\\"I thought of co-signing is if a portion of child/spousal support goes directly to the landlord. I asked the Child Support Services (who deduct money from my paycheck monthly to pay support to my ex) and they told me that they are not authorized to do this.\\\"\\\" I know going back to court isn't a pleasant thought, but from the looks of things, your suggestion is the only way to accomplish this. It's ridiculous for anyone to suggest you keep up your payments and cosign, yet the ex has no obligation to use that income to actually pay her rent. From what you've said, she sounds irresponsible and self-destructive. As someone who has had bad tenants, I'd not go near her, even with a cosigner. It's just not worth the risk.\\\"\",\n \"\\\"The value of getting into the landlord business -- or any other business -- depends on circumstances at the time. How much will it cost you to buy the property? How much can you reasonably expect to collect in rent? How easy or difficult is it to find a tenant? Etc. I owned a rental property for about ten years and I lost a bundle of money on it. Things people often don't consider when calculating likely rental income are: There will be times when you have no tenant. Someone moves out and you don't always find a new tenant right away. Maintenance. There's always something that the tenant expects you to fix. Tenants aren't likely to take as good a care of the property as someone who owned it would. And while a homeowner might fix little things himself, like a broken light switch or doorknob, the tenant expects the landlord to fix such things. If you live nearby and have the time and ability to do minor maintenance, this may be no big deal. If you have to call a professional, this can get very expensive very quickly. Like for example, I once had a tenant complain that the water heater wasn't working. I called a plumber. He found that the knob on the water heater was set to \\\"\\\"low\\\"\\\". So he turned it up. He charged me, I think it was $200. I can't really complain about the charge. He had to drive to the property, figure out that that was all the problem was, turn the knob, and then verify that that really solved the problem. Tenants don't always pay the rent on time, or at all. I had several tenants who apparently saw the rent as something optional, to be paid if they had money left over that they couldn't think of anything better to do with. You may get bad tenants who destroy the place. I had one tenant who did $10,000 worth of damage. That include six inches deep of trash all over the house that had to be cleared out, rotting food all over, excrement smeared on walls, holes in the walls, and many things broken. I thought it was disgusting just to have to go in to clean it up, I can't imagine living like that, but whatever. Depending on the laws in your area, it may be very difficult to kick out a bad tenant. In my case, I had to evict two tenants, and it took about three months each time to go through the legal process. On the slip side, the big advantage to owning real estate is that once you pay it off, you own it and can continue to collect rent. And as most currencies in the world are subject to inflation, the rent you can charge will normally go up while your mortgage payments are constant.\\\"\",\n \"On the off chance that you might want more on the above or you are battling with obligation whether you are a landlord or tenant then get in touch with Open-House-North-West-Manchester property letting agent as they can help and place you in contact with the opportune individuals!\",\n \"Unless you think it's likely that you'll move back soon, this is probably not the best way to get experience as a landlord. You might want to talk to a property management company and look at the fees they would charge to do your job as landlord. You should also consider that your mortgage may require you to occupy the house for a certain amount of time. Mortgages for non-owner-occupied properties usually have a higher interest rate and vetting criteria are more strict.\",\n \"\\\"Assuming the renter was properly vetted, the only question worth asking is \\\"\\\"what has changed in your life?\\\"\\\" Perhaps one of the earners has lost a job, or has moved out because a couple has broken up. If nothing has changed but they just don't feel like paying you, start the eviction process. If something has changed and you assess that it's temporary (I lent my brother money and he didn't pay me back - I'll be behind for a few months but I will catch up; my employer went out of business and didn't pay me for the last two weeks - I have a new job already and am waiting for my first paycheque) then perhaps you are willing to wait. If something has changed and it seems pretty permanent then you might reluctantly start the process. Depending on how long it takes where you live, the renter might get things under control before you finish.\\\"\",\n \"You need to get some thing called landlord insurance, tenants only covers his belongings. Any property damage caused deliberately or unknowingly is not covered in this, its upon the owner to get landlord insurance.\",\n \"There are many property management companies are available in India. You can easily find trusted companies just searching on the google. They manage all these things legally. You just try this\",\n \"This tale makes me sad the more I learn of it. I am impressed with your dedication and caring for your ex-wife and particularly your kids; you seem like a good person from your questions. But you are tired and exasperated too. You have every right to be. The problem isn't how this woman can rent a new apartment (which there isn't a good way that won't screw over some unsuspecting landlord) but how to get this woman into conseling on a regular basis. Not just money, but personal or group therapy. She honestly needs help and must face this problem herself otherwise these questions will never stop. I know you mentioned this doesn't appear to be an option, anf maybe it isn't your job, but I. See your questions are much deeper than personal finance. I wish you the best and I really do admire your resolve to take care of your kids.\",\n \"\\\"You need to get the current tax software, the 2013 filing software is out already, even though it needs to update itself before filing, as the final forms aren't ready yet. Then you will look carefully at Schedule E to understand what gets written off. I see you are looking at the $2200 rent vs your own rent of $2100, but of course, the tax form doesn't care about your rent. You offset the expenses of that house against the income. The expenses are the usual suspects, mortgage interest, property tax, repairs, etc. But there's one big thing new landlords are prone to forgetting. Depreciation. It's not optional. Say the house cost you $400K. This is your basis. You need to separate the value of land which is not depreciated. For a condo with no land it can be as little as 10%, when we bought our house, for insurance purposes, the land was nearly 40% of the full value. Say you do the research and decide 30% (for land), then 70% = $280K. Depreciation is taken each year over a 27.5 year period, or just over $10,000 per year. (Note, the forms will help you get your year 1 number, as you didn't have a full year.) This depreciation helps with your cash flow during the year (as you should do the math, and if you keep the house, adjust your W4 withholdings for 2014, that lump sum you'll get in April won't pay the bills each month) but is 'recaptured' on sale. At some point in the future, you may save enough to buy a house where you wish to live, but need to sell the rental. Consider a 1031 Exchange. It's a way to sell a rental and buy a new one without triggering a taxable event. What I don't know is how long the new house must be a rental before the IRS would then allow you to move in. The same way you turned your home into a rental, a rental can be turned back to a primary residence. I just doubt you can do it right after the purchase. As fellow member @littleadv would advise, \\\"\\\"get professional advice.\\\"\\\" And he's right. I've just offered what you might consider. The first year tax return with that Schedule E is the toughest as it's brand new. The next year is simple in comparison. The question of selling immediately is tough. Only you can decide whether the risk of keeping it is too great. You're saying you don't have the money to cover two month's vacancy. That scares me. I'd focus on beefing up the emergency account. And securing a credit line. You mentioned the tax savings. My opinion is that for any investment,the tax tail should never wag the investing dog. Buy or sell a stock based on the stock, not the potential tax bill for the sale. In your situation, the rent and expenses will cancel each other, and the depreciation is a short term loan, from a tax perspective. If you sold today, what do you net? If you analyzed the numbers now, what is your true income from the property each year? Is that return worth it? A good property will provide cash flow, principal reduction each year, and normal increase in value. This takes a bit of careful looking at the numbers. You might feel you're just breaking even, but if the principal is $12K less after a year, that's something you shouldn't ignore. On the other hand, an exact 'break-even' with little equity at stake offered you a leveraged property where any gains are a magnified percentage of what you have at risk. Last - welcome to Money.SE - consider adding some more details to your profile.\\\"\",\n \"You are not a landlord. You have choices: The current situation is charity. And that's ok, so long as you acknowledge it. In the big picture, anything less than market rent is a gift that you are giving the person living in your house. A good tenant might keep the place in better shape, and deserve a lower rent, but that's a quid pro quo. In the end, landlording is a business. If you had 10-20 apartments, they would be proving an income to you and you would have a large chunk of your wealth tied up in it. You would keep the apartments in good shape both to be legal and not a slumlord, but you'd also collect market rent. $100/apt would be $1000-$2000/mo income to you and your family. You wife is right. As always. You have a decision to make to stop the bleeding.\",\n \"Have you tried complaining to the Real Estate Institute in your state, and if that doesn't work try taking them to Fair Trading. I know from doing some work for real estates that getting money from them is like getting blood from a stone, but you just need to keep bugging them, talk to the manager or director, and tell them you have been waiting too long for your money, give them a deadline (not more than 3 business days) and tell them if you have not received the money by then you will make a complaint to the Real Estate Institute and take them to Fair Trading. Sometimes you have to go to the person who owns/ runs the business as the workers usually don't care, especially when it is extra work for them and they get no reward for doing it (plus the longer the Real Estate don't pay you the longer they earn interest on your money).\",\n \"__________ _________ ____________ Therefore, I get the outcome I want. The human brain must think: it can't stop. If you don't believe me, try meditating. The mental process of putting stuff in those blanks is called rationalization. This is a bored mind who wants something. If that mind is not particularly well disciplined, those things will get pretty unrealistic. That is what has happened to your friend. Landlords do not like drama. They do like money. Generally a landlord will be happy to take your money any reasonable way that they can achieve. It sounds like either your landlord lost the ability to do credit cards, or he got sick of paying the 3% overhead, or some other overhead costs that may be higher because he does not have the right credit card merchant service. For instance PayPal Here charges 2.70% flat, but a traditional swiper can cost up to $2000 a year in trumped up fees and charges. As soon as the landlord calls the rent a debt, he has to take cash. But in most places, rental is at-will, and the landlord can evict for any reason or no reason at all (except race, creed, color, national origin, family, running a daycare center and a few other protected reasons)... and there's not a whole lot you can do about it. Even for a lease he can trump up a reason. Your friend would be wise to have a meeting of the minds with the landlord about how he'd like to pay. Business is done by mutual consent, not non-consensual legal tricks. I agree, I wouldn't do ACH either. One problem with ACH (or credit) is the landlord can charge anything he pleases, and that's when they start sneaking in devious surcharges for things. Once he's pulled the money out, you're really at a disadvantage to argue, since he already has the money. And it's really difficult to do a chargeback on part of a payment, so you end up having to chargeback the entire rent check, and now he can evict you.\",\n \"There are tax strategies you could take advantage of if you own the property. Find local real estate investors that like 'buy and hold'. Additional strategy is to buy a property and sell it with owner financing (you use a Residential Mortgage Loan Officer to facilitate.) What is great is you can get a great % real return on your money without being a landlord.\",\n \"You're worried about your tenant. That just means you're a nice guy, and it's ok to be nice. At the same time, you can't be expected to lose money on the property or charge well below market on the rent. My suggestions: You know what? She'll totally understand. You've been super nice in keeping the rent low for so many years, and she's been a great tenant, too. At a certain point, inflation kicks in and you have to raise the rent. She'll get that. If she can find a cheaper place, that's a win for both of you. Help her move if you want to be extra nice. Then decide if you want to sell the place or raise the rent. Either option is fine. Listen to your wife. That's just general advice.\",\n \"\\\"I don't have a crystal ball but chances are your tenant is definitely lying. Rent was late and now the money intended to cover the rent; miraculously is lost in the mailbox. Anyhow, you were already nice to tolerate the late \\\"\\\"payment\\\"\\\". Keshlam's option 1.5 in the comments above is the ideal way to settle in which both parties have learned a lesson and are at a loss. Demand the rent payment but settle for half as a one time courtesy. If this continues or this tenant has shown shady predicaments such as this, you should look for legal means to evict this tenant. College students are very creative and who's to say this won't happen again? \\\"\\\"The neighbors dog took my wallet.\\\"\\\"\\\"\",\n \"I'm surprised by all these complicated answers. Yes @Victor, you can create a form that asks people to put down their financial information but you want to be careful and not put off potential tenants by asking for too many details. Depending on the OP's typical tenants, an extensive background and credit check may not be necessary. For example, if I have proof that someone is a graduate student at the local university, that's usually good enough for me because I am willing to bet that they will follow my contract. Bidding war doesn't sound doable, you advertise a price correct? You can only be haggled down not up. So my suggestion is to look at other rental advertisements in the area. Compare what you're offering (location, quality of house, cleanliness, amenities, etc) to the competition and price accordingly. If you're getting a flood of interest, then you're probably pricing below the average price in your area. Or you live in an area where demand is just much higher than supply, in which case you can also raise your rent.\",\n \"I wouldn't start a bidding war if I were you. Sometimes you may get potentially bad tenants who cannot find a property anywhere else offering more money just to get in a place. If you know nothing else about these people how can you guarantee they will keep paying the rent once they get in. The things you should be doing is checking the prospective tenant's employment and income status, making sure they are able to easily pay the rent. You should check their credit report to see if they have a history of bad debts. And you should be checking with their previous landlords or real estate agents to see if they caused any damages to their previous properties. You should create a form that prospective tenants can fill out providing you with all the essential information you are after. Get them so sign a statement that gives you authority to ask information about them with other people (their previous landlords/ real estate agents, and their employers). Have a system set out on how you will assess all applicants and for the information the applicants need to provide you with. Treat it as a business.\",\n \"Complexity has mentioned some good points. I'd also like to add on the downsides: It's not that easy to get rid of a tenant! Imagine if your tenant passed your background check with flying colors but then turned out to be the tenant from hell... How would you resolve the situation? If the thought of that kind of situation stresses you (it would stress me!), I would consider carefully whether you really want to be a landlord.\",\n \"Don't over analyze it - check with some local landlords that are willing to share some information and resources Then analyze the Worst Case Scenarios and the likelihood of them happening and if you could deal with it if it did happen Then Dive In - Real Estate is a long term investment so you have plenty of time to learn everything..... Most people fail.... because they fail to take the first leap of faith !!!\",\n \"As a landlord for 14 years with 10 properties, I can give a few pointers: be able and skilled enough to perform the majority of maintenance because this is your biggest expense otherwise. it will shock you how much maintenance rental units require. don't invest in real estate where the locality/state favors the tenant (e.g., New York City) in disputes. A great state is Florida where you can have someone evicted very quickly. require a minimum credit score of 620 for all tenants over 21. This seems to be the magic number that keeps most of the nightmare tenants out makes sure they have a job nearby that pays at least three times their annual rent every renewal, adjust your tenant's rent to be approximately 5% less than going rates in your area. Use Zillow as a guide. Keeping just below market rates keeps tenants from moving to cheaper options. do not rent to anyone under 30 and single. Trust me trust me trust me. you can't legally do this officially, but do it while offering another acceptable reason for rejection; there's always something you could say that's legitimate (bad credit, or chose another tenant, etc.) charge a 5% late fee starting 10 days after the rent is due. 20 days late, file for eviction to let the tenant know you mean business. Don't sink yourself too much in debt, put enough money down so that you start profitable. I made the mistake of burying myself and I haven't barely been able to breathe for the entire 14 years. It's just now finally coming into profitability. Don't get adjustable rate or balloon loans under any circumstances. Fixed 30 only. You can pay it down in 20 years and get the same benefits as if you got a fixed 20, but you will want the option of paying less some months so get the 30 and treat it like a 20. don't even try to find your own tenants. Use a realtor and take the 10% cost hit. They actually save you money because they can show your place to a lot more prospective tenants and it will be rented much sooner. Empty place = empty wallet. Also, block out the part of the realtor's agreement-to-lease where it states they keep getting the 10% every year thereafter. Most realtors will go along with this just to get the first year, but if they don't, find another realtor. buy all in the same community if you can, then you can use the same vendor list, the same lease agreement, the same realtor, the same documentation, spreadsheets, etc. Much much easier to have everything a clone. They say don't put all your eggs in one basket, but the reality is, running a bunch of properties is a lot of work, and the more similar they are, the more you can duplicate your work for free. That's worth a lot more day-to-day than the remote chance your entire community goes up in flames\",\n \"Sounds like a terrible situation. The only thing I can think of (if you have the cash for it) is to pay down enough of the Mortgage and refinance to the point where the rent covers the mortgage plus expenses. On the one hand, this feels like literally burning money in the fireplace, as you will likely never see back the difference between the likely value when you sell and what you are putting in now. On the other hand, every time you make an interest payment, you are burning the (smaller amount of) money with no hope of seeing it back ever. If you don't have the cash, or you find that just throwing away money, then I would get out as fast as I can. Every month you hold you are paying a huge amount of interest. If you sold at $300,000, you would have only a $30,000 debt to manage. The total amount it would take to pay that off (at anything resembling normal interest rates) would probably be less than you have already sunk into this thing. Of course, if you are willing to bet that the market will come back and make you profitable on what you will have to put in from now on, then you might want to hold on. Personally, I would not make that bet. All around a terrible situation. I wish you lots of luck in resolving it.\",\n \"\\\"If it is true that for the same price, you could get a better place (or that for a lower price you could get an equivalent place), you should do some soul-searching to decide what monetary value you would place on the hassle of moving to such an alternative. You should then negotiate aggressively for a rent that is no more than the rent of the alternative place plus your hassle costs, and if the landlord does not meet your price, you should refuse to renew your lease, and instead move out to an alternative. (Of course, you might also want to double-check your research to ensure you really can get such a good alternative, and that your new landlords won't try a similar bait-and-switch and force you to move again in a year.) Barring local ordinances such as rent control laws, I don't think it's worth it to worry about whether the increase is \\\"\\\"normal\\\"\\\". If you can get a better deal somewhere else, then what your landlords are asking is too much. If you have a good relationship with them on a personal level you may be able to tell them this in a nice way and thus get them to make a more reasonable offer. Otherwise, the landlords will learn that their expectations are unreasonable when all their tenants move out to cheaper places.\\\"\",\n \"I would suggest the use of a management company to handle a rental property. They will take care of things like collecting rent, coordinating repairs and all the little things that come up when dealing with a renters. They typically charge a percentage of the rent or a flat fee, so make sure you include that in your rent calculation. You take a little bit of a financial hit, but save a lot of head aches - especially if you decide to acquire multiple properties in the future.\",\n \"STEP #1. Get a copy of whatever you have signed, this is the most important step. STEP #2. Find a reference to the landlord/tenant laws for you city, county and or state if there are any. STEP #3. Google for a tenants union in your city, state or county. ie, Washington State Tenants Union STEP #4. Try get a free consultation, or an affordable consultation with a lawyer in your area who specializes in tenant law. STEP #5. Between the tenant laws for you, and the limits of what you have signed try to negotiate a cancellation of the contract, if you are bound by it.\",\n \"\\\"I'd say your tenant is out $750, not you. How you handle it is totally personal preference. If you want to be the super-nice landlord and eat the loss this one time, then you might gain some karma and hopefully they'll be awesome tenants for the remainder of their stay. Are they the kind of tenants you want to be nice to because they deserve it? You (and she) have no way to prove she ever actually tried to pay you. Sound like she is learning a $750 lesson. \\\"\\\"Don't leave cash in a mailbox, and always get a receipt for rent paid.\\\"\\\" Your insurance company would likely not pay out as it'd be below a typical deductible and you can't really prove the money ever existed. You'd be better off just taking the loss. Think about it this way: How would you expect a bank or utility company to respond to this situation? \\\"\\\"Yeah, I left my mortgage as a cash-filled envelope on your doorstep. You didn't get it? I told you I'd do it!\\\"\\\" Guess who's paying double mortgage and a late fee? You're not stuck with option 1, you're choosing to do it. She could refuse and fight you on it, which might not be worth the headache and potential small-claims court. But you're entitled to receive the rent and she is obligated to pay it. And \\\"\\\"paying it\\\"\\\" means making sure you actually receive it.\\\"\",\n \"\\\"I debated whether to put this in an answer or a comment, because I'm not sure that this can be answered usefully without a lot more information, which actually would then probably make it a candidate for closing as \\\"\\\"too localized\\\"\\\". At the very least we would need to know where (which jurisdiction) she is located in. So, speaking in a generic way, the options available as I see them are: Contact the mortgage companies and explain she can't continue to make payments. They will likely foreclose on the properties and if she still ends up owing money after that (if you are in the US this also depends on whether you are in a \\\"\\\"non-recourse\\\"\\\" state) then she could be declared bankrupt. This is rather the \\\"\\\"nuclear option\\\"\\\" and definitely not something to be undertaken lightly, but would at least wipe the slate clean and give her some degree of certainty about her situation. Look very carefully at the portfolio of properties and get some proper valuations done on them (depending on where she is located this may be free). Also do a careful analysis of the property sales and rental markets, to see whether property prices / rental rates are going up or down. Then decide on an individual basis whether each property is better kept or sold. You may be able to get discounts on fees if you sell multiple properties in one transaction. This option would require some cold hard analysis and decision making without letting yourselves get emotionally invested in the situation (difficult, I know). Depending on how long she has had the properties for and how she came to own them, it MIGHT be an option to pursue action against whoever advised her to acquire them. Clearly a large portfolio of decaying rental properties is not a suitable investment for a relatively elderly lady and if she only came by them relatively recently, on advice from an investment consultant or similar, you might have some redress there. Another option: could she live in one of the properties herself to reduce costs? If she owns her own home as well then she could sell that, live in the one of the rentals and use the money saved to finance the sale of the other rentals. Aside from these thoughts, one final piece of advice: don't get your own finances tangled up in hers (so don't take out a mortgage against your own property, for example). Obviously if you have the leeway to help her out of your budget then that is great, but I would restrict that to doing things like paying for grocery shopping or whatever. If she is heading for bankruptcy or other financial difficulties, it won't help if you are entangled too.\\\"\",\n \"\\\"Should you negotiate? Yes, what harm can it possibly do? The landlord is unlikely to come back and say \\\"\\\"Because you tried to negotiate, I'm putting the rent up by 10% instead.\\\"\\\", or to evict a paying tenant merely because they tried to negotiate. Is the proposed rent increase \\\"\\\"normal\\\"\\\"? Yes. Landlords will generally try to get as high a rent as they can.\\\"\",\n \"In addition to what @HartCO and @rocketman wrote, being a successful landlord either takes a lot of either:\",\n \"Alternative solution with possibly better results: Use a 3rd party to transfer money between both of you. 2 Services you may want to look at: Rent share might be the best option. We are using it to split payment between 3 people in our unit. The owner is getting a single check that appears to be coming from all of us. The payment is automatic and goes through every month. I'm not sure if you as the owner could collect money electronically as opposed to receiving a check. It sounded like you didn't necessarily care about that though.\",\n \"I'm confused - I don't see your original post, and I wasn't referring to you in my post, so your answer is confusing. But I know student housing often sucks; my son just finished 4 years of living in student apts. But i also know the student tenants often suck, too. I would have hated to own the apt I rented in college, and have tenants like my friends and I. And some of my son's friends were total tenants from hell who cared not a bit what they did to the place.\",\n \"\\\"The biggest disadvantage to you is that your tenant now knows your bank information, which means he can easily identify your source of money in the event he wins a lawsuit and wins a judgement. He will be able to have a court marshall freeze your account. However, if you deposit your tenant's check into your account as opposed to an EFT, then your tenant can basically still obtain your bank account information and freeze your account, it would just take him a bit longer to get that information. I am definitely anti-landlord in these situations because I've had to deal with so many bad ones here in NYC, but as a landlord, the best thing you can do is to create a \\\"\\\"buffer\\\"\\\" account for you to deposit tenant rent money into, then transfer the money from the buffer account to your regular account. This would prevent the tenant from knowing your personal bank information and greatly delay the tenant receiving his judgement from an assumed court win against you. My source: I had to take my landlord to court, and after obtaining a judgement, I got a court marshall to begin the process of closing access to her account (she couldn't access the money in that account). The process resulted in her sending me a check (assuming from her other account) for the judgement since her account was frozen and she couldn't access any of her money.\\\"\",\n \"Since the tenant reportedly left money in your mailbox, and now the money is missing, a crime must have been committed. As such, have her file a report with law enforcement and provide you with a copy of that report. Remind her that, for her safety, it is best to file the report during daylight hours with other people present. You didn't make it clear to your tenant the methods in which she could provide payment. That was a mistake. At the same time, her decision to leave cash in a mailbox was foolish. If she is willing to file a report with law enforcement and provide you with a copy, tell her that you will split the loss and only require half her rent as a one-time courtesy. Make it clear that you are losing half the money too. If she is not willing to file a report, require the full rent.\",\n \"Consider contracting with a property management company to lease and maintain the house until it can be sold. Rent on the property should cover the mortgage, property taxes, etc. The property management company can handle maintenance and the tenant would be responsible for utilities.\",\n \"You're going to want to work with a collection agency or law firm that specializes in collections. They'll buy the debt from you for something like 10-25% depending on the state and whether they are interested in something this small. People who don't pay rent and get wages garnished for $6k are a bad risk. They'll discount the judgement significantly since the risk of bankruptcy is probably pretty high.\",\n \"So home owners should simply only charge low rents and only rent to long term renters out of the goodness of their hearts, yes? How do you expect to convince them ALL to act the way you want on a macro level?\",\n \"\\\"Maybe a bit off topic, but I suggest reading \\\"\\\"Rich Dad Poor Dad\\\"\\\" by Robert Kiyosaki. An investment is something that puts money to your pocket. If your properties don't put money to your pocket (and this seems to be the case), then they're not an investment. Instead, they drain money from you pocket. Therefore you should instead turn these \\\"\\\"investments\\\"\\\" into real investments. Make everything to earn some money using them, not to earn money somewhere else to cover the loses they create. If that's not possible, get rid of them and find something that \\\"\\\"puts money into your pocket\\\"\\\".\\\"\",\n \"\\\"No. The full text of the Landlord-Tenant Act (specifically, section 554.614 of Act 348 of the year 1972) makes no mention of this. Searching the law for \\\"\\\"interest\\\"\\\" doesn't yield anything of interest (pardon the pun). Specifically, section 554.604 of the same law states that: (1) The security deposit shall be deposited in a regulated financial institution. A landlord may use the moneys so deposited for any purposes he desires if he deposits with the secretary of state a cash bond or surety bond written by a surety company licensed to do business in this state and acceptable to the attorney general to secure the entire deposits up to $50,000.00 and 25% of any amount exceeding $50,000.00. The attorney general may find a bond unacceptable based only upon reasonable criteria relating to the sufficiency of the bond, and shall notify the landlord in writing of his reasons for the unacceptability of the bond. (2) The bond shall be for the benefit of persons making security deposits with the landlord. A person for whose benefit the bond is written or his legal representative may bring an action in the district, common pleas or municipal court where the landlord resides or does business for collection on the bond. While it does sound like the landlord is required to deposit the money in a bank or other secured form, e.g. the Secretary of State, he/she isn't required to place it in an account that will earn interest.\\\"\",\n \"\\\"Okay so I am going to break this answer into a couple sections: Okay so first things first. Did you get a good deal? This is challenging to answer for a number of reasons. First, a good deal is relative to the buyers goals. If you're attempting to buy an asset that provides passive income then maybe you met your goal and got a good deal. If you're attempting to buy an asset that provides long term growth, and you purchased above market (I'm speculating of course) then you may have made a bad deal. So how do you determine if you got a good deal? Does your \\\"\\\"Gross Rental Multiplier\\\"\\\" equal that or is less than that of the average GRM in your area. The lower the better. So how do you use the GRM to determine if you're getting a good deal? Divide your purchase price by the average city (or area) GRM and that will tell you what you should be getting annually in rent. You can also use the GRM to determine if a future purchase is over or under priced. Just replace purchase price with asking price. Alright, so these are the tools you can use to decide if you made a bad business deal or not. There are many ways to skin a cat so to speak. These are the tools I use BEFORE I purchase a home. Many people are penny wise and pound foolish. Take your time when making large purchases. It's OKAY to say PASS. Okay next thing is this new purchase you're looking at. The number one rule when working a franchise is you don't open a second store until you have a perfect working model to go off of. If you've never had to file a tax return for your current rental. Then you need to wait. If you've never read your local and state rental laws. Then you need to WAIT. If you've never had to leave an event early, wake up in the middle of the night, or get a text while you're on a date from one of your tenants. THEN YOU NEED TO WAIT. Give it a year or two. Just learn the unknown about rental properties. Use your first as your test bed. It's WAY more cheaper then if you make a bad mistake and roll it over multiple properties. Finally I will leave you with this. No one on this site, myself included, knows everything there is to know about real estate. Anyone that claims they do, send their ass packing. This is a complex COMPLEX business. There is always something to learn and if you don't have the passion to continue learning then hand it off to someone who does. There is tax law, rental law, city repair law, contract law and this doesn't even include the stuff that makes you money, like knowing how to leverage low or no money down loans. Please take some time and go out and learn. Good luck! -AR\\\"\",\n \"\\\"I used to be the sort of person who would tell you that I've left money for you somewhere and in fact not have done so, and I also used to be the last person you'd expect to do something like that. I've not done this exact thing but I've done similar. Not gonna go into detail but at that time I was in a state of poverty, barely able to buy food and drink, and the money I saved by \\\"\\\"conning people\\\"\\\" in similar ways was spent on food and warmth. Personally, I think she's going through a very hard patch financially and as such has done exactly that. Me? I'm not a landlord and I'm probably far too generous. I would explain that I think she's lying but let it slide this month. Clearly a property owner is more financially capable of soaking up this expense than a tenant. On the other hand, you don't become a property owner and landlord by letting people get away without paying their rent. All in all, I would probably push for a 50/50 decision. She pays half rent this month which alleviates her finances a bit if she is genuinely in trouble and has lied, and you still get something for your efforts. If you're lucky, when you suggest it she will come clean. I would make it clear if you do or don't believe her, as she may well confess if you express your doubts. If she does, I wouldn't hold her to paying the full amount unless she offers to do so. Also, make it very obvious that this can and will not happen again. Next time, she gives you cash or uses a banking service. Goes without saying I guess. You should note that legally speaking, by accepting anything other than full payment you could be acknowledging that she did attempt to make a payment and any future legal cases will not consider that favorably for you. I would strongly recommend discussing this with a solicitor before agreeing to anything other than full payment.\\\"\",\n \"It's very possible that someone would lie to their landlord/landlady, but not be prepared to lie to the police. So here's what I would do. Advise your tenant that since her money has been stolen from your letterbox, she should report the theft to the police. If she refuses to report the theft to the police, then her story is probably a lie. In which case, treat the rent as deliquent and demand payment in full. Invoke whatever kind of recourse is available in your jurisdiction. If she goes ahead and reports the theft, then it's very likely that her story is true. It's probably in your interest to stay on good terms with such a tenant, so you could offer to split the loss with her. But let her know that this is a one-time offer, and you won't be so generous again.\",\n \"Your tenant made a mistake. You deal with this exactly as you would deal with a delinquent tenant, which is a hard and sticky question that involves you, your lease, your relationship with the tenant, your priorities, your values, local laws, your estimation of tenant's honest and creditworthiness, and so forth. It's not an easy question. It just falls under the question of how to deal with delinquency that happens to involve the circumstance of allegedly paying cash and having it stolen, which is a hard question.\",\n \"Get a lawyer. If you're having legal issues - get a lawyer. If you're having contract issues - get a lawyer.\",\n \"You may have to ask each tenant to provide copies of bank statements or copied of deposited checks indicating what was paid, to whom and when. Using a spreadsheet is a good idea. It doesn't have to be complicated. If everyone co-operates then this exercise might not be too much of a hassle. But if anyone is combative or unwilling to produce these records, I would recommend reminding them that their other choice is to take each other to court where these records would be required anyway - or face eviction if the landlord doesn't get paid.\",\n \"If I was you I would not borrow from my 401K and shred the credit card offer. Both are very risky ventures, and you are already in a situation that is risky. Doing either will increase your risk significantly. I'd also consider selling the rental house. You seem to be cutting very close on the numbers if you can't raise 17K in cash to refi the house. What happens if you need a roof on the rental, and an HVAC in your current home? My assumption is that you will not sell the home, okay I get it. I would recommend either giving your tenant a better deal then the have now, or something very similar. Having a good tenant is an asset.\",\n \"Then tax the 1% and tell the NY government to knock it off with shitty building codes, you need more construction, right? You getting upset with people maximizing their investments is futile. If you own something, IT IS YOUR JOB TO MAXIMIZE ITS VALUE.\",\n \"I wouldn't confront him. It's really none of your business what he has done or not done with your money as long as you've been a faithful tenant. Whoever gets the house after the foreclosure wants you to stay. I mean, a faithful tenant paying rent is a whole lot better than no one in the house at all. The new landlord (if it's the bank) probably will leave you alone for the most part. Just take MrChrister's advice and document everything and don't let the bank bully you around. It's not your fault the owner got foreclosed on. Remember that the foreclosure process takes months so just because papers got served today (hypothetically) doesn't mean next week the bank takes over the house.\",\n \"Take them to small claims court or just forget about it.\",\n \"This is almost exactally what the BK attorneys I work with have always said. If you have trouble offer a larger down payment. . . . that is the point of the down payment after all. You do sometimes have better luck with renting from individual people rather than larger corporately owned rentals. There are options out there.\",\n \"Well, it sucks that your landlord doesn't try to make you happier, and it doesn't sound like a very good place to live for very long. But I don't really see reasons for getting pissed or calling him a slumlord - I mainly just see reasons to move out. Really, what you've said is no reason to be pissed off at him. He didn't build it? Who the hell builds their own home or apt? Maintains to the minimum required by the lease? Well, that's certainly not the definition of a slumlord, and at least he's basically doing what is required. It's nice if he does more, but as you said, he's doing what's required. Upgrading falls into the last category... if he doesn't feel that it's worthwhile upgrading, why should he do it? You know, just because he owns the place doesn't mean he's rich; he may be just getting by, and may need all his extra income to support his sick mother or something. It's not fair to call someone like that a slumlord - maybe the ones you mentioned in Allston or Brighton are. I don't think I've ever actually lived in any rental that was upgraded while I was living there. And I usually didn't want to be bothered with it anyway. As long as everything worked like it did when I moved in, that was all I wanted or expected.\",\n \"\\\"Sue the friend. When you win, garnish his wages. It does not have to be by so much that it makes him quit his job, but get 75.00 per pay period to come to you. This may require the use of a private investigator but, if you want to make this \\\"\\\"friend\\\"\\\" face consequences, this is your only option. Otherwise, let it go and keep paying his bill.\\\"\",\n \"He doesn't have to follow through on this, but he could tell this sister that he will stop making mortgage payments, which will result in foreclosure and sale at lower price than might be realized by a voluntary sale. Translation: the house will sold, sis. Do you want to maximize your share of the proceeds? And, as I said in a comment above: I hope that he is keeping careful records of mortgage an utility payments, as he might (should) be entitled to a refund from the proceeds of an eventual sale (possibly adjusted by the fair rent value of the time which he spent living there)\",\n \"\\\"I don't know what country you live in or what the laws and practical circumstances of owning rental property there are. But I own a rental property in the U.S., and I can tell you that there are a lot of headaches that go with it. One: Maintenance. You say you have to pay an annual fee of 2,400 for \\\"\\\"building maintenance\\\"\\\". Does that cover all maintenance to the unit or only the exterior? I mean, here in the U.S. if you own a condo (we call a unit like you describe a \\\"\\\"condo\\\"\\\" -- if you rent it, it's an apartment; if you own it, it's a condo) you typically pay an annual fee that cover maintenance \\\"\\\"from the walls out\\\"\\\", that is, it covers maintenance to the exterior of the building, the parking lot, any common recreational areas like a swimming pool, etc. But it doesn't cover interior maintenance. If there's a problem with interior wiring or plumbing or the carpet needs to be replaced or the place needs painting, that's up to you. With a rental unit, those expenses can be substantial. On my rental property, sure, most months the maintenance is zero: things don't break every month. But if the furnace needs to be replaced or there's a major plumbing problem, it can cost thousands. And you can get hit with lots of nitnoid expenses. While my place was vacant I turned the water heater down to save on utility expenses. Then a tenant moved in and complained that the water heater didn't work. We sent a plumber out who quickly figured out that she didn't realize she had to turn the knob up. Then of course he had to hang around while the water heated up to make sure that was all it was. It cost me, umm, I think $170 to have someone turn that knob. (But I probably saved over $15 on the gas bill by turning it down for the couple of months the place was empty!) Two: What happens when you get a bad tenant? Here in the U.S., theoretically you only have to give 3 days notice to evict a tenant who damages the property or fails to pay the rent. But in practice, they don't leave. Then you have to go to court to get the police to throw them out. When you contact the court, they will schedule a hearing in a month or two. If your case is clear cut -- like the tenant hasn't paid the rent for two months or more -- you will win easily. Both times I've had to do this the tenant didn't even bother to show up so I won by default. So then you have a piece of paper saying the court orders them to leave. You have to wait another month or two for the police to get around to actually going to the unit and ordering them out. So say a tenant fails to pay the rent. In real life you're probably not going to evict someone for being a day or two late, but let's say you're pretty hard-nosed about it and start eviction proceedings when they're a month late. There's at least another two or three months before they're actually going to be out of the place. Of course once you send them an eviction notice they're not going to pay the rent any more. So you have to go four, five months with these people living in your property but not paying any rent. On top of that, some tenants do serious damage to the property. It's not theirs: they don't have much incentive to take care of it. If you evict someone, they may deliberately trash the place out of spite. One tenant I had to evict did over $13,000 in damage. So I'm not saying, don't rent the place out. What I am saying is, be sure to include all your real costs in your calculation. Think of all the things that could go wrong as well as all the things that could go right.\\\"\",\n \"A tenant is a tenant regardless of your relationship to them, and as long as the property is classified as an investment property, you can claim depreciation and regular business losses just as you would on any property with any tenant.\",\n \"You can consider opening accounts either in Paypal or Google Wallet. In this way, you link your bank information to these accounts and the only information you need to provide your tenant is your e-mail id. Its safe and in this scenario -- just money transfer through bank account, there is no fee either for the sender (your tenant) or the receiver (you).\",\n \"Renting your property out at less than market rates is a form of charity. Your heart says that this is the right thing to do, your bank account says no. And so does your wife. This isn't a question for the Money stack exchange, I think ... But since you are asking here:\",\n \"Step back and take a deep breath. Pay your mortgage. repeat 1 and 2 monthly until equity > mortgage.\",\n \"To make matters worse, if you pay the property tax your mother in law can't take the deduction either. You may be better off paying rent and having her handle the property correctly, as a rental.\",\n \"Regarding doing this with your HOA: the cost could be very high. In my community the annual dues is less than $100 a year. When people don't pay they are aggressive. There is a late fee after 30 days, then a higher penalty at 60 days. That 2nd notice comes from a lawyer. The community charges the homeowner the lawer's fee. After another 30 days they file a lien. With those costs a small bill has ballooned to over $1,000. Property tax has two other issues. The government can sell your house. The lender can foreclose. Neither is good.\",\n \"As Andy T says, it is very common for landlords to have a residential mortgage (typically capital + interest) on their own home, and a buy-to-let mortgage (typically interest-only) on each rental property that they own. However, before going down this route, you will need to do some homework. Buying and letting a property is covered by a fair amount of legislation and tax rules; and in the last couple of years, the amount of regulation has increased, as has the amount of tax you're likely to pay. Letting a property can be profitable, but you need to do the maths first, and make sure you do everything by the book. Using a reputable letting agent, at least for your first tenant, should help avoid common pitfalls. There are a number of good websites on this subject. Note that the rules in England, Wales, Scotland and Northern Ireland are all different, so make sure that you get the right information!\",\n \"A landlord or any creditor can still put negative information in your credit report without your social security number - it just takes a bit more sleuthing on their part. If you want perfect credit, either 1. don't break your lease; 2. break it with the written permission of the landlord (by paying some compensation, for example); or 3. break it with legal permission by asking a court to vacate the terms of the lease.\",\n \"There are several factors that can help you make a decision. How friendly are the laws to tenants as opposed to landlords? How easy will it be for you to collect rent? How much management is needed? Do you desire to own rental properties? What does your schedule look like? Based upon pure numbers I would keep this property. It looks like you can earn 3K per year, which you may have done some math wrong, on about a 15,000 per year investment. About 20%, very good. Even if you only collect half your profits due to maintenance or missed rent checks the numbers still look really good. If you don't need the extra funds, you can always pay more on the mortgage. The other thing to consider is the rest of your fiances. Can you cover a couple of months of missed rent? Do you have an emergency fund? Do you have other debts?\",\n \"\\\"I have been a landlord in Texas for just over 3 years now. I still feel like a novice, but I will give you the benefit of my experience. If you are relying on rental properties for current income versus a long term return you are going to have to do a good job at shopping for bargains to get monthly cash flow versus equity growth that is locked up in the property until you sell it. If you want to pull a lot of cash out of a property on a regular basis you probably are going to have to get into flipping them, which is decidedly not passive investing. Also, it is easy to underestimate the expenses associated with rental properties. Texas is pretty landlord friendly legally, however it does have higher than usual property taxes, which will eat into your return. Also, you need to factor in maintenance, vacancy, tenant turnover costs, etc. It can add up to a lot more than you would expect. If you are handy and can do a lot of repairs yourself you can increase your return, but that makes it less of a passive investment. The two most common rules I have heard for initially evaluating whether an investment property is likely to be cash flow positive are the 1% and 50% rules. The 1% rule says the expected monthly rent needs to be 1% or greater of the purchase price of the house. So your hypothetical $150K/$10K scenario doesn't pass that test. Some people say this rule is 2% for new landlords, but in my experience you'd have to get lucky in Texas to find a house priced that competitively that didn't need a lot of work to get rents that high. The 50% rule says that the rent needs to be double your mortgage payment to account for expenses. You also have to factor in the hassle of dealing with tenants, the following are not going to happen when you own a mutual fund, but are almost inevitable if you are a landlord long enough: For whatever reason you have to go to court and evict a tenant. A tenant that probably lost their job, or had major medical issues. The nicest tenant you ever met with the cutest kids in the world that you are threatening to make homeless. Every fiber of your being wants to cut them some slack, but you have a mortgage to pay and can't set an expectation that paying the rent on time is a suggestion not a rule. or the tenant, who seemed nice at first, but now considers you \\\"\\\"the man\\\"\\\" decides to fight the eviction and won't move out. You have to go through a court process, then eventually get the Sheriff to come out and forcibly remove them from the property, which they are treating like crap because they are mad at you. All the while not paying rent or letting you re-let the place. The tenant isn't maintaining the lawn and the HOA is getting on your butt about it. Do you pay someone to mow the grass for them and then try to squeeze the money out of the tenant who \\\"\\\"never agreed to pay for that\\\"\\\"? You rent to a college kid who has never lived on their own and has adopted you as their new parent figure. \\\"\\\"The light in the closet went out, can you come replace the bulb?\\\"\\\" Tenants flat out lying to your face. \\\"\\\"Of course I don't have any pets that I didn't pay the deposit for!\\\"\\\" (Pics all over facebook of their kids playing with a dog in the \\\"\\\"pet-free\\\"\\\" house)\\\"\",\n \"You should absolutely go for it, and I encourage you to look for multi-unit (up to 4) properties if there are any in your area. With nulti-unit properties it is far more common than not that the other units pay the mortgage. To comment on your point about slowly building an asset if the renter covers the payment; that's true, but you're also missing the fact that you get to write off the interest on your income taxes, that's another great benefit. If you intend to make a habit out of being a landlord, I highly encourage you to use a property management company. Most charge less than 10% and will handle all of the tough stuff for you, like: fielding sob stories from tenants, evicting tenants, finding new tenants, checking to make sure the property is maintained... It's worth it. There fees are also tax-deductible... It makes a boat load of sense. Just look at the world around you. How many wealthy people rent??? I've met one, but they own investment properties though...\",\n \"Talk to a lawyer. Most will give a free consult and let you know your options. One of the options you will likely have is a letter from a lawyer threatening further legal action if payment is not received. Reluctant clients are often more willing to pay if they know you aren't willing to take it in the shorts.\",\n \"\\\"Per your comment that your landlord is a large property management firm, I think your credit is definitely in jeopardy. Assuming that your name is on the lease, there's no distinction of \\\"\\\"fair share\\\"\\\", you're all responsible. So, if your roommates can't pay their share, you might have to pay it for them, break the lease (more money, depending on terms) and get out of there. Alternatively, you might be able to find new roommates who would be able to pay their share(s).\\\"\",\n \"As others have suggested, if you're considering taking a 50% discount on a revenue stream you feel is low risk because you're having cash flow issues paying those property taxes - I'd recommend you seriously separating these two unrelated concerns and deal with each in most financially astute manner individually. You'll keep more of your hard earned cash You don't have the hassle factor and uncertainty of trying to become proficient in an esoteric field of financial knowledge by Christmas!\",\n \"Personally, it is the tenant's stupidity to leave cash and not get a receipt. If it were me, I would demand payment. But then $750 to me is a lot more than it may be to others. This is entirely a personal decision, legally I don't think the tenant has a leg to stand on because they have no proof they actually paid you, regardless of how or where they 'left it'.\",\n \"\\\"My point was basically anti-capitalist: my landlord is a leech, and a rich leech who dodges their property taxes at that (did I mention my landlord is **MIT**?). There's no actual reason my building *needs* a landlord other than \\\"\\\"because capitalism\\\"\\\" and \\\"\\\"because MIT and Harvard are always sitting there waiting to buy any property that comes onto the market in Cambridge\\\"\\\".\\\"\",\n \"\\\"I would not advise buying a home because you think you will make money. (1) Return on Investment If you have $290K, have you asked yourself how much your investment would grow if you invested it in other ways. At 2% growth re-invested, your money would grow to $307K (or 17K) after 4 years. $290,000 * 1.02 = $295,800 * 1.02 = $301,716 * 1.02 = $307,750 (2) Homeowner Experience Without the experience of owning your own home, it's hard to know relate to complaints and expectations that your tenants might have. It's hard to know to anticipate problems and repairs and costs due to home ownership. Homeowners have many decisions to make regarding upkeep of a home. The costs are difficult to predict if you have no experience to draw upon. (3) Managing Rental Property: It's a \\\"\\\"job\\\"\\\". You either take on this responsibility, or you subcontract it to someone else who you pay to manage the property and contracts! Is this something you are passionate about doing? If you need to travel back to the home, it's clear across country. It's not close enough to visit.\\\"\",\n \"I don't see how this is a problem. It's their homes, not yours. And why are your needs as a long term renter more important than the needs of the other people renting short term? If it truly were a problem, the returns on investment to short term would be lower than long term. I.e., you are ripping off your landlord, he should raise his rent or kick you out and make an airbnb.\",\n \"What are the most important facts to keep in mind as I consider this? IMHO, the most important consideration to keep in mind is - do you really want to be in the landlord business, and if so, how much experience do you have in this business?\",\n \"\\\"I don't have a direct answer for you, but here are some other things you might consider to help you decide on a course of action in addition to Joe's note about consulting a CPA... Get a couple contractors out to look the place over and give you some quotes on the work needed, most will do so for free, or a nominal fee. Everything about the extent and cost of repairs is complete guess work until you have some firm numbers. You might also consider getting an up-to-date appraisal, particularly if you can find someone willing to give you an \\\"\\\"after improvements\\\"\\\" estimate as well. The housing market has fluctuated a bunch in the last couple years, your current value may have shifted significantly from where you think it is if you haven't done one recently. You will definitely have to pay for this service, I would estimate around $500 based on one I got in St Louis a few months ago. You might also consider reaching out to a local property management company to find out where they think you would fall in the scope of the current rental market and what improvements they would recommend. You will probably want to be onsite to talk to any of the above people about the work they are proposing, and your intended goals, so figure some travel costs and time into your evaluation. As one of your noted concerns was the state of the roof, I can tell you that in St Louis County, and the spec sheet for most shingle manufacturers, you are limited to two layers of shingles, then the roof is supposed to be stripped and redone from the bare wood. Personally, I won't even do the second layer, I always go to bare wood and start over, if for no other reason than it gives me an opportunity to inspect the deck and deal with any minor problem areas before they become big problems. I don't know Greene County to know what the local code may be like, but odds are high that the shingle manufacture would not honor any warranty with this installation. Another potential gotcha that may be lurking out there is your ex may still have a lingering claim to the home if you go to sell it. I don't know the rules in Missouri off hand, but where I grew up (with family in the real estate and title insurance businesses) there was a law regarding homestead rights. If a spouse spent even one night in a property, they had an interest in it and an explicit waiver had to be signed to release said interest. Review your divorce settlement and/or contact your attorney to confirm your status in this regard. Also consider the potential of refinancing your mortgage to either reduce the payment, or get funds for the improvements/repairs. Final note, I understand wanting to help out a friend (I have done similar things more times than I can count), but seriously look at the situation and see if you can't get the rent or other compensation up to the level of the mortgage at least. You mentioned that you have belongings still on the property, what would a storage unit for said items cost? In terms of juggling the numbers you could potentially use that value as justification to adjust the friends rent as a caretaker fee without any issue. (Verify with your CPA) Talk to the friend and see if there are other parts of the job they would be willing and able to take on as consideration for the reduced rent (make sure you have at least a simple contract on any such agreement). Or if none of the above are sufficient to balance the numbers, see if they would be willing to take on an actual room mate to help make up the difference.\\\"\",\n \"\\\"You are assuming 100% occupancy and 100% rent collection. This is unrealistic. You could get lucky and find that long term tenant with great credit that always pays their bills... but in reality that person usually buys a home they do not rent long term. So you will need to be prepared for periods of no renters and periods of non payment. The expenses here I would expect could wipe out more than you can make in \\\"\\\"profit\\\"\\\" based on your numbers. Have you checked to find out what the insurance on a rental property is? I am guessing it will go up probably 200-500 a year possibly more depending on coverage. You will need a different type of insurance for rental property. Have you checked with your mortgage provider to make sure that you can convert to a rental property? Some mortgages (mine is one) restrict the use of the home from being a rental property. You may be required to refinance your home which could cost you more, in addition if you are under water it will be hard to find a new financier willing to write that mortgage with anything like reasonable terms. You are correct you would be taking on a new expense in rental. It is non deductible, and the IRS knows this well. As Littleadv's answer stated you can deduct some expenses from your rental property. I am not sure that you will have a net wash or loss when you add those expenses. If you do then you have a problem since you have a business losing money. This does not even address the headaches that come with being a landlord. By my quick calculations if you want to break even your rental property should be about 2175/Month. This accounts for 80% occupancy and 80% rental payment. If you get better than that you should make a bit of a profit... dont worry im sure the house will find a way to reclaim it.\\\"\",\n \"\\\"Several, actually: Maintenance costs. As landlord, you are liable for maintaining the basic systems of the dwelling - structure, electrical, plumbing, HVAC. On top of that, you typically also have to maintain anything that comes with the space, so if you're including appliances like a W/D or fridge, if they crap out you could spend a months' rent or more replacing them. You are also required to keep the property up to city codes as far as groundskeeping unless you specifically assign those responsibilities to your tenant (and in some states you are not allowed to do so, and in many cases renters expect groundskeeping to come out of their rent one way or the other). Failure to do these things can put you in danger of giving your tenant a free out on the lease contract, and even expose you to civil and criminal penalties if you're running a real slum. Escrow payments. The combination of property tax and homeowner's insurance usually doubles the monthly housing payment over principal and interest, and that's if you got a mortgage for 20% down. Also, because this is not your primary residence, it's ineligible for Homestead Act exemptions (where available; states like Texas are considering extending Homestead exemptions to landlords, with the expectation it will trickle down to renters), however mortgage interest and state taxes do count as \\\"\\\"rental expenses\\\"\\\" and can be deducted on Schedule C as ordinary business expenses offsetting revenues. Income tax. The money you make in rent on this property is taxable as self-employment income tax; you're effectively running a sole proprietorship real-estate management company, so not only does any profit (you are allowed to deduct maintenance and administrative costs from the rent revenues) get added to whatever you make in salary at your day job, you're also liable for the full employee and employer portions of Medicare/Medicaid/SS taxes. You are, however, also allowed to depreciate the property over its expected life and deduct depreciation; the life of a house is pretty long, and if you depreciate more than the house's actual loss of value, you take a huge hit if/when you sell because any amount of the sale price above the depreciated price of the house is a capital gain (though, it can work to your advantage by depreciating the maximum allowable to reduce ordinary income, then paying lower capital gains rates on the sale). Legal costs. The rental agreement typically has to be drafted by a lawyer in order to avoid things that can cause the entire contract to be thrown out (though there are boilerplate contracts available from state landlords' associations). This will cost you a few hundred dollars up front and to update it every few years. It is deductible as an ordinary expense. Advertising. Putting up a \\\"\\\"For Rent\\\"\\\" sign out front is typically just the tip of the iceberg. Online and print ads, an ad agency, these things cost money. It's deductible as an ordinary expense. Add this all up and you may end up losing money in the first year you rent the property, when legal, advertising, initial maintenance/purchases to get the place tenant-ready, etc are first spent; deduct it properly and it'll save you some taxes, but you better have the nest egg to cover these things on top of everything your lender will expect you to bring to closing (assuming you don't have $100k+ lying around to buy the house in cash).\\\"\",\n \"You should actually contact the company, not just try to. There are ways to do this. For example, show up in person, send registered mail. All other advice is moot until you actually contact the company.\",\n \"Much information comes from this source. Your tags say you are in New York. New York security deposit law requires that you store the security deposit in a banking institution. Additionally, the deposit must be stored in a separate account, not your own personal account. If the lease is for six months or more, the money must be stored in an interest-bearing account, though this is apparently not necessary if the property has fewer than six units. Investing the money in e.g. a mutual fund would probably be illegal, and would be a bad idea anyway. If your investment turns out not to be profitable, you'd have to make up the difference. Security deposits are meant to be deposits, not investments. Besides, you have to pay interest on the deposit to your tenant; any interest over 1% must be given back to the tenant.\",\n \"To answer some parts of the question which are answerable as-is: Yes, mortgage interest is deductible. So is depreciation. See this question and others. It would be a good idea to put some money away for tax season, just as you should save some money to cover unexpected property expenses. But as @JoeTaxpayer says, this is a good problem to have, assuming you own the property, it's low-maintenance, your tenant is good, and your rent is at market levels.\",\n \"Explain the situation to a landlord and offer to prepay a few months of rent in advance as a guarantee. This may or may not work, but being honest and committed may just be the answer.\",\n \"Slightly abbreviated version of the guidance from NOLO.com California state law limits credit check or application screening fees landlords can charge prospective tenants and specifies what landlords must do when accepting these types of fees. (Cal. Civ. Code § 1950.6.) Here are key provisions: I am not a lawyer, but it would seem you have two options if you catch a landlord violating these rules. An idea to avoid the whole problem in the first place: Get a copy of your credit report yourself and take a copy with you to meet the landlord. If they want an application fee, ask why they need it making it clear you know the above law. If they say for a credit report offer to give them a copy in lieu of the fee.\",\n \"\\\"This can be done, and there have been many good suggestions on things to do and watch out for. But to my shock I don't see anyone offering any words of caution about property managers! Whatever you do, don't assume they have your best interests at heart. Do not assume that \\\"\\\"no news is good news\\\"\\\" and that if you aren't hearing of problems and are just collecting rent checks, everything must be fine. You can easily end up with tenants you would never have allowed yourself, or tenants with pets that you would not have allowed, etc. Especially if the manager doesn't want you to have a vacancy and potentially lose you as a client, they may very well lower their standards just to get the place occupied. And a year or two or three later, you may find yourself looking at a very large repair bill and wonder how on earth it could have happened when you supposedly had someone looking out for your property! There are quality, ethical property managers out there. They are not all bad to be certain. But whatever you do, check up on them. And with multiple properties - especially if in multiple areas/states etc. - this can be nearly a full time job in itself. As the saying goes, \\\"\\\"Trust, but verify\\\"\\\". I have never found this to apply more than with rental properties and property management. Don't leave anything significant to them 100%. You can't even assume that a rule like \\\"\\\"all expenses over $50 must be cleared by me first\\\"\\\", as that can simply mean that they don't bother to come to you for certain kinds of repairs that would cost more than that, or that they just get them \\\"\\\"taken care of\\\"\\\" by their own person (done poorly, illegally, etc.) and never tell you. Never trust their choice of tenants blindly. Visit the place yourself at least every few months - a quick driveby at a minimum or better if you can, arrange a reason to walk through the house personally. Check the back yard, never assume that the front yard is indicative of anything else. Never assume that a \\\"\\\"no pets\\\"\\\" rule will be followed, or that tenants wouldn't lie to the management about having pets. Never assume that the tenants won't move additional people into the property as well. Always expect a bare minimum of 1 month vacancy every year, and an additional minimum of 1 month's rental revenue in unexpected maintenance/repairs every year. This is at a minimum! You might do much better than this, and have a high quality tenant in place for years who costs next to nothing in extra maintenance. But do not count on it. Rental real estate investing looks so simple on paper, where it's just numbers. But reality has a very rude habit of surprising you when you least expect it. After all, no one expects the Spanish Inquisition! Good luck!\\\"\",\n \"Talk to your parents, and find out if you are reducing the debt or not. Find buyers, sell the place now and get out the deal. Of course you will have to wait to get a good price on it. Short term you haven't lost that much, but long term you will. Take your 25%, and use it as a down payment on a regular bank mortgage. Lesson learned move on.\",\n \"I have this exact same issue. Event the dollar amounts are close. Here is how I am looking at the problem. Option 1: Walk away. Goodbye credit for 7+ years. Luckily I can operate in cash with the extra $800 per month, but should I have a non medical emergency I might be SOL. With a family I am not sure I am willing to risk it. What if my car dies the month after I quit paying and the bank chooses to foreclose? What if my wife or I lose our job and we have no credit to live? Option 2: Short sale. Good if I can let it happen. I might or might not be on the hook for the balance depending on the state. If I am on the hook, okay, suck but I could live. If I am not on the hook, it is going to hurt my credit the same as foreclosure. It isn't easy, you need an experienced real estate agent and a willing bank. Option 3: Keep paying. I am going for this. At the moment I can still afford the house even though it is at the expense of some luxuries in my live. (Cable TV, driving to work, a new computer). I am wagering the market fixes itself in the next several years. Should the S hit the fan in most any manner, the mortgage is the first thing I stop paying. I don't know what other options I have. I can't re-fi; too upside down. I can't sell; the house isn't worth the mortgage (and I don't have the cash for the balance). I can't walk away; the credit hit wouldn't be worth the monthly money gain. I have no emotions about the house. I am in a real bad investment and getting out now seems like a good idea, but I am going to guess that having the house 10 years from now is better than not. I don't care about the bank at all, nor do I feel I owe them the money because I took the loan. They assumed risk loaning me the money in the first place. The minute it gets worse for me than for the bank; I will stop paying. Summary Not much to do without a serious consequence. I would suggest holding out for the very long term if you feel you can. The best way to minimize the bad investment is to ride it out and pray it gets better. I am thinking I am a landlord for the next 10 years.\",\n \"\\\"To the best of my knowledge, in California there's no such thing as registering a place as a business. There's zoning (residential/commercial/mixed/etc), and there's \\\"\\\"a business registered at a place\\\"\\\". But there's no \\\"\\\"place registered as a business\\\"\\\". So you better clarify what it is that you think your landlord did. It may be that the place is used for short term rentals, in which case the landlord may have to have registered a business of short term rentals there, depending on the local municipal or county rules. Specifically regarding the deposit, however, there's a very clear treatment in the California law. The landlord must provide itemized receipt for the amounts out of the deposit that were used, and the prices should be reasonable and based on the actual charges by the actual vendors. If you didn't get such a receipt, or the amounts are bogus and unsubstantiated - you have protection under the CA law.\\\"\",\n \"\\\"You are a \\\"\\\"strategic\\\"\\\" investor, which is to say that you are in the best position to evaluate the deal because you already live there. Others don't have this advantage going in, which is why they might not be inclined to do what you're doing. Your biggest advantage is that you know at least one tenant. In essence, you are your own \\\"\\\"tenant\\\"\\\" for the top floor You also presumably have a pretty good idea of the neighborhood. These are arguments for owning your own home, although it does get a bit trickier with a second tenant, whom you may not know. Do check credit and references, etc. You might ask the landlord why he wants to sell. Presumably it's because he wants to retire or move, and not a problem with the property. But it does no harm to ask.\\\"\",\n \"One option is to try to get a month ahead on your mortgage payments. Rather than using the current month's rent to pay the current month's mortgage payments, try to use the previous month's rent to pay the current month's mortgage payments. This should allow you to pay on time rather than late but not unacceptably late.\",\n \"\\\"Rather than thinking of becoming a landlord as a passive \\\"\\\"investment\\\"\\\" (like a bank account or mutual fund), it may be useful to think of it as \\\"\\\"starting a small part-time business\\\"\\\". While certainly many people can and do start their own businesses, and there are many success stories, there are many cases where things don't work out quite as they hoped. I wouldn't call starting any new business \\\"\\\"low risk\\\"\\\", even one that isn't expected to be one's main full-time job, though some may be \\\"\\\"acceptable risk\\\"\\\" for your particular circumstances. But if you're going to start a part-time business, is there any particular reason you'd do so in real estate as opposed to some other activity? It sounds like you'd be completely new to real estate, so perhaps for your first business you're starting you'd want it to be something you're more familiar with. Or, if you do want to enter the real estate world (or any other new business), be sure to do a lot of research, come up with a business plan, and be prepared for the possibility of losing money as with any investment or new business.\\\"\",\n \"Other options would be to use paypal, your tenant would only need your e-mail address. Most banks have a similar system to do a person-to-person transfers. My bank uses an e-mail address and only the last 4 digits of the account number.\",\n \"\\\"In San Francisco (home of super-expensive real estate and more than a bit of marijuana use) you'll see people asking up front for \\\"\\\"first and last months' rent\\\"\\\" plus a security deposit when you move in somewhere. If someone can't come up with the cash, then it looks like this is the last month... and time to look for a new roommate. of course, it can be difficult to implement this arrangement if you've already moved in with a bunch of people, and if it's not common in an area people may balk at the money required up front, but.... it is a reliable way to deal with people flaking out on the rent money.\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["You are not a landlord. You have choices: The current situation is charity. And that's ok, so long as you acknowledge it. In the big picture, anything less than market rent is a gift that you are giving the person living in your house. A good tenant might keep the place in better shape, and deserve a lower rent, but that's a quid pro quo. In the end, landlording is a business. If you had 10-20 apartments, they would be proving an income to you and you would have a large chunk of your wealth tied up in it. You would keep the apartments in good shape both to be legal and not a slumlord, but you'd also collect market rent. $100/apt would be $1000-$2000/mo income to you and your family. You wife is right. As always. You have a decision to make to stop the bleeding.","You're worried about your tenant. That just means you're a nice guy, and it's ok to be nice. At the same time, you can't be expected to lose money on the property or charge well below market on the rent. My suggestions: You know what? She'll totally understand. You've been super nice in keeping the rent low for so many years, and she's been a great tenant, too. At a certain point, inflation kicks in and you have to raise the rent. She'll get that. If she can find a cheaper place, that's a win for both of you. Help her move if you want to be extra nice. Then decide if you want to sell the place or raise the rent. Either option is fine. Listen to your wife. That's just general advice.","\"If you're losing money or breaking even, you own a bad investment. The problem you have is that you are emotionally invested in your tenant. That isn't a bad thing in general but it's costing you money and, unless interest rates fall enough to justify a refi or property taxes go down in your area, that's kind of unlikely to change. Option #1 - Tell your wife that you are willing to accept a loss up to a certain level because of your long term relationship with your tenant. In a perfect world, the two of you would then discuss what the \"\"magic number\"\" would be where you got out and come to a compromise. For example, if you are comfortable losing up to $3,000 per year and she is unhappy with any loss, you may agree on selling the house when your losses climb to $1,500. In a less perfect world, it would cause an argument as she has already told you what she wants you to do. Option #2 - Raise the rent to the break even point. From what you've said, this will likely result in the loss of your tenant but you could then rent to someone else for significantly more. Option #3 - Sell the house. It's an investment property which means it's supposed to make money for you. It can do that very quickly by way of a sale and then it's no longer your problem. Option #4 - Sell the house to your tenant. You bought it for $50,000 and it's currently worth $150,000 (roughly). The problem you face is that property taxes have gone up and caused your mortgage to increase past your tenants ability to pay. My guess is, after 15 years, your payoff is somewhere in the high $20's to mid 30's assuming you got a 30 year loan and haven't refinanced. If you sell to her for say $75,000 (or even up to $90,000) you will still make a profit (wife is happy), she will get a mortgage she can afford and be able to stay in the house (you and the tenant are happy). Added bonus is that her property taxes would be lower (assuming a different rate for investment property in your area). I would discuss this at length with your wife as well before making such an offer. Option #5 - Get a property management company. As mentioned above, they will keep a percentage but will remove your emotions from the equation altogether and turn the situation into a winner. I don't know if your wife is right in saying you don't have the stomach for this, but I do think your heart is getting in the way in this particular situation. I get the feeling that if your tenant was 25 years old and had only been renting from you since last October, you would have no problem raising the rent to market levels at every renewal.\"","Renting your property out at less than market rates is a form of charity. Your heart says that this is the right thing to do, your bank account says no. And so does your wife. This isn't a question for the Money stack exchange, I think ... But since you are asking here:","If you're sinking 1k/year into it, and the value is rising by $100k in 15 years, or $6k/year, you have a fine investment. Ignore the wife, she just wants something even better."],"string":"[\n \"You are not a landlord. You have choices: The current situation is charity. And that's ok, so long as you acknowledge it. In the big picture, anything less than market rent is a gift that you are giving the person living in your house. A good tenant might keep the place in better shape, and deserve a lower rent, but that's a quid pro quo. In the end, landlording is a business. If you had 10-20 apartments, they would be proving an income to you and you would have a large chunk of your wealth tied up in it. You would keep the apartments in good shape both to be legal and not a slumlord, but you'd also collect market rent. $100/apt would be $1000-$2000/mo income to you and your family. You wife is right. As always. You have a decision to make to stop the bleeding.\",\n \"You're worried about your tenant. That just means you're a nice guy, and it's ok to be nice. At the same time, you can't be expected to lose money on the property or charge well below market on the rent. My suggestions: You know what? She'll totally understand. You've been super nice in keeping the rent low for so many years, and she's been a great tenant, too. At a certain point, inflation kicks in and you have to raise the rent. She'll get that. If she can find a cheaper place, that's a win for both of you. Help her move if you want to be extra nice. Then decide if you want to sell the place or raise the rent. Either option is fine. Listen to your wife. That's just general advice.\",\n \"\\\"If you're losing money or breaking even, you own a bad investment. The problem you have is that you are emotionally invested in your tenant. That isn't a bad thing in general but it's costing you money and, unless interest rates fall enough to justify a refi or property taxes go down in your area, that's kind of unlikely to change. Option #1 - Tell your wife that you are willing to accept a loss up to a certain level because of your long term relationship with your tenant. In a perfect world, the two of you would then discuss what the \\\"\\\"magic number\\\"\\\" would be where you got out and come to a compromise. For example, if you are comfortable losing up to $3,000 per year and she is unhappy with any loss, you may agree on selling the house when your losses climb to $1,500. In a less perfect world, it would cause an argument as she has already told you what she wants you to do. Option #2 - Raise the rent to the break even point. From what you've said, this will likely result in the loss of your tenant but you could then rent to someone else for significantly more. Option #3 - Sell the house. It's an investment property which means it's supposed to make money for you. It can do that very quickly by way of a sale and then it's no longer your problem. Option #4 - Sell the house to your tenant. You bought it for $50,000 and it's currently worth $150,000 (roughly). The problem you face is that property taxes have gone up and caused your mortgage to increase past your tenants ability to pay. My guess is, after 15 years, your payoff is somewhere in the high $20's to mid 30's assuming you got a 30 year loan and haven't refinanced. If you sell to her for say $75,000 (or even up to $90,000) you will still make a profit (wife is happy), she will get a mortgage she can afford and be able to stay in the house (you and the tenant are happy). Added bonus is that her property taxes would be lower (assuming a different rate for investment property in your area). I would discuss this at length with your wife as well before making such an offer. Option #5 - Get a property management company. As mentioned above, they will keep a percentage but will remove your emotions from the equation altogether and turn the situation into a winner. I don't know if your wife is right in saying you don't have the stomach for this, but I do think your heart is getting in the way in this particular situation. I get the feeling that if your tenant was 25 years old and had only been renting from you since last October, you would have no problem raising the rent to market levels at every renewal.\\\"\",\n \"Renting your property out at less than market rates is a form of charity. Your heart says that this is the right thing to do, your bank account says no. And so does your wife. This isn't a question for the Money stack exchange, I think ... But since you are asking here:\",\n \"If you're sinking 1k/year into it, and the value is rising by $100k in 15 years, or $6k/year, you have a fine investment. Ignore the wife, she just wants something even better.\"\n]","isConversational":false}}},{"rowIdx":384,"cells":{"_id":{"kind":"string","value":"104"},"query":{"kind":"string","value":"Investing/business with other people's money: How does it work?"},"gt_ids":{"kind":"list like","value":["575869","523158"],"string":"[\n \"575869\",\n \"523158\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1],"string":"[\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["575869","106733","405181","512609","523158","268261","366231","198007","475273","135411","278629","247486","204169","151412","127686","95869","368649","229926","469874","440898","378189","32043","121590","74369","393591","218139","425435","503419","94117","311786","260410","179103","454465","387344","197389","419138","535314","748","402094","389004","149723","288949","74277","5744","220433","65179","239064","157101","311025","172694","385881","275249","272574","88508","252942","318937","428552","466233","444444","320616","131395","331696","109383","203791","458485","353004","38560","582161","467511","292788","596001","225522","309851","236375","454526","229436","404726","46818","306430","477208","572563","290325","447619","396694","511670","467020","319477","129894","486243","329637","90519","501015","367957","97962","515402","501973","58426","146441","549225","521044"],"string":"[\n \"575869\",\n \"106733\",\n \"405181\",\n \"512609\",\n \"523158\",\n \"268261\",\n \"366231\",\n \"198007\",\n \"475273\",\n \"135411\",\n \"278629\",\n \"247486\",\n \"204169\",\n \"151412\",\n \"127686\",\n \"95869\",\n \"368649\",\n \"229926\",\n \"469874\",\n \"440898\",\n \"378189\",\n \"32043\",\n \"121590\",\n \"74369\",\n \"393591\",\n \"218139\",\n \"425435\",\n \"503419\",\n \"94117\",\n \"311786\",\n \"260410\",\n \"179103\",\n \"454465\",\n \"387344\",\n \"197389\",\n \"419138\",\n \"535314\",\n \"748\",\n \"402094\",\n \"389004\",\n \"149723\",\n \"288949\",\n \"74277\",\n \"5744\",\n \"220433\",\n \"65179\",\n \"239064\",\n \"157101\",\n \"311025\",\n \"172694\",\n \"385881\",\n \"275249\",\n \"272574\",\n \"88508\",\n \"252942\",\n \"318937\",\n \"428552\",\n \"466233\",\n \"444444\",\n \"320616\",\n \"131395\",\n \"331696\",\n \"109383\",\n \"203791\",\n \"458485\",\n \"353004\",\n \"38560\",\n \"582161\",\n \"467511\",\n \"292788\",\n \"596001\",\n \"225522\",\n \"309851\",\n \"236375\",\n \"454526\",\n \"229436\",\n \"404726\",\n \"46818\",\n \"306430\",\n \"477208\",\n \"572563\",\n \"290325\",\n \"447619\",\n \"396694\",\n \"511670\",\n \"467020\",\n \"319477\",\n \"129894\",\n \"486243\",\n \"329637\",\n \"90519\",\n \"501015\",\n \"367957\",\n \"97962\",\n \"515402\",\n \"501973\",\n \"58426\",\n \"146441\",\n \"549225\",\n \"521044\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"Basically, you either borrow money, or get other people to invest in your business by buying stock or something analogous. Sometimes you can get people to \"\"park\"\" money with you. For example, many people deposit money in a bank checking account. They don't get any interest or other profit from this, they just do it because the bank is a convenient place to store their money. The bank then loans some percentage of this money out and keeps the interest. I don't doubt that people have come up with more clever ways to use other people's money. Borrowing money for an investment or business venture is risky because if you lose money, you may be unable to pay it back. On the other hand, investors expect a share of the profit, not just a fixed interest rate.\"","it sounds like you don't have experience in this, and neither does your *investor*; which is a recipe for disaster (pun intended). Your first order of business is to check whether your investor is an *Accredited Investor* (google to see what it means), if s/he's not, **walk away**. If s/he's an accredited investor, find a lawyer who can help you navigate this process, however these are the issues: * lawyers are expensive, and lawyers who have experience in these type of transactions are even more expensive * you actually need 2 lawyers, one for you and one for the investor * if neither of you have experience, there will be a lot more billable hours from the lawyers..... In principle this can go 3 ways: 1. The investors give you a loan, you pay them interests on a periodic basis, and then also principal. Items to be negotiated: interest rates, repayment schedule, collateral, personal guarantees. Highly unlikely this is what the investors wants. 2. The Investors get equity. items to be negotiated: your compensation, % of ownership, how profits are divided, how profits are paid; who gets to decide what. 3. A combination of 1 and 2 above, a *Convertible Note*. There's a lot more, too much for a Reddit post. There's not an easy ELI5.","So, people deposit money with you, you agree to pay them fixed % back, and then you invest money for your own profit? Sounds like a bank to me. Or a dividend-paying mutual fund, or a number of other similar ideas. Sure, you're welcome to start something like that up; it's unlikely you'd get money from people unless you had already proved yourself competent as an investor, though. After all, if it's possible to get a safe, comfortable 5%, why would anyone give you money at 2% or 3% instead of just getting that 5% for themselves? Or, more likely, finding a competitor who gives 4.9%? As in most things, the market will find inefficiencies like this and squash them like bugs. That said, there are some opportunities that take advantage of other kinds of situations. The most common I'd say is owning a home. You take out a mortgage for 80% of the value of the home, instead of buying it outright, and you instead invest the 80% in the market. You likely will beat your mortgage rate given the current 3.5%-4% rates. That's effectively doing the same thing, with an expense you'd have anyway (you always have to live somewhere); since it's a secured loan, you get better rates than the market will give (as it's quite safe) and you can use tax laws in your favor (mortgage interest deduction, in particular, and the capital gains break on primary residences).","I work for an investment group in Central Asia in private equity/project investment. We use SPV and collateralized convertible loans to enter a project, we issue the loan at our own commercial bank. For each industry, the exact mechanisms vary. In most outcomes, we end up in control of some very important part of the business, and even if we have minority shares on paper, no decision is made w/o our approval. For example, we enter cosntruction projects via aquisiton of land and pledging the land as equity for an SPV, then renting it to the project operator. Basically, when you enter a business, be in control of the decisions there, or have significant leverage on the operations. Have your own operating professionals to run it. Profit.","You can either borrow money... credit card, line of credit, re-finance your home, home equity line of credit, loan, mortgage, etc. Or you have other invest in your company as equity. They will contribute $X to get Y% of your company and get Z% of the profits. Note amount of profits does not necessarily have to equate to percentage owned. This makes sense if they are a passive investor, where they just come up with the money and you do all the work. Also voting rights in a company does not have to equate to percentage owned either. You can also have a combination of equity and debt. If you have investors, you would need to figure out whether the investor will personally guarantee the debt of your company - recourse vs non-recourse. If they have more risk, they will want more of a return. One last way to do it is crowdfunding, similar to what people do on Kickstarter. Supporters/customers come up with the money, then you deliver the product. Consulting practices do something similar with the concept of retainers. Best of luck.","At this point the cost of borrowing money is very low. For the sake of argument, say it is 1% per year for a large institution. I can either go out and find a client to invest 100,000$ and split profit and loss with them. Or, I could borrow 50,000$, pay 500$/year in interest, and get the same return and loss, while moving the market half as much (which would let me double my position!) In both cases the company is responsible for covering all fixed costs, like paying for traders, trades, office space, branding, management, regulatory compliance, etc. For your system to work, the cost to gather clients and interact with them has to be significantly less than 1% of the capital they provide you per year. At the 50% level, that might actually be worth it for the company in question. Except at the 50% level you'd have really horrible returns even when the market went up. So suppose a more reasonable level is the client keeps 75% of the returns (which compares to existing companies which offer larger investors an 80% cut on profits, but no coverage on losses). Now the cost to gather and interact with clients has to be lower than 2500$ per million dollars provided to beat out a simple loan arrangement. A single sales employee with 100% overhead (office, all marketing, support, benefits) earning 40,000$/year has to bring in 32 million dollar-years worth of investment every year to break even. Cash is cheap. Investment houses sell cash management, and charge for it. They don't sell shared investment risk (at least not to retail investors), because it would take a lot of cash for it to be worth their bother. More explicitly, for this to be viable, they'd basically have to constantly arrange large hedges against the market going down to cover any losses. That is the kind of thing that some margin loans may require. That would all by itself lower their profits significantly, and they would be exposed to counter-party risk on top of that. It is much harder to come up with a pile of cash when the markets go down significantly. If you are large enough to be worthwhile, finding a safe counterparty may be nearly impossible.","What you are describing does not sound like an investment; it sounds like a loan. An investment involves you putting up a stake and sharing in the profits or losses of the business - there is no guarantee you will get your money back. A loan involves you putting up money for which you will receive interest and principal repayment in accordance with an agreed schedule - you get this irrespective of how the business is performing. Also, is the arrangement with your friend or his company? They are different legal entities and your risk profile is different in both cases. Whatever the arrangement you need to sign a contract which details all the terms and conditions - how much you will pay, to whom and when; how much you will get back, from whom and when; a method for resolving disputes; what happens in the event of insolvency or bankruptcy; what happens if someone breaks the terms of the contract; if your payout depends on the value of the business at some future date, how it is to be valued; etc. etc. Two points: I am not a lawyer, I am not your lawyer.","\"Generally, when you own something - you can give it as a collateral for a secured loan. That's how car loans work and that's how mortgages work. Your \"\"equity\"\" in the asset is the current fair value of the asset minus all your obligations secured by it. So if you own a property free and clear, you have 100% of its fair market value as your equity. When you mortgage your property, banks will usually use some percentage loan-to-value to ensure they're not giving you more than your equity now or in a foreseeable future. Depending on the type and length of the loan, the LTV percentage varies between 65% and 95%. Before the market crash in 2008 you could even get more than 100% LTV, but not anymore. For investment the LTV will typically be lower than for primary residence, and the rates higher. I don't want to confuse you with down-payments and deposits as it doesn't matter (unless you're in Australia, apparently). So, as an example, assume you have an apartment you rent out, which you own free and clear. Lets assume its current FMV is $100K. You go to a bank and mortgage the apartment for a loan (get a loan secured by that apartment) at 65% LTV (typical for condos for investment). You got yourself $65K to buy another unit free and clear. You now have 2 apartments with FMV $165K, your equity $100K and your liability $65K. Mortgaging the new unit at the same 65% LTV will yield you another $42K loan - you may buy a third unit with this money. Your equity remains constant when you take the loan and invest it in the new purchase, but the FMV of your assets grows, as does the liability secured by them. But while the mortgage has fixed interest rate (usually, not always), the assets appreciate at different rates. Now, lets be optimistic and assume, for the sake of simplicity of the example, that in 2 years, your $100K condo is worth $200K. Voila, you can take another $65K loan on it. The cycle goes on. That's how your grandfather did it.\"","If someone invest certain amount on my company and after a year I am able to return the exact capital with the profit, what will I do to that investor? Did the investor receive shares in the company for the money that was invested in the company? This is the big question here as if so then there isn't the need to return the money but rather grow the business so that the investor's shares are worth more. Will that person still invest in my company? You may need to consider what you mean by invest as generally there are a couple of ways to finance a business: Equity - Ownership of the company is sold to raise money to run the company. Debt - The company is lent money that is to be repaid over time. Investing is usually the first case not the second. What if I have enough profit to continue my business, do I still need that investor? You wouldn't need the investor. However, you may want that investor as they could provide more funds, connections or other benefits to the company that may be worth considering here.","\"I think your question might be coming from a misunderstanding of how corporate structures work - specifically, that a corporation is a legal entity (sort of like a person) that can have its own assets and debts. To make it clear, let's look at your example. We have two founders, Albert and Brian, and they start a corporation called CorpTech. When they start the company, it has no assets - just like you would if you owned nothing and had no bank account. In order to do anything, CorpTech is going to need some money. So Albert and Brian give it some. They can give it as much as they want - they can give it property if they want, too. Usually, people don't just put money into a corporation without some sort of agreement in place, though. In most cases, the agreement says something like \"\"Each member will own a fraction of the company that is in proportion to this initial investment.\"\" The way that is done varies depending on the type of corporation, but in general, if Albert ends up owning 75% and Brian ends up owning 25%, then they probably valued their contributions at 75% and 25% of the total value. These contributions don't have to be money or property, though. They could just be general \"\"know-how,\"\" or \"\"connections,\"\" or \"\"an expectation that they will do some work.\"\" The important thing is that they agree on the value of these contributions and assign ownership of the company according to that agreement. If they don't have an agreement, then the laws of the state that the company is registered in will say how the ownership is assigned. Now, what \"\"ownership\"\" means can be different depending on the context. When it comes to decision-making, you could \"\"own\"\" one percentage of the company in terms of votes, but when it comes to shares of future profits, you could own a different amount. This is why you can have voting and non-voting versions of a company's stock, for example. So this is a critical point - the ownership of a company is independent of the individual contributions to the company. The next part of your question is related to this: what happens when CorpTech sees an opportunity to make an investment? If it has enough cash on hand (because of the initial investment, or through financing, or reinvested profits), then the decision to make the investment is made according to Albert and Brian's ownership agreement, and they spend it. The money doesn't belong to them individually anymore, it belongs to CorpTech, and so CorpTech is spending it. They are just making the decision for CorpTech to spend it. This is why people say the owners are not financially liable beyond their initial investment. If the deal is bad, and they lose the money, the most they can lose is what they initially put in. On the other hand, if CorpTech doesn't have the money, then they have to figure out a way to get it. They might decide to each put in an amount in proportion to their ownership, so that their stake doesn't change. Or, Albert might agree to finance the deal 100% in exchange for a larger share of ownership. Or, he could agree to fund all of it without a larger stake, because Brian is the one who set the deal up. Or, they might take out a loan, and not need to invest any new money. Or, they might find an investor who agrees to put in the needed money in exchange for a a 51% share, in which case Albert and Brian will have to figure out how to split the remaining 49% if they agree to the deal. The details of how all of this would work depend on the structure (LLC, LLP, C-corp, S-corp, etc), but in general, the idea is that the company has assets and debts, and the owners can have voting rights, equity rights, and rights to future profits in any type of split that they want, regardless of what the companies assets and debts are, or what their initial investment was.\"","Question (which you need to ask yourself): How well are your friends paid for their work? What would happen if you just took your money and bought a garage, and hired two car mechanics? How would that be different from what you are doing? The money that you put into the company, is that paid in capital, or is it a loan to the company that will be repaid?","This means that if your capital under my management ends up turning a profit, I will keep half of those profits, but if I lose you money, I will cover half those losses. The bold part is where you lose me. This absolutely exists with the exception of the loss insurance. It just requires a lot more than the general retail consumer investor has to contribute. Nobody wants to take on the responsibility of your money then split 50% of the gross proceeds of your $10,000 (or whatever nominal amount of money you're dealing with) investment and return it all to you after a year. And NO money manager will insure that the market won't decline. Hedge funds, PE Firms, VC Firms, Investment Partnerships, etc all basically run the way you're describing (again without your loss insurance). Everyone's money is pooled and investments are made. Everyone shares the spoils and everyone shares the losses. And to top it off, the people making investment decisions have their money invested in the fund. All of them have to pay rent and accountants and other costs associated with running the fund and that will eat in to the proceeds to some degree; because returns are calculated on net proceeds. With enough money you can buy yourself in to a hedge fund, for the rest of us there are ETFs and other extremely fee-reasonable investment options. And if you don't think the performance and preservation of assets under management is not an incentive to treat the money with care you're kidding yourself (your first bullet point). I'll add that aside from skewing the manager's risk tolerance toward guaranteed returns I doubt you would fair favorably over the long term compared to simply paying even an egregious 1% expense ratio on an ETF. If you look at the S&P performance for 10 or 20 or however many years, I'd venture that a couple good years of giving up half of your gains would have you screaming for your money back. The bad years would put the money manager out of business and the good years would squander your gains.","A firm is a separate legal person from its shareholders or owners (but doesn't get invited to parties much). Owners invest capital to get shares in the firm or may get shares for investing time, effort etc. but those shares are on a limited liability basis. That means that shareholders are only liable up to the value of their shares and that the firm itself is responsible for any expenses or liabilities. The firm will have working capital from its initial investors (i.e. any capital invested to get shares) and can borrow money on the bond market or issue new shares to cover outgoings. Share ownership simply entitles the owner to a proportion of the residual equity of the company and voting rights (for non-prefered equity). In a firm that I previously worked for, for example, one of the partners owned 51% of the firm but put up 100% of the firm's equity capital. The other partner owned 49% and provided 90% of the intellectual capital of the firm. They both took decisions equally. The distribution of ownership should, therefore, have no bearing on who finances deals. The owners (or managers in larger firms) should decide together how to use the company's capital for spending because it is exactly that; the company's capital; not any one of the investor's. Limited liability of owners is one of the major benefits of forming a company.","I think there are two options: You invest for very close friends, who trust you completely. In this case, I don't see why you need legal formalities. Just take their money, invest, and return the profits (or losses) to them. They'll know that you invest it as well as you can (rather than spend it on your dream vacation), simply because they trust you. And in case they never get to see most of their money back - they'll know that you've tried your best, and won't be upset with you. You invest for people who trust you, but not 100%. In this case, don't take their money. If you lose (and in Forex, you most likely will) then you'll lose not only money, but also your friends. Even if the legal documents would prove that you were honset, and that they knew what they're getting into, they'll still be mad at you.","\"+1 for noting that you are in it for the long haul. I also think this is a great project and activity to do with friends. Setting up and start-up investment company could be done as a simple LLC. The decision making process can be decided among the members -- if you want to defer to the others then so be it. Make it flexible so that you can change your mind in the future. If this is not intended to be a source of revenue or income for you (note your \"\"in it for the long haul\"\") One way of sourcing the capital and managing the resulting taxes you might want to consider is setting up a self-directed retirement account and making the investment from there. proceeds as you and your friends choose to take them would flow back into the retirement account. As with most investment and tax related questions we should all take the little extra time and money to follow up on internet-based advice with your own lawyer, investment adviser and accountant. These licensed individuals when under contract assume a degree of responsibility for their answer which is not available online. :)\"","This is one way in which the scheme could work: You put your own property (home, car, piece of land) as a collateral and get a loan from a bank. You can also try to use the purchased property as security, but it may be difficult to get 100% loan-to-value. You use the money to buy a property that you expect will rise in value and/or provide rent income that is larger than the mortgage payment. Doing some renovations can help the value rise. You sell the property, pay back the loan and get the profits. If you are fast, you might be able to do this even before the first mortgage payment is due. So yeah, $0 of your own cash invested. But if the property doesn't rise in value, you may end up losing the collateral.","\"For example, Biff Spoiles started an animation studio and production developing company to produce animations -- something in the ballpark of $12,000,000.00 U.S.D. -- and he had a $12K/yearly salary. I have no clue what you mean, as others have mentioned. (I'm not sure what the \"\"12 million\"\" refers to? Do you mean \"\"total cost of animations created by the company in a year\"\" or? If so, \"\"12 million\"\" would amount to say 5 to 20 major, brand name TV commercials, for example. Do you mean the \"\"cost of plant\"\" - so, for a \"\"TV commercial production company\"\" you mean purchasing desks, drawing pads, Porsches, and so on?) Your specific example of a \"\"film or TV-commercial production company\"\" is a bad example, it's not really a \"\"business\"\" - that is to say, it does not rely on capital and return on capital. The way famous \"\"film or TV-commercial production companies\"\" happens is precisely like this: A young guy/girl G (perhaps a designer or filmmaker) is working, just as you say, for a menial wage at a film company. (G got that first job perhaps out of art school.) G gets a chance at doing a photo shoot, animation, or helping direct a TV commercial. G does a fantastic job. Later that year, a large important animation or commercial job arrives at the company; due to the earlier excellent result, G is allowed to work on the new one. G again he does a fantastic job. Soon, within that company, G is a highly-regarded animator or director and has attracted fame amongst colleagues and clients. Eventually, G hears of a company (XYZ Hotel) that needs a TV ad made. (Or an animation, or whatever.) G says to XYZ, look, you could spend $230,000 with a production company, and in reality they'd have me direct it anyway. I'm leaving to work independently, so I will do your job for only $190,000. In a word, XYZ says \"\"Yes\"\" and hands over a cheque for $190,000. G spends $160,000 on the usual actors, cameramen, editing, etc, and uses 2 months of G's own time, and pockets $5000 after tax. G then doesn't get a job for a couple months, and then gets three more in the new year. Because the commercial for XYZ was so good, XYZ gave him another couple to do, for another product line. Eventually G has just enough money coming in that he \"\"hires\"\" a few freelance people for a few weeks here and there ... a cameraman, illustrator, gopher, and so on. Eventually G has enough TV ads solidly booked G can risk actually hiring long-time friend P as a producer. P spends most of her time actually bringing in more work - and it builds from there. Eventually. You have a very busy, well-known in the industry, TV commercial production company with many staff and endless clients (example, say, http://rsafilms.com) It might be at some point in there (say, around year three), G would like to borrow the odd million bucks to basically \"\"help with cashflow.\"\" The answer to that is nothing more than \"\"through business contacts, G knows a wealthy dentist/whoever who is prepared to do that.\"\" But note carefully that at that point, G's company is already very firmly established, famous for doing 20 spectacular animations/commercials, and so on. (Note too that 999 times out of 1000 when this happens, the money evaporates and the dentist D never sees a penny back. In that case G \"\"apologizes\"\".) Only much much later once the company has many, many staff and great cashflow, could the production company actually borrow from a bank, or perhaps from \"\"actual investors\"\", which is more what you have in mind. regarding your four categories. Numbers 1 and 3 are totally wrong; they do not work at all like you are asking. indeed the very simple answer is: \"\"borrow money\"\" to start a category 1 or 3 type of business. It's totally inconceivable. (The only exception would be if you literally just have an extremely rich Uncle, who loans you a few million to \"\"start an animation studio\"\" - which would be completely whacky. Because in that example: company XYZ could not care less if you \"\"have\"\" an animation studio (ie: your Uncle has given you a platinum card, and you bought a building, some drawing pads, and a few dozen Macs). XYZ just couldn't care less. All they care about is your folio of work. In this example, RSA would get the job :) ) My guess is you're thinking people somehow magically go around \"\"borrowing money\"\" to get businesses like that started. (Your examples 1 and 3.) The simple answer is they don't and can't - your fears are assuaged! :)\"","It (usually) is better to use Other Peoples Money (OPM) than your own. This is something that Donald Trump has mastered. If you use OPM and something goes wrong you can declare bankruptcy and wipe out that debt. The Donald has done this more than once. At the fantastic low Intrest rates a company would be wasting resources if they only used their own money.","\"Some rich people want to make money without working. So they give their money to a company like Apollo Global Management, and then Apollo Global Management takes the money that they were given and decides how they will turn that money into more money, which they can give back to the person who gave it to them. That money they give back is called return, or \"\"return on investment.\"\" That's how the person who gave the money, makes money -- from return on investment. The company's only real purpose is to make money with the money you give them. The company takes the money and sometimes they let other companies borrow that money, either for a long period of time or short period of time. They have different things called stocks, bonds, commodities and other things that they trade back and forth, and they only hope that they will make money doing it. It is sort of like they are going to work and playing the lottery every day, except, they do a lot of math to try and figure out how they can win the money from other companies as quick as possible. Instead of buying lotto tickets, they are buying those things I mentioned, stocks, bonds, commodities, and other things. By buying or selling these things, they are betting that a company will either make or lose money. It is basically like a game, with you and other people and companies, all as players. You are betting that the other players in the game will either make or lose money, based on what you see other players doing. As a player, you can win big or small, and you can lose big or small. There's a thing called the SEC. To play the game, you have to follow the rules that the SEC makes, or you will end up in jail! They are like the police, they are looking for people who do bad things. When you are older, you can make a lot of money if you work at a company like Apollo, but you can make more money than a lottery winner if you own a company yourself like Apollo.\"","Isn't that uncommon in small business financing/investing. You can structure your capital anyway you wish (relatively speaking). It starts as an equity investment with an option for the founder to buy back equity. Then there is an 8% dividend payment that takes a similar form to preferred stock.","@victor has the most descriptive and basic idea on how this is done. The only thing I would add is that one benefit to real estate is that you can control how much the property is worth. By increasing rents and making the property one of the best in the neighborhood, you increase the value. As for the comment that this is the type of investing that caused the 1929 stock market crash, there are many other aspects that are overlooked. Taking equity out of real estate has been happening long before and after the depression. People do it all the time by taking out home equity loans, just not everyone uses it to purchase another investment.","\"People borrow money all the time to buy a house. Banks will lend money on one (up to 80%, sometimes more), because they consider it an \"\"investment.\"\" If you own a large company and want to expand, a bank or bond issuer will first look at what you plan to do with the money, like build new factories, or whatever. Based on their experience, they may judge that you will earn enough money to pay them back. If you don't, they may \"\"repossess\"\" your factories and sell them to someone who can pay. As protection, you may be asked to \"\"mortgage\"\" your existing company to protect the lenders of the new money. If you don't pay back the money, the lenders get not only your new \"\"factories\"\" but also your existing company.\"","\"There are many flaws with your idea. Say I want to borrow $225,000.00 to accrue interest on a 1.20% APY account. I promise ... that I cannot withdraw nor touch the account by legal contract. If you break the contract and lose the money, the lender is out the money. They can take you to court and will win, but if you don't have the money, then they don't get paid. (You can't squeeze water out of a rock even if a judge orders you to.) By sharing the interest with me on a loan, they keep a percentage that they'd normally get... If you're \"\"investing\"\" the money at 1.2%, and the lender gets some amount less than that, then they are getting much less than they \"\"normally\"\" get. Lenders typically get somewhere from 5-15% on loans. The money can also be used to fund a stock/trading account. Regardless of whether I profit, I pay interest on the loan and split the profit shares 24/7. How can the lender lose with legal enforcing? Again, if you lose the money, no amount of legal enforcing can force you to pay money that you don't have. Even if you go to jail for fraud the lender still doesn't get paid. Simply, no bank would ever agree to this.\"","\"JoeTaxpayer's answer adequately explained leverage and some of your risks. Your risks also include: The firm's risk is that you will figure out a way to leave them with a negative account that contributes to another customer's profit and yet you disappear in a way that makes the negative account impossible to collect. Another risk is that you are not who you say you are, or that the money you invest is not yours. These are called \"\"know your customer\"\" risks.\"","\"It's called leverage. Here's an example from real estate. The underlying appreciation on a house in certain parts of America is something like 7% a year. So if you bought the house \"\"all cash,\"\" your return would be something like 7% a year. (Actually, a little more, because of the rent you would be collecting, or saving, if you were the \"\"renter.\"\") Suppose you buy the same house, 20% down, 80% mortgage. The rent pays for your mortgage, taxes, insurance, etc. like it is supposed to. The house goes up the same 7% each year. But now your rate of return is 35%, that is 7%/20% (your down payment). You get the whole appreciation but put up only 20% of the money. The bank (and your renter) did the rest.\"","I've been to one of these seminars: a) you can get a loan of up to $700,000 from the company and only have to pay a fixed amount for the use of money, but you have to pay the loan off in nine months. Or b) you can just invest say $50,000 and you'll get a return of say 4%. But what the company does is take all of the investor's money and use that to fund the loans (putting none of the company’s money at risk), and that fixed amout sounds reasonable until you realize that it's only for a part of the year so the real APY is actually much higher than the conventional lending rate; or the rate they are paying the investors.","It requires fairly large levels of capital, but what about seed funding/angel investments in startups? This would be before venture capital gets involved, so the amounts are relatively low (tens of thousands, vs. millions of USD), but as valuations this early in the game are also low, you can get a significant portion of equity in a startup that you feel is being run by good people and is in a promising market. Paul Graham of Y-Combinator has a number of articles about this from both sides of the table that you can take a look at and see if this is for you. It's definitely very high-risk, but if you can pick successful startups before their valuation shoots up, get some equity, help them succeed, and they eventually go public or get acquired, you can stand to bring in some big returns. Note that this isn't a hands-off investment. You'll need to build connections in the startup community, and it isn't uncommon for angel investors to become involved in the day-to-day operations of the businesses in which they invest.","\"You're probably not going to be able to get a loan from any kind of bank if your credit is bad. On top of bad credit if you don't own a home or car that only decreases your chances of getting a loan. On top of all this you don't have a job. I don't mean to be blunt but I don't see any way you could get a loan from a bank of any kind. Also what makes this business a good investment? Have you read over the business plan? Have you looked over financials to see what your investment would be helping with? Are you familiar with the legality of the business and make sure they have proper documentation. There's no guarantees in business and you saying there's all this free money out there is honestly not true. Do your homework, don't just throw your money into something because there is \"\"free money\"\". Also money and friends is not kosher at all i would not suggest borrowing that kind of money from anyone close to you. One last question, will you be a part owner in this business if you invest this kind of money?\"","This can be best explained with an example. Bob thinks the price of a stock that Alice has is going to go down by the end of the week, so he borrows a share at $25 from Alice. The current price of the shares are $25 per share. Bob immediately sells the shares to Charlie for $25, it is fair, it is the current market price. A week goes by, and the price does fall to $20. Bob buys a share from David at $20. This is fair, it is the current market value. Then Bob gives the share back to Alice to settle what he borrowed from her, one share. Now, in reality, there is interest charged be Alice on the borrowed value, but to keep it simple, we'll say she was a friend and it was a zero interest loan. So then Bob was able to sell something he didn't own for $25 and return it spending $20 to buy it, settling his loan and making $5 in the transaction. It is the selling to Charlie and buying from David (or even Charlie later, if he decided to dump the shares), without having invested any of your own money that earns the profit.","\"Do you need the capital? If you not, are you considering taking it to help you grow faster? To lower your downside risk? In terms of deal structure start with your financial model and evaluate your payback period and IRR... Think if you were investor how much of a split would you need to compensate the risk you are taking. Generally the investor will want to get 100% of their original investment paid back plus a annual 8% \"\"preferred\"\", return and after they are made whole 80% of proceeds, but I've seen restaurant deals at 50/50 splits and no preferred return. I'd try to ensure you get a salary and/or management fee. Make sure you retain control and rights! Don't sign anything without legal review.\"","You could think of points 1 and 3 combined to be similar to buying shares and selling calls on a part of those shares. $50k is the net of the shares and calls sale (ie without point 3, the investor would pay more for the same stake). Look up convertible debt, and why it's used. It's basically used so that both parties get 'the best of both world's' from equity and debt financing. Who is he selling his share to in point 2 back to the business or to outside investors?","If you are looking for money to speculate in the capital markets, then your brokers will already lend to you at a MUCH more favorable rate than an outside party will. For instance, with $4,000 you could EASILY control $40,000 with many brokers, at a 1% interest rate. This is 10:1 leverage, much like how US banks operate... every dollar that you deposit with them, they speculate with 10x as much. Interactive Brokers will do this for you with your current credit score. They are very reputable and clear through Goldman Sachs, so although reputable is subjective in the investment banking world, you won't have to worry the federal government raiding them or anything. If you are investing in currencies than you can easily do 50:1 leverage as an American, or 100:1 as anyone else. This means with only $400 dollars you can control $40,000 account. If you are investing in the futures market, then there are many many ways to double and triple and quadruple your leverage at the lowest interests rates. Any contract you enter into is a loan from the market. You have to understand, that if you did happen to have $40,000 of your own money, then you could get $4,000,000 account size for speculating, at 1% interest. Again, these are QUICK ways to lose your money and owe a lot more! So I'd really advise against it. A margin call in the futures market can destroy you. I advise you to just think more efficiently until you come up with a way to earn that much money initially, and then speculate.","If you are trying to invest in closely held / private companies (things that don't trade on the stock market), you will run into a variety of regulatory problems. For various reasons, most private companies only raise funds with accredited investors. To be an accredited investor you basically have to have $1,000,000 in net worth - NOT including your primary residence, OR you have to make over $200,000 a year for the last two years and expect to keep making that much. This is a class distinction the Federal government created, you will see different but similar wealth and investment classes worldwide. So your best most organized opportunities are left out, unless you do qualify as an accredited investor. There are tons of other companies, things you will find locally, that will let you invest in their smaller time operations. (Think like a local yoga studio looking for $20,000 and willing to split the profits with you). But the problem here is lack of accountability, where partners skip town or just stop answering your calls, and the legal remedies cost you more than your claim. That being said there are people that provide capital to smaller publicly traded companies on the bulletin boards and pink sheets. They have opportunities do much better than the actual stock market investors in these companies, because you can negotiate contracts that let you cash out in their inevitable financing death spirals with very little risk to you. You can do these things as an individual or as a holding company, but the holding company will limit your liability to the amount your holding company invested, instead of your personal assets, in case your financing starts to incur liability with the company.","\"As for the letting the \"\"wise\"\" people only make the decisions, I guess that would be a bit odd in the long run. Especially when you get more experienced or when you don't agree with their decision. What you could do, is make an agreement that always 3/4 (+/-) of the partners must agree with an investment. This promotes your involvement in the investments and it will also make the debate about where to invest more alive, fun and educational). As for the taxes I can't give you any good advice as I don't know how tax / business stuff works in the US. Here in The Netherlands we have several business forms that each have their own tax savings. The savings mostly depend on the amount of money that is involved. Some forms are better for small earnings (80k or less), other forms only get interesting with large amounts of money (100k or more). Apart from the tax savings, there could also be some legal / technical reasons to choose a specific form. Again, I don't know the situation in your country, so maybe some other folks can help. A final tip if your also doing this for fun, try to use this investment company to learn from. This might come in handy later.\"","Let's suppose your friend gave your $100 and you invested all of it (plus your own money, $500) into one stock. Therefore, the total investment becomes $100 + $500 = $600. After few months, when you want to sell the stock or give back the money to your friend, check the percentage of profit/loss. So, let's assume you get 10% return on total investment of $600. Now, you have two choices. Either you exit the stock entirely, OR you just sell his portion. If you want to exit, sell everything and go home with $600 + 10% of 600 = $660. Out of $660, give you friend his initial capital + 10% of initial capital. Therefore, your friend will get $100 + 10% of $100 = $110. If you choose the later, to sell his portion, then you'll need to work everything opposite. Take his initial capital and add 10% of initial capital to it; which is $100 + 10% of $100 = $110. Sell the stocks that would be worth equivalent to that money and that's it. Similarly, you can apply the same logic if you broke his $100 into parts. Do the maths.","Leverage is when you borrow in order to invest. Mind you, most people aren't going to just give you money to gamble on the stock market completely unsecured; rather, you deposit (say) $10,000 and buy a stock... and then you have $10k in assets which you can borrow against, so you can buy another $10,000 of that stock. Now if the stock goes up you'll make twice the gain (2x leverage). However, if it goes down, you'll lose twice as much as well. If the value of your stock falls, your line of credit will be reduced as well; in this case, since you used all your credit and are now over your limit, your broker will issue a margin call (they will demand a deposit of additional funds, or they will sell some of your stock at their discretion). This protects you from owing more than you invested, but it's still sometimes possible (for instance, if a company spontaneously goes bankrupt and becomes worthless, and your stock becomes worthless). There are also things like leveraged index funds and commodity funds which aim to return some multiple of the market's earnings. These are designed for intraday trading, though, and usually end up underperforming significantly over the long term. [edit] Mose people who accept borrowed funds should generally accept real cash as well. However, if you're trying to short sell, i.e. borrow shares and sell them (in the hopes you can get them back cheaper later after the stock falls) you will need a margin line of credit to do so as well. [edit 2] clarified margin calls","I think you're looking at the picture in an odd way. When each of you made your initial investments and determined what portions you owned, that gave the company capital that they could use to finance its operations. In return, you are entitled to the future profits of the company (in proportion to your ownership). Any future investment by either of you is at your own discretion. Your company now faces a situation where it would like to pursue a potentially lucrative opportunity, but needs more capital than it has to do so. So, you need to raise more capital. That capital can come from one or both of you (or from an outsider). Since that investment would be discretionary, what the investor gets is a negotiation: the company negotiates with the investor how much equity (in the form of new shares) to award in exchange for the new investment (or whatever other compensation you decide on, if not equity).","...is investing in a business you believe in a bad strategy? I'm not saying you're going to be right with your investment (obviously your judgment is coming into play), but you make it sound like it's a terrible way to do things. Is it?","This is certainly possible. There are lots of strategies that involve taking out loans to invest. However, they are all high risk strategies. There's a school district for a major US city that was able to get incredibly favorable loan terms because their repayment was assured by law. They borrowed a bunch of money and put it into a variety of sure things insured by reliable companies like Lehman Brothers. You can figure out the rest.","Pool their money into my own brokerage account and simply split the gains/losses proportional to the amount of money that we've each contributed to the account. I'm wary of this approach due to the tax implications and perhaps other legal issues so I'd appreciate community insight here. You're right to be wary. You might run into gift tax issues, as well as income tax liability and appropriation of earnings. Not a good idea at all. Don't do this. Have them set up their own brokerage account and have them give me the login credentials and I manage the investments for them. This is obviously the best approach from a tracking and tax perspective, but harder for me to manage; to be honest I'm already spending more time than I want to managing my own investments, so option 1 really appeals to me if the drawbacks aren't prohibitive. That would also require you to be a licensed financial adviser, at least to the best of my understanding. Otherwise there's a lot of issues with potential liability (if you make investments that lose money - you might be required to repay the losses). You should do this only with a proper legal and tax advice - from an attorney and/or CPA/EA licensed in your state. There are proper ways to do this (limited partnership or LLC, for example), but you have to cover your ass-ets with proper operating agreements in place that have to be reviewed by legal counsel of each of the members/partners,","\"With (1), it's rather confusing as to where \"\"interest\"\" refers to what you're paying and where it refers to what you're being paid, and it's confusing what you expect the numbers to work out to be. If you have to pay normal interest on top of sharing the interest you receive, then you're losing money. If the lending bank is receiving less interest than the going market rate, then they're losing money. If the bank you've deposited the money with is paying more than the going market rate, they're losing money. I don't see how you imagine a scenario where someone isn't losing money. For (2) and (3), you're buying stocks on margin, which certainly is something that happens, but you'll have to get an account that is specifically for margin trading. It's a specific type of credit with specific rules, and you if you want to engage in this sort of trading, you should go through established channels rather than trying to convert a regular loan into margin trading. If you get a personal loan that isn't specifically for margin trading, and buy stocks with the money, and the stocks tank, you can be in serious trouble. (If you do it through margin trading, it's still very risky, but not nearly as risky as trying to game the system. In some cases, doing this makes you not only civilly but criminally liable.) The lending bank absolutely can lose if your stocks tank, since then there will be nothing backing up the loan.\"","Most likely, this will not work they way you think. First things first, to get a loan, the bank needs to accept your collateral. Note that this is not directly related to the question what you plan to do with the loan. Example: you have a portfolio of stocks and bonds worth USD 2 million. The bank decides to give you a loan of USD 1 million against that collateral. The bank doesn't care if you will use the loan to invest in foreign RE or use it up in a casino, it has your collateral as safety. So, from the way you describe it, I take it you don't have the necessary local collateral but you wish to use your foreign investments as such. In this case it really doesn't matter where you live or where you incorporate a company, the bank will only give you the loan if it accepts the foreign collateral. From professional experience with this exact question I can tell you, there are very few banks that will lend against foreign property. And there are even less banks, if any, that will lend against foreign projects. To sum it up: Just forget banks. You might find a private lender to help you out but it will cost you dearly. The best option you have is to find a strategic partner who can cough up the money you need but since he is taking the bigger risk, he will also take the bigger profit share.","\"The applicants go through the same process as for any other loan. The only difference is that the \"\"bank\"\" is people like me, perhaps 200 of us on a note. We kick in $25 or so on each note and get the opportunity to ask the applicant questions. The investors pay a small percentage as fees to have professionals rate the notes. The worse the credit, the higher the interest rates the note holder recieves. Of course if the person stops paying, we receive nothing. Calculated risk. I invest in high risk notes sometimes depending on what it's for and have several in my portfolio. It's literally microlending. I can afford to lose $25 on a risky loan or two for a 19% profit because the rest of my portfolio is diversified into hundreds of 9-11% notes. It works surprisingly well.\"","\"I have a friend who had went on a seminar with FortuneBuilders (the company that has Than Merrill as CEO). He told me that one of the things taught in that seminar was how to find funding for the property that you want to flip. One of the things he mentioned was that there are so-called \"\"hard money\"\" lenders who are willing to lend you the money for the property in exchange for getting their name on the property title. Last time I checked it looked like here in Florida we had at least Bridgewell Capital and Fairview Commercial Lending that were in that business. These hard money lenders get their investment back when the house is sold. So there is some underlying expectation that the house can be sold with some profit (to reimburse both the lender and you for your work). That friend of mine did tell me that he had flipped a house once but that he did not receive the funding to that from a lender but from an in-law, however it was through a similar arrangement.\"","Your basic assumption is incorrect. You don't normally go to a bank to borrow money to invest, but brokerages do it all the time. It is called trading on margin.","\"As others have said: unless you can find someone willing to make a zero-interest loan, the answer is no. If you can figure out how to turn a \"\"0% for first N months\"\" credit card offer onto a leveraged investment or something of that sort -- seems unlikely -- maybe.\"","When I invest in a business valued at $50,000, I pay $25,000 and receive 50% equity. Does that $25,000 go to the current owner of the business, or into the capital of the business itself? Who receives the money depends on who is selling you the equity. There are a couple of different scenarios that can fit your question. You could buy existing shares from the current owner(s) of the company. In this case, the current owner(s) would be receiving the funds from you, and in return giving you their stake in the company. So if you all agree that the value of the business is $50,000, and you give $25,000 to the current owner(s), they give you half of their shares. The value of the company has not changed. The company could be issuing new shares. This is called stock dilution, or an increase in authorized share capital. Let's say that everyone agrees that the value of the business is $50,000. The company could create new shares and sell them to you for $25,000. In this case, the value of the company has jumped to $75,000; you now control one-third of the company, and the existing owner(s), who previously owned 100% of the company, now only own two-thirds. In order for you to end up with 50% of the company in this case, you would have to invest $50,000 instead, which would result in the company being valued at $100,000. If you are wondering why the current owners would agree to this second scenario, there are two questions that address this:","Companies in their earliest stages will likely not have profits but do have the potential for profits. Thus, there can be those that choose to invest in companies that require capital to stay in business that have the potential to make money. Venture Capital would be the concept here that goes along with John Bensin's points that would be useful background material. For years, Amazon.com lost money particularly for its first 6 years though it has survived and taken off at times.","I totally understand where you come from and what you mean. And yes I would be partnered in this business since I would be the sole (there's only gonna be one) investor. The guy can't keep up demand and he doesn't wanna export is what my friend - his sister - told me so he's looking to find an investor. And I know it isn't free money since technically I would be investing and resorting the benefits of said investment. However, it would be tax-free afaik but even if it weren't I'd still be partnered with him and his business","\"Private equity firms have a unique structure: The general partners (GP's) of the firm create funds and manage the investments of those funds. Limited partners (LP's) contribute the capital to the funds, pay fees to the GP's, and then make money when the funds' assets grow. I believe the article is saying that ultra high net worth individuals participate in the real estate market by hiring someone to act as a general partner and manage the real estate assets. They and their friends contribute the cash and get shares in the resulting fund. Usually this GP/LP structure is used when the funds purchase or invest in private companies, which is why it is referred to as \"\"private equity structure,\"\" but the same structure can be used to purchase and manage pools of real estate or any other investment asset.\"","It's clearly a risk, but is it any different than investing in your own business? Yes, it is different. If you own a business, you determine the path of the business. You determine how much risk the business takes. You can put in extra effort to try to make the business work. You can choose to liquidate to preserve your capital. If you invest without ownership, perhaps the founder retains a 50% plus one share stake, then whomever controls the business controls all those things. So you have all the risks of owning the business (in terms of things going wrong) without the control to make things go right. This makes investing in someone else's business inherently riskier. Another problem that can occur is that you could find out that the business is fraudulent. Or the business can become fraudulent. Neither of those are risks if you are the business owner. You won't defraud yourself. Angel investing, that is to say investing in someone else's startup, is inherently risky. This is why it is difficult to find investors, even though some startups go on to become fabulously wealthy (Google, YouTube, Facebook, Twitter, etc.). Most startups fail. They offer the possibility of great returns because it's really hard to determine which ones will fail and which will succeed. Otherwise the business would just take out the same loan that Jane's getting, and leave Jane out of it.","\"There are three (or four) ways that a company can grow: (Crowdfunding is a relatively new (in mainstream businesses) alternative financing method where people will finance a company with the expectation that they will benefit from the product or service that they provide.) Obviously a startup has no prior income to use, so it must either raise money through equity or debt. People say that one must borrow contingent on their salary. Banks lend money based on the ability to pay the loan back plus interest. For individuals, their income is their primary source of cash flow, so, yes, it is usually the determining factor in getting a loan. For a business the key factor is future cash flows. So a business will borrow money, say, to buy a new asset (like a factory) that will be used to generate cash flows in the future so that they can pay down the debt. If the bank believes that the use of the money is going to be profitable enough that they will get their money back with interest, they'll loan the money. Equity investors are essentially the same, but since they don't get a guaranteed payback (they only get paid through non-guaranteed dividends or liquidation), their risk is higher and they are looking for higher expected returns. So the question I'd have as a bank or equity investor is \"\"what are you going to do with the money?\"\" What is your business strategy? What are you going to do that will make profits in the future? Do you have a special idea or skill that you can turn into a profitable business? (Crowdfunding would be similar - people are willing to give you money based on either the social or personal benefit of some product or service.) So any business either starts small and grows over time (which is how the vast majority of businesses grow), or has some special idea, asset, skill, or something that would make a bank willing to take a risk on a huge loan. I know, again, that people here tend to turn blind eyes on unfortunate realities, but people do make giant businesses without having giant incomes. The \"\"unfortunate reality\"\" is that most startups fail. Which may sound bad, but also keep in mind that most startups are created by people that are OK with failing. They are people that are willing to fail 9 times with the thought that the 10th one will take off and make up for the losses of the first 9. So I would say - if you have some great idea or skill and a viable strategy and plan to take it to market, then GO FOR IT. You don't need a huge salary to start off. You need something that you can take to market and make money. Most people (myself included) either do not have that idea or skill to go out on their own, or don't have the courage to take that kind of risk. But don't go in assuming all you need is a loan and you'll be an instant millionaire. You might, but the odds are very long.\"","Sounds like you are starting an investment club. What you need is an investment club partnership agreement. Have a look at this free document. EDIT Based on OP's comments, it appears that the OP will be acting as an adviser/manager of a private investment fund. If the fund is not open to the public, it may still be treated as a type of investment club, but different rules -- including possibly having to register with the SEC -- may apply (quoted from the first link): If the adviser is compensated for providing the advice regarding the club's investments, the adviser may need to register according to the Investment Advisers Act of 1940. Also, if one person selects investments for the club, that person may have to register as an investment adviser. In general, a person who has $25 million or more in assets under management is required to register with the SEC under the Investment Advisers Act of 1940. A person managing less than $25 million may be required to register under the securities laws of the state or states in which the adviser transacts business.","Here are the basic questions I usually ask any new business startup: Do these numbers/answers seem reasonable to you and is some benchmark available that allows you to see how likely this is? Remember, particularly in Internet-based advertising ventures, the client may be indirect. The person who clicks on a Google context-based link is not directly Google's client. The person who decided to host AdWords code on their site is the direct client. You're also going to want to see a Gant chart or some process chart indicating exactly what needs to be done, at what cost and by whom. Answers to these questions give a sense of not only how seriously they are taking the business, but also how organised. My final question: who is your first client? They need either someone who is going to contract the service, or have a clear indication of where income is going to come from, on their first day of trading. Their task is to sell their idea to you by proving that it will return on your investment and be profitable. From the strength of these answers you can gauge the value of your investment to them, how critical it is, how risky the opportunity and - ultimately - the stake and returns you should expect.","In addition to evaluating the business (great answer), consider the potential payoff. If bonds pay off in the 5-10% range, the S&P500 has averged 10.5%. You should be expecting a payoff of 15-20% to invest in something riskier than the stock market. That means that if you invest $10k, then in 5 years you'll need to get out $25K (20% returns over 5 years). If you get less than this much in 5 years, the risk-to-reward ratio probably rules this out as a good investment.","Sales are useless. Profit determines value. Others made good suggestions, but make sure you don't personally guarantee anthing. Understand your requirements to continue having the investor involved. Understand who has approval authority and decision making authority, ie are you a hired gun or the managing owner? Finally, probability of success is low, so do your homework, bust your ass, and understand when you will wall away (ie if you aren't profitable in 3 years, or below $500k in rev, etc)","\"Investing in a business can be daunting and risky, so it is not for everyone. The most common pitfalls are mentioned here: Beyond that: It all sounds a bit like \"\"Don't trust anyone\"\" and sadly, this is true when there's a lot of money involved. So be prepared and do your homework, this sometimes will save you more money than you gain with your investments :) Good luck!\"","Sometimes invested capital is expected to earn interest, I've seen this be a stipulation in LLC operating agreements and Corporate bylaws. I thought this arrangement looks a little less than fair. BTW I'm a college freshman, though I do the finances for my parents' regulatory compliance and governance consulting company. Anyhow, that's just my two cents.","The role of business investors differs greatly within different organisations. If you are starting a business or already have a small business, business investors can be a key tool to get your business of the ground. Business investors give money to small businesses or start-ups in exchange for ownership in a part of the company.","\"It'll be just like any other loan you make, on your end, and receive, on your LLC's end. You pay taxes on the interest received, and your LLC can deduct the interest paid. Do make sure you set it up properly, however: If you want to loan money to your business, you should have your attorney draw up paperwork to define the terms of the loan, including repayment and consequences for non-repayment of the loan. It should be clear that the loan is a binding obligation on the part of the company. As a recent Tax Court case notes, the absence of such paperwork negates the loan. For tax purposes, the loan is an \"\"arms length\"\" transaction, being treated like any other debt. From: http://biztaxlaw.about.com/od/financingyourstartup/f/investinbusiness.htm\"","Disclaimer: I’m not an expert. This is my basic understanding, which I’m sure someone will be glad to tell is horribly wrong... You need an LLC. Many people in my area create an LLC management company, then create individual LLCs for each investment property. Laws vary by state. YMMV Then you start researching properties. Commercial loans typically require a higher equity position than home ownership. Assume minimum 30%. For ease of this conversation let’s say you’re making the horribly poor decision to put that towards a single property. You’d be looking for a property in the 175-200k value range, because you’ll need to account for settlement expenses (attorney, broker, consultants) and a cash reserve. You’d be also be looking for what the average cap rate is for your market. In simplistic terms cap rate is the expected rate of return after expenses. So if the average market cap rate in that region for comparable properties is 5%, you can expect around 5% return on your investment, after you pay fees, maintenance, taxes, insurance, interest, etc. Buy a property and hold that property for a few years, making money every year, and claiming deductions on your earnings for something called depreciation. Fast forward 5 years and you’re ready to sell, the value of your property went up because you made improvements along the way, brought in some better tenants who are paying higher rents, and now you can offer a better cap rate than your competitors. You sell in the blink of an eye, and double your investment. Say you have $500k now sitting in the bank in you LLC’s name, in cash. You can either choose to cash out 100% and pay capital gains tax on your earnings above your basis (at 15% I think?)... OR you can quickly find a new property with that $500k, purchase it, and file a 1031, which says you don’t have to pay ANY capital gains on those earnings. You just increased income significantly without ever paying taxes on the underlying increase in value of your assets. Rinse and repeat for 25 years, develop a portfolio of properties, create a management company so you can stop paying others a percentage of your earnings, and you too can have the problem of too much money. I welcome anyone with actual knowledge of the topic to please expound on, or correct me.","I don't see why not. Many ways this could go. Perhaps you can arrange an agreement where you earn 50% of profits over the basic operating costs. This gives them an incentive to let you open it up. This gives you a chance to see if the business actually makes sense financially... It may not.","\"I have a basic rule: it is the \"\"business\"\" guy's responsibility to raise the money. If they can't do it, then they are incompetent, and the \"\"tech\"\" guy should avoid them. Generally speaking, the business side needs to be able to identify and validate the market opportunity, define the product, handle sales and marketing and raise the money. The tech side needs to translate the product definition into a technical solution and build it. If you have programming skills, you have plenty of options, and should not partner with people who can't do their part. You can probably handle the business side of things as well, though there is a difference in skill and temperament. Find someone who is as good or better at the business side than you are at programming.\"","\"It sounds like maybe you want an \"\"investment club\"\". As defined by the SEC: An investment club is a group of people who pool their money to make investments. Usually, investment clubs are organized as partnerships and, after the members study different investments, the group decides to buy or sell based on a majority vote of the members. Club meetings may be educational and each member may actively participate in investment decisions. These \"\"typically\"\" do not need to register: Investment clubs usually do not have to register, or register the offer and sale of their own membership interests, with the SEC. But since each investment club is unique, each club should decide if it needs to register and comply with securities laws. There's more information from the SEC here: http://www.sec.gov/investor/pubs/invclub.htm The taxes depend on how you organized the club, i.e. if you organize as a partnership, I believe that you will be taxed as a partnership. (Not 100% sure.) Some online brokerages have special accounts specifically for investment clubs. Check around.\"","\"This will happen automatically when you open an interest-bearing account with a bank. You didn't think that banks just kept all that cash in a vault somewhere, did you? That's not the way modern banking works. Today (and for a long, long time) banks will keep only a small fraction of their deposits on hand (called the \"\"reserve\"\") to fund daily withdrawals and other operations. The rest they routinely lend out to other customers, which is how they pay for their operations (someone has to pay all those tellers, branch managers, loan officers) and pay interest on your deposits, as well as a profit for their owners (it's not a charity service). The fees charged for loan origination, as well as the difference between the loan interest rate and the deposit rate, make up the profit. Banks rarely hold their own loans. Instead, they will sell the loans in portfolios to investors, sometimes retaining servicing rights (they continue to collect the payments and pass them on) and sometimes not (the payments are now due to someone else). This allows them to make more loans. Banks may sometimes not have enough capital on hand. In this case, they can make inter-bank loans to meet their short-term needs. In some cases, they'll take those loans from a government central bank. In the US, this is \"\"The Fed\"\", or the Federal Reserve Bank. In the US, back around the late 1920's, and again in the 1980's some banks experienced a \"\"run\"\", or a situation where people lost confidence in the bank and wanted to withdraw their money. This caused the bank to have insufficient funds to support the withdrawals, so not everyone got their money. People panicked, and others wanted to take their money out, which caused the situation to snowball. This is how many banks failed. (In the '80s, it was savings-and-loans that failed - still a kind of \"\"bank\"\".) Today, we have the FDIC (Federal Deposit Insurance Corporation) to protect depositors. In the crashes in the early 2000's, many banks closed up one night and opened the next in a conservatorship, and then were literally doing business as a new bank without depositors (necessarily) even knowing. This protected the consumers. The bank (as a company) and its owners were not protected.\"","Set up a company or partnership. Generally what you describe is a classic partnership. In the US - the partnership itself is not taxed (as opposed to a corporation), and each partner is taxed separately on the distributions. That is, the partners as a whole will be taxed on the income of one, if it is distributed through the partnership. Exactly what you want. Do consult with a tax adviser familiar with the Federal and the State laws with the specifics of setting it up and managing it, maybe you'll get a better advice from a professional (which I am not, of course).","You're really confused. You need to go back to finance 101 about the concept of corporation and shareholders This is too much to take apart (i.e.: contribution is not a loan, and can't be called. Shareholders are not partners......). Sorry bro, not trying to burst your bubble, but any academic business finance 101 book or OpenCourseWare will cover this and more.","\"As others have pointed out, leveraged investing is investing borrowed money. To do so, you need to convince a lender that you're good for the loan. This usually means you need to have collateral worth what you're trying to borrow, or you need to pay a higher rate to account for the fact that they're gambling that you will remain employed and pay off the loan. Leveraged investing is, in general, a risky move for exactly this reason. You can lose not just your original investment, but everything you borrowed as well. The only time it really makes sense, in my admittedly conservative opinion, is when you (a) can afford to suffer that loss, (b) are pretty confident of your investment, and (c) have assets which you have no intention to sell for the duration of the loan. An \"\"unneeded\"\" mortgage on a house is a classic example, thusly: When I purchased my house, I had enough savings that I could have bought it without taking a mortgage. Instead, I took out a mortgage for a large part of that, and left the remainder in my investment accounts -- essentially building the leveraging loan into the mortgage. I then got obscenely \"\"lucky\"\" when interest rates fell through the floor due to the Great Recession, and was able to refinance the mortgage to near record low rates. As a result, on that loan -- which, as I say, I'm in the position of being able to pay off at any time without killing my finances -- I'm currently paying about 3.5%, while the cash this has let me leave in my investments is earning several times that... a net win. But again, note that this required collateral. Essentially, all I'm doing is paying a bit to to borrow my own money (part of the value of the house). There really is no easy way to \"\"convert 25k to 250k\"\" -- if there was, everyone would be doing it. There's no magic in investment. Just time and compounding returns and trading off risk against potential gain. The more you try to push it and win big, the more you risk losing big. I really recommend not attempting anything fancy until you're wealthy enough that you can afford those losses. But if you insist on playing in this space, the answer to your question is to buy options. Options are a packaged form of borrowing to invest. Note that they're still considered high-risk unless you know EXACTLY what you're doing, and again I strongly recommend you not put money into them unless you can afford to lose it -- options have a nasty habit of turning from apparent gains on paper to losses remarkably quickly.\"","\"Nothing wrong with the other answers, but here's a \"\"trick\"\" to hopefully make it totally transparent. Imagine that you're not the one implementing this business plan, but someone else is. Let's call this other person your asset manager. So on the first day, you give your asset manager $9. He takes this and generates $1 profit from it, recovering the $9 which he then reinvests to generate $1 profit every day. From your perspective, you just gave him $9. At the end of the year, he gives you $365 in addition to your original investment of $9 (in real life he'd take the fees of course, or perhaps he's been lending out the money he's been accumulating and taking the interest from that as pay for his services). So your return on investment is 365 / 9 * 100 % > 4000 %, as claimed by your source.\"","\"There is no one solution to every project finance problem. Two models might make sense in this situation, however. In this case, you would count all the money that you give to your friend as a loan which he will pay back with interest. The interest rate and loan amounts will have to be agreed on by both of you. One one hand, the interest should be high enough to reward you in a successful outcome for the amount of risk that you take on if things don't work out. On the other, the interest rate needs to be low enough where his earnings after loan repayment justify your friend's effort, in addition to being competitive to ant rate your friend could secure from a bank. The downside to this plan is you don't directly benefit from the franchise's profits. In this model, you will record the cash that each of you invests. Since your friend is also adding \"\"sweat equity\"\" by setting up and operating the franchise, you will need to quantify the work that your friend and you invest into the franchise. Then you can determine how much each of you has invested in terms of dollars and split any franchise profits based on those proportions. The downside of this plan is that it is difficult to estimate how much time each of you invests and how much that time is worth.\"","So you think there is a business that can take $X and in two weeks turn it into $10X plus their profit. That means that in two weeks you can turn $1,000 into $10,000. So every two weeks you add a zero, in six weeks you add 3 zeros. In 12 weeks total your $1,000 is now $1,000,000,000; and in a few weeks after that you are richer than Bill Gates. All Guaranteed! Run away.","The biggest concern is how you get $250,000 in unsecured credit. It's unlikely that you will be loaned that amount at a percentage lower than what you expect to earn. Unsecured credit lines are rarely lower than 10% and usually approach 20%. On top of that, for a bank to approve you for that credit line, you have to have a high credit score and an income to support the payments on that credit line. But lets suspend disbelief and assume that you can get the money you want on loan. You would then be expected to pay back that 10%, but investments don't go up uniformly. Some years they go up 15-20% and other years they go down 10%. What do you do if you have to sell some of your investments in a down year? That money is no longer invested, and you can't recover it with the following up year because you had to take too much out to cover the loan payments. You'll be out of money long before the loan is repaid because you can expect there will be bad years in the stock market that will eat away at your investment. There were a lot of people who took their money out of the market after the crash of 2008. If they had left their money in through 2009, they would have made all that money back, but if you have a loan to pay you have to pull money out in the bad years as well as the good years. Unless you have a lucky streak of all good years, you're doomed.","I disagree. When you start giving that person money to invest, you are made very much aware that there is no guarantee that your investment will see a return or that you will ever see it again. As long as the person managing your funds didn't do anything illegal to lose your money, then he was just doing his job as **both** the investor and he agreed upon.","Okay I will asap. And yes, to getting the business off the ground. I've done all the marketing and will be for some time to come. Not just sweaty hands, but also ideas that shape our marketing strategies and also bringing in loyal customers that I personally know who are going to be consistent with us. But I'll talk to a lawyer and have that figured out. I just dont want to get screwed over and I'm new to this being only 19 so.","There is a fundemental misunderstanding: the business and the owner are not the same entity. You said: I give the business $25,000 and take 50% of the business. No you can give the owner of the business 25K, and now he has 25K and 50% of a 50K business. That 25K sits in Mr. Smith's bank account, not Acme Widget's account. A more simple example is when you buy a car. The money goes to the car dealership, it does not get put into the car's glove box. You may be thinking of an investor in a business. He could pump $$ into the business as operating capital for a share of the business. In that case, it would be a bit unfair to get 50% of the business for a 25K. However, the owner may be interested in doing such a deal because value of the investor can add more than just $$ to the business. Having a celebrity investor might do more good for the business than the actual dollars. Another situation is that the owner might be desperate. Without a influx of cash the whole business might end. There are guidelines to business evaluation, but valuing them is not an easy thing.","Typically you give a loan to the company from yourself as a private person, and when the company makes money the company pays it back to you. Then the company pays for all the expenses with the money from the loan. Even if you don't want a business account yet, you can probably ask your bank for a second account (mine in the UK did that without any problems).","\"Most personal loans in the US are for the purpose of purchasing some tangible object (usually a house or car) and that object is the collateral for the loan. Indeed, the loan proceeds are usually paid directly to the seller without passing through the bank account of the borrower, and the seller delivers the title of the car to the lender, or a mortgage lien is recorded on the real property. Except possibly in the case of a refinance of a home mortgage, there is not much cash from such a loan to send to a friend to invest in his business, whether in the US or in India. These types of loans are \"\"relatively easy\"\" to get. Much harder to get are unsecured personal loans. Unless your friend has a very friendly banker, getting an unsecured loan of, say, $20,000 \"\"just for the heck of it\"\" is not easy. Some reasonably well-off people do manage to get such loans and use the money to invest in the stock or bond markets, in which case, the interest paid on such loans can be deducted on Schedule A (but only to the extent of the actual investment income; any extras can be carried over to the next year). So, will your friend be investing in your business or making a loan to your business? and do you anticipate that your business will generate any investment income or interest for your friend? If not, and your friend still wants to finance your business (while making payments on the loan in the US), then your friend must really like you a lot (or have faith that a few years down the road, you will be able to sell your business to GoAppTel for mucho big bucks and pay him off very handsomely).\"","Ponzi schemes (or pyramid schemes) are based on paying earlier investors from the money invested by the later ones. For Ponzi scheme, the idea is generally to distribute some relateviely high consistent dividend/payout based on the inflow of money from new investors. As long as new investors are coming, the scheme can be sustained for quite some time (see the Madoff's example that spanned over decades). In the mean time the scheme operator can take (some of) the investment money to himself (legally as fees and salary, illegally as embezzling). The scheme operator doesn't actually have to put in any money other than some organizational expenses. However, at some point the new investors' money won't be enough to pay all the existing investors (inevitably, sooner or later, since the dividend payout grows with each new investor and there are no infinite exponential amount of new investors to cover for it). That's when the $#!+ hits the fan and sons of the schemers start ending up hanging from the ceiling. Pyramid scheme is built on similar idea, but the dividend payout varies based on the level of the investor (i.e.: the investor gets paid based on how many new ones he brought in, and how many new ones rooted from them). Thus the incentive to bring new investors is directly shifted to the investors themselves. The schemers here are at the top and get the most payouts from all the rest of the participants. They themselves usually put no or very little investment. However, the end result is the same: couldn't possibly be enough investors to sustain this model forever, and it will inevitably fail at some point. When such a scheme fails - the paying fund ends up being bankrupt, either due to cashflow problems (not enough money in to pay money out) or because all the money dries out (usually - both). How to detect - if the reports are not falsified (which in most cases they are) you'll see clearly that there's no actual investment income in the cash-flow. But, the reports are usually falsified to conceal this exact fact. So, that's where the independent auditors and regulatory oversight come in handy. Generally, if an investment fund doesn't have a reputable independent auditor - stay away.","\"Give me your money. I will invest it as I see fit. A year later I will return the capital to you, plus half of any profits or losses. This means that if your capital under my management ends up turning a profit, I will keep half of those profits, but if I lose you money, I will cover half those losses. Think about incentives. If you wanted an investment where your losses were only half as bad, but your gains were only half as good, then you could just invest half your assets in a risk-free investment. So if you want this hypothetical instrument because you want a different risk profile, you don't actually need anything new to get it. And what does the fund manager get out of this arrangement? She doesn't get anything you don't: she just gets half your gains, most of which she needs to set aside to be able to pay half your losses. The discrepancy between the gains and losses she gets to keep, which is exactly equal to your gain or loss. She could just invest her own money to get the same thing. But wait -- the fund manager didn't need to provide any capital. She got to play with your money (for free!) and keep half the profits. Not a bad deal, for her, perhaps... Here's the problem: No one cares about your thousands of dollars. The costs of dealing with you: accounting for your share, talking to you on the phone, legal expenses when you get angry, the paperwork when you need to make a withdrawal for some dental work, mailing statements and so on will exceed the returns that could be earned with your thousands of dollars. And then the SEC would probably get involved with all kinds of regulations so you, with your humble means and limited experience, isn't constantly getting screwed over by the big fund. Complying with the SEC is going to cost the fund manager something. The fund manager would have to charge a small \"\"administrative fee\"\" to make it worthwhile. And that's called a mutual fund. But if you have millions of free capital willing to give out, people take notice. Is there an instrument where a bunch of people give a manager capital for free, and then the investors and the manager share in the gains and losses? Yes, hedge funds! And this is why only the rich and powerful can participate in them: only they have enough capital to make this arrangement beneficial for the fund manager.\"","What he is saying is, you borrow lots of money and put it into my business and my business will go up in value and therefore between us we are richer. What he doesn't say is, if his business profits are going to pay off the debt you have accrued. We all know the answer to this but his supporters are so blind in their loyalty that they will miss it. Also known as corporate welfare.","There are two fundamental flaws to your plan: Supposing that you can get a loan with an interest rate that is less than the profit you are likely to get from an investment. Historically, the U.S. stock market goes up by 6 to 7% per year. I just did a quick check and found rates for unsecured loans of 10 to 15%. Of course interest rates vary depending on your credit rating and all sorts of other factors, but that's probably a reasonable ball park. Borrowing money at 15% so you can invest it at 6% is not a good plan. Of course you could invest in things that promise higher returns, but such investments have higher risks. If there was a super safe investment that was virtually guaranteed to give 20% profit, the bank wouldn't loan you money at 10 or 15%: they'd put their money in this 20% investment. I don't know what your income is, but unless it's substantial, no one is going to give you an unsecured loan for $250,000. In your question you say you'll use $2,000 of your profits to make payments on the loan. That's less than 0.8% of the loan amount. If you really know a bank that will loan money at 0.8%, I'm sure we'd all like to hear about it. That would be an awesome rate for a fully secured loan, never mind for a signature loan. $250,000 for 10 years at 10% would mean payments of $3,300 per MONTH, and that's about the most optimistic terms I can imagine for a signature loan. You say you plan to lie to the bank. What are you going to tell them? A person doesn't get to be a bank loan officer with authority to make $250,000 loans if he's a complete idiot. They're going to want to know what you intend to do with the money and how you plan to pay it back. If you're making a million dollars a year, sure, they'll probably loan you that kind of money. But if you were making a million dollars a year I doubt you'd be considering this scheme. As TripeHound said in the comments, if it was really possible to get bigger returns on an investment than you would have to pay in interest on an unsecured loan, then everybody would be doing it all the time. Sorry, if you want to be rich, the realistic choices are, (a) arrange to be born to rich parents; (b) win the lottery; (c) get a good job and work hard.","Have you considered social lending (for example: Lending Club)?","\"Why is nobody providing a service that is basically: Give me your money. I will invest it as I see fit. A year later I will return the capital to you, plus half of any profits or losses. This means that if your capital under my management ends up turning a profit, I will keep half of those profits, but if I lose you money, I will cover half those losses. Because they can already make lots of money by just charging people an unconditional fee and not having to cover their losses. Why take on the risk of having to cover your losses when they can just take a percentage of your assets and stick you with any losses? In addition, as Charles E. Grant mentioned in a comment on another answer, if a person has both sufficient capital to cover your losses and sufficient confidence in their investing acumen that they don't think they will have to do so, they have little need for your money. Rather than take half the gains on your money, they will invest their own money (they must have some, or else they can't guarantee your losses) and take all the gains. Your scheme would only be plausible as a partnership between a person with investing skills but little capital, and another person with ample capital and less skill. In that case, the investment whiz could genuinely benefit from access to the bankroller's capital. As quid noted in chat, this does exist in the form of ad-hoc private equity arrangements between individuals. However, such a setup is unlikely to exist as an \"\"off-the-shelf product\"\" marketed at retail investors, because financial institutions have more capital than any individual retail investor -- and, more generally, anyone with sufficient skill to pull this off will (at least in theory) quickly accumulate enough capital that they can negotiate a less risky payment plan.\"","\"Now, my own answer: If you join and receive equity, do the 1/3 split as a max. Truthfully, if it were my company, I would try to negotiate with you to only give you 15%--20% because as an advisor you're not going to be involved in executing the idea to turn it into a business. If you contribute capital, do it as a loan. End of story. You don't own more because you financed growth... you shouldn't. The growth will have come because of the collective performance of the whole team. You should get paid back at a \"\"fair\"\" rate for your investment... if the company can handle it, I would argue something like 10% interest is reflective of the risk you're taking with your money. If the finances are so tight that the interest repayment isn't an option, do the math behind what you should be paid for the loan in interest, and convert that to shares or equity somehow, and get paid back for the invested capital. If the company can't repay your loan, the business model may not be sound enough, or developed enough, to be investing in to begin with.\"","Isn't this absolute bullshit? You're basically giving him 8% interest plus 30% stake in the company for nothing other than putting up the initial shareholder capital ... which he's basically treating like a loan because he wants the money back and guaranteed dividend on the stake he's buying with it. Essentially, he's hedging himself against this not being a long continuing concern. So much for trust eh? I have absolutely no idea how the VC world evaluates things so this may be normal practice for them ... but it seems like short changing which will come back to bite you if the business takes off.","From my understanding, only A and B are shareholders, and M is a managing entity that takes commission on the profit. Assuming that's true. At the start of the project, A contributes $500,000. At this point, A is the sole shareholder, owning 100% of the project that's valued at $500,000. The real question is, did the value of the project change when B contributed 3 month later. If the value didn't change, then A owns 33.33%, and B owns 66.66%. Assuming both A and B wants to pay themselves with the $800,000 profit, then A gets a third of that, and B gets the rest. However, if at the time of B's contribution, both parties agreed that the pre-money of the project has changed to $1 million, then B owns half the project valued at 2 million post-money. Then the profit would be split half way.","Say the company has created 500 shares [or whatever number]. You have 10 shares [equivalent of 2%]. Now when new capital is needed, generally more shares are created. Say they create 100 more shares and sell it to venture capital to raise funds. After this happens; Total Shares: 500+100 = 600 You own: 10 shares Your Ownership % = 1.66% down from 2% Like wise for other older shareholder. The New Venture guy gets 16.66% of ownership. More funds would mean more growth and overall the value of your 10 shares would be more depending on the valuation.","But what creates more business owners? They don't pop up out of the ground, and there are always lots of people that want to make their own business. Businesses need capital, they need startup funds. Angel investors, VCs and banks provide the capital.","To me this sounds like a transaction, where E already owns a company worth 400k and can therefore pocket the money from D and give D 25% of the profits every year. There is nothing objective (like a piece of paper) that states the company is worth 400K. It is all about perceived value. Some investors may think it is worth something because of some knowledge they may have. Heck, the company could be worth nothing but the investor could have some sentimental value associated to it. So is it actually the case that E's company is worth 400k only AFTER the transaction? It is worth what someone pays for it when they pay for it. I repeat- the 400K valuation is subjective. In return the investor is getting 25% ownership of the product or company. The idea is that when someone has ownership, they have a vested interest in it being successful. In that case, the investor will do whatever he/she can to improve the chances of success (in addition to supplying the 100K capital). For instance, the investor will leverage their network or perhaps put more money into it in the future. Is the 100k added to the balance sheet as cash? Perhaps. It is an asset that may later be used to fund inventory (for instance). ... and would the other 300k be listed as an IP asset? No. See what I said about the valuation just being perception. Note that the above analysis doesn't apply to all Dragons Den deals. It only applies to situations where capital is exchanged for ownership in the form of equity.","You need to be clear about who gets your money: If you pay the existing owner $25K and (s)he gives you half the business, then you now own half of a $50K business an the original owner has an extra $25K in spending cash. The value of the business has not changed. If you contribute $25 to the company, new equity shares are created. Shares should be priced correctly, meaning you now own $25K worth of shares in a company worth $75k, so you should have 1/3 of the outstanding shares (counting both old and new shares). If you get more or less than this, then the transaction has happened in an unfair way. If this is a public company, that would most likely be illegal and the SEC may throw you in jail. If it was a private company and your friend created enough shares that you own half the company, then (s)he has given you a gift. If you are contributing to the company at a fair price, you would need to contribute $50K in order to end up with half the equity of the new and now more valuable firm. In that case the firm would be worth $100K after your contribution. Bottom line, this is a common and not complex transaction and should end up with a completely fair outcome. Any unfair situation you can imagine is probably based on false assumptions or a situation where a non-arms-length transaction is transferring wealth contrary to normal rules and procedures.","\"IPO is \"\"Initial Public Offering\"\". Just so you know. The valuations are done based on the company business model, intellectual property, products, market shares, revenues and profits, assets, and future projections. You know, the usual stuff. Yes, it is. And very frequently done. In fact, I can't think of any company that is now publicly traded, that didn't start this way. The first investor, the one who founds the company, is the first one who invests in it after raising the capital (even if it is from his own bank account to pay the fees for filing the incorporation papers). What is the difference between \"\"normal\"\" investor and \"\"angel\"\"? What do you refer to as \"\"angel\"\"? How is it abnormal to you? Any investor can play a role, depending on the stake he/she has in the company. If the stake is large enough - the role will be significant. If the stake is the majority - the investor will in fact be able major decisions regarding the company. How he bought the stocks, whether through a closed offering, initial investment or on a stock exchange - doesn't matter at all. You may have heard of the term \"\"angels\"\" with regards to high-tech start up companies. These are private investors (not funds) that invest their own money in start ups at very early stages. They're called \"\"angels\"\" because they invest at stages at which it is very hard for entrepreneurs to raise money: there's no product, no real business, usually it is a stage of just an idea or a patent with maybe initial prototype and some preliminary business analysis. These people gamble, in a sense, and each investment is very small (relatively to their wealth) - tens of thousands of dollars, sometimes a hundred or two thousands, and they make a lot of these. Some may fail and they lose the money, but those that succeed - bring very high returns. Imagine investing 10K for 5% stake at Google 15 years ago. Those people are as investors as anyone else, and yes, depending on their stake in the company, they can influence its decisions.\"","Thanks for the response - ok so maybe the funds could be partially crowd-sourced and partially funded by an accredited investor? Also yes - having an experienced adviser and a plan in place to replace existing directors sound like good plot devices. There doesn't really have to be a limitation to banks, the idea comes from the protagonists being upset with the status quo of banking practices (foreclosures, fees, investing in weapons/warzones etc.) what would you suggest?","\"First off, with startups, forget that you know about common structures of debt and equity. Just try to think of this money as a generic \"\"investment\"\" that meets the investors risk and return objectives. Startups are unique in that they are high risk but generally have almost no assets or security for an investor. Investors generically want two things: 1) Return and 2) Limited Risk. Without speculating too much: consider that the investor might be viewing the return component as the 30% equity and the 8% dividend and he views the risk management component as the additional 30% equity, until repaid. A different way of looking at this might be that the investor would require an equity stake greater than 30% with greater than a 8% dividend if he did not get the initial investment back in return for the reduced stake. In other words, this structure is debt and equity because that is what the investor can demand. Maybe you can get around this by offering a higher equity stake or offering something else although this structure is common because it aligns interests of the investor and the startup.\"","There are 2 basic ways to have someone buy partial ownership of your company: OR If they buy shares that you already own, then their shares will have the same rights as yours (same voting rights, same dividend rights, etc.). If they buy shares newly created from the company, they could be either identical shares to what you already own, or they could be a new class of shares [you may need to adjust the articles of incorporation if you did not plan ahead with multiple share classes]. You really need to talk to a lawyer & tax accountant about this. There are a lot of questions you need to consider here. For example: do you want to use the money in the business, or would you rather have it personally? Are you concerned about losing some control of how the business is run? What are the short term and long-term tax consequences of each method? What does your new partner want in terms of their share class? The answers to these questions will be highly valuable, and likely worth much more than the fees you will need to pay. At the very least, you will likely need a lawyer and accountant anyway to ensure the filings & taxes are done correctly, so better to involve them now, rather than later. There are many other situations to consider here, and an online forum is not the best place to get advice that might put you in a sticky legal situation later on.","\"Watch out for PO financing. A lot of those contracts have nasty terms like \"\"I agree that SCAM CAPITAL will be my sole source of credit for the next 2 years.\"\" that can get in the way of using bank debt or credit cards. They may even tell you otherwise to get you to sign, but they are the payday lenders of the business world. It can be great when it works, but there are a lot of shark men. While you can grow your company on po financing, understand that those companies exist to suck all the profit out of small, non-innovative companies, who needed a hand and their terms reflect that. If your business is that good maybe you can get someone to buy in instead? The second benefit to this is that if things go tits-up, then you don't have any personal guarantee. You will likely have to guarantee PO financing in most parts of the country.\"","A lot of people do this. For example, in my area nice townhouses go for about $400K, so if you have $80,000 you can buy one and rent it. Here are the typical numbers: So you would make $350 per month or $4,200 per year on $80,000 in capital or about 5% profit. What can go wrong: (1) The property does not rent and sits vacant. You must come up with $2100 in mortgage payments, taxes, and insurance every month without fail or default. (2) Unexpected expenses. A new furnaces costs over $5,000. A new roof costs $7,000. A new appliance costs $600 to $2000 depending on how upscale your property is. I just had a toilet fixed for a leaky plunger. It cost me $200. As you can see maintenance expenses can quickly get a lot higher than the $50 shown above... and not only that, if you fix things as cheaply as possible (as most landlords do), not only does that decrease the rentability of the property, but it causes stuff to break sooner. (3) Deadbeats. Some people will rent your property and then not pay you. Now you have a property with no income, you are spending $2100 per month to pay for it, AND you are facing steep attorney fees to get the deadbeats evicted. They can fight you in court for months. (4) Damage, wear and tear. Whenever a tenant turns over there is always a lot of broken or worn stuff that has to be fixed. Holes in the wall need to be patched. Busted locks, broken windows, non-working toilets, stains on the carpet, stuck doors, ripped screens, leaky showers, broken tiles, painting exterior trim, painting walls, painting fences, etc. You can spend thousands every time a tenant changes. Other caveats: Banks are much more strict about loaning to non home owners. You usually have to have reserve income. So, if you have little or no income, or you are stretched already, it will be difficult to get commercial loans. For example, lets say your take-home pay is $7,000 and you have no mortgage at all (you rent), then it is fine, the bank will loan you the money. But lets say you only have $5,000 in take home pay and you have an $1,800 mortgage on your own home. In that case it is very unlikely a bank will allow you to assume a 2nd mortgage on a rental property. The more you try to borrow, the more reserve income the bank will require. This tends to set a limit on how much you can leverage.","\"Investing in an existing company is almost like buying a house, or even becoming an \"\"Angel investor\"\" in a start-up. Before you start the process, decide how much you want to be involved in the day-to-day and which industries you would feel most comfortable in. The latter is an important consideration since you would have to know sufficient about the industry in order to evaluate the quality of your prospective investment. Searching for a suitable business is a time-consuming process: The guidance for evaluating any company has been answered in another question, so I'll simply link. Most business owners are looking to their businesses to provide them a pension, so they often look to sell around retirement age. Buying such a business is tricky - you may be assisting the next generation to finance the purchase which can have it's own struggles. Ideally you'll be looking for a young(ish) company with proven sales and which is looking to finance growth in an optimal way. Such a company may have many options for raising capital so you'll be competing to invest. As to whether or not it's a good idea... KFC only became a household name and global franchise after Pete Harman joined Harland Sanders as a partner. Richard and Maurice McDonald may have founded McDonald's but it was Ray Kroc who made it a success. New partners bring in new ideas and fresh energy which the original entrepreneurs may have lost during the difficulties of starting out. But that goes back to my first query; just how much do you want to get involved?\"","\"Written with some mild snark , but no insult intended, because financial stuff can be ridiculously confusing... Looked at another way, you're basically asking if the Biblical \"\"Parable of the Talents\"\" can be implemented as a business model. You as the investor wish to be the \"\"master\"\", with the entity doing the investing playing the part of the \"\"servant\"\". Since the law prohibits actual servitude as described in scripture, the model must substitute a contractual profit- and loss-sharing scheme. OK, based on what you've proposed, and by way of example, let's say you invested a thousand dollars. You give the investment service your money. At the end of a year, they give you back - Your capital ($1000) - Plus 1/2 of any profits OR - Less 1/2 of any losses So let's say the worst happens and they lose ALL of it. According to your proposal, they have to cover 1/2 of the loss. You end up with $500...but they end up with LESS than nothing. They will be in a deficit situation because all the expense was theirs. They don't just fail to make a profit. They go in the hole. It doesn't matter what percentages you use. Regardless of how the loss is shared, you've only guaranteed YOU can't lose all your money. The company CAN. Given a large enough investment, or enough market fluctuation, a big shared loss could shut down a smaller firm. To summarize: - You want a service that charges you nothing - Does all the work of expertly managing and investing your capital - Takes on part of the risk you would normally bear - (on top of their usual risk and liability) - Agrees to do so solely for a percentage of any return (where higher returns will likely involve a higher degree of risk) - AND that guarantees, after just 1 year, you'll get X% of your capital back, no matter what. Win or lose. - Even if the market crashes and all your capital, and theirs, is wiped out Superbest, um, to be serious briefly: what you're proposing is, if nothing else, inherently unfair and inequitable. I believe you intended it as a mutually beneficial scenario, but the real-world imbalance in risk and reward prevents it being so. Any financial service that would accept those terms along with the extra degree of risk would be fiscally irresponsible. From a business standpoint it's an untenable model, and no company would build on it. It would be tantamount to corporate suicide. The requirement that a service promise to give you back X% of your money, no matter how great the loss, makes your proposal impossible. You need to think about how much all this costs, realistically, as well what kind of returns you can actually expect. And that more risk for higher return is exactly what a service could NOT take a chance on if it had to \"\"share\"\" investors' losses. Besides, it's not really sharing, now is it? They will always lose more than you, always end up in a negative situation, unable even to recoup costs. Circumstances beyond their control could result in a drop in the value that not only wipes out any profit, but requires them to pay YOU for work performed and expenses incurred on your behalf. Why would they let anyon double-dip like that? Yeah, we all prefer getting something for nothing...but you want valuable services and for them to pay you money for the privilege of providing them? I totally agree that would be fantastic, but in this world even \"\"free\"\" doesn't come cheap anymore. And getting back to costs: Without consistent income the service would have nowhere to work and no resources to work with. No office, computer, phone, electricity, Internet, insurance, payroll, licensing, training, maintenance, security, lobbying, etc., etc., etc. Why do people always forget overhead? There's a reason these services operate the way they do. Even the best are working with fairly slim margins in a volatile sector. They're not into 1-year gambles unlikely to cover their cost of doing business, or having to pay for a negative return out of their own pocket. Look, if you're the Biblical master asking your servant to manage things, overhead is built-in. You're taking all the risk as well. You're paying for all three servants' food, home, clothing, etc, plus you had to buy the servants themselves. So its reasonable that you reap the reward of their labor. You paid for it, and you didn't even punish the servant who buried your money in a hole. The two good servants may have done the legwork, but you took on the burden of everything else. In your proposed service, however, contrary to the servant's usual role, the servant - i.e., the company - would be assuming a portion of your risk on top of their own, yet without any guarantee of profit, income, or even coverage of costs. They're also subject to regulations, fees, liability, legal stuff, etc. that you're not, against most of which you are indemnified and held harmless. If they agree to cover a share of your loss, it exposes to greater liability and more related risk. It robs them of resources they need to invest in their own business, while at the same time forcing them to do all the work. As a result, your model doesn't give such a service a fighting chance. Getting it off the ground and lasting past the first-year payouts would require more luck than skill. They'd be better off heading to Vegas and the blackjack table, where the only overhead is a cheap flight and room, where the odds and rules don't change overnight, and they at least get free drinks. If none of the equivalents satisfies, then the Biblical parable appears to describe your only option for obtaining exactly what you want: Move to a country where slavery is legal and buy an investor :-) Cheers, c\"","Executive Summary: your elevator speech Overview: What it is in detail Disclosure: what can go wrong, in detail subchapter one: internal threats/weakness subchapter two external subchapter three: risk management Proforma financials: heres how much money I need and here's what the books look like at the end of each of five years. Revenue Forecast: how the majic unfolds in units, price, geographically, and any other dimension Corporate/capital structure: how they can get in an out of this investment and other C-suite operating tidbits Execution plan: you receive the money, then what?","\"I have worked with venture capitalists on a few different online based tools. There is no rule. I have seen deals go through for as little as 10% and up to 80%. There are a number of factors in place: What it really comes down to in the tech world is \"\"Is this a side job or your life and can you live while your site isn't generating income... and then can you pay others that you need to pay for your site to exist?\"\" Venture capitalists are into risky ventures that offer a high return. They have a portfolio of businesses and one going down will be made up for with a huge return on another. They will shut you down super quick though if they think your team/idea is a dud. What they initially take from your business is so negotiable there is no reason for me to give a number. We might be able to give you a half-assed forecast if you tell us your idea/staff size/current revenue and expenses/projections/amount of investment looking for.\""],"string":"[\n \"\\\"Basically, you either borrow money, or get other people to invest in your business by buying stock or something analogous. Sometimes you can get people to \\\"\\\"park\\\"\\\" money with you. For example, many people deposit money in a bank checking account. They don't get any interest or other profit from this, they just do it because the bank is a convenient place to store their money. The bank then loans some percentage of this money out and keeps the interest. I don't doubt that people have come up with more clever ways to use other people's money. Borrowing money for an investment or business venture is risky because if you lose money, you may be unable to pay it back. On the other hand, investors expect a share of the profit, not just a fixed interest rate.\\\"\",\n \"it sounds like you don't have experience in this, and neither does your *investor*; which is a recipe for disaster (pun intended). Your first order of business is to check whether your investor is an *Accredited Investor* (google to see what it means), if s/he's not, **walk away**. If s/he's an accredited investor, find a lawyer who can help you navigate this process, however these are the issues: * lawyers are expensive, and lawyers who have experience in these type of transactions are even more expensive * you actually need 2 lawyers, one for you and one for the investor * if neither of you have experience, there will be a lot more billable hours from the lawyers..... In principle this can go 3 ways: 1. The investors give you a loan, you pay them interests on a periodic basis, and then also principal. Items to be negotiated: interest rates, repayment schedule, collateral, personal guarantees. Highly unlikely this is what the investors wants. 2. The Investors get equity. items to be negotiated: your compensation, % of ownership, how profits are divided, how profits are paid; who gets to decide what. 3. A combination of 1 and 2 above, a *Convertible Note*. There's a lot more, too much for a Reddit post. There's not an easy ELI5.\",\n \"So, people deposit money with you, you agree to pay them fixed % back, and then you invest money for your own profit? Sounds like a bank to me. Or a dividend-paying mutual fund, or a number of other similar ideas. Sure, you're welcome to start something like that up; it's unlikely you'd get money from people unless you had already proved yourself competent as an investor, though. After all, if it's possible to get a safe, comfortable 5%, why would anyone give you money at 2% or 3% instead of just getting that 5% for themselves? Or, more likely, finding a competitor who gives 4.9%? As in most things, the market will find inefficiencies like this and squash them like bugs. That said, there are some opportunities that take advantage of other kinds of situations. The most common I'd say is owning a home. You take out a mortgage for 80% of the value of the home, instead of buying it outright, and you instead invest the 80% in the market. You likely will beat your mortgage rate given the current 3.5%-4% rates. That's effectively doing the same thing, with an expense you'd have anyway (you always have to live somewhere); since it's a secured loan, you get better rates than the market will give (as it's quite safe) and you can use tax laws in your favor (mortgage interest deduction, in particular, and the capital gains break on primary residences).\",\n \"I work for an investment group in Central Asia in private equity/project investment. We use SPV and collateralized convertible loans to enter a project, we issue the loan at our own commercial bank. For each industry, the exact mechanisms vary. In most outcomes, we end up in control of some very important part of the business, and even if we have minority shares on paper, no decision is made w/o our approval. For example, we enter cosntruction projects via aquisiton of land and pledging the land as equity for an SPV, then renting it to the project operator. Basically, when you enter a business, be in control of the decisions there, or have significant leverage on the operations. Have your own operating professionals to run it. Profit.\",\n \"You can either borrow money... credit card, line of credit, re-finance your home, home equity line of credit, loan, mortgage, etc. Or you have other invest in your company as equity. They will contribute $X to get Y% of your company and get Z% of the profits. Note amount of profits does not necessarily have to equate to percentage owned. This makes sense if they are a passive investor, where they just come up with the money and you do all the work. Also voting rights in a company does not have to equate to percentage owned either. You can also have a combination of equity and debt. If you have investors, you would need to figure out whether the investor will personally guarantee the debt of your company - recourse vs non-recourse. If they have more risk, they will want more of a return. One last way to do it is crowdfunding, similar to what people do on Kickstarter. Supporters/customers come up with the money, then you deliver the product. Consulting practices do something similar with the concept of retainers. Best of luck.\",\n \"At this point the cost of borrowing money is very low. For the sake of argument, say it is 1% per year for a large institution. I can either go out and find a client to invest 100,000$ and split profit and loss with them. Or, I could borrow 50,000$, pay 500$/year in interest, and get the same return and loss, while moving the market half as much (which would let me double my position!) In both cases the company is responsible for covering all fixed costs, like paying for traders, trades, office space, branding, management, regulatory compliance, etc. For your system to work, the cost to gather clients and interact with them has to be significantly less than 1% of the capital they provide you per year. At the 50% level, that might actually be worth it for the company in question. Except at the 50% level you'd have really horrible returns even when the market went up. So suppose a more reasonable level is the client keeps 75% of the returns (which compares to existing companies which offer larger investors an 80% cut on profits, but no coverage on losses). Now the cost to gather and interact with clients has to be lower than 2500$ per million dollars provided to beat out a simple loan arrangement. A single sales employee with 100% overhead (office, all marketing, support, benefits) earning 40,000$/year has to bring in 32 million dollar-years worth of investment every year to break even. Cash is cheap. Investment houses sell cash management, and charge for it. They don't sell shared investment risk (at least not to retail investors), because it would take a lot of cash for it to be worth their bother. More explicitly, for this to be viable, they'd basically have to constantly arrange large hedges against the market going down to cover any losses. That is the kind of thing that some margin loans may require. That would all by itself lower their profits significantly, and they would be exposed to counter-party risk on top of that. It is much harder to come up with a pile of cash when the markets go down significantly. If you are large enough to be worthwhile, finding a safe counterparty may be nearly impossible.\",\n \"What you are describing does not sound like an investment; it sounds like a loan. An investment involves you putting up a stake and sharing in the profits or losses of the business - there is no guarantee you will get your money back. A loan involves you putting up money for which you will receive interest and principal repayment in accordance with an agreed schedule - you get this irrespective of how the business is performing. Also, is the arrangement with your friend or his company? They are different legal entities and your risk profile is different in both cases. Whatever the arrangement you need to sign a contract which details all the terms and conditions - how much you will pay, to whom and when; how much you will get back, from whom and when; a method for resolving disputes; what happens in the event of insolvency or bankruptcy; what happens if someone breaks the terms of the contract; if your payout depends on the value of the business at some future date, how it is to be valued; etc. etc. Two points: I am not a lawyer, I am not your lawyer.\",\n \"\\\"Generally, when you own something - you can give it as a collateral for a secured loan. That's how car loans work and that's how mortgages work. Your \\\"\\\"equity\\\"\\\" in the asset is the current fair value of the asset minus all your obligations secured by it. So if you own a property free and clear, you have 100% of its fair market value as your equity. When you mortgage your property, banks will usually use some percentage loan-to-value to ensure they're not giving you more than your equity now or in a foreseeable future. Depending on the type and length of the loan, the LTV percentage varies between 65% and 95%. Before the market crash in 2008 you could even get more than 100% LTV, but not anymore. For investment the LTV will typically be lower than for primary residence, and the rates higher. I don't want to confuse you with down-payments and deposits as it doesn't matter (unless you're in Australia, apparently). So, as an example, assume you have an apartment you rent out, which you own free and clear. Lets assume its current FMV is $100K. You go to a bank and mortgage the apartment for a loan (get a loan secured by that apartment) at 65% LTV (typical for condos for investment). You got yourself $65K to buy another unit free and clear. You now have 2 apartments with FMV $165K, your equity $100K and your liability $65K. Mortgaging the new unit at the same 65% LTV will yield you another $42K loan - you may buy a third unit with this money. Your equity remains constant when you take the loan and invest it in the new purchase, but the FMV of your assets grows, as does the liability secured by them. But while the mortgage has fixed interest rate (usually, not always), the assets appreciate at different rates. Now, lets be optimistic and assume, for the sake of simplicity of the example, that in 2 years, your $100K condo is worth $200K. Voila, you can take another $65K loan on it. The cycle goes on. That's how your grandfather did it.\\\"\",\n \"If someone invest certain amount on my company and after a year I am able to return the exact capital with the profit, what will I do to that investor? Did the investor receive shares in the company for the money that was invested in the company? This is the big question here as if so then there isn't the need to return the money but rather grow the business so that the investor's shares are worth more. Will that person still invest in my company? You may need to consider what you mean by invest as generally there are a couple of ways to finance a business: Equity - Ownership of the company is sold to raise money to run the company. Debt - The company is lent money that is to be repaid over time. Investing is usually the first case not the second. What if I have enough profit to continue my business, do I still need that investor? You wouldn't need the investor. However, you may want that investor as they could provide more funds, connections or other benefits to the company that may be worth considering here.\",\n \"\\\"I think your question might be coming from a misunderstanding of how corporate structures work - specifically, that a corporation is a legal entity (sort of like a person) that can have its own assets and debts. To make it clear, let's look at your example. We have two founders, Albert and Brian, and they start a corporation called CorpTech. When they start the company, it has no assets - just like you would if you owned nothing and had no bank account. In order to do anything, CorpTech is going to need some money. So Albert and Brian give it some. They can give it as much as they want - they can give it property if they want, too. Usually, people don't just put money into a corporation without some sort of agreement in place, though. In most cases, the agreement says something like \\\"\\\"Each member will own a fraction of the company that is in proportion to this initial investment.\\\"\\\" The way that is done varies depending on the type of corporation, but in general, if Albert ends up owning 75% and Brian ends up owning 25%, then they probably valued their contributions at 75% and 25% of the total value. These contributions don't have to be money or property, though. They could just be general \\\"\\\"know-how,\\\"\\\" or \\\"\\\"connections,\\\"\\\" or \\\"\\\"an expectation that they will do some work.\\\"\\\" The important thing is that they agree on the value of these contributions and assign ownership of the company according to that agreement. If they don't have an agreement, then the laws of the state that the company is registered in will say how the ownership is assigned. Now, what \\\"\\\"ownership\\\"\\\" means can be different depending on the context. When it comes to decision-making, you could \\\"\\\"own\\\"\\\" one percentage of the company in terms of votes, but when it comes to shares of future profits, you could own a different amount. This is why you can have voting and non-voting versions of a company's stock, for example. So this is a critical point - the ownership of a company is independent of the individual contributions to the company. The next part of your question is related to this: what happens when CorpTech sees an opportunity to make an investment? If it has enough cash on hand (because of the initial investment, or through financing, or reinvested profits), then the decision to make the investment is made according to Albert and Brian's ownership agreement, and they spend it. The money doesn't belong to them individually anymore, it belongs to CorpTech, and so CorpTech is spending it. They are just making the decision for CorpTech to spend it. This is why people say the owners are not financially liable beyond their initial investment. If the deal is bad, and they lose the money, the most they can lose is what they initially put in. On the other hand, if CorpTech doesn't have the money, then they have to figure out a way to get it. They might decide to each put in an amount in proportion to their ownership, so that their stake doesn't change. Or, Albert might agree to finance the deal 100% in exchange for a larger share of ownership. Or, he could agree to fund all of it without a larger stake, because Brian is the one who set the deal up. Or, they might take out a loan, and not need to invest any new money. Or, they might find an investor who agrees to put in the needed money in exchange for a a 51% share, in which case Albert and Brian will have to figure out how to split the remaining 49% if they agree to the deal. The details of how all of this would work depend on the structure (LLC, LLP, C-corp, S-corp, etc), but in general, the idea is that the company has assets and debts, and the owners can have voting rights, equity rights, and rights to future profits in any type of split that they want, regardless of what the companies assets and debts are, or what their initial investment was.\\\"\",\n \"Question (which you need to ask yourself): How well are your friends paid for their work? What would happen if you just took your money and bought a garage, and hired two car mechanics? How would that be different from what you are doing? The money that you put into the company, is that paid in capital, or is it a loan to the company that will be repaid?\",\n \"This means that if your capital under my management ends up turning a profit, I will keep half of those profits, but if I lose you money, I will cover half those losses. The bold part is where you lose me. This absolutely exists with the exception of the loss insurance. It just requires a lot more than the general retail consumer investor has to contribute. Nobody wants to take on the responsibility of your money then split 50% of the gross proceeds of your $10,000 (or whatever nominal amount of money you're dealing with) investment and return it all to you after a year. And NO money manager will insure that the market won't decline. Hedge funds, PE Firms, VC Firms, Investment Partnerships, etc all basically run the way you're describing (again without your loss insurance). Everyone's money is pooled and investments are made. Everyone shares the spoils and everyone shares the losses. And to top it off, the people making investment decisions have their money invested in the fund. All of them have to pay rent and accountants and other costs associated with running the fund and that will eat in to the proceeds to some degree; because returns are calculated on net proceeds. With enough money you can buy yourself in to a hedge fund, for the rest of us there are ETFs and other extremely fee-reasonable investment options. And if you don't think the performance and preservation of assets under management is not an incentive to treat the money with care you're kidding yourself (your first bullet point). I'll add that aside from skewing the manager's risk tolerance toward guaranteed returns I doubt you would fair favorably over the long term compared to simply paying even an egregious 1% expense ratio on an ETF. If you look at the S&P performance for 10 or 20 or however many years, I'd venture that a couple good years of giving up half of your gains would have you screaming for your money back. The bad years would put the money manager out of business and the good years would squander your gains.\",\n \"A firm is a separate legal person from its shareholders or owners (but doesn't get invited to parties much). Owners invest capital to get shares in the firm or may get shares for investing time, effort etc. but those shares are on a limited liability basis. That means that shareholders are only liable up to the value of their shares and that the firm itself is responsible for any expenses or liabilities. The firm will have working capital from its initial investors (i.e. any capital invested to get shares) and can borrow money on the bond market or issue new shares to cover outgoings. Share ownership simply entitles the owner to a proportion of the residual equity of the company and voting rights (for non-prefered equity). In a firm that I previously worked for, for example, one of the partners owned 51% of the firm but put up 100% of the firm's equity capital. The other partner owned 49% and provided 90% of the intellectual capital of the firm. They both took decisions equally. The distribution of ownership should, therefore, have no bearing on who finances deals. The owners (or managers in larger firms) should decide together how to use the company's capital for spending because it is exactly that; the company's capital; not any one of the investor's. Limited liability of owners is one of the major benefits of forming a company.\",\n \"I think there are two options: You invest for very close friends, who trust you completely. In this case, I don't see why you need legal formalities. Just take their money, invest, and return the profits (or losses) to them. They'll know that you invest it as well as you can (rather than spend it on your dream vacation), simply because they trust you. And in case they never get to see most of their money back - they'll know that you've tried your best, and won't be upset with you. You invest for people who trust you, but not 100%. In this case, don't take their money. If you lose (and in Forex, you most likely will) then you'll lose not only money, but also your friends. Even if the legal documents would prove that you were honset, and that they knew what they're getting into, they'll still be mad at you.\",\n \"\\\"+1 for noting that you are in it for the long haul. I also think this is a great project and activity to do with friends. Setting up and start-up investment company could be done as a simple LLC. The decision making process can be decided among the members -- if you want to defer to the others then so be it. Make it flexible so that you can change your mind in the future. If this is not intended to be a source of revenue or income for you (note your \\\"\\\"in it for the long haul\\\"\\\") One way of sourcing the capital and managing the resulting taxes you might want to consider is setting up a self-directed retirement account and making the investment from there. proceeds as you and your friends choose to take them would flow back into the retirement account. As with most investment and tax related questions we should all take the little extra time and money to follow up on internet-based advice with your own lawyer, investment adviser and accountant. These licensed individuals when under contract assume a degree of responsibility for their answer which is not available online. :)\\\"\",\n \"This is one way in which the scheme could work: You put your own property (home, car, piece of land) as a collateral and get a loan from a bank. You can also try to use the purchased property as security, but it may be difficult to get 100% loan-to-value. You use the money to buy a property that you expect will rise in value and/or provide rent income that is larger than the mortgage payment. Doing some renovations can help the value rise. You sell the property, pay back the loan and get the profits. If you are fast, you might be able to do this even before the first mortgage payment is due. So yeah, $0 of your own cash invested. But if the property doesn't rise in value, you may end up losing the collateral.\",\n \"\\\"For example, Biff Spoiles started an animation studio and production developing company to produce animations -- something in the ballpark of $12,000,000.00 U.S.D. -- and he had a $12K/yearly salary. I have no clue what you mean, as others have mentioned. (I'm not sure what the \\\"\\\"12 million\\\"\\\" refers to? Do you mean \\\"\\\"total cost of animations created by the company in a year\\\"\\\" or? If so, \\\"\\\"12 million\\\"\\\" would amount to say 5 to 20 major, brand name TV commercials, for example. Do you mean the \\\"\\\"cost of plant\\\"\\\" - so, for a \\\"\\\"TV commercial production company\\\"\\\" you mean purchasing desks, drawing pads, Porsches, and so on?) Your specific example of a \\\"\\\"film or TV-commercial production company\\\"\\\" is a bad example, it's not really a \\\"\\\"business\\\"\\\" - that is to say, it does not rely on capital and return on capital. The way famous \\\"\\\"film or TV-commercial production companies\\\"\\\" happens is precisely like this: A young guy/girl G (perhaps a designer or filmmaker) is working, just as you say, for a menial wage at a film company. (G got that first job perhaps out of art school.) G gets a chance at doing a photo shoot, animation, or helping direct a TV commercial. G does a fantastic job. Later that year, a large important animation or commercial job arrives at the company; due to the earlier excellent result, G is allowed to work on the new one. G again he does a fantastic job. Soon, within that company, G is a highly-regarded animator or director and has attracted fame amongst colleagues and clients. Eventually, G hears of a company (XYZ Hotel) that needs a TV ad made. (Or an animation, or whatever.) G says to XYZ, look, you could spend $230,000 with a production company, and in reality they'd have me direct it anyway. I'm leaving to work independently, so I will do your job for only $190,000. In a word, XYZ says \\\"\\\"Yes\\\"\\\" and hands over a cheque for $190,000. G spends $160,000 on the usual actors, cameramen, editing, etc, and uses 2 months of G's own time, and pockets $5000 after tax. G then doesn't get a job for a couple months, and then gets three more in the new year. Because the commercial for XYZ was so good, XYZ gave him another couple to do, for another product line. Eventually G has just enough money coming in that he \\\"\\\"hires\\\"\\\" a few freelance people for a few weeks here and there ... a cameraman, illustrator, gopher, and so on. Eventually G has enough TV ads solidly booked G can risk actually hiring long-time friend P as a producer. P spends most of her time actually bringing in more work - and it builds from there. Eventually. You have a very busy, well-known in the industry, TV commercial production company with many staff and endless clients (example, say, http://rsafilms.com) It might be at some point in there (say, around year three), G would like to borrow the odd million bucks to basically \\\"\\\"help with cashflow.\\\"\\\" The answer to that is nothing more than \\\"\\\"through business contacts, G knows a wealthy dentist/whoever who is prepared to do that.\\\"\\\" But note carefully that at that point, G's company is already very firmly established, famous for doing 20 spectacular animations/commercials, and so on. (Note too that 999 times out of 1000 when this happens, the money evaporates and the dentist D never sees a penny back. In that case G \\\"\\\"apologizes\\\"\\\".) Only much much later once the company has many, many staff and great cashflow, could the production company actually borrow from a bank, or perhaps from \\\"\\\"actual investors\\\"\\\", which is more what you have in mind. regarding your four categories. Numbers 1 and 3 are totally wrong; they do not work at all like you are asking. indeed the very simple answer is: \\\"\\\"borrow money\\\"\\\" to start a category 1 or 3 type of business. It's totally inconceivable. (The only exception would be if you literally just have an extremely rich Uncle, who loans you a few million to \\\"\\\"start an animation studio\\\"\\\" - which would be completely whacky. Because in that example: company XYZ could not care less if you \\\"\\\"have\\\"\\\" an animation studio (ie: your Uncle has given you a platinum card, and you bought a building, some drawing pads, and a few dozen Macs). XYZ just couldn't care less. All they care about is your folio of work. In this example, RSA would get the job :) ) My guess is you're thinking people somehow magically go around \\\"\\\"borrowing money\\\"\\\" to get businesses like that started. (Your examples 1 and 3.) The simple answer is they don't and can't - your fears are assuaged! :)\\\"\",\n \"It (usually) is better to use Other Peoples Money (OPM) than your own. This is something that Donald Trump has mastered. If you use OPM and something goes wrong you can declare bankruptcy and wipe out that debt. The Donald has done this more than once. At the fantastic low Intrest rates a company would be wasting resources if they only used their own money.\",\n \"\\\"Some rich people want to make money without working. So they give their money to a company like Apollo Global Management, and then Apollo Global Management takes the money that they were given and decides how they will turn that money into more money, which they can give back to the person who gave it to them. That money they give back is called return, or \\\"\\\"return on investment.\\\"\\\" That's how the person who gave the money, makes money -- from return on investment. The company's only real purpose is to make money with the money you give them. The company takes the money and sometimes they let other companies borrow that money, either for a long period of time or short period of time. They have different things called stocks, bonds, commodities and other things that they trade back and forth, and they only hope that they will make money doing it. It is sort of like they are going to work and playing the lottery every day, except, they do a lot of math to try and figure out how they can win the money from other companies as quick as possible. Instead of buying lotto tickets, they are buying those things I mentioned, stocks, bonds, commodities, and other things. By buying or selling these things, they are betting that a company will either make or lose money. It is basically like a game, with you and other people and companies, all as players. You are betting that the other players in the game will either make or lose money, based on what you see other players doing. As a player, you can win big or small, and you can lose big or small. There's a thing called the SEC. To play the game, you have to follow the rules that the SEC makes, or you will end up in jail! They are like the police, they are looking for people who do bad things. When you are older, you can make a lot of money if you work at a company like Apollo, but you can make more money than a lottery winner if you own a company yourself like Apollo.\\\"\",\n \"Isn't that uncommon in small business financing/investing. You can structure your capital anyway you wish (relatively speaking). It starts as an equity investment with an option for the founder to buy back equity. Then there is an 8% dividend payment that takes a similar form to preferred stock.\",\n \"@victor has the most descriptive and basic idea on how this is done. The only thing I would add is that one benefit to real estate is that you can control how much the property is worth. By increasing rents and making the property one of the best in the neighborhood, you increase the value. As for the comment that this is the type of investing that caused the 1929 stock market crash, there are many other aspects that are overlooked. Taking equity out of real estate has been happening long before and after the depression. People do it all the time by taking out home equity loans, just not everyone uses it to purchase another investment.\",\n \"\\\"People borrow money all the time to buy a house. Banks will lend money on one (up to 80%, sometimes more), because they consider it an \\\"\\\"investment.\\\"\\\" If you own a large company and want to expand, a bank or bond issuer will first look at what you plan to do with the money, like build new factories, or whatever. Based on their experience, they may judge that you will earn enough money to pay them back. If you don't, they may \\\"\\\"repossess\\\"\\\" your factories and sell them to someone who can pay. As protection, you may be asked to \\\"\\\"mortgage\\\"\\\" your existing company to protect the lenders of the new money. If you don't pay back the money, the lenders get not only your new \\\"\\\"factories\\\"\\\" but also your existing company.\\\"\",\n \"\\\"There are many flaws with your idea. Say I want to borrow $225,000.00 to accrue interest on a 1.20% APY account. I promise ... that I cannot withdraw nor touch the account by legal contract. If you break the contract and lose the money, the lender is out the money. They can take you to court and will win, but if you don't have the money, then they don't get paid. (You can't squeeze water out of a rock even if a judge orders you to.) By sharing the interest with me on a loan, they keep a percentage that they'd normally get... If you're \\\"\\\"investing\\\"\\\" the money at 1.2%, and the lender gets some amount less than that, then they are getting much less than they \\\"\\\"normally\\\"\\\" get. Lenders typically get somewhere from 5-15% on loans. The money can also be used to fund a stock/trading account. Regardless of whether I profit, I pay interest on the loan and split the profit shares 24/7. How can the lender lose with legal enforcing? Again, if you lose the money, no amount of legal enforcing can force you to pay money that you don't have. Even if you go to jail for fraud the lender still doesn't get paid. Simply, no bank would ever agree to this.\\\"\",\n \"\\\"JoeTaxpayer's answer adequately explained leverage and some of your risks. Your risks also include: The firm's risk is that you will figure out a way to leave them with a negative account that contributes to another customer's profit and yet you disappear in a way that makes the negative account impossible to collect. Another risk is that you are not who you say you are, or that the money you invest is not yours. These are called \\\"\\\"know your customer\\\"\\\" risks.\\\"\",\n \"\\\"It's called leverage. Here's an example from real estate. The underlying appreciation on a house in certain parts of America is something like 7% a year. So if you bought the house \\\"\\\"all cash,\\\"\\\" your return would be something like 7% a year. (Actually, a little more, because of the rent you would be collecting, or saving, if you were the \\\"\\\"renter.\\\"\\\") Suppose you buy the same house, 20% down, 80% mortgage. The rent pays for your mortgage, taxes, insurance, etc. like it is supposed to. The house goes up the same 7% each year. But now your rate of return is 35%, that is 7%/20% (your down payment). You get the whole appreciation but put up only 20% of the money. The bank (and your renter) did the rest.\\\"\",\n \"I've been to one of these seminars: a) you can get a loan of up to $700,000 from the company and only have to pay a fixed amount for the use of money, but you have to pay the loan off in nine months. Or b) you can just invest say $50,000 and you'll get a return of say 4%. But what the company does is take all of the investor's money and use that to fund the loans (putting none of the company’s money at risk), and that fixed amout sounds reasonable until you realize that it's only for a part of the year so the real APY is actually much higher than the conventional lending rate; or the rate they are paying the investors.\",\n \"It requires fairly large levels of capital, but what about seed funding/angel investments in startups? This would be before venture capital gets involved, so the amounts are relatively low (tens of thousands, vs. millions of USD), but as valuations this early in the game are also low, you can get a significant portion of equity in a startup that you feel is being run by good people and is in a promising market. Paul Graham of Y-Combinator has a number of articles about this from both sides of the table that you can take a look at and see if this is for you. It's definitely very high-risk, but if you can pick successful startups before their valuation shoots up, get some equity, help them succeed, and they eventually go public or get acquired, you can stand to bring in some big returns. Note that this isn't a hands-off investment. You'll need to build connections in the startup community, and it isn't uncommon for angel investors to become involved in the day-to-day operations of the businesses in which they invest.\",\n \"\\\"You're probably not going to be able to get a loan from any kind of bank if your credit is bad. On top of bad credit if you don't own a home or car that only decreases your chances of getting a loan. On top of all this you don't have a job. I don't mean to be blunt but I don't see any way you could get a loan from a bank of any kind. Also what makes this business a good investment? Have you read over the business plan? Have you looked over financials to see what your investment would be helping with? Are you familiar with the legality of the business and make sure they have proper documentation. There's no guarantees in business and you saying there's all this free money out there is honestly not true. Do your homework, don't just throw your money into something because there is \\\"\\\"free money\\\"\\\". Also money and friends is not kosher at all i would not suggest borrowing that kind of money from anyone close to you. One last question, will you be a part owner in this business if you invest this kind of money?\\\"\",\n \"This can be best explained with an example. Bob thinks the price of a stock that Alice has is going to go down by the end of the week, so he borrows a share at $25 from Alice. The current price of the shares are $25 per share. Bob immediately sells the shares to Charlie for $25, it is fair, it is the current market price. A week goes by, and the price does fall to $20. Bob buys a share from David at $20. This is fair, it is the current market value. Then Bob gives the share back to Alice to settle what he borrowed from her, one share. Now, in reality, there is interest charged be Alice on the borrowed value, but to keep it simple, we'll say she was a friend and it was a zero interest loan. So then Bob was able to sell something he didn't own for $25 and return it spending $20 to buy it, settling his loan and making $5 in the transaction. It is the selling to Charlie and buying from David (or even Charlie later, if he decided to dump the shares), without having invested any of your own money that earns the profit.\",\n \"\\\"Do you need the capital? If you not, are you considering taking it to help you grow faster? To lower your downside risk? In terms of deal structure start with your financial model and evaluate your payback period and IRR... Think if you were investor how much of a split would you need to compensate the risk you are taking. Generally the investor will want to get 100% of their original investment paid back plus a annual 8% \\\"\\\"preferred\\\"\\\", return and after they are made whole 80% of proceeds, but I've seen restaurant deals at 50/50 splits and no preferred return. I'd try to ensure you get a salary and/or management fee. Make sure you retain control and rights! Don't sign anything without legal review.\\\"\",\n \"You could think of points 1 and 3 combined to be similar to buying shares and selling calls on a part of those shares. $50k is the net of the shares and calls sale (ie without point 3, the investor would pay more for the same stake). Look up convertible debt, and why it's used. It's basically used so that both parties get 'the best of both world's' from equity and debt financing. Who is he selling his share to in point 2 back to the business or to outside investors?\",\n \"If you are looking for money to speculate in the capital markets, then your brokers will already lend to you at a MUCH more favorable rate than an outside party will. For instance, with $4,000 you could EASILY control $40,000 with many brokers, at a 1% interest rate. This is 10:1 leverage, much like how US banks operate... every dollar that you deposit with them, they speculate with 10x as much. Interactive Brokers will do this for you with your current credit score. They are very reputable and clear through Goldman Sachs, so although reputable is subjective in the investment banking world, you won't have to worry the federal government raiding them or anything. If you are investing in currencies than you can easily do 50:1 leverage as an American, or 100:1 as anyone else. This means with only $400 dollars you can control $40,000 account. If you are investing in the futures market, then there are many many ways to double and triple and quadruple your leverage at the lowest interests rates. Any contract you enter into is a loan from the market. You have to understand, that if you did happen to have $40,000 of your own money, then you could get $4,000,000 account size for speculating, at 1% interest. Again, these are QUICK ways to lose your money and owe a lot more! So I'd really advise against it. A margin call in the futures market can destroy you. I advise you to just think more efficiently until you come up with a way to earn that much money initially, and then speculate.\",\n \"If you are trying to invest in closely held / private companies (things that don't trade on the stock market), you will run into a variety of regulatory problems. For various reasons, most private companies only raise funds with accredited investors. To be an accredited investor you basically have to have $1,000,000 in net worth - NOT including your primary residence, OR you have to make over $200,000 a year for the last two years and expect to keep making that much. This is a class distinction the Federal government created, you will see different but similar wealth and investment classes worldwide. So your best most organized opportunities are left out, unless you do qualify as an accredited investor. There are tons of other companies, things you will find locally, that will let you invest in their smaller time operations. (Think like a local yoga studio looking for $20,000 and willing to split the profits with you). But the problem here is lack of accountability, where partners skip town or just stop answering your calls, and the legal remedies cost you more than your claim. That being said there are people that provide capital to smaller publicly traded companies on the bulletin boards and pink sheets. They have opportunities do much better than the actual stock market investors in these companies, because you can negotiate contracts that let you cash out in their inevitable financing death spirals with very little risk to you. You can do these things as an individual or as a holding company, but the holding company will limit your liability to the amount your holding company invested, instead of your personal assets, in case your financing starts to incur liability with the company.\",\n \"\\\"As for the letting the \\\"\\\"wise\\\"\\\" people only make the decisions, I guess that would be a bit odd in the long run. Especially when you get more experienced or when you don't agree with their decision. What you could do, is make an agreement that always 3/4 (+/-) of the partners must agree with an investment. This promotes your involvement in the investments and it will also make the debate about where to invest more alive, fun and educational). As for the taxes I can't give you any good advice as I don't know how tax / business stuff works in the US. Here in The Netherlands we have several business forms that each have their own tax savings. The savings mostly depend on the amount of money that is involved. Some forms are better for small earnings (80k or less), other forms only get interesting with large amounts of money (100k or more). Apart from the tax savings, there could also be some legal / technical reasons to choose a specific form. Again, I don't know the situation in your country, so maybe some other folks can help. A final tip if your also doing this for fun, try to use this investment company to learn from. This might come in handy later.\\\"\",\n \"Let's suppose your friend gave your $100 and you invested all of it (plus your own money, $500) into one stock. Therefore, the total investment becomes $100 + $500 = $600. After few months, when you want to sell the stock or give back the money to your friend, check the percentage of profit/loss. So, let's assume you get 10% return on total investment of $600. Now, you have two choices. Either you exit the stock entirely, OR you just sell his portion. If you want to exit, sell everything and go home with $600 + 10% of 600 = $660. Out of $660, give you friend his initial capital + 10% of initial capital. Therefore, your friend will get $100 + 10% of $100 = $110. If you choose the later, to sell his portion, then you'll need to work everything opposite. Take his initial capital and add 10% of initial capital to it; which is $100 + 10% of $100 = $110. Sell the stocks that would be worth equivalent to that money and that's it. Similarly, you can apply the same logic if you broke his $100 into parts. Do the maths.\",\n \"Leverage is when you borrow in order to invest. Mind you, most people aren't going to just give you money to gamble on the stock market completely unsecured; rather, you deposit (say) $10,000 and buy a stock... and then you have $10k in assets which you can borrow against, so you can buy another $10,000 of that stock. Now if the stock goes up you'll make twice the gain (2x leverage). However, if it goes down, you'll lose twice as much as well. If the value of your stock falls, your line of credit will be reduced as well; in this case, since you used all your credit and are now over your limit, your broker will issue a margin call (they will demand a deposit of additional funds, or they will sell some of your stock at their discretion). This protects you from owing more than you invested, but it's still sometimes possible (for instance, if a company spontaneously goes bankrupt and becomes worthless, and your stock becomes worthless). There are also things like leveraged index funds and commodity funds which aim to return some multiple of the market's earnings. These are designed for intraday trading, though, and usually end up underperforming significantly over the long term. [edit] Mose people who accept borrowed funds should generally accept real cash as well. However, if you're trying to short sell, i.e. borrow shares and sell them (in the hopes you can get them back cheaper later after the stock falls) you will need a margin line of credit to do so as well. [edit 2] clarified margin calls\",\n \"I think you're looking at the picture in an odd way. When each of you made your initial investments and determined what portions you owned, that gave the company capital that they could use to finance its operations. In return, you are entitled to the future profits of the company (in proportion to your ownership). Any future investment by either of you is at your own discretion. Your company now faces a situation where it would like to pursue a potentially lucrative opportunity, but needs more capital than it has to do so. So, you need to raise more capital. That capital can come from one or both of you (or from an outsider). Since that investment would be discretionary, what the investor gets is a negotiation: the company negotiates with the investor how much equity (in the form of new shares) to award in exchange for the new investment (or whatever other compensation you decide on, if not equity).\",\n \"...is investing in a business you believe in a bad strategy? I'm not saying you're going to be right with your investment (obviously your judgment is coming into play), but you make it sound like it's a terrible way to do things. Is it?\",\n \"This is certainly possible. There are lots of strategies that involve taking out loans to invest. However, they are all high risk strategies. There's a school district for a major US city that was able to get incredibly favorable loan terms because their repayment was assured by law. They borrowed a bunch of money and put it into a variety of sure things insured by reliable companies like Lehman Brothers. You can figure out the rest.\",\n \"Pool their money into my own brokerage account and simply split the gains/losses proportional to the amount of money that we've each contributed to the account. I'm wary of this approach due to the tax implications and perhaps other legal issues so I'd appreciate community insight here. You're right to be wary. You might run into gift tax issues, as well as income tax liability and appropriation of earnings. Not a good idea at all. Don't do this. Have them set up their own brokerage account and have them give me the login credentials and I manage the investments for them. This is obviously the best approach from a tracking and tax perspective, but harder for me to manage; to be honest I'm already spending more time than I want to managing my own investments, so option 1 really appeals to me if the drawbacks aren't prohibitive. That would also require you to be a licensed financial adviser, at least to the best of my understanding. Otherwise there's a lot of issues with potential liability (if you make investments that lose money - you might be required to repay the losses). You should do this only with a proper legal and tax advice - from an attorney and/or CPA/EA licensed in your state. There are proper ways to do this (limited partnership or LLC, for example), but you have to cover your ass-ets with proper operating agreements in place that have to be reviewed by legal counsel of each of the members/partners,\",\n \"\\\"With (1), it's rather confusing as to where \\\"\\\"interest\\\"\\\" refers to what you're paying and where it refers to what you're being paid, and it's confusing what you expect the numbers to work out to be. If you have to pay normal interest on top of sharing the interest you receive, then you're losing money. If the lending bank is receiving less interest than the going market rate, then they're losing money. If the bank you've deposited the money with is paying more than the going market rate, they're losing money. I don't see how you imagine a scenario where someone isn't losing money. For (2) and (3), you're buying stocks on margin, which certainly is something that happens, but you'll have to get an account that is specifically for margin trading. It's a specific type of credit with specific rules, and you if you want to engage in this sort of trading, you should go through established channels rather than trying to convert a regular loan into margin trading. If you get a personal loan that isn't specifically for margin trading, and buy stocks with the money, and the stocks tank, you can be in serious trouble. (If you do it through margin trading, it's still very risky, but not nearly as risky as trying to game the system. In some cases, doing this makes you not only civilly but criminally liable.) The lending bank absolutely can lose if your stocks tank, since then there will be nothing backing up the loan.\\\"\",\n \"Most likely, this will not work they way you think. First things first, to get a loan, the bank needs to accept your collateral. Note that this is not directly related to the question what you plan to do with the loan. Example: you have a portfolio of stocks and bonds worth USD 2 million. The bank decides to give you a loan of USD 1 million against that collateral. The bank doesn't care if you will use the loan to invest in foreign RE or use it up in a casino, it has your collateral as safety. So, from the way you describe it, I take it you don't have the necessary local collateral but you wish to use your foreign investments as such. In this case it really doesn't matter where you live or where you incorporate a company, the bank will only give you the loan if it accepts the foreign collateral. From professional experience with this exact question I can tell you, there are very few banks that will lend against foreign property. And there are even less banks, if any, that will lend against foreign projects. To sum it up: Just forget banks. You might find a private lender to help you out but it will cost you dearly. The best option you have is to find a strategic partner who can cough up the money you need but since he is taking the bigger risk, he will also take the bigger profit share.\",\n \"\\\"The applicants go through the same process as for any other loan. The only difference is that the \\\"\\\"bank\\\"\\\" is people like me, perhaps 200 of us on a note. We kick in $25 or so on each note and get the opportunity to ask the applicant questions. The investors pay a small percentage as fees to have professionals rate the notes. The worse the credit, the higher the interest rates the note holder recieves. Of course if the person stops paying, we receive nothing. Calculated risk. I invest in high risk notes sometimes depending on what it's for and have several in my portfolio. It's literally microlending. I can afford to lose $25 on a risky loan or two for a 19% profit because the rest of my portfolio is diversified into hundreds of 9-11% notes. It works surprisingly well.\\\"\",\n \"\\\"I have a friend who had went on a seminar with FortuneBuilders (the company that has Than Merrill as CEO). He told me that one of the things taught in that seminar was how to find funding for the property that you want to flip. One of the things he mentioned was that there are so-called \\\"\\\"hard money\\\"\\\" lenders who are willing to lend you the money for the property in exchange for getting their name on the property title. Last time I checked it looked like here in Florida we had at least Bridgewell Capital and Fairview Commercial Lending that were in that business. These hard money lenders get their investment back when the house is sold. So there is some underlying expectation that the house can be sold with some profit (to reimburse both the lender and you for your work). That friend of mine did tell me that he had flipped a house once but that he did not receive the funding to that from a lender but from an in-law, however it was through a similar arrangement.\\\"\",\n \"Your basic assumption is incorrect. You don't normally go to a bank to borrow money to invest, but brokerages do it all the time. It is called trading on margin.\",\n \"\\\"As others have said: unless you can find someone willing to make a zero-interest loan, the answer is no. If you can figure out how to turn a \\\"\\\"0% for first N months\\\"\\\" credit card offer onto a leveraged investment or something of that sort -- seems unlikely -- maybe.\\\"\",\n \"When I invest in a business valued at $50,000, I pay $25,000 and receive 50% equity. Does that $25,000 go to the current owner of the business, or into the capital of the business itself? Who receives the money depends on who is selling you the equity. There are a couple of different scenarios that can fit your question. You could buy existing shares from the current owner(s) of the company. In this case, the current owner(s) would be receiving the funds from you, and in return giving you their stake in the company. So if you all agree that the value of the business is $50,000, and you give $25,000 to the current owner(s), they give you half of their shares. The value of the company has not changed. The company could be issuing new shares. This is called stock dilution, or an increase in authorized share capital. Let's say that everyone agrees that the value of the business is $50,000. The company could create new shares and sell them to you for $25,000. In this case, the value of the company has jumped to $75,000; you now control one-third of the company, and the existing owner(s), who previously owned 100% of the company, now only own two-thirds. In order for you to end up with 50% of the company in this case, you would have to invest $50,000 instead, which would result in the company being valued at $100,000. If you are wondering why the current owners would agree to this second scenario, there are two questions that address this:\",\n \"Companies in their earliest stages will likely not have profits but do have the potential for profits. Thus, there can be those that choose to invest in companies that require capital to stay in business that have the potential to make money. Venture Capital would be the concept here that goes along with John Bensin's points that would be useful background material. For years, Amazon.com lost money particularly for its first 6 years though it has survived and taken off at times.\",\n \"I totally understand where you come from and what you mean. And yes I would be partnered in this business since I would be the sole (there's only gonna be one) investor. The guy can't keep up demand and he doesn't wanna export is what my friend - his sister - told me so he's looking to find an investor. And I know it isn't free money since technically I would be investing and resorting the benefits of said investment. However, it would be tax-free afaik but even if it weren't I'd still be partnered with him and his business\",\n \"\\\"Private equity firms have a unique structure: The general partners (GP's) of the firm create funds and manage the investments of those funds. Limited partners (LP's) contribute the capital to the funds, pay fees to the GP's, and then make money when the funds' assets grow. I believe the article is saying that ultra high net worth individuals participate in the real estate market by hiring someone to act as a general partner and manage the real estate assets. They and their friends contribute the cash and get shares in the resulting fund. Usually this GP/LP structure is used when the funds purchase or invest in private companies, which is why it is referred to as \\\"\\\"private equity structure,\\\"\\\" but the same structure can be used to purchase and manage pools of real estate or any other investment asset.\\\"\",\n \"It's clearly a risk, but is it any different than investing in your own business? Yes, it is different. If you own a business, you determine the path of the business. You determine how much risk the business takes. You can put in extra effort to try to make the business work. You can choose to liquidate to preserve your capital. If you invest without ownership, perhaps the founder retains a 50% plus one share stake, then whomever controls the business controls all those things. So you have all the risks of owning the business (in terms of things going wrong) without the control to make things go right. This makes investing in someone else's business inherently riskier. Another problem that can occur is that you could find out that the business is fraudulent. Or the business can become fraudulent. Neither of those are risks if you are the business owner. You won't defraud yourself. Angel investing, that is to say investing in someone else's startup, is inherently risky. This is why it is difficult to find investors, even though some startups go on to become fabulously wealthy (Google, YouTube, Facebook, Twitter, etc.). Most startups fail. They offer the possibility of great returns because it's really hard to determine which ones will fail and which will succeed. Otherwise the business would just take out the same loan that Jane's getting, and leave Jane out of it.\",\n \"\\\"There are three (or four) ways that a company can grow: (Crowdfunding is a relatively new (in mainstream businesses) alternative financing method where people will finance a company with the expectation that they will benefit from the product or service that they provide.) Obviously a startup has no prior income to use, so it must either raise money through equity or debt. People say that one must borrow contingent on their salary. Banks lend money based on the ability to pay the loan back plus interest. For individuals, their income is their primary source of cash flow, so, yes, it is usually the determining factor in getting a loan. For a business the key factor is future cash flows. So a business will borrow money, say, to buy a new asset (like a factory) that will be used to generate cash flows in the future so that they can pay down the debt. If the bank believes that the use of the money is going to be profitable enough that they will get their money back with interest, they'll loan the money. Equity investors are essentially the same, but since they don't get a guaranteed payback (they only get paid through non-guaranteed dividends or liquidation), their risk is higher and they are looking for higher expected returns. So the question I'd have as a bank or equity investor is \\\"\\\"what are you going to do with the money?\\\"\\\" What is your business strategy? What are you going to do that will make profits in the future? Do you have a special idea or skill that you can turn into a profitable business? (Crowdfunding would be similar - people are willing to give you money based on either the social or personal benefit of some product or service.) So any business either starts small and grows over time (which is how the vast majority of businesses grow), or has some special idea, asset, skill, or something that would make a bank willing to take a risk on a huge loan. I know, again, that people here tend to turn blind eyes on unfortunate realities, but people do make giant businesses without having giant incomes. The \\\"\\\"unfortunate reality\\\"\\\" is that most startups fail. Which may sound bad, but also keep in mind that most startups are created by people that are OK with failing. They are people that are willing to fail 9 times with the thought that the 10th one will take off and make up for the losses of the first 9. So I would say - if you have some great idea or skill and a viable strategy and plan to take it to market, then GO FOR IT. You don't need a huge salary to start off. You need something that you can take to market and make money. Most people (myself included) either do not have that idea or skill to go out on their own, or don't have the courage to take that kind of risk. But don't go in assuming all you need is a loan and you'll be an instant millionaire. You might, but the odds are very long.\\\"\",\n \"Sounds like you are starting an investment club. What you need is an investment club partnership agreement. Have a look at this free document. EDIT Based on OP's comments, it appears that the OP will be acting as an adviser/manager of a private investment fund. If the fund is not open to the public, it may still be treated as a type of investment club, but different rules -- including possibly having to register with the SEC -- may apply (quoted from the first link): If the adviser is compensated for providing the advice regarding the club's investments, the adviser may need to register according to the Investment Advisers Act of 1940. Also, if one person selects investments for the club, that person may have to register as an investment adviser. In general, a person who has $25 million or more in assets under management is required to register with the SEC under the Investment Advisers Act of 1940. A person managing less than $25 million may be required to register under the securities laws of the state or states in which the adviser transacts business.\",\n \"Here are the basic questions I usually ask any new business startup: Do these numbers/answers seem reasonable to you and is some benchmark available that allows you to see how likely this is? Remember, particularly in Internet-based advertising ventures, the client may be indirect. The person who clicks on a Google context-based link is not directly Google's client. The person who decided to host AdWords code on their site is the direct client. You're also going to want to see a Gant chart or some process chart indicating exactly what needs to be done, at what cost and by whom. Answers to these questions give a sense of not only how seriously they are taking the business, but also how organised. My final question: who is your first client? They need either someone who is going to contract the service, or have a clear indication of where income is going to come from, on their first day of trading. Their task is to sell their idea to you by proving that it will return on your investment and be profitable. From the strength of these answers you can gauge the value of your investment to them, how critical it is, how risky the opportunity and - ultimately - the stake and returns you should expect.\",\n \"In addition to evaluating the business (great answer), consider the potential payoff. If bonds pay off in the 5-10% range, the S&P500 has averged 10.5%. You should be expecting a payoff of 15-20% to invest in something riskier than the stock market. That means that if you invest $10k, then in 5 years you'll need to get out $25K (20% returns over 5 years). If you get less than this much in 5 years, the risk-to-reward ratio probably rules this out as a good investment.\",\n \"Sales are useless. Profit determines value. Others made good suggestions, but make sure you don't personally guarantee anthing. Understand your requirements to continue having the investor involved. Understand who has approval authority and decision making authority, ie are you a hired gun or the managing owner? Finally, probability of success is low, so do your homework, bust your ass, and understand when you will wall away (ie if you aren't profitable in 3 years, or below $500k in rev, etc)\",\n \"\\\"Investing in a business can be daunting and risky, so it is not for everyone. The most common pitfalls are mentioned here: Beyond that: It all sounds a bit like \\\"\\\"Don't trust anyone\\\"\\\" and sadly, this is true when there's a lot of money involved. So be prepared and do your homework, this sometimes will save you more money than you gain with your investments :) Good luck!\\\"\",\n \"Sometimes invested capital is expected to earn interest, I've seen this be a stipulation in LLC operating agreements and Corporate bylaws. I thought this arrangement looks a little less than fair. BTW I'm a college freshman, though I do the finances for my parents' regulatory compliance and governance consulting company. Anyhow, that's just my two cents.\",\n \"The role of business investors differs greatly within different organisations. If you are starting a business or already have a small business, business investors can be a key tool to get your business of the ground. Business investors give money to small businesses or start-ups in exchange for ownership in a part of the company.\",\n \"\\\"It'll be just like any other loan you make, on your end, and receive, on your LLC's end. You pay taxes on the interest received, and your LLC can deduct the interest paid. Do make sure you set it up properly, however: If you want to loan money to your business, you should have your attorney draw up paperwork to define the terms of the loan, including repayment and consequences for non-repayment of the loan. It should be clear that the loan is a binding obligation on the part of the company. As a recent Tax Court case notes, the absence of such paperwork negates the loan. For tax purposes, the loan is an \\\"\\\"arms length\\\"\\\" transaction, being treated like any other debt. From: http://biztaxlaw.about.com/od/financingyourstartup/f/investinbusiness.htm\\\"\",\n \"Disclaimer: I’m not an expert. This is my basic understanding, which I’m sure someone will be glad to tell is horribly wrong... You need an LLC. Many people in my area create an LLC management company, then create individual LLCs for each investment property. Laws vary by state. YMMV Then you start researching properties. Commercial loans typically require a higher equity position than home ownership. Assume minimum 30%. For ease of this conversation let’s say you’re making the horribly poor decision to put that towards a single property. You’d be looking for a property in the 175-200k value range, because you’ll need to account for settlement expenses (attorney, broker, consultants) and a cash reserve. You’d be also be looking for what the average cap rate is for your market. In simplistic terms cap rate is the expected rate of return after expenses. So if the average market cap rate in that region for comparable properties is 5%, you can expect around 5% return on your investment, after you pay fees, maintenance, taxes, insurance, interest, etc. Buy a property and hold that property for a few years, making money every year, and claiming deductions on your earnings for something called depreciation. Fast forward 5 years and you’re ready to sell, the value of your property went up because you made improvements along the way, brought in some better tenants who are paying higher rents, and now you can offer a better cap rate than your competitors. You sell in the blink of an eye, and double your investment. Say you have $500k now sitting in the bank in you LLC’s name, in cash. You can either choose to cash out 100% and pay capital gains tax on your earnings above your basis (at 15% I think?)... OR you can quickly find a new property with that $500k, purchase it, and file a 1031, which says you don’t have to pay ANY capital gains on those earnings. You just increased income significantly without ever paying taxes on the underlying increase in value of your assets. Rinse and repeat for 25 years, develop a portfolio of properties, create a management company so you can stop paying others a percentage of your earnings, and you too can have the problem of too much money. I welcome anyone with actual knowledge of the topic to please expound on, or correct me.\",\n \"I don't see why not. Many ways this could go. Perhaps you can arrange an agreement where you earn 50% of profits over the basic operating costs. This gives them an incentive to let you open it up. This gives you a chance to see if the business actually makes sense financially... It may not.\",\n \"\\\"I have a basic rule: it is the \\\"\\\"business\\\"\\\" guy's responsibility to raise the money. If they can't do it, then they are incompetent, and the \\\"\\\"tech\\\"\\\" guy should avoid them. Generally speaking, the business side needs to be able to identify and validate the market opportunity, define the product, handle sales and marketing and raise the money. The tech side needs to translate the product definition into a technical solution and build it. If you have programming skills, you have plenty of options, and should not partner with people who can't do their part. You can probably handle the business side of things as well, though there is a difference in skill and temperament. Find someone who is as good or better at the business side than you are at programming.\\\"\",\n \"\\\"It sounds like maybe you want an \\\"\\\"investment club\\\"\\\". As defined by the SEC: An investment club is a group of people who pool their money to make investments. Usually, investment clubs are organized as partnerships and, after the members study different investments, the group decides to buy or sell based on a majority vote of the members. Club meetings may be educational and each member may actively participate in investment decisions. These \\\"\\\"typically\\\"\\\" do not need to register: Investment clubs usually do not have to register, or register the offer and sale of their own membership interests, with the SEC. But since each investment club is unique, each club should decide if it needs to register and comply with securities laws. There's more information from the SEC here: http://www.sec.gov/investor/pubs/invclub.htm The taxes depend on how you organized the club, i.e. if you organize as a partnership, I believe that you will be taxed as a partnership. (Not 100% sure.) Some online brokerages have special accounts specifically for investment clubs. Check around.\\\"\",\n \"\\\"This will happen automatically when you open an interest-bearing account with a bank. You didn't think that banks just kept all that cash in a vault somewhere, did you? That's not the way modern banking works. Today (and for a long, long time) banks will keep only a small fraction of their deposits on hand (called the \\\"\\\"reserve\\\"\\\") to fund daily withdrawals and other operations. The rest they routinely lend out to other customers, which is how they pay for their operations (someone has to pay all those tellers, branch managers, loan officers) and pay interest on your deposits, as well as a profit for their owners (it's not a charity service). The fees charged for loan origination, as well as the difference between the loan interest rate and the deposit rate, make up the profit. Banks rarely hold their own loans. Instead, they will sell the loans in portfolios to investors, sometimes retaining servicing rights (they continue to collect the payments and pass them on) and sometimes not (the payments are now due to someone else). This allows them to make more loans. Banks may sometimes not have enough capital on hand. In this case, they can make inter-bank loans to meet their short-term needs. In some cases, they'll take those loans from a government central bank. In the US, this is \\\"\\\"The Fed\\\"\\\", or the Federal Reserve Bank. In the US, back around the late 1920's, and again in the 1980's some banks experienced a \\\"\\\"run\\\"\\\", or a situation where people lost confidence in the bank and wanted to withdraw their money. This caused the bank to have insufficient funds to support the withdrawals, so not everyone got their money. People panicked, and others wanted to take their money out, which caused the situation to snowball. This is how many banks failed. (In the '80s, it was savings-and-loans that failed - still a kind of \\\"\\\"bank\\\"\\\".) Today, we have the FDIC (Federal Deposit Insurance Corporation) to protect depositors. In the crashes in the early 2000's, many banks closed up one night and opened the next in a conservatorship, and then were literally doing business as a new bank without depositors (necessarily) even knowing. This protected the consumers. The bank (as a company) and its owners were not protected.\\\"\",\n \"Set up a company or partnership. Generally what you describe is a classic partnership. In the US - the partnership itself is not taxed (as opposed to a corporation), and each partner is taxed separately on the distributions. That is, the partners as a whole will be taxed on the income of one, if it is distributed through the partnership. Exactly what you want. Do consult with a tax adviser familiar with the Federal and the State laws with the specifics of setting it up and managing it, maybe you'll get a better advice from a professional (which I am not, of course).\",\n \"You're really confused. You need to go back to finance 101 about the concept of corporation and shareholders This is too much to take apart (i.e.: contribution is not a loan, and can't be called. Shareholders are not partners......). Sorry bro, not trying to burst your bubble, but any academic business finance 101 book or OpenCourseWare will cover this and more.\",\n \"\\\"As others have pointed out, leveraged investing is investing borrowed money. To do so, you need to convince a lender that you're good for the loan. This usually means you need to have collateral worth what you're trying to borrow, or you need to pay a higher rate to account for the fact that they're gambling that you will remain employed and pay off the loan. Leveraged investing is, in general, a risky move for exactly this reason. You can lose not just your original investment, but everything you borrowed as well. The only time it really makes sense, in my admittedly conservative opinion, is when you (a) can afford to suffer that loss, (b) are pretty confident of your investment, and (c) have assets which you have no intention to sell for the duration of the loan. An \\\"\\\"unneeded\\\"\\\" mortgage on a house is a classic example, thusly: When I purchased my house, I had enough savings that I could have bought it without taking a mortgage. Instead, I took out a mortgage for a large part of that, and left the remainder in my investment accounts -- essentially building the leveraging loan into the mortgage. I then got obscenely \\\"\\\"lucky\\\"\\\" when interest rates fell through the floor due to the Great Recession, and was able to refinance the mortgage to near record low rates. As a result, on that loan -- which, as I say, I'm in the position of being able to pay off at any time without killing my finances -- I'm currently paying about 3.5%, while the cash this has let me leave in my investments is earning several times that... a net win. But again, note that this required collateral. Essentially, all I'm doing is paying a bit to to borrow my own money (part of the value of the house). There really is no easy way to \\\"\\\"convert 25k to 250k\\\"\\\" -- if there was, everyone would be doing it. There's no magic in investment. Just time and compounding returns and trading off risk against potential gain. The more you try to push it and win big, the more you risk losing big. I really recommend not attempting anything fancy until you're wealthy enough that you can afford those losses. But if you insist on playing in this space, the answer to your question is to buy options. Options are a packaged form of borrowing to invest. Note that they're still considered high-risk unless you know EXACTLY what you're doing, and again I strongly recommend you not put money into them unless you can afford to lose it -- options have a nasty habit of turning from apparent gains on paper to losses remarkably quickly.\\\"\",\n \"\\\"Nothing wrong with the other answers, but here's a \\\"\\\"trick\\\"\\\" to hopefully make it totally transparent. Imagine that you're not the one implementing this business plan, but someone else is. Let's call this other person your asset manager. So on the first day, you give your asset manager $9. He takes this and generates $1 profit from it, recovering the $9 which he then reinvests to generate $1 profit every day. From your perspective, you just gave him $9. At the end of the year, he gives you $365 in addition to your original investment of $9 (in real life he'd take the fees of course, or perhaps he's been lending out the money he's been accumulating and taking the interest from that as pay for his services). So your return on investment is 365 / 9 * 100 % > 4000 %, as claimed by your source.\\\"\",\n \"\\\"There is no one solution to every project finance problem. Two models might make sense in this situation, however. In this case, you would count all the money that you give to your friend as a loan which he will pay back with interest. The interest rate and loan amounts will have to be agreed on by both of you. One one hand, the interest should be high enough to reward you in a successful outcome for the amount of risk that you take on if things don't work out. On the other, the interest rate needs to be low enough where his earnings after loan repayment justify your friend's effort, in addition to being competitive to ant rate your friend could secure from a bank. The downside to this plan is you don't directly benefit from the franchise's profits. In this model, you will record the cash that each of you invests. Since your friend is also adding \\\"\\\"sweat equity\\\"\\\" by setting up and operating the franchise, you will need to quantify the work that your friend and you invest into the franchise. Then you can determine how much each of you has invested in terms of dollars and split any franchise profits based on those proportions. The downside of this plan is that it is difficult to estimate how much time each of you invests and how much that time is worth.\\\"\",\n \"So you think there is a business that can take $X and in two weeks turn it into $10X plus their profit. That means that in two weeks you can turn $1,000 into $10,000. So every two weeks you add a zero, in six weeks you add 3 zeros. In 12 weeks total your $1,000 is now $1,000,000,000; and in a few weeks after that you are richer than Bill Gates. All Guaranteed! Run away.\",\n \"The biggest concern is how you get $250,000 in unsecured credit. It's unlikely that you will be loaned that amount at a percentage lower than what you expect to earn. Unsecured credit lines are rarely lower than 10% and usually approach 20%. On top of that, for a bank to approve you for that credit line, you have to have a high credit score and an income to support the payments on that credit line. But lets suspend disbelief and assume that you can get the money you want on loan. You would then be expected to pay back that 10%, but investments don't go up uniformly. Some years they go up 15-20% and other years they go down 10%. What do you do if you have to sell some of your investments in a down year? That money is no longer invested, and you can't recover it with the following up year because you had to take too much out to cover the loan payments. You'll be out of money long before the loan is repaid because you can expect there will be bad years in the stock market that will eat away at your investment. There were a lot of people who took their money out of the market after the crash of 2008. If they had left their money in through 2009, they would have made all that money back, but if you have a loan to pay you have to pull money out in the bad years as well as the good years. Unless you have a lucky streak of all good years, you're doomed.\",\n \"I disagree. When you start giving that person money to invest, you are made very much aware that there is no guarantee that your investment will see a return or that you will ever see it again. As long as the person managing your funds didn't do anything illegal to lose your money, then he was just doing his job as **both** the investor and he agreed upon.\",\n \"Okay I will asap. And yes, to getting the business off the ground. I've done all the marketing and will be for some time to come. Not just sweaty hands, but also ideas that shape our marketing strategies and also bringing in loyal customers that I personally know who are going to be consistent with us. But I'll talk to a lawyer and have that figured out. I just dont want to get screwed over and I'm new to this being only 19 so.\",\n \"There is a fundemental misunderstanding: the business and the owner are not the same entity. You said: I give the business $25,000 and take 50% of the business. No you can give the owner of the business 25K, and now he has 25K and 50% of a 50K business. That 25K sits in Mr. Smith's bank account, not Acme Widget's account. A more simple example is when you buy a car. The money goes to the car dealership, it does not get put into the car's glove box. You may be thinking of an investor in a business. He could pump $$ into the business as operating capital for a share of the business. In that case, it would be a bit unfair to get 50% of the business for a 25K. However, the owner may be interested in doing such a deal because value of the investor can add more than just $$ to the business. Having a celebrity investor might do more good for the business than the actual dollars. Another situation is that the owner might be desperate. Without a influx of cash the whole business might end. There are guidelines to business evaluation, but valuing them is not an easy thing.\",\n \"Typically you give a loan to the company from yourself as a private person, and when the company makes money the company pays it back to you. Then the company pays for all the expenses with the money from the loan. Even if you don't want a business account yet, you can probably ask your bank for a second account (mine in the UK did that without any problems).\",\n \"\\\"Most personal loans in the US are for the purpose of purchasing some tangible object (usually a house or car) and that object is the collateral for the loan. Indeed, the loan proceeds are usually paid directly to the seller without passing through the bank account of the borrower, and the seller delivers the title of the car to the lender, or a mortgage lien is recorded on the real property. Except possibly in the case of a refinance of a home mortgage, there is not much cash from such a loan to send to a friend to invest in his business, whether in the US or in India. These types of loans are \\\"\\\"relatively easy\\\"\\\" to get. Much harder to get are unsecured personal loans. Unless your friend has a very friendly banker, getting an unsecured loan of, say, $20,000 \\\"\\\"just for the heck of it\\\"\\\" is not easy. Some reasonably well-off people do manage to get such loans and use the money to invest in the stock or bond markets, in which case, the interest paid on such loans can be deducted on Schedule A (but only to the extent of the actual investment income; any extras can be carried over to the next year). So, will your friend be investing in your business or making a loan to your business? and do you anticipate that your business will generate any investment income or interest for your friend? If not, and your friend still wants to finance your business (while making payments on the loan in the US), then your friend must really like you a lot (or have faith that a few years down the road, you will be able to sell your business to GoAppTel for mucho big bucks and pay him off very handsomely).\\\"\",\n \"Ponzi schemes (or pyramid schemes) are based on paying earlier investors from the money invested by the later ones. For Ponzi scheme, the idea is generally to distribute some relateviely high consistent dividend/payout based on the inflow of money from new investors. As long as new investors are coming, the scheme can be sustained for quite some time (see the Madoff's example that spanned over decades). In the mean time the scheme operator can take (some of) the investment money to himself (legally as fees and salary, illegally as embezzling). The scheme operator doesn't actually have to put in any money other than some organizational expenses. However, at some point the new investors' money won't be enough to pay all the existing investors (inevitably, sooner or later, since the dividend payout grows with each new investor and there are no infinite exponential amount of new investors to cover for it). That's when the $#!+ hits the fan and sons of the schemers start ending up hanging from the ceiling. Pyramid scheme is built on similar idea, but the dividend payout varies based on the level of the investor (i.e.: the investor gets paid based on how many new ones he brought in, and how many new ones rooted from them). Thus the incentive to bring new investors is directly shifted to the investors themselves. The schemers here are at the top and get the most payouts from all the rest of the participants. They themselves usually put no or very little investment. However, the end result is the same: couldn't possibly be enough investors to sustain this model forever, and it will inevitably fail at some point. When such a scheme fails - the paying fund ends up being bankrupt, either due to cashflow problems (not enough money in to pay money out) or because all the money dries out (usually - both). How to detect - if the reports are not falsified (which in most cases they are) you'll see clearly that there's no actual investment income in the cash-flow. But, the reports are usually falsified to conceal this exact fact. So, that's where the independent auditors and regulatory oversight come in handy. Generally, if an investment fund doesn't have a reputable independent auditor - stay away.\",\n \"\\\"Give me your money. I will invest it as I see fit. A year later I will return the capital to you, plus half of any profits or losses. This means that if your capital under my management ends up turning a profit, I will keep half of those profits, but if I lose you money, I will cover half those losses. Think about incentives. If you wanted an investment where your losses were only half as bad, but your gains were only half as good, then you could just invest half your assets in a risk-free investment. So if you want this hypothetical instrument because you want a different risk profile, you don't actually need anything new to get it. And what does the fund manager get out of this arrangement? She doesn't get anything you don't: she just gets half your gains, most of which she needs to set aside to be able to pay half your losses. The discrepancy between the gains and losses she gets to keep, which is exactly equal to your gain or loss. She could just invest her own money to get the same thing. But wait -- the fund manager didn't need to provide any capital. She got to play with your money (for free!) and keep half the profits. Not a bad deal, for her, perhaps... Here's the problem: No one cares about your thousands of dollars. The costs of dealing with you: accounting for your share, talking to you on the phone, legal expenses when you get angry, the paperwork when you need to make a withdrawal for some dental work, mailing statements and so on will exceed the returns that could be earned with your thousands of dollars. And then the SEC would probably get involved with all kinds of regulations so you, with your humble means and limited experience, isn't constantly getting screwed over by the big fund. Complying with the SEC is going to cost the fund manager something. The fund manager would have to charge a small \\\"\\\"administrative fee\\\"\\\" to make it worthwhile. And that's called a mutual fund. But if you have millions of free capital willing to give out, people take notice. Is there an instrument where a bunch of people give a manager capital for free, and then the investors and the manager share in the gains and losses? Yes, hedge funds! And this is why only the rich and powerful can participate in them: only they have enough capital to make this arrangement beneficial for the fund manager.\\\"\",\n \"What he is saying is, you borrow lots of money and put it into my business and my business will go up in value and therefore between us we are richer. What he doesn't say is, if his business profits are going to pay off the debt you have accrued. We all know the answer to this but his supporters are so blind in their loyalty that they will miss it. Also known as corporate welfare.\",\n \"There are two fundamental flaws to your plan: Supposing that you can get a loan with an interest rate that is less than the profit you are likely to get from an investment. Historically, the U.S. stock market goes up by 6 to 7% per year. I just did a quick check and found rates for unsecured loans of 10 to 15%. Of course interest rates vary depending on your credit rating and all sorts of other factors, but that's probably a reasonable ball park. Borrowing money at 15% so you can invest it at 6% is not a good plan. Of course you could invest in things that promise higher returns, but such investments have higher risks. If there was a super safe investment that was virtually guaranteed to give 20% profit, the bank wouldn't loan you money at 10 or 15%: they'd put their money in this 20% investment. I don't know what your income is, but unless it's substantial, no one is going to give you an unsecured loan for $250,000. In your question you say you'll use $2,000 of your profits to make payments on the loan. That's less than 0.8% of the loan amount. If you really know a bank that will loan money at 0.8%, I'm sure we'd all like to hear about it. That would be an awesome rate for a fully secured loan, never mind for a signature loan. $250,000 for 10 years at 10% would mean payments of $3,300 per MONTH, and that's about the most optimistic terms I can imagine for a signature loan. You say you plan to lie to the bank. What are you going to tell them? A person doesn't get to be a bank loan officer with authority to make $250,000 loans if he's a complete idiot. They're going to want to know what you intend to do with the money and how you plan to pay it back. If you're making a million dollars a year, sure, they'll probably loan you that kind of money. But if you were making a million dollars a year I doubt you'd be considering this scheme. As TripeHound said in the comments, if it was really possible to get bigger returns on an investment than you would have to pay in interest on an unsecured loan, then everybody would be doing it all the time. Sorry, if you want to be rich, the realistic choices are, (a) arrange to be born to rich parents; (b) win the lottery; (c) get a good job and work hard.\",\n \"Have you considered social lending (for example: Lending Club)?\",\n \"\\\"Why is nobody providing a service that is basically: Give me your money. I will invest it as I see fit. A year later I will return the capital to you, plus half of any profits or losses. This means that if your capital under my management ends up turning a profit, I will keep half of those profits, but if I lose you money, I will cover half those losses. Because they can already make lots of money by just charging people an unconditional fee and not having to cover their losses. Why take on the risk of having to cover your losses when they can just take a percentage of your assets and stick you with any losses? In addition, as Charles E. Grant mentioned in a comment on another answer, if a person has both sufficient capital to cover your losses and sufficient confidence in their investing acumen that they don't think they will have to do so, they have little need for your money. Rather than take half the gains on your money, they will invest their own money (they must have some, or else they can't guarantee your losses) and take all the gains. Your scheme would only be plausible as a partnership between a person with investing skills but little capital, and another person with ample capital and less skill. In that case, the investment whiz could genuinely benefit from access to the bankroller's capital. As quid noted in chat, this does exist in the form of ad-hoc private equity arrangements between individuals. However, such a setup is unlikely to exist as an \\\"\\\"off-the-shelf product\\\"\\\" marketed at retail investors, because financial institutions have more capital than any individual retail investor -- and, more generally, anyone with sufficient skill to pull this off will (at least in theory) quickly accumulate enough capital that they can negotiate a less risky payment plan.\\\"\",\n \"\\\"Now, my own answer: If you join and receive equity, do the 1/3 split as a max. Truthfully, if it were my company, I would try to negotiate with you to only give you 15%--20% because as an advisor you're not going to be involved in executing the idea to turn it into a business. If you contribute capital, do it as a loan. End of story. You don't own more because you financed growth... you shouldn't. The growth will have come because of the collective performance of the whole team. You should get paid back at a \\\"\\\"fair\\\"\\\" rate for your investment... if the company can handle it, I would argue something like 10% interest is reflective of the risk you're taking with your money. If the finances are so tight that the interest repayment isn't an option, do the math behind what you should be paid for the loan in interest, and convert that to shares or equity somehow, and get paid back for the invested capital. If the company can't repay your loan, the business model may not be sound enough, or developed enough, to be investing in to begin with.\\\"\",\n \"Isn't this absolute bullshit? You're basically giving him 8% interest plus 30% stake in the company for nothing other than putting up the initial shareholder capital ... which he's basically treating like a loan because he wants the money back and guaranteed dividend on the stake he's buying with it. Essentially, he's hedging himself against this not being a long continuing concern. So much for trust eh? I have absolutely no idea how the VC world evaluates things so this may be normal practice for them ... but it seems like short changing which will come back to bite you if the business takes off.\",\n \"From my understanding, only A and B are shareholders, and M is a managing entity that takes commission on the profit. Assuming that's true. At the start of the project, A contributes $500,000. At this point, A is the sole shareholder, owning 100% of the project that's valued at $500,000. The real question is, did the value of the project change when B contributed 3 month later. If the value didn't change, then A owns 33.33%, and B owns 66.66%. Assuming both A and B wants to pay themselves with the $800,000 profit, then A gets a third of that, and B gets the rest. However, if at the time of B's contribution, both parties agreed that the pre-money of the project has changed to $1 million, then B owns half the project valued at 2 million post-money. Then the profit would be split half way.\",\n \"Say the company has created 500 shares [or whatever number]. You have 10 shares [equivalent of 2%]. Now when new capital is needed, generally more shares are created. Say they create 100 more shares and sell it to venture capital to raise funds. After this happens; Total Shares: 500+100 = 600 You own: 10 shares Your Ownership % = 1.66% down from 2% Like wise for other older shareholder. The New Venture guy gets 16.66% of ownership. More funds would mean more growth and overall the value of your 10 shares would be more depending on the valuation.\",\n \"But what creates more business owners? They don't pop up out of the ground, and there are always lots of people that want to make their own business. Businesses need capital, they need startup funds. Angel investors, VCs and banks provide the capital.\",\n \"To me this sounds like a transaction, where E already owns a company worth 400k and can therefore pocket the money from D and give D 25% of the profits every year. There is nothing objective (like a piece of paper) that states the company is worth 400K. It is all about perceived value. Some investors may think it is worth something because of some knowledge they may have. Heck, the company could be worth nothing but the investor could have some sentimental value associated to it. So is it actually the case that E's company is worth 400k only AFTER the transaction? It is worth what someone pays for it when they pay for it. I repeat- the 400K valuation is subjective. In return the investor is getting 25% ownership of the product or company. The idea is that when someone has ownership, they have a vested interest in it being successful. In that case, the investor will do whatever he/she can to improve the chances of success (in addition to supplying the 100K capital). For instance, the investor will leverage their network or perhaps put more money into it in the future. Is the 100k added to the balance sheet as cash? Perhaps. It is an asset that may later be used to fund inventory (for instance). ... and would the other 300k be listed as an IP asset? No. See what I said about the valuation just being perception. Note that the above analysis doesn't apply to all Dragons Den deals. It only applies to situations where capital is exchanged for ownership in the form of equity.\",\n \"You need to be clear about who gets your money: If you pay the existing owner $25K and (s)he gives you half the business, then you now own half of a $50K business an the original owner has an extra $25K in spending cash. The value of the business has not changed. If you contribute $25 to the company, new equity shares are created. Shares should be priced correctly, meaning you now own $25K worth of shares in a company worth $75k, so you should have 1/3 of the outstanding shares (counting both old and new shares). If you get more or less than this, then the transaction has happened in an unfair way. If this is a public company, that would most likely be illegal and the SEC may throw you in jail. If it was a private company and your friend created enough shares that you own half the company, then (s)he has given you a gift. If you are contributing to the company at a fair price, you would need to contribute $50K in order to end up with half the equity of the new and now more valuable firm. In that case the firm would be worth $100K after your contribution. Bottom line, this is a common and not complex transaction and should end up with a completely fair outcome. Any unfair situation you can imagine is probably based on false assumptions or a situation where a non-arms-length transaction is transferring wealth contrary to normal rules and procedures.\",\n \"\\\"IPO is \\\"\\\"Initial Public Offering\\\"\\\". Just so you know. The valuations are done based on the company business model, intellectual property, products, market shares, revenues and profits, assets, and future projections. You know, the usual stuff. Yes, it is. And very frequently done. In fact, I can't think of any company that is now publicly traded, that didn't start this way. The first investor, the one who founds the company, is the first one who invests in it after raising the capital (even if it is from his own bank account to pay the fees for filing the incorporation papers). What is the difference between \\\"\\\"normal\\\"\\\" investor and \\\"\\\"angel\\\"\\\"? What do you refer to as \\\"\\\"angel\\\"\\\"? How is it abnormal to you? Any investor can play a role, depending on the stake he/she has in the company. If the stake is large enough - the role will be significant. If the stake is the majority - the investor will in fact be able major decisions regarding the company. How he bought the stocks, whether through a closed offering, initial investment or on a stock exchange - doesn't matter at all. You may have heard of the term \\\"\\\"angels\\\"\\\" with regards to high-tech start up companies. These are private investors (not funds) that invest their own money in start ups at very early stages. They're called \\\"\\\"angels\\\"\\\" because they invest at stages at which it is very hard for entrepreneurs to raise money: there's no product, no real business, usually it is a stage of just an idea or a patent with maybe initial prototype and some preliminary business analysis. These people gamble, in a sense, and each investment is very small (relatively to their wealth) - tens of thousands of dollars, sometimes a hundred or two thousands, and they make a lot of these. Some may fail and they lose the money, but those that succeed - bring very high returns. Imagine investing 10K for 5% stake at Google 15 years ago. Those people are as investors as anyone else, and yes, depending on their stake in the company, they can influence its decisions.\\\"\",\n \"Thanks for the response - ok so maybe the funds could be partially crowd-sourced and partially funded by an accredited investor? Also yes - having an experienced adviser and a plan in place to replace existing directors sound like good plot devices. There doesn't really have to be a limitation to banks, the idea comes from the protagonists being upset with the status quo of banking practices (foreclosures, fees, investing in weapons/warzones etc.) what would you suggest?\",\n \"\\\"First off, with startups, forget that you know about common structures of debt and equity. Just try to think of this money as a generic \\\"\\\"investment\\\"\\\" that meets the investors risk and return objectives. Startups are unique in that they are high risk but generally have almost no assets or security for an investor. Investors generically want two things: 1) Return and 2) Limited Risk. Without speculating too much: consider that the investor might be viewing the return component as the 30% equity and the 8% dividend and he views the risk management component as the additional 30% equity, until repaid. A different way of looking at this might be that the investor would require an equity stake greater than 30% with greater than a 8% dividend if he did not get the initial investment back in return for the reduced stake. In other words, this structure is debt and equity because that is what the investor can demand. Maybe you can get around this by offering a higher equity stake or offering something else although this structure is common because it aligns interests of the investor and the startup.\\\"\",\n \"There are 2 basic ways to have someone buy partial ownership of your company: OR If they buy shares that you already own, then their shares will have the same rights as yours (same voting rights, same dividend rights, etc.). If they buy shares newly created from the company, they could be either identical shares to what you already own, or they could be a new class of shares [you may need to adjust the articles of incorporation if you did not plan ahead with multiple share classes]. You really need to talk to a lawyer & tax accountant about this. There are a lot of questions you need to consider here. For example: do you want to use the money in the business, or would you rather have it personally? Are you concerned about losing some control of how the business is run? What are the short term and long-term tax consequences of each method? What does your new partner want in terms of their share class? The answers to these questions will be highly valuable, and likely worth much more than the fees you will need to pay. At the very least, you will likely need a lawyer and accountant anyway to ensure the filings & taxes are done correctly, so better to involve them now, rather than later. There are many other situations to consider here, and an online forum is not the best place to get advice that might put you in a sticky legal situation later on.\",\n \"\\\"Watch out for PO financing. A lot of those contracts have nasty terms like \\\"\\\"I agree that SCAM CAPITAL will be my sole source of credit for the next 2 years.\\\"\\\" that can get in the way of using bank debt or credit cards. They may even tell you otherwise to get you to sign, but they are the payday lenders of the business world. It can be great when it works, but there are a lot of shark men. While you can grow your company on po financing, understand that those companies exist to suck all the profit out of small, non-innovative companies, who needed a hand and their terms reflect that. If your business is that good maybe you can get someone to buy in instead? The second benefit to this is that if things go tits-up, then you don't have any personal guarantee. You will likely have to guarantee PO financing in most parts of the country.\\\"\",\n \"A lot of people do this. For example, in my area nice townhouses go for about $400K, so if you have $80,000 you can buy one and rent it. Here are the typical numbers: So you would make $350 per month or $4,200 per year on $80,000 in capital or about 5% profit. What can go wrong: (1) The property does not rent and sits vacant. You must come up with $2100 in mortgage payments, taxes, and insurance every month without fail or default. (2) Unexpected expenses. A new furnaces costs over $5,000. A new roof costs $7,000. A new appliance costs $600 to $2000 depending on how upscale your property is. I just had a toilet fixed for a leaky plunger. It cost me $200. As you can see maintenance expenses can quickly get a lot higher than the $50 shown above... and not only that, if you fix things as cheaply as possible (as most landlords do), not only does that decrease the rentability of the property, but it causes stuff to break sooner. (3) Deadbeats. Some people will rent your property and then not pay you. Now you have a property with no income, you are spending $2100 per month to pay for it, AND you are facing steep attorney fees to get the deadbeats evicted. They can fight you in court for months. (4) Damage, wear and tear. Whenever a tenant turns over there is always a lot of broken or worn stuff that has to be fixed. Holes in the wall need to be patched. Busted locks, broken windows, non-working toilets, stains on the carpet, stuck doors, ripped screens, leaky showers, broken tiles, painting exterior trim, painting walls, painting fences, etc. You can spend thousands every time a tenant changes. Other caveats: Banks are much more strict about loaning to non home owners. You usually have to have reserve income. So, if you have little or no income, or you are stretched already, it will be difficult to get commercial loans. For example, lets say your take-home pay is $7,000 and you have no mortgage at all (you rent), then it is fine, the bank will loan you the money. But lets say you only have $5,000 in take home pay and you have an $1,800 mortgage on your own home. In that case it is very unlikely a bank will allow you to assume a 2nd mortgage on a rental property. The more you try to borrow, the more reserve income the bank will require. This tends to set a limit on how much you can leverage.\",\n \"\\\"Investing in an existing company is almost like buying a house, or even becoming an \\\"\\\"Angel investor\\\"\\\" in a start-up. Before you start the process, decide how much you want to be involved in the day-to-day and which industries you would feel most comfortable in. The latter is an important consideration since you would have to know sufficient about the industry in order to evaluate the quality of your prospective investment. Searching for a suitable business is a time-consuming process: The guidance for evaluating any company has been answered in another question, so I'll simply link. Most business owners are looking to their businesses to provide them a pension, so they often look to sell around retirement age. Buying such a business is tricky - you may be assisting the next generation to finance the purchase which can have it's own struggles. Ideally you'll be looking for a young(ish) company with proven sales and which is looking to finance growth in an optimal way. Such a company may have many options for raising capital so you'll be competing to invest. As to whether or not it's a good idea... KFC only became a household name and global franchise after Pete Harman joined Harland Sanders as a partner. Richard and Maurice McDonald may have founded McDonald's but it was Ray Kroc who made it a success. New partners bring in new ideas and fresh energy which the original entrepreneurs may have lost during the difficulties of starting out. But that goes back to my first query; just how much do you want to get involved?\\\"\",\n \"\\\"Written with some mild snark , but no insult intended, because financial stuff can be ridiculously confusing... Looked at another way, you're basically asking if the Biblical \\\"\\\"Parable of the Talents\\\"\\\" can be implemented as a business model. You as the investor wish to be the \\\"\\\"master\\\"\\\", with the entity doing the investing playing the part of the \\\"\\\"servant\\\"\\\". Since the law prohibits actual servitude as described in scripture, the model must substitute a contractual profit- and loss-sharing scheme. OK, based on what you've proposed, and by way of example, let's say you invested a thousand dollars. You give the investment service your money. At the end of a year, they give you back - Your capital ($1000) - Plus 1/2 of any profits OR - Less 1/2 of any losses So let's say the worst happens and they lose ALL of it. According to your proposal, they have to cover 1/2 of the loss. You end up with $500...but they end up with LESS than nothing. They will be in a deficit situation because all the expense was theirs. They don't just fail to make a profit. They go in the hole. It doesn't matter what percentages you use. Regardless of how the loss is shared, you've only guaranteed YOU can't lose all your money. The company CAN. Given a large enough investment, or enough market fluctuation, a big shared loss could shut down a smaller firm. To summarize: - You want a service that charges you nothing - Does all the work of expertly managing and investing your capital - Takes on part of the risk you would normally bear - (on top of their usual risk and liability) - Agrees to do so solely for a percentage of any return (where higher returns will likely involve a higher degree of risk) - AND that guarantees, after just 1 year, you'll get X% of your capital back, no matter what. Win or lose. - Even if the market crashes and all your capital, and theirs, is wiped out Superbest, um, to be serious briefly: what you're proposing is, if nothing else, inherently unfair and inequitable. I believe you intended it as a mutually beneficial scenario, but the real-world imbalance in risk and reward prevents it being so. Any financial service that would accept those terms along with the extra degree of risk would be fiscally irresponsible. From a business standpoint it's an untenable model, and no company would build on it. It would be tantamount to corporate suicide. The requirement that a service promise to give you back X% of your money, no matter how great the loss, makes your proposal impossible. You need to think about how much all this costs, realistically, as well what kind of returns you can actually expect. And that more risk for higher return is exactly what a service could NOT take a chance on if it had to \\\"\\\"share\\\"\\\" investors' losses. Besides, it's not really sharing, now is it? They will always lose more than you, always end up in a negative situation, unable even to recoup costs. Circumstances beyond their control could result in a drop in the value that not only wipes out any profit, but requires them to pay YOU for work performed and expenses incurred on your behalf. Why would they let anyon double-dip like that? Yeah, we all prefer getting something for nothing...but you want valuable services and for them to pay you money for the privilege of providing them? I totally agree that would be fantastic, but in this world even \\\"\\\"free\\\"\\\" doesn't come cheap anymore. And getting back to costs: Without consistent income the service would have nowhere to work and no resources to work with. No office, computer, phone, electricity, Internet, insurance, payroll, licensing, training, maintenance, security, lobbying, etc., etc., etc. Why do people always forget overhead? There's a reason these services operate the way they do. Even the best are working with fairly slim margins in a volatile sector. They're not into 1-year gambles unlikely to cover their cost of doing business, or having to pay for a negative return out of their own pocket. Look, if you're the Biblical master asking your servant to manage things, overhead is built-in. You're taking all the risk as well. You're paying for all three servants' food, home, clothing, etc, plus you had to buy the servants themselves. So its reasonable that you reap the reward of their labor. You paid for it, and you didn't even punish the servant who buried your money in a hole. The two good servants may have done the legwork, but you took on the burden of everything else. In your proposed service, however, contrary to the servant's usual role, the servant - i.e., the company - would be assuming a portion of your risk on top of their own, yet without any guarantee of profit, income, or even coverage of costs. They're also subject to regulations, fees, liability, legal stuff, etc. that you're not, against most of which you are indemnified and held harmless. If they agree to cover a share of your loss, it exposes to greater liability and more related risk. It robs them of resources they need to invest in their own business, while at the same time forcing them to do all the work. As a result, your model doesn't give such a service a fighting chance. Getting it off the ground and lasting past the first-year payouts would require more luck than skill. They'd be better off heading to Vegas and the blackjack table, where the only overhead is a cheap flight and room, where the odds and rules don't change overnight, and they at least get free drinks. If none of the equivalents satisfies, then the Biblical parable appears to describe your only option for obtaining exactly what you want: Move to a country where slavery is legal and buy an investor :-) Cheers, c\\\"\",\n \"Executive Summary: your elevator speech Overview: What it is in detail Disclosure: what can go wrong, in detail subchapter one: internal threats/weakness subchapter two external subchapter three: risk management Proforma financials: heres how much money I need and here's what the books look like at the end of each of five years. Revenue Forecast: how the majic unfolds in units, price, geographically, and any other dimension Corporate/capital structure: how they can get in an out of this investment and other C-suite operating tidbits Execution plan: you receive the money, then what?\",\n \"\\\"I have worked with venture capitalists on a few different online based tools. There is no rule. I have seen deals go through for as little as 10% and up to 80%. There are a number of factors in place: What it really comes down to in the tech world is \\\"\\\"Is this a side job or your life and can you live while your site isn't generating income... and then can you pay others that you need to pay for your site to exist?\\\"\\\" Venture capitalists are into risky ventures that offer a high return. They have a portfolio of businesses and one going down will be made up for with a huge return on another. They will shut you down super quick though if they think your team/idea is a dud. What they initially take from your business is so negotiable there is no reason for me to give a number. We might be able to give you a half-assed forecast if you tell us your idea/staff size/current revenue and expenses/projections/amount of investment looking for.\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"Basically, you either borrow money, or get other people to invest in your business by buying stock or something analogous. Sometimes you can get people to \"\"park\"\" money with you. For example, many people deposit money in a bank checking account. They don't get any interest or other profit from this, they just do it because the bank is a convenient place to store their money. The bank then loans some percentage of this money out and keeps the interest. I don't doubt that people have come up with more clever ways to use other people's money. Borrowing money for an investment or business venture is risky because if you lose money, you may be unable to pay it back. On the other hand, investors expect a share of the profit, not just a fixed interest rate.\"","You can either borrow money... credit card, line of credit, re-finance your home, home equity line of credit, loan, mortgage, etc. Or you have other invest in your company as equity. They will contribute $X to get Y% of your company and get Z% of the profits. Note amount of profits does not necessarily have to equate to percentage owned. This makes sense if they are a passive investor, where they just come up with the money and you do all the work. Also voting rights in a company does not have to equate to percentage owned either. You can also have a combination of equity and debt. If you have investors, you would need to figure out whether the investor will personally guarantee the debt of your company - recourse vs non-recourse. If they have more risk, they will want more of a return. One last way to do it is crowdfunding, similar to what people do on Kickstarter. Supporters/customers come up with the money, then you deliver the product. Consulting practices do something similar with the concept of retainers. Best of luck."],"string":"[\n \"\\\"Basically, you either borrow money, or get other people to invest in your business by buying stock or something analogous. Sometimes you can get people to \\\"\\\"park\\\"\\\" money with you. For example, many people deposit money in a bank checking account. They don't get any interest or other profit from this, they just do it because the bank is a convenient place to store their money. The bank then loans some percentage of this money out and keeps the interest. I don't doubt that people have come up with more clever ways to use other people's money. Borrowing money for an investment or business venture is risky because if you lose money, you may be unable to pay it back. On the other hand, investors expect a share of the profit, not just a fixed interest rate.\\\"\",\n \"You can either borrow money... credit card, line of credit, re-finance your home, home equity line of credit, loan, mortgage, etc. Or you have other invest in your company as equity. They will contribute $X to get Y% of your company and get Z% of the profits. Note amount of profits does not necessarily have to equate to percentage owned. This makes sense if they are a passive investor, where they just come up with the money and you do all the work. Also voting rights in a company does not have to equate to percentage owned either. You can also have a combination of equity and debt. If you have investors, you would need to figure out whether the investor will personally guarantee the debt of your company - recourse vs non-recourse. If they have more risk, they will want more of a return. One last way to do it is crowdfunding, similar to what people do on Kickstarter. Supporters/customers come up with the money, then you deliver the product. Consulting practices do something similar with the concept of retainers. Best of luck.\"\n]","isConversational":false}}},{"rowIdx":385,"cells":{"_id":{"kind":"string","value":"7448"},"query":{"kind":"string","value":"If an index goes up because an underlying company issues more shares, what happens to the ETF"},"gt_ids":{"kind":"list like","value":["418150"],"string":"[\n \"418150\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["418150","178296","275392","584836","481761","480808","260305","364420","174583","319477","80289","261522","57387","91779","270539","46671","313897","89205","137478","525590","307095","400841","183531","93354","29184","550410","400119","158934","474670","193648","108965","152014","25763","334162","357127","303810","227324","282565","325818","3656","501153","30973","428187","26315","389100","304023","144033","199751","87238","161041","119819","21975","421039","333605","147282","535043","165544","93836","281841","539664","253711","78626","267266","575554","94076","324197","120059","419505","464337","87261","401952","587137","515191","508286","61103","214281","361843","322070","526073","364674","583080","492212","244813","454610","366847","64634","246295","41176","527990","533477","56422","201714","330729","253817","88228","408524","84045","200360","217002","287092"],"string":"[\n \"418150\",\n \"178296\",\n \"275392\",\n \"584836\",\n \"481761\",\n \"480808\",\n \"260305\",\n \"364420\",\n \"174583\",\n \"319477\",\n \"80289\",\n \"261522\",\n \"57387\",\n \"91779\",\n \"270539\",\n \"46671\",\n \"313897\",\n \"89205\",\n \"137478\",\n \"525590\",\n \"307095\",\n \"400841\",\n \"183531\",\n \"93354\",\n \"29184\",\n \"550410\",\n \"400119\",\n \"158934\",\n \"474670\",\n \"193648\",\n \"108965\",\n \"152014\",\n \"25763\",\n \"334162\",\n \"357127\",\n \"303810\",\n \"227324\",\n \"282565\",\n \"325818\",\n \"3656\",\n \"501153\",\n \"30973\",\n \"428187\",\n \"26315\",\n \"389100\",\n \"304023\",\n \"144033\",\n \"199751\",\n \"87238\",\n \"161041\",\n \"119819\",\n \"21975\",\n \"421039\",\n \"333605\",\n \"147282\",\n \"535043\",\n \"165544\",\n \"93836\",\n \"281841\",\n \"539664\",\n \"253711\",\n \"78626\",\n \"267266\",\n \"575554\",\n \"94076\",\n \"324197\",\n \"120059\",\n \"419505\",\n \"464337\",\n \"87261\",\n \"401952\",\n \"587137\",\n \"515191\",\n \"508286\",\n \"61103\",\n \"214281\",\n \"361843\",\n \"322070\",\n \"526073\",\n \"364674\",\n \"583080\",\n \"492212\",\n \"244813\",\n \"454610\",\n \"366847\",\n \"64634\",\n \"246295\",\n \"41176\",\n \"527990\",\n \"533477\",\n \"56422\",\n \"201714\",\n \"330729\",\n \"253817\",\n \"88228\",\n \"408524\",\n \"84045\",\n \"200360\",\n \"217002\",\n \"287092\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["If a stock that makes up a big part of the Dow Jones Industrial Average decided to issue a huge number of additional shares, that will make the index go up. At least this is what should happen, since an index is basically a sum of the market cap of the contributing companies. No, indices can have various weightings. The DJIA is a price-weighted index not market-cap weighted. An alternative weighting besides market-cap and price is equal weighting. From Dow Jones: Dow Jones Industrial Average™. Introduced in May 1896, the index, also referred to as The Dow®, is a price-weighted measure of 30 U.S. blue-chip companies. Thus, I can wonder what in the new shares makes the index go up? If a stock is split, the Dow divisor is adjusted as one could easily see how the current Dow value isn't equal to the sum or the share prices of the members of the index. In other cases, there may be a dilution of earnings but that doesn't necessarily affect the stock price directly as there may be options exercised or secondary offerings made. SO if the index, goes up, will the ETF DIA also go up automatically although no additional buying has happened in the ETF itself? If the index rises and the ETF doesn't proportionally, then there is an arbitrage opportunity for someone to buy the DIA shares that can be redeemed for the underlying stocks that are worth more in this case. Look at the Creation and Redemption Unit process that exists for ETFs.","Well, if one share cost $100 and the company needs to raise $10000, then the company will issue 100 shares for that price. Right? However, say there's 100 shares out there now, then each share holder owns 1/100th of the company. Now the company will remain the same, but it's shared between 200 shareholders after the issuing of new shares. That means each share holder now owns 1/200th of the company. And hence only gets 1/200th of their earnings etc.","Theoretically, when a company issues more shares, it does not affect the value of your shares. The reason is that when a company issues and sells more shares, the proceeds from the sale of those shares goes back into the company. Using your example, you have 10 out of 100 shares of the company, for a 10% stake. Let's say that the shares are valued at $1,000 each, meaning that the market value of the company is $100,000, and your stake is worth $10,000. Now the company issues 100 more shares at $1,000 each. The company receives $100,000 from new investors, and now the company is worth $200,000. Your stake is now only 5% of the company, but it is still worth $10,000. The authorized share capital is the amount of shares that a company has already planned on selling. When you buy stock in a company, you can look up how many shares exist, so you know what your percent stake in the company is. When a company wants to sell more shares, this is called an increase of authorized share capital. In order to do this, the company generally needs the approval of a majority of the existing shareholders.","The reason a company creates more stock is to generate more capital so that this can be utilized and more returns can be generated. It is commonly done as a follow on public offer. Typically the funds are used to retire high cost debts and fund future expansion. What stops the company from doing it? Are Small investors cheated? It's like you have joined a car pool with 4 people and you are beliving that you own 1/4th of the total seats ... so when most of them decide that we would be better of using Minivan with 4 more persons, you cannot complain that you now only own 1/8 of the total seats. Even before you were having just one seat, and even after you just have one seat ... overall it maybe better as the ride would be good ... :)","In simplest terms, when a company creates new shares and sells them, it's true that existing shareholders now own a smaller percentage of the company. However, as the company is now more valuable (since it made money by selling the new shares), the real dollar value of the previous shares is unchanged. That said, the decision to issue new shares can be interpreted by investors as a signal of the company's strategy and thereby alter the market price; this may well affect the real dollar value of the previous shares. But the simple act of creating new shares does not alter the value in and of itself.","Let me answer by parts: When a company gives dividends, the share price drops by the dividend amount. Not always by that exact amount for many different reasons (e.g. there are transaction costs if you reinvest, dividend taxes, etc). I have tested that empirically. Now, if all the shareholders choose to reinvest their dividends, will the share price go back up to what it was prior to the dividend? That is an interesting question. The final theoretical price of the company does not need to be that. When a company distributes dividends its liquidity diminish, there is an impact on the balance sheet of the company. If all investors go to the secondary market and reinvest the dividends in the shares, that does not restore the cash in the balance sheet of the company, hence the theoretical real value of the company is different before the dividends. Of course, in practice there is not such a thing as one theoretical value. In reality, if everybody reinvest the dividend, that will put upward pressure over the price of the company and, depending on the depth of the offers, meaning how many orders will counterbalance the upward pressure at the moment, the final price will be determined, which can be higher or lower than before, not necessarily equal. I ask because some efts like SPY automatically reinvest dividends. So what is the effect of this reinvestment on the stock price? Let us see the mechanics of these purchases. When a non distributing ETF receives cash from the dividends of the companies, it takes that cash and reinvest it in the whole basket of stocks that compose the index, not just in the companies that provided the dividends. The net effect of that is a small leverage effect. Let us say you bought one unit of SPY, and during the whole year the shares pay 2% of dividends that are reinvested. At the end of that year, it will be equivalent to having 1.02 units of SPY.","An ETF consists of two componenets : stocks and weightage of each stock. Assuming the ETF tracks the average of the 5 stock prices you bought and equal weightage was given to each stock , an increase in 20% in any one of the five stocks will cause the price of the ETF to increase by 4% also This does not take into consideration tracking error && tracking difference , fund expense ratio which may affect the returns of the ETF also","Assuming you are saying that the company issues 20,000 additional shares of its own stock and sells them for $8 each: The money from the sale is not income and not part of earnings. It is capital and appears on the balance sheet as part of shareholder's equity. With no other transactions, yes, the total of shares outstanding is increased by 20,000 to 100,000.","Let's say the company has a million shares valued at $10 each, so market caps is $10 million dollar = $10 per share. Actual value of the company is unknown, but should be close to that $10 million if the shares are not overvalued or undervalued. If they issue 100,000 more shares at $10 each, the buyers pay a million dollar. Which goes into the bank account of the company. Which is now worth a million dollar more than before. Again, we don't know what it is worth, but the market caps should go up to $11 million dollar. And since you have now 1,100,000 shares, it's still $10 per share. If the shares are sold below or above $10, then the share price should go down or up a bit. Worst case, if the company needs money, can't get a loan, and sells 200,000 shares for $5 each to raise a million dollars, there will be suspicion that the company is in trouble, and that will affect the share price negatively. And of course the share price should have dropped anyway because the new value is $11,000,000 for $1,200,000 shares or $9.17 per share.","Say the company has created 500 shares [or whatever number]. You have 10 shares [equivalent of 2%]. Now when new capital is needed, generally more shares are created. Say they create 100 more shares and sell it to venture capital to raise funds. After this happens; Total Shares: 500+100 = 600 You own: 10 shares Your Ownership % = 1.66% down from 2% Like wise for other older shareholder. The New Venture guy gets 16.66% of ownership. More funds would mean more growth and overall the value of your 10 shares would be more depending on the valuation.","In theory*, if a company has 1m shares at $10 and does a 10 for 1 split, then the day after it has 10m shares at $1 (assuming no market move). So both the price and the number of share change, keeping the total value of the company unchanged. Regarding your BIS, I suspect that the new number of shares has not been reported yet because it's an ETF (the number of shares in issue changes everyday due to in/out flows). Your TWX example is not ideal either because there was a spin off on the same day as the stock split so you need to separate the two effects. * Some studies have documented a positive stock split effect - one of the suggested reasons is that the stock becomes more liquid after the split. But other studies have rejected that conclusion, so you can probably safely consider that on average it will not have a material effect.","Like others have already said, it may cause an immediate dip due to a large and sudden move in shares for that particular stock. However, if there is nothing else affecting the company's financials and investors perceive no other risks, it will probably bounce back a bit, but not back to the full value before the shares were issued. Why? Whenever a company issues more stock, the new shares dilute the value of the current shares outstanding, simply because there are now more shares of that stock trading on the market; the Earnings Per Share (EPS) Ratio will drop since the same profit and company value has to be spread across more shares. Example: If a company is valued at $100 dollars and they have 25 shares outstanding, then the EPS ratio equates to $4 per share (100/25 = 4). If the company then issues more shares (stock to employees who sell or keep them), let's say 25 more shares, then shares outstanding increase to 50, but the company's value still remains at $100 dollars. EPS now equates to $2 per share (100/50 = 2). Now, sometimes when shareholders (especially employees...and especially employees who just received them) suddenly all sell their shares, this causes a micro-panic in the market because investors believe the employees know something bad about the company that they don't. Other common shareholders then want to dump their holdings for fear of impending collapse in the company. This could cause the share price to dip a bit below the new diluted value, but again if no real, immediate risks exist, the price should go back up to the new, diluted value. Example 2: If EPS was at $4 before issuing more stock, and then dropped to $2 after issuing new stock, the micro-panic may cause the EPS to drop below $2 and then soon rebound back to $2 or more when investors realize no actual risk exists. After the dilution phase plays out, the EPS could actually even go above the pre-issuing value of $4 because investors may believe that since more stock was issued due to good profits, more profits may ensue. Hope that helps!","\"For new shares to be successfully sold, the price has to be below market price. If you currently own shares of that company, you should always get an option to buy those newly sold shares at that discounted price. The number of options depends on the relative number of shares you hold. Lets say you own 100 out of 1000 shares, currently priced at $10. 100 new shares are to be sold at $9. Since you are holding 10% of all shares, you have the option (i.e. the right) to buy 10 new (cheaper) shares (10% of 100) before anybody else can buy them. Theoretically, the money you save by getting the shares at a discounted price is equal to the money you lose by the share's value being diluted. So, if you're a shareholder and the company is increasing it's capital, you're given the right to \"\"go with it\"\".\"","The future shares will be fewer in number, yet have claim to less cash in the bank. All in all, there's little reason the shares would rise in value. Say there are 1M shares, trading at $10. Market cap is $10M of course. Now, there happens to be $2M cash in the bank so each share had about $2 cash. By taking the $2M and buying 200K shares, 800K shares remain, but why would you think they'd be valued at $12.50? The same $10 value per share is now an $8M market cap as $2M has been disbursed, no less so than if it were given out in a dividend.","The ETF supply management policy is arcane. ETFs are not allowed to directly arbitrage their holdings against the market. Other firms must handle redemptions & deposits. This makes ETFs slightly costlier than the assets held. For ETFs with liquid holdings, its price will rarely vary relative to the holdings, slippage of the ETF's holdings management notwithstanding. This is because the firms responsible for depositing & redeeming will arbitrage their equivalent holdings of the ETF assets' prices with the ETF price. For ETFs with illiquid holdings, such as emerging markets, the ETF can vary between trades of the holdings. This will present sometimes large variations between the last price of the ETF vs the last prices of its holdings. If an ETF is shunned, its supply of holdings will simply drop and vice versa.","But if you add a security to the index you also remove one from the index, thus both a buy and sell. If weights change some go up, some go down thus some need to be purchased and some need to be sold. So I still don't see how ETFs are net sinks beyond their simple AUM.","An ETF manager will only allow certain financial organisations to create and redeem ETF shares. These are called Authorised Participants (APs). The APs have the resources to bundled up packages of shares that they already own and hold in order to match the ETFs requirements. In the case of the EDEN ETF, this portfolio is the MSCI Denmark Index. Only APs transact business directly with the ETF manager. When ETF shares need to be created, the AP will bundle up the portfolio of shares and deliver them to the ETF manager. In return, the ETF manager will deliver to the AP the corresponding number of shares in the ETF. Note that no cash changes hands here. (These ETF shares are now available for trading in the market via the AP. Note that investors do not transact business directly with the ETF manager.) Similarly, when ETF shares need to be redeemed, the AP will deliver the ETF shares to the ETF manager. In return, the ETF manager will deliver to the AP the corresponding portfolio of shares. Again, no cash changes hands here. Normally, with an established and liquid ETF, investors like you and me will transact small purchases and sales of ETF shares with other small investors in the market. In the event that an AP needs to transact business with an investor, they will do so by either buying or selling the ETF shares. In the event that they have insufficient ETF shares to meet demand, they will bundle up a portfolio deliver them to the ETF provider in return for ETF shares, thus enabling them to meet demand. In the event that a lot of investors are selling and the AP ends up holding an excessive amount of ETF shares, they will deliver unwanted shares to the ETF manager in exchange for a portfolio of the underlying shares. According to this scheme, large liquidations of ETF holdings should not effect the share prices of the underlying portfolio. This is because the underlying shares are not sold in the market, rather they are simply returned to the AP in exchange for the ETF shares (Recall that no cash is changing hands in this type of transaction). The corresponding trail of dividends and distributions to ETF share holders follows the same scheme.","The market doesn't really need to adjust for fees on ETF funds that are often less than 1/10th of a percent. The loss of the return is more than made up for by the diversification. How does the market adjust for trading fees? It doesn't have to, it's just a cost of doing business. If one broker or platform offers better fee structures, people will naturally migrate toward the lower fees.","No. Not directly. A company issues stock in order to raise capital for building its business. Once the initial shares are sold to the public, the company doesn't receive additional funds from future transactions of those shares of stock between the public. However, the company could issue more shares at the new higher price to raise more capital.","As others have posted, the company gains capital in return for its new shares. However, the share price can still fall. The problem is that the share marked is affected by supply and demand like any other marked. If the company just issues the new shares at marked price, they will have problems finding buyers. The people who are willing to pay that price has already bought as many shares as they want. The company does this to raise capital, and depends on the shares actually selling for this to work. So, they issue shares at below marked price to attract buyers and the shares get diluted. In the end the share will usually end up somewhere between the old marked price and the issue price. The old share owners are probably not too happy about this and will not accept this plan. (At least here in Norway, share issue has to be accepted at a shareholder meeting) So, what is often done instead is to issue buy options for the required number of shares at the below-marked price. These options are given (for free) to the current share holders proportional to their current holding. If everybody exercises their options they get new cheap shares that compensates for the loss of share value. If they don't have the capital themselves, they can sell the options and get compensation that way instead.","If that company issues another 100 shares, shouldn't 10 of those new 100 shares be mine? Those 100 shares are an asset of the company, and you own 10% of them. When investors buy those new shares, you again own a share of the proceeds, just as you own a share of all the company's assets. A company only issues new share to raise money - it is a borrowing from investors, and in that way can be seen as an alternative to taking on loans. Both share issuing and a loan bring new capital and debt into a company. The difference is that shares don't need to be repaid.","Is it normal for such transactions to create new outstanding shares? Yes a company can create new shares or a Majority share holder can sell some of his stake or it can be a mix of both. how will this news affect the short-term and long-term price of the company's stock? This is opinion based and not apt for this site. It can be positive or negative depending on how the market reacts to the news.","The literal answer to your question 'what determines the price of an ETF' is 'the market'; it is whatever price a buyer is willing to pay and a seller is willing to accept. But if the market price of an ETF share deviates significantly from its NAV, the per-share market value of the securities in its portfolio, then an Authorized Participant can make an arbitrage profit by a transaction (creation or redemption) that pushes the market price toward NAV. Thus as long as the markets are operating and the APs don't vanish in a puff of smoke we can expect price will track NAV. That reduces your question to: why does NAV = market value of the holdings underlying a bond ETF share decrease when the market interest rate rises? Let's consider an example. I'll use US Treasuries because they have very active markets, are treated as risk-free (although that can be debated), and excluding special cases like TIPS and strips are almost perfectly fungible. And I use round numbers for convenience. Let's assume the current market interest rate is 2% and 'Spindoctor 10-year Treasury Fund' opens for business with $100m invested (via APs) in 10-year T-notes with 2% coupon at par and 1m shares issued that are worth $100 each. Now assume the interest rate goes up to 3% (this is an example NOT A PREDICTION); no one wants to pay par for a 2% bond when they can get 3% elsewhere, so its value goes down to about 0.9 of par (not exactly due to the way the arithmetic works but close enough) and Spindoctor shares similarly slide to $90. At this price an investor gets slightly over 2% (coupon*face/basis) plus approximately 1% amortized capital gain (slightly less due to time value) per year so it's competitive with a 3% coupon at par. As you say new bonds are available that pay 3%. But our fund doesn't hold them; we hold old bonds with a face value of $100m but a market value of only $90m. If we sell those bonds now and buy 3% bonds to (try to) replace them, we only get $90m par value of 3% bonds, so now our fund is paying a competitive 3% but NAV is still only $90. At the other extreme, say we hold the 2% bonds to maturity, paying out only 2% interest but letting our NAV increase as the remaining term (duration) and thus discount of the bonds decreases -- assuming the market interest rate doesn't change again, which for 10 years is probably unrealistic (ignoring 2009-2016!). At the end of 10 years the 2% bonds are redeemed at par and our NAV is back to $100 -- but from the investor's point of view they've forgone $10 in interest they could have received from an alternative investment over those 10 years, which is effectively an additional investment, so the original share price of $90 was correct.","\"Market cap is the current value of a company's equity and is defined as the current share price multiplied by the number of shares. Please check also \"\"enterprise value\"\" for another definition of a company`s total value (enterprise value = market cap adjusted for net nebt). Regarding the second part of your question: Issuing new shares usually does not affect market cap in a significant way because the newly issued shares often result in lower share prices and dilution of the existing share holders shares.\"","\"Does the bolded sentence apply for ETFs and ETF companies? No, the value of an ETF is determined by an exchange and thus the value of the share is whatever the trading price is. Thus, the price of an ETF may go up or down just like other securities. Money market funds can be a bit different as the mutual fund company will typically step in to avoid \"\"Breaking the Buck\"\" that could happen as a failure for that kind of fund. To wit, must ETF companies invest a dollar in the ETF for every dollar that an investor deposited in this aforesaid ETF? No, because an ETF is traded as shares on the market, unless you are using the creation/redemption mechanism for the ETF, you are buying and selling shares like most retail investors I'd suspect. If you are using the creation/redemption system then there are baskets of other securities that are being swapped either for shares in the ETF or from shares in the ETF.\"","No, the expense ratio would be something you wouldn't be charged. If you bought shares of the ETF long, then the dividends are usually reduced by the expense ratio if you wanted to know where to find that charge in general. You would have to make up for any dividends the underlying stocks as part of general shorting since the idea is that once you buy to put back the shares, it has to appear as if they weren't missing in the first place. No, the authorized participant would handle changes to the underlying structure if needed.","Let me answer with an extreme example - I own the one single share of a company, and it's worth $1M. I issue 9 more shares, and find 9 people willing to pay $1M for each share. I know find my ownership dropped by 90%, and I am now a 10% owner of a business that was valued at $1M but with an additional $9M in the bank for expansion. (Total value now $10M) Obviously, this is a simplistic view, but no simpler than the suggestion that your company would dilute its shares 90% in one transaction.","A DRIP plan with the ETF does just that. It provides cash (the dividends you are paid) back to the fund manager who will accumulate all such reinvested dividends and proportionally buy more shares of stock in the ETF. Most ETFs will not do this without your approval, as the dividends are taxed to you (you must include them as income for that year if this is in a taxable account) and therefore you should have the say on where the dividends go.","Of course, this calculation does not take into consideration the fact that once the rights are issues, the price of the shares will drop. Usually this drop corresponds to the discount. Therefore, if a rights issue is done correctly share price before issuance-discount=share price after issuance. In this result, noone's wealth changes because shareholders can then sell their stock and get back anything they had to put in.","It may be true for a bond fund. But it is not true for bond etf. Bond etf will drop by the same amount when it distribute dividend on ex-dividend date.","Stock dilution is legal because, in theory, the issuance of new shares shouldn't affect actual shareholder value. The other answers have explained fairly well why this is so. In practice, however, the issuance of new shares can destroy shareholder value. This normally happens when the issuing company: In these cases, the issuance of more shares merely reduces each shareholder's stake in the company without building proportional shareholder value.","The shareholders can't all re-invest their dividends -- it's not possible. Paying a dividend doesn't issue any new shares, so unless some of the existing shareholders sell their shares instead of re-investing, there aren't any shares available for the shareholders to re-invest in.","It's impossible to know for sure, which I'm sure you know, but paying these large debts all at once will leave very little assets in comparison to what they had. Issuing new shares like this is called dilution which means the price will be forced downward because the same (or in this case less) net earnings must be divided by more shares outstanding. A secondary offering almost always lowers stock price. http://wiki.fool.com/What_Happens_to_the_Share_Price_When_New_Shares_Are_Issued%3F","Here is an example for you. We have a fictional company. It's called MoneyCorp. Its job is to own money, and that's all. Right now it owns $10,000. It doesn't do anything special with that $10,000 - it stores it in a bank account, and whenever it earns interest gives it to the shareholders as a dividend. Also, it doesn't have any expenses at all, and doesn't pay taxes, and is otherwise magic so that it doesn't have to worry about distractions from its mathematical perfection. There are 10,000 shares of MoneyCorp, each worth exactly $1. However, they may trade for more or less than $1 on the stock market, because it's a free market and people trading stock on the stock market can trade at whatever price two people agree on. Scenario 1. MoneyCorp wants to expand. They sell 90,000 shares for $1 each. The money goes in the same bank account at the same interest rate. Do the original shareholders see a change? No. 100,000 shares, $100,000, still $1/share. No problem. This is the ideal situation. Scenario 2: MoneyCorp sells 90,000 shares for less than the current price, $0.50 each. Do the original shareholders lose out? YES. It now has something like $55,000 and 100,000 shares. Each share is now worth $0.55. The company has given away valuable equity to new shareholders. That's bad. Why didn't they get more money from those guys? Scenario 3: MoneyCorp sells 90,000 shares for more than the current price, $2 each, because there's a lot of hype about its business. MoneyCorp now owns $190,000 in 100,000 shares and each share is worth $1.90. Existing shareholders win big! This is why a company would like to make its share offering at the highest price possible (think, Facebook IPO). Of course, the new shareholders may be disappointed. MoneyCorp is actually a lot like a real business! Actually, if you want to get down to it, MoneyCorp works very much like a money-market fund. The main difference between MoneyCorp and a random company on the stock market is that we know exactly how much money MoneyCorp is worth. You don't know that with a real business: sales may grow, sales may drop, input prices may rise and fall, and there's room for disagreement - that's why stock markets are as unpredictable as they are, so there's room for doubt when a company sells their stock at a price existing shareholders think is too cheap (or buys it at a price that is too expensive). Most companies raising capital will end up doing something close to scenario 1, the fair-prices-for-everyone scenario. Legally, if you own part of a company and they do something a Scenario-2 on you... you may be out of luck. Consider also: the other owners are probably hurt as much as you are. Only the new shareholders win. And unless the management approving the deal is somehow giving themselves a sweetheart deal, it'll be hard to demonstrate any malfeasance. As an individual, you probably won't file a lawsuit either, unless you own a very large stake in the company. Lawsuits are expensive. A big institutional investor or activist investor of some sort may file a suit if millions of dollars are at stake, but it'll be ugly at best. If there's nothing evil going on with the management, this is just one way that a company loses money from bad management. It's probably not the most important one to worry about.","Since the market is in general rather efficient, the price of the ETF will most of the time reflects the prices of the underlying securities. However, there are times when ETF price deviates from its fundamental value. This is called trading at a premium/discount. This creates arbitrage opportunity, which is actually being studied in finance literature.","The check is written to BigCo. Jack is being diluted, corporation issues more shares. There's no gain, no change in Jack's equity value. Jack didn't lose or win anything. BigCo was worth $1M before the additional money, it is worth $1.25M after the additional money, with Jack owning the same $1M, but the cake is now bigger (obviously the numbers are wrong in your example, but you get the point).","They can rebalance and often times at a random manager's discretion. ETF's are just funds, and funds all have their own conditions, read the prospectus, thats the only source of truth.","A company typically goes public in order to bring in additional capital. In an IPO, the company (through its officials) will typically do so by issuing additional shares, and offering to sell those to investors. If they did not do that, then there would be no net capital gain for the company; if person A sells share in company C to person B, then company C does not benefit directly from the exchange. By issuing and selling additional shares, the total value of all stock in the company can increase. Being publicly traded also greatly increases the confidence in the valuation of the company, as a consequence of the perfect market theory. There is nothing in this that says that initial investors (cofounders, employees, etc.) need to sell their shares in the process. They might choose to do so, or they might not; or they might be prevented from doing so by terms of any agreements that they have signed or by insider trading laws. Compare What happens to internal stock when a company goes public? Depending on specifics, it might be reasonable for the company to perform a share split prior to the initial public offering. That, however, doesn't affect the total value of the shares, only the price per share.","There are a number of ways this can result. In a broad ETF, such as SPY, the S&P 500 spider, the S&P index will have 500 stocks no matter what, so a buyout would simply result in a re-shuffling of the index makeup. No buyout will happen so quickly that there's no time to choose the next stock to join the index. In your case, if the fund manager (per the terms of the prospectus) wishes to simply reallocate the index to remove the taken-over stock that's probably how he handle it. Unless of course, the prospectus dictates otherwise. In which case, a cash dividend is a possible alternative.","Many companies actually just issue new shares for employee compensation instead of buying back existing ones. So actually, the share price should go down because the same value is now diluted over more shares. In addition, this would not necessarily affect companies with many employees than those with fewer employees because companies with more employees tend to be bigger and thus have more shares (among which the change in demand would be distributed). Also, I think many companies do not issue shares to employees every pay day, but just e.g. once every quarter.","\"From How are indexes weighted?: Market-capitalization weighted indexes (or market cap- or cap-weighted indexes) weight their securities by market value as measured by capitalization: that is, current security price * outstanding shares. The vast majority of equity indexes today are cap-weighted, including the S&P 500 and the FTSE 100. In a cap-weighted index, changes in the market value of larger securities move the index’s overall trajectory more than those of smaller ones. If the fund you are referencing is an ETF then there may be some work to do to figure out what underlying securities to use when handling Creation and Redemption units as an ETF will generally have shares created in 50,000 shares at a time through Authorized Participants. If the fund you are referencing is an open-end fund then there is still cash flows to manage in the fund as the fund has create and redeem shares in on a daily basis. Note in both cases that there can be updates to an index such as quarterly rebalancing of outstanding share counts, changes in members because of mergers, acquisitions or spin-offs and possibly a few other factors. How to Beat the Benchmark has a piece that may also be useful here for those indices with many members from 1998: As you can see, its TE is also persistently positive, but if anything seems to be declining over time. In fact, the average net TE for the whole period is +0.155% per month, or an astounding +1.88% pa net after expenses. The fund expense ratio is 0.61% annually, for a whopping before expense TE of +2.5% annually. This is once again highly statistically significant, with p values of 0.015 after expenses and 0.0022 before expenses. (The SD of the TE is higher for DFSCX than for NAESX, lowering its degree of statistical significance.) It is remarkable enough for any fund to beat its benchmark by 2.5% annually over 17 years, but it is downright eerie to see this done by an index fund. To complete the picture, since 1992 the Vanguard Extended Index Fund has beaten its benchmark (the Wilshire 4500) by 0.56% per year after expenses (0.81% net of expenses), and even the Vanguard Index Trust 500 has beaten its benchmark by a razor thin 0.08% annually before (but not after) expenses in the same period. So what is going on here? A hint is found in DFA's 1996 Reference Guide: The 9-10 Portfolio captures the return behavior of U.S. small company stocks as identified by Rolf Banz and other academic researchers. Dimensional employs a \"\"patient buyer\"\" discount block trading strategy which has resulted in negative total trading costs, despite the poor liquidity of small company stocks. Beginning in 1982, Ibbotson Associates of Chicago has used the 9-10 Portfolio results to calculate the performance of small company stocks for their Stocks, Bonds, Bills, and Inflation yearbook. A small cap index fund cannot possibly own all of the thousands of stocks in its benchmark; instead it owns a \"\"representative sample.\"\" Further, these stocks are usually thinly traded, with wide bid/ask spreads. In essence what the folks at DFA learned was that they could tell the market makers in these stocks, \"\"Look old chaps, we don't have to own your stock, and unless you let us inside your spread, we'll pitch our tents elsewhere. Further, we're prepared to wait until a motivated seller wishes to unload a large block.\"\" In a sense, this gives the fund the luxury of picking and choosing stocks at prices more favorable than generally available. Hence, higher long term returns. It appears that Vanguard did not tumble onto this until a decade later, but tumble they did. To complete the picture, this strategy works best in the thinnest markets, so the excess returns are greatest in the smallest stocks, which is why the positive TE is greatest for the DFA 9-10 Fund, less in the Vanguard Small Cap Fund, less still in the Vanguard Index Extended Fund, and minuscule with the S&P500. There are some who say the biggest joke in the world of finance is the idea of value added active management. If so, then the punch line seems to be this: If you really want to beat the indexes, then you gotta buy an index fund.\"","Yes, the net effect is zero. If you own zero shares by Nov 30, for example, and don't buy any more shares by 12/31, the year is done, and nothing left to account for.","First, make sure you understand the objective of an ETF. In some cases, they may use leverage to get a multiple of the index's return that is different than 1. Some may be ultra funds that go for double the return or double the inverse of the return and thus will try to apply the appropriate leverage to achieve that return. Those that use physical replication can still have a small portion be used to try to minimize the tracking error as there is something to be said for what kind of tracking error do you accept as the fund's returns may differ from the index by some measure. Yes. For example, if you were to have a fund that had a 50% and -50% return in back to back periods, what would your final return be? Answer: -25%, which if you need to visualize this, take $1 that then becomes $1.50 by going up 50% and then becomes $.75 by going down 50% in a compounded fashion. This is where you have to be careful of the risks of leverage as those returns will compound in a possibly negative way.","To make you happy. The thing is, if they split 10 for 1, its still the exact same value in total. There are just more shares that are worth 35 instead of 350each. You need to know things like how many shares there are <the float> how rapidly the company is growing. If it has earnings at all and how much. There is a lot more to the value of a company than the price of the stock alone.","Yes but this also goes against the idea that somehow, after injecting more of their money into the firm by exercising their rights, shareholder wealth still remains the same? So if shareholders also injected cash, how come their total wealth didn't change?","\"ETF Creation and Redemption Process notes the process: While ETF trading occurs on an exchange like stocks, the process by which their shares are created is significantly different. Unless a company decides to issue more shares, the supply of shares of an individual stock trading in the marketplace is finite. When demand increases for shares of an ETF, however, Authorized Participants (APs) have the ability to create additional shares on demand. Through an \"\"in kind\"\" transfer mechanism, APs create ETF units in the primary market by delivering a basket of securities to the fund equal to the current holdings of the ETF. In return, they receive a large block of ETF shares (typically 50,000), which are then available for trading in the secondary market. This ETF creation and redemption process helps keep ETF supply and demand in continual balance and provides a \"\"hidden\"\" layer of liquidity not evident by looking at trading volumes alone. This process also works in reverse. If an investor wants to sell a large block of shares of an ETF, even if there seems to be limited liquidity in the secondary market, APs can readily redeem a block of ETF shares by gathering enough shares of the ETF to form a creation unit and then exchanging the creation unit for the underlying securities. Thus, the in-kind swap to the underlying securities is only done by APs so the outflow would be these individuals taking a large block of the ETF and swapping it for the underlying securities. The APs would be taking advantage of the difference between what the ETF's trading value and the value of the underlying securities.\"","The Creation/Redemption mechanism is how shares of an ETF are created or redeemed as needed and thus is where there can be differences in what the value of the holdings can be versus the trading price. If the ETF is thinly traded, then the difference could be big as more volume would be where the mechanism could kick in as generally there are blocks required so the mechanism usually created or redeemed in lots of 50,000 shares I believe. From the link where AP=Authorized Participant: With ETFs, APs do most of the buying and selling. When APs sense demand for additional shares of an ETF—which manifests itself when the ETF share price trades at a premium to its NAV—they go into the market and create new shares. When the APs sense demand from investors looking to redeem—which manifests itself when the ETF share price trades at a discount—they process redemptions. So, suppose the NAV of the ETF is $20/share and the trading price is $30/share. The AP can buy the underlying securities for $20/share in a bulk order that equates to 50,000 shares of the ETF and exchange the underlying shares for new shares in the ETF. Then the AP can turn around and sell those new ETF shares for $30/share and pocket the gain. If you switch the prices around, the AP would then take the ETF shares and exchange them for the underlying securities in the same way and make a profit on the difference. SEC also notes this same process.","that index fund providers don’t have incentive to push companies to change for the better and create shareholder value. And yet we see countless share buybacks. Dividend yield on the S&P that has been rising since the year 2000. I don't buy the argument of it's devouring capitalism...I do however buy the argument it is helping distort the market, as mentioned with shorting/negative positions.","what reason would I have in buying an ETF? Apart from the efforts, the real reason is the ticket size. One can't buy shares in fraction. To truly reflect the index in equal weight, the amount to invest will be in multiples of millions [depending on the Index and the stock composition] This related question should help you understand why it is difficult even for large fund house to exactly mimic the index. Why do passive ETFs require so much trading (and incur costs)?","ETF is essentially a stock, from accounting perspective. Treat it as just another stock in the portfolio.","\"You seem to be assuming that ETFs must all work like the more traditional closed-end funds, where the market price per share tends—based on supply and demand—to significantly deviate from the underlying net asset value per share. The assumption is simplistic. What are traditionally referred to as closed-end funds (CEFs), where unit creation and redemption are very tightly controlled, have been around for a long time, and yes, they do often trade at a premium or discount to NAV because the quantity is inflexible. Yet, what is generally meant when the label \"\"ETF\"\" is used (despite CEFs also being both \"\"exchange-traded\"\" and \"\"funds\"\") are those securities which are not just exchange-traded, and funds, but also typically have two specific characteristics: (a) that they are based on some published index, and (b) that a mechanism exists for shares to be created or redeemed by large market participants. These characteristics facilitate efficient pricing through arbitrage. Essentially, when large market participants notice the price of an ETF diverging from the value of the shares held by the fund, new units of the ETF can get created or redeemed in bulk. The divergence quickly narrows as these participants buy or sell ETF units to capture the difference. So, the persistent premium (sometimes dear) or discount (sometimes deep) one can easily witness in the CEF universe tend not to occur with the typical ETF. Much of the time, prices for ETFs will tend to be very close to their net asset value. However, it isn't always the case, so proceed with some caution anyway. Both CEF and ETF providers generally publish information about their funds online. You will want to find out what is the underlying Net Asset Value (NAV) per share, and then you can determine if the market price trades at a premium or a discount to NAV. Assuming little difference in an ETF's price vs. its NAV, the more interesting question to ask about an ETF then becomes whether the NAV itself is a bargain, or not. That means you'll need to be more concerned with what stocks are in the index the fund tracks, and whether those stocks are a bargain, or not, at their current prices. i.e. The ETF is a basket, so look at each thing in the basket. Of course, most people buy ETFs because they don't want to do this kind of analysis and are happy with market average returns. Even so, sector-based ETFs are often used by traders to buy (or sell) entire sectors that may be undervalued (or overvalued).\"","\"In an IPO (initial public offering) or APO (additional public offering) situation, a small group of stakeholders (as few as one) basically decide to offer an additional number of \"\"shares\"\" of equity in the company. Usually, these \"\"shares\"\" are all equal; if you own one share you own a percentage of the company equal to that of anyone else who owns one share. The sum total of all shares, theoretically, equals the entire value of the company, and so with N shares in existence, one share is equivalent to 1/Nth the company, and entitles you to 1/Nth of the profits of the company, and more importantly to some, gives you a vote in company matters which carries a weight of 1/Nth of the entire shareholder body. Now, not all of these shares are public. Most companies have the majority (51%+) of shares owned by a small number of \"\"controlling interests\"\". These entities, usually founding owners or their families, may be prohibited by agreement from selling their shares on the open market (other controlling interests have right of first refusal). For \"\"private\"\" companies, ALL the shares are divided this way. For \"\"public\"\" companies, the remainder is available on the open market, and those shares can be bought and sold without involvement by the company. Buyers can't buy more shares than are available on the entire market. Now, when a company wants to make more money, a high share price at the time of the issue is always good, for two reasons. First, the company only makes money on the initial sale of a share of stock; once it's in a third party's hands, any profit from further sale of the stock goes to the seller, not the company. So, it does little good to the company for its share price to soar a month after its issue; the company's already made its money from selling the stock. If the company knew that its shares would be in higher demand in a month, it should have waited, because it could have raised the same amount of money by selling fewer shares. Second, the price of a stock is based on its demand in the market, and a key component of that is scarcity; the fewer shares of a company that are available, the more they'll cost. When a company issues more stock, there's more shares available, so people can get all they want and the demand drops, taking the share price with it. When there's more shares, each share (being a smaller percentage of the company) earns less in dividends as well, which figures into several key metrics for determining whether to buy or sell stock, like earnings per share and price/earnings ratio. Now, you also asked about \"\"dilution\"\". That's pretty straightforward. By adding more shares of stock to the overall pool, you increase that denominator; each share becomes a smaller percentage of the company. The \"\"privately-held\"\" stocks are reduced in the same way. The problem with simply adding stocks to the open market, getting their initial purchase price, is that a larger overall percentage of the company is now on the open market, meaning the \"\"controlling interests\"\" have less control of their company. If at any time the majority of shares are not owned by the controlling interests, then even if they all agree to vote a certain way (for instance, whether or not to merge assets with another company) another entity could buy all the public shares (or convince all existing public shareholders of their point of view) and overrule them. There are various ways to avoid this. The most common is to issue multiple types of stock. Typically, \"\"common\"\" stock carries equal voting rights and equal shares of profits. \"\"Preferred stock\"\" typically trades a higher share of earnings for no voting rights. A company may therefore keep all the \"\"common\"\" stock in private hands and offer only preferred stock on the market. There are other ways to \"\"class\"\" stocks, most of which have a similar tradeoff between earnings percentage and voting percentage (typically by balancing these two you normalize the price of stocks; if one stock had better dividends and more voting weight than another, the other stock would be near-worthless), but companies may create and issue \"\"superstock\"\" to controlling interests to guarantee both profits and control. You'll never see a \"\"superstock\"\" on the open market; where they exist, they are very closely held. But, if a company issues \"\"superstock\"\", the market will see that and the price of their publicly-available \"\"common stock\"\" will depreciate sharply. Another common way to increase market cap without diluting shares is simply to create more shares than you issue publicly; the remainder goes to the current controlling interests. When Facebook solicited outside investment (before it went public), that's basically what happened; the original founders were issued additional shares to maintain controlling interests (though not as significant), balancing the issue of new shares to the investors. The \"\"ideal\"\" form of this is a \"\"stock split\"\"; the company simply multiplies the number of shares it has outstanding by X, and issues X-1 additional shares to each current holder of one share. This effectively divides the price of one share by X, lowering the barrier to purchase a share and thus hopefully driving up demand for the shares overall by making it easier for the average Joe Investor to get their foot in the door. However, issuing shares to controlling interests increases the total number of shares available, decreasing the market value of public shares that much more and reducing the amount of money the company can make from the stock offering.\"","Unissued capital is only a token restriction. When a company is incorporated a maximum number of shares is specified in the legal documentation. Most companies will make this an extremely large number so they never face that limitation. See here. You wouldn't necessarily expect the stock price to change. The reason a company issues new stock is as a way to raise capital. Although new stock is issued, the cash raised by the sale becomes an Asset on the company's balance sheet. There's a good worked example in this Wikipedia article. Following a rights issue the Liabilities of the company will increase to account for the increase in owner's equity, but the Assets will also increase by the same amount with the cash received. Whether the stock price changes will depend upon what price the stock is issued at and on the market's opinions about the company's growth potential now it has new capital to invest. If the new stock is issued at the same price as the current market price, there's no particular reason to expect the share price to change. Again Wikipedia has more detail. When new stock is issued it is usually offered to existing shareholders first, in proportion to their current holding. If the shareholder decides to purchase the new stock in full then their position won't be diluted. If they opt not to buy the new stock, they will now own a smaller percentage of the company as their stocks will make up a smaller part of the now larger number of shares.","\"After the initial public offering, the company can raise money by selling more stock (equity financing) or selling debt (e.g. borrowing money). If a company's stock price is high, they can raise money with equity financing on more favorable terms. When companies raise money with equity financing, they create new shares and dilute the existing shareholders, so the number of shares outstanding is not fixed. Companies can also return money to shareholders by buying their own equity, and this is called a share repurchase. It's best for companies to repurchase their shared when their stock price is low, but \"\"American companies have a terrible track record of buying their own shares high and selling them low.\"\" The management of a company typically likes a rising stock price, so their stock options are more valuable and they can justify bigger pay packages.\"","Yes, it depends on the fund it's trying to mirror. The ETF for the S&P that's best known (in my opinion) is SPY and you see the breakdown of its holdings. Clearly, it's not an equal weighted index.","A private company say has 100 shares with single owner Mr X, now it needs say 10,000/- to run the company, if they can get a price of say 1000 per share, then they just need to issue 10 additional shares, so now the total shares is 110 [100 older plus 10]. So now the owner's share in the company is around 91%. However if they can get a price of only Rs 200 per share, they need to create 50 more shares. So now the total shares is 150 [100 older plus 50]. So now Mr X's equity in his own company is down to 66%. While this may still be OK, if it continues and goes below 50%, there is chances that he [Original owner] will be thrown out","Shares are partial ownership of the company. A company can issue (not create) more of the shares it owns at any time, to anyone, at any price -- subject to antitrust and similar regulations. If they wanted to, for example, flat-out give 10% of their retained interest to charity, they could do so. It shouldn't substantially affect the stock's trading for others unless there's a completely irrational demand for shares.","\"Because ETFs, unlike most other pooled investments, can be easily shorted, it is possible for institutional investors to take an arbitrage position that is long the underlying securities and short the ETF. The result is that in a well functioning market (where ETF prices are what they should be) these institutional investors would earn a risk-free profit equal to the fee amount. How much is this amount, though? ETFs exist in a very competitive market. Not only do they compete with each other, but with index and mutual funds and with the possibility of constructing one's own portfolio of the underlying. ETF investors are very cost-conscious. As a result, ETF fees just barely cover their costs. Typically, ETF providers do not even do their own trading. They issue new shares only in exchange for a bundle of the underlying securities, so they have almost no costs. In order for an institutional investor to make money with the arbitrage you describe, they would need to be able to carry it out for less than the fees earned by the ETF. Unlike the ETF provider, these investors face borrowing and other shorting costs and limitations. As a result it is not profitable for them to attempt this. Note that even if they had no costs, their maximum upside would be a few basis points per year. Lots of low-risk investments do better than that. I'd also like to address your question about what would happen if there was an ETF with exorbitant fees. Two things about your suggested outcome are incorrect. If short sellers bid the price down significantly, then the shares would be cheap relative to their stream of future dividends and investors would again buy them. In a well-functioning market, you can't bid the price of something that clearly is backed by valuable underlying assets down to near zero, as you suggest in your question. Notice that there are limitations to short selling. The more shares are short-sold, the more difficult it is to locate share to borrow for this purpose. At first brokers start charging additional fees. As borrowable shares become harder to find, they require that you obtain a \"\"locate,\"\" which takes time and costs money. Finally they will not allow you to short at all. Unlimited short selling is not possible. If there was an ETF that charged exorbitant fees, it would fail, but not because of short sellers. There is an even easier arbitrage strategy: Investors would buy the shares of the ETF (which would be cheaper than the value of the underlying because of the fees) and trade them back to the ETF provider in exchange for shares of the underlying. This would drain down the underlying asset pool until it was empty. In fact, it is this mechanism (the ability to trade ETF shares for shares of the underlying and vice versa) that keeps ETF prices fair (within a small tolerance) relative to the underlying indices.\"","\"The amount, reliability and frequency of dividends paid by an ETF other than a stock, such as an index or mutual fund, is a function of the agreement under which the ETF was established by the managing or issuing company (or companies), and the \"\"basket\"\" of investments that a share in the fund represents. Let's say you invest in a DJIA-based index fund, for instance Dow Diamonds (DIA), which is traded on several exchanges including NASDAQ and AMEX. One share of this fund is currently worth $163.45 (Jan 22 2014 14:11 CDT) while the DJIA itself is $16,381.38 as of the same time, so one share of the ETF represents approximately 1% of the index it tracks. The ETF tracks the index by buying and selling shares of the blue chips proportional to total invested value of the fund, to maintain the same weighted percentages of the same stocks that make up the index. McDonald's, for instance, has an applied weight that makes the share price of MCD stock roughly 5% of the total DJIA value, and therefore roughly 5% of the price of 100 shares of DIA. Now, let's say MCD issued a dividend to shareholders of, say, $.20 per share. By buying 100 shares of DIA, you own, through the fund, approximately five MCD shares, and would theoretically be entitled to $1 in dividends. However, keep in mind that you do not own these shares directly, as you would if you spent $16k buying the correct percentage of all the shares directly off the exchange. You instead own shares in the DIA fund, basically giving you an interest in some investment bank that maintains a pool of blue-chips to back the fund shares. Whether the fund pays dividends or not depends on the rules under which that fund was set up. The investment bank may keep all the dividends itself, to cover the expenses inherent in managing the fund (paying fund management personnel and floor traders, covering losses versus the listed price based on bid-ask parity, etc), or it may pay some percentage of total dividends received from stock holdings. However, it will virtually never transparently cut you a check in the amount of your proportional holding of an indexed investment as if you held those stocks directly. In the case of the DIA, the fund pays dividends monthly, at a yield of 2.08%, virtually identical to the actual weighted DJIA yield (2.09%) but lower than the per-share mean yield of the \"\"DJI 30\"\" (2.78%). Differences between index yields and ETF yields can be reflected in the share price of the ETF versus the actual index; 100 shares of DIA would cost $16,345 versus the actual index price of 16,381.38, a delta of $(36.38) or -0.2% from the actual index price. That difference can be attributed to many things, but fundamentally it's because owning the DIA is not the exact same thing as owning the correct proportion of shares making up the DJIA. However, because of what index funds represent, this difference is very small because investors expect to get the price for the ETF that is inherent in the real-time index.\"","No, I think you are misunderstanding the Math. Stock splits are a way to control relatively where the price per share can be for a company as companies can split or reverse split shares which would be similar to taking dimes and giving 2 nickels for each dime, each is 10 cents but the number of coins has varied. This doesn't create any additional value since it is still 10 cents whether it is 1 dime or 2 nickels. Share repurchase programs though are done to prevent dilution as executives and those with incentive-stock options may get shares in the company that increase the number of outstanding shares that would be something to note.","Depending on the Price of the ETF and the hedging you may well simply be guaranteed to make a small loss.","The expense ratio reduces the return of the ETF; your scenario of paying 100.0015 is that of a load. Most (all?) ETFs can be bought without paying a load (sales charge as a percent of amount invested), and some ETFs can be bought without paying a brokerage fee (fixed or variable charge for a buy transaction just like buying any other stock through the brokerage) because the brokerage has waived it. Your broker might charge fees for both buying and selling shares in an ETF, but in any case, this is quite separate from the expense ratio.","\"It's called \"\"dilution\"\". Usually it is done to attract more investors, and yes - the existing share holders will get diluted and their share of ownership shrinks. As a shareholder you can affect the board decisions (depends on your stake of ownership), but usually you'll want to attract more investors to keep the company running, so not much you can do to avoid it. The initial investors/employees in a startup company are almost always diluted out. Look at what happened to Steve Jobs at Apple, as an example.\"","Selling stock means selling a portion of ownership in your company. Any time you issue stock, you give up some control, unless you're issuing non-voting stock, and even non-voting stock owns a portion of the company. Thus, issuing (voting) shares means either the current shareholders reduce their proportion of owernship, or the company reissues stock it held back from a previous offering (in which case it no longer has that stock available to issue and thus has less ability to raise funds in the future). From Investopedia, for exmaple: Secondary offerings in which new shares are underwritten and sold dilute the ownership position of stockholders who own shares that were issued in the IPO. Of course, sometimes a secondary offering is more akin to Mark Zuckerberg selling some shares of Facebook to allow him to diversify his holdings - the original owner(s) sell a portion of their holdings off. That does not dilute the ownership stake of others, but does reduce their share of course. You also give up some rights to dividends etc., even if you issue non-voting stock; of course that is factored into the price presumably (either the actual dividend or the prospect of eventually getting a dividend). And hopefully more growth leads to more dividends, though that's only true if the company can actually make good use of the incoming funds. That last part is somewhat important. A company that has a good use for new funds should raise more funds, because it will turn those $100 to $150 or $200 for everyone, including the current owners. But a company that doesn't have a particular use for more money would be wasting those funds, and probably not earning back that full value for everyone. The impact on stock price of course is also a major factor and not one to discount; even a company issuing non-voting stock has a fiduciary responsibility to act in the interest of those non-voting shareholders, and so should not excessively dilute their value.","index ETF tracks indented index (if fund manager spend all money on Premium Pokemon Trading Cards someone must cover resulting losses) Most Index ETF are passively managed. ie a computer algorithm would do automatic trades. The role of fund manager is limited. There are controls adopted by the institution that generally do allow such wide deviations, it would quickly be flagged and reported. Most financial institutions have keyman fraud insurance. fees are not higher that specified in prospectus Most countries have regulation where fees need to be reported and cannot exceed the guideline specified. at least theoretically possible to end with ETF shares that for weeks cannot be sold Yes some ETF's can be illiquid at difficult to sell. Hence its important to invest in ETF that are very liquid.","\"My knowledge relates to ETFs only. By definition, an ETF's total assets can increase or decrease based upon how many shares are issued or redeemed. If somebody sells shares back to the ETF provider (rather than somebody else on market) then the underlying assets need to be sold, and vice-versa for purchasing from the ETF provider. ETFs also allow redemptions too in addition to this. For an ETF, to determine its total assets, you need to you need to analyze the Total Shares on Issue multipled by the Net Asset Value. ETFs are required to report shares outstanding and NAV on a daily basis. \"\"Total assets\"\" is probably more a function of marketing rather than \"\"demand\"\" and this is why most funds report on a net-asset-value-per-share basis. Some sites report on \"\"Net Inflows\"\" is basically the net change in shares outstanding multiplied by the ETF price. If you want to see this plotted over time you can use a such as: http://www.etf.com/etfanalytics/etf-fund-flows-tool which allows you to see this as a \"\"net flows\"\" on a date range basis.\"","\"Generally, ETFs work on the basis that there exists a pair of values that can be taken at any moment in time: A Net Asset Value of each share in the fund and a trading market price of each share in the fund. It may help to picture these in baskets of about 50,000 shares for the creation/redemption process. If the NAV is greater than the market price, then arbitrageurs will buy up shares at the market price and do an \"\"in-kind\"\" transaction that will be worth the NAV value that the arbitrageurs could turn around and sell for an immediate profit. If the market price is greater than the NAV, then the arbitrageurs will buy up the underlying securities that can be exchanged \"\"in-kind\"\" for shares in the fund that can then be sold on the market for an immediate profit. What is the ETF Creation/Redemption Mechanism? would be a source on this though I imagine there are others. Now, in the case of VXX, there is something to be said for how much trading is being done and what impact this can have. From a July 8, 2013 Yahoo Finance article: At big option trade in the iPath S&P 500 VIX Short-Term Futures Note is looking for another jump in volatility. More than 250,000 VXX options have already traded, twice its daily average over the last month. optionMONSTER systems show that a trader bought 13,298 August 26 calls for the ask price of $0.24 in volume that was 6 times the strike's previous open interest, clearly indicating new activity. Now the total returns of the ETF are a combination of changes in share price plus what happens with the distributions which could be held as cash or reinvested to purchase more shares.\"","Stock issuing and dilution is legal because there must be some mechanism for small companies to grow into big companies. A company sees a great investment opportunity. It would be a perfect extension of their activities ... but they cannot afford it. To get the necessary money they can either take out a loan or issue shares. Taking a loan basically means that this is temporary, but the company will go back to being small when the loan is paid back. Issuing new shares basically means that the Board means that this growth is permanent and the company will be big for the foreseeable future. It is utterly necessary that companies have this option for raising cash, and therefore it is legal. As detailed in the other answers, you end up with a smaller percentage of a larger company, usually ending up with more or less the same value.","The expense ratio is stated as an annual figure but is often broken down to be taken out periodically of the fund's assets. In traditional mutual funds, there will be a percent of assets in cash that can be nibbled to cover the expenses of running the fund and most deposits into the fund are done in cash. In an exchange-traded fund, new shares are often created through creation/redemption units which are baskets of securities that make things a bit different. In the case of an ETF, the dividends may be reduced by the expense ratio as the trading price follows the index usually. Expense ratios can vary as in some cases there may be initial waivers on new funds for a time period to allow them to build an asset base. There is also something to be said for economies of scale that allow a fund to have its expense ratio go down over time as it builds a larger asset base. These would be noted in the prospectus and annual reports of the fund to some degree. SPDR Annual Report on page 312 for the Russell 3000 ETF notes its expense ratio over the past 5 years being the following: 0.20% 0.20% 0.22% 0.20% 0.21% Thus, there is an example of some fluctuation if you want a real world example.","S & P Index Announcements would have notes on when there are changes to the index. For example in the S & P Small-cap 600 there is a change that takes affect on Feb. 19, 2013. As for how index funds handle changes to the fund, this depends a bit on the nature of the fund as open-end mutual funds would be different than exchange-traded funds. The open-end fund would have to sell and purchase to keep tracking the index which can be interesting to see how well this is handled to keep the transaction costs down while the ETFs will just unload the shares in the redemption units of the stock leaving the index while taking in new shares with creation units of the newly added stock to the index.","\"In general, yes. If interest rates go higher, then any existing fixed-rate bonds - and hence ETFs holding those bonds - become less valuable. The further each bond is from maturity, the larger the impact. As you suggest, once the bonds do mature, the fund can replace them at a market price, so the effect tails off. The bond market has a concept known as \"\"duration\"\" that helps reason about this effect. Roughly, it measures the average time from now to each payout of the bond, weighted by the payout. The longer the duration, the more the price will change for a given change in interest rates. The concept is just an approximation, and there are various slightly different ways of calculating it; but very roughly the price of a bond will reduce by a percentage equal to the duration times the increase in interest rates. So a bond with a duration of 5 years will lose 5% of its value for a 1% rise in interest rates (and of course vice-versa). For your second question, it really depends on what you're trying to achieve by diversifying - this might be best as a different question that gives more detail, as it's not very related to your first question. Short-term bonds are less risky. But both will lose value if the underlying company is in trouble. Gilts (government bonds) are less risky than corporate bonds.\"","This is an old question that has an accepted answer, but it has gotten bumped due to an edit and the answers given are incorrect. I am assuming this means that every other Friday, the company is going into the open public market, buying those shares and then giving it out to the employees. No. Companies will internally hold shares that it intends to offer employees as additional compensation. There are no open market transactions, so the market price of the stock does not change (at least not due to buying pressure). The only net effect is an equivalent expense for the compensation, but that should already be accounted for in the share price as normal operating expenses. These share may come through an initial buyback from the market, but more common is that when companies issue new shares they keep some internally for exactly this situation. If they issued new shares every pay period, it would dilute the existing shares several times a quarter which would be difficult to account for.","You better buy an ETF that does the same, because it would be much cheaper than mutual fund (and probably much cheaper than doing it yourself and rebalancing to keep up with the index). Look at DIA for example. Neither buying the same amount of stocks nor buying for the same amount of money would be tracking the DJIE. The proportions are based on the market valuation of each of the companies in the index.","\"While I'm sure there's some truth to the argument that unsophisticated retail investors index against the S&P 500 thinking that they're tracking \"\"the market,\"\" I don't think it makes sense to steer the S&P 500 in that direction to cater to that lowest common denominator. The *ad absurdum* conclusion of that course of action, of course, would be to abolish the S&P 500 entirely and move those assets into the S&P Total Market Index. But clearly there's value in having an index that tracks US large-caps with single share classes, just as there's value in having an index that tracks US large-caps in general. As for whether it will be a loss for passive investors...it will be interesting to see how that pans out. Maybe good corporate governance and direct accountability by managers really do contribute positively to returns in the long run and investors will benefit from this change as a result. Or maybe this will result in companies with multiple share classes being undervalued and create an opportunity to earn outsized returns by investing in them, and indexes that omit those companies will underperform. Only time will tell.\"","I'm guessing you're conflating bonus share issuance with stock split. That seems very common to me, from a quick search; there's even some issues of terminology between the US and Europe, I think - it seems some Europeans may use Bonus Shares to mean Stock Split, as opposed to the more common meaning in the US of Stock Dividend. Sometimes a bonus share issuance is (incorrectly) called a stock split, like in this public announcement from STADA in 2004. It is a 1:1 bonus share issuance (meaning they issue one bonus share to everyone who has one share now), but it is in essence the same thing as a stock split (a 2:1 stock split, namely). They combined the 1:1 from bonus share with the wording 'split', causing the confusion. Bonus share issuance, also known as a stock dividend, is covered well in this question/answer on this site, or from a search online. It has no obvious effect initially - both involve doubling shares out there and halving the price - but it has a substantially different treatment in terms of accounting, both to the company and to your tax accountant.","NO. All the leveraged ETFs are designed to multiply the performance of the underlying asset FOR THAT DAY, read the prospectus. Their price is adjusted at the end of the day to reflect what is called a NAV unit. Basically, they know that their price is subject to fluctuations due to supply and demand throughout the day - simply because they trade in a quote driven system. But the price is automatically corrected at the end of the day regardless. In practice though, all sorts of crazy things happen with leveraged ETFs that will simply make them more and more unfavorable to hold long term, the longer you look at it.","A company generally sells a portion of its ownership in an IPO, with existing investors retaining some ownership. In your example, they believe that the entire company is worth $25MM, so in order to raise $3MM it is issuing stock representing 12% of the ownership stake (3/25), which dilutes some or all of the existing stockholders' claims.","\"when the index is altered to include new players/exclude old ones, the fund also adjusts The largest and (I would say) most important index funds are whole-market funds, like \"\"all-world-ex-US\"\", or VT \"\"Total World Stock\"\", or \"\"All Japan\"\". (And similarly for bonds, REITS, etc.) So companies don't leave or enter these indexes very often, and when they do (by an initial offering or bankruptcy) it is often at a pretty small value. Some older indices like the DJIA are a bit more arbitrary but these are generally not things that index funds would try to match. More narrow sector or country indices can have more of this effect, and I believe some investors have made a living from index arbitrage. However well run index funds don't need to just blindly play along with this. You need to remember that an index fund doesn't need to hold precisely every company in the index, they just need to sample such that they will perform very similarly to the index. The 500th-largest company in the S&P 500 is not likely to have all that much of an effect on the overall performance of the index, and it's likely to be fairly correlated to other companies in similar sectors, which are also covered by the index. So if there is a bit of churn around the bottom of the index, it doesn't necessarily mean the fund needs to be buying and selling on each transition. If I recall correctly it's been shown that holding about 250 stocks gives you a very good match with the entire US stock market.\"","Publicly traded companies perform dilution via an FPO (Follow-up Public Offer). It is a process similar to IPO, with announcements, prospectus, etc. You will know ahead of time when that happen. Stocks traded OTC are not required to file a lot of regulatory documents that publicly traded stocks are required to file, and may not disclose dilutions or additional issues. By buying OTC you agree to these terms. You will probably get a notice and a chance to vote on that in your proxy statement, but that happens when you already own the stock.","Of course it is a dilution of existing shareholders. When you buy milk in the supermarket - don't you feel your wallet diluted a little? You give some $$$ you get milk in return. You give some shares, you get Watsapp in return. That's why such purchases must go through certain process of approval - board of directors (shareholders' representatives) must approve it, and in some cases (don't know if in this particular) - the whole body of the shareholders vote on the deal.","As yet another explanation of why it does not really matter, you can look at this from the valuation point of view. Stock price is the present value of its future cash flows (be it free cash flow of the firm or dividends, depending on the model). Let's have a look at the dividends case. Imagine, the price of the stock is based on only three dividends streams $5 dollars each: dividend to be paid today, in year 1, and in year 2. Each should be discounted back to today (say, at 10%), except today's dividend, since today is now. Once that dividend is paid, it is no longer in the stream of cash flows. So if we just delete that first $5 from the formula, the price will adjust itself down by the amount of the dividend to $8.68. NOTE that this is a very simple example, since in reality cash flows streams are arguably infinite and because there are many other factors affecting stock price. But simply for your understanding, this example should provide you with the reason simply from the valuation perspective.","The key two things to consider when looking at similar/identical ETFs is the typical (or 'indicative') spread, and the trading volume and size of the ETF. Just like regular stocks, thinly traded ETF's often have quite large spreads between buy and sell: in the 1.5-2%+ range in some cases. This is a huge drain if you make a lot of transactions and can easily be a much larger concern than a relatively trivial difference in ongoing charges depending on your exact expected trading frequency. Poor spreads are also generally related to a lack of liquidity, and illiquid assets are usually the first to become heavily disconnected from the underlying in cases where the authorized participants (APs) face issues. In general with stock ETFs that trade very liquid markets this has historically not been much of an issue, as the creation/redemption mechanism on these types of assets is pretty robust: it's consequences on typical spread is much more important for the average retail investor. On point #3, no, this would create an arbitrage which an authorized participant would quickly take advantage of. Worth reading up about the creation and redemption mechanism (here is a good place to start) to understand the exact way this happens in ETFs as it's very key to how they work.","\"It depends. Dividends and fees are usually unrelated. If the ETF holds a lot of stocks which pay significant dividends (e.g. an S&P500 index fund) these will probably cover the cost of the fees pretty readily. If the ETF holds a lot of stocks which do not pay significant dividends (e.g. growth stocks) there may not be any dividends - though hopefully there will be capital appreciation. Some ETFs don't contain stocks at all, but rather some other instruments (e.g. commodity-trust ETFs which hold precious metals like gold and silver, or daily-leveraged ETFs which hold options). In those cases there will never be any dividends. And depending on the performance of the market, the capital appreciation may or may not cover the expenses of the fund, either. If you look up QQQ's financials, you'll find it most recently paid out a dividend at an annualized rate of 0.71%. Its expense ratio is 0.20%. So the dividends more than cover its expense ratio. You could also ask \"\"why would I care?\"\" because unless you're doing some pretty-darned-specific tax-related modeling, it doesn't matter much whether the ETF covers its expense ratio via dividends or whether it comes out of capital gains. You should probably be more concerned with overall returns (for QQQ in the most recent year, 8.50% - which easily eclipses the dividends.)\"","\"I wonder if ETF's are further removed from the actual underlying holdings or assets giving value to the fund, as compared to regular mutual funds. Not exactly removed. But slightly different. Whenever a Fund want to launch an ETF, it would buy the underlying shares; create units. Lets say it purchased 10 of A, 20 of B and 25 of C. And created 100 units for price x. As part of listing, the ETF company will keep the purchased shares of A,B,C with a custodian. Only then it is allowed to sell the 100 units into the market. Once created, units are bought or sold like regular stock. In case the demand is huge, more units are created and the underlying shares kept with custodian. So, for instance, would VTI and Total Stock Market Index Admiral Shares be equally anchored to the underlying shares of the companies within the index? Yes they are. Are they both connected? Yes to an extent. The way Vanguard is managing this is given a Index [Investment Objective]; it is further splitting the common set of assets into different class. Read more at Share Class. The Portfolio & Management gives out the assets per share class. So Vanguard Total Stock Market Index is a common pool that has VTI ETF, Admiral and Investor Share and possibly Institutional share. Is VTI more of a \"\"derivative\"\"? No it is not a derivative. It is a Mutual Fund.\"","\"private investors that don't have the time or expertise for active investment. This may be known as every private investor. An index fund ensures average returns. The bulk of active trading is done by private institutions with bucketloads of experts studying the markets and AI scraping every bit of data it can get (from the news, stock market, the weather reports, etc...). Because of that, to get above average returns an average percent of the time, singular private investors have to drastically beat the average large team of individuals/software. Now that index ETF are becoming so fashionable, could there be a tipping point at which the market signals that active investors send become so diluted that this \"\"index ETF parasitism\"\" collapses? How would this look like and would it affect only those who invest in index ETF or would it affect the stock market more generally? To make this question perhaps more on-topic: Is the fact (or presumption) that index ETF rely indirectly on active investment decisions by other market participants, as explained above, a known source of concern for personal investment? This is a well-covered topic. Some people think this will be an issue. Others point out that it is a hard issue to bootstrap. I gravitate to this view. A small active market can support a large number of passive investors. If the number of active investors ever got too low, the gains & likelihood of gains that could be made from being an active investor would rise and generate more active investors. Private investing makes sense in a few cases. One example is ethics. Some people may not want to be invested, even indirectly, in certain companies.\"","Yes, the larger number of ETFs will have a greater chance of enhancing the effect you observe. It's beyond a simple discussion, but the bottom line is that by carving out the different market segments your rebalancing will have greater impact.","all other things being equal if you have two stocks, both with a P/E of 2, and one has an EPS of 5 whereas the other has an EPS of 10 is the latter a better purchase? What this really boils down to is the number of shares a company has outstanding. Given the same earnings & P/E, a company with fewer shares will have a higher EPS than a company with more shares. Knowing that, I don't think the number of shares has much if anything to do with the quality of a company. It's similar to the arguments I hear often from people new to investing where they think that a company with a share price of $100/share must be better than a company with a share price of $30/share simply because the share price is higher.","\"What does ETFs have to do with this or Amazon? Actually, investing in ETFs means you are killing actively managed Mutual Funds (managed by people, fund managers) to get an average return (and loss) of the market that a computer manage instead of a person. And the ETF will surely have Amazon stocks because they are part of the index. I only invest in actively managed mutual funds. Yes, most actively managed mutual funds can't do better than the index, but if you work a bit harder, you can find the many that do much better than the \"\"average\"\" that an index give you.\"","\"Right, as I stated I agree that it will cause greater variance from the true intrinsic value for individual equities. To take this example to an extreme, traders can throw darts at a board of ticker symbols, purchase them, and still diversify away most firm specific risk. You're correct in stating that such a strategy will eventually cause systematic market failures if everyone does it, but the herd goes where they can make the most profit, and right now that is with ETFs. When fund managers prove they have foresight enough to exploit any systematic failures that this causes, or can start beating ETF returns, the herd will flock back to them. I only meant to point out the reasoning behind why this is happening, not advocating one over the other, and also to point out that Paul Singer shouldn't whine. To re-purpose an old saying, \"\"Don't get mad, get even (by making your investors rich).\"\"\"","Does the price only start the day based on the previous day's rebalancing? No, the tracker will open at the price according to the stock it is tracking. So for example, if the ETF closed at $10 but the tracked stock continued trading and was priced $15 when the ETF reopened the ETF will open at $15. (Example is for a non-leveraged ETF.)","Longing the short ETF will give you better returns than shorting the long etf. The reason is that as the price gets the smaller the absolute price change gets a lot smaller. So you would rather have upward price exposure than downward. A good case is SPXU and UPRO","Ohhhh. Well thank you for that info. I know I could've Googled it all and while I'm a sticker for doing your own research, it's nice to hear it from someone in the know. Gotta pass on knowledge to those who don't know. Is it cheap to buy an ETF?","Any ETF has expenses, including fees, and those are taken out of the assets of the fund as spelled out in the prospectus. Typically a fund has dividend income from its holdings, and it deducts the expenses from the that income, and only the net dividend is passed through to the ETF holder. In the case of QQQ, it certainly will have dividend income as it approximates a large stock index. The prospectus shows that it will adjust daily the reported Net Asset Value (NAV) to reflect accrued expenses, and the cash to pay them will come from the dividend cash. (If the dividend does not cover the expenses, the NAV will decline away from the modeled index.) Note that the NAV is not the ETF price found on the exchange, but is the underlying value. The price tends to track the NAV fairly closely, both because investors don't want to overpay for an ETF or get less than it is worth, and also because large institutions may buy or redeem a large block of shares (to profit) when the price is out of line. This will bring the price closer to that of the underlying asset (e.g. the NASDAQ 100 for QQQ) which is reflected by the NAV.","\"By issuing additional equity. In this case, the pie isn't \"\"fixed,\"\" it's getting bigger. Now, to avoid lawsuits and other potential issues (some of which may be unavoidable), the owner will likely need to subscribe for additional equity himself. Example: 100 shares outstanding. 51 to owner, 49 to 2 others. That 49 will have to equal 20%, as none of their shares are being sold (likely). This means total shares will need to be increased to 245. Subtract 49 from that number: 196 Marcus gets half of that at a determined price. 98 Owner must increase his stake from 51 to 98 shares. To do so, he'll need to contribute additional cash for the same price Marcus gets in on. That could be expensive.\"","With regard to commodity futures, a paper released in January 2010 by Aulerich, Irwin, and Garcia, concluded that index funds have essentially no impact on commodity futures. Looking at stocks, a stock that gets included in a major index does increase in price. It increases its turnover by 27% and increases its price by between 2.7% and 5.5%, according to information cited by Kula in this paper, though it looks like the price increase tends to happen in the lead up to the stock being included. Interestingly, I have read an article but cannot now locate it, which states that there's a measurable, albeit fairly small, price bubble on stocks included in common indexes, on Monday mornings, Friday afternoons, and at the start and end of the month. That is, the times when mutual funds are most likely to rebalance their holdings. This almost certainly applies to a lesser extent to other stocks, too. My understanding is that the price difference was very small, however. Generally speaking, stocks which make part of well-known indexes will tend to be in higher demand than stocks which do not. It remains the case that almost all actively-managed mutual funds are unable to consistently beat the indexes, even with this taken into account.","Index Funds & ETFs, if they are tracking the same index, will be the same in an ideal world. The difference would be because of the following factors: Expense ratio: i.e. the expense the funds charge. This varies and hence it would lead to a difference in performance. Tracking error: this means that there is a small percentage of error between the actual index composition and the fund composition. This is due to various reasons. Effectively this would result in the difference between values. Demand / Supply: with ETFs, the fund is traded on stock exchanges like a stock. If the general feeling is that the index is rising, it could lead to an increase in the price of the ETF. Index funds on the other hand would remain the same for the day and are less liquid. This results in a price increase / decrease depending on the market. The above explains the reason for the difference. Regarding which one to buy, one would need to consider other factors like: a) How easy is it to buy ETFs? Do you already hold Demat A/C & access to brokers to help you conduct the transaction or do you need to open an additional account at some cost. b) Normally funds do not need any account, but are you OK with less liquidity as it would take more time to redeem funds.","Less shares outstanding means that, holding the dividend per share constant you would have a lower total dividend expenditure. The more likely outcome is that, if you want to return capital to shareholders through a dividend, you just pay a higher amount per share.","\"If anything, the price of an ETF is more tightly coupled to the underlying holdings or assets than a mutual fund, because of the independent creation/destruction mechanism. With a mutual fund, the price is generally set once at the end of each day, and the mutual fund manager has to deal with investments and redemptions at that price. By the time they get to buying or selling the underlying assets, the market may have moved or they may even move the market with those transactions. With an ETF, investment and redemption is handled by independent \"\"authorized participants\"\". They can create new units of the ETF by buying up the underlying assets and delivering them to the ETF manager, and vice versa they can cancel units by requesting the underlying assets from the ETF manager. ETFs trade intraday (i.e. at any time during trading hours) and any time the price diverges too far from the underlying assets, one of the authorized participants has an incentive to make a small profit by creating or destroying units of the ETF, also intraday.\"","Market cap probably isn't as big of an issue as the bid/ask spread and the liquidity, although they tend to be related. The spread is likely to be wider on lesser traded ETF funds we are talking about pennies, likely not an issue unless you are trading in and out frequently. The expense ratios will also tend to be slightly higher again not a huge issue but it might be a consideration. You are unlikely to make up the cost of paying the commission to buy into a larger ETF any time soon though.","It basically only affects the company's dealings with its own stock, not with operational concerns. If the company were to offer more stock for sale, it would get less cash. If it had a stock buy-back program, it could buy more shares for the same money. If it was to offer to acquire another company in exchange for its own stock, the terms would be less attractive to the other company's owners. Employee stock remuneration, stock options, and so forth would be affected, so there might be considerations and tax consequences for the company."],"string":"[\n \"If a stock that makes up a big part of the Dow Jones Industrial Average decided to issue a huge number of additional shares, that will make the index go up. At least this is what should happen, since an index is basically a sum of the market cap of the contributing companies. No, indices can have various weightings. The DJIA is a price-weighted index not market-cap weighted. An alternative weighting besides market-cap and price is equal weighting. From Dow Jones: Dow Jones Industrial Average™. Introduced in May 1896, the index, also referred to as The Dow®, is a price-weighted measure of 30 U.S. blue-chip companies. Thus, I can wonder what in the new shares makes the index go up? If a stock is split, the Dow divisor is adjusted as one could easily see how the current Dow value isn't equal to the sum or the share prices of the members of the index. In other cases, there may be a dilution of earnings but that doesn't necessarily affect the stock price directly as there may be options exercised or secondary offerings made. SO if the index, goes up, will the ETF DIA also go up automatically although no additional buying has happened in the ETF itself? If the index rises and the ETF doesn't proportionally, then there is an arbitrage opportunity for someone to buy the DIA shares that can be redeemed for the underlying stocks that are worth more in this case. Look at the Creation and Redemption Unit process that exists for ETFs.\",\n \"Well, if one share cost $100 and the company needs to raise $10000, then the company will issue 100 shares for that price. Right? However, say there's 100 shares out there now, then each share holder owns 1/100th of the company. Now the company will remain the same, but it's shared between 200 shareholders after the issuing of new shares. That means each share holder now owns 1/200th of the company. And hence only gets 1/200th of their earnings etc.\",\n \"Theoretically, when a company issues more shares, it does not affect the value of your shares. The reason is that when a company issues and sells more shares, the proceeds from the sale of those shares goes back into the company. Using your example, you have 10 out of 100 shares of the company, for a 10% stake. Let's say that the shares are valued at $1,000 each, meaning that the market value of the company is $100,000, and your stake is worth $10,000. Now the company issues 100 more shares at $1,000 each. The company receives $100,000 from new investors, and now the company is worth $200,000. Your stake is now only 5% of the company, but it is still worth $10,000. The authorized share capital is the amount of shares that a company has already planned on selling. When you buy stock in a company, you can look up how many shares exist, so you know what your percent stake in the company is. When a company wants to sell more shares, this is called an increase of authorized share capital. In order to do this, the company generally needs the approval of a majority of the existing shareholders.\",\n \"The reason a company creates more stock is to generate more capital so that this can be utilized and more returns can be generated. It is commonly done as a follow on public offer. Typically the funds are used to retire high cost debts and fund future expansion. What stops the company from doing it? Are Small investors cheated? It's like you have joined a car pool with 4 people and you are beliving that you own 1/4th of the total seats ... so when most of them decide that we would be better of using Minivan with 4 more persons, you cannot complain that you now only own 1/8 of the total seats. Even before you were having just one seat, and even after you just have one seat ... overall it maybe better as the ride would be good ... :)\",\n \"In simplest terms, when a company creates new shares and sells them, it's true that existing shareholders now own a smaller percentage of the company. However, as the company is now more valuable (since it made money by selling the new shares), the real dollar value of the previous shares is unchanged. That said, the decision to issue new shares can be interpreted by investors as a signal of the company's strategy and thereby alter the market price; this may well affect the real dollar value of the previous shares. But the simple act of creating new shares does not alter the value in and of itself.\",\n \"Let me answer by parts: When a company gives dividends, the share price drops by the dividend amount. Not always by that exact amount for many different reasons (e.g. there are transaction costs if you reinvest, dividend taxes, etc). I have tested that empirically. Now, if all the shareholders choose to reinvest their dividends, will the share price go back up to what it was prior to the dividend? That is an interesting question. The final theoretical price of the company does not need to be that. When a company distributes dividends its liquidity diminish, there is an impact on the balance sheet of the company. If all investors go to the secondary market and reinvest the dividends in the shares, that does not restore the cash in the balance sheet of the company, hence the theoretical real value of the company is different before the dividends. Of course, in practice there is not such a thing as one theoretical value. In reality, if everybody reinvest the dividend, that will put upward pressure over the price of the company and, depending on the depth of the offers, meaning how many orders will counterbalance the upward pressure at the moment, the final price will be determined, which can be higher or lower than before, not necessarily equal. I ask because some efts like SPY automatically reinvest dividends. So what is the effect of this reinvestment on the stock price? Let us see the mechanics of these purchases. When a non distributing ETF receives cash from the dividends of the companies, it takes that cash and reinvest it in the whole basket of stocks that compose the index, not just in the companies that provided the dividends. The net effect of that is a small leverage effect. Let us say you bought one unit of SPY, and during the whole year the shares pay 2% of dividends that are reinvested. At the end of that year, it will be equivalent to having 1.02 units of SPY.\",\n \"An ETF consists of two componenets : stocks and weightage of each stock. Assuming the ETF tracks the average of the 5 stock prices you bought and equal weightage was given to each stock , an increase in 20% in any one of the five stocks will cause the price of the ETF to increase by 4% also This does not take into consideration tracking error && tracking difference , fund expense ratio which may affect the returns of the ETF also\",\n \"Assuming you are saying that the company issues 20,000 additional shares of its own stock and sells them for $8 each: The money from the sale is not income and not part of earnings. It is capital and appears on the balance sheet as part of shareholder's equity. With no other transactions, yes, the total of shares outstanding is increased by 20,000 to 100,000.\",\n \"Let's say the company has a million shares valued at $10 each, so market caps is $10 million dollar = $10 per share. Actual value of the company is unknown, but should be close to that $10 million if the shares are not overvalued or undervalued. If they issue 100,000 more shares at $10 each, the buyers pay a million dollar. Which goes into the bank account of the company. Which is now worth a million dollar more than before. Again, we don't know what it is worth, but the market caps should go up to $11 million dollar. And since you have now 1,100,000 shares, it's still $10 per share. If the shares are sold below or above $10, then the share price should go down or up a bit. Worst case, if the company needs money, can't get a loan, and sells 200,000 shares for $5 each to raise a million dollars, there will be suspicion that the company is in trouble, and that will affect the share price negatively. And of course the share price should have dropped anyway because the new value is $11,000,000 for $1,200,000 shares or $9.17 per share.\",\n \"Say the company has created 500 shares [or whatever number]. You have 10 shares [equivalent of 2%]. Now when new capital is needed, generally more shares are created. Say they create 100 more shares and sell it to venture capital to raise funds. After this happens; Total Shares: 500+100 = 600 You own: 10 shares Your Ownership % = 1.66% down from 2% Like wise for other older shareholder. The New Venture guy gets 16.66% of ownership. More funds would mean more growth and overall the value of your 10 shares would be more depending on the valuation.\",\n \"In theory*, if a company has 1m shares at $10 and does a 10 for 1 split, then the day after it has 10m shares at $1 (assuming no market move). So both the price and the number of share change, keeping the total value of the company unchanged. Regarding your BIS, I suspect that the new number of shares has not been reported yet because it's an ETF (the number of shares in issue changes everyday due to in/out flows). Your TWX example is not ideal either because there was a spin off on the same day as the stock split so you need to separate the two effects. * Some studies have documented a positive stock split effect - one of the suggested reasons is that the stock becomes more liquid after the split. But other studies have rejected that conclusion, so you can probably safely consider that on average it will not have a material effect.\",\n \"Like others have already said, it may cause an immediate dip due to a large and sudden move in shares for that particular stock. However, if there is nothing else affecting the company's financials and investors perceive no other risks, it will probably bounce back a bit, but not back to the full value before the shares were issued. Why? Whenever a company issues more stock, the new shares dilute the value of the current shares outstanding, simply because there are now more shares of that stock trading on the market; the Earnings Per Share (EPS) Ratio will drop since the same profit and company value has to be spread across more shares. Example: If a company is valued at $100 dollars and they have 25 shares outstanding, then the EPS ratio equates to $4 per share (100/25 = 4). If the company then issues more shares (stock to employees who sell or keep them), let's say 25 more shares, then shares outstanding increase to 50, but the company's value still remains at $100 dollars. EPS now equates to $2 per share (100/50 = 2). Now, sometimes when shareholders (especially employees...and especially employees who just received them) suddenly all sell their shares, this causes a micro-panic in the market because investors believe the employees know something bad about the company that they don't. Other common shareholders then want to dump their holdings for fear of impending collapse in the company. This could cause the share price to dip a bit below the new diluted value, but again if no real, immediate risks exist, the price should go back up to the new, diluted value. Example 2: If EPS was at $4 before issuing more stock, and then dropped to $2 after issuing new stock, the micro-panic may cause the EPS to drop below $2 and then soon rebound back to $2 or more when investors realize no actual risk exists. After the dilution phase plays out, the EPS could actually even go above the pre-issuing value of $4 because investors may believe that since more stock was issued due to good profits, more profits may ensue. Hope that helps!\",\n \"\\\"For new shares to be successfully sold, the price has to be below market price. If you currently own shares of that company, you should always get an option to buy those newly sold shares at that discounted price. The number of options depends on the relative number of shares you hold. Lets say you own 100 out of 1000 shares, currently priced at $10. 100 new shares are to be sold at $9. Since you are holding 10% of all shares, you have the option (i.e. the right) to buy 10 new (cheaper) shares (10% of 100) before anybody else can buy them. Theoretically, the money you save by getting the shares at a discounted price is equal to the money you lose by the share's value being diluted. So, if you're a shareholder and the company is increasing it's capital, you're given the right to \\\"\\\"go with it\\\"\\\".\\\"\",\n \"The future shares will be fewer in number, yet have claim to less cash in the bank. All in all, there's little reason the shares would rise in value. Say there are 1M shares, trading at $10. Market cap is $10M of course. Now, there happens to be $2M cash in the bank so each share had about $2 cash. By taking the $2M and buying 200K shares, 800K shares remain, but why would you think they'd be valued at $12.50? The same $10 value per share is now an $8M market cap as $2M has been disbursed, no less so than if it were given out in a dividend.\",\n \"The ETF supply management policy is arcane. ETFs are not allowed to directly arbitrage their holdings against the market. Other firms must handle redemptions & deposits. This makes ETFs slightly costlier than the assets held. For ETFs with liquid holdings, its price will rarely vary relative to the holdings, slippage of the ETF's holdings management notwithstanding. This is because the firms responsible for depositing & redeeming will arbitrage their equivalent holdings of the ETF assets' prices with the ETF price. For ETFs with illiquid holdings, such as emerging markets, the ETF can vary between trades of the holdings. This will present sometimes large variations between the last price of the ETF vs the last prices of its holdings. If an ETF is shunned, its supply of holdings will simply drop and vice versa.\",\n \"But if you add a security to the index you also remove one from the index, thus both a buy and sell. If weights change some go up, some go down thus some need to be purchased and some need to be sold. So I still don't see how ETFs are net sinks beyond their simple AUM.\",\n \"An ETF manager will only allow certain financial organisations to create and redeem ETF shares. These are called Authorised Participants (APs). The APs have the resources to bundled up packages of shares that they already own and hold in order to match the ETFs requirements. In the case of the EDEN ETF, this portfolio is the MSCI Denmark Index. Only APs transact business directly with the ETF manager. When ETF shares need to be created, the AP will bundle up the portfolio of shares and deliver them to the ETF manager. In return, the ETF manager will deliver to the AP the corresponding number of shares in the ETF. Note that no cash changes hands here. (These ETF shares are now available for trading in the market via the AP. Note that investors do not transact business directly with the ETF manager.) Similarly, when ETF shares need to be redeemed, the AP will deliver the ETF shares to the ETF manager. In return, the ETF manager will deliver to the AP the corresponding portfolio of shares. Again, no cash changes hands here. Normally, with an established and liquid ETF, investors like you and me will transact small purchases and sales of ETF shares with other small investors in the market. In the event that an AP needs to transact business with an investor, they will do so by either buying or selling the ETF shares. In the event that they have insufficient ETF shares to meet demand, they will bundle up a portfolio deliver them to the ETF provider in return for ETF shares, thus enabling them to meet demand. In the event that a lot of investors are selling and the AP ends up holding an excessive amount of ETF shares, they will deliver unwanted shares to the ETF manager in exchange for a portfolio of the underlying shares. According to this scheme, large liquidations of ETF holdings should not effect the share prices of the underlying portfolio. This is because the underlying shares are not sold in the market, rather they are simply returned to the AP in exchange for the ETF shares (Recall that no cash is changing hands in this type of transaction). The corresponding trail of dividends and distributions to ETF share holders follows the same scheme.\",\n \"The market doesn't really need to adjust for fees on ETF funds that are often less than 1/10th of a percent. The loss of the return is more than made up for by the diversification. How does the market adjust for trading fees? It doesn't have to, it's just a cost of doing business. If one broker or platform offers better fee structures, people will naturally migrate toward the lower fees.\",\n \"No. Not directly. A company issues stock in order to raise capital for building its business. Once the initial shares are sold to the public, the company doesn't receive additional funds from future transactions of those shares of stock between the public. However, the company could issue more shares at the new higher price to raise more capital.\",\n \"As others have posted, the company gains capital in return for its new shares. However, the share price can still fall. The problem is that the share marked is affected by supply and demand like any other marked. If the company just issues the new shares at marked price, they will have problems finding buyers. The people who are willing to pay that price has already bought as many shares as they want. The company does this to raise capital, and depends on the shares actually selling for this to work. So, they issue shares at below marked price to attract buyers and the shares get diluted. In the end the share will usually end up somewhere between the old marked price and the issue price. The old share owners are probably not too happy about this and will not accept this plan. (At least here in Norway, share issue has to be accepted at a shareholder meeting) So, what is often done instead is to issue buy options for the required number of shares at the below-marked price. These options are given (for free) to the current share holders proportional to their current holding. If everybody exercises their options they get new cheap shares that compensates for the loss of share value. If they don't have the capital themselves, they can sell the options and get compensation that way instead.\",\n \"If that company issues another 100 shares, shouldn't 10 of those new 100 shares be mine? Those 100 shares are an asset of the company, and you own 10% of them. When investors buy those new shares, you again own a share of the proceeds, just as you own a share of all the company's assets. A company only issues new share to raise money - it is a borrowing from investors, and in that way can be seen as an alternative to taking on loans. Both share issuing and a loan bring new capital and debt into a company. The difference is that shares don't need to be repaid.\",\n \"Is it normal for such transactions to create new outstanding shares? Yes a company can create new shares or a Majority share holder can sell some of his stake or it can be a mix of both. how will this news affect the short-term and long-term price of the company's stock? This is opinion based and not apt for this site. It can be positive or negative depending on how the market reacts to the news.\",\n \"The literal answer to your question 'what determines the price of an ETF' is 'the market'; it is whatever price a buyer is willing to pay and a seller is willing to accept. But if the market price of an ETF share deviates significantly from its NAV, the per-share market value of the securities in its portfolio, then an Authorized Participant can make an arbitrage profit by a transaction (creation or redemption) that pushes the market price toward NAV. Thus as long as the markets are operating and the APs don't vanish in a puff of smoke we can expect price will track NAV. That reduces your question to: why does NAV = market value of the holdings underlying a bond ETF share decrease when the market interest rate rises? Let's consider an example. I'll use US Treasuries because they have very active markets, are treated as risk-free (although that can be debated), and excluding special cases like TIPS and strips are almost perfectly fungible. And I use round numbers for convenience. Let's assume the current market interest rate is 2% and 'Spindoctor 10-year Treasury Fund' opens for business with $100m invested (via APs) in 10-year T-notes with 2% coupon at par and 1m shares issued that are worth $100 each. Now assume the interest rate goes up to 3% (this is an example NOT A PREDICTION); no one wants to pay par for a 2% bond when they can get 3% elsewhere, so its value goes down to about 0.9 of par (not exactly due to the way the arithmetic works but close enough) and Spindoctor shares similarly slide to $90. At this price an investor gets slightly over 2% (coupon*face/basis) plus approximately 1% amortized capital gain (slightly less due to time value) per year so it's competitive with a 3% coupon at par. As you say new bonds are available that pay 3%. But our fund doesn't hold them; we hold old bonds with a face value of $100m but a market value of only $90m. If we sell those bonds now and buy 3% bonds to (try to) replace them, we only get $90m par value of 3% bonds, so now our fund is paying a competitive 3% but NAV is still only $90. At the other extreme, say we hold the 2% bonds to maturity, paying out only 2% interest but letting our NAV increase as the remaining term (duration) and thus discount of the bonds decreases -- assuming the market interest rate doesn't change again, which for 10 years is probably unrealistic (ignoring 2009-2016!). At the end of 10 years the 2% bonds are redeemed at par and our NAV is back to $100 -- but from the investor's point of view they've forgone $10 in interest they could have received from an alternative investment over those 10 years, which is effectively an additional investment, so the original share price of $90 was correct.\",\n \"\\\"Market cap is the current value of a company's equity and is defined as the current share price multiplied by the number of shares. Please check also \\\"\\\"enterprise value\\\"\\\" for another definition of a company`s total value (enterprise value = market cap adjusted for net nebt). Regarding the second part of your question: Issuing new shares usually does not affect market cap in a significant way because the newly issued shares often result in lower share prices and dilution of the existing share holders shares.\\\"\",\n \"\\\"Does the bolded sentence apply for ETFs and ETF companies? No, the value of an ETF is determined by an exchange and thus the value of the share is whatever the trading price is. Thus, the price of an ETF may go up or down just like other securities. Money market funds can be a bit different as the mutual fund company will typically step in to avoid \\\"\\\"Breaking the Buck\\\"\\\" that could happen as a failure for that kind of fund. To wit, must ETF companies invest a dollar in the ETF for every dollar that an investor deposited in this aforesaid ETF? No, because an ETF is traded as shares on the market, unless you are using the creation/redemption mechanism for the ETF, you are buying and selling shares like most retail investors I'd suspect. If you are using the creation/redemption system then there are baskets of other securities that are being swapped either for shares in the ETF or from shares in the ETF.\\\"\",\n \"No, the expense ratio would be something you wouldn't be charged. If you bought shares of the ETF long, then the dividends are usually reduced by the expense ratio if you wanted to know where to find that charge in general. You would have to make up for any dividends the underlying stocks as part of general shorting since the idea is that once you buy to put back the shares, it has to appear as if they weren't missing in the first place. No, the authorized participant would handle changes to the underlying structure if needed.\",\n \"Let me answer with an extreme example - I own the one single share of a company, and it's worth $1M. I issue 9 more shares, and find 9 people willing to pay $1M for each share. I know find my ownership dropped by 90%, and I am now a 10% owner of a business that was valued at $1M but with an additional $9M in the bank for expansion. (Total value now $10M) Obviously, this is a simplistic view, but no simpler than the suggestion that your company would dilute its shares 90% in one transaction.\",\n \"A DRIP plan with the ETF does just that. It provides cash (the dividends you are paid) back to the fund manager who will accumulate all such reinvested dividends and proportionally buy more shares of stock in the ETF. Most ETFs will not do this without your approval, as the dividends are taxed to you (you must include them as income for that year if this is in a taxable account) and therefore you should have the say on where the dividends go.\",\n \"Of course, this calculation does not take into consideration the fact that once the rights are issues, the price of the shares will drop. Usually this drop corresponds to the discount. Therefore, if a rights issue is done correctly share price before issuance-discount=share price after issuance. In this result, noone's wealth changes because shareholders can then sell their stock and get back anything they had to put in.\",\n \"It may be true for a bond fund. But it is not true for bond etf. Bond etf will drop by the same amount when it distribute dividend on ex-dividend date.\",\n \"Stock dilution is legal because, in theory, the issuance of new shares shouldn't affect actual shareholder value. The other answers have explained fairly well why this is so. In practice, however, the issuance of new shares can destroy shareholder value. This normally happens when the issuing company: In these cases, the issuance of more shares merely reduces each shareholder's stake in the company without building proportional shareholder value.\",\n \"The shareholders can't all re-invest their dividends -- it's not possible. Paying a dividend doesn't issue any new shares, so unless some of the existing shareholders sell their shares instead of re-investing, there aren't any shares available for the shareholders to re-invest in.\",\n \"It's impossible to know for sure, which I'm sure you know, but paying these large debts all at once will leave very little assets in comparison to what they had. Issuing new shares like this is called dilution which means the price will be forced downward because the same (or in this case less) net earnings must be divided by more shares outstanding. A secondary offering almost always lowers stock price. http://wiki.fool.com/What_Happens_to_the_Share_Price_When_New_Shares_Are_Issued%3F\",\n \"Here is an example for you. We have a fictional company. It's called MoneyCorp. Its job is to own money, and that's all. Right now it owns $10,000. It doesn't do anything special with that $10,000 - it stores it in a bank account, and whenever it earns interest gives it to the shareholders as a dividend. Also, it doesn't have any expenses at all, and doesn't pay taxes, and is otherwise magic so that it doesn't have to worry about distractions from its mathematical perfection. There are 10,000 shares of MoneyCorp, each worth exactly $1. However, they may trade for more or less than $1 on the stock market, because it's a free market and people trading stock on the stock market can trade at whatever price two people agree on. Scenario 1. MoneyCorp wants to expand. They sell 90,000 shares for $1 each. The money goes in the same bank account at the same interest rate. Do the original shareholders see a change? No. 100,000 shares, $100,000, still $1/share. No problem. This is the ideal situation. Scenario 2: MoneyCorp sells 90,000 shares for less than the current price, $0.50 each. Do the original shareholders lose out? YES. It now has something like $55,000 and 100,000 shares. Each share is now worth $0.55. The company has given away valuable equity to new shareholders. That's bad. Why didn't they get more money from those guys? Scenario 3: MoneyCorp sells 90,000 shares for more than the current price, $2 each, because there's a lot of hype about its business. MoneyCorp now owns $190,000 in 100,000 shares and each share is worth $1.90. Existing shareholders win big! This is why a company would like to make its share offering at the highest price possible (think, Facebook IPO). Of course, the new shareholders may be disappointed. MoneyCorp is actually a lot like a real business! Actually, if you want to get down to it, MoneyCorp works very much like a money-market fund. The main difference between MoneyCorp and a random company on the stock market is that we know exactly how much money MoneyCorp is worth. You don't know that with a real business: sales may grow, sales may drop, input prices may rise and fall, and there's room for disagreement - that's why stock markets are as unpredictable as they are, so there's room for doubt when a company sells their stock at a price existing shareholders think is too cheap (or buys it at a price that is too expensive). Most companies raising capital will end up doing something close to scenario 1, the fair-prices-for-everyone scenario. Legally, if you own part of a company and they do something a Scenario-2 on you... you may be out of luck. Consider also: the other owners are probably hurt as much as you are. Only the new shareholders win. And unless the management approving the deal is somehow giving themselves a sweetheart deal, it'll be hard to demonstrate any malfeasance. As an individual, you probably won't file a lawsuit either, unless you own a very large stake in the company. Lawsuits are expensive. A big institutional investor or activist investor of some sort may file a suit if millions of dollars are at stake, but it'll be ugly at best. If there's nothing evil going on with the management, this is just one way that a company loses money from bad management. It's probably not the most important one to worry about.\",\n \"Since the market is in general rather efficient, the price of the ETF will most of the time reflects the prices of the underlying securities. However, there are times when ETF price deviates from its fundamental value. This is called trading at a premium/discount. This creates arbitrage opportunity, which is actually being studied in finance literature.\",\n \"The check is written to BigCo. Jack is being diluted, corporation issues more shares. There's no gain, no change in Jack's equity value. Jack didn't lose or win anything. BigCo was worth $1M before the additional money, it is worth $1.25M after the additional money, with Jack owning the same $1M, but the cake is now bigger (obviously the numbers are wrong in your example, but you get the point).\",\n \"They can rebalance and often times at a random manager's discretion. ETF's are just funds, and funds all have their own conditions, read the prospectus, thats the only source of truth.\",\n \"A company typically goes public in order to bring in additional capital. In an IPO, the company (through its officials) will typically do so by issuing additional shares, and offering to sell those to investors. If they did not do that, then there would be no net capital gain for the company; if person A sells share in company C to person B, then company C does not benefit directly from the exchange. By issuing and selling additional shares, the total value of all stock in the company can increase. Being publicly traded also greatly increases the confidence in the valuation of the company, as a consequence of the perfect market theory. There is nothing in this that says that initial investors (cofounders, employees, etc.) need to sell their shares in the process. They might choose to do so, or they might not; or they might be prevented from doing so by terms of any agreements that they have signed or by insider trading laws. Compare What happens to internal stock when a company goes public? Depending on specifics, it might be reasonable for the company to perform a share split prior to the initial public offering. That, however, doesn't affect the total value of the shares, only the price per share.\",\n \"There are a number of ways this can result. In a broad ETF, such as SPY, the S&P 500 spider, the S&P index will have 500 stocks no matter what, so a buyout would simply result in a re-shuffling of the index makeup. No buyout will happen so quickly that there's no time to choose the next stock to join the index. In your case, if the fund manager (per the terms of the prospectus) wishes to simply reallocate the index to remove the taken-over stock that's probably how he handle it. Unless of course, the prospectus dictates otherwise. In which case, a cash dividend is a possible alternative.\",\n \"Many companies actually just issue new shares for employee compensation instead of buying back existing ones. So actually, the share price should go down because the same value is now diluted over more shares. In addition, this would not necessarily affect companies with many employees than those with fewer employees because companies with more employees tend to be bigger and thus have more shares (among which the change in demand would be distributed). Also, I think many companies do not issue shares to employees every pay day, but just e.g. once every quarter.\",\n \"\\\"From How are indexes weighted?: Market-capitalization weighted indexes (or market cap- or cap-weighted indexes) weight their securities by market value as measured by capitalization: that is, current security price * outstanding shares. The vast majority of equity indexes today are cap-weighted, including the S&P 500 and the FTSE 100. In a cap-weighted index, changes in the market value of larger securities move the index’s overall trajectory more than those of smaller ones. If the fund you are referencing is an ETF then there may be some work to do to figure out what underlying securities to use when handling Creation and Redemption units as an ETF will generally have shares created in 50,000 shares at a time through Authorized Participants. If the fund you are referencing is an open-end fund then there is still cash flows to manage in the fund as the fund has create and redeem shares in on a daily basis. Note in both cases that there can be updates to an index such as quarterly rebalancing of outstanding share counts, changes in members because of mergers, acquisitions or spin-offs and possibly a few other factors. How to Beat the Benchmark has a piece that may also be useful here for those indices with many members from 1998: As you can see, its TE is also persistently positive, but if anything seems to be declining over time. In fact, the average net TE for the whole period is +0.155% per month, or an astounding +1.88% pa net after expenses. The fund expense ratio is 0.61% annually, for a whopping before expense TE of +2.5% annually. This is once again highly statistically significant, with p values of 0.015 after expenses and 0.0022 before expenses. (The SD of the TE is higher for DFSCX than for NAESX, lowering its degree of statistical significance.) It is remarkable enough for any fund to beat its benchmark by 2.5% annually over 17 years, but it is downright eerie to see this done by an index fund. To complete the picture, since 1992 the Vanguard Extended Index Fund has beaten its benchmark (the Wilshire 4500) by 0.56% per year after expenses (0.81% net of expenses), and even the Vanguard Index Trust 500 has beaten its benchmark by a razor thin 0.08% annually before (but not after) expenses in the same period. So what is going on here? A hint is found in DFA's 1996 Reference Guide: The 9-10 Portfolio captures the return behavior of U.S. small company stocks as identified by Rolf Banz and other academic researchers. Dimensional employs a \\\"\\\"patient buyer\\\"\\\" discount block trading strategy which has resulted in negative total trading costs, despite the poor liquidity of small company stocks. Beginning in 1982, Ibbotson Associates of Chicago has used the 9-10 Portfolio results to calculate the performance of small company stocks for their Stocks, Bonds, Bills, and Inflation yearbook. A small cap index fund cannot possibly own all of the thousands of stocks in its benchmark; instead it owns a \\\"\\\"representative sample.\\\"\\\" Further, these stocks are usually thinly traded, with wide bid/ask spreads. In essence what the folks at DFA learned was that they could tell the market makers in these stocks, \\\"\\\"Look old chaps, we don't have to own your stock, and unless you let us inside your spread, we'll pitch our tents elsewhere. Further, we're prepared to wait until a motivated seller wishes to unload a large block.\\\"\\\" In a sense, this gives the fund the luxury of picking and choosing stocks at prices more favorable than generally available. Hence, higher long term returns. It appears that Vanguard did not tumble onto this until a decade later, but tumble they did. To complete the picture, this strategy works best in the thinnest markets, so the excess returns are greatest in the smallest stocks, which is why the positive TE is greatest for the DFA 9-10 Fund, less in the Vanguard Small Cap Fund, less still in the Vanguard Index Extended Fund, and minuscule with the S&P500. There are some who say the biggest joke in the world of finance is the idea of value added active management. If so, then the punch line seems to be this: If you really want to beat the indexes, then you gotta buy an index fund.\\\"\",\n \"Yes, the net effect is zero. If you own zero shares by Nov 30, for example, and don't buy any more shares by 12/31, the year is done, and nothing left to account for.\",\n \"First, make sure you understand the objective of an ETF. In some cases, they may use leverage to get a multiple of the index's return that is different than 1. Some may be ultra funds that go for double the return or double the inverse of the return and thus will try to apply the appropriate leverage to achieve that return. Those that use physical replication can still have a small portion be used to try to minimize the tracking error as there is something to be said for what kind of tracking error do you accept as the fund's returns may differ from the index by some measure. Yes. For example, if you were to have a fund that had a 50% and -50% return in back to back periods, what would your final return be? Answer: -25%, which if you need to visualize this, take $1 that then becomes $1.50 by going up 50% and then becomes $.75 by going down 50% in a compounded fashion. This is where you have to be careful of the risks of leverage as those returns will compound in a possibly negative way.\",\n \"To make you happy. The thing is, if they split 10 for 1, its still the exact same value in total. There are just more shares that are worth 35 instead of 350each. You need to know things like how many shares there are <the float> how rapidly the company is growing. If it has earnings at all and how much. There is a lot more to the value of a company than the price of the stock alone.\",\n \"Yes but this also goes against the idea that somehow, after injecting more of their money into the firm by exercising their rights, shareholder wealth still remains the same? So if shareholders also injected cash, how come their total wealth didn't change?\",\n \"\\\"ETF Creation and Redemption Process notes the process: While ETF trading occurs on an exchange like stocks, the process by which their shares are created is significantly different. Unless a company decides to issue more shares, the supply of shares of an individual stock trading in the marketplace is finite. When demand increases for shares of an ETF, however, Authorized Participants (APs) have the ability to create additional shares on demand. Through an \\\"\\\"in kind\\\"\\\" transfer mechanism, APs create ETF units in the primary market by delivering a basket of securities to the fund equal to the current holdings of the ETF. In return, they receive a large block of ETF shares (typically 50,000), which are then available for trading in the secondary market. This ETF creation and redemption process helps keep ETF supply and demand in continual balance and provides a \\\"\\\"hidden\\\"\\\" layer of liquidity not evident by looking at trading volumes alone. This process also works in reverse. If an investor wants to sell a large block of shares of an ETF, even if there seems to be limited liquidity in the secondary market, APs can readily redeem a block of ETF shares by gathering enough shares of the ETF to form a creation unit and then exchanging the creation unit for the underlying securities. Thus, the in-kind swap to the underlying securities is only done by APs so the outflow would be these individuals taking a large block of the ETF and swapping it for the underlying securities. The APs would be taking advantage of the difference between what the ETF's trading value and the value of the underlying securities.\\\"\",\n \"The Creation/Redemption mechanism is how shares of an ETF are created or redeemed as needed and thus is where there can be differences in what the value of the holdings can be versus the trading price. If the ETF is thinly traded, then the difference could be big as more volume would be where the mechanism could kick in as generally there are blocks required so the mechanism usually created or redeemed in lots of 50,000 shares I believe. From the link where AP=Authorized Participant: With ETFs, APs do most of the buying and selling. When APs sense demand for additional shares of an ETF—which manifests itself when the ETF share price trades at a premium to its NAV—they go into the market and create new shares. When the APs sense demand from investors looking to redeem—which manifests itself when the ETF share price trades at a discount—they process redemptions. So, suppose the NAV of the ETF is $20/share and the trading price is $30/share. The AP can buy the underlying securities for $20/share in a bulk order that equates to 50,000 shares of the ETF and exchange the underlying shares for new shares in the ETF. Then the AP can turn around and sell those new ETF shares for $30/share and pocket the gain. If you switch the prices around, the AP would then take the ETF shares and exchange them for the underlying securities in the same way and make a profit on the difference. SEC also notes this same process.\",\n \"that index fund providers don’t have incentive to push companies to change for the better and create shareholder value. And yet we see countless share buybacks. Dividend yield on the S&P that has been rising since the year 2000. I don't buy the argument of it's devouring capitalism...I do however buy the argument it is helping distort the market, as mentioned with shorting/negative positions.\",\n \"what reason would I have in buying an ETF? Apart from the efforts, the real reason is the ticket size. One can't buy shares in fraction. To truly reflect the index in equal weight, the amount to invest will be in multiples of millions [depending on the Index and the stock composition] This related question should help you understand why it is difficult even for large fund house to exactly mimic the index. Why do passive ETFs require so much trading (and incur costs)?\",\n \"ETF is essentially a stock, from accounting perspective. Treat it as just another stock in the portfolio.\",\n \"\\\"You seem to be assuming that ETFs must all work like the more traditional closed-end funds, where the market price per share tends—based on supply and demand—to significantly deviate from the underlying net asset value per share. The assumption is simplistic. What are traditionally referred to as closed-end funds (CEFs), where unit creation and redemption are very tightly controlled, have been around for a long time, and yes, they do often trade at a premium or discount to NAV because the quantity is inflexible. Yet, what is generally meant when the label \\\"\\\"ETF\\\"\\\" is used (despite CEFs also being both \\\"\\\"exchange-traded\\\"\\\" and \\\"\\\"funds\\\"\\\") are those securities which are not just exchange-traded, and funds, but also typically have two specific characteristics: (a) that they are based on some published index, and (b) that a mechanism exists for shares to be created or redeemed by large market participants. These characteristics facilitate efficient pricing through arbitrage. Essentially, when large market participants notice the price of an ETF diverging from the value of the shares held by the fund, new units of the ETF can get created or redeemed in bulk. The divergence quickly narrows as these participants buy or sell ETF units to capture the difference. So, the persistent premium (sometimes dear) or discount (sometimes deep) one can easily witness in the CEF universe tend not to occur with the typical ETF. Much of the time, prices for ETFs will tend to be very close to their net asset value. However, it isn't always the case, so proceed with some caution anyway. Both CEF and ETF providers generally publish information about their funds online. You will want to find out what is the underlying Net Asset Value (NAV) per share, and then you can determine if the market price trades at a premium or a discount to NAV. Assuming little difference in an ETF's price vs. its NAV, the more interesting question to ask about an ETF then becomes whether the NAV itself is a bargain, or not. That means you'll need to be more concerned with what stocks are in the index the fund tracks, and whether those stocks are a bargain, or not, at their current prices. i.e. The ETF is a basket, so look at each thing in the basket. Of course, most people buy ETFs because they don't want to do this kind of analysis and are happy with market average returns. Even so, sector-based ETFs are often used by traders to buy (or sell) entire sectors that may be undervalued (or overvalued).\\\"\",\n \"\\\"In an IPO (initial public offering) or APO (additional public offering) situation, a small group of stakeholders (as few as one) basically decide to offer an additional number of \\\"\\\"shares\\\"\\\" of equity in the company. Usually, these \\\"\\\"shares\\\"\\\" are all equal; if you own one share you own a percentage of the company equal to that of anyone else who owns one share. The sum total of all shares, theoretically, equals the entire value of the company, and so with N shares in existence, one share is equivalent to 1/Nth the company, and entitles you to 1/Nth of the profits of the company, and more importantly to some, gives you a vote in company matters which carries a weight of 1/Nth of the entire shareholder body. Now, not all of these shares are public. Most companies have the majority (51%+) of shares owned by a small number of \\\"\\\"controlling interests\\\"\\\". These entities, usually founding owners or their families, may be prohibited by agreement from selling their shares on the open market (other controlling interests have right of first refusal). For \\\"\\\"private\\\"\\\" companies, ALL the shares are divided this way. For \\\"\\\"public\\\"\\\" companies, the remainder is available on the open market, and those shares can be bought and sold without involvement by the company. Buyers can't buy more shares than are available on the entire market. Now, when a company wants to make more money, a high share price at the time of the issue is always good, for two reasons. First, the company only makes money on the initial sale of a share of stock; once it's in a third party's hands, any profit from further sale of the stock goes to the seller, not the company. So, it does little good to the company for its share price to soar a month after its issue; the company's already made its money from selling the stock. If the company knew that its shares would be in higher demand in a month, it should have waited, because it could have raised the same amount of money by selling fewer shares. Second, the price of a stock is based on its demand in the market, and a key component of that is scarcity; the fewer shares of a company that are available, the more they'll cost. When a company issues more stock, there's more shares available, so people can get all they want and the demand drops, taking the share price with it. When there's more shares, each share (being a smaller percentage of the company) earns less in dividends as well, which figures into several key metrics for determining whether to buy or sell stock, like earnings per share and price/earnings ratio. Now, you also asked about \\\"\\\"dilution\\\"\\\". That's pretty straightforward. By adding more shares of stock to the overall pool, you increase that denominator; each share becomes a smaller percentage of the company. The \\\"\\\"privately-held\\\"\\\" stocks are reduced in the same way. The problem with simply adding stocks to the open market, getting their initial purchase price, is that a larger overall percentage of the company is now on the open market, meaning the \\\"\\\"controlling interests\\\"\\\" have less control of their company. If at any time the majority of shares are not owned by the controlling interests, then even if they all agree to vote a certain way (for instance, whether or not to merge assets with another company) another entity could buy all the public shares (or convince all existing public shareholders of their point of view) and overrule them. There are various ways to avoid this. The most common is to issue multiple types of stock. Typically, \\\"\\\"common\\\"\\\" stock carries equal voting rights and equal shares of profits. \\\"\\\"Preferred stock\\\"\\\" typically trades a higher share of earnings for no voting rights. A company may therefore keep all the \\\"\\\"common\\\"\\\" stock in private hands and offer only preferred stock on the market. There are other ways to \\\"\\\"class\\\"\\\" stocks, most of which have a similar tradeoff between earnings percentage and voting percentage (typically by balancing these two you normalize the price of stocks; if one stock had better dividends and more voting weight than another, the other stock would be near-worthless), but companies may create and issue \\\"\\\"superstock\\\"\\\" to controlling interests to guarantee both profits and control. You'll never see a \\\"\\\"superstock\\\"\\\" on the open market; where they exist, they are very closely held. But, if a company issues \\\"\\\"superstock\\\"\\\", the market will see that and the price of their publicly-available \\\"\\\"common stock\\\"\\\" will depreciate sharply. Another common way to increase market cap without diluting shares is simply to create more shares than you issue publicly; the remainder goes to the current controlling interests. When Facebook solicited outside investment (before it went public), that's basically what happened; the original founders were issued additional shares to maintain controlling interests (though not as significant), balancing the issue of new shares to the investors. The \\\"\\\"ideal\\\"\\\" form of this is a \\\"\\\"stock split\\\"\\\"; the company simply multiplies the number of shares it has outstanding by X, and issues X-1 additional shares to each current holder of one share. This effectively divides the price of one share by X, lowering the barrier to purchase a share and thus hopefully driving up demand for the shares overall by making it easier for the average Joe Investor to get their foot in the door. However, issuing shares to controlling interests increases the total number of shares available, decreasing the market value of public shares that much more and reducing the amount of money the company can make from the stock offering.\\\"\",\n \"Unissued capital is only a token restriction. When a company is incorporated a maximum number of shares is specified in the legal documentation. Most companies will make this an extremely large number so they never face that limitation. See here. You wouldn't necessarily expect the stock price to change. The reason a company issues new stock is as a way to raise capital. Although new stock is issued, the cash raised by the sale becomes an Asset on the company's balance sheet. There's a good worked example in this Wikipedia article. Following a rights issue the Liabilities of the company will increase to account for the increase in owner's equity, but the Assets will also increase by the same amount with the cash received. Whether the stock price changes will depend upon what price the stock is issued at and on the market's opinions about the company's growth potential now it has new capital to invest. If the new stock is issued at the same price as the current market price, there's no particular reason to expect the share price to change. Again Wikipedia has more detail. When new stock is issued it is usually offered to existing shareholders first, in proportion to their current holding. If the shareholder decides to purchase the new stock in full then their position won't be diluted. If they opt not to buy the new stock, they will now own a smaller percentage of the company as their stocks will make up a smaller part of the now larger number of shares.\",\n \"\\\"After the initial public offering, the company can raise money by selling more stock (equity financing) or selling debt (e.g. borrowing money). If a company's stock price is high, they can raise money with equity financing on more favorable terms. When companies raise money with equity financing, they create new shares and dilute the existing shareholders, so the number of shares outstanding is not fixed. Companies can also return money to shareholders by buying their own equity, and this is called a share repurchase. It's best for companies to repurchase their shared when their stock price is low, but \\\"\\\"American companies have a terrible track record of buying their own shares high and selling them low.\\\"\\\" The management of a company typically likes a rising stock price, so their stock options are more valuable and they can justify bigger pay packages.\\\"\",\n \"Yes, it depends on the fund it's trying to mirror. The ETF for the S&P that's best known (in my opinion) is SPY and you see the breakdown of its holdings. Clearly, it's not an equal weighted index.\",\n \"A private company say has 100 shares with single owner Mr X, now it needs say 10,000/- to run the company, if they can get a price of say 1000 per share, then they just need to issue 10 additional shares, so now the total shares is 110 [100 older plus 10]. So now the owner's share in the company is around 91%. However if they can get a price of only Rs 200 per share, they need to create 50 more shares. So now the total shares is 150 [100 older plus 50]. So now Mr X's equity in his own company is down to 66%. While this may still be OK, if it continues and goes below 50%, there is chances that he [Original owner] will be thrown out\",\n \"Shares are partial ownership of the company. A company can issue (not create) more of the shares it owns at any time, to anyone, at any price -- subject to antitrust and similar regulations. If they wanted to, for example, flat-out give 10% of their retained interest to charity, they could do so. It shouldn't substantially affect the stock's trading for others unless there's a completely irrational demand for shares.\",\n \"\\\"Because ETFs, unlike most other pooled investments, can be easily shorted, it is possible for institutional investors to take an arbitrage position that is long the underlying securities and short the ETF. The result is that in a well functioning market (where ETF prices are what they should be) these institutional investors would earn a risk-free profit equal to the fee amount. How much is this amount, though? ETFs exist in a very competitive market. Not only do they compete with each other, but with index and mutual funds and with the possibility of constructing one's own portfolio of the underlying. ETF investors are very cost-conscious. As a result, ETF fees just barely cover their costs. Typically, ETF providers do not even do their own trading. They issue new shares only in exchange for a bundle of the underlying securities, so they have almost no costs. In order for an institutional investor to make money with the arbitrage you describe, they would need to be able to carry it out for less than the fees earned by the ETF. Unlike the ETF provider, these investors face borrowing and other shorting costs and limitations. As a result it is not profitable for them to attempt this. Note that even if they had no costs, their maximum upside would be a few basis points per year. Lots of low-risk investments do better than that. I'd also like to address your question about what would happen if there was an ETF with exorbitant fees. Two things about your suggested outcome are incorrect. If short sellers bid the price down significantly, then the shares would be cheap relative to their stream of future dividends and investors would again buy them. In a well-functioning market, you can't bid the price of something that clearly is backed by valuable underlying assets down to near zero, as you suggest in your question. Notice that there are limitations to short selling. The more shares are short-sold, the more difficult it is to locate share to borrow for this purpose. At first brokers start charging additional fees. As borrowable shares become harder to find, they require that you obtain a \\\"\\\"locate,\\\"\\\" which takes time and costs money. Finally they will not allow you to short at all. Unlimited short selling is not possible. If there was an ETF that charged exorbitant fees, it would fail, but not because of short sellers. There is an even easier arbitrage strategy: Investors would buy the shares of the ETF (which would be cheaper than the value of the underlying because of the fees) and trade them back to the ETF provider in exchange for shares of the underlying. This would drain down the underlying asset pool until it was empty. In fact, it is this mechanism (the ability to trade ETF shares for shares of the underlying and vice versa) that keeps ETF prices fair (within a small tolerance) relative to the underlying indices.\\\"\",\n \"\\\"The amount, reliability and frequency of dividends paid by an ETF other than a stock, such as an index or mutual fund, is a function of the agreement under which the ETF was established by the managing or issuing company (or companies), and the \\\"\\\"basket\\\"\\\" of investments that a share in the fund represents. Let's say you invest in a DJIA-based index fund, for instance Dow Diamonds (DIA), which is traded on several exchanges including NASDAQ and AMEX. One share of this fund is currently worth $163.45 (Jan 22 2014 14:11 CDT) while the DJIA itself is $16,381.38 as of the same time, so one share of the ETF represents approximately 1% of the index it tracks. The ETF tracks the index by buying and selling shares of the blue chips proportional to total invested value of the fund, to maintain the same weighted percentages of the same stocks that make up the index. McDonald's, for instance, has an applied weight that makes the share price of MCD stock roughly 5% of the total DJIA value, and therefore roughly 5% of the price of 100 shares of DIA. Now, let's say MCD issued a dividend to shareholders of, say, $.20 per share. By buying 100 shares of DIA, you own, through the fund, approximately five MCD shares, and would theoretically be entitled to $1 in dividends. However, keep in mind that you do not own these shares directly, as you would if you spent $16k buying the correct percentage of all the shares directly off the exchange. You instead own shares in the DIA fund, basically giving you an interest in some investment bank that maintains a pool of blue-chips to back the fund shares. Whether the fund pays dividends or not depends on the rules under which that fund was set up. The investment bank may keep all the dividends itself, to cover the expenses inherent in managing the fund (paying fund management personnel and floor traders, covering losses versus the listed price based on bid-ask parity, etc), or it may pay some percentage of total dividends received from stock holdings. However, it will virtually never transparently cut you a check in the amount of your proportional holding of an indexed investment as if you held those stocks directly. In the case of the DIA, the fund pays dividends monthly, at a yield of 2.08%, virtually identical to the actual weighted DJIA yield (2.09%) but lower than the per-share mean yield of the \\\"\\\"DJI 30\\\"\\\" (2.78%). Differences between index yields and ETF yields can be reflected in the share price of the ETF versus the actual index; 100 shares of DIA would cost $16,345 versus the actual index price of 16,381.38, a delta of $(36.38) or -0.2% from the actual index price. That difference can be attributed to many things, but fundamentally it's because owning the DIA is not the exact same thing as owning the correct proportion of shares making up the DJIA. However, because of what index funds represent, this difference is very small because investors expect to get the price for the ETF that is inherent in the real-time index.\\\"\",\n \"No, I think you are misunderstanding the Math. Stock splits are a way to control relatively where the price per share can be for a company as companies can split or reverse split shares which would be similar to taking dimes and giving 2 nickels for each dime, each is 10 cents but the number of coins has varied. This doesn't create any additional value since it is still 10 cents whether it is 1 dime or 2 nickels. Share repurchase programs though are done to prevent dilution as executives and those with incentive-stock options may get shares in the company that increase the number of outstanding shares that would be something to note.\",\n \"Depending on the Price of the ETF and the hedging you may well simply be guaranteed to make a small loss.\",\n \"The expense ratio reduces the return of the ETF; your scenario of paying 100.0015 is that of a load. Most (all?) ETFs can be bought without paying a load (sales charge as a percent of amount invested), and some ETFs can be bought without paying a brokerage fee (fixed or variable charge for a buy transaction just like buying any other stock through the brokerage) because the brokerage has waived it. Your broker might charge fees for both buying and selling shares in an ETF, but in any case, this is quite separate from the expense ratio.\",\n \"\\\"It's called \\\"\\\"dilution\\\"\\\". Usually it is done to attract more investors, and yes - the existing share holders will get diluted and their share of ownership shrinks. As a shareholder you can affect the board decisions (depends on your stake of ownership), but usually you'll want to attract more investors to keep the company running, so not much you can do to avoid it. The initial investors/employees in a startup company are almost always diluted out. Look at what happened to Steve Jobs at Apple, as an example.\\\"\",\n \"Selling stock means selling a portion of ownership in your company. Any time you issue stock, you give up some control, unless you're issuing non-voting stock, and even non-voting stock owns a portion of the company. Thus, issuing (voting) shares means either the current shareholders reduce their proportion of owernship, or the company reissues stock it held back from a previous offering (in which case it no longer has that stock available to issue and thus has less ability to raise funds in the future). From Investopedia, for exmaple: Secondary offerings in which new shares are underwritten and sold dilute the ownership position of stockholders who own shares that were issued in the IPO. Of course, sometimes a secondary offering is more akin to Mark Zuckerberg selling some shares of Facebook to allow him to diversify his holdings - the original owner(s) sell a portion of their holdings off. That does not dilute the ownership stake of others, but does reduce their share of course. You also give up some rights to dividends etc., even if you issue non-voting stock; of course that is factored into the price presumably (either the actual dividend or the prospect of eventually getting a dividend). And hopefully more growth leads to more dividends, though that's only true if the company can actually make good use of the incoming funds. That last part is somewhat important. A company that has a good use for new funds should raise more funds, because it will turn those $100 to $150 or $200 for everyone, including the current owners. But a company that doesn't have a particular use for more money would be wasting those funds, and probably not earning back that full value for everyone. The impact on stock price of course is also a major factor and not one to discount; even a company issuing non-voting stock has a fiduciary responsibility to act in the interest of those non-voting shareholders, and so should not excessively dilute their value.\",\n \"index ETF tracks indented index (if fund manager spend all money on Premium Pokemon Trading Cards someone must cover resulting losses) Most Index ETF are passively managed. ie a computer algorithm would do automatic trades. The role of fund manager is limited. There are controls adopted by the institution that generally do allow such wide deviations, it would quickly be flagged and reported. Most financial institutions have keyman fraud insurance. fees are not higher that specified in prospectus Most countries have regulation where fees need to be reported and cannot exceed the guideline specified. at least theoretically possible to end with ETF shares that for weeks cannot be sold Yes some ETF's can be illiquid at difficult to sell. Hence its important to invest in ETF that are very liquid.\",\n \"\\\"My knowledge relates to ETFs only. By definition, an ETF's total assets can increase or decrease based upon how many shares are issued or redeemed. If somebody sells shares back to the ETF provider (rather than somebody else on market) then the underlying assets need to be sold, and vice-versa for purchasing from the ETF provider. ETFs also allow redemptions too in addition to this. For an ETF, to determine its total assets, you need to you need to analyze the Total Shares on Issue multipled by the Net Asset Value. ETFs are required to report shares outstanding and NAV on a daily basis. \\\"\\\"Total assets\\\"\\\" is probably more a function of marketing rather than \\\"\\\"demand\\\"\\\" and this is why most funds report on a net-asset-value-per-share basis. Some sites report on \\\"\\\"Net Inflows\\\"\\\" is basically the net change in shares outstanding multiplied by the ETF price. If you want to see this plotted over time you can use a such as: http://www.etf.com/etfanalytics/etf-fund-flows-tool which allows you to see this as a \\\"\\\"net flows\\\"\\\" on a date range basis.\\\"\",\n \"\\\"Generally, ETFs work on the basis that there exists a pair of values that can be taken at any moment in time: A Net Asset Value of each share in the fund and a trading market price of each share in the fund. It may help to picture these in baskets of about 50,000 shares for the creation/redemption process. If the NAV is greater than the market price, then arbitrageurs will buy up shares at the market price and do an \\\"\\\"in-kind\\\"\\\" transaction that will be worth the NAV value that the arbitrageurs could turn around and sell for an immediate profit. If the market price is greater than the NAV, then the arbitrageurs will buy up the underlying securities that can be exchanged \\\"\\\"in-kind\\\"\\\" for shares in the fund that can then be sold on the market for an immediate profit. What is the ETF Creation/Redemption Mechanism? would be a source on this though I imagine there are others. Now, in the case of VXX, there is something to be said for how much trading is being done and what impact this can have. From a July 8, 2013 Yahoo Finance article: At big option trade in the iPath S&P 500 VIX Short-Term Futures Note is looking for another jump in volatility. More than 250,000 VXX options have already traded, twice its daily average over the last month. optionMONSTER systems show that a trader bought 13,298 August 26 calls for the ask price of $0.24 in volume that was 6 times the strike's previous open interest, clearly indicating new activity. Now the total returns of the ETF are a combination of changes in share price plus what happens with the distributions which could be held as cash or reinvested to purchase more shares.\\\"\",\n \"Stock issuing and dilution is legal because there must be some mechanism for small companies to grow into big companies. A company sees a great investment opportunity. It would be a perfect extension of their activities ... but they cannot afford it. To get the necessary money they can either take out a loan or issue shares. Taking a loan basically means that this is temporary, but the company will go back to being small when the loan is paid back. Issuing new shares basically means that the Board means that this growth is permanent and the company will be big for the foreseeable future. It is utterly necessary that companies have this option for raising cash, and therefore it is legal. As detailed in the other answers, you end up with a smaller percentage of a larger company, usually ending up with more or less the same value.\",\n \"The expense ratio is stated as an annual figure but is often broken down to be taken out periodically of the fund's assets. In traditional mutual funds, there will be a percent of assets in cash that can be nibbled to cover the expenses of running the fund and most deposits into the fund are done in cash. In an exchange-traded fund, new shares are often created through creation/redemption units which are baskets of securities that make things a bit different. In the case of an ETF, the dividends may be reduced by the expense ratio as the trading price follows the index usually. Expense ratios can vary as in some cases there may be initial waivers on new funds for a time period to allow them to build an asset base. There is also something to be said for economies of scale that allow a fund to have its expense ratio go down over time as it builds a larger asset base. These would be noted in the prospectus and annual reports of the fund to some degree. SPDR Annual Report on page 312 for the Russell 3000 ETF notes its expense ratio over the past 5 years being the following: 0.20% 0.20% 0.22% 0.20% 0.21% Thus, there is an example of some fluctuation if you want a real world example.\",\n \"S & P Index Announcements would have notes on when there are changes to the index. For example in the S & P Small-cap 600 there is a change that takes affect on Feb. 19, 2013. As for how index funds handle changes to the fund, this depends a bit on the nature of the fund as open-end mutual funds would be different than exchange-traded funds. The open-end fund would have to sell and purchase to keep tracking the index which can be interesting to see how well this is handled to keep the transaction costs down while the ETFs will just unload the shares in the redemption units of the stock leaving the index while taking in new shares with creation units of the newly added stock to the index.\",\n \"\\\"In general, yes. If interest rates go higher, then any existing fixed-rate bonds - and hence ETFs holding those bonds - become less valuable. The further each bond is from maturity, the larger the impact. As you suggest, once the bonds do mature, the fund can replace them at a market price, so the effect tails off. The bond market has a concept known as \\\"\\\"duration\\\"\\\" that helps reason about this effect. Roughly, it measures the average time from now to each payout of the bond, weighted by the payout. The longer the duration, the more the price will change for a given change in interest rates. The concept is just an approximation, and there are various slightly different ways of calculating it; but very roughly the price of a bond will reduce by a percentage equal to the duration times the increase in interest rates. So a bond with a duration of 5 years will lose 5% of its value for a 1% rise in interest rates (and of course vice-versa). For your second question, it really depends on what you're trying to achieve by diversifying - this might be best as a different question that gives more detail, as it's not very related to your first question. Short-term bonds are less risky. But both will lose value if the underlying company is in trouble. Gilts (government bonds) are less risky than corporate bonds.\\\"\",\n \"This is an old question that has an accepted answer, but it has gotten bumped due to an edit and the answers given are incorrect. I am assuming this means that every other Friday, the company is going into the open public market, buying those shares and then giving it out to the employees. No. Companies will internally hold shares that it intends to offer employees as additional compensation. There are no open market transactions, so the market price of the stock does not change (at least not due to buying pressure). The only net effect is an equivalent expense for the compensation, but that should already be accounted for in the share price as normal operating expenses. These share may come through an initial buyback from the market, but more common is that when companies issue new shares they keep some internally for exactly this situation. If they issued new shares every pay period, it would dilute the existing shares several times a quarter which would be difficult to account for.\",\n \"You better buy an ETF that does the same, because it would be much cheaper than mutual fund (and probably much cheaper than doing it yourself and rebalancing to keep up with the index). Look at DIA for example. Neither buying the same amount of stocks nor buying for the same amount of money would be tracking the DJIE. The proportions are based on the market valuation of each of the companies in the index.\",\n \"\\\"While I'm sure there's some truth to the argument that unsophisticated retail investors index against the S&P 500 thinking that they're tracking \\\"\\\"the market,\\\"\\\" I don't think it makes sense to steer the S&P 500 in that direction to cater to that lowest common denominator. The *ad absurdum* conclusion of that course of action, of course, would be to abolish the S&P 500 entirely and move those assets into the S&P Total Market Index. But clearly there's value in having an index that tracks US large-caps with single share classes, just as there's value in having an index that tracks US large-caps in general. As for whether it will be a loss for passive investors...it will be interesting to see how that pans out. Maybe good corporate governance and direct accountability by managers really do contribute positively to returns in the long run and investors will benefit from this change as a result. Or maybe this will result in companies with multiple share classes being undervalued and create an opportunity to earn outsized returns by investing in them, and indexes that omit those companies will underperform. Only time will tell.\\\"\",\n \"I'm guessing you're conflating bonus share issuance with stock split. That seems very common to me, from a quick search; there's even some issues of terminology between the US and Europe, I think - it seems some Europeans may use Bonus Shares to mean Stock Split, as opposed to the more common meaning in the US of Stock Dividend. Sometimes a bonus share issuance is (incorrectly) called a stock split, like in this public announcement from STADA in 2004. It is a 1:1 bonus share issuance (meaning they issue one bonus share to everyone who has one share now), but it is in essence the same thing as a stock split (a 2:1 stock split, namely). They combined the 1:1 from bonus share with the wording 'split', causing the confusion. Bonus share issuance, also known as a stock dividend, is covered well in this question/answer on this site, or from a search online. It has no obvious effect initially - both involve doubling shares out there and halving the price - but it has a substantially different treatment in terms of accounting, both to the company and to your tax accountant.\",\n \"NO. All the leveraged ETFs are designed to multiply the performance of the underlying asset FOR THAT DAY, read the prospectus. Their price is adjusted at the end of the day to reflect what is called a NAV unit. Basically, they know that their price is subject to fluctuations due to supply and demand throughout the day - simply because they trade in a quote driven system. But the price is automatically corrected at the end of the day regardless. In practice though, all sorts of crazy things happen with leveraged ETFs that will simply make them more and more unfavorable to hold long term, the longer you look at it.\",\n \"A company generally sells a portion of its ownership in an IPO, with existing investors retaining some ownership. In your example, they believe that the entire company is worth $25MM, so in order to raise $3MM it is issuing stock representing 12% of the ownership stake (3/25), which dilutes some or all of the existing stockholders' claims.\",\n \"\\\"when the index is altered to include new players/exclude old ones, the fund also adjusts The largest and (I would say) most important index funds are whole-market funds, like \\\"\\\"all-world-ex-US\\\"\\\", or VT \\\"\\\"Total World Stock\\\"\\\", or \\\"\\\"All Japan\\\"\\\". (And similarly for bonds, REITS, etc.) So companies don't leave or enter these indexes very often, and when they do (by an initial offering or bankruptcy) it is often at a pretty small value. Some older indices like the DJIA are a bit more arbitrary but these are generally not things that index funds would try to match. More narrow sector or country indices can have more of this effect, and I believe some investors have made a living from index arbitrage. However well run index funds don't need to just blindly play along with this. You need to remember that an index fund doesn't need to hold precisely every company in the index, they just need to sample such that they will perform very similarly to the index. The 500th-largest company in the S&P 500 is not likely to have all that much of an effect on the overall performance of the index, and it's likely to be fairly correlated to other companies in similar sectors, which are also covered by the index. So if there is a bit of churn around the bottom of the index, it doesn't necessarily mean the fund needs to be buying and selling on each transition. If I recall correctly it's been shown that holding about 250 stocks gives you a very good match with the entire US stock market.\\\"\",\n \"Publicly traded companies perform dilution via an FPO (Follow-up Public Offer). It is a process similar to IPO, with announcements, prospectus, etc. You will know ahead of time when that happen. Stocks traded OTC are not required to file a lot of regulatory documents that publicly traded stocks are required to file, and may not disclose dilutions or additional issues. By buying OTC you agree to these terms. You will probably get a notice and a chance to vote on that in your proxy statement, but that happens when you already own the stock.\",\n \"Of course it is a dilution of existing shareholders. When you buy milk in the supermarket - don't you feel your wallet diluted a little? You give some $$$ you get milk in return. You give some shares, you get Watsapp in return. That's why such purchases must go through certain process of approval - board of directors (shareholders' representatives) must approve it, and in some cases (don't know if in this particular) - the whole body of the shareholders vote on the deal.\",\n \"As yet another explanation of why it does not really matter, you can look at this from the valuation point of view. Stock price is the present value of its future cash flows (be it free cash flow of the firm or dividends, depending on the model). Let's have a look at the dividends case. Imagine, the price of the stock is based on only three dividends streams $5 dollars each: dividend to be paid today, in year 1, and in year 2. Each should be discounted back to today (say, at 10%), except today's dividend, since today is now. Once that dividend is paid, it is no longer in the stream of cash flows. So if we just delete that first $5 from the formula, the price will adjust itself down by the amount of the dividend to $8.68. NOTE that this is a very simple example, since in reality cash flows streams are arguably infinite and because there are many other factors affecting stock price. But simply for your understanding, this example should provide you with the reason simply from the valuation perspective.\",\n \"The key two things to consider when looking at similar/identical ETFs is the typical (or 'indicative') spread, and the trading volume and size of the ETF. Just like regular stocks, thinly traded ETF's often have quite large spreads between buy and sell: in the 1.5-2%+ range in some cases. This is a huge drain if you make a lot of transactions and can easily be a much larger concern than a relatively trivial difference in ongoing charges depending on your exact expected trading frequency. Poor spreads are also generally related to a lack of liquidity, and illiquid assets are usually the first to become heavily disconnected from the underlying in cases where the authorized participants (APs) face issues. In general with stock ETFs that trade very liquid markets this has historically not been much of an issue, as the creation/redemption mechanism on these types of assets is pretty robust: it's consequences on typical spread is much more important for the average retail investor. On point #3, no, this would create an arbitrage which an authorized participant would quickly take advantage of. Worth reading up about the creation and redemption mechanism (here is a good place to start) to understand the exact way this happens in ETFs as it's very key to how they work.\",\n \"\\\"It depends. Dividends and fees are usually unrelated. If the ETF holds a lot of stocks which pay significant dividends (e.g. an S&P500 index fund) these will probably cover the cost of the fees pretty readily. If the ETF holds a lot of stocks which do not pay significant dividends (e.g. growth stocks) there may not be any dividends - though hopefully there will be capital appreciation. Some ETFs don't contain stocks at all, but rather some other instruments (e.g. commodity-trust ETFs which hold precious metals like gold and silver, or daily-leveraged ETFs which hold options). In those cases there will never be any dividends. And depending on the performance of the market, the capital appreciation may or may not cover the expenses of the fund, either. If you look up QQQ's financials, you'll find it most recently paid out a dividend at an annualized rate of 0.71%. Its expense ratio is 0.20%. So the dividends more than cover its expense ratio. You could also ask \\\"\\\"why would I care?\\\"\\\" because unless you're doing some pretty-darned-specific tax-related modeling, it doesn't matter much whether the ETF covers its expense ratio via dividends or whether it comes out of capital gains. You should probably be more concerned with overall returns (for QQQ in the most recent year, 8.50% - which easily eclipses the dividends.)\\\"\",\n \"\\\"I wonder if ETF's are further removed from the actual underlying holdings or assets giving value to the fund, as compared to regular mutual funds. Not exactly removed. But slightly different. Whenever a Fund want to launch an ETF, it would buy the underlying shares; create units. Lets say it purchased 10 of A, 20 of B and 25 of C. And created 100 units for price x. As part of listing, the ETF company will keep the purchased shares of A,B,C with a custodian. Only then it is allowed to sell the 100 units into the market. Once created, units are bought or sold like regular stock. In case the demand is huge, more units are created and the underlying shares kept with custodian. So, for instance, would VTI and Total Stock Market Index Admiral Shares be equally anchored to the underlying shares of the companies within the index? Yes they are. Are they both connected? Yes to an extent. The way Vanguard is managing this is given a Index [Investment Objective]; it is further splitting the common set of assets into different class. Read more at Share Class. The Portfolio & Management gives out the assets per share class. So Vanguard Total Stock Market Index is a common pool that has VTI ETF, Admiral and Investor Share and possibly Institutional share. Is VTI more of a \\\"\\\"derivative\\\"\\\"? No it is not a derivative. It is a Mutual Fund.\\\"\",\n \"\\\"private investors that don't have the time or expertise for active investment. This may be known as every private investor. An index fund ensures average returns. The bulk of active trading is done by private institutions with bucketloads of experts studying the markets and AI scraping every bit of data it can get (from the news, stock market, the weather reports, etc...). Because of that, to get above average returns an average percent of the time, singular private investors have to drastically beat the average large team of individuals/software. Now that index ETF are becoming so fashionable, could there be a tipping point at which the market signals that active investors send become so diluted that this \\\"\\\"index ETF parasitism\\\"\\\" collapses? How would this look like and would it affect only those who invest in index ETF or would it affect the stock market more generally? To make this question perhaps more on-topic: Is the fact (or presumption) that index ETF rely indirectly on active investment decisions by other market participants, as explained above, a known source of concern for personal investment? This is a well-covered topic. Some people think this will be an issue. Others point out that it is a hard issue to bootstrap. I gravitate to this view. A small active market can support a large number of passive investors. If the number of active investors ever got too low, the gains & likelihood of gains that could be made from being an active investor would rise and generate more active investors. Private investing makes sense in a few cases. One example is ethics. Some people may not want to be invested, even indirectly, in certain companies.\\\"\",\n \"Yes, the larger number of ETFs will have a greater chance of enhancing the effect you observe. It's beyond a simple discussion, but the bottom line is that by carving out the different market segments your rebalancing will have greater impact.\",\n \"all other things being equal if you have two stocks, both with a P/E of 2, and one has an EPS of 5 whereas the other has an EPS of 10 is the latter a better purchase? What this really boils down to is the number of shares a company has outstanding. Given the same earnings & P/E, a company with fewer shares will have a higher EPS than a company with more shares. Knowing that, I don't think the number of shares has much if anything to do with the quality of a company. It's similar to the arguments I hear often from people new to investing where they think that a company with a share price of $100/share must be better than a company with a share price of $30/share simply because the share price is higher.\",\n \"\\\"What does ETFs have to do with this or Amazon? Actually, investing in ETFs means you are killing actively managed Mutual Funds (managed by people, fund managers) to get an average return (and loss) of the market that a computer manage instead of a person. And the ETF will surely have Amazon stocks because they are part of the index. I only invest in actively managed mutual funds. Yes, most actively managed mutual funds can't do better than the index, but if you work a bit harder, you can find the many that do much better than the \\\"\\\"average\\\"\\\" that an index give you.\\\"\",\n \"\\\"Right, as I stated I agree that it will cause greater variance from the true intrinsic value for individual equities. To take this example to an extreme, traders can throw darts at a board of ticker symbols, purchase them, and still diversify away most firm specific risk. You're correct in stating that such a strategy will eventually cause systematic market failures if everyone does it, but the herd goes where they can make the most profit, and right now that is with ETFs. When fund managers prove they have foresight enough to exploit any systematic failures that this causes, or can start beating ETF returns, the herd will flock back to them. I only meant to point out the reasoning behind why this is happening, not advocating one over the other, and also to point out that Paul Singer shouldn't whine. To re-purpose an old saying, \\\"\\\"Don't get mad, get even (by making your investors rich).\\\"\\\"\\\"\",\n \"Does the price only start the day based on the previous day's rebalancing? No, the tracker will open at the price according to the stock it is tracking. So for example, if the ETF closed at $10 but the tracked stock continued trading and was priced $15 when the ETF reopened the ETF will open at $15. (Example is for a non-leveraged ETF.)\",\n \"Longing the short ETF will give you better returns than shorting the long etf. The reason is that as the price gets the smaller the absolute price change gets a lot smaller. So you would rather have upward price exposure than downward. A good case is SPXU and UPRO\",\n \"Ohhhh. Well thank you for that info. I know I could've Googled it all and while I'm a sticker for doing your own research, it's nice to hear it from someone in the know. Gotta pass on knowledge to those who don't know. Is it cheap to buy an ETF?\",\n \"Any ETF has expenses, including fees, and those are taken out of the assets of the fund as spelled out in the prospectus. Typically a fund has dividend income from its holdings, and it deducts the expenses from the that income, and only the net dividend is passed through to the ETF holder. In the case of QQQ, it certainly will have dividend income as it approximates a large stock index. The prospectus shows that it will adjust daily the reported Net Asset Value (NAV) to reflect accrued expenses, and the cash to pay them will come from the dividend cash. (If the dividend does not cover the expenses, the NAV will decline away from the modeled index.) Note that the NAV is not the ETF price found on the exchange, but is the underlying value. The price tends to track the NAV fairly closely, both because investors don't want to overpay for an ETF or get less than it is worth, and also because large institutions may buy or redeem a large block of shares (to profit) when the price is out of line. This will bring the price closer to that of the underlying asset (e.g. the NASDAQ 100 for QQQ) which is reflected by the NAV.\",\n \"\\\"By issuing additional equity. In this case, the pie isn't \\\"\\\"fixed,\\\"\\\" it's getting bigger. Now, to avoid lawsuits and other potential issues (some of which may be unavoidable), the owner will likely need to subscribe for additional equity himself. Example: 100 shares outstanding. 51 to owner, 49 to 2 others. That 49 will have to equal 20%, as none of their shares are being sold (likely). This means total shares will need to be increased to 245. Subtract 49 from that number: 196 Marcus gets half of that at a determined price. 98 Owner must increase his stake from 51 to 98 shares. To do so, he'll need to contribute additional cash for the same price Marcus gets in on. That could be expensive.\\\"\",\n \"With regard to commodity futures, a paper released in January 2010 by Aulerich, Irwin, and Garcia, concluded that index funds have essentially no impact on commodity futures. Looking at stocks, a stock that gets included in a major index does increase in price. It increases its turnover by 27% and increases its price by between 2.7% and 5.5%, according to information cited by Kula in this paper, though it looks like the price increase tends to happen in the lead up to the stock being included. Interestingly, I have read an article but cannot now locate it, which states that there's a measurable, albeit fairly small, price bubble on stocks included in common indexes, on Monday mornings, Friday afternoons, and at the start and end of the month. That is, the times when mutual funds are most likely to rebalance their holdings. This almost certainly applies to a lesser extent to other stocks, too. My understanding is that the price difference was very small, however. Generally speaking, stocks which make part of well-known indexes will tend to be in higher demand than stocks which do not. It remains the case that almost all actively-managed mutual funds are unable to consistently beat the indexes, even with this taken into account.\",\n \"Index Funds & ETFs, if they are tracking the same index, will be the same in an ideal world. The difference would be because of the following factors: Expense ratio: i.e. the expense the funds charge. This varies and hence it would lead to a difference in performance. Tracking error: this means that there is a small percentage of error between the actual index composition and the fund composition. This is due to various reasons. Effectively this would result in the difference between values. Demand / Supply: with ETFs, the fund is traded on stock exchanges like a stock. If the general feeling is that the index is rising, it could lead to an increase in the price of the ETF. Index funds on the other hand would remain the same for the day and are less liquid. This results in a price increase / decrease depending on the market. The above explains the reason for the difference. Regarding which one to buy, one would need to consider other factors like: a) How easy is it to buy ETFs? Do you already hold Demat A/C & access to brokers to help you conduct the transaction or do you need to open an additional account at some cost. b) Normally funds do not need any account, but are you OK with less liquidity as it would take more time to redeem funds.\",\n \"Less shares outstanding means that, holding the dividend per share constant you would have a lower total dividend expenditure. The more likely outcome is that, if you want to return capital to shareholders through a dividend, you just pay a higher amount per share.\",\n \"\\\"If anything, the price of an ETF is more tightly coupled to the underlying holdings or assets than a mutual fund, because of the independent creation/destruction mechanism. With a mutual fund, the price is generally set once at the end of each day, and the mutual fund manager has to deal with investments and redemptions at that price. By the time they get to buying or selling the underlying assets, the market may have moved or they may even move the market with those transactions. With an ETF, investment and redemption is handled by independent \\\"\\\"authorized participants\\\"\\\". They can create new units of the ETF by buying up the underlying assets and delivering them to the ETF manager, and vice versa they can cancel units by requesting the underlying assets from the ETF manager. ETFs trade intraday (i.e. at any time during trading hours) and any time the price diverges too far from the underlying assets, one of the authorized participants has an incentive to make a small profit by creating or destroying units of the ETF, also intraday.\\\"\",\n \"Market cap probably isn't as big of an issue as the bid/ask spread and the liquidity, although they tend to be related. The spread is likely to be wider on lesser traded ETF funds we are talking about pennies, likely not an issue unless you are trading in and out frequently. The expense ratios will also tend to be slightly higher again not a huge issue but it might be a consideration. You are unlikely to make up the cost of paying the commission to buy into a larger ETF any time soon though.\",\n \"It basically only affects the company's dealings with its own stock, not with operational concerns. If the company were to offer more stock for sale, it would get less cash. If it had a stock buy-back program, it could buy more shares for the same money. If it was to offer to acquire another company in exchange for its own stock, the terms would be less attractive to the other company's owners. Employee stock remuneration, stock options, and so forth would be affected, so there might be considerations and tax consequences for the company.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["If a stock that makes up a big part of the Dow Jones Industrial Average decided to issue a huge number of additional shares, that will make the index go up. At least this is what should happen, since an index is basically a sum of the market cap of the contributing companies. No, indices can have various weightings. The DJIA is a price-weighted index not market-cap weighted. An alternative weighting besides market-cap and price is equal weighting. From Dow Jones: Dow Jones Industrial Average™. Introduced in May 1896, the index, also referred to as The Dow®, is a price-weighted measure of 30 U.S. blue-chip companies. Thus, I can wonder what in the new shares makes the index go up? If a stock is split, the Dow divisor is adjusted as one could easily see how the current Dow value isn't equal to the sum or the share prices of the members of the index. In other cases, there may be a dilution of earnings but that doesn't necessarily affect the stock price directly as there may be options exercised or secondary offerings made. SO if the index, goes up, will the ETF DIA also go up automatically although no additional buying has happened in the ETF itself? If the index rises and the ETF doesn't proportionally, then there is an arbitrage opportunity for someone to buy the DIA shares that can be redeemed for the underlying stocks that are worth more in this case. Look at the Creation and Redemption Unit process that exists for ETFs."],"string":"[\n \"If a stock that makes up a big part of the Dow Jones Industrial Average decided to issue a huge number of additional shares, that will make the index go up. At least this is what should happen, since an index is basically a sum of the market cap of the contributing companies. No, indices can have various weightings. The DJIA is a price-weighted index not market-cap weighted. An alternative weighting besides market-cap and price is equal weighting. From Dow Jones: Dow Jones Industrial Average™. Introduced in May 1896, the index, also referred to as The Dow®, is a price-weighted measure of 30 U.S. blue-chip companies. Thus, I can wonder what in the new shares makes the index go up? If a stock is split, the Dow divisor is adjusted as one could easily see how the current Dow value isn't equal to the sum or the share prices of the members of the index. In other cases, there may be a dilution of earnings but that doesn't necessarily affect the stock price directly as there may be options exercised or secondary offerings made. SO if the index, goes up, will the ETF DIA also go up automatically although no additional buying has happened in the ETF itself? If the index rises and the ETF doesn't proportionally, then there is an arbitrage opportunity for someone to buy the DIA shares that can be redeemed for the underlying stocks that are worth more in this case. Look at the Creation and Redemption Unit process that exists for ETFs.\"\n]","isConversational":false}}},{"rowIdx":386,"cells":{"_id":{"kind":"string","value":"1090"},"query":{"kind":"string","value":"Need a formula to determine monthly payments received at time t if I'm reinvesting my returns"},"gt_ids":{"kind":"list like","value":["518896","203091"],"string":"[\n \"518896\",\n \"203091\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1],"string":"[\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["446454","245648","19999","296146","209238","395128","520217","179365","349611","132950","71552","16051","281329","379299","217222","200875","203091","575524","478339","18939","557967","198606","197336","166394","214446","36405","517637","7540","168238","86636","409434","386309","111867","560497","518896","573899","445348","220025","495418","131696","581318","65578","35971","299563","563169","340254","324297","101180","584231","550642","543345","431136","521590","255252","500475","235592","495383","480128","235314","568220","83987","302420","260569","20662","591103","50912","240261","210939","209257","266397","427805","140572","35593","311442","310714","373226","361069","31019","357934","341930","123395","465059","42390","402633","298224","496159","262070","254245","296817","573928","21957","492801","2810","88889","193783","195044","204761","143302","538687","542649"],"string":"[\n \"446454\",\n \"245648\",\n \"19999\",\n \"296146\",\n \"209238\",\n \"395128\",\n \"520217\",\n \"179365\",\n \"349611\",\n \"132950\",\n \"71552\",\n \"16051\",\n \"281329\",\n \"379299\",\n \"217222\",\n \"200875\",\n \"203091\",\n \"575524\",\n \"478339\",\n \"18939\",\n \"557967\",\n \"198606\",\n \"197336\",\n \"166394\",\n \"214446\",\n \"36405\",\n \"517637\",\n \"7540\",\n \"168238\",\n \"86636\",\n \"409434\",\n \"386309\",\n \"111867\",\n \"560497\",\n \"518896\",\n \"573899\",\n \"445348\",\n \"220025\",\n \"495418\",\n \"131696\",\n \"581318\",\n \"65578\",\n \"35971\",\n \"299563\",\n \"563169\",\n \"340254\",\n \"324297\",\n \"101180\",\n \"584231\",\n \"550642\",\n \"543345\",\n \"431136\",\n \"521590\",\n \"255252\",\n \"500475\",\n \"235592\",\n \"495383\",\n \"480128\",\n \"235314\",\n \"568220\",\n \"83987\",\n \"302420\",\n \"260569\",\n \"20662\",\n \"591103\",\n \"50912\",\n \"240261\",\n \"210939\",\n \"209257\",\n \"266397\",\n \"427805\",\n \"140572\",\n \"35593\",\n \"311442\",\n \"310714\",\n \"373226\",\n \"361069\",\n \"31019\",\n \"357934\",\n \"341930\",\n \"123395\",\n \"465059\",\n \"42390\",\n \"402633\",\n \"298224\",\n \"496159\",\n \"262070\",\n \"254245\",\n \"296817\",\n \"573928\",\n \"21957\",\n \"492801\",\n \"2810\",\n \"88889\",\n \"193783\",\n \"195044\",\n \"204761\",\n \"143302\",\n \"538687\",\n \"542649\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["The monthly repayments of the initial $ 300,000 loan can be calculated using this formula: source: Finance Formulas The monthly payment is It is not readily apparent how the formula works, but it is derived by induction from this summation, in which the sum of the discounted future payments are set equal to the present value of the loan: For the second part of the question, reinvestments are stopped after 9 months, after four investments of $ 26,374.77 * 3 = $ 79,124.31. And presumably each loan is repaid in 3 years, since 45 - 9 = 36 months. Calculating the repayments for these loans: The total returned for all four loans is:","It's not compound interest. It is internal rate of return. If you have access to Excel look up the XIRR built-in function.","You need the Present Value, not Future Value formula for this. The loan amount or 1000 is paid/received now (not in the future). The formula is $ PMT = PV (r/n)(1+r/n)^{nt} / [(1+r/n)^{nt} - 1] $ See for example http://www.calculatorsoup.com/calculators/financial/loan-calculator.php With PV = 1000, r=0.07, n=12, t=3 we get PMT = 30.877 per month","What's the future value of money given: M = initial investment R = additional monthly investment P = interest rate earned per month t = number of months This is the result of 2 formulas. 1. How much is the initial investment worth at the end + 2. How much are the additional contributions worth at the end. FutureValue[M] = M * (1+P)^t FutureValue[R] = annuity calculation = R*((1+P)^t-1)/P) So the future value of your initial investment with regular additions, all earning the same return monthly at the end of t months will be: M * (1+P)^t + R*((1+P)^t-1)/P)","The general concept is that your money will grow at an accelerating rate because you start getting interest paid on your returns in addition to the original investment. As a simple example, assume you invest $100 and get 10% interest per year paid annually. -At the end of the first year you have your $100 + $10 interest for a total of $110. -So you start the second year with $110 and so 10% would be $11 for a total of $121. -The third year you start with $121 so 10% would be $12.10 for a total of $133.10 See how the amount it goes up each year increases? If we were talking a higher initial amount or a larger number of years that can really add up. That is essence is compound interest. Most of the complicated looking formulas you see out there for compound interest are just shortcuts so you don't have to iteratively go through the above exercise a bunch of times to find out how much you would have after some number of years. This formula tells you how much you would have(A) after a certain number of years(t) at a given interest rate(r) assuming they pay interest n times per year, for example you would use 12 for n if it paid interest monthly instead of yearly. P represents the amount you started out with. If you keep investing monthly (as shown in your example) instead of just depositing it and letting it sit, you have to use a more complicated formula. Finance people refer to this as calculating the future value of an annuity. That formula looks like this: A = PMT [((1 + r)N - 1) / r] x (1+r) A : Is the amount you would have at the end of the time period. N : The number of compounding periods (months if you get interest calculated monthly) PMT : The total amount you are putting in each period (N) r: Just like before, the interest rate you are getting paid. Be sure to adjust this to a monthly number if N represents months (divide APR by 12)* *Most interest rates are quoted as APR, which is the annualized interest rate not counting compounding. Don't confuse this with APY, which has compounding built into it and is not appropriate for use in this formula. Inserting your example: r (monthly interest rate) = 15% APR / 12 = .0125 n = 30 years * 12 months/year = 360 months A = $150 x [((1 + .0125)360 - 1) / .0125] x (1+.0125) A = $1,051,473.09 (rounded)","\"To calculate the balance (not just principal) remaining, type into your favorite spreadsheet program: It is important that the periods for \"\"Periods\"\" and \"\"Rate\"\" match up. If you use your annual rate with quarterly periods, you will get a horribly wrong answer. So, if you invest $1000 today, expect 6% interest per year (0.5% interest per month), withdraw $10 at the end of each month, and want to know what your investment balance will be 2 years (24 months) from now, you would type: And you would get a result of $872.84. Or, to compute it manually, use the formula found here by poster uart: This is often taught in high-school here as a application of geomentric series. The derivation goes like this. Using the notation : r = 1 + interest_rate_per_term_as_decimal p = present value a = payment per term eot1 denotes the FV at end of term 1 etc. eot1: rp + a eot2: r(rp + a) + a = r^2p + ra + a eot3: r(r^2p + ra + a) + a = r^3p + r^2a + ra + a ... eotn: r^np + (r^(n-1) + r^(n-2) + ... 1)a = p r^n + a (r^n - 1)/(r-1) That is, FV = p r^n + a (r^n - 1)/(r-1). This is precisely what exel [sic] computes for the case of payments made at the end of each term (payment type = 0). It's easy enough to repeat the calculations as above for the case of payments made at the beginning of each term. This won't work for changing interest rates or changing withdrawal amounts. For something like that, it would be better for you (if you don't want online calculators) to set up a table in a spreadsheet so you can adjust different periods manually.\"","Let's break this into two parts, the future value of the initial deposit, and the future value of the payments: D(1 + i)n For the future value of the payments A((1+i)n-1) / i) Adding those two formulas together will give you the amount of money that should be in your account at the end. Remember to make the appropriate adjustments to interest rate and the number of payments. Divide the interest rate by the number of periods in a year (four for quarterly, twelve for monthly), and multiply the number of periods (p) by the same number. Of course the monthly deposit amount will need to be in the same terms. See also: Annuity (finance theory) - Wikipedia","You need to solve the money-weighted return equation. It cannot be expressed as a formula for the interest, but it can be solved numerically as shown here. Using the OP's figures, with monthly withdrawals of $100,000. The summation for the withdrawals can be replaced with the standard annuity formula. The resulting monthly return is converted to a nominal annual return compounded monthly. Money-weighted return equation with start and end balances s0 and s1 The interest is 2.63282 % per annum, nominal compounded monthly. Selectable equation","I would like to know how they calculated such monthly payment The formula is: Your values would come out to be: r = (1+3.06/(100*365))^31-1=0.002602 (converting your annual percentage to a monthly rate equivalent of daily compounded interest) PV = 12865.57 n = 48 Inserting your values into the formula: P = [r*(PV)]/[1-(1+r)^(-n)] P = [0.002602*(12865.57)]/[1-(1.002602)^(-48)] P = 285.47","> 1)What is the formula to turn the annualized rate into a monthly rate? What do you *think* it is? > 2)What is the formula to find out the NPV of monthly cash flows? Same one as usual. Remember, value can only be summed if it's *at the same point in time.* > For example, if I get $1000, $2000, and $3000 in months 1, 2, and 3, how do I calculate how much each of those are equal to as a present value if the annual discount rate is 8%? Think it through.","Let P denote the amount of the investment, R the rate of return and I the rate of inflation. For simplicity, assume that the payment p is made annually right after the return has been earned. Thus, at the end if the year, the investment P has increased to P*(1+R) and p is returned as the annuity payment. If I = 0, the entire return can be paid out as the payment, and thus p = P*R. That is, at the end of the year, when the dust settles after the return P*R has been collected and paid out as the annuity payment, P is again available at the beginning of the next year to earn return at rate R. We have P*(1+R) - p = P If I > 0, then at the end of the year, after the dust settles, we cannot afford to have only P available as the investment for next year. Next year's payment must be p*(1+I) and so we need a larger investment since the rate of return is fixed. How much larger? Well, if the investment at the beginning of next year is P*(1+I), it will earn exactly enough additional money to pay out the increased payment for next year, and have enough left over to help towards future increases in payments. (Note that we are assuming that R > I. If R < I, a perpetuity cannot be created.) Thus, suppose that we choose p such that P*(1+R) - p = P*(1+I) Multiplying this equation by (1+I), we have [P(1+I)]*(1+R) - [p*(1+I)] = P*(1+I)^2 In words, at the start of next year, the investment is P*(1+I) and the return less the increased payout of p*(1+I) leaves an investment of P*(1+I)^2 for the following year. Each year, the payment and the amount to be invested for the following year increase by a factor of (1+I). Solving P*(1+R) - p = P*(1+I) for p, we get p = P*(R-I) as the initial perpetuity payment and the payment increases by a factor (1+I) each year. The initial investment is P and it also increases by a factor of (1+I) each year. In later years, the investment is P*(1+I)^n at the start of the year, the payment is p*(1+I)^n and the amount invested for the next year is P*(1+I)^{n+1}. This is the same result as obtained by the OP but written in terms that I can understand, that is, without the financial jargon about discount rates, gradients, PV, FV and the like.","The formula for determining the number of payments (months) you'll need to make on your loan is: where i=monthly interest rate (annual rate / 12), A=loan amount (principal), and P=monthly payment. To determine the total interest that you will pay, you can use the following formula: where P=monthly payment, N=number of payments (from above formula), and A=loan amount (principal). A quick example: using the numbers in the screenshot above ($10,000 loan, $500 monthly payment, 10% APR), the number of payments ends up to be 21.97 (which means that payment number 22 is slightly less than the rest). In the second formula, you take that number times your $500 payment and determine that you have paid $10,984.81 over the course of the entire loan period. Subtracting the principal, you have paid $984.81 in total interest. On your spreadsheet, the function you are looking for is NPER: NPER(rate, payment_amount, present_value, [future_value, end_or_beginning]) rate - The interest rate. (This should be the monthly rate, or the annual rate divided by 12.) payment_amount - The amount of each payment made. (For a loan payment, this should be a negative number.) present_value - The current value of the annuity. (The initial principal of the loan) future_value - [ OPTIONAL ] - The future value remaining after the final payment has been made. (This should be 0, the default if omitted.) end_or_beginning - [ OPTIONAL - 0 by default ] - Whether payments are due at the end (0) or beginning (1) of each period.","Perhaps there is no single formula that accounts for all the time intervals, but there is a method to get formulas for each compound interest period. You deposit money monthly but there is interest applied weekly. Let's assume the month has 4 weeks. So you added x in the end of the first month, when the new month starts, you have x money in your account. After one week, you have x + bx money. After the second week, you have x + b(x + bx) and so on. Always taking the previous ammount of money and multiplying it by the interest (b) you have. This gives you for the end of the second month: This looks complicated, but it's easy for computers. Call it f(0), that is: It is a function that gives you the ammount of money you would obtain by the end of the second month. Do you see that the future money inputs are given with relation to the previous ones? Then we can do the following, for n>1 (notice the x is the end of the formula, it's the deposit of money in the end of the month, I'm assuming it'll pass through the compound interest only in the first week of the next month): And then write: There is something in mathematics called recurrence relation in which we can use these two formulas to produce a simplified one for arbitrary b and n. Doing it by hand would be a bit complicated, but fortunately CASes are able to do it easily. I used Wolfram Mathematica commands: And it gave me the following formula: All the work you actually have to do is to figure out what will be f(0) and then write the f(n) for n>0 in terms of f(n-1). Notice that I used the command FullSimplify in my code, Mathematica comes with algorithms for simplyfing formulas so if it didn't find something simpler, you probably won't find it by yourself! If the code looks ugly, it's because of Mathematica clipboard formatting, in the software, it looks like this: Notice that I wrote the entire formula for f(0), but as it's also a recurrence relation, it can be written as: That is: f(0)=g(4). This should give you much simpler formulas to apply in this method.","You could create your own spreadsheet of Cash Flows and use the XIRR function in Excel: The formula is:","The equation is the same one used for mortgage amortization. You first want to calculate the PV (present value) for a stream of $50K payments over 20 years at a10% rate. Then that value is the FV (future value) that you want to save for, and you are looking to solve the payment stream needed to create that future value. Good luck achieving the 10% return, and in knowing your mortality down to the exact year. Unless this is a homework assignment, which need not reflect real life. Edit - as indicated above, the first step is to get that value in 20 years: The image is the user-friendly entry screen for the PV calculation. It walks you though the need to enter rate as per period, therefore I enter .1/12 as the rate. The payment you desire is $50K/yr, and since it's a payment, it's a negative number. The equation in excel that results is: =PV(0.1/12,240,-50000/12,0) and the sum calculated is $431,769 Next you wish to know the payments to make to arrive at this number: In this case, you start at zero PV with a known FV calculated above, and known rate. This solves for the payment needed to get this number, $568.59 The excel equation is: =PMT(0.1/12,240,0,431769) Most people have access to excel or a public domain spreadsheet application (e.g. Openoffice). If you are often needing to perform such calculations, a business finance calculator is recommended. TI used to make a model BA-35 finance calculator, no longer in production, still on eBay, used. One more update- these equations whether in excel or a calculator are geared toward per period interest, i.e. when you state 10%, they assume a monthly 10/12%. With that said, you required a 20 year deposit period and 20 year withdrawal period. We know you wish to take out $4166.67 per month. The equation to calculate deposit required becomes - 4166.67/(1.00833333)^240= 568.59 HA! Exact same answer, far less work. To be clear, this works only because you required 240 deposits to produce 240 withdrawals in the future.","Interest per month is 12th root of annual interest, or a multiplier of about 1.0327%. At end of 1st month, you start with $0, add interest on $0, and add $600, getting $600. 2nd month: start with $600, add 0.0327% interest plus $600, getting $1219.62. 3rd: balance plus interest plus deposit yields $1859.50 Repeat ad nauseam. Easier with a spreadsheet or a bit of trivial programming. Or you can try to re-derive the formulas, but that is left as an exercise for the student.","With 10% return over three years, depositing $900 each month, in three years $34,039.30. Re. downvote. I guess this is too brief and without explanation, but I was rushing. If you want further explanation of how this is calculated check the link already posted by JoeTaxpayer, and have a look at the formula for continuously compounded return. Also, try out the numbers in the simplified example below yourself. E.g. Addendum mhoran_psprep has pointed out that I didn't read the OP's post closely enough. With rolling investments the total return will be: Where n is the month number i.e. 36, 37, etc.","Given the following variables Where b[n + 1] = b[n] (1 + r) - w and b[0] = s then b[n] = ((1 + r)^n (r s - w) + w)/r For example, illustrating with some figures. The balances in the first four quarters (n = 1, 2, 3, 4) are Check As per the Excel formula provided by OneTruDragonGirl £670.27","I have a discounted cash flow that's monthly. My annualized discount rate is 8%. 1)What is the formula to turn the annualized rate into a monthly rate? 2)What is the formula to find out the NPV of monthly cash flows? For example, if I get $1000, $2000, and $3000 in months 1, 2, and 3, how do I calculate how much each of those are equal to as a present value if the annual discount rate is 8%?","Average rates of return usually assume compounding, so your formula would be for annual compounding ,or for continuous compounding.","You're looking for the amortization calculation. This calculation is essentially solving for the series of cash flows that will yield a zero balance after the specified term, at the given rate for a loan amount. Once you have solved for the payment amount, you can add additional principal amount to each payment period and see the interest payments and time to zero balance drop.","The number you are trying to calculate is called the Internal Rate of Return (IRR). Google Spreadsheets (and excel) both have an XIRR function that can do this for you fairly simply. Setup a spreadsheet with 1 column for dates, 1 column for investment. Mark your investments as negative numbers (payment to invest). All investments will be negative. Mark your last row with today's date and today's valuation (positive). All withdrawals will be positive, so you are pretending to withdrawal your entire account for the purpose of calculation. Do not record dividends or other interim returns unless you are actually withdrawing money. The XIRR function will calculate your internal rate of return with irregularly timed investments. Links: Article explaining XIRR function (sample spreadsheet in google docs to modify)","\"There is no formula that can be applied to most variations of the problem you pose. The reason is that there is no simple, fixed relationship between the two time periods involved: the time interval for successive payments, and the time period for successive interest compounding. Suppose you have daily compounding and you want to make weekly payments (A case that can be handled). Say the quoted rate is 4.2% per year, compounded daily Then the rate per day is 4.2/365, or 0.0115068 % So, in one week, a debt would grow through seven compoundings. A debt of $1 would grow to 1 * (1+.000225068)^7, or 1.000805754 So, the equivalent interest rate for weekly compounding is 0.0805754% Now you have weekly compounding, and weekly payments, so the standard annuity formulas apply. The problem lies in that number \"\"7\"\", the number of days in a week. But if you were trying to handle daily / monthly, or weekly / quarterly, what value would you use? In such cases, the most practical method is to convert any compounding rate to a daily compounding rate, and use a spreadsheet to handle the irregularly spaced payments.\"","\"The answer to almost all questions of this type is to draw a diagram. This will show you in graphical fashion the timing of all payments out and payments received. Then, if all these payments are brought to the same date and set equal to each other (using the desired rate of return), the equation to be solved is generated. In this case, taking the start of the bond's life as the point of reference, the various amounts are: Pay out = X Received = a series of 15 annual payments of $70, the first coming in 1 year. This can be brought to the reference date using the formula for the present value of an ordinary annuity. PLUS Received = A single payment of $1000, made 15 years in the future. This can be brought to the reference date using the simple interest formula. Set the pay-out equal to the present value of the payments received and solve for X I am unaware of the difference, if any, between \"\"current rate\"\" and \"\"rate to maturity\"\" Finding the rate for such a series of payments would start out the same as above, but solving the resulting equation for the interest rate would be a daunting task...\"","R = I ^ P R = return (2 means double) I = (Intrest rate / 100) + 1 [1.104 = 10.4%] P = number of periods (7 years) 2 = 1.104 ^ 7 (you double your money in seven years with a yearly Intrest rate of 10.4%) I = R^(1/P) 1.104 = 2^(1/7) P = log(R) / log(I) 7 = log(2) / log(1.104)","Damn, helpful Harry above me. So, in general, when compounding the value of an investment, if you're seeing an annualized interest rate of 4%, and the interest compounds monthly (or n number of times per year), you're going to multiply the Principal P by the growth rate (the interest rate), adjusted for the number of periods that your investment grows in a year. P_end = P * (1 + 0.04/n)^(n * t), where n = number of periods, and t = number of years. If the interest compounds annually, you earn P *(1.04), if it compounds monthly, you earn (1 + 0.04/12)^(12 * 1). Apply this logic to discounting future cash flows to their net present value. When discounting future cash flows, you're essentially determing the opportunity cost of now being unable to put your investment elsewhere and earning that corresponding interest (discount) rate. Thus, you would discount $1000 by (1 + 0.08/12)^1, and $2000, $3000 in a similar fashion. Then, as icing on the cake, sum up to get your cumulative net present value. Please let me know if any portion of my explanation is unclear; I would be happy to elaborate!","\"Re. question 2 If I buy 20 shares every year, how do I get proper IRR? ... (I would have multiple purchase dates) Use the money-weighted return calculation: http://en.wikipedia.org/wiki/Rate_of_return#Internal_rate_of_return where t is the fraction of the time period and Ct is the cash flow at that time period. For the treatment of dividends, if they are reinvested then there should not be an external cash flow for the dividend. They are included in the final value and the return is termed \"\"total return\"\". If the dividends are taken in cash, the return based on the final value is \"\"net return\"\". The money-weighted return for question 2, with reinvested dividends, can be found by solving for r, the rate for the whole 431 day period, in the NPV summation. Now annualising And in Excel\"","Easier to copy paste than type this out. Credit: www.financeformulas.net Note that the present value would be the initial loan amount, which is likely the sale price you noted minus a down payment. The loan payment formula is used to calculate the payments on a loan. The formula used to calculate loan payments is exactly the same as the formula used to calculate payments on an ordinary annuity. A loan, by definition, is an annuity, in that it consists of a series of future periodic payments. The PV, or present value, portion of the loan payment formula uses the original loan amount. The original loan amount is essentially the present value of the future payments on the loan, much like the present value of an annuity. It is important to keep the rate per period and number of periods consistent with one another in the formula. If the loan payments are made monthly, then the rate per period needs to be adjusted to the monthly rate and the number of periods would be the number of months on the loan. If payments are quarterly, the terms of the loan payment formula would be adjusted accordingly. I like to let loan calculators do the heavy lifting for me. This particular calculator lets you choose a weekly pay back scheme. http://www.calculator.net/loan-calculator.html","Here is the derivation of the formula, with The loan is equal to the sum of the repayments discounted to present value.","**Using your Time Value of Money functions on your calculator** N = 3x2 = 6 PV = -914 PMT = (.16 x 1000)/2 = 80 FV = 1000 Compute I/Y Or **Step by step calculations** 1) Compute the PV of **(FV of Bond)**1000 in **(3x2)**6 periods at **(16%/2)**8% with no payments 2) Compute the PV of an Annuity of **(.16/2x1000)**$80 payments over **(3x2)**6 periods with an interest rate of **(16%/2)**8% and 0 Future Value 3) Combine the values from Steps 1 and 2","TWRR = (2012Q4 x 2013Q1 x 2013Q2) ^ (1/3) = ?? (1.1 * .809 * 1.29) ^ (1/3) = 1.047 or 4.7% return. No imaginary numbers needed. But. Your second line there is wrong $15,750 - $15,000 - $4,000 ? The $15K already contains the $4k, why did you subtract it again? This a homework problem?","This answer contains three assumptions: New Share Price: Old Share Price * 1.0125 Quarterly Dividend: (New Share Price*0.01) * # of Shares in Previous Quarter Number of Shares: Shares from Previous Quarter + Quarterly Dividend/New Share Price For example, starting from right after Quarter One: New share price: $20 * 1.0125 = 20.25 1000 shares @ $20.25 a share yields $20.25 * 0.01 * 1000 = $202.5 dividend New shares: $202.5/20.25 = 10 shares Quarter Two: New share price: $20.503 1010 shares @ 20.503 yields $20.503*0.01*1010 = $207.082 dividend New shares: $207.082/20.503 = 10.1 shares Repeat over many cycles: 8 Quarters (2 years): 1061.52 shares @ $21.548 a share 20 Quarters (5 years): 1196.15 shares @ $25.012 a share 40 Quarters (10 years): 1459.53 shares @ $32.066 a share Graphically this looks like this: It's late enough someone may want to check my math ;). But I'd also assert that a 5% growth rate and a 4% dividend rate is pretty optimistic.","EDIT: After reading one of the comments on the original question, I realized that there is a much more intuitive way to think about this. If you look at it as a standard PV calculation and hold each of the cashflows constant. Really what's happening is that because of inflation the discount rate isn't the full value of the interest rate. Really the discount rate is only the portion of the interest rate above the inflation rate. Hence in the standard perpetuity PV equation PV = A / r r becomes the interest rate less the inflation rate which gives you PV = A / (i - g). That seems like a much better way to get to the answer than all the machinations I was originally trying. Original Answer: I think I finally figured this out. The general term for this type of system in which the payments increase over time is a gradient series annuity. In this specific example since the payment is increasing by a percentage each period (not a constant rate) this would be considered a geometric gradient series. According to this link the formula for the present value of a geometric gradient series of payments is: Where P is the present value of this series of cashflows. A_1 is the initial payment for period 1 (i.e. the amount you want to withdraw adjusted for inflation). g is the gradient or growth rate of the periodic payment (in this case this is the inflation rate) i is the interest rate n is the number of payments This is almost exactly what I was looking for in my original question. The only problem is this is for a fixed amount of time (i.e. n periods). In order to figure out the formula for a perpetuity we need to find the limit of the right side of this equation as the number of periods (n) approaches infinity. Luckily in this equation n is already well isolated to a single term: (1 + g)^n/(1 + i)^-n}. And since we know that the interest rate, i, has to be greater than the inflation rate, g, the limit of that factor is 0. So after replacing that term with 0 our equation simplifies to the following: Note: I don't do this stuff for a living and honestly don't have a fantastic finance IQ. It's been a while since I've done any calculus or even this much algebra so I may have made an error in the math.","You're contributing 98.2% of your contributed amount (deducting 1.8%) each month and at the end of the year, deducting a flat 15 pounds. The easiest way to do this is to use a spreadsheet. But you're missing some key information. What is your expected growth rate and what is your expected inflation rate? Is this a taxable account where you deduct (for example, 35%) of the growth annually for taxes or is this a non-taxable account?","How does compounding of annual interest work? answers this question. It's not simple compound interest. It's a time value of money calculation similar to mortgage calculations. Only the cash flow is the other way, a 'deposit' instead of 'payment'. When using a finance calculator such as the TI-BA35 (Note, it's no longer manufactured, but you can find secondhand. It was the first electronic device I ever loved. Seriously) you enter PV (present value) FV (future value) Int (the interest rate) nPer (number of periods) PMT (payment). For a mortgage, there's a PV, but FV = $0. For you, it's reversed. PMT on this model is a positive number, for you it's negative, the amount you deposit. You also need to account for the fact that a mortgage is paid on day 31, but you start deposits on Day 1. See the other answer (I linked at start) for the equations.","The formula you're looking for is Thus, from 3% p.a. you get ca. 0.247% per month. However, as you see 0.25% is a good approximation (generally, small rates give good approximation).","This calculation arrives at the correct answer. However, it uses the formula for an annuity due. This means the payments are made at the beginning of the month and the last month of the 10 year period has interest accrued. See the section, Calculating the Future Value of an Annuity Due. The rate is given as an effective rate. with In Excel, =FV((1+0.12)^(1/12)-1,120,3500,0,1)","Since you have the balance at equal periods and the cash flows at the period ends, the best return calculation in this case is the true time-weighted return. See http://en.wikipedia.org/wiki/Time-weighted_return#Formulae So, notwithstanding some ambiguity about your figures, here is a calculation using the first three periods from your second table. Giving a total return over the three periods of -23.88% If the periods are months, multiply by four to annualise.","Use TWIRR (aka TWRR). Time Weighted rate of return. It's sort of the opposite of XIRR. XIRR results change dramatically depending on the timing of the cashflows. It might be useful to also model returns that are unaffected by the timing. This is how funds report returns, and this number allows you to compare to funds and indices. During periods of steady deposits, XIRR will continually understate performance. And in retirement, when you have steady withdrawals, XIRR will overstate. TWRR is talked about here: http://www.dailyvest.com/PRR/prr_calcmethods.aspx#twrr I've made a simple spreadsheet that you can use as a starting point, if you like: http://moosiefinance.com/static/models/spreadsheets.html (top entry in the list)","The short answer is you'd be much better off paying up front in this case. The present value of $2,500 plus 12 $500 monthly payments is $8,128 at a 12% discount rate, which is much higher then the $6,000 you could pay now. The long answer is how you get that present value. How can I use time value of money to find the present value of money if I choose to go with option A? First of all, I'd question your discount rate. A 12% discount rate means that you can safely reinvest the money that you're not spending today at a 12% annual (1% monthly) rate, which seems very high. Normally for short-term spending decisions you'd use a risk-free rate, which would be closer to 1%-2%. However, to discount at 1% monthly you'd just divide each monthly payment by 1 plus the discount rate raised to the power of the number of periods until each payment. So the total is which is $8,127.54 You could also use the NPV function in Excel. It seems like to get an accurate answer the calculation of the interest rate should take into account compounding period as well? Correct, and in the example above the compounding is assumed to be monthly since that's the periodicity of the cash flows. You could calculate it with a different compounding period but it gets much more complicated and probably wouldn't make a significant difference. The discount rate does take compounding into effect, meaning if you saved the $5,628 (the PV of $8,128 minus the $2,500 initial payment), you'd earn 1% interest on $5,628 the first month, $5,128 plus that interest the second month, etc.","The idea is correct; the details are a little off. You need to apply it to the actual cash flow the bond would create. The best advice I can give you is to draw a time-line diagram. Then you would see that you receive £35 in 6 months, £35 in 12 months, £35 in 18 months, and £1035 in 24 months. Use the method you've presented in your question and the interest rate you've calculated, 3% per 6 months, to discount each payment the specified amount, and you're done. PS: If there were more coupons, say a 20 year quarterly bond, it would speed things up to use the Present Value of an Annuity formula to discount all the coupons in one step...","There is one basic principle to apply here: to compare money paid at different times, all the amounts must be compounded or discounted to the same point in time. In this case, the moment of the initial $225,000 loan is convenient. At that moment, you get $225,000 You then make 30 payments on the 40% mortgage. The amount of these payments has to be calculated; they're paying off a $90,000 mortgage with 30 monthly payments at a monthly rate of 0.5% Finally, you make 30 payments of an amount X, starting one month after the 40% mortgage ends. So far we've just listed the amount and time of all the payments back and forth. A time-line type diagram is a huge help here. Finally, use compound interest and annuity formulas to bring all the payments to the starting point, using an interest rate of 1% a month! Equate money in with money out and solve for X","Dividend reinvestment plans are a great option for some of your savings. By making small, regular investments, combined with reinvested dividends, you can accumulate a significant nest egg. Pick a medium to large cap company that looks to be around for the foreseeable future, such as JNJ, 3M, GE, or even Exxon. These companies typically raise their dividends every year or so, and this can be a significant portion of your long term gains. Plus, these programs are usually offered with miniscule fees. Also, have a go at the interest rate formulas contained in your favorite spreadsheet application. Calculate the FutureValue of a series of payments at various interest rates, to see what you can expect. While you cannot depend on earning a specific rate with a stock investment, a basic familiarity with the formula can help you determine a rate of return you should aim for.","If it's number of years and the interest is per-annum the formula is the same as the normal one. this should work on most hand-held calculators.","If you mean the internal rate of return, then the quarterly rate of return which would make the net present value of these cash flows to be zero is 8.0535% (found by goal seek in Excel), or an equivalent compound annual rate of 36.3186% p.a. The net present value of the cash flows is: 10,000 + 4,000/(1+r) - 2,000/(1+r)^2 - 15,125/(1+r)^3, where r is the quarterly rate. If instead you mean Modified Dietz return, then the net gain over the period is: End value - start value - net flow = 15,125 - 10,000 - (4,000 - 2,000) = 3,125 The weighted average capital invested over the period is: 1 x 10,000 + 2/3 x 4,000 - 1/3 x 2,000 = 12,000 so the Modified Dietz return is 3,125 / 12,000 = 26.0417%, or 1.260417^(1/3)-1 = 8.0201% per quarter, or an equivalent compound annual rate of 1.260417^(4/3)-1 = 36.1504%. You are using an inappropriate formula, because we know for a fact that the flows take place at the beginning/end of the period. Instead, you should be combining the returns for the quarters (which have in fact been provided in the question). To calculate this, first calculate the growth factor over each quarter, then link them geometrically to get the overall growth factor. Subtracting 1 gives you the overall return for the 3-quarter period. Then convert the result to a quarterly rate of return. Growth factor in 2012 Q4 is 11,000/10,000 = 1.1 Growth factor in 2013 Q1 is 15,750/15,000 = 1.05 Growth factor in 2013 Q2 is 15,125/13,750 = 1.1 Overall growth factor is 1.1 x 1.05 x 1.1 = 1.2705 Return for the whole period is 27.05% Quarterly rate of return is 1.2705^(1/3)-1 = 8.3074% Equivalent annual rate of return is 1.2705^(4/3)-1 = 37.6046% ========= I'd recommend you to refer to Wikipedia.","From here The formula is M = P * ( J / (1 - (1 + J)^ -N)). M: monthly payment RESULT = 980.441... P: principal or amount of loan 63963 (71070 - 10% down * 71070) J: monthly interest; annual interest divided by 100, then divided by 12. .00275 (3.3% / 12) N: number of months of amortization, determined by length in years of loan. 72 months See this wikipedia page for the derivation of the formula","Yes, assuming that your cash flow is constantly of size 5 and initial investment is 100, the following applies: IRR of 5% over 3 years: Value of CashFlows: 4.7619 + 4.5351 + 4.3192 = 13.6162 NPV: 100 - 13.6162 = 86.3838 Continuous compounding: 86.3838 * (1.05^3) = 100","Let's assume you have total year income I. The inflation rate is R and the growth rate is E every year. The contributed rate deducting 1.8% will be C = 0.982. So, for your account you'll have every year Let's assume you have annual income in 1000, then for years So, you'll deposit 40 000 and got at the end 129 023.60. But be careful, economic calculation for so long period could be very incaccurate because of the variation of the inflation rate, growth rate and various risks. The spreadsheet could be very useful. More accurate formula which assume that annual deposit grows only the half of the year. Thus, the result for 40 years will be 124 576.91.","What is the formula for calculating the total cost of a loan with extra payments towards the principal? The formula you require is the standard one for calculating the time to repay. With larger repayments the time to completely repay the loan is reduced. Where The total cost of the loan is then n * d. Explanation & Calculation The formula for a loan is derived from the sum of the cash flows discounted to present value being equal to the principal. For further info see the section here titled: Calculating the Present Value of an Ordinary Annuity The summation can be reduced to a closed form by induction: Rearranging for d and n With the OP's figures The original monthly repayment is $1,006.96 Adding $200 each month ... With the higher repayment the loan is repaid in 257.36 months instead of 360. (Of course a bank would simply take a reduced payment in month 258, but the amounts work out the same.) The saving is $51,882.37 Addendum If the repayments increase was made part-way through the term of the loan the summation and formula would be Where Then For example, if for the first ten years the payments are $1,006.96 and for the remaining time the repayments are $1,206.96 The loan is completely repaid in 302.528 months. The saving is Plotting over a range of m months:","If annualized rate of return is what you are looking for, using a tool would make it a lot easier. In the post I've also explained how to use the spreadsheet. Hope this helps.","I thought it was such a useful suggestion that I went ahead and created them. I'm sure you're not the only one who could derive some benefit from them, I know I will. http://www.investy.com/tools When I have some additional time, I will add the option for grace-periods, but for now I wanted to get them up so you could use the calculations as-is from the article. Enjoy. (Disclosure: I'm the founder of the site they are hosted on and I wrote the code for the calculators)","But how do I bring the initial deposit into the equation? Basically, you can't. Unless you combine two different formulas from Math of Finance into a single expression. The single initial deposit of $1000 will compound for 20 years at 5% compounded annually. The final amount for this part of the deposit will be: V1 = 1000 x (1.05)^20 In addition the series of 20 payments will be an ordinary annuity with a regular payment of $100, with the value on the occasion of the 20th payment given by: So the final total amount in the account at the end of 20 years will be the sum of these two values...","You probably want the Internal Rate of Return (IRR), see http://en.wikipedia.org/wiki/Internal_rate_of_return which is the compound interest rate that would produce your return. You can compute it in a spreadsheet with XIRR(), I made an example: https://spreadsheets.google.com/ccc?key=0AvuTW2HtDQfYdEsxVlM0RFdrRk1QS1hoNURxZkVFN3c&hl=en You can also use a financial calculator, or there are probably lots of web-based calculators such as the ones people have mentioned.","Here are my re-run figures. Not counting capital gains taxes, I calculate you need to be making 1.875% per annum or 0.155% per month on your $8,000 investment to break-even on the loan. It's interesting that the return you need to gain to break-even is less than the interest you're paying, even with commission. It happens because the investment is gaining a return on an increasing amount while the load is accruing interest on a decreasing amount. Ref. r, logarithmic return","\"Something I found helpful when I learned this, is to just use Excel to expand the series. So start with A1 as \"\"175\"\", then in A2 put \"\"=175+(A1*1.004308)\"\" and paste that same formula down for a few hundred rows. You'll find your answer on A216. Most non-math-centric people don't have an intuitive grasp of how exponents (aka \"\"compounding\"\"... and never mind the natural logarithms this is all derived from) behave; but you can play with the numbers \"\"unrolled\"\" in Excel to get a better idea of how they work. That formula is just applying 0.4308% interest every period (row), and adding in a fresh $175.\"","R has really good package that lets you calculate the return of rebalanced portfolios. The package is called: PerformanceAnalytics (see: http://www.inside-r.org/packages/cran/PerformanceAnalytics/docs/Return.portfolio). I quickly wrote a small script for you that lets you do exactly what you want. Code: By default the portfolio is rebalanced to an equally weighted portfolio. It is also possible to rebalance your portfolio using custom weights. See the documentation on how to do this. In order for this code to work you need to have your data already in return terms. You can do this easily in Excel. Make sure your data in excel looks like this: Than export your data to a CSV file. Note: before you run the code make sure you have installed the package PerformanceAnalytics. You can do this as follows: Let me know if you have any questions regarding the above.","These are the steps I'd follow: $200 today times (1.04)^10 = Cost in year 10. The 6 deposits of $20 will be one time value calculation with a resulting year 7 final value. You then must apply 10% for 3 years (1.1)^3 to get the 10th year result. You now have the shortfall. Divide that by the same (1.1)^3 to shift the present value to start of year 7. (this step might confuse you?) You are left with a problem needing 3 same deposits, a known rate, and desired FV. Solve from there. (Also, welcome from quant.SE. This site doesn't support LATEX, so I edited the image above.)","The Finance functions in spreadsheet software will calculate this for you. The basic functions are for Rate, Payment, PV (present value), FV (Future value), and NPER, the number of periods. The single calculation faces a couple issues, dealing with inflation, and with a changing deposit. If you plan to save for 30 years, and today are saving $500/mo, for example, in ten years I hope the deposits have risen as well. I suggest you use a spreadsheet, a full sheet, to let you adjust for this. Last, there's a strange effect that happens. Precision without accuracy. See the results for 30-40 years of compounding today's deposit given a return of 6%, 7%, up to 10% or so. Your forecast will be as weak as the variable with the greatest range. And there's more than one, return, inflation, percent you'll increase deposits, all unknown, and really unknowable. The best advice I can offer is to save till it hurts, plan for the return to be at the lower end of the range, and every so often, re-evaluate where you stand. Better to turn 40, and see you are on track to retire early, than to plan on too high a return, and at 60 realize you missed it, badly. As far as the spreadsheet goes, this is for the Google Sheets - Type this into a cell =nper(0.01,-100,0,1000,0) It represents 1% interest per month, a payment (deposit) of $100, a starting value of $0, a goal of $1000, and interest added at month end. For whatever reason, a starting balance must be entered as a negative number, for example - =nper(0.01,-100,-500,1000,0) Will return 4.675, the number of months to get you from $500 to $1000 with a $100/mo deposit and 1%/mo return. Someone smarter than I (Chris Degnen comes to mind) can explain why the starting balance needs to be entered this way. But it does show the correct result. As confirmed by my TI BA-35 financial calculator, which doesn't need $500 to be negative.","The MWRR that you showed in your post is calculated incorrectly. The formula that you use... ($15,750 - $15,000 - $4,000) / ($15,000 + 0.5 x $4,000) Translates into a form of the DIETZ formula of (EMV-BMV-C)/(BMV + .5 x C) The BMV is the STARTING balance. And as a matter of fact, the starting balance was NOT 15,000. It was IN FACT 11,000. See, the starting value for a month MUST BE the ending value of the prior month. So the BMV of 11,000 would give you the correct answer. Because if you added 4,000 at the start of the month (on day 1), it would have to have been ADDED to the 11,000 of the PRIOR month's ENDING value. Make sense? That would also mean that the addition of 4000 to the 11000 would imply that you started day 1 with 11,000. Make sense? Summary: When doing the calculations, you may use the ending value on the last day of the month to get your EMV. BUT YOU MAY NOT take the ending value on day 1 to get the BMV. That simply can not make sense since you already added a bunch of money during the day. Think about it. Davie","The solution is x = 8.92. This assumes that Chuck's six years of deposits start from today, so that the first deposit accumulates 10 years of gain, i.e. 20*(1 + 0.1)^10. The second deposit gains nine years' interest: 20*(1 + 0.1)^9 and so on ... If you want to do this calculation using the formula for an annuity due, i.e. http://www.financeformulas.net/Future-Value-of-Annuity-Due.html where (formula by induction) you have to bear in mind this is for the whole time span (k = 1 to n), so for just the first six years you need to calculate for all ten years then subtract another annuity calculation for the last four years. So the full calculation is: As you can see it's not very neat, because the standard formula is for a whole time span. You could make it a little tidier by using a formula for k = m to n instead, i.e. So the calculation becomes which can be done with simple arithmetic (and doesn't actually need a solver).","Thanks for showing me that. I can see it now. I have always used my formula, and even a senior at another company confirmed the way I calculated the returns. Luckily, I do not work with that manager, and he has his own model, and so do I. But he was pretty cool about it when I asked about his calculations.","\"A real simple definition or analogy of present Value would be the \"\"Principal\"\" or \"\"Loan Amount\"\" being lent and the future value as being returning the Principal along with cost of borrowing The (1+i)^n is the interest you earn on present value The (i+i)^-n is the interest you pay on future value The first one is the FVIF or future value of a $1 The second one is the PVIF or present value of a $1 Both these interest factors assume interest is paid annually, if the interest payment is made more often within the payment year then interest factors look this way m is the frequency of interest payment, the higher this frequency the more of interest you pay or earn and you pay or earn the most interest when compounding occurs on each small fraction of time This entails here e is the Euler's e Thus the interest factors turn to this The preceeding examples only considered a single repayment at future date. Now if you were obliged to make periodic loan repayments say in amount of $1 for n number of periods. Then the present value of all such periodic payment is the \"\"Principal\"\" or amount you borrowed. This is the sum of discounted periodic payments as if we replace 1/1+i with x then this turns out to be geometric series of the form This simplifies to replacing (1/1+i) for x we get which is the present value of periodic payment in amount of $1 The future value of periodic payments in amount of $1 can be arrived at multiplying the PVIFA by (1+i)^n giving Once again the interest is compounded per annum and for intra-year compounding you would have to at first find the annual effective yield AEY to use as the effect rate is the PVIFA and FVIFA calculation for continuous compounding All the calculation discussed thus far did not take inflation into consideration, if we were to adjust the amounts for a growth of g% then the present value of a $1 would be as follow Once again you would have to use AEY if compounding frequency of interest is intra-year Now assume that each loan repayment increases or decreases by an extra amount Q per period. To find the present value of series of payments P that increase or decrease per period by an amount Q we would do the following calculations Here and All of these calculations have been available in tadXL add-in for finance and incrementally being offered as JavaScript financial functions library tadJS. Please note that the tad series of the financial functions library for various environments such as Excel, JavaScript, PHP, Ruby, Microsoft.net and others are property of the author writing this post. All of these libraries except one for Excel are available for FREE for public use. And the future value of such payments with increments may be found by multiplying the PV by (1+i)^n as follows Here\"","In this case, it looks like the interest is simply the nominal daily interest rate times number of days in the period. From that you can use a spreadsheet to calculate the total payment by trial and error. With the different number of days in each period, any formula would be very complicated. In the more usual case where the interest charge for each period is the same, the formula is: m=P*r^n*(r-1)/(r^n-1) where * is multiplication ^ is exponentiation / is division (Sorry, don't know if there's a way to show formulas cleanly on here) P=original principle r=growth factor per payment period, i.e. interest rate + 100% divided by 100, e.g. 1% -> 1.01 n=number of payments Note the growth factor above is per period, so if you have monthly payments, it's the rate per month. The last payment may be different because of rounding errors, unequal number of days per period, or other technicalities. Using that formula here won't give the right answer because of the unequal periods, but it should be close. Let's see: r=0.7% times an average of 28.8 days per period gives 20.16% + 1 = 1.2016. n=5 P=500 m=500*1.2016^5*(1.2016-1)/(1.2016^5-1) =167.78 Further off than I expected, but ballpark.","\"I hope I'm misunderstanding your plan... you want to invest in a way that will make SO MUCH that you pay back all of the loan payments with investment gains? Like the answer I gave on the preceding question, and like @littleadv's comment/mhoran's answers... don't do this. No good will come of it. This strategy requires higher returns, but does not necessarily give you a better return. But because you asked the question again, let me specify what you're missing... I do think that learning is a good thing. It boils down to two very significant problems that you haven't addressed: (1) Where are you getting your monthly \"\"income\"\" from? (2) Realistic vs. Daydreaming--How big do any gains have to be and does that exist in the real world in a way that you can capture? In a nutshell, if my answer to the last question showed that it's crazy to invest and pay back out of your capital and income... since you're trying to keep your capital and only pay back with monthly gains, this one will require even higher and thus more unrealistic gains. The model you're implying: If that's what you mean with this model, (which I think you do), then here are my two very key questions again: How are you getting your monthly income? Financial investments (i.e. stocks or bonds) will have two components of value. One component of value is the stream of payments, such as a monthly dividend from stocks that pay those, or the interest payment from a bond. The other is the ability to resell a security to another investor, receiving back your capital. So... you either have to find Bonds//Dividend stocks that pay >52% returns tax-free each year, and pay this loan off with the payments. (Or higher returns to cover taxes, but these kinds of investments do not exist for you.) OR you can try to invest in something, pray that it goes up ≥4.323% per month and so that you can sell it, pay back your loan payment with the proceeds, and use the capital to buy your next investment... that will go up 4.323% per month, to turn and sell it again. The pros that do model this type of speculation go into much more depth than you are capable of. They build models that incorporate probabilities for rates of return based on historical data. They have better information, and have specialized in calculating this all out. They even have access to better investment opportunities (like pre-IPO Twitter or private notes). You just won't find the opportunities to make this happen, each month, for 24 months. (Again, you won't find them. They do not exist for you in as an investor in securities) Realistic vs. Daydreaming So... clearly I hope that by now I have convinced you that these would be the required returns. They simply aren't available to you. If they were, you would still run into obstacles with converting 'book' returns into physical money that you could repay the loans with, and then continuing that growth. And while I appreciate the notion that 'if I could just make the payments each month, I'd have $10,000 after 24 months!' I guarantee you that you'll be better off finding another way to target that same investment. Along the lines of what mhoran said, if you aim for a basic 401K or other similar investment account and target it into the S&P500, you might see returns of anywhere from -25% to +25% over the next 24 months... but if things went like they tend to average for the S&P500, it's more like ~7% annually. Check out a \"\"savings target calculator\"\" like this one from Bankrate.com and put in the numbers... if you can save about $390 a month you'll be at $10K in 24 months. It's not as fun as the other, but you can actually expect to achieve that. You will not find consistent >50% returns on your money annually.\"","\"When using Time Value of Money equations, you need to know when the flow starts. A mortgage for example, has a first payment at the end of the first time period, usually 1 month. For savings, one can start the account with a deposit of course, or start by saying \"\"I will deposit $XXX at the end of each month. The answer really depends on the exact details of the situation. In your example, I'm inclined to suggest first flow is 1 year out.\"","This is more a question for /r/personalfinance, but I'll answer it anyways. Just use the RATE formula in excel. =RATE(numperiods,monthly payment,amount financed)*12 Just make sure the number of periods is in months, the payment is negative, and to multiply the whole thing by 12 to get the annual interest rate.","I ended up writing a simulation in R. Here is my code: It produces a plot like this: This code assumes you have a lump sum and either wish to pay down a loan or invest it all immediately. Feedback welcome.","\"When we talk about compounding, we usually think about interest payments. If you have a deposit in a savings account that is earning compound interest, then each time an interest payment is made to your account, your deposit gets larger, and the amount of your next interest payment is larger than the last. There are compound interest formulas that you can use to calculate your future earnings using the interest rate and the compounding interval. However, your mutual fund is not earning interest, so you have to think of it differently. When you own a stock (and your mutual fund is simply a collection of stocks), the value of the stock (hopefully) grows. Let's say, for example, that you have $1000 invested, and the value goes up 10% the first year. The total value of your investment has increased by $100, and your total investment is worth $1100. If it grows by another 10% the following year, your investment is then $1210, having gained $110. In this way, your investment grows in a similar way to compound interest. As your investment pays off, it causes the value of the investment to grow, allowing for even higher earnings in the future. So in that sense, it is compounding. However, because it is not earning a fixed, predictable amount of interest as a savings account would, you can't use the compound interest formula to calculate precisely how much you will have in the future, as there is no fixed compounding interval. If you want to use the formula to estimate how much you might have in the future, you have to make an assumption on the growth of your investment, and that growth assumption will have a time period associated with it. For example, you might assume a growth rate of 10% per year. Or you might assume a growth rate of 1% per month. This is what you could use in a compound interest formula for your mutual fund investment. By reinvesting your dividends and capital gains (and not taking them out in cash), you are maximizing your \"\"compounding\"\" by allowing those earnings to cause your investment to grow.\"","The question lacks specificity, i.e. when does the initial investment occur, now or one period from now? If now then it is a perpetuity due. I will consider under 2 scenarios, A and B, relating to the size of the initial investment. A. Assuming that the initial investment (C_0) occurs now and each payment thereafter has the relationship (1+g) with this investment then the relevant base equation is that for the present value of a growing perpetuity due, expressed in terms of C_0, i.e. PVGPD= [C_0*(1+g)*(1+i)]/(i-g). Now, to suit the question asked, we can see that i=fixed rate of return (f) and g = expected inflation rate (e) such that we can rewrite the equation as PVGPD = [C_0*(1+e)*(1+i)]/(i-e]. We know that f = is a fixed nominal rate and must be adjusted for e to calculate the real rate (r) according to the equation f=(1+r)*(1+e)-1. Therefore PVGPD = [C_0*(1+e)(1+(1+r)(1+e)-1)]/((1+r)*(1+e)-1-e] Tidying up PVGPD = {C_0*(1+r)(1+e)^2}/[r(1+e)] PVGPD = [C_0*(1+r)*(1+e)]/r B. Assuming that the initial investment (X) is not equal to each subsequent perpetual payment (C_1) then the relevant base equation is that for the the initial investment plus the present value of a growing perpetuity, i.e. PVGP= X + [C_1/(i-g)] Rewriting PVGP = X + [C_1/(f-e)] Substituting PVGPD = X + {C_1/[(1+r)*(1+e)-1-e]} Tidying up PVGPD = X + C_1/[r*(1+e)]","Its kind of a dumb question because no one believes that you can earn 8% in the short term in the market, but for arguments sake the math is painfully easy. Keep in mind I am an engineer not a finance guy. So the first payment will earn you one month at 8%, the second, two. In effect three months at 8% on 997. You can do it that way because the payments are equal: 997 * (.08 /12) *3 = earnings ~= 20 So with the second method you pay: 997 * 3 - 20 = 2971","If I is the initial deposit, P the periodic deposit, r the rent per period, n the number of periods, and F the final value, than we can combine two formulas into one to get the following answer: F = I*(1+r)n + P*[(1+r)n-1]/r In this case, you get V = 1000*(1.05)20 + 100*[(1.05)20-1]/0.05 = 5959.89 USD. Note that the actual final value may be lower because of rounding errors.","The best strategy? Skip the loan. Find a way to invest for a low starting amount via a retirement account (such as a 401K or IRA in the United States) or non-retirement account. Use this money to buy individual stocks or funds. Every month put money from your regular income into this investment account. Then buy more stocks or sell if the conditions change based on what the market is doing, not to meet a loan payment. This helps you because if the price fluctuates you will buy more shares if the price is down; and you will buy fewer shares when the price is up. It also allows you to skip worrying about how to repay the loan. It also means that you not have to pull more money out of savings to make the final loan payments if it doesn't make as much money as you plan. Regarding your math. This is a better understanding of the money flow than the earlier question.","With the following variables the periodic (annual) repayment is given by The recurrence equation for the balance b at the end of month x is derived from b[x + 1] = b[x] (1 + r) - d where b[0] = s giving The interest portion of the final payment is b[n - 1] r and the total principal repaid at the end of period n - 1 is s - b[n - 1] Solving simultaneously n = 8.9998 and s = 7240 The principal repaid at the end of the first period is s - b[1] or d - r s = 479.74","The simplest way is just to compute how much money you'd have to have invested elsewhere to provide a comparable return. For example, if you assume a safe interest rate of 2.3% per year, you would need to have about $520,000 to get $1,000/month.","\"Yes if and only if you properly use P/Y and C/Y. For your familiarity, I recommend also trying it with I = 7.56% / 12, and P/Y and C/Y = 1. I like to think of P/Y and C/Y as \"\"per period\"\" and prefer to divide the interest rate by the number of periods per year, but so long as you keep everything coherent in the solver, you will get the correct answer with both approaches.\"","Illustrating with a shorter example: Suppose I deposit 1,000 USD. Every year I deposit another 100 USD. I want to know how much money will be on that savings account in 4 years. The long-hand calculation is Expressed with a summation And using the formula derived from the summation (as shown by DJohnM) So for 20 years Note in year 20 (or year 4 in the shorter example) the final $100 deposit does not have any time to accrue interest before the valuation of the account.","Happy to help. I always recommend you try and solve these types of problems by hand over financial calculators so that you can get a feel for how terms in the equation relate to one another. That's important while you're studying/learning. But for work--by all means you should use the fastest method, which is probably excel.","Fairly straightforward to match the result from the calculator soup link. There is a formula to calculate n from the future value s (using natural logs) In Excel This was derived as shown To calculate n from the inflation-adjusted future value si requires using a solver since an algebraic formula cannot be formulated. As demonstrated Calculations done using Mathematica 7.","I've found the systems that seem to work. Firstly, you need to find how much money is required to pay for the withdrawals after retirement, while still accruing interest. I couldn't seem to do this with an equation, but this bit of javascript worked: yearsToLast: Number of years of yearly withdrawals yearlyWithdrawal: Amount to withdraw each year interest: Decimal form of yearly compounding interest Now that we have how much is required at the beginning of the retirement, to figure out how much to add yearly to hit this mark, you'd use: amount: Previously found required amount to reach interest: Decimal form of yearly compounding interest yearsSaving: Number of years saving till amount needs to be hit I hope this helps some other poor soul, because I could find squat on how to do this. Max","This is a present value calculation, which excel or any financial calculator can handle. N = 300 (months) %i = 5/12 or .05/12 depending on the program/calculator PMT = $5000 (the monthly payment) FV = 0 (you want to end at zero balance) This calculates a PV (present value of $855,300) Chad had it right, but used a calculator that didn't offer the PV function, so he guessed and changed numbers til the answer was clear. user379 makes a good point, but why start inflation calculations at 65, and not now? You look like you're in your 30's, so there's 30 years of inflation, and $60K/yr in today's value will need to be closer to $150K/yr, given about 30 years of 3% inflation.","The formula you need is: M = (r * PV) / (1 - ((1+r)^(-n))) M = monthly payment ($350) r = interest per period (7.56% / 12) = 0.63% n = number of periods (36 months) PV = present value, or here, your max loan amount given M Therefore: $350 = (0.63% * PV) / (1 - ((1+0.63%)^(-36))) The denominator on the right ends up equal to ~ 0.2025 when you do the math in your calculator. Carry that over to the by multiplying both sides of the equation by 0.2025 This results in $70.82 = 0.63% * PV Divide $70.82 by 0.63% to get PV = $11,242 (roughly). Hope this helps explain it algebraically!!","The 1.140924% is calculated by taking 13.69%/12 = 1.140924%. Dividing this number by 100 gives you the answer 1.140924 / 100 = .01140924. When dealing with decimals it's important to remember the relationship between a decimal and a percent. 1% = .01 To return .01 to a percent you must multiple that number by 100. So .01 x 100 = 1% In order to get a decimal from a percent, which is what is used in calculations, you must divide by 100. So, here if we are trying to calculate how much interest you are paying each month we can do this: 9800 * .1369 = $1341.62 (interest you will pay that year IF the principal balance never changed) 1341.62 / 12 = ~111.81 Now, month two 9578.34 * .1369 = 1311.274746 1311.274746 / 12 = 109.28 In order to get your monthly payments (which won't change) for the life of the loan, you can use this formula: Monthly payment = r(PV) / (1-(1+r)^-n) Where: r= Interest Rate (remember if calculating monthly to do .1369/12) PV= Present Value of loan n=time of loan ( in your case 36 since we are talking monthly and 12*3 = 36) from here we get: [(.1369/12)*9800]/(1-(1+.1369/12)^-36) = $333.467 when rounding is $333.47 As far as actual applied interest rate, I'm not even sure what that number is, but I would like to know once you figure out, since the interest rate you're being charged is most definitely 13.69%.","The total number of shares on April 1st is 100 + 180 + 275 = 555. The price on April 1st is required. The current price is stated as $2, but $2 * 555 = $1110 and the current fund values is stated as $1500. Opting to take the current value as $1500, the price on April 1st can be calculated as $1500/555 = $2.7027. The amounts invested as number of shares x share price are: (Note these investment amounts do not match the example scenario's investment amounts, presumably because the example numbers are just made up.) The monthly returns can be calculated: The current values for each investor as invested amount x returns are: Checking the total:","Securities (things you can buy on the stock market) that pay dividends usually pay every quarter (every three months), but some pay every month. (For example: PGF pays dividends each month.) IF you reinvest your dividends back into the stock then you will be compounding your return. I use the feature at Scottrade to automatically reinvest the dividend each month. Using this feature at Scottrade incurs no commission for the purchases of the stock from the dividend. (saving on commissions and fees is, likely, the most important aspect of investing). US Treasuries (usually) pay interest twice a year. There is no commission when using Treasury Direct.","Using the following values: The formula for the future value of an annuity due is d*(((1 + i)^t - 1)/i)*(1 + i) See Calculating The Present And Future Value Of Annuities In an annuity due, a deposit is made at the beginning of a period and the interest is received at the end of the period. This is in contrast to an ordinary annuity, where a payment is made at the end of a period. The formula is derived, by induction , from the summation of the future values of every deposit. The initial value, with interest accumulated for all periods, can simply be added. So the overall formula is","Okay, I think I managed to find the precise answer to this problem! It involves solving a non-linear exponential equation, but I also found a good approximate solution using the truncated Taylor series. See below for a spreadsheet you can use. Let's start by defining the growth factors per period, for money in the bank and money invested: Now, let S be the amount ready to be invested after n+1 periods; so the first of that money has earned interest for n periods. That is, The key step to solve the problem was to fix the total number of periods considered. So let's introduce a new variable: t = the total number of time periods elapsed So if money is ready to invest every n+1 periods, there will be t/(n+1) separate investments, and the future value of the investments will be: This formula is exact in the case of integer t and n, and a good approximation when t and n are not integers. Substituting S, we get the version of the formula which explicitly depends on n: Fortunately, only a couple of terms in FV depend on n, so we can find the derivative after some effort: Equating the derivative to zero, we can remove the denominator, and assuming t is greater than zero, we can divide by the constant ( 1-G t ): To simplify the equation, we can define some extra constants: Then, we can define a function f(n) and write the equation as: Note that α, β, γ, G, and R are all constant. From here there are two options: Use Newton's method or another numerical method for finding the positive root of f(n). This can be done in a number of software packages like MATLAB, Octave, etc, or by using a graphics calculator. Solve approximately using a truncated Taylor series polynomial. I will use this method here. The Taylor series of f(n), centred around n=0, is: Truncating the series to the first three terms, we get a quadratic polynomial (with constant coefficients): Using R, G, α, β and γ defined above, let c0, c1 and c2 be the coefficients of the truncated Taylor series for f(n): Then, n should be rounded to the nearest whole number. To be certain, check the values above and below n using the formula for FV. Using the example from the question: For example, I might put aside $100 every week to invest into a stock with an expected growth of 9% p.a., but brokerage fees are $10/trade. For how many weeks should I accumulate the $100 before investing, if I can put it in my high-interest bank account at 4% p.a. until then? Using Newton's method to find roots of f(n) above, we get n = 14.004. Using the closed-form approximate solution, we get n = 14.082. Checking this against the FV with t = 1680 (evenly divisible by each n + 1 tested): Therefore, you should wait for n = 14 periods, keeping that money in the bank, investing it together with the money in the next period (so you will make an investment every 14 + 1 = 15 weeks.) Here's one way to implement the above solution with a spreadsheet. StackExchange doesn't allow tables in their syntax at this time, so I'll show a screenshot of the formulae and columns you can copy and paste: Formulae: Copy and paste column A: Copy and paste column B: Results: Remember, n is the number of periods to accumulate money in the bank. So you will want to invest every n+1 weeks; in this case, every 15 weeks.","This is a clear example of annuities, where you are trying to find Net Present Value (NPV). To find a quick solution you can use the excel function (=NPV). Solving it without excel is slightly more complicated. You have to use the annuities formula: (Payment/rate) * (1 - 1/(1+r)^n ) This formula can be written in many different ways, this is one of the simplest. So how do we translate that to your problem? For the first option: -5000/0.04 * (1 - 1/(1.04^2 ) = -9430.47 If you haven't made this years 5000 payment you have to subtract this years 5000, so option 1 would equal -14430,47. Option 2 is similar -2000/0.04 (1 - 1/(1.04^10 ) = -16221.79 WAIT! You also have to subtract the initial cost so option 2 is -36221.79 So in essence, option 1 is better (but you will have to buy a machine sooner or later). Part 2 (discount rate = 12%) is for you to understand the importance of high rates in long periods of time (like option 2's 10 years) EDIT: For clearer formulas. Also made a mistake calculating option 2","What's the present value of using the payment plan? In all common sense the present value of a loan is the value that you can pay in the present to avoid taking a loan, which in this case is the lump sum payment of $2495. That rather supposes the question is a trick, providing irrelevant information about the stock market. However, if some strange interpretation is required which ignores the lump sum and wants to know how much you need in the present to pay the loan while being able to make 8% on the stock market that can be done. I will initially assume that since the lender's APR works out about 9.6% per month that the 8% from the stock market is also per month, but will also calculate for 8% annual effective and an 8% annual nominal rate. The calculation If you have $x in hand (present value) and it is exactly enough to take the loan while investing in the stock market, the value in successive months is $x plus the market return less the loan payment. In the third month the loan is paid down so the balance is zero. I.e. So the present value of using the payment plan while investing is $2569.37. You would need $2569.37 to cover the loan while investing, which is more than the $2495 lump sum payment requires. Therefore, it would be advisable to make the lump sum payment because it is less expensive: If you have $2569.37 in hand it would be best to pay the lump sum and invest the remaining $74.37 in the stock market. Otherwise you invest $2569.37 (initially), pay the loan and end up with $0 in three months. One might ask, what rate of return would the stock market need to yield to make it worth taking the loan? The APR proposed by the loan can be calculated. The present value of a loan is equal to the sum of the payments discounted to present value. I.e. with ∴ by induction So by comparing the $2495 lump sum payment with $997 over 3 x monthly instalments the interest rate implied by the loan can be found. Solving for r If you could obtain 9.64431% per month on the stock market the $x cash in hand required would be calculated by This is equal to the lump sum payment, so the calculated interest is comparable to the stock market rate of return. If you could gain more than 9.64431% per month on the stock market it would be better to invest and take the loan. Recurrence Form Solving the recurrence form shows the calculation is equivalent to the loan formula, e.g. becomes v[m + 1] = (1 + y) v[m] - p where v[0] = pv where In the final month v[final] = 0, i.e. when m = 3 Compare with the earlier loan formula: s = (d - d (1 + r)^-n) / r They are exactly equivalent, which is quite interesting, (because it wasn't immediately obvious to me that what the lender charges is the mirror opposite of what you gain by investing). The present value can be now be calculated using the formula. Still assuming the 8% stock market return is per month. If the stock market yield is 8% per annum effective rate and if it is given as a nominal annual yield, 8% compounded monthly","Let's go ahead and walk through the other solutions while were at it! It's been a few years since finance class in college Skip #30 since it's basically the same Q EDIT: #28: did I do this right - PV(.0635, 7, -10,000) = 55,135 31 - not sure how to solve for monthly payments in excel","( t2 / t1 ) - 1 Where t2 is the value today, t1 is the value 12 months ago. Be sure to include dividend payments, if there were any, to t2. That will give you total return over 12 months.","\"I don't understand the OP's desire \"\" I'd love to have a few hundred dollars coming in each month until I really get the hang of things. \"\" When growing your wealth so that it will be large enough in retirement to throw off enough profits to live on ... you must not touch the profits generated along the way. You must reinvest them to earn even more profits. The profits you earn need not show up as 'cash'. Most investments also grow in re-sale value. This growth is called capital gains, and is just-as/more important than cash flows like interest income or dividends. When evaluating investing choices, you think of your returns as a percent of your total savings at any time. So expecting $100/month equals $1,200/year would require a $12,000 investment to earn 10%/yr. From the sounds of it the OP's principal is not near that amount, and an average 10% should not be expected by an investment with reasonable risk. I would conclude that 'There is no free lunch'. You need to continually save and add to your principal. You must invest to expect a reasonable return (less than 10%) and you must reinvest all profits (whether cash or capital gains). Or else start a business - which cannot be compared to passive investing.\"","\"I was afraid of this. If you are using 12 P/Y and 12 C/Y, then your interest rate should not be divided by 12. Also, you should use \"\"END\"\" as this means monthly payments are made at the end of the month - a usual default.\"","The author is using the simple Dietz method, (alternatively the modified Dietz), with the assumption that the net cash-flow occurs halfway through the time period. Let's say the time period is one year for illustration, so the cash-flow would be at the end of the second quarter. The money-weighted method gives a more accurate return, but has to be solved by trial-and-error or using a computer. The money-weighted return is 11.2718 % and the simple or modified Dietz return is 11.2676 %. When the sums are done backwards to check, the Dietz is half a dollar out with a final value of $11,999.50 while the money-weighted return recalculates exactly $12,000. It is worth pointing out that the return changes if the cash-flow is not in the middle of the time period. A case with the cash-flow at the end of Q3 is added to illustrate.","\"The best way to do this is to use IRR. It's a complicated calculation, but will take into account multiple in/out cash flows over time along with \"\"idle periods\"\" where your money may not have been doing anything. Excel can calculate it for you using the XIRR function\"","For this, the internal rate of return is preferred. In short, all cash flows need to be discounted to the present and set equal to 0 so that an implied rate of return can be calculated. You could try to work this out by hand, but it's practically hopeless because of solving for roots of the implied rate of return which are most likely complex. It's better to use a spreadsheet with this capability such as OpenOffice's Calc. The average return on equity is 9%, so anything higher than that is a rational choice. Example Using this simple tool, the formula variables can easily be input. For instance, the first year has a presumed cash inflow of $2,460 because the insurance has a 30% discount from $8,200 that is assumed to be otherwise paid, a cash inflow of $40,000 to finance the sprinklers, a cash outflow of $40,000 to fund the sprinklers, a $400 outflow for inspection, and an outflow in the amount of the first year's interest on the loan. This should be repeated for each year. They can be input undiscounted, as they are, for each year, and the calculator will do the rest.","Set your xirr formula to a very tall column, leaving lots of empty rows for future additions. In column C, instead of hardcoding the value, use a formula that tests if it's the current bottom entry, like this: =IF(ISBLANK(A7),-C6, C6) If the next row has no date entered (yet), then this is the latest value, and make it negative. Now, to digress a bit, there are several ways to measure returns. I feel XIRR is good for individual positions, like holding a stock, maybe buying more via DRIP, etc. For the whole portfolio it stinks. XIRR is greatly affected by timing of cash flows. Steady deposits and no withdrawals dramatically skew the return lower. And the opposite is true for steady withdrawals. I prefer to use TWRR (aka TWIRR). Time Weighted Rate of Return. The word 'time' is confusing, because it's the opposite. TWRR is agnostic to timing of cashflows. I have a sample Excel spreadsheet that you're welcome to steal from: http://moosiefinance.com/static/models/spreadsheets.html (it's the top entry in the list). Some people prefer XIRR. TWRR allows an apples-to-apples comparison with indexes and funds. Imagine twin brothers. They both invest in the exact same ideas, but the amount of cash deployed into these ideas is different, solely because one brother gets his salary bonus annually, in January, and the other brother gets no bonus, but has a higher bi-weekly salary to compensate. With TWRR, their percent returns will be identical. With XIRR they will be very different. TWRR separates out investing acumen from the happenstance timing of when you get your money to deposit, and when you retire, when you choose to take withdrawals. Something to think about, if you like. You might find this website interesting, too: http://www.dailyvest.com/","\"You can calculate the \"\"return on investment\"\" using libreoffice, for example. Look at the xirr function. You would have 2 columns, one a list of dates (ie the dates of the deposits or dividends or whatever that you want to track, the last entry would be today's date and the value of the investment today. The xirr function calculates the internal rate of return for you. If you add money to the account, and the current value includes the original investment and the added funds, it will be difficult to calculate the ROI. If you add money by purchasing additional shares (or redepositing dividends by buying additional shares), and you only want to track the ROI of the initial investment (ignoring future investments), you would have to calculate the current value of all of the added shares (that you don't want to include in the ROI) and subtract that value from the current total value of the account. But, if you include the dates and values of these additional share purchases in the spreadsheet, xirr will calculate the overall IRR for you.\"","\"Total Return is the percent change in value (including andy dividends) of an instrument. The \"\"trailing 12-month\"\" means that your starting point is the value 12 months ago. So the formula is: where V is the value of the instrument on the reference date, V0 is the value of the instrument 12 months prior to the reference date, and D is the amount of dividends paid between the two dates.\"","If you didn't have deposits, then the growth rate is simply ((p1/p0)^(1/t))-1, where p0 is the initial balance, p1 is the current balance, and t is the number of periods. For example, suppose you started the account with $100,000 in 2000. It's now 2015 -- 15 years later -- and the balance is $240,000. So the growth is: If you're making regular deposits, especially if you're making deposits of unequal amounts, the problem becomes much more complex. The easiest thing to do is probably to create a spreadsheet. Make a column for principle, a column for deposit amount, and a column for percent growth that period. Assuming A is principle and B is deposit, then the formula for growth C is =((A2-A1-B1)/A1-1)*100. Copy this formula down the column and Excel should automatically adjust the row numbers. Assuming you put one row for each month you can see the growth (or loss) month by month. You can get a general idea of what your overall growth rate has been by taking the average of the monthly amounts, but this would not be a truly accurate measure of your total growth because presumably (hopefully) you have more money in the later months than the earlier months. But it would be a good measure of how your investments are doing.","Your initial investment in this case is $9 on the first morning. Every other morning you are using part of your profits to buy the new piece of jewelry, so you are actually not investing any new funds. So each day you are effectively keeping $1 of your profits and re_re-investing $9. But your initial investment of your own funds is only the first $9. In other words if you only had $9 in the bank at the start of the year you could make $365 profits during the year and finish up with $374 in the the bank at the end of the year."],"string":"[\n \"The monthly repayments of the initial $ 300,000 loan can be calculated using this formula: source: Finance Formulas The monthly payment is It is not readily apparent how the formula works, but it is derived by induction from this summation, in which the sum of the discounted future payments are set equal to the present value of the loan: For the second part of the question, reinvestments are stopped after 9 months, after four investments of $ 26,374.77 * 3 = $ 79,124.31. And presumably each loan is repaid in 3 years, since 45 - 9 = 36 months. Calculating the repayments for these loans: The total returned for all four loans is:\",\n \"It's not compound interest. It is internal rate of return. If you have access to Excel look up the XIRR built-in function.\",\n \"You need the Present Value, not Future Value formula for this. The loan amount or 1000 is paid/received now (not in the future). The formula is $ PMT = PV (r/n)(1+r/n)^{nt} / [(1+r/n)^{nt} - 1] $ See for example http://www.calculatorsoup.com/calculators/financial/loan-calculator.php With PV = 1000, r=0.07, n=12, t=3 we get PMT = 30.877 per month\",\n \"What's the future value of money given: M = initial investment R = additional monthly investment P = interest rate earned per month t = number of months This is the result of 2 formulas. 1. How much is the initial investment worth at the end + 2. How much are the additional contributions worth at the end. FutureValue[M] = M * (1+P)^t FutureValue[R] = annuity calculation = R*((1+P)^t-1)/P) So the future value of your initial investment with regular additions, all earning the same return monthly at the end of t months will be: M * (1+P)^t + R*((1+P)^t-1)/P)\",\n \"The general concept is that your money will grow at an accelerating rate because you start getting interest paid on your returns in addition to the original investment. As a simple example, assume you invest $100 and get 10% interest per year paid annually. -At the end of the first year you have your $100 + $10 interest for a total of $110. -So you start the second year with $110 and so 10% would be $11 for a total of $121. -The third year you start with $121 so 10% would be $12.10 for a total of $133.10 See how the amount it goes up each year increases? If we were talking a higher initial amount or a larger number of years that can really add up. That is essence is compound interest. Most of the complicated looking formulas you see out there for compound interest are just shortcuts so you don't have to iteratively go through the above exercise a bunch of times to find out how much you would have after some number of years. This formula tells you how much you would have(A) after a certain number of years(t) at a given interest rate(r) assuming they pay interest n times per year, for example you would use 12 for n if it paid interest monthly instead of yearly. P represents the amount you started out with. If you keep investing monthly (as shown in your example) instead of just depositing it and letting it sit, you have to use a more complicated formula. Finance people refer to this as calculating the future value of an annuity. That formula looks like this: A = PMT [((1 + r)N - 1) / r] x (1+r) A : Is the amount you would have at the end of the time period. N : The number of compounding periods (months if you get interest calculated monthly) PMT : The total amount you are putting in each period (N) r: Just like before, the interest rate you are getting paid. Be sure to adjust this to a monthly number if N represents months (divide APR by 12)* *Most interest rates are quoted as APR, which is the annualized interest rate not counting compounding. Don't confuse this with APY, which has compounding built into it and is not appropriate for use in this formula. Inserting your example: r (monthly interest rate) = 15% APR / 12 = .0125 n = 30 years * 12 months/year = 360 months A = $150 x [((1 + .0125)360 - 1) / .0125] x (1+.0125) A = $1,051,473.09 (rounded)\",\n \"\\\"To calculate the balance (not just principal) remaining, type into your favorite spreadsheet program: It is important that the periods for \\\"\\\"Periods\\\"\\\" and \\\"\\\"Rate\\\"\\\" match up. If you use your annual rate with quarterly periods, you will get a horribly wrong answer. So, if you invest $1000 today, expect 6% interest per year (0.5% interest per month), withdraw $10 at the end of each month, and want to know what your investment balance will be 2 years (24 months) from now, you would type: And you would get a result of $872.84. Or, to compute it manually, use the formula found here by poster uart: This is often taught in high-school here as a application of geomentric series. The derivation goes like this. Using the notation : r = 1 + interest_rate_per_term_as_decimal p = present value a = payment per term eot1 denotes the FV at end of term 1 etc. eot1: rp + a eot2: r(rp + a) + a = r^2p + ra + a eot3: r(r^2p + ra + a) + a = r^3p + r^2a + ra + a ... eotn: r^np + (r^(n-1) + r^(n-2) + ... 1)a = p r^n + a (r^n - 1)/(r-1) That is, FV = p r^n + a (r^n - 1)/(r-1). This is precisely what exel [sic] computes for the case of payments made at the end of each term (payment type = 0). It's easy enough to repeat the calculations as above for the case of payments made at the beginning of each term. This won't work for changing interest rates or changing withdrawal amounts. For something like that, it would be better for you (if you don't want online calculators) to set up a table in a spreadsheet so you can adjust different periods manually.\\\"\",\n \"Let's break this into two parts, the future value of the initial deposit, and the future value of the payments: D(1 + i)n For the future value of the payments A((1+i)n-1) / i) Adding those two formulas together will give you the amount of money that should be in your account at the end. Remember to make the appropriate adjustments to interest rate and the number of payments. Divide the interest rate by the number of periods in a year (four for quarterly, twelve for monthly), and multiply the number of periods (p) by the same number. Of course the monthly deposit amount will need to be in the same terms. See also: Annuity (finance theory) - Wikipedia\",\n \"You need to solve the money-weighted return equation. It cannot be expressed as a formula for the interest, but it can be solved numerically as shown here. Using the OP's figures, with monthly withdrawals of $100,000. The summation for the withdrawals can be replaced with the standard annuity formula. The resulting monthly return is converted to a nominal annual return compounded monthly. Money-weighted return equation with start and end balances s0 and s1 The interest is 2.63282 % per annum, nominal compounded monthly. Selectable equation\",\n \"I would like to know how they calculated such monthly payment The formula is: Your values would come out to be: r = (1+3.06/(100*365))^31-1=0.002602 (converting your annual percentage to a monthly rate equivalent of daily compounded interest) PV = 12865.57 n = 48 Inserting your values into the formula: P = [r*(PV)]/[1-(1+r)^(-n)] P = [0.002602*(12865.57)]/[1-(1.002602)^(-48)] P = 285.47\",\n \"> 1)What is the formula to turn the annualized rate into a monthly rate? What do you *think* it is? > 2)What is the formula to find out the NPV of monthly cash flows? Same one as usual. Remember, value can only be summed if it's *at the same point in time.* > For example, if I get $1000, $2000, and $3000 in months 1, 2, and 3, how do I calculate how much each of those are equal to as a present value if the annual discount rate is 8%? Think it through.\",\n \"Let P denote the amount of the investment, R the rate of return and I the rate of inflation. For simplicity, assume that the payment p is made annually right after the return has been earned. Thus, at the end if the year, the investment P has increased to P*(1+R) and p is returned as the annuity payment. If I = 0, the entire return can be paid out as the payment, and thus p = P*R. That is, at the end of the year, when the dust settles after the return P*R has been collected and paid out as the annuity payment, P is again available at the beginning of the next year to earn return at rate R. We have P*(1+R) - p = P If I > 0, then at the end of the year, after the dust settles, we cannot afford to have only P available as the investment for next year. Next year's payment must be p*(1+I) and so we need a larger investment since the rate of return is fixed. How much larger? Well, if the investment at the beginning of next year is P*(1+I), it will earn exactly enough additional money to pay out the increased payment for next year, and have enough left over to help towards future increases in payments. (Note that we are assuming that R > I. If R < I, a perpetuity cannot be created.) Thus, suppose that we choose p such that P*(1+R) - p = P*(1+I) Multiplying this equation by (1+I), we have [P(1+I)]*(1+R) - [p*(1+I)] = P*(1+I)^2 In words, at the start of next year, the investment is P*(1+I) and the return less the increased payout of p*(1+I) leaves an investment of P*(1+I)^2 for the following year. Each year, the payment and the amount to be invested for the following year increase by a factor of (1+I). Solving P*(1+R) - p = P*(1+I) for p, we get p = P*(R-I) as the initial perpetuity payment and the payment increases by a factor (1+I) each year. The initial investment is P and it also increases by a factor of (1+I) each year. In later years, the investment is P*(1+I)^n at the start of the year, the payment is p*(1+I)^n and the amount invested for the next year is P*(1+I)^{n+1}. This is the same result as obtained by the OP but written in terms that I can understand, that is, without the financial jargon about discount rates, gradients, PV, FV and the like.\",\n \"The formula for determining the number of payments (months) you'll need to make on your loan is: where i=monthly interest rate (annual rate / 12), A=loan amount (principal), and P=monthly payment. To determine the total interest that you will pay, you can use the following formula: where P=monthly payment, N=number of payments (from above formula), and A=loan amount (principal). A quick example: using the numbers in the screenshot above ($10,000 loan, $500 monthly payment, 10% APR), the number of payments ends up to be 21.97 (which means that payment number 22 is slightly less than the rest). In the second formula, you take that number times your $500 payment and determine that you have paid $10,984.81 over the course of the entire loan period. Subtracting the principal, you have paid $984.81 in total interest. On your spreadsheet, the function you are looking for is NPER: NPER(rate, payment_amount, present_value, [future_value, end_or_beginning]) rate - The interest rate. (This should be the monthly rate, or the annual rate divided by 12.) payment_amount - The amount of each payment made. (For a loan payment, this should be a negative number.) present_value - The current value of the annuity. (The initial principal of the loan) future_value - [ OPTIONAL ] - The future value remaining after the final payment has been made. (This should be 0, the default if omitted.) end_or_beginning - [ OPTIONAL - 0 by default ] - Whether payments are due at the end (0) or beginning (1) of each period.\",\n \"Perhaps there is no single formula that accounts for all the time intervals, but there is a method to get formulas for each compound interest period. You deposit money monthly but there is interest applied weekly. Let's assume the month has 4 weeks. So you added x in the end of the first month, when the new month starts, you have x money in your account. After one week, you have x + bx money. After the second week, you have x + b(x + bx) and so on. Always taking the previous ammount of money and multiplying it by the interest (b) you have. This gives you for the end of the second month: This looks complicated, but it's easy for computers. Call it f(0), that is: It is a function that gives you the ammount of money you would obtain by the end of the second month. Do you see that the future money inputs are given with relation to the previous ones? Then we can do the following, for n>1 (notice the x is the end of the formula, it's the deposit of money in the end of the month, I'm assuming it'll pass through the compound interest only in the first week of the next month): And then write: There is something in mathematics called recurrence relation in which we can use these two formulas to produce a simplified one for arbitrary b and n. Doing it by hand would be a bit complicated, but fortunately CASes are able to do it easily. I used Wolfram Mathematica commands: And it gave me the following formula: All the work you actually have to do is to figure out what will be f(0) and then write the f(n) for n>0 in terms of f(n-1). Notice that I used the command FullSimplify in my code, Mathematica comes with algorithms for simplyfing formulas so if it didn't find something simpler, you probably won't find it by yourself! If the code looks ugly, it's because of Mathematica clipboard formatting, in the software, it looks like this: Notice that I wrote the entire formula for f(0), but as it's also a recurrence relation, it can be written as: That is: f(0)=g(4). This should give you much simpler formulas to apply in this method.\",\n \"You could create your own spreadsheet of Cash Flows and use the XIRR function in Excel: The formula is:\",\n \"The equation is the same one used for mortgage amortization. You first want to calculate the PV (present value) for a stream of $50K payments over 20 years at a10% rate. Then that value is the FV (future value) that you want to save for, and you are looking to solve the payment stream needed to create that future value. Good luck achieving the 10% return, and in knowing your mortality down to the exact year. Unless this is a homework assignment, which need not reflect real life. Edit - as indicated above, the first step is to get that value in 20 years: The image is the user-friendly entry screen for the PV calculation. It walks you though the need to enter rate as per period, therefore I enter .1/12 as the rate. The payment you desire is $50K/yr, and since it's a payment, it's a negative number. The equation in excel that results is: =PV(0.1/12,240,-50000/12,0) and the sum calculated is $431,769 Next you wish to know the payments to make to arrive at this number: In this case, you start at zero PV with a known FV calculated above, and known rate. This solves for the payment needed to get this number, $568.59 The excel equation is: =PMT(0.1/12,240,0,431769) Most people have access to excel or a public domain spreadsheet application (e.g. Openoffice). If you are often needing to perform such calculations, a business finance calculator is recommended. TI used to make a model BA-35 finance calculator, no longer in production, still on eBay, used. One more update- these equations whether in excel or a calculator are geared toward per period interest, i.e. when you state 10%, they assume a monthly 10/12%. With that said, you required a 20 year deposit period and 20 year withdrawal period. We know you wish to take out $4166.67 per month. The equation to calculate deposit required becomes - 4166.67/(1.00833333)^240= 568.59 HA! Exact same answer, far less work. To be clear, this works only because you required 240 deposits to produce 240 withdrawals in the future.\",\n \"Interest per month is 12th root of annual interest, or a multiplier of about 1.0327%. At end of 1st month, you start with $0, add interest on $0, and add $600, getting $600. 2nd month: start with $600, add 0.0327% interest plus $600, getting $1219.62. 3rd: balance plus interest plus deposit yields $1859.50 Repeat ad nauseam. Easier with a spreadsheet or a bit of trivial programming. Or you can try to re-derive the formulas, but that is left as an exercise for the student.\",\n \"With 10% return over three years, depositing $900 each month, in three years $34,039.30. Re. downvote. I guess this is too brief and without explanation, but I was rushing. If you want further explanation of how this is calculated check the link already posted by JoeTaxpayer, and have a look at the formula for continuously compounded return. Also, try out the numbers in the simplified example below yourself. E.g. Addendum mhoran_psprep has pointed out that I didn't read the OP's post closely enough. With rolling investments the total return will be: Where n is the month number i.e. 36, 37, etc.\",\n \"Given the following variables Where b[n + 1] = b[n] (1 + r) - w and b[0] = s then b[n] = ((1 + r)^n (r s - w) + w)/r For example, illustrating with some figures. The balances in the first four quarters (n = 1, 2, 3, 4) are Check As per the Excel formula provided by OneTruDragonGirl £670.27\",\n \"I have a discounted cash flow that's monthly. My annualized discount rate is 8%. 1)What is the formula to turn the annualized rate into a monthly rate? 2)What is the formula to find out the NPV of monthly cash flows? For example, if I get $1000, $2000, and $3000 in months 1, 2, and 3, how do I calculate how much each of those are equal to as a present value if the annual discount rate is 8%?\",\n \"Average rates of return usually assume compounding, so your formula would be for annual compounding ,or for continuous compounding.\",\n \"You're looking for the amortization calculation. This calculation is essentially solving for the series of cash flows that will yield a zero balance after the specified term, at the given rate for a loan amount. Once you have solved for the payment amount, you can add additional principal amount to each payment period and see the interest payments and time to zero balance drop.\",\n \"The number you are trying to calculate is called the Internal Rate of Return (IRR). Google Spreadsheets (and excel) both have an XIRR function that can do this for you fairly simply. Setup a spreadsheet with 1 column for dates, 1 column for investment. Mark your investments as negative numbers (payment to invest). All investments will be negative. Mark your last row with today's date and today's valuation (positive). All withdrawals will be positive, so you are pretending to withdrawal your entire account for the purpose of calculation. Do not record dividends or other interim returns unless you are actually withdrawing money. The XIRR function will calculate your internal rate of return with irregularly timed investments. Links: Article explaining XIRR function (sample spreadsheet in google docs to modify)\",\n \"\\\"There is no formula that can be applied to most variations of the problem you pose. The reason is that there is no simple, fixed relationship between the two time periods involved: the time interval for successive payments, and the time period for successive interest compounding. Suppose you have daily compounding and you want to make weekly payments (A case that can be handled). Say the quoted rate is 4.2% per year, compounded daily Then the rate per day is 4.2/365, or 0.0115068 % So, in one week, a debt would grow through seven compoundings. A debt of $1 would grow to 1 * (1+.000225068)^7, or 1.000805754 So, the equivalent interest rate for weekly compounding is 0.0805754% Now you have weekly compounding, and weekly payments, so the standard annuity formulas apply. The problem lies in that number \\\"\\\"7\\\"\\\", the number of days in a week. But if you were trying to handle daily / monthly, or weekly / quarterly, what value would you use? In such cases, the most practical method is to convert any compounding rate to a daily compounding rate, and use a spreadsheet to handle the irregularly spaced payments.\\\"\",\n \"\\\"The answer to almost all questions of this type is to draw a diagram. This will show you in graphical fashion the timing of all payments out and payments received. Then, if all these payments are brought to the same date and set equal to each other (using the desired rate of return), the equation to be solved is generated. In this case, taking the start of the bond's life as the point of reference, the various amounts are: Pay out = X Received = a series of 15 annual payments of $70, the first coming in 1 year. This can be brought to the reference date using the formula for the present value of an ordinary annuity. PLUS Received = A single payment of $1000, made 15 years in the future. This can be brought to the reference date using the simple interest formula. Set the pay-out equal to the present value of the payments received and solve for X I am unaware of the difference, if any, between \\\"\\\"current rate\\\"\\\" and \\\"\\\"rate to maturity\\\"\\\" Finding the rate for such a series of payments would start out the same as above, but solving the resulting equation for the interest rate would be a daunting task...\\\"\",\n \"R = I ^ P R = return (2 means double) I = (Intrest rate / 100) + 1 [1.104 = 10.4%] P = number of periods (7 years) 2 = 1.104 ^ 7 (you double your money in seven years with a yearly Intrest rate of 10.4%) I = R^(1/P) 1.104 = 2^(1/7) P = log(R) / log(I) 7 = log(2) / log(1.104)\",\n \"Damn, helpful Harry above me. So, in general, when compounding the value of an investment, if you're seeing an annualized interest rate of 4%, and the interest compounds monthly (or n number of times per year), you're going to multiply the Principal P by the growth rate (the interest rate), adjusted for the number of periods that your investment grows in a year. P_end = P * (1 + 0.04/n)^(n * t), where n = number of periods, and t = number of years. If the interest compounds annually, you earn P *(1.04), if it compounds monthly, you earn (1 + 0.04/12)^(12 * 1). Apply this logic to discounting future cash flows to their net present value. When discounting future cash flows, you're essentially determing the opportunity cost of now being unable to put your investment elsewhere and earning that corresponding interest (discount) rate. Thus, you would discount $1000 by (1 + 0.08/12)^1, and $2000, $3000 in a similar fashion. Then, as icing on the cake, sum up to get your cumulative net present value. Please let me know if any portion of my explanation is unclear; I would be happy to elaborate!\",\n \"\\\"Re. question 2 If I buy 20 shares every year, how do I get proper IRR? ... (I would have multiple purchase dates) Use the money-weighted return calculation: http://en.wikipedia.org/wiki/Rate_of_return#Internal_rate_of_return where t is the fraction of the time period and Ct is the cash flow at that time period. For the treatment of dividends, if they are reinvested then there should not be an external cash flow for the dividend. They are included in the final value and the return is termed \\\"\\\"total return\\\"\\\". If the dividends are taken in cash, the return based on the final value is \\\"\\\"net return\\\"\\\". The money-weighted return for question 2, with reinvested dividends, can be found by solving for r, the rate for the whole 431 day period, in the NPV summation. Now annualising And in Excel\\\"\",\n \"Easier to copy paste than type this out. Credit: www.financeformulas.net Note that the present value would be the initial loan amount, which is likely the sale price you noted minus a down payment. The loan payment formula is used to calculate the payments on a loan. The formula used to calculate loan payments is exactly the same as the formula used to calculate payments on an ordinary annuity. A loan, by definition, is an annuity, in that it consists of a series of future periodic payments. The PV, or present value, portion of the loan payment formula uses the original loan amount. The original loan amount is essentially the present value of the future payments on the loan, much like the present value of an annuity. It is important to keep the rate per period and number of periods consistent with one another in the formula. If the loan payments are made monthly, then the rate per period needs to be adjusted to the monthly rate and the number of periods would be the number of months on the loan. If payments are quarterly, the terms of the loan payment formula would be adjusted accordingly. I like to let loan calculators do the heavy lifting for me. This particular calculator lets you choose a weekly pay back scheme. http://www.calculator.net/loan-calculator.html\",\n \"Here is the derivation of the formula, with The loan is equal to the sum of the repayments discounted to present value.\",\n \"**Using your Time Value of Money functions on your calculator** N = 3x2 = 6 PV = -914 PMT = (.16 x 1000)/2 = 80 FV = 1000 Compute I/Y Or **Step by step calculations** 1) Compute the PV of **(FV of Bond)**1000 in **(3x2)**6 periods at **(16%/2)**8% with no payments 2) Compute the PV of an Annuity of **(.16/2x1000)**$80 payments over **(3x2)**6 periods with an interest rate of **(16%/2)**8% and 0 Future Value 3) Combine the values from Steps 1 and 2\",\n \"TWRR = (2012Q4 x 2013Q1 x 2013Q2) ^ (1/3) = ?? (1.1 * .809 * 1.29) ^ (1/3) = 1.047 or 4.7% return. No imaginary numbers needed. But. Your second line there is wrong $15,750 - $15,000 - $4,000 ? The $15K already contains the $4k, why did you subtract it again? This a homework problem?\",\n \"This answer contains three assumptions: New Share Price: Old Share Price * 1.0125 Quarterly Dividend: (New Share Price*0.01) * # of Shares in Previous Quarter Number of Shares: Shares from Previous Quarter + Quarterly Dividend/New Share Price For example, starting from right after Quarter One: New share price: $20 * 1.0125 = 20.25 1000 shares @ $20.25 a share yields $20.25 * 0.01 * 1000 = $202.5 dividend New shares: $202.5/20.25 = 10 shares Quarter Two: New share price: $20.503 1010 shares @ 20.503 yields $20.503*0.01*1010 = $207.082 dividend New shares: $207.082/20.503 = 10.1 shares Repeat over many cycles: 8 Quarters (2 years): 1061.52 shares @ $21.548 a share 20 Quarters (5 years): 1196.15 shares @ $25.012 a share 40 Quarters (10 years): 1459.53 shares @ $32.066 a share Graphically this looks like this: It's late enough someone may want to check my math ;). But I'd also assert that a 5% growth rate and a 4% dividend rate is pretty optimistic.\",\n \"EDIT: After reading one of the comments on the original question, I realized that there is a much more intuitive way to think about this. If you look at it as a standard PV calculation and hold each of the cashflows constant. Really what's happening is that because of inflation the discount rate isn't the full value of the interest rate. Really the discount rate is only the portion of the interest rate above the inflation rate. Hence in the standard perpetuity PV equation PV = A / r r becomes the interest rate less the inflation rate which gives you PV = A / (i - g). That seems like a much better way to get to the answer than all the machinations I was originally trying. Original Answer: I think I finally figured this out. The general term for this type of system in which the payments increase over time is a gradient series annuity. In this specific example since the payment is increasing by a percentage each period (not a constant rate) this would be considered a geometric gradient series. According to this link the formula for the present value of a geometric gradient series of payments is: Where P is the present value of this series of cashflows. A_1 is the initial payment for period 1 (i.e. the amount you want to withdraw adjusted for inflation). g is the gradient or growth rate of the periodic payment (in this case this is the inflation rate) i is the interest rate n is the number of payments This is almost exactly what I was looking for in my original question. The only problem is this is for a fixed amount of time (i.e. n periods). In order to figure out the formula for a perpetuity we need to find the limit of the right side of this equation as the number of periods (n) approaches infinity. Luckily in this equation n is already well isolated to a single term: (1 + g)^n/(1 + i)^-n}. And since we know that the interest rate, i, has to be greater than the inflation rate, g, the limit of that factor is 0. So after replacing that term with 0 our equation simplifies to the following: Note: I don't do this stuff for a living and honestly don't have a fantastic finance IQ. It's been a while since I've done any calculus or even this much algebra so I may have made an error in the math.\",\n \"You're contributing 98.2% of your contributed amount (deducting 1.8%) each month and at the end of the year, deducting a flat 15 pounds. The easiest way to do this is to use a spreadsheet. But you're missing some key information. What is your expected growth rate and what is your expected inflation rate? Is this a taxable account where you deduct (for example, 35%) of the growth annually for taxes or is this a non-taxable account?\",\n \"How does compounding of annual interest work? answers this question. It's not simple compound interest. It's a time value of money calculation similar to mortgage calculations. Only the cash flow is the other way, a 'deposit' instead of 'payment'. When using a finance calculator such as the TI-BA35 (Note, it's no longer manufactured, but you can find secondhand. It was the first electronic device I ever loved. Seriously) you enter PV (present value) FV (future value) Int (the interest rate) nPer (number of periods) PMT (payment). For a mortgage, there's a PV, but FV = $0. For you, it's reversed. PMT on this model is a positive number, for you it's negative, the amount you deposit. You also need to account for the fact that a mortgage is paid on day 31, but you start deposits on Day 1. See the other answer (I linked at start) for the equations.\",\n \"The formula you're looking for is Thus, from 3% p.a. you get ca. 0.247% per month. However, as you see 0.25% is a good approximation (generally, small rates give good approximation).\",\n \"This calculation arrives at the correct answer. However, it uses the formula for an annuity due. This means the payments are made at the beginning of the month and the last month of the 10 year period has interest accrued. See the section, Calculating the Future Value of an Annuity Due. The rate is given as an effective rate. with In Excel, =FV((1+0.12)^(1/12)-1,120,3500,0,1)\",\n \"Since you have the balance at equal periods and the cash flows at the period ends, the best return calculation in this case is the true time-weighted return. See http://en.wikipedia.org/wiki/Time-weighted_return#Formulae So, notwithstanding some ambiguity about your figures, here is a calculation using the first three periods from your second table. Giving a total return over the three periods of -23.88% If the periods are months, multiply by four to annualise.\",\n \"Use TWIRR (aka TWRR). Time Weighted rate of return. It's sort of the opposite of XIRR. XIRR results change dramatically depending on the timing of the cashflows. It might be useful to also model returns that are unaffected by the timing. This is how funds report returns, and this number allows you to compare to funds and indices. During periods of steady deposits, XIRR will continually understate performance. And in retirement, when you have steady withdrawals, XIRR will overstate. TWRR is talked about here: http://www.dailyvest.com/PRR/prr_calcmethods.aspx#twrr I've made a simple spreadsheet that you can use as a starting point, if you like: http://moosiefinance.com/static/models/spreadsheets.html (top entry in the list)\",\n \"The short answer is you'd be much better off paying up front in this case. The present value of $2,500 plus 12 $500 monthly payments is $8,128 at a 12% discount rate, which is much higher then the $6,000 you could pay now. The long answer is how you get that present value. How can I use time value of money to find the present value of money if I choose to go with option A? First of all, I'd question your discount rate. A 12% discount rate means that you can safely reinvest the money that you're not spending today at a 12% annual (1% monthly) rate, which seems very high. Normally for short-term spending decisions you'd use a risk-free rate, which would be closer to 1%-2%. However, to discount at 1% monthly you'd just divide each monthly payment by 1 plus the discount rate raised to the power of the number of periods until each payment. So the total is which is $8,127.54 You could also use the NPV function in Excel. It seems like to get an accurate answer the calculation of the interest rate should take into account compounding period as well? Correct, and in the example above the compounding is assumed to be monthly since that's the periodicity of the cash flows. You could calculate it with a different compounding period but it gets much more complicated and probably wouldn't make a significant difference. The discount rate does take compounding into effect, meaning if you saved the $5,628 (the PV of $8,128 minus the $2,500 initial payment), you'd earn 1% interest on $5,628 the first month, $5,128 plus that interest the second month, etc.\",\n \"The idea is correct; the details are a little off. You need to apply it to the actual cash flow the bond would create. The best advice I can give you is to draw a time-line diagram. Then you would see that you receive £35 in 6 months, £35 in 12 months, £35 in 18 months, and £1035 in 24 months. Use the method you've presented in your question and the interest rate you've calculated, 3% per 6 months, to discount each payment the specified amount, and you're done. PS: If there were more coupons, say a 20 year quarterly bond, it would speed things up to use the Present Value of an Annuity formula to discount all the coupons in one step...\",\n \"There is one basic principle to apply here: to compare money paid at different times, all the amounts must be compounded or discounted to the same point in time. In this case, the moment of the initial $225,000 loan is convenient. At that moment, you get $225,000 You then make 30 payments on the 40% mortgage. The amount of these payments has to be calculated; they're paying off a $90,000 mortgage with 30 monthly payments at a monthly rate of 0.5% Finally, you make 30 payments of an amount X, starting one month after the 40% mortgage ends. So far we've just listed the amount and time of all the payments back and forth. A time-line type diagram is a huge help here. Finally, use compound interest and annuity formulas to bring all the payments to the starting point, using an interest rate of 1% a month! Equate money in with money out and solve for X\",\n \"Dividend reinvestment plans are a great option for some of your savings. By making small, regular investments, combined with reinvested dividends, you can accumulate a significant nest egg. Pick a medium to large cap company that looks to be around for the foreseeable future, such as JNJ, 3M, GE, or even Exxon. These companies typically raise their dividends every year or so, and this can be a significant portion of your long term gains. Plus, these programs are usually offered with miniscule fees. Also, have a go at the interest rate formulas contained in your favorite spreadsheet application. Calculate the FutureValue of a series of payments at various interest rates, to see what you can expect. While you cannot depend on earning a specific rate with a stock investment, a basic familiarity with the formula can help you determine a rate of return you should aim for.\",\n \"If it's number of years and the interest is per-annum the formula is the same as the normal one. this should work on most hand-held calculators.\",\n \"If you mean the internal rate of return, then the quarterly rate of return which would make the net present value of these cash flows to be zero is 8.0535% (found by goal seek in Excel), or an equivalent compound annual rate of 36.3186% p.a. The net present value of the cash flows is: 10,000 + 4,000/(1+r) - 2,000/(1+r)^2 - 15,125/(1+r)^3, where r is the quarterly rate. If instead you mean Modified Dietz return, then the net gain over the period is: End value - start value - net flow = 15,125 - 10,000 - (4,000 - 2,000) = 3,125 The weighted average capital invested over the period is: 1 x 10,000 + 2/3 x 4,000 - 1/3 x 2,000 = 12,000 so the Modified Dietz return is 3,125 / 12,000 = 26.0417%, or 1.260417^(1/3)-1 = 8.0201% per quarter, or an equivalent compound annual rate of 1.260417^(4/3)-1 = 36.1504%. You are using an inappropriate formula, because we know for a fact that the flows take place at the beginning/end of the period. Instead, you should be combining the returns for the quarters (which have in fact been provided in the question). To calculate this, first calculate the growth factor over each quarter, then link them geometrically to get the overall growth factor. Subtracting 1 gives you the overall return for the 3-quarter period. Then convert the result to a quarterly rate of return. Growth factor in 2012 Q4 is 11,000/10,000 = 1.1 Growth factor in 2013 Q1 is 15,750/15,000 = 1.05 Growth factor in 2013 Q2 is 15,125/13,750 = 1.1 Overall growth factor is 1.1 x 1.05 x 1.1 = 1.2705 Return for the whole period is 27.05% Quarterly rate of return is 1.2705^(1/3)-1 = 8.3074% Equivalent annual rate of return is 1.2705^(4/3)-1 = 37.6046% ========= I'd recommend you to refer to Wikipedia.\",\n \"From here The formula is M = P * ( J / (1 - (1 + J)^ -N)). M: monthly payment RESULT = 980.441... P: principal or amount of loan 63963 (71070 - 10% down * 71070) J: monthly interest; annual interest divided by 100, then divided by 12. .00275 (3.3% / 12) N: number of months of amortization, determined by length in years of loan. 72 months See this wikipedia page for the derivation of the formula\",\n \"Yes, assuming that your cash flow is constantly of size 5 and initial investment is 100, the following applies: IRR of 5% over 3 years: Value of CashFlows: 4.7619 + 4.5351 + 4.3192 = 13.6162 NPV: 100 - 13.6162 = 86.3838 Continuous compounding: 86.3838 * (1.05^3) = 100\",\n \"Let's assume you have total year income I. The inflation rate is R and the growth rate is E every year. The contributed rate deducting 1.8% will be C = 0.982. So, for your account you'll have every year Let's assume you have annual income in 1000, then for years So, you'll deposit 40 000 and got at the end 129 023.60. But be careful, economic calculation for so long period could be very incaccurate because of the variation of the inflation rate, growth rate and various risks. The spreadsheet could be very useful. More accurate formula which assume that annual deposit grows only the half of the year. Thus, the result for 40 years will be 124 576.91.\",\n \"What is the formula for calculating the total cost of a loan with extra payments towards the principal? The formula you require is the standard one for calculating the time to repay. With larger repayments the time to completely repay the loan is reduced. Where The total cost of the loan is then n * d. Explanation & Calculation The formula for a loan is derived from the sum of the cash flows discounted to present value being equal to the principal. For further info see the section here titled: Calculating the Present Value of an Ordinary Annuity The summation can be reduced to a closed form by induction: Rearranging for d and n With the OP's figures The original monthly repayment is $1,006.96 Adding $200 each month ... With the higher repayment the loan is repaid in 257.36 months instead of 360. (Of course a bank would simply take a reduced payment in month 258, but the amounts work out the same.) The saving is $51,882.37 Addendum If the repayments increase was made part-way through the term of the loan the summation and formula would be Where Then For example, if for the first ten years the payments are $1,006.96 and for the remaining time the repayments are $1,206.96 The loan is completely repaid in 302.528 months. The saving is Plotting over a range of m months:\",\n \"If annualized rate of return is what you are looking for, using a tool would make it a lot easier. In the post I've also explained how to use the spreadsheet. Hope this helps.\",\n \"I thought it was such a useful suggestion that I went ahead and created them. I'm sure you're not the only one who could derive some benefit from them, I know I will. http://www.investy.com/tools When I have some additional time, I will add the option for grace-periods, but for now I wanted to get them up so you could use the calculations as-is from the article. Enjoy. (Disclosure: I'm the founder of the site they are hosted on and I wrote the code for the calculators)\",\n \"But how do I bring the initial deposit into the equation? Basically, you can't. Unless you combine two different formulas from Math of Finance into a single expression. The single initial deposit of $1000 will compound for 20 years at 5% compounded annually. The final amount for this part of the deposit will be: V1 = 1000 x (1.05)^20 In addition the series of 20 payments will be an ordinary annuity with a regular payment of $100, with the value on the occasion of the 20th payment given by: So the final total amount in the account at the end of 20 years will be the sum of these two values...\",\n \"You probably want the Internal Rate of Return (IRR), see http://en.wikipedia.org/wiki/Internal_rate_of_return which is the compound interest rate that would produce your return. You can compute it in a spreadsheet with XIRR(), I made an example: https://spreadsheets.google.com/ccc?key=0AvuTW2HtDQfYdEsxVlM0RFdrRk1QS1hoNURxZkVFN3c&hl=en You can also use a financial calculator, or there are probably lots of web-based calculators such as the ones people have mentioned.\",\n \"Here are my re-run figures. Not counting capital gains taxes, I calculate you need to be making 1.875% per annum or 0.155% per month on your $8,000 investment to break-even on the loan. It's interesting that the return you need to gain to break-even is less than the interest you're paying, even with commission. It happens because the investment is gaining a return on an increasing amount while the load is accruing interest on a decreasing amount. Ref. r, logarithmic return\",\n \"\\\"Something I found helpful when I learned this, is to just use Excel to expand the series. So start with A1 as \\\"\\\"175\\\"\\\", then in A2 put \\\"\\\"=175+(A1*1.004308)\\\"\\\" and paste that same formula down for a few hundred rows. You'll find your answer on A216. Most non-math-centric people don't have an intuitive grasp of how exponents (aka \\\"\\\"compounding\\\"\\\"... and never mind the natural logarithms this is all derived from) behave; but you can play with the numbers \\\"\\\"unrolled\\\"\\\" in Excel to get a better idea of how they work. That formula is just applying 0.4308% interest every period (row), and adding in a fresh $175.\\\"\",\n \"R has really good package that lets you calculate the return of rebalanced portfolios. The package is called: PerformanceAnalytics (see: http://www.inside-r.org/packages/cran/PerformanceAnalytics/docs/Return.portfolio). I quickly wrote a small script for you that lets you do exactly what you want. Code: By default the portfolio is rebalanced to an equally weighted portfolio. It is also possible to rebalance your portfolio using custom weights. See the documentation on how to do this. In order for this code to work you need to have your data already in return terms. You can do this easily in Excel. Make sure your data in excel looks like this: Than export your data to a CSV file. Note: before you run the code make sure you have installed the package PerformanceAnalytics. You can do this as follows: Let me know if you have any questions regarding the above.\",\n \"These are the steps I'd follow: $200 today times (1.04)^10 = Cost in year 10. The 6 deposits of $20 will be one time value calculation with a resulting year 7 final value. You then must apply 10% for 3 years (1.1)^3 to get the 10th year result. You now have the shortfall. Divide that by the same (1.1)^3 to shift the present value to start of year 7. (this step might confuse you?) You are left with a problem needing 3 same deposits, a known rate, and desired FV. Solve from there. (Also, welcome from quant.SE. This site doesn't support LATEX, so I edited the image above.)\",\n \"The Finance functions in spreadsheet software will calculate this for you. The basic functions are for Rate, Payment, PV (present value), FV (Future value), and NPER, the number of periods. The single calculation faces a couple issues, dealing with inflation, and with a changing deposit. If you plan to save for 30 years, and today are saving $500/mo, for example, in ten years I hope the deposits have risen as well. I suggest you use a spreadsheet, a full sheet, to let you adjust for this. Last, there's a strange effect that happens. Precision without accuracy. See the results for 30-40 years of compounding today's deposit given a return of 6%, 7%, up to 10% or so. Your forecast will be as weak as the variable with the greatest range. And there's more than one, return, inflation, percent you'll increase deposits, all unknown, and really unknowable. The best advice I can offer is to save till it hurts, plan for the return to be at the lower end of the range, and every so often, re-evaluate where you stand. Better to turn 40, and see you are on track to retire early, than to plan on too high a return, and at 60 realize you missed it, badly. As far as the spreadsheet goes, this is for the Google Sheets - Type this into a cell =nper(0.01,-100,0,1000,0) It represents 1% interest per month, a payment (deposit) of $100, a starting value of $0, a goal of $1000, and interest added at month end. For whatever reason, a starting balance must be entered as a negative number, for example - =nper(0.01,-100,-500,1000,0) Will return 4.675, the number of months to get you from $500 to $1000 with a $100/mo deposit and 1%/mo return. Someone smarter than I (Chris Degnen comes to mind) can explain why the starting balance needs to be entered this way. But it does show the correct result. As confirmed by my TI BA-35 financial calculator, which doesn't need $500 to be negative.\",\n \"The MWRR that you showed in your post is calculated incorrectly. The formula that you use... ($15,750 - $15,000 - $4,000) / ($15,000 + 0.5 x $4,000) Translates into a form of the DIETZ formula of (EMV-BMV-C)/(BMV + .5 x C) The BMV is the STARTING balance. And as a matter of fact, the starting balance was NOT 15,000. It was IN FACT 11,000. See, the starting value for a month MUST BE the ending value of the prior month. So the BMV of 11,000 would give you the correct answer. Because if you added 4,000 at the start of the month (on day 1), it would have to have been ADDED to the 11,000 of the PRIOR month's ENDING value. Make sense? That would also mean that the addition of 4000 to the 11000 would imply that you started day 1 with 11,000. Make sense? Summary: When doing the calculations, you may use the ending value on the last day of the month to get your EMV. BUT YOU MAY NOT take the ending value on day 1 to get the BMV. That simply can not make sense since you already added a bunch of money during the day. Think about it. Davie\",\n \"The solution is x = 8.92. This assumes that Chuck's six years of deposits start from today, so that the first deposit accumulates 10 years of gain, i.e. 20*(1 + 0.1)^10. The second deposit gains nine years' interest: 20*(1 + 0.1)^9 and so on ... If you want to do this calculation using the formula for an annuity due, i.e. http://www.financeformulas.net/Future-Value-of-Annuity-Due.html where (formula by induction) you have to bear in mind this is for the whole time span (k = 1 to n), so for just the first six years you need to calculate for all ten years then subtract another annuity calculation for the last four years. So the full calculation is: As you can see it's not very neat, because the standard formula is for a whole time span. You could make it a little tidier by using a formula for k = m to n instead, i.e. So the calculation becomes which can be done with simple arithmetic (and doesn't actually need a solver).\",\n \"Thanks for showing me that. I can see it now. I have always used my formula, and even a senior at another company confirmed the way I calculated the returns. Luckily, I do not work with that manager, and he has his own model, and so do I. But he was pretty cool about it when I asked about his calculations.\",\n \"\\\"A real simple definition or analogy of present Value would be the \\\"\\\"Principal\\\"\\\" or \\\"\\\"Loan Amount\\\"\\\" being lent and the future value as being returning the Principal along with cost of borrowing The (1+i)^n is the interest you earn on present value The (i+i)^-n is the interest you pay on future value The first one is the FVIF or future value of a $1 The second one is the PVIF or present value of a $1 Both these interest factors assume interest is paid annually, if the interest payment is made more often within the payment year then interest factors look this way m is the frequency of interest payment, the higher this frequency the more of interest you pay or earn and you pay or earn the most interest when compounding occurs on each small fraction of time This entails here e is the Euler's e Thus the interest factors turn to this The preceeding examples only considered a single repayment at future date. Now if you were obliged to make periodic loan repayments say in amount of $1 for n number of periods. Then the present value of all such periodic payment is the \\\"\\\"Principal\\\"\\\" or amount you borrowed. This is the sum of discounted periodic payments as if we replace 1/1+i with x then this turns out to be geometric series of the form This simplifies to replacing (1/1+i) for x we get which is the present value of periodic payment in amount of $1 The future value of periodic payments in amount of $1 can be arrived at multiplying the PVIFA by (1+i)^n giving Once again the interest is compounded per annum and for intra-year compounding you would have to at first find the annual effective yield AEY to use as the effect rate is the PVIFA and FVIFA calculation for continuous compounding All the calculation discussed thus far did not take inflation into consideration, if we were to adjust the amounts for a growth of g% then the present value of a $1 would be as follow Once again you would have to use AEY if compounding frequency of interest is intra-year Now assume that each loan repayment increases or decreases by an extra amount Q per period. To find the present value of series of payments P that increase or decrease per period by an amount Q we would do the following calculations Here and All of these calculations have been available in tadXL add-in for finance and incrementally being offered as JavaScript financial functions library tadJS. Please note that the tad series of the financial functions library for various environments such as Excel, JavaScript, PHP, Ruby, Microsoft.net and others are property of the author writing this post. All of these libraries except one for Excel are available for FREE for public use. And the future value of such payments with increments may be found by multiplying the PV by (1+i)^n as follows Here\\\"\",\n \"In this case, it looks like the interest is simply the nominal daily interest rate times number of days in the period. From that you can use a spreadsheet to calculate the total payment by trial and error. With the different number of days in each period, any formula would be very complicated. In the more usual case where the interest charge for each period is the same, the formula is: m=P*r^n*(r-1)/(r^n-1) where * is multiplication ^ is exponentiation / is division (Sorry, don't know if there's a way to show formulas cleanly on here) P=original principle r=growth factor per payment period, i.e. interest rate + 100% divided by 100, e.g. 1% -> 1.01 n=number of payments Note the growth factor above is per period, so if you have monthly payments, it's the rate per month. The last payment may be different because of rounding errors, unequal number of days per period, or other technicalities. Using that formula here won't give the right answer because of the unequal periods, but it should be close. Let's see: r=0.7% times an average of 28.8 days per period gives 20.16% + 1 = 1.2016. n=5 P=500 m=500*1.2016^5*(1.2016-1)/(1.2016^5-1) =167.78 Further off than I expected, but ballpark.\",\n \"\\\"I hope I'm misunderstanding your plan... you want to invest in a way that will make SO MUCH that you pay back all of the loan payments with investment gains? Like the answer I gave on the preceding question, and like @littleadv's comment/mhoran's answers... don't do this. No good will come of it. This strategy requires higher returns, but does not necessarily give you a better return. But because you asked the question again, let me specify what you're missing... I do think that learning is a good thing. It boils down to two very significant problems that you haven't addressed: (1) Where are you getting your monthly \\\"\\\"income\\\"\\\" from? (2) Realistic vs. Daydreaming--How big do any gains have to be and does that exist in the real world in a way that you can capture? In a nutshell, if my answer to the last question showed that it's crazy to invest and pay back out of your capital and income... since you're trying to keep your capital and only pay back with monthly gains, this one will require even higher and thus more unrealistic gains. The model you're implying: If that's what you mean with this model, (which I think you do), then here are my two very key questions again: How are you getting your monthly income? Financial investments (i.e. stocks or bonds) will have two components of value. One component of value is the stream of payments, such as a monthly dividend from stocks that pay those, or the interest payment from a bond. The other is the ability to resell a security to another investor, receiving back your capital. So... you either have to find Bonds//Dividend stocks that pay >52% returns tax-free each year, and pay this loan off with the payments. (Or higher returns to cover taxes, but these kinds of investments do not exist for you.) OR you can try to invest in something, pray that it goes up ≥4.323% per month and so that you can sell it, pay back your loan payment with the proceeds, and use the capital to buy your next investment... that will go up 4.323% per month, to turn and sell it again. The pros that do model this type of speculation go into much more depth than you are capable of. They build models that incorporate probabilities for rates of return based on historical data. They have better information, and have specialized in calculating this all out. They even have access to better investment opportunities (like pre-IPO Twitter or private notes). You just won't find the opportunities to make this happen, each month, for 24 months. (Again, you won't find them. They do not exist for you in as an investor in securities) Realistic vs. Daydreaming So... clearly I hope that by now I have convinced you that these would be the required returns. They simply aren't available to you. If they were, you would still run into obstacles with converting 'book' returns into physical money that you could repay the loans with, and then continuing that growth. And while I appreciate the notion that 'if I could just make the payments each month, I'd have $10,000 after 24 months!' I guarantee you that you'll be better off finding another way to target that same investment. Along the lines of what mhoran said, if you aim for a basic 401K or other similar investment account and target it into the S&P500, you might see returns of anywhere from -25% to +25% over the next 24 months... but if things went like they tend to average for the S&P500, it's more like ~7% annually. Check out a \\\"\\\"savings target calculator\\\"\\\" like this one from Bankrate.com and put in the numbers... if you can save about $390 a month you'll be at $10K in 24 months. It's not as fun as the other, but you can actually expect to achieve that. You will not find consistent >50% returns on your money annually.\\\"\",\n \"\\\"When using Time Value of Money equations, you need to know when the flow starts. A mortgage for example, has a first payment at the end of the first time period, usually 1 month. For savings, one can start the account with a deposit of course, or start by saying \\\"\\\"I will deposit $XXX at the end of each month. The answer really depends on the exact details of the situation. In your example, I'm inclined to suggest first flow is 1 year out.\\\"\",\n \"This is more a question for /r/personalfinance, but I'll answer it anyways. Just use the RATE formula in excel. =RATE(numperiods,monthly payment,amount financed)*12 Just make sure the number of periods is in months, the payment is negative, and to multiply the whole thing by 12 to get the annual interest rate.\",\n \"I ended up writing a simulation in R. Here is my code: It produces a plot like this: This code assumes you have a lump sum and either wish to pay down a loan or invest it all immediately. Feedback welcome.\",\n \"\\\"When we talk about compounding, we usually think about interest payments. If you have a deposit in a savings account that is earning compound interest, then each time an interest payment is made to your account, your deposit gets larger, and the amount of your next interest payment is larger than the last. There are compound interest formulas that you can use to calculate your future earnings using the interest rate and the compounding interval. However, your mutual fund is not earning interest, so you have to think of it differently. When you own a stock (and your mutual fund is simply a collection of stocks), the value of the stock (hopefully) grows. Let's say, for example, that you have $1000 invested, and the value goes up 10% the first year. The total value of your investment has increased by $100, and your total investment is worth $1100. If it grows by another 10% the following year, your investment is then $1210, having gained $110. In this way, your investment grows in a similar way to compound interest. As your investment pays off, it causes the value of the investment to grow, allowing for even higher earnings in the future. So in that sense, it is compounding. However, because it is not earning a fixed, predictable amount of interest as a savings account would, you can't use the compound interest formula to calculate precisely how much you will have in the future, as there is no fixed compounding interval. If you want to use the formula to estimate how much you might have in the future, you have to make an assumption on the growth of your investment, and that growth assumption will have a time period associated with it. For example, you might assume a growth rate of 10% per year. Or you might assume a growth rate of 1% per month. This is what you could use in a compound interest formula for your mutual fund investment. By reinvesting your dividends and capital gains (and not taking them out in cash), you are maximizing your \\\"\\\"compounding\\\"\\\" by allowing those earnings to cause your investment to grow.\\\"\",\n \"The question lacks specificity, i.e. when does the initial investment occur, now or one period from now? If now then it is a perpetuity due. I will consider under 2 scenarios, A and B, relating to the size of the initial investment. A. Assuming that the initial investment (C_0) occurs now and each payment thereafter has the relationship (1+g) with this investment then the relevant base equation is that for the present value of a growing perpetuity due, expressed in terms of C_0, i.e. PVGPD= [C_0*(1+g)*(1+i)]/(i-g). Now, to suit the question asked, we can see that i=fixed rate of return (f) and g = expected inflation rate (e) such that we can rewrite the equation as PVGPD = [C_0*(1+e)*(1+i)]/(i-e]. We know that f = is a fixed nominal rate and must be adjusted for e to calculate the real rate (r) according to the equation f=(1+r)*(1+e)-1. Therefore PVGPD = [C_0*(1+e)(1+(1+r)(1+e)-1)]/((1+r)*(1+e)-1-e] Tidying up PVGPD = {C_0*(1+r)(1+e)^2}/[r(1+e)] PVGPD = [C_0*(1+r)*(1+e)]/r B. Assuming that the initial investment (X) is not equal to each subsequent perpetual payment (C_1) then the relevant base equation is that for the the initial investment plus the present value of a growing perpetuity, i.e. PVGP= X + [C_1/(i-g)] Rewriting PVGP = X + [C_1/(f-e)] Substituting PVGPD = X + {C_1/[(1+r)*(1+e)-1-e]} Tidying up PVGPD = X + C_1/[r*(1+e)]\",\n \"Its kind of a dumb question because no one believes that you can earn 8% in the short term in the market, but for arguments sake the math is painfully easy. Keep in mind I am an engineer not a finance guy. So the first payment will earn you one month at 8%, the second, two. In effect three months at 8% on 997. You can do it that way because the payments are equal: 997 * (.08 /12) *3 = earnings ~= 20 So with the second method you pay: 997 * 3 - 20 = 2971\",\n \"If I is the initial deposit, P the periodic deposit, r the rent per period, n the number of periods, and F the final value, than we can combine two formulas into one to get the following answer: F = I*(1+r)n + P*[(1+r)n-1]/r In this case, you get V = 1000*(1.05)20 + 100*[(1.05)20-1]/0.05 = 5959.89 USD. Note that the actual final value may be lower because of rounding errors.\",\n \"The best strategy? Skip the loan. Find a way to invest for a low starting amount via a retirement account (such as a 401K or IRA in the United States) or non-retirement account. Use this money to buy individual stocks or funds. Every month put money from your regular income into this investment account. Then buy more stocks or sell if the conditions change based on what the market is doing, not to meet a loan payment. This helps you because if the price fluctuates you will buy more shares if the price is down; and you will buy fewer shares when the price is up. It also allows you to skip worrying about how to repay the loan. It also means that you not have to pull more money out of savings to make the final loan payments if it doesn't make as much money as you plan. Regarding your math. This is a better understanding of the money flow than the earlier question.\",\n \"With the following variables the periodic (annual) repayment is given by The recurrence equation for the balance b at the end of month x is derived from b[x + 1] = b[x] (1 + r) - d where b[0] = s giving The interest portion of the final payment is b[n - 1] r and the total principal repaid at the end of period n - 1 is s - b[n - 1] Solving simultaneously n = 8.9998 and s = 7240 The principal repaid at the end of the first period is s - b[1] or d - r s = 479.74\",\n \"The simplest way is just to compute how much money you'd have to have invested elsewhere to provide a comparable return. For example, if you assume a safe interest rate of 2.3% per year, you would need to have about $520,000 to get $1,000/month.\",\n \"\\\"Yes if and only if you properly use P/Y and C/Y. For your familiarity, I recommend also trying it with I = 7.56% / 12, and P/Y and C/Y = 1. I like to think of P/Y and C/Y as \\\"\\\"per period\\\"\\\" and prefer to divide the interest rate by the number of periods per year, but so long as you keep everything coherent in the solver, you will get the correct answer with both approaches.\\\"\",\n \"Illustrating with a shorter example: Suppose I deposit 1,000 USD. Every year I deposit another 100 USD. I want to know how much money will be on that savings account in 4 years. The long-hand calculation is Expressed with a summation And using the formula derived from the summation (as shown by DJohnM) So for 20 years Note in year 20 (or year 4 in the shorter example) the final $100 deposit does not have any time to accrue interest before the valuation of the account.\",\n \"Happy to help. I always recommend you try and solve these types of problems by hand over financial calculators so that you can get a feel for how terms in the equation relate to one another. That's important while you're studying/learning. But for work--by all means you should use the fastest method, which is probably excel.\",\n \"Fairly straightforward to match the result from the calculator soup link. There is a formula to calculate n from the future value s (using natural logs) In Excel This was derived as shown To calculate n from the inflation-adjusted future value si requires using a solver since an algebraic formula cannot be formulated. As demonstrated Calculations done using Mathematica 7.\",\n \"I've found the systems that seem to work. Firstly, you need to find how much money is required to pay for the withdrawals after retirement, while still accruing interest. I couldn't seem to do this with an equation, but this bit of javascript worked: yearsToLast: Number of years of yearly withdrawals yearlyWithdrawal: Amount to withdraw each year interest: Decimal form of yearly compounding interest Now that we have how much is required at the beginning of the retirement, to figure out how much to add yearly to hit this mark, you'd use: amount: Previously found required amount to reach interest: Decimal form of yearly compounding interest yearsSaving: Number of years saving till amount needs to be hit I hope this helps some other poor soul, because I could find squat on how to do this. Max\",\n \"This is a present value calculation, which excel or any financial calculator can handle. N = 300 (months) %i = 5/12 or .05/12 depending on the program/calculator PMT = $5000 (the monthly payment) FV = 0 (you want to end at zero balance) This calculates a PV (present value of $855,300) Chad had it right, but used a calculator that didn't offer the PV function, so he guessed and changed numbers til the answer was clear. user379 makes a good point, but why start inflation calculations at 65, and not now? You look like you're in your 30's, so there's 30 years of inflation, and $60K/yr in today's value will need to be closer to $150K/yr, given about 30 years of 3% inflation.\",\n \"The formula you need is: M = (r * PV) / (1 - ((1+r)^(-n))) M = monthly payment ($350) r = interest per period (7.56% / 12) = 0.63% n = number of periods (36 months) PV = present value, or here, your max loan amount given M Therefore: $350 = (0.63% * PV) / (1 - ((1+0.63%)^(-36))) The denominator on the right ends up equal to ~ 0.2025 when you do the math in your calculator. Carry that over to the by multiplying both sides of the equation by 0.2025 This results in $70.82 = 0.63% * PV Divide $70.82 by 0.63% to get PV = $11,242 (roughly). Hope this helps explain it algebraically!!\",\n \"The 1.140924% is calculated by taking 13.69%/12 = 1.140924%. Dividing this number by 100 gives you the answer 1.140924 / 100 = .01140924. When dealing with decimals it's important to remember the relationship between a decimal and a percent. 1% = .01 To return .01 to a percent you must multiple that number by 100. So .01 x 100 = 1% In order to get a decimal from a percent, which is what is used in calculations, you must divide by 100. So, here if we are trying to calculate how much interest you are paying each month we can do this: 9800 * .1369 = $1341.62 (interest you will pay that year IF the principal balance never changed) 1341.62 / 12 = ~111.81 Now, month two 9578.34 * .1369 = 1311.274746 1311.274746 / 12 = 109.28 In order to get your monthly payments (which won't change) for the life of the loan, you can use this formula: Monthly payment = r(PV) / (1-(1+r)^-n) Where: r= Interest Rate (remember if calculating monthly to do .1369/12) PV= Present Value of loan n=time of loan ( in your case 36 since we are talking monthly and 12*3 = 36) from here we get: [(.1369/12)*9800]/(1-(1+.1369/12)^-36) = $333.467 when rounding is $333.47 As far as actual applied interest rate, I'm not even sure what that number is, but I would like to know once you figure out, since the interest rate you're being charged is most definitely 13.69%.\",\n \"The total number of shares on April 1st is 100 + 180 + 275 = 555. The price on April 1st is required. The current price is stated as $2, but $2 * 555 = $1110 and the current fund values is stated as $1500. Opting to take the current value as $1500, the price on April 1st can be calculated as $1500/555 = $2.7027. The amounts invested as number of shares x share price are: (Note these investment amounts do not match the example scenario's investment amounts, presumably because the example numbers are just made up.) The monthly returns can be calculated: The current values for each investor as invested amount x returns are: Checking the total:\",\n \"Securities (things you can buy on the stock market) that pay dividends usually pay every quarter (every three months), but some pay every month. (For example: PGF pays dividends each month.) IF you reinvest your dividends back into the stock then you will be compounding your return. I use the feature at Scottrade to automatically reinvest the dividend each month. Using this feature at Scottrade incurs no commission for the purchases of the stock from the dividend. (saving on commissions and fees is, likely, the most important aspect of investing). US Treasuries (usually) pay interest twice a year. There is no commission when using Treasury Direct.\",\n \"Using the following values: The formula for the future value of an annuity due is d*(((1 + i)^t - 1)/i)*(1 + i) See Calculating The Present And Future Value Of Annuities In an annuity due, a deposit is made at the beginning of a period and the interest is received at the end of the period. This is in contrast to an ordinary annuity, where a payment is made at the end of a period. The formula is derived, by induction , from the summation of the future values of every deposit. The initial value, with interest accumulated for all periods, can simply be added. So the overall formula is\",\n \"Okay, I think I managed to find the precise answer to this problem! It involves solving a non-linear exponential equation, but I also found a good approximate solution using the truncated Taylor series. See below for a spreadsheet you can use. Let's start by defining the growth factors per period, for money in the bank and money invested: Now, let S be the amount ready to be invested after n+1 periods; so the first of that money has earned interest for n periods. That is, The key step to solve the problem was to fix the total number of periods considered. So let's introduce a new variable: t = the total number of time periods elapsed So if money is ready to invest every n+1 periods, there will be t/(n+1) separate investments, and the future value of the investments will be: This formula is exact in the case of integer t and n, and a good approximation when t and n are not integers. Substituting S, we get the version of the formula which explicitly depends on n: Fortunately, only a couple of terms in FV depend on n, so we can find the derivative after some effort: Equating the derivative to zero, we can remove the denominator, and assuming t is greater than zero, we can divide by the constant ( 1-G t ): To simplify the equation, we can define some extra constants: Then, we can define a function f(n) and write the equation as: Note that α, β, γ, G, and R are all constant. From here there are two options: Use Newton's method or another numerical method for finding the positive root of f(n). This can be done in a number of software packages like MATLAB, Octave, etc, or by using a graphics calculator. Solve approximately using a truncated Taylor series polynomial. I will use this method here. The Taylor series of f(n), centred around n=0, is: Truncating the series to the first three terms, we get a quadratic polynomial (with constant coefficients): Using R, G, α, β and γ defined above, let c0, c1 and c2 be the coefficients of the truncated Taylor series for f(n): Then, n should be rounded to the nearest whole number. To be certain, check the values above and below n using the formula for FV. Using the example from the question: For example, I might put aside $100 every week to invest into a stock with an expected growth of 9% p.a., but brokerage fees are $10/trade. For how many weeks should I accumulate the $100 before investing, if I can put it in my high-interest bank account at 4% p.a. until then? Using Newton's method to find roots of f(n) above, we get n = 14.004. Using the closed-form approximate solution, we get n = 14.082. Checking this against the FV with t = 1680 (evenly divisible by each n + 1 tested): Therefore, you should wait for n = 14 periods, keeping that money in the bank, investing it together with the money in the next period (so you will make an investment every 14 + 1 = 15 weeks.) Here's one way to implement the above solution with a spreadsheet. StackExchange doesn't allow tables in their syntax at this time, so I'll show a screenshot of the formulae and columns you can copy and paste: Formulae: Copy and paste column A: Copy and paste column B: Results: Remember, n is the number of periods to accumulate money in the bank. So you will want to invest every n+1 weeks; in this case, every 15 weeks.\",\n \"This is a clear example of annuities, where you are trying to find Net Present Value (NPV). To find a quick solution you can use the excel function (=NPV). Solving it without excel is slightly more complicated. You have to use the annuities formula: (Payment/rate) * (1 - 1/(1+r)^n ) This formula can be written in many different ways, this is one of the simplest. So how do we translate that to your problem? For the first option: -5000/0.04 * (1 - 1/(1.04^2 ) = -9430.47 If you haven't made this years 5000 payment you have to subtract this years 5000, so option 1 would equal -14430,47. Option 2 is similar -2000/0.04 (1 - 1/(1.04^10 ) = -16221.79 WAIT! You also have to subtract the initial cost so option 2 is -36221.79 So in essence, option 1 is better (but you will have to buy a machine sooner or later). Part 2 (discount rate = 12%) is for you to understand the importance of high rates in long periods of time (like option 2's 10 years) EDIT: For clearer formulas. Also made a mistake calculating option 2\",\n \"What's the present value of using the payment plan? In all common sense the present value of a loan is the value that you can pay in the present to avoid taking a loan, which in this case is the lump sum payment of $2495. That rather supposes the question is a trick, providing irrelevant information about the stock market. However, if some strange interpretation is required which ignores the lump sum and wants to know how much you need in the present to pay the loan while being able to make 8% on the stock market that can be done. I will initially assume that since the lender's APR works out about 9.6% per month that the 8% from the stock market is also per month, but will also calculate for 8% annual effective and an 8% annual nominal rate. The calculation If you have $x in hand (present value) and it is exactly enough to take the loan while investing in the stock market, the value in successive months is $x plus the market return less the loan payment. In the third month the loan is paid down so the balance is zero. I.e. So the present value of using the payment plan while investing is $2569.37. You would need $2569.37 to cover the loan while investing, which is more than the $2495 lump sum payment requires. Therefore, it would be advisable to make the lump sum payment because it is less expensive: If you have $2569.37 in hand it would be best to pay the lump sum and invest the remaining $74.37 in the stock market. Otherwise you invest $2569.37 (initially), pay the loan and end up with $0 in three months. One might ask, what rate of return would the stock market need to yield to make it worth taking the loan? The APR proposed by the loan can be calculated. The present value of a loan is equal to the sum of the payments discounted to present value. I.e. with ∴ by induction So by comparing the $2495 lump sum payment with $997 over 3 x monthly instalments the interest rate implied by the loan can be found. Solving for r If you could obtain 9.64431% per month on the stock market the $x cash in hand required would be calculated by This is equal to the lump sum payment, so the calculated interest is comparable to the stock market rate of return. If you could gain more than 9.64431% per month on the stock market it would be better to invest and take the loan. Recurrence Form Solving the recurrence form shows the calculation is equivalent to the loan formula, e.g. becomes v[m + 1] = (1 + y) v[m] - p where v[0] = pv where In the final month v[final] = 0, i.e. when m = 3 Compare with the earlier loan formula: s = (d - d (1 + r)^-n) / r They are exactly equivalent, which is quite interesting, (because it wasn't immediately obvious to me that what the lender charges is the mirror opposite of what you gain by investing). The present value can be now be calculated using the formula. Still assuming the 8% stock market return is per month. If the stock market yield is 8% per annum effective rate and if it is given as a nominal annual yield, 8% compounded monthly\",\n \"Let's go ahead and walk through the other solutions while were at it! It's been a few years since finance class in college Skip #30 since it's basically the same Q EDIT: #28: did I do this right - PV(.0635, 7, -10,000) = 55,135 31 - not sure how to solve for monthly payments in excel\",\n \"( t2 / t1 ) - 1 Where t2 is the value today, t1 is the value 12 months ago. Be sure to include dividend payments, if there were any, to t2. That will give you total return over 12 months.\",\n \"\\\"I don't understand the OP's desire \\\"\\\" I'd love to have a few hundred dollars coming in each month until I really get the hang of things. \\\"\\\" When growing your wealth so that it will be large enough in retirement to throw off enough profits to live on ... you must not touch the profits generated along the way. You must reinvest them to earn even more profits. The profits you earn need not show up as 'cash'. Most investments also grow in re-sale value. This growth is called capital gains, and is just-as/more important than cash flows like interest income or dividends. When evaluating investing choices, you think of your returns as a percent of your total savings at any time. So expecting $100/month equals $1,200/year would require a $12,000 investment to earn 10%/yr. From the sounds of it the OP's principal is not near that amount, and an average 10% should not be expected by an investment with reasonable risk. I would conclude that 'There is no free lunch'. You need to continually save and add to your principal. You must invest to expect a reasonable return (less than 10%) and you must reinvest all profits (whether cash or capital gains). Or else start a business - which cannot be compared to passive investing.\\\"\",\n \"\\\"I was afraid of this. If you are using 12 P/Y and 12 C/Y, then your interest rate should not be divided by 12. Also, you should use \\\"\\\"END\\\"\\\" as this means monthly payments are made at the end of the month - a usual default.\\\"\",\n \"The author is using the simple Dietz method, (alternatively the modified Dietz), with the assumption that the net cash-flow occurs halfway through the time period. Let's say the time period is one year for illustration, so the cash-flow would be at the end of the second quarter. The money-weighted method gives a more accurate return, but has to be solved by trial-and-error or using a computer. The money-weighted return is 11.2718 % and the simple or modified Dietz return is 11.2676 %. When the sums are done backwards to check, the Dietz is half a dollar out with a final value of $11,999.50 while the money-weighted return recalculates exactly $12,000. It is worth pointing out that the return changes if the cash-flow is not in the middle of the time period. A case with the cash-flow at the end of Q3 is added to illustrate.\",\n \"\\\"The best way to do this is to use IRR. It's a complicated calculation, but will take into account multiple in/out cash flows over time along with \\\"\\\"idle periods\\\"\\\" where your money may not have been doing anything. Excel can calculate it for you using the XIRR function\\\"\",\n \"For this, the internal rate of return is preferred. In short, all cash flows need to be discounted to the present and set equal to 0 so that an implied rate of return can be calculated. You could try to work this out by hand, but it's practically hopeless because of solving for roots of the implied rate of return which are most likely complex. It's better to use a spreadsheet with this capability such as OpenOffice's Calc. The average return on equity is 9%, so anything higher than that is a rational choice. Example Using this simple tool, the formula variables can easily be input. For instance, the first year has a presumed cash inflow of $2,460 because the insurance has a 30% discount from $8,200 that is assumed to be otherwise paid, a cash inflow of $40,000 to finance the sprinklers, a cash outflow of $40,000 to fund the sprinklers, a $400 outflow for inspection, and an outflow in the amount of the first year's interest on the loan. This should be repeated for each year. They can be input undiscounted, as they are, for each year, and the calculator will do the rest.\",\n \"Set your xirr formula to a very tall column, leaving lots of empty rows for future additions. In column C, instead of hardcoding the value, use a formula that tests if it's the current bottom entry, like this: =IF(ISBLANK(A7),-C6, C6) If the next row has no date entered (yet), then this is the latest value, and make it negative. Now, to digress a bit, there are several ways to measure returns. I feel XIRR is good for individual positions, like holding a stock, maybe buying more via DRIP, etc. For the whole portfolio it stinks. XIRR is greatly affected by timing of cash flows. Steady deposits and no withdrawals dramatically skew the return lower. And the opposite is true for steady withdrawals. I prefer to use TWRR (aka TWIRR). Time Weighted Rate of Return. The word 'time' is confusing, because it's the opposite. TWRR is agnostic to timing of cashflows. I have a sample Excel spreadsheet that you're welcome to steal from: http://moosiefinance.com/static/models/spreadsheets.html (it's the top entry in the list). Some people prefer XIRR. TWRR allows an apples-to-apples comparison with indexes and funds. Imagine twin brothers. They both invest in the exact same ideas, but the amount of cash deployed into these ideas is different, solely because one brother gets his salary bonus annually, in January, and the other brother gets no bonus, but has a higher bi-weekly salary to compensate. With TWRR, their percent returns will be identical. With XIRR they will be very different. TWRR separates out investing acumen from the happenstance timing of when you get your money to deposit, and when you retire, when you choose to take withdrawals. Something to think about, if you like. You might find this website interesting, too: http://www.dailyvest.com/\",\n \"\\\"You can calculate the \\\"\\\"return on investment\\\"\\\" using libreoffice, for example. Look at the xirr function. You would have 2 columns, one a list of dates (ie the dates of the deposits or dividends or whatever that you want to track, the last entry would be today's date and the value of the investment today. The xirr function calculates the internal rate of return for you. If you add money to the account, and the current value includes the original investment and the added funds, it will be difficult to calculate the ROI. If you add money by purchasing additional shares (or redepositing dividends by buying additional shares), and you only want to track the ROI of the initial investment (ignoring future investments), you would have to calculate the current value of all of the added shares (that you don't want to include in the ROI) and subtract that value from the current total value of the account. But, if you include the dates and values of these additional share purchases in the spreadsheet, xirr will calculate the overall IRR for you.\\\"\",\n \"\\\"Total Return is the percent change in value (including andy dividends) of an instrument. The \\\"\\\"trailing 12-month\\\"\\\" means that your starting point is the value 12 months ago. So the formula is: where V is the value of the instrument on the reference date, V0 is the value of the instrument 12 months prior to the reference date, and D is the amount of dividends paid between the two dates.\\\"\",\n \"If you didn't have deposits, then the growth rate is simply ((p1/p0)^(1/t))-1, where p0 is the initial balance, p1 is the current balance, and t is the number of periods. For example, suppose you started the account with $100,000 in 2000. It's now 2015 -- 15 years later -- and the balance is $240,000. So the growth is: If you're making regular deposits, especially if you're making deposits of unequal amounts, the problem becomes much more complex. The easiest thing to do is probably to create a spreadsheet. Make a column for principle, a column for deposit amount, and a column for percent growth that period. Assuming A is principle and B is deposit, then the formula for growth C is =((A2-A1-B1)/A1-1)*100. Copy this formula down the column and Excel should automatically adjust the row numbers. Assuming you put one row for each month you can see the growth (or loss) month by month. You can get a general idea of what your overall growth rate has been by taking the average of the monthly amounts, but this would not be a truly accurate measure of your total growth because presumably (hopefully) you have more money in the later months than the earlier months. But it would be a good measure of how your investments are doing.\",\n \"Your initial investment in this case is $9 on the first morning. Every other morning you are using part of your profits to buy the new piece of jewelry, so you are actually not investing any new funds. So each day you are effectively keeping $1 of your profits and re_re-investing $9. But your initial investment of your own funds is only the first $9. In other words if you only had $9 in the bank at the start of the year you could make $365 profits during the year and finish up with $374 in the the bank at the end of the year.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["How does compounding of annual interest work? answers this question. It's not simple compound interest. It's a time value of money calculation similar to mortgage calculations. Only the cash flow is the other way, a 'deposit' instead of 'payment'. When using a finance calculator such as the TI-BA35 (Note, it's no longer manufactured, but you can find secondhand. It was the first electronic device I ever loved. Seriously) you enter PV (present value) FV (future value) Int (the interest rate) nPer (number of periods) PMT (payment). For a mortgage, there's a PV, but FV = $0. For you, it's reversed. PMT on this model is a positive number, for you it's negative, the amount you deposit. You also need to account for the fact that a mortgage is paid on day 31, but you start deposits on Day 1. See the other answer (I linked at start) for the equations.","With 10% return over three years, depositing $900 each month, in three years $34,039.30. Re. downvote. I guess this is too brief and without explanation, but I was rushing. If you want further explanation of how this is calculated check the link already posted by JoeTaxpayer, and have a look at the formula for continuously compounded return. Also, try out the numbers in the simplified example below yourself. E.g. Addendum mhoran_psprep has pointed out that I didn't read the OP's post closely enough. With rolling investments the total return will be: Where n is the month number i.e. 36, 37, etc."],"string":"[\n \"How does compounding of annual interest work? answers this question. It's not simple compound interest. It's a time value of money calculation similar to mortgage calculations. Only the cash flow is the other way, a 'deposit' instead of 'payment'. When using a finance calculator such as the TI-BA35 (Note, it's no longer manufactured, but you can find secondhand. It was the first electronic device I ever loved. Seriously) you enter PV (present value) FV (future value) Int (the interest rate) nPer (number of periods) PMT (payment). For a mortgage, there's a PV, but FV = $0. For you, it's reversed. PMT on this model is a positive number, for you it's negative, the amount you deposit. You also need to account for the fact that a mortgage is paid on day 31, but you start deposits on Day 1. See the other answer (I linked at start) for the equations.\",\n \"With 10% return over three years, depositing $900 each month, in three years $34,039.30. Re. downvote. I guess this is too brief and without explanation, but I was rushing. If you want further explanation of how this is calculated check the link already posted by JoeTaxpayer, and have a look at the formula for continuously compounded return. Also, try out the numbers in the simplified example below yourself. E.g. Addendum mhoran_psprep has pointed out that I didn't read the OP's post closely enough. With rolling investments the total return will be: Where n is the month number i.e. 36, 37, etc.\"\n]","isConversational":false}}},{"rowIdx":387,"cells":{"_id":{"kind":"string","value":"8072"},"query":{"kind":"string","value":"What does it mean “sell on ask” , “sell on bid” in stocks?"},"gt_ids":{"kind":"list like","value":["394244","169062","31465"],"string":"[\n \"394244\",\n \"169062\",\n \"31465\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1],"string":"[\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["31465","394244","503075","183419","87065","137175","284235","294522","92109","164008","472537","28604","116846","1203","169062","177926","316838","146125","175831","373862","294867","412223","580364","212685","184051","554207","557961","494727","434596","396844","251100","317365","307155","151132","353396","507357","418937","585552","43432","502607","179258","208070","497335","298551","538743","122323","525603","280172","65401","413041","459052","304399","310636","276381","19196","317148","480964","503912","331714","400614","416307","281844","584350","387147","579244","286698","331521","513734","560558","49782","581579","402482","118389","27401","322798","130303","136822","303448","151391","568200","274835","565568","525231","127452","382339","253866","365331","203573","52734","95010","89460","318185","251596","31933","438974","402593","239502","538915","460014","349147"],"string":"[\n \"31465\",\n \"394244\",\n \"503075\",\n \"183419\",\n \"87065\",\n \"137175\",\n \"284235\",\n \"294522\",\n \"92109\",\n \"164008\",\n \"472537\",\n \"28604\",\n \"116846\",\n \"1203\",\n \"169062\",\n \"177926\",\n \"316838\",\n \"146125\",\n \"175831\",\n \"373862\",\n \"294867\",\n \"412223\",\n \"580364\",\n \"212685\",\n \"184051\",\n \"554207\",\n \"557961\",\n \"494727\",\n \"434596\",\n \"396844\",\n \"251100\",\n \"317365\",\n \"307155\",\n \"151132\",\n \"353396\",\n \"507357\",\n \"418937\",\n \"585552\",\n \"43432\",\n \"502607\",\n \"179258\",\n \"208070\",\n \"497335\",\n \"298551\",\n \"538743\",\n \"122323\",\n \"525603\",\n \"280172\",\n \"65401\",\n \"413041\",\n \"459052\",\n \"304399\",\n \"310636\",\n \"276381\",\n \"19196\",\n \"317148\",\n \"480964\",\n \"503912\",\n \"331714\",\n \"400614\",\n \"416307\",\n \"281844\",\n \"584350\",\n \"387147\",\n \"579244\",\n \"286698\",\n \"331521\",\n \"513734\",\n \"560558\",\n \"49782\",\n \"581579\",\n \"402482\",\n \"118389\",\n \"27401\",\n \"322798\",\n \"130303\",\n \"136822\",\n \"303448\",\n \"151391\",\n \"568200\",\n \"274835\",\n \"565568\",\n \"525231\",\n \"127452\",\n \"382339\",\n \"253866\",\n \"365331\",\n \"203573\",\n \"52734\",\n \"95010\",\n \"89460\",\n \"318185\",\n \"251596\",\n \"31933\",\n \"438974\",\n \"402593\",\n \"239502\",\n \"538915\",\n \"460014\",\n \"349147\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"Honestly, I wonder if the other answerers aren't overthinking it. Their answers are detailed and correct, but what your coach may be saying is this: When you have bought a stock, on cash or margin, and you are watching it rise you are evaluating when you sell on the price of the stock you are seeing. In reality, you should look at the bid (price buyers will give you for the stock) and ask (price sellers will charge you for the stock) prices. If the stock is going up, odds are the price of the stock is very close to the ask price because it is purchases that are driving it up, but that's not what you're going to get when you sell. You're going to get something around the bid price. If the spread between the two is large (i.e. a volatile stock) this could be many cents or more lower than the ask price. Therefore, what your coach may mean by \"\"Selling on Ask\"\" is you're using the stock price when it's equal or close to the ask price to decide when to sell, instead of letting the stock peak and drop (when its price will approach the bid price) or letting the trailing bid offers catch up to your desired sell point and selling then (i.e. letting the stock point grow PAST your sell point, dragging the bid price up with it). Just a thought, but that sounds like a term a coach would come up with to mean selling and getting less than you thought you were going to from the sale. (I know it's a necro reply, but the Interwebs are immortal and people come via Google... I did)\"","Bid and ask prices are the reigning highest buy price and lowest sell price in the market which doesn't mean one must only buy/sell at thise prices. That said one can buy/sell at whatever price they so wish although doing it at any other price than the bid/ask is usually harder as other market participants will gravitate to the reigning bid/ask price. So in theory you can buy at ask and sell at bid, whether or not your order will be filled is another matter altogether.","To add to @Victor 's answer; if you are entering a market order, and not a limit order (where you set the price you want to buy or sell at), then the Ask price is what you can expect to pay to purchase shares of stock in a long position and the Bid price is what you can expect to receive when you sell stock you own in a long position.","\"Both prices are quotes on a single share of stock. The bid price is what buyers are willing to pay for it. The ask price is what sellers are willing to take for it. If you are selling a stock, you are going to get the bid price, if you are buying a stock you are going to get the ask price. The difference (or \"\"spread\"\") goes to the broker/specialist that handles the transaction.\"","The Bid price is simply the highest buy price currently being offered and the Ask price simply the lowest sell price being offered. The list of Bid and Ask prices is called the market depth. When the Bid and Ask prices match then a sale goes through. When looking to sell you would generally look at both the Bid and Ask prices. As a seller you want to be matched with the Bid price to get a sale, but you also need to check the current list of Ask prices. If the price you want to sell at is too high you will be placed down the Ask price list, and unless the price moves up to match your sell price you will not end up selling. On the other-hand, if your price to sell is too low and in fact much lower than the current lowest sell price you may get a quick sale but maybe at a lower price than you could have gotten. Similarly, when looking to buy, you would generally also look at both the Bid and Ask prices. As a buyer you want to be matched with the Ask price to get a sale, but you also need to check the current list of Bid prices. If the price you want to buy at is too low you will be placed down the Bid price list, and unless the price moves down to match your buy price you will no end up buying. On the other-hand, if your price to buy is too high and in fact much higher than the current highest buy price you may get a quick purchase but maybe at a higher price than you could have gotten. So, whether buying or selling, it is important to look at and consider both the Bid and Ask prices in the market depth.","If you are buying your order will be placed in Bid list. If you are selling your order will be placed in the Ask list. The highest Bid price will be placed at the top of the Bid list and the lowest Ask price will be placed at the top of the Ask list. When a Bid and Ask price are matched a transaction will take place and it will the last traded price. If you are looking to buy at a lower price, say $155.01, your Bid price will be placed 3rd in the Bid list, and unless the Ask prices fall to that level, your order will remain in the list until it trades, it expires or you cancel it. If prices don't fall to you Bid price you will not get a trade. If you wanted your trade to go through you could either place a limit buy order closer to the lowest Ask price (however this is still not a certainty), or to be certain place a market buy order which will trade at the lowest Ask price.","\"EVERYONE buys at the ask price and sells at the bid price (no matter who you are). There are a few important things you need to understand. Example: EVE bid: 16.00 EVE ask: 16.25 So if your selling EVE at \"\"market price\"\" you are entering an ask equal to the highest bid ($16.00). If you buy EVE at \"\"market price\"\" you are entering a bid equal to the lowest ask price ($16.25). Its key to understand this rule: \"\"An order executes ONLY when both bid and ask meet. (bid = ask).\"\" So a market maker puts in a bid when he wants to buy but the trade only executes when an ASK price meets his BID price. When you see a quote for a stock it is the price of the last trade. So it is possible to have a quote higher or lower then both the bid and the ask.\"","It this a real situation or is it a made up example? Because for a stock that has a last traded priced of $5 or $6 and volume traded over $4M (i.e. it seems to be quite liquid), it is hardly likely that the difference from bid to ask would be as large as $1 (maybe for a stock that has volume of 4 to 5 thousand, but not for one having volume of 4 to 5 million). In regards to your question, if you were short selling the order would go in exactly the same as if you were selling a stock you owned. So your order would be on the ask side and would need to be matched up with a price on the bid side for there to be a trade.","When a stock is ask for 15.2 and bid for 14.5, and the last market price was 14.5, what does it mean? It means that the seller wants to sell for a higher price than the last sale while the buyer does not want to buy for more than the last sale price. Or what if the last price is 15.2? The seller is offering to sell for the last sale price, but the buyer wants to buy for less.","The everyday investor buys at the ask and sells at the bid but the market maker does the opposite This is misleading; it has nothing to do with being either an investor or a market maker. It is dependent on the type of order that is submitted. When a market trades at the ask, this means that a buy market order has interacted with a sell limit order at the limit price. When a market trades at the bid, this means that a sell market order has interacted with a buy limit order at the limit price. An ordinary investor can do exactly the same as a market maker and submit limit orders. Furthermore, they can sit on both sides of the bid and ask exactly as a market maker does. In the days before high frequency trading this was quite common (an example being Daytek, whose traders were notorious for stepping in front of the designated market maker's bid/ask on the Island ECN). An order executes ONLY when both bid and ask meet. (bid = ask) This is completely incorrect. A transaction occurs when an active (marketable) order is matched with a passive (limit book) order. If the passive order is a sell limit then the trade has occurred at the ask, and if it is a buy limit the trade has occurred at the bid. The active orders are not bids and asks. The only exception to this would be if the bid and ask have become crossed. When a seller steps in, he does so with an ask that's lower than the stock's current ask Almost correct; he does so with an order that's lower than the stock's current ask. If it's a marketable order it will fill the front queued best bid, and if it's a limit order his becomes the new ask price. A trade does not need to occur at this price for it to become the ask. This is wrong, market makers are the opposite party to you so the prices are the other way around for them. This is wrong. There is no distinction between the market maker and yourself or any other member of the public (beside the fact that designated market makers on some exchanges are obliged to post both a bid and ask at all times). You can open an account with any broker and do exactly the same as a market maker does (although with nothing like the speed that a high frequency market-making firm can, hence likely making you uncompetitive in this arena). The prices a market maker sees and the types of orders that they are able to use to realize them are exactly the same as for any other trader.","The price of a share has two components: Bid: The highest price that someone who wants to buy shares is willing to pay for them. Ask: The lowest price that someone who has a share is willing to sell it for. The ask is always higher than the bid, since if they were equal the buyer and seller would have a deal, make a transaction, and that repeats until they are not equal. For stock with high volume, there is usually a very small difference between the bid and ask, but a stock with lower volume could have a major difference. When you say that the share price is $100, that could mean different things. You could be talking about the price that the shares sold for in the most recent transaction (and that might not even be between the current bid and ask), or you could be talking about any of the bid, the ask, or some value in between them. If you have shares that you are interested in selling, then the bid is what you could immediately sell a share for. If you sell a share for $100, that means someone was willing to pay you $100 for it. If after buying it, they still want to buy more for $100 each, or someone else does, then the bid is still $100, and you haven't changed the price. If no one else is willing to pay more than $90 for a share, then the price would drop to $90 next time a transaction takes place and thats what you would be able to immediately sell the next share for.","\"The current stock price you're referring to is actually the price of the last trade. It is a historical price – but during market hours, that's usually mere seconds ago for very liquid stocks. Whereas, the bid and ask are the best potential prices that buyers and sellers are willing to transact at: the bid for the buying side, and the ask for the selling side. But, think of the bid and ask prices you see as \"\"tip of the iceberg\"\" prices. That is: The \"\"Bid: 13.20 x200\"\" is an indication that there are potential buyers bidding $13.20 for up to 200 shares. Their bids are the highest currently bid; and there are others in line behind with lower bid prices. So the \"\"bid\"\" you're seeing is actually the best bid price at that moment. If you entered a \"\"market\"\" order to sell more than 200 shares, part of your order would likely be filled at a lower price. The \"\"Ask: 13.27 x1,000\"\" is an indication that there are potential sellers asking $13.27 for up to 1000 shares. Their ask prices are the lowest currently asked; and there are others in line behind with higher ask prices. So the \"\"ask\"\" you're seeing is the best asking price at that moment. If you entered a \"\"market\"\" order to buy more than 1000 shares, part of your order would likely be filled at a higher price. A transaction takes place when either a potential buyer is willing to pay the asking price, or a potential seller is willing to accept the bid price, or else they meet in the middle if both buyers and sellers change their orders. Note: There are primarily two kinds of stock exchanges. The one I just described is a typical order-driven matched bargain market, and perhaps the kind you're referring to. The other kind is a quote-driven over-the-counter market where there is a market-maker, as JohnFx already mentioned. In those cases, the spread between the bid & ask goes to the market maker as compensation for making a market in a stock. For a liquid stock that is easy for the market maker to turn around and buy/sell to somebody else, the spread is small (narrow). For illiquid stocks that are harder to deal in, the spread is larger (wide) to compensate the market-maker having to potentially carry the stock in inventory for some period of time, during which there's a risk to him if it moves in the wrong direction. Finally ... if you wanted to buy 1000 shares, you could enter a market order, in which case as described above you'll pay $13.27. If you wanted to buy your shares at no more than $13.22 instead, i.e. the so-called \"\"current\"\" price, then you would enter a limit order for 1000 shares at $13.22. And more to the point, your order would become the new highest-bid price (until somebody else accepts your bid for their shares.) Of course, there's no guarantee that with a limit order that you will get filled; your order could expire at the end of the day if nobody accepts your bid.\"","\"When people talk about \"\"the price\"\" of a stock, they usually mean one of the following: Last price: The price at which a trade most recently took place. If someone sold (and someone else bought) shares of XYZ for $20 each, then until another trade occurs, the last price of the stock will be quoted at $20. Bid price: The highest price at which someone is currently offering to buy the stock. Ask price: The lowest price at which someone is currently offering to sell the stock. As you can see, all of these are completely determined by the people buying and selling the stock.\"","When you want to short a stock, you are trying to sell shares (that you are borrowing from your broker), therefore you need buyers for the shares you are selling. The ask prices represent people who are trying to sell shares, and the bid prices represent people who are trying to buy shares. Using your example, you could put in a limit order to short (sell) 1000 shares at $3.01, meaning that your order would become the ask price at $3.01. There is an ask price ahead of you for 500 shares at $3.00. So people would have to buy those 500 shares at $3.00 before anyone could buy your 1000 shares at $3.01. But it's possible that your order to sell 1000 shares at $3.01 never gets filled, if the buyers don't buy all the shares ahead of you. The price could drop to $1.00 without hitting $3.01 and you will have missed out on the trade. If you really wanted to short 1000 shares, you could use a market order. Let's say there's a bid for 750 shares at $2.50, and another bid for 250 shares at $2.49. If you entered a market order to sell 1000 shares, your order would get filled at the best bid prices, so first you would sell 750 shares at $2.50 and then you would sell 250 shares at $2.49. I was just using your example to explain things. In reality there won't be such a wide spread between the bid and ask prices. A stock might have a bid price of $10.50 and an ask price of $10.51, so there would only be a 1 cent difference between putting in a limit order to sell 1000 shares at $10.51 and just using a market order to sell 1000 shares and getting them filled at $10.50. Also, your example probably wouldn't work in real life, because brokers typically don't allow people to short stocks that are trading under $5 per share. As for your question about how often you are unable to make a short sale, it can sometimes happen with stocks that are heavily shorted and your broker may not be able to find any more shares to borrow. Also remember that you can only short stocks with a margin account, you cannot short stocks with a cash account.","\"It's good to ask this question, because this is one of the fundamental dichotomies in market microstructure. At any time T for each product on a (typical) exchange there are two well-defined prices: At time T there is literally no person in the market who wants to sell below the ask, so all the people who are waiting to buy at the bid (or below) could very well be waiting there forever. There's simply no guarantee that any seller will ever want to part with their product for a lesser price than they think it's worth. So if you want to buy the product at time T you have a tough choice to make: you get in line at the bid price, where there's no guarantee that your request will ever be filled, and you might never get your hands on the product you decide that owning the product right now is more valuable to you than (ask - bid) * quantity, so you tell the exchange that you're willing to buy at the ask price, and the exchange matches you with whichever seller is first in line Now, if you're in the market for the long term, the above choice is completely immaterial to you. Who cares if you pay $10.00 * 1000 shares or $10.01 * 1000 shares when you plan to sell 30 years from now at $200 (or $200.01)? But if you're a day trader or anyone else with a very short time horizon, then this choice is extremely important: if the price is about to go up several cents and you got in line at the bid (and never got filled) then you missed out on some profit if you \"\"cross the spread\"\" to buy at the ask and then the price doesn't go up (or worse, goes down), you're screwed. In order to get out of the position you'll have to cross the spread again and sell at at most the bid, meaning you've now paid the spread twice (plus transaction fees and regulatory fees) for nothing. (All of the above also applies in reverse for selling at the ask versus selling at the bid, but most people like to learn in terms of buying rather than selling.)\"","In the stock market many participants enter orders that are not necessarily set at the current market price of the stock (i.e. they are not market orders, they are limit orders). They can be lower than the market price (if they want to buy) or they can be higher than the market price (if they want to sell). The set of orders at each point of time for a security is called the order book. The lowest selling price of the order book is the offer or ask, the higher buying price is the bid. The more liquid is a security, the more orders will be in the order book, and the narrower will be the bid-ask spread. The depth of the order book is the number of units that the order book can absorb in any direction (buy or sell). As an example: imagine I want to buy 100 units at the lowest offer, but the size of the lowest offer is only 50 units, and there is not any further order, that means the stock has little depth.","\"The answer posted by Kirill Fuchs is incorrect according to my series 65 text book and practice question answers. The everyday investor buys at the ask and sells at the bid but the market maker does the opposite. THE MARKET MAKER \"\"BUYS AT THE BID AND SELLS AT THE ASK\"\", he makes a profit form the spread. I have posted a quiz question and the answer created by the Financial Industry Regulatory Authority (FINRA). To fill a customer buy order for 800 WXYZ shares, your firm requests a quote from a market maker. The response is \"\"bid 15, ask 15.25.\"\" If the order is placed, the market maker must sell: A) 800 shares at $15.25 per share. B) 800 shares at $15 per share. C) 100 shares at $15.25 per share. D) 800 shares at no more than $15 per share. Your answer, sell 800 shares at $15.25 per share., was correct!. A market maker is responsible for honoring a firm quote. If no size is requested by the inquiring trader, a quote is firm for 100 shares. In this example, the trader requested an 800-share quote, so the market maker is responsible for selling 8 round lots of 100 shares at the ask price of $15.25 per share.\"","The best ask is the lowest ask, and the best bid is the highest bid. If the ask was lower than the bid then they crossed, and that would be a crossed market and quickly resolved. So the bid will almost always be cheaper than the ask. A heuristic is that a bid is the revenue of the stock at any given time while the ask is the cost, so the market will only ever offer a profit to itself not to the liquidity seeker. If examining the book vertically, all orders are usually sorted descending. Since the best ask is the lowest ask, it is on the bottom of the asks, and vice versa for the best bid. The best bid & best ask will be those closest since that's the narrowest spread and price-time priority will promise that a bid that crosses the asks will hit the lowest ask, the best possible price for the bidder and vice versa for an ask that crosses the best bid.","yes you are right as per my understanding while doing trade you must consider fol (specially for starters like me) The volume of the stock you are trading in should be high enough to keep you secure for quick in and out Whenever the bid volume is more than the ask volume the prices will move up and vice versa. to give an example if a stock is at 100 points and there are fol bids: The transaction will occur when either the bidder agrees to pay the ask price (case 1. he pays 101 . his bid offer will disappear and the next best ask will be 102. and the current price will be 101 which was the last transaction.) or when the person giving ask price agrees to deal at best bid which was 99 in which case the share will go down.","Sounds to me like you're describing just how it should work. Ask is at 30, Bid is at 20; you offer a new bid at 25. Either: Depending on liquidity, one or the other may be more likely. This Investorplace article on the subject describes what you're seeing, and recommends the strategy you're describing precisely. Instead of a market order, take advantage of the fact that the options world truly is a marketplace — one where you can possibly get a better price just by asking. How does that work? If you use a limit order (instead of a market order) when opening a position, you can tell your broker how much you are willing to pay to enter a trade. For example, if you enter a limit price of $1.15, you can see whether the market-maker will bite. You will be surprised at how many times you will get your price (i.e., $1.15) instead of the ask price of $1.30. If your order at $1.15 is not filled after a few minutes, you can modify your order and pay the ask price by entering a market order or limit order at the ask price (that is, you can tell your broker to pay no more than $1.30).","You don't see Buying and Selling. You see Bid and Ask. Best Bid--Highest Price someone is willing to pay to buy a stock. Best Ask - Lowest price someone is willing to accept to sell a stock. As for your second question, if you can look up Accumulation/Distribution Algorithm and Iceberg Order, you will get basic idea.","A bid is an offer to buy something on an order book, so for example you may post an offer to buy one share, at $5. An ask is an offer to sell something on an order book, at a set price. For example you may post an offer to sell shares at $6. A trade happens when there are bids/asks that overlap each other, or are at the same price, so there is always a spread of at least one of the smallest currency unit the exchange allows. Betting that the price of an asset will go down, traditionally by borrowing some of that asset and then selling it, hoping to buy it back at a lower price and pocket the difference (minus interest). So, let's say as per your example you borrow 100 shares of company 'X', expecting the price of them to go down. You take your shares to the market and sell them - you make a market sell order (a market 'ask'). This matches against a bid and you receive a price of $5 per share. Now, let's pretend that you change your mind and you think the price is going to go up, you instantly regret your decision. In order to pay back the shares, you now need to buy back your shares as $6 - which is the price off the ask offers on the order book. Because of this spread, you have lost money. You sold at a low price and bought at a high price, meaning it costs you more money to repay your borrowed shares. So, when you are shorting you need the spread to be as tight as possible.","\"This is a misconception. One of the explanations is that if you buy at the ask price and want to sell it right away, you can only sell at the bid price. This is incorrect. There are no two separate bid and ask prices. The price you buy (your \"\"bid\"\") is the same price someone else sells (their \"\"sell\"\"). The same goes when you sell - the price you sell at is the price someone else buys. There's no spread with stocks. Emphasized it on purpose, because many people (especially those who gamble on stock exchange without knowing what they're doing) don't understand how the stock market works. On the stock exchange, the transaction price is the match between the bid price and the ask price. Thus, on any given transaction, bid always equals ask. There's no spread. There is spread with commodities (if you buy it directly, especially), contracts, mutual funds and other kinds of brokered transactions that go through a third party. The difference (spread) is that third party's fee for assuming part of the risk in the transaction, and is indeed added to your cost (indirectly, in the way you described). These transactions don't go directly between a seller and a buyer. For example, there's no buyer when you redeem some of your mutual fund - the fund pays you money. So the fund assumes certain risk, which is why there's a spread in the prices to invest and to redeem. Similarly with commodities: when you buy a gold bar - you buy it from a dealer, who needs to keep a stock. Thus, the dealer will not buy from you at the same price: there's a premium on sale and a discount on buy, which is a spread, to compensate the dealer for the risk of keeping a stock.\"","At any point of time, buyer wants to purchase a stock at lesser price and seller wants to sell the stock at a higher price. Let's consider this scenario Company XYZ is trading at 100$, as stated above buyer wants to purchase at lower price and seller at higher price, this information will be available in Market depth, let's consider there are 5 buyers and 5 sellers, below are the details of their orders Buyers List Sellers List Highest order in buyers list will contain the bid price and bid quantity, Lowest order in Sellers list will contain the offer price and offer quantity. Now, if I want to buy 50 Stocks of company XYZ, need to place an order first, it can be either limit or Market. Limit Order : In this order, I will mention the price(buy price) at which I wish to buy, if there is any seller selling the stock less than or equal to price I have mentioned, then the order will be executed else it will be added to buyers list Market Order : In this order, I will not mention the price, if I wish to purchase 50 Stocks, then it will find the lowest offer price and buy stocks, in our case it will be 101. if I wish to purchase 200 Stocks, then it will find the lowest offer price and buy stocks, in our case it will be 2 transactions, since entire request cannot be accommodated in single order Usually the volume(Ask Volume and Offer Volume) being displayed are all Limit orders and not Market orders, Market orders are executed immediately. This is just an example, However several transactions are executed within a second, hence we will get to know the exact value only after the order is completed(executed)","The point is that the bid and ask prices dictate what you can buy and sell at (at market, at least), and the difference between the two, or spread, contributes implicitly to your gains or losses. For example, say your $1 stock actually had a bid of $0.90 and an ask of $1.10; i.e. say that $1 was the last price. You would have to buy the stock at the ask price of $1.10, but now you can only sell that stock at the bid price of $0.90. Thus, you would need to make at least that $0.20 spread before you can make a profit.","When there is a difference between the two ... no trading occurs. Let's look at an example: Investor A, B, C, and D all buy/sell shares of company X. Investor A wants to sell 10 shares at $20 a share (Ask price $20 x10). Investor B wants to buy 15 shares at $10 a share (Bid price $10 x15). Since the bid price and ask price are different, no sale is made. Next Investor C comes along and wants to sell 5 shares at $14 (Ask price $14 x5). Still no sale. Investor D comes along and wants to buy 5 shares for $14 each. So a sale is finally made. At this point, the stock quote moves to $14. The ask price is $20 x10 and the bid price is $10 x15. No further trading will occur until another investor is willing to buy at $20 or sell at $10. Another discussion of this topic is shown on this post.","\"Firstly, if a stock costs $50 this second, the bid/ask would have to be 49/50. If the bid/ask were 49/51, the stock would cost $51 this second. What you're likely referring to is the last trade, not the cost. The last trading price is history and doesn't apply to future transactions. To make it simple, let's define a simple order book. Say there is a bid to buy 100 at $49, 200 at $48, 500 at $47. If you place a market order to sell 100 shares, it should all get filled at $49. If you had placed a market order to sell 200 shares instead, half should get filled at $49 and half at $48. This is, of course, assuming no one else places an order before you get yours submitted. If someone beats you to the 100 share lot, then your order could get filled at lower than what you thought you'd get. If your internet connection is slow or there is a lot of latency in the data from the exchange, then things like this could happen. Also, there are many ECNs in addition to the exchanges which may have different order books. There are also trades which, for some reason, get delayed and show up later in the \"\"time and sales\"\" window. But to answer the question of why someone would want to sell low... the only reason I could think is they desire to drive the price down.\"","\"Re: A trader when buying needs to buy at the ask price and when selling needs to sell at the bid price. So how can a trade happen 'in between' the bid and ask? Saying the trade can happen \"\"in between\"\" the bid & ask is simplistic. There is a time dimension to the market. It's more accurate to say that an order can be placed \"\"in between\"\" the current best bid & ask (observed at time T=0), thus establishing a new level for one or the other of those quoted prices (observed at time T>0). If you enter a market order to buy (or sell), then yes, you'll generally be accepting the current best ask (or best bid) with your order, because that's what a market order says to do: Accept the current best market price being offered for your kind of transaction. Of course, prices may move much faster than your observation of the price and the time it takes to process your order – you're far from being the only participant. Market orders aside, you are free to name your own price above or below the current best bid & ask, respectively. ... then one could say that you are placing an order \"\"in between\"\" the bid and ask at the time your order is placed. However – and this is key – you are also moving one or the other of those quoted prices in the process of placing your above-bid buy order or your below-ask sell order. Then, only if somebody else in the market chooses to accept your new ask (or bid) does your intended transaction take place. And that transaction takes place at the new ask (or bid) price, not the old one that was current when you entered your order. Read more about bid & ask prices at this other question: (p.s. FWIW, I don't necessarily agree with the assertion from the article you quoted, i.e.: \"\"By looking for trades that take place in between the bid and ask, you can tell when a strong trend is about to come to an end.\"\" I would say: Maybe, perhaps, but maybe not.)\"","In general stock markets are very similar to that, however, you can also put in limit orders to say that you will only buy or sell at a given price. These sit in the market for a specified length of time and will be executed when an order arrives that matches the price (or better). Traders who set limit orders are called liquidity (or price) makers as they provide liquidity (i.e. volume to be traded) to be filled later. If there is no counterparty (i.e. buyer to your seller) in the market, a market maker; a large bank or brokerage who is licensed and regulated to do so, will fill your order at some price. That price is based on how much volume (i.e. trading) there is in that stock on average. This is called average daily volume (ADV) and is calculated over varying periods of time; we use ADV30 which is the 30 day average. You can always sell stocks for whatever price you like privately but a market order does not allow you to set your price (you are a price taker) therefore that kind of order will always fill at a market price. As mentioned above limit orders will not fill until the price is hit but will stay on book as long as they aren't filled, expired or cancelled.","It depends on the sequence in which the order [bid and ask] were placed. Please read the below question to understand how the order are matched. How do exchanges match limit orders?","In order to see whether you can buy or sell some given quantity of a stock at the current bid price, you need a counterparty (a buyer) who is willing to buy the number of stocks you are wishing to offload. To see whether such a counterparty exists, you can look at the stock's order book, or level two feed. The order book shows all the people who have placed buy or sell orders, the price they are willing to pay, and the quantity they demand at that price. Here is the order book from earlier this morning for the British pharmaceutical company, GlaxoSmithKline PLC. Let's start by looking at the left-hand blue part of the book, beneath the yellow strip. This is called the Buy side. The book is sorted with the highest price at the top, because this is the best price that a seller can presently obtain. If several buyers bid at the same price, then the oldest entry on the book takes precedence. You can see we have five buyers each willing to pay 1543.0 p (that's 1543 British pence, or £15.43) per share. Therefore the current bid price for this instrument is 1543.0. The first buyer wants 175 shares, the next, 300, and so on. The total volume that is demanded at 1543.0p is 2435 shares. This information is summarized on the yellow strip: 5 buyers, total volume of 2435, at 1543.0. These are all buyers who want to buy right now and the exchange will make the trade happen immediately if you put in a sell order for 1543.0 p or less. If you want to sell 2435 shares or fewer, you are good to go. The important thing to note is that once you sell these bidders a total of 2435 shares, then their orders are fulfilled and they will be removed from the order book. At this point, the next bidder is promoted up the book; but his price is 1542.5, 0.5 p lower than before. Absent any further changes to the order book, the bid price will decrease to 1542.5 p. This makes sense because you are selling a lot of shares so you'd expect the market price to be depressed. This information will be disseminated to the level one feed and the level one graph of the stock price will be updated. Thus if you have more than 2435 shares to sell, you cannot expect to execute your order at the bid price in one go. Of course, the more shares you are trying to get rid of, the further down the buy side you will have to go. In reality for a highly liquid stock as this, the order book receives many amendments per second and it is unlikely that your trade would make much difference. On the right hand side of the display you can see the recent trades: these are the times the trades were done (or notified to the exchange), the price of the trade, the volume and the trade type (AT means automatic trade). GlaxoSmithKline is a highly liquid stock with many willing buyers and sellers. But some stocks are less liquid. In order to enable traders to find a counterparty at short notice, exchanges often require less liquid stocks to have market makers. A market maker places buy and sell orders simultaneously, with a spread between the two prices so that they can profit from each transaction. For instance Diurnal Group PLC has had no trades today and no quotes. It has a more complicated order book, enabling both ordinary buyers and sellers to list if they wish, but market makers are separated out at the top. Here you can see that three market makers are providing liquidity on this stock, Peel Hunt (PEEL), Numis (NUMS) and Winterflood (WINS). They have a very unpalatable spread of over 5% between their bid and offer prices. Further in each case the sum total that they are willing to trade is 3000 shares. If you have more than three thousand Dirunal Group shares to sell, you would have to wait for the market makers to come back with a new quote after you'd sold the first 3000.","\"Most of the time* you're selling to other investors, not back to the company. The stock market is a collection of bid (buy offers) and asks (sell offers). When you sell your stock as a retail investor at the \"\"market\"\" price you're essentially just meeting whatever standing bid offers are on the market. For very liquid stocks (e.g. Apple), you can pretty much always get the displayed price because so many stocks are being traded. However during periods of very high volatility or for low-volume stocks, the quoted price may not be indicative of what you actually pay. As an example, let's say you have 5 stocks you're trying to sell and the bid-side order book is 2 stocks for $105, 2 for $100, and 5 for $95. In this scenario the quoted price will be $105 (the best bid price), but if you accept market price you'll settle 2 for 105, 2 for 100, and 1 for 95. After your sell order goes through, the new quoted price will be $95. For high volume stocks, there will usually be so many orders near the midpoint price ($105, in this case) that you won't see any price slippage for small orders. You can also post limit orders, which are essentially open orders waiting to be filled like in the above example. They ensure you get the price you want, but you have no way to guarantee they'll be filled or not. Edit: as a cool example, check out the bitcoin GDAX on coinbase for a live example of what the order book looks like for stocks. You'll see that the price of bitcoin will drift towards whichever direction has the less dense order book (e.g. price drifts upwards when there are far more bids than asks.)\"","This is copying my own answer to another question, but this is definitely relevant for you: A bid is an offer to buy something on an order book, so for example you may post an offer to buy one share, at $5. An ask is an offer to sell something on an order book, at a set price. For example you may post an offer to sell shares at $6. A trade happens when there are bids/asks that overlap each other, or are at the same price, so there is always a spread of at least one of the smallest currency unit the exchange allows. Betting that the price of an asset will go down, traditionally by borrowing some of that asset and then selling it, hoping to buy it back at a lower price and pocket the difference (minus interest). Going long, as you may have guessed, is the opposite of going short. Instead of betting that the price will go down, you buy shares in the hope that the price will go up. So, let's say as per your example you borrow 100 shares of company 'X', expecting the price of them to go down. You take your shares to the market and sell them - you make a market sell order (a market 'ask'). This matches against a bid and you receive a price of $5 per share. Now, let's pretend that you change your mind and you think the price is going to go up, you instantly regret your decision. In order to pay back the shares, you now need to buy back your shares as $6 - which is the price off the ask offers on the order book. Similarly, the same is true in the reverse if you are going long. Because of this spread, you have lost money. You sold at a low price and bought at a high price, meaning it costs you more money to repay your borrowed shares. So, when you are shorting you need the spread to be as tight as possible.","\"First, keep in mind that there are generally 2 ways to buy a corporation's shares: You can buy a share directly from the corporation. This does not happen often; it usually happens at the Initial Public Offering [the first time the company becomes \"\"public\"\" where anyone with access to the stock exchange can become a part-owner], plus maybe a few more times during the corporations existence. In this case, the corporation is offering new ownership in exchange for a price set the corporation (or a broker hired by the corporation). The price used for a public offering is the highest amount that the company believes it can get - this is a very complicated field, and involves many different methods of evaluating what the company should be worth. If the company sets the price too low, then they have missed out on possible value which would be earned by the previous, private shareholders (they would have gotten the same share % of a corporation which would now have more cash to spend, because of increased money paid by new shareholders). If the company sets the price too high, then the share subscription might only be partially filled, so there might not be enough cash to do what the company wanted. You can buy a share from another shareholder. This is more common - when you see the company's share price on the stock exchange, it is this type of transaction - buying out other current shareholders. The price here is simply set based on what current owners are willing to sell at. The \"\"Bid Price\"\" listed by an exchange is the current highest bid that a purchaser is offering for a single share. The \"\"Ask Price\"\" is the current lowest offer that a seller is offering to sell a single share they currently own. When the bid price = the ask price, a share transaction happens, and the most recent stock price changes.\"","\"Say we have stock XYZ that costs $50 this second. It doesn't cost XYZ this second. The market price only reflects the last price at which the security traded. It doesn't mean that if you'll get that price when you place an order. The price you get if/when your order is filled is determined by the bid/ask spreads. Why would people sell below the current price, and not within the range of the bid/ask? Someone may be willing to sell at an ask price of $47 simply because that's the best price they think they can sell the security for. Keep in mind that the \"\"someone\"\" may be a computer that determined that $47 is a reasonable ask price. Remember that bid/ask spreads aren't fixed, and there can be multiple bid/ask prices in a market at any given time. Your buy order was filled because at the time, someone else in the market was willing to sell you the security for the same price as your bid price. Your respective buy/sell orders were matched based on their price (and volume, conditional orders, etc). These questions may be helpful to you as well: Can someone explain a stock's \"\"bid\"\" vs. \"\"ask\"\" price relative to \"\"current\"\" price? Bids and asks in case of market order Can a trade happen \"\"in between\"\" the bid and ask price? Also, you say you're a day trader. If that's so, I strongly recommend getting a better grasp on the basics of market mechanics before committing any more capital. Trading without understanding how markets work at the most fundamental levels is a recipe for disaster.\"","Many of the Bitcoin exchanges mimic stock exchanges, though they're much more rudimentary offering only simple buy/sell/cancel orders. It's fairly normal for retail stock brokerage accounts to allow other sorts of more complex orders, where once a certain criteria is met, (the price falls below some $ threshold, or has a movement greater than some %) then your order is executed. The space between the current buy order and the current sell order is the bid/ask spread, it's not really about timing. Person X will buy at $100, person Y will sell at $102. If both had a price set at $101, they would just transact. Both parties think they can do a little bit better than the current offer. The width of the bid/ask spread is not universal by any means. The current highest buy order and the current lowest sell order, are both the current price. The current quoted market price is generally the price of the last transaction, whether it's buy or sell.","\"A market sell order will be filled at the highest current \"\"bid\"\" price. For a reasonably liquid stock, there will be several buy orders in line, and the highest bid must be filled first, so there should a very short time between when you place the order and when it is filled. What could happen is what's called front running. That's when the broker places their own order in front of yours to fulfill the current bid, selling their own stock at the slightly higher price, causing your sale to be filled at a lower price. This is not only unethical but illegal as well. It is not something you should be concerned about with a large broker. You should only place a market order when you don't care about minute differences between the current ask and your execution price, but want to guarantee order execution. If you absolutely have to sell at a minimum price, then a limit order is more appropriate, but you run the risk that your limit will not be reached and your order will not be filled. So the risk is a tradeoff between a guaranteed price and a guaranteed execution.\"","\"When I first started working in finance I was given a rule of thumb to decide which price you will get in the market: \"\"You will always get the worst price for your deal, so when buying you get the higher ask price and when selling you get the lower bid price.\"\" I like to think of it in terms of the market as a participant who always buys at the lowest price they can (i.e. buys from you) and sells at the highest price they can. If that weren't true there would be an arbitrage opportunity and free money never exists for long.\"","\"People in this case, are large institutional investors. The \"\"bid ask\"\" spread is for \"\"small traders\"\" like yourself. It is put out by the so-called specialists (or \"\"market makers\"\") and is typically good for hundreds or thousands of shares at a time. Normally, 2 points on a 50 stock is a wide spread, and the market maker will make quite a bit of money on it trading with people like yourself. It's different if a large institution, say Fidelity, wants to sell, say 1 million shares of the stock. Depending on market conditions, it may have trouble finding buyers willing to buy in those amounts anywhere near 50. To \"\"move\"\" such a large block of stock, they may have to put the equivalent of K-Mart's old \"\"Blue Light Special\"\" on, several points below.\"","No, Mark is right, if you place a market order there will always be someone to buy or sell at the market price. Only if you place a limit order on the price can it not sell or be bought. Just research on your computer and you will find your answer. You must be specify about open order or limit order when asking.","In the world of stock exchanges, the result depends on the market state of the traded stock. There are two possibilities, (a) a trade occurs or (b) no trade occurs. During the so-called auction phase, bid and ask prices may overlap, actually they usually do. During an open market, when bid and ask match, trades occur.","I think your confusion has arisen because in every transaction there is a buyer and a seller, so the market maker buys you're selling, and when you're buying the market maker is selling. Meaning they do in fact buy at the ask price and sell at the bid price (as the quote said).","Price for the latest transaction. If the stock is selling for $898.7 means that the stock is currently trading for $898.7, and it will be your ask price of stock if you purchase currently.","\"Assuming that no one else has hit the ask, and the asks are still there, yes, you will fill $54.55 as long as you didn't exhaust that ask. Actually, there is no \"\"current price at which the stock is exchanging hands\"\"; in reality, it is \"\"the last price traded\"\". The somebody who negotiated prices between buyers & sellers is the exchange through their handling of bids & asks. The real negotiation comes between bids & asks, and if they meet or cross, a trade occurs. It's not that both bid & ask should be $54.55, it's that they were. To answer the title, the reasons why the bid and ask (even their midpoint) move away from the last price are largely unknown, but at least for the market makers, if their sell inventory is going away (people are buying heavily and they're running out of inventory) they will start to hike up their asks a lot and their bids a little because market makers try to stay market neutral, having no opinion on whether an asset will rise or fall, so with stocks, that means having a balanced inventory of longs & shorts. They want to (sometimes have to depending on the exchange) accommodate the buying pressure, but they don't want to lose money, so they simply raise the ask and then raise the bid as people hit their asks since their average cost basis has risen. In fact (yahoo finance is great about showing this), there's rarely 1 bid and 1 ask. Take a look at BAC's limit book: http://finance.yahoo.com/q/ecn?s=BAC+Order+Book You can see that there are many bids and many asks. If one ask is exhausted, the next in line is now the highest. The market maker who just sold at X will certainly step over the highest bid to bid at X*0.9 to get an 11% return on investment.\"","\"There needs to be a buyer of the shares you are offering. There are a lot of feature rich options for buying and selling. I don't understand them all in depth, but for example on TD Ameritrade here are some of the order types \"\"Limit\"\", \"\"Market\"\", \"\"Stop Market\"\", \"\"Stop Limit\"\", \"\"Trailing Stop %\"\", \"\"Trailing Stop $\"\". This web page will explain the different order types https://invest.ameritrade.com/cgi-bin/apps/u/PLoad?pagename=tutorial/orderTypes/overview.html Stock with a higher volume will allow your trade to execute faster, since there are more frequent trades than stocks with lower volume. (UPDATE: More specifically, not more frequent trades, but more shares changing hands.) I'm a bit of a noob myself, but that's what I understand.\"","The equation you show is correct, you've simply pointed out that you understand that you buy at the 'ask' price, and later sell at the 'bid.' There is no bid/ask on the S&P, as you can't trade it directly. You have a few alternatives, however - you can trade SPY, the (most well known) S&P ETF whose price reflects 1/10 the value or VOO (Vanguard's offering) as well as others. Each of these ETFs gives you a bid/ask during market hours. They trade like a stock, have shares that are reasonably priced, and are optionable. To trade the index itself, you need to trade the futures. S&P 500 Futures and Options is the CME Group's brief info guide on standard and mini contracts. Welcome to SE.","\"When you place a limit sell order of $10.00 (for a stock on an option) you are adding your order to the book. Anyone who places a buy at-the-market or with a limit price over $10.00 will have that order immediately fulfilled through the offer you have placed on the book. On the other hand, if that other person places a buy for $8.00, then the spread will now be \"\"$8.00 bid, $10.00 ask\"\". Priority is based on first the price (all $9.99 asks will clear before $10.00) and within each bucket this is based on the time your order was submitted. This is why in bidding markets (including eBay) buying at $x.01 is way better than $x.00 and selling at $x.99 is better than $(x+1).00. Source: https://en.wikipedia.org/wiki/Order_(exchange) under \"\"first-come-first-served\"\"\"","The same as when you are buying a car. If a dealer quotes 10k and you quote 8k. 8k is the buy price and 10k is the sell price. Somebody might quote 8.5k and another dealer might quote 9.5k. The the new price that you see on your screen is 8.5k(Best buy price) and 9.5k(Best sell price). When the buyer and seller agree to an amount, the car(In your case stock) is traded.","I stock is only worth what someone will pay for it. If you want to sell it you will get market price which is the bid.","Market Makers are essentially just there to process the buys and sells of traders, so just like you and I buy and sell at the ask and bid prices they do to. They are just completing the process of making our orders a reality. Market makers are just representative of brokers, meaning that when you place your order at ask or bid, you are placing that particular brokers order at ask or bid. People often say that certain brokers have too many shares and claim that they are games when really that just means that there happen to be a lot of people using a particular broker all at once, or more troubling, perhaps even company execs using a broker, to sell a large amount of shares.","If you are looking to go long (buy) you would use bid prices as this is what you will be matched against for your order to be executed and a trade to go through. If you are looking to go short (sell) you would use the ask prices as this is what you will be matched against for your order to be executed and a trade go through. In your analysis you could use either this convention or the midpoint of the two prices. As FX is very liquid the bid and ask prices would be quite close to each other, so the easiest way to do your analysis is to use the convention I listed above.","\"Why would people sell below the current price, and not within the range of the bid/ask? There are many scenarios where this is deliberate but all of them boil down to the fact that the top level's bid doesn't support the quantity you're trying to sell (or is otherwise bogus[1]). One scenario as an example: You're day-trading both sides but at the end of the day you accumulated a rather substantial long position in a stock. You don't want to (or aren't allowed to[2]) be exposed overnight, however. What do you do? You place an order that is highly likely to go through altogether. There's several ways to achieve that but a very simple one is to look at the minimum bid level for which the bid side is willing to take all of your shares, then place a limit order for the total quantity at that price. If your position doesn't fit into the top level bid that price will well be lower than the \"\"current\"\" bid. Footnotes: [1] Keyword: quote stuffing [2] Keyword: overnight margin (aka positional margin, as opposed to intraday margin), this is highly broker dependent, exchanges don't usually distinguish between intraday and overnight margins, instead they use the collective term maintenance margin\"","You can*, if the market is open, in a normal trading phase (no auction phase), works, and there is an existing bid or offer on the product you want to trade, at the time the market learns of your order. Keep in mind there are 2 prices: bid and offer. If the current bid and current offer were the same, it would immediately result in a trade, and thus the bid and offer are no longer the same. Market Makers are paid / given lower fees in order to maintain buy and sell prices (called quotes) at most times. These conditions are usually all true, but commonly fail for these reasons: Most markets have an order type of market order that says buy/sell at any price. There are still sanity checks put in place on the price, with the exact rules for valid prices depending on the stock, so unless it's a penny stock you won't suddenly pay ten times a stock's value. *The amount you can buy sell is limited by the quantity that exists on the bid and offer. If there is a bid or offer, the quantity is always at least 1.","Im an actor preparing for a role. I play a trader in the UK during the late 80s. I have a very basic understanding of the stock market and am unsure what some of the dialogue is referring to. For example: “bid 28 at the figure” “sell at 3” “5 march at 28” “9 for 5” “bid 4 at 6” “closing out now at 4”. What do these numbers mean exactly. It doesn’t help that im Australian and this is a UK production, or that im an idiot","The principle of demand-supply law will not work if spoofing (or layering, fake order) is implemented. However, spoofing stocks is an illegal criminal practice monitored by SEC. In stock market, aggressive buyer are willing to pay for a higher ask price pushing the price higher even if ask size is considerably larger than bid size, especially when high growth potential with time is expected. Larger bids may attract more buyers, further perpetuating a price increase (positive pile-on effect). Aggressive sellers are willing to accept a lower bid price pushing the price lower even if ask size is considerably smaller than bid size, when a negative situation is expected. Larger asks may attract more sellers, further perpetuating a price fall (negative pile-on effect). Moreover, seller and buyers considers not only price but also size of shares in their decision-making process, along with marker order and/or limit order. Unlike limit order, market order is not recorded in bid/ask size. Market order, but not limit order, immediately affects the price direction. Thus, ask/bid sizes alone do not give enough information on price direction. If stocks are being sold continuously at the bid price, this could be the beginning of a downward trend; if stocks are being sold continuously at the ask price, this could be the beginning of a upward trend. This is because ask price is always higher than bid price. In all the cases, both buyers and sellers hope to make a profit in a long-term and short-term view","So in your screenshot, someone or some group of someones is willing to buy 3,000 shares at $3.45, and someone or some group of someones is willing to sell 2,000 shares at 3.88. Without getting in to the specific mechanics, you can place a market buy order for 10 (or whatever number) shares and it will probably transact at $3.88 per share because that's the lowest price for which someone will currently sell their shares. As a small fish, you can generally ignore the volume notations in the bid/ask quotes.","You can ask for 305rs, but as long as shares are available at lower prices you won't sell. Only when your ask becomes the lowest available price will someone buy from you. See many past questions about how buyers and sellers are matched by the market.","If you place a market order, you are guaranteed to sell your stock unless the stock is in a trading halt. A market order does not guarantee the price you sell the stock at. If you place a market order, even if the stock is very illiquid a market maker will guarantee a market, but will not guarantee a price.","In simple terms, this is how the shares are traded, however most of the times market orders are placed. Consider below scenario( hypothetical scenario, there are just 2 traders) Buyer is ready to buy 10 shares @ 5$ and seller is ready to sell 10 shares @ 5.10$, both the orders will remain in open state, unless one wish to change his price, this is an example of limit order. Market orders If seller is ready to sell 10 shares @ 5$ and another 10 shares @5.05$, if buyer wants to buy 20 shares @ market price, then the trade will be executed for 10 shares @ 5$ and another 10 shares @ 5.05$","You have to look at stocks just like you would look at smaller and more illiquid markets. Stock trade in auction markets. These are analogous to ebay or craigslist, just with more transparency and liquidity. There is no guarantee that a market will form for a particular stock, or that it will sustain. When a stock sells off, and there are no bids left, that means all of the existing bidder's limit orders got filled because someone sold at those prices. There is nothing fishy about that. It is likely that someone else wants to sell even more, but couldn't find any more bidders. If you put a bid you would likely get filled by the shareholder with a massive position looking for liquidity. You could also buy at the ask.","\"Can anyone explain what each of them mean and how they're different from each other? When you \"\"buy to open\"\", you are purchasing an option and opening a new position. When you \"\"sell to open\"\", you are creating a brand new options contract and selling it. \"\"Covered\"\" means that you have assets in your account to satisfy the terms of the options contract. A \"\"covered call\"\" is a call option for which you own shares of the underlying stock that you will sell to the buyer at the option's strike price if he exercises the option. If you previously made a \"\"sell to open\"\" trade to create a new position, and you want to close the position, you can buy back the option. If you previously made a \"\"buy to open\"\" trade, you can \"\"sell to close\"\" which will sell back your option and close your position. In summary:\"","When you place a bid between the bid/ask spread, that means you are raising the bid (or lowering the ask, if you are selling). The NBBO (national best bid and offer) is now changed because of your action, and yes, certain kinds of orders may be set to react to that (a higher bid or lower ask triggering them), also many algorithms (that haven't already queued an order simply waiting for a trigger, like in a stop limit) read the bid and ask and are programmed to then place an order at that point.","\"When there is a trade the shares were both bought and sold. In any trade on the secondary market there has to be both a buyer and a seller for the trade to take place. So in \"\"lasttradesize\"\" a buyer has bought the shares from a seller.\"","\"Write means sell to open. It is called that because options writers are creating (i.e. writing) new contracts. No such thing as \"\"reading\"\" an option.\"","Traditionally, dealers and broker-dealers were in contact with the actual producers of a product or issuers of a security, selling it at the exchange on their behalf. Consumers would traditionally be on the buy side, of course. These days, anyone can enter the market on either side. Even if you don't hold the security or product, you could sell it, and take on the risk of having to stock up on it by the delivery date in exchange for cash or other securities. On the other side, if you can't hold the product or security you could still buy it, taking on the risk of having to dispose of it somehow by delivery in exchange for cash or other securities. In either case you (the sell-side) take on risk and provide products/securities/cash. This is most commonly known as market making. Modern literature coins the terms liquidity taker (buy-side) and liquidity provider (sell-side). Even more accurately, risk management literature would use the terms risk-taker (sell-side) and risk spreader or risk reducer (buy side). This is quite illustrative in modern abstract markets. Take a market that allows for no offsetting or hedging because the product in question is abstract or theoretical, e.g. weather trading, volatility trading, inflation trading, etc. There's always one party trying to eliminate dependence on or correlation to the product (the risk reducer, buy-side) and the counterparty taking on their risk (sell-side).","I can't say I know everything about the underlying details, but from what I understand, your limit buy adds to the bid side of open orders, and one possibility is that someone placed a market order to sell when the bid price for the stock fell to $10 which was matched to your open limit order. So using your terminology, I would say the spot bid price is what fell to $10, even if for a brief moment. Whether or not it is possible for your order to be filled when the limit buy price is deeper than the current bid price is beyond me. It may have something to do with lot sizes.","Buy and sell orders always include the price at which you buy/sell. That's how the market prices for stocks are determines. So if you want to place a buy order at 106, you can do that. When that order was fulfilled and you have the stock, you can place a sell order at 107. It will be processed as soon as someone places a buy order at 107. Theoretically you can even place sell orders for stocks you haven't even bought yet. That's called short selling. You do that when you expect a stock to go down in the future. But this is a very risky operation, because when you mispredict the market you might end up owing more money than you invested. No responsible banker will even discuss this with you when you can not prove you know what you are doing.","\"There are a few things you are missing here. These appear to be penny stocks or subpenny stocks. Buying these are easy.... selling is a total different ball game. Buying commissions are low and selling commissions are outrageous. Another thing you are missing in this order is... some trading platform may assume the \"\"AON\"\" sale. That is All Or None. There was an offer of 10k shares @ .63. The buyer only wanted 10k what was the broker to do with the other 20k? Did you inform the broker that partial sales where acceptable? You may want to contact your broker and explain this to them. The ALL OR NONE order has made plenty of investor a little unhappy, which seems to be your new learning experience for the day. Sorry, school of hard knocks is not always fun.\"","As others have stated, the current price is simply the last price at which the security traded. For any given tick, however, there are many bid-ask prices because securities can trade on multiple exchanges and between many agents on a single exchange. This is true for both types of exchanges that Chris mentioned in his answer. Chris' answer is pretty thorough in explaining how the two types of exchanges work, so I'll just add some minor details. In exchanges like NASDAQ, there are multiple market makers for most relatively liquid securities, which theoretically introduces competition between them and therefore lowers the bid-ask spreads that traders face. Although this results in the market makers earning less compensation for their risk, they hope to make up the difference by making the market for highly liquid securities. This could also result in your order filling, in pieces, at several different prices if your brokerage firm fills it through multiple market makers. Of course, if you place your order on an exchange where an electronic system fills it (the other type of exchange that Chris mentioned), this could happen anyway. In short, if you place a market order for 1000 shares, it could be filled at several different prices, depending on volume, multiple bid-ask prices, etc. If you place a sizable order, your broker may fill it in pieces regardless to prevent you from moving the market. This is rarely a problem for small-time investors trading securities with high volumes, but for investors with higher capital like institutional investors, mutual funds, etc. who place large orders relative to the average volume, this could conceivably be a burden, both in the price difference across time as the order is placed and the increased bookkeeping it demands. This is tangentially related, so I'll add it anyway. In cases like the one described above, all-or-none (AON) orders are one solution; these are orders that instruct the broker to only execute the order if it can be filled in a single transaction. Most brokers offer these, but there are some caveats that apply to them specifically. (I haven't been able to find some of this information, so some of this is from memory). All-or-none orders are only an option if the order is for more than a certain numbers of shares. I think the minimum size is 300 or 400 shares. Your order won't be placed until your broker places all other orders ahead of it that don't have special conditions attached to them. I believe all-or-none orders are day orders, which means that if there wasn't enough supply to fill the order during the day, the order is cancelled at market close. AON orders only apply to limit orders. If you want to replicate the behavior of a market order with AON characteristics, you can try setting a limit buy/sell order a few cents above/below the current market price.","I can often get the option at [a] price [between bid and ask] The keyword you use here is quite relevant: often. More realistically, it's going to be sometimes. And that's just how supply and demand should work. The ask is where you know you can buy right away. If you don't wanna buy at ask, you can try and put a higer bid but you can only hope someone will take it before the price moves. If prices are moving up fast, you will have missed a chance if you gambled mid-spread. Having said that, the larger the spread is, the more you should work with limits mid-spread. You don't want to just take ask or bid with illiquid options. Make a calculation of the true value of the option (i.e. using the Black Scholes Model), then set your bid around there. Of course, if not only the option but also the underlying is illiquid, this all gets even more difficult.","\"For any large company, there's a lot of activity, and if you sell at \"\"market\"\" your buy or sell will execute in seconds within a penny or two of the real-time \"\"market\"\" price. I often sell at \"\"limit\"\" a few cents above market, and those sell within 20 minutes usually. For much smaller companies, obviously you are beholden to a buyer also wanting that stock, but those are not on major exchanges. You never see whose buy order you're selling into, that all happens behind the curtain so to speak.\"","You can always trade at bid or ask price (depending if you are selling or buying). Market price is the price the last transaction was executed at so you may not be able to get that. If your order is large then you may not even be able to get bid/ask but should look at the depth of the order book (ie what prices are other market participants asking for and what is the size of their order). Usually only fast traders will trade at bid/ask, those who believe the price move is imminent. If you are a long term trader you can often get better than bid or ask by placing a limit order and waiting until a market participant takes your offer.","One broker told me that I have to simply read the ask size and the bid size, seeing what the market makers are offering. This implies that my order would have to match that price exactly, which is unfortunate because options contract spreads can be WIDE. Also, if my planned position size is larger than the best bid/best ask, then I should break up the order, which is also unfortunate because most brokers charge a lot for options orders.","\"With stocks, you can buy or sell. If you sell first, that's called 'shorting.' As in \"\"I think linkedin is too high, I'm going to short it.\"\" With options, the terminology is different, the normal process is to buy to open/sell to close, but if you were shorting the option itself, you would first sell to open, i.e you are selling a position to start it, effectively selling it short. Eventually, you may close it out, by buying to close. Options trading is not for the amateur. If you plan to trade, study first and be very cautious.\"","\"I think for this a picture is worth a thousand words. This is a \"\"depth chart\"\" that I pulled from google images, specifically because it doesn't name any security. On the left you have all of the \"\"bids\"\" to buy this security, on the right you have the \"\"asks\"\" to sell the security. In the middle you have the bid/ask spread, this is the space between the highest bid and the lowest ask. As you can see you are free to place you order to the market to buy for 232, and someone else is free to place their order to the market to sell for 234. When the bid and the ask match there's a transaction for the maximum number of available shares. Alternatively, someone can place a market order to buy or sell and they'll just take the current market price. Retail investors don't really get access to this kind of chart from their brokers because for the most part the information isn't terribly relevant at the retail level.\"","The core issue is to understand what 'selling a share' means. There is no special person or company that takes the share from you; you are selling on the open market. So your question is effectively 'can I find a guy on the street that buys a 10$-bill for 11$ ?' - Well, maybe someone is dumb enough, but chances are slim.","\"Assuming you are executing your order on a registered exchange by a registered broker, your order will be filled at the best bid price available. This is because brokers are legally obliged to get the best price available. For example, if the market is showing a bid of 49.99 and an offer of 50.01 and you submit an order to offer 1000 shares at 5.00, your order will be filled at 49.99. This is assuming the existing bids are for enough shares to fill all of the 1000 shares being offered. If the share you are offering lacks the necessary liquidity to fill the order - i.e., the 49.99 bid is for less than 1000 shares and the \"\"level two\"\" bids are not enough to fill the remaining shares, then the order would be posted in the market as an offer to sell the balance (1000 - shares filled at 49.99 and those filled at level two bids) at 5.00. I'm pretty sure that the scenario you are describing would be described as market manipulation and it would be against the law.\"","buy above the current price in the stock market You can do that, but what is the purpose to do so ? Brokers take the limit price of your order as the highest price you are going to pay. So if an order can be fulfilled below the limit they will do so. can I sell below the current price You can put in a order to do so. But what I have seen with my current broker is that the order never reached the market and wasn't executed at all. The broker might have some safeguards or process in place to stop me from doing so. Not sure how other brokers deal with it.","Your assets are marked to market. If you buy at X, and the market is bidding at 99.9% * X then you've already lost 0.1%. This is a market value oriented way of looking at costs. You could always value your assets with mark to model, and maybe you do, but no one else will. Just because you think the stock is worth 2*X doesn't mean the rest of the world agrees, evidenced by the bid. You surely won't get any margin loans based upon mark to model. Your bankers won't be convinced of the valuation of your assets based upon mark to model. By strictly a market value oriented way of valuing assets, there is a bid/ask cost. more clarification Relative to littleadv, this is actually a good exposition between the differences between cash and accrual accounting. littleadv is focusing completely on the cash cost of the asset at the time of transaction and saying that there is no bid/ask cost. Through the lens of cash accounting, that is 100% correct. However, if one uses accrual accounting marking assets to market (as we all do with marketable assets like stocks, bonds, options, etc), there may be a bid/ask cost. At the time of transaction, the bids used to trade (one's own) are exhausted. According to exchange rules that are now practically uniform: the highest bid is given priority, and if two bids are bidding the exact same highest price then the oldest bid is given priority; therefore the oldest highest bid has been exhausted and removed at trade. At the time of transaction, the value of the asset cannot be one's own bid but the highest oldest bid leftover. If that highest oldest bid is lower than the price paid (even with liquid stocks this is usually the case) then one has accrued a bid/ask cost.","New to investing... when I buy/sell a stock can I buy/sell at the exact market price whenever I'd like or is there more to it? Does there need to be a demand for when I'm trying to sell or am I just forcing the company to buy back my shares? Sorry if confusing/rookie question","In terms of pricing the asset, this functions in exactly the same way as a regular sell, so bids will have to be hit to fill the trade. When shorting an equity, currency is not borrowed; the equity is, so the value of per share liability is equal to it's last traded price or the ask if the equity is illiquid. Thus when opening a short position, the asks offer nothing to the process except competition for your order getting filled. Part of managing the trade is the interest rate risk. If the asks are as illiquid as detailed in the question, it may be difficult even to locate the shares for borrowing. As a general rule, only illiquid equities or those in free fall may be temporarily unable for shorting. Interactive Brokers posts their securities financing availabilities and could be used as a proxy guide for your broker.","\"The Auction Market is where investors such you and me, as well as Market Makers, buy and sell securities. The Auction Markets operate with the familiar bid-ask pricing that you see on financial pages such as Google and Yahoo. The Market Makers are institutions that are there to provide liquidity so that investors can easily buy and sell shares at a \"\"fair\"\" price. Market Makers need to have on hand a suitable supply of shares to meet investor demands. When Market Makers feel the need to either increase or decrease their supply of a particular security quickly, they turn to the Dealer Market. In order to participate in a Dealer Market, you must be designated a Market Maker. As noted already, Market Makers are dedicated to providing liquidity for the Auction Market in certain securities and therefore require that they have on hand a suitable supply of those securities which they support. For example, if a Market Maker for Apple shares is low on their supply of Apple shares, then will go the Dealer Market to purchase more Apple shares. Conversely, if they are holding what they feel are too many Apple shares, they will go to the Dealer Market to sell Apple shares. The Dealer Market does operate on a bid-ask basis, contrary to your stated understanding. The bid-ask prices quoted on the Dealer Market are more or less identical to those on the Auction Market, except the quote sizes will be generally much larger. This is the case because otherwise, why would a Market Maker offer to sell shares to another Market Maker at a price well below what they could themselves sell them for in the Auction Market. (And similarly with buy orders.) If Market Makers are generally holding low quantities of a particular security, this will drive up the price in both the Dealer Market and the Auction Market. Similarly, if Market Makers are generally holding too much of a particular security, this may drive down prices on both the Auction Market and the Dealer Market.\"","\"There are two distinct questions that may be of interest to you. Both questions are relevant for funds that need to buy or sell large orders that you are talking about. The answer depends on your order type and the current market state such as the level 2 order book. Suppose there are no iceberg or hidden orders and the order book (image courtesy of this question) currently is: An unlimited (\"\"at market\"\") buy order for 12,000 shares gets filled immediately: it gets 1,100 shares at 180.03 (1,100@180.03), 9,700 at 180.04 and 1,200 at 180.05. After this order, the lowest ask price becomes 180.05 and the highest bid is obviously still 180.02 (because the previous order was a 'market order'). A limited buy order for 12,000 shares with a price limit of 180.04 gets the first two fills just like the market order: 1,100 shares at 180.03 and 9,700 at 180.04. However, the remainder of the order will establish a new bid price level for 1,200 shares at 180.04. It is possible to enter an unlimited buy order that exhausts the book. However, such a trade would often be considered a mis-trade and either (i) be cancelled by the broker, (ii) be cancelled or undone by the exchange, or (iii) hit the maximum price move a stock is allowed per day (\"\"limit up\"\"). Funds and banks often have to buy or sell large quantities, just like you have described. However they usually do not punch through order book levels as I described before. Instead they would spread out the order over time and buy a smaller quantity several times throughout the day. Simple algorithms attempt to get a price close to the time-weighted average price (TWAP) or volume-weighted average price (VWAP) and would buy a smaller amount every N minutes. Despite splitting the order into smaller pieces the price usually moves against the trader for many reasons. There are many models to estimate the market impact of an order before executing it and many brokers have their own model, for example Deutsche Bank. There is considerable research on \"\"market impact\"\" if you are interested. I understand the general principal that when significant buy orders comes in relative to the sell orders price goes up and when a significant sell order comes in relative to buy orders it goes down. I consider this statement wrong or at least misleading. First, stocks can jump in price without or with very little volume. Consider a company that releases a negative earnings surprise over night. On the next day the stock may open 20% lower without any orders having matched for any price in between. The price moved because the perception of the stocks value changed, not because of buy or sell pressure. Second, buy and sell pressure have an effect on the price because of the underlying reason, and not necessarily/only because of the mechanics of the market. Assume you were prepared to sell HyperNanoTech stock, but suddenly there's a lot of buzz and your colleagues are talking about buying it. Would you still sell it for the same price? I wouldn't. I would try to find out how much they are prepared to buy it for. In other words, buy pressure can be the consequence of successful marketing of the stock and the marketing buzz is what changes the price.\"","\"Why would there not be a bid and ask? Dealers make their money in the spread between what they buy it from one entity for and what they sell it to another entity for. This doesn't mean they have to do it auction-style, but they'll still have a different buy price from a sell price, hence \"\"bid\"\" and \"\"ask\"\".\"","try to sell if today's google stock goes above 669$ This is Relative/Pegged-to-Primary Order with a Limit Price of $669 and an offset from National Best Offer of $0.00, but it is no different than an Market Order if the market price is $669 to begin with. do not sell if the stock keeps climbing beyond 669 unless there is a down tick of 20cents is seen This is a Trailing Stop Order with a Trailing Amount of $0.20. It sells if the market price dropped $0.20 from the peak. The two orders are contradictory. From your comments, I think the following is what you want: Submit Trailing Stop Order when market price is above $669. Cancel Trailing Stop Order before the end of the day and Submit Relative/Pegged-to-Primary Order to Sell.","Your math shows that you bought an 'at the money' option for .35 and when the stock is $1 above the strike, your $35 (options trade as a contract for 100 shares) is now worth $100. You knew this, just spelling it out for future readers. 1 - Yes 2 - An execute/sell may not be nesesary, the ooption will have time value right until expiration, and most ofter the bid/ask will favor selling the option. You should ask the broker what the margin requirement is for an execute/sell. Keep in mind this usually cannot be done on line, if I recall, when I wanted to execute, it was a (n expensive) manual order. 3 - I think I answered in (2), but in general they are not identical, the bid/ask on options can get crazy. Just look at some thinly traded strikes and you'll see what I mean.","A trailing stop will sell X shares at some percentage below the current market price. Putting in this order with a 10% trailing stop when the stock price is $50 will sell the stock when it hits $45. It's a market order at that point (see below). A stop order will sell the stock when it reaches a certain price. The stop order becomes a market order when the magic price is hit. This means that you may not sell it at or below your price when the order is executed. But the stock will sell faster because the trader must execute. A stop limit order is the same as a stop order, except the stock won't be sold if it can't be gotten for the price. As a result, the sell may not be executed. More information here.","But how does the quantity matching happen? For example, if I want to buy 1000 shares at $100, but there is only one seller to sell 10 shares at $100, what happens then? This depends on the type of order you've placed. If you placed a fill-or-kill order, your order to buy or sell a certain number of shares is routed to the trading floor for immediate execution. If the order cannot be immediately filled, it is cancelled (killed) automatically. Note that the order must be filled in its entirety. Partial fills are not allowed. In your example, your buy order wouldn't be filled because it couldn't be matched to a sell order of the same volume. This is similar to an all-or-none order, which is an order that contains A condition instructing the broker to fill the order completely or not at all. If there is insufficient supply to meet the quantity requested by the order then it is canceled at the close of the market. In this case, if your order wasn't matched to an order of the same volume by the time the market closes, it's cancelled. If you simply placed a market/limit order, and (in the case of the limit order), part of your order was matched to another order with the right price, that part of your order will be filled, while the rest will remained unfilled.","The price for securities is negotiable. You totally have a right to make a lower offer when buying or ask for a higher price when selling. Securities don't trade at a fixed price, the price goes up and down throughout the day based on the price offers made by buyers and sellers and where they find agreement. If a stock last traded for $10, someone can put out an offer to buy the stock at $9.50, if they find someone who wants to sell and will accept that price, then a deal is made. unless something is falling rapidly in price however, an offer that far below the last price is not terribly likely to be accepted. Now if you want to be assured of making a sale or purchase, you generally trade 'at the market' and for small time players that is very much encouraged as it makes it easier for everyone.","There are usually so many different options around for the same stock that some are rarely traded. Especially if the price has moved since the option was issued, nobody might be interested in that particular option at that price anymore. So the asking price might be something that someone asked for ages ago and that is much higher than anyone would reasonably pay today. With a bid of $20 and an ask of $30, nobody is trading, but the value of that option is somewhere between $20 and $30. If the value is below $25, someone will notice your $25 bid and sell.","You put in a market order when you want to sell to whomever raises their hand first. It results in the fastest possible liquidation of your stock. It's appropriate when you need to sell now, regardless of price. An example of when to use it: It's 3:55 PM, the market's going to close in 5 minutes and you need to sell some stocks to make some kind of urgent payment elsewhere. If instead you have a limit order in place, you might not reach the limit price before the market closes, and you'll still own the stock, which might not be what you want.","You have no guarantees. The stock may last have traded at $100 (so, the market price is $100), but is currently in free-fall and nobody else will be willing to buy it for any more than $80. Or heck, maybe nobody will be willing to buy it at all, at any price. Or maybe trading on this stock will be halted. Remember, the market price is just what the stock last traded at. If you put in a 'market order', you are ordering your broker to sell at the best available current price. Assuming someone's willing to buy your stock, that means you'll sell it. But if it last traded at $100, this doesn't guarantee you'll sell at anything close to that.","From the non-authoritative Investopedia page: A stop-limit order will be executed at a specified price, or better, after a given stop price has been reached. Once the stop price is reached, the stop-limit order becomes a limit order to buy or sell at the limit price or better. So once the stop price has been breached, your limit order is placed and will be on the order books as a $9 ask. For a vanilla stop order, a market order will be placed and will be filled using the highest active bid(s).","The Limit Order are matched based on amount and time. The orders are listed Highest to Lowest on the Buy Side. The orders are listed Lowest to Highest on the Sell Side. If there are 2 Sell orders for same amount the order which is first in time [fractions of milliseconds] is first. The about is the example as to how the orders would look like on any exchange. Now the highest price the buyer is ready to pay is 20.21 and the lowest price a seller is ready to sell for is 20.25. Hence there is no trade. Now if a new Buy order comes in at 20.25, it matches with the sell and the deal is made. If a new Buy order comes in at 20.30, it still matches at 20.25. Similarly if a Sell order come in at 20.21, it matches and a deal is made. If a Sell order come in at 20.11, it still matches 20.21. Incase of market order, with the above example if there is a Buy order, it would match with the lowest sell order at 20.25, if there is not enough quantity , it would match the remaining quantity to the next highest at 20.31 and continue down. Similarly if there is a Sell market order, the it would match to the maximum a seller is ready to buy, ie 20.21, if there is not sufficient buy quantity at 20.21, it will match with next for 20.19 If say there are new buy order at 20.22 and sell orders at 20.24, these will sit first the the above queue to be matched. In your above example the Lowest Sell order was at 20.10 at time t1 and hence any buy order after time t1 for amount 20.10 or greater would match to this and the price would be 20.10. However if the Buy order was first ie at t1 there was a buy order for 20.21 and then at time later than t1, there is a sell order for say 20.10 [amount less than or equal to 20.21] it would match for 20.21. Essentially the market looks at who was the first to sell at lower price or who was the first to buy at higher price and then decide the trade. Edit [To Clarify xyz]: Say if there is an Sell order at $10 Qty 100. There is a buyer who is willing to pay Max $20 and is looking for Qty 500. Your key assumption that the Buyer does not know the current SELL price of $10 is incorrect. Now there are multiple things, the Buyer knows the lowest Sell order is at $10, he can put a matching Buy order at $10 Qty 100, and say $11 Qty 100 etc. This is painful. Second, lets say he puts a Buy order at $10 Qty 100, by the time the order hits the system someone else has put the trade at $10 and his order is fulfilled. So this buyer has to keep looking at booking and keep making adjustments, if its a large order, it would be extremely difficult and frustrating for this Buyer. Hence the logic of giving preference. The later Buy order says ... The Max I can pay is $20, match eveything at the current price and get the required shares.","Yes you can, provided if buyers are available. Normally high liquidty stocks can be sold at market prices a little higher or lower.","how does the trading company know which one I want to sell? It doesn't need to know. You just sell one. From taxation point of view depending on the country / tax jurisdiction, it can be only be FIFO or specific stock.","In order: A seller of the stock (duh!). You don't know who or why this stock was sold. It could be any reason, and is of no concern of yours. It doesn't matter. Investors (pension funds, hedge funds, individual investors, employees, management) sell stock for many reasons: need cash, litigation, differing objectives, sector rotation, etc. To you, this does not matter. Yes, it does affect stock market prices: If you were not willing to buy that amount of shares, and there were no other buyers at that price, the seller would likely choose to lower the price offered. By your purchase, you are supporting the price.","\"Market price is just the bid or offer price of the last sell or buy order in the market. The price that you actually receive or pay will be the price that the person buying the stock off you or selling it to you will accept. If there are no other participants in the market to make up the other side of your order (i.e. to buy off you if you are selling or to sell to you if you are buying) the exchange pays large banks to be \"\"market makers\"\"; they fulfil your order using stocks that they don't want to either buy or sell just so that you get your order filled. When you place an order outside of market hours the order is kept on the broker's order books until the market reopens and then, at market opening time there is an opening \"\"auction\"\" at which orders are matched to opposing orders (i.e. each buy order will be matched with a sell) at a price determined by auction. You will not know what price the order was filled at until it has been filled. If you want to guarantee a price you can do so by placing a limit order that says not to pay more than a certain price for any unit of the stock.\"","Stop order is triggered when the market reaches the price you set. Until then - its not on the books. Your understanding is wrong in that you don't go to read the definition of the term.","\"What if everyone decided to sell all the shares at a given moment, let's say when the stock is trading at $40? I imagine supply would outweigh demand and the stock would fall. Yes this is the case. Every large \"\"Sell\"\" order results in price going down and every large \"\"Buy\"\" order results in price going up. Hence typically when large orders are being executed, they are first negotiated outside for a price and then sold at the exchange. I am not talking about Ownership change event. If a company wants a change in ownership, the buyer would be ready to pay a premium over the market price to get controlling stake.\""],"string":"[\n \"\\\"Honestly, I wonder if the other answerers aren't overthinking it. Their answers are detailed and correct, but what your coach may be saying is this: When you have bought a stock, on cash or margin, and you are watching it rise you are evaluating when you sell on the price of the stock you are seeing. In reality, you should look at the bid (price buyers will give you for the stock) and ask (price sellers will charge you for the stock) prices. If the stock is going up, odds are the price of the stock is very close to the ask price because it is purchases that are driving it up, but that's not what you're going to get when you sell. You're going to get something around the bid price. If the spread between the two is large (i.e. a volatile stock) this could be many cents or more lower than the ask price. Therefore, what your coach may mean by \\\"\\\"Selling on Ask\\\"\\\" is you're using the stock price when it's equal or close to the ask price to decide when to sell, instead of letting the stock peak and drop (when its price will approach the bid price) or letting the trailing bid offers catch up to your desired sell point and selling then (i.e. letting the stock point grow PAST your sell point, dragging the bid price up with it). Just a thought, but that sounds like a term a coach would come up with to mean selling and getting less than you thought you were going to from the sale. (I know it's a necro reply, but the Interwebs are immortal and people come via Google... I did)\\\"\",\n \"Bid and ask prices are the reigning highest buy price and lowest sell price in the market which doesn't mean one must only buy/sell at thise prices. That said one can buy/sell at whatever price they so wish although doing it at any other price than the bid/ask is usually harder as other market participants will gravitate to the reigning bid/ask price. So in theory you can buy at ask and sell at bid, whether or not your order will be filled is another matter altogether.\",\n \"To add to @Victor 's answer; if you are entering a market order, and not a limit order (where you set the price you want to buy or sell at), then the Ask price is what you can expect to pay to purchase shares of stock in a long position and the Bid price is what you can expect to receive when you sell stock you own in a long position.\",\n \"\\\"Both prices are quotes on a single share of stock. The bid price is what buyers are willing to pay for it. The ask price is what sellers are willing to take for it. If you are selling a stock, you are going to get the bid price, if you are buying a stock you are going to get the ask price. The difference (or \\\"\\\"spread\\\"\\\") goes to the broker/specialist that handles the transaction.\\\"\",\n \"The Bid price is simply the highest buy price currently being offered and the Ask price simply the lowest sell price being offered. The list of Bid and Ask prices is called the market depth. When the Bid and Ask prices match then a sale goes through. When looking to sell you would generally look at both the Bid and Ask prices. As a seller you want to be matched with the Bid price to get a sale, but you also need to check the current list of Ask prices. If the price you want to sell at is too high you will be placed down the Ask price list, and unless the price moves up to match your sell price you will not end up selling. On the other-hand, if your price to sell is too low and in fact much lower than the current lowest sell price you may get a quick sale but maybe at a lower price than you could have gotten. Similarly, when looking to buy, you would generally also look at both the Bid and Ask prices. As a buyer you want to be matched with the Ask price to get a sale, but you also need to check the current list of Bid prices. If the price you want to buy at is too low you will be placed down the Bid price list, and unless the price moves down to match your buy price you will no end up buying. On the other-hand, if your price to buy is too high and in fact much higher than the current highest buy price you may get a quick purchase but maybe at a higher price than you could have gotten. So, whether buying or selling, it is important to look at and consider both the Bid and Ask prices in the market depth.\",\n \"If you are buying your order will be placed in Bid list. If you are selling your order will be placed in the Ask list. The highest Bid price will be placed at the top of the Bid list and the lowest Ask price will be placed at the top of the Ask list. When a Bid and Ask price are matched a transaction will take place and it will the last traded price. If you are looking to buy at a lower price, say $155.01, your Bid price will be placed 3rd in the Bid list, and unless the Ask prices fall to that level, your order will remain in the list until it trades, it expires or you cancel it. If prices don't fall to you Bid price you will not get a trade. If you wanted your trade to go through you could either place a limit buy order closer to the lowest Ask price (however this is still not a certainty), or to be certain place a market buy order which will trade at the lowest Ask price.\",\n \"\\\"EVERYONE buys at the ask price and sells at the bid price (no matter who you are). There are a few important things you need to understand. Example: EVE bid: 16.00 EVE ask: 16.25 So if your selling EVE at \\\"\\\"market price\\\"\\\" you are entering an ask equal to the highest bid ($16.00). If you buy EVE at \\\"\\\"market price\\\"\\\" you are entering a bid equal to the lowest ask price ($16.25). Its key to understand this rule: \\\"\\\"An order executes ONLY when both bid and ask meet. (bid = ask).\\\"\\\" So a market maker puts in a bid when he wants to buy but the trade only executes when an ASK price meets his BID price. When you see a quote for a stock it is the price of the last trade. So it is possible to have a quote higher or lower then both the bid and the ask.\\\"\",\n \"It this a real situation or is it a made up example? Because for a stock that has a last traded priced of $5 or $6 and volume traded over $4M (i.e. it seems to be quite liquid), it is hardly likely that the difference from bid to ask would be as large as $1 (maybe for a stock that has volume of 4 to 5 thousand, but not for one having volume of 4 to 5 million). In regards to your question, if you were short selling the order would go in exactly the same as if you were selling a stock you owned. So your order would be on the ask side and would need to be matched up with a price on the bid side for there to be a trade.\",\n \"When a stock is ask for 15.2 and bid for 14.5, and the last market price was 14.5, what does it mean? It means that the seller wants to sell for a higher price than the last sale while the buyer does not want to buy for more than the last sale price. Or what if the last price is 15.2? The seller is offering to sell for the last sale price, but the buyer wants to buy for less.\",\n \"The everyday investor buys at the ask and sells at the bid but the market maker does the opposite This is misleading; it has nothing to do with being either an investor or a market maker. It is dependent on the type of order that is submitted. When a market trades at the ask, this means that a buy market order has interacted with a sell limit order at the limit price. When a market trades at the bid, this means that a sell market order has interacted with a buy limit order at the limit price. An ordinary investor can do exactly the same as a market maker and submit limit orders. Furthermore, they can sit on both sides of the bid and ask exactly as a market maker does. In the days before high frequency trading this was quite common (an example being Daytek, whose traders were notorious for stepping in front of the designated market maker's bid/ask on the Island ECN). An order executes ONLY when both bid and ask meet. (bid = ask) This is completely incorrect. A transaction occurs when an active (marketable) order is matched with a passive (limit book) order. If the passive order is a sell limit then the trade has occurred at the ask, and if it is a buy limit the trade has occurred at the bid. The active orders are not bids and asks. The only exception to this would be if the bid and ask have become crossed. When a seller steps in, he does so with an ask that's lower than the stock's current ask Almost correct; he does so with an order that's lower than the stock's current ask. If it's a marketable order it will fill the front queued best bid, and if it's a limit order his becomes the new ask price. A trade does not need to occur at this price for it to become the ask. This is wrong, market makers are the opposite party to you so the prices are the other way around for them. This is wrong. There is no distinction between the market maker and yourself or any other member of the public (beside the fact that designated market makers on some exchanges are obliged to post both a bid and ask at all times). You can open an account with any broker and do exactly the same as a market maker does (although with nothing like the speed that a high frequency market-making firm can, hence likely making you uncompetitive in this arena). The prices a market maker sees and the types of orders that they are able to use to realize them are exactly the same as for any other trader.\",\n \"The price of a share has two components: Bid: The highest price that someone who wants to buy shares is willing to pay for them. Ask: The lowest price that someone who has a share is willing to sell it for. The ask is always higher than the bid, since if they were equal the buyer and seller would have a deal, make a transaction, and that repeats until they are not equal. For stock with high volume, there is usually a very small difference between the bid and ask, but a stock with lower volume could have a major difference. When you say that the share price is $100, that could mean different things. You could be talking about the price that the shares sold for in the most recent transaction (and that might not even be between the current bid and ask), or you could be talking about any of the bid, the ask, or some value in between them. If you have shares that you are interested in selling, then the bid is what you could immediately sell a share for. If you sell a share for $100, that means someone was willing to pay you $100 for it. If after buying it, they still want to buy more for $100 each, or someone else does, then the bid is still $100, and you haven't changed the price. If no one else is willing to pay more than $90 for a share, then the price would drop to $90 next time a transaction takes place and thats what you would be able to immediately sell the next share for.\",\n \"\\\"The current stock price you're referring to is actually the price of the last trade. It is a historical price – but during market hours, that's usually mere seconds ago for very liquid stocks. Whereas, the bid and ask are the best potential prices that buyers and sellers are willing to transact at: the bid for the buying side, and the ask for the selling side. But, think of the bid and ask prices you see as \\\"\\\"tip of the iceberg\\\"\\\" prices. That is: The \\\"\\\"Bid: 13.20 x200\\\"\\\" is an indication that there are potential buyers bidding $13.20 for up to 200 shares. Their bids are the highest currently bid; and there are others in line behind with lower bid prices. So the \\\"\\\"bid\\\"\\\" you're seeing is actually the best bid price at that moment. If you entered a \\\"\\\"market\\\"\\\" order to sell more than 200 shares, part of your order would likely be filled at a lower price. The \\\"\\\"Ask: 13.27 x1,000\\\"\\\" is an indication that there are potential sellers asking $13.27 for up to 1000 shares. Their ask prices are the lowest currently asked; and there are others in line behind with higher ask prices. So the \\\"\\\"ask\\\"\\\" you're seeing is the best asking price at that moment. If you entered a \\\"\\\"market\\\"\\\" order to buy more than 1000 shares, part of your order would likely be filled at a higher price. A transaction takes place when either a potential buyer is willing to pay the asking price, or a potential seller is willing to accept the bid price, or else they meet in the middle if both buyers and sellers change their orders. Note: There are primarily two kinds of stock exchanges. The one I just described is a typical order-driven matched bargain market, and perhaps the kind you're referring to. The other kind is a quote-driven over-the-counter market where there is a market-maker, as JohnFx already mentioned. In those cases, the spread between the bid & ask goes to the market maker as compensation for making a market in a stock. For a liquid stock that is easy for the market maker to turn around and buy/sell to somebody else, the spread is small (narrow). For illiquid stocks that are harder to deal in, the spread is larger (wide) to compensate the market-maker having to potentially carry the stock in inventory for some period of time, during which there's a risk to him if it moves in the wrong direction. Finally ... if you wanted to buy 1000 shares, you could enter a market order, in which case as described above you'll pay $13.27. If you wanted to buy your shares at no more than $13.22 instead, i.e. the so-called \\\"\\\"current\\\"\\\" price, then you would enter a limit order for 1000 shares at $13.22. And more to the point, your order would become the new highest-bid price (until somebody else accepts your bid for their shares.) Of course, there's no guarantee that with a limit order that you will get filled; your order could expire at the end of the day if nobody accepts your bid.\\\"\",\n \"\\\"When people talk about \\\"\\\"the price\\\"\\\" of a stock, they usually mean one of the following: Last price: The price at which a trade most recently took place. If someone sold (and someone else bought) shares of XYZ for $20 each, then until another trade occurs, the last price of the stock will be quoted at $20. Bid price: The highest price at which someone is currently offering to buy the stock. Ask price: The lowest price at which someone is currently offering to sell the stock. As you can see, all of these are completely determined by the people buying and selling the stock.\\\"\",\n \"When you want to short a stock, you are trying to sell shares (that you are borrowing from your broker), therefore you need buyers for the shares you are selling. The ask prices represent people who are trying to sell shares, and the bid prices represent people who are trying to buy shares. Using your example, you could put in a limit order to short (sell) 1000 shares at $3.01, meaning that your order would become the ask price at $3.01. There is an ask price ahead of you for 500 shares at $3.00. So people would have to buy those 500 shares at $3.00 before anyone could buy your 1000 shares at $3.01. But it's possible that your order to sell 1000 shares at $3.01 never gets filled, if the buyers don't buy all the shares ahead of you. The price could drop to $1.00 without hitting $3.01 and you will have missed out on the trade. If you really wanted to short 1000 shares, you could use a market order. Let's say there's a bid for 750 shares at $2.50, and another bid for 250 shares at $2.49. If you entered a market order to sell 1000 shares, your order would get filled at the best bid prices, so first you would sell 750 shares at $2.50 and then you would sell 250 shares at $2.49. I was just using your example to explain things. In reality there won't be such a wide spread between the bid and ask prices. A stock might have a bid price of $10.50 and an ask price of $10.51, so there would only be a 1 cent difference between putting in a limit order to sell 1000 shares at $10.51 and just using a market order to sell 1000 shares and getting them filled at $10.50. Also, your example probably wouldn't work in real life, because brokers typically don't allow people to short stocks that are trading under $5 per share. As for your question about how often you are unable to make a short sale, it can sometimes happen with stocks that are heavily shorted and your broker may not be able to find any more shares to borrow. Also remember that you can only short stocks with a margin account, you cannot short stocks with a cash account.\",\n \"\\\"It's good to ask this question, because this is one of the fundamental dichotomies in market microstructure. At any time T for each product on a (typical) exchange there are two well-defined prices: At time T there is literally no person in the market who wants to sell below the ask, so all the people who are waiting to buy at the bid (or below) could very well be waiting there forever. There's simply no guarantee that any seller will ever want to part with their product for a lesser price than they think it's worth. So if you want to buy the product at time T you have a tough choice to make: you get in line at the bid price, where there's no guarantee that your request will ever be filled, and you might never get your hands on the product you decide that owning the product right now is more valuable to you than (ask - bid) * quantity, so you tell the exchange that you're willing to buy at the ask price, and the exchange matches you with whichever seller is first in line Now, if you're in the market for the long term, the above choice is completely immaterial to you. Who cares if you pay $10.00 * 1000 shares or $10.01 * 1000 shares when you plan to sell 30 years from now at $200 (or $200.01)? But if you're a day trader or anyone else with a very short time horizon, then this choice is extremely important: if the price is about to go up several cents and you got in line at the bid (and never got filled) then you missed out on some profit if you \\\"\\\"cross the spread\\\"\\\" to buy at the ask and then the price doesn't go up (or worse, goes down), you're screwed. In order to get out of the position you'll have to cross the spread again and sell at at most the bid, meaning you've now paid the spread twice (plus transaction fees and regulatory fees) for nothing. (All of the above also applies in reverse for selling at the ask versus selling at the bid, but most people like to learn in terms of buying rather than selling.)\\\"\",\n \"In the stock market many participants enter orders that are not necessarily set at the current market price of the stock (i.e. they are not market orders, they are limit orders). They can be lower than the market price (if they want to buy) or they can be higher than the market price (if they want to sell). The set of orders at each point of time for a security is called the order book. The lowest selling price of the order book is the offer or ask, the higher buying price is the bid. The more liquid is a security, the more orders will be in the order book, and the narrower will be the bid-ask spread. The depth of the order book is the number of units that the order book can absorb in any direction (buy or sell). As an example: imagine I want to buy 100 units at the lowest offer, but the size of the lowest offer is only 50 units, and there is not any further order, that means the stock has little depth.\",\n \"\\\"The answer posted by Kirill Fuchs is incorrect according to my series 65 text book and practice question answers. The everyday investor buys at the ask and sells at the bid but the market maker does the opposite. THE MARKET MAKER \\\"\\\"BUYS AT THE BID AND SELLS AT THE ASK\\\"\\\", he makes a profit form the spread. I have posted a quiz question and the answer created by the Financial Industry Regulatory Authority (FINRA). To fill a customer buy order for 800 WXYZ shares, your firm requests a quote from a market maker. The response is \\\"\\\"bid 15, ask 15.25.\\\"\\\" If the order is placed, the market maker must sell: A) 800 shares at $15.25 per share. B) 800 shares at $15 per share. C) 100 shares at $15.25 per share. D) 800 shares at no more than $15 per share. Your answer, sell 800 shares at $15.25 per share., was correct!. A market maker is responsible for honoring a firm quote. If no size is requested by the inquiring trader, a quote is firm for 100 shares. In this example, the trader requested an 800-share quote, so the market maker is responsible for selling 8 round lots of 100 shares at the ask price of $15.25 per share.\\\"\",\n \"The best ask is the lowest ask, and the best bid is the highest bid. If the ask was lower than the bid then they crossed, and that would be a crossed market and quickly resolved. So the bid will almost always be cheaper than the ask. A heuristic is that a bid is the revenue of the stock at any given time while the ask is the cost, so the market will only ever offer a profit to itself not to the liquidity seeker. If examining the book vertically, all orders are usually sorted descending. Since the best ask is the lowest ask, it is on the bottom of the asks, and vice versa for the best bid. The best bid & best ask will be those closest since that's the narrowest spread and price-time priority will promise that a bid that crosses the asks will hit the lowest ask, the best possible price for the bidder and vice versa for an ask that crosses the best bid.\",\n \"yes you are right as per my understanding while doing trade you must consider fol (specially for starters like me) The volume of the stock you are trading in should be high enough to keep you secure for quick in and out Whenever the bid volume is more than the ask volume the prices will move up and vice versa. to give an example if a stock is at 100 points and there are fol bids: The transaction will occur when either the bidder agrees to pay the ask price (case 1. he pays 101 . his bid offer will disappear and the next best ask will be 102. and the current price will be 101 which was the last transaction.) or when the person giving ask price agrees to deal at best bid which was 99 in which case the share will go down.\",\n \"Sounds to me like you're describing just how it should work. Ask is at 30, Bid is at 20; you offer a new bid at 25. Either: Depending on liquidity, one or the other may be more likely. This Investorplace article on the subject describes what you're seeing, and recommends the strategy you're describing precisely. Instead of a market order, take advantage of the fact that the options world truly is a marketplace — one where you can possibly get a better price just by asking. How does that work? If you use a limit order (instead of a market order) when opening a position, you can tell your broker how much you are willing to pay to enter a trade. For example, if you enter a limit price of $1.15, you can see whether the market-maker will bite. You will be surprised at how many times you will get your price (i.e., $1.15) instead of the ask price of $1.30. If your order at $1.15 is not filled after a few minutes, you can modify your order and pay the ask price by entering a market order or limit order at the ask price (that is, you can tell your broker to pay no more than $1.30).\",\n \"You don't see Buying and Selling. You see Bid and Ask. Best Bid--Highest Price someone is willing to pay to buy a stock. Best Ask - Lowest price someone is willing to accept to sell a stock. As for your second question, if you can look up Accumulation/Distribution Algorithm and Iceberg Order, you will get basic idea.\",\n \"A bid is an offer to buy something on an order book, so for example you may post an offer to buy one share, at $5. An ask is an offer to sell something on an order book, at a set price. For example you may post an offer to sell shares at $6. A trade happens when there are bids/asks that overlap each other, or are at the same price, so there is always a spread of at least one of the smallest currency unit the exchange allows. Betting that the price of an asset will go down, traditionally by borrowing some of that asset and then selling it, hoping to buy it back at a lower price and pocket the difference (minus interest). So, let's say as per your example you borrow 100 shares of company 'X', expecting the price of them to go down. You take your shares to the market and sell them - you make a market sell order (a market 'ask'). This matches against a bid and you receive a price of $5 per share. Now, let's pretend that you change your mind and you think the price is going to go up, you instantly regret your decision. In order to pay back the shares, you now need to buy back your shares as $6 - which is the price off the ask offers on the order book. Because of this spread, you have lost money. You sold at a low price and bought at a high price, meaning it costs you more money to repay your borrowed shares. So, when you are shorting you need the spread to be as tight as possible.\",\n \"\\\"This is a misconception. One of the explanations is that if you buy at the ask price and want to sell it right away, you can only sell at the bid price. This is incorrect. There are no two separate bid and ask prices. The price you buy (your \\\"\\\"bid\\\"\\\") is the same price someone else sells (their \\\"\\\"sell\\\"\\\"). The same goes when you sell - the price you sell at is the price someone else buys. There's no spread with stocks. Emphasized it on purpose, because many people (especially those who gamble on stock exchange without knowing what they're doing) don't understand how the stock market works. On the stock exchange, the transaction price is the match between the bid price and the ask price. Thus, on any given transaction, bid always equals ask. There's no spread. There is spread with commodities (if you buy it directly, especially), contracts, mutual funds and other kinds of brokered transactions that go through a third party. The difference (spread) is that third party's fee for assuming part of the risk in the transaction, and is indeed added to your cost (indirectly, in the way you described). These transactions don't go directly between a seller and a buyer. For example, there's no buyer when you redeem some of your mutual fund - the fund pays you money. So the fund assumes certain risk, which is why there's a spread in the prices to invest and to redeem. Similarly with commodities: when you buy a gold bar - you buy it from a dealer, who needs to keep a stock. Thus, the dealer will not buy from you at the same price: there's a premium on sale and a discount on buy, which is a spread, to compensate the dealer for the risk of keeping a stock.\\\"\",\n \"At any point of time, buyer wants to purchase a stock at lesser price and seller wants to sell the stock at a higher price. Let's consider this scenario Company XYZ is trading at 100$, as stated above buyer wants to purchase at lower price and seller at higher price, this information will be available in Market depth, let's consider there are 5 buyers and 5 sellers, below are the details of their orders Buyers List Sellers List Highest order in buyers list will contain the bid price and bid quantity, Lowest order in Sellers list will contain the offer price and offer quantity. Now, if I want to buy 50 Stocks of company XYZ, need to place an order first, it can be either limit or Market. Limit Order : In this order, I will mention the price(buy price) at which I wish to buy, if there is any seller selling the stock less than or equal to price I have mentioned, then the order will be executed else it will be added to buyers list Market Order : In this order, I will not mention the price, if I wish to purchase 50 Stocks, then it will find the lowest offer price and buy stocks, in our case it will be 101. if I wish to purchase 200 Stocks, then it will find the lowest offer price and buy stocks, in our case it will be 2 transactions, since entire request cannot be accommodated in single order Usually the volume(Ask Volume and Offer Volume) being displayed are all Limit orders and not Market orders, Market orders are executed immediately. This is just an example, However several transactions are executed within a second, hence we will get to know the exact value only after the order is completed(executed)\",\n \"The point is that the bid and ask prices dictate what you can buy and sell at (at market, at least), and the difference between the two, or spread, contributes implicitly to your gains or losses. For example, say your $1 stock actually had a bid of $0.90 and an ask of $1.10; i.e. say that $1 was the last price. You would have to buy the stock at the ask price of $1.10, but now you can only sell that stock at the bid price of $0.90. Thus, you would need to make at least that $0.20 spread before you can make a profit.\",\n \"When there is a difference between the two ... no trading occurs. Let's look at an example: Investor A, B, C, and D all buy/sell shares of company X. Investor A wants to sell 10 shares at $20 a share (Ask price $20 x10). Investor B wants to buy 15 shares at $10 a share (Bid price $10 x15). Since the bid price and ask price are different, no sale is made. Next Investor C comes along and wants to sell 5 shares at $14 (Ask price $14 x5). Still no sale. Investor D comes along and wants to buy 5 shares for $14 each. So a sale is finally made. At this point, the stock quote moves to $14. The ask price is $20 x10 and the bid price is $10 x15. No further trading will occur until another investor is willing to buy at $20 or sell at $10. Another discussion of this topic is shown on this post.\",\n \"\\\"Firstly, if a stock costs $50 this second, the bid/ask would have to be 49/50. If the bid/ask were 49/51, the stock would cost $51 this second. What you're likely referring to is the last trade, not the cost. The last trading price is history and doesn't apply to future transactions. To make it simple, let's define a simple order book. Say there is a bid to buy 100 at $49, 200 at $48, 500 at $47. If you place a market order to sell 100 shares, it should all get filled at $49. If you had placed a market order to sell 200 shares instead, half should get filled at $49 and half at $48. This is, of course, assuming no one else places an order before you get yours submitted. If someone beats you to the 100 share lot, then your order could get filled at lower than what you thought you'd get. If your internet connection is slow or there is a lot of latency in the data from the exchange, then things like this could happen. Also, there are many ECNs in addition to the exchanges which may have different order books. There are also trades which, for some reason, get delayed and show up later in the \\\"\\\"time and sales\\\"\\\" window. But to answer the question of why someone would want to sell low... the only reason I could think is they desire to drive the price down.\\\"\",\n \"\\\"Re: A trader when buying needs to buy at the ask price and when selling needs to sell at the bid price. So how can a trade happen 'in between' the bid and ask? Saying the trade can happen \\\"\\\"in between\\\"\\\" the bid & ask is simplistic. There is a time dimension to the market. It's more accurate to say that an order can be placed \\\"\\\"in between\\\"\\\" the current best bid & ask (observed at time T=0), thus establishing a new level for one or the other of those quoted prices (observed at time T>0). If you enter a market order to buy (or sell), then yes, you'll generally be accepting the current best ask (or best bid) with your order, because that's what a market order says to do: Accept the current best market price being offered for your kind of transaction. Of course, prices may move much faster than your observation of the price and the time it takes to process your order – you're far from being the only participant. Market orders aside, you are free to name your own price above or below the current best bid & ask, respectively. ... then one could say that you are placing an order \\\"\\\"in between\\\"\\\" the bid and ask at the time your order is placed. However – and this is key – you are also moving one or the other of those quoted prices in the process of placing your above-bid buy order or your below-ask sell order. Then, only if somebody else in the market chooses to accept your new ask (or bid) does your intended transaction take place. And that transaction takes place at the new ask (or bid) price, not the old one that was current when you entered your order. Read more about bid & ask prices at this other question: (p.s. FWIW, I don't necessarily agree with the assertion from the article you quoted, i.e.: \\\"\\\"By looking for trades that take place in between the bid and ask, you can tell when a strong trend is about to come to an end.\\\"\\\" I would say: Maybe, perhaps, but maybe not.)\\\"\",\n \"In general stock markets are very similar to that, however, you can also put in limit orders to say that you will only buy or sell at a given price. These sit in the market for a specified length of time and will be executed when an order arrives that matches the price (or better). Traders who set limit orders are called liquidity (or price) makers as they provide liquidity (i.e. volume to be traded) to be filled later. If there is no counterparty (i.e. buyer to your seller) in the market, a market maker; a large bank or brokerage who is licensed and regulated to do so, will fill your order at some price. That price is based on how much volume (i.e. trading) there is in that stock on average. This is called average daily volume (ADV) and is calculated over varying periods of time; we use ADV30 which is the 30 day average. You can always sell stocks for whatever price you like privately but a market order does not allow you to set your price (you are a price taker) therefore that kind of order will always fill at a market price. As mentioned above limit orders will not fill until the price is hit but will stay on book as long as they aren't filled, expired or cancelled.\",\n \"It depends on the sequence in which the order [bid and ask] were placed. Please read the below question to understand how the order are matched. How do exchanges match limit orders?\",\n \"In order to see whether you can buy or sell some given quantity of a stock at the current bid price, you need a counterparty (a buyer) who is willing to buy the number of stocks you are wishing to offload. To see whether such a counterparty exists, you can look at the stock's order book, or level two feed. The order book shows all the people who have placed buy or sell orders, the price they are willing to pay, and the quantity they demand at that price. Here is the order book from earlier this morning for the British pharmaceutical company, GlaxoSmithKline PLC. Let's start by looking at the left-hand blue part of the book, beneath the yellow strip. This is called the Buy side. The book is sorted with the highest price at the top, because this is the best price that a seller can presently obtain. If several buyers bid at the same price, then the oldest entry on the book takes precedence. You can see we have five buyers each willing to pay 1543.0 p (that's 1543 British pence, or £15.43) per share. Therefore the current bid price for this instrument is 1543.0. The first buyer wants 175 shares, the next, 300, and so on. The total volume that is demanded at 1543.0p is 2435 shares. This information is summarized on the yellow strip: 5 buyers, total volume of 2435, at 1543.0. These are all buyers who want to buy right now and the exchange will make the trade happen immediately if you put in a sell order for 1543.0 p or less. If you want to sell 2435 shares or fewer, you are good to go. The important thing to note is that once you sell these bidders a total of 2435 shares, then their orders are fulfilled and they will be removed from the order book. At this point, the next bidder is promoted up the book; but his price is 1542.5, 0.5 p lower than before. Absent any further changes to the order book, the bid price will decrease to 1542.5 p. This makes sense because you are selling a lot of shares so you'd expect the market price to be depressed. This information will be disseminated to the level one feed and the level one graph of the stock price will be updated. Thus if you have more than 2435 shares to sell, you cannot expect to execute your order at the bid price in one go. Of course, the more shares you are trying to get rid of, the further down the buy side you will have to go. In reality for a highly liquid stock as this, the order book receives many amendments per second and it is unlikely that your trade would make much difference. On the right hand side of the display you can see the recent trades: these are the times the trades were done (or notified to the exchange), the price of the trade, the volume and the trade type (AT means automatic trade). GlaxoSmithKline is a highly liquid stock with many willing buyers and sellers. But some stocks are less liquid. In order to enable traders to find a counterparty at short notice, exchanges often require less liquid stocks to have market makers. A market maker places buy and sell orders simultaneously, with a spread between the two prices so that they can profit from each transaction. For instance Diurnal Group PLC has had no trades today and no quotes. It has a more complicated order book, enabling both ordinary buyers and sellers to list if they wish, but market makers are separated out at the top. Here you can see that three market makers are providing liquidity on this stock, Peel Hunt (PEEL), Numis (NUMS) and Winterflood (WINS). They have a very unpalatable spread of over 5% between their bid and offer prices. Further in each case the sum total that they are willing to trade is 3000 shares. If you have more than three thousand Dirunal Group shares to sell, you would have to wait for the market makers to come back with a new quote after you'd sold the first 3000.\",\n \"\\\"Most of the time* you're selling to other investors, not back to the company. The stock market is a collection of bid (buy offers) and asks (sell offers). When you sell your stock as a retail investor at the \\\"\\\"market\\\"\\\" price you're essentially just meeting whatever standing bid offers are on the market. For very liquid stocks (e.g. Apple), you can pretty much always get the displayed price because so many stocks are being traded. However during periods of very high volatility or for low-volume stocks, the quoted price may not be indicative of what you actually pay. As an example, let's say you have 5 stocks you're trying to sell and the bid-side order book is 2 stocks for $105, 2 for $100, and 5 for $95. In this scenario the quoted price will be $105 (the best bid price), but if you accept market price you'll settle 2 for 105, 2 for 100, and 1 for 95. After your sell order goes through, the new quoted price will be $95. For high volume stocks, there will usually be so many orders near the midpoint price ($105, in this case) that you won't see any price slippage for small orders. You can also post limit orders, which are essentially open orders waiting to be filled like in the above example. They ensure you get the price you want, but you have no way to guarantee they'll be filled or not. Edit: as a cool example, check out the bitcoin GDAX on coinbase for a live example of what the order book looks like for stocks. You'll see that the price of bitcoin will drift towards whichever direction has the less dense order book (e.g. price drifts upwards when there are far more bids than asks.)\\\"\",\n \"This is copying my own answer to another question, but this is definitely relevant for you: A bid is an offer to buy something on an order book, so for example you may post an offer to buy one share, at $5. An ask is an offer to sell something on an order book, at a set price. For example you may post an offer to sell shares at $6. A trade happens when there are bids/asks that overlap each other, or are at the same price, so there is always a spread of at least one of the smallest currency unit the exchange allows. Betting that the price of an asset will go down, traditionally by borrowing some of that asset and then selling it, hoping to buy it back at a lower price and pocket the difference (minus interest). Going long, as you may have guessed, is the opposite of going short. Instead of betting that the price will go down, you buy shares in the hope that the price will go up. So, let's say as per your example you borrow 100 shares of company 'X', expecting the price of them to go down. You take your shares to the market and sell them - you make a market sell order (a market 'ask'). This matches against a bid and you receive a price of $5 per share. Now, let's pretend that you change your mind and you think the price is going to go up, you instantly regret your decision. In order to pay back the shares, you now need to buy back your shares as $6 - which is the price off the ask offers on the order book. Similarly, the same is true in the reverse if you are going long. Because of this spread, you have lost money. You sold at a low price and bought at a high price, meaning it costs you more money to repay your borrowed shares. So, when you are shorting you need the spread to be as tight as possible.\",\n \"\\\"First, keep in mind that there are generally 2 ways to buy a corporation's shares: You can buy a share directly from the corporation. This does not happen often; it usually happens at the Initial Public Offering [the first time the company becomes \\\"\\\"public\\\"\\\" where anyone with access to the stock exchange can become a part-owner], plus maybe a few more times during the corporations existence. In this case, the corporation is offering new ownership in exchange for a price set the corporation (or a broker hired by the corporation). The price used for a public offering is the highest amount that the company believes it can get - this is a very complicated field, and involves many different methods of evaluating what the company should be worth. If the company sets the price too low, then they have missed out on possible value which would be earned by the previous, private shareholders (they would have gotten the same share % of a corporation which would now have more cash to spend, because of increased money paid by new shareholders). If the company sets the price too high, then the share subscription might only be partially filled, so there might not be enough cash to do what the company wanted. You can buy a share from another shareholder. This is more common - when you see the company's share price on the stock exchange, it is this type of transaction - buying out other current shareholders. The price here is simply set based on what current owners are willing to sell at. The \\\"\\\"Bid Price\\\"\\\" listed by an exchange is the current highest bid that a purchaser is offering for a single share. The \\\"\\\"Ask Price\\\"\\\" is the current lowest offer that a seller is offering to sell a single share they currently own. When the bid price = the ask price, a share transaction happens, and the most recent stock price changes.\\\"\",\n \"\\\"Say we have stock XYZ that costs $50 this second. It doesn't cost XYZ this second. The market price only reflects the last price at which the security traded. It doesn't mean that if you'll get that price when you place an order. The price you get if/when your order is filled is determined by the bid/ask spreads. Why would people sell below the current price, and not within the range of the bid/ask? Someone may be willing to sell at an ask price of $47 simply because that's the best price they think they can sell the security for. Keep in mind that the \\\"\\\"someone\\\"\\\" may be a computer that determined that $47 is a reasonable ask price. Remember that bid/ask spreads aren't fixed, and there can be multiple bid/ask prices in a market at any given time. Your buy order was filled because at the time, someone else in the market was willing to sell you the security for the same price as your bid price. Your respective buy/sell orders were matched based on their price (and volume, conditional orders, etc). These questions may be helpful to you as well: Can someone explain a stock's \\\"\\\"bid\\\"\\\" vs. \\\"\\\"ask\\\"\\\" price relative to \\\"\\\"current\\\"\\\" price? Bids and asks in case of market order Can a trade happen \\\"\\\"in between\\\"\\\" the bid and ask price? Also, you say you're a day trader. If that's so, I strongly recommend getting a better grasp on the basics of market mechanics before committing any more capital. Trading without understanding how markets work at the most fundamental levels is a recipe for disaster.\\\"\",\n \"Many of the Bitcoin exchanges mimic stock exchanges, though they're much more rudimentary offering only simple buy/sell/cancel orders. It's fairly normal for retail stock brokerage accounts to allow other sorts of more complex orders, where once a certain criteria is met, (the price falls below some $ threshold, or has a movement greater than some %) then your order is executed. The space between the current buy order and the current sell order is the bid/ask spread, it's not really about timing. Person X will buy at $100, person Y will sell at $102. If both had a price set at $101, they would just transact. Both parties think they can do a little bit better than the current offer. The width of the bid/ask spread is not universal by any means. The current highest buy order and the current lowest sell order, are both the current price. The current quoted market price is generally the price of the last transaction, whether it's buy or sell.\",\n \"\\\"A market sell order will be filled at the highest current \\\"\\\"bid\\\"\\\" price. For a reasonably liquid stock, there will be several buy orders in line, and the highest bid must be filled first, so there should a very short time between when you place the order and when it is filled. What could happen is what's called front running. That's when the broker places their own order in front of yours to fulfill the current bid, selling their own stock at the slightly higher price, causing your sale to be filled at a lower price. This is not only unethical but illegal as well. It is not something you should be concerned about with a large broker. You should only place a market order when you don't care about minute differences between the current ask and your execution price, but want to guarantee order execution. If you absolutely have to sell at a minimum price, then a limit order is more appropriate, but you run the risk that your limit will not be reached and your order will not be filled. So the risk is a tradeoff between a guaranteed price and a guaranteed execution.\\\"\",\n \"\\\"When I first started working in finance I was given a rule of thumb to decide which price you will get in the market: \\\"\\\"You will always get the worst price for your deal, so when buying you get the higher ask price and when selling you get the lower bid price.\\\"\\\" I like to think of it in terms of the market as a participant who always buys at the lowest price they can (i.e. buys from you) and sells at the highest price they can. If that weren't true there would be an arbitrage opportunity and free money never exists for long.\\\"\",\n \"\\\"People in this case, are large institutional investors. The \\\"\\\"bid ask\\\"\\\" spread is for \\\"\\\"small traders\\\"\\\" like yourself. It is put out by the so-called specialists (or \\\"\\\"market makers\\\"\\\") and is typically good for hundreds or thousands of shares at a time. Normally, 2 points on a 50 stock is a wide spread, and the market maker will make quite a bit of money on it trading with people like yourself. It's different if a large institution, say Fidelity, wants to sell, say 1 million shares of the stock. Depending on market conditions, it may have trouble finding buyers willing to buy in those amounts anywhere near 50. To \\\"\\\"move\\\"\\\" such a large block of stock, they may have to put the equivalent of K-Mart's old \\\"\\\"Blue Light Special\\\"\\\" on, several points below.\\\"\",\n \"No, Mark is right, if you place a market order there will always be someone to buy or sell at the market price. Only if you place a limit order on the price can it not sell or be bought. Just research on your computer and you will find your answer. You must be specify about open order or limit order when asking.\",\n \"In the world of stock exchanges, the result depends on the market state of the traded stock. There are two possibilities, (a) a trade occurs or (b) no trade occurs. During the so-called auction phase, bid and ask prices may overlap, actually they usually do. During an open market, when bid and ask match, trades occur.\",\n \"I think your confusion has arisen because in every transaction there is a buyer and a seller, so the market maker buys you're selling, and when you're buying the market maker is selling. Meaning they do in fact buy at the ask price and sell at the bid price (as the quote said).\",\n \"Price for the latest transaction. If the stock is selling for $898.7 means that the stock is currently trading for $898.7, and it will be your ask price of stock if you purchase currently.\",\n \"\\\"Assuming that no one else has hit the ask, and the asks are still there, yes, you will fill $54.55 as long as you didn't exhaust that ask. Actually, there is no \\\"\\\"current price at which the stock is exchanging hands\\\"\\\"; in reality, it is \\\"\\\"the last price traded\\\"\\\". The somebody who negotiated prices between buyers & sellers is the exchange through their handling of bids & asks. The real negotiation comes between bids & asks, and if they meet or cross, a trade occurs. It's not that both bid & ask should be $54.55, it's that they were. To answer the title, the reasons why the bid and ask (even their midpoint) move away from the last price are largely unknown, but at least for the market makers, if their sell inventory is going away (people are buying heavily and they're running out of inventory) they will start to hike up their asks a lot and their bids a little because market makers try to stay market neutral, having no opinion on whether an asset will rise or fall, so with stocks, that means having a balanced inventory of longs & shorts. They want to (sometimes have to depending on the exchange) accommodate the buying pressure, but they don't want to lose money, so they simply raise the ask and then raise the bid as people hit their asks since their average cost basis has risen. In fact (yahoo finance is great about showing this), there's rarely 1 bid and 1 ask. Take a look at BAC's limit book: http://finance.yahoo.com/q/ecn?s=BAC+Order+Book You can see that there are many bids and many asks. If one ask is exhausted, the next in line is now the highest. The market maker who just sold at X will certainly step over the highest bid to bid at X*0.9 to get an 11% return on investment.\\\"\",\n \"\\\"There needs to be a buyer of the shares you are offering. There are a lot of feature rich options for buying and selling. I don't understand them all in depth, but for example on TD Ameritrade here are some of the order types \\\"\\\"Limit\\\"\\\", \\\"\\\"Market\\\"\\\", \\\"\\\"Stop Market\\\"\\\", \\\"\\\"Stop Limit\\\"\\\", \\\"\\\"Trailing Stop %\\\"\\\", \\\"\\\"Trailing Stop $\\\"\\\". This web page will explain the different order types https://invest.ameritrade.com/cgi-bin/apps/u/PLoad?pagename=tutorial/orderTypes/overview.html Stock with a higher volume will allow your trade to execute faster, since there are more frequent trades than stocks with lower volume. (UPDATE: More specifically, not more frequent trades, but more shares changing hands.) I'm a bit of a noob myself, but that's what I understand.\\\"\",\n \"The equation you show is correct, you've simply pointed out that you understand that you buy at the 'ask' price, and later sell at the 'bid.' There is no bid/ask on the S&P, as you can't trade it directly. You have a few alternatives, however - you can trade SPY, the (most well known) S&P ETF whose price reflects 1/10 the value or VOO (Vanguard's offering) as well as others. Each of these ETFs gives you a bid/ask during market hours. They trade like a stock, have shares that are reasonably priced, and are optionable. To trade the index itself, you need to trade the futures. S&P 500 Futures and Options is the CME Group's brief info guide on standard and mini contracts. Welcome to SE.\",\n \"\\\"When you place a limit sell order of $10.00 (for a stock on an option) you are adding your order to the book. Anyone who places a buy at-the-market or with a limit price over $10.00 will have that order immediately fulfilled through the offer you have placed on the book. On the other hand, if that other person places a buy for $8.00, then the spread will now be \\\"\\\"$8.00 bid, $10.00 ask\\\"\\\". Priority is based on first the price (all $9.99 asks will clear before $10.00) and within each bucket this is based on the time your order was submitted. This is why in bidding markets (including eBay) buying at $x.01 is way better than $x.00 and selling at $x.99 is better than $(x+1).00. Source: https://en.wikipedia.org/wiki/Order_(exchange) under \\\"\\\"first-come-first-served\\\"\\\"\\\"\",\n \"The same as when you are buying a car. If a dealer quotes 10k and you quote 8k. 8k is the buy price and 10k is the sell price. Somebody might quote 8.5k and another dealer might quote 9.5k. The the new price that you see on your screen is 8.5k(Best buy price) and 9.5k(Best sell price). When the buyer and seller agree to an amount, the car(In your case stock) is traded.\",\n \"I stock is only worth what someone will pay for it. If you want to sell it you will get market price which is the bid.\",\n \"Market Makers are essentially just there to process the buys and sells of traders, so just like you and I buy and sell at the ask and bid prices they do to. They are just completing the process of making our orders a reality. Market makers are just representative of brokers, meaning that when you place your order at ask or bid, you are placing that particular brokers order at ask or bid. People often say that certain brokers have too many shares and claim that they are games when really that just means that there happen to be a lot of people using a particular broker all at once, or more troubling, perhaps even company execs using a broker, to sell a large amount of shares.\",\n \"If you are looking to go long (buy) you would use bid prices as this is what you will be matched against for your order to be executed and a trade to go through. If you are looking to go short (sell) you would use the ask prices as this is what you will be matched against for your order to be executed and a trade go through. In your analysis you could use either this convention or the midpoint of the two prices. As FX is very liquid the bid and ask prices would be quite close to each other, so the easiest way to do your analysis is to use the convention I listed above.\",\n \"\\\"Why would people sell below the current price, and not within the range of the bid/ask? There are many scenarios where this is deliberate but all of them boil down to the fact that the top level's bid doesn't support the quantity you're trying to sell (or is otherwise bogus[1]). One scenario as an example: You're day-trading both sides but at the end of the day you accumulated a rather substantial long position in a stock. You don't want to (or aren't allowed to[2]) be exposed overnight, however. What do you do? You place an order that is highly likely to go through altogether. There's several ways to achieve that but a very simple one is to look at the minimum bid level for which the bid side is willing to take all of your shares, then place a limit order for the total quantity at that price. If your position doesn't fit into the top level bid that price will well be lower than the \\\"\\\"current\\\"\\\" bid. Footnotes: [1] Keyword: quote stuffing [2] Keyword: overnight margin (aka positional margin, as opposed to intraday margin), this is highly broker dependent, exchanges don't usually distinguish between intraday and overnight margins, instead they use the collective term maintenance margin\\\"\",\n \"You can*, if the market is open, in a normal trading phase (no auction phase), works, and there is an existing bid or offer on the product you want to trade, at the time the market learns of your order. Keep in mind there are 2 prices: bid and offer. If the current bid and current offer were the same, it would immediately result in a trade, and thus the bid and offer are no longer the same. Market Makers are paid / given lower fees in order to maintain buy and sell prices (called quotes) at most times. These conditions are usually all true, but commonly fail for these reasons: Most markets have an order type of market order that says buy/sell at any price. There are still sanity checks put in place on the price, with the exact rules for valid prices depending on the stock, so unless it's a penny stock you won't suddenly pay ten times a stock's value. *The amount you can buy sell is limited by the quantity that exists on the bid and offer. If there is a bid or offer, the quantity is always at least 1.\",\n \"Im an actor preparing for a role. I play a trader in the UK during the late 80s. I have a very basic understanding of the stock market and am unsure what some of the dialogue is referring to. For example: “bid 28 at the figure” “sell at 3” “5 march at 28” “9 for 5” “bid 4 at 6” “closing out now at 4”. What do these numbers mean exactly. It doesn’t help that im Australian and this is a UK production, or that im an idiot\",\n \"The principle of demand-supply law will not work if spoofing (or layering, fake order) is implemented. However, spoofing stocks is an illegal criminal practice monitored by SEC. In stock market, aggressive buyer are willing to pay for a higher ask price pushing the price higher even if ask size is considerably larger than bid size, especially when high growth potential with time is expected. Larger bids may attract more buyers, further perpetuating a price increase (positive pile-on effect). Aggressive sellers are willing to accept a lower bid price pushing the price lower even if ask size is considerably smaller than bid size, when a negative situation is expected. Larger asks may attract more sellers, further perpetuating a price fall (negative pile-on effect). Moreover, seller and buyers considers not only price but also size of shares in their decision-making process, along with marker order and/or limit order. Unlike limit order, market order is not recorded in bid/ask size. Market order, but not limit order, immediately affects the price direction. Thus, ask/bid sizes alone do not give enough information on price direction. If stocks are being sold continuously at the bid price, this could be the beginning of a downward trend; if stocks are being sold continuously at the ask price, this could be the beginning of a upward trend. This is because ask price is always higher than bid price. In all the cases, both buyers and sellers hope to make a profit in a long-term and short-term view\",\n \"So in your screenshot, someone or some group of someones is willing to buy 3,000 shares at $3.45, and someone or some group of someones is willing to sell 2,000 shares at 3.88. Without getting in to the specific mechanics, you can place a market buy order for 10 (or whatever number) shares and it will probably transact at $3.88 per share because that's the lowest price for which someone will currently sell their shares. As a small fish, you can generally ignore the volume notations in the bid/ask quotes.\",\n \"You can ask for 305rs, but as long as shares are available at lower prices you won't sell. Only when your ask becomes the lowest available price will someone buy from you. See many past questions about how buyers and sellers are matched by the market.\",\n \"If you place a market order, you are guaranteed to sell your stock unless the stock is in a trading halt. A market order does not guarantee the price you sell the stock at. If you place a market order, even if the stock is very illiquid a market maker will guarantee a market, but will not guarantee a price.\",\n \"In simple terms, this is how the shares are traded, however most of the times market orders are placed. Consider below scenario( hypothetical scenario, there are just 2 traders) Buyer is ready to buy 10 shares @ 5$ and seller is ready to sell 10 shares @ 5.10$, both the orders will remain in open state, unless one wish to change his price, this is an example of limit order. Market orders If seller is ready to sell 10 shares @ 5$ and another 10 shares @5.05$, if buyer wants to buy 20 shares @ market price, then the trade will be executed for 10 shares @ 5$ and another 10 shares @ 5.05$\",\n \"You have to look at stocks just like you would look at smaller and more illiquid markets. Stock trade in auction markets. These are analogous to ebay or craigslist, just with more transparency and liquidity. There is no guarantee that a market will form for a particular stock, or that it will sustain. When a stock sells off, and there are no bids left, that means all of the existing bidder's limit orders got filled because someone sold at those prices. There is nothing fishy about that. It is likely that someone else wants to sell even more, but couldn't find any more bidders. If you put a bid you would likely get filled by the shareholder with a massive position looking for liquidity. You could also buy at the ask.\",\n \"\\\"Can anyone explain what each of them mean and how they're different from each other? When you \\\"\\\"buy to open\\\"\\\", you are purchasing an option and opening a new position. When you \\\"\\\"sell to open\\\"\\\", you are creating a brand new options contract and selling it. \\\"\\\"Covered\\\"\\\" means that you have assets in your account to satisfy the terms of the options contract. A \\\"\\\"covered call\\\"\\\" is a call option for which you own shares of the underlying stock that you will sell to the buyer at the option's strike price if he exercises the option. If you previously made a \\\"\\\"sell to open\\\"\\\" trade to create a new position, and you want to close the position, you can buy back the option. If you previously made a \\\"\\\"buy to open\\\"\\\" trade, you can \\\"\\\"sell to close\\\"\\\" which will sell back your option and close your position. In summary:\\\"\",\n \"When you place a bid between the bid/ask spread, that means you are raising the bid (or lowering the ask, if you are selling). The NBBO (national best bid and offer) is now changed because of your action, and yes, certain kinds of orders may be set to react to that (a higher bid or lower ask triggering them), also many algorithms (that haven't already queued an order simply waiting for a trigger, like in a stop limit) read the bid and ask and are programmed to then place an order at that point.\",\n \"\\\"When there is a trade the shares were both bought and sold. In any trade on the secondary market there has to be both a buyer and a seller for the trade to take place. So in \\\"\\\"lasttradesize\\\"\\\" a buyer has bought the shares from a seller.\\\"\",\n \"\\\"Write means sell to open. It is called that because options writers are creating (i.e. writing) new contracts. No such thing as \\\"\\\"reading\\\"\\\" an option.\\\"\",\n \"Traditionally, dealers and broker-dealers were in contact with the actual producers of a product or issuers of a security, selling it at the exchange on their behalf. Consumers would traditionally be on the buy side, of course. These days, anyone can enter the market on either side. Even if you don't hold the security or product, you could sell it, and take on the risk of having to stock up on it by the delivery date in exchange for cash or other securities. On the other side, if you can't hold the product or security you could still buy it, taking on the risk of having to dispose of it somehow by delivery in exchange for cash or other securities. In either case you (the sell-side) take on risk and provide products/securities/cash. This is most commonly known as market making. Modern literature coins the terms liquidity taker (buy-side) and liquidity provider (sell-side). Even more accurately, risk management literature would use the terms risk-taker (sell-side) and risk spreader or risk reducer (buy side). This is quite illustrative in modern abstract markets. Take a market that allows for no offsetting or hedging because the product in question is abstract or theoretical, e.g. weather trading, volatility trading, inflation trading, etc. There's always one party trying to eliminate dependence on or correlation to the product (the risk reducer, buy-side) and the counterparty taking on their risk (sell-side).\",\n \"I can't say I know everything about the underlying details, but from what I understand, your limit buy adds to the bid side of open orders, and one possibility is that someone placed a market order to sell when the bid price for the stock fell to $10 which was matched to your open limit order. So using your terminology, I would say the spot bid price is what fell to $10, even if for a brief moment. Whether or not it is possible for your order to be filled when the limit buy price is deeper than the current bid price is beyond me. It may have something to do with lot sizes.\",\n \"Buy and sell orders always include the price at which you buy/sell. That's how the market prices for stocks are determines. So if you want to place a buy order at 106, you can do that. When that order was fulfilled and you have the stock, you can place a sell order at 107. It will be processed as soon as someone places a buy order at 107. Theoretically you can even place sell orders for stocks you haven't even bought yet. That's called short selling. You do that when you expect a stock to go down in the future. But this is a very risky operation, because when you mispredict the market you might end up owing more money than you invested. No responsible banker will even discuss this with you when you can not prove you know what you are doing.\",\n \"\\\"There are a few things you are missing here. These appear to be penny stocks or subpenny stocks. Buying these are easy.... selling is a total different ball game. Buying commissions are low and selling commissions are outrageous. Another thing you are missing in this order is... some trading platform may assume the \\\"\\\"AON\\\"\\\" sale. That is All Or None. There was an offer of 10k shares @ .63. The buyer only wanted 10k what was the broker to do with the other 20k? Did you inform the broker that partial sales where acceptable? You may want to contact your broker and explain this to them. The ALL OR NONE order has made plenty of investor a little unhappy, which seems to be your new learning experience for the day. Sorry, school of hard knocks is not always fun.\\\"\",\n \"As others have stated, the current price is simply the last price at which the security traded. For any given tick, however, there are many bid-ask prices because securities can trade on multiple exchanges and between many agents on a single exchange. This is true for both types of exchanges that Chris mentioned in his answer. Chris' answer is pretty thorough in explaining how the two types of exchanges work, so I'll just add some minor details. In exchanges like NASDAQ, there are multiple market makers for most relatively liquid securities, which theoretically introduces competition between them and therefore lowers the bid-ask spreads that traders face. Although this results in the market makers earning less compensation for their risk, they hope to make up the difference by making the market for highly liquid securities. This could also result in your order filling, in pieces, at several different prices if your brokerage firm fills it through multiple market makers. Of course, if you place your order on an exchange where an electronic system fills it (the other type of exchange that Chris mentioned), this could happen anyway. In short, if you place a market order for 1000 shares, it could be filled at several different prices, depending on volume, multiple bid-ask prices, etc. If you place a sizable order, your broker may fill it in pieces regardless to prevent you from moving the market. This is rarely a problem for small-time investors trading securities with high volumes, but for investors with higher capital like institutional investors, mutual funds, etc. who place large orders relative to the average volume, this could conceivably be a burden, both in the price difference across time as the order is placed and the increased bookkeeping it demands. This is tangentially related, so I'll add it anyway. In cases like the one described above, all-or-none (AON) orders are one solution; these are orders that instruct the broker to only execute the order if it can be filled in a single transaction. Most brokers offer these, but there are some caveats that apply to them specifically. (I haven't been able to find some of this information, so some of this is from memory). All-or-none orders are only an option if the order is for more than a certain numbers of shares. I think the minimum size is 300 or 400 shares. Your order won't be placed until your broker places all other orders ahead of it that don't have special conditions attached to them. I believe all-or-none orders are day orders, which means that if there wasn't enough supply to fill the order during the day, the order is cancelled at market close. AON orders only apply to limit orders. If you want to replicate the behavior of a market order with AON characteristics, you can try setting a limit buy/sell order a few cents above/below the current market price.\",\n \"I can often get the option at [a] price [between bid and ask] The keyword you use here is quite relevant: often. More realistically, it's going to be sometimes. And that's just how supply and demand should work. The ask is where you know you can buy right away. If you don't wanna buy at ask, you can try and put a higer bid but you can only hope someone will take it before the price moves. If prices are moving up fast, you will have missed a chance if you gambled mid-spread. Having said that, the larger the spread is, the more you should work with limits mid-spread. You don't want to just take ask or bid with illiquid options. Make a calculation of the true value of the option (i.e. using the Black Scholes Model), then set your bid around there. Of course, if not only the option but also the underlying is illiquid, this all gets even more difficult.\",\n \"\\\"For any large company, there's a lot of activity, and if you sell at \\\"\\\"market\\\"\\\" your buy or sell will execute in seconds within a penny or two of the real-time \\\"\\\"market\\\"\\\" price. I often sell at \\\"\\\"limit\\\"\\\" a few cents above market, and those sell within 20 minutes usually. For much smaller companies, obviously you are beholden to a buyer also wanting that stock, but those are not on major exchanges. You never see whose buy order you're selling into, that all happens behind the curtain so to speak.\\\"\",\n \"You can always trade at bid or ask price (depending if you are selling or buying). Market price is the price the last transaction was executed at so you may not be able to get that. If your order is large then you may not even be able to get bid/ask but should look at the depth of the order book (ie what prices are other market participants asking for and what is the size of their order). Usually only fast traders will trade at bid/ask, those who believe the price move is imminent. If you are a long term trader you can often get better than bid or ask by placing a limit order and waiting until a market participant takes your offer.\",\n \"One broker told me that I have to simply read the ask size and the bid size, seeing what the market makers are offering. This implies that my order would have to match that price exactly, which is unfortunate because options contract spreads can be WIDE. Also, if my planned position size is larger than the best bid/best ask, then I should break up the order, which is also unfortunate because most brokers charge a lot for options orders.\",\n \"\\\"With stocks, you can buy or sell. If you sell first, that's called 'shorting.' As in \\\"\\\"I think linkedin is too high, I'm going to short it.\\\"\\\" With options, the terminology is different, the normal process is to buy to open/sell to close, but if you were shorting the option itself, you would first sell to open, i.e you are selling a position to start it, effectively selling it short. Eventually, you may close it out, by buying to close. Options trading is not for the amateur. If you plan to trade, study first and be very cautious.\\\"\",\n \"\\\"I think for this a picture is worth a thousand words. This is a \\\"\\\"depth chart\\\"\\\" that I pulled from google images, specifically because it doesn't name any security. On the left you have all of the \\\"\\\"bids\\\"\\\" to buy this security, on the right you have the \\\"\\\"asks\\\"\\\" to sell the security. In the middle you have the bid/ask spread, this is the space between the highest bid and the lowest ask. As you can see you are free to place you order to the market to buy for 232, and someone else is free to place their order to the market to sell for 234. When the bid and the ask match there's a transaction for the maximum number of available shares. Alternatively, someone can place a market order to buy or sell and they'll just take the current market price. Retail investors don't really get access to this kind of chart from their brokers because for the most part the information isn't terribly relevant at the retail level.\\\"\",\n \"The core issue is to understand what 'selling a share' means. There is no special person or company that takes the share from you; you are selling on the open market. So your question is effectively 'can I find a guy on the street that buys a 10$-bill for 11$ ?' - Well, maybe someone is dumb enough, but chances are slim.\",\n \"\\\"Assuming you are executing your order on a registered exchange by a registered broker, your order will be filled at the best bid price available. This is because brokers are legally obliged to get the best price available. For example, if the market is showing a bid of 49.99 and an offer of 50.01 and you submit an order to offer 1000 shares at 5.00, your order will be filled at 49.99. This is assuming the existing bids are for enough shares to fill all of the 1000 shares being offered. If the share you are offering lacks the necessary liquidity to fill the order - i.e., the 49.99 bid is for less than 1000 shares and the \\\"\\\"level two\\\"\\\" bids are not enough to fill the remaining shares, then the order would be posted in the market as an offer to sell the balance (1000 - shares filled at 49.99 and those filled at level two bids) at 5.00. I'm pretty sure that the scenario you are describing would be described as market manipulation and it would be against the law.\\\"\",\n \"buy above the current price in the stock market You can do that, but what is the purpose to do so ? Brokers take the limit price of your order as the highest price you are going to pay. So if an order can be fulfilled below the limit they will do so. can I sell below the current price You can put in a order to do so. But what I have seen with my current broker is that the order never reached the market and wasn't executed at all. The broker might have some safeguards or process in place to stop me from doing so. Not sure how other brokers deal with it.\",\n \"Your assets are marked to market. If you buy at X, and the market is bidding at 99.9% * X then you've already lost 0.1%. This is a market value oriented way of looking at costs. You could always value your assets with mark to model, and maybe you do, but no one else will. Just because you think the stock is worth 2*X doesn't mean the rest of the world agrees, evidenced by the bid. You surely won't get any margin loans based upon mark to model. Your bankers won't be convinced of the valuation of your assets based upon mark to model. By strictly a market value oriented way of valuing assets, there is a bid/ask cost. more clarification Relative to littleadv, this is actually a good exposition between the differences between cash and accrual accounting. littleadv is focusing completely on the cash cost of the asset at the time of transaction and saying that there is no bid/ask cost. Through the lens of cash accounting, that is 100% correct. However, if one uses accrual accounting marking assets to market (as we all do with marketable assets like stocks, bonds, options, etc), there may be a bid/ask cost. At the time of transaction, the bids used to trade (one's own) are exhausted. According to exchange rules that are now practically uniform: the highest bid is given priority, and if two bids are bidding the exact same highest price then the oldest bid is given priority; therefore the oldest highest bid has been exhausted and removed at trade. At the time of transaction, the value of the asset cannot be one's own bid but the highest oldest bid leftover. If that highest oldest bid is lower than the price paid (even with liquid stocks this is usually the case) then one has accrued a bid/ask cost.\",\n \"New to investing... when I buy/sell a stock can I buy/sell at the exact market price whenever I'd like or is there more to it? Does there need to be a demand for when I'm trying to sell or am I just forcing the company to buy back my shares? Sorry if confusing/rookie question\",\n \"In terms of pricing the asset, this functions in exactly the same way as a regular sell, so bids will have to be hit to fill the trade. When shorting an equity, currency is not borrowed; the equity is, so the value of per share liability is equal to it's last traded price or the ask if the equity is illiquid. Thus when opening a short position, the asks offer nothing to the process except competition for your order getting filled. Part of managing the trade is the interest rate risk. If the asks are as illiquid as detailed in the question, it may be difficult even to locate the shares for borrowing. As a general rule, only illiquid equities or those in free fall may be temporarily unable for shorting. Interactive Brokers posts their securities financing availabilities and could be used as a proxy guide for your broker.\",\n \"\\\"The Auction Market is where investors such you and me, as well as Market Makers, buy and sell securities. The Auction Markets operate with the familiar bid-ask pricing that you see on financial pages such as Google and Yahoo. The Market Makers are institutions that are there to provide liquidity so that investors can easily buy and sell shares at a \\\"\\\"fair\\\"\\\" price. Market Makers need to have on hand a suitable supply of shares to meet investor demands. When Market Makers feel the need to either increase or decrease their supply of a particular security quickly, they turn to the Dealer Market. In order to participate in a Dealer Market, you must be designated a Market Maker. As noted already, Market Makers are dedicated to providing liquidity for the Auction Market in certain securities and therefore require that they have on hand a suitable supply of those securities which they support. For example, if a Market Maker for Apple shares is low on their supply of Apple shares, then will go the Dealer Market to purchase more Apple shares. Conversely, if they are holding what they feel are too many Apple shares, they will go to the Dealer Market to sell Apple shares. The Dealer Market does operate on a bid-ask basis, contrary to your stated understanding. The bid-ask prices quoted on the Dealer Market are more or less identical to those on the Auction Market, except the quote sizes will be generally much larger. This is the case because otherwise, why would a Market Maker offer to sell shares to another Market Maker at a price well below what they could themselves sell them for in the Auction Market. (And similarly with buy orders.) If Market Makers are generally holding low quantities of a particular security, this will drive up the price in both the Dealer Market and the Auction Market. Similarly, if Market Makers are generally holding too much of a particular security, this may drive down prices on both the Auction Market and the Dealer Market.\\\"\",\n \"\\\"There are two distinct questions that may be of interest to you. Both questions are relevant for funds that need to buy or sell large orders that you are talking about. The answer depends on your order type and the current market state such as the level 2 order book. Suppose there are no iceberg or hidden orders and the order book (image courtesy of this question) currently is: An unlimited (\\\"\\\"at market\\\"\\\") buy order for 12,000 shares gets filled immediately: it gets 1,100 shares at 180.03 (1,100@180.03), 9,700 at 180.04 and 1,200 at 180.05. After this order, the lowest ask price becomes 180.05 and the highest bid is obviously still 180.02 (because the previous order was a 'market order'). A limited buy order for 12,000 shares with a price limit of 180.04 gets the first two fills just like the market order: 1,100 shares at 180.03 and 9,700 at 180.04. However, the remainder of the order will establish a new bid price level for 1,200 shares at 180.04. It is possible to enter an unlimited buy order that exhausts the book. However, such a trade would often be considered a mis-trade and either (i) be cancelled by the broker, (ii) be cancelled or undone by the exchange, or (iii) hit the maximum price move a stock is allowed per day (\\\"\\\"limit up\\\"\\\"). Funds and banks often have to buy or sell large quantities, just like you have described. However they usually do not punch through order book levels as I described before. Instead they would spread out the order over time and buy a smaller quantity several times throughout the day. Simple algorithms attempt to get a price close to the time-weighted average price (TWAP) or volume-weighted average price (VWAP) and would buy a smaller amount every N minutes. Despite splitting the order into smaller pieces the price usually moves against the trader for many reasons. There are many models to estimate the market impact of an order before executing it and many brokers have their own model, for example Deutsche Bank. There is considerable research on \\\"\\\"market impact\\\"\\\" if you are interested. I understand the general principal that when significant buy orders comes in relative to the sell orders price goes up and when a significant sell order comes in relative to buy orders it goes down. I consider this statement wrong or at least misleading. First, stocks can jump in price without or with very little volume. Consider a company that releases a negative earnings surprise over night. On the next day the stock may open 20% lower without any orders having matched for any price in between. The price moved because the perception of the stocks value changed, not because of buy or sell pressure. Second, buy and sell pressure have an effect on the price because of the underlying reason, and not necessarily/only because of the mechanics of the market. Assume you were prepared to sell HyperNanoTech stock, but suddenly there's a lot of buzz and your colleagues are talking about buying it. Would you still sell it for the same price? I wouldn't. I would try to find out how much they are prepared to buy it for. In other words, buy pressure can be the consequence of successful marketing of the stock and the marketing buzz is what changes the price.\\\"\",\n \"\\\"Why would there not be a bid and ask? Dealers make their money in the spread between what they buy it from one entity for and what they sell it to another entity for. This doesn't mean they have to do it auction-style, but they'll still have a different buy price from a sell price, hence \\\"\\\"bid\\\"\\\" and \\\"\\\"ask\\\"\\\".\\\"\",\n \"try to sell if today's google stock goes above 669$ This is Relative/Pegged-to-Primary Order with a Limit Price of $669 and an offset from National Best Offer of $0.00, but it is no different than an Market Order if the market price is $669 to begin with. do not sell if the stock keeps climbing beyond 669 unless there is a down tick of 20cents is seen This is a Trailing Stop Order with a Trailing Amount of $0.20. It sells if the market price dropped $0.20 from the peak. The two orders are contradictory. From your comments, I think the following is what you want: Submit Trailing Stop Order when market price is above $669. Cancel Trailing Stop Order before the end of the day and Submit Relative/Pegged-to-Primary Order to Sell.\",\n \"Your math shows that you bought an 'at the money' option for .35 and when the stock is $1 above the strike, your $35 (options trade as a contract for 100 shares) is now worth $100. You knew this, just spelling it out for future readers. 1 - Yes 2 - An execute/sell may not be nesesary, the ooption will have time value right until expiration, and most ofter the bid/ask will favor selling the option. You should ask the broker what the margin requirement is for an execute/sell. Keep in mind this usually cannot be done on line, if I recall, when I wanted to execute, it was a (n expensive) manual order. 3 - I think I answered in (2), but in general they are not identical, the bid/ask on options can get crazy. Just look at some thinly traded strikes and you'll see what I mean.\",\n \"A trailing stop will sell X shares at some percentage below the current market price. Putting in this order with a 10% trailing stop when the stock price is $50 will sell the stock when it hits $45. It's a market order at that point (see below). A stop order will sell the stock when it reaches a certain price. The stop order becomes a market order when the magic price is hit. This means that you may not sell it at or below your price when the order is executed. But the stock will sell faster because the trader must execute. A stop limit order is the same as a stop order, except the stock won't be sold if it can't be gotten for the price. As a result, the sell may not be executed. More information here.\",\n \"But how does the quantity matching happen? For example, if I want to buy 1000 shares at $100, but there is only one seller to sell 10 shares at $100, what happens then? This depends on the type of order you've placed. If you placed a fill-or-kill order, your order to buy or sell a certain number of shares is routed to the trading floor for immediate execution. If the order cannot be immediately filled, it is cancelled (killed) automatically. Note that the order must be filled in its entirety. Partial fills are not allowed. In your example, your buy order wouldn't be filled because it couldn't be matched to a sell order of the same volume. This is similar to an all-or-none order, which is an order that contains A condition instructing the broker to fill the order completely or not at all. If there is insufficient supply to meet the quantity requested by the order then it is canceled at the close of the market. In this case, if your order wasn't matched to an order of the same volume by the time the market closes, it's cancelled. If you simply placed a market/limit order, and (in the case of the limit order), part of your order was matched to another order with the right price, that part of your order will be filled, while the rest will remained unfilled.\",\n \"The price for securities is negotiable. You totally have a right to make a lower offer when buying or ask for a higher price when selling. Securities don't trade at a fixed price, the price goes up and down throughout the day based on the price offers made by buyers and sellers and where they find agreement. If a stock last traded for $10, someone can put out an offer to buy the stock at $9.50, if they find someone who wants to sell and will accept that price, then a deal is made. unless something is falling rapidly in price however, an offer that far below the last price is not terribly likely to be accepted. Now if you want to be assured of making a sale or purchase, you generally trade 'at the market' and for small time players that is very much encouraged as it makes it easier for everyone.\",\n \"There are usually so many different options around for the same stock that some are rarely traded. Especially if the price has moved since the option was issued, nobody might be interested in that particular option at that price anymore. So the asking price might be something that someone asked for ages ago and that is much higher than anyone would reasonably pay today. With a bid of $20 and an ask of $30, nobody is trading, but the value of that option is somewhere between $20 and $30. If the value is below $25, someone will notice your $25 bid and sell.\",\n \"You put in a market order when you want to sell to whomever raises their hand first. It results in the fastest possible liquidation of your stock. It's appropriate when you need to sell now, regardless of price. An example of when to use it: It's 3:55 PM, the market's going to close in 5 minutes and you need to sell some stocks to make some kind of urgent payment elsewhere. If instead you have a limit order in place, you might not reach the limit price before the market closes, and you'll still own the stock, which might not be what you want.\",\n \"You have no guarantees. The stock may last have traded at $100 (so, the market price is $100), but is currently in free-fall and nobody else will be willing to buy it for any more than $80. Or heck, maybe nobody will be willing to buy it at all, at any price. Or maybe trading on this stock will be halted. Remember, the market price is just what the stock last traded at. If you put in a 'market order', you are ordering your broker to sell at the best available current price. Assuming someone's willing to buy your stock, that means you'll sell it. But if it last traded at $100, this doesn't guarantee you'll sell at anything close to that.\",\n \"From the non-authoritative Investopedia page: A stop-limit order will be executed at a specified price, or better, after a given stop price has been reached. Once the stop price is reached, the stop-limit order becomes a limit order to buy or sell at the limit price or better. So once the stop price has been breached, your limit order is placed and will be on the order books as a $9 ask. For a vanilla stop order, a market order will be placed and will be filled using the highest active bid(s).\",\n \"The Limit Order are matched based on amount and time. The orders are listed Highest to Lowest on the Buy Side. The orders are listed Lowest to Highest on the Sell Side. If there are 2 Sell orders for same amount the order which is first in time [fractions of milliseconds] is first. The about is the example as to how the orders would look like on any exchange. Now the highest price the buyer is ready to pay is 20.21 and the lowest price a seller is ready to sell for is 20.25. Hence there is no trade. Now if a new Buy order comes in at 20.25, it matches with the sell and the deal is made. If a new Buy order comes in at 20.30, it still matches at 20.25. Similarly if a Sell order come in at 20.21, it matches and a deal is made. If a Sell order come in at 20.11, it still matches 20.21. Incase of market order, with the above example if there is a Buy order, it would match with the lowest sell order at 20.25, if there is not enough quantity , it would match the remaining quantity to the next highest at 20.31 and continue down. Similarly if there is a Sell market order, the it would match to the maximum a seller is ready to buy, ie 20.21, if there is not sufficient buy quantity at 20.21, it will match with next for 20.19 If say there are new buy order at 20.22 and sell orders at 20.24, these will sit first the the above queue to be matched. In your above example the Lowest Sell order was at 20.10 at time t1 and hence any buy order after time t1 for amount 20.10 or greater would match to this and the price would be 20.10. However if the Buy order was first ie at t1 there was a buy order for 20.21 and then at time later than t1, there is a sell order for say 20.10 [amount less than or equal to 20.21] it would match for 20.21. Essentially the market looks at who was the first to sell at lower price or who was the first to buy at higher price and then decide the trade. Edit [To Clarify xyz]: Say if there is an Sell order at $10 Qty 100. There is a buyer who is willing to pay Max $20 and is looking for Qty 500. Your key assumption that the Buyer does not know the current SELL price of $10 is incorrect. Now there are multiple things, the Buyer knows the lowest Sell order is at $10, he can put a matching Buy order at $10 Qty 100, and say $11 Qty 100 etc. This is painful. Second, lets say he puts a Buy order at $10 Qty 100, by the time the order hits the system someone else has put the trade at $10 and his order is fulfilled. So this buyer has to keep looking at booking and keep making adjustments, if its a large order, it would be extremely difficult and frustrating for this Buyer. Hence the logic of giving preference. The later Buy order says ... The Max I can pay is $20, match eveything at the current price and get the required shares.\",\n \"Yes you can, provided if buyers are available. Normally high liquidty stocks can be sold at market prices a little higher or lower.\",\n \"how does the trading company know which one I want to sell? It doesn't need to know. You just sell one. From taxation point of view depending on the country / tax jurisdiction, it can be only be FIFO or specific stock.\",\n \"In order: A seller of the stock (duh!). You don't know who or why this stock was sold. It could be any reason, and is of no concern of yours. It doesn't matter. Investors (pension funds, hedge funds, individual investors, employees, management) sell stock for many reasons: need cash, litigation, differing objectives, sector rotation, etc. To you, this does not matter. Yes, it does affect stock market prices: If you were not willing to buy that amount of shares, and there were no other buyers at that price, the seller would likely choose to lower the price offered. By your purchase, you are supporting the price.\",\n \"\\\"Market price is just the bid or offer price of the last sell or buy order in the market. The price that you actually receive or pay will be the price that the person buying the stock off you or selling it to you will accept. If there are no other participants in the market to make up the other side of your order (i.e. to buy off you if you are selling or to sell to you if you are buying) the exchange pays large banks to be \\\"\\\"market makers\\\"\\\"; they fulfil your order using stocks that they don't want to either buy or sell just so that you get your order filled. When you place an order outside of market hours the order is kept on the broker's order books until the market reopens and then, at market opening time there is an opening \\\"\\\"auction\\\"\\\" at which orders are matched to opposing orders (i.e. each buy order will be matched with a sell) at a price determined by auction. You will not know what price the order was filled at until it has been filled. If you want to guarantee a price you can do so by placing a limit order that says not to pay more than a certain price for any unit of the stock.\\\"\",\n \"Stop order is triggered when the market reaches the price you set. Until then - its not on the books. Your understanding is wrong in that you don't go to read the definition of the term.\",\n \"\\\"What if everyone decided to sell all the shares at a given moment, let's say when the stock is trading at $40? I imagine supply would outweigh demand and the stock would fall. Yes this is the case. Every large \\\"\\\"Sell\\\"\\\" order results in price going down and every large \\\"\\\"Buy\\\"\\\" order results in price going up. Hence typically when large orders are being executed, they are first negotiated outside for a price and then sold at the exchange. I am not talking about Ownership change event. If a company wants a change in ownership, the buyer would be ready to pay a premium over the market price to get controlling stake.\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["Bid and ask prices are the reigning highest buy price and lowest sell price in the market which doesn't mean one must only buy/sell at thise prices. That said one can buy/sell at whatever price they so wish although doing it at any other price than the bid/ask is usually harder as other market participants will gravitate to the reigning bid/ask price. So in theory you can buy at ask and sell at bid, whether or not your order will be filled is another matter altogether.","\"It's good to ask this question, because this is one of the fundamental dichotomies in market microstructure. At any time T for each product on a (typical) exchange there are two well-defined prices: At time T there is literally no person in the market who wants to sell below the ask, so all the people who are waiting to buy at the bid (or below) could very well be waiting there forever. There's simply no guarantee that any seller will ever want to part with their product for a lesser price than they think it's worth. So if you want to buy the product at time T you have a tough choice to make: you get in line at the bid price, where there's no guarantee that your request will ever be filled, and you might never get your hands on the product you decide that owning the product right now is more valuable to you than (ask - bid) * quantity, so you tell the exchange that you're willing to buy at the ask price, and the exchange matches you with whichever seller is first in line Now, if you're in the market for the long term, the above choice is completely immaterial to you. Who cares if you pay $10.00 * 1000 shares or $10.01 * 1000 shares when you plan to sell 30 years from now at $200 (or $200.01)? But if you're a day trader or anyone else with a very short time horizon, then this choice is extremely important: if the price is about to go up several cents and you got in line at the bid (and never got filled) then you missed out on some profit if you \"\"cross the spread\"\" to buy at the ask and then the price doesn't go up (or worse, goes down), you're screwed. In order to get out of the position you'll have to cross the spread again and sell at at most the bid, meaning you've now paid the spread twice (plus transaction fees and regulatory fees) for nothing. (All of the above also applies in reverse for selling at the ask versus selling at the bid, but most people like to learn in terms of buying rather than selling.)\"","\"Honestly, I wonder if the other answerers aren't overthinking it. Their answers are detailed and correct, but what your coach may be saying is this: When you have bought a stock, on cash or margin, and you are watching it rise you are evaluating when you sell on the price of the stock you are seeing. In reality, you should look at the bid (price buyers will give you for the stock) and ask (price sellers will charge you for the stock) prices. If the stock is going up, odds are the price of the stock is very close to the ask price because it is purchases that are driving it up, but that's not what you're going to get when you sell. You're going to get something around the bid price. If the spread between the two is large (i.e. a volatile stock) this could be many cents or more lower than the ask price. Therefore, what your coach may mean by \"\"Selling on Ask\"\" is you're using the stock price when it's equal or close to the ask price to decide when to sell, instead of letting the stock peak and drop (when its price will approach the bid price) or letting the trailing bid offers catch up to your desired sell point and selling then (i.e. letting the stock point grow PAST your sell point, dragging the bid price up with it). Just a thought, but that sounds like a term a coach would come up with to mean selling and getting less than you thought you were going to from the sale. (I know it's a necro reply, but the Interwebs are immortal and people come via Google... I did)\""],"string":"[\n \"Bid and ask prices are the reigning highest buy price and lowest sell price in the market which doesn't mean one must only buy/sell at thise prices. That said one can buy/sell at whatever price they so wish although doing it at any other price than the bid/ask is usually harder as other market participants will gravitate to the reigning bid/ask price. So in theory you can buy at ask and sell at bid, whether or not your order will be filled is another matter altogether.\",\n \"\\\"It's good to ask this question, because this is one of the fundamental dichotomies in market microstructure. At any time T for each product on a (typical) exchange there are two well-defined prices: At time T there is literally no person in the market who wants to sell below the ask, so all the people who are waiting to buy at the bid (or below) could very well be waiting there forever. There's simply no guarantee that any seller will ever want to part with their product for a lesser price than they think it's worth. So if you want to buy the product at time T you have a tough choice to make: you get in line at the bid price, where there's no guarantee that your request will ever be filled, and you might never get your hands on the product you decide that owning the product right now is more valuable to you than (ask - bid) * quantity, so you tell the exchange that you're willing to buy at the ask price, and the exchange matches you with whichever seller is first in line Now, if you're in the market for the long term, the above choice is completely immaterial to you. Who cares if you pay $10.00 * 1000 shares or $10.01 * 1000 shares when you plan to sell 30 years from now at $200 (or $200.01)? But if you're a day trader or anyone else with a very short time horizon, then this choice is extremely important: if the price is about to go up several cents and you got in line at the bid (and never got filled) then you missed out on some profit if you \\\"\\\"cross the spread\\\"\\\" to buy at the ask and then the price doesn't go up (or worse, goes down), you're screwed. In order to get out of the position you'll have to cross the spread again and sell at at most the bid, meaning you've now paid the spread twice (plus transaction fees and regulatory fees) for nothing. (All of the above also applies in reverse for selling at the ask versus selling at the bid, but most people like to learn in terms of buying rather than selling.)\\\"\",\n \"\\\"Honestly, I wonder if the other answerers aren't overthinking it. Their answers are detailed and correct, but what your coach may be saying is this: When you have bought a stock, on cash or margin, and you are watching it rise you are evaluating when you sell on the price of the stock you are seeing. In reality, you should look at the bid (price buyers will give you for the stock) and ask (price sellers will charge you for the stock) prices. If the stock is going up, odds are the price of the stock is very close to the ask price because it is purchases that are driving it up, but that's not what you're going to get when you sell. You're going to get something around the bid price. If the spread between the two is large (i.e. a volatile stock) this could be many cents or more lower than the ask price. Therefore, what your coach may mean by \\\"\\\"Selling on Ask\\\"\\\" is you're using the stock price when it's equal or close to the ask price to decide when to sell, instead of letting the stock peak and drop (when its price will approach the bid price) or letting the trailing bid offers catch up to your desired sell point and selling then (i.e. letting the stock point grow PAST your sell point, dragging the bid price up with it). Just a thought, but that sounds like a term a coach would come up with to mean selling and getting less than you thought you were going to from the sale. (I know it's a necro reply, but the Interwebs are immortal and people come via Google... I did)\\\"\"\n]","isConversational":false}}},{"rowIdx":388,"cells":{"_id":{"kind":"string","value":"5185"},"query":{"kind":"string","value":"Invest in low cost small cap index funds when saving towards retirement?"},"gt_ids":{"kind":"list like","value":["210236","317354"],"string":"[\n \"210236\",\n \"317354\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1],"string":"[\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["196992","512458","580733","503725","580313","268731","235917","122679","513818","241202","196721","376485","226298","18303","596537","506302","7208","65587","9465","369251","249097","262180","312406","372233","545760","505993","127263","523331","591909","570117","311527","373688","586029","387492","550783","247051","524525","468485","356595","384893","437875","435951","356202","526346","34986","568624","330743","551122","97836","418551","327237","234640","566429","524030","551590","446948","115378","568315","379546","35053","346474","267904","107462","539539","78837","524612","224816","69762","565738","118691","176342","219208","71545","246531","27930","525089","326667","105336","400196","94875","63577","187061","266194","140917","323363","240975","296690","285560","542795","133788","14748","45970","59670","371579","135596","312591","599701","4666","135646","549188"],"string":"[\n \"196992\",\n \"512458\",\n \"580733\",\n \"503725\",\n \"580313\",\n \"268731\",\n \"235917\",\n \"122679\",\n \"513818\",\n \"241202\",\n \"196721\",\n \"376485\",\n \"226298\",\n \"18303\",\n \"596537\",\n \"506302\",\n \"7208\",\n \"65587\",\n \"9465\",\n \"369251\",\n \"249097\",\n \"262180\",\n \"312406\",\n \"372233\",\n \"545760\",\n \"505993\",\n \"127263\",\n \"523331\",\n \"591909\",\n \"570117\",\n \"311527\",\n \"373688\",\n \"586029\",\n \"387492\",\n \"550783\",\n \"247051\",\n \"524525\",\n \"468485\",\n \"356595\",\n \"384893\",\n \"437875\",\n \"435951\",\n \"356202\",\n \"526346\",\n \"34986\",\n \"568624\",\n \"330743\",\n \"551122\",\n \"97836\",\n \"418551\",\n \"327237\",\n \"234640\",\n \"566429\",\n \"524030\",\n \"551590\",\n \"446948\",\n \"115378\",\n \"568315\",\n \"379546\",\n \"35053\",\n \"346474\",\n \"267904\",\n \"107462\",\n \"539539\",\n \"78837\",\n \"524612\",\n \"224816\",\n \"69762\",\n \"565738\",\n \"118691\",\n \"176342\",\n \"219208\",\n \"71545\",\n \"246531\",\n \"27930\",\n \"525089\",\n \"326667\",\n \"105336\",\n \"400196\",\n \"94875\",\n \"63577\",\n \"187061\",\n \"266194\",\n \"140917\",\n \"323363\",\n \"240975\",\n \"296690\",\n \"285560\",\n \"542795\",\n \"133788\",\n \"14748\",\n \"45970\",\n \"59670\",\n \"371579\",\n \"135596\",\n \"312591\",\n \"599701\",\n \"4666\",\n \"135646\",\n \"549188\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["Small cap and mid cap shares tend to outperform large cap shares in a bull market, but they tend to underperform large cap shares in a bear market. Since the stock markets tend to go up in the long term, this suggests that a low cost small and mid cap index ETF should offer the best long term returns. Having said that, we are currently in a mature bull market having experienced over seven years without encountering a bear market. If a bearish outlook is something you worry about, then perhaps a broad market index, which will be heavily weighted towards large cap shares, may be a better choice for you at this time, with an eye toward switching to small and mid cap indices during the next bear market.","\"Can you easily stomach the risk of higher volatility that could come with smaller stocks? How certain are you that the funds wouldn't have any asset bloat that could cause them to become large-cap funds for holding to their winners? If having your 401(k) balance get chopped in half over a year doesn't give you any pause or hesitation, then you have greater risk tolerance than a lot of people but this is one of those things where living through it could be interesting. While I wouldn't be against the advice, I would consider caution on whether or not the next 40 years will be exactly like the averages of the past or not. In response to the comments: You didn't state the funds so I how I do know you meant index funds specifically? Look at \"\"Fidelity Low-Priced Stock\"\" for a fund that has bloated up in a sense. Could this happen with small-cap funds? Possibly but this is something to note. If you are just starting to invest now, it is easy to say, \"\"I'll stay the course,\"\" and then when things get choppy you may not be as strong as you thought. This is just a warning as I'm not sure you get my meaning here. Imagine that some women may think when having a child, \"\"I don't need any drugs,\"\" and then the pain comes and an epidural is demanded because of the different between the hypothetical and the real version. While you may think, \"\"I'll just turn the cheek if you punch me,\"\" if I actually just did it out of the blue, how sure are you of not swearing at me for doing it? Really stop and think about this for a moment rather than give an answer that may or may not what you'd really do when the fecal matter hits the oscillator. Couldn't you just look at what stocks did the best in the last 10 years and just buy those companies? Think carefully about what strategy are you using and why or else you could get tossed around as more than a few things were supposed to be the \"\"sure thing\"\" that turned out to be incorrect like the Dream Team of Long-term Capital Management, the banks that were too big to fail, the Japanese taking over in the late 1980s, etc. There are more than a few times where things started looking one way and ended up quite differently though I wonder if you are aware of this performance chasing that some will do.\"","I think the dividend fund may not be what youre looking for. You mentioned you want growth, not income. But I think of dividend stocks as income stocks, not growth. They pay a dividend because these are established companies that do not need to invest so much in capex anymore, so they return it to shareholders. In other words, they are past their growth phase. These are what you want to hold when you have a large nest egg, you are ready to retire, and just want to make a couple percent a year without having to worry as much about market fluctuations. The Russel ETF you mentioned and other small caps are I think what you are after. I recently made a post here about the difference between index funds and active funds. The difference is very small. That is, in any given year, many active ETFs will beat them, many wont. It depends entirely on the market conditions at the time. Under certain conditions the small caps will outperform the S&P, definitely. However, under other conditioned, such as global growth slowdown, they are typically the first to fall. Based on your comments, like how you mentioned you dont want to sell, I think index funds should make up a decent size portion of your portfolio. They are the safest bet, long term, for someone who just wants to buy and hold. Thats not to say they need be all. Do a mixture. Diversification is good. As time goes on dont be afraid to add bond ETFs either. This will protect you during downturns as bond prices typically rise under slow growth conditions (and sometimes even under normal conditions, like last year when TLT beat the S&P...)","In a word, yes. You can buy very low cost index ETFs, like VTI, VEA, BND, FBND and rebalance in proportion to your age and risk tolerance. Minimal management and low cost.","you should invest in a range of stock market indexes. Ex : Dow jones, S&P500, Nasdaq and keep it there until you are ready to retire. I'm invested half in SLYV and SLYG (S&P600 small cap value and S&P600 small cap growth; Respectively). It brings on average between 8-13% a year (since 1971). This is not investment advice. Talk to your broker before doing this.","I like that you are hedging ONLY the Roth IRA - more than likely you will not touch that until retirement. Looking at fees, I noticed Vanguard Target retirement funds are .17% - 0.19% expense ratios, versus 0.04 - 0.14% for their Small/Mid/Large cap stocks.","This is slightly opinion based. Is it appropriate to invest small amounts for short periods of time? At your age and the time period, I would say NO. This is because although the index fund do return 6-7% on average, there are several times it blips and goes negative as well. Stock Markets in short periods like 6 months can be unpredictable. At times a downturn will remain stagnant for periods of 2-3 years before suddenly zoom ahead. If you are not to particular about the time when you need the changes done; i.e. the changes can in worst case wait for few years; then yes investing in Index fund would make sense. Else you are well off keeping this in savings. Try CD's if they can offer better rates for such durations.","For your purposes, I would recommend using direct investment in a no-load mutual fund. I mostly use Vanguard and would recommend them. They just about invented index funds, usually have the lowest (internal) expenses for index and many other funds, if you take electronic instead of paper statements there is no maintenance fee, have no transaction commission, can do periodic automatic investment from a bank account etc. A typical index fund there would require an initial $3000 investment and would have a minimum of $100 for each additional investment. If you can't come up with an initial sum of that size, you might be able to find a broker with a lower minimum and suitable free ETFs trades as others have suggested.","Stock portfolios have diversifiable risk and undiversifiable risk. The market rewards investors for taking undiversifiable risk (e.g. owning an index of oil producing companies) and does not reward investors for assuming diversifiable risk (e.g. owning a single oil producing company). The market will not provide investors with any extra return for owning a single oil company when they can buy an oil index fund at no additional cost. Similarly, the market will not reward you for owning a small-cap index fund when you can purchase a globally diversified / capitalization diversified index fund at no additional cost. This article provides a more detailed description. The Vanguard Total World Stock Index Fund is a much better staring point for an equity portfolio. You will need to make sure that the asset allocation of your overall portfolio (e.g. stocks, bonds, P2P lending, cash) is consistent with your time horizon (5-10 years).","The reports of my death have been greatly exaggerated. - Twain I use index funds in my retirement planning, but don't stick to just S&P 500 index funds. Suppose I balance my money 50/50 between Small Cap and Large Cap and say I have $10,000. I'd buy $5,000 of an S&P Index fund and $5,000 of a Russell 2000 index fund. Now, fast forward a year. Suppose the S&P Index fund has $4900 and the Russell Index fund has $5200. Sell $150 of Russell Index Fund and buy $150 of S&P 500 Index funds to balance. Repeat that activity every 12-18 months. This lets you be hands off (index fund-style) on your investment choices but still take advantage of great markets. This way, I can still rebalance to sell high and buy low, but I'm not stressing about an individual stock or mutual fund choice. You can repeat this model with more categories, I chose two for the simplicity of explaining.","As these all seem to be US Equity, just getting one broad based US Equity index might offer similar diversification at lower cost. Over 5 years, 20 basis points in fees will only make about 1% difference. However, for longer periods (retirement saving), it is worth it to aim for the lowest fees. For further diversification, you might want to consider other asset classes, such as foreign equity, fixed income, etc.","\"Congratulations on deciding to save money and choosing to invest it. One thing to know about mutual funds including index funds is that they typically require a minimum investment of a few thousand dollars, $3000 being a typical amount, unless the investment is in an IRA in which case $1000 might be a minimum. In some cases, automated monthly investments of $50 or $100 might need to be set up if you are beginning with a small balance. There is nothing wrong with your approach. You now should go and look at the various requirements for specific index funds. The Fidelity and Vanguard families are good choices and both offer very low-cost index funds to choose from, but different funds can have different requirements regarding minimum investments etc. You also have a choice of which index you want to follow, the S&P 500 Index, MidCap Indexes, Small-Cap Indexes, Total Stock Market Indexes etc., but your choice might be limited until you have more money to invest because of minimum investment rules etc. Most important, after you have made your choice, I urge you to not look every day, or even every month, to see how your investment is doing. You will save yourself a lot of anxiety and will save yourself from making wrong decisions. Far too many investors ignore the maxim \"\"Buy Low, Sell High\"\" and pull money out of what should be long-term investments at the first flicker of a downturn and end up buying high and selling low. Finally, the time is approaching when most stock funds will be declaring dividends and capital gains distributions. If you invest now, you may end up with a paper profit on which you will have to pay taxes (in non-tax-advantaged accounts) on your 2012 tax return (this is called \"\"buying a dividend\"\"), and so you might want to spend some time investigating now, but actually make the investment in late December after your chosen fund has made its distributions (the date for this will be on the fund's web site) or in early 2013.\"","I would just buy a low-cost diversified equity ETF. VTI is pretty solid. Also, JW are you working or in school? If you are working you should consider opening an IRA or Roth IRA. Also if your employer has a 401k or other retirement plan you can contribute to I would advise doing so.","Dogma always disappoints. The notion that an index fund is the end-all, be-all for investing because the expense ratios are low is a flawed one. I don't concern myself with cost as an independent factor -- I look for the best value. Bogle's dogma lines up with his business, so you need to factor that in as well. Vendors of any product spend alot of time and money convincing you that unique attributes of their product are the most important thing in the world. Pre-crash, the dogmatics among us were bleating about how Fixed-date Retirement Funds were the new paradigm. Where did they go?","I think small sums invested regularly over long-term can do good for you, things to consider: I would go with an index fund and contribute there there regularly.","2%? I would put in just what it takes to share in the profit sharing, not a dime more. My S&P fund cost is .02% (edited, as it dropped to .02 since original post), 1/100 of the cost of most funds you list. Doesn't take too many years of this fee to negate the potential tax savings, and not many more to make this a real loser.","Some other suggestions: Index-tracking mutual funds. These have the same exposure as ETFs, but may have different costs; for example, my investment manager (in the UK) charges a transaction fee on ETFs, but not funds, but caps platform fees on ETFs and not funds! Target date funds. If you are saving for a particular date (often retirement, but could also be buying a house, kids going to college, mid-life crisis motorbike purchase, a luxury cruise to see an eclipse, etc), these will automatically rebalance the investment from risk-tolerant (ie equities) to risk-averse (ie fixed income) as the date approaches. You can get reasonably low fees from Vanguard, and i imagine others. Income funds/ETFs, focusing on stocks which are expected to pay a good dividend. The idea is that a consistent dividend helps smooth out volatility in prices, giving you a more consistent return. Historically, that worked pretty well, but given fees and the current low yields, it might not be smart right now. That said Vanguard Equity Income costs 0.17%, and i think yields 2.73%, which isn't bad.","Some index funds offer lower expense ratios to those who invest large amounts of money. For example, Vanguard offers Admiral Shares of many of its mutual funds (including several index funds) to individuals who invest more than $50K or $100K, and these Shares have lower expense ratios than the Investor shares in the fund. There are Institutional Shares designed for investments by pension plans, 401k plans of large companies etc which have even lower expenses than Admiral Shares. Individuals working for large companies sometimes get access to Institutional Shares through their 401k plans. Thus, there is something to gained by investing in just one index fund (for a particular index) that offers lower expense ratios for large investments instead of diversifying into several index funds all tracking the same index. Of course, this advantage might be offset by failure to track the index closely, but this tracking should be monitored not on a daily basis but over much longer periods of time to test whether your favorite fund is perennially trailing the index by far more than its competitors with larger expense ratios. Remember that the Net Asset Value (NAV) published by each mutual fund after the markets close already take into account the expense ratio.","If the ship is sinking, switching cabins with your neighbor isn't necessarily a good survival strategy. Index funds have sucked, because frankly just about everything has sucked lately. I still think it is a viable long term strategy as long as you are doing some dollar cost averaging. You can't think about long term investing as a steady climb up a hill, markets are erratic, but over long periods of time trend upwards. Now is your chance to get in near the ground floor. I can completely empathize that it is painful right now, but I am a believer in market efficiency and that over the long haul smart money is just more expensive (in terms of fees) than set-it-and-forget it diversified investments or target funds.","When investing small amounts, you should consider the substantial toll that commissions will take on your investment. In your case, $800 placed in just one ETF will incur commissions of about $8 each way, or a total of 2% of your investment. I suggest you wait until you have at least $5000 to invest in stocks or ETFs. Since this is in a IRA, your options are limited, but perhaps you may qualify for a Vanguard mutual fund, which will not charge commissions and will have annual expenses only a trivial amount higher than the corresponding ETF. it should probably go in a mixed allocation fund, and since you are young, it should be a relatively aggressive one. Mutual funds will also allow you to contribute small amounts over time without incurring any extra fees.","Your initial premise (mid-cap and small-cap company stocks have outperformed the market) is partially correct - they have, over many 40 yr periods, provided higher returns than large caps (or bond funds). The important thing to consider here is that risk adjusted, the returns from a diversified portfolio are far more robust - with proper asset allocation you and expect high returns and reduce your risk simultaneously. Imagine this scenario - you decide to stick to small / mid caps for 10 - 15 yrs and move into a more diversified portfolio then. Had you made that decision during a sustained period of poor small cap performance (late 80s or the 40's) you would have lost a boatload of return, as those were periods were small / mids underperformed the market as a whole, and large caps in particular. As an example, from 1946 to 1958 large caps outperformed small every single year. If 2016 were to be the first year of a similar trend, you've done yourself a major disservice. Since the dot com crash small /mids have outperformed for sure, pretty much every year - but that doesn't mean that they will continue to do so. The reason asset allocation exists is precisely this - over a 40 yr period, no single asset class outperforms a diversified portfolio. If you attempt to time the market, even if you do so with a multi-decade time horizon in mind, there a good chance that you will do more poorly.","\"Put the whole lot into a couple of low-cost broad index funds with dividends reinvested (also known as accumulation funds) and then don't look at them. Invest through a low-cost broker. There are a number to choose from and once you start googling around the theme of \"\"index fund investing\"\" you'll find them. The S&P 500 is a popular index to start with.\"","This is the chart going back to the first full year of this fund. To answer your question - yes, a low cost ETF or Mutual fund is fine. Why not go right to an S&P index? VOO has a .05% expense. Why attracted you to a choice that lagged the S&P by $18,000 over this 21 year period? (And yes, past performance, yada, yada, but that warning is appropriate for the opposite example. When you show a fund that beat the S&P short term, say 5 years, its run may be over. But this fund lagged the S&P by a significant margin over 2 decades, what makes you think this will change?","Equal-weight ETFs remove the large cap bias found in most popular indexes. What results behaves very much like a small-cap or mid-cap index. Observe RSP vs IJR over a 5 year period: IJR (iShares S&P SmallCap 600 ETF) vs RSP (Rydex S&P Equal Weight ETF) I'm not sure if equal-weighting is worth the reduced efficiency. Mid-cap and small-cap funds have lower expenses (%0.20 for IJR vs %0.40 for RSP) and appear to do better over the long run. We don't know if that pattern will continue, but expense is one of the strongest long-term predictors of performance.","Fire your fund manager. There are several passive funds that seek to duplicate the S&P 500 Index returns. They have lower management fees, which will make returns lower than S&P, and they have less risk by following a broadly diversified strategy (versus midcap growing stocks). There's also ETFs, but evidence is growing that they're not as safe as hoped. But here's the deal: the S&P has been on a tear lately. It could be overvalued and what looks like a good investment could start falling again. A possible alternative would be one of the Lifetime funds that seek to perform portfolio adjustment with a retirement decade target; they're fairly new which mostly means nobody knows how they screw you over yet. In theory, this decade structure means the brokerage can execute trading cash for stocks, stocks for bonds, and bonds for cash in house.","Buy the minimum of one fund now. (Eg total bond market) Buy the minimum of the next fund next time you have $2500. (Eg large-cap stocks.) Continue with those until you have enough to buy the next fund (eg small-cap stocks). Adjust as you go to balance these funds according to your planned ratios, or as close as you can reasonably get without having to actually transfer money between the funds more than once a year or so. Build up to your targets over time. If you can't easily afford to tie up that first $2500, stay with banks and CDs and maybe money market accounts until you can. And don't try to invest (except maybe through a matched 401k) before you have adequate savings both for normal life and for an emergency reserve. Note too that the 401k can be a way to buy into funds without a minimum. Check with your employer. If you haven't maxed out your 401k yet, and it has matching funds, that is usually the place to start saving for retirement; otherwise you are leaving free money on the table.","The article links to William Bernstein’s plan that he outlined for Business Insider, which says: Modelling this investment strategy Picking three funds from Google and running some numbers. The international stock index only goes back to April 29th 1996, so a run of 21 years was modelled. Based on 15% of a salary of $550 per month with various annual raises: Broadly speaking, this investment doubles the value of the contributions over two decades. Note: Rebalancing fees are not included in the simulation. Below is the code used to run the simulation. If you have Mathematica you can try with different funds. Notice above how the bond index (VBMFX) preserves value during the 2008 crash. This illustrates the rationale for diversifying across different fund types.","Current evidence is that, after you subtract their commission and the additional trading costs, actively managed funds average no better than index funds, maybe not as well. You can afford to take more risks at your age, assuming that it will be a long time before you need these funds -- but I would suggest that means putting a high percentage of your investments in small-cap and large-cap stock indexes. I'd suggest 10% in bonds, maybe more, just because maintaining that balance automatically encourages buy-low-sell-high as the market cycles. As you get older and closer to needing a large chunk of the money (for a house, or after retirement), you would move progressively more of that to other categories such as bonds to help safeguard your earnings. Some folks will say this an overly conservative approach. On the other hand, it requires almost zero effort and has netted me an average 10% return (or so claims Quicken) over the past two decades, and that average includes the dot-bomb and the great recession. Past results are not a guarantee of future performance, of course, but the point is that it can work quite well enough.","As stated in the comments, Index Funds are the way to go. Stocks have the best return on investment, if you can stomach the volatility, and the diversification index funds bring you is unbeatable, while keeping costs low. You don't need an Individual Savings Account (UK), 401(k) (US) or similar, though they would be helpful to boost investment performance. These are tax advantaged accounts; without them you will have to pay taxes on your investment gains. However, there's still a lot to gain from investing, specially if the alternative is to place them in the vault or similar. Bear in mind that inflation makes your money shrink in real terms. Even a small interest is better than no interest. By best I mean that is safe (regulated by the financial authorities, so your money is safe and insured up to a certain amount) and has reasonable fees (keeping costs low is a must in any scenario). The two main concerns when designing your portfolio are diversification and low TER (Total Expense Ratio). As when we chose broker, our concern is to be as safe as we possibly can (diversification helps with this) and to keep costs at the bare minimum. Some issues might restrict your election or make others seem better. Depending on the country you live and the one of the fund, you might have to pay more taxes on gains/dividends. e.g. The US keeps some of them if your country doesn't have a special treaty with them. Look for W-8Ben and tax withholding for more information. Vanguard and Blackrock offer nice index funds. Morningstar might be a good place for gathering information. Don't trust blindly the 'rating'. Some values are 'not rated' and kick ass the 4 star ones. Again: seek low TER. Not a big fan of this point, but I'm bound to mention it. It can be actually helpful for sorting out tax related issues, which might decide the kind of index fund you pick, and if you find this topic somewhat daunting. You start with a good chunk of money, so it might make even more sense in your scenario to hire someone knowledgeable and trustworthy. I hope this helps to get you started. Best of luck.","The benefit of the 401K and IRAs are that reallocating and re balancing are easy. They don't want you to move the funds every day, but you are not locked in to your current allocations. The fact that you mentioned in a comment that you also have a Roth IRA means that you should look at all retirements as a whole. Look at what options you have in the 401K and also what options you have with the IRA. Then determine the overall allocation between bonds, stocks, international, REIT, etc. Then use the mix of funds in the IRA and 401K to meet that goal. Asking if the 401K should be small and mid cap only can't be answered without knowing not just your risk tolerances but the total money in the 401K and IRA. Pick an allocation, map the available funds to that allocation. Rebalance every year. But review the allocation in a few years or after a life event such as: change of job, getting married, having kids, or buying a house.","Just find a low cost S&P 500 index fund, and spend your time reading The Great Mutual Fund Trap instead of wasting your time and money picking actively managed funds.","\"Here's a dump from what I use. Some are a bit more expensive than those that you posted. The second column is the expense ratio. The third column is the category I've assigned in my spreadsheet -- it's how I manage my rebalancing among different classes. \"\"US-LC\"\" is large cap, MC is mid cap, SC is small cap. \"\"Intl-Dev\"\" is international stocks from developed economies, \"\"Emer\"\" is emerging economies. These have some overlap. I don't have a specific way to handle this, I just keep an eye on the overall picture. (E.g. I don't overdo it on, say, BRIC + Brazil or SPY + S&P500 Growth.) The main reason for each selection is that they provide exposure to a certain batch of securities that I was looking for. In each type, I was also aiming for cheap and/or liquid like you. If there are substitutes I should be looking at for any of these that are cheaper and/or more liquid, a comment would be great. High Volume: Mid Volume (<1mil shares/day): Low Volume (<50k shares/day): These provide enough variety to cover the target allocation below. That allocation is just for retirement accounts; I don't consider any other savings when I rebalance against this allocation. When it's time to rebalance (i.e. a couple of times a year when I realize that I haven't done it in several months), I update quotes, look at the percentages assigned to each category, and if anything is off the target by more than 1% point I will buy/sell to adjust. (I.e. if US-LC is 23%, I sell enough to get back to 20%, then use the cash to buy more of something else that is under the target. But if US-MC is 7.2% I don't worry about it.) The 1% threshold prevents unnecessary trading costs; sometimes if everything is just over 1% off I'll let it slide. I generally try to stay away from timing, but I do use some of that extra cash when there's a panic (after Jan-Feb '09 I had very little cash in the retirement accounts). I don't have the source for this allocation any more, but it is the result of combining a half dozen or so sample allocations that I saw and tailoring it for my goals.\"","I agree with others here that suggest that you should be taking higher risk since it is repaid with higher returns. You have 40 years or so to go before you might switch to safer but lower return funds. I suggest that you look at the Morningstar rating for the funds you are considering: http://www.morningstar.com/ A fund rated five stars means that the fund performs in the top 20% compared to all similar funds. I prefer five star funds. Next, check the management fees. Here is an example from one of the funds you mentioned; https://www.google.com/finance?cid=466533039917726 Next, I suggest you compare how each fund has performed compared to a benchmark. Here are some common indices: Compare an equity fund to, for example, the S&P 500. Has your fund beat or closely matched the S&P for 1, 5 and 10 years? If not, you may as well buy an index fund, such as SPY.","\"There are probably 3-4 questions here. Diversification - A good index, a low cost S&P fund or ETF can serve you very well. If you add an extended market index or just go with \"\"Total market\"\", that might be it for your stock allocation. I've seen people with 5 funds, and it didn't take much analysis to see the overlap was so significant, that the extra 4 funds added little, and 2 of the 5 would have been it. If you diversify by buying more ETFs or funds, be sure to see what they contain. If you can go back in time, buy Apple, Google, Amazon, etc, and don't sell them. Individual stocks are fun to pick, but unless you put in your homework, are tough to succeed at. You need to be right at the buy side, and again to know if, and when, to sell. I bought Apple, for example, long ago, pre-last few splits. But, using responsible a approach, I sold a bit each time it doubled. Has I kept it all through the splits, I'd have $1M+ instead of the current $200K or so of stock. Can you tell which companies now have that kind of potential for the future? The S&P has been just about double digit over 60 years. The average managed fund will lag the S&P over time, many will be combined with other funds or just close. Even with huge survivor bias, managed funds can't beat the index over time, on average. Aside from a small portion of stocks I've picked, I'm happy to get S&P less .02% in my 401(k). In aggregate, people actually do far worse due to horrific timing and some odd thing, called emotions.\"","I would stay away from the Actively Managed Funds. Index funds or the asset allocation funds are your best bet since they have the lowest fees. What is your risk tolerance? How old are you? I would suggest reading:","At your age, I don't think its a bad idea to invest entirely in stocks. The concern with stocks is their volatility, and at 40+ years from retirement, volatility does not concern you. Just remember that if you ever want to call upon your 401(k) for anything other than retirement, such as a down payment on a home (which is a qualified distribution that is not subject to early distribution penalties), then you should reconsider your retirement allocations. I would not invest 100% into stocks if I knew I were going to buy a house in five years and needed that money for a down payment. If your truly saving strictly for a retirement that could occur forty years in the future, first good for you, and second, put it all in an index fund. An S&P index has a ridiculously low expense ratio, and with so many years away from retirement, it gives you an immense amount of flexibility to choose what to do with those funds as your retirement date approaches closer every year.","Loads of financial advisors advise holding index funds they may advise other things as well, but low fee index funds are a staple portfolio item. I can't speak to the particulars of Canada, but in the US you would just open a brokerage account (or IRA or SEP IRA in the case of a small business owner) and buy a low cost S&P index ETF or low/no fee/commission S&P index mutual fund. There's no magic to it. Some examples in no particular order are, Vanguard's VOO, Schwab's SWPPX, and iShares' IVV. There are also Canadian index equities like Vanguard's VCN and iShare's XIC.","Failing some answers to my comment, I am going to make some assumptions: Based upon a quick review of this article I'd probably be in the Russell 2000 Value Index Fund (IWN). Quite simply it gives you broad market exposure so you can be diversified by purchasing one fund. One of the key success factors is starting, not if you pick the best fund at the onset. I can recall, 20 years ago being amazed (and it was quite a feat) at someone who was able to invest $400 per month. These days that won't get you to the ROTH maximum and smart 20 somethings are doing just that.","Whatever you do, don't take your retirement savings to Vegas. Second, you should also consider investment expenses. Your investments profit after the managers pay themselves. Get the lowest expense ratio mutual funds you can. Third, most active managers do not beat the market. Index funds are your friends. They also tend to have the lower expense ratios.","The fact that you are choosing index fund means you are surely not one of those investors who can correctly judge dips. But buying on dips is still important. You can use a method called Dollar Value Averaging. It is better than Dollar Cost Averaging. Just make sure you apply a lower limit and an upper limit to be more predictable. Suppose you have 10000 to invest. Use limits like minimum 200 investment when index is high, maximum 600 investment when index is down and when index gives normal returns, invest 400. Do this for about 2 years. More than 2 years is not recommended. I myself use this method and benefit a lot.","An index fund is inherently diversified across its index -- no one stock will either make or break the results. In that case it's a matter of picking the index(es) you want to put the money into. ETFs do permit smaller initial purchases, which would let you do a reasonable mix of sectors. (That seems to be the one advantage of ETFs over traditional funds...?)","M Attia, the advantages of the TD e-series are that they are a low cost way to index your portfolio as well it gives you to opportunity to invest small amounts at a time. With ETF's, purchasing small amounts at a time would simply get too expensive.","\"One other thing to consider, particularly with Vanguard, is the total dollar amount available. Vanguard has \"\"Admiralty\"\" shares of funds which offer lower expense ratios, around 15-20% lower, but require a fairly large investment in each fund (often 10k) to earn the discounted rate. It is a tradeoff between slightly lower expense ratios and possibly a somewhat less diverse holding if you are relatively early in your savings and only have say 20-30k (which would mean 2 or 3 Admiralty share funds only).\"","One thing to be aware of when choosing mutual funds and index ETFs is the total fees and costs. The TD Ameritrade site almost certainly had links that would let you see the total fees (as an annual percentage) for each of the funds. Within a category, the lowest fees percentage is best, since that is directly subtracted from your performance. As an aside, your allocation seems overly conservative to me for someone that is 25 years old. You will likely work for 40 or so years and the average stock market cycle is about 7 years. So you will likely see 5 or so complete cycles. Worrying about stability of principal too young will really cut into your returns. My daughter is your age and I have advised her to be 100% in equities and then to start dialing that back in about 25 years or so.","When you look at managed funds the expense ratios are always high. They have the expense of analyzing the market, deciding where to invest, and then tracking the new investments. The lowest expenses are with the passive investments. What you have noticed is exactly what you expect. Now if you want to invest in active funds that throw off dividends and capital gains, the 401K is the perfect place to do it, because that income will not be immediately taxable. If the money is in a Roth 401K it is even better because that income will never be taxed.","Index funds are well-known to give the best long-term investment. Are they? Maybe not all the time! If you had invested in an index fund tracking the S&P500 at the start of 2000 you would still be behind in terms of capital appreciation when taking inflation into considerations. Your only returns in 13.5 years would have been any dividends you may have received. See the monthly chart of the S&P500 below. Diversification can be good for your overall returns, but diversification simply for diversification sake is as you said, a way of reducing your overall returns in order of smoothing out your equity curve. After looking up indexes for various countries the only one that had made decent returns over a 13.5 year period was the Indian BSE 30 index, almost 400% over 13.5 years, although it also has gone nowhere since the end of 2007 (5.5 years). See monthly chart below. So investing internationally (especially in developing countries when developed nations are stagnating) can improve your returns, but I would learn about the various international markets first before plunging straight in. Regarding investing in an Index fund vs direct investment in a select group of shares, I did a search on the US markets with the following criteria on the 3rd January 2000: If the resulting top 10 from the search were bought on 3rd January 2000 and held up until the close of the market on the 19th June 2013, the results would be as per the table below: The result, almost 250% return in 13.5 years compared to almost no return if you had invested into the whole S&P 500 Index. Note, this table lists only the top ten from the search without screening through the charts, and no risk management was applied (if risk management was applied the 4 losses of 40%+ would have been limited to a maximum of 20%, but possibly much smaller losses or even for gains, as they might have gone into positive territory before coming back down - as I have not looked at any of the charts I cannot confirm this). This is one simple example how selecting good shares can result in much better returns than investing into a whole Index, as you are not pulled down by the bad stocks.","There are fund of funds,e.g. life cycle funds or target retirement funds, that could cover a lot of these with an initial investment that one could invest into for a few years and then after building up a balance large enough, then it may make sense to switch to having more control.","If you have other savings, the diversification occurs across the accounts. e.g. my 401(k) has access to the insanely low .02% fee VIIIX (Vanguard S&P fund) You can bet it's 100% in. My IRAs are the other assets that make the full picture look better allocated. A new investor has the issue you suggest, although right now, you can deposit $5500 for 2013, and $5500 for 2014, so with $11K available, you can start with $6 or $9K and start with 2 or 3 funds. Or $9K now, but with $500 left over for the '14 deposit, you can deposit $6K in early '15. The disparity of $3K min/$5500 annual limit is annoying, I agree, but shouldn't be a detriment to your planning.","Most ETFs are index funds, meaning you get built in diversification so that any one stock going down won't hurt the overall performance much. You can also get essentially the same index funds by directly purchasing them from the mutual fund company. To buy an ETF you need a brokerage account and have to pay a transaction fee. Buying only $1000 at a time the broker transaction fee will eat too much of your money. You want to keep such fees way down below 0.1%. Pay attention to transaction fees and fund expense ratios. Or buy an equivalent index fund directly from the mutual fund company. This generally costs nothing in transaction fees if you have at least the minimum account value built up. If you buy every month or two you are dollar cost averaging, no matter what kind of account you are using. Keep doing that, even if the market values are going down. (Especially if the market values are going down!) If you can keep doing this then forget about certificates of deposit. At current rates you cannot build wealth with CDs.","\"Aggressiveness in a retirement portfolio is usually a function of your age and your risk tolerance. Your portfolio is usually a mix of the following asset classes: You can break down these asset classes further, but each one is a topic unto itself. If you are young, you want to invest in things that have a higher return, but are more volatile, because market fluctuations (like the current financial meltdown) will be long gone before you reach retirement age. This means that at a younger age, you should be investing more in stocks and foreign/developing countries. If you are older, you need to be into more conservative investments (bonds, money market, etc). If you were in your 50s-60s and still heavily invested in stock, something like the current financial crisis could have ruined your retirement plans. (A lot of baby boomers learned this the hard way.) For most of your life, you will probably be somewhere in between these two. Start aggressive, and gradually get more conservative as you get older. You will probably need to re-check your asset allocation once every 5 years or so. As for how much of each investment class, there are no hard and fast rules. The idea is to maximize return while accepting a certain amount of risk. There are two big unknowns in there: (1) how much return do you expect from the various investments, and (2) how much risk are you willing to accept. #1 is a big guess, and #2 is personal opinion. A general portfolio guideline is \"\"100 minus your age\"\". This means if you are 20, you should have 80% of your retirement portfolio in stocks. If you are 60, your retirement portfolio should be 40% stock. Over the years, the \"\"100\"\" number has varied. Some financial advisor types have suggested \"\"150\"\" or \"\"200\"\". Unfortunately, that's why a lot of baby boomers can't retire now. Above all, re-balance your portfolio regularly. At least once a year, perhaps quarterly if the market is going wild. Make sure you are still in-line with your desired asset allocation. If the stock market tanks and you are under-invested in stocks, buy more stock, selling off other funds if necessary. (I've read interviews with fund managers who say failure to rebalance in a down stock market is one of the big mistakes people make when managing a retirement portfolio.) As for specific mutual fund suggestions, I'm not going to do that, because it depends on what your 401k or IRA has available as investment options. I do suggest that your focus on selecting a \"\"passive\"\" index fund, not an actively managed fund with a high expense ratio. Personally, I like \"\"total market\"\" funds to give you the broadest allocation of small and big companies. (This makes your question about large/small cap stocks moot.) The next best choice would be an S&P 500 index fund. You should also be able to find a low-cost Bond Index Fund that will give you a healthy mix of different bond types. However, you need to look at expense ratios to make an informed decision. A better-performing fund is pointless if you lose it all to fees! Also, watch out for overlap between your fund choices. Investing in both a Total Market fund, and an S&P 500 fund undermines the idea of a diversified portfolio. An aggressive portfolio usually includes some Foreign/Developing Nation investments. There aren't many index fund options here, so you may have to go with an actively-managed fund (with a much higher expense ratio). However, this kind of investment can be worth it to take advantage of the economic growth in places like China. http://www.getrichslowly.org/blog/2009/04/27/how-to-create-your-own-target-date-mutual-fund/\"","The short answer to your question is yes. Index funds are about the easiest and most efficient diversified way to invest your money. Vanguard's are among the cheapest and best. Be aware, though, that passive income doesn't mean you do nothing for your money. In the case of investing, what you are doing is bearing risk. That is, you are being paid (on average) to put your money in a situation where you may lose money. If you keep your eye on the long-term prize, then when (not if) you sustain losses in your investment account, you will have the patience to leave the money in there. I'm a little confused by your wording about increasing your salary. Normally we think of index funds as a way to increase our wealth. If you are making new investments, presumably you have more salary than you need right now. Normal index funds will reinvest dividends automatically, so you will see the value of your investments rise but will not see any cash flows per se unless you are selling your holdings. If you want actual cash coming out of your investment, you can use ETF's to achieve the same type of investment and treat the dividends as a supplement to your income. Note, however, that some gains in your ETF will be in the form of capital gains and some will be dividends. Think more like 2% year per in dividend payments and the rest in capital gains. If your objective is to save for retirement, please consider investing through an IRA, Roth IRA, or through your 401(k). No need to give uncle sam a gift from your hard-earned money.","I would say that the three most important skills are: Note that some costs are hidden. So, for example, a mutual fund investing in other countries than where you live in may mean the investment target country charges a certain percentage of dividends going to the mutual fund. The mutual fund company doesn't usually want to tell you this. There may be clever financial instruments (derivatives) that can be used to avoid this, but they are not without their problems. If you diversify into equities at low cost, you will have a very wealthy future. I would recommend you to compare two options: ...and pick from these options the cheaper one. If your time has a high value, and you wish to take this value into account, I would say it is almost always far better option to choose an index fund. Whatever you do, don't pay for active management! It is a mathematical truth that before costs, actively managed investments will yield the same return than indexed investments. However, the costs are higher in active management, so you will have less total return. Don't believe that good historical return would imply good future return. However, if for some reason you see an index fund that continuously loses to the index more than by the amount of stated costs, beware!","If liquidity and cost are your primary objectives, Vanguard is indeed a good bet. They are the walmart of finance and the absolute best at minimizing fees and other expenses. Your main portfolio holding should be VTI, the total stock market fund. Highly liquid and has the lowest fees out there at 0.05%. You can augment this with a world-minus-US fund if you want. No need to buy sector or specific geography funds when you can get the whole market for less. Add some bond funds and alternative investments (but not too much) if you want to be fully diversified.","John Bogle never said only buy the S&P 500 or any single index Q:Do you think the average person could safely invest for retirement and other goals without expert advice -- just by indexing? A: Yes, there is a rule of thumb I add to that. You should start out heavily invested in equities. Hold some bond index funds as well as stock index funds. By the time you get closer to retirement or into your retirement, you should have a significant position in bond index funds as well as stock index funds. As we get older, we have less time to recoup. We have more money to protect and our nervousness increases with age. We get a little bit worried about that nest egg when it's large and we have little time to recoup it, so we pay too much attention to the fluctuations in the market, which in the long run mean nothing. How much to pay Q: What's the highest expense ratio that one should pay for a domestic equity fund? A: I'd say three-quarters of 1 percent maybe. Q: For an international fund? A: I'd say three-quarters of 1 percent. Q: For a bond fund? A: One-half of 1 percent. But I'd shave that a little bit. For example, if you can buy a no-load bond fund or a no-load stock fund, you can afford a little more expense ratio, because you're not paying any commission. You've eliminated cost No. 2....","\"From http://blog.ometer.com/2008/03/27/index-funds/ , Lots of sensible advisers will tell you to buy index funds, but importantly, the advice is not simply \"\"buy index funds.\"\" There are at least two other critical details: 1) asset allocation across multiple well-chosen indexes, maintained through regular rebalancing, and 2) dollar cost averaging (or, much-more-complex-but-probably-slightly-better, value averaging). The advice is not to take your single lump sum and buy and hold a cap-weighted index forever. The advice is an investment discipline which involves action over time, and an initial choice among indexes. An index-fund-based strategy is not completely passive, it involves some active risk control through rebalancing and averaging. If you'd held a balanced portfolio over the last ten years and rebalanced, and even better if you'd dollar cost averaged, you'd have done fine. Your reaction to the last 10 years incidentally is why I don't believe an almost-all-stocks allocation makes sense for most people even if they're pretty young. More detail in this answer: How would bonds fare if interest rates rose? I think some index fund advocacy and books do people a disservice by focusing too much on the extra cost of active management and why index funds are a good deal. That point is true, but for most investors, asset allocation, rebalancing, and \"\"autopilotness\"\" of their setup are more important to outcome than the expense ratio.\"","Powers makes a good point: trading costs may eat up a significant portion of your ROI. A fee as little as 2% can consume more than 50% of your long-term ROI! A rule of thumb is keep your fees to less than 1%. One way to do that is to buy stock in companies that have a DRIP with a Share Purchase Plan (SPP). Often the SPP allows investors to purchase shares for low fees or free. Once you have the ability to purchase shares for (virtually) free, you can use InvestMete. Roughly, you send more money to the companies whose share prices are near their 52-week low, and less money to those who are near their 52-week high. Getting back to your original question...","I'd say that because you are young, even the 'riskier' asset classes are not as risky as you think, for example, assuming conservatively that you only have 30 years to retirement, investing in stocks index might be a good option. In short term share prices are volatile and prone to bull and bear cycles but given enough time they have pretty much always outperformed any other asset classes. The key is not to be desperate to withdraw when an index is at the bottom. Some cycles can be 20 years, so when you need get nearer retirement you will need to diversify so that you can survive without selling low. Just make sure to pick an index tracker with low fees and you should be good to go. A word of warning is of course past performance is no indication of a future one, but if a diversified index tracker goes belly up for 20+ years, we are talking global calamity, in which case buy a shotgun and some canned food ;)","In your case I think you are doing just fine. Index funds, by their nature, have lower transaction costs and fewer taxable events than actively managed funds, good work. Index funds do not preclude the generation of dividends, and by their nature they probably generate slightly more than actively managed funds. You could take capital gain or dividend or both distributions, rather than reinvest them, if paying the taxes are a hardship. Otherwise look at the taxes you pay as your contributions to these funds. It stinks, but this is why 401K/IRA were rather revolutionary when they were formed. It was a really good deal to not have people's capital gains eaten by taxes when they occurred. Now its old hat, but it was pretty darn cool at the time. Should you prefer VTMSX rather than VFIAX? We can't really make the call on that one. Which one will perform better after taxes? Its anyone's guess. It is kind of a good problem to have.","It sounds like you are interested in investing in the stock market but you don't want to take too much risk. Investing in an Index EFT will provide some diversification and can be less risky than investing in individual stocks, however with potentially lower returns. If you want to invest your money, the first thing you should do is learn about managing your risk. You are still young and you should spend your time now to increase your education and knowledge. There are plenty of good books to start with, and you should prepare an investment plan which incorporates a risk management strategy. $1000 is a little low to start investing in the stock market, so whilst you are building your education and preparing your plan, you can continue building up more funds for when you are ready to start investing. Place your funds in an high interest savings account for now, and whilst you are learning you can practice your strategies using virtual accounts. In fact the ASX has a share market game which is held 2 or 3 times per year. The ASX website also has some good learning materials for novices and they hold regular seminars. It is another good source for improving your education in the subject. Remember, first get educated, then plan and practice, and then invest.","When you are putting your money in an index fund, you are not betting your performance against other asset classes but rather against competing investments withing the SAME asset class. The index fund always wins due to two factors: diversity, and lower cost. The lower cost attribute is essentially where you get your performance edge over the longer run. That is why if you look at the universe of mutual funds (where you get your diversification), very few will have beaten the index, assuming they have survived. -Ralph Winters","I'm looking for ways to geared to save for retirement, not general investment. Many mutual fund companies offer a range of target retirement funds for different retirement dates (usually in increments of 5 years). These are funds of funds, that is, a Target 2040 Fund, say, will be invested in five or six different stock and bond mutual funds offered by the same company. Over the years and as the target date approaches closer, the investment mix will change from extra weight given to stock mutual funds towards extra weight being given to bond mutual funds. The disadvantage to these funds is that the Target Fund charges its own expense ratio over and above the expense ratios charged by the mutual funds it invests in: you could do the same investments yourself (or pick your own mix and weighting of various funds) and save the extra expense ratio. However, over the years, as the Target Fund changes its mix, withdrawing money from the stock mutual funds and investing the proceeds into bond mutual funds, you do not have to pay taxes on the profits generated by these transactions except insofar as some part of the profits become distributions from the Target Fund itself. If you were doing the same transactions outside the Target Fund, you would be liable for taxes on the profits when you withdrew money from a stock fund and invested the proceeds into the bond fund.","Stock index funds are likely, but not certainly, to be a good long-term investment. In countries other than the USA, there have been 30+ year periods where stocks either underperformed compared to bonds, or even lost value in absolute terms. This suggests that it may be an overgeneralization to assume that they always do well in the long term. Furthermore, it may suggest that they are persistently overvalued for the risk, and perhaps due for a long-term correction. (If everybody assumes they're safe, the equity risk premium is likely to be eaten up.) Putting all of your money into them would, for most people, be taking an unnecessary risk. You should cover some other asset classes too. If stocks do very well, a portfolio with some allocation to more stable assets will still do fairly well. If they crash, a portfolio with less risky assets will have a better chance of being at least adequate.","So, why or why should I not invest in the cheaper index fund? They are both same, one is not cheaper than other. You get something that is worth $1000. To give a simple illustration; There is an item for $100, Vanguard creates 10 Units out of this so price per unit is $10. Schwab creates 25 units out of this, so the per unit price is $4. Now if you are looking at investing $20; with Vanguard you would get 2 units, with Schwab you would get 5 units. This does not mean one is cheaper than other. Both are at the same value of $20. The Factors you need to consider are; Related question What differentiates index funds and ETFs?","I disagree strongly with chasing expenses. Don't chase pennies until your are comfortable with an allocation that makes sense to you. Focus on building a diversified portfolio. Look at all of the funds, and put them in a portfolio in a tool like Google finance. Screen out funds with 1-3 stars. Search around on this site for questions about portfolios -- there's good advice there. If you're still not comfortable, look for a fee-based advisor.","The value premium would state the opposite in fact if one looks at the work of Fama and French. The Investment Entertainment Pricing Theory (INEPT) shows a graph with the rates on small-cap/large-cap and growth/value combinations that may be of interest as well for another article noting the same research. Index fund advisors in Figure 9-1 shows various historical returns up to 2012 that may also be useful here for those wanting more detailed data. How to Beat the Benchmark is from 1998 that could be interesting to read about index funds and beating the index in a simpler way.","ETFs are a type of investment, not a specific choice. In other words, there are good ETFs and bad. What you see is the general statement that ETFs are preferable to most mutual funds, if only for the fact that they are low cost. An index ETF such as SPY (which reflects the S&P 500 index) has a .09% annual expense, vs a mutual fund which average a full percent or more. sheegaon isn't wrong, I just have a different spin to offer you. Given a long term return of say even 8% (note - this question is not a debate of the long term return, and I purposely chose a low number compared to the long term average, closer to 10%) and the current CD rate of <1%, a 1% hit for the commission on the buy side doesn't bother me. The sell won't occur for a long time, and $8 on a $10K sale is no big deal. I'd not expect you to save $1K/yr in cash/CDs for the years it would take to make that $8 fee look tiny. Not when over time the growth will overshaddow this. One day you will be in a position where the swings in the market will produce the random increase or decrease to your net worth in the $10s of thousands. Do you know why you won't lose a night's sleep over this? Because when you invested your first $1K, and started to pay attention to the market, you saw how some days had swings of 3 or 4%, and you built up an immunity to the day to day noise. You stayed invested and as you gained wealth, you stuck to the right rebalancing each year, so a market crash which took others down by 30%, only impacted you by 15-20, and you were ready for the next move to the upside. And you also saw that since mutual funds with their 1% fees never beat the index over time, you were happy to say you lagged the S&P by .09%, or 1% over 11 year's time vs those whose funds had some great years, but lost it all in the bad years. And by the way, right until you are in the 25% bracket, Roth is the way to go. When you are at 25%, that's the time to use pre-tax accounts to get just below the cuttoff. Last, welcome to SE. Edit - see sheegaon's answer below. I agree, I missed the cost of the bid/ask spread. Going with the lowest cost (index) funds may make better sense for you. To clarify, Sheehan points out that ETFs trade like a stock, a commission, and a bid/ask, both add to transaction cost. So, agreeing this is the case, an indexed-based mutual fund can provide the best of possible options. Reflecting the S&P (for example) less a small anual expense, .1% or less.","Littleadv has given you excellent general advice, but to my mind, the most important part of it all and the path which I will strongly recommend you follow, is the suggestion to look into a mutual fund. I would add even more strongly, go to a mutual fund company directly and make an investment with them directly instead of making the investment through a brokerage account. Pick an index fund with low expenses, e.g. there are S&P 500 index funds available with expenses that are a fraction of 1%. (However, many also require minimum investments on the order of $2500 or $3000 except for IRA accounts). At this time, your goal should be to reduce expenses as much as possible because expenses, whether they be in brokerage fees which may be directly visible to you or mutual fund expenses which are invisible to you, are what will eat away at your return far more than the difference between the returns of various investments.","I looked a bit at the first 3, .24% expense. There's a direction to not discuss individual investments here, so the rest of my answer will need to lean generic. I see you have 5 funds. I'm surmising it's an attempt at 'diversifying'. I'll ask you - what do these five, when combined, offer that a straight S&P 500 index (or some flavor of extended market) doesn't? I've gone through the exercise of looking at portfolios with a dozen funds and found overlap so great that 2 or 3 funds would have been sufficient. There are S&P funds that are as low as .05%. this difference may not seem like much, but it adds over time. To your last point, I'd consider a Solo 401(k) as you're self employed. One that offers the Roth option if you are in the marginal 15% bracket.","\"If I were in your shoes I'd probably take the Vanguard Total Market fund with Admiral shares, then worry about further diversification when there is more in the account. Many times when you \"\"diversify\"\" in to multiple funds you end up with a lot of specific security overlap. A lot of the big S&P 500 constituents will be in all of them, etc. So while the 10 or so basis points difference in expense ratio doesn't seem like enough of a reason NOT to spread in to multiple funds, once you split up the money between Large, Mid, Small cap funds and Growth, Value, Dividend funds you'll probably have a collection of holdings that looks substantially similar to a total market fund anyway. Unless you're looking for international or some specific industry segment exposure and all of the money is going to equities anyway, an inexpensive total market fund makes a lot of sense.\"","\"There are a lot of funds that exist only to feed people's belief that existing funds are not diversified or specialized enough. That's why you have so many options. Just choose the ones with the lowest fees. I'd suggest the following: I wouldn't mess around with funds that try and specialize in \"\"value\"\" or those target date funds. If you really don't want to think and don't mind paying slightly higher fees, just pick the target date fund that corresponds to when you will retire and put all your money there. On the traditional/Roth question, if your tax bracket will be higher when you retire than it is now (unlikely), choose Roth. Otherwise choose traditional.\"","Vanguard has low cost ETFs that track the S&P 500. The ticker is VOO, its expense ratio is 0.05%, which is pretty low compared to others in the market. Someone correct me if I'm wrong, but you won't have to pay tax on the dividends if it's in a retirement account such as a Traditional(pay taxes when you withdraw) or Roth IRA(pay income/federal/fica etc, but no taxes on withdrawal)...","Many mutual fund companies (including Vanguard when I checked many years ago) require smaller minimum investments (often $1000) for IRA and 401k accounts. Some also allow for smaller investments into their funds for IRA accounts if you set up an automatic investment plan that contributes a fixed amount of money each month or each quarter. On the other hand, many mutual fund companies charge an annual account maintenance fee ($10? $20? $25? more?) per fund for IRA investments unless the balance in the fund is above a certain amount (often $5K or $10K$). This fee can be paid in cash or deducted from the IRA investment, and the former option is vastly better. So, diversification into multiple funds while starting out with an IRA is not that great an idea. It is far better to get diversification through investment in an S&P 500 Index fund (VFINX since you won't have access to @JoeTaxpayer's VIIIX) or a Total Market Index fund or, if you prefer, a Target Retirement Fund, and then branch out into other types of mutual funds as your investment grows through future contributions and dividends etc. To answer your question about fund minimums, the IRA account is separate from a taxable investment account, and the minimum rule applies to each separately. But, as noted above, there often are smaller minimums for tax-deferred accounts.","I have only found solution for UK residents so far, see the article on This Is Money: Cheapest index-tracking funds: Trackers with the lowest charges - and the best ways to invest in them","As I recall, the Scottrade minimum is only $500. (By the way, Scottrade has a feature to automatically reinvest any dividends which the securities pay) Once you have an account, you can buy into an index fund. SPY tracks the S&P 500. It is also currently paying nearly 2% in dividends. You can shop for other alternatives here: http://seekingalpha.com/insight/etf_hub/etf_guide/selector/article/39431-core-building-blocks-large-mid-small-cap-us-etfs","Also, when they mean SP500 fund - it means that fund which invests in the top 500 companies in the SP Index, is my understanding correct? Yes that is right. In reality they may not be able to invest in all 500 companies in same proportion, but is reflective of the composition. I wanted to know whether India also has a company similar to Vanguard which offers low cost index funds. Almost all mutual fund companies offer a NIFTY index fund, both as mutual fund as well as ETF. You can search for index fund and see the total assets to find out which is bigger compared to others.","Sounds like you're doing fine, though somewhat fuzzy: how are you allocating the $500/month? Are you doing dollar cost averaging into funds, accumulating enough $$ to buy round lots of individual stocks, market timing, etc. The summary suggestion: max out the ROTH first, then with $$$ left over, do the after tax, low-cost fund, monthly dollar cost averaging approach.","Vanguard might be the top provider of no-load mutual funds around. Attempting to do better than 0.13% in fees is just as likely to cost you more time than the money you're attempting to say. You're in your first job out of school--you've got better things to do with your time.","\"The value will certainly fluctuate up and down (but on average gain more than a savings account), but so long as you have enough liquid assets for emergencies, then yes, it's a perfectly good alternative to savings accounts. how risky, in general, are Index Income Funds. How are you defining \"\"risk\"\"? If you mean \"\"probability that I'll lose it all\"\" then it's virtually zero. If you mean \"\"how much the value can fluctuate\"\" then it's certainly not risk-free, but it has less volatility that individual stocks. If you take the S&P 500 as a proxy, you might expect the change in value over any given year to fluctuate between -30% (like 2008) and +40%, with an average change of around 8%. There will be funds that have less volatility, but produce less return, and funds that have more volatility but higher average returns.\"","Almost all major no-load mutual fund families allow you to do the kind of thing you are talking about, however you may need an initial investment of between $1000 to $3000 depending on the fund. Once you have it however, annual fee's are usually very little, and the fees to buy that companies funds are usually zero if it's a no-load company (Vanguard, TRowPrice, etc) With the larger companies that means you have a pretty large selection of funds, but generally EACH fund has a minimum initial purchase, once that's met then you can buy additional amounts in small quantities without a problem. For someone on a smaller budget, many low cost brokers (ETrade as mentioned by Litteadv, Scottrade as mentioned by myself in another similar question today) allow you to start with smaller initial balances and have a small selection of funds or ETF's that you can trade from without commission. In the case of Scottrade, they have like 15 ETF's that you can trade comission free. Check with the various low cost brokerages such as ETrade, Scottrade, and TDAmeritrade, to see what their policies are, and what if any funds/ETF's they allow you to trade in without commissions. Keep in mind that for Mutual funds, there may still be a fund minimum initial investment that applies, be sure to check if that is the case or not. The lack of any minimum investment makes ETF's a slightly more attractive option for someone who doesn't have the 'buy in' that many funds require.","I'm a believer in broad index funds for the vast majority of investors. However, I'm sure someone here is more qualified than me to speak to the correct allocation. I'm mostly pointing out low-hanging fruit: you should (almost) never invest in the company that pays your wages. You could just dump it in the S&P or some broad market index and be in a better position.","\"YES.. Management fees cut directly into your profits. A fund which achieves 8% growth but costs 1% to maintain delivers only 7% to you. Compounded over years, even a relatively small difference can add up to a significant amount of money. This is one of the advantages index funds have. They may not be as \"\"sophisticated\"\" as human-managed funds, but their expense ratio is so much lower that the end result for the investor is often as good as or better than the more expensive products. In fact, at least one study found that, for each category they researched, low expense ratio was a better predictor of good return on investment than anything else they looked at. That doesn't mean cheapest is always best or most expensive is always worst .... but it does mean you should be very, very sure an expensive fund really is that much better before choosing it. And sticking with simple index funds may be a perfectly reasonable choice.\"","What makes the S&P 500 Index funds have low expenses ratios is that the amount of money spent by the mutual fund company on research is Zero. Standard and Poors does the research, the fund companies piggy back on that research. Another big factor in keeping expenses low is the fact the companies that makeup the index don't change very often. If the fund frequently changes the makeup of the investments not only can that trigger tax considerations but there are costs associated with all those transactions. The question is: do the other algorithms overcome the additional costs due to higher expenses and taxes.","\"If you want a Do-It-Yourself solution, look to a Vanguard account with their total market index funds. There's a lot of research that's been done recently in the financial independence community. Basically, there's not many money managers who can outperform the market index (either S&P 500 or a total market index). Actually, no mutual funds have been identified that outperform the market, after fees, consistently. So there's not much sense in paying someone to earn you less than a low fee index fund could do. And some of the numbers show that you can actually lose value on your 401k due to high fees. That's where Vanguard comes in. They offer some of the lowest fees (if not the lowest) and a selection of index funds that will let you balance your portfolio the way you want. Whether you want to go 100% total stock market index fund or a balance between total stock market index fund and total bond index fund, or a \"\"lazy 3 fund portfolio\"\", Vanguard gives you the tools to do it yourself. Rebalancing would require about an hour every quarter. (Or time span you declare yourself). jlcollinsnh A Simple Path to Wealth is my favorite blog about financial independence. Also, Warren Buffet recommended that the trustees for his wife's inheritance when he passes invest her trust in one investment. Vanguard's S&P500 index fund. The same fund he chose in a 10 year $1M bet vs. hedge fund managers. (proceeds go to charity). That was about 9 years ago. So far, Buffet's S&P500 is beating the hedge funds. Investopedia Article\"","Does your employer offer a 401(k) match? If so, contribute enough to maximize that--it's free money. After that, contribute to an IRA where you can invest in funds with low expenses. After you max that out, if you still have money left over, max out your 401(k) despite the high expenses for the tax advantages. Remember when you leave the company you can roll over the balance into an IRA and switch to lower-cost investments. Of course this is general advice without knowing your situation. If you're looking to buy a home soon, for example, you might want to keep extra money in a taxable account for a downpayment rather than maxing out your 401(k).","In a word, no. Diversification is the first rule of investing. Your plan has poor diversification because it ignores most of the economy (large cap stocks). This means for the expected return your portfolio would get, you would bear an unnecessarily large amount of risk. Large cap and small cap stocks take turns outperforming each other. If you hold both, you have a safer portfolio because one will perform well while the other performs poorly. You will also likely want some exposure to the bond market. A simple and diversified portfolio would be a total market index fund and a total bond market fund. Something like 60% in the equity and 40% in the bonds would be reasonable. You may also want international exposure and maybe exposure to real estate via a REIT fund. You have expressed some risk-aversion in your post. The way to handle that is to take some of your money and keep it in your cash account and the rest into the diversified portfolio. Remember, when people add more and more asset classes (large cap, international, bonds, etc.) they are not increasing the risk of their portfolio, they are reducing it via diversification. The way to reduce it even more (after you have diversified) is to keep a larger proportion of it in a savings account or other guaranteed investment. BTW, your P2P lender investment seems like a great idea to me, but 60% of your money in it sounds like a lot.","First, you should diversify your portfolio. If your entire portfolio is in the Roth IRA, then you should eventually diversify that. However, if you have an IRA and a 401k, then it's perfectly fine for the IRA to be in a single fund. For example, I used my IRA to buy a riskier REIT that my 401k doesn't support. Second, if you only have a small amount currently invested, e.g. $5500, it may make sense to put everything in a single fund until you have enough to get past the low balance fees. It's not uncommon for funds to charge lower fees to someone who has $8000, $10,000, or $12,000 invested. Note that if you deposit $10,000 and the fund loses money, they'll usually charge you the rate for less than $10,000. So try to exceed the minimum with a decent cushion. A balanced fund may make sense as a first fund. That way they handle the diversification for you. A targeted fund is a special kind of balanced fund that changes the balance over time. Some have reported that targeted funds charge higher fees. Commissions on those higher fees may explain why your bank wants you to buy. I personally don't like the asset mixes that I've seen from targeted funds. They often change the stock/bond ratio, which is not really correct. The stock/bond ratio should stay the same. It's the securities (stocks and bonds) to monetary equivalents that should change, and that only starting five to ten years before retirement. Prior to that the only reason to put money into monetary equivalents is to provide time to pick the right securities fund. Retirees should maintain about a five year cushion in monetary equivalents so as not to be forced to sell into a bad market. Long term, I'd prefer low-load index funds. A bond fund and two or three stock funds. You might want to build your balance first though. It doesn't really make sense to have a separate fund until you have enough money to get the best fees. 70-75% stocks and 25-30% bonds (should add to 100%, e.g. 73% and 27%). Balance annually when you make your new deposit.","You already did the leg work by putting your money in a Schwab account. They have some of the lowest fees on index funds you can buy. I would keep things dead simple. Decide if you want some of it to be an IRA or not, and then plow your funds into a broad stock only index fund such as SCHB, SCHX, or SCHV (you could buy all three, but there would be no need to whatsoever). You will get around 2-2.5 % dividend yield, be diversified, and have extreme low fees. Fees are key to getting good returns in funds. Of course..set tax money aside as well.","\"If I invest in index funds or other long term stocks that pay dividend which I reinvest, they don't need to be worth more per share for me to make a profit, right? That is, if I sell part of the stocks, it's GOOD if they're worth more than I bought them at, but the real money comes from the QUANTITY of stocks that you get by reinvesting your dividends, right? I would say it is more the other way around. It is nice to get dividends and reinvest them, but overall the main gain comes from the stocks going up in value. The idea with index funds, however, is that you don't rely on any particular stock going up in value; instead you just rely on the aggregate of all the funds in the index going up. By buying lots of stocks bundled in an index fund, you avoid being too reliant on any one company's performance. Can I invest \"\"small amounts\"\" (part of paycheck) into index funds on a monthly basis, like €500, without taking major \"\"transaction fees\"\"? (Likely to be index fund specific... general answers or specific answers using popular stocks welcomed). Yes, you can. At least in the US, whether you can do this automatically from your paycheck depends on whether you employer has that set up. I don't know that work in the Netherlands. However, at the least, you can almost certainly set up an auto-invest program that takes $X out of your bank account every month and buys shares of some index fund(s). Is this plan market-crash proof? My parents keep saying that \"\"Look at 2008 and think about what such a thing would do to your plan\"\", and I just see that it will be a setback, but ultimately irrelevant, unless it happens when I need the money. And even then I'm wondering whether I'll really need ALL of my money in one go. Doesn't the index fund go back up eventually? Does a crash even matter if you plan on holding stocks for 10 or more years? Crashes always matter, because as you say, there's always the possibility that the crash will occur at a time you need the money. In general, it is historically true that the market recovers after crashes, so yes, if you have the financial and psychological fortitude to not pull your money out during the crash, and to ride it out, your net worth will probably go back up after a rough interlude. No one can predict the future, so it's possible for some unprecedented crisis to cause an unprecedented crash. However, the interconnectedness of stock markets and financial systems around the world is now so great that, were such a no-return crash to occur, it would probably be accompanied by the total collapse of the whole economic system. In other words, if the stock market dies suddenly once and for all, the entire way of life of \"\"developed countries\"\" will probably die with it. As long as you live in such a society, you can't really avoid \"\"gambling\"\" that it will continue to exist, so gambling on there not being a cataclysmic market crash isn't much more of a gamble. Does what I'm planning have similarities with some financial concept or product (to allow me to research better by looking at the risks of that concept/product)? Maybe like a mortgage investment plan without the bank eating your money in between? I'm not sure what you mean by \"\"what you're planning\"\". The main financial products relevant to what you're describing are index funds (which you already mentioned) and index ETFs (which are basically similar with regard to the questions you're asking here). As far as concepts, the philosophy of buying low-fee index funds, holding them for a long time, and not selling during crashes, is essentially that espoused by Jack Bogle (not quite the inventor of the index fund, but more or less its spiritual father) and the community of \"\"Bogleheads\"\" that has formed around his ideas. There is a Bogleheads wiki with lots of information about the details of this approach to investing. If this strategy appeals to you, you may find it useful to read through some of the pages on that site.\"","So I did some queries on Google Scholar, and the term of art academics seem to use is target date fund. I notice divided opinions among academics on the matter. W. Pfau gave a nice set of citations of papers with which he disagrees, so I'll start with them. In 1969, Paul Sameulson published the paper Lifetime Portfolio Selection By Dynamic Stochaistic Programming, which found that there's no mathematical foundation for an age based risk tolerance. There seems to be a fundamental quibble relating to present value of future wages; if they are stable and uncorrelated with the market, one analysis suggests the optimal lifecycle investment should start at roughly 300 percent of your portfolio in stocks (via crazy borrowing). Other people point out that if your wages are correlated with stock returns, allocations to stock as low as 20 percent might be optimal. So theory isn't helping much. Perhaps with the advent of computers we can find some kind of empirical data. Robert Shiller authored a study on lifecycle funds when they were proposed for personal Social Security accounts. Lifecycle strategies fare poorly in his historical simulation: Moreover, with these life cycle portfolios, relatively little is contributed when the allocation to stocks is high, since earnings are relatively low in the younger years. Workers contribute only a little to stocks, and do not enjoy a strong effect of compounding, since the proceeds of the early investments are taken out of the stock market as time goes on. Basu and Drew follow up on that assertion with a set of lifecycle strategies and their contrarian counterparts: whereas a the lifecycle plan starts high stock exposure and trails off near retirement, the contrarian ones will invest in bonds and cash early in life and move to stocks after a few years. They show that contrarian strategies have higher average returns, even at the low 25th percentile of returns. It's only at the bottom 5 or 10 percent where this is reversed. One problem with these empirical studies is isolating the effect of the glide path from rebalancing. It could be that a simple fixed allocation works plenty fine, and that selling winners and doubling down on losers is the fundamental driver of returns. Schleef and Eisinger compare lifecycle strategy with a number of fixed asset allocation schemes in Monte Carlo simulations and conclude that a 70% equity, 30% long term corp bonds does as well as all of the lifecycle funds. Finally, the earlier W Pfau paper offers a Monte Carlo simulation similar to Schleef and Eisinger, and runs final portfolio values through a utility function designed to calculate diminishing returns to more money. This seems like a good point, as the risk of your portfolio isn't all or nothing, but your first dollar is more valuable than your millionth. Pfau finds that for some risk-aversion coefficients, lifecycles offer greater utility than portfolios with fixed allocations. And Pfau does note that applying their strategies to the historical record makes a strong recommendation for 100 percent stocks in all but 5 years from 1940-2011. So maybe the best retirement allocation is good old low cost S&P index funds!","1: Low fees means: a Total Expense Ratio of less than 0,5%. One detail you may also want to pay attention to whether the fund reinvests returns (Thesaurierender Fonds) which is basically good for investing, but if it's also a foreign-based fund then taxes get complicated, see http://www.finanztip.de/indexfonds-etf/thesaurierende-fonds/","\"That's great that you have saved up money. You are ahead of your peers. I would advise against investing in an index fund. The attraction of the idea is that you will get the same return as the base item. For example, an index fund of gold would supposedly give you the same return as if you bought gold. In reality this is not true. The return of an index fund is always significantly below the return of the underlying commodity. Your best strategy is to invest in something you know and understand. There are two books that can help you learn how to do this: \"\"One Up on Wall Street\"\" by Peter Lynch and \"\"The Intelligent Investor\"\" by Benjamin Graham. Buying, reading and following the guidance in these two books is your best investment of time and money.\"","\"Index funds can be a very good way to get into the stock market. It's a lot easier, and cheaper, to buy a few shares of an index fund than it is to buy a few shares in hundreds of different companies. An index fund will also generally charge lower fees than an \"\"actively managed\"\" mutual fund, where the manager tries to pick which stocks to invest for you. While the actively managed fund might give you better returns (by investing in good companies instead of every company in the index) that doesn't always work out, and the fees can eat away at that advantage. (Stocks, on average, are expected to yield an annual return of 4%, after inflation. Consider that when you see an expense ratio of 1%. Index funds should charge you more like 0.1%-0.3% or so, possibly more if it's an exotic index.) The question is what sort of index you're going to invest in. The Standard and Poor's 500 (S&P 500) is a major index, and if you see someone talking about the performance of a mutual fund or investment strategy, there's a good chance they'll compare it to the return of the S&P 500. Moreover, there are a variety of index funds and exchange-traded funds that offer very good expense ratios (e.g. Vanguard's ETF charges ~0.06%, very cheap!). You can also find some funds which try to get you exposure to the entire world stock market, e.g. Vanguard Total World Stock ETF, NYSE:VT). An index fund is probably the ideal way to start a portfolio - easy, and you get a lot of diversification. Later, when you have more money available, you can consider adding individual stocks or investing in specific sectors or regions. (Someone else suggested Brazil/Russia/Indo-China, or BRICs - having some money invested in that region isn't necessarily a bad idea, but putting all or most of your money in that region would be. If BRICs are more of your portfolio then they are of the world economy, your portfolio isn't balanced. Also, while these countries are experiencing a lot of economic growth, that doesn't always mean that the companies that you own stock in are the ones which will benefit; small businesses and new ventures may make up a significant part of that growth.) Bond funds are useful when you want to diversify your portfolio so that it's not all stocks. There's a bunch of portfolio theory built around asset allocation strategies. The idea is that you should try to maintain a target mix of assets, whatever the market's doing. The basic simplified guideline about investing for retirement says that your portfolio should have (your age)% in bonds (e.g. a 30-year-old should have 30% in bonds, a 50-year-old 50%.) This helps maintain a balance between the volatility of your portfolio (the stock market's ups and downs) and the rate of return: you want to earn money when you can, but when it's almost time to spend it, you don't want a sudden stock market crash to wipe it all out. Bonds help preserve that value (but don't have as nice of a return). The other idea behind asset allocation is that if the market changes - e.g. your stocks go up a lot while your bonds stagnate - you rebalance and buy more bonds. If the stock market subsequently crashes, you move some of your bond money back into stocks. This basically means that you buy low and sell high, just by maintaining your asset allocation. This is generally more reliable than trying to \"\"time the market\"\" and move into an asset class before it goes up (and move out before it goes down). Market-timing is just speculation. You get better returns if you guess right, but you get worse returns if you guess wrong. Commodity funds are useful as another way to diversify your portfolio, and can serve as a little bit of protection in case of crisis or inflation. You can buy gold, silver, platinum and palladium ETFs on the stock exchanges. Having a small amount of money in these funds isn't a bad idea, but commodities can be subject to violent price swings! Moreover, a bar of gold doesn't really earn any money (and owning a share of a precious-metals ETF will incur administrative, storage, and insurance costs to boot). A well-run business does earn money. Assuming you're saving for the long haul (retirement or something several decades off) my suggestion for you would be to start by investing most of your money* in index funds to match the total world stock market (with something like the aforementioned NYSE:VT, for instance), a small portion in bonds, and a smaller portion in commodity funds. (For all the negative stuff I've said about market-timing, it's pretty clear that the bond market is very expensive right now, and so are the commodities!) Then, as you do additional research and determine what sort investments are right for you, add new investment money in the places that you think are appropriate - stock funds, bond funds, commodity funds, individual stocks, sector-specific funds, actively managed mutual funds, et cetera - and try to maintain a reasonable asset allocation. Have fun. *(Most of your investment money. You should have a separate fund for emergencies, and don't invest money in stocks if you know you're going need it within the next few years).\"","\"Lifecycle funds might be a suitable fit for you. Lifecycle funds (aka \"\"target date funds\"\") are a mutual fund that invests your money in other mutual funds based on how much time is left until you need the money-- they follow a \"\"glide-path\"\" of reducing stock holdings in favor of bonds over time to reduce volatility of your final return as you near retirement. The ones I've looked at don't charge a fee of their own for this, but they do direct your portfolio to actively managed funds. That said, the ones I've seen have an \"\"acquired\"\" expense ratio of less than what you're proposing you'd pay a professional. FWIW, my current plan is to invest in a binary portfolio of cheap mutual funds that track S&P500 and AGG and rebalance regularly. This is easy enough that I don't see the point of adding in a 1 percent commission.\"","\"The Investment Entertainment Pricing Theory (INEPT) has this bit to note: The returns of small growth stocks are ridiculously low—just 2.18 percent per year since 1927 (versus 17.47 percent for small value, 10.06 percent for large growth, and 13.99 percent for large value). Where the S & P 500 would be a blend of large-cap growth and value so does that meet your \"\"beat the market over the long term\"\" as 1927-1999 would be long for most people.\"","This might be better suited to r/personalfinance but if you're looking to invest I'd say start with an index fund. The MER's (fees) for most other mutual funds take too heavy a chunk of returns to be worth it in a market where actively managed funds are either underperforming of performing at par with passive funds. Additionally if these are your first investments, make sure you're doing it with investment goals in mind. Is this money you're saving for short, medium, or long term? For medium and long term investing make sure you're doing it through a tax efficient instrument like an IRA or 401k.","\"Funds - especially index funds - are a safe way for beginning investors to get a diversified investment across a lot of the stock market. They are not the perfect investment, but they are better than the majority of mutual funds, and you do not spend a lot of money in fees. Compared to the alternative - buying individual stocks based on what a friend tells you or buying a \"\"hot\"\" mutual fund - it's a great choice for a lot of people. If you are willing to do some study, you can do better - quite a bit better - with common stocks. As an individual investor, you have some structural advantages; you can take significant (to you) positions in small-cap companies, while this is not practical for large institutional investors or mutual fund managers. However, you can also lose a lot of money quickly in individual stocks. It pays to go slow and to your homework, however, and make sure that you are investing, not speculating. I like fool.com as a good place to start, and subscribe to a couple of their newsletters. I will note that investing is not for the faint of heart; to do well, you may need to do the opposite of what everybody else is doing; buying when the market is down and selling when the market is high. A few people mentioned the efficient market hypothesis. There is ample evidence that the market is not efficient; the existence of the .com and mortgage bubbles makes it pretty obvious that the market is often not rationally valued, and a couple of hedge funds profited in the billions from this.\"","No I get that. But if you don’t want risk, then buy bonds. Long term an S&P Index has very low risk. On the other hand, actively managed funds have fees that take out a ton of the gain that could be had. I don’t have time to look for the study but I read recently that 97% of actively managed funds were outperformed by S&P Indexes after fees. Now I don’t know about you but I think the risk of not picking a top 3% fund is probably higher than the safe return of index’s.","@sharam - big question. I am going to answer part of it, but not as directly as you might like. You mention 4-6 cents per unit per month, but fail to give a unit price, so it is hard to tell how much return you are really looking for. Given the amount you have to invest, depending on your time horizon, you will do much better outside of mutual funds. Many funds in this category have fees in the 2% range. You actually have enough money to have a diversified portfolio on your own, without recourse to funds. If you want to use a fund-like product, I encourage you to look at well established ETFs (Exchange Traded Funds). They are basically like mutual funds that trade on the open stock market. One good example in this category is iShares XDV Good Luck","Yeah, that's what I do, just buy the indices and forget it. My portfolio is so boring it's elegant, and makes money too. 4.5% YTD and 5.9% in 2016, not bad for a 30/70 stock bond split for this 70-year-old. Oh, did I tell you my costs are .06%! I am enjoying the freedom of my retirement.","\"If you read Joel Greenblatt's The Little Book That Beats the Market, he says: Owning two stocks eliminates 46% of the non market risk of owning just one stock. This risk is reduced by 72% with 4 stocks, by 81% with 8 stocks, by 93% with 16 stocks, by 96% with 32 stocks, and by 99% with 500 stocks. Conclusion: After purchasing 6-8 stocks, benefits of adding stocks to decrease risk are small. Overall market risk won't be eliminated merely by adding more stocks. And that's just specific stocks. So you're very right that allocating a 1% share to a specific type of fund is not going to offset your other funds by much. You are correct that you can emulate the lifecycle fund by simply buying all the underlying funds, but there are two caveats: Generally, these funds are supposed to be cheaper than buying the separate funds individually. Check over your math and make sure everything is in order. Call the fund manager and tell him about your findings and see what they have to say. If you are going to emulate the lifecycle fund, be sure to stay on top of rebalancing. One advantage of buying the actual fund is that the portfolio distributions are managed for you, so if you're going to buy separate ETFs, make sure you're rebalancing. As for whether you need all those funds, my answer is a definite no. Consider Mark Cuban's blog post Wall Street's new lie to Main Street - Asset Allocation. Although there are some highly questionable points in the article, one portion is indisputably clear: Let me translate this all for you. “I want you to invest 5pct in cash and the rest in 10 different funds about which you know absolutely nothing. I want you to make this investment knowing that even if there were 128 hours in a day and you had a year long vacation, you could not possibly begin to understand all of these products. In fact, I don’t understand them either, but because I know it sounds good and everyone is making the same kind of recommendations, we all can pretend we are smart and going to make a lot of money. Until we don’t\"\" Standard theory says that you want to invest in low-cost funds (like those provided by Vanguard), and you want to have enough variety to protect against risk. Although I can't give a specific allocation recommendation because I don't know your personal circumstances, you should ideally have some in US Equities, US Fixed Income, International Equities, Commodities, of varying sizes to have adequate diversification \"\"as defined by theory.\"\" You can either do your own research to establish a distribution, or speak to an investment advisor to get help on what your target allocation should be.\""],"string":"[\n \"Small cap and mid cap shares tend to outperform large cap shares in a bull market, but they tend to underperform large cap shares in a bear market. Since the stock markets tend to go up in the long term, this suggests that a low cost small and mid cap index ETF should offer the best long term returns. Having said that, we are currently in a mature bull market having experienced over seven years without encountering a bear market. If a bearish outlook is something you worry about, then perhaps a broad market index, which will be heavily weighted towards large cap shares, may be a better choice for you at this time, with an eye toward switching to small and mid cap indices during the next bear market.\",\n \"\\\"Can you easily stomach the risk of higher volatility that could come with smaller stocks? How certain are you that the funds wouldn't have any asset bloat that could cause them to become large-cap funds for holding to their winners? If having your 401(k) balance get chopped in half over a year doesn't give you any pause or hesitation, then you have greater risk tolerance than a lot of people but this is one of those things where living through it could be interesting. While I wouldn't be against the advice, I would consider caution on whether or not the next 40 years will be exactly like the averages of the past or not. In response to the comments: You didn't state the funds so I how I do know you meant index funds specifically? Look at \\\"\\\"Fidelity Low-Priced Stock\\\"\\\" for a fund that has bloated up in a sense. Could this happen with small-cap funds? Possibly but this is something to note. If you are just starting to invest now, it is easy to say, \\\"\\\"I'll stay the course,\\\"\\\" and then when things get choppy you may not be as strong as you thought. This is just a warning as I'm not sure you get my meaning here. Imagine that some women may think when having a child, \\\"\\\"I don't need any drugs,\\\"\\\" and then the pain comes and an epidural is demanded because of the different between the hypothetical and the real version. While you may think, \\\"\\\"I'll just turn the cheek if you punch me,\\\"\\\" if I actually just did it out of the blue, how sure are you of not swearing at me for doing it? Really stop and think about this for a moment rather than give an answer that may or may not what you'd really do when the fecal matter hits the oscillator. Couldn't you just look at what stocks did the best in the last 10 years and just buy those companies? Think carefully about what strategy are you using and why or else you could get tossed around as more than a few things were supposed to be the \\\"\\\"sure thing\\\"\\\" that turned out to be incorrect like the Dream Team of Long-term Capital Management, the banks that were too big to fail, the Japanese taking over in the late 1980s, etc. There are more than a few times where things started looking one way and ended up quite differently though I wonder if you are aware of this performance chasing that some will do.\\\"\",\n \"I think the dividend fund may not be what youre looking for. You mentioned you want growth, not income. But I think of dividend stocks as income stocks, not growth. They pay a dividend because these are established companies that do not need to invest so much in capex anymore, so they return it to shareholders. In other words, they are past their growth phase. These are what you want to hold when you have a large nest egg, you are ready to retire, and just want to make a couple percent a year without having to worry as much about market fluctuations. The Russel ETF you mentioned and other small caps are I think what you are after. I recently made a post here about the difference between index funds and active funds. The difference is very small. That is, in any given year, many active ETFs will beat them, many wont. It depends entirely on the market conditions at the time. Under certain conditions the small caps will outperform the S&P, definitely. However, under other conditioned, such as global growth slowdown, they are typically the first to fall. Based on your comments, like how you mentioned you dont want to sell, I think index funds should make up a decent size portion of your portfolio. They are the safest bet, long term, for someone who just wants to buy and hold. Thats not to say they need be all. Do a mixture. Diversification is good. As time goes on dont be afraid to add bond ETFs either. This will protect you during downturns as bond prices typically rise under slow growth conditions (and sometimes even under normal conditions, like last year when TLT beat the S&P...)\",\n \"In a word, yes. You can buy very low cost index ETFs, like VTI, VEA, BND, FBND and rebalance in proportion to your age and risk tolerance. Minimal management and low cost.\",\n \"you should invest in a range of stock market indexes. Ex : Dow jones, S&P500, Nasdaq and keep it there until you are ready to retire. I'm invested half in SLYV and SLYG (S&P600 small cap value and S&P600 small cap growth; Respectively). It brings on average between 8-13% a year (since 1971). This is not investment advice. Talk to your broker before doing this.\",\n \"I like that you are hedging ONLY the Roth IRA - more than likely you will not touch that until retirement. Looking at fees, I noticed Vanguard Target retirement funds are .17% - 0.19% expense ratios, versus 0.04 - 0.14% for their Small/Mid/Large cap stocks.\",\n \"This is slightly opinion based. Is it appropriate to invest small amounts for short periods of time? At your age and the time period, I would say NO. This is because although the index fund do return 6-7% on average, there are several times it blips and goes negative as well. Stock Markets in short periods like 6 months can be unpredictable. At times a downturn will remain stagnant for periods of 2-3 years before suddenly zoom ahead. If you are not to particular about the time when you need the changes done; i.e. the changes can in worst case wait for few years; then yes investing in Index fund would make sense. Else you are well off keeping this in savings. Try CD's if they can offer better rates for such durations.\",\n \"For your purposes, I would recommend using direct investment in a no-load mutual fund. I mostly use Vanguard and would recommend them. They just about invented index funds, usually have the lowest (internal) expenses for index and many other funds, if you take electronic instead of paper statements there is no maintenance fee, have no transaction commission, can do periodic automatic investment from a bank account etc. A typical index fund there would require an initial $3000 investment and would have a minimum of $100 for each additional investment. If you can't come up with an initial sum of that size, you might be able to find a broker with a lower minimum and suitable free ETFs trades as others have suggested.\",\n \"Stock portfolios have diversifiable risk and undiversifiable risk. The market rewards investors for taking undiversifiable risk (e.g. owning an index of oil producing companies) and does not reward investors for assuming diversifiable risk (e.g. owning a single oil producing company). The market will not provide investors with any extra return for owning a single oil company when they can buy an oil index fund at no additional cost. Similarly, the market will not reward you for owning a small-cap index fund when you can purchase a globally diversified / capitalization diversified index fund at no additional cost. This article provides a more detailed description. The Vanguard Total World Stock Index Fund is a much better staring point for an equity portfolio. You will need to make sure that the asset allocation of your overall portfolio (e.g. stocks, bonds, P2P lending, cash) is consistent with your time horizon (5-10 years).\",\n \"The reports of my death have been greatly exaggerated. - Twain I use index funds in my retirement planning, but don't stick to just S&P 500 index funds. Suppose I balance my money 50/50 between Small Cap and Large Cap and say I have $10,000. I'd buy $5,000 of an S&P Index fund and $5,000 of a Russell 2000 index fund. Now, fast forward a year. Suppose the S&P Index fund has $4900 and the Russell Index fund has $5200. Sell $150 of Russell Index Fund and buy $150 of S&P 500 Index funds to balance. Repeat that activity every 12-18 months. This lets you be hands off (index fund-style) on your investment choices but still take advantage of great markets. This way, I can still rebalance to sell high and buy low, but I'm not stressing about an individual stock or mutual fund choice. You can repeat this model with more categories, I chose two for the simplicity of explaining.\",\n \"As these all seem to be US Equity, just getting one broad based US Equity index might offer similar diversification at lower cost. Over 5 years, 20 basis points in fees will only make about 1% difference. However, for longer periods (retirement saving), it is worth it to aim for the lowest fees. For further diversification, you might want to consider other asset classes, such as foreign equity, fixed income, etc.\",\n \"\\\"Congratulations on deciding to save money and choosing to invest it. One thing to know about mutual funds including index funds is that they typically require a minimum investment of a few thousand dollars, $3000 being a typical amount, unless the investment is in an IRA in which case $1000 might be a minimum. In some cases, automated monthly investments of $50 or $100 might need to be set up if you are beginning with a small balance. There is nothing wrong with your approach. You now should go and look at the various requirements for specific index funds. The Fidelity and Vanguard families are good choices and both offer very low-cost index funds to choose from, but different funds can have different requirements regarding minimum investments etc. You also have a choice of which index you want to follow, the S&P 500 Index, MidCap Indexes, Small-Cap Indexes, Total Stock Market Indexes etc., but your choice might be limited until you have more money to invest because of minimum investment rules etc. Most important, after you have made your choice, I urge you to not look every day, or even every month, to see how your investment is doing. You will save yourself a lot of anxiety and will save yourself from making wrong decisions. Far too many investors ignore the maxim \\\"\\\"Buy Low, Sell High\\\"\\\" and pull money out of what should be long-term investments at the first flicker of a downturn and end up buying high and selling low. Finally, the time is approaching when most stock funds will be declaring dividends and capital gains distributions. If you invest now, you may end up with a paper profit on which you will have to pay taxes (in non-tax-advantaged accounts) on your 2012 tax return (this is called \\\"\\\"buying a dividend\\\"\\\"), and so you might want to spend some time investigating now, but actually make the investment in late December after your chosen fund has made its distributions (the date for this will be on the fund's web site) or in early 2013.\\\"\",\n \"I would just buy a low-cost diversified equity ETF. VTI is pretty solid. Also, JW are you working or in school? If you are working you should consider opening an IRA or Roth IRA. Also if your employer has a 401k or other retirement plan you can contribute to I would advise doing so.\",\n \"Dogma always disappoints. The notion that an index fund is the end-all, be-all for investing because the expense ratios are low is a flawed one. I don't concern myself with cost as an independent factor -- I look for the best value. Bogle's dogma lines up with his business, so you need to factor that in as well. Vendors of any product spend alot of time and money convincing you that unique attributes of their product are the most important thing in the world. Pre-crash, the dogmatics among us were bleating about how Fixed-date Retirement Funds were the new paradigm. Where did they go?\",\n \"I think small sums invested regularly over long-term can do good for you, things to consider: I would go with an index fund and contribute there there regularly.\",\n \"2%? I would put in just what it takes to share in the profit sharing, not a dime more. My S&P fund cost is .02% (edited, as it dropped to .02 since original post), 1/100 of the cost of most funds you list. Doesn't take too many years of this fee to negate the potential tax savings, and not many more to make this a real loser.\",\n \"Some other suggestions: Index-tracking mutual funds. These have the same exposure as ETFs, but may have different costs; for example, my investment manager (in the UK) charges a transaction fee on ETFs, but not funds, but caps platform fees on ETFs and not funds! Target date funds. If you are saving for a particular date (often retirement, but could also be buying a house, kids going to college, mid-life crisis motorbike purchase, a luxury cruise to see an eclipse, etc), these will automatically rebalance the investment from risk-tolerant (ie equities) to risk-averse (ie fixed income) as the date approaches. You can get reasonably low fees from Vanguard, and i imagine others. Income funds/ETFs, focusing on stocks which are expected to pay a good dividend. The idea is that a consistent dividend helps smooth out volatility in prices, giving you a more consistent return. Historically, that worked pretty well, but given fees and the current low yields, it might not be smart right now. That said Vanguard Equity Income costs 0.17%, and i think yields 2.73%, which isn't bad.\",\n \"Some index funds offer lower expense ratios to those who invest large amounts of money. For example, Vanguard offers Admiral Shares of many of its mutual funds (including several index funds) to individuals who invest more than $50K or $100K, and these Shares have lower expense ratios than the Investor shares in the fund. There are Institutional Shares designed for investments by pension plans, 401k plans of large companies etc which have even lower expenses than Admiral Shares. Individuals working for large companies sometimes get access to Institutional Shares through their 401k plans. Thus, there is something to gained by investing in just one index fund (for a particular index) that offers lower expense ratios for large investments instead of diversifying into several index funds all tracking the same index. Of course, this advantage might be offset by failure to track the index closely, but this tracking should be monitored not on a daily basis but over much longer periods of time to test whether your favorite fund is perennially trailing the index by far more than its competitors with larger expense ratios. Remember that the Net Asset Value (NAV) published by each mutual fund after the markets close already take into account the expense ratio.\",\n \"If the ship is sinking, switching cabins with your neighbor isn't necessarily a good survival strategy. Index funds have sucked, because frankly just about everything has sucked lately. I still think it is a viable long term strategy as long as you are doing some dollar cost averaging. You can't think about long term investing as a steady climb up a hill, markets are erratic, but over long periods of time trend upwards. Now is your chance to get in near the ground floor. I can completely empathize that it is painful right now, but I am a believer in market efficiency and that over the long haul smart money is just more expensive (in terms of fees) than set-it-and-forget it diversified investments or target funds.\",\n \"When investing small amounts, you should consider the substantial toll that commissions will take on your investment. In your case, $800 placed in just one ETF will incur commissions of about $8 each way, or a total of 2% of your investment. I suggest you wait until you have at least $5000 to invest in stocks or ETFs. Since this is in a IRA, your options are limited, but perhaps you may qualify for a Vanguard mutual fund, which will not charge commissions and will have annual expenses only a trivial amount higher than the corresponding ETF. it should probably go in a mixed allocation fund, and since you are young, it should be a relatively aggressive one. Mutual funds will also allow you to contribute small amounts over time without incurring any extra fees.\",\n \"Your initial premise (mid-cap and small-cap company stocks have outperformed the market) is partially correct - they have, over many 40 yr periods, provided higher returns than large caps (or bond funds). The important thing to consider here is that risk adjusted, the returns from a diversified portfolio are far more robust - with proper asset allocation you and expect high returns and reduce your risk simultaneously. Imagine this scenario - you decide to stick to small / mid caps for 10 - 15 yrs and move into a more diversified portfolio then. Had you made that decision during a sustained period of poor small cap performance (late 80s or the 40's) you would have lost a boatload of return, as those were periods were small / mids underperformed the market as a whole, and large caps in particular. As an example, from 1946 to 1958 large caps outperformed small every single year. If 2016 were to be the first year of a similar trend, you've done yourself a major disservice. Since the dot com crash small /mids have outperformed for sure, pretty much every year - but that doesn't mean that they will continue to do so. The reason asset allocation exists is precisely this - over a 40 yr period, no single asset class outperforms a diversified portfolio. If you attempt to time the market, even if you do so with a multi-decade time horizon in mind, there a good chance that you will do more poorly.\",\n \"\\\"Put the whole lot into a couple of low-cost broad index funds with dividends reinvested (also known as accumulation funds) and then don't look at them. Invest through a low-cost broker. There are a number to choose from and once you start googling around the theme of \\\"\\\"index fund investing\\\"\\\" you'll find them. The S&P 500 is a popular index to start with.\\\"\",\n \"This is the chart going back to the first full year of this fund. To answer your question - yes, a low cost ETF or Mutual fund is fine. Why not go right to an S&P index? VOO has a .05% expense. Why attracted you to a choice that lagged the S&P by $18,000 over this 21 year period? (And yes, past performance, yada, yada, but that warning is appropriate for the opposite example. When you show a fund that beat the S&P short term, say 5 years, its run may be over. But this fund lagged the S&P by a significant margin over 2 decades, what makes you think this will change?\",\n \"Equal-weight ETFs remove the large cap bias found in most popular indexes. What results behaves very much like a small-cap or mid-cap index. Observe RSP vs IJR over a 5 year period: IJR (iShares S&P SmallCap 600 ETF) vs RSP (Rydex S&P Equal Weight ETF) I'm not sure if equal-weighting is worth the reduced efficiency. Mid-cap and small-cap funds have lower expenses (%0.20 for IJR vs %0.40 for RSP) and appear to do better over the long run. We don't know if that pattern will continue, but expense is one of the strongest long-term predictors of performance.\",\n \"Fire your fund manager. There are several passive funds that seek to duplicate the S&P 500 Index returns. They have lower management fees, which will make returns lower than S&P, and they have less risk by following a broadly diversified strategy (versus midcap growing stocks). There's also ETFs, but evidence is growing that they're not as safe as hoped. But here's the deal: the S&P has been on a tear lately. It could be overvalued and what looks like a good investment could start falling again. A possible alternative would be one of the Lifetime funds that seek to perform portfolio adjustment with a retirement decade target; they're fairly new which mostly means nobody knows how they screw you over yet. In theory, this decade structure means the brokerage can execute trading cash for stocks, stocks for bonds, and bonds for cash in house.\",\n \"Buy the minimum of one fund now. (Eg total bond market) Buy the minimum of the next fund next time you have $2500. (Eg large-cap stocks.) Continue with those until you have enough to buy the next fund (eg small-cap stocks). Adjust as you go to balance these funds according to your planned ratios, or as close as you can reasonably get without having to actually transfer money between the funds more than once a year or so. Build up to your targets over time. If you can't easily afford to tie up that first $2500, stay with banks and CDs and maybe money market accounts until you can. And don't try to invest (except maybe through a matched 401k) before you have adequate savings both for normal life and for an emergency reserve. Note too that the 401k can be a way to buy into funds without a minimum. Check with your employer. If you haven't maxed out your 401k yet, and it has matching funds, that is usually the place to start saving for retirement; otherwise you are leaving free money on the table.\",\n \"The article links to William Bernstein’s plan that he outlined for Business Insider, which says: Modelling this investment strategy Picking three funds from Google and running some numbers. The international stock index only goes back to April 29th 1996, so a run of 21 years was modelled. Based on 15% of a salary of $550 per month with various annual raises: Broadly speaking, this investment doubles the value of the contributions over two decades. Note: Rebalancing fees are not included in the simulation. Below is the code used to run the simulation. If you have Mathematica you can try with different funds. Notice above how the bond index (VBMFX) preserves value during the 2008 crash. This illustrates the rationale for diversifying across different fund types.\",\n \"Current evidence is that, after you subtract their commission and the additional trading costs, actively managed funds average no better than index funds, maybe not as well. You can afford to take more risks at your age, assuming that it will be a long time before you need these funds -- but I would suggest that means putting a high percentage of your investments in small-cap and large-cap stock indexes. I'd suggest 10% in bonds, maybe more, just because maintaining that balance automatically encourages buy-low-sell-high as the market cycles. As you get older and closer to needing a large chunk of the money (for a house, or after retirement), you would move progressively more of that to other categories such as bonds to help safeguard your earnings. Some folks will say this an overly conservative approach. On the other hand, it requires almost zero effort and has netted me an average 10% return (or so claims Quicken) over the past two decades, and that average includes the dot-bomb and the great recession. Past results are not a guarantee of future performance, of course, but the point is that it can work quite well enough.\",\n \"As stated in the comments, Index Funds are the way to go. Stocks have the best return on investment, if you can stomach the volatility, and the diversification index funds bring you is unbeatable, while keeping costs low. You don't need an Individual Savings Account (UK), 401(k) (US) or similar, though they would be helpful to boost investment performance. These are tax advantaged accounts; without them you will have to pay taxes on your investment gains. However, there's still a lot to gain from investing, specially if the alternative is to place them in the vault or similar. Bear in mind that inflation makes your money shrink in real terms. Even a small interest is better than no interest. By best I mean that is safe (regulated by the financial authorities, so your money is safe and insured up to a certain amount) and has reasonable fees (keeping costs low is a must in any scenario). The two main concerns when designing your portfolio are diversification and low TER (Total Expense Ratio). As when we chose broker, our concern is to be as safe as we possibly can (diversification helps with this) and to keep costs at the bare minimum. Some issues might restrict your election or make others seem better. Depending on the country you live and the one of the fund, you might have to pay more taxes on gains/dividends. e.g. The US keeps some of them if your country doesn't have a special treaty with them. Look for W-8Ben and tax withholding for more information. Vanguard and Blackrock offer nice index funds. Morningstar might be a good place for gathering information. Don't trust blindly the 'rating'. Some values are 'not rated' and kick ass the 4 star ones. Again: seek low TER. Not a big fan of this point, but I'm bound to mention it. It can be actually helpful for sorting out tax related issues, which might decide the kind of index fund you pick, and if you find this topic somewhat daunting. You start with a good chunk of money, so it might make even more sense in your scenario to hire someone knowledgeable and trustworthy. I hope this helps to get you started. Best of luck.\",\n \"The benefit of the 401K and IRAs are that reallocating and re balancing are easy. They don't want you to move the funds every day, but you are not locked in to your current allocations. The fact that you mentioned in a comment that you also have a Roth IRA means that you should look at all retirements as a whole. Look at what options you have in the 401K and also what options you have with the IRA. Then determine the overall allocation between bonds, stocks, international, REIT, etc. Then use the mix of funds in the IRA and 401K to meet that goal. Asking if the 401K should be small and mid cap only can't be answered without knowing not just your risk tolerances but the total money in the 401K and IRA. Pick an allocation, map the available funds to that allocation. Rebalance every year. But review the allocation in a few years or after a life event such as: change of job, getting married, having kids, or buying a house.\",\n \"Just find a low cost S&P 500 index fund, and spend your time reading The Great Mutual Fund Trap instead of wasting your time and money picking actively managed funds.\",\n \"\\\"Here's a dump from what I use. Some are a bit more expensive than those that you posted. The second column is the expense ratio. The third column is the category I've assigned in my spreadsheet -- it's how I manage my rebalancing among different classes. \\\"\\\"US-LC\\\"\\\" is large cap, MC is mid cap, SC is small cap. \\\"\\\"Intl-Dev\\\"\\\" is international stocks from developed economies, \\\"\\\"Emer\\\"\\\" is emerging economies. These have some overlap. I don't have a specific way to handle this, I just keep an eye on the overall picture. (E.g. I don't overdo it on, say, BRIC + Brazil or SPY + S&P500 Growth.) The main reason for each selection is that they provide exposure to a certain batch of securities that I was looking for. In each type, I was also aiming for cheap and/or liquid like you. If there are substitutes I should be looking at for any of these that are cheaper and/or more liquid, a comment would be great. High Volume: Mid Volume (<1mil shares/day): Low Volume (<50k shares/day): These provide enough variety to cover the target allocation below. That allocation is just for retirement accounts; I don't consider any other savings when I rebalance against this allocation. When it's time to rebalance (i.e. a couple of times a year when I realize that I haven't done it in several months), I update quotes, look at the percentages assigned to each category, and if anything is off the target by more than 1% point I will buy/sell to adjust. (I.e. if US-LC is 23%, I sell enough to get back to 20%, then use the cash to buy more of something else that is under the target. But if US-MC is 7.2% I don't worry about it.) The 1% threshold prevents unnecessary trading costs; sometimes if everything is just over 1% off I'll let it slide. I generally try to stay away from timing, but I do use some of that extra cash when there's a panic (after Jan-Feb '09 I had very little cash in the retirement accounts). I don't have the source for this allocation any more, but it is the result of combining a half dozen or so sample allocations that I saw and tailoring it for my goals.\\\"\",\n \"I agree with others here that suggest that you should be taking higher risk since it is repaid with higher returns. You have 40 years or so to go before you might switch to safer but lower return funds. I suggest that you look at the Morningstar rating for the funds you are considering: http://www.morningstar.com/ A fund rated five stars means that the fund performs in the top 20% compared to all similar funds. I prefer five star funds. Next, check the management fees. Here is an example from one of the funds you mentioned; https://www.google.com/finance?cid=466533039917726 Next, I suggest you compare how each fund has performed compared to a benchmark. Here are some common indices: Compare an equity fund to, for example, the S&P 500. Has your fund beat or closely matched the S&P for 1, 5 and 10 years? If not, you may as well buy an index fund, such as SPY.\",\n \"\\\"There are probably 3-4 questions here. Diversification - A good index, a low cost S&P fund or ETF can serve you very well. If you add an extended market index or just go with \\\"\\\"Total market\\\"\\\", that might be it for your stock allocation. I've seen people with 5 funds, and it didn't take much analysis to see the overlap was so significant, that the extra 4 funds added little, and 2 of the 5 would have been it. If you diversify by buying more ETFs or funds, be sure to see what they contain. If you can go back in time, buy Apple, Google, Amazon, etc, and don't sell them. Individual stocks are fun to pick, but unless you put in your homework, are tough to succeed at. You need to be right at the buy side, and again to know if, and when, to sell. I bought Apple, for example, long ago, pre-last few splits. But, using responsible a approach, I sold a bit each time it doubled. Has I kept it all through the splits, I'd have $1M+ instead of the current $200K or so of stock. Can you tell which companies now have that kind of potential for the future? The S&P has been just about double digit over 60 years. The average managed fund will lag the S&P over time, many will be combined with other funds or just close. Even with huge survivor bias, managed funds can't beat the index over time, on average. Aside from a small portion of stocks I've picked, I'm happy to get S&P less .02% in my 401(k). In aggregate, people actually do far worse due to horrific timing and some odd thing, called emotions.\\\"\",\n \"I would stay away from the Actively Managed Funds. Index funds or the asset allocation funds are your best bet since they have the lowest fees. What is your risk tolerance? How old are you? I would suggest reading:\",\n \"At your age, I don't think its a bad idea to invest entirely in stocks. The concern with stocks is their volatility, and at 40+ years from retirement, volatility does not concern you. Just remember that if you ever want to call upon your 401(k) for anything other than retirement, such as a down payment on a home (which is a qualified distribution that is not subject to early distribution penalties), then you should reconsider your retirement allocations. I would not invest 100% into stocks if I knew I were going to buy a house in five years and needed that money for a down payment. If your truly saving strictly for a retirement that could occur forty years in the future, first good for you, and second, put it all in an index fund. An S&P index has a ridiculously low expense ratio, and with so many years away from retirement, it gives you an immense amount of flexibility to choose what to do with those funds as your retirement date approaches closer every year.\",\n \"Loads of financial advisors advise holding index funds they may advise other things as well, but low fee index funds are a staple portfolio item. I can't speak to the particulars of Canada, but in the US you would just open a brokerage account (or IRA or SEP IRA in the case of a small business owner) and buy a low cost S&P index ETF or low/no fee/commission S&P index mutual fund. There's no magic to it. Some examples in no particular order are, Vanguard's VOO, Schwab's SWPPX, and iShares' IVV. There are also Canadian index equities like Vanguard's VCN and iShare's XIC.\",\n \"Failing some answers to my comment, I am going to make some assumptions: Based upon a quick review of this article I'd probably be in the Russell 2000 Value Index Fund (IWN). Quite simply it gives you broad market exposure so you can be diversified by purchasing one fund. One of the key success factors is starting, not if you pick the best fund at the onset. I can recall, 20 years ago being amazed (and it was quite a feat) at someone who was able to invest $400 per month. These days that won't get you to the ROTH maximum and smart 20 somethings are doing just that.\",\n \"Whatever you do, don't take your retirement savings to Vegas. Second, you should also consider investment expenses. Your investments profit after the managers pay themselves. Get the lowest expense ratio mutual funds you can. Third, most active managers do not beat the market. Index funds are your friends. They also tend to have the lower expense ratios.\",\n \"The fact that you are choosing index fund means you are surely not one of those investors who can correctly judge dips. But buying on dips is still important. You can use a method called Dollar Value Averaging. It is better than Dollar Cost Averaging. Just make sure you apply a lower limit and an upper limit to be more predictable. Suppose you have 10000 to invest. Use limits like minimum 200 investment when index is high, maximum 600 investment when index is down and when index gives normal returns, invest 400. Do this for about 2 years. More than 2 years is not recommended. I myself use this method and benefit a lot.\",\n \"An index fund is inherently diversified across its index -- no one stock will either make or break the results. In that case it's a matter of picking the index(es) you want to put the money into. ETFs do permit smaller initial purchases, which would let you do a reasonable mix of sectors. (That seems to be the one advantage of ETFs over traditional funds...?)\",\n \"M Attia, the advantages of the TD e-series are that they are a low cost way to index your portfolio as well it gives you to opportunity to invest small amounts at a time. With ETF's, purchasing small amounts at a time would simply get too expensive.\",\n \"\\\"One other thing to consider, particularly with Vanguard, is the total dollar amount available. Vanguard has \\\"\\\"Admiralty\\\"\\\" shares of funds which offer lower expense ratios, around 15-20% lower, but require a fairly large investment in each fund (often 10k) to earn the discounted rate. It is a tradeoff between slightly lower expense ratios and possibly a somewhat less diverse holding if you are relatively early in your savings and only have say 20-30k (which would mean 2 or 3 Admiralty share funds only).\\\"\",\n \"One thing to be aware of when choosing mutual funds and index ETFs is the total fees and costs. The TD Ameritrade site almost certainly had links that would let you see the total fees (as an annual percentage) for each of the funds. Within a category, the lowest fees percentage is best, since that is directly subtracted from your performance. As an aside, your allocation seems overly conservative to me for someone that is 25 years old. You will likely work for 40 or so years and the average stock market cycle is about 7 years. So you will likely see 5 or so complete cycles. Worrying about stability of principal too young will really cut into your returns. My daughter is your age and I have advised her to be 100% in equities and then to start dialing that back in about 25 years or so.\",\n \"When you look at managed funds the expense ratios are always high. They have the expense of analyzing the market, deciding where to invest, and then tracking the new investments. The lowest expenses are with the passive investments. What you have noticed is exactly what you expect. Now if you want to invest in active funds that throw off dividends and capital gains, the 401K is the perfect place to do it, because that income will not be immediately taxable. If the money is in a Roth 401K it is even better because that income will never be taxed.\",\n \"Index funds are well-known to give the best long-term investment. Are they? Maybe not all the time! If you had invested in an index fund tracking the S&P500 at the start of 2000 you would still be behind in terms of capital appreciation when taking inflation into considerations. Your only returns in 13.5 years would have been any dividends you may have received. See the monthly chart of the S&P500 below. Diversification can be good for your overall returns, but diversification simply for diversification sake is as you said, a way of reducing your overall returns in order of smoothing out your equity curve. After looking up indexes for various countries the only one that had made decent returns over a 13.5 year period was the Indian BSE 30 index, almost 400% over 13.5 years, although it also has gone nowhere since the end of 2007 (5.5 years). See monthly chart below. So investing internationally (especially in developing countries when developed nations are stagnating) can improve your returns, but I would learn about the various international markets first before plunging straight in. Regarding investing in an Index fund vs direct investment in a select group of shares, I did a search on the US markets with the following criteria on the 3rd January 2000: If the resulting top 10 from the search were bought on 3rd January 2000 and held up until the close of the market on the 19th June 2013, the results would be as per the table below: The result, almost 250% return in 13.5 years compared to almost no return if you had invested into the whole S&P 500 Index. Note, this table lists only the top ten from the search without screening through the charts, and no risk management was applied (if risk management was applied the 4 losses of 40%+ would have been limited to a maximum of 20%, but possibly much smaller losses or even for gains, as they might have gone into positive territory before coming back down - as I have not looked at any of the charts I cannot confirm this). This is one simple example how selecting good shares can result in much better returns than investing into a whole Index, as you are not pulled down by the bad stocks.\",\n \"There are fund of funds,e.g. life cycle funds or target retirement funds, that could cover a lot of these with an initial investment that one could invest into for a few years and then after building up a balance large enough, then it may make sense to switch to having more control.\",\n \"If you have other savings, the diversification occurs across the accounts. e.g. my 401(k) has access to the insanely low .02% fee VIIIX (Vanguard S&P fund) You can bet it's 100% in. My IRAs are the other assets that make the full picture look better allocated. A new investor has the issue you suggest, although right now, you can deposit $5500 for 2013, and $5500 for 2014, so with $11K available, you can start with $6 or $9K and start with 2 or 3 funds. Or $9K now, but with $500 left over for the '14 deposit, you can deposit $6K in early '15. The disparity of $3K min/$5500 annual limit is annoying, I agree, but shouldn't be a detriment to your planning.\",\n \"Most ETFs are index funds, meaning you get built in diversification so that any one stock going down won't hurt the overall performance much. You can also get essentially the same index funds by directly purchasing them from the mutual fund company. To buy an ETF you need a brokerage account and have to pay a transaction fee. Buying only $1000 at a time the broker transaction fee will eat too much of your money. You want to keep such fees way down below 0.1%. Pay attention to transaction fees and fund expense ratios. Or buy an equivalent index fund directly from the mutual fund company. This generally costs nothing in transaction fees if you have at least the minimum account value built up. If you buy every month or two you are dollar cost averaging, no matter what kind of account you are using. Keep doing that, even if the market values are going down. (Especially if the market values are going down!) If you can keep doing this then forget about certificates of deposit. At current rates you cannot build wealth with CDs.\",\n \"\\\"Aggressiveness in a retirement portfolio is usually a function of your age and your risk tolerance. Your portfolio is usually a mix of the following asset classes: You can break down these asset classes further, but each one is a topic unto itself. If you are young, you want to invest in things that have a higher return, but are more volatile, because market fluctuations (like the current financial meltdown) will be long gone before you reach retirement age. This means that at a younger age, you should be investing more in stocks and foreign/developing countries. If you are older, you need to be into more conservative investments (bonds, money market, etc). If you were in your 50s-60s and still heavily invested in stock, something like the current financial crisis could have ruined your retirement plans. (A lot of baby boomers learned this the hard way.) For most of your life, you will probably be somewhere in between these two. Start aggressive, and gradually get more conservative as you get older. You will probably need to re-check your asset allocation once every 5 years or so. As for how much of each investment class, there are no hard and fast rules. The idea is to maximize return while accepting a certain amount of risk. There are two big unknowns in there: (1) how much return do you expect from the various investments, and (2) how much risk are you willing to accept. #1 is a big guess, and #2 is personal opinion. A general portfolio guideline is \\\"\\\"100 minus your age\\\"\\\". This means if you are 20, you should have 80% of your retirement portfolio in stocks. If you are 60, your retirement portfolio should be 40% stock. Over the years, the \\\"\\\"100\\\"\\\" number has varied. Some financial advisor types have suggested \\\"\\\"150\\\"\\\" or \\\"\\\"200\\\"\\\". Unfortunately, that's why a lot of baby boomers can't retire now. Above all, re-balance your portfolio regularly. At least once a year, perhaps quarterly if the market is going wild. Make sure you are still in-line with your desired asset allocation. If the stock market tanks and you are under-invested in stocks, buy more stock, selling off other funds if necessary. (I've read interviews with fund managers who say failure to rebalance in a down stock market is one of the big mistakes people make when managing a retirement portfolio.) As for specific mutual fund suggestions, I'm not going to do that, because it depends on what your 401k or IRA has available as investment options. I do suggest that your focus on selecting a \\\"\\\"passive\\\"\\\" index fund, not an actively managed fund with a high expense ratio. Personally, I like \\\"\\\"total market\\\"\\\" funds to give you the broadest allocation of small and big companies. (This makes your question about large/small cap stocks moot.) The next best choice would be an S&P 500 index fund. You should also be able to find a low-cost Bond Index Fund that will give you a healthy mix of different bond types. However, you need to look at expense ratios to make an informed decision. A better-performing fund is pointless if you lose it all to fees! Also, watch out for overlap between your fund choices. Investing in both a Total Market fund, and an S&P 500 fund undermines the idea of a diversified portfolio. An aggressive portfolio usually includes some Foreign/Developing Nation investments. There aren't many index fund options here, so you may have to go with an actively-managed fund (with a much higher expense ratio). However, this kind of investment can be worth it to take advantage of the economic growth in places like China. http://www.getrichslowly.org/blog/2009/04/27/how-to-create-your-own-target-date-mutual-fund/\\\"\",\n \"The short answer to your question is yes. Index funds are about the easiest and most efficient diversified way to invest your money. Vanguard's are among the cheapest and best. Be aware, though, that passive income doesn't mean you do nothing for your money. In the case of investing, what you are doing is bearing risk. That is, you are being paid (on average) to put your money in a situation where you may lose money. If you keep your eye on the long-term prize, then when (not if) you sustain losses in your investment account, you will have the patience to leave the money in there. I'm a little confused by your wording about increasing your salary. Normally we think of index funds as a way to increase our wealth. If you are making new investments, presumably you have more salary than you need right now. Normal index funds will reinvest dividends automatically, so you will see the value of your investments rise but will not see any cash flows per se unless you are selling your holdings. If you want actual cash coming out of your investment, you can use ETF's to achieve the same type of investment and treat the dividends as a supplement to your income. Note, however, that some gains in your ETF will be in the form of capital gains and some will be dividends. Think more like 2% year per in dividend payments and the rest in capital gains. If your objective is to save for retirement, please consider investing through an IRA, Roth IRA, or through your 401(k). No need to give uncle sam a gift from your hard-earned money.\",\n \"I would say that the three most important skills are: Note that some costs are hidden. So, for example, a mutual fund investing in other countries than where you live in may mean the investment target country charges a certain percentage of dividends going to the mutual fund. The mutual fund company doesn't usually want to tell you this. There may be clever financial instruments (derivatives) that can be used to avoid this, but they are not without their problems. If you diversify into equities at low cost, you will have a very wealthy future. I would recommend you to compare two options: ...and pick from these options the cheaper one. If your time has a high value, and you wish to take this value into account, I would say it is almost always far better option to choose an index fund. Whatever you do, don't pay for active management! It is a mathematical truth that before costs, actively managed investments will yield the same return than indexed investments. However, the costs are higher in active management, so you will have less total return. Don't believe that good historical return would imply good future return. However, if for some reason you see an index fund that continuously loses to the index more than by the amount of stated costs, beware!\",\n \"If liquidity and cost are your primary objectives, Vanguard is indeed a good bet. They are the walmart of finance and the absolute best at minimizing fees and other expenses. Your main portfolio holding should be VTI, the total stock market fund. Highly liquid and has the lowest fees out there at 0.05%. You can augment this with a world-minus-US fund if you want. No need to buy sector or specific geography funds when you can get the whole market for less. Add some bond funds and alternative investments (but not too much) if you want to be fully diversified.\",\n \"John Bogle never said only buy the S&P 500 or any single index Q:Do you think the average person could safely invest for retirement and other goals without expert advice -- just by indexing? A: Yes, there is a rule of thumb I add to that. You should start out heavily invested in equities. Hold some bond index funds as well as stock index funds. By the time you get closer to retirement or into your retirement, you should have a significant position in bond index funds as well as stock index funds. As we get older, we have less time to recoup. We have more money to protect and our nervousness increases with age. We get a little bit worried about that nest egg when it's large and we have little time to recoup it, so we pay too much attention to the fluctuations in the market, which in the long run mean nothing. How much to pay Q: What's the highest expense ratio that one should pay for a domestic equity fund? A: I'd say three-quarters of 1 percent maybe. Q: For an international fund? A: I'd say three-quarters of 1 percent. Q: For a bond fund? A: One-half of 1 percent. But I'd shave that a little bit. For example, if you can buy a no-load bond fund or a no-load stock fund, you can afford a little more expense ratio, because you're not paying any commission. You've eliminated cost No. 2....\",\n \"\\\"From http://blog.ometer.com/2008/03/27/index-funds/ , Lots of sensible advisers will tell you to buy index funds, but importantly, the advice is not simply \\\"\\\"buy index funds.\\\"\\\" There are at least two other critical details: 1) asset allocation across multiple well-chosen indexes, maintained through regular rebalancing, and 2) dollar cost averaging (or, much-more-complex-but-probably-slightly-better, value averaging). The advice is not to take your single lump sum and buy and hold a cap-weighted index forever. The advice is an investment discipline which involves action over time, and an initial choice among indexes. An index-fund-based strategy is not completely passive, it involves some active risk control through rebalancing and averaging. If you'd held a balanced portfolio over the last ten years and rebalanced, and even better if you'd dollar cost averaged, you'd have done fine. Your reaction to the last 10 years incidentally is why I don't believe an almost-all-stocks allocation makes sense for most people even if they're pretty young. More detail in this answer: How would bonds fare if interest rates rose? I think some index fund advocacy and books do people a disservice by focusing too much on the extra cost of active management and why index funds are a good deal. That point is true, but for most investors, asset allocation, rebalancing, and \\\"\\\"autopilotness\\\"\\\" of their setup are more important to outcome than the expense ratio.\\\"\",\n \"Powers makes a good point: trading costs may eat up a significant portion of your ROI. A fee as little as 2% can consume more than 50% of your long-term ROI! A rule of thumb is keep your fees to less than 1%. One way to do that is to buy stock in companies that have a DRIP with a Share Purchase Plan (SPP). Often the SPP allows investors to purchase shares for low fees or free. Once you have the ability to purchase shares for (virtually) free, you can use InvestMete. Roughly, you send more money to the companies whose share prices are near their 52-week low, and less money to those who are near their 52-week high. Getting back to your original question...\",\n \"I'd say that because you are young, even the 'riskier' asset classes are not as risky as you think, for example, assuming conservatively that you only have 30 years to retirement, investing in stocks index might be a good option. In short term share prices are volatile and prone to bull and bear cycles but given enough time they have pretty much always outperformed any other asset classes. The key is not to be desperate to withdraw when an index is at the bottom. Some cycles can be 20 years, so when you need get nearer retirement you will need to diversify so that you can survive without selling low. Just make sure to pick an index tracker with low fees and you should be good to go. A word of warning is of course past performance is no indication of a future one, but if a diversified index tracker goes belly up for 20+ years, we are talking global calamity, in which case buy a shotgun and some canned food ;)\",\n \"In your case I think you are doing just fine. Index funds, by their nature, have lower transaction costs and fewer taxable events than actively managed funds, good work. Index funds do not preclude the generation of dividends, and by their nature they probably generate slightly more than actively managed funds. You could take capital gain or dividend or both distributions, rather than reinvest them, if paying the taxes are a hardship. Otherwise look at the taxes you pay as your contributions to these funds. It stinks, but this is why 401K/IRA were rather revolutionary when they were formed. It was a really good deal to not have people's capital gains eaten by taxes when they occurred. Now its old hat, but it was pretty darn cool at the time. Should you prefer VTMSX rather than VFIAX? We can't really make the call on that one. Which one will perform better after taxes? Its anyone's guess. It is kind of a good problem to have.\",\n \"It sounds like you are interested in investing in the stock market but you don't want to take too much risk. Investing in an Index EFT will provide some diversification and can be less risky than investing in individual stocks, however with potentially lower returns. If you want to invest your money, the first thing you should do is learn about managing your risk. You are still young and you should spend your time now to increase your education and knowledge. There are plenty of good books to start with, and you should prepare an investment plan which incorporates a risk management strategy. $1000 is a little low to start investing in the stock market, so whilst you are building your education and preparing your plan, you can continue building up more funds for when you are ready to start investing. Place your funds in an high interest savings account for now, and whilst you are learning you can practice your strategies using virtual accounts. In fact the ASX has a share market game which is held 2 or 3 times per year. The ASX website also has some good learning materials for novices and they hold regular seminars. It is another good source for improving your education in the subject. Remember, first get educated, then plan and practice, and then invest.\",\n \"When you are putting your money in an index fund, you are not betting your performance against other asset classes but rather against competing investments withing the SAME asset class. The index fund always wins due to two factors: diversity, and lower cost. The lower cost attribute is essentially where you get your performance edge over the longer run. That is why if you look at the universe of mutual funds (where you get your diversification), very few will have beaten the index, assuming they have survived. -Ralph Winters\",\n \"I'm looking for ways to geared to save for retirement, not general investment. Many mutual fund companies offer a range of target retirement funds for different retirement dates (usually in increments of 5 years). These are funds of funds, that is, a Target 2040 Fund, say, will be invested in five or six different stock and bond mutual funds offered by the same company. Over the years and as the target date approaches closer, the investment mix will change from extra weight given to stock mutual funds towards extra weight being given to bond mutual funds. The disadvantage to these funds is that the Target Fund charges its own expense ratio over and above the expense ratios charged by the mutual funds it invests in: you could do the same investments yourself (or pick your own mix and weighting of various funds) and save the extra expense ratio. However, over the years, as the Target Fund changes its mix, withdrawing money from the stock mutual funds and investing the proceeds into bond mutual funds, you do not have to pay taxes on the profits generated by these transactions except insofar as some part of the profits become distributions from the Target Fund itself. If you were doing the same transactions outside the Target Fund, you would be liable for taxes on the profits when you withdrew money from a stock fund and invested the proceeds into the bond fund.\",\n \"Stock index funds are likely, but not certainly, to be a good long-term investment. In countries other than the USA, there have been 30+ year periods where stocks either underperformed compared to bonds, or even lost value in absolute terms. This suggests that it may be an overgeneralization to assume that they always do well in the long term. Furthermore, it may suggest that they are persistently overvalued for the risk, and perhaps due for a long-term correction. (If everybody assumes they're safe, the equity risk premium is likely to be eaten up.) Putting all of your money into them would, for most people, be taking an unnecessary risk. You should cover some other asset classes too. If stocks do very well, a portfolio with some allocation to more stable assets will still do fairly well. If they crash, a portfolio with less risky assets will have a better chance of being at least adequate.\",\n \"So, why or why should I not invest in the cheaper index fund? They are both same, one is not cheaper than other. You get something that is worth $1000. To give a simple illustration; There is an item for $100, Vanguard creates 10 Units out of this so price per unit is $10. Schwab creates 25 units out of this, so the per unit price is $4. Now if you are looking at investing $20; with Vanguard you would get 2 units, with Schwab you would get 5 units. This does not mean one is cheaper than other. Both are at the same value of $20. The Factors you need to consider are; Related question What differentiates index funds and ETFs?\",\n \"I disagree strongly with chasing expenses. Don't chase pennies until your are comfortable with an allocation that makes sense to you. Focus on building a diversified portfolio. Look at all of the funds, and put them in a portfolio in a tool like Google finance. Screen out funds with 1-3 stars. Search around on this site for questions about portfolios -- there's good advice there. If you're still not comfortable, look for a fee-based advisor.\",\n \"The value premium would state the opposite in fact if one looks at the work of Fama and French. The Investment Entertainment Pricing Theory (INEPT) shows a graph with the rates on small-cap/large-cap and growth/value combinations that may be of interest as well for another article noting the same research. Index fund advisors in Figure 9-1 shows various historical returns up to 2012 that may also be useful here for those wanting more detailed data. How to Beat the Benchmark is from 1998 that could be interesting to read about index funds and beating the index in a simpler way.\",\n \"ETFs are a type of investment, not a specific choice. In other words, there are good ETFs and bad. What you see is the general statement that ETFs are preferable to most mutual funds, if only for the fact that they are low cost. An index ETF such as SPY (which reflects the S&P 500 index) has a .09% annual expense, vs a mutual fund which average a full percent or more. sheegaon isn't wrong, I just have a different spin to offer you. Given a long term return of say even 8% (note - this question is not a debate of the long term return, and I purposely chose a low number compared to the long term average, closer to 10%) and the current CD rate of <1%, a 1% hit for the commission on the buy side doesn't bother me. The sell won't occur for a long time, and $8 on a $10K sale is no big deal. I'd not expect you to save $1K/yr in cash/CDs for the years it would take to make that $8 fee look tiny. Not when over time the growth will overshaddow this. One day you will be in a position where the swings in the market will produce the random increase or decrease to your net worth in the $10s of thousands. Do you know why you won't lose a night's sleep over this? Because when you invested your first $1K, and started to pay attention to the market, you saw how some days had swings of 3 or 4%, and you built up an immunity to the day to day noise. You stayed invested and as you gained wealth, you stuck to the right rebalancing each year, so a market crash which took others down by 30%, only impacted you by 15-20, and you were ready for the next move to the upside. And you also saw that since mutual funds with their 1% fees never beat the index over time, you were happy to say you lagged the S&P by .09%, or 1% over 11 year's time vs those whose funds had some great years, but lost it all in the bad years. And by the way, right until you are in the 25% bracket, Roth is the way to go. When you are at 25%, that's the time to use pre-tax accounts to get just below the cuttoff. Last, welcome to SE. Edit - see sheegaon's answer below. I agree, I missed the cost of the bid/ask spread. Going with the lowest cost (index) funds may make better sense for you. To clarify, Sheehan points out that ETFs trade like a stock, a commission, and a bid/ask, both add to transaction cost. So, agreeing this is the case, an indexed-based mutual fund can provide the best of possible options. Reflecting the S&P (for example) less a small anual expense, .1% or less.\",\n \"Littleadv has given you excellent general advice, but to my mind, the most important part of it all and the path which I will strongly recommend you follow, is the suggestion to look into a mutual fund. I would add even more strongly, go to a mutual fund company directly and make an investment with them directly instead of making the investment through a brokerage account. Pick an index fund with low expenses, e.g. there are S&P 500 index funds available with expenses that are a fraction of 1%. (However, many also require minimum investments on the order of $2500 or $3000 except for IRA accounts). At this time, your goal should be to reduce expenses as much as possible because expenses, whether they be in brokerage fees which may be directly visible to you or mutual fund expenses which are invisible to you, are what will eat away at your return far more than the difference between the returns of various investments.\",\n \"I looked a bit at the first 3, .24% expense. There's a direction to not discuss individual investments here, so the rest of my answer will need to lean generic. I see you have 5 funds. I'm surmising it's an attempt at 'diversifying'. I'll ask you - what do these five, when combined, offer that a straight S&P 500 index (or some flavor of extended market) doesn't? I've gone through the exercise of looking at portfolios with a dozen funds and found overlap so great that 2 or 3 funds would have been sufficient. There are S&P funds that are as low as .05%. this difference may not seem like much, but it adds over time. To your last point, I'd consider a Solo 401(k) as you're self employed. One that offers the Roth option if you are in the marginal 15% bracket.\",\n \"\\\"If I were in your shoes I'd probably take the Vanguard Total Market fund with Admiral shares, then worry about further diversification when there is more in the account. Many times when you \\\"\\\"diversify\\\"\\\" in to multiple funds you end up with a lot of specific security overlap. A lot of the big S&P 500 constituents will be in all of them, etc. So while the 10 or so basis points difference in expense ratio doesn't seem like enough of a reason NOT to spread in to multiple funds, once you split up the money between Large, Mid, Small cap funds and Growth, Value, Dividend funds you'll probably have a collection of holdings that looks substantially similar to a total market fund anyway. Unless you're looking for international or some specific industry segment exposure and all of the money is going to equities anyway, an inexpensive total market fund makes a lot of sense.\\\"\",\n \"\\\"There are a lot of funds that exist only to feed people's belief that existing funds are not diversified or specialized enough. That's why you have so many options. Just choose the ones with the lowest fees. I'd suggest the following: I wouldn't mess around with funds that try and specialize in \\\"\\\"value\\\"\\\" or those target date funds. If you really don't want to think and don't mind paying slightly higher fees, just pick the target date fund that corresponds to when you will retire and put all your money there. On the traditional/Roth question, if your tax bracket will be higher when you retire than it is now (unlikely), choose Roth. Otherwise choose traditional.\\\"\",\n \"Vanguard has low cost ETFs that track the S&P 500. The ticker is VOO, its expense ratio is 0.05%, which is pretty low compared to others in the market. Someone correct me if I'm wrong, but you won't have to pay tax on the dividends if it's in a retirement account such as a Traditional(pay taxes when you withdraw) or Roth IRA(pay income/federal/fica etc, but no taxes on withdrawal)...\",\n \"Many mutual fund companies (including Vanguard when I checked many years ago) require smaller minimum investments (often $1000) for IRA and 401k accounts. Some also allow for smaller investments into their funds for IRA accounts if you set up an automatic investment plan that contributes a fixed amount of money each month or each quarter. On the other hand, many mutual fund companies charge an annual account maintenance fee ($10? $20? $25? more?) per fund for IRA investments unless the balance in the fund is above a certain amount (often $5K or $10K$). This fee can be paid in cash or deducted from the IRA investment, and the former option is vastly better. So, diversification into multiple funds while starting out with an IRA is not that great an idea. It is far better to get diversification through investment in an S&P 500 Index fund (VFINX since you won't have access to @JoeTaxpayer's VIIIX) or a Total Market Index fund or, if you prefer, a Target Retirement Fund, and then branch out into other types of mutual funds as your investment grows through future contributions and dividends etc. To answer your question about fund minimums, the IRA account is separate from a taxable investment account, and the minimum rule applies to each separately. But, as noted above, there often are smaller minimums for tax-deferred accounts.\",\n \"I have only found solution for UK residents so far, see the article on This Is Money: Cheapest index-tracking funds: Trackers with the lowest charges - and the best ways to invest in them\",\n \"As I recall, the Scottrade minimum is only $500. (By the way, Scottrade has a feature to automatically reinvest any dividends which the securities pay) Once you have an account, you can buy into an index fund. SPY tracks the S&P 500. It is also currently paying nearly 2% in dividends. You can shop for other alternatives here: http://seekingalpha.com/insight/etf_hub/etf_guide/selector/article/39431-core-building-blocks-large-mid-small-cap-us-etfs\",\n \"Also, when they mean SP500 fund - it means that fund which invests in the top 500 companies in the SP Index, is my understanding correct? Yes that is right. In reality they may not be able to invest in all 500 companies in same proportion, but is reflective of the composition. I wanted to know whether India also has a company similar to Vanguard which offers low cost index funds. Almost all mutual fund companies offer a NIFTY index fund, both as mutual fund as well as ETF. You can search for index fund and see the total assets to find out which is bigger compared to others.\",\n \"Sounds like you're doing fine, though somewhat fuzzy: how are you allocating the $500/month? Are you doing dollar cost averaging into funds, accumulating enough $$ to buy round lots of individual stocks, market timing, etc. The summary suggestion: max out the ROTH first, then with $$$ left over, do the after tax, low-cost fund, monthly dollar cost averaging approach.\",\n \"Vanguard might be the top provider of no-load mutual funds around. Attempting to do better than 0.13% in fees is just as likely to cost you more time than the money you're attempting to say. You're in your first job out of school--you've got better things to do with your time.\",\n \"\\\"The value will certainly fluctuate up and down (but on average gain more than a savings account), but so long as you have enough liquid assets for emergencies, then yes, it's a perfectly good alternative to savings accounts. how risky, in general, are Index Income Funds. How are you defining \\\"\\\"risk\\\"\\\"? If you mean \\\"\\\"probability that I'll lose it all\\\"\\\" then it's virtually zero. If you mean \\\"\\\"how much the value can fluctuate\\\"\\\" then it's certainly not risk-free, but it has less volatility that individual stocks. If you take the S&P 500 as a proxy, you might expect the change in value over any given year to fluctuate between -30% (like 2008) and +40%, with an average change of around 8%. There will be funds that have less volatility, but produce less return, and funds that have more volatility but higher average returns.\\\"\",\n \"Almost all major no-load mutual fund families allow you to do the kind of thing you are talking about, however you may need an initial investment of between $1000 to $3000 depending on the fund. Once you have it however, annual fee's are usually very little, and the fees to buy that companies funds are usually zero if it's a no-load company (Vanguard, TRowPrice, etc) With the larger companies that means you have a pretty large selection of funds, but generally EACH fund has a minimum initial purchase, once that's met then you can buy additional amounts in small quantities without a problem. For someone on a smaller budget, many low cost brokers (ETrade as mentioned by Litteadv, Scottrade as mentioned by myself in another similar question today) allow you to start with smaller initial balances and have a small selection of funds or ETF's that you can trade from without commission. In the case of Scottrade, they have like 15 ETF's that you can trade comission free. Check with the various low cost brokerages such as ETrade, Scottrade, and TDAmeritrade, to see what their policies are, and what if any funds/ETF's they allow you to trade in without commissions. Keep in mind that for Mutual funds, there may still be a fund minimum initial investment that applies, be sure to check if that is the case or not. The lack of any minimum investment makes ETF's a slightly more attractive option for someone who doesn't have the 'buy in' that many funds require.\",\n \"I'm a believer in broad index funds for the vast majority of investors. However, I'm sure someone here is more qualified than me to speak to the correct allocation. I'm mostly pointing out low-hanging fruit: you should (almost) never invest in the company that pays your wages. You could just dump it in the S&P or some broad market index and be in a better position.\",\n \"\\\"YES.. Management fees cut directly into your profits. A fund which achieves 8% growth but costs 1% to maintain delivers only 7% to you. Compounded over years, even a relatively small difference can add up to a significant amount of money. This is one of the advantages index funds have. They may not be as \\\"\\\"sophisticated\\\"\\\" as human-managed funds, but their expense ratio is so much lower that the end result for the investor is often as good as or better than the more expensive products. In fact, at least one study found that, for each category they researched, low expense ratio was a better predictor of good return on investment than anything else they looked at. That doesn't mean cheapest is always best or most expensive is always worst .... but it does mean you should be very, very sure an expensive fund really is that much better before choosing it. And sticking with simple index funds may be a perfectly reasonable choice.\\\"\",\n \"What makes the S&P 500 Index funds have low expenses ratios is that the amount of money spent by the mutual fund company on research is Zero. Standard and Poors does the research, the fund companies piggy back on that research. Another big factor in keeping expenses low is the fact the companies that makeup the index don't change very often. If the fund frequently changes the makeup of the investments not only can that trigger tax considerations but there are costs associated with all those transactions. The question is: do the other algorithms overcome the additional costs due to higher expenses and taxes.\",\n \"\\\"If you want a Do-It-Yourself solution, look to a Vanguard account with their total market index funds. There's a lot of research that's been done recently in the financial independence community. Basically, there's not many money managers who can outperform the market index (either S&P 500 or a total market index). Actually, no mutual funds have been identified that outperform the market, after fees, consistently. So there's not much sense in paying someone to earn you less than a low fee index fund could do. And some of the numbers show that you can actually lose value on your 401k due to high fees. That's where Vanguard comes in. They offer some of the lowest fees (if not the lowest) and a selection of index funds that will let you balance your portfolio the way you want. Whether you want to go 100% total stock market index fund or a balance between total stock market index fund and total bond index fund, or a \\\"\\\"lazy 3 fund portfolio\\\"\\\", Vanguard gives you the tools to do it yourself. Rebalancing would require about an hour every quarter. (Or time span you declare yourself). jlcollinsnh A Simple Path to Wealth is my favorite blog about financial independence. Also, Warren Buffet recommended that the trustees for his wife's inheritance when he passes invest her trust in one investment. Vanguard's S&P500 index fund. The same fund he chose in a 10 year $1M bet vs. hedge fund managers. (proceeds go to charity). That was about 9 years ago. So far, Buffet's S&P500 is beating the hedge funds. Investopedia Article\\\"\",\n \"Does your employer offer a 401(k) match? If so, contribute enough to maximize that--it's free money. After that, contribute to an IRA where you can invest in funds with low expenses. After you max that out, if you still have money left over, max out your 401(k) despite the high expenses for the tax advantages. Remember when you leave the company you can roll over the balance into an IRA and switch to lower-cost investments. Of course this is general advice without knowing your situation. If you're looking to buy a home soon, for example, you might want to keep extra money in a taxable account for a downpayment rather than maxing out your 401(k).\",\n \"In a word, no. Diversification is the first rule of investing. Your plan has poor diversification because it ignores most of the economy (large cap stocks). This means for the expected return your portfolio would get, you would bear an unnecessarily large amount of risk. Large cap and small cap stocks take turns outperforming each other. If you hold both, you have a safer portfolio because one will perform well while the other performs poorly. You will also likely want some exposure to the bond market. A simple and diversified portfolio would be a total market index fund and a total bond market fund. Something like 60% in the equity and 40% in the bonds would be reasonable. You may also want international exposure and maybe exposure to real estate via a REIT fund. You have expressed some risk-aversion in your post. The way to handle that is to take some of your money and keep it in your cash account and the rest into the diversified portfolio. Remember, when people add more and more asset classes (large cap, international, bonds, etc.) they are not increasing the risk of their portfolio, they are reducing it via diversification. The way to reduce it even more (after you have diversified) is to keep a larger proportion of it in a savings account or other guaranteed investment. BTW, your P2P lender investment seems like a great idea to me, but 60% of your money in it sounds like a lot.\",\n \"First, you should diversify your portfolio. If your entire portfolio is in the Roth IRA, then you should eventually diversify that. However, if you have an IRA and a 401k, then it's perfectly fine for the IRA to be in a single fund. For example, I used my IRA to buy a riskier REIT that my 401k doesn't support. Second, if you only have a small amount currently invested, e.g. $5500, it may make sense to put everything in a single fund until you have enough to get past the low balance fees. It's not uncommon for funds to charge lower fees to someone who has $8000, $10,000, or $12,000 invested. Note that if you deposit $10,000 and the fund loses money, they'll usually charge you the rate for less than $10,000. So try to exceed the minimum with a decent cushion. A balanced fund may make sense as a first fund. That way they handle the diversification for you. A targeted fund is a special kind of balanced fund that changes the balance over time. Some have reported that targeted funds charge higher fees. Commissions on those higher fees may explain why your bank wants you to buy. I personally don't like the asset mixes that I've seen from targeted funds. They often change the stock/bond ratio, which is not really correct. The stock/bond ratio should stay the same. It's the securities (stocks and bonds) to monetary equivalents that should change, and that only starting five to ten years before retirement. Prior to that the only reason to put money into monetary equivalents is to provide time to pick the right securities fund. Retirees should maintain about a five year cushion in monetary equivalents so as not to be forced to sell into a bad market. Long term, I'd prefer low-load index funds. A bond fund and two or three stock funds. You might want to build your balance first though. It doesn't really make sense to have a separate fund until you have enough money to get the best fees. 70-75% stocks and 25-30% bonds (should add to 100%, e.g. 73% and 27%). Balance annually when you make your new deposit.\",\n \"You already did the leg work by putting your money in a Schwab account. They have some of the lowest fees on index funds you can buy. I would keep things dead simple. Decide if you want some of it to be an IRA or not, and then plow your funds into a broad stock only index fund such as SCHB, SCHX, or SCHV (you could buy all three, but there would be no need to whatsoever). You will get around 2-2.5 % dividend yield, be diversified, and have extreme low fees. Fees are key to getting good returns in funds. Of course..set tax money aside as well.\",\n \"\\\"If I invest in index funds or other long term stocks that pay dividend which I reinvest, they don't need to be worth more per share for me to make a profit, right? That is, if I sell part of the stocks, it's GOOD if they're worth more than I bought them at, but the real money comes from the QUANTITY of stocks that you get by reinvesting your dividends, right? I would say it is more the other way around. It is nice to get dividends and reinvest them, but overall the main gain comes from the stocks going up in value. The idea with index funds, however, is that you don't rely on any particular stock going up in value; instead you just rely on the aggregate of all the funds in the index going up. By buying lots of stocks bundled in an index fund, you avoid being too reliant on any one company's performance. Can I invest \\\"\\\"small amounts\\\"\\\" (part of paycheck) into index funds on a monthly basis, like €500, without taking major \\\"\\\"transaction fees\\\"\\\"? (Likely to be index fund specific... general answers or specific answers using popular stocks welcomed). Yes, you can. At least in the US, whether you can do this automatically from your paycheck depends on whether you employer has that set up. I don't know that work in the Netherlands. However, at the least, you can almost certainly set up an auto-invest program that takes $X out of your bank account every month and buys shares of some index fund(s). Is this plan market-crash proof? My parents keep saying that \\\"\\\"Look at 2008 and think about what such a thing would do to your plan\\\"\\\", and I just see that it will be a setback, but ultimately irrelevant, unless it happens when I need the money. And even then I'm wondering whether I'll really need ALL of my money in one go. Doesn't the index fund go back up eventually? Does a crash even matter if you plan on holding stocks for 10 or more years? Crashes always matter, because as you say, there's always the possibility that the crash will occur at a time you need the money. In general, it is historically true that the market recovers after crashes, so yes, if you have the financial and psychological fortitude to not pull your money out during the crash, and to ride it out, your net worth will probably go back up after a rough interlude. No one can predict the future, so it's possible for some unprecedented crisis to cause an unprecedented crash. However, the interconnectedness of stock markets and financial systems around the world is now so great that, were such a no-return crash to occur, it would probably be accompanied by the total collapse of the whole economic system. In other words, if the stock market dies suddenly once and for all, the entire way of life of \\\"\\\"developed countries\\\"\\\" will probably die with it. As long as you live in such a society, you can't really avoid \\\"\\\"gambling\\\"\\\" that it will continue to exist, so gambling on there not being a cataclysmic market crash isn't much more of a gamble. Does what I'm planning have similarities with some financial concept or product (to allow me to research better by looking at the risks of that concept/product)? Maybe like a mortgage investment plan without the bank eating your money in between? I'm not sure what you mean by \\\"\\\"what you're planning\\\"\\\". The main financial products relevant to what you're describing are index funds (which you already mentioned) and index ETFs (which are basically similar with regard to the questions you're asking here). As far as concepts, the philosophy of buying low-fee index funds, holding them for a long time, and not selling during crashes, is essentially that espoused by Jack Bogle (not quite the inventor of the index fund, but more or less its spiritual father) and the community of \\\"\\\"Bogleheads\\\"\\\" that has formed around his ideas. There is a Bogleheads wiki with lots of information about the details of this approach to investing. If this strategy appeals to you, you may find it useful to read through some of the pages on that site.\\\"\",\n \"So I did some queries on Google Scholar, and the term of art academics seem to use is target date fund. I notice divided opinions among academics on the matter. W. Pfau gave a nice set of citations of papers with which he disagrees, so I'll start with them. In 1969, Paul Sameulson published the paper Lifetime Portfolio Selection By Dynamic Stochaistic Programming, which found that there's no mathematical foundation for an age based risk tolerance. There seems to be a fundamental quibble relating to present value of future wages; if they are stable and uncorrelated with the market, one analysis suggests the optimal lifecycle investment should start at roughly 300 percent of your portfolio in stocks (via crazy borrowing). Other people point out that if your wages are correlated with stock returns, allocations to stock as low as 20 percent might be optimal. So theory isn't helping much. Perhaps with the advent of computers we can find some kind of empirical data. Robert Shiller authored a study on lifecycle funds when they were proposed for personal Social Security accounts. Lifecycle strategies fare poorly in his historical simulation: Moreover, with these life cycle portfolios, relatively little is contributed when the allocation to stocks is high, since earnings are relatively low in the younger years. Workers contribute only a little to stocks, and do not enjoy a strong effect of compounding, since the proceeds of the early investments are taken out of the stock market as time goes on. Basu and Drew follow up on that assertion with a set of lifecycle strategies and their contrarian counterparts: whereas a the lifecycle plan starts high stock exposure and trails off near retirement, the contrarian ones will invest in bonds and cash early in life and move to stocks after a few years. They show that contrarian strategies have higher average returns, even at the low 25th percentile of returns. It's only at the bottom 5 or 10 percent where this is reversed. One problem with these empirical studies is isolating the effect of the glide path from rebalancing. It could be that a simple fixed allocation works plenty fine, and that selling winners and doubling down on losers is the fundamental driver of returns. Schleef and Eisinger compare lifecycle strategy with a number of fixed asset allocation schemes in Monte Carlo simulations and conclude that a 70% equity, 30% long term corp bonds does as well as all of the lifecycle funds. Finally, the earlier W Pfau paper offers a Monte Carlo simulation similar to Schleef and Eisinger, and runs final portfolio values through a utility function designed to calculate diminishing returns to more money. This seems like a good point, as the risk of your portfolio isn't all or nothing, but your first dollar is more valuable than your millionth. Pfau finds that for some risk-aversion coefficients, lifecycles offer greater utility than portfolios with fixed allocations. And Pfau does note that applying their strategies to the historical record makes a strong recommendation for 100 percent stocks in all but 5 years from 1940-2011. So maybe the best retirement allocation is good old low cost S&P index funds!\",\n \"1: Low fees means: a Total Expense Ratio of less than 0,5%. One detail you may also want to pay attention to whether the fund reinvests returns (Thesaurierender Fonds) which is basically good for investing, but if it's also a foreign-based fund then taxes get complicated, see http://www.finanztip.de/indexfonds-etf/thesaurierende-fonds/\",\n \"\\\"That's great that you have saved up money. You are ahead of your peers. I would advise against investing in an index fund. The attraction of the idea is that you will get the same return as the base item. For example, an index fund of gold would supposedly give you the same return as if you bought gold. In reality this is not true. The return of an index fund is always significantly below the return of the underlying commodity. Your best strategy is to invest in something you know and understand. There are two books that can help you learn how to do this: \\\"\\\"One Up on Wall Street\\\"\\\" by Peter Lynch and \\\"\\\"The Intelligent Investor\\\"\\\" by Benjamin Graham. Buying, reading and following the guidance in these two books is your best investment of time and money.\\\"\",\n \"\\\"Index funds can be a very good way to get into the stock market. It's a lot easier, and cheaper, to buy a few shares of an index fund than it is to buy a few shares in hundreds of different companies. An index fund will also generally charge lower fees than an \\\"\\\"actively managed\\\"\\\" mutual fund, where the manager tries to pick which stocks to invest for you. While the actively managed fund might give you better returns (by investing in good companies instead of every company in the index) that doesn't always work out, and the fees can eat away at that advantage. (Stocks, on average, are expected to yield an annual return of 4%, after inflation. Consider that when you see an expense ratio of 1%. Index funds should charge you more like 0.1%-0.3% or so, possibly more if it's an exotic index.) The question is what sort of index you're going to invest in. The Standard and Poor's 500 (S&P 500) is a major index, and if you see someone talking about the performance of a mutual fund or investment strategy, there's a good chance they'll compare it to the return of the S&P 500. Moreover, there are a variety of index funds and exchange-traded funds that offer very good expense ratios (e.g. Vanguard's ETF charges ~0.06%, very cheap!). You can also find some funds which try to get you exposure to the entire world stock market, e.g. Vanguard Total World Stock ETF, NYSE:VT). An index fund is probably the ideal way to start a portfolio - easy, and you get a lot of diversification. Later, when you have more money available, you can consider adding individual stocks or investing in specific sectors or regions. (Someone else suggested Brazil/Russia/Indo-China, or BRICs - having some money invested in that region isn't necessarily a bad idea, but putting all or most of your money in that region would be. If BRICs are more of your portfolio then they are of the world economy, your portfolio isn't balanced. Also, while these countries are experiencing a lot of economic growth, that doesn't always mean that the companies that you own stock in are the ones which will benefit; small businesses and new ventures may make up a significant part of that growth.) Bond funds are useful when you want to diversify your portfolio so that it's not all stocks. There's a bunch of portfolio theory built around asset allocation strategies. The idea is that you should try to maintain a target mix of assets, whatever the market's doing. The basic simplified guideline about investing for retirement says that your portfolio should have (your age)% in bonds (e.g. a 30-year-old should have 30% in bonds, a 50-year-old 50%.) This helps maintain a balance between the volatility of your portfolio (the stock market's ups and downs) and the rate of return: you want to earn money when you can, but when it's almost time to spend it, you don't want a sudden stock market crash to wipe it all out. Bonds help preserve that value (but don't have as nice of a return). The other idea behind asset allocation is that if the market changes - e.g. your stocks go up a lot while your bonds stagnate - you rebalance and buy more bonds. If the stock market subsequently crashes, you move some of your bond money back into stocks. This basically means that you buy low and sell high, just by maintaining your asset allocation. This is generally more reliable than trying to \\\"\\\"time the market\\\"\\\" and move into an asset class before it goes up (and move out before it goes down). Market-timing is just speculation. You get better returns if you guess right, but you get worse returns if you guess wrong. Commodity funds are useful as another way to diversify your portfolio, and can serve as a little bit of protection in case of crisis or inflation. You can buy gold, silver, platinum and palladium ETFs on the stock exchanges. Having a small amount of money in these funds isn't a bad idea, but commodities can be subject to violent price swings! Moreover, a bar of gold doesn't really earn any money (and owning a share of a precious-metals ETF will incur administrative, storage, and insurance costs to boot). A well-run business does earn money. Assuming you're saving for the long haul (retirement or something several decades off) my suggestion for you would be to start by investing most of your money* in index funds to match the total world stock market (with something like the aforementioned NYSE:VT, for instance), a small portion in bonds, and a smaller portion in commodity funds. (For all the negative stuff I've said about market-timing, it's pretty clear that the bond market is very expensive right now, and so are the commodities!) Then, as you do additional research and determine what sort investments are right for you, add new investment money in the places that you think are appropriate - stock funds, bond funds, commodity funds, individual stocks, sector-specific funds, actively managed mutual funds, et cetera - and try to maintain a reasonable asset allocation. Have fun. *(Most of your investment money. You should have a separate fund for emergencies, and don't invest money in stocks if you know you're going need it within the next few years).\\\"\",\n \"\\\"Lifecycle funds might be a suitable fit for you. Lifecycle funds (aka \\\"\\\"target date funds\\\"\\\") are a mutual fund that invests your money in other mutual funds based on how much time is left until you need the money-- they follow a \\\"\\\"glide-path\\\"\\\" of reducing stock holdings in favor of bonds over time to reduce volatility of your final return as you near retirement. The ones I've looked at don't charge a fee of their own for this, but they do direct your portfolio to actively managed funds. That said, the ones I've seen have an \\\"\\\"acquired\\\"\\\" expense ratio of less than what you're proposing you'd pay a professional. FWIW, my current plan is to invest in a binary portfolio of cheap mutual funds that track S&P500 and AGG and rebalance regularly. This is easy enough that I don't see the point of adding in a 1 percent commission.\\\"\",\n \"\\\"The Investment Entertainment Pricing Theory (INEPT) has this bit to note: The returns of small growth stocks are ridiculously low—just 2.18 percent per year since 1927 (versus 17.47 percent for small value, 10.06 percent for large growth, and 13.99 percent for large value). Where the S & P 500 would be a blend of large-cap growth and value so does that meet your \\\"\\\"beat the market over the long term\\\"\\\" as 1927-1999 would be long for most people.\\\"\",\n \"This might be better suited to r/personalfinance but if you're looking to invest I'd say start with an index fund. The MER's (fees) for most other mutual funds take too heavy a chunk of returns to be worth it in a market where actively managed funds are either underperforming of performing at par with passive funds. Additionally if these are your first investments, make sure you're doing it with investment goals in mind. Is this money you're saving for short, medium, or long term? For medium and long term investing make sure you're doing it through a tax efficient instrument like an IRA or 401k.\",\n \"\\\"Funds - especially index funds - are a safe way for beginning investors to get a diversified investment across a lot of the stock market. They are not the perfect investment, but they are better than the majority of mutual funds, and you do not spend a lot of money in fees. Compared to the alternative - buying individual stocks based on what a friend tells you or buying a \\\"\\\"hot\\\"\\\" mutual fund - it's a great choice for a lot of people. If you are willing to do some study, you can do better - quite a bit better - with common stocks. As an individual investor, you have some structural advantages; you can take significant (to you) positions in small-cap companies, while this is not practical for large institutional investors or mutual fund managers. However, you can also lose a lot of money quickly in individual stocks. It pays to go slow and to your homework, however, and make sure that you are investing, not speculating. I like fool.com as a good place to start, and subscribe to a couple of their newsletters. I will note that investing is not for the faint of heart; to do well, you may need to do the opposite of what everybody else is doing; buying when the market is down and selling when the market is high. A few people mentioned the efficient market hypothesis. There is ample evidence that the market is not efficient; the existence of the .com and mortgage bubbles makes it pretty obvious that the market is often not rationally valued, and a couple of hedge funds profited in the billions from this.\\\"\",\n \"No I get that. But if you don’t want risk, then buy bonds. Long term an S&P Index has very low risk. On the other hand, actively managed funds have fees that take out a ton of the gain that could be had. I don’t have time to look for the study but I read recently that 97% of actively managed funds were outperformed by S&P Indexes after fees. Now I don’t know about you but I think the risk of not picking a top 3% fund is probably higher than the safe return of index’s.\",\n \"@sharam - big question. I am going to answer part of it, but not as directly as you might like. You mention 4-6 cents per unit per month, but fail to give a unit price, so it is hard to tell how much return you are really looking for. Given the amount you have to invest, depending on your time horizon, you will do much better outside of mutual funds. Many funds in this category have fees in the 2% range. You actually have enough money to have a diversified portfolio on your own, without recourse to funds. If you want to use a fund-like product, I encourage you to look at well established ETFs (Exchange Traded Funds). They are basically like mutual funds that trade on the open stock market. One good example in this category is iShares XDV Good Luck\",\n \"Yeah, that's what I do, just buy the indices and forget it. My portfolio is so boring it's elegant, and makes money too. 4.5% YTD and 5.9% in 2016, not bad for a 30/70 stock bond split for this 70-year-old. Oh, did I tell you my costs are .06%! I am enjoying the freedom of my retirement.\",\n \"\\\"If you read Joel Greenblatt's The Little Book That Beats the Market, he says: Owning two stocks eliminates 46% of the non market risk of owning just one stock. This risk is reduced by 72% with 4 stocks, by 81% with 8 stocks, by 93% with 16 stocks, by 96% with 32 stocks, and by 99% with 500 stocks. Conclusion: After purchasing 6-8 stocks, benefits of adding stocks to decrease risk are small. Overall market risk won't be eliminated merely by adding more stocks. And that's just specific stocks. So you're very right that allocating a 1% share to a specific type of fund is not going to offset your other funds by much. You are correct that you can emulate the lifecycle fund by simply buying all the underlying funds, but there are two caveats: Generally, these funds are supposed to be cheaper than buying the separate funds individually. Check over your math and make sure everything is in order. Call the fund manager and tell him about your findings and see what they have to say. If you are going to emulate the lifecycle fund, be sure to stay on top of rebalancing. One advantage of buying the actual fund is that the portfolio distributions are managed for you, so if you're going to buy separate ETFs, make sure you're rebalancing. As for whether you need all those funds, my answer is a definite no. Consider Mark Cuban's blog post Wall Street's new lie to Main Street - Asset Allocation. Although there are some highly questionable points in the article, one portion is indisputably clear: Let me translate this all for you. “I want you to invest 5pct in cash and the rest in 10 different funds about which you know absolutely nothing. I want you to make this investment knowing that even if there were 128 hours in a day and you had a year long vacation, you could not possibly begin to understand all of these products. In fact, I don’t understand them either, but because I know it sounds good and everyone is making the same kind of recommendations, we all can pretend we are smart and going to make a lot of money. Until we don’t\\\"\\\" Standard theory says that you want to invest in low-cost funds (like those provided by Vanguard), and you want to have enough variety to protect against risk. Although I can't give a specific allocation recommendation because I don't know your personal circumstances, you should ideally have some in US Equities, US Fixed Income, International Equities, Commodities, of varying sizes to have adequate diversification \\\"\\\"as defined by theory.\\\"\\\" You can either do your own research to establish a distribution, or speak to an investment advisor to get help on what your target allocation should be.\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"I think you're on the right track with that strategy. If you want to learn more about this strategy, I'd recommend \"\"The Intelligent Asset Allocator\"\" by William Bernstein. As for the Über–Tuber portfolio you linked to, my only concern would be that it is diversified in everything except for the short-term bond component, which is 40%. It might be worth looking at some portfolios that have more than one bond allocation -- possibly diversifying more across corporate vs government, and intermediate vs short term. Even the Cheapskate's portfolio located immediately above the Über–Tuber has 20% Corporate and 20% Government. Also note that they mention: Because it includes so many funds, it would be expensive and unwieldy for an account less than $100,000. Regarding your question about the disadvantages of an index-fund-based asset allocation strategy:\"","You can simply stick with some index funds that tracks the S&P 500 and Ex-US world market. That should provide some good diversification. And of course, you should always have a portion of your money in short/mid term bond fund, rebalancing your stock/bond ratio all the way as deemed necessary. If you want to follow the The Über–Tuber portfolio, you'd better make sure that there's minimum overlapping among the underlying shares that they hold."],"string":"[\n \"\\\"I think you're on the right track with that strategy. If you want to learn more about this strategy, I'd recommend \\\"\\\"The Intelligent Asset Allocator\\\"\\\" by William Bernstein. As for the Über–Tuber portfolio you linked to, my only concern would be that it is diversified in everything except for the short-term bond component, which is 40%. It might be worth looking at some portfolios that have more than one bond allocation -- possibly diversifying more across corporate vs government, and intermediate vs short term. Even the Cheapskate's portfolio located immediately above the Über–Tuber has 20% Corporate and 20% Government. Also note that they mention: Because it includes so many funds, it would be expensive and unwieldy for an account less than $100,000. Regarding your question about the disadvantages of an index-fund-based asset allocation strategy:\\\"\",\n \"You can simply stick with some index funds that tracks the S&P 500 and Ex-US world market. That should provide some good diversification. And of course, you should always have a portion of your money in short/mid term bond fund, rebalancing your stock/bond ratio all the way as deemed necessary. If you want to follow the The Über–Tuber portfolio, you'd better make sure that there's minimum overlapping among the underlying shares that they hold.\"\n]","isConversational":false}}},{"rowIdx":389,"cells":{"_id":{"kind":"string","value":"1441"},"query":{"kind":"string","value":"What's the difference between Market Cap and NAV?"},"gt_ids":{"kind":"list like","value":["178","414940","416727","471123"],"string":"[\n \"178\",\n \"414940\",\n \"416727\",\n \"471123\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1,1],"string":"[\n 1,\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["471123","416727","178","414940","98947","345129","343120","495066","192515","37558","418610","56894","460230","201706","251715","285085","247021","93354","173262","224011","135216","374602","574696","138575","119819","106863","412584","563732","315345","274358","189680","380851","292865","409995","563056","106665","213535","486421","461960","440123","599414","274156","162916","196173","131957","447509","243249","578625","391752","77963","384265","446877","66453","499269","324867","144033","582636","9478","109148","334133","374372","287537","141221","202253","209754","591546","374204","184756","285466","303501","236594","64698","245867","41675","203521","193312","298998","232932","67356","346345","363546","534400","536853","146506","404222","301380","501153","271997","217904","249320","322876","110584","403739","281763","30345","271029","403870","143261","506236","535300"],"string":"[\n \"471123\",\n \"416727\",\n \"178\",\n \"414940\",\n \"98947\",\n \"345129\",\n \"343120\",\n \"495066\",\n \"192515\",\n \"37558\",\n \"418610\",\n \"56894\",\n \"460230\",\n \"201706\",\n \"251715\",\n \"285085\",\n \"247021\",\n \"93354\",\n \"173262\",\n \"224011\",\n \"135216\",\n \"374602\",\n \"574696\",\n \"138575\",\n \"119819\",\n \"106863\",\n \"412584\",\n \"563732\",\n \"315345\",\n \"274358\",\n \"189680\",\n \"380851\",\n \"292865\",\n \"409995\",\n \"563056\",\n \"106665\",\n \"213535\",\n \"486421\",\n \"461960\",\n \"440123\",\n \"599414\",\n \"274156\",\n \"162916\",\n \"196173\",\n \"131957\",\n \"447509\",\n \"243249\",\n \"578625\",\n \"391752\",\n \"77963\",\n \"384265\",\n \"446877\",\n \"66453\",\n \"499269\",\n \"324867\",\n \"144033\",\n \"582636\",\n \"9478\",\n \"109148\",\n \"334133\",\n \"374372\",\n \"287537\",\n \"141221\",\n \"202253\",\n \"209754\",\n \"591546\",\n \"374204\",\n \"184756\",\n \"285466\",\n \"303501\",\n \"236594\",\n \"64698\",\n \"245867\",\n \"41675\",\n \"203521\",\n \"193312\",\n \"298998\",\n \"232932\",\n \"67356\",\n \"346345\",\n \"363546\",\n \"534400\",\n \"536853\",\n \"146506\",\n \"404222\",\n \"301380\",\n \"501153\",\n \"271997\",\n \"217904\",\n \"249320\",\n \"322876\",\n \"110584\",\n \"403739\",\n \"281763\",\n \"30345\",\n \"271029\",\n \"403870\",\n \"143261\",\n \"506236\",\n \"535300\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"Market caps is just the share price, multiplied by the number of shares. It doesn't represent any value (if people decide to pay more or less for the shares, the market cap goes up or down). It does represent what people think the company is worth. NAV sounds very much like book value. It basically says \"\"how much cash would we end up with if we sold everything the company owns, paid back all the debt, and closed down the business? \"\" Since closing down the business is rarely a good idea, this underestimates the value of the business enormously. Take a hairdresser who owns nothing but a pair of scissors, but has a huge number of repeat customers, charges $200 for a haircut, and makes tons of money every year. The business has a huge value, but NAV = price of one pair of used scissors.\"","\"I think the key concept here is future value. The NAV is essentially a book-keeping exercise- you add up all the assets and remove all the liabilities. For a public company this is spelled out in the balance sheet, and is generally listed at the bottom. I pulled a recent one from Cisco Systems (because I used to work there and know the numbers ;-) and you can see it here: roughly $56 billion... https://finance.yahoo.com/q/bs?s=CSCO+Balance+Sheet&annual Another way to think about it: In theory (and we know about this, right?) the NAV is what you would get if you liquidated the company instantaneously. A definition I like to use for market cap is \"\"the current assets, plus the perceived present value of all future earnings for the company\"\"... so let's dissect that a little. The term \"\"present value\"\" is really important, because a million dollars today is worth more than a million dollars next year. A company expected to make a lot of money soon will be worth more (i.e. a higher market cap) than a company expected to make the same amount of money, but later. The \"\"all future earnings\"\" part is exactly what it sounds like. So again, following our cisco example, the current market cap is ~142 billion, which means that \"\"the market\"\" thinks they will earn about $85 billion over the life of the company (in present day dollars).\"","\"At any given moment, one can tally the numbers used for NAV. It's math, and little more. The Market Cap, which as you understand is a result of share value. Share value (stock price) is what the market will pay today for the shares. It's not only based on NAV today, but on future expectations. And expectations aren't the same for each of us. Which is why there are always sellers for the buyers of a stock, and vice-versa. From your question, we agree that NAV can be measured, it's the result of adding up things that are all known. (For now, let's ignore things such as \"\"goodwill.\"\") Rarely is a stock price simply equal to the NAV divided by the number of shares. Often, it's quite higher. The simplest way to look at it is that the stock price not only reflects the NAV, but investors' expectations looking into the future. If you look for two companies with identical NAV per share but quite different share prices, you'll see that the companies differ in that one might be a high growth company, the other, a solid one but with a market that's not in such a growth mode.\"","NAV is how much is the stuff of the company worth divided by the number of shares. This total is also called book value. The market cap is share price times number of shares. For Amazon today people are willing to pay 290 a share for a company with a NAV of 22 a share. If of nav and price were equal the P/B (price to book ratio) would be 1, but for Amazon it is 13. Why? Because investors believe Amazon is worth a lot more than a money losing company with a NAV of 22.","\"Market cap is synonymous with equity value, which is one way of thinking of a company's \"\"worth.\"\" The alternative would be enterprise value, which is calculated as follows: Enterprise Value = Market Value of Equity + Market Value of Debt - Cash and Equivalents - Non-Operating Assets Enterprise value is essentially \"\"how much is the firm worth to ALL providers of capital.\"\" It can be viewed as \"\"if I wanted to buy the *entire* company, debt and all, what would I have to pay?\"\"\"","Market Capitalization is the equity value of a company. It measures the total value of the shares available for trade in public markets if they were immediately sold at the last traded market price. Some people think it is a measure of a company's net worth, but it can be a misleading for a number of reasons. Share price will be biased toward recent earnings and the Earnings Per Share (EPS) metric. The most recent market price only reflects the lowest price one market participant is willing to sell for and the highest price another market participant is willing to buy for, though in a liquid market it does generally reflect the current consensus. In an imperfect market (for example with a large institutional purchase or sale) prices can diverge widely from the consensus price and when multiplied by outstanding shares, can show a very distorted market capitalization. It is also a misleading number when comparing two companies' market capitalization because while some companies raise the money they need by selling shares on the markets, others might prefer debt financing from private lenders or sell bonds on the market, or some other capital structure. Some companies sell preferred shares or non-voting shares along with the traditional shares that exist. All of these factors have to be considered when valuing a company. Large-cap companies tend to have lower but more stable growth than small cap companies which are still expanding into new markets because of their smaller size.","The difference between the two numbers is that the market size of a particular product is expressed as an annual number ($10 million per year, in your example). The market cap of a stock, on the other hand, is a long-term valuation of the company.","\"Market Capitalization is the value the market attributes to the company shares calculated by multiplying the current trading price of these shares by the total amount of shares outstanding. So a company with 100 shares trading at $10 has a market cap of $1000. It is technically not the same as the value of a company (in the sense of how much someone would need to pay to acquire the company), Enterprise value is what you want to determine the net value of a company which is calculated as the market capitalization + company debt (as the acquirer has to take on this debt) - company cash (as the acquirer can pocket this for itself). The exact boundary for when a company belongs to a certain \"\"cap\"\" is up for debate. For a \"\"large cap\"\" a market capitalization of $10 billion+ is usually considered the cutoff (with $100+ billion behemoths being called \"\"mega caps\"\"). Anything between $10 billion and ~$1 billion is considered \"\"mid cap\"\", from ~$1billion to ~$200 million it's called a \"\"small cap\"\" and below $200 million is \"\"nano cap\"\". Worth noting that these boundaries change quite dramatically over time as the overall average market capitalization increases as companies grow, for example in the 80s a company with a market cap of $1 billion would be considered \"\"large cap\"\". The market \"\"determines\"\" what the market cap of company should be based (usually but certainly not always!) on the historical and expected profit a company makes, for a simple example let's say that our $1000 market cap company makes $100 a year, this means that this company's earnings per share is $1. If the company grows to make $200 a year you can reasonably expect the share price to rise from $10 to ~$20 with the corresponding increase in market cap. (this is all extremely simplified of course).\"","Enterprise Value is supposed to be the price you would be willing to pay to acquire the company. Typically, companies are delivered debt-free and cash-free, so the cash on the balance sheet at the time of the transaction is distributed to the original owners. So, for instance, a company like Apple would have a lower EV than Market Value because the cash on the balance sheet is not going to be included in an acquisition. And you are right, there are plenty of instances where you see Enterprise Value lower than Market Value (Cap). If you are solely looking at equity valuation (equity investing), then use market cap. If you are looking at firm valuation for M&A, then EV is more important.","\"Market cap is speculative value, M = P * W, where W is stock (or other way of owning) percentage of ownership, P - price of percentage of ownership. This could include \"\"outside of exchange\"\" deals. Some funds could buy ownership percentage directly via partial ownership deal. That ownership is not stock, but fixed-type which has value too. Stock market cap is speculative value, M2 = Q * D, where D is free stocks available freely, Q - price of stock, in other words Quote number (not price of ownership). Many stock types do NOT provide actual percentage of ownership, being just another type of bond with non-fixed coupon and non-fixed price. Though such stocks do not add to company's capitalization after sold to markets, it adds to market capitalization at the moment of selling via initial price.\"","Market cap is basically the amount of money that it would cost to buy all of the shares of public stock in a company. Or share cost * number of outstanding shares. It is a measure of how much a company is worth. http://en.wikipedia.org/wiki/Market_capitalization","I don't think that you'll notice a difference in the NAV in a fund with fees that are low as the Vanguard Total Stock Market Fund. Their management fees are incorporated into the NAV, but keep in mind that the fund has a total of $144 billion in assets, with $66 billion in the investor class. The actual fees represent a tiny fraction of the NAV, and may only show up at all on the day they assess the fees. With Vanguard total stock market, you notice the fee difference in the distributions. In the example of Vanguard Total Stock Market, there are institutional-class shares (like VITPX with a minimum investment of $200M) with still lower costs -- as low as 0.0250% vs. 0.18% for the investor class. You will notice a different NAV and distributions for that fund, but there may be other reasons for the variation that I'm not familar with, as I'm not an institutional investor.","Market capitalization is one way to represent the value of the company. So if a company has 10 million shares, which are each worth $100, then the company's market capitalization is 1 billion. Large cap companies tend to be larger and more stable. Small cap companies are smaller, which indicates higher volatility. So if you want more aggressive investments then you may want to invest in small cap companies while if you lean on the side of caution then big cap companies may be your friend.","Market cap should be share price times number of shares, right? That's several orders of magnitude right there...","Market Capitalization is the product of the current share price (the last time someone sold a share of the stock, how much?) times the number of outstanding shares of stock, summed up over all of the stock categories. Assuming the efficient market hypothesis and a liquid market, this gives the current total value of the companies' assets (both tangible and intangible). Both the EMH and perfect liquidity may not hold at all times. Beyond those theoretical problems, in practice, someone trying to buy or sell the company at that price is going to be in for a surprise; the fact that someone wants to sell that many stocks, or buy that many stocks, will move the price of the company stock.","\"Lots of questions: In general, no. Market Capitalization and Equity represent 2 different things. Equity first, the equity of a firm is the value of the assets (what it owns) less its liabilities (what it owes) and consists (broadly) of two components - share capital (what the firm gets when it sells to investors as part of an IPO or subsequent share issue) and retained earnings (what the firm has as a result of making profits and not paying them out as dividends). This is the theoretical liquidation value of the firm - what it is worth if it stops trading, sells all its assets and pays all its debts. Market Capitalization is the current value of the future cash flow of the firm as perceived by the market - the value today of all the dividends that the firm will pay in the future for as long as it exists. This is the theoretical going concern value of the firm - what it is worth as a functioning business. In general, Market Capitalization is bigger than Equity - if it isn't the firm is worth more as scrap than as an operating business. Um ... no. If you don't have any shares then you are by definition not an owner. Having shares is what makes you an owner. What I think you mean is, is it possible for the owner(s) of a private company to sell all of its shares when it goes public? The answer is yes. It is uncommon for a start-up owner to do this but it is standard practice for \"\"corporate raiders\"\" who buy failing companies, take them private, restructure them and then take them public again - they have done their job and they are not interested in maintaining an ownership stake. Nope. See above and below. Not at all, equity is an accounting construct and market capitalization is about market sentiment. Consider the following hypothetical firm: It has $1m in equity, it makes $4m in profit and will do for the foreseeable future, it pays all of that $4m out as dividends - if we work on a simple ROI of 10% then this firm is worth $40m dollars - way more than its equity.\"","How is it possible that a publicly traded investment company's net asset value per share is higher than their share price? Wouldn't you (in theory) be able to buy the company and liquidate it to make a profit of (NAV/share - price/share)*number of shares, ignoring transaction costs and such? I realize that since part of their portfolio is in private equity, NAV is hard to calculate and hard to liquidate as well, but it doesn't really seem to make sense to me. Would love some input. The company I'm talking about in this instance is 180 Degree Capital Corp, but this isn't the first time I've seen this.","\"Market cap is the current value of a company's equity and is defined as the current share price multiplied by the number of shares. Please check also \"\"enterprise value\"\" for another definition of a company`s total value (enterprise value = market cap adjusted for net nebt). Regarding the second part of your question: Issuing new shares usually does not affect market cap in a significant way because the newly issued shares often result in lower share prices and dilution of the existing share holders shares.\"","\"You are comparing two things that are not comparable. The \"\"market size\"\" would be the total annual revenue in one market, in this year. The \"\"market caps\"\" of a company is the number of shares multiplied by the share price. This should be equal to the total profit that the company is going to make through its life time, taking into account that you would get interest on an investment, so future profits have to be counted less accordingly. So if the \"\"market size\"\" is ten million dollars, and a company has four million revenue in that market with one million profit, and everyone thinks that company will continue making that profit for the next fifty years, then surely one million a year for the next 50 years is worth more than ten million. That's if the market stands still. If the \"\"market size\"\" is ten million, and we expect that market size to double for the next three years, then the market size is still ten million, but a company having a 40% share of a market growing at that speed is going to be worth a lot more!\"","\"The quickest way to approach this question is to first understand that it compares flows vs. levels. Market size is usually stated as an annual or other period figure, e.g. \"\"The market size of refrigerators will be $10mn in 2019.\"\" This is a flow figure. Market capitalization is a level figure at any given point in time, e.g. \"\"The market cap of the company was $20 million at the end of its last fiscal quarter.\"\" Confusion sometimes occurs when levels and flows are used loosely for comparisons. It is common for media to make statements such as \"\"Joe Billionaire is worth more than the GDP of Roselandia.\"\" That is comparing a current level (net worth) with an annual flow (GDP). With this in mind, there are a variety of conditions where a company's equity market value will exceed its market size. The most extreme example is an innovating, development-stage enterprise, say, a biotech company, developing a new market for a new product; the current market size may be nil while the enterprise is worth something greater. The primary reason however for situations where a company's equity market cap is greater than its market size is usually that the financial market expects the enterprise (and oftentimes its market, though this isn't necessary) to grow substantially over time and hence the discounted value of the company may be greater than the current or near future market size. A final example: US annual GDP (which comprises of much more than corporate incomes and profits) for 2014 was about $17.4tn while the nation's total equity market value in 2014 was $25.1tn, both according to the World Bank. That latter figure also doesn't include the trillions of corporate debts these companies have issued so the total market cap of US, Inc. is substantially greater than $25.1tn.\"","\"The market capitalization of a stock is the number of shares outstanding (of each stock class), times the price of last trade (of each stock class). In a liquid market (where there are lots of buyers and sellers at all price points), this represents the price that is between what people are bidding for the stock and what people are asking for the stock. If you offer any small amount more than the last price, there will be a seller, and if you ask any small amount less than the last price, there will be a buyer, at least for a small amount of stock. Thus, in a liquid market, everyone who owns the stock doesn't want to sell at least some of their stock for a bit less than the last trade price, and everyone who doesn't have the stock doesn't want to buy some of the stock for a bit more than the last trade price. With those assumptions, and a low-friction trading environment, we can say that the last trade value is a good midpoint of what people think one share is worth. If we then multiply it by the number of shares, we get an approximation of what the company is worth. In no way, shape or form does it not mean that there is 32 billion more invested in the company, or even used to purchase stock. There are situations where a 32 billion market cap swing could mean 32 billion more money was invested in the company: the company issues a pile of new shares, and takes in the resulting money. People are completely neutral about this gathering in of cash in exchange for dilluting shares. So the share price remains unchanged, the company gains 32 billion dollars, and there are now more shares outstanding. Now, in some sense, there is zero dollars currently invested in a stock; when you buy a stock, you no longer have the money, and the money goes to the person who no longer has the stock. The issue here is the use of the continuous tense of \"\"invested in\"\"; the investment was made at some point, but the money doesn't really stay in this continuous state of being. Unless you consider the investment liquid, and the option to take money out being implicit, it being a continuous action doesn't make much sense. Sometimes the money is invested in the company, when the company causes stocks to come into being and sells them. The owners of stocks has invested money in stocks in that they spent that money to buy the stocks, but the total sum of money ever spent on stocks for a given company is not really a useful value. The market capitalization is an approximation, which under the efficient market hypothesis (that markets find the correct price for things nearly instantly) is reasonably accurate, of the value the company has collectively to its shareholders. The efficient market hypothesis isn't accurate, but it is an acceptable rule of thumb. Now, this value -- market capitalization -- is arguably not the total value of a company: other stakeholders include bond holders, labour, management, various contract counter-parties, government and customers. Some companies are structured so that almost all value is captured not by the stock owners, but by contract counter-parties (this is sometimes used for hiding assets or debts). But for most large publically traded companies, it (in theory) shouldn't be far off.\"","This depends. Quite a few stock exchanges / country report total capitalisation in terms of free float. I.E total shares that can be traded, ignoring the promoters shares. The market cap reported by company takes all shares.","The (assets - liabilities)/#shares of a company is its book value, and that number is included in their reports. It's easy for a fund to release the net asset value on a daily basis because all of its assets (stocks, bonds, and cash) are given values every day by the market. It's also necessary to have a real time value for a fund as it will be bought and sold every day. A company can't really do the same thing as it will have much more diverse assets - real estate, cars, inventory, goodwill, etc. The real time value of those assets doesn't have the same meaning as a fund; those assets are used to earn cash, while a fund's business is only to maximize its net asset value.","\"Some companies issue multiple classes of shares. Each share may have different ratios applied to ownership rights and voting rights. Some shares classes are not traded on any exchange at all. Some share classes have limited or no voting rights. Voting rights ratios are not used when calculating market cap but the market typically puts a premium on shares with voting rights. Total market cap must include ALL classes of shares, listed or not, weighted according to thee ratios involved in the company's ownership structure. Some are 1:1, but in the case of Berkshire Hathaway, Class B shares are set at an ownership level of 1/1500 of the Class A shares. In terms of Alphabet Inc, the following classes of shares exist as at 4 Dec 2015: When determining market cap, you should also be mindful of other classes of securities issued by the company, such as convertible debt instruments and stock options. This is usually referred to as \"\"Fully Diluted\"\" assuming all such instruments are converted.\"","\"You seem to be assuming that ETFs must all work like the more traditional closed-end funds, where the market price per share tends—based on supply and demand—to significantly deviate from the underlying net asset value per share. The assumption is simplistic. What are traditionally referred to as closed-end funds (CEFs), where unit creation and redemption are very tightly controlled, have been around for a long time, and yes, they do often trade at a premium or discount to NAV because the quantity is inflexible. Yet, what is generally meant when the label \"\"ETF\"\" is used (despite CEFs also being both \"\"exchange-traded\"\" and \"\"funds\"\") are those securities which are not just exchange-traded, and funds, but also typically have two specific characteristics: (a) that they are based on some published index, and (b) that a mechanism exists for shares to be created or redeemed by large market participants. These characteristics facilitate efficient pricing through arbitrage. Essentially, when large market participants notice the price of an ETF diverging from the value of the shares held by the fund, new units of the ETF can get created or redeemed in bulk. The divergence quickly narrows as these participants buy or sell ETF units to capture the difference. So, the persistent premium (sometimes dear) or discount (sometimes deep) one can easily witness in the CEF universe tend not to occur with the typical ETF. Much of the time, prices for ETFs will tend to be very close to their net asset value. However, it isn't always the case, so proceed with some caution anyway. Both CEF and ETF providers generally publish information about their funds online. You will want to find out what is the underlying Net Asset Value (NAV) per share, and then you can determine if the market price trades at a premium or a discount to NAV. Assuming little difference in an ETF's price vs. its NAV, the more interesting question to ask about an ETF then becomes whether the NAV itself is a bargain, or not. That means you'll need to be more concerned with what stocks are in the index the fund tracks, and whether those stocks are a bargain, or not, at their current prices. i.e. The ETF is a basket, so look at each thing in the basket. Of course, most people buy ETFs because they don't want to do this kind of analysis and are happy with market average returns. Even so, sector-based ETFs are often used by traders to buy (or sell) entire sectors that may be undervalued (or overvalued).\"","The main difference between a mutual fund and an ETF are how they are bought and sold (from the investors perspective). An ETF is transacted on the open market. This means you normally can't buy partial shares with your initial investment. Having to transact on the open market also means you pay a market price. The market price is always a little bit different from the Net Asset Value (NAV) of the fund. During market hours, the ETF will trade at a premium/discount to the NAV calculated on the previous day. Morningstar's fund analysis will show a graph of the premium/discount to NAV for an ETF. With a mutual fund on the other hand, your investment goes to a fund company, which then grants you shares while under the hood buying the underlying investments. You pay the NAV price and are allowed to buy partial shares. Usually an ETF has a lower expense ratio, but if that's equal and any initial fees/commissions are equal, I would prefer the mutual fund in order to buy partial shares (so your initial investment will be fully invested) and so you don't have to worry about paying premium to NAV","Would make sense that the higher liquidation cost and Transaction costs are driving the share price down. Higher liq and transaction means higher investors would require higher return, driving down the share price. The other possibilities I can think of off the top of my head, based on looking at the firm for five minutes 1) In transaction costs, did you include tax? Disclaimer: math below done on the back of the envelope in between meetings; So, NAV says they are at ~$75M. Liquidating that entire portfolio means about 22% capital gains tax rate. Which means after tax value is about $60M. Add in any fees you'd incur from trying to sell this stuff, and it's not unreasonable to assume you'll only get about $55M once all is said and done, which is pretty close to the actual market cap. If you have accounted for the above, consider ; 2) Bulk of their investments seem to be in private assets. Which implies that they have some discretion in how they mark the value of those investments. And, there is the chance that the market doesn't have confidence in these guys. What's their performance been like in recent years? Especially with a private asset portfolio, I'd be weary. If I was to invest in them, I'd want a higher return for the opaque portfolio.","Take a look at apple. It has no debt. So the ev is basically mkt cap - cash. Also remember market cap is the float * share price nothing else. Obviously share price takes into account the assets of the firm into perpituituy but the way you phrased it, adding debt , didnt sound quite right to me. We remove cash since someone buying a company isn't going to pay for your cash. In the transaction cash is distributed to share holders then the company is sold.","The price of a share of a mutual fund is its Net Asset Value (nav). Before the payout of dividends and capital gain distribution, the fund was holding both stock shares and cash that resulted from dividends and capital gains. After the payout, a share only holds the stock. Therefore once the cash is paid out the NAV must drop by the same amount as was paid out per share. Thus of course assumes no other activity or valuation changes of the underlying assets. Regular market activity will obscure what the payout does to the NAV.","Yea good points and they definitely should not be overlooked. The whole point of the EV calculation is to get the analyst to look at what the true underlying business is and what one is really paying for when buying securities in a company. Market Cap can be misleading for many reasons and get real annoyed when people say things like, I own XYZ company because its cash account is greater than its market cap....","\"This is an example from another field, real estate. Suppose you buy a $100,000 house with a 20 percent down payment, or $20,000, and borrow the other $80,000. In this example, your \"\"equity\"\" or \"\"market cap\"\" is $20,000. But the total value, or \"\"enterprise value\"\" of the house, is actually $100,000, counting the $80,000 mortgage. \"\"Enterprise value\"\" is what a buyer would have to pay to own the company or the house \"\"free and clear,\"\" counting the debt.\"","\"From Wikipedia: Usage Because EV is a capital structure-neutral metric, it is useful when comparing companies with diverse capital structures. Price/earnings ratios, for example, will be significantly more volatile in companies that are highly leveraged. Stock market investors use EV/EBITDA to compare returns between equivalent companies on a risk-adjusted basis. They can then superimpose their own choice of debt levels. In practice, equity investors may have difficulty accurately assessing EV if they do not have access to the market quotations of the company debt. It is not sufficient to substitute the book value of the debt because a) the market interest rates may have changed, and b) the market's perception of the risk of the loan may have changed since the debt was issued. Remember, the point of EV is to neutralize the different risks, and costs of different capital structures. Buyers of controlling interests in a business use EV to compare returns between businesses, as above. They also use the EV valuation (or a debt free cash free valuation) to determine how much to pay for the whole entity (not just the equity). They may want to change the capital structure once in control. Technical considerations Data availability Unlike market capitalization, where both the market price and the outstanding number of shares in issue are readily available and easy to find, it is virtually impossible to calculate an EV without making a number of adjustments to published data, including often subjective estimations of value: In practice, EV calculations rely on reasonable estimates of the market value of these components. For example, in many professional valuations: Avoiding temporal mismatches When using valuation multiples such as EV/EBITDA and EV/EBIT, the numerator should correspond to the denominator. The EV should, therefore, correspond to the market value of the assets that were used to generate the profits in question, excluding assets acquired (and including assets disposed) during a different financial reporting period. This requires restating EV for any mergers and acquisitions (whether paid in cash or equity), significant capital investments or significant changes in working capital occurring after or during the reporting period being examined. Ideally, multiples should be calculated using the market value of the weighted average capital employed of the company during the comparable financial period. When calculating multiples over different time periods (e.g. historic multiples vs forward multiples), EV should be adjusted to reflect the weighted average invested capital of the company in each period. In your question, you stated: The Market Cap is driven by the share price and the share price is determined by buyers and sellers who have access to data on cash and debts and factor that into their decision to buy or sell. Note the first point under \"\"Technical Considerations\"\" there and you will see that the \"\"access to data on cash and debts\"\" isn't quite accurate here so that is worth noting. As for alternatives, there are many other price ratios one could use such as price/earnings, price/book value, price/sales and others depending on how one wants to model the company. The better question is what kind of investing strategy is one wanting to use where there are probably hundreds of strategies at least. Let's take Apple as an example. Back on April 23, 2014 they announced earnings through March 29, 2014 which is nearly a month old when it was announced. Now a month later, one would have to estimate what changes would be made to things there. Thus, getting accurate real-time values isn't realistic. Discounted Cash Flow is another approach one can take of valuing a company in terms of its future earnings computed back to a present day lump sum.\"","What you should compare is SPX, SPY NAV, and ES fair value. Like others have said is SPX is the index that others attempt to track. SPY tracks it, but it can get a tiny bit out of line as explained here by @Brick . That's why they publish NAV or net asset value. It's what the price should be. For SPY this will be very close because of all the participants. The MER is a factor, but more important is something called tracking error, which takes into account MER plus things like trading expenses plus revenue from securities lending. SPY (the few times I've checked) has a smaller tracking error than the MER. It's not much of a factor in pricing differences. ES is the price you'll pay today to get SPX delivered in the future (but settled in cash). You have to take into account dividends and interest, this is called fair value. You can find this usually every morning so you can compare what the futures are saying about the underlying index. http://www.cnbc.com/pre-markets/ The most likely difference is you're looking at different times of the day or different open/close calculations.","The ETF price quoted on the stock exchange is in principle not referenced to NAV. The fund administrator will calculate and publish the NAV net of all fees, but the ETF price you see is determined by the market just like for any other security. Having said that, the market will not normally deviate greatly from the NAV of the fund, so you can safely assume that ETF quoted price is net of relevant fees.","An investment trust is quoted just like a share. You just compare what you paid (your book cost) with its current share price, not the NAV, as a trust's price can be at a premium greater than the actual share price or a discount.","Nobody tracks a single company's net assets on a daily basis, and stock prices are almost never derived directly from their assets (otherwise there would be no concept of 'growth stocks'). Stocks trade on the presumed current value of future positive cash flow, not on the value of their assets alone. Funds are totally different. They own nothing but stocks and are valued on the basis on the value of those stocks. (Commodity funds and closed funds muddy the picture somewhat, but basically a fund's only business is owning very liquid assets, not using their assets to produce wealth the way companies do.) A fund has no meaning other than the direct value of its assets. Even companies which own and exploit large assets, like resource companies, are far more complicated than funds: e.g. gold mining or oil extracting companies derive most of their value from their physical holdings, but those holdings value depends on the moving price and assumed future price of the commodity and also on the operations (efficiency of extraction etc.) Still different from a fund which only owns very liquid assets.","\"This is typically referred to as the \"\"market value\"\" of your holdings--it is the revenue you would generate if you sold your holdings at that moment (less any transaction costs, of course)\"","\"I like this explanation the best. EV is trying to get at the value of the underlying business, excluding the capital structure you currently have on the company. If your lemonade stand is worth $100, but the business also comes with $50 in cash lying around (and no debt), then the EV is $100. But the price you'd pay the owner (the \"\"market cap\"\") is $150, because it's like you get an immediate cash rebate.\"","Maybe, I'm confused too...but I would have to disagree, the numbers wouldn't be the same. Also, they are not the same thing. * NOA = Operating assets - Operating Liabilities * IC = Equity + Debt Example: Company has $1000 Equity, $1000 Debt, $2000 Assets * Company's NOA is $1000 * Company's IC is $2000","\"would constantly fluctuate and provide an indication of how well the market is doing. The index is there to tell if you made profit or loss by investing in the market. Using a pure total market cap will only tell you \"\"Did IPO activity exceed bankruptcy and privatization activity\"\".\"","Shareholders are the equity holders. They mean the same thing. A simplified formula for the total value of a company is the value of its equity, plus the value of its debt, less its cash (for reasons I won't get into). There are usually other things to add or subtract, but that's the basic formula.","It's sort of the sum of stock prices, but bigger companies are weighed more heavily.","In the absence of a country designation where the mutual fund is registered, the question cannot be fully answered. For US mutual funds, the N.A.V per share is calculated each day after the close of the stock exchanges and all purchase and redemption requests received that day are transacted at this share price. So, the price of the mutual fund shares for April 2016 is not enough information: you need to specify the date more accurately. Your calculation of what you get from the mutual fund is incorrect because in the US, declared mutual fund dividends are net of the expense ratio. If the declared dividend is US$ 0.0451 per share, you get a cash payout of US$ 0.0451 for each share that you own: the expense ratio has already been subtracted before the declared dividend is calculated. The N.A.V. price of the mutual fund also falls by the amount of the per-share dividend (assuming that the price of all the fund assets (e.g. shares of stocks, bonds etc) does not change that day). Thus. if you have opted to re-invest your dividend in the same fund, your holding has the same value as before, but you own more shares of the mutual fund (which have a lower price per share). For exchange-traded funds, the rules are slightly different. In other jurisdictions, the rules might be different too.","Suppose I purchase $10,000 worth of a particular share today. If the person(s) I am purchasing the shares from paid $9,000 for those shares, then I replacing their $9,000 investment with my $10,000 investment. This is a net inflow of $1,000 into the market. Similarly, if the person(s) I am purchasing the shares from paid $11,000 for those shares, then their $11,000 investment is being replace by my $10,000 investment. This is a net outflow of $1,000 out of the market. The aggregate of all such inflows and outflows in the net inflow/outflow into the market over a given period of time. (Here we are ignoring the effects of new share issues.)","Are you trying to figure out if a project would increase the market value of equity? I think your issue is that the Market value of Equity will not be updated with the NPV of 40M (Assuming it is truly +, not sure if it's true with 50M of debt). EV = Market Value of Equity + Debt - Cash and CE Ev - Debt + Cash and CE = Market equity value. So I think you would have to update the market value of Equity up with 40M. This would then lead to EV = Equity Value + future income stream discounted + debt - Cash and Cash Equivalents.","\"You are comparing \"\"market caps\"\" and \"\"enterprise value\"\". If the company has four billion dollars cash in the bank, then the value would be four billion plus whatever the business itself is worth as a business. If the business itself is only worth 400 million, then you would have 4.4bn market caps and 400 million enterprise value. The \"\"enterprise value\"\" is basically how much the business would be worth if it had no cash or no debt. These numbers would be a very unusual situation. It could happen for example if a big company has sold 90% of its business for cash. When you buy a share of the company, you get a tiny share of the business and you own a tiny share of the cash. This stock will very likely keep its value, but won't make much money. On the other hand, more common would be a company where the business is worth 4bn, but the company has also 4bn debt. So it is worth exactly zero. Market caps close to zero, but enterprise value $4bn, because you ignore the debt in the enterprise value. Edit: Sorry, got the \"\"enterprise value\"\" totally wrong, read millions instead of billions: Your numbers would mean that you have a huge, huge company with close to 440bn debt. Most likely someone made a mistake here. A \"\"normal\"\" situation would be say a company with a business that is worth $500 million, but they have $100 million debt, so market caps = $400 million but enterprise value = $500 million. PS. Yahoo has the same nonsense numbers on their UK site, and for other companies (I just checked Marks and Spencer's which apparently has an enterprise value of 800 billion pound with a totally ridiculous P/E ratio.\"","IRR of an investment can give an idea as to the flexibility of the cash flows to absorb changes in the discount rate, whereas NPV may be positive because of an overly conservative discount rate; so you like to look at both along with other metrics to get a better idea. The profitability is in the difference between the investment's IRR and your cost of capital.","In market cap weighted index there is fairly heavy concentration in the largest stocks. The top 10 stocks typically account for about 20% of the S&P 500 index. In Equal Weight this bias towards large caps is removed. The Market Cap method would be good when large stocks drive the markets. However if the markets are getting driven by Mid Caps and Small caps, the equal weight wins. Historically most big companies start out small and grow big fast in a short span of time. Thus if we were to do Market cap one would have purchased smaller number of shares of the said company as its cap/weight would have been small and when it becomes big we would have purchased the shares at a higher price. However if we were to do equal weight, then as the company grows big one would have more share at a cheaper price and would result in better returns. There is a nice article on this, also gives the comparision of the returns over a period of 10 years, where equal weight index has done good. It does not mean that it would continue. http://www.investopedia.com/articles/exchangetradedfunds/08/index-debate.asp#axzz1RRDCnFre","After searching a bit and talking to some investment advisors in India I got below information. So thought of posting it so that others can get benefited. This is specific to indian mutual funds, not sure whether this is same for other markets. Even currency used for examples is also indian rupee. A mutual fund generally offers two schemes: dividend and growth. The dividend option does not re-invest the profits made by the fund though its investments. Instead, it is given to the investor from time to time. In the growth scheme, all profits made by the fund are ploughed back into the scheme. This causes the NAV to rise over time. The impact on the NAV The NAV of the growth option will always be higher than that of the dividend option because money is going back into the scheme and not given to investors. How does this impact us? We don't gain or lose per se by selecting any one scheme. Either we make the choice to get the money regularly (dividend) or at one go (growth). If we choose the growth option, we can make money by selling the units at a high NAV at a later date. If we choose the dividend option, we will get the money time and again as well as avail of a higher NAV (though the NAV here is not as high as that of a growth option). Say there is a fund with an NAV of Rs 18. It declares a dividend of 20%. This means it will pay 20% of the face value. The face value of a mutual fund unit is 10 (its NAV in this case is 18). So it will give us Rs 2 per unit. If we own 1,000 units of the fund, we will get Rs 2,000. Since it has paid Rs 2 per unit, the NAV will fall from Rs 18 to Rs 16. If we invest in the growth option, we can sell the units for Rs 18. If we invest in the dividend option, we can sell the units for Rs 16, since we already made a profit of Rs 2 per unit earlier. What we must know about dividends The dividend is not guaranteed. If a fund declared dividends twice last year, it does not mean it will do so again this year. We could get a dividend just once or we might not even get it this year. Remember, though, declaring a dividend is solely at the fund's discretion; the periodicity is not certain nor is the amount fixed.","In order to calculate the ratio you are looking for, just divide total debt by the market capitalization of the stock. Both values can be found on the link you provided. The market capitalization is the market value of equity.","This idea does not make sense for most mutual funds. The net asset value, or NAV, is the current market value of a fund's holdings, minus the fund's liabilities, that is usually expressed as a per-share amount. For most funds, the NAV is determined daily, after the close of trading on some specified financial exchange, but some funds update their NAV multiple times during the trading day. http://en.wikipedia.org/wiki/Mutual_fund I am not certain, but I believe that OppenheimerFunds does not report intraday prices. I would call them up and ask.","How you use the metric is super important. Because it subtracts cash, it does not represent 'value'. It represents the ongoing financing that will be necessary if both the equity plus debt is bought by one person, who then pays himself a dividend with that free cash. So if you are Private Equity, this measures your net investment at t=0.5, not the price you pay at t=0. If you are a retail investor, who a) won't be buying the debt, b) won't have any control over things like tax jurisdictions, c) won't be receiving any cash dividend, etc etc .... the metric is pointless.","\"The pros and cons of investing in a closed end fund both stem from the fact that the price per share is likely to differ from the net asset value (NAV) of the underlying assets. That could work to your advantage if the fund is selling for LESS than NAV, or at a discount. Then you get the \"\"benefit of the bargain\"\" and hope to sell the shares in the future for \"\"par\"\" or even a premium (MORE than NAV). On the other hand, if you buy such a fund at a premium, you stand to have a RELATIVE loss if the value of the fund goes back to par (or a discount) compared to NAV. That's because a closed end fund has a FIXED number of shares, with the assets continually being reinvested. In essence, you are \"\"buying out\"\" an existing shareholder of the fund at a price determined by supply and demand. This differs from an OPEN end fund, in which your contribution creates NEW shares (all other things being equal). Then the fund, has to invest YOUR money (and charges you a fee for the service) on exactly a pro rata basis with other investors in the fund, meaning that you will enter and exit such a fund at \"\"par.\"\" In either case, your return depends mainly on the performance of the underlying assets. But there are premium/discount issues for investing in a closed end fund.\"","Aside of the other (mostly valid) answers, share price is the most common method of valuating the company. Here is a bogus example that will help you understand the general point: Now, suppose that Company A wants to borrow $20 Million from a bank... Not a chance. Company B? Not a problem. Same situation when trying to raise new funds for the market or when trying to sell the company or to acquire another","The market cap always reflect the company's equity. Except that you cannot fix a stock price in a free market. A company with such profit pattern would have stock price behave like present value of a perpetuity (future income stream discounted by risk free rate) Since your assumption is unachievable, there is no point in determining the logic.","The Creation/Redemption mechanism is how shares of an ETF are created or redeemed as needed and thus is where there can be differences in what the value of the holdings can be versus the trading price. If the ETF is thinly traded, then the difference could be big as more volume would be where the mechanism could kick in as generally there are blocks required so the mechanism usually created or redeemed in lots of 50,000 shares I believe. From the link where AP=Authorized Participant: With ETFs, APs do most of the buying and selling. When APs sense demand for additional shares of an ETF—which manifests itself when the ETF share price trades at a premium to its NAV—they go into the market and create new shares. When the APs sense demand from investors looking to redeem—which manifests itself when the ETF share price trades at a discount—they process redemptions. So, suppose the NAV of the ETF is $20/share and the trading price is $30/share. The AP can buy the underlying securities for $20/share in a bulk order that equates to 50,000 shares of the ETF and exchange the underlying shares for new shares in the ETF. Then the AP can turn around and sell those new ETF shares for $30/share and pocket the gain. If you switch the prices around, the AP would then take the ETF shares and exchange them for the underlying securities in the same way and make a profit on the difference. SEC also notes this same process.","You can follow the intra-day NAV of an ETF, for instance SPY, by viewing its .IV (intra-day value) ticker which tracks it's value. http://finance.yahoo.com/q?s=spy http://finance.yahoo.com/q?s=^SPY-IV Otherwise, each ETF provider will update their NAV after business each day on their own website. https://www.spdrs.com/product/fund.seam?ticker=spy","Both of these terms do refer to your profit; they're just different ways of evaluating it. First, your definition of capitalization rate is flipped. As explained here, it should be: On the other hand, as explained here: So cap rate is like a reverse unit cost approach to comparing two investments. If house A costs $1M and you'll make $50K (profit) from it yearly, and house B costs $1.33M and you'll make $65K (profit) from it yearly, then you can compute cap rates to see that A is a more efficient investment from the point of view of income vs. amount-of-money-you-have-stuck-in-this-investment-and-unavailable-for-use-elsewhere. Profit margin, on the other hand, cares more about your ongoing expenses than about your total investment. If it costs less to maintain property B than it does to maintain property A, then you could have something like: So B is a more efficient investment from the point of view of the fraction of your revenue you actually get to keep each year. Certainly you could think of the property's value as an opportunity cost and factor that into the net profit margin equation to get a more robust estimate of exactly how efficient your investment is. You can keep piling more factors into the equation until you've accounted for every possible facet of your investment. This is what accountants and economists spend their days doing. :-)","\"Capitalization rate and \"\"Net Profit margin\"\" are two different things. In Capitalization rate note that we are taking the \"\"total value\"\" in the denominator and in Net profit margin we are taking \"\"Revenue/Sales\"\". Capitalization Rate: Capitalization Rate = Yearly Income/Total Value For example (from Investopedia: ) if Stephane buys a property that will generate $125,000 per year and he pays $900,000 for it, the cap rate is: 125,000/900,000 = 13.89%. Net Profit margin: Net Profit margin = Net Profit/Revenue For example (from finance formulas): A company's income statement shows a net income of $1 million and operating revenues of $25 million. By applying the formula, $1 million divided by $25 million would result in a net profit margin of 4%. Although the formula is simplistic, applying the concept is important in that 4% of sales will result in after tax profit.\"","1. BRK.A is a listed Co so it doesnt face redemption problems on its funds. 2. BRK.A is a listed Co, so the valuation of its holdings is depending on its own auditor w/ little scrutiny, aka, it mark could be more flexible and doesn't hurt its asset book.","Because it's a good indicator of how much their asset worth. In oversimplified example, wouldn't you care how much your house, car, laptop worth? Over the course of your life you might need to buy a bigger house, sell your car etc. to cope with your financial goal / situation. It's similar in company's case but with much more complexity.","You do realize that the fund will have management expenses that are likely already factored into the NAV and that when you sell, the NAV will not yet be known, right? There are often fees to run a mutual fund that may be taken as part of managing the fund that are already factored into the Net Asset Value(NAV) of the shares that would be my caution as well as possible fee changes as Dilip Sarwate notes in a comment. Expense ratios are standard for mutual funds, yes. Individual stocks that represent corporations not structured as a mutual fund don't declare a ratio of how much are their costs, e.g. Apple or Google may well invest in numerous other companies but the costs of making those investments won't be well detailed though these companies do have non-investment operations of course. Don't forget to read the fund's prospectus as sometimes a fund will have other fees like account maintenance fees that may be taken out of distributions as well as being aware of how taxes will be handled as you don't specify what kind of account these purchases are being done using.","Sure let's say we're starting with the equity value of a public company. Fully diluted shares times market price. We add debt and subtract all cash to give us enterprise value. Calculate a multiple on that. Look what we did up there, we subtracted out all cash. The DCF approach assumes we have an operating level of cash when it calculates a value. You're saying that the DCF spits out an enterprise value. It cannot be an enterprise value if the DCF approach assumes we hold cash. We would have to subtract out an operating level of cash from the DCF concluded value to compare it apples to apples to the cashless enterprise values we derived from the market approach multiples.","Sorry, I got even more confused. I assumed IC referred to equity only. At least under English accounting practice it's the norm to refer only to equity investment as capital in that context. The debt is listed as both an asset (cash or whatever asset the cash has been put towards) and a liability, cancelling it out. That being the case, the number would be the same, no?","\"The value of a stock ultimately is related to the valuation of a corporation. As part of the valuation, you can estimate the cash flows (discounted to present time) of the expected cash flows from owning a share. This stock value is the so-called \"\"fundamental\"\" value of a stock. What you are really asking is, how is the stock's market price and the fundamental value related? And by asking this, you have implicitly assumed they are not the same. The reason that the fundamental value and market price can diverge is that simply, most shareholders will not continue holding the stock for the lifespan of a company (indeed some companies have been around for centuries). This means that without dividends or buybacks or liquidations or mergers/acquisitions, a typical shareholder cannot reasonably expect to recoup their share of the company's equity. In this case, the chief price driver is the aggregate expectation of buyers and sellers in the marketplace, not fundamental evaluation of the company's balance sheet. Now obviously some expectations are based on fundamentals and expert opinions can differ, but even when all the experts agree roughly on the numbers, it may be that the market price is quite a ways away from their estimates. An interesting example is given in this survey of behavioral finance. It concerns Palm, a wholly-owned subsidiary of 3Com. When Palm went public, its shares went for such a high price, they were significantly higher than 3Com's shares. This mispricing persisted for several weeks. Note that this facet of pricing is often given short shrift in standard explanations of the stock market. It seems despite decades of academic research (and Nobel prizes being handed out to behavioral economists), the knowledge has been slow to trickle down to laymen, although any observant person will realize something is amiss with the standard explanations. For example, before 2012, the last time Apple paid out dividends was 1995. Are we really to believe that people were pumping up Apple's stock price from 1995 to 2012 because they were waiting for dividends, or hoping for a merger or liquidation? It doesn't seem plausible to me, especially since after Apple announced dividends that year, Apple stock ended up taking a deep dive, despite Wall Street analysts stating the company was doing better than ever. That the stock price reflects expectations of the future cash flows from the stock is a thinly-disguised form of the Efficient Market Hypothesis (EMH), and there's a lot of evidence contrary to the EMH (see references in the previously-linked survey). If you believe what happened in Apple's case was just a rational re-evaluation of Apple stock, then I think you must be a hard-core EMH advocate. Basically (and this is elaborated at length in the survey above), fundamentals and market pricing can become decoupled. This is because there are frictions in the marketplace making it difficult for people to take advantage of the mispricing. In some cases, this can go on for extended periods of time, possibly even years. Part of the friction is caused by strong beliefs by market participants which can often shift pressure to supply or demand. Two popular sayings on Wall Street are, \"\"It doesn't matter if you're right. You have to be right at the right time.\"\" and \"\"It doesn't matter if you're right, if the market disagrees with you.\"\" They suggest that you can make the right decision with where to put your money, but being \"\"right\"\" isn't what drives prices. The market does what it does, and it's subject to the whims of its participants.\"","\"The goal is to understand the movements of the market as a whole and understand the fortunes of every investor in the S&P. As for why it isn't price-weighted, it is because price is a complely arbitrary notion, whereas market cap is at least \"\"real\"\" in some sense. Imagine Berkshire Hathaway vs Apple. In the S&P, Apple takes up about 75% more of the index because it's market cap is 796B, compared to 452B for Berkshire. This makes intuitive sense. Apple is \"\"worth\"\" 75% more, so it takes up that much more of the index. Now lets look at price. In a price weighted index of only those two stocks, Apple, with a stock price of 154.12 would take up .06% compared to Berkshire Hathaway at 99.94% due to its 274,740 stock price. The only difference is Apple has WAY more shares outstanding. Nothing of economic value (other than a bit of liquidity) is captured in a price-weighted index.\"","Close-end funds just means there's a fixed number of shares available, so if you want to buy some you must purchase from other existing owners, typically through an exchange. Open-end funds mean the company providing the shares is still selling them, so you can buy them directly from the company. Some can also be traded on exchanges as well.","Difference between a limit and market order is largely a trade-off between price certainty and timing certainty. If you think the security is already well priced, the downside of a limit order is the price may never hit your limit and keep trading away from you. You'll either spend a lot of time amending your order or sitting around wishing you'd amended your order. The downside of a market order is you don't know the execution price ahead of time. This is typically more of a issue with illiquid instruments where even smaller orders may have price impact. For small trades in more liquid securities your realized price will often resemble the last traded price. Hope that helps. Both have a purpose, and the best tool for the job will depend on your circumstances.","Like others have said, mutual funds don't have an intraday NAV, but their ETF equivalents do. Use something like Yahoo Finance and search for the ETF.IV. For example VOO.IV. This will give you not the ETF price (which may be at a premium or discount), but the value of the underlying securities updated every 15 seconds.","The definition of market cap is exactly shares oustanding * share price, so something is wrong here. It seems that the share price is expressed in pence rather pounds. There's a note at the bottom: Currency in GBp. Note the 'p' rather than 'P'. So the share price of '544' is actually 544p, i.e. £5.44. However it's not really clear just from the annotations which figures are in pence and which are actually in pounds. It seems that the market cap is in pounds but the enterprise value is in pence, given that 4.37 billion is about the right value in pounds whereas 441 billion only really makes sense if expressed in pence. It looks like they actually got the enterprise value wrong by a factor of 100. Perhaps their calculation treated the share price as being denominated in pounds rather than pence.","\"The tricky part is that it's NAV is quite high these days, almost close to its 52 week high You will find, if you look historically, most markets are often close to their 52 week or even historical highs. This is an important consideration. \"\"The markets are at their all-time high!\"\" has been true a large percentage of the past decades. Everyone wants to buy low, sell high. But the reality is, buying low often will be \"\"buying at close to the highest point\"\" as no one has a crystal ball.\"","You, like DailyFail, don't understand why mentioning market cap and then comparing nothing more than current share prices is nonsense. That's without getting into the many ways the person you quoted and the foundation of his economic opinions are ridiculous.","I strongly suggest you go to www.investor.gov as it has excellent information regarding these types of questions. A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents an investor’s part ownership in the fund and the income it generates. When you buy shares of a mutual fund you're buying it at NAV, or net asset value. The NAV is the value of the fund’s assets minus its liabilities. SEC rules require funds to calculate the NAV at least once daily. Different funds may own thousands of different stocks. In order to calculate the NAV, the fund company must value every security it owns. Since each security's valuation is changing throughout the day it's difficult to determine the valuation of the mutual fund except for when the market is closed. Once the market has closed (4pm eastern) and securities are no longer trading, the company must get accurate valuations for every security and perform the valuation calculations and distribute the results to the pricing vendors. This has to be done by 6pm eastern. This is a difficult and, more importantly, a time consuming process to get it done right once per day. Having worked for several fund companies I can tell you there are many days where companies are getting this done at the very last minute. When you place a buy or sell order for a mutual fund it doesn't matter what time you placed it as long as you entered it before 4pm ET. Cutoff times may be earlier depending on who you're placing the order with. If companies had to price their funds more frequently, they would undoubtedly raise their fees.","The Paragraph talks about dividends given by Mutual Funds. Say a fund has NAV of $ 10, as the value of the underlying security grows, the value of the fund would also grow, lets say it becomes $ 12 in 2 months. Now if the Mutual Fund decides to pay out a dividend of $ 1 to all unit holder, then post the distribution of dividend, the value of the Fund would become to $ 11. Thus if you are say investing on 1-April and know that dividends of $1 would be paid on 5-April [the divided distribution date is published typically weeks in advance], if you are hoping to make $1 in 5 days, that is not going to happen. On 6-April you would get $1, but the value of the fund would now be $11 from the earlier $12. This may not be wise as in some countries you would ending up paying tax on $1. Even in shares, the concept is similar, however the price may get corrected immediately and one may not actually see it going down by $1 due to market dynamics.","\"It makes sense if the NPV is positive. But what rate should you use at determining the NPV? A textbook might say \"\"market rate\"\".... and by definition the market rate to use in bond calculations like yours will mean that your NPV will be zero. How can this be? Well it's a bit of a circular definition. You take less capital to earn a higher return. The value of your capital spread over the period of the bond's maturity is the net difference... but the money in your pocket from selling the bond and not purchasing also has value. Banks and traders do this exact swap every day, many many times. The rate at which you can execute this swap is what defines the market rate. Therefore, by definition, the NPV will be zero. Now, this doesn't mean it's a bad idea for you. You can, on your own accord, decide the value you place on the capital versus the yield and make the decision. Do you expect rates to rise or fall? Do you expect higher or lower inflation? In reality you can form whatever opinion you like for your own circumstance, but the market is the net aggregation of formative opinion. You only get to decide whether or not you agree with the market.\"","NYSE and Nasdaq are secondary markets where stocks are bought or sold. The process of creating new stocks via IPO or private placements etc are called Private Market.","\"Just to clarify, In wikipedia when it says It is defined as a market in which money is provided for periods longer than a year They are referring to the company which is asking for money. So for example the stock market provides money to the issuing company of an IPO, indefinitely. Meaning the company that just went public is provided with money for a period longer than a year. The definition in Investopedia basically says the same thing Wikipedia does it is just phrased slightly different and leaves out the \"\"for periods longer than a year\"\". For example Wikipedia uses the term \"\"business enterprises\"\" and \"\"governments\"\" while Investopedia uses the term private sector and public sector, in this context \"\"business enterprise\"\" is \"\"private sector\"\" and \"\"governments\"\" is \"\"public sector\"\" So in the sense of the length debt is issued yes, money market would be the opposite of a capital market but both markets still offer a place for governments and companies to raise money and both are classified as financial markets.\"","\"In the case of mutual funds, Net Asset Value (NAV) is the price used to buy and sell shares. NAV is just the value of the underlying assets (which are in turn valued by their underlying holdings and future earnings). So if a fund hands out a billion dollars, it stands to reason their NAV*shares (market cap?) is a billion dollars less. Shareholder's net worth is equal in either scenario, but after the dividend is paid they are more liquid. For people who need investment income to live on, dividends are a cheap way to hold stocks and get regular payments, versus having to sell part of your portfolio every month. But for people who want to hold their investment in the market for a long long time, dividends only increase the rate at which you have to buy. For mutual funds this isn't a problem: you buy the funds and tell them to reinvest for free. So because of that, it's a prohibited practice to \"\"sell\"\" dividends to clients.\"","\"As some others have pointed out, it's key to remember the difference in market value and accounting value. To simplify things, book value is the only item that specifically depreciates... it happens in the world of accounting to try to time \"\"when did I use a long term asset?\"\" with \"\"when did I obtain value from that asset?\"\" For a house, governments usually allow owners to claim depreciation of the building over a set period of time. This does not affect your resale value of the house. Similarly, for a commercial property, governments set laws for how an individual or a company can time the \"\"use\"\" of that asset vs. their accounting. Some companies can have totally depreciated (\"\"zero cost\"\") assets that are still very productive. Market Property values are derived from 3 specific sources: Value in Trade is an estimate of the value that others would be willing to pay for a similar asset. That's why you can buy a house today, and in a \"\"normal\"\" market, the same house should be worth a similar amount of money in the future. Value in Use can be more interesting... this is where a farmer can extract $100,000 in value per year from 10 acres of land. But as a region develops, a manufacturing company can generate $300,000 per year from the same 10 acres of land. The company can buy out the farmer at a 'fair' price (>$100,000 per year) and still net positive from the investment. Income Approach tends to be focused on properties that have a cash flow, but can be adapted to other property estimates. It evaluates the current \"\"business case\"\" for any property with the cost of money down, the overall investment price, and the expected value from any returns. Remember, the market value is very simply, the price you could obtain if you sold the asset at a given time. It is rarely considered in terms of \"\"how much will this go down?\"\". Book value is an accounting exercise and declines by a set amount every year, because it means you can estimate the \"\"cost\"\" of owning an asset vs the value it generates in a particular time period.\"","If you want to go far upstream, you can get mutual fund NAV and dividend data from the Nasdaq Mutual Fund Quotation Service (MFQS). This isn't for end-users but rather is offered as a part of the regulatory framework. Not surprisingly, there is a fee for data access. From Nasdaq's MFQS specifications page: To promote market transparency, Nasdaq operates the Mutual Fund Quotation Service (MFQS). MFQS is designed to facilitate the collection and dissemination of daily price, dividends and capital distributions data for mutual funds, money market funds, unit investment trusts (UITs), annuities and structured products.","\"A company's valuation includes its assets, in addition to projected earnings. Aside from the obvious issue that \"\"projected earnings\"\" can be wildly inaccurate or speculative (as in the case of startups and fast-moving industries like technology), a company's assets are not necessarily tied to the market the company is in. For the sake of illustration, say the government were to ban fast food tomorrow, and the market for that were to go all the way to zero. McDonald's would still have almost 30 billion dollars worth of real estate holdings that would surely make the company worth something, even though it would have to stop selling its products. Similarly, Apple is sitting on approximately $200 billion dollars in cash and securities in overseas subsidiaries. Even if they never make another cent selling iPhones and such, the company is still worth a lot because of those holdings. \"\"Corporate raiders\"\" back in the 70's and 80's made massive personal fortunes exploiting this disconnect in undervalued companies that had more assets than their market cap, by getting enough ownership to liquidate the company's assets. Oliver Stone even made a movie about the phenomenon. So yes, it's certainly possible for a company to be worth more than the size of the market for its products.\"","It's an SEC standard for certain items. It is NOT indicative of fair market value. It could be useful to compare companies to each other, but again, would not indicate intrinsic value. Does it make sense, for example, to discount Saudi Aramco at the same exact rate as BP or Exxon?","\"Asset management typically refers to the \"\"product\"\" group e.g. Mutual fund, etf, etc., like invesco offering qqq or some emerging market mutual fund. Capital management is more vague and can refer to a wide range of financial products and services including asset management and stuff like ptfl planning, wealth advisory etc. That said they are both used interchangeably and not like anyone would correct you if you used one vs the other...\"","Would bond holders differentiate in their EV/EBITDA calcs when compared to equity holders when valuing a private company? For e.g. when it comes to a company that has built a power plant, generally equity holders would take an additional haircut/discount for the lack of marketability. Would debt holders do the same? Would there be a higher valuation otherwise?","\"Short answer: google finance's market cap calculation is nonstandard (a.k.a. wrong). The standard way of computing the market capitalization of a firm is to take the price of its common stock and multiply by the number of outstanding common stock shares. If you do this using the numbers from google's site you get around $13.4B. This can be verified by going to other sites like yahoo finance and bloomberg, which have the correct market capitalization already computed. The Whole Foods acquisition appears to be very cut-and-dry. Investors will be compensated with $42 cash per share. Why are google finance's numbers wrong for market cap? Sometimes people will add other things to \"\"market capitalization,\"\" like the value of the firm's debt and other debt-like securities. My guess is that google has done something like this. Whole Foods has just over $3B in total liabilities, which is around the size of the discrepancy you have found.\"","It's been awhile since my last finance course, so school me here: What is the market cap of a company actually supposed to represent? I get that it's the stock price X the # of shares, but what is that actually representing? Revenues? PV of all future revenues? PV of future cash flows? In any case, good write up. Valuation of tech stocks is quite the gambit, and you've done a good job of dissecting it for a layman.","\"From How are indexes weighted?: Market-capitalization weighted indexes (or market cap- or cap-weighted indexes) weight their securities by market value as measured by capitalization: that is, current security price * outstanding shares. The vast majority of equity indexes today are cap-weighted, including the S&P 500 and the FTSE 100. In a cap-weighted index, changes in the market value of larger securities move the index’s overall trajectory more than those of smaller ones. If the fund you are referencing is an ETF then there may be some work to do to figure out what underlying securities to use when handling Creation and Redemption units as an ETF will generally have shares created in 50,000 shares at a time through Authorized Participants. If the fund you are referencing is an open-end fund then there is still cash flows to manage in the fund as the fund has create and redeem shares in on a daily basis. Note in both cases that there can be updates to an index such as quarterly rebalancing of outstanding share counts, changes in members because of mergers, acquisitions or spin-offs and possibly a few other factors. How to Beat the Benchmark has a piece that may also be useful here for those indices with many members from 1998: As you can see, its TE is also persistently positive, but if anything seems to be declining over time. In fact, the average net TE for the whole period is +0.155% per month, or an astounding +1.88% pa net after expenses. The fund expense ratio is 0.61% annually, for a whopping before expense TE of +2.5% annually. This is once again highly statistically significant, with p values of 0.015 after expenses and 0.0022 before expenses. (The SD of the TE is higher for DFSCX than for NAESX, lowering its degree of statistical significance.) It is remarkable enough for any fund to beat its benchmark by 2.5% annually over 17 years, but it is downright eerie to see this done by an index fund. To complete the picture, since 1992 the Vanguard Extended Index Fund has beaten its benchmark (the Wilshire 4500) by 0.56% per year after expenses (0.81% net of expenses), and even the Vanguard Index Trust 500 has beaten its benchmark by a razor thin 0.08% annually before (but not after) expenses in the same period. So what is going on here? A hint is found in DFA's 1996 Reference Guide: The 9-10 Portfolio captures the return behavior of U.S. small company stocks as identified by Rolf Banz and other academic researchers. Dimensional employs a \"\"patient buyer\"\" discount block trading strategy which has resulted in negative total trading costs, despite the poor liquidity of small company stocks. Beginning in 1982, Ibbotson Associates of Chicago has used the 9-10 Portfolio results to calculate the performance of small company stocks for their Stocks, Bonds, Bills, and Inflation yearbook. A small cap index fund cannot possibly own all of the thousands of stocks in its benchmark; instead it owns a \"\"representative sample.\"\" Further, these stocks are usually thinly traded, with wide bid/ask spreads. In essence what the folks at DFA learned was that they could tell the market makers in these stocks, \"\"Look old chaps, we don't have to own your stock, and unless you let us inside your spread, we'll pitch our tents elsewhere. Further, we're prepared to wait until a motivated seller wishes to unload a large block.\"\" In a sense, this gives the fund the luxury of picking and choosing stocks at prices more favorable than generally available. Hence, higher long term returns. It appears that Vanguard did not tumble onto this until a decade later, but tumble they did. To complete the picture, this strategy works best in the thinnest markets, so the excess returns are greatest in the smallest stocks, which is why the positive TE is greatest for the DFA 9-10 Fund, less in the Vanguard Small Cap Fund, less still in the Vanguard Index Extended Fund, and minuscule with the S&P500. There are some who say the biggest joke in the world of finance is the idea of value added active management. If so, then the punch line seems to be this: If you really want to beat the indexes, then you gotta buy an index fund.\"","Mutual funds are funds composed of financial assets and the funds of investors, and are managed by a firm, usually a large wealth management firm. They are generally accessible to anyone. Hedge funds are private investment funds with limited access, and are subject to fewer regulations. They are usually legally set up as their own firm.","Adding assets (equity) and liabilities (debt) never gives you anything useful. The value of a company is its assets (including equity) minus its liabilities (including debt). However this is a purely theoretical calculation. In the real world things are much more complicated, and this isn't going to give you a good idea of much a company's shares are worth in the real world","While there are many very good and detailed answers to this question, there is one key term from finance that none of them used and that is Net Present Value. While this is a term generally associate with debt and assets, it also can be applied to the valuation models of a company's share price. The price of the share of a stock in a company represents the Net Present Value of all future cash flows of that company divided by the total number of shares outstanding. This is also the reason behind why the payment of dividends will cause the share price valuation to be less than its valuation if the company did not pay a dividend. That/those future outflows are factored into the NPV calculation, actually performed or implied, and results in a current valuation that is less than it would have been had that capital been retained. Unlike with a fixed income security, or even a variable rate debenture, it is difficult to predict what the future cashflows of a company will be, and how investors chose to value things as intangible as brand recognition, market penetration, and executive competence are often far more subjective that using 10 year libor rates to plug into a present value calculation for a floating rate bond of similar tenor. Opinion enters into the calculus and this is why you end up having a greater degree of price variance than you see in the fixed income markets. You have had situations where companies such as Amazon.com, Google, and Facebook had highly valued shares before they they ever posted a profit. That is because the analysis of the value of their intellectual properties or business models would, overtime provide a future value that was equivalent to their stock price at that time.","Everything would depend on whether the calculation is being done using the company's all-time high intraday trading price or all-time high closing price. Further, I've seen calculations using non-public pricing data, such as bid-offer numbers from market makers, although this wouldn't be kosher. The likelihood is that you're seeing numbers that were calculated using different points in time. For the record, I think Apple has overtaken Microsoft's all-time highest market cap with a figure somewhere north of $700 billion (nominal). Here's an interesting article link on the subject of highest-ever valuations: comparison of highest market caps ever","For the lazy, Wikipedia says: The term microcap stock (also micro-cap) refers to the stock of public companies in the United States which have a market capitalization of roughly $300 million or less. The shares of companies with a market capitalization of less than $50 million are typically referred to as nano-cap stocks. Many micro-cap and nano-cap stocks are traded over-the-counter with their prices quoted on the OTCBB or the Pink Sheets. A few of the larger, more established microcaps are listed on the NASDAQ Capital Market or American Stock Exchange (AMEX). Micro-cap and especially nano-cap stocks are notorious for their volatility. A high percentage of these companies fail to execute their business plans and go out of business. Fraud and market manipulation are not uncommon, and the transactions costs in trading can be quite high. Pricing is more likely to be inefficient, since fewer institutional investors and analysts operate in this space, due to the relatively small dollar amounts involved and the lack of liquidity.","It is ALWAYS possible for a company's valuation in the market to be larger than the market it serves, and in fact it is not uncommon. There's valid argument that Uber would be a good example of this, with a market cap of more than $60 billion. Market cap is the total value of all shares outstanding. Keep in mind that what a company's shares trade for is less a reflection of its past (or, to some degree, even present) revenue activity and more of a speculative bet on what the company will do in the future.","A general mutual fund's exact holdings are not known on a day-to-day basis, and so technical tools must work with inexact data. Furthermore, the mutual fund shares' NAV depends on lots of different shares that it holds, and the results of the kinds of analyses that one can do for a single stock must be commingled to produce something analogous for the fund's NAV. In other words, there is plenty of shooting in the dark going on. That being said, there are plenty of people who claim to do such analyses and will gladly sell you their results (actually, Buy, Hold, Sell recommendations) for whole fund families (e.g. Vanguard) in the form of a monthly or weekly Newsletter delivered by US Mail (in the old days) or electronically (nowadays). Some people who subscribe to such newsletters swear by them, while others swear at them and don't renew their subscriptions; YMMV.","\"You'll generally get a number close to market cap of a mature company if you divide profits (or more accurately its free cash flow to equity) by the cost of equity which is usually something like ~7%. The value is meant to represent the amount of cash you'd need to generate investment income off it matching the company you're looking at. Imagine it as asking \"\"How much money do I need to put into the bank so that my interest income would match the profits of the company I'm looking at\"\". Except replace the bank with the market and other forms of investments that generate higher returns of course and that value would be lower.\"","None of the above. The fair value is a term used to describe an analytical result of projecting the company's future dividends and profits into a present value. Such estimates are published by the likes of Morningstar, S&P and Value Line. It is quite common for a stock to trade well above or below such estimated fair values.","Fund performance at NAV (%) for latest quarter, YTD, and average annual total returns for 1, 3, 5, 10 years. P/E ratio (1 yr. forecast), P/B ratio, Beta, Sharpe ratio, Wtd. avg. market cap, fund assets. I guess I would want to calculate all these things based off of the data that I would be working with. I will assume I am working with daily fund values per share over 10+ years.","It seems like you want to compare the company's values not necessarily the stock price. Why not get the total outstanding shares and the stock price, generate the market cap. Then you could compare changes to market cap rather than just share price.","You can find this in the annual report. Preferred value is not the same as common value.","Simply put, expansionary capex is seen as an investment and maintenance capex is seen as a cost. In terms of valuation, free cash flow will not include expansionary capex because you are valuing the company as its current business. It's important to note that this approach will usually undervalue companies with strong investment opportunities. Also, like /u/scarletham said, please edit out the identifying information to avoid any disclosure problems."],"string":"[\n \"\\\"Market caps is just the share price, multiplied by the number of shares. It doesn't represent any value (if people decide to pay more or less for the shares, the market cap goes up or down). It does represent what people think the company is worth. NAV sounds very much like book value. It basically says \\\"\\\"how much cash would we end up with if we sold everything the company owns, paid back all the debt, and closed down the business? \\\"\\\" Since closing down the business is rarely a good idea, this underestimates the value of the business enormously. Take a hairdresser who owns nothing but a pair of scissors, but has a huge number of repeat customers, charges $200 for a haircut, and makes tons of money every year. The business has a huge value, but NAV = price of one pair of used scissors.\\\"\",\n \"\\\"I think the key concept here is future value. The NAV is essentially a book-keeping exercise- you add up all the assets and remove all the liabilities. For a public company this is spelled out in the balance sheet, and is generally listed at the bottom. I pulled a recent one from Cisco Systems (because I used to work there and know the numbers ;-) and you can see it here: roughly $56 billion... https://finance.yahoo.com/q/bs?s=CSCO+Balance+Sheet&annual Another way to think about it: In theory (and we know about this, right?) the NAV is what you would get if you liquidated the company instantaneously. A definition I like to use for market cap is \\\"\\\"the current assets, plus the perceived present value of all future earnings for the company\\\"\\\"... so let's dissect that a little. The term \\\"\\\"present value\\\"\\\" is really important, because a million dollars today is worth more than a million dollars next year. A company expected to make a lot of money soon will be worth more (i.e. a higher market cap) than a company expected to make the same amount of money, but later. The \\\"\\\"all future earnings\\\"\\\" part is exactly what it sounds like. So again, following our cisco example, the current market cap is ~142 billion, which means that \\\"\\\"the market\\\"\\\" thinks they will earn about $85 billion over the life of the company (in present day dollars).\\\"\",\n \"\\\"At any given moment, one can tally the numbers used for NAV. It's math, and little more. The Market Cap, which as you understand is a result of share value. Share value (stock price) is what the market will pay today for the shares. It's not only based on NAV today, but on future expectations. And expectations aren't the same for each of us. Which is why there are always sellers for the buyers of a stock, and vice-versa. From your question, we agree that NAV can be measured, it's the result of adding up things that are all known. (For now, let's ignore things such as \\\"\\\"goodwill.\\\"\\\") Rarely is a stock price simply equal to the NAV divided by the number of shares. Often, it's quite higher. The simplest way to look at it is that the stock price not only reflects the NAV, but investors' expectations looking into the future. If you look for two companies with identical NAV per share but quite different share prices, you'll see that the companies differ in that one might be a high growth company, the other, a solid one but with a market that's not in such a growth mode.\\\"\",\n \"NAV is how much is the stuff of the company worth divided by the number of shares. This total is also called book value. The market cap is share price times number of shares. For Amazon today people are willing to pay 290 a share for a company with a NAV of 22 a share. If of nav and price were equal the P/B (price to book ratio) would be 1, but for Amazon it is 13. Why? Because investors believe Amazon is worth a lot more than a money losing company with a NAV of 22.\",\n \"\\\"Market cap is synonymous with equity value, which is one way of thinking of a company's \\\"\\\"worth.\\\"\\\" The alternative would be enterprise value, which is calculated as follows: Enterprise Value = Market Value of Equity + Market Value of Debt - Cash and Equivalents - Non-Operating Assets Enterprise value is essentially \\\"\\\"how much is the firm worth to ALL providers of capital.\\\"\\\" It can be viewed as \\\"\\\"if I wanted to buy the *entire* company, debt and all, what would I have to pay?\\\"\\\"\\\"\",\n \"Market Capitalization is the equity value of a company. It measures the total value of the shares available for trade in public markets if they were immediately sold at the last traded market price. Some people think it is a measure of a company's net worth, but it can be a misleading for a number of reasons. Share price will be biased toward recent earnings and the Earnings Per Share (EPS) metric. The most recent market price only reflects the lowest price one market participant is willing to sell for and the highest price another market participant is willing to buy for, though in a liquid market it does generally reflect the current consensus. In an imperfect market (for example with a large institutional purchase or sale) prices can diverge widely from the consensus price and when multiplied by outstanding shares, can show a very distorted market capitalization. It is also a misleading number when comparing two companies' market capitalization because while some companies raise the money they need by selling shares on the markets, others might prefer debt financing from private lenders or sell bonds on the market, or some other capital structure. Some companies sell preferred shares or non-voting shares along with the traditional shares that exist. All of these factors have to be considered when valuing a company. Large-cap companies tend to have lower but more stable growth than small cap companies which are still expanding into new markets because of their smaller size.\",\n \"The difference between the two numbers is that the market size of a particular product is expressed as an annual number ($10 million per year, in your example). The market cap of a stock, on the other hand, is a long-term valuation of the company.\",\n \"\\\"Market Capitalization is the value the market attributes to the company shares calculated by multiplying the current trading price of these shares by the total amount of shares outstanding. So a company with 100 shares trading at $10 has a market cap of $1000. It is technically not the same as the value of a company (in the sense of how much someone would need to pay to acquire the company), Enterprise value is what you want to determine the net value of a company which is calculated as the market capitalization + company debt (as the acquirer has to take on this debt) - company cash (as the acquirer can pocket this for itself). The exact boundary for when a company belongs to a certain \\\"\\\"cap\\\"\\\" is up for debate. For a \\\"\\\"large cap\\\"\\\" a market capitalization of $10 billion+ is usually considered the cutoff (with $100+ billion behemoths being called \\\"\\\"mega caps\\\"\\\"). Anything between $10 billion and ~$1 billion is considered \\\"\\\"mid cap\\\"\\\", from ~$1billion to ~$200 million it's called a \\\"\\\"small cap\\\"\\\" and below $200 million is \\\"\\\"nano cap\\\"\\\". Worth noting that these boundaries change quite dramatically over time as the overall average market capitalization increases as companies grow, for example in the 80s a company with a market cap of $1 billion would be considered \\\"\\\"large cap\\\"\\\". The market \\\"\\\"determines\\\"\\\" what the market cap of company should be based (usually but certainly not always!) on the historical and expected profit a company makes, for a simple example let's say that our $1000 market cap company makes $100 a year, this means that this company's earnings per share is $1. If the company grows to make $200 a year you can reasonably expect the share price to rise from $10 to ~$20 with the corresponding increase in market cap. (this is all extremely simplified of course).\\\"\",\n \"Enterprise Value is supposed to be the price you would be willing to pay to acquire the company. Typically, companies are delivered debt-free and cash-free, so the cash on the balance sheet at the time of the transaction is distributed to the original owners. So, for instance, a company like Apple would have a lower EV than Market Value because the cash on the balance sheet is not going to be included in an acquisition. And you are right, there are plenty of instances where you see Enterprise Value lower than Market Value (Cap). If you are solely looking at equity valuation (equity investing), then use market cap. If you are looking at firm valuation for M&A, then EV is more important.\",\n \"\\\"Market cap is speculative value, M = P * W, where W is stock (or other way of owning) percentage of ownership, P - price of percentage of ownership. This could include \\\"\\\"outside of exchange\\\"\\\" deals. Some funds could buy ownership percentage directly via partial ownership deal. That ownership is not stock, but fixed-type which has value too. Stock market cap is speculative value, M2 = Q * D, where D is free stocks available freely, Q - price of stock, in other words Quote number (not price of ownership). Many stock types do NOT provide actual percentage of ownership, being just another type of bond with non-fixed coupon and non-fixed price. Though such stocks do not add to company's capitalization after sold to markets, it adds to market capitalization at the moment of selling via initial price.\\\"\",\n \"Market cap is basically the amount of money that it would cost to buy all of the shares of public stock in a company. Or share cost * number of outstanding shares. It is a measure of how much a company is worth. http://en.wikipedia.org/wiki/Market_capitalization\",\n \"I don't think that you'll notice a difference in the NAV in a fund with fees that are low as the Vanguard Total Stock Market Fund. Their management fees are incorporated into the NAV, but keep in mind that the fund has a total of $144 billion in assets, with $66 billion in the investor class. The actual fees represent a tiny fraction of the NAV, and may only show up at all on the day they assess the fees. With Vanguard total stock market, you notice the fee difference in the distributions. In the example of Vanguard Total Stock Market, there are institutional-class shares (like VITPX with a minimum investment of $200M) with still lower costs -- as low as 0.0250% vs. 0.18% for the investor class. You will notice a different NAV and distributions for that fund, but there may be other reasons for the variation that I'm not familar with, as I'm not an institutional investor.\",\n \"Market capitalization is one way to represent the value of the company. So if a company has 10 million shares, which are each worth $100, then the company's market capitalization is 1 billion. Large cap companies tend to be larger and more stable. Small cap companies are smaller, which indicates higher volatility. So if you want more aggressive investments then you may want to invest in small cap companies while if you lean on the side of caution then big cap companies may be your friend.\",\n \"Market cap should be share price times number of shares, right? That's several orders of magnitude right there...\",\n \"Market Capitalization is the product of the current share price (the last time someone sold a share of the stock, how much?) times the number of outstanding shares of stock, summed up over all of the stock categories. Assuming the efficient market hypothesis and a liquid market, this gives the current total value of the companies' assets (both tangible and intangible). Both the EMH and perfect liquidity may not hold at all times. Beyond those theoretical problems, in practice, someone trying to buy or sell the company at that price is going to be in for a surprise; the fact that someone wants to sell that many stocks, or buy that many stocks, will move the price of the company stock.\",\n \"\\\"Lots of questions: In general, no. Market Capitalization and Equity represent 2 different things. Equity first, the equity of a firm is the value of the assets (what it owns) less its liabilities (what it owes) and consists (broadly) of two components - share capital (what the firm gets when it sells to investors as part of an IPO or subsequent share issue) and retained earnings (what the firm has as a result of making profits and not paying them out as dividends). This is the theoretical liquidation value of the firm - what it is worth if it stops trading, sells all its assets and pays all its debts. Market Capitalization is the current value of the future cash flow of the firm as perceived by the market - the value today of all the dividends that the firm will pay in the future for as long as it exists. This is the theoretical going concern value of the firm - what it is worth as a functioning business. In general, Market Capitalization is bigger than Equity - if it isn't the firm is worth more as scrap than as an operating business. Um ... no. If you don't have any shares then you are by definition not an owner. Having shares is what makes you an owner. What I think you mean is, is it possible for the owner(s) of a private company to sell all of its shares when it goes public? The answer is yes. It is uncommon for a start-up owner to do this but it is standard practice for \\\"\\\"corporate raiders\\\"\\\" who buy failing companies, take them private, restructure them and then take them public again - they have done their job and they are not interested in maintaining an ownership stake. Nope. See above and below. Not at all, equity is an accounting construct and market capitalization is about market sentiment. Consider the following hypothetical firm: It has $1m in equity, it makes $4m in profit and will do for the foreseeable future, it pays all of that $4m out as dividends - if we work on a simple ROI of 10% then this firm is worth $40m dollars - way more than its equity.\\\"\",\n \"How is it possible that a publicly traded investment company's net asset value per share is higher than their share price? Wouldn't you (in theory) be able to buy the company and liquidate it to make a profit of (NAV/share - price/share)*number of shares, ignoring transaction costs and such? I realize that since part of their portfolio is in private equity, NAV is hard to calculate and hard to liquidate as well, but it doesn't really seem to make sense to me. Would love some input. The company I'm talking about in this instance is 180 Degree Capital Corp, but this isn't the first time I've seen this.\",\n \"\\\"Market cap is the current value of a company's equity and is defined as the current share price multiplied by the number of shares. Please check also \\\"\\\"enterprise value\\\"\\\" for another definition of a company`s total value (enterprise value = market cap adjusted for net nebt). Regarding the second part of your question: Issuing new shares usually does not affect market cap in a significant way because the newly issued shares often result in lower share prices and dilution of the existing share holders shares.\\\"\",\n \"\\\"You are comparing two things that are not comparable. The \\\"\\\"market size\\\"\\\" would be the total annual revenue in one market, in this year. The \\\"\\\"market caps\\\"\\\" of a company is the number of shares multiplied by the share price. This should be equal to the total profit that the company is going to make through its life time, taking into account that you would get interest on an investment, so future profits have to be counted less accordingly. So if the \\\"\\\"market size\\\"\\\" is ten million dollars, and a company has four million revenue in that market with one million profit, and everyone thinks that company will continue making that profit for the next fifty years, then surely one million a year for the next 50 years is worth more than ten million. That's if the market stands still. If the \\\"\\\"market size\\\"\\\" is ten million, and we expect that market size to double for the next three years, then the market size is still ten million, but a company having a 40% share of a market growing at that speed is going to be worth a lot more!\\\"\",\n \"\\\"The quickest way to approach this question is to first understand that it compares flows vs. levels. Market size is usually stated as an annual or other period figure, e.g. \\\"\\\"The market size of refrigerators will be $10mn in 2019.\\\"\\\" This is a flow figure. Market capitalization is a level figure at any given point in time, e.g. \\\"\\\"The market cap of the company was $20 million at the end of its last fiscal quarter.\\\"\\\" Confusion sometimes occurs when levels and flows are used loosely for comparisons. It is common for media to make statements such as \\\"\\\"Joe Billionaire is worth more than the GDP of Roselandia.\\\"\\\" That is comparing a current level (net worth) with an annual flow (GDP). With this in mind, there are a variety of conditions where a company's equity market value will exceed its market size. The most extreme example is an innovating, development-stage enterprise, say, a biotech company, developing a new market for a new product; the current market size may be nil while the enterprise is worth something greater. The primary reason however for situations where a company's equity market cap is greater than its market size is usually that the financial market expects the enterprise (and oftentimes its market, though this isn't necessary) to grow substantially over time and hence the discounted value of the company may be greater than the current or near future market size. A final example: US annual GDP (which comprises of much more than corporate incomes and profits) for 2014 was about $17.4tn while the nation's total equity market value in 2014 was $25.1tn, both according to the World Bank. That latter figure also doesn't include the trillions of corporate debts these companies have issued so the total market cap of US, Inc. is substantially greater than $25.1tn.\\\"\",\n \"\\\"The market capitalization of a stock is the number of shares outstanding (of each stock class), times the price of last trade (of each stock class). In a liquid market (where there are lots of buyers and sellers at all price points), this represents the price that is between what people are bidding for the stock and what people are asking for the stock. If you offer any small amount more than the last price, there will be a seller, and if you ask any small amount less than the last price, there will be a buyer, at least for a small amount of stock. Thus, in a liquid market, everyone who owns the stock doesn't want to sell at least some of their stock for a bit less than the last trade price, and everyone who doesn't have the stock doesn't want to buy some of the stock for a bit more than the last trade price. With those assumptions, and a low-friction trading environment, we can say that the last trade value is a good midpoint of what people think one share is worth. If we then multiply it by the number of shares, we get an approximation of what the company is worth. In no way, shape or form does it not mean that there is 32 billion more invested in the company, or even used to purchase stock. There are situations where a 32 billion market cap swing could mean 32 billion more money was invested in the company: the company issues a pile of new shares, and takes in the resulting money. People are completely neutral about this gathering in of cash in exchange for dilluting shares. So the share price remains unchanged, the company gains 32 billion dollars, and there are now more shares outstanding. Now, in some sense, there is zero dollars currently invested in a stock; when you buy a stock, you no longer have the money, and the money goes to the person who no longer has the stock. The issue here is the use of the continuous tense of \\\"\\\"invested in\\\"\\\"; the investment was made at some point, but the money doesn't really stay in this continuous state of being. Unless you consider the investment liquid, and the option to take money out being implicit, it being a continuous action doesn't make much sense. Sometimes the money is invested in the company, when the company causes stocks to come into being and sells them. The owners of stocks has invested money in stocks in that they spent that money to buy the stocks, but the total sum of money ever spent on stocks for a given company is not really a useful value. The market capitalization is an approximation, which under the efficient market hypothesis (that markets find the correct price for things nearly instantly) is reasonably accurate, of the value the company has collectively to its shareholders. The efficient market hypothesis isn't accurate, but it is an acceptable rule of thumb. Now, this value -- market capitalization -- is arguably not the total value of a company: other stakeholders include bond holders, labour, management, various contract counter-parties, government and customers. Some companies are structured so that almost all value is captured not by the stock owners, but by contract counter-parties (this is sometimes used for hiding assets or debts). But for most large publically traded companies, it (in theory) shouldn't be far off.\\\"\",\n \"This depends. Quite a few stock exchanges / country report total capitalisation in terms of free float. I.E total shares that can be traded, ignoring the promoters shares. The market cap reported by company takes all shares.\",\n \"The (assets - liabilities)/#shares of a company is its book value, and that number is included in their reports. It's easy for a fund to release the net asset value on a daily basis because all of its assets (stocks, bonds, and cash) are given values every day by the market. It's also necessary to have a real time value for a fund as it will be bought and sold every day. A company can't really do the same thing as it will have much more diverse assets - real estate, cars, inventory, goodwill, etc. The real time value of those assets doesn't have the same meaning as a fund; those assets are used to earn cash, while a fund's business is only to maximize its net asset value.\",\n \"\\\"Some companies issue multiple classes of shares. Each share may have different ratios applied to ownership rights and voting rights. Some shares classes are not traded on any exchange at all. Some share classes have limited or no voting rights. Voting rights ratios are not used when calculating market cap but the market typically puts a premium on shares with voting rights. Total market cap must include ALL classes of shares, listed or not, weighted according to thee ratios involved in the company's ownership structure. Some are 1:1, but in the case of Berkshire Hathaway, Class B shares are set at an ownership level of 1/1500 of the Class A shares. In terms of Alphabet Inc, the following classes of shares exist as at 4 Dec 2015: When determining market cap, you should also be mindful of other classes of securities issued by the company, such as convertible debt instruments and stock options. This is usually referred to as \\\"\\\"Fully Diluted\\\"\\\" assuming all such instruments are converted.\\\"\",\n \"\\\"You seem to be assuming that ETFs must all work like the more traditional closed-end funds, where the market price per share tends—based on supply and demand—to significantly deviate from the underlying net asset value per share. The assumption is simplistic. What are traditionally referred to as closed-end funds (CEFs), where unit creation and redemption are very tightly controlled, have been around for a long time, and yes, they do often trade at a premium or discount to NAV because the quantity is inflexible. Yet, what is generally meant when the label \\\"\\\"ETF\\\"\\\" is used (despite CEFs also being both \\\"\\\"exchange-traded\\\"\\\" and \\\"\\\"funds\\\"\\\") are those securities which are not just exchange-traded, and funds, but also typically have two specific characteristics: (a) that they are based on some published index, and (b) that a mechanism exists for shares to be created or redeemed by large market participants. These characteristics facilitate efficient pricing through arbitrage. Essentially, when large market participants notice the price of an ETF diverging from the value of the shares held by the fund, new units of the ETF can get created or redeemed in bulk. The divergence quickly narrows as these participants buy or sell ETF units to capture the difference. So, the persistent premium (sometimes dear) or discount (sometimes deep) one can easily witness in the CEF universe tend not to occur with the typical ETF. Much of the time, prices for ETFs will tend to be very close to their net asset value. However, it isn't always the case, so proceed with some caution anyway. Both CEF and ETF providers generally publish information about their funds online. You will want to find out what is the underlying Net Asset Value (NAV) per share, and then you can determine if the market price trades at a premium or a discount to NAV. Assuming little difference in an ETF's price vs. its NAV, the more interesting question to ask about an ETF then becomes whether the NAV itself is a bargain, or not. That means you'll need to be more concerned with what stocks are in the index the fund tracks, and whether those stocks are a bargain, or not, at their current prices. i.e. The ETF is a basket, so look at each thing in the basket. Of course, most people buy ETFs because they don't want to do this kind of analysis and are happy with market average returns. Even so, sector-based ETFs are often used by traders to buy (or sell) entire sectors that may be undervalued (or overvalued).\\\"\",\n \"The main difference between a mutual fund and an ETF are how they are bought and sold (from the investors perspective). An ETF is transacted on the open market. This means you normally can't buy partial shares with your initial investment. Having to transact on the open market also means you pay a market price. The market price is always a little bit different from the Net Asset Value (NAV) of the fund. During market hours, the ETF will trade at a premium/discount to the NAV calculated on the previous day. Morningstar's fund analysis will show a graph of the premium/discount to NAV for an ETF. With a mutual fund on the other hand, your investment goes to a fund company, which then grants you shares while under the hood buying the underlying investments. You pay the NAV price and are allowed to buy partial shares. Usually an ETF has a lower expense ratio, but if that's equal and any initial fees/commissions are equal, I would prefer the mutual fund in order to buy partial shares (so your initial investment will be fully invested) and so you don't have to worry about paying premium to NAV\",\n \"Would make sense that the higher liquidation cost and Transaction costs are driving the share price down. Higher liq and transaction means higher investors would require higher return, driving down the share price. The other possibilities I can think of off the top of my head, based on looking at the firm for five minutes 1) In transaction costs, did you include tax? Disclaimer: math below done on the back of the envelope in between meetings; So, NAV says they are at ~$75M. Liquidating that entire portfolio means about 22% capital gains tax rate. Which means after tax value is about $60M. Add in any fees you'd incur from trying to sell this stuff, and it's not unreasonable to assume you'll only get about $55M once all is said and done, which is pretty close to the actual market cap. If you have accounted for the above, consider ; 2) Bulk of their investments seem to be in private assets. Which implies that they have some discretion in how they mark the value of those investments. And, there is the chance that the market doesn't have confidence in these guys. What's their performance been like in recent years? Especially with a private asset portfolio, I'd be weary. If I was to invest in them, I'd want a higher return for the opaque portfolio.\",\n \"Take a look at apple. It has no debt. So the ev is basically mkt cap - cash. Also remember market cap is the float * share price nothing else. Obviously share price takes into account the assets of the firm into perpituituy but the way you phrased it, adding debt , didnt sound quite right to me. We remove cash since someone buying a company isn't going to pay for your cash. In the transaction cash is distributed to share holders then the company is sold.\",\n \"The price of a share of a mutual fund is its Net Asset Value (nav). Before the payout of dividends and capital gain distribution, the fund was holding both stock shares and cash that resulted from dividends and capital gains. After the payout, a share only holds the stock. Therefore once the cash is paid out the NAV must drop by the same amount as was paid out per share. Thus of course assumes no other activity or valuation changes of the underlying assets. Regular market activity will obscure what the payout does to the NAV.\",\n \"Yea good points and they definitely should not be overlooked. The whole point of the EV calculation is to get the analyst to look at what the true underlying business is and what one is really paying for when buying securities in a company. Market Cap can be misleading for many reasons and get real annoyed when people say things like, I own XYZ company because its cash account is greater than its market cap....\",\n \"\\\"This is an example from another field, real estate. Suppose you buy a $100,000 house with a 20 percent down payment, or $20,000, and borrow the other $80,000. In this example, your \\\"\\\"equity\\\"\\\" or \\\"\\\"market cap\\\"\\\" is $20,000. But the total value, or \\\"\\\"enterprise value\\\"\\\" of the house, is actually $100,000, counting the $80,000 mortgage. \\\"\\\"Enterprise value\\\"\\\" is what a buyer would have to pay to own the company or the house \\\"\\\"free and clear,\\\"\\\" counting the debt.\\\"\",\n \"\\\"From Wikipedia: Usage Because EV is a capital structure-neutral metric, it is useful when comparing companies with diverse capital structures. Price/earnings ratios, for example, will be significantly more volatile in companies that are highly leveraged. Stock market investors use EV/EBITDA to compare returns between equivalent companies on a risk-adjusted basis. They can then superimpose their own choice of debt levels. In practice, equity investors may have difficulty accurately assessing EV if they do not have access to the market quotations of the company debt. It is not sufficient to substitute the book value of the debt because a) the market interest rates may have changed, and b) the market's perception of the risk of the loan may have changed since the debt was issued. Remember, the point of EV is to neutralize the different risks, and costs of different capital structures. Buyers of controlling interests in a business use EV to compare returns between businesses, as above. They also use the EV valuation (or a debt free cash free valuation) to determine how much to pay for the whole entity (not just the equity). They may want to change the capital structure once in control. Technical considerations Data availability Unlike market capitalization, where both the market price and the outstanding number of shares in issue are readily available and easy to find, it is virtually impossible to calculate an EV without making a number of adjustments to published data, including often subjective estimations of value: In practice, EV calculations rely on reasonable estimates of the market value of these components. For example, in many professional valuations: Avoiding temporal mismatches When using valuation multiples such as EV/EBITDA and EV/EBIT, the numerator should correspond to the denominator. The EV should, therefore, correspond to the market value of the assets that were used to generate the profits in question, excluding assets acquired (and including assets disposed) during a different financial reporting period. This requires restating EV for any mergers and acquisitions (whether paid in cash or equity), significant capital investments or significant changes in working capital occurring after or during the reporting period being examined. Ideally, multiples should be calculated using the market value of the weighted average capital employed of the company during the comparable financial period. When calculating multiples over different time periods (e.g. historic multiples vs forward multiples), EV should be adjusted to reflect the weighted average invested capital of the company in each period. In your question, you stated: The Market Cap is driven by the share price and the share price is determined by buyers and sellers who have access to data on cash and debts and factor that into their decision to buy or sell. Note the first point under \\\"\\\"Technical Considerations\\\"\\\" there and you will see that the \\\"\\\"access to data on cash and debts\\\"\\\" isn't quite accurate here so that is worth noting. As for alternatives, there are many other price ratios one could use such as price/earnings, price/book value, price/sales and others depending on how one wants to model the company. The better question is what kind of investing strategy is one wanting to use where there are probably hundreds of strategies at least. Let's take Apple as an example. Back on April 23, 2014 they announced earnings through March 29, 2014 which is nearly a month old when it was announced. Now a month later, one would have to estimate what changes would be made to things there. Thus, getting accurate real-time values isn't realistic. Discounted Cash Flow is another approach one can take of valuing a company in terms of its future earnings computed back to a present day lump sum.\\\"\",\n \"What you should compare is SPX, SPY NAV, and ES fair value. Like others have said is SPX is the index that others attempt to track. SPY tracks it, but it can get a tiny bit out of line as explained here by @Brick . That's why they publish NAV or net asset value. It's what the price should be. For SPY this will be very close because of all the participants. The MER is a factor, but more important is something called tracking error, which takes into account MER plus things like trading expenses plus revenue from securities lending. SPY (the few times I've checked) has a smaller tracking error than the MER. It's not much of a factor in pricing differences. ES is the price you'll pay today to get SPX delivered in the future (but settled in cash). You have to take into account dividends and interest, this is called fair value. You can find this usually every morning so you can compare what the futures are saying about the underlying index. http://www.cnbc.com/pre-markets/ The most likely difference is you're looking at different times of the day or different open/close calculations.\",\n \"The ETF price quoted on the stock exchange is in principle not referenced to NAV. The fund administrator will calculate and publish the NAV net of all fees, but the ETF price you see is determined by the market just like for any other security. Having said that, the market will not normally deviate greatly from the NAV of the fund, so you can safely assume that ETF quoted price is net of relevant fees.\",\n \"An investment trust is quoted just like a share. You just compare what you paid (your book cost) with its current share price, not the NAV, as a trust's price can be at a premium greater than the actual share price or a discount.\",\n \"Nobody tracks a single company's net assets on a daily basis, and stock prices are almost never derived directly from their assets (otherwise there would be no concept of 'growth stocks'). Stocks trade on the presumed current value of future positive cash flow, not on the value of their assets alone. Funds are totally different. They own nothing but stocks and are valued on the basis on the value of those stocks. (Commodity funds and closed funds muddy the picture somewhat, but basically a fund's only business is owning very liquid assets, not using their assets to produce wealth the way companies do.) A fund has no meaning other than the direct value of its assets. Even companies which own and exploit large assets, like resource companies, are far more complicated than funds: e.g. gold mining or oil extracting companies derive most of their value from their physical holdings, but those holdings value depends on the moving price and assumed future price of the commodity and also on the operations (efficiency of extraction etc.) Still different from a fund which only owns very liquid assets.\",\n \"\\\"This is typically referred to as the \\\"\\\"market value\\\"\\\" of your holdings--it is the revenue you would generate if you sold your holdings at that moment (less any transaction costs, of course)\\\"\",\n \"\\\"I like this explanation the best. EV is trying to get at the value of the underlying business, excluding the capital structure you currently have on the company. If your lemonade stand is worth $100, but the business also comes with $50 in cash lying around (and no debt), then the EV is $100. But the price you'd pay the owner (the \\\"\\\"market cap\\\"\\\") is $150, because it's like you get an immediate cash rebate.\\\"\",\n \"Maybe, I'm confused too...but I would have to disagree, the numbers wouldn't be the same. Also, they are not the same thing. * NOA = Operating assets - Operating Liabilities * IC = Equity + Debt Example: Company has $1000 Equity, $1000 Debt, $2000 Assets * Company's NOA is $1000 * Company's IC is $2000\",\n \"\\\"would constantly fluctuate and provide an indication of how well the market is doing. The index is there to tell if you made profit or loss by investing in the market. Using a pure total market cap will only tell you \\\"\\\"Did IPO activity exceed bankruptcy and privatization activity\\\"\\\".\\\"\",\n \"Shareholders are the equity holders. They mean the same thing. A simplified formula for the total value of a company is the value of its equity, plus the value of its debt, less its cash (for reasons I won't get into). There are usually other things to add or subtract, but that's the basic formula.\",\n \"It's sort of the sum of stock prices, but bigger companies are weighed more heavily.\",\n \"In the absence of a country designation where the mutual fund is registered, the question cannot be fully answered. For US mutual funds, the N.A.V per share is calculated each day after the close of the stock exchanges and all purchase and redemption requests received that day are transacted at this share price. So, the price of the mutual fund shares for April 2016 is not enough information: you need to specify the date more accurately. Your calculation of what you get from the mutual fund is incorrect because in the US, declared mutual fund dividends are net of the expense ratio. If the declared dividend is US$ 0.0451 per share, you get a cash payout of US$ 0.0451 for each share that you own: the expense ratio has already been subtracted before the declared dividend is calculated. The N.A.V. price of the mutual fund also falls by the amount of the per-share dividend (assuming that the price of all the fund assets (e.g. shares of stocks, bonds etc) does not change that day). Thus. if you have opted to re-invest your dividend in the same fund, your holding has the same value as before, but you own more shares of the mutual fund (which have a lower price per share). For exchange-traded funds, the rules are slightly different. In other jurisdictions, the rules might be different too.\",\n \"Suppose I purchase $10,000 worth of a particular share today. If the person(s) I am purchasing the shares from paid $9,000 for those shares, then I replacing their $9,000 investment with my $10,000 investment. This is a net inflow of $1,000 into the market. Similarly, if the person(s) I am purchasing the shares from paid $11,000 for those shares, then their $11,000 investment is being replace by my $10,000 investment. This is a net outflow of $1,000 out of the market. The aggregate of all such inflows and outflows in the net inflow/outflow into the market over a given period of time. (Here we are ignoring the effects of new share issues.)\",\n \"Are you trying to figure out if a project would increase the market value of equity? I think your issue is that the Market value of Equity will not be updated with the NPV of 40M (Assuming it is truly +, not sure if it's true with 50M of debt). EV = Market Value of Equity + Debt - Cash and CE Ev - Debt + Cash and CE = Market equity value. So I think you would have to update the market value of Equity up with 40M. This would then lead to EV = Equity Value + future income stream discounted + debt - Cash and Cash Equivalents.\",\n \"\\\"You are comparing \\\"\\\"market caps\\\"\\\" and \\\"\\\"enterprise value\\\"\\\". If the company has four billion dollars cash in the bank, then the value would be four billion plus whatever the business itself is worth as a business. If the business itself is only worth 400 million, then you would have 4.4bn market caps and 400 million enterprise value. The \\\"\\\"enterprise value\\\"\\\" is basically how much the business would be worth if it had no cash or no debt. These numbers would be a very unusual situation. It could happen for example if a big company has sold 90% of its business for cash. When you buy a share of the company, you get a tiny share of the business and you own a tiny share of the cash. This stock will very likely keep its value, but won't make much money. On the other hand, more common would be a company where the business is worth 4bn, but the company has also 4bn debt. So it is worth exactly zero. Market caps close to zero, but enterprise value $4bn, because you ignore the debt in the enterprise value. Edit: Sorry, got the \\\"\\\"enterprise value\\\"\\\" totally wrong, read millions instead of billions: Your numbers would mean that you have a huge, huge company with close to 440bn debt. Most likely someone made a mistake here. A \\\"\\\"normal\\\"\\\" situation would be say a company with a business that is worth $500 million, but they have $100 million debt, so market caps = $400 million but enterprise value = $500 million. PS. Yahoo has the same nonsense numbers on their UK site, and for other companies (I just checked Marks and Spencer's which apparently has an enterprise value of 800 billion pound with a totally ridiculous P/E ratio.\\\"\",\n \"IRR of an investment can give an idea as to the flexibility of the cash flows to absorb changes in the discount rate, whereas NPV may be positive because of an overly conservative discount rate; so you like to look at both along with other metrics to get a better idea. The profitability is in the difference between the investment's IRR and your cost of capital.\",\n \"In market cap weighted index there is fairly heavy concentration in the largest stocks. The top 10 stocks typically account for about 20% of the S&P 500 index. In Equal Weight this bias towards large caps is removed. The Market Cap method would be good when large stocks drive the markets. However if the markets are getting driven by Mid Caps and Small caps, the equal weight wins. Historically most big companies start out small and grow big fast in a short span of time. Thus if we were to do Market cap one would have purchased smaller number of shares of the said company as its cap/weight would have been small and when it becomes big we would have purchased the shares at a higher price. However if we were to do equal weight, then as the company grows big one would have more share at a cheaper price and would result in better returns. There is a nice article on this, also gives the comparision of the returns over a period of 10 years, where equal weight index has done good. It does not mean that it would continue. http://www.investopedia.com/articles/exchangetradedfunds/08/index-debate.asp#axzz1RRDCnFre\",\n \"After searching a bit and talking to some investment advisors in India I got below information. So thought of posting it so that others can get benefited. This is specific to indian mutual funds, not sure whether this is same for other markets. Even currency used for examples is also indian rupee. A mutual fund generally offers two schemes: dividend and growth. The dividend option does not re-invest the profits made by the fund though its investments. Instead, it is given to the investor from time to time. In the growth scheme, all profits made by the fund are ploughed back into the scheme. This causes the NAV to rise over time. The impact on the NAV The NAV of the growth option will always be higher than that of the dividend option because money is going back into the scheme and not given to investors. How does this impact us? We don't gain or lose per se by selecting any one scheme. Either we make the choice to get the money regularly (dividend) or at one go (growth). If we choose the growth option, we can make money by selling the units at a high NAV at a later date. If we choose the dividend option, we will get the money time and again as well as avail of a higher NAV (though the NAV here is not as high as that of a growth option). Say there is a fund with an NAV of Rs 18. It declares a dividend of 20%. This means it will pay 20% of the face value. The face value of a mutual fund unit is 10 (its NAV in this case is 18). So it will give us Rs 2 per unit. If we own 1,000 units of the fund, we will get Rs 2,000. Since it has paid Rs 2 per unit, the NAV will fall from Rs 18 to Rs 16. If we invest in the growth option, we can sell the units for Rs 18. If we invest in the dividend option, we can sell the units for Rs 16, since we already made a profit of Rs 2 per unit earlier. What we must know about dividends The dividend is not guaranteed. If a fund declared dividends twice last year, it does not mean it will do so again this year. We could get a dividend just once or we might not even get it this year. Remember, though, declaring a dividend is solely at the fund's discretion; the periodicity is not certain nor is the amount fixed.\",\n \"In order to calculate the ratio you are looking for, just divide total debt by the market capitalization of the stock. Both values can be found on the link you provided. The market capitalization is the market value of equity.\",\n \"This idea does not make sense for most mutual funds. The net asset value, or NAV, is the current market value of a fund's holdings, minus the fund's liabilities, that is usually expressed as a per-share amount. For most funds, the NAV is determined daily, after the close of trading on some specified financial exchange, but some funds update their NAV multiple times during the trading day. http://en.wikipedia.org/wiki/Mutual_fund I am not certain, but I believe that OppenheimerFunds does not report intraday prices. I would call them up and ask.\",\n \"How you use the metric is super important. Because it subtracts cash, it does not represent 'value'. It represents the ongoing financing that will be necessary if both the equity plus debt is bought by one person, who then pays himself a dividend with that free cash. So if you are Private Equity, this measures your net investment at t=0.5, not the price you pay at t=0. If you are a retail investor, who a) won't be buying the debt, b) won't have any control over things like tax jurisdictions, c) won't be receiving any cash dividend, etc etc .... the metric is pointless.\",\n \"\\\"The pros and cons of investing in a closed end fund both stem from the fact that the price per share is likely to differ from the net asset value (NAV) of the underlying assets. That could work to your advantage if the fund is selling for LESS than NAV, or at a discount. Then you get the \\\"\\\"benefit of the bargain\\\"\\\" and hope to sell the shares in the future for \\\"\\\"par\\\"\\\" or even a premium (MORE than NAV). On the other hand, if you buy such a fund at a premium, you stand to have a RELATIVE loss if the value of the fund goes back to par (or a discount) compared to NAV. That's because a closed end fund has a FIXED number of shares, with the assets continually being reinvested. In essence, you are \\\"\\\"buying out\\\"\\\" an existing shareholder of the fund at a price determined by supply and demand. This differs from an OPEN end fund, in which your contribution creates NEW shares (all other things being equal). Then the fund, has to invest YOUR money (and charges you a fee for the service) on exactly a pro rata basis with other investors in the fund, meaning that you will enter and exit such a fund at \\\"\\\"par.\\\"\\\" In either case, your return depends mainly on the performance of the underlying assets. But there are premium/discount issues for investing in a closed end fund.\\\"\",\n \"Aside of the other (mostly valid) answers, share price is the most common method of valuating the company. Here is a bogus example that will help you understand the general point: Now, suppose that Company A wants to borrow $20 Million from a bank... Not a chance. Company B? Not a problem. Same situation when trying to raise new funds for the market or when trying to sell the company or to acquire another\",\n \"The market cap always reflect the company's equity. Except that you cannot fix a stock price in a free market. A company with such profit pattern would have stock price behave like present value of a perpetuity (future income stream discounted by risk free rate) Since your assumption is unachievable, there is no point in determining the logic.\",\n \"The Creation/Redemption mechanism is how shares of an ETF are created or redeemed as needed and thus is where there can be differences in what the value of the holdings can be versus the trading price. If the ETF is thinly traded, then the difference could be big as more volume would be where the mechanism could kick in as generally there are blocks required so the mechanism usually created or redeemed in lots of 50,000 shares I believe. From the link where AP=Authorized Participant: With ETFs, APs do most of the buying and selling. When APs sense demand for additional shares of an ETF—which manifests itself when the ETF share price trades at a premium to its NAV—they go into the market and create new shares. When the APs sense demand from investors looking to redeem—which manifests itself when the ETF share price trades at a discount—they process redemptions. So, suppose the NAV of the ETF is $20/share and the trading price is $30/share. The AP can buy the underlying securities for $20/share in a bulk order that equates to 50,000 shares of the ETF and exchange the underlying shares for new shares in the ETF. Then the AP can turn around and sell those new ETF shares for $30/share and pocket the gain. If you switch the prices around, the AP would then take the ETF shares and exchange them for the underlying securities in the same way and make a profit on the difference. SEC also notes this same process.\",\n \"You can follow the intra-day NAV of an ETF, for instance SPY, by viewing its .IV (intra-day value) ticker which tracks it's value. http://finance.yahoo.com/q?s=spy http://finance.yahoo.com/q?s=^SPY-IV Otherwise, each ETF provider will update their NAV after business each day on their own website. https://www.spdrs.com/product/fund.seam?ticker=spy\",\n \"Both of these terms do refer to your profit; they're just different ways of evaluating it. First, your definition of capitalization rate is flipped. As explained here, it should be: On the other hand, as explained here: So cap rate is like a reverse unit cost approach to comparing two investments. If house A costs $1M and you'll make $50K (profit) from it yearly, and house B costs $1.33M and you'll make $65K (profit) from it yearly, then you can compute cap rates to see that A is a more efficient investment from the point of view of income vs. amount-of-money-you-have-stuck-in-this-investment-and-unavailable-for-use-elsewhere. Profit margin, on the other hand, cares more about your ongoing expenses than about your total investment. If it costs less to maintain property B than it does to maintain property A, then you could have something like: So B is a more efficient investment from the point of view of the fraction of your revenue you actually get to keep each year. Certainly you could think of the property's value as an opportunity cost and factor that into the net profit margin equation to get a more robust estimate of exactly how efficient your investment is. You can keep piling more factors into the equation until you've accounted for every possible facet of your investment. This is what accountants and economists spend their days doing. :-)\",\n \"\\\"Capitalization rate and \\\"\\\"Net Profit margin\\\"\\\" are two different things. In Capitalization rate note that we are taking the \\\"\\\"total value\\\"\\\" in the denominator and in Net profit margin we are taking \\\"\\\"Revenue/Sales\\\"\\\". Capitalization Rate: Capitalization Rate = Yearly Income/Total Value For example (from Investopedia: ) if Stephane buys a property that will generate $125,000 per year and he pays $900,000 for it, the cap rate is: 125,000/900,000 = 13.89%. Net Profit margin: Net Profit margin = Net Profit/Revenue For example (from finance formulas): A company's income statement shows a net income of $1 million and operating revenues of $25 million. By applying the formula, $1 million divided by $25 million would result in a net profit margin of 4%. Although the formula is simplistic, applying the concept is important in that 4% of sales will result in after tax profit.\\\"\",\n \"1. BRK.A is a listed Co so it doesnt face redemption problems on its funds. 2. BRK.A is a listed Co, so the valuation of its holdings is depending on its own auditor w/ little scrutiny, aka, it mark could be more flexible and doesn't hurt its asset book.\",\n \"Because it's a good indicator of how much their asset worth. In oversimplified example, wouldn't you care how much your house, car, laptop worth? Over the course of your life you might need to buy a bigger house, sell your car etc. to cope with your financial goal / situation. It's similar in company's case but with much more complexity.\",\n \"You do realize that the fund will have management expenses that are likely already factored into the NAV and that when you sell, the NAV will not yet be known, right? There are often fees to run a mutual fund that may be taken as part of managing the fund that are already factored into the Net Asset Value(NAV) of the shares that would be my caution as well as possible fee changes as Dilip Sarwate notes in a comment. Expense ratios are standard for mutual funds, yes. Individual stocks that represent corporations not structured as a mutual fund don't declare a ratio of how much are their costs, e.g. Apple or Google may well invest in numerous other companies but the costs of making those investments won't be well detailed though these companies do have non-investment operations of course. Don't forget to read the fund's prospectus as sometimes a fund will have other fees like account maintenance fees that may be taken out of distributions as well as being aware of how taxes will be handled as you don't specify what kind of account these purchases are being done using.\",\n \"Sure let's say we're starting with the equity value of a public company. Fully diluted shares times market price. We add debt and subtract all cash to give us enterprise value. Calculate a multiple on that. Look what we did up there, we subtracted out all cash. The DCF approach assumes we have an operating level of cash when it calculates a value. You're saying that the DCF spits out an enterprise value. It cannot be an enterprise value if the DCF approach assumes we hold cash. We would have to subtract out an operating level of cash from the DCF concluded value to compare it apples to apples to the cashless enterprise values we derived from the market approach multiples.\",\n \"Sorry, I got even more confused. I assumed IC referred to equity only. At least under English accounting practice it's the norm to refer only to equity investment as capital in that context. The debt is listed as both an asset (cash or whatever asset the cash has been put towards) and a liability, cancelling it out. That being the case, the number would be the same, no?\",\n \"\\\"The value of a stock ultimately is related to the valuation of a corporation. As part of the valuation, you can estimate the cash flows (discounted to present time) of the expected cash flows from owning a share. This stock value is the so-called \\\"\\\"fundamental\\\"\\\" value of a stock. What you are really asking is, how is the stock's market price and the fundamental value related? And by asking this, you have implicitly assumed they are not the same. The reason that the fundamental value and market price can diverge is that simply, most shareholders will not continue holding the stock for the lifespan of a company (indeed some companies have been around for centuries). This means that without dividends or buybacks or liquidations or mergers/acquisitions, a typical shareholder cannot reasonably expect to recoup their share of the company's equity. In this case, the chief price driver is the aggregate expectation of buyers and sellers in the marketplace, not fundamental evaluation of the company's balance sheet. Now obviously some expectations are based on fundamentals and expert opinions can differ, but even when all the experts agree roughly on the numbers, it may be that the market price is quite a ways away from their estimates. An interesting example is given in this survey of behavioral finance. It concerns Palm, a wholly-owned subsidiary of 3Com. When Palm went public, its shares went for such a high price, they were significantly higher than 3Com's shares. This mispricing persisted for several weeks. Note that this facet of pricing is often given short shrift in standard explanations of the stock market. It seems despite decades of academic research (and Nobel prizes being handed out to behavioral economists), the knowledge has been slow to trickle down to laymen, although any observant person will realize something is amiss with the standard explanations. For example, before 2012, the last time Apple paid out dividends was 1995. Are we really to believe that people were pumping up Apple's stock price from 1995 to 2012 because they were waiting for dividends, or hoping for a merger or liquidation? It doesn't seem plausible to me, especially since after Apple announced dividends that year, Apple stock ended up taking a deep dive, despite Wall Street analysts stating the company was doing better than ever. That the stock price reflects expectations of the future cash flows from the stock is a thinly-disguised form of the Efficient Market Hypothesis (EMH), and there's a lot of evidence contrary to the EMH (see references in the previously-linked survey). If you believe what happened in Apple's case was just a rational re-evaluation of Apple stock, then I think you must be a hard-core EMH advocate. Basically (and this is elaborated at length in the survey above), fundamentals and market pricing can become decoupled. This is because there are frictions in the marketplace making it difficult for people to take advantage of the mispricing. In some cases, this can go on for extended periods of time, possibly even years. Part of the friction is caused by strong beliefs by market participants which can often shift pressure to supply or demand. Two popular sayings on Wall Street are, \\\"\\\"It doesn't matter if you're right. You have to be right at the right time.\\\"\\\" and \\\"\\\"It doesn't matter if you're right, if the market disagrees with you.\\\"\\\" They suggest that you can make the right decision with where to put your money, but being \\\"\\\"right\\\"\\\" isn't what drives prices. The market does what it does, and it's subject to the whims of its participants.\\\"\",\n \"\\\"The goal is to understand the movements of the market as a whole and understand the fortunes of every investor in the S&P. As for why it isn't price-weighted, it is because price is a complely arbitrary notion, whereas market cap is at least \\\"\\\"real\\\"\\\" in some sense. Imagine Berkshire Hathaway vs Apple. In the S&P, Apple takes up about 75% more of the index because it's market cap is 796B, compared to 452B for Berkshire. This makes intuitive sense. Apple is \\\"\\\"worth\\\"\\\" 75% more, so it takes up that much more of the index. Now lets look at price. In a price weighted index of only those two stocks, Apple, with a stock price of 154.12 would take up .06% compared to Berkshire Hathaway at 99.94% due to its 274,740 stock price. The only difference is Apple has WAY more shares outstanding. Nothing of economic value (other than a bit of liquidity) is captured in a price-weighted index.\\\"\",\n \"Close-end funds just means there's a fixed number of shares available, so if you want to buy some you must purchase from other existing owners, typically through an exchange. Open-end funds mean the company providing the shares is still selling them, so you can buy them directly from the company. Some can also be traded on exchanges as well.\",\n \"Difference between a limit and market order is largely a trade-off between price certainty and timing certainty. If you think the security is already well priced, the downside of a limit order is the price may never hit your limit and keep trading away from you. You'll either spend a lot of time amending your order or sitting around wishing you'd amended your order. The downside of a market order is you don't know the execution price ahead of time. This is typically more of a issue with illiquid instruments where even smaller orders may have price impact. For small trades in more liquid securities your realized price will often resemble the last traded price. Hope that helps. Both have a purpose, and the best tool for the job will depend on your circumstances.\",\n \"Like others have said, mutual funds don't have an intraday NAV, but their ETF equivalents do. Use something like Yahoo Finance and search for the ETF.IV. For example VOO.IV. This will give you not the ETF price (which may be at a premium or discount), but the value of the underlying securities updated every 15 seconds.\",\n \"The definition of market cap is exactly shares oustanding * share price, so something is wrong here. It seems that the share price is expressed in pence rather pounds. There's a note at the bottom: Currency in GBp. Note the 'p' rather than 'P'. So the share price of '544' is actually 544p, i.e. £5.44. However it's not really clear just from the annotations which figures are in pence and which are actually in pounds. It seems that the market cap is in pounds but the enterprise value is in pence, given that 4.37 billion is about the right value in pounds whereas 441 billion only really makes sense if expressed in pence. It looks like they actually got the enterprise value wrong by a factor of 100. Perhaps their calculation treated the share price as being denominated in pounds rather than pence.\",\n \"\\\"The tricky part is that it's NAV is quite high these days, almost close to its 52 week high You will find, if you look historically, most markets are often close to their 52 week or even historical highs. This is an important consideration. \\\"\\\"The markets are at their all-time high!\\\"\\\" has been true a large percentage of the past decades. Everyone wants to buy low, sell high. But the reality is, buying low often will be \\\"\\\"buying at close to the highest point\\\"\\\" as no one has a crystal ball.\\\"\",\n \"You, like DailyFail, don't understand why mentioning market cap and then comparing nothing more than current share prices is nonsense. That's without getting into the many ways the person you quoted and the foundation of his economic opinions are ridiculous.\",\n \"I strongly suggest you go to www.investor.gov as it has excellent information regarding these types of questions. A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents an investor’s part ownership in the fund and the income it generates. When you buy shares of a mutual fund you're buying it at NAV, or net asset value. The NAV is the value of the fund’s assets minus its liabilities. SEC rules require funds to calculate the NAV at least once daily. Different funds may own thousands of different stocks. In order to calculate the NAV, the fund company must value every security it owns. Since each security's valuation is changing throughout the day it's difficult to determine the valuation of the mutual fund except for when the market is closed. Once the market has closed (4pm eastern) and securities are no longer trading, the company must get accurate valuations for every security and perform the valuation calculations and distribute the results to the pricing vendors. This has to be done by 6pm eastern. This is a difficult and, more importantly, a time consuming process to get it done right once per day. Having worked for several fund companies I can tell you there are many days where companies are getting this done at the very last minute. When you place a buy or sell order for a mutual fund it doesn't matter what time you placed it as long as you entered it before 4pm ET. Cutoff times may be earlier depending on who you're placing the order with. If companies had to price their funds more frequently, they would undoubtedly raise their fees.\",\n \"The Paragraph talks about dividends given by Mutual Funds. Say a fund has NAV of $ 10, as the value of the underlying security grows, the value of the fund would also grow, lets say it becomes $ 12 in 2 months. Now if the Mutual Fund decides to pay out a dividend of $ 1 to all unit holder, then post the distribution of dividend, the value of the Fund would become to $ 11. Thus if you are say investing on 1-April and know that dividends of $1 would be paid on 5-April [the divided distribution date is published typically weeks in advance], if you are hoping to make $1 in 5 days, that is not going to happen. On 6-April you would get $1, but the value of the fund would now be $11 from the earlier $12. This may not be wise as in some countries you would ending up paying tax on $1. Even in shares, the concept is similar, however the price may get corrected immediately and one may not actually see it going down by $1 due to market dynamics.\",\n \"\\\"It makes sense if the NPV is positive. But what rate should you use at determining the NPV? A textbook might say \\\"\\\"market rate\\\"\\\".... and by definition the market rate to use in bond calculations like yours will mean that your NPV will be zero. How can this be? Well it's a bit of a circular definition. You take less capital to earn a higher return. The value of your capital spread over the period of the bond's maturity is the net difference... but the money in your pocket from selling the bond and not purchasing also has value. Banks and traders do this exact swap every day, many many times. The rate at which you can execute this swap is what defines the market rate. Therefore, by definition, the NPV will be zero. Now, this doesn't mean it's a bad idea for you. You can, on your own accord, decide the value you place on the capital versus the yield and make the decision. Do you expect rates to rise or fall? Do you expect higher or lower inflation? In reality you can form whatever opinion you like for your own circumstance, but the market is the net aggregation of formative opinion. You only get to decide whether or not you agree with the market.\\\"\",\n \"NYSE and Nasdaq are secondary markets where stocks are bought or sold. The process of creating new stocks via IPO or private placements etc are called Private Market.\",\n \"\\\"Just to clarify, In wikipedia when it says It is defined as a market in which money is provided for periods longer than a year They are referring to the company which is asking for money. So for example the stock market provides money to the issuing company of an IPO, indefinitely. Meaning the company that just went public is provided with money for a period longer than a year. The definition in Investopedia basically says the same thing Wikipedia does it is just phrased slightly different and leaves out the \\\"\\\"for periods longer than a year\\\"\\\". For example Wikipedia uses the term \\\"\\\"business enterprises\\\"\\\" and \\\"\\\"governments\\\"\\\" while Investopedia uses the term private sector and public sector, in this context \\\"\\\"business enterprise\\\"\\\" is \\\"\\\"private sector\\\"\\\" and \\\"\\\"governments\\\"\\\" is \\\"\\\"public sector\\\"\\\" So in the sense of the length debt is issued yes, money market would be the opposite of a capital market but both markets still offer a place for governments and companies to raise money and both are classified as financial markets.\\\"\",\n \"\\\"In the case of mutual funds, Net Asset Value (NAV) is the price used to buy and sell shares. NAV is just the value of the underlying assets (which are in turn valued by their underlying holdings and future earnings). So if a fund hands out a billion dollars, it stands to reason their NAV*shares (market cap?) is a billion dollars less. Shareholder's net worth is equal in either scenario, but after the dividend is paid they are more liquid. For people who need investment income to live on, dividends are a cheap way to hold stocks and get regular payments, versus having to sell part of your portfolio every month. But for people who want to hold their investment in the market for a long long time, dividends only increase the rate at which you have to buy. For mutual funds this isn't a problem: you buy the funds and tell them to reinvest for free. So because of that, it's a prohibited practice to \\\"\\\"sell\\\"\\\" dividends to clients.\\\"\",\n \"\\\"As some others have pointed out, it's key to remember the difference in market value and accounting value. To simplify things, book value is the only item that specifically depreciates... it happens in the world of accounting to try to time \\\"\\\"when did I use a long term asset?\\\"\\\" with \\\"\\\"when did I obtain value from that asset?\\\"\\\" For a house, governments usually allow owners to claim depreciation of the building over a set period of time. This does not affect your resale value of the house. Similarly, for a commercial property, governments set laws for how an individual or a company can time the \\\"\\\"use\\\"\\\" of that asset vs. their accounting. Some companies can have totally depreciated (\\\"\\\"zero cost\\\"\\\") assets that are still very productive. Market Property values are derived from 3 specific sources: Value in Trade is an estimate of the value that others would be willing to pay for a similar asset. That's why you can buy a house today, and in a \\\"\\\"normal\\\"\\\" market, the same house should be worth a similar amount of money in the future. Value in Use can be more interesting... this is where a farmer can extract $100,000 in value per year from 10 acres of land. But as a region develops, a manufacturing company can generate $300,000 per year from the same 10 acres of land. The company can buy out the farmer at a 'fair' price (>$100,000 per year) and still net positive from the investment. Income Approach tends to be focused on properties that have a cash flow, but can be adapted to other property estimates. It evaluates the current \\\"\\\"business case\\\"\\\" for any property with the cost of money down, the overall investment price, and the expected value from any returns. Remember, the market value is very simply, the price you could obtain if you sold the asset at a given time. It is rarely considered in terms of \\\"\\\"how much will this go down?\\\"\\\". Book value is an accounting exercise and declines by a set amount every year, because it means you can estimate the \\\"\\\"cost\\\"\\\" of owning an asset vs the value it generates in a particular time period.\\\"\",\n \"If you want to go far upstream, you can get mutual fund NAV and dividend data from the Nasdaq Mutual Fund Quotation Service (MFQS). This isn't for end-users but rather is offered as a part of the regulatory framework. Not surprisingly, there is a fee for data access. From Nasdaq's MFQS specifications page: To promote market transparency, Nasdaq operates the Mutual Fund Quotation Service (MFQS). MFQS is designed to facilitate the collection and dissemination of daily price, dividends and capital distributions data for mutual funds, money market funds, unit investment trusts (UITs), annuities and structured products.\",\n \"\\\"A company's valuation includes its assets, in addition to projected earnings. Aside from the obvious issue that \\\"\\\"projected earnings\\\"\\\" can be wildly inaccurate or speculative (as in the case of startups and fast-moving industries like technology), a company's assets are not necessarily tied to the market the company is in. For the sake of illustration, say the government were to ban fast food tomorrow, and the market for that were to go all the way to zero. McDonald's would still have almost 30 billion dollars worth of real estate holdings that would surely make the company worth something, even though it would have to stop selling its products. Similarly, Apple is sitting on approximately $200 billion dollars in cash and securities in overseas subsidiaries. Even if they never make another cent selling iPhones and such, the company is still worth a lot because of those holdings. \\\"\\\"Corporate raiders\\\"\\\" back in the 70's and 80's made massive personal fortunes exploiting this disconnect in undervalued companies that had more assets than their market cap, by getting enough ownership to liquidate the company's assets. Oliver Stone even made a movie about the phenomenon. So yes, it's certainly possible for a company to be worth more than the size of the market for its products.\\\"\",\n \"It's an SEC standard for certain items. It is NOT indicative of fair market value. It could be useful to compare companies to each other, but again, would not indicate intrinsic value. Does it make sense, for example, to discount Saudi Aramco at the same exact rate as BP or Exxon?\",\n \"\\\"Asset management typically refers to the \\\"\\\"product\\\"\\\" group e.g. Mutual fund, etf, etc., like invesco offering qqq or some emerging market mutual fund. Capital management is more vague and can refer to a wide range of financial products and services including asset management and stuff like ptfl planning, wealth advisory etc. That said they are both used interchangeably and not like anyone would correct you if you used one vs the other...\\\"\",\n \"Would bond holders differentiate in their EV/EBITDA calcs when compared to equity holders when valuing a private company? For e.g. when it comes to a company that has built a power plant, generally equity holders would take an additional haircut/discount for the lack of marketability. Would debt holders do the same? Would there be a higher valuation otherwise?\",\n \"\\\"Short answer: google finance's market cap calculation is nonstandard (a.k.a. wrong). The standard way of computing the market capitalization of a firm is to take the price of its common stock and multiply by the number of outstanding common stock shares. If you do this using the numbers from google's site you get around $13.4B. This can be verified by going to other sites like yahoo finance and bloomberg, which have the correct market capitalization already computed. The Whole Foods acquisition appears to be very cut-and-dry. Investors will be compensated with $42 cash per share. Why are google finance's numbers wrong for market cap? Sometimes people will add other things to \\\"\\\"market capitalization,\\\"\\\" like the value of the firm's debt and other debt-like securities. My guess is that google has done something like this. Whole Foods has just over $3B in total liabilities, which is around the size of the discrepancy you have found.\\\"\",\n \"It's been awhile since my last finance course, so school me here: What is the market cap of a company actually supposed to represent? I get that it's the stock price X the # of shares, but what is that actually representing? Revenues? PV of all future revenues? PV of future cash flows? In any case, good write up. Valuation of tech stocks is quite the gambit, and you've done a good job of dissecting it for a layman.\",\n \"\\\"From How are indexes weighted?: Market-capitalization weighted indexes (or market cap- or cap-weighted indexes) weight their securities by market value as measured by capitalization: that is, current security price * outstanding shares. The vast majority of equity indexes today are cap-weighted, including the S&P 500 and the FTSE 100. In a cap-weighted index, changes in the market value of larger securities move the index’s overall trajectory more than those of smaller ones. If the fund you are referencing is an ETF then there may be some work to do to figure out what underlying securities to use when handling Creation and Redemption units as an ETF will generally have shares created in 50,000 shares at a time through Authorized Participants. If the fund you are referencing is an open-end fund then there is still cash flows to manage in the fund as the fund has create and redeem shares in on a daily basis. Note in both cases that there can be updates to an index such as quarterly rebalancing of outstanding share counts, changes in members because of mergers, acquisitions or spin-offs and possibly a few other factors. How to Beat the Benchmark has a piece that may also be useful here for those indices with many members from 1998: As you can see, its TE is also persistently positive, but if anything seems to be declining over time. In fact, the average net TE for the whole period is +0.155% per month, or an astounding +1.88% pa net after expenses. The fund expense ratio is 0.61% annually, for a whopping before expense TE of +2.5% annually. This is once again highly statistically significant, with p values of 0.015 after expenses and 0.0022 before expenses. (The SD of the TE is higher for DFSCX than for NAESX, lowering its degree of statistical significance.) It is remarkable enough for any fund to beat its benchmark by 2.5% annually over 17 years, but it is downright eerie to see this done by an index fund. To complete the picture, since 1992 the Vanguard Extended Index Fund has beaten its benchmark (the Wilshire 4500) by 0.56% per year after expenses (0.81% net of expenses), and even the Vanguard Index Trust 500 has beaten its benchmark by a razor thin 0.08% annually before (but not after) expenses in the same period. So what is going on here? A hint is found in DFA's 1996 Reference Guide: The 9-10 Portfolio captures the return behavior of U.S. small company stocks as identified by Rolf Banz and other academic researchers. Dimensional employs a \\\"\\\"patient buyer\\\"\\\" discount block trading strategy which has resulted in negative total trading costs, despite the poor liquidity of small company stocks. Beginning in 1982, Ibbotson Associates of Chicago has used the 9-10 Portfolio results to calculate the performance of small company stocks for their Stocks, Bonds, Bills, and Inflation yearbook. A small cap index fund cannot possibly own all of the thousands of stocks in its benchmark; instead it owns a \\\"\\\"representative sample.\\\"\\\" Further, these stocks are usually thinly traded, with wide bid/ask spreads. In essence what the folks at DFA learned was that they could tell the market makers in these stocks, \\\"\\\"Look old chaps, we don't have to own your stock, and unless you let us inside your spread, we'll pitch our tents elsewhere. Further, we're prepared to wait until a motivated seller wishes to unload a large block.\\\"\\\" In a sense, this gives the fund the luxury of picking and choosing stocks at prices more favorable than generally available. Hence, higher long term returns. It appears that Vanguard did not tumble onto this until a decade later, but tumble they did. To complete the picture, this strategy works best in the thinnest markets, so the excess returns are greatest in the smallest stocks, which is why the positive TE is greatest for the DFA 9-10 Fund, less in the Vanguard Small Cap Fund, less still in the Vanguard Index Extended Fund, and minuscule with the S&P500. There are some who say the biggest joke in the world of finance is the idea of value added active management. If so, then the punch line seems to be this: If you really want to beat the indexes, then you gotta buy an index fund.\\\"\",\n \"Mutual funds are funds composed of financial assets and the funds of investors, and are managed by a firm, usually a large wealth management firm. They are generally accessible to anyone. Hedge funds are private investment funds with limited access, and are subject to fewer regulations. They are usually legally set up as their own firm.\",\n \"Adding assets (equity) and liabilities (debt) never gives you anything useful. The value of a company is its assets (including equity) minus its liabilities (including debt). However this is a purely theoretical calculation. In the real world things are much more complicated, and this isn't going to give you a good idea of much a company's shares are worth in the real world\",\n \"While there are many very good and detailed answers to this question, there is one key term from finance that none of them used and that is Net Present Value. While this is a term generally associate with debt and assets, it also can be applied to the valuation models of a company's share price. The price of the share of a stock in a company represents the Net Present Value of all future cash flows of that company divided by the total number of shares outstanding. This is also the reason behind why the payment of dividends will cause the share price valuation to be less than its valuation if the company did not pay a dividend. That/those future outflows are factored into the NPV calculation, actually performed or implied, and results in a current valuation that is less than it would have been had that capital been retained. Unlike with a fixed income security, or even a variable rate debenture, it is difficult to predict what the future cashflows of a company will be, and how investors chose to value things as intangible as brand recognition, market penetration, and executive competence are often far more subjective that using 10 year libor rates to plug into a present value calculation for a floating rate bond of similar tenor. Opinion enters into the calculus and this is why you end up having a greater degree of price variance than you see in the fixed income markets. You have had situations where companies such as Amazon.com, Google, and Facebook had highly valued shares before they they ever posted a profit. That is because the analysis of the value of their intellectual properties or business models would, overtime provide a future value that was equivalent to their stock price at that time.\",\n \"Everything would depend on whether the calculation is being done using the company's all-time high intraday trading price or all-time high closing price. Further, I've seen calculations using non-public pricing data, such as bid-offer numbers from market makers, although this wouldn't be kosher. The likelihood is that you're seeing numbers that were calculated using different points in time. For the record, I think Apple has overtaken Microsoft's all-time highest market cap with a figure somewhere north of $700 billion (nominal). Here's an interesting article link on the subject of highest-ever valuations: comparison of highest market caps ever\",\n \"For the lazy, Wikipedia says: The term microcap stock (also micro-cap) refers to the stock of public companies in the United States which have a market capitalization of roughly $300 million or less. The shares of companies with a market capitalization of less than $50 million are typically referred to as nano-cap stocks. Many micro-cap and nano-cap stocks are traded over-the-counter with their prices quoted on the OTCBB or the Pink Sheets. A few of the larger, more established microcaps are listed on the NASDAQ Capital Market or American Stock Exchange (AMEX). Micro-cap and especially nano-cap stocks are notorious for their volatility. A high percentage of these companies fail to execute their business plans and go out of business. Fraud and market manipulation are not uncommon, and the transactions costs in trading can be quite high. Pricing is more likely to be inefficient, since fewer institutional investors and analysts operate in this space, due to the relatively small dollar amounts involved and the lack of liquidity.\",\n \"It is ALWAYS possible for a company's valuation in the market to be larger than the market it serves, and in fact it is not uncommon. There's valid argument that Uber would be a good example of this, with a market cap of more than $60 billion. Market cap is the total value of all shares outstanding. Keep in mind that what a company's shares trade for is less a reflection of its past (or, to some degree, even present) revenue activity and more of a speculative bet on what the company will do in the future.\",\n \"A general mutual fund's exact holdings are not known on a day-to-day basis, and so technical tools must work with inexact data. Furthermore, the mutual fund shares' NAV depends on lots of different shares that it holds, and the results of the kinds of analyses that one can do for a single stock must be commingled to produce something analogous for the fund's NAV. In other words, there is plenty of shooting in the dark going on. That being said, there are plenty of people who claim to do such analyses and will gladly sell you their results (actually, Buy, Hold, Sell recommendations) for whole fund families (e.g. Vanguard) in the form of a monthly or weekly Newsletter delivered by US Mail (in the old days) or electronically (nowadays). Some people who subscribe to such newsletters swear by them, while others swear at them and don't renew their subscriptions; YMMV.\",\n \"\\\"You'll generally get a number close to market cap of a mature company if you divide profits (or more accurately its free cash flow to equity) by the cost of equity which is usually something like ~7%. The value is meant to represent the amount of cash you'd need to generate investment income off it matching the company you're looking at. Imagine it as asking \\\"\\\"How much money do I need to put into the bank so that my interest income would match the profits of the company I'm looking at\\\"\\\". Except replace the bank with the market and other forms of investments that generate higher returns of course and that value would be lower.\\\"\",\n \"None of the above. The fair value is a term used to describe an analytical result of projecting the company's future dividends and profits into a present value. Such estimates are published by the likes of Morningstar, S&P and Value Line. It is quite common for a stock to trade well above or below such estimated fair values.\",\n \"Fund performance at NAV (%) for latest quarter, YTD, and average annual total returns for 1, 3, 5, 10 years. P/E ratio (1 yr. forecast), P/B ratio, Beta, Sharpe ratio, Wtd. avg. market cap, fund assets. I guess I would want to calculate all these things based off of the data that I would be working with. I will assume I am working with daily fund values per share over 10+ years.\",\n \"It seems like you want to compare the company's values not necessarily the stock price. Why not get the total outstanding shares and the stock price, generate the market cap. Then you could compare changes to market cap rather than just share price.\",\n \"You can find this in the annual report. Preferred value is not the same as common value.\",\n \"Simply put, expansionary capex is seen as an investment and maintenance capex is seen as a cost. In terms of valuation, free cash flow will not include expansionary capex because you are valuing the company as its current business. It's important to note that this approach will usually undervalue companies with strong investment opportunities. Also, like /u/scarletham said, please edit out the identifying information to avoid any disclosure problems.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"At any given moment, one can tally the numbers used for NAV. It's math, and little more. The Market Cap, which as you understand is a result of share value. Share value (stock price) is what the market will pay today for the shares. It's not only based on NAV today, but on future expectations. And expectations aren't the same for each of us. Which is why there are always sellers for the buyers of a stock, and vice-versa. From your question, we agree that NAV can be measured, it's the result of adding up things that are all known. (For now, let's ignore things such as \"\"goodwill.\"\") Rarely is a stock price simply equal to the NAV divided by the number of shares. Often, it's quite higher. The simplest way to look at it is that the stock price not only reflects the NAV, but investors' expectations looking into the future. If you look for two companies with identical NAV per share but quite different share prices, you'll see that the companies differ in that one might be a high growth company, the other, a solid one but with a market that's not in such a growth mode.\"","NAV is how much is the stuff of the company worth divided by the number of shares. This total is also called book value. The market cap is share price times number of shares. For Amazon today people are willing to pay 290 a share for a company with a NAV of 22 a share. If of nav and price were equal the P/B (price to book ratio) would be 1, but for Amazon it is 13. Why? Because investors believe Amazon is worth a lot more than a money losing company with a NAV of 22.","\"I think the key concept here is future value. The NAV is essentially a book-keeping exercise- you add up all the assets and remove all the liabilities. For a public company this is spelled out in the balance sheet, and is generally listed at the bottom. I pulled a recent one from Cisco Systems (because I used to work there and know the numbers ;-) and you can see it here: roughly $56 billion... https://finance.yahoo.com/q/bs?s=CSCO+Balance+Sheet&annual Another way to think about it: In theory (and we know about this, right?) the NAV is what you would get if you liquidated the company instantaneously. A definition I like to use for market cap is \"\"the current assets, plus the perceived present value of all future earnings for the company\"\"... so let's dissect that a little. The term \"\"present value\"\" is really important, because a million dollars today is worth more than a million dollars next year. A company expected to make a lot of money soon will be worth more (i.e. a higher market cap) than a company expected to make the same amount of money, but later. The \"\"all future earnings\"\" part is exactly what it sounds like. So again, following our cisco example, the current market cap is ~142 billion, which means that \"\"the market\"\" thinks they will earn about $85 billion over the life of the company (in present day dollars).\"","\"Market caps is just the share price, multiplied by the number of shares. It doesn't represent any value (if people decide to pay more or less for the shares, the market cap goes up or down). It does represent what people think the company is worth. NAV sounds very much like book value. It basically says \"\"how much cash would we end up with if we sold everything the company owns, paid back all the debt, and closed down the business? \"\" Since closing down the business is rarely a good idea, this underestimates the value of the business enormously. Take a hairdresser who owns nothing but a pair of scissors, but has a huge number of repeat customers, charges $200 for a haircut, and makes tons of money every year. The business has a huge value, but NAV = price of one pair of used scissors.\""],"string":"[\n \"\\\"At any given moment, one can tally the numbers used for NAV. It's math, and little more. The Market Cap, which as you understand is a result of share value. Share value (stock price) is what the market will pay today for the shares. It's not only based on NAV today, but on future expectations. And expectations aren't the same for each of us. Which is why there are always sellers for the buyers of a stock, and vice-versa. From your question, we agree that NAV can be measured, it's the result of adding up things that are all known. (For now, let's ignore things such as \\\"\\\"goodwill.\\\"\\\") Rarely is a stock price simply equal to the NAV divided by the number of shares. Often, it's quite higher. The simplest way to look at it is that the stock price not only reflects the NAV, but investors' expectations looking into the future. If you look for two companies with identical NAV per share but quite different share prices, you'll see that the companies differ in that one might be a high growth company, the other, a solid one but with a market that's not in such a growth mode.\\\"\",\n \"NAV is how much is the stuff of the company worth divided by the number of shares. This total is also called book value. The market cap is share price times number of shares. For Amazon today people are willing to pay 290 a share for a company with a NAV of 22 a share. If of nav and price were equal the P/B (price to book ratio) would be 1, but for Amazon it is 13. Why? Because investors believe Amazon is worth a lot more than a money losing company with a NAV of 22.\",\n \"\\\"I think the key concept here is future value. The NAV is essentially a book-keeping exercise- you add up all the assets and remove all the liabilities. For a public company this is spelled out in the balance sheet, and is generally listed at the bottom. I pulled a recent one from Cisco Systems (because I used to work there and know the numbers ;-) and you can see it here: roughly $56 billion... https://finance.yahoo.com/q/bs?s=CSCO+Balance+Sheet&annual Another way to think about it: In theory (and we know about this, right?) the NAV is what you would get if you liquidated the company instantaneously. A definition I like to use for market cap is \\\"\\\"the current assets, plus the perceived present value of all future earnings for the company\\\"\\\"... so let's dissect that a little. The term \\\"\\\"present value\\\"\\\" is really important, because a million dollars today is worth more than a million dollars next year. A company expected to make a lot of money soon will be worth more (i.e. a higher market cap) than a company expected to make the same amount of money, but later. The \\\"\\\"all future earnings\\\"\\\" part is exactly what it sounds like. So again, following our cisco example, the current market cap is ~142 billion, which means that \\\"\\\"the market\\\"\\\" thinks they will earn about $85 billion over the life of the company (in present day dollars).\\\"\",\n \"\\\"Market caps is just the share price, multiplied by the number of shares. It doesn't represent any value (if people decide to pay more or less for the shares, the market cap goes up or down). It does represent what people think the company is worth. NAV sounds very much like book value. It basically says \\\"\\\"how much cash would we end up with if we sold everything the company owns, paid back all the debt, and closed down the business? \\\"\\\" Since closing down the business is rarely a good idea, this underestimates the value of the business enormously. Take a hairdresser who owns nothing but a pair of scissors, but has a huge number of repeat customers, charges $200 for a haircut, and makes tons of money every year. The business has a huge value, but NAV = price of one pair of used scissors.\\\"\"\n]","isConversational":false}}},{"rowIdx":390,"cells":{"_id":{"kind":"string","value":"3759"},"query":{"kind":"string","value":"Simplifying money management"},"gt_ids":{"kind":"list like","value":["527966","67167","522358"],"string":"[\n \"527966\",\n \"67167\",\n \"522358\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1],"string":"[\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["570071","591704","455457","538410","598802","584175","237483","429480","261491","45718","349544","372743","70558","228855","309160","501150","527966","281361","147163","214248","418020","11979","57188","338707","544175","121543","578508","283657","291278","302024","54978","337443","187405","278678","429929","580168","345530","426906","273618","356515","526159","59562","396222","129681","510989","306717","88867","579473","281534","322614","287293","231412","204171","30477","66744","70305","39532","129975","210302","576968","526568","67167","248935","196299","241599","504208","105567","481401","353369","17448","347759","447966","415432","479206","309451","533362","291376","484711","259373","320073","197506","396537","515440","492174","28942","490065","121160","464753","12133","438284","477938","227733","117959","258423","430900","587752","176640","575929","419383","196156"],"string":"[\n \"570071\",\n \"591704\",\n \"455457\",\n \"538410\",\n \"598802\",\n \"584175\",\n \"237483\",\n \"429480\",\n \"261491\",\n \"45718\",\n \"349544\",\n \"372743\",\n \"70558\",\n \"228855\",\n \"309160\",\n \"501150\",\n \"527966\",\n \"281361\",\n \"147163\",\n \"214248\",\n \"418020\",\n \"11979\",\n \"57188\",\n \"338707\",\n \"544175\",\n \"121543\",\n \"578508\",\n \"283657\",\n \"291278\",\n \"302024\",\n \"54978\",\n \"337443\",\n \"187405\",\n \"278678\",\n \"429929\",\n \"580168\",\n \"345530\",\n \"426906\",\n \"273618\",\n \"356515\",\n \"526159\",\n \"59562\",\n \"396222\",\n \"129681\",\n \"510989\",\n \"306717\",\n \"88867\",\n \"579473\",\n \"281534\",\n \"322614\",\n \"287293\",\n \"231412\",\n \"204171\",\n \"30477\",\n \"66744\",\n \"70305\",\n \"39532\",\n \"129975\",\n \"210302\",\n \"576968\",\n \"526568\",\n \"67167\",\n \"248935\",\n \"196299\",\n \"241599\",\n \"504208\",\n \"105567\",\n \"481401\",\n \"353369\",\n \"17448\",\n \"347759\",\n \"447966\",\n \"415432\",\n \"479206\",\n \"309451\",\n \"533362\",\n \"291376\",\n \"484711\",\n \"259373\",\n \"320073\",\n \"197506\",\n \"396537\",\n \"515440\",\n \"492174\",\n \"28942\",\n \"490065\",\n \"121160\",\n \"464753\",\n \"12133\",\n \"438284\",\n \"477938\",\n \"227733\",\n \"117959\",\n \"258423\",\n \"430900\",\n \"587752\",\n \"176640\",\n \"575929\",\n \"419383\",\n \"196156\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"As advised you need to budget, but there are a few simple things you can do to make it easier. Work out how much your fixed bills are every month, for example, council tax, gas and electric, mortgage and rent etc. On pay-day, move an amount of cash equal to this into another bank account when you get paid. It's easier if this other account, let's call it a bills account, can pay the bills automatically via direct debits, you can then forget about it. Now your budget should tell you how much you spend on things that are more variable, food, fuel, travel etc. Again on pay-day, move an amount of cash aside to cover this (plus a small buffer amount) into another account. Whatever is now left in your main account is yours to spend or save as you see fit. You just need to make sure you are sticking to your budget and it's as easy as that. If you cannot pay direct debits from the other accounts you just need to move the money over to cover them when they need paying. Most banks will let you set up extra accounts so you can mvoe the money easily using internet banking or by a monthly standing order. If they won't let you have several \"\"current\"\" accounts you can use savings accounts but will need to manually move the money around as the bills are due. If you get all your direct debits to debit on pay-day, that makes it even easier. If you are struggling for money then prioritise paying off debt first and prioritise the debt with the highest interest rate.\"","\"simplicity and roi are often at odds. the simplest plan that also supports a reasonable investment return would have 3 accounts: if you want to get better returns on your investments, things can get much more complicated. here are some optional accounts to consider: besides the mechanics of money flowing between accounts, a budget helps you understand and control your spending. while there are many methods for this (e.g. envelopes of cash, separate accounts for various types of expenses), the simplest might be using mint.com. just be sure to put all your spending on a credit or debit card, and you can see your spending by category when you log into mint. it can take a bit to get it set up, and your bank needs to be compatible, but it can give you a really good picture of where your money is going. once you know that, you can start making decisions like \"\"i should spend less on coffee\"\", or \"\"i should go to the zoo more\"\", based on how much things cost vs how much you enjoy them. if you feel like your spending is out of control, then you can set yourself hard limits on certain kinds of spending, but usually just watching and influencing your own choices is enough. notes: if you have a spouse or partner, you should each maintain your own separate accounts. there are many reasons for this including simplicity and roi, besides the obvious. if you feel you must have a joint account, be sure to clearly define how it should be used (e.g. only for paying the utilities) and funded (x$ per month each). particularly with your house, do not do joint ownership. one of you should be a renter and the other a landlord. some of these statements assume you are in the usa. on a personal note, i have about 20 credit cards, 2 checking accounts, 2 ira's, 2 brokerage accounts, and 3 401k's. but i consider myself a personal finance hobbyist, and spend an absurd amount of time chasing financial deals and tax breaks.\"","More moving parts will make your budget harder to keep track of, not simpler. Budget systems like You Need a Budget recommend simplifying your accounts, even if the various accounts give you specialized bonuses like rewards for restaurants or gasoline or travel. The effort of keeping track of all the options and accounts can outweigh the value you get from them. Instead, I recommend using a simple and structured budget system (like YNAB) that walks you through all of the steps toward building good habits and keeping them simple so that you can maintain the habit.","Lazy man's budget. Four separate accounts for timing of expenses: short (monthly; utilities etc.), medium (quarterly+; property taxes), long (yearly+; house improvements) and retirement. Set target levels for each account, to cover 1 full cycle. The short target is smallest; it should comfortably cover a month. For me each target is about 10x larger than the last. (Cycles & targets for a homeowner w/ family; YMMV). All income goes in short term. When an account gets above target level, the excess gets swept up to the next longer term account. That's all I keep firm track of; takes just a few minutes a month. Watching the account balances vs. their targets (and how short some of them are of target) keeps me focused on spending, and thinking about how much I can sweep (or can't) next paycheck.","\"I sort of do this with credit cards. I actually have 4 AMEX cards that I've accumulated over the years. Certain types of expenses go on each card (\"\"General expenses\"\", recurring bills, car-related and business-related) I use AMEX because they have pretty rich iPhone/Android applications to access your accounts and a rich set of alerts. So if we exceed our budget for gas, we get an email about it. Do whatever works for you, but you need to avoid the temptation to over-complicate.\"","\"As your financial situation becomes more complex, it becomes increasingly more difficult to keep track of everything with a simple spreadsheet. It is much easier to work with software that is specifically designed for personal finances. A good program will allow you to keep track of as many accounts as you want. A great program will completely separate the different account balances (location of the money) from the budget category balances (purpose of the money). Let me explain: When you set up the software, you will enter in all of your different bank accounts with their balances. Perhaps you have three savings accounts and two checking accounts. It doesn't matter. When you are done entering those, the software will total them up, and the next job you have is assigning this money into different budget categories: your spending plan. For example, you might put some of it into a grocery category, some into an entertainment category, some will be assigned to pay your next car insurance bill, and some will be an emergency fund. (These categories are completely customizable, and your budget can be as broad or as detailed as you wish.) When you deposit your paycheck, you assign that new income into budget categories as well. It doesn't matter at this point which accounts your money are located in; the only thing that matters is that you own this money and you have access to it. Now, you might want to use a certain account for a certain budget category, but you are not required to do so. (For example, your grocery category money will probably be in your checking account, since you will be spending from it regularly. Your emergency fund will hopefully be in an account that earns a little higher interest.) Once you take this approach, you might find you don't need as many bank accounts as you thought you did, because the software does the job of separating your money into different \"\"accounts\"\" for different purposes. I've written before about the different categories of personal finance software. YNAB, Mvelopes, and EveryDollar are three examples of software that will take this approach of separating the concepts of the bank account and the budget category.\"","One of the simplest things is to lock your money e.g. put on time deposit which has some penalty when you broke them pre-maturily. Also create a portfolio in a site, this will spark interest on saving and investment.","Do a monthly budget, unique to each month, before the month begins, spend all of your money on paper. Use envelopes to help you keep track of how much you have left for things you buy throughout the month. Have separate envelopes for things like groceries, restaurants, clothing, entertainment. Put the amount of money for each category in cash in the envelope. Only spend the money out of the correct envelope and don't mix and mingle between envelopes. Pay in cash, with real money. Don't use credit or debit cards, it's proven you spend more when you are not paying with cash.","Try the Envelope Budgeting System. It is a pretty good system for managing your discretionary outflows. Also, be sure to pay yourself first. That means treat savings like an expense (mortgage, utilities, etc.) not an account you put money in when you have some left over. The problem is you NEVER seem to have anything leftover because most people's lifestyle adjusts to fit their income. The best way to do this is have the money automatically drafted each month without any action required on your part. An employer sponsored 401K is a great way to do this.","\"I use online banking as much as possible and I think it may help you get closer to your goal. I see you want to know where the money goes and save time so it should work for you like it did for me. I used to charge everything or write checks and then pay a big visa bill. My problem was I never knew exactly how much I spent because neither Visa or check writing are record systems. They just generate transactions records. I made it a goal use online banking to match my spending to the available cash and ended up ok usually 9-10 months out of the year. I started with direct deposit of my paycheck. Each Saturday, I sit down and within a half hour, I've paid the bills for the week and know where I stand for the following week. Any new bill that comes in, I add it to online banking even if it's not a recurring expense. I also pull down cash from the ATM but just enough to allow me to do what I have to do. If it's more than $30 or $40 bucks, I use the debit card so that expense goes right to the online bank statement. My monthly bank statement gives me a single report with everything listed. Mortgage, utilities, car payment, cable bill, phone bill, insurance, newspaper, etc... It does not record these transactions in generic categories; they actually say Verizon or Comcast or Shop Rite. I found this serves as the only report I need to see what's happening with my budget. It may take a while to change to a plan like this one. but you'll now have a system that shows you in a single place where the money goes. Move all bills that are \"\"auto-pay\"\" to the online system and watch your Visa bill go down. The invested time is likely what you're doing now writing checks. Hope this helps.\"","\"Make a list of all your expenses. I use an Excel spreadsheet but you can do it on the back of a napkin if you prefer. List fixed expenses, like rent, loan payments, insurance, etc. I include giving to church and charity as fixed expenses, but of course that's up to you. List regular but not fixed expenses, like food, heat and electricity, gas, etc. Come up with reasonable average or typical values for these. Keep records for at least a few months so you're not just guessing. (Though remember that some will vary with the season: presumably you spend a lot more on heat in the winter than in the summer, etc.) You should budget to put something into savings and retirement. If you're young and just starting out, it's easy to decide to postpone retirement savings. But the sooner you start, the more the money will add up. Even if you can't put away a lot, try to put away SOMETHING. And if you budget for it, you should just get used to not having this money to play with. Then total all this up and compare to your income. If the total is more than your income, you have a problem! You need to find a way to cut some expenses. I won't go any further with that thought -- that's another subject. Hopefully you have some money left over after paying all the regular expenses. That's what you have to play with for entertainment and other non-essentials. Make a schedule for paying your bills. I get paid twice a month, and so I pay most of my bills when I get a paycheck. I have some bills that I allocate to the first check of the month and some to the second, for others, whatever bills came in since my last check, I pay with the current check. I have it arranged so each check is big enough to pay all the bills that come from that check. If you can't do that, if you'll have a surplus from one check and a shortage from the next, then be sure to put money aside from the surplus check to cover the bills you'll pay at the next pay period. Always pay your bills before you spend money on entertainment. Always have a plan to pay your bills. Don't say, \"\"oh, I'll come up with the money somehow\"\". If you have debt -- student loans, car loans, etc -- have a plan to pay it off. One of the most common traps people fall into is saying, \"\"I really need to get out of debt. And I'm going to start paying off my debt. Next month, because this month I really want to buy this way cool toy.\"\" They put off getting out of debt until they have frittered away huge amounts of money on interest. Or worse, they keep accumulating new debt until they can't even pay the interest.\"","Your money management technique is a very personal choice. Each person's system will be a little different. For us, we don't believe in debt so we operate on a cash basis for everything with the exception of our house. We keep our expenses to roughly 75% of our after tax income. The rest we save and invest. And we are paying extra on our mortgage to get the house paid off asap. Each person will divide their 75% differently based on your consumption preferences. The same goes for the 25% savings and investing. You need to set some goals and save accordingly.","This is all very basic and general advice, that works for most, but not all. You are unique with your own special needs and desires. Good luck! P.S.: not exactly related to your question, but when you get more familiar with investing and utilizing your money, find more ways to save more. For example, change phone plan, cut the cable, home made food in bulk, etc.","Calculate a weekly budget for yourself for all incidentals (i.e. shopping, movies, eating out, etc...) and take that amount out in cash each week. For example, if your budget is $75 then try to spend only that $75 on all the extra stuff you do doing the week. It'll make you hyper-conscious of where your money is going and how fast. You'll be surprised at how quickly little things like grabbing coffee in the morning can chip away at your funds.","If held in one savings account, how can I easily manage what percentage is planned for which purpose? I used a spreadsheet for some years, but found it clumsy for everyday use. Thus I wrote some software which my wife and I use for our short-term as well as long-term planning, available at http://budgeter.sourceforge.net. It specifically helps with splitting the money in one or several accounts into logical categories. (The software is not the most user-friendly ever, so there may be better suggestions that follow, but it works well for us. Please feel free to suggest improvements to it as well.)","Calculate your effective income per day (after taxes) and calculate the prize of everything per day. This lets you easily compare your rent with other (smaller) expenses. It's easy to say that if you stay below your income every day you will save money. It also helps to know how much freely spendable money you have each day (money after taxes, rent, bills etc.). Let the days were your expenses are higher than your income be scarce and know how many days you need to work and save to afford something.","Track your spending and expected income -- on paper, or with a personal-finance program. If you know how much is committed, you know how much is available. Trivial with checks, requires a bit more discipline with credit cards.","You can fairly simply make a spreadsheet in your favorite spreadsheet application (or in Google Docs if you want portability). I like to make an overview page that shows how much I take in per month and what fixed bills come out of that, then break the remaining total into four to get a weekly budget. Then, I make one page per month with four columns (one per week), with each row being a category. Sum the categories at the bottom, and subtract from your weekly total: voila, a quick reference of how much you can spend that week without going over budget. I then make a page for each month that lists what I bought and how much I spent on it, so I can trace where my money's gone; the category total is just a summation of the items from that page that belong in that category. Once you have a system, stop checking your bank balance except to ensure your paycheck is going in alright. Use the spreadsheet to determine how much you can spend at any time. Then make sure you pay off everything on the card before the end of the month so you don't incur interest.","Personal finances are not intuitive for everyone, and it can be a challenge to know what to do when you haven't been taught. Congratulations on recognizing that you need to make a change. The first step that I would recommend is what you've already done: Assemble your bank statements so you can get an accurate picture of what money you currently have. Keep organized folders so you can find your bank statements when you need them. In addition to the bank statements for your checking and savings accounts, you also need to assess any debt that you have. Have you taken out any loans that need to be paid back? Do you have any credit card debt? Make a list of all your debts, and make sure that you have folders for these statements as well. Hopefully, you don't have any debts. But if you are like most people, you owe money to someone, and you may even owe more money than you currently have in your bank accounts. If you have debts, fixing this problem will be one of your goals. No matter what your debt is, you need to make sure that from now on, you don't spend more money than you take in as income. To do this, you need to make a budget. A budget is a plan for spending your money. To get started with a budget, make a list of all the income you will receive this month. Add it up, and write that amount at the top of a page. Next, you want to make a list of all the expenses you will have this month. Some of these expenses are more or less fixed: rent, utility bills, etc. Write those down first. Some of the expenses you have more control over, such as food and entertainment. Give yourself some money to spend on each of these. You may also have some larger expenses that will happen in the future, such as a tuition or insurance payment. Allocate some money to those, so that by the time that payment comes around, you will have saved enough to pay for those expenses. If you find that you don't have enough income to cover all of your expenses in a month, you need to either reduce your expenses somewhere or increase your income until your budget is at a point where you have money left over at the end of each month. After you've gotten to this point, the next step is figuring out what to do with that extra money left over. This is where your goals come into play. If you have debt, I recommend that one of your first goals is to eliminate that debt as fast as possible. If you have no money saved, you should make one of your goals saving some money as an emergency fund. See the question Oversimplify it for me: the correct order of investing for some ideas on what order you should place your goals. Doing the budget and tracking all of your spending on paper is possible, but many people find that using the right software to help you do this is much easier. I have written before on choosing budgeting software. All of the budgeting software packages I mentioned in that post are from the U.S., but many of them can successfully be used in Europe. YNAB, the program I use, even has an unofficial German users community that you might find useful. One of the things that budgeting software will help you with is the process of reconciling your bank statements. This is where you go through the bank statement each month and compare it to your own record of spending transactions in your budget. If there are any transactions that appear in the statement that you don't have recorded, you need to figure out why. Either it is an expense that you forgot to record, or it is a charge that you did not make. Record it if it is legitimate, or dispute the expense if it is fraudulent. For more information, look around at some of the questions tagged budget. I also recommend the book The Total Money Makeover by Dave Ramsey, which will provide more help in making a budget and getting out of debt.","\"I live near historic Concord, Massachusetts, and frequently drive past Walden Pond. I'm reminded of Henry David Thoreau's words, \"\"Simplify, simplify, simplify.\"\" In my opinion, fewer is better. 2 checkbooks? I don't see how that makes budgeting any easier. The normal set of expenses are easily kept as one bucket, one account. The savings 2&3 accounts can also be combined and tracked if you really want to think of them as separate accounts. Now, when you talk about 'Retirement' that can be in tax-wise retirement accounts, e.g. 401(k), IRA, etc. or post tax regular brokerage accounts. In our situation, the Schwab non-retirement account was able to handle emergency (as money market funds) along with vacation/rainy day, etc, in CDs of different maturities. As an old person, I remember CDs at 10% or higher, so leaving money in lower interest accounts wasn't good. Cash would go to CDs at 1-5 year maturities to maximize interest, but keep money maturing every 6-9 months. Even with the goal of simplifying, my wife and I each have a 401(k), an IRA, and a Roth IRA, I also have an inherited Roth, and I manage my teen's Roth and brokerage accounts. That's 9 accounts right there. No way to reduce it. To wrap it up, I'd go back to the first 4 you listed, and use the #4 checking attached to the broker account to be the emergency fund. Now you're at 3. Any higher granularity can be done with a spreadsheet. Think of it this way - the day you see the house you love, will you not be so willing to give up that year's vacation?\"","If you are just trying to curb impulse spending I'd suggest the following: 1) Set up a separate bank account for your savings - Do not order checks or a debit card for this account. 2) Get your employer to split your paycheck to put the saving amount in the new account (most employers will do this) The trick to avoid impulse spending is to make it a chore to get at the money. With the above arrangement you would have to physically go to the bank, fill out a withdrawal slip and get cash. This way you still can access the money in an emergency, but it forces you to plan things out better.","Here's how I think about money. There are only 3 categories / contexts (buckets) that my earned money falls into. Savings is my emergency fund. I keep 6 months of total expenses (expenses are anything in the consumption bucket). You can be as detailed as you want with this area but I tend to leave a fudge factor. In other words, if I estimate that I spend approximately $3,000 a month in consumption dollars then I'll save $3,500 times 6 in the bank. This money needs to be liquid. Some people use a HELOC, other people use their ROTH contributions. In any case, you need to put this money some place you can get access to it in case you go from accumulation (income exceed expenses) to decumulation mode (expenses exceed income). This money is distinct from consumption which I will cover in paragraph three. Investments are stocks, bonds, income producing real estate, small businesses, etc. These dollars require a strategy. The strategy can include some form of asset allocation but more importantly a timeline. These are the dollars that are working for you. Each dollar placed here will multiply over time. Once you put a dollar here it shouldn't be taken out unless there is some sort of catastrophe that your savings can't handle or your timeline has been achieved. Notice that rental real estate is included so liquidating stocks to purchase rental real estate is NOT considered removing investment dollars. Just reallocating based on your asset allocation. This bucket includes 401k's, IRAs, all tax-sheltered accounts, non-sheltered brokerage accounts, and rental real estate. In general your primary residence is not included in this bucket. Some people include the equity of their primary residence in the investment column but it can complicate the equation and I prefer to leave it out. The consumption bucket is the most important bucket and the one you spend the most time with. It requires a budget. This includes your $5 magazine and your $200 bottle of wine. Anything in this bucket is gone. You can recover a portion of it by selling it on ebay for $3 (these are earned dollars) but the original $5 is still considered spent. The reason your thought process in this area is distinct from the other two, the decisions made in this area will have the biggest impact on your personal finances. Warren Buffett was famous for skimping on haircuts because they are worth thousands of dollars down the road if they are invested instead. Remember this is a zero-sum game so every $1 not consumed is placed in one of the other buckets. Once your savings bucket is full every dollar not consumed is sent to investments. Remember to include everything that does not fit in the other two buckets. Most people forget their car insurance, life insurance, tax bill at the end of the year, accountant bill, etc. In conclusion, there are three buckets. Savings, which serve as your emergency bucket. This money should not be touched unless you switch from accumulation to decumulation. Investments, which are your dollars that are working for you over time. They require a strategy and a timeline. Consumption, which are your monthly expenses. These dollars keep you alive and contribute to your enjoyment. This is a short explanation of my use of money. It can get as complicated and detailed as you want it to be but as long as you tag your dollars correctly you'll be okay IMHO. HTH.","Firstly, make sure annual income exceeds annual expenses. The difference is what you have available for saving. Secondly, you should have tiers of savings. From most to least liquid (and least to most rewarding): The core of personal finance is managing the flow of money between these tiers to balance maximizing return on savings with budget constraints. For example, insurance effectively allows society to move money from savings to stocks and bonds. And a savings account lets the bank loan out a bit of your money to people buying assets like homes. Note that the above set of accounts is just a template from which you should customize. You might want to add in an FSA or HSA, extra loan payments, or taxable brokerage accounts, depending on your cash flow, debt, and tax situation.","If you are not working, I believe you would be getting some money from your family to meet your expenses. In such a case, I would start with maintaining a Cash A/c which would list your monthly expenses and the money you received, which is what I used to do at your age. You can maintain it in a notebook with pen/pencil or using online tools such as Google Sheets. Enter each expense entries each day as debits and entries towards any money you receive as credits. At the end of the month, tally them and see how much you have left. Also, this gives you a clear picture of where your expenses are what is that you can avoid. On longer term, this can help you form an annual budget for your personal finances.","\"Honestly just keep track of your income and spending on a piece of paper. Write down every single thing. Also set goals like \"\"ok I will make $1000 this month, and my goal is to pay bills of $200 and only spend $500 therefore I should easily be able to save $300\"\" or something like that. Just do it there's no magic trick despite what some million stupid articles and forum posts will lead you to believe. Saving money is like being in good shape... or keeping yourself clean... it's an every day, every hour kinda thing\"","My wife and I meet in the first few days of each month to create a budget for the coming month. During that meeting we reconcile any spending for the previous month and make sure the amount money in our accounts matches the amount of money in our budget record to the penny. (We use an excel spreadsheet, how you track it matters less than the need to track it and see how much you spent in each category during the previous month.) After we have have reviewed the previous month's spending, we allocate money we made during that previous month to each of the categories. What categories you track and how granular you are is less important than regularly seeing how much you spend so that you can evaluate whether your spending is really matching your priorities. We keep a running total for each category so if we go over on groceries one month, then the following month we have to add more to bring the category back to black as well as enough for our anticipated needs in the coming month. If there is one category that we are consistently underestimating (or overestimating) we talk about why. If there are large purchases that we are planning in the coming month, or even in a few months, we talk about them, why we want them, and we talk about how much we're planning to spend. If we want a new TV or to go on a trip, we may start adding money to the category with no plans to spend in the coming month. The biggest benefit to this process has been that we don't make a lot of impulse purchases, or if we do, they are for small dollar amounts. The simple need to explain what I want and why means I have to put the thought into it myself, and I talk myself out of a lot of purchases during that train of thought. The time spent regularly evaluating what we get for our money has cut waste that wasn't really bringing much happiness. We still buy what we want, but we agree that we want it first.","You need to know loans are not free; and they are not a way to solve budget issues. If you are having problems with making your income last over your expenses, you do not need to add another expense (in the form of a loan) What you really need to do is create a budget, track and understand your expenses, and then decide if you should focus on raising your net income level or cutting down expenses. Keep up with your budget. You can reduce the frequency, but you need to track your spending really for the rest of you life. It is just a good habit, like personal hygiene. Once you understand your money (via your budget), you can start to save money into an emergency fund that will cover you during the times of zig zags. I say it very plainly as if it is super easy; but it requires will power and the foresight to understand that if you don't manage your money, nobody else will. Being sane with your money is one of the most important things you can do now to improve your future. IMPROVEMENT NathanL has an excellent first step with budgeting: Allocate money to be spent for the next month from money made during the previous month. This will build a cushion into your budget and alleviate the fear that the OP mentioned","\"I have the same problem. The people above are right to an extent. You have to be more disciplined. But there is no reason why you can't get there in stages. If you try to do too much too fast you'll just give up. You need to find a system that removes some of the passive barriers affecting you. You need to think what in particular is overwhelming you. For me it was sitting down at the end of the month to write it all down. Writing it all down at the end of the week or even each day didn't work either because it was too much and I had forgotten what stuff was. I'm like you. The bank account is a record so why do I have to retype it or worse, hand write it out? Bleh. What I ended up doing was divide my expenses into four categories: food (to include all medical) shelter, transportation, spending -- with the first three being needs and the last being wants. Eating out is spending. I have four checking accounts with four debit cards. I saved up some money. I put a paycheck's worth of money in each because I didn't know how much I spent each month in each category, but knew I didn't spend an entire paycheck in any one category per month. Voila. No more work. At the store you just put things in the basket by category. At Target you pay for the food and toothpaste with the medical card and the DVD with the spending card. The cashiers don't care that you pay separately. And if you are buying so much crap that separating items by category is a problem, why the heck are you buying so much crap? At the end of the month you will now have a record of how much you spend on transportation, housing (electricity would be paid online from this account for example), medical and fun. That's all anyone needs to help you get started. You can then see if your housing is 35% or less (or whatever percentage you feel is right). The person trying to help the author above is right. A Target charge doesn't indicate whether you bought some oil for the car or cold medicine or a lock for the cabinet door that broke. But when you pay for each of these things under the right account, you do know how the money is allocated. Doing it this way requires little discipline. Before you put the item in the basket, you just ask yourself, is this a want or a need (which is something you should be doing anyway). If it's a need, is it for my car, house, or body. The house is what I use if i can't figure it out (like paying for the renewal of my professional license). that's it! You have to stand at the register for longer but so what. If you are spending all your salary and you stop when you have no more money (assuming you've run through all of your savings, which you will soon if you don't change), then you have no more money to spend. So if you are honest when you put things in the basket(need vs want), you are going to run out of spending money real quick. Your spending money account will be empty but you will still have food money. Set your debit card up so that it denies your charge if you dont have enough money. Once you realize how much you truly spend for needs in each category, yoy will only put that much in each account. Therefore, You can't use the house card to just \"\"borrow\"\" from it till next month. If you do, you won't be able to pay your bills. If you have so little discipline that you knowingly spend your bill money, then there is a deeper issue going on than just finding the right budgeting/cash flow system for you. Something is seriously wrong and you need to seek professional help. When someone is trying to help you, the first step is to determine what category you are spending too much in. Then when you realize it's the house category, for example, you will need to figure out why you are spending so much in that category. A bank statement wont tell you that. So you can do what we did. On every receipt --before you walk out of the store-- write down what each purchase is on the receipt. Then you can hand over the receipts to whoever is helping you. Most items are easily recognizable on the receipt so you wont have to write everything down. you should be doing this for insurance purposes anyway. Again, if your receipt is so blooming long that this is onerous, probably everything you just spent is not a need and maybe you need to turn right around and return stuff. Maybe you need to go to the store more often so there are only a few purchases on each receipt. Groceries are groceries. You don't need to detail that out. For Ikea when you have to purchase pieces to a set, we get a separate receipts for each. So the brackets and shelving for the bedroom will be on one receipt and the brackets and shelving for the other room will be on another receipt. Even at the store I cant figure out what all the little pieces are! But really, if you are making a decent enough salary, then you are probably spending too much on wants and are calling the items needs. So really your problem is correctly identifying needs from wants. Define a NEED. YOU. Make up your own definition of need Dwell on it. Let it become meaningful for you. Oranges are a need. Chocolate is not (no, really it's not! Lol!). So when you are putting the stuff in the basket, you dont even have to think about whether it's a need or not after a while. Wants go in the child seat if at all possible (to keep the number of items smaller). When you are ready to check out, add up the items roughly in the want pile. Ask yourself if you really want all that stuff. Then put some stuff back! At this point ask yourself is the 8 hours I will have to work to pay for this worth it? Am I really going to use it? Will using the item make me happy? Or is it the actual buying of the item that makes me feel powerful? Where will I put it? How much time will I need to maintain it? Then put some stuff back! Get some good goals, a kayaking trip or whatever. Ask yourself if the item is worth delaying the trip. How will I feel later? Will I have buyers remorse? If so, put it back! These are controls you can put into place that don't take a lot of discipline. Writing the items down on the receipt is a more advanced step you can take later. If you are with friends, go first so that you can write down the items while they are checking out. If you are private and don't want to share your method with your friends, go to the bathroom and in the stall write it down while they wait. Writing the items on the receipt while in the store is sort of a trigger mechanism for remembering to do so. That pulling out of the card triggers your memory to get out your pen or ask the cashier for one. The side benefit is catching someone using a cloned copy of your card. In the medical account if you see an Exxon charge, you know it's not yours. Also, while that one account is shut down, you have three others to rely on in the meantime. My spouse hated fumbling for the right card. They all look the same. Color code your cards. We have blue cross blue shield so it feels natural to have the food/medical account with a blue sticker (just buy a little circle sticker and place it on the edge so half is on the front and half is on the back -- nowhere near the strip). I've never been given a hard time about it. Our car is red so the car card is red, etc. If you think four cards is a lot to carry, ask yourself if you would rather carry four cards or keep track of every little thing? Good luck. I know you will find a system that works for you if you keep trying.\"","Do you need such a detailed budget? I have found that a detailed budget creates two problems: I would suggest starting simple, and adding complexity as you discover you need it. Create a budget with just a few categories Then, I enforce my budget with my auto deposit. My required expenses, which I have a pretty good notion of the total amount get paid from one online bank. Enough money goes in and I electronically pay. Retirement money and e-fund money get deposited into the brokerage and credit union where I keep those piles at. Finally, my optional expenses go into a second bank (I am using simple.com at the moment) and I spend from there with a card. They have a nice reporting feature, and if I want to save up for a toy or something I save up there. Bonuses and other extra income end up there as well. This way, I really only have to monitor the last account to see if I can have fun or buy a new item. My bills and retirement are different pools of money, and I don't carry around a card that can access that money.","1 Primary acct. Receive and distribute money to all other accts. For security do not permit debit cards to touch or payment pull from this account. All joint bills paid here. Attach a savings acct and credit card to this account for accruing taxes vacation money blah blah. This will facilitate managing instead of storing your funds. 2 Push distributions to one or two other individual accounts on whatever basis works. Cash groceries incidentals. Debit cards here.","Plan all your needs and put priority based on need & urgency. New Habit: Rethink. Rethink. Rethink. whenever your going to buy something. rethink before going to buy. remember what is your priority one than that and will this affect on your plans. if that affect, than dont buy. Lets leave it to that habit, that will take care of your budget yar.............","\"The key to this is budgeting. Without a budget, you don't know what you are spending your money on. Let's say you would like to go to a movie with a friend. Can you afford it? Without a budget, it is difficult to answer this question. Yes, you have enough money in your wallet, but if you don't go to the movies, you could be saving that money for a house. \"\"But,\"\" you might say to yourself, \"\"surely one movie with my friend won't prevent me from saving my $10k for my house.\"\" And you might be right, but when you add up all the movies, coffees, and other discretionary spending up, it very well could. At this point, you might be discouraged. \"\"Do I seriously need to give up every single extravagance to make this work? I don't have that kind of willpower!\"\" Luckily, here is where budgeting comes to the rescue. Budgeting is simply a plan for your money. You have some monthly expenses that are more or less fixed: your rent, your utility bills, etc. You have other expenses that are not exactly fixed, but are still necessary: groceries, fuel for your car, etc. You also have longer-range expenses, such as insurance premiums that you only pay once or twice a year, but need to be accounted for. List all of these expenses, and figure out how much that comes to each month. What you have left over is available to you for other things. Next, you need to figure out how fast you want to save for this house, and balance that with the other things you might want to spend money on, such as entertainment. If you start from $0 and want to save $10k, you could do it by saving $100 a month: in a little over 8 years, you'll have your $10k. If you can increase this to $300 a month, you'll be there in less than 3 years. Now that you have a plan and everything is accounted for, very little willpower is needed. You don't need to feel guilty every time you buy coffee; if the money is there in your coffee/snacks budget, go for it. If you've got extra money for the month in your entertainment budget, take a date to the movies. Your budget allows you to spend on those things, because you have a plan in place, and are not in danger of spending your rent money or your home savings. This can all be done on paper, in Excel, or even by placing cash in different envelopes. However, it is easier to use budgeting software, such as YNAB, Mvelopes, or EveryDollar.\"","To me the key is a budget. Each month, before it begins, decide on what to spend on each dollar that you earn. Money should be allotted for normal expenses such as housing, food, transportation, and utilities. If you have any consumer debt that should be a priority. Extra money should go to eliminate that debt. There should be money allotted to savings goals (such as retirement, home down payment, or vacation home). Also there should be money set aside for clothing and giving. Giving is an important part and often overlooked part of wealth creation. Somewhere in there you should also give yourself a bit of free money. For example one of the things I spend my free money on is coffee. I buy freshly ground coffee from a really good supplier. It is a bit expensive, but that is okay as it does not preclude me from meeting other goals. If you still have money left after all of that increase your giving some, your savings some, and your free money some. You can then spend that money without guilt. If your budget includes $100 of free money per month, and you want something that costs $1000, save up the $1,000 and then buy it. Do not borrow to buy free money stuff! Doing those sorts of things will make you weigh purchasing decisions very carefully. If you find that you cannot stick to a budget, you should enlist a friend to be your accountability partner. They have to be very good with money.","\"I opened several free checking accounts at a local credit union. One is a \"\"Deposit\"\" account where all of my new money goes. I get paid every two weeks. Every other Sunday we have our \"\"Money Day\"\" where we allocate the money from our Deposit account into our other checking accounts. I have one designated as a Bills account where all of my bills get paid automatically via bill pay or auto-pay. I created a spreadsheet that calculates how much to save each Money Day for all of my upcoming bills. This makes it so the amount I save for my bills is essentially equal. Then I allocate the rest of my deposit money into my other checking accounts. I have a Grocery, Household, and Main checking accounts but you could use any combination that you want. When we're at the store we check our balances (how much we have left to spend) on our mobile app. We can't overspend this way. The key is to make sure you're using your PIN when you use your debit card. This way it shows up in real-time with your credit union and you've got an accurate balance. This has worked really well to coordinate spending between me and my wife. It sounds like it's a lot of work but it's actually really automated. The best part is that I don't have to do any accounting which means my budget doesn't fail if I'm not entering my transactions or categorizing them. I'm happy to share my spreadsheet if you'd like.\"","While it is certainly easy to manage single fund, I am not sure it's the right strategy. It's been proven again and again that portfolio diversification is key to long term gains in wealth. I think your best option is to invest in low cost index funds and ETFs. While rebalancing your portfolio is hard, it is vastly simpler if your portfolio only has ETFs.","\"Trying to figure out how much money you have available each day sounds like you're making this more complicated than it needs to be. Unless you're extremely tight and you're trying to squeeze by day by day, asking \"\"do I have enough cash to buy food for today?\"\" and so on, you're doing too much work. Here's what I do. I make a list of all my bills. Some are a fixed amount every month, like the mortgage and insurance premiums. Others are variable, like electric and heating bills, but still pretty predictable. Most bills are monthly, but I have a few that come less frequently, like water bills in my area come every 3 months and I have to pay property taxes twice a year. For these you have to calculate how much they cost each month. Like for the water bill, it's once every 3 months so I divide a typical bill by 3. Always round up or estimate a little high to be safe. Groceries are a little tricky because I don't buy groceries on any regular schedule, and sometimes I buy a whole bunch at once and other times just a few things. When groceries were a bigger share of my income, I kept track of what I spent for a couple of months to figure out an average per month. (Today I'm a little richer and I just think of groceries as coming from my spending money.) I allocate a percentage of my income for contributions to church and charities and count this just like bills. It's a good idea to put aside something for savings and/or paying down any outstanding loans every month. Then I add these up to say okay, here's how much I need each month to pay the bills. Subtract that from my monthly income and that's what I have for spending money. I get paid twice a month so I generally pay bills when I get paid. For most bills the due date is far enough ahead that I can wait the maximum half a month to pay it. (Worst case the bill comes the day after I pay the bills from this paycheck.) Then I keep enough money in my checking account to, (a) Cover any bills until the next paycheck and allow for the particularly large bills; and (b) provide some cushion in case I make a mistake -- forget to record a check or make an arithmetic error or whatever; and (c) provide some cushion for short-term unexpected expenses. To be safe, (a) should be the total of your bills for a month, or as close to that as you can manage. (b) should be a couple of hundred dollars if you can manage it, more if you make a lot of mistakes. If you've calculated your expenses properly and only spend the difference, keeping enough money in the bank should fall out naturally. I think it's a lot easier to try to manage your money on a monthly basis than on a daily basis. Most of us don't spend money every day, and we spend wildly different amounts from day to day. Most days I probably spend zero, but then one day I'll buy a new TV or computer and spend hundreds. Update in response to question What I do in real life is this: To calculate my available cash to spend, I simply take the balance in my checking account -- assuming that all checks and electronic payments have cleared. My mortgage is deducted from my checking every month so I post that to my checking a month in advance. I pay a lot of things with automatic charges to a credit card these days, so my credit card bills are large and can't be ignored. So subtract my credit card balances. Subtract my reserve amount. What's left is how much I can afford to spend. So for example: Say I look at the balance in my checkbook today and it's, say, $3000. That's the balance after any checks and other transactions have cleared, and after subtracting my next mortgage payment. Then I subtract what I owe on credit cards. Let's say that was $1,200. So that leaves $1,800. I try to keep a reserve of $1,500. That's plenty to pay my routine monthly bills and leave a healthy reserve. So subtract another $1,500 leaves $300. That's how much I can spend. I could keep track of this with a spreadsheet or a database but what would that gain? The amount in my checking account is actual money. Any spreadsheet could accumulate errors and get farther and farther from accurate values. I use a spreadsheet to figure out how much spending money I should have each month, but that's just to use as a guideline. If it came to, say, $100, I wouldn't make grandiose plans about buying a new Mercedes. If it came to $5,000 a month than buying a fancy new car might be realistic. It also tells me how much I can spend without having to carefully check balances and add it up. These days I have a fair amount of spending money so when, for example, I recently decided I wanted to buy some software that cost $100 I just bought it with barely a second thought. When my spending money was more like $100 a month, lunch at a fast food place was a big event that I planned weeks in advance. (Obviously, I hope, don't get stupid about \"\"small amounts\"\". If you can easily afford $100 for an impulse purchase, that doesn't mean that you can afford $100 five times a day every day.) Two caveats: 1. It helps to have a limited number of credit cards so you can keep the balances under control. I have two credit cards I use for almost everything, so I only have two balances to keep track of. I used to have more and it got confusing, it was easy to lose track of how much I really owed, which is a set up for getting in trouble.\"","I use GNUCash. It's a bit more like Quickbooks than plain Quicken, but it's not all that complicated. Probably the most difficult part is understanding the idea of income accounts. Benefits: For short term planning, I use scheduled transactions. If I'm spending more than I have, it'll show up here. Every paycheck and dollar spent or invested is recorded with the exact date I anticipate it will happen, 30 days in advance. If that would overdraw my checking account, the Future Minimum Balance field will go negative and red. This lets me move float to higher interest savings and retirement funds, and avoids overdraft fees or other mishaps. By looking 30 days ahead in detail, I have enough time to transfer from illiquid assets. For longer term planning, I keep a spreadsheet around that plans out annual expenses. If I'm spending more than I earn, it shows up here. I estimate everything: expenses, savings, taxes, and income. I need this because I have a lot of expenses that are far less frequent than monthly or paycheck-ly. The beauty of it is that once I've got it in place, I can duplicate the sheet and consider tweaks for say taking a new job or moving, or even just changing an insurance plan (probably less relevant for those with access to NHS). Especially when moving to take a new job, it's not as straightforward as comparing salaries, and thus having a document for the status quo to start from lets you focus on the parts that changed.","Try reading about budgeting. Make a list of all income coming in and all expenses going out. Eliminate any unnecessary expenses and try to increase income, which could include a part-time second job. Try to always put a portion of the income away as savings - try 10%, but if this is too hard to start with try saving at least 5% of the income.","\"This Stack Exchange site is a nice place to find answers and ask questions. Good start! Moving away from the recursive answer... Simply distilling personal finance down to \"\"I have money, I'll need money in the future, what do I do\"\", an easily digestible book with how-to, multi-step guidelines is \"\"I Will Teach You To Be Rich\"\". The author talks about setting up the accounts you should have, making sure all your bills are paid automatically, saving on the big things and tips to increase your take home pay. That link goes to a compilation page on the blog with many of the most fundamental articles. However, \"\"The World’s Easiest Guide To Understanding Retirement Accounts\"\" is a particularly key article. While all the information is on the free blog, the book is well organized and concise. The Simple Dollar is a nice blog with frugal living tips, lifestyle assessments, financial thoughts and reader questions. The author also reviews about a book a week. Investing - hoping to get better returns than savings can provide while minimizing risk. This thread is an excellent list of books to learn about investing. I highly recommend \"\"The Bogleheads' Guide to Investing\"\" and \"\"The Only Investment Guide You'll Ever Need\"\". The world of investment vehicles is huge but it doesn't have to be complicated once you ignore all the fads and risky stuff. Index mutual funds are the place to start (and maybe end). Asset allocation and diversification are themes to guide you. The books on that list will teach you.\"","\"You don't state where you are, so any answers to this will by necessity be very general in nature. How many bank accounts should I have and what kinds You should have one transaction account and one savings account. You can get by with just a single transaction account, but I really don't recommend that. These are referred to with different names in different jurisdictions, but the basic idea is that you have one account where money is going in and out (the transaction account), and one where money goes in and stays (the savings account). You can then later on, as you discover various needs, build on top of that basic foundation. For example, I have separate accounts for each source of money that comes into my personal finances, which makes things much easier when I sit down to fill out the tax forms up to almost a year and a half later, but also adds a bit of complexity. For me, that simplicity at tax time is worth the additional complexity; for someone just starting out, it might not be. (And of course, it is completely unnecessary if you have only one source of taxable income and no other specific reason to separate income streams.) how much (percentage-wise) of my income should I put into each one? With a single transaction account, your entire income will be going into that account. Having a single account to pay money into will also make life easier for your employer. You will then have to work out a budget that says how much you plan to spend on food, shelter, savings, and so on. how do I portion them out into budgets and savings? If you have no idea where to start, but have an appropriate financial history (as opposed to just now moving into a household of your own), bring out some old account statements and categorize each line item in a way that makes sense to you. Don't be too specific; four or five categories will probably be plenty. These are categories like \"\"living expenses\"\" (rent, electricity, utilities, ...), \"\"food and eating out\"\" (everything you put in your mouth), \"\"savings\"\" (don't forget to subtract what you take out of savings), and so on. This will be your initial budget. If you have no financial history, you are probably quite young and just moving out from living with your parents. Ask them how much might be reasonable in your area to spend on basic food, a place to live, and so on. Use those numbers as a starting point for a budget of your own, but don't take them as absolute truths. Always have a \"\"miscellaneous expenses\"\" or \"\"other\"\" line in your budget. There will always be expenses that you didn't plan for, and/or which don't neatly fall into any other category. Allocate a reasonable sum of money to this category. This should be where you take money from during a normal month when you overshoot in some budget category; your savings should be a last resort, not something you tap into on a regular basis. (If you find yourself needing to tap into your savings on a regular basis, adjust your budget accordingly.) Figure out based on your projected expenses and income how much you can reasonably set aside and not touch. It's impossible for us to say exactly how much this will be. Some people have trouble setting aside 5% of their income on a regular basis without touching it; others easily manage to save over 50% of their income. Don't worry if this turns out a small amount at first. Get in touch with your bank and set up an automatic transfer from your transaction account to the savings account, set to recur each and every time you get paid (you may want to allow a day or two of margin to ensure that the money has arrived in your account before it gets taken out), of the amount you determined that you can save on a regular basis. Then, try to forget that this money ever makes it into your finances. This is often referred to as the \"\"pay yourself first\"\" principle. You won't hit your budget exactly every month. Nobody does. In fact, it's more likely that no month will have you hit the budget exactly. Try to stay under your budgeted expenses, and when you get your next pay, unless you have a large bill coming up soon, transfer whatever remains into your savings account. Spend some time at the end of each month looking back at how well you managed to match your budget, and make any necessary adjustments. If you do this regularly, it won't take very long, and it will greatly increase the value of the budget you have made. Should I use credit cards for spending to reap benefits? Only if you would have made those purchases anyway, and have the money on hand to pay the bill in full when it comes due. Using credit cards to pay for things is a great convenience in many cases. Using credit cards to pay for things that you couldn't pay for using cash instead, is a recipe for financial disaster. People have also mentioned investment accounts, brokerage accounts, etc. This is good to have in mind, but in my opinion, the exact \"\"savings vehicle\"\" (type of place where you put the money) is a lot less important than getting into the habit of saving regularly and not touching that money. That is why I recommend just a savings account: if you miscalculate, forgot a large bill coming up, or for any other (good!) reason need access to the money, it won't be at a time when the investment has dropped 15% in value and you face a large penalty for withdrawing from your retirement savings. Once you have a good understanding of how much you are able to save reliably, you can divert a portion of that into other savings vehicles, including retirement savings. In fact, at that point, you probably should. Also, I suggest making a list of every single bill you pay regularly, its amount, when you paid it last time, and when you expect the next one to be due. Some bills are easy to predict (\"\"$234 rent is due the 1st of every month\"\"), and some are more difficult (\"\"the electricity bill is due on the 15th of the month after I use the electricity, but the amount due varies greatly from month to month\"\"). This isn't to know exactly how much you will have to pay, but to ensure that you aren't surprised by a bill that you didn't expect.\"","Good question, very well asked! The key here is that you need to find a solution that works for you two without an overt amount of effort. So in a sense it is somewhat behavior driven, but it is also technology driven. My wife and I use spreadsheets for both checking account management and budgeting. A key time saver is that we have a template sheet that gets copied and pasted, then modified for the current month. Typically 90% of the stuff is the same and each month requires very little modification. This is one of my problems with EveryDollar. I have to enter everything each and every month. We also have separate checking accounts and responsibility for different areas of the family expenses. Doing this risks that we act as roommates, but we both clearly understand the money in one persons account equally belongs to the other and during hard times had to make up for shortfalls on the part of the other. Also we use cash for groceries, eating out, and other day to day expenses. So we don't have a great need to track expenses or enter transactions. That is what works for us, and it takes us very little time to manage our money. The budget meeting normally lasts less than a half hour and that includes goal tracking. We kind of live by the 80/20 principle. We don't see a value in tracking where every dime went. We see more value in setting and meeting larger financial goals like contributing X amount to retirement and things of that nature. If we overspent a bit at Walgreens who cares provided the larger goals are meant and we do not incur debt.","What are your goals? Managing your finances is not the same for everyone. For example, do you want a more hands-off approach to finance or more hands-on? Are you looking at investments as well or just saving money? Those types of questions.","The key to understanding where your money is going is to budget. Rather than tracking your spending after the fact, budgeting lets you decide up front what you want to spend your money on. This can be done with cash envelopes, on paper, or on Excel spreadsheets; however, in my opinion, the best, most flexible, and easiest way to do this is with budgeting software designed for this purpose. As I explained in another answer, when it comes to personal budgeting software, there are two different approaches: those in which you decide what to spend your money on before it is spent, and those that simply show you how your money was spent after it is gone. I recommend the first approach. Software designed to do this include YNAB, Mvelopes, and EveryDollar. My personal favorite is YNAB. You'll find lots of help, video tutorials, and even online classes with a live teacher on YNAB's website. Using one of these packages will help you manage spending, whether it is done electronically or with cash. When you pay for something with a credit card, you enter your purchase into the software, and the software adjusts your budget as if the money is already spent, even if you haven't technically paid for the purchase yet. As far as strategy goes, here is what I recommend: Get started on one of these, and set up your budget right away. Assign a category to every dollar in your account. Don't worry if it is not perfect. If you find later on that you don't have enough money in one of your categories, you can move money from another category if you need to. As you work with it, you'll get better at knowing how much money you need in each category. My other recommendation is this: Don't wait until the end of the month to download your transactions from the bank and fit everything into categories. Instead, enter your spending transactions into the software manually, every day, as you spend. This will do two things: first, you'll have the latest, up-to-date picture of where your accounts are in your software without having to guess. Second, it will help you stay on top of your spending. You'll be able to see early on if you are overspending in a particular category. YNAB has a mobile app that I use quite a bit, but if I don't get a chance to enter a purchase right when I spend it, I make sure to keep a receipt, and enter the transaction in that evening. It only takes a couple of minutes a day, and I always know how I stand financially.","Out Of The Dark OOTD is a budgeting and personal money management web app that does not require you to give out access to your bank accounts or even your personal identity. It's a great tool for people with no financial experience with features like Cash Put-Aside and the Credit Card Debt Terminator and it has tons of instant guides explaining how to use every feature. You can check it out at myootd.org.","As long as you can be trusted with a Credit Card i find that if you have a setup that uses three accounts: 1. your Credit Card, 2. 2. a high interest internet account (most of these accounts don’t have fees), 3. a savings account. The Method that works for me is: 1st i calculate my fixed monthly bills i.e Rent and utilities and then transfer it into my high interest account. for the month whenever i make a purchase i transfer the money into the high interest account ( this way I can keep a running balance of what money I have left to spend in the month. Then when the Credit Card bill comes I transfer the money out of the high interest account across to pay off the Credit Card ( this way you generate interest on the money which you would have spent throughout the month and still maintain $0 of interest from the Credit Card) over a year you can generate at least enough money in interest to go out for dinner on one of free flights!","Budget out the amount you save and owe per month. Make sure that amount doesn't stay liquid, invest it, send it out. Make it go away. Learn to live in the rest. If you still have some left over then enjoy the impulse buying (why not). Second rule, try to payout your credit cards every month.","My wife and I do this. We have one account for income and one for expenditures (and around 7 others for dedicated savings.) Doing this we are forcing ourselves to keep track of all expenditures as we have to manually transfer funds from one to the other, we try to do this periodically (every Wednesday) and then keep the expenditures within what is actually on the account. It is a really good way to keep track of everything. Bear in mind that our bank provides a fast handy smartphone app where we both can check our account as well as transfer funds in less than 10 seconds. (Fingerprint authentication, instant funds transfer as well as zero fees for transfers.) Right now we have a credit card each attached to the expenditures account, but earlier we only had a debit card each and no credit cards. Meaning that when the weekly funds ran out we where simply not able to pay. We did this to mimic living only on cash and when the cash runs out you simply have to stop buying stuff. And at the same time we could accrue quite a bit of savings. I would definitely recommend this if you have problems with over expenditures.","A technique that is working pretty well for me: Hide the money from myself: I have two bank accounts at different banks. Let's call them A and B. I asked my employer to send my salary into account A. Furthermore I have configured an automatic transfer of money from account A to account B on the first of each month. I only use account B for all my expenses (rent, credit card, food, etc) and I check its statement quite often. Since the monthly transfer is only 80% of my salary I save money each month in account A. I don't have a credit card attached to the savings account and I almost never look at its statement. Since that money is out of sight, I do not think much about it and I do not think that I could spend it. I know it is a cheap trick, but it works pretty well for me.","As far as I know theres no single tool that does all that well. You'll have to keep your investments separate from your daily expenses and money goals. There are a few tools everyone uses. I'm partial to budgeting apps. You can try ynab, everydollar, goodbudget. I wouldn't recommend mint as I personally don't trust my login info with a third party. I don't care who owns them. Just my opinion. I'm working on my own budgeting app. Ideally I'd like to include investments. But thats V2. If you'd like to keep updated on that let me know. Oh, what type of phone do you use?","mint.com does a decent job categorizing your spending for you, it will do exactly what you asked your advisor I would also put some %% into saving from your every paycheck before you deposit the rest to checking(spending) and make a rule, you can't touch the saving account. Just like you are have enough courage not to use credit cards.","\"As others have said, the decision is a very personal one. Personally, I think you have a good idea. For those of us that thrive in structured systems having a detailed breakdown and distribution of assets is a great idea. I recommend going one step further however. Instead of having a single \"\"Necessities\"\" account have a division here. 1 account for \"\"Bills\"\" and another for \"\"Living Expenses.\"\" Your Bills account should recieve the funds to pay your monthly expenses such as Rent, Utilities, Insurance. Living Expenses is for day to day spending. I recommend this because your Bills are generally a fairly fixed expense. Keeping your flexible spending separate allows you to manage it more carefully and helps prevent overspending. I keep my Living Expenses in cash and divide it up by the number of days before my next check. Every day I put my portion of the Living Expenses in my wallet. This way I know that I can spend as much money in my wallet and still be fine for the rest of the pay period. I also know that if I want to go out to a nice dinner on Friday, it would be helpful if I have money left over at the end of the day Monday through Thursday.\"","\"Its really, really good of you to admit your short comings with a desire to improve them. It takes courage. Keep in mind that most of us that answer questions here are really \"\"good at money\"\" so we have a hard time relating. Would you want people that are bad with money answering questions on a personal finance site? While it is intimidating you will need a budget. A budget is simply a plan for how to spend your money. Your budget, based on your new pay frequency, will likely also need some cash flow planning as a single paycheck is unlikely to cover your largest expenses. For example your rent/mortgage might be less than a single paycheck so you will have to save money from the previous paycheck to have enough money to pay it. Your best bet is to have a friend or relative that is good with money help you setup a budget. Do you have one? If not you might inquire about a church or organization that offers Financial Peace University. The teachers of the class often help people setup a budget and might be willing to do so for you. You could also take the class which will improve your money management skills. For $100 you'll have a lifetime pass to the class. If it helps you avoid three late charges/bounce checks then the class is well worth it. Now as far as spending too much money. I would recommend cash, but you have to do it the right way. Here is the process that you have to follow to be successful with cash: Doing cash will give you a more concrete example of what spending means. It won't work if you continue to hit the ATM \"\"for just $20 more\"\". It will take you a bit to get used to it, but you will be surprised how quickly you improve at managing money.\"","Your Money or Your Life is a great book on this topic.","1) It sounds like you don't have a credit card, good. Take our ATM card and freeze it in a block of ice. Leave it in the freezer. 2) Get on a budget. A budget is a plan to spend your money. The best plans are those that are made ahead of time. For the record, budgeting is a skill and you will probably be bad at it for the first few times. 3) Withdraw cash from the bank account that you will need for the week. Once that money is gone, you are done spending until the next week. If you are still having trouble with this do it daily. Let's say you budget 300 for the month's spending. Go to the bank, take out 10 each day. You can carry money over from day-to-day, but never take out more. You can never spend more than you have because your ATM is in ice. 4) Find a friend who is good with money. Ask them to help you by giving guidance and oversight.","As others have said getting on a written budget before each month starts is the most important part. Also, I'm a big fan of cash budgets as well. They aren't for everyone and they take a little getting used to, but once you get used to them you'll never want to go back. In a cash budget you take whatever you have budgeted for the month for each category and withdraw the amount needed from the bank. These go into an envelope for each category, i.e. food, clothes, entertainment, etc. If a 3 weeks into the month you run out of money in that envelope you are done spending money in that category. For example, if it's the food envelope and you run out it's time for you to start eating leftovers and whatever you've got in the pantry. You lose out on advantages like points gained on credit cards and whatnot but statistically people that spend cash spend much less overall and you get some enforced self control that you otherwise might not have.","Obviously, there are many approaches. I’ll describe what we do and why we think it is successful. I have seen many couples having disagreements and even divorce over money; it seems that this is a typical reason to fight and sometimes fight badly. The realization is that different people have different preferences what to spend their money on, and if you are not rich, it continuously leads to disagreements - ‘did you really need another pair of shoes?’, etc. Our solution is a weekly allowance. First, all our money goes into one pot and is considered equal. Many couples find that a difficult step, but I never thought twice about it - I trust my spouse, and I share my life with her, so why not my money? From this, we agree on an ‘allowance’ that is used to cover any non-common cost; this includes all clothing, dining out, buying things, etc. The amount was chosen to match about what we spent for those things anyway, and then adjusted annually. The main point is that there is no critique allowed about what this is spent on - you can blow it all on shoes, or buy books, or wine and dine, or gamble it away, whatever. We are doing this since 23 years now, and we are very happy with the results; we never have financial ‘fights’ anymore. Disadvantages are the effort - you need to keep track of it somehow. Either you use a separate credit card, or hand it out in cash, or have a complete accounting (I do the latter, because I want to). Regarding all other spend, we use the accounting to plan ahead for at least a year on all cost and income that are expected, and that shows us the available cash flow and where it might get tight. It also shows you where the money goes, and where you could cut if cutting is needed (or wanted). Again, there is some effort in collecting the data, but it is worth it (for us).","Just set up a budget. Indicate how much money comes in, how much goes out to must pay expenses (lodging, food, gas, heat, cooling, etc), and determine how much is leftover for anything else you want. If that amount is ok, then you're fine. If not, something needs adjusting.","I agree with the first poster- the first step is to measure your spending and put it down into raw numbers. Once you have the raw numbers, you will feel a natural inclination to improve on those numbers. Set yourself a daily target for cash / incidental expenses. It doesnt have to be a crazy target - just something you can achieve easily. Mark a 'tick' mark next to every day on the calendar that you meet that target (or spend less than the target). Gradually the momentum from the past few 'ticks' will automatically compel you to want to tick off the next day. At the end of each week, lower the target a little. You'll find that when you start measuring your expenditure, you become more aware of how you might be wasting money. All too often we just go out and buy stuff we don't need without really thinking about it.","Get on a written budget at the BEGINNING of the month. If you dont write down where your money goes BEFORE you spend it, you have no way of keeping track of it. I couldn't do a thing until I got on a written budget but now that I am, I've paid off $10,000 in 7 months.","\"This may seem overly simple, but the most important thing to know is \"\"live beneath your means\"\". If your income is, for example, $2000 per month, spending $2001 or more per month is a sure path to ruin. Spending $1999 or less is the secret to success. Everything else on this forum is mere commentary on the above.\"","\"I started storing and summing all my receipts, bills, etc. It has the advantage of letting me separate expenses by category, but it's messy and it takes a long time. It sounds from this like you are making your summaries far too detailed. Don't. Instead, start by painting with broad strokes. For example, if you spent $65.17 at the grocery store, don't bother splitting that amount into categories like toiletries, hygiene products, food, and snacks: just categorize it as \"\"grocery spending\"\" and move on to the next line on your account statement. Similarly, unless your finances are heavily reliant on cash, don't worry about categorizing each cash expense; rather, just categorize the withdrawal of cash as miscellaneous and don't spend time trying to figure out exactly where the money went after that. Because honestly, you probably spent it on something other than savings. Because really, when you are just starting out getting a handle on your spending, you don't need all the nitty-gritty details. What you need, rather, is an idea of where your money is going. Figure out half a dozen or so categories which make sense for you to categorize your spending into (you probably have some idea of where your money is going). These could be loans, cost of living (mortgage/rent, utilities, housing, home insurance, ...), groceries, transportation (car payments, fuel, vehicle taxes, ...), savings, and so on -- whatever fits your situation. Add a miscellaneous category for anything that doesn't neatly fit into one of the categories you thought of. Go back something like 3-4 months among your account statements, do a quick categorization for each line on your account statements into one of these categories, and then sum them up per category and per month. Calculate the monthly average for each category. That's your starting point: the budget you've been living by (intentionally or not). After that, you can decide how you want to allocate the money, and perhaps dig a bit more deeply into some specific category. Turns out you are spending a lot of money on transportation which you didn't expect? Look more closely at those line items and see if there's something you can cut. Are you spending more money at the grocery store than you thought? Then look more closely at that. And so on. Once you know where you are and where you want to be (such as for example bumping the savings category by $200 per month), you can adjust your budget to take you closer to your goals. Chances are you won't realistically be able to do an about-face turn on the spot, but you can try to reduce some discretionary category by, say, 10% each month, and transfer that into savings instead. That way, in 6-7 months, you have cut that category in half.\"","Many banks will allow you to open multiple accounts. Create a secondary checking account that has no automatic withdrawals and doesn't allow overdraft. This is the account you'll use for you discretionary spending. Get an account with a debit card and always use it as a debit card (never as a credit card, even if it allows that). Your employer may allow you to split your direct deposit so that a certain amount of money goes into this account each month. When it gets to $0, you have to stop spending. It will automatically refill when you get your paycheck.","Organize your expenses in order of the rate of return, and pay them in that order. By far the highest rate of return on your list is: Nowhere else are you going to see an immediate 100% return (or 50%, depending on the company's matching policy) on every dollar you allocate to this pot. Second would probably be: Money that you do not allocate here will usually incur a 15%-29% penalty. Outside of large expenses like a home, education, or a reasonable car, you never want to pay to use your own money (and borrowed money is still yours, remember that someday you have to pay all of it back). Avoiding a negative rate of return (interest) can be just as beneficial as finding a high positive rate of return on an investment. Continue down the list determining what must be paid first, and what the highest rates are in the immediate future and the long run. Meanwhile, live within your means, and set aside a portion of your monthly income towards things like a rainy day fund (up to a level which is not touched when reached). Additional savings through work or your personal investments should not be neglected (money saved early and compounded is worth many times what a dollar saved down the road will gain) especially if you are young in your career.","Let an app do it for you, group items and see where you spend your money. One example: https://www.tinkapp.com/en/ Should provide a starting point for showing income vs expenses.","\"For the most part, saving money usually depends upon having a budget and being able to stick to it. The toughest part of budgeting is usually setting it up (how much do I need for X) and sticking to it each month. In regards to sticking to it, there is software that you can use that helps figure out how much you are spending and how much you have left in a given category and they all pretty much do the same thing: track your spending and how much you have left in the category. If you are good with spreadsheets you might prefer that route (cost: free) but software that you can buy usually has value in that it can also generate reports that help you spot trends that you might not see in the spreadsheet. Sticking to a budget can be tough and a lot of what people have said already is good advice, but one thing that helps for me is having \"\"play money\"\" that can be used for whatever I want. In general this should be a fairly nominal amount ($20 or $40 a week) but it is enough that if you see a new book you want or what to go out for lunch one day you can do it without impacting the overall budget in some way. Likewise, having bigger savings goals can also be useful in that if times get tough it is easier to stop putting $100 a month to the side for a vacation than it is to cut back your grocery budget.\"","\"If psychologically there is no difference to you between cash and debit (you should test this over a couple of months on yourself and spouse to make sure), then I suggest two debit cards (one for you and spouse) on your main or separate checking account. If you use Mint you can set budgets for each category (envelope) and when a purchase is made Mint will automatically categorize that transaction and deduct that amount from the correct budget. For example: If you have a \"\"Fast Food\"\" budget set at $100 per month and you use the debit at McDonalds, Mint should automatically categorize it as \"\"Fast Food\"\" and deduct the amount from the \"\"Fast Food\"\" budget that you set. If it can't determine a category or gets it wrong, you can just select the proper category. Mint has an iPhone (also Android and Windows phone) app that I find very easy to use. Many people state that they don't have this psychologically difference between spending cash and debit/credit, but I would say that most actually do, especially with small purchases. It doesn't have anything to do with intellect or knowing that you are actually spending money. It has more to do with tangibility, and the physical act of handing over cash. You may not add that soda and candy bar to your purchase if you have visible cash in your wallet that will disappear more quickly. I lived in Germany for 2 years before debit cards were around or common. I'm a sharp guy and even though I knew that I paid $100 for the 152 DM, it still kind of felt like spending Monopoly money, especially considering that in the US we are used to coins normally being 25 cents or less and in Germany coins are up to 10 DM (almost $10) and are used more frequently than paper.\"","The absolute best advice I ever received was this: You will need three categories of savings in your life: 1) Retirement Savings This is money you put away (in 401-Ks and IRAs) for the time in your life when you can no longer earn enough income to support yourself. You do not borrow against it nor do you withdraw from it in emergencies or to buy a house. 2) Catestrophic savings This is money you put back in case of serious events. Events like: prolonged job loss, hospitalization, extended illness, loss of home, severe and significant loss of transportation, very large aplliance loss or damage. You do not take trips to the Bahamas or buy diamond rings with this money. 3) Urgent, relatively small, need savings. This is the savings you can use from time to time. Use it for bills that arise unexpectedly, unforseen shortfalls in your budget, needed repairs such as car repairs and small appliance repairs, surprising fines, fees, and bills. Put 10% of your income into each category of savings. 10% intro retirement savings, another, separate, 10% intro Catestrophic savings, and yet another 10% intro urgent, small need, savings. So, as you can see, already 30% of your income is already spoken for. Divide up the remaining 70% intro fixed (I recommend 50% toward fixed expenses) and variable expenses. Fixed includes those things that you pay once every month such as housing, utilities, car payment, debt repayment, etc. Variable includes discretionary things like eating out, gifts, and splurges. Most importantly, partner with someone who is your opposite. If you are a saver at heart partner with a spender. If you are a spender partner with a saver. There are three rules to live by regarding the budget: A) no one spends any money unless it is in the budget B) the budget only includes those things to which both the saver and the spender agree C) the budget can, and will, be modified as the pay period unfolds. A budget is a plan not a means to beat the other person up. Plans change as new information arises. A budget must be flexible. The urgent use savings will help to make the budget flexible. Edit due to comments: @enderland Perhaps you do not have children living with you. I am a saver, my wife is a spender. When it came time to do the budget I would forget things like the birthdays of my children, school fees due next pay period, shopping for Christmas gifts, needed new clothes and shoes for the children, broken small appliances that needed to be fixed or replaced, special (non reoccurring) house maintenence (like steam cleaning the carpet), gifts to relatives and friends, exceptional assistance to relatives, etc. As my wife was the spender she would remind me of these things. Perhaps you do not have these events in your life. I am glad to have these events in my life as that means that I have people in my life that I care about. What good is a fat savings account if I have no loved ones that benefit from it?","Personal finance is a fairly broad area. Which part might you be starting with? From the very basics, make sure you understand your current cashflow: are you bank balances going up or down? Next, make a budget. There's plenty of information to get started here, and it doesn't require a fancy piece of software. This will make sure you have a deeper understanding of where your money is going, and what is it being saved for. Is it just piling up, or is it allocated for specific purchases (i.e. that new car, house, college tuition, retirement, or even a vacation or a rainy day)? As part of the budgeting/cashflow exercise, make sure you have any outstanding debts covered. Are your credit card balances under control? Do you have other outstanding loans (education, auto, mortgage, other)? Normally, you'd address these in order from highest to lowest interest rate. Your budget should address any immediate mandatory expenses (rent, utilities, food) and long term existing debts. Then comes discretionary spending and savings (especially until you have a decent emergency fund). How much can you afford to spend on discretionary purchases? How much do you want to be able to spend? If the want is greater than the can, what steps can you take to rememdy that? With savings you can have a whole new set of planning to consider. How much do you leave in the bank? Do you keep some amount in a CD ladder? How much goes into retirement savings accounts (401k, Roth vs. Traditional IRA), college savings accounts, or a plain brokerage account? How do you balance your overall portfolio (there is a wealth of information on portfolio management)? What level of risk are you comfortable with? What level of risk should you consider, given your age and goals? How involved do you want to be with your portfolio, or do you want someone else to manage it? Silver Dragon's answer contains some good starting points for portfolio management and investing. Definitely spend some time learning the basics of investing and portfolio management even if you decide to solicit professional expertise; understanding what they're doing can help to determine earlier whether your interests are being treated as a priority.","Determine how much you are going to save first. Then determine where you can spend your money. If you're living with your parents, try to build an emergency fund of six months income. The simplest way is to put half of your income in the emergency fund for a year. Try to save at least 10% of your income for retirement. The earlier you start this, the longer you'll have to let the magic of compounding work on it. If your employer offers a 401k with a match, do that first. If not, consider an IRA. You probably want to do a Roth now (because you probably pay little in taxes so the deduction from a standard IRA won't help you). After the year, you'll have an emergency fund. Work out how much money you'll need for rent, utilities, and groceries when you're on your own. Invest that in some way. Pay off student loans if you have any. Buy a car that you can keep a long time if you need one. Go to night school. Put any excess money in a savings account or mutual fund. This is money for doing things related to housing. Perhaps you'll need to buy a washer/dryer. Or pay a down payment on a mortgage eventually. Saving this money now does two things: first, it gives you savings for when you need it; second, it keeps you from getting used to spending your entire paycheck. If you are used to only having $200 of spending cash out of each check, you will fit your spending into that. If you are used to spending $800 every two weeks, it will be hard to cut your spending to make room for rent, etc.","\"Keep track of everything you buy. Write it down and be accountable. Try not to buy anything on credit cards, if the money is not in your account now then you can't afford it. Ask yourself whether what you're buying is a \"\"need\"\" or a \"\"want\"\". If you find that you are buying things because you are bored and you like shopping then try taking up a (cheap) hobby that fills that void and is something you enjoy doing.\"","Assuming what is taking you over budget are not essential costs such as fuel bills, food, mortgage etc. you could do the following. Work out your monthly disposable income after all essential base costs have been sutracted. Then simply keep a book of any additional spending. It will be very easy to see if you're at risk of overspending. In fact, even when one has no need to budget it's still an excellent idea to keep a book of all your spending. It's surprising how useful it can be. It's a great reference for dues dates, sizes of past bills and provides an excellent cross check of your bank statement. It's not often that you find an error on your bank statement (at least it shouldn't be!), but my books have helped me locate three such errors over the past 25 years, which I'm sure would have gone unnoticed by most people. So my advice is, keep a book of your spending.","You have to track your spending for a month, down to the cent. Without those records, the person trying to help you has no real data. Even a week would be a start. Heck, try just doing this today. See if it works for you. Throughout each day: Each evening: At the end of a month (or week, or whatever period you want): Each day you do it successfully it will get easier. Let us know how it works out! Best wishes!","On average, you should be saving at least 10-15% of your income in order to be financially secure when you retire. Different people will tell you different things, but really this can be split between short term savings (cash), long term savings (401ks, IRAs, stocks & bonds), and paying down debt. That $5k is a good start on an emergency fund, but you probably want a little more. As justkt said, 6 months' worth is what you want to aim for. Put this in a Money Market account, where you'll earn a little more interest but won't be penalized from withdrawing it when its needed (you may have to live off it, after all). Beyond that, I would split things up; if possible, have payroll deductions going to a broker (sharebuilder is a good one to start with if you can't spare much change), as well as an IRA at a bank. Set up a separate checking account just for rent and utilities, put a month's worth of cash in there, and have another payroll deduction that covers your living expenses + maybe 5% put in there automatically. Then, set up automatic bill payments, so you don't even have to think about it. Check it once a month to make sure there aren't any surprises. Pay off your credit cards every month. These are, by far, the most expensive forms of credit that most people have. You shouldn't be financing large purchases with them (you'll get better rates by taking a personal loan from a bank). Set specific goals for savings, and set up automatic payroll deductions to work towards them. Especially for buying a house; most responsible lenders will ask for 20% down. In today's market, that means you need to write a check for $40k or $50k. While it's tempting to finance up to 100% of the property value, it's also risky considering how volatile markets can be. You don't want to end up owing more on the property than it's worth two years down the road. If you find yourself at the end of the month with an extra $50 or so, consider your savings goals or your current debt instead of blowing it on a toy. Especially if you have long term debt (high balance credit cards, vehicle or property loans), applying that money directly to principal can save you months (or years) paying it back, and hundreds or thousands of dollars of interest (all depending on the details of the loan, of course). Above all, have fun with it :) Think of your personal net worth as you do your Gamer score on the XBox, and look for ways to maximize it with a minimum of effort or investment on your part! Investing in yourself and your future can be incredibly rewarding emotionally :)","There are a lot of good answers above, all of them will probably work for you in some way or another. One point to note (from the procrastination theme) is that you could invest your free money that you have currently in some investment instrument which would require you to do some paperwork etc. to get out, this way the immediate cash flow is decreased and also invested. Now from each montly budget save a small amount for the things that you would like to buy. Give this small savings some months to accumulate so that you can afford only one of the items that you want to buy or target an item that you want to buy. After the money is accumulated, if you still want to buy the item, then you probably should. One point of note is that budgeting is also important on a monthly basis, Pete has provided excellent suggestion in this regard.","In your comment in response to this answer, you said that your biggest issue is oversight, which you can do by checking your online bank account regularly. Mint.com looks good but you're in Australia? Easy, check out getpocketbook.com. Using it and love it, helps a lot to track your tracking, and it's a god-send during tax time.","\"I would suggest having your money auto-deposited into a savings account. Then use cash weekly to pay for everything you purchase. Forget the ATM card, because you can burn through your whole paycheck and then run out. Set a certain budget (say $200 per week, just making up a number), and that's all you get. Withdraw $200 from the bank / ATM, and then walk away. No buying online (because it isn't restricted), no buying on a card. All expenses (beyond utilities) comes out of that cash. When you want to spend more, you need to wait until your next cash \"\"paycheck\"\". If you want to spend more (on whatever you end up splurging on), you will need to cut back in other areas (cheaper food, etc). As others have mentioned, freeze that ATM card, and don't use it at all.\"","\"What you are doing is neither one. You are simply watching to make sure you don't overdraw, which itself suggests you might be living hand to mouth and not saving. Keeping track of your money and budgeting are useful tools which help people get on top of their money. Which tends to have the effect of allowing you to save. How much did you spend on groceries last month? Eating out? Gas? If you were \"\"keeping track of your money\"\", you could say immediately what you spent, and whether that is above or below average, and why. How much do you plan to spend in the next 3 months on gas, groceries, eating out? If you knew the answer to that question, then you would have a \"\"budget\"\". And if those months go by, and your budget proves to have been accurate, or educates you as to what went wrong so you can learn and fix it... then your budget is a functioning document that is helping you master your money. Certainly the more powerful of the two is the \"\"keeping track\"\", or accounting of what has happened to you so far. It's important that you keep track of every penny without letting stuff \"\"slip through the cracks\"\". Here you can use proper accounting techniques and maybe accounting software, just like businesses do where they reconcile their accounting against their bank statements and wallet cash. I shortcut that a little. I buy gift cards for McDonalds, Panera, Starbucks, etc. and buy my meals with those. That way, I only have one transaction to log, $40 - McDonalds gift card instead of a dozen little meals. It works perfectly fine since I know all that money went to fast food. A little more dangerous is that I treat wallet cash the same way, logging say two monthly entries of $100 to cash rather than 50 little transactions of left $1 tip at restaurant. This only works because cash is a tiny part of my overall expenditures - not worth accounting. If it added up to a significant part, I'd want accounting on that.\"","Communicate. I would recommend taking a course together on effective communications, and I would also suggest taking a course on budgeting and family financial planning. You need to be able to effectively communicate your financial plans and goals, your financial actions, and learn to both be honest and open with your partner. You also need to be certain that you come to an agreement. The first step is to draft a budget that you both agree to follow. The following is a rough outline that you could use to begin. There are online budgeting tools, and a spreadsheet where you can track planned versus actuals may better inform your decisions. Depending upon your agreed priorities, you may adjust the following percentages, Essentials (<50% of net income) Financial (>20%) Lifestyle (<30%) - this is your discretionary income, where you spend on the things you want Certain expense categories are large and deserve special advice. Try to limit your housing costs to 25% of your income, unless you live in a high-cost/rent area (where you might budget as high as 35%). Limit your expenses for vehicles below 10% of income. And expensive vehicle might be budgeted (partly) from Lifestyle. Limiting your auto payment to 5% of your income may be a wise choice (when possible). Some families spend $200-300/month on cable TV, and $200-300/month on cellphones. These are Lifestyle decisions, and those on constrained budgets might examine the value from those expenses against the benefit. Dining out can be a budget buster, and those on constrained budgets might consider paying less for convenience, and preparing more meals at home. An average family might spend 8-10% of their income on food. Once you have a budget, you want to handle the following steps, Many of the steps are choices based upon your specific priorities.","\"There is a saying in business: what gets measured gets done. Track every expense you make. Later, look over what you have learned. If 5% of your total budget is going to something frivolous, maybe you could halve it? If 1% or 0.1% is going to that frivolous expense, there's not much to be gained even by eliminating it. If you spend $200/mo on coffees, dropping those will help. If you spend $10/mo on coffees, you need to look elsewhere for your big savings. Have a target: I want to put $X into savings each month. Therefore I can only spend $Y. What do you have to change about last month's spending patterns to get down to $Y? Where are the easy targets for you? They will be different than the easy targets for me. What absolutely cannot change for you? Once you know the costs of what you're doing, you will know where it's possible to save, and where it's \"\"worth it\"\" to economize.\"","Fisher Capital Management: Leading 10 Monetary Suggestions Posted on 17/10/2011 by fcminvestment Even though resolutions boost financial condition a great idea to accomplish in any period for year is for numerous persons discover this less difficult from the starting of the New Year. Irrespective of any time one start, the fundamentals stay identical. Fisher Capital Management shares recommendations in order to be in advance monetarily. 1. Be Compensated How Much you are worth and Save Some Part of It This appears easy; however countless individuals have difficulty having this specific initial fundamental principle. Be positive and understand exactly what your task is worth within the industry, through executing the assessment of your expertise, productiveness, career responsibilities, involvement to the firm, and the current fee, equally within and beyond the organization, regarding what you perform. Becoming under compensated actually a thousand bucks a year may possess a substantial collective result more than the actual process of one’s employment existence. Irrespective of the amount or perhaps how small you are compensated, you will in no way obtain be advance in case one devote far more compared to a person gain. Frequently it is less difficult to invest much less compared to this will be to make much more, and the small efforts within the amount of places may outcome in large savings. This will not usually have that which includes producing large sacrifices. 2. Adhere to the Price Range How many people understand when the funds will be heading when one never budget? How does a person can easily established investing and saving targets when one never understands in which the cash is actually heading? People require the budget whether or not a person creates thousands or perhaps hundreds of thousands of bucks a year. 3. Settle Credit Card Accounts Credit card financial obligation is actually the number one hindrance to becoming ahead monetarily. These small items of plastic tend to be so convenient to utilize, it is therefore very easy to overlook that it is actual cash we are coping with whenever you whip these away to pay out for any transaction, big or even little. In spite of the great resolves in order to shell out balance away swiftly, the truth is that it usually will not, and wind up having to pay much more regarding issues compared to make paid off when you made use of money. 4. Chip in towards the Pension Program When the company has a 401(k) plan and a person do not contribute to this, you are running away through one of the finest discounts right there. Request the boss if they have the 401(k) plan (or even comparable program), and sign up right now. In the event that you happen to be contributing, attempt to increase the contribution. In case the company will not provide the pension program, think about the Individual retirement account. 5. Make Financial Savings Program You might have discovered this before: Pay for yourself first! If perhaps a person delay till you have satisfied most ones monetary commitments prior to finding what is remaining around for saving, probabilities tend to be you will in no way possess a wholesome financial savings accounts or perhaps opportunities. Deal with it in order to fix apart the minimal for 5% to 10% of the income to get savings prior to shelling out the expenses. More desirable however, get cash instantly taken off through the income and deposit straight into a distinct account. 6. Make Investments! Should you are contributing the pension program and the savings account as well as one may also handle to set a number of funds in to some other ventures, all the far better. 7. Improve Ones Career Rewards Work benefits such as the 401(k) program, flexible expenditure consideration, healthcare as well as dental care coverage, and so on. are usually valued at huge money. Try to make certain you will be making the most of your own and also getting benefit of these kinds which can easily help save cash through lowering taxation or perhaps out-of-pocket expenditures. 8. Evaluate Ones Coverage Protections Overly numerous individuals tend to be though in to spending a lot regarding life and impairment coverage, no matter if it is through incorporating all these protections to automobile mortgages, purchasing whole-life insurance if term-life creates a lot more feeling, or perhaps purchasing life insurance any time one possess absolutely no dependents. In the different side, it really is essential to an individual get sufficient insurance coverage to be able to safeguard the loved ones and also the earnings in the event of fatality or possibly impairment. 9. Revise Your Current Will 70% of American citizens do not possess a will. In case a person have dependents, irrespective of just how small or what amount a person own, an individual need a will. When the predicament is not very difficult a person may actually carry out the personal plan just like WillMaker through Nolo Press. Safeguard your own cherished family members. Create your will. 10. Maintain Suitable Data When a person do not maintain useful data, you are most likely in no way proclaiming all the allowable revenue taxes deductions as well as credits. Established a method today and utilize this each of the year. It is a lot simpler compared to rushing in order to discover all the things from taxes period, just to skip things which may have rescued a person capital.","\"You are making this far more complex than it needs to be. Direct deposit your savings directly into a savings account. To track spending, invest in a small notebook, and keep a tally of what you spend every day. Also, it seems odd to me that you want to track your budget in minute detail, but coins are \"\"useless\"\" to you.\"","In general, the better advice I've heard is to spend only on things that matter to you and scrimp on the rest. It's an easy way to budget without having to stick to a strict set of rules. Otherwise keep 3-6 months of living expenses in liquid accounts (money market, savings) and invest the rest.","\"My father imparted this advice to me when I was a teenager, and it hasn't failed me yet. > Pay yourself first What this means is that the first \"\"bill\"\" you pay should always be your savings. Preferably in a way that automatically comes out of your paycheck or account without requiring you to take an active step to make it happen. I save a ton of money, but I am no more disciplined than anyone else. I just realized that over the years of progressing in my career that I gradually got higher and higher salaries, yet never had a substantial increase in the money I had leftover in my bank at the end of the month despite the fact that I make about 8x the money I used to live reasonably comfortably on. Therein is the point, we spend whatever money we see, so you almost have to hide it from yourself. First, participate to the fullest in your company's 401k if they offer it. After a while you will adjust naturally to the net take home pay and won't miss the savings you are accumulating. Absent that, or in addition to that, set up a separate bank or investment account and arrange an automatic transfer from your checking account every month. Then set up automatic investing in CD's or some other less-liquid-than-cash investment so you it is just enough hassle to get at the money that you won't do it on a whim. It sounds too simple, but it works.\"","Does your employer offer direct deposit? Can you deposit to more than one account? Personally, I have my pay split up like this via direct deposit: From an early age I found that separating my expenses from my spending money kept me inside my spending limits and kept my savings on track. In fact, checking account 1 and 2 are at two different banks. Get yourself a credit card to start establishing some credit. Make a payment plan for the student loan, but before focusing completely on repaying it start to establish an emergency fund.","Mint.com—Easy solution to provide insight into finances. Pros: Cons:","\"Money management is data-driven. You've been operating on \"\"how you feel\"\" and \"\"what should be\"\", and that's why it hasn't been working. First you collect data on how you actually are spending money. Record every expenditure and categorize what it was used for. Go back 6-12 months if you can. You don't need blistering detail, in fact I adjusted my lifestyle to make that easy. Fast food meals, movie tickets, USB cables, anything too small to bother recording, I just pay cash for that. Everything else: check, ACH or credit card. It is not excessive to do it in Quickbooks or similar if you know the app. Whatever is most efficient for you. Now you have a log of what you've been spending on what in a time oeriod, and a log of your income. Congratulations, you have a \"\"Profit & Loss Statement\"\", a basic financial planning tool. Now you can look at it accurately, decide if the money you are spending in each department brings the value and joy that fits the expenditure, and change what you want. You may decide you'd rather save $1000/mo than run a $200/mo deficit. Changing is simply coming up with different numbers that you think are achievable. Congratulations, you have a budget or spending plan. Again, data driven. The point is, your spending plan is based on your actual experience with past expenditures, not blind-guessing. Then, go out and make it happen.\"","You should invest your money. To figure out what rate of return you need, use this equation: (How Much Money You Want Per Year) / (Total Amount of Cash You Have) = (Annualized Interest Rate) If we plug in the amount of annualized interest you can expect to safely get while not managing your money personally, 2% by my estimate, we get X / 1.2m = 0.02%; X=24K/year A measly $24,000 / year. Many people say that you can get 10, 12, even 30% return on your investment. I won't speculate on if this is true, but I will guarantee that you cannot get those returns simply by handing your money over to a money manager. So your options are, 1) Earn a guaranteed $24,000 and earn the rest you need to live by working 2) Learn to invest your money (and then do so intelligently) and earn enough to live off the interest To learn how to invest your money, read Beating the Street, by Peter Lynch. https://www.amazon.ca/Beating-Street-Peter-Lynch/dp/0671891634 Good luck!","\"As others have said, doing a monthly budget is a great idea. I tried the tracking expenses method for years and it got me nowhere, I think for these reasons: If budgeting isn't your cup of tea, try the \"\"pay yourself first\"\" method. Here, as soon as you get a paycheck take some substantial portion immediately and use it to pay down debt, or put it in savings (if you have no debt). Doing this will force you to spend less money on impulse items, and force you to really watch your spending. If you take this option, be absolutely sure you don't have any open credit accounts, or you'll just use them to make up the difference when you find yourself broke in the middle of the month. The overall key here is to get yourself into a long term mind set. Always ask yourself things like \"\"Am I going to care that I didn't have this in 10 years? 5 years? 2 months? 2 days even? And ask yourself things like \"\"Would I perfer this now, or this later plus being 100% debt free, and not having to worry if I have a steady paycheck\"\". I think what finally kicked my butt and made me realize I needed a long term mind set was reading The Millionaire Next Door by Tom Stanley. It made me realize that the rich get rich by constantly thinking in the long term, and therefore being more frugal, not by \"\"leveraging\"\" debt on real estate or something like 90% of the other books out there tell you.\"","In addition to the advice already given (particularly getting rid of high-interest debt), I would add the following:","First: great job on getting it together. This is good for your family in any respect I can think of. This is a life long process and skill, but it will pay off for you and yours if you work on it. Your problem is that you don't seem to know where you money goes. You can't decide how whacky your expenses are until you know what they are. Looking at just your committed expenses and ignore the other stuff might be the problem here. You state that you feel you live modestly, but you need to be able to measure it completely to decide. I would suggest an online tool like mint.com (if you can get it in your country) because it will go back for 90 days and get transactions for you. If you primarily work in cash, this isn't helpful, but based on your credit card debt I am hoping not. (Although, a cash lifestyle would be good if you tend to overspend.) Take the time and sort your transactions into categories. Don't setup a budget, just sort them out. I like to limit the number of categories for clarity sake, especially to start. Don't get too crazy, and don't get too detailed at first. If you buy a magazine at the grocery store, just call it groceries. Once you know what you spend, then you can setup a budget for the categories. If somethings are important, create new categories. If one category is a problem, then break it down and find the specific issue. The key is that you budget not be more than you earn but also representative of what you spend. Follow up with mint every other day or every weekend so the categorization is a quick and easy process. Put it on your iPhone and do it at every lunch break. Share the information with your spouse and talk about it often.","Give all your money as well as your budget requirements to someone you really trust. Tell them to give you ONLY what your budget allows. As long as both of you take this seriously, this method will be very effective.","such analysis helps you keep track of the percentage of income that you invest You could apply 1:1:1 ratio. i.e spend 1/3, save 1/3 and invest 1/3. Hope that helps","Look up You Need A Budget...the methodology is really the key and the software is elegant and practical. It's not about tracking spending, it's about planning what your dollars are going to do. The application automates much of the budget planning and data entry as it remembers your input (and is totally customizable). If you follow their basic blueprint, you can spend just minutes a week. They offer free online classes too (love this). I do not have skin in their game but have been a fan since it was just a spreadsheet. And yes, they have a mobile app, which means you can enter transactions on the go with just a few taps and then have your data synced across the cloud or just across your network.","\"What I've found works best when working on my personal budget is to track my income and spending two different ways: bank accounts and budget categories. Here is what I mean: When I deposit my paycheck, I do two things with it: It goes into my checking account, so the balance of my checking account goes up by the amount of my paycheck. I also \"\"deposit\"\" the money from my checking account into my various budget category balances. This is separate from my bank account balances. Some of my paycheck money goes into my groceries category, some goes into clothing, some into car fuel, entertainment, mortgage, phone, etc. Some goes into longer range bills that only happen once or twice a year, such as car insurance, life insurance, property tax, etc. Some goes into savings goals of ours, such as car replacement, vacation, furniture, etc. Every dollar that we have in a bank account or in cash in our wallets is also accounted for in a budget category. If you add up the balances of our bank accounts and cash, and you add up the balances of our budget categories, they add up to the same number. When we make a purchase, this also gets accounted for twice: The appropriate bank account (or cash wallet) balance gets reduced by the purchase amount. The appropriate budget category gets reduced by the purchase amount. In this way, we don't really need to worry about having separate bank accounts for different purposes. We don't need to put our savings goal money in a separate bank account from our grocery money, if we don't want to. The budget category accounting keeps track of how much money is allocated to each purpose. Now, the budget category amounts are not spent yet; the money in them is still in our bank account, and we can move money around in the categories, if we change our mind on how to allocate them. For example, if we don't spend all of our gas money for the month, we can either keep that money in the gas category, or we can move it to a different category, such as the car replacement category or the vacation category. If the phone bill is more than we expect, we can move money around from a different category to cover it. Now, back to your question: We allocate some money from each paycheck into our furniture category. But the money is not really spent until we actually buy some furniture. When we do, the furniture category balance and bank account balance both go down by the amount of the purchase. All of this can be kept track of on the computer in a spreadsheet. However, it's not easy to keep track of so many categories and bank balances. An easier solution is custom budgeting software designed for this purpose. I use and recommend YNAB.\"","Unlike other responses, I am also not good with money. Actually, I understand personal finance well, but I'm not good at executing my financial life responsibly. Part is avoiding tough news, part is laziness. There are tools that can help you be better with your money. In the past, I used YNAB (You Need a Budget). (I'm not affiliated, and I'm not saying this product is better than others for OP.) Whether you use their software or not, their strategy works if you stick with it. Each time you get paid, allocate every dollar to categories where your budget tells you they need to be, prioritizing expenses, then bills, then debt reduction, then wealth building. As you spend money, mark it against those categories. Reconcile them as you spend the money. If you go over in one category (eating out for example), you have to take from another (entertainment). There's no penalties for going over, but you have to take from another category to cover it. So the trick to all of it is being honest with yourself, sticking to it, recording all expenditures, and keeping priorities straight. I used it for three months. Like many others, I saved enough the first month to pay the cost of the software. I don't remember why I stopped using it, but I wish I had not. I will start again soon.","Put your budget down on paper/spreadsheet/tool of choice (e.g Mint, YNAB, Excel). Track every cent for a few months. Seeing it written down makes The Financial Conversation easier. One simple trick is to pay yourself first. Take $100 and sock it away each month, or $25 per paycheck - send it to another account where you won't see it. Then live off the rest. For food - make a meal plan. Eggs are healthy and relatively cheap so you have breakfast covered. Oatmeal is about $2 for a silos' worth. Worst case you can live off of ramen noodles, peanut butter and tuna for a month while you catch up. Cut everything as some of the others have answered - you will be amazed how much you will not miss. Dave Ramsey's baby steps are great for getting started (I disagree with DR on a great many things so that's not advocating you sign up for anything). Ynab's methodology is actually what got me out of my mess - they have free classes in their website - where budgeting is about planning and not simply tracking. Good luck.","A pencil and a small notepad really work here, but if you have a smartphone then some way of using it makes sense as well. Try: Transcribe all of these onto a better record at the end of each day. Also record the amount of money in your wallet/purse/pocket every day, and check to see if the amounts you've recorded add up to the amount you've spent. It'll be easier to remember that newspaper you bought at the end of the day, rather than a week later. Or just record the difference as 'miscellaneous'.","Deposit $3,500 each month in a brokerage account and invest that money across a handful of diversified index funds. Rebalance those investments every quarter. The hard part is coming up with $3,500 each month; this is where your budget comes in.","I love mint.com, it fulls in your information from all your accounts automatically, let's you know where you spend your money and what your net worth is.","Some to manage day to day expenses, bills, and to save money. I already a system in place for investments and retirement. I was just wanting to know if there was a good app to help with these things instead of having to use a pen and paper to figure this stuff out when I am on the go away from my computer."],"string":"[\n \"\\\"As advised you need to budget, but there are a few simple things you can do to make it easier. Work out how much your fixed bills are every month, for example, council tax, gas and electric, mortgage and rent etc. On pay-day, move an amount of cash equal to this into another bank account when you get paid. It's easier if this other account, let's call it a bills account, can pay the bills automatically via direct debits, you can then forget about it. Now your budget should tell you how much you spend on things that are more variable, food, fuel, travel etc. Again on pay-day, move an amount of cash aside to cover this (plus a small buffer amount) into another account. Whatever is now left in your main account is yours to spend or save as you see fit. You just need to make sure you are sticking to your budget and it's as easy as that. If you cannot pay direct debits from the other accounts you just need to move the money over to cover them when they need paying. Most banks will let you set up extra accounts so you can mvoe the money easily using internet banking or by a monthly standing order. If they won't let you have several \\\"\\\"current\\\"\\\" accounts you can use savings accounts but will need to manually move the money around as the bills are due. If you get all your direct debits to debit on pay-day, that makes it even easier. If you are struggling for money then prioritise paying off debt first and prioritise the debt with the highest interest rate.\\\"\",\n \"\\\"simplicity and roi are often at odds. the simplest plan that also supports a reasonable investment return would have 3 accounts: if you want to get better returns on your investments, things can get much more complicated. here are some optional accounts to consider: besides the mechanics of money flowing between accounts, a budget helps you understand and control your spending. while there are many methods for this (e.g. envelopes of cash, separate accounts for various types of expenses), the simplest might be using mint.com. just be sure to put all your spending on a credit or debit card, and you can see your spending by category when you log into mint. it can take a bit to get it set up, and your bank needs to be compatible, but it can give you a really good picture of where your money is going. once you know that, you can start making decisions like \\\"\\\"i should spend less on coffee\\\"\\\", or \\\"\\\"i should go to the zoo more\\\"\\\", based on how much things cost vs how much you enjoy them. if you feel like your spending is out of control, then you can set yourself hard limits on certain kinds of spending, but usually just watching and influencing your own choices is enough. notes: if you have a spouse or partner, you should each maintain your own separate accounts. there are many reasons for this including simplicity and roi, besides the obvious. if you feel you must have a joint account, be sure to clearly define how it should be used (e.g. only for paying the utilities) and funded (x$ per month each). particularly with your house, do not do joint ownership. one of you should be a renter and the other a landlord. some of these statements assume you are in the usa. on a personal note, i have about 20 credit cards, 2 checking accounts, 2 ira's, 2 brokerage accounts, and 3 401k's. but i consider myself a personal finance hobbyist, and spend an absurd amount of time chasing financial deals and tax breaks.\\\"\",\n \"More moving parts will make your budget harder to keep track of, not simpler. Budget systems like You Need a Budget recommend simplifying your accounts, even if the various accounts give you specialized bonuses like rewards for restaurants or gasoline or travel. The effort of keeping track of all the options and accounts can outweigh the value you get from them. Instead, I recommend using a simple and structured budget system (like YNAB) that walks you through all of the steps toward building good habits and keeping them simple so that you can maintain the habit.\",\n \"Lazy man's budget. Four separate accounts for timing of expenses: short (monthly; utilities etc.), medium (quarterly+; property taxes), long (yearly+; house improvements) and retirement. Set target levels for each account, to cover 1 full cycle. The short target is smallest; it should comfortably cover a month. For me each target is about 10x larger than the last. (Cycles & targets for a homeowner w/ family; YMMV). All income goes in short term. When an account gets above target level, the excess gets swept up to the next longer term account. That's all I keep firm track of; takes just a few minutes a month. Watching the account balances vs. their targets (and how short some of them are of target) keeps me focused on spending, and thinking about how much I can sweep (or can't) next paycheck.\",\n \"\\\"I sort of do this with credit cards. I actually have 4 AMEX cards that I've accumulated over the years. Certain types of expenses go on each card (\\\"\\\"General expenses\\\"\\\", recurring bills, car-related and business-related) I use AMEX because they have pretty rich iPhone/Android applications to access your accounts and a rich set of alerts. So if we exceed our budget for gas, we get an email about it. Do whatever works for you, but you need to avoid the temptation to over-complicate.\\\"\",\n \"\\\"As your financial situation becomes more complex, it becomes increasingly more difficult to keep track of everything with a simple spreadsheet. It is much easier to work with software that is specifically designed for personal finances. A good program will allow you to keep track of as many accounts as you want. A great program will completely separate the different account balances (location of the money) from the budget category balances (purpose of the money). Let me explain: When you set up the software, you will enter in all of your different bank accounts with their balances. Perhaps you have three savings accounts and two checking accounts. It doesn't matter. When you are done entering those, the software will total them up, and the next job you have is assigning this money into different budget categories: your spending plan. For example, you might put some of it into a grocery category, some into an entertainment category, some will be assigned to pay your next car insurance bill, and some will be an emergency fund. (These categories are completely customizable, and your budget can be as broad or as detailed as you wish.) When you deposit your paycheck, you assign that new income into budget categories as well. It doesn't matter at this point which accounts your money are located in; the only thing that matters is that you own this money and you have access to it. Now, you might want to use a certain account for a certain budget category, but you are not required to do so. (For example, your grocery category money will probably be in your checking account, since you will be spending from it regularly. Your emergency fund will hopefully be in an account that earns a little higher interest.) Once you take this approach, you might find you don't need as many bank accounts as you thought you did, because the software does the job of separating your money into different \\\"\\\"accounts\\\"\\\" for different purposes. I've written before about the different categories of personal finance software. YNAB, Mvelopes, and EveryDollar are three examples of software that will take this approach of separating the concepts of the bank account and the budget category.\\\"\",\n \"One of the simplest things is to lock your money e.g. put on time deposit which has some penalty when you broke them pre-maturily. Also create a portfolio in a site, this will spark interest on saving and investment.\",\n \"Do a monthly budget, unique to each month, before the month begins, spend all of your money on paper. Use envelopes to help you keep track of how much you have left for things you buy throughout the month. Have separate envelopes for things like groceries, restaurants, clothing, entertainment. Put the amount of money for each category in cash in the envelope. Only spend the money out of the correct envelope and don't mix and mingle between envelopes. Pay in cash, with real money. Don't use credit or debit cards, it's proven you spend more when you are not paying with cash.\",\n \"Try the Envelope Budgeting System. It is a pretty good system for managing your discretionary outflows. Also, be sure to pay yourself first. That means treat savings like an expense (mortgage, utilities, etc.) not an account you put money in when you have some left over. The problem is you NEVER seem to have anything leftover because most people's lifestyle adjusts to fit their income. The best way to do this is have the money automatically drafted each month without any action required on your part. An employer sponsored 401K is a great way to do this.\",\n \"\\\"I use online banking as much as possible and I think it may help you get closer to your goal. I see you want to know where the money goes and save time so it should work for you like it did for me. I used to charge everything or write checks and then pay a big visa bill. My problem was I never knew exactly how much I spent because neither Visa or check writing are record systems. They just generate transactions records. I made it a goal use online banking to match my spending to the available cash and ended up ok usually 9-10 months out of the year. I started with direct deposit of my paycheck. Each Saturday, I sit down and within a half hour, I've paid the bills for the week and know where I stand for the following week. Any new bill that comes in, I add it to online banking even if it's not a recurring expense. I also pull down cash from the ATM but just enough to allow me to do what I have to do. If it's more than $30 or $40 bucks, I use the debit card so that expense goes right to the online bank statement. My monthly bank statement gives me a single report with everything listed. Mortgage, utilities, car payment, cable bill, phone bill, insurance, newspaper, etc... It does not record these transactions in generic categories; they actually say Verizon or Comcast or Shop Rite. I found this serves as the only report I need to see what's happening with my budget. It may take a while to change to a plan like this one. but you'll now have a system that shows you in a single place where the money goes. Move all bills that are \\\"\\\"auto-pay\\\"\\\" to the online system and watch your Visa bill go down. The invested time is likely what you're doing now writing checks. Hope this helps.\\\"\",\n \"\\\"Make a list of all your expenses. I use an Excel spreadsheet but you can do it on the back of a napkin if you prefer. List fixed expenses, like rent, loan payments, insurance, etc. I include giving to church and charity as fixed expenses, but of course that's up to you. List regular but not fixed expenses, like food, heat and electricity, gas, etc. Come up with reasonable average or typical values for these. Keep records for at least a few months so you're not just guessing. (Though remember that some will vary with the season: presumably you spend a lot more on heat in the winter than in the summer, etc.) You should budget to put something into savings and retirement. If you're young and just starting out, it's easy to decide to postpone retirement savings. But the sooner you start, the more the money will add up. Even if you can't put away a lot, try to put away SOMETHING. And if you budget for it, you should just get used to not having this money to play with. Then total all this up and compare to your income. If the total is more than your income, you have a problem! You need to find a way to cut some expenses. I won't go any further with that thought -- that's another subject. Hopefully you have some money left over after paying all the regular expenses. That's what you have to play with for entertainment and other non-essentials. Make a schedule for paying your bills. I get paid twice a month, and so I pay most of my bills when I get a paycheck. I have some bills that I allocate to the first check of the month and some to the second, for others, whatever bills came in since my last check, I pay with the current check. I have it arranged so each check is big enough to pay all the bills that come from that check. If you can't do that, if you'll have a surplus from one check and a shortage from the next, then be sure to put money aside from the surplus check to cover the bills you'll pay at the next pay period. Always pay your bills before you spend money on entertainment. Always have a plan to pay your bills. Don't say, \\\"\\\"oh, I'll come up with the money somehow\\\"\\\". If you have debt -- student loans, car loans, etc -- have a plan to pay it off. One of the most common traps people fall into is saying, \\\"\\\"I really need to get out of debt. And I'm going to start paying off my debt. Next month, because this month I really want to buy this way cool toy.\\\"\\\" They put off getting out of debt until they have frittered away huge amounts of money on interest. Or worse, they keep accumulating new debt until they can't even pay the interest.\\\"\",\n \"Your money management technique is a very personal choice. Each person's system will be a little different. For us, we don't believe in debt so we operate on a cash basis for everything with the exception of our house. We keep our expenses to roughly 75% of our after tax income. The rest we save and invest. And we are paying extra on our mortgage to get the house paid off asap. Each person will divide their 75% differently based on your consumption preferences. The same goes for the 25% savings and investing. You need to set some goals and save accordingly.\",\n \"This is all very basic and general advice, that works for most, but not all. You are unique with your own special needs and desires. Good luck! P.S.: not exactly related to your question, but when you get more familiar with investing and utilizing your money, find more ways to save more. For example, change phone plan, cut the cable, home made food in bulk, etc.\",\n \"Calculate a weekly budget for yourself for all incidentals (i.e. shopping, movies, eating out, etc...) and take that amount out in cash each week. For example, if your budget is $75 then try to spend only that $75 on all the extra stuff you do doing the week. It'll make you hyper-conscious of where your money is going and how fast. You'll be surprised at how quickly little things like grabbing coffee in the morning can chip away at your funds.\",\n \"If held in one savings account, how can I easily manage what percentage is planned for which purpose? I used a spreadsheet for some years, but found it clumsy for everyday use. Thus I wrote some software which my wife and I use for our short-term as well as long-term planning, available at http://budgeter.sourceforge.net. It specifically helps with splitting the money in one or several accounts into logical categories. (The software is not the most user-friendly ever, so there may be better suggestions that follow, but it works well for us. Please feel free to suggest improvements to it as well.)\",\n \"Calculate your effective income per day (after taxes) and calculate the prize of everything per day. This lets you easily compare your rent with other (smaller) expenses. It's easy to say that if you stay below your income every day you will save money. It also helps to know how much freely spendable money you have each day (money after taxes, rent, bills etc.). Let the days were your expenses are higher than your income be scarce and know how many days you need to work and save to afford something.\",\n \"Track your spending and expected income -- on paper, or with a personal-finance program. If you know how much is committed, you know how much is available. Trivial with checks, requires a bit more discipline with credit cards.\",\n \"You can fairly simply make a spreadsheet in your favorite spreadsheet application (or in Google Docs if you want portability). I like to make an overview page that shows how much I take in per month and what fixed bills come out of that, then break the remaining total into four to get a weekly budget. Then, I make one page per month with four columns (one per week), with each row being a category. Sum the categories at the bottom, and subtract from your weekly total: voila, a quick reference of how much you can spend that week without going over budget. I then make a page for each month that lists what I bought and how much I spent on it, so I can trace where my money's gone; the category total is just a summation of the items from that page that belong in that category. Once you have a system, stop checking your bank balance except to ensure your paycheck is going in alright. Use the spreadsheet to determine how much you can spend at any time. Then make sure you pay off everything on the card before the end of the month so you don't incur interest.\",\n \"Personal finances are not intuitive for everyone, and it can be a challenge to know what to do when you haven't been taught. Congratulations on recognizing that you need to make a change. The first step that I would recommend is what you've already done: Assemble your bank statements so you can get an accurate picture of what money you currently have. Keep organized folders so you can find your bank statements when you need them. In addition to the bank statements for your checking and savings accounts, you also need to assess any debt that you have. Have you taken out any loans that need to be paid back? Do you have any credit card debt? Make a list of all your debts, and make sure that you have folders for these statements as well. Hopefully, you don't have any debts. But if you are like most people, you owe money to someone, and you may even owe more money than you currently have in your bank accounts. If you have debts, fixing this problem will be one of your goals. No matter what your debt is, you need to make sure that from now on, you don't spend more money than you take in as income. To do this, you need to make a budget. A budget is a plan for spending your money. To get started with a budget, make a list of all the income you will receive this month. Add it up, and write that amount at the top of a page. Next, you want to make a list of all the expenses you will have this month. Some of these expenses are more or less fixed: rent, utility bills, etc. Write those down first. Some of the expenses you have more control over, such as food and entertainment. Give yourself some money to spend on each of these. You may also have some larger expenses that will happen in the future, such as a tuition or insurance payment. Allocate some money to those, so that by the time that payment comes around, you will have saved enough to pay for those expenses. If you find that you don't have enough income to cover all of your expenses in a month, you need to either reduce your expenses somewhere or increase your income until your budget is at a point where you have money left over at the end of each month. After you've gotten to this point, the next step is figuring out what to do with that extra money left over. This is where your goals come into play. If you have debt, I recommend that one of your first goals is to eliminate that debt as fast as possible. If you have no money saved, you should make one of your goals saving some money as an emergency fund. See the question Oversimplify it for me: the correct order of investing for some ideas on what order you should place your goals. Doing the budget and tracking all of your spending on paper is possible, but many people find that using the right software to help you do this is much easier. I have written before on choosing budgeting software. All of the budgeting software packages I mentioned in that post are from the U.S., but many of them can successfully be used in Europe. YNAB, the program I use, even has an unofficial German users community that you might find useful. One of the things that budgeting software will help you with is the process of reconciling your bank statements. This is where you go through the bank statement each month and compare it to your own record of spending transactions in your budget. If there are any transactions that appear in the statement that you don't have recorded, you need to figure out why. Either it is an expense that you forgot to record, or it is a charge that you did not make. Record it if it is legitimate, or dispute the expense if it is fraudulent. For more information, look around at some of the questions tagged budget. I also recommend the book The Total Money Makeover by Dave Ramsey, which will provide more help in making a budget and getting out of debt.\",\n \"\\\"I live near historic Concord, Massachusetts, and frequently drive past Walden Pond. I'm reminded of Henry David Thoreau's words, \\\"\\\"Simplify, simplify, simplify.\\\"\\\" In my opinion, fewer is better. 2 checkbooks? I don't see how that makes budgeting any easier. The normal set of expenses are easily kept as one bucket, one account. The savings 2&3 accounts can also be combined and tracked if you really want to think of them as separate accounts. Now, when you talk about 'Retirement' that can be in tax-wise retirement accounts, e.g. 401(k), IRA, etc. or post tax regular brokerage accounts. In our situation, the Schwab non-retirement account was able to handle emergency (as money market funds) along with vacation/rainy day, etc, in CDs of different maturities. As an old person, I remember CDs at 10% or higher, so leaving money in lower interest accounts wasn't good. Cash would go to CDs at 1-5 year maturities to maximize interest, but keep money maturing every 6-9 months. Even with the goal of simplifying, my wife and I each have a 401(k), an IRA, and a Roth IRA, I also have an inherited Roth, and I manage my teen's Roth and brokerage accounts. That's 9 accounts right there. No way to reduce it. To wrap it up, I'd go back to the first 4 you listed, and use the #4 checking attached to the broker account to be the emergency fund. Now you're at 3. Any higher granularity can be done with a spreadsheet. Think of it this way - the day you see the house you love, will you not be so willing to give up that year's vacation?\\\"\",\n \"If you are just trying to curb impulse spending I'd suggest the following: 1) Set up a separate bank account for your savings - Do not order checks or a debit card for this account. 2) Get your employer to split your paycheck to put the saving amount in the new account (most employers will do this) The trick to avoid impulse spending is to make it a chore to get at the money. With the above arrangement you would have to physically go to the bank, fill out a withdrawal slip and get cash. This way you still can access the money in an emergency, but it forces you to plan things out better.\",\n \"Here's how I think about money. There are only 3 categories / contexts (buckets) that my earned money falls into. Savings is my emergency fund. I keep 6 months of total expenses (expenses are anything in the consumption bucket). You can be as detailed as you want with this area but I tend to leave a fudge factor. In other words, if I estimate that I spend approximately $3,000 a month in consumption dollars then I'll save $3,500 times 6 in the bank. This money needs to be liquid. Some people use a HELOC, other people use their ROTH contributions. In any case, you need to put this money some place you can get access to it in case you go from accumulation (income exceed expenses) to decumulation mode (expenses exceed income). This money is distinct from consumption which I will cover in paragraph three. Investments are stocks, bonds, income producing real estate, small businesses, etc. These dollars require a strategy. The strategy can include some form of asset allocation but more importantly a timeline. These are the dollars that are working for you. Each dollar placed here will multiply over time. Once you put a dollar here it shouldn't be taken out unless there is some sort of catastrophe that your savings can't handle or your timeline has been achieved. Notice that rental real estate is included so liquidating stocks to purchase rental real estate is NOT considered removing investment dollars. Just reallocating based on your asset allocation. This bucket includes 401k's, IRAs, all tax-sheltered accounts, non-sheltered brokerage accounts, and rental real estate. In general your primary residence is not included in this bucket. Some people include the equity of their primary residence in the investment column but it can complicate the equation and I prefer to leave it out. The consumption bucket is the most important bucket and the one you spend the most time with. It requires a budget. This includes your $5 magazine and your $200 bottle of wine. Anything in this bucket is gone. You can recover a portion of it by selling it on ebay for $3 (these are earned dollars) but the original $5 is still considered spent. The reason your thought process in this area is distinct from the other two, the decisions made in this area will have the biggest impact on your personal finances. Warren Buffett was famous for skimping on haircuts because they are worth thousands of dollars down the road if they are invested instead. Remember this is a zero-sum game so every $1 not consumed is placed in one of the other buckets. Once your savings bucket is full every dollar not consumed is sent to investments. Remember to include everything that does not fit in the other two buckets. Most people forget their car insurance, life insurance, tax bill at the end of the year, accountant bill, etc. In conclusion, there are three buckets. Savings, which serve as your emergency bucket. This money should not be touched unless you switch from accumulation to decumulation. Investments, which are your dollars that are working for you over time. They require a strategy and a timeline. Consumption, which are your monthly expenses. These dollars keep you alive and contribute to your enjoyment. This is a short explanation of my use of money. It can get as complicated and detailed as you want it to be but as long as you tag your dollars correctly you'll be okay IMHO. HTH.\",\n \"Firstly, make sure annual income exceeds annual expenses. The difference is what you have available for saving. Secondly, you should have tiers of savings. From most to least liquid (and least to most rewarding): The core of personal finance is managing the flow of money between these tiers to balance maximizing return on savings with budget constraints. For example, insurance effectively allows society to move money from savings to stocks and bonds. And a savings account lets the bank loan out a bit of your money to people buying assets like homes. Note that the above set of accounts is just a template from which you should customize. You might want to add in an FSA or HSA, extra loan payments, or taxable brokerage accounts, depending on your cash flow, debt, and tax situation.\",\n \"If you are not working, I believe you would be getting some money from your family to meet your expenses. In such a case, I would start with maintaining a Cash A/c which would list your monthly expenses and the money you received, which is what I used to do at your age. You can maintain it in a notebook with pen/pencil or using online tools such as Google Sheets. Enter each expense entries each day as debits and entries towards any money you receive as credits. At the end of the month, tally them and see how much you have left. Also, this gives you a clear picture of where your expenses are what is that you can avoid. On longer term, this can help you form an annual budget for your personal finances.\",\n \"\\\"Honestly just keep track of your income and spending on a piece of paper. Write down every single thing. Also set goals like \\\"\\\"ok I will make $1000 this month, and my goal is to pay bills of $200 and only spend $500 therefore I should easily be able to save $300\\\"\\\" or something like that. Just do it there's no magic trick despite what some million stupid articles and forum posts will lead you to believe. Saving money is like being in good shape... or keeping yourself clean... it's an every day, every hour kinda thing\\\"\",\n \"My wife and I meet in the first few days of each month to create a budget for the coming month. During that meeting we reconcile any spending for the previous month and make sure the amount money in our accounts matches the amount of money in our budget record to the penny. (We use an excel spreadsheet, how you track it matters less than the need to track it and see how much you spent in each category during the previous month.) After we have have reviewed the previous month's spending, we allocate money we made during that previous month to each of the categories. What categories you track and how granular you are is less important than regularly seeing how much you spend so that you can evaluate whether your spending is really matching your priorities. We keep a running total for each category so if we go over on groceries one month, then the following month we have to add more to bring the category back to black as well as enough for our anticipated needs in the coming month. If there is one category that we are consistently underestimating (or overestimating) we talk about why. If there are large purchases that we are planning in the coming month, or even in a few months, we talk about them, why we want them, and we talk about how much we're planning to spend. If we want a new TV or to go on a trip, we may start adding money to the category with no plans to spend in the coming month. The biggest benefit to this process has been that we don't make a lot of impulse purchases, or if we do, they are for small dollar amounts. The simple need to explain what I want and why means I have to put the thought into it myself, and I talk myself out of a lot of purchases during that train of thought. The time spent regularly evaluating what we get for our money has cut waste that wasn't really bringing much happiness. We still buy what we want, but we agree that we want it first.\",\n \"You need to know loans are not free; and they are not a way to solve budget issues. If you are having problems with making your income last over your expenses, you do not need to add another expense (in the form of a loan) What you really need to do is create a budget, track and understand your expenses, and then decide if you should focus on raising your net income level or cutting down expenses. Keep up with your budget. You can reduce the frequency, but you need to track your spending really for the rest of you life. It is just a good habit, like personal hygiene. Once you understand your money (via your budget), you can start to save money into an emergency fund that will cover you during the times of zig zags. I say it very plainly as if it is super easy; but it requires will power and the foresight to understand that if you don't manage your money, nobody else will. Being sane with your money is one of the most important things you can do now to improve your future. IMPROVEMENT NathanL has an excellent first step with budgeting: Allocate money to be spent for the next month from money made during the previous month. This will build a cushion into your budget and alleviate the fear that the OP mentioned\",\n \"\\\"I have the same problem. The people above are right to an extent. You have to be more disciplined. But there is no reason why you can't get there in stages. If you try to do too much too fast you'll just give up. You need to find a system that removes some of the passive barriers affecting you. You need to think what in particular is overwhelming you. For me it was sitting down at the end of the month to write it all down. Writing it all down at the end of the week or even each day didn't work either because it was too much and I had forgotten what stuff was. I'm like you. The bank account is a record so why do I have to retype it or worse, hand write it out? Bleh. What I ended up doing was divide my expenses into four categories: food (to include all medical) shelter, transportation, spending -- with the first three being needs and the last being wants. Eating out is spending. I have four checking accounts with four debit cards. I saved up some money. I put a paycheck's worth of money in each because I didn't know how much I spent each month in each category, but knew I didn't spend an entire paycheck in any one category per month. Voila. No more work. At the store you just put things in the basket by category. At Target you pay for the food and toothpaste with the medical card and the DVD with the spending card. The cashiers don't care that you pay separately. And if you are buying so much crap that separating items by category is a problem, why the heck are you buying so much crap? At the end of the month you will now have a record of how much you spend on transportation, housing (electricity would be paid online from this account for example), medical and fun. That's all anyone needs to help you get started. You can then see if your housing is 35% or less (or whatever percentage you feel is right). The person trying to help the author above is right. A Target charge doesn't indicate whether you bought some oil for the car or cold medicine or a lock for the cabinet door that broke. But when you pay for each of these things under the right account, you do know how the money is allocated. Doing it this way requires little discipline. Before you put the item in the basket, you just ask yourself, is this a want or a need (which is something you should be doing anyway). If it's a need, is it for my car, house, or body. The house is what I use if i can't figure it out (like paying for the renewal of my professional license). that's it! You have to stand at the register for longer but so what. If you are spending all your salary and you stop when you have no more money (assuming you've run through all of your savings, which you will soon if you don't change), then you have no more money to spend. So if you are honest when you put things in the basket(need vs want), you are going to run out of spending money real quick. Your spending money account will be empty but you will still have food money. Set your debit card up so that it denies your charge if you dont have enough money. Once you realize how much you truly spend for needs in each category, yoy will only put that much in each account. Therefore, You can't use the house card to just \\\"\\\"borrow\\\"\\\" from it till next month. If you do, you won't be able to pay your bills. If you have so little discipline that you knowingly spend your bill money, then there is a deeper issue going on than just finding the right budgeting/cash flow system for you. Something is seriously wrong and you need to seek professional help. When someone is trying to help you, the first step is to determine what category you are spending too much in. Then when you realize it's the house category, for example, you will need to figure out why you are spending so much in that category. A bank statement wont tell you that. So you can do what we did. On every receipt --before you walk out of the store-- write down what each purchase is on the receipt. Then you can hand over the receipts to whoever is helping you. Most items are easily recognizable on the receipt so you wont have to write everything down. you should be doing this for insurance purposes anyway. Again, if your receipt is so blooming long that this is onerous, probably everything you just spent is not a need and maybe you need to turn right around and return stuff. Maybe you need to go to the store more often so there are only a few purchases on each receipt. Groceries are groceries. You don't need to detail that out. For Ikea when you have to purchase pieces to a set, we get a separate receipts for each. So the brackets and shelving for the bedroom will be on one receipt and the brackets and shelving for the other room will be on another receipt. Even at the store I cant figure out what all the little pieces are! But really, if you are making a decent enough salary, then you are probably spending too much on wants and are calling the items needs. So really your problem is correctly identifying needs from wants. Define a NEED. YOU. Make up your own definition of need Dwell on it. Let it become meaningful for you. Oranges are a need. Chocolate is not (no, really it's not! Lol!). So when you are putting the stuff in the basket, you dont even have to think about whether it's a need or not after a while. Wants go in the child seat if at all possible (to keep the number of items smaller). When you are ready to check out, add up the items roughly in the want pile. Ask yourself if you really want all that stuff. Then put some stuff back! At this point ask yourself is the 8 hours I will have to work to pay for this worth it? Am I really going to use it? Will using the item make me happy? Or is it the actual buying of the item that makes me feel powerful? Where will I put it? How much time will I need to maintain it? Then put some stuff back! Get some good goals, a kayaking trip or whatever. Ask yourself if the item is worth delaying the trip. How will I feel later? Will I have buyers remorse? If so, put it back! These are controls you can put into place that don't take a lot of discipline. Writing the items down on the receipt is a more advanced step you can take later. If you are with friends, go first so that you can write down the items while they are checking out. If you are private and don't want to share your method with your friends, go to the bathroom and in the stall write it down while they wait. Writing the items on the receipt while in the store is sort of a trigger mechanism for remembering to do so. That pulling out of the card triggers your memory to get out your pen or ask the cashier for one. The side benefit is catching someone using a cloned copy of your card. In the medical account if you see an Exxon charge, you know it's not yours. Also, while that one account is shut down, you have three others to rely on in the meantime. My spouse hated fumbling for the right card. They all look the same. Color code your cards. We have blue cross blue shield so it feels natural to have the food/medical account with a blue sticker (just buy a little circle sticker and place it on the edge so half is on the front and half is on the back -- nowhere near the strip). I've never been given a hard time about it. Our car is red so the car card is red, etc. If you think four cards is a lot to carry, ask yourself if you would rather carry four cards or keep track of every little thing? Good luck. I know you will find a system that works for you if you keep trying.\\\"\",\n \"Do you need such a detailed budget? I have found that a detailed budget creates two problems: I would suggest starting simple, and adding complexity as you discover you need it. Create a budget with just a few categories Then, I enforce my budget with my auto deposit. My required expenses, which I have a pretty good notion of the total amount get paid from one online bank. Enough money goes in and I electronically pay. Retirement money and e-fund money get deposited into the brokerage and credit union where I keep those piles at. Finally, my optional expenses go into a second bank (I am using simple.com at the moment) and I spend from there with a card. They have a nice reporting feature, and if I want to save up for a toy or something I save up there. Bonuses and other extra income end up there as well. This way, I really only have to monitor the last account to see if I can have fun or buy a new item. My bills and retirement are different pools of money, and I don't carry around a card that can access that money.\",\n \"1 Primary acct. Receive and distribute money to all other accts. For security do not permit debit cards to touch or payment pull from this account. All joint bills paid here. Attach a savings acct and credit card to this account for accruing taxes vacation money blah blah. This will facilitate managing instead of storing your funds. 2 Push distributions to one or two other individual accounts on whatever basis works. Cash groceries incidentals. Debit cards here.\",\n \"Plan all your needs and put priority based on need & urgency. New Habit: Rethink. Rethink. Rethink. whenever your going to buy something. rethink before going to buy. remember what is your priority one than that and will this affect on your plans. if that affect, than dont buy. Lets leave it to that habit, that will take care of your budget yar.............\",\n \"\\\"The key to this is budgeting. Without a budget, you don't know what you are spending your money on. Let's say you would like to go to a movie with a friend. Can you afford it? Without a budget, it is difficult to answer this question. Yes, you have enough money in your wallet, but if you don't go to the movies, you could be saving that money for a house. \\\"\\\"But,\\\"\\\" you might say to yourself, \\\"\\\"surely one movie with my friend won't prevent me from saving my $10k for my house.\\\"\\\" And you might be right, but when you add up all the movies, coffees, and other discretionary spending up, it very well could. At this point, you might be discouraged. \\\"\\\"Do I seriously need to give up every single extravagance to make this work? I don't have that kind of willpower!\\\"\\\" Luckily, here is where budgeting comes to the rescue. Budgeting is simply a plan for your money. You have some monthly expenses that are more or less fixed: your rent, your utility bills, etc. You have other expenses that are not exactly fixed, but are still necessary: groceries, fuel for your car, etc. You also have longer-range expenses, such as insurance premiums that you only pay once or twice a year, but need to be accounted for. List all of these expenses, and figure out how much that comes to each month. What you have left over is available to you for other things. Next, you need to figure out how fast you want to save for this house, and balance that with the other things you might want to spend money on, such as entertainment. If you start from $0 and want to save $10k, you could do it by saving $100 a month: in a little over 8 years, you'll have your $10k. If you can increase this to $300 a month, you'll be there in less than 3 years. Now that you have a plan and everything is accounted for, very little willpower is needed. You don't need to feel guilty every time you buy coffee; if the money is there in your coffee/snacks budget, go for it. If you've got extra money for the month in your entertainment budget, take a date to the movies. Your budget allows you to spend on those things, because you have a plan in place, and are not in danger of spending your rent money or your home savings. This can all be done on paper, in Excel, or even by placing cash in different envelopes. However, it is easier to use budgeting software, such as YNAB, Mvelopes, or EveryDollar.\\\"\",\n \"To me the key is a budget. Each month, before it begins, decide on what to spend on each dollar that you earn. Money should be allotted for normal expenses such as housing, food, transportation, and utilities. If you have any consumer debt that should be a priority. Extra money should go to eliminate that debt. There should be money allotted to savings goals (such as retirement, home down payment, or vacation home). Also there should be money set aside for clothing and giving. Giving is an important part and often overlooked part of wealth creation. Somewhere in there you should also give yourself a bit of free money. For example one of the things I spend my free money on is coffee. I buy freshly ground coffee from a really good supplier. It is a bit expensive, but that is okay as it does not preclude me from meeting other goals. If you still have money left after all of that increase your giving some, your savings some, and your free money some. You can then spend that money without guilt. If your budget includes $100 of free money per month, and you want something that costs $1000, save up the $1,000 and then buy it. Do not borrow to buy free money stuff! Doing those sorts of things will make you weigh purchasing decisions very carefully. If you find that you cannot stick to a budget, you should enlist a friend to be your accountability partner. They have to be very good with money.\",\n \"\\\"I opened several free checking accounts at a local credit union. One is a \\\"\\\"Deposit\\\"\\\" account where all of my new money goes. I get paid every two weeks. Every other Sunday we have our \\\"\\\"Money Day\\\"\\\" where we allocate the money from our Deposit account into our other checking accounts. I have one designated as a Bills account where all of my bills get paid automatically via bill pay or auto-pay. I created a spreadsheet that calculates how much to save each Money Day for all of my upcoming bills. This makes it so the amount I save for my bills is essentially equal. Then I allocate the rest of my deposit money into my other checking accounts. I have a Grocery, Household, and Main checking accounts but you could use any combination that you want. When we're at the store we check our balances (how much we have left to spend) on our mobile app. We can't overspend this way. The key is to make sure you're using your PIN when you use your debit card. This way it shows up in real-time with your credit union and you've got an accurate balance. This has worked really well to coordinate spending between me and my wife. It sounds like it's a lot of work but it's actually really automated. The best part is that I don't have to do any accounting which means my budget doesn't fail if I'm not entering my transactions or categorizing them. I'm happy to share my spreadsheet if you'd like.\\\"\",\n \"While it is certainly easy to manage single fund, I am not sure it's the right strategy. It's been proven again and again that portfolio diversification is key to long term gains in wealth. I think your best option is to invest in low cost index funds and ETFs. While rebalancing your portfolio is hard, it is vastly simpler if your portfolio only has ETFs.\",\n \"\\\"Trying to figure out how much money you have available each day sounds like you're making this more complicated than it needs to be. Unless you're extremely tight and you're trying to squeeze by day by day, asking \\\"\\\"do I have enough cash to buy food for today?\\\"\\\" and so on, you're doing too much work. Here's what I do. I make a list of all my bills. Some are a fixed amount every month, like the mortgage and insurance premiums. Others are variable, like electric and heating bills, but still pretty predictable. Most bills are monthly, but I have a few that come less frequently, like water bills in my area come every 3 months and I have to pay property taxes twice a year. For these you have to calculate how much they cost each month. Like for the water bill, it's once every 3 months so I divide a typical bill by 3. Always round up or estimate a little high to be safe. Groceries are a little tricky because I don't buy groceries on any regular schedule, and sometimes I buy a whole bunch at once and other times just a few things. When groceries were a bigger share of my income, I kept track of what I spent for a couple of months to figure out an average per month. (Today I'm a little richer and I just think of groceries as coming from my spending money.) I allocate a percentage of my income for contributions to church and charities and count this just like bills. It's a good idea to put aside something for savings and/or paying down any outstanding loans every month. Then I add these up to say okay, here's how much I need each month to pay the bills. Subtract that from my monthly income and that's what I have for spending money. I get paid twice a month so I generally pay bills when I get paid. For most bills the due date is far enough ahead that I can wait the maximum half a month to pay it. (Worst case the bill comes the day after I pay the bills from this paycheck.) Then I keep enough money in my checking account to, (a) Cover any bills until the next paycheck and allow for the particularly large bills; and (b) provide some cushion in case I make a mistake -- forget to record a check or make an arithmetic error or whatever; and (c) provide some cushion for short-term unexpected expenses. To be safe, (a) should be the total of your bills for a month, or as close to that as you can manage. (b) should be a couple of hundred dollars if you can manage it, more if you make a lot of mistakes. If you've calculated your expenses properly and only spend the difference, keeping enough money in the bank should fall out naturally. I think it's a lot easier to try to manage your money on a monthly basis than on a daily basis. Most of us don't spend money every day, and we spend wildly different amounts from day to day. Most days I probably spend zero, but then one day I'll buy a new TV or computer and spend hundreds. Update in response to question What I do in real life is this: To calculate my available cash to spend, I simply take the balance in my checking account -- assuming that all checks and electronic payments have cleared. My mortgage is deducted from my checking every month so I post that to my checking a month in advance. I pay a lot of things with automatic charges to a credit card these days, so my credit card bills are large and can't be ignored. So subtract my credit card balances. Subtract my reserve amount. What's left is how much I can afford to spend. So for example: Say I look at the balance in my checkbook today and it's, say, $3000. That's the balance after any checks and other transactions have cleared, and after subtracting my next mortgage payment. Then I subtract what I owe on credit cards. Let's say that was $1,200. So that leaves $1,800. I try to keep a reserve of $1,500. That's plenty to pay my routine monthly bills and leave a healthy reserve. So subtract another $1,500 leaves $300. That's how much I can spend. I could keep track of this with a spreadsheet or a database but what would that gain? The amount in my checking account is actual money. Any spreadsheet could accumulate errors and get farther and farther from accurate values. I use a spreadsheet to figure out how much spending money I should have each month, but that's just to use as a guideline. If it came to, say, $100, I wouldn't make grandiose plans about buying a new Mercedes. If it came to $5,000 a month than buying a fancy new car might be realistic. It also tells me how much I can spend without having to carefully check balances and add it up. These days I have a fair amount of spending money so when, for example, I recently decided I wanted to buy some software that cost $100 I just bought it with barely a second thought. When my spending money was more like $100 a month, lunch at a fast food place was a big event that I planned weeks in advance. (Obviously, I hope, don't get stupid about \\\"\\\"small amounts\\\"\\\". If you can easily afford $100 for an impulse purchase, that doesn't mean that you can afford $100 five times a day every day.) Two caveats: 1. It helps to have a limited number of credit cards so you can keep the balances under control. I have two credit cards I use for almost everything, so I only have two balances to keep track of. I used to have more and it got confusing, it was easy to lose track of how much I really owed, which is a set up for getting in trouble.\\\"\",\n \"I use GNUCash. It's a bit more like Quickbooks than plain Quicken, but it's not all that complicated. Probably the most difficult part is understanding the idea of income accounts. Benefits: For short term planning, I use scheduled transactions. If I'm spending more than I have, it'll show up here. Every paycheck and dollar spent or invested is recorded with the exact date I anticipate it will happen, 30 days in advance. If that would overdraw my checking account, the Future Minimum Balance field will go negative and red. This lets me move float to higher interest savings and retirement funds, and avoids overdraft fees or other mishaps. By looking 30 days ahead in detail, I have enough time to transfer from illiquid assets. For longer term planning, I keep a spreadsheet around that plans out annual expenses. If I'm spending more than I earn, it shows up here. I estimate everything: expenses, savings, taxes, and income. I need this because I have a lot of expenses that are far less frequent than monthly or paycheck-ly. The beauty of it is that once I've got it in place, I can duplicate the sheet and consider tweaks for say taking a new job or moving, or even just changing an insurance plan (probably less relevant for those with access to NHS). Especially when moving to take a new job, it's not as straightforward as comparing salaries, and thus having a document for the status quo to start from lets you focus on the parts that changed.\",\n \"Try reading about budgeting. Make a list of all income coming in and all expenses going out. Eliminate any unnecessary expenses and try to increase income, which could include a part-time second job. Try to always put a portion of the income away as savings - try 10%, but if this is too hard to start with try saving at least 5% of the income.\",\n \"\\\"This Stack Exchange site is a nice place to find answers and ask questions. Good start! Moving away from the recursive answer... Simply distilling personal finance down to \\\"\\\"I have money, I'll need money in the future, what do I do\\\"\\\", an easily digestible book with how-to, multi-step guidelines is \\\"\\\"I Will Teach You To Be Rich\\\"\\\". The author talks about setting up the accounts you should have, making sure all your bills are paid automatically, saving on the big things and tips to increase your take home pay. That link goes to a compilation page on the blog with many of the most fundamental articles. However, \\\"\\\"The World’s Easiest Guide To Understanding Retirement Accounts\\\"\\\" is a particularly key article. While all the information is on the free blog, the book is well organized and concise. The Simple Dollar is a nice blog with frugal living tips, lifestyle assessments, financial thoughts and reader questions. The author also reviews about a book a week. Investing - hoping to get better returns than savings can provide while minimizing risk. This thread is an excellent list of books to learn about investing. I highly recommend \\\"\\\"The Bogleheads' Guide to Investing\\\"\\\" and \\\"\\\"The Only Investment Guide You'll Ever Need\\\"\\\". The world of investment vehicles is huge but it doesn't have to be complicated once you ignore all the fads and risky stuff. Index mutual funds are the place to start (and maybe end). Asset allocation and diversification are themes to guide you. The books on that list will teach you.\\\"\",\n \"\\\"You don't state where you are, so any answers to this will by necessity be very general in nature. How many bank accounts should I have and what kinds You should have one transaction account and one savings account. You can get by with just a single transaction account, but I really don't recommend that. These are referred to with different names in different jurisdictions, but the basic idea is that you have one account where money is going in and out (the transaction account), and one where money goes in and stays (the savings account). You can then later on, as you discover various needs, build on top of that basic foundation. For example, I have separate accounts for each source of money that comes into my personal finances, which makes things much easier when I sit down to fill out the tax forms up to almost a year and a half later, but also adds a bit of complexity. For me, that simplicity at tax time is worth the additional complexity; for someone just starting out, it might not be. (And of course, it is completely unnecessary if you have only one source of taxable income and no other specific reason to separate income streams.) how much (percentage-wise) of my income should I put into each one? With a single transaction account, your entire income will be going into that account. Having a single account to pay money into will also make life easier for your employer. You will then have to work out a budget that says how much you plan to spend on food, shelter, savings, and so on. how do I portion them out into budgets and savings? If you have no idea where to start, but have an appropriate financial history (as opposed to just now moving into a household of your own), bring out some old account statements and categorize each line item in a way that makes sense to you. Don't be too specific; four or five categories will probably be plenty. These are categories like \\\"\\\"living expenses\\\"\\\" (rent, electricity, utilities, ...), \\\"\\\"food and eating out\\\"\\\" (everything you put in your mouth), \\\"\\\"savings\\\"\\\" (don't forget to subtract what you take out of savings), and so on. This will be your initial budget. If you have no financial history, you are probably quite young and just moving out from living with your parents. Ask them how much might be reasonable in your area to spend on basic food, a place to live, and so on. Use those numbers as a starting point for a budget of your own, but don't take them as absolute truths. Always have a \\\"\\\"miscellaneous expenses\\\"\\\" or \\\"\\\"other\\\"\\\" line in your budget. There will always be expenses that you didn't plan for, and/or which don't neatly fall into any other category. Allocate a reasonable sum of money to this category. This should be where you take money from during a normal month when you overshoot in some budget category; your savings should be a last resort, not something you tap into on a regular basis. (If you find yourself needing to tap into your savings on a regular basis, adjust your budget accordingly.) Figure out based on your projected expenses and income how much you can reasonably set aside and not touch. It's impossible for us to say exactly how much this will be. Some people have trouble setting aside 5% of their income on a regular basis without touching it; others easily manage to save over 50% of their income. Don't worry if this turns out a small amount at first. Get in touch with your bank and set up an automatic transfer from your transaction account to the savings account, set to recur each and every time you get paid (you may want to allow a day or two of margin to ensure that the money has arrived in your account before it gets taken out), of the amount you determined that you can save on a regular basis. Then, try to forget that this money ever makes it into your finances. This is often referred to as the \\\"\\\"pay yourself first\\\"\\\" principle. You won't hit your budget exactly every month. Nobody does. In fact, it's more likely that no month will have you hit the budget exactly. Try to stay under your budgeted expenses, and when you get your next pay, unless you have a large bill coming up soon, transfer whatever remains into your savings account. Spend some time at the end of each month looking back at how well you managed to match your budget, and make any necessary adjustments. If you do this regularly, it won't take very long, and it will greatly increase the value of the budget you have made. Should I use credit cards for spending to reap benefits? Only if you would have made those purchases anyway, and have the money on hand to pay the bill in full when it comes due. Using credit cards to pay for things is a great convenience in many cases. Using credit cards to pay for things that you couldn't pay for using cash instead, is a recipe for financial disaster. People have also mentioned investment accounts, brokerage accounts, etc. This is good to have in mind, but in my opinion, the exact \\\"\\\"savings vehicle\\\"\\\" (type of place where you put the money) is a lot less important than getting into the habit of saving regularly and not touching that money. That is why I recommend just a savings account: if you miscalculate, forgot a large bill coming up, or for any other (good!) reason need access to the money, it won't be at a time when the investment has dropped 15% in value and you face a large penalty for withdrawing from your retirement savings. Once you have a good understanding of how much you are able to save reliably, you can divert a portion of that into other savings vehicles, including retirement savings. In fact, at that point, you probably should. Also, I suggest making a list of every single bill you pay regularly, its amount, when you paid it last time, and when you expect the next one to be due. Some bills are easy to predict (\\\"\\\"$234 rent is due the 1st of every month\\\"\\\"), and some are more difficult (\\\"\\\"the electricity bill is due on the 15th of the month after I use the electricity, but the amount due varies greatly from month to month\\\"\\\"). This isn't to know exactly how much you will have to pay, but to ensure that you aren't surprised by a bill that you didn't expect.\\\"\",\n \"Good question, very well asked! The key here is that you need to find a solution that works for you two without an overt amount of effort. So in a sense it is somewhat behavior driven, but it is also technology driven. My wife and I use spreadsheets for both checking account management and budgeting. A key time saver is that we have a template sheet that gets copied and pasted, then modified for the current month. Typically 90% of the stuff is the same and each month requires very little modification. This is one of my problems with EveryDollar. I have to enter everything each and every month. We also have separate checking accounts and responsibility for different areas of the family expenses. Doing this risks that we act as roommates, but we both clearly understand the money in one persons account equally belongs to the other and during hard times had to make up for shortfalls on the part of the other. Also we use cash for groceries, eating out, and other day to day expenses. So we don't have a great need to track expenses or enter transactions. That is what works for us, and it takes us very little time to manage our money. The budget meeting normally lasts less than a half hour and that includes goal tracking. We kind of live by the 80/20 principle. We don't see a value in tracking where every dime went. We see more value in setting and meeting larger financial goals like contributing X amount to retirement and things of that nature. If we overspent a bit at Walgreens who cares provided the larger goals are meant and we do not incur debt.\",\n \"What are your goals? Managing your finances is not the same for everyone. For example, do you want a more hands-off approach to finance or more hands-on? Are you looking at investments as well or just saving money? Those types of questions.\",\n \"The key to understanding where your money is going is to budget. Rather than tracking your spending after the fact, budgeting lets you decide up front what you want to spend your money on. This can be done with cash envelopes, on paper, or on Excel spreadsheets; however, in my opinion, the best, most flexible, and easiest way to do this is with budgeting software designed for this purpose. As I explained in another answer, when it comes to personal budgeting software, there are two different approaches: those in which you decide what to spend your money on before it is spent, and those that simply show you how your money was spent after it is gone. I recommend the first approach. Software designed to do this include YNAB, Mvelopes, and EveryDollar. My personal favorite is YNAB. You'll find lots of help, video tutorials, and even online classes with a live teacher on YNAB's website. Using one of these packages will help you manage spending, whether it is done electronically or with cash. When you pay for something with a credit card, you enter your purchase into the software, and the software adjusts your budget as if the money is already spent, even if you haven't technically paid for the purchase yet. As far as strategy goes, here is what I recommend: Get started on one of these, and set up your budget right away. Assign a category to every dollar in your account. Don't worry if it is not perfect. If you find later on that you don't have enough money in one of your categories, you can move money from another category if you need to. As you work with it, you'll get better at knowing how much money you need in each category. My other recommendation is this: Don't wait until the end of the month to download your transactions from the bank and fit everything into categories. Instead, enter your spending transactions into the software manually, every day, as you spend. This will do two things: first, you'll have the latest, up-to-date picture of where your accounts are in your software without having to guess. Second, it will help you stay on top of your spending. You'll be able to see early on if you are overspending in a particular category. YNAB has a mobile app that I use quite a bit, but if I don't get a chance to enter a purchase right when I spend it, I make sure to keep a receipt, and enter the transaction in that evening. It only takes a couple of minutes a day, and I always know how I stand financially.\",\n \"Out Of The Dark OOTD is a budgeting and personal money management web app that does not require you to give out access to your bank accounts or even your personal identity. It's a great tool for people with no financial experience with features like Cash Put-Aside and the Credit Card Debt Terminator and it has tons of instant guides explaining how to use every feature. You can check it out at myootd.org.\",\n \"As long as you can be trusted with a Credit Card i find that if you have a setup that uses three accounts: 1. your Credit Card, 2. 2. a high interest internet account (most of these accounts don’t have fees), 3. a savings account. The Method that works for me is: 1st i calculate my fixed monthly bills i.e Rent and utilities and then transfer it into my high interest account. for the month whenever i make a purchase i transfer the money into the high interest account ( this way I can keep a running balance of what money I have left to spend in the month. Then when the Credit Card bill comes I transfer the money out of the high interest account across to pay off the Credit Card ( this way you generate interest on the money which you would have spent throughout the month and still maintain $0 of interest from the Credit Card) over a year you can generate at least enough money in interest to go out for dinner on one of free flights!\",\n \"Budget out the amount you save and owe per month. Make sure that amount doesn't stay liquid, invest it, send it out. Make it go away. Learn to live in the rest. If you still have some left over then enjoy the impulse buying (why not). Second rule, try to payout your credit cards every month.\",\n \"My wife and I do this. We have one account for income and one for expenditures (and around 7 others for dedicated savings.) Doing this we are forcing ourselves to keep track of all expenditures as we have to manually transfer funds from one to the other, we try to do this periodically (every Wednesday) and then keep the expenditures within what is actually on the account. It is a really good way to keep track of everything. Bear in mind that our bank provides a fast handy smartphone app where we both can check our account as well as transfer funds in less than 10 seconds. (Fingerprint authentication, instant funds transfer as well as zero fees for transfers.) Right now we have a credit card each attached to the expenditures account, but earlier we only had a debit card each and no credit cards. Meaning that when the weekly funds ran out we where simply not able to pay. We did this to mimic living only on cash and when the cash runs out you simply have to stop buying stuff. And at the same time we could accrue quite a bit of savings. I would definitely recommend this if you have problems with over expenditures.\",\n \"A technique that is working pretty well for me: Hide the money from myself: I have two bank accounts at different banks. Let's call them A and B. I asked my employer to send my salary into account A. Furthermore I have configured an automatic transfer of money from account A to account B on the first of each month. I only use account B for all my expenses (rent, credit card, food, etc) and I check its statement quite often. Since the monthly transfer is only 80% of my salary I save money each month in account A. I don't have a credit card attached to the savings account and I almost never look at its statement. Since that money is out of sight, I do not think much about it and I do not think that I could spend it. I know it is a cheap trick, but it works pretty well for me.\",\n \"As far as I know theres no single tool that does all that well. You'll have to keep your investments separate from your daily expenses and money goals. There are a few tools everyone uses. I'm partial to budgeting apps. You can try ynab, everydollar, goodbudget. I wouldn't recommend mint as I personally don't trust my login info with a third party. I don't care who owns them. Just my opinion. I'm working on my own budgeting app. Ideally I'd like to include investments. But thats V2. If you'd like to keep updated on that let me know. Oh, what type of phone do you use?\",\n \"mint.com does a decent job categorizing your spending for you, it will do exactly what you asked your advisor I would also put some %% into saving from your every paycheck before you deposit the rest to checking(spending) and make a rule, you can't touch the saving account. Just like you are have enough courage not to use credit cards.\",\n \"\\\"As others have said, the decision is a very personal one. Personally, I think you have a good idea. For those of us that thrive in structured systems having a detailed breakdown and distribution of assets is a great idea. I recommend going one step further however. Instead of having a single \\\"\\\"Necessities\\\"\\\" account have a division here. 1 account for \\\"\\\"Bills\\\"\\\" and another for \\\"\\\"Living Expenses.\\\"\\\" Your Bills account should recieve the funds to pay your monthly expenses such as Rent, Utilities, Insurance. Living Expenses is for day to day spending. I recommend this because your Bills are generally a fairly fixed expense. Keeping your flexible spending separate allows you to manage it more carefully and helps prevent overspending. I keep my Living Expenses in cash and divide it up by the number of days before my next check. Every day I put my portion of the Living Expenses in my wallet. This way I know that I can spend as much money in my wallet and still be fine for the rest of the pay period. I also know that if I want to go out to a nice dinner on Friday, it would be helpful if I have money left over at the end of the day Monday through Thursday.\\\"\",\n \"\\\"Its really, really good of you to admit your short comings with a desire to improve them. It takes courage. Keep in mind that most of us that answer questions here are really \\\"\\\"good at money\\\"\\\" so we have a hard time relating. Would you want people that are bad with money answering questions on a personal finance site? While it is intimidating you will need a budget. A budget is simply a plan for how to spend your money. Your budget, based on your new pay frequency, will likely also need some cash flow planning as a single paycheck is unlikely to cover your largest expenses. For example your rent/mortgage might be less than a single paycheck so you will have to save money from the previous paycheck to have enough money to pay it. Your best bet is to have a friend or relative that is good with money help you setup a budget. Do you have one? If not you might inquire about a church or organization that offers Financial Peace University. The teachers of the class often help people setup a budget and might be willing to do so for you. You could also take the class which will improve your money management skills. For $100 you'll have a lifetime pass to the class. If it helps you avoid three late charges/bounce checks then the class is well worth it. Now as far as spending too much money. I would recommend cash, but you have to do it the right way. Here is the process that you have to follow to be successful with cash: Doing cash will give you a more concrete example of what spending means. It won't work if you continue to hit the ATM \\\"\\\"for just $20 more\\\"\\\". It will take you a bit to get used to it, but you will be surprised how quickly you improve at managing money.\\\"\",\n \"Your Money or Your Life is a great book on this topic.\",\n \"1) It sounds like you don't have a credit card, good. Take our ATM card and freeze it in a block of ice. Leave it in the freezer. 2) Get on a budget. A budget is a plan to spend your money. The best plans are those that are made ahead of time. For the record, budgeting is a skill and you will probably be bad at it for the first few times. 3) Withdraw cash from the bank account that you will need for the week. Once that money is gone, you are done spending until the next week. If you are still having trouble with this do it daily. Let's say you budget 300 for the month's spending. Go to the bank, take out 10 each day. You can carry money over from day-to-day, but never take out more. You can never spend more than you have because your ATM is in ice. 4) Find a friend who is good with money. Ask them to help you by giving guidance and oversight.\",\n \"As others have said getting on a written budget before each month starts is the most important part. Also, I'm a big fan of cash budgets as well. They aren't for everyone and they take a little getting used to, but once you get used to them you'll never want to go back. In a cash budget you take whatever you have budgeted for the month for each category and withdraw the amount needed from the bank. These go into an envelope for each category, i.e. food, clothes, entertainment, etc. If a 3 weeks into the month you run out of money in that envelope you are done spending money in that category. For example, if it's the food envelope and you run out it's time for you to start eating leftovers and whatever you've got in the pantry. You lose out on advantages like points gained on credit cards and whatnot but statistically people that spend cash spend much less overall and you get some enforced self control that you otherwise might not have.\",\n \"Obviously, there are many approaches. I’ll describe what we do and why we think it is successful. I have seen many couples having disagreements and even divorce over money; it seems that this is a typical reason to fight and sometimes fight badly. The realization is that different people have different preferences what to spend their money on, and if you are not rich, it continuously leads to disagreements - ‘did you really need another pair of shoes?’, etc. Our solution is a weekly allowance. First, all our money goes into one pot and is considered equal. Many couples find that a difficult step, but I never thought twice about it - I trust my spouse, and I share my life with her, so why not my money? From this, we agree on an ‘allowance’ that is used to cover any non-common cost; this includes all clothing, dining out, buying things, etc. The amount was chosen to match about what we spent for those things anyway, and then adjusted annually. The main point is that there is no critique allowed about what this is spent on - you can blow it all on shoes, or buy books, or wine and dine, or gamble it away, whatever. We are doing this since 23 years now, and we are very happy with the results; we never have financial ‘fights’ anymore. Disadvantages are the effort - you need to keep track of it somehow. Either you use a separate credit card, or hand it out in cash, or have a complete accounting (I do the latter, because I want to). Regarding all other spend, we use the accounting to plan ahead for at least a year on all cost and income that are expected, and that shows us the available cash flow and where it might get tight. It also shows you where the money goes, and where you could cut if cutting is needed (or wanted). Again, there is some effort in collecting the data, but it is worth it (for us).\",\n \"Just set up a budget. Indicate how much money comes in, how much goes out to must pay expenses (lodging, food, gas, heat, cooling, etc), and determine how much is leftover for anything else you want. If that amount is ok, then you're fine. If not, something needs adjusting.\",\n \"I agree with the first poster- the first step is to measure your spending and put it down into raw numbers. Once you have the raw numbers, you will feel a natural inclination to improve on those numbers. Set yourself a daily target for cash / incidental expenses. It doesnt have to be a crazy target - just something you can achieve easily. Mark a 'tick' mark next to every day on the calendar that you meet that target (or spend less than the target). Gradually the momentum from the past few 'ticks' will automatically compel you to want to tick off the next day. At the end of each week, lower the target a little. You'll find that when you start measuring your expenditure, you become more aware of how you might be wasting money. All too often we just go out and buy stuff we don't need without really thinking about it.\",\n \"Get on a written budget at the BEGINNING of the month. If you dont write down where your money goes BEFORE you spend it, you have no way of keeping track of it. I couldn't do a thing until I got on a written budget but now that I am, I've paid off $10,000 in 7 months.\",\n \"\\\"This may seem overly simple, but the most important thing to know is \\\"\\\"live beneath your means\\\"\\\". If your income is, for example, $2000 per month, spending $2001 or more per month is a sure path to ruin. Spending $1999 or less is the secret to success. Everything else on this forum is mere commentary on the above.\\\"\",\n \"\\\"I started storing and summing all my receipts, bills, etc. It has the advantage of letting me separate expenses by category, but it's messy and it takes a long time. It sounds from this like you are making your summaries far too detailed. Don't. Instead, start by painting with broad strokes. For example, if you spent $65.17 at the grocery store, don't bother splitting that amount into categories like toiletries, hygiene products, food, and snacks: just categorize it as \\\"\\\"grocery spending\\\"\\\" and move on to the next line on your account statement. Similarly, unless your finances are heavily reliant on cash, don't worry about categorizing each cash expense; rather, just categorize the withdrawal of cash as miscellaneous and don't spend time trying to figure out exactly where the money went after that. Because honestly, you probably spent it on something other than savings. Because really, when you are just starting out getting a handle on your spending, you don't need all the nitty-gritty details. What you need, rather, is an idea of where your money is going. Figure out half a dozen or so categories which make sense for you to categorize your spending into (you probably have some idea of where your money is going). These could be loans, cost of living (mortgage/rent, utilities, housing, home insurance, ...), groceries, transportation (car payments, fuel, vehicle taxes, ...), savings, and so on -- whatever fits your situation. Add a miscellaneous category for anything that doesn't neatly fit into one of the categories you thought of. Go back something like 3-4 months among your account statements, do a quick categorization for each line on your account statements into one of these categories, and then sum them up per category and per month. Calculate the monthly average for each category. That's your starting point: the budget you've been living by (intentionally or not). After that, you can decide how you want to allocate the money, and perhaps dig a bit more deeply into some specific category. Turns out you are spending a lot of money on transportation which you didn't expect? Look more closely at those line items and see if there's something you can cut. Are you spending more money at the grocery store than you thought? Then look more closely at that. And so on. Once you know where you are and where you want to be (such as for example bumping the savings category by $200 per month), you can adjust your budget to take you closer to your goals. Chances are you won't realistically be able to do an about-face turn on the spot, but you can try to reduce some discretionary category by, say, 10% each month, and transfer that into savings instead. That way, in 6-7 months, you have cut that category in half.\\\"\",\n \"Many banks will allow you to open multiple accounts. Create a secondary checking account that has no automatic withdrawals and doesn't allow overdraft. This is the account you'll use for you discretionary spending. Get an account with a debit card and always use it as a debit card (never as a credit card, even if it allows that). Your employer may allow you to split your direct deposit so that a certain amount of money goes into this account each month. When it gets to $0, you have to stop spending. It will automatically refill when you get your paycheck.\",\n \"Organize your expenses in order of the rate of return, and pay them in that order. By far the highest rate of return on your list is: Nowhere else are you going to see an immediate 100% return (or 50%, depending on the company's matching policy) on every dollar you allocate to this pot. Second would probably be: Money that you do not allocate here will usually incur a 15%-29% penalty. Outside of large expenses like a home, education, or a reasonable car, you never want to pay to use your own money (and borrowed money is still yours, remember that someday you have to pay all of it back). Avoiding a negative rate of return (interest) can be just as beneficial as finding a high positive rate of return on an investment. Continue down the list determining what must be paid first, and what the highest rates are in the immediate future and the long run. Meanwhile, live within your means, and set aside a portion of your monthly income towards things like a rainy day fund (up to a level which is not touched when reached). Additional savings through work or your personal investments should not be neglected (money saved early and compounded is worth many times what a dollar saved down the road will gain) especially if you are young in your career.\",\n \"Let an app do it for you, group items and see where you spend your money. One example: https://www.tinkapp.com/en/ Should provide a starting point for showing income vs expenses.\",\n \"\\\"For the most part, saving money usually depends upon having a budget and being able to stick to it. The toughest part of budgeting is usually setting it up (how much do I need for X) and sticking to it each month. In regards to sticking to it, there is software that you can use that helps figure out how much you are spending and how much you have left in a given category and they all pretty much do the same thing: track your spending and how much you have left in the category. If you are good with spreadsheets you might prefer that route (cost: free) but software that you can buy usually has value in that it can also generate reports that help you spot trends that you might not see in the spreadsheet. Sticking to a budget can be tough and a lot of what people have said already is good advice, but one thing that helps for me is having \\\"\\\"play money\\\"\\\" that can be used for whatever I want. In general this should be a fairly nominal amount ($20 or $40 a week) but it is enough that if you see a new book you want or what to go out for lunch one day you can do it without impacting the overall budget in some way. Likewise, having bigger savings goals can also be useful in that if times get tough it is easier to stop putting $100 a month to the side for a vacation than it is to cut back your grocery budget.\\\"\",\n \"\\\"If psychologically there is no difference to you between cash and debit (you should test this over a couple of months on yourself and spouse to make sure), then I suggest two debit cards (one for you and spouse) on your main or separate checking account. If you use Mint you can set budgets for each category (envelope) and when a purchase is made Mint will automatically categorize that transaction and deduct that amount from the correct budget. For example: If you have a \\\"\\\"Fast Food\\\"\\\" budget set at $100 per month and you use the debit at McDonalds, Mint should automatically categorize it as \\\"\\\"Fast Food\\\"\\\" and deduct the amount from the \\\"\\\"Fast Food\\\"\\\" budget that you set. If it can't determine a category or gets it wrong, you can just select the proper category. Mint has an iPhone (also Android and Windows phone) app that I find very easy to use. Many people state that they don't have this psychologically difference between spending cash and debit/credit, but I would say that most actually do, especially with small purchases. It doesn't have anything to do with intellect or knowing that you are actually spending money. It has more to do with tangibility, and the physical act of handing over cash. You may not add that soda and candy bar to your purchase if you have visible cash in your wallet that will disappear more quickly. I lived in Germany for 2 years before debit cards were around or common. I'm a sharp guy and even though I knew that I paid $100 for the 152 DM, it still kind of felt like spending Monopoly money, especially considering that in the US we are used to coins normally being 25 cents or less and in Germany coins are up to 10 DM (almost $10) and are used more frequently than paper.\\\"\",\n \"The absolute best advice I ever received was this: You will need three categories of savings in your life: 1) Retirement Savings This is money you put away (in 401-Ks and IRAs) for the time in your life when you can no longer earn enough income to support yourself. You do not borrow against it nor do you withdraw from it in emergencies or to buy a house. 2) Catestrophic savings This is money you put back in case of serious events. Events like: prolonged job loss, hospitalization, extended illness, loss of home, severe and significant loss of transportation, very large aplliance loss or damage. You do not take trips to the Bahamas or buy diamond rings with this money. 3) Urgent, relatively small, need savings. This is the savings you can use from time to time. Use it for bills that arise unexpectedly, unforseen shortfalls in your budget, needed repairs such as car repairs and small appliance repairs, surprising fines, fees, and bills. Put 10% of your income into each category of savings. 10% intro retirement savings, another, separate, 10% intro Catestrophic savings, and yet another 10% intro urgent, small need, savings. So, as you can see, already 30% of your income is already spoken for. Divide up the remaining 70% intro fixed (I recommend 50% toward fixed expenses) and variable expenses. Fixed includes those things that you pay once every month such as housing, utilities, car payment, debt repayment, etc. Variable includes discretionary things like eating out, gifts, and splurges. Most importantly, partner with someone who is your opposite. If you are a saver at heart partner with a spender. If you are a spender partner with a saver. There are three rules to live by regarding the budget: A) no one spends any money unless it is in the budget B) the budget only includes those things to which both the saver and the spender agree C) the budget can, and will, be modified as the pay period unfolds. A budget is a plan not a means to beat the other person up. Plans change as new information arises. A budget must be flexible. The urgent use savings will help to make the budget flexible. Edit due to comments: @enderland Perhaps you do not have children living with you. I am a saver, my wife is a spender. When it came time to do the budget I would forget things like the birthdays of my children, school fees due next pay period, shopping for Christmas gifts, needed new clothes and shoes for the children, broken small appliances that needed to be fixed or replaced, special (non reoccurring) house maintenence (like steam cleaning the carpet), gifts to relatives and friends, exceptional assistance to relatives, etc. As my wife was the spender she would remind me of these things. Perhaps you do not have these events in your life. I am glad to have these events in my life as that means that I have people in my life that I care about. What good is a fat savings account if I have no loved ones that benefit from it?\",\n \"Personal finance is a fairly broad area. Which part might you be starting with? From the very basics, make sure you understand your current cashflow: are you bank balances going up or down? Next, make a budget. There's plenty of information to get started here, and it doesn't require a fancy piece of software. This will make sure you have a deeper understanding of where your money is going, and what is it being saved for. Is it just piling up, or is it allocated for specific purchases (i.e. that new car, house, college tuition, retirement, or even a vacation or a rainy day)? As part of the budgeting/cashflow exercise, make sure you have any outstanding debts covered. Are your credit card balances under control? Do you have other outstanding loans (education, auto, mortgage, other)? Normally, you'd address these in order from highest to lowest interest rate. Your budget should address any immediate mandatory expenses (rent, utilities, food) and long term existing debts. Then comes discretionary spending and savings (especially until you have a decent emergency fund). How much can you afford to spend on discretionary purchases? How much do you want to be able to spend? If the want is greater than the can, what steps can you take to rememdy that? With savings you can have a whole new set of planning to consider. How much do you leave in the bank? Do you keep some amount in a CD ladder? How much goes into retirement savings accounts (401k, Roth vs. Traditional IRA), college savings accounts, or a plain brokerage account? How do you balance your overall portfolio (there is a wealth of information on portfolio management)? What level of risk are you comfortable with? What level of risk should you consider, given your age and goals? How involved do you want to be with your portfolio, or do you want someone else to manage it? Silver Dragon's answer contains some good starting points for portfolio management and investing. Definitely spend some time learning the basics of investing and portfolio management even if you decide to solicit professional expertise; understanding what they're doing can help to determine earlier whether your interests are being treated as a priority.\",\n \"Determine how much you are going to save first. Then determine where you can spend your money. If you're living with your parents, try to build an emergency fund of six months income. The simplest way is to put half of your income in the emergency fund for a year. Try to save at least 10% of your income for retirement. The earlier you start this, the longer you'll have to let the magic of compounding work on it. If your employer offers a 401k with a match, do that first. If not, consider an IRA. You probably want to do a Roth now (because you probably pay little in taxes so the deduction from a standard IRA won't help you). After the year, you'll have an emergency fund. Work out how much money you'll need for rent, utilities, and groceries when you're on your own. Invest that in some way. Pay off student loans if you have any. Buy a car that you can keep a long time if you need one. Go to night school. Put any excess money in a savings account or mutual fund. This is money for doing things related to housing. Perhaps you'll need to buy a washer/dryer. Or pay a down payment on a mortgage eventually. Saving this money now does two things: first, it gives you savings for when you need it; second, it keeps you from getting used to spending your entire paycheck. If you are used to only having $200 of spending cash out of each check, you will fit your spending into that. If you are used to spending $800 every two weeks, it will be hard to cut your spending to make room for rent, etc.\",\n \"\\\"Keep track of everything you buy. Write it down and be accountable. Try not to buy anything on credit cards, if the money is not in your account now then you can't afford it. Ask yourself whether what you're buying is a \\\"\\\"need\\\"\\\" or a \\\"\\\"want\\\"\\\". If you find that you are buying things because you are bored and you like shopping then try taking up a (cheap) hobby that fills that void and is something you enjoy doing.\\\"\",\n \"Assuming what is taking you over budget are not essential costs such as fuel bills, food, mortgage etc. you could do the following. Work out your monthly disposable income after all essential base costs have been sutracted. Then simply keep a book of any additional spending. It will be very easy to see if you're at risk of overspending. In fact, even when one has no need to budget it's still an excellent idea to keep a book of all your spending. It's surprising how useful it can be. It's a great reference for dues dates, sizes of past bills and provides an excellent cross check of your bank statement. It's not often that you find an error on your bank statement (at least it shouldn't be!), but my books have helped me locate three such errors over the past 25 years, which I'm sure would have gone unnoticed by most people. So my advice is, keep a book of your spending.\",\n \"You have to track your spending for a month, down to the cent. Without those records, the person trying to help you has no real data. Even a week would be a start. Heck, try just doing this today. See if it works for you. Throughout each day: Each evening: At the end of a month (or week, or whatever period you want): Each day you do it successfully it will get easier. Let us know how it works out! Best wishes!\",\n \"On average, you should be saving at least 10-15% of your income in order to be financially secure when you retire. Different people will tell you different things, but really this can be split between short term savings (cash), long term savings (401ks, IRAs, stocks & bonds), and paying down debt. That $5k is a good start on an emergency fund, but you probably want a little more. As justkt said, 6 months' worth is what you want to aim for. Put this in a Money Market account, where you'll earn a little more interest but won't be penalized from withdrawing it when its needed (you may have to live off it, after all). Beyond that, I would split things up; if possible, have payroll deductions going to a broker (sharebuilder is a good one to start with if you can't spare much change), as well as an IRA at a bank. Set up a separate checking account just for rent and utilities, put a month's worth of cash in there, and have another payroll deduction that covers your living expenses + maybe 5% put in there automatically. Then, set up automatic bill payments, so you don't even have to think about it. Check it once a month to make sure there aren't any surprises. Pay off your credit cards every month. These are, by far, the most expensive forms of credit that most people have. You shouldn't be financing large purchases with them (you'll get better rates by taking a personal loan from a bank). Set specific goals for savings, and set up automatic payroll deductions to work towards them. Especially for buying a house; most responsible lenders will ask for 20% down. In today's market, that means you need to write a check for $40k or $50k. While it's tempting to finance up to 100% of the property value, it's also risky considering how volatile markets can be. You don't want to end up owing more on the property than it's worth two years down the road. If you find yourself at the end of the month with an extra $50 or so, consider your savings goals or your current debt instead of blowing it on a toy. Especially if you have long term debt (high balance credit cards, vehicle or property loans), applying that money directly to principal can save you months (or years) paying it back, and hundreds or thousands of dollars of interest (all depending on the details of the loan, of course). Above all, have fun with it :) Think of your personal net worth as you do your Gamer score on the XBox, and look for ways to maximize it with a minimum of effort or investment on your part! Investing in yourself and your future can be incredibly rewarding emotionally :)\",\n \"There are a lot of good answers above, all of them will probably work for you in some way or another. One point to note (from the procrastination theme) is that you could invest your free money that you have currently in some investment instrument which would require you to do some paperwork etc. to get out, this way the immediate cash flow is decreased and also invested. Now from each montly budget save a small amount for the things that you would like to buy. Give this small savings some months to accumulate so that you can afford only one of the items that you want to buy or target an item that you want to buy. After the money is accumulated, if you still want to buy the item, then you probably should. One point of note is that budgeting is also important on a monthly basis, Pete has provided excellent suggestion in this regard.\",\n \"In your comment in response to this answer, you said that your biggest issue is oversight, which you can do by checking your online bank account regularly. Mint.com looks good but you're in Australia? Easy, check out getpocketbook.com. Using it and love it, helps a lot to track your tracking, and it's a god-send during tax time.\",\n \"\\\"I would suggest having your money auto-deposited into a savings account. Then use cash weekly to pay for everything you purchase. Forget the ATM card, because you can burn through your whole paycheck and then run out. Set a certain budget (say $200 per week, just making up a number), and that's all you get. Withdraw $200 from the bank / ATM, and then walk away. No buying online (because it isn't restricted), no buying on a card. All expenses (beyond utilities) comes out of that cash. When you want to spend more, you need to wait until your next cash \\\"\\\"paycheck\\\"\\\". If you want to spend more (on whatever you end up splurging on), you will need to cut back in other areas (cheaper food, etc). As others have mentioned, freeze that ATM card, and don't use it at all.\\\"\",\n \"\\\"What you are doing is neither one. You are simply watching to make sure you don't overdraw, which itself suggests you might be living hand to mouth and not saving. Keeping track of your money and budgeting are useful tools which help people get on top of their money. Which tends to have the effect of allowing you to save. How much did you spend on groceries last month? Eating out? Gas? If you were \\\"\\\"keeping track of your money\\\"\\\", you could say immediately what you spent, and whether that is above or below average, and why. How much do you plan to spend in the next 3 months on gas, groceries, eating out? If you knew the answer to that question, then you would have a \\\"\\\"budget\\\"\\\". And if those months go by, and your budget proves to have been accurate, or educates you as to what went wrong so you can learn and fix it... then your budget is a functioning document that is helping you master your money. Certainly the more powerful of the two is the \\\"\\\"keeping track\\\"\\\", or accounting of what has happened to you so far. It's important that you keep track of every penny without letting stuff \\\"\\\"slip through the cracks\\\"\\\". Here you can use proper accounting techniques and maybe accounting software, just like businesses do where they reconcile their accounting against their bank statements and wallet cash. I shortcut that a little. I buy gift cards for McDonalds, Panera, Starbucks, etc. and buy my meals with those. That way, I only have one transaction to log, $40 - McDonalds gift card instead of a dozen little meals. It works perfectly fine since I know all that money went to fast food. A little more dangerous is that I treat wallet cash the same way, logging say two monthly entries of $100 to cash rather than 50 little transactions of left $1 tip at restaurant. This only works because cash is a tiny part of my overall expenditures - not worth accounting. If it added up to a significant part, I'd want accounting on that.\\\"\",\n \"Communicate. I would recommend taking a course together on effective communications, and I would also suggest taking a course on budgeting and family financial planning. You need to be able to effectively communicate your financial plans and goals, your financial actions, and learn to both be honest and open with your partner. You also need to be certain that you come to an agreement. The first step is to draft a budget that you both agree to follow. The following is a rough outline that you could use to begin. There are online budgeting tools, and a spreadsheet where you can track planned versus actuals may better inform your decisions. Depending upon your agreed priorities, you may adjust the following percentages, Essentials (<50% of net income) Financial (>20%) Lifestyle (<30%) - this is your discretionary income, where you spend on the things you want Certain expense categories are large and deserve special advice. Try to limit your housing costs to 25% of your income, unless you live in a high-cost/rent area (where you might budget as high as 35%). Limit your expenses for vehicles below 10% of income. And expensive vehicle might be budgeted (partly) from Lifestyle. Limiting your auto payment to 5% of your income may be a wise choice (when possible). Some families spend $200-300/month on cable TV, and $200-300/month on cellphones. These are Lifestyle decisions, and those on constrained budgets might examine the value from those expenses against the benefit. Dining out can be a budget buster, and those on constrained budgets might consider paying less for convenience, and preparing more meals at home. An average family might spend 8-10% of their income on food. Once you have a budget, you want to handle the following steps, Many of the steps are choices based upon your specific priorities.\",\n \"\\\"There is a saying in business: what gets measured gets done. Track every expense you make. Later, look over what you have learned. If 5% of your total budget is going to something frivolous, maybe you could halve it? If 1% or 0.1% is going to that frivolous expense, there's not much to be gained even by eliminating it. If you spend $200/mo on coffees, dropping those will help. If you spend $10/mo on coffees, you need to look elsewhere for your big savings. Have a target: I want to put $X into savings each month. Therefore I can only spend $Y. What do you have to change about last month's spending patterns to get down to $Y? Where are the easy targets for you? They will be different than the easy targets for me. What absolutely cannot change for you? Once you know the costs of what you're doing, you will know where it's possible to save, and where it's \\\"\\\"worth it\\\"\\\" to economize.\\\"\",\n \"Fisher Capital Management: Leading 10 Monetary Suggestions Posted on 17/10/2011 by fcminvestment Even though resolutions boost financial condition a great idea to accomplish in any period for year is for numerous persons discover this less difficult from the starting of the New Year. Irrespective of any time one start, the fundamentals stay identical. Fisher Capital Management shares recommendations in order to be in advance monetarily. 1. Be Compensated How Much you are worth and Save Some Part of It This appears easy; however countless individuals have difficulty having this specific initial fundamental principle. Be positive and understand exactly what your task is worth within the industry, through executing the assessment of your expertise, productiveness, career responsibilities, involvement to the firm, and the current fee, equally within and beyond the organization, regarding what you perform. Becoming under compensated actually a thousand bucks a year may possess a substantial collective result more than the actual process of one’s employment existence. Irrespective of the amount or perhaps how small you are compensated, you will in no way obtain be advance in case one devote far more compared to a person gain. Frequently it is less difficult to invest much less compared to this will be to make much more, and the small efforts within the amount of places may outcome in large savings. This will not usually have that which includes producing large sacrifices. 2. Adhere to the Price Range How many people understand when the funds will be heading when one never budget? How does a person can easily established investing and saving targets when one never understands in which the cash is actually heading? People require the budget whether or not a person creates thousands or perhaps hundreds of thousands of bucks a year. 3. Settle Credit Card Accounts Credit card financial obligation is actually the number one hindrance to becoming ahead monetarily. These small items of plastic tend to be so convenient to utilize, it is therefore very easy to overlook that it is actual cash we are coping with whenever you whip these away to pay out for any transaction, big or even little. In spite of the great resolves in order to shell out balance away swiftly, the truth is that it usually will not, and wind up having to pay much more regarding issues compared to make paid off when you made use of money. 4. Chip in towards the Pension Program When the company has a 401(k) plan and a person do not contribute to this, you are running away through one of the finest discounts right there. Request the boss if they have the 401(k) plan (or even comparable program), and sign up right now. In the event that you happen to be contributing, attempt to increase the contribution. In case the company will not provide the pension program, think about the Individual retirement account. 5. Make Financial Savings Program You might have discovered this before: Pay for yourself first! If perhaps a person delay till you have satisfied most ones monetary commitments prior to finding what is remaining around for saving, probabilities tend to be you will in no way possess a wholesome financial savings accounts or perhaps opportunities. Deal with it in order to fix apart the minimal for 5% to 10% of the income to get savings prior to shelling out the expenses. More desirable however, get cash instantly taken off through the income and deposit straight into a distinct account. 6. Make Investments! Should you are contributing the pension program and the savings account as well as one may also handle to set a number of funds in to some other ventures, all the far better. 7. Improve Ones Career Rewards Work benefits such as the 401(k) program, flexible expenditure consideration, healthcare as well as dental care coverage, and so on. are usually valued at huge money. Try to make certain you will be making the most of your own and also getting benefit of these kinds which can easily help save cash through lowering taxation or perhaps out-of-pocket expenditures. 8. Evaluate Ones Coverage Protections Overly numerous individuals tend to be though in to spending a lot regarding life and impairment coverage, no matter if it is through incorporating all these protections to automobile mortgages, purchasing whole-life insurance if term-life creates a lot more feeling, or perhaps purchasing life insurance any time one possess absolutely no dependents. In the different side, it really is essential to an individual get sufficient insurance coverage to be able to safeguard the loved ones and also the earnings in the event of fatality or possibly impairment. 9. Revise Your Current Will 70% of American citizens do not possess a will. In case a person have dependents, irrespective of just how small or what amount a person own, an individual need a will. When the predicament is not very difficult a person may actually carry out the personal plan just like WillMaker through Nolo Press. Safeguard your own cherished family members. Create your will. 10. Maintain Suitable Data When a person do not maintain useful data, you are most likely in no way proclaiming all the allowable revenue taxes deductions as well as credits. Established a method today and utilize this each of the year. It is a lot simpler compared to rushing in order to discover all the things from taxes period, just to skip things which may have rescued a person capital.\",\n \"\\\"You are making this far more complex than it needs to be. Direct deposit your savings directly into a savings account. To track spending, invest in a small notebook, and keep a tally of what you spend every day. Also, it seems odd to me that you want to track your budget in minute detail, but coins are \\\"\\\"useless\\\"\\\" to you.\\\"\",\n \"In general, the better advice I've heard is to spend only on things that matter to you and scrimp on the rest. It's an easy way to budget without having to stick to a strict set of rules. Otherwise keep 3-6 months of living expenses in liquid accounts (money market, savings) and invest the rest.\",\n \"\\\"My father imparted this advice to me when I was a teenager, and it hasn't failed me yet. > Pay yourself first What this means is that the first \\\"\\\"bill\\\"\\\" you pay should always be your savings. Preferably in a way that automatically comes out of your paycheck or account without requiring you to take an active step to make it happen. I save a ton of money, but I am no more disciplined than anyone else. I just realized that over the years of progressing in my career that I gradually got higher and higher salaries, yet never had a substantial increase in the money I had leftover in my bank at the end of the month despite the fact that I make about 8x the money I used to live reasonably comfortably on. Therein is the point, we spend whatever money we see, so you almost have to hide it from yourself. First, participate to the fullest in your company's 401k if they offer it. After a while you will adjust naturally to the net take home pay and won't miss the savings you are accumulating. Absent that, or in addition to that, set up a separate bank or investment account and arrange an automatic transfer from your checking account every month. Then set up automatic investing in CD's or some other less-liquid-than-cash investment so you it is just enough hassle to get at the money that you won't do it on a whim. It sounds too simple, but it works.\\\"\",\n \"Does your employer offer direct deposit? Can you deposit to more than one account? Personally, I have my pay split up like this via direct deposit: From an early age I found that separating my expenses from my spending money kept me inside my spending limits and kept my savings on track. In fact, checking account 1 and 2 are at two different banks. Get yourself a credit card to start establishing some credit. Make a payment plan for the student loan, but before focusing completely on repaying it start to establish an emergency fund.\",\n \"Mint.com—Easy solution to provide insight into finances. Pros: Cons:\",\n \"\\\"Money management is data-driven. You've been operating on \\\"\\\"how you feel\\\"\\\" and \\\"\\\"what should be\\\"\\\", and that's why it hasn't been working. First you collect data on how you actually are spending money. Record every expenditure and categorize what it was used for. Go back 6-12 months if you can. You don't need blistering detail, in fact I adjusted my lifestyle to make that easy. Fast food meals, movie tickets, USB cables, anything too small to bother recording, I just pay cash for that. Everything else: check, ACH or credit card. It is not excessive to do it in Quickbooks or similar if you know the app. Whatever is most efficient for you. Now you have a log of what you've been spending on what in a time oeriod, and a log of your income. Congratulations, you have a \\\"\\\"Profit & Loss Statement\\\"\\\", a basic financial planning tool. Now you can look at it accurately, decide if the money you are spending in each department brings the value and joy that fits the expenditure, and change what you want. You may decide you'd rather save $1000/mo than run a $200/mo deficit. Changing is simply coming up with different numbers that you think are achievable. Congratulations, you have a budget or spending plan. Again, data driven. The point is, your spending plan is based on your actual experience with past expenditures, not blind-guessing. Then, go out and make it happen.\\\"\",\n \"You should invest your money. To figure out what rate of return you need, use this equation: (How Much Money You Want Per Year) / (Total Amount of Cash You Have) = (Annualized Interest Rate) If we plug in the amount of annualized interest you can expect to safely get while not managing your money personally, 2% by my estimate, we get X / 1.2m = 0.02%; X=24K/year A measly $24,000 / year. Many people say that you can get 10, 12, even 30% return on your investment. I won't speculate on if this is true, but I will guarantee that you cannot get those returns simply by handing your money over to a money manager. So your options are, 1) Earn a guaranteed $24,000 and earn the rest you need to live by working 2) Learn to invest your money (and then do so intelligently) and earn enough to live off the interest To learn how to invest your money, read Beating the Street, by Peter Lynch. https://www.amazon.ca/Beating-Street-Peter-Lynch/dp/0671891634 Good luck!\",\n \"\\\"As others have said, doing a monthly budget is a great idea. I tried the tracking expenses method for years and it got me nowhere, I think for these reasons: If budgeting isn't your cup of tea, try the \\\"\\\"pay yourself first\\\"\\\" method. Here, as soon as you get a paycheck take some substantial portion immediately and use it to pay down debt, or put it in savings (if you have no debt). Doing this will force you to spend less money on impulse items, and force you to really watch your spending. If you take this option, be absolutely sure you don't have any open credit accounts, or you'll just use them to make up the difference when you find yourself broke in the middle of the month. The overall key here is to get yourself into a long term mind set. Always ask yourself things like \\\"\\\"Am I going to care that I didn't have this in 10 years? 5 years? 2 months? 2 days even? And ask yourself things like \\\"\\\"Would I perfer this now, or this later plus being 100% debt free, and not having to worry if I have a steady paycheck\\\"\\\". I think what finally kicked my butt and made me realize I needed a long term mind set was reading The Millionaire Next Door by Tom Stanley. It made me realize that the rich get rich by constantly thinking in the long term, and therefore being more frugal, not by \\\"\\\"leveraging\\\"\\\" debt on real estate or something like 90% of the other books out there tell you.\\\"\",\n \"In addition to the advice already given (particularly getting rid of high-interest debt), I would add the following:\",\n \"First: great job on getting it together. This is good for your family in any respect I can think of. This is a life long process and skill, but it will pay off for you and yours if you work on it. Your problem is that you don't seem to know where you money goes. You can't decide how whacky your expenses are until you know what they are. Looking at just your committed expenses and ignore the other stuff might be the problem here. You state that you feel you live modestly, but you need to be able to measure it completely to decide. I would suggest an online tool like mint.com (if you can get it in your country) because it will go back for 90 days and get transactions for you. If you primarily work in cash, this isn't helpful, but based on your credit card debt I am hoping not. (Although, a cash lifestyle would be good if you tend to overspend.) Take the time and sort your transactions into categories. Don't setup a budget, just sort them out. I like to limit the number of categories for clarity sake, especially to start. Don't get too crazy, and don't get too detailed at first. If you buy a magazine at the grocery store, just call it groceries. Once you know what you spend, then you can setup a budget for the categories. If somethings are important, create new categories. If one category is a problem, then break it down and find the specific issue. The key is that you budget not be more than you earn but also representative of what you spend. Follow up with mint every other day or every weekend so the categorization is a quick and easy process. Put it on your iPhone and do it at every lunch break. Share the information with your spouse and talk about it often.\",\n \"Give all your money as well as your budget requirements to someone you really trust. Tell them to give you ONLY what your budget allows. As long as both of you take this seriously, this method will be very effective.\",\n \"such analysis helps you keep track of the percentage of income that you invest You could apply 1:1:1 ratio. i.e spend 1/3, save 1/3 and invest 1/3. Hope that helps\",\n \"Look up You Need A Budget...the methodology is really the key and the software is elegant and practical. It's not about tracking spending, it's about planning what your dollars are going to do. The application automates much of the budget planning and data entry as it remembers your input (and is totally customizable). If you follow their basic blueprint, you can spend just minutes a week. They offer free online classes too (love this). I do not have skin in their game but have been a fan since it was just a spreadsheet. And yes, they have a mobile app, which means you can enter transactions on the go with just a few taps and then have your data synced across the cloud or just across your network.\",\n \"\\\"What I've found works best when working on my personal budget is to track my income and spending two different ways: bank accounts and budget categories. Here is what I mean: When I deposit my paycheck, I do two things with it: It goes into my checking account, so the balance of my checking account goes up by the amount of my paycheck. I also \\\"\\\"deposit\\\"\\\" the money from my checking account into my various budget category balances. This is separate from my bank account balances. Some of my paycheck money goes into my groceries category, some goes into clothing, some into car fuel, entertainment, mortgage, phone, etc. Some goes into longer range bills that only happen once or twice a year, such as car insurance, life insurance, property tax, etc. Some goes into savings goals of ours, such as car replacement, vacation, furniture, etc. Every dollar that we have in a bank account or in cash in our wallets is also accounted for in a budget category. If you add up the balances of our bank accounts and cash, and you add up the balances of our budget categories, they add up to the same number. When we make a purchase, this also gets accounted for twice: The appropriate bank account (or cash wallet) balance gets reduced by the purchase amount. The appropriate budget category gets reduced by the purchase amount. In this way, we don't really need to worry about having separate bank accounts for different purposes. We don't need to put our savings goal money in a separate bank account from our grocery money, if we don't want to. The budget category accounting keeps track of how much money is allocated to each purpose. Now, the budget category amounts are not spent yet; the money in them is still in our bank account, and we can move money around in the categories, if we change our mind on how to allocate them. For example, if we don't spend all of our gas money for the month, we can either keep that money in the gas category, or we can move it to a different category, such as the car replacement category or the vacation category. If the phone bill is more than we expect, we can move money around from a different category to cover it. Now, back to your question: We allocate some money from each paycheck into our furniture category. But the money is not really spent until we actually buy some furniture. When we do, the furniture category balance and bank account balance both go down by the amount of the purchase. All of this can be kept track of on the computer in a spreadsheet. However, it's not easy to keep track of so many categories and bank balances. An easier solution is custom budgeting software designed for this purpose. I use and recommend YNAB.\\\"\",\n \"Unlike other responses, I am also not good with money. Actually, I understand personal finance well, but I'm not good at executing my financial life responsibly. Part is avoiding tough news, part is laziness. There are tools that can help you be better with your money. In the past, I used YNAB (You Need a Budget). (I'm not affiliated, and I'm not saying this product is better than others for OP.) Whether you use their software or not, their strategy works if you stick with it. Each time you get paid, allocate every dollar to categories where your budget tells you they need to be, prioritizing expenses, then bills, then debt reduction, then wealth building. As you spend money, mark it against those categories. Reconcile them as you spend the money. If you go over in one category (eating out for example), you have to take from another (entertainment). There's no penalties for going over, but you have to take from another category to cover it. So the trick to all of it is being honest with yourself, sticking to it, recording all expenditures, and keeping priorities straight. I used it for three months. Like many others, I saved enough the first month to pay the cost of the software. I don't remember why I stopped using it, but I wish I had not. I will start again soon.\",\n \"Put your budget down on paper/spreadsheet/tool of choice (e.g Mint, YNAB, Excel). Track every cent for a few months. Seeing it written down makes The Financial Conversation easier. One simple trick is to pay yourself first. Take $100 and sock it away each month, or $25 per paycheck - send it to another account where you won't see it. Then live off the rest. For food - make a meal plan. Eggs are healthy and relatively cheap so you have breakfast covered. Oatmeal is about $2 for a silos' worth. Worst case you can live off of ramen noodles, peanut butter and tuna for a month while you catch up. Cut everything as some of the others have answered - you will be amazed how much you will not miss. Dave Ramsey's baby steps are great for getting started (I disagree with DR on a great many things so that's not advocating you sign up for anything). Ynab's methodology is actually what got me out of my mess - they have free classes in their website - where budgeting is about planning and not simply tracking. Good luck.\",\n \"A pencil and a small notepad really work here, but if you have a smartphone then some way of using it makes sense as well. Try: Transcribe all of these onto a better record at the end of each day. Also record the amount of money in your wallet/purse/pocket every day, and check to see if the amounts you've recorded add up to the amount you've spent. It'll be easier to remember that newspaper you bought at the end of the day, rather than a week later. Or just record the difference as 'miscellaneous'.\",\n \"Deposit $3,500 each month in a brokerage account and invest that money across a handful of diversified index funds. Rebalance those investments every quarter. The hard part is coming up with $3,500 each month; this is where your budget comes in.\",\n \"I love mint.com, it fulls in your information from all your accounts automatically, let's you know where you spend your money and what your net worth is.\",\n \"Some to manage day to day expenses, bills, and to save money. I already a system in place for investments and retirement. I was just wanting to know if there was a good app to help with these things instead of having to use a pen and paper to figure this stuff out when I am on the go away from my computer.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["Track your spending and expected income -- on paper, or with a personal-finance program. If you know how much is committed, you know how much is available. Trivial with checks, requires a bit more discipline with credit cards.","Many banks will allow you to open multiple accounts. Create a secondary checking account that has no automatic withdrawals and doesn't allow overdraft. This is the account you'll use for you discretionary spending. Get an account with a debit card and always use it as a debit card (never as a credit card, even if it allows that). Your employer may allow you to split your direct deposit so that a certain amount of money goes into this account each month. When it gets to $0, you have to stop spending. It will automatically refill when you get your paycheck.","Personally, I have a little checkbook program that I use to keep track of my spending and balance. Like you -- and I presume like most people -- I have certain recurring bills: the mortgage, insurance payments, car payment, etc. I simply enter these into the checkbook program about a month before the bill is due. Then I can run a transaction list that shows the date, amount, and remaining balance after each transaction. So if I want to know how much money I really have available to spend, I just look for the last transaction before my next payday, and see what the balance will be on that day. Personally, I always keep a certain amount of pad in my account so if I made a mistake and entered an incorrect amount for a check, or forgot to enter one completely, I don't overdraw the account. (I like to keep $1000 in such padding but that's way more than really necessary, it's very rare that I make a mistake of more than $100.) In my case, I don't enter electric bills or heating bills because I don't know the amount until I get the bill, and the amounts fall well within my padding, and for just two bills I can factor them in in my head. BTW I wrote this program myself but I'm sure there are similar products on the market. I used to use a spreadsheet and that worked pretty well. (Mainly I wrote the program because I have a tiny side business that I have to keep tax records for even though it makes almost no money.) You could in principle do it on paper, but the catch to that is that when you write payments on your paper ledger in advance of actually writing the check, you will often be writing down payments out of order, and so it becomes difficult to see what your balance is or was or will be on any given date. But a computer system can easily accept transactions out of order and then sort them and re-do the balance calculations in a fraction of a second."],"string":"[\n \"Track your spending and expected income -- on paper, or with a personal-finance program. If you know how much is committed, you know how much is available. Trivial with checks, requires a bit more discipline with credit cards.\",\n \"Many banks will allow you to open multiple accounts. Create a secondary checking account that has no automatic withdrawals and doesn't allow overdraft. This is the account you'll use for you discretionary spending. Get an account with a debit card and always use it as a debit card (never as a credit card, even if it allows that). Your employer may allow you to split your direct deposit so that a certain amount of money goes into this account each month. When it gets to $0, you have to stop spending. It will automatically refill when you get your paycheck.\",\n \"Personally, I have a little checkbook program that I use to keep track of my spending and balance. Like you -- and I presume like most people -- I have certain recurring bills: the mortgage, insurance payments, car payment, etc. I simply enter these into the checkbook program about a month before the bill is due. Then I can run a transaction list that shows the date, amount, and remaining balance after each transaction. So if I want to know how much money I really have available to spend, I just look for the last transaction before my next payday, and see what the balance will be on that day. Personally, I always keep a certain amount of pad in my account so if I made a mistake and entered an incorrect amount for a check, or forgot to enter one completely, I don't overdraw the account. (I like to keep $1000 in such padding but that's way more than really necessary, it's very rare that I make a mistake of more than $100.) In my case, I don't enter electric bills or heating bills because I don't know the amount until I get the bill, and the amounts fall well within my padding, and for just two bills I can factor them in in my head. BTW I wrote this program myself but I'm sure there are similar products on the market. I used to use a spreadsheet and that worked pretty well. (Mainly I wrote the program because I have a tiny side business that I have to keep tax records for even though it makes almost no money.) You could in principle do it on paper, but the catch to that is that when you write payments on your paper ledger in advance of actually writing the check, you will often be writing down payments out of order, and so it becomes difficult to see what your balance is or was or will be on any given date. But a computer system can easily accept transactions out of order and then sort them and re-do the balance calculations in a fraction of a second.\"\n]","isConversational":false}}},{"rowIdx":391,"cells":{"_id":{"kind":"string","value":"3264"},"query":{"kind":"string","value":"Pros and Cons of Interest Only Loans"},"gt_ids":{"kind":"list like","value":["598807","134764","486525","260383"],"string":"[\n \"598807\",\n \"134764\",\n \"486525\",\n \"260383\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1,1],"string":"[\n 1,\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["598807","260383","486525","134764","453847","7243","25466","462403","551485","316230","315847","97044","335237","290704","473907","97446","542194","22804","147806","445198","317037","60176","324273","373966","348927","4739","216356","299724","62498","254303","41293","434143","79150","261585","212162","555734","301609","167356","457569","455488","110465","355076","4612","73652","412142","116694","418024","274043","28060","569691","558742","487593","180311","466161","991","488037","461233","338048","217553","95320","322311","495717","436493","470648","51798","252019","163997","264228","119931","32784","124016","559699","129567","431296","120837","45683","233795","393866","296612","352638","227718","201968","41052","349160","352552","100403","130388","107152","330533","359571","390311","38439","379201","344740","483480","542461","412624","479593","185107","355605"],"string":"[\n \"598807\",\n \"260383\",\n \"486525\",\n \"134764\",\n \"453847\",\n \"7243\",\n \"25466\",\n \"462403\",\n \"551485\",\n \"316230\",\n \"315847\",\n \"97044\",\n \"335237\",\n \"290704\",\n \"473907\",\n \"97446\",\n \"542194\",\n \"22804\",\n \"147806\",\n \"445198\",\n \"317037\",\n \"60176\",\n \"324273\",\n \"373966\",\n \"348927\",\n \"4739\",\n \"216356\",\n \"299724\",\n \"62498\",\n \"254303\",\n \"41293\",\n \"434143\",\n \"79150\",\n \"261585\",\n \"212162\",\n \"555734\",\n \"301609\",\n \"167356\",\n \"457569\",\n \"455488\",\n \"110465\",\n \"355076\",\n \"4612\",\n \"73652\",\n \"412142\",\n \"116694\",\n \"418024\",\n \"274043\",\n \"28060\",\n \"569691\",\n \"558742\",\n \"487593\",\n \"180311\",\n \"466161\",\n \"991\",\n \"488037\",\n \"461233\",\n \"338048\",\n \"217553\",\n \"95320\",\n \"322311\",\n \"495717\",\n \"436493\",\n \"470648\",\n \"51798\",\n \"252019\",\n \"163997\",\n \"264228\",\n \"119931\",\n \"32784\",\n \"124016\",\n \"559699\",\n \"129567\",\n \"431296\",\n \"120837\",\n \"45683\",\n \"233795\",\n \"393866\",\n \"296612\",\n \"352638\",\n \"227718\",\n \"201968\",\n \"41052\",\n \"349160\",\n \"352552\",\n \"100403\",\n \"130388\",\n \"107152\",\n \"330533\",\n \"359571\",\n \"390311\",\n \"38439\",\n \"379201\",\n \"344740\",\n \"483480\",\n \"542461\",\n \"412624\",\n \"479593\",\n \"185107\",\n \"355605\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["Pros: Cons: Before the housing bubble the conventional wisdom was to buy as much home as you could afford, thereby borrowing as much you can afford. Because variable rates lead to lower mortgages, they were preferred by many as you could buy more house. This of course lead to many people losing their home and many thousands of dollars. A bubble is not necessary to trigger a chain of events that can lead to loss of a home. If an interest only borrower is late on a payment, this often triggers a rate increase. Couple that with some other things that can happen negatively, and you are up $hit's creek. IMO it is not wise.","\"The main disadvantage is that interest rates are higher for the interest-only loan. It's higher risk to the bank, since the principal outstanding is higher for longer. According to the New York Times, \"\"Interest rates are usually an eighth- to a half-percentage point higher than on fully amortized jumbo loans.\"\" They're also tougher to qualify for, and fewer lenders offer them, again due to the risk to the bank. Since you can always put extra towards the principal, strictly speaking, these are the only downsides. The upside, of course, is that you can make a lower payment each month. The question is what are you doing with this? If this is the only way you can afford the payments, there's a good chance the house is too expensive for you. You're not building equity in the home, and you have the risk of being underwater if the house price goes down. If you're using the money for other things, or you have variable income, it might be a different story. For the former, reinvesting in a business you own might be a reason, if you're cognizant of the risks. For the latter, salespeople on commission, or financial industry types who get most of their income in bonuses, can benefit from the flexibility.\"","The advantage of interest only mortgages is that they can increase your cashflow as you are only paying the interest and not any part of the principle. We have most of our investment loans on interest only for 10 years. When we got the loans about 6 to 7 years ago our LVR was only 60% and the property prices have increased by about 40% in that time. We also place our excess cashflow into offset accounts linked to the investment loans, so there is extra cash available in case things go bad. The disadvantage of interest only mortgages is that you are not paying off any principal for the length of the interest only period. If you are over extended this could cause problems as you need to rely totally on the price of the property going up for your equity to increase. As you are currently paying mortgage insurance leads me to believe your LVR is above 80%, so you would not have much equity available in your home. With an interest only loan this could pose you some problems. You should never try to over extend yourself, the slightest thing that goes wrong could get you into financial troubles. Always try to have some buffer to help you stay on your feet if circumstances do change for the worst.","\"Given the current low interest rates - let's assume 4% - this might be a viable option for a lot of people. Let's also assume that your actual interest rate after figuring in tax considerations ends up at around 3%. I think I am being pretty fair with the numbers. Now every dollar that you save each month based on the savings and invest with a higher net return of greater than 3% will in fact be \"\"free money\"\". You are basically betting on your ability to invest over the 3%. Even if using a conservative historical rate of return on the market you should net far better than 3%. This money would be significant after 10 years. Let's say you earn an average of 8% on your money over the 10 years. Well you would have an extra $77K by doing interest only if you were paying on average of $500 a month towards interest on a conventional loan. That is a pretty average house in the US. Who doesn't want $77K (more than you would have compared to just principal). So after 10 years you have the same amount in principal plus $77k given that you take all of the saved money and invest it at the constraints above. I would suggest that people take interest only if they are willing to diligently put away the money as they had a conventional loan. Another scenario would be a wealthier home owner (that may be able to pay off house at any time) to reap the tax breaks and cheap money to invest. Pros: Cons: Sidenote: If people ask how viable is this. Well I have done this for 8 years. I have earned an extra 110K. I have smaller than $500 I put away each month since my house is about 30% owned but have earned almost 14% on average over the last 8 years. My money gets put into an e-trade account automatically each month from there I funnel it into different funds (diversified by sector and region). I literally spend a few minutes a month on this and I truly act like the money isn't there. What is also nice is that the bank will account for about half of this as being a liquid asset when I have to renegotiate another loan.\"","Generally, interest-only mortgages are a bad idea, because a lot of people get them so that they can buy more house than they could otherwise afford (lower payment = affordable, in their minds). If the house continues to go up in value, they probably get away with it, because when the balance becomes due, they can refinance. However, the last few years has shown how risky that strategy can be, and this kind of things is what cost a lot of people their houses. In your case, if the house is something you could afford on a regular 15 or 30-year mortgage, and you really are as disciplined as you say you are, you might get away with it. But you have to take into account the risk, and consider what happens if there is a job loss or similar difficulty in the future. Another thing to consider is the term of the mortgage. How many years will you get this lower interest rate? Interest rates are at historic lows right now, and pretty much everyone thinks they're going up soon. You might be better off locking in a higher rate for 15 years.","Normally interest only mortgages are taken incase one planning to sell off the property after a few years and purchase of the property is for investment. In such a case instead of burdening oneself with a huge EMI, one opts for an interest only mortgage, and towards the end of the term, sell off the house at profit and repay back the entire principal. I am not to sure if interest only mortgages are encouraged for properties you plan to live in. Although I do not know about the ING scheme, normally there is no prepayment option on interest only mortgages, its Bank way of earning a fixed income for the contracted period and thats the reason why the interest rates are lower than a regular mortgage. If you do the math, you may be paying more in total interest than on a regular mortgage.","Paying interest on a loan costs you money. The tax deduction just reduces that cost, but it's still there. So the only possible reason to borrow more than you have to, e.g. with the interest-only loan, is that you can invest the excess elsewhere and make more money. Can you invest money and make more than 4.5% expected return before tax with a risk level you're comfortable with? If you can invest tax free then the hurdle is (4.5%-the tax deduction instead), e.g. 3.6% if your marginal tax rate is 20%. One possible such investment would be paying down any mortgage on your own home - as you don't get a tax deduction for such a mortgage, overpayments are effectively tax free so 3.6% or whatever is the appropriate hurdle. If you can't do that, then even switching to a principal and interest mortgage at 4.5% would be worthwhile; the principal payments would effectively be an investment in reducing your future interest bill, and that investment is better than anything else you have available. Given that what you actually have on offer is a mortgage with a lower rate of interest, the hurdle for an alternative investment is quite a bit higher than 4.5%; with the interest-only mortgage, you can invest some of the money that would otherwise go to principal elsewhere, but in exchange you are paying a higher interest rate on the rest of your loan balance. You'd need to look at the exact numbers to work out the right hurdle, which would vary depending on your marginal tax rate, the term of the mortgage, and your guess as to where interest rates would go after the 2 year fixed term.","I can't think of any more negatives apart from what you mentioned, but the positives might include higher cost base for when you sell the place (this only applies in Australia if it is an investment property) thus having to pay less tax on the capital gains, and being able to borrowing extra funds which may help with your cashflow (especially if you keep the extra funds in an 100% offset account so your interest payable is not increased until you really need the extra funds).","This is very much possible and happens quite a lot. In the US, for example, promotional offers by credit card companies where you pay no interest on the balance for a certain period are a very common thing. The lender gains a new customer on such a loan, and usually earns money from the spending via the merchant fees (specifically for credit cards, at least). The pro is obviously free money. The con is that this is usually for a short period of time (longest I've seen was 15 months) after which if you're not careful, high interest rates will be charged. In some cases, interest will be charged retroactively for the whole period if you don't pay off the balance or miss the minimum payment due.","Talk about coincidence, we just recieved letters from our bank saying that our interest only loans will be going up by 0.46% and if we want to keep our lower rate we will need to change early to P&I. Now our Interest only periods end in 6 months to about 16 months anyway. We have decided to change to P&I early and save on our interest expenses. Why? Because the main purpose of investing is to make money not to save on tax. Even if you are on the highest marginal tax rate for every extra dollar of expenses you spend and claim as a deduction you will only get about 50 cents back through tax savings. If you are on the lowest marginal tax rate your tax savings will reduce to less than 20 cents for every extra dollar spent. If you are investing in order to save on tax you may be investing for the wrong reasons. Your primary reason for investing should be to make money, for wealth creation. A good reason to stay with an Interest only loan for an investment property would be if you require the extra cash flow you would receive compared with an I&P loan.","Here are the pros and cons and an analytical framework for making a decision. Pros of walking away: Cons: Here's the framework: compare the value of first and second sections for you [1] http://www.nytimes.com/2009/07/30/business/30serviceside.html?_r=0 [2] http://www.mortgagecalculator.org/","Personally the main disadvantages are perpetuation of the credit referencing system, which is massively abused and woefully under regulated, and encouraging people to think that it's ok to buy things you don't have the money to buy (either save up or question price/necessity).","\"Do you now own your new home, or are you renting? This is a classic case of a mortgage ready to blow up. These 7/1 interest only would have a low rate, say 3%. So on $200K, the payment is $500/mo, but no principal paydown. Even if the rate were still 3% (it won't be) the 23 yr amortization means a payment of $1004 after the 7 years end. At 4%, it's $1109. 5%, $1221. I would take this all into account as you decide what to do. If you now own a new house, you should consider the morally questionable walk-away. I believe you were sold an unethical product. mb wrote \"\"shoot up considerably.\"\" This is still an understatement. A product whose payment is certain to double in a fixed time is 'bad.' 'Bad' in the biblical sense. You have no obligation to keep any deal with the devil, which is exactly what you have. There are some banks offering FHA products that might help you. I just received an offer from the bank holding a mortgage on my rental property. It's 4.5% for a refinance up to 125% of current value. There's a cost of $1800, but I owe so little, and am paying it off faster than the time left, I'm not bothering. You may benefit from such a program, but I'd still question if you can make a go of a house that even 2% underwater. Do some math, and see if you started now with a 30 year loan how the numbers work out. (Forgive my soapbox stance on this. There are those who criticize the strategic defaulters. I think you fall into a group of innocent victims who were sold a product that was nothing less than a financial time bomb. I am very curious to know the original \"\"interest only\"\" rate, and the index/margin for the rate upon adjustment. If you include the original balance, I can tell you the exact payments based on the new rates pretty easily.)\"","Assumptions 1 & 2 are correct. Plus you will improve on credit score. The only disadvantage is if you get lax about it and overspend beyond your limit ... Plus a small risk of fraud of card transactions ...","There are ups and downs to doing this. This isn't a taxable gain, because it's borrowed money that will be repaid. Whether there are restrictions or not depends upon your contract with the seller and your bank. If the concessions are for health & safety related repairs, your bank may require you to complete the work before closing or within a certain period of time. Overall: Upsides Downsides","Presumably, the inverse of the advantages? You are guaranteed the interest rate that is written on your mortgage commitment as long as the first draw happens before the rate hold expiry date (typically 120 days from application date). In most cases, it takes at least 6 months or more to build a home from the ground up. That means that you are taking a chance at what the interest rates and qualifying criteria will be several months down the road. You can normally only lock in 120 days prior to possession with a 'Completion Mortgage'. Lenders are constantly changing their guidelines and rates are predicted to increase over the coming months. That means you are much better to obtain draw mortgage financing to avoid any of these uncertainties. You will know that you have your financing in place right away before construction even starts. This is a huge peace of mind so you can relax and get ready for the big move. So thus, if interest rates are lower 6 months or a year from now, that'd be the disadvantage -- a longer lock-in period.","The earlier you are in your career, the more willing you should be to take a better opportunity even if it has a short-term financial cost. You go to college even if McDonald's has an opening. After college you may take an entry level job with better long-term prospects even if a higher paying job is available. You may train for some professional qualification. Having expenses you have to pay limits your flexibility to do this. A variable rate loan that goes up later may give you the freedom to make better decisions early on. Thus in this case it may be worthwhile. That said - be very wary of variable rate loans. Unless you have iron discipline, they give the opportunity to bury yourself.","If you don't have other installment loans on your credit report, adding this one could help your credit. That could potentially help you get a better interest rate when you apply for a mortgage. There are positive and negative factors. Positive: Negative:","\"This model would work fine under a couple of assumptions: that market interest rates never change, and that the borrower will surely make all the payments as agreed. But neither of those assumptions are realistic. Suppose Alice loans $1,000,000 to Bob at 4% under the terms you describe. Bob chooses to make interest-only payments of $40,000 per year. Some time later, prevailing interest rates go up to 10%. Now Alice would really like Bob to repay the entire principal as quickly as possible, because that money could be earning her $100,000 per year instead of only $40,000, but under the contract she has no way to force Bob to do so. And Bob has no incentive to repay any of the principal, because he can earn more interest on it than he has to pay to Alice. So Alice is not going to be very happy about this. You might say, but at least Alice is only losing \"\"potential\"\" money; she's still turning a profit of $10,000 per year, since her bank only charges her 3% interest. Ah, but you're assuming that Alice can get a bank loan with a rate of 3% fixed forever. The bank doesn't want to make such a loan either, for exactly the same reasons. So in practice, any loan like this would be expected to have a variable interest rate. There's a flip side, too. Suppose instead that market rates drop to 1%. Now Alice would like Bob to repay the principal as slowly as possible, because she's earning 4% on that money, which is better than any other options available to her. But Bob now has every incentive to repay it as fast as he can - or even to refinance by taking out another loan at, say, 2%, and using the proceeds to repay the entire principal to Alice. (This risk still applies with most traditional loans, since the borrower usually always has the right to pay early, but some loans include a \"\"prepayment penalty\"\" in such cases to help compensate the lender.) Thus, when Bob has all the power to decide when to pay, Alice is sure to lose no matter which way interest rates move. A loan with a fixed term helps insulate Alice against this risk. She may be able to make a guess about the likelihood of interest rates going up to 10% in the next 15 or 30 years, and increase Bob's fixed rate to account for this; that's much easier than trying to account for the possibility of interest rates going up to 10% ever. (And if she does have to try to account for this, she's probably going to have to set the interest rate extremely high; so Bob might accept a fixed term of repayment in exchange for a more reasonable rate.) Even if we suppose that Alice has done the best possible credit check and that Bob is a perfectly trustworthy fellow who would never dream of defaulting on his loan, catastrophes do happen. Maybe Bob is robbed of all his money by an evil accountant, or has a mid-life crisis and spends it all on opera tickets. Whatever, Bob is now bankrupt and Alice is never going to get her principal back, nor any further interest payments either. Even if the loan is secured by some collateral, there's still a risk since the collateral might lose value. Alice has some chance of estimating the risk of this happening in the next 15 or 30 years, and can set the interest rate to compensate for it. But it is harder for her to estimate the risk of this happening ever, and if she tries, she'll have to set the rate so high that Bob might prefer a fixed term and a lower rate. (There's a side issue as to what happens if Bob dies with the loan still outstanding. If it's an unsecured loan, typically Alice can try to collect the principal from Bob's estate, but if there isn't enough, too bad for Alice; she can't force Bob's heirs to continue making payments. If it's a secured loan, Alice may be able to have Bob's heirs continue paying or else she seizes the collateral; but she still has the risk of the collateral losing value.)\"","Pro: - Faces less redemption pressure and hence the Fund Manager can focus more on long term gains rather than immediate gains. - Works well in emerging markets. - Less churn out in case the market falls sharply, there by making more money in long run. Cons: - No additional money to invest/take advantage of market situation. - Less liquid for investor as he is locked in for a period.","I would use student loans and avoid credit card debt if debt is your only option. Here are the advantages I see: Disadvantages:","And then there is the issue of people who actually don't intend to reduce the size of their loan. They only want to pay the interest, so their debt with the bank remains constant. If you are upside down, it means you will not have the financial means to remove the debt. If, for some reason, you are no longer able to pay the bank, you might lose the house. After that you will have no house, but you still have a debt with the bank.","Excel Pros: Cons:","\"The likely reason the mortgage is \"\"tricky to get\"\" is the adviser is probably recommending an interest-only mortgage in which there is no repayment of principle before maturity. That would allow you to deduct the amount of the interest expense from your taxable income. Your investment grows compound tax deferred and the principal invested (the mortgage balance) is completely tax free since it never qualifies as income for tax purposes. Example ideal scenario: Refinance $100,000 on a 5/1 ARM-interest only at 3%. Invest the $100,000 at 6%. Each year you effectively pay taxes on only the gains greater than interest. If you reinvest the profits it looks something like: Net Profit: $12,309 Effective Tax Rate: 13.21%\"","The main advantage and disadvantage I can see in a scenario like this are - how savvy and good an investor are you? It's a good way to create below-market average returns if you're not that good at investing and returns way above market average if you are...","\"Some pros and cons to renting vs buying: Some advantages of buying: When you rent, the money you pay is gone. When you buy, assuming you don't have the cash to buy outright but get a mortgage, some of the payment goes to interest, but you are building equity. Ultimately you pay off the mortgage and you can then live rent-free. When you buy, you can alter your home to your liking. You can paint in the colors you like, put in the carpet or flooring you like, heck, tear down walls and alter the floor plan (subject to building codes and safety consideration, of course). If you rent, you are usually sharply limited in what alterations you can make. In the U.S., mortgage interest is tax deductible. Rent is not. Property taxes are deductible from your federal income tax. So if you have, say, $1000 mortgage vs $1000 rent, the mortgage is actually cheaper. Advantages of renting: There are a lot of transaction costs involved in buying a house. You have to pay a realtor's commission, various legal fees, usually \"\"loan origination fees\"\" to the bank, etc. Plus the way mortgages are designed, your total payment is the same throughout the life of the loan. But for the first payment you owe interest on the total balance of the loan, while the last payment you only owe interest on a small amount. So early payments are mostly interest. This leads to the conventional advice that you should not buy unless you plan to live in the house for some reasonably long period of time, exact amount varying with whose giving the advice, but I think 3 to 5 years is common. One mitigating factor: Bear in mind that if you buy a house, and then after 2 years sell it, and you discover that the sale price minus purchase price minus closing costs ends up a net minus, say, $20,000, it's not entirely fair to say \"\"zounds! I lost $20,000 by buying\"\". If you had not bought this house, presumably you would have been renting. So the fair comparison is, mortgage payments plus losses on the resale compared to likely rental payments for the same period.\"","The loan is private, so the business is more of a red-herring. The fact that you're closing it and lost a lot of money explains the loan, but is rather irrelevant otherwise as the loan is personal. Do consider potential tax benefits on writing off a loss, talk to a local tax adviser on that. Pros: Cons: I'm sure there are more considerations, of course, and I'm not familiar with the Canadian social safety nets to understand how much of a damage con #1 would be.","There is the underpayment penalty, and of course the general risk of any balloon-style loan. While you think that you have enough self-discipline, you never know what may happen that may prevent you from having enough cash at hands to pay the accumulated tax at the end of the year. If you try to do more risky investments (trying to maximize the opportunity) you may lose some of the money, or have some other kind of emergency that may preempt the tax payment.","Two reasons are typically cited (I've heard these from Dave Ramsey): So I wouldn't refinance to a 15-year loan just for item 2, but would definitely look at it for the better interest rates.","You're paying 5.2% 'interest' on the $115K (500 * 12 / 115,000) * 100 but the amount you pay back is not $115K but 75% of the property value at sale. Is that right? A mortgage would have cost about half that rate and the balloon payment would have been fixed - you would pay back $115K at maturity plus you could have sold it whenever you liked As Gnasher729 said, if you consider it to be rent then the situation looks different but the point of buying a house is to avoid paying 'useless' rent, build equity and hopefully make a capital gain I'd speak to a lawyer & possibly an accountant (regarding the numbers)","HELOCs typically have a 10 year draw and 5 year payback. During the draw time you can pay interest only if you wish. The rate can range from Prime minus 1.5 to Prime plus (quite a bit). Of course, you can always shop around for a better deal than you currently have so long as you have equity in your home.","One of the more subtle disadvantages to large credit card purposes purchases (besides what the other answer mentions), is that it makes you less prepared for emergencies. If you carry a large balance on your credit card with the idea that your income can easily handle the payments to beat the no-interest period, you never know when you'll have an unexpected emergency and you'll end up having to pay less, miss the deadline and end up paying huge interest. Even if you are fastidious about saving and budgeting, what if your family comes under a large financial burden (just as one possible example)?","IMO, it's a good deal. Pre-paying 3% interest is better than accruing it at 1-2% per month. The other nice thing about it is that all of your payments hit the principal.","The only time it makes sense to take out a loan is: The drawbacks of these 2 points are: Otherwise it's better to pay for the car up front. You have not mentioned whether you need the car to earn income. A car will incur other costs such as insurance and maintenance.","PROS: Price stability, confidence in the market, manipulation of money supply for direct monetary policy transmission, not having politicians conduct short sighted policy so they can get reelected, etc. CONS: No checks/balances, few people control of the largest economy in the world, not democratic","This is basically the same as any other loan out there that defers payments. The bank doesn't care because your balance with them keeps going up along with their future profits when you pay that balance back. The only point where this becomes a problem for them is when you get to a point where your monthly income no longer supports the minimum payment required. (BTW, this is basically a study of what the US Treasury is doing with the national debt and the annual budget deficit, but I will go over to politics.stackexchange.com before commenting on the wisdom of this.)","KMyMoney Pros: Cons:","I think the logic in your example demonstrates it is silly to make a decision for tax benefits alone. Saving 75 is much preferred to a cash outflow of 100 less tax savings of 25. To answer your question, paying mortgage interest represents the fee for the cheapest money most people will ever access, which in itself is a benefit (e.g. renting vs buying). The benefits are maximized when the aggregate of appreciation, inflation, tax savings exceeds total interest expense.","Really the question you need to ask yourself is how much Risk you want to take in order to save a little on interest for 5 years. Rates are pretty close to a historic low, and if you have good credit you should shop around a bit to get a good ideal of what a 15 or 30 year fixed loan would go for. For people that are SURE they will be selling a property in a few years, a 5-yeah balloon, or ARM might not be a bad thing. OTOH, if their plans change, or if you plan to stay in the property for longer (e.g. 10-15 years) then they have the potential to turn into a HUGE trap, and could have the effect of forcing you to sell your house. The most likely people to fall into such a trap are those who are trying to buy more house than they can really afford and max out what they can pay using a lower rate and then later cannot afford the payments if anything happens that makes the rate go up. Over the last three years we've seen a large number of foreclosures and short-sales taking place are because of people who fell into just this kind of trap.. I strongly advise you learn from their mistakes and do NOT follow in their footsetps You need to consider what could happen in 5 years time. Or if the economy takes off and/or the Fed is not careful with interest rates and money supply, we could see high inflation and high interest rates to go along with it. The odds of rates being any lower in 5 years time is probably pretty low. The odds of it being higher depends on who's crystal ball you look at. I think most people would say that rates are likely to increase (and the disagreement is over just how much and how soon). If you are forced to refinance in 5 years time, and the rates are higher, will you be able to make the payments, or will you potentially be forced out of the house? Perhaps into something much smaller. What happens if the rates at that time are 9% and even an ARM is only 6%? Could you make the payments or would you be forced to sell? Potentially you could end up paying out more in interest than if you had just gotten a simple fixed loan. Myself, I'd not take the risk. For much of the last 40 years people would have sold off their children or body parts to get rates like we have today on a standard fixed loan. I'd go for a standard fixed loan between 15 and 30 years duration. If you want to pay extra principle to get it paid off earlier in order to feel more secure or just get out from under the debt, then do so (personally, I wouldn't bother, not at today's rates)","You can often convert the outstanding balance of a HELOC into a fixed-rate home equity loan, generally with the same bank. Doing this can open possibilities to extend the term allowing for lower monthly payments, but resulting in a larger overall payoff cost. Most HELOCs allow for an interest-only payment or in some cases no-payment at all if you still have unused available credit. Not advising that you do this. If you are struggling with the size of the payment converting to a fixed-rate, fixed-term loan may be what you need. The key will be getting the term such that you can manage both the principal and interest that will be included in the payment.","\"Consider that there are some low-probability, high-impact risk factors involved with property management. For example, an old house has lead paint and may have illegal modifications, unknown to you, that pose some hazard. All of your \"\"pros\"\" are logical, and the cons are relatively minor. Just consult an attorney to look for potential landmines.\"","What's going on here is that the variable rate loan is transferring some of the risk from the bank to you. In a reasonable deal taking on risk brings with it reward. It's the same thing as deductibles on insurance--they're transferring some risk to you and thus your expected total cost goes down. Thus the proper evaluation of such deals is whether you can afford the outcome if you draw the short straw. If you feel you can afford the highest payment that can result then the variable rate is a good deal. If you're near your limit then stay with the safe option of the fixed rate. For a house this is easy enough to evaluate--run the calculations assuming the highest payment and see what the debt-to-income ratio is. Note that when we were getting mortgages there was another factor involved: the variable rate loans had a higher initiation cost. Combined with the very low difference between fixed and ARM rates at the time we went fixed but given the rates you quote going variable would have been a no-brainer for us.","A few thoughts off the top of my head: Advantages of more than 20% down: Disadvantages of more than 20% down:","The precise answer depends on the terms and conditions of the loan, and whether you can reasonably expect to meet them. For example, if you keep the loan, make no payments, there is a good chance that - eventually - you will trigger a clause in the contract, and suddenly be charged fees or a significant interest rate. If you don't need to pay anything for a time, odds are you will forget to monitor the loan (after all it is not costing you anything) and suddenly get hit with an unexpected expense. Most loan contracts are structured - by professionals - to benefit the loan provider. The purpose of a loan provider is to make a profit. They do that by encouraging you to pay more - up front, over the longer term, or both. Personally, I would never take out a zero-interest loan. It is specifically designed to appear like a gift from the loan provider, while actually (and almost covertly) costing more at some point. If I was in your position (i.e. if I had taken out such a loan) I'd pay off the loan as fast as possible. If you have more than one loan, however, prioritise by working out which actually costs you more over time. And pay the worst ones first. You'll have to look closely at the terms and conditions - possibly with the help of a professional - to work out which is actually work.","One thing I would look into is getting a fixed rate home equity loan for a short term. Not a line of credit, but a home equity loan. The main benefit is they typically offer no closing costs. You can get a very low rate provided you move the loan into first position (replace your current mortgage). I know someone who got a 7 year fixed Home Equity Loan, from Regions Bank, for 2.62% no closing costs.","\"Your thinking is unfortunately incorrect; an amortising loan (as opposed to interest only loans) pay down, or amortise, the principal with each payment. This means that the amount that is owed at prepayment will always be less than the total borrowed, and is also why some providers make a charge for prepayment. The \"\"fairness\"\" arguments that you make predicated on that misunderstanding are, therefore, incorrect.\"","It depends on your situation. Situations may change. There are also other factors: Being free and clear is nice, but there is an opportunity cost.","Advantages of paying off debt: Potential advantage of remaining in debt:","That is a decision you need to make, but some of the pros and cons you could consider to help your decision making include: Pros: If bought at the right time in the property cycle and in a good growth area, it can help you grow your net worth much quicker than having money in the bank earning near zero interest. You would be replacing rent payments with mortgage payments and if your mortage payments are less than your current rent you will have additional money to pay for any expenses on the property and have a similar cashflow as you do now. You will be able to deduct your interest payments on the mortgage against your income if you are in the USA, thus reducing the tax you pay. You will have the security of your own house and not have to worry about moving if the landlord wants you out after your lease expires. Cons: If bought in a bad area and at the top of the property cycle you may never make any capital gains on the property and in fact may lose money on it long term. If the mortgage payments are more than your current rent you may be paying more especially at the start of your mortgage. If you buy a house you are generally stuck in one spot, it will be harder to move to different areas or states as it can cost a lot of money and time to sell and buy elsewhere, if renting you can generally just give notice and find a new place to rent. Property maintenance costs and taxes could be a drain on your finances, especially if the mortgage repayments are more than your current rent. If your mortgage payments and property expenses are way more than your current rent, it may reduce what you could be investing in other areas to help increase your net worth.","\"Interest rates are at a record low and the government is printing money. You can get a fixed rate loan at a rate equal to inflation in a healthy economy. Unless you know that you are moving in < 5 years, why would you expose yourself to interest rate risk when rates are about as close to zero as they can be? If your thought with respect to mitigating interest rate risk is: \"\"What's the big deal, I'll just refinance!\"\", think again, because in a market where rates are climbing, you may not be able to affordably refinance at the LTV that you'll have in 5-7 years. From 1974-1991, 30 year mortgages never fell below 9%, and were over 12% from 1979 to 1985. Think about what those kinds of rates -- which reduce a new homeowner's buying power by over 40%, would do to your homes value.\"","Back of the envelope calculation: 30K limit, 5 year draw, 5 year post draw payback. Int 6% a year, 3% minimum payment. Borrow 5K at the start of the draw period, make the minimum payment for the next 5 years. At the end of 5 years still owe approximately $1123, and have paid ~775 in interest. Borrow 5K at the start of the draw period, make the minimum payment for the next 5 years but borrow the money from the line of credit. At the end of 5 years still owe approximately $6711, and have paid ~1711 in interest. The bank loves you. The balance grows instead of decreases. That growing balance become pur profit. Of course you are good for it, because you never came anywhere near the maximum limit of 30K. This is a variation of somebody tapping the line of credit to invest it, then discovering that it is hard to make enough money to make it worthwhile. Detailed scenario:","The only problem that I see is that by not giving the 20% right away, you might need to pay PMI for a few months. In addition, in the case of conventional loans, I heard that banks will not remove the PMI after reaching 80% LTV without doing an appraisal. In order to be removed automatically, you need to reach 78% LTV. Finally, I think you can get a better interest by giving 20% down, and you can get a conventional loan instead of a FHA loan, which offers the option to avoid the PMI altogether (on FHA, you have two PMIs: one upfront and one monthly, and the monthly one is for the life of the loan if you give less than 10%).","I like You Need A Budget (YNAB) Pros: Cons:","\"My husband made a similar car loan decision when he was younger and didn't have an established credit history / favourable credit rating. As a result, he ended up paying triple what the car was worth, because of the interest. When we consolidated our finances, this ugly loan was first on our list of priorities to change, convert, eliminate, but unfortunately, in our case, the terms of the loan were such that only the lender benefited. There was no incentive to pay off the loan early, in fact, we would have to have paid all the future interest at once, without saving a penny. So check the terms of your loan - hopefully you're better off than we were. In our case, the only upside we could figure was the lesson of \"\"live and learn\"\"!\"","\"The question asked in your last paragraph (what's the downside) is answered simply; if you take out a loan and close the cards, that's a ding on your score because your leverage ratio on this portion of your credit jumps to 100% or more, and because you'll be reducing the average age of your lines of credit (one line of credit a few days old versus five lines of credit several years old each). If you take out the loan and don't close the accounts, it's one more line of credit, increasing your total credit, lowering your leverage, but making institutions more reluctant to give you any more credit until they see what you'll do with what you have. In either case, assuming you can get the loan at less than the average rate of the cards (that's actually not a guarantee; a lot of lenders will want APRs in the 20s or 30s even for a title loan or other collateralized loan), then your cost of capital will also go down. That gives you more of a gap of discretionary income that you can better use to \"\"snowball\"\" all this debt as you are planning. Another thing to keep in mind is that the minimum payment changes as the balance does. The minimum payment covers monthly interest at least, and therefore varies based on your interest rate (usually variable) and your balance (which will hopefully be decreasing). A constant payment over the current minimum, much like a more traditional amortization, would be preferable.\"","Money Manager Ex PROS: CONS","\"I think the answer to this question depends on how much you trust yourself. Most people are wonderful at deceiving themselves. I'd personally not trust myself; I'll use Liam's points for the pitfalls some people get into. You can pay off your loans with summer internships and retain the initial cash you had for additional activities that make college enjoyable, i.e - Fraternity/ Sorority, clubs, dinners, and social nights. This is actually the risk I've seen many people do. They'll blow their money in one semester under the assumption that 'they'll just earn more in Summer and keep it for expenses or the future.\"\" Another benefit to taking these loans would assist in building credit, No Credit (in the USA) is actually a good standing. Many sensible banks or credit unions will happily give people with No Credit a loan. This makes intuitive sense if you think about it. Imagine two people with the same income. One owes money regularly to multiple sources and the other has no debt obligations. Which one are you loaning money to? Simplifying things a lot: Great Credit is best, followed by No Credit, then Good Credit, and then Bad Credit. The advantage of Great Credit over No Credit is simply that some institutions in some sectors don't have the policies in place to process No Credit people (No Credit people plan to not apply for credit often, for self-explanatory reasons, so this is a mote point).\"","Here are some pros and cons. Note the list is not comprehensive, but should be a good start. Pros: Alternative to Fiat Money supply - it is an international currency and can be thought of as a protection against having your money in dollars or pounds for example. Some people think that it will eventually replace fiat money supply. This is unlikely to happen any time soon. Move money anywhere - Anyone who has an internet connection can download a wallet and receive bitcoins. Route into Altcoin market - A lot of money is being made in alternative cyrptocurrencies such as etherium, often the best way to buy these is with Bitcoin. Potential massive gains - Bitcoin has gone from 1 dollar 7 years ago to over 2000 dollars, some think it may go even much higher in the future. Fixed money supply - Fixed cap of bitcoins, there will never be more than a fixed amount (unless code changes) which is one reason why it has gained so much value. Secrecy - Some cryptocurrencies are anonymous - which means you can hide your wealth and move it about. Negatives: Storage of bitcoins - If you hold your wallet on your computer and lose it without a backup, you have lost everything. If you hold it on an online exchange and they go down/something bad happens you could lose it. Regulation is in its infancy. There is also a pro here - if you have access to your wallet then no one can freeze your account like a bank potentially could. Tax/Legal implications - Legislation against bitcoins could occur and can cause issues for users. Tax implications can be confusing and an issue. Massive swings - price can go up massively and also down massively - it is not currently a stable investment. Negative ties - Some people associate bitcoin with money laundering and buying drugs - slightly unfairly as it is nothing you can't do with cash (and cash doesn't have a permanent record of your transaction) - but it does have this negative connotation. Summary. Could be worth investing in bitcoin, could potentially make good gains. Could also lose everything or get in trouble with authorities if they suspect you of financial crime. I wouldn't invest anything you couldn't afford to lose and I would be mindful of the risks.","You might try to refinance some of those loans. It sounds like you are serious about minimizing interest expense, if you think you will be able to pay those loans in full within five years you might also try a loan that is fixed for five years before becoming variable. If you do not think you can repay the loans in full before that time, you should probably stick with the fixed rates that you have. It may even be profitable to refinance those loans through another lender at the exact same fixed rate because it gets around their repayment tricks that effectively increase your interest on those two smaller loans.","You are getting totally hosed mate. Assume you live in the house for ten years, can get a normal 30 year mortgage and house prices average at 3% annually You could get a mortgage at 3.8% so your monthly payment would be $560 a month. $60 a month difference over 10 year is $7200 Because you are paying down on a conventional mortgage you would owe 93500 after 10 years. On top of that the house would have appreciated by $47000. You would have to give you parents $35500 of that. So by avoiding a normal loan it's costing you an extra $49000.","I will add one point missing from the answers by CQM and THEAO. When you take a loan and invest the proceeds, the interest that you pay on the loan is deductible on Schedule A, Line 14 of your Federal income tax return under the category of Investment Interest Expense. If the interest expense is larger than all your investment earnings (not just those from the loan proceeds), then you can deduct at most the amount of the earnings, and carry over the excess investment interest paid this year for deduction against investment earnings in future years. Also, if some of the earnings are long-term capital gains and you choose to deduct the corresponding investment interest expense, then those capital gains are taxed as ordinary income instead of at the favored LTCG rate. You also have the option of choosing to deduct only that amount of interest that offsets dividend (and short-term capital gain) income that is taxed at ordinary rates, pay tax at the LTCG rate on the capital gains, and carry over rest of the interest for deduction in future years. In previous years when the tax laws called for reduction in the Schedule A deductions for high-income earners, this investment interest expense was exempt from the reduction. Whether future tax laws will allow this exemption depends on Congress. So, this should be taken into account when dealing with the taxes issue in deciding whether to take a loan to invest in the stock market.","\"Sorry in advance, but this will be long. Also, it sounds like your friend is a tool. I hope this \"\"friend\"\" is not also your financial advisor... they would be encouraging you to make a very poor investment decision. They also don't know how to do financial math. For what it's worth, I am not wrong. I have correctly answered a set of changing questions as you have asked them... Your friend is answering based on a third, completely different investment model, which you proposed in the edit to your last post. If that's what you meant all along, then you should have been more clear in the questions you were asking. Please let me layout the following: How the previous questions//investment proposals were built How to analyze this current proposal What your other option is Why the other option is best in a 'real world' market The First Question My understanding of the initial proposal was to take out a $10,000 loan, invest the proceeds, and expect to not have any money of your own tied up in this. Because that OP did not specify that this is an interest-only loan (you still haven't in any of your questions), the bank will require you to make payments back to them each month that include principal and interest. Your \"\"friend\"\" is talking about the total interest paid being the only cost of a loan. While that is (almost) true, regardless of what your friend says, significantly more cash is involved in making sure that all the payments are made on time---unless you set up an interest-only loan. But with the set up laid out in this post, and with the assumptions I specified there, the principal payments must be included because the borrower has to pay back the bank and isn't not tying up any of their own money. In that case, my initial analysis is correct--your breakeven is in the low teens for an annual required return. The Second Proposal Your second proposal... before any edits... refined things a little bit, to try to capture the any possible returns by not selling something. As I indicated there, (with what was an exaggerating assumption), the lack of clarity makes for an outlandish required return. The Second Proposal...with edits, or the one proposed above I will get to the one proposed above in a second, but first let me highlight a few problems with your friend's analysis. Simple interest: the only place (in the US at least) that will lend with simple interest is student loans. Any loan that you actually take out will be compound interest. Not an interest only loan: your \"\"friend\"\" is not calculating interest correctly. Since this isn't an interest-only loan, the principal balance will reduce every time you make a payment, by ~$320-$340 each month. This substantially reduces the total interest paid, to $272.79 over the total 24 months. \"\"Returns\"\": I don't know what country, or what business your friend works in, but \"\"returns\"\" are a very ambiguous concept. Investopedia defines returns as gains or losses. (I wish I could inhabit the lala land that your friend lives in when returns are always positive). TheFreeDictionary.com defines a return for finance as \"\"The change in the value of a portfolio over an evaluation period, including any distributions made from the portfolio during that period.\"\" When you have not made it clear that any other money is being used in this investment plan (as was the case in scheme #1 and scheme #2a,) the loan still has to be paid. So, clearly the principal must be included in the return calculations. How to evaluate this proposed investment scheme Key dimensions: Loan ($8,000 ... 24 months ... 0.27% monthly rate... monthly compounding... no loan origination fees) Monthly payment (PMT in Excel yields $344.70). Investment capital (starting = $8,000) Monthly Return (Investment yields... we hope it's positive!) Your monthly contribution from your salary Taxes = 10%. Transaction Fees = $20 Go and lookup how to build an amortization table for a loan in Excel. Your life will be infinitely better for it. Now, you get this loan set up and invested into something... (it costs $20 to buy the assets). So you've got $7980 chugging away earning interest. I calculate that your break even, with you paying in $344.70 of your own money each month is 1.81% annually, or 3.42% over the 24 month life of this scheme. That is using monthly compound interest for the payments, because that's what the real world would use, and using monthly compounding of the investments' returns. Your total interest expense would be $272.79. This seems feasible. But let's talk about what your other option is, given that you're ready to spend $344.70 each month on an investment. Your other option I understand the appeal of getting $8,000... right away... to invest in something. But the risk behind this is that if the market goes down (and markets do) you're stuck paying a fixed amount for your loan that is now worth less money. Your other option is to take your $344.70, and invest it step-by-step. (You would want to skip a month or two buying assets in the market, so that you can lessen transaction costs). This has two advantages: (1) you save yourself $272 in interest. (2) When the market goes down, you still win. With this strategy, you still win when the market goes down because of what is commonly called \"\"dollar cost averaging\"\". When the market is up, your investments are also up. When the market goes down, your previous investments decrease in value but you can invest new money at the lower rates. Why the step-by-step, invest your own money strategy is better At low rates (when you're looking for your break-even), the step-by-step model outperforms the loan. At higher rates of return (~4% + per year), you get the benefit of having the borrowed money earning more gains. In fact, for every continuous (meaning set... not changing month-to-month) interest rate that you can dream up that is greater than about 4% per year, the borrowed money earns more. At 10% per year, the borrowed money will earn about $500 more over the 2 years than your step by step investment would. BUT I recognize that you might feel like the market will always go up. That's what everyone thinks. And that's alright. But have one really bad month, or a couple of just-not-great-months, and your fixed 'loan' portfolio will underperform. Have a few really bad months, and your portfolio could be substantially reduced in value... but you would still be paying the same amount for it each month. And if that happened (say your assets declined -3% in 3 of the 24 months...) You'd be losing money relative to the step-by-step portfolio.\"","\"Stripping away the minutia, your question boils down to this: Should I take a loan for something that I may not be able to repay? The correct answer, is \"\"No\"\".\"","You understand it perfectly right. The thing with PMI is that when your home price rises (or your loan balance goes down) so that your loan balance is below the 80% of the current house price, the PMI goes away. The higher rate - does not. So, no-PMI option is much better. To the bank, as you suspected. Your calculations are correct. With the PMI you'll pay less interest, and more balance. As to the tax deductions, interest can be deducted, but the PMI - no (starting of 2012, to the best of my understanding, at least). See details here, consult a tax professional for more current information.","Up to some degree, a higher or lower interest rate means a bit less or a bit more money in your pocket. If the interest rate gets too high, you may be in trouble. So you first look at the situation and ask yourself: At what interest rate would I be in trouble? If this is a $20,000 student loan, then even a very high rate wouldn't be trouble. It would be unfortunate and unpleasant, but not fatal. For a $800,000 mortgage, that's different. Each percent more is $8,000 a year. Going from 3% to 10% would change the interest from $24,000 to $80,000 a year, which would be fatal for many people. In a situation where you can afford increasing variable payments without problems you can go for it. If your variable rate would vary over time between 4% and 6% you would still be even. In that situation, go for variable (taking into account where you think interest rates will go in the future). For a mortgage, the security would likely be more important. (On the other hand, if your dad is a multi-millionaire who would help you out, then that big rate increase wouldn't be fatal, and you could go for a variable rate mortgage). In some countries, you can cancel any loan contract when the interest rate is raised. So raising a variable mortgage interest rate would allow you to look elsewhere without early repayment penalties. Check out if that is the case for you.","The risk besides the extra interest is that you might be upside down on the loan. Because the car loses value the moment you drive off the lot, the slower you pay it off the longer it takes to get the loan balance below the resale value. Of course if you have a significant down payment, the risk of being upside down is not as great. Even buying a used car doesn't help because if you try to sell it back to the dealer the next week they wont give you the full price you paid. Some people try and split the difference, get the longer term loan, but then pay it off as quickly as the shorter term loan. Yes the interest rate is higher but if you need to drop the payment back to the required level you can do so.","The problem comes when the borrower cannot afford his home. If a borrower buys more home than they can afford, as long as he can sell the house for more than he owes, he's not in a disastrous situation. He can sell the house, pay off the mortgage, and choose more affordable housing instead. If he is upside-down on his home, he doesn't have that option. He's stuck in his home. If he sells it, he will have to come up with extra money to pay off the mortgage (which he doesn't have, because he is in a home he can't afford). It used to be commonplace for banks to issue mortgages for 100% of the value of the home. As long as the home keeps appreciating, everybody is happy. But if the house drops in value and the homeowner finds himself unable to make house payments, both the homeowner and the bank are at risk. Recent regulations in the U.S. have made no-down-payment mortgages less common.","Having a loan also represents risk. IMHO you should retire the loan as soon as feasible in most cases. JoeTaxpayer, as usual, raises a good point. With numbers as he is quoting, it is tolerable to have a loan around on a asset such as a home. While he did not mention it, I am sure that his rate is fixed. If the interest rate is variable: pay it off. If it is a student loan: pay it off. If you can have it retired quickly: pay it off and get the bank off your payroll. If it is consumer debt: pay it off.","The only drawback is if you spend more than you can with the new limit and end up having to pay interest if you can't pay the balance in full. Other than that, there are no drawbacks to getting a credit increase. On the flip side, it's actually good for you. It shows that the banks trust you with more credit, and it also decreases your credit utilization ratio (assuming you spend the same).","From personal experience: Loan Impact It does impact your ability to take out other loans (to an extent) Your first investment property is going to go against your debt to income levels, so if you take out a loan, you've essentially decreased the amount you can borrow before you hit a lender's debt to income ceiling. Two things about that: 1) I'm assuming you have a primary mortgage - if that's the case they will factor what you are already paying for your primary house + any car loans + any student loans, etc. Once you've successfully taken out a mortgage for your investment property, you're probably close to your debt to income ceiling for any other loans. 2) There is usually a 2 year time period where this will matter the most. Once you've rented out this property for 2 years, most financial institutions will consider a percentage of the rent as income. At this point you can then take on more debt if you choose. Other (Possibly Negative) Impacts and Considerations Maintenance Costs Renovations Turnovers Taxes and Insurance Downpayments and interest Income tax Advertising costs Property Management costs Closing costs and Legal fees Vacancies HOA fees Other (Possibly Positive) Impacts and Considerations Passive Income as long as the numbers are right and you have a good property manager Tax deductions (And depreciation) Rent has low correlation to the market Other investment alternatives: Stocks Reits (not directly comparable to investment properties) Long story short- can be a hassle but if the numbers are right, it can be a good investment. There's a series of articles further explaining these above listed components in detail.","It's not a question with a single right answer. Other answers have addressed some aspects, my case may provide some guidance as to one way of looking at some of the issues. When I had student loans, the interest rate was RPI¹ and I could get more than that as the return on a savings account. At the time I could get a whole year's worth of loan at the start of the year, save it, and draw from the savings, partly because I had a little working capital saved already. Importantly in my case, the loans were use-it-or-lose-it: if I didn't take the loan out by about halfway through each academic year, it was no longer available to me. The difference in interest rates was probably similar to what you can get with a careful choice of savings account and 0% on the loan (I did this in the 90s when interest rates were higher). Over a four year degree the interest I earned this way added up to no more than about £100, which went someway towards offsetting the fact I would be paying interest after graduation. If you can clear the loan before you pay any interest it would give you a return, but a small one that could easily be eroded by rate changes or errors on your part (like not keeping on top of the paperwork). It still may be beneficial to take out the loans depending on your capital needs -- in my case it made buying a house after graduating much easier, as we still had money for the deposit (downpayment) and student loan rates were much lower than mortgage rates (100% mortgages were also available then, but expensive). ¹ RPI stands for retail price index, a measure of inflation.","Mortgage interest is a different story. That's a consumer financing consumption. A business is financing a profit making enterprise. Not sure what the implications would be once this settles down -- probably less long term debt and a greater dependency on equity financing.","It also reduces risk from the bank's eyes. Believe it or not, they do lose out when people don't pay on their mortgages. Take the big 3 (Wells, Chase and BoA). If they have 50 million mortgages between the 3 of them and 20% of people at one point won't be able to pay their mortgage due to loss of income or other factors, this presents a risk factor. Although interest payments are still good, reducing their principal and interest keeps them tied down for additional (or sometimes shorter) time, but now they are more likely to keep getting those payments. That's why credit cards back in 07 and 08 reduced limits for customers. The risk factor is huge now for these financial institutions. Do your research, sometimes a refi isn't the best option. Sometimes it is.","Approximately Yes. However as you are paying more, the interest accrused would be less.","The debt on Credit Cards is pretty high. Its in the range of 30-40% APR. There could also be a case very high personal loan for medical or other personal emergencies at a rate in excess of 15%. The debt consolidation would offer this at a very low APR There are institutions that offer debt consolidation services that would consolidate all your debt into a single loan at a lower rate of interest. They would also negotiate with all your lenders to waive charges and accrued interests to the max extent. The benefit to the institution offering this service is that they have a larger loan on books and hence the servicing cost is less. Most of the time the debt consolidation is offered with some asset as the guarantee for the new loan. By doing this the advantages are: Of course if you are looking for the balance transfer on cards to new one, then its same and in fact may at times be more expensive.","I think, generally speaking, people who say things like that don't have a firm grasp of their finances. On the other hand, if you take a mortgage as a vehicle for leveraged investment the interest can pay for itself in gains made elsewhere. Paying mortgage interest is otherwise only good for the banks, but our system reinforces the idea that everyone should be in debt instead of profiting from their capital.","A second mortgage is a loan taken out on your house while you still have another mortgage secured by your house. They are a secured loan as they use the borrower’s home as security. Some advantages of Second Mortgages: Some important points to consider when you take a second mortgage If you stop making payments, your lender will be able to take your home through foreclosure, which can cause serious problems for you and your family. Second mortgages can be expensive. You’ll need to pay numerous costs for things like credit checks, appraisals, origination fees, and more. The mortgage rates are typically lower than credit card interest rates, but they’re often slightly higher than your first loan’s rate.","\"Like many things, there are pros and cons to using credit cards. The other folks on here have discussed the pros and length, so I'll just quickly summarize: Convenience of not having to carry cash. Delay paying your bills for a month with no penalty. Build your credit rating for a time when you need a big loan, like buying a house or starting a business. Provide easy access to credit for emergencies or special situations. Many credit cards provide \"\"rewards\"\" of various sorts that can effectively reduce the cost of what you buy. Protection against fraud. Extended warranty, often up to one year Damage warranty, covering breakage that might be explicitly excluded from normal warranty. But there are also disadvantages: One of the advantages of credit cards -- easy access to credit -- can also be a disadvantage. If you pay with cash, then when you run out of cash, you are forced to stop buying. But when you pay with credit, you can fall into the trap of buying things that you can't afford. You tell yourself that you'll pay for it when you get that next paycheck, but by the time the paycheck arrives, you have bought more things that you can't afford. Then you have to start paying interest on your credit card purchases, so now you have less money left over to pay off the bills. Many, many people have gotten into a death spiral where they keep piling up credit card debt until they are barely able to pay the interest every month, never mind pay off the original bill. And yes, it's easy to say, \"\"Credit cards are great as long as you use them responsibly.\"\" That may well be true. But some people have great difficulty being responsible about it. If you find that having a credit card in your pocket leads you to just not worry about how much you buy or what it costs, because, hey, you'll just put it on the credit card, then you will likely end up in serious trouble. If, on the other hand, you are just as careful about what you buy whether you are paying cash or using credit, and you never put more on the credit card than you can pay off in full when the bill arrives, then you should be fine.\"","If (and only if) there is a zero interest installment plan available, technically the only uncontrollable risk is that there will likely be a hard inquiry on your credit report which may or may not also have a corresponding debt obligation attached to it. (Personally, I recently signed up for one such plan with Google and I had a hard inquiry but no debt added to my report). The other risks are that 1) your monthly payment goes up, so if you are living on a tight budget the added payment might make it harder to meet your next bill, and 2) you could miss a payment which generally triggers interest to accrue retroactively at a high rate, and in some cases could be grounds for immediate repayment. The pro / reward of these plans is that you have to spend less of your capital upfront, which you may be able to use for other purposes (presumably with a higher net present value than purchasing the item you're considering outright). A larger example would be purchasing a new car. You want to buy a $50k car and you have the cash on hand to pay in full, but you are being offered 0% interest for 36 months. You may be more inclined to take a loan at 0% with 0 down payment and invest your money in another vehicle (no pun intended) that offers you a decent rate of return and you will come out ahead in the end. Of course, this example works in a perfect world where you can get such an offer, there are no extra fees available, you aren't worrying about your debt-to-income ratio in preparation for a big purchase like a house, there isn't a higher insurance premium to consider, etc. In short, 0% financing, be it for a phone or a car, can be a nice perk for the informed consumer who is not using the financing as a way to purchase outside their financial means, but it is offered by companies as a way to make people buy things they normally would not and, hopefully, capitalize on people missing payments in order to reap the sweet 20%+ interest rates generally seen with these offers. In your specific situation with the phone, you should consider if you get a discount on your monthly plan for purchasing outright, or if you can get the phone subsidized if you sign a contract (and you know you like your provider enough to stay for its duration). If the monthly plan rate stays the same and you're looking at either $500 now or $500 over 24 months and you don't mind a hard inquiry, there's not much of compelling reason to pass on the financing and hold on to your $500.","\"There are a number of bona fide reasons to consider here. If there is a cost to discharging a security packet, or a mortgage, it may not be convenient if we are advanced in the repayment schedule. Early exit fees may apply, or the interest may be \"\"pre-determined\"\". As a rule of thumb, when we are talking about rates above 10% p.a. then arrangements should be short (bridging finance - keep it short and charge 'em heaps), and for personal arrangements, small.\"","From a pure monetary point of view, paying 5% to earn 1% doesn't make sense... Though there is also the question of retaining enough immediately available emergency funds, which may make the loan worth considering anyway. On the other hand, if you consider putting the funds into the stock market rather than a bank account, you have quite decent odds of earning more than 5%. In that case, this becomes an opportunity for leveraged investment. I'm doing exactly that with my mortgage.","\"When you refinance, there is cost (guess: around $2000-$3000) to cover lawyers, paperwork, surveys, deed insurance, etc. etc. etc. Someone has to pay that cost, and in the end it will be you. Even if you get a \"\"no points no cost\"\" loan, the cost is going to be hidden in the interest rate. That's the way transactions with knowledgeable companies works: they do business because they benefit (profit) from it. The expectation is that what they need is different from what you need, so that each of you benefits. But, when it's a primarily cash transaction, you can't both end up with more money. So, unless value will be created somewhere else from the process (and don't include the +cash, because that ends up tacked onto the principle), this seems like paying for financial entertainment, and there are better ways to do that.\"","I agree with Joe that you seem to have your stuff together. However I can't disagree more otherwise. You are getting a loan at such a cheap rate that it would be almost impossible to not substantially beat that rate over the next 15-20 years. You paying off your home early might give you warm fuzzy feeling but would make me queezy. This is a MONEY website. Make money. For our purposes let's say your home is worth 500k, you can get a fixed rate loan at 3% over 30 years, and you can earn 7% on your investments per year. Note that I have earned 12% on mine the past 15 years so I am being pretty conservative. So let's not get into your other stuff because that is fine. Let's focus just on that 500k - your house. Interest only Loan for the whole thing- The flip side is you pay off your house. Your house could be worth 400K in 30 years. Probably not but neighborhood could decline, house not kept up, or whatever. Your house is not a risk-free investment. And it fluctuate in many areas more than the stock market. But let's just say your area stays OK or normal. In 30 years you can expect your house to be worth somewhere between 700k to 1.5 million. Let's just say you did GREAT with your house. Guess what? At 1.5 million selling price you still lost 1.5 million because of your decision plus sunk your money into a less liquid option. Let the bank take the risk on your house price. The warm fuzzy feeling will be there when you realize you could rebuy your house two times over in 6-7 years. Note: I know my example doesn't use your exact numbers. I am just showing what your true cost is of making a decision in the most extreme way. I am guessing you have great credit and might be able to find an all interest loan at 3%. So not doing this is costing you 1.5 million over 30 years. Given a lower home price after 30 years or a higher rate of return this easily be much more. IF you earned 12% over the 30 year period you would be costing yourself 16 million - do the math. Now you are talking about doing something in-between. Which means you will basically have the same risk factors with less return.","I will start with the assumption that you will never have any late payments and will fully pay off the loan. This may be a big assumption, but if you can't assume that, then you wouldn't have asked the question in the first place. The answer depends on your income: You should calculate how much student loan interest you can deduct before and after the switch, and adjust the interest rate accordingly to compensate for any difference.","\"As @BrenBarn points out, when people say \"\"they like having a mortgage because they get the benefit of writing off the interest\"\" they typically mean as opposed to renting. You can deduct interest and real estate (property) tax payments, as well as some closing costs in the year you purchase the home. You are also building equity (instead of helping your landlord build his or her equity). Take for example a single person paying $1,000/month to rent an apartment. This is not deductible. He has $1,800 a year in other expenditures that would otherwise be deductible (charitable contributions, etc.), but he doesn't itemize because it isn't more than the $6,100 standard deduction, so it doesn't matter. He takes out a mortgage for $150,000 at 6% over a 30-year term to buy a similarly-appointed home. His new mortgage payment is about $900/month, plus he puts $100/month into an escrow account for property taxes, roughly totaling his former rent payment. Over the first full year, he pays about $9,000 in deductible mortgage interest and $1,200 in deductible real estate taxes. And because he is now itemizing, he can also write off the aforementioned $1,800. At a top marginal tax rate of 25%, he shaved nearly $1,500 (.25 * (9000 + 1200 + 1800 - 6100)) off his federal income tax bill -- with the same living expenses! This is a simple example with some arbitrary numbers to prove the point, and there are a lot of other pros and cons to buying vs. renting. But again, this is probably what they mean when you hear this. Others have covered the overpaying angle, and there are a bunch of other Money.SE posts on the same or similar subjects.\"","If you get your income in the currency you have the new loan in, there is no exchange risk for the future. Assuming that you are able to get and serve that loan, it reduces your cost, so go for it. Yes, if the currency exchange rate changes the right way over the next years, you could have made a better deal - but consider it could also go the other way. If you really want to play this game, do it separately, by trading calls/puts on the currency exchange rate. See it as a separate and decoupled investment option.","To avoid risk from rising interest rates, get a fixed rate mortgage. For the life of the mortgage your principal and interest payments will remain the same. Keep in mind that the taxes and insurance portion of your monthly payment may still go up. Because you own the property, the costs to maintain the property are your responsibility. If you rented this would be the responsibility of the owner of the property; if the cost to repair and maintain goes up so does the rent. Because you are the owner your annual costs to repair and maintain may go up over time. The way to eliminate risk of loss of value is to never move, until the mortgage is paid off. You will know exactly what principal and interest will cost you over the life of the loan. When you sell that will be essentially return on your payments. You don't know if the loss of value is due to world, national, regional, local or individual circumstances. so hedging is tough. If the fact that the mortgage is 95% is what makes you nervous, your biggest risk is risk of being upside down. That risk is greatly reduced by increasing the amount of the down payment. That decreases the risk that the value will be below the mortgage amount if due to unforeseen circumstances you have to sell immediately. The money will still be lost due to decrease in value, but you aren't forced to bring cash to the settlement table if you need to sell.","From my experience and friends' experiences, I can say that there are advantages and disadvantages for paying off your mortgage quickly. Basically, it depends on these factors: the type of the mortgage, its interest rate, your financial stability, your skills in making investments and other outside factors, such as inflation, liquidity, oppurtunity cost, etc. Paying it off means you save on interest ratings, you decrease investment risks and your investment rates are taxable. Disadvantages are that you cannot use this money for investing, you cannot use this money for tax deductions and that in a state of inflation, not paying it off in advance could save you a lot of money. However, I always recommend to read some more on websites that deal with mortgages, and speak with the mortgage expert in your bank.Just acquire enough information to make a good assessment. An interesting article on this topic - The Advantages and Disadvantages of Paying Off Your Mortgage","There is a positive not being mentioned above: the depreciation vs your regular earned income. Disclaimer: I am not a tax attorney or an accountant, nor do I play one on the internet. I am however a landlord. With that important caveat out of the way: Rental properties (and improvements to them) depreciate in value on a well-defined schedule. You can claim that depreciation as a phantom loss to lower the amount of your taxable regular income. If you make a substantial amount of the latter, it can be a huge boon in the first few years you own the property. You can claim the depreciation as if the property were new. So take the advice of a random stranger on the internet to your accountant/attorney and see how much it helps you.","Wow the collateral totally eliminates the purpose of the swap for B, to have a consistent steady cash flow and stable expenses. It probably wouldn't be worth a broker's time unless it was in the millions. They should invent interest rate swaps for the mass market. I'm patenting that!","The one big drawback I know is when you take the mortgage credit, your credit ability is calculated, and from that sum all of your credits are subtracted, and credit limit on credit card counts as credit... I don't know if it is worldwide praxis, but at least it is the case in Poland.","With interest rates as low as they are, you could lock in to a very low rate for 30 years. If rates are higher in, say, 10 years, you could conceivably be earning a much higher rate on the money you're not putting towards monthly payments. All else equal, the payments will be lower on a 30y than they will be on a 10y, so you'll have more cash for other things. But I'm just looking for downsides -- being paid off in 10 years versus 30 sounds nice to me.","Interest rates are at historic lows. In my opinion they can only go up from here. With that in mind, it is best to lock in interest rates now. I would only take an adjustable rate if I expected my personal income to increase in excess of the increase in interest rates. I hold that the recent technology of fracking has driven down the price of energy. I also believe that this is a short term situation and energy prices will return, and have already begun to do so. With the price of energy going up, inflation will return.","\"Buying now with a mortgage gets you: Waiting to buy with all cash gets you: These are also some of the pros or cons for the rent or buy dilemma that Paul mentioned in comments to the OP. This is a very complex, multi-faceted question, that would not respond well to being put into any equation or financial model. Most people answer the question with \"\"buy the home now with a mortgage\"\" if they can pay for the down payment. This is why the mortgage industry exists. The people who would want to finance now rather than buy with all cash later would not only be analyzing the question in terms of financial health but also in terms of general well being. They might consider the tremendous pride that comes with home ownership and living under a roof of one's own. Who can say that those people are wrong?\"","\"Say you're buying a 400K house. Your relative finances 120K (30%). Say I'm optimistic, but the real-estate market recovers, and your house is worth 600K in 5-6 years (can happen, with the inflation and all). The gain is 200K. Your relative gets 100K. You repay him 220K on 120K loan for 5 years. Roughly, 16% APR. Quite an expensive loan. I'm of course optimistic, it seems to me that so is your relative. The question is: if the house loses value in that term, does your relative take 50% of the losses? Make calculations based on several expected returns (optimistic, \"\"realistic\"\", loss case, etc), and for each calculate how much in fact will that loan cost. It will help you to decide if you want it. Otherwise your relationships with your relative might go very bad in a few years. BTW: Suggestion: it's a bad idea to mix business and friend/family you don't want to lose.\"","I'm assuming that when you sell the house you expect to be able to pay off these loans. In that case you need a loan that can be paid off in full without penalty, but has as low an interest rate as possible. My suggestions:","Go for 15 years loan - Lower interest rate over 2-5 years period. If you can afford to pay 20% down then please do. Do not assume the average ROI will +(8-10%). It all depends on market and has variable factors like city, area and demand.","I can see that building credit is a valid reason. I would also suggest another scenario, when you have locked up money in long-term savings, with a substantial penalty for early withdrawal. If you suddenly needed money then you might save money by borrowing against the long-term deposit rather than pay the penalties. This is especially true if you needed the money only for a short time.","\"It can be a good thing for the bank to refinance your loan for you - since you will be keeping the loan at that particular institution. This gives them more time to enjoy the free money you pay them in interest for the remaining life of the loan. Banks that offer \"\"No closing costs\"\" are betting that mortgage payers will move their mortgage to get the lower interest rates - and whomever holds the loan, gets the interest payments.\"","\"My answer is similar to Ben Miller's, but let me make some slightly different points: There is one excellent reason to get a consolidation loan: You can often get a lower interest rate. If you are presently paying 19% on a credit card and you can roll that into a personal loan at 13.89%, you'll be saving over 5%, which can add up. I would definitely not consolidate a loan at 12.99% into a loan at 13.89%. Then you're just adding 1% to your interest rate. What's the benefit in this? Another good reasons for a consolidation loan is psychological. A consolidation loan with fixed payments forces you to pay that amount every month. You say you have trouble with credit cards. It's very easy to say to yourself, \"\"Oh, just this month I'm going to pay just the minimum so I can use my cash for this other Very Important Thing that I need to buy.\"\" And then next month you find something else that you just absolutely have to buy. And again the next month, and the next, and your determination to seriously pay down your debt keeps getting pushed off. If you have a fixed monthly payment, you can't. You're committed. Also, if you have many credit cards, juggling payments on all of them can get complex and confusing. It's easy to lose track of how much you owe and to budget for payments. At worst, when there are many bills to pay you may forget one. (Personally I now have 3 bank cards, an airline card, and 2 store cards, and managing them is getting out of hand. I have good reasons for having so many cards: the airline card and the store cards give me special discounts. But it's confusing to keep track of.) As to adding $3,000 to the consolidation loan: Very, very bad idea. You are basically saying, \"\"I have to start seriously paying down my debt ... tomorrow. Today I need a some extra cash so I'm going to borrow just a little bit more, but I'm going to get started paying it off next month.\"\" This is a trap, and the sort of trap that leads people into spiraling debt. Start paying off debt NOW, not at some vague time in the future that never seems to come.\""],"string":"[\n \"Pros: Cons: Before the housing bubble the conventional wisdom was to buy as much home as you could afford, thereby borrowing as much you can afford. Because variable rates lead to lower mortgages, they were preferred by many as you could buy more house. This of course lead to many people losing their home and many thousands of dollars. A bubble is not necessary to trigger a chain of events that can lead to loss of a home. If an interest only borrower is late on a payment, this often triggers a rate increase. Couple that with some other things that can happen negatively, and you are up $hit's creek. IMO it is not wise.\",\n \"\\\"The main disadvantage is that interest rates are higher for the interest-only loan. It's higher risk to the bank, since the principal outstanding is higher for longer. According to the New York Times, \\\"\\\"Interest rates are usually an eighth- to a half-percentage point higher than on fully amortized jumbo loans.\\\"\\\" They're also tougher to qualify for, and fewer lenders offer them, again due to the risk to the bank. Since you can always put extra towards the principal, strictly speaking, these are the only downsides. The upside, of course, is that you can make a lower payment each month. The question is what are you doing with this? If this is the only way you can afford the payments, there's a good chance the house is too expensive for you. You're not building equity in the home, and you have the risk of being underwater if the house price goes down. If you're using the money for other things, or you have variable income, it might be a different story. For the former, reinvesting in a business you own might be a reason, if you're cognizant of the risks. For the latter, salespeople on commission, or financial industry types who get most of their income in bonuses, can benefit from the flexibility.\\\"\",\n \"The advantage of interest only mortgages is that they can increase your cashflow as you are only paying the interest and not any part of the principle. We have most of our investment loans on interest only for 10 years. When we got the loans about 6 to 7 years ago our LVR was only 60% and the property prices have increased by about 40% in that time. We also place our excess cashflow into offset accounts linked to the investment loans, so there is extra cash available in case things go bad. The disadvantage of interest only mortgages is that you are not paying off any principal for the length of the interest only period. If you are over extended this could cause problems as you need to rely totally on the price of the property going up for your equity to increase. As you are currently paying mortgage insurance leads me to believe your LVR is above 80%, so you would not have much equity available in your home. With an interest only loan this could pose you some problems. You should never try to over extend yourself, the slightest thing that goes wrong could get you into financial troubles. Always try to have some buffer to help you stay on your feet if circumstances do change for the worst.\",\n \"\\\"Given the current low interest rates - let's assume 4% - this might be a viable option for a lot of people. Let's also assume that your actual interest rate after figuring in tax considerations ends up at around 3%. I think I am being pretty fair with the numbers. Now every dollar that you save each month based on the savings and invest with a higher net return of greater than 3% will in fact be \\\"\\\"free money\\\"\\\". You are basically betting on your ability to invest over the 3%. Even if using a conservative historical rate of return on the market you should net far better than 3%. This money would be significant after 10 years. Let's say you earn an average of 8% on your money over the 10 years. Well you would have an extra $77K by doing interest only if you were paying on average of $500 a month towards interest on a conventional loan. That is a pretty average house in the US. Who doesn't want $77K (more than you would have compared to just principal). So after 10 years you have the same amount in principal plus $77k given that you take all of the saved money and invest it at the constraints above. I would suggest that people take interest only if they are willing to diligently put away the money as they had a conventional loan. Another scenario would be a wealthier home owner (that may be able to pay off house at any time) to reap the tax breaks and cheap money to invest. Pros: Cons: Sidenote: If people ask how viable is this. Well I have done this for 8 years. I have earned an extra 110K. I have smaller than $500 I put away each month since my house is about 30% owned but have earned almost 14% on average over the last 8 years. My money gets put into an e-trade account automatically each month from there I funnel it into different funds (diversified by sector and region). I literally spend a few minutes a month on this and I truly act like the money isn't there. What is also nice is that the bank will account for about half of this as being a liquid asset when I have to renegotiate another loan.\\\"\",\n \"Generally, interest-only mortgages are a bad idea, because a lot of people get them so that they can buy more house than they could otherwise afford (lower payment = affordable, in their minds). If the house continues to go up in value, they probably get away with it, because when the balance becomes due, they can refinance. However, the last few years has shown how risky that strategy can be, and this kind of things is what cost a lot of people their houses. In your case, if the house is something you could afford on a regular 15 or 30-year mortgage, and you really are as disciplined as you say you are, you might get away with it. But you have to take into account the risk, and consider what happens if there is a job loss or similar difficulty in the future. Another thing to consider is the term of the mortgage. How many years will you get this lower interest rate? Interest rates are at historic lows right now, and pretty much everyone thinks they're going up soon. You might be better off locking in a higher rate for 15 years.\",\n \"Normally interest only mortgages are taken incase one planning to sell off the property after a few years and purchase of the property is for investment. In such a case instead of burdening oneself with a huge EMI, one opts for an interest only mortgage, and towards the end of the term, sell off the house at profit and repay back the entire principal. I am not to sure if interest only mortgages are encouraged for properties you plan to live in. Although I do not know about the ING scheme, normally there is no prepayment option on interest only mortgages, its Bank way of earning a fixed income for the contracted period and thats the reason why the interest rates are lower than a regular mortgage. If you do the math, you may be paying more in total interest than on a regular mortgage.\",\n \"Paying interest on a loan costs you money. The tax deduction just reduces that cost, but it's still there. So the only possible reason to borrow more than you have to, e.g. with the interest-only loan, is that you can invest the excess elsewhere and make more money. Can you invest money and make more than 4.5% expected return before tax with a risk level you're comfortable with? If you can invest tax free then the hurdle is (4.5%-the tax deduction instead), e.g. 3.6% if your marginal tax rate is 20%. One possible such investment would be paying down any mortgage on your own home - as you don't get a tax deduction for such a mortgage, overpayments are effectively tax free so 3.6% or whatever is the appropriate hurdle. If you can't do that, then even switching to a principal and interest mortgage at 4.5% would be worthwhile; the principal payments would effectively be an investment in reducing your future interest bill, and that investment is better than anything else you have available. Given that what you actually have on offer is a mortgage with a lower rate of interest, the hurdle for an alternative investment is quite a bit higher than 4.5%; with the interest-only mortgage, you can invest some of the money that would otherwise go to principal elsewhere, but in exchange you are paying a higher interest rate on the rest of your loan balance. You'd need to look at the exact numbers to work out the right hurdle, which would vary depending on your marginal tax rate, the term of the mortgage, and your guess as to where interest rates would go after the 2 year fixed term.\",\n \"I can't think of any more negatives apart from what you mentioned, but the positives might include higher cost base for when you sell the place (this only applies in Australia if it is an investment property) thus having to pay less tax on the capital gains, and being able to borrowing extra funds which may help with your cashflow (especially if you keep the extra funds in an 100% offset account so your interest payable is not increased until you really need the extra funds).\",\n \"This is very much possible and happens quite a lot. In the US, for example, promotional offers by credit card companies where you pay no interest on the balance for a certain period are a very common thing. The lender gains a new customer on such a loan, and usually earns money from the spending via the merchant fees (specifically for credit cards, at least). The pro is obviously free money. The con is that this is usually for a short period of time (longest I've seen was 15 months) after which if you're not careful, high interest rates will be charged. In some cases, interest will be charged retroactively for the whole period if you don't pay off the balance or miss the minimum payment due.\",\n \"Talk about coincidence, we just recieved letters from our bank saying that our interest only loans will be going up by 0.46% and if we want to keep our lower rate we will need to change early to P&I. Now our Interest only periods end in 6 months to about 16 months anyway. We have decided to change to P&I early and save on our interest expenses. Why? Because the main purpose of investing is to make money not to save on tax. Even if you are on the highest marginal tax rate for every extra dollar of expenses you spend and claim as a deduction you will only get about 50 cents back through tax savings. If you are on the lowest marginal tax rate your tax savings will reduce to less than 20 cents for every extra dollar spent. If you are investing in order to save on tax you may be investing for the wrong reasons. Your primary reason for investing should be to make money, for wealth creation. A good reason to stay with an Interest only loan for an investment property would be if you require the extra cash flow you would receive compared with an I&P loan.\",\n \"Here are the pros and cons and an analytical framework for making a decision. Pros of walking away: Cons: Here's the framework: compare the value of first and second sections for you [1] http://www.nytimes.com/2009/07/30/business/30serviceside.html?_r=0 [2] http://www.mortgagecalculator.org/\",\n \"Personally the main disadvantages are perpetuation of the credit referencing system, which is massively abused and woefully under regulated, and encouraging people to think that it's ok to buy things you don't have the money to buy (either save up or question price/necessity).\",\n \"\\\"Do you now own your new home, or are you renting? This is a classic case of a mortgage ready to blow up. These 7/1 interest only would have a low rate, say 3%. So on $200K, the payment is $500/mo, but no principal paydown. Even if the rate were still 3% (it won't be) the 23 yr amortization means a payment of $1004 after the 7 years end. At 4%, it's $1109. 5%, $1221. I would take this all into account as you decide what to do. If you now own a new house, you should consider the morally questionable walk-away. I believe you were sold an unethical product. mb wrote \\\"\\\"shoot up considerably.\\\"\\\" This is still an understatement. A product whose payment is certain to double in a fixed time is 'bad.' 'Bad' in the biblical sense. You have no obligation to keep any deal with the devil, which is exactly what you have. There are some banks offering FHA products that might help you. I just received an offer from the bank holding a mortgage on my rental property. It's 4.5% for a refinance up to 125% of current value. There's a cost of $1800, but I owe so little, and am paying it off faster than the time left, I'm not bothering. You may benefit from such a program, but I'd still question if you can make a go of a house that even 2% underwater. Do some math, and see if you started now with a 30 year loan how the numbers work out. (Forgive my soapbox stance on this. There are those who criticize the strategic defaulters. I think you fall into a group of innocent victims who were sold a product that was nothing less than a financial time bomb. I am very curious to know the original \\\"\\\"interest only\\\"\\\" rate, and the index/margin for the rate upon adjustment. If you include the original balance, I can tell you the exact payments based on the new rates pretty easily.)\\\"\",\n \"Assumptions 1 & 2 are correct. Plus you will improve on credit score. The only disadvantage is if you get lax about it and overspend beyond your limit ... Plus a small risk of fraud of card transactions ...\",\n \"There are ups and downs to doing this. This isn't a taxable gain, because it's borrowed money that will be repaid. Whether there are restrictions or not depends upon your contract with the seller and your bank. If the concessions are for health & safety related repairs, your bank may require you to complete the work before closing or within a certain period of time. Overall: Upsides Downsides\",\n \"Presumably, the inverse of the advantages? You are guaranteed the interest rate that is written on your mortgage commitment as long as the first draw happens before the rate hold expiry date (typically 120 days from application date). In most cases, it takes at least 6 months or more to build a home from the ground up. That means that you are taking a chance at what the interest rates and qualifying criteria will be several months down the road. You can normally only lock in 120 days prior to possession with a 'Completion Mortgage'. Lenders are constantly changing their guidelines and rates are predicted to increase over the coming months. That means you are much better to obtain draw mortgage financing to avoid any of these uncertainties. You will know that you have your financing in place right away before construction even starts. This is a huge peace of mind so you can relax and get ready for the big move. So thus, if interest rates are lower 6 months or a year from now, that'd be the disadvantage -- a longer lock-in period.\",\n \"The earlier you are in your career, the more willing you should be to take a better opportunity even if it has a short-term financial cost. You go to college even if McDonald's has an opening. After college you may take an entry level job with better long-term prospects even if a higher paying job is available. You may train for some professional qualification. Having expenses you have to pay limits your flexibility to do this. A variable rate loan that goes up later may give you the freedom to make better decisions early on. Thus in this case it may be worthwhile. That said - be very wary of variable rate loans. Unless you have iron discipline, they give the opportunity to bury yourself.\",\n \"If you don't have other installment loans on your credit report, adding this one could help your credit. That could potentially help you get a better interest rate when you apply for a mortgage. There are positive and negative factors. Positive: Negative:\",\n \"\\\"This model would work fine under a couple of assumptions: that market interest rates never change, and that the borrower will surely make all the payments as agreed. But neither of those assumptions are realistic. Suppose Alice loans $1,000,000 to Bob at 4% under the terms you describe. Bob chooses to make interest-only payments of $40,000 per year. Some time later, prevailing interest rates go up to 10%. Now Alice would really like Bob to repay the entire principal as quickly as possible, because that money could be earning her $100,000 per year instead of only $40,000, but under the contract she has no way to force Bob to do so. And Bob has no incentive to repay any of the principal, because he can earn more interest on it than he has to pay to Alice. So Alice is not going to be very happy about this. You might say, but at least Alice is only losing \\\"\\\"potential\\\"\\\" money; she's still turning a profit of $10,000 per year, since her bank only charges her 3% interest. Ah, but you're assuming that Alice can get a bank loan with a rate of 3% fixed forever. The bank doesn't want to make such a loan either, for exactly the same reasons. So in practice, any loan like this would be expected to have a variable interest rate. There's a flip side, too. Suppose instead that market rates drop to 1%. Now Alice would like Bob to repay the principal as slowly as possible, because she's earning 4% on that money, which is better than any other options available to her. But Bob now has every incentive to repay it as fast as he can - or even to refinance by taking out another loan at, say, 2%, and using the proceeds to repay the entire principal to Alice. (This risk still applies with most traditional loans, since the borrower usually always has the right to pay early, but some loans include a \\\"\\\"prepayment penalty\\\"\\\" in such cases to help compensate the lender.) Thus, when Bob has all the power to decide when to pay, Alice is sure to lose no matter which way interest rates move. A loan with a fixed term helps insulate Alice against this risk. She may be able to make a guess about the likelihood of interest rates going up to 10% in the next 15 or 30 years, and increase Bob's fixed rate to account for this; that's much easier than trying to account for the possibility of interest rates going up to 10% ever. (And if she does have to try to account for this, she's probably going to have to set the interest rate extremely high; so Bob might accept a fixed term of repayment in exchange for a more reasonable rate.) Even if we suppose that Alice has done the best possible credit check and that Bob is a perfectly trustworthy fellow who would never dream of defaulting on his loan, catastrophes do happen. Maybe Bob is robbed of all his money by an evil accountant, or has a mid-life crisis and spends it all on opera tickets. Whatever, Bob is now bankrupt and Alice is never going to get her principal back, nor any further interest payments either. Even if the loan is secured by some collateral, there's still a risk since the collateral might lose value. Alice has some chance of estimating the risk of this happening in the next 15 or 30 years, and can set the interest rate to compensate for it. But it is harder for her to estimate the risk of this happening ever, and if she tries, she'll have to set the rate so high that Bob might prefer a fixed term and a lower rate. (There's a side issue as to what happens if Bob dies with the loan still outstanding. If it's an unsecured loan, typically Alice can try to collect the principal from Bob's estate, but if there isn't enough, too bad for Alice; she can't force Bob's heirs to continue making payments. If it's a secured loan, Alice may be able to have Bob's heirs continue paying or else she seizes the collateral; but she still has the risk of the collateral losing value.)\\\"\",\n \"Pro: - Faces less redemption pressure and hence the Fund Manager can focus more on long term gains rather than immediate gains. - Works well in emerging markets. - Less churn out in case the market falls sharply, there by making more money in long run. Cons: - No additional money to invest/take advantage of market situation. - Less liquid for investor as he is locked in for a period.\",\n \"I would use student loans and avoid credit card debt if debt is your only option. Here are the advantages I see: Disadvantages:\",\n \"And then there is the issue of people who actually don't intend to reduce the size of their loan. They only want to pay the interest, so their debt with the bank remains constant. If you are upside down, it means you will not have the financial means to remove the debt. If, for some reason, you are no longer able to pay the bank, you might lose the house. After that you will have no house, but you still have a debt with the bank.\",\n \"Excel Pros: Cons:\",\n \"\\\"The likely reason the mortgage is \\\"\\\"tricky to get\\\"\\\" is the adviser is probably recommending an interest-only mortgage in which there is no repayment of principle before maturity. That would allow you to deduct the amount of the interest expense from your taxable income. Your investment grows compound tax deferred and the principal invested (the mortgage balance) is completely tax free since it never qualifies as income for tax purposes. Example ideal scenario: Refinance $100,000 on a 5/1 ARM-interest only at 3%. Invest the $100,000 at 6%. Each year you effectively pay taxes on only the gains greater than interest. If you reinvest the profits it looks something like: Net Profit: $12,309 Effective Tax Rate: 13.21%\\\"\",\n \"The main advantage and disadvantage I can see in a scenario like this are - how savvy and good an investor are you? It's a good way to create below-market average returns if you're not that good at investing and returns way above market average if you are...\",\n \"\\\"Some pros and cons to renting vs buying: Some advantages of buying: When you rent, the money you pay is gone. When you buy, assuming you don't have the cash to buy outright but get a mortgage, some of the payment goes to interest, but you are building equity. Ultimately you pay off the mortgage and you can then live rent-free. When you buy, you can alter your home to your liking. You can paint in the colors you like, put in the carpet or flooring you like, heck, tear down walls and alter the floor plan (subject to building codes and safety consideration, of course). If you rent, you are usually sharply limited in what alterations you can make. In the U.S., mortgage interest is tax deductible. Rent is not. Property taxes are deductible from your federal income tax. So if you have, say, $1000 mortgage vs $1000 rent, the mortgage is actually cheaper. Advantages of renting: There are a lot of transaction costs involved in buying a house. You have to pay a realtor's commission, various legal fees, usually \\\"\\\"loan origination fees\\\"\\\" to the bank, etc. Plus the way mortgages are designed, your total payment is the same throughout the life of the loan. But for the first payment you owe interest on the total balance of the loan, while the last payment you only owe interest on a small amount. So early payments are mostly interest. This leads to the conventional advice that you should not buy unless you plan to live in the house for some reasonably long period of time, exact amount varying with whose giving the advice, but I think 3 to 5 years is common. One mitigating factor: Bear in mind that if you buy a house, and then after 2 years sell it, and you discover that the sale price minus purchase price minus closing costs ends up a net minus, say, $20,000, it's not entirely fair to say \\\"\\\"zounds! I lost $20,000 by buying\\\"\\\". If you had not bought this house, presumably you would have been renting. So the fair comparison is, mortgage payments plus losses on the resale compared to likely rental payments for the same period.\\\"\",\n \"The loan is private, so the business is more of a red-herring. The fact that you're closing it and lost a lot of money explains the loan, but is rather irrelevant otherwise as the loan is personal. Do consider potential tax benefits on writing off a loss, talk to a local tax adviser on that. Pros: Cons: I'm sure there are more considerations, of course, and I'm not familiar with the Canadian social safety nets to understand how much of a damage con #1 would be.\",\n \"There is the underpayment penalty, and of course the general risk of any balloon-style loan. While you think that you have enough self-discipline, you never know what may happen that may prevent you from having enough cash at hands to pay the accumulated tax at the end of the year. If you try to do more risky investments (trying to maximize the opportunity) you may lose some of the money, or have some other kind of emergency that may preempt the tax payment.\",\n \"Two reasons are typically cited (I've heard these from Dave Ramsey): So I wouldn't refinance to a 15-year loan just for item 2, but would definitely look at it for the better interest rates.\",\n \"You're paying 5.2% 'interest' on the $115K (500 * 12 / 115,000) * 100 but the amount you pay back is not $115K but 75% of the property value at sale. Is that right? A mortgage would have cost about half that rate and the balloon payment would have been fixed - you would pay back $115K at maturity plus you could have sold it whenever you liked As Gnasher729 said, if you consider it to be rent then the situation looks different but the point of buying a house is to avoid paying 'useless' rent, build equity and hopefully make a capital gain I'd speak to a lawyer & possibly an accountant (regarding the numbers)\",\n \"HELOCs typically have a 10 year draw and 5 year payback. During the draw time you can pay interest only if you wish. The rate can range from Prime minus 1.5 to Prime plus (quite a bit). Of course, you can always shop around for a better deal than you currently have so long as you have equity in your home.\",\n \"One of the more subtle disadvantages to large credit card purposes purchases (besides what the other answer mentions), is that it makes you less prepared for emergencies. If you carry a large balance on your credit card with the idea that your income can easily handle the payments to beat the no-interest period, you never know when you'll have an unexpected emergency and you'll end up having to pay less, miss the deadline and end up paying huge interest. Even if you are fastidious about saving and budgeting, what if your family comes under a large financial burden (just as one possible example)?\",\n \"IMO, it's a good deal. Pre-paying 3% interest is better than accruing it at 1-2% per month. The other nice thing about it is that all of your payments hit the principal.\",\n \"The only time it makes sense to take out a loan is: The drawbacks of these 2 points are: Otherwise it's better to pay for the car up front. You have not mentioned whether you need the car to earn income. A car will incur other costs such as insurance and maintenance.\",\n \"PROS: Price stability, confidence in the market, manipulation of money supply for direct monetary policy transmission, not having politicians conduct short sighted policy so they can get reelected, etc. CONS: No checks/balances, few people control of the largest economy in the world, not democratic\",\n \"This is basically the same as any other loan out there that defers payments. The bank doesn't care because your balance with them keeps going up along with their future profits when you pay that balance back. The only point where this becomes a problem for them is when you get to a point where your monthly income no longer supports the minimum payment required. (BTW, this is basically a study of what the US Treasury is doing with the national debt and the annual budget deficit, but I will go over to politics.stackexchange.com before commenting on the wisdom of this.)\",\n \"KMyMoney Pros: Cons:\",\n \"I think the logic in your example demonstrates it is silly to make a decision for tax benefits alone. Saving 75 is much preferred to a cash outflow of 100 less tax savings of 25. To answer your question, paying mortgage interest represents the fee for the cheapest money most people will ever access, which in itself is a benefit (e.g. renting vs buying). The benefits are maximized when the aggregate of appreciation, inflation, tax savings exceeds total interest expense.\",\n \"Really the question you need to ask yourself is how much Risk you want to take in order to save a little on interest for 5 years. Rates are pretty close to a historic low, and if you have good credit you should shop around a bit to get a good ideal of what a 15 or 30 year fixed loan would go for. For people that are SURE they will be selling a property in a few years, a 5-yeah balloon, or ARM might not be a bad thing. OTOH, if their plans change, or if you plan to stay in the property for longer (e.g. 10-15 years) then they have the potential to turn into a HUGE trap, and could have the effect of forcing you to sell your house. The most likely people to fall into such a trap are those who are trying to buy more house than they can really afford and max out what they can pay using a lower rate and then later cannot afford the payments if anything happens that makes the rate go up. Over the last three years we've seen a large number of foreclosures and short-sales taking place are because of people who fell into just this kind of trap.. I strongly advise you learn from their mistakes and do NOT follow in their footsetps You need to consider what could happen in 5 years time. Or if the economy takes off and/or the Fed is not careful with interest rates and money supply, we could see high inflation and high interest rates to go along with it. The odds of rates being any lower in 5 years time is probably pretty low. The odds of it being higher depends on who's crystal ball you look at. I think most people would say that rates are likely to increase (and the disagreement is over just how much and how soon). If you are forced to refinance in 5 years time, and the rates are higher, will you be able to make the payments, or will you potentially be forced out of the house? Perhaps into something much smaller. What happens if the rates at that time are 9% and even an ARM is only 6%? Could you make the payments or would you be forced to sell? Potentially you could end up paying out more in interest than if you had just gotten a simple fixed loan. Myself, I'd not take the risk. For much of the last 40 years people would have sold off their children or body parts to get rates like we have today on a standard fixed loan. I'd go for a standard fixed loan between 15 and 30 years duration. If you want to pay extra principle to get it paid off earlier in order to feel more secure or just get out from under the debt, then do so (personally, I wouldn't bother, not at today's rates)\",\n \"You can often convert the outstanding balance of a HELOC into a fixed-rate home equity loan, generally with the same bank. Doing this can open possibilities to extend the term allowing for lower monthly payments, but resulting in a larger overall payoff cost. Most HELOCs allow for an interest-only payment or in some cases no-payment at all if you still have unused available credit. Not advising that you do this. If you are struggling with the size of the payment converting to a fixed-rate, fixed-term loan may be what you need. The key will be getting the term such that you can manage both the principal and interest that will be included in the payment.\",\n \"\\\"Consider that there are some low-probability, high-impact risk factors involved with property management. For example, an old house has lead paint and may have illegal modifications, unknown to you, that pose some hazard. All of your \\\"\\\"pros\\\"\\\" are logical, and the cons are relatively minor. Just consult an attorney to look for potential landmines.\\\"\",\n \"What's going on here is that the variable rate loan is transferring some of the risk from the bank to you. In a reasonable deal taking on risk brings with it reward. It's the same thing as deductibles on insurance--they're transferring some risk to you and thus your expected total cost goes down. Thus the proper evaluation of such deals is whether you can afford the outcome if you draw the short straw. If you feel you can afford the highest payment that can result then the variable rate is a good deal. If you're near your limit then stay with the safe option of the fixed rate. For a house this is easy enough to evaluate--run the calculations assuming the highest payment and see what the debt-to-income ratio is. Note that when we were getting mortgages there was another factor involved: the variable rate loans had a higher initiation cost. Combined with the very low difference between fixed and ARM rates at the time we went fixed but given the rates you quote going variable would have been a no-brainer for us.\",\n \"A few thoughts off the top of my head: Advantages of more than 20% down: Disadvantages of more than 20% down:\",\n \"The precise answer depends on the terms and conditions of the loan, and whether you can reasonably expect to meet them. For example, if you keep the loan, make no payments, there is a good chance that - eventually - you will trigger a clause in the contract, and suddenly be charged fees or a significant interest rate. If you don't need to pay anything for a time, odds are you will forget to monitor the loan (after all it is not costing you anything) and suddenly get hit with an unexpected expense. Most loan contracts are structured - by professionals - to benefit the loan provider. The purpose of a loan provider is to make a profit. They do that by encouraging you to pay more - up front, over the longer term, or both. Personally, I would never take out a zero-interest loan. It is specifically designed to appear like a gift from the loan provider, while actually (and almost covertly) costing more at some point. If I was in your position (i.e. if I had taken out such a loan) I'd pay off the loan as fast as possible. If you have more than one loan, however, prioritise by working out which actually costs you more over time. And pay the worst ones first. You'll have to look closely at the terms and conditions - possibly with the help of a professional - to work out which is actually work.\",\n \"One thing I would look into is getting a fixed rate home equity loan for a short term. Not a line of credit, but a home equity loan. The main benefit is they typically offer no closing costs. You can get a very low rate provided you move the loan into first position (replace your current mortgage). I know someone who got a 7 year fixed Home Equity Loan, from Regions Bank, for 2.62% no closing costs.\",\n \"\\\"Your thinking is unfortunately incorrect; an amortising loan (as opposed to interest only loans) pay down, or amortise, the principal with each payment. This means that the amount that is owed at prepayment will always be less than the total borrowed, and is also why some providers make a charge for prepayment. The \\\"\\\"fairness\\\"\\\" arguments that you make predicated on that misunderstanding are, therefore, incorrect.\\\"\",\n \"It depends on your situation. Situations may change. There are also other factors: Being free and clear is nice, but there is an opportunity cost.\",\n \"Advantages of paying off debt: Potential advantage of remaining in debt:\",\n \"That is a decision you need to make, but some of the pros and cons you could consider to help your decision making include: Pros: If bought at the right time in the property cycle and in a good growth area, it can help you grow your net worth much quicker than having money in the bank earning near zero interest. You would be replacing rent payments with mortgage payments and if your mortage payments are less than your current rent you will have additional money to pay for any expenses on the property and have a similar cashflow as you do now. You will be able to deduct your interest payments on the mortgage against your income if you are in the USA, thus reducing the tax you pay. You will have the security of your own house and not have to worry about moving if the landlord wants you out after your lease expires. Cons: If bought in a bad area and at the top of the property cycle you may never make any capital gains on the property and in fact may lose money on it long term. If the mortgage payments are more than your current rent you may be paying more especially at the start of your mortgage. If you buy a house you are generally stuck in one spot, it will be harder to move to different areas or states as it can cost a lot of money and time to sell and buy elsewhere, if renting you can generally just give notice and find a new place to rent. Property maintenance costs and taxes could be a drain on your finances, especially if the mortgage repayments are more than your current rent. If your mortgage payments and property expenses are way more than your current rent, it may reduce what you could be investing in other areas to help increase your net worth.\",\n \"\\\"Interest rates are at a record low and the government is printing money. You can get a fixed rate loan at a rate equal to inflation in a healthy economy. Unless you know that you are moving in < 5 years, why would you expose yourself to interest rate risk when rates are about as close to zero as they can be? If your thought with respect to mitigating interest rate risk is: \\\"\\\"What's the big deal, I'll just refinance!\\\"\\\", think again, because in a market where rates are climbing, you may not be able to affordably refinance at the LTV that you'll have in 5-7 years. From 1974-1991, 30 year mortgages never fell below 9%, and were over 12% from 1979 to 1985. Think about what those kinds of rates -- which reduce a new homeowner's buying power by over 40%, would do to your homes value.\\\"\",\n \"Back of the envelope calculation: 30K limit, 5 year draw, 5 year post draw payback. Int 6% a year, 3% minimum payment. Borrow 5K at the start of the draw period, make the minimum payment for the next 5 years. At the end of 5 years still owe approximately $1123, and have paid ~775 in interest. Borrow 5K at the start of the draw period, make the minimum payment for the next 5 years but borrow the money from the line of credit. At the end of 5 years still owe approximately $6711, and have paid ~1711 in interest. The bank loves you. The balance grows instead of decreases. That growing balance become pur profit. Of course you are good for it, because you never came anywhere near the maximum limit of 30K. This is a variation of somebody tapping the line of credit to invest it, then discovering that it is hard to make enough money to make it worthwhile. Detailed scenario:\",\n \"The only problem that I see is that by not giving the 20% right away, you might need to pay PMI for a few months. In addition, in the case of conventional loans, I heard that banks will not remove the PMI after reaching 80% LTV without doing an appraisal. In order to be removed automatically, you need to reach 78% LTV. Finally, I think you can get a better interest by giving 20% down, and you can get a conventional loan instead of a FHA loan, which offers the option to avoid the PMI altogether (on FHA, you have two PMIs: one upfront and one monthly, and the monthly one is for the life of the loan if you give less than 10%).\",\n \"I like You Need A Budget (YNAB) Pros: Cons:\",\n \"\\\"My husband made a similar car loan decision when he was younger and didn't have an established credit history / favourable credit rating. As a result, he ended up paying triple what the car was worth, because of the interest. When we consolidated our finances, this ugly loan was first on our list of priorities to change, convert, eliminate, but unfortunately, in our case, the terms of the loan were such that only the lender benefited. There was no incentive to pay off the loan early, in fact, we would have to have paid all the future interest at once, without saving a penny. So check the terms of your loan - hopefully you're better off than we were. In our case, the only upside we could figure was the lesson of \\\"\\\"live and learn\\\"\\\"!\\\"\",\n \"\\\"The question asked in your last paragraph (what's the downside) is answered simply; if you take out a loan and close the cards, that's a ding on your score because your leverage ratio on this portion of your credit jumps to 100% or more, and because you'll be reducing the average age of your lines of credit (one line of credit a few days old versus five lines of credit several years old each). If you take out the loan and don't close the accounts, it's one more line of credit, increasing your total credit, lowering your leverage, but making institutions more reluctant to give you any more credit until they see what you'll do with what you have. In either case, assuming you can get the loan at less than the average rate of the cards (that's actually not a guarantee; a lot of lenders will want APRs in the 20s or 30s even for a title loan or other collateralized loan), then your cost of capital will also go down. That gives you more of a gap of discretionary income that you can better use to \\\"\\\"snowball\\\"\\\" all this debt as you are planning. Another thing to keep in mind is that the minimum payment changes as the balance does. The minimum payment covers monthly interest at least, and therefore varies based on your interest rate (usually variable) and your balance (which will hopefully be decreasing). A constant payment over the current minimum, much like a more traditional amortization, would be preferable.\\\"\",\n \"Money Manager Ex PROS: CONS\",\n \"\\\"I think the answer to this question depends on how much you trust yourself. Most people are wonderful at deceiving themselves. I'd personally not trust myself; I'll use Liam's points for the pitfalls some people get into. You can pay off your loans with summer internships and retain the initial cash you had for additional activities that make college enjoyable, i.e - Fraternity/ Sorority, clubs, dinners, and social nights. This is actually the risk I've seen many people do. They'll blow their money in one semester under the assumption that 'they'll just earn more in Summer and keep it for expenses or the future.\\\"\\\" Another benefit to taking these loans would assist in building credit, No Credit (in the USA) is actually a good standing. Many sensible banks or credit unions will happily give people with No Credit a loan. This makes intuitive sense if you think about it. Imagine two people with the same income. One owes money regularly to multiple sources and the other has no debt obligations. Which one are you loaning money to? Simplifying things a lot: Great Credit is best, followed by No Credit, then Good Credit, and then Bad Credit. The advantage of Great Credit over No Credit is simply that some institutions in some sectors don't have the policies in place to process No Credit people (No Credit people plan to not apply for credit often, for self-explanatory reasons, so this is a mote point).\\\"\",\n \"Here are some pros and cons. Note the list is not comprehensive, but should be a good start. Pros: Alternative to Fiat Money supply - it is an international currency and can be thought of as a protection against having your money in dollars or pounds for example. Some people think that it will eventually replace fiat money supply. This is unlikely to happen any time soon. Move money anywhere - Anyone who has an internet connection can download a wallet and receive bitcoins. Route into Altcoin market - A lot of money is being made in alternative cyrptocurrencies such as etherium, often the best way to buy these is with Bitcoin. Potential massive gains - Bitcoin has gone from 1 dollar 7 years ago to over 2000 dollars, some think it may go even much higher in the future. Fixed money supply - Fixed cap of bitcoins, there will never be more than a fixed amount (unless code changes) which is one reason why it has gained so much value. Secrecy - Some cryptocurrencies are anonymous - which means you can hide your wealth and move it about. Negatives: Storage of bitcoins - If you hold your wallet on your computer and lose it without a backup, you have lost everything. If you hold it on an online exchange and they go down/something bad happens you could lose it. Regulation is in its infancy. There is also a pro here - if you have access to your wallet then no one can freeze your account like a bank potentially could. Tax/Legal implications - Legislation against bitcoins could occur and can cause issues for users. Tax implications can be confusing and an issue. Massive swings - price can go up massively and also down massively - it is not currently a stable investment. Negative ties - Some people associate bitcoin with money laundering and buying drugs - slightly unfairly as it is nothing you can't do with cash (and cash doesn't have a permanent record of your transaction) - but it does have this negative connotation. Summary. Could be worth investing in bitcoin, could potentially make good gains. Could also lose everything or get in trouble with authorities if they suspect you of financial crime. I wouldn't invest anything you couldn't afford to lose and I would be mindful of the risks.\",\n \"You might try to refinance some of those loans. It sounds like you are serious about minimizing interest expense, if you think you will be able to pay those loans in full within five years you might also try a loan that is fixed for five years before becoming variable. If you do not think you can repay the loans in full before that time, you should probably stick with the fixed rates that you have. It may even be profitable to refinance those loans through another lender at the exact same fixed rate because it gets around their repayment tricks that effectively increase your interest on those two smaller loans.\",\n \"You are getting totally hosed mate. Assume you live in the house for ten years, can get a normal 30 year mortgage and house prices average at 3% annually You could get a mortgage at 3.8% so your monthly payment would be $560 a month. $60 a month difference over 10 year is $7200 Because you are paying down on a conventional mortgage you would owe 93500 after 10 years. On top of that the house would have appreciated by $47000. You would have to give you parents $35500 of that. So by avoiding a normal loan it's costing you an extra $49000.\",\n \"I will add one point missing from the answers by CQM and THEAO. When you take a loan and invest the proceeds, the interest that you pay on the loan is deductible on Schedule A, Line 14 of your Federal income tax return under the category of Investment Interest Expense. If the interest expense is larger than all your investment earnings (not just those from the loan proceeds), then you can deduct at most the amount of the earnings, and carry over the excess investment interest paid this year for deduction against investment earnings in future years. Also, if some of the earnings are long-term capital gains and you choose to deduct the corresponding investment interest expense, then those capital gains are taxed as ordinary income instead of at the favored LTCG rate. You also have the option of choosing to deduct only that amount of interest that offsets dividend (and short-term capital gain) income that is taxed at ordinary rates, pay tax at the LTCG rate on the capital gains, and carry over rest of the interest for deduction in future years. In previous years when the tax laws called for reduction in the Schedule A deductions for high-income earners, this investment interest expense was exempt from the reduction. Whether future tax laws will allow this exemption depends on Congress. So, this should be taken into account when dealing with the taxes issue in deciding whether to take a loan to invest in the stock market.\",\n \"\\\"Sorry in advance, but this will be long. Also, it sounds like your friend is a tool. I hope this \\\"\\\"friend\\\"\\\" is not also your financial advisor... they would be encouraging you to make a very poor investment decision. They also don't know how to do financial math. For what it's worth, I am not wrong. I have correctly answered a set of changing questions as you have asked them... Your friend is answering based on a third, completely different investment model, which you proposed in the edit to your last post. If that's what you meant all along, then you should have been more clear in the questions you were asking. Please let me layout the following: How the previous questions//investment proposals were built How to analyze this current proposal What your other option is Why the other option is best in a 'real world' market The First Question My understanding of the initial proposal was to take out a $10,000 loan, invest the proceeds, and expect to not have any money of your own tied up in this. Because that OP did not specify that this is an interest-only loan (you still haven't in any of your questions), the bank will require you to make payments back to them each month that include principal and interest. Your \\\"\\\"friend\\\"\\\" is talking about the total interest paid being the only cost of a loan. While that is (almost) true, regardless of what your friend says, significantly more cash is involved in making sure that all the payments are made on time---unless you set up an interest-only loan. But with the set up laid out in this post, and with the assumptions I specified there, the principal payments must be included because the borrower has to pay back the bank and isn't not tying up any of their own money. In that case, my initial analysis is correct--your breakeven is in the low teens for an annual required return. The Second Proposal Your second proposal... before any edits... refined things a little bit, to try to capture the any possible returns by not selling something. As I indicated there, (with what was an exaggerating assumption), the lack of clarity makes for an outlandish required return. The Second Proposal...with edits, or the one proposed above I will get to the one proposed above in a second, but first let me highlight a few problems with your friend's analysis. Simple interest: the only place (in the US at least) that will lend with simple interest is student loans. Any loan that you actually take out will be compound interest. Not an interest only loan: your \\\"\\\"friend\\\"\\\" is not calculating interest correctly. Since this isn't an interest-only loan, the principal balance will reduce every time you make a payment, by ~$320-$340 each month. This substantially reduces the total interest paid, to $272.79 over the total 24 months. \\\"\\\"Returns\\\"\\\": I don't know what country, or what business your friend works in, but \\\"\\\"returns\\\"\\\" are a very ambiguous concept. Investopedia defines returns as gains or losses. (I wish I could inhabit the lala land that your friend lives in when returns are always positive). TheFreeDictionary.com defines a return for finance as \\\"\\\"The change in the value of a portfolio over an evaluation period, including any distributions made from the portfolio during that period.\\\"\\\" When you have not made it clear that any other money is being used in this investment plan (as was the case in scheme #1 and scheme #2a,) the loan still has to be paid. So, clearly the principal must be included in the return calculations. How to evaluate this proposed investment scheme Key dimensions: Loan ($8,000 ... 24 months ... 0.27% monthly rate... monthly compounding... no loan origination fees) Monthly payment (PMT in Excel yields $344.70). Investment capital (starting = $8,000) Monthly Return (Investment yields... we hope it's positive!) Your monthly contribution from your salary Taxes = 10%. Transaction Fees = $20 Go and lookup how to build an amortization table for a loan in Excel. Your life will be infinitely better for it. Now, you get this loan set up and invested into something... (it costs $20 to buy the assets). So you've got $7980 chugging away earning interest. I calculate that your break even, with you paying in $344.70 of your own money each month is 1.81% annually, or 3.42% over the 24 month life of this scheme. That is using monthly compound interest for the payments, because that's what the real world would use, and using monthly compounding of the investments' returns. Your total interest expense would be $272.79. This seems feasible. But let's talk about what your other option is, given that you're ready to spend $344.70 each month on an investment. Your other option I understand the appeal of getting $8,000... right away... to invest in something. But the risk behind this is that if the market goes down (and markets do) you're stuck paying a fixed amount for your loan that is now worth less money. Your other option is to take your $344.70, and invest it step-by-step. (You would want to skip a month or two buying assets in the market, so that you can lessen transaction costs). This has two advantages: (1) you save yourself $272 in interest. (2) When the market goes down, you still win. With this strategy, you still win when the market goes down because of what is commonly called \\\"\\\"dollar cost averaging\\\"\\\". When the market is up, your investments are also up. When the market goes down, your previous investments decrease in value but you can invest new money at the lower rates. Why the step-by-step, invest your own money strategy is better At low rates (when you're looking for your break-even), the step-by-step model outperforms the loan. At higher rates of return (~4% + per year), you get the benefit of having the borrowed money earning more gains. In fact, for every continuous (meaning set... not changing month-to-month) interest rate that you can dream up that is greater than about 4% per year, the borrowed money earns more. At 10% per year, the borrowed money will earn about $500 more over the 2 years than your step by step investment would. BUT I recognize that you might feel like the market will always go up. That's what everyone thinks. And that's alright. But have one really bad month, or a couple of just-not-great-months, and your fixed 'loan' portfolio will underperform. Have a few really bad months, and your portfolio could be substantially reduced in value... but you would still be paying the same amount for it each month. And if that happened (say your assets declined -3% in 3 of the 24 months...) You'd be losing money relative to the step-by-step portfolio.\\\"\",\n \"\\\"Stripping away the minutia, your question boils down to this: Should I take a loan for something that I may not be able to repay? The correct answer, is \\\"\\\"No\\\"\\\".\\\"\",\n \"You understand it perfectly right. The thing with PMI is that when your home price rises (or your loan balance goes down) so that your loan balance is below the 80% of the current house price, the PMI goes away. The higher rate - does not. So, no-PMI option is much better. To the bank, as you suspected. Your calculations are correct. With the PMI you'll pay less interest, and more balance. As to the tax deductions, interest can be deducted, but the PMI - no (starting of 2012, to the best of my understanding, at least). See details here, consult a tax professional for more current information.\",\n \"Up to some degree, a higher or lower interest rate means a bit less or a bit more money in your pocket. If the interest rate gets too high, you may be in trouble. So you first look at the situation and ask yourself: At what interest rate would I be in trouble? If this is a $20,000 student loan, then even a very high rate wouldn't be trouble. It would be unfortunate and unpleasant, but not fatal. For a $800,000 mortgage, that's different. Each percent more is $8,000 a year. Going from 3% to 10% would change the interest from $24,000 to $80,000 a year, which would be fatal for many people. In a situation where you can afford increasing variable payments without problems you can go for it. If your variable rate would vary over time between 4% and 6% you would still be even. In that situation, go for variable (taking into account where you think interest rates will go in the future). For a mortgage, the security would likely be more important. (On the other hand, if your dad is a multi-millionaire who would help you out, then that big rate increase wouldn't be fatal, and you could go for a variable rate mortgage). In some countries, you can cancel any loan contract when the interest rate is raised. So raising a variable mortgage interest rate would allow you to look elsewhere without early repayment penalties. Check out if that is the case for you.\",\n \"The risk besides the extra interest is that you might be upside down on the loan. Because the car loses value the moment you drive off the lot, the slower you pay it off the longer it takes to get the loan balance below the resale value. Of course if you have a significant down payment, the risk of being upside down is not as great. Even buying a used car doesn't help because if you try to sell it back to the dealer the next week they wont give you the full price you paid. Some people try and split the difference, get the longer term loan, but then pay it off as quickly as the shorter term loan. Yes the interest rate is higher but if you need to drop the payment back to the required level you can do so.\",\n \"The problem comes when the borrower cannot afford his home. If a borrower buys more home than they can afford, as long as he can sell the house for more than he owes, he's not in a disastrous situation. He can sell the house, pay off the mortgage, and choose more affordable housing instead. If he is upside-down on his home, he doesn't have that option. He's stuck in his home. If he sells it, he will have to come up with extra money to pay off the mortgage (which he doesn't have, because he is in a home he can't afford). It used to be commonplace for banks to issue mortgages for 100% of the value of the home. As long as the home keeps appreciating, everybody is happy. But if the house drops in value and the homeowner finds himself unable to make house payments, both the homeowner and the bank are at risk. Recent regulations in the U.S. have made no-down-payment mortgages less common.\",\n \"Having a loan also represents risk. IMHO you should retire the loan as soon as feasible in most cases. JoeTaxpayer, as usual, raises a good point. With numbers as he is quoting, it is tolerable to have a loan around on a asset such as a home. While he did not mention it, I am sure that his rate is fixed. If the interest rate is variable: pay it off. If it is a student loan: pay it off. If you can have it retired quickly: pay it off and get the bank off your payroll. If it is consumer debt: pay it off.\",\n \"The only drawback is if you spend more than you can with the new limit and end up having to pay interest if you can't pay the balance in full. Other than that, there are no drawbacks to getting a credit increase. On the flip side, it's actually good for you. It shows that the banks trust you with more credit, and it also decreases your credit utilization ratio (assuming you spend the same).\",\n \"From personal experience: Loan Impact It does impact your ability to take out other loans (to an extent) Your first investment property is going to go against your debt to income levels, so if you take out a loan, you've essentially decreased the amount you can borrow before you hit a lender's debt to income ceiling. Two things about that: 1) I'm assuming you have a primary mortgage - if that's the case they will factor what you are already paying for your primary house + any car loans + any student loans, etc. Once you've successfully taken out a mortgage for your investment property, you're probably close to your debt to income ceiling for any other loans. 2) There is usually a 2 year time period where this will matter the most. Once you've rented out this property for 2 years, most financial institutions will consider a percentage of the rent as income. At this point you can then take on more debt if you choose. Other (Possibly Negative) Impacts and Considerations Maintenance Costs Renovations Turnovers Taxes and Insurance Downpayments and interest Income tax Advertising costs Property Management costs Closing costs and Legal fees Vacancies HOA fees Other (Possibly Positive) Impacts and Considerations Passive Income as long as the numbers are right and you have a good property manager Tax deductions (And depreciation) Rent has low correlation to the market Other investment alternatives: Stocks Reits (not directly comparable to investment properties) Long story short- can be a hassle but if the numbers are right, it can be a good investment. There's a series of articles further explaining these above listed components in detail.\",\n \"It's not a question with a single right answer. Other answers have addressed some aspects, my case may provide some guidance as to one way of looking at some of the issues. When I had student loans, the interest rate was RPI¹ and I could get more than that as the return on a savings account. At the time I could get a whole year's worth of loan at the start of the year, save it, and draw from the savings, partly because I had a little working capital saved already. Importantly in my case, the loans were use-it-or-lose-it: if I didn't take the loan out by about halfway through each academic year, it was no longer available to me. The difference in interest rates was probably similar to what you can get with a careful choice of savings account and 0% on the loan (I did this in the 90s when interest rates were higher). Over a four year degree the interest I earned this way added up to no more than about £100, which went someway towards offsetting the fact I would be paying interest after graduation. If you can clear the loan before you pay any interest it would give you a return, but a small one that could easily be eroded by rate changes or errors on your part (like not keeping on top of the paperwork). It still may be beneficial to take out the loans depending on your capital needs -- in my case it made buying a house after graduating much easier, as we still had money for the deposit (downpayment) and student loan rates were much lower than mortgage rates (100% mortgages were also available then, but expensive). ¹ RPI stands for retail price index, a measure of inflation.\",\n \"Mortgage interest is a different story. That's a consumer financing consumption. A business is financing a profit making enterprise. Not sure what the implications would be once this settles down -- probably less long term debt and a greater dependency on equity financing.\",\n \"It also reduces risk from the bank's eyes. Believe it or not, they do lose out when people don't pay on their mortgages. Take the big 3 (Wells, Chase and BoA). If they have 50 million mortgages between the 3 of them and 20% of people at one point won't be able to pay their mortgage due to loss of income or other factors, this presents a risk factor. Although interest payments are still good, reducing their principal and interest keeps them tied down for additional (or sometimes shorter) time, but now they are more likely to keep getting those payments. That's why credit cards back in 07 and 08 reduced limits for customers. The risk factor is huge now for these financial institutions. Do your research, sometimes a refi isn't the best option. Sometimes it is.\",\n \"Approximately Yes. However as you are paying more, the interest accrused would be less.\",\n \"The debt on Credit Cards is pretty high. Its in the range of 30-40% APR. There could also be a case very high personal loan for medical or other personal emergencies at a rate in excess of 15%. The debt consolidation would offer this at a very low APR There are institutions that offer debt consolidation services that would consolidate all your debt into a single loan at a lower rate of interest. They would also negotiate with all your lenders to waive charges and accrued interests to the max extent. The benefit to the institution offering this service is that they have a larger loan on books and hence the servicing cost is less. Most of the time the debt consolidation is offered with some asset as the guarantee for the new loan. By doing this the advantages are: Of course if you are looking for the balance transfer on cards to new one, then its same and in fact may at times be more expensive.\",\n \"I think, generally speaking, people who say things like that don't have a firm grasp of their finances. On the other hand, if you take a mortgage as a vehicle for leveraged investment the interest can pay for itself in gains made elsewhere. Paying mortgage interest is otherwise only good for the banks, but our system reinforces the idea that everyone should be in debt instead of profiting from their capital.\",\n \"A second mortgage is a loan taken out on your house while you still have another mortgage secured by your house. They are a secured loan as they use the borrower’s home as security. Some advantages of Second Mortgages: Some important points to consider when you take a second mortgage If you stop making payments, your lender will be able to take your home through foreclosure, which can cause serious problems for you and your family. Second mortgages can be expensive. You’ll need to pay numerous costs for things like credit checks, appraisals, origination fees, and more. The mortgage rates are typically lower than credit card interest rates, but they’re often slightly higher than your first loan’s rate.\",\n \"\\\"Like many things, there are pros and cons to using credit cards. The other folks on here have discussed the pros and length, so I'll just quickly summarize: Convenience of not having to carry cash. Delay paying your bills for a month with no penalty. Build your credit rating for a time when you need a big loan, like buying a house or starting a business. Provide easy access to credit for emergencies or special situations. Many credit cards provide \\\"\\\"rewards\\\"\\\" of various sorts that can effectively reduce the cost of what you buy. Protection against fraud. Extended warranty, often up to one year Damage warranty, covering breakage that might be explicitly excluded from normal warranty. But there are also disadvantages: One of the advantages of credit cards -- easy access to credit -- can also be a disadvantage. If you pay with cash, then when you run out of cash, you are forced to stop buying. But when you pay with credit, you can fall into the trap of buying things that you can't afford. You tell yourself that you'll pay for it when you get that next paycheck, but by the time the paycheck arrives, you have bought more things that you can't afford. Then you have to start paying interest on your credit card purchases, so now you have less money left over to pay off the bills. Many, many people have gotten into a death spiral where they keep piling up credit card debt until they are barely able to pay the interest every month, never mind pay off the original bill. And yes, it's easy to say, \\\"\\\"Credit cards are great as long as you use them responsibly.\\\"\\\" That may well be true. But some people have great difficulty being responsible about it. If you find that having a credit card in your pocket leads you to just not worry about how much you buy or what it costs, because, hey, you'll just put it on the credit card, then you will likely end up in serious trouble. If, on the other hand, you are just as careful about what you buy whether you are paying cash or using credit, and you never put more on the credit card than you can pay off in full when the bill arrives, then you should be fine.\\\"\",\n \"If (and only if) there is a zero interest installment plan available, technically the only uncontrollable risk is that there will likely be a hard inquiry on your credit report which may or may not also have a corresponding debt obligation attached to it. (Personally, I recently signed up for one such plan with Google and I had a hard inquiry but no debt added to my report). The other risks are that 1) your monthly payment goes up, so if you are living on a tight budget the added payment might make it harder to meet your next bill, and 2) you could miss a payment which generally triggers interest to accrue retroactively at a high rate, and in some cases could be grounds for immediate repayment. The pro / reward of these plans is that you have to spend less of your capital upfront, which you may be able to use for other purposes (presumably with a higher net present value than purchasing the item you're considering outright). A larger example would be purchasing a new car. You want to buy a $50k car and you have the cash on hand to pay in full, but you are being offered 0% interest for 36 months. You may be more inclined to take a loan at 0% with 0 down payment and invest your money in another vehicle (no pun intended) that offers you a decent rate of return and you will come out ahead in the end. Of course, this example works in a perfect world where you can get such an offer, there are no extra fees available, you aren't worrying about your debt-to-income ratio in preparation for a big purchase like a house, there isn't a higher insurance premium to consider, etc. In short, 0% financing, be it for a phone or a car, can be a nice perk for the informed consumer who is not using the financing as a way to purchase outside their financial means, but it is offered by companies as a way to make people buy things they normally would not and, hopefully, capitalize on people missing payments in order to reap the sweet 20%+ interest rates generally seen with these offers. In your specific situation with the phone, you should consider if you get a discount on your monthly plan for purchasing outright, or if you can get the phone subsidized if you sign a contract (and you know you like your provider enough to stay for its duration). If the monthly plan rate stays the same and you're looking at either $500 now or $500 over 24 months and you don't mind a hard inquiry, there's not much of compelling reason to pass on the financing and hold on to your $500.\",\n \"\\\"There are a number of bona fide reasons to consider here. If there is a cost to discharging a security packet, or a mortgage, it may not be convenient if we are advanced in the repayment schedule. Early exit fees may apply, or the interest may be \\\"\\\"pre-determined\\\"\\\". As a rule of thumb, when we are talking about rates above 10% p.a. then arrangements should be short (bridging finance - keep it short and charge 'em heaps), and for personal arrangements, small.\\\"\",\n \"From a pure monetary point of view, paying 5% to earn 1% doesn't make sense... Though there is also the question of retaining enough immediately available emergency funds, which may make the loan worth considering anyway. On the other hand, if you consider putting the funds into the stock market rather than a bank account, you have quite decent odds of earning more than 5%. In that case, this becomes an opportunity for leveraged investment. I'm doing exactly that with my mortgage.\",\n \"\\\"When you refinance, there is cost (guess: around $2000-$3000) to cover lawyers, paperwork, surveys, deed insurance, etc. etc. etc. Someone has to pay that cost, and in the end it will be you. Even if you get a \\\"\\\"no points no cost\\\"\\\" loan, the cost is going to be hidden in the interest rate. That's the way transactions with knowledgeable companies works: they do business because they benefit (profit) from it. The expectation is that what they need is different from what you need, so that each of you benefits. But, when it's a primarily cash transaction, you can't both end up with more money. So, unless value will be created somewhere else from the process (and don't include the +cash, because that ends up tacked onto the principle), this seems like paying for financial entertainment, and there are better ways to do that.\\\"\",\n \"I agree with Joe that you seem to have your stuff together. However I can't disagree more otherwise. You are getting a loan at such a cheap rate that it would be almost impossible to not substantially beat that rate over the next 15-20 years. You paying off your home early might give you warm fuzzy feeling but would make me queezy. This is a MONEY website. Make money. For our purposes let's say your home is worth 500k, you can get a fixed rate loan at 3% over 30 years, and you can earn 7% on your investments per year. Note that I have earned 12% on mine the past 15 years so I am being pretty conservative. So let's not get into your other stuff because that is fine. Let's focus just on that 500k - your house. Interest only Loan for the whole thing- The flip side is you pay off your house. Your house could be worth 400K in 30 years. Probably not but neighborhood could decline, house not kept up, or whatever. Your house is not a risk-free investment. And it fluctuate in many areas more than the stock market. But let's just say your area stays OK or normal. In 30 years you can expect your house to be worth somewhere between 700k to 1.5 million. Let's just say you did GREAT with your house. Guess what? At 1.5 million selling price you still lost 1.5 million because of your decision plus sunk your money into a less liquid option. Let the bank take the risk on your house price. The warm fuzzy feeling will be there when you realize you could rebuy your house two times over in 6-7 years. Note: I know my example doesn't use your exact numbers. I am just showing what your true cost is of making a decision in the most extreme way. I am guessing you have great credit and might be able to find an all interest loan at 3%. So not doing this is costing you 1.5 million over 30 years. Given a lower home price after 30 years or a higher rate of return this easily be much more. IF you earned 12% over the 30 year period you would be costing yourself 16 million - do the math. Now you are talking about doing something in-between. Which means you will basically have the same risk factors with less return.\",\n \"I will start with the assumption that you will never have any late payments and will fully pay off the loan. This may be a big assumption, but if you can't assume that, then you wouldn't have asked the question in the first place. The answer depends on your income: You should calculate how much student loan interest you can deduct before and after the switch, and adjust the interest rate accordingly to compensate for any difference.\",\n \"\\\"As @BrenBarn points out, when people say \\\"\\\"they like having a mortgage because they get the benefit of writing off the interest\\\"\\\" they typically mean as opposed to renting. You can deduct interest and real estate (property) tax payments, as well as some closing costs in the year you purchase the home. You are also building equity (instead of helping your landlord build his or her equity). Take for example a single person paying $1,000/month to rent an apartment. This is not deductible. He has $1,800 a year in other expenditures that would otherwise be deductible (charitable contributions, etc.), but he doesn't itemize because it isn't more than the $6,100 standard deduction, so it doesn't matter. He takes out a mortgage for $150,000 at 6% over a 30-year term to buy a similarly-appointed home. His new mortgage payment is about $900/month, plus he puts $100/month into an escrow account for property taxes, roughly totaling his former rent payment. Over the first full year, he pays about $9,000 in deductible mortgage interest and $1,200 in deductible real estate taxes. And because he is now itemizing, he can also write off the aforementioned $1,800. At a top marginal tax rate of 25%, he shaved nearly $1,500 (.25 * (9000 + 1200 + 1800 - 6100)) off his federal income tax bill -- with the same living expenses! This is a simple example with some arbitrary numbers to prove the point, and there are a lot of other pros and cons to buying vs. renting. But again, this is probably what they mean when you hear this. Others have covered the overpaying angle, and there are a bunch of other Money.SE posts on the same or similar subjects.\\\"\",\n \"If you get your income in the currency you have the new loan in, there is no exchange risk for the future. Assuming that you are able to get and serve that loan, it reduces your cost, so go for it. Yes, if the currency exchange rate changes the right way over the next years, you could have made a better deal - but consider it could also go the other way. If you really want to play this game, do it separately, by trading calls/puts on the currency exchange rate. See it as a separate and decoupled investment option.\",\n \"To avoid risk from rising interest rates, get a fixed rate mortgage. For the life of the mortgage your principal and interest payments will remain the same. Keep in mind that the taxes and insurance portion of your monthly payment may still go up. Because you own the property, the costs to maintain the property are your responsibility. If you rented this would be the responsibility of the owner of the property; if the cost to repair and maintain goes up so does the rent. Because you are the owner your annual costs to repair and maintain may go up over time. The way to eliminate risk of loss of value is to never move, until the mortgage is paid off. You will know exactly what principal and interest will cost you over the life of the loan. When you sell that will be essentially return on your payments. You don't know if the loss of value is due to world, national, regional, local or individual circumstances. so hedging is tough. If the fact that the mortgage is 95% is what makes you nervous, your biggest risk is risk of being upside down. That risk is greatly reduced by increasing the amount of the down payment. That decreases the risk that the value will be below the mortgage amount if due to unforeseen circumstances you have to sell immediately. The money will still be lost due to decrease in value, but you aren't forced to bring cash to the settlement table if you need to sell.\",\n \"From my experience and friends' experiences, I can say that there are advantages and disadvantages for paying off your mortgage quickly. Basically, it depends on these factors: the type of the mortgage, its interest rate, your financial stability, your skills in making investments and other outside factors, such as inflation, liquidity, oppurtunity cost, etc. Paying it off means you save on interest ratings, you decrease investment risks and your investment rates are taxable. Disadvantages are that you cannot use this money for investing, you cannot use this money for tax deductions and that in a state of inflation, not paying it off in advance could save you a lot of money. However, I always recommend to read some more on websites that deal with mortgages, and speak with the mortgage expert in your bank.Just acquire enough information to make a good assessment. An interesting article on this topic - The Advantages and Disadvantages of Paying Off Your Mortgage\",\n \"There is a positive not being mentioned above: the depreciation vs your regular earned income. Disclaimer: I am not a tax attorney or an accountant, nor do I play one on the internet. I am however a landlord. With that important caveat out of the way: Rental properties (and improvements to them) depreciate in value on a well-defined schedule. You can claim that depreciation as a phantom loss to lower the amount of your taxable regular income. If you make a substantial amount of the latter, it can be a huge boon in the first few years you own the property. You can claim the depreciation as if the property were new. So take the advice of a random stranger on the internet to your accountant/attorney and see how much it helps you.\",\n \"Wow the collateral totally eliminates the purpose of the swap for B, to have a consistent steady cash flow and stable expenses. It probably wouldn't be worth a broker's time unless it was in the millions. They should invent interest rate swaps for the mass market. I'm patenting that!\",\n \"The one big drawback I know is when you take the mortgage credit, your credit ability is calculated, and from that sum all of your credits are subtracted, and credit limit on credit card counts as credit... I don't know if it is worldwide praxis, but at least it is the case in Poland.\",\n \"With interest rates as low as they are, you could lock in to a very low rate for 30 years. If rates are higher in, say, 10 years, you could conceivably be earning a much higher rate on the money you're not putting towards monthly payments. All else equal, the payments will be lower on a 30y than they will be on a 10y, so you'll have more cash for other things. But I'm just looking for downsides -- being paid off in 10 years versus 30 sounds nice to me.\",\n \"Interest rates are at historic lows. In my opinion they can only go up from here. With that in mind, it is best to lock in interest rates now. I would only take an adjustable rate if I expected my personal income to increase in excess of the increase in interest rates. I hold that the recent technology of fracking has driven down the price of energy. I also believe that this is a short term situation and energy prices will return, and have already begun to do so. With the price of energy going up, inflation will return.\",\n \"\\\"Buying now with a mortgage gets you: Waiting to buy with all cash gets you: These are also some of the pros or cons for the rent or buy dilemma that Paul mentioned in comments to the OP. This is a very complex, multi-faceted question, that would not respond well to being put into any equation or financial model. Most people answer the question with \\\"\\\"buy the home now with a mortgage\\\"\\\" if they can pay for the down payment. This is why the mortgage industry exists. The people who would want to finance now rather than buy with all cash later would not only be analyzing the question in terms of financial health but also in terms of general well being. They might consider the tremendous pride that comes with home ownership and living under a roof of one's own. Who can say that those people are wrong?\\\"\",\n \"\\\"Say you're buying a 400K house. Your relative finances 120K (30%). Say I'm optimistic, but the real-estate market recovers, and your house is worth 600K in 5-6 years (can happen, with the inflation and all). The gain is 200K. Your relative gets 100K. You repay him 220K on 120K loan for 5 years. Roughly, 16% APR. Quite an expensive loan. I'm of course optimistic, it seems to me that so is your relative. The question is: if the house loses value in that term, does your relative take 50% of the losses? Make calculations based on several expected returns (optimistic, \\\"\\\"realistic\\\"\\\", loss case, etc), and for each calculate how much in fact will that loan cost. It will help you to decide if you want it. Otherwise your relationships with your relative might go very bad in a few years. BTW: Suggestion: it's a bad idea to mix business and friend/family you don't want to lose.\\\"\",\n \"I'm assuming that when you sell the house you expect to be able to pay off these loans. In that case you need a loan that can be paid off in full without penalty, but has as low an interest rate as possible. My suggestions:\",\n \"Go for 15 years loan - Lower interest rate over 2-5 years period. If you can afford to pay 20% down then please do. Do not assume the average ROI will +(8-10%). It all depends on market and has variable factors like city, area and demand.\",\n \"I can see that building credit is a valid reason. I would also suggest another scenario, when you have locked up money in long-term savings, with a substantial penalty for early withdrawal. If you suddenly needed money then you might save money by borrowing against the long-term deposit rather than pay the penalties. This is especially true if you needed the money only for a short time.\",\n \"\\\"It can be a good thing for the bank to refinance your loan for you - since you will be keeping the loan at that particular institution. This gives them more time to enjoy the free money you pay them in interest for the remaining life of the loan. Banks that offer \\\"\\\"No closing costs\\\"\\\" are betting that mortgage payers will move their mortgage to get the lower interest rates - and whomever holds the loan, gets the interest payments.\\\"\",\n \"\\\"My answer is similar to Ben Miller's, but let me make some slightly different points: There is one excellent reason to get a consolidation loan: You can often get a lower interest rate. If you are presently paying 19% on a credit card and you can roll that into a personal loan at 13.89%, you'll be saving over 5%, which can add up. I would definitely not consolidate a loan at 12.99% into a loan at 13.89%. Then you're just adding 1% to your interest rate. What's the benefit in this? Another good reasons for a consolidation loan is psychological. A consolidation loan with fixed payments forces you to pay that amount every month. You say you have trouble with credit cards. It's very easy to say to yourself, \\\"\\\"Oh, just this month I'm going to pay just the minimum so I can use my cash for this other Very Important Thing that I need to buy.\\\"\\\" And then next month you find something else that you just absolutely have to buy. And again the next month, and the next, and your determination to seriously pay down your debt keeps getting pushed off. If you have a fixed monthly payment, you can't. You're committed. Also, if you have many credit cards, juggling payments on all of them can get complex and confusing. It's easy to lose track of how much you owe and to budget for payments. At worst, when there are many bills to pay you may forget one. (Personally I now have 3 bank cards, an airline card, and 2 store cards, and managing them is getting out of hand. I have good reasons for having so many cards: the airline card and the store cards give me special discounts. But it's confusing to keep track of.) As to adding $3,000 to the consolidation loan: Very, very bad idea. You are basically saying, \\\"\\\"I have to start seriously paying down my debt ... tomorrow. Today I need a some extra cash so I'm going to borrow just a little bit more, but I'm going to get started paying it off next month.\\\"\\\" This is a trap, and the sort of trap that leads people into spiraling debt. Start paying off debt NOW, not at some vague time in the future that never seems to come.\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["Pros: Cons: Before the housing bubble the conventional wisdom was to buy as much home as you could afford, thereby borrowing as much you can afford. Because variable rates lead to lower mortgages, they were preferred by many as you could buy more house. This of course lead to many people losing their home and many thousands of dollars. A bubble is not necessary to trigger a chain of events that can lead to loss of a home. If an interest only borrower is late on a payment, this often triggers a rate increase. Couple that with some other things that can happen negatively, and you are up $hit's creek. IMO it is not wise.","\"Given the current low interest rates - let's assume 4% - this might be a viable option for a lot of people. Let's also assume that your actual interest rate after figuring in tax considerations ends up at around 3%. I think I am being pretty fair with the numbers. Now every dollar that you save each month based on the savings and invest with a higher net return of greater than 3% will in fact be \"\"free money\"\". You are basically betting on your ability to invest over the 3%. Even if using a conservative historical rate of return on the market you should net far better than 3%. This money would be significant after 10 years. Let's say you earn an average of 8% on your money over the 10 years. Well you would have an extra $77K by doing interest only if you were paying on average of $500 a month towards interest on a conventional loan. That is a pretty average house in the US. Who doesn't want $77K (more than you would have compared to just principal). So after 10 years you have the same amount in principal plus $77k given that you take all of the saved money and invest it at the constraints above. I would suggest that people take interest only if they are willing to diligently put away the money as they had a conventional loan. Another scenario would be a wealthier home owner (that may be able to pay off house at any time) to reap the tax breaks and cheap money to invest. Pros: Cons: Sidenote: If people ask how viable is this. Well I have done this for 8 years. I have earned an extra 110K. I have smaller than $500 I put away each month since my house is about 30% owned but have earned almost 14% on average over the last 8 years. My money gets put into an e-trade account automatically each month from there I funnel it into different funds (diversified by sector and region). I literally spend a few minutes a month on this and I truly act like the money isn't there. What is also nice is that the bank will account for about half of this as being a liquid asset when I have to renegotiate another loan.\"","The advantage of interest only mortgages is that they can increase your cashflow as you are only paying the interest and not any part of the principle. We have most of our investment loans on interest only for 10 years. When we got the loans about 6 to 7 years ago our LVR was only 60% and the property prices have increased by about 40% in that time. We also place our excess cashflow into offset accounts linked to the investment loans, so there is extra cash available in case things go bad. The disadvantage of interest only mortgages is that you are not paying off any principal for the length of the interest only period. If you are over extended this could cause problems as you need to rely totally on the price of the property going up for your equity to increase. As you are currently paying mortgage insurance leads me to believe your LVR is above 80%, so you would not have much equity available in your home. With an interest only loan this could pose you some problems. You should never try to over extend yourself, the slightest thing that goes wrong could get you into financial troubles. Always try to have some buffer to help you stay on your feet if circumstances do change for the worst.","\"The main disadvantage is that interest rates are higher for the interest-only loan. It's higher risk to the bank, since the principal outstanding is higher for longer. According to the New York Times, \"\"Interest rates are usually an eighth- to a half-percentage point higher than on fully amortized jumbo loans.\"\" They're also tougher to qualify for, and fewer lenders offer them, again due to the risk to the bank. Since you can always put extra towards the principal, strictly speaking, these are the only downsides. The upside, of course, is that you can make a lower payment each month. The question is what are you doing with this? If this is the only way you can afford the payments, there's a good chance the house is too expensive for you. You're not building equity in the home, and you have the risk of being underwater if the house price goes down. If you're using the money for other things, or you have variable income, it might be a different story. For the former, reinvesting in a business you own might be a reason, if you're cognizant of the risks. For the latter, salespeople on commission, or financial industry types who get most of their income in bonuses, can benefit from the flexibility.\""],"string":"[\n \"Pros: Cons: Before the housing bubble the conventional wisdom was to buy as much home as you could afford, thereby borrowing as much you can afford. Because variable rates lead to lower mortgages, they were preferred by many as you could buy more house. This of course lead to many people losing their home and many thousands of dollars. A bubble is not necessary to trigger a chain of events that can lead to loss of a home. If an interest only borrower is late on a payment, this often triggers a rate increase. Couple that with some other things that can happen negatively, and you are up $hit's creek. IMO it is not wise.\",\n \"\\\"Given the current low interest rates - let's assume 4% - this might be a viable option for a lot of people. Let's also assume that your actual interest rate after figuring in tax considerations ends up at around 3%. I think I am being pretty fair with the numbers. Now every dollar that you save each month based on the savings and invest with a higher net return of greater than 3% will in fact be \\\"\\\"free money\\\"\\\". You are basically betting on your ability to invest over the 3%. Even if using a conservative historical rate of return on the market you should net far better than 3%. This money would be significant after 10 years. Let's say you earn an average of 8% on your money over the 10 years. Well you would have an extra $77K by doing interest only if you were paying on average of $500 a month towards interest on a conventional loan. That is a pretty average house in the US. Who doesn't want $77K (more than you would have compared to just principal). So after 10 years you have the same amount in principal plus $77k given that you take all of the saved money and invest it at the constraints above. I would suggest that people take interest only if they are willing to diligently put away the money as they had a conventional loan. Another scenario would be a wealthier home owner (that may be able to pay off house at any time) to reap the tax breaks and cheap money to invest. Pros: Cons: Sidenote: If people ask how viable is this. Well I have done this for 8 years. I have earned an extra 110K. I have smaller than $500 I put away each month since my house is about 30% owned but have earned almost 14% on average over the last 8 years. My money gets put into an e-trade account automatically each month from there I funnel it into different funds (diversified by sector and region). I literally spend a few minutes a month on this and I truly act like the money isn't there. What is also nice is that the bank will account for about half of this as being a liquid asset when I have to renegotiate another loan.\\\"\",\n \"The advantage of interest only mortgages is that they can increase your cashflow as you are only paying the interest and not any part of the principle. We have most of our investment loans on interest only for 10 years. When we got the loans about 6 to 7 years ago our LVR was only 60% and the property prices have increased by about 40% in that time. We also place our excess cashflow into offset accounts linked to the investment loans, so there is extra cash available in case things go bad. The disadvantage of interest only mortgages is that you are not paying off any principal for the length of the interest only period. If you are over extended this could cause problems as you need to rely totally on the price of the property going up for your equity to increase. As you are currently paying mortgage insurance leads me to believe your LVR is above 80%, so you would not have much equity available in your home. With an interest only loan this could pose you some problems. You should never try to over extend yourself, the slightest thing that goes wrong could get you into financial troubles. Always try to have some buffer to help you stay on your feet if circumstances do change for the worst.\",\n \"\\\"The main disadvantage is that interest rates are higher for the interest-only loan. It's higher risk to the bank, since the principal outstanding is higher for longer. According to the New York Times, \\\"\\\"Interest rates are usually an eighth- to a half-percentage point higher than on fully amortized jumbo loans.\\\"\\\" They're also tougher to qualify for, and fewer lenders offer them, again due to the risk to the bank. Since you can always put extra towards the principal, strictly speaking, these are the only downsides. The upside, of course, is that you can make a lower payment each month. The question is what are you doing with this? If this is the only way you can afford the payments, there's a good chance the house is too expensive for you. You're not building equity in the home, and you have the risk of being underwater if the house price goes down. If you're using the money for other things, or you have variable income, it might be a different story. For the former, reinvesting in a business you own might be a reason, if you're cognizant of the risks. For the latter, salespeople on commission, or financial industry types who get most of their income in bonuses, can benefit from the flexibility.\\\"\"\n]","isConversational":false}}},{"rowIdx":392,"cells":{"_id":{"kind":"string","value":"9633"},"query":{"kind":"string","value":"Video recommendation for stock market education"},"gt_ids":{"kind":"list like","value":["534418","585447"],"string":"[\n \"534418\",\n \"585447\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1],"string":"[\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["534418","501189","221319","573760","228598","171456","263967","353048","259081","423034","162884","325212","436948","523310","255455","85558","268926","133997","136825","324860","185306","270269","277140","524501","484327","78249","94900","184338","282502","247360","567500","201884","161309","25943","117317","292219","555521","224366","191566","274400","449609","566223","96017","426021","301866","348225","406378","151973","269006","301813","334571","437327","151811","341148","307008","338962","585447","35093","377466","462671","441603","122958","263464","286965","235197","29298","527105","408995","180572","184190","287437","359909","541528","398900","386803","114576","50742","98326","57954","305117","56932","520165","408537","90255","209843","190264","579039","442897","182511","96910","484730","474296","224695","67327","355355","77567","527120","229271","241423","367391"],"string":"[\n \"534418\",\n \"501189\",\n \"221319\",\n \"573760\",\n \"228598\",\n \"171456\",\n \"263967\",\n \"353048\",\n \"259081\",\n \"423034\",\n \"162884\",\n \"325212\",\n \"436948\",\n \"523310\",\n \"255455\",\n \"85558\",\n \"268926\",\n \"133997\",\n \"136825\",\n \"324860\",\n \"185306\",\n \"270269\",\n \"277140\",\n \"524501\",\n \"484327\",\n \"78249\",\n \"94900\",\n \"184338\",\n \"282502\",\n \"247360\",\n \"567500\",\n \"201884\",\n \"161309\",\n \"25943\",\n \"117317\",\n \"292219\",\n \"555521\",\n \"224366\",\n \"191566\",\n \"274400\",\n \"449609\",\n \"566223\",\n \"96017\",\n \"426021\",\n \"301866\",\n \"348225\",\n \"406378\",\n \"151973\",\n \"269006\",\n \"301813\",\n \"334571\",\n \"437327\",\n \"151811\",\n \"341148\",\n \"307008\",\n \"338962\",\n \"585447\",\n \"35093\",\n \"377466\",\n \"462671\",\n \"441603\",\n \"122958\",\n \"263464\",\n \"286965\",\n \"235197\",\n \"29298\",\n \"527105\",\n \"408995\",\n \"180572\",\n \"184190\",\n \"287437\",\n \"359909\",\n \"541528\",\n \"398900\",\n \"386803\",\n \"114576\",\n \"50742\",\n \"98326\",\n \"57954\",\n \"305117\",\n \"56932\",\n \"520165\",\n \"408537\",\n \"90255\",\n \"209843\",\n \"190264\",\n \"579039\",\n \"442897\",\n \"182511\",\n \"96910\",\n \"484730\",\n \"474296\",\n \"224695\",\n \"67327\",\n \"355355\",\n \"77567\",\n \"527120\",\n \"229271\",\n \"241423\",\n \"367391\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["In general I would recommend to stay away from any video from a successful trader, at least those that claim to share their secrets. If they were that successful, why would they want company? What they have most likely discovered is that they can make more money through videos and seminars than they can through trading. While not a video, GetSmarterAboutMoney has a good basic section on Stock markets without being purely Canada centric (as I see from your profile you are in NY). I know that also in our city, there are continuing education courses that often go over the basics like this, if you have a college nearby they might have something. Cheapest of all would be to hit your local library. The fundamentals don't change that quickly that you need the latest and greatest - those are much more likely to be get-poor-quick schemes. Good Luck","Khan academy videos are really good. You should start to read the tutorials for beginners on investopedia.com. Additionally, you should keep yourself informed about the current finance related events. I would suggest reading the wall street journal and watch Bloomberg TV on their website.","Security Analysis(very difficult for beginners )& Intelligent Investor by Benjamin Graham. All about(book series by McGraw) on Stocks,Derivatives,Options,Futures,Market Timings. Reminiscence of a Stock Operator (Life of jesse Livermore). Memoirs , Popular Delusions and Madness of the Crowds by Charles Mackay. Basics of Technical analysis includig Trading Strategies via Youtube videos & Google. Also opt for Seeking alpha free version to learn about portfolio allocation under current scenario there will be few articles as it will ask for premium version if you love it then opt for it. But still these books will do.","The free Yale Course taught by Bob Shiller called Financial Markets is really good. Find it on youtube, iTunes U, academic earth, or yale's site.","I can't say much about other financial topics (ie personal finance), but I can give you some sources on investing. Books: Market wWizards, Hedge Fund Market Wizards, Reminisces of a Stock Operator, No Bull, The Snowball Websites: Bloomberg, CNBC, Zerohedge I also share my own thoughts on the stock market at http://markethistory.org","Hey, I suggest you check this place out: http://www.investopedia.com/university/ You can start from there and then read through the things you don't know about and move on from there. When using youtube, search for specific things rather than a general/broad search. For example here's a good youtube video relating to Candlestick Breakout Patterns: https://youtu.be/1fB3EF7XeXU","Investopedia got some good tutorials on stocks and a good simulator to play around without loosing hard earned money. http://www.investopedia.com/university/stocks/ http://www.investopedia.com/simulator/","Check out Khan Academy if you get a chance - they have a large suite of finance/capital market video clips that cover a lot of the basics of financial theory in short, manageable clips that might be suitable for someone in high school.","\"It is great that you want to learn more about the Stock Market. I'm curious about the quantitative side of analyzing stocks and other financial instruments. Does anyone have a recommendation where should I start? Which books should I read, or which courses or videos should I watch? Do I need some basic prerequisites such as statistics or macro and microeconomics? Or should I be advanced in those areas? Although I do not have any books or videos to suggest to you at the moment, I will do some more research and edit this answer. In order to understand the quantitative side of analyzing the stock market to have people take you serious enough and trust you with their money for investments, you need to have strong math and analytical skills. You should consider getting a higher level of education in several of the following: Mathematics, Economics, Finance, Statistics, and Computer Science. In mathematics, you should at least understand the following concepts: In finance, you should at least understand the following concepts: In Computer Science, you should probably know the following: So to answer your question, about \"\"do you need to be advanced in those areas\"\", I strongly suggest you do. I've read that books on that topics are such as The Intelligent Investor and Reminiscences of A Stock Operator. Are these books really about the analytics of investing, or are they only about the philosophy of investing? I haven't read the Reminiscences of A Stock Operator, but the Intelligent Investor is based on a philosophy of investing that you should only consider but not depend on when you make investments.\"","The Winning Investor http://winninginvestor.quickanddirtytips.com/ This is a blog and a podcast. Load a bunch of these onto your iPod and start listening. Stikky Stock Charts http://www.amazon.com/Stikky-Stock-Charts-professionals-smart/dp/1932974008 This is a beginner's guide on how to read charts. Lots of charts, not too many words.","A great way to learn is by watching then doing. I run a very successful technical analysis blog, and the first thing I like to tell my readers is to find a trader online who you can connect with, then watch them trade. I particularly like Adam Hewison, Marketclub.com - This is a great website, and they offer a great deal of eduction for free, in video format. They also offer further video based education through their ino.tv partner which is paid. Here is a link that has their free daily technical analysis based stock market update in video format. Marketclub Daily Stock Market Update Corey Rosenblum, blog.afraidtotrade.com - Corey is a Chartered Market Technician, and runs a fantastic technical analysis blog the focuses on market internals and short term trades. John Lansing, Trending123.com - John is highly successful trader who uses a reliable set of indicators and patterns, and has the most amazing knack for knowing which direction the markets are headed. Many of his members are large account day traders, and you can learn tons from them as well. They have a live daily chat room that is VERY busy. The other option is to get a mentor. Just about any successful trader will be willing to teach someone who is really interested, motivated, and has the time to learn. The next thing to do once you have chosen a route of education is to start virtual trading. There are many platforms available for this, just do some research on Google. You need to develop a trading plan and methodology for dealing with the emotions of trading. While there is no replacement for making real trades, getting some up front practice can help reduce your mistakes, teach you a better traders mindset, and help you with the discipline necessary to be a successful trader.","Books are a great place to start, Jason Kelly's The Neatest Little Guide to Stock Market Investing will give you a broad foundation of the stock & bond market.","I'm going to be a bit off topic and recommend 'The Only Investment Book You'll Ever Need' by Andrew Tobias. It doesn't start with describe the workings of the stock market. Instead, it starts with making sure you have a budget and have your basic finances in order BEFORE going into the stock market. This may not sound like what you are looking for, but it really is a valuable book to read, even if you think you are all set up in that department.","I rather like The Ascent of Money, by Niall Ferguson. This comes in several formats. There's a video version, a written version (ISBN-13: 978-1594201929), and an audio version. This book covers the history of financial instruments. It covers the rise of money, the history of bonds and stocks, insurance and hedge funds, real-estate, and the spread of finance across the world. It is a great introduction to finance, though its focus is very definitely on the history. It does not cover more advanced topics, and will not leave you with any sort of financial plan, but it's a great way to get a broad overview and historical understanding of money and markets. I strongly recommend both the video and the written or audio version.","Try wallstreetsurvivor.com It gives you $100k of pretend money when you sign up, using which you can take various courses on the website. It will teach you how to buy/sell stocks and build your portfolio. I am not sure if they do have Options Trading specifically, but their course line up is great!","Many good sources on YouTube that you can find easily once you know what to look for. Start following the stock market, present value / future value, annuities & perpetuities, bonds, financial ratios, balance sheets and P&L statements, ROI, ROA, ROE, cash flows, net present value and IRR, forecasting, Monte Carlo simulation (heavy on stats but useful in finance), the list goes on. If you can find a cheap textbook, it'll help with the concepts. Investopedia is sometimes useful in learning concepts but not really on application. Khan Academy is a good YouTube channel. The Intelligent Investor is a good foundational book for investing. There are several good case studies on Harvard Business Review to practice with. I've found that case studies are most helpful in learning how to apply concept and think outside the box. Discover how you can apply it to aspects of your everyday life. Finance is a great profession to pursue. Good luck on your studies!","Will strongly vouch for this. Ray Dalio gives you the macro view in that video, while Ackman gives more of the micro view. Would highly recommend watching them both in the same sitting, particularly for somebody who is just entering their study of finance","The Khan Academy has a huge series on finance (Sal Khan used to work at a hedge fund before he started his magnum opus): http://www.khanacademy.org/#core-finance Some are pretty basic stuff, but he does have some interesting commentary and snippets of more interesting topics. They're all very low-commitment and bite-sized.","For the mechanices/terms of stock investing, I recommend Learn to Earn by Peter Lynch. I also like The Little Book of Common Sense Investing by John Bogle. It explains why indexing is the best choice for most people. For stock picking, a good intro is The Little Book of Value Investing by Chris Brown. And then there is The Intelligent Investor by Ben Graham. IMO, this is the bible of investing.","The Intelligent Investor When Genius Failed The Ascent of Money Against the Gods: The Remarkable Story of Risk The Big Short Mr. Market Miscalculates +finance blogs (zerohedge.com [every once in a while; very depressing!!], the big picture, abnormal returns, epicurean dealmaker etc)","It might help the poster if you recommended some of those? I recommended the ones I know of specifically in that field I know to be good. Perhaps you could do the same? I also really like the books in this list: http://www.fool.com/Specials/2000/sp001107a.htm Note, Gorilla Game is, IMO the weakest of the bunch.","Why Stocks go up and Down by William H Pike is a great source if you are looking to interpret statements for stock analysis. This book really starts from the beginning and clearly explains with a running example of a fake company.","You're asking for a LOT. I mean, entire lives and volumes upon volumes of information is out there. I'd recommend Benjamin Graham for finance concepts (might be a little bit dry...), *A Random Walk Down Wall Street,* by Burton Malkiel and *A Concise Guide to Macro Economics* by David Moss.","I've shown this video to people with more than 10 years experience in the finance industry, and even they have gotten something from it. It is a brilliant video, too good not to share. And if we are all the wiser, hopefully we can avoid this type of disaster from happening again. Thanks for the comments.","If you're looking to invest using stocks and shares, I recommend you set up an account at something like Google Finance - it is free and user-friendly with lots of online help. You can set up some 'virtual cash' and put it into a number of stocks which it'll track for you. Review your progress and close some positions and open others as often as you want, but remember to enter some figure for the cost of the transaction, say $19.95 for a trade, to discourage you from high-frequency trading. Take it as seriously as you want - if you stick to your original cash input, you'll see real results. If you throw in more virtual cash than you could in real life, it'll muddle the outcome. After some evaluation period, say 3 months, look back at your progress. You will learn a tremendous amount from doing this and don't need to have read any books or spent any money to get started. Knowing which stocks to pick and when to buy or sell is much more subtle - see other answers for suggestions.","If you just want to save for retirement, start with a financial planning book, like this one: http://www.amazon.com/Smart-Simple-Financial-Strategies-People/dp/0743269942 and here's my editorial on the investing part: http://blog.ometer.com/2010/11/10/take-risks-in-life-for-savings-choose-a-balanced-fund/ If you're thinking of spending time stock-picking or trading for fun, then there are lots of options. Web site: Morningstar Premium (http://morningstar.com) has very good information. They analyze almost all large-cap stocks and some small caps too, plus mutual funds and ETFs, and have some good general information articles. It doesn't have the sales-pitch hot-blooded tone of most other sites. Morningstar analyzes companies from a value investing point of view which is probably what you want unless you're day trading. Also they analyze funds, which are probably the most practical investment. Books: If you want to be competent (in the sense that a professional investor trying to beat the market or control risk vs. the market would be) then I thought the CFA curriculum was pretty good: However, this will quickly teach you how much is involved in being competent. The level 1 curriculum when I did it was 6 or 7 thick textbooks, equivalent to probably a college semester courseload. I didn't do level 2 or 3. I don't think level 1 was enough to become competent, it's just enough to learn what you don't know. The actual CFA charter requires all three levels and years of work experience. If you more want to dabble, then Benjamin Graham's The Intelligent Investor certainly isn't a bad place to start, but you'd also want to read some efficient markets stuff (Random Walk Down Wall Street, or something by Bogle, or The Intelligent Asset Allocator http://www.amazon.com/Intelligent-Asset-Allocator-Portfolio-Maximize/dp/0071362363, are some options). It wouldn't be bad to just read a textbook like http://www.amazon.com/Investments-Irwin-Finance-Zvi-Bodie/dp/0256146381 which would be the much-abridged version of the CFA level 1 stuff. If you're into day trading / charting, then I don't know much about that at all, some of the other answers may have some ideas. I've never been able to find info on this that didn't seem like it had a sketchy sales pitch kind of vibe. Honestly in a world of high-frequency trading computers I'm skeptical this is something to get into. Unless you want to program HFT computers: http://howtohft.wordpress.com/","Buy a share - not a penny stock; rather a well known company like Coca-Cola, Kelloggs, Exxon, etc. Follow the company. Understand their business model. See the share price fall and rise. You will learn a lot having your own money at risk.","\"Good ones, no there are not. Go to a bookstore and pick up a copy of \"\"The Intelligent Investor.\"\" It was last published in 1972 and is still in print and will teach you everything you need to know. If you have accounting skills, pick up a copy of \"\"Security Analysis\"\" by Benjamin Graham. The 1943 version was just released again with a 2008 copyright and there is a 1987 version primarily edited by Cottle (I think). The 1943 book is better if you are comfortable with accounting and the 1987 version is better if you are not comfortable and feel you need more direction. I know recent would seem better, but the fact that there was a heavy demand in 2008 to reprint a 1943 book tells you how good it is. I think it is in its 13th printing since 2008. The same is true for the 72 and 87 book. Please don't use internet tutorials. If you do want to use Internet tutorials, then please just write me a check now for all your money. It will save me effort from having to take it from you penny by penny because you followed bad advice and lost money. Someone has to capture other people's mistakes. Please go out and make money instead. Prudence is the mother of all virtues.\"","Here's a very good series of classroom lectures by Robert Schiller, one of America's top economists and a prof at Yale: http://www.youtube.com/user/YaleCourses#g/c/8F7E2591EE283A2E This should give you some general insight into basic principles of finance and give you a framework to learn more later.","Start by going onto google.com/finance and click through every publicly traded Fortune 500 company. Click on all their charts and look through their graphs for any patters. There will almost always be a pattern even if it is vague and fairly unpredictable. Then look for any jumps or drops in price. Look for the reason of the jump or drop. It could range commonly from news, lay off announcements, acquisitions, etc or just moving along with the market direction for the day. Looking at each stock is key because every stock has its own pattern. Trying to understand the market at a whole is quite impossible, but when you narrow it down to just one stock, it is much more doable. For practice, try updown.com(spent most of my time on it during high school) and create 10-100 accounts and use various techniques for each portfolio. Just from that, you will have much more practice than the majority of traders. It is all very time consuming, but if you truly try on it, you will do better. I have to go(large market drop today, good time to buy). I'll answer more questions later!","Do your own research There are hundreds of places where people will give you all sorts of recommendations. There is as much noise in the recommendations as there is in the stock market itself. Become your own filter. You need to work on your own instinct. Pick a couple of sectors and a few stocks in each and study them. It is useful to know where the main indexes are going, but - unless you are trading the indexes - it is the individual sectors that you should focus on more.","A couple of good books I enjoyed and found very understandable (regarding the stock market): As for investment information you can get lost for days in Investopedia. Start in the stock section and click around. The tutorials here (free) give a good introduction to different financial topics. Regarding theoretical knowledge: start with what you know well, like your career or your other interests. You'll get a running start that way. Beyond that, it depends on what area of finance you want to start with. If it's your personal finances, I and a lot of other bloggers write about it all the time. Any of the bloggers on my blogroll (see my profile for the link) will give you a good perspective. If you want to go head first into planning your financial life, take a look at Brett Wilder's The Quiet Millionaire. It's very involved and thorough. And, of course, ask questions here.","Something that introduces the vocabulary and treats the reader like an intelligent individual? It's a bit overkill for 'retirement', but Yale has a free online course in Financial Markets. It's very light on math, but does a good job establishing jargon and its history. It covers most of the things you'd buy or sell in financial markets, and is presented by Nobel Prize winner Robert Schiller. This particular series was filmed in 2007, so it also offers a good historical perspective of the start of the subprime collapse. There's a number of high profile guest speakers as well. I would encourage you to think critically about their speeches though. If you research what's happened to them after that lecture, it's quite entertaining: one IPO'd a 'private equity' firm that underperformed the market as a whole, another hedge fund manager bought an airline with a partner firm that was arrested for running a ponzi scheme six months later. The reading list in the syllabus make a pretty good introduction to the field, but keep in mind they're for institutional investors not your 401(k).","I would recommend getting a used set of Chartered Financial Analyst books. The series is a great broad introduction to the most important aspects of investing and the markets. Combining both day-to-day knowledge and fundamental theory. CFA materials include in depth discussions of: After you have a strong base then stop by quant.stackexchange and ask about more specialized books or anything else that interests you. Have fun with your journey.","\"I commend you for your desire to be a smart and engaged investor. Regarding the other comments, yes the market is unpredictable and dangerous, but such is everything that leads to profit. I am currently reading, \"\"Advanced Options Pricing Models\"\" (Katz and McCormick) - mighy be at your local library. The book is helpful because in explaining the options market, it covers basic stock methodologies and then builds on them as it pursues a quant's math/computation based view of the market. The book is highly math oriented and discusses authors' custom design scripts/alogrithms to analyze market behavior. See similar post about technical analysis (since it often directs short term trading decisisions).\"","\"Since you have something of a background in econ, I'd check out the iTunes University \"\"Financial Theory\"\" course provided by Yale University. http://itunes.apple.com/us/itunes-u/financial-theory-video/id428500350 It starts off with the basics (time value of money, general equilibrium) and gets into some pretty topical issues -- dynamic hedging, mortgage backed securities, and so on. It's definitely an economics-focused course though, so there isn't going to be much coverage of more mathsy topics such as martingale pricing theory.\"","Fake stock market trading may teach you about trading, which isn't necessarily the same thing as investing. I think you need to understand how things work and how to read financial news and statistics before you start trading. Otherwise, you're just going to get frustrated when you mysteriously win and lose funny money. I'd suggest a few things: Also, don't get into individual stocks until you have at least $5k to invest -- focus on saving and use ETFs or mutual funds. You should always invest in around a half dozen diversified stocks at a time, and doing that with less than $1,000 a stock will make it impossible to trade and make money -- If a $100 stock position goes up 20%, you haven't cleared enough to pay your brokerage fees.","\"Yes, there are a lot of places you can research stocks online, Google Finance, Yahoo Finance, Reuters etc. It's important to understand that the price of the stock doesn't actually mean anything. Share price is just a function of the market capitalization divided by the number of shares outstanding. As an example take two companies that are both worth $1 million, but Company A has issued 10,000 shares and Company B has issued 100,000 shares. Company A has a share price of $100 while Company B has a share price of just $10. Comparing share price does nothing to indicate the relative value or health of Company A versus Company B. I know there are supposed to be no product recommendations but the dictionary area of investopedia.com is a good source of beginner investing information. And as Joe points out below the questions here with the \"\"stock\"\" tag would also be a good place to start. And while I'm on a roll, the book \"\"A Random Walk Down Wall Street\"\" is a good starting point in investing in the stock market.\"","I would always recommend the intelligent investor by Benjamin Graham the mentor of warren buffet once you have a basic knowledge ie what is a share bond guilt etc In terms of pure investment the UK is fairly similar the major difference is the simpler tax structure, ISA allowance and the more generous CGT regime.","\"This is a tough question, because it is something very specific to your situation and finances. I personally started at a young age (17), with US$1,000 in Scottrade. I tried the \"\"stock market games\"\" at first, but in retrospect they did nothing for me and turned out to be a waste of time. I really started when I actually opened my brokerage account, so step one would be to choose your discount broker. For example, Scottrade, Ameritrade (my current broker), E-Trade, Charles Schwab, etc. Don't worry about researching them too much as they all offer what you need to start out. You can always switch later (but this can be a little of a hassle). For me, once I opened my brokerage account I became that much more motivated to find a stock to invest in. So the next step and the most important is research! There are many good resources on the Internet (there can also be some pretty bad ones). Here's a few I found useful: Investopedia - They offer many useful, easy-to-understand explanations and definitions. I found myself visiting this site a lot. CNBC - That was my choice for business news. I found them to be the most watchable while being very informative. Fox Business, seems to be more political and just annoying to watch. Bloomberg News was just ZzzzZzzzzz (boring). On CNBC, Jim Cramer was a pretty useful resource. His show Mad Money is entertaining and really does teach you to think like an investor. I want to note though, I don't recommend buying the stocks he recommends, specially the next day after he talks about them. Instead, really pay attention to the reasons he gives for his recommendation. It will teach you to think more like an investor and give you examples of what you should be looking for when you do research. You can also use many online news organizations like MarketWatch, The Motley Fool, Yahoo Finance (has some pretty good resources), and TheStreet. Read editorial (opinions) articles with a grain of salt, but again in each editorial they explain why they think the way they think.\"","I use damodaran courses to complete my knowledge of finance while studying for the CFA, for people with finance or accounting background his courses are great and very easy to understand. I could learn in few hours what would have taken days with an average teacher.","I’ll start with what worked for me, to get me hooked. This list is by no means exhaustive. *One Up On Wall Street* by Peter Lynch discusses competitive advantages and staying close to the story of a business. Explores the concept of ‘buy what you know’. He has also written *Beating the Street*. *The Drunkard’s Walk: How Randomness Rules Our Lives* by Leonard Mlodinow is not dissimilar to *A Random Walk Down Wall Street*, but I preferred this book as it explores the concepts of randomness and survivors bias. *Against the Gods* by Peter Bernstein is a dense book, but in my opinion is the definitive text on the development of numbers, probability theory, and risk management. I absolutely love this book. *The Most Important Thing* by Howard Marks is immensely readable, enjoyable, and looks at value investing for the long run. Howard Marks has been a macro behavioural investor before behavioural investing was a thing. Speaking of behavioural biases, *Thinking, Fast and Slow* by Daniel Kahneman is a spectacular look at how your brain’s quick-trigger responses can often be wrong. On the subject of behaviour and biases, *Influence: The Psychology of Persuasion* by Robert Cialdini is another topic-defining book More books by long term veteran professional investment managers that should be enjoyed: - *The Little Book That (Still) Beats the Market* by Joel Greenblatt - *Beat the Crowd* by Ken Fisher - *Big Money Thinks Small* by Joel Tillinghast - *Common Stocks and Uncommon Profits* by Philip A. Fisher - *The Little Book of Behavioural Investing* by James Montier - *Margin of Safety* by Seth Klarman And I’ll be banned from this forum without mentioning *The Intelligent Investor* by Benjamin Graham. As per some other comments, my personal opinion is that books that describe events or periods of time like *Liars’ Poker* [80s Junk Bonds], *The Big Short* [Financial Crisis], *When Genius Failed* [the LTCM collapse, excellent read by Rogers Lowenstein], *All The Devils Are Here* [by McLean and Nocera, another Financial Crisis book, much better than Lewis’s, IMO] are all educational and quite entertaining, but don’t honestly have much to do with the actual nuts and bolts of the real financial industry. Enjoy!","Itunes U has some really good online classes on economics. And as with a lot of things check out Khanacademy.org. He has a whole financial section of really well made videos. Good books to read regarding the financial crisis are The Big Short by Lewis and Too Big To Fail by Sorkin.","\"Open up a demo account it lets you get your hands dirty with out spending real cash r/stocks r/investing. Read books like rich dad poor dad. And watch YouTube videos on reading stock charts. I've had a demo account for a year just yesterday I hit 11k \"\"profit\"\" in one day.\"","\"It's possible to make money in the market - even millions if you \"\"play your cards right\"\". Taking the course being offered can be educational but highly unlikely to increase your chances of making millions. Experience and knowledge of the game will make you money. The stock market is a game.\"","I’d suggest going over to Khan Academy. It’s basically a free school with really helpful videos. There are quizzes you can do and forums for each subject. My advice would be to starts the personal finance section because most things build from there and it’ll help you more with real life finance. Good luck!","Hi guys, This is an app I've been working on over the summer. It's my belief that a lot of people want to learn about the stock market but in the end can't because they're turned off by long walls of text you get when you Google about them/read a textbook. I know there are other simplified solutions out there but they're not widely adopted yet and I don't think there are any (?) that were made app first. Anyway, check it out if you can. Appreciate all feedback/comments.","My personal favorites are Options, Futures, and Other Derivatives by John C Hull Thinking Fast and Slow - Daniel Kahneman Expected Returns - Antti Ilmanen [check out the video : How to Think About Expected Returns] It is a 600 page book … A summary of it: Without a rational expectation of expected returns, investing can lead to severe disappointment and disillusionment. Making a good model to forecast expected returns is so difficult. Near-term expectation is almost impossible. The key is very very much about focusing on the long-term, and on getting returns that are feasible, not outlandish. There are three pillars that are central: Practically, the work of an investment manager today involves finding many different sources of returns, and diversifying effectively between them, and finally being humble about what returns we can expect today.","Not exactly nonfiction, but [Reminiscences of a Stock Operator](https://en.wikipedia.org/wiki/Reminiscences_of_a_Stock_Operator) is a can't-skip portrait of the very early days of Wall Street (early 20th century). It's a narrative memoir, not a work of analysis, which makes it an easy read. If you're looking for something more analytical and recent (but not too recent), the can't-skip recommendation I would make is Burton Malkiel's [A Random Walk Down Wall Street](https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street). If you're looking for something more in the biographical range, I'd look for a biography of the man who's had the most influence on the theory of portfolio construction, [Harry Markowitz](https://en.wikipedia.org/wiki/Harry_Markowitz). I don't have any titles to recommend here, although [this brief biography](http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1990/markowitz-bio.html) might help you decide how to proceed.","Investopedia does have tutorials about investments in different asset classes. Have you read them ? If you had heard of CFA, you can read their material if you can get hold of it or register for CFA. Their material is quite extensive and primarily designed for newbies. This is one helluva book and advice coming from persons who have showed and proved their tricks. And the good part is loads of advice in one single volume. And what they would suggest is probably opposite of what you would be doing in a hedge fund. And you can always trust google to fish out resources at the click of a button.","\"I am sorry to hear that. Well, finance is a VERY large field encompassing decades upon decades of research, and thousands of pages of research. This question is usually a difficult one to answer simply because of the scope. My usual answer to people is to browse around this sub and the internet and learn from that, and then for specific questions to ask. For your purposes, take a look at investopedia.com. While here it's an \"\"okay\"\" source, for a beginner I think it's a good place to start. Is there any specific thing you have a question about now? I know you mentioned the Big Short and some other things. Just keep in mind anything coming from Hollywood will be *extremely* biased.\"","To be honest, wall street survivor is good but when it comes to learning the stock markets from Europe, Beat wall street is the game to be playing. You can try it out for your self here on http://beatwallstreet.equitygameonline.com/ It is easy to use and there are monthly prizes available to winners, such as Ipads, Iphones and students who play it the game can win internships at top investment banks and brokers","I followed Economics by Michael Parkin for my college level course. It does not involve very complicated mathematics (beyond simple arithmetic and interpreting plots/charts). I found it very enjoyable. Stocks, bonds, and other money market instruments are not covered under this subject usually. They are covered under finance. I normally recommend Hull to people but because you are not interested in mathematics I would recommend Stuart R Veale.","I say, before investing your real capital into the Stock Market, play around on the virtual stock exchange game. It let's you invest with virtual capital and you can gain experience with the stock market. I wouldn't start investing in stock until I'm sure I can cover losses though. If you do intend to invest stocks so early in your career, then you should learn how to read SEC filings (not necessary, but helpful in understanding how investors think) such as 8-K/10-K/10-Q documents so you can predict profitability and growth of companies you invest in. Once you become a veteran of the stock market game, you probably won't need to read the SEC filings into too much detail - especially if you have a diverse portfolio. Good Luck. The one takeaway from this message would probably be: Stop! and play around on virtual stocks before immersing yourself in the real thing.","\"I think you've got basics, but you may have the order / emphasis a bit wrong. I've changed the order of the things you've learned in to what I think is the most important to understand: Owning a stock is like owning a tiny chunk of the business Owning stock is owning a tiny chunk of the business, it's not just \"\"like\"\" it. The \"\"tiny chunks\"\" are called shares, because that is literally what they are, a share of the business. Sometimes shares are also called stocks. The words stock and share are mostly interchangeable, but a single stock normally means your holding of many shares in a business, so if you have 100 shares in 1 company, that's a stock in that company, if you then buy 100 shares in another company, you now own 2 stocks. An investor seeks to buy stocks at a low price, and sell when the price is high. Not necessarily. An investor will buy shares in a company that they believe will make them a profit. In general, a company will make a profit and distribute some or all of it to shareholders in the form of dividends. They will also keep back a portion of the profit to invest in growing the company. If the company does grow, it will grow in value and your shares will get more valuable. Price (of a stock) is affected by supply/demand, volume, and possibly company profits The price of a share that you see on a stock ticker is the price that people on the market have exchanged the share for recently, not the price you or I can buy a share for, although usually if people on the market are buying and selling at that price, someone will buy or sell from you at a similar sort of price. In theory, the price will be the companies total value, if you were to own the whole thing (it's market capitalisation) divided by the total number of shares that exist in that company. The problem is that it's very difficult to work out the total value of a company. You can start by counting the different things that it owns (including things like intellectual property and the knowledge and experience of people who work there), subtract all the money it owes in loans etc., and then make an allowance for how much profit you expect the company to make in the future. The problem is that these numbers are all going to be estimates, and different peoples estimates will disagree. Some people don't bother to estimate at all. The market makers will just follow supply and demand. They will hold a few shares in each of many companies that they are interested in. They will advertise a lower price that they are willing to buy at and a higher price that they will sell at all the time. When they hold a lot of a share, they will price it lower so that people buy it from them. When they start to run out, they will price it higher. You will never need to spend more than the market makers price to buy a share, or get less than the market makers price when you come to sell it (unless you want to buy or sell more shares than they are willing to). This is why stock price depends on supply and demand. The other category of people who don't care about the companies they are trading are the high speed traders. They just look at information like the past price, the volume (total amount of shares being exchanged on the market) and many other statistics both from the market and elsewhere and look for patterns. You cannot compete with these people - they do things like physically locate their servers nearer to the stock exchanges buildings to get a few milliseconds time advantage over their competitors to buy shares quicker than them.\"","Commonly recommended books: Intelligent Investor - Graham One Up On Wall Street - Lynch The Essays of Warren Buffett : Lessons for Corporate America - Cunningham Graham's book should be mandatory reading for this sub. Lynch's book talks about leveraging your personal expertise to make intelligent investment choices. Cunningham's is a compilation of Warren Buffett's letters to shareholders of BH with some commentary. It covers a wider range of material, but the lessons on corporate governance are very useful when doing valuation.","Before you go filling your head with useless information as there is way too much stuff out there on the stock market. First ask yourself a few questions: There is going to be a balance between the three... don't kid yourself. After you answer these questions find a trading strategy to get the returns you are looking for. Remember the higher returns you expect... the more time you have to put in. Find a trading strategy you like and that works for you. Ounce you have your strategy then find the stocks or ETF that work for that strategy.... Ignore everything else, it is designed to separate you from your money. Making money in the stock market is easy, don't let the media hype and negative people tell you any different. Find something that works for you and perfect it... stick to it.","\"I'm a senior majoring in accounting and management information systems. Here is a question I answered a while back about financial statements and employee retention. In the answer that I provided at the bottom it was to assess a company's ability to pay by use of ratios. Likewise, similar accounting methods need to be understood and implemented when assessing stocks(which is where I believe Mr. Buffet was going with this). As we can see the severity of the questions decreases, but if you can not answer question 3 then you should study accounting principles. So how much is enough just to get started? You will never have enough knowledge to start, period. You will have to continuously be learning, so start sooner than later. However you need neither economics or accounting knowledge if you were to learn technical analysis, many doubt the workings of this technique, but in my experience it is easier to learn and practise. A comment on @Veronica's post. Understanding economics and accounting are fundamental. Analysis, seeing trends, and copying are instinctual human traits that helped us evolve (we are very good at pattern recognition). Taking an intro economic and accounting course at a local community college is an excellent place to start when breaking the mold of pattern-thinking. You have to be critical in understanding what elements move a company's A/R in the statement of cash flows. Read. Literally, don't stop reading. Latest edition of of Kesio's accounting principles? Read it. Cover to cover. Tax policies on Section 874, 222, 534? Read it. Take a class, read a book, ask questions! Good Luck, \"\"Welcome to [the] Science [of Business], you're gonna like it here\"\" - Phil Plait\"","\"A lot of investors prefer to start jumping into tools and figuring out from there, but I've always said that you should learn the theory before you go around applying it, so you can understand its shortcomings. A great starting point is Investopedia's Introduction to Technical Analysis. There you can read about the \"\"idea\"\" of technical analysis, how it compares to other strategies, what some of the big ideas are, and quite a bit about various chart patterns (cup and handle, flags, pennants, triangles, head & shoulders, etc). You'll also cover ideas like moving averages and trendlines. After that, Charting and Technical Analysis by Fred McAllen should be your next stop. The material in the book overlaps with what you've read on Investopedia, but McAllen's book is great for learning from examples and seeing the concepts applied in action. The book is for new comers and does a good job explaining how to utilize all these charts and patterns, and after finishing it, you should be ready to invest on your own. If you make it this far, feel free to jump into Fidelity's tools now and start applying what you've learned. You always want to make the connection between theory and practice, so start figuring out how you can use your new knowledge to generate good returns. Eventually, you should read the excellent reference text Technical Analysis of the Financial Markets by John Murphy. This book is like a toolbox - Murphy covers almost all the major techniques of technical analysts and helps you intuitively understand the reasoning behind them. I'd like to quote a part of a review here to show my point: What I like about Mr. Murphy is his way of showing and proving a point. Let me digress here to show you what I mean: Say you had a daughter and wanted to show her how to figure out the area of an Isosceles triangle. Well, you could tell her to memorize that it is base*height/2. Or if you really wanted her to learn it thoroughly you can show her how to draw a parallel line to the height, then join the ends to make a nice rectangle. Then to compute the area of a rectangle just multiply the two sides, one being the height, the other being half the base. She will then \"\"derive\"\" this and \"\"understand\"\" how they got the formula. You see, then she can compute the area under a hexagon or a tetrahedron or any complex object. Well, Mr. Murphy will show us the same way and \"\"derive\"\" for us concepts such as how a resistance line later becomes a support line! The reson for this is so amusing that after one reads about it we just go \"\"wow...\"\"\"\" Now I understand why this occurs\"\". Murphy's book is not about strategy or which tools to use. He takes an objective approach to describing the basics about various tools and techniques, and leaves it up to the reader to decide which tools to apply and when. That's why it's 576 pages and a great reference whenever you're working. If you make it through and understand Murphy, then you'll be golden. Again, understand the theory first, but make sure to see how it's applied as well - otherwise you're just reading without any practical knowledge. To quote Richard Feynman: It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong. Personally, I think technical analysis is all BS and a waste of time, and most of the top investors would agree, but at the end of the day, ignore everyone and stick to what works for you. Best of luck!\"","\"You bring up some very high level stuff, each of which can be the subject of a life's work. For taxes, I first read J.K. Lasser's Your Income Tax. I actually read it cover to cover instead of using it as a reference guide. I hit topics that I'd otherwise have never looked up on purpose. Once you familiarize yourself with the current tax code, keeping up on changes to the code goes pretty well. As far as investing goes, William Bernstein has two titles, “The Four Pillars of Investing” and “The Intelligent Asset Allocator”. Others have liked “Personal Finance for Dummies” by Eric Tyson. These are great introductory books, the classic is “Security Analysis” by Graham & Dodd. Warren Buffet was a student of Benjamin Graham and he did fine applying these principals. For retirement, The Number by Lee Eisenberg was a good read. I consider retirement an extension of the investing education, only the money flow is reversed, withdrawals, no new deposits. Of course this is an oversimplification. In my own reading list, I include books such as “Extraordinary Popular Delusions & the Madness of Crowds” by Charles MacKay and “The Great Crash 1929″ by John Kenneth Galbraith. Understanding how these bubbles happen is critical to a complete education. I'm convinced that when it comes to investing if I can teach my daughter to understand the concept of Risk and Reward and to understand there are certain common alerts to such bubbles, the simplest of which is the term \"\"this time is different\"\" as though a hundred years of market dynamics can change in a matter of a few years. Last, there are books like \"\"Stop Acting Rich\"\" by Dr Thomas Stanley. Not quite investing, per se, but a good read to get an idea of how we have a distorted view of certain signs of wealth. Keep reading, no harm in taking books out of the library and returning if the first chapter or two disappoints.\"","If you're looking to learn more about investing for personal use (as opposed to academic interest), I'd recommend something like The Ages of the Investor instead.","Just watch these videos and you will definitely have a basic overall understanding of finance/econ: > [Overview of Finance by Ackman](https://www.youtube.com/watch?v=WEDIj9JBTC8) > [How the Economic Machine Works by Ray Dalio](https://www.youtube.com/watch?v=PHe0bXAIuk0) A lot of universities have entire courses they put online. For example, Yale's open course on Financial Markets is excellent: > [Yale Econ 252](http://oyc.yale.edu/economics/econ-252-11) > [Youtube mirror](https://www.youtube.com/playlist?list=PL8FB14A2200B87185&feature=plcp)","I'd recommend looking at fundamental analysis as well -- technical analysis seems to be good for buy and sell points, but not for picking what to buy. You can get better outperformance by buying the right stuff, and it can be surprisingly easy to create a formula that works. I'd check out Morningstar, AAII, or Equities Lab (fairly complicated but it lets you do technical and fundamental analysis together). Also read Benjamin Graham, and/or Ken Fisher (they are wildly different, which is why I recommend them both).","These videos are good from a historical perspective, but some salt needs to be taken with them. They push forward the idea that the economy must always be expanding due to interest charges, but that is essentially not true (if the bankers spend their interest earnings, then no expansion is necessary).","It is easy to be a stock analyst. #1. Get a YouTube channel #2. Create a Twitter account #3. Every day make a video and tweet that the stock market crash is imminent #4. Hedge your prediction with a bullish long portfolio and lie to the public #5. Watch viewership and following grow rapidly as you misinform the public","For economics I recommend mises or these videos to get you started. For daily critical analysis of financial markets, keynesian government policies, and other interesting reading I recommend zerohedge. I've learned more about financial markets and government regulations by reading the comments section on zerohedge articles than anywhere else on the internet. The comment section is very raw (i.e. lots of fucking cursing) but there are some jewels of information in there. For daily critical thinking I suggest lewrockwell.","I would echo @Victor's comments. One book and 1000 web pages doesnt make you a good investor/trader. There are some basic things you should be aware of and read up on There are a few books that I would recommend I have been trading for over 10 years, my dad for over 30 years and we are both continually learning new things. Don't read one book and assume you know it all. Bear in mind that there are always new indicators being thought up and new ways of using and interpreting the same information, so keep reading and educating yourself.","I would recommend looking at The Motley Fool.","9 Capital in The Twenty First Century by Thomas Piketty 8 The Art of Strategy by Dixitt and Nalebuff 7 Against the God's by Peter Bernstein 6 The Black Swan by Nassim Nicholas Taleb 5 The Intelligent Investor by Benjamin Graham 4 Money: Master the Game by Tony Robbins 3 Thinking Fast and Slow by Daniel Kahneman 2 The Personal MBA by Josh Kaufman 1 The Power of Habit by Charles Duhigg ... Kind of meh choices really.","Look for recommendations for textbooks, then, and buy them used online (amazon, to start - but there are other websites). I bought Fabozzi's text after watching the Robert Shiller youtube course on finance (he uses that text, I believe).","Try https://sparkprofit.com/ You practice with real market prices, and it's free. Plus you can get real money pay outs if you do well. I earned 1 cent! hahaha I gave up trying to make money from it, but you get an idea of doing trades and how impossible it is to predict what the price will be. It has some tutorials and helpful things too.","Investopedia, Khan academy, Udemy, and corsea are good places to start. You tube has some good videos too. I imagine if you are looking to impress in a job interview you mostly want to know the concepts. Finance is all about future cash flow. Understand the important ratios and how they effect cash flow. Ronald Sweet has a good video on YouTube that sums up finance.","I'm in the same position as you. I've found YouTube to be a great resource, as well as reading things from outlets like the WSJ. Having a close friend in a target school studying finance also helps a ton, as I have someone to talk to casually about things, as well as ask questions. Check out [this](https://www.youtube.com/playlist?list=PLUl4u3cNGP63B2lDhyKOsImI7FjCf6eDW) playlist on YouTube. I've seen the professor (Lo) mentioned more than once in articles in the WSJ. He's written some books too that I'd like to read. I haven't watched that whole playlist, but the first few videos are helpful. Martin Shkreli's YouTube channel is a great resource. It's mentioned constantly on this sub. His finance lessons as well as his weekly podcast are great. I also like to listen to (via YouTube Red) talks given by execs like Ackman, Gray, Simons, Dalio, etc. [this](https://www.youtube.com/channel/UCVJalJNQWimC2zWrIHR_bSQ) channel uploads tons of interviews and talks that I find interesting. They can get repetitive, but I find it fun to listen to these guys. You can also get a student membership to the American Finance Association for free. Academic papers are still way above my level, but if you really get into it, those could be fun. You can subscribe to email newsletters for some free content. Almost Daily Grant's is a good one, the normal journal costs like 2k a year. Feel free to message me.","Trading and investing are very, very different activities. Investing is (very generally) done for the longer haul, by people looking for a reasonable return, determined largely by the long term prospects of the business in which they invest, accepting some moderate risk, usually around the prospects of that business. Trading is (very generally) done shorter term (seconds to days/weeks), and can involve significantly higher risk, usually focused around market conditions and players at the time of the trade. To reiterate, these are gross generalizations, but if you are just starting out: (a) you probably want to be investing, rather than trading; and (b) you may be best served by understanding as well as you can the difference between the two. Once you understand that difference, that will lead you to learning resources on each.","Investing money in the stock market with [Compound Stock Earnings](http://www.compoundstockearnings.com) is a great way to build wealth and plan for the future. However, few people know what the stock market is let alone how to begin investing in it. It is important to understand how companies and stocks work before investing in them.","\"Anything by Frank Fabozzi - the de facto authority on financial education. Most of the stuff will be textbook ($$$) so get ready for sticker shock. Hopefully you can find a used copy of something. Quick search on Amazon yielded \"\"The Basics of Finance\"\" for about $150.\"","There are several paths of study you could undertake. If you want to learn the fundamentals of the stock market and become a financial analyst, then finance, economics, and accounting (yes, accounting) are all good to study either on your own or in an institution. Furthermore, if you want to study a specific industry, it can't hurt to know a fair amount of the science behind that particular industry. For example, if you want to understand the pharmaceutical or biotechnology industries, knowledge of clinical trials, the FDA's approval process (in the US, at least), off-label uses for drugs, genetic engineering, etc. are all good to know. You don't have to become an expert, but having a firm grasp on the science is extremely useful when evaluating a company's prospects. If you're interested in becoming an algorithmic trader or a quant, then physics, certain fields of engineering, signals processing, applied math, computer science, or econometrics will get you much farther than a standard finance or accounting degree. Most people can learn the basics of finance; not everyone can learn advanced mathematics. A lot of the above applies to learning about the forex market as well. Economics is certainly helpful, especially central bank policy, but since the forex market is so massive and liquid, many mathematical tools are necessary because algorithms play a key role as well. Per littleadv's suggestion, an MBA with a concentration in finance may be an option for someone who already has a degree. Also, an MSF (Master of Science in Finance) or a degree in financial engineering (called an MFE, or ORFE, for Operations Research and Financial Engineering) are other, potentially better options for someone pursuing a more technical career. A high-octane trading firm may not care that you've taken marketing and management classes; they want to hire someone who can understand complex algorithms and design and implement new ones quickly. Some MSF programs are pre-experience programs, which means that in exchange for taking more time to complete, they don't expect you to have significant work experience in the financial industry. An MBA might require such experience, however.","Before putting any significant money into stocks, I would recommend spending at least a year paper trading. It is amazing how much money you can lose trading stocks when you don't know what you are doing!","It's quite alright, it's been over a decade since he passed so I'm not particularly sensitive about it any more. I'll have a look at investopedia, but what I'm mainly interested in is private equity. I wanted to ask directly about that, but I feel that I need a frame of reference to understand what's going on. As in, I doubt I'd be able to really get private equity without first having an understanding of public trading. Is this subreddit really that reputable? I've learned to not really trust reddit, for the most part. Is there some kind of curation here?","From my experience you don't need knowledge of accounting to pick good stocks. The type of investing you are referring to is fundamental. This is finding out about the company, this websites should help you start off: http://en.tradehero.mobi/how-to-choose-a-stock-fundamental-analysis/ Investopedia will also be a useful website in techniques. A bit of knowledge in economics will be helpful in understanding how current affairs will affect a market, which will affect stock prices. However you need neither economics or accounting knowledge if you were to learn technical analysis, many doubt the workings of this technique, but in my experience it is easier to learn and practise. For example looking at charts from previous years it shows the last time there was a huge recession the dollar did well and commodities didn't. In this recession we are entering you can see the same thing happening. Read about the different techniques before limiting yourself to just looking at financial statements you may find a better technique suited to you, like these technical analysts: http://etfhq.com/blog/2013/03/02/top-technical-analysts/ Hope this helps.","A Random Walk Down Wall Street Barbarians at the Gate Liar's Poker King of Capital The Big Short No need to even consider CFP or CFA if you don't have a degree/full time job that requires it. They are costly.","I'd start with learning how to read a company's financial statement and their annual report. I would recommend reading the following: All three books are cheap and readily available. If you really want to enhance your learning, grab a few annual reports from companies' websites to reference as you learn about different aspects of the financial statements.","\"You could also look up stock trading games. Basically, you get x amount of \"\"money\"\" and \"\"invest\"\" it in stocks, trying to get the highest return of the group in y amount of time. They are a decent way to get used to how different types of trades work without having to risk any real money, while having enough \"\"money\"\" to invest that you can try different things. Of course, as others have mentioned they may or may not include all the nuances, like minimum investments and brokerage fees, but at least you can learn and see how the different buying and selling options work.\"","I would like to specifically address your second question. There are a number of great resources available online, but I found that when I was first starting out the website Investopedia was a very helpful resource. There you will find a wide range of information regarding investing, investment vehicles, and glossaries of key terms with robust definitions to help you with the financial jargon.","\"I tell you how I started as an investor: read the writings of probably the best investor of the history and become familiarized with it: Warren Buffett. I highly recommend \"\"The Essays of Warren Buffett\"\", where he provides a wise insight on how a company generates value, and his investment philosophy. You won't regret it! And also, specially in finance, don't follow the advice from people that you don't know, like me.\"","Read the Security Analysis. I believe if you read it completely, you will have a real good chance of succeeding at making good money. If you find the book hard to read just go through it and underline under the text as you read it.","A lot of people here talk about shorting stocks, buying options, and messing around with leveraged ETFs. While these are excellent tools, that offer novel opportunities for the sophisticated investor, Don't mess around with these until you have been in the game for a few years. Even if you can make money consistently right out of the gate, don't do it. Why? Making money isn't your challenge, NOT LOSING money is your challenge. It's hard to measure the scope of the risk you are assuming with these strategies, much less manage it when things head south. So even if you've gotten lucky enough to have figured out how to make money, you surely haven't learned out how to hold on to it. I am certain that every beginner still hasn't figured out how to comprehend risk and manage losing positions. It's one of those things you only figure out after dealing with it. Stocks (with little to no margin) are a great place to learn how to lose because your risk of losing everything is drastically lower than with the aforementioned tools of the sophisticated investor. Despite what others may say you can make out really well just trading stocks. That being said, one of my favorite beginner strategies is buying stocks that dip for reasons that don't fundamentally affect the company's ability to make money in the mid term (2 quarters). Wallstreet loves these plays because it shakes out amateur investors (release bad news, push the stock down shorting it or selling your position, amateurs sell, which you buy at a discount to the 'fair price'.) A good example is Netflix back in 2007. There was a lawsuit because netflix was throttling movie deliveries to high traffic consumers. The stock dropped a good chunk overnight. A more recent example is petrobras after their huge bond sale and subsequent corruption scandal. A lot of people questioned Petrobras' long-term ability to maintain sufficient liquidity to pay back the loans, but the cashflow and long term projections are more than solid. A year later the stock was pushed further down because a lot of amateur Brazilians invest in Petrobras and they sold while the stock was artificially depressed due to a string of corruption scandals and poor, though temporary, economic conditions. One of my favorite plays back in 2008-2011 was First Solar on the run-up to earnings calls. Analysts would always come out of these meetings downgrading the stock and the forums were full of pikers and pumpers claiming heavy put positions. The stock would go down considerably, but would always pop around earnings. I've made huge returns on this move. Those were the good ole days. Start off just googling financial news and blogs and look for lawsuits and/or scandals. Manufacturing defects or recalls. Starting looking for companies that react predictably to certain events. Plot those events on your chart. If you don't know how to back-test events, learn it. Google Finance had a tool for that back in the day that was rudimentary but helpful for those starting out. Eventually though, moreso than learning any particular strategy, you should learn these three skills: 1) Tooling: to gather, manipulate, and visualize data on your own. These days automated trading also seems to be ever more important, even for the small fish. 2) Analytical Thinking learn to spot patterns of the three types: event based (lawsuits, arbitrage, earnings etc), technical (emas, price action, sup/res), or business-oriented (accounting, strategy, marketing). Don't just listen to what someone else says you should do at any particular moment, critical thinking is essential. 3) Emotions and Attitude: learn how to comprehend risk and manage your trigger finger. Your emotions are like a blade that you must sharpen every day if you want to stay in the game. Disclaimer: I stopped using this strategy in 2011, and moved to a pure technical trading regime. I've been out totally out of the game since 2015.","I recall the name Martin Pring. As my fundamental analysis book from grad school was the work of Graham and Dodd titled Security Analysis, Pring was the author of the books I read on technical analysis. If you've not read his work, your education has a ways to go before you hit the tools.","\"Read \"\"The intelligent Investor\"\" book before you do anything. I started when I really didn't understand anything about stocks. I bought an internet stock for $150 per share which sold at 75cents a year later. I sold it for a profit but would've been a disaster.\"","\"Definition: Fundamental analysis involves analyzing financial statements and health, management and competitive advantages, and competitors and markets. Books are a great way to learn fundamental analysis but can be time consuming for something that really isn't very difficult. So the internet might be a better way to get started. When using fundamental analysis all you are doing is trying to figure out how much a company is worth. The vocabulary and huge range of acronyms can be intimidating but really its a fairly simple task. You can use (investopedia) for definitions and simple examples when you do not fully understand something. IE: (PEG) You can search for definitions using the search bar on the top right (google also is a good source to look for additional definitions). I recommend starting out by doing an independent analysis on a well known name such as Proctor & Gamble or Mcdonald's. Then you can compare your analysis to a professionals and see how they stack up. Books and Resources: Getting Started in Fundamental Analysis Fundamental Analysis For Dummies Fundamental analysis Wiki What Is Fundamental Analysis? - Video tut from Investopedia Fundamental Analysis: Introduction Step by Step example of fundamental analysis - It's a pretty in depth forum post. Side Notes: Personally when I first began using fundamental analysis I found it difficult to understand why something is considered undervalued or overvalued. I couldn't figure out who was the \"\"authority\"\" on saying this. Well in short the \"\"authority\"\" basically is the market. You can say you believe XYZ is undervalued but you are only proven correct if the market agrees with you over long period of time. Some key facts you should know: Many times a stock can be \"\"broken\"\" for many reasons. The price can go far beyond what would be considered a \"\"normal valuation\"\" (this is considered a bubble, e.g. the tech bubble of 1999-2000). It can also go far below a \"\"normal valuation\"\". In most cases these types of valuations are short lived and in the end a stock should return to \"\"normal valuation\"\" or at least this is the theory behind fundamental analysis.\"","Sounds like you are a candidate for stock trading simulators. Or just pick stocks and use Yahoo! or Google finance tools to track and see how you do. I wouldn't suggest you put real money into it. You need to learn about research and timing and a bunch of other topics you can learn about here. I personally just stick to life cycle funds that are managed products that offer me a cruise control setting for investing.","\"Spend your first 50 euros on research materials. Warren Buffett got started as a boy by reading every book in the Library of Congress on investing and stock market analysis. You can research the company filings for Canadian companies at http://www.sedar.com, U.S companies at http://www.edgar.com, and European companies at https://www.gov.uk/government/organisations/companies-house. Find conflicting arguments and strategies and decide for yourself which ones are right. The Motley Fool http://www.fool.ca offers articles on good stocks to add to your portfolio and why, as well as why not. They provide a balanced judgement instead of just hype. They also sell advice through their newsletter. In Canada the Globe & Mail runs a daily column on screening stocks. Every day they present a different stock-picking strategy and the filters used to reach their end list. They then show how much that portfolio would have increased or decreased as well as talking about some of the good & bad points of the stocks in the list. It's interesting to see over time a very few stocks show up on multiple lists for different strategies. These ones in my opinion are the stocks to be investing in. While the Globe's stock picks focus on Canadian and US exchanges, you might find the strategies worthwhile. You can subscribe to the digital version at http://www.theglobeandmail.com Once you have your analytical tools ready, pick any bank or stock house that offers a free practice account. Use that account and their screening tools to try out your strategies and see if you can make money picking stocks. My personal stock-picking strategy is to look for companies with: - a long uninterrupted history of paying dividends, - that are regularly increased, - and do not exceed the net profit per share of the company - and whose share price has a long history of increasing These are called unicorn companies, because there are so very few of them. Another great read is, \"\"Do Stocks Outperform Treasury Bills?\"\" by Hendrik Bessembinder. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447 In this paper the author looks at the entire history of the U.S. stock universe and finds that less than 4% of stocks are responsible for 100% of the wealth creation in the U.S. stock market. He discusses his strategies for picking the winners, but it also suggests that if you don't want to do any research, you could pick pretty much any stock at random, short it, and wait. I avoid mutual funds because they are a winner only for the fellas selling them. A great description on why the mutual fund industry is skewed against the investor can be found in a book called \"\"The RRSP Secret\"\" by Greg Habstritt. \"\"Unshakeable\"\" by Tony Robbins also discusses why mutual funds are not the best way to invest in stocks. The investor puts up 100% of the money, takes 100% of the risk, and gets at best 30% of the return. Rich people don't invest like that.\"","\"Below is just a little information on this topic from my small unique book \"\"The small stock trader\"\": The most significant non-company-specific factor affecting stock price is the market sentiment, while the most significant company-specific factor is the earning power of the company. Perhaps it would be safe to say that technical analysis is more related to psychology/emotions, while fundamental analysis is more related to reason – that is why it is said that fundamental analysis tells you what to trade and technical analysis tells you when to trade. Thus, many stock traders use technical analysis as a timing tool for their entry and exit points. Technical analysis is more suitable for short-term trading and works best with large caps, for stock prices of large caps are more correlated with the general market, while small caps are more affected by company-specific news and speculation…: Perhaps small stock traders should not waste a lot of time on fundamental analysis; avoid overanalyzing the financial position, market position, and management of the focus companies. It is difficult to make wise trading decisions based only on fundamental analysis (company-specific news accounts for only about 25 percent of stock price fluctuations). There are only a few important figures and ratios to look at, such as: perhaps also: Furthermore, single ratios and figures do not tell much, so it is wise to use a few ratios and figures in combination. You should look at their trends and also compare them with the company’s main competitors and the industry average. Preferably, you want to see trend improvements in these above-mentioned figures and ratios, or at least some stability when the times are tough. Despite all the exotic names found in technical analysis, simply put, it is the study of supply and demand for the stock, in order to predict and follow the trend. Many stock traders claim stock price just represents the current supply and demand for that stock and moves to the greater side of the forces of supply and demand. If you focus on a few simple small caps, perhaps you should just use the basic principles of technical analysis, such as: I have no doubt that there are different ways to make money in the stock market. Some may succeed purely on the basis of technical analysis, some purely due to fundamental analysis, and others from a combination of these two like most of the great stock traders have done (Jesse Livermore, Bernard Baruch, Gerald Loeb, Nicolas Darvas, William O’Neil, and Steven Cohen). It is just a matter of finding out what best fits your personality. I hope the above little information from my small unique book was a little helpful! Mika (author of \"\"The small stock trader\"\")\"","Hey so I'm completely new to anything financial. Have a bad habit of burning thru my money and would prefer to learn ways to make a little instead. What are some good tools that I could use to learn how to trade stocks or the best ways to get started investing? Thank you","Still not easy to grasp for a 5-year-old, but they're entertaining. Particularly the second one, which is slightly less informative but a lot more fun. http://www.youtube.com/watch?v=d0nERTFo-Sk&feature=fvwrel http://www.youtube.com/watch?v=GTQnarzmTOc EDIT: Yup, it's biased towards Hayek, but that much is pretty evident. I still think that the videos are worth a watch, if only to give you a small introduction to where the two of them stand on certain issues.","I learned most of this stuff from 3 textbooks in school probably totaling $900 between the 3. I imagine you don't want to spend the cash on that. I would suggest finding a source online. A lot of the surface level stuff you are looking for can be found online on websites like Investopedia. They are a great resource and are free usually.","Yea read a few books or watch some videos on YouTube on fundamental analysis and try it using excel. It's probably not what you'll be doing if you get a degree in finance, and you might even end up in accounting like I did, but its a good place to start to see if you like it or not. It also exposes you to accounting, business, the politics of business, taxation, financial statements, EDGAR and all the other interesting and important stuff. You might want to pick up a study guide for the CPA exam BEC. Lots of very interesting stuff in there about business in general including how the board of directors works, and taxation. It's an awesome read.","\"There is only one book worth reading in my opinion: One Up on Wall Street. It's short and no other book even comes close to it for honesty, correctness and good sense. Also, it is written by the second most successful investor of all time, Peter Lynch. The Intelligent Investor has some good technical content, but the book is dated and a lot of it is irrelevant to the modern investment environment. When I was younger I used to ready books like this and when a friend of mine asked for investment advice. I said \"\"Look at stocks with a PE ratio of 5-10\"\". A few days later he comes back to me and says \"\"There are none\"\". Right. That pretty much sums up the problem with the I.I. Graham himself in interviews during the 1970s said that his book was obsolete and he no longer recommended those methods.\"","\"See Solid reading/literature for investment/retirement/income taxes? – not exactly the same question, but a great reading list for you. You are putting the cart before the horse here, first, you learn, then you invest. There's a large danger in confusing intelligent investing with \"\"fooling around\"\". The idea that you think you'd like to use derivatives without knowing how or why is a tough one. I suggest you go to Yahoo! Finance and set yourself up with a portfolio (click on the \"\"My Portfolios\"\" tab), in effect, creating your own simulated account. Assume you are starting with some reasonable amount of money, say $10,000, but not $1M, as part of real investing is to learn how to asset allocate the funds you have. Learning that way for a time is the smarter way to start. That said, individual stocks are not for everyone. Most investors can lead a successful investing life by using ETFs or mutual funds of one type or another. Learning to pick individual stocks can be a life's work, and if you put too little time into it, are likely to be disappointed. But learning by 'paper trading' can be a good learning experience nonetheless.\"","\"Strategy would be my top factor. While this may be implied, I do think it helps to have an idea of what is causing the buy and sell signals in speculating as I'd rather follow a strategy than try to figure things out completely from scratch that doesn't quite make sense to me. There are generally a couple of different schools of analysis that may be worth passing along: Fundamental Analysis:Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets. When applied to futures and forex, it focuses on the overall state of the economy, interest rates, production, earnings, and management. When analyzing a stock, futures contract, or currency using fundamental analysis there are two basic approaches one can use; bottom up analysis and top down analysis. The term is used to distinguish such analysis from other types of investment analysis, such as quantitative analysis and technical analysis. Technical Analysis:In finance, technical analysis is a security analysis methodology for forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis use many of the same tools of technical analysis, which, being an aspect of active management, stands in contradiction to much of modern portfolio theory. The efficacy of both technical and fundamental analysis is disputed by the efficient-market hypothesis which states that stock market prices are essentially unpredictable. There are tools like \"\"Stock Screeners\"\" that will let you filter based on various criteria to use each analysis in a mix. There are various strategies one could use. Wikipedia under Stock Speculator lists: \"\"Several different types of stock trading strategies or approaches exist including day trading, trend following, market making, scalping (trading), momentum trading, trading the news, and arbitrage.\"\" Thus, I'd advise research what approach are you wanting to use as the \"\"Make it up as we go along losing real money all the way\"\" wouldn't be my suggested approach. There is something to be said for there being numerous columnists and newsletter peddlers if you want other ideas but I would suggest having a strategy before putting one's toe in the water.\""],"string":"[\n \"In general I would recommend to stay away from any video from a successful trader, at least those that claim to share their secrets. If they were that successful, why would they want company? What they have most likely discovered is that they can make more money through videos and seminars than they can through trading. While not a video, GetSmarterAboutMoney has a good basic section on Stock markets without being purely Canada centric (as I see from your profile you are in NY). I know that also in our city, there are continuing education courses that often go over the basics like this, if you have a college nearby they might have something. Cheapest of all would be to hit your local library. The fundamentals don't change that quickly that you need the latest and greatest - those are much more likely to be get-poor-quick schemes. Good Luck\",\n \"Khan academy videos are really good. You should start to read the tutorials for beginners on investopedia.com. Additionally, you should keep yourself informed about the current finance related events. I would suggest reading the wall street journal and watch Bloomberg TV on their website.\",\n \"Security Analysis(very difficult for beginners )& Intelligent Investor by Benjamin Graham. All about(book series by McGraw) on Stocks,Derivatives,Options,Futures,Market Timings. Reminiscence of a Stock Operator (Life of jesse Livermore). Memoirs , Popular Delusions and Madness of the Crowds by Charles Mackay. Basics of Technical analysis includig Trading Strategies via Youtube videos & Google. Also opt for Seeking alpha free version to learn about portfolio allocation under current scenario there will be few articles as it will ask for premium version if you love it then opt for it. But still these books will do.\",\n \"The free Yale Course taught by Bob Shiller called Financial Markets is really good. Find it on youtube, iTunes U, academic earth, or yale's site.\",\n \"I can't say much about other financial topics (ie personal finance), but I can give you some sources on investing. Books: Market wWizards, Hedge Fund Market Wizards, Reminisces of a Stock Operator, No Bull, The Snowball Websites: Bloomberg, CNBC, Zerohedge I also share my own thoughts on the stock market at http://markethistory.org\",\n \"Hey, I suggest you check this place out: http://www.investopedia.com/university/ You can start from there and then read through the things you don't know about and move on from there. When using youtube, search for specific things rather than a general/broad search. For example here's a good youtube video relating to Candlestick Breakout Patterns: https://youtu.be/1fB3EF7XeXU\",\n \"Investopedia got some good tutorials on stocks and a good simulator to play around without loosing hard earned money. http://www.investopedia.com/university/stocks/ http://www.investopedia.com/simulator/\",\n \"Check out Khan Academy if you get a chance - they have a large suite of finance/capital market video clips that cover a lot of the basics of financial theory in short, manageable clips that might be suitable for someone in high school.\",\n \"\\\"It is great that you want to learn more about the Stock Market. I'm curious about the quantitative side of analyzing stocks and other financial instruments. Does anyone have a recommendation where should I start? Which books should I read, or which courses or videos should I watch? Do I need some basic prerequisites such as statistics or macro and microeconomics? Or should I be advanced in those areas? Although I do not have any books or videos to suggest to you at the moment, I will do some more research and edit this answer. In order to understand the quantitative side of analyzing the stock market to have people take you serious enough and trust you with their money for investments, you need to have strong math and analytical skills. You should consider getting a higher level of education in several of the following: Mathematics, Economics, Finance, Statistics, and Computer Science. In mathematics, you should at least understand the following concepts: In finance, you should at least understand the following concepts: In Computer Science, you should probably know the following: So to answer your question, about \\\"\\\"do you need to be advanced in those areas\\\"\\\", I strongly suggest you do. I've read that books on that topics are such as The Intelligent Investor and Reminiscences of A Stock Operator. Are these books really about the analytics of investing, or are they only about the philosophy of investing? I haven't read the Reminiscences of A Stock Operator, but the Intelligent Investor is based on a philosophy of investing that you should only consider but not depend on when you make investments.\\\"\",\n \"The Winning Investor http://winninginvestor.quickanddirtytips.com/ This is a blog and a podcast. Load a bunch of these onto your iPod and start listening. Stikky Stock Charts http://www.amazon.com/Stikky-Stock-Charts-professionals-smart/dp/1932974008 This is a beginner's guide on how to read charts. Lots of charts, not too many words.\",\n \"A great way to learn is by watching then doing. I run a very successful technical analysis blog, and the first thing I like to tell my readers is to find a trader online who you can connect with, then watch them trade. I particularly like Adam Hewison, Marketclub.com - This is a great website, and they offer a great deal of eduction for free, in video format. They also offer further video based education through their ino.tv partner which is paid. Here is a link that has their free daily technical analysis based stock market update in video format. Marketclub Daily Stock Market Update Corey Rosenblum, blog.afraidtotrade.com - Corey is a Chartered Market Technician, and runs a fantastic technical analysis blog the focuses on market internals and short term trades. John Lansing, Trending123.com - John is highly successful trader who uses a reliable set of indicators and patterns, and has the most amazing knack for knowing which direction the markets are headed. Many of his members are large account day traders, and you can learn tons from them as well. They have a live daily chat room that is VERY busy. The other option is to get a mentor. Just about any successful trader will be willing to teach someone who is really interested, motivated, and has the time to learn. The next thing to do once you have chosen a route of education is to start virtual trading. There are many platforms available for this, just do some research on Google. You need to develop a trading plan and methodology for dealing with the emotions of trading. While there is no replacement for making real trades, getting some up front practice can help reduce your mistakes, teach you a better traders mindset, and help you with the discipline necessary to be a successful trader.\",\n \"Books are a great place to start, Jason Kelly's The Neatest Little Guide to Stock Market Investing will give you a broad foundation of the stock & bond market.\",\n \"I'm going to be a bit off topic and recommend 'The Only Investment Book You'll Ever Need' by Andrew Tobias. It doesn't start with describe the workings of the stock market. Instead, it starts with making sure you have a budget and have your basic finances in order BEFORE going into the stock market. This may not sound like what you are looking for, but it really is a valuable book to read, even if you think you are all set up in that department.\",\n \"I rather like The Ascent of Money, by Niall Ferguson. This comes in several formats. There's a video version, a written version (ISBN-13: 978-1594201929), and an audio version. This book covers the history of financial instruments. It covers the rise of money, the history of bonds and stocks, insurance and hedge funds, real-estate, and the spread of finance across the world. It is a great introduction to finance, though its focus is very definitely on the history. It does not cover more advanced topics, and will not leave you with any sort of financial plan, but it's a great way to get a broad overview and historical understanding of money and markets. I strongly recommend both the video and the written or audio version.\",\n \"Try wallstreetsurvivor.com It gives you $100k of pretend money when you sign up, using which you can take various courses on the website. It will teach you how to buy/sell stocks and build your portfolio. I am not sure if they do have Options Trading specifically, but their course line up is great!\",\n \"Many good sources on YouTube that you can find easily once you know what to look for. Start following the stock market, present value / future value, annuities & perpetuities, bonds, financial ratios, balance sheets and P&L statements, ROI, ROA, ROE, cash flows, net present value and IRR, forecasting, Monte Carlo simulation (heavy on stats but useful in finance), the list goes on. If you can find a cheap textbook, it'll help with the concepts. Investopedia is sometimes useful in learning concepts but not really on application. Khan Academy is a good YouTube channel. The Intelligent Investor is a good foundational book for investing. There are several good case studies on Harvard Business Review to practice with. I've found that case studies are most helpful in learning how to apply concept and think outside the box. Discover how you can apply it to aspects of your everyday life. Finance is a great profession to pursue. Good luck on your studies!\",\n \"Will strongly vouch for this. Ray Dalio gives you the macro view in that video, while Ackman gives more of the micro view. Would highly recommend watching them both in the same sitting, particularly for somebody who is just entering their study of finance\",\n \"The Khan Academy has a huge series on finance (Sal Khan used to work at a hedge fund before he started his magnum opus): http://www.khanacademy.org/#core-finance Some are pretty basic stuff, but he does have some interesting commentary and snippets of more interesting topics. They're all very low-commitment and bite-sized.\",\n \"For the mechanices/terms of stock investing, I recommend Learn to Earn by Peter Lynch. I also like The Little Book of Common Sense Investing by John Bogle. It explains why indexing is the best choice for most people. For stock picking, a good intro is The Little Book of Value Investing by Chris Brown. And then there is The Intelligent Investor by Ben Graham. IMO, this is the bible of investing.\",\n \"The Intelligent Investor When Genius Failed The Ascent of Money Against the Gods: The Remarkable Story of Risk The Big Short Mr. Market Miscalculates +finance blogs (zerohedge.com [every once in a while; very depressing!!], the big picture, abnormal returns, epicurean dealmaker etc)\",\n \"It might help the poster if you recommended some of those? I recommended the ones I know of specifically in that field I know to be good. Perhaps you could do the same? I also really like the books in this list: http://www.fool.com/Specials/2000/sp001107a.htm Note, Gorilla Game is, IMO the weakest of the bunch.\",\n \"Why Stocks go up and Down by William H Pike is a great source if you are looking to interpret statements for stock analysis. This book really starts from the beginning and clearly explains with a running example of a fake company.\",\n \"You're asking for a LOT. I mean, entire lives and volumes upon volumes of information is out there. I'd recommend Benjamin Graham for finance concepts (might be a little bit dry...), *A Random Walk Down Wall Street,* by Burton Malkiel and *A Concise Guide to Macro Economics* by David Moss.\",\n \"I've shown this video to people with more than 10 years experience in the finance industry, and even they have gotten something from it. It is a brilliant video, too good not to share. And if we are all the wiser, hopefully we can avoid this type of disaster from happening again. Thanks for the comments.\",\n \"If you're looking to invest using stocks and shares, I recommend you set up an account at something like Google Finance - it is free and user-friendly with lots of online help. You can set up some 'virtual cash' and put it into a number of stocks which it'll track for you. Review your progress and close some positions and open others as often as you want, but remember to enter some figure for the cost of the transaction, say $19.95 for a trade, to discourage you from high-frequency trading. Take it as seriously as you want - if you stick to your original cash input, you'll see real results. If you throw in more virtual cash than you could in real life, it'll muddle the outcome. After some evaluation period, say 3 months, look back at your progress. You will learn a tremendous amount from doing this and don't need to have read any books or spent any money to get started. Knowing which stocks to pick and when to buy or sell is much more subtle - see other answers for suggestions.\",\n \"If you just want to save for retirement, start with a financial planning book, like this one: http://www.amazon.com/Smart-Simple-Financial-Strategies-People/dp/0743269942 and here's my editorial on the investing part: http://blog.ometer.com/2010/11/10/take-risks-in-life-for-savings-choose-a-balanced-fund/ If you're thinking of spending time stock-picking or trading for fun, then there are lots of options. Web site: Morningstar Premium (http://morningstar.com) has very good information. They analyze almost all large-cap stocks and some small caps too, plus mutual funds and ETFs, and have some good general information articles. It doesn't have the sales-pitch hot-blooded tone of most other sites. Morningstar analyzes companies from a value investing point of view which is probably what you want unless you're day trading. Also they analyze funds, which are probably the most practical investment. Books: If you want to be competent (in the sense that a professional investor trying to beat the market or control risk vs. the market would be) then I thought the CFA curriculum was pretty good: However, this will quickly teach you how much is involved in being competent. The level 1 curriculum when I did it was 6 or 7 thick textbooks, equivalent to probably a college semester courseload. I didn't do level 2 or 3. I don't think level 1 was enough to become competent, it's just enough to learn what you don't know. The actual CFA charter requires all three levels and years of work experience. If you more want to dabble, then Benjamin Graham's The Intelligent Investor certainly isn't a bad place to start, but you'd also want to read some efficient markets stuff (Random Walk Down Wall Street, or something by Bogle, or The Intelligent Asset Allocator http://www.amazon.com/Intelligent-Asset-Allocator-Portfolio-Maximize/dp/0071362363, are some options). It wouldn't be bad to just read a textbook like http://www.amazon.com/Investments-Irwin-Finance-Zvi-Bodie/dp/0256146381 which would be the much-abridged version of the CFA level 1 stuff. If you're into day trading / charting, then I don't know much about that at all, some of the other answers may have some ideas. I've never been able to find info on this that didn't seem like it had a sketchy sales pitch kind of vibe. Honestly in a world of high-frequency trading computers I'm skeptical this is something to get into. Unless you want to program HFT computers: http://howtohft.wordpress.com/\",\n \"Buy a share - not a penny stock; rather a well known company like Coca-Cola, Kelloggs, Exxon, etc. Follow the company. Understand their business model. See the share price fall and rise. You will learn a lot having your own money at risk.\",\n \"\\\"Good ones, no there are not. Go to a bookstore and pick up a copy of \\\"\\\"The Intelligent Investor.\\\"\\\" It was last published in 1972 and is still in print and will teach you everything you need to know. If you have accounting skills, pick up a copy of \\\"\\\"Security Analysis\\\"\\\" by Benjamin Graham. The 1943 version was just released again with a 2008 copyright and there is a 1987 version primarily edited by Cottle (I think). The 1943 book is better if you are comfortable with accounting and the 1987 version is better if you are not comfortable and feel you need more direction. I know recent would seem better, but the fact that there was a heavy demand in 2008 to reprint a 1943 book tells you how good it is. I think it is in its 13th printing since 2008. The same is true for the 72 and 87 book. Please don't use internet tutorials. If you do want to use Internet tutorials, then please just write me a check now for all your money. It will save me effort from having to take it from you penny by penny because you followed bad advice and lost money. Someone has to capture other people's mistakes. Please go out and make money instead. Prudence is the mother of all virtues.\\\"\",\n \"Here's a very good series of classroom lectures by Robert Schiller, one of America's top economists and a prof at Yale: http://www.youtube.com/user/YaleCourses#g/c/8F7E2591EE283A2E This should give you some general insight into basic principles of finance and give you a framework to learn more later.\",\n \"Start by going onto google.com/finance and click through every publicly traded Fortune 500 company. Click on all their charts and look through their graphs for any patters. There will almost always be a pattern even if it is vague and fairly unpredictable. Then look for any jumps or drops in price. Look for the reason of the jump or drop. It could range commonly from news, lay off announcements, acquisitions, etc or just moving along with the market direction for the day. Looking at each stock is key because every stock has its own pattern. Trying to understand the market at a whole is quite impossible, but when you narrow it down to just one stock, it is much more doable. For practice, try updown.com(spent most of my time on it during high school) and create 10-100 accounts and use various techniques for each portfolio. Just from that, you will have much more practice than the majority of traders. It is all very time consuming, but if you truly try on it, you will do better. I have to go(large market drop today, good time to buy). I'll answer more questions later!\",\n \"Do your own research There are hundreds of places where people will give you all sorts of recommendations. There is as much noise in the recommendations as there is in the stock market itself. Become your own filter. You need to work on your own instinct. Pick a couple of sectors and a few stocks in each and study them. It is useful to know where the main indexes are going, but - unless you are trading the indexes - it is the individual sectors that you should focus on more.\",\n \"A couple of good books I enjoyed and found very understandable (regarding the stock market): As for investment information you can get lost for days in Investopedia. Start in the stock section and click around. The tutorials here (free) give a good introduction to different financial topics. Regarding theoretical knowledge: start with what you know well, like your career or your other interests. You'll get a running start that way. Beyond that, it depends on what area of finance you want to start with. If it's your personal finances, I and a lot of other bloggers write about it all the time. Any of the bloggers on my blogroll (see my profile for the link) will give you a good perspective. If you want to go head first into planning your financial life, take a look at Brett Wilder's The Quiet Millionaire. It's very involved and thorough. And, of course, ask questions here.\",\n \"Something that introduces the vocabulary and treats the reader like an intelligent individual? It's a bit overkill for 'retirement', but Yale has a free online course in Financial Markets. It's very light on math, but does a good job establishing jargon and its history. It covers most of the things you'd buy or sell in financial markets, and is presented by Nobel Prize winner Robert Schiller. This particular series was filmed in 2007, so it also offers a good historical perspective of the start of the subprime collapse. There's a number of high profile guest speakers as well. I would encourage you to think critically about their speeches though. If you research what's happened to them after that lecture, it's quite entertaining: one IPO'd a 'private equity' firm that underperformed the market as a whole, another hedge fund manager bought an airline with a partner firm that was arrested for running a ponzi scheme six months later. The reading list in the syllabus make a pretty good introduction to the field, but keep in mind they're for institutional investors not your 401(k).\",\n \"I would recommend getting a used set of Chartered Financial Analyst books. The series is a great broad introduction to the most important aspects of investing and the markets. Combining both day-to-day knowledge and fundamental theory. CFA materials include in depth discussions of: After you have a strong base then stop by quant.stackexchange and ask about more specialized books or anything else that interests you. Have fun with your journey.\",\n \"\\\"I commend you for your desire to be a smart and engaged investor. Regarding the other comments, yes the market is unpredictable and dangerous, but such is everything that leads to profit. I am currently reading, \\\"\\\"Advanced Options Pricing Models\\\"\\\" (Katz and McCormick) - mighy be at your local library. The book is helpful because in explaining the options market, it covers basic stock methodologies and then builds on them as it pursues a quant's math/computation based view of the market. The book is highly math oriented and discusses authors' custom design scripts/alogrithms to analyze market behavior. See similar post about technical analysis (since it often directs short term trading decisisions).\\\"\",\n \"\\\"Since you have something of a background in econ, I'd check out the iTunes University \\\"\\\"Financial Theory\\\"\\\" course provided by Yale University. http://itunes.apple.com/us/itunes-u/financial-theory-video/id428500350 It starts off with the basics (time value of money, general equilibrium) and gets into some pretty topical issues -- dynamic hedging, mortgage backed securities, and so on. It's definitely an economics-focused course though, so there isn't going to be much coverage of more mathsy topics such as martingale pricing theory.\\\"\",\n \"Fake stock market trading may teach you about trading, which isn't necessarily the same thing as investing. I think you need to understand how things work and how to read financial news and statistics before you start trading. Otherwise, you're just going to get frustrated when you mysteriously win and lose funny money. I'd suggest a few things: Also, don't get into individual stocks until you have at least $5k to invest -- focus on saving and use ETFs or mutual funds. You should always invest in around a half dozen diversified stocks at a time, and doing that with less than $1,000 a stock will make it impossible to trade and make money -- If a $100 stock position goes up 20%, you haven't cleared enough to pay your brokerage fees.\",\n \"\\\"Yes, there are a lot of places you can research stocks online, Google Finance, Yahoo Finance, Reuters etc. It's important to understand that the price of the stock doesn't actually mean anything. Share price is just a function of the market capitalization divided by the number of shares outstanding. As an example take two companies that are both worth $1 million, but Company A has issued 10,000 shares and Company B has issued 100,000 shares. Company A has a share price of $100 while Company B has a share price of just $10. Comparing share price does nothing to indicate the relative value or health of Company A versus Company B. I know there are supposed to be no product recommendations but the dictionary area of investopedia.com is a good source of beginner investing information. And as Joe points out below the questions here with the \\\"\\\"stock\\\"\\\" tag would also be a good place to start. And while I'm on a roll, the book \\\"\\\"A Random Walk Down Wall Street\\\"\\\" is a good starting point in investing in the stock market.\\\"\",\n \"I would always recommend the intelligent investor by Benjamin Graham the mentor of warren buffet once you have a basic knowledge ie what is a share bond guilt etc In terms of pure investment the UK is fairly similar the major difference is the simpler tax structure, ISA allowance and the more generous CGT regime.\",\n \"\\\"This is a tough question, because it is something very specific to your situation and finances. I personally started at a young age (17), with US$1,000 in Scottrade. I tried the \\\"\\\"stock market games\\\"\\\" at first, but in retrospect they did nothing for me and turned out to be a waste of time. I really started when I actually opened my brokerage account, so step one would be to choose your discount broker. For example, Scottrade, Ameritrade (my current broker), E-Trade, Charles Schwab, etc. Don't worry about researching them too much as they all offer what you need to start out. You can always switch later (but this can be a little of a hassle). For me, once I opened my brokerage account I became that much more motivated to find a stock to invest in. So the next step and the most important is research! There are many good resources on the Internet (there can also be some pretty bad ones). Here's a few I found useful: Investopedia - They offer many useful, easy-to-understand explanations and definitions. I found myself visiting this site a lot. CNBC - That was my choice for business news. I found them to be the most watchable while being very informative. Fox Business, seems to be more political and just annoying to watch. Bloomberg News was just ZzzzZzzzzz (boring). On CNBC, Jim Cramer was a pretty useful resource. His show Mad Money is entertaining and really does teach you to think like an investor. I want to note though, I don't recommend buying the stocks he recommends, specially the next day after he talks about them. Instead, really pay attention to the reasons he gives for his recommendation. It will teach you to think more like an investor and give you examples of what you should be looking for when you do research. You can also use many online news organizations like MarketWatch, The Motley Fool, Yahoo Finance (has some pretty good resources), and TheStreet. Read editorial (opinions) articles with a grain of salt, but again in each editorial they explain why they think the way they think.\\\"\",\n \"I use damodaran courses to complete my knowledge of finance while studying for the CFA, for people with finance or accounting background his courses are great and very easy to understand. I could learn in few hours what would have taken days with an average teacher.\",\n \"I’ll start with what worked for me, to get me hooked. This list is by no means exhaustive. *One Up On Wall Street* by Peter Lynch discusses competitive advantages and staying close to the story of a business. Explores the concept of ‘buy what you know’. He has also written *Beating the Street*. *The Drunkard’s Walk: How Randomness Rules Our Lives* by Leonard Mlodinow is not dissimilar to *A Random Walk Down Wall Street*, but I preferred this book as it explores the concepts of randomness and survivors bias. *Against the Gods* by Peter Bernstein is a dense book, but in my opinion is the definitive text on the development of numbers, probability theory, and risk management. I absolutely love this book. *The Most Important Thing* by Howard Marks is immensely readable, enjoyable, and looks at value investing for the long run. Howard Marks has been a macro behavioural investor before behavioural investing was a thing. Speaking of behavioural biases, *Thinking, Fast and Slow* by Daniel Kahneman is a spectacular look at how your brain’s quick-trigger responses can often be wrong. On the subject of behaviour and biases, *Influence: The Psychology of Persuasion* by Robert Cialdini is another topic-defining book More books by long term veteran professional investment managers that should be enjoyed: - *The Little Book That (Still) Beats the Market* by Joel Greenblatt - *Beat the Crowd* by Ken Fisher - *Big Money Thinks Small* by Joel Tillinghast - *Common Stocks and Uncommon Profits* by Philip A. Fisher - *The Little Book of Behavioural Investing* by James Montier - *Margin of Safety* by Seth Klarman And I’ll be banned from this forum without mentioning *The Intelligent Investor* by Benjamin Graham. As per some other comments, my personal opinion is that books that describe events or periods of time like *Liars’ Poker* [80s Junk Bonds], *The Big Short* [Financial Crisis], *When Genius Failed* [the LTCM collapse, excellent read by Rogers Lowenstein], *All The Devils Are Here* [by McLean and Nocera, another Financial Crisis book, much better than Lewis’s, IMO] are all educational and quite entertaining, but don’t honestly have much to do with the actual nuts and bolts of the real financial industry. Enjoy!\",\n \"Itunes U has some really good online classes on economics. And as with a lot of things check out Khanacademy.org. He has a whole financial section of really well made videos. Good books to read regarding the financial crisis are The Big Short by Lewis and Too Big To Fail by Sorkin.\",\n \"\\\"Open up a demo account it lets you get your hands dirty with out spending real cash r/stocks r/investing. Read books like rich dad poor dad. And watch YouTube videos on reading stock charts. I've had a demo account for a year just yesterday I hit 11k \\\"\\\"profit\\\"\\\" in one day.\\\"\",\n \"\\\"It's possible to make money in the market - even millions if you \\\"\\\"play your cards right\\\"\\\". Taking the course being offered can be educational but highly unlikely to increase your chances of making millions. Experience and knowledge of the game will make you money. The stock market is a game.\\\"\",\n \"I’d suggest going over to Khan Academy. It’s basically a free school with really helpful videos. There are quizzes you can do and forums for each subject. My advice would be to starts the personal finance section because most things build from there and it’ll help you more with real life finance. Good luck!\",\n \"Hi guys, This is an app I've been working on over the summer. It's my belief that a lot of people want to learn about the stock market but in the end can't because they're turned off by long walls of text you get when you Google about them/read a textbook. I know there are other simplified solutions out there but they're not widely adopted yet and I don't think there are any (?) that were made app first. Anyway, check it out if you can. Appreciate all feedback/comments.\",\n \"My personal favorites are Options, Futures, and Other Derivatives by John C Hull Thinking Fast and Slow - Daniel Kahneman Expected Returns - Antti Ilmanen [check out the video : How to Think About Expected Returns] It is a 600 page book … A summary of it: Without a rational expectation of expected returns, investing can lead to severe disappointment and disillusionment. Making a good model to forecast expected returns is so difficult. Near-term expectation is almost impossible. The key is very very much about focusing on the long-term, and on getting returns that are feasible, not outlandish. There are three pillars that are central: Practically, the work of an investment manager today involves finding many different sources of returns, and diversifying effectively between them, and finally being humble about what returns we can expect today.\",\n \"Not exactly nonfiction, but [Reminiscences of a Stock Operator](https://en.wikipedia.org/wiki/Reminiscences_of_a_Stock_Operator) is a can't-skip portrait of the very early days of Wall Street (early 20th century). It's a narrative memoir, not a work of analysis, which makes it an easy read. If you're looking for something more analytical and recent (but not too recent), the can't-skip recommendation I would make is Burton Malkiel's [A Random Walk Down Wall Street](https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street). If you're looking for something more in the biographical range, I'd look for a biography of the man who's had the most influence on the theory of portfolio construction, [Harry Markowitz](https://en.wikipedia.org/wiki/Harry_Markowitz). I don't have any titles to recommend here, although [this brief biography](http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1990/markowitz-bio.html) might help you decide how to proceed.\",\n \"Investopedia does have tutorials about investments in different asset classes. Have you read them ? If you had heard of CFA, you can read their material if you can get hold of it or register for CFA. Their material is quite extensive and primarily designed for newbies. This is one helluva book and advice coming from persons who have showed and proved their tricks. And the good part is loads of advice in one single volume. And what they would suggest is probably opposite of what you would be doing in a hedge fund. And you can always trust google to fish out resources at the click of a button.\",\n \"\\\"I am sorry to hear that. Well, finance is a VERY large field encompassing decades upon decades of research, and thousands of pages of research. This question is usually a difficult one to answer simply because of the scope. My usual answer to people is to browse around this sub and the internet and learn from that, and then for specific questions to ask. For your purposes, take a look at investopedia.com. While here it's an \\\"\\\"okay\\\"\\\" source, for a beginner I think it's a good place to start. Is there any specific thing you have a question about now? I know you mentioned the Big Short and some other things. Just keep in mind anything coming from Hollywood will be *extremely* biased.\\\"\",\n \"To be honest, wall street survivor is good but when it comes to learning the stock markets from Europe, Beat wall street is the game to be playing. You can try it out for your self here on http://beatwallstreet.equitygameonline.com/ It is easy to use and there are monthly prizes available to winners, such as Ipads, Iphones and students who play it the game can win internships at top investment banks and brokers\",\n \"I followed Economics by Michael Parkin for my college level course. It does not involve very complicated mathematics (beyond simple arithmetic and interpreting plots/charts). I found it very enjoyable. Stocks, bonds, and other money market instruments are not covered under this subject usually. They are covered under finance. I normally recommend Hull to people but because you are not interested in mathematics I would recommend Stuart R Veale.\",\n \"I say, before investing your real capital into the Stock Market, play around on the virtual stock exchange game. It let's you invest with virtual capital and you can gain experience with the stock market. I wouldn't start investing in stock until I'm sure I can cover losses though. If you do intend to invest stocks so early in your career, then you should learn how to read SEC filings (not necessary, but helpful in understanding how investors think) such as 8-K/10-K/10-Q documents so you can predict profitability and growth of companies you invest in. Once you become a veteran of the stock market game, you probably won't need to read the SEC filings into too much detail - especially if you have a diverse portfolio. Good Luck. The one takeaway from this message would probably be: Stop! and play around on virtual stocks before immersing yourself in the real thing.\",\n \"\\\"I think you've got basics, but you may have the order / emphasis a bit wrong. I've changed the order of the things you've learned in to what I think is the most important to understand: Owning a stock is like owning a tiny chunk of the business Owning stock is owning a tiny chunk of the business, it's not just \\\"\\\"like\\\"\\\" it. The \\\"\\\"tiny chunks\\\"\\\" are called shares, because that is literally what they are, a share of the business. Sometimes shares are also called stocks. The words stock and share are mostly interchangeable, but a single stock normally means your holding of many shares in a business, so if you have 100 shares in 1 company, that's a stock in that company, if you then buy 100 shares in another company, you now own 2 stocks. An investor seeks to buy stocks at a low price, and sell when the price is high. Not necessarily. An investor will buy shares in a company that they believe will make them a profit. In general, a company will make a profit and distribute some or all of it to shareholders in the form of dividends. They will also keep back a portion of the profit to invest in growing the company. If the company does grow, it will grow in value and your shares will get more valuable. Price (of a stock) is affected by supply/demand, volume, and possibly company profits The price of a share that you see on a stock ticker is the price that people on the market have exchanged the share for recently, not the price you or I can buy a share for, although usually if people on the market are buying and selling at that price, someone will buy or sell from you at a similar sort of price. In theory, the price will be the companies total value, if you were to own the whole thing (it's market capitalisation) divided by the total number of shares that exist in that company. The problem is that it's very difficult to work out the total value of a company. You can start by counting the different things that it owns (including things like intellectual property and the knowledge and experience of people who work there), subtract all the money it owes in loans etc., and then make an allowance for how much profit you expect the company to make in the future. The problem is that these numbers are all going to be estimates, and different peoples estimates will disagree. Some people don't bother to estimate at all. The market makers will just follow supply and demand. They will hold a few shares in each of many companies that they are interested in. They will advertise a lower price that they are willing to buy at and a higher price that they will sell at all the time. When they hold a lot of a share, they will price it lower so that people buy it from them. When they start to run out, they will price it higher. You will never need to spend more than the market makers price to buy a share, or get less than the market makers price when you come to sell it (unless you want to buy or sell more shares than they are willing to). This is why stock price depends on supply and demand. The other category of people who don't care about the companies they are trading are the high speed traders. They just look at information like the past price, the volume (total amount of shares being exchanged on the market) and many other statistics both from the market and elsewhere and look for patterns. You cannot compete with these people - they do things like physically locate their servers nearer to the stock exchanges buildings to get a few milliseconds time advantage over their competitors to buy shares quicker than them.\\\"\",\n \"Commonly recommended books: Intelligent Investor - Graham One Up On Wall Street - Lynch The Essays of Warren Buffett : Lessons for Corporate America - Cunningham Graham's book should be mandatory reading for this sub. Lynch's book talks about leveraging your personal expertise to make intelligent investment choices. Cunningham's is a compilation of Warren Buffett's letters to shareholders of BH with some commentary. It covers a wider range of material, but the lessons on corporate governance are very useful when doing valuation.\",\n \"Before you go filling your head with useless information as there is way too much stuff out there on the stock market. First ask yourself a few questions: There is going to be a balance between the three... don't kid yourself. After you answer these questions find a trading strategy to get the returns you are looking for. Remember the higher returns you expect... the more time you have to put in. Find a trading strategy you like and that works for you. Ounce you have your strategy then find the stocks or ETF that work for that strategy.... Ignore everything else, it is designed to separate you from your money. Making money in the stock market is easy, don't let the media hype and negative people tell you any different. Find something that works for you and perfect it... stick to it.\",\n \"\\\"I'm a senior majoring in accounting and management information systems. Here is a question I answered a while back about financial statements and employee retention. In the answer that I provided at the bottom it was to assess a company's ability to pay by use of ratios. Likewise, similar accounting methods need to be understood and implemented when assessing stocks(which is where I believe Mr. Buffet was going with this). As we can see the severity of the questions decreases, but if you can not answer question 3 then you should study accounting principles. So how much is enough just to get started? You will never have enough knowledge to start, period. You will have to continuously be learning, so start sooner than later. However you need neither economics or accounting knowledge if you were to learn technical analysis, many doubt the workings of this technique, but in my experience it is easier to learn and practise. A comment on @Veronica's post. Understanding economics and accounting are fundamental. Analysis, seeing trends, and copying are instinctual human traits that helped us evolve (we are very good at pattern recognition). Taking an intro economic and accounting course at a local community college is an excellent place to start when breaking the mold of pattern-thinking. You have to be critical in understanding what elements move a company's A/R in the statement of cash flows. Read. Literally, don't stop reading. Latest edition of of Kesio's accounting principles? Read it. Cover to cover. Tax policies on Section 874, 222, 534? Read it. Take a class, read a book, ask questions! Good Luck, \\\"\\\"Welcome to [the] Science [of Business], you're gonna like it here\\\"\\\" - Phil Plait\\\"\",\n \"\\\"A lot of investors prefer to start jumping into tools and figuring out from there, but I've always said that you should learn the theory before you go around applying it, so you can understand its shortcomings. A great starting point is Investopedia's Introduction to Technical Analysis. There you can read about the \\\"\\\"idea\\\"\\\" of technical analysis, how it compares to other strategies, what some of the big ideas are, and quite a bit about various chart patterns (cup and handle, flags, pennants, triangles, head & shoulders, etc). You'll also cover ideas like moving averages and trendlines. After that, Charting and Technical Analysis by Fred McAllen should be your next stop. The material in the book overlaps with what you've read on Investopedia, but McAllen's book is great for learning from examples and seeing the concepts applied in action. The book is for new comers and does a good job explaining how to utilize all these charts and patterns, and after finishing it, you should be ready to invest on your own. If you make it this far, feel free to jump into Fidelity's tools now and start applying what you've learned. You always want to make the connection between theory and practice, so start figuring out how you can use your new knowledge to generate good returns. Eventually, you should read the excellent reference text Technical Analysis of the Financial Markets by John Murphy. This book is like a toolbox - Murphy covers almost all the major techniques of technical analysts and helps you intuitively understand the reasoning behind them. I'd like to quote a part of a review here to show my point: What I like about Mr. Murphy is his way of showing and proving a point. Let me digress here to show you what I mean: Say you had a daughter and wanted to show her how to figure out the area of an Isosceles triangle. Well, you could tell her to memorize that it is base*height/2. Or if you really wanted her to learn it thoroughly you can show her how to draw a parallel line to the height, then join the ends to make a nice rectangle. Then to compute the area of a rectangle just multiply the two sides, one being the height, the other being half the base. She will then \\\"\\\"derive\\\"\\\" this and \\\"\\\"understand\\\"\\\" how they got the formula. You see, then she can compute the area under a hexagon or a tetrahedron or any complex object. Well, Mr. Murphy will show us the same way and \\\"\\\"derive\\\"\\\" for us concepts such as how a resistance line later becomes a support line! The reson for this is so amusing that after one reads about it we just go \\\"\\\"wow...\\\"\\\"\\\"\\\" Now I understand why this occurs\\\"\\\". Murphy's book is not about strategy or which tools to use. He takes an objective approach to describing the basics about various tools and techniques, and leaves it up to the reader to decide which tools to apply and when. That's why it's 576 pages and a great reference whenever you're working. If you make it through and understand Murphy, then you'll be golden. Again, understand the theory first, but make sure to see how it's applied as well - otherwise you're just reading without any practical knowledge. To quote Richard Feynman: It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong. Personally, I think technical analysis is all BS and a waste of time, and most of the top investors would agree, but at the end of the day, ignore everyone and stick to what works for you. Best of luck!\\\"\",\n \"\\\"You bring up some very high level stuff, each of which can be the subject of a life's work. For taxes, I first read J.K. Lasser's Your Income Tax. I actually read it cover to cover instead of using it as a reference guide. I hit topics that I'd otherwise have never looked up on purpose. Once you familiarize yourself with the current tax code, keeping up on changes to the code goes pretty well. As far as investing goes, William Bernstein has two titles, “The Four Pillars of Investing” and “The Intelligent Asset Allocator”. Others have liked “Personal Finance for Dummies” by Eric Tyson. These are great introductory books, the classic is “Security Analysis” by Graham & Dodd. Warren Buffet was a student of Benjamin Graham and he did fine applying these principals. For retirement, The Number by Lee Eisenberg was a good read. I consider retirement an extension of the investing education, only the money flow is reversed, withdrawals, no new deposits. Of course this is an oversimplification. In my own reading list, I include books such as “Extraordinary Popular Delusions & the Madness of Crowds” by Charles MacKay and “The Great Crash 1929″ by John Kenneth Galbraith. Understanding how these bubbles happen is critical to a complete education. I'm convinced that when it comes to investing if I can teach my daughter to understand the concept of Risk and Reward and to understand there are certain common alerts to such bubbles, the simplest of which is the term \\\"\\\"this time is different\\\"\\\" as though a hundred years of market dynamics can change in a matter of a few years. Last, there are books like \\\"\\\"Stop Acting Rich\\\"\\\" by Dr Thomas Stanley. Not quite investing, per se, but a good read to get an idea of how we have a distorted view of certain signs of wealth. Keep reading, no harm in taking books out of the library and returning if the first chapter or two disappoints.\\\"\",\n \"If you're looking to learn more about investing for personal use (as opposed to academic interest), I'd recommend something like The Ages of the Investor instead.\",\n \"Just watch these videos and you will definitely have a basic overall understanding of finance/econ: > [Overview of Finance by Ackman](https://www.youtube.com/watch?v=WEDIj9JBTC8) > [How the Economic Machine Works by Ray Dalio](https://www.youtube.com/watch?v=PHe0bXAIuk0) A lot of universities have entire courses they put online. For example, Yale's open course on Financial Markets is excellent: > [Yale Econ 252](http://oyc.yale.edu/economics/econ-252-11) > [Youtube mirror](https://www.youtube.com/playlist?list=PL8FB14A2200B87185&feature=plcp)\",\n \"I'd recommend looking at fundamental analysis as well -- technical analysis seems to be good for buy and sell points, but not for picking what to buy. You can get better outperformance by buying the right stuff, and it can be surprisingly easy to create a formula that works. I'd check out Morningstar, AAII, or Equities Lab (fairly complicated but it lets you do technical and fundamental analysis together). Also read Benjamin Graham, and/or Ken Fisher (they are wildly different, which is why I recommend them both).\",\n \"These videos are good from a historical perspective, but some salt needs to be taken with them. They push forward the idea that the economy must always be expanding due to interest charges, but that is essentially not true (if the bankers spend their interest earnings, then no expansion is necessary).\",\n \"It is easy to be a stock analyst. #1. Get a YouTube channel #2. Create a Twitter account #3. Every day make a video and tweet that the stock market crash is imminent #4. Hedge your prediction with a bullish long portfolio and lie to the public #5. Watch viewership and following grow rapidly as you misinform the public\",\n \"For economics I recommend mises or these videos to get you started. For daily critical analysis of financial markets, keynesian government policies, and other interesting reading I recommend zerohedge. I've learned more about financial markets and government regulations by reading the comments section on zerohedge articles than anywhere else on the internet. The comment section is very raw (i.e. lots of fucking cursing) but there are some jewels of information in there. For daily critical thinking I suggest lewrockwell.\",\n \"I would echo @Victor's comments. One book and 1000 web pages doesnt make you a good investor/trader. There are some basic things you should be aware of and read up on There are a few books that I would recommend I have been trading for over 10 years, my dad for over 30 years and we are both continually learning new things. Don't read one book and assume you know it all. Bear in mind that there are always new indicators being thought up and new ways of using and interpreting the same information, so keep reading and educating yourself.\",\n \"I would recommend looking at The Motley Fool.\",\n \"9 Capital in The Twenty First Century by Thomas Piketty 8 The Art of Strategy by Dixitt and Nalebuff 7 Against the God's by Peter Bernstein 6 The Black Swan by Nassim Nicholas Taleb 5 The Intelligent Investor by Benjamin Graham 4 Money: Master the Game by Tony Robbins 3 Thinking Fast and Slow by Daniel Kahneman 2 The Personal MBA by Josh Kaufman 1 The Power of Habit by Charles Duhigg ... Kind of meh choices really.\",\n \"Look for recommendations for textbooks, then, and buy them used online (amazon, to start - but there are other websites). I bought Fabozzi's text after watching the Robert Shiller youtube course on finance (he uses that text, I believe).\",\n \"Try https://sparkprofit.com/ You practice with real market prices, and it's free. Plus you can get real money pay outs if you do well. I earned 1 cent! hahaha I gave up trying to make money from it, but you get an idea of doing trades and how impossible it is to predict what the price will be. It has some tutorials and helpful things too.\",\n \"Investopedia, Khan academy, Udemy, and corsea are good places to start. You tube has some good videos too. I imagine if you are looking to impress in a job interview you mostly want to know the concepts. Finance is all about future cash flow. Understand the important ratios and how they effect cash flow. Ronald Sweet has a good video on YouTube that sums up finance.\",\n \"I'm in the same position as you. I've found YouTube to be a great resource, as well as reading things from outlets like the WSJ. Having a close friend in a target school studying finance also helps a ton, as I have someone to talk to casually about things, as well as ask questions. Check out [this](https://www.youtube.com/playlist?list=PLUl4u3cNGP63B2lDhyKOsImI7FjCf6eDW) playlist on YouTube. I've seen the professor (Lo) mentioned more than once in articles in the WSJ. He's written some books too that I'd like to read. I haven't watched that whole playlist, but the first few videos are helpful. Martin Shkreli's YouTube channel is a great resource. It's mentioned constantly on this sub. His finance lessons as well as his weekly podcast are great. I also like to listen to (via YouTube Red) talks given by execs like Ackman, Gray, Simons, Dalio, etc. [this](https://www.youtube.com/channel/UCVJalJNQWimC2zWrIHR_bSQ) channel uploads tons of interviews and talks that I find interesting. They can get repetitive, but I find it fun to listen to these guys. You can also get a student membership to the American Finance Association for free. Academic papers are still way above my level, but if you really get into it, those could be fun. You can subscribe to email newsletters for some free content. Almost Daily Grant's is a good one, the normal journal costs like 2k a year. Feel free to message me.\",\n \"Trading and investing are very, very different activities. Investing is (very generally) done for the longer haul, by people looking for a reasonable return, determined largely by the long term prospects of the business in which they invest, accepting some moderate risk, usually around the prospects of that business. Trading is (very generally) done shorter term (seconds to days/weeks), and can involve significantly higher risk, usually focused around market conditions and players at the time of the trade. To reiterate, these are gross generalizations, but if you are just starting out: (a) you probably want to be investing, rather than trading; and (b) you may be best served by understanding as well as you can the difference between the two. Once you understand that difference, that will lead you to learning resources on each.\",\n \"Investing money in the stock market with [Compound Stock Earnings](http://www.compoundstockearnings.com) is a great way to build wealth and plan for the future. However, few people know what the stock market is let alone how to begin investing in it. It is important to understand how companies and stocks work before investing in them.\",\n \"\\\"Anything by Frank Fabozzi - the de facto authority on financial education. Most of the stuff will be textbook ($$$) so get ready for sticker shock. Hopefully you can find a used copy of something. Quick search on Amazon yielded \\\"\\\"The Basics of Finance\\\"\\\" for about $150.\\\"\",\n \"There are several paths of study you could undertake. If you want to learn the fundamentals of the stock market and become a financial analyst, then finance, economics, and accounting (yes, accounting) are all good to study either on your own or in an institution. Furthermore, if you want to study a specific industry, it can't hurt to know a fair amount of the science behind that particular industry. For example, if you want to understand the pharmaceutical or biotechnology industries, knowledge of clinical trials, the FDA's approval process (in the US, at least), off-label uses for drugs, genetic engineering, etc. are all good to know. You don't have to become an expert, but having a firm grasp on the science is extremely useful when evaluating a company's prospects. If you're interested in becoming an algorithmic trader or a quant, then physics, certain fields of engineering, signals processing, applied math, computer science, or econometrics will get you much farther than a standard finance or accounting degree. Most people can learn the basics of finance; not everyone can learn advanced mathematics. A lot of the above applies to learning about the forex market as well. Economics is certainly helpful, especially central bank policy, but since the forex market is so massive and liquid, many mathematical tools are necessary because algorithms play a key role as well. Per littleadv's suggestion, an MBA with a concentration in finance may be an option for someone who already has a degree. Also, an MSF (Master of Science in Finance) or a degree in financial engineering (called an MFE, or ORFE, for Operations Research and Financial Engineering) are other, potentially better options for someone pursuing a more technical career. A high-octane trading firm may not care that you've taken marketing and management classes; they want to hire someone who can understand complex algorithms and design and implement new ones quickly. Some MSF programs are pre-experience programs, which means that in exchange for taking more time to complete, they don't expect you to have significant work experience in the financial industry. An MBA might require such experience, however.\",\n \"Before putting any significant money into stocks, I would recommend spending at least a year paper trading. It is amazing how much money you can lose trading stocks when you don't know what you are doing!\",\n \"It's quite alright, it's been over a decade since he passed so I'm not particularly sensitive about it any more. I'll have a look at investopedia, but what I'm mainly interested in is private equity. I wanted to ask directly about that, but I feel that I need a frame of reference to understand what's going on. As in, I doubt I'd be able to really get private equity without first having an understanding of public trading. Is this subreddit really that reputable? I've learned to not really trust reddit, for the most part. Is there some kind of curation here?\",\n \"From my experience you don't need knowledge of accounting to pick good stocks. The type of investing you are referring to is fundamental. This is finding out about the company, this websites should help you start off: http://en.tradehero.mobi/how-to-choose-a-stock-fundamental-analysis/ Investopedia will also be a useful website in techniques. A bit of knowledge in economics will be helpful in understanding how current affairs will affect a market, which will affect stock prices. However you need neither economics or accounting knowledge if you were to learn technical analysis, many doubt the workings of this technique, but in my experience it is easier to learn and practise. For example looking at charts from previous years it shows the last time there was a huge recession the dollar did well and commodities didn't. In this recession we are entering you can see the same thing happening. Read about the different techniques before limiting yourself to just looking at financial statements you may find a better technique suited to you, like these technical analysts: http://etfhq.com/blog/2013/03/02/top-technical-analysts/ Hope this helps.\",\n \"A Random Walk Down Wall Street Barbarians at the Gate Liar's Poker King of Capital The Big Short No need to even consider CFP or CFA if you don't have a degree/full time job that requires it. They are costly.\",\n \"I'd start with learning how to read a company's financial statement and their annual report. I would recommend reading the following: All three books are cheap and readily available. If you really want to enhance your learning, grab a few annual reports from companies' websites to reference as you learn about different aspects of the financial statements.\",\n \"\\\"You could also look up stock trading games. Basically, you get x amount of \\\"\\\"money\\\"\\\" and \\\"\\\"invest\\\"\\\" it in stocks, trying to get the highest return of the group in y amount of time. They are a decent way to get used to how different types of trades work without having to risk any real money, while having enough \\\"\\\"money\\\"\\\" to invest that you can try different things. Of course, as others have mentioned they may or may not include all the nuances, like minimum investments and brokerage fees, but at least you can learn and see how the different buying and selling options work.\\\"\",\n \"I would like to specifically address your second question. There are a number of great resources available online, but I found that when I was first starting out the website Investopedia was a very helpful resource. There you will find a wide range of information regarding investing, investment vehicles, and glossaries of key terms with robust definitions to help you with the financial jargon.\",\n \"\\\"I tell you how I started as an investor: read the writings of probably the best investor of the history and become familiarized with it: Warren Buffett. I highly recommend \\\"\\\"The Essays of Warren Buffett\\\"\\\", where he provides a wise insight on how a company generates value, and his investment philosophy. You won't regret it! And also, specially in finance, don't follow the advice from people that you don't know, like me.\\\"\",\n \"Read the Security Analysis. I believe if you read it completely, you will have a real good chance of succeeding at making good money. If you find the book hard to read just go through it and underline under the text as you read it.\",\n \"A lot of people here talk about shorting stocks, buying options, and messing around with leveraged ETFs. While these are excellent tools, that offer novel opportunities for the sophisticated investor, Don't mess around with these until you have been in the game for a few years. Even if you can make money consistently right out of the gate, don't do it. Why? Making money isn't your challenge, NOT LOSING money is your challenge. It's hard to measure the scope of the risk you are assuming with these strategies, much less manage it when things head south. So even if you've gotten lucky enough to have figured out how to make money, you surely haven't learned out how to hold on to it. I am certain that every beginner still hasn't figured out how to comprehend risk and manage losing positions. It's one of those things you only figure out after dealing with it. Stocks (with little to no margin) are a great place to learn how to lose because your risk of losing everything is drastically lower than with the aforementioned tools of the sophisticated investor. Despite what others may say you can make out really well just trading stocks. That being said, one of my favorite beginner strategies is buying stocks that dip for reasons that don't fundamentally affect the company's ability to make money in the mid term (2 quarters). Wallstreet loves these plays because it shakes out amateur investors (release bad news, push the stock down shorting it or selling your position, amateurs sell, which you buy at a discount to the 'fair price'.) A good example is Netflix back in 2007. There was a lawsuit because netflix was throttling movie deliveries to high traffic consumers. The stock dropped a good chunk overnight. A more recent example is petrobras after their huge bond sale and subsequent corruption scandal. A lot of people questioned Petrobras' long-term ability to maintain sufficient liquidity to pay back the loans, but the cashflow and long term projections are more than solid. A year later the stock was pushed further down because a lot of amateur Brazilians invest in Petrobras and they sold while the stock was artificially depressed due to a string of corruption scandals and poor, though temporary, economic conditions. One of my favorite plays back in 2008-2011 was First Solar on the run-up to earnings calls. Analysts would always come out of these meetings downgrading the stock and the forums were full of pikers and pumpers claiming heavy put positions. The stock would go down considerably, but would always pop around earnings. I've made huge returns on this move. Those were the good ole days. Start off just googling financial news and blogs and look for lawsuits and/or scandals. Manufacturing defects or recalls. Starting looking for companies that react predictably to certain events. Plot those events on your chart. If you don't know how to back-test events, learn it. Google Finance had a tool for that back in the day that was rudimentary but helpful for those starting out. Eventually though, moreso than learning any particular strategy, you should learn these three skills: 1) Tooling: to gather, manipulate, and visualize data on your own. These days automated trading also seems to be ever more important, even for the small fish. 2) Analytical Thinking learn to spot patterns of the three types: event based (lawsuits, arbitrage, earnings etc), technical (emas, price action, sup/res), or business-oriented (accounting, strategy, marketing). Don't just listen to what someone else says you should do at any particular moment, critical thinking is essential. 3) Emotions and Attitude: learn how to comprehend risk and manage your trigger finger. Your emotions are like a blade that you must sharpen every day if you want to stay in the game. Disclaimer: I stopped using this strategy in 2011, and moved to a pure technical trading regime. I've been out totally out of the game since 2015.\",\n \"I recall the name Martin Pring. As my fundamental analysis book from grad school was the work of Graham and Dodd titled Security Analysis, Pring was the author of the books I read on technical analysis. If you've not read his work, your education has a ways to go before you hit the tools.\",\n \"\\\"Read \\\"\\\"The intelligent Investor\\\"\\\" book before you do anything. I started when I really didn't understand anything about stocks. I bought an internet stock for $150 per share which sold at 75cents a year later. I sold it for a profit but would've been a disaster.\\\"\",\n \"\\\"Definition: Fundamental analysis involves analyzing financial statements and health, management and competitive advantages, and competitors and markets. Books are a great way to learn fundamental analysis but can be time consuming for something that really isn't very difficult. So the internet might be a better way to get started. When using fundamental analysis all you are doing is trying to figure out how much a company is worth. The vocabulary and huge range of acronyms can be intimidating but really its a fairly simple task. You can use (investopedia) for definitions and simple examples when you do not fully understand something. IE: (PEG) You can search for definitions using the search bar on the top right (google also is a good source to look for additional definitions). I recommend starting out by doing an independent analysis on a well known name such as Proctor & Gamble or Mcdonald's. Then you can compare your analysis to a professionals and see how they stack up. Books and Resources: Getting Started in Fundamental Analysis Fundamental Analysis For Dummies Fundamental analysis Wiki What Is Fundamental Analysis? - Video tut from Investopedia Fundamental Analysis: Introduction Step by Step example of fundamental analysis - It's a pretty in depth forum post. Side Notes: Personally when I first began using fundamental analysis I found it difficult to understand why something is considered undervalued or overvalued. I couldn't figure out who was the \\\"\\\"authority\\\"\\\" on saying this. Well in short the \\\"\\\"authority\\\"\\\" basically is the market. You can say you believe XYZ is undervalued but you are only proven correct if the market agrees with you over long period of time. Some key facts you should know: Many times a stock can be \\\"\\\"broken\\\"\\\" for many reasons. The price can go far beyond what would be considered a \\\"\\\"normal valuation\\\"\\\" (this is considered a bubble, e.g. the tech bubble of 1999-2000). It can also go far below a \\\"\\\"normal valuation\\\"\\\". In most cases these types of valuations are short lived and in the end a stock should return to \\\"\\\"normal valuation\\\"\\\" or at least this is the theory behind fundamental analysis.\\\"\",\n \"Sounds like you are a candidate for stock trading simulators. Or just pick stocks and use Yahoo! or Google finance tools to track and see how you do. I wouldn't suggest you put real money into it. You need to learn about research and timing and a bunch of other topics you can learn about here. I personally just stick to life cycle funds that are managed products that offer me a cruise control setting for investing.\",\n \"\\\"Spend your first 50 euros on research materials. Warren Buffett got started as a boy by reading every book in the Library of Congress on investing and stock market analysis. You can research the company filings for Canadian companies at http://www.sedar.com, U.S companies at http://www.edgar.com, and European companies at https://www.gov.uk/government/organisations/companies-house. Find conflicting arguments and strategies and decide for yourself which ones are right. The Motley Fool http://www.fool.ca offers articles on good stocks to add to your portfolio and why, as well as why not. They provide a balanced judgement instead of just hype. They also sell advice through their newsletter. In Canada the Globe & Mail runs a daily column on screening stocks. Every day they present a different stock-picking strategy and the filters used to reach their end list. They then show how much that portfolio would have increased or decreased as well as talking about some of the good & bad points of the stocks in the list. It's interesting to see over time a very few stocks show up on multiple lists for different strategies. These ones in my opinion are the stocks to be investing in. While the Globe's stock picks focus on Canadian and US exchanges, you might find the strategies worthwhile. You can subscribe to the digital version at http://www.theglobeandmail.com Once you have your analytical tools ready, pick any bank or stock house that offers a free practice account. Use that account and their screening tools to try out your strategies and see if you can make money picking stocks. My personal stock-picking strategy is to look for companies with: - a long uninterrupted history of paying dividends, - that are regularly increased, - and do not exceed the net profit per share of the company - and whose share price has a long history of increasing These are called unicorn companies, because there are so very few of them. Another great read is, \\\"\\\"Do Stocks Outperform Treasury Bills?\\\"\\\" by Hendrik Bessembinder. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2900447 In this paper the author looks at the entire history of the U.S. stock universe and finds that less than 4% of stocks are responsible for 100% of the wealth creation in the U.S. stock market. He discusses his strategies for picking the winners, but it also suggests that if you don't want to do any research, you could pick pretty much any stock at random, short it, and wait. I avoid mutual funds because they are a winner only for the fellas selling them. A great description on why the mutual fund industry is skewed against the investor can be found in a book called \\\"\\\"The RRSP Secret\\\"\\\" by Greg Habstritt. \\\"\\\"Unshakeable\\\"\\\" by Tony Robbins also discusses why mutual funds are not the best way to invest in stocks. The investor puts up 100% of the money, takes 100% of the risk, and gets at best 30% of the return. Rich people don't invest like that.\\\"\",\n \"\\\"Below is just a little information on this topic from my small unique book \\\"\\\"The small stock trader\\\"\\\": The most significant non-company-specific factor affecting stock price is the market sentiment, while the most significant company-specific factor is the earning power of the company. Perhaps it would be safe to say that technical analysis is more related to psychology/emotions, while fundamental analysis is more related to reason – that is why it is said that fundamental analysis tells you what to trade and technical analysis tells you when to trade. Thus, many stock traders use technical analysis as a timing tool for their entry and exit points. Technical analysis is more suitable for short-term trading and works best with large caps, for stock prices of large caps are more correlated with the general market, while small caps are more affected by company-specific news and speculation…: Perhaps small stock traders should not waste a lot of time on fundamental analysis; avoid overanalyzing the financial position, market position, and management of the focus companies. It is difficult to make wise trading decisions based only on fundamental analysis (company-specific news accounts for only about 25 percent of stock price fluctuations). There are only a few important figures and ratios to look at, such as: perhaps also: Furthermore, single ratios and figures do not tell much, so it is wise to use a few ratios and figures in combination. You should look at their trends and also compare them with the company’s main competitors and the industry average. Preferably, you want to see trend improvements in these above-mentioned figures and ratios, or at least some stability when the times are tough. Despite all the exotic names found in technical analysis, simply put, it is the study of supply and demand for the stock, in order to predict and follow the trend. Many stock traders claim stock price just represents the current supply and demand for that stock and moves to the greater side of the forces of supply and demand. If you focus on a few simple small caps, perhaps you should just use the basic principles of technical analysis, such as: I have no doubt that there are different ways to make money in the stock market. Some may succeed purely on the basis of technical analysis, some purely due to fundamental analysis, and others from a combination of these two like most of the great stock traders have done (Jesse Livermore, Bernard Baruch, Gerald Loeb, Nicolas Darvas, William O’Neil, and Steven Cohen). It is just a matter of finding out what best fits your personality. I hope the above little information from my small unique book was a little helpful! Mika (author of \\\"\\\"The small stock trader\\\"\\\")\\\"\",\n \"Hey so I'm completely new to anything financial. Have a bad habit of burning thru my money and would prefer to learn ways to make a little instead. What are some good tools that I could use to learn how to trade stocks or the best ways to get started investing? Thank you\",\n \"Still not easy to grasp for a 5-year-old, but they're entertaining. Particularly the second one, which is slightly less informative but a lot more fun. http://www.youtube.com/watch?v=d0nERTFo-Sk&feature=fvwrel http://www.youtube.com/watch?v=GTQnarzmTOc EDIT: Yup, it's biased towards Hayek, but that much is pretty evident. I still think that the videos are worth a watch, if only to give you a small introduction to where the two of them stand on certain issues.\",\n \"I learned most of this stuff from 3 textbooks in school probably totaling $900 between the 3. I imagine you don't want to spend the cash on that. I would suggest finding a source online. A lot of the surface level stuff you are looking for can be found online on websites like Investopedia. They are a great resource and are free usually.\",\n \"Yea read a few books or watch some videos on YouTube on fundamental analysis and try it using excel. It's probably not what you'll be doing if you get a degree in finance, and you might even end up in accounting like I did, but its a good place to start to see if you like it or not. It also exposes you to accounting, business, the politics of business, taxation, financial statements, EDGAR and all the other interesting and important stuff. You might want to pick up a study guide for the CPA exam BEC. Lots of very interesting stuff in there about business in general including how the board of directors works, and taxation. It's an awesome read.\",\n \"\\\"There is only one book worth reading in my opinion: One Up on Wall Street. It's short and no other book even comes close to it for honesty, correctness and good sense. Also, it is written by the second most successful investor of all time, Peter Lynch. The Intelligent Investor has some good technical content, but the book is dated and a lot of it is irrelevant to the modern investment environment. When I was younger I used to ready books like this and when a friend of mine asked for investment advice. I said \\\"\\\"Look at stocks with a PE ratio of 5-10\\\"\\\". A few days later he comes back to me and says \\\"\\\"There are none\\\"\\\". Right. That pretty much sums up the problem with the I.I. Graham himself in interviews during the 1970s said that his book was obsolete and he no longer recommended those methods.\\\"\",\n \"\\\"See Solid reading/literature for investment/retirement/income taxes? – not exactly the same question, but a great reading list for you. You are putting the cart before the horse here, first, you learn, then you invest. There's a large danger in confusing intelligent investing with \\\"\\\"fooling around\\\"\\\". The idea that you think you'd like to use derivatives without knowing how or why is a tough one. I suggest you go to Yahoo! Finance and set yourself up with a portfolio (click on the \\\"\\\"My Portfolios\\\"\\\" tab), in effect, creating your own simulated account. Assume you are starting with some reasonable amount of money, say $10,000, but not $1M, as part of real investing is to learn how to asset allocate the funds you have. Learning that way for a time is the smarter way to start. That said, individual stocks are not for everyone. Most investors can lead a successful investing life by using ETFs or mutual funds of one type or another. Learning to pick individual stocks can be a life's work, and if you put too little time into it, are likely to be disappointed. But learning by 'paper trading' can be a good learning experience nonetheless.\\\"\",\n \"\\\"Strategy would be my top factor. While this may be implied, I do think it helps to have an idea of what is causing the buy and sell signals in speculating as I'd rather follow a strategy than try to figure things out completely from scratch that doesn't quite make sense to me. There are generally a couple of different schools of analysis that may be worth passing along: Fundamental Analysis:Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets. When applied to futures and forex, it focuses on the overall state of the economy, interest rates, production, earnings, and management. When analyzing a stock, futures contract, or currency using fundamental analysis there are two basic approaches one can use; bottom up analysis and top down analysis. The term is used to distinguish such analysis from other types of investment analysis, such as quantitative analysis and technical analysis. Technical Analysis:In finance, technical analysis is a security analysis methodology for forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis use many of the same tools of technical analysis, which, being an aspect of active management, stands in contradiction to much of modern portfolio theory. The efficacy of both technical and fundamental analysis is disputed by the efficient-market hypothesis which states that stock market prices are essentially unpredictable. There are tools like \\\"\\\"Stock Screeners\\\"\\\" that will let you filter based on various criteria to use each analysis in a mix. There are various strategies one could use. Wikipedia under Stock Speculator lists: \\\"\\\"Several different types of stock trading strategies or approaches exist including day trading, trend following, market making, scalping (trading), momentum trading, trading the news, and arbitrage.\\\"\\\" Thus, I'd advise research what approach are you wanting to use as the \\\"\\\"Make it up as we go along losing real money all the way\\\"\\\" wouldn't be my suggested approach. There is something to be said for there being numerous columnists and newsletter peddlers if you want other ideas but I would suggest having a strategy before putting one's toe in the water.\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["In general I would recommend to stay away from any video from a successful trader, at least those that claim to share their secrets. If they were that successful, why would they want company? What they have most likely discovered is that they can make more money through videos and seminars than they can through trading. While not a video, GetSmarterAboutMoney has a good basic section on Stock markets without being purely Canada centric (as I see from your profile you are in NY). I know that also in our city, there are continuing education courses that often go over the basics like this, if you have a college nearby they might have something. Cheapest of all would be to hit your local library. The fundamentals don't change that quickly that you need the latest and greatest - those are much more likely to be get-poor-quick schemes. Good Luck","Before you go filling your head with useless information as there is way too much stuff out there on the stock market. First ask yourself a few questions: There is going to be a balance between the three... don't kid yourself. After you answer these questions find a trading strategy to get the returns you are looking for. Remember the higher returns you expect... the more time you have to put in. Find a trading strategy you like and that works for you. Ounce you have your strategy then find the stocks or ETF that work for that strategy.... Ignore everything else, it is designed to separate you from your money. Making money in the stock market is easy, don't let the media hype and negative people tell you any different. Find something that works for you and perfect it... stick to it."],"string":"[\n \"In general I would recommend to stay away from any video from a successful trader, at least those that claim to share their secrets. If they were that successful, why would they want company? What they have most likely discovered is that they can make more money through videos and seminars than they can through trading. While not a video, GetSmarterAboutMoney has a good basic section on Stock markets without being purely Canada centric (as I see from your profile you are in NY). I know that also in our city, there are continuing education courses that often go over the basics like this, if you have a college nearby they might have something. Cheapest of all would be to hit your local library. The fundamentals don't change that quickly that you need the latest and greatest - those are much more likely to be get-poor-quick schemes. Good Luck\",\n \"Before you go filling your head with useless information as there is way too much stuff out there on the stock market. First ask yourself a few questions: There is going to be a balance between the three... don't kid yourself. After you answer these questions find a trading strategy to get the returns you are looking for. Remember the higher returns you expect... the more time you have to put in. Find a trading strategy you like and that works for you. Ounce you have your strategy then find the stocks or ETF that work for that strategy.... Ignore everything else, it is designed to separate you from your money. Making money in the stock market is easy, don't let the media hype and negative people tell you any different. Find something that works for you and perfect it... stick to it.\"\n]","isConversational":false}}},{"rowIdx":393,"cells":{"_id":{"kind":"string","value":"6849"},"query":{"kind":"string","value":"What do the points in a stock market index epresent?"},"gt_ids":{"kind":"list like","value":["44601"],"string":"[\n \"44601\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["144005","599651","214522","89192","49983","274156","44601","259948","361884","440123","25817","501032","369762","556163","232945","531357","249273","253926","591546","501153","428315","169754","367294","345129","414470","460230","14368","26203","89602","541145","582650","264850","33462","575169","148721","339963","418150","427629","9274","457873","419180","437380","172691","566553","205882","408546","135216","195089","67472","196173","387767","427674","498597","143261","578427","197480","131788","48952","322826","277666","576184","543780","308071","479461","50081","246062","147282","351518","64213","592914","70853","374372","421992","537945","378974","590218","184051","88228","578625","452122","532171","517323","334919","418610","403085","186184","197970","459351","384583","326125","288403","218842","389329","86408","113623","348542","389273","471611","261858","115134"],"string":"[\n \"144005\",\n \"599651\",\n \"214522\",\n \"89192\",\n \"49983\",\n \"274156\",\n \"44601\",\n \"259948\",\n \"361884\",\n \"440123\",\n \"25817\",\n \"501032\",\n \"369762\",\n \"556163\",\n \"232945\",\n \"531357\",\n \"249273\",\n \"253926\",\n \"591546\",\n \"501153\",\n \"428315\",\n \"169754\",\n \"367294\",\n \"345129\",\n \"414470\",\n \"460230\",\n \"14368\",\n \"26203\",\n \"89602\",\n \"541145\",\n \"582650\",\n \"264850\",\n \"33462\",\n \"575169\",\n \"148721\",\n \"339963\",\n \"418150\",\n \"427629\",\n \"9274\",\n \"457873\",\n \"419180\",\n \"437380\",\n \"172691\",\n \"566553\",\n \"205882\",\n \"408546\",\n \"135216\",\n \"195089\",\n \"67472\",\n \"196173\",\n \"387767\",\n \"427674\",\n \"498597\",\n \"143261\",\n \"578427\",\n \"197480\",\n \"131788\",\n \"48952\",\n \"322826\",\n \"277666\",\n \"576184\",\n \"543780\",\n \"308071\",\n \"479461\",\n \"50081\",\n \"246062\",\n \"147282\",\n \"351518\",\n \"64213\",\n \"592914\",\n \"70853\",\n \"374372\",\n \"421992\",\n \"537945\",\n \"378974\",\n \"590218\",\n \"184051\",\n \"88228\",\n \"578625\",\n \"452122\",\n \"532171\",\n \"517323\",\n \"334919\",\n \"418610\",\n \"403085\",\n \"186184\",\n \"197970\",\n \"459351\",\n \"384583\",\n \"326125\",\n \"288403\",\n \"218842\",\n \"389329\",\n \"86408\",\n \"113623\",\n \"348542\",\n \"389273\",\n \"471611\",\n \"261858\",\n \"115134\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["As I write this, the NASDAQ Composite is at 2790.00, down 6.14 points from yesterday. To calculate the percentage, you take 6.14 and divide by yesterday's close of 2796.14 to yield 0.22%. In your example, if SPY drops from 133.68 to 133.32, you use the difference of -0.36 and divide by the original, i.e. -0.36/133.68 = -0.27%. SPY is an ETF which you can invest in that tracks the S&P 500 index. Ideally, the index would have dropped the same percentage as SPY, but the points would be different (~10x higher). To answer your question about how one qualifies a point, it completely depends on the index being discussed. For example, the S&P 500 is a market-capitalization weighted index of the common stock of 500 large-cap US public companies. It is as if you owned every share of each of the 500 companies, then divide by some large constant to create a number that's easily understood mentally (i.e. 1330). The NASDAQ Composite used the same methodology but includes practically all stocks listed on the NASDAQ. Meanwhile, the Dow Jones Industrial Average is a price-weighted index of 30 large-cap companies. It's final value is modified using a divisor known as the Dow Divisor, which accounts for stock splits and similar events that have occurred since a stock has joined the index. Thus, points when referring to an index do not typically represent dollars. Rather, they serve as a quantitative measure of how the market is doing based on the performance of the index constituents. ETFs like SPY add a layer of abstraction by creating an investible vehicle that ideally tracks the value of the underlying index directly. Finally, neither price nor index value is related to volume. Volume is a raw measurement of the total number of shares traded for a given stock or the aggregate for a given exchange. Hope this helps!","Points are index based. Simple take the total value of the stocks that compose the index, and set it equal to an arbitrary number. (Say 100 or 1000) This becomes your base. Each day, you recalculate the value of the index basket, and relate it to the base. So if our index on day 0 was 100, and the value of the basket went up 1%, the new index would be 101 points. For the example given, the percentage change would be (133.32 -133.68 ) / 133.68 * 100% = -0.27% Keep in mind that an index basket will change in composition over time. Assets are added and removed as the composition of the market changes. For example, the TSX index no longer includes Nortel, a stock that at one time made up a significant portion of the index. I'm not sure if a percentage drop in an index is really a meaningful statistic because of that. It is however, a good way of looking at an individual instrument.","\"Because they track an index. Edited: The definition of the word in this case meaning \"\"something used or serving to point out; a sign, token, or indication\"\" from Meaning #3 I presume therefore you are asking what an index is? There are many variations of what makes up an Index but in short it is a representation of some part of a market. An extremely simplistic calculation would be to take a basket of stocks, and sum their prices. If one stock moves up a dollar, and one moves down a dollar, the index has effectively not changed, as it is presumed that the loss in one is offset by the gain in the other.\"","Points are the units of measurement of the index. They're calculated based on the index formula, which in turn based on the prices of the underlying stocks. Movement in points is not really interesting, the movement as a percentage of the base price (daily opening, usually) is more interesting since it gives more context.","\"What does \"\"points\"\" mean In any stock market, there are certain stocks that go up and certain stocks that go down. Hence if we want to find the generic health of stock market, i.e. on an average is it going up or down, we have no means to find out. A practise that has evolved over the years is take a set of companies and find if on average they have gone up or gone down. In very simple terms say in 1970 I take the Market Capitalization of a set of 50 companies, lets say its value is \"\"X\"\". I would now call this index as value of 100. Now after a month if the Market Capitalization is 2X, the index value would be 200. After another month if the Market Capitalization come down to 1.5X, then index value would be 150. So essentially now one is able to get the general trend more easily. S&P is an index of Select 500 companies based on various parameters. So in isolation 2000 does not mean anything. However as a comparison it does give quite a bit of insight. Note there are various adjustments made to factor, i.e. certain companies go bankrupt or are not doing well are removed from Index, share splits, mergers, etc. This ensure that the Index is neutral and does not show unwarranted spikes.\"","It's sort of the sum of stock prices, but bigger companies are weighed more heavily.","The All Ords Index consists of the 500 largest companies by market capitalisation listed on the Australia Stock Exchange. Each stock in the All Ords. Index is given a weighting based on its market capitalisation. As the price of the stocks within the All Ords. Index change, so does the points on the index itself. The Index is more sensitive to changes in the larger capitalised stocks due to their larger weighting in the Index. Example: If a company has a weighting of 10% and its price goes up by 10%, and all other stocks in the Index don't go up or down, then this will cause the All Ords Index to go up by 1% (10% of 10%).","The meaning is quite literal - a representative stock list is a list of stocks that would reasonably be expected to have about the same results as the whole market, i.e. be representative of an investment that invests in all those stocks. Of course, you don't want to invest in all stocks individually, that would be impractical, but you can either choose a diverse array of stocks that are (should be) representative, as the article recommends, or alternatively choose to invest in an index fund which offers a practical way to invest in all the stocks in the index at once.","FTSE is an index catering to the London stock exchange. It is a Capitalization-Weighted Index of 100 companies listed on the London Stock Exchange with the highest market capitalization . When somebody says FTSE closed at 6440, it basically means at the end of the day, the index calculated using the day end market capitalization of the companies, included in the index, is 6440.","\"would constantly fluctuate and provide an indication of how well the market is doing. The index is there to tell if you made profit or loss by investing in the market. Using a pure total market cap will only tell you \"\"Did IPO activity exceed bankruptcy and privatization activity\"\".\"","\"They do but you're missing some calculations needed to gain an understanding. Intro To Stock Index Weighting Methods notes in part: Market cap is the most common weighting method used by an index. Market cap or market capitalization is the standard way to measure the size of the company. You might have heard of large, mid, or small cap stocks? Large cap stocks carry a higher weighting in this index. And most of the major indices, like the S&P 500, use the market cap weighting method. Stocks are weighted by the proportion of their market cap to the total market cap of all the stocks in the index. As a stock’s price and market cap rises, it gains a bigger weighting in the index. In turn the opposite, lower stock price and market cap, pushes its weighting down in the index. Pros Proponents argue that large companies have a bigger effect on the economy and are more widely owned. So they should have a bigger representation when measuring the performance of the market. Which is true. Cons It doesn’t make sense as an investment strategy. According to a market cap weighted index, investors would buy more of a stock as its price rises and sell the stock as the price falls. This is the exact opposite of the buy low, sell high mentality investors should use. Eventually, you would have more money in overpriced stocks and less in underpriced stocks. Yet most index funds follow this weighting method. Thus, there was likely a point in time where the S & P 500's initial sum was equated to a specific value though this is the part you may be missing here. Also, how do you handle when constituents change over time? For example, suppose in the S & P 500 that a $100,000,000 company is taken out and replaced with a $10,000,000,000 company that shouldn't suddenly make the index jump by a bunch of points because the underlying security was swapped or would you be cool with there being jumps when companies change or shares outstanding are rebalanced? Consider carefully how you answer that question. In terms of histories, Dow Jones Industrial Average and S & P 500 Index would be covered on Wikipedia where from the latter link: The \"\"Composite Index\"\",[13] as the S&P 500 was first called when it introduced its first stock index in 1923, began tracking a small number of stocks. Three years later in 1926, the Composite Index expanded to 90 stocks and then in 1957 it expanded to its current 500.[13] Standard & Poor's, a company that doles out financial information and analysis, was founded in 1860 by Henry Varnum Poor. In 1941 Poor's Publishing (Henry Varnum Poor's original company) merged with Standard Statistics (founded in 1906 as the Standard Statistics Bureau) and therein assumed the name Standard and Poor's Corporation. The S&P 500 index in its present form began on March 4, 1957. Technology has allowed the index to be calculated and disseminated in real time. The S&P 500 is widely used as a measure of the general level of stock prices, as it includes both growth stocks and value stocks. In September 1962, Ultronic Systems Corp. entered into an agreement with Standard and Poor's. Under the terms of this agreement, Ultronics computed the S&P 500 Stock Composite Index, the 425 Stock Industrial Index, the 50 Stock Utility Index, and the 25 Stock Rail Index. Throughout the market day these statistics were furnished to Standard & Poor's. In addition, Ultronics also computed and reported the 94 S&P sub-indexes.[14] There are also articles like Business Insider that have this graphic that may be interesting: S & P changes over the years The makeup of the S&P 500 is constantly changing notes in part: \"\"In most years 25 to 30 stocks in the S&P 500 are replaced,\"\" said David Blitzer, S&P's Chairman of the Index Committee. And while there are strict guidelines for what companies are added, the final decision and timing of that decision depends on what's going through the heads of a handful of people employed by Dow Jones.\"","From Wikipedia - To calculate the value of the S&P 500 Index, the sum of the adjusted market capitalization of all 500 stocks is divided by a factor, usually referred to as the Divisor. For example, if the total adjusted market cap of the 500 component stocks is US$13 trillion and the Divisor is set at 8.933 billion, then the S&P 500 Index value would be 1,455.28. From a strictly mathematical perspective, the divisor is not canceling out the units, and the S&P index is dollar denominated even though it's never quoted that way. A case in point is that the S&P is often said to have a P/E, and especially an E, the earnings attributed to one 'unit' of S&P. And if you buy a mutual fund sporting a low expense ratio, you can invest exactly that much money (the current S&P index value) and see the dividends accrue to your account, less the fee.","\"There's no need for an index to have a currency as its purpose is not to act as an asset but rather to signal investors about the performance of a collection of stocks. An index can be price-weighted, meaning that its value equals the (arithmetic) average of the prices of each stock in the index. With no stock splits, the return on this index is the same as the return on a portfolio composed of one share of each stock. If there is a stock split, however instead of dividing by the number of stocks, as you normally would when taking the arithmetic average, you divide it by the number that will make the value of the index pre-stock-split (arithmetic average) equal to the value post stock split. Then use that dividing number for all periods until a new stock split occurs. An index can be value-weighted, meaning that its changes in value track the percentage changes in total market capitalization of the stocks in the index. Price weighted indexes ignore for \"\"firm size\"\" and percentage changes in price weighted indexes are not robust to stock-splits. Value weighted indexes take \"\"firm size\"\" into account and are robust to stock-splits. DJIA is price-weighted. S&P 500 is value-weighted.\"","Markets tend to go up over time, so most things you could buy would make money. A benchmark is meant to represent the market as a whole (or a subset that is relevant to what you are trading), so you can tell if your specific choices helped or hurt your return. As an example, say you pick two financial stocks, Citi and Goldman. They get you a return of 10% for the year, so you think you made good choices. But if the financial sector as a whole had a return of 20%, your choices weren't actually that great.","\"In practice, most (maybe all) stock indices are constructed by taking a weighted average of stock prices denominated in a single currency, and so the index implicitly does have that currency - as you suggest, US dollars for the S&P 500. In principle you can buy one \"\"unit\"\" of the S&P 500 for $2,132.98 or whatever by buying an appropriate quantity of each of its constituent stocks. Also, in a more realistic scenario where you buy an index via a tracker fund, you would typically need to buy using the underlying currency of the index and your returns will be relative to that currency - if the index goes up by 10%, your original investment in dollars is up by 10%.\"","The Dow is the top 30 companies in the USA representing different business sectors. Companies are replaced from time to time but a math equation keeps it statistically correct. The S&P 500 is the same concept as the Dow but with a much larger base of companies.","Dow Jones is a meaningless index that is only ever referenced in the media. It’s fundamentally flawed because the index constituents are weighted by share price, which is nonsensical (ie a $100 stock has a bigger impact on the index than a $50 stock) as opposed to the S&P500 which is market cap weighted (a $100 billion company has a bigger impact than a $50 billion company). People in the investment industry focus on the S&P index and pay zero attention to the Dow.","\"The dow jones is an index of 30 stocks that's weighted based on the price per share of these stocks. To calculate the DJIA, the sum of the prices of all 30 stocks is divided by a divisor, the Dow Divisor. The divisor is adjusted in case of stock splits, spinoffs or similar structural changes, to ensure that such events do not in themselves alter the numerical value of the DJIA. Prices are the result of supply and demand. Demand is defined as simply as \"\"I want this badly enough to pay cash for it\"\", \"\"supply is \"\"I own this and don't want to own it, therefore I'll sell it\"\" When investors go about deciding they'd like to buy some stock from people who own it and are wanting to sell it, a market is generated and a price both are willing to sell/buy at is found. If the price is too high/low, you won't sell or buy. The price has to be \"\"right\"\" based on your own personal valuation. Since these trades are done through an exchange and are so common, literally millions of shares are traded per day, you get the best price available at that moment for your shares. If person A is only willing to give you 100 dollars and person B is willing to give you 100.01, screw person A. I'm selling shares to person B. When this done on a macro-level (millions of shares traded per day) the exchanges will track and make public the \"\"price movement\"\" of what the market is willing to give for each and every publicly traded stock. TLDR: SUPPLY AND DEMAND. DOW USES THEIR OWN METHODS.\"","\"The goal is to understand the movements of the market as a whole and understand the fortunes of every investor in the S&P. As for why it isn't price-weighted, it is because price is a complely arbitrary notion, whereas market cap is at least \"\"real\"\" in some sense. Imagine Berkshire Hathaway vs Apple. In the S&P, Apple takes up about 75% more of the index because it's market cap is 796B, compared to 452B for Berkshire. This makes intuitive sense. Apple is \"\"worth\"\" 75% more, so it takes up that much more of the index. Now lets look at price. In a price weighted index of only those two stocks, Apple, with a stock price of 154.12 would take up .06% compared to Berkshire Hathaway at 99.94% due to its 274,740 stock price. The only difference is Apple has WAY more shares outstanding. Nothing of economic value (other than a bit of liquidity) is captured in a price-weighted index.\"","\"From How are indexes weighted?: Market-capitalization weighted indexes (or market cap- or cap-weighted indexes) weight their securities by market value as measured by capitalization: that is, current security price * outstanding shares. The vast majority of equity indexes today are cap-weighted, including the S&P 500 and the FTSE 100. In a cap-weighted index, changes in the market value of larger securities move the index’s overall trajectory more than those of smaller ones. If the fund you are referencing is an ETF then there may be some work to do to figure out what underlying securities to use when handling Creation and Redemption units as an ETF will generally have shares created in 50,000 shares at a time through Authorized Participants. If the fund you are referencing is an open-end fund then there is still cash flows to manage in the fund as the fund has create and redeem shares in on a daily basis. Note in both cases that there can be updates to an index such as quarterly rebalancing of outstanding share counts, changes in members because of mergers, acquisitions or spin-offs and possibly a few other factors. How to Beat the Benchmark has a piece that may also be useful here for those indices with many members from 1998: As you can see, its TE is also persistently positive, but if anything seems to be declining over time. In fact, the average net TE for the whole period is +0.155% per month, or an astounding +1.88% pa net after expenses. The fund expense ratio is 0.61% annually, for a whopping before expense TE of +2.5% annually. This is once again highly statistically significant, with p values of 0.015 after expenses and 0.0022 before expenses. (The SD of the TE is higher for DFSCX than for NAESX, lowering its degree of statistical significance.) It is remarkable enough for any fund to beat its benchmark by 2.5% annually over 17 years, but it is downright eerie to see this done by an index fund. To complete the picture, since 1992 the Vanguard Extended Index Fund has beaten its benchmark (the Wilshire 4500) by 0.56% per year after expenses (0.81% net of expenses), and even the Vanguard Index Trust 500 has beaten its benchmark by a razor thin 0.08% annually before (but not after) expenses in the same period. So what is going on here? A hint is found in DFA's 1996 Reference Guide: The 9-10 Portfolio captures the return behavior of U.S. small company stocks as identified by Rolf Banz and other academic researchers. Dimensional employs a \"\"patient buyer\"\" discount block trading strategy which has resulted in negative total trading costs, despite the poor liquidity of small company stocks. Beginning in 1982, Ibbotson Associates of Chicago has used the 9-10 Portfolio results to calculate the performance of small company stocks for their Stocks, Bonds, Bills, and Inflation yearbook. A small cap index fund cannot possibly own all of the thousands of stocks in its benchmark; instead it owns a \"\"representative sample.\"\" Further, these stocks are usually thinly traded, with wide bid/ask spreads. In essence what the folks at DFA learned was that they could tell the market makers in these stocks, \"\"Look old chaps, we don't have to own your stock, and unless you let us inside your spread, we'll pitch our tents elsewhere. Further, we're prepared to wait until a motivated seller wishes to unload a large block.\"\" In a sense, this gives the fund the luxury of picking and choosing stocks at prices more favorable than generally available. Hence, higher long term returns. It appears that Vanguard did not tumble onto this until a decade later, but tumble they did. To complete the picture, this strategy works best in the thinnest markets, so the excess returns are greatest in the smallest stocks, which is why the positive TE is greatest for the DFA 9-10 Fund, less in the Vanguard Small Cap Fund, less still in the Vanguard Index Extended Fund, and minuscule with the S&P500. There are some who say the biggest joke in the world of finance is the idea of value added active management. If so, then the punch line seems to be this: If you really want to beat the indexes, then you gotta buy an index fund.\"","Hart's answer regarding the difference between an index and a stock aside, remember that dividend yield is a passive measure. It takes the announced dividend (which is a $/share amount) and divides it by the current market price. So you can't assume that if you buy a stock that had a dividend yield of 4% for $100 that you're guaranteed 4% of the stock price in dividends. If the price of the stock doubles, you'd still get $4, but the yield would drop to 2%. Or the company could reduce (or even suspend) its dividends, which would reduce the yield if the stock price stayed flat. For an index like the S&P, it's easier to measure dividends on % yield terms rather then $/share terms since you'd have to own shares in every single company to get that amount, but on average the stocks in the S&P 500 pay X% in dividends (which are typically quarterly) - some pay more than that, some less, and some none at all.","\"Good observation. In fact, the S&P index itself is guilty of not including dividends. So when you look at the index alone, the delta between any two points in time diverges, and the 20 return observed if one fails to include dividends is meaningless, in my my humble opinion. Yahoo finance will let you look at a stock ticker and offer you an \"\"adjusted close\"\" to include the dividend effect.\"","Stock prices are set by supply and demand. If a particular stock has a high EPS, say, $100, then people will bid more for that stock, driving up its price over one with a $10 EPS. Your job as an investor is to find stocks with low share prices, but which will give you high earnings (either in dividends, our future share price). This means finding stocks which you believe the market has priced incorrectly, for whatever reason (as an example, many bank stocks are being punished right now, even if the underlying banks are in good shape financially). If you want to beat the market indices, be prepared to do a lot of research, because you're trying to outsmart the market as a whole.","Market Capitalization is the equity value of a company. It measures the total value of the shares available for trade in public markets if they were immediately sold at the last traded market price. Some people think it is a measure of a company's net worth, but it can be a misleading for a number of reasons. Share price will be biased toward recent earnings and the Earnings Per Share (EPS) metric. The most recent market price only reflects the lowest price one market participant is willing to sell for and the highest price another market participant is willing to buy for, though in a liquid market it does generally reflect the current consensus. In an imperfect market (for example with a large institutional purchase or sale) prices can diverge widely from the consensus price and when multiplied by outstanding shares, can show a very distorted market capitalization. It is also a misleading number when comparing two companies' market capitalization because while some companies raise the money they need by selling shares on the markets, others might prefer debt financing from private lenders or sell bonds on the market, or some other capital structure. Some companies sell preferred shares or non-voting shares along with the traditional shares that exist. All of these factors have to be considered when valuing a company. Large-cap companies tend to have lower but more stable growth than small cap companies which are still expanding into new markets because of their smaller size.","I hate to point to Wikipedia as an answer, but it does describe exactly what you are looking for... The S&P 500 is a free-float capitalization-weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. The stocks included in the S&P 500 are those of large publicly held companies that trade on either of the two largest American stock market exchanges; the New York Stock Exchange and the NASDAQ. The components of the S&P 500 are selected by committee... The committee selects the companies in the S&P 500 so they are representative of the industries in the United States economy. In addition, companies that do not trade publicly (such as those that are privately or mutually held) and stocks that do not have sufficient liquidity are not in the index. The S&P is a capitalization weighted index. If a stock price goes up, then it comprises more of the total index. If a stock goes down, it comprises less, and if it goes down too much, the committee will likely replace it. So to answer your question, if one stock were to suddenly skyrocket, nothing would happen beyond the fact that the index was now worth more and that particular stock would now make up a larger percentage of the S&P 500 index.","Market capitalization is one way to represent the value of the company. So if a company has 10 million shares, which are each worth $100, then the company's market capitalization is 1 billion. Large cap companies tend to be larger and more stable. Small cap companies are smaller, which indicates higher volatility. So if you want more aggressive investments then you may want to invest in small cap companies while if you lean on the side of caution then big cap companies may be your friend.","Have you actually read the Wikipedia article? To calculate the DJIA, the sum of the prices of all 30 stocks is divided by a divisor, the Dow Divisor. The divisor is adjusted in case of stock splits, spinoffs or similar structural changes, to ensure that such events do not in themselves alter the numerical value of the DJIA. Early on, the initial divisor was composed of the original number of component companies; which made the DJIA at first, a simple arithmetic average. The present divisor, after many adjustments, is less than one (meaning the index is larger than the sum of the prices of the components). That is: DJIA = sum(p) / d where p are the prices of the component stocks and d is the Dow Divisor. Events such as stock splits or changes in the list of the companies composing the index alter the sum of the component prices. In these cases, in order to avoid discontinuity in the index, the Dow Divisor is updated so that the quotations right before and after the event coincide: DJIA = sum(p_old) / d_old = sum(p_new) / d_new The Dow Divisor was 0.14602128057775 on December 24, 2015.[40] Presently, every $1 change in price in a particular stock within the average, equates to a 6.848 (or 1 ÷ 0.14602128057775) point movement. Knowing the old prices, new prices (e.g. following a split), and old divisor, you can easily compute the new divisor... Edit: Also, the detailed methodology is published by SP Indices (PDF). Edit #2: For simplicity's sake, assume the DJIA is an index that contains 4 stocks, with a price of $100.00 each. One of the stocks splits 2:1, meaning the new price/share is $50.00. Plugging the numbers into the above equation, we can determine the new Dow Divisor: 400 / 4 = 350 / d => d = 3.5","First, the stock does represent a share of ownership and if you have a different interpretation I'd like to see proof of that. Secondly, when the IPO or secondary offering happened that put those shares into the market int he first place, the company did receive proceeds from selling those shares. While others may profit afterward, it is worth noting that more than a few companies will have secondary offerings, convertible debt, incentive stock options and restricted stock that may be used down the road that are all dependent upon the current trading share price in terms of how useful these can be used to fund operations, pay executives and so forth. Third, if someone buys up enough shares of the company then they gain control of the company which while you aren't mentioning this case, it is something to note as some individuals buy stock so that they can take over the company which happens. Usually this has more of an overall plan but the idea here is that getting that 50%+1 control of the company's voting shares are an important piece to things here.","\"An index is just a mathematical calculation based on stock prices. Anyone can create such a calculation and (given a little effort) publish it based on publicly available data. The question of \"\"open source\"\" is simply whether or not the calculator chooses to publish the calculation used. Given how easy an index is to create, the issue is not the \"\"open source\"\" nature or otherwise, but its credibility and usefulness.\"","\"TL;DR: Because stocks represent added value from corporate profits, and not the price the goods themselves are sold at. This is actually a very complicated subject. But here's the simplest answer I can come up with. Stocks are a commodity, just like milk, eggs, and bread. The government only tracks certain commodities (consumables) as part of the Consumer Price Index (CPI). These are generally commodities that the typical person will consume on a daily or weekly basis, or need to survive (food, rent, etc.). These are present values. Stock prices, on the other hand, represent an educated guess (or bet) on a company's future performance. If Apple has historically performed well, and analysts expect it to continue to perform, then investors will pay more for a stock that they feel will continue pay good dividends in the future. Compound this with the fact that there is usually limited a supply of stock for a particular company (unless they issue more stock). If we go back to Apple as an example, they can raise their price they charge on an iPhone from $400 to $450 over the course of say a couple years. Some of this may be due to higher wage costs, but efficiencies in the marketplace actually tend to drive down costs to produce goods, so they will probably actually turn a higher profit by raising their price, even if they have to pay higher wages (or possibly even if they don't raise their price!). This, in economics, is termed value added. Finally, @Hart is absolutely correct in his comment about the stocks in the S&P 500 not being static. Additionally, the S&P 500 is a hand picked set of \"\"winners\"\", if you will. These are not run-of-the-mill penny stocks for companies that will be out of business in a week. These are companies that Standard & Poor's Financial Services LLC thinks will perform well.\"","As of this moment the DOW 30 is up 6.92% Year-to-date. Of the 30 stocks in the index 6 are in negative territory for the year. And of the 6 in negative territory 3 are farther below 0 than the average is above 0. The investors in those 3 stocks (Boeing, Goldman Sachs and Nike) would look at this year so far as a disaster. Individual stocks can move in opposite directions from the index.","The companies which define the major indexes do not derive profit directly from the indexes. They are typically brokerages, which use the indexes as a tool for discussing investment options with their clients and as a publicity tool to remind the public that they are long-standing, respected firms whom we might want to consider working with. Can't mention the Dow without being reminded of Dow Jones, for example. Likewise the Standard & Poor's 500 reminds us that S&P is still going strong. There may also be some slight market manipulation opportunities in choosing which specific stocks are included in each index, but since investors rarely follow an index exactly as originally defined I'm not convinced that's significant. And the mix included in each index changes relatively rarely and has to be justified by what the index claims to be representing.","Judging by the fact that 6% of the companies in the U.S earn roughly 50% of the profits, the Dow Jones is most certainty not useless. The 6% of companies that earn all the profit are the biggest movers of the market, thus they give a basic glimpse of how the economy is faring.","\"I think that the general public is conditioned to think more in terms of points rather than percentages, so that 200 points is easier to fathom than the equivalent percent. We all translate internally what this means. Of course it is less precise, but it also makes for good copy in the publishing industry (\"\"Market Down 1000 points!\"\")\"","\"Funds which track the same index may have different nominal prices. From an investors point of view, this is not important. What is important is that when the underlying index moves by a given percentage, the price of the tracking funds also move by an equal percentage. In other words, if the S&P500 rises by 5%, then the price of those funds tracking the S&P500 will also rise by 5%. Therefore, investing a given amount in any of the tracking funds will produce the same profit or loss, regardless of the nominal prices at which the individual funds are trading. To see this, use the \"\"compare\"\" function available on the popular online charting services. For example, in Google finance call up a chart of the S&P500 index, then use the compare textbox to enter the codes for the various ETFs tracking the S&P500. You will see that they all track the S&P500 equally so that your relative returns will be equal from each of the tracking funds. Any small difference in total returns will be attributable to management fees and expenses, which is why low fees are so important in passive investing.\"","I found the answer. It was the Stock Ticker that I was looking for. So, if I understand correctly the price at certain moment is the price of the latest sale and can be used to get a global picture of what certain stock is worth at that certain instant.","If a stock that makes up a big part of the Dow Jones Industrial Average decided to issue a huge number of additional shares, that will make the index go up. At least this is what should happen, since an index is basically a sum of the market cap of the contributing companies. No, indices can have various weightings. The DJIA is a price-weighted index not market-cap weighted. An alternative weighting besides market-cap and price is equal weighting. From Dow Jones: Dow Jones Industrial Average™. Introduced in May 1896, the index, also referred to as The Dow®, is a price-weighted measure of 30 U.S. blue-chip companies. Thus, I can wonder what in the new shares makes the index go up? If a stock is split, the Dow divisor is adjusted as one could easily see how the current Dow value isn't equal to the sum or the share prices of the members of the index. In other cases, there may be a dilution of earnings but that doesn't necessarily affect the stock price directly as there may be options exercised or secondary offerings made. SO if the index, goes up, will the ETF DIA also go up automatically although no additional buying has happened in the ETF itself? If the index rises and the ETF doesn't proportionally, then there is an arbitrage opportunity for someone to buy the DIA shares that can be redeemed for the underlying stocks that are worth more in this case. Look at the Creation and Redemption Unit process that exists for ETFs.","In general, the goal of an S&P 500 index fund is to replicate the performance of the S&P 500 Index. To do this, the fund will buy the same stocks in the same proportions as the weighting of the Index. The S&P 500 Index is free-float capitalization weighted. This means that the higher capitalization stocks (based on publicly traded shares only) are more heavily weighted and factor into the Index value more heavily than the smaller capitalization stocks, or the stocks that have a smaller publicly traded value. For example, companies like Apple, ExxonMobil, and Microsoft have a much larger weight in the index value than smaller companies. Alternatively, there are some S&P index funds that are equal-weighted. In these funds, the managers have chosen to purchase all 500 of the stocks in the index, but in equal proportions instead of the weighted proportions of the index. These equal-weighted funds will not as closely match the index price as the traditionally weighted index funds. Instead, they might do better or worse than the index, depending on how the individual stocks do. You'll need to look at the prospectus of the index funds you are interested in to see which approach the fund is taking.","\"Futures are an agreement to buy or sell something in the future. The futures \"\"price\"\" is the price at which you agree to make the trade. This price does not indicate what will happen in the future so much as it indicates the cost of buying the item today and holding it until the future date. Hence, for very liquid products such as stock index futures, the futures price is a very simple function of today's stock index value and current short-term interest rates. If the stock exchange is closed but the futures exchange is open, then using the futures price and interest rates one can back out an implied \"\"fair value\"\" for the index, which is in essence the market's estimate of what the stock index value would be right now if the stock market were open. Of course, as soon as the stock exchange opens, the futures price trades to within a narrow band of the actual index value, where the size of the band depends on transaction costs (bid-ask spread, commissions, etc.).\"","One thing to keep in mind when calculating P/E on an index is that the E (earnings) can be very close to zero. For example, if you had a stock trading at $100 and the earnings per share was $.01, this would result in a P/E of 10,000, which would dominate the P/E you calculate for the index. Of course negative earnings also skew results. One way to get around this would be to calculate the average price of the index and the earnings per share of the index separately, and then divide the average price of the index by the average earnings per share of the index. Different sources calculate these numbers in different ways. Some throw out negative P/Es (or earnings per share) and some don't. Some calculate the price and earnings per share separate and some don't, etc... You'll need to understand how they are calculating the number in order to compare it to PEs of individual companies.","A market downturn is a great opportunity to pick up valuable stocks at low prices but do note that this is quite a risky proposition and requires abundant research. But again, as is mentioned in previous answers, the start of the downturn is evident only in hindsight, and it is always advisable to have a balanced/diversified portfolio, risking only what you can afford to lose. In any case, indices like Dow Jones, NASDAQ, S&P500 are calculated on the basis of only a few companies that broadly represent their individual sectors.","Sorry for the late reply. Nonetheless the Dow has the same pros as any other index but what sticks out to me is that all of the stocks are extremely popular with private investors. In my experience it helps to compare stock development of competitors in terms of popularity.","Market price of a stock typically trades in a range of Price/Earnings Ratio (P/E ratio). Or in other words, price of a stock = Earnings * P/E ratio Because of this direct proportionality of stock price with earnings, stock prices move in tandem with earnings.","The other answer has some good points, to which I'll add this: I believe you're only considering a company's Initial Public Offering (IPO), when shares are first offered to the public. An IPO is the way most companies get a public listing on the stock market. However, companies often go to market again and again to issue/sell more shares, after their IPO. These secondary offerings don't make as many headlines as an IPO, but they are typical-enough occurrences in markets. When a company goes back to the market to raise additional funds (perhaps to fund expansion), the value of the company's existing shares that are being traded is a good indicator of what they may expect to get for a secondary offering of shares. A company about to raise money desires a higher share price, because that will permit them to issue less shares for the amount of money they need. If the share price drops, they would need to issue more shares for the same amount of money – and dilute existing owners' share of the overall equity further. Also, consider corporate acquisitions: When one company wants to buy another, instead of the transaction being entirely in cash (maybe they don't have that much in the bank!), there's often an equity component, which involves swapping shares of the company being acquired for new shares in the acquiring company or merged company. In that case, the values of the shares in the public marketplace also matter, to provide relative valuations for the companies, etc.","This didn't answer his question. Also, while I agree with you that the Dow is meaningless (and your explanation why). In the investment industry, we don't only focus on the S&P Index.. Many have a specific benchmark they aim to outperform that matches their investment strategy (i.e. Russell Mid Cap Value, Russell 3000, etc.).","\"With regards to \"\"the stock market,\"\" there are actually two markets involved here: PRIMARY MARKET Value is created in the primary market where capital is exchanged for a residual interest in an opportunity. As a theoretical example, if a person operating solo (or with a small team) were to discover or create a breakthrough product, such as an retro-aging pill, that person likely wouldn't have the financial means to fully capitalize on his new-found idea. Others with more capital may also soon discover his idea or improve upon it and exploit it before he has a chance to. For a real life example, a person studying at a California university during the 1990s discovered a method to index internet webpages and was approached by some students after a talk on the subject. He returned to his native southern Europe country seeking funds to develop the web-indexing business and failed to do so. Two of the students that approached him found capital readily available from investors in their campus sphere; their business is today one of the biggest in the world. They had exchanged part of their residual interest for capital to develop their business. The primary market of the stock market works mostly same in creating value. It is also dependent upon the secondary market. SECONDARY MARKET The secondary market indicates the day-to-day value of an enterprise. That market allows shareholders to manage their risk appetites and the enterprise's operators to execute their shareholders' interest for gains. In most cases, a secondary market reference will be used for pricing a primary market issuance. Without that reference, capital would be allocated less efficiently creating additional costs for all involved, issuers and investors. Consider what would happen if you sought to purchase a house and the mortgage lenders had no indication what the property was worth. This would make capital very expensive or possibly deny you access to credit. By having an indication, all involved are better off. That is value creating. There are some large developed economies' equity markets, such as that in Germany, where many large enterprises stay privately held and credit financing, mostly from banks, is used. The approach has proven successful as well. So why do some nations' financial markets still rely on capricious stock markets when private credit financing may do just fine in many cases? It's largely a matter of national culture. Countries such as the Netherlands, the UK and the US have long had active equity markets in continuous use that investors have trusted for centuries. CONCLUSION When leaders of an enterprise wish to grow the business to a large size with investment from the stock market, they aren't limited by the size of their banks' capital. Those leaders and their prospective investors will rely on the secondary market to determine values. In addition, if the leaders raise equity instead of debt capital, they are usually accorded more flexibility to take risks since shareholders usually have their own flexibility to transfer those risks to other investors if for any number of reasons they choose to do so. Stock markets create value in many other ways. The above are the main ways.\"","\"The market capitalization of a stock is the number of shares outstanding (of each stock class), times the price of last trade (of each stock class). In a liquid market (where there are lots of buyers and sellers at all price points), this represents the price that is between what people are bidding for the stock and what people are asking for the stock. If you offer any small amount more than the last price, there will be a seller, and if you ask any small amount less than the last price, there will be a buyer, at least for a small amount of stock. Thus, in a liquid market, everyone who owns the stock doesn't want to sell at least some of their stock for a bit less than the last trade price, and everyone who doesn't have the stock doesn't want to buy some of the stock for a bit more than the last trade price. With those assumptions, and a low-friction trading environment, we can say that the last trade value is a good midpoint of what people think one share is worth. If we then multiply it by the number of shares, we get an approximation of what the company is worth. In no way, shape or form does it not mean that there is 32 billion more invested in the company, or even used to purchase stock. There are situations where a 32 billion market cap swing could mean 32 billion more money was invested in the company: the company issues a pile of new shares, and takes in the resulting money. People are completely neutral about this gathering in of cash in exchange for dilluting shares. So the share price remains unchanged, the company gains 32 billion dollars, and there are now more shares outstanding. Now, in some sense, there is zero dollars currently invested in a stock; when you buy a stock, you no longer have the money, and the money goes to the person who no longer has the stock. The issue here is the use of the continuous tense of \"\"invested in\"\"; the investment was made at some point, but the money doesn't really stay in this continuous state of being. Unless you consider the investment liquid, and the option to take money out being implicit, it being a continuous action doesn't make much sense. Sometimes the money is invested in the company, when the company causes stocks to come into being and sells them. The owners of stocks has invested money in stocks in that they spent that money to buy the stocks, but the total sum of money ever spent on stocks for a given company is not really a useful value. The market capitalization is an approximation, which under the efficient market hypothesis (that markets find the correct price for things nearly instantly) is reasonably accurate, of the value the company has collectively to its shareholders. The efficient market hypothesis isn't accurate, but it is an acceptable rule of thumb. Now, this value -- market capitalization -- is arguably not the total value of a company: other stakeholders include bond holders, labour, management, various contract counter-parties, government and customers. Some companies are structured so that almost all value is captured not by the stock owners, but by contract counter-parties (this is sometimes used for hiding assets or debts). But for most large publically traded companies, it (in theory) shouldn't be far off.\"","Willis Group Holdings Set to Join the S&P 500; Fossil Group to Join S&P MidCap 400; Adeptus Health to Join S&P SmallCap 600 notes in part for the S & P case: Willis Group Holdings plc (NYSE:WSH) will replace Fossil Group Inc. (NASD:FOSL) in the S&P 500, and Fossil Group will replace Towers Watson & Co. (NASD:TW) in the S&P MidCap 400 after the close of trading on Monday, January 4. Willis Group is merging with Towers Watson in a deal expected to be completed on or about that date pending final conditions. Post merger, Willis Group Holdings will change its name to Willis Towers Watson plc and trade under the ticker symbol “WLTW”. Fossil has a market capitalization that is more representative of the midcap market space. As of Jan. 8, Fossil is about $1.44B in market cap and Willis is $21.02B for those wondering. Apple with a market cap of $540.58B is 3.26% of the index making the entire index worth approximately $16,582.21B, so Fossil is worth .00868% of the overall index for those wanting some numbers here. Thus, if a company acquires another and becomes bigger than there can be replacements made in those indices that have an artificial number of small members. Alternatively, a member may be removed for lack of representation where it is just so small compared to other companies that may be a better fit as some indices could be viewed as actively managed in a sense. In contrast, there are indices like those from Russell, known for the Russell 2000 small-cap index: Q: Why don't you reconstitute the indexes more often than once a year? A: Maintaining representative indexes must be weighed against the costs associated with making frequent changes to index constituents (namely, buying and selling stocks). The Russell Indexes are annually reconstituted because our research has shown that this strikes a reasonable balance between accuracy and cost. We originally reconstituted our indexes quarterly, then semi-annually, but found these options to be suboptimal. Our extensive research demonstrates that annual reconstitution accurately represents the capitalization segments and minimizes the turnover required to reflect the segments as they change. Thus there can be different scenarios. Then there can be the effect on index funds when price-weighted indices like the Dow Jones Industrial Average has a member that does a stock split that causes some rebalancing too. On the DJIA Divisor: The Dow Jones Industrial Average (DJIA) is a price-weighted index that is calculated by dividing the sum of the prices of the 30 component stocks (Dow Jones Industrial Average components) by a number called the DJIA Divisor or Dow Divisor . The index divisor is updated periodically and adjusted to offset the effect of stock splits, bonus issues or any change in the component stocks included in the DJIA. This is done in order to keep the index value consistent.","One reason it matters whether or not you're beating the S&P 500 (or the Wilshire 5000, or whatever benchmark you choose to use) is to determine whether or not you'd be better off investing in an index fund (or some other investment vehicle) instead of pursuing whatever your current investment strategy happens to be. Even if your investment strategy makes money, earning what the S&P 500 has averaged over multiple decades (around 10%) with an index fund means a lot more money than a 5% return with an actively managed portfolio (especially when you consider factors like compound interest and inflation). I use the S&P 500 as one of my criteria for judging how well (or poorly) my financial adviser is doing for me. If his recommendations (or trading activity on my behalf, if authorized) are inferior to the S&P 500, for too long, then I have a basis to discontinue the relationship. Check out this Wikipedia entry on stock market indices. There are legitimate criticisms, but on the whole I think they are useful. As an aside, the reason I point to index funds specifically is that they are the one of the lowest-cost, fire-and-forget investment strategies around. If you compare the return of the S&P 500 index over multiple decades with most actively managed mutual funds, the S&P 500 index comes out ahead.","Suppose I purchase $10,000 worth of a particular share today. If the person(s) I am purchasing the shares from paid $9,000 for those shares, then I replacing their $9,000 investment with my $10,000 investment. This is a net inflow of $1,000 into the market. Similarly, if the person(s) I am purchasing the shares from paid $11,000 for those shares, then their $11,000 investment is being replace by my $10,000 investment. This is a net outflow of $1,000 out of the market. The aggregate of all such inflows and outflows in the net inflow/outflow into the market over a given period of time. (Here we are ignoring the effects of new share issues.)","Stock prices are indeed proportional to supply and demand. The greater the demand for a stock, the greater the price. If they are, would this mean that stock prices completely depend on HOW the public FEELS/THINKS about the stock instead of what it is actually worth? This is a question people have argued for decades. Literature in behavioral finance suggests that investors are not rational and thus markets are subject to wild fluctuation based on investor sentiment. The efficient market theory (EMT) argues that the stock market is efficient and that a stock's price is an accurate reflection of its underlying or intrinsic value. This philosophy took birth with Harry Markovitz's efficient frontier, and Eugene Fama is generally seen as the champion of EMT in the 1960's and onward. Most investors today would agree that the markets are not perfectly efficient, and that a stock's price does not always reflect its value. The renowned professor Benjamin Graham once wrote: In the short run, the market is a voting machine but in the long run it is a weighing machine. This suggests that prices in the short term are mainly influenced by how people feel about the stock, while in the long run the price reflects what it's actually worth. For example, people are really big fans of tech stocks right now, which suggests why LinkedIn (stock: LNKD) has such a high share price despite its modest earnings (relative to valuation). People feel really good about it, and the price might sustain if LinkedIn becomes more and more profitable, but it's also possible that their results won't be absolutely stellar, so the stock price will fall until it reflects the company's fundamentals.","\"I am guessing that when you say \"\"FRENCH40\"\" and \"\"GERMAN30\"\" you are referring to the main French and German stock market indices. The main French index is the CAC-40 with its 40 constituent companies. The main German index is the DAX, which has 30 constituents. The US30 is presumably the Dow Jones Index which also has 30 constituents. These are stock market indices that are used to measure the value of a basket of shares (the index constituents). As the value of the constituents change, so does the value of the index. There are various financial instruments that allow investors to profit from movements in these indices. It is those people who invest in these instruments that profit from price movements. The constituent companies receive no direct benefit or profit from investor trading in these instruments, nor does the government.\"","An index fund is just copying the definition of an index. The group that defines the index determines how to weight the different parts of the index. The index fund just makes sure they invest the same way the index creator wants. Think of a non-investment scenario. A teacher can grade tests, quizzes, homework, in-class assignments, research papers. They decide how much weight to give each category and how much weight to give each part of each category. when a student wants to see how they are doing they take the information in the syllabus, and generate a few formulas in a spreadsheet to calculate their current grade. They can also calculate what they need to get on the final exam to get the grade they want.","It seems like you want to compare the company's values not necessarily the stock price. Why not get the total outstanding shares and the stock price, generate the market cap. Then you could compare changes to market cap rather than just share price.","\"Stock market indexes are generally based on market capitalization, which is not the same as GDP. GDP includes the value of all goods and services produced in a country; this includes a large amount of small-scale production which may not be reflected in stock market capitalizations. Thus the ratio between countries' GDPs may not be the same as the ratio of their total market capitalization. For instance, US GDP is approximately 3.8 times as much as Japan's (see here), but US total market cap is about 5.5 as much as Japan's (see here). The discrepancy can be even more severe when comparing \"\"developed\"\" economies like the US to \"\"developing\"\" (or \"\"less-developed\"\") economies in which there is less participation in large-scale financial systems like stock markets. For instance, US GDP is roughly 10 times that of Brazil, but US total market cap is roughly 36 times that of Brazil. Switzerland has a total market cap nearly double that of Brazil despite its total GDP being less than half of Brazil's. Since the all-world index includes all investable economies, it will include many economies whose share of market cap is disproportionately lower than their share of GDP. In addition, according to the fact sheet you linked to, that index tracks only large- and mid-cap stocks. This will further skew the weighting to developed economies and to the US in particular, since the US has a disproportionate share of the largest companies. Obviously one would need to take a more detailed look at all the weights to determine if these factors account precisely for the level of discrepancy you see in this particular index. But hopefully that explanation gives an idea of why the US might be weighted more heavily in a stock index than it is in raw GDP.\"","\"To calculate a sector (or index) P/E ratio you need to sum the market caps of the constituent stocks and divide it by the sum of the total earnings of the constituent stocks (including stocks that have negative earnings). There are no \"\"per share\"\" figures used in the calculation. Beware when you include an individual stock that there may be multiple issues associated with the company that are not in the index.... eg. Berkshire Hathaway BRK.B is in the S&P 500 but BRK.A is not. In contrast, Google has both GOOGL and GOOG included in the S&P 500 index but not its unlisted Class B shares. All such shares need to be included in the market cap and figuring out the different share class ratios can be tricky.\"","Let's say that you bought a share of Apple for $10. When (if ever) their stock sold for $10, it was a very small company with a very small net worth; that is, the excess of assets over liabilities. Your $10 share was perhaps a 1/10,000,000th share of a tiny company. Over the years, Apple has developed both software and hardware that have real value to the world. No-one knew they needed a smartphone and, particularly, an iPhone, until Apple showed it to us. The same is true of iPads, iPods, Apple watches, etc. Because of the sales of products and services, Apple is now a huge company with a huge net worth. Obviously, your 1/10,000,000th share of the company is now worth a lot more. Perhaps it is worth $399. Maybe you think Apples good days are behind it. After all, it is harder to grow a huge company 15% a year than it is a small company. So maybe you will go into the marketplace and offer to sell your 1/10,000,000th share of Apple. If someone offers you $399, would you take it? The value of stocks in the market is not a Ponzi scheme, although it is a bit speculative. You might have a different conclusion and different research about the future value of Apple than I do. Your research might lead you to believe the stock is worth $399. Mine might suggest it's worth $375. Then I wouldn't buy. The value of stocks in the market is based on the present and estimated future value of living, breathing companies that are growing, shrinking and steady. The value of each company changes all the time. So, then, does the price of the stock. Real value is created in the stock market when real value is created in the underlying company.","Yes an index is by definition any arbitrary selection. In general, to measure performance there are 2 ways: By absolute return - meaning you want a positive return at all times ie. 10% is good. -1% is bad. By relative return - this means beating the benchmark. For example, if the benchmark returns -20% and your portfolio returns -10%, then it has delivered +10% relative returns as compared to the benchmark.","As Ross says, SPX is the index itself. This carries no overheads. It is defined as a capitalization-weighted mixture of the stocks of (about) 500 companies. SPY is an index fund that tries to match the performance of SPX. As an index fund it has several differences from the index:","\"Inflation and stock returns are completely different things The CPI tracks the changes in the prices of a basket of goods a consumer might buy, the S&P 500 tracks the returns earned by investors in the equity of large companies. The two are very different things, and not closely linked. Example: A world without inflation Consider a world in which there was no inflation. Prices are fixed. Should stocks return zero? Certainly not. Companies take raw materials and produce goods and services that have value greater than that of the raw materials. They create new wealth. This wealth becomes profit for the company, which then is passed on to the owners of the company (equityholders) either in the form of dividends or, more commonly, price increases. Example: A world with no inflation and no economic growth Note that I have not implied above that companies have to grow in order for returns to outperform inflation. Total stock returns depend on the current and expected profit of the firm. Firms can remain the same size and continually kick out profits. Total returns will be positive in this environment even if there is no growth and no inflation. If the firms pay the money out as dividends, investors get a cash flow. If they retain these earnings, the value of the firm's equity increases. Total returns take both types of income into account. Technically the S&P 500 is not a total return index, but in our current legal and corporate culture environment, there is a preference for retaining profits rather than paying them out. This causes price increases. Risk bearing In principle, if profit was assured, then investors would bid up stock prices so high that profit would have to compete with the risk-free rate, which often is close to inflation (like, right now). However, profit is not assured. Firm profit swings around over time and constitutes a significant source of risk. We can think of the owners of the firm as being the bondholders and equityholders. These assets are structured such that almost all the profit risk is born by equityholders. We can therefore think of equityholders as being compensated for bearing the risk that would otherwise be born by bondholders. Because equityholders are bearing risk, stock prices must be low enough that stocks have a positive expected return (above the risk-free rate, which is presumably not significantly below inflation). This is true for the same reason that insurance premiums are positive--people have to be compensated for bearing risk. See my answer to this question for a discussion of why risk means we should expect stock prices to increase indefinitely (even if inflation halts). The S&P is not a measure of firm size or value The S&P measures the return earned by investors, not the size of US companies. True, if constituent companies grow and nothing else changes, the index goes up, but if a company shrinks a lot, it gets dropped out, rather than dragging the index down. By the way, please note that dollars \"\"put into\"\" equities are not stuck somewhere. They are passed on to the seller, who then uses it to buy something (even if this is a new equity issuance and the seller is the firm itself). The logic that growth of firms somehow sucks money out of usage is incorrect.\"","Dow Jones: http://en.wikipedia.org/wiki/Historical_components_of_the_Dow_Jones_Industrial_Average NASDAQ: http://en.wikipedia.org/wiki/NASDAQ-100 (scroll down) S&P Tricky. From what I can find, you need to be in Harvard Business School, a member of CRSP, or have access to Bloomberg's databases. S&P did have the info available years ago, but no longer that I can find.","It might mean Equal Weighted based on Market cap, rather than Price? For instance, All of MSCIs indexes are based on security's market cap, but then a factor is applied to give them equal weights once a quarter. From then on, weights will fluctuate based on market cap performance. Edit. Not sure why down voted, but you can check here http://www.msci.com/eqb/methodology/meth_docs/MSCI_Equal_Weighted_Indices_Methodology_May11.pdf So each quarter weights are set to be equal, but then between quarters the weights fluctuate due to performance","Why not figure out the % composition of the index and invest in the participating securities directly? This isn't really practical. Two indices I use follow the Russell 2000 and the S&P 500 Those two indices represent 2500 stocks. A $4 brokerage commission per trade would mean that it would cost me $10,000 in transaction fees to buy a position in 2500 stocks. Not to mention, I don't want to track 2500 investments. Index funds provide inexpensive diversity.","\"The S&P 500 is an index. This refers to a specific collection of securities which is held in perfect proportion. The dollar value of an index is scaled arbitrarily and is based off of an arbitrary starting price. (Side note: this is why an index never has a \"\"split\"\"). Lets look at what assumptions are included in the pricing of an index: All securities are held in perfect proportion. This means that if you invest $100 in the index you will receive 0.2746 shares of IBM, 0.000478 shares of General Motors, etc. Also, if a security is added/dropped from the list, you are immediately rebalancing the remaining money. Zero commissions are charged. When the index is calculated, they are using the current price (last trade) of the underlying securities, they are not actually purchasing them. Therefore it assumes that securities may be purchased without commission or other liquidity costs. Also closely related is the following. The current price has full liquidity. If the last quoted price is $20 for a security, the index assumes that you can purchase an arbitrary amount of the security at that price with a counterparty that is willing to trade. Dividends are distributed immediately. If you own 500 equities, and most distributed dividends quarterly, this means you will receive on average 4 dividends per day. Management is free. All equities can be purchased with zero research and administrative costs. There is no gains tax. Trading required by the assumptions above would change your holdings constantly and you are exempt from short-term or long-term capital gains taxes. Each one of these assumptions is, of course, invalid. And the fund which endeavors to track the index must make several decisions in how to closely track the index while avoiding the problems (costs) caused by the assumptions. These are shortcuts or \"\"approximations\"\". Each shortcut leads to performance which does not exactly match the index. Management fees. Fees are charged to the investor as load, annual fees and/or redemptions. Securities are purchased at real prices. If Facebook were removed from the S&P 500 overnight tonight, the fund would sell its shares at the price buyers are bidding the next market day at 09:30. This could be significantly different than the price today, which the index records. Securities are purchased in blocks. Rather than buying 0.000478 shares of General Motors each time someone invests a dollar, they wait for a few people and then buy a full share or a round lot. Securities are substituted. With lots of analysis, it may be determined that two stocks move in tandem. The fund may purchase two shares of General Motors rather than one of General Motors and Ford. This halves transaction costs. Debt is used. As part of substitution, equities may be replaced by options. Option pricing shows that ownership of options is equivalent to holding an amount of debt. Other forms of leverage may also be employed to achieve desired market exposure. See also: beta. Dividends are bundled. VFINX, the largest S&P 500 tracking fund, pays dividends quarterly rather than immediately as earned. The dividend money which is not paid to you is either deployed to buy other securities or put into a sinking fund for payment. There are many reasons why you can't get the actual performance quoted in an index. And for other more exotic indices, like VIX the volatility index, even more so. The best you can do is work with someone that has a good reputation and measure their performance.\"","What percent of a company are you buying when you purchase stock? The percent of a company represented by a single share can be calculated by percent = 1/number_of_shares*100% Apple comprises 5,250,000,000 shares, so one share makes up about 1.9e-8% of a company, or 0.000000019% of Apple.","The suffix represents the stock exchange the stock is traded on. N represents the New York Stock Exchange and O represents the Nasdaq. Sometimes a stock can be listed on more than one exchange so the suffix will give you an indication of which exchange the stock is on. For example the Australian company BHP Billiton Ltd is listed on multiple exchanges so is given a different suffix for the different exchanges (especially when the code is the same for each exchange). Below are a few examples of BHP:","Yes, it depends on the fund it's trying to mirror. The ETF for the S&P that's best known (in my opinion) is SPY and you see the breakdown of its holdings. Clearly, it's not an equal weighted index.","Bid and ask prices of stocks change not just daily, but continuously. They are, as the names suggest, what price people are asking for to be willing to sell their stock, and how much people are bidding to be willing to buy it at that moment. Your equation is accurate in theory, but doesn't actually apply. The bid and ask prices are indicators of the value of the stock, but the only think you care about as a trader are what you actually pay and sell it for. So regardless of the bid/ask the equation is: Since you cannot buy an index directly (index, like indicator) it doesn't make sense to discuss how much people are bidding or asking for it. Like JoeTaxpayer said, you can buy (and therefore bid/ask) for ETFs and funds that attempt to track the value of the S&P 500.","\"Take the case where a stock has just two owners, A and B, both at $10. One of them sells his shares to C, at $11. Now B has made $1 in profit but is no longer an owner of the stock. A hasn't sold anything but his shares are worth 10% more due to the last traded price printed. C has bought shares at $11 and the price is $11, so technically he hasn't lost any money. In a larger market, there are winners and losers every day on a single stock, but they may not remain owners of a stock. There could be days in which those that remain owners are all winners - say when a stock goes up to an all time high and all those that are currently owners have an average buy price lower than the last traded price. And the reverse applies too. It is of course more complicated. Say you own a stock and let someone else \"\"borrow\"\" it for a short-selling opportunity (he sells it in the market). For each uptick in price, you win, the short seller loses, and the guy he sold it to also wins. A person that has a covered call on a stock is not a winner beyond a point. And so on.\"","\"This is called \"\"change\"\" or \"\"movement\"\" - the change (in points or percentage) from the last closing value. You can read more about the ticker tape on Investopedia, the format you're referring to comes from there.\"","It's a way to help normalize the meaning of the earnings report. Some companies like Google have a small number of publicly traded shares (322 Million). Others like Microsoft have much larger numbers of shares (8.3 Billion). The meaning depends on the stock. If it's a utility company that doesn't really grow, you don't want to see lots of changes -- the earnings per share should be stable. If it's a growth company, earnings should be growing quickly, and flat growth means that the stock is probably going down, especially if slow growth wasn't expected.","Because it's a good indicator of how much their asset worth. In oversimplified example, wouldn't you care how much your house, car, laptop worth? Over the course of your life you might need to buy a bigger house, sell your car etc. to cope with your financial goal / situation. It's similar in company's case but with much more complexity.","I was thinking that the value of the stock is the value of the stock...the actual number of shares really doesn't matter, but I'm not sure. You're correct. Share price is meaningless. Google is $700 per share, Apple is $100 per share, that doesn't say anything about either company and/or whether or not one is a better investment over the other. You should not evaluate an investment decision on price of a share. Look at the books decide if the company is worth owning, then decide if it's worth owning at it's current price.","It's either a broad benchmark sp500, msci world, lehman agg, and or a cash index. Most will not use a specific benchmark. While the broad benchmark may not be applicable from my experience its usually there as a proxy for the overall market.","Calculation. To calculate the DJIA, the sum of the prices of all 30 stocks is divided by a divisor, the Dow Divisor. The divisor is adjusted in case of stock splits, spinoffs or similar structural changes, to ensure that such events do not in themselves alter the numerical value of the DJIA.","Theoretically, it could be daily, but depending upon the number of companies in the index, it could be anywhere between daily or once a month or so. Apart from that, there is a periodic index review that happens once every quarter. The methodology for each index is also different, and you need to be aware of it (we had positions on literally hundreds of indices, and I knew the methodology of almost each of them). If you have say, 2 billion dollars tracking a certain index, even a miniscule change in the composition would be substantial for you. But for certain others, you may just need to buy and sell $10k worth of stocks, and we would not even bother.","The point is that the bid and ask prices dictate what you can buy and sell at (at market, at least), and the difference between the two, or spread, contributes implicitly to your gains or losses. For example, say your $1 stock actually had a bid of $0.90 and an ask of $1.10; i.e. say that $1 was the last price. You would have to buy the stock at the ask price of $1.10, but now you can only sell that stock at the bid price of $0.90. Thus, you would need to make at least that $0.20 spread before you can make a profit.","With regard to commodity futures, a paper released in January 2010 by Aulerich, Irwin, and Garcia, concluded that index funds have essentially no impact on commodity futures. Looking at stocks, a stock that gets included in a major index does increase in price. It increases its turnover by 27% and increases its price by between 2.7% and 5.5%, according to information cited by Kula in this paper, though it looks like the price increase tends to happen in the lead up to the stock being included. Interestingly, I have read an article but cannot now locate it, which states that there's a measurable, albeit fairly small, price bubble on stocks included in common indexes, on Monday mornings, Friday afternoons, and at the start and end of the month. That is, the times when mutual funds are most likely to rebalance their holdings. This almost certainly applies to a lesser extent to other stocks, too. My understanding is that the price difference was very small, however. Generally speaking, stocks which make part of well-known indexes will tend to be in higher demand than stocks which do not. It remains the case that almost all actively-managed mutual funds are unable to consistently beat the indexes, even with this taken into account.","In market cap weighted index there is fairly heavy concentration in the largest stocks. The top 10 stocks typically account for about 20% of the S&P 500 index. In Equal Weight this bias towards large caps is removed. The Market Cap method would be good when large stocks drive the markets. However if the markets are getting driven by Mid Caps and Small caps, the equal weight wins. Historically most big companies start out small and grow big fast in a short span of time. Thus if we were to do Market cap one would have purchased smaller number of shares of the said company as its cap/weight would have been small and when it becomes big we would have purchased the shares at a higher price. However if we were to do equal weight, then as the company grows big one would have more share at a cheaper price and would result in better returns. There is a nice article on this, also gives the comparision of the returns over a period of 10 years, where equal weight index has done good. It does not mean that it would continue. http://www.investopedia.com/articles/exchangetradedfunds/08/index-debate.asp#axzz1RRDCnFre","More importantly, index funds are denominated in specific currencies. You can't buy or sell an index, so it can be dimensionless. Anything you actually do to track the index involves real amounts of real money.","\"An important thing that many people fail to realize is that the number of shares outstanding in a stock, times the current market price of those shares, does not represent anything related to the total value of those shares. If a company has one million shares outstanding and its total value is $10 million, then the real worth of each share is $10. If few people feels like buying or selling, but a few people think the company is worth $50 million and offer $50/share, that could raise the market price to $50/share, but it wouldn't mean that the company became worth five times as much; it would merely mean the stock was overpriced. If, after the price went to $50/share, all the owners of the stock put in stop-loss orders at $45. Note that the real $10/share \"\"real value\"\" of their stock would never have changed. If the people who thought the stock was worth $50 decided to get out of the market, and nobody else was willing to offer more than $10, that would instantly drop the price to $10. The fact that a million shares of stock have stop-loss orders at $45 wouldn't magically generate buyers for those stocks at that price. Indeed, unchecked stop-loss orders would have the reverse effect, since many people who would have been willing if not eager to buy the stock if it had been available for less than $10/share would instead be trying to sell it below that price. It's too bad people think that the number of shares outstanding times the current market price represents some kind of \"\"meaningful quantity\"\". If the present cash value of all future payouts associated with a share of stock is $10, then someone who buys a share of stock for less than that makes money off the seller; someone who pays more loses money to the seller. Many people think they can lose money to the seller and still come out okay if the price goes higher, but what that really means is that they're hoping to find a bigger sucker--a game where it's guaranteed that some people will have losses they don't recoup.\"","The stock market is just like any other market, but stocks are bought and sold here. Just like you buy and sell your electronics at the electronics market, this is a place where buyers and sellers come together to buy and sell shares or stocks or equity, no matter what you call it. What are these shares? A share is nothing but a portion of ownership of a company. Suppose a company has 100 shares issued to it, and you were sold 10 out of those, it literally means you are a 10% owner of the company. Why do companies sell shares? Companies sell shares to grow or expand. Suppose a business is manufacturing or producing and selling goods or services that are high in demand, the owners would want to take advantage of it and increase the production of his goods or services. And in order to increase production he would need money to buy land or equipment or labor, etc. Now either he could go get a loan by pledging something, or he could partner with someone who could give him money in exchange for some portion of the ownership of the company. This way, the owner gets the money to expand his business and make more profit, and the lender gets a portion of profit every time the company makes some. Now if the owner decides to sell shares rather than getting a loan, that's when the stock market comes into the picture. Why would a person want to trade stocks? First of all, please remember that stocks were never meant to be traded. You always invest in stocks. What's the difference? Trading is short term and investing is long term, in very simple language. It's the greed of humans which led to this concept of trading stocks. A person should only buy stocks if he believes in the business the company is doing and sees the potential of growth. Back to the question: a person would want to buy stocks of the company because: How does a stock market help society? Look around you for the answer to this question. Let me give you a start and I wish everyone reading this post to add at least one point to the answer. Corporations in general allow many people come together and invest in a business without fear that their investment will cause them undue liability - because shareholders are ultimately not liable for the actions of a corporation. The cornerstone North American case of how corporations add value is by allowing many investors to have put money towards the railroads that were built across America and Canada. For The stock market in particular, by making it easier to trade shares of a company once the company sells them, the number of people able to conveniently invest grows exponentially. This means that someone can buy shares in a company without needing to knock door to door in 5 years trying to find someone to sell to. Participating in the stock market creates 'liquidity', which is essentially the ease with which stocks are converted into cash. High liquidity reduces risk overall, and it means that those who want risk [because high risk often creates high reward] can buy shares, and those who want low risk [because say they are retiring and don't have a risk appetite anymore] can sell shares.","Index funds are good for diversifying risk. For people who don't have a large sum of money to invest, holding all the different types of stocks in the index is both very expensive and not practical because you incur too many transaction costs. For an index funds, the main advantages are that costs are pooled, and investors can invest a smaller amount that they would if they bought all the different stocks individually. Naturally, if you wanted to figure out the percentage composition of the index and invest directly it would be possible, albeit tedious.","Market cap is basically the amount of money that it would cost to buy all of the shares of public stock in a company. Or share cost * number of outstanding shares. It is a measure of how much a company is worth. http://en.wikipedia.org/wiki/Market_capitalization","It is simply an average of what each analyst covering that stock are recommending, and since they usually only recommend Hold or Buy (rarely Sell), the value will float between Hold and Buy. Not very useful IMHO.","\"In general, I think you're conflating a lot of ideas. The stock market is not like a supermarket. With the exception of a direct issue, you're not buying your shares from the company or from the New York Stock Exchange you're buying from an owner of stock, Joe, Sally, a pension fund, a hedge fund, etc; it's not sitting on a shelf at the stock market. When you buy an Apple stock you don't own $10 of Apple, you own 1/5,480,000,000th of Apple because Apple has 5,480,000,000 shares outstanding. When a the board gets together to vote on and approve a dividend the approved dividend is then divided by 5.48 billion to determine how much each owner receives. The company doesn't pay dividends out to owners from a pot of money it received from new owners; it sold iPhones at a profit and is sending a portion of that profit to the owners of the company. \"\"When you buy stock, it is claimed that you own a small portion of the company. This statement has no backing, as you cannot exchange your stock for the company's assets.\"\" The statement does have backing. It's backed by the US Judicial system. But there's a difference between owning a company and owning the assets of the company. You own 1/5,480,000,000 of the company and the company owns the company's assets. Nevermind how disruptive it would be if any shareholder could unilaterally decide to sell a company's buildings or other assets. This is not a ponzi scheme because when you buy or sell your Apple stock, it has no impact on Apple, you're simply transacting with another random shareholder (barring a share-repurchase or direct issue). Apple doesn't receive the proceeds of your private transaction, you do. As far as value goes, yes the stock market provides tons of value and is a staple of capitalism. The stock market provides an avenue of financing for companies. Rather than taking a loan, a company's board can choose to relinquish some control and take on additional owners who will share in the spoils of the enterprise. Additionally, the exchanges deliver value via an unbelievable level of liquidity. You don't have to go seek out Joe or Sally when you want to sell your Apple stock. You don't need to put your shares on Craigslist in the hope of finding a buyer. You don't have to negotiate a price with someone who knows you want to sell. You just place an order at an exchange and you're aligned with a buyer. Also understand that anything can move up or down in value without any money actually changing hands. Say you get your hands on a pair of shoes (or whatever), they're hot on the market, very rare and sought after. You think you can sell them for $1,000. On tonight's news it turns out that the leather is actually from humans and the CEO of the company is being indicted, the company is falling apart, etc. Your shoes just went from $1,000 to $0 with no money changing hands (or from $1,000 to $100,000 depending on how cynical you are).\"","\"DJIA is a price weighted index (as in the amount of each component company is weighted by its price) and the constituents change occasionally (51 times so far). With these two effects you would not get anything like the same return by equally weighting your holdings and would have to rebalance every so often. Note that your premise was most obviously flawed thinking the number of near bankruptcies there have been in that time. More details of the differing make-ups of the index are available on Wikipedia. When you ask about the \"\"average investment\"\" you would have to be a lot more specific; is it limited just to US shares, to shares, to shares and fixed income securities, should I include all commodities, etc. see also What's the justification for the DJIA being share-price weighted?\"","A one year period of study - Stock A trades at $100, and doesn't increase in value, but has $10 in dividends over the period. Stock B starts at $100, no dividend, and ends at $105. However you account for this, it would be incorrect to ignore stock A's 10% return over the period. To flip to a real example, MoneyChimp shows the S&P return from Jan 1980 to Dec 2012 as +3264% yet, the index only rose from 107.94 to 1426.19 or +1221%. The error expands with greater time and larger dividends involved, a good analysis won't ignore any dividends or splits.","No. The information you are describing is technical data about a stock's market price and trading volume, only. There is nothing implied in that data about a company's financial fundamentals (earnings/profitability, outstanding shares, market capitalization, dividends, balance sheet assets and liabilities, etc.) All you can infer is positive or negative momentum in the trading of the stock. If you want to understand if a company is performing well, then you need fundamental data about the company such as you would get from a company's annual and quarterly reports.","The share-price weighting of the DJIA is a historical artifact. The DJIA remains share-price weighted today because that's the way it has always been done, and we're talking about an index with more than a hundred years' history. The DJIA was first calculated on May 26, 1896. Perhaps, back then, price-weighting was the most straight-forward & feasible way to calculate it each day. You're right that it doesn't make a lot of sense, and that's why the S&P500 and other indexes are better barometers.","Earnings per share is the company profit (or loss), divided by the number of outstanding shares. The number should always be compared to the share price, so for instance if the EPS is $1 and the share price is $10, the EPS is 10% of the share price. This means that if the company keeps up this earning you should expect to make 10% yearly on your investment, long term. The stock price may fluctuate, but if the company keeps on making money you will eventually do so too as investor. If the EPS is low it means that the market expects the earnings to rise in the future, either because the company has a low profit margin that can be vastly improved, or because the business is expected to grow. Especially the last case may be a risky investment as you will lose money if the company doesn't grow fast enough, even if it does make a healthy profit. Note that the listed EPS, like most key figures, is based on the last financial statement. Recent developments could mean that better or worse is generally expected. Also note that the earnings of some companies will fluctuate wildly, for instance companies that produce movies or video games will tend to have a huge income for a quarter or two following a new release, but may be in the negative in some periods. This is fine as long as they turn a profit long term, but you will have to look at data for a longer period in order to determine this.","Prices quoted are primarily the offer prices quoted by the numerous market makers on the stock exchange(s) willing to sell you the stock. There is another price which generally isn't seen on these websites, the bid prices, which are lower prices quoted by buyers and market makers willing to buy your shares from you. You wouldn't see those prices, unless you login to your trade terminal. How meaningful are they to you depends on what you want to do buy or sell. If you want to buy then yes they are relevant. But if you want to sell, then no. And remember some websites delay market information by 15 minutes, in case of Google you might have seen that the volume is delayed by 15 minutes. So you need to consider that also while trading, but mayn't be a concern unless you are trying to buy out the company.","Consider the mechanic which actually drives the 'price' of a stock. In simplest terms, the 'price' of a stock is the price at which the most recent trade occurred. ie: if the price of IBM is $100/share, that means the last time someone bought IBM stock, they paid $100. Above and below the 'spot price', are dozens/hundreds/thousands of buyers and sellers who have placed orders that no one is yet willing to match. ie: if IBM's spot price is at $100, there could still be 10,000 people willing to sell for $101 (called the 'ask' price, for the lowest price someone is currently willing to sell at), and 15,000 willing to buy for $99 (called the 'bid' price, for the highest price someone is currently willing to buy for). Until someone is willing to buy for $101, then no one will be able to sell at $101. Until someone is willing to sell for $99, no one will be able to buy for $99. Typically orders are placed in the market at a particular limit. Meaning that those orders to buy at $99/sell at $101 are already in the 'system', and will be matched immediately as soon as someone is willing to meet the price on the other side. Now consider general market economics: high demand drives up price, and high supply drives down price. If the details above for IBM were yesterday, and today some news came out that IBM was laying off employees, imagine that another 10,000 people who held shares wanted to sell. Now there would be 20,000 sellers and only 15,000 buyers. If those new sellers were aggressive about wanting to sell, they would have to drop their price to $99, to match the highest buyers in the market. Put together, this means that as more sellers enter the market, supply of shares increases, driving down price. Conversely, as more buyers enter the market, demand for shares increases, driving up share price. As a result of the above, you can say that (all else being equal) if price for a stock goes up, there were more buyers that day, and if price goes down, there were more sellers that day. On the face of it, that is not necessarily true, because you could have the same number of buyers and sellers, one side could have simply decreased/increased their acceptable price to match the other side.","\"When you look at those results you'll see that it lists the actual market cap for the stocks. The ones on the biggest price move are usually close the the $1B capitalization cut-off that they use. (The don't report anything with less than $1B in capitalization on these lists.) The ones on the biggest market cap are much larger companies. So, the answer is that a 40% change in price on a company that has $1B capitalization will be a $400M change in market cap. A 4% change on a company with $100B capitalization will be a $4B change in market cap. The one that moved 40% will make the \"\"price\"\" list but not the market cap list and vice versa.\"","Stock basically implies your ownership in the company. If you own 1% ownership in a company, the value of your stake becomes equal to 1% of the valuation of the entire company. Dividends are basically disbursal of company's profits to its shareholders. By holding stocks of a company, you become eligible to receiving dividends proportional to your ownership in the company. Dividends though are not guaranteed, as the company may incur losses or the management may decide to use the cash for future growth instead of disbursing it to the shareholders. For example, let's say a company called ABC Inc, is listed on NYSE and has a total of 1 million shares issued. Let's say if you purchase 100 stocks of ABC, your ownership in ABC will become Let's say that the share price at the time of purchase was $10 each. Total Investment = Stock Price * Number of Stocks Purchased = $10 * 100 = $1,000 Now, let's say that the company declares a dividend of $1 per share. Then, Dividend Yield = Dividend/Stock Price = $1/$10 = 10% If one has to draw analogy with other banking products, one can think of stock and dividend as Fixed Deposits (analogous to stock) and the interest earned on the Fixed Deposit (analogous to dividend).","That is true. You will not be able to reconstruct the value of the index from the data returned with this script. I initially wrote this script because I wanted data for a lot of stocks and I wanted to perform PCA on the stocks currently included in the index.","More questions! 1.) I thought the criticism of the Dow was that it's much smaller than other indexes and thus less representative of the market as a whole? 2,) When you say private investors are you talking about a few specific people? Or anyone who invests at all? Thanks","Beta is an indication of a Stock's risk with respect to the market. For instance if a stock had a beta of 1 it means it is in tandem with the S&P 500. If it is more than 1, the stock is volatile. If it is less than 1, it implies market movement doesn't affect this stock much. Tech stocks and small cap stocks have high beta, utilities have low beta. (In general, not always). Hope this helps - I've tried to explain it in very simple terms!","$500 per package, with a package representing 100 stocks, or $5k for the entire market from a single source (NYSE, for example). IIRC that was the neighborhood when I went looking. I actually only needed one index in great detail - I chose the S&P 500, and found a source for well under $100.","How I understand it is: supply/demand affect price of stock negatively/positively, respectively. Correct. Volume is the amount of buying/selling activity in these stocks (more volume = more fluctuation, right?). Sort of. Higher volume means higher liquidity. That is, a stock that is traded more is easier to trade. It doesn't necessarily mean more fluctuation and in the real world, it often means that these are well-understood stocks with a high amount of analyst coverage. This tends towards these stocks not being as volatile as smaller stocks with less liquidity. Company revenue (and profit) will help an investor predict company growth. That is one factor in a stock price. There are certain stocks that you would buy without them making a profit because their future revenue looks potentially explosive. However, these stocks are very risky and are bubble-prone. If you're starting out in the share market, it's generally a good idea to invest in index funds (I am not a broker, my advice should not be taken as financial advice). These funds aggregate risk by holding a lot of different companies. Also, statistics have shown that over time, buying and holding index funds long term tends to dramatically outperform other investment strategies, particularly for people with low amounts of capital."],"string":"[\n \"As I write this, the NASDAQ Composite is at 2790.00, down 6.14 points from yesterday. To calculate the percentage, you take 6.14 and divide by yesterday's close of 2796.14 to yield 0.22%. In your example, if SPY drops from 133.68 to 133.32, you use the difference of -0.36 and divide by the original, i.e. -0.36/133.68 = -0.27%. SPY is an ETF which you can invest in that tracks the S&P 500 index. Ideally, the index would have dropped the same percentage as SPY, but the points would be different (~10x higher). To answer your question about how one qualifies a point, it completely depends on the index being discussed. For example, the S&P 500 is a market-capitalization weighted index of the common stock of 500 large-cap US public companies. It is as if you owned every share of each of the 500 companies, then divide by some large constant to create a number that's easily understood mentally (i.e. 1330). The NASDAQ Composite used the same methodology but includes practically all stocks listed on the NASDAQ. Meanwhile, the Dow Jones Industrial Average is a price-weighted index of 30 large-cap companies. It's final value is modified using a divisor known as the Dow Divisor, which accounts for stock splits and similar events that have occurred since a stock has joined the index. Thus, points when referring to an index do not typically represent dollars. Rather, they serve as a quantitative measure of how the market is doing based on the performance of the index constituents. ETFs like SPY add a layer of abstraction by creating an investible vehicle that ideally tracks the value of the underlying index directly. Finally, neither price nor index value is related to volume. Volume is a raw measurement of the total number of shares traded for a given stock or the aggregate for a given exchange. Hope this helps!\",\n \"Points are index based. Simple take the total value of the stocks that compose the index, and set it equal to an arbitrary number. (Say 100 or 1000) This becomes your base. Each day, you recalculate the value of the index basket, and relate it to the base. So if our index on day 0 was 100, and the value of the basket went up 1%, the new index would be 101 points. For the example given, the percentage change would be (133.32 -133.68 ) / 133.68 * 100% = -0.27% Keep in mind that an index basket will change in composition over time. Assets are added and removed as the composition of the market changes. For example, the TSX index no longer includes Nortel, a stock that at one time made up a significant portion of the index. I'm not sure if a percentage drop in an index is really a meaningful statistic because of that. It is however, a good way of looking at an individual instrument.\",\n \"\\\"Because they track an index. Edited: The definition of the word in this case meaning \\\"\\\"something used or serving to point out; a sign, token, or indication\\\"\\\" from Meaning #3 I presume therefore you are asking what an index is? There are many variations of what makes up an Index but in short it is a representation of some part of a market. An extremely simplistic calculation would be to take a basket of stocks, and sum their prices. If one stock moves up a dollar, and one moves down a dollar, the index has effectively not changed, as it is presumed that the loss in one is offset by the gain in the other.\\\"\",\n \"Points are the units of measurement of the index. They're calculated based on the index formula, which in turn based on the prices of the underlying stocks. Movement in points is not really interesting, the movement as a percentage of the base price (daily opening, usually) is more interesting since it gives more context.\",\n \"\\\"What does \\\"\\\"points\\\"\\\" mean In any stock market, there are certain stocks that go up and certain stocks that go down. Hence if we want to find the generic health of stock market, i.e. on an average is it going up or down, we have no means to find out. A practise that has evolved over the years is take a set of companies and find if on average they have gone up or gone down. In very simple terms say in 1970 I take the Market Capitalization of a set of 50 companies, lets say its value is \\\"\\\"X\\\"\\\". I would now call this index as value of 100. Now after a month if the Market Capitalization is 2X, the index value would be 200. After another month if the Market Capitalization come down to 1.5X, then index value would be 150. So essentially now one is able to get the general trend more easily. S&P is an index of Select 500 companies based on various parameters. So in isolation 2000 does not mean anything. However as a comparison it does give quite a bit of insight. Note there are various adjustments made to factor, i.e. certain companies go bankrupt or are not doing well are removed from Index, share splits, mergers, etc. This ensure that the Index is neutral and does not show unwarranted spikes.\\\"\",\n \"It's sort of the sum of stock prices, but bigger companies are weighed more heavily.\",\n \"The All Ords Index consists of the 500 largest companies by market capitalisation listed on the Australia Stock Exchange. Each stock in the All Ords. Index is given a weighting based on its market capitalisation. As the price of the stocks within the All Ords. Index change, so does the points on the index itself. The Index is more sensitive to changes in the larger capitalised stocks due to their larger weighting in the Index. Example: If a company has a weighting of 10% and its price goes up by 10%, and all other stocks in the Index don't go up or down, then this will cause the All Ords Index to go up by 1% (10% of 10%).\",\n \"The meaning is quite literal - a representative stock list is a list of stocks that would reasonably be expected to have about the same results as the whole market, i.e. be representative of an investment that invests in all those stocks. Of course, you don't want to invest in all stocks individually, that would be impractical, but you can either choose a diverse array of stocks that are (should be) representative, as the article recommends, or alternatively choose to invest in an index fund which offers a practical way to invest in all the stocks in the index at once.\",\n \"FTSE is an index catering to the London stock exchange. It is a Capitalization-Weighted Index of 100 companies listed on the London Stock Exchange with the highest market capitalization . When somebody says FTSE closed at 6440, it basically means at the end of the day, the index calculated using the day end market capitalization of the companies, included in the index, is 6440.\",\n \"\\\"would constantly fluctuate and provide an indication of how well the market is doing. The index is there to tell if you made profit or loss by investing in the market. Using a pure total market cap will only tell you \\\"\\\"Did IPO activity exceed bankruptcy and privatization activity\\\"\\\".\\\"\",\n \"\\\"They do but you're missing some calculations needed to gain an understanding. Intro To Stock Index Weighting Methods notes in part: Market cap is the most common weighting method used by an index. Market cap or market capitalization is the standard way to measure the size of the company. You might have heard of large, mid, or small cap stocks? Large cap stocks carry a higher weighting in this index. And most of the major indices, like the S&P 500, use the market cap weighting method. Stocks are weighted by the proportion of their market cap to the total market cap of all the stocks in the index. As a stock’s price and market cap rises, it gains a bigger weighting in the index. In turn the opposite, lower stock price and market cap, pushes its weighting down in the index. Pros Proponents argue that large companies have a bigger effect on the economy and are more widely owned. So they should have a bigger representation when measuring the performance of the market. Which is true. Cons It doesn’t make sense as an investment strategy. According to a market cap weighted index, investors would buy more of a stock as its price rises and sell the stock as the price falls. This is the exact opposite of the buy low, sell high mentality investors should use. Eventually, you would have more money in overpriced stocks and less in underpriced stocks. Yet most index funds follow this weighting method. Thus, there was likely a point in time where the S & P 500's initial sum was equated to a specific value though this is the part you may be missing here. Also, how do you handle when constituents change over time? For example, suppose in the S & P 500 that a $100,000,000 company is taken out and replaced with a $10,000,000,000 company that shouldn't suddenly make the index jump by a bunch of points because the underlying security was swapped or would you be cool with there being jumps when companies change or shares outstanding are rebalanced? Consider carefully how you answer that question. In terms of histories, Dow Jones Industrial Average and S & P 500 Index would be covered on Wikipedia where from the latter link: The \\\"\\\"Composite Index\\\"\\\",[13] as the S&P 500 was first called when it introduced its first stock index in 1923, began tracking a small number of stocks. Three years later in 1926, the Composite Index expanded to 90 stocks and then in 1957 it expanded to its current 500.[13] Standard & Poor's, a company that doles out financial information and analysis, was founded in 1860 by Henry Varnum Poor. In 1941 Poor's Publishing (Henry Varnum Poor's original company) merged with Standard Statistics (founded in 1906 as the Standard Statistics Bureau) and therein assumed the name Standard and Poor's Corporation. The S&P 500 index in its present form began on March 4, 1957. Technology has allowed the index to be calculated and disseminated in real time. The S&P 500 is widely used as a measure of the general level of stock prices, as it includes both growth stocks and value stocks. In September 1962, Ultronic Systems Corp. entered into an agreement with Standard and Poor's. Under the terms of this agreement, Ultronics computed the S&P 500 Stock Composite Index, the 425 Stock Industrial Index, the 50 Stock Utility Index, and the 25 Stock Rail Index. Throughout the market day these statistics were furnished to Standard & Poor's. In addition, Ultronics also computed and reported the 94 S&P sub-indexes.[14] There are also articles like Business Insider that have this graphic that may be interesting: S & P changes over the years The makeup of the S&P 500 is constantly changing notes in part: \\\"\\\"In most years 25 to 30 stocks in the S&P 500 are replaced,\\\"\\\" said David Blitzer, S&P's Chairman of the Index Committee. And while there are strict guidelines for what companies are added, the final decision and timing of that decision depends on what's going through the heads of a handful of people employed by Dow Jones.\\\"\",\n \"From Wikipedia - To calculate the value of the S&P 500 Index, the sum of the adjusted market capitalization of all 500 stocks is divided by a factor, usually referred to as the Divisor. For example, if the total adjusted market cap of the 500 component stocks is US$13 trillion and the Divisor is set at 8.933 billion, then the S&P 500 Index value would be 1,455.28. From a strictly mathematical perspective, the divisor is not canceling out the units, and the S&P index is dollar denominated even though it's never quoted that way. A case in point is that the S&P is often said to have a P/E, and especially an E, the earnings attributed to one 'unit' of S&P. And if you buy a mutual fund sporting a low expense ratio, you can invest exactly that much money (the current S&P index value) and see the dividends accrue to your account, less the fee.\",\n \"\\\"There's no need for an index to have a currency as its purpose is not to act as an asset but rather to signal investors about the performance of a collection of stocks. An index can be price-weighted, meaning that its value equals the (arithmetic) average of the prices of each stock in the index. With no stock splits, the return on this index is the same as the return on a portfolio composed of one share of each stock. If there is a stock split, however instead of dividing by the number of stocks, as you normally would when taking the arithmetic average, you divide it by the number that will make the value of the index pre-stock-split (arithmetic average) equal to the value post stock split. Then use that dividing number for all periods until a new stock split occurs. An index can be value-weighted, meaning that its changes in value track the percentage changes in total market capitalization of the stocks in the index. Price weighted indexes ignore for \\\"\\\"firm size\\\"\\\" and percentage changes in price weighted indexes are not robust to stock-splits. Value weighted indexes take \\\"\\\"firm size\\\"\\\" into account and are robust to stock-splits. DJIA is price-weighted. S&P 500 is value-weighted.\\\"\",\n \"Markets tend to go up over time, so most things you could buy would make money. A benchmark is meant to represent the market as a whole (or a subset that is relevant to what you are trading), so you can tell if your specific choices helped or hurt your return. As an example, say you pick two financial stocks, Citi and Goldman. They get you a return of 10% for the year, so you think you made good choices. But if the financial sector as a whole had a return of 20%, your choices weren't actually that great.\",\n \"\\\"In practice, most (maybe all) stock indices are constructed by taking a weighted average of stock prices denominated in a single currency, and so the index implicitly does have that currency - as you suggest, US dollars for the S&P 500. In principle you can buy one \\\"\\\"unit\\\"\\\" of the S&P 500 for $2,132.98 or whatever by buying an appropriate quantity of each of its constituent stocks. Also, in a more realistic scenario where you buy an index via a tracker fund, you would typically need to buy using the underlying currency of the index and your returns will be relative to that currency - if the index goes up by 10%, your original investment in dollars is up by 10%.\\\"\",\n \"The Dow is the top 30 companies in the USA representing different business sectors. Companies are replaced from time to time but a math equation keeps it statistically correct. The S&P 500 is the same concept as the Dow but with a much larger base of companies.\",\n \"Dow Jones is a meaningless index that is only ever referenced in the media. It’s fundamentally flawed because the index constituents are weighted by share price, which is nonsensical (ie a $100 stock has a bigger impact on the index than a $50 stock) as opposed to the S&P500 which is market cap weighted (a $100 billion company has a bigger impact than a $50 billion company). People in the investment industry focus on the S&P index and pay zero attention to the Dow.\",\n \"\\\"The dow jones is an index of 30 stocks that's weighted based on the price per share of these stocks. To calculate the DJIA, the sum of the prices of all 30 stocks is divided by a divisor, the Dow Divisor. The divisor is adjusted in case of stock splits, spinoffs or similar structural changes, to ensure that such events do not in themselves alter the numerical value of the DJIA. Prices are the result of supply and demand. Demand is defined as simply as \\\"\\\"I want this badly enough to pay cash for it\\\"\\\", \\\"\\\"supply is \\\"\\\"I own this and don't want to own it, therefore I'll sell it\\\"\\\" When investors go about deciding they'd like to buy some stock from people who own it and are wanting to sell it, a market is generated and a price both are willing to sell/buy at is found. If the price is too high/low, you won't sell or buy. The price has to be \\\"\\\"right\\\"\\\" based on your own personal valuation. Since these trades are done through an exchange and are so common, literally millions of shares are traded per day, you get the best price available at that moment for your shares. If person A is only willing to give you 100 dollars and person B is willing to give you 100.01, screw person A. I'm selling shares to person B. When this done on a macro-level (millions of shares traded per day) the exchanges will track and make public the \\\"\\\"price movement\\\"\\\" of what the market is willing to give for each and every publicly traded stock. TLDR: SUPPLY AND DEMAND. DOW USES THEIR OWN METHODS.\\\"\",\n \"\\\"The goal is to understand the movements of the market as a whole and understand the fortunes of every investor in the S&P. As for why it isn't price-weighted, it is because price is a complely arbitrary notion, whereas market cap is at least \\\"\\\"real\\\"\\\" in some sense. Imagine Berkshire Hathaway vs Apple. In the S&P, Apple takes up about 75% more of the index because it's market cap is 796B, compared to 452B for Berkshire. This makes intuitive sense. Apple is \\\"\\\"worth\\\"\\\" 75% more, so it takes up that much more of the index. Now lets look at price. In a price weighted index of only those two stocks, Apple, with a stock price of 154.12 would take up .06% compared to Berkshire Hathaway at 99.94% due to its 274,740 stock price. The only difference is Apple has WAY more shares outstanding. Nothing of economic value (other than a bit of liquidity) is captured in a price-weighted index.\\\"\",\n \"\\\"From How are indexes weighted?: Market-capitalization weighted indexes (or market cap- or cap-weighted indexes) weight their securities by market value as measured by capitalization: that is, current security price * outstanding shares. The vast majority of equity indexes today are cap-weighted, including the S&P 500 and the FTSE 100. In a cap-weighted index, changes in the market value of larger securities move the index’s overall trajectory more than those of smaller ones. If the fund you are referencing is an ETF then there may be some work to do to figure out what underlying securities to use when handling Creation and Redemption units as an ETF will generally have shares created in 50,000 shares at a time through Authorized Participants. If the fund you are referencing is an open-end fund then there is still cash flows to manage in the fund as the fund has create and redeem shares in on a daily basis. Note in both cases that there can be updates to an index such as quarterly rebalancing of outstanding share counts, changes in members because of mergers, acquisitions or spin-offs and possibly a few other factors. How to Beat the Benchmark has a piece that may also be useful here for those indices with many members from 1998: As you can see, its TE is also persistently positive, but if anything seems to be declining over time. In fact, the average net TE for the whole period is +0.155% per month, or an astounding +1.88% pa net after expenses. The fund expense ratio is 0.61% annually, for a whopping before expense TE of +2.5% annually. This is once again highly statistically significant, with p values of 0.015 after expenses and 0.0022 before expenses. (The SD of the TE is higher for DFSCX than for NAESX, lowering its degree of statistical significance.) It is remarkable enough for any fund to beat its benchmark by 2.5% annually over 17 years, but it is downright eerie to see this done by an index fund. To complete the picture, since 1992 the Vanguard Extended Index Fund has beaten its benchmark (the Wilshire 4500) by 0.56% per year after expenses (0.81% net of expenses), and even the Vanguard Index Trust 500 has beaten its benchmark by a razor thin 0.08% annually before (but not after) expenses in the same period. So what is going on here? A hint is found in DFA's 1996 Reference Guide: The 9-10 Portfolio captures the return behavior of U.S. small company stocks as identified by Rolf Banz and other academic researchers. Dimensional employs a \\\"\\\"patient buyer\\\"\\\" discount block trading strategy which has resulted in negative total trading costs, despite the poor liquidity of small company stocks. Beginning in 1982, Ibbotson Associates of Chicago has used the 9-10 Portfolio results to calculate the performance of small company stocks for their Stocks, Bonds, Bills, and Inflation yearbook. A small cap index fund cannot possibly own all of the thousands of stocks in its benchmark; instead it owns a \\\"\\\"representative sample.\\\"\\\" Further, these stocks are usually thinly traded, with wide bid/ask spreads. In essence what the folks at DFA learned was that they could tell the market makers in these stocks, \\\"\\\"Look old chaps, we don't have to own your stock, and unless you let us inside your spread, we'll pitch our tents elsewhere. Further, we're prepared to wait until a motivated seller wishes to unload a large block.\\\"\\\" In a sense, this gives the fund the luxury of picking and choosing stocks at prices more favorable than generally available. Hence, higher long term returns. It appears that Vanguard did not tumble onto this until a decade later, but tumble they did. To complete the picture, this strategy works best in the thinnest markets, so the excess returns are greatest in the smallest stocks, which is why the positive TE is greatest for the DFA 9-10 Fund, less in the Vanguard Small Cap Fund, less still in the Vanguard Index Extended Fund, and minuscule with the S&P500. There are some who say the biggest joke in the world of finance is the idea of value added active management. If so, then the punch line seems to be this: If you really want to beat the indexes, then you gotta buy an index fund.\\\"\",\n \"Hart's answer regarding the difference between an index and a stock aside, remember that dividend yield is a passive measure. It takes the announced dividend (which is a $/share amount) and divides it by the current market price. So you can't assume that if you buy a stock that had a dividend yield of 4% for $100 that you're guaranteed 4% of the stock price in dividends. If the price of the stock doubles, you'd still get $4, but the yield would drop to 2%. Or the company could reduce (or even suspend) its dividends, which would reduce the yield if the stock price stayed flat. For an index like the S&P, it's easier to measure dividends on % yield terms rather then $/share terms since you'd have to own shares in every single company to get that amount, but on average the stocks in the S&P 500 pay X% in dividends (which are typically quarterly) - some pay more than that, some less, and some none at all.\",\n \"\\\"Good observation. In fact, the S&P index itself is guilty of not including dividends. So when you look at the index alone, the delta between any two points in time diverges, and the 20 return observed if one fails to include dividends is meaningless, in my my humble opinion. Yahoo finance will let you look at a stock ticker and offer you an \\\"\\\"adjusted close\\\"\\\" to include the dividend effect.\\\"\",\n \"Stock prices are set by supply and demand. If a particular stock has a high EPS, say, $100, then people will bid more for that stock, driving up its price over one with a $10 EPS. Your job as an investor is to find stocks with low share prices, but which will give you high earnings (either in dividends, our future share price). This means finding stocks which you believe the market has priced incorrectly, for whatever reason (as an example, many bank stocks are being punished right now, even if the underlying banks are in good shape financially). If you want to beat the market indices, be prepared to do a lot of research, because you're trying to outsmart the market as a whole.\",\n \"Market Capitalization is the equity value of a company. It measures the total value of the shares available for trade in public markets if they were immediately sold at the last traded market price. Some people think it is a measure of a company's net worth, but it can be a misleading for a number of reasons. Share price will be biased toward recent earnings and the Earnings Per Share (EPS) metric. The most recent market price only reflects the lowest price one market participant is willing to sell for and the highest price another market participant is willing to buy for, though in a liquid market it does generally reflect the current consensus. In an imperfect market (for example with a large institutional purchase or sale) prices can diverge widely from the consensus price and when multiplied by outstanding shares, can show a very distorted market capitalization. It is also a misleading number when comparing two companies' market capitalization because while some companies raise the money they need by selling shares on the markets, others might prefer debt financing from private lenders or sell bonds on the market, or some other capital structure. Some companies sell preferred shares or non-voting shares along with the traditional shares that exist. All of these factors have to be considered when valuing a company. Large-cap companies tend to have lower but more stable growth than small cap companies which are still expanding into new markets because of their smaller size.\",\n \"I hate to point to Wikipedia as an answer, but it does describe exactly what you are looking for... The S&P 500 is a free-float capitalization-weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. The stocks included in the S&P 500 are those of large publicly held companies that trade on either of the two largest American stock market exchanges; the New York Stock Exchange and the NASDAQ. The components of the S&P 500 are selected by committee... The committee selects the companies in the S&P 500 so they are representative of the industries in the United States economy. In addition, companies that do not trade publicly (such as those that are privately or mutually held) and stocks that do not have sufficient liquidity are not in the index. The S&P is a capitalization weighted index. If a stock price goes up, then it comprises more of the total index. If a stock goes down, it comprises less, and if it goes down too much, the committee will likely replace it. So to answer your question, if one stock were to suddenly skyrocket, nothing would happen beyond the fact that the index was now worth more and that particular stock would now make up a larger percentage of the S&P 500 index.\",\n \"Market capitalization is one way to represent the value of the company. So if a company has 10 million shares, which are each worth $100, then the company's market capitalization is 1 billion. Large cap companies tend to be larger and more stable. Small cap companies are smaller, which indicates higher volatility. So if you want more aggressive investments then you may want to invest in small cap companies while if you lean on the side of caution then big cap companies may be your friend.\",\n \"Have you actually read the Wikipedia article? To calculate the DJIA, the sum of the prices of all 30 stocks is divided by a divisor, the Dow Divisor. The divisor is adjusted in case of stock splits, spinoffs or similar structural changes, to ensure that such events do not in themselves alter the numerical value of the DJIA. Early on, the initial divisor was composed of the original number of component companies; which made the DJIA at first, a simple arithmetic average. The present divisor, after many adjustments, is less than one (meaning the index is larger than the sum of the prices of the components). That is: DJIA = sum(p) / d where p are the prices of the component stocks and d is the Dow Divisor. Events such as stock splits or changes in the list of the companies composing the index alter the sum of the component prices. In these cases, in order to avoid discontinuity in the index, the Dow Divisor is updated so that the quotations right before and after the event coincide: DJIA = sum(p_old) / d_old = sum(p_new) / d_new The Dow Divisor was 0.14602128057775 on December 24, 2015.[40] Presently, every $1 change in price in a particular stock within the average, equates to a 6.848 (or 1 ÷ 0.14602128057775) point movement. Knowing the old prices, new prices (e.g. following a split), and old divisor, you can easily compute the new divisor... Edit: Also, the detailed methodology is published by SP Indices (PDF). Edit #2: For simplicity's sake, assume the DJIA is an index that contains 4 stocks, with a price of $100.00 each. One of the stocks splits 2:1, meaning the new price/share is $50.00. Plugging the numbers into the above equation, we can determine the new Dow Divisor: 400 / 4 = 350 / d => d = 3.5\",\n \"First, the stock does represent a share of ownership and if you have a different interpretation I'd like to see proof of that. Secondly, when the IPO or secondary offering happened that put those shares into the market int he first place, the company did receive proceeds from selling those shares. While others may profit afterward, it is worth noting that more than a few companies will have secondary offerings, convertible debt, incentive stock options and restricted stock that may be used down the road that are all dependent upon the current trading share price in terms of how useful these can be used to fund operations, pay executives and so forth. Third, if someone buys up enough shares of the company then they gain control of the company which while you aren't mentioning this case, it is something to note as some individuals buy stock so that they can take over the company which happens. Usually this has more of an overall plan but the idea here is that getting that 50%+1 control of the company's voting shares are an important piece to things here.\",\n \"\\\"An index is just a mathematical calculation based on stock prices. Anyone can create such a calculation and (given a little effort) publish it based on publicly available data. The question of \\\"\\\"open source\\\"\\\" is simply whether or not the calculator chooses to publish the calculation used. Given how easy an index is to create, the issue is not the \\\"\\\"open source\\\"\\\" nature or otherwise, but its credibility and usefulness.\\\"\",\n \"\\\"TL;DR: Because stocks represent added value from corporate profits, and not the price the goods themselves are sold at. This is actually a very complicated subject. But here's the simplest answer I can come up with. Stocks are a commodity, just like milk, eggs, and bread. The government only tracks certain commodities (consumables) as part of the Consumer Price Index (CPI). These are generally commodities that the typical person will consume on a daily or weekly basis, or need to survive (food, rent, etc.). These are present values. Stock prices, on the other hand, represent an educated guess (or bet) on a company's future performance. If Apple has historically performed well, and analysts expect it to continue to perform, then investors will pay more for a stock that they feel will continue pay good dividends in the future. Compound this with the fact that there is usually limited a supply of stock for a particular company (unless they issue more stock). If we go back to Apple as an example, they can raise their price they charge on an iPhone from $400 to $450 over the course of say a couple years. Some of this may be due to higher wage costs, but efficiencies in the marketplace actually tend to drive down costs to produce goods, so they will probably actually turn a higher profit by raising their price, even if they have to pay higher wages (or possibly even if they don't raise their price!). This, in economics, is termed value added. Finally, @Hart is absolutely correct in his comment about the stocks in the S&P 500 not being static. Additionally, the S&P 500 is a hand picked set of \\\"\\\"winners\\\"\\\", if you will. These are not run-of-the-mill penny stocks for companies that will be out of business in a week. These are companies that Standard & Poor's Financial Services LLC thinks will perform well.\\\"\",\n \"As of this moment the DOW 30 is up 6.92% Year-to-date. Of the 30 stocks in the index 6 are in negative territory for the year. And of the 6 in negative territory 3 are farther below 0 than the average is above 0. The investors in those 3 stocks (Boeing, Goldman Sachs and Nike) would look at this year so far as a disaster. Individual stocks can move in opposite directions from the index.\",\n \"The companies which define the major indexes do not derive profit directly from the indexes. They are typically brokerages, which use the indexes as a tool for discussing investment options with their clients and as a publicity tool to remind the public that they are long-standing, respected firms whom we might want to consider working with. Can't mention the Dow without being reminded of Dow Jones, for example. Likewise the Standard & Poor's 500 reminds us that S&P is still going strong. There may also be some slight market manipulation opportunities in choosing which specific stocks are included in each index, but since investors rarely follow an index exactly as originally defined I'm not convinced that's significant. And the mix included in each index changes relatively rarely and has to be justified by what the index claims to be representing.\",\n \"Judging by the fact that 6% of the companies in the U.S earn roughly 50% of the profits, the Dow Jones is most certainty not useless. The 6% of companies that earn all the profit are the biggest movers of the market, thus they give a basic glimpse of how the economy is faring.\",\n \"\\\"I think that the general public is conditioned to think more in terms of points rather than percentages, so that 200 points is easier to fathom than the equivalent percent. We all translate internally what this means. Of course it is less precise, but it also makes for good copy in the publishing industry (\\\"\\\"Market Down 1000 points!\\\"\\\")\\\"\",\n \"\\\"Funds which track the same index may have different nominal prices. From an investors point of view, this is not important. What is important is that when the underlying index moves by a given percentage, the price of the tracking funds also move by an equal percentage. In other words, if the S&P500 rises by 5%, then the price of those funds tracking the S&P500 will also rise by 5%. Therefore, investing a given amount in any of the tracking funds will produce the same profit or loss, regardless of the nominal prices at which the individual funds are trading. To see this, use the \\\"\\\"compare\\\"\\\" function available on the popular online charting services. For example, in Google finance call up a chart of the S&P500 index, then use the compare textbox to enter the codes for the various ETFs tracking the S&P500. You will see that they all track the S&P500 equally so that your relative returns will be equal from each of the tracking funds. Any small difference in total returns will be attributable to management fees and expenses, which is why low fees are so important in passive investing.\\\"\",\n \"I found the answer. It was the Stock Ticker that I was looking for. So, if I understand correctly the price at certain moment is the price of the latest sale and can be used to get a global picture of what certain stock is worth at that certain instant.\",\n \"If a stock that makes up a big part of the Dow Jones Industrial Average decided to issue a huge number of additional shares, that will make the index go up. At least this is what should happen, since an index is basically a sum of the market cap of the contributing companies. No, indices can have various weightings. The DJIA is a price-weighted index not market-cap weighted. An alternative weighting besides market-cap and price is equal weighting. From Dow Jones: Dow Jones Industrial Average™. Introduced in May 1896, the index, also referred to as The Dow®, is a price-weighted measure of 30 U.S. blue-chip companies. Thus, I can wonder what in the new shares makes the index go up? If a stock is split, the Dow divisor is adjusted as one could easily see how the current Dow value isn't equal to the sum or the share prices of the members of the index. In other cases, there may be a dilution of earnings but that doesn't necessarily affect the stock price directly as there may be options exercised or secondary offerings made. SO if the index, goes up, will the ETF DIA also go up automatically although no additional buying has happened in the ETF itself? If the index rises and the ETF doesn't proportionally, then there is an arbitrage opportunity for someone to buy the DIA shares that can be redeemed for the underlying stocks that are worth more in this case. Look at the Creation and Redemption Unit process that exists for ETFs.\",\n \"In general, the goal of an S&P 500 index fund is to replicate the performance of the S&P 500 Index. To do this, the fund will buy the same stocks in the same proportions as the weighting of the Index. The S&P 500 Index is free-float capitalization weighted. This means that the higher capitalization stocks (based on publicly traded shares only) are more heavily weighted and factor into the Index value more heavily than the smaller capitalization stocks, or the stocks that have a smaller publicly traded value. For example, companies like Apple, ExxonMobil, and Microsoft have a much larger weight in the index value than smaller companies. Alternatively, there are some S&P index funds that are equal-weighted. In these funds, the managers have chosen to purchase all 500 of the stocks in the index, but in equal proportions instead of the weighted proportions of the index. These equal-weighted funds will not as closely match the index price as the traditionally weighted index funds. Instead, they might do better or worse than the index, depending on how the individual stocks do. You'll need to look at the prospectus of the index funds you are interested in to see which approach the fund is taking.\",\n \"\\\"Futures are an agreement to buy or sell something in the future. The futures \\\"\\\"price\\\"\\\" is the price at which you agree to make the trade. This price does not indicate what will happen in the future so much as it indicates the cost of buying the item today and holding it until the future date. Hence, for very liquid products such as stock index futures, the futures price is a very simple function of today's stock index value and current short-term interest rates. If the stock exchange is closed but the futures exchange is open, then using the futures price and interest rates one can back out an implied \\\"\\\"fair value\\\"\\\" for the index, which is in essence the market's estimate of what the stock index value would be right now if the stock market were open. Of course, as soon as the stock exchange opens, the futures price trades to within a narrow band of the actual index value, where the size of the band depends on transaction costs (bid-ask spread, commissions, etc.).\\\"\",\n \"One thing to keep in mind when calculating P/E on an index is that the E (earnings) can be very close to zero. For example, if you had a stock trading at $100 and the earnings per share was $.01, this would result in a P/E of 10,000, which would dominate the P/E you calculate for the index. Of course negative earnings also skew results. One way to get around this would be to calculate the average price of the index and the earnings per share of the index separately, and then divide the average price of the index by the average earnings per share of the index. Different sources calculate these numbers in different ways. Some throw out negative P/Es (or earnings per share) and some don't. Some calculate the price and earnings per share separate and some don't, etc... You'll need to understand how they are calculating the number in order to compare it to PEs of individual companies.\",\n \"A market downturn is a great opportunity to pick up valuable stocks at low prices but do note that this is quite a risky proposition and requires abundant research. But again, as is mentioned in previous answers, the start of the downturn is evident only in hindsight, and it is always advisable to have a balanced/diversified portfolio, risking only what you can afford to lose. In any case, indices like Dow Jones, NASDAQ, S&P500 are calculated on the basis of only a few companies that broadly represent their individual sectors.\",\n \"Sorry for the late reply. Nonetheless the Dow has the same pros as any other index but what sticks out to me is that all of the stocks are extremely popular with private investors. In my experience it helps to compare stock development of competitors in terms of popularity.\",\n \"Market price of a stock typically trades in a range of Price/Earnings Ratio (P/E ratio). Or in other words, price of a stock = Earnings * P/E ratio Because of this direct proportionality of stock price with earnings, stock prices move in tandem with earnings.\",\n \"The other answer has some good points, to which I'll add this: I believe you're only considering a company's Initial Public Offering (IPO), when shares are first offered to the public. An IPO is the way most companies get a public listing on the stock market. However, companies often go to market again and again to issue/sell more shares, after their IPO. These secondary offerings don't make as many headlines as an IPO, but they are typical-enough occurrences in markets. When a company goes back to the market to raise additional funds (perhaps to fund expansion), the value of the company's existing shares that are being traded is a good indicator of what they may expect to get for a secondary offering of shares. A company about to raise money desires a higher share price, because that will permit them to issue less shares for the amount of money they need. If the share price drops, they would need to issue more shares for the same amount of money – and dilute existing owners' share of the overall equity further. Also, consider corporate acquisitions: When one company wants to buy another, instead of the transaction being entirely in cash (maybe they don't have that much in the bank!), there's often an equity component, which involves swapping shares of the company being acquired for new shares in the acquiring company or merged company. In that case, the values of the shares in the public marketplace also matter, to provide relative valuations for the companies, etc.\",\n \"This didn't answer his question. Also, while I agree with you that the Dow is meaningless (and your explanation why). In the investment industry, we don't only focus on the S&P Index.. Many have a specific benchmark they aim to outperform that matches their investment strategy (i.e. Russell Mid Cap Value, Russell 3000, etc.).\",\n \"\\\"With regards to \\\"\\\"the stock market,\\\"\\\" there are actually two markets involved here: PRIMARY MARKET Value is created in the primary market where capital is exchanged for a residual interest in an opportunity. As a theoretical example, if a person operating solo (or with a small team) were to discover or create a breakthrough product, such as an retro-aging pill, that person likely wouldn't have the financial means to fully capitalize on his new-found idea. Others with more capital may also soon discover his idea or improve upon it and exploit it before he has a chance to. For a real life example, a person studying at a California university during the 1990s discovered a method to index internet webpages and was approached by some students after a talk on the subject. He returned to his native southern Europe country seeking funds to develop the web-indexing business and failed to do so. Two of the students that approached him found capital readily available from investors in their campus sphere; their business is today one of the biggest in the world. They had exchanged part of their residual interest for capital to develop their business. The primary market of the stock market works mostly same in creating value. It is also dependent upon the secondary market. SECONDARY MARKET The secondary market indicates the day-to-day value of an enterprise. That market allows shareholders to manage their risk appetites and the enterprise's operators to execute their shareholders' interest for gains. In most cases, a secondary market reference will be used for pricing a primary market issuance. Without that reference, capital would be allocated less efficiently creating additional costs for all involved, issuers and investors. Consider what would happen if you sought to purchase a house and the mortgage lenders had no indication what the property was worth. This would make capital very expensive or possibly deny you access to credit. By having an indication, all involved are better off. That is value creating. There are some large developed economies' equity markets, such as that in Germany, where many large enterprises stay privately held and credit financing, mostly from banks, is used. The approach has proven successful as well. So why do some nations' financial markets still rely on capricious stock markets when private credit financing may do just fine in many cases? It's largely a matter of national culture. Countries such as the Netherlands, the UK and the US have long had active equity markets in continuous use that investors have trusted for centuries. CONCLUSION When leaders of an enterprise wish to grow the business to a large size with investment from the stock market, they aren't limited by the size of their banks' capital. Those leaders and their prospective investors will rely on the secondary market to determine values. In addition, if the leaders raise equity instead of debt capital, they are usually accorded more flexibility to take risks since shareholders usually have their own flexibility to transfer those risks to other investors if for any number of reasons they choose to do so. Stock markets create value in many other ways. The above are the main ways.\\\"\",\n \"\\\"The market capitalization of a stock is the number of shares outstanding (of each stock class), times the price of last trade (of each stock class). In a liquid market (where there are lots of buyers and sellers at all price points), this represents the price that is between what people are bidding for the stock and what people are asking for the stock. If you offer any small amount more than the last price, there will be a seller, and if you ask any small amount less than the last price, there will be a buyer, at least for a small amount of stock. Thus, in a liquid market, everyone who owns the stock doesn't want to sell at least some of their stock for a bit less than the last trade price, and everyone who doesn't have the stock doesn't want to buy some of the stock for a bit more than the last trade price. With those assumptions, and a low-friction trading environment, we can say that the last trade value is a good midpoint of what people think one share is worth. If we then multiply it by the number of shares, we get an approximation of what the company is worth. In no way, shape or form does it not mean that there is 32 billion more invested in the company, or even used to purchase stock. There are situations where a 32 billion market cap swing could mean 32 billion more money was invested in the company: the company issues a pile of new shares, and takes in the resulting money. People are completely neutral about this gathering in of cash in exchange for dilluting shares. So the share price remains unchanged, the company gains 32 billion dollars, and there are now more shares outstanding. Now, in some sense, there is zero dollars currently invested in a stock; when you buy a stock, you no longer have the money, and the money goes to the person who no longer has the stock. The issue here is the use of the continuous tense of \\\"\\\"invested in\\\"\\\"; the investment was made at some point, but the money doesn't really stay in this continuous state of being. Unless you consider the investment liquid, and the option to take money out being implicit, it being a continuous action doesn't make much sense. Sometimes the money is invested in the company, when the company causes stocks to come into being and sells them. The owners of stocks has invested money in stocks in that they spent that money to buy the stocks, but the total sum of money ever spent on stocks for a given company is not really a useful value. The market capitalization is an approximation, which under the efficient market hypothesis (that markets find the correct price for things nearly instantly) is reasonably accurate, of the value the company has collectively to its shareholders. The efficient market hypothesis isn't accurate, but it is an acceptable rule of thumb. Now, this value -- market capitalization -- is arguably not the total value of a company: other stakeholders include bond holders, labour, management, various contract counter-parties, government and customers. Some companies are structured so that almost all value is captured not by the stock owners, but by contract counter-parties (this is sometimes used for hiding assets or debts). But for most large publically traded companies, it (in theory) shouldn't be far off.\\\"\",\n \"Willis Group Holdings Set to Join the S&P 500; Fossil Group to Join S&P MidCap 400; Adeptus Health to Join S&P SmallCap 600 notes in part for the S & P case: Willis Group Holdings plc (NYSE:WSH) will replace Fossil Group Inc. (NASD:FOSL) in the S&P 500, and Fossil Group will replace Towers Watson & Co. (NASD:TW) in the S&P MidCap 400 after the close of trading on Monday, January 4. Willis Group is merging with Towers Watson in a deal expected to be completed on or about that date pending final conditions. Post merger, Willis Group Holdings will change its name to Willis Towers Watson plc and trade under the ticker symbol “WLTW”. Fossil has a market capitalization that is more representative of the midcap market space. As of Jan. 8, Fossil is about $1.44B in market cap and Willis is $21.02B for those wondering. Apple with a market cap of $540.58B is 3.26% of the index making the entire index worth approximately $16,582.21B, so Fossil is worth .00868% of the overall index for those wanting some numbers here. Thus, if a company acquires another and becomes bigger than there can be replacements made in those indices that have an artificial number of small members. Alternatively, a member may be removed for lack of representation where it is just so small compared to other companies that may be a better fit as some indices could be viewed as actively managed in a sense. In contrast, there are indices like those from Russell, known for the Russell 2000 small-cap index: Q: Why don't you reconstitute the indexes more often than once a year? A: Maintaining representative indexes must be weighed against the costs associated with making frequent changes to index constituents (namely, buying and selling stocks). The Russell Indexes are annually reconstituted because our research has shown that this strikes a reasonable balance between accuracy and cost. We originally reconstituted our indexes quarterly, then semi-annually, but found these options to be suboptimal. Our extensive research demonstrates that annual reconstitution accurately represents the capitalization segments and minimizes the turnover required to reflect the segments as they change. Thus there can be different scenarios. Then there can be the effect on index funds when price-weighted indices like the Dow Jones Industrial Average has a member that does a stock split that causes some rebalancing too. On the DJIA Divisor: The Dow Jones Industrial Average (DJIA) is a price-weighted index that is calculated by dividing the sum of the prices of the 30 component stocks (Dow Jones Industrial Average components) by a number called the DJIA Divisor or Dow Divisor . The index divisor is updated periodically and adjusted to offset the effect of stock splits, bonus issues or any change in the component stocks included in the DJIA. This is done in order to keep the index value consistent.\",\n \"One reason it matters whether or not you're beating the S&P 500 (or the Wilshire 5000, or whatever benchmark you choose to use) is to determine whether or not you'd be better off investing in an index fund (or some other investment vehicle) instead of pursuing whatever your current investment strategy happens to be. Even if your investment strategy makes money, earning what the S&P 500 has averaged over multiple decades (around 10%) with an index fund means a lot more money than a 5% return with an actively managed portfolio (especially when you consider factors like compound interest and inflation). I use the S&P 500 as one of my criteria for judging how well (or poorly) my financial adviser is doing for me. If his recommendations (or trading activity on my behalf, if authorized) are inferior to the S&P 500, for too long, then I have a basis to discontinue the relationship. Check out this Wikipedia entry on stock market indices. There are legitimate criticisms, but on the whole I think they are useful. As an aside, the reason I point to index funds specifically is that they are the one of the lowest-cost, fire-and-forget investment strategies around. If you compare the return of the S&P 500 index over multiple decades with most actively managed mutual funds, the S&P 500 index comes out ahead.\",\n \"Suppose I purchase $10,000 worth of a particular share today. If the person(s) I am purchasing the shares from paid $9,000 for those shares, then I replacing their $9,000 investment with my $10,000 investment. This is a net inflow of $1,000 into the market. Similarly, if the person(s) I am purchasing the shares from paid $11,000 for those shares, then their $11,000 investment is being replace by my $10,000 investment. This is a net outflow of $1,000 out of the market. The aggregate of all such inflows and outflows in the net inflow/outflow into the market over a given period of time. (Here we are ignoring the effects of new share issues.)\",\n \"Stock prices are indeed proportional to supply and demand. The greater the demand for a stock, the greater the price. If they are, would this mean that stock prices completely depend on HOW the public FEELS/THINKS about the stock instead of what it is actually worth? This is a question people have argued for decades. Literature in behavioral finance suggests that investors are not rational and thus markets are subject to wild fluctuation based on investor sentiment. The efficient market theory (EMT) argues that the stock market is efficient and that a stock's price is an accurate reflection of its underlying or intrinsic value. This philosophy took birth with Harry Markovitz's efficient frontier, and Eugene Fama is generally seen as the champion of EMT in the 1960's and onward. Most investors today would agree that the markets are not perfectly efficient, and that a stock's price does not always reflect its value. The renowned professor Benjamin Graham once wrote: In the short run, the market is a voting machine but in the long run it is a weighing machine. This suggests that prices in the short term are mainly influenced by how people feel about the stock, while in the long run the price reflects what it's actually worth. For example, people are really big fans of tech stocks right now, which suggests why LinkedIn (stock: LNKD) has such a high share price despite its modest earnings (relative to valuation). People feel really good about it, and the price might sustain if LinkedIn becomes more and more profitable, but it's also possible that their results won't be absolutely stellar, so the stock price will fall until it reflects the company's fundamentals.\",\n \"\\\"I am guessing that when you say \\\"\\\"FRENCH40\\\"\\\" and \\\"\\\"GERMAN30\\\"\\\" you are referring to the main French and German stock market indices. The main French index is the CAC-40 with its 40 constituent companies. The main German index is the DAX, which has 30 constituents. The US30 is presumably the Dow Jones Index which also has 30 constituents. These are stock market indices that are used to measure the value of a basket of shares (the index constituents). As the value of the constituents change, so does the value of the index. There are various financial instruments that allow investors to profit from movements in these indices. It is those people who invest in these instruments that profit from price movements. The constituent companies receive no direct benefit or profit from investor trading in these instruments, nor does the government.\\\"\",\n \"An index fund is just copying the definition of an index. The group that defines the index determines how to weight the different parts of the index. The index fund just makes sure they invest the same way the index creator wants. Think of a non-investment scenario. A teacher can grade tests, quizzes, homework, in-class assignments, research papers. They decide how much weight to give each category and how much weight to give each part of each category. when a student wants to see how they are doing they take the information in the syllabus, and generate a few formulas in a spreadsheet to calculate their current grade. They can also calculate what they need to get on the final exam to get the grade they want.\",\n \"It seems like you want to compare the company's values not necessarily the stock price. Why not get the total outstanding shares and the stock price, generate the market cap. Then you could compare changes to market cap rather than just share price.\",\n \"\\\"Stock market indexes are generally based on market capitalization, which is not the same as GDP. GDP includes the value of all goods and services produced in a country; this includes a large amount of small-scale production which may not be reflected in stock market capitalizations. Thus the ratio between countries' GDPs may not be the same as the ratio of their total market capitalization. For instance, US GDP is approximately 3.8 times as much as Japan's (see here), but US total market cap is about 5.5 as much as Japan's (see here). The discrepancy can be even more severe when comparing \\\"\\\"developed\\\"\\\" economies like the US to \\\"\\\"developing\\\"\\\" (or \\\"\\\"less-developed\\\"\\\") economies in which there is less participation in large-scale financial systems like stock markets. For instance, US GDP is roughly 10 times that of Brazil, but US total market cap is roughly 36 times that of Brazil. Switzerland has a total market cap nearly double that of Brazil despite its total GDP being less than half of Brazil's. Since the all-world index includes all investable economies, it will include many economies whose share of market cap is disproportionately lower than their share of GDP. In addition, according to the fact sheet you linked to, that index tracks only large- and mid-cap stocks. This will further skew the weighting to developed economies and to the US in particular, since the US has a disproportionate share of the largest companies. Obviously one would need to take a more detailed look at all the weights to determine if these factors account precisely for the level of discrepancy you see in this particular index. But hopefully that explanation gives an idea of why the US might be weighted more heavily in a stock index than it is in raw GDP.\\\"\",\n \"\\\"To calculate a sector (or index) P/E ratio you need to sum the market caps of the constituent stocks and divide it by the sum of the total earnings of the constituent stocks (including stocks that have negative earnings). There are no \\\"\\\"per share\\\"\\\" figures used in the calculation. Beware when you include an individual stock that there may be multiple issues associated with the company that are not in the index.... eg. Berkshire Hathaway BRK.B is in the S&P 500 but BRK.A is not. In contrast, Google has both GOOGL and GOOG included in the S&P 500 index but not its unlisted Class B shares. All such shares need to be included in the market cap and figuring out the different share class ratios can be tricky.\\\"\",\n \"Let's say that you bought a share of Apple for $10. When (if ever) their stock sold for $10, it was a very small company with a very small net worth; that is, the excess of assets over liabilities. Your $10 share was perhaps a 1/10,000,000th share of a tiny company. Over the years, Apple has developed both software and hardware that have real value to the world. No-one knew they needed a smartphone and, particularly, an iPhone, until Apple showed it to us. The same is true of iPads, iPods, Apple watches, etc. Because of the sales of products and services, Apple is now a huge company with a huge net worth. Obviously, your 1/10,000,000th share of the company is now worth a lot more. Perhaps it is worth $399. Maybe you think Apples good days are behind it. After all, it is harder to grow a huge company 15% a year than it is a small company. So maybe you will go into the marketplace and offer to sell your 1/10,000,000th share of Apple. If someone offers you $399, would you take it? The value of stocks in the market is not a Ponzi scheme, although it is a bit speculative. You might have a different conclusion and different research about the future value of Apple than I do. Your research might lead you to believe the stock is worth $399. Mine might suggest it's worth $375. Then I wouldn't buy. The value of stocks in the market is based on the present and estimated future value of living, breathing companies that are growing, shrinking and steady. The value of each company changes all the time. So, then, does the price of the stock. Real value is created in the stock market when real value is created in the underlying company.\",\n \"Yes an index is by definition any arbitrary selection. In general, to measure performance there are 2 ways: By absolute return - meaning you want a positive return at all times ie. 10% is good. -1% is bad. By relative return - this means beating the benchmark. For example, if the benchmark returns -20% and your portfolio returns -10%, then it has delivered +10% relative returns as compared to the benchmark.\",\n \"As Ross says, SPX is the index itself. This carries no overheads. It is defined as a capitalization-weighted mixture of the stocks of (about) 500 companies. SPY is an index fund that tries to match the performance of SPX. As an index fund it has several differences from the index:\",\n \"\\\"Inflation and stock returns are completely different things The CPI tracks the changes in the prices of a basket of goods a consumer might buy, the S&P 500 tracks the returns earned by investors in the equity of large companies. The two are very different things, and not closely linked. Example: A world without inflation Consider a world in which there was no inflation. Prices are fixed. Should stocks return zero? Certainly not. Companies take raw materials and produce goods and services that have value greater than that of the raw materials. They create new wealth. This wealth becomes profit for the company, which then is passed on to the owners of the company (equityholders) either in the form of dividends or, more commonly, price increases. Example: A world with no inflation and no economic growth Note that I have not implied above that companies have to grow in order for returns to outperform inflation. Total stock returns depend on the current and expected profit of the firm. Firms can remain the same size and continually kick out profits. Total returns will be positive in this environment even if there is no growth and no inflation. If the firms pay the money out as dividends, investors get a cash flow. If they retain these earnings, the value of the firm's equity increases. Total returns take both types of income into account. Technically the S&P 500 is not a total return index, but in our current legal and corporate culture environment, there is a preference for retaining profits rather than paying them out. This causes price increases. Risk bearing In principle, if profit was assured, then investors would bid up stock prices so high that profit would have to compete with the risk-free rate, which often is close to inflation (like, right now). However, profit is not assured. Firm profit swings around over time and constitutes a significant source of risk. We can think of the owners of the firm as being the bondholders and equityholders. These assets are structured such that almost all the profit risk is born by equityholders. We can therefore think of equityholders as being compensated for bearing the risk that would otherwise be born by bondholders. Because equityholders are bearing risk, stock prices must be low enough that stocks have a positive expected return (above the risk-free rate, which is presumably not significantly below inflation). This is true for the same reason that insurance premiums are positive--people have to be compensated for bearing risk. See my answer to this question for a discussion of why risk means we should expect stock prices to increase indefinitely (even if inflation halts). The S&P is not a measure of firm size or value The S&P measures the return earned by investors, not the size of US companies. True, if constituent companies grow and nothing else changes, the index goes up, but if a company shrinks a lot, it gets dropped out, rather than dragging the index down. By the way, please note that dollars \\\"\\\"put into\\\"\\\" equities are not stuck somewhere. They are passed on to the seller, who then uses it to buy something (even if this is a new equity issuance and the seller is the firm itself). The logic that growth of firms somehow sucks money out of usage is incorrect.\\\"\",\n \"Dow Jones: http://en.wikipedia.org/wiki/Historical_components_of_the_Dow_Jones_Industrial_Average NASDAQ: http://en.wikipedia.org/wiki/NASDAQ-100 (scroll down) S&P Tricky. From what I can find, you need to be in Harvard Business School, a member of CRSP, or have access to Bloomberg's databases. S&P did have the info available years ago, but no longer that I can find.\",\n \"It might mean Equal Weighted based on Market cap, rather than Price? For instance, All of MSCIs indexes are based on security's market cap, but then a factor is applied to give them equal weights once a quarter. From then on, weights will fluctuate based on market cap performance. Edit. Not sure why down voted, but you can check here http://www.msci.com/eqb/methodology/meth_docs/MSCI_Equal_Weighted_Indices_Methodology_May11.pdf So each quarter weights are set to be equal, but then between quarters the weights fluctuate due to performance\",\n \"Why not figure out the % composition of the index and invest in the participating securities directly? This isn't really practical. Two indices I use follow the Russell 2000 and the S&P 500 Those two indices represent 2500 stocks. A $4 brokerage commission per trade would mean that it would cost me $10,000 in transaction fees to buy a position in 2500 stocks. Not to mention, I don't want to track 2500 investments. Index funds provide inexpensive diversity.\",\n \"\\\"The S&P 500 is an index. This refers to a specific collection of securities which is held in perfect proportion. The dollar value of an index is scaled arbitrarily and is based off of an arbitrary starting price. (Side note: this is why an index never has a \\\"\\\"split\\\"\\\"). Lets look at what assumptions are included in the pricing of an index: All securities are held in perfect proportion. This means that if you invest $100 in the index you will receive 0.2746 shares of IBM, 0.000478 shares of General Motors, etc. Also, if a security is added/dropped from the list, you are immediately rebalancing the remaining money. Zero commissions are charged. When the index is calculated, they are using the current price (last trade) of the underlying securities, they are not actually purchasing them. Therefore it assumes that securities may be purchased without commission or other liquidity costs. Also closely related is the following. The current price has full liquidity. If the last quoted price is $20 for a security, the index assumes that you can purchase an arbitrary amount of the security at that price with a counterparty that is willing to trade. Dividends are distributed immediately. If you own 500 equities, and most distributed dividends quarterly, this means you will receive on average 4 dividends per day. Management is free. All equities can be purchased with zero research and administrative costs. There is no gains tax. Trading required by the assumptions above would change your holdings constantly and you are exempt from short-term or long-term capital gains taxes. Each one of these assumptions is, of course, invalid. And the fund which endeavors to track the index must make several decisions in how to closely track the index while avoiding the problems (costs) caused by the assumptions. These are shortcuts or \\\"\\\"approximations\\\"\\\". Each shortcut leads to performance which does not exactly match the index. Management fees. Fees are charged to the investor as load, annual fees and/or redemptions. Securities are purchased at real prices. If Facebook were removed from the S&P 500 overnight tonight, the fund would sell its shares at the price buyers are bidding the next market day at 09:30. This could be significantly different than the price today, which the index records. Securities are purchased in blocks. Rather than buying 0.000478 shares of General Motors each time someone invests a dollar, they wait for a few people and then buy a full share or a round lot. Securities are substituted. With lots of analysis, it may be determined that two stocks move in tandem. The fund may purchase two shares of General Motors rather than one of General Motors and Ford. This halves transaction costs. Debt is used. As part of substitution, equities may be replaced by options. Option pricing shows that ownership of options is equivalent to holding an amount of debt. Other forms of leverage may also be employed to achieve desired market exposure. See also: beta. Dividends are bundled. VFINX, the largest S&P 500 tracking fund, pays dividends quarterly rather than immediately as earned. The dividend money which is not paid to you is either deployed to buy other securities or put into a sinking fund for payment. There are many reasons why you can't get the actual performance quoted in an index. And for other more exotic indices, like VIX the volatility index, even more so. The best you can do is work with someone that has a good reputation and measure their performance.\\\"\",\n \"What percent of a company are you buying when you purchase stock? The percent of a company represented by a single share can be calculated by percent = 1/number_of_shares*100% Apple comprises 5,250,000,000 shares, so one share makes up about 1.9e-8% of a company, or 0.000000019% of Apple.\",\n \"The suffix represents the stock exchange the stock is traded on. N represents the New York Stock Exchange and O represents the Nasdaq. Sometimes a stock can be listed on more than one exchange so the suffix will give you an indication of which exchange the stock is on. For example the Australian company BHP Billiton Ltd is listed on multiple exchanges so is given a different suffix for the different exchanges (especially when the code is the same for each exchange). Below are a few examples of BHP:\",\n \"Yes, it depends on the fund it's trying to mirror. The ETF for the S&P that's best known (in my opinion) is SPY and you see the breakdown of its holdings. Clearly, it's not an equal weighted index.\",\n \"Bid and ask prices of stocks change not just daily, but continuously. They are, as the names suggest, what price people are asking for to be willing to sell their stock, and how much people are bidding to be willing to buy it at that moment. Your equation is accurate in theory, but doesn't actually apply. The bid and ask prices are indicators of the value of the stock, but the only think you care about as a trader are what you actually pay and sell it for. So regardless of the bid/ask the equation is: Since you cannot buy an index directly (index, like indicator) it doesn't make sense to discuss how much people are bidding or asking for it. Like JoeTaxpayer said, you can buy (and therefore bid/ask) for ETFs and funds that attempt to track the value of the S&P 500.\",\n \"\\\"Take the case where a stock has just two owners, A and B, both at $10. One of them sells his shares to C, at $11. Now B has made $1 in profit but is no longer an owner of the stock. A hasn't sold anything but his shares are worth 10% more due to the last traded price printed. C has bought shares at $11 and the price is $11, so technically he hasn't lost any money. In a larger market, there are winners and losers every day on a single stock, but they may not remain owners of a stock. There could be days in which those that remain owners are all winners - say when a stock goes up to an all time high and all those that are currently owners have an average buy price lower than the last traded price. And the reverse applies too. It is of course more complicated. Say you own a stock and let someone else \\\"\\\"borrow\\\"\\\" it for a short-selling opportunity (he sells it in the market). For each uptick in price, you win, the short seller loses, and the guy he sold it to also wins. A person that has a covered call on a stock is not a winner beyond a point. And so on.\\\"\",\n \"\\\"This is called \\\"\\\"change\\\"\\\" or \\\"\\\"movement\\\"\\\" - the change (in points or percentage) from the last closing value. You can read more about the ticker tape on Investopedia, the format you're referring to comes from there.\\\"\",\n \"It's a way to help normalize the meaning of the earnings report. Some companies like Google have a small number of publicly traded shares (322 Million). Others like Microsoft have much larger numbers of shares (8.3 Billion). The meaning depends on the stock. If it's a utility company that doesn't really grow, you don't want to see lots of changes -- the earnings per share should be stable. If it's a growth company, earnings should be growing quickly, and flat growth means that the stock is probably going down, especially if slow growth wasn't expected.\",\n \"Because it's a good indicator of how much their asset worth. In oversimplified example, wouldn't you care how much your house, car, laptop worth? Over the course of your life you might need to buy a bigger house, sell your car etc. to cope with your financial goal / situation. It's similar in company's case but with much more complexity.\",\n \"I was thinking that the value of the stock is the value of the stock...the actual number of shares really doesn't matter, but I'm not sure. You're correct. Share price is meaningless. Google is $700 per share, Apple is $100 per share, that doesn't say anything about either company and/or whether or not one is a better investment over the other. You should not evaluate an investment decision on price of a share. Look at the books decide if the company is worth owning, then decide if it's worth owning at it's current price.\",\n \"It's either a broad benchmark sp500, msci world, lehman agg, and or a cash index. Most will not use a specific benchmark. While the broad benchmark may not be applicable from my experience its usually there as a proxy for the overall market.\",\n \"Calculation. To calculate the DJIA, the sum of the prices of all 30 stocks is divided by a divisor, the Dow Divisor. The divisor is adjusted in case of stock splits, spinoffs or similar structural changes, to ensure that such events do not in themselves alter the numerical value of the DJIA.\",\n \"Theoretically, it could be daily, but depending upon the number of companies in the index, it could be anywhere between daily or once a month or so. Apart from that, there is a periodic index review that happens once every quarter. The methodology for each index is also different, and you need to be aware of it (we had positions on literally hundreds of indices, and I knew the methodology of almost each of them). If you have say, 2 billion dollars tracking a certain index, even a miniscule change in the composition would be substantial for you. But for certain others, you may just need to buy and sell $10k worth of stocks, and we would not even bother.\",\n \"The point is that the bid and ask prices dictate what you can buy and sell at (at market, at least), and the difference between the two, or spread, contributes implicitly to your gains or losses. For example, say your $1 stock actually had a bid of $0.90 and an ask of $1.10; i.e. say that $1 was the last price. You would have to buy the stock at the ask price of $1.10, but now you can only sell that stock at the bid price of $0.90. Thus, you would need to make at least that $0.20 spread before you can make a profit.\",\n \"With regard to commodity futures, a paper released in January 2010 by Aulerich, Irwin, and Garcia, concluded that index funds have essentially no impact on commodity futures. Looking at stocks, a stock that gets included in a major index does increase in price. It increases its turnover by 27% and increases its price by between 2.7% and 5.5%, according to information cited by Kula in this paper, though it looks like the price increase tends to happen in the lead up to the stock being included. Interestingly, I have read an article but cannot now locate it, which states that there's a measurable, albeit fairly small, price bubble on stocks included in common indexes, on Monday mornings, Friday afternoons, and at the start and end of the month. That is, the times when mutual funds are most likely to rebalance their holdings. This almost certainly applies to a lesser extent to other stocks, too. My understanding is that the price difference was very small, however. Generally speaking, stocks which make part of well-known indexes will tend to be in higher demand than stocks which do not. It remains the case that almost all actively-managed mutual funds are unable to consistently beat the indexes, even with this taken into account.\",\n \"In market cap weighted index there is fairly heavy concentration in the largest stocks. The top 10 stocks typically account for about 20% of the S&P 500 index. In Equal Weight this bias towards large caps is removed. The Market Cap method would be good when large stocks drive the markets. However if the markets are getting driven by Mid Caps and Small caps, the equal weight wins. Historically most big companies start out small and grow big fast in a short span of time. Thus if we were to do Market cap one would have purchased smaller number of shares of the said company as its cap/weight would have been small and when it becomes big we would have purchased the shares at a higher price. However if we were to do equal weight, then as the company grows big one would have more share at a cheaper price and would result in better returns. There is a nice article on this, also gives the comparision of the returns over a period of 10 years, where equal weight index has done good. It does not mean that it would continue. http://www.investopedia.com/articles/exchangetradedfunds/08/index-debate.asp#axzz1RRDCnFre\",\n \"More importantly, index funds are denominated in specific currencies. You can't buy or sell an index, so it can be dimensionless. Anything you actually do to track the index involves real amounts of real money.\",\n \"\\\"An important thing that many people fail to realize is that the number of shares outstanding in a stock, times the current market price of those shares, does not represent anything related to the total value of those shares. If a company has one million shares outstanding and its total value is $10 million, then the real worth of each share is $10. If few people feels like buying or selling, but a few people think the company is worth $50 million and offer $50/share, that could raise the market price to $50/share, but it wouldn't mean that the company became worth five times as much; it would merely mean the stock was overpriced. If, after the price went to $50/share, all the owners of the stock put in stop-loss orders at $45. Note that the real $10/share \\\"\\\"real value\\\"\\\" of their stock would never have changed. If the people who thought the stock was worth $50 decided to get out of the market, and nobody else was willing to offer more than $10, that would instantly drop the price to $10. The fact that a million shares of stock have stop-loss orders at $45 wouldn't magically generate buyers for those stocks at that price. Indeed, unchecked stop-loss orders would have the reverse effect, since many people who would have been willing if not eager to buy the stock if it had been available for less than $10/share would instead be trying to sell it below that price. It's too bad people think that the number of shares outstanding times the current market price represents some kind of \\\"\\\"meaningful quantity\\\"\\\". If the present cash value of all future payouts associated with a share of stock is $10, then someone who buys a share of stock for less than that makes money off the seller; someone who pays more loses money to the seller. Many people think they can lose money to the seller and still come out okay if the price goes higher, but what that really means is that they're hoping to find a bigger sucker--a game where it's guaranteed that some people will have losses they don't recoup.\\\"\",\n \"The stock market is just like any other market, but stocks are bought and sold here. Just like you buy and sell your electronics at the electronics market, this is a place where buyers and sellers come together to buy and sell shares or stocks or equity, no matter what you call it. What are these shares? A share is nothing but a portion of ownership of a company. Suppose a company has 100 shares issued to it, and you were sold 10 out of those, it literally means you are a 10% owner of the company. Why do companies sell shares? Companies sell shares to grow or expand. Suppose a business is manufacturing or producing and selling goods or services that are high in demand, the owners would want to take advantage of it and increase the production of his goods or services. And in order to increase production he would need money to buy land or equipment or labor, etc. Now either he could go get a loan by pledging something, or he could partner with someone who could give him money in exchange for some portion of the ownership of the company. This way, the owner gets the money to expand his business and make more profit, and the lender gets a portion of profit every time the company makes some. Now if the owner decides to sell shares rather than getting a loan, that's when the stock market comes into the picture. Why would a person want to trade stocks? First of all, please remember that stocks were never meant to be traded. You always invest in stocks. What's the difference? Trading is short term and investing is long term, in very simple language. It's the greed of humans which led to this concept of trading stocks. A person should only buy stocks if he believes in the business the company is doing and sees the potential of growth. Back to the question: a person would want to buy stocks of the company because: How does a stock market help society? Look around you for the answer to this question. Let me give you a start and I wish everyone reading this post to add at least one point to the answer. Corporations in general allow many people come together and invest in a business without fear that their investment will cause them undue liability - because shareholders are ultimately not liable for the actions of a corporation. The cornerstone North American case of how corporations add value is by allowing many investors to have put money towards the railroads that were built across America and Canada. For The stock market in particular, by making it easier to trade shares of a company once the company sells them, the number of people able to conveniently invest grows exponentially. This means that someone can buy shares in a company without needing to knock door to door in 5 years trying to find someone to sell to. Participating in the stock market creates 'liquidity', which is essentially the ease with which stocks are converted into cash. High liquidity reduces risk overall, and it means that those who want risk [because high risk often creates high reward] can buy shares, and those who want low risk [because say they are retiring and don't have a risk appetite anymore] can sell shares.\",\n \"Index funds are good for diversifying risk. For people who don't have a large sum of money to invest, holding all the different types of stocks in the index is both very expensive and not practical because you incur too many transaction costs. For an index funds, the main advantages are that costs are pooled, and investors can invest a smaller amount that they would if they bought all the different stocks individually. Naturally, if you wanted to figure out the percentage composition of the index and invest directly it would be possible, albeit tedious.\",\n \"Market cap is basically the amount of money that it would cost to buy all of the shares of public stock in a company. Or share cost * number of outstanding shares. It is a measure of how much a company is worth. http://en.wikipedia.org/wiki/Market_capitalization\",\n \"It is simply an average of what each analyst covering that stock are recommending, and since they usually only recommend Hold or Buy (rarely Sell), the value will float between Hold and Buy. Not very useful IMHO.\",\n \"\\\"In general, I think you're conflating a lot of ideas. The stock market is not like a supermarket. With the exception of a direct issue, you're not buying your shares from the company or from the New York Stock Exchange you're buying from an owner of stock, Joe, Sally, a pension fund, a hedge fund, etc; it's not sitting on a shelf at the stock market. When you buy an Apple stock you don't own $10 of Apple, you own 1/5,480,000,000th of Apple because Apple has 5,480,000,000 shares outstanding. When a the board gets together to vote on and approve a dividend the approved dividend is then divided by 5.48 billion to determine how much each owner receives. The company doesn't pay dividends out to owners from a pot of money it received from new owners; it sold iPhones at a profit and is sending a portion of that profit to the owners of the company. \\\"\\\"When you buy stock, it is claimed that you own a small portion of the company. This statement has no backing, as you cannot exchange your stock for the company's assets.\\\"\\\" The statement does have backing. It's backed by the US Judicial system. But there's a difference between owning a company and owning the assets of the company. You own 1/5,480,000,000 of the company and the company owns the company's assets. Nevermind how disruptive it would be if any shareholder could unilaterally decide to sell a company's buildings or other assets. This is not a ponzi scheme because when you buy or sell your Apple stock, it has no impact on Apple, you're simply transacting with another random shareholder (barring a share-repurchase or direct issue). Apple doesn't receive the proceeds of your private transaction, you do. As far as value goes, yes the stock market provides tons of value and is a staple of capitalism. The stock market provides an avenue of financing for companies. Rather than taking a loan, a company's board can choose to relinquish some control and take on additional owners who will share in the spoils of the enterprise. Additionally, the exchanges deliver value via an unbelievable level of liquidity. You don't have to go seek out Joe or Sally when you want to sell your Apple stock. You don't need to put your shares on Craigslist in the hope of finding a buyer. You don't have to negotiate a price with someone who knows you want to sell. You just place an order at an exchange and you're aligned with a buyer. Also understand that anything can move up or down in value without any money actually changing hands. Say you get your hands on a pair of shoes (or whatever), they're hot on the market, very rare and sought after. You think you can sell them for $1,000. On tonight's news it turns out that the leather is actually from humans and the CEO of the company is being indicted, the company is falling apart, etc. Your shoes just went from $1,000 to $0 with no money changing hands (or from $1,000 to $100,000 depending on how cynical you are).\\\"\",\n \"\\\"DJIA is a price weighted index (as in the amount of each component company is weighted by its price) and the constituents change occasionally (51 times so far). With these two effects you would not get anything like the same return by equally weighting your holdings and would have to rebalance every so often. Note that your premise was most obviously flawed thinking the number of near bankruptcies there have been in that time. More details of the differing make-ups of the index are available on Wikipedia. When you ask about the \\\"\\\"average investment\\\"\\\" you would have to be a lot more specific; is it limited just to US shares, to shares, to shares and fixed income securities, should I include all commodities, etc. see also What's the justification for the DJIA being share-price weighted?\\\"\",\n \"A one year period of study - Stock A trades at $100, and doesn't increase in value, but has $10 in dividends over the period. Stock B starts at $100, no dividend, and ends at $105. However you account for this, it would be incorrect to ignore stock A's 10% return over the period. To flip to a real example, MoneyChimp shows the S&P return from Jan 1980 to Dec 2012 as +3264% yet, the index only rose from 107.94 to 1426.19 or +1221%. The error expands with greater time and larger dividends involved, a good analysis won't ignore any dividends or splits.\",\n \"No. The information you are describing is technical data about a stock's market price and trading volume, only. There is nothing implied in that data about a company's financial fundamentals (earnings/profitability, outstanding shares, market capitalization, dividends, balance sheet assets and liabilities, etc.) All you can infer is positive or negative momentum in the trading of the stock. If you want to understand if a company is performing well, then you need fundamental data about the company such as you would get from a company's annual and quarterly reports.\",\n \"The share-price weighting of the DJIA is a historical artifact. The DJIA remains share-price weighted today because that's the way it has always been done, and we're talking about an index with more than a hundred years' history. The DJIA was first calculated on May 26, 1896. Perhaps, back then, price-weighting was the most straight-forward & feasible way to calculate it each day. You're right that it doesn't make a lot of sense, and that's why the S&P500 and other indexes are better barometers.\",\n \"Earnings per share is the company profit (or loss), divided by the number of outstanding shares. The number should always be compared to the share price, so for instance if the EPS is $1 and the share price is $10, the EPS is 10% of the share price. This means that if the company keeps up this earning you should expect to make 10% yearly on your investment, long term. The stock price may fluctuate, but if the company keeps on making money you will eventually do so too as investor. If the EPS is low it means that the market expects the earnings to rise in the future, either because the company has a low profit margin that can be vastly improved, or because the business is expected to grow. Especially the last case may be a risky investment as you will lose money if the company doesn't grow fast enough, even if it does make a healthy profit. Note that the listed EPS, like most key figures, is based on the last financial statement. Recent developments could mean that better or worse is generally expected. Also note that the earnings of some companies will fluctuate wildly, for instance companies that produce movies or video games will tend to have a huge income for a quarter or two following a new release, but may be in the negative in some periods. This is fine as long as they turn a profit long term, but you will have to look at data for a longer period in order to determine this.\",\n \"Prices quoted are primarily the offer prices quoted by the numerous market makers on the stock exchange(s) willing to sell you the stock. There is another price which generally isn't seen on these websites, the bid prices, which are lower prices quoted by buyers and market makers willing to buy your shares from you. You wouldn't see those prices, unless you login to your trade terminal. How meaningful are they to you depends on what you want to do buy or sell. If you want to buy then yes they are relevant. But if you want to sell, then no. And remember some websites delay market information by 15 minutes, in case of Google you might have seen that the volume is delayed by 15 minutes. So you need to consider that also while trading, but mayn't be a concern unless you are trying to buy out the company.\",\n \"Consider the mechanic which actually drives the 'price' of a stock. In simplest terms, the 'price' of a stock is the price at which the most recent trade occurred. ie: if the price of IBM is $100/share, that means the last time someone bought IBM stock, they paid $100. Above and below the 'spot price', are dozens/hundreds/thousands of buyers and sellers who have placed orders that no one is yet willing to match. ie: if IBM's spot price is at $100, there could still be 10,000 people willing to sell for $101 (called the 'ask' price, for the lowest price someone is currently willing to sell at), and 15,000 willing to buy for $99 (called the 'bid' price, for the highest price someone is currently willing to buy for). Until someone is willing to buy for $101, then no one will be able to sell at $101. Until someone is willing to sell for $99, no one will be able to buy for $99. Typically orders are placed in the market at a particular limit. Meaning that those orders to buy at $99/sell at $101 are already in the 'system', and will be matched immediately as soon as someone is willing to meet the price on the other side. Now consider general market economics: high demand drives up price, and high supply drives down price. If the details above for IBM were yesterday, and today some news came out that IBM was laying off employees, imagine that another 10,000 people who held shares wanted to sell. Now there would be 20,000 sellers and only 15,000 buyers. If those new sellers were aggressive about wanting to sell, they would have to drop their price to $99, to match the highest buyers in the market. Put together, this means that as more sellers enter the market, supply of shares increases, driving down price. Conversely, as more buyers enter the market, demand for shares increases, driving up share price. As a result of the above, you can say that (all else being equal) if price for a stock goes up, there were more buyers that day, and if price goes down, there were more sellers that day. On the face of it, that is not necessarily true, because you could have the same number of buyers and sellers, one side could have simply decreased/increased their acceptable price to match the other side.\",\n \"\\\"When you look at those results you'll see that it lists the actual market cap for the stocks. The ones on the biggest price move are usually close the the $1B capitalization cut-off that they use. (The don't report anything with less than $1B in capitalization on these lists.) The ones on the biggest market cap are much larger companies. So, the answer is that a 40% change in price on a company that has $1B capitalization will be a $400M change in market cap. A 4% change on a company with $100B capitalization will be a $4B change in market cap. The one that moved 40% will make the \\\"\\\"price\\\"\\\" list but not the market cap list and vice versa.\\\"\",\n \"Stock basically implies your ownership in the company. If you own 1% ownership in a company, the value of your stake becomes equal to 1% of the valuation of the entire company. Dividends are basically disbursal of company's profits to its shareholders. By holding stocks of a company, you become eligible to receiving dividends proportional to your ownership in the company. Dividends though are not guaranteed, as the company may incur losses or the management may decide to use the cash for future growth instead of disbursing it to the shareholders. For example, let's say a company called ABC Inc, is listed on NYSE and has a total of 1 million shares issued. Let's say if you purchase 100 stocks of ABC, your ownership in ABC will become Let's say that the share price at the time of purchase was $10 each. Total Investment = Stock Price * Number of Stocks Purchased = $10 * 100 = $1,000 Now, let's say that the company declares a dividend of $1 per share. Then, Dividend Yield = Dividend/Stock Price = $1/$10 = 10% If one has to draw analogy with other banking products, one can think of stock and dividend as Fixed Deposits (analogous to stock) and the interest earned on the Fixed Deposit (analogous to dividend).\",\n \"That is true. You will not be able to reconstruct the value of the index from the data returned with this script. I initially wrote this script because I wanted data for a lot of stocks and I wanted to perform PCA on the stocks currently included in the index.\",\n \"More questions! 1.) I thought the criticism of the Dow was that it's much smaller than other indexes and thus less representative of the market as a whole? 2,) When you say private investors are you talking about a few specific people? Or anyone who invests at all? Thanks\",\n \"Beta is an indication of a Stock's risk with respect to the market. For instance if a stock had a beta of 1 it means it is in tandem with the S&P 500. If it is more than 1, the stock is volatile. If it is less than 1, it implies market movement doesn't affect this stock much. Tech stocks and small cap stocks have high beta, utilities have low beta. (In general, not always). Hope this helps - I've tried to explain it in very simple terms!\",\n \"$500 per package, with a package representing 100 stocks, or $5k for the entire market from a single source (NYSE, for example). IIRC that was the neighborhood when I went looking. I actually only needed one index in great detail - I chose the S&P 500, and found a source for well under $100.\",\n \"How I understand it is: supply/demand affect price of stock negatively/positively, respectively. Correct. Volume is the amount of buying/selling activity in these stocks (more volume = more fluctuation, right?). Sort of. Higher volume means higher liquidity. That is, a stock that is traded more is easier to trade. It doesn't necessarily mean more fluctuation and in the real world, it often means that these are well-understood stocks with a high amount of analyst coverage. This tends towards these stocks not being as volatile as smaller stocks with less liquidity. Company revenue (and profit) will help an investor predict company growth. That is one factor in a stock price. There are certain stocks that you would buy without them making a profit because their future revenue looks potentially explosive. However, these stocks are very risky and are bubble-prone. If you're starting out in the share market, it's generally a good idea to invest in index funds (I am not a broker, my advice should not be taken as financial advice). These funds aggregate risk by holding a lot of different companies. Also, statistics have shown that over time, buying and holding index funds long term tends to dramatically outperform other investment strategies, particularly for people with low amounts of capital.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["The All Ords Index consists of the 500 largest companies by market capitalisation listed on the Australia Stock Exchange. Each stock in the All Ords. Index is given a weighting based on its market capitalisation. As the price of the stocks within the All Ords. Index change, so does the points on the index itself. The Index is more sensitive to changes in the larger capitalised stocks due to their larger weighting in the Index. Example: If a company has a weighting of 10% and its price goes up by 10%, and all other stocks in the Index don't go up or down, then this will cause the All Ords Index to go up by 1% (10% of 10%)."],"string":"[\n \"The All Ords Index consists of the 500 largest companies by market capitalisation listed on the Australia Stock Exchange. Each stock in the All Ords. Index is given a weighting based on its market capitalisation. As the price of the stocks within the All Ords. Index change, so does the points on the index itself. The Index is more sensitive to changes in the larger capitalised stocks due to their larger weighting in the Index. Example: If a company has a weighting of 10% and its price goes up by 10%, and all other stocks in the Index don't go up or down, then this will cause the All Ords Index to go up by 1% (10% of 10%).\"\n]","isConversational":false}}},{"rowIdx":394,"cells":{"_id":{"kind":"string","value":"10601"},"query":{"kind":"string","value":"Bitcoin Cost Basis Purchases"},"gt_ids":{"kind":"list like","value":["568064"],"string":"[\n \"568064\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["232311","274278","14065","132219","262291","231590","31863","248021","380759","544752","568064","435883","324916","104453","465313","313270","289429","357914","282208","107336","111615","526823","161746","256261","207316","280763","591385","177674","255281","137251","19144","394961","378437","402216","364219","462291","325865","93300","474467","430718","175107","227064","292065","428318","556694","342903","100009","107584","436530","447593","595924","350080","456749","304918","299211","406585","351318","336272","23355","474384","159727","249687","183926","247894","151391","385310","227518","481284","276009","424641","78584","581793","110860","383287","447508","30403","213659","50250","570292","436044","199634","55325","417599","416787","238333","276334","252176","426960","292602","111391","444486","194035","284121","307779","183506","269987","140769","200921","100057","5535"],"string":"[\n \"232311\",\n \"274278\",\n \"14065\",\n \"132219\",\n \"262291\",\n \"231590\",\n \"31863\",\n \"248021\",\n \"380759\",\n \"544752\",\n \"568064\",\n \"435883\",\n \"324916\",\n \"104453\",\n \"465313\",\n \"313270\",\n \"289429\",\n \"357914\",\n \"282208\",\n \"107336\",\n \"111615\",\n \"526823\",\n \"161746\",\n \"256261\",\n \"207316\",\n \"280763\",\n \"591385\",\n \"177674\",\n \"255281\",\n \"137251\",\n \"19144\",\n \"394961\",\n \"378437\",\n \"402216\",\n \"364219\",\n \"462291\",\n \"325865\",\n \"93300\",\n \"474467\",\n \"430718\",\n \"175107\",\n \"227064\",\n \"292065\",\n \"428318\",\n \"556694\",\n \"342903\",\n \"100009\",\n \"107584\",\n \"436530\",\n \"447593\",\n \"595924\",\n \"350080\",\n \"456749\",\n \"304918\",\n \"299211\",\n \"406585\",\n \"351318\",\n \"336272\",\n \"23355\",\n \"474384\",\n \"159727\",\n \"249687\",\n \"183926\",\n \"247894\",\n \"151391\",\n \"385310\",\n \"227518\",\n \"481284\",\n \"276009\",\n \"424641\",\n \"78584\",\n \"581793\",\n \"110860\",\n \"383287\",\n \"447508\",\n \"30403\",\n \"213659\",\n \"50250\",\n \"570292\",\n \"436044\",\n \"199634\",\n \"55325\",\n \"417599\",\n \"416787\",\n \"238333\",\n \"276334\",\n \"252176\",\n \"426960\",\n \"292602\",\n \"111391\",\n \"444486\",\n \"194035\",\n \"284121\",\n \"307779\",\n \"183506\",\n \"269987\",\n \"140769\",\n \"200921\",\n \"100057\",\n \"5535\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["Some personal finance packages can track basis cost of individual purchase lots or fractions thereof. I believe Quicken does, for example. And the mutual funds I'm invested in tell me this when I redeem shares. I can't vouch for who/what would make this visible at times other than sale; I've never had that need. For that matter I'm not sure what value the info would have unless you're going to try to explicitly sell specific lots rather than doing FIFO or Average accounting.","\"The only \"\"authoritative document\"\" issued by the IRS to date relating to Cryptocurrencies is Notice 2014-21. It has this to say as the first Q&A: Q-1: How is virtual currency treated for federal tax purposes? A-1: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency. That is to say, it should be treated as property like any other asset. Basis reporting the same as any other property would apply, as described in IRS documentation like Publication 550, Investment Income and Expenses and Publication 551, Basis of Assets. You should be able to use the same basis tracking method as you would use for any other capital asset like stocks or bonds. Per Publication 550 \"\"How To Figure Gain or Loss\"\", You figure gain or loss on a sale or trade of property by comparing the amount you realize with the adjusted basis of the property. Gain. If the amount you realize from a sale or trade is more than the adjusted basis of the property you transfer, the difference is a gain. Loss. If the adjusted basis of the property you transfer is more than the amount you realize, the difference is a loss. That is, the assumption with property is that you would be using specific identification. There are specific rules for mutual funds to allow for using average cost or defaulting to FIFO, but for general \"\"property\"\", including individual stocks and bonds, there is just Specific Identification or FIFO (and FIFO is just making an assumption about what you're choosing to sell first in the absence of any further information). You don't need to track exactly \"\"which Bitcoin\"\" was sold in terms of exactly how the transactions are on the Bitcoin ledger, it's just that you bought x bitcoins on date d, and when you sell a lot of up to x bitcoins you specify in your own records that the sale was of those specific bitcoins that you bought on date d and report it on your tax forms accordingly and keep track of how much of that lot is remaining. It works just like with stocks, where once you buy a share of XYZ Corp on one date and two shares on another date, you don't need to track the movement of stock certificates and ensure that you sell that exact certificate, you just identify which purchase lot is being sold at the time of sale.\"","\"In 2014 the IRS announced that it published guidance in Notice 2014-21. In that notice, the answer to the first question describes the general tax treatment of virtual currency: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency. As it's property like any other, capital gains if and when you sell are taxed. As with any capital gains, you're taxed on the \"\"profit\"\" you made, that is the \"\"proceeds\"\" (how much you got when you sold) minus your \"\"basis\"\" (how much you paid to get the property that you sold). Until you sell, it's just an asset (like a house, or a share of stock, or a rare collectible card) that doesn't require any reporting. If your initial cryptocurrency acquisition was through mining, then this section of that Notice applies: Q-8: Does a taxpayer who “mines” virtual currency (for example, uses computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger) realize gross income upon receipt of the virtual currency resulting from those activities? A-8: Yes, when a taxpayer successfully “mines” virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income. See Publication 525, Taxable and Nontaxable Income, for more information on taxable income. That is to say, when it was mined the market value of the amount generated should have been included in income (probably on either Line 21 Other Income, or on Schedule C if it's from your own business). At that point, the market value would also qualify as your basis. Though I doubt there'd be a whole lot of enforcement action for not amending your 2011 return to include $0.75. (Technically if you find a dollar bill on the street it should be included in income, but usually the government cares about bigger fish than that.) It sounds like your basis is close enough to zero that it's not worth trying to calculate a more accurate value. Since your basis couldn't be less than zero, there's no way that using zero as your basis would cause you to pay less tax than you ought, so the government won't have any objections to it. One thing to be careful of is to document that your holdings qualify for long-term capital gains treatment (held longer than a year) if applicable. Also, as you're trading in multiple cryptocurrencies, each transaction may count as a \"\"sale\"\" of one kind followed by a \"\"purchase\"\" of the other kind, much like if you traded your Apple stock for Google stock. It's possible that \"\"1031 like kind exchange\"\" rules apply, and in June 2016 the American Institute of CPAs sent a letter asking about it (among other things), but as far as I know there's been no official IRS guidance on the matter. There are also some related questions here; see \"\"Do altcoin trades count as like-kind exchanges?\"\" and \"\"Assuming 1031 Doesn't Apply To Cryptocurrency Trading\"\". But if in fact those exchange rules do not apply and it is just considered a sale followed by a purchase, then you would need to report each exchange as a sale with that asset's basis (probably $0 for the initial one), and proceeds of the fair market value at the time, and then that same value would be the basis of the new asset you're purchasing. Using a $0 basis is how I treat my bitcoin sales, though I haven't dealt with other cryptocurrencies. As long as all the USD income is being reported when you get USD, I find it unlikely you'll run into a lot of trouble, even if you technically were supposed to report the individual transactions when they happened. Though, I'm not in charge of IRS enforcement, and I'm not aware of any high-profile cases, so it's hard to know anything for sure. Obviously, if there's a lot of money involved, you may want to involve a professional rather than random strangers on the Internet. You could also try contacting the IRS directly, as believe-it-or-not, their job is in fact helping you to comply with the tax laws correctly. Also, there are phone numbers at the end of Notice 2014-21 of people which might be able to provide further guidance, including this statement: The principal author of this notice is Keith A. Aqui of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information about income tax issues addressed in this notice, please contact Mr. Aqui at (202) 317-4718\"","Calculating and adjusting cost basis accurately is a daunting task, but there is a (paid) online tool, NetBasis, which will automatically calculate and adjust your cost basis. It is used by brokerage firms and Fortune 500 companies and is available to the public. Go to netbasis.com. All you need are the purchase and sale dates and shares of the stock or mutual fund and the system has the rest of the information, such as corporate actions (splits, spin-offs, etc), pricing, and dividends and it also will apply the appropriate IRS rules for inherited and gifted shares. The regulation also gives investors the option to choose calculation methods. Not only does NetBasis automatically calculate the method you choose, it will also give the results for all options and allow you to choose the best result. NetBasis also provides you with detailed supporting documentation which shows all of the calculations and the adjustments in chronological order. NetBasis has data going back as far as 1925, so it will accurately calculate cost basis for your old American Telegraph and Telephone shares. NetBasis also handles complex investment scenarios such as wash sales, short sales, return of capital, etc. Moderator's note: Disclosure: The answerer's profile indicates they are affiliated with NetBasis.","Starting of 2011, your broker has to keep track of all the transactions and the cost basis, and it will be reported on your 1099-B. Also, some brokers allow downloading the data directly to your tax software or to excel charts (I use E*Trade, and last year TurboTax downloaded all the transaction directly from them).","For every document that the IRS posts, there will be a correlating instructions page. This would be the instructions for the 1099-B, here. Furthermore, as you will be reporting this on Form 8949, as a substitute for previously used Schedule D; instructions are here.This article explains that the best course of action is to donate the shares as the cost basis would switch to FMV (fair market value) of the assets today. But as this did not happen, I would recommend contacting the purchasing company directly. Being a share holder, and by purchasing the shares from the source, the accounting department should still have recorded the date of purchase along with the price sold. It may take effort to prove who you are, but if their accounting records are well documented, this will not be an issue. If nothing else, claim a 100% capital gain on the entirety of the sale, and pay the tax. That is stated here.","Profit = Sale price - Basis Basis = Purchase price - any depreciation taken, including expensing it.","\"There are two scenarios to determine the relevant date, and then a couple of options to determine the relevant price. If the stocks were purchased in your name from the start - then the relevant date is the date of the purchase. If the stocks were willed to you (i.e.: you inherited them), then the relevant date is the date at which the person who willed them to you had died. You can check with the company if they have records of the original purchase. If it was in \"\"street name\"\" - they may not have such records, and then you need to figure out what broker it was to hold them. Once you figured out the relevant date, contact the company's \"\"investor relationships\"\" contact and ask them for the adjusted stock price on that date (adjusted for splits/mergers/acquisitions/whatever). That would be the cost basis per share you would be using. Alternatively you can research historical prices on your favorite financial information site (Google/Yahoo/Bloomberg or the stock exchange where the company is listed). If you cannot figure the cost basis, or it costs too much - you can just write cost basis as $0, and claim the whole proceeds as gains. You'll pay capital gains tax on the whole amount, but that may end up being cheaper than conducting the investigation to reveal the actual numbers.\"","Reinvestment creates a nightmare when it comes time to do taxes, sadly. Tons of annoying little transactions that happened automatically... Here's one article trying to answer your question: http://www.smartmoney.com/personal-finance/taxes/figuring-out-your-cost-basis-when-youve-lost-the-statements-9529/ You could also try this thing: http://www.gainskeeper.com/us/BasisProIndividual.aspx But I couldn't tell you if it would help. If it makes you feel better, brokerages are now required by the IRS to track your basis for you, so for new transactions and assets you shouldn't end up in this situation. Doesn't help with the old stuff ;-)","I was doing my taxes in the US (called Form 1040) and wanted to find out how to figure out the cost basis for the $3.006 that I received for each Siemens ADR that I hold in July 2013. I found that the cost-basis allocation ratio is as follows: Thus for the original poster the cost-basis is: Hope this helps someone.","\"As long as the IRS treats bitcoin as property, then whenever you use bitcoin to buy anything you are supposed to consider the capital gain or capital loss. There is no \"\"until it's converted to fiat\"\". You are paying local sales tax and capital gains, or paying local sales tax and reporting capital loss. As long as you are consistent, you can use either the total cost basis, or individual lot purchases. The same as other property like stocks (except without stock specific regulations like wash-sale rules :D ). There are a lot of perks or unintentional loopholes for speculators, with the property designation. There are a lot of disadvantages for consumers trying to use it like a currency. Someone mixing investment and spending funds across addresses is going to have complicated tax issues, but fortunately the exchanges have records of purchase times and prices, which you can compare with the addresses you control. Do note, after that IRS guideline, another federal agency designated Bitcoin as a commodity, which is a subset of \"\"property\"\" with its own more favorable but different tax guidelines.\"","I am not a tax professional, only an investment professional, so please take the following with a grain of salt and simply as informational guidance, not a personal recommendation or solicitation to buy/sell any security or as personal tax or investment advice. As Ross mentioned, you need to consult a tax advisor for a final answer concerning your friend's personal circumstances. In my experience advising hundreds of clients (and working directly with their tax advisors) the cost basis is used to calculate tax gain or loss on ordinary investments in the US. It appears to me that the Edward Jones description is correct. This has also been the case for me personally in the US with a variety of securities--stocks, options, futures, bonds, mutual funds, and exchange traded funds. From the IRS: https://www.irs.gov/uac/about-form-1099b Form 1099-B, Proceeds From Broker and Barter Exchange Transactions A broker or barter exchange must file this form for each person: Edward Jones should be able to produce a 1099b documenting the gains/losses of any investments. If the 1099b document is confusing, they might have a gain/loss report that more clearly delineates proceeds, capital returns, dividends, and other items related to the purchase and sale of securities.","The average price would be $125 which would be used to compute your basis. You paid $12,500 for the stock that is now worth $4,500 which is a loss of $8,000 overall if you sell at this point.","To sum up: My question came from misunderstanding what cost basis applies to. Now I get it that it applies to stocks as physical entities. Consider a chain of buys of 40 stock A with prices $1-$4-$10-$15 (qty 10 each time) then IRS wants to know exactly which stock I am selling. And when I transfer stocks to different account, that cost basis transfers with them. Cost basis is included in transfers, so that removes ambiguity which stock is being sold on the original account. In the example above, cost basis of 20 stocks moved to a new account would probably be $1 x 10 and $4 x 10, i.e. FIFO also applies to transfers.","I think the answer you are looking for is: You are not taxed on the original basis (purchase cost) of your investment. If you pay $30 a share, and sell at $35, the $5 per share gain is taxable at time of sale. But the $30 basis cost doesn't enter into tax calculations at all. (So it's important to keep good records on your investments and how much you paid for them at purchase.)","I would think you need proof that you actually bought it when it was cheaper, but that's a guess. You are supposed to pay the capital gains tax on bitcoin gains, same as if you made money on a stock https://www.google.com/amp/s/www.forbes.com/sites/greatspeculations/2017/02/21/if-you-traded-bitcoin-you-should-report-capital-gains-to-the-irs/amp/","What I do have is this (sample only): Stock X: Average Price of all I purchased before = 80 Total Shares = 200 So if Stock X's price today is 100 how do I know how much my average price will be? Using your sample if you buy 100 new shares and the price is 85 for the purpose of this example your previous total cost is $16,000 ($80 average cost * 200 shares). With the new example you are adding $8500 to your total cost (100 new shares * $85 example cost per share) that gives us a total cost of $24,500 and 300 shares. $24,500/300 gives us an average cost of $81.67 per share. As long as you have the average cost and the number of shares you can calculate a new average without knowing what the price was for each transaction. It may still become important to find the price information for tax purposes if you do not sell all of those shares at once and use FIFO for your taxes.","\"Tax cost basis is the amounts you've spent on developing the product which you hasn't deducted yet from previous income. From what you've described, it sounds like your cost basis is $0. Time you spent is not your cost, since time is not money. The fact that you might have earned something if working at that time but you didn't - is irrelevant, because potential income that you didn't get is not a loss that you took. Someone mentioned \"\"intangibles\"\" in the comments - that would be the line of thought of the buyer. However, since you didn't buy the product but rather developed it, you can only deduct the actual expenses you've incurred, that you haven't deducted so far.\"","Mining is income at the value at time of earning, I would use an index like XBX to determine price. Asset appreciation is capital gains. These aspects of crypto-assets are not a gray area in the US financial sector, and have been addressed for almost half a decade now.","You decide on a cost bases attribution yourself, per transaction (except for averaging for mutual funds, which if I remember correctly applies to all the positions). It is not a decision your broker makes. Broker only needs to know what you've decided to report it to the IRS on 1099, but if the broker reported wrong basis (because you didn't update your account settings properly, or for whatever else reason) you can always correct it on form 8949 (columns f/g).","\"According to the following article the answer is \"\"first-in, first-out\"\": http://smallbusiness.chron.com/calculate-cost-basis-stock-multiple-purchases-21588.html According to the following article the last answer was just one option an investor can choose: https://www.usaa.com/inet/pages/advice-investing-costbasis?akredirect=true\"","\"Stocks, as an asset, represent the sum of the current market value of all of your holdings. If your portfolio is showing unrealized gains and losses, then that net amount is inherently reflected in the current market value of your holdings. That's not to say cost basis is not important. Any closed trades, realized gains or losses, will of course have an impact on your taxable income. So, it couldn't hurt to keep track of your cost basis from a tax standpoint, but understand that the term \"\"asset\"\" refers to the current market values and does not consider base amounts. Taxes do. Perhaps consider making separate cells for cost basis, but also bear in mind that most if not all of the major online discount brokers will provide transferring of cost basis information electronically to the major online tax service providers.\"","There is no guidance specifically for this yet, but in my professional opinion, there is not going to be a like kind exchange for crypto. So when you exchange one crypto for another there will be a capital gain, but your basis in the new coin will be the total gain on the old coin.","And directly from IRS notice 2014-21 FAQ: Q-1: How is virtual currency treated for federal tax purposes? A-1: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency. Q-6: Does a taxpayer have gain or loss upon an exchange of virtual currency for other property? A-6: Yes. If the fair market value of property received in exchange for virtual currency exceeds the taxpayer’s adjusted basis of the virtual currency, the taxpayer has taxable gain. The taxpayer has a loss if the fair market value of the property received is less than the adjusted basis of the virtual currency.… Q-8: Does a taxpayer who “mines” virtual currency (for example, uses computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger) realize gross income upon receipt of the virtual currency resulting from those activities? A-8: Yes, when a taxpayer successfully “mines” virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income. See Publication 525, Taxable and Nontaxable Income, for more information on taxable income.","Just a thought because this is a really good question: Would the buying and selling of blockchain based digital currency, using other blockchain based digital currencies, be subject to like kind treatment and exempt from capital gains until exchanged for a non-blockchain based good or service (or national currency) Suppose someone sells 1 bitcoin to buy 100 monero. Monero's price and bitcoin's price then change to where the 100 monero are 3 bitcoins. The person gets their bitcoin back and has 66.67 monero remaining. This scenario could be: Suppose someone sells 1 bitcoin at $1000 to buy 100 monero at $10. Bitcoin crashes 80% to $200 while monero crashes to only $6 per monero. $6 times 100 is $600 and if the person gets their bitcoin back (at $200 per bitcoi), they still lost money when measured in US Dollars if they move that bitcoin back to US dollars. In reading the IRS on bitcoin, they only care about the US dollar value of bitcoin or monero and in this example, the US dollar value is less. The person may have more bitcoins, but they still lost money if they sell.","I’m going to answer this because: Accounting books only reflect the dollar value of inventories. Which means if you look at the balance sheet of McDonalds, you will not see how many bags of French fries are remaining at their storage facility, you will only see the total value at cost basis. Your requirement for noting the number of shares purchased is not part of the double entry accounting system. When you transfer $10000 from bank to broker, the entries would be: The bank’s name and the broker’s name will not appear on the balance sheet. When you purchase 50 shares at $40 per share, the accounting system does not care about the number of shares or the price. All it cares is the $2000 total cost and the commission of $10. You have two choices, either place $10 to an expense account, or incorporate it into the total cost (making it $2010). The entries for the second method would be: Now your balance sheet would reflect: What happens if the price increases from $40 per share to $50 per share tomorrow? Do nothing. Your balance sheet will show the cost of $2010 until the shares are sold or the accounting period ends. It will not show the market value of $2500. Instead, the Portfolio Tracker would show $2500. The most basic tracker is https://www.google.com/finance/portfolio . Later if you finally sell the shares at $50 per share with $10 commission: Again, the number of shares will not be reflected anywhere in the accounting system. Only the total proceeds from the sale matters.","\"Your employer should send you a statement with this information. If they didn't, you should still be able to find it through E*Trade. Navigate to: Trading & Portfolios>Portfolios. Select the stock plan account. Under \"\"Restricted Stock\"\", you should see a list of your grants. If you click on the grant in question, you should see a breakdown of how many shares were vested and released by date. It will also tell you the cost basis per share and the amount of taxes withheld. You calculate your cost basis by multiplying the number of released shares by the cost basis per share. You can ignore the ordinary income tax and taxes withheld since they will already have been included on your W2 earnings and withholdings. Really all you need to do is report the capital gain or loss from the cost basis (which if you sold right away will be rather small).\"","You add the wash sale loss to your cost basis for the other transaction so you would have two entries in your schedule d reporting 1.) Listing the $2000 loss as a wash 2.) The cost basis for your second transaction is thus $1000+$2000 = $3000 so when it was sold for $2000 you now have a reportable loss of $1000. For more information see here.... http://www.ehow.com/how_5313540_calculate-wash-sale.html","Any profits you realize are considered a long term capital gain by the IRS since you have held the asset for longer than a year. The IRS guidance on virtual currency considers bitcoins to be a form of personal property. Gains from selling bitcoins are considered a capital gain. See the IRS guidance on reporting capital gains (Schedule D).","You are correct. She cannot claim the initial loss of $1,000 on her taxes, she can only report the $500 profit. However, the IRS does allow her to add the $1,000 loss to the basis cost of her replacement shares. e.g.","The key point is from the penultimate sentence in your second paragraph: for which you have already paid taxes When you receive a dividend or realise a capital gain, you get taxed on that then, and you shouldn't have to pay taxes on it again in future. So the cost basis gets adjusted to reflect that.","\"at $8.50: total profit = $120.00 *basis of stock, not paid in cash, so not included in \"\"total paid\"\" at $8.50: total profit = $75.00\"","\"While this does fall under the \"\"All-inclusive income\"\" segment of GI (gross income), there are two questions that come up. I invested in a decentralized bitcoin business and earned about $230 this year in interest from it Your wording is confusing here only due to how bitcoin works.\"","\"Generally if you are using FIFO (first in, first out) accounting, you will need to match the transactions based on the number of shares. In your example, at the beginning of day 6, you had two lots of shares, 100 @ 50 and 10 @ 52. On that day you sold 50 shares, and using FIFO, you sold 50 shares of the first lot. This leaves you with 50 @ 50 and 10 @ 52, and a taxable capital gain on the 50 shares you sold. Note that commissions incurred buying the shares increase your basis, and commissions incurred selling the shares decrease your proceeds. So if you spent $10 per trade, your basis on the 100 @ 50 lot was $5010, and the proceeds on your 50 @ 60 sale were $2990. In this example you sold half of the lot, so your basis for the sale was half of $5010 or $2505, so your capital gain is $2990 - 2505 = $485. The sales you describe are also \"\"wash sales\"\", in that you sold stock and bought back an equivalent stock within 30 days. Generally this is only relevant if one of the sales was at a loss but you will need to account for this in your code. You can look up the definition of wash sale, it starts to get complex. If you are writing code to handle this in any generic situation you will also have to handle stock splits, spin-offs, mergers, etc. which change the number of shares you own and their cost basis. I have implemented this myself and I have written about 25-30 custom routines, one for each kind of transaction that I've encountered. The structure of these deals is limited only by the imagination of investment bankers so I think it is impossible to write a single generic algorithm that handles them all, instead I have a framework that I update each quarter as new transactions occur.\"","You report each position separately. You do this on form 8949. 7 positions is nothing, it will take you 5 minutes. There's a tip on form 8949 that says this, though: For Part I (short term transactions): Note. You may aggregate all short-term transactions reported on Form(s) 1099-B showing basis was reported to the IRS and for which no adjustments or codes are required. Enter the total directly on Schedule D, line 1a; you are not required to report these transactions on Form 8949 (see instructions). For Part II (long term transactions): Note. You may aggregate all long-term transactions reported on Form(s) 1099-B showing basis was reported to the IRS and for which no adjustments or codes are required. Enter the total directly on Schedule D, line 8a; you are not required to report these transactions on Form 8949 (see instructions). If the 1099B in your case shows basis for each transaction as reported to the IRS - you're in luck, and don't have to type them all in separately.","Using a different cost basis than your broker's reporting is NOT a problem. You need to keep your own records to account for this difference. Among the other many legitimate reasons to adjust your cost basis, the most popular is when you have two brokerage accounts and sell an asset in one then buy in another. This is called a Wash Sale and is not a taxable event for you. However from the perspective of each broker with their limited information you are making a transaction with tax implications and their reported 1099 will show as such. Links: https://www.firstinvestors.com/docs/pdf/news/tax-qa-2012.pdf","For accounting purposes, consider the costs of acquisition as part of the cost of the asset as opposed to expensing. This will be important to consider if you need to amortise the asset for reporting or tax purposes. Dr. Land $250,000 Dr. Building: $250,000 Cr. Cash $500,000 The acquisition of the land from previous owners. And Dr. Land $12,500 Dr. Building $12,500 Cr. Cash $25,000 Fees paid to auctioneer who helped acquire the land. The basis for dividing the cost should be done at appraised prices. These appraised prices will appear in the first entry and should help you along.","You are talking about adjusting the basis of your property which has its own IRS publication Publication 551: Basis of Assets Assuming you've not taken depreciation on your land in any way, pages 4-5 cover the various ways you can increase the basis of your property. Improvements like paving and wiring such as your second case would increase the basis of the property and reduce your gains when you sell. Note that regular real estate taxes do NOT alter your basis. Again the IRS publication is where you should look on what activity would have altered your basis during your period of ownership. Consult appropriate accounting and legal practitioners when in doubt.","You only got 75 shares, so your basis is the fair market value of the stock as of the grant date times the number of shares you got: $20*75. Functionally, it's the same thing as if your employer did this: As such, the basis in that stock is $1,500 ($20*75). The other 25 shares aren't yours and weren't ever yours, so they aren't part of your basis (for net issuance; if they were sell to cover, then the end result would be pretty similar, but there'd be another transaction involved, but we won't go there). To put it another way, suppose your employer paid you a $2000 bonus, leaving you with a $1500 check after tax withholding. Being a prudent person and not wishing to blow your bonus on luxury goods, you invest that $1500 in a well-researched investment. You wouldn't doubt that your cost basis in that investment at $1500.","\"According to the IRS, you must have written confirmation from your broker \"\"or other agent\"\" whenever you sell shares using a method other than FIFO: Specific share identification. If you adequately identify the shares you sold, you can use the adjusted basis of those particular shares to figure your gain or loss. You will adequately identify your mutual fund shares, even if you bought the shares in different lots at various prices and times, if you: Specify to your broker or other agent the particular shares to be sold or transferred at the time of the sale or transfer, and Receive confirmation in writing from your broker or other agent within a reasonable time of your specification of the particular shares sold or transferred. If you don't have a stockbroker, I'm not sure how you even got the shares. If you have an actual stock certificate, then you are selling very specific shares and the purchase date corresponds to the purchase date of those shares represented on the certificate.\"","If you just want to know total return, either as dollars or a percentage, just add up the total amount spent on buys and compare this to current value plus money received on sales. In this case, you spent (310 x $3.15 + $19.95) + (277 x $3.54 + $19.95). So your total investment is ... calculator please ... $1996.98. You received 200 x $4.75 on the sale minus the $19.95 = $930.05. The present value of your remaining shares is 387 x $6.06 = $2345.22. So you have realized plus unrealized value of $2345.22 + $930.05 = $3275.27. Assuming I didn't mix up numbers or make an arithmetic mistake, your dollar gain is $3275.27 - $1996.98 = $1278.29, which comes to 1278.29 / 1996.98 = 64%. If you want to know percentage gain as an annual rate, we'd have to know buy and sell dates, and with multiple buys and sells the calculation gets messier.","You don't. When you sell them - your cost basis would be the price of the stock at which you sold the stocks to cover the taxes, and the difference is your regular capital gain.","The buyer of such an account is likely treating it as an asset, and if they ever resell it capital gains (or loss) would be realized. I don't see why this would be any different for the person that created the account initially, except that the basis starts at $0 making the entire sale price taxable. How you figure the value of the account before the initial sale would be more difficult, but fortunately you may not ever need to know the value (for tax purposes) until you actually sell it.","Interesting. How would they account for it? Monthly? And if so do they modify the cost basis for each lot for the month and then restate? It's hard to imagine they do that. I have a million questions regarding this topic do you know where in the regs it is covered?","\"If you need to show that the sale/purchase was at FMV, then showing that you made a trade on a public exchange with an unrelated counterpart is enough to establish FMV. However, this is only one of the possible \"\"fair market value\"\" definitions. This is usually used to determine basis or value for tax purposes. For valuation purposes or general accounting, one specific trade is not enough to establish FMV, and much more research is required.\"","Here is the technical guidance from the accounting standard FRS 23 (IAS 21) 'The Effects of Changes in Foreign Exchange Rates' which states: Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements shall be recognised in profit or loss in the period in which they arise. An example: You agree to sell a product for $100 to a customer at a certain date. You would record the sale of this product on that date at $100, converted at the current FX rate (lets say £1:$1 for ease) in your profit loss account as £100. The customer then pays you several $100 days later, at which point the FX rate has fallen to £0.5:$1 and you only receive £50. You would then have a realised loss of £50 due to exchange differences, and this is charged to your profit and loss account as a cost. Due to double entry bookkeeping the profit/loss on the FX difference is needed to balance the journals of the transaction. I think there is a little confusion as to what constitutes a (realised) profit/loss on exchange difference. In the example in your question, you are not making any loss when you convert the bitcoins to dollars, as there is no difference in the exchange rate between the point you convert them. Therefore you have not made either a profit or a loss. In terms of how this effects your tax position; you only pay tax on your profit and loss account. The example I give above is an instance where an exchange difference is recorded to the P&L. In your example, the value of your cash held is reflected in your balance sheet, as an asset, whatever its value is at the balance sheet date. Unfortunately, the value of the asset can rise/fall, but the only time where you will record a profit/loss on this (and therefore have an impact on tax) is if you sell the asset.","\"You don't \"\"deduct\"\" transaction fees, but they are included in your cost basis and proceeds, which will affect the amount of gain/loss you report. So in your example, the cost basis for each of the two lots is $15 (10$ share price plus $5 broker fee). Your proceeds for each lot are $27.50 (($30*2 - $5 )/2). Your gain on each lot is therefore $12.50, and you will report $12.50 in STCG and $12.50 in LTCG in the year you sold the stock (year 3). As to the other fees, in general yes they are deductible, but there are limits and exceptions, so you would need to consult a tax professional to get a correct answer in your specific situation.\"","or just input it in my accounting software along with receipts, and then when I'm doing taxes this would go under the investment or loses (is it somewhere along that line)? Yes, this. Generally, for the long term you should have a separate bank account and charge card for your business. I started my business (LLC) by filing online, and paying a fee for a registration, and that makes it a business cost right? Startup cost. There are special rules about this. Talk to your tax adviser. For the amounts in question you could probably expense it, but verify.","\"From Pub 550: More or less stock bought than sold. If the number of shares of substantially identical stock or securities you buy within 30 days before or after the sale is either more or less than the number of shares you sold, you must determine the particular shares to which the wash sale rules apply. You do this by matching the shares bought with an equal number of the shares sold. Match the shares bought in the same order that you bought them, beginning with the first shares bought. The shares or securities so matched are subject to the wash sale rules. You must match \"\"beginning with the first shares bought.\"\" If only activity 1 & 4 happened, you'd have bought and sold stock with no wash sale. If you remove activity 1 & 4 from consideration because they are a \"\"normal\"\" or non-wash sale transaction, then the Activity 2 or Activity 3 trigger a wash sale. The shares in lot 1 are sold for disallowed loss, so the disallowed basis would be added to shares in lot 2 because lot 2 was purchased before lot 3. (hat tip to user662852 who had much better wording) Second example: Activity 5, 7, and 8 all together would not be a wash sale. The addition of activity 6 creates a wash sale. The shares in Activity 5 are sold for a disallowed loss in Activity 7 & 8 because of the wash sale triggering purchase in Activity 6. Activity 6 is where you add the disallowed basis because they are the \"\"first shares bought\"\" that cause the wash sale rule to be triggered.\"","Based on my research, the answer is both. You would pay taxes on the bitcoin you mine as income, and then capital gains tax when you sell them for a profit (or capital loss if you lose value on the sale). You can write off a portion of your electricity bill and hardware purchased for the use of mining as a business expense, but it's recommended that you consult a tax professional for determining the proper amount that is eligible for a deduction. From Forbes: New Bitcoin are being issued by the system roughly every 10 minutes by a process called mining. In mining, computers running the Bitcoin software around the world attempt to solve math problems and the first computer to come up with the solution adds the most recent transactions to the ledger of all Bitcoin transactions, plus receives the new bitcoins created by the system, called the block reward. If you are a miner and win the block reward, you must record the fair market value of Bitcoin that day and mark that as an addition to your personal or business income. Also note the date and timestamp at which your coins were mined. Later, when you dispose of those Bitcoin, you will subtract the date of acquisition from the date of disposal, and you will be taxed a long-term capital gains rate on any Bitcoin you held for more than a year, and a short-term capital gains rate on any Bitcoin you held for a year or less. (The timestamp isn’t absolutely necessary, but is helpful to validate the order of multiple acquisitions or disposals within a day.) The amount you pay in taxes on a long-term capital gain will depend on your income-tax bracket, while short-term capital gains are taxed the same as ordinary income. From bitcoin.tax: Another clarification in the IRS's March notice was how mining should be treated. Mining is income, on the day of receipt of any coins and at the fair value of those coins. This means that if you mined any Bitcoins or alt-coins either solo, as part of a pool, or through a cloud provider, you need to report any coins you received as income. Where it is less clear, is what that dollar value might be, since the fair value is not always as easy to determine. Bitcoins, Litecoins, Dogecoins, are all examples of where there is a direct USD market and so you can easily find out their value of any given day. However, a newly created alt-coin that was mined in its early days has no direct market and so how do you determine its value? Or for any alt-coin, e.g. ABC coin, that has no direct USD market but does have a BTC market. Does it have a value? Do you have to make a conversion from ABC to BTC to USD? Since there is no clarification yet from the IRS on this issue you should discuss how to proceed with your own tax professional. BitcoinTaxes has taken a prudent approach and calculates value where a fiat or BTC market exists, converting an alt-coin to BTC to USD as necessary. And from Bitcoin magazine: The IRS also stated mined bitcoins are treated as immediate income at the market value of those mined coins on their date of mining. “Most don’t know they can write off any losses they have,” said Libra founder Jake Benson. “The IRS allows you to offset income by up to $3,000 per year on capital losses. If you have losses and you aren’t writing them off, then it’s like throwing money away. Nobody likes doing taxes, but if you can owe less or increase your return, then doing your Bitcoin taxes often results in a benefit. In fact, the majority of our users are filing a capital loss, which means they’ve actually saved money by using our tool.” Benson also gives insight for miners. “Mining is considered income, so know the price of Bitcoin at the time you mined it,” he said. “If you make money on Bitcoin trading, the IRS requires that you report gains with line level detail.” The appropriate form for that is 8949, a sub-form of schedule D. Gains and losses, as outlined above, are treated like every other capital asset.","Your 1099-B report for ADNT on the fractional shares of cash should answer this question for you. The one I am looking at shows ADNT .8 shares were sold for $36.16 which would equal a sale price of $45.20 per share, and a cost basis of $37.27 for the .8 shares or $46.59 per share.","Great question! It can be a confusing for sure -- but here's a great example I've adapted to your scenario: As a Day Trader, you buy 100 shares of LMNO at $100, then after a large drop the same day, you sell all 10 shares at $90 for a loss of $1,000. Later in the afternoon, you bought another 100 shares at $92 and resold them an hour later at $97 (a $500 profit), closing out your position for the day. The second trade had a profit of $500, so you had a net loss of $500 (the $1,000 loss plus the $500 profit). Here’s how this works out tax-wise: The IRS first disallows the $1,000 loss and lets you show only a profit of $500 for the first trade (since it was a wash). But it lets you add the $1,000 loss to the basis of your replacement shares. So instead of spending $9,200 (100 shares times $92), for tax purposes, you spent $10,200 ($9,200 plus $1,000), which means that the second trade is what caused you to lose the $500 that you added back (100 x $97 = $9,700 minus the 100 x $102 = $10,200, netting $500 loss). On a net basis, you get to record your loss, it just gets recorded on the second trade. The basis addition lets you work off your wash-sale losses eventually, and in your case, on Day 3 you would recognize a $500 final net loss for tax purposes since you EXITED your position. Caveat: UNLESS you re-enter LMNO within 30 days later (at which point it would be another wash and the basis would shift again). Source: http://www.dummies.com/personal-finance/investing/day-trading/understand-the-irs-wash-sale-rule-when-day-trading/","The default is FIFO: first in - first out. Unless you specifically instruct the brokerage otherwise, they'll report that the lot you've sold is of Jan 5, 2011. Note, that before 2011, they didn't have to report the cost basis to the IRS, and it would be up to you to calculate the cost basis at tax time, but that has been changed in 2011 and you need to make sure you've instructed the brokerage which lot exactly you're selling. I'm assuming you're in the US, in other places laws may be different.","If you do this, you own a stock worth $1, with a basis of $2. The loss doesn't get realized until the shares are sold. Of course, we hope you see the stock increase above that price, else, why do this?","\"-Alain Wertheimer I'm a hobbyist... Most (probably all) of those older items were sold both prior to my establishing the LLC This is a hobby of yours, this is not your business. You purchased all of these goods for your pleasure, not for their future profit. The later items that you bought after your LLC was establish served both purposes (perks of doing what you love). How should I go about reporting this income for the items I don't have records for how much I purchased them for? There's nothing you can do. As noted above, these items (if you were to testify in court against the IRS). \"\"Losses from the sale of personal-use property, such as your home or car, aren't tax deductible.\"\" Source Do I need to indicate 100% of the income because I can't prove that I sold it at a loss? Yes, if you do not have previous records you must claim a 100% capital gain. Source Addition: As JoeTaxpayer has mentioned in the comments, the second source I posted is for stocks and bonds. So at year begin of 2016, I started selling what I didn't need on eBay and on various forums [January - September]. Because you are not in the business of doing this, you do not need to explain the cost; but you do need to report the income as Gross Income on your 1040. Yes, if you bought a TV three years ago for a $100 and sold it for $50, the IRS would recognize you earning $50. As these are all personal items, they can not be deducted; regardless of gain or loss. Source Later in the year 2016 (October), I started an LLC (October - December) If these are items that you did not record early in the process of your LLC, then it is reported as a 100% gain as you can not prove any business expenses or costs to acquire associated with it. Source Refer to above answer. Refer to above answer. Conclusion Again, this is a income tax question that is split between business and personal use items. This is not a question of other's assessment of the value of the asset. It is solely based on the instruments of the IRS and their assessment of gains and losses from businesses. As OP does not have the necessary documents to prove otherwise, a cost basis of $0 must be assumed; thus you have a 100% gain on sale.\"","The $47.67 per share figure is the trading price, or fair market value, of the OLD Johnson Controls, and should not be used to figure your gain nor to figure your basis in the new Johnson Controls International. Your new basis is the total of the gross proceeds received; that is, the cash plus the fair market value of the new shares, which was $45.69 per share. (I am not referring to cash-in-lieu for fractional shares, but the $5.7293 per share received upon the merger.) A person holding 100 shares of the old Johnson Controls would have received $572.93, plus 83.57 shares of the new company. Ignoring the fractional share, for simplicity's sake, gross proceeds would equal 83 x $45.69 = $3792.72 in fair market value of shares, plus the cash of $572.93, for a total of $4365.20. This is your basis in the 83 new shares. Regarding the fractional share, since new basis is at fair market value, there should be no gain or loss recognized upon its sale.",">$1,000 worth of electricity to generate The cost of Bitcoin always tracks the price of Bitcoin. There is a fixed amount of Bitcoin available to be mined every day. The cost to mine bitcoin rises because of competition (they increase the difficulty of the problems to maintain a fixed supply of Bitcoin). The electricity cost to mine Bitcoin is directly related to the amount of miners, which is directly related to the current cost of Bitcoin. More people want to mine when the price is high. If you really think about it, what you are really saying is that the intrinsic value of bitcoin is the value of Bitcoin. Its a completely circular mirage.","1) Document that you held the bitcoins for more than one year. This should not be particularly difficult. Since you haven't moved the bitcoins, you hold the key to an address that has held them for more than one year. While this isn't absolute proof, it should be sufficient. 2) Since you can't document how you bought them easily, you can just assume a tax basis of zero. This will mean you will pay microscopically more in taxes, but don't worry about it. 3) Sign up with an exchange that can handle your sales. Coinbase will work if you want to sell it slowly. Gemini will work if you want to sell more quickly. 4) Get a decent, secure bitcoin wallet. Transfer the bitcoins to the exchange only as you're selling them. Make you first sale fairly small just in case something goes wrong. 5) Keep meticulous notes about each sale -- the date of the sale, the number of bitcoins you sold, and the number of dollars you got. 6) Make sure to keep enough money for taxes. In Michigan, 24.3% would be the highest possible tax rate you might have to pay if you sold a lot or had high income otherwise. 7) Either get a professional to file your taxes for you or learn how to correctly report long-term capital gains. You must report each individual sale. You may get audited or investigated, but there's nothing to find. The bitcoins have been in stasis for a long time, and it's completely plausible that you bought them and held them. If you can find any proof you bought them (such as a transfer to an exchange) that would be great, but it's not essential. Many people have this same story and unless you're connected to something illegal, you probably don't have anything to worry about. Congratulations! So thats my question, what steps do I need to take to declare this money and obtain it without getting arrested / investigated? There's nothing special you need to do other than keep very good documentation. When you file your taxes, you will need to declare each sale. (This answer assumes that you didn't have a lot of income last year and significantly less income this year. If that's the case, you may have to pay estimated taxes to avoid a penalty. But that penalty is very small and will be calculated by the IRS for you automatically. So I wouldn't worry about it.) You may wish to read up on gift taxes to understand how they work. You won't owe any, but you may need to file paperwork with the IRS if you give large gifts (over $14,000) to people and you will use up some of your lifetime exemption. Keep records of any gifts you give.","The vesting date. Look at publication 525, under stock options, where they talk about ESPP: Your basis is equal to the option price at the time you exercised your option and acquired the stock. The timing and amount of pay period deductions do not affect your basis.","From 26 CFR 1.1012(c)(1)i): ... if a taxpayer sells or transfers shares of stock in a corporation that the taxpayer purchased or acquired on different dates or at different prices and the taxpayer does not adequately identify the lot from which the stock is sold or transferred, the stock sold or transferred is charged against the earliest lot the taxpayer purchased or acquired to determine the basis and holding period of the stock. From 26 CFR 1.1012(c)(3): (i) Where the stock is left in the custody of a broker or other agent, an adequate identification is made if— (a) At the time of the sale or transfer, the taxpayer specifies to such broker or other agent having custody of the stock the particular stock to be sold or transferred, and ... So if you don't specify, the first share bought (for $100) is the one sold, and you have a capital gain of $800. But you can specify to the broker if you would rather sell the stock bought later (and thus have a lower gain). This can either be done for the individual sale (no later than the settlement date of the trade), or via standing order: 26 CFR 1.1012(c)(8) ... A standing order or instruction for the specific identification of stock is treated as an adequate identification made at the time of sale, transfer, delivery, or distribution.","You need to track every buy and sell to track your gains, or more likely, losses. Yes, you report each and every transactions. Pages of schedule D.","You wouldn't fill out a 1099, your employer would or possibly whoever manages the stock account. The 1099-B imported from E-Trade says I had a transaction with sell price ~$4,500. Yes. You sold ~$4500 of stock to pay income taxes. Both the cost basis and the sale price would probably be ~$4500, so no capital gain. This is because you received and sold the stock at the same time. If they waited a little, you could have had a small gain or loss. The remainder of the stock has a cost basis of ~$5500. There are at least two transactions here. In the future you may sell the remaining stock. It has a cost basis of ~$5500. Sale price of course unknown until then. You may break that into different pieces. So you might sell $500 of cost basis for $1000 with a ~$500 capital gain. Then later sell the remainder for $15,000 for a capital gain of ~$10,000.","Cost basis is irrelevant because the entire distribution is taxed as ordinary income even if the custodian distributes stock or mutual fund shares to you. Such distributions save you the brokerage fees that you would incur had you taken a cash distribution and promptly bought the shares outside the retirement account for yourself but they have no effect on the tax treatment of the distribution: the market value of the shares distributed to you is taxed as ordinary income, and your basis in the newly acquired shares outside the retirement account is the market value of the shares, all prices being as of the date of the distribution.","Have you looked into GnuCash? It lets you track your stock purchases, and grabs price updates. It's designed for double-entry accounting, but I think it could fit your use case.","Your assets are marked to market. If you buy at X, and the market is bidding at 99.9% * X then you've already lost 0.1%. This is a market value oriented way of looking at costs. You could always value your assets with mark to model, and maybe you do, but no one else will. Just because you think the stock is worth 2*X doesn't mean the rest of the world agrees, evidenced by the bid. You surely won't get any margin loans based upon mark to model. Your bankers won't be convinced of the valuation of your assets based upon mark to model. By strictly a market value oriented way of valuing assets, there is a bid/ask cost. more clarification Relative to littleadv, this is actually a good exposition between the differences between cash and accrual accounting. littleadv is focusing completely on the cash cost of the asset at the time of transaction and saying that there is no bid/ask cost. Through the lens of cash accounting, that is 100% correct. However, if one uses accrual accounting marking assets to market (as we all do with marketable assets like stocks, bonds, options, etc), there may be a bid/ask cost. At the time of transaction, the bids used to trade (one's own) are exhausted. According to exchange rules that are now practically uniform: the highest bid is given priority, and if two bids are bidding the exact same highest price then the oldest bid is given priority; therefore the oldest highest bid has been exhausted and removed at trade. At the time of transaction, the value of the asset cannot be one's own bid but the highest oldest bid leftover. If that highest oldest bid is lower than the price paid (even with liquid stocks this is usually the case) then one has accrued a bid/ask cost.","Let me restate question for clarity. Facts: Question: Are there any taxes for this transaction? Answer: (Added improvements provided by Eric) Generally No. Generally, it is not considered income until you sell and the sale price is greater than the purchase price. But with currency differences, there is an additional complication, section 988 rules apply. It could result in ordinary income or loss.","I am using the same logic as the two answers above. I got almost the same result ($46.60 instead of $46.59 per share) using the sold fractional share basis. However, the JCI Qualified Dividend (on the 1099-DIV, not the 1099-B) divided by the number of shares spun off yields a basis per share of only $40.97 That compares to $45.349 in answer two above. It seems that we should get the approximately same basis per share using the same arithmetic, and I do not know why we don't. For my tax files, I plan to use the Adient basis equal to the dividend from the 2016 1099-DIV of JCI (the PLC after the merger). My reasoning is that I cannot use an amount for the Adient basis that is greater than the dividend I paid taxes on. [In case this part of the question comes up again, you can get historical quotes at various websites such as https://finance.yahoo.com/quote, which does show $45.51 as the Adient closing price on 10/31/16.]","Typically that applies if the broker Form 1099-B reports an incorrect basis to the IRS. If the Form 1099-B shows incorrect basis relative to your records, then you can use 8949, column (g) to report the correct basis. The 8949 Instructions provide a brief example. http://www.irs.gov/pub/irs-prior/i8949--2013.pdf Although you have an obligation to report all income, and hence to report the true basis, as a practical matter this information will usually be correct as presented by the broker. If you have separate information or reports relating to your investments, and you are so inclined, then you can double-check the basis information in your 1099-B. If you aren't aware of basis discrepancies, then the adjustments probably don't apply to you and your investments can stick to Schedule D.","It's better to use the accounting equation concept: Asset + Expenses = Capital + Liabilities + Income If you purchase an asset: Suppose you purchased a laptop of $ 500, then its journal will be: If you sell the same Laptop for $ 500, then its entry will be:","No. If you didn't specify LIFO on account or sell by specifying the shares you wish sold, then the brokers method applies. From Publication 551 Identifying stock or bonds sold. If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stock or bonds. If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Pub. 550. The trick is to identify the stock lot prior to sale.","The income and recurring costs will be shown at the end of each year, however the initial cost is recorded at the time they are incurred meaning at t=0 (Jan 2014) The first net profits/loss of 658500 is recorded at the end of Dec 2014 (t=1) And the remaining four ones at the end of 2015 (t=2) 2016 (t=3) 2017 (t=4) 2018 (t=5) -8000000 658500 658500 658500 658500 6658500 t=0) -8000000 t=1) 658500 t=2) 658500 t=3) 658500 t=4) 658500 t=5) 6658500","If you buy for $1 and sell $1 when the price goes to $2, you would have sold only half of your initial investment. So your investment would now be worth $2 and you sell $1 leaving $1 still in the market. This means you would have sold half your initial investment, making a profit of $0.50 on this half of your initial investment, and having to pay CGT on this amount.","Having all of the numbers you posted is a start. It's what you need to perform the calculation. The final word, however, comes from the company itself, who are required to issue a determination on how the spin-off is valued. Say a company is split into two. Instead of some number of shares of each new company, imagine for this example it's one for one. i.e. One share of company A becomes a share each in company B and company C. This tell us nothing about relative valuation, right? Was B worth 1/2 of the original company A, or some other fraction? Say it is exactly a 50/50 split. Company A releases a statement that B and C each should have 1/2 the cost basis of your original A shares. Now, B and C may very well trade ahead of the stock splitting, as 'when issued' shares. At no point in time will B and C necessarily trade at exactly the same price, and the day that B and C are officially trading, with no more A shares, they may have already diverged in price. That is, there's nothing you can pull from the trading data to identify that the basis should have been assigned as 50% to each new share. This is my very long-winded was of explaining that the company must issue a notice through your broker, and on their investor section of their web site, to spell out the way you should assign your basis to each new stock.","The original post's $16 has two errors: Here is the first scenario: . Tax Liability($) on Net . Cash # of Price Paper Realized Value Time: ($) Shares ($/sh) Profits Profits ($) 1. Start with: 100 - n/a - - 100 2. After buy 10@10$/sh: - 10 10 - - 100 3. Before selling: - 10 12 (5) - 115 4. After sell 10@12$/sh: 120 - n/a - (5) 115 5. After buy 12@10$/sh: - 12 10 - (5) 115 6. Before selling: - 12 12 (6) (5) 133 7. After sell 12@12$/sh: 144 - n/a - (11) 133 8. After buy 14@10$/sh: 4 14 10 - (11) 133 9. Before selling: 4 14 12 (7) (11) 154 10.After sell 14@12$/sh: 172 - n/a - (18) 154 At this point, assuming that all of the transactions occurred in the same fiscal year, and the realized profits were subject to a 25% short-term capital gains tax, you would owe $18 in taxes. Yes, this is 25% of $172 - $100.","Your brokerage account statement should report the Questar cost basis adjusted for the spinoff (and would have done so starting the day the spinoff happened), shifting the portion of it over to your shiny new QEP stock based on the opening price. At what price did you buy into Questar? The Questar IR site also has a document with more detail.","According to the answers to this question, you generally aren't taxed on gains until you sell the asset in question. None of those answered specifically for the U.K., so perhaps someone else will be able to weigh in on that. To apply those ideas to your question, yes your gains and losses are taxable. If you originally traded something worth $100 for the bitcoins, then when you converted back to dollars you received $200, you would have a $100 gain, simply on the foreign exchange trade. That is, this $100 of income is in addition to any income you made from your business (selling goods).","What people fail to realize about bitcoin is its cost to acquire a coin.. I'm not exactly familiar on pricing nowadays but back when it was $100 a coin it took you ~$95+ in power/equipment to get that coin. Meaning bitcoin can not go below $95. Bitcoin is at $5800.. And if its as it were before, it's costing ~$5700ish to obtain, miners are not going to sell their coin for $5600 that cost $5700 to get.","In addition to the adjustment type in NL7's answer, there are a host of others. If there are any adjustments, form 8949 is required, if not, the gains can be separated into short and long-term and added together to be entered on Schedule D. Anything requiring an adjustment code in column F of the 8949 requires an entry in column G. Some other example entries for column F include: (see the 8949 instructions for a complete list) **A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you: Buy substantially identical stock or securities, Acquire substantially identical stock or securities in a fully taxable trade, Acquire a contract or option to buy substantially identical stock or securities, or Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA. (from Pub17)","One thing to keep in mind is that with Roth accounts, there are different withdrawal considerations based on your contributions. For example, you can withdraw Roth IRA contributions whenever you want in the future. However this really has nothing to do with your cost basis and purely to do with the contribution amount vs balance.","Your final tax basis could not be determined until June 14, 2012, the first day of separate trading of all four securities that you received from the GM bankruptcy reorganization.","Like-kind of exchanges have a list of requirements. The IRS has not issued formal guidance in the matter. I recommend to be aggressive and claim the exchange, while justifying it with a good analogy to prove good faith (and persuade the IRS official reading it the risk of losing in tax court would be to high). Worst case the IRS will attempt to reject the exchange, at which point you could still pony up to get rid of the problem, interest being the only real risk. For example: Past tax court rulings have stated that collectable gold coins are not like kind to gold bars, and unlike silver coins, but investment grade gold coins are like kind to gold bars. So you could use a justification like this: I hold Bitcoin to be like-kind to Litecoin, because they use the same fundamental technology with just a tweak in the math, as if exchanging different grades of gold bars, which has been approved by tax court ruling #xxxxx. Note that it doesn't matter whether any of this actually makes sense, it just has be reasonable enough for you to believe, and look like it is not worth pursuing to an overworked IRS official glancing at it. I haven't tried this yet, so up to now this is a guess, but it's a good enough guess in my estimation that I will be using it on some rather significant amounts next year.","\"First, to clear up your misconceptions: The balance is not merely made up of deductible and non-deductible contributions. There are also earnings implied in the balance .. i.e. the whole reason you invest in the first place is to realize some return on investment. That return, a.k.a. the earnings, are included in the balance of the account. The balance is the sum total of everything in the account, the \"\"bottom line\"\". Generally speaking, basis for an account is all of the money that has been contributed (deposited) to the account. In the context of an IRA as described in the article, however, they are using basis to refer to only the non-deductible contributions. Of note, however, is that basis specifically excludes earnings. If you have deposited, say, $5000 one year and $5000 the next, then your basis is $10,000, even if the balance has grown to, say, $12,000 (which includes the earnings). As may be evident by now, earnings are not equivalent to deductible contributions. Earnings may arise from such contributions but they are not the same. Rather, earnings are the net positive investment results from all contributions. Again, if you had contributed $5000 one year and $5000 the next and the balance has grown to $12,000, then the earnings portion is $2000. So to interpret what happened in the specific example provided: Over the years, the account holder contributed (deposited) a total of $15,000 into his account. These must have been non-deductible contributions in the case of the IRA in order to arrive at basis of $15,000. Over time (and coincident with the deposits), that $15,000 grew to $24,000 .. i.e. earned $9,000 in earnings. Then, the nearly 50% drop caused the balance to decay to $13,000. This means all $9,000 of his earnings were wiped out, plus $2000 of the original basis. The remaining $13,000 is all basis .. that is, considered to be original money deposited to the account, no earnings. In effect, the account has lost $2000 of basis, because $15,000 was deposited and only $13,000 remains. Simplistic way of looking at it: A $15,000 investment resulted in a final $13,000 sale, i.e. a net loss of $2000. It doesn't matter that it hit $24,000 in the meanwhile .. it could have hit $250,000 in value and then dropped to $13,000 and the net result would be the same: a loss of $2000 in basis. Traditional IRA earnings are always tax-deferred .. i.e. whether earnings arise from deductible or else non-deductible contributions, when one takes a distribution (withdraws) from an IRA and the distribution includes earnings, the earnings portion is always taxable income. Doesn't matter if the earnings arose from one kind of contribution or the other. I don't think in this example there were any deductible contributions whatsoever. Does that make sense / help?\"","well, if you can hold onto your investment. then it is just a matter of time till it reaches a valuation which demands the attention of central banks and states. Till this happens, it needs to increase in value. if you buy for 12 $, 4500$ or less does not matter if you expect it to go up in the long term.","What you are looking for is a 1031 exchange. https://www.irs.gov/uac/like-kind-exchanges-under-irc-code-section-1031 Whenever you sell business or investment property and you have a gain, you generally have to pay tax on the gain at the time of sale. IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange. Gain deferred in a like-kind exchange under IRC Section 1031 is tax-deferred, but it is not tax-free. You may also sell your house for bitcoin and record the sales price on the deed with an equal or lesser amount that you bought it for.","Assuming the stock was worth more at the time she gave it to you than when she bought it, the cost basis would be the amount that she bought it for. You would then pay tax on the increase in value from that time. Generally it's better to inherit assets than receive them as gifts, since the cost basis of inherited assets is raised to the value at the time of the death of the one leaving the inheritance. You will probably need to find some record of the original amount paid so you can determine the right cost basis.","You only have to pay taxes when you convert to dollars. Most exchanges I think have to track their users and provide them with reports for tax purposes. Just holding bitcoin and watching it go up in value does not trigger a taxable event.","\"There are two ways to handle this. The first is that the better brokers, such as Charles Schwab, will produce summaries of your gains and losses (using historical cost information), as well as your trades, on a monthly and annual basis. These summaries are \"\"ready made\"\" for the IRS. More brokers will provide these summaries come 2011. The second is that if you are a \"\"frequent trader\"\" (see IRS rulings for what constitutes one), then they'll allow you to use the net worth method of accounting. That is, you take the account balance at the end of the year, subtract the beginning balance, adjust the value up for withdrawals and down for infusions, and the summary is your gain or loss. A third way is to do all your trading in say, an IRA, which is taxed on distribution, not on stock sales.\"","\"Since you did not treat the house as a QBU, you have to use USD as your functional currency. To calculate capital gains, you need to calculate the USD value at the time of purchase using the exchange rate at the time of purchase and the USD value at the time of sale using the exchange rate at the time of sale. The capital gain / loss is then the difference between the two. This link describes it in more detail and provides some references: http://www.maximadvisors.com/2013/06/foreign-residence/ That link also discusses additional potential complications if you have a mortgage on the house. This link gives more detail on the court case referenced in the above link: http://www.uniset.ca/other/cs5/93F3d26.html The court cases references Rev. Rul 54-105. This link from the IRS has some details from that (https://www.irs.gov/pub/irs-wd/0303021.pdf): Rev. Rul. 54-105, 1954-1 C.B. 12, states that for purposes of determining gain, the basis and selling price of property acquired by a U.S. citizen living in a foreign country should be expressed in United States dollars at the rates of exchange prevailing as of the dates of purchase and sale of the property, respectively. The text of this implies it is for U.S. citizen is living in a foreign country, but the court case makes it clear that it also applies in your scenario (house purchased while living abroad but now residing in the US): Appellants agree that the 453,374 pounds received for their residence should be translated into U.S. dollars at the $1.82 exchange rate prevailing at the date of sale. They argue, however, that the 343,147 pound adjusted cost basis of the residence, consisting of the 297,500 pound purchase price and the 45,647 pounds paid for capital improvements, likewise should be expressed in U.S. dollar terms as of the date of the sale. Appellants correctly state that, viewed “in the foreign currency in which it was transacted,” the purchase generated a 110,227 pound gain as of the date of the sale, which translates to approximately $200,000 at the $1.82 per pound exchange rate. ... However fair and reasonable their argument may be, it amounts to an untenable attempt to convert their “functional currency” from the U.S. dollar to the pound sterling. ... Under I.R.C. § 985(b)(1), use of a functional currency other than the U.S. dollar is restricted to qualified business units (\"\"QBU\"\"s). ... appellants correctly assert that their residence was purchased “for a pound-denominated value” while they were “living and working in a pound-denominated economy,” ... And since appellants concede that the purchase and sale of their residence was not carried out by a QBU, the district court properly rejected their plea to treat the pound as their functional currency.\"","Because the distribution date was APR 21, 2011, THAT should be the correct date for ascertainng the stock prices of the GM stock and warrants. The subsequent distributions after April should also be allocated in accordance with their distribution dates, with tax basis being reduced from the original APR 21st date's allocations, and reallocated to those subsequent distributions, taking into account any interim sales you might have made.","\"I will say in advance this is not a great answer, but I had a similar experience when I owned a CIT bond that defaulted. I ended up getting stock plus 5 newly issued bonds as a replacement for my defaulted bond. My broker had no clue on cost basis and didn't even try for the new securities, I called the \"\"hotline\"\" setup about CIT default and they knew nothing, and finally I read all the paperwork around the restructuring but it was less than transparent. So in the end I ended up claiming everything as a wash, no gain/no loss - which probably screwed me in the end as I believe I ended up down. It was a very small position for me and was not worth the headache :(\"","\"You can group your like-kind (same symbol, ST/LT) stock positions, just be sure that your totals match the total dollar amounts on the 1099. An inconsistency will possibly result in a letter from IRS to clarify. So, if you sold the 100 shares, and they came from 7 different buys, list it once. The sell price and date is known, and for the buy price, add all the buys and put \"\"Various\"\" for the date. If you have both long term and short term groups as part of those 7 buys, split them into two groups and list them separately.\"","You realize people are buying houses, and Lamborghini’s with bitcoin? Maybe if you for once stopped to think that the people involved in bitcoin can see value based off what it cost to generate and are more than willing to pay the price for one knowing that? But yeah we will go with your method bitcoin cost 6k to mine, sells for 5k and no way demand vs supply is going up from no new coins entering the market for 4 weeks.","The first method is the correct one. You bought an asset worth of $1000 and you put it on your depreciation schedule. What it means is that you get to write off the $1000 over a certain period of time (and not at once, as you do with expenses). But the value you're writing off is the $1000 regardless of how much you've written off already. Assume you depreciate in straight line over 5 years (that's how you depreciate computers for Federal tax purposes, most states follow). For the simplicity of the calculation, assume you depreciate each year as a whole year (no mid-year/mid-quarter conventions). The calculation is like this: If you sell the computer - the proceeds above the adjusted basis amount are taxed as depreciation recapture up to the accumulated depreciation amount, and as capital gains above that. So in your case - book value is the adjusted basis at the end of the year (EOY), depreciation this year is the amount you depreciate in the year in question out of the total of the original cost, and the accumulated depreciation is the total depreciation including the current year. In Maryland they do not allow depreciating to $0, but rather down to 25% of the original cost, so if you bought a $1000 computer - you depreciate until your adjusted basis is $250. Depreciation rates are described here (page 5). For computers (except for large mainframes) you get 30% depreciation, with the last year probably a bit less due to the $250 adjusted basis limitation.","It looks like fair-market value when you receive your virtual currency is counted as income. And you're also subject to self-employment tax on that income. Here's an FAQ from the IRS: Q-8: Does a taxpayer who “mines” virtual currency (for example, uses computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger) realize gross income upon receipt of the virtual currency resulting from those activities? A-8: Yes, when a taxpayer successfully “mines” virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income. See Publication 525, Taxable and Nontaxable Income, for more information on taxable income.Q-9: Is an individual who “mines” virtual currency as a trade or business subject to self-employment tax on the income derived from those activities? A-9: If a taxpayer’s “mining” of virtual currency constitutes a trade or business, and the “mining” activity is not undertaken by the taxpayer as an employee, the net earnings from self-employment (generally, gross income derived from carrying on a trade or business less allowable deductions) resulting from those activities constitute selfemployment income and are subject to the self-employment tax. See Chapter 10 of Publication 334, Tax Guide for Small Business, for more information on selfemployment tax and Publication 535, Business Expenses, for more information on determining whether expenses are from a business activity carried on to make a profit. You'd of course be able to offset that income with the expense of mining the virtual currency, depreciation of dedicated mining equipment, electricity, not sure what else. Edit: Here's a good resource on filing taxes with Bitcoin: Filling in the 1040 Income from Bitcoins and all crypto-currencies is declared as either capital gains income or ordinary income, for example from mining. Income Ordinary income will be declared on either your 1040 (line 21 - Other Income) for an individual, or within your Schedule C, if you are self-employed or have sole-proprietor business. Capital Gains Capital gains income, or losses, are declared on Schedule D. Since there are no reported 1099 forms from Bitcoin exchanges, you will need to include your totals with Box C checked for short-term gains, and with Box F checked for long-term gains. Interesting notes from that article, your first example could actually be trickier than expected if you started mining before there was a Monero to USD exchange. Also, there can also be capital gains implications from using your virtual currency to buy goods, which sounds like a pain to keep track of.","Generally it is a taxable transaction. Basic principle of taxation everywhere is that the mean of payment doesn't matter. If the income is taxable - it is taxable regardless of the unit of currency you used. It can be a strawberry, a bitcoin, a gold nugget, or a dollar, it doesn't change a thing about how it is taxed. If you look at the United States tax code definition of taxable income, for example, you will find no mention whatsoever of any currency. Similarly with other tax laws I'm familiar with. I'm sure there's no such limitation in Australia.","\"As cryptocurrencies are rather new compared to most assets, there hasn't been a lot of specific guidance for a lot of situation, but in 2014 the IRS announced that it published guidance in Notice 2014-21. I'm not aware of further guidance that has been published beyond that, though it wouldn't surprise me if treatments changed over time. In that notice, the answer to the first question describes the general treatment: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency. Your specific questions (about what constitutes a \"\"business\"\", and when you're considered to be \"\"selling\"\" the cryptoproperty) are likely to be considered on a case by case basis by the IRS. As the amounts involved here are so small (relatively speaking), my recommendation would be to read through what the IRS has published carefully, make reasonable assumptions about what scenarios that are described are closest to what you're doing, and document doing so clearly as part of your tax preparations. And when in doubt, erring on the side of whichever option incurs more tax is unlikely to be objected to by them. Of course, I'm not a lawyer or tax advisor, I'm a stranger on the Internet, so for \"\"real\"\" advice you should contact somebody qualified. I doubt you'd be faulted too much for not doing so given the amounts involved. You could also attempt contacting a local IRS office or calling them with your specific questions, and they may be able to provide more specific guidance tailored to you, though doing so may not save you from an auditor deciding something differently if they were to examine your return later. There are also phone numbers to contact specific people listed at the end of Notice 2014-21; you could try calling them as well.\"","Instead of a price chart can use a performance chart, which is usually expressed as a percentage increase from the original purchase price. To factor in the dividends, you can either add in all of your dividends to the final price, or subtract the accumulated dividends from your cost basis (the initial price).","I'm a finance newb....sorry ahead of time for everyone slamming their heads against the the wall. I'm going to go ahead and possibly answer my own question. Do I just go back 4 months at a time from their 10K and record the stock price on that date?","You can easily build a Google Sheet spreadsheet to track what you want as Sheet has a 'googlefinance()' function to look-up the same prices and data you can enter and track in a Google Finance portfolio, except you can use it in ways you want. For example, you can track your purchase price at a fixed exchange rate, track the current market value as the product of the stock's price times the floating exchange rate, and then record your realized profit and loss using another fixed exchange rate. You don't have to record the rates either, as googlefinance() func is able to lookup prices as of a particular date. You can access Google Sheet through a web browser or Android app.","\"There are many Bitcoin stores where items are bought and sold daily. Overstock.com is one of them. The value doesn't matter because Bitcoins are divisible down to 8 decimal points. I can send you a fraction of a penny easily, although currently the transaction fee to send it is likely to be several pennies. (One purpose of the fees are to discourage such pointlessly small transactions, referred to as \"\"dust\"\".)\""],"string":"[\n \"Some personal finance packages can track basis cost of individual purchase lots or fractions thereof. I believe Quicken does, for example. And the mutual funds I'm invested in tell me this when I redeem shares. I can't vouch for who/what would make this visible at times other than sale; I've never had that need. For that matter I'm not sure what value the info would have unless you're going to try to explicitly sell specific lots rather than doing FIFO or Average accounting.\",\n \"\\\"The only \\\"\\\"authoritative document\\\"\\\" issued by the IRS to date relating to Cryptocurrencies is Notice 2014-21. It has this to say as the first Q&A: Q-1: How is virtual currency treated for federal tax purposes? A-1: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency. That is to say, it should be treated as property like any other asset. Basis reporting the same as any other property would apply, as described in IRS documentation like Publication 550, Investment Income and Expenses and Publication 551, Basis of Assets. You should be able to use the same basis tracking method as you would use for any other capital asset like stocks or bonds. Per Publication 550 \\\"\\\"How To Figure Gain or Loss\\\"\\\", You figure gain or loss on a sale or trade of property by comparing the amount you realize with the adjusted basis of the property. Gain. If the amount you realize from a sale or trade is more than the adjusted basis of the property you transfer, the difference is a gain. Loss. If the adjusted basis of the property you transfer is more than the amount you realize, the difference is a loss. That is, the assumption with property is that you would be using specific identification. There are specific rules for mutual funds to allow for using average cost or defaulting to FIFO, but for general \\\"\\\"property\\\"\\\", including individual stocks and bonds, there is just Specific Identification or FIFO (and FIFO is just making an assumption about what you're choosing to sell first in the absence of any further information). You don't need to track exactly \\\"\\\"which Bitcoin\\\"\\\" was sold in terms of exactly how the transactions are on the Bitcoin ledger, it's just that you bought x bitcoins on date d, and when you sell a lot of up to x bitcoins you specify in your own records that the sale was of those specific bitcoins that you bought on date d and report it on your tax forms accordingly and keep track of how much of that lot is remaining. It works just like with stocks, where once you buy a share of XYZ Corp on one date and two shares on another date, you don't need to track the movement of stock certificates and ensure that you sell that exact certificate, you just identify which purchase lot is being sold at the time of sale.\\\"\",\n \"\\\"In 2014 the IRS announced that it published guidance in Notice 2014-21. In that notice, the answer to the first question describes the general tax treatment of virtual currency: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency. As it's property like any other, capital gains if and when you sell are taxed. As with any capital gains, you're taxed on the \\\"\\\"profit\\\"\\\" you made, that is the \\\"\\\"proceeds\\\"\\\" (how much you got when you sold) minus your \\\"\\\"basis\\\"\\\" (how much you paid to get the property that you sold). Until you sell, it's just an asset (like a house, or a share of stock, or a rare collectible card) that doesn't require any reporting. If your initial cryptocurrency acquisition was through mining, then this section of that Notice applies: Q-8: Does a taxpayer who “mines” virtual currency (for example, uses computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger) realize gross income upon receipt of the virtual currency resulting from those activities? A-8: Yes, when a taxpayer successfully “mines” virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income. See Publication 525, Taxable and Nontaxable Income, for more information on taxable income. That is to say, when it was mined the market value of the amount generated should have been included in income (probably on either Line 21 Other Income, or on Schedule C if it's from your own business). At that point, the market value would also qualify as your basis. Though I doubt there'd be a whole lot of enforcement action for not amending your 2011 return to include $0.75. (Technically if you find a dollar bill on the street it should be included in income, but usually the government cares about bigger fish than that.) It sounds like your basis is close enough to zero that it's not worth trying to calculate a more accurate value. Since your basis couldn't be less than zero, there's no way that using zero as your basis would cause you to pay less tax than you ought, so the government won't have any objections to it. One thing to be careful of is to document that your holdings qualify for long-term capital gains treatment (held longer than a year) if applicable. Also, as you're trading in multiple cryptocurrencies, each transaction may count as a \\\"\\\"sale\\\"\\\" of one kind followed by a \\\"\\\"purchase\\\"\\\" of the other kind, much like if you traded your Apple stock for Google stock. It's possible that \\\"\\\"1031 like kind exchange\\\"\\\" rules apply, and in June 2016 the American Institute of CPAs sent a letter asking about it (among other things), but as far as I know there's been no official IRS guidance on the matter. There are also some related questions here; see \\\"\\\"Do altcoin trades count as like-kind exchanges?\\\"\\\" and \\\"\\\"Assuming 1031 Doesn't Apply To Cryptocurrency Trading\\\"\\\". But if in fact those exchange rules do not apply and it is just considered a sale followed by a purchase, then you would need to report each exchange as a sale with that asset's basis (probably $0 for the initial one), and proceeds of the fair market value at the time, and then that same value would be the basis of the new asset you're purchasing. Using a $0 basis is how I treat my bitcoin sales, though I haven't dealt with other cryptocurrencies. As long as all the USD income is being reported when you get USD, I find it unlikely you'll run into a lot of trouble, even if you technically were supposed to report the individual transactions when they happened. Though, I'm not in charge of IRS enforcement, and I'm not aware of any high-profile cases, so it's hard to know anything for sure. Obviously, if there's a lot of money involved, you may want to involve a professional rather than random strangers on the Internet. You could also try contacting the IRS directly, as believe-it-or-not, their job is in fact helping you to comply with the tax laws correctly. Also, there are phone numbers at the end of Notice 2014-21 of people which might be able to provide further guidance, including this statement: The principal author of this notice is Keith A. Aqui of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information about income tax issues addressed in this notice, please contact Mr. Aqui at (202) 317-4718\\\"\",\n \"Calculating and adjusting cost basis accurately is a daunting task, but there is a (paid) online tool, NetBasis, which will automatically calculate and adjust your cost basis. It is used by brokerage firms and Fortune 500 companies and is available to the public. Go to netbasis.com. All you need are the purchase and sale dates and shares of the stock or mutual fund and the system has the rest of the information, such as corporate actions (splits, spin-offs, etc), pricing, and dividends and it also will apply the appropriate IRS rules for inherited and gifted shares. The regulation also gives investors the option to choose calculation methods. Not only does NetBasis automatically calculate the method you choose, it will also give the results for all options and allow you to choose the best result. NetBasis also provides you with detailed supporting documentation which shows all of the calculations and the adjustments in chronological order. NetBasis has data going back as far as 1925, so it will accurately calculate cost basis for your old American Telegraph and Telephone shares. NetBasis also handles complex investment scenarios such as wash sales, short sales, return of capital, etc. Moderator's note: Disclosure: The answerer's profile indicates they are affiliated with NetBasis.\",\n \"Starting of 2011, your broker has to keep track of all the transactions and the cost basis, and it will be reported on your 1099-B. Also, some brokers allow downloading the data directly to your tax software or to excel charts (I use E*Trade, and last year TurboTax downloaded all the transaction directly from them).\",\n \"For every document that the IRS posts, there will be a correlating instructions page. This would be the instructions for the 1099-B, here. Furthermore, as you will be reporting this on Form 8949, as a substitute for previously used Schedule D; instructions are here.This article explains that the best course of action is to donate the shares as the cost basis would switch to FMV (fair market value) of the assets today. But as this did not happen, I would recommend contacting the purchasing company directly. Being a share holder, and by purchasing the shares from the source, the accounting department should still have recorded the date of purchase along with the price sold. It may take effort to prove who you are, but if their accounting records are well documented, this will not be an issue. If nothing else, claim a 100% capital gain on the entirety of the sale, and pay the tax. That is stated here.\",\n \"Profit = Sale price - Basis Basis = Purchase price - any depreciation taken, including expensing it.\",\n \"\\\"There are two scenarios to determine the relevant date, and then a couple of options to determine the relevant price. If the stocks were purchased in your name from the start - then the relevant date is the date of the purchase. If the stocks were willed to you (i.e.: you inherited them), then the relevant date is the date at which the person who willed them to you had died. You can check with the company if they have records of the original purchase. If it was in \\\"\\\"street name\\\"\\\" - they may not have such records, and then you need to figure out what broker it was to hold them. Once you figured out the relevant date, contact the company's \\\"\\\"investor relationships\\\"\\\" contact and ask them for the adjusted stock price on that date (adjusted for splits/mergers/acquisitions/whatever). That would be the cost basis per share you would be using. Alternatively you can research historical prices on your favorite financial information site (Google/Yahoo/Bloomberg or the stock exchange where the company is listed). If you cannot figure the cost basis, or it costs too much - you can just write cost basis as $0, and claim the whole proceeds as gains. You'll pay capital gains tax on the whole amount, but that may end up being cheaper than conducting the investigation to reveal the actual numbers.\\\"\",\n \"Reinvestment creates a nightmare when it comes time to do taxes, sadly. Tons of annoying little transactions that happened automatically... Here's one article trying to answer your question: http://www.smartmoney.com/personal-finance/taxes/figuring-out-your-cost-basis-when-youve-lost-the-statements-9529/ You could also try this thing: http://www.gainskeeper.com/us/BasisProIndividual.aspx But I couldn't tell you if it would help. If it makes you feel better, brokerages are now required by the IRS to track your basis for you, so for new transactions and assets you shouldn't end up in this situation. Doesn't help with the old stuff ;-)\",\n \"I was doing my taxes in the US (called Form 1040) and wanted to find out how to figure out the cost basis for the $3.006 that I received for each Siemens ADR that I hold in July 2013. I found that the cost-basis allocation ratio is as follows: Thus for the original poster the cost-basis is: Hope this helps someone.\",\n \"\\\"As long as the IRS treats bitcoin as property, then whenever you use bitcoin to buy anything you are supposed to consider the capital gain or capital loss. There is no \\\"\\\"until it's converted to fiat\\\"\\\". You are paying local sales tax and capital gains, or paying local sales tax and reporting capital loss. As long as you are consistent, you can use either the total cost basis, or individual lot purchases. The same as other property like stocks (except without stock specific regulations like wash-sale rules :D ). There are a lot of perks or unintentional loopholes for speculators, with the property designation. There are a lot of disadvantages for consumers trying to use it like a currency. Someone mixing investment and spending funds across addresses is going to have complicated tax issues, but fortunately the exchanges have records of purchase times and prices, which you can compare with the addresses you control. Do note, after that IRS guideline, another federal agency designated Bitcoin as a commodity, which is a subset of \\\"\\\"property\\\"\\\" with its own more favorable but different tax guidelines.\\\"\",\n \"I am not a tax professional, only an investment professional, so please take the following with a grain of salt and simply as informational guidance, not a personal recommendation or solicitation to buy/sell any security or as personal tax or investment advice. As Ross mentioned, you need to consult a tax advisor for a final answer concerning your friend's personal circumstances. In my experience advising hundreds of clients (and working directly with their tax advisors) the cost basis is used to calculate tax gain or loss on ordinary investments in the US. It appears to me that the Edward Jones description is correct. This has also been the case for me personally in the US with a variety of securities--stocks, options, futures, bonds, mutual funds, and exchange traded funds. From the IRS: https://www.irs.gov/uac/about-form-1099b Form 1099-B, Proceeds From Broker and Barter Exchange Transactions A broker or barter exchange must file this form for each person: Edward Jones should be able to produce a 1099b documenting the gains/losses of any investments. If the 1099b document is confusing, they might have a gain/loss report that more clearly delineates proceeds, capital returns, dividends, and other items related to the purchase and sale of securities.\",\n \"The average price would be $125 which would be used to compute your basis. You paid $12,500 for the stock that is now worth $4,500 which is a loss of $8,000 overall if you sell at this point.\",\n \"To sum up: My question came from misunderstanding what cost basis applies to. Now I get it that it applies to stocks as physical entities. Consider a chain of buys of 40 stock A with prices $1-$4-$10-$15 (qty 10 each time) then IRS wants to know exactly which stock I am selling. And when I transfer stocks to different account, that cost basis transfers with them. Cost basis is included in transfers, so that removes ambiguity which stock is being sold on the original account. In the example above, cost basis of 20 stocks moved to a new account would probably be $1 x 10 and $4 x 10, i.e. FIFO also applies to transfers.\",\n \"I think the answer you are looking for is: You are not taxed on the original basis (purchase cost) of your investment. If you pay $30 a share, and sell at $35, the $5 per share gain is taxable at time of sale. But the $30 basis cost doesn't enter into tax calculations at all. (So it's important to keep good records on your investments and how much you paid for them at purchase.)\",\n \"I would think you need proof that you actually bought it when it was cheaper, but that's a guess. You are supposed to pay the capital gains tax on bitcoin gains, same as if you made money on a stock https://www.google.com/amp/s/www.forbes.com/sites/greatspeculations/2017/02/21/if-you-traded-bitcoin-you-should-report-capital-gains-to-the-irs/amp/\",\n \"What I do have is this (sample only): Stock X: Average Price of all I purchased before = 80 Total Shares = 200 So if Stock X's price today is 100 how do I know how much my average price will be? Using your sample if you buy 100 new shares and the price is 85 for the purpose of this example your previous total cost is $16,000 ($80 average cost * 200 shares). With the new example you are adding $8500 to your total cost (100 new shares * $85 example cost per share) that gives us a total cost of $24,500 and 300 shares. $24,500/300 gives us an average cost of $81.67 per share. As long as you have the average cost and the number of shares you can calculate a new average without knowing what the price was for each transaction. It may still become important to find the price information for tax purposes if you do not sell all of those shares at once and use FIFO for your taxes.\",\n \"\\\"Tax cost basis is the amounts you've spent on developing the product which you hasn't deducted yet from previous income. From what you've described, it sounds like your cost basis is $0. Time you spent is not your cost, since time is not money. The fact that you might have earned something if working at that time but you didn't - is irrelevant, because potential income that you didn't get is not a loss that you took. Someone mentioned \\\"\\\"intangibles\\\"\\\" in the comments - that would be the line of thought of the buyer. However, since you didn't buy the product but rather developed it, you can only deduct the actual expenses you've incurred, that you haven't deducted so far.\\\"\",\n \"Mining is income at the value at time of earning, I would use an index like XBX to determine price. Asset appreciation is capital gains. These aspects of crypto-assets are not a gray area in the US financial sector, and have been addressed for almost half a decade now.\",\n \"You decide on a cost bases attribution yourself, per transaction (except for averaging for mutual funds, which if I remember correctly applies to all the positions). It is not a decision your broker makes. Broker only needs to know what you've decided to report it to the IRS on 1099, but if the broker reported wrong basis (because you didn't update your account settings properly, or for whatever else reason) you can always correct it on form 8949 (columns f/g).\",\n \"\\\"According to the following article the answer is \\\"\\\"first-in, first-out\\\"\\\": http://smallbusiness.chron.com/calculate-cost-basis-stock-multiple-purchases-21588.html According to the following article the last answer was just one option an investor can choose: https://www.usaa.com/inet/pages/advice-investing-costbasis?akredirect=true\\\"\",\n \"\\\"Stocks, as an asset, represent the sum of the current market value of all of your holdings. If your portfolio is showing unrealized gains and losses, then that net amount is inherently reflected in the current market value of your holdings. That's not to say cost basis is not important. Any closed trades, realized gains or losses, will of course have an impact on your taxable income. So, it couldn't hurt to keep track of your cost basis from a tax standpoint, but understand that the term \\\"\\\"asset\\\"\\\" refers to the current market values and does not consider base amounts. Taxes do. Perhaps consider making separate cells for cost basis, but also bear in mind that most if not all of the major online discount brokers will provide transferring of cost basis information electronically to the major online tax service providers.\\\"\",\n \"There is no guidance specifically for this yet, but in my professional opinion, there is not going to be a like kind exchange for crypto. So when you exchange one crypto for another there will be a capital gain, but your basis in the new coin will be the total gain on the old coin.\",\n \"And directly from IRS notice 2014-21 FAQ: Q-1: How is virtual currency treated for federal tax purposes? A-1: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency. Q-6: Does a taxpayer have gain or loss upon an exchange of virtual currency for other property? A-6: Yes. If the fair market value of property received in exchange for virtual currency exceeds the taxpayer’s adjusted basis of the virtual currency, the taxpayer has taxable gain. The taxpayer has a loss if the fair market value of the property received is less than the adjusted basis of the virtual currency.… Q-8: Does a taxpayer who “mines” virtual currency (for example, uses computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger) realize gross income upon receipt of the virtual currency resulting from those activities? A-8: Yes, when a taxpayer successfully “mines” virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income. See Publication 525, Taxable and Nontaxable Income, for more information on taxable income.\",\n \"Just a thought because this is a really good question: Would the buying and selling of blockchain based digital currency, using other blockchain based digital currencies, be subject to like kind treatment and exempt from capital gains until exchanged for a non-blockchain based good or service (or national currency) Suppose someone sells 1 bitcoin to buy 100 monero. Monero's price and bitcoin's price then change to where the 100 monero are 3 bitcoins. The person gets their bitcoin back and has 66.67 monero remaining. This scenario could be: Suppose someone sells 1 bitcoin at $1000 to buy 100 monero at $10. Bitcoin crashes 80% to $200 while monero crashes to only $6 per monero. $6 times 100 is $600 and if the person gets their bitcoin back (at $200 per bitcoi), they still lost money when measured in US Dollars if they move that bitcoin back to US dollars. In reading the IRS on bitcoin, they only care about the US dollar value of bitcoin or monero and in this example, the US dollar value is less. The person may have more bitcoins, but they still lost money if they sell.\",\n \"I’m going to answer this because: Accounting books only reflect the dollar value of inventories. Which means if you look at the balance sheet of McDonalds, you will not see how many bags of French fries are remaining at their storage facility, you will only see the total value at cost basis. Your requirement for noting the number of shares purchased is not part of the double entry accounting system. When you transfer $10000 from bank to broker, the entries would be: The bank’s name and the broker’s name will not appear on the balance sheet. When you purchase 50 shares at $40 per share, the accounting system does not care about the number of shares or the price. All it cares is the $2000 total cost and the commission of $10. You have two choices, either place $10 to an expense account, or incorporate it into the total cost (making it $2010). The entries for the second method would be: Now your balance sheet would reflect: What happens if the price increases from $40 per share to $50 per share tomorrow? Do nothing. Your balance sheet will show the cost of $2010 until the shares are sold or the accounting period ends. It will not show the market value of $2500. Instead, the Portfolio Tracker would show $2500. The most basic tracker is https://www.google.com/finance/portfolio . Later if you finally sell the shares at $50 per share with $10 commission: Again, the number of shares will not be reflected anywhere in the accounting system. Only the total proceeds from the sale matters.\",\n \"\\\"Your employer should send you a statement with this information. If they didn't, you should still be able to find it through E*Trade. Navigate to: Trading & Portfolios>Portfolios. Select the stock plan account. Under \\\"\\\"Restricted Stock\\\"\\\", you should see a list of your grants. If you click on the grant in question, you should see a breakdown of how many shares were vested and released by date. It will also tell you the cost basis per share and the amount of taxes withheld. You calculate your cost basis by multiplying the number of released shares by the cost basis per share. You can ignore the ordinary income tax and taxes withheld since they will already have been included on your W2 earnings and withholdings. Really all you need to do is report the capital gain or loss from the cost basis (which if you sold right away will be rather small).\\\"\",\n \"You add the wash sale loss to your cost basis for the other transaction so you would have two entries in your schedule d reporting 1.) Listing the $2000 loss as a wash 2.) The cost basis for your second transaction is thus $1000+$2000 = $3000 so when it was sold for $2000 you now have a reportable loss of $1000. For more information see here.... http://www.ehow.com/how_5313540_calculate-wash-sale.html\",\n \"Any profits you realize are considered a long term capital gain by the IRS since you have held the asset for longer than a year. The IRS guidance on virtual currency considers bitcoins to be a form of personal property. Gains from selling bitcoins are considered a capital gain. See the IRS guidance on reporting capital gains (Schedule D).\",\n \"You are correct. She cannot claim the initial loss of $1,000 on her taxes, she can only report the $500 profit. However, the IRS does allow her to add the $1,000 loss to the basis cost of her replacement shares. e.g.\",\n \"The key point is from the penultimate sentence in your second paragraph: for which you have already paid taxes When you receive a dividend or realise a capital gain, you get taxed on that then, and you shouldn't have to pay taxes on it again in future. So the cost basis gets adjusted to reflect that.\",\n \"\\\"at $8.50: total profit = $120.00 *basis of stock, not paid in cash, so not included in \\\"\\\"total paid\\\"\\\" at $8.50: total profit = $75.00\\\"\",\n \"\\\"While this does fall under the \\\"\\\"All-inclusive income\\\"\\\" segment of GI (gross income), there are two questions that come up. I invested in a decentralized bitcoin business and earned about $230 this year in interest from it Your wording is confusing here only due to how bitcoin works.\\\"\",\n \"\\\"Generally if you are using FIFO (first in, first out) accounting, you will need to match the transactions based on the number of shares. In your example, at the beginning of day 6, you had two lots of shares, 100 @ 50 and 10 @ 52. On that day you sold 50 shares, and using FIFO, you sold 50 shares of the first lot. This leaves you with 50 @ 50 and 10 @ 52, and a taxable capital gain on the 50 shares you sold. Note that commissions incurred buying the shares increase your basis, and commissions incurred selling the shares decrease your proceeds. So if you spent $10 per trade, your basis on the 100 @ 50 lot was $5010, and the proceeds on your 50 @ 60 sale were $2990. In this example you sold half of the lot, so your basis for the sale was half of $5010 or $2505, so your capital gain is $2990 - 2505 = $485. The sales you describe are also \\\"\\\"wash sales\\\"\\\", in that you sold stock and bought back an equivalent stock within 30 days. Generally this is only relevant if one of the sales was at a loss but you will need to account for this in your code. You can look up the definition of wash sale, it starts to get complex. If you are writing code to handle this in any generic situation you will also have to handle stock splits, spin-offs, mergers, etc. which change the number of shares you own and their cost basis. I have implemented this myself and I have written about 25-30 custom routines, one for each kind of transaction that I've encountered. The structure of these deals is limited only by the imagination of investment bankers so I think it is impossible to write a single generic algorithm that handles them all, instead I have a framework that I update each quarter as new transactions occur.\\\"\",\n \"You report each position separately. You do this on form 8949. 7 positions is nothing, it will take you 5 minutes. There's a tip on form 8949 that says this, though: For Part I (short term transactions): Note. You may aggregate all short-term transactions reported on Form(s) 1099-B showing basis was reported to the IRS and for which no adjustments or codes are required. Enter the total directly on Schedule D, line 1a; you are not required to report these transactions on Form 8949 (see instructions). For Part II (long term transactions): Note. You may aggregate all long-term transactions reported on Form(s) 1099-B showing basis was reported to the IRS and for which no adjustments or codes are required. Enter the total directly on Schedule D, line 8a; you are not required to report these transactions on Form 8949 (see instructions). If the 1099B in your case shows basis for each transaction as reported to the IRS - you're in luck, and don't have to type them all in separately.\",\n \"Using a different cost basis than your broker's reporting is NOT a problem. You need to keep your own records to account for this difference. Among the other many legitimate reasons to adjust your cost basis, the most popular is when you have two brokerage accounts and sell an asset in one then buy in another. This is called a Wash Sale and is not a taxable event for you. However from the perspective of each broker with their limited information you are making a transaction with tax implications and their reported 1099 will show as such. Links: https://www.firstinvestors.com/docs/pdf/news/tax-qa-2012.pdf\",\n \"For accounting purposes, consider the costs of acquisition as part of the cost of the asset as opposed to expensing. This will be important to consider if you need to amortise the asset for reporting or tax purposes. Dr. Land $250,000 Dr. Building: $250,000 Cr. Cash $500,000 The acquisition of the land from previous owners. And Dr. Land $12,500 Dr. Building $12,500 Cr. Cash $25,000 Fees paid to auctioneer who helped acquire the land. The basis for dividing the cost should be done at appraised prices. These appraised prices will appear in the first entry and should help you along.\",\n \"You are talking about adjusting the basis of your property which has its own IRS publication Publication 551: Basis of Assets Assuming you've not taken depreciation on your land in any way, pages 4-5 cover the various ways you can increase the basis of your property. Improvements like paving and wiring such as your second case would increase the basis of the property and reduce your gains when you sell. Note that regular real estate taxes do NOT alter your basis. Again the IRS publication is where you should look on what activity would have altered your basis during your period of ownership. Consult appropriate accounting and legal practitioners when in doubt.\",\n \"You only got 75 shares, so your basis is the fair market value of the stock as of the grant date times the number of shares you got: $20*75. Functionally, it's the same thing as if your employer did this: As such, the basis in that stock is $1,500 ($20*75). The other 25 shares aren't yours and weren't ever yours, so they aren't part of your basis (for net issuance; if they were sell to cover, then the end result would be pretty similar, but there'd be another transaction involved, but we won't go there). To put it another way, suppose your employer paid you a $2000 bonus, leaving you with a $1500 check after tax withholding. Being a prudent person and not wishing to blow your bonus on luxury goods, you invest that $1500 in a well-researched investment. You wouldn't doubt that your cost basis in that investment at $1500.\",\n \"\\\"According to the IRS, you must have written confirmation from your broker \\\"\\\"or other agent\\\"\\\" whenever you sell shares using a method other than FIFO: Specific share identification. If you adequately identify the shares you sold, you can use the adjusted basis of those particular shares to figure your gain or loss. You will adequately identify your mutual fund shares, even if you bought the shares in different lots at various prices and times, if you: Specify to your broker or other agent the particular shares to be sold or transferred at the time of the sale or transfer, and Receive confirmation in writing from your broker or other agent within a reasonable time of your specification of the particular shares sold or transferred. If you don't have a stockbroker, I'm not sure how you even got the shares. If you have an actual stock certificate, then you are selling very specific shares and the purchase date corresponds to the purchase date of those shares represented on the certificate.\\\"\",\n \"If you just want to know total return, either as dollars or a percentage, just add up the total amount spent on buys and compare this to current value plus money received on sales. In this case, you spent (310 x $3.15 + $19.95) + (277 x $3.54 + $19.95). So your total investment is ... calculator please ... $1996.98. You received 200 x $4.75 on the sale minus the $19.95 = $930.05. The present value of your remaining shares is 387 x $6.06 = $2345.22. So you have realized plus unrealized value of $2345.22 + $930.05 = $3275.27. Assuming I didn't mix up numbers or make an arithmetic mistake, your dollar gain is $3275.27 - $1996.98 = $1278.29, which comes to 1278.29 / 1996.98 = 64%. If you want to know percentage gain as an annual rate, we'd have to know buy and sell dates, and with multiple buys and sells the calculation gets messier.\",\n \"You don't. When you sell them - your cost basis would be the price of the stock at which you sold the stocks to cover the taxes, and the difference is your regular capital gain.\",\n \"The buyer of such an account is likely treating it as an asset, and if they ever resell it capital gains (or loss) would be realized. I don't see why this would be any different for the person that created the account initially, except that the basis starts at $0 making the entire sale price taxable. How you figure the value of the account before the initial sale would be more difficult, but fortunately you may not ever need to know the value (for tax purposes) until you actually sell it.\",\n \"Interesting. How would they account for it? Monthly? And if so do they modify the cost basis for each lot for the month and then restate? It's hard to imagine they do that. I have a million questions regarding this topic do you know where in the regs it is covered?\",\n \"\\\"If you need to show that the sale/purchase was at FMV, then showing that you made a trade on a public exchange with an unrelated counterpart is enough to establish FMV. However, this is only one of the possible \\\"\\\"fair market value\\\"\\\" definitions. This is usually used to determine basis or value for tax purposes. For valuation purposes or general accounting, one specific trade is not enough to establish FMV, and much more research is required.\\\"\",\n \"Here is the technical guidance from the accounting standard FRS 23 (IAS 21) 'The Effects of Changes in Foreign Exchange Rates' which states: Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements shall be recognised in profit or loss in the period in which they arise. An example: You agree to sell a product for $100 to a customer at a certain date. You would record the sale of this product on that date at $100, converted at the current FX rate (lets say £1:$1 for ease) in your profit loss account as £100. The customer then pays you several $100 days later, at which point the FX rate has fallen to £0.5:$1 and you only receive £50. You would then have a realised loss of £50 due to exchange differences, and this is charged to your profit and loss account as a cost. Due to double entry bookkeeping the profit/loss on the FX difference is needed to balance the journals of the transaction. I think there is a little confusion as to what constitutes a (realised) profit/loss on exchange difference. In the example in your question, you are not making any loss when you convert the bitcoins to dollars, as there is no difference in the exchange rate between the point you convert them. Therefore you have not made either a profit or a loss. In terms of how this effects your tax position; you only pay tax on your profit and loss account. The example I give above is an instance where an exchange difference is recorded to the P&L. In your example, the value of your cash held is reflected in your balance sheet, as an asset, whatever its value is at the balance sheet date. Unfortunately, the value of the asset can rise/fall, but the only time where you will record a profit/loss on this (and therefore have an impact on tax) is if you sell the asset.\",\n \"\\\"You don't \\\"\\\"deduct\\\"\\\" transaction fees, but they are included in your cost basis and proceeds, which will affect the amount of gain/loss you report. So in your example, the cost basis for each of the two lots is $15 (10$ share price plus $5 broker fee). Your proceeds for each lot are $27.50 (($30*2 - $5 )/2). Your gain on each lot is therefore $12.50, and you will report $12.50 in STCG and $12.50 in LTCG in the year you sold the stock (year 3). As to the other fees, in general yes they are deductible, but there are limits and exceptions, so you would need to consult a tax professional to get a correct answer in your specific situation.\\\"\",\n \"or just input it in my accounting software along with receipts, and then when I'm doing taxes this would go under the investment or loses (is it somewhere along that line)? Yes, this. Generally, for the long term you should have a separate bank account and charge card for your business. I started my business (LLC) by filing online, and paying a fee for a registration, and that makes it a business cost right? Startup cost. There are special rules about this. Talk to your tax adviser. For the amounts in question you could probably expense it, but verify.\",\n \"\\\"From Pub 550: More or less stock bought than sold. If the number of shares of substantially identical stock or securities you buy within 30 days before or after the sale is either more or less than the number of shares you sold, you must determine the particular shares to which the wash sale rules apply. You do this by matching the shares bought with an equal number of the shares sold. Match the shares bought in the same order that you bought them, beginning with the first shares bought. The shares or securities so matched are subject to the wash sale rules. You must match \\\"\\\"beginning with the first shares bought.\\\"\\\" If only activity 1 & 4 happened, you'd have bought and sold stock with no wash sale. If you remove activity 1 & 4 from consideration because they are a \\\"\\\"normal\\\"\\\" or non-wash sale transaction, then the Activity 2 or Activity 3 trigger a wash sale. The shares in lot 1 are sold for disallowed loss, so the disallowed basis would be added to shares in lot 2 because lot 2 was purchased before lot 3. (hat tip to user662852 who had much better wording) Second example: Activity 5, 7, and 8 all together would not be a wash sale. The addition of activity 6 creates a wash sale. The shares in Activity 5 are sold for a disallowed loss in Activity 7 & 8 because of the wash sale triggering purchase in Activity 6. Activity 6 is where you add the disallowed basis because they are the \\\"\\\"first shares bought\\\"\\\" that cause the wash sale rule to be triggered.\\\"\",\n \"Based on my research, the answer is both. You would pay taxes on the bitcoin you mine as income, and then capital gains tax when you sell them for a profit (or capital loss if you lose value on the sale). You can write off a portion of your electricity bill and hardware purchased for the use of mining as a business expense, but it's recommended that you consult a tax professional for determining the proper amount that is eligible for a deduction. From Forbes: New Bitcoin are being issued by the system roughly every 10 minutes by a process called mining. In mining, computers running the Bitcoin software around the world attempt to solve math problems and the first computer to come up with the solution adds the most recent transactions to the ledger of all Bitcoin transactions, plus receives the new bitcoins created by the system, called the block reward. If you are a miner and win the block reward, you must record the fair market value of Bitcoin that day and mark that as an addition to your personal or business income. Also note the date and timestamp at which your coins were mined. Later, when you dispose of those Bitcoin, you will subtract the date of acquisition from the date of disposal, and you will be taxed a long-term capital gains rate on any Bitcoin you held for more than a year, and a short-term capital gains rate on any Bitcoin you held for a year or less. (The timestamp isn’t absolutely necessary, but is helpful to validate the order of multiple acquisitions or disposals within a day.) The amount you pay in taxes on a long-term capital gain will depend on your income-tax bracket, while short-term capital gains are taxed the same as ordinary income. From bitcoin.tax: Another clarification in the IRS's March notice was how mining should be treated. Mining is income, on the day of receipt of any coins and at the fair value of those coins. This means that if you mined any Bitcoins or alt-coins either solo, as part of a pool, or through a cloud provider, you need to report any coins you received as income. Where it is less clear, is what that dollar value might be, since the fair value is not always as easy to determine. Bitcoins, Litecoins, Dogecoins, are all examples of where there is a direct USD market and so you can easily find out their value of any given day. However, a newly created alt-coin that was mined in its early days has no direct market and so how do you determine its value? Or for any alt-coin, e.g. ABC coin, that has no direct USD market but does have a BTC market. Does it have a value? Do you have to make a conversion from ABC to BTC to USD? Since there is no clarification yet from the IRS on this issue you should discuss how to proceed with your own tax professional. BitcoinTaxes has taken a prudent approach and calculates value where a fiat or BTC market exists, converting an alt-coin to BTC to USD as necessary. And from Bitcoin magazine: The IRS also stated mined bitcoins are treated as immediate income at the market value of those mined coins on their date of mining. “Most don’t know they can write off any losses they have,” said Libra founder Jake Benson. “The IRS allows you to offset income by up to $3,000 per year on capital losses. If you have losses and you aren’t writing them off, then it’s like throwing money away. Nobody likes doing taxes, but if you can owe less or increase your return, then doing your Bitcoin taxes often results in a benefit. In fact, the majority of our users are filing a capital loss, which means they’ve actually saved money by using our tool.” Benson also gives insight for miners. “Mining is considered income, so know the price of Bitcoin at the time you mined it,” he said. “If you make money on Bitcoin trading, the IRS requires that you report gains with line level detail.” The appropriate form for that is 8949, a sub-form of schedule D. Gains and losses, as outlined above, are treated like every other capital asset.\",\n \"Your 1099-B report for ADNT on the fractional shares of cash should answer this question for you. The one I am looking at shows ADNT .8 shares were sold for $36.16 which would equal a sale price of $45.20 per share, and a cost basis of $37.27 for the .8 shares or $46.59 per share.\",\n \"Great question! It can be a confusing for sure -- but here's a great example I've adapted to your scenario: As a Day Trader, you buy 100 shares of LMNO at $100, then after a large drop the same day, you sell all 10 shares at $90 for a loss of $1,000. Later in the afternoon, you bought another 100 shares at $92 and resold them an hour later at $97 (a $500 profit), closing out your position for the day. The second trade had a profit of $500, so you had a net loss of $500 (the $1,000 loss plus the $500 profit). Here’s how this works out tax-wise: The IRS first disallows the $1,000 loss and lets you show only a profit of $500 for the first trade (since it was a wash). But it lets you add the $1,000 loss to the basis of your replacement shares. So instead of spending $9,200 (100 shares times $92), for tax purposes, you spent $10,200 ($9,200 plus $1,000), which means that the second trade is what caused you to lose the $500 that you added back (100 x $97 = $9,700 minus the 100 x $102 = $10,200, netting $500 loss). On a net basis, you get to record your loss, it just gets recorded on the second trade. The basis addition lets you work off your wash-sale losses eventually, and in your case, on Day 3 you would recognize a $500 final net loss for tax purposes since you EXITED your position. Caveat: UNLESS you re-enter LMNO within 30 days later (at which point it would be another wash and the basis would shift again). Source: http://www.dummies.com/personal-finance/investing/day-trading/understand-the-irs-wash-sale-rule-when-day-trading/\",\n \"The default is FIFO: first in - first out. Unless you specifically instruct the brokerage otherwise, they'll report that the lot you've sold is of Jan 5, 2011. Note, that before 2011, they didn't have to report the cost basis to the IRS, and it would be up to you to calculate the cost basis at tax time, but that has been changed in 2011 and you need to make sure you've instructed the brokerage which lot exactly you're selling. I'm assuming you're in the US, in other places laws may be different.\",\n \"If you do this, you own a stock worth $1, with a basis of $2. The loss doesn't get realized until the shares are sold. Of course, we hope you see the stock increase above that price, else, why do this?\",\n \"\\\"-Alain Wertheimer I'm a hobbyist... Most (probably all) of those older items were sold both prior to my establishing the LLC This is a hobby of yours, this is not your business. You purchased all of these goods for your pleasure, not for their future profit. The later items that you bought after your LLC was establish served both purposes (perks of doing what you love). How should I go about reporting this income for the items I don't have records for how much I purchased them for? There's nothing you can do. As noted above, these items (if you were to testify in court against the IRS). \\\"\\\"Losses from the sale of personal-use property, such as your home or car, aren't tax deductible.\\\"\\\" Source Do I need to indicate 100% of the income because I can't prove that I sold it at a loss? Yes, if you do not have previous records you must claim a 100% capital gain. Source Addition: As JoeTaxpayer has mentioned in the comments, the second source I posted is for stocks and bonds. So at year begin of 2016, I started selling what I didn't need on eBay and on various forums [January - September]. Because you are not in the business of doing this, you do not need to explain the cost; but you do need to report the income as Gross Income on your 1040. Yes, if you bought a TV three years ago for a $100 and sold it for $50, the IRS would recognize you earning $50. As these are all personal items, they can not be deducted; regardless of gain or loss. Source Later in the year 2016 (October), I started an LLC (October - December) If these are items that you did not record early in the process of your LLC, then it is reported as a 100% gain as you can not prove any business expenses or costs to acquire associated with it. Source Refer to above answer. Refer to above answer. Conclusion Again, this is a income tax question that is split between business and personal use items. This is not a question of other's assessment of the value of the asset. It is solely based on the instruments of the IRS and their assessment of gains and losses from businesses. As OP does not have the necessary documents to prove otherwise, a cost basis of $0 must be assumed; thus you have a 100% gain on sale.\\\"\",\n \"The $47.67 per share figure is the trading price, or fair market value, of the OLD Johnson Controls, and should not be used to figure your gain nor to figure your basis in the new Johnson Controls International. Your new basis is the total of the gross proceeds received; that is, the cash plus the fair market value of the new shares, which was $45.69 per share. (I am not referring to cash-in-lieu for fractional shares, but the $5.7293 per share received upon the merger.) A person holding 100 shares of the old Johnson Controls would have received $572.93, plus 83.57 shares of the new company. Ignoring the fractional share, for simplicity's sake, gross proceeds would equal 83 x $45.69 = $3792.72 in fair market value of shares, plus the cash of $572.93, for a total of $4365.20. This is your basis in the 83 new shares. Regarding the fractional share, since new basis is at fair market value, there should be no gain or loss recognized upon its sale.\",\n \">$1,000 worth of electricity to generate The cost of Bitcoin always tracks the price of Bitcoin. There is a fixed amount of Bitcoin available to be mined every day. The cost to mine bitcoin rises because of competition (they increase the difficulty of the problems to maintain a fixed supply of Bitcoin). The electricity cost to mine Bitcoin is directly related to the amount of miners, which is directly related to the current cost of Bitcoin. More people want to mine when the price is high. If you really think about it, what you are really saying is that the intrinsic value of bitcoin is the value of Bitcoin. Its a completely circular mirage.\",\n \"1) Document that you held the bitcoins for more than one year. This should not be particularly difficult. Since you haven't moved the bitcoins, you hold the key to an address that has held them for more than one year. While this isn't absolute proof, it should be sufficient. 2) Since you can't document how you bought them easily, you can just assume a tax basis of zero. This will mean you will pay microscopically more in taxes, but don't worry about it. 3) Sign up with an exchange that can handle your sales. Coinbase will work if you want to sell it slowly. Gemini will work if you want to sell more quickly. 4) Get a decent, secure bitcoin wallet. Transfer the bitcoins to the exchange only as you're selling them. Make you first sale fairly small just in case something goes wrong. 5) Keep meticulous notes about each sale -- the date of the sale, the number of bitcoins you sold, and the number of dollars you got. 6) Make sure to keep enough money for taxes. In Michigan, 24.3% would be the highest possible tax rate you might have to pay if you sold a lot or had high income otherwise. 7) Either get a professional to file your taxes for you or learn how to correctly report long-term capital gains. You must report each individual sale. You may get audited or investigated, but there's nothing to find. The bitcoins have been in stasis for a long time, and it's completely plausible that you bought them and held them. If you can find any proof you bought them (such as a transfer to an exchange) that would be great, but it's not essential. Many people have this same story and unless you're connected to something illegal, you probably don't have anything to worry about. Congratulations! So thats my question, what steps do I need to take to declare this money and obtain it without getting arrested / investigated? There's nothing special you need to do other than keep very good documentation. When you file your taxes, you will need to declare each sale. (This answer assumes that you didn't have a lot of income last year and significantly less income this year. If that's the case, you may have to pay estimated taxes to avoid a penalty. But that penalty is very small and will be calculated by the IRS for you automatically. So I wouldn't worry about it.) You may wish to read up on gift taxes to understand how they work. You won't owe any, but you may need to file paperwork with the IRS if you give large gifts (over $14,000) to people and you will use up some of your lifetime exemption. Keep records of any gifts you give.\",\n \"The vesting date. Look at publication 525, under stock options, where they talk about ESPP: Your basis is equal to the option price at the time you exercised your option and acquired the stock. The timing and amount of pay period deductions do not affect your basis.\",\n \"From 26 CFR 1.1012(c)(1)i): ... if a taxpayer sells or transfers shares of stock in a corporation that the taxpayer purchased or acquired on different dates or at different prices and the taxpayer does not adequately identify the lot from which the stock is sold or transferred, the stock sold or transferred is charged against the earliest lot the taxpayer purchased or acquired to determine the basis and holding period of the stock. From 26 CFR 1.1012(c)(3): (i) Where the stock is left in the custody of a broker or other agent, an adequate identification is made if— (a) At the time of the sale or transfer, the taxpayer specifies to such broker or other agent having custody of the stock the particular stock to be sold or transferred, and ... So if you don't specify, the first share bought (for $100) is the one sold, and you have a capital gain of $800. But you can specify to the broker if you would rather sell the stock bought later (and thus have a lower gain). This can either be done for the individual sale (no later than the settlement date of the trade), or via standing order: 26 CFR 1.1012(c)(8) ... A standing order or instruction for the specific identification of stock is treated as an adequate identification made at the time of sale, transfer, delivery, or distribution.\",\n \"You need to track every buy and sell to track your gains, or more likely, losses. Yes, you report each and every transactions. Pages of schedule D.\",\n \"You wouldn't fill out a 1099, your employer would or possibly whoever manages the stock account. The 1099-B imported from E-Trade says I had a transaction with sell price ~$4,500. Yes. You sold ~$4500 of stock to pay income taxes. Both the cost basis and the sale price would probably be ~$4500, so no capital gain. This is because you received and sold the stock at the same time. If they waited a little, you could have had a small gain or loss. The remainder of the stock has a cost basis of ~$5500. There are at least two transactions here. In the future you may sell the remaining stock. It has a cost basis of ~$5500. Sale price of course unknown until then. You may break that into different pieces. So you might sell $500 of cost basis for $1000 with a ~$500 capital gain. Then later sell the remainder for $15,000 for a capital gain of ~$10,000.\",\n \"Cost basis is irrelevant because the entire distribution is taxed as ordinary income even if the custodian distributes stock or mutual fund shares to you. Such distributions save you the brokerage fees that you would incur had you taken a cash distribution and promptly bought the shares outside the retirement account for yourself but they have no effect on the tax treatment of the distribution: the market value of the shares distributed to you is taxed as ordinary income, and your basis in the newly acquired shares outside the retirement account is the market value of the shares, all prices being as of the date of the distribution.\",\n \"Have you looked into GnuCash? It lets you track your stock purchases, and grabs price updates. It's designed for double-entry accounting, but I think it could fit your use case.\",\n \"Your assets are marked to market. If you buy at X, and the market is bidding at 99.9% * X then you've already lost 0.1%. This is a market value oriented way of looking at costs. You could always value your assets with mark to model, and maybe you do, but no one else will. Just because you think the stock is worth 2*X doesn't mean the rest of the world agrees, evidenced by the bid. You surely won't get any margin loans based upon mark to model. Your bankers won't be convinced of the valuation of your assets based upon mark to model. By strictly a market value oriented way of valuing assets, there is a bid/ask cost. more clarification Relative to littleadv, this is actually a good exposition between the differences between cash and accrual accounting. littleadv is focusing completely on the cash cost of the asset at the time of transaction and saying that there is no bid/ask cost. Through the lens of cash accounting, that is 100% correct. However, if one uses accrual accounting marking assets to market (as we all do with marketable assets like stocks, bonds, options, etc), there may be a bid/ask cost. At the time of transaction, the bids used to trade (one's own) are exhausted. According to exchange rules that are now practically uniform: the highest bid is given priority, and if two bids are bidding the exact same highest price then the oldest bid is given priority; therefore the oldest highest bid has been exhausted and removed at trade. At the time of transaction, the value of the asset cannot be one's own bid but the highest oldest bid leftover. If that highest oldest bid is lower than the price paid (even with liquid stocks this is usually the case) then one has accrued a bid/ask cost.\",\n \"Let me restate question for clarity. Facts: Question: Are there any taxes for this transaction? Answer: (Added improvements provided by Eric) Generally No. Generally, it is not considered income until you sell and the sale price is greater than the purchase price. But with currency differences, there is an additional complication, section 988 rules apply. It could result in ordinary income or loss.\",\n \"I am using the same logic as the two answers above. I got almost the same result ($46.60 instead of $46.59 per share) using the sold fractional share basis. However, the JCI Qualified Dividend (on the 1099-DIV, not the 1099-B) divided by the number of shares spun off yields a basis per share of only $40.97 That compares to $45.349 in answer two above. It seems that we should get the approximately same basis per share using the same arithmetic, and I do not know why we don't. For my tax files, I plan to use the Adient basis equal to the dividend from the 2016 1099-DIV of JCI (the PLC after the merger). My reasoning is that I cannot use an amount for the Adient basis that is greater than the dividend I paid taxes on. [In case this part of the question comes up again, you can get historical quotes at various websites such as https://finance.yahoo.com/quote, which does show $45.51 as the Adient closing price on 10/31/16.]\",\n \"Typically that applies if the broker Form 1099-B reports an incorrect basis to the IRS. If the Form 1099-B shows incorrect basis relative to your records, then you can use 8949, column (g) to report the correct basis. The 8949 Instructions provide a brief example. http://www.irs.gov/pub/irs-prior/i8949--2013.pdf Although you have an obligation to report all income, and hence to report the true basis, as a practical matter this information will usually be correct as presented by the broker. If you have separate information or reports relating to your investments, and you are so inclined, then you can double-check the basis information in your 1099-B. If you aren't aware of basis discrepancies, then the adjustments probably don't apply to you and your investments can stick to Schedule D.\",\n \"It's better to use the accounting equation concept: Asset + Expenses = Capital + Liabilities + Income If you purchase an asset: Suppose you purchased a laptop of $ 500, then its journal will be: If you sell the same Laptop for $ 500, then its entry will be:\",\n \"No. If you didn't specify LIFO on account or sell by specifying the shares you wish sold, then the brokers method applies. From Publication 551 Identifying stock or bonds sold. If you can adequately identify the shares of stock or the bonds you sold, their basis is the cost or other basis of the particular shares of stock or bonds. If you buy and sell securities at various times in varying quantities and you cannot adequately identify the shares you sell, the basis of the securities you sell is the basis of the securities you acquired first. For more information about identifying securities you sell, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Pub. 550. The trick is to identify the stock lot prior to sale.\",\n \"The income and recurring costs will be shown at the end of each year, however the initial cost is recorded at the time they are incurred meaning at t=0 (Jan 2014) The first net profits/loss of 658500 is recorded at the end of Dec 2014 (t=1) And the remaining four ones at the end of 2015 (t=2) 2016 (t=3) 2017 (t=4) 2018 (t=5) -8000000 658500 658500 658500 658500 6658500 t=0) -8000000 t=1) 658500 t=2) 658500 t=3) 658500 t=4) 658500 t=5) 6658500\",\n \"If you buy for $1 and sell $1 when the price goes to $2, you would have sold only half of your initial investment. So your investment would now be worth $2 and you sell $1 leaving $1 still in the market. This means you would have sold half your initial investment, making a profit of $0.50 on this half of your initial investment, and having to pay CGT on this amount.\",\n \"Having all of the numbers you posted is a start. It's what you need to perform the calculation. The final word, however, comes from the company itself, who are required to issue a determination on how the spin-off is valued. Say a company is split into two. Instead of some number of shares of each new company, imagine for this example it's one for one. i.e. One share of company A becomes a share each in company B and company C. This tell us nothing about relative valuation, right? Was B worth 1/2 of the original company A, or some other fraction? Say it is exactly a 50/50 split. Company A releases a statement that B and C each should have 1/2 the cost basis of your original A shares. Now, B and C may very well trade ahead of the stock splitting, as 'when issued' shares. At no point in time will B and C necessarily trade at exactly the same price, and the day that B and C are officially trading, with no more A shares, they may have already diverged in price. That is, there's nothing you can pull from the trading data to identify that the basis should have been assigned as 50% to each new share. This is my very long-winded was of explaining that the company must issue a notice through your broker, and on their investor section of their web site, to spell out the way you should assign your basis to each new stock.\",\n \"The original post's $16 has two errors: Here is the first scenario: . Tax Liability($) on Net . Cash # of Price Paper Realized Value Time: ($) Shares ($/sh) Profits Profits ($) 1. Start with: 100 - n/a - - 100 2. After buy 10@10$/sh: - 10 10 - - 100 3. Before selling: - 10 12 (5) - 115 4. After sell 10@12$/sh: 120 - n/a - (5) 115 5. After buy 12@10$/sh: - 12 10 - (5) 115 6. Before selling: - 12 12 (6) (5) 133 7. After sell 12@12$/sh: 144 - n/a - (11) 133 8. After buy 14@10$/sh: 4 14 10 - (11) 133 9. Before selling: 4 14 12 (7) (11) 154 10.After sell 14@12$/sh: 172 - n/a - (18) 154 At this point, assuming that all of the transactions occurred in the same fiscal year, and the realized profits were subject to a 25% short-term capital gains tax, you would owe $18 in taxes. Yes, this is 25% of $172 - $100.\",\n \"Your brokerage account statement should report the Questar cost basis adjusted for the spinoff (and would have done so starting the day the spinoff happened), shifting the portion of it over to your shiny new QEP stock based on the opening price. At what price did you buy into Questar? The Questar IR site also has a document with more detail.\",\n \"According to the answers to this question, you generally aren't taxed on gains until you sell the asset in question. None of those answered specifically for the U.K., so perhaps someone else will be able to weigh in on that. To apply those ideas to your question, yes your gains and losses are taxable. If you originally traded something worth $100 for the bitcoins, then when you converted back to dollars you received $200, you would have a $100 gain, simply on the foreign exchange trade. That is, this $100 of income is in addition to any income you made from your business (selling goods).\",\n \"What people fail to realize about bitcoin is its cost to acquire a coin.. I'm not exactly familiar on pricing nowadays but back when it was $100 a coin it took you ~$95+ in power/equipment to get that coin. Meaning bitcoin can not go below $95. Bitcoin is at $5800.. And if its as it were before, it's costing ~$5700ish to obtain, miners are not going to sell their coin for $5600 that cost $5700 to get.\",\n \"In addition to the adjustment type in NL7's answer, there are a host of others. If there are any adjustments, form 8949 is required, if not, the gains can be separated into short and long-term and added together to be entered on Schedule D. Anything requiring an adjustment code in column F of the 8949 requires an entry in column G. Some other example entries for column F include: (see the 8949 instructions for a complete list) **A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you: Buy substantially identical stock or securities, Acquire substantially identical stock or securities in a fully taxable trade, Acquire a contract or option to buy substantially identical stock or securities, or Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA. (from Pub17)\",\n \"One thing to keep in mind is that with Roth accounts, there are different withdrawal considerations based on your contributions. For example, you can withdraw Roth IRA contributions whenever you want in the future. However this really has nothing to do with your cost basis and purely to do with the contribution amount vs balance.\",\n \"Your final tax basis could not be determined until June 14, 2012, the first day of separate trading of all four securities that you received from the GM bankruptcy reorganization.\",\n \"Like-kind of exchanges have a list of requirements. The IRS has not issued formal guidance in the matter. I recommend to be aggressive and claim the exchange, while justifying it with a good analogy to prove good faith (and persuade the IRS official reading it the risk of losing in tax court would be to high). Worst case the IRS will attempt to reject the exchange, at which point you could still pony up to get rid of the problem, interest being the only real risk. For example: Past tax court rulings have stated that collectable gold coins are not like kind to gold bars, and unlike silver coins, but investment grade gold coins are like kind to gold bars. So you could use a justification like this: I hold Bitcoin to be like-kind to Litecoin, because they use the same fundamental technology with just a tweak in the math, as if exchanging different grades of gold bars, which has been approved by tax court ruling #xxxxx. Note that it doesn't matter whether any of this actually makes sense, it just has be reasonable enough for you to believe, and look like it is not worth pursuing to an overworked IRS official glancing at it. I haven't tried this yet, so up to now this is a guess, but it's a good enough guess in my estimation that I will be using it on some rather significant amounts next year.\",\n \"\\\"First, to clear up your misconceptions: The balance is not merely made up of deductible and non-deductible contributions. There are also earnings implied in the balance .. i.e. the whole reason you invest in the first place is to realize some return on investment. That return, a.k.a. the earnings, are included in the balance of the account. The balance is the sum total of everything in the account, the \\\"\\\"bottom line\\\"\\\". Generally speaking, basis for an account is all of the money that has been contributed (deposited) to the account. In the context of an IRA as described in the article, however, they are using basis to refer to only the non-deductible contributions. Of note, however, is that basis specifically excludes earnings. If you have deposited, say, $5000 one year and $5000 the next, then your basis is $10,000, even if the balance has grown to, say, $12,000 (which includes the earnings). As may be evident by now, earnings are not equivalent to deductible contributions. Earnings may arise from such contributions but they are not the same. Rather, earnings are the net positive investment results from all contributions. Again, if you had contributed $5000 one year and $5000 the next and the balance has grown to $12,000, then the earnings portion is $2000. So to interpret what happened in the specific example provided: Over the years, the account holder contributed (deposited) a total of $15,000 into his account. These must have been non-deductible contributions in the case of the IRA in order to arrive at basis of $15,000. Over time (and coincident with the deposits), that $15,000 grew to $24,000 .. i.e. earned $9,000 in earnings. Then, the nearly 50% drop caused the balance to decay to $13,000. This means all $9,000 of his earnings were wiped out, plus $2000 of the original basis. The remaining $13,000 is all basis .. that is, considered to be original money deposited to the account, no earnings. In effect, the account has lost $2000 of basis, because $15,000 was deposited and only $13,000 remains. Simplistic way of looking at it: A $15,000 investment resulted in a final $13,000 sale, i.e. a net loss of $2000. It doesn't matter that it hit $24,000 in the meanwhile .. it could have hit $250,000 in value and then dropped to $13,000 and the net result would be the same: a loss of $2000 in basis. Traditional IRA earnings are always tax-deferred .. i.e. whether earnings arise from deductible or else non-deductible contributions, when one takes a distribution (withdraws) from an IRA and the distribution includes earnings, the earnings portion is always taxable income. Doesn't matter if the earnings arose from one kind of contribution or the other. I don't think in this example there were any deductible contributions whatsoever. Does that make sense / help?\\\"\",\n \"well, if you can hold onto your investment. then it is just a matter of time till it reaches a valuation which demands the attention of central banks and states. Till this happens, it needs to increase in value. if you buy for 12 $, 4500$ or less does not matter if you expect it to go up in the long term.\",\n \"What you are looking for is a 1031 exchange. https://www.irs.gov/uac/like-kind-exchanges-under-irc-code-section-1031 Whenever you sell business or investment property and you have a gain, you generally have to pay tax on the gain at the time of sale. IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange. Gain deferred in a like-kind exchange under IRC Section 1031 is tax-deferred, but it is not tax-free. You may also sell your house for bitcoin and record the sales price on the deed with an equal or lesser amount that you bought it for.\",\n \"Assuming the stock was worth more at the time she gave it to you than when she bought it, the cost basis would be the amount that she bought it for. You would then pay tax on the increase in value from that time. Generally it's better to inherit assets than receive them as gifts, since the cost basis of inherited assets is raised to the value at the time of the death of the one leaving the inheritance. You will probably need to find some record of the original amount paid so you can determine the right cost basis.\",\n \"You only have to pay taxes when you convert to dollars. Most exchanges I think have to track their users and provide them with reports for tax purposes. Just holding bitcoin and watching it go up in value does not trigger a taxable event.\",\n \"\\\"There are two ways to handle this. The first is that the better brokers, such as Charles Schwab, will produce summaries of your gains and losses (using historical cost information), as well as your trades, on a monthly and annual basis. These summaries are \\\"\\\"ready made\\\"\\\" for the IRS. More brokers will provide these summaries come 2011. The second is that if you are a \\\"\\\"frequent trader\\\"\\\" (see IRS rulings for what constitutes one), then they'll allow you to use the net worth method of accounting. That is, you take the account balance at the end of the year, subtract the beginning balance, adjust the value up for withdrawals and down for infusions, and the summary is your gain or loss. A third way is to do all your trading in say, an IRA, which is taxed on distribution, not on stock sales.\\\"\",\n \"\\\"Since you did not treat the house as a QBU, you have to use USD as your functional currency. To calculate capital gains, you need to calculate the USD value at the time of purchase using the exchange rate at the time of purchase and the USD value at the time of sale using the exchange rate at the time of sale. The capital gain / loss is then the difference between the two. This link describes it in more detail and provides some references: http://www.maximadvisors.com/2013/06/foreign-residence/ That link also discusses additional potential complications if you have a mortgage on the house. This link gives more detail on the court case referenced in the above link: http://www.uniset.ca/other/cs5/93F3d26.html The court cases references Rev. Rul 54-105. This link from the IRS has some details from that (https://www.irs.gov/pub/irs-wd/0303021.pdf): Rev. Rul. 54-105, 1954-1 C.B. 12, states that for purposes of determining gain, the basis and selling price of property acquired by a U.S. citizen living in a foreign country should be expressed in United States dollars at the rates of exchange prevailing as of the dates of purchase and sale of the property, respectively. The text of this implies it is for U.S. citizen is living in a foreign country, but the court case makes it clear that it also applies in your scenario (house purchased while living abroad but now residing in the US): Appellants agree that the 453,374 pounds received for their residence should be translated into U.S. dollars at the $1.82 exchange rate prevailing at the date of sale. They argue, however, that the 343,147 pound adjusted cost basis of the residence, consisting of the 297,500 pound purchase price and the 45,647 pounds paid for capital improvements, likewise should be expressed in U.S. dollar terms as of the date of the sale. Appellants correctly state that, viewed “in the foreign currency in which it was transacted,” the purchase generated a 110,227 pound gain as of the date of the sale, which translates to approximately $200,000 at the $1.82 per pound exchange rate. ... However fair and reasonable their argument may be, it amounts to an untenable attempt to convert their “functional currency” from the U.S. dollar to the pound sterling. ... Under I.R.C. § 985(b)(1), use of a functional currency other than the U.S. dollar is restricted to qualified business units (\\\"\\\"QBU\\\"\\\"s). ... appellants correctly assert that their residence was purchased “for a pound-denominated value” while they were “living and working in a pound-denominated economy,” ... And since appellants concede that the purchase and sale of their residence was not carried out by a QBU, the district court properly rejected their plea to treat the pound as their functional currency.\\\"\",\n \"Because the distribution date was APR 21, 2011, THAT should be the correct date for ascertainng the stock prices of the GM stock and warrants. The subsequent distributions after April should also be allocated in accordance with their distribution dates, with tax basis being reduced from the original APR 21st date's allocations, and reallocated to those subsequent distributions, taking into account any interim sales you might have made.\",\n \"\\\"I will say in advance this is not a great answer, but I had a similar experience when I owned a CIT bond that defaulted. I ended up getting stock plus 5 newly issued bonds as a replacement for my defaulted bond. My broker had no clue on cost basis and didn't even try for the new securities, I called the \\\"\\\"hotline\\\"\\\" setup about CIT default and they knew nothing, and finally I read all the paperwork around the restructuring but it was less than transparent. So in the end I ended up claiming everything as a wash, no gain/no loss - which probably screwed me in the end as I believe I ended up down. It was a very small position for me and was not worth the headache :(\\\"\",\n \"\\\"You can group your like-kind (same symbol, ST/LT) stock positions, just be sure that your totals match the total dollar amounts on the 1099. An inconsistency will possibly result in a letter from IRS to clarify. So, if you sold the 100 shares, and they came from 7 different buys, list it once. The sell price and date is known, and for the buy price, add all the buys and put \\\"\\\"Various\\\"\\\" for the date. If you have both long term and short term groups as part of those 7 buys, split them into two groups and list them separately.\\\"\",\n \"You realize people are buying houses, and Lamborghini’s with bitcoin? Maybe if you for once stopped to think that the people involved in bitcoin can see value based off what it cost to generate and are more than willing to pay the price for one knowing that? But yeah we will go with your method bitcoin cost 6k to mine, sells for 5k and no way demand vs supply is going up from no new coins entering the market for 4 weeks.\",\n \"The first method is the correct one. You bought an asset worth of $1000 and you put it on your depreciation schedule. What it means is that you get to write off the $1000 over a certain period of time (and not at once, as you do with expenses). But the value you're writing off is the $1000 regardless of how much you've written off already. Assume you depreciate in straight line over 5 years (that's how you depreciate computers for Federal tax purposes, most states follow). For the simplicity of the calculation, assume you depreciate each year as a whole year (no mid-year/mid-quarter conventions). The calculation is like this: If you sell the computer - the proceeds above the adjusted basis amount are taxed as depreciation recapture up to the accumulated depreciation amount, and as capital gains above that. So in your case - book value is the adjusted basis at the end of the year (EOY), depreciation this year is the amount you depreciate in the year in question out of the total of the original cost, and the accumulated depreciation is the total depreciation including the current year. In Maryland they do not allow depreciating to $0, but rather down to 25% of the original cost, so if you bought a $1000 computer - you depreciate until your adjusted basis is $250. Depreciation rates are described here (page 5). For computers (except for large mainframes) you get 30% depreciation, with the last year probably a bit less due to the $250 adjusted basis limitation.\",\n \"It looks like fair-market value when you receive your virtual currency is counted as income. And you're also subject to self-employment tax on that income. Here's an FAQ from the IRS: Q-8: Does a taxpayer who “mines” virtual currency (for example, uses computer resources to validate Bitcoin transactions and maintain the public Bitcoin transaction ledger) realize gross income upon receipt of the virtual currency resulting from those activities? A-8: Yes, when a taxpayer successfully “mines” virtual currency, the fair market value of the virtual currency as of the date of receipt is includible in gross income. See Publication 525, Taxable and Nontaxable Income, for more information on taxable income.Q-9: Is an individual who “mines” virtual currency as a trade or business subject to self-employment tax on the income derived from those activities? A-9: If a taxpayer’s “mining” of virtual currency constitutes a trade or business, and the “mining” activity is not undertaken by the taxpayer as an employee, the net earnings from self-employment (generally, gross income derived from carrying on a trade or business less allowable deductions) resulting from those activities constitute selfemployment income and are subject to the self-employment tax. See Chapter 10 of Publication 334, Tax Guide for Small Business, for more information on selfemployment tax and Publication 535, Business Expenses, for more information on determining whether expenses are from a business activity carried on to make a profit. You'd of course be able to offset that income with the expense of mining the virtual currency, depreciation of dedicated mining equipment, electricity, not sure what else. Edit: Here's a good resource on filing taxes with Bitcoin: Filling in the 1040 Income from Bitcoins and all crypto-currencies is declared as either capital gains income or ordinary income, for example from mining. Income Ordinary income will be declared on either your 1040 (line 21 - Other Income) for an individual, or within your Schedule C, if you are self-employed or have sole-proprietor business. Capital Gains Capital gains income, or losses, are declared on Schedule D. Since there are no reported 1099 forms from Bitcoin exchanges, you will need to include your totals with Box C checked for short-term gains, and with Box F checked for long-term gains. Interesting notes from that article, your first example could actually be trickier than expected if you started mining before there was a Monero to USD exchange. Also, there can also be capital gains implications from using your virtual currency to buy goods, which sounds like a pain to keep track of.\",\n \"Generally it is a taxable transaction. Basic principle of taxation everywhere is that the mean of payment doesn't matter. If the income is taxable - it is taxable regardless of the unit of currency you used. It can be a strawberry, a bitcoin, a gold nugget, or a dollar, it doesn't change a thing about how it is taxed. If you look at the United States tax code definition of taxable income, for example, you will find no mention whatsoever of any currency. Similarly with other tax laws I'm familiar with. I'm sure there's no such limitation in Australia.\",\n \"\\\"As cryptocurrencies are rather new compared to most assets, there hasn't been a lot of specific guidance for a lot of situation, but in 2014 the IRS announced that it published guidance in Notice 2014-21. I'm not aware of further guidance that has been published beyond that, though it wouldn't surprise me if treatments changed over time. In that notice, the answer to the first question describes the general treatment: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency. Your specific questions (about what constitutes a \\\"\\\"business\\\"\\\", and when you're considered to be \\\"\\\"selling\\\"\\\" the cryptoproperty) are likely to be considered on a case by case basis by the IRS. As the amounts involved here are so small (relatively speaking), my recommendation would be to read through what the IRS has published carefully, make reasonable assumptions about what scenarios that are described are closest to what you're doing, and document doing so clearly as part of your tax preparations. And when in doubt, erring on the side of whichever option incurs more tax is unlikely to be objected to by them. Of course, I'm not a lawyer or tax advisor, I'm a stranger on the Internet, so for \\\"\\\"real\\\"\\\" advice you should contact somebody qualified. I doubt you'd be faulted too much for not doing so given the amounts involved. You could also attempt contacting a local IRS office or calling them with your specific questions, and they may be able to provide more specific guidance tailored to you, though doing so may not save you from an auditor deciding something differently if they were to examine your return later. There are also phone numbers to contact specific people listed at the end of Notice 2014-21; you could try calling them as well.\\\"\",\n \"Instead of a price chart can use a performance chart, which is usually expressed as a percentage increase from the original purchase price. To factor in the dividends, you can either add in all of your dividends to the final price, or subtract the accumulated dividends from your cost basis (the initial price).\",\n \"I'm a finance newb....sorry ahead of time for everyone slamming their heads against the the wall. I'm going to go ahead and possibly answer my own question. Do I just go back 4 months at a time from their 10K and record the stock price on that date?\",\n \"You can easily build a Google Sheet spreadsheet to track what you want as Sheet has a 'googlefinance()' function to look-up the same prices and data you can enter and track in a Google Finance portfolio, except you can use it in ways you want. For example, you can track your purchase price at a fixed exchange rate, track the current market value as the product of the stock's price times the floating exchange rate, and then record your realized profit and loss using another fixed exchange rate. You don't have to record the rates either, as googlefinance() func is able to lookup prices as of a particular date. You can access Google Sheet through a web browser or Android app.\",\n \"\\\"There are many Bitcoin stores where items are bought and sold daily. Overstock.com is one of them. The value doesn't matter because Bitcoins are divisible down to 8 decimal points. I can send you a fraction of a penny easily, although currently the transaction fee to send it is likely to be several pennies. (One purpose of the fees are to discourage such pointlessly small transactions, referred to as \\\"\\\"dust\\\"\\\".)\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"As long as the IRS treats bitcoin as property, then whenever you use bitcoin to buy anything you are supposed to consider the capital gain or capital loss. There is no \"\"until it's converted to fiat\"\". You are paying local sales tax and capital gains, or paying local sales tax and reporting capital loss. As long as you are consistent, you can use either the total cost basis, or individual lot purchases. The same as other property like stocks (except without stock specific regulations like wash-sale rules :D ). There are a lot of perks or unintentional loopholes for speculators, with the property designation. There are a lot of disadvantages for consumers trying to use it like a currency. Someone mixing investment and spending funds across addresses is going to have complicated tax issues, but fortunately the exchanges have records of purchase times and prices, which you can compare with the addresses you control. Do note, after that IRS guideline, another federal agency designated Bitcoin as a commodity, which is a subset of \"\"property\"\" with its own more favorable but different tax guidelines.\""],"string":"[\n \"\\\"As long as the IRS treats bitcoin as property, then whenever you use bitcoin to buy anything you are supposed to consider the capital gain or capital loss. There is no \\\"\\\"until it's converted to fiat\\\"\\\". You are paying local sales tax and capital gains, or paying local sales tax and reporting capital loss. As long as you are consistent, you can use either the total cost basis, or individual lot purchases. The same as other property like stocks (except without stock specific regulations like wash-sale rules :D ). There are a lot of perks or unintentional loopholes for speculators, with the property designation. There are a lot of disadvantages for consumers trying to use it like a currency. Someone mixing investment and spending funds across addresses is going to have complicated tax issues, but fortunately the exchanges have records of purchase times and prices, which you can compare with the addresses you control. Do note, after that IRS guideline, another federal agency designated Bitcoin as a commodity, which is a subset of \\\"\\\"property\\\"\\\" with its own more favorable but different tax guidelines.\\\"\"\n]","isConversational":false}}},{"rowIdx":395,"cells":{"_id":{"kind":"string","value":"68"},"query":{"kind":"string","value":"Intentions of Deductible Amount for Small Business"},"gt_ids":{"kind":"list like","value":["19183"],"string":"[\n \"19183\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["589416","545296","420254","524134","444273","484231","336917","97719","130631","116934","347935","146657","293310","378484","595765","216783","381151","246461","550647","54333","397152","201954","550345","136850","544947","447231","541809","278781","590390","86134","477940","232199","327263","144783","385929","218637","107213","272709","480512","401551","364938","274721","248761","423416","568771","212312","14255","330","62281","434619","509218","277353","310612","138746","106265","192516","396968","401297","214358","409980","148715","72391","70315","224665","418480","497642","279538","12010","19183","510181","410421","533825","379580","257168","18889","446553","18850","126281","230309","100280","40257","524879","366830","146388","581265","560087","540634","31144","458079","17215","338700","199310","442142","205121","509081","539511","397608","333440","473959","361514"],"string":"[\n \"589416\",\n \"545296\",\n \"420254\",\n \"524134\",\n \"444273\",\n \"484231\",\n \"336917\",\n \"97719\",\n \"130631\",\n \"116934\",\n \"347935\",\n \"146657\",\n \"293310\",\n \"378484\",\n \"595765\",\n \"216783\",\n \"381151\",\n \"246461\",\n \"550647\",\n \"54333\",\n \"397152\",\n \"201954\",\n \"550345\",\n \"136850\",\n \"544947\",\n \"447231\",\n \"541809\",\n \"278781\",\n \"590390\",\n \"86134\",\n \"477940\",\n \"232199\",\n \"327263\",\n \"144783\",\n \"385929\",\n \"218637\",\n \"107213\",\n \"272709\",\n \"480512\",\n \"401551\",\n \"364938\",\n \"274721\",\n \"248761\",\n \"423416\",\n \"568771\",\n \"212312\",\n \"14255\",\n \"330\",\n \"62281\",\n \"434619\",\n \"509218\",\n \"277353\",\n \"310612\",\n \"138746\",\n \"106265\",\n \"192516\",\n \"396968\",\n \"401297\",\n \"214358\",\n \"409980\",\n \"148715\",\n \"72391\",\n \"70315\",\n \"224665\",\n \"418480\",\n \"497642\",\n \"279538\",\n \"12010\",\n \"19183\",\n \"510181\",\n \"410421\",\n \"533825\",\n \"379580\",\n \"257168\",\n \"18889\",\n \"446553\",\n \"18850\",\n \"126281\",\n \"230309\",\n \"100280\",\n \"40257\",\n \"524879\",\n \"366830\",\n \"146388\",\n \"581265\",\n \"560087\",\n \"540634\",\n \"31144\",\n \"458079\",\n \"17215\",\n \"338700\",\n \"199310\",\n \"442142\",\n \"205121\",\n \"509081\",\n \"539511\",\n \"397608\",\n \"333440\",\n \"473959\",\n \"361514\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["Any deductable expense will reduce your taxable income not your tax payable. Your Example 1 above is correct and gives you 100% deduction. It is like having a business where your sales are $100,000 and your expenses in making the sales is $40,000. The expenses are your tax deductions and reduce your profits on which you pay tax on to $60,000. If your Example 2 was correct then the situation above would change that you would pay say $30,000 tax on $100,000 sales, then apply your deductions (or expenses) of $40,000 so that you would pay no tax at all and in fact get $10,000 back in your return. In this case the government would not be collecting any taxes but paying out returns to everyone. Your Example 2 is absolutly incorrect.","The intention of making the charitable contributions tax deductible is to provide an economic incentive to contribute to organizations which tend to improve the general welfare of the community. Deductibility impacts government revenue generation, but has positive impacts that probably offset that loss by encouraging more giving by folks subject to high income tax -- particularly small business owners. Unless you own a home and have a mortgage you may not have enough deductions to get any financial benefit from charitable contributions. Charitable contributions are only deductible when your deductions exceed the standard deduction. For most people, charitable contributions are a way to support something that you care about, and the tax benefits are a secondary benefit, or a way to enhance their own giving.","If you can deduct money that is reinvested in your business than would you invest more into your company to avoid giving it to the government at a higher tax rate? At a lower rate it allows for more profit to be extracted. It does nothing to encourage investment.","\"No, not on schedule C, better. Its an \"\"above the line\"\" deduction (line 29 on your 1040). Here's the turbo tax article on it. The instructions for this line set certain limitations that you must take into the account, and yes - it is limited to the net profit from the business. One of the following statements must be true. You were self-employed and had a net profit for the year. You were a partner with net earnings from self-employment. You used one of the optional methods to figure your net earnings from self-employment on Schedule SE. You received wages in 2011 from an S corporation in which you were a more-than-2% shareholder. Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W-2. The insurance plan must be established under your business. Your personal services must have been a material income-producing factor in the business. If you are filing Schedule C, C-EZ, or F, the policy can be either in your name or in the name of the business.\"","Business expenses reduce business income. The SE tax is paid on business income. The credit for 1/2 the SE tax is based on the amount of SE tax paid. So:","You’re conflating deductions with expenses, which are different. Revenue is all money collected. Income is revenue minus the sum of expenses and deductions and exemptions. You’re also treating direct subsidies as the only form of subsidisation, which would make the word “direct” superfluous, while ignoring indirect subsidies, which include deductions. And, no, not every business takes deductions and certainly not while simultaneously complaining (or standing idly by while others complain) about subsidies.","\"It seems I can make contributions as employee-elective, employer match, or profit sharing; yet they all end up in the same 401k from my money since I'm both the employer and employee in this situation. Correct. What does this mean for my allowed limits for each of the 3 types of contributions? Are all 3 types deductible? \"\"Deductible\"\"? Nothing is deductible. First you need to calculate your \"\"compensation\"\". According to the IRS, it is this: compensation is your “earned income,” which is defined as net earnings from self-employment after deducting both: So assuming (numbers for example, not real numbers) your business netted $30, and $500 is the SE tax (half). You contributed $17.5 (max) for yourself. Your compensation is thus 30-17.5-0.5=12. Your business can contribute up to 25% of that on your behalf, i.e.: $4K. Total that you can contribute in such a scenario is $21.5K. Whatever is contributed to a regular 401k is deferred, i.e.: excluded from income for the current year and taxed when you withdraw it from 401k (not \"\"deducted\"\" - deferred).\"","\"Disclaimer: This should go without saying, but this answer is definitely an opinion. (I'm pretty sure my current accountant would agree with this answer, and I'm also pretty sure that one of my past accountants would disagree.) When I started my own small business over 10 years ago I asked this very same question for pretty much every purchase I made that would be used by both the business and me personally. I was young(er) and naive then and I just assumed everything was deductible until my accountant could prove otherwise. At some point you need to come up with some rules of thumb to help make sense of it, or else you'll drive yourself and your accountant bonkers. Here is one of the rules I like to use in this scenario: If you never would have made the purchase for personal use, and if you must purchase it for business use, and if using it for personal use does not increase the expense to the business, it can be fully deducted by the business even if you sometimes use it personally too. Here are some example implementations of this rule: Note about partial expenses: I didn't mention partial deductions above because I don't feel it applies when the criteria of my \"\"rule of thumb\"\" is met. Note that the IRS states: Personal versus Business Expenses Generally, you cannot deduct personal, living, or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. You can deduct the business part. At first read that makes it sound like some of my examples above would need to be split into partial calulations, however, I think the key distinction is that you would never have made the purchase for personal use, and that the cost to the business does not increase because of allowing personal use. Partial deductions come into play when you have a shared car, or office, or something where the business cost is increased due to shared use. In general, I try to avoid anything that would be a partial expense, though I do allow my business to reimburse me for mileage when I lend it my personal car for business use.\"","\"In the US you are not required to have a corporation to use business expenses to offset your income. The technical term you need is \"\"deducting business expenses\"\", and in matters of taxes it's usually best to go straight to the horse's mouth: the IRS's explanations Deducting Business Expenses Business expenses are the cost of carrying on a trade or business. These expenses are usually deductible if the business operates to make a profit. What Can I Deduct? Cost of Goods Sold, Capital Expenses, Personal versus Business Expenses, Business Use of Your Home, Business Use of Your Car, Other Types of Business Expenses None of this requires any special incorporation or tax arrangements, and are a normal part of operating a business. However, there is a bit of a problem with your scenario. You said you \"\"invested\"\" into a business, but you mentioned buying specific things for the business which is not generally how one accounts for investment. If you are not an owner/operator of the business, then the scenario is not so straight-forward, as you can't simply claim someone else's business expenses as your own because you invested in it. Investments are taxed differently than expenses, and based upon your word choices I'm concerned that you could be getting yourself into a bit of a pickle. I would strongly advise you to speak with a professional, such as a Certified Public Accountant (CPA), to go over your current arrangement and advise you on how you should be structuring your ongoing investment into this shared business. If you are investing you should be receiving equity to reflect your ownership (or stock in the company, etc), and investments of this sort generally cannot be deducted as an expense on your taxes - it's just an investment, the same as buying stock or CDs. If you are just buying things for someone else's benefit, it's possible that this could be looked upon as a personal gift, and you may be in a precarious legal position as well (where the money is, indeed, just a gift). And gifts of this sort aren't deductible, either. Depending on how this is all structured, it's possible that you should both consider a different form of legal organization, such as a formal corporation or at least an official business partnership. A CPA and an appropriate business attorney should be able to advise you for a nominal (few hundred dollars, at most) fee. If a new legal structure is advisable, you can potentially do the work yourself for a few hundred dollars, or pay to have it done (especially if the situation is more complex) for a few hundred to a few thousand. That's a lot less than you'd be on the hook for if this business is being accounted for improperly, or if either of your tax returns are being reported improperly!\"","Yes, you can deduct from your taxable profits (almost) any expenses incurred in the course of your business. See here for HMRC's detailed advice on the subject. The fact that you have salaried PAYE employment as well makes no difference.","Another way to look at it is that deductibles are intended as incentives or subsidies to particular industries (in this case the healthcare industry). Guaranteeing a decent standard of living and making sure everybody can meet the costs of “necessities” can be achieved much more easily by a low tax rate on the first XXX$ of income and/or generic welfare benefits rather than any measure focused on making healthcare, food or whatnot cheaper or free under certain conditions. Incidentally, many countries do have different forms of benefits or tax breaks for accommodation-related expenses.","Yes, you should be able to deduct at least some of these expenses. For expense incurred before you started the business: What Are Deductible Startup Costs? The IRS defines “startup costs” as deductible capital expenses that are used to pay for: 1) The cost of “investigating the creation or acquisition of an active trade or business.” This includes costs incurred for surveying markets, product analysis, labor supply, visiting potential business locations and similar expenditures. 2) The cost of getting a business ready to operate (before you open your doors or start generating income). These include employee training and wages, consultant fees, advertising, and travel costs associated with finding suppliers, distributors, and customers. These expenses can only be claimed if your research and preparation ends with the formation of a successful business. The IRS has more information on how to claim the expenses if you don’t go into business. https://www.sba.gov/blogs/startup-cost-tax-deductions-how-write-expense-starting-your-business Once your business is underway, you can deduct expenses, but the exact details depend on how you organized. If you're a sole proprietor for tax purposes, then you'll deduct them on Schedule C of your Form 1040 on your personal tax. If you are a partnership, C-Corp, or S-Corp, they will be accounted at the business level and either passed on to you on a Schedule K (partnership and S-Corp) or deducted directly by the company (C-Corp). In any case, you will need good records that justify your expenses as business related. It might be well worth at least an initial meeting with a CPA to make sure that you get started on the right foot.","Assuming the US, if a human assessor audited you, could you show a future profit motive or will they conclude you are expensing a hobby? If you answer yes, you are likely to only be deducting limited expenses this year, carrying forward losses to your profitable years. See the examples in pub 535: http://www.irs.gov/publications/p535/ch01.html#en_US_2014_publink1000208633","To quote the answer you linked to: Perhaps the simplest way to think about this is you can only deduct an expense that you actually incur. In other words, the expense should show up on a bank or CC statement. So, if your business purchased the $1000 gift card for $800, you should see a $800 charge appearing on a business CC or bank statement. You would therefore be able to deduct the $800, but not the full $1000 of items that you purchase with it. Side Notes:","When you take the self employed health care deduction on on Line 29 of form 1040 for 2010 it also will lower your self employment tax. See line 3 of Schedule SE. You report your net earnings from self employment less line 29 from 1040.","I agree that the surface explanation is that expenses used to generate income are deducted, however there clearly is a double standard in how is applied. For example I cannot deduct my car even though I use it primarily for commuting to work (I would consider that income generation), yet companies are allowed to deduct corporate jets. I can't deduct meals when I ate out with professional acquainted where much of the conversations are related to my profession and so directly relevant to my income, yet businesses can claim sending their executives to a country club because business was discussed or it was a team building excise. Etc etc.","Chris, since you own your own company, nobody can stop you from charging your personal expenses to your business account. IRS is not a huge fan of mixing business and personal expenses and this practice might indicate to them that you are not treating your business seriously, and it should classify your business as a hobby. IRS defines deductible business expense as being both: ordinary AND necessary. Meditation is not an ordinary expense (other S-corps do not incur such expense.) It is not a necessary expense either. Therefore, you cannot deduct this expense. http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Deducting-Business-Expenses","In the US, you can only take a tax deduction on expenses to the extent that they offset income. For an S corp or LLC, if the business had no income, there's no deduction to take. If you have a sole proprietorship, these expenses can offset other income. You can also carry-forward net operating losses to future years when you have more income. See the article How to Carry Over Business Expenses","Not only what you mentioned about the tax deductions, but cutting marketing expenses is potentially dangerous advice. Evaluating your marketing efforts and making adjustments that make sense for your business seems to be a much better bit of advice.","\"The basic idea is that the average person can't deduct health care costs unless they're really onerous. But a business can, and as a self-employed person, you can deduct those costs from the businesses earnings... as long as the business is really generating enough profit to cover the health insurance costs. That's why most people get their health insurance from their employer, actually. The relevant IRS rules say: \"\"You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents if you are... A self-employed individual with a net profit reported on Schedule C (Form 1040).\"\" For 2010, thanks to the Small Business Jobs Act of 2010, you can even deduct the premium from your income before deducting the self-employment tax (Source). I'm sure that when you get your tax returns and instructions for 2010 this will all be spelled out.\"","To be confident in your solution, and get the best solution for you, consult a local accountant, preferably one who is specialized in taxes for businesses. Or muddle through the code and figure it out for yourself. The primary advantage in consulting with an accountant is that you can ask them to point out ways you can restructure your expenses, debts and income in order to minimize your tax burden. They can help you run the numbers for the various options and choose the one that is right, numerically.","If it's a legitimate cost of doing business, it's as deductible as any other cost of doing business. (Reminder: be careful about the distinctions between employee and contractor; the IRS gets annoyed if you don't handle this correctly.)","Salaries and etc are a business expense and chargeable against revenue for tax purposes. It is NOT tax deductible but it is an expense on an income statement in calculating net profit (after tax). You could say salary & etc are tax effective but not tax deductible.","\"Yes, this is a miscellaneous itemized deduction. https://www.irs.gov/publications/p529/ar02.html For this to impact your taxes, you have to be itemizing deductions (have total deductions greater than standard deduction), and the total of all miscellaneous deductions needs to exceed the \"\"2% floor\"\" described in the IRS link above.\"","If medical, not cosmetic, you can deduct medical expenses to the extent they exceed 7.5% of your adjusted gross income. Note: it's been announced that starting in 2013 the deduction is for amounts exceeding 10% of AGI.","You don't say what country you live in. If it's the U.S., the IRS has very specific rules for business use of a car. See, for starters at least, http://www.irs.gov/publications/p463/ch04.html. The gist of it is: If you use the car 100% for business purposes, you NEVER use it to drive to the grocery store or to your friend's house, etc, then it is a deductible business expense. If you use a car party for business use and partly for personal use, than you can deduct the portion of the expense of the car that is for business use, but not the portion that is for personal use. So basically, if you use the car 75% for business purposes and 25% for personal use, you can deduct 75% of the cost and expenses. You can calculate the business use by, (a) Keeping careful records of how much you spent on gas, oil, repairs, etc, tracking the percentage of business use versus percentage of personal use, and then multiplying the cost by the percentage business use and that is the amount you can deduct; or (b) Use the standard mileage allowance, so many cents per mile, which changes every year. Note that the fact that you paid for the car from a business account has absolutely nothing to do with it. (If it did, then everyone could create a small business, open a business account, pay all their bills from there, and all their personal expenses would magically become business expenses.) Just by the way: If you are going to try to stretch the rules on your taxes, business use of a car or personal computer or expenses for a home office are the worst place to do it. The IRS knows that cars and computers are things that can easily be used for either personal or business purposes and so they keep a special eye out on these.","\"No, your business cannot deduct your non-business expenses. You can only deduct from your business income those reasonable expenses you paid in order to earn income for the business. Moreover, for there to be a tax benefit, your business generally has to have income (but I expect there are exceptions; HST input tax credits come to mind.) The employment income from your full-time job wouldn't count as business income for your corporation. The corporation has nothing to do with that income – it's earned personally, by you. With respect to restaurant bills: These fall under a category known as \"\"meals & entertainment\"\". Even if the expense can be considered reasonable and business-related (e.g. meeting customers or vendors) the Canada Revenue Agency decided that a business can only deduct half of those kinds of expenses for tax purposes. With respect to gasoline bills: You would need to keep a mileage and expense log. Only the portion of your automobile expenses that relate to the business can be deducted. Driving to and from your full-time job doesn't count. Of course, I'm not a tax professional. If you're going to have a corporation or side-business, you ought to consult with a tax professional. (A point on terminology: A business doesn't write off eligible business expenses — it deducts them from business income. Write off is an accounting term meaning to reduce the value of an asset to zero. e.g. If you damaged your car beyond repair, one could say \"\"the car is a write-off.\"\")\"","Keep in mind, when talking about other deductions, such as mortgage interest, you need to look at your overall situation and whether the taxpayer is near the standard deduction amount. For some, their interest deduction and property tax are below the standard deduction, and therefore, they'd not itemize.","\"This change doesn't make a ton of sense to me. Interest is an expense. Expenses are deductible. Yes, there are loopholes, but no matter what happens there will be loopholes. Seems like any easy \"\"no\"\" vote. Sometimes it worries me that we have financially incompetent people in power.\"","Not authoritative, but according to TurboTax: If your new cell phone acts as both your business and personal phone, you are only allowed to deduct the portion used for business from your taxable income. It’s important for you to hang on to your itemized phone bill and receipts to ensure that you’re deducting the right amounts and to keep records of your deduction. Since the usage you're describing sounds like a very small amount of the overall usage, it will probably be difficult to justify a business expense deduction.","Consider the individual who pays $1,000,000 in taxes. His/her income must be substantial. That is what one should aim for. Investments for the most part, do not lower ones taxes. In one of John Grisham's novels, tax shelters are being discussed. Sorry, I do not remember which book. The discussion goes something like this: There are a few investments which can lower your taxes. Purchase a house. Mortgage interest on your principle residence is deductible (if you itemize deductions). If you don't itemize, focus on increasing income to the point where itemizing benefits you. In general, businesses have more deductions than individuals. Own a small business. You (or your accountant) will discover many deductions. Hint: the company should lease a car/truck, many meals are now deductible. This is not the reason to own a business.","I'm not sure about reimbursement, you'll have to talk to a tax adviser (CPA/EA licensed in your State). From what I know, if you pay your own insurance premiums - they're not deductible, and I don't think reimbursements change that. But again - not sure, verify. However, since you're a salaried employee, even if your own, you can have your employer cover you by a group plan. Even if the group consists of only you. Then, you'll pay your portion as part of the pre-tax salary deduction, and it will be deductible. The employer's portion is a legitimate business expense. Thus, since both the employee and the employer portions are pre-tax - the whole cost of the insurance will be pre-tax. The catch is this: this option has to be available to all of your employees. So if you're hiring an employee a year from now to help you - that employee will be eligible to exactly the same options you have. You cannot only cover owner-employees. If you don't plan on hiring employees any time soon, this point is moot for you, but it is something to keep in mind down the road as you're building and growing your business.","First of all, Dilip's answer explains well how the business deductions generally work. For most (big) expenses you depreciate it. However, in some cases you need to capitalize it, which is another accounting method. When you capitalize your expense, it becomes part of the basis of the product you're creating. Since you're an engineer, this might be relevant for you. Talk to your tax adviser. How exactly you deduct/depreciate/capitalize things, and what expense goes which way depends greatly on the laws and jurisdictions. Even in the US, different states have different laws, and the IRS and State laws don't have to conform (unfortunately). For example, the limitations on Sec. 179 deduction in 2010-2011 were 20 times higher on Federal level than in the State of California. This could have lead to cases where you fully deducted your expense on your Federal tax return, but need to continue and depreciate it on your State return (or vice versa). Good tax adviser is crucial to avoid or manage these cases.","What a coincidence! This was an exam question for my business law class. The main reason why individuals are not allowed to deduct expenses is because income tax revenue would be zero. The reason being, if an individual is allowed to deduct expenses he/she would spend 100% of their income and deduct it all on their tax returns, which would mean he/she would pay virtually no income tax. This is bad for the gov't and the economy. It's bad for the gov't because they loose tax revenue, and it's bad for the economy because people would not have any savings for tough times, which can send the economy into a negative spiral.","An expense is an expense. You can deduct your lease payment subject to some limitations, but you don't make out by having more expenses. Higher expenses mean lower profit. Is leasing better than owning? It depends on the car you'd buy. If your business doesn't benefit from flashiness of your car, then buying a quality used car (a few years old at most) would probably be a wiser decision financially. I'd think hard about whether you really need an up-to-date car.","Taking every court to case isn't in the best interest of the public either (on a net basis). Often those settlements accept the fine, but dong admit guilt. This can be important in federally regulated industries where guilt would result in automatic suspension of licenses and practice. Those regulations were put in place knowing that most companies would settle. Also, there's valid reason for deducting the settlement! In many businesses lawsuits are ordinary expenses (consumer facing ones with lots and lots of employees). People being up frivolous suits all the time and it's cheaper to settle for a small amount than pay expansive attorneys to go to court. Effectively, it's like an admin expense, we don't tax revenue, we tax profit. Finally, this would seriously clog courts, and jury's can be crazy biased to emotional stories. Yes, some parts could be changed, but it serves a valid purpose.","\"The answer is \"\"Yes\"\", You can deduct them. As long as you showed that you put in effort to make a profit then you can deduct business expenses.\"","Most items used in business have to be depreciated; you get to deduct a small fraction of the cost each year depending on the lifetime of the item as per IRS rules. That is, you cannot assume a one-year life for an electronic item even if it will be obsolete in three months. Some items can be expensed; you get to deduct the entire cost in the first year but then if you don't stay in business, e.g. you get a job paying wages and are no longer self-employed, you have to recapture this and pay taxes on the amount recaptured in the later year. With respect to consumer-type electronics such as an iPad or laptop, it helps to have a separate item for personal use that you can show in case of an audit.","IRS Publication 529 is the go-to document. Without being a tax professional, I'd say if the dues and subscriptions help you in the running of your business, then they're deductible. You're on your own if you take my advice (or don't). ;)","If you want to be safe, only claim deductions for which you have a receipt. This explanation may help.","It looks like you can. Take a look at these articles: http://www.googobits.com/articles/1747-taking-an-itemized-deduction-for-job-expenses.html http://www.bankrate.com/finance/money-guides/business-expenses-that-benefit-you.aspx http://www.hrblock.com/taxes/tax_tips/tax_planning/employment.html But of course, go to the source: http://www.irs.gov/publications/p529/ar02.html#en_US_publink100026912 From publication 529: You can deduct certain expenses as miscellaneous itemized deductions on Schedule A (Form 1040 or Form 1040NR). You can claim the amount of expenses that is more than 2% of your adjusted gross income. You figure your deduction on Schedule A by subtracting 2% of your adjusted gross income from the total amount of these expenses. Your adjusted gross income is the amount on Form 1040, line 38, or Form 1040NR, line 36. I hope that helps. Happy deducting!","If your business is a Sole Proprietorship and meets the criteria, then you would file form Schedule C. In this case you can deduct all eligible business expenses, regardless of how you pay for them (credit/debit/check/cash). The fact that it was paid for using a business credit card isn't relevant as long as it is a true business expense. The general rules apply: Yes - if you sustain a net loss, that will carry over to your personal tax return. Note: even though it isn't necessary to use a business credit card for business expenses, it's still an extremely good idea to do so, for a variety of reasons.","You can claim a deduction only if all of your business is conducted from the home, i.e. your home is your principal place of business - not just if you work from home sometimes. The CRA (Canada Revenue Agency) has pretty strict guidelines listed here, but once you're sure you qualify for a deduction, the next step would be to determine what portion of your home qualifies. You cannot attempt to deduct your entire mortgage simply because you run your business out of your home. The portion of your mortgage and other related & allowable home expense deductions has to be pro-rated to be equal to or less than the portion of your home you use for business. Simply put, if your business is operated out of a 120 sq-ft self-contained space, and your home's total square-footage is 2400 sq-ft, you can deduct 5% of your expenses (120/2,400 = 0.05). Hope this helps!","Saving Fortune 500 companies hundreds of millions to billions a year and a small company a few thousand. Who's paying for the shortfall to the IRS? The reality is a small business probably make $0 profit because the owner pays himself out, or has enough employees that the (company) makes a profit saving a few grand doesn't do anything. You know what would help? The 1 trillion profit the Fortune 500 make a year, take half. Give energy companies 0% interest loans to pay off their nuclear plants and reduce energy costs for 320 million Americans by a large amount. Take the remainder and the following 3 years and refinance mortgages at 0% interest starting from the smallest to largest loans. 4 years high taxes on large corporations I just bailed out the middle class and helped the poor with 100% retuned to the IRS.","Not as you suggest. Since you are sole prop, you are taxed on a cash basis. Within reason, you can prepay vendors - so temp to hire through an agency might appear more attractive than direct hire. But there needs to be a justification other than avoidance of taxes. So pre-paying 100k on 12/25 would look fishy as fuck. Plus your quality of candidate will suffer if you need anything other than low skill labor. Look at your other fully deductible expenses - anything you can prepay-prepay. For example, I set my liability insurance renewal January 15 to provide optionality. But it just shifts one year into another .. Means fuckall if you are in the same marginal bracket next year. The IRS has also relaxed depreciation on office technology. Computers are now fully deductible rather than being capitalized. @ 500k revenue you should have a CPA and legal counsel. Simply incorporating isn't tax magic. The purpose is to limit yourersonal liability, not a tax shelter - but shitty things happen once you have employees, don't create the potential for a disgruntled employee lawsuit put your shelter at risk of court judgment. That said, assuming you aren't dumping a hypothetical on the Internet, congrats - for all the headaches, having employees is the ultimate leverage .. it's like a xerox machine for your labor (including loss of fidelity with each copy) ..","Generally speaking, if a business loses money for whatever reason, then that reduces the profits of the business which reduces the tax payable. However if you were holding the assets on a personal basis prior to incorporating the business, the position may become more complicated. For that kind of money some professional advice may be worthwhile.","Yes you can claim your business deductions if you are not making any income yet. But first you should decide what structure you want to have for your business. Either a Company structure or a Sole Trader or Partnership. Company Structure If you choose a Company Structure (which is more expensive to set up) you would claim your deductions but no income. So you would be making a loss, and continue making losses until your income from the business exceed your expenses. So these losses will remain inside the Company and can be carried forward to future income years when you are making profits to offset these profits. Refer to ATO - Company tax losses for more information. Sole Trader of Partnership Structure If you choose to be a Sole Trader or a Partnership and your business makes a loss you must check the non-commercial loss rules to see if you can offset the loss against your income from other sources, such as wages. In order to offset your business losses against your other income your business must pass one of these tests: If you don't pass any of these tests, which being a start-up you most likely won't, you must carry forward your business losses until an income year in which you do pass one of the tests, then you can offset it against your other income. This is what differentiates a legitimate business from someone having a hobby, because unless you start making at least $20,000 in sales income (the easiest test to pass) you cannot use your business losses against your other income. Refer to ATO - Non-commercial losses for more information.","\"As long as the losing business is not considered \"\"passive activity\"\" or \"\"hobby\"\", then yes. Passive Activity is an activity where you do not have to actively do anything to generate income. For example - royalties or rentals. Hobby is an activity that doesn't generate profit. Generally, if your business doesn't consistently generate profit (the IRS looks at 3 out of the last 5 years), it may be characterized as hobby. For hobby, loss deduction is limited by the hobby income and the 2% AGI threshold.\"","\"Click on the ? icon next to \"\"Employer Plan\"\". This is used to determine if you can deduct your annual contributions from your taxes. For more information on how an employer plan can affect your IRA tax deduction, see the definition for non-deductible contributions. So, we look there: The total of your Traditional IRA contributions that were deposited without a tax deduction. Traditional IRA contributions are normally tax deductible. However, if you have an employer-sponsored retirement plan, such as a 401(k), your tax deduction may be limited. The $20K difference between $272K and $252K just happens to be $15% of $132,500 which is the amount of your non-deductible contributions.\"","If a business incurs expenses in the process of its trading, generally those expenses are deductible. Disposing of waste is generally held to be a deductible expense.","\"While COBRA premiums are not eligible to be a \"\"business\"\" expense they can be a medical expense for personal deduction purposes. If you're itemizing your deductions you may be able to deduct that way. However, you will only be able to deduct the portion of the premium that exceeds 10% of your AGI. Are you a full time employee now or are you a 1099 contractor? Do you have access to your employers health plan?\"","If you have multiple accounts, you have to empty them all before you can deduct any losses. Your loss is not a capital loss, its a deduction. It is calculated based on the total amount you have withdrawn from all your Roth IRA's, minus the total basis. It will be subject to the 2% AGI treshhold (i.e.: if your AGI is > 100K, none of it is deductible, and you have to itemize to get it). Bottom line - think twice. Summarizing the discussion in comments: If you have a very low AGI, I would guess that your tax liability is pretty low as well. Even if you deduct the whole $2K, and all of it is above the other deductions you have (which in turn is above the standard deduction of almost $6K), you save say $300 if you're in 15% tax bracket. That's the most savings you have. However I'm assuming something here: I'm assuming that you're itemizing your deductions already and they're above the standard deduction. This is very unlikely, with such a low income. You don't have state taxes to deduct, you probably don't spend a lot to deduct sales taxes, and I would argue that with the low AGI you probably don't own property, and if you do - you don't have a mortgage with a significant interest on it. You can be in 15% bracket with AGI between (roughly) $8K and $35K, i.e.: you cannot deduct between $160 and $750 of the $2K, so it's already less than the maximum $300. If your AGI is $8K, the deduction doesn't matter, EIC might cover all of your taxes anyway. If your AGI is $30K, you can deduct only $1400, so if you're in the 15% bracket - you saved $210. That, again, assuming it's above your other deductions, which in turn are already above the standard deduction. Highly unlikely. As I said in the comments - I do not think you can realistically save on taxes because of this loss in such a manner.","\"You should probably have a tax professional help you with that (generally advisable when doing corporation returns, even if its a small S corp with a single shareholder). Some of it may be deductible, depending on the tax-exemption status of the recipients. Some may be deductible as business expenses. To address Chris's comment: Generally you can deduct as a business on your 1120S anything that is necessary and ordinary for your business. Charitable deductions flow through to your personal 1040, so Colin's reference to pub 526 is the right place to look at (if it was a C-corp, it might be different). Advertisement costs is a necessary and ordinary expense for any business, but you need to look at the essence of the transaction. Did you expect the sponsorship to provide you any new clients? Did you anticipate additional exposure to the potential customers? Was the investment (80 hours of your work) similar to the costs of paid advertisement for the same audience? If so - it is probably a business expense. While you can't deduct the time on its own, you can deduct the salary you paid yourself for working on this, materials, attributed depreciation, etc. If you can't justify it as advertisement, then its a donation, and then you cannot deduct it (because you did receive something in return). It might not be allowed as a business expense, and you might be required to consider it as \"\"personal use\"\", i.e.: salary.\"","Deduction for Health Checkup is allowed under Section 80D and is allowed to everyone whether Salaried or Business/Professional. However, Exemption for Medical Reimbursement of Rs. 15000 is allowed under a different section. A salaried employee can take benefit of both Medical Reimbursement of Rs. 15,000 as well as Preventive Health Check-up of Rs. 5,000. Source: Tax Deduction for Health Check-up","Being a professional auditor and accountant, deduction against expenses are claimed in the year in which expenses has been incurred. It has no relationship with when it is paid. For example, we may buy on credit does not mean that they will be allowed in the period in which it is paid. This is against the fundamental accounting principles.","\"I am going to keep things very simple and explain the common-sense reason why the accountant is right: Also, my sister in law owns a small restaurant, where they claim their accountant informed them of the same thing, where a portion of their business purchases had to be counted as taxable personal income. In this case, they said their actual income for the year (through their paychecks) was around 40-50K, but because of this detail, their taxable income came out to be around 180K, causing them to owe a huge amount of tax (30K ish). Consider them and a similarly situated couple that didn't make these purchases. Your sister in law is better off in that she has the benefit of these purchases (increasing the value of her business and her expected future income), but she's worse off because she got less pay. Presumably, she thought this was a fair trade, otherwise she wouldn't have made those purchases. So why should she pay any less in taxes? There's no reason making fair trades should reduce anyone's tax burden. Now, as the items she purchased lose value, that will be a business loss called \"\"depreciation\"\". That will be deductible. But the purchases themselves are not, and the income that generated the money to make those purchases is taxable. Generally speaking, business gains are taxable, regardless of what you do with the money (whether you pay yourself, invest it, leave it in the business, or whatever). Generally speaking, only business losses or expenses are deductible. A purchase is an even exchange of income for valuable property -- even exchanges are not deductions because the gain of the thing purchased already fairly compensates you for the cost. You don't specify the exact tax status of the business, but there are really only two types of possibilities. It can be separately taxed as a corporation or it can be treated essentially as if it didn't exist. In the former case, corporate income tax would be due on the revenue that was used to pay for the purchases. There would be no personal income tax due. But it's very unlikely this situation applies as it means all profits taken out of the business are taxed twice and so small businesses are rarely organized this way. In the latter case, which is almost certainly the one that applies, business income is treated as self-employment income. In this case, the income that paid for the purchases is taxable, self-employment income. Since a purchase is not a deductible expense, there is no deduction to offset this income. So, again, the key points are: How much she paid herself doesn't matter. Business income is taxable regardless of what you do with it. When a business pays an expense, it has a loss that is deductible against profits. But when a business makes a purchase, it has neither a gain nor a loss. If a restaurant buys a new stove, it trades some money for a stove, presumably a fair trade. It has had no profit and no loss, so this transaction has no immediate effect on the taxes. (There are some exceptions, but presumably the accountant determined that those don't apply.) When the property of a business loses value, that is usually a deductible loss. So over time, a newly-purchased stove will lose value. That is a loss that is deductible. The important thing to understand is that as far as the IRS is concerned, whether you pay yourself the money or not doesn't matter, business income is taxable and only business losses or expenses are deductible. Investments or purchases of capital assets are neither losses nor expenses. There are ways you can opt to have the business taxed separately so only what you pay yourself shows up on your personal taxes. But unless the business is losing money or needs to hold large profits against future expenses, this is generally a worse deal because money you take out of the business is taxed twice -- once as business income and again as personal income. Update: Does the business eventually, over the course of the depreciation schedule, end up getting all of the original $2,000 tax burden back? Possibly. Ultimately, the entire cost of the item is deductible. That won't necessarily translate into getting the taxes back. But that's really not the right way to think about it. The tax burden was on the income earned. Upon immediate replacement, hypothetically with the exact same model, same cost, same 'value', isn't it correct that the \"\"value\"\" of the business only went up by the amount the original item had depreciated? Yes. If you dispose of or sell a capital asset, you will have a gain or loss based on the difference between your remaining basis in the asset and whatever you got for the asset. Wouldn't the tax burden then only be $400? Approximately, yes. The disposal of the original asset would cause a loss of the difference between your remaining basis in the asset and what you got for it (which might be zero). The new asset would then begin depreciating. You are making things a bit more difficult to understand though by focusing on the amount of taxes due rather than the amount of taxable gain or loss you have. They don't always correlate directly (because tax rates can vary).\"","Basically, no. You have retirement plan options and can either go with a Roth option, which won't change your current tax burden, or go with a traditional plan, which is tax deductible but won't change your business deductions or self-employment taxes. This article has an explanation of options for setting up SEP or Solo 401k plans. Key quote for all the pre-tax retirement plans: Because pre-tax employer and employee contributions are deducted in the same way, neither one is more tax-efficient than the other. The article goes on to say that if you were an S Corp or LLC that elected to be taxed as an S Corp, a Solo 401(k) plan would allow the business to make an employer contribution to your 401(k) and even then there's no tax advantage to the employer contribution. Conclusion for S-corps: [Employer contributions] would reduce the amount of income from the S-corporation that would be passed through to you as the owner, thereby reducing your income tax. But, because this income is not subject to payroll taxes in the first place, these contributions will not reduce your payroll taxes.","Your tax rate is 20% for turnover below £300000. So deducting your expenses and all the tax your accountant thinks you need to pay is £450. But you can claim relief on your tax payments. Visit the UK gov website to check your options under which you can claim relief. Frankly speaking for such a low turnover you shouldn't have opened a limited company. Or do you expect your turnover to increase in the coming years ? If your turnover isn't going to increase any further or if there isn't going to be a substantial increase, better to go as a sole trader or an umbrella company.","Here is a quote from the IRS website on this topic: You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for yourself, your spouse, and your dependents. The insurance can also cover your child who was under age 27 at the end of 2011, even if the child was not your dependent. A child includes your son, daughter, stepchild, adopted child, or foster child. A foster child is any child placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. One of the following statements must be true. You were self-employed and had a net profit for the year reported on Schedule C (Form 1040), Profit or Loss From Business; Schedule C-EZ (Form 1040), Net Profit From Business; or Schedule F (Form 1040), Profit or Loss From Farming. You were a partner with net earnings from self-employment for the year reported on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc., box 14, code A. You used one of the optional methods to figure your net earnings from self-employment on Schedule SE. You received wages in 2011 from an S corporation in which you were a more-than-2% shareholder. Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W-2, Wage and Tax Statement. The insurance plan must be established, or considered to be established as discussed in the following bullets, under your business. For self-employed individuals filing a Schedule C, C-EZ, or F, a policy can be either in the name of the business or in the name of the individual. For partners, a policy can be either in the name of the partnership or in the name of the partner. You can either pay the premiums yourself or your partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business. For more-than-2% shareholders, a policy can be either in the name of the S corporation or in the name of the shareholder. You can either pay the premiums yourself or your S corporation can pay them and report the premium amounts on Form W-2 as wages to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you and report the premium amounts on Form W-2 as wages to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business. Medicare premiums you voluntarily pay to obtain insurance in your name that is similar to qualifying private health insurance can be used to figure the deduction. If you previously filed returns without using Medicare premiums to figure the deduction, you can file timely amended returns to refigure the deduction. For more information, see Form 1040X, Amended U.S. Individual Income Tax Return. Amounts paid for health insurance coverage from retirement plan distributions that were nontaxable because you are a retired public safety officer cannot be used to figure the deduction. Take the deduction on Form 1040, line 29.","In 2012, the standard deduction is $5950 for a single person. Let's assume you are very charitable, and by coincidence you donate exactly $5950 to charity. Everything that falls under itemized deductions would then be deductible. So, if your property tax is $6000, in your example - Other adjustments come into play, including an exemption of $3850, I am just showing the effect of the property tax. The bottom line is that deductions come off income, not off your tax bill. The saving from a deduction is $$ x your tax bracket.","\"The $10,400 is in the question, in two pieces. His employer withheld $8000, and her employer withheld $2400. Thus they paid together $10,400 in income taxes, which are deductible if you itemize deductions and choose income taxes over sales taxes (you can deduct one or the other). There's nothing \"\"standard\"\" about the amount, though it is standard to take the income tax deduction (almost always higher than sales tax).\"","As far as accounting goes, if you speak with a CPA, you may be able to reduce the business tax liability. So... the company buys the truck, deducts it, and the adjusted gross income drops, so he'd pay less tax. Or something. You said anything helps, hope you meant it!","Despite the ACA offering generous deductions, a lot of small businesses still cannot afford the initial capital involved in offering health insurance plan to their employees... Therefore we cannot take advantage of these deductions... Putting us at a disadvantage for finding low-to-mid skilled workers, to the larger corporations that are now mandated to offer the benefits..","\"Can I deduct the money that I giving to my team mates from the taxes that I pay? If yes, how should I record the transaction? Why? Why are you giving money to your team mates? That's the most important question, and any answer without taking this into account is not full. You would probably have to talk to a professional tax adviser (a CPA/EA licensed in your state) about the details, but in general - you cannot deduct money you give someone just because you feel like it. Moreover, it may be subject to an additional tax - the gift tax. PS: We don't have any partnership or something similar, it is just each of us on his own. Assuming you want to give your team mates money because you developed the project together - then you do in fact have a partnership. In order to split the income properly, you should get a tax ID for the partnership, and issue a 1065 and K-1 for each team mate. In most states, you don't need to \"\"register\"\" a partnership with the state. Mere \"\"lets do things together\"\" creates a partnership. Otherwise, if they work for you (as opposed to with you in the case above), you can treat it as your own business income, and pay your team mates (who are now your contractors/employees) accordingly. Be careful here, because the difference between contractor and employee in tax law is significant, and you may end up being on the hook for a lot of things you're not aware of. Bottom line, in certain situation you cannot deduct, in others you can - you have to discuss it with a professional. Doing these things on your own without fully understanding what each term means - is dangerous, and IRS doesn't forgive for \"\"honest mistakes\"\".\"","\"Yes, you may deduct the cost of building the \"\"noise cancellation system\"\" :) sorry couldn't resist. But seriously, yes you can deduct it ONCE (unless you have more cost maintaining it) and its on line 19 (Repairs and maintenance) of IRS Form 8829.\"","You should speak to a good tax adviser. The less documentation you have the more problems IRS are going to cause you. Generally you can deduct business losses (in the year they occurred, which is 2011), but you have to show that that was a valid business, not just a way to reduce your tax bill with personal expenses. Thus lack of documentation reduces your ability to prove that you're entitled to the deduction. The burden of proof is generally on you. You can not deduct it from 2012 taxes, but you can still amend 2011. Keep in mind though that amended returns have higher chance of audit, and a significant business loss on a business that only existed that year is a major red flag which will raise the probability of an audit to very high percentage. Theoretically, if the business was real and just failed - you can definitely deduct this. But practically, lack of documentation may cause too big a problem, and a tax adviser might suggest you giving it up if he doesn't think you have a real chance to convince the IRS. Definitely don't do that without a professional advice. It is worth fighting for, its quite a loss, but don't do it on your own as you will definitely lose.","\"Yes, you can deduct up to your Adjusted Gross Income (AGI) or your contribution limit, whichever is lower. Note that this reduces your taxable income, not your taxes. This is self-employment income, which is included as compensation for IRA purposes. You still have to pay self-employment taxes (Social Security and Medicare) though. You pay those before calculating AGI. So this won't entirely shield your 1099 income from taxes, just from income taxes. Note that if you have both W-2 and 1099-MISC income, you don't get to pick which gets \"\"shielded\"\" from taxes. It all gets mixed together in the same bucket. There may be additional limitations if you are covered by a retirement plan at work.\"","\"It's not a \"\"withholding tax\"\" it's a \"\"withholding tax amount\"\". That is, they are not taxing you but they are holding back some of your withdrawal and sending it to the government to cover any taxes you will need to pay on the withdrawal. Same as your employer withholds some of your salary and sends it to the government for you. You won't claim it as a deduction, but it will go at the end along with tax withheld from your salary or anything else. So if you owe $10,000 of tax but various entities have already sent the government $11,000 on your behalf, you will get a $1,000 refund.\"","\"If your sole proprietorship losses exceed all other sources of taxable income, then you have what's called a Net Operating Loss (NOL). You will have the option to \"\"carry back\"\" and amend a return you filed in the last 2 years where you owed tax, or you can \"\"carry forward\"\" the losses and decrease your taxes in a future year, up to 20 years in the future. For more information see the IRS links for NOL. Note: it's important to make sure you file the NOL correctly so I'd advise speaking with an accountant. (Especially if the loss is greater than the cost of the accountant...)\"","You may be able to choose. As a small business, you can expense certain depreciable assets (section 179). But by choosing to depreciate the asset, you are also increasing the cost-basis of the property. Are you planning to sell the property in the next couple of years? Do you need a higher basis? Section 179 - Election to expense certain depreciable business assets","You can deduct retirement contributions (above the line even), but not as a business expense. So you can't avoid the SE taxes, sorry.","\"Yes, you can. See the instructions for line 29 of form 1040. Self employed health insurance premiums are an \"\"above the line\"\" deduction.\"","For simplicity, I would subtract the expense from the gross income before accounting for taxes. Using your example, if g is gross income, r is your tax rate, and e is your deductible expense: You got the same answer because of the distributive property of multiplication, but I believe conceptually it makes more sense to deduct the expense before accounting for taxes.","\"A tax return is a document you sign and file with the government to self-report your tax obligations. A tax refund is the payment you receive from the government if your payments into the tax system exceeded your obligations. As others have mentioned, if an extra $2K in income generated $5K in taxes, chances are your return was prepared incorrectly. The selection of an appropriate entity type for your business depends a lot on what you expect to see over the next several years in terms of income and expenses, and the extent to which you want or need to pay for fringe benefits or make pretax retirement contributions from your business income. There are four basic flavors of entity which are available to you: Sole proprietorship. This is the simplest option in terms of tax reporting and paperwork required for ongoing operations. Your net (gross minus expenses) income is added to your wage income and you'll pay tax on the total. If your wage income is less than approximately $100K, you'll also owe self-employment tax of approximately 15% in addition to income tax on your business income. If your business runs at a loss, you can deduct the loss from your other income in calculating your taxable income, though you won't be able to run at a loss indefinitely. You are liable for all of the debts and obligations of the business to the extent of all of your personal assets. Partnership. You will need at least two participants (humans or entities) to form a partnership. Individual items of income and expense are identified on a partnership tax return, and each partner's proportionate share is then reported on the individual partners' tax returns. General partners (who actively participate in the business) also must pay self-employment tax on their earnings below approximately $100K. Each general partner is responsible for all of the debts and obligations of the business to the extent of their personal assets. A general partnership can be created informally or with an oral agreement although that's not a good idea. Corporation. Business entities can be taxed as \"\"S\"\" or \"\"C\"\" corporations. Either way, the corporation is created by filing articles of incorporation with a state government (doesn't have to be the state where you live) and corporations are typically required to file yearly entity statements with the state where they were formed as well as all states where they do business. Shareholders are only liable for the debts and obligations of the corporation to the extent of their investment in the corporation. An \"\"S\"\" corporation files an information-only return similar to a partnership which reports items of income and expense, but those items are actually taken into account on the individual tax returns of the shareholders. If an \"\"S\"\" corporation runs at a loss, the losses are deductible against the shareholders' other income. A \"\"C\"\" corporation files a tax return more similar to an individual's. A C corporation calculates and pays its own tax at the corporate level. Payments from the C corporation to individuals are typically taxable as wages (from a tax point of view, it's the same as having a second job) or as dividends, depending on how and why the payments are made. (If they're in exchange for effort and work, they're probably wages - if they're payments of business profits to the business owners, they're probably dividends.) If a C corporation runs at a loss, the loss is not deductible against the shareholders' other income. Fringe benefits such as health insurance for business owners are not deductible as business expenses on the business returns for S corps, partnerships, or sole proprietorships. C corporations can deduct expenses for providing fringe benefits. LLCs don't have a predefined tax treatment - the members or managers of the LLC choose, when the LLC is formed, if they would like to be taxed as a partnership, an S corporation, or as a C corporation. If an LLC is owned by a single person, it can be considered a \"\"disregarded entity\"\" and treated for tax purposes as a sole proprietorship. This option is not available if the LLC has multiple owners. The asset protection provided by the use of an entity depends quite a bit on the source of the claim. If a creditor/plaintiff has a claim based on a contract signed on behalf of the entity, then they likely will not be able to \"\"pierce the veil\"\" and collect the entity's debts from the individual owners. On the other hand, if a creditor/plaintiff has a claim based on negligence or another tort-like action (such as sexual harassment), then it's very likely that the individual(s) involved will also be sued as individuals, which takes away a lot of the effectiveness of the purported asset protection. The entity-based asset protection is also often unavailable even for contract claims because sophisticated creditors (like banks and landlords) will often insist the the business owners sign a personal guarantee putting their own assets at risk in the event that the business fails to honor its obligations. There's no particular type of entity which will allow you to entirely avoid tax. Most tax planning revolves around characterizing income and expense items in the most favorable ways possible, or around controlling the timing of the appearance of those items on the tax return.\"","Yes. The S-Corp can deduct up to the amount it actually incurred in expenses. If your actual expenses to build the carport were $1000, then the $1000 would be deductible, and your business should be able to show $1000 in receipts or inventory changes. Note you cannot deduct beyond your actual expenses even if you would normally charge more. For example, suppose you invoiced the non-profit $2000 for the carport, and once the bill was paid you turned around and donated the $2000 back to the non-profit. In that case you would be deducting $1000 for your cost + $2000 donation for a total of $3000. But, you also would have $2000 in income so in the end you would end up with a $1000 loss which is exactly what your expenses were to begin with. It would probably be a good idea to be able to explain why you did this for free. If somehow you personally benefit from it then it could possibly be considered income to you, similar to if you bought a TV for your home with company funds. It would probably be cleaner from an accounting perspective if you followed through as described above- invoice the non-profit and then donate the payment back to them. Though not necessary, it could lesson any doubt about your motives.","When your debt is forgiven, you have to consider the amount written off as an ordinary income item (with the exclusion of the debt originated from the purchase of primary home). If you're trying to write the debt off from your taxes - then it won't work. Even if you can expense the debt forgiveness, you will incur tax liability on your personal taxes side, and in addition you'll be out of cash in your business. So basically you'll end up paying it with after tax money, exactly the thing you're trying to avoid. In addition, you're dealing with related persons here, which means that the loss deduction might not be allowed (depends on the actual details of the transaction), so you might actually end up paying more taxes with this scheme that just paying off the loan directly (if your business pays taxes separately from your person). A loss on the sale or exchange of property between related persons is not deductible. This applies to both direct and indirect transactions, but not to distributions of property from a corporation in a complete liquidation. For the list of related persons, see Related persons next.","The IRS Guidance pertaining to the subject. In general the best I can say is your business expense may be deductible. But it depends on the circumstances and what it is you want to deduct. Travel Taxpayers who travel away from home on business may deduct related expenses, including the cost of reaching their destination, the cost of lodging and meals and other ordinary and necessary expenses. Taxpayers are considered “traveling away from home” if their duties require them to be away from home substantially longer than an ordinary day’s work and they need to sleep or rest to meet the demands of their work. The actual cost of meals and incidental expenses may be deducted or the taxpayer may use a standard meal allowance and reduced record keeping requirements. Regardless of the method used, meal deductions are generally limited to 50 percent as stated earlier. Only actual costs for lodging may be claimed as an expense and receipts must be kept for documentation. Expenses must be reasonable and appropriate; deductions for extravagant expenses are not allowable. More information is available in Publication 463, Travel, Entertainment, Gift, and Car Expenses. Entertainment Expenses for entertaining clients, customers or employees may be deducted if they are both ordinary and necessary and meet one of the following tests: Directly-related test: The main purpose of the entertainment activity is the conduct of business, business was actually conducted during the activity and the taxpayer had more than a general expectation of getting income or some other specific business benefit at some future time. Associated test: The entertainment was associated with the active conduct of the taxpayer’s trade or business and occurred directly before or after a substantial business discussion. Publication 463 provides more extensive explanation of these tests as well as other limitations and requirements for deducting entertainment expenses. Gifts Taxpayers may deduct some or all of the cost of gifts given in the course of their trade or business. In general, the deduction is limited to $25 for gifts given directly or indirectly to any one person during the tax year. More discussion of the rules and limitations can be found in Publication 463. If your LLC reimburses you for expenses outside of this guidance it should be treated as Income for tax purposes. Edit for Meal Expenses: Amount of standard meal allowance. The standard meal allowance is the federal M&IE rate. For travel in 2010, the rate for most small localities in the United States is $46 a day. Source IRS P463 Alternately you could reimburse at a per diem rate","So here's our [answer](http://www.taxalmanac.org/index.php/Treasury_Regulations,_Subchapter_A,_Sec._1.162-21). What it looks like, is basically that the **fines** are not deductible, but the **damages** are. At any rate, I don't think it's questionable at all. It reduces the overall amount of the amount they have to pay, but it's certainly not like they come out ahead on the deal. Further, I presume it's been argued before a court that since the income was illegally obtained (through some sort of illegal function of the business) then the business paid taxes on income it shouldn't have made in the first place.","Isn't their lower effective rate due to their growing deferred tax assets? They also had a loss carryforward from a few years back, which would lower the effective rate even further. These accounting principles can be used to lower effective tax rates for small businesses, too.","The answer is simple. You can generally claim a deduction for an expense if that expense was used to derive an income. Most business expenses are used to derive profits and income, most individual expenses are not. Of course social policy sometimes gets in the way and allows for deductions where they usually wouldn't be allowed. Regarding the interest on a mortgage being deductible whilst the principal isn't, that is because it is the interest which is the annual expense. By the way deductions for mortgage interest in the USA for a house you live in is only allowed due to social policy, as there is no income (rent) being produced here, unlike with an investment property.","\"The government thought of that a long time ago, and has any loophole there plugged. Like if you set up a company to buy a car and then allow you to use it ... You can use the car for company business, like driving to a customer's office to make a sales call or delivery, and the cost of the car is then tax deductible. But the company must either prohibit personal use of the car, or keep a log of personal versus business use and the personal use becomes taxable income to you. So at best you'd get to deduct an expense here and then you'd have to add it back there for a net change in taxable income of zero. In general the IRS is very careful about personal use of business property and makes it tough to get away with a free ride. I'm sure there are people who lie about it and get away with it because they're never audited, but even if that causes you no ethical qualms, it's very risky. I don't doubt that there are people with very smart lawyers who have found loopholes in the rules. But it's not as simple as, \"\"I call myself a business and now all my personal expenses become tax deductible business expenses.\"\" If you could do that, everybody would do it and no one would pay taxes. Which might be a good thing, but the IRS doesn't see it that way.\"","\"Yes, your business needs to be in the business of making money in order for you to deduct the expenses associated with it. I suppose in theory this could mean that if you take in $10,000 and spend $30,000 every year, you not only don't get a net deduction of $20,000 (your loss) but you have to pay tax on $10,000 (your revenue). However this is super fixable. Just only deduct $9500 of your expenses. Tada! Small profit.For all the gory details, including how they consider whether you have an expectation of profits, see http://www.cra-arc.gc.ca/E/pub/gl/p-176r/p-176r-e.html This \"\"expectation of profit\"\" rule appears to apply to things like \"\"I sell home décor items (or home decorating advice) and therefore need to take several multi week trips to exotic vacation destinations every year and deduct them as business expenses.\"\" If you're doing woodworking or knitting in your home and selling on Etsy you don't particularly have any expenses. It's hard to imagine a scenario where you consistently sell for less than the cost of materials and then end up dinged on paying tax on revenue.\"","First, you should probably have a proper consultation with a licensed tax adviser (EA/CPA licensed in your State). In fact you should have had it before you started, but that ship has sailed. You're talking about start-up expenses. You can generally deduct up to $5000 in the year your business starts, and the expenses in excess will be amortized over 180 months (15 years). This is per the IRC Sec. 195. The amortization starts when your business is active (i.e.: you can buy the property, but not actually open the restaurant - you cannot start the depreciation). I have a couple questions about accounting - should all the money I spent be a part of capital spending? Or is it just a part of it? If it qualifies as start-up/organizational expenses - it should be capitalized. If it is spent on capital assets - then it should also be capitalized, but for different reasons and differently. For example, costs of filing paperwork for permits is a start-up expense. Buying a commercial oven is a capital asset purchase which should be depreciated separately, as buying the tables and silverware. If it is a salary expense to your employees - then it is a current expense and shouldn't be capitalized. Our company is LLC if this matters. It matters to how it affects your personal tax return.","You've got two options. Deduct the business portion of the depreciation and actual expenses for operating the car. Use the IRS standard mileage rate of $.575/mile in 2015. Multiply your business miles by the rate to calculate your deduction. Assuming you're a sole proprietor you'll include a Schedule C to your return and claim the deduction on that form.","\"In the US tax system, you cannot \"\"write-off\"\" capital assets. You have to depreciate them, with very specific exceptions. So while you may be purchasing $4500 of equipment, your deduction may be significantly less. For example, computers are depreciated over the period of 5 years, so if you bought a $1000 computer - you write off $200/year until it is completely depreciated, not $1000 at once. There are exceptions however, for example - IRC Sec. 179 is one of them. But you should talk to a tax adviser (EA/CPA licensed in your State) about whether it is applicable to the specific expense you want to \"\"write off\"\" and to what extent. Also, keep in mind that State laws may not conform to the Federal IRC. While you may be able to use Sec. 179 or other exceptions and deduct your expenses on your Federal return, you may end up with a whole different set of deductions on your State return. And last but not least: equipment that you depreciated or otherwise \"\"wrote off\"\" that is later sold - is income to you, since depreciation/deduction reduces basis. Ah, and keep in mind - the IRS frowns upon Schedule C business that consistently show losses. If you have losses for more than 3 in the last 5 years - your business may be classified as \"\"hobby\"\", and deductions may be disallowed. But the bottom line is that yes, it is possible to end up with 0 tax liability with business income offset by business deductions. However, not for prolonged periods of time (not for years consistently, but first year may fly). Again - you should talk to a licensed tax adviser (EA/CPA licensed in your State). It is well worth the money. Do not rely on answers on free Internet forums as a tax advice - it is not.\"","\"Assuming its in the US: No, it is not, and such things are usually treated as \"\"red flags\"\" for audit (and no, golf club memberships are not deductible either). The food expenses are not deductible in their entirety as well, only up to 50% of the actual expense, and only if it is directly business related. From what you've described, it sounds like if you have an audit coming you'll be in trouble. The purposes and activities of a club, not its name, will determine whether or not you can deduct the dues. You cannot deduct dues paid to: Country clubs, Golf and athletic clubs, Airline clubs, Hotel clubs, and Clubs operated to provide meals under circumstances generally considered to be conducive to business discussions.\"","IRS has it spelled out Business or Hobby?","The regulations you're talking about (TR 1.263) are going into effect starting tax year 2016, so for purchases you made last year they're (kindof...) irrelevant. Kindof, because the IRS promises to not audit those that qualify under the regulations even if they use it before it goes into effect, but it doesn't legally have to. Since the regulations are new, I suggest you talk to a licensed professional who'd explain them to you and interpret them with regards to your specific situation. From my brief read, you can expense under these rules things that you would otherwise capitalize, with the $500 limit to the invoice. Meaning, if you bought a computer paying $500, which you use 50% for your business - you can expense $250. The benefit, comparing to the Sec. 179, is that you're not limited to new items, nor are you limited to business revenue. Otherwise, it looks like the applicability is similar. As I said - talk to a licensed tax adviser (EA/CPA licensed in your State), since these rules are new and untested, and you should probably have a professional provide guidance. I'm not such a professional.","S-Corp income is passed through to owners and is taxed on their 1040 as ordinary income. If you take a wage (pay FICA) and then take additional distributions these are not subject to FICA. A lot of business owners will buy up supplies/ necessary expenses right before the end of the tax year to lower their tax liability.","The answer seems to depend on where you live. Perhaps you already found this, but the summary from the IRS is: The insurance laws in some states do not allow a corporation to purchase group health insurance when the corporation only has one employee. Therefore, if the shareholder was the sole corporate employee, the shareholder had to purchase his health insurance in his own name. The IRS issued Notice 2008-1, which ruled that under certain situations the shareholder would be allowed an above-the-line deduction even if the health insurance policy was purchased in the name of the shareholder. Notice 2008-1 provided four examples, including three examples in which the shareholder purchased the health insurance and one in which the S corporation purchased the health insurance. Notice 2008-1 states that if the shareholder purchased the health insurance in his own name and paid for it with his own funds, the shareholder would not be allowed an above-the-line deduction. On the other hand, if the shareholder purchased the health insurance in his own name but the S corporation either directly paid for the health insurance or reimbursed the shareholder for the health insurance and also included the premium payment in the shareholder’s W-2, the shareholder would be allowed an above-the-line deduction. The bottom line is that in order for a shareholder to claim an above-the-line deduction, the health insurance premiums must ultimately be paid by the S corporation and must be reported as taxable compensation in the shareholder’s W-2. https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/S-Corporation-Compensation-and-Medical-Insurance-Issues I understand this to mean that you can only get the deduction in your case (having purchased it in your own name) if your state does not allow your S-Corp to purchase a group health plan because you only have one employee. (I don't know specifically if Illinois fits that description or not.) In addition, there are rules about reporting health insurance premiums for taxes for S-Corp share members that you should also check. Personally, I think that it's complicated enough that advice from a CPA or other tax advisor specific to your situation would be worth the cost.","It sounds like something is getting lost in translation here. A business owner should not have to pay personal income tax on business expenses, with the caveat that they are truly business expenses. Here's an example where what you described could happen: Suppose a business has $200K in revenue, and $150K in legitimate business expenses (wages and owner salaries, taxes, services, products/goods, etc.) The profit for this example business is $50K. Depending on how the business is structured (sole proprietor, llc, s-corp, etc), the business owner(s) may have to pay personal income tax on the $50K in profit. If the owner then decided to have the business purchase a new vehicle solely for personal use with, say, $25K of that profit, then the owner may think he could avoid paying income tax on $25K of the $50K. However, this would not be considered a legitimate business expense, and therefore would have to be reclassified as personal income and would be taxed as if the $25K was paid to the owner. If the vehicle truly was used for legitimate business purposes then the business expenses would end up being $175K, with $25K left as profit which is taxable to the owners. Note: this is an oversimplification as it's oftentimes the case that vehicles are partially used for business instead of all or nothing. In fact, large items such as vehicles are typically depreciated so the full purchase price could not be deducted in a single year. If many of the purchases are depreciated items instead of deductions, then this could explain why it appears that the business expenses are being taxed. It's not a tax on the expense, but on the income that hasn't been reduced by expenses, since only a portion of the big ticket item can be treated as an expense in a single year.","\"Law is a mass of special cases, informed by but not driven by some general principles. Tax law likewise. Don't try to make it make sense; you will only confuse yourself. Not all \"\"necessities\"\" are deductable, only those which someone has explicitly passed a law to make deductable.\"","I suggest to start charging slightly more than needed to cover expenses. All you need is to show profit. It doesn't have to be significant - a couple of hundred of dollars of consistent yearly profit should suffice to show a profitable business. Then you can deduct on Schedule C all the related expenses. The caveat is that the profit (after the deduction of the expenses will be a bit smaller) will be subject to not only income tax but also the self-employment tax. But at least you'll pay tax on profit that is not entirely phantom. I remember suggesting you getting a professional consultation on this matter a while ago. You should really do that - talk to a EA/CPA licensed in your state, it may be well worth the $100-200 fee they'll charge for the consultation (if at all...).","\"In my experience, no. You are not \"\"out if pocket\"\" for that amount. Remember, the purpose of that number is to set a limit on how much of your own money you might have to spend during the year, not on how much is spent/discounted/reimbursed on your behalf.\"","looks like the US tax system needs an overhaul. You cant charge yourself arbitrary amounts to even out your bottom line. Wel you and I cant, but apparently we just need to make more money to do so....thanks BK for showing me the way!!","If your business pays taxes, it is in your best interest to expense it. Even if you don't pay taxes, setting your capitalization policy low enough to capitalize an office organizer (even a nice one) will give you headaches when your business grows larger.","I contacted Stephen Fishman, J.D., the author of Home Business Tax Deductions, to let him know that this question was missing from his book. He was kind enough to send a reply. My original phrasing of the question: If your car is used for both business and personal use, and you deduct via the actual expense method, do trips to the mechanic, gas station, and auto parts store to service or repair the car count as business miles, personal miles, or part-business-part-personal miles? What about driving the newly-purchased car home from the dealership? And his response: Good question. I can find nothing about this in IRS publication or elsewhere. However, common sense would tell us that the cost of driving to make car repairs should be deductible. If you use your car for business, it is a business expense, just like transporting any other piece of business equipment for repairs is a business expense. This should be so whether you use the standard mileage rate or actual expense method. You should probably reduce the amount of your deduction by the percentage of personal use of the car during the year. The same goes for driving a car home from the dealer.","Last I checked, all business expenses in regards to * Office Supplies * Stationary * Phone service * Marketing are all tax deductible....so how does cutting those costs save money when you'll get that money back via the corporate tax code?","I agree with you 100%! >they've all just taken advantage so that wages haven't kept up and they've essentially pocketed the difference, or passed it on to their customers. Now people have less money to buy health insurance, and those near the bottom will now have to rely on the government to assist with providing health insurance. I think this is exactly what is happening today. > That last part is important, though, I would need to get all the breaks my employer gets for providing myself with health insurance. I believe up until Obamacare, people couldn't. Also, as a general rule a business can claim a tax deduction for the salary, wages, commissions, bonuses, and other compensation it pays to its employees.","Never borrow money to get a tax deduction. Even 18 months interest free is a stupid risk to save a few $ in taxes (we're talking $1K or less in tax savings from what I can tell in your questions)."],"string":"[\n \"Any deductable expense will reduce your taxable income not your tax payable. Your Example 1 above is correct and gives you 100% deduction. It is like having a business where your sales are $100,000 and your expenses in making the sales is $40,000. The expenses are your tax deductions and reduce your profits on which you pay tax on to $60,000. If your Example 2 was correct then the situation above would change that you would pay say $30,000 tax on $100,000 sales, then apply your deductions (or expenses) of $40,000 so that you would pay no tax at all and in fact get $10,000 back in your return. In this case the government would not be collecting any taxes but paying out returns to everyone. Your Example 2 is absolutly incorrect.\",\n \"The intention of making the charitable contributions tax deductible is to provide an economic incentive to contribute to organizations which tend to improve the general welfare of the community. Deductibility impacts government revenue generation, but has positive impacts that probably offset that loss by encouraging more giving by folks subject to high income tax -- particularly small business owners. Unless you own a home and have a mortgage you may not have enough deductions to get any financial benefit from charitable contributions. Charitable contributions are only deductible when your deductions exceed the standard deduction. For most people, charitable contributions are a way to support something that you care about, and the tax benefits are a secondary benefit, or a way to enhance their own giving.\",\n \"If you can deduct money that is reinvested in your business than would you invest more into your company to avoid giving it to the government at a higher tax rate? At a lower rate it allows for more profit to be extracted. It does nothing to encourage investment.\",\n \"\\\"No, not on schedule C, better. Its an \\\"\\\"above the line\\\"\\\" deduction (line 29 on your 1040). Here's the turbo tax article on it. The instructions for this line set certain limitations that you must take into the account, and yes - it is limited to the net profit from the business. One of the following statements must be true. You were self-employed and had a net profit for the year. You were a partner with net earnings from self-employment. You used one of the optional methods to figure your net earnings from self-employment on Schedule SE. You received wages in 2011 from an S corporation in which you were a more-than-2% shareholder. Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W-2. The insurance plan must be established under your business. Your personal services must have been a material income-producing factor in the business. If you are filing Schedule C, C-EZ, or F, the policy can be either in your name or in the name of the business.\\\"\",\n \"Business expenses reduce business income. The SE tax is paid on business income. The credit for 1/2 the SE tax is based on the amount of SE tax paid. So:\",\n \"You’re conflating deductions with expenses, which are different. Revenue is all money collected. Income is revenue minus the sum of expenses and deductions and exemptions. You’re also treating direct subsidies as the only form of subsidisation, which would make the word “direct” superfluous, while ignoring indirect subsidies, which include deductions. And, no, not every business takes deductions and certainly not while simultaneously complaining (or standing idly by while others complain) about subsidies.\",\n \"\\\"It seems I can make contributions as employee-elective, employer match, or profit sharing; yet they all end up in the same 401k from my money since I'm both the employer and employee in this situation. Correct. What does this mean for my allowed limits for each of the 3 types of contributions? Are all 3 types deductible? \\\"\\\"Deductible\\\"\\\"? Nothing is deductible. First you need to calculate your \\\"\\\"compensation\\\"\\\". According to the IRS, it is this: compensation is your “earned income,” which is defined as net earnings from self-employment after deducting both: So assuming (numbers for example, not real numbers) your business netted $30, and $500 is the SE tax (half). You contributed $17.5 (max) for yourself. Your compensation is thus 30-17.5-0.5=12. Your business can contribute up to 25% of that on your behalf, i.e.: $4K. Total that you can contribute in such a scenario is $21.5K. Whatever is contributed to a regular 401k is deferred, i.e.: excluded from income for the current year and taxed when you withdraw it from 401k (not \\\"\\\"deducted\\\"\\\" - deferred).\\\"\",\n \"\\\"Disclaimer: This should go without saying, but this answer is definitely an opinion. (I'm pretty sure my current accountant would agree with this answer, and I'm also pretty sure that one of my past accountants would disagree.) When I started my own small business over 10 years ago I asked this very same question for pretty much every purchase I made that would be used by both the business and me personally. I was young(er) and naive then and I just assumed everything was deductible until my accountant could prove otherwise. At some point you need to come up with some rules of thumb to help make sense of it, or else you'll drive yourself and your accountant bonkers. Here is one of the rules I like to use in this scenario: If you never would have made the purchase for personal use, and if you must purchase it for business use, and if using it for personal use does not increase the expense to the business, it can be fully deducted by the business even if you sometimes use it personally too. Here are some example implementations of this rule: Note about partial expenses: I didn't mention partial deductions above because I don't feel it applies when the criteria of my \\\"\\\"rule of thumb\\\"\\\" is met. Note that the IRS states: Personal versus Business Expenses Generally, you cannot deduct personal, living, or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. You can deduct the business part. At first read that makes it sound like some of my examples above would need to be split into partial calulations, however, I think the key distinction is that you would never have made the purchase for personal use, and that the cost to the business does not increase because of allowing personal use. Partial deductions come into play when you have a shared car, or office, or something where the business cost is increased due to shared use. In general, I try to avoid anything that would be a partial expense, though I do allow my business to reimburse me for mileage when I lend it my personal car for business use.\\\"\",\n \"\\\"In the US you are not required to have a corporation to use business expenses to offset your income. The technical term you need is \\\"\\\"deducting business expenses\\\"\\\", and in matters of taxes it's usually best to go straight to the horse's mouth: the IRS's explanations Deducting Business Expenses Business expenses are the cost of carrying on a trade or business. These expenses are usually deductible if the business operates to make a profit. What Can I Deduct? Cost of Goods Sold, Capital Expenses, Personal versus Business Expenses, Business Use of Your Home, Business Use of Your Car, Other Types of Business Expenses None of this requires any special incorporation or tax arrangements, and are a normal part of operating a business. However, there is a bit of a problem with your scenario. You said you \\\"\\\"invested\\\"\\\" into a business, but you mentioned buying specific things for the business which is not generally how one accounts for investment. If you are not an owner/operator of the business, then the scenario is not so straight-forward, as you can't simply claim someone else's business expenses as your own because you invested in it. Investments are taxed differently than expenses, and based upon your word choices I'm concerned that you could be getting yourself into a bit of a pickle. I would strongly advise you to speak with a professional, such as a Certified Public Accountant (CPA), to go over your current arrangement and advise you on how you should be structuring your ongoing investment into this shared business. If you are investing you should be receiving equity to reflect your ownership (or stock in the company, etc), and investments of this sort generally cannot be deducted as an expense on your taxes - it's just an investment, the same as buying stock or CDs. If you are just buying things for someone else's benefit, it's possible that this could be looked upon as a personal gift, and you may be in a precarious legal position as well (where the money is, indeed, just a gift). And gifts of this sort aren't deductible, either. Depending on how this is all structured, it's possible that you should both consider a different form of legal organization, such as a formal corporation or at least an official business partnership. A CPA and an appropriate business attorney should be able to advise you for a nominal (few hundred dollars, at most) fee. If a new legal structure is advisable, you can potentially do the work yourself for a few hundred dollars, or pay to have it done (especially if the situation is more complex) for a few hundred to a few thousand. That's a lot less than you'd be on the hook for if this business is being accounted for improperly, or if either of your tax returns are being reported improperly!\\\"\",\n \"Yes, you can deduct from your taxable profits (almost) any expenses incurred in the course of your business. See here for HMRC's detailed advice on the subject. The fact that you have salaried PAYE employment as well makes no difference.\",\n \"Another way to look at it is that deductibles are intended as incentives or subsidies to particular industries (in this case the healthcare industry). Guaranteeing a decent standard of living and making sure everybody can meet the costs of “necessities” can be achieved much more easily by a low tax rate on the first XXX$ of income and/or generic welfare benefits rather than any measure focused on making healthcare, food or whatnot cheaper or free under certain conditions. Incidentally, many countries do have different forms of benefits or tax breaks for accommodation-related expenses.\",\n \"Yes, you should be able to deduct at least some of these expenses. For expense incurred before you started the business: What Are Deductible Startup Costs? The IRS defines “startup costs” as deductible capital expenses that are used to pay for: 1) The cost of “investigating the creation or acquisition of an active trade or business.” This includes costs incurred for surveying markets, product analysis, labor supply, visiting potential business locations and similar expenditures. 2) The cost of getting a business ready to operate (before you open your doors or start generating income). These include employee training and wages, consultant fees, advertising, and travel costs associated with finding suppliers, distributors, and customers. These expenses can only be claimed if your research and preparation ends with the formation of a successful business. The IRS has more information on how to claim the expenses if you don’t go into business. https://www.sba.gov/blogs/startup-cost-tax-deductions-how-write-expense-starting-your-business Once your business is underway, you can deduct expenses, but the exact details depend on how you organized. If you're a sole proprietor for tax purposes, then you'll deduct them on Schedule C of your Form 1040 on your personal tax. If you are a partnership, C-Corp, or S-Corp, they will be accounted at the business level and either passed on to you on a Schedule K (partnership and S-Corp) or deducted directly by the company (C-Corp). In any case, you will need good records that justify your expenses as business related. It might be well worth at least an initial meeting with a CPA to make sure that you get started on the right foot.\",\n \"Assuming the US, if a human assessor audited you, could you show a future profit motive or will they conclude you are expensing a hobby? If you answer yes, you are likely to only be deducting limited expenses this year, carrying forward losses to your profitable years. See the examples in pub 535: http://www.irs.gov/publications/p535/ch01.html#en_US_2014_publink1000208633\",\n \"To quote the answer you linked to: Perhaps the simplest way to think about this is you can only deduct an expense that you actually incur. In other words, the expense should show up on a bank or CC statement. So, if your business purchased the $1000 gift card for $800, you should see a $800 charge appearing on a business CC or bank statement. You would therefore be able to deduct the $800, but not the full $1000 of items that you purchase with it. Side Notes:\",\n \"When you take the self employed health care deduction on on Line 29 of form 1040 for 2010 it also will lower your self employment tax. See line 3 of Schedule SE. You report your net earnings from self employment less line 29 from 1040.\",\n \"I agree that the surface explanation is that expenses used to generate income are deducted, however there clearly is a double standard in how is applied. For example I cannot deduct my car even though I use it primarily for commuting to work (I would consider that income generation), yet companies are allowed to deduct corporate jets. I can't deduct meals when I ate out with professional acquainted where much of the conversations are related to my profession and so directly relevant to my income, yet businesses can claim sending their executives to a country club because business was discussed or it was a team building excise. Etc etc.\",\n \"Chris, since you own your own company, nobody can stop you from charging your personal expenses to your business account. IRS is not a huge fan of mixing business and personal expenses and this practice might indicate to them that you are not treating your business seriously, and it should classify your business as a hobby. IRS defines deductible business expense as being both: ordinary AND necessary. Meditation is not an ordinary expense (other S-corps do not incur such expense.) It is not a necessary expense either. Therefore, you cannot deduct this expense. http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Deducting-Business-Expenses\",\n \"In the US, you can only take a tax deduction on expenses to the extent that they offset income. For an S corp or LLC, if the business had no income, there's no deduction to take. If you have a sole proprietorship, these expenses can offset other income. You can also carry-forward net operating losses to future years when you have more income. See the article How to Carry Over Business Expenses\",\n \"Not only what you mentioned about the tax deductions, but cutting marketing expenses is potentially dangerous advice. Evaluating your marketing efforts and making adjustments that make sense for your business seems to be a much better bit of advice.\",\n \"\\\"The basic idea is that the average person can't deduct health care costs unless they're really onerous. But a business can, and as a self-employed person, you can deduct those costs from the businesses earnings... as long as the business is really generating enough profit to cover the health insurance costs. That's why most people get their health insurance from their employer, actually. The relevant IRS rules say: \\\"\\\"You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for you, your spouse, and your dependents if you are... A self-employed individual with a net profit reported on Schedule C (Form 1040).\\\"\\\" For 2010, thanks to the Small Business Jobs Act of 2010, you can even deduct the premium from your income before deducting the self-employment tax (Source). I'm sure that when you get your tax returns and instructions for 2010 this will all be spelled out.\\\"\",\n \"To be confident in your solution, and get the best solution for you, consult a local accountant, preferably one who is specialized in taxes for businesses. Or muddle through the code and figure it out for yourself. The primary advantage in consulting with an accountant is that you can ask them to point out ways you can restructure your expenses, debts and income in order to minimize your tax burden. They can help you run the numbers for the various options and choose the one that is right, numerically.\",\n \"If it's a legitimate cost of doing business, it's as deductible as any other cost of doing business. (Reminder: be careful about the distinctions between employee and contractor; the IRS gets annoyed if you don't handle this correctly.)\",\n \"Salaries and etc are a business expense and chargeable against revenue for tax purposes. It is NOT tax deductible but it is an expense on an income statement in calculating net profit (after tax). You could say salary & etc are tax effective but not tax deductible.\",\n \"\\\"Yes, this is a miscellaneous itemized deduction. https://www.irs.gov/publications/p529/ar02.html For this to impact your taxes, you have to be itemizing deductions (have total deductions greater than standard deduction), and the total of all miscellaneous deductions needs to exceed the \\\"\\\"2% floor\\\"\\\" described in the IRS link above.\\\"\",\n \"If medical, not cosmetic, you can deduct medical expenses to the extent they exceed 7.5% of your adjusted gross income. Note: it's been announced that starting in 2013 the deduction is for amounts exceeding 10% of AGI.\",\n \"You don't say what country you live in. If it's the U.S., the IRS has very specific rules for business use of a car. See, for starters at least, http://www.irs.gov/publications/p463/ch04.html. The gist of it is: If you use the car 100% for business purposes, you NEVER use it to drive to the grocery store or to your friend's house, etc, then it is a deductible business expense. If you use a car party for business use and partly for personal use, than you can deduct the portion of the expense of the car that is for business use, but not the portion that is for personal use. So basically, if you use the car 75% for business purposes and 25% for personal use, you can deduct 75% of the cost and expenses. You can calculate the business use by, (a) Keeping careful records of how much you spent on gas, oil, repairs, etc, tracking the percentage of business use versus percentage of personal use, and then multiplying the cost by the percentage business use and that is the amount you can deduct; or (b) Use the standard mileage allowance, so many cents per mile, which changes every year. Note that the fact that you paid for the car from a business account has absolutely nothing to do with it. (If it did, then everyone could create a small business, open a business account, pay all their bills from there, and all their personal expenses would magically become business expenses.) Just by the way: If you are going to try to stretch the rules on your taxes, business use of a car or personal computer or expenses for a home office are the worst place to do it. The IRS knows that cars and computers are things that can easily be used for either personal or business purposes and so they keep a special eye out on these.\",\n \"\\\"No, your business cannot deduct your non-business expenses. You can only deduct from your business income those reasonable expenses you paid in order to earn income for the business. Moreover, for there to be a tax benefit, your business generally has to have income (but I expect there are exceptions; HST input tax credits come to mind.) The employment income from your full-time job wouldn't count as business income for your corporation. The corporation has nothing to do with that income – it's earned personally, by you. With respect to restaurant bills: These fall under a category known as \\\"\\\"meals & entertainment\\\"\\\". Even if the expense can be considered reasonable and business-related (e.g. meeting customers or vendors) the Canada Revenue Agency decided that a business can only deduct half of those kinds of expenses for tax purposes. With respect to gasoline bills: You would need to keep a mileage and expense log. Only the portion of your automobile expenses that relate to the business can be deducted. Driving to and from your full-time job doesn't count. Of course, I'm not a tax professional. If you're going to have a corporation or side-business, you ought to consult with a tax professional. (A point on terminology: A business doesn't write off eligible business expenses — it deducts them from business income. Write off is an accounting term meaning to reduce the value of an asset to zero. e.g. If you damaged your car beyond repair, one could say \\\"\\\"the car is a write-off.\\\"\\\")\\\"\",\n \"Keep in mind, when talking about other deductions, such as mortgage interest, you need to look at your overall situation and whether the taxpayer is near the standard deduction amount. For some, their interest deduction and property tax are below the standard deduction, and therefore, they'd not itemize.\",\n \"\\\"This change doesn't make a ton of sense to me. Interest is an expense. Expenses are deductible. Yes, there are loopholes, but no matter what happens there will be loopholes. Seems like any easy \\\"\\\"no\\\"\\\" vote. Sometimes it worries me that we have financially incompetent people in power.\\\"\",\n \"Not authoritative, but according to TurboTax: If your new cell phone acts as both your business and personal phone, you are only allowed to deduct the portion used for business from your taxable income. It’s important for you to hang on to your itemized phone bill and receipts to ensure that you’re deducting the right amounts and to keep records of your deduction. Since the usage you're describing sounds like a very small amount of the overall usage, it will probably be difficult to justify a business expense deduction.\",\n \"Consider the individual who pays $1,000,000 in taxes. His/her income must be substantial. That is what one should aim for. Investments for the most part, do not lower ones taxes. In one of John Grisham's novels, tax shelters are being discussed. Sorry, I do not remember which book. The discussion goes something like this: There are a few investments which can lower your taxes. Purchase a house. Mortgage interest on your principle residence is deductible (if you itemize deductions). If you don't itemize, focus on increasing income to the point where itemizing benefits you. In general, businesses have more deductions than individuals. Own a small business. You (or your accountant) will discover many deductions. Hint: the company should lease a car/truck, many meals are now deductible. This is not the reason to own a business.\",\n \"I'm not sure about reimbursement, you'll have to talk to a tax adviser (CPA/EA licensed in your State). From what I know, if you pay your own insurance premiums - they're not deductible, and I don't think reimbursements change that. But again - not sure, verify. However, since you're a salaried employee, even if your own, you can have your employer cover you by a group plan. Even if the group consists of only you. Then, you'll pay your portion as part of the pre-tax salary deduction, and it will be deductible. The employer's portion is a legitimate business expense. Thus, since both the employee and the employer portions are pre-tax - the whole cost of the insurance will be pre-tax. The catch is this: this option has to be available to all of your employees. So if you're hiring an employee a year from now to help you - that employee will be eligible to exactly the same options you have. You cannot only cover owner-employees. If you don't plan on hiring employees any time soon, this point is moot for you, but it is something to keep in mind down the road as you're building and growing your business.\",\n \"First of all, Dilip's answer explains well how the business deductions generally work. For most (big) expenses you depreciate it. However, in some cases you need to capitalize it, which is another accounting method. When you capitalize your expense, it becomes part of the basis of the product you're creating. Since you're an engineer, this might be relevant for you. Talk to your tax adviser. How exactly you deduct/depreciate/capitalize things, and what expense goes which way depends greatly on the laws and jurisdictions. Even in the US, different states have different laws, and the IRS and State laws don't have to conform (unfortunately). For example, the limitations on Sec. 179 deduction in 2010-2011 were 20 times higher on Federal level than in the State of California. This could have lead to cases where you fully deducted your expense on your Federal tax return, but need to continue and depreciate it on your State return (or vice versa). Good tax adviser is crucial to avoid or manage these cases.\",\n \"What a coincidence! This was an exam question for my business law class. The main reason why individuals are not allowed to deduct expenses is because income tax revenue would be zero. The reason being, if an individual is allowed to deduct expenses he/she would spend 100% of their income and deduct it all on their tax returns, which would mean he/she would pay virtually no income tax. This is bad for the gov't and the economy. It's bad for the gov't because they loose tax revenue, and it's bad for the economy because people would not have any savings for tough times, which can send the economy into a negative spiral.\",\n \"An expense is an expense. You can deduct your lease payment subject to some limitations, but you don't make out by having more expenses. Higher expenses mean lower profit. Is leasing better than owning? It depends on the car you'd buy. If your business doesn't benefit from flashiness of your car, then buying a quality used car (a few years old at most) would probably be a wiser decision financially. I'd think hard about whether you really need an up-to-date car.\",\n \"Taking every court to case isn't in the best interest of the public either (on a net basis). Often those settlements accept the fine, but dong admit guilt. This can be important in federally regulated industries where guilt would result in automatic suspension of licenses and practice. Those regulations were put in place knowing that most companies would settle. Also, there's valid reason for deducting the settlement! In many businesses lawsuits are ordinary expenses (consumer facing ones with lots and lots of employees). People being up frivolous suits all the time and it's cheaper to settle for a small amount than pay expansive attorneys to go to court. Effectively, it's like an admin expense, we don't tax revenue, we tax profit. Finally, this would seriously clog courts, and jury's can be crazy biased to emotional stories. Yes, some parts could be changed, but it serves a valid purpose.\",\n \"\\\"The answer is \\\"\\\"Yes\\\"\\\", You can deduct them. As long as you showed that you put in effort to make a profit then you can deduct business expenses.\\\"\",\n \"Most items used in business have to be depreciated; you get to deduct a small fraction of the cost each year depending on the lifetime of the item as per IRS rules. That is, you cannot assume a one-year life for an electronic item even if it will be obsolete in three months. Some items can be expensed; you get to deduct the entire cost in the first year but then if you don't stay in business, e.g. you get a job paying wages and are no longer self-employed, you have to recapture this and pay taxes on the amount recaptured in the later year. With respect to consumer-type electronics such as an iPad or laptop, it helps to have a separate item for personal use that you can show in case of an audit.\",\n \"IRS Publication 529 is the go-to document. Without being a tax professional, I'd say if the dues and subscriptions help you in the running of your business, then they're deductible. You're on your own if you take my advice (or don't). ;)\",\n \"If you want to be safe, only claim deductions for which you have a receipt. This explanation may help.\",\n \"It looks like you can. Take a look at these articles: http://www.googobits.com/articles/1747-taking-an-itemized-deduction-for-job-expenses.html http://www.bankrate.com/finance/money-guides/business-expenses-that-benefit-you.aspx http://www.hrblock.com/taxes/tax_tips/tax_planning/employment.html But of course, go to the source: http://www.irs.gov/publications/p529/ar02.html#en_US_publink100026912 From publication 529: You can deduct certain expenses as miscellaneous itemized deductions on Schedule A (Form 1040 or Form 1040NR). You can claim the amount of expenses that is more than 2% of your adjusted gross income. You figure your deduction on Schedule A by subtracting 2% of your adjusted gross income from the total amount of these expenses. Your adjusted gross income is the amount on Form 1040, line 38, or Form 1040NR, line 36. I hope that helps. Happy deducting!\",\n \"If your business is a Sole Proprietorship and meets the criteria, then you would file form Schedule C. In this case you can deduct all eligible business expenses, regardless of how you pay for them (credit/debit/check/cash). The fact that it was paid for using a business credit card isn't relevant as long as it is a true business expense. The general rules apply: Yes - if you sustain a net loss, that will carry over to your personal tax return. Note: even though it isn't necessary to use a business credit card for business expenses, it's still an extremely good idea to do so, for a variety of reasons.\",\n \"You can claim a deduction only if all of your business is conducted from the home, i.e. your home is your principal place of business - not just if you work from home sometimes. The CRA (Canada Revenue Agency) has pretty strict guidelines listed here, but once you're sure you qualify for a deduction, the next step would be to determine what portion of your home qualifies. You cannot attempt to deduct your entire mortgage simply because you run your business out of your home. The portion of your mortgage and other related & allowable home expense deductions has to be pro-rated to be equal to or less than the portion of your home you use for business. Simply put, if your business is operated out of a 120 sq-ft self-contained space, and your home's total square-footage is 2400 sq-ft, you can deduct 5% of your expenses (120/2,400 = 0.05). Hope this helps!\",\n \"Saving Fortune 500 companies hundreds of millions to billions a year and a small company a few thousand. Who's paying for the shortfall to the IRS? The reality is a small business probably make $0 profit because the owner pays himself out, or has enough employees that the (company) makes a profit saving a few grand doesn't do anything. You know what would help? The 1 trillion profit the Fortune 500 make a year, take half. Give energy companies 0% interest loans to pay off their nuclear plants and reduce energy costs for 320 million Americans by a large amount. Take the remainder and the following 3 years and refinance mortgages at 0% interest starting from the smallest to largest loans. 4 years high taxes on large corporations I just bailed out the middle class and helped the poor with 100% retuned to the IRS.\",\n \"Not as you suggest. Since you are sole prop, you are taxed on a cash basis. Within reason, you can prepay vendors - so temp to hire through an agency might appear more attractive than direct hire. But there needs to be a justification other than avoidance of taxes. So pre-paying 100k on 12/25 would look fishy as fuck. Plus your quality of candidate will suffer if you need anything other than low skill labor. Look at your other fully deductible expenses - anything you can prepay-prepay. For example, I set my liability insurance renewal January 15 to provide optionality. But it just shifts one year into another .. Means fuckall if you are in the same marginal bracket next year. The IRS has also relaxed depreciation on office technology. Computers are now fully deductible rather than being capitalized. @ 500k revenue you should have a CPA and legal counsel. Simply incorporating isn't tax magic. The purpose is to limit yourersonal liability, not a tax shelter - but shitty things happen once you have employees, don't create the potential for a disgruntled employee lawsuit put your shelter at risk of court judgment. That said, assuming you aren't dumping a hypothetical on the Internet, congrats - for all the headaches, having employees is the ultimate leverage .. it's like a xerox machine for your labor (including loss of fidelity with each copy) ..\",\n \"Generally speaking, if a business loses money for whatever reason, then that reduces the profits of the business which reduces the tax payable. However if you were holding the assets on a personal basis prior to incorporating the business, the position may become more complicated. For that kind of money some professional advice may be worthwhile.\",\n \"Yes you can claim your business deductions if you are not making any income yet. But first you should decide what structure you want to have for your business. Either a Company structure or a Sole Trader or Partnership. Company Structure If you choose a Company Structure (which is more expensive to set up) you would claim your deductions but no income. So you would be making a loss, and continue making losses until your income from the business exceed your expenses. So these losses will remain inside the Company and can be carried forward to future income years when you are making profits to offset these profits. Refer to ATO - Company tax losses for more information. Sole Trader of Partnership Structure If you choose to be a Sole Trader or a Partnership and your business makes a loss you must check the non-commercial loss rules to see if you can offset the loss against your income from other sources, such as wages. In order to offset your business losses against your other income your business must pass one of these tests: If you don't pass any of these tests, which being a start-up you most likely won't, you must carry forward your business losses until an income year in which you do pass one of the tests, then you can offset it against your other income. This is what differentiates a legitimate business from someone having a hobby, because unless you start making at least $20,000 in sales income (the easiest test to pass) you cannot use your business losses against your other income. Refer to ATO - Non-commercial losses for more information.\",\n \"\\\"As long as the losing business is not considered \\\"\\\"passive activity\\\"\\\" or \\\"\\\"hobby\\\"\\\", then yes. Passive Activity is an activity where you do not have to actively do anything to generate income. For example - royalties or rentals. Hobby is an activity that doesn't generate profit. Generally, if your business doesn't consistently generate profit (the IRS looks at 3 out of the last 5 years), it may be characterized as hobby. For hobby, loss deduction is limited by the hobby income and the 2% AGI threshold.\\\"\",\n \"\\\"Click on the ? icon next to \\\"\\\"Employer Plan\\\"\\\". This is used to determine if you can deduct your annual contributions from your taxes. For more information on how an employer plan can affect your IRA tax deduction, see the definition for non-deductible contributions. So, we look there: The total of your Traditional IRA contributions that were deposited without a tax deduction. Traditional IRA contributions are normally tax deductible. However, if you have an employer-sponsored retirement plan, such as a 401(k), your tax deduction may be limited. The $20K difference between $272K and $252K just happens to be $15% of $132,500 which is the amount of your non-deductible contributions.\\\"\",\n \"If a business incurs expenses in the process of its trading, generally those expenses are deductible. Disposing of waste is generally held to be a deductible expense.\",\n \"\\\"While COBRA premiums are not eligible to be a \\\"\\\"business\\\"\\\" expense they can be a medical expense for personal deduction purposes. If you're itemizing your deductions you may be able to deduct that way. However, you will only be able to deduct the portion of the premium that exceeds 10% of your AGI. Are you a full time employee now or are you a 1099 contractor? Do you have access to your employers health plan?\\\"\",\n \"If you have multiple accounts, you have to empty them all before you can deduct any losses. Your loss is not a capital loss, its a deduction. It is calculated based on the total amount you have withdrawn from all your Roth IRA's, minus the total basis. It will be subject to the 2% AGI treshhold (i.e.: if your AGI is > 100K, none of it is deductible, and you have to itemize to get it). Bottom line - think twice. Summarizing the discussion in comments: If you have a very low AGI, I would guess that your tax liability is pretty low as well. Even if you deduct the whole $2K, and all of it is above the other deductions you have (which in turn is above the standard deduction of almost $6K), you save say $300 if you're in 15% tax bracket. That's the most savings you have. However I'm assuming something here: I'm assuming that you're itemizing your deductions already and they're above the standard deduction. This is very unlikely, with such a low income. You don't have state taxes to deduct, you probably don't spend a lot to deduct sales taxes, and I would argue that with the low AGI you probably don't own property, and if you do - you don't have a mortgage with a significant interest on it. You can be in 15% bracket with AGI between (roughly) $8K and $35K, i.e.: you cannot deduct between $160 and $750 of the $2K, so it's already less than the maximum $300. If your AGI is $8K, the deduction doesn't matter, EIC might cover all of your taxes anyway. If your AGI is $30K, you can deduct only $1400, so if you're in the 15% bracket - you saved $210. That, again, assuming it's above your other deductions, which in turn are already above the standard deduction. Highly unlikely. As I said in the comments - I do not think you can realistically save on taxes because of this loss in such a manner.\",\n \"\\\"You should probably have a tax professional help you with that (generally advisable when doing corporation returns, even if its a small S corp with a single shareholder). Some of it may be deductible, depending on the tax-exemption status of the recipients. Some may be deductible as business expenses. To address Chris's comment: Generally you can deduct as a business on your 1120S anything that is necessary and ordinary for your business. Charitable deductions flow through to your personal 1040, so Colin's reference to pub 526 is the right place to look at (if it was a C-corp, it might be different). Advertisement costs is a necessary and ordinary expense for any business, but you need to look at the essence of the transaction. Did you expect the sponsorship to provide you any new clients? Did you anticipate additional exposure to the potential customers? Was the investment (80 hours of your work) similar to the costs of paid advertisement for the same audience? If so - it is probably a business expense. While you can't deduct the time on its own, you can deduct the salary you paid yourself for working on this, materials, attributed depreciation, etc. If you can't justify it as advertisement, then its a donation, and then you cannot deduct it (because you did receive something in return). It might not be allowed as a business expense, and you might be required to consider it as \\\"\\\"personal use\\\"\\\", i.e.: salary.\\\"\",\n \"Deduction for Health Checkup is allowed under Section 80D and is allowed to everyone whether Salaried or Business/Professional. However, Exemption for Medical Reimbursement of Rs. 15000 is allowed under a different section. A salaried employee can take benefit of both Medical Reimbursement of Rs. 15,000 as well as Preventive Health Check-up of Rs. 5,000. Source: Tax Deduction for Health Check-up\",\n \"Being a professional auditor and accountant, deduction against expenses are claimed in the year in which expenses has been incurred. It has no relationship with when it is paid. For example, we may buy on credit does not mean that they will be allowed in the period in which it is paid. This is against the fundamental accounting principles.\",\n \"\\\"I am going to keep things very simple and explain the common-sense reason why the accountant is right: Also, my sister in law owns a small restaurant, where they claim their accountant informed them of the same thing, where a portion of their business purchases had to be counted as taxable personal income. In this case, they said their actual income for the year (through their paychecks) was around 40-50K, but because of this detail, their taxable income came out to be around 180K, causing them to owe a huge amount of tax (30K ish). Consider them and a similarly situated couple that didn't make these purchases. Your sister in law is better off in that she has the benefit of these purchases (increasing the value of her business and her expected future income), but she's worse off because she got less pay. Presumably, she thought this was a fair trade, otherwise she wouldn't have made those purchases. So why should she pay any less in taxes? There's no reason making fair trades should reduce anyone's tax burden. Now, as the items she purchased lose value, that will be a business loss called \\\"\\\"depreciation\\\"\\\". That will be deductible. But the purchases themselves are not, and the income that generated the money to make those purchases is taxable. Generally speaking, business gains are taxable, regardless of what you do with the money (whether you pay yourself, invest it, leave it in the business, or whatever). Generally speaking, only business losses or expenses are deductible. A purchase is an even exchange of income for valuable property -- even exchanges are not deductions because the gain of the thing purchased already fairly compensates you for the cost. You don't specify the exact tax status of the business, but there are really only two types of possibilities. It can be separately taxed as a corporation or it can be treated essentially as if it didn't exist. In the former case, corporate income tax would be due on the revenue that was used to pay for the purchases. There would be no personal income tax due. But it's very unlikely this situation applies as it means all profits taken out of the business are taxed twice and so small businesses are rarely organized this way. In the latter case, which is almost certainly the one that applies, business income is treated as self-employment income. In this case, the income that paid for the purchases is taxable, self-employment income. Since a purchase is not a deductible expense, there is no deduction to offset this income. So, again, the key points are: How much she paid herself doesn't matter. Business income is taxable regardless of what you do with it. When a business pays an expense, it has a loss that is deductible against profits. But when a business makes a purchase, it has neither a gain nor a loss. If a restaurant buys a new stove, it trades some money for a stove, presumably a fair trade. It has had no profit and no loss, so this transaction has no immediate effect on the taxes. (There are some exceptions, but presumably the accountant determined that those don't apply.) When the property of a business loses value, that is usually a deductible loss. So over time, a newly-purchased stove will lose value. That is a loss that is deductible. The important thing to understand is that as far as the IRS is concerned, whether you pay yourself the money or not doesn't matter, business income is taxable and only business losses or expenses are deductible. Investments or purchases of capital assets are neither losses nor expenses. There are ways you can opt to have the business taxed separately so only what you pay yourself shows up on your personal taxes. But unless the business is losing money or needs to hold large profits against future expenses, this is generally a worse deal because money you take out of the business is taxed twice -- once as business income and again as personal income. Update: Does the business eventually, over the course of the depreciation schedule, end up getting all of the original $2,000 tax burden back? Possibly. Ultimately, the entire cost of the item is deductible. That won't necessarily translate into getting the taxes back. But that's really not the right way to think about it. The tax burden was on the income earned. Upon immediate replacement, hypothetically with the exact same model, same cost, same 'value', isn't it correct that the \\\"\\\"value\\\"\\\" of the business only went up by the amount the original item had depreciated? Yes. If you dispose of or sell a capital asset, you will have a gain or loss based on the difference between your remaining basis in the asset and whatever you got for the asset. Wouldn't the tax burden then only be $400? Approximately, yes. The disposal of the original asset would cause a loss of the difference between your remaining basis in the asset and what you got for it (which might be zero). The new asset would then begin depreciating. You are making things a bit more difficult to understand though by focusing on the amount of taxes due rather than the amount of taxable gain or loss you have. They don't always correlate directly (because tax rates can vary).\\\"\",\n \"Basically, no. You have retirement plan options and can either go with a Roth option, which won't change your current tax burden, or go with a traditional plan, which is tax deductible but won't change your business deductions or self-employment taxes. This article has an explanation of options for setting up SEP or Solo 401k plans. Key quote for all the pre-tax retirement plans: Because pre-tax employer and employee contributions are deducted in the same way, neither one is more tax-efficient than the other. The article goes on to say that if you were an S Corp or LLC that elected to be taxed as an S Corp, a Solo 401(k) plan would allow the business to make an employer contribution to your 401(k) and even then there's no tax advantage to the employer contribution. Conclusion for S-corps: [Employer contributions] would reduce the amount of income from the S-corporation that would be passed through to you as the owner, thereby reducing your income tax. But, because this income is not subject to payroll taxes in the first place, these contributions will not reduce your payroll taxes.\",\n \"Your tax rate is 20% for turnover below £300000. So deducting your expenses and all the tax your accountant thinks you need to pay is £450. But you can claim relief on your tax payments. Visit the UK gov website to check your options under which you can claim relief. Frankly speaking for such a low turnover you shouldn't have opened a limited company. Or do you expect your turnover to increase in the coming years ? If your turnover isn't going to increase any further or if there isn't going to be a substantial increase, better to go as a sole trader or an umbrella company.\",\n \"Here is a quote from the IRS website on this topic: You may be able to deduct premiums paid for medical and dental insurance and qualified long-term care insurance for yourself, your spouse, and your dependents. The insurance can also cover your child who was under age 27 at the end of 2011, even if the child was not your dependent. A child includes your son, daughter, stepchild, adopted child, or foster child. A foster child is any child placed with you by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction. One of the following statements must be true. You were self-employed and had a net profit for the year reported on Schedule C (Form 1040), Profit or Loss From Business; Schedule C-EZ (Form 1040), Net Profit From Business; or Schedule F (Form 1040), Profit or Loss From Farming. You were a partner with net earnings from self-employment for the year reported on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc., box 14, code A. You used one of the optional methods to figure your net earnings from self-employment on Schedule SE. You received wages in 2011 from an S corporation in which you were a more-than-2% shareholder. Health insurance premiums paid or reimbursed by the S corporation are shown as wages on Form W-2, Wage and Tax Statement. The insurance plan must be established, or considered to be established as discussed in the following bullets, under your business. For self-employed individuals filing a Schedule C, C-EZ, or F, a policy can be either in the name of the business or in the name of the individual. For partners, a policy can be either in the name of the partnership or in the name of the partner. You can either pay the premiums yourself or your partnership can pay them and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the partnership must reimburse you and report the premium amounts on Schedule K-1 (Form 1065) as guaranteed payments to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business. For more-than-2% shareholders, a policy can be either in the name of the S corporation or in the name of the shareholder. You can either pay the premiums yourself or your S corporation can pay them and report the premium amounts on Form W-2 as wages to be included in your gross income. However, if the policy is in your name and you pay the premiums yourself, the S corporation must reimburse you and report the premium amounts on Form W-2 as wages to be included in your gross income. Otherwise, the insurance plan will not be considered to be established under your business. Medicare premiums you voluntarily pay to obtain insurance in your name that is similar to qualifying private health insurance can be used to figure the deduction. If you previously filed returns without using Medicare premiums to figure the deduction, you can file timely amended returns to refigure the deduction. For more information, see Form 1040X, Amended U.S. Individual Income Tax Return. Amounts paid for health insurance coverage from retirement plan distributions that were nontaxable because you are a retired public safety officer cannot be used to figure the deduction. Take the deduction on Form 1040, line 29.\",\n \"In 2012, the standard deduction is $5950 for a single person. Let's assume you are very charitable, and by coincidence you donate exactly $5950 to charity. Everything that falls under itemized deductions would then be deductible. So, if your property tax is $6000, in your example - Other adjustments come into play, including an exemption of $3850, I am just showing the effect of the property tax. The bottom line is that deductions come off income, not off your tax bill. The saving from a deduction is $$ x your tax bracket.\",\n \"\\\"The $10,400 is in the question, in two pieces. His employer withheld $8000, and her employer withheld $2400. Thus they paid together $10,400 in income taxes, which are deductible if you itemize deductions and choose income taxes over sales taxes (you can deduct one or the other). There's nothing \\\"\\\"standard\\\"\\\" about the amount, though it is standard to take the income tax deduction (almost always higher than sales tax).\\\"\",\n \"As far as accounting goes, if you speak with a CPA, you may be able to reduce the business tax liability. So... the company buys the truck, deducts it, and the adjusted gross income drops, so he'd pay less tax. Or something. You said anything helps, hope you meant it!\",\n \"Despite the ACA offering generous deductions, a lot of small businesses still cannot afford the initial capital involved in offering health insurance plan to their employees... Therefore we cannot take advantage of these deductions... Putting us at a disadvantage for finding low-to-mid skilled workers, to the larger corporations that are now mandated to offer the benefits..\",\n \"\\\"Can I deduct the money that I giving to my team mates from the taxes that I pay? If yes, how should I record the transaction? Why? Why are you giving money to your team mates? That's the most important question, and any answer without taking this into account is not full. You would probably have to talk to a professional tax adviser (a CPA/EA licensed in your state) about the details, but in general - you cannot deduct money you give someone just because you feel like it. Moreover, it may be subject to an additional tax - the gift tax. PS: We don't have any partnership or something similar, it is just each of us on his own. Assuming you want to give your team mates money because you developed the project together - then you do in fact have a partnership. In order to split the income properly, you should get a tax ID for the partnership, and issue a 1065 and K-1 for each team mate. In most states, you don't need to \\\"\\\"register\\\"\\\" a partnership with the state. Mere \\\"\\\"lets do things together\\\"\\\" creates a partnership. Otherwise, if they work for you (as opposed to with you in the case above), you can treat it as your own business income, and pay your team mates (who are now your contractors/employees) accordingly. Be careful here, because the difference between contractor and employee in tax law is significant, and you may end up being on the hook for a lot of things you're not aware of. Bottom line, in certain situation you cannot deduct, in others you can - you have to discuss it with a professional. Doing these things on your own without fully understanding what each term means - is dangerous, and IRS doesn't forgive for \\\"\\\"honest mistakes\\\"\\\".\\\"\",\n \"\\\"Yes, you may deduct the cost of building the \\\"\\\"noise cancellation system\\\"\\\" :) sorry couldn't resist. But seriously, yes you can deduct it ONCE (unless you have more cost maintaining it) and its on line 19 (Repairs and maintenance) of IRS Form 8829.\\\"\",\n \"You should speak to a good tax adviser. The less documentation you have the more problems IRS are going to cause you. Generally you can deduct business losses (in the year they occurred, which is 2011), but you have to show that that was a valid business, not just a way to reduce your tax bill with personal expenses. Thus lack of documentation reduces your ability to prove that you're entitled to the deduction. The burden of proof is generally on you. You can not deduct it from 2012 taxes, but you can still amend 2011. Keep in mind though that amended returns have higher chance of audit, and a significant business loss on a business that only existed that year is a major red flag which will raise the probability of an audit to very high percentage. Theoretically, if the business was real and just failed - you can definitely deduct this. But practically, lack of documentation may cause too big a problem, and a tax adviser might suggest you giving it up if he doesn't think you have a real chance to convince the IRS. Definitely don't do that without a professional advice. It is worth fighting for, its quite a loss, but don't do it on your own as you will definitely lose.\",\n \"\\\"Yes, you can deduct up to your Adjusted Gross Income (AGI) or your contribution limit, whichever is lower. Note that this reduces your taxable income, not your taxes. This is self-employment income, which is included as compensation for IRA purposes. You still have to pay self-employment taxes (Social Security and Medicare) though. You pay those before calculating AGI. So this won't entirely shield your 1099 income from taxes, just from income taxes. Note that if you have both W-2 and 1099-MISC income, you don't get to pick which gets \\\"\\\"shielded\\\"\\\" from taxes. It all gets mixed together in the same bucket. There may be additional limitations if you are covered by a retirement plan at work.\\\"\",\n \"\\\"It's not a \\\"\\\"withholding tax\\\"\\\" it's a \\\"\\\"withholding tax amount\\\"\\\". That is, they are not taxing you but they are holding back some of your withdrawal and sending it to the government to cover any taxes you will need to pay on the withdrawal. Same as your employer withholds some of your salary and sends it to the government for you. You won't claim it as a deduction, but it will go at the end along with tax withheld from your salary or anything else. So if you owe $10,000 of tax but various entities have already sent the government $11,000 on your behalf, you will get a $1,000 refund.\\\"\",\n \"\\\"If your sole proprietorship losses exceed all other sources of taxable income, then you have what's called a Net Operating Loss (NOL). You will have the option to \\\"\\\"carry back\\\"\\\" and amend a return you filed in the last 2 years where you owed tax, or you can \\\"\\\"carry forward\\\"\\\" the losses and decrease your taxes in a future year, up to 20 years in the future. For more information see the IRS links for NOL. Note: it's important to make sure you file the NOL correctly so I'd advise speaking with an accountant. (Especially if the loss is greater than the cost of the accountant...)\\\"\",\n \"You may be able to choose. As a small business, you can expense certain depreciable assets (section 179). But by choosing to depreciate the asset, you are also increasing the cost-basis of the property. Are you planning to sell the property in the next couple of years? Do you need a higher basis? Section 179 - Election to expense certain depreciable business assets\",\n \"You can deduct retirement contributions (above the line even), but not as a business expense. So you can't avoid the SE taxes, sorry.\",\n \"\\\"Yes, you can. See the instructions for line 29 of form 1040. Self employed health insurance premiums are an \\\"\\\"above the line\\\"\\\" deduction.\\\"\",\n \"For simplicity, I would subtract the expense from the gross income before accounting for taxes. Using your example, if g is gross income, r is your tax rate, and e is your deductible expense: You got the same answer because of the distributive property of multiplication, but I believe conceptually it makes more sense to deduct the expense before accounting for taxes.\",\n \"\\\"A tax return is a document you sign and file with the government to self-report your tax obligations. A tax refund is the payment you receive from the government if your payments into the tax system exceeded your obligations. As others have mentioned, if an extra $2K in income generated $5K in taxes, chances are your return was prepared incorrectly. The selection of an appropriate entity type for your business depends a lot on what you expect to see over the next several years in terms of income and expenses, and the extent to which you want or need to pay for fringe benefits or make pretax retirement contributions from your business income. There are four basic flavors of entity which are available to you: Sole proprietorship. This is the simplest option in terms of tax reporting and paperwork required for ongoing operations. Your net (gross minus expenses) income is added to your wage income and you'll pay tax on the total. If your wage income is less than approximately $100K, you'll also owe self-employment tax of approximately 15% in addition to income tax on your business income. If your business runs at a loss, you can deduct the loss from your other income in calculating your taxable income, though you won't be able to run at a loss indefinitely. You are liable for all of the debts and obligations of the business to the extent of all of your personal assets. Partnership. You will need at least two participants (humans or entities) to form a partnership. Individual items of income and expense are identified on a partnership tax return, and each partner's proportionate share is then reported on the individual partners' tax returns. General partners (who actively participate in the business) also must pay self-employment tax on their earnings below approximately $100K. Each general partner is responsible for all of the debts and obligations of the business to the extent of their personal assets. A general partnership can be created informally or with an oral agreement although that's not a good idea. Corporation. Business entities can be taxed as \\\"\\\"S\\\"\\\" or \\\"\\\"C\\\"\\\" corporations. Either way, the corporation is created by filing articles of incorporation with a state government (doesn't have to be the state where you live) and corporations are typically required to file yearly entity statements with the state where they were formed as well as all states where they do business. Shareholders are only liable for the debts and obligations of the corporation to the extent of their investment in the corporation. An \\\"\\\"S\\\"\\\" corporation files an information-only return similar to a partnership which reports items of income and expense, but those items are actually taken into account on the individual tax returns of the shareholders. If an \\\"\\\"S\\\"\\\" corporation runs at a loss, the losses are deductible against the shareholders' other income. A \\\"\\\"C\\\"\\\" corporation files a tax return more similar to an individual's. A C corporation calculates and pays its own tax at the corporate level. Payments from the C corporation to individuals are typically taxable as wages (from a tax point of view, it's the same as having a second job) or as dividends, depending on how and why the payments are made. (If they're in exchange for effort and work, they're probably wages - if they're payments of business profits to the business owners, they're probably dividends.) If a C corporation runs at a loss, the loss is not deductible against the shareholders' other income. Fringe benefits such as health insurance for business owners are not deductible as business expenses on the business returns for S corps, partnerships, or sole proprietorships. C corporations can deduct expenses for providing fringe benefits. LLCs don't have a predefined tax treatment - the members or managers of the LLC choose, when the LLC is formed, if they would like to be taxed as a partnership, an S corporation, or as a C corporation. If an LLC is owned by a single person, it can be considered a \\\"\\\"disregarded entity\\\"\\\" and treated for tax purposes as a sole proprietorship. This option is not available if the LLC has multiple owners. The asset protection provided by the use of an entity depends quite a bit on the source of the claim. If a creditor/plaintiff has a claim based on a contract signed on behalf of the entity, then they likely will not be able to \\\"\\\"pierce the veil\\\"\\\" and collect the entity's debts from the individual owners. On the other hand, if a creditor/plaintiff has a claim based on negligence or another tort-like action (such as sexual harassment), then it's very likely that the individual(s) involved will also be sued as individuals, which takes away a lot of the effectiveness of the purported asset protection. The entity-based asset protection is also often unavailable even for contract claims because sophisticated creditors (like banks and landlords) will often insist the the business owners sign a personal guarantee putting their own assets at risk in the event that the business fails to honor its obligations. There's no particular type of entity which will allow you to entirely avoid tax. Most tax planning revolves around characterizing income and expense items in the most favorable ways possible, or around controlling the timing of the appearance of those items on the tax return.\\\"\",\n \"Yes. The S-Corp can deduct up to the amount it actually incurred in expenses. If your actual expenses to build the carport were $1000, then the $1000 would be deductible, and your business should be able to show $1000 in receipts or inventory changes. Note you cannot deduct beyond your actual expenses even if you would normally charge more. For example, suppose you invoiced the non-profit $2000 for the carport, and once the bill was paid you turned around and donated the $2000 back to the non-profit. In that case you would be deducting $1000 for your cost + $2000 donation for a total of $3000. But, you also would have $2000 in income so in the end you would end up with a $1000 loss which is exactly what your expenses were to begin with. It would probably be a good idea to be able to explain why you did this for free. If somehow you personally benefit from it then it could possibly be considered income to you, similar to if you bought a TV for your home with company funds. It would probably be cleaner from an accounting perspective if you followed through as described above- invoice the non-profit and then donate the payment back to them. Though not necessary, it could lesson any doubt about your motives.\",\n \"When your debt is forgiven, you have to consider the amount written off as an ordinary income item (with the exclusion of the debt originated from the purchase of primary home). If you're trying to write the debt off from your taxes - then it won't work. Even if you can expense the debt forgiveness, you will incur tax liability on your personal taxes side, and in addition you'll be out of cash in your business. So basically you'll end up paying it with after tax money, exactly the thing you're trying to avoid. In addition, you're dealing with related persons here, which means that the loss deduction might not be allowed (depends on the actual details of the transaction), so you might actually end up paying more taxes with this scheme that just paying off the loan directly (if your business pays taxes separately from your person). A loss on the sale or exchange of property between related persons is not deductible. This applies to both direct and indirect transactions, but not to distributions of property from a corporation in a complete liquidation. For the list of related persons, see Related persons next.\",\n \"The IRS Guidance pertaining to the subject. In general the best I can say is your business expense may be deductible. But it depends on the circumstances and what it is you want to deduct. Travel Taxpayers who travel away from home on business may deduct related expenses, including the cost of reaching their destination, the cost of lodging and meals and other ordinary and necessary expenses. Taxpayers are considered “traveling away from home” if their duties require them to be away from home substantially longer than an ordinary day’s work and they need to sleep or rest to meet the demands of their work. The actual cost of meals and incidental expenses may be deducted or the taxpayer may use a standard meal allowance and reduced record keeping requirements. Regardless of the method used, meal deductions are generally limited to 50 percent as stated earlier. Only actual costs for lodging may be claimed as an expense and receipts must be kept for documentation. Expenses must be reasonable and appropriate; deductions for extravagant expenses are not allowable. More information is available in Publication 463, Travel, Entertainment, Gift, and Car Expenses. Entertainment Expenses for entertaining clients, customers or employees may be deducted if they are both ordinary and necessary and meet one of the following tests: Directly-related test: The main purpose of the entertainment activity is the conduct of business, business was actually conducted during the activity and the taxpayer had more than a general expectation of getting income or some other specific business benefit at some future time. Associated test: The entertainment was associated with the active conduct of the taxpayer’s trade or business and occurred directly before or after a substantial business discussion. Publication 463 provides more extensive explanation of these tests as well as other limitations and requirements for deducting entertainment expenses. Gifts Taxpayers may deduct some or all of the cost of gifts given in the course of their trade or business. In general, the deduction is limited to $25 for gifts given directly or indirectly to any one person during the tax year. More discussion of the rules and limitations can be found in Publication 463. If your LLC reimburses you for expenses outside of this guidance it should be treated as Income for tax purposes. Edit for Meal Expenses: Amount of standard meal allowance. The standard meal allowance is the federal M&IE rate. For travel in 2010, the rate for most small localities in the United States is $46 a day. Source IRS P463 Alternately you could reimburse at a per diem rate\",\n \"So here's our [answer](http://www.taxalmanac.org/index.php/Treasury_Regulations,_Subchapter_A,_Sec._1.162-21). What it looks like, is basically that the **fines** are not deductible, but the **damages** are. At any rate, I don't think it's questionable at all. It reduces the overall amount of the amount they have to pay, but it's certainly not like they come out ahead on the deal. Further, I presume it's been argued before a court that since the income was illegally obtained (through some sort of illegal function of the business) then the business paid taxes on income it shouldn't have made in the first place.\",\n \"Isn't their lower effective rate due to their growing deferred tax assets? They also had a loss carryforward from a few years back, which would lower the effective rate even further. These accounting principles can be used to lower effective tax rates for small businesses, too.\",\n \"The answer is simple. You can generally claim a deduction for an expense if that expense was used to derive an income. Most business expenses are used to derive profits and income, most individual expenses are not. Of course social policy sometimes gets in the way and allows for deductions where they usually wouldn't be allowed. Regarding the interest on a mortgage being deductible whilst the principal isn't, that is because it is the interest which is the annual expense. By the way deductions for mortgage interest in the USA for a house you live in is only allowed due to social policy, as there is no income (rent) being produced here, unlike with an investment property.\",\n \"\\\"The government thought of that a long time ago, and has any loophole there plugged. Like if you set up a company to buy a car and then allow you to use it ... You can use the car for company business, like driving to a customer's office to make a sales call or delivery, and the cost of the car is then tax deductible. But the company must either prohibit personal use of the car, or keep a log of personal versus business use and the personal use becomes taxable income to you. So at best you'd get to deduct an expense here and then you'd have to add it back there for a net change in taxable income of zero. In general the IRS is very careful about personal use of business property and makes it tough to get away with a free ride. I'm sure there are people who lie about it and get away with it because they're never audited, but even if that causes you no ethical qualms, it's very risky. I don't doubt that there are people with very smart lawyers who have found loopholes in the rules. But it's not as simple as, \\\"\\\"I call myself a business and now all my personal expenses become tax deductible business expenses.\\\"\\\" If you could do that, everybody would do it and no one would pay taxes. Which might be a good thing, but the IRS doesn't see it that way.\\\"\",\n \"\\\"Yes, your business needs to be in the business of making money in order for you to deduct the expenses associated with it. I suppose in theory this could mean that if you take in $10,000 and spend $30,000 every year, you not only don't get a net deduction of $20,000 (your loss) but you have to pay tax on $10,000 (your revenue). However this is super fixable. Just only deduct $9500 of your expenses. Tada! Small profit.For all the gory details, including how they consider whether you have an expectation of profits, see http://www.cra-arc.gc.ca/E/pub/gl/p-176r/p-176r-e.html This \\\"\\\"expectation of profit\\\"\\\" rule appears to apply to things like \\\"\\\"I sell home décor items (or home decorating advice) and therefore need to take several multi week trips to exotic vacation destinations every year and deduct them as business expenses.\\\"\\\" If you're doing woodworking or knitting in your home and selling on Etsy you don't particularly have any expenses. It's hard to imagine a scenario where you consistently sell for less than the cost of materials and then end up dinged on paying tax on revenue.\\\"\",\n \"First, you should probably have a proper consultation with a licensed tax adviser (EA/CPA licensed in your State). In fact you should have had it before you started, but that ship has sailed. You're talking about start-up expenses. You can generally deduct up to $5000 in the year your business starts, and the expenses in excess will be amortized over 180 months (15 years). This is per the IRC Sec. 195. The amortization starts when your business is active (i.e.: you can buy the property, but not actually open the restaurant - you cannot start the depreciation). I have a couple questions about accounting - should all the money I spent be a part of capital spending? Or is it just a part of it? If it qualifies as start-up/organizational expenses - it should be capitalized. If it is spent on capital assets - then it should also be capitalized, but for different reasons and differently. For example, costs of filing paperwork for permits is a start-up expense. Buying a commercial oven is a capital asset purchase which should be depreciated separately, as buying the tables and silverware. If it is a salary expense to your employees - then it is a current expense and shouldn't be capitalized. Our company is LLC if this matters. It matters to how it affects your personal tax return.\",\n \"You've got two options. Deduct the business portion of the depreciation and actual expenses for operating the car. Use the IRS standard mileage rate of $.575/mile in 2015. Multiply your business miles by the rate to calculate your deduction. Assuming you're a sole proprietor you'll include a Schedule C to your return and claim the deduction on that form.\",\n \"\\\"In the US tax system, you cannot \\\"\\\"write-off\\\"\\\" capital assets. You have to depreciate them, with very specific exceptions. So while you may be purchasing $4500 of equipment, your deduction may be significantly less. For example, computers are depreciated over the period of 5 years, so if you bought a $1000 computer - you write off $200/year until it is completely depreciated, not $1000 at once. There are exceptions however, for example - IRC Sec. 179 is one of them. But you should talk to a tax adviser (EA/CPA licensed in your State) about whether it is applicable to the specific expense you want to \\\"\\\"write off\\\"\\\" and to what extent. Also, keep in mind that State laws may not conform to the Federal IRC. While you may be able to use Sec. 179 or other exceptions and deduct your expenses on your Federal return, you may end up with a whole different set of deductions on your State return. And last but not least: equipment that you depreciated or otherwise \\\"\\\"wrote off\\\"\\\" that is later sold - is income to you, since depreciation/deduction reduces basis. Ah, and keep in mind - the IRS frowns upon Schedule C business that consistently show losses. If you have losses for more than 3 in the last 5 years - your business may be classified as \\\"\\\"hobby\\\"\\\", and deductions may be disallowed. But the bottom line is that yes, it is possible to end up with 0 tax liability with business income offset by business deductions. However, not for prolonged periods of time (not for years consistently, but first year may fly). Again - you should talk to a licensed tax adviser (EA/CPA licensed in your State). It is well worth the money. Do not rely on answers on free Internet forums as a tax advice - it is not.\\\"\",\n \"\\\"Assuming its in the US: No, it is not, and such things are usually treated as \\\"\\\"red flags\\\"\\\" for audit (and no, golf club memberships are not deductible either). The food expenses are not deductible in their entirety as well, only up to 50% of the actual expense, and only if it is directly business related. From what you've described, it sounds like if you have an audit coming you'll be in trouble. The purposes and activities of a club, not its name, will determine whether or not you can deduct the dues. You cannot deduct dues paid to: Country clubs, Golf and athletic clubs, Airline clubs, Hotel clubs, and Clubs operated to provide meals under circumstances generally considered to be conducive to business discussions.\\\"\",\n \"IRS has it spelled out Business or Hobby?\",\n \"The regulations you're talking about (TR 1.263) are going into effect starting tax year 2016, so for purchases you made last year they're (kindof...) irrelevant. Kindof, because the IRS promises to not audit those that qualify under the regulations even if they use it before it goes into effect, but it doesn't legally have to. Since the regulations are new, I suggest you talk to a licensed professional who'd explain them to you and interpret them with regards to your specific situation. From my brief read, you can expense under these rules things that you would otherwise capitalize, with the $500 limit to the invoice. Meaning, if you bought a computer paying $500, which you use 50% for your business - you can expense $250. The benefit, comparing to the Sec. 179, is that you're not limited to new items, nor are you limited to business revenue. Otherwise, it looks like the applicability is similar. As I said - talk to a licensed tax adviser (EA/CPA licensed in your State), since these rules are new and untested, and you should probably have a professional provide guidance. I'm not such a professional.\",\n \"S-Corp income is passed through to owners and is taxed on their 1040 as ordinary income. If you take a wage (pay FICA) and then take additional distributions these are not subject to FICA. A lot of business owners will buy up supplies/ necessary expenses right before the end of the tax year to lower their tax liability.\",\n \"The answer seems to depend on where you live. Perhaps you already found this, but the summary from the IRS is: The insurance laws in some states do not allow a corporation to purchase group health insurance when the corporation only has one employee. Therefore, if the shareholder was the sole corporate employee, the shareholder had to purchase his health insurance in his own name. The IRS issued Notice 2008-1, which ruled that under certain situations the shareholder would be allowed an above-the-line deduction even if the health insurance policy was purchased in the name of the shareholder. Notice 2008-1 provided four examples, including three examples in which the shareholder purchased the health insurance and one in which the S corporation purchased the health insurance. Notice 2008-1 states that if the shareholder purchased the health insurance in his own name and paid for it with his own funds, the shareholder would not be allowed an above-the-line deduction. On the other hand, if the shareholder purchased the health insurance in his own name but the S corporation either directly paid for the health insurance or reimbursed the shareholder for the health insurance and also included the premium payment in the shareholder’s W-2, the shareholder would be allowed an above-the-line deduction. The bottom line is that in order for a shareholder to claim an above-the-line deduction, the health insurance premiums must ultimately be paid by the S corporation and must be reported as taxable compensation in the shareholder’s W-2. https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/S-Corporation-Compensation-and-Medical-Insurance-Issues I understand this to mean that you can only get the deduction in your case (having purchased it in your own name) if your state does not allow your S-Corp to purchase a group health plan because you only have one employee. (I don't know specifically if Illinois fits that description or not.) In addition, there are rules about reporting health insurance premiums for taxes for S-Corp share members that you should also check. Personally, I think that it's complicated enough that advice from a CPA or other tax advisor specific to your situation would be worth the cost.\",\n \"It sounds like something is getting lost in translation here. A business owner should not have to pay personal income tax on business expenses, with the caveat that they are truly business expenses. Here's an example where what you described could happen: Suppose a business has $200K in revenue, and $150K in legitimate business expenses (wages and owner salaries, taxes, services, products/goods, etc.) The profit for this example business is $50K. Depending on how the business is structured (sole proprietor, llc, s-corp, etc), the business owner(s) may have to pay personal income tax on the $50K in profit. If the owner then decided to have the business purchase a new vehicle solely for personal use with, say, $25K of that profit, then the owner may think he could avoid paying income tax on $25K of the $50K. However, this would not be considered a legitimate business expense, and therefore would have to be reclassified as personal income and would be taxed as if the $25K was paid to the owner. If the vehicle truly was used for legitimate business purposes then the business expenses would end up being $175K, with $25K left as profit which is taxable to the owners. Note: this is an oversimplification as it's oftentimes the case that vehicles are partially used for business instead of all or nothing. In fact, large items such as vehicles are typically depreciated so the full purchase price could not be deducted in a single year. If many of the purchases are depreciated items instead of deductions, then this could explain why it appears that the business expenses are being taxed. It's not a tax on the expense, but on the income that hasn't been reduced by expenses, since only a portion of the big ticket item can be treated as an expense in a single year.\",\n \"\\\"Law is a mass of special cases, informed by but not driven by some general principles. Tax law likewise. Don't try to make it make sense; you will only confuse yourself. Not all \\\"\\\"necessities\\\"\\\" are deductable, only those which someone has explicitly passed a law to make deductable.\\\"\",\n \"I suggest to start charging slightly more than needed to cover expenses. All you need is to show profit. It doesn't have to be significant - a couple of hundred of dollars of consistent yearly profit should suffice to show a profitable business. Then you can deduct on Schedule C all the related expenses. The caveat is that the profit (after the deduction of the expenses will be a bit smaller) will be subject to not only income tax but also the self-employment tax. But at least you'll pay tax on profit that is not entirely phantom. I remember suggesting you getting a professional consultation on this matter a while ago. You should really do that - talk to a EA/CPA licensed in your state, it may be well worth the $100-200 fee they'll charge for the consultation (if at all...).\",\n \"\\\"In my experience, no. You are not \\\"\\\"out if pocket\\\"\\\" for that amount. Remember, the purpose of that number is to set a limit on how much of your own money you might have to spend during the year, not on how much is spent/discounted/reimbursed on your behalf.\\\"\",\n \"looks like the US tax system needs an overhaul. You cant charge yourself arbitrary amounts to even out your bottom line. Wel you and I cant, but apparently we just need to make more money to do so....thanks BK for showing me the way!!\",\n \"If your business pays taxes, it is in your best interest to expense it. Even if you don't pay taxes, setting your capitalization policy low enough to capitalize an office organizer (even a nice one) will give you headaches when your business grows larger.\",\n \"I contacted Stephen Fishman, J.D., the author of Home Business Tax Deductions, to let him know that this question was missing from his book. He was kind enough to send a reply. My original phrasing of the question: If your car is used for both business and personal use, and you deduct via the actual expense method, do trips to the mechanic, gas station, and auto parts store to service or repair the car count as business miles, personal miles, or part-business-part-personal miles? What about driving the newly-purchased car home from the dealership? And his response: Good question. I can find nothing about this in IRS publication or elsewhere. However, common sense would tell us that the cost of driving to make car repairs should be deductible. If you use your car for business, it is a business expense, just like transporting any other piece of business equipment for repairs is a business expense. This should be so whether you use the standard mileage rate or actual expense method. You should probably reduce the amount of your deduction by the percentage of personal use of the car during the year. The same goes for driving a car home from the dealer.\",\n \"Last I checked, all business expenses in regards to * Office Supplies * Stationary * Phone service * Marketing are all tax deductible....so how does cutting those costs save money when you'll get that money back via the corporate tax code?\",\n \"I agree with you 100%! >they've all just taken advantage so that wages haven't kept up and they've essentially pocketed the difference, or passed it on to their customers. Now people have less money to buy health insurance, and those near the bottom will now have to rely on the government to assist with providing health insurance. I think this is exactly what is happening today. > That last part is important, though, I would need to get all the breaks my employer gets for providing myself with health insurance. I believe up until Obamacare, people couldn't. Also, as a general rule a business can claim a tax deduction for the salary, wages, commissions, bonuses, and other compensation it pays to its employees.\",\n \"Never borrow money to get a tax deduction. Even 18 months interest free is a stupid risk to save a few $ in taxes (we're talking $1K or less in tax savings from what I can tell in your questions).\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"If your sole proprietorship losses exceed all other sources of taxable income, then you have what's called a Net Operating Loss (NOL). You will have the option to \"\"carry back\"\" and amend a return you filed in the last 2 years where you owed tax, or you can \"\"carry forward\"\" the losses and decrease your taxes in a future year, up to 20 years in the future. For more information see the IRS links for NOL. Note: it's important to make sure you file the NOL correctly so I'd advise speaking with an accountant. (Especially if the loss is greater than the cost of the accountant...)\""],"string":"[\n \"\\\"If your sole proprietorship losses exceed all other sources of taxable income, then you have what's called a Net Operating Loss (NOL). You will have the option to \\\"\\\"carry back\\\"\\\" and amend a return you filed in the last 2 years where you owed tax, or you can \\\"\\\"carry forward\\\"\\\" the losses and decrease your taxes in a future year, up to 20 years in the future. For more information see the IRS links for NOL. Note: it's important to make sure you file the NOL correctly so I'd advise speaking with an accountant. (Especially if the loss is greater than the cost of the accountant...)\\\"\"\n]","isConversational":false}}},{"rowIdx":396,"cells":{"_id":{"kind":"string","value":"7178"},"query":{"kind":"string","value":"Should an ADR that is being delisted be sold off?"},"gt_ids":{"kind":"list like","value":["401329"],"string":"[\n \"401329\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["401329","331296","438190","404852","402332","349536","146479","558240","391156","490709","137117","255097","596664","174245","306460","350288","14781","120082","471911","440370","275777","165970","247870","582562","265111","490170","95948","420046","495255","438974","541928","476224","393083","542590","217837","339419","273565","272091","351137","501372","539552","332467","207929","206313","87771","114981","293959","393842","444749","144685","581127","490620","322284","79410","127401","350872","268205","138096","510753","498404","260023","198592","185583","432511","276883","176699","137852","237390","453256","325708","368348","26292","18675","14543","68187","451613","331673","588448","304085","192307","232207","583080","250873","540799","450067","519877","191066","263751","415887","516136","536647","524238","318321","491567","388718","517577","106104","310683","481339","531863"],"string":"[\n \"401329\",\n \"331296\",\n \"438190\",\n \"404852\",\n \"402332\",\n \"349536\",\n \"146479\",\n \"558240\",\n \"391156\",\n \"490709\",\n \"137117\",\n \"255097\",\n \"596664\",\n \"174245\",\n \"306460\",\n \"350288\",\n \"14781\",\n \"120082\",\n \"471911\",\n \"440370\",\n \"275777\",\n \"165970\",\n \"247870\",\n \"582562\",\n \"265111\",\n \"490170\",\n \"95948\",\n \"420046\",\n \"495255\",\n \"438974\",\n \"541928\",\n \"476224\",\n \"393083\",\n \"542590\",\n \"217837\",\n \"339419\",\n \"273565\",\n \"272091\",\n \"351137\",\n \"501372\",\n \"539552\",\n \"332467\",\n \"207929\",\n \"206313\",\n \"87771\",\n \"114981\",\n \"293959\",\n \"393842\",\n \"444749\",\n \"144685\",\n \"581127\",\n \"490620\",\n \"322284\",\n \"79410\",\n \"127401\",\n \"350872\",\n \"268205\",\n \"138096\",\n \"510753\",\n \"498404\",\n \"260023\",\n \"198592\",\n \"185583\",\n \"432511\",\n \"276883\",\n \"176699\",\n \"137852\",\n \"237390\",\n \"453256\",\n \"325708\",\n \"368348\",\n \"26292\",\n \"18675\",\n \"14543\",\n \"68187\",\n \"451613\",\n \"331673\",\n \"588448\",\n \"304085\",\n \"192307\",\n \"232207\",\n \"583080\",\n \"250873\",\n \"540799\",\n \"450067\",\n \"519877\",\n \"191066\",\n \"263751\",\n \"415887\",\n \"516136\",\n \"536647\",\n \"524238\",\n \"318321\",\n \"491567\",\n \"388718\",\n \"517577\",\n \"106104\",\n \"310683\",\n \"481339\",\n \"531863\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["I'm a bit out of my element here, but my guess is the right way to think about this is: knowing what you do now about the underlying company (NZT), pretend they had never offered ADR shares. Would you buy their foreign listed shares today? Another way of looking at it would be: would you know how to sell the foreign-listed shares today if you had to do so in an emergency? If not, I'd also push gently in the direction of selling sooner than later.","Just because it gets delisted from one of the big boards doesn't mean it can't trade over the counter. For example GM went OTC under the ticker MTLQQ for a while. That being said, just because the stock is trading over the counter doesn't mean it has any real long term value.","When a delisting happens, the primary process involves, the firm or the entity, trying to buy everyone out so that they can take the firm private by delisting from the stock exchanges. As the firm wants to buy everyone out, the current owners of the equity have the upper hand. They wouldn't want to sell if they believe the firm has a brighter future. So to compensate the existing holders, the buyer needs to compensate the current holders of any future loss, so they pay a premium to buy them out. Hence the prices offered will be more than the current existing price. And in anticipation of a premium the stocks price rises on this speculation. The other scenario is if the current holder(s) decide no to sell their holdings and are small in number, dependent on exchange regulations, and the buyer manages to de-list the stock, the holders might loose out i.e. they have to find another buyer who wants to buy which becomes difficult as the liquidity for the stock is very minimal. if any stock is DE-listed and then we can not trade on it, In India if the promoters capital is more than 90%, he can get the stock de-listed. There is a process, he has to make an open offer at specified price to minority shareholders. The minority shareholder can refuse to sell. Once the stock is de-listed, it means it cannot be traded on a given exchange. However you can still sell / buy by directly finding a buyer / seller and it's difficult compared to a listed stock.","Source Rule 41 of the AIM Rules sets out the procedure for delisting. In summary, a company that wishes to cancel the right of any of its trading securities must: The notification to the Exchange should be made by the company’s nominated adviser and should be given at least 20 business days prior to the intended cancellation date (the 20 business days’ notice requirement is a minimum). Any cancellation of a company’s securities on AIM will be conditional upon seeking shareholder approval in general meeting of not less than 75% of votes cast by its shareholders present and voting (in person or by proxy) at the meeting. The notification to shareholders should set out the preferred date of cancellation, the reasons for seeking the cancellation (for example annual fees to the Exchange, the cost of maintaining a nominated adviser and broker, professional costs, corporate governance compliance, inability to access funds on the market), a description of how shareholders will be able to effect transactions in the AIM securities once they have been cancelled and any other matters relevant to shareholders reaching an informed decision upon the issue of the cancellation. Cancellation will not take effect until at least 5 business days after the shareholder approval is obtained and a dealing notice has been issued by the Exchange. It should be noted that there are circumstances where the Exchange may agree that shareholder consent is not required for the cancellation of admission of a company’s shares, for example (i) where comparable dealing facilities on an EU regulated market or AIM designated market are put in place to enable shareholders to trade their AIM securities in the future or (ii) where, pursuant to a takeover which has become wholly unconditional, an offeror has received valid acceptances in excess of 75% of each class of AIM securities. The company’s Nominated Adviser will liaise with the Exchange to secure a dispensation if relevant. So you should receive information from the company regarding the due process informing you about your options.","You would still be the legal owner of the shares, so you would almost certainly need to transfer them to a broker than supports the Hong Kong Stock Exchange (which allows you to trade on the Shanghai exchange). In order to delist they would need to go through a process which would include enabling shareholders to continue to access their holdings.","You have not lost value. It is just that the shares you owned, are now not tradable on US stock exchanges. You still have the value of your shares protected. In cases like de-listing of a stock, typically a trust (may be managed by a bank) is setup to help customers liquidate their stocks. You should try to search the relevant SEC filings for de-listing of this stock to get more details on whom to contact.","From what I read, if the monthly average of the stock falls below 1 dollar, it can be delisted from the NYSE, which of course means you lose everything. I've been playing this same stock on a day by day basis. Twice I've finished up 15% on the day, with AMR, but I don't plan on being able to do this for much longer though. I dumped it all today just in case they decide to remove it this weekend.","It looks like JP Morgan can convert your holding to unsponsored ADRs until July.. In any event, you should not completely lose the equity. Volvo still exists as a public company, it's just not tradable on US exchanges. Q1: Yes, you'd need a JPM account. Your broker should have offered a similar service. If they didn't they are not a broker. Q2: You own 30 shares in Volvo. You need to get your broker to either sell them (off-exchange now) or tell you how to gain access to them.","\"I can see two possibilities. Either a deal is struck that someone (the company itself, or a large owner) buys out the remaining shares. This is the scenario @mbhunter is talking about, so I won't go too deeply into it, but it simply means that you get money in your bank account for the shares in question the same as if you were to sell them for that price (in turn possibly triggering tax effects, etc.). I imagine that this is by far the most common approach. The other possibility is that the stock is simply de-listed from a public stock exchange, and not re-listed elsewhere. In this case, you will still have the stock, and it will represent the same thing (a portion of the company), but you will lose out on most of the \"\"market\"\" part of \"\"stock market\"\". That is, the shares will still represent a monetary value, you will have the same right to a portion of the company's profits as you do now, etc., but you will not have the benefit of the market setting a price per share so current valuation will be harder. Should you wish to buy or sell stock, you will have to find someone yourself who is interested in striking a deal with you at a price point that you feel comfortable with.\"","As far as I know, with ADRs you're essentially trading by proxy -- a depository bank is holding the actual stock certificate, and must provide you with the actual stock on demand. The one thing that is different is that in the event that the ADR is terminated (which sometimes happens with mergers), you have a limited period of time to sell the shares -- otherwise, you get the actual foreign stock that you may or may not be able to trade without transferring to a different broker.","No, you shouldn't buy it. The advice here is to keep any existing holdings but not make new purchases of the stock.","Liquidity on dual listed equities is rarely the same on both exchanges. More liquidity means you would typically get a better price assuming you execute the trades using the same order types. It's recommended to trade where the liquidity is greater unless your trading method benefits somehow from it being lower. It's important to remember that some ADRs (some European companies listed in US) have ADR fees which vary. USD/EUR transaction fees are low when using a decent broker but you're obviously participating in the currency risk.","\"If you have someplace to put the money which you think will yield significantly better returns, by all means sell and buy that. On the other hand, if you think this stock is likely to recover its value, you might want to hold it, or even buy more as a \"\"contrarian\"\" investment. Buy low, sell high, as much as possible. And diversify. You need to make a judgement call about the odds. We can point out the implications, but in the end whether to sell, buy, hold or hedge is your decision. (This also suggests you need to sit down and draw up a strategy. Agonizing over every decision is not productive. If you have a plan, you make this sort of decision before you ever put money into the stock in the first place.)\"","Academic research into ADRs seems to suggest that pairs-trading ADRs and their underlying shares reveals that there certainly are arbitrage opportunities, but that in most (but not all cases) such opportunities are quickly taken care of by the market. (See this article for the mexican case, the introduction has a list of other articles you could read on the subject). In some cases parity doesn't seem to be reached, which may have to do with transaction costs, the risk of transacting in a foreign market, as well as administrative & legal concerns that can affect the direct holder of a foreign share but don't impact the ADR holder (since those risks and costs are borne by the institution, which presumably has a better idea of how to manage such risks and costs). It's also worth pointing out that there are almost always arbitrage opportunities that get snapped up quickly: the law of one price doesn't apply for very short time-frames, just that if you're not an expert in that particular domain of the market, it might as well be a law since you won't see the arbitrage opportunities fast enough. That is to say, there are always opportunities for arbitrage with ADRs but chances are YOU won't be able to take advantage of it (In the Mexican case, the price divergence seems to have an average half-life of ~3 days). Some price divergence might be expected: ADR holders shouldn't be expected to know as much about the foreign market as the typical foreign share holder, and that uncertainty may also cause some divergence. There does seem to be some opportunity for arbitrage doing what you suggest in markets where it is not legally possible to short shares, but that likely is the value added from being able to short a share that belongs to a market where you can't do that.","No one can advise you on whether to hold this stock or sell it. Your carried losses can offset short or long term gains, but the long term losses have to be applied to offset long term gains before any remaining losses can offset short term gains. Your question doesn't indicate how long you have to hold before the short term gains become long term gains. Obviously the longer the holding period, the greater the risk. You also must avoid a wash sale (selling to lock in the gains/reset your basis then repurchasing within a month). All of those decisions hold risks that you have to weigh. If you see further upside in holding it longer, keep the investment. Don't sell just to try to maximize tax benefits.","The DOW is just an index, which is simply a group of stocks meeting the criteria for inclusion. In the case of the DOW, it's the 30 US stocks with the largest market capitalization, but other indices include many lesser stocks (such as the S&P500 or the Russell 2000). The fact that Holobeam is no longer a constituent of the DOW30 probably shouldn't be taken in and of itself as a signal to sell the stock. As far as I can tell, HOOB stock is still trading on the Nasdaq exchange. However, it is extremely ill-liquid, which means that there are very few people willing to buy or sell it. Whether or not this would work to your advantage is almost entirely down to luck - it depends whether there is a keen buyer out there at the time you try to sell.","\"Yes, you're still exposed to currency risk when you purchase the stock on company B's exchange. I'm assuming you're buying the shares on B's stock exchange through an ADR, GDR, or similar instrument. The risk occurs as a result of the process through which the ADR is created. In its simplest form, the process works like this: I'll illustrate this with an example. I've separated the conversion rate into the exchange rate and a generic \"\"ADR conversion rate\"\" which includes all other factors the bank takes into account when deciding how many ADR shares to sell. The fact that the units line up is a nice check to make sure the calculation is logically correct. My example starts with these assumptions: I made up the generic ADR conversion rate; it will remain constant throughout this example. This is the simplified version of the calculation of the ADR share price from the European share price: Let's assume that the euro appreciates against the US dollar, and is now worth 1.4 USD (this is a major appreciation, but it makes a good example): The currency appreciation alone raised the share price of the ADR, even though the price of the share on the European exchange was unchanged. Now let's look at what happens if the euro appreciates further to 1.5 USD/EUR, but the company's share price on the European exchange falls: Even though the euro appreciated, the decline in the share price on the European exchange offset the currency risk in this case, leaving the ADR's share price on the US exchange unchanged. Finally, what happens if the euro experiences a major depreciation and the company's share price decreases significantly in the European market? This is a realistic situation that has occurred several times during the European sovereign debt crisis. Assuming this occurred immediately after the first example, European shareholders in the company experienced a (43.50 - 50) / 50 = -13% return, but American holders of the ADR experienced a (15.95 - 21.5093) / 21.5093 = -25.9% return. The currency shock was the primary cause of this magnified loss. Another point to keep in mind is that the foreign company itself may be exposed to currency risk if it conducts a lot of business in market with different currencies. Ideally the company has hedged against this, but if you invest in a foreign company through an ADR (or a GDR or another similar instrument), you may take on whatever risk the company hasn't hedged in addition to the currency risk that's present in the ADR/GDR conversion process. Here are a few articles that discuss currency risk specifically in the context of ADR's: (1), (2). Nestle, a Swiss company that is traded on US exchanges through an ADR, even addresses this issue in their FAQ for investors. There are other risks associated with instruments like ADR's and cross-listed companies, but normally arbitrageurs will remove these discontinuities quickly. Especially for cross-listed companies, this should keep the prices of highly liquid securities relatively synchronized.\"","ML is a brokerage firm. Tell them to sell. If you can't or don't know how to do it on-line - call them and do it over the phone. Your citizenship might come in effect when tax are withheld, you need to fill form W8-BEN if you haven't done so yet. If US taxes are withheld, you can file 1040NR to request refund, or get it credited against your local tax liabilities.","Depends entirely on the stock and your perception of it. Would you buy it at the current price? If so, keep it. Would you buy something else? If so, sell it and buy that.","The essential difference b/n ADR and a common share is that ADR do not have Voting rights. Common share has. There are some ADR that would in certain conditions get converted to common stock, but by and large most ADR's would remain ADR's without any voting rights. If you are an individual investor, this difference should not matter as rarely one would hold such a large number of shares to vote on General meeting on various issues. The other difference is that since many countries have regulations on who can buy common shares, for example in India an Non Resident cannot directly buy any share, hence he would buy ADR. Thus ADR would be priced more in the respective market if there is demand. For example Infosys Technologies, an India Company has ADR on NYSE. This is more expensive around 1.5 times the price of the common share available in India (at current exchange rate). Thus if you are able to invest with equal ease in HK (have broker / trading account etc), consider the taxation of the gains in HK as well the tax treatment in US for overseas gains then its recommended that you go for Common Stock in HK. Else it would make sense to buy in US.","It depends. An ADR might be exposed to a larger market (let's say American) with more volume and thus lower spreads, and thus cheaper. But it can also be the other way around, that the ADR serves a smaller market than the home market. I would go for the largest market, with the most volume so it's quicker and cheaper to buy/sell. Often ADR has less shares, meaning that the availability is lower and the prices higher (more expensive). This is often the case with Asian stocks where governments try to limit their company's exposure to foreigners. As a general rule I would buy the 'home' stock instead of ADR. From a tax standpoint it's also easier to comply with local laws. Your local accountant will be more familiar dealing with local stocks.","The standard answer on any long term stock is hold on during the rough times. You have not lost anything until you sell. If your concern is just that you are not certain where the stock price is headed, unless you need the money now and can not afford to hold on to the stock then I would hold it.","No, if you are trading options to profit solely off the option and not own the underlying, you should trade it away because it costs more to exercise:","Your broker should be able to answer this. Many brokers will buy it from you for the cost of a commission, if there's no legit buyer.","This happened to me recently. What became the final offer was a cash buy-out of all of our shares rather than a conversion. The cash buy-out was higher than the company's original asking price and than the stock ever went on the market before hand. I was extremely pleased to have held on to the stock until the end. That said, it sounds like your situation is different. You can't necessarily time this sort of thing. You can just make your best decision and determine to be happy with the way it all plays out.","\"You should distinguish between the price and the value of a company: \"\"Price is what you pay, value is what you get\"\". Price is the share price you pay for one share of the company. Value is what a company is worth (based on fundamental analysis, one of the principles of value investing). I would recommend selling the stock only if the company's value has deteriorated due to fundamental changes (e.g. better products from competitors, declining market) and its value is lower than the current share price.\"","If your criteria has changed but some of your existing holdings don't meet your new criteria you should eventually liquidate them, because they are not part of your new strategy. However, you don't want to just liquidate them right now if they are currently performing quite well (share price currently uptrending). One way you could handle this is to place a trailing stop loss on the stocks that don't meet your current criteria and let the market take you out when the stocks have stopped up trending.","You should be worried. You have made the mistake of entering an investment on the recommendation of family/friend. The last think you should do is make another mistake of just leaving it and hoping it will go up again. Your stock has dropped 37.6% from its high of $74.50. That means it has to go up over 60% just to reach the high of $74.50. You are correct this may never happen or if it does it could take a long, long time to get up to its previous highs. What is the company doing to turn its fortunes around? Take a look at some other examples: QAN.AX - Qantas Airways This stock reached a high of around $6 in late 2007 after a nice uptrend over a year and a half, it then dropped drastically at the start of the GFC, and has since kept falling and is now priced at just $1.15. QAN reported its first ever loss earlier this year, but its problems were evident much earlier. AAPL - Apple Inc. AAPL reach a high of just over $700 in September 2013, then dropped to around $400 and has recovered a bit to about $525 (still 25% below its highs) and looks to be at the start of another downtrend. How long will it take AAPL to get back to $700, more than 33% from its current price? TEN.AX - Ten Network Holdings Limited TEN reached a high of $4.26 in late 2004 after a nice uptrend during 2004. It then started a steep journey downwards and is still going down. It is now priced at just $0.25, a whopping 94% below its high. It will have to increase by 1600% just to reach its high of $4.26 (which I think will never happen). Can a stock come back from a drastic downtrend? Yes it can. It doesn't always happen, but a company can turn around and can reach and even surpass it previous highs. The question is how and when will this happen? How long will you keep your capital tied up in a stock that is going nowhere and has every chance of going further down? The most important thing with any investment is to protect your current capital. If you lose all your capital you cannot make any new investments until you build up more capital. That is why it is so important to have a risk management strategy and decide what is your get out point if things go against you before you get into any new investment. Have a stop loss. I would get out of your investment before you lose more capital. If you had set a stop loss at 20% off the stock's last highs, you would have gotten out at about $59.60, 28% higher than the current share price of $46.50. If you do further analysis on this company and find that it is improving its prospects and the stock price breaks up through its current ranging band, then you can always buy back in. However, do you still want to be in the stock if it breaks the range band on the downside? In this case who knows how low it can continue to go. N.B. This is my opinion, as others would have theirs, and what I would do in your current situation with this stock.","I'd call it pretty worrisome. HOOB is trading over the counter, in fact, on the pink sheets, so it has been delisted from the major exchanges. It appears that it lacks recent financial disclosures. You'll have to investigate to see if you think it's worth keeping, but trading is thin.","Yes you can, provided if buyers are available. Normally high liquidty stocks can be sold at market prices a little higher or lower.","American options (like those on ADBE) can be exercised by the holder anytime before expiration. They will be exercised automatically at expiration if they are in the money. However, if there is still time before expiration (as in this case), and they are not extremely in the money, there is probably extrinsic value to the option, and you should sell it, not exercise it. European options are only automatically exercised at expiration, and only if they are in the money. These are usually cash settled on products like SPX or VIX. They can not be exercised before expiration, but can be sold anytime.","The market maker will always take it off your hands. Just enter a market sell order. It will cost you a commission to pull the loss into this year. But that's it.","Some ADRs have standardized options that trade on US exchanges. If your stock/ADR is one of those, then you find the put option through most brokerages that deal with stock options and trade the option like you would on a regular stock. If your ADR does not have standardized options, then your options will depend on where the ADR trades. If it's OTC, you might not even be able to short it. If it trades on a major exchange, the shorting the ADR may be a viable choice.","\"There are basically two different markets for ADRs and ordinary shares. 1) The American market, 2) the \"\"local\"\" market. The following is not true for most stocks in \"\"developed\"\" markets. But it is often true that the American market (for ADRs) is far more liquid than the local market for ordinary shares of a developing country. For instance, there was a time when the ADRs of Telmex (Telefonos of Mexico) was the fifth most traded stock in the world, after Exxon (before its merger with Mobil), IBM, Microsoft, and A T&T, meaning that it was easy to trade with low fees on the NYSE. It was much harder and slower to buy the local shares of Telmex in Mexico, on the Mexican exchange. Also, the accompanying currency transactions were harder to execute with the ord, because you have to settle in local currency and pay an FX commission. With the ADR, the exchange rate is \"\"built\"\" into the (dollar) price, and you settle in dollars.\"","why sell? Because the stock no longer fits your strategy. Or you've lost faith in the company. In our case, it's because we're taking our principal out and buying something else. Our strategy is, basically, to sell (or offer to sell) after the we can sell and get our principal out, after taxes. That includes dividends -- we reduce the sell price a little with every dividend collected.","Sounds like an illiquid option, if there are actually some bidders, market makers, then sell the option at market price (market sell order). If there are not market makers then place a really low limit sell order so that you can sit at the ask in the order book. A lot of time there is off-book liquidity, so there may be a party looking for buy liquidity. You can also exercise the option to book the loss (immediately selling the shares when they get delivered to you), if this is an American style option. But if the option is worthless then it is probably significantly underwater, and you'd end up losing a lot more as you'd buy the stock at the strike price but only be able to sell at its current market value. The loss could also be increased further if there are even MORE liquidity issues in the stock.","Try to find out (online) what 'the experts' think about your stock. Normally, there are some that advise you to sell, some to hold and some to buy. Hold on to your stock when most advise you to buy, otherwise, just sell it and get it over with. A stock's estimated value depends on a lot of things, the worst of these are human emotions... People buy with the crowd and sell on panic. Not something you should want to do. The 'real' value of a stock depends on assets, cash-flow, backlog, benefits, dividends, etc. Also, their competitors, the market position they have, etc. So, once you have an estimate of how much the stock is 'worth', then you can buy or sell according to the market value. Beware of putting all your eggs in one basket. Look at what happened to Arthur Andersen, Lehman Brothers, Parmalat, Worldcom, Enron, etc.","If you know you have picked a bad stock, the sooner you sell the better. There is a tendency to hold a bad stock in the hope that it will pick up again. Most of us fall into this trap. The best way one needs to look at things are;","I haven't seen anyone mention tax considerations and that's why I'm answering this. The rest of my answer is probably covered in the aggregate of other responses. Here's how I would look at this in a taxable (not an IRA) account: This could be an opportunity to harvest the tax losses to offset taxable gains this year or in future years. Unless I have compelling reasons to believe that the price will recover by at least (Loss% x ApplicableTaxRate) in the next 31 days then I would take the known - IRS tables - opportunities over the unknown. Here's what I would consider for all accounts: Is this the most likely place to earn a good return on my money and is it contributing to a strategy that fits my risk tolerance? You might need to get some emotional distance from the pain to make this determination objectively. As you consider your trading and investment strategy going forward consider that when it hurts and you have to pull yourself up by the bootstraps to think clearly about your situation, you were most likely trading with too much size for you in that particular position. I'm willing to make exceptions to that rule of thumb, but it's a good way to use the painful losses as a gut check on how your strategy fits your real situation. P.S. All traders experience individual losses that hurt and find their way to the most suitable strategies for them through these painful experiences.","If you get selected for exercise, your broker will liquidate the whole position for you most likely Talk to your broker.","Reuters has a service you can subscribe to that will give you lots of Financial information that is not readily available in common feeds. One of the things you can find is the listing/delist dates of stocks. There are tools to build custom reports. That would be a report you could write. You can probably get the data for free through their rss feeds and on their website, but the custom reports is a paid feature. FWIW re-listing(listings that have been delisted but return to a status that they can be listed again) is pretty rare. And I can not think of too many(any actually) penny stocks that have grown to be listed on a major exchange.","You should sell all your stock immediately and reinvest the money in index funds. As of right now you're competing against prop trading shops, multinational banks, and the like, who probably know a teensy bit more about that particular stock than you do. I'm sorry, any other advice is missing the point that you shouldn't be picking stocks in the first place.","I agree, one should not let the tax tail wag the investing dog. The only question should be whether he'd buy the stock at today's price. If he wishes to own it long term, he keeps it. To take the loss this year, he'd have to sell soon, and can't buy it back for 30 days. If, for whatever reason, the stock comes back a bit, he's going to buy in higher. To be clear, the story changes for ETFs or mutual funds. You can buy a fund to replace one you're selling, capture the loss, and easily not run afoul of wash sale rules.","I would say you should invest in the market that is more convenient for you, bearing in mind that if you buy ADRs you may have some things to keep an eye on depending on certain events as mentioned by duffbeer703. So, if you are investing with an account in the U.S., go with the ADRs as that will avoid some currency conversion hassles and possible exchange rate issues. I am not certain, but I have a feeling that would also make it easier for you to keep the taxman happy.","\"I would normally take a cautious, \"\"it depends\"\" approach to answering a question like this, but instead I'm going to give you a blunt opinionated answer based solely on what I would do: Even the crap. Get rid of them and get into the boring low fee mutual funds. I was in a similar situation a few years ago, almost. My retirement accounts were already in funds but my brokerage account was all individual stocks. I decided I didn't really know what I was doing despite being up by 30+% (I recognize that it was mostly due to the market itself being up, I was lucky basically). The way I cashed out was not to sell all at once. I just set up trailing stops on all of them and waited until they hit the stops. The basic idea was that if the market kept going up, the point at which they got sold also went up (it was like a 10% trail I think), and once things started to turn for that stock, they would sell automatically. Sure I sold some at very temporary dips so I missed out on some gains but that's always a risk with a trailing stop and I really didn't care at that point. If I had to do it again, I might forget all that and just sell all at once. But I feel a lot better not being in individual stocks.\"","\"Is there anyway to salvage my investment for short-term? No. If by \"\"salvage\"\" you mean \"\"get back as much as you paid\"\", the only way to salvage it is to wait as long as you consider \"\"short-term\"\" and see if goes up again. If by \"\"salvage\"\" you mean \"\"get some money back\"\", the only thing you can do to guarantee that is sell it now. By doing so, you guarantee that you will get neither more nor less than it is worth right now. Either way, there is nothing you can do other than sell the stock or hold it. The stock price went down. You can't make it go back up. Would it be better if I sell my stocks now and buy from other company? Or should I just wait for it's price to go up again? This depends on why you bought the stock, and what you think it will do in the future. You said a family member persuaded you. Does that family member still think the stock will go up again? If so, do you still trust them? You didn't even say what stock it is in your question, so there's no way anyone here can tell you whether it's a good idea to sell it or not. Even if you do say what stock it is, all anyone can do is guess. If you want, you could look the stock up on Motley Fool or other sites to see if analysts believe it will rise. There are lots of sources of information. But all you can do with that information is decide to sell the stock or not. It may sound obvious, but you should sell if you think the stock will go lower, and hold it if you think it could still go back up. No one can tell you which of those things is going to happen.\"","\"Unless you want to own the actual shares, you should simply sell the call option.By doing so you actual collect the profits (including any remaining time-value) of your position without ever needing to own the actual shares. Please be aware that you do not need to wait until maturity of the call option to sell it. Also the longer you wait, more and more of the time value embedded in the option's price will disappear which means your \"\"profit\"\" will go down.\"","I had a coworker whose stock picking skills were clearly in the 1% level. I had a few hundred shares of EMC, bought at $10. When my coworker bought at $80, I quietly sold as it spiked to $100. It then crashed, as did many high tech stocks, and my friend sold his shares close to the $4 bottom advising that the company would go under. So I backed up the truck at $5, which for me, at the time, meant 1000 shares. This was one of nearly 50 trades I made over a good 10 year period. He was loud enough to hear throughout the office, and his trades, whether buy or sell, were 100% wrong. Individual stocks are very tough, as other posters have offered. That, combined with taking advice from those who probably had no business giving it. For the record, I am semi-retired. Not from stock picks, but from budgeting 20% of income to savings, and being indexed (S&P) with 90% of the funds. If there are options on your stock, you might sell calls for a few years, but that's a long term prospect. I'd sell and take my losses. Lesson learned. I hope.","\"Any shares you buy when a company is listed on one market will remain yours if the company moves to another market. Markets and exchanges like AIM are just venues for dealing in shares - indeed you can deal in those shares anywhere else that will allow you as well as on the AIM. The benefit of being listed in a market is that trade in the shares will be more \"\"liquid\"\" - there's more likely to be people who want to buy and sell them at any given time. The bigger concern would be what happens if the company does badly and drops out of the AIM entirely. You'd still be able to sell your shares to any willing buyer, but finding that buyer might get harder.\"","One other issue you may face is when the company announces poor financial results and begins to tank, you will not be able to sell until the US market open and could incur a lot of pain.","A public company should have a link for investor relations, which should help provide a trail of basis if this is a matter of company buyout, takeover, etc. This gets you close, but if you don't have an exact date, it will just be close, not exact. One clean way out of this, assuming the goal is to get rid of the stock and move on, is to donate the shares to charity. You will take the present value as a deduction, and be done. You can use a charitable gift fund such as those offered by Schwab or Fidelity, so if say, the shares are worth $20K, and you typically donate $5K per year, the fund lets you do this transaction at once, then send to the charities you wish over the next few years.","You sell any investment because you need to do something else with the money -- rebalance your investments, buy something, pay off a debt....","\"You have to calculate the total value of all shares and then ask yourself \"\"Would I invest that amount of money in this stock?\"\" If the answer is yes, then only sell what you need to sell. Take the $3k loss against your income, if you have no other gains. If you would not invest that amount of cash in that stock, then sell it all right now and carry forward the excess loss every year. Note at any point you have capital gains you can offset all of them with your loss carryover (not just $3k).\"","On NYSE it isn't the equity which is listed but is an ADR(American Depositary Receipt). Source A negotiable certificate issued by a U.S. bank representing a specified number of shares (or one share) in a foreign stock that is traded on a U.S. exchange. ADRs are denominated in U.S. dollars, with the underlying security held by a U.S. financial institution overseas. ADRs help to reduce administration and duty costs that would otherwise be levied on each transaction. Else people would make a killing on the arbitrage opportunity. Frankly speaking arbitrage opportunities are more or less non existent. They occur for maybe seconds or milliseconds and the HFT firms and banks trade on it to remove the arbitrage.","You are right about the stock and index funds, with dollar cost averaging over several years, the daily price of the security (especially a dividend paying security) will not matter* because your position will have accumulated larger over several entry points, some entries with cheaper shares and some entries with more expensive shares. In the future your position will be so large that any uptick will net you large gains on your original equity. *not matter being a reference to even extreme forms of volatility. But if you had all your equity in a poor company and tanked, never to rise again, then you would still be in a losing position even with dollar cost averaging. If your only other holdings are bonds, then you MAY want to sell those to free up capital.","Judge this stock no differently than any other is the answer. Optimism isn't fact. http://clarkhoward.com/liveweb/shownotes/2007/06/06/12304/?printer=1 Now because you get to buy extremely low, and sell for probably higher and you believe in the stock, I'd say go ahead and purchase the stock, manage it for taxes with the advice of your advisor and get your portfolio rebalanced as soon as you can. That might admittedly be a year or more, but as you say you have time. Like any investment, don't spend money you can't lose.","Usually the ADR fee comes out of dividend payments and is modest. The ADR that I am most familiar with (Vodafone - VOD) pays dividends twice a year and deducts either $0.02 or $0.01 per share. IMO, the ADR fee is not really a material factor. ADRs do have some disadvantages though:","\"If you're asking this question, you probably aren't ready to be buying individual stock shares, and may not be ready to be investing in the market at all. Short-term in the stock market is GAMBLING, pure and simple, and gambling against professionals at that. You can reduce your risk if you spend the amount of time and effort the pros do on it, but if you aren't ready to accept losses you shouldn't be playing and if you aren't willing to bet it all on a single throw of the dice you should diversify and accept lower potential gain in exchange for lower risk. (Standard advice: Index funds.) The way an investor, as opposed to a gambler, deals with a stock price dropping -- or surging upward, or not doing anything! -- is to say \"\"That's interesting. Given where it is NOW, do I expect it to go up or down from here, and do I think I have someplace to put the money that will do better?\"\" If you believe the stock will gain value from here, holding it may make more sense than taking your losses. Specific example: the mortgage-crisis market crash of a few years ago. People who sold because stock prices were dropping and they were scared -- or whose finances forced them to sell during the down period -- were hurt badly. Those of us who were invested for the long term and could afford to leave the money in the market -- or who were brave/contrarian enough to see it as an opportunity to buy at a better price -- came out relatively unscathed; all I have \"\"lost\"\" was two years of growth. So: You made your bet. Now you have to decide: Do you really want to \"\"buy high, sell low\"\" and take the loss as a learning experience, or do you want to wait and see whether you can sell not-so-low. If you don't know enough about the company to make a fairly rational decision on that front, you probably shouldn't have bought its stock.\"","The stock exchange here serves as a meeting place for current shareholders who want to sell their shares to someone else. This has nothing to do with liquidation, which is a transaction between the company and its shareholders. A company does not have to be listed on an exchange to make distributions to shareholders.","Yes, the ADR will trade on a separate exchange from the underlying one, and can (and does) see fluctuations in price that do not match the (exchange corrected) fluctuations that occur in the original market. You are probably exposing yourself to additional risk that is related to:","Every company has Stocks. For the stocks to be traded via some stock exchange, the companies must follow the eligibility criteria and guidelines. Once done, these are then listed on the stock exchange and can be traded. The advantage [amongst others] of listing is liquidity and stocks can easily be bought and sold. Some small companies or closely held companies may not want to list on stock exchange and hence are not traded. This does not mean they can't be bought and sold, they can be outside of the market, however the deals are complex and every deal has to be worked out. During the course of time a stock that is traded on a stock exchange, would either fail to meet the criteria or voluntarily choose not to be traded and follow the delisting process [either by stock exchange or by company]. After this the stocks are no longer traded on the exchange.","A reason not to split your stock is that the value of the company might fall back again, and if its stock price falls below $1 it will be delisted from the NYSE. So if the value of your company grows tenfold so the shares go from $5 to $50, you do a ten-for-one split, and then its value shrinks back to where it started, you're off the stock exchange.","The question seems to be from the point of view actual sales and not its impact on one's taxation. In case you just want to sell, why brokers will respond differently each times. Either there may be issues with ownership and/or the company whose shares it is? In case you feel that the issues lies with brok","The cost to you for selling is 3/8% of a years salary, this is what you won't get if you sell. Tough to calculate the what-if scenarios beyond this, since I can't quantify the risk of a price drop. Once the amount in he stock is say,10%, of a years salary, if you know a drop is coming, a sale is probably worth it, for a steep drop. My stronger focus would be on how much of your wealth is concentrated in that one stock, Enron, and all.","Personally, I have been in that situation too often that now I am selling at the first tick down! (not exactly but you get the idea..) I have learned over the years to not fall in love with any stock, and this is a very hard thing to do. Limit your losses and take profit when you are satisfied with them. Nothing prevents you from buying back in this stock but why buying when it is going down? Just my 2 cents.","Yes, the stock price drops on official listing. But what gonna happen on first trade after the dividend date, is up to the market. The market is the market, the rules are the rules. I saw prices going up more than once just after the dividend date, exactly because people think will be cheaper. Market doesn't always follow rules.","I think the advice Bob is being given is good. Bob shouldn't sell his investments just because their price has gone down. Selling cheap is almost never a good idea. In fact, he should do the opposite: When his investments become cheaper, he should buy more of them, or at least hold on to them. Always remember this rule: Buy low, sell high. This might sound illogical at first, why would someone keep an investment that is losing value? Well, the truth is that Bob doesn't lose or gain any money until he sells. If he holds on to his investments, eventually their value will raise again and offset any temporary losses. But if he sells as soon as his investments go down, he makes the temporary losses permanent. If Bob expects his investments to keep going down in the future, naturally he feels tempted to sell them. But a true investor doesn't try to anticipate what the market will do. Trying to anticipate market fluctuations is speculating, not investing. Quoting Benjamin Graham: The most realistic distinction between the investor and the speculator is found in their attitude toward stock-market movements. The speculator's primary interest lies in anticipating and profiting from market fluctuations. The investor's primary interest lies in acquiring and holding suitable securities at suitable prices. Market movements are important to him in a practical sense, because they alternately create low price levels at which he would be wise to buy and high price levels at which he certainly should refrain from buying and probably would be wise to sell. Assuming that the fund in question is well-managed, I would refrain from selling it until it goes up again.","\"When C did their 10-1 reverse split in 2011 all the fractional shares were aggregated and then sold with the proceeded going back to the fractional shareholders. From their press release: \"\"No fractional shares were issued in connection with the reverse stock split. Instead, Citi’s transfer agent will aggregate all fractional shares that otherwise would have been issued as a result of the reverse stock split and those shares will be sold into the market. Shareholders who would otherwise hold a fractional share of Citigroup common stock will receive a cash payment from the net proceeds of that sale in lieu of such fractional share. \"\" While there was selling, it didn't cause a \"\"sell off\"\" so to speak. I have also come across instances where the company buys the fractional shares and retires them.\"","I bought 1000 shares of a $10 stock. When it doubled, I sold half, no need to be greedy. I watched the shares split 2 for one, and sold as it doubled and doubled again. In the end, I had $50,000 in cash pulled out and still had 100 shares. The shares are now worth $84K since they split 7 for one and trade near $120. Had I just kept the shares till now, no sales, I'd have 14,000 shares of Apple worth $1.68M dollars. $130K for an initial $10,000 investment is nothing to complain about, but yes, taking a profit can be the wrong thing. 25%? Was that all the potential the company had? There's one question to ask, not where is the price today compared to last year or two years ago, but what are the company's prospects. Is the reason I bought them still valid? Look at your investment each quarter as if you were making the decision that day. I agree, diversification is important, so the choice is only hold or sell, not to buy more of a good company, because there are others out there, and the one sane thing Cramer says that everyone should adhere to is to not put your eggs in one basket.","\"The common way to frame the \"\"should I sell\"\" question is ask yourself \"\"would you buy it today at the current price\"\". If you wouldn't, sell it. Is sounds like this may be a paper certificate. You will have to research how to present the certificate to a broker to trade it, or if the company has a direct shareholder program. I have periodically been offered to sell \"\"odd lots\"\" to shareholder programs which, if one exists, may be less hassle than other options. As a part of this, your mother's estate administrator should decide if the estate is selling it's interest, or giving it's interest to heirs before the sale.\"","Don't sell. Ever. Well almost. A number of studies have shown that buying equal amounts of shares randomly will beat the market long term, and certainly won't do badly. Starting from this premise then perhaps you can add a tiny bit extra with your skill... maybe, but who knows, you might suck. Point is when buying you have the wind behind you - a monkey would make money. Selling is a different matter. You have the cost of trading out and back in to something else, only to have changed from one monkey portfolio to the other. If you have skill that covers this cost then yes you should do this - but how confident are you? A few studies have been done on anonymised retail broker accounts and they show the same story. Retail investors on average lose money on their switches. Even if you believe you have a real edge on the market, you're strategy still should not just say sell when it drops out of your criteria. Your criteria are positive indicators. Lack of positive is not a negative indicator. Sell when you would happily go short the stock. That is you are really confident it is going down. Otherwise leave it.","In my opinion, the average investor should not be buying individual stocks. One reason why is that the average investor is not capable of reading financial statements and evaluating whether a stock is overpriced or underpriced. As such, they're often tempted to make buy/sell decisions based solely on the current value of a stock as compared to the price at which they bought it. The real reasons to buy (or sell) a stock is the expectation of future growth of the company (or continued profit and expected dividends). If you aren't able to analyze a company's financial statements and business plan, then you really aren't in a position to evaluate that company's stock price. So instead of asking whether to sell based on a recent drop in stock price, you should be investigating why the stock price is falling, and deciding whether those reasons indicate a trend that you expect to continue. If you buy and sell stocks based solely on recent trends in the stock price, you probably will end up buying stocks that have recently risen and selling stocks that have recently fallen. In that case, you are buying high and selling low, which is a recipe for poor financial outcomes.","\"It is not clear when you mean \"\"company's directors\"\" are they also majority owners. There are several reasons for Buy; Similarly there are enough reasons for sell; Quite often the exact reasons for Buy or Sell are not known and hence blindly following that strategy is not useful. It can be one of the inputs to make a decision.\"","What you are suggesting would be the correct strategy, if you knew exactly when the market was going to go back up. This is called market timing. Since it has been shown that no one can do this consistently, the best strategy is to just keep your money where it is. The market tends to make large jumps, especially lately. Missing just a few of these in a year can greatly impact your returns. It doesn't really matter what the market does while you hold investments. The important part is how much you bought for and how much you sold for. This assumes that the reasons that you selected those particular investments are still valid. If this is not the case, by all means sell them and pick something that does meet your needs.","\"Am I being absurd? No. Should I be worrying? Yes. If I sell in the morning, I've only lost a couple hundred dollars, and learned a valuable lesson. Is there any reason to believe it won't be that simple? If you're lucky, you'll be able to dump your stocks to someone like you who'll be punching himself in the face tomorrow night. If not - you're stuck. You may end up selling them to your broker as worthless. You might have become a victim of a \"\"pump and dump\"\" fraud. Those are hard to identify in real-time, but after been burned like that myself (for much lesser amounts than you though), I avoid any \"\"penny\"\" stocks that go up for no apparent (and verifiable) reason. In fact, I avoid them altogether.\"","Having stock options means that you have worked for and rightfully earned a part of the company's capital appreciation. Takeover of the company would indicate someone is interested in the company (something should be valuable). It would be unwise to not strike before the period lapses since the strike price is always lower than market price and takeovers generally increases stock values ... it is capital gains all the way my friend. Good luck. *observations not in professional capacity. pls consult a professional for investment related advice.","Unfortunately I believe there is not a good answer to this because it's not a well posed problem. It sounds like you are looking for a theoretically sound criteria to decide whether to sell or hold. Such a criteria would take the form of calculating the cost of continuing to hold a stock and comparing it to the transactions cost of replacing it in your portfolio. However, your criteria for stock selection doesn't take this form. You appear to have some ad hoc rules defining whether you want the stock in your portfolio that provide no way to calculate a cost of having something in your portfolio you don't want or failing to have something you do want. Criteria for optimally rebalancing a portfolio can't really be more quantitative than the rules that define the portfolio.","The stock price is not only based on the general market trend and the stock's current profitability and prospects, but is also based on prediction of how the stock's prospects might change in the future. In almost every case, there are professional investors analysing the stock's future prospects and considering whether it's over or under values for its current price. However even professionals can be totally wrong. If you feel like you have a good grasp on whether the stock will have improving or declining prospects over time, then you might be (if you're right) equipped to make a sensible decision on whether to hold the stock or not. If you don't think you have a good understanding about the stock, then an understanding of the general market direction might at least make stock in general worth holding. Otherwise, you are simply taking a punt. If you know of another stock that has better prospects, then ask yourself why you would hold onto the stock that you think will perform worse. But also bear in mind that (in my understanding) research has shown that, on average, people who try to pick stocks rarely do better than a random selection, and more stock trades means more brokerage (which thanks to brokerage losses would mean you will end up doing worse than average unless you really do know better than the market).","Any time there is a share adjustment from spin-off, merger, stock split, or reverse slit; there is zero chance for the stockholders to hang on to fractional shares. They are turned into cash. For the employees in the 401K program or investors via a mutual fund or ETF this isn't a problem. Because the fraction of a share left over is compared to the thousands or millions of shares owned by the fund as a collective. For the individual investor in the company this can be a problem that they aren't happy about. In some cases the fractional share is a byproduct that will result from any of these events. In the case of a corporate merger or spin-off most investors will not have an integer number of shares, so that fraction leftover that gets converted to cash isn't a big deal. When they want to boost the price to a specific range to meet a regulatory requirement, they are getting desperate and don't care that some will be forced out. In other cases it is by design to force many shareholders out. They want to go private. They to 1-for-1000 split. If you had less than 1000 shares pre-split then you will end up with zero shares plus cash. They know exactly what number to use. The result after the split is that the number of investors is small enough they they can now fall under a different set of regulations. They have gone dark, they don't have to file as many reports, and they can keep control of the company. Once the Board of Directors or the majority stockholders votes on this, the small investors have no choice.","\"The price at which a stock was purchased is a sunk cost--that is, you cannot go back in time and reverse the decision you made to purchase that stock. Another example of a sunk cost would be purchasing a non-refundable, non-transferable movie ticket. Sunk costs have the tendency to create a cognitive bias in which we feel that the amount we paid at some point in the past should have some sort of bearing on the decision we make now--the purchaser of the ticket feels he must go see the movie even if he no longer wishes too, lest the ticket \"\"go to waste\"\"... the investor hopelessly clings to a battered stock for that tiny chance that just maybe some day it will return to its former glory. This is referred to as the \"\"sunk cost fallacy\"\" and is considered to be irrational behavior by economists. Keeping this in mind, your hopes and dreams for the stock at the time you purchased it should have no bearing on the decision you make now. Similarly, whether the stock has risen or fallen in price since your purchase date should have no bearing. Instead, you must consider what you expect the stock to do from this very moment on into the future--that is, you must act at the margin. You've indicated that you are faced with two choices--sell the stock now, incur the loss, but benefit from the tax break (Option A). This benefit is quite easily quantifiable--it is your marginal tax rate multiplied by the additive inverse of the loss (assuming you have/will have other gains to offset). Let's just assume that you incurred a $1000 loss, at a marginal tax rate of 20%, which means your tax benefit for the loss is $200. The second choice--to hold the stock in hopes of it rising in price (Option B)--is a bit harder to quantify. You must assume that today is day zero, and that every cent in price the stock rises is a gain to you, and every cent in price the stock looses is a loss to you. If you believe that the stock will rise to a price that will net your more than your tax benefit from option A, then holding the stock is more favorable than selling it at a loss today. Conversely, if you believe this stock will fall even further in the future, or not rise enough to net you $200 (per the example), then Option A is preferable. Granted, there are some additional complications that play into your decision. By selling the stock today, you not only get a tax benefit from the loss, but you've also freed up the funds previously used to purchase that stock to be invested elsewhere (in hopefully a better performing asset). If you choose to stick with your current stock, then the gains you may have netted elsewhere must be considered as an opportunity cost associated with Option B. Finally, the tax benefit is essentially guaranteed (so in our example, a $200 risk free return), while sticking with the stock in Option B still comes with some risk.\"","does it still count as a capital gain or loss? Yes. Is it essentially treated like you sold the stock at the price of the buy-out? Yes. Do you still get a 1099-B from your broker? Yes.","As yet another explanation of why it does not really matter, you can look at this from the valuation point of view. Stock price is the present value of its future cash flows (be it free cash flow of the firm or dividends, depending on the model). Let's have a look at the dividends case. Imagine, the price of the stock is based on only three dividends streams $5 dollars each: dividend to be paid today, in year 1, and in year 2. Each should be discounted back to today (say, at 10%), except today's dividend, since today is now. Once that dividend is paid, it is no longer in the stream of cash flows. So if we just delete that first $5 from the formula, the price will adjust itself down by the amount of the dividend to $8.68. NOTE that this is a very simple example, since in reality cash flows streams are arguably infinite and because there are many other factors affecting stock price. But simply for your understanding, this example should provide you with the reason simply from the valuation perspective.","The best thing to do to avoid this is not to sell as you've described. What purpose does it solve? If you're speculating, set a price at which you want to cash out and put a limit order. If you're a long term investor, then unless something fundamental has changed - why would you sell?","When there are no buyers, you can't sell your shares, and you'll be stuck with them until there is some interest from other investors. In this link describes clearly: http://www.investopedia.com/ask/answers/03/053003.asp","There are 2 approaches. One of them is already mentioned by @Afforess. If the approach by @Afforess is not feasible, and you can not see yourself making an unbiased decision, close the position. By closing the position you will not get the best price. But by removing a distraction you will reduce amount of mistakes you make in the other stocks.","If they own enough shares to vote to sell, you will be paid the offer price quoted to you. At that point if you do not wish to sell your only recourse will be to file a lawsuit. This is a common tactic for significant shareholders who have a minority stake and cannot block the sale because they have insufficient voting rights. What usually happens then is that they either settle the lawsuit out of court by paying a little more to the holdouts or the lawsuit is thrown out and they take the original offer from the buyer. Rarely does a lawsuit from a buyout go to trial.","Hopefully, before you invested in this stock, you evaluated the company. You looked at the financial information about the company and where the company was headed, and evaluated whether the stock was undervalued or overvalued. Hopefully, you determined that the stock was undervalued at the time you bought it. The thing to do now is to reevaluate the stock. Do you think the stock is overvalued or undervalued right now? If you didn't own it, would you buy it today? Instead of looking at the past performance of the stock, you want to try to determine which direction the stock will go from today. If you wouldn't buy it today at it's current price, then you should sell. If you have no idea how to do this evaluation, neither do I. For me, with the investing knowledge I have right now, investing in an individual stock would be way too risky. If you don't know how to evaluate a stock and determine if it is a good buy or not, then you should stay away from individual stocks and instead invest in stock mutual funds, which lower the risk by diversifying over lots of stocks.","I guess the answer lies in your tax jurisdiction (different countries tax capital gains and income differently) and your particular tax situation. If the price of the stock goes up or down between when you buy and sell then this counts for tax purposes as a capital gain or loss. If you receive a dividend then this counts as income. So, for instance, if you pay tax on income but not on capital gains (or perhaps at a lower rate on capital gains) then it would pay you to sell immediately before the stock goes ex-dividend and buy back immediately after thereby making a capital gain instead of receiving income.","There is no reason to roll an option if the current market value is lower than the strike sold. Out-of-the-money strikes (as is the $12 strike) are all time value which is decaying constantly and that is to our advantage. If share price remains below the strike, the option will expire worthless, you will still have your shares and free to sell another option the Monday after expiration Friday. If share price is > $12 on expiration Friday and you want to keep those shares, you can roll out or out-and-up depending on your outlook for the stock. Good luck, Alan","\"If I buy the one from NSY, is it the \"\"real\"\" Sinopec? No - you are buying an American Depository Receipt. Essentially some American bank or other entity holds a bunch of Sinopec stock and issues certificates to the American exchange that American investors can trade. This insulates the American investors from the cost of international transactions. The price of these ADRs should mimic the price of the underlying stock (including changes the currency exchange rate) otherwise an arbitrage opportunity would exist. Other than that, the main difference between holding the ADR and the actual stock is that ADRs do not have voting rights. So if that is not important to you then for all intents and purposes trading the ADR would be the same as trading the underlying stock.\"","None of your options or strategies are ideal. Have you considered looking at the stock chart and making a decision? Is the price currently up-trending, or is it down-trending, or is it going sideways? As Knuckle Dragger mentions, you could just set a limit price order and if it does not hit by Friday you can just sell at whatever price on Friday. However, this could be very damaging if the price is currently down-trending. It may fall considerably by Friday. I think a better strategy would be to place a trailing stop loss order, say 5% from the current price. If the stock starts heading south you will be stopped out approximately 5% below the current price. However, if the price goes up, your trailing stop order will move up as well, always trailing 5% below the highest price reached. If the trailing stop has not been hit by Friday afternoon, you can sell at the current price. This way you will be protected on the downside (only approx. 5% below current price) and can potentially benefit from any short term upside.","Have the reasons you originally purchased the stock changed? Is the company still sound? Does the company have a new competitor? Has the company changed the way they operate? If the company is the same, except for stock price, why would you change your mind on the company now? ESPECIALLY if the company has not changed, -- but only other people's PERCEPTION of the company, then your original reasons for buying it are still valid. In fact, if you are not a day-trader, then this COMPANY JUST WENT ON SALE and you should buy more. If you are a day trader, then you do care about the herd's perception of value (not true value) and you should sell. DAY TRADER = SELL BUY AND HOLD (WITH INTELLIGENT RESEARCH) = BUY MORE","My understanding is that losses are first deductible against any capital gains you may have, then against your regular income (up to $3,000 per year). If you still have a loss after that, the loss may be carried over to offset capital gains or income in subsequent years As you suspect, a short term capital loss is deductible against short term capital gains and long term losses are deductible against long term gains. So taking the loss now MIGHT be beneficial from a tax perspective. I say MIGHT because there are a couple scenarios in which it either may not matter, or actually be detrimental: If you don't have any short term capital gains this year, but you have long term capital gains, you would have to use the short term loss to offset the long term gain before you could apply it to ordinary income. So in that situation you lose out on the difference between the long term tax rate (15%) and your ordinary income rate (potentially higher). If you keep the stock, and sell it for a long term loss next year, but you only have short-term capital gains or no capital gains next year, then you may use the long term loss to offset your short-term gains (first) or your ordinary income. Clear as mud? The whole mess is outlined in IRS Publication 550 Finally, if you still think the stock is good, but just want to take the tax loss, you can sell the stock now (to realize the loss) then re-buy it in 30 days. This is called Tax Loss Harvesting. The 30 day delay is an IRS requirement for being allowed to realize the loss.","Ignore sunk costs and look to future returns. Although it feels like a loss to exit an investment from a loss position, from a financial standpoint you should ignore the purchase price. If your money could be better invested somewhere else, then move it there. You shouldn't look at it as though you'll be more financially secure because you waited longer for the stock to reach the purchase price. That's psychological, not financial. Some portion of your invested wealth is stuck in this particular stock. If it would take three months for the stock to get back to purchase price but only two months for an alternate investment to reach that same level, then obviously faster growth is better. Your goal is greater wealth, not arbitrarily returning certain investments to their purchase price. Investments are just instrumental. You want more wealth. If an investment is not performing, then ignore purchase price and sunken costs. Look at the reasonable expectations about an investment going forward.","\"I'm not sure what you expect in terms of answers, but it depends on personal factors. It pretty well has to depend on personal factors, since otherwise everyone would want to do the same thing (either everyone thinks the current price is one to sell at, or everyone thinks it's one to buy at), and there would be no trades. You wouldn't be able to do what you want, except on the liquidity provided by market makers. Once that's hit, the price is shifting quickly, so your calculation will change quickly too. Purely in terms of maximising expected value taking into account the time value of money, it's all about the same. The market \"\"should\"\" already know everything you know, which means that one time to sell is as good as any other. The current price is generally below the expected acquisition price because there's a chance the deal will fall through and the stock price will plummet. That's not to say there aren't clever \"\"sure-fire\"\" trading strategies around acquisitions, but they're certain to be based on more than just timing when to sell an existing holding of stock. If you have information that the market doesn't (and assuming it is legal to do so) then you trade based on that information. If you know something the market doesn't that's going to be good for price, hold. If you know something that will reduce the price, sell now. And \"\"know\"\" can be used in a loose sense, if you have a strong opinion against the market then you might like to invest based on that. Nothing beats being paid for being right. Finally, bear in mind that expected return is not the same as utility. You have your own investment goals and your own view of risk. If you're more risk-averse than the market then you might prefer to sell now rather than wait for the acquisition. If you're more risk-prone than the market then you might prefer a 90% chance of $1 to 90c. That's fine, hold the stock. The extreme case of this is that you might have a fixed sum at which you will definitely sell up, put everything into the most secure investments you can find, and retire to the Caribbean. If that's the case then you become totally risk-averse the instant your holding crosses that line. Sell and order cocktails.\"","You sold all shares? The potential wash sale effect goes away after 30 days from the dividend date. Selling all shares of a stock where a wash existed effectively negates the wash and you can take the loss.","\"If you sold the stock for a profit, you will owe tax on that profit. Whether it is taxed as short-term or long-term capital gains depends on how long you held the stock before selling it. Presumably you're going to invest this money into mutual funds or something of that sort. Those may pay dividends which can be reinvested, and will grow in value (you hope) just as the individual stock shares would (you hope). Assuming the advice you've been given is at all reasonable, there's no need for buyer's remorse here; you're just changing your investing style to a different point on the risk-versus-return curve. (If you have to ask this question, I tend to agree that you should do more homework before playing with shares in individual companieS ... unless you're getting thess shares at employee discount, in which case you should still seriously consider selling them fairly quickly and reinvesting the money in a more structured manner. In a very real sense your job is itself an \"\"investment\"\" in your employer; if they ever get into trouble you don't want that to hit both your income and investments.)\"","It depends on what your investment goals are. Are you investing for the short-term or the long-term? What was your reason for investing in these stocks in the first place? Timing short-term fluctuations in the market is very difficult, so if that's your goal, I wouldn't count on being able to sell and buy back in at exactly the right time. Rather, I think you should think about what your investment rationale was in the first place, and whether or not that rationale still holds. If it does, then hold on to the stocks. If it doesn't, then sell.","There's an odd anomaly that often occurs with shares acquired through company plans via ESPP or option purchase. The general situation is that the share value above strike price or grant price may become ordinary income, but a sale below the price at day the shares are valued is a capital loss. e.g. in an ESPP offering, I have a $10 purchase price, but at the end of the offering, the shares are valued at $100. Unless I hold the shares for an additional year, the sale price contains ordinary W2 income. So, if I see the shares falling and sell for $50, I have a tax bill for $90 of W2 income, but a $50 capital loss. Tax is due on $90 (and for 1K shares, $90,000 which can be a $30K hit) but that $50K loss can only be applied to cap gains, or $3K/yr of income. In the dotcom bubble, there were many people who had million dollar tax bills and the value of the money netted from the sale couldn't even cover the taxes. And $1M in losses would take 300 years at $3K/yr. The above is one reason the lockup date expiration is why shares get sold. And one can probably profit on the bigger companies stock. Edit - see Yelp down 3% following expiration of 180 day IPO lock-up period, for similar situation.","The idea that you should pay $5,000 up front to convert your shares and sell them to ultimately receive some larger amount is crazy. If in fact the shares need to be converted (unlikely), they should be able to deduct the fees from the proceeds of your transaction, and you would not be out-of-pocket anything at all. You didn't provide much in numbers, so I will make some up: For example: If you have 2,000 shares valued at $10 each, your account should be worth $20,000. If the liquidation cost is $5,000, they should be able to sell everything, deduct the liquidation cost, and send you a check for $15,000. You should NOT have to pay money up front to get your own money, and that is a sure sign of a scam. If the liquidation cost is $5,000, they should be able to sell everything, deduct the liquidation cost, and send you a check for $15,000. You should NOT have to pay money up front to get your own money, and that is a sure sign of a scam."],"string":"[\n \"I'm a bit out of my element here, but my guess is the right way to think about this is: knowing what you do now about the underlying company (NZT), pretend they had never offered ADR shares. Would you buy their foreign listed shares today? Another way of looking at it would be: would you know how to sell the foreign-listed shares today if you had to do so in an emergency? If not, I'd also push gently in the direction of selling sooner than later.\",\n \"Just because it gets delisted from one of the big boards doesn't mean it can't trade over the counter. For example GM went OTC under the ticker MTLQQ for a while. That being said, just because the stock is trading over the counter doesn't mean it has any real long term value.\",\n \"When a delisting happens, the primary process involves, the firm or the entity, trying to buy everyone out so that they can take the firm private by delisting from the stock exchanges. As the firm wants to buy everyone out, the current owners of the equity have the upper hand. They wouldn't want to sell if they believe the firm has a brighter future. So to compensate the existing holders, the buyer needs to compensate the current holders of any future loss, so they pay a premium to buy them out. Hence the prices offered will be more than the current existing price. And in anticipation of a premium the stocks price rises on this speculation. The other scenario is if the current holder(s) decide no to sell their holdings and are small in number, dependent on exchange regulations, and the buyer manages to de-list the stock, the holders might loose out i.e. they have to find another buyer who wants to buy which becomes difficult as the liquidity for the stock is very minimal. if any stock is DE-listed and then we can not trade on it, In India if the promoters capital is more than 90%, he can get the stock de-listed. There is a process, he has to make an open offer at specified price to minority shareholders. The minority shareholder can refuse to sell. Once the stock is de-listed, it means it cannot be traded on a given exchange. However you can still sell / buy by directly finding a buyer / seller and it's difficult compared to a listed stock.\",\n \"Source Rule 41 of the AIM Rules sets out the procedure for delisting. In summary, a company that wishes to cancel the right of any of its trading securities must: The notification to the Exchange should be made by the company’s nominated adviser and should be given at least 20 business days prior to the intended cancellation date (the 20 business days’ notice requirement is a minimum). Any cancellation of a company’s securities on AIM will be conditional upon seeking shareholder approval in general meeting of not less than 75% of votes cast by its shareholders present and voting (in person or by proxy) at the meeting. The notification to shareholders should set out the preferred date of cancellation, the reasons for seeking the cancellation (for example annual fees to the Exchange, the cost of maintaining a nominated adviser and broker, professional costs, corporate governance compliance, inability to access funds on the market), a description of how shareholders will be able to effect transactions in the AIM securities once they have been cancelled and any other matters relevant to shareholders reaching an informed decision upon the issue of the cancellation. Cancellation will not take effect until at least 5 business days after the shareholder approval is obtained and a dealing notice has been issued by the Exchange. It should be noted that there are circumstances where the Exchange may agree that shareholder consent is not required for the cancellation of admission of a company’s shares, for example (i) where comparable dealing facilities on an EU regulated market or AIM designated market are put in place to enable shareholders to trade their AIM securities in the future or (ii) where, pursuant to a takeover which has become wholly unconditional, an offeror has received valid acceptances in excess of 75% of each class of AIM securities. The company’s Nominated Adviser will liaise with the Exchange to secure a dispensation if relevant. So you should receive information from the company regarding the due process informing you about your options.\",\n \"You would still be the legal owner of the shares, so you would almost certainly need to transfer them to a broker than supports the Hong Kong Stock Exchange (which allows you to trade on the Shanghai exchange). In order to delist they would need to go through a process which would include enabling shareholders to continue to access their holdings.\",\n \"You have not lost value. It is just that the shares you owned, are now not tradable on US stock exchanges. You still have the value of your shares protected. In cases like de-listing of a stock, typically a trust (may be managed by a bank) is setup to help customers liquidate their stocks. You should try to search the relevant SEC filings for de-listing of this stock to get more details on whom to contact.\",\n \"From what I read, if the monthly average of the stock falls below 1 dollar, it can be delisted from the NYSE, which of course means you lose everything. I've been playing this same stock on a day by day basis. Twice I've finished up 15% on the day, with AMR, but I don't plan on being able to do this for much longer though. I dumped it all today just in case they decide to remove it this weekend.\",\n \"It looks like JP Morgan can convert your holding to unsponsored ADRs until July.. In any event, you should not completely lose the equity. Volvo still exists as a public company, it's just not tradable on US exchanges. Q1: Yes, you'd need a JPM account. Your broker should have offered a similar service. If they didn't they are not a broker. Q2: You own 30 shares in Volvo. You need to get your broker to either sell them (off-exchange now) or tell you how to gain access to them.\",\n \"\\\"I can see two possibilities. Either a deal is struck that someone (the company itself, or a large owner) buys out the remaining shares. This is the scenario @mbhunter is talking about, so I won't go too deeply into it, but it simply means that you get money in your bank account for the shares in question the same as if you were to sell them for that price (in turn possibly triggering tax effects, etc.). I imagine that this is by far the most common approach. The other possibility is that the stock is simply de-listed from a public stock exchange, and not re-listed elsewhere. In this case, you will still have the stock, and it will represent the same thing (a portion of the company), but you will lose out on most of the \\\"\\\"market\\\"\\\" part of \\\"\\\"stock market\\\"\\\". That is, the shares will still represent a monetary value, you will have the same right to a portion of the company's profits as you do now, etc., but you will not have the benefit of the market setting a price per share so current valuation will be harder. Should you wish to buy or sell stock, you will have to find someone yourself who is interested in striking a deal with you at a price point that you feel comfortable with.\\\"\",\n \"As far as I know, with ADRs you're essentially trading by proxy -- a depository bank is holding the actual stock certificate, and must provide you with the actual stock on demand. The one thing that is different is that in the event that the ADR is terminated (which sometimes happens with mergers), you have a limited period of time to sell the shares -- otherwise, you get the actual foreign stock that you may or may not be able to trade without transferring to a different broker.\",\n \"No, you shouldn't buy it. The advice here is to keep any existing holdings but not make new purchases of the stock.\",\n \"Liquidity on dual listed equities is rarely the same on both exchanges. More liquidity means you would typically get a better price assuming you execute the trades using the same order types. It's recommended to trade where the liquidity is greater unless your trading method benefits somehow from it being lower. It's important to remember that some ADRs (some European companies listed in US) have ADR fees which vary. USD/EUR transaction fees are low when using a decent broker but you're obviously participating in the currency risk.\",\n \"\\\"If you have someplace to put the money which you think will yield significantly better returns, by all means sell and buy that. On the other hand, if you think this stock is likely to recover its value, you might want to hold it, or even buy more as a \\\"\\\"contrarian\\\"\\\" investment. Buy low, sell high, as much as possible. And diversify. You need to make a judgement call about the odds. We can point out the implications, but in the end whether to sell, buy, hold or hedge is your decision. (This also suggests you need to sit down and draw up a strategy. Agonizing over every decision is not productive. If you have a plan, you make this sort of decision before you ever put money into the stock in the first place.)\\\"\",\n \"Academic research into ADRs seems to suggest that pairs-trading ADRs and their underlying shares reveals that there certainly are arbitrage opportunities, but that in most (but not all cases) such opportunities are quickly taken care of by the market. (See this article for the mexican case, the introduction has a list of other articles you could read on the subject). In some cases parity doesn't seem to be reached, which may have to do with transaction costs, the risk of transacting in a foreign market, as well as administrative & legal concerns that can affect the direct holder of a foreign share but don't impact the ADR holder (since those risks and costs are borne by the institution, which presumably has a better idea of how to manage such risks and costs). It's also worth pointing out that there are almost always arbitrage opportunities that get snapped up quickly: the law of one price doesn't apply for very short time-frames, just that if you're not an expert in that particular domain of the market, it might as well be a law since you won't see the arbitrage opportunities fast enough. That is to say, there are always opportunities for arbitrage with ADRs but chances are YOU won't be able to take advantage of it (In the Mexican case, the price divergence seems to have an average half-life of ~3 days). Some price divergence might be expected: ADR holders shouldn't be expected to know as much about the foreign market as the typical foreign share holder, and that uncertainty may also cause some divergence. There does seem to be some opportunity for arbitrage doing what you suggest in markets where it is not legally possible to short shares, but that likely is the value added from being able to short a share that belongs to a market where you can't do that.\",\n \"No one can advise you on whether to hold this stock or sell it. Your carried losses can offset short or long term gains, but the long term losses have to be applied to offset long term gains before any remaining losses can offset short term gains. Your question doesn't indicate how long you have to hold before the short term gains become long term gains. Obviously the longer the holding period, the greater the risk. You also must avoid a wash sale (selling to lock in the gains/reset your basis then repurchasing within a month). All of those decisions hold risks that you have to weigh. If you see further upside in holding it longer, keep the investment. Don't sell just to try to maximize tax benefits.\",\n \"The DOW is just an index, which is simply a group of stocks meeting the criteria for inclusion. In the case of the DOW, it's the 30 US stocks with the largest market capitalization, but other indices include many lesser stocks (such as the S&P500 or the Russell 2000). The fact that Holobeam is no longer a constituent of the DOW30 probably shouldn't be taken in and of itself as a signal to sell the stock. As far as I can tell, HOOB stock is still trading on the Nasdaq exchange. However, it is extremely ill-liquid, which means that there are very few people willing to buy or sell it. Whether or not this would work to your advantage is almost entirely down to luck - it depends whether there is a keen buyer out there at the time you try to sell.\",\n \"\\\"Yes, you're still exposed to currency risk when you purchase the stock on company B's exchange. I'm assuming you're buying the shares on B's stock exchange through an ADR, GDR, or similar instrument. The risk occurs as a result of the process through which the ADR is created. In its simplest form, the process works like this: I'll illustrate this with an example. I've separated the conversion rate into the exchange rate and a generic \\\"\\\"ADR conversion rate\\\"\\\" which includes all other factors the bank takes into account when deciding how many ADR shares to sell. The fact that the units line up is a nice check to make sure the calculation is logically correct. My example starts with these assumptions: I made up the generic ADR conversion rate; it will remain constant throughout this example. This is the simplified version of the calculation of the ADR share price from the European share price: Let's assume that the euro appreciates against the US dollar, and is now worth 1.4 USD (this is a major appreciation, but it makes a good example): The currency appreciation alone raised the share price of the ADR, even though the price of the share on the European exchange was unchanged. Now let's look at what happens if the euro appreciates further to 1.5 USD/EUR, but the company's share price on the European exchange falls: Even though the euro appreciated, the decline in the share price on the European exchange offset the currency risk in this case, leaving the ADR's share price on the US exchange unchanged. Finally, what happens if the euro experiences a major depreciation and the company's share price decreases significantly in the European market? This is a realistic situation that has occurred several times during the European sovereign debt crisis. Assuming this occurred immediately after the first example, European shareholders in the company experienced a (43.50 - 50) / 50 = -13% return, but American holders of the ADR experienced a (15.95 - 21.5093) / 21.5093 = -25.9% return. The currency shock was the primary cause of this magnified loss. Another point to keep in mind is that the foreign company itself may be exposed to currency risk if it conducts a lot of business in market with different currencies. Ideally the company has hedged against this, but if you invest in a foreign company through an ADR (or a GDR or another similar instrument), you may take on whatever risk the company hasn't hedged in addition to the currency risk that's present in the ADR/GDR conversion process. Here are a few articles that discuss currency risk specifically in the context of ADR's: (1), (2). Nestle, a Swiss company that is traded on US exchanges through an ADR, even addresses this issue in their FAQ for investors. There are other risks associated with instruments like ADR's and cross-listed companies, but normally arbitrageurs will remove these discontinuities quickly. Especially for cross-listed companies, this should keep the prices of highly liquid securities relatively synchronized.\\\"\",\n \"ML is a brokerage firm. Tell them to sell. If you can't or don't know how to do it on-line - call them and do it over the phone. Your citizenship might come in effect when tax are withheld, you need to fill form W8-BEN if you haven't done so yet. If US taxes are withheld, you can file 1040NR to request refund, or get it credited against your local tax liabilities.\",\n \"Depends entirely on the stock and your perception of it. Would you buy it at the current price? If so, keep it. Would you buy something else? If so, sell it and buy that.\",\n \"The essential difference b/n ADR and a common share is that ADR do not have Voting rights. Common share has. There are some ADR that would in certain conditions get converted to common stock, but by and large most ADR's would remain ADR's without any voting rights. If you are an individual investor, this difference should not matter as rarely one would hold such a large number of shares to vote on General meeting on various issues. The other difference is that since many countries have regulations on who can buy common shares, for example in India an Non Resident cannot directly buy any share, hence he would buy ADR. Thus ADR would be priced more in the respective market if there is demand. For example Infosys Technologies, an India Company has ADR on NYSE. This is more expensive around 1.5 times the price of the common share available in India (at current exchange rate). Thus if you are able to invest with equal ease in HK (have broker / trading account etc), consider the taxation of the gains in HK as well the tax treatment in US for overseas gains then its recommended that you go for Common Stock in HK. Else it would make sense to buy in US.\",\n \"It depends. An ADR might be exposed to a larger market (let's say American) with more volume and thus lower spreads, and thus cheaper. But it can also be the other way around, that the ADR serves a smaller market than the home market. I would go for the largest market, with the most volume so it's quicker and cheaper to buy/sell. Often ADR has less shares, meaning that the availability is lower and the prices higher (more expensive). This is often the case with Asian stocks where governments try to limit their company's exposure to foreigners. As a general rule I would buy the 'home' stock instead of ADR. From a tax standpoint it's also easier to comply with local laws. Your local accountant will be more familiar dealing with local stocks.\",\n \"The standard answer on any long term stock is hold on during the rough times. You have not lost anything until you sell. If your concern is just that you are not certain where the stock price is headed, unless you need the money now and can not afford to hold on to the stock then I would hold it.\",\n \"No, if you are trading options to profit solely off the option and not own the underlying, you should trade it away because it costs more to exercise:\",\n \"Your broker should be able to answer this. Many brokers will buy it from you for the cost of a commission, if there's no legit buyer.\",\n \"This happened to me recently. What became the final offer was a cash buy-out of all of our shares rather than a conversion. The cash buy-out was higher than the company's original asking price and than the stock ever went on the market before hand. I was extremely pleased to have held on to the stock until the end. That said, it sounds like your situation is different. You can't necessarily time this sort of thing. You can just make your best decision and determine to be happy with the way it all plays out.\",\n \"\\\"You should distinguish between the price and the value of a company: \\\"\\\"Price is what you pay, value is what you get\\\"\\\". Price is the share price you pay for one share of the company. Value is what a company is worth (based on fundamental analysis, one of the principles of value investing). I would recommend selling the stock only if the company's value has deteriorated due to fundamental changes (e.g. better products from competitors, declining market) and its value is lower than the current share price.\\\"\",\n \"If your criteria has changed but some of your existing holdings don't meet your new criteria you should eventually liquidate them, because they are not part of your new strategy. However, you don't want to just liquidate them right now if they are currently performing quite well (share price currently uptrending). One way you could handle this is to place a trailing stop loss on the stocks that don't meet your current criteria and let the market take you out when the stocks have stopped up trending.\",\n \"You should be worried. You have made the mistake of entering an investment on the recommendation of family/friend. The last think you should do is make another mistake of just leaving it and hoping it will go up again. Your stock has dropped 37.6% from its high of $74.50. That means it has to go up over 60% just to reach the high of $74.50. You are correct this may never happen or if it does it could take a long, long time to get up to its previous highs. What is the company doing to turn its fortunes around? Take a look at some other examples: QAN.AX - Qantas Airways This stock reached a high of around $6 in late 2007 after a nice uptrend over a year and a half, it then dropped drastically at the start of the GFC, and has since kept falling and is now priced at just $1.15. QAN reported its first ever loss earlier this year, but its problems were evident much earlier. AAPL - Apple Inc. AAPL reach a high of just over $700 in September 2013, then dropped to around $400 and has recovered a bit to about $525 (still 25% below its highs) and looks to be at the start of another downtrend. How long will it take AAPL to get back to $700, more than 33% from its current price? TEN.AX - Ten Network Holdings Limited TEN reached a high of $4.26 in late 2004 after a nice uptrend during 2004. It then started a steep journey downwards and is still going down. It is now priced at just $0.25, a whopping 94% below its high. It will have to increase by 1600% just to reach its high of $4.26 (which I think will never happen). Can a stock come back from a drastic downtrend? Yes it can. It doesn't always happen, but a company can turn around and can reach and even surpass it previous highs. The question is how and when will this happen? How long will you keep your capital tied up in a stock that is going nowhere and has every chance of going further down? The most important thing with any investment is to protect your current capital. If you lose all your capital you cannot make any new investments until you build up more capital. That is why it is so important to have a risk management strategy and decide what is your get out point if things go against you before you get into any new investment. Have a stop loss. I would get out of your investment before you lose more capital. If you had set a stop loss at 20% off the stock's last highs, you would have gotten out at about $59.60, 28% higher than the current share price of $46.50. If you do further analysis on this company and find that it is improving its prospects and the stock price breaks up through its current ranging band, then you can always buy back in. However, do you still want to be in the stock if it breaks the range band on the downside? In this case who knows how low it can continue to go. N.B. This is my opinion, as others would have theirs, and what I would do in your current situation with this stock.\",\n \"I'd call it pretty worrisome. HOOB is trading over the counter, in fact, on the pink sheets, so it has been delisted from the major exchanges. It appears that it lacks recent financial disclosures. You'll have to investigate to see if you think it's worth keeping, but trading is thin.\",\n \"Yes you can, provided if buyers are available. Normally high liquidty stocks can be sold at market prices a little higher or lower.\",\n \"American options (like those on ADBE) can be exercised by the holder anytime before expiration. They will be exercised automatically at expiration if they are in the money. However, if there is still time before expiration (as in this case), and they are not extremely in the money, there is probably extrinsic value to the option, and you should sell it, not exercise it. European options are only automatically exercised at expiration, and only if they are in the money. These are usually cash settled on products like SPX or VIX. They can not be exercised before expiration, but can be sold anytime.\",\n \"The market maker will always take it off your hands. Just enter a market sell order. It will cost you a commission to pull the loss into this year. But that's it.\",\n \"Some ADRs have standardized options that trade on US exchanges. If your stock/ADR is one of those, then you find the put option through most brokerages that deal with stock options and trade the option like you would on a regular stock. If your ADR does not have standardized options, then your options will depend on where the ADR trades. If it's OTC, you might not even be able to short it. If it trades on a major exchange, the shorting the ADR may be a viable choice.\",\n \"\\\"There are basically two different markets for ADRs and ordinary shares. 1) The American market, 2) the \\\"\\\"local\\\"\\\" market. The following is not true for most stocks in \\\"\\\"developed\\\"\\\" markets. But it is often true that the American market (for ADRs) is far more liquid than the local market for ordinary shares of a developing country. For instance, there was a time when the ADRs of Telmex (Telefonos of Mexico) was the fifth most traded stock in the world, after Exxon (before its merger with Mobil), IBM, Microsoft, and A T&T, meaning that it was easy to trade with low fees on the NYSE. It was much harder and slower to buy the local shares of Telmex in Mexico, on the Mexican exchange. Also, the accompanying currency transactions were harder to execute with the ord, because you have to settle in local currency and pay an FX commission. With the ADR, the exchange rate is \\\"\\\"built\\\"\\\" into the (dollar) price, and you settle in dollars.\\\"\",\n \"why sell? Because the stock no longer fits your strategy. Or you've lost faith in the company. In our case, it's because we're taking our principal out and buying something else. Our strategy is, basically, to sell (or offer to sell) after the we can sell and get our principal out, after taxes. That includes dividends -- we reduce the sell price a little with every dividend collected.\",\n \"Sounds like an illiquid option, if there are actually some bidders, market makers, then sell the option at market price (market sell order). If there are not market makers then place a really low limit sell order so that you can sit at the ask in the order book. A lot of time there is off-book liquidity, so there may be a party looking for buy liquidity. You can also exercise the option to book the loss (immediately selling the shares when they get delivered to you), if this is an American style option. But if the option is worthless then it is probably significantly underwater, and you'd end up losing a lot more as you'd buy the stock at the strike price but only be able to sell at its current market value. The loss could also be increased further if there are even MORE liquidity issues in the stock.\",\n \"Try to find out (online) what 'the experts' think about your stock. Normally, there are some that advise you to sell, some to hold and some to buy. Hold on to your stock when most advise you to buy, otherwise, just sell it and get it over with. A stock's estimated value depends on a lot of things, the worst of these are human emotions... People buy with the crowd and sell on panic. Not something you should want to do. The 'real' value of a stock depends on assets, cash-flow, backlog, benefits, dividends, etc. Also, their competitors, the market position they have, etc. So, once you have an estimate of how much the stock is 'worth', then you can buy or sell according to the market value. Beware of putting all your eggs in one basket. Look at what happened to Arthur Andersen, Lehman Brothers, Parmalat, Worldcom, Enron, etc.\",\n \"If you know you have picked a bad stock, the sooner you sell the better. There is a tendency to hold a bad stock in the hope that it will pick up again. Most of us fall into this trap. The best way one needs to look at things are;\",\n \"I haven't seen anyone mention tax considerations and that's why I'm answering this. The rest of my answer is probably covered in the aggregate of other responses. Here's how I would look at this in a taxable (not an IRA) account: This could be an opportunity to harvest the tax losses to offset taxable gains this year or in future years. Unless I have compelling reasons to believe that the price will recover by at least (Loss% x ApplicableTaxRate) in the next 31 days then I would take the known - IRS tables - opportunities over the unknown. Here's what I would consider for all accounts: Is this the most likely place to earn a good return on my money and is it contributing to a strategy that fits my risk tolerance? You might need to get some emotional distance from the pain to make this determination objectively. As you consider your trading and investment strategy going forward consider that when it hurts and you have to pull yourself up by the bootstraps to think clearly about your situation, you were most likely trading with too much size for you in that particular position. I'm willing to make exceptions to that rule of thumb, but it's a good way to use the painful losses as a gut check on how your strategy fits your real situation. P.S. All traders experience individual losses that hurt and find their way to the most suitable strategies for them through these painful experiences.\",\n \"If you get selected for exercise, your broker will liquidate the whole position for you most likely Talk to your broker.\",\n \"Reuters has a service you can subscribe to that will give you lots of Financial information that is not readily available in common feeds. One of the things you can find is the listing/delist dates of stocks. There are tools to build custom reports. That would be a report you could write. You can probably get the data for free through their rss feeds and on their website, but the custom reports is a paid feature. FWIW re-listing(listings that have been delisted but return to a status that they can be listed again) is pretty rare. And I can not think of too many(any actually) penny stocks that have grown to be listed on a major exchange.\",\n \"You should sell all your stock immediately and reinvest the money in index funds. As of right now you're competing against prop trading shops, multinational banks, and the like, who probably know a teensy bit more about that particular stock than you do. I'm sorry, any other advice is missing the point that you shouldn't be picking stocks in the first place.\",\n \"I agree, one should not let the tax tail wag the investing dog. The only question should be whether he'd buy the stock at today's price. If he wishes to own it long term, he keeps it. To take the loss this year, he'd have to sell soon, and can't buy it back for 30 days. If, for whatever reason, the stock comes back a bit, he's going to buy in higher. To be clear, the story changes for ETFs or mutual funds. You can buy a fund to replace one you're selling, capture the loss, and easily not run afoul of wash sale rules.\",\n \"I would say you should invest in the market that is more convenient for you, bearing in mind that if you buy ADRs you may have some things to keep an eye on depending on certain events as mentioned by duffbeer703. So, if you are investing with an account in the U.S., go with the ADRs as that will avoid some currency conversion hassles and possible exchange rate issues. I am not certain, but I have a feeling that would also make it easier for you to keep the taxman happy.\",\n \"\\\"I would normally take a cautious, \\\"\\\"it depends\\\"\\\" approach to answering a question like this, but instead I'm going to give you a blunt opinionated answer based solely on what I would do: Even the crap. Get rid of them and get into the boring low fee mutual funds. I was in a similar situation a few years ago, almost. My retirement accounts were already in funds but my brokerage account was all individual stocks. I decided I didn't really know what I was doing despite being up by 30+% (I recognize that it was mostly due to the market itself being up, I was lucky basically). The way I cashed out was not to sell all at once. I just set up trailing stops on all of them and waited until they hit the stops. The basic idea was that if the market kept going up, the point at which they got sold also went up (it was like a 10% trail I think), and once things started to turn for that stock, they would sell automatically. Sure I sold some at very temporary dips so I missed out on some gains but that's always a risk with a trailing stop and I really didn't care at that point. If I had to do it again, I might forget all that and just sell all at once. But I feel a lot better not being in individual stocks.\\\"\",\n \"\\\"Is there anyway to salvage my investment for short-term? No. If by \\\"\\\"salvage\\\"\\\" you mean \\\"\\\"get back as much as you paid\\\"\\\", the only way to salvage it is to wait as long as you consider \\\"\\\"short-term\\\"\\\" and see if goes up again. If by \\\"\\\"salvage\\\"\\\" you mean \\\"\\\"get some money back\\\"\\\", the only thing you can do to guarantee that is sell it now. By doing so, you guarantee that you will get neither more nor less than it is worth right now. Either way, there is nothing you can do other than sell the stock or hold it. The stock price went down. You can't make it go back up. Would it be better if I sell my stocks now and buy from other company? Or should I just wait for it's price to go up again? This depends on why you bought the stock, and what you think it will do in the future. You said a family member persuaded you. Does that family member still think the stock will go up again? If so, do you still trust them? You didn't even say what stock it is in your question, so there's no way anyone here can tell you whether it's a good idea to sell it or not. Even if you do say what stock it is, all anyone can do is guess. If you want, you could look the stock up on Motley Fool or other sites to see if analysts believe it will rise. There are lots of sources of information. But all you can do with that information is decide to sell the stock or not. It may sound obvious, but you should sell if you think the stock will go lower, and hold it if you think it could still go back up. No one can tell you which of those things is going to happen.\\\"\",\n \"\\\"Unless you want to own the actual shares, you should simply sell the call option.By doing so you actual collect the profits (including any remaining time-value) of your position without ever needing to own the actual shares. Please be aware that you do not need to wait until maturity of the call option to sell it. Also the longer you wait, more and more of the time value embedded in the option's price will disappear which means your \\\"\\\"profit\\\"\\\" will go down.\\\"\",\n \"I had a coworker whose stock picking skills were clearly in the 1% level. I had a few hundred shares of EMC, bought at $10. When my coworker bought at $80, I quietly sold as it spiked to $100. It then crashed, as did many high tech stocks, and my friend sold his shares close to the $4 bottom advising that the company would go under. So I backed up the truck at $5, which for me, at the time, meant 1000 shares. This was one of nearly 50 trades I made over a good 10 year period. He was loud enough to hear throughout the office, and his trades, whether buy or sell, were 100% wrong. Individual stocks are very tough, as other posters have offered. That, combined with taking advice from those who probably had no business giving it. For the record, I am semi-retired. Not from stock picks, but from budgeting 20% of income to savings, and being indexed (S&P) with 90% of the funds. If there are options on your stock, you might sell calls for a few years, but that's a long term prospect. I'd sell and take my losses. Lesson learned. I hope.\",\n \"\\\"Any shares you buy when a company is listed on one market will remain yours if the company moves to another market. Markets and exchanges like AIM are just venues for dealing in shares - indeed you can deal in those shares anywhere else that will allow you as well as on the AIM. The benefit of being listed in a market is that trade in the shares will be more \\\"\\\"liquid\\\"\\\" - there's more likely to be people who want to buy and sell them at any given time. The bigger concern would be what happens if the company does badly and drops out of the AIM entirely. You'd still be able to sell your shares to any willing buyer, but finding that buyer might get harder.\\\"\",\n \"One other issue you may face is when the company announces poor financial results and begins to tank, you will not be able to sell until the US market open and could incur a lot of pain.\",\n \"A public company should have a link for investor relations, which should help provide a trail of basis if this is a matter of company buyout, takeover, etc. This gets you close, but if you don't have an exact date, it will just be close, not exact. One clean way out of this, assuming the goal is to get rid of the stock and move on, is to donate the shares to charity. You will take the present value as a deduction, and be done. You can use a charitable gift fund such as those offered by Schwab or Fidelity, so if say, the shares are worth $20K, and you typically donate $5K per year, the fund lets you do this transaction at once, then send to the charities you wish over the next few years.\",\n \"You sell any investment because you need to do something else with the money -- rebalance your investments, buy something, pay off a debt....\",\n \"\\\"You have to calculate the total value of all shares and then ask yourself \\\"\\\"Would I invest that amount of money in this stock?\\\"\\\" If the answer is yes, then only sell what you need to sell. Take the $3k loss against your income, if you have no other gains. If you would not invest that amount of cash in that stock, then sell it all right now and carry forward the excess loss every year. Note at any point you have capital gains you can offset all of them with your loss carryover (not just $3k).\\\"\",\n \"On NYSE it isn't the equity which is listed but is an ADR(American Depositary Receipt). Source A negotiable certificate issued by a U.S. bank representing a specified number of shares (or one share) in a foreign stock that is traded on a U.S. exchange. ADRs are denominated in U.S. dollars, with the underlying security held by a U.S. financial institution overseas. ADRs help to reduce administration and duty costs that would otherwise be levied on each transaction. Else people would make a killing on the arbitrage opportunity. Frankly speaking arbitrage opportunities are more or less non existent. They occur for maybe seconds or milliseconds and the HFT firms and banks trade on it to remove the arbitrage.\",\n \"You are right about the stock and index funds, with dollar cost averaging over several years, the daily price of the security (especially a dividend paying security) will not matter* because your position will have accumulated larger over several entry points, some entries with cheaper shares and some entries with more expensive shares. In the future your position will be so large that any uptick will net you large gains on your original equity. *not matter being a reference to even extreme forms of volatility. But if you had all your equity in a poor company and tanked, never to rise again, then you would still be in a losing position even with dollar cost averaging. If your only other holdings are bonds, then you MAY want to sell those to free up capital.\",\n \"Judge this stock no differently than any other is the answer. Optimism isn't fact. http://clarkhoward.com/liveweb/shownotes/2007/06/06/12304/?printer=1 Now because you get to buy extremely low, and sell for probably higher and you believe in the stock, I'd say go ahead and purchase the stock, manage it for taxes with the advice of your advisor and get your portfolio rebalanced as soon as you can. That might admittedly be a year or more, but as you say you have time. Like any investment, don't spend money you can't lose.\",\n \"Usually the ADR fee comes out of dividend payments and is modest. The ADR that I am most familiar with (Vodafone - VOD) pays dividends twice a year and deducts either $0.02 or $0.01 per share. IMO, the ADR fee is not really a material factor. ADRs do have some disadvantages though:\",\n \"\\\"If you're asking this question, you probably aren't ready to be buying individual stock shares, and may not be ready to be investing in the market at all. Short-term in the stock market is GAMBLING, pure and simple, and gambling against professionals at that. You can reduce your risk if you spend the amount of time and effort the pros do on it, but if you aren't ready to accept losses you shouldn't be playing and if you aren't willing to bet it all on a single throw of the dice you should diversify and accept lower potential gain in exchange for lower risk. (Standard advice: Index funds.) The way an investor, as opposed to a gambler, deals with a stock price dropping -- or surging upward, or not doing anything! -- is to say \\\"\\\"That's interesting. Given where it is NOW, do I expect it to go up or down from here, and do I think I have someplace to put the money that will do better?\\\"\\\" If you believe the stock will gain value from here, holding it may make more sense than taking your losses. Specific example: the mortgage-crisis market crash of a few years ago. People who sold because stock prices were dropping and they were scared -- or whose finances forced them to sell during the down period -- were hurt badly. Those of us who were invested for the long term and could afford to leave the money in the market -- or who were brave/contrarian enough to see it as an opportunity to buy at a better price -- came out relatively unscathed; all I have \\\"\\\"lost\\\"\\\" was two years of growth. So: You made your bet. Now you have to decide: Do you really want to \\\"\\\"buy high, sell low\\\"\\\" and take the loss as a learning experience, or do you want to wait and see whether you can sell not-so-low. If you don't know enough about the company to make a fairly rational decision on that front, you probably shouldn't have bought its stock.\\\"\",\n \"The stock exchange here serves as a meeting place for current shareholders who want to sell their shares to someone else. This has nothing to do with liquidation, which is a transaction between the company and its shareholders. A company does not have to be listed on an exchange to make distributions to shareholders.\",\n \"Yes, the ADR will trade on a separate exchange from the underlying one, and can (and does) see fluctuations in price that do not match the (exchange corrected) fluctuations that occur in the original market. You are probably exposing yourself to additional risk that is related to:\",\n \"Every company has Stocks. For the stocks to be traded via some stock exchange, the companies must follow the eligibility criteria and guidelines. Once done, these are then listed on the stock exchange and can be traded. The advantage [amongst others] of listing is liquidity and stocks can easily be bought and sold. Some small companies or closely held companies may not want to list on stock exchange and hence are not traded. This does not mean they can't be bought and sold, they can be outside of the market, however the deals are complex and every deal has to be worked out. During the course of time a stock that is traded on a stock exchange, would either fail to meet the criteria or voluntarily choose not to be traded and follow the delisting process [either by stock exchange or by company]. After this the stocks are no longer traded on the exchange.\",\n \"A reason not to split your stock is that the value of the company might fall back again, and if its stock price falls below $1 it will be delisted from the NYSE. So if the value of your company grows tenfold so the shares go from $5 to $50, you do a ten-for-one split, and then its value shrinks back to where it started, you're off the stock exchange.\",\n \"The question seems to be from the point of view actual sales and not its impact on one's taxation. In case you just want to sell, why brokers will respond differently each times. Either there may be issues with ownership and/or the company whose shares it is? In case you feel that the issues lies with brok\",\n \"The cost to you for selling is 3/8% of a years salary, this is what you won't get if you sell. Tough to calculate the what-if scenarios beyond this, since I can't quantify the risk of a price drop. Once the amount in he stock is say,10%, of a years salary, if you know a drop is coming, a sale is probably worth it, for a steep drop. My stronger focus would be on how much of your wealth is concentrated in that one stock, Enron, and all.\",\n \"Personally, I have been in that situation too often that now I am selling at the first tick down! (not exactly but you get the idea..) I have learned over the years to not fall in love with any stock, and this is a very hard thing to do. Limit your losses and take profit when you are satisfied with them. Nothing prevents you from buying back in this stock but why buying when it is going down? Just my 2 cents.\",\n \"Yes, the stock price drops on official listing. But what gonna happen on first trade after the dividend date, is up to the market. The market is the market, the rules are the rules. I saw prices going up more than once just after the dividend date, exactly because people think will be cheaper. Market doesn't always follow rules.\",\n \"I think the advice Bob is being given is good. Bob shouldn't sell his investments just because their price has gone down. Selling cheap is almost never a good idea. In fact, he should do the opposite: When his investments become cheaper, he should buy more of them, or at least hold on to them. Always remember this rule: Buy low, sell high. This might sound illogical at first, why would someone keep an investment that is losing value? Well, the truth is that Bob doesn't lose or gain any money until he sells. If he holds on to his investments, eventually their value will raise again and offset any temporary losses. But if he sells as soon as his investments go down, he makes the temporary losses permanent. If Bob expects his investments to keep going down in the future, naturally he feels tempted to sell them. But a true investor doesn't try to anticipate what the market will do. Trying to anticipate market fluctuations is speculating, not investing. Quoting Benjamin Graham: The most realistic distinction between the investor and the speculator is found in their attitude toward stock-market movements. The speculator's primary interest lies in anticipating and profiting from market fluctuations. The investor's primary interest lies in acquiring and holding suitable securities at suitable prices. Market movements are important to him in a practical sense, because they alternately create low price levels at which he would be wise to buy and high price levels at which he certainly should refrain from buying and probably would be wise to sell. Assuming that the fund in question is well-managed, I would refrain from selling it until it goes up again.\",\n \"\\\"When C did their 10-1 reverse split in 2011 all the fractional shares were aggregated and then sold with the proceeded going back to the fractional shareholders. From their press release: \\\"\\\"No fractional shares were issued in connection with the reverse stock split. Instead, Citi’s transfer agent will aggregate all fractional shares that otherwise would have been issued as a result of the reverse stock split and those shares will be sold into the market. Shareholders who would otherwise hold a fractional share of Citigroup common stock will receive a cash payment from the net proceeds of that sale in lieu of such fractional share. \\\"\\\" While there was selling, it didn't cause a \\\"\\\"sell off\\\"\\\" so to speak. I have also come across instances where the company buys the fractional shares and retires them.\\\"\",\n \"I bought 1000 shares of a $10 stock. When it doubled, I sold half, no need to be greedy. I watched the shares split 2 for one, and sold as it doubled and doubled again. In the end, I had $50,000 in cash pulled out and still had 100 shares. The shares are now worth $84K since they split 7 for one and trade near $120. Had I just kept the shares till now, no sales, I'd have 14,000 shares of Apple worth $1.68M dollars. $130K for an initial $10,000 investment is nothing to complain about, but yes, taking a profit can be the wrong thing. 25%? Was that all the potential the company had? There's one question to ask, not where is the price today compared to last year or two years ago, but what are the company's prospects. Is the reason I bought them still valid? Look at your investment each quarter as if you were making the decision that day. I agree, diversification is important, so the choice is only hold or sell, not to buy more of a good company, because there are others out there, and the one sane thing Cramer says that everyone should adhere to is to not put your eggs in one basket.\",\n \"\\\"The common way to frame the \\\"\\\"should I sell\\\"\\\" question is ask yourself \\\"\\\"would you buy it today at the current price\\\"\\\". If you wouldn't, sell it. Is sounds like this may be a paper certificate. You will have to research how to present the certificate to a broker to trade it, or if the company has a direct shareholder program. I have periodically been offered to sell \\\"\\\"odd lots\\\"\\\" to shareholder programs which, if one exists, may be less hassle than other options. As a part of this, your mother's estate administrator should decide if the estate is selling it's interest, or giving it's interest to heirs before the sale.\\\"\",\n \"Don't sell. Ever. Well almost. A number of studies have shown that buying equal amounts of shares randomly will beat the market long term, and certainly won't do badly. Starting from this premise then perhaps you can add a tiny bit extra with your skill... maybe, but who knows, you might suck. Point is when buying you have the wind behind you - a monkey would make money. Selling is a different matter. You have the cost of trading out and back in to something else, only to have changed from one monkey portfolio to the other. If you have skill that covers this cost then yes you should do this - but how confident are you? A few studies have been done on anonymised retail broker accounts and they show the same story. Retail investors on average lose money on their switches. Even if you believe you have a real edge on the market, you're strategy still should not just say sell when it drops out of your criteria. Your criteria are positive indicators. Lack of positive is not a negative indicator. Sell when you would happily go short the stock. That is you are really confident it is going down. Otherwise leave it.\",\n \"In my opinion, the average investor should not be buying individual stocks. One reason why is that the average investor is not capable of reading financial statements and evaluating whether a stock is overpriced or underpriced. As such, they're often tempted to make buy/sell decisions based solely on the current value of a stock as compared to the price at which they bought it. The real reasons to buy (or sell) a stock is the expectation of future growth of the company (or continued profit and expected dividends). If you aren't able to analyze a company's financial statements and business plan, then you really aren't in a position to evaluate that company's stock price. So instead of asking whether to sell based on a recent drop in stock price, you should be investigating why the stock price is falling, and deciding whether those reasons indicate a trend that you expect to continue. If you buy and sell stocks based solely on recent trends in the stock price, you probably will end up buying stocks that have recently risen and selling stocks that have recently fallen. In that case, you are buying high and selling low, which is a recipe for poor financial outcomes.\",\n \"\\\"It is not clear when you mean \\\"\\\"company's directors\\\"\\\" are they also majority owners. There are several reasons for Buy; Similarly there are enough reasons for sell; Quite often the exact reasons for Buy or Sell are not known and hence blindly following that strategy is not useful. It can be one of the inputs to make a decision.\\\"\",\n \"What you are suggesting would be the correct strategy, if you knew exactly when the market was going to go back up. This is called market timing. Since it has been shown that no one can do this consistently, the best strategy is to just keep your money where it is. The market tends to make large jumps, especially lately. Missing just a few of these in a year can greatly impact your returns. It doesn't really matter what the market does while you hold investments. The important part is how much you bought for and how much you sold for. This assumes that the reasons that you selected those particular investments are still valid. If this is not the case, by all means sell them and pick something that does meet your needs.\",\n \"\\\"Am I being absurd? No. Should I be worrying? Yes. If I sell in the morning, I've only lost a couple hundred dollars, and learned a valuable lesson. Is there any reason to believe it won't be that simple? If you're lucky, you'll be able to dump your stocks to someone like you who'll be punching himself in the face tomorrow night. If not - you're stuck. You may end up selling them to your broker as worthless. You might have become a victim of a \\\"\\\"pump and dump\\\"\\\" fraud. Those are hard to identify in real-time, but after been burned like that myself (for much lesser amounts than you though), I avoid any \\\"\\\"penny\\\"\\\" stocks that go up for no apparent (and verifiable) reason. In fact, I avoid them altogether.\\\"\",\n \"Having stock options means that you have worked for and rightfully earned a part of the company's capital appreciation. Takeover of the company would indicate someone is interested in the company (something should be valuable). It would be unwise to not strike before the period lapses since the strike price is always lower than market price and takeovers generally increases stock values ... it is capital gains all the way my friend. Good luck. *observations not in professional capacity. pls consult a professional for investment related advice.\",\n \"Unfortunately I believe there is not a good answer to this because it's not a well posed problem. It sounds like you are looking for a theoretically sound criteria to decide whether to sell or hold. Such a criteria would take the form of calculating the cost of continuing to hold a stock and comparing it to the transactions cost of replacing it in your portfolio. However, your criteria for stock selection doesn't take this form. You appear to have some ad hoc rules defining whether you want the stock in your portfolio that provide no way to calculate a cost of having something in your portfolio you don't want or failing to have something you do want. Criteria for optimally rebalancing a portfolio can't really be more quantitative than the rules that define the portfolio.\",\n \"The stock price is not only based on the general market trend and the stock's current profitability and prospects, but is also based on prediction of how the stock's prospects might change in the future. In almost every case, there are professional investors analysing the stock's future prospects and considering whether it's over or under values for its current price. However even professionals can be totally wrong. If you feel like you have a good grasp on whether the stock will have improving or declining prospects over time, then you might be (if you're right) equipped to make a sensible decision on whether to hold the stock or not. If you don't think you have a good understanding about the stock, then an understanding of the general market direction might at least make stock in general worth holding. Otherwise, you are simply taking a punt. If you know of another stock that has better prospects, then ask yourself why you would hold onto the stock that you think will perform worse. But also bear in mind that (in my understanding) research has shown that, on average, people who try to pick stocks rarely do better than a random selection, and more stock trades means more brokerage (which thanks to brokerage losses would mean you will end up doing worse than average unless you really do know better than the market).\",\n \"Any time there is a share adjustment from spin-off, merger, stock split, or reverse slit; there is zero chance for the stockholders to hang on to fractional shares. They are turned into cash. For the employees in the 401K program or investors via a mutual fund or ETF this isn't a problem. Because the fraction of a share left over is compared to the thousands or millions of shares owned by the fund as a collective. For the individual investor in the company this can be a problem that they aren't happy about. In some cases the fractional share is a byproduct that will result from any of these events. In the case of a corporate merger or spin-off most investors will not have an integer number of shares, so that fraction leftover that gets converted to cash isn't a big deal. When they want to boost the price to a specific range to meet a regulatory requirement, they are getting desperate and don't care that some will be forced out. In other cases it is by design to force many shareholders out. They want to go private. They to 1-for-1000 split. If you had less than 1000 shares pre-split then you will end up with zero shares plus cash. They know exactly what number to use. The result after the split is that the number of investors is small enough they they can now fall under a different set of regulations. They have gone dark, they don't have to file as many reports, and they can keep control of the company. Once the Board of Directors or the majority stockholders votes on this, the small investors have no choice.\",\n \"\\\"The price at which a stock was purchased is a sunk cost--that is, you cannot go back in time and reverse the decision you made to purchase that stock. Another example of a sunk cost would be purchasing a non-refundable, non-transferable movie ticket. Sunk costs have the tendency to create a cognitive bias in which we feel that the amount we paid at some point in the past should have some sort of bearing on the decision we make now--the purchaser of the ticket feels he must go see the movie even if he no longer wishes too, lest the ticket \\\"\\\"go to waste\\\"\\\"... the investor hopelessly clings to a battered stock for that tiny chance that just maybe some day it will return to its former glory. This is referred to as the \\\"\\\"sunk cost fallacy\\\"\\\" and is considered to be irrational behavior by economists. Keeping this in mind, your hopes and dreams for the stock at the time you purchased it should have no bearing on the decision you make now. Similarly, whether the stock has risen or fallen in price since your purchase date should have no bearing. Instead, you must consider what you expect the stock to do from this very moment on into the future--that is, you must act at the margin. You've indicated that you are faced with two choices--sell the stock now, incur the loss, but benefit from the tax break (Option A). This benefit is quite easily quantifiable--it is your marginal tax rate multiplied by the additive inverse of the loss (assuming you have/will have other gains to offset). Let's just assume that you incurred a $1000 loss, at a marginal tax rate of 20%, which means your tax benefit for the loss is $200. The second choice--to hold the stock in hopes of it rising in price (Option B)--is a bit harder to quantify. You must assume that today is day zero, and that every cent in price the stock rises is a gain to you, and every cent in price the stock looses is a loss to you. If you believe that the stock will rise to a price that will net your more than your tax benefit from option A, then holding the stock is more favorable than selling it at a loss today. Conversely, if you believe this stock will fall even further in the future, or not rise enough to net you $200 (per the example), then Option A is preferable. Granted, there are some additional complications that play into your decision. By selling the stock today, you not only get a tax benefit from the loss, but you've also freed up the funds previously used to purchase that stock to be invested elsewhere (in hopefully a better performing asset). If you choose to stick with your current stock, then the gains you may have netted elsewhere must be considered as an opportunity cost associated with Option B. Finally, the tax benefit is essentially guaranteed (so in our example, a $200 risk free return), while sticking with the stock in Option B still comes with some risk.\\\"\",\n \"does it still count as a capital gain or loss? Yes. Is it essentially treated like you sold the stock at the price of the buy-out? Yes. Do you still get a 1099-B from your broker? Yes.\",\n \"As yet another explanation of why it does not really matter, you can look at this from the valuation point of view. Stock price is the present value of its future cash flows (be it free cash flow of the firm or dividends, depending on the model). Let's have a look at the dividends case. Imagine, the price of the stock is based on only three dividends streams $5 dollars each: dividend to be paid today, in year 1, and in year 2. Each should be discounted back to today (say, at 10%), except today's dividend, since today is now. Once that dividend is paid, it is no longer in the stream of cash flows. So if we just delete that first $5 from the formula, the price will adjust itself down by the amount of the dividend to $8.68. NOTE that this is a very simple example, since in reality cash flows streams are arguably infinite and because there are many other factors affecting stock price. But simply for your understanding, this example should provide you with the reason simply from the valuation perspective.\",\n \"The best thing to do to avoid this is not to sell as you've described. What purpose does it solve? If you're speculating, set a price at which you want to cash out and put a limit order. If you're a long term investor, then unless something fundamental has changed - why would you sell?\",\n \"When there are no buyers, you can't sell your shares, and you'll be stuck with them until there is some interest from other investors. In this link describes clearly: http://www.investopedia.com/ask/answers/03/053003.asp\",\n \"There are 2 approaches. One of them is already mentioned by @Afforess. If the approach by @Afforess is not feasible, and you can not see yourself making an unbiased decision, close the position. By closing the position you will not get the best price. But by removing a distraction you will reduce amount of mistakes you make in the other stocks.\",\n \"If they own enough shares to vote to sell, you will be paid the offer price quoted to you. At that point if you do not wish to sell your only recourse will be to file a lawsuit. This is a common tactic for significant shareholders who have a minority stake and cannot block the sale because they have insufficient voting rights. What usually happens then is that they either settle the lawsuit out of court by paying a little more to the holdouts or the lawsuit is thrown out and they take the original offer from the buyer. Rarely does a lawsuit from a buyout go to trial.\",\n \"Hopefully, before you invested in this stock, you evaluated the company. You looked at the financial information about the company and where the company was headed, and evaluated whether the stock was undervalued or overvalued. Hopefully, you determined that the stock was undervalued at the time you bought it. The thing to do now is to reevaluate the stock. Do you think the stock is overvalued or undervalued right now? If you didn't own it, would you buy it today? Instead of looking at the past performance of the stock, you want to try to determine which direction the stock will go from today. If you wouldn't buy it today at it's current price, then you should sell. If you have no idea how to do this evaluation, neither do I. For me, with the investing knowledge I have right now, investing in an individual stock would be way too risky. If you don't know how to evaluate a stock and determine if it is a good buy or not, then you should stay away from individual stocks and instead invest in stock mutual funds, which lower the risk by diversifying over lots of stocks.\",\n \"I guess the answer lies in your tax jurisdiction (different countries tax capital gains and income differently) and your particular tax situation. If the price of the stock goes up or down between when you buy and sell then this counts for tax purposes as a capital gain or loss. If you receive a dividend then this counts as income. So, for instance, if you pay tax on income but not on capital gains (or perhaps at a lower rate on capital gains) then it would pay you to sell immediately before the stock goes ex-dividend and buy back immediately after thereby making a capital gain instead of receiving income.\",\n \"There is no reason to roll an option if the current market value is lower than the strike sold. Out-of-the-money strikes (as is the $12 strike) are all time value which is decaying constantly and that is to our advantage. If share price remains below the strike, the option will expire worthless, you will still have your shares and free to sell another option the Monday after expiration Friday. If share price is > $12 on expiration Friday and you want to keep those shares, you can roll out or out-and-up depending on your outlook for the stock. Good luck, Alan\",\n \"\\\"If I buy the one from NSY, is it the \\\"\\\"real\\\"\\\" Sinopec? No - you are buying an American Depository Receipt. Essentially some American bank or other entity holds a bunch of Sinopec stock and issues certificates to the American exchange that American investors can trade. This insulates the American investors from the cost of international transactions. The price of these ADRs should mimic the price of the underlying stock (including changes the currency exchange rate) otherwise an arbitrage opportunity would exist. Other than that, the main difference between holding the ADR and the actual stock is that ADRs do not have voting rights. So if that is not important to you then for all intents and purposes trading the ADR would be the same as trading the underlying stock.\\\"\",\n \"None of your options or strategies are ideal. Have you considered looking at the stock chart and making a decision? Is the price currently up-trending, or is it down-trending, or is it going sideways? As Knuckle Dragger mentions, you could just set a limit price order and if it does not hit by Friday you can just sell at whatever price on Friday. However, this could be very damaging if the price is currently down-trending. It may fall considerably by Friday. I think a better strategy would be to place a trailing stop loss order, say 5% from the current price. If the stock starts heading south you will be stopped out approximately 5% below the current price. However, if the price goes up, your trailing stop order will move up as well, always trailing 5% below the highest price reached. If the trailing stop has not been hit by Friday afternoon, you can sell at the current price. This way you will be protected on the downside (only approx. 5% below current price) and can potentially benefit from any short term upside.\",\n \"Have the reasons you originally purchased the stock changed? Is the company still sound? Does the company have a new competitor? Has the company changed the way they operate? If the company is the same, except for stock price, why would you change your mind on the company now? ESPECIALLY if the company has not changed, -- but only other people's PERCEPTION of the company, then your original reasons for buying it are still valid. In fact, if you are not a day-trader, then this COMPANY JUST WENT ON SALE and you should buy more. If you are a day trader, then you do care about the herd's perception of value (not true value) and you should sell. DAY TRADER = SELL BUY AND HOLD (WITH INTELLIGENT RESEARCH) = BUY MORE\",\n \"My understanding is that losses are first deductible against any capital gains you may have, then against your regular income (up to $3,000 per year). If you still have a loss after that, the loss may be carried over to offset capital gains or income in subsequent years As you suspect, a short term capital loss is deductible against short term capital gains and long term losses are deductible against long term gains. So taking the loss now MIGHT be beneficial from a tax perspective. I say MIGHT because there are a couple scenarios in which it either may not matter, or actually be detrimental: If you don't have any short term capital gains this year, but you have long term capital gains, you would have to use the short term loss to offset the long term gain before you could apply it to ordinary income. So in that situation you lose out on the difference between the long term tax rate (15%) and your ordinary income rate (potentially higher). If you keep the stock, and sell it for a long term loss next year, but you only have short-term capital gains or no capital gains next year, then you may use the long term loss to offset your short-term gains (first) or your ordinary income. Clear as mud? The whole mess is outlined in IRS Publication 550 Finally, if you still think the stock is good, but just want to take the tax loss, you can sell the stock now (to realize the loss) then re-buy it in 30 days. This is called Tax Loss Harvesting. The 30 day delay is an IRS requirement for being allowed to realize the loss.\",\n \"Ignore sunk costs and look to future returns. Although it feels like a loss to exit an investment from a loss position, from a financial standpoint you should ignore the purchase price. If your money could be better invested somewhere else, then move it there. You shouldn't look at it as though you'll be more financially secure because you waited longer for the stock to reach the purchase price. That's psychological, not financial. Some portion of your invested wealth is stuck in this particular stock. If it would take three months for the stock to get back to purchase price but only two months for an alternate investment to reach that same level, then obviously faster growth is better. Your goal is greater wealth, not arbitrarily returning certain investments to their purchase price. Investments are just instrumental. You want more wealth. If an investment is not performing, then ignore purchase price and sunken costs. Look at the reasonable expectations about an investment going forward.\",\n \"\\\"I'm not sure what you expect in terms of answers, but it depends on personal factors. It pretty well has to depend on personal factors, since otherwise everyone would want to do the same thing (either everyone thinks the current price is one to sell at, or everyone thinks it's one to buy at), and there would be no trades. You wouldn't be able to do what you want, except on the liquidity provided by market makers. Once that's hit, the price is shifting quickly, so your calculation will change quickly too. Purely in terms of maximising expected value taking into account the time value of money, it's all about the same. The market \\\"\\\"should\\\"\\\" already know everything you know, which means that one time to sell is as good as any other. The current price is generally below the expected acquisition price because there's a chance the deal will fall through and the stock price will plummet. That's not to say there aren't clever \\\"\\\"sure-fire\\\"\\\" trading strategies around acquisitions, but they're certain to be based on more than just timing when to sell an existing holding of stock. If you have information that the market doesn't (and assuming it is legal to do so) then you trade based on that information. If you know something the market doesn't that's going to be good for price, hold. If you know something that will reduce the price, sell now. And \\\"\\\"know\\\"\\\" can be used in a loose sense, if you have a strong opinion against the market then you might like to invest based on that. Nothing beats being paid for being right. Finally, bear in mind that expected return is not the same as utility. You have your own investment goals and your own view of risk. If you're more risk-averse than the market then you might prefer to sell now rather than wait for the acquisition. If you're more risk-prone than the market then you might prefer a 90% chance of $1 to 90c. That's fine, hold the stock. The extreme case of this is that you might have a fixed sum at which you will definitely sell up, put everything into the most secure investments you can find, and retire to the Caribbean. If that's the case then you become totally risk-averse the instant your holding crosses that line. Sell and order cocktails.\\\"\",\n \"You sold all shares? The potential wash sale effect goes away after 30 days from the dividend date. Selling all shares of a stock where a wash existed effectively negates the wash and you can take the loss.\",\n \"\\\"If you sold the stock for a profit, you will owe tax on that profit. Whether it is taxed as short-term or long-term capital gains depends on how long you held the stock before selling it. Presumably you're going to invest this money into mutual funds or something of that sort. Those may pay dividends which can be reinvested, and will grow in value (you hope) just as the individual stock shares would (you hope). Assuming the advice you've been given is at all reasonable, there's no need for buyer's remorse here; you're just changing your investing style to a different point on the risk-versus-return curve. (If you have to ask this question, I tend to agree that you should do more homework before playing with shares in individual companieS ... unless you're getting thess shares at employee discount, in which case you should still seriously consider selling them fairly quickly and reinvesting the money in a more structured manner. In a very real sense your job is itself an \\\"\\\"investment\\\"\\\" in your employer; if they ever get into trouble you don't want that to hit both your income and investments.)\\\"\",\n \"It depends on what your investment goals are. Are you investing for the short-term or the long-term? What was your reason for investing in these stocks in the first place? Timing short-term fluctuations in the market is very difficult, so if that's your goal, I wouldn't count on being able to sell and buy back in at exactly the right time. Rather, I think you should think about what your investment rationale was in the first place, and whether or not that rationale still holds. If it does, then hold on to the stocks. If it doesn't, then sell.\",\n \"There's an odd anomaly that often occurs with shares acquired through company plans via ESPP or option purchase. The general situation is that the share value above strike price or grant price may become ordinary income, but a sale below the price at day the shares are valued is a capital loss. e.g. in an ESPP offering, I have a $10 purchase price, but at the end of the offering, the shares are valued at $100. Unless I hold the shares for an additional year, the sale price contains ordinary W2 income. So, if I see the shares falling and sell for $50, I have a tax bill for $90 of W2 income, but a $50 capital loss. Tax is due on $90 (and for 1K shares, $90,000 which can be a $30K hit) but that $50K loss can only be applied to cap gains, or $3K/yr of income. In the dotcom bubble, there were many people who had million dollar tax bills and the value of the money netted from the sale couldn't even cover the taxes. And $1M in losses would take 300 years at $3K/yr. The above is one reason the lockup date expiration is why shares get sold. And one can probably profit on the bigger companies stock. Edit - see Yelp down 3% following expiration of 180 day IPO lock-up period, for similar situation.\",\n \"The idea that you should pay $5,000 up front to convert your shares and sell them to ultimately receive some larger amount is crazy. If in fact the shares need to be converted (unlikely), they should be able to deduct the fees from the proceeds of your transaction, and you would not be out-of-pocket anything at all. You didn't provide much in numbers, so I will make some up: For example: If you have 2,000 shares valued at $10 each, your account should be worth $20,000. If the liquidation cost is $5,000, they should be able to sell everything, deduct the liquidation cost, and send you a check for $15,000. You should NOT have to pay money up front to get your own money, and that is a sure sign of a scam. If the liquidation cost is $5,000, they should be able to sell everything, deduct the liquidation cost, and send you a check for $15,000. You should NOT have to pay money up front to get your own money, and that is a sure sign of a scam.\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["I'm a bit out of my element here, but my guess is the right way to think about this is: knowing what you do now about the underlying company (NZT), pretend they had never offered ADR shares. Would you buy their foreign listed shares today? Another way of looking at it would be: would you know how to sell the foreign-listed shares today if you had to do so in an emergency? If not, I'd also push gently in the direction of selling sooner than later."],"string":"[\n \"I'm a bit out of my element here, but my guess is the right way to think about this is: knowing what you do now about the underlying company (NZT), pretend they had never offered ADR shares. Would you buy their foreign listed shares today? Another way of looking at it would be: would you know how to sell the foreign-listed shares today if you had to do so in an emergency? If not, I'd also push gently in the direction of selling sooner than later.\"\n]","isConversational":false}}},{"rowIdx":397,"cells":{"_id":{"kind":"string","value":"10932"},"query":{"kind":"string","value":"Transferring money from 403B to 401K?"},"gt_ids":{"kind":"list like","value":["104134"],"string":"[\n \"104134\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1],"string":"[\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["104134","323464","89202","387876","144109","529845","99921","179606","401498","528522","551545","599790","355373","134187","63532","122114","272789","192627","262322","308380","217661","168890","266173","79888","21311","88539","361037","456526","217557","195687","424766","514968","267825","9403","332605","125168","183856","516777","72402","152096","388021","510615","458952","495062","385251","526271","158511","470267","553576","295522","428671","468841","507892","536703","291578","497780","195366","236348","302619","64459","560683","357555","125973","74583","127664","231928","399917","283692","567410","581973","97490","187975","398520","490867","577839","483268","577837","397617","427365","332152","510874","68609","335991","458063","8276","384564","61153","496589","294644","190325","117158","392894","348090","340169","217310","154839","267297","51533","458917","260998"],"string":"[\n \"104134\",\n \"323464\",\n \"89202\",\n \"387876\",\n \"144109\",\n \"529845\",\n \"99921\",\n \"179606\",\n \"401498\",\n \"528522\",\n \"551545\",\n \"599790\",\n \"355373\",\n \"134187\",\n \"63532\",\n \"122114\",\n \"272789\",\n \"192627\",\n \"262322\",\n \"308380\",\n \"217661\",\n \"168890\",\n \"266173\",\n \"79888\",\n \"21311\",\n \"88539\",\n \"361037\",\n \"456526\",\n \"217557\",\n \"195687\",\n \"424766\",\n \"514968\",\n \"267825\",\n \"9403\",\n \"332605\",\n \"125168\",\n \"183856\",\n \"516777\",\n \"72402\",\n \"152096\",\n \"388021\",\n \"510615\",\n \"458952\",\n \"495062\",\n \"385251\",\n \"526271\",\n \"158511\",\n \"470267\",\n \"553576\",\n \"295522\",\n \"428671\",\n \"468841\",\n \"507892\",\n \"536703\",\n \"291578\",\n \"497780\",\n \"195366\",\n \"236348\",\n \"302619\",\n \"64459\",\n \"560683\",\n \"357555\",\n \"125973\",\n \"74583\",\n \"127664\",\n \"231928\",\n \"399917\",\n \"283692\",\n \"567410\",\n \"581973\",\n \"97490\",\n \"187975\",\n \"398520\",\n \"490867\",\n \"577839\",\n \"483268\",\n \"577837\",\n \"397617\",\n \"427365\",\n \"332152\",\n \"510874\",\n \"68609\",\n \"335991\",\n \"458063\",\n \"8276\",\n \"384564\",\n \"61153\",\n \"496589\",\n \"294644\",\n \"190325\",\n \"117158\",\n \"392894\",\n \"348090\",\n \"340169\",\n \"217310\",\n \"154839\",\n \"267297\",\n \"51533\",\n \"458917\",\n \"260998\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["\"You can move money from a 403b to a 401k plan, but the question you should ask yourself is whether it is a wise decision. Unless there are specific reasons for wanting to invest in your new employer's 401k (e.g. you can buy your employer's stock at discounted rates within the 401k, and this is a good investment according to your friends, neighbors, and brothers-in-law), you would be much better off moving the 403b money into an IRA, where you have many more choices for investment and usually can manage to find investments with lower investment costs (e.g. mutual fund fees) than in a typical employer's 401k plan. On the other hand, 401k assets are better protected than IRA assets in case you are sued and a court finds you to be liable for damages; the plaintiff cannot come after the 401k assets if you cannot pay. To answer the question of \"\"how?\"\", you need to talk to the HR people at your current employer to make sure that they are willing to accept a roll-over from another tax-deferred plan (not all plans are agreeable to do this) and get any paperwork from them, especially making sure that you find out where the check is to be sent, and to whom it should be payable. Then, talk to your previous employer's HR people and tell them that you want to roll over your 403b money into the 401k plan of your new employer, fill out the paperwork, make sure they know to whom to cut the check to, and where it is to be sent etc. In my personal experience, I was sent the check payable to the custodian of my new (IRA) account, and I had to send it on to the custodian; my 403b people refused to send the check directly to the new custodian. The following January, you will receive a 1099-R form from your 403b plan showing the amount transferred to the new custodian, with hopefully the correct code letter indicating that the money was rolled over into another tax-deferred account.\"","You can do this with no problem. What you want is a direct transfer style of rollover. This is simply where the money is transferred from your 401(k) custodian directly to your new IRA custodian. This will ensure there are no taxes or penalties on the balance. The key is that the money is moving directly to the new account without you having direct access to the balance. This keeps the money out of your hands in the eyes of the IRS. The process should look something like this: A few notes:","For this rollover, there are no restrictions of age/income/etc. You need to know - the transfer must be direct, i.e. if you get a physical check, it should be payable not to you, but to the new custodian (broker) for your benefit. Direct is preferable and faster. The assets may not be transferable 'in kind.' This phrase simply means that you may move the value, but if the assets are not shares that are held by the public, but special 401(k) class shares, they must be liquidated before moving, and moved as cash. This is a risk people with large accounts take should the market move dramatically during the time they are liquidated, and why, for them, I suggest doing it piecemeal.","You need to check with your employer. It is called an in-service rollover and it is up to your employer on whether or not it is allowed. There are a lot of articles on it but I would still talk to a professional before making the decision. And there are some new laws in place that put at least some responsibility on your employer to provide a 401k with reasonable options and fees. http://www.latimes.com/business/la-fi-court-edison-401k-fees-20150519-story.html We'll see if it has legs.","\"Yes, it can be done. See \"\"Scenario 4\"\" at Isolating 401(k) basis - Fairmark.com. Though that article is primarily about getting after-tax 401(k) money into a Roth IRA, Scenario 4 applies to the scenario you are asking about. At a high level you do exactly what you say -- transfer the pre-tax money from your trad IRAs to a 401(k) (btw, a solo 401(k) will work for this also -- doesn't have to be your employer's -- but then you need to be eligible to set up a solo 401(k)). This is allowed because qualified plans can't accept after after-tax traditional IRA money, so the transfer overrides the usual pro rata rules and \"\"strains\"\" the basis out and leaves it in the trad IRA. However, there's a mismatch between the intent of Congress (as indicated by the Joint Committee on Taxation report on the law) and the actual text of the law as detailed in the Fairmark article which while it doesn't stop you from doing this adds a couple of hoops to jump through if you want to be in total compliance with the law.\"","Everything here is yours and can be rolled into your new plan or IRA. You can generally move your 403(b) assets into your traditional IRA or into your new employer's plans, assuming your new employer's plan allowing incoming roll overs. You can probably roll your pension out as well. Actually, the right person to ask about this is the company with whom you have your IRA. The easiest and best way to get assets from one tax-sheltered account to another is by contacting the company you want to roll INTO and having them take care of everything for you.","\"What ever you convert from the 401(k) will be subject to tax. The bigger issue is that there's no \"\"do over\"\" no ability to recharacterize the conversion if when you do your taxes, you realize you need to undo some. I'd suggest transferring from the 401(k) to the traditional IRA first and then convert, just bring aware of the prorata taxation that will be due.\"","If you really want to use the money roll it over to the new companies 401k and then take a 401k loan out for whatever the expense is. (Assuming the retirement plan allows them.) Generally 401k loans are frowned upon for all sorts of reasons however if the alternative is to just flat out withdraw the money it is a slightly better solution.","You can do a trustee to trustee exchange. You will need to contact both companies to coordinate the paperwork. As long as both accounts are the same type (traditional\\Roth) you are fine. You can also do a rollover where you have the check but there are some limitations and deadlines which are avoided by the trustee to trustee exchange. For example the IRS limits the number of rollovers to one a year. You can have multiple accounts of the same type. The annual contribution limits can be split across accounts. Rollovers and transfers are not part of annual contribution limits.","From your first link: IRS.gov: IRA One-Rollover-Per-Year-Rule IRA One-Rollover-Per-Year Rule Beginning in 2015, you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own (Announcement 2014-15 and Announcement 2014-32). The limit will apply by aggregating all of an individual’s IRAs, including SEP and SIMPLE IRAs as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit. They are limiting your ability to roll over money from an IRA to an IRA. You are looking to go from a 401K to an IRA. That is fine. The idea was that some people were taking all money from their IRA, using it for almost 60 days, then putting it back into an IRA. Thus getting a sort of short term loan. They could do this multiple times in a year. The direct trustee-to-trustee transfer are exempt from the once per year rule because the money is never in your possession. Moving money from a 401K/403b/TSP plan from your former employer to an IRA or Roth IRA is fine, and isn't limited to once per year.","401(k)'s can be rolled over into IRAs. You can roll all of your former company 401(k)'s into a single IRA, managed by whatever company you like. Many employers will not let you transfer money out of your 401(k) while you're still a current employee, though, so you may be stuck with the 401(k) used by your current company until you leave. You'll have to check with your 401(k) administrator to be sure. You won't incur any taxes as long as you execute the rollovers properly. The best way to do it is to coordinate the transfer directly between your old 401(k) and your new IRA, so the check is never sent directly to you.","I doubt that there is an arrangement with any country that would allow you to transfer money out of a 401(k) and roll it over to another country that isn't governed by US Tax Laws without taking a distribution. The US government won't let you pull out like that without taking its cut. There may be, but I'd be surprised. Check around in the appropriate venues. If you're making a distribution that incurs penalties, then that's what you're doing. If you can do so without incurring penalties, then great for you, just deposit into the vehicle of your choice in your country.","The simplest thing is to transfer to your current account. You'll have the ability to borrow (assuming employer allows) 50% of the balance if you need to, and one less account to worry about. Transferring to an IRA is the other common choice. This offers the ability to convert to a Roth IRA and to invest any way you choose. The 401(k) options may be limited. Without more details, it's tough to decide. For example, if you are in the 15% bracket, the Roth conversion can be a great idea. And the 401(k) might be not so great, just deposit to the match, and then use the IRA. For example.","Take The 20k and transfer it to the new employer 401k. You then can take a loan and accomplish the same thing. By the time you pay the tax and 10% penalty, that withdrawal will be worth just over half. The same half you can borrow out, pay yourself the interest and not lose out on 50 years of growth.","You cannot roll over your 401k money in an employer's 401k plan into an IRA (of any kind) while you are still employed by that employer. The only way you can start on the conversion before you retire (as Craig W suggests) is to change employers and start rolling over money in the previous employer's 401k into your Roth IRA while possibly contributing to the 401k plan of your new employer. Since the amount rolled over is extra taxable income (that is, in addition to your wages from your new job), you may end up paying more tax (or at higher rates) than you expect.","\"Good question. And it depends a bit on your current plan, your future income, and the plan you are moving too. Mostly you want to roll out of your existing 401K. There will likely be a fee, and your investment choices are limited. You will want to do a direct transfer, and going with a quality company such as Fidelity or Vanguard. Both of those have zero fees for accounts and pretty good customer service. However, if your future income is likely to be high there is something else to consider. If you are over the limits do a ROTH, and are considering doing a \"\"Backdoor ROTH\"\" a key success for this strategy is keeping your roll over IRA balance low (or zero). So you may want to either leave the 401K where it is, or roll it to your new 401K plan. In that case you will have to call the two 401K custodians, and select the best choice as far as fees and fund choice.\"","For reporting purposes, most IRA firms prefer that you roll the 401(k) funds into a Rollover or Traditional IRA and then convert to the ROTH from there. The mid-air conversions (401(k) directly into a ROTH) can get tricky when you go to do your taxes the following year if the 1099 form from the releasing custodian and the 5498 form from the accepting custodian have different numbers due to the conversion amount and taxes withheld if any.","You can't roll it over to a Roth IRA without tax penalties. The best thing to do is roll it to an IRA that isn't tied to work at all. Second best is to roll it into your new employer's 401k. The reason that an IRA makes sense is that it gives you the same tax savings as a 401k, but it allows you to remain in control of the money regardless of your employment status.","\"Assuming you are below retirement age, you typically cannot roll money from a Roth IRA into a 401k nor transfer money out of a 401k until you leave the company. Your best bet is to leave your exising roth ira separate from your 401k. A good strategy for retirement accounts is whenever able (typically when you switch jobs) roll your 401k into a \"\"rollover IRA\"\" (not a roth). Then you can manage your investments with more options than the 5-20 funds provided in the 401k. I would recommend against rolling funds into a 401k because of the lack of options in most 401k plans. Also, 401k is pre-tax and Roth is post-tax. Pre and post tax investments don't mix before withdrawal unless you do a conversion of some kind.\"","It depends how you do it. If you roll it from your 401k directly to a Roth then you will have to pay the taxes. The contributions to the 401k are tax deferred. Meaning you do not owe taxes on the money until you collect it. Roth contributions are post tax but the gains are not taxed so long as they are disbursed under acceptable conditions according to the regulations. If you roll it directly from the 401k to a regular tax deferred IRA you should be able to do that with out penalties or taxes. You will still have to pay the taxes at disbursement. If you have the money disbursed to you directly then you will have to pay the penalties, fees, and taxes. Your contributions to an IRA will then be subject to limitations based on the IRA. It will literally be exactly like you are taking money from your pocket to invest in the IRA. Your company should give you the option of a rollover check. This check will be made out to you but it will not be able to be deposited in a regular account or cashed. It will only be redeemable for deposit into a retirement account that meets the regulatory requirements of the 401k rollover criteria. I believe the check I received a few years ago was only good for 60 days. I recall that after 60 days that check was void and I would receive a standard disbursement and would be subject to fees and penalties. I am not sure if that was the policy of T.Rowe Price or if that is part of the regulation.","No that is not a rollover. Many employees have experienced a change of management companies. Sometimes these switches are due to a merger, an acquisition, or just to save money. It is understandable that the old employer would like to see you transfer your funds to either your new employer, or roll them over into a IRA/Roth IRA. So it is not unexpected that they will take this opportunity to nudge you. The thing that congress was trying to prevent were serial rollovers of IRAs. These people would use the 60 day window to have in essence a loan. Some would do this multiple times a year; always making sure they replaced the money in time. The IRA One-Rollover-Per-Year Rule Beginning in 2015, you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own (Announcement 2014-15 and Announcement 2014-32). The limit will apply by aggregating all of an individual’s IRAs, including SEP and SIMPLE IRAs as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit. Direct transfers of IRA money are not limited This change won’t affect your ability to transfer funds from one IRA trustee directly to another, because this type of transfer isn’t a rollover (Revenue Ruling 78-406, 1978-2 C.B. 157). The one-rollover-per-year rule of Internal Revenue Code Section 408(d)(3)(B) applies only to rollovers. Note that the law doesn't mention 401K/403B or the federal TSP. When the 401K changes management companies that is not a rollover.","Companies usually have a minimum account balance required to keep a 401k for former employees. You will have to check whether $10k is sufficient to keep your funds in your former employer's 401k. If you are below their threshold, you will have to move your money. One option is to rollover into the new employer's 401k. You can rollover a 401k into a traditional IRA account that is independent of your employer. A traditional IRA has the same tax benefits as a 401k; it grows tax-free until you withdraw money from the account. Companies that offer IRAs include Vanguard, Fidelity, TIAA. Many companies have significant overhead costs in the their 401k management. It may be better for you to rollover your money into an IRA to save on these costs. I am not knowledgeable about loaning from retirement accounts, so I cannot help with that.","You can take the old 401k and convert it to an IRA just about anywhere. No accountant required. Borrowing against the IRA/401k is a very stopgap measure, be sure you know what you are getting into. A distribution from it is a 10% penalty before age 59.5.","This is called an in-plan Roth conversion and is discussed by the IRS here. If your 401(k) has a Roth option then it likely also has a provision to convert pre-tax dollars, but you'll have to check with the administrator to be sure. They could also potentially limit the type of money that can be converted. But most likely you should be able to convert any amount you want, and since it's all pre-tax (your contributions, employer matching, and earnings), it doesn't really matter which money is converted because it's all equivalent. One caveat is you won't able to convert any employer matching that hasn't fully vested.","\"403b plans are used by school districts, colleges and universities, nonprofit hospitals, charitable foundations and the like for their employees while 401k plans are used by most everybody else. I would suspect that a school district etc can use a 401k plan instead of a 403b plan if it chooses to do so, but the reverse direction is most likely forbidden: a (for-profit) company cannot use a 403b plan. One difference between a 403b plan and a 401k plan is that the employer can choose to offer, and the employee can choose to purchase, stock in the company inside the 401k plan. This option obviously is not available to charities etc. which don't issue stock. Your comment that the 403b plan invests solely in (variable) annuities suggests that the plan administrator is an insurance company and that the employer is moving to more \"\"modern\"\" version that allows investments in mutual funds and the like. Forty years ago, my 403b plan was like that; the only investment choice was an annuity, but some time in the 1980s, the investment choices were broadened to include mutual funds (possibly because the 1986 Tax Reform Act changed the rules governing 403b plans). So, are you sure that your employer is changing from a 403b plan to a 401k plan, or is it just a change of 403b plan administrator from the insurance company to another administrator who offers investment choices other than an annuity? Note, of course, that insurance companies have changed their options too. For example, TIAA (the Teachers' Insurance and Annuity Association) which was the 403b plan administrator for many schools and colleges became TIAA/CREF (College Retirement Equities Fund) where the CREF mutual funds actually were pretty good investments.\"","There are two significant drawbacks to this type of transfer. They were the reasons why I kept my American 401(k) as-is and started funding my Canadian RRSP from zero balance. 1. Taxes - a large chunk of your 401(k) will be lost to taxes. There is probably no way to transfer the funds without making a 401(k)/IRA withdrawal, which will incur the US federal tax and the 10% early-withdrawal penalty. When the money went into the 401(k), you got a tax deduction in the US and the tax break is supposed be repaid later when you make a withdrawal (that's basically how tax deferral works). It's unlikely that any country will let you take a deduction first and send the payback to a foreign country. The withdrawal amount may also be taxable in Canada (Canadians generally pay taxes on their global income and that includes pensions and distributions from foreign retirement plans). Foreign tax credit will apply of course, to eliminate double taxation, but it's of little help if your marginal Canadian tax rate is higher than your average US tax rate. 2. Expenses. Your RRSP will have to be invested in something and mutual fund management expenses are generally higher in Canada than in the US. For example, my employer-sponsored RRSP has a Standard & Poor's stock index fund that charges 1.5% and that is considered low-cost. It also offers a number of managed funds with expenses in excess of 2% that I simply ignore. You can probably invest your American 401(k)/IRA in mutual funds more efficiently.","When you pick a company for your IRA, they should have information about rolling over funds from another IRA or a 401K. They will be able to walk you through the process. There shouldn't be a fee for doing this. They want your money to be invested in their funds. Once your money is in their hands they are able to generate their profits. You will want to do a direct transfer. Some employers will work with the investment companies and send the funds directly to the IRA. Others will insist on sending a check to you. The company that will have your IRA should give you exact specifications for the check so that you won't have to cash it. The check will be payable to you or the IRA account. The IRA company will have all the details. Decide if you will be converting non-Roth to Roth, before doing the rollover.","\"You're confusing between \"\"individual\"\" 401k (they're called \"\"Solo-401k\"\" and are intended for self-employed), and Individual Retirement Account (IRA). You can't open a solo-401k without being self employed. You can open an IRA and roll over money from your old 401k to it. You cannot get a loan from IRA. You can ask the 401k plan manager to reissue the checks to the new trust, shouldn't be a problem. Make sure the checks are issued to the trust, not to you, to avoid withholding and tax complications. This is what is called a \"\"direct\"\" rollover. You might be able to roll the money over to the 401k of your new employer, it is not always allowed and you should check. You can probably then take a loan from that 401k. However, it diminishes the value of your retirement savings and you should only do it if you have no other choice (being evicted from your home, your children are starving, can't pay for your chemo, etc... this kind of disasters). Otherwise, I'd suggest rolling over to IRA, investing in funds with significantly lower fees (Vanguard target retirements funds for example, or index funds/ETF's), and reassessing your spending and budgeting habits so that you won't need loans from your 401k. Re companies - ETrade is nice, consider also Scottrade, TDAmeriTrade, Vanguard, Fidelity, Sharebuilder, and may be others. These are all discount brokers with relatively low fees, but each has its own set of \"\"no-fee\"\" funds.\"","You generally cant roll funds from a 401k with a company you're still employed with. Some companies allow it depending on the custodial agreement but it's rare. Generally you need to wait until retirement or separation to roll funds out of a 401k.","You could check with the new 401k provider to see if they allow rollover-in contributions. You can likely take the exact amount of the rollover check that was put in the IRA and put it in the new 401k and then take a loan. Loan amount is calculated as 1/2 vested balance less any outstanding loans or $50k, whichever is less. Hopefully this helps...","\"You can rollover money from a 401(k) to Traditional IRA and back to a 401(k). There are likely account closure fees associated with this, so it's not completely free. As long as you're rolling from one tax deferred account to another there are no penalties. The IRS has a handy chart showing what accounts can roll where. Note, starting next year, you can only do one IRA rollover per year. The IRS has additional general information on retirement account rollovers. One additional comment - on the concept of your money being \"\"locked\"\" into an IRA. Generally you have far more options with an IRA than a 401(k). If you go with a large, low cost provider like Vanguard you're likely to be much better off than in a small company 401(k) that only offers costly funds that are likely selected primarily to benefit the administrator of the plan. Choose your IRA provider and the investments with them wisely, and leave that money there for a very long time.\"","You can transfer 401(k) funds from a previous employer to an IRA, and invest it as you wish. That $600 should go to the current 401(k) or IRA. Edit - OP has edited his question. I agree with him that each situation is unique, therefore 100% of the details are needed up front to avoid the answers that would be right for everyone else. He offered a valid reason for rejecting the current advice. There is no solution except to simply withdraw the money. It went in pretax, so taxing on way out is not a penalty. The 10% is the real penalty, and it's $60 in this case.","If you're current employer who is running the 401k says no you can't. You may be able to get a loan against those assets, that's more common. However, this post will be down voted to oblivion because you want r/personalfinance . This isn't the sub for this question.","\"I am a CPA. Yes you can do what you are contemplating. Be careful that they do not take any taxes out of the money when you go to do the \"\"rollover\"\". If they do you will have to dip into your own pocket to put that back into the IRA.\"","Yes, that's exactly what you can/should do. The only question is whether the 401(k) has good investment choices and low fees, if so, go for it.","If you have the cash on hand to pay the tax on the amount you are transferring I recommend moving to a Roth IRA An IRA is tax-deferred. You put in pretax contributions in to an IRA, and you are taxed on that money (your contributions and interest earned) when you withdraw it at retirement, age 59 1/2. The idea being that you will be taking less out per year in your retirement years, putting you into a lower tax bracket. The major problem is most people draw out as much or more a year in their retirement years than when they were working. A Roth IRA grows tax free You put after tax contributions into a Roth IRA, you have paid taxes on the contributions, and you are never taxed on the growth. When you draw the money out at retirement you don't pay any income taxes on that money. Let me give you an example: For this example we will use the following information for both scenario: We will invest $400 per month for a total of $4800. The current maximum is $5000 if you are under 50 years old $400 dollars after taxes is $300 Invest $300 a month, at age 65 you have 3,529,432 You owe no taxes on this money, it doesn't matter how much you take out a year. $400 dollars a month is taken pretax out of your paycheck. Invest $400 per month, at age 65 you have $4,705,909 You owe taxes of 25% as you draw that out for at total tax of 1,176,477 4,705,909 - 1,176,477 = 3,529,432 cash in your pocket The problem is if you draw out more than $82,400 (current 2010 filing single) per year you will be pushed to a higher tax bracket and take more of your money away. If you decide to buy a vacation home and you take out $250,000 to pay for it, that's counted as income for that year any you will be in the 33% tax bracket. Even if you can keep yourself to a low income the government forces your hand and makes you draw out more money at age 70, based on their tables, forcing you into a higher tax bracket","Once you roll the money from the 401K into a rollover IRA don't mix it with new funds. The money from the 401K will be treated differently depending on if the funds are pre-tax, post-tax, Roth, or matching. (Yes, Post-tax and Roth are not the same thing). In the future an employer may allow you to roll IRA or 401K money into their program. They don't have to allow it, and they can put restrictions on the types of money they will accept.","I rolled mine over from the company I was at into my own brokerage house. You can't roll them into a Roth IRA, so I needed to setup a traditional IRA. There is paperwork your old jobs can provide you. I had to put in some mailing addresses, some account numbers and turn them in. My broker received it, I chose what I wanted to invest it in and that was that. No tax penalty or early withdrawal penalty. The key to avoiding penalties is to have your past employers send the money directly to another retirement fund, not send a check to you.","No, the situation is not different, the roll-over rules are the same. It won't be taxable (as opposed to traditional to Roth roll-over), but other than that it's the same. Whether the 401k allows rolling over or not while you're still employed - you have to check with the plan administrator (ask your payroll/HR for details). Usually, the deferred compensation cannot be rolled over out of the 401k while you're still employed.","The simplest answer is that you can convert the IRA to a Roth, and since it was already taxed, pay no tax on conversion. If, in your hypothetical situation, you happen to have an IRA already in place, you are subject to pro-rata rules on conversions, e.g. your balance is total $40K, $10K 'not deducted', a conversion is 75% taxed, convert $20K and the tax is on $15K of that money. But, there also might be a time when you are able to transfer IRA money into a 401(k), effectively removing the pretax deposits, and leaving just post tax money for a free conversion.","Post-86 After tax contributions to a 401k are after tax. The earnings on that money is taxable, but not the contributions. This means: You'll have $15,000 in the 401k and $10,000 is considered after-tax and $5,000 is considered pre-tax. The after-tax portion can be converted to a Roth IRA without paying taxes or penalties. New in September 2014 The IRS has made substantial changes that now enable this to happen. You can request a distribution from your 401k provider where they divide the money into pre-tax and after-tax funds. In my example, you'd get a check for $10,000 that you could send to a Roth IRA and a check for $5,000 you could add to a traditional Roll-over IRA. Neither of those would be taxable events and you'd end with a Roth IRA with $10K and a Traditional, Rollover IRA with $5K in it. Notes:","Adding to justkt's answer. The big difference to you during the rollover is that moving the money to a Roth IRA, unless it was a Roth 401K, is going to require you pay a lot of taxes on the money you move. I'd suggest not doing that without guidance from a financial advisor.","It would be bad tax-wise, because gains in the investment outside the 401k are taxed; whereas gains in the investment inside the 401k are not taxed.","As others mentioned, I am not sure what you mean by stating that your 401K was rolled over to a money market account. Assuming that it was rolled over to an IRA account, you can roll it over to another IRA account with a financial institution of your choice (either a brokerage or a bank.) Alternatively, you can withdraw these funds, but since you are under 59.5 years old, you would have to cough up 10% penalty to IRS for this unqualified withdrawal. Therefore, I would strongly recommend for you to wait till you reach this eligible age. Other qualified (penalty-free) withdrawals are: purchase of the first home, college tuition, medical insurance premiums for unemployed individuals, disability, and medical expenses exceeding 7.5% of your Adjusted Gross Income. I would assume that your 401K was a Traditional 401K account (before tax contributions), and not ROTH 401K, so yo would also have to pay taxes upon withdrawing funds whether you do it now or after you are 59.5 y.o.","I would not recommend borrowing your 401(k) money to buy a house for two reasons: When you borrow money from your 401(k), it is no longer invested. Yes, you pay yourself interest, but you miss out on the investment gains for the life of the loan. If you leave your job, the loan is due in full shortly thereafter. If you do not pay it back, you are hit with taxes and penalties. If I were you, I would roll it over into an IRA for the reasons you mentioned.","Rather than rolling the 401(k) to a new employer's plan, you should roll it into a traditional IRA. You get more options for the money, there's no limit on how much you can roll over, and you have more control over the money. If you do a direct rollover, there's no taxes or penalties involved. I'd recommend against taking any money out of the 401(k). With the numbers you give above, it's like borrowing money at 31.5% interest, which is pretty high, and you're sacrificing your future retirement. If you leave that money alone to grow with compounding, you'll have a lot more when you retire. If you're not familiar with the concept of compound interest, it's worth reading up on - the numbers will blow you away. At the very least, if you desperately need to get $3000 out of it, take out just enough to net $3000 after taxes and penalties (not quite $4400 using the numbers you give) and do a rollover with the rest. At least that way, you're keeping more in the IRA (just over $8600, vs the $5000 in your proposed scenario). Overall, I really recommend you find a way to accomplish your goals without touching your retirement savings.","You can't just move money out at will because of IRS rules for the account. However, you do seem to qualify for hardship. > I investigated a hardship withdrawal, the amount I would be allowed to withdraw was $75.00 You need to look into this more. Normally with a hardship withdrawl, you can pull out what you need. Ask your HR why it is you have a $75.00 limit. We really can't answer. Also, this question is really for /r/personalfinance . This subreddit is about investing.","Direct roll-overs / trustee to trustee transfers are typically initiated by the receiving institution. Therefore you need to work with Vanguard. They will have a form in which you provide them with your fidelity account info and they will then contact Fidelity and initiate the transfer. Do not take the option of being sent a check made out to you by Fidelity (an indirect rollover). There are too many ways to muck up and get hit with penalties if you are the middleman in the process. I believe in most, if not all, cases the IRS now requires a 20% withholding on indirect 401k rollovers. This is because too many times people would initiate a roll over but not complete it either at all or within the allowed 60 day window and then come tax time be unable to pay the tax and penalty on the distribution. The tricky part of that withholding is that you still have to deposit that amount into the new account otherwise it becomes a distribution subject to tax and penalties (and that means coming up with the money from other accounts). So in summary talk to Vanguard and set up an institution to institution transfer. They souls make this very easy as they want your money. And do not do any kind of rollover where you come into personal possession of the money. If the check is made out to Vanguard but sent to you to resend to Vanguard that should not be an issue as that is still a trustee to trustee transfer. Fidelity may have a minor account closer fee that will be deducted from the value of the account before it is sent.","Don’t do anything that causes taxes or penalties, beyond that it’s entirely personal choice and other posters have already done a great job enumerating then. I recently switched jobs in June and rolled over a 401k from my old company to new company and the third party managing the account at the new company was much more professional and walked me through all the required steps and paperwork.","I don't really see the big deal in taking the check. Fidelity will issue you a check, made payable to VANGUARD FBO [Your Name]. All you have to do is simply hand the check over to Vanguard to deposit into your new IRA. Simple and done. To answer your question: Whether or not a custodian, tpa, or recordkeeper will do a direct-deposit or transfer of your funds is completely at their discretion. My company rarely does direct transfers. We issue a check to you. It's just the way we do it. You can talk to Vanguard and see if they can initiate the direct transfer with Fidelity - but honestly, this may just delay getting your funds moved and you're going to end up with a check anyways. And if Vanguard does somehow convince Fidelity to do the wire transfer - there is still going to be a fee. Wires are expensive. Unless Vanguard is willing to pick up the wire fee for you (doubtful). Other's have also mentioned that TPA's will withhold a mandatory 20% federal tax withholding if they send you a check. This is only true if the check gets made payable in your name. But the taxes should not be withheld as long as the check is made payable to your new Vanguard IRA. So my final opinion: Just take the check and give it to your Vanguard rep. It's literally that simple.","\"Your question asks \"\"how\"\" but \"\"if\"\" may be your issue. Most companies will not permit an external transfer while still employed, or under a certain age, 55 or so. If yours is one of the rare companies that permits a transfer, you simply open an IRA with the broker of your choice. Schwab, Fidelity, eTrade, or a dozen others. That broker will give you the paperwork you need to fill out, and they initiate the transfer. I assume you want an IRA in which you can invest in stocks or funds of your choosing. A traditional IRA. The term \"\"self-directed\"\" has another meaning, often associated with the account that permits real estate purchases inside the account. The brokers I listed do not handle that, those custodians have a different business model and are typically smaller firms with fewer offices, not country-wide.\"","You should be able to take a loan out on the 401(k). You can't do a roll-over unless you leave your job. If your 401(k) is that bad, you should consider maxing out your IRA contributions first and putting the rest into your 401(k) - so if you're putting away about 7k a year, lower your withholding to 1500 and put 5500 into an IRA.","\"There's a bit of confusion here. Michael's article you linked is focused on the issue of post-tax 401(k) deposits. For those new to this, it sounds like we are talking about Roth 401(k) money. Not so. The Roth IRA was introduced in 1998, and the Roth 401(k) in 2006. Before '06, people had the ability to deposit more to their 401(k) than the pretax limit of $15,000 into the account as \"\"after tax\"\" deposits. My understanding is that these funds were analogous to the non-deducted IRA deposits for those outside the income limits. Michael goes on the point out that now, with the addition of Roth 401(k) and Roth IRAs, there are folk with pre and post Tax 401(k) funds and trying to crack them for transfer to Traditional IRA and Roth IRA may be problematic. Aside from a recent thread here, there are separate accounts for the Roth 401(k) and Traditional 401(k), and it's possible for the traditional to contain post tax money, which, given the recent introduction of the Roth 401(k) conversion, should be easily addressable.\"","Transfers can be made from U.S. pension plans to Canadian RRSPs, if the following conditions are met: Way more details here: http://www.howlandtax.com/answers/05Sept21.htm And googling 'transfer 401k to rrsp' yields much fruit.","\"Rolling an old 401k into a new 401k is generally only for ease of management. For example, how many bank accounts do you really want? As long as the funds are reasonably allocated I've found it can be a useful \"\"mind game\"\" to leave it separate. Sometimes it's desirable to ignore an account and let it grow, and it is a nice surprise when finally adding all the account balances together. In other words, I keep thinking I've got X (the amount of my biggest or current 401k), which affects/helps my habits and desire to save. When I add them all together I'm shocked to find out I've got Y (the total of all accounts). Personally, I've had big paperwork problems transferring an old 403b (same type process as 401k) even when I had an adviser helping me move it. In the end it was worth moving it, because I'm having the adviser manage it. I'm actually writing this answer specifically because I recently moved a big 401k into a Traditional IRA. A rep from the brokerage, representing my previous employer, kept calling me to find out how they could help (I didn't brush him off). I found that using an IRA provided me with the opportunity to do self-guided investments in funds or even individual stocks, well beyond the limited selection of the old company's 401k. It was useful/interesting to me to invest in low-fee vehicles such as index funds (ie: the Buffett recommendation), and I'll find some stocks as well. Oh and when the old company 401k has certain funds being discontinued, I didn't want to notice the mandated changes years later. So, I'd suggest you consider management and flexibility of the 401k or equivalent, and any of your special personal circumstances/goals. If you end up with a few retirement accounts, I suggest you use an account aggregating website to see or follow your net worth. I know many who, based on various concerns and their portfolio, find an acceptable website to use.\"","Try to avoid actually pulling money out of your retirement savings. Not only are you paying that stiff penalty today, but you're actually stealing form your future. Many 457 plans allow you to borrow against the balance, usually up to 50% of the plan balance. I'd roll the 401k into the 457 and borrow against it if you really need the money. Borrow a little extra to help you make the first few payments if you need to.","AFAIK, individual 401k accounts are supposed to be funded from self-employment earnings, not from rollovers from 401k plans of previous employers. So, check with your accountant before making opening an individual 401k account and getting your previous 401k plan to re-issue the checks to be payable to your individual 401k account. You might also want to ask about whether loans are permitted from individual 401k accounts (my guess is they are not because the possibility of abuse of the privilege is too high since the employer and employee are the same individual). In any case, loans against 401k plans are generally not a good idea, and many people on this forum have blogged about this matter.","One representative I spoke to suggested moving the money into a new IRA, making up the difference from my own pocket, and then asking for a rebate a tax time. Will this work? That's probably the only thing that will work, and you have to do this ASAP: you have 60 days from the distribution to complete the deposit. Make sure to make up for the withheld 20%, and deposit into the IRA the full amount, and make sure to give all the relevant information to your tax preparer to ensure you do get the withheld 20% back as a tax credit. You can check with your current 401k plan if you can deposit there, but in many cases you cannot. IRA is a safe bet.","It doesn't make a difference if you will be keeping it in the 401K or transferring it to an IRA, it is still retirement money that you plan on investing for decades. Pre-Enron many employees invested significant amounts of their retirement funds with the employer. One of the risks was that if a single stock was down at the wrong time, you were hurt if you needed to sell. If you are going from an S&P 500 in the 401K to an S&P 500 in the IRA, it doesn't matter if the the market is up or down, the two funds will be pretty much in synch.","You can also roll money from prior 401ks into current 401ks. Call the administrator of the 401k you prefer (i.e., Fidelity/Schwab, whoever the financial institution is). Explain you don't work there anymore and ask if you can roll money into it. Some plans allow this and some don't. So either, 1) You can roll all your prior 401ks into your current 401k. 2) You might be able to roll all prior 401ks into the prior 401k of your choice if they will accept contributions after you've left. You can't move the amount in your current employer's 401k until you separate or hit a certain age. 3) Like mentioned above, you can roll all prior 401ks into an IRA at any financial institution that will let you set up an IRA. Process: -Call the financial institutions you want to move the money from. Tell them you want a direct rollover. Have them write the check to the financial institution you are rolling into with your name mentioned but not the beneficiary (i.e., check written to Schwab FBO: John Doe account #12345) Tax implications: -If you are rolling from a pre-tax 401k to a pre-tax 401k or IRA, and the money goes directly from institution to institution, you are not liable for taxes. You can also roll from a Roth type (already taxed) account into another Roth type account with no tax implications. If they write a check to YOU and you don't put the money in an IRA or 401k within 60 days you will pay ~20% tax and a 10% early withdrawal penalty. That's why it's best to transfer from institution to institution. 401k vs IRA: -This is a personal decision. You could move all your prior 401ks into an IRA you set up for yourself. Generally the limitations of a 401k are the lack of funds to invest in that fit your retirement strategy, or high expense ratios. Be sure to investigate the fees you would pay for trades in an IRA (401k are almost always free) and the expense ratio for funds in your 401k vs funds you might invest in at a broker for your IRA. Best of both: -You can roll all your 401ks into a single 401k and still set up an IRA or Roth IRA (if your income qualifies) that you can contribute to separately. This could give you flexibility in fund choices if your 401k fees tend to be cheaper while keeping the bulk of your nest egg in low cost mutual funds through an employer account. Last advice: Even if you don't like the options in your current 401k, make sure you are contributing at least enough to get any employer match.","I am not an accountant in any way, but I can't imagine needing to report that to the IRS. It's not income and has probably already been taxed when it was earned/received. You're not moving it from an untaxed (Roth) retirement account to a taxed one, or vice versa.","If you plan to continue contributing to a 401(k) and are no longer self-employed, then you need to start a new 401(k) at your new business. You can't contribute to the old one any more. About the money in the old one, you have a few options. If both 401(k) plans have good investment options and low fees, then there's little reason to think one of these strategies is better than the other. If, like me, at least one of your 401(k) providers has very few available funds and those funds have high expense ratios, then it's a good idea to move your money where the investments are best. As a rule, IRA's are better than 401(k) plans because most IRA's will allow you to invest in practically anything you want while most 401(k) plans only allow you to invest in the funds that have taken your company's HR people to the best lobster dinners or went to the same school as them. Most organizations do an absolutely horrible job at selecting a reasonable set of funds because the decision-makers generally have no finance background and no incentive to do a good job. For that reason I like IRA's. Of course, some solo 401(k) plans are also very good so just leaving it where it is may be best for you. This has the added advantage of being ready to go if you end up self-employed again at some point.","You can't rollover a 401k directly into a Roth IRA. What you can do is rollover a 401k into a traditional IRA, and then convert some or all of the money to a Roth IRA. This is independent of any contributions made to a traditional or Roth IRA.","I agree with harmanjd – best to roll it over to an IRA. Not only does that afford you better control of your money as pointed out already, but: If you choose your IRA provider wisely, you can get an account that provides you with a much wider array of investing choices, including funds and ETFs that charge much lower fees than what you would have had access to in an employer 401(k) plan. But here's one thing to consider first: Do you hold any of your previous employer's stock in your old 401(k)? There are special rules you might want to be aware of. See this article at Marketwatch: If your 401(k) includes your company's stock, a rollover may be a bad move. Additional Resource:","\"Your employment status is not 100% clear from the question. Normally, consultants are sole-proprietors or LLC's and are paid with 1099's. They take care of their own taxes, often with schedule C, and they sometimes can but generally do not use \"\"employer\"\" company 401(k). If this is your situation, you can contact any provider you want and set up your own solo 401(k), which will have great investment options and no fees. I do this, through Fidelity. If you are paid with a W2, you are not a consultant. You are an employee and must use your employer's 401(k). Figure out what you are. If you are a consultant, open a solo 401(k) at the provider of your choice. Make sure beforehand that they allow incoming rollovers. Roll all of your previous 401(k)s and IRA's into it. When you have moved your 401(k) to a better provider, you won't be paying any extra fees, but you will not recoup any fees your original provider charged. I'm not sure why you mention a Roth IRA. If you try to roll your 401(k) into a Roth instead of a traditional IRA or 401(k), be aware that you will be taxed on everything you roll. ---- Edit: a little info about IRA's in response to your comment ---- Tax advantaged retirement accounts come in two flavors: one is managed by your company and the money is taken out of your paycheck. This is usually a 401(k) or 403(b). You can contribute up to $18K per year and your company can also contribute to it. The other flavor is an IRA. You can contribute $5,500 per year to this for you and $5,500 for your spouse. These are outside of your company and you make the deposits yourself. You choose your own provider, so competition has driven prices way down. You can have both a 401(k) and an IRA and contribute the max to both (though at high incomes you lose the ability to deduct IRA contributions). These accounts are tax advantaged because you only pay taxes once. With a regular brokerage account, you pay income tax in the year in which you earn money, then you pay tax every year on dividends and any capital gains that have been realized by selling. There are two types of tax-advantaged accounts: Traditional IRA or Traditional 401(k). You do not pay income tax on this money in the year you earn it, nor do you pay capital gains tax. Instead you pay tax only in the year in which you take the money out (in retirement). Roth IRA or Roth 401(k). You do pay income tax on money on this money in the year in which you earn it. But then you don't pay tax on any gains or withdrawals ever again. When you leave your job (and sometimes at other times) you can move your money out of a 401(k) into your IRA, where you can do a better job managing it. You can also move money from your IRA into a 401(k) if your 401(k) provider will allow you to. Whether traditional or Roth is better depends on your tax rate now and your tax rate at retirement. However, if you choose to move money from a traditional account into a Roth account, you must pay tax on it in that year as if it was income because traditional and Roth accounts are taxed at different times. For that reason, if you are just trying to move money out of your 401(k) to save on fees, the logical place to put it is in a traditional IRA. Moving money from a traditional to a Roth may make sense, for example, if your tax rate is temporarily low this year, but that would be a separate decision from the one you are looking at. You can always roll your traditional IRA into a Roth later if that does become the case. Otherwise, there's no reason to think your traditional 401(k) should be rolled into a Roth IRA according to what you have described.\"","You should never roll a 401(k) to a Roth IRA. If the intention is to do so, you are better off rolling to a traditional IRA, and then converting. (Per the comment below, I should add - if the 401(k) contained post tax money, this portion rolls to a Roth, not a Tradition IRA. You then have the exercise of converting/recharacterizing just the TIRA money, as the Roth stands aside) This preserves the ability to recharacterize back to a traditional IRA. You might wish to do this if: The answers so far are great, but I'll add what I see missing -","Every plan administrator has their own procedures for rollovers. In any case, you would start by browsing their website or calling them seeking information on rollover. You will need to arrange it with both your current and prior administrators. Usually the administrator will send the money directly to your current plan provider, keeping you out of the chain and minimizing any risks of tax complications. It may happen, though, that they have to send the check to you. In that case you will have a limited amount of time to provide it to your current plan.","You have three options. If you follow the procedures outlined by the IRA trustee there should not be any problems. There will not be any taxes involved, unless as part of the process you change non-Roth funds to Roth funds, or you don't follow the procedures. In my experience the IRA companies know how to handle the transfer. In some cases the check must be sent to you, and then you send it to the IRA company, but they will tell you exactly how the check is to be made out to. I would start by talking to the IRA trustee they are likely to have seen it all, and can guide you through the process.","Since its such a small amount, they may require you to move it. A common cutoff is $5k, but it varies from plan to plan. I would roll it over into an IRA. The problem with withdrawing it is that opportunity to save is gone. Especially for IRAs, which have a low maximum contribution, its hard to make it up in the future.","I've rolled mine over into IRAs, and once you have one rollover account you can roll further 401ks into it-- I've done that.","The money that you have under your control (e.g. in bank accounts, savings accounts, taxable investments, etc) is your money and there is no tax of any kind (either in India or in US) that needs to be paid when the money is transferred to India. As Dheer's answer says, you need to transfer all these monies within 7 years as per Indian tax law. For your 401(k) account, assuming that all the money is tax-deferred (i.e. you contributed to a regular 401(k) and not a Roth 401(k)), you will have separated from service as far as US tax law is concerned. So, check if it is at all possible to roll over the money into a similar scheme in India, specifically the Employees Provident Fund. Wikipedia says The schemes covers both Indian and international workers (for countries with which bilateral agreements have been signed; 14 such social security agreements are active). and so a rollover might be possible. If not, you could withdraw small amounts each year and avoid US income tax (but not the 10% excise tax), but how long you can continue holding 401(k) assets after return to India and whether that is long enough to drain the 401(k) are things that you need to find out.","There is no segregation of amounts that you have in Rollover (Traditional) IRAs when it comes to figuring out how much of your basis is being converted from your Traditional IRA into a Roth IRA. So, yes, you will lose the benefit of being able to make nondeductible contributions to your Traditional IRA each year and rolling them over into a Roth IRA without tax consequences. Since your 401k amount may be substantially more than the $5K basis you create each year, converting the 401k amount into a Traditional IRA will mean that most of the money converted to the Roth IRA is pre-tax money, and so you end up paying tax on most of the converted amount.","Don’t take the cash deposit whatever you do. This is a retirement savings vehicle after all and you want to keep this money designated as such. You have 3 options: 1) Rollover the old 401k to the new 401k. Once Your new plan is setup you can call who ever runs that plan and ask them how to get started. It will require you filling out a form with the old 401k provider and they’ll transfer the balance of your account directly to the new 401k. 2) Rollover the old 401k to a Traditional IRA. This involves opening a new traditional IRA if you don’t already have one (I assume you don’t). Vanguard is a reddit favorite and I can vouch for them as Well. Other shops like Fidelity and Schwab are also good but since Vanguard is very low cost and has great service it’s usually a good choice especially for beginners. 3) Convert the old 401k to a ROTH IRA. This is essentially the same as Step 2, the difference is you’ll owe taxes on the balance you convert. Why would you voluntarily want to pay taxes f you can avoid them with options 1 or 2? The beauty of the ROTH is you only pay taxes on the money you contribute to the ROTH, then it grows tax free and when you’re retired you get to withdraw it tax free as well. (The money contained in a 401k or a traditional IRA is taxed when you withdraw in retirement). My $.02. 401k accounts typically have higher fees than IRAs, even if they own the same mutual funds the expense ratios are usually more in the 401k. The last 2 times I’ve changed jobs I’ve converted the 401k money into my ROTH IRA. If it’s a small sum of money and/or you can afford to pay the taxes on the money I’d suggest doing the same. You can read up heavily on the pros/cons of ROTH vs Traditional but My personal strategy is to have 2 “buckets” or money when I retire (some in ROTH and some in Traditional). I can withdraw as much money from the Traditional account until I Max out the lowest Tax bracket and then pull any other money I need from the ROTH accounts that are tax free.This allows you to keep taxes fairly low in retirement. If you don’t have a ROTH now this is a great way to start one.","Having gone though this type of event a few times it won't be a problem. On a specific date they will freeze your accounts. Then they will transfer the funds from custodian X to custodian Y. It should only take a day or two, and they will work it around the paydays so that by the time the next paycheck is released everything is established in the new custodian. Long before the switch over they will announce the investment options in the new company. They will provide descriptions of the options, and a default mapping: S&P 500 old company to S&P 500 new company, International fund old company to international fund new company... If you do nothing then on the switchover they will execute the mapped switches. If you want to take this an an opportunity to rebalance, you can make the changes to the funds you invest in prior to the switch or after the switch. How you contributions are invested will follow the same mapping rules, but the percentage of income won't change. Again you can change how you want to invest your contributions or matching funds by altering the contribution forms, but if you don't do anything they will just follow the mapping procedures they have defined. Loans terms shouldn't change. Company stock will not be impacted. The only hiccup that I would worry about is if the old custodian had a way for you to transfer funds into any fund in their family, or to purchase any individual stock. The question would be does the new custodian have the same options. If you have more questions ask HR or look on the company benefits website. All your funds will be moved to the new company, and none of these transfers will be a taxable event. Edit February 2014: based on this question: What are the laws or rules on 401(k) loans and switching providers? I reviewed the documents for the most recent change (February 2014). The documents from the employer and the new 401K company say: there are no changes to the loan balances, terms, and payment amounts. Although there is a 2 week window when no new loans can be created. All employees received notice 60 days prior to the switchover regarding new investments options, blackout periods.","You can do a direct transfer from one fund to another within Fidelity very easily. You will have to see if the two funds have any sales or redemption fees. If you want to leave Fidelity, they should be able to transfer the funds directly to the other IRA custodian. You don't want the money to go to you, instead you want to send them send the money directly to the other firm. The new custodian will be more than happy to help facilitate the transfer. The only fee for doing so should be if the funds you are investing in have fees for buying or selling shares. There are many options that don't have these transaction costs, both with Fidelity and with other companies.","The time horizon for your 401K/IRA is essentially the same, and it doesn't stop at the day you retire. On the day you do the rollover you will be transferring your funds into similar investments. S&P500 index to S&P 500 index; 20xx retirement date to 20xx retirement date; small cap to small cap... If your vested portion is worth X $'s when the funds are sold, that is the amount that will be transferred to the IRA custodian or the custodian for the new employer. Use the transfer to make any rebalancing adjustments that you want to make. But with as much as a year before you leave the company if you need to rebalance now, then do that irrespective of your leaving. Cash is what is transferred, not the individual stock or mutual fund shares. Only move your funds into a money market account with your current 401K if that makes the most sense for your retirement plan. Also keep in mind unless the amount in the 401K is very small you don't have to do this on your last day of work. Even if you are putting the funds in a IRA wait until you have started with the new company and so can define all your buckets based on the options in the new company.","You can't get a loan from an IRA. You cannot get a loan from your 401(k) plan with your previous employer; 401(k) plans do not give loans to ex-employees, only current employees. Thus, if you want to have the flexibility of getting a loan from the money in the 401(k) plan with your ex-employer, your only option is to roll it over into the 401(k) plan of your current employer. But be aware of the negatives in doing so, some of which are discussed in the answers to Why would you not want to rollover a previous employer's 401(k) when changing jobs?.","If you withdraw your funds from your 401k and DO NOT mive it into another 401k plan or IRA within 60 days it will constitute as an early distribution which will carry a panlty of 10% as well as have income tax owed on it.","What you want is a position transfer, likely by ACATS. This is a transfer from one IRA to another without having to liquidate positions to do so. In effect, the brokerage firm is just transferring records from your existing IRA to your new IRA. You will need to watch out to make sure your new IRA account can hold your positions for this to work. For example, some brokerages allow you to hold fractional shares but others don't. (The fractional share amounts would be sold automatically prior to transfer.) Another example might be different fund families could be allowed between different brokerages. The general process is open your new IRA account, initiate the ACATS xfer from your new account, your old IRA account brokerage sends the positions over, and after a week or so your new IRA brokerage notifies you that everything is transferred. I've switched IRAs a couple times via this mechanism and never been charged a fee, but I've always stuck with the larger brokerages like Fidelity, TD Ameritrade, and Interactive Brokers.","Most 401k plans (maybe even all 401k plans as a matter of law) allow the option of moving the money in your 401k account from one mutual fund to another (within the group of funds that are in the plan). So, you can exit from one fund and put all your 401k money (not just the new contributions) into another fund in the group if you like. Whether you can find a fund within that group that invests only in the companies that you approve of is another matter. As mhoran_psprep's answer points out, changing investments inside a 401k (ditto IRAs, 403b and 457 plans) is without tax consequence which is not the case when you sell one mutual fund and buy another in a non-retirement account.","For such a small amount, I really don't think it's worth the time and effort to withdraw it. Why not roll it over into a traditional IRA or a new 401k / 403b?","\"I was told if I moved my 401k into a Roth IRA that school purposes is one reasons you can withdraw money without having to pay a tax. Incorrect. You will need to pay tax on the amount converted, since a 401(k) is pre-tax and a Roth IRA is after-tax. It will be added to your regular income, so you will pay tax at your marginal tax rate. is there any hidden tax or fee at all for withdrawing money from a Roth IRA for educational purposes? You still will need to pay the tax on the amount converted, but you'll avoid the 10% penalty for early withdrawal. I know that tuition, books and fees are covered for educational purposes. Can I take out of my Roth IRA for living expenses while I'm attending school? Rent, gas, food, etc... Room and board, yes, so long as you are half-time, but not gas/food Possibly only room and board for staying on-campus, but I'm not certain, although I doubt you could call your normal house payment \"\"education expense\"\" with my 401k being smaller, would it just be better to go ahead and cash the whole thing and just pay the tax and use it for whatever I need it for? What is the tax if I just decide to cash the whole thing in? You pay your marginal tax rate PLUS a 10% penalty for early withdrawal. So no, this is probably not a wise move financially unless you're on the verge of bankruptcy or foreclosure (where distress costs are much higher then the 10% penalty) I can't answer the other questions regarding grants; I would talk to the financial aid department at your school. Bottom line, transferring your 401(k) is very likely a bad idea unless you can afford to pay the tax in cash (meaning without borrowing). My advice would be to leave your 401(k) alone (it's meant for retirement not for school or living expenses) Ideally, you should pay for as much as you can out of cash flow, and don't take out more student loans. That may mean taking fewer classes, getting another part time job, finding a different (cheaper) school, applying for more grants and scholarships, etc. I would not in ANY circumstance cash out your 401(k) to pay for school. You'll be much worse off in the long run, and there are much cheaper ways to get money.\"","I would always suggest rolling over 401(k) plans to traditional IRAs when possible. Particularly, assuming there is enough money in them that you can get a fee-free account at somewhere like Fidelity or Vanguard. This is for a couple of reasons. First off, it opens up your investment choices significantly and can allow you significantly reduced expenses related to the account. You may be able to find a superior offering from Vanguard or Fidelity to what your employer's 401(k) plan allows; typically they only allow a small selection of funds to choose from. You also may be able to reduce the overhead fees, as many 401(k) plans charge you an administrative fee for being in the plan separate from the funds' costs. Second, it allows you to condense 401(k)s over time; each time you change employers, you can rollover your 401(k) to your regular IRA and not have to deal with a bunch of different accounts with different passwords and such. Even if they're all at the same provider, odds are you will have to use separate accounts. Third, it avoids issues if your employer goes out of business. While 401(k) plans are generally fully funded (particularly for former employers who you don't have match or vesting concerns with), it can be a pain sometimes when the plan is terminated to access your funds - they may be locked for months while the bankruptcy court works things out. Finally, employers sometimes make it expensive for you to stay in - particularly if you do have a very small amount. Don't assume you're allowed to stay in the former employer's 401(k) plan fee-free; the plan will have specific instructions for what to do if you change employers, and it may include being required to leave the plan - or more often, it could increase the fees associated with the plan if you stay in. Getting out sometimes will save you significantly, even with a low-cost plan.","\"No, you cannot. ISO are given to you in your capacity as an employee (that's why it is \"\"qualified\"\"), while your IRA is not an employee. You cannot transfer property to the IRA, so you cannot transfer them to the IRA once you paid for them as well. This is different from non-qualified stock options (discussed in this question), which I believe technically can be granted to IRA. But as Joe suggests in his answer there - there may be self-dealing issues and you better talk to a licensed tax adviser (EA/CPA licensed in your State) if this is something you're considering to do.\"","No. Your deposits should not have been accepted in the first place. No legit rollover opportunity exists. Related - Can excess 401K contributions returned with 1099-R be rolled over to a Traditional IRA?","tl;dr: Please please please do the conversion first. JoeTaxpayer's answer is correct, but I am of the opposite opinion. First, there's just about no reason to have post-tax dollars in a Traditional IRA. You'll eventually have to pay tax on the earnings those dollars generate, so it's essentially the same as having that money in a regular taxable account. Meanwhile, if you roll those dollars into a Roth IRA, you get to earn tax-free money on them for the rest of your life (and even after your death)! Second, even if you did have some reason for keeping those post-tax dollars where they are, the last thing you ever want to do is mix them with pre-tax dollars (from, say, your 401k). As soon as you mix them, all the dollars become subject to pro-rata taxation (as Joe mentioned), so any future decision you were planning to make about what to do with just your post-tax dollars is moot -- you have given away your right to think separately about your pre- and post-tax dollars. As an example, let's say the accounts you want to combine look like this: In the future you decide you want to move $2,000 from the above account into a Roth. Because you mixed the money, the IRS insists that your rollover consists of: So now you owe tax (and it's regular income tax, I believe, not even capital gains tax) on $1,500. That was money that you socked away specifically to avoid taxes, and now you've gone and paid taxes on it! Now, there are valid arguments for intentionally moving pre-tax dollars from a Traditional to a Roth like this, but the point is that you shouldn't even have to be having that argument -- you have post-tax dollars in your Traditional IRA that almost certainly belong in a Roth. By mixing your 401k into your Traditional IRA, you can no longer do anything with just the post-tax dollars. The IRS will forever insist that you do these pro-rated calculations. Say in the future you suddenly realize that a Roth is much better for your financial situation than a Traditional IRA. (Or you might still prefer a Traditional IRA, but as explained in the next sentence it's not available to you.) Unfortunately, because you're covered by a (new) 401k -- or maybe because you earn too much money to contribute pre-tax dollars to either a Traditional or Roth IRA -- you're out of luck. You're simply not allowed to contribute to a Roth. Most people in this situation can make use of what's called a back-door Roth. They contribute up to the maximum amount per year ($5,500 or whatever it is now) post-tax to a Traditional IRA and then immediately roll it over to their Roth. You can still try this, but guess what? Yep, because you're mixing these new post-tax dollars with pre-tax money in your Traditional IRA, every year your rollover will be tainted with that pre-tax money, diluting the whole point of the back-door Roth. You'll be paying taxes on money you never wanted to pay taxes on, and you'll be leaving post-tax money behind in your traditional IRA. (If it sounds like I'm annoyed about this situation from personal experience, it's because I am. :) By doing the conversion first, you never mix pre- and post-tax money, and your money goes where you want it. Of course, assuming you eventually do roll over your 401(k) into a Traditional IRA, the Really Annoying Consequence above will still plague you, but at least you'll have cleanly converted that first post-tax amount.","\"You can definitely open an IRA and roll the money over. I suggest instead of trying opening online calling the institution and asking what would be the procedure in your specific case. If not, I will have to cash out my 401K. Who do I contact to find out if my country has some sort of deal with the US in regards to taxes? I would of course prefer to not pay the penalty (20 % federal + 10 % state tax), and instead reinvest the money in a retirement fund in my country. US embassies some times have listings of tax advisers who work with US expats in the countries they cover. You can check for such a list on the website of your local US embassy. These people will be able to answer this question. However it is highly unlikely that you'll be able to avoid the tax and penalty in the US in this scenario. It is not likely that you could \"\"roll-over\"\" into a foreign retirement fund (from your country's laws perspective), but maybe your country has some solution for this.\"","If he moves his 401K to a Roth all in one go, all the money will be considered income for the year he moves it, and he will have to pay taxes on that income. If he keeps it in his 401K or rolls it into a traditional IRA, he will only pay taxes on the money as he withdraws it. Bottom line, converting to Roth is almost certainly a bad idea.","When I did this I sold the stock out of my 401k account. Then transferred the cash to my rollover IRA account. No tax event was created for me. Make sure your rollover IRA account is listed as tax deferred. If this still doesn't work for you then it could be a bug in Quicken and your best bet is the Quicken forums. Good luck.","\"To answer your first two questions: according to IRS pub 696 \"\"Contributions to an HSA\"\" section: Rollovers A rollover contribution is not included in your income, is not deductible, and does not reduce your contribution limit. Archer MSAs and other HSAs. You can roll over amounts from Archer MSAs and other HSAs into an HSA. You do not have to be an eligible individual to make a rollover contribution from your existing HSA to a new HSA. Rollover contributions do not need to be in cash. Rollovers are not subject to the annual contribution limits. You must roll over the amount within 60 days after the date of receipt. You can make only one rollover contribution to an HSA during a 1-year period. Note. If you instruct the trustee of your HSA to transfer funds directly to the trustee of another HSA, the transfer is not considered a rollover. There is no limit on the number of these transfers. Do not include the amount transferred in income, deduct it as a contribution, or include it as a distribution on Form 8889, line 14a. (italics mine) So if you transfer the money yourself, you can only do it once per year, but there are no limits to when or how many times you can instruct the old HSA trustee to transfer funds directly to the new trustee.\"","It is typically very easy to roll a 401(k) into an IRA. Companies that provide IRA's are very experienced with it, and I would expect that they will take your calls from overseas. You will likely be able to do it over the internet without using a phone at all. Just open an IRA with any brokerage company (Scottrade, Vanguard, Fidelity, Schwab, Ameritrade, etc.) and follow instructions to roll your 401(k) into it. Most likely they will need your signature, but usually a scan of a form you have filled out will do. Be sure to have information on your 401(k) provider, including your account number there, on hand. These companies are all very reputable and this is not a difficult transaction. There's really no downside to rolling into an IRA. 401(k) plans usually have more limited options and/or worse fee structures and are frequently harder to work with, as you have observed.","You can probably roll it over into the new company's 401k too, so just talk to your HR rep there. I set up a separate Vangard IRA so when I changejobs or anything, I just dump my investments into that account and don't have to worry about keep track of them all over the place.","If you roll your funds from a 401k to an individual Vanguard account it will be in an IRA. Some people talk about IRA loans, but what is happening is that you are given a check for the value of the IRA and you have 60 days to deposit that full amount in another qualified account before being assessed a distribution penalty. The IRS also has rules to prohibit you from making several back-to-back rollovers to try to float the money for longer than 60 days.","\"You withdrew the 'cash' portion, and will pay tax on it. How was the check \"\"another for move remaining to B\"\" issued? Was it payable to you? If so, it's too late, it's your money and the whole account was cashed out. If it was payable to B, you should have had it sent directly to their custodian, are you saying you still have that check? You might need to ask A to reissue the check to you, since you are no longer in the US. I'm not sure if you can roll it to an IRA at this point.\"","You'll want to roll the 401k over to a specifically designated rollover IRA. Rollover IRAs differ from an ordinary IRA account because they have NO contribution limit per year. Also Rolling over a 401k to a Roth IRA has consequences. There won't be a penalty but you will have to pay taxes on the amount being rolled over. The choice of Roth or Traditional IRA depends on your current tax situation as well as your expected taxes at retirement. Typically if you are in a low tax bracket and expect to be in a higher tax bracket at retirement a Roth IRA is suggested as withdrawals are tax free. With a rollover conversion you will have to evaluate whether paying taxes now outweighs the potential benefits of tax free withdrawals when you retire.","Conversion of after-tax 401K into a Roth is known (on Bogleheads for instance) as a Mega Backdoor Roth IRA. Recent tax rulings seem to allow for this kind of transfer more cleanly. After conversions, the money is treated as a normal Roth - you don't pay any taxes or penalties on contributions. For investment earnings, the Roth IRA has the standard five-year rule: most commonly - you must hold the account for five years and be 59.5 years old (there are other criteria). Otherwise, you may pay taxes plus a 10% penalty on the earnings portion of your distribution. There are other reasons you can withdraw early - spelled out in IRS Publication 590B Figure 2-1.","No, sorry. A change of 401(k) administrator is not an out, otherwise many would flee a bad plan. I'd suggest you only deposit up to the match, but use an IRA if you'd like to save more. A plan with high fees can easily negate the tax benefits and then some.","No, it is not a taxable event. You will not have to pay tax on the $500 in this scenario. See the IRS publication 590-A: To recharacterize a contribution, you generally must have the contribution transferred from the first IRA (the one to which it was made) to the second IRA in a trustee-to-trustee transfer. If the transfer is made by the due date (including extensions) for your tax return for the tax year during which the contribution was made, you can elect to treat the contribution as having been originally made to the second IRA instead of to the first IRA. If you recharacterize your contribution, you must do all three of the following. Include in the transfer any net income allocable to the contribution. If there was a loss, the net income you must transfer may be a negative amount. Report the recharacterization on your tax return for the year during which the contribution was made. Treat the contribution as having been made to the second IRA on the date that it was actually made to the first IRA.","\"I understand the answers addressing the question as asked. Yes, inheriting a 401(k) can be a convoluted process. In general, it's best to transfer the account to an IRA after separation from the company to avoid the issues both of my esteemed colleagues have referenced. Given the issue of \"\"allowed by not required\"\" the flexibility is greater once the account has been transferred to an IRA. With few exceptions, there's little reason to leave the account with the 401(k) after leaving that company. (Note - I understand the original question as worded can mean the account holder passes while still working for the company. In that case, this wouldn't be an option.)\"","The 60 day pay back rule of a distribution your are referring to is a reportable IRS rule so you won't be able to circumvent that by opening your own company with its own 401K and borrowing the funds from there. Failure to accurately report to the IRS leads to fines and possible jail time. It's not advisable to withdraw from a retirement account but if you really need the money then you can move the funds to a Rollover IRA at the new broker/dealer, or custodian etc. Once you withdraw funds, the plan sponsor has to abide by a mandatory 20% tax withholding on the distribution, you'll be hit with a 10% tax penalty for early withdraw and you'll have to report the distribution as income when you file your personal income taxes. The move from a 401K to a Rollover however is legal and has no tax implications or penalties (besides possible closing fees at the old account) - that is until you decide to withdraw from it assuming you are under age 59 1/2. Regarding your last point, 401Ks are administered by 3rd parties. You wouldn't be opening up any accounts directly with them necessarily. Best advice? Get a Financial Advisor in your area. I recommend going with an advisor who is backed by independent broker-dealer. Independent broker dealers don't offer their own investment products therefore don't push their advisors to sell you their 'in-house' products like big banks. Here's a good article on using Rollover funds to start a venture: http://www.ehow.com/how_6789743_rollover-directed-ira-start-business.html Here is a resource guide direct from the IRS (you can CTRL+F for any specific topics) http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/401%28k%29-Resource-Guide---Plan-Participants---General-Distribution-Rules"],"string":"[\n \"\\\"You can move money from a 403b to a 401k plan, but the question you should ask yourself is whether it is a wise decision. Unless there are specific reasons for wanting to invest in your new employer's 401k (e.g. you can buy your employer's stock at discounted rates within the 401k, and this is a good investment according to your friends, neighbors, and brothers-in-law), you would be much better off moving the 403b money into an IRA, where you have many more choices for investment and usually can manage to find investments with lower investment costs (e.g. mutual fund fees) than in a typical employer's 401k plan. On the other hand, 401k assets are better protected than IRA assets in case you are sued and a court finds you to be liable for damages; the plaintiff cannot come after the 401k assets if you cannot pay. To answer the question of \\\"\\\"how?\\\"\\\", you need to talk to the HR people at your current employer to make sure that they are willing to accept a roll-over from another tax-deferred plan (not all plans are agreeable to do this) and get any paperwork from them, especially making sure that you find out where the check is to be sent, and to whom it should be payable. Then, talk to your previous employer's HR people and tell them that you want to roll over your 403b money into the 401k plan of your new employer, fill out the paperwork, make sure they know to whom to cut the check to, and where it is to be sent etc. In my personal experience, I was sent the check payable to the custodian of my new (IRA) account, and I had to send it on to the custodian; my 403b people refused to send the check directly to the new custodian. The following January, you will receive a 1099-R form from your 403b plan showing the amount transferred to the new custodian, with hopefully the correct code letter indicating that the money was rolled over into another tax-deferred account.\\\"\",\n \"You can do this with no problem. What you want is a direct transfer style of rollover. This is simply where the money is transferred from your 401(k) custodian directly to your new IRA custodian. This will ensure there are no taxes or penalties on the balance. The key is that the money is moving directly to the new account without you having direct access to the balance. This keeps the money out of your hands in the eyes of the IRS. The process should look something like this: A few notes:\",\n \"For this rollover, there are no restrictions of age/income/etc. You need to know - the transfer must be direct, i.e. if you get a physical check, it should be payable not to you, but to the new custodian (broker) for your benefit. Direct is preferable and faster. The assets may not be transferable 'in kind.' This phrase simply means that you may move the value, but if the assets are not shares that are held by the public, but special 401(k) class shares, they must be liquidated before moving, and moved as cash. This is a risk people with large accounts take should the market move dramatically during the time they are liquidated, and why, for them, I suggest doing it piecemeal.\",\n \"You need to check with your employer. It is called an in-service rollover and it is up to your employer on whether or not it is allowed. There are a lot of articles on it but I would still talk to a professional before making the decision. And there are some new laws in place that put at least some responsibility on your employer to provide a 401k with reasonable options and fees. http://www.latimes.com/business/la-fi-court-edison-401k-fees-20150519-story.html We'll see if it has legs.\",\n \"\\\"Yes, it can be done. See \\\"\\\"Scenario 4\\\"\\\" at Isolating 401(k) basis - Fairmark.com. Though that article is primarily about getting after-tax 401(k) money into a Roth IRA, Scenario 4 applies to the scenario you are asking about. At a high level you do exactly what you say -- transfer the pre-tax money from your trad IRAs to a 401(k) (btw, a solo 401(k) will work for this also -- doesn't have to be your employer's -- but then you need to be eligible to set up a solo 401(k)). This is allowed because qualified plans can't accept after after-tax traditional IRA money, so the transfer overrides the usual pro rata rules and \\\"\\\"strains\\\"\\\" the basis out and leaves it in the trad IRA. However, there's a mismatch between the intent of Congress (as indicated by the Joint Committee on Taxation report on the law) and the actual text of the law as detailed in the Fairmark article which while it doesn't stop you from doing this adds a couple of hoops to jump through if you want to be in total compliance with the law.\\\"\",\n \"Everything here is yours and can be rolled into your new plan or IRA. You can generally move your 403(b) assets into your traditional IRA or into your new employer's plans, assuming your new employer's plan allowing incoming roll overs. You can probably roll your pension out as well. Actually, the right person to ask about this is the company with whom you have your IRA. The easiest and best way to get assets from one tax-sheltered account to another is by contacting the company you want to roll INTO and having them take care of everything for you.\",\n \"\\\"What ever you convert from the 401(k) will be subject to tax. The bigger issue is that there's no \\\"\\\"do over\\\"\\\" no ability to recharacterize the conversion if when you do your taxes, you realize you need to undo some. I'd suggest transferring from the 401(k) to the traditional IRA first and then convert, just bring aware of the prorata taxation that will be due.\\\"\",\n \"If you really want to use the money roll it over to the new companies 401k and then take a 401k loan out for whatever the expense is. (Assuming the retirement plan allows them.) Generally 401k loans are frowned upon for all sorts of reasons however if the alternative is to just flat out withdraw the money it is a slightly better solution.\",\n \"You can do a trustee to trustee exchange. You will need to contact both companies to coordinate the paperwork. As long as both accounts are the same type (traditional\\\\Roth) you are fine. You can also do a rollover where you have the check but there are some limitations and deadlines which are avoided by the trustee to trustee exchange. For example the IRS limits the number of rollovers to one a year. You can have multiple accounts of the same type. The annual contribution limits can be split across accounts. Rollovers and transfers are not part of annual contribution limits.\",\n \"From your first link: IRS.gov: IRA One-Rollover-Per-Year-Rule IRA One-Rollover-Per-Year Rule Beginning in 2015, you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own (Announcement 2014-15 and Announcement 2014-32). The limit will apply by aggregating all of an individual’s IRAs, including SEP and SIMPLE IRAs as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit. They are limiting your ability to roll over money from an IRA to an IRA. You are looking to go from a 401K to an IRA. That is fine. The idea was that some people were taking all money from their IRA, using it for almost 60 days, then putting it back into an IRA. Thus getting a sort of short term loan. They could do this multiple times in a year. The direct trustee-to-trustee transfer are exempt from the once per year rule because the money is never in your possession. Moving money from a 401K/403b/TSP plan from your former employer to an IRA or Roth IRA is fine, and isn't limited to once per year.\",\n \"401(k)'s can be rolled over into IRAs. You can roll all of your former company 401(k)'s into a single IRA, managed by whatever company you like. Many employers will not let you transfer money out of your 401(k) while you're still a current employee, though, so you may be stuck with the 401(k) used by your current company until you leave. You'll have to check with your 401(k) administrator to be sure. You won't incur any taxes as long as you execute the rollovers properly. The best way to do it is to coordinate the transfer directly between your old 401(k) and your new IRA, so the check is never sent directly to you.\",\n \"I doubt that there is an arrangement with any country that would allow you to transfer money out of a 401(k) and roll it over to another country that isn't governed by US Tax Laws without taking a distribution. The US government won't let you pull out like that without taking its cut. There may be, but I'd be surprised. Check around in the appropriate venues. If you're making a distribution that incurs penalties, then that's what you're doing. If you can do so without incurring penalties, then great for you, just deposit into the vehicle of your choice in your country.\",\n \"The simplest thing is to transfer to your current account. You'll have the ability to borrow (assuming employer allows) 50% of the balance if you need to, and one less account to worry about. Transferring to an IRA is the other common choice. This offers the ability to convert to a Roth IRA and to invest any way you choose. The 401(k) options may be limited. Without more details, it's tough to decide. For example, if you are in the 15% bracket, the Roth conversion can be a great idea. And the 401(k) might be not so great, just deposit to the match, and then use the IRA. For example.\",\n \"Take The 20k and transfer it to the new employer 401k. You then can take a loan and accomplish the same thing. By the time you pay the tax and 10% penalty, that withdrawal will be worth just over half. The same half you can borrow out, pay yourself the interest and not lose out on 50 years of growth.\",\n \"You cannot roll over your 401k money in an employer's 401k plan into an IRA (of any kind) while you are still employed by that employer. The only way you can start on the conversion before you retire (as Craig W suggests) is to change employers and start rolling over money in the previous employer's 401k into your Roth IRA while possibly contributing to the 401k plan of your new employer. Since the amount rolled over is extra taxable income (that is, in addition to your wages from your new job), you may end up paying more tax (or at higher rates) than you expect.\",\n \"\\\"Good question. And it depends a bit on your current plan, your future income, and the plan you are moving too. Mostly you want to roll out of your existing 401K. There will likely be a fee, and your investment choices are limited. You will want to do a direct transfer, and going with a quality company such as Fidelity or Vanguard. Both of those have zero fees for accounts and pretty good customer service. However, if your future income is likely to be high there is something else to consider. If you are over the limits do a ROTH, and are considering doing a \\\"\\\"Backdoor ROTH\\\"\\\" a key success for this strategy is keeping your roll over IRA balance low (or zero). So you may want to either leave the 401K where it is, or roll it to your new 401K plan. In that case you will have to call the two 401K custodians, and select the best choice as far as fees and fund choice.\\\"\",\n \"For reporting purposes, most IRA firms prefer that you roll the 401(k) funds into a Rollover or Traditional IRA and then convert to the ROTH from there. The mid-air conversions (401(k) directly into a ROTH) can get tricky when you go to do your taxes the following year if the 1099 form from the releasing custodian and the 5498 form from the accepting custodian have different numbers due to the conversion amount and taxes withheld if any.\",\n \"You can't roll it over to a Roth IRA without tax penalties. The best thing to do is roll it to an IRA that isn't tied to work at all. Second best is to roll it into your new employer's 401k. The reason that an IRA makes sense is that it gives you the same tax savings as a 401k, but it allows you to remain in control of the money regardless of your employment status.\",\n \"\\\"Assuming you are below retirement age, you typically cannot roll money from a Roth IRA into a 401k nor transfer money out of a 401k until you leave the company. Your best bet is to leave your exising roth ira separate from your 401k. A good strategy for retirement accounts is whenever able (typically when you switch jobs) roll your 401k into a \\\"\\\"rollover IRA\\\"\\\" (not a roth). Then you can manage your investments with more options than the 5-20 funds provided in the 401k. I would recommend against rolling funds into a 401k because of the lack of options in most 401k plans. Also, 401k is pre-tax and Roth is post-tax. Pre and post tax investments don't mix before withdrawal unless you do a conversion of some kind.\\\"\",\n \"It depends how you do it. If you roll it from your 401k directly to a Roth then you will have to pay the taxes. The contributions to the 401k are tax deferred. Meaning you do not owe taxes on the money until you collect it. Roth contributions are post tax but the gains are not taxed so long as they are disbursed under acceptable conditions according to the regulations. If you roll it directly from the 401k to a regular tax deferred IRA you should be able to do that with out penalties or taxes. You will still have to pay the taxes at disbursement. If you have the money disbursed to you directly then you will have to pay the penalties, fees, and taxes. Your contributions to an IRA will then be subject to limitations based on the IRA. It will literally be exactly like you are taking money from your pocket to invest in the IRA. Your company should give you the option of a rollover check. This check will be made out to you but it will not be able to be deposited in a regular account or cashed. It will only be redeemable for deposit into a retirement account that meets the regulatory requirements of the 401k rollover criteria. I believe the check I received a few years ago was only good for 60 days. I recall that after 60 days that check was void and I would receive a standard disbursement and would be subject to fees and penalties. I am not sure if that was the policy of T.Rowe Price or if that is part of the regulation.\",\n \"No that is not a rollover. Many employees have experienced a change of management companies. Sometimes these switches are due to a merger, an acquisition, or just to save money. It is understandable that the old employer would like to see you transfer your funds to either your new employer, or roll them over into a IRA/Roth IRA. So it is not unexpected that they will take this opportunity to nudge you. The thing that congress was trying to prevent were serial rollovers of IRAs. These people would use the 60 day window to have in essence a loan. Some would do this multiple times a year; always making sure they replaced the money in time. The IRA One-Rollover-Per-Year Rule Beginning in 2015, you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own (Announcement 2014-15 and Announcement 2014-32). The limit will apply by aggregating all of an individual’s IRAs, including SEP and SIMPLE IRAs as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit. Direct transfers of IRA money are not limited This change won’t affect your ability to transfer funds from one IRA trustee directly to another, because this type of transfer isn’t a rollover (Revenue Ruling 78-406, 1978-2 C.B. 157). The one-rollover-per-year rule of Internal Revenue Code Section 408(d)(3)(B) applies only to rollovers. Note that the law doesn't mention 401K/403B or the federal TSP. When the 401K changes management companies that is not a rollover.\",\n \"Companies usually have a minimum account balance required to keep a 401k for former employees. You will have to check whether $10k is sufficient to keep your funds in your former employer's 401k. If you are below their threshold, you will have to move your money. One option is to rollover into the new employer's 401k. You can rollover a 401k into a traditional IRA account that is independent of your employer. A traditional IRA has the same tax benefits as a 401k; it grows tax-free until you withdraw money from the account. Companies that offer IRAs include Vanguard, Fidelity, TIAA. Many companies have significant overhead costs in the their 401k management. It may be better for you to rollover your money into an IRA to save on these costs. I am not knowledgeable about loaning from retirement accounts, so I cannot help with that.\",\n \"You can take the old 401k and convert it to an IRA just about anywhere. No accountant required. Borrowing against the IRA/401k is a very stopgap measure, be sure you know what you are getting into. A distribution from it is a 10% penalty before age 59.5.\",\n \"This is called an in-plan Roth conversion and is discussed by the IRS here. If your 401(k) has a Roth option then it likely also has a provision to convert pre-tax dollars, but you'll have to check with the administrator to be sure. They could also potentially limit the type of money that can be converted. But most likely you should be able to convert any amount you want, and since it's all pre-tax (your contributions, employer matching, and earnings), it doesn't really matter which money is converted because it's all equivalent. One caveat is you won't able to convert any employer matching that hasn't fully vested.\",\n \"\\\"403b plans are used by school districts, colleges and universities, nonprofit hospitals, charitable foundations and the like for their employees while 401k plans are used by most everybody else. I would suspect that a school district etc can use a 401k plan instead of a 403b plan if it chooses to do so, but the reverse direction is most likely forbidden: a (for-profit) company cannot use a 403b plan. One difference between a 403b plan and a 401k plan is that the employer can choose to offer, and the employee can choose to purchase, stock in the company inside the 401k plan. This option obviously is not available to charities etc. which don't issue stock. Your comment that the 403b plan invests solely in (variable) annuities suggests that the plan administrator is an insurance company and that the employer is moving to more \\\"\\\"modern\\\"\\\" version that allows investments in mutual funds and the like. Forty years ago, my 403b plan was like that; the only investment choice was an annuity, but some time in the 1980s, the investment choices were broadened to include mutual funds (possibly because the 1986 Tax Reform Act changed the rules governing 403b plans). So, are you sure that your employer is changing from a 403b plan to a 401k plan, or is it just a change of 403b plan administrator from the insurance company to another administrator who offers investment choices other than an annuity? Note, of course, that insurance companies have changed their options too. For example, TIAA (the Teachers' Insurance and Annuity Association) which was the 403b plan administrator for many schools and colleges became TIAA/CREF (College Retirement Equities Fund) where the CREF mutual funds actually were pretty good investments.\\\"\",\n \"There are two significant drawbacks to this type of transfer. They were the reasons why I kept my American 401(k) as-is and started funding my Canadian RRSP from zero balance. 1. Taxes - a large chunk of your 401(k) will be lost to taxes. There is probably no way to transfer the funds without making a 401(k)/IRA withdrawal, which will incur the US federal tax and the 10% early-withdrawal penalty. When the money went into the 401(k), you got a tax deduction in the US and the tax break is supposed be repaid later when you make a withdrawal (that's basically how tax deferral works). It's unlikely that any country will let you take a deduction first and send the payback to a foreign country. The withdrawal amount may also be taxable in Canada (Canadians generally pay taxes on their global income and that includes pensions and distributions from foreign retirement plans). Foreign tax credit will apply of course, to eliminate double taxation, but it's of little help if your marginal Canadian tax rate is higher than your average US tax rate. 2. Expenses. Your RRSP will have to be invested in something and mutual fund management expenses are generally higher in Canada than in the US. For example, my employer-sponsored RRSP has a Standard & Poor's stock index fund that charges 1.5% and that is considered low-cost. It also offers a number of managed funds with expenses in excess of 2% that I simply ignore. You can probably invest your American 401(k)/IRA in mutual funds more efficiently.\",\n \"When you pick a company for your IRA, they should have information about rolling over funds from another IRA or a 401K. They will be able to walk you through the process. There shouldn't be a fee for doing this. They want your money to be invested in their funds. Once your money is in their hands they are able to generate their profits. You will want to do a direct transfer. Some employers will work with the investment companies and send the funds directly to the IRA. Others will insist on sending a check to you. The company that will have your IRA should give you exact specifications for the check so that you won't have to cash it. The check will be payable to you or the IRA account. The IRA company will have all the details. Decide if you will be converting non-Roth to Roth, before doing the rollover.\",\n \"\\\"You're confusing between \\\"\\\"individual\\\"\\\" 401k (they're called \\\"\\\"Solo-401k\\\"\\\" and are intended for self-employed), and Individual Retirement Account (IRA). You can't open a solo-401k without being self employed. You can open an IRA and roll over money from your old 401k to it. You cannot get a loan from IRA. You can ask the 401k plan manager to reissue the checks to the new trust, shouldn't be a problem. Make sure the checks are issued to the trust, not to you, to avoid withholding and tax complications. This is what is called a \\\"\\\"direct\\\"\\\" rollover. You might be able to roll the money over to the 401k of your new employer, it is not always allowed and you should check. You can probably then take a loan from that 401k. However, it diminishes the value of your retirement savings and you should only do it if you have no other choice (being evicted from your home, your children are starving, can't pay for your chemo, etc... this kind of disasters). Otherwise, I'd suggest rolling over to IRA, investing in funds with significantly lower fees (Vanguard target retirements funds for example, or index funds/ETF's), and reassessing your spending and budgeting habits so that you won't need loans from your 401k. Re companies - ETrade is nice, consider also Scottrade, TDAmeriTrade, Vanguard, Fidelity, Sharebuilder, and may be others. These are all discount brokers with relatively low fees, but each has its own set of \\\"\\\"no-fee\\\"\\\" funds.\\\"\",\n \"You generally cant roll funds from a 401k with a company you're still employed with. Some companies allow it depending on the custodial agreement but it's rare. Generally you need to wait until retirement or separation to roll funds out of a 401k.\",\n \"You could check with the new 401k provider to see if they allow rollover-in contributions. You can likely take the exact amount of the rollover check that was put in the IRA and put it in the new 401k and then take a loan. Loan amount is calculated as 1/2 vested balance less any outstanding loans or $50k, whichever is less. Hopefully this helps...\",\n \"\\\"You can rollover money from a 401(k) to Traditional IRA and back to a 401(k). There are likely account closure fees associated with this, so it's not completely free. As long as you're rolling from one tax deferred account to another there are no penalties. The IRS has a handy chart showing what accounts can roll where. Note, starting next year, you can only do one IRA rollover per year. The IRS has additional general information on retirement account rollovers. One additional comment - on the concept of your money being \\\"\\\"locked\\\"\\\" into an IRA. Generally you have far more options with an IRA than a 401(k). If you go with a large, low cost provider like Vanguard you're likely to be much better off than in a small company 401(k) that only offers costly funds that are likely selected primarily to benefit the administrator of the plan. Choose your IRA provider and the investments with them wisely, and leave that money there for a very long time.\\\"\",\n \"You can transfer 401(k) funds from a previous employer to an IRA, and invest it as you wish. That $600 should go to the current 401(k) or IRA. Edit - OP has edited his question. I agree with him that each situation is unique, therefore 100% of the details are needed up front to avoid the answers that would be right for everyone else. He offered a valid reason for rejecting the current advice. There is no solution except to simply withdraw the money. It went in pretax, so taxing on way out is not a penalty. The 10% is the real penalty, and it's $60 in this case.\",\n \"If you're current employer who is running the 401k says no you can't. You may be able to get a loan against those assets, that's more common. However, this post will be down voted to oblivion because you want r/personalfinance . This isn't the sub for this question.\",\n \"\\\"I am a CPA. Yes you can do what you are contemplating. Be careful that they do not take any taxes out of the money when you go to do the \\\"\\\"rollover\\\"\\\". If they do you will have to dip into your own pocket to put that back into the IRA.\\\"\",\n \"Yes, that's exactly what you can/should do. The only question is whether the 401(k) has good investment choices and low fees, if so, go for it.\",\n \"If you have the cash on hand to pay the tax on the amount you are transferring I recommend moving to a Roth IRA An IRA is tax-deferred. You put in pretax contributions in to an IRA, and you are taxed on that money (your contributions and interest earned) when you withdraw it at retirement, age 59 1/2. The idea being that you will be taking less out per year in your retirement years, putting you into a lower tax bracket. The major problem is most people draw out as much or more a year in their retirement years than when they were working. A Roth IRA grows tax free You put after tax contributions into a Roth IRA, you have paid taxes on the contributions, and you are never taxed on the growth. When you draw the money out at retirement you don't pay any income taxes on that money. Let me give you an example: For this example we will use the following information for both scenario: We will invest $400 per month for a total of $4800. The current maximum is $5000 if you are under 50 years old $400 dollars after taxes is $300 Invest $300 a month, at age 65 you have 3,529,432 You owe no taxes on this money, it doesn't matter how much you take out a year. $400 dollars a month is taken pretax out of your paycheck. Invest $400 per month, at age 65 you have $4,705,909 You owe taxes of 25% as you draw that out for at total tax of 1,176,477 4,705,909 - 1,176,477 = 3,529,432 cash in your pocket The problem is if you draw out more than $82,400 (current 2010 filing single) per year you will be pushed to a higher tax bracket and take more of your money away. If you decide to buy a vacation home and you take out $250,000 to pay for it, that's counted as income for that year any you will be in the 33% tax bracket. Even if you can keep yourself to a low income the government forces your hand and makes you draw out more money at age 70, based on their tables, forcing you into a higher tax bracket\",\n \"Once you roll the money from the 401K into a rollover IRA don't mix it with new funds. The money from the 401K will be treated differently depending on if the funds are pre-tax, post-tax, Roth, or matching. (Yes, Post-tax and Roth are not the same thing). In the future an employer may allow you to roll IRA or 401K money into their program. They don't have to allow it, and they can put restrictions on the types of money they will accept.\",\n \"I rolled mine over from the company I was at into my own brokerage house. You can't roll them into a Roth IRA, so I needed to setup a traditional IRA. There is paperwork your old jobs can provide you. I had to put in some mailing addresses, some account numbers and turn them in. My broker received it, I chose what I wanted to invest it in and that was that. No tax penalty or early withdrawal penalty. The key to avoiding penalties is to have your past employers send the money directly to another retirement fund, not send a check to you.\",\n \"No, the situation is not different, the roll-over rules are the same. It won't be taxable (as opposed to traditional to Roth roll-over), but other than that it's the same. Whether the 401k allows rolling over or not while you're still employed - you have to check with the plan administrator (ask your payroll/HR for details). Usually, the deferred compensation cannot be rolled over out of the 401k while you're still employed.\",\n \"The simplest answer is that you can convert the IRA to a Roth, and since it was already taxed, pay no tax on conversion. If, in your hypothetical situation, you happen to have an IRA already in place, you are subject to pro-rata rules on conversions, e.g. your balance is total $40K, $10K 'not deducted', a conversion is 75% taxed, convert $20K and the tax is on $15K of that money. But, there also might be a time when you are able to transfer IRA money into a 401(k), effectively removing the pretax deposits, and leaving just post tax money for a free conversion.\",\n \"Post-86 After tax contributions to a 401k are after tax. The earnings on that money is taxable, but not the contributions. This means: You'll have $15,000 in the 401k and $10,000 is considered after-tax and $5,000 is considered pre-tax. The after-tax portion can be converted to a Roth IRA without paying taxes or penalties. New in September 2014 The IRS has made substantial changes that now enable this to happen. You can request a distribution from your 401k provider where they divide the money into pre-tax and after-tax funds. In my example, you'd get a check for $10,000 that you could send to a Roth IRA and a check for $5,000 you could add to a traditional Roll-over IRA. Neither of those would be taxable events and you'd end with a Roth IRA with $10K and a Traditional, Rollover IRA with $5K in it. Notes:\",\n \"Adding to justkt's answer. The big difference to you during the rollover is that moving the money to a Roth IRA, unless it was a Roth 401K, is going to require you pay a lot of taxes on the money you move. I'd suggest not doing that without guidance from a financial advisor.\",\n \"It would be bad tax-wise, because gains in the investment outside the 401k are taxed; whereas gains in the investment inside the 401k are not taxed.\",\n \"As others mentioned, I am not sure what you mean by stating that your 401K was rolled over to a money market account. Assuming that it was rolled over to an IRA account, you can roll it over to another IRA account with a financial institution of your choice (either a brokerage or a bank.) Alternatively, you can withdraw these funds, but since you are under 59.5 years old, you would have to cough up 10% penalty to IRS for this unqualified withdrawal. Therefore, I would strongly recommend for you to wait till you reach this eligible age. Other qualified (penalty-free) withdrawals are: purchase of the first home, college tuition, medical insurance premiums for unemployed individuals, disability, and medical expenses exceeding 7.5% of your Adjusted Gross Income. I would assume that your 401K was a Traditional 401K account (before tax contributions), and not ROTH 401K, so yo would also have to pay taxes upon withdrawing funds whether you do it now or after you are 59.5 y.o.\",\n \"I would not recommend borrowing your 401(k) money to buy a house for two reasons: When you borrow money from your 401(k), it is no longer invested. Yes, you pay yourself interest, but you miss out on the investment gains for the life of the loan. If you leave your job, the loan is due in full shortly thereafter. If you do not pay it back, you are hit with taxes and penalties. If I were you, I would roll it over into an IRA for the reasons you mentioned.\",\n \"Rather than rolling the 401(k) to a new employer's plan, you should roll it into a traditional IRA. You get more options for the money, there's no limit on how much you can roll over, and you have more control over the money. If you do a direct rollover, there's no taxes or penalties involved. I'd recommend against taking any money out of the 401(k). With the numbers you give above, it's like borrowing money at 31.5% interest, which is pretty high, and you're sacrificing your future retirement. If you leave that money alone to grow with compounding, you'll have a lot more when you retire. If you're not familiar with the concept of compound interest, it's worth reading up on - the numbers will blow you away. At the very least, if you desperately need to get $3000 out of it, take out just enough to net $3000 after taxes and penalties (not quite $4400 using the numbers you give) and do a rollover with the rest. At least that way, you're keeping more in the IRA (just over $8600, vs the $5000 in your proposed scenario). Overall, I really recommend you find a way to accomplish your goals without touching your retirement savings.\",\n \"You can't just move money out at will because of IRS rules for the account. However, you do seem to qualify for hardship. > I investigated a hardship withdrawal, the amount I would be allowed to withdraw was $75.00 You need to look into this more. Normally with a hardship withdrawl, you can pull out what you need. Ask your HR why it is you have a $75.00 limit. We really can't answer. Also, this question is really for /r/personalfinance . This subreddit is about investing.\",\n \"Direct roll-overs / trustee to trustee transfers are typically initiated by the receiving institution. Therefore you need to work with Vanguard. They will have a form in which you provide them with your fidelity account info and they will then contact Fidelity and initiate the transfer. Do not take the option of being sent a check made out to you by Fidelity (an indirect rollover). There are too many ways to muck up and get hit with penalties if you are the middleman in the process. I believe in most, if not all, cases the IRS now requires a 20% withholding on indirect 401k rollovers. This is because too many times people would initiate a roll over but not complete it either at all or within the allowed 60 day window and then come tax time be unable to pay the tax and penalty on the distribution. The tricky part of that withholding is that you still have to deposit that amount into the new account otherwise it becomes a distribution subject to tax and penalties (and that means coming up with the money from other accounts). So in summary talk to Vanguard and set up an institution to institution transfer. They souls make this very easy as they want your money. And do not do any kind of rollover where you come into personal possession of the money. If the check is made out to Vanguard but sent to you to resend to Vanguard that should not be an issue as that is still a trustee to trustee transfer. Fidelity may have a minor account closer fee that will be deducted from the value of the account before it is sent.\",\n \"Don’t do anything that causes taxes or penalties, beyond that it’s entirely personal choice and other posters have already done a great job enumerating then. I recently switched jobs in June and rolled over a 401k from my old company to new company and the third party managing the account at the new company was much more professional and walked me through all the required steps and paperwork.\",\n \"I don't really see the big deal in taking the check. Fidelity will issue you a check, made payable to VANGUARD FBO [Your Name]. All you have to do is simply hand the check over to Vanguard to deposit into your new IRA. Simple and done. To answer your question: Whether or not a custodian, tpa, or recordkeeper will do a direct-deposit or transfer of your funds is completely at their discretion. My company rarely does direct transfers. We issue a check to you. It's just the way we do it. You can talk to Vanguard and see if they can initiate the direct transfer with Fidelity - but honestly, this may just delay getting your funds moved and you're going to end up with a check anyways. And if Vanguard does somehow convince Fidelity to do the wire transfer - there is still going to be a fee. Wires are expensive. Unless Vanguard is willing to pick up the wire fee for you (doubtful). Other's have also mentioned that TPA's will withhold a mandatory 20% federal tax withholding if they send you a check. This is only true if the check gets made payable in your name. But the taxes should not be withheld as long as the check is made payable to your new Vanguard IRA. So my final opinion: Just take the check and give it to your Vanguard rep. It's literally that simple.\",\n \"\\\"Your question asks \\\"\\\"how\\\"\\\" but \\\"\\\"if\\\"\\\" may be your issue. Most companies will not permit an external transfer while still employed, or under a certain age, 55 or so. If yours is one of the rare companies that permits a transfer, you simply open an IRA with the broker of your choice. Schwab, Fidelity, eTrade, or a dozen others. That broker will give you the paperwork you need to fill out, and they initiate the transfer. I assume you want an IRA in which you can invest in stocks or funds of your choosing. A traditional IRA. The term \\\"\\\"self-directed\\\"\\\" has another meaning, often associated with the account that permits real estate purchases inside the account. The brokers I listed do not handle that, those custodians have a different business model and are typically smaller firms with fewer offices, not country-wide.\\\"\",\n \"You should be able to take a loan out on the 401(k). You can't do a roll-over unless you leave your job. If your 401(k) is that bad, you should consider maxing out your IRA contributions first and putting the rest into your 401(k) - so if you're putting away about 7k a year, lower your withholding to 1500 and put 5500 into an IRA.\",\n \"\\\"There's a bit of confusion here. Michael's article you linked is focused on the issue of post-tax 401(k) deposits. For those new to this, it sounds like we are talking about Roth 401(k) money. Not so. The Roth IRA was introduced in 1998, and the Roth 401(k) in 2006. Before '06, people had the ability to deposit more to their 401(k) than the pretax limit of $15,000 into the account as \\\"\\\"after tax\\\"\\\" deposits. My understanding is that these funds were analogous to the non-deducted IRA deposits for those outside the income limits. Michael goes on the point out that now, with the addition of Roth 401(k) and Roth IRAs, there are folk with pre and post Tax 401(k) funds and trying to crack them for transfer to Traditional IRA and Roth IRA may be problematic. Aside from a recent thread here, there are separate accounts for the Roth 401(k) and Traditional 401(k), and it's possible for the traditional to contain post tax money, which, given the recent introduction of the Roth 401(k) conversion, should be easily addressable.\\\"\",\n \"Transfers can be made from U.S. pension plans to Canadian RRSPs, if the following conditions are met: Way more details here: http://www.howlandtax.com/answers/05Sept21.htm And googling 'transfer 401k to rrsp' yields much fruit.\",\n \"\\\"Rolling an old 401k into a new 401k is generally only for ease of management. For example, how many bank accounts do you really want? As long as the funds are reasonably allocated I've found it can be a useful \\\"\\\"mind game\\\"\\\" to leave it separate. Sometimes it's desirable to ignore an account and let it grow, and it is a nice surprise when finally adding all the account balances together. In other words, I keep thinking I've got X (the amount of my biggest or current 401k), which affects/helps my habits and desire to save. When I add them all together I'm shocked to find out I've got Y (the total of all accounts). Personally, I've had big paperwork problems transferring an old 403b (same type process as 401k) even when I had an adviser helping me move it. In the end it was worth moving it, because I'm having the adviser manage it. I'm actually writing this answer specifically because I recently moved a big 401k into a Traditional IRA. A rep from the brokerage, representing my previous employer, kept calling me to find out how they could help (I didn't brush him off). I found that using an IRA provided me with the opportunity to do self-guided investments in funds or even individual stocks, well beyond the limited selection of the old company's 401k. It was useful/interesting to me to invest in low-fee vehicles such as index funds (ie: the Buffett recommendation), and I'll find some stocks as well. Oh and when the old company 401k has certain funds being discontinued, I didn't want to notice the mandated changes years later. So, I'd suggest you consider management and flexibility of the 401k or equivalent, and any of your special personal circumstances/goals. If you end up with a few retirement accounts, I suggest you use an account aggregating website to see or follow your net worth. I know many who, based on various concerns and their portfolio, find an acceptable website to use.\\\"\",\n \"Try to avoid actually pulling money out of your retirement savings. Not only are you paying that stiff penalty today, but you're actually stealing form your future. Many 457 plans allow you to borrow against the balance, usually up to 50% of the plan balance. I'd roll the 401k into the 457 and borrow against it if you really need the money. Borrow a little extra to help you make the first few payments if you need to.\",\n \"AFAIK, individual 401k accounts are supposed to be funded from self-employment earnings, not from rollovers from 401k plans of previous employers. So, check with your accountant before making opening an individual 401k account and getting your previous 401k plan to re-issue the checks to be payable to your individual 401k account. You might also want to ask about whether loans are permitted from individual 401k accounts (my guess is they are not because the possibility of abuse of the privilege is too high since the employer and employee are the same individual). In any case, loans against 401k plans are generally not a good idea, and many people on this forum have blogged about this matter.\",\n \"One representative I spoke to suggested moving the money into a new IRA, making up the difference from my own pocket, and then asking for a rebate a tax time. Will this work? That's probably the only thing that will work, and you have to do this ASAP: you have 60 days from the distribution to complete the deposit. Make sure to make up for the withheld 20%, and deposit into the IRA the full amount, and make sure to give all the relevant information to your tax preparer to ensure you do get the withheld 20% back as a tax credit. You can check with your current 401k plan if you can deposit there, but in many cases you cannot. IRA is a safe bet.\",\n \"It doesn't make a difference if you will be keeping it in the 401K or transferring it to an IRA, it is still retirement money that you plan on investing for decades. Pre-Enron many employees invested significant amounts of their retirement funds with the employer. One of the risks was that if a single stock was down at the wrong time, you were hurt if you needed to sell. If you are going from an S&P 500 in the 401K to an S&P 500 in the IRA, it doesn't matter if the the market is up or down, the two funds will be pretty much in synch.\",\n \"You can also roll money from prior 401ks into current 401ks. Call the administrator of the 401k you prefer (i.e., Fidelity/Schwab, whoever the financial institution is). Explain you don't work there anymore and ask if you can roll money into it. Some plans allow this and some don't. So either, 1) You can roll all your prior 401ks into your current 401k. 2) You might be able to roll all prior 401ks into the prior 401k of your choice if they will accept contributions after you've left. You can't move the amount in your current employer's 401k until you separate or hit a certain age. 3) Like mentioned above, you can roll all prior 401ks into an IRA at any financial institution that will let you set up an IRA. Process: -Call the financial institutions you want to move the money from. Tell them you want a direct rollover. Have them write the check to the financial institution you are rolling into with your name mentioned but not the beneficiary (i.e., check written to Schwab FBO: John Doe account #12345) Tax implications: -If you are rolling from a pre-tax 401k to a pre-tax 401k or IRA, and the money goes directly from institution to institution, you are not liable for taxes. You can also roll from a Roth type (already taxed) account into another Roth type account with no tax implications. If they write a check to YOU and you don't put the money in an IRA or 401k within 60 days you will pay ~20% tax and a 10% early withdrawal penalty. That's why it's best to transfer from institution to institution. 401k vs IRA: -This is a personal decision. You could move all your prior 401ks into an IRA you set up for yourself. Generally the limitations of a 401k are the lack of funds to invest in that fit your retirement strategy, or high expense ratios. Be sure to investigate the fees you would pay for trades in an IRA (401k are almost always free) and the expense ratio for funds in your 401k vs funds you might invest in at a broker for your IRA. Best of both: -You can roll all your 401ks into a single 401k and still set up an IRA or Roth IRA (if your income qualifies) that you can contribute to separately. This could give you flexibility in fund choices if your 401k fees tend to be cheaper while keeping the bulk of your nest egg in low cost mutual funds through an employer account. Last advice: Even if you don't like the options in your current 401k, make sure you are contributing at least enough to get any employer match.\",\n \"I am not an accountant in any way, but I can't imagine needing to report that to the IRS. It's not income and has probably already been taxed when it was earned/received. You're not moving it from an untaxed (Roth) retirement account to a taxed one, or vice versa.\",\n \"If you plan to continue contributing to a 401(k) and are no longer self-employed, then you need to start a new 401(k) at your new business. You can't contribute to the old one any more. About the money in the old one, you have a few options. If both 401(k) plans have good investment options and low fees, then there's little reason to think one of these strategies is better than the other. If, like me, at least one of your 401(k) providers has very few available funds and those funds have high expense ratios, then it's a good idea to move your money where the investments are best. As a rule, IRA's are better than 401(k) plans because most IRA's will allow you to invest in practically anything you want while most 401(k) plans only allow you to invest in the funds that have taken your company's HR people to the best lobster dinners or went to the same school as them. Most organizations do an absolutely horrible job at selecting a reasonable set of funds because the decision-makers generally have no finance background and no incentive to do a good job. For that reason I like IRA's. Of course, some solo 401(k) plans are also very good so just leaving it where it is may be best for you. This has the added advantage of being ready to go if you end up self-employed again at some point.\",\n \"You can't rollover a 401k directly into a Roth IRA. What you can do is rollover a 401k into a traditional IRA, and then convert some or all of the money to a Roth IRA. This is independent of any contributions made to a traditional or Roth IRA.\",\n \"I agree with harmanjd – best to roll it over to an IRA. Not only does that afford you better control of your money as pointed out already, but: If you choose your IRA provider wisely, you can get an account that provides you with a much wider array of investing choices, including funds and ETFs that charge much lower fees than what you would have had access to in an employer 401(k) plan. But here's one thing to consider first: Do you hold any of your previous employer's stock in your old 401(k)? There are special rules you might want to be aware of. See this article at Marketwatch: If your 401(k) includes your company's stock, a rollover may be a bad move. Additional Resource:\",\n \"\\\"Your employment status is not 100% clear from the question. Normally, consultants are sole-proprietors or LLC's and are paid with 1099's. They take care of their own taxes, often with schedule C, and they sometimes can but generally do not use \\\"\\\"employer\\\"\\\" company 401(k). If this is your situation, you can contact any provider you want and set up your own solo 401(k), which will have great investment options and no fees. I do this, through Fidelity. If you are paid with a W2, you are not a consultant. You are an employee and must use your employer's 401(k). Figure out what you are. If you are a consultant, open a solo 401(k) at the provider of your choice. Make sure beforehand that they allow incoming rollovers. Roll all of your previous 401(k)s and IRA's into it. When you have moved your 401(k) to a better provider, you won't be paying any extra fees, but you will not recoup any fees your original provider charged. I'm not sure why you mention a Roth IRA. If you try to roll your 401(k) into a Roth instead of a traditional IRA or 401(k), be aware that you will be taxed on everything you roll. ---- Edit: a little info about IRA's in response to your comment ---- Tax advantaged retirement accounts come in two flavors: one is managed by your company and the money is taken out of your paycheck. This is usually a 401(k) or 403(b). You can contribute up to $18K per year and your company can also contribute to it. The other flavor is an IRA. You can contribute $5,500 per year to this for you and $5,500 for your spouse. These are outside of your company and you make the deposits yourself. You choose your own provider, so competition has driven prices way down. You can have both a 401(k) and an IRA and contribute the max to both (though at high incomes you lose the ability to deduct IRA contributions). These accounts are tax advantaged because you only pay taxes once. With a regular brokerage account, you pay income tax in the year in which you earn money, then you pay tax every year on dividends and any capital gains that have been realized by selling. There are two types of tax-advantaged accounts: Traditional IRA or Traditional 401(k). You do not pay income tax on this money in the year you earn it, nor do you pay capital gains tax. Instead you pay tax only in the year in which you take the money out (in retirement). Roth IRA or Roth 401(k). You do pay income tax on money on this money in the year in which you earn it. But then you don't pay tax on any gains or withdrawals ever again. When you leave your job (and sometimes at other times) you can move your money out of a 401(k) into your IRA, where you can do a better job managing it. You can also move money from your IRA into a 401(k) if your 401(k) provider will allow you to. Whether traditional or Roth is better depends on your tax rate now and your tax rate at retirement. However, if you choose to move money from a traditional account into a Roth account, you must pay tax on it in that year as if it was income because traditional and Roth accounts are taxed at different times. For that reason, if you are just trying to move money out of your 401(k) to save on fees, the logical place to put it is in a traditional IRA. Moving money from a traditional to a Roth may make sense, for example, if your tax rate is temporarily low this year, but that would be a separate decision from the one you are looking at. You can always roll your traditional IRA into a Roth later if that does become the case. Otherwise, there's no reason to think your traditional 401(k) should be rolled into a Roth IRA according to what you have described.\\\"\",\n \"You should never roll a 401(k) to a Roth IRA. If the intention is to do so, you are better off rolling to a traditional IRA, and then converting. (Per the comment below, I should add - if the 401(k) contained post tax money, this portion rolls to a Roth, not a Tradition IRA. You then have the exercise of converting/recharacterizing just the TIRA money, as the Roth stands aside) This preserves the ability to recharacterize back to a traditional IRA. You might wish to do this if: The answers so far are great, but I'll add what I see missing -\",\n \"Every plan administrator has their own procedures for rollovers. In any case, you would start by browsing their website or calling them seeking information on rollover. You will need to arrange it with both your current and prior administrators. Usually the administrator will send the money directly to your current plan provider, keeping you out of the chain and minimizing any risks of tax complications. It may happen, though, that they have to send the check to you. In that case you will have a limited amount of time to provide it to your current plan.\",\n \"You have three options. If you follow the procedures outlined by the IRA trustee there should not be any problems. There will not be any taxes involved, unless as part of the process you change non-Roth funds to Roth funds, or you don't follow the procedures. In my experience the IRA companies know how to handle the transfer. In some cases the check must be sent to you, and then you send it to the IRA company, but they will tell you exactly how the check is to be made out to. I would start by talking to the IRA trustee they are likely to have seen it all, and can guide you through the process.\",\n \"Since its such a small amount, they may require you to move it. A common cutoff is $5k, but it varies from plan to plan. I would roll it over into an IRA. The problem with withdrawing it is that opportunity to save is gone. Especially for IRAs, which have a low maximum contribution, its hard to make it up in the future.\",\n \"I've rolled mine over into IRAs, and once you have one rollover account you can roll further 401ks into it-- I've done that.\",\n \"The money that you have under your control (e.g. in bank accounts, savings accounts, taxable investments, etc) is your money and there is no tax of any kind (either in India or in US) that needs to be paid when the money is transferred to India. As Dheer's answer says, you need to transfer all these monies within 7 years as per Indian tax law. For your 401(k) account, assuming that all the money is tax-deferred (i.e. you contributed to a regular 401(k) and not a Roth 401(k)), you will have separated from service as far as US tax law is concerned. So, check if it is at all possible to roll over the money into a similar scheme in India, specifically the Employees Provident Fund. Wikipedia says The schemes covers both Indian and international workers (for countries with which bilateral agreements have been signed; 14 such social security agreements are active). and so a rollover might be possible. If not, you could withdraw small amounts each year and avoid US income tax (but not the 10% excise tax), but how long you can continue holding 401(k) assets after return to India and whether that is long enough to drain the 401(k) are things that you need to find out.\",\n \"There is no segregation of amounts that you have in Rollover (Traditional) IRAs when it comes to figuring out how much of your basis is being converted from your Traditional IRA into a Roth IRA. So, yes, you will lose the benefit of being able to make nondeductible contributions to your Traditional IRA each year and rolling them over into a Roth IRA without tax consequences. Since your 401k amount may be substantially more than the $5K basis you create each year, converting the 401k amount into a Traditional IRA will mean that most of the money converted to the Roth IRA is pre-tax money, and so you end up paying tax on most of the converted amount.\",\n \"Don’t take the cash deposit whatever you do. This is a retirement savings vehicle after all and you want to keep this money designated as such. You have 3 options: 1) Rollover the old 401k to the new 401k. Once Your new plan is setup you can call who ever runs that plan and ask them how to get started. It will require you filling out a form with the old 401k provider and they’ll transfer the balance of your account directly to the new 401k. 2) Rollover the old 401k to a Traditional IRA. This involves opening a new traditional IRA if you don’t already have one (I assume you don’t). Vanguard is a reddit favorite and I can vouch for them as Well. Other shops like Fidelity and Schwab are also good but since Vanguard is very low cost and has great service it’s usually a good choice especially for beginners. 3) Convert the old 401k to a ROTH IRA. This is essentially the same as Step 2, the difference is you’ll owe taxes on the balance you convert. Why would you voluntarily want to pay taxes f you can avoid them with options 1 or 2? The beauty of the ROTH is you only pay taxes on the money you contribute to the ROTH, then it grows tax free and when you’re retired you get to withdraw it tax free as well. (The money contained in a 401k or a traditional IRA is taxed when you withdraw in retirement). My $.02. 401k accounts typically have higher fees than IRAs, even if they own the same mutual funds the expense ratios are usually more in the 401k. The last 2 times I’ve changed jobs I’ve converted the 401k money into my ROTH IRA. If it’s a small sum of money and/or you can afford to pay the taxes on the money I’d suggest doing the same. You can read up heavily on the pros/cons of ROTH vs Traditional but My personal strategy is to have 2 “buckets” or money when I retire (some in ROTH and some in Traditional). I can withdraw as much money from the Traditional account until I Max out the lowest Tax bracket and then pull any other money I need from the ROTH accounts that are tax free.This allows you to keep taxes fairly low in retirement. If you don’t have a ROTH now this is a great way to start one.\",\n \"Having gone though this type of event a few times it won't be a problem. On a specific date they will freeze your accounts. Then they will transfer the funds from custodian X to custodian Y. It should only take a day or two, and they will work it around the paydays so that by the time the next paycheck is released everything is established in the new custodian. Long before the switch over they will announce the investment options in the new company. They will provide descriptions of the options, and a default mapping: S&P 500 old company to S&P 500 new company, International fund old company to international fund new company... If you do nothing then on the switchover they will execute the mapped switches. If you want to take this an an opportunity to rebalance, you can make the changes to the funds you invest in prior to the switch or after the switch. How you contributions are invested will follow the same mapping rules, but the percentage of income won't change. Again you can change how you want to invest your contributions or matching funds by altering the contribution forms, but if you don't do anything they will just follow the mapping procedures they have defined. Loans terms shouldn't change. Company stock will not be impacted. The only hiccup that I would worry about is if the old custodian had a way for you to transfer funds into any fund in their family, or to purchase any individual stock. The question would be does the new custodian have the same options. If you have more questions ask HR or look on the company benefits website. All your funds will be moved to the new company, and none of these transfers will be a taxable event. Edit February 2014: based on this question: What are the laws or rules on 401(k) loans and switching providers? I reviewed the documents for the most recent change (February 2014). The documents from the employer and the new 401K company say: there are no changes to the loan balances, terms, and payment amounts. Although there is a 2 week window when no new loans can be created. All employees received notice 60 days prior to the switchover regarding new investments options, blackout periods.\",\n \"You can do a direct transfer from one fund to another within Fidelity very easily. You will have to see if the two funds have any sales or redemption fees. If you want to leave Fidelity, they should be able to transfer the funds directly to the other IRA custodian. You don't want the money to go to you, instead you want to send them send the money directly to the other firm. The new custodian will be more than happy to help facilitate the transfer. The only fee for doing so should be if the funds you are investing in have fees for buying or selling shares. There are many options that don't have these transaction costs, both with Fidelity and with other companies.\",\n \"The time horizon for your 401K/IRA is essentially the same, and it doesn't stop at the day you retire. On the day you do the rollover you will be transferring your funds into similar investments. S&P500 index to S&P 500 index; 20xx retirement date to 20xx retirement date; small cap to small cap... If your vested portion is worth X $'s when the funds are sold, that is the amount that will be transferred to the IRA custodian or the custodian for the new employer. Use the transfer to make any rebalancing adjustments that you want to make. But with as much as a year before you leave the company if you need to rebalance now, then do that irrespective of your leaving. Cash is what is transferred, not the individual stock or mutual fund shares. Only move your funds into a money market account with your current 401K if that makes the most sense for your retirement plan. Also keep in mind unless the amount in the 401K is very small you don't have to do this on your last day of work. Even if you are putting the funds in a IRA wait until you have started with the new company and so can define all your buckets based on the options in the new company.\",\n \"You can't get a loan from an IRA. You cannot get a loan from your 401(k) plan with your previous employer; 401(k) plans do not give loans to ex-employees, only current employees. Thus, if you want to have the flexibility of getting a loan from the money in the 401(k) plan with your ex-employer, your only option is to roll it over into the 401(k) plan of your current employer. But be aware of the negatives in doing so, some of which are discussed in the answers to Why would you not want to rollover a previous employer's 401(k) when changing jobs?.\",\n \"If you withdraw your funds from your 401k and DO NOT mive it into another 401k plan or IRA within 60 days it will constitute as an early distribution which will carry a panlty of 10% as well as have income tax owed on it.\",\n \"What you want is a position transfer, likely by ACATS. This is a transfer from one IRA to another without having to liquidate positions to do so. In effect, the brokerage firm is just transferring records from your existing IRA to your new IRA. You will need to watch out to make sure your new IRA account can hold your positions for this to work. For example, some brokerages allow you to hold fractional shares but others don't. (The fractional share amounts would be sold automatically prior to transfer.) Another example might be different fund families could be allowed between different brokerages. The general process is open your new IRA account, initiate the ACATS xfer from your new account, your old IRA account brokerage sends the positions over, and after a week or so your new IRA brokerage notifies you that everything is transferred. I've switched IRAs a couple times via this mechanism and never been charged a fee, but I've always stuck with the larger brokerages like Fidelity, TD Ameritrade, and Interactive Brokers.\",\n \"Most 401k plans (maybe even all 401k plans as a matter of law) allow the option of moving the money in your 401k account from one mutual fund to another (within the group of funds that are in the plan). So, you can exit from one fund and put all your 401k money (not just the new contributions) into another fund in the group if you like. Whether you can find a fund within that group that invests only in the companies that you approve of is another matter. As mhoran_psprep's answer points out, changing investments inside a 401k (ditto IRAs, 403b and 457 plans) is without tax consequence which is not the case when you sell one mutual fund and buy another in a non-retirement account.\",\n \"For such a small amount, I really don't think it's worth the time and effort to withdraw it. Why not roll it over into a traditional IRA or a new 401k / 403b?\",\n \"\\\"I was told if I moved my 401k into a Roth IRA that school purposes is one reasons you can withdraw money without having to pay a tax. Incorrect. You will need to pay tax on the amount converted, since a 401(k) is pre-tax and a Roth IRA is after-tax. It will be added to your regular income, so you will pay tax at your marginal tax rate. is there any hidden tax or fee at all for withdrawing money from a Roth IRA for educational purposes? You still will need to pay the tax on the amount converted, but you'll avoid the 10% penalty for early withdrawal. I know that tuition, books and fees are covered for educational purposes. Can I take out of my Roth IRA for living expenses while I'm attending school? Rent, gas, food, etc... Room and board, yes, so long as you are half-time, but not gas/food Possibly only room and board for staying on-campus, but I'm not certain, although I doubt you could call your normal house payment \\\"\\\"education expense\\\"\\\" with my 401k being smaller, would it just be better to go ahead and cash the whole thing and just pay the tax and use it for whatever I need it for? What is the tax if I just decide to cash the whole thing in? You pay your marginal tax rate PLUS a 10% penalty for early withdrawal. So no, this is probably not a wise move financially unless you're on the verge of bankruptcy or foreclosure (where distress costs are much higher then the 10% penalty) I can't answer the other questions regarding grants; I would talk to the financial aid department at your school. Bottom line, transferring your 401(k) is very likely a bad idea unless you can afford to pay the tax in cash (meaning without borrowing). My advice would be to leave your 401(k) alone (it's meant for retirement not for school or living expenses) Ideally, you should pay for as much as you can out of cash flow, and don't take out more student loans. That may mean taking fewer classes, getting another part time job, finding a different (cheaper) school, applying for more grants and scholarships, etc. I would not in ANY circumstance cash out your 401(k) to pay for school. You'll be much worse off in the long run, and there are much cheaper ways to get money.\\\"\",\n \"I would always suggest rolling over 401(k) plans to traditional IRAs when possible. Particularly, assuming there is enough money in them that you can get a fee-free account at somewhere like Fidelity or Vanguard. This is for a couple of reasons. First off, it opens up your investment choices significantly and can allow you significantly reduced expenses related to the account. You may be able to find a superior offering from Vanguard or Fidelity to what your employer's 401(k) plan allows; typically they only allow a small selection of funds to choose from. You also may be able to reduce the overhead fees, as many 401(k) plans charge you an administrative fee for being in the plan separate from the funds' costs. Second, it allows you to condense 401(k)s over time; each time you change employers, you can rollover your 401(k) to your regular IRA and not have to deal with a bunch of different accounts with different passwords and such. Even if they're all at the same provider, odds are you will have to use separate accounts. Third, it avoids issues if your employer goes out of business. While 401(k) plans are generally fully funded (particularly for former employers who you don't have match or vesting concerns with), it can be a pain sometimes when the plan is terminated to access your funds - they may be locked for months while the bankruptcy court works things out. Finally, employers sometimes make it expensive for you to stay in - particularly if you do have a very small amount. Don't assume you're allowed to stay in the former employer's 401(k) plan fee-free; the plan will have specific instructions for what to do if you change employers, and it may include being required to leave the plan - or more often, it could increase the fees associated with the plan if you stay in. Getting out sometimes will save you significantly, even with a low-cost plan.\",\n \"\\\"No, you cannot. ISO are given to you in your capacity as an employee (that's why it is \\\"\\\"qualified\\\"\\\"), while your IRA is not an employee. You cannot transfer property to the IRA, so you cannot transfer them to the IRA once you paid for them as well. This is different from non-qualified stock options (discussed in this question), which I believe technically can be granted to IRA. But as Joe suggests in his answer there - there may be self-dealing issues and you better talk to a licensed tax adviser (EA/CPA licensed in your State) if this is something you're considering to do.\\\"\",\n \"No. Your deposits should not have been accepted in the first place. No legit rollover opportunity exists. Related - Can excess 401K contributions returned with 1099-R be rolled over to a Traditional IRA?\",\n \"tl;dr: Please please please do the conversion first. JoeTaxpayer's answer is correct, but I am of the opposite opinion. First, there's just about no reason to have post-tax dollars in a Traditional IRA. You'll eventually have to pay tax on the earnings those dollars generate, so it's essentially the same as having that money in a regular taxable account. Meanwhile, if you roll those dollars into a Roth IRA, you get to earn tax-free money on them for the rest of your life (and even after your death)! Second, even if you did have some reason for keeping those post-tax dollars where they are, the last thing you ever want to do is mix them with pre-tax dollars (from, say, your 401k). As soon as you mix them, all the dollars become subject to pro-rata taxation (as Joe mentioned), so any future decision you were planning to make about what to do with just your post-tax dollars is moot -- you have given away your right to think separately about your pre- and post-tax dollars. As an example, let's say the accounts you want to combine look like this: In the future you decide you want to move $2,000 from the above account into a Roth. Because you mixed the money, the IRS insists that your rollover consists of: So now you owe tax (and it's regular income tax, I believe, not even capital gains tax) on $1,500. That was money that you socked away specifically to avoid taxes, and now you've gone and paid taxes on it! Now, there are valid arguments for intentionally moving pre-tax dollars from a Traditional to a Roth like this, but the point is that you shouldn't even have to be having that argument -- you have post-tax dollars in your Traditional IRA that almost certainly belong in a Roth. By mixing your 401k into your Traditional IRA, you can no longer do anything with just the post-tax dollars. The IRS will forever insist that you do these pro-rated calculations. Say in the future you suddenly realize that a Roth is much better for your financial situation than a Traditional IRA. (Or you might still prefer a Traditional IRA, but as explained in the next sentence it's not available to you.) Unfortunately, because you're covered by a (new) 401k -- or maybe because you earn too much money to contribute pre-tax dollars to either a Traditional or Roth IRA -- you're out of luck. You're simply not allowed to contribute to a Roth. Most people in this situation can make use of what's called a back-door Roth. They contribute up to the maximum amount per year ($5,500 or whatever it is now) post-tax to a Traditional IRA and then immediately roll it over to their Roth. You can still try this, but guess what? Yep, because you're mixing these new post-tax dollars with pre-tax money in your Traditional IRA, every year your rollover will be tainted with that pre-tax money, diluting the whole point of the back-door Roth. You'll be paying taxes on money you never wanted to pay taxes on, and you'll be leaving post-tax money behind in your traditional IRA. (If it sounds like I'm annoyed about this situation from personal experience, it's because I am. :) By doing the conversion first, you never mix pre- and post-tax money, and your money goes where you want it. Of course, assuming you eventually do roll over your 401(k) into a Traditional IRA, the Really Annoying Consequence above will still plague you, but at least you'll have cleanly converted that first post-tax amount.\",\n \"\\\"You can definitely open an IRA and roll the money over. I suggest instead of trying opening online calling the institution and asking what would be the procedure in your specific case. If not, I will have to cash out my 401K. Who do I contact to find out if my country has some sort of deal with the US in regards to taxes? I would of course prefer to not pay the penalty (20 % federal + 10 % state tax), and instead reinvest the money in a retirement fund in my country. US embassies some times have listings of tax advisers who work with US expats in the countries they cover. You can check for such a list on the website of your local US embassy. These people will be able to answer this question. However it is highly unlikely that you'll be able to avoid the tax and penalty in the US in this scenario. It is not likely that you could \\\"\\\"roll-over\\\"\\\" into a foreign retirement fund (from your country's laws perspective), but maybe your country has some solution for this.\\\"\",\n \"If he moves his 401K to a Roth all in one go, all the money will be considered income for the year he moves it, and he will have to pay taxes on that income. If he keeps it in his 401K or rolls it into a traditional IRA, he will only pay taxes on the money as he withdraws it. Bottom line, converting to Roth is almost certainly a bad idea.\",\n \"When I did this I sold the stock out of my 401k account. Then transferred the cash to my rollover IRA account. No tax event was created for me. Make sure your rollover IRA account is listed as tax deferred. If this still doesn't work for you then it could be a bug in Quicken and your best bet is the Quicken forums. Good luck.\",\n \"\\\"To answer your first two questions: according to IRS pub 696 \\\"\\\"Contributions to an HSA\\\"\\\" section: Rollovers A rollover contribution is not included in your income, is not deductible, and does not reduce your contribution limit. Archer MSAs and other HSAs. You can roll over amounts from Archer MSAs and other HSAs into an HSA. You do not have to be an eligible individual to make a rollover contribution from your existing HSA to a new HSA. Rollover contributions do not need to be in cash. Rollovers are not subject to the annual contribution limits. You must roll over the amount within 60 days after the date of receipt. You can make only one rollover contribution to an HSA during a 1-year period. Note. If you instruct the trustee of your HSA to transfer funds directly to the trustee of another HSA, the transfer is not considered a rollover. There is no limit on the number of these transfers. Do not include the amount transferred in income, deduct it as a contribution, or include it as a distribution on Form 8889, line 14a. (italics mine) So if you transfer the money yourself, you can only do it once per year, but there are no limits to when or how many times you can instruct the old HSA trustee to transfer funds directly to the new trustee.\\\"\",\n \"It is typically very easy to roll a 401(k) into an IRA. Companies that provide IRA's are very experienced with it, and I would expect that they will take your calls from overseas. You will likely be able to do it over the internet without using a phone at all. Just open an IRA with any brokerage company (Scottrade, Vanguard, Fidelity, Schwab, Ameritrade, etc.) and follow instructions to roll your 401(k) into it. Most likely they will need your signature, but usually a scan of a form you have filled out will do. Be sure to have information on your 401(k) provider, including your account number there, on hand. These companies are all very reputable and this is not a difficult transaction. There's really no downside to rolling into an IRA. 401(k) plans usually have more limited options and/or worse fee structures and are frequently harder to work with, as you have observed.\",\n \"You can probably roll it over into the new company's 401k too, so just talk to your HR rep there. I set up a separate Vangard IRA so when I changejobs or anything, I just dump my investments into that account and don't have to worry about keep track of them all over the place.\",\n \"If you roll your funds from a 401k to an individual Vanguard account it will be in an IRA. Some people talk about IRA loans, but what is happening is that you are given a check for the value of the IRA and you have 60 days to deposit that full amount in another qualified account before being assessed a distribution penalty. The IRS also has rules to prohibit you from making several back-to-back rollovers to try to float the money for longer than 60 days.\",\n \"\\\"You withdrew the 'cash' portion, and will pay tax on it. How was the check \\\"\\\"another for move remaining to B\\\"\\\" issued? Was it payable to you? If so, it's too late, it's your money and the whole account was cashed out. If it was payable to B, you should have had it sent directly to their custodian, are you saying you still have that check? You might need to ask A to reissue the check to you, since you are no longer in the US. I'm not sure if you can roll it to an IRA at this point.\\\"\",\n \"You'll want to roll the 401k over to a specifically designated rollover IRA. Rollover IRAs differ from an ordinary IRA account because they have NO contribution limit per year. Also Rolling over a 401k to a Roth IRA has consequences. There won't be a penalty but you will have to pay taxes on the amount being rolled over. The choice of Roth or Traditional IRA depends on your current tax situation as well as your expected taxes at retirement. Typically if you are in a low tax bracket and expect to be in a higher tax bracket at retirement a Roth IRA is suggested as withdrawals are tax free. With a rollover conversion you will have to evaluate whether paying taxes now outweighs the potential benefits of tax free withdrawals when you retire.\",\n \"Conversion of after-tax 401K into a Roth is known (on Bogleheads for instance) as a Mega Backdoor Roth IRA. Recent tax rulings seem to allow for this kind of transfer more cleanly. After conversions, the money is treated as a normal Roth - you don't pay any taxes or penalties on contributions. For investment earnings, the Roth IRA has the standard five-year rule: most commonly - you must hold the account for five years and be 59.5 years old (there are other criteria). Otherwise, you may pay taxes plus a 10% penalty on the earnings portion of your distribution. There are other reasons you can withdraw early - spelled out in IRS Publication 590B Figure 2-1.\",\n \"No, sorry. A change of 401(k) administrator is not an out, otherwise many would flee a bad plan. I'd suggest you only deposit up to the match, but use an IRA if you'd like to save more. A plan with high fees can easily negate the tax benefits and then some.\",\n \"No, it is not a taxable event. You will not have to pay tax on the $500 in this scenario. See the IRS publication 590-A: To recharacterize a contribution, you generally must have the contribution transferred from the first IRA (the one to which it was made) to the second IRA in a trustee-to-trustee transfer. If the transfer is made by the due date (including extensions) for your tax return for the tax year during which the contribution was made, you can elect to treat the contribution as having been originally made to the second IRA instead of to the first IRA. If you recharacterize your contribution, you must do all three of the following. Include in the transfer any net income allocable to the contribution. If there was a loss, the net income you must transfer may be a negative amount. Report the recharacterization on your tax return for the year during which the contribution was made. Treat the contribution as having been made to the second IRA on the date that it was actually made to the first IRA.\",\n \"\\\"I understand the answers addressing the question as asked. Yes, inheriting a 401(k) can be a convoluted process. In general, it's best to transfer the account to an IRA after separation from the company to avoid the issues both of my esteemed colleagues have referenced. Given the issue of \\\"\\\"allowed by not required\\\"\\\" the flexibility is greater once the account has been transferred to an IRA. With few exceptions, there's little reason to leave the account with the 401(k) after leaving that company. (Note - I understand the original question as worded can mean the account holder passes while still working for the company. In that case, this wouldn't be an option.)\\\"\",\n \"The 60 day pay back rule of a distribution your are referring to is a reportable IRS rule so you won't be able to circumvent that by opening your own company with its own 401K and borrowing the funds from there. Failure to accurately report to the IRS leads to fines and possible jail time. It's not advisable to withdraw from a retirement account but if you really need the money then you can move the funds to a Rollover IRA at the new broker/dealer, or custodian etc. Once you withdraw funds, the plan sponsor has to abide by a mandatory 20% tax withholding on the distribution, you'll be hit with a 10% tax penalty for early withdraw and you'll have to report the distribution as income when you file your personal income taxes. The move from a 401K to a Rollover however is legal and has no tax implications or penalties (besides possible closing fees at the old account) - that is until you decide to withdraw from it assuming you are under age 59 1/2. Regarding your last point, 401Ks are administered by 3rd parties. You wouldn't be opening up any accounts directly with them necessarily. Best advice? Get a Financial Advisor in your area. I recommend going with an advisor who is backed by independent broker-dealer. Independent broker dealers don't offer their own investment products therefore don't push their advisors to sell you their 'in-house' products like big banks. Here's a good article on using Rollover funds to start a venture: http://www.ehow.com/how_6789743_rollover-directed-ira-start-business.html Here is a resource guide direct from the IRS (you can CTRL+F for any specific topics) http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/401%28k%29-Resource-Guide---Plan-Participants---General-Distribution-Rules\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["\"You can move money from a 403b to a 401k plan, but the question you should ask yourself is whether it is a wise decision. Unless there are specific reasons for wanting to invest in your new employer's 401k (e.g. you can buy your employer's stock at discounted rates within the 401k, and this is a good investment according to your friends, neighbors, and brothers-in-law), you would be much better off moving the 403b money into an IRA, where you have many more choices for investment and usually can manage to find investments with lower investment costs (e.g. mutual fund fees) than in a typical employer's 401k plan. On the other hand, 401k assets are better protected than IRA assets in case you are sued and a court finds you to be liable for damages; the plaintiff cannot come after the 401k assets if you cannot pay. To answer the question of \"\"how?\"\", you need to talk to the HR people at your current employer to make sure that they are willing to accept a roll-over from another tax-deferred plan (not all plans are agreeable to do this) and get any paperwork from them, especially making sure that you find out where the check is to be sent, and to whom it should be payable. Then, talk to your previous employer's HR people and tell them that you want to roll over your 403b money into the 401k plan of your new employer, fill out the paperwork, make sure they know to whom to cut the check to, and where it is to be sent etc. In my personal experience, I was sent the check payable to the custodian of my new (IRA) account, and I had to send it on to the custodian; my 403b people refused to send the check directly to the new custodian. The following January, you will receive a 1099-R form from your 403b plan showing the amount transferred to the new custodian, with hopefully the correct code letter indicating that the money was rolled over into another tax-deferred account.\""],"string":"[\n \"\\\"You can move money from a 403b to a 401k plan, but the question you should ask yourself is whether it is a wise decision. Unless there are specific reasons for wanting to invest in your new employer's 401k (e.g. you can buy your employer's stock at discounted rates within the 401k, and this is a good investment according to your friends, neighbors, and brothers-in-law), you would be much better off moving the 403b money into an IRA, where you have many more choices for investment and usually can manage to find investments with lower investment costs (e.g. mutual fund fees) than in a typical employer's 401k plan. On the other hand, 401k assets are better protected than IRA assets in case you are sued and a court finds you to be liable for damages; the plaintiff cannot come after the 401k assets if you cannot pay. To answer the question of \\\"\\\"how?\\\"\\\", you need to talk to the HR people at your current employer to make sure that they are willing to accept a roll-over from another tax-deferred plan (not all plans are agreeable to do this) and get any paperwork from them, especially making sure that you find out where the check is to be sent, and to whom it should be payable. Then, talk to your previous employer's HR people and tell them that you want to roll over your 403b money into the 401k plan of your new employer, fill out the paperwork, make sure they know to whom to cut the check to, and where it is to be sent etc. In my personal experience, I was sent the check payable to the custodian of my new (IRA) account, and I had to send it on to the custodian; my 403b people refused to send the check directly to the new custodian. The following January, you will receive a 1099-R form from your 403b plan showing the amount transferred to the new custodian, with hopefully the correct code letter indicating that the money was rolled over into another tax-deferred account.\\\"\"\n]","isConversational":false}}},{"rowIdx":398,"cells":{"_id":{"kind":"string","value":"6635"},"query":{"kind":"string","value":"Why don't share prices of a company rise every other Friday when the company buys shares for its own employees?"},"gt_ids":{"kind":"list like","value":["102449","587137","3656","156358"],"string":"[\n \"102449\",\n \"587137\",\n \"3656\",\n \"156358\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1,1,1],"string":"[\n 1,\n 1,\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["587137","3656","102449","125298","332826","178684","339443","5846","83331","52185","393759","91779","416919","137478","333605","569224","96363","261522","419697","156358","432104","286527","193266","287092","246690","566553","48188","539664","597106","545036","149384","599156","26203","543522","141141","200928","349147","480808","224811","350214","491064","332323","55445","576624","165544","152014","148435","465542","315760","57387","530410","269782","579037","506627","196939","525590","440179","598051","343452","52458","321108","203139","32589","109246","193396","245654","88157","307095","216694","434211","6751","493438","73286","498752","494595","399480","169587","481339","43653","35575","389100","237718","101551","533712","30973","200756","307505","227284","255045","133644","121480","235531","259072","71713","475019","400841","303810","90085","371821","482739"],"string":"[\n \"587137\",\n \"3656\",\n \"102449\",\n \"125298\",\n \"332826\",\n \"178684\",\n \"339443\",\n \"5846\",\n \"83331\",\n \"52185\",\n \"393759\",\n \"91779\",\n \"416919\",\n \"137478\",\n \"333605\",\n \"569224\",\n \"96363\",\n \"261522\",\n \"419697\",\n \"156358\",\n \"432104\",\n \"286527\",\n \"193266\",\n \"287092\",\n \"246690\",\n \"566553\",\n \"48188\",\n \"539664\",\n \"597106\",\n \"545036\",\n \"149384\",\n \"599156\",\n \"26203\",\n \"543522\",\n \"141141\",\n \"200928\",\n \"349147\",\n \"480808\",\n \"224811\",\n \"350214\",\n \"491064\",\n \"332323\",\n \"55445\",\n \"576624\",\n \"165544\",\n \"152014\",\n \"148435\",\n \"465542\",\n \"315760\",\n \"57387\",\n \"530410\",\n \"269782\",\n \"579037\",\n \"506627\",\n \"196939\",\n \"525590\",\n \"440179\",\n \"598051\",\n \"343452\",\n \"52458\",\n \"321108\",\n \"203139\",\n \"32589\",\n \"109246\",\n \"193396\",\n \"245654\",\n \"88157\",\n \"307095\",\n \"216694\",\n \"434211\",\n \"6751\",\n \"493438\",\n \"73286\",\n \"498752\",\n \"494595\",\n \"399480\",\n \"169587\",\n \"481339\",\n \"43653\",\n \"35575\",\n \"389100\",\n \"237718\",\n \"101551\",\n \"533712\",\n \"30973\",\n \"200756\",\n \"307505\",\n \"227284\",\n \"255045\",\n \"133644\",\n \"121480\",\n \"235531\",\n \"259072\",\n \"71713\",\n \"475019\",\n \"400841\",\n \"303810\",\n \"90085\",\n \"371821\",\n \"482739\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["This is an old question that has an accepted answer, but it has gotten bumped due to an edit and the answers given are incorrect. I am assuming this means that every other Friday, the company is going into the open public market, buying those shares and then giving it out to the employees. No. Companies will internally hold shares that it intends to offer employees as additional compensation. There are no open market transactions, so the market price of the stock does not change (at least not due to buying pressure). The only net effect is an equivalent expense for the compensation, but that should already be accounted for in the share price as normal operating expenses. These share may come through an initial buyback from the market, but more common is that when companies issue new shares they keep some internally for exactly this situation. If they issued new shares every pay period, it would dilute the existing shares several times a quarter which would be difficult to account for.","Many companies actually just issue new shares for employee compensation instead of buying back existing ones. So actually, the share price should go down because the same value is now diluted over more shares. In addition, this would not necessarily affect companies with many employees than those with fewer employees because companies with more employees tend to be bigger and thus have more shares (among which the change in demand would be distributed). Also, I think many companies do not issue shares to employees every pay day, but just e.g. once every quarter.","Let's take an example: IBM has about 430,000 employees worldwide. Assume the average yearly salary is $80K (it's probably less, since a lot of jobs are offshore). If every employee took 10% of their pay as stock, that's $132 million every two weeks. But IBM's market capitalization is about $153 billion, so stock purchases would be less than 0.1% of that.","\"It depends on how the program is run. If the company runs the program out of treasury stock (shares that are authorized, but not issued), then there aren't any shares being purchased on the open market. Because of that, the share price wouldn't be affected. If you look in your employer's annual report, you will probably find how the program is run and how many shares are issued annually under that program. By comparing that to the daily trading volume of the company's stock you can gauge whether there's any likelihood of the share price being affected by the employee purchases. That is, of course, if shares are being purchased on the open market. For example, here is Books-A-Million's program, as described in their 2011 annual report: Employee Stock Purchase Plan The Company maintains an employee stock purchase plan under which shares of the Company’s common stock are reserved for purchase by employees at 85% of the fair market value of the common stock at the lower of the market value for the Company’s stock as of the beginning of the fiscal year or the end of the fiscal year. On May 20, 2010, the stockholders of the Company approved an additional 200,000 shares available for issuance under the plan, bringing the aggregate number of shares that may be awarded to 600,000. Of the total reserved shares, 391,987, 373,432 and 289,031 shares have been purchased as of January 29, 2011, January 30, 2010 and January 31, 2009, respectively. This describes an instance of the employee purchase program being run from unissued stock, not open market purchases. From it, we can tell 18,555 shares were issued during the past fiscal year. As their average daily volume is ~40,000 shares, if the program were run from a single open market purchase, it would have potential to \"\"move the market\"\". One would think, though, that a company running it from open market purchases would spread the purchases over a period of time to avoid running up the price on themselves.\"","So far buying of own by own companies like Apple, is concerned it will surely raise the price of the script. At some level, the share prices are a factor of supply and demand at a given price. Apple being a very demanded script, its supply in the market goes down with the buy back. After a while, this will surely make the script price rise. It also depends at what price the buy back is affected. If the buy back is done at a right price, it will help the existing shareholder. If a very high price is paid, it will erode shareholders wealth. Hence each buy back needs to be studies separately. There are several and at times complex variables which determines if the buy back is good for continuing shareholders or not.","Usually the amount of the ESPP stocks is very small compared to the overall volume of the trading, so it shouldn't matter. But check if for your company it not so (look at the stock history for the previous ESPP dates, and volumes).","Buybacks do not increase the company's value. Cash is traded for outstanding shares. This is similar to a dividend, but instead of cash, investors receive a rising share-price. Whether an investor prefers a cash dividend or capital gains is less important than the outcome that their investment is gaining value for them.","\"I think JB King's answer is interesting from the point of view of \"\"is this good for me\"\" but the OP's question boils down to \"\"why would a company do this?\"\" The company buys back shares when it thinks it will better position the company financially. A Simple Scenario: If Company A wants to open a new store, for example, they need to buy the land, build the store, stock it, etc, etc and this all costs money. The company can get a loan, use accrued capital, or raise new capital by issuing new stock. Each method has benefits and drawbacks. One of the drawbacks of issuing new stock is that it dilutes the existing stock's value. Previously, total company profits were split between x shares. Now the profits are shared between x+y shares, where y is the number of new shares issued to raise the capital. This normally drives the price of the stock down, since the expected future dividends per stock have decreased. Now the company has a problem: the next time they go to raise money by issuing stock, they will have to issue MORE shares to get the same value - leading to more dilution. To break out of this cycle, the company can buy back shares periodically. When the company feels the the stock is sufficiently undervalued, it buys some back. Now the profits are shared with a smaller pool, and the stock price goes up, and the next time Company A needs to raise capital, it can issue stock. So it probably has little to do with rewarding shareholders, and more to do with lowering the \"\"cost of capital\"\" for the company in the future.\"","A board authorizes the repurchase of shares because they feel the stock in undervalued. The hope is that the stocks will rise either directly by their repurchase, or in the near term due to the realization that the company is in better shape then the market thought. Eventually those shares will be resold back into the market thus bring in more cash at a later date. They will set limits on them maximum they will pay, they will also spread the repurchases out over a time period so they don't overwhelm the market.","There are two sources for shares that employees buy through ESOPs. A company can simply buy the shares on the open market. The company must pay for the stock, but the employee then pays the company for the shares. If employees get a discount on the ESOP shares, the company would pay for that percentage directly. The company can choose to issue new shares. These new shares dilute the ownership of all the other current stockholders. While #2 is common when companies issue stock options, I'd be surprised to see it with an ESOP. In most cases, employees are limited in the amount of their salary they can devote towards the ESOP. If that limit is 10% and the discount that the employees get is 10%, the cost on a per-employee basis would only be 1% of that employees salary, which is a small expense.","the implications are that the company's earnings per share may seem greater, (after the company buys them there will be less shares outstanding), giving wall street the impression that there is more growth potential than there really is. its an accounting gimmick that can work for a few quarters while the company evaluates how else to impress wall street","The future shares will be fewer in number, yet have claim to less cash in the bank. All in all, there's little reason the shares would rise in value. Say there are 1M shares, trading at $10. Market cap is $10M of course. Now, there happens to be $2M cash in the bank so each share had about $2 cash. By taking the $2M and buying 200K shares, 800K shares remain, but why would you think they'd be valued at $12.50? The same $10 value per share is now an $8M market cap as $2M has been disbursed, no less so than if it were given out in a dividend.","It adds no REAL value to the company long term. Sure, existing shareholders will make some money on the rising share price after ratios are improved but at the rate these companies are doing it, don't you think it's too much? To me it shows uncertainty for the future and stifled growth. Personally I think shareholders should have the option to vote on approving repurchase plans.","No. Not directly. A company issues stock in order to raise capital for building its business. Once the initial shares are sold to the public, the company doesn't receive additional funds from future transactions of those shares of stock between the public. However, the company could issue more shares at the new higher price to raise more capital.","\"After the initial public offering, the company can raise money by selling more stock (equity financing) or selling debt (e.g. borrowing money). If a company's stock price is high, they can raise money with equity financing on more favorable terms. When companies raise money with equity financing, they create new shares and dilute the existing shareholders, so the number of shares outstanding is not fixed. Companies can also return money to shareholders by buying their own equity, and this is called a share repurchase. It's best for companies to repurchase their shared when their stock price is low, but \"\"American companies have a terrible track record of buying their own shares high and selling them low.\"\" The management of a company typically likes a rising stock price, so their stock options are more valuable and they can justify bigger pay packages.\"","What most respondents are forgetting, is when a company allows its employees to purchase its shares at a discount with their salary, the employee is usually required to hold the stock for a number of years before they can sell them. The reason the company is allowing or promoting its employees to purchase its shares at a discount is to give the employees a sense of ownership of the company. Being a part owner in the company, the employee will want the company to succeed and will tend to be more productive. If employees were allowed to purchase the shares at a discount and sell them straight away, it would defeat this purpose. Your best option to decide whether or not to buy the shares is to work out if the investment is a good one as per any other investment you would undertake, i.e. determine how the company is currently performing and what its future prospects are likely to be. Regarding what percentage of pay to purchase the shares with, if you do decide to buy them, you need to work that out based on your current and future budgetary needs and your savings plan for the future.","In most countries there are specific guidelines on buy backs. It is never a case where by one fine morning company would buy its shares and sell it whenever it wants. In general company has to pass a board resolution, sometimes it also requires it to be approved by share holders. It has to notify the exchange weeks in advance. Quite a few countries require a price offer to all. I.E. it cannot execute a market order. All in all the company may have inside information, but it cannot time the market.","Like others have already said, it may cause an immediate dip due to a large and sudden move in shares for that particular stock. However, if there is nothing else affecting the company's financials and investors perceive no other risks, it will probably bounce back a bit, but not back to the full value before the shares were issued. Why? Whenever a company issues more stock, the new shares dilute the value of the current shares outstanding, simply because there are now more shares of that stock trading on the market; the Earnings Per Share (EPS) Ratio will drop since the same profit and company value has to be spread across more shares. Example: If a company is valued at $100 dollars and they have 25 shares outstanding, then the EPS ratio equates to $4 per share (100/25 = 4). If the company then issues more shares (stock to employees who sell or keep them), let's say 25 more shares, then shares outstanding increase to 50, but the company's value still remains at $100 dollars. EPS now equates to $2 per share (100/50 = 2). Now, sometimes when shareholders (especially employees...and especially employees who just received them) suddenly all sell their shares, this causes a micro-panic in the market because investors believe the employees know something bad about the company that they don't. Other common shareholders then want to dump their holdings for fear of impending collapse in the company. This could cause the share price to dip a bit below the new diluted value, but again if no real, immediate risks exist, the price should go back up to the new, diluted value. Example 2: If EPS was at $4 before issuing more stock, and then dropped to $2 after issuing new stock, the micro-panic may cause the EPS to drop below $2 and then soon rebound back to $2 or more when investors realize no actual risk exists. After the dilution phase plays out, the EPS could actually even go above the pre-issuing value of $4 because investors may believe that since more stock was issued due to good profits, more profits may ensue. Hope that helps!","\"You are overlooking the fact that it is not only supply & demand from investors that determines the share price: The company itself can buy and sell its own shares. If company X is profitable over the long haul but pays 0 dividends then either Option (2) is pretty ridiculous, so (1) will hold except in an extreme \"\"man bites dog\"\" kind of fluke. This is connected with the well-known \"\"dividend paradox\"\", which I discussed already in another answer.\"","Pre-Enron many companies forced the 401K match to be in company shares. That is no longer allowed becasue of changes in the law. Therefore most employees have only a small minority of their retirement savings in company shares. I know the ESOP and 401K aren't the same, but in my company every year the number of participants in the company stock purchase program decreases. The small number of participants and the small portion of their new retirement funds being in company shares would mean this spike in volume would be very small. The ESOP plan for my employer takes money each paycheck, then purchases the shares once a quarter. This delay would allow them to manage the purchases better. I know with a previous employer most ESOP participants only held the shares for the minimum time, thus providing a steady steam of shares being sold.","\"This could be another reason. \"\"Companies buy their own stock in the market place to reduce the number of shares outstanding, and thus boosts the earnings per share. It also boosts the stock price, which benefits management that has stock options. \"\" Taken from this article. http://www.forbes.com/sites/investor/2014/01/06/the-most-reliable-indicator-of-an-approaching-market-top/ and this article \"\"Why are stock rising?\"\" may help as well. http://www.forbes.com/sites/investor/2013/12/23/why-are-stocks-rising/\"","Simple, there is no magic price adjustment after sales - why do you expect the stock price to change? The listed price of a stock is what someone was willing to pay for it in the last deal that was concluded. If any amount of stock changes ownership, this might have the effect that other people are willing to buy it for a higher price - or not. It is solely in the next buyer's decision what he is willing to pay. Example: if you think Apple stocks are worth 500$ a piece, and I buy a million of them, you might still think they are worth 500$. Or you might see this as a reason that they are worth 505$ now.","Companies do both quite often. They have opposite effects on the share price, but not on the total value to the shareholders. Doing both causes value to shareholders to rise (ie, any un-bought back shares now own a larger percentage of the company and are worth more) and drops the per-share price (so it is easier to buy a share of the stock). To some that's irrelevant, but some might want a share of an otherwise-expensive stock without paying $700 for it. As a specific example of this, Apple (APPL) split its stock in 2014 and also continued a significant buyback program: Apple announces $17B repurchase program, Oct 2014 Apple stock splits 7-to-1 in June 2014. This led to their stock in total being worth more, but costing substantially less per share.","It basically only affects the company's dealings with its own stock, not with operational concerns. If the company were to offer more stock for sale, it would get less cash. If it had a stock buy-back program, it could buy more shares for the same money. If it was to offer to acquire another company in exchange for its own stock, the terms would be less attractive to the other company's owners. Employee stock remuneration, stock options, and so forth would be affected, so there might be considerations and tax consequences for the company.","Not directly. But companies benefit in various ways from a higher stock price. One way a high stock price can hurt a company is that many companies do share buybacks when the price is too high. Economically speaking, a company should only buy back shares when those shares are undervalued. But, management may have incentives to do buybacks at irrationally high prices.","The other answer has some good points, to which I'll add this: I believe you're only considering a company's Initial Public Offering (IPO), when shares are first offered to the public. An IPO is the way most companies get a public listing on the stock market. However, companies often go to market again and again to issue/sell more shares, after their IPO. These secondary offerings don't make as many headlines as an IPO, but they are typical-enough occurrences in markets. When a company goes back to the market to raise additional funds (perhaps to fund expansion), the value of the company's existing shares that are being traded is a good indicator of what they may expect to get for a secondary offering of shares. A company about to raise money desires a higher share price, because that will permit them to issue less shares for the amount of money they need. If the share price drops, they would need to issue more shares for the same amount of money – and dilute existing owners' share of the overall equity further. Also, consider corporate acquisitions: When one company wants to buy another, instead of the transaction being entirely in cash (maybe they don't have that much in the bank!), there's often an equity component, which involves swapping shares of the company being acquired for new shares in the acquiring company or merged company. In that case, the values of the shares in the public marketplace also matter, to provide relative valuations for the companies, etc.","449 of the 500 companies in the S&P 500 used 54% of their earnings to buy back shares for over $2 trillion. Rather than invest in development, capital, human capital, bigger dividends, they're repurchasing shares to boost their EPS and increase share value in the short term. Why is this an issue? Because it shows that these companies are uneasy about the long term. It stunts growth. Doesn't have to be research, simply expansion or rewarding employees/shareholders. Employees of the company receive no benefits and bagholders may make a quick buck short term, but suffer long. Execs of the company however get fat AF checks for hitting target ratios and price. Stock buybacks enable this.","No, I think you are misunderstanding the Math. Stock splits are a way to control relatively where the price per share can be for a company as companies can split or reverse split shares which would be similar to taking dimes and giving 2 nickels for each dime, each is 10 cents but the number of coins has varied. This doesn't create any additional value since it is still 10 cents whether it is 1 dime or 2 nickels. Share repurchase programs though are done to prevent dilution as executives and those with incentive-stock options may get shares in the company that increase the number of outstanding shares that would be something to note.","Another reason this stock market is just one gigantic fabricated bubble. A combination of firing people (and not giving significant pay raises while making fewer employees do more work) to make profits seem higher and those buybacks. People look at me like I'm crazy","If a company is valued correctly, then paying dividends should lower the share price, and buying back shares should leave the share price unchanged. If the share price is $100, and the company pays a $10 dividend, then either its cash goes down by $10 per share, it is has to borrow money for the same amount, or some mixture. Either way, the value of the company has gone down by $10 per share. If the share price is $100, and the company buys back 10 percent of its shares, then it also has to find the money, just as for the dividend, and the value of the company goes down by 10 percent. However, the number of shares also goes down by 10 percent, so the amount of value per share is the same, and the share price should stay unchanged. Now there are psychological effects. Many people like getting paid dividends, so they will want to own shares of a company paying dividends, so the share price goes up. Similar with a share buyback; the fact that someone buys huge amounts of shares drives the price up. Both effects are purely psychological. A buyback has another effect if the shares are not valued correctly. If the company is worth $100 per share but for some reason the shareprice is down to $50, then after the buyback the value per share has even gone up. Basically the company buys from stupid investors, which increases the value for clever investors holding on to their shares. If the shareprice were $200, then buying back shares would be a stupid move for the company.","Would you consider the owner of a company to be supporting the company? If you buy stock in the company you own a small part of that company. Your purchase also increases the share price, and thus the value of the company. Increased value allows the company to borrow more money to say expand operations. The affect that most individuals might have on share price is very very small. That doesn't mean it isn't the right thing for you to do if it is something you believe in. After all if enough people followed those same convictions it could have an impact on the company.","It's 5% free money, if you believe the company's stock is fairly valued and likely to grow and/or return reasonable dividends until you're ready to sell it. There's usually a minimum holding period of a few months to a year before these discounted shares can be sold; take that into account","First, the stock does represent a share of ownership and if you have a different interpretation I'd like to see proof of that. Secondly, when the IPO or secondary offering happened that put those shares into the market int he first place, the company did receive proceeds from selling those shares. While others may profit afterward, it is worth noting that more than a few companies will have secondary offerings, convertible debt, incentive stock options and restricted stock that may be used down the road that are all dependent upon the current trading share price in terms of how useful these can be used to fund operations, pay executives and so forth. Third, if someone buys up enough shares of the company then they gain control of the company which while you aren't mentioning this case, it is something to note as some individuals buy stock so that they can take over the company which happens. Usually this has more of an overall plan but the idea here is that getting that 50%+1 control of the company's voting shares are an important piece to things here.","\"#####&#009; ######&#009; ####&#009; [**Share repurchase**](https://en.wikipedia.org/wiki/Share%20repurchase): [](#sfw) --- > >__Share repurchase__ (or __stock buyback__) is the re-acquisition by a [company](https://en.wikipedia.org/wiki/Company) of its own stock. In some countries, including the [US](https://en.wikipedia.org/wiki/United_States) and the [UK](https://en.wikipedia.org/wiki/United_Kingdom), a [corporation](https://en.wikipedia.org/wiki/Corporation) can repurchase its own [stock](https://en.wikipedia.org/wiki/Stock) by distributing [cash](https://en.wikipedia.org/wiki/Cash) to existing [shareholders](https://en.wikipedia.org/wiki/Shareholder) in exchange for a fraction of the company's outstanding [equity](https://en.wikipedia.org/wiki/Shareholders%27_equity); that is, cash is exchanged for a reduction in the number of [shares outstanding](https://en.wikipedia.org/wiki/Shares_outstanding). The company either retires the repurchased shares or keeps them as [treasury stock](https://en.wikipedia.org/wiki/Treasury_stock), available for re-[issuance](https://en.wikipedia.org/wiki/Issued_capital). >Under US [corporate law](https://en.wikipedia.org/wiki/Corporations_law) there are five primary methods of stock repurchase: open market, private negotiations, repurchase '[put](https://en.wikipedia.org/wiki/Put_option)' rights and two variants of self-tender repurchase: a fixed price [tender offer](https://en.wikipedia.org/wiki/Tender_offer) and a [Dutch auction](https://en.wikipedia.org/wiki/Dutch_auction). In the late 20th and early 21st centuries, there was a sharp rise in the volume of share repurchases in the US: [US$](https://en.wikipedia.org/wiki/United_States_dollar)5 [billion](https://en.wikipedia.org/wiki/1000000000_(number\\)) in 1980 rose to US$349 billion in 2005. >It is relatively easy for insiders to capture insider-trading like gains through the use of \"\"open market repurchases\"\". Such transactions are legal and generally encouraged by regulators through safe-harbours against [insider trading](https://en.wikipedia.org/wiki/Insider_trading) liability. > --- ^Interesting: [^Accelerated ^share ^repurchase](https://en.wikipedia.org/wiki/Accelerated_share_repurchase) ^| [^Dividend](https://en.wikipedia.org/wiki/Dividend) ^| [^Equity ^\\(finance)](https://en.wikipedia.org/wiki/Equity_\\(finance\\)) ^| [^Treasury ^stock](https://en.wikipedia.org/wiki/Treasury_stock) ^Parent ^commenter ^can [^toggle ^NSFW](http://www.np.reddit.com/message/compose?to=autowikibot&subject=AutoWikibot NSFW toggle&message=%2Btoggle-nsfw+cjwf4oy) ^or[](#or) [^delete](http://www.np.reddit.com/message/compose?to=autowikibot&subject=AutoWikibot Deletion&message=%2Bdelete+cjwf4oy)^. ^Will ^also ^delete ^on ^comment ^score ^of ^-1 ^or ^less. ^| [^(FAQs)](http://www.np.reddit.com/r/autowikibot/wiki/index) ^| [^Mods](http://www.np.reddit.com/r/autowikibot/comments/1x013o/for_moderators_switches_commands_and_css/) ^| [^Magic ^Words](http://www.np.reddit.com/r/autowikibot/comments/1ux484/ask_wikibot/)\"","\"Something to note is that when a company announces a share buyback program there is usually a time frame and amount of shares that are important details as it isn't like the company will make one big buy back of stock generally. Rather it may take months or even years as noted in the Wikipedia article about share repurchases. Wikipedia covers some of the technical details here but to give a specific set of answers: When a company announces a share buyback program, who do they actually buy back the shares from? From the Wikipedia link: \"\"Under US corporate law there are five primary methods of stock repurchase: open market, private negotiations, repurchase 'put' rights, and two variants of self-tender repurchase: a fixed price tender offer and a Dutch auction.\"\" Thus, there are open market and a couple of other possibilities. Openly traded shares on a stock exchange? Possibly, though there are other options. Is there a fixed price that they buy back at? Sometimes. I'd think a \"\"fixed price tender offer\"\" would imply a fixed price though the open market way may take various prices. If I own shares in that company, can I get them to buy back my shares? Selective Buy-Backs is noted in Wikipedia as: \"\"In broad terms, a selective buy-back is one in which identical offers are not made to every shareholder, for example, if offers are made to only some of the shareholders in the company. In the US, no special shareholder approval of a selective buy-back is required. In the UK, the scheme must first be approved by all shareholders, or by a special resolution (requiring a 75% majority) of the members in which no vote is cast by selling shareholders or their associates. Selling shareholders may not vote in favor of a special resolution to approve a selective buy-back. The notice to shareholders convening the meeting to vote on a selective buy-back must include a statement setting out all material information that is relevant to the proposal, although it is not necessary for the company to provide information already disclosed to the shareholders, if that would be unreasonable.\"\" Thus it is possible, though how probable is another question. While not in the question, something to consider is how the buybacks can be done as a result of offsetting the dilution of employees who have stock options that may exercise them and spread the earnings over more shares, but this is more on understanding the employee stock option scenario that various big companies use when it comes to giving employees an incentive to help the stock price.\"","Ignoring taxes, a share repurchase has exactly the same effect on the company and the shareholders' wealth as a cash dividend. In either case, the company is disbursing cash to its shareholders; in the former, in exchange for shares which shareholders happen to be selling on the market at the time; in the latter, equally to all shareholders. For those shareholders who do not happen to be selling their shares, a share repurchase by a company is equivalent to a shareholder's reinvestment of a cash dividend in additional shares of the same company. The only difference is the total number of shares left outstanding. Your shares after a share buyback represent ownership of a greater fraction of the company, since in effect the company is buying out other shareholders on your behalf. Theoretically, a share buyback leaves the price of the stock unchanged, whereas a cash dividend tends to reduce the price of the stock by exactly the amount of the dividend, (notwithstanding underlying earnings.) This is because a share buyback concentrates your ownership in the company, but at the same time, the company as a whole is devalued by the exact amount of cash disbursed to buy back shares. Taxwise, a share buyback generally allows you to treat your share of the company's profits as capital gains---and quite possibly defer taxes on it as long as you own the stock. You usually have to pay taxes on dividends at the time they are paid. However, dividends are sometimes seen as instilling discipline in management, because it's a very public and obvious sign of distress for a company to cut its dividend, whereas a share repurchase plan can often be quietly withdrawn without drawing that much attention. A third alternative to a dividend or a share repurchase is for the company to find profitable projects to reinvest its earnings in, and attempt to grow the company as a whole (in the hopes of even greater earnings in the future) rather than distribute current earnings back to shareholders. (A company may alse use its earnings to pay down or repurchase debt, as well.) As to your second question, the SEC has certain rules that regulate the timing and price of share repurchases on the open market.","\"What if everyone decided to sell all the shares at a given moment, let's say when the stock is trading at $40? I imagine supply would outweigh demand and the stock would fall. Yes this is the case. Every large \"\"Sell\"\" order results in price going down and every large \"\"Buy\"\" order results in price going up. Hence typically when large orders are being executed, they are first negotiated outside for a price and then sold at the exchange. I am not talking about Ownership change event. If a company wants a change in ownership, the buyer would be ready to pay a premium over the market price to get controlling stake.\"","Let me answer by parts: When a company gives dividends, the share price drops by the dividend amount. Not always by that exact amount for many different reasons (e.g. there are transaction costs if you reinvest, dividend taxes, etc). I have tested that empirically. Now, if all the shareholders choose to reinvest their dividends, will the share price go back up to what it was prior to the dividend? That is an interesting question. The final theoretical price of the company does not need to be that. When a company distributes dividends its liquidity diminish, there is an impact on the balance sheet of the company. If all investors go to the secondary market and reinvest the dividends in the shares, that does not restore the cash in the balance sheet of the company, hence the theoretical real value of the company is different before the dividends. Of course, in practice there is not such a thing as one theoretical value. In reality, if everybody reinvest the dividend, that will put upward pressure over the price of the company and, depending on the depth of the offers, meaning how many orders will counterbalance the upward pressure at the moment, the final price will be determined, which can be higher or lower than before, not necessarily equal. I ask because some efts like SPY automatically reinvest dividends. So what is the effect of this reinvestment on the stock price? Let us see the mechanics of these purchases. When a non distributing ETF receives cash from the dividends of the companies, it takes that cash and reinvest it in the whole basket of stocks that compose the index, not just in the companies that provided the dividends. The net effect of that is a small leverage effect. Let us say you bought one unit of SPY, and during the whole year the shares pay 2% of dividends that are reinvested. At the end of that year, it will be equivalent to having 1.02 units of SPY.","When a stock price rises, the company's assets are worth more. This doesn't mean it gets more cash directly, but it can liquidate (= sell) some of its stocks for a higher return than before.","Okay I don't know where my disconnect was, in my mind I was viewing that as a negative for some reason haha. Thanks! That makes sense. What is your perspective on the large amount of companies buying back shares right now?","\"That's a pretty good question for a six-year-old! In addition to the good answers which point out that expectations are priced in, let's deny the premises of the question: Sales do not increase the value of a company; a company could be, for example, losing money on every sale. Share prices are (at least in theory) correlated with profits. So let's suppose that company X is unprofitable 320 days a year and is relying upon sales in late November and December to be in the black for the year. (Hence \"\"black Friday\"\".) Carefully examine the supposition of this scenario: we have a company that is so unprofitable that it must gamble everything on successfully convincing bargain hunting consumers in a weak economy to buy stuff they don't actually need from them and not a competitor. Why would this inspire investor confidence? There are plenty of companies that fail to meet their sales targets at Christmas, for plenty of reasons.\"","Stock trading (as opposed to IPO) doesn't directly benefit the company. But it affects their ability to raise additional funds; if they're valued higher, they don't need to sell as many shares to raise a given amount of money. And the stockholders are part owners of the company; their votes in annual corporate meetings and the like can add up to a substantial influence on the company's policies, so the company has an interest in keeping them (reasonably) happy. Dividends (distributing part of the company's profits to the stockholders) are one way of doing so. You're still investing in the company. The fact that you're buying someone else's share just means you're doing so indirectly, and they're dis-investing at the same time.","I will never understand the logic behind this. If you buyback shares instead of funding pension liabilities... those liabilities are still there and any serious investor will factor that into the companies stock price. I guess it's just easier to be a consistent dividend grower and cater to that audience if your outstanding shares decrease.","As said by others, buying shares of a company will not support it directly. But let's think about two example companies: Company A, which has 90 % stocks owned by supporters, and Company B, which has only 1 % of stocks owned by supporters. Both companies release bad news, for example profits have decreased. In Company B, most investors might want to sell their stock quickly and the price will plummet. In Company A, the supporters continue believing in the company and will not want to sell it. The price will drop less (usually, but it can drop even more if the sellers of Company A are very desperate to get rid of the stock). So, why is it important for the company to have a high stock price? In the short-term, it's not important. One example is that the company can release more stocks and receive more financing by doing that. Other reasons are listed here: http://www.investopedia.com/articles/basics/03/020703.asp","Shares are partial ownership of the company. A company can issue (not create) more of the shares it owns at any time, to anyone, at any price -- subject to antitrust and similar regulations. If they wanted to, for example, flat-out give 10% of their retained interest to charity, they could do so. It shouldn't substantially affect the stock's trading for others unless there's a completely irrational demand for shares.","The shareholders can't all re-invest their dividends -- it's not possible. Paying a dividend doesn't issue any new shares, so unless some of the existing shareholders sell their shares instead of re-investing, there aren't any shares available for the shareholders to re-invest in.","I see a false assumption that you are making. (Almost always) When you buy stock the cash you spend does not go to the company. Instead it goes to someone else who is selling their shares. The exception to this is when you buy shares in an IPO. Those of us who have saved all our lives for retirement want income producing investments once we retire. (Hopefully) We have saved up quite a bit of money. To have us purchase their stock companies have to offer us dividends.","Initially, Each company has 10k shares. Company B has $500k money and possibly other assets. Every company has stated purpose. It can't randomly buy shares in some other firm. Company A issued 5k new shares, which gives it $500k money. Listed companies can't make private placements without regulatory approvals. They have to put this in open market via Public issue or rights issue. Company B does the same thing, issuing 5k shares for $500k money. Company A bought those 5k shares using the $500k it just got There is no logical reason for shareholder of Company B to raise 5K from Company A for the said consideration. This would have to increase.","It might go down a bit, or it might not. That is nearly impossible to predict, as the relative volumes are unknown, and the exact procedure is also unknown (they might do the selling over a longer period, or as a buy back, or immediately, or...) However, why would you want to wait at all? It is generally not a great idea to put your savings into the company you work for ('all eggs in one basket' - when it goes down, you lose your job and your savings), so the best approach is to pick a good day in the next weeks and sell the stock and invest into something more neutral.","\"For new shares to be successfully sold, the price has to be below market price. If you currently own shares of that company, you should always get an option to buy those newly sold shares at that discounted price. The number of options depends on the relative number of shares you hold. Lets say you own 100 out of 1000 shares, currently priced at $10. 100 new shares are to be sold at $9. Since you are holding 10% of all shares, you have the option (i.e. the right) to buy 10 new (cheaper) shares (10% of 100) before anybody else can buy them. Theoretically, the money you save by getting the shares at a discounted price is equal to the money you lose by the share's value being diluted. So, if you're a shareholder and the company is increasing it's capital, you're given the right to \"\"go with it\"\".\"","For the employee, this is an identical tax situation to an at-the-money option purchase. They're buying an asset with a specific cost basis. For the company, you are just issuing shares from treasury as authorized... debit cash, credit additional paid-in-capital and equity. There is no tax consequence for this money received.","\"Another way to look at this is that pure insider trading is an activity with the aim to use secret information to make personal profit or let others make personal profit at the expense of the company shareholders or investors. In buybacks, it is not company managers to get personal gain in this would-be \"\"insider trading\"\". The end-winners in this case are the shareholders. So there is nothing inherently bad in buying back stock. Moreover, it is a general practice to buy shares back (as opposed to paying dividends) when the company sees its shares being undervalued (of course, provided that it has the cash/borrowing ability to implement this), since it creates shareholders value, thereby maximising shareholder wealth, which is one of the primary tasks of the company managers.\"","This question is very open ended. But I'll try to answer parts of it. An employer can offer shares as part of a compensation package. Instead of paying cash the employer can use the money to buy up shares and give them to the employees. This is done to keep employees for longer periods of time and the employer may also want to create more insider ownership for a number of reasons. Another possibility is issuance of secondary offerings that are partially given to employees. Secondary offerings often lower the price of the shares in the market and create an incentive for employees to stay until the stock price rises. All of these conditions can be stipulated, look up golden handcuffs. Usually stock gifts are only given to a few high level employees and as part of a bonus package. It is very unusual to see a mature company regularly give away large amounts of stock, as this is a frowned upon practice. Start ups often pay their employees with stock up until the company is acquired or goes public.","If a company doesn't take out loans to buy back the shares, is it still a bad move? I don't necessarily see the problem with companies retiring shares. If the shares of say Apple have a P/E ratio of 10 and the price to book value max of 1. Wouldn't it be a smart move by the company and the share holders assuming the projected net revenue will hold for at least ten years if not increase. I guess I don't know the true practice of buying back shares but at its core (could be more corrupt), I just don't see it as inherently bad.","In an ideal world Say on 24th July the share price of Apple was $600. Everyone knows that they will get the $ 2.65 on 16th August. There is not other news that is affecting the price. You want to go in and buy the shares on 16th Morning at $600 and then sell it on 17th August at $600. Now in this process you have earned sure shot $2.65/- Or in an ideal world when the announcement is made on 24th July, why would I sell it at $600, when I know if I wait for few more days I will get $2.65/- so i will be more inclined to sell it at $602.65 /- ... so on 16th Aug after the dividend is paid out, the share price will be back to $600/- In a real world, dividend or no dividend the share price would be moving up or down ... Notice that the dividend amount is less than 1% of the stock price ... stock prices change more than this percentage ... so if you are trying to do what is described in paragraph one, then you may be disappointed as the share price may go down as well by more than $2.65 you have made","As others have posted, the company gains capital in return for its new shares. However, the share price can still fall. The problem is that the share marked is affected by supply and demand like any other marked. If the company just issues the new shares at marked price, they will have problems finding buyers. The people who are willing to pay that price has already bought as many shares as they want. The company does this to raise capital, and depends on the shares actually selling for this to work. So, they issue shares at below marked price to attract buyers and the shares get diluted. In the end the share will usually end up somewhere between the old marked price and the issue price. The old share owners are probably not too happy about this and will not accept this plan. (At least here in Norway, share issue has to be accepted at a shareholder meeting) So, what is often done instead is to issue buy options for the required number of shares at the below-marked price. These options are given (for free) to the current share holders proportional to their current holding. If everybody exercises their options they get new cheap shares that compensates for the loss of share value. If they don't have the capital themselves, they can sell the options and get compensation that way instead.","ESPP shares, once purchased, are just normal shares that you got at a discount. They're just as much a part of your current net wealth as any other shares of stock. What you can't do is claim that discount increases your salary, even if it does result in your effectively taking home more money. It's a benefit like the company contribution to your health plan, not a bonus.","Not illegal, its called treasury stock; happens all the time. Its used to increase the equity (and in theory, stock price) for the remaining shareholders. A public company won't be a able to repurchase all of its shares unless the company has decided to go private. In that case, a person or other entity will usually purchase all of the outstanding shares of the company, usually at a premium.","Companies pay their employees in stocks and stock options, so they have an incentive towards increasing a company's share price. There are many elements that go into a stock's price. For example, if you hold a stock for eternity you should be indifferent if the expected present value of all its future dividends (i.e. earnings) equals the price you paid for it. Also, buy-back policies and voting rights determine stock price as well. The theory is that since shareholders want return on their investments they would promote company executives in such a way that their incentives are aligned to increase the share price.","> But, it seems like the pool is adding value out of nowhere! Options don't simply exercise in the void. There are proceeds from the exercise (option-holders must pay into the company). This amount is an additional investment in the company that hasn't precisely materialized yet, but is generally expected to (and is difficult to alter, as it's likely part of an employment contract).","A Breakdown of Stock Buy Backs has this bottom line on it: Are share buybacks good or bad? As is so often the case in finance, the question may not have a definitive answer. If a stock is undervalued and a buyback truly represents the best possible investment for a company, the buyback - and its effects - can be viewed as a positive sign for shareholders. Watch out, however, if a company is merely using buybacks to prop up ratios, provide short-term relief to an ailing stock price or to get out from under excessive dilution. Read more: http://www.investopedia.com/articles/02/041702.asp#ixzz3ZHdOf2dJ What is the reason that a company like AAPL is buying back its own shares? Offsetting dilution would be my main thought here as many employees may exercise options putting more stock out there that the company buys back stock to balance things. Does it have too much cash and it doesn't know what to do with it? No as it could do dividends if it wanted to give it back to investors. So it is returning the cash back to investors? Not quite. While some investors may get cash from Apple, I'd suspect most shareholders aren't likely to see cash unless they are selling their shares so I wouldn't say yes to this without qualification. At the same time, the treasury shares Apple has can be used to give options to employees or be used in acquisitions for a couple of other purposes.","One major benefit to being able to buy discounted company stock is that you can sell in-the-money covered calls and potentially make more than you would selling at strike.","First: the question is irrelevant for purchases on exchange, mostly. Majority of sales on stock exchanges is between shareholders. If however you buy directly from the company (in a IPO, or direct share purchase program of some kind, like ESPP), then it does end up showing in the company account ledgers one way or another. It then become part of company's total assets, and the newly sold shares add to the equity.","\"Seems like no one in this thread has heard of \"\"treasury stocks\"\", which indeed allow a company to own and sell its own stock. Think about it. When there is a stock buy-back funded by excess profits, where does that stock go?\"","I think you're not applying the right time scale here. ESPP (Employee Stock Purchase Plan) is usually vesting every 6 months. So every half a year you receive a chunk of stocks based on your salary deduction, with the 15% discount. Every half a year you have a chunk of money from the sale of these stocks that you're going to put into your long term investment portfolio. That is dollar cost averaging. You're investing periodically (every 6 months in this case), same (based on your salary deferral) amount of money, regardless of the stock market behavior. That is precisely what dollar cost averaging is.","Yes, it does matter. You are right that lower demand for a stock will drive its price down. Lower stock prices can hurt the company. Take a look at Fixee's answer to this question: a declining share price will make it hard to secure credit, attract further investors, build partnerships, etc. Also, employees are often holding options or in a stock purchase plan, so a declining share price can severely dampen morale. In an extreme case, if share prices plummet too far, the company can be pressured to reverse-split the shares, and (eventually) take the company private. This recently happened to Playboy. If you do not want to support a company, for whatever reason, then it is wise to avoid their stock.","Everyone has a price. If nobody is selling shares, then increase the price you will buy them for. And then wait. Somebody will have some hospital bills to pay for eventually. I buy illiquid investments all the time, and thats typically what happens. Great companies do not have liquidity problems.","If that company issues another 100 shares, shouldn't 10 of those new 100 shares be mine? Those 100 shares are an asset of the company, and you own 10% of them. When investors buy those new shares, you again own a share of the proceeds, just as you own a share of all the company's assets. A company only issues new share to raise money - it is a borrowing from investors, and in that way can be seen as an alternative to taking on loans. Both share issuing and a loan bring new capital and debt into a company. The difference is that shares don't need to be repaid.","You have a misunderstanding about what it is. Absent differential tax treatment buybacks and dividens are the exact same. period. You're saying it yourself, not buying back stock so they can pay out dividends. What the impetus might be is irrelevant. Dividends are a use of funds competing equally with investments or higher salary.","I actually do know what I'm talking about, no need to be rude. Believe me I understand tax advantages of each I'm subjected to them every single day at my work. I am of the belief that buybacks are great when used responsibly, however at the recent rate and scope that companies have been using them I think it's overkill and will have a negative future impact on real company growth.","Their argument is mostly nonsense. Take someone like Tim Cook, CEO of Apple. He has a not very large salary, and makes a lot more money through stock bonuses. You would never, ever expect him to buy Apple shares. And assuming that he doesn't want to end up one day as the richest man in the cemetery, you would expect him to sell significant numbers of shares, independent on whether he expects Apple to go up or down.","A Company start with say $100. Lets say the max it can borrow from bank is $100 @ $10 a year as Interest. After a years say, On the $200 the company made a profit of $110. So it now has total $310 Option 1: Company pays back the Bank $100 + $10. It further gave away the $100 back to shareholders as dividends. The Balance with company $100. It can again start the second year, borrow from Bank $100 @ 10 interest and restart. Option 2: Company pays back the Bank $100 + $10. It now has $200. It can now borrow $200 from Bank @ $20. After a year it makes a profit of $250. [Economics of scale result $30 more] Quite a few companies in growth phase use Option 2 as they can grow faster, achieve economies of scale, keep competition at bay, etc Now if I had a share of this company say 1 @ $1, by end of first year its value would be $2, at the end of year 2 it would be $3.3. Now there is someone else who wants to buy this share at end of year 1. I would say this share gives me 100% returns every year, so I will not sell at $2. Give me $3 at the end of first year. The buyer would think well, if I buy this at $3, first year I would notionally get $.3 and from then on $1 every year. Not bad. This is still better than other stocks and better than Bank CD etc ... So as long as the company is doing well and expected to do well in future its price keeps on increasing as there is someone who want to buy. Why would someone want to sell and not hold one: 1. Needs cash for buying house or other purposes, close to retirement etc 2. Is balancing the portfolio to make is less risk based 3. Quite a few similar reasons Why would someone feel its right to buy: 1. Has cash and is young is open to small risk 2. Believes the value will still go up further 3. Quite a few similar reasons","Share prices fall when dividends are paid out because the paid dividend (cash out) actually reduces the value of the company. Usually the share price falls by the amount of the dividend payment.","After a company goes public, if it wants to raise more money, then it does this by secondary public offering or rights issue. In subscription rights issue gives the right to existing share holders to buy new shares at equal proportion. So if every one buys, they maintain the same percentage of ownership. Generally the pricing is at discount to current market price. Not sure why the price is high, unless the price for this stock fell sharply recently.","who issued stock typically support it when the stock price go down. No, not many company do that as it is uneconomical for them to do so. Money used up in buying back equity is a wasteful use of a firm's capital, unless it is doing a buyback to return money to shareholders. Does the same thing happen with government bonds? Not necessarily again here. Bond trading is very different from equities trading. There are conditions specified in the offer document on when an issuer can recall bonds(to jack up the price of an oversold bond), even government bonds have them. The actions of the government has a bigger ripple effect as compared to a firm. The government can start buying back bonds to increase it's price, but it will stoke inflation because of the increase in the supply of money in the market, which may or mayn't be desirable. Then again people holding the bond would have to incentivized to sell the bond. Even during the Greek fiasco, the Greek government wasn't buying Greek bonds as it had no capital to buy. Printing more euros wasn't an option as no assets to back the newly printed money and the ECB would have stopped them from being accepted. And generally buying back isn't useful, because they have to return the principal(which might run into billions, invested in long term projects by the government and cannot be liquidated immediately) while servicing a bond is cheaper and investing the proceeds from the bond sale is more useful while being invested in long term projects. The government can just roll over the bonds with a new issue and refrain from returning the capital till it is in a position to do so.","In fact, buybacks WERE often considered a vehicle for insider trading, especially prior to 1982. For instance, Prior to the Reagan era, executives avoided buybacks due to fears that they would be prosecuted for market manipulation. But under SEC Rule 10b-18, adopted in 1982, companies receive a “safe harbor” from market manipulation liability on stock buybacks if they adhere to four limitations: not engaging in buybacks at the beginning or end of the trading day, using a single broker for the trades, purchasing shares at the prevailing market price, and limiting the volume of buybacks to 25 percent of the average daily trading volume over the previous four weeks.","Erisa laws protect your retirement just like something should mandate what minimum ownership should be to classify yourself as exempt from labor laws. I like this idea a lot....however how does 1 employee present enough value to actually effect the price of their company stock? This would only work for top brass positions....which is probably the way it should be.","There's an odd anomaly that often occurs with shares acquired through company plans via ESPP or option purchase. The general situation is that the share value above strike price or grant price may become ordinary income, but a sale below the price at day the shares are valued is a capital loss. e.g. in an ESPP offering, I have a $10 purchase price, but at the end of the offering, the shares are valued at $100. Unless I hold the shares for an additional year, the sale price contains ordinary W2 income. So, if I see the shares falling and sell for $50, I have a tax bill for $90 of W2 income, but a $50 capital loss. Tax is due on $90 (and for 1K shares, $90,000 which can be a $30K hit) but that $50K loss can only be applied to cap gains, or $3K/yr of income. In the dotcom bubble, there were many people who had million dollar tax bills and the value of the money netted from the sale couldn't even cover the taxes. And $1M in losses would take 300 years at $3K/yr. The above is one reason the lockup date expiration is why shares get sold. And one can probably profit on the bigger companies stock. Edit - see Yelp down 3% following expiration of 180 day IPO lock-up period, for similar situation.","Some companies offer discounts for shareholders. I believe Disney used to do so, for example; if your family was doing the Disneyland-every-year routine that could be a significant benefit.","Other than the guaranteed 5% bonus (assuming you sell it right away), no benefits. Keep in mind that the price from which the discount is calculated is not necessarily the market price at the date of the ESPP purchase, so the actual discount may be more than 5% (depending on the volatility of the stock - much more).","Yes but this also goes against the idea that somehow, after injecting more of their money into the firm by exercising their rights, shareholder wealth still remains the same? So if shareholders also injected cash, how come their total wealth didn't change?","There are two things to consider: taxes - beneficial treatment for long-term holding, and for ESPP's you can get lower taxes on higher earnings. Also, depending on local laws, some share schemes allow one to avoid some or all on the income tax. For example, in the UK £2000 in shares is treated differently to 2000 in cash vesting - restricted stocks or options can only be sold/exercised years after being granted, as long as the employee keeps his part of the contract (usually - staying at the same place of works through the vesting period). This means job retention for the employees, that's why they don't really care if you exercise the same day or not, they care that you actually keep working until the day when you can exercise arrives. By then you'll get more grants you'll want to wait to vest, and so on. This would keep you at the same place of work for a long time because by quitting you'd be forfeiting the grants.","Companies already have to protect themselves against employees trading the company's shares with insider information. They typically do that in a number of ways: Taken together, this tends to mostly mitigate the risk of employees trading with insider information, though it's probably not perfect. In practice, the company itself's knowledge of insider information is the same as that of its senior management. So it makes sense for a company to be allowed to trade under the same conditions as its senior management. From https://corpgov.law.harvard.edu/2013/03/14/questions-surrounding-share-repurchases/ : If the company is repurchasing outside of a Rule 10b5-1 trading plan, it should limit its purchases to open window periods when officers and directors are able to buy and sell securities of the company. In addition, the company also can choose to disclose any material non-public information prior to any share repurchase if it is in possession of material non-public information at a time when it is seeking to make a share repurchase outside of a Rule 10b5-1 trading plan. As mentioned in the quote, a company can also set up a trading plan in advance (at a time when it doesn't have inside information) to be executed unconditionally in the future. Then even if the company comes into possession of inside information, it won't be using this knowledge to direct trades.","Not directly Nintendo, but: A company would want its share price to be high if it wants to sell its stock, e.g. on IPO or on subsequent offerings. However, if they want to buy back some shares, it would be in their interest to get more stock for the buck. There may of course be derivative values associated with a high share price, e.g. if they bet on the price or have agreements with investors for particular milestones to be reached. Employees might hold shares and be motivated by share price increases, so a decrease may not be desired, unless they are into some kind of insider trading (buy low, sell high). And last, over-valued share prices may undermine trust in a company, and failing to inform shareholders sufficiently may be outright illegal. Besides those reasons related to law, funding, sales, public relations and company image, companies should be pretty much independent from their own share prices, in contrast to share distribution.","Yes, the net effect is zero. If you own zero shares by Nov 30, for example, and don't buy any more shares by 12/31, the year is done, and nothing left to account for.","This is not right. Inferring the employee stock pool’s takeaway is not as easy as just taking a fraction of the purchase price. As an example, that wouldn’t account for any preferred returns of other ownership classes, among other things. All considered though, it’s reasonable to assume that the employee stock pool will get some premium. Best of luck.","The moment the dividend is announced, especially from a company that doesn't normally pay dividends, the dividend is factored into everybody's analysis. In the absence of any other news the price of apple would be expected to drop once the dividend in locked in. Why would I buy shares from you at full price one day after the dividend is paid, if I will have to wait for the next dividend? Also keep in mind the dividend was announced on July 24th, and is given to shareholders of record on August 13th. You are way behind the curve.","Are you really talking about share price, or share value? Because what about stock splits? Market Cap stays the same, but the price per share is lowered. This is so that the stock is more liquid and accessible to a greater number of investors. This encourages people to invest in the stock though. I can't really think of any reasons why a company would want to lower their share value or discourage people from investing unless they are trying to reacquire shares. Returning value to the shareholders is the #1 priority of any publicly traded company.","As littleadv says it depends on the local laws. Normally one shouldn't be too worried. Typically the stocks given to the employees are a very small portion of the overall stocks ... the owners would not try to jeopardize the deal just so that they make an incrementally small amount of money ... they would rather play safe than get into such a practice.","Is this an employee stock purchase plan (ESPP)? If so, and there is no required holding period, selling right away is essentially a guaranteed bonus with minimal risk. One caveat is that sometimes it takes a while to actually receive the shares at your brokerage, and in the meantime your company may have an earnings report that could cause the share price to drop. If your discount is only 5%, for example, a bad earnings report could easily wipe that out. The only other cons I can think of is ESPP contributions being withheld from you for months (albeit for a virtually guaranteed return), and it complicates your taxes a bit. On the flip side, another pro is that after you sell the shares, you are more likely to invest that money rather than spend it.","A 15% discount is a 17.6% return. (100/85 = 1.176). For a holding period that's an average 15.5 days, a half month. It would be silly to compound this over a year as the numbers are limited. The safest way to do this is to sell the day you are permitted. In effect, you are betting, 12 times a year, that the stock won't drop 15% in 3 days. You can pull data going back decades, or as long as your company has been public, and run a spreadsheet to see how many times, if at all, the stock has seen this kind of volatility over 3 day periods. Even for volatile stocks, a 15% move is pretty large, you're likely to find your stock doing this less than once per year. It's also safest to not accumulate too many shares of your company for multiple reasons, having to do with risk spreading, diversification, etc. 2 additional points - the Brexit just caused the S&P to drop 4% over the last 3 days trading. This was a major world event, but, on average we are down 4%. One would have to be very unlucky to have their stock drop 15% over the specific 3 days we are discussing. The dollars at risk are minimal. Say you make $120K/yr. $10K/month. 15% of this is $1500 and you are buying $1765 worth of stock. The gains, on average are expected to be $265/mo. Doesn't seem like too much, but it's $3180 over a years' time. $3180 in profit for a maximum $1500 at risk at any month's cycle.","RonJohn is right, all shares are owned by someone. Depending on the company, they can be closely held so that nobody wants to sell at a given time. This can cause the price people are offering to rise until someone sells. That trade will cause an adjustment in the ticker price of that stock. Supply and demand at work. Berkshire Hathaway is an example of this. The number of shares is low, the demand for them is high, the price per share is high.","What you want is a cashless transaction. It's part of the normal process. My employer gives me 1000 options at $1, I never need to come up with the money, the shares are bought and sold in one set of transactions, and if the stock is worth $10, I see $9000 less tax withholding, hit the account. No need for me to come up with that $1000.","I agree with the other comments that you should not buy/hold your company stock even if given at a discount. If equity is provided as part of the compensation package (Options/Restrictive Stock Units RSU)then this rule does not apply. As a matter of diversification, you should not have majority equity stake of other companies in the same sector (e.g. technology) as your employer. Asset allocation and diversification if done in the right way, takes care of the returns. Buying and selling on the same day is generally not allowed for ESPP. Taxation headaches. This is from personal experience (Cisco Systems). I had options issued in Sept 2008 at 18$ which vested regularly. I exited at various points - 19$,20$,21$,23$ My friend held on to all of it hoping for 30$ is stuck. Options expire if you leave your employment. ESPP shares though remain.","\"The short version of JB King's excellent answer is that the company will typically buy back shares from the open market at market price. Sometimes, it will specifically target larger stakeholders, even controlling interests, who are making noise that they want to divest; if such an investor were to just dump their stock on the open market, neither the investor nor the company would be very happy with the resulting price collapse. In those cases, the company may offer an incentive price above market rates. In recent times, the investor looking to divest has often been the U.S. Government, who received stock in return for bailouts, and (with notable exceptions) turned a modest profit on many of them. Not enough to break even on the entire bailout, but the Government didn't just throw $700 billion in taxpayer money down a hole as conservative pundits would have you believe. In the '80s, a specific type of buy-back was made famous, called the \"\"leveraged buyout\"\". Basically, the company took out a huge loan against itself, and used that money to buy up all the company's publicly-traded shares, essentially becoming a private company. This became a popular tool among private equity groups, for better and worse.\"","Is it normal for such transactions to create new outstanding shares? Yes a company can create new shares or a Majority share holder can sell some of his stake or it can be a mix of both. how will this news affect the short-term and long-term price of the company's stock? This is opinion based and not apt for this site. It can be positive or negative depending on how the market reacts to the news.","The check is written to BigCo. Jack is being diluted, corporation issues more shares. There's no gain, no change in Jack's equity value. Jack didn't lose or win anything. BigCo was worth $1M before the additional money, it is worth $1.25M after the additional money, with Jack owning the same $1M, but the cake is now bigger (obviously the numbers are wrong in your example, but you get the point).","Employee Stock Purchase Plans (ESPPs) were heavily neutered by U.S. tax laws a few years ago, and many companies have cut them way back. While discounts of 15% were common a decade ago, now a company can only offer negligible discounts of 5% or less (tax free), and you can just as easily get that from fluctuations in the market. These are the features to look for to determine if the ESPP is even worth the effort: As for a cash value, if a plan has at least one of those features, (and you believe the stock has real long term value), you still have to determine how much of your money you can afford to divert into stock. If the discount is 5%, the company is paying you an extra 5% on the money you put into the plan.","Make sure to check the language describing the 'discount'. The company may be matching your contribution by 5% instead of a discount. You will likely be taxed on the match as compensation and your benefit would net to less than 5%. The next risk is that you've increased your exposure if your company does poorly. In the worst case scenario you could lose your wages to a layoff and your portfolio to a falling share price. Investing in other companies will diversify this risk. As for benefits, you get the 5% (less taxes) for free which isn't a bad thing in my book. Just don't put everything you own into the stock. It should be part of your overall investing strategy.","\"There is one other factor that I haven't seen mentioned here. It's easy to assume that if you buy a stock, then someone else (another stock owner) must have sold it to you. This is not true however, because there are people called \"\"market makers\"\" whose basic job is to always be available to buy shares from those who wish to sell, and sell shares to those who wish to buy. They could be selling you shares they just bought from someone else, but they also could simply be issuing shares from the company itself, that have never been bought before. This is a super oversimplified explanation, but hopefully it illustrates my point.\""],"string":"[\n \"This is an old question that has an accepted answer, but it has gotten bumped due to an edit and the answers given are incorrect. I am assuming this means that every other Friday, the company is going into the open public market, buying those shares and then giving it out to the employees. No. Companies will internally hold shares that it intends to offer employees as additional compensation. There are no open market transactions, so the market price of the stock does not change (at least not due to buying pressure). The only net effect is an equivalent expense for the compensation, but that should already be accounted for in the share price as normal operating expenses. These share may come through an initial buyback from the market, but more common is that when companies issue new shares they keep some internally for exactly this situation. If they issued new shares every pay period, it would dilute the existing shares several times a quarter which would be difficult to account for.\",\n \"Many companies actually just issue new shares for employee compensation instead of buying back existing ones. So actually, the share price should go down because the same value is now diluted over more shares. In addition, this would not necessarily affect companies with many employees than those with fewer employees because companies with more employees tend to be bigger and thus have more shares (among which the change in demand would be distributed). Also, I think many companies do not issue shares to employees every pay day, but just e.g. once every quarter.\",\n \"Let's take an example: IBM has about 430,000 employees worldwide. Assume the average yearly salary is $80K (it's probably less, since a lot of jobs are offshore). If every employee took 10% of their pay as stock, that's $132 million every two weeks. But IBM's market capitalization is about $153 billion, so stock purchases would be less than 0.1% of that.\",\n \"\\\"It depends on how the program is run. If the company runs the program out of treasury stock (shares that are authorized, but not issued), then there aren't any shares being purchased on the open market. Because of that, the share price wouldn't be affected. If you look in your employer's annual report, you will probably find how the program is run and how many shares are issued annually under that program. By comparing that to the daily trading volume of the company's stock you can gauge whether there's any likelihood of the share price being affected by the employee purchases. That is, of course, if shares are being purchased on the open market. For example, here is Books-A-Million's program, as described in their 2011 annual report: Employee Stock Purchase Plan The Company maintains an employee stock purchase plan under which shares of the Company’s common stock are reserved for purchase by employees at 85% of the fair market value of the common stock at the lower of the market value for the Company’s stock as of the beginning of the fiscal year or the end of the fiscal year. On May 20, 2010, the stockholders of the Company approved an additional 200,000 shares available for issuance under the plan, bringing the aggregate number of shares that may be awarded to 600,000. Of the total reserved shares, 391,987, 373,432 and 289,031 shares have been purchased as of January 29, 2011, January 30, 2010 and January 31, 2009, respectively. This describes an instance of the employee purchase program being run from unissued stock, not open market purchases. From it, we can tell 18,555 shares were issued during the past fiscal year. As their average daily volume is ~40,000 shares, if the program were run from a single open market purchase, it would have potential to \\\"\\\"move the market\\\"\\\". One would think, though, that a company running it from open market purchases would spread the purchases over a period of time to avoid running up the price on themselves.\\\"\",\n \"So far buying of own by own companies like Apple, is concerned it will surely raise the price of the script. At some level, the share prices are a factor of supply and demand at a given price. Apple being a very demanded script, its supply in the market goes down with the buy back. After a while, this will surely make the script price rise. It also depends at what price the buy back is affected. If the buy back is done at a right price, it will help the existing shareholder. If a very high price is paid, it will erode shareholders wealth. Hence each buy back needs to be studies separately. There are several and at times complex variables which determines if the buy back is good for continuing shareholders or not.\",\n \"Usually the amount of the ESPP stocks is very small compared to the overall volume of the trading, so it shouldn't matter. But check if for your company it not so (look at the stock history for the previous ESPP dates, and volumes).\",\n \"Buybacks do not increase the company's value. Cash is traded for outstanding shares. This is similar to a dividend, but instead of cash, investors receive a rising share-price. Whether an investor prefers a cash dividend or capital gains is less important than the outcome that their investment is gaining value for them.\",\n \"\\\"I think JB King's answer is interesting from the point of view of \\\"\\\"is this good for me\\\"\\\" but the OP's question boils down to \\\"\\\"why would a company do this?\\\"\\\" The company buys back shares when it thinks it will better position the company financially. A Simple Scenario: If Company A wants to open a new store, for example, they need to buy the land, build the store, stock it, etc, etc and this all costs money. The company can get a loan, use accrued capital, or raise new capital by issuing new stock. Each method has benefits and drawbacks. One of the drawbacks of issuing new stock is that it dilutes the existing stock's value. Previously, total company profits were split between x shares. Now the profits are shared between x+y shares, where y is the number of new shares issued to raise the capital. This normally drives the price of the stock down, since the expected future dividends per stock have decreased. Now the company has a problem: the next time they go to raise money by issuing stock, they will have to issue MORE shares to get the same value - leading to more dilution. To break out of this cycle, the company can buy back shares periodically. When the company feels the the stock is sufficiently undervalued, it buys some back. Now the profits are shared with a smaller pool, and the stock price goes up, and the next time Company A needs to raise capital, it can issue stock. So it probably has little to do with rewarding shareholders, and more to do with lowering the \\\"\\\"cost of capital\\\"\\\" for the company in the future.\\\"\",\n \"A board authorizes the repurchase of shares because they feel the stock in undervalued. The hope is that the stocks will rise either directly by their repurchase, or in the near term due to the realization that the company is in better shape then the market thought. Eventually those shares will be resold back into the market thus bring in more cash at a later date. They will set limits on them maximum they will pay, they will also spread the repurchases out over a time period so they don't overwhelm the market.\",\n \"There are two sources for shares that employees buy through ESOPs. A company can simply buy the shares on the open market. The company must pay for the stock, but the employee then pays the company for the shares. If employees get a discount on the ESOP shares, the company would pay for that percentage directly. The company can choose to issue new shares. These new shares dilute the ownership of all the other current stockholders. While #2 is common when companies issue stock options, I'd be surprised to see it with an ESOP. In most cases, employees are limited in the amount of their salary they can devote towards the ESOP. If that limit is 10% and the discount that the employees get is 10%, the cost on a per-employee basis would only be 1% of that employees salary, which is a small expense.\",\n \"the implications are that the company's earnings per share may seem greater, (after the company buys them there will be less shares outstanding), giving wall street the impression that there is more growth potential than there really is. its an accounting gimmick that can work for a few quarters while the company evaluates how else to impress wall street\",\n \"The future shares will be fewer in number, yet have claim to less cash in the bank. All in all, there's little reason the shares would rise in value. Say there are 1M shares, trading at $10. Market cap is $10M of course. Now, there happens to be $2M cash in the bank so each share had about $2 cash. By taking the $2M and buying 200K shares, 800K shares remain, but why would you think they'd be valued at $12.50? The same $10 value per share is now an $8M market cap as $2M has been disbursed, no less so than if it were given out in a dividend.\",\n \"It adds no REAL value to the company long term. Sure, existing shareholders will make some money on the rising share price after ratios are improved but at the rate these companies are doing it, don't you think it's too much? To me it shows uncertainty for the future and stifled growth. Personally I think shareholders should have the option to vote on approving repurchase plans.\",\n \"No. Not directly. A company issues stock in order to raise capital for building its business. Once the initial shares are sold to the public, the company doesn't receive additional funds from future transactions of those shares of stock between the public. However, the company could issue more shares at the new higher price to raise more capital.\",\n \"\\\"After the initial public offering, the company can raise money by selling more stock (equity financing) or selling debt (e.g. borrowing money). If a company's stock price is high, they can raise money with equity financing on more favorable terms. When companies raise money with equity financing, they create new shares and dilute the existing shareholders, so the number of shares outstanding is not fixed. Companies can also return money to shareholders by buying their own equity, and this is called a share repurchase. It's best for companies to repurchase their shared when their stock price is low, but \\\"\\\"American companies have a terrible track record of buying their own shares high and selling them low.\\\"\\\" The management of a company typically likes a rising stock price, so their stock options are more valuable and they can justify bigger pay packages.\\\"\",\n \"What most respondents are forgetting, is when a company allows its employees to purchase its shares at a discount with their salary, the employee is usually required to hold the stock for a number of years before they can sell them. The reason the company is allowing or promoting its employees to purchase its shares at a discount is to give the employees a sense of ownership of the company. Being a part owner in the company, the employee will want the company to succeed and will tend to be more productive. If employees were allowed to purchase the shares at a discount and sell them straight away, it would defeat this purpose. Your best option to decide whether or not to buy the shares is to work out if the investment is a good one as per any other investment you would undertake, i.e. determine how the company is currently performing and what its future prospects are likely to be. Regarding what percentage of pay to purchase the shares with, if you do decide to buy them, you need to work that out based on your current and future budgetary needs and your savings plan for the future.\",\n \"In most countries there are specific guidelines on buy backs. It is never a case where by one fine morning company would buy its shares and sell it whenever it wants. In general company has to pass a board resolution, sometimes it also requires it to be approved by share holders. It has to notify the exchange weeks in advance. Quite a few countries require a price offer to all. I.E. it cannot execute a market order. All in all the company may have inside information, but it cannot time the market.\",\n \"Like others have already said, it may cause an immediate dip due to a large and sudden move in shares for that particular stock. However, if there is nothing else affecting the company's financials and investors perceive no other risks, it will probably bounce back a bit, but not back to the full value before the shares were issued. Why? Whenever a company issues more stock, the new shares dilute the value of the current shares outstanding, simply because there are now more shares of that stock trading on the market; the Earnings Per Share (EPS) Ratio will drop since the same profit and company value has to be spread across more shares. Example: If a company is valued at $100 dollars and they have 25 shares outstanding, then the EPS ratio equates to $4 per share (100/25 = 4). If the company then issues more shares (stock to employees who sell or keep them), let's say 25 more shares, then shares outstanding increase to 50, but the company's value still remains at $100 dollars. EPS now equates to $2 per share (100/50 = 2). Now, sometimes when shareholders (especially employees...and especially employees who just received them) suddenly all sell their shares, this causes a micro-panic in the market because investors believe the employees know something bad about the company that they don't. Other common shareholders then want to dump their holdings for fear of impending collapse in the company. This could cause the share price to dip a bit below the new diluted value, but again if no real, immediate risks exist, the price should go back up to the new, diluted value. Example 2: If EPS was at $4 before issuing more stock, and then dropped to $2 after issuing new stock, the micro-panic may cause the EPS to drop below $2 and then soon rebound back to $2 or more when investors realize no actual risk exists. After the dilution phase plays out, the EPS could actually even go above the pre-issuing value of $4 because investors may believe that since more stock was issued due to good profits, more profits may ensue. Hope that helps!\",\n \"\\\"You are overlooking the fact that it is not only supply & demand from investors that determines the share price: The company itself can buy and sell its own shares. If company X is profitable over the long haul but pays 0 dividends then either Option (2) is pretty ridiculous, so (1) will hold except in an extreme \\\"\\\"man bites dog\\\"\\\" kind of fluke. This is connected with the well-known \\\"\\\"dividend paradox\\\"\\\", which I discussed already in another answer.\\\"\",\n \"Pre-Enron many companies forced the 401K match to be in company shares. That is no longer allowed becasue of changes in the law. Therefore most employees have only a small minority of their retirement savings in company shares. I know the ESOP and 401K aren't the same, but in my company every year the number of participants in the company stock purchase program decreases. The small number of participants and the small portion of their new retirement funds being in company shares would mean this spike in volume would be very small. The ESOP plan for my employer takes money each paycheck, then purchases the shares once a quarter. This delay would allow them to manage the purchases better. I know with a previous employer most ESOP participants only held the shares for the minimum time, thus providing a steady steam of shares being sold.\",\n \"\\\"This could be another reason. \\\"\\\"Companies buy their own stock in the market place to reduce the number of shares outstanding, and thus boosts the earnings per share. It also boosts the stock price, which benefits management that has stock options. \\\"\\\" Taken from this article. http://www.forbes.com/sites/investor/2014/01/06/the-most-reliable-indicator-of-an-approaching-market-top/ and this article \\\"\\\"Why are stock rising?\\\"\\\" may help as well. http://www.forbes.com/sites/investor/2013/12/23/why-are-stocks-rising/\\\"\",\n \"Simple, there is no magic price adjustment after sales - why do you expect the stock price to change? The listed price of a stock is what someone was willing to pay for it in the last deal that was concluded. If any amount of stock changes ownership, this might have the effect that other people are willing to buy it for a higher price - or not. It is solely in the next buyer's decision what he is willing to pay. Example: if you think Apple stocks are worth 500$ a piece, and I buy a million of them, you might still think they are worth 500$. Or you might see this as a reason that they are worth 505$ now.\",\n \"Companies do both quite often. They have opposite effects on the share price, but not on the total value to the shareholders. Doing both causes value to shareholders to rise (ie, any un-bought back shares now own a larger percentage of the company and are worth more) and drops the per-share price (so it is easier to buy a share of the stock). To some that's irrelevant, but some might want a share of an otherwise-expensive stock without paying $700 for it. As a specific example of this, Apple (APPL) split its stock in 2014 and also continued a significant buyback program: Apple announces $17B repurchase program, Oct 2014 Apple stock splits 7-to-1 in June 2014. This led to their stock in total being worth more, but costing substantially less per share.\",\n \"It basically only affects the company's dealings with its own stock, not with operational concerns. If the company were to offer more stock for sale, it would get less cash. If it had a stock buy-back program, it could buy more shares for the same money. If it was to offer to acquire another company in exchange for its own stock, the terms would be less attractive to the other company's owners. Employee stock remuneration, stock options, and so forth would be affected, so there might be considerations and tax consequences for the company.\",\n \"Not directly. But companies benefit in various ways from a higher stock price. One way a high stock price can hurt a company is that many companies do share buybacks when the price is too high. Economically speaking, a company should only buy back shares when those shares are undervalued. But, management may have incentives to do buybacks at irrationally high prices.\",\n \"The other answer has some good points, to which I'll add this: I believe you're only considering a company's Initial Public Offering (IPO), when shares are first offered to the public. An IPO is the way most companies get a public listing on the stock market. However, companies often go to market again and again to issue/sell more shares, after their IPO. These secondary offerings don't make as many headlines as an IPO, but they are typical-enough occurrences in markets. When a company goes back to the market to raise additional funds (perhaps to fund expansion), the value of the company's existing shares that are being traded is a good indicator of what they may expect to get for a secondary offering of shares. A company about to raise money desires a higher share price, because that will permit them to issue less shares for the amount of money they need. If the share price drops, they would need to issue more shares for the same amount of money – and dilute existing owners' share of the overall equity further. Also, consider corporate acquisitions: When one company wants to buy another, instead of the transaction being entirely in cash (maybe they don't have that much in the bank!), there's often an equity component, which involves swapping shares of the company being acquired for new shares in the acquiring company or merged company. In that case, the values of the shares in the public marketplace also matter, to provide relative valuations for the companies, etc.\",\n \"449 of the 500 companies in the S&P 500 used 54% of their earnings to buy back shares for over $2 trillion. Rather than invest in development, capital, human capital, bigger dividends, they're repurchasing shares to boost their EPS and increase share value in the short term. Why is this an issue? Because it shows that these companies are uneasy about the long term. It stunts growth. Doesn't have to be research, simply expansion or rewarding employees/shareholders. Employees of the company receive no benefits and bagholders may make a quick buck short term, but suffer long. Execs of the company however get fat AF checks for hitting target ratios and price. Stock buybacks enable this.\",\n \"No, I think you are misunderstanding the Math. Stock splits are a way to control relatively where the price per share can be for a company as companies can split or reverse split shares which would be similar to taking dimes and giving 2 nickels for each dime, each is 10 cents but the number of coins has varied. This doesn't create any additional value since it is still 10 cents whether it is 1 dime or 2 nickels. Share repurchase programs though are done to prevent dilution as executives and those with incentive-stock options may get shares in the company that increase the number of outstanding shares that would be something to note.\",\n \"Another reason this stock market is just one gigantic fabricated bubble. A combination of firing people (and not giving significant pay raises while making fewer employees do more work) to make profits seem higher and those buybacks. People look at me like I'm crazy\",\n \"If a company is valued correctly, then paying dividends should lower the share price, and buying back shares should leave the share price unchanged. If the share price is $100, and the company pays a $10 dividend, then either its cash goes down by $10 per share, it is has to borrow money for the same amount, or some mixture. Either way, the value of the company has gone down by $10 per share. If the share price is $100, and the company buys back 10 percent of its shares, then it also has to find the money, just as for the dividend, and the value of the company goes down by 10 percent. However, the number of shares also goes down by 10 percent, so the amount of value per share is the same, and the share price should stay unchanged. Now there are psychological effects. Many people like getting paid dividends, so they will want to own shares of a company paying dividends, so the share price goes up. Similar with a share buyback; the fact that someone buys huge amounts of shares drives the price up. Both effects are purely psychological. A buyback has another effect if the shares are not valued correctly. If the company is worth $100 per share but for some reason the shareprice is down to $50, then after the buyback the value per share has even gone up. Basically the company buys from stupid investors, which increases the value for clever investors holding on to their shares. If the shareprice were $200, then buying back shares would be a stupid move for the company.\",\n \"Would you consider the owner of a company to be supporting the company? If you buy stock in the company you own a small part of that company. Your purchase also increases the share price, and thus the value of the company. Increased value allows the company to borrow more money to say expand operations. The affect that most individuals might have on share price is very very small. That doesn't mean it isn't the right thing for you to do if it is something you believe in. After all if enough people followed those same convictions it could have an impact on the company.\",\n \"It's 5% free money, if you believe the company's stock is fairly valued and likely to grow and/or return reasonable dividends until you're ready to sell it. There's usually a minimum holding period of a few months to a year before these discounted shares can be sold; take that into account\",\n \"First, the stock does represent a share of ownership and if you have a different interpretation I'd like to see proof of that. Secondly, when the IPO or secondary offering happened that put those shares into the market int he first place, the company did receive proceeds from selling those shares. While others may profit afterward, it is worth noting that more than a few companies will have secondary offerings, convertible debt, incentive stock options and restricted stock that may be used down the road that are all dependent upon the current trading share price in terms of how useful these can be used to fund operations, pay executives and so forth. Third, if someone buys up enough shares of the company then they gain control of the company which while you aren't mentioning this case, it is something to note as some individuals buy stock so that they can take over the company which happens. Usually this has more of an overall plan but the idea here is that getting that 50%+1 control of the company's voting shares are an important piece to things here.\",\n \"\\\"#####&#009; ######&#009; ####&#009; [**Share repurchase**](https://en.wikipedia.org/wiki/Share%20repurchase): [](#sfw) --- > >__Share repurchase__ (or __stock buyback__) is the re-acquisition by a [company](https://en.wikipedia.org/wiki/Company) of its own stock. In some countries, including the [US](https://en.wikipedia.org/wiki/United_States) and the [UK](https://en.wikipedia.org/wiki/United_Kingdom), a [corporation](https://en.wikipedia.org/wiki/Corporation) can repurchase its own [stock](https://en.wikipedia.org/wiki/Stock) by distributing [cash](https://en.wikipedia.org/wiki/Cash) to existing [shareholders](https://en.wikipedia.org/wiki/Shareholder) in exchange for a fraction of the company's outstanding [equity](https://en.wikipedia.org/wiki/Shareholders%27_equity); that is, cash is exchanged for a reduction in the number of [shares outstanding](https://en.wikipedia.org/wiki/Shares_outstanding). The company either retires the repurchased shares or keeps them as [treasury stock](https://en.wikipedia.org/wiki/Treasury_stock), available for re-[issuance](https://en.wikipedia.org/wiki/Issued_capital). >Under US [corporate law](https://en.wikipedia.org/wiki/Corporations_law) there are five primary methods of stock repurchase: open market, private negotiations, repurchase '[put](https://en.wikipedia.org/wiki/Put_option)' rights and two variants of self-tender repurchase: a fixed price [tender offer](https://en.wikipedia.org/wiki/Tender_offer) and a [Dutch auction](https://en.wikipedia.org/wiki/Dutch_auction). In the late 20th and early 21st centuries, there was a sharp rise in the volume of share repurchases in the US: [US$](https://en.wikipedia.org/wiki/United_States_dollar)5 [billion](https://en.wikipedia.org/wiki/1000000000_(number\\\\)) in 1980 rose to US$349 billion in 2005. >It is relatively easy for insiders to capture insider-trading like gains through the use of \\\"\\\"open market repurchases\\\"\\\". Such transactions are legal and generally encouraged by regulators through safe-harbours against [insider trading](https://en.wikipedia.org/wiki/Insider_trading) liability. > --- ^Interesting: [^Accelerated ^share ^repurchase](https://en.wikipedia.org/wiki/Accelerated_share_repurchase) ^| [^Dividend](https://en.wikipedia.org/wiki/Dividend) ^| [^Equity ^\\\\(finance)](https://en.wikipedia.org/wiki/Equity_\\\\(finance\\\\)) ^| [^Treasury ^stock](https://en.wikipedia.org/wiki/Treasury_stock) ^Parent ^commenter ^can [^toggle ^NSFW](http://www.np.reddit.com/message/compose?to=autowikibot&subject=AutoWikibot NSFW toggle&message=%2Btoggle-nsfw+cjwf4oy) ^or[](#or) [^delete](http://www.np.reddit.com/message/compose?to=autowikibot&subject=AutoWikibot Deletion&message=%2Bdelete+cjwf4oy)^. ^Will ^also ^delete ^on ^comment ^score ^of ^-1 ^or ^less. ^| [^(FAQs)](http://www.np.reddit.com/r/autowikibot/wiki/index) ^| [^Mods](http://www.np.reddit.com/r/autowikibot/comments/1x013o/for_moderators_switches_commands_and_css/) ^| [^Magic ^Words](http://www.np.reddit.com/r/autowikibot/comments/1ux484/ask_wikibot/)\\\"\",\n \"\\\"Something to note is that when a company announces a share buyback program there is usually a time frame and amount of shares that are important details as it isn't like the company will make one big buy back of stock generally. Rather it may take months or even years as noted in the Wikipedia article about share repurchases. Wikipedia covers some of the technical details here but to give a specific set of answers: When a company announces a share buyback program, who do they actually buy back the shares from? From the Wikipedia link: \\\"\\\"Under US corporate law there are five primary methods of stock repurchase: open market, private negotiations, repurchase 'put' rights, and two variants of self-tender repurchase: a fixed price tender offer and a Dutch auction.\\\"\\\" Thus, there are open market and a couple of other possibilities. Openly traded shares on a stock exchange? Possibly, though there are other options. Is there a fixed price that they buy back at? Sometimes. I'd think a \\\"\\\"fixed price tender offer\\\"\\\" would imply a fixed price though the open market way may take various prices. If I own shares in that company, can I get them to buy back my shares? Selective Buy-Backs is noted in Wikipedia as: \\\"\\\"In broad terms, a selective buy-back is one in which identical offers are not made to every shareholder, for example, if offers are made to only some of the shareholders in the company. In the US, no special shareholder approval of a selective buy-back is required. In the UK, the scheme must first be approved by all shareholders, or by a special resolution (requiring a 75% majority) of the members in which no vote is cast by selling shareholders or their associates. Selling shareholders may not vote in favor of a special resolution to approve a selective buy-back. The notice to shareholders convening the meeting to vote on a selective buy-back must include a statement setting out all material information that is relevant to the proposal, although it is not necessary for the company to provide information already disclosed to the shareholders, if that would be unreasonable.\\\"\\\" Thus it is possible, though how probable is another question. While not in the question, something to consider is how the buybacks can be done as a result of offsetting the dilution of employees who have stock options that may exercise them and spread the earnings over more shares, but this is more on understanding the employee stock option scenario that various big companies use when it comes to giving employees an incentive to help the stock price.\\\"\",\n \"Ignoring taxes, a share repurchase has exactly the same effect on the company and the shareholders' wealth as a cash dividend. In either case, the company is disbursing cash to its shareholders; in the former, in exchange for shares which shareholders happen to be selling on the market at the time; in the latter, equally to all shareholders. For those shareholders who do not happen to be selling their shares, a share repurchase by a company is equivalent to a shareholder's reinvestment of a cash dividend in additional shares of the same company. The only difference is the total number of shares left outstanding. Your shares after a share buyback represent ownership of a greater fraction of the company, since in effect the company is buying out other shareholders on your behalf. Theoretically, a share buyback leaves the price of the stock unchanged, whereas a cash dividend tends to reduce the price of the stock by exactly the amount of the dividend, (notwithstanding underlying earnings.) This is because a share buyback concentrates your ownership in the company, but at the same time, the company as a whole is devalued by the exact amount of cash disbursed to buy back shares. Taxwise, a share buyback generally allows you to treat your share of the company's profits as capital gains---and quite possibly defer taxes on it as long as you own the stock. You usually have to pay taxes on dividends at the time they are paid. However, dividends are sometimes seen as instilling discipline in management, because it's a very public and obvious sign of distress for a company to cut its dividend, whereas a share repurchase plan can often be quietly withdrawn without drawing that much attention. A third alternative to a dividend or a share repurchase is for the company to find profitable projects to reinvest its earnings in, and attempt to grow the company as a whole (in the hopes of even greater earnings in the future) rather than distribute current earnings back to shareholders. (A company may alse use its earnings to pay down or repurchase debt, as well.) As to your second question, the SEC has certain rules that regulate the timing and price of share repurchases on the open market.\",\n \"\\\"What if everyone decided to sell all the shares at a given moment, let's say when the stock is trading at $40? I imagine supply would outweigh demand and the stock would fall. Yes this is the case. Every large \\\"\\\"Sell\\\"\\\" order results in price going down and every large \\\"\\\"Buy\\\"\\\" order results in price going up. Hence typically when large orders are being executed, they are first negotiated outside for a price and then sold at the exchange. I am not talking about Ownership change event. If a company wants a change in ownership, the buyer would be ready to pay a premium over the market price to get controlling stake.\\\"\",\n \"Let me answer by parts: When a company gives dividends, the share price drops by the dividend amount. Not always by that exact amount for many different reasons (e.g. there are transaction costs if you reinvest, dividend taxes, etc). I have tested that empirically. Now, if all the shareholders choose to reinvest their dividends, will the share price go back up to what it was prior to the dividend? That is an interesting question. The final theoretical price of the company does not need to be that. When a company distributes dividends its liquidity diminish, there is an impact on the balance sheet of the company. If all investors go to the secondary market and reinvest the dividends in the shares, that does not restore the cash in the balance sheet of the company, hence the theoretical real value of the company is different before the dividends. Of course, in practice there is not such a thing as one theoretical value. In reality, if everybody reinvest the dividend, that will put upward pressure over the price of the company and, depending on the depth of the offers, meaning how many orders will counterbalance the upward pressure at the moment, the final price will be determined, which can be higher or lower than before, not necessarily equal. I ask because some efts like SPY automatically reinvest dividends. So what is the effect of this reinvestment on the stock price? Let us see the mechanics of these purchases. When a non distributing ETF receives cash from the dividends of the companies, it takes that cash and reinvest it in the whole basket of stocks that compose the index, not just in the companies that provided the dividends. The net effect of that is a small leverage effect. Let us say you bought one unit of SPY, and during the whole year the shares pay 2% of dividends that are reinvested. At the end of that year, it will be equivalent to having 1.02 units of SPY.\",\n \"When a stock price rises, the company's assets are worth more. This doesn't mean it gets more cash directly, but it can liquidate (= sell) some of its stocks for a higher return than before.\",\n \"Okay I don't know where my disconnect was, in my mind I was viewing that as a negative for some reason haha. Thanks! That makes sense. What is your perspective on the large amount of companies buying back shares right now?\",\n \"\\\"That's a pretty good question for a six-year-old! In addition to the good answers which point out that expectations are priced in, let's deny the premises of the question: Sales do not increase the value of a company; a company could be, for example, losing money on every sale. Share prices are (at least in theory) correlated with profits. So let's suppose that company X is unprofitable 320 days a year and is relying upon sales in late November and December to be in the black for the year. (Hence \\\"\\\"black Friday\\\"\\\".) Carefully examine the supposition of this scenario: we have a company that is so unprofitable that it must gamble everything on successfully convincing bargain hunting consumers in a weak economy to buy stuff they don't actually need from them and not a competitor. Why would this inspire investor confidence? There are plenty of companies that fail to meet their sales targets at Christmas, for plenty of reasons.\\\"\",\n \"Stock trading (as opposed to IPO) doesn't directly benefit the company. But it affects their ability to raise additional funds; if they're valued higher, they don't need to sell as many shares to raise a given amount of money. And the stockholders are part owners of the company; their votes in annual corporate meetings and the like can add up to a substantial influence on the company's policies, so the company has an interest in keeping them (reasonably) happy. Dividends (distributing part of the company's profits to the stockholders) are one way of doing so. You're still investing in the company. The fact that you're buying someone else's share just means you're doing so indirectly, and they're dis-investing at the same time.\",\n \"I will never understand the logic behind this. If you buyback shares instead of funding pension liabilities... those liabilities are still there and any serious investor will factor that into the companies stock price. I guess it's just easier to be a consistent dividend grower and cater to that audience if your outstanding shares decrease.\",\n \"As said by others, buying shares of a company will not support it directly. But let's think about two example companies: Company A, which has 90 % stocks owned by supporters, and Company B, which has only 1 % of stocks owned by supporters. Both companies release bad news, for example profits have decreased. In Company B, most investors might want to sell their stock quickly and the price will plummet. In Company A, the supporters continue believing in the company and will not want to sell it. The price will drop less (usually, but it can drop even more if the sellers of Company A are very desperate to get rid of the stock). So, why is it important for the company to have a high stock price? In the short-term, it's not important. One example is that the company can release more stocks and receive more financing by doing that. Other reasons are listed here: http://www.investopedia.com/articles/basics/03/020703.asp\",\n \"Shares are partial ownership of the company. A company can issue (not create) more of the shares it owns at any time, to anyone, at any price -- subject to antitrust and similar regulations. If they wanted to, for example, flat-out give 10% of their retained interest to charity, they could do so. It shouldn't substantially affect the stock's trading for others unless there's a completely irrational demand for shares.\",\n \"The shareholders can't all re-invest their dividends -- it's not possible. Paying a dividend doesn't issue any new shares, so unless some of the existing shareholders sell their shares instead of re-investing, there aren't any shares available for the shareholders to re-invest in.\",\n \"I see a false assumption that you are making. (Almost always) When you buy stock the cash you spend does not go to the company. Instead it goes to someone else who is selling their shares. The exception to this is when you buy shares in an IPO. Those of us who have saved all our lives for retirement want income producing investments once we retire. (Hopefully) We have saved up quite a bit of money. To have us purchase their stock companies have to offer us dividends.\",\n \"Initially, Each company has 10k shares. Company B has $500k money and possibly other assets. Every company has stated purpose. It can't randomly buy shares in some other firm. Company A issued 5k new shares, which gives it $500k money. Listed companies can't make private placements without regulatory approvals. They have to put this in open market via Public issue or rights issue. Company B does the same thing, issuing 5k shares for $500k money. Company A bought those 5k shares using the $500k it just got There is no logical reason for shareholder of Company B to raise 5K from Company A for the said consideration. This would have to increase.\",\n \"It might go down a bit, or it might not. That is nearly impossible to predict, as the relative volumes are unknown, and the exact procedure is also unknown (they might do the selling over a longer period, or as a buy back, or immediately, or...) However, why would you want to wait at all? It is generally not a great idea to put your savings into the company you work for ('all eggs in one basket' - when it goes down, you lose your job and your savings), so the best approach is to pick a good day in the next weeks and sell the stock and invest into something more neutral.\",\n \"\\\"For new shares to be successfully sold, the price has to be below market price. If you currently own shares of that company, you should always get an option to buy those newly sold shares at that discounted price. The number of options depends on the relative number of shares you hold. Lets say you own 100 out of 1000 shares, currently priced at $10. 100 new shares are to be sold at $9. Since you are holding 10% of all shares, you have the option (i.e. the right) to buy 10 new (cheaper) shares (10% of 100) before anybody else can buy them. Theoretically, the money you save by getting the shares at a discounted price is equal to the money you lose by the share's value being diluted. So, if you're a shareholder and the company is increasing it's capital, you're given the right to \\\"\\\"go with it\\\"\\\".\\\"\",\n \"For the employee, this is an identical tax situation to an at-the-money option purchase. They're buying an asset with a specific cost basis. For the company, you are just issuing shares from treasury as authorized... debit cash, credit additional paid-in-capital and equity. There is no tax consequence for this money received.\",\n \"\\\"Another way to look at this is that pure insider trading is an activity with the aim to use secret information to make personal profit or let others make personal profit at the expense of the company shareholders or investors. In buybacks, it is not company managers to get personal gain in this would-be \\\"\\\"insider trading\\\"\\\". The end-winners in this case are the shareholders. So there is nothing inherently bad in buying back stock. Moreover, it is a general practice to buy shares back (as opposed to paying dividends) when the company sees its shares being undervalued (of course, provided that it has the cash/borrowing ability to implement this), since it creates shareholders value, thereby maximising shareholder wealth, which is one of the primary tasks of the company managers.\\\"\",\n \"This question is very open ended. But I'll try to answer parts of it. An employer can offer shares as part of a compensation package. Instead of paying cash the employer can use the money to buy up shares and give them to the employees. This is done to keep employees for longer periods of time and the employer may also want to create more insider ownership for a number of reasons. Another possibility is issuance of secondary offerings that are partially given to employees. Secondary offerings often lower the price of the shares in the market and create an incentive for employees to stay until the stock price rises. All of these conditions can be stipulated, look up golden handcuffs. Usually stock gifts are only given to a few high level employees and as part of a bonus package. It is very unusual to see a mature company regularly give away large amounts of stock, as this is a frowned upon practice. Start ups often pay their employees with stock up until the company is acquired or goes public.\",\n \"If a company doesn't take out loans to buy back the shares, is it still a bad move? I don't necessarily see the problem with companies retiring shares. If the shares of say Apple have a P/E ratio of 10 and the price to book value max of 1. Wouldn't it be a smart move by the company and the share holders assuming the projected net revenue will hold for at least ten years if not increase. I guess I don't know the true practice of buying back shares but at its core (could be more corrupt), I just don't see it as inherently bad.\",\n \"In an ideal world Say on 24th July the share price of Apple was $600. Everyone knows that they will get the $ 2.65 on 16th August. There is not other news that is affecting the price. You want to go in and buy the shares on 16th Morning at $600 and then sell it on 17th August at $600. Now in this process you have earned sure shot $2.65/- Or in an ideal world when the announcement is made on 24th July, why would I sell it at $600, when I know if I wait for few more days I will get $2.65/- so i will be more inclined to sell it at $602.65 /- ... so on 16th Aug after the dividend is paid out, the share price will be back to $600/- In a real world, dividend or no dividend the share price would be moving up or down ... Notice that the dividend amount is less than 1% of the stock price ... stock prices change more than this percentage ... so if you are trying to do what is described in paragraph one, then you may be disappointed as the share price may go down as well by more than $2.65 you have made\",\n \"As others have posted, the company gains capital in return for its new shares. However, the share price can still fall. The problem is that the share marked is affected by supply and demand like any other marked. If the company just issues the new shares at marked price, they will have problems finding buyers. The people who are willing to pay that price has already bought as many shares as they want. The company does this to raise capital, and depends on the shares actually selling for this to work. So, they issue shares at below marked price to attract buyers and the shares get diluted. In the end the share will usually end up somewhere between the old marked price and the issue price. The old share owners are probably not too happy about this and will not accept this plan. (At least here in Norway, share issue has to be accepted at a shareholder meeting) So, what is often done instead is to issue buy options for the required number of shares at the below-marked price. These options are given (for free) to the current share holders proportional to their current holding. If everybody exercises their options they get new cheap shares that compensates for the loss of share value. If they don't have the capital themselves, they can sell the options and get compensation that way instead.\",\n \"ESPP shares, once purchased, are just normal shares that you got at a discount. They're just as much a part of your current net wealth as any other shares of stock. What you can't do is claim that discount increases your salary, even if it does result in your effectively taking home more money. It's a benefit like the company contribution to your health plan, not a bonus.\",\n \"Not illegal, its called treasury stock; happens all the time. Its used to increase the equity (and in theory, stock price) for the remaining shareholders. A public company won't be a able to repurchase all of its shares unless the company has decided to go private. In that case, a person or other entity will usually purchase all of the outstanding shares of the company, usually at a premium.\",\n \"Companies pay their employees in stocks and stock options, so they have an incentive towards increasing a company's share price. There are many elements that go into a stock's price. For example, if you hold a stock for eternity you should be indifferent if the expected present value of all its future dividends (i.e. earnings) equals the price you paid for it. Also, buy-back policies and voting rights determine stock price as well. The theory is that since shareholders want return on their investments they would promote company executives in such a way that their incentives are aligned to increase the share price.\",\n \"> But, it seems like the pool is adding value out of nowhere! Options don't simply exercise in the void. There are proceeds from the exercise (option-holders must pay into the company). This amount is an additional investment in the company that hasn't precisely materialized yet, but is generally expected to (and is difficult to alter, as it's likely part of an employment contract).\",\n \"A Breakdown of Stock Buy Backs has this bottom line on it: Are share buybacks good or bad? As is so often the case in finance, the question may not have a definitive answer. If a stock is undervalued and a buyback truly represents the best possible investment for a company, the buyback - and its effects - can be viewed as a positive sign for shareholders. Watch out, however, if a company is merely using buybacks to prop up ratios, provide short-term relief to an ailing stock price or to get out from under excessive dilution. Read more: http://www.investopedia.com/articles/02/041702.asp#ixzz3ZHdOf2dJ What is the reason that a company like AAPL is buying back its own shares? Offsetting dilution would be my main thought here as many employees may exercise options putting more stock out there that the company buys back stock to balance things. Does it have too much cash and it doesn't know what to do with it? No as it could do dividends if it wanted to give it back to investors. So it is returning the cash back to investors? Not quite. While some investors may get cash from Apple, I'd suspect most shareholders aren't likely to see cash unless they are selling their shares so I wouldn't say yes to this without qualification. At the same time, the treasury shares Apple has can be used to give options to employees or be used in acquisitions for a couple of other purposes.\",\n \"One major benefit to being able to buy discounted company stock is that you can sell in-the-money covered calls and potentially make more than you would selling at strike.\",\n \"First: the question is irrelevant for purchases on exchange, mostly. Majority of sales on stock exchanges is between shareholders. If however you buy directly from the company (in a IPO, or direct share purchase program of some kind, like ESPP), then it does end up showing in the company account ledgers one way or another. It then become part of company's total assets, and the newly sold shares add to the equity.\",\n \"\\\"Seems like no one in this thread has heard of \\\"\\\"treasury stocks\\\"\\\", which indeed allow a company to own and sell its own stock. Think about it. When there is a stock buy-back funded by excess profits, where does that stock go?\\\"\",\n \"I think you're not applying the right time scale here. ESPP (Employee Stock Purchase Plan) is usually vesting every 6 months. So every half a year you receive a chunk of stocks based on your salary deduction, with the 15% discount. Every half a year you have a chunk of money from the sale of these stocks that you're going to put into your long term investment portfolio. That is dollar cost averaging. You're investing periodically (every 6 months in this case), same (based on your salary deferral) amount of money, regardless of the stock market behavior. That is precisely what dollar cost averaging is.\",\n \"Yes, it does matter. You are right that lower demand for a stock will drive its price down. Lower stock prices can hurt the company. Take a look at Fixee's answer to this question: a declining share price will make it hard to secure credit, attract further investors, build partnerships, etc. Also, employees are often holding options or in a stock purchase plan, so a declining share price can severely dampen morale. In an extreme case, if share prices plummet too far, the company can be pressured to reverse-split the shares, and (eventually) take the company private. This recently happened to Playboy. If you do not want to support a company, for whatever reason, then it is wise to avoid their stock.\",\n \"Everyone has a price. If nobody is selling shares, then increase the price you will buy them for. And then wait. Somebody will have some hospital bills to pay for eventually. I buy illiquid investments all the time, and thats typically what happens. Great companies do not have liquidity problems.\",\n \"If that company issues another 100 shares, shouldn't 10 of those new 100 shares be mine? Those 100 shares are an asset of the company, and you own 10% of them. When investors buy those new shares, you again own a share of the proceeds, just as you own a share of all the company's assets. A company only issues new share to raise money - it is a borrowing from investors, and in that way can be seen as an alternative to taking on loans. Both share issuing and a loan bring new capital and debt into a company. The difference is that shares don't need to be repaid.\",\n \"You have a misunderstanding about what it is. Absent differential tax treatment buybacks and dividens are the exact same. period. You're saying it yourself, not buying back stock so they can pay out dividends. What the impetus might be is irrelevant. Dividends are a use of funds competing equally with investments or higher salary.\",\n \"I actually do know what I'm talking about, no need to be rude. Believe me I understand tax advantages of each I'm subjected to them every single day at my work. I am of the belief that buybacks are great when used responsibly, however at the recent rate and scope that companies have been using them I think it's overkill and will have a negative future impact on real company growth.\",\n \"Their argument is mostly nonsense. Take someone like Tim Cook, CEO of Apple. He has a not very large salary, and makes a lot more money through stock bonuses. You would never, ever expect him to buy Apple shares. And assuming that he doesn't want to end up one day as the richest man in the cemetery, you would expect him to sell significant numbers of shares, independent on whether he expects Apple to go up or down.\",\n \"A Company start with say $100. Lets say the max it can borrow from bank is $100 @ $10 a year as Interest. After a years say, On the $200 the company made a profit of $110. So it now has total $310 Option 1: Company pays back the Bank $100 + $10. It further gave away the $100 back to shareholders as dividends. The Balance with company $100. It can again start the second year, borrow from Bank $100 @ 10 interest and restart. Option 2: Company pays back the Bank $100 + $10. It now has $200. It can now borrow $200 from Bank @ $20. After a year it makes a profit of $250. [Economics of scale result $30 more] Quite a few companies in growth phase use Option 2 as they can grow faster, achieve economies of scale, keep competition at bay, etc Now if I had a share of this company say 1 @ $1, by end of first year its value would be $2, at the end of year 2 it would be $3.3. Now there is someone else who wants to buy this share at end of year 1. I would say this share gives me 100% returns every year, so I will not sell at $2. Give me $3 at the end of first year. The buyer would think well, if I buy this at $3, first year I would notionally get $.3 and from then on $1 every year. Not bad. This is still better than other stocks and better than Bank CD etc ... So as long as the company is doing well and expected to do well in future its price keeps on increasing as there is someone who want to buy. Why would someone want to sell and not hold one: 1. Needs cash for buying house or other purposes, close to retirement etc 2. Is balancing the portfolio to make is less risk based 3. Quite a few similar reasons Why would someone feel its right to buy: 1. Has cash and is young is open to small risk 2. Believes the value will still go up further 3. Quite a few similar reasons\",\n \"Share prices fall when dividends are paid out because the paid dividend (cash out) actually reduces the value of the company. Usually the share price falls by the amount of the dividend payment.\",\n \"After a company goes public, if it wants to raise more money, then it does this by secondary public offering or rights issue. In subscription rights issue gives the right to existing share holders to buy new shares at equal proportion. So if every one buys, they maintain the same percentage of ownership. Generally the pricing is at discount to current market price. Not sure why the price is high, unless the price for this stock fell sharply recently.\",\n \"who issued stock typically support it when the stock price go down. No, not many company do that as it is uneconomical for them to do so. Money used up in buying back equity is a wasteful use of a firm's capital, unless it is doing a buyback to return money to shareholders. Does the same thing happen with government bonds? Not necessarily again here. Bond trading is very different from equities trading. There are conditions specified in the offer document on when an issuer can recall bonds(to jack up the price of an oversold bond), even government bonds have them. The actions of the government has a bigger ripple effect as compared to a firm. The government can start buying back bonds to increase it's price, but it will stoke inflation because of the increase in the supply of money in the market, which may or mayn't be desirable. Then again people holding the bond would have to incentivized to sell the bond. Even during the Greek fiasco, the Greek government wasn't buying Greek bonds as it had no capital to buy. Printing more euros wasn't an option as no assets to back the newly printed money and the ECB would have stopped them from being accepted. And generally buying back isn't useful, because they have to return the principal(which might run into billions, invested in long term projects by the government and cannot be liquidated immediately) while servicing a bond is cheaper and investing the proceeds from the bond sale is more useful while being invested in long term projects. The government can just roll over the bonds with a new issue and refrain from returning the capital till it is in a position to do so.\",\n \"In fact, buybacks WERE often considered a vehicle for insider trading, especially prior to 1982. For instance, Prior to the Reagan era, executives avoided buybacks due to fears that they would be prosecuted for market manipulation. But under SEC Rule 10b-18, adopted in 1982, companies receive a “safe harbor” from market manipulation liability on stock buybacks if they adhere to four limitations: not engaging in buybacks at the beginning or end of the trading day, using a single broker for the trades, purchasing shares at the prevailing market price, and limiting the volume of buybacks to 25 percent of the average daily trading volume over the previous four weeks.\",\n \"Erisa laws protect your retirement just like something should mandate what minimum ownership should be to classify yourself as exempt from labor laws. I like this idea a lot....however how does 1 employee present enough value to actually effect the price of their company stock? This would only work for top brass positions....which is probably the way it should be.\",\n \"There's an odd anomaly that often occurs with shares acquired through company plans via ESPP or option purchase. The general situation is that the share value above strike price or grant price may become ordinary income, but a sale below the price at day the shares are valued is a capital loss. e.g. in an ESPP offering, I have a $10 purchase price, but at the end of the offering, the shares are valued at $100. Unless I hold the shares for an additional year, the sale price contains ordinary W2 income. So, if I see the shares falling and sell for $50, I have a tax bill for $90 of W2 income, but a $50 capital loss. Tax is due on $90 (and for 1K shares, $90,000 which can be a $30K hit) but that $50K loss can only be applied to cap gains, or $3K/yr of income. In the dotcom bubble, there were many people who had million dollar tax bills and the value of the money netted from the sale couldn't even cover the taxes. And $1M in losses would take 300 years at $3K/yr. The above is one reason the lockup date expiration is why shares get sold. And one can probably profit on the bigger companies stock. Edit - see Yelp down 3% following expiration of 180 day IPO lock-up period, for similar situation.\",\n \"Some companies offer discounts for shareholders. I believe Disney used to do so, for example; if your family was doing the Disneyland-every-year routine that could be a significant benefit.\",\n \"Other than the guaranteed 5% bonus (assuming you sell it right away), no benefits. Keep in mind that the price from which the discount is calculated is not necessarily the market price at the date of the ESPP purchase, so the actual discount may be more than 5% (depending on the volatility of the stock - much more).\",\n \"Yes but this also goes against the idea that somehow, after injecting more of their money into the firm by exercising their rights, shareholder wealth still remains the same? So if shareholders also injected cash, how come their total wealth didn't change?\",\n \"There are two things to consider: taxes - beneficial treatment for long-term holding, and for ESPP's you can get lower taxes on higher earnings. Also, depending on local laws, some share schemes allow one to avoid some or all on the income tax. For example, in the UK £2000 in shares is treated differently to 2000 in cash vesting - restricted stocks or options can only be sold/exercised years after being granted, as long as the employee keeps his part of the contract (usually - staying at the same place of works through the vesting period). This means job retention for the employees, that's why they don't really care if you exercise the same day or not, they care that you actually keep working until the day when you can exercise arrives. By then you'll get more grants you'll want to wait to vest, and so on. This would keep you at the same place of work for a long time because by quitting you'd be forfeiting the grants.\",\n \"Companies already have to protect themselves against employees trading the company's shares with insider information. They typically do that in a number of ways: Taken together, this tends to mostly mitigate the risk of employees trading with insider information, though it's probably not perfect. In practice, the company itself's knowledge of insider information is the same as that of its senior management. So it makes sense for a company to be allowed to trade under the same conditions as its senior management. From https://corpgov.law.harvard.edu/2013/03/14/questions-surrounding-share-repurchases/ : If the company is repurchasing outside of a Rule 10b5-1 trading plan, it should limit its purchases to open window periods when officers and directors are able to buy and sell securities of the company. In addition, the company also can choose to disclose any material non-public information prior to any share repurchase if it is in possession of material non-public information at a time when it is seeking to make a share repurchase outside of a Rule 10b5-1 trading plan. As mentioned in the quote, a company can also set up a trading plan in advance (at a time when it doesn't have inside information) to be executed unconditionally in the future. Then even if the company comes into possession of inside information, it won't be using this knowledge to direct trades.\",\n \"Not directly Nintendo, but: A company would want its share price to be high if it wants to sell its stock, e.g. on IPO or on subsequent offerings. However, if they want to buy back some shares, it would be in their interest to get more stock for the buck. There may of course be derivative values associated with a high share price, e.g. if they bet on the price or have agreements with investors for particular milestones to be reached. Employees might hold shares and be motivated by share price increases, so a decrease may not be desired, unless they are into some kind of insider trading (buy low, sell high). And last, over-valued share prices may undermine trust in a company, and failing to inform shareholders sufficiently may be outright illegal. Besides those reasons related to law, funding, sales, public relations and company image, companies should be pretty much independent from their own share prices, in contrast to share distribution.\",\n \"Yes, the net effect is zero. If you own zero shares by Nov 30, for example, and don't buy any more shares by 12/31, the year is done, and nothing left to account for.\",\n \"This is not right. Inferring the employee stock pool’s takeaway is not as easy as just taking a fraction of the purchase price. As an example, that wouldn’t account for any preferred returns of other ownership classes, among other things. All considered though, it’s reasonable to assume that the employee stock pool will get some premium. Best of luck.\",\n \"The moment the dividend is announced, especially from a company that doesn't normally pay dividends, the dividend is factored into everybody's analysis. In the absence of any other news the price of apple would be expected to drop once the dividend in locked in. Why would I buy shares from you at full price one day after the dividend is paid, if I will have to wait for the next dividend? Also keep in mind the dividend was announced on July 24th, and is given to shareholders of record on August 13th. You are way behind the curve.\",\n \"Are you really talking about share price, or share value? Because what about stock splits? Market Cap stays the same, but the price per share is lowered. This is so that the stock is more liquid and accessible to a greater number of investors. This encourages people to invest in the stock though. I can't really think of any reasons why a company would want to lower their share value or discourage people from investing unless they are trying to reacquire shares. Returning value to the shareholders is the #1 priority of any publicly traded company.\",\n \"As littleadv says it depends on the local laws. Normally one shouldn't be too worried. Typically the stocks given to the employees are a very small portion of the overall stocks ... the owners would not try to jeopardize the deal just so that they make an incrementally small amount of money ... they would rather play safe than get into such a practice.\",\n \"Is this an employee stock purchase plan (ESPP)? If so, and there is no required holding period, selling right away is essentially a guaranteed bonus with minimal risk. One caveat is that sometimes it takes a while to actually receive the shares at your brokerage, and in the meantime your company may have an earnings report that could cause the share price to drop. If your discount is only 5%, for example, a bad earnings report could easily wipe that out. The only other cons I can think of is ESPP contributions being withheld from you for months (albeit for a virtually guaranteed return), and it complicates your taxes a bit. On the flip side, another pro is that after you sell the shares, you are more likely to invest that money rather than spend it.\",\n \"A 15% discount is a 17.6% return. (100/85 = 1.176). For a holding period that's an average 15.5 days, a half month. It would be silly to compound this over a year as the numbers are limited. The safest way to do this is to sell the day you are permitted. In effect, you are betting, 12 times a year, that the stock won't drop 15% in 3 days. You can pull data going back decades, or as long as your company has been public, and run a spreadsheet to see how many times, if at all, the stock has seen this kind of volatility over 3 day periods. Even for volatile stocks, a 15% move is pretty large, you're likely to find your stock doing this less than once per year. It's also safest to not accumulate too many shares of your company for multiple reasons, having to do with risk spreading, diversification, etc. 2 additional points - the Brexit just caused the S&P to drop 4% over the last 3 days trading. This was a major world event, but, on average we are down 4%. One would have to be very unlucky to have their stock drop 15% over the specific 3 days we are discussing. The dollars at risk are minimal. Say you make $120K/yr. $10K/month. 15% of this is $1500 and you are buying $1765 worth of stock. The gains, on average are expected to be $265/mo. Doesn't seem like too much, but it's $3180 over a years' time. $3180 in profit for a maximum $1500 at risk at any month's cycle.\",\n \"RonJohn is right, all shares are owned by someone. Depending on the company, they can be closely held so that nobody wants to sell at a given time. This can cause the price people are offering to rise until someone sells. That trade will cause an adjustment in the ticker price of that stock. Supply and demand at work. Berkshire Hathaway is an example of this. The number of shares is low, the demand for them is high, the price per share is high.\",\n \"What you want is a cashless transaction. It's part of the normal process. My employer gives me 1000 options at $1, I never need to come up with the money, the shares are bought and sold in one set of transactions, and if the stock is worth $10, I see $9000 less tax withholding, hit the account. No need for me to come up with that $1000.\",\n \"I agree with the other comments that you should not buy/hold your company stock even if given at a discount. If equity is provided as part of the compensation package (Options/Restrictive Stock Units RSU)then this rule does not apply. As a matter of diversification, you should not have majority equity stake of other companies in the same sector (e.g. technology) as your employer. Asset allocation and diversification if done in the right way, takes care of the returns. Buying and selling on the same day is generally not allowed for ESPP. Taxation headaches. This is from personal experience (Cisco Systems). I had options issued in Sept 2008 at 18$ which vested regularly. I exited at various points - 19$,20$,21$,23$ My friend held on to all of it hoping for 30$ is stuck. Options expire if you leave your employment. ESPP shares though remain.\",\n \"\\\"The short version of JB King's excellent answer is that the company will typically buy back shares from the open market at market price. Sometimes, it will specifically target larger stakeholders, even controlling interests, who are making noise that they want to divest; if such an investor were to just dump their stock on the open market, neither the investor nor the company would be very happy with the resulting price collapse. In those cases, the company may offer an incentive price above market rates. In recent times, the investor looking to divest has often been the U.S. Government, who received stock in return for bailouts, and (with notable exceptions) turned a modest profit on many of them. Not enough to break even on the entire bailout, but the Government didn't just throw $700 billion in taxpayer money down a hole as conservative pundits would have you believe. In the '80s, a specific type of buy-back was made famous, called the \\\"\\\"leveraged buyout\\\"\\\". Basically, the company took out a huge loan against itself, and used that money to buy up all the company's publicly-traded shares, essentially becoming a private company. This became a popular tool among private equity groups, for better and worse.\\\"\",\n \"Is it normal for such transactions to create new outstanding shares? Yes a company can create new shares or a Majority share holder can sell some of his stake or it can be a mix of both. how will this news affect the short-term and long-term price of the company's stock? This is opinion based and not apt for this site. It can be positive or negative depending on how the market reacts to the news.\",\n \"The check is written to BigCo. Jack is being diluted, corporation issues more shares. There's no gain, no change in Jack's equity value. Jack didn't lose or win anything. BigCo was worth $1M before the additional money, it is worth $1.25M after the additional money, with Jack owning the same $1M, but the cake is now bigger (obviously the numbers are wrong in your example, but you get the point).\",\n \"Employee Stock Purchase Plans (ESPPs) were heavily neutered by U.S. tax laws a few years ago, and many companies have cut them way back. While discounts of 15% were common a decade ago, now a company can only offer negligible discounts of 5% or less (tax free), and you can just as easily get that from fluctuations in the market. These are the features to look for to determine if the ESPP is even worth the effort: As for a cash value, if a plan has at least one of those features, (and you believe the stock has real long term value), you still have to determine how much of your money you can afford to divert into stock. If the discount is 5%, the company is paying you an extra 5% on the money you put into the plan.\",\n \"Make sure to check the language describing the 'discount'. The company may be matching your contribution by 5% instead of a discount. You will likely be taxed on the match as compensation and your benefit would net to less than 5%. The next risk is that you've increased your exposure if your company does poorly. In the worst case scenario you could lose your wages to a layoff and your portfolio to a falling share price. Investing in other companies will diversify this risk. As for benefits, you get the 5% (less taxes) for free which isn't a bad thing in my book. Just don't put everything you own into the stock. It should be part of your overall investing strategy.\",\n \"\\\"There is one other factor that I haven't seen mentioned here. It's easy to assume that if you buy a stock, then someone else (another stock owner) must have sold it to you. This is not true however, because there are people called \\\"\\\"market makers\\\"\\\" whose basic job is to always be available to buy shares from those who wish to sell, and sell shares to those who wish to buy. They could be selling you shares they just bought from someone else, but they also could simply be issuing shares from the company itself, that have never been bought before. This is a super oversimplified explanation, but hopefully it illustrates my point.\\\"\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["Let's take an example: IBM has about 430,000 employees worldwide. Assume the average yearly salary is $80K (it's probably less, since a lot of jobs are offshore). If every employee took 10% of their pay as stock, that's $132 million every two weeks. But IBM's market capitalization is about $153 billion, so stock purchases would be less than 0.1% of that.","This is an old question that has an accepted answer, but it has gotten bumped due to an edit and the answers given are incorrect. I am assuming this means that every other Friday, the company is going into the open public market, buying those shares and then giving it out to the employees. No. Companies will internally hold shares that it intends to offer employees as additional compensation. There are no open market transactions, so the market price of the stock does not change (at least not due to buying pressure). The only net effect is an equivalent expense for the compensation, but that should already be accounted for in the share price as normal operating expenses. These share may come through an initial buyback from the market, but more common is that when companies issue new shares they keep some internally for exactly this situation. If they issued new shares every pay period, it would dilute the existing shares several times a quarter which would be difficult to account for.","Many companies actually just issue new shares for employee compensation instead of buying back existing ones. So actually, the share price should go down because the same value is now diluted over more shares. In addition, this would not necessarily affect companies with many employees than those with fewer employees because companies with more employees tend to be bigger and thus have more shares (among which the change in demand would be distributed). Also, I think many companies do not issue shares to employees every pay day, but just e.g. once every quarter.","Pre-Enron many companies forced the 401K match to be in company shares. That is no longer allowed becasue of changes in the law. Therefore most employees have only a small minority of their retirement savings in company shares. I know the ESOP and 401K aren't the same, but in my company every year the number of participants in the company stock purchase program decreases. The small number of participants and the small portion of their new retirement funds being in company shares would mean this spike in volume would be very small. The ESOP plan for my employer takes money each paycheck, then purchases the shares once a quarter. This delay would allow them to manage the purchases better. I know with a previous employer most ESOP participants only held the shares for the minimum time, thus providing a steady steam of shares being sold."],"string":"[\n \"Let's take an example: IBM has about 430,000 employees worldwide. Assume the average yearly salary is $80K (it's probably less, since a lot of jobs are offshore). If every employee took 10% of their pay as stock, that's $132 million every two weeks. But IBM's market capitalization is about $153 billion, so stock purchases would be less than 0.1% of that.\",\n \"This is an old question that has an accepted answer, but it has gotten bumped due to an edit and the answers given are incorrect. I am assuming this means that every other Friday, the company is going into the open public market, buying those shares and then giving it out to the employees. No. Companies will internally hold shares that it intends to offer employees as additional compensation. There are no open market transactions, so the market price of the stock does not change (at least not due to buying pressure). The only net effect is an equivalent expense for the compensation, but that should already be accounted for in the share price as normal operating expenses. These share may come through an initial buyback from the market, but more common is that when companies issue new shares they keep some internally for exactly this situation. If they issued new shares every pay period, it would dilute the existing shares several times a quarter which would be difficult to account for.\",\n \"Many companies actually just issue new shares for employee compensation instead of buying back existing ones. So actually, the share price should go down because the same value is now diluted over more shares. In addition, this would not necessarily affect companies with many employees than those with fewer employees because companies with more employees tend to be bigger and thus have more shares (among which the change in demand would be distributed). Also, I think many companies do not issue shares to employees every pay day, but just e.g. once every quarter.\",\n \"Pre-Enron many companies forced the 401K match to be in company shares. That is no longer allowed becasue of changes in the law. Therefore most employees have only a small minority of their retirement savings in company shares. I know the ESOP and 401K aren't the same, but in my company every year the number of participants in the company stock purchase program decreases. The small number of participants and the small portion of their new retirement funds being in company shares would mean this spike in volume would be very small. The ESOP plan for my employer takes money each paycheck, then purchases the shares once a quarter. This delay would allow them to manage the purchases better. I know with a previous employer most ESOP participants only held the shares for the minimum time, thus providing a steady steam of shares being sold.\"\n]","isConversational":false}}},{"rowIdx":399,"cells":{"_id":{"kind":"string","value":"588"},"query":{"kind":"string","value":"Is there a reason to buy a 0% yield bond?"},"gt_ids":{"kind":"list like","value":["570546","203710"],"string":"[\n \"570546\",\n \"203710\"\n]","isConversational":false},"gt_qrels":{"kind":"list like","value":[1,1],"string":"[\n 1,\n 1\n]","isConversational":false},"candidate_ids":{"kind":"list like","value":["203710","570546","8901","439010","564496","184838","583577","166885","76965","519470","296980","347662","343","286226","304679","20354","481683","130727","130201","211026","2085","306679","104254","574011","30324","231181","482957","484486","328499","272318","294761","55441","121716","146033","122581","310601","112659","305061","480318","582501","140088","10526","570526","457729","498645","212975","419986","60379","269550","590364","393791","553318","431386","203521","155701","107424","325370","335064","215189","518860","34925","31581","535518","286679","289291","31139","462697","160625","487616","83330","379615","342485","283202","124862","338150","260984","104160","29073","182195","296420","274818","208224","269055","451923","89181","140189","538064","353322","516629","288663","535670","294","481312","260756","228668","122491","582035","506298","256950","574659"],"string":"[\n \"203710\",\n \"570546\",\n \"8901\",\n \"439010\",\n \"564496\",\n \"184838\",\n \"583577\",\n \"166885\",\n \"76965\",\n \"519470\",\n \"296980\",\n \"347662\",\n \"343\",\n \"286226\",\n \"304679\",\n \"20354\",\n \"481683\",\n \"130727\",\n \"130201\",\n \"211026\",\n \"2085\",\n \"306679\",\n \"104254\",\n \"574011\",\n \"30324\",\n \"231181\",\n \"482957\",\n \"484486\",\n \"328499\",\n \"272318\",\n \"294761\",\n \"55441\",\n \"121716\",\n \"146033\",\n \"122581\",\n \"310601\",\n \"112659\",\n \"305061\",\n \"480318\",\n \"582501\",\n \"140088\",\n \"10526\",\n \"570526\",\n \"457729\",\n \"498645\",\n \"212975\",\n \"419986\",\n \"60379\",\n \"269550\",\n \"590364\",\n \"393791\",\n \"553318\",\n \"431386\",\n \"203521\",\n \"155701\",\n \"107424\",\n \"325370\",\n \"335064\",\n \"215189\",\n \"518860\",\n \"34925\",\n \"31581\",\n \"535518\",\n \"286679\",\n \"289291\",\n \"31139\",\n \"462697\",\n \"160625\",\n \"487616\",\n \"83330\",\n \"379615\",\n \"342485\",\n \"283202\",\n \"124862\",\n \"338150\",\n \"260984\",\n \"104160\",\n \"29073\",\n \"182195\",\n \"296420\",\n \"274818\",\n \"208224\",\n \"269055\",\n \"451923\",\n \"89181\",\n \"140189\",\n \"538064\",\n \"353322\",\n \"516629\",\n \"288663\",\n \"535670\",\n \"294\",\n \"481312\",\n \"260756\",\n \"228668\",\n \"122491\",\n \"582035\",\n \"506298\",\n \"256950\",\n \"574659\"\n]","isConversational":false},"candidate_docs":{"kind":"list like","value":["No, there isn't. There are a number of reasons that institutions buy these bonds but as an individual you're likely better off in a low-yield cash account. By contrast, there would be a reason to hold a low-yield (non-zero) bond rather than an alternative low-yield product.","0% bonds are desirable for some individuals. It depends on your situation. 0% bonds are usually sold well below par value (eg a 100$ face value bond for 2020 might sell for 90$ today) Hence, your gains will be CAPITAL GAINS. A similar investment paying interest would be taxed as INCOME, and smaller portion of capital gains. In many countries (US, Canada) Capital gains are taxed at a more favourable rate then income. This is especially true when holding these investments in corporations.","Virtually zero risk of default; safety; diversification; guaranteed fixed income albeit very low; portfolio diversifier so it reduces total volatility; plus yields might drop even lower thus increasing the price of the bond. Very unlikely given how obscenely low yields already are but still possible. I thought nobody would ever buy a 10yr @ 3% and now look, rates are almost half as much and those 3% bonds are worth a lot more now on the secondary market. Timing the bond market is really hard.","It would be preferable to purchase a bond with a negative yield if the negative yield was the smallest compared to similar financial securities. The purchase or sale of a security is rarely a mutually exclusive event. An individual may have personal reasons or a desire to contribute to the activity the bond is financing. To an entity, the negative yield bond may be part of a cost averaging plan, diversification strategy, a single leg of a multi-leg transaction, or possibly to aid certainty as a hedge in a pairs trade. And of course there may be other unique situations specific to the entity. Said another way, is the Queen of Spades a good card? It depends on the game being played and what is in your hand.","Possibly you could use it as a hedging instrument if it's correlated in some way with another asset you're holding. Even though it seems you're losing money with such a bond, that loss might be less than the hedging costs associated with other instruments.","The question in my view is going into Opinion and economics. Why would I buy a bond with a negative yield? I guess you have answered yourself; Although the second point is more relevant for high net worth individual or large financial institutions / Governments where preserving cash is an important consideration. Currently quite a few Govt Bonds are in negative as most Govt want to encourage spending in an effort to revive economy.","There is another reason why an investor might buy negative yielding bonds: if the investor expects that bond yields will go even further negative, then they are also expecting the price of the bond to go up. They can resell the bond later at a profit. As an example, they may expect an increase in central bank bond purchases to drive yields lower and prices higher.","You have no idea where interest rates will go. A year or two ago people thought 3% was absurdly low, why buy them? And then interest rates dropped even further, so the people who bought then got more interest AND the present value went up since then. If you'd done nothing you would have lost money. Now, rates are REALLY absurdly low. What do? Well, they could drop even more! It's possible. We could also have 20 years of flatline - see Japan. Sitting on your hands loses money. What else should you do? Put your money in risky equities? A lot of people these days are buying dividend paying stocks now. It's extremely foolhardy to treat stocks as fixed income because they are very far from it. Overextending yourself and taking on too equity risk, IMO, is FAR more risky than accepting low interest rates+interest rate risk. Finally: I don't exactly use bonds to make money, I use it as a safe haven while I wait for stocks to do something. Stocks go up, I sell some and buy bonds. Bonds go up I sell them and buy more stock. It's nice to get a little interest on the side but not critical. I could use cash (or 1month tbills) but I'm comfortable with the amount of risk-return that 5-10year bonds provide.","Yeah my question was just out of curiosity. Though I do wonder, given that bond prices are so low, they inevitably will have to go up right? So why does anyone bother to buy them in the first place?","Is your question academic curiosity or are you thinking of buying bonds? Be aware that bond interest rates are near all-time lows, and if interest rates were to rise, the prices of bonds could fall. Those buying bonds today are taking unusually large risk of capital loss.","As well as credit risk there's also interest risk. If a bond has a face value of $100, pays 1% and matures in 20 years' time then you expect to receive a total of $120 from buying it now -- $1 per year for 20 years and $100 at the end. But if you can get a 3% return elsewhere, then if you invest your $80 there instead you will get $2.40 per year for 20 years and then $80 at the end, making a total of $128 (and you also get more of the money sooner). So even $80 for the $100 bond is a bad buy, and you should invest elsewhere.","The reason the market value is low is because the market does not believe that the company or country will pay. Another reason for it to go down is lack of liquidity in the market. However if you believe that the conditions would improve by the time bond matures, and you don't need money right now, then you can wait for maturity and get the maturity value.","The only reason I can think of would be if you were convinced that you couldn't hold on to your money. Treasury Bonds are often viewed as very safe investments, and often used in some situations where cash isn't appropriate.. Also, they typically have a somewhat patriotic theme, helping your country to grow. In addition, many people don't really pay attention to the rate of the bonds, but are just investing in them. The more people investing in them, the lower the yields become. But the bottom line is, I would invest in a savings account any day over a negative interest rate... And it looks like I'm in good company as well, a quick study of reports seems to indicate that these are a very bad investment...","Risk is reduced but isn't zero The default risk is still there, the issuer can go bankrupt, and you can still loose all or some of your money if restructuring happens. If the bond has a callable option, the issuer can retire them if conditions are favourable for the issuer, you can still loose some of your investment. Callable schedule should be in the bond issuer's prospectus while issuing the bond. If the issuer is in a different country, that brings along a lot of headaches of recovering your money if something goes bad i.e. forex rates can go up and down. YTM, when the bond was bought was greater than risk free rate(govt deposit rates) Has to be greater than the risk free rate, because of the extra risk you are taking. Reinvestment risk is less because of the short term involved(I am assuming 2-3 years at max), but you should also look at the coupon rate of your bond, if it isn't a zero-coupon bond, and how you invest that. would it be ideal to hold the bond till maturity irrespective of price change It always depends on the current conditions. You cannot be sure that everything is fine, so it pays to be vigilant. Check the health of the issuer, any adverse circumstances, and the overall economy as a whole. As you intend to hold till maturity you should be more concerned about the serviceability of the bond by the issuer on maturity and till then.","Supply and demand for a particular bond may be such that the market price exceeds the par value for the bond at maturity. This is when you get a negative yield. Especially when volatility is high, people will actually pay money to park it in treasuries for an amount of time. But when compared to a > 25% vol in the equities market over that same period, taking a 5% or less hit doesn't sound nearly as bad!","\"You ask a question, \"\"Is there any real purpose in purchasing bonds?\"\" and then appear to go off on a rant. Before the question is closed by members here, let me offer this: This chart reflects the 10 year bond rate. From 1960-2004 (give or take) the coupon rate was over 4%. Asset allocation suggests a mix of stocks and bonds seeking to avoid the risk of having \"\"all of one's eggs in one basket.\"\" To that end, the simplest approach is a stock/bond mix. Over time, a 70/30 mix provides nearly 95% of the long tern return, but with a much lower volatility. I'm not going to suggest that a 2% 10 year bond is an exciting investment, but bonds may have a place in one's portfolio. I'm not going to debate each and every point you attempted, but #5 is especially questionable. If you feel this is true, you should short bonds. Or you should at least 99% of the time. Do you have data to back up this statement?\"","\"Here are my reasons as to why bonds are considered to be a reasonable investment. While it is true that, on average over a sufficiently long period of time, stocks do have a high expected return, it is important to realize that bonds are a different type of financial instrument that stocks, and have features that are attractive to certain types of investors. The purpose of buying bonds is to convert a lump sum of currency into a series of future cash flows. This is in and of itself valuable to the issuer because they would prefer to have the lump sum today, rather than at some point in the future. So we generally don't say that we've \"\"lost\"\" the money, we say that we are purchasing a series of future payments, and we would only do this if it were more valuable to us than having the money in hand. Unlike stocks, where you are compensated with dividends and equity to take on the risks and rewards of ownership, and unlike a savings account (which is much different that a bond), where you are only being paid interest for the time value of your money while the bank lends it out at their risk, when you buy a bond you are putting your money at risk in order to provide financing to the issuer. It is also important to realize that there is a much higher risk that stocks will lose value, and you have to compare the risk-adjusted return, and not the nominal return, for stocks to the risk-adjusted return for bonds, since with investment-grade bonds there is generally a very low risk of default. While the returns being offered may not seem attractive to you individually, it is not reasonable to say that the returns offered by the issuer are insufficient in general, because both when the bonds are issued and then subsequently traded on a secondary market (which is done fairly easily), they function as a market. That is to say that sellers always want a higher price (resulting in a lower return), and buyers always want to receive a higher return (requiring a lower price). So while some sellers and buyers will be able to agree on a mutually acceptable price (such that a transaction occurs), there will almost always be some buyers and sellers who also do not enter into transactions because they are demanding a lower/higher price. The fact that a market exists indicates that enough investors are willing to accept the returns that are being offered by sellers. Bonds can be helpful in that as a class of assets, they are less risky than stocks. Additionally, bonds are paid back to investors ahead of equity, so in the case of a failing company or public entity, bondholders may be paid even if stockholders lose all their money. As a result, bonds can be a preferred way to make money on a company or government entity that is able to pay its bills, but has trouble generating any profits. Some investors have specific reasons why they may prefer a lower risk over time to maximizing their returns. For example, a government or pension fund or a university may be aware of financial payments that they will be required to make in a particular year in the future, and may purchase bonds that mature in that year. They may not be willing to take the risk that in that year, the stock market will fall, which could force them to reduce their principal to make the payments. Other individual investors may be close to a significant life event that can be predicted, such as college or retirement, and may not want to take on the risk of stocks. In the case of very large investors such as national governments, they are often looking for capital preservation to hedge against inflation and forex risk, rather than to \"\"make money\"\". Additionally, it is important to remember that until relatively recently in the developed world, and still to this day in many developing countries, people have been willing to pay banks and financial institutions to hold their money, and in the context of the global bond market, there are many people around the world who are willing to buy bonds and receive a very low rate of return on T-Bills, for example, because they are considered a very safe investment due to the creditworthiness of the USA, as well as the stability of the dollar, especially if inflation is very high in the investor's home country. For example, I once lived in an African country where inflation was 60-80% per year. This means if I had $100 today, I could buy $100 worth of goods, but by next year, I might need $160 to buy the same goods I could buy for $100 today. So you can see why simply being able to preserve the value of my money in a bond denominated in USA currency would be valuable in that case, because the alternative is so bad. So not all bondholders want to be owners or make as much money as possible, some just want a safe place to put their money. Also, it is true for both stocks and bonds that you are trading a lump sum of money today for payments over time, although for stocks this is a different kind of payment (dividends), and you only get paid if the company makes money. This is not specific to bonds. In most other cases when a stock price appreciates, this is to reflect new information not previously known, or earnings retained by the company rather than paid out as dividends. Most of the financial instruments where you can \"\"make\"\" money immediately are speculative, where two people are betting against each other, and one has to lose money for the other to make money. Again, it's not reasonable to say that any type of financial instrument is the \"\"worst\"\". They function differently, serve different purposes, and have different features that may or may not fit your needs and preferences. You seem to be saying that you simply don't find bond returns high enough to be attractive to you. That may be true, since different people have different investment objectives, risk tolerance, and preference for having money now versus more money later. However, some of your statements don't seem to be supported by facts. For example, retail banks are not highly profitable as an industry, so they are not making thousands of times what they are paying you. They also need to pay all of their operating expenses, as well as account for default risk and inflation, out of the different between what they lend and what they pay to savings account holders. Also, it's not reasonable to say that bonds are worthless, as I've explained. The world disagrees with you. If they agreed with you, they would stop buying bonds, and the people who need financing would have to lower bond prices until people became interested again. That is part of how markets work. In fact, much of the reason that bond yields are so low right now is that there has been such high global demand for safe investments like bonds, especially from other nations, such that bond issues (especially the US government) have not needed to pay high yields in order to raise money.\"","\"The answer is yes. And the reason is if today's interest rates are lower than the interest rate (coupon) at which the bond was issued. The bond's \"\"lifetime value\"\" is 100 cents on the dollar. That's the principal repayment that the investor will get on the maturity date. But suppose the bond's coupon rate is 4% while today's interest rate is 3%. Then, people who bought the bond at 100 would get 4% on their money, while everyone else was getting 3%. To compensate, a three year bond would have to rise to almost 103 so that the so-called yield to maturity\"\" would be 3%. Then there would be a \"\"capital loss\"\" (from almost 103 to 100) that would exactly offset the extra interest, that is 1% \"\"more\"\" for three years. If today's interest rates are negative (as they were from time to time in the 1930s, and in the present decade), the \"\"negative\"\" interest rates will prevent the buyer from getting the \"\"lifetime value\"\" (as defined by the OP) of principal plus interest over the original life of the bond. This happens in a \"\"flight to quality\"\" situation, where people are willing to take a (small) capital loss on Treasuries in order to prevent a large possible loss from bank failures like those that took place in 2008.\"","The only reason I can think of is that the bonds are bought automatically by some investment pools, groups or institutions. That will stop very quickly once the management finds some other place to put the money.","It can be zero or negative given the current market conditions. Any money parked with treasury bonds is 100% risk free. So if I have a large amount of USD, and need a safe place to keep, then in today's environment even the banks (large as well) are at risk. So if I park my money with some large bank and that bank goes bankrupt, my money is gone for good. After a long drawn bankruptcy procedure, I may get back all of it or some of it. Even if the bank does not go bankrupt, it may face liquidity crises and I may not be able to withdraw when I want. Hence it's safer to keep it in Treasury bonds even though I may not gain any interest, or even lose a small amount of money. At least it will be very safe. Today there are very few options for large investors (typically governments and institutional investors.) The Euro is facing uncertainty. The Yuan is still regulated. There is not enough gold to buy (or to store it.) Hence this leads towards the USD. The very fact that USD is safe in today's environment is reflected in the Treasury rates.","In a secular bull market, strong investor sentiment drives prices higher, as participants, over time, are net buyers. Secular markets are typically driven by large-scale national and worldwide events... demographic/ population shifts, governmental policies... bear market periods occur within the longer interval, but do not reverse the trend. There are still many reasons to buy the long bond, despite the lack of yield (nearly flat term structure of interest rates). Despite the recent credit ratings agency downgrades of U.S. sovereign risk, the T-bond offers greater relative security than many alternatives. If Germany were NOT part of the EU, its government bonds would be issued by the Bundesbank, denominated in Deutsche Marks. German government bonds would probably be a better choice than the U.S. Treasury's 30-year bond. Long-term maturity U.S. Treasuries are in demand by investment and portfolio managers because:","\"First note that CIBC issued these bonds with a zero coupon, so they do not pay any interest. They were purchased by the market participants at a small premium, paying an average of 100.054 for a nominal value of 100. This equates to a negative annual \"\"redemption\"\" yield of 0.009% - i.e., if held until maturity, then the holder will witness a negative annual return of 0.009%. You ask \"\"why does this make sense?\"\". Clearly it makes no sense for a private individual to purchase these bonds since they will be better off simply holding cash. To understand why there is a demand for these bonds we need to look elsewhere. The European bond market is currently suffering a dwindling supply owing to the ECBs bond buying programme (i.e., quantitative easing). The ECB is purchasing EUR 80 billion per month of Eurozone sovereign debt. This means that the quantity of high grade bonds available for purchase is shrinking fast. Against this backdrop we have all of those European institutions and financial corporations who are legally obliged to purchase bonds to be held as assets against their obligations. These are mostly national and private pension funds as well as insurance companies and fund managers. In this sort of environment, the price of high quality bonds is quickly bid up to the point where we see negative yields. In this environment companies like CIBC can borrow by issuing bonds with a zero coupon and the market is willing to pay a small premium over their nominal value. TL/DR The situation is further complicated by the subdued inflation outlook for the Eurozone, with a very real possibility of deflation. Should a prolonged period of deflation materialise, then negative redemption yield bonds may provide a positive real return.\"","Many folks use bonds to diversify their portfolio since bonds rise and fall in value at different times and for different reasons than stocks. Bonds pay interest on a regular basis (usually monthly or quarterly) and so some people invest in bonds in order to match the interest payments to some regular expense they might have. The interest payment does not change (fixed income). For individual bonds, there is a maturity date at which you can expect to receive the face value of the bond (the issuer's creditworthiness is important here). You can make a little money on a bond by buying it when its value is lower than its face value and either selling later for a higher value, or waiting for it to mature. Often the minimum investment for a single bond is high, so if you don't have a large enough amount, you can still get the performance of bonds through a bond fund. These do not mature, so you don't have a guarantee of a return of your investment. However, they have access to more bonds than retail investors, so the funds can keep your money more fully invested. If you don't need the income, you can reinvest the dividends and have a little extra capital growth this way.","\"Negative Yields on Bonds is opposite of Getting profit on your investment. This is some kind of new practice from world wide financial institute. the interest rate is -0.05% for ten years. So a $100,000 bond under those terms would be \"\"discounted\"\" to $100,501, give or take. No, actually what you are going to get out from this investment is after 10 years when this investment is mature for liquidation, you will get return not even your principle $100,000 , but ( (Principle $100,000) minus (Negative Yields @ -0.05) Times ( 10 Years ) ) assume the rates are on simple annual rate. Now anyone may wander why should someone going to buy this kind of investment where I am actually giving away not only possible profit also losing some of principle amount! This might looks real odd, but there is other valid reason for issuing / investing on such kind of bond. From investor prospective: Every asset has its own 'expense' for keeping ownership of it. This is also true for money/currency depending on its size. And other investment possibility and risk factor. The same way people maintain checking account with virtually no visible income vs. Savings account where bank issue some positive rate of interest with various time factor like annually/half-yearly/monthly. People with lower level of income but steady on flow choose savings where business personals go for checking one. Think of Millions of Ideal money with no secure investment opportunity have to option in real. Option one to keeping this large amount of money in hand, arranging all kind of security which involve extra expense, risk and headache where Option two is invest on bond issued by Government of country. Owner of that amount will go for second one even with negative yields on bonds where he is paying in return of security and risk free grantee of getting it back on time. On Issuing Government prospective: Here government actually want people not to keep money idle investing bonds, but find any possible sector to invest which might profitable for both Investor + Grater Community ultimately country. This is a basic understanding on issue/buy/selling of Negative interest bearing bond on market. Hope I could explain it here. Not to mention, English is not my 1st language at all. So ignore my typo, grammatical error and welcome to fix it. Cheers!\"","\"The time value of money is very important in understanding this issue. Money today is worth more than money next year, two years from now, etc. It's a well understood economics concept, and well worth reading about if you have some, well, time. Not only is money literally worth more now than later due to inflation, but there is the simple fact that, assuming you have money for the purpose of doing something, being able to do that thing today is better than doing that same thing tomorrow. \"\"A bird in the hand is worth two in the bush\"\" gets to this rather directly; having it now is better than probably having it later. Would you rather have a nice meal tonight, or eat beans and rice tonight and then have the same nice meal next year? That's why interest exists, in part: you're offered some money now, for more money later; or in the case of buying a bond, you're offered more money later for some money now. The fact that people have different discount rates for money later is why the loan market can exist: people with more money than they can use now have a lower discount for future money than people who really need money right now (to buy a house, to pay their rent, whatever). So when choosing to buy a bond, you look at the money you're going to get, both over the short term (the coupon rate) and the long term (the face value), and you consider whether $80 now is worth $100 in 20 years, plus $2 per year. For some people it is - for some people it isn't, and that's why the price is as it is ($80). Odds are if you have a few thousand USD, you're probably not going to be interested in this - or if you have a very long term outlook; there are better ways to make money over that long term. But, if you're a bank needing a secure investment that won't lose value, or a trust that needs high stability, you might be willing to take that deal.\"","\"I don't know whether you'd consider buying a single bond instead of a fund. Strips are Treasuries where the coupons have been \"\"stripped\"\" to produce debt instruments with a fixed maturity date. They pay zero interest. Their value comes from the fact that you buy them at a price less than 100 and they are worth exactly 100 at some point in the future. You can buy them with any year/month that you wish. They are backed by the federal government and are considered to have no default risk. Like most bonds the price is actually a percentage and they mature at a 100. The one that expires 9/30/2018 costs 91.60 and returns 100 on the expiration date. The price list is here There's more information about them here First of all, they are still T-bonds (in all but the most legalistic sense) which means they are the safest, most risk-free investment possible. The U.S. federal government has stellar credit and a record of never defaulting. These bonds have no call features, so the timing and distribution of bond payments cannot be altered by any foreseeable occurrence. They are sold at a known - and generally deep - discount off a known face value that can be redeemed at a known date, so buyers know exactly how much they will earn from an investment in STRIPS.\"","Investing in individual long-term fixed income instruments now is probably not going to make you much money right now unless you do intend to hold onto the thing and it's low yield for 15 years. The yield is actually not the best out there, see these similar examples: I'm a more aggressive and active investor, so I'd never consider making a 15 year commitment to a low rate like this. If you value stability and safety, and don't care about inflation protection, you may find this an attractive investment. I'm using New York municipal bond funds that I bought a few months back for the stable/safety portion of my portfolio. (I'm a NY resident, so there is a tax benefit)","why would anyone buy a long-term bond fund in a market like this one, where interest rates are practically bottomed out? 1) You are making the assumption that interest rates has bottom out hence there is no further possibility of it going down further , i mean who expected Lehman Brother to go bankrupt 2) Long term investors who are able to wait for the bad times of the bond market to end and in the mean time dont mind some dividend payment of 2-3%","There is some sense that negative interest rates make no sense, because then two things appear to happen Neither of these are true in reality. But then we are edging towards a deflationary time, during which the common understanding of money and what to do with money reverses. During deflation, spending is better (to an extent) because the buying power of money is less as time passes, so also saving is less worthwhile. But for the bond market (and your question), the reason why people are still investing in negative interest bonds, is that they are going to be looking to capital gain to make their money. Over time the bond price fluctuates and as the bond approaches maturity, the bond price equates to the face value minus whatever interest will be received, or in this plus whatever interest will need to be payed.","Those are the expected yields; they are not guaranteed. This was actually the bread and butter of Graham Newman, mispriced bonds. Graham's writings in the Buffett recommended edition of Securities Analysis are invaluable to bond valuation. The highest yielder now is a private subsidiary of Société Générale. A lack of financial statements availability and the fact that this is the US derivatives markets subsidiary are probably the cause of the higher rates. The cost is about a million USD to buy them. The rest will be similar cases, but Graham's approach could find a diamond; however, bonds are big ticket items, so one should expect to pay many hundreds of thousands of USD per trade.","\"Why would a bank buy government bonds? Why couldn't they just deposit their money in another bank instead? Generally, banks are limited by laws and regulations about how much they must set aside as reserves. Of the money they receive as deposits, they may loan a certain amount, but must keep some as a reserve (this is called \"\"fractional reserve banking\"\"). Different countries have a different amount that they must set aside in reserves. In countries where bank deposits are guaranteed, there is almost always some upper limit to how much is guaranteed. The amount of money that a bank would deposit in another bank would be far greater than the guarantee.\"","The average joe wouldn't... we would bury our cash in a mayonaise jar before we would take a guaranteed loss... (although the argument could be made that a positive return that doesnt outpace inflation IS a negative return)... big corporations with billions on hand dont have that luxury however... some investments may also guarantee investors that a certain percentage be allocated to bonds... and in times of deflation a negative return could still provide a net positive return...","\"No... that's just what I'm owed for letting them use my principal. If I wanted to enjoy the opportunity cost of 0% interest for 13 plus years, I'd just keep the money in my \"\"savings\"\" account (where the 8th wonder of world, miracle of compound interest no longer exists). The bigger question posited by my snark was if/when the bond market will stop trading them as legitimate paper.\"","So an investor would get their principal back in interest payments after 13.5 years if things remained stable, not accounting for discounting future cash flows/any return for the risk they are taking. The long maturity helps insurance companies and pensions properly match the duration of their liabilities. Still doesn't seem like a good bet, but it makes sense that it happened.","Bonds provide protections against stock market crashes, diversity and returns as the other posters have said but the primary reason to invest in bonds is to receive relatively guaranteed income. By that I mean you receive regular payments as long as the debtor doesn't go bankrupt and stop paying. Even when this happens, bondholders are the first in line to get paid from the sale of the business's assets. This also makes them less risky. Stocks don't guarantee income and shareholders are last in line to get paid. When a stock goes to zero, you lose everything, where as a bondholder will get some face value redemption to the notes issue price and still keep all the previous income payments. In addition, you can use your bond income to buy more shares of stock and increase your gains there.","Not really. You can have two bonds that have identical duration but vastly different convexity. Pensions and insurance portfolio managers are most common buyers as they're trying to deal with liability matching and high convexity allows them to create a barbell around their projected liabilities.","Yes, if you want income and are willing to commit to hold a bond to maturity, you can hold the bond, get the scheduled payments, and get your principal returned at the end. US Savings Bonds are non-marketable (you cannot trade them, but can redeem early) bonds designed for this purpose. The value of a marketable bond will vary over its lifetime as interest rates change and the bond matures. If you buy a 30 year US Treasury bond at par value (100) on September 1, 2011, it yielded 3.51%. If rates fall, the value of your bond will increase over 100. If rates rise, the value will decrease below 100. How much the value changes depends on the type of bond and the demand for it. But if your goal is to buy and hold, you don't need to worry about it.","\"The rate of the bond is fixed. But there is a risk known as \"\"interest rate risk\"\". Basically, if you have a 2 percent bond and market rates are 4 percent, you'll have to offer your bond at a discount or nobody would buy it. So if you ever needed to sell it, you'd lose a bit of money.\"","IMHO bonds are not a good investment at this present time, nor generally. Appreciate for a moment that the yield of an investment is DIRECTLY related to the face/trading value. If a thing (bond/stock) trades for $100 and yields 3%, it pays $3. In the case of a bond, the bond doesn't pay a % amount, it pays a $ amount. Meaning it pays $3. SO, for the yield to rise, what has to happen to the trading price? It has to decrease. As of 2013/14 bonds are trading at historically LOW yields. The logical implication of this is if a bond pays a fixed $ amount, the trading price of the bond has to have increased. So if you buy bonds now, you will see a decrease in its face value over the long term. You may find the first tool I built at Simple Stock Search useful as you research potential investments.","They get higher interest payments. If they were to sell now they would get a premium over par. They get principal back if they hold so no gain, only gain if they sell now. But then they have to put it elsewhere (another bond, this time lower interest?) so it's a wash. Depends what you use the money for.","There are some important thing you need to understand about bonds, and how they work: * A bond doesn't need an active market - like a stock, for example - to have value. * Nonetheless, there exist active markets for all of these bonds. * The purpose of buying these bonds was not to step in due to the absence of a market. Rather, the purpose was to deliberately bid up the price of these bonds (ahead of the market), causing their price to rise and yields (interest rates) to drop. * The Fed can hold any and all of these bonds to maturity, while receiving contractual payments all the while, and never sell a single bond back to the market.","\"[...] are all bonds priced in such a way so that they all return the same amount (on average), after accounting for risk? In other words, do risk premiums ONLY compensate for the amount investors might lose? No. GE might be able to issue a bond with lower yield than, say, a company from China with no previous records of its presence in the U.S. markets. A bond price not only contains the risk of default, but also encompasses the servicability of the bond by the issuer with a specific stream of income, location of main business, any specific terms and conditions in the prospectus, e.g.callable or not, insurances against default, etc. Else for the same payoff, why would you take a higher risk? The payoff of a higher risk (not only default, but term structure, e.g. 5 years or 10 years, coupon payments) bond is more, to compensate for the extra risk it entails for the bondholder. The yield of a high risk bond will always be higher than a bond with lower risk. If you travel back in time, to 2011-2012, you would see the yields on Greek bonds were in the range of 25-30%, to reflect the high risk of a Greek default. Some hedge funds made a killing by buying Greek bonds during the eurozone crisis. If you go through the Efficient frontier theory, your argument is a counter statement to it. Same with individual bonds, or a portfolio of bonds. You always want to be compensated for the risk you take. The higher the risk, the higher the compensation, and vice versa. When investors buy the bond at this price, they are essentially buying a \"\"risk free\"\" bond [...] Logically yes, but no it isn't, and you shouldn't make that assumption.\"","I get teh flight to quality arguement aka best of the dirty shirts philosophy, but I am talking realistically. And of course a 3% 10yr is worth more on the seconday market now that rates are at 1.65%. That doesn't mean you buy the 1.65%","It's worth pointing out that a bulk of the bond market is institutional investors (read: large corporations and countries). For individuals, it's very easy to just put your cash in a checking account. Checking accounts are insured and non-volatile. But what happens when you're GE or Apple or Panama? You can't just flop a couple billion dollars in to a Chase checking account and call it a day. Although, you still need a safe place to store money that won't be terribly volatile. GE can buy a billion dollars of treasury bonds. Many companies need tremendous amounts of collateral on hand, amounts far in excess of the capacity of a checking account; those funds are stored in treasuries of some sort. Separately, a treasury bond is not a substitute investment for an S&P index fund. For individuals they are two totally different investments with totally different characteristics. The only reason an individual investor should compare the return of the S&P against the readily available yield of treasuries is to ensure the expected return of an equity investment can sufficiently pay for the additional risk.","\"Bonds might not be simple, but in general there are only a few variables that need to be understood: bid, coupon (interest) rate, maturity, and yield. Bond tables clearly lay those out, and if you're talking about government bonds a lot of things (like convertibles) don't apply (although default is still a concern). This might be overly simplistic, but I view ETF's primarily as an easy way to bring somewhat esoteric instruments (like grain futures) into the easily available markets of Nasdaq and the NYSE. That they got \"\"enhanced\"\" with leveraged funds and the such is interesting, but perhaps not the original intent of the instrument. Complicating your situation a bit more is the fee that gets tacked onto the ETF. Even Vanguard government bond funds hang out north of 0.1%. That's not huge, but it's not particularly appealing either considering that (unlike rounding up live cattle futures), it's not that much work to buy US government bonds, so the expense might not seem worth it to someone who's comfortable purchasing the securities directly. I'd be interested to see someone else's view on this, but in general I'd say that if you know what you want and know how to buy it, the government bond ETF becomes a lot less relevant as the liquidity offered (including the actual \"\"ease of transacting\"\") seem to to be the biggest factors in favor. From Investopedia's description: The bond ETF is an exciting new addition to the bond market, offering an excellent alternative to self-directed investors who, looking for ease of trading and increased price transparency, want to practice indexing or active bond trading. However, bond ETFs are suitable for particular strategies. If, for instance, you are looking to create a specific income stream, bond ETFs may not be for you. Be sure to compare your alternatives before investing.\"","Well, people have been saying interest rates have to go up for years now and have been wrong so far. Also there is an opportunity cost in waiting to buy - if another five years passes with nothing happen, you earn 0% on checking accounts, but at least earn 1.65% per year or so on your 10y bond.","AAA bonds are safe, as far as the principal goes. If you buy long term bonds today (at very low rates) and the interest rate goes up to 10% in 5 years, the current value of the bonds will decrease. But if you hold the bonds till maturity, you will almost certainly (barring MBS scenarios) get the expected principal and interest on the bonds. If you decide to sell a long-term bond before it matures, it will probably be worth less than you paid for it if interest rates have risen since you bought it.","\"Looking at the list of bonds you listed, many of them are long dated. In short, in a rate rising environment (it's not like rates can go much lower in the foreseeable future), these bond prices will drop in general in addition to any company specific events occurred to these names, so be prepared for some paper losses. Just because a bond is rated highly by credit agencies like S&P or Moody's does not automatically mean their prices do not fluctuate. Yes, there is always a demand for highly rated bonds from pension funds, mutual funds, etc. because of their investment mandates. But I would suggest looking beyond credit ratings and yield, and look further into whether these bonds are secured/unsecured and if secured, by what. Keep in mind in recent financial crisis, prices of those CDOs/CLOs ended up plunging even though they were given AAA ratings by rating agencies because some were backed by housing properties that were over-valued and loans made to borrowers having difficulties to make repayments. Hence, these type of \"\"bonds\"\" have greater default risks and traded at huge discounts. Most of them are also callable, so you may not enjoy the seemingly high yield till their maturity date. Like others mentioned, buying bonds outright is usually a big ticket item. I would also suggest reviewing your cash liquidity and opportunity cost as oppose to investing in other asset classes and instruments.\"","Buy a fund of bonds, there are plenty and are registered on your stockbroker account as 'funds' rather than shares. Otherwise, to the individual investor, they can be considered as the same thing. Funds (of bonds, rather than funds that contain property or shares or other investments) are often high yield, low volatility. You buy the fund, and let the manager work it for you. He buys bonds in accordance to the specification of the fund (ie some funds will say 'European only', or 'global high yield' etc) and he will buy and sell the bonds regularly. You never hold to maturity as this is handled for you - in many cases, the manager will be buying and selling bonds all the time in order to give you a stable fund that returns you a dividend. Private investors can buy bonds directly, but its not common. Should you do it? Up to you. Bonds return, the company issuing a corporate bond will do so at a fixed price with a fixed yield. At the end of the term, they return the principal. So a 20-year bond with a 5% yield will return someone who invests £10k, £500 a year and at the end of the 20 years will return the £10k. The corporate doesn't care who holds the bond, so you can happily sell it to someone else, probably for £10km give or take. People say to invest in bonds because they do not move much in value. In financially difficult times, this means bonds are more attractive to investors as they are a safe place to hold money while stocks drop, but in good times the opposite applies, no-one wants a fund returning 5% when they think they can get 20% growth from a stock.","Bonds released at the same time have different interest rates because they have different levels of risks and liquidity associated. Risk will depend on the company / country / municipality that offers the bond: their financial position, and their resulting ability to make future payments & avoid default. Riskier organizations must offer higher interest rates to ensure that investors remain willing to loan them money. Liquidity depends on the terms of the loan - principal-only bonds give you minimal liquidity, as there are no ongoing interest payments, and nothing received until the bond's maturity date. All bonds provide lower liquidity if they have longer maturity dates. Bonds with lower liquidity must have higher returns to compensate for the fact that you will have to give up your cash for a longer period of time. Bonds released at different times will have different interest rates because of what the general 'market rate' for interest was in those periods. ie: if a bond is released in 2016 with interest rates approaching 0%, even a high risk bond would have a lower interest rate than a bond released in the 1980s, when market rates were approaching 20%. Some bonds offer variable interest tied to some market indicator - those will typically have higher interest at the time of issuance, because the bondholder bears some risk that the prevailing market rate will drop. Note regarding sale of bonds after market rates have changed: The value of your bonds will fluctuate with the market. If a bond was offered with 1% interest, and next year interest rates go up and a new identical bond is offered for 2% interest, when you sell your old bond you will take a loss, because the market won't want to pay full price for it anymore. Whether you should sell lower-interest rate bonds depends on how you feel about the factors above - do you want junk bonds that have stock-like levels of returns but high risks of default, maturing in 30 years? Or do you want AAA+ Bonds that have essentially 0% returns maturing in 30 days? If you are paying interest on debt, it is quite likely that you could achieve a net income benefit by selling the bonds, and paying off debt [assuming your debt has a higher interest rate than your low-rate bonds]. Paying off debt is sometimes referred to as a 'zero risk return', because essentially there is no real risk that your lender would otherwise go bankrupt. That is, you will owe your bank the car loan until you pay it, and paying it is the only thing you can do to reduce it. However, some schools of thought suggest that maintaining savings + liquid investments makes sense even if you have some debt, because cash + liquid investments can cover you in some emergencies that credit cards can't help you with. ie: if you lose your job, perhaps your credit could be pulled and you would have nothing except for your liquid savings to tide you over. How much you should save in this way is a matter of opinion, but often repeated numbers are either 3 months or 6 months worth [which is sometimes taken as x months of expenses, and sometimes as x months of after-tax income]. You should look into this issue further; there are many questions on this site that discuss it, I'm sure.","\"Its because of the economic uncertainty in the world. They are the \"\"risk-free\"\" investment as it is an almost guaranteed return if you exclude inflation and US gov't defaulting. A lot of people are afraid to invest elsewhere given the current economic climate. The yield on bonds is also low due to government intervention. Quantitative easing 1 and 2 and operation twist has forced yield this low, as that is what the government wants.\"","Avoiding fees would not be the primary reason to buy bonds yourself. No, the reason to buy bonds yourself in a retirement account is that you can hold them to maturity. Bond funds can and do lose value if interest rates rise (and gain it if interest rates fall). Of course the same happens with the bond that you hold, but you can hang on to it until maturity and get the face value out of it. That said, it would take some effort to put together a decent bond portfolio, especially if you were going to buy anything rated lower than the absolute best. I think it'd be fun to do, but I'm weird that way.","\"TL;DR: If your currently held bond's bid yield is smaller than another bonds' ask yield. You can swap your bond for bigger returns. Let's imagine you buy a long bond for $12000 (face value of $10000) and it has 6% coupon. The cash flows will have an internal return rate of 4.37%, this is the published \"\"ask yield\"\" in 2014 of the bond. After six years, prices have fallen, inflation and yields went up. So you can sell it for only $10000. If you would do it, the IRR will be only 2.55%, so there will be less return, than if you keep it. But if you would \"\"undo\"\" the transaction, then the future cash flows would yield 6.38%. This is the \"\"bid yield\"\" in 2020 of the bond. If you can find an offer that yields more than 6.38%, you have better returns if you sell your bond and invest that $10000 in the other bond. But as other answers pointed it out, you rarely have this opportunity as the market is very effective. (Assuming everything else is equal.)\"","\"It makes sense if the NPV is positive. But what rate should you use at determining the NPV? A textbook might say \"\"market rate\"\".... and by definition the market rate to use in bond calculations like yours will mean that your NPV will be zero. How can this be? Well it's a bit of a circular definition. You take less capital to earn a higher return. The value of your capital spread over the period of the bond's maturity is the net difference... but the money in your pocket from selling the bond and not purchasing also has value. Banks and traders do this exact swap every day, many many times. The rate at which you can execute this swap is what defines the market rate. Therefore, by definition, the NPV will be zero. Now, this doesn't mean it's a bad idea for you. You can, on your own accord, decide the value you place on the capital versus the yield and make the decision. Do you expect rates to rise or fall? Do you expect higher or lower inflation? In reality you can form whatever opinion you like for your own circumstance, but the market is the net aggregation of formative opinion. You only get to decide whether or not you agree with the market.\"","There is a large market where notes/bills/bonds are traded, so yes you can sell them later. However, if interest rates go up, the value of any bond that you want to sell goes down, because you now have to compete with what someone can get on a new issue, so you need to 'discount' the principal value of your bond in order for someone to want to buy it instead of a new bond that has a higher interest rate. The reverse applies if interest rates fall (although it's hard to get much lower than they are now). So someone wanting to make money in bonds due to interest rate changes, generally wants to buy at higher interest rates, and then sell their bonds after rates have gone down. See my answer in this question for more detail Why does interest rate go up when bond price goes down? To answer 'is that good' the answer depends on perspective:","The Barclay's 20+ Year Treasury Bond inception date was July 21, 2002. You aren't going to find treasury bond information going back to 1900 because Treasury Bills have only been issued since 1929. The U.S. Department of the Treasury will give you data back to 1990. There's a good article in the Globe and Mail which covers why you may want to buy bonds as part of your portfolio. The key is diversification. Historically, stocks have done better than bonds long-term, but when stocks fall, bonds tend to (though do not always) go up. If you are investing for 30 years, the risk of putting money into bonds is that you will not make as much money as if you had put the money into stocks. Historically (in the US or Canada), you'd have seen positive returns, just not as high as investing in the stock market. There are many investment strategies. I live in Canada and personally favour the one described in the Canadian Couch Potato, a passive index investment strategy where I invest my money in Canadian, U.S. and International equity (stock market mutual funds) and also in a Canadian bond fund. There are, of course, plenty of people who will tell you to take a radically different strategy with your investments.","\"A few points that I would note: Call options - Could the bond be called away by the issuer? This is something to note as some bonds may end up not being as good as one thought because of this option that gets used. Tax considerations - Are you going for corporate, Treasury, or municipals? Different ones may have different tax consequences to note if you aren't holding the bond in a tax-advantaged account,e.g. Roth IRA, IRA or 401k. Convertible or not? - Some bonds are known as \"\"convertibles\"\" since the bond comes with an option on the stock that can be worth considering for some kinds of bonds. Inflation protection - Some bonds like TIPS or series I savings bonds can have inflation protection built into them that can also be worth understanding. In the case of TIPS, there are principal adjustments while the savings bond will have a change in its interest rate. Default risk - Some of the higher yield bonds may have an issuer go under which is another way one may end up with equity in a company rather than getting their money back. On the other side, for some municipals one could have the risk of the bond not quite being as good as one thought like some Detroit bonds that may end up in a different result given their bankruptcy but there are also revenue bonds that may not meet their target for another situation that may arise. Some bonds may be insured though this requires a bit more research to know the credit rating of the insurer. As for the latter question, what if interest rates rise and your bond's value drops considerably? Do you hold it until maturity or do you try to sell it and get something that has a higher yield based on face value?\"","If your main goal is to avoid taxes, municipal bonds are a good strategy, it's not the best way to make more than 1-2% in gains. And kudos for putting money back into the community.","\"All of the other answers here are accurate, but (I think) are missing the point as to the question, which rests on how Bonds work in the first place. The bond specifies a payback AMOUNT and DATE. Let's say it is $10,000 and one year from today. If you buy that today for $9900, your yield will be 1%. If you buy it today for $11,000, your yield will be less than 0% (please don't make me do the math - it's just under negative 1%). You might be willing to pay that 1% (rather than receive 1%) for the certainty that you will definitely get your money back. The combined actions of all the people who may be willing to pay a little more or a little less for the safety of a US Treasury Bond is what people call \"\"the Market.\"\" Market forces (generally, investor confidence) will drive the price up and down, which affects the yield. All the other stuff - coupons and inflation and whatnot - all of that only makes sense if you understand that you aren't buying a rate of return, you are buying a payback amount and date.\"","One reason that a bond can be significantly less than face value is because people are seeking better investments elsewhere, so for example if a bond doesn't mature for another 10 years, that 20% increase in face value isn't very attractive when compared to say leaving your money in the stock market for 10 years. Another reason could be that the credit-worthiness of the issuer has collapsed and people expect that there is a fairly good chance they are not going to make the payment. This could be what you would see if for example it was a one year time until maturity, but it has a value of 40% of the face value. There is a risk, because they can simply not pay. For example people who bought Greek bonds.","One thing to note before buying bond funds. The value of bonds you hold will drop when interest rates go up. Interest rates are at historical lows and pretty much have nowhere to go but up. If you are buying bonds to hold to maturity this is probably not a major concern, but for a bond fund it might impair performance if things suddenly shift in the interest rate market.","When interest rates rise, the price of bonds fall because bonds have a fixed coupon rate, and since the interest rate has risen, the bond's rate is now lower than what you can get on the market, so it's price falls because it's now less valuable. Bonds diversify your portfolio as they are considered safer than stocks and less volatile. However, they also provide less potential for gains. Although diversification is a good idea, for the individual investor it is far too complicated and incurs too much transaction costs, not to mention that rebalancing would have to be done on a regular basis. In your case where you have mutual funds already, it is probably a good idea to keep investing in mutual funds with a theme which you understand the industry's role in the economy today rather than investing in some special bonds which you cannot relate to. The benefit of having a mutual fund is to have a professional manage your money, and that includes diversification as well so that you don't have to do that.","\"Investment strategies abound. Bonds can be part of useful passive investment strategy but more active investors may develop a good number of reasons why buying and selling bonds on the short term. A few examples: Also, note that there is no guarantee in bonds as you imply by likening it to a \"\"guaranteed stock dividend\"\". Bond issuers can default, causing bond investors to lose part of all of their original investment. As such, if one believes the bond issuer may suffer financial distress, it would be ideal to sell-off the investment.\"","No citation, but I once read the average holding period of a 30 yr treasury is 8 hours. A rise in the rate by just .1% will drop the value by just under 2% wiping out nearly a full year's gains. With 29 years to go the value of the 3% bond will be worth $981 if the rate were then 3.1% It's at 3.16% the bond would drop to exactly $970 after the year, i.e. you've gotten no return at all. I view this as pretty high risk.","\"The name of the Gilt states the redemption date, but not the original issue date. A gilt with 8.75% yield and close to its redemption date may have been issued at a time when interest rates were indeed close to 8.75%. For example in the early 1990s, the UK inflation rate was about 8%. One reason for preferring high or low coupon gilts is the trade off between capital gains and income, and the different taxation rules for each. If you buy a gilt and hold it to its maturity date, you know in advance the exact price that it will be redeemed for (i.e. £100). You may prefer to take a high level of income now, knowing you will make a capital loss in future (which might offset some other predictable capital gain for tax purposes) or you may prefer not to take income that you don't need right now, and instead get a guaranteed capital gain in future (for example, when you plan to retire from work). Also, you can use the change in the market value of gilts as a gamble or a hedge against your expectation of interest rate changes in future, with the \"\"government guaranteed\"\" fallback position that if your predictions are wrong, you know exactly what return you will get if you hold the gilts to maturity. The same idea applies to other bond investments - but without the government guarantee, of course.\"","Yes, you're absolutely right. For such small amounts and such large fees, almost any investment choice is pointless. Some brokers allow for commission free ETF trading. Seek them out. As you've noticed, bond interest rates are almost 0%. This is a far cry from the days of Benjamin Graham, where the USD acted more like gold, with much more frequent booms and busts. During Graham's heyday, one could sell one's bonds at super low interest rates and buy them back again when high. In his day, interest rates would be very high one year like in 2008 and next to nothing the next like in 2009, cycling back and forth, until the 1960s hit, and he didn't know what to do. Graham preferred to wait for the reversion to the mean, and act only when far from it. Those opportunities are few and far between now since fiat currencies are far better managed than they were then, the Fed-caused 2009 total destruction as an outlier to recent times. In your case, it's best to leave the bonds to the insurance companies and buy equities. If you want less volatility, buy a buy-write ETF. Bonds will surely disappoint unless one is lucky enough to hold bonds while interest rates fall from ~6% to ~3%, an eventuality that shouldn't be expected to occur again, as Bill Gross is painfully discovering.","\"that would imply that a 30Y US Treasury bond only yields 2.78%, which is nonsensically low. Those are annualized yields. It would be more precise to say that \"\"a 30Y US Treasury bond yields 2.78% per year (annualized) over 30 years\"\", but that terminology is implied in bond markets. So if you invest $1,000 in a 30-year T-bond, you will earn roughly 2.78% in interest per year. Also note that yield is calculated as if it compounded, meaning that investing in a 30-year T-bind will give you a return that is equivalent to putting it in a savings account that earns 1.39% interest (half of 2.78%) every 6 months and compounds, meaning you earn interest on top of interest. The trade-off for these low yields is you have virtually no default risk. Unlike a company that could go bankrupt and not pay back the bond, the US Government is virtually certain to pay off these bonds because it can print or borrow more money to pay off the debts. In addition, bonds in general (and especially treasuries) have very low market risk, meaning that their value fluctuates much less that equities, even indicies. S&P 500 indices may move anywhere between -40% and 50% in any given year, while T-bonds' range of movement is much lower, between -10% and 30% historically).\"","I always find this funny. How can government bonds be in attractive and currency be attractive? With monetary policy America guarantees that it can't default on debt. The only thing that can happen which breaks this is if the government prints itself out of debt. In which case not only will you bonds be worthless but so will your cash. So to all the investors with boats of cash, you are trading one problem for the same problem. The only difference is you can hold the second problem in your hands. Fools.","Maximizing income could mean a lot of things. What you really want is to maximize wealth. Doesn't matter if it comes from your bond appreciating in value or as dividends. In order to maximize your wealth (that's today's wealth), you need to make decisions based on the net present value of these bonds. The market is fairly priced, especially for a tight market like government bonds. That means if your bond falls in price, it has fallen by precisely the amount necessary so that an investor would be indifferent between purchasing it now, at its current price, and purchasing a new bond with a higher dividend. The bonds with higher dividends will simply have a higher price, so more of the money comes as dividends than as price appreciation (at maturity it will sell for face value). In other words, the animals are out of the barn and you have lost (or made) money already. Changing from one bond to another will not change your wealth one way or the other. The only potential effect of changing bonds will be changing the risk of your portfolio. If you buy a bond that matures later or has a lower dividend than your current bond, you will be adding additional interest rate risk to your portfolio. That risk should be compensated, so you will have a higher expected return as well. But regardless of your choice you will not be made wealthier or less wealthy by changing from one bond to another. Should you buy bonds that will earn you the most possible? Sure, if you are below your risk tolerance. Even among default free bonds, the longer the maturity and the lower the dividend, the greater the effect of future changes in interest rates on your bond. That makes them riskier, but also makes them earn more money on average. TL;DR: In terms of your wealth, which is what matters, it doesn't matter whether you hold your bond or buy a new one.","If interest rates are negative, a 0% load might still be profitable.","The 1-yr bond has a higher interest rate, but it's only guaranteed for a year. This means it is subject to reinvestment risk. Suppose you're investing in 1981. Which sounds better? I've not looked up the precise interest rates but I'm guessing the former option leaves you with more money in 1991. It should be no surprise that investors were willing to pay more for it++, even if they couldn't have been totally sure in advance. :) (++ Remember, a bond is like a coupon for a certain percentage off of future-money. If the coupon offers you fewer percent off, you're paying more present-money for each dollar of future-money you buy.)","just pick a good bond and invest all your money there (since they're fairly low risk) No. That is basically throwing away your money and why would you do that. And who told you they are low risk. That is a very wrong premise. What factors should I consider in picking a bond and how would they weigh against each other? Quite a number of them to say, assuming these aren't government bonds(US, UK etc) How safe is the institution issuing the bond. Their income, business they are in, their past performance business wise and the bonds issued by them, if any. Check for the bond ratings issued by the rating agencies. Read the prospectus and check for any specific conditions i.e. bonds are callable, bonds can be retired under certain conditions, what happens if they default and what order will you be reimbursed(senior debt take priority). Where are interest rates heading, which will decide the price you are paying for the bond. And also the yield you will derive from the bond. How do you intend to invest the income, coupon, you will derive from the bonds. What is your time horizon to invest in bonds and similarly the bond's life. I have invested in stocks previously but realized that it isn't for me Bonds are much more difficult than equities. Stick to government bonds if you can, but they don't generate much income, considering the low interest rates environment. Now that QE is over you might expect interest rates to rise, but you can only wait. Or go for bonds from stable companies i.e. GE, Walmart. And no I am not saying you buy their bonds in any imaginable way.","\"The fact that some asset (in this case corporate bonds) has positive correlation with some other asset (equity) doesn't mean buying both isn't a good idea. Unless they are perfectly correlated, the best risk/reward portfolio will include both assets as they will sometimes move in opposite directions and cancel out each other's risk. So yes, you should buy corporate bonds. Short-term government bonds are essentially the risk-free asset. You will want to include that as well if you are very risk averse, otherwise you may not. Long-term government bonds may be default free but they are not risk free. They will make money if interest rates fall and lose if interest rates rise. Because of that risk, they also pay you a premium, albeit a small one, and should be in your portfolio. So yes, a passive portfolio (actually, any reasonable portfolio) should strive to reduce risk by diversifying into all assets that it reasonably can. If you believe the capital asset pricing model, the weights on portfolio assets should correspond to market weights (more money in bonds than stocks). Otherwise you will need to choose your weights. Unfortunately we are not able to estimate the true expected returns of risky assets, so no one can really agree on what the true optimal weights should be. That's why there are so many rules of thumb and so much disagreement on the subject. But there is little or no disagreement on the fact that the optimal portfolio does include risky bonds including long-term treasuries. To answer your follow-up question about an \"\"anchor,\"\" if by that you mean a risk-free asset then the answer is not really. Any risk-free asset is paying approximately zero right now. Some assets with very little risk will earn a very little bit more than short term treasuries, but overall there's nowhere to hide--the time value of money is extremely low at short horizons. You want expected returns, you must take risk.\"","\"To speak to this a little more broadly: apart from groups like hedge funds and other investors investing for purely speculative purposes, one of the major purposes of forwards (and, for that matter, futures) for companies in the \"\"real economy\"\" is to \"\"lock in\"\" a particular price in advance (or to reduce the risk of some kind of investment or transaction). Investopedia defines a currency forward as follows (with a few key points emphasized): [A currency forward is] a binding contract in the foreign exchange market that locks in the exchange rate for the purchase or sale of a currency on a future date. A currency forward is essentially a hedging tool that does not involve any upfront payment. The other major benefit of a currency forward is that it can be tailored to a particular amount and delivery period, unlike standardized currency futures. This can be a major advantage for planning and risk management purposes. For example, if I know I'm going to have to pay $1 million USD in the future and most of my revenue is in Euros, the actual amount I'll have to pay will vary based on the exchange rate between Euros and dollars. Thus, it's very worthwhile for me to be able to \"\"lock in\"\" a particular exchange rate so that I know exactly how much I'm going to pay relative to my projected revenue. The goal isn't necessarily to make money off the transaction (maybe they do, maybe they don't) as much as to reduce risk and improve planning ability. The fact that it doesn't involve an up-front payment is also a major advantage. It's usually a bad practice to \"\"sit on\"\" cash for a year if you can avoid it. Another key point: savings accounts pay less interest than inflation. If inflation is 3% and your savings account pays 1%, that looks remarkably like a guaranteed 2% loss to me.\"","Perfect super clear, thank you /u/xlct2 So it is like you buy a bond for $X, start getting interest, sell bond for $X :) I was thinking there could be a possibility of a bond working like a loan from a bank, that you going paying as time goes by :D","There are a few other factors possible here: Taxes - Something you don't mention is what are the tax rates on each of those choices. If the 4% gain is taxed at 33% while the 3% government bond is taxed at 0% then it may well make more sense to have the government bond that makes more money after taxes. Potential changes in rates - Could that 4% rate change at any time? Yield curves are an idea here to consider where at times they can become inverted where short-term bonds yield more than long-term bonds due to expectations about rates. Some banks may advertise a special rate for a limited time to try to get more deposits and then change the rate later. Beware the fine print. Could the bond have some kind of extra feature on it? For example, in the US there are bonds known as TIPS that while the interest rate may be low, there is a principal adjustment that comes as part of the inflation adjustment that is part how the security is structured.","I'll get to my answer in a moment, but first need to put focus on the two key components of bond prices: interest rates and credit risk. Suppose that the 10-year treasury has a coupon of 2% per year (it would be paid as 1% twice per year, in reality). If you own one contract of the bond which we suppose has a so-called face-value of $100, then this contract will over the ten years pay you a total of $20 in coupons, then $100 at redemption. So $120 in total. Would you therefore buy this 10-year treasury bond for $120, or more, or less? Well, if there were bank accounts around which were offering you an interest rate of 2% per year fixed for the next 10 years, then you could alternatively generate $120 from just $100 deposited now (if we assume that the interest paid is not put back in the account to earn 2% per year). Consequently, a price of $100 for the treasury would seem about right. However, suppose that you are not very confident that the banks that offer these accounts will even be around in 10 years time, maybe they will fail before that and you'll never get your money back. Then you might say to yourself that the above calculation is mathematically right, but not really a full representation of the different risks. And you conclude that maybe treasuries should be a bit more expensive, because they offer better credit risk than bank deposits. All of this just to show that the price of bonds is a comparative valuation of rates and credit: you need to know the general level of interest rates available in other investment products (even in stocks, I'd say), you need to have a feel for how much credit risk there is in the different investment products. Most people think that 'normally' interest rates are positive, because we are so familiar with the basic principle that: if I lend you some money then you need to pay me some interest. But in a world where everyone is worried about bank failures, people might prefer to effectively 'deposit' our savings with the US treasury (by buying their bonds) than to deposit their savings in the local bank. The US treasury will see this extra demand and put up the prices of their bonds (they are not stupid at the US treasury, you know!), so maybe the price of the 10-year treasury will go above $120. It could, right? In this scenario, the implied yield on the 10-year treasury is negative. There you go, yields have gone negative because of credit risk concerns.","When you buy a bond - you're giving a loan to the issuer. The interest rate on the bond is the interest rate on the loan. Usually (and this is also the case with the treasury bonds), the rate is fixed for the term of the loan. Thus, if the market rate for similar loans a year later is higher, the rate for the loan you gave - remains the same.","why should i have to make something with my cash? i'll fuking hold it and face losing a few percentage of purchasing power. i'd rather have liquity in these peril times. besides, people that held cash in 2008 had a once in a life time buying opportunity when all assets fell 60-90%.","It depends a lot on your investment period and the quality of the bonds that you want to invest. For example, if you want to invest until the maturity of the bonds, and the bonds are very safe (i.e. they are not expected to default), it does not matter that the interest rate rise. That is because at the maturity of the bond it will converge to its maturity value which will be independent of the change of the interest rates (although on the middle of the life the price of the bond will go down, but the coupon should remain constant -unless is a floating coupon bond-). An option could be to invest in an ETF with short term bonds (e.g. 1 year) with AAA credit rating (high quality, so very low default rate). It won't yield much, but is more than 0% if you hold it until maturity.","Let's say today you buy the bond issued by StateX at 18$. Let's say tommorow morning the TV says that StateX is going towards default (if it happens it won't give you back not even the 18$ you invested). You (and others that bought the same bond like you) will get scared and try to sell the bond, but a potential buyer won't buy it for 18$ anymore they will risk maximum couple of bucks, therefor the price of your bond tomorrow is worth 2$ and not 18 anymore. Bond prices (even zero coupon ones) do fluctuate like shares, but with less turbolence (i.e. on the same period of time, ups and downs are smaller in percentage compared to shares) EDIT: Geo asked in the comment below what happens to the bond the FED rises the interest. It' very similar to what I explained above. Let's say today you buy the bond just issued by US treasury at 50$. Today the FED rewards money at 2%, and the bond you bought promised you a reward of 2% per year for 10 years (even if it's zero coupon, it will give you almost the same reward of one with coupons, the only difference is that it will give you all the money back at once, that is when the bond expires). Let's say tommorow morning the TV says that FED decided to rise the interest rates, and now on it lends money rewarding a wonderful 4% to investors. US treasury will also have to issue bonds at 4%. You can obviously keep your bond until expiration (and unless US goes default you will get back all your money until the last cent), but if you decide to sell your bond, you will find out that people won't be willing to pay 50$ anymore because on the market they can now buy the same type of bond (for the same period of time, 10 years) that give them 4% per year and not a poor 2% like yours. So people will be willing to pay maximum 40$ for your bond or less.","\"I don't like buying individual bonds for my own portfolio. I actually used to buy long-term government strip bonds (Canadas or provincial bonds) but I stopped. Here are some reasons why: My broker allows me to purchase bonds via their web application. However, to sell a bond, I had to call in to the fixed-income trading desk. That was inconvenient. (But your broker may be different.) Bonds don't typically trade on a formal exchange. So, there's no cheap & easy way (as far as I know) to get an independent quote for a bond's value – I had to trust what my broker said my bond was worth when assessing my portfolio performance. I asked my broker once how they arrive at the \"\"market value\"\" shown – i.e. whether it was last bid, ask, or actual trade – and I was told they use a third party bond quotation / valuation information provider for the data, and that quotes are an estimate of what the bond would be worth, based on similar bonds. I quickly learned that wasn't the value I could actually get when selling it: When you're dealing with your broker to buy and sell bonds, you're likely dealing with theirs or a related investment bank which makes a market for specific issues of bonds. While I wasn't being charged an explicit commission to buy or sell bonds, it was evident the broker makes money off the spread: That is, the difference between what they would be willing to sell a bond for and what they would be willing to buy that same bond for. They will buy your bond back from you cheaper than what they could turn around and sell it to somebody else for. That's why they don't charge an explicit commission... it's built in and hidden! Anyway, when I finally discovered my broker would seldom actually offer me the \"\"market value\"\" quoted for my bonds (typically, it would be bought back for a few percent less than it were theoretically worth), I gave up. I don't think bonds simply are liquid enough, nor the costs transparent enough for retail investors. (Or maybe it's just me :-) However, I do think bonds remain an important part of a diversified portfolio: Bonds ought to be represented in a diversified portfolio using low-cost bond index mutual funds or exchange-traded funds. Since these funds buy & sell bonds in large quantities, they get a better deal on the spreads. So, while you do pay an explicit management fee for a fund, you are probably saving since you're not getting shafted on the spreads.\"","First off, I do not recommend buying individual bonds yourself. Instead buy a bond fund (ETF or mutual fund). That way you get some diversification. The risk-reward ratio will be evident in what you find to invest in. Junk bond funds pay the highest rates. Treasury bond funds pay the lowest. So you have to ask yourself how comfortable are you with risk? Buy the funds that pay the highest rate but still let you sleep at night.","It is my understanding that banks pay less than the going rate on savings accounts and require that the person who takes out a loan pay more than the going rate. That is how the bank gets its money. Usually the going rate is affected by the current inflation rate (but that has not been true for the last few weeks). So that means that, typically, the money you have in the bank is, gradually, losing purchasing power as the bank typically pays you less than the inflation rate. So if you want your money to keep pace with inflation (or do a bit better) then you should buy bonds.","\"If by \"\"putting money in the bank\"\" you mean regular savings or checking, then the bond locks a rate for a period of time, whereas your savings/checking rate can vary over that period. That variation might go for you or against you. Depending on your situation, you might prefer to take a determined rate to the variations. In addition, some bond types provide tax benefits (e.g. treasuries and municipal bonds) that change the effective return - You cannot just compare the interest rates. Finally, the bonds have \"\"resale\"\" value on the secondary market like stock - Depending on your outlook and strategy, you might by the bond for its value as a security rather than for the interest specifically just like you'd could buy a dividend-paying stock for its value as a security rather than for the dividend. In other words, you might think that bond values are going up, so you buy bonds with the intent of making a capital gain rather than counting on the interest returned. (The bond market does depend on the interest rate, so these are not independent factors.) I see the other answer that mentions the potential for your bank busting and you losing money beyond the FDIC insurance limit. The question doesn't specify U.S. Government bonds though, so I don't think that answer is generally good. It would be good in the case that you had a lot of money (especially an institution or foreign government) and you were specifically interested in U.S. Treasury bonds. Not so much if you invest in corporate bonds where you have no government insurance / assurance of any sort. Municipal bounds are also not backed by the U.S. (federal) government, but they may have some backing at the state level, depending on the state.\"","\"If I don't need this money for decades, meaning I can ride out periodical market crashes, why would I invest in bonds instead of funds that track broad stock market indexes? You wouldn't. But you can never be 100% sure that you really won't need the money for decades. Also, even if you don't need it for decades, you can never be 100% certain that the market will not be way down at the time, decades in the future, when you do need the money. The amount of your portfolio you allocate to bonds (relative to stocks) can be seen as a measure of your desire to guard against that uncertainty. I don't think it's accurate to say that \"\"the general consensus is that your portfolio should at least be 25% in bonds\"\". For a young investor with high risk tolerance, many would recommend less than that. For instance, this page from T. Rowe Price suggests no more than 10% bonds for those in their 20s or 30s. Basically you would put money into bonds rather than stocks to reduce the volatility of your portfolio. If you care only about maximizing return and don't care about volatility, then you don't have to invest in bonds. But you probably actually do care about volatility, even if you don't think you do. You might not care enough to put 25% in bonds, but you might care enough to put 10% in bonds.\"","> The purpose of buying these bonds was not to step in due to the absence of a market. Rather, the purpose was to deliberately bid up the price of these bonds (ahead of the market), causing their price to rise and yields (interest rates) to drop. There are some important things you need to understand about bubbles and how they form. When interest rates are artificially low and down payments aren't required for many loans, do you agree this is a recipe for a bubble?","\"You ask two questions - First - the market value can drop for two reasons (that I know), the company itself may have issues, and investors don't trust they'll be paid, or a general rise in interest rates. In the latter case, there's little to worry about, but for the former, well, that's your decision, you say \"\"the company is in trouble\"\" yet you believe they'll pay. Tough call. Second - yes, when a bond matures, the money appears in your account.\"","\"In truth there is no such thing as a risk-free asset. That is why your textbook feels the need to add the qualifier \"\"for practical purposes,\"\" meaning that the risk of a money market account is so much lower than virtually any other asset class that it can reasonably be approximated as risk free. The main risk of any bond, short-term or long-term, is that its price may change before the maturity date. This could happen for one of many reasons, such as interest rate changes, creditworthiness, market risk tolerance, and so on. Thus you may lose money if you need to redeem your investment ahead of the scheduled maturity.\"","There is no single 'market interest rate'; there are myriad interest rates that vary by risk profile & term. Corporate bonds are (typically) riskier than bank deposits, and therefore pay a higher effective rate when the market for that bond is in equilibrium than a bank account does. If you are willing to accept a higher risk in order gain a higher return, you might choose bonds over bank deposits. If you want an even higher return and can accept even higher risk, you might turn to stocks over bonds. If you want still higher return and can bear the still higher risk, derivatives may be more appealing than stocks.","The simple answer: Because you believe every other option can yield greater losses... So the thinking is; Lend it to France you'll get your money back. Put your money in a bank and there's a chance you won't get it back if the bank goes bust. Investors also believe that rates will continue to go more negative, in which case they will actually MAKE money. It's a momentum play which will eventually reverse but since the Bond market is extremely liquid, it's a bet that can quickly be unwound. Another theory floating around is that if the weaker countries of the euro leave (e.g. Greece, etc) and the core keep the euro, then the value of the euro will actually rise. So by putting your money in French or German bonds you would also be securing cash in French or German euro's. - Thinking the unthinkable on a euro break-up - Gavyn Davies","US government bonds are where money goes when the markets are turbulent and investors are fleeing from risk, and that applies even if the risk is a downgrade of the US credit rating, because there's simply nowhere else to put your money if you're in search of safety. Most AAA-rated governments have good credit ratings because they don't borrow much money (and most of them also have fairly small economies compared with the US), meaning that there's poor liquidity in their scarce bonds.","\"A bond fund will typically own a range of bonds of various durations, in your specific fund: The fund holds high-quality long-term New York municipal bonds with an average duration of approximately 6–10 years So through this fund you get to own a range of bonds and the fund price will behave similar to you owning the bonds directly. The fund gives you a little diversification in terms of durations and typically a bit more liquidity. It also may continuously buy bonds over time so you get some averaging vs. just buying a bond at a given time and holding it to maturity. This last bit is important, over long durations the bond fund may perform quite differently than owning a bond to maturity due to this ongoing refresh. Another thing to remember is that you're paying management fees for the fund's management. As with any bond investment, the longer the duration the more sensitive the price is to change in interest rates because when interest rates change the price will track it. (i.e. compare a change of 1% for a one year duration vs. 1% yearly over 10 years) If I'm correct, why would anyone in the U.S. buy a long-term bond fund in a market like this one, where interest rates are practically bottomed out? That is the multi-trillion dollar question. Bond prices today reflect what \"\"people\"\" are willing to pay for them. Those \"\"people\"\" include the Federal Reserve which through various programs (QE, Operate Twist etc.) has been forcing the interest rates to where they want to see them. If no one believed the Fed would be able to keep interest rates where they want them then the prices would be different but given that investors know the Fed has access to an infinite supply of money it becomes a more difficult decision to bet against that. (aka \"\"Don't fight the Fed\"\"). My personal belief is that rates will come up but I haven't been able to translate that belief into making money ;-) This question is very complex and has to do not only with US policies and economy but with the status of the US currency in the world and the world economy in general. The other saying that comes to mind in this context is that the market can remain irrational (and it certainly seems to be that) longer than you can remain solvent.\"","Fundamentally, it's no different than normal. A risky entity must entice investors with higher interest rates than less risky entities. We're just in such a low interest rate environment that the rate spread now dips below zero and very low risk entities can issue debt with a negative coupon. Though I agree that this makes no sense and the world's gone mad.","Yes those are really yields. A large portion of the world has negative yielding bonds in fact. This process has been in motion for the past 10 years for very specific reasons. So congratulations on discovering the bond market.","\"Great question. There are several reasons; I'm going to list the few that I can think of off the top of my head right now. First, even if institutional bank holdings in such a term account are covered by deposit insurance (this, as well as the amount covered, varies geographically), the amount covered is generally trivial when seen in the context of bank holdings. An individual might have on the order of $1,000 - $10,000 in such an account; for a bank, that's basically chump change, and you are looking more at numbers in the millions of dollars range. Sometimes a lot more than that. For a large bank, even hundreds of millions of dollars might be a relatively small portion of their holdings. The 2011 Goldman Sachs annual report (I just pulled a big bank out of thin air, here; no affiliation with them that I know of) states that as of December 2011, their excess liquidity was 171,581 million US dollars (over 170 billion dollars), with a bottom line total assets of $923,225 million (a shade under a trillion dollars) book value. Good luck finding a bank that will pay you 4% interest on even a fraction of such an amount. GS' income before tax in 2011 was a shade under 6.2 billion dollars; 4% on 170 billion dollars is 6.8 billion dollars. That is, the interest payments at such a rate on their excess liquidity alone would have cost more than they themselves made in the entire year, which is completely unsustainable. Government bonds are as guaranteed as deposit-insurance-covered bank accounts (it'll be the government that steps in and pays the guaranteed amount, quite possibly issuing bonds to cover the cost), but (assuming the country does not default on its debt, which happens from time to time) you will get back the entire amount plus interest. For a deposit-insured bank account of any kind, you are only guaranteed (to the extent that one can guarantee anything) the maximum amount in the country's bank deposit insurance; I believe in most countries, this is at best on the order of $100,000. If the bank where the money is kept goes bankrupt, for holdings on the order of what banks deal with, you would be extremely lucky to recover even a few percent of the principal. Government bonds are also generally accepted as collateral for the bank's own loans, which can make a difference when you need to raise more money in short order because a large customer decided to withdraw a big pile of cash from their account, maybe to buy stocks or bonds themselves. Government bonds are generally liquid. That is, they aren't just issued by the government, held to maturity while paying interest, and then returned (electronically, these days) in return for their face value in cash. Government bonds are bought and sold on the \"\"secondary market\"\" as well, where they are traded in very much the same way as public company stocks. If banks started simply depositing money with each other, all else aside, then what would happen? Keep in mind that the interest rate is basically the price of money. Supply-and-demand would dictate that if you get a huge inflow of capital, you can lower the interest rate paid on that capital. Banks don't pay high interest (and certainly wouldn't do so to each other) because of their intristic good will; they pay high interest because they cannot secure capital funding at lower rates. This is a large reason why the large banks will generally pay much lower interest rates than smaller niche banks; the larger banks are seen as more reliable in the bond market, so are able to get funding more cheaply by issuing bonds. Individuals will often buy bonds for the perceived safety. Depending on how much money you are dealing with (sold a large house recently?) it is quite possible even for individuals to hit the ceiling on deposit insurance, and for any of a number of reasons they might not feel comfortable putting the money in the stock market. Buying government bonds then becomes a relatively attractive option -- you get a slightly lower return than you might be able to get in a high-interest savings account, but you are virtually guaranteed return of the entire principal if the bond is held to maturity. On the other hand, it might not be the case that you will get the entire principal back if the bank paying the high interest gets into financial trouble or even bankruptcy. Some people have personal or systemic objections toward banks, limiting their willingness to deposit large amounts of money with them. And of course in some cases, such as for example retirement savings, it might not even be possible to simply stash the money in a savings account, in which case bonds of some kind is your only option if you want a purely interest-bearing investment.\"","Why does selling a bond drive up the yield? The bond will pay back a fixed amount when it comes due. The yield is a comparison of what you pay for the bond and what will be repaid when it matures (assuming no default). Why does the yield go up if the country is economically unstable? If the country's economy is unstable, that increases the chance that they will default and not pay the full value of the bonds when they mature. People are selling them now at a loss instead of waiting for a default later for a greater loss. So if you think Greece is not going to default as it's highly likely a country would completely default, wouldn't it make sense to hold onto the bonds? Only if you also think that they will pay back the full value at maturity. It's possible that they pay some, but not all. It's also possible that they will default. It's also possible that they will get kicked out of the Euro and start printing Drachmas again, and try to pay the bonds back with those which could devalue the bonds through inflation. The market is made of lots of smart people. If they think there are reasons to worry, there probably are. That doesn't mean they can predict the future, it just means that they are pricing the risk with good information. If you are smarter than the herd, by all means, bet against them and buy the bonds now. It can indeed be lucrative if you are right, and they are wrong.","This is just a pedestrian (my) opinion: Yes, It is wise to invest in bond funds even in a low interest environment. Check out the lazy man's portfolio on bogleheads. The reason is:","Bonds have multiple points of risk: This is part of the time value of money chapter in any finance course. Disclaimer - Duff's answer popped up as I was still doing the bond calculations. Similar to mine but less nerdy.","China actively SELLS US Treasuries. http://online.barrons.com/article/SB50001424052748704097904577257030958775246.html The Chinese are not stupid. Why the fuck would someone buy a 2 year at .2% when inflation is over 1% PER YEAR? So insolvent banks can park collateral at Central Banks for cash. This is why the balance sheets of developed world nations have exploded since 2008. http://www.alsosprachanalyst.com/economy/charting-central-banks-balance-sheets.html edited: for unnecessary rudeness"],"string":"[\n \"No, there isn't. There are a number of reasons that institutions buy these bonds but as an individual you're likely better off in a low-yield cash account. By contrast, there would be a reason to hold a low-yield (non-zero) bond rather than an alternative low-yield product.\",\n \"0% bonds are desirable for some individuals. It depends on your situation. 0% bonds are usually sold well below par value (eg a 100$ face value bond for 2020 might sell for 90$ today) Hence, your gains will be CAPITAL GAINS. A similar investment paying interest would be taxed as INCOME, and smaller portion of capital gains. In many countries (US, Canada) Capital gains are taxed at a more favourable rate then income. This is especially true when holding these investments in corporations.\",\n \"Virtually zero risk of default; safety; diversification; guaranteed fixed income albeit very low; portfolio diversifier so it reduces total volatility; plus yields might drop even lower thus increasing the price of the bond. Very unlikely given how obscenely low yields already are but still possible. I thought nobody would ever buy a 10yr @ 3% and now look, rates are almost half as much and those 3% bonds are worth a lot more now on the secondary market. Timing the bond market is really hard.\",\n \"It would be preferable to purchase a bond with a negative yield if the negative yield was the smallest compared to similar financial securities. The purchase or sale of a security is rarely a mutually exclusive event. An individual may have personal reasons or a desire to contribute to the activity the bond is financing. To an entity, the negative yield bond may be part of a cost averaging plan, diversification strategy, a single leg of a multi-leg transaction, or possibly to aid certainty as a hedge in a pairs trade. And of course there may be other unique situations specific to the entity. Said another way, is the Queen of Spades a good card? It depends on the game being played and what is in your hand.\",\n \"Possibly you could use it as a hedging instrument if it's correlated in some way with another asset you're holding. Even though it seems you're losing money with such a bond, that loss might be less than the hedging costs associated with other instruments.\",\n \"The question in my view is going into Opinion and economics. Why would I buy a bond with a negative yield? I guess you have answered yourself; Although the second point is more relevant for high net worth individual or large financial institutions / Governments where preserving cash is an important consideration. Currently quite a few Govt Bonds are in negative as most Govt want to encourage spending in an effort to revive economy.\",\n \"There is another reason why an investor might buy negative yielding bonds: if the investor expects that bond yields will go even further negative, then they are also expecting the price of the bond to go up. They can resell the bond later at a profit. As an example, they may expect an increase in central bank bond purchases to drive yields lower and prices higher.\",\n \"You have no idea where interest rates will go. A year or two ago people thought 3% was absurdly low, why buy them? And then interest rates dropped even further, so the people who bought then got more interest AND the present value went up since then. If you'd done nothing you would have lost money. Now, rates are REALLY absurdly low. What do? Well, they could drop even more! It's possible. We could also have 20 years of flatline - see Japan. Sitting on your hands loses money. What else should you do? Put your money in risky equities? A lot of people these days are buying dividend paying stocks now. It's extremely foolhardy to treat stocks as fixed income because they are very far from it. Overextending yourself and taking on too equity risk, IMO, is FAR more risky than accepting low interest rates+interest rate risk. Finally: I don't exactly use bonds to make money, I use it as a safe haven while I wait for stocks to do something. Stocks go up, I sell some and buy bonds. Bonds go up I sell them and buy more stock. It's nice to get a little interest on the side but not critical. I could use cash (or 1month tbills) but I'm comfortable with the amount of risk-return that 5-10year bonds provide.\",\n \"Yeah my question was just out of curiosity. Though I do wonder, given that bond prices are so low, they inevitably will have to go up right? So why does anyone bother to buy them in the first place?\",\n \"Is your question academic curiosity or are you thinking of buying bonds? Be aware that bond interest rates are near all-time lows, and if interest rates were to rise, the prices of bonds could fall. Those buying bonds today are taking unusually large risk of capital loss.\",\n \"As well as credit risk there's also interest risk. If a bond has a face value of $100, pays 1% and matures in 20 years' time then you expect to receive a total of $120 from buying it now -- $1 per year for 20 years and $100 at the end. But if you can get a 3% return elsewhere, then if you invest your $80 there instead you will get $2.40 per year for 20 years and then $80 at the end, making a total of $128 (and you also get more of the money sooner). So even $80 for the $100 bond is a bad buy, and you should invest elsewhere.\",\n \"The reason the market value is low is because the market does not believe that the company or country will pay. Another reason for it to go down is lack of liquidity in the market. However if you believe that the conditions would improve by the time bond matures, and you don't need money right now, then you can wait for maturity and get the maturity value.\",\n \"The only reason I can think of would be if you were convinced that you couldn't hold on to your money. Treasury Bonds are often viewed as very safe investments, and often used in some situations where cash isn't appropriate.. Also, they typically have a somewhat patriotic theme, helping your country to grow. In addition, many people don't really pay attention to the rate of the bonds, but are just investing in them. The more people investing in them, the lower the yields become. But the bottom line is, I would invest in a savings account any day over a negative interest rate... And it looks like I'm in good company as well, a quick study of reports seems to indicate that these are a very bad investment...\",\n \"Risk is reduced but isn't zero The default risk is still there, the issuer can go bankrupt, and you can still loose all or some of your money if restructuring happens. If the bond has a callable option, the issuer can retire them if conditions are favourable for the issuer, you can still loose some of your investment. Callable schedule should be in the bond issuer's prospectus while issuing the bond. If the issuer is in a different country, that brings along a lot of headaches of recovering your money if something goes bad i.e. forex rates can go up and down. YTM, when the bond was bought was greater than risk free rate(govt deposit rates) Has to be greater than the risk free rate, because of the extra risk you are taking. Reinvestment risk is less because of the short term involved(I am assuming 2-3 years at max), but you should also look at the coupon rate of your bond, if it isn't a zero-coupon bond, and how you invest that. would it be ideal to hold the bond till maturity irrespective of price change It always depends on the current conditions. You cannot be sure that everything is fine, so it pays to be vigilant. Check the health of the issuer, any adverse circumstances, and the overall economy as a whole. As you intend to hold till maturity you should be more concerned about the serviceability of the bond by the issuer on maturity and till then.\",\n \"Supply and demand for a particular bond may be such that the market price exceeds the par value for the bond at maturity. This is when you get a negative yield. Especially when volatility is high, people will actually pay money to park it in treasuries for an amount of time. But when compared to a > 25% vol in the equities market over that same period, taking a 5% or less hit doesn't sound nearly as bad!\",\n \"\\\"You ask a question, \\\"\\\"Is there any real purpose in purchasing bonds?\\\"\\\" and then appear to go off on a rant. Before the question is closed by members here, let me offer this: This chart reflects the 10 year bond rate. From 1960-2004 (give or take) the coupon rate was over 4%. Asset allocation suggests a mix of stocks and bonds seeking to avoid the risk of having \\\"\\\"all of one's eggs in one basket.\\\"\\\" To that end, the simplest approach is a stock/bond mix. Over time, a 70/30 mix provides nearly 95% of the long tern return, but with a much lower volatility. I'm not going to suggest that a 2% 10 year bond is an exciting investment, but bonds may have a place in one's portfolio. I'm not going to debate each and every point you attempted, but #5 is especially questionable. If you feel this is true, you should short bonds. Or you should at least 99% of the time. Do you have data to back up this statement?\\\"\",\n \"\\\"Here are my reasons as to why bonds are considered to be a reasonable investment. While it is true that, on average over a sufficiently long period of time, stocks do have a high expected return, it is important to realize that bonds are a different type of financial instrument that stocks, and have features that are attractive to certain types of investors. The purpose of buying bonds is to convert a lump sum of currency into a series of future cash flows. This is in and of itself valuable to the issuer because they would prefer to have the lump sum today, rather than at some point in the future. So we generally don't say that we've \\\"\\\"lost\\\"\\\" the money, we say that we are purchasing a series of future payments, and we would only do this if it were more valuable to us than having the money in hand. Unlike stocks, where you are compensated with dividends and equity to take on the risks and rewards of ownership, and unlike a savings account (which is much different that a bond), where you are only being paid interest for the time value of your money while the bank lends it out at their risk, when you buy a bond you are putting your money at risk in order to provide financing to the issuer. It is also important to realize that there is a much higher risk that stocks will lose value, and you have to compare the risk-adjusted return, and not the nominal return, for stocks to the risk-adjusted return for bonds, since with investment-grade bonds there is generally a very low risk of default. While the returns being offered may not seem attractive to you individually, it is not reasonable to say that the returns offered by the issuer are insufficient in general, because both when the bonds are issued and then subsequently traded on a secondary market (which is done fairly easily), they function as a market. That is to say that sellers always want a higher price (resulting in a lower return), and buyers always want to receive a higher return (requiring a lower price). So while some sellers and buyers will be able to agree on a mutually acceptable price (such that a transaction occurs), there will almost always be some buyers and sellers who also do not enter into transactions because they are demanding a lower/higher price. The fact that a market exists indicates that enough investors are willing to accept the returns that are being offered by sellers. Bonds can be helpful in that as a class of assets, they are less risky than stocks. Additionally, bonds are paid back to investors ahead of equity, so in the case of a failing company or public entity, bondholders may be paid even if stockholders lose all their money. As a result, bonds can be a preferred way to make money on a company or government entity that is able to pay its bills, but has trouble generating any profits. Some investors have specific reasons why they may prefer a lower risk over time to maximizing their returns. For example, a government or pension fund or a university may be aware of financial payments that they will be required to make in a particular year in the future, and may purchase bonds that mature in that year. They may not be willing to take the risk that in that year, the stock market will fall, which could force them to reduce their principal to make the payments. Other individual investors may be close to a significant life event that can be predicted, such as college or retirement, and may not want to take on the risk of stocks. In the case of very large investors such as national governments, they are often looking for capital preservation to hedge against inflation and forex risk, rather than to \\\"\\\"make money\\\"\\\". Additionally, it is important to remember that until relatively recently in the developed world, and still to this day in many developing countries, people have been willing to pay banks and financial institutions to hold their money, and in the context of the global bond market, there are many people around the world who are willing to buy bonds and receive a very low rate of return on T-Bills, for example, because they are considered a very safe investment due to the creditworthiness of the USA, as well as the stability of the dollar, especially if inflation is very high in the investor's home country. For example, I once lived in an African country where inflation was 60-80% per year. This means if I had $100 today, I could buy $100 worth of goods, but by next year, I might need $160 to buy the same goods I could buy for $100 today. So you can see why simply being able to preserve the value of my money in a bond denominated in USA currency would be valuable in that case, because the alternative is so bad. So not all bondholders want to be owners or make as much money as possible, some just want a safe place to put their money. Also, it is true for both stocks and bonds that you are trading a lump sum of money today for payments over time, although for stocks this is a different kind of payment (dividends), and you only get paid if the company makes money. This is not specific to bonds. In most other cases when a stock price appreciates, this is to reflect new information not previously known, or earnings retained by the company rather than paid out as dividends. Most of the financial instruments where you can \\\"\\\"make\\\"\\\" money immediately are speculative, where two people are betting against each other, and one has to lose money for the other to make money. Again, it's not reasonable to say that any type of financial instrument is the \\\"\\\"worst\\\"\\\". They function differently, serve different purposes, and have different features that may or may not fit your needs and preferences. You seem to be saying that you simply don't find bond returns high enough to be attractive to you. That may be true, since different people have different investment objectives, risk tolerance, and preference for having money now versus more money later. However, some of your statements don't seem to be supported by facts. For example, retail banks are not highly profitable as an industry, so they are not making thousands of times what they are paying you. They also need to pay all of their operating expenses, as well as account for default risk and inflation, out of the different between what they lend and what they pay to savings account holders. Also, it's not reasonable to say that bonds are worthless, as I've explained. The world disagrees with you. If they agreed with you, they would stop buying bonds, and the people who need financing would have to lower bond prices until people became interested again. That is part of how markets work. In fact, much of the reason that bond yields are so low right now is that there has been such high global demand for safe investments like bonds, especially from other nations, such that bond issues (especially the US government) have not needed to pay high yields in order to raise money.\\\"\",\n \"\\\"The answer is yes. And the reason is if today's interest rates are lower than the interest rate (coupon) at which the bond was issued. The bond's \\\"\\\"lifetime value\\\"\\\" is 100 cents on the dollar. That's the principal repayment that the investor will get on the maturity date. But suppose the bond's coupon rate is 4% while today's interest rate is 3%. Then, people who bought the bond at 100 would get 4% on their money, while everyone else was getting 3%. To compensate, a three year bond would have to rise to almost 103 so that the so-called yield to maturity\\\"\\\" would be 3%. Then there would be a \\\"\\\"capital loss\\\"\\\" (from almost 103 to 100) that would exactly offset the extra interest, that is 1% \\\"\\\"more\\\"\\\" for three years. If today's interest rates are negative (as they were from time to time in the 1930s, and in the present decade), the \\\"\\\"negative\\\"\\\" interest rates will prevent the buyer from getting the \\\"\\\"lifetime value\\\"\\\" (as defined by the OP) of principal plus interest over the original life of the bond. This happens in a \\\"\\\"flight to quality\\\"\\\" situation, where people are willing to take a (small) capital loss on Treasuries in order to prevent a large possible loss from bank failures like those that took place in 2008.\\\"\",\n \"The only reason I can think of is that the bonds are bought automatically by some investment pools, groups or institutions. That will stop very quickly once the management finds some other place to put the money.\",\n \"It can be zero or negative given the current market conditions. Any money parked with treasury bonds is 100% risk free. So if I have a large amount of USD, and need a safe place to keep, then in today's environment even the banks (large as well) are at risk. So if I park my money with some large bank and that bank goes bankrupt, my money is gone for good. After a long drawn bankruptcy procedure, I may get back all of it or some of it. Even if the bank does not go bankrupt, it may face liquidity crises and I may not be able to withdraw when I want. Hence it's safer to keep it in Treasury bonds even though I may not gain any interest, or even lose a small amount of money. At least it will be very safe. Today there are very few options for large investors (typically governments and institutional investors.) The Euro is facing uncertainty. The Yuan is still regulated. There is not enough gold to buy (or to store it.) Hence this leads towards the USD. The very fact that USD is safe in today's environment is reflected in the Treasury rates.\",\n \"In a secular bull market, strong investor sentiment drives prices higher, as participants, over time, are net buyers. Secular markets are typically driven by large-scale national and worldwide events... demographic/ population shifts, governmental policies... bear market periods occur within the longer interval, but do not reverse the trend. There are still many reasons to buy the long bond, despite the lack of yield (nearly flat term structure of interest rates). Despite the recent credit ratings agency downgrades of U.S. sovereign risk, the T-bond offers greater relative security than many alternatives. If Germany were NOT part of the EU, its government bonds would be issued by the Bundesbank, denominated in Deutsche Marks. German government bonds would probably be a better choice than the U.S. Treasury's 30-year bond. Long-term maturity U.S. Treasuries are in demand by investment and portfolio managers because:\",\n \"\\\"First note that CIBC issued these bonds with a zero coupon, so they do not pay any interest. They were purchased by the market participants at a small premium, paying an average of 100.054 for a nominal value of 100. This equates to a negative annual \\\"\\\"redemption\\\"\\\" yield of 0.009% - i.e., if held until maturity, then the holder will witness a negative annual return of 0.009%. You ask \\\"\\\"why does this make sense?\\\"\\\". Clearly it makes no sense for a private individual to purchase these bonds since they will be better off simply holding cash. To understand why there is a demand for these bonds we need to look elsewhere. The European bond market is currently suffering a dwindling supply owing to the ECBs bond buying programme (i.e., quantitative easing). The ECB is purchasing EUR 80 billion per month of Eurozone sovereign debt. This means that the quantity of high grade bonds available for purchase is shrinking fast. Against this backdrop we have all of those European institutions and financial corporations who are legally obliged to purchase bonds to be held as assets against their obligations. These are mostly national and private pension funds as well as insurance companies and fund managers. In this sort of environment, the price of high quality bonds is quickly bid up to the point where we see negative yields. In this environment companies like CIBC can borrow by issuing bonds with a zero coupon and the market is willing to pay a small premium over their nominal value. TL/DR The situation is further complicated by the subdued inflation outlook for the Eurozone, with a very real possibility of deflation. Should a prolonged period of deflation materialise, then negative redemption yield bonds may provide a positive real return.\\\"\",\n \"Many folks use bonds to diversify their portfolio since bonds rise and fall in value at different times and for different reasons than stocks. Bonds pay interest on a regular basis (usually monthly or quarterly) and so some people invest in bonds in order to match the interest payments to some regular expense they might have. The interest payment does not change (fixed income). For individual bonds, there is a maturity date at which you can expect to receive the face value of the bond (the issuer's creditworthiness is important here). You can make a little money on a bond by buying it when its value is lower than its face value and either selling later for a higher value, or waiting for it to mature. Often the minimum investment for a single bond is high, so if you don't have a large enough amount, you can still get the performance of bonds through a bond fund. These do not mature, so you don't have a guarantee of a return of your investment. However, they have access to more bonds than retail investors, so the funds can keep your money more fully invested. If you don't need the income, you can reinvest the dividends and have a little extra capital growth this way.\",\n \"\\\"Negative Yields on Bonds is opposite of Getting profit on your investment. This is some kind of new practice from world wide financial institute. the interest rate is -0.05% for ten years. So a $100,000 bond under those terms would be \\\"\\\"discounted\\\"\\\" to $100,501, give or take. No, actually what you are going to get out from this investment is after 10 years when this investment is mature for liquidation, you will get return not even your principle $100,000 , but ( (Principle $100,000) minus (Negative Yields @ -0.05) Times ( 10 Years ) ) assume the rates are on simple annual rate. Now anyone may wander why should someone going to buy this kind of investment where I am actually giving away not only possible profit also losing some of principle amount! This might looks real odd, but there is other valid reason for issuing / investing on such kind of bond. From investor prospective: Every asset has its own 'expense' for keeping ownership of it. This is also true for money/currency depending on its size. And other investment possibility and risk factor. The same way people maintain checking account with virtually no visible income vs. Savings account where bank issue some positive rate of interest with various time factor like annually/half-yearly/monthly. People with lower level of income but steady on flow choose savings where business personals go for checking one. Think of Millions of Ideal money with no secure investment opportunity have to option in real. Option one to keeping this large amount of money in hand, arranging all kind of security which involve extra expense, risk and headache where Option two is invest on bond issued by Government of country. Owner of that amount will go for second one even with negative yields on bonds where he is paying in return of security and risk free grantee of getting it back on time. On Issuing Government prospective: Here government actually want people not to keep money idle investing bonds, but find any possible sector to invest which might profitable for both Investor + Grater Community ultimately country. This is a basic understanding on issue/buy/selling of Negative interest bearing bond on market. Hope I could explain it here. Not to mention, English is not my 1st language at all. So ignore my typo, grammatical error and welcome to fix it. Cheers!\\\"\",\n \"\\\"The time value of money is very important in understanding this issue. Money today is worth more than money next year, two years from now, etc. It's a well understood economics concept, and well worth reading about if you have some, well, time. Not only is money literally worth more now than later due to inflation, but there is the simple fact that, assuming you have money for the purpose of doing something, being able to do that thing today is better than doing that same thing tomorrow. \\\"\\\"A bird in the hand is worth two in the bush\\\"\\\" gets to this rather directly; having it now is better than probably having it later. Would you rather have a nice meal tonight, or eat beans and rice tonight and then have the same nice meal next year? That's why interest exists, in part: you're offered some money now, for more money later; or in the case of buying a bond, you're offered more money later for some money now. The fact that people have different discount rates for money later is why the loan market can exist: people with more money than they can use now have a lower discount for future money than people who really need money right now (to buy a house, to pay their rent, whatever). So when choosing to buy a bond, you look at the money you're going to get, both over the short term (the coupon rate) and the long term (the face value), and you consider whether $80 now is worth $100 in 20 years, plus $2 per year. For some people it is - for some people it isn't, and that's why the price is as it is ($80). Odds are if you have a few thousand USD, you're probably not going to be interested in this - or if you have a very long term outlook; there are better ways to make money over that long term. But, if you're a bank needing a secure investment that won't lose value, or a trust that needs high stability, you might be willing to take that deal.\\\"\",\n \"\\\"I don't know whether you'd consider buying a single bond instead of a fund. Strips are Treasuries where the coupons have been \\\"\\\"stripped\\\"\\\" to produce debt instruments with a fixed maturity date. They pay zero interest. Their value comes from the fact that you buy them at a price less than 100 and they are worth exactly 100 at some point in the future. You can buy them with any year/month that you wish. They are backed by the federal government and are considered to have no default risk. Like most bonds the price is actually a percentage and they mature at a 100. The one that expires 9/30/2018 costs 91.60 and returns 100 on the expiration date. The price list is here There's more information about them here First of all, they are still T-bonds (in all but the most legalistic sense) which means they are the safest, most risk-free investment possible. The U.S. federal government has stellar credit and a record of never defaulting. These bonds have no call features, so the timing and distribution of bond payments cannot be altered by any foreseeable occurrence. They are sold at a known - and generally deep - discount off a known face value that can be redeemed at a known date, so buyers know exactly how much they will earn from an investment in STRIPS.\\\"\",\n \"Investing in individual long-term fixed income instruments now is probably not going to make you much money right now unless you do intend to hold onto the thing and it's low yield for 15 years. The yield is actually not the best out there, see these similar examples: I'm a more aggressive and active investor, so I'd never consider making a 15 year commitment to a low rate like this. If you value stability and safety, and don't care about inflation protection, you may find this an attractive investment. I'm using New York municipal bond funds that I bought a few months back for the stable/safety portion of my portfolio. (I'm a NY resident, so there is a tax benefit)\",\n \"why would anyone buy a long-term bond fund in a market like this one, where interest rates are practically bottomed out? 1) You are making the assumption that interest rates has bottom out hence there is no further possibility of it going down further , i mean who expected Lehman Brother to go bankrupt 2) Long term investors who are able to wait for the bad times of the bond market to end and in the mean time dont mind some dividend payment of 2-3%\",\n \"There is some sense that negative interest rates make no sense, because then two things appear to happen Neither of these are true in reality. But then we are edging towards a deflationary time, during which the common understanding of money and what to do with money reverses. During deflation, spending is better (to an extent) because the buying power of money is less as time passes, so also saving is less worthwhile. But for the bond market (and your question), the reason why people are still investing in negative interest bonds, is that they are going to be looking to capital gain to make their money. Over time the bond price fluctuates and as the bond approaches maturity, the bond price equates to the face value minus whatever interest will be received, or in this plus whatever interest will need to be payed.\",\n \"Those are the expected yields; they are not guaranteed. This was actually the bread and butter of Graham Newman, mispriced bonds. Graham's writings in the Buffett recommended edition of Securities Analysis are invaluable to bond valuation. The highest yielder now is a private subsidiary of Société Générale. A lack of financial statements availability and the fact that this is the US derivatives markets subsidiary are probably the cause of the higher rates. The cost is about a million USD to buy them. The rest will be similar cases, but Graham's approach could find a diamond; however, bonds are big ticket items, so one should expect to pay many hundreds of thousands of USD per trade.\",\n \"\\\"Why would a bank buy government bonds? Why couldn't they just deposit their money in another bank instead? Generally, banks are limited by laws and regulations about how much they must set aside as reserves. Of the money they receive as deposits, they may loan a certain amount, but must keep some as a reserve (this is called \\\"\\\"fractional reserve banking\\\"\\\"). Different countries have a different amount that they must set aside in reserves. In countries where bank deposits are guaranteed, there is almost always some upper limit to how much is guaranteed. The amount of money that a bank would deposit in another bank would be far greater than the guarantee.\\\"\",\n \"The average joe wouldn't... we would bury our cash in a mayonaise jar before we would take a guaranteed loss... (although the argument could be made that a positive return that doesnt outpace inflation IS a negative return)... big corporations with billions on hand dont have that luxury however... some investments may also guarantee investors that a certain percentage be allocated to bonds... and in times of deflation a negative return could still provide a net positive return...\",\n \"\\\"No... that's just what I'm owed for letting them use my principal. If I wanted to enjoy the opportunity cost of 0% interest for 13 plus years, I'd just keep the money in my \\\"\\\"savings\\\"\\\" account (where the 8th wonder of world, miracle of compound interest no longer exists). The bigger question posited by my snark was if/when the bond market will stop trading them as legitimate paper.\\\"\",\n \"So an investor would get their principal back in interest payments after 13.5 years if things remained stable, not accounting for discounting future cash flows/any return for the risk they are taking. The long maturity helps insurance companies and pensions properly match the duration of their liabilities. Still doesn't seem like a good bet, but it makes sense that it happened.\",\n \"Bonds provide protections against stock market crashes, diversity and returns as the other posters have said but the primary reason to invest in bonds is to receive relatively guaranteed income. By that I mean you receive regular payments as long as the debtor doesn't go bankrupt and stop paying. Even when this happens, bondholders are the first in line to get paid from the sale of the business's assets. This also makes them less risky. Stocks don't guarantee income and shareholders are last in line to get paid. When a stock goes to zero, you lose everything, where as a bondholder will get some face value redemption to the notes issue price and still keep all the previous income payments. In addition, you can use your bond income to buy more shares of stock and increase your gains there.\",\n \"Not really. You can have two bonds that have identical duration but vastly different convexity. Pensions and insurance portfolio managers are most common buyers as they're trying to deal with liability matching and high convexity allows them to create a barbell around their projected liabilities.\",\n \"Yes, if you want income and are willing to commit to hold a bond to maturity, you can hold the bond, get the scheduled payments, and get your principal returned at the end. US Savings Bonds are non-marketable (you cannot trade them, but can redeem early) bonds designed for this purpose. The value of a marketable bond will vary over its lifetime as interest rates change and the bond matures. If you buy a 30 year US Treasury bond at par value (100) on September 1, 2011, it yielded 3.51%. If rates fall, the value of your bond will increase over 100. If rates rise, the value will decrease below 100. How much the value changes depends on the type of bond and the demand for it. But if your goal is to buy and hold, you don't need to worry about it.\",\n \"\\\"The rate of the bond is fixed. But there is a risk known as \\\"\\\"interest rate risk\\\"\\\". Basically, if you have a 2 percent bond and market rates are 4 percent, you'll have to offer your bond at a discount or nobody would buy it. So if you ever needed to sell it, you'd lose a bit of money.\\\"\",\n \"IMHO bonds are not a good investment at this present time, nor generally. Appreciate for a moment that the yield of an investment is DIRECTLY related to the face/trading value. If a thing (bond/stock) trades for $100 and yields 3%, it pays $3. In the case of a bond, the bond doesn't pay a % amount, it pays a $ amount. Meaning it pays $3. SO, for the yield to rise, what has to happen to the trading price? It has to decrease. As of 2013/14 bonds are trading at historically LOW yields. The logical implication of this is if a bond pays a fixed $ amount, the trading price of the bond has to have increased. So if you buy bonds now, you will see a decrease in its face value over the long term. You may find the first tool I built at Simple Stock Search useful as you research potential investments.\",\n \"They get higher interest payments. If they were to sell now they would get a premium over par. They get principal back if they hold so no gain, only gain if they sell now. But then they have to put it elsewhere (another bond, this time lower interest?) so it's a wash. Depends what you use the money for.\",\n \"There are some important thing you need to understand about bonds, and how they work: * A bond doesn't need an active market - like a stock, for example - to have value. * Nonetheless, there exist active markets for all of these bonds. * The purpose of buying these bonds was not to step in due to the absence of a market. Rather, the purpose was to deliberately bid up the price of these bonds (ahead of the market), causing their price to rise and yields (interest rates) to drop. * The Fed can hold any and all of these bonds to maturity, while receiving contractual payments all the while, and never sell a single bond back to the market.\",\n \"\\\"[...] are all bonds priced in such a way so that they all return the same amount (on average), after accounting for risk? In other words, do risk premiums ONLY compensate for the amount investors might lose? No. GE might be able to issue a bond with lower yield than, say, a company from China with no previous records of its presence in the U.S. markets. A bond price not only contains the risk of default, but also encompasses the servicability of the bond by the issuer with a specific stream of income, location of main business, any specific terms and conditions in the prospectus, e.g.callable or not, insurances against default, etc. Else for the same payoff, why would you take a higher risk? The payoff of a higher risk (not only default, but term structure, e.g. 5 years or 10 years, coupon payments) bond is more, to compensate for the extra risk it entails for the bondholder. The yield of a high risk bond will always be higher than a bond with lower risk. If you travel back in time, to 2011-2012, you would see the yields on Greek bonds were in the range of 25-30%, to reflect the high risk of a Greek default. Some hedge funds made a killing by buying Greek bonds during the eurozone crisis. If you go through the Efficient frontier theory, your argument is a counter statement to it. Same with individual bonds, or a portfolio of bonds. You always want to be compensated for the risk you take. The higher the risk, the higher the compensation, and vice versa. When investors buy the bond at this price, they are essentially buying a \\\"\\\"risk free\\\"\\\" bond [...] Logically yes, but no it isn't, and you shouldn't make that assumption.\\\"\",\n \"I get teh flight to quality arguement aka best of the dirty shirts philosophy, but I am talking realistically. And of course a 3% 10yr is worth more on the seconday market now that rates are at 1.65%. That doesn't mean you buy the 1.65%\",\n \"It's worth pointing out that a bulk of the bond market is institutional investors (read: large corporations and countries). For individuals, it's very easy to just put your cash in a checking account. Checking accounts are insured and non-volatile. But what happens when you're GE or Apple or Panama? You can't just flop a couple billion dollars in to a Chase checking account and call it a day. Although, you still need a safe place to store money that won't be terribly volatile. GE can buy a billion dollars of treasury bonds. Many companies need tremendous amounts of collateral on hand, amounts far in excess of the capacity of a checking account; those funds are stored in treasuries of some sort. Separately, a treasury bond is not a substitute investment for an S&P index fund. For individuals they are two totally different investments with totally different characteristics. The only reason an individual investor should compare the return of the S&P against the readily available yield of treasuries is to ensure the expected return of an equity investment can sufficiently pay for the additional risk.\",\n \"\\\"Bonds might not be simple, but in general there are only a few variables that need to be understood: bid, coupon (interest) rate, maturity, and yield. Bond tables clearly lay those out, and if you're talking about government bonds a lot of things (like convertibles) don't apply (although default is still a concern). This might be overly simplistic, but I view ETF's primarily as an easy way to bring somewhat esoteric instruments (like grain futures) into the easily available markets of Nasdaq and the NYSE. That they got \\\"\\\"enhanced\\\"\\\" with leveraged funds and the such is interesting, but perhaps not the original intent of the instrument. Complicating your situation a bit more is the fee that gets tacked onto the ETF. Even Vanguard government bond funds hang out north of 0.1%. That's not huge, but it's not particularly appealing either considering that (unlike rounding up live cattle futures), it's not that much work to buy US government bonds, so the expense might not seem worth it to someone who's comfortable purchasing the securities directly. I'd be interested to see someone else's view on this, but in general I'd say that if you know what you want and know how to buy it, the government bond ETF becomes a lot less relevant as the liquidity offered (including the actual \\\"\\\"ease of transacting\\\"\\\") seem to to be the biggest factors in favor. From Investopedia's description: The bond ETF is an exciting new addition to the bond market, offering an excellent alternative to self-directed investors who, looking for ease of trading and increased price transparency, want to practice indexing or active bond trading. However, bond ETFs are suitable for particular strategies. If, for instance, you are looking to create a specific income stream, bond ETFs may not be for you. Be sure to compare your alternatives before investing.\\\"\",\n \"Well, people have been saying interest rates have to go up for years now and have been wrong so far. Also there is an opportunity cost in waiting to buy - if another five years passes with nothing happen, you earn 0% on checking accounts, but at least earn 1.65% per year or so on your 10y bond.\",\n \"AAA bonds are safe, as far as the principal goes. If you buy long term bonds today (at very low rates) and the interest rate goes up to 10% in 5 years, the current value of the bonds will decrease. But if you hold the bonds till maturity, you will almost certainly (barring MBS scenarios) get the expected principal and interest on the bonds. If you decide to sell a long-term bond before it matures, it will probably be worth less than you paid for it if interest rates have risen since you bought it.\",\n \"\\\"Looking at the list of bonds you listed, many of them are long dated. In short, in a rate rising environment (it's not like rates can go much lower in the foreseeable future), these bond prices will drop in general in addition to any company specific events occurred to these names, so be prepared for some paper losses. Just because a bond is rated highly by credit agencies like S&P or Moody's does not automatically mean their prices do not fluctuate. Yes, there is always a demand for highly rated bonds from pension funds, mutual funds, etc. because of their investment mandates. But I would suggest looking beyond credit ratings and yield, and look further into whether these bonds are secured/unsecured and if secured, by what. Keep in mind in recent financial crisis, prices of those CDOs/CLOs ended up plunging even though they were given AAA ratings by rating agencies because some were backed by housing properties that were over-valued and loans made to borrowers having difficulties to make repayments. Hence, these type of \\\"\\\"bonds\\\"\\\" have greater default risks and traded at huge discounts. Most of them are also callable, so you may not enjoy the seemingly high yield till their maturity date. Like others mentioned, buying bonds outright is usually a big ticket item. I would also suggest reviewing your cash liquidity and opportunity cost as oppose to investing in other asset classes and instruments.\\\"\",\n \"Buy a fund of bonds, there are plenty and are registered on your stockbroker account as 'funds' rather than shares. Otherwise, to the individual investor, they can be considered as the same thing. Funds (of bonds, rather than funds that contain property or shares or other investments) are often high yield, low volatility. You buy the fund, and let the manager work it for you. He buys bonds in accordance to the specification of the fund (ie some funds will say 'European only', or 'global high yield' etc) and he will buy and sell the bonds regularly. You never hold to maturity as this is handled for you - in many cases, the manager will be buying and selling bonds all the time in order to give you a stable fund that returns you a dividend. Private investors can buy bonds directly, but its not common. Should you do it? Up to you. Bonds return, the company issuing a corporate bond will do so at a fixed price with a fixed yield. At the end of the term, they return the principal. So a 20-year bond with a 5% yield will return someone who invests £10k, £500 a year and at the end of the 20 years will return the £10k. The corporate doesn't care who holds the bond, so you can happily sell it to someone else, probably for £10km give or take. People say to invest in bonds because they do not move much in value. In financially difficult times, this means bonds are more attractive to investors as they are a safe place to hold money while stocks drop, but in good times the opposite applies, no-one wants a fund returning 5% when they think they can get 20% growth from a stock.\",\n \"Bonds released at the same time have different interest rates because they have different levels of risks and liquidity associated. Risk will depend on the company / country / municipality that offers the bond: their financial position, and their resulting ability to make future payments & avoid default. Riskier organizations must offer higher interest rates to ensure that investors remain willing to loan them money. Liquidity depends on the terms of the loan - principal-only bonds give you minimal liquidity, as there are no ongoing interest payments, and nothing received until the bond's maturity date. All bonds provide lower liquidity if they have longer maturity dates. Bonds with lower liquidity must have higher returns to compensate for the fact that you will have to give up your cash for a longer period of time. Bonds released at different times will have different interest rates because of what the general 'market rate' for interest was in those periods. ie: if a bond is released in 2016 with interest rates approaching 0%, even a high risk bond would have a lower interest rate than a bond released in the 1980s, when market rates were approaching 20%. Some bonds offer variable interest tied to some market indicator - those will typically have higher interest at the time of issuance, because the bondholder bears some risk that the prevailing market rate will drop. Note regarding sale of bonds after market rates have changed: The value of your bonds will fluctuate with the market. If a bond was offered with 1% interest, and next year interest rates go up and a new identical bond is offered for 2% interest, when you sell your old bond you will take a loss, because the market won't want to pay full price for it anymore. Whether you should sell lower-interest rate bonds depends on how you feel about the factors above - do you want junk bonds that have stock-like levels of returns but high risks of default, maturing in 30 years? Or do you want AAA+ Bonds that have essentially 0% returns maturing in 30 days? If you are paying interest on debt, it is quite likely that you could achieve a net income benefit by selling the bonds, and paying off debt [assuming your debt has a higher interest rate than your low-rate bonds]. Paying off debt is sometimes referred to as a 'zero risk return', because essentially there is no real risk that your lender would otherwise go bankrupt. That is, you will owe your bank the car loan until you pay it, and paying it is the only thing you can do to reduce it. However, some schools of thought suggest that maintaining savings + liquid investments makes sense even if you have some debt, because cash + liquid investments can cover you in some emergencies that credit cards can't help you with. ie: if you lose your job, perhaps your credit could be pulled and you would have nothing except for your liquid savings to tide you over. How much you should save in this way is a matter of opinion, but often repeated numbers are either 3 months or 6 months worth [which is sometimes taken as x months of expenses, and sometimes as x months of after-tax income]. You should look into this issue further; there are many questions on this site that discuss it, I'm sure.\",\n \"\\\"Its because of the economic uncertainty in the world. They are the \\\"\\\"risk-free\\\"\\\" investment as it is an almost guaranteed return if you exclude inflation and US gov't defaulting. A lot of people are afraid to invest elsewhere given the current economic climate. The yield on bonds is also low due to government intervention. Quantitative easing 1 and 2 and operation twist has forced yield this low, as that is what the government wants.\\\"\",\n \"Avoiding fees would not be the primary reason to buy bonds yourself. No, the reason to buy bonds yourself in a retirement account is that you can hold them to maturity. Bond funds can and do lose value if interest rates rise (and gain it if interest rates fall). Of course the same happens with the bond that you hold, but you can hang on to it until maturity and get the face value out of it. That said, it would take some effort to put together a decent bond portfolio, especially if you were going to buy anything rated lower than the absolute best. I think it'd be fun to do, but I'm weird that way.\",\n \"\\\"TL;DR: If your currently held bond's bid yield is smaller than another bonds' ask yield. You can swap your bond for bigger returns. Let's imagine you buy a long bond for $12000 (face value of $10000) and it has 6% coupon. The cash flows will have an internal return rate of 4.37%, this is the published \\\"\\\"ask yield\\\"\\\" in 2014 of the bond. After six years, prices have fallen, inflation and yields went up. So you can sell it for only $10000. If you would do it, the IRR will be only 2.55%, so there will be less return, than if you keep it. But if you would \\\"\\\"undo\\\"\\\" the transaction, then the future cash flows would yield 6.38%. This is the \\\"\\\"bid yield\\\"\\\" in 2020 of the bond. If you can find an offer that yields more than 6.38%, you have better returns if you sell your bond and invest that $10000 in the other bond. But as other answers pointed it out, you rarely have this opportunity as the market is very effective. (Assuming everything else is equal.)\\\"\",\n \"\\\"It makes sense if the NPV is positive. But what rate should you use at determining the NPV? A textbook might say \\\"\\\"market rate\\\"\\\".... and by definition the market rate to use in bond calculations like yours will mean that your NPV will be zero. How can this be? Well it's a bit of a circular definition. You take less capital to earn a higher return. The value of your capital spread over the period of the bond's maturity is the net difference... but the money in your pocket from selling the bond and not purchasing also has value. Banks and traders do this exact swap every day, many many times. The rate at which you can execute this swap is what defines the market rate. Therefore, by definition, the NPV will be zero. Now, this doesn't mean it's a bad idea for you. You can, on your own accord, decide the value you place on the capital versus the yield and make the decision. Do you expect rates to rise or fall? Do you expect higher or lower inflation? In reality you can form whatever opinion you like for your own circumstance, but the market is the net aggregation of formative opinion. You only get to decide whether or not you agree with the market.\\\"\",\n \"There is a large market where notes/bills/bonds are traded, so yes you can sell them later. However, if interest rates go up, the value of any bond that you want to sell goes down, because you now have to compete with what someone can get on a new issue, so you need to 'discount' the principal value of your bond in order for someone to want to buy it instead of a new bond that has a higher interest rate. The reverse applies if interest rates fall (although it's hard to get much lower than they are now). So someone wanting to make money in bonds due to interest rate changes, generally wants to buy at higher interest rates, and then sell their bonds after rates have gone down. See my answer in this question for more detail Why does interest rate go up when bond price goes down? To answer 'is that good' the answer depends on perspective:\",\n \"The Barclay's 20+ Year Treasury Bond inception date was July 21, 2002. You aren't going to find treasury bond information going back to 1900 because Treasury Bills have only been issued since 1929. The U.S. Department of the Treasury will give you data back to 1990. There's a good article in the Globe and Mail which covers why you may want to buy bonds as part of your portfolio. The key is diversification. Historically, stocks have done better than bonds long-term, but when stocks fall, bonds tend to (though do not always) go up. If you are investing for 30 years, the risk of putting money into bonds is that you will not make as much money as if you had put the money into stocks. Historically (in the US or Canada), you'd have seen positive returns, just not as high as investing in the stock market. There are many investment strategies. I live in Canada and personally favour the one described in the Canadian Couch Potato, a passive index investment strategy where I invest my money in Canadian, U.S. and International equity (stock market mutual funds) and also in a Canadian bond fund. There are, of course, plenty of people who will tell you to take a radically different strategy with your investments.\",\n \"\\\"A few points that I would note: Call options - Could the bond be called away by the issuer? This is something to note as some bonds may end up not being as good as one thought because of this option that gets used. Tax considerations - Are you going for corporate, Treasury, or municipals? Different ones may have different tax consequences to note if you aren't holding the bond in a tax-advantaged account,e.g. Roth IRA, IRA or 401k. Convertible or not? - Some bonds are known as \\\"\\\"convertibles\\\"\\\" since the bond comes with an option on the stock that can be worth considering for some kinds of bonds. Inflation protection - Some bonds like TIPS or series I savings bonds can have inflation protection built into them that can also be worth understanding. In the case of TIPS, there are principal adjustments while the savings bond will have a change in its interest rate. Default risk - Some of the higher yield bonds may have an issuer go under which is another way one may end up with equity in a company rather than getting their money back. On the other side, for some municipals one could have the risk of the bond not quite being as good as one thought like some Detroit bonds that may end up in a different result given their bankruptcy but there are also revenue bonds that may not meet their target for another situation that may arise. Some bonds may be insured though this requires a bit more research to know the credit rating of the insurer. As for the latter question, what if interest rates rise and your bond's value drops considerably? Do you hold it until maturity or do you try to sell it and get something that has a higher yield based on face value?\\\"\",\n \"If your main goal is to avoid taxes, municipal bonds are a good strategy, it's not the best way to make more than 1-2% in gains. And kudos for putting money back into the community.\",\n \"\\\"All of the other answers here are accurate, but (I think) are missing the point as to the question, which rests on how Bonds work in the first place. The bond specifies a payback AMOUNT and DATE. Let's say it is $10,000 and one year from today. If you buy that today for $9900, your yield will be 1%. If you buy it today for $11,000, your yield will be less than 0% (please don't make me do the math - it's just under negative 1%). You might be willing to pay that 1% (rather than receive 1%) for the certainty that you will definitely get your money back. The combined actions of all the people who may be willing to pay a little more or a little less for the safety of a US Treasury Bond is what people call \\\"\\\"the Market.\\\"\\\" Market forces (generally, investor confidence) will drive the price up and down, which affects the yield. All the other stuff - coupons and inflation and whatnot - all of that only makes sense if you understand that you aren't buying a rate of return, you are buying a payback amount and date.\\\"\",\n \"One reason that a bond can be significantly less than face value is because people are seeking better investments elsewhere, so for example if a bond doesn't mature for another 10 years, that 20% increase in face value isn't very attractive when compared to say leaving your money in the stock market for 10 years. Another reason could be that the credit-worthiness of the issuer has collapsed and people expect that there is a fairly good chance they are not going to make the payment. This could be what you would see if for example it was a one year time until maturity, but it has a value of 40% of the face value. There is a risk, because they can simply not pay. For example people who bought Greek bonds.\",\n \"One thing to note before buying bond funds. The value of bonds you hold will drop when interest rates go up. Interest rates are at historical lows and pretty much have nowhere to go but up. If you are buying bonds to hold to maturity this is probably not a major concern, but for a bond fund it might impair performance if things suddenly shift in the interest rate market.\",\n \"When interest rates rise, the price of bonds fall because bonds have a fixed coupon rate, and since the interest rate has risen, the bond's rate is now lower than what you can get on the market, so it's price falls because it's now less valuable. Bonds diversify your portfolio as they are considered safer than stocks and less volatile. However, they also provide less potential for gains. Although diversification is a good idea, for the individual investor it is far too complicated and incurs too much transaction costs, not to mention that rebalancing would have to be done on a regular basis. In your case where you have mutual funds already, it is probably a good idea to keep investing in mutual funds with a theme which you understand the industry's role in the economy today rather than investing in some special bonds which you cannot relate to. The benefit of having a mutual fund is to have a professional manage your money, and that includes diversification as well so that you don't have to do that.\",\n \"\\\"Investment strategies abound. Bonds can be part of useful passive investment strategy but more active investors may develop a good number of reasons why buying and selling bonds on the short term. A few examples: Also, note that there is no guarantee in bonds as you imply by likening it to a \\\"\\\"guaranteed stock dividend\\\"\\\". Bond issuers can default, causing bond investors to lose part of all of their original investment. As such, if one believes the bond issuer may suffer financial distress, it would be ideal to sell-off the investment.\\\"\",\n \"No citation, but I once read the average holding period of a 30 yr treasury is 8 hours. A rise in the rate by just .1% will drop the value by just under 2% wiping out nearly a full year's gains. With 29 years to go the value of the 3% bond will be worth $981 if the rate were then 3.1% It's at 3.16% the bond would drop to exactly $970 after the year, i.e. you've gotten no return at all. I view this as pretty high risk.\",\n \"\\\"The name of the Gilt states the redemption date, but not the original issue date. A gilt with 8.75% yield and close to its redemption date may have been issued at a time when interest rates were indeed close to 8.75%. For example in the early 1990s, the UK inflation rate was about 8%. One reason for preferring high or low coupon gilts is the trade off between capital gains and income, and the different taxation rules for each. If you buy a gilt and hold it to its maturity date, you know in advance the exact price that it will be redeemed for (i.e. £100). You may prefer to take a high level of income now, knowing you will make a capital loss in future (which might offset some other predictable capital gain for tax purposes) or you may prefer not to take income that you don't need right now, and instead get a guaranteed capital gain in future (for example, when you plan to retire from work). Also, you can use the change in the market value of gilts as a gamble or a hedge against your expectation of interest rate changes in future, with the \\\"\\\"government guaranteed\\\"\\\" fallback position that if your predictions are wrong, you know exactly what return you will get if you hold the gilts to maturity. The same idea applies to other bond investments - but without the government guarantee, of course.\\\"\",\n \"Yes, you're absolutely right. For such small amounts and such large fees, almost any investment choice is pointless. Some brokers allow for commission free ETF trading. Seek them out. As you've noticed, bond interest rates are almost 0%. This is a far cry from the days of Benjamin Graham, where the USD acted more like gold, with much more frequent booms and busts. During Graham's heyday, one could sell one's bonds at super low interest rates and buy them back again when high. In his day, interest rates would be very high one year like in 2008 and next to nothing the next like in 2009, cycling back and forth, until the 1960s hit, and he didn't know what to do. Graham preferred to wait for the reversion to the mean, and act only when far from it. Those opportunities are few and far between now since fiat currencies are far better managed than they were then, the Fed-caused 2009 total destruction as an outlier to recent times. In your case, it's best to leave the bonds to the insurance companies and buy equities. If you want less volatility, buy a buy-write ETF. Bonds will surely disappoint unless one is lucky enough to hold bonds while interest rates fall from ~6% to ~3%, an eventuality that shouldn't be expected to occur again, as Bill Gross is painfully discovering.\",\n \"\\\"that would imply that a 30Y US Treasury bond only yields 2.78%, which is nonsensically low. Those are annualized yields. It would be more precise to say that \\\"\\\"a 30Y US Treasury bond yields 2.78% per year (annualized) over 30 years\\\"\\\", but that terminology is implied in bond markets. So if you invest $1,000 in a 30-year T-bond, you will earn roughly 2.78% in interest per year. Also note that yield is calculated as if it compounded, meaning that investing in a 30-year T-bind will give you a return that is equivalent to putting it in a savings account that earns 1.39% interest (half of 2.78%) every 6 months and compounds, meaning you earn interest on top of interest. The trade-off for these low yields is you have virtually no default risk. Unlike a company that could go bankrupt and not pay back the bond, the US Government is virtually certain to pay off these bonds because it can print or borrow more money to pay off the debts. In addition, bonds in general (and especially treasuries) have very low market risk, meaning that their value fluctuates much less that equities, even indicies. S&P 500 indices may move anywhere between -40% and 50% in any given year, while T-bonds' range of movement is much lower, between -10% and 30% historically).\\\"\",\n \"I always find this funny. How can government bonds be in attractive and currency be attractive? With monetary policy America guarantees that it can't default on debt. The only thing that can happen which breaks this is if the government prints itself out of debt. In which case not only will you bonds be worthless but so will your cash. So to all the investors with boats of cash, you are trading one problem for the same problem. The only difference is you can hold the second problem in your hands. Fools.\",\n \"Maximizing income could mean a lot of things. What you really want is to maximize wealth. Doesn't matter if it comes from your bond appreciating in value or as dividends. In order to maximize your wealth (that's today's wealth), you need to make decisions based on the net present value of these bonds. The market is fairly priced, especially for a tight market like government bonds. That means if your bond falls in price, it has fallen by precisely the amount necessary so that an investor would be indifferent between purchasing it now, at its current price, and purchasing a new bond with a higher dividend. The bonds with higher dividends will simply have a higher price, so more of the money comes as dividends than as price appreciation (at maturity it will sell for face value). In other words, the animals are out of the barn and you have lost (or made) money already. Changing from one bond to another will not change your wealth one way or the other. The only potential effect of changing bonds will be changing the risk of your portfolio. If you buy a bond that matures later or has a lower dividend than your current bond, you will be adding additional interest rate risk to your portfolio. That risk should be compensated, so you will have a higher expected return as well. But regardless of your choice you will not be made wealthier or less wealthy by changing from one bond to another. Should you buy bonds that will earn you the most possible? Sure, if you are below your risk tolerance. Even among default free bonds, the longer the maturity and the lower the dividend, the greater the effect of future changes in interest rates on your bond. That makes them riskier, but also makes them earn more money on average. TL;DR: In terms of your wealth, which is what matters, it doesn't matter whether you hold your bond or buy a new one.\",\n \"If interest rates are negative, a 0% load might still be profitable.\",\n \"The 1-yr bond has a higher interest rate, but it's only guaranteed for a year. This means it is subject to reinvestment risk. Suppose you're investing in 1981. Which sounds better? I've not looked up the precise interest rates but I'm guessing the former option leaves you with more money in 1991. It should be no surprise that investors were willing to pay more for it++, even if they couldn't have been totally sure in advance. :) (++ Remember, a bond is like a coupon for a certain percentage off of future-money. If the coupon offers you fewer percent off, you're paying more present-money for each dollar of future-money you buy.)\",\n \"just pick a good bond and invest all your money there (since they're fairly low risk) No. That is basically throwing away your money and why would you do that. And who told you they are low risk. That is a very wrong premise. What factors should I consider in picking a bond and how would they weigh against each other? Quite a number of them to say, assuming these aren't government bonds(US, UK etc) How safe is the institution issuing the bond. Their income, business they are in, their past performance business wise and the bonds issued by them, if any. Check for the bond ratings issued by the rating agencies. Read the prospectus and check for any specific conditions i.e. bonds are callable, bonds can be retired under certain conditions, what happens if they default and what order will you be reimbursed(senior debt take priority). Where are interest rates heading, which will decide the price you are paying for the bond. And also the yield you will derive from the bond. How do you intend to invest the income, coupon, you will derive from the bonds. What is your time horizon to invest in bonds and similarly the bond's life. I have invested in stocks previously but realized that it isn't for me Bonds are much more difficult than equities. Stick to government bonds if you can, but they don't generate much income, considering the low interest rates environment. Now that QE is over you might expect interest rates to rise, but you can only wait. Or go for bonds from stable companies i.e. GE, Walmart. And no I am not saying you buy their bonds in any imaginable way.\",\n \"\\\"The fact that some asset (in this case corporate bonds) has positive correlation with some other asset (equity) doesn't mean buying both isn't a good idea. Unless they are perfectly correlated, the best risk/reward portfolio will include both assets as they will sometimes move in opposite directions and cancel out each other's risk. So yes, you should buy corporate bonds. Short-term government bonds are essentially the risk-free asset. You will want to include that as well if you are very risk averse, otherwise you may not. Long-term government bonds may be default free but they are not risk free. They will make money if interest rates fall and lose if interest rates rise. Because of that risk, they also pay you a premium, albeit a small one, and should be in your portfolio. So yes, a passive portfolio (actually, any reasonable portfolio) should strive to reduce risk by diversifying into all assets that it reasonably can. If you believe the capital asset pricing model, the weights on portfolio assets should correspond to market weights (more money in bonds than stocks). Otherwise you will need to choose your weights. Unfortunately we are not able to estimate the true expected returns of risky assets, so no one can really agree on what the true optimal weights should be. That's why there are so many rules of thumb and so much disagreement on the subject. But there is little or no disagreement on the fact that the optimal portfolio does include risky bonds including long-term treasuries. To answer your follow-up question about an \\\"\\\"anchor,\\\"\\\" if by that you mean a risk-free asset then the answer is not really. Any risk-free asset is paying approximately zero right now. Some assets with very little risk will earn a very little bit more than short term treasuries, but overall there's nowhere to hide--the time value of money is extremely low at short horizons. You want expected returns, you must take risk.\\\"\",\n \"\\\"To speak to this a little more broadly: apart from groups like hedge funds and other investors investing for purely speculative purposes, one of the major purposes of forwards (and, for that matter, futures) for companies in the \\\"\\\"real economy\\\"\\\" is to \\\"\\\"lock in\\\"\\\" a particular price in advance (or to reduce the risk of some kind of investment or transaction). Investopedia defines a currency forward as follows (with a few key points emphasized): [A currency forward is] a binding contract in the foreign exchange market that locks in the exchange rate for the purchase or sale of a currency on a future date. A currency forward is essentially a hedging tool that does not involve any upfront payment. The other major benefit of a currency forward is that it can be tailored to a particular amount and delivery period, unlike standardized currency futures. This can be a major advantage for planning and risk management purposes. For example, if I know I'm going to have to pay $1 million USD in the future and most of my revenue is in Euros, the actual amount I'll have to pay will vary based on the exchange rate between Euros and dollars. Thus, it's very worthwhile for me to be able to \\\"\\\"lock in\\\"\\\" a particular exchange rate so that I know exactly how much I'm going to pay relative to my projected revenue. The goal isn't necessarily to make money off the transaction (maybe they do, maybe they don't) as much as to reduce risk and improve planning ability. The fact that it doesn't involve an up-front payment is also a major advantage. It's usually a bad practice to \\\"\\\"sit on\\\"\\\" cash for a year if you can avoid it. Another key point: savings accounts pay less interest than inflation. If inflation is 3% and your savings account pays 1%, that looks remarkably like a guaranteed 2% loss to me.\\\"\",\n \"Perfect super clear, thank you /u/xlct2 So it is like you buy a bond for $X, start getting interest, sell bond for $X :) I was thinking there could be a possibility of a bond working like a loan from a bank, that you going paying as time goes by :D\",\n \"There are a few other factors possible here: Taxes - Something you don't mention is what are the tax rates on each of those choices. If the 4% gain is taxed at 33% while the 3% government bond is taxed at 0% then it may well make more sense to have the government bond that makes more money after taxes. Potential changes in rates - Could that 4% rate change at any time? Yield curves are an idea here to consider where at times they can become inverted where short-term bonds yield more than long-term bonds due to expectations about rates. Some banks may advertise a special rate for a limited time to try to get more deposits and then change the rate later. Beware the fine print. Could the bond have some kind of extra feature on it? For example, in the US there are bonds known as TIPS that while the interest rate may be low, there is a principal adjustment that comes as part of the inflation adjustment that is part how the security is structured.\",\n \"I'll get to my answer in a moment, but first need to put focus on the two key components of bond prices: interest rates and credit risk. Suppose that the 10-year treasury has a coupon of 2% per year (it would be paid as 1% twice per year, in reality). If you own one contract of the bond which we suppose has a so-called face-value of $100, then this contract will over the ten years pay you a total of $20 in coupons, then $100 at redemption. So $120 in total. Would you therefore buy this 10-year treasury bond for $120, or more, or less? Well, if there were bank accounts around which were offering you an interest rate of 2% per year fixed for the next 10 years, then you could alternatively generate $120 from just $100 deposited now (if we assume that the interest paid is not put back in the account to earn 2% per year). Consequently, a price of $100 for the treasury would seem about right. However, suppose that you are not very confident that the banks that offer these accounts will even be around in 10 years time, maybe they will fail before that and you'll never get your money back. Then you might say to yourself that the above calculation is mathematically right, but not really a full representation of the different risks. And you conclude that maybe treasuries should be a bit more expensive, because they offer better credit risk than bank deposits. All of this just to show that the price of bonds is a comparative valuation of rates and credit: you need to know the general level of interest rates available in other investment products (even in stocks, I'd say), you need to have a feel for how much credit risk there is in the different investment products. Most people think that 'normally' interest rates are positive, because we are so familiar with the basic principle that: if I lend you some money then you need to pay me some interest. But in a world where everyone is worried about bank failures, people might prefer to effectively 'deposit' our savings with the US treasury (by buying their bonds) than to deposit their savings in the local bank. The US treasury will see this extra demand and put up the prices of their bonds (they are not stupid at the US treasury, you know!), so maybe the price of the 10-year treasury will go above $120. It could, right? In this scenario, the implied yield on the 10-year treasury is negative. There you go, yields have gone negative because of credit risk concerns.\",\n \"When you buy a bond - you're giving a loan to the issuer. The interest rate on the bond is the interest rate on the loan. Usually (and this is also the case with the treasury bonds), the rate is fixed for the term of the loan. Thus, if the market rate for similar loans a year later is higher, the rate for the loan you gave - remains the same.\",\n \"why should i have to make something with my cash? i'll fuking hold it and face losing a few percentage of purchasing power. i'd rather have liquity in these peril times. besides, people that held cash in 2008 had a once in a life time buying opportunity when all assets fell 60-90%.\",\n \"It depends a lot on your investment period and the quality of the bonds that you want to invest. For example, if you want to invest until the maturity of the bonds, and the bonds are very safe (i.e. they are not expected to default), it does not matter that the interest rate rise. That is because at the maturity of the bond it will converge to its maturity value which will be independent of the change of the interest rates (although on the middle of the life the price of the bond will go down, but the coupon should remain constant -unless is a floating coupon bond-). An option could be to invest in an ETF with short term bonds (e.g. 1 year) with AAA credit rating (high quality, so very low default rate). It won't yield much, but is more than 0% if you hold it until maturity.\",\n \"Let's say today you buy the bond issued by StateX at 18$. Let's say tommorow morning the TV says that StateX is going towards default (if it happens it won't give you back not even the 18$ you invested). You (and others that bought the same bond like you) will get scared and try to sell the bond, but a potential buyer won't buy it for 18$ anymore they will risk maximum couple of bucks, therefor the price of your bond tomorrow is worth 2$ and not 18 anymore. Bond prices (even zero coupon ones) do fluctuate like shares, but with less turbolence (i.e. on the same period of time, ups and downs are smaller in percentage compared to shares) EDIT: Geo asked in the comment below what happens to the bond the FED rises the interest. It' very similar to what I explained above. Let's say today you buy the bond just issued by US treasury at 50$. Today the FED rewards money at 2%, and the bond you bought promised you a reward of 2% per year for 10 years (even if it's zero coupon, it will give you almost the same reward of one with coupons, the only difference is that it will give you all the money back at once, that is when the bond expires). Let's say tommorow morning the TV says that FED decided to rise the interest rates, and now on it lends money rewarding a wonderful 4% to investors. US treasury will also have to issue bonds at 4%. You can obviously keep your bond until expiration (and unless US goes default you will get back all your money until the last cent), but if you decide to sell your bond, you will find out that people won't be willing to pay 50$ anymore because on the market they can now buy the same type of bond (for the same period of time, 10 years) that give them 4% per year and not a poor 2% like yours. So people will be willing to pay maximum 40$ for your bond or less.\",\n \"\\\"I don't like buying individual bonds for my own portfolio. I actually used to buy long-term government strip bonds (Canadas or provincial bonds) but I stopped. Here are some reasons why: My broker allows me to purchase bonds via their web application. However, to sell a bond, I had to call in to the fixed-income trading desk. That was inconvenient. (But your broker may be different.) Bonds don't typically trade on a formal exchange. So, there's no cheap & easy way (as far as I know) to get an independent quote for a bond's value – I had to trust what my broker said my bond was worth when assessing my portfolio performance. I asked my broker once how they arrive at the \\\"\\\"market value\\\"\\\" shown – i.e. whether it was last bid, ask, or actual trade – and I was told they use a third party bond quotation / valuation information provider for the data, and that quotes are an estimate of what the bond would be worth, based on similar bonds. I quickly learned that wasn't the value I could actually get when selling it: When you're dealing with your broker to buy and sell bonds, you're likely dealing with theirs or a related investment bank which makes a market for specific issues of bonds. While I wasn't being charged an explicit commission to buy or sell bonds, it was evident the broker makes money off the spread: That is, the difference between what they would be willing to sell a bond for and what they would be willing to buy that same bond for. They will buy your bond back from you cheaper than what they could turn around and sell it to somebody else for. That's why they don't charge an explicit commission... it's built in and hidden! Anyway, when I finally discovered my broker would seldom actually offer me the \\\"\\\"market value\\\"\\\" quoted for my bonds (typically, it would be bought back for a few percent less than it were theoretically worth), I gave up. I don't think bonds simply are liquid enough, nor the costs transparent enough for retail investors. (Or maybe it's just me :-) However, I do think bonds remain an important part of a diversified portfolio: Bonds ought to be represented in a diversified portfolio using low-cost bond index mutual funds or exchange-traded funds. Since these funds buy & sell bonds in large quantities, they get a better deal on the spreads. So, while you do pay an explicit management fee for a fund, you are probably saving since you're not getting shafted on the spreads.\\\"\",\n \"First off, I do not recommend buying individual bonds yourself. Instead buy a bond fund (ETF or mutual fund). That way you get some diversification. The risk-reward ratio will be evident in what you find to invest in. Junk bond funds pay the highest rates. Treasury bond funds pay the lowest. So you have to ask yourself how comfortable are you with risk? Buy the funds that pay the highest rate but still let you sleep at night.\",\n \"It is my understanding that banks pay less than the going rate on savings accounts and require that the person who takes out a loan pay more than the going rate. That is how the bank gets its money. Usually the going rate is affected by the current inflation rate (but that has not been true for the last few weeks). So that means that, typically, the money you have in the bank is, gradually, losing purchasing power as the bank typically pays you less than the inflation rate. So if you want your money to keep pace with inflation (or do a bit better) then you should buy bonds.\",\n \"\\\"If by \\\"\\\"putting money in the bank\\\"\\\" you mean regular savings or checking, then the bond locks a rate for a period of time, whereas your savings/checking rate can vary over that period. That variation might go for you or against you. Depending on your situation, you might prefer to take a determined rate to the variations. In addition, some bond types provide tax benefits (e.g. treasuries and municipal bonds) that change the effective return - You cannot just compare the interest rates. Finally, the bonds have \\\"\\\"resale\\\"\\\" value on the secondary market like stock - Depending on your outlook and strategy, you might by the bond for its value as a security rather than for the interest specifically just like you'd could buy a dividend-paying stock for its value as a security rather than for the dividend. In other words, you might think that bond values are going up, so you buy bonds with the intent of making a capital gain rather than counting on the interest returned. (The bond market does depend on the interest rate, so these are not independent factors.) I see the other answer that mentions the potential for your bank busting and you losing money beyond the FDIC insurance limit. The question doesn't specify U.S. Government bonds though, so I don't think that answer is generally good. It would be good in the case that you had a lot of money (especially an institution or foreign government) and you were specifically interested in U.S. Treasury bonds. Not so much if you invest in corporate bonds where you have no government insurance / assurance of any sort. Municipal bounds are also not backed by the U.S. (federal) government, but they may have some backing at the state level, depending on the state.\\\"\",\n \"\\\"If I don't need this money for decades, meaning I can ride out periodical market crashes, why would I invest in bonds instead of funds that track broad stock market indexes? You wouldn't. But you can never be 100% sure that you really won't need the money for decades. Also, even if you don't need it for decades, you can never be 100% certain that the market will not be way down at the time, decades in the future, when you do need the money. The amount of your portfolio you allocate to bonds (relative to stocks) can be seen as a measure of your desire to guard against that uncertainty. I don't think it's accurate to say that \\\"\\\"the general consensus is that your portfolio should at least be 25% in bonds\\\"\\\". For a young investor with high risk tolerance, many would recommend less than that. For instance, this page from T. Rowe Price suggests no more than 10% bonds for those in their 20s or 30s. Basically you would put money into bonds rather than stocks to reduce the volatility of your portfolio. If you care only about maximizing return and don't care about volatility, then you don't have to invest in bonds. But you probably actually do care about volatility, even if you don't think you do. You might not care enough to put 25% in bonds, but you might care enough to put 10% in bonds.\\\"\",\n \"> The purpose of buying these bonds was not to step in due to the absence of a market. Rather, the purpose was to deliberately bid up the price of these bonds (ahead of the market), causing their price to rise and yields (interest rates) to drop. There are some important things you need to understand about bubbles and how they form. When interest rates are artificially low and down payments aren't required for many loans, do you agree this is a recipe for a bubble?\",\n \"\\\"You ask two questions - First - the market value can drop for two reasons (that I know), the company itself may have issues, and investors don't trust they'll be paid, or a general rise in interest rates. In the latter case, there's little to worry about, but for the former, well, that's your decision, you say \\\"\\\"the company is in trouble\\\"\\\" yet you believe they'll pay. Tough call. Second - yes, when a bond matures, the money appears in your account.\\\"\",\n \"\\\"In truth there is no such thing as a risk-free asset. That is why your textbook feels the need to add the qualifier \\\"\\\"for practical purposes,\\\"\\\" meaning that the risk of a money market account is so much lower than virtually any other asset class that it can reasonably be approximated as risk free. The main risk of any bond, short-term or long-term, is that its price may change before the maturity date. This could happen for one of many reasons, such as interest rate changes, creditworthiness, market risk tolerance, and so on. Thus you may lose money if you need to redeem your investment ahead of the scheduled maturity.\\\"\",\n \"There is no single 'market interest rate'; there are myriad interest rates that vary by risk profile & term. Corporate bonds are (typically) riskier than bank deposits, and therefore pay a higher effective rate when the market for that bond is in equilibrium than a bank account does. If you are willing to accept a higher risk in order gain a higher return, you might choose bonds over bank deposits. If you want an even higher return and can accept even higher risk, you might turn to stocks over bonds. If you want still higher return and can bear the still higher risk, derivatives may be more appealing than stocks.\",\n \"The simple answer: Because you believe every other option can yield greater losses... So the thinking is; Lend it to France you'll get your money back. Put your money in a bank and there's a chance you won't get it back if the bank goes bust. Investors also believe that rates will continue to go more negative, in which case they will actually MAKE money. It's a momentum play which will eventually reverse but since the Bond market is extremely liquid, it's a bet that can quickly be unwound. Another theory floating around is that if the weaker countries of the euro leave (e.g. Greece, etc) and the core keep the euro, then the value of the euro will actually rise. So by putting your money in French or German bonds you would also be securing cash in French or German euro's. - Thinking the unthinkable on a euro break-up - Gavyn Davies\",\n \"US government bonds are where money goes when the markets are turbulent and investors are fleeing from risk, and that applies even if the risk is a downgrade of the US credit rating, because there's simply nowhere else to put your money if you're in search of safety. Most AAA-rated governments have good credit ratings because they don't borrow much money (and most of them also have fairly small economies compared with the US), meaning that there's poor liquidity in their scarce bonds.\",\n \"\\\"A bond fund will typically own a range of bonds of various durations, in your specific fund: The fund holds high-quality long-term New York municipal bonds with an average duration of approximately 6–10 years So through this fund you get to own a range of bonds and the fund price will behave similar to you owning the bonds directly. The fund gives you a little diversification in terms of durations and typically a bit more liquidity. It also may continuously buy bonds over time so you get some averaging vs. just buying a bond at a given time and holding it to maturity. This last bit is important, over long durations the bond fund may perform quite differently than owning a bond to maturity due to this ongoing refresh. Another thing to remember is that you're paying management fees for the fund's management. As with any bond investment, the longer the duration the more sensitive the price is to change in interest rates because when interest rates change the price will track it. (i.e. compare a change of 1% for a one year duration vs. 1% yearly over 10 years) If I'm correct, why would anyone in the U.S. buy a long-term bond fund in a market like this one, where interest rates are practically bottomed out? That is the multi-trillion dollar question. Bond prices today reflect what \\\"\\\"people\\\"\\\" are willing to pay for them. Those \\\"\\\"people\\\"\\\" include the Federal Reserve which through various programs (QE, Operate Twist etc.) has been forcing the interest rates to where they want to see them. If no one believed the Fed would be able to keep interest rates where they want them then the prices would be different but given that investors know the Fed has access to an infinite supply of money it becomes a more difficult decision to bet against that. (aka \\\"\\\"Don't fight the Fed\\\"\\\"). My personal belief is that rates will come up but I haven't been able to translate that belief into making money ;-) This question is very complex and has to do not only with US policies and economy but with the status of the US currency in the world and the world economy in general. The other saying that comes to mind in this context is that the market can remain irrational (and it certainly seems to be that) longer than you can remain solvent.\\\"\",\n \"Fundamentally, it's no different than normal. A risky entity must entice investors with higher interest rates than less risky entities. We're just in such a low interest rate environment that the rate spread now dips below zero and very low risk entities can issue debt with a negative coupon. Though I agree that this makes no sense and the world's gone mad.\",\n \"Yes those are really yields. A large portion of the world has negative yielding bonds in fact. This process has been in motion for the past 10 years for very specific reasons. So congratulations on discovering the bond market.\",\n \"\\\"Great question. There are several reasons; I'm going to list the few that I can think of off the top of my head right now. First, even if institutional bank holdings in such a term account are covered by deposit insurance (this, as well as the amount covered, varies geographically), the amount covered is generally trivial when seen in the context of bank holdings. An individual might have on the order of $1,000 - $10,000 in such an account; for a bank, that's basically chump change, and you are looking more at numbers in the millions of dollars range. Sometimes a lot more than that. For a large bank, even hundreds of millions of dollars might be a relatively small portion of their holdings. The 2011 Goldman Sachs annual report (I just pulled a big bank out of thin air, here; no affiliation with them that I know of) states that as of December 2011, their excess liquidity was 171,581 million US dollars (over 170 billion dollars), with a bottom line total assets of $923,225 million (a shade under a trillion dollars) book value. Good luck finding a bank that will pay you 4% interest on even a fraction of such an amount. GS' income before tax in 2011 was a shade under 6.2 billion dollars; 4% on 170 billion dollars is 6.8 billion dollars. That is, the interest payments at such a rate on their excess liquidity alone would have cost more than they themselves made in the entire year, which is completely unsustainable. Government bonds are as guaranteed as deposit-insurance-covered bank accounts (it'll be the government that steps in and pays the guaranteed amount, quite possibly issuing bonds to cover the cost), but (assuming the country does not default on its debt, which happens from time to time) you will get back the entire amount plus interest. For a deposit-insured bank account of any kind, you are only guaranteed (to the extent that one can guarantee anything) the maximum amount in the country's bank deposit insurance; I believe in most countries, this is at best on the order of $100,000. If the bank where the money is kept goes bankrupt, for holdings on the order of what banks deal with, you would be extremely lucky to recover even a few percent of the principal. Government bonds are also generally accepted as collateral for the bank's own loans, which can make a difference when you need to raise more money in short order because a large customer decided to withdraw a big pile of cash from their account, maybe to buy stocks or bonds themselves. Government bonds are generally liquid. That is, they aren't just issued by the government, held to maturity while paying interest, and then returned (electronically, these days) in return for their face value in cash. Government bonds are bought and sold on the \\\"\\\"secondary market\\\"\\\" as well, where they are traded in very much the same way as public company stocks. If banks started simply depositing money with each other, all else aside, then what would happen? Keep in mind that the interest rate is basically the price of money. Supply-and-demand would dictate that if you get a huge inflow of capital, you can lower the interest rate paid on that capital. Banks don't pay high interest (and certainly wouldn't do so to each other) because of their intristic good will; they pay high interest because they cannot secure capital funding at lower rates. This is a large reason why the large banks will generally pay much lower interest rates than smaller niche banks; the larger banks are seen as more reliable in the bond market, so are able to get funding more cheaply by issuing bonds. Individuals will often buy bonds for the perceived safety. Depending on how much money you are dealing with (sold a large house recently?) it is quite possible even for individuals to hit the ceiling on deposit insurance, and for any of a number of reasons they might not feel comfortable putting the money in the stock market. Buying government bonds then becomes a relatively attractive option -- you get a slightly lower return than you might be able to get in a high-interest savings account, but you are virtually guaranteed return of the entire principal if the bond is held to maturity. On the other hand, it might not be the case that you will get the entire principal back if the bank paying the high interest gets into financial trouble or even bankruptcy. Some people have personal or systemic objections toward banks, limiting their willingness to deposit large amounts of money with them. And of course in some cases, such as for example retirement savings, it might not even be possible to simply stash the money in a savings account, in which case bonds of some kind is your only option if you want a purely interest-bearing investment.\\\"\",\n \"Why does selling a bond drive up the yield? The bond will pay back a fixed amount when it comes due. The yield is a comparison of what you pay for the bond and what will be repaid when it matures (assuming no default). Why does the yield go up if the country is economically unstable? If the country's economy is unstable, that increases the chance that they will default and not pay the full value of the bonds when they mature. People are selling them now at a loss instead of waiting for a default later for a greater loss. So if you think Greece is not going to default as it's highly likely a country would completely default, wouldn't it make sense to hold onto the bonds? Only if you also think that they will pay back the full value at maturity. It's possible that they pay some, but not all. It's also possible that they will default. It's also possible that they will get kicked out of the Euro and start printing Drachmas again, and try to pay the bonds back with those which could devalue the bonds through inflation. The market is made of lots of smart people. If they think there are reasons to worry, there probably are. That doesn't mean they can predict the future, it just means that they are pricing the risk with good information. If you are smarter than the herd, by all means, bet against them and buy the bonds now. It can indeed be lucrative if you are right, and they are wrong.\",\n \"This is just a pedestrian (my) opinion: Yes, It is wise to invest in bond funds even in a low interest environment. Check out the lazy man's portfolio on bogleheads. The reason is:\",\n \"Bonds have multiple points of risk: This is part of the time value of money chapter in any finance course. Disclaimer - Duff's answer popped up as I was still doing the bond calculations. Similar to mine but less nerdy.\",\n \"China actively SELLS US Treasuries. http://online.barrons.com/article/SB50001424052748704097904577257030958775246.html The Chinese are not stupid. Why the fuck would someone buy a 2 year at .2% when inflation is over 1% PER YEAR? So insolvent banks can park collateral at Central Banks for cash. This is why the balance sheets of developed world nations have exploded since 2008. http://www.alsosprachanalyst.com/economy/charting-central-banks-balance-sheets.html edited: for unnecessary rudeness\"\n]","isConversational":false},"gt_docs":{"kind":"list like","value":["0% bonds are desirable for some individuals. It depends on your situation. 0% bonds are usually sold well below par value (eg a 100$ face value bond for 2020 might sell for 90$ today) Hence, your gains will be CAPITAL GAINS. A similar investment paying interest would be taxed as INCOME, and smaller portion of capital gains. In many countries (US, Canada) Capital gains are taxed at a more favourable rate then income. This is especially true when holding these investments in corporations.","No, there isn't. There are a number of reasons that institutions buy these bonds but as an individual you're likely better off in a low-yield cash account. By contrast, there would be a reason to hold a low-yield (non-zero) bond rather than an alternative low-yield product."],"string":"[\n \"0% bonds are desirable for some individuals. It depends on your situation. 0% bonds are usually sold well below par value (eg a 100$ face value bond for 2020 might sell for 90$ today) Hence, your gains will be CAPITAL GAINS. A similar investment paying interest would be taxed as INCOME, and smaller portion of capital gains. In many countries (US, Canada) Capital gains are taxed at a more favourable rate then income. This is especially true when holding these investments in corporations.\",\n \"No, there isn't. There are a number of reasons that institutions buy these bonds but as an individual you're likely better off in a low-yield cash account. By contrast, there would be a reason to hold a low-yield (non-zero) bond rather than an alternative low-yield product.\"\n]","isConversational":false}}}],"truncated":false,"partial":false},"paginationData":{"pageIndex":3,"numItemsPerPage":100,"numTotalItems":500,"offset":300,"length":100}},"jwt":"eyJhbGciOiJFZERTQSIsImtpZCI6IjVHZDBvd0g5MTM2eDZjc1FvbE1zcktNWUZoRVFoUm5PVVVybEpjOUhaUEEifQ.eyJyZWFkIjp0cnVlLCJwZXJtaXNzaW9ucyI6eyJyZXBvLmNvbnRlbnQucmVhZCI6dHJ1ZX0sInJlcG9JZHMiOlsiNjhjMzQ0N2FhMTI5MzZiYTliNDc3M2Y0Il0sImlhdCI6MTc5NDQ5MTM4NSwianRpIjoiYjBmMjM0MTctZmMyMi00ZDRmLTk1YjMtNjFiOTVkNmIzMjhkIiwic3ViIjoiL2RhdGFzZXRzL0NvbnRleHR1YWxBSS9maXFhMjAxOCIsImV4cCI6MTc5NDQ5NDk4NSwiaXNzIjoiaHR0cHM6Ly9odWdnaW5nZmFjZS5jbyJ9.8CxoFmHSHX3LHRY8KA6ASvDx9UOltB2yuJ_MwEorbwYxos2M2Rp8m9x1uQH3B72nAnv_r26L26V21vCup2a1DQ","displayUrls":true,"splitSizeSummaries":[{"config":"default","split":"test","numRows":500,"numBytesParquet":27320919}]},"discussionsStats":{"closed":0,"open":0,"total":0},"fullWidth":true,"hasGatedAccess":true,"hasFullAccess":true,"isEmbedded":false,"savedQueries":{"community":[],"user":[]}}">
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4289 | Does the currency exchange rate contain any additional information at all? | [
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"No. An exchange rate tells you the exchange rate, that's all. Changes in exchange rates are a little more interesting because they suggest economic changes (or anticipation of such), but since the exchange rate is the composite of many economic forces, determining what changes may be in action from an exchange r... |
3837 | Opening a Roth IRA account, what is the fee structure for Vanguard, Scottrade and TIAA-CREF | [
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"\"This answer is somewhat incomplete as I don't have definitive conclusions about some parts of your question. Your question includes some very specific subquestions that may best be answered by contacting the investment companies you're considering. I don't see any explicit statement of fees for TIAA-CREF either... | [
"\"This answer is somewhat incomplete as I don't have definitive conclusions about some parts of your question. Your question includes some very specific subquestions that may best be answered by contacting the investment companies you're considering. I don't see any explicit statement of fees for TIAA-CREF either... |
7279 | If I invest in securities denominated in a foreign currency, should I hedge my currency risk? | [
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] | [
1,
1,
1,
1
] | [
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"Like most other investment decisions - it depends. Specifically in this case it depends upon your view of the FX (Foreign Exchange) market over the next few years, and how sensitive you are to losses. As you correctly note, a hedge has a cost, so it detracts from your overall return. But given that you need to rep... | [
"Like most other investment decisions - it depends. Specifically in this case it depends upon your view of the FX (Foreign Exchange) market over the next few years, and how sensitive you are to losses. As you correctly note, a hedge has a cost, so it detracts from your overall return. But given that you need to rep... |
1393 | Which is better when working as a contractor, 1099 or incorporating? | [
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] | [
1,
1,
1,
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1,
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"I don't think anyone can give you a definitive answer without knowing all about your situation, but some things to consider: If you are on a 1099, you have to pay self-employment tax, while on a W-2 you do not. That is, social security tax is 12.4% of your income. If you're a 1099, you pay the full 12.4%. If you'r... | [
"It makes no difference for tax purposes. If you are 1099, you will pay the same amount of taxes as if you formed a corporation and then paid yourself (essentially you are doing this as a 1099 contractor, just not formally). Legally, I don't know the answer. I would assume you have some legal protections by formin... |
5380 | Can somebody explain “leveraged debt investment positions” and “exposures” in this context for me, please? | [
"549254"
] | [
1
] | [
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"\"Exposure is the amount of money that you are at risk of losing on a given position (i.e. on a UST 10 year bond), portfolio of positions, strategy (selling covered calls for example), or counterparty, usually represented as a percentage of your total assets. Interbank exposure is the exposure of banks to other ba... | [
"\"Exposure is the amount of money that you are at risk of losing on a given position (i.e. on a UST 10 year bond), portfolio of positions, strategy (selling covered calls for example), or counterparty, usually represented as a percentage of your total assets. Interbank exposure is the exposure of banks to other ba... |
9882 | Money-market or cash-type ETFs for foreigners with U.S brokerage account | [
"65702"
] | [
1
] | [
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... | [
"There are a few ETFs that fall into the money market category: SHV, BIL, PVI and MINT. What normally looks like an insignificant expense ratio looks pretty big when compared to the small yields offered by these funds. The same holds for the spread and transaction fees. For that reason, I'm not sure if the fund ro... | [
"\"Securities and ETFs are also subjected to Estate Tax. Some ways: Draft a \"\"Transfer on Death\"\" instruction to the broker, that triggers a transfer to an account in the beneficiary's name, in most cases avoiding probate. If the broker does not support it, find another broker. Give your brokerage and bank pa... |
1915 | Should I pay a company who failed to collect VAT from me over 6 months ago? | [
"318266",
"433801"
] | [
1,
1
] | [
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"Note: I am not a lawyer. This is my personal opinion and interpretation. First, your source is European Law, which obviously doesn't apply outside of the EU. The EU cannot make laws that bind entities in other countries; so you cannot claim that the VAT was needed to be mentioned. Second, if you owe something, you... | [
"It looks like businesses selling services (like software downloads) from outside the EU to the UK have to register for VAT if the amount of such sales goes over the UK VAT registration threshold: [If] the value of the taxable supplies you make is over a specified threshold [then] you must register for VAT So it ... |
7080 | Wash sale rule with dividend reinvestment | [
"517577",
"596518"
] | [
1,
1
] | [
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"I was not able to find any authority for the opinion you suggest. Wash sale rules should, IMHO, apply. According to the regulations, you attribute the newly purchased shares to the oldest sold shares for the purposes of the calculation of the disallowed loss and cost basis. (c) Where the amount of stock or securit... | [
"You sold all shares? The potential wash sale effect goes away after 30 days from the dividend date. Selling all shares of a stock where a wash existed effectively negates the wash and you can take the loss.",
"I was not able to find any authority for the opinion you suggest. Wash sale rules should, IMHO, apply. ... |
1920 | Clarification on student expenses - To file the tax for the next year | [
"269943"
] | [
1
] | [
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"In the united states qualified institutions of higher education should give the student a 1098-t. This form breaks down all money received/billed and for tuition and scholarships. It would not include items such as books and room and board. The 1098 would constitute proof of attendance and proof of expenses. If a... | [
"Assuming here that you're talking about deducting your tuition as a below the line deduction as a business expense or similar, then it depends. Per 1.162-5, if the education: Then it qualifies as a legitimate business expense and is deductible. If not - if you're going to school for a different career, such as so... |
8544 | Strategies to recover from a bad short-term call options purchase where the underlying dropped instead? | [
"214003",
"267113"
] | [
1,
1
] | [
"214003",
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"485424",
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"\"For personal investing, and speculative/ highly risky securities (\"\"wasting assets\"\", which is exactly what options are), it is better to think in terms of sunk costs. Don't chase this trade, trying to make your money back. You should minimize your loss. Unwind the position now, while there is still some rem... | [
"\"For personal investing, and speculative/ highly risky securities (\"\"wasting assets\"\", which is exactly what options are), it is better to think in terms of sunk costs. Don't chase this trade, trying to make your money back. You should minimize your loss. Unwind the position now, while there is still some rem... |
4863 | How to calculate new price for bond if yield increases | [
"87398",
"198465",
"290562"
] | [
1,
1,
1
] | [
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"581318",
"183531... | [
"I am currently trying out some variations (moving terms around ...) of the formula for the present value of money The relationship between yield and price is much simpler than that. If you pay £1015 for a bond and its current yield is 4.69%, that means you will receive in income each year: 4.69% * £1015 = £47.60 T... | [
"I am currently trying out some variations (moving terms around ...) of the formula for the present value of money The relationship between yield and price is much simpler than that. If you pay £1015 for a bond and its current yield is 4.69%, that means you will receive in income each year: 4.69% * £1015 = £47.60 T... |
549 | Where to request ACH Direct DEBIT of funds from MY OWN personal bank account? | [
"214024"
] | [
1
] | [
"214024",
"210855",
"595633",
"131703",
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"75097",
"267059",
"116684",
"434320",
"106981",
"341914",
"489059",
"229157",
"54868... | [
"Call Wells Fargo or go to a branch. Tell them what you're trying to accomplish, not the vehicle you think you should use to get there. Don't tell them you want to ACH DEBIT from YOUR ACCOUNT of YOUR MONEY. Tell them you apparently need a paperless transaction sent to this and that account at this and that bank.... | [
"Call Wells Fargo or go to a branch. Tell them what you're trying to accomplish, not the vehicle you think you should use to get there. Don't tell them you want to ACH DEBIT from YOUR ACCOUNT of YOUR MONEY. Tell them you apparently need a paperless transaction sent to this and that account at this and that bank.... |
5347 | car loan life insurance | [
"352930"
] | [
1
] | [
"352930",
"121145",
"34043",
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"466161",
"490948",
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"545305",
"331396",
"67154",
"201012",
"229239",
"248630",... | [
"This greatly depends on the local laws and the insurance contract terms. If I remember correctly, my own life insurance policy does also have special terms in case I die within a year of applying, so it doesn't sound totally bogus. For car loan insurance, the amount of coverage and premiums were probably low enoug... | [
"This greatly depends on the local laws and the insurance contract terms. If I remember correctly, my own life insurance policy does also have special terms in case I die within a year of applying, so it doesn't sound totally bogus. For car loan insurance, the amount of coverage and premiums were probably low enoug... |
4409 | My friend wants to put my name down for a house he's buying. What risks would I be taking? | [
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"245903",
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"102088",
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] | [
1,
1,
1,
1,
1,
1,
1,
1,
1,
1
] | [
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"147422",
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"432573",
"38228... | [
"What are the risks, if any The risks are exemplified by the outcomes presented on this website, including: There's a chance you will end up paying large mortgage payments on a house occupied by an ex-friend and paying large amounts of money to lawyers to try and get things straightened out. You could come out of i... | [
"\"That \"\"something\"\" you are signing means you are liable for the mortgage payments - yes, all of them - if he can't or won't pay at any point. The limit on what the bank will lend him based on his salary is there for a reason - they don't expect him to be able to keep up repayments if they lend him more (or ... |
659 | Buying from an aggressive salesperson | [
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"120279",
"365240",
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1,
1,
1,
1,
1,
1,
1,
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] | [
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"35651",
"147974",
"44037",
"565361",
"26967",
"362210"... | [
"From your question and how you have framed it, I get you find Agressive Sales tactics disturb the buying process for you. ;) I understand because I also find the whole process of Research / Negotiating / Buying / Owning / Using is all on one continuum, so anything that ruins the process will likely lose the sale o... | [
"\"In my experience when a salesperson says a particular deal is only good if you purchase right now, 100% of the time it is not true. Of course I can't guarantee that is universally the case, but if you leave and come back 5 minutes later, or tomorrow, or next week, it's extremely likely that they'll still take yo... |
6814 | Selling Stock - All or Nothing? | [
"340214",
"223206"
] | [
1,
1
] | [
"322284",
"87771",
"251536",
"467176",
"513734",
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"272091",
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"453256",
"162804",
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"559671",
"55893",
"307406",... | [
"\"You have to calculate the total value of all shares and then ask yourself \"\"Would I invest that amount of money in this stock?\"\" If the answer is yes, then only sell what you need to sell. Take the $3k loss against your income, if you have no other gains. If you would not invest that amount of cash in tha... | [
"When my orders fill, I'll often see a 1000 shares go through over 4-6 transactions, with a few cents difference high to low, but totaling the transaction cost, it adds to one commission (say $10 for my broker). Are you sure a series of partial fills would result in as many as 20 commissions?",
"Set a good till c... |
6441 | Trading with Settled / Unsettled Funds (T+3) | [
"254279"
] | [
1
] | [
"271920",
"254279",
"336399",
"109422",
"293389",
"327080",
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"370635",
"338727",
"332243",
"1192... | [
"\"In the United States, regulation of broker dealer credit is dictated by Regulation T, that for a non-margin account, 100% of a trade must be funded. FINRA has supplemented that regulation with an anti-\"\"free rider\"\" rule, Rule 4210(f)(9), which reads No member shall permit a customer (other than a broker-dea... | [
"\"The issues of trading with unsettled funds are usually restricted to cash accounts. With margin, I've never personally heard of a rule that will catch you in this scenario. You won't be able to withdraw funds that are tied up in unsettled positions until the positions settle. You should be able to trade those... |
4084 | What industries soar when oil prices go up? | [
"250028",
"308633"
] | [
1,
1
] | [
"250028",
"308633",
"341399",
"116921",
"19606",
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"324037",
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"397290",
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... | [
"Generally speaking, you want to find goods and services that are inelastic and also require oil as a cost. Oil company stocks make record profits when oil is high, because direct demand for oil is relatively inelastic. Profit margins of oil competition should also go up, as this creates inflation in general, as pe... | [
"Generally speaking, you want to find goods and services that are inelastic and also require oil as a cost. Oil company stocks make record profits when oil is high, because direct demand for oil is relatively inelastic. Profit margins of oil competition should also go up, as this creates inflation in general, as pe... |
504 | Have plenty of cash flow but bad credit | [
"500755",
"344203",
"498751"
] | [
1,
1,
1
] | [
"22807",
"231688",
"368247",
"193506",
"486334",
"495431",
"555101",
"180214",
"351907",
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"498751",
"289231",
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"160132",
"189734",
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"78176",
"74448",
... | [
"Genius answer: Don't spend more than you make. Pay off your outstanding debts. Put plenty away towards savings so that you don't need to rely on credit more than necessary. Guaranteed to work every time. Answer more tailored to your question: What you're asking for is not realistic, practical, logical, or reasona... | [
"Set up a meeting with the bank that handles your business checking account. Go there in person and bring your business statements: profit and loss, balance sheet, and a spreadsheet showing your historical cash flow. The goal is to get your banker to understand your business and your needs and also for you to be on... |
585 | Following an investment guru a good idea? | [
"140226",
"552375"
] | [
1,
1
] | [
"311117",
"140226",
"235772",
"198229",
"552375",
"396208",
"129319",
"599157",
"47812",
"157038",
"2235",
"229607",
"399149",
"148684",
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"184338",
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"105973",
"104150",
"526822",
"209843",
"315627",
"343760",
"534887",
"276778",
"75884"... | [
"If it's money you can lose, and you're young, why not? Another would be motifinvesting where you can invest in ideas as opposed to picking companies. However, blindly following other investors is not a good idea. Big investors strategies might not be similar to yours, they might be looking for something differen... | [
"\"The best answer here is \"\"maybe, but probably not\"\". A few quick reasons: Its not a bad idea to watch other investors especially those who can move markets but do your own research on an investment first. Your sole reason for investing should not be \"\"Warren did it\"\".\"",
"I think following the profess... |
5951 | Why can't house prices be out of tune with salaries | [
"418034",
"259777",
"31663",
"151774",
"374480",
"473765",
"298065",
"596834",
"497260"
] | [
1,
1,
1,
1,
1,
1,
1,
1,
1
] | [
"31663",
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"397012",
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"107339",
"381692",
"251233",
"493342",
"397820",
... | [
"Those folks should be introduced to some real estate folks I know, they'd get along famously, being as how they still think it's 2007. The amount of housing out there requires that a large market of consumers is available to purchase them. If housing prices rose infinitely ahead of salaries, the market for potenti... | [
"Your friends are overlooking a couple of problems with house prices and salaries being out of whack: Home 'equity' is a paper gain unless you realize it by selling the house. If you don't, but use the 'home ATM', all you're doing is piling up more debt that's secured on an asset that has downside risk. Ask anybody... |
7534 | Can you explain why it's better to invest now rather than waiting for the market to dip? | [
"175821",
"89714",
"358125"
] | [
1,
1,
1
] | [
"175821",
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"583549",
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"\"Your chance of even correctly recognizing the actual lowest point of a dip are essentially zero, so if you try to time the market, you'll most likely not get the \"\"buy cheap\"\" part perfectly right. And as you write yourself, while you wait for the dip, you have an ongoing opportunity cost. Cost averaging is ... | [
"\"Your chance of even correctly recognizing the actual lowest point of a dip are essentially zero, so if you try to time the market, you'll most likely not get the \"\"buy cheap\"\" part perfectly right. And as you write yourself, while you wait for the dip, you have an ongoing opportunity cost. Cost averaging is ... |
7345 | What do these numbers mean? (futures) | [
"508821",
"237645",
"527080"
] | [
1,
1,
1
] | [
"527080",
"508821",
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"241995",
... | [
"The two answers given previously provide excellent information. In relation to your statement: If I buy the above future contract, does that mean I pay $1581.90 on June 13th You cannot buy the futures contract at that price. The 'price' you are seeing quoted is not a dollar value, but rather a value in points. Eac... | [
"\"No, it means that is only the notional value of that underlying asset of that contract, generally. The contract specification itself is listed on the exchange's websites, and there are really no assumptions you can make about a particular contract. Where S&P futures have one set of specifications, such as what i... |
3186 | United States Treasury Not Endorsing Checks | [
"555486",
"545421"
] | [
1,
1
] | [
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"\"1.Why is there no \"\"United States Treasury\"\" endorsement? Why should there be, and what do you think it would look like? Some person at Treasury sitting at a desk all day signing \"\"Uncle Sam\"\"? At most you would expect to see some stamp, because it's clear that no person is going to sign all of these che... | [
"\"1.Why is there no \"\"United States Treasury\"\" endorsement? Why should there be, and what do you think it would look like? Some person at Treasury sitting at a desk all day signing \"\"Uncle Sam\"\"? At most you would expect to see some stamp, because it's clear that no person is going to sign all of these che... |
895 | California tells me I didn't file documents for an LLC that isn't mine. What do I do? | [
"416268"
] | [
1
] | [
"416268",
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"\"Did it show just your address, or was your name on it as well? You didn't share how long you've lived at the address either, so it makes me wonder whether a former tenant is the one who filed that paperwork. It's also possible that someone used your address when making a filing. Whether that was deliberate o... | [
"\"Did it show just your address, or was your name on it as well? You didn't share how long you've lived at the address either, so it makes me wonder whether a former tenant is the one who filed that paperwork. It's also possible that someone used your address when making a filing. Whether that was deliberate o... |
5402 | Is it impossible to get a home loan with a poor credit history after a divorce? | [
"491350",
"227485"
] | [
1,
1
] | [
"227485",
"491350",
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... | [
"No, it is never impossible to get credit so long as there are no price controls or quotas. In most of the United States, the impetus for housing is so strong that it's one sector of credit that has nearly no price regulation, price in this case being interest rates. Corporate banks will not touch you now because D... | [
"I am sorry for your troubles, but impressed with your problem solving skills. Keep going, things will get better. Your best hope is to find a place that does manual underwriting. If they do computer generated stuff, then you will be kicked for sure. If you can show 20% down, and have some savings, and have so... |
3179 | Calculation, timing, and taxes related to profit distribution of an S-corp? | [
"150219",
"385073"
] | [
1,
1
] | [
"385073",
"63047",
"458431",
"521489",
"150219",
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"241425",
"590310",
"349348",
"65040",
"188220"... | [
"It's whatever you decide. Taking money out of an S-Corp via distribution isn't a taxable event. Practically speaking, yes, you should make sure you have enough money to afford the distribution after paying your expenses, lest you have to put money back a few days later in to pay the phone bill. You might not want ... | [
"\"We will bill our clients periodically and will get paid monthly. Who are \"\"we\"\"? If you're not employed - you're not the one doing the work or billing the client. Would IRS care about this or this should be something written in the policy of our company. For example: \"\"Every two months profits get divi... |
529 | Sole proprietorship or LLC? | [
"510701"
] | [
1
] | [
"251392",
"346374",
"161020",
"151023",
"325677",
"215920",
"50310",
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"170933",
"418884",
"66356",
"321566",
"582571",
"234510",
"157233",
"539133",
"510701",... | [
"\"Here's a brief rundown: 1. You're not going to need a lot of capital or debt 2. You aren't in a high-liability or high (MM+) revenue industry unless you're making children's toys out of reclaimed dynamite or something 3. You are operating by yourself The first fact rules out S or C corp. The second fact din... | [
"\"The primary advantage is protection of your personal assets. If your LLC gets sued, they can't take your house/car/dog/wife. There aren't really any financial incentives to be an LLC; because of the pass-thru taxing structure, you wind up paying the same in taxes either way. \"\"The cost\"\" will depend on where... |
2695 | Buy a parking spot and rent it out, or invest savings in an interest-bearing account? | [
"305904"
] | [
1
] | [
"305904",
"35002",
"456389",
"235628",
"425479",
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"439349",
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"572340",
"105866... | [
"From strictly a gross revenue point of view, the parking spot is going to yield a higher rate (5.4%) versus a 3% savings account, assuming you have it rented all year. Your break-even point (not considering other expenses) is 7-8 months of rent per year. So, what are things to consider? Here's a few to start with.... | [
"From strictly a gross revenue point of view, the parking spot is going to yield a higher rate (5.4%) versus a 3% savings account, assuming you have it rented all year. Your break-even point (not considering other expenses) is 7-8 months of rent per year. So, what are things to consider? Here's a few to start with.... |
10734 | How do you translate a per year salary into a part-time per hour job? | [
"589970",
"263481",
"470289",
"225718",
"426278",
"62882"
] | [
1,
1,
1,
1,
1,
1
] | [
"62882",
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"11274",
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... | [
"It's difficult to quantify the intangible benefits, so I would recommend that you begin by quantifying the financials and then determine whether the difference between the pay of the two jobs justifies the value of the intangible benefits to you. Some Explainations You are making $55,000 per year, but your employe... | [
"\"If you're really a part-time worker, then there are some simple considerations.... The remote working environment, choice of own hours, and non-guarantee of work availability point to your \"\"part-time\"\" situation being more like a consultancy, and that would normally double or triple the gross hourly rate. B... |
5970 | How to calculate ownership for property with a partner | [
"181608",
"546568",
"168453"
] | [
1,
1,
1
] | [
"546568",
"308049",
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"219274",
"86482",
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"222423",
"61782",... | [
"To add to ChrisInEdmonton's answer: Your conveyancing solicitor should be able to advise on the details, but a typical arrangement involves: As an alternative to the numbers in Chris' answer, it could be argued that you should first be reimbursed for the fees you paid (accounting for inflation), but that any remai... | [
"I can't quite follow your question, so I'm proceeding under the following assumptions: - You paid £31,000 - Your partner paid £4,242 - You have at least one mortgage, which you both pay equally. If the relationship terminates, sell the property. You are reimbursed £31,000 and your partner is reimbursed £4,242. Any... |
4837 | When applying for a mortgage, can it also cover outstanding debts? | [
"531841",
"20958"
] | [
1,
1
] | [
"254454",
"350559",
"366448",
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"249054",
"125811"... | [
"\"The only way to \"\"roll\"\" debt into a home purchase is to have sufficient down payment. Under the \"\"new\"\" lending rules that took effect in Canada earlier this year, you must have at least 5% of the purchase price as a down payment. If you have $60,000 in additional debt, the total amount of mortgage st... | [
"That really depends on the lender, and in the current climate this is extremely unlikely. In the past it was possible to get a loan which is higher than the value of the house (deposit considered), usually on the basis that the buyer is going to improve the property (extend, renovate, etc.) and this increase the v... |
6009 | Why can low volume move a stock price drastically? | [
"228983"
] | [
1
] | [
"228983",
"541730",
"407759",
"515579",
"42347",
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"... | [
"\"In a sense, yes. There's a view in Yahoo Finance that looks like this For this particular stock, a market order for 3000 shares (not even $4000, this is a reasonably small figure) will move the stock past $1.34, more than a 3% move. Say, on the Ask side there are 100,000 shares, all with $10 ask. It would tak... | [
"\"In a sense, yes. There's a view in Yahoo Finance that looks like this For this particular stock, a market order for 3000 shares (not even $4000, this is a reasonably small figure) will move the stock past $1.34, more than a 3% move. Say, on the Ask side there are 100,000 shares, all with $10 ask. It would tak... |
7109 | How do I analyse moving averages? | [
"257185",
"565501",
"447781"
] | [
1,
1,
1
] | [
"257185",
"35006",
"489933",
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"258897",
"81655",
"140804",
"432608",
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"224695",
"518932",
... | [
"Moving Average is mere average line based on historical period; broadly use to view the trend. But it has no relation to price action in due future course. If price is going below 20 SMA then in near future even the SMA will start directing toward south. In your case if price has fallen below all the short period ... | [
"Moving Average is mere average line based on historical period; broadly use to view the trend. But it has no relation to price action in due future course. If price is going below 20 SMA then in near future even the SMA will start directing toward south. In your case if price has fallen below all the short period ... |
5054 | How to stress test an investment plan? | [
"28119"
] | [
1
] | [
"506604",
"346735",
"377186",
"28119",
"310032",
"403916",
"470758",
"528034",
"127263",
"458183",
"322443",
"140572",
"299367",
"101124",
"207368",
"588481",
"15385",
"128281",
"329466",
"227733",
"116276",
"263390",
"446196",
"20662",
"83886",
"241202",
"502358"... | [
"\"@duffbeer and @JoeTaxpayer give great answers, and you should probably accept one or the other, but I would like to recommend trying some of the online tools for Monte Carlo analysis. A Monte Carlo analysis is essentially plugging in a range of possible values (a probability function) for yearly values of pre... | [
"Here are a few things I've already done, and others reading this for their own use may want to try. It is very easy to find a pattern in any set of data. It is difficult to find a pattern that holds true in different data pulled from the same population. Using similar logic, don't look for a pattern in the data ... |
1281 | How FTB and IRS find mistakes in amended tax returns? Are their processes reliable? | [
"361415"
] | [
1
] | [
"361415",
"253735",
"392434",
"105158",
"318260",
"585023",
"288438",
"444620",
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"445770",
"592309",
"521657",
"526555",
"313392",
"577475",
"257060",
"379233",
"4676... | [
"\"The FTB, as any government agency, is understaffed and underpaid. Even if someone took a glance and it wasn't just an automated letter - consider the situation: you filed as a LLC and then amended to file as a partnership. Unless someone really pays attention - the obvious assumption would be that you had a limi... | [
"\"The FTB, as any government agency, is understaffed and underpaid. Even if someone took a glance and it wasn't just an automated letter - consider the situation: you filed as a LLC and then amended to file as a partnership. Unless someone really pays attention - the obvious assumption would be that you had a limi... |
6467 | Advice on strategy for when to sell | [
"453256",
"66834",
"23217",
"346641",
"367313"
] | [
1,
1,
1,
1,
1
] | [
"368348",
"307406",
"303724",
"378173",
"16175",
"251536",
"217837",
"131127",
"370995",
"367313",
"388718",
"83807",
"545284",
"528518",
"273565",
"557877",
"507097",
"3095",
"276883",
"272091",
"2653",
"420974",
"212628",
"453256",
"295912",
"322284",
"220665",
... | [
"Don't sell. Ever. Well almost. A number of studies have shown that buying equal amounts of shares randomly will beat the market long term, and certainly won't do badly. Starting from this premise then perhaps you can add a tiny bit extra with your skill... maybe, but who knows, you might suck. Point is when buy... | [
"I bought 1000 shares of a $10 stock. When it doubled, I sold half, no need to be greedy. I watched the shares split 2 for one, and sold as it doubled and doubled again. In the end, I had $50,000 in cash pulled out and still had 100 shares. The shares are now worth $84K since they split 7 for one and trade near $12... |
26 | Applying for and receiving business credit | [
"285255",
"350819"
] | [
1,
1
] | [
"336468",
"500755",
"580172",
"483354",
"204554",
"350819",
"128913",
"176284",
"79136",
"182758",
"274832",
"6341",
"180071",
"25061",
"285255",
"65659",
"333537",
"189734",
"428953",
"195207",
"403848",
"250681",
"186504",
"235808",
"332979",
"538199",
"510063",... | [
"\"For a newly registered business, you'll be using your \"\"personal\"\" credit score to get the credit. You will need to sign for the credit card personally so that if your business goes under, they still get paid. Your idea of opening a business card to increase your credit score is not a sound one. Business pl... | [
"\"I'm afraid the great myth of limited liability companies is that all such vehicles have instant access to credit. Limited liability on a company with few physical assets to underwrite the loan, or with insufficient revenue, will usually mean that the owners (or others) will be asked to stand surety on any credi... |
8378 | Should I wait a few days to sell ESPP Stock? | [
"178684",
"102237",
"125298"
] | [
1,
1,
1
] | [
"511678",
"387035",
"434812",
"178684",
"71713",
"237718",
"495568",
"178614",
"121480",
"133644",
"179398",
"481339",
"315760",
"102237",
"273829",
"567244",
"546125",
"328073",
"294573",
"35575",
"238629",
"575213",
"488207",
"467853",
"246221",
"556696",
"98767... | [
"I think people in general tend to unnecessarily over-complicate this issue. Here's what I think you should do in any situation like this: First and foremost, put all tax considerations aside and decide whether it makes sense to sell the stock now or hold on to it for the long term based on its merits as an invest... | [
"Usually the amount of the ESPP stocks is very small compared to the overall volume of the trading, so it shouldn't matter. But check if for your company it not so (look at the stock history for the previous ESPP dates, and volumes).",
"An instant 15% profit sounds good to me, so you can't go wrong selling as soo... |
503 | Privacy preferences on creditworthiness data | [
"367641"
] | [
1
] | [
"367641",
"410970",
"587778",
"45387",
"284644",
"304597",
"241349",
"106831",
"240038",
"50080",
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"391715",
"40830",
"211682",
"264701",
"336356",
"284305",
"180892",
"351072",
"119268",
"366578",
"275418",
"319052",
"444796",
"427175",
"243357... | [
"See the first item in the list: For our everyday business purposes – such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus Note that there's no option for you to limit this sharing. Credit reporting is the business need of ... | [
"See the first item in the list: For our everyday business purposes – such as to process your transactions, maintain your account(s), respond to court orders and legal investigations, or report to credit bureaus Note that there's no option for you to limit this sharing. Credit reporting is the business need of ... |
9548 | How do I research, analyze, and choose the right mutual fund for a roth ira? | [
"297290"
] | [
1
] | [
"65567",
"278346",
"484599",
"231227",
"530425",
"101124",
"240975",
"211525",
"423658",
"404800",
"367014",
"118691",
"371922",
"539539",
"297290",
"586029",
"434279",
"553031",
"526346",
"436120",
"427842",
"253803",
"263464",
"88311",
"422119",
"32009",
"324012... | [
"If you have just started an IRA (presumably with a contribution for 2012), you likely have $5000 in it, or $10,000 if you made a full contribution for 2013 as well. At this time, I would recommend putting it all in a single low-cost mutual fund. Typically, mutual funds that track an index such as the S&P 500 In... | [
"\"There is a lot of interesting information that can be found in a fund's prospectus. I have found it very helpful to read books on the issue, one I just finished was \"\"The Boglehead's Guide to Investing\"\" which speaks mostly on mutual and index funds. Actively managed funds mean that someone is choosing which... |
8513 | Buy on dip when earnings fail? | [
"270573"
] | [
1
] | [
"432665",
"573767",
"524238",
"376411",
"445439",
"498075",
"28740",
"373034",
"572622",
"288551",
"156398",
"378821",
"137117",
"335626",
"351396",
"65348",
"236611",
"41852",
"239714",
"106740",
"69308",
"596664",
"420046",
"384120",
"88813",
"122401",
"178105",... | [
"Don't throw good money after bad. If you bought on the peak of an event like news/earnings hoping for more and ignored its value than you might be doomed. Determine the stocks value and see it as a buying opportunity if it's still sweet. If not buy more carefully. Those kinds of moves in that range you must have ... | [
"What is cheap? A stock may fall from $20 per share to $10 per share, but it may have gone from making a $100M profit last year to a $100M loss this year. So now at $10 per share it may still be considered expensive. You need to be very careful when to consider that a stock is cheap or not, you'll have to look at m... |
9296 | Why would Two ETFs tracking Identical Indexes Produce different Returns? | [
"435746",
"206744"
] | [
1,
1
] | [
"408524",
"148721",
"492212",
"206744",
"368124",
"479461",
"314008",
"159471",
"107462",
"145123",
"474305",
"285135",
"410123",
"185115",
"356819",
"144033",
"428187",
"501153",
"435746",
"172374",
"65587",
"231863",
"119819",
"47344",
"524940",
"87238",
"49168"... | [
"Index Funds & ETFs, if they are tracking the same index, will be the same in an ideal world. The difference would be because of the following factors: Expense ratio: i.e. the expense the funds charge. This varies and hence it would lead to a difference in performance. Tracking error: this means that there is a sma... | [
"The top ten holdings for these funds don't overlap by even one stock. It seems to me they are targeting an index for comparison, but making no attempt to replicate a list of holdings as would, say, a true S&P index.",
"In your other question about these funds you quoted two very different yields for them. That p... |
4499 | Is investing exlusively in a small-cap index fund a wise investment? | [
"323363",
"513818",
"76996"
] | [
1,
1,
1
] | [
"512458",
"249097",
"513818",
"323363",
"196992",
"568624",
"580733",
"267904",
"475405",
"235917",
"562046",
"541335",
"438582",
"25207",
"36534",
"40301",
"238963",
"9465",
"21314",
"241202",
"176253",
"551590",
"508858",
"580313",
"372233",
"315627",
"501536",
... | [
"\"Can you easily stomach the risk of higher volatility that could come with smaller stocks? How certain are you that the funds wouldn't have any asset bloat that could cause them to become large-cap funds for holding to their winners? If having your 401(k) balance get chopped in half over a year doesn't give you a... | [
"In a word, no. Diversification is the first rule of investing. Your plan has poor diversification because it ignores most of the economy (large cap stocks). This means for the expected return your portfolio would get, you would bear an unnecessarily large amount of risk. Large cap and small cap stocks take turn... |
10812 | Is is possible to dispute IRS underpayment penalties? | [
"451935",
"46737",
"314455",
"342756"
] | [
1,
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... | [
"\"When you say \"\"set aside,\"\" you mean you saved to pay the tax due in April? That's underpaying. It's a rare exception the IRS makes for this penalty, hopefully it wasn't too large, and you now know how much to withhold through payroll deductions. Problem is, this wasn't unusual, it was an oversight. You hav... | [
"\"When you say \"\"set aside,\"\" you mean you saved to pay the tax due in April? That's underpaying. It's a rare exception the IRS makes for this penalty, hopefully it wasn't too large, and you now know how much to withhold through payroll deductions. Problem is, this wasn't unusual, it was an oversight. You hav... |
7674 | Choosing the limit when making a limit order? | [
"193318",
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] | [
1,
1,
1
] | [
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... | [
"If you can afford the cost and risk of 100 shares of stock, then just sell a put option. If you can only afford a few shares, you can still use the information the options market is trying to give you -- see below. A standing limit order to buy a stock is essentially a synthetic short put option position. [1] So... | [
"Never. Isn't that the whole idea of the limit order. You want a bargain, not the price the seller wants. And when the market opens it is volatile at the most, just an observation mayn't be correct. Let it stabilize a bit. The other thing is you might miss the opportunity. But as an investor you should stick to you... |
6867 | Will there always be somebody selling/buying in every stock? | [
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] | [
1,
1,
1,
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1,
1
] | [
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"538743",
"276950",
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"130303",
"208907",
"400614",
"585552"... | [
"No, Mark is right, if you place a market order there will always be someone to buy or sell at the market price. Only if you place a limit order on the price can it not sell or be bought. Just research on your computer and you will find your answer. You must be specify about open order or limit order when asking... | [
"If the stock has low liquidity, yes there could be times when there are no buyers or sellers at a specific price, so if you put a limit order to buy or sell at a price with no other corresponding sellers or buyers, then your order may take a while to get executed or it may not be executed at all. You can usually t... |
8937 | “In-the-Money” vs “Out-of-the-Money” Call Options | [
"469888"
] | [
1
] | [
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"\"First, welcome to Money.SE. The selected page is awful. I don't know the value in listing different expirations at the same strike. Usually, all the strikes are grouped by month, so I'd be looking at Jan '15 across all strikes. \"\"In the money\"\" means the price of a stock is trading above the strike price, ... | [
"\"First, welcome to Money.SE. The selected page is awful. I don't know the value in listing different expirations at the same strike. Usually, all the strikes are grouped by month, so I'd be looking at Jan '15 across all strikes. \"\"In the money\"\" means the price of a stock is trading above the strike price, ... |
10912 | Forex independent investments | [
"518721"
] | [
1
] | [
"380241",
"411021",
"518721",
"528475",
"597285",
"151412",
"67063",
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"19367",
"208916",
"314007",
"539958",
"227479",
"245931",
"552298",
... | [
"You can do this via many online FOREX brokers. All you need to do is set up and fund an account with them and then trade via their online platform. Some examples of brokers that do this are:",
"With $7 Million at stake I guess it would be prudent to take legal advise as well as advise from qualified CA. Forex tr... | [
"\"Unless you are buying a significant value of your goods in USD then the relative strength of USD versus your local currency will have little to no effect on what the value of your investments is worth to you. In fact only (de|in)flation will effect your purchasing power. If your investments are in your local cur... |
945 | Paid by an American company but working from France: where should I pay taxes? | [
"352052"
] | [
1
] | [
"185384",
"332626",
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"162286",
"442391",
"266516",
"347186",
... | [
"Technically, if you earn in US (being paid there, which means you have a work visa) and live in other country, you must pay taxes in both countries. International treaties try to decrease the double-taxation, and in this case, you may pay in your country the difference of what you have paid in US. ie. your Country... | [
"There's nothing wrong with your reasoning except that you expect the tax laws to make perfect sense. More often than not they don't. I suggest getting in touch with a professional tax preparer (preferably with a CPA or EA designation), who will be able to understand the issue, including the relevant portions of th... |
2348 | Why can't you just have someone invest for you and split the profits (and losses) with him? | [
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"123... | [
"This means that if your capital under my management ends up turning a profit, I will keep half of those profits, but if I lose you money, I will cover half those losses. The bold part is where you lose me. This absolutely exists with the exception of the loss insurance. It just requires a lot more than the genera... | [
"The 2 and 20 rule is a premium arrangement that hedge funds offer and venture capital funds offer, and they also offer different variations of it. The 2 is the management fee as percent of assets under management, the 20 is the profit cut, which they only get if they are profitable. There are 0/20, 1/15, and many ... |
2498 | How do I calculate tax liability on the turnover of a small vendor? | [
"365456"
] | [
1
] | [
"365456",
"90348",
"125111",
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"There are quite a few questions as to how you are recording your income and expenses. If you are running the bakery as a Sole Proprietor, with all the income and expense in a business account; then things are easy. You just have to pay tax on the profit [as per the standard tax bracket]. If you running it as i... | [
"There are quite a few questions as to how you are recording your income and expenses. If you are running the bakery as a Sole Proprietor, with all the income and expense in a business account; then things are easy. You just have to pay tax on the profit [as per the standard tax bracket]. If you running it as i... |
5653 | Steps and timing of the SEIS investment (in the UK) | [
"588247"
] | [
1
] | [
"588247",
"40241",
"88508",
"549225",
"257404",
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"236556",
"266229",
"12034",
... | [
"You make the investment in Jan 2016. Assuming the SEIS certificate is issued before 5th April 2016, then you will enter the SEIS investment on your 2015-2016 tax return and claim the relief in that year. If the certificate is not issued in time then you will enter it in the 2016-2017 tax return and get the relief ... | [
"You make the investment in Jan 2016. Assuming the SEIS certificate is issued before 5th April 2016, then you will enter the SEIS investment on your 2015-2016 tax return and claim the relief in that year. If the certificate is not issued in time then you will enter it in the 2016-2017 tax return and get the relief ... |
7269 | How do I track investment performance in Quicken across rollovers? | [
"486696"
] | [
1
] | [
"294644",
"380759",
"272202",
"91671",
"471322",
"88417",
"488996",
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"226628",
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"463007",
"343586",
"296401",
"239683",
"314826",
"51721"... | [
"When I did this I sold the stock out of my 401k account. Then transferred the cash to my rollover IRA account. No tax event was created for me. Make sure your rollover IRA account is listed as tax deferred. If this still doesn't work for you then it could be a bug in Quicken and your best bet is the Quicken fo... | [
"\"Hmm, this site says If you use Quicken, you enter a new transaction of type \"\"Corporate Acquisition (stock for stock).\"\" You put investor shares as the \"\"Company acquired\"\", Admiral shares as the \"\"Acquiring company\"\", and the conversion ratio 0.7997754 as the \"\"New shares issued per held share\"\"... |
603 | Will one’s education loan application be rejected if one doesn't have a payslip providing collateral? | [
"456440"
] | [
1
] | [
"27670",
"456440",
"365963",
"75747",
"23551",
"217831",
"202731",
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"27681",
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"432116",
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"224835",
"540442",
"27030",
"551964",
"183450",
"403848",
"138511",
"... | [
"Does that justify the purpose? That is for individual Banks to decide. No bank would pay for daily expenditure if you are saying primary salary you are spending on eduction. So your declaration is right. You are looking at funding your eduction via loan and you are earning enough for living and paying of the loan.... | [
"A bank can reject a loan if they feel you do not meet the eligibility criteria. You can talk to few banks and find out."
] |
4019 | How and Should I Invest (As a college 18 year old with minimal living expenses)? | [
"287991",
"379948",
"332749",
"6881",
"125477"
] | [
1,
1,
1,
1,
1
] | [
"85977",
"332938",
"224816",
"179640",
"164559",
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"339332",
"74283",
"269384",
"219995",
"70730",
"96045",
"102379",
"20304",
"322591",... | [
"Chances are since college is your next likely step I would recommend saving up for it. Start building an emergency fund. Recommended $1,000 minimum. To start building your credit rating (when 18) get a low interest low limit credit. Pay off the balance every month. Starting to build your credit rating now can sa... | [
"I have about $1K in savings, and have been told that you should get into investment and saving for retirement early. I make around $200 per week, which about $150 goes into savings. That's $10k per year. The general rule of thumb is that you should have six months income as an emergency fund. So your savings sho... |
6803 | What are the common moving averages used in a “Golden Cross” stock evaluation? | [
"193012",
"544053",
"142726",
"42620"
] | [
1,
1,
1,
1
] | [
"28271",
"193012",
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"257185",
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"35006",
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"488285",
"221627",
"251002",
"76063",
"258897",
"170247",
"388980",
"501488",
"28590",
... | [
"This strategy is called trading the 'Golden Cross' if the 50 day SMA moves above the 200 day, or the 'Death Cross' when the 50 day SMA moves below the 200 day SMA. Long-term indicators carry more weight than shorter-term indicators, and this cross, in a positive direction signals a change in momentum of the stock.... | [
"The 'standard' in such moving average crossover systems is 50/200. The numbers are essentially arbitrary as long as the long term average is greater than the short term and there is some different between the averages in terms of the smoothing they provide (i.e. comparing a 74 day MA to a 75 day MA isn't what the ... |
8592 | Tax implications of exercising ISOs and using proceeds to exercise more ISOs | [
"340264",
"441718",
"261258"
] | [
1,
1,
1
] | [
"261258",
"61919",
"570112",
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"343219",
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"290468",
"540292",
"12034",
"203334",
"443354... | [
"I've never heard of an employer offering this kind of arrangement before, so my answer assumes there is no special tax treatment that I'm not aware of. Utilizing the clause is probably equivalent to exercising some of your options, selling the shares back to your employer at FMV, and then exercising more options ... | [
"That is a weird one. Typically one never needs to layout cash to exercise an option. One would only choose to use option 1, if one is seeking to buy the options. This would occur if an employee was leaving a company, would no longer be eligible for the ISO (and thereby forfeit any option grant), and does not wa... |
4615 | Are solar cell panels and wind mills worth the money? | [
"496427",
"261900",
"262934",
"69523",
"421365",
"596196"
] | [
1,
1,
1,
1,
1,
1
] | [
"261900",
"496427",
"421365",
"596196",
"69523",
"227347",
"19179",
"290647",
"170850",
"534603",
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"274011",
"257122",
"412881",
"456727",
"282256",
"581010",
"157480",
"353092",
"257293",
"52110... | [
"\"To answer the investment aspect takes a bit of math. First, solar insolation numbers: This represents the average sun-hours per day for a given area. You can see the range from 4 to 6, or 1460 hrs to about 2190 hrs of sun per year depending on location. I believe electricity also has a range of cost, but 15 cen... | [
"These are two rather distinct questions; only one of which is relevant to a Money web site. In general, the investment is questionable. Leaving aside the green feel-good factor, you need to look at a total cost of ownership (TCO) and payback on the asset. Neither is cheap as such. There are DIY windmill plans, ... |
4233 | Are personal finance / money management classes taught in high school, anywhere? | [
"16270",
"590836",
"154886",
"31377",
"187129"
] | [
1,
1,
1,
1,
1
] | [
"16270",
"187129",
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"335164",
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"170966",
"583666",
"385692",
"168983",
"140883",
"141235",
"113650",
"133997",
"429575"... | [
"In Houston, Texas USA where I went to a private high school they had a half-semester class in personal finance, but it was optional and didn't give you any credits towards graduation. You are right though, it should be a standard class. After all, who doesn't need that information in their adult lives, and not eve... | [
"In Houston, Texas USA where I went to a private high school they had a half-semester class in personal finance, but it was optional and didn't give you any credits towards graduation. You are right though, it should be a standard class. After all, who doesn't need that information in their adult lives, and not eve... |
8532 | What do these options trading terms mean? | [
"416307",
"27401",
"320101"
] | [
1,
1,
1
] | [
"6701",
"416307",
"575408",
"387147",
"195152",
"351833",
"131989",
"22426",
"594303",
"176883",
"22916",
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"428399",
"320101",
"347189",
"147361",
"468388",
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"189858",
"421311",
"383930",
"163433",
"229626",
"305676",
"487297",
"209492",
"512310"... | [
"Don't know the name but it means you're long with conviction :P Unlimited gains, maximum loss of 95$ + (8-6) = 97$. Basically You are long @ 107 - -2 from 105 to 95. You would have to be ULTRA bullish to initiate this strategy.",
"\"Can anyone explain what each of them mean and how they're different from ea... | [
"\"Can anyone explain what each of them mean and how they're different from each other? When you \"\"buy to open\"\", you are purchasing an option and opening a new position. When you \"\"sell to open\"\", you are creating a brand new options contract and selling it. \"\"Covered\"\" means that you have assets in yo... |
4007 | What is a reasonable salary for the owner and sole member of a small S-Corp? | [
"556220",
"388704",
"521657"
] | [
1,
1,
1
] | [
"556220",
"260385",
"205341",
"388704",
"147358",
"129540",
"127347",
"352838",
"125696",
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"70109",
"102995",
"458079",
"150219",
"521933",
"80866",
"11401",
"249322",
"28347",... | [
"\"The answer depends on this: If you had to hire someone to do what you are doing in the S-corp, what would you pay them? If you are doing semi-unskilled work part-time, then $20k might be reasonable. If you are a professional working full time, it's too low. Don't forget that, in addition to \"\"billable\"\" w... | [
"\"The answer depends on this: If you had to hire someone to do what you are doing in the S-corp, what would you pay them? If you are doing semi-unskilled work part-time, then $20k might be reasonable. If you are a professional working full time, it's too low. Don't forget that, in addition to \"\"billable\"\" w... |
5083 | Co-signer deceased | [
"305509",
"138845"
] | [
1,
1
] | [
"305509",
"325296",
"273759",
"453263",
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"413324",
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"515383",
"567916",
"447983",
"495482",
"94497",
"573138",
"254684",
"391370",
"57211",
... | [
"Co-signing is not the same as owning. If your elderly lady didn't make any payments on the loan, and isn't on the ownership of the car, and there was no agreement that you would pay her anything, then you do not owe either her or her daughter any money. Also the loan is not affecting the daughter's credit, and the... | [
"Co-signing is not the same as owning. If your elderly lady didn't make any payments on the loan, and isn't on the ownership of the car, and there was no agreement that you would pay her anything, then you do not owe either her or her daughter any money. Also the loan is not affecting the daughter's credit, and the... |
6625 | What does a high theta mean for an option position? | [
"88892"
] | [
1
] | [
"572579",
"88892",
"372105",
"480337",
"244448",
"209492",
"243163",
"371621",
"450910",
"536564",
"25080",
"22426",
"455611",
"473015",
"249801",
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"415281",
"131989",
"380672",
"196001",
"421311",
"192721",
"533132",
"581315",
"320184",
"380427",... | [
"Theta is a variable in options pricing. Theta aka time decay decreases over time. The reason of this is that you have to think of the option as insurance. It is a hedge against actual holdings in an asset. Would you pay more or less for insurance that covers you for a year's time, would you pay more or less for in... | [
"Option prices consist of two parts: the intrinsic value (the difference between the strike and the current price of the stock) and a time premium, representing the probability that the stock will end up above the strike for a call (or below for a put). All else being equal, options decline in value as time passe... |
3735 | Shorting Stocks And Margin Account Minimum | [
"330041",
"266900",
"314478"
] | [
1,
1,
1
] | [
"565909",
"32290",
"94062",
"300139",
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"469830",
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"545146",
"333674",
"511093",
"231221",
"247680",
"331606",
"155957",
"190928",... | [
"If this is the initial transaction, the rules of a short margin account say that if you shorted 1000 share of ABC at $5/share your credit balance would be $5000 from the short plus you would have to put up yourself $5000 cash or $10,000 of marginal securities. So this is not really leveraging using margin. You hav... | [
"\"First, you are not exactly \"\"giving\"\" the brokerage $2000. That money is the margin requirement to protect them in the case the stock price rises. If you short 200 shares as in your example and they are holding $6000 from you then they are protected in the event of the stock price increasing to $30/share. So... |
8040 | Best way to make most of savings with ISA and Offset mortgage | [
"523058"
] | [
1
] | [
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... | [
"\"I am not a Financial Advisor, but I an tell you what I did in exactly this situation - which is pretty much what you are proposing. I put money into the offset savings account until I had only a small amount of mortgage \"\"balance\"\" left (less than a year's worth of mortgage payments), then I set it up so th... | [
"\"I am not a Financial Advisor, but I an tell you what I did in exactly this situation - which is pretty much what you are proposing. I put money into the offset savings account until I had only a small amount of mortgage \"\"balance\"\" left (less than a year's worth of mortgage payments), then I set it up so th... |
6005 | Why might it be advisable to keep student debt vs. paying it off quickly? | [
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"I see two advantages to not paying student loan debt off more quickly: For #1, however, there are plenty of other ways to build credit and I don't see this as being worth the downsides of not paying off the debt more quickly. In fact, in the United States student loan debt cannot be written off if you go bankrupt.... | [
"\"There are several ways you can get out of paying your student loans back in the USA: You become disabled and the loan is dismissed once verified by treating doctor or the Social Security Administration. You become a peace officer. You become a teacher; generally K-12, but I have heard from the DOE that teachers ... |
2465 | Can capital expenses for volunteer purposes be deducted from income? | [
"570680",
"81046",
"546509"
] | [
1,
1,
1
] | [
"37382",
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"\"If it's work you'd be producing specifically for this organization, that would not be deductable. Per Publication 526, Charitable Deductions, \"\"You can't deduct the value of your time or services, including: … The value of income lost while you work as an unpaid volunteer for a qualified organization.\"\" On t... | [
"I would suggest to buy your own printer, and calculate the cost for a page including the wear to the printer. Then either deduce these printing expenses, or ask the charity to reimburse you. This is not much different than when you would go to a copyshop, those easily charge 10-30c per page, with your own printer ... |
7592 | few question about debit credit and liabilities | [
"273947"
] | [
1
] | [
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... | [
"\"The terms debit and credit come from double-entry book-keeping. In this system, every transaction is applied against two accounts: it debits one and credits the other by equal amounts. (Or more technically, it affects two or more accounts, and the total of the credits equals the total of the debits.) Whether a d... | [
"\"Exactly what accounts are affected by any given transaction is not a fixed thing. Just for example, in a simple accounting system you might have one account for \"\"stock on hand\"\". In a more complex system you might have this broken out into many accounts for different types of stock, stock in different locat... |
4539 | How should I save money if the real interest rate (after inflation) is negative? | [
"370879",
"275925"
] | [
1,
1
] | [
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"277548",
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"This does not really fit your liquidity requirement but consider buying a one or two room apartment to rent out with part of your savings. You will get income from it and small apartments sell quickly if you do need the money. This will help offset the negative interest from the rest. One downside is that other pe... | [
"Inflation protected securities (i-bonds or TIPS). TIPS stands for Treasury Inflation Protected Securities. By very definition, they tend to protect your savings against inflation. They won't beat inflation, but will keep up with it. TIPS or iBonds have two parts. A fixed interest part and a variable interest por... |
4641 | Where should I park my rainy-day / emergency fund? | [
"44594",
"406219",
"319954",
"397358",
"88327"
] | [
1,
1,
1,
1,
1
] | [
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"583283",
"158670",
"304804... | [
"\"First off, you generally want to park your emergency fund somewhere that is \"\"safe\"\", meaning something that is not subject to market fluctuations. Your emergency fund is something you need to be able to count on when times are tough! That rules out things like stock market investments. Secondly, you need ... | [
"\"First off, you generally want to park your emergency fund somewhere that is \"\"safe\"\", meaning something that is not subject to market fluctuations. Your emergency fund is something you need to be able to count on when times are tough! That rules out things like stock market investments. Secondly, you need ... |
559 | Challenged an apparently bogus credit card charge, what happens now? | [
"246459"
] | [
1
] | [
"360586",
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"176742",
"92463",
"581889",
"531137",
"582064",... | [
"\"Every legitimate claim I've filed regarding fraudulent charges on my card includes signing a legal document. If your \"\"friend\"\" completes such a document and you can verify that it is untrue, he's in deeper trouble than you. Unfortunately, if he's successful in filing a claim that is later proven to be fraud... | [
"Yes. For $15 it's not worth anyone's time to dig deep just for this specific occurrence. What you should do, however, is keep an eye on your credit card bills and accounts and watch for any other suspicious activity. It is possible that your number was stolen somehow and someone is using it fraudulently, so you ... |
4504 | what is the best way of investment which gives returns forever? | [
"2981",
"566458"
] | [
1,
1
] | [
"2981",
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... | [
"\"What is the best way that I can invest money so that I can always get returns? Would it be to set up an FD in a bank, to buy land, to buy a rental house, to buy a field, or maybe to purchase gold? Forever is a long time. Of the options you listed, the only one guaranteed to generate returns is a bank account... | [
"\"What is the best way that I can invest money so that I can always get returns? Would it be to set up an FD in a bank, to buy land, to buy a rental house, to buy a field, or maybe to purchase gold? Forever is a long time. Of the options you listed, the only one guaranteed to generate returns is a bank account... |
3480 | Why is OkPay not allowed in the United States? | [
"53468",
"418352",
"221015",
"75568"
] | [
1,
1,
1,
1
] | [
"221015",
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"117958",
"233001",... | [
"If you read the link that MD-Tech provided, it actually indicates that the foreign companies (mostly banks) are choosing not to work with the United States in their latest answer, so it looks like it's not OkPay, but the financial companies that they use. On further research, the reason that this is banned is to p... | [
"\"The U.S. requires money transfer services to be licensed under 31 USC 5330 in addition to any applicable laws at the state level. According to multiple sources online, including the thread referenced by MD-Tech's answer, OkPay either cannot or will not get a license, so they are out. I dug on this a bit more be... |
3830 | US citizen transferring money to Indian fiance to buy property | [
"54952"
] | [
1
] | [
"54952",
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"391420",
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"198315",
"426216",
"445680",... | [
"A. Kindly avoid taking dollars in form of cash to india unless and until it is an emergency. Once the dollar value is in excess of $10,000, you need to declare the same with Indian customs at the destination. Even though it is not a cumbersome procedure, why unnecessarily undergo all sort of documentation and most... | [
"A. Kindly avoid taking dollars in form of cash to india unless and until it is an emergency. Once the dollar value is in excess of $10,000, you need to declare the same with Indian customs at the destination. Even though it is not a cumbersome procedure, why unnecessarily undergo all sort of documentation and most... |
1670 | Investing in hemp producers in advance of possible legalization in Canada? | [
"290887",
"393898",
"493792"
] | [
1,
1,
1
] | [
"493792",
"26674",
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"295507",
"344641",
"258745",
"396069",
"522325",
"23423",
"22263",
"300703",
... | [
"The legalization of Cannabis will drastically alter supply and demand of cannabis and hemp. The distribution channels that work well for hemp may or may not work well for cannabis and may or may not continue to work well once cannabis is widely available. Companies may have avoided sponsoring hemp products because... | [
"\"It is such a touchy subject for many people, I have to say that simple \"\"set it and forget it\"\" kind of investing isn't likely in the near term. Instead, if this is something you believe in, treat it like any other business opportunity and do some detailed research into people operating in the field. Look i... |
6647 | What is meant by “priced in”? | [
"69790",
"428017",
"462265"
] | [
1,
1,
1
] | [
"462265",
"428017",
"534734",
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"185278",
"116846",
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"\"Priced in just means that the speaker thinks the current price has already taken that factor into account. For example, the difference in price right before and right after a dividend is released often differ exactly by that dividend -- the fact that the dividend would function as a \"\"relate\"\" on the purchas... | [
"Anyone who wants to can use any method they want. Ultimately, the price of the stock will settle on the valuation that people tend to agree on. If you think the priced in numbers are too low, buy the stock as that would mean that its price will go up as the future earnings materialize. If you think it's too high, ... |
5369 | Paying for things on credit and immediately paying them off: any help for credit rating? | [
"171339",
"44223"
] | [
1,
1
] | [
"504293",
"422139",
"572426",
"379892",
"401267",
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"409927",
"550471",
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"532414",
"272890",
"137414",
"349764",
"208909",
"32985",
"434082",
"110953",
"414629",
"290490",
"453074",
"390598",
"551175",
"289463",
"7530... | [
"This is a good idea, but it will barely affect your credit score at all. Credit cards, while a good tool to use for giving a minor boost to your credit score and for purchasing things while also building up rewards with those purchases, aren't very good for building credit. This is because when banks calculate ... | [
"\"One of the factors of a credit score is the \"\"length of time revolving accounts have been established\"\". Having a credit card with any line of credit will help in this regard. The account will age regardless of your use or utilization. If you are having issues with credit limits and no credit history, you ma... |
9126 | Short an option - random assignment? | [
"514831"
] | [
1
] | [
"334473",
"477588",
"469382",
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"362473",
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"253998",
"594303",
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"140371",
"494186",
"314478",
"338782",
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"You can buy a put and exercise it. The ideal option in this case will have little time premium left and very near the money. Who lent you the shares? The person that sold you the option! In reality, when you exercise, assignment can be random, but everything is [supposedly] accounted for as the option seller had ... | [
"\"You've described the process fairly well. It's tough to answer a question that ultimately is 'how is this fair?' It's fair in that it's part of the known risk. And for the fact that it applies to all, pretty equally. In general, this is not very common. (No, I don't have percents handy, I'm just suggesting from... |
2516 | Which banks have cash-deposit machines in Germany? | [
"505678",
"199508",
"446340",
"566602"
] | [
1,
1,
1,
1
] | [
"505678",
"566602",
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"446340",
"278423",
"442503",
"190919",
"143894",
"108390",
"72464",
"119350",
"503362",
"515254",
"367185",
"177714",
"40338",
"547449",
"210821",
"389056",
"91707",
"393467",
"487057",
"413078",
"252978",
"399118",
"276906",
"100498... | [
"\"HypoVereinsbank (member of UniCredit group), a few savings banks (\"\"Sparkasse\"\") and VR Banks offer cash (bill) deposit machines. However, it can take a few business days until the deposit is credited to your checking account, which has to be with the same bank. Google for \"\"Bargeldeinzahlungsautomat\"\" ... | [
"\"HypoVereinsbank (member of UniCredit group), a few savings banks (\"\"Sparkasse\"\") and VR Banks offer cash (bill) deposit machines. However, it can take a few business days until the deposit is credited to your checking account, which has to be with the same bank. Google for \"\"Bargeldeinzahlungsautomat\"\" ... |
3177 | Vanguard ETF vs mutual fund | [
"17208",
"536120",
"268289"
] | [
1,
1,
1
] | [
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"87722",
"200212",
"153660",
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"17208",
"408524",
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"The ETF is likely better in this case. The ETF will generally generate less capital gains taxes along the way. In order to pay off investors who leave a mutual fund, the manager will have to sell the fund's assets. This creates a capital gain, which must be distributed to shareholders at the end of the year. Th... | [
"See my comment for some discussion of why one might choose an identical fund over an ETF. As to why someone would choose the higher cost fund in this instance ... The Admiral Shares version of the fund (VFIAX) has the same expense ratio as the ETF but has a minimum investment of $10K. Some investors may want to ... |
9174 | Which U.S. online discount broker is the best value for money? | [
"431652",
"535317",
"160218",
"544576",
"405217"
] | [
1,
1,
1,
1,
1
] | [
"405217",
"236931",
"358770",
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"129466",
"311202",
"544576",
"597351",
"208296",
"937... | [
"For self-service type online customers, OptionsXpress gives me far better trading features(like technicals advanced conditions) and tools, ACH money management & scheduling, fullfillment too. $9 stock trades. I don't know if they yet share Schwab's (their new parent company?) commission-free ETFs getting so trend... | [
"I agree, Schwab representatives are easy to reach and very helpful. I also like Vanguard for their low mutual fund fees, so I do my retirement stuff with them, but it took forever to get in touch with a representative just to ask a simple question. Now that they are lowering their rates to 8.95 per trade (effectiv... |
7590 | Why are US target retirement funds weighted so heavily towards US stocks? | [
"105165",
"222505"
] | [
1,
1
] | [
"105165",
"222505",
"569834",
"293679",
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"31954",
"7969",
"499166",
"128077",
"186575",
"252918",
"240975",
"330743",
... | [
"\"Excellent question, though any why question can be challenging to answer because it depends on the financial products in question. At least, I haven't seen many target date retirement funds that include a high percent of foreign stocks, so below explains the ones I've seen which are primarily US stocks. The Uni... | [
"\"Excellent question, though any why question can be challenging to answer because it depends on the financial products in question. At least, I haven't seen many target date retirement funds that include a high percent of foreign stocks, so below explains the ones I've seen which are primarily US stocks. The Uni... |
2398 | Frustrated Landlord | [
"118730",
"509391",
"363810",
"224654",
"590489"
] | [
1,
1,
1,
1,
1
] | [
"363810",
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"359177",
"430123",
"389217",
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"588612",
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"593976",
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"372884",
"118730",
"348510",
"44058",
"19837",
"509391",
"1377",
... | [
"\"If you're losing money or breaking even, you own a bad investment. The problem you have is that you are emotionally invested in your tenant. That isn't a bad thing in general but it's costing you money and, unless interest rates fall enough to justify a refi or property taxes go down in your area, that's kind o... | [
"You are not a landlord. You have choices: The current situation is charity. And that's ok, so long as you acknowledge it. In the big picture, anything less than market rent is a gift that you are giving the person living in your house. A good tenant might keep the place in better shape, and deserve a lower rent, ... |
104 | Investing/business with other people's money: How does it work? | [
"575869",
"523158"
] | [
1,
1
] | [
"575869",
"106733",
"405181",
"512609",
"523158",
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"198007",
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"229926",
"469874",
"440898",
"378189",
"32043",
"121590",
"74369",
"393591",
"218139",
"425435... | [
"\"Basically, you either borrow money, or get other people to invest in your business by buying stock or something analogous. Sometimes you can get people to \"\"park\"\" money with you. For example, many people deposit money in a bank checking account. They don't get any interest or other profit from this, they j... | [
"\"Basically, you either borrow money, or get other people to invest in your business by buying stock or something analogous. Sometimes you can get people to \"\"park\"\" money with you. For example, many people deposit money in a bank checking account. They don't get any interest or other profit from this, they j... |
7448 | If an index goes up because an underlying company issues more shares, what happens to the ETF | [
"418150"
] | [
1
] | [
"418150",
"178296",
"275392",
"584836",
"481761",
"480808",
"260305",
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"174583",
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"57387",
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"137478",
"525590",
"307095",
"400841",
"183531",
"93354",
"29184",
"550410",
"400119",
... | [
"If a stock that makes up a big part of the Dow Jones Industrial Average decided to issue a huge number of additional shares, that will make the index go up. At least this is what should happen, since an index is basically a sum of the market cap of the contributing companies. No, indices can have various w... | [
"If a stock that makes up a big part of the Dow Jones Industrial Average decided to issue a huge number of additional shares, that will make the index go up. At least this is what should happen, since an index is basically a sum of the market cap of the contributing companies. No, indices can have various w... |
1090 | Need a formula to determine monthly payments received at time t if I'm reinvesting my returns | [
"518896",
"203091"
] | [
1,
1
] | [
"446454",
"245648",
"19999",
"296146",
"209238",
"395128",
"520217",
"179365",
"349611",
"132950",
"71552",
"16051",
"281329",
"379299",
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"575524",
"478339",
"18939",
"557967",
"198606",
"197336",
"166394",
"214446",
"36405",
"517637",... | [
"The monthly repayments of the initial $ 300,000 loan can be calculated using this formula: source: Finance Formulas The monthly payment is It is not readily apparent how the formula works, but it is derived by induction from this summation, in which the sum of the discounted future payments are set equal to the p... | [
"How does compounding of annual interest work? answers this question. It's not simple compound interest. It's a time value of money calculation similar to mortgage calculations. Only the cash flow is the other way, a 'deposit' instead of 'payment'. When using a finance calculator such as the TI-BA35 (Note, it's no ... |
8072 | What does it mean “sell on ask” , “sell on bid” in stocks? | [
"394244",
"169062",
"31465"
] | [
1,
1,
1
] | [
"31465",
"394244",
"503075",
"183419",
"87065",
"137175",
"284235",
"294522",
"92109",
"164008",
"472537",
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"116846",
"1203",
"169062",
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"373862",
"294867",
"412223",
"580364",
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"184051",
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"557961",
... | [
"\"Honestly, I wonder if the other answerers aren't overthinking it. Their answers are detailed and correct, but what your coach may be saying is this: When you have bought a stock, on cash or margin, and you are watching it rise you are evaluating when you sell on the price of the stock you are seeing. In reality,... | [
"Bid and ask prices are the reigning highest buy price and lowest sell price in the market which doesn't mean one must only buy/sell at thise prices. That said one can buy/sell at whatever price they so wish although doing it at any other price than the bid/ask is usually harder as other market participants will gr... |
5185 | Invest in low cost small cap index funds when saving towards retirement? | [
"210236",
"317354"
] | [
1,
1
] | [
"196992",
"512458",
"580733",
"503725",
"580313",
"268731",
"235917",
"122679",
"513818",
"241202",
"196721",
"376485",
"226298",
"18303",
"596537",
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"7208",
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"369251",
"249097",
"262180",
"312406",
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"545760",
"505993",
"127263",
... | [
"Small cap and mid cap shares tend to outperform large cap shares in a bull market, but they tend to underperform large cap shares in a bear market. Since the stock markets tend to go up in the long term, this suggests that a low cost small and mid cap index ETF should offer the best long term returns. Having sai... | [
"\"I think you're on the right track with that strategy. If you want to learn more about this strategy, I'd recommend \"\"The Intelligent Asset Allocator\"\" by William Bernstein. As for the Über–Tuber portfolio you linked to, my only concern would be that it is diversified in everything except for the short-term b... |
1441 | What's the difference between Market Cap and NAV? | [
"178",
"414940",
"416727",
"471123"
] | [
1,
1,
1,
1
] | [
"471123",
"416727",
"178",
"414940",
"98947",
"345129",
"343120",
"495066",
"192515",
"37558",
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"56894",
"460230",
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"251715",
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"247021",
"93354",
"173262",
"224011",
"135216",
"374602",
"574696",
"138575",
"119819",
"106863",
"412584",
... | [
"\"Market caps is just the share price, multiplied by the number of shares. It doesn't represent any value (if people decide to pay more or less for the shares, the market cap goes up or down). It does represent what people think the company is worth. NAV sounds very much like book value. It basically says \"\"how... | [
"\"At any given moment, one can tally the numbers used for NAV. It's math, and little more. The Market Cap, which as you understand is a result of share value. Share value (stock price) is what the market will pay today for the shares. It's not only based on NAV today, but on future expectations. And expectations a... |
3759 | Simplifying money management | [
"527966",
"67167",
"522358"
] | [
1,
1,
1
] | [
"570071",
"591704",
"455457",
"538410",
"598802",
"584175",
"237483",
"429480",
"261491",
"45718",
"349544",
"372743",
"70558",
"228855",
"309160",
"501150",
"527966",
"281361",
"147163",
"214248",
"418020",
"11979",
"57188",
"338707",
"544175",
"121543",
"578508"... | [
"\"As advised you need to budget, but there are a few simple things you can do to make it easier. Work out how much your fixed bills are every month, for example, council tax, gas and electric, mortgage and rent etc. On pay-day, move an amount of cash equal to this into another bank account when you get paid. It's... | [
"Track your spending and expected income -- on paper, or with a personal-finance program. If you know how much is committed, you know how much is available. Trivial with checks, requires a bit more discipline with credit cards.",
"Many banks will allow you to open multiple accounts. Create a secondary checking a... |
3264 | Pros and Cons of Interest Only Loans | [
"598807",
"134764",
"486525",
"260383"
] | [
1,
1,
1,
1
] | [
"598807",
"260383",
"486525",
"134764",
"453847",
"7243",
"25466",
"462403",
"551485",
"316230",
"315847",
"97044",
"335237",
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"473907",
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"542194",
"22804",
"147806",
"445198",
"317037",
"60176",
"324273",
"373966",
"348927",
"4739",
"216356",
"... | [
"Pros: Cons: Before the housing bubble the conventional wisdom was to buy as much home as you could afford, thereby borrowing as much you can afford. Because variable rates lead to lower mortgages, they were preferred by many as you could buy more house. This of course lead to many people losing their home and m... | [
"Pros: Cons: Before the housing bubble the conventional wisdom was to buy as much home as you could afford, thereby borrowing as much you can afford. Because variable rates lead to lower mortgages, they were preferred by many as you could buy more house. This of course lead to many people losing their home and m... |
9633 | Video recommendation for stock market education | [
"534418",
"585447"
] | [
1,
1
] | [
"534418",
"501189",
"221319",
"573760",
"228598",
"171456",
"263967",
"353048",
"259081",
"423034",
"162884",
"325212",
"436948",
"523310",
"255455",
"85558",
"268926",
"133997",
"136825",
"324860",
"185306",
"270269",
"277140",
"524501",
"484327",
"78249",
"94900... | [
"In general I would recommend to stay away from any video from a successful trader, at least those that claim to share their secrets. If they were that successful, why would they want company? What they have most likely discovered is that they can make more money through videos and seminars than they can through t... | [
"In general I would recommend to stay away from any video from a successful trader, at least those that claim to share their secrets. If they were that successful, why would they want company? What they have most likely discovered is that they can make more money through videos and seminars than they can through t... |
6849 | What do the points in a stock market index epresent? | [
"44601"
] | [
1
] | [
"144005",
"599651",
"214522",
"89192",
"49983",
"274156",
"44601",
"259948",
"361884",
"440123",
"25817",
"501032",
"369762",
"556163",
"232945",
"531357",
"249273",
"253926",
"591546",
"501153",
"428315",
"169754",
"367294",
"345129",
"414470",
"460230",
"14368",... | [
"As I write this, the NASDAQ Composite is at 2790.00, down 6.14 points from yesterday. To calculate the percentage, you take 6.14 and divide by yesterday's close of 2796.14 to yield 0.22%. In your example, if SPY drops from 133.68 to 133.32, you use the difference of -0.36 and divide by the original, i.e. -0.36/133... | [
"The All Ords Index consists of the 500 largest companies by market capitalisation listed on the Australia Stock Exchange. Each stock in the All Ords. Index is given a weighting based on its market capitalisation. As the price of the stocks within the All Ords. Index change, so does the points on the index itself.... |
10601 | Bitcoin Cost Basis Purchases | [
"568064"
] | [
1
] | [
"232311",
"274278",
"14065",
"132219",
"262291",
"231590",
"31863",
"248021",
"380759",
"544752",
"568064",
"435883",
"324916",
"104453",
"465313",
"313270",
"289429",
"357914",
"282208",
"107336",
"111615",
"526823",
"161746",
"256261",
"207316",
"280763",
"59138... | [
"Some personal finance packages can track basis cost of individual purchase lots or fractions thereof. I believe Quicken does, for example. And the mutual funds I'm invested in tell me this when I redeem shares. I can't vouch for who/what would make this visible at times other than sale; I've never had that need. F... | [
"\"As long as the IRS treats bitcoin as property, then whenever you use bitcoin to buy anything you are supposed to consider the capital gain or capital loss. There is no \"\"until it's converted to fiat\"\". You are paying local sales tax and capital gains, or paying local sales tax and reporting capital loss. As ... |
68 | Intentions of Deductible Amount for Small Business | [
"19183"
] | [
1
] | [
"589416",
"545296",
"420254",
"524134",
"444273",
"484231",
"336917",
"97719",
"130631",
"116934",
"347935",
"146657",
"293310",
"378484",
"595765",
"216783",
"381151",
"246461",
"550647",
"54333",
"397152",
"201954",
"550345",
"136850",
"544947",
"447231",
"54180... | [
"Any deductable expense will reduce your taxable income not your tax payable. Your Example 1 above is correct and gives you 100% deduction. It is like having a business where your sales are $100,000 and your expenses in making the sales is $40,000. The expenses are your tax deductions and reduce your profits on whi... | [
"\"If your sole proprietorship losses exceed all other sources of taxable income, then you have what's called a Net Operating Loss (NOL). You will have the option to \"\"carry back\"\" and amend a return you filed in the last 2 years where you owed tax, or you can \"\"carry forward\"\" the losses and decrease your ... |
7178 | Should an ADR that is being delisted be sold off? | [
"401329"
] | [
1
] | [
"401329",
"331296",
"438190",
"404852",
"402332",
"349536",
"146479",
"558240",
"391156",
"490709",
"137117",
"255097",
"596664",
"174245",
"306460",
"350288",
"14781",
"120082",
"471911",
"440370",
"275777",
"165970",
"247870",
"582562",
"265111",
"490170",
"9594... | [
"I'm a bit out of my element here, but my guess is the right way to think about this is: knowing what you do now about the underlying company (NZT), pretend they had never offered ADR shares. Would you buy their foreign listed shares today? Another way of looking at it would be: would you know how to sell the for... | [
"I'm a bit out of my element here, but my guess is the right way to think about this is: knowing what you do now about the underlying company (NZT), pretend they had never offered ADR shares. Would you buy their foreign listed shares today? Another way of looking at it would be: would you know how to sell the for... |
10932 | Transferring money from 403B to 401K? | [
"104134"
] | [
1
] | [
"104134",
"323464",
"89202",
"387876",
"144109",
"529845",
"99921",
"179606",
"401498",
"528522",
"551545",
"599790",
"355373",
"134187",
"63532",
"122114",
"272789",
"192627",
"262322",
"308380",
"217661",
"168890",
"266173",
"79888",
"21311",
"88539",
"361037",
... | [
"\"You can move money from a 403b to a 401k plan, but the question you should ask yourself is whether it is a wise decision. Unless there are specific reasons for wanting to invest in your new employer's 401k (e.g. you can buy your employer's stock at discounted rates within the 401k, and this is a good investment ... | [
"\"You can move money from a 403b to a 401k plan, but the question you should ask yourself is whether it is a wise decision. Unless there are specific reasons for wanting to invest in your new employer's 401k (e.g. you can buy your employer's stock at discounted rates within the 401k, and this is a good investment ... |
6635 | Why don't share prices of a company rise every other Friday when the company buys shares for its own employees? | [
"102449",
"587137",
"3656",
"156358"
] | [
1,
1,
1,
1
] | [
"587137",
"3656",
"102449",
"125298",
"332826",
"178684",
"339443",
"5846",
"83331",
"52185",
"393759",
"91779",
"416919",
"137478",
"333605",
"569224",
"96363",
"261522",
"419697",
"156358",
"432104",
"286527",
"193266",
"287092",
"246690",
"566553",
"48188",
"... | [
"This is an old question that has an accepted answer, but it has gotten bumped due to an edit and the answers given are incorrect. I am assuming this means that every other Friday, the company is going into the open public market, buying those shares and then giving it out to the employees. No. Companies will inter... | [
"Let's take an example: IBM has about 430,000 employees worldwide. Assume the average yearly salary is $80K (it's probably less, since a lot of jobs are offshore). If every employee took 10% of their pay as stock, that's $132 million every two weeks. But IBM's market capitalization is about $153 billion, so stoc... |
588 | Is there a reason to buy a 0% yield bond? | [
"570546",
"203710"
] | [
1,
1
] | [
"203710",
"570546",
"8901",
"439010",
"564496",
"184838",
"583577",
"166885",
"76965",
"519470",
"296980",
"347662",
"343",
"286226",
"304679",
"20354",
"481683",
"130727",
"130201",
"211026",
"2085",
"306679",
"104254",
"574011",
"30324",
"231181",
"482957",
"4... | [
"No, there isn't. There are a number of reasons that institutions buy these bonds but as an individual you're likely better off in a low-yield cash account. By contrast, there would be a reason to hold a low-yield (non-zero) bond rather than an alternative low-yield product.",
"0% bonds are desirable for some ind... | [
"0% bonds are desirable for some individuals. It depends on your situation. 0% bonds are usually sold well below par value (eg a 100$ face value bond for 2020 might sell for 90$ today) Hence, your gains will be CAPITAL GAINS. A similar investment paying interest would be taxed as INCOME, and smaller portion of capi... |
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